No Strategy is an Island to Itself: China First-Mover and Other FDI Strategies’ Interaction Effects

No Strategy is an Island to Itself: China First-Mover and Other FDI Strategies’ Interaction Effects

Bradley J. Koch (Grand Valley State University, USA)
DOI: 10.4018/978-1-4666-0276-2.ch013
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Abstract

The first-mover strategy for foreign investment is examined to determine under what conditions a significant effect exists when it is combined with other foreign investment strategies like partner selection, geographical market focus, joint-venture control, and resource commitment strategies. Using official audited data and survey data from Sichuan, the results reveal that there are significant interaction effects. The interaction effects can eliminate first-mover advantage, create a first-mover effect that previously didn’t exist, or change the direction of the effect. Consequently, the author argues that it is better to analyze strategies as a set that is formed by a series of strategic decisions made by managers as they establish foreign joint ventures and wholly owned subsidiaries.
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Introduction

First-mover advantages have become a foundational principle in strategic management by asserting that those firms that act earlier than their competitors obtain a competitive advantage that results in greater profits (Lieberman & Montgomery, 1988, 1998). This concept has been applied not only to the introduction of new products, but also in establishing joint ventures and WFO (Wholly Foreign Owned) in foreign markets. The first-mover strategy has been frequently invoked by firms entering post-socialist nations where first-mover advantages have been asserted to be beneficial in obtaining the best local partner, which leads to increased market share and profits. This enthusiasm for the first-mover strategy has led researchers to begin to question whether merely being the first to enter a market is in of itself sufficient to produce the desired advantages, or whether it must be combined with specific firm attributes (e.g. Schoenecker & Cooper, 1998), competitors’ responses (Ketchen, 2004; Lambkin, 1988), market environments (e.g. Luo & Park, 2001; Gaba, Pan, & Ungson, 2002, Sarkar, Cavusgil, Tamer, & Aulakh, 1999), or other strategies (e.g. Mitchell, 1989; Pan, Li, & Tse, 1999; Zhao & Luo, 2002) to be beneficial.

Despite an increased interest on how the first-mover strategy interacts with other strategies, a systematic examination is needed to determine first-mover effects as it is combined with other foreign investment strategies. This study intends to fill this gap by analyzing how the first-mover strategy interacts with partner selection strategies, geographical market strategies, joint-venture control strategies, and resource commitment strategies across three performance measures. The goal of this analysis is to identify the conditions under which there is a first-mover advantage in foreign investment by examining how the first-mover strategy interacts with other foreign investment strategies.

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