Imitation and speed of the internationalisation process: an analysis of market selection process

Imitation and Speed of the Internationalization Process: An Analysis of Market Selection Process ABSTRACT The role of speed in the internationalisation process of firms is increasingly becoming an important research question for international business scholars. In this regard, prior research raised the importance of experiential knowledge for understanding internationalisation speed, but neglected other sources of knowledge acquisition in the internationalisation process. This paper addresses this gap by examining the impact of inter-organizational imitation on the speed at which firms locate their operations in foreign markets. The empirical analysis is based on a sample of 479 Spanish international firms covering a 23-year period (1986–2008). The results show that a higher number of prior entries carried out by firms from the same industry and home country accelerated the speed of international operations. Besides, the results reveal a curvilinear relationship between the number of prior entries and the speed of locating operations in targeted foreign markets. The results suggest that the impact of imitation on the speed of international operations decreases when the targeted foreign market becomes less attractive due to saturation. Keywords: internationalisation of firms; speed; international operations, imitation, industry, home country 1. INTRODUCTION The impacts of various international knowledge acquisition strategies on the internationalisation process of firms are well documented in the literature (Andersen, 1993; De Clerq, Honig & Martin, 2013; Casillas, Barbero & Sapienza, 2015). Surprisingly, there are relatively few studies exploring the role of imitative behaviour in the temporal dimension of internationalisation of firms. As a dynamic phenomenon (Bilkey & Tesar, 1977; Johanson & Vahlne, 1990), the concept of time is at the core of internationalisation process (Buckley & Casson, 1981; Melin, 1992). However, the temporality of internationalisation did not receive sufficient explicit considerations in the International Business (IB) literature (Eden, 2009; Welch & Paavilainen-Mäntymäki, 2014) until the emergence of the International Entrepreneurship (IE) stream of research (Oviatt & McDougall, 1994; Jones & Coviello, 2005). In the context of IE, speed has been generally defined as the time that elapses between the foundation of the firm and its first international activities (Acedo & Jones, 2007). However, conceptualising internationalisation speed in this way is limited because it does not fully explain the firms' behaviour beyond the initial entry (Autio, Sapienza & Almeida, 2000; Sleuwaegen & Onkelinx, 2014; Meschi, Ricard & Moore, 2017; Zahoor & Al-Tabbaa, 2021). In other words, by focusing on the new ventures that internationalise shortly after their foundations, this definition fails to capture the speed of internationalisation once the process is underway. As a result, scholars have offered definitions that consider the different phases of internationalisation speed (Casillas & Acedo, 2013; Chetty, Johanson & Martin, 2014). Thus, building on these insights, we refer to the internationalisation speed as the difference between two consecutive international operations (Casillas & Moreno-Menendez, 2014). This way of conceptualising it is fitting because it explains the duration between any focal and subsequent operations in a foreign market. On this basis, we can respond to an increasing call for more research on the antecedents of internationalisation speed once the process has begun (Rhee, Kim & Han, 2006; Hilmersson & Johanson, 2016; Mohr & Batsakis, 2017). Research has raised the importance of experiential knowledge in understanding the speed of firm internationalisation (Nadolska & Barkema, 2007; Hilmersson & Jansson, 2012). This is grounded in the Uppsala Model (U-Model), which posits knowledge as the main factor underlying the internationalisation process of firms (Johanson & Vahlne, 1977; Forsgren, 2000). More precisely, the model proposes a knowledge-commitment mechanism, whereby the duration between an event and the subsequent operations depends on experiential knowledge. The firm’s current knowledge determines its level of commitment in a foreign market. Therefore, if there is no change in a firm’s knowledge base, there will be no change in its level of foreign commitment. Prior evidence shows that experiential knowledge acquired through selections of foreign markets and modes of operations increases the speed of the internationalisation process of multinational enterprises (Casillas & Moreno-Menendez, 2014). Similarly, Chen and Yeh (2012) find that the more foreign direct investment experience firms accumulate, the faster their investment pace. Vermeulen and Barkema (2002) suggest that the capacity for absorbing and transforming prior experiences into knowledge and in turn, applying