International Expansion Strategies of Korean Venture Firms: Entry Mode Choice and Performance
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International Expansion Strategies of Korean Venture Firms: Entry Mode Choice and Performance Jay Hyuk Rhee Korea University Business School, Anam-dong, Sungbuk-gu, Seoul, Korea. E-mail: [email protected]
This study seeks to advance the state of our theoretical as well as empirical understanding of the determinants of entry mode choice and internationalization performance of new ventures. Based on three leading theoretical perspectives — transaction costs, social networks and absorptive capacity — we develop hypotheses focusing on the role of technology-based advantage, the social networks of start-up team members and the absorptive capacity of employees in predicting entry mode choice and new venture internationalization performance. Using data on the internationalization of new Korean ventures, we find evidence that social network and absorptive capacity theories have considerable explanatory power beyond that of transaction cost theory in predicting entry mode choice and the internationalization performance of new ventures. Asian Business & Management (2008) 7, 95–114. doi:10.1057/palgrave.abm.9200246 Keywords: entry mode; performance; new venture; transaction costs; social networks; absorptive capacity
Introduction As the terms ‘accelerated internationalization’ (Oviatt and McDougall, 1997; Shrader et al., 2000) and ‘born-global’ (Hordes et al., 1995; Knight and Cavusgil, 1996; Madsen and Servais, 1997) indicate, many new ventures begin to operate beyond their national borders right after they are ‘born’ or while they are still ‘new’. In doing so, they are likely to face a double-edged sword: the liabilities of newness and foreignness. Operating as a young organization, a new venture faces the liability of newness not shared by established firms with a long operational history (Stinchcombe, 1965); by expanding abroad and operating in unfamiliar environments, it also faces the liability of foreignness not shared by incumbent firms (Hymer, 1976; Johanson and Vahlne, 1977). Thus, knowing how to penetrate and survive in foreign markets is critical for Received 26 February 2007; revised 4 June 2007; accepted 15 August 2007
Jay Hyuk Rhee International Expansion Strategies of Korean Venture Firms
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new-venture internationalization. Indeed, entry mode choice is one of the most important strategic concerns for firms considering international expansion, because it determines the level of resource commitment. Not surprisingly, entry mode choice has been a topic of considerable inquiry in the field of international management (Brown et al., 2003), but the issue has usually been discussed and empirically tested within the context of established firms such as multinational corporations, rather than new ventures. With the exception of a few studies to be discussed in detail in the following section, most studies that have investigated the issue of entry mode choice by new ventures have provided only descriptive information on the chosen entry modes. However, investigating entry mode choices in a more systematic way in
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