Institutional Change and Foreign Market Entry Behaviour of the Firm A Longitudinal Study of Three Swedish Firms in China
Abstract: China’s status as the world’s top destination for foreign direct investment and the largest trading nation is likely to attract more international firms seeking market entrance, and increase the speed of expansion by those already present in the market. Its progress in reaching this point has been accompanied by significant changes in laws and regulations. This study sets out to understand the events of foreign market entry to emerging markets experiencing recurring changes in laws and regulations, and asks the research question: How may institutional change in the host market influence the market entry behaviour of the firm over time?Based on retrospective longitudinal case studies of DeLaval, Elekta and Höganäs from 1980 to 2010, the findings show that institutional change taking place in the host market plays a signal role that enables firms to recognise the availability and accessibility of market opportunity. Firms also make market commitment accordingly to capture the market opportunity recognised. Additionally, institutional change comes in different forms (transitional change and turbulent change), and plays out differently in various industries and at various points in time. They also have varying influences on market opportunity in terms of the source through which it is recognised (structural opportunity and relational opportunity), and the direction in which market commitment is made (commitment toward the host market, relationships, and organisational integration).Furthermore, depending on the point in time, the relations among institutional change, market opportunity, and market commitment may change. While a consistent level of institutional change encourages firms to recognise structural opportunity, the escalation of institutional change over time seems to influence firms to form stronger relationship commitment with local actors and leads to stronger recognition of relational opportunity.This study’s findings imply that recurring institutional changes in emerging markets have an overarching impact on foreign market entry of the firm, and needs to be understood from a long-term perspective. Foreign firms that have acquired experience in emerging markets over time face less of a threat from ongoing institutional changes. Actively engaging in the host market and remaining alert to information from various sources will enable firms to recognise market opportunity in emerging markets.
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