Corporate strategic responses to foreign entry: insights from prospect theory. Issue 3 (9th September 2014)

• Record Type: Journal Article
• Authors: Hutzschenreuter, Thomas; Kleindienst, Ingo; Groene, Florian; Verbeke, Alain
• Editors: Casson, Mark
• Is Part Of: Multinational business review. Volume 22:Issue 3(2014)
• Page Start: 294
• Page End: 323
• Publication Date: 2014-09-09
• Subjects: Prospect theory -- International diversification -- Product diversification -- Foreign competition -- Strategic response; International business enterprises -- Periodicals; International business enterprises -- Accounting -- Periodicals; International business enterprises -- Management -- Periodicals; Comparative accounting -- Periodicals; Comparative management -- Periodicals; 338.88
• DOI: 10.1108/MBR-06-2014-0026
• Languages: English
• ISSNs: 1525-383X

Abstract

Abstract : Purpose: – The purpose of this paper is to address how firms adapt their product and geographic diversification as a response to foreign rivals penetrating their domestic market by adopting a behavioral perspective to understand firm-level strategic responses to foreign entry. Design/methodology/approach: – The study proposes that strategic responses to foreign entry selected by domestic incumbents have both a framing component and a related, strategic choice component, with the latter including changes in product and geographic market diversification (though other more business strategy-related responses are also possible, e.g. in product pricing and marketing). This study tests a set of hypotheses building on panel data of large US firms. Findings: – The study finds, in accordance with our predictions, that domestic incumbents reduce their product and geographic diversification when facing an increase in import penetration. However, when increased market penetration by foreign firms takes the form of FDI rather than imports, the corporate response appears to be an increase in product and geographic diversification, again in line with our predictions. Originality/value: – The study develops a new conceptual framework that is grounded in prospect theory, but builds on recent insights from mainstream international strategic management studies (Bowen and Wiersema, 2005; Wiersema and Bowen, 2008).