it throughout the organization, affects the pace of subsequent international expansions of firms. Even though experiential knowledge remains a critical antecedent of the internationalisation process and its speed, research shows that the sources for new knowledge are diverse (Fletcher & Harris, 2012. In fact, experiential knowledge is internally constrained, time-consuming, and requires specific learning capabilities (Cyert & March, 1963; Lieberman & Asaba, 2006). Casillas et al. (2009) highlighted the importance of considering external sources of knowledge in the internationalisation process of firms. Similarly, with the increasing relevance of external knowledge, the traditional sequential approaches were revised allowing for alternative ways of developing new knowledge beyond the experiential acquisition methods (Johanson & Vahlne, 2009). Even though the relevance of external knowledge is widely supported theoretically, it is only recently that scholars started exploring its impacts on the internationalisation speed of firms (Hutzschenreuter, Kleindienst, Guenther & Hammes, 2016). However, we noticed that these studies mainly focused on network ties and grafting (Musteen, Francis & Datta, 2010; Hilmersson & Johanson, 2020). Notwithstanding the significant contributions of these studies, it is surprising that the impact of imitative behaviour on internationalisation speed has not been explicitly documented in the literature. We, therefore, fill this research gap by answering the following question: To what extent and under what conditions does imitation influence the internationalisation speed of established firms? Our study complements earlier research that emphasized the role of the external environment in the internationalisation of firms (DiMaggio & Powell, 1983; Guillén, 2002). Organizational learning literature shows that firms can obtain new knowledge critical to shaping and formulating internationalisation decisions by imitating the prior strategic actions of other firms (Bastos & Greve, 2003). Imitation is a vital tool for mitigating uncertainty (Brouthers, O' Donnell & Hadjimarcou, 2005), responding to rivals' actions (Haunschild, 1993), and securing legitimacy (Haunschild & Miner 1997). Although evidence shows that imitation positively influences the internationalisation process in general, this research mainly considers the roles of imitation on niche-width strategy (Rhee, Kim & Han, 2006); network relationship (Oehme & Bort, 2015); and industry (Guillén, 2002). Thus, we contribute to this research stream by exploring how imitative behaviours help firms achieve a faster internationalisation process. We build on the information-based imitation, which suggests firms tend to imitate peers they believed to have more information about the outcome of strategic actions when uncertainty is high (Delios, Gaur, & Makino, 2008; Pitsakis & Giachetti, 2020). On this basis of an overall positive effect of this form of inter-organisational imitation on the internationalisation of firms, our study contributes to the literature in several ways. First, research has begun to explore how the practices adopted by a large number of firms (frequency-based imitation) affect the international behaviour of firms (Haunschild & Miner, 1997; Henisz & Delios, 2001). Firms look within their immediate environment in search of information and practices frequently used by other firms (Tolbert & Zucker, 1996; Guillén, 2002). We contribute to this research stream by studying how the need for information and quest for legitimacy among firms from the same industry and home country accelerate the speed at which firms locate their operations in foreign markets. Second, as experiential knowledge is costly and not always readily available, our study confirms that information acquired through imitation can improve the international knowledge base of firms. Therefore, we contribute to prior studies highlighting the benefits of external knowledge sources in the internationalisation process of firms. Third, even though the environments where firms operate as well as the number of firms operating in a given foreign market facilitate imitation, our study shows that this effect peaks at a certain threshold, beyond which the internationalisation speed slows down. This suggests that the impact of imitation on the speed of international operations decreases when the targeted foreign market becomes less attractive due to saturation. Our paper is structured as follows. In Section 2, we present a literature review, highlighting the role of knowledge in general and imitation, in particular, on the internationalisation process of firms. In Section 3, we develop our hypotheses; whereas, in Section 4, we present our data sample. In Section 5, we describe the analytical method used in this study; and in Section 6, we present the results of the empirical analysis. Finally, in Section 7, we discuss the results and provide future research directions. 