Repeat market entries in the internationalization process: The impact of investment motives and corporate capabilities

• Author: Guy L. F. Holburn,Guoliang Frank Jiang,Paul W. Beamish
• Published date: 01 May 2020
• DOI: http://doi.org/10.1002/gsj.1206
• Date: 01 May 2020

RESEARCH ARTICLE

Repeat market entries in the internationalization

process: The impact of investment motives and

corporate capabilities

Guoliang Frank Jiang

1

| Guy L. F. Holburn

2

| Paul W. Beamish

2

1

Sprott School of Business, Carleton University,

Ottawa, Canada

2

Ivey Business School, Western University,

London, Canada

Correspondence

Guoliang Frank Jiang, Sprott School of Business,

Carleton University, 1717 Dunton Tower, 1125

Colonel By Drive, Ottawa, Ontario K1S 5B6,

Canada.

Email: frank.jiang@carleton.ca

Funding information

Social Sciences and Humanities Research Council

of Canada, Grant/Award numbers: Insight

Development Grant (#430-2013-000022)., #430-

2013-000022

Research Summary: This study examines strategic and

resource contingencies that shape MNEs’country loca-

tion choices. Our analysis of overseas production invest-

ments by Japanese firms (1971–2006) finds that

differences in investment motives (i.e., horizontal and

vertical investment) and corporate capabilities

(i.e., marketing and production capabilities) moderate

how prior entries into a host country affect subsequent

entry decisions. In general, the positive impact of prior

entries on investment in a country is weaker for horizon-

tal investments and stronger for vertical investments. A

more nuanced relationship emerges when entry decisions

are analyzed in conjunction with heterogeneous corporate

marketing and production capabilities. The study illus-

trates the novel insights to be gained from analyzing the

joint impact of path dependence, managerial intentions,

and corporate capabilities on country location decisions.

Managerial Summary: Multinational firms often make

multiple investments over time in a concentrated set of

countries, accumulating superior knowledge and capabili-

ties in these environments. Researchers have nonetheless

uncovered factors that can lead firms to deviate from stra-

tegic trajectories defined by their prior investments. In a

statistical analysis of country entry decisions by Japanese

manufacturing firms over a 35-year period, we found that

firms’tendencies to reinvest in the same host countries

were smaller for horizontal (i.e., market-seeking) invest-

ments but greater for vertical (i.e., efficiency-seeking)

investments. We also found that organizational capabili-

ties influence the geographic trajectory of international

expansion: firms with stronger marketing and production

capabilities were less likely to be influenced by the

Received: 3 February 2017 Revised: 21 December 2017 Accepted: 23 December 2017

DOI: 10.1002/gsj.1206

Copyright © 2018 Strategic Management Society

Global Strategy Journal. 2020;10:335–360. wileyonlinelibrary.com/journal/gsj 335

locations of prior entries and were more likely to invest

in new countries.

KEYWORDS

corporate capabilities, foreign direct investment,

investment motives, mixed logit model, repeat market

entries

1|INTRODUCTION

Foreign expansion of multinational enterprises (MNEs) often exhibits path dependence, by which a

firm’s experience with a particular foreign expansion strategy shapes its strategic choices for subse-

quent investments (Eriksson, Majkgard, & Sharma, 2000; Hutzschenreuter, Pedersen, & Volberda,

2007; Johanson & Vahlne, 1977, 1990). Building on a large body of research on path dependence,

scholars have begun to integrate new theoretical perspectives to examine factors that can cause vari-

ation in the internationalization process (Benito & Gripsrud, 1992; Buckley & Casson, 2009;

Delios & Henisz, 2003; Malhotra & Hinings, 2010; Petersen, Pedersen, & Sharma, 2003), including

the role of managerial intentions (Benito, 2015). Hutzschenreuter et al. (2007) maintain that foreign

investment decisions are a function of both path dependence based on knowledge accumulation and

its interactions with managerial intentions. This theoretical approach integrates evolutionary eco-

nomics and organizational learning theory with the traditional strategic choice lens, arguing that

managers take actions to influence organizational structure and policies to adapt to the environment

and to match distinctive competences with business opportunities (Andrews, 1971; Child, 1972;

Hamel & Prahalad, 1989).

An emphasis on the role of managerial intentions in determining a firm’s internationalization tra-

jectory recognizes that strategic choices can deviate from an incremental and sequential approach to

international expansion, providing a more nuanced understanding of foreign investment strategy

(Kalasin, Dussauge, & Rivera-Santos, 2014; McDougall, Shane, & Oviatt, 1994). However, poten-

tial interaction effects between prior investment decisions and managerial intentions remain under-

specified, especially when considering the variety of reasons for foreign direct investment (FDI)

(Cuervo-Cazurra, Narula, & Un, 2015; Dunning & Lundan, 2008). There is little direct evidence as

to how the influence of prior investment decisions may vary depending on the strategic motive

underlying a new investment.

In this study, we focus on one common empirical manifestation of path dependence: MNEs fre-

quently establish new subsidiaries in host countries where they have previously invested (Chang,

1995; Davidson, 1980; Erramilli, 1991; Guillén, 2003; Mudambi, 1998; Tsang, 1999; Yu, 1990).

We develop a conceptual model to empirically test new theoretical insights regarding the interplay

between path dependence and investment motives. Here, investment motives refer to “the reason

that gives an investing firm the impetus for investing abroad”(Makino, Lau, & Yeh, 2002, p. 404).

Our theory development focuses on two broad investment motives, namely horizontal and vertical

investments.

Repeat market entries are frequently attributed to the cumulative nature of organizational learn-

ing: firms tend to search for new strategic alternatives based on their current knowledge, which leads

336 JIANG ET AL.