Learning about Foreign Markets: Are Entrant Firms Exposed to a “Shock Effect”?

By Torben Pedersen, Bent Petersen. 2004

135 citations recorded by the source corpus.

This study addresses how managers’ perceived familiarity with local markets develops during a period of entry or expansion. The authors derive different predictions of how foreign-market familiarity changes during periods of entry from the internationalization process literature. They then subject the predictions to an empirical examination, using a data set that covers foreign business operations as reported by managers of international firms from small, open economies (Denmark, Sweden, and New Zealand). In addition to addressing these predictions, the empirical study gives insight into the incidence and character of “shock effects” in foreign-market entries. The effects are evident in managers’ inclination to underestimate differences between the home and host countries in terms of business environments. The data support the supposition that, in general, managers of entrant firms experience these shock effects. For example, the authors find the lowest level of market familiarity among managers of entrant firms that are in the eighth year after entry or initiation of foreign-market expansion. The company data indicate that, in general, managers of entrant firms experience shock effects in relation to entry into adjacent but not into distant countries. Thus, the hypothesis of the psychic-distance paradox that the authors put forward is supported. Entrant firms also experience shock effects with respect to the acquisition of tacit rather than explicit knowledge; furthermore, the data suggest that shock effects befall producers of customized products but not producers of standardized products.

Subfields: Accounting, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/377ea5b8dba9d4796044b79b7193a3baa283a645

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Citations in the corpus

The Concept of Distance in International Business Research: A Review and Research Agenda (2016, unknown): “Thus, a lack of distance, i.e. closeness, may entail problems (Fenwick et al. 2003), simply because similarities between close countries are subject to overestimation (Pedersen and Petersen 2004), and small but pivotal differences tend to be ignored (Evans et al. 2008).”
The Antecedents of Psychic Distance (2010, background): “The fact that such perceptions are not symmetrical suggests that the ‘psychic overconfidence’ may be a more important issue for firms from some countries than from others (Evans & Mavondo, 2002; Fenwick, Edwards & Buckley, 2003; Pedersen and Petersen, 2004).”
A Process-Based Explanation of the Psychic Distance Paradox: Evidence from Global Virtual Teams (2014, background): “Prior research (e.g., Evans and Mavondo 2002; O’Grady and Lane 1996; Pedersen and Petersen 2004) had speculated that psychic distance may prompt firms to do more research, use more caution, and plan more, i.e., try harder, but empirical evidence substantiating such arguments has been missing.”
Added Psychic Distance Stimuli and MNE Performance: Performance Effects of Added Cultural, Governance, Geographic, and Economic Distance in MNEs' International Expansion (2014, unknown): “Allocating less attention and, as a result, being less aware of such differences is likely to lead the firm to underestimate the differences in such implicit and tacit dimensions like, for example, culture, and its impact on interpersonal interactions (Pedersen and Petersen, 2004).”
Learning to internationalise: the pace and success of foreign acquisitions (2007, background): “…it is important for internationalising companies to learn to increase the likelihood of success abroad (Barkema et al., 1996; Delios and Beamish, 2001; Lu and Beamish, 2004; Pedersen and Petersen, 2004; Uhlenbruck, 2004), but this argument has received mixed support in the domain of acquisitions.”
Operationalizing Psychic Distance: A Revised Approach (2007, background): “Indeed, “familiarity” is a common psychic distance term in the literature (Bell 1995; Dunning 2003; Pedersen and Petersen 2004).”