2. THEORETICAL FRAMEWORK The role of speed in the internationalisation process of firms is increasingly becoming an important research question for IB scholars (Casillas & Acedo, 2013; Kabongo & Okpara, 2019; Freixanet & Renart, 2020; Fletcher, Harris & Richey, 2021). Among the determinants of internationalisation speed, knowledge is at the core of the process (Vermeulen & Barkema, 2002; Casillas, Barbero & Sapienza, 2015; Hilmersson & Johanson, 2020). For example, in the U-Model, experiential knowledge largely explains the time it takes a firm to reach a targeted international event. In this regard, firms with the necessary knowledge are most likely to internationalise faster than others lacking it (Eden, 2009). For example, Nadolska and Barkema (2007) find that the speed and success of foreign acquisitions depend on a firm’s ability to learn what part of its knowledge about national cultures and entry modes can effectively be applied to new settings. Similarly, Chetty, Johanson, and Martín (2014) argue that the more experiential knowledge a firm acquired during a specific period, the higher its speed of internationalisation. Even though the role of experiential knowledge is largely undebatable, (Johanson & Wiedersheim-Paul, 1975), ample studies show that knowledge obtained by observing other firms’ actions may affect internationalisation activities (Fletcher & Harris, 2011; Umemura & Slater, 2021). Given the dynamics of the global business environment and the rapidity of change, experiential knowledge may not always be sufficient to offset the uncertainty associated with international operations. Jiang, Holburn, and Beamish (2014) suggest that the tendency of learning by observing the actions of other companies is high because experiential knowledge is not always available to inform and guide internationalisation decisions of firms. Moreover, the international market provides an environment where firms can learn by observing the actions of other firms (Levitt & March, 1988; Huber, 1991). This is supported by the neo-institutional theorists who suggest that “in times of uncertainty, firms are more likely to look to visible and comparable firms in their environments in order to interpret their own situations and act accordingly” (Fernhaber, McDougall-Covin & Shepherd, 2009: 303). Besides, the imitation of other firms’ actions is a vital tool for developing foreign market strategies since they provide information for evaluating risk and opportunities in unfamiliar environments (Oehme & Bort, 2015). In this study, therefore, we focus on the informationbased imitation to explore the impacts of frequency-based as well as reference-based imitations on the internationalisation speed of firms. 2.1.Imitation and Internationalisation Process of Firms Inter-organisational imitation occurs "when one or more organization's use of a practice increases the likelihood of that practice being used by other organizations" (Haunschild & Miner, 1997: 472). Studies on inter-organizational imitation draw mainly on two related traditions. On one hand, the neo-institutional theorists highlight institutional isomorphic pressure, whereby an organization adopts the prior actions of other organizations facing the same set of environmental characteristics (DiMaggio & Powell, 1983). On the other hand, organizational learning theorists advocate that firms learn by imitating specific routines or procedures of other firms (Cyert & March, 1963; Huber, 1991). Taken together, both streams of research emphasize the importance of adapting to one’s external environment to reduce uncertainties and remain viable (Fernhaber & Li, 2010). The international expansion is a central strategic decision of firms (Forsgren, 2002; Eduardsen & Marinova, 2020). Foreign markets are characterised by various factors such as structures, compositions, formal and informal institutional differences (Barkema, Bell & Pennings, 1996). Thus, firms approaching foreign markets are often confronted by risks and uncertainty associated with the liability of foreignness. In the U-Model, this liability is closely tied to psychic distance. That is, the factors preventing or disturbing the flow of information between a home market and the host market. It makes learning about and understanding a foreign market environment difficult (Vahlne & Wiedersheim-Paul, 1973; Yan, Hu & Liu, 2020). The greater the difference, the more uncertain and riskier it is for firms entering foreign markets. This explains the logic behind the incremental and gradual process predicted by the model whereby firms invest in foreign markets with similar legal and administrative structures (Coeurderoy & Murray, 2008). There is ample evidence supporting the role of imitation in facilitating the internationalisation process of firms (Delios, Gaur, & Makino, 2008). In this study, we followed previous institutional theory literature to conceptualise imitation as a practice, whereby a firm observes the number