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Corporate strategic responses to foreign entry: insights from prospect theory

Thomas Hutzschenreuter (WHU – Otto Beisheim School of Management, Vallendar, Germany)
Ingo Kleindienst (Department of Business Administration, Strategy & Organizational Behaviour, Aarhus University, Aarhus, Denmark)
Florian Groene (WHU – Otto Beisheim School of Management, Vallendar, Germany)
Alain Verbeke (Haskayne School of Business, University of Calgary, Calgary, Canada)

Multinational Business Review

ISSN: 1525-383X

Article publication date: 9 September 2014

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).

Keywords

Acknowledgements

The authors are overwhelmingly sad that Alan passed away and they would like to thank him posthumously for his great support of their work and his excellent editorial guidance while revising this paper.

Citation

Hutzschenreuter, T., Kleindienst, I., Groene, F. and Verbeke, A. (2014), "Corporate strategic responses to foreign entry: insights from prospect theory", Multinational Business Review, Vol. 22 No. 3, pp. 294-323. https://doi.org/10.1108/MBR-06-2014-0026

Publisher

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Emerald Group Publishing Limited

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