of prior foreign market entries made by other firms from the same industry and home country (Guillen, 2003; Henisz & Delios, 2001). In the face of uncertainty, Semadeni and Anderson (2010) argue that firms may be less confident in the effectiveness of their internal information, doubting the outcome of acting on it, and thus, more likely to imitate. Likewise, Lieberman and Asaba (2006) highlight that firms tend to imitate each other in an environment where they cannot assess connections between actions and outcomes with great confidence. In other words, learning from the past market entries of other firms can reduce uncertainty and improve the legitimacy of pursuing international opportunities. This form of interorganisational imitation corresponds to the information-based imitation, whereby a firm imitates others that are perceived to be possessing superior information and exhibiting legitimate practices (Delios, Gaur & Makino, 2008). Although it appears ritualistic, the information-based imitation can be rational because it enables firms to economise on search costs by assuming that other peers are confronted with similar uncertain environmental constraints (Cyert & March, 1963; Greve, 1996). What’s more, research suggests that factors in the vicinity or environment where a firm operates heavily shape its imitation propensity. In such environments, internationalising firms, first and foremost, gather information by observing the actions of other firms as it allows them to better learn about the foreign markets (Levitt & March, 1988). However, due to the effect of bounded rationality, firms cannot observe every relevant firm (Cyert & March, 1963). Studies suggest that firms set boundaries by focusing on frames of reference such as industry (Guillen, 2002) and country of origin (Li, Miller, & Eden, 2012). In the former, when faced with uncertainty, firms expanding into new foreign markets turn to the actions of other firms in the same industry as sources of information and legitimacy. Research shows that industry is one of the main organizational fields fostering imitation (Haveman, 1993; Aarstad, Ness, Haugland, & Kvitastein, 2018). In the latter, firms originating from the same home country are likely to face similar challenges linked to unfamiliar local regulations and lack of legitimacy in the host country. Therefore, they are likely to imitate the prior entries of other peers to gain legitimacy and reduce uncertainty. Since firms benchmark their internal processes and performance against similar others (Porac and Rosa, 1996), they consider information they gathered from peers in the same industry and from same home country as highly relevant to guiding and formulating their market entry strategy. In addition to observing the actions of peers in the same industry or from country of origin, firms pay close attention to the frequency with which such actions occur. Frequencybased imitation involves imitating practices that have been adopted by a large number of firms (Haunschild & Miner, 1997). In other words, firms observe and follow prior foreign market entries that have been adopted frequently by other firms from the same industry or home country. Taken together, the basic assumption of our investigation is that the imitative behaviours, that is, prior market entries conducted by a large number of other firms from the same industry and home country, can accelerate the speed at which a firm located its operations in given foreign markets. 3. HYPOTHESES DEVELOPMENT 3.1.Industry, Imitation, and Speed of Internationalisation Uncertainty promotes social behaviour, whereby firms are influenced by the actions of other firms in their immediate vicinity (Henisz & Delios, 2001; Gaba, Pan, & Ungson, 2002). Lieberman and Asaba (2006: 373) argue that “in highly uncertain environments, where quick action is necessary, imitating others becomes an attractive decision rule.” The past behaviours of actors in an immediate organisational environment such as industry promote imitation (DiMaggio & Powell, 1983). Industry facilitates the flow of information and legitimacy (Haveman 1993). It provides "pools of information about the characteristics and behaviour of firms” (Porac & Rosa 1996: 370). As mentioned above, such an organizational field enables firms to mutually observe and recognise each other’s presence and actions (Tolbert & Zucker, 1996; Guillén, 2002). For example, firms intending to expand their international operations can imitate and follow other firms from the same industry, especially when they are uncertain about the foreign market locations. Prior evidence shows that UK automobile manufacturers tend to imitate other manufacturers that are similar (Rhee, Kim & Han, 2006). Likewise, in a study of the German biotechnology industry, Oehme and Bort (2015) find that imitation of other firms serves as a convenient low-risk shortcut to a planned or experience-driven internationalisation process. However, the propensity of industry-based imitation is higher when the focal actions have been adopted by a large number of other firms (Fernhaber & Li, 2010). Firms imitate practices that a large number of other firms have adopted because it enhances legitimacy (DiMaggio & Powell, 1983; Haunschild & Miner, 1997). Lieberman and Asaba (2006: 372) argue that legitimation is an important concept, “where once a threshold number of model actions occur, this institutionalises, or legitimises, the action and leads to further imitation.” Frequent adoption of a given practice creates more information and consequently leads to more adoption by other firms (Rogers, 1995). Accordingly, we expect a firm imitating prior market entries endorsed by a large number of other firms from the same industry to accelerate the speed at which it locates its international operations in a given market (Henisz & Delios, 2001; Guillén, 2002). Thus, we posit our first hypothesis: Hypothesis 1: The speed of locating an international operation in a given market will be higher the greater the number of prior entries by other firms from the same industry. 3.2. Home Country, Imitation, and Speed of Internationalisation In addition to imitating the prior actions of other peers from the same industry, internationalising firms can observe and follow other firms from the home country into a given foreign market. There are several reasons to expect this form of imitation. For example, in the case of host country barriers, firms can gather information from prior market entries of homecountry peers. Prior studies show that host country factors such as dissimilarity in legislations, institutions, political situation, cultural distance, regulation, especially tariffs and customs regulations can increase uncertainty (Barkema, Bell, & Pennings, 1996; Elango, 2003). However, firms can mitigate this uncertainty by obtaining relevant information and legitimacy from home country peers. In other words, since these firms face similar host-country challenges, thus, they are more likely to pay close attention to the actions of each other and consequently, use acquired information to guide or enhance their foreign market entry decisions. Evidence from South Korea shows that imitation among firms from the same home country increases the rate of foreign expansion (Guillen, 2002). Similarly, Henisz and Delios (2001) find similar results for Japanese firms. Li, Miller, and Eden (2012) find that emerging market firms imitate prior home country entries when expanding into developed markets. Again, the frequency of these actions further promotes the imitation propensity. Based on the above assumption and evidence, we expect a firm imitating prior market entries adopted by a large number of other firms from the same home country to accelerate the speed at which it locates its international operations in a given market Hypothesis 2: The speed of locating an international operation in a given market will be higher the greater the number of prior entries by other firms from the same home country. 3.3.Market Opportunity, Imitation and Speed of Internationalisation Information plays a pivotal role in the discovery of new market opportunities, especially in today's knowledge-driven business environment. When firms lack information about the availability of opportunities in a certain market, they tend to postpone their entry decisions or internationalise with great caution until they have the required knowledge. For example, a firm approaching a given foreign market may be uncertain whether the opportunity is gone. Under such a condition, Gaba, Pan, and Ungson (2002) argue that “firms use the behaviour of other firms as a justification of their own behaviour. When many firms are observed as investing in an overseas market, hitherto non-entrants infer from their competitors' behaviour that such entry is profitable." In other words, a firm intending to exploit opportunities in a given foreign market may infer pertinent informational cues by observing the prior actions of other firms (Greve, 1996; Lieberman & Asaba, 2006). Such cues not only are beneficial for the market opportunity discovery but also the speed at which a firm enters the targeted market (Henisz & Delios 2001; Fernhaber & Li, 2010). This is consistent with the two previous hypotheses proposed above. In other words, firms from the same industry and home country can imitate and follow their peers to a given foreign market to exploit new opportunities. Despite the overall positive effect expected, Guillén (2002) argues that the proportion of firms in a given location can influence the rate at which subsequent entrants locate their operations in such a foreign market. At the initial phase, the increasing number of entrants points to potential international opportunities that a firm can exploit. In other words, such signals provide information, which promotes imitation as well as accelerates the speed at which subsequent firms locate their international operations in a given market. Scholars argue that such information “lowers the cost of entry for subsequent firms, making the area relatively more attractive for investment by similar firms” (Fernhaber, Gilbert & McDougall, 2008). Nonetheless, this effect peaks at a certain threshold, thereby slowing the speed. In other words, beyond a certain threshold, the focal market becomes less attractive due to saturation, consequently, the speed of locating operations therein by subsequent firms will slow down. On this basis, we hypothesize that: Hypothesis 3: There is a curvilinear relationship between the number of prior entries and the speed of locating an international operation in a given market (U-shaped). 4. METHODOLOGY 4.1.Sample To test the hypotheses, we used the Systematic Database of the International Operations of Spanish Firms – Base Sistematica de Datos sobre las Operaciones Internacionales de Empresas Españolas (Guillen and García-Canal, 2007). The database was compiled for the Spanish Institute of Foreign Commerce (ICEX) to capture international operations, defined as an extension of the geographical scope of a company to a location outside Spain. The international operations included in the database are international acquisition operations, the creation of subsidiaries, joint ventures, participation in competitions and tenders, strategic alliances, and the award of concessions from local authorities. The database contained a total of 8,973 international business operations of 2,495 Spanish firms from 1986 – 2008. The timespan reflects the period Spain joined the European Community and intensively opened up its economy to the international markets. The database was generated from four different sources. First, from articles and clippings collected from economic journals and major media houses in Spain; second from firm profiles recorded in the ICEX journal El Exportador; third from the registers of the National Stock Market Commission [Comisión Nacional del Mercado de Valores (CNMV)] for firms listed on the stock exchange. Finally, the web pages of the firms were used to triangulate and corroborate the data (for additional information see Guillen and García-Canal, 2007; Guillen 2009). The database was complemented with the information collected from the SABI (Sistema de Análisis de Balances Ibéricos), a database from Bureau van Dijk Bureau that contains economic and financial information on Spanish firms. From the total database, we focused only on corporations (and not business units) to capture the potential learning process among subsidiaries. Consequently, we included the international operations listed above. However, we eliminated national firms without international operations and firms that engaged in mere financial operations in foreign countries. Following Fuenteslaz, Gomez, and Polo's (2002) model, we treated the cases of mergers and acquisitions (M&A) to account for experience gained before the date of the M&A. Furthermore, we focused on firms with at least two international operations which reduced the sample from 8,973 to 6,762 international business operations and the firms from 2,495 to 479 Spanish firms. We considered the number of employees at the date of each operation and found that large firms (500 employees and more) represent more than half of the international operations in the sample. The 23-year period (1986 – 2008) that the database covered allows us to carry out a longitudinal analysis that captured the speed between two consecutive international operations (Jones & Coviello, 2005). The descriptive characteristics of the sample are shown in Table 1a. 4.2.Measurement and Characteristics Dependent Variable Given that the objective of this study is to analyse how imitative actions affect the speed of internationalisation process, the dependent variable is the speed at which a firm i locates an international operation in a focal market k. Following prior studies (Guillen, 2002; Casillas and Moreno, 2014), we measured this variable as the number of days between two consecutive international operations – that is, the focal operation and the immediately prior operation of the same firm. This approach allows us to capture the duration of the events: the shorter, the time (in days), the faster the speed of occurrence of the failure (international operation). Thus, an increase in imitative actions will lead to a decrease in the time it takes a firm i to locate an international operation in a focal market k. Consequently, when interpreting the results, the signs and shapes of coefficients should be interpreted inversely (Schu, Morschett & Swoboda, 2016). Independent Variables Following previous studies (Haunschild & Miner, 1997; Henisz & Delios, 2001; Guillen, 2003), the independent variables (imitative actions) are the number of prior entries made by other firms from the same industry and home country. 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