Firm Specific Advantage in Developed Markets Dynamic Capability Perspective

ReseaRch aRticle

Abstract:0 this study analyses the role played by dynamic capability and intangible assets of inter-

national new ventures from developed markets at the initial survival and growth stages of internationalization.

0 Based on a survey of 100 ict firms, we test our hypotheses using structural equation modelling.

0 empirical results show that, indeed, initial survival and growth following the survival are positively and significantly influenced by dynamic capability and firm specific intangible assets. Our results further demonstrate that specific intangible assets play a major role in the initial survival and in the growth following it.

Keywords: initial survival · Growth · internationalization of international new ventures · Dynamic capability · intangible assets · export · ict industry

Manag int Rev (2012) 52:233–250DOi 10.1007/s11575-012-0137-0

Firm Specific Advantage in Developed Markets Dynamic Capability Perspective

Saba Khalid · Jorma Larimo

Received: 30.03.2010 / Revised: 09.06.2011 / Accepted: 24.06.2011 / Published online: 16.03.2012© Gabler-Verlag 2012

assist. Prof. s. Khalid () · Prof. J. larimoDepartment of Marketing,University of Vaasa, Vaasa, Finlande-mail: [email protected]

Prof. J. larimoe-mail: [email protected]

234 s. Khalid and J. larimo

Introduction

the new global order reflects the economic roles of emerging countries from asia, speci-fically china and india, and then Brazil and Russia. some examples of the firms entering the developed markets through acquisition are tata Motors, tata chemicals, Wipro tech-nologies, all from india, and lenovo corporation and Geely automotive from china. today, the balance of economic power in the world is seen to be shifting as multinational enterprises from these emerging countries are involved in foreign direct investment in developed markets. however, through the new global order, western developed econo-mies also aim to formulate cooperation with these emerging economies in manufacturing and services sectors. this changing global economic scenario poses new opportunities as well as threats for the multinational enterprises from the developed countries.

Buckley (2002) has indicated dissatisfaction with iB research, describing it as running out of steam and he proposed three big questions. these big questions were related to (1) the sequence of entry of nations as major players in the world economy, (2) Different forms of company organization as characteristic of individual and cultural background, and (3) empirical measures for trends to and away from globalization. later, Buckley and Ghauri (2004) focused on the third question as a possible big research question for iB research (Peng 2004). although Buckley (2002) noted that previous iB research success-fully and sufficiently dealt with the issues of foreign direct investment flows, existence, organization and strategy of MNcs, and internationalization of firms, these topics need to be explored with a fresh perspective with respect to the new global order. thus, to suc-ceed in new markets, it is important to see how the foreign direct investment flows, the existence, the organization, and the strategy of internationalizing firms can be reformed to fit the challenges offered by globalization as well as by the rise of firms from emerging markets.

With the rise of firms from the emerging markets, firms from the developed markets are facing challenges of how to remain strategically competitive and whether the firm specific advantage (Fsa) is still useful. Our study specifically focuses on the Fsa issue for the firms from developed markets and analyses what specific kind of Fsa contributes to firm performance at the survival and the growth stages of international expansion. then on the basis of the respective Fsa, we present suggestions to developed markets’ firm managers to enable them to deal with the competition posed by the emerging market firms’ outward investment.

Fsa has come to the forefront of the debate on the perspective of the global world order as firms from the emerging markets have started to capitalize on the indigenous strategic resources which earlier were also available to developed market firms. For instance, cheaper labour has offered low cost manufacturing opportunities for firms from the developed market. however, now firms from the emerging markets are also utilizing this and acting as suppliers of manufacturing goods, services and raw materials. Firms from china and india in the service and manufacturing sectors have already started inter-nationalizing towards the developed markets either through acquisitions or by foreign direct investment strategy. thus, it becomes a fundamental question for the firms from the developed markets whether to focus on the Fsa to deal with the opportunities and chal-lenges arising, to remain strategically competitive in the domestic markets, or to attempt

235

to internationalize in the traditional manner towards the emerging markets (Rugman and Verbeke 2003).

in analysing the Fsa, our study considers development and exploitation of Fsa as one of the key challenges that newly internationalizing firms from the developed markets, typically referred to as international new ventures (iNVs), may face in future. some stud-ies have pointed out that iNVs are disadvantaged relative to their domestic competitors and thus face greater challenges while internationalizing (see e.g., Mudambi and Zahra 2007). Our study considers that passing from the initial survival stage into the growth phases is a key challenge that iNVs might experience when there will be a greater number of firms investing from the emerging markets to the developed ones. therefore, our study examines how firm-level intangible assets accrue Fsa, which drives transition from ini-tial market survival to growth phases and may consequently affect international new ven-tures’ cross-border performance (Mudambi and Zahra 2007; sapienza et al. 2006).

although iB research may involve multiple levels of analysis, Peng (2004) mentions that firm-level analysis remains at the heart of iB inquiry and that advancing our knowl-edge of how firms and industries from different nations compete is of fundamental inter-est to iB research. this could be particularly true in recent times when nations are facing challenges due to changing economic rules and the global financial crises.

Survival to Growth: A Dynamic Capability Perspective

studies based on evolutionary economics (Barney 1991; Kogut and Zander 1993; Nelson and Winter 1982) view expansion into the foreign market following entry as an outcome of ownership of the indigenous market knowledge (Mitchell et al. 2000; Peng 2001; Peng and York 2001) which enables a firm to exploit existing Fsa in another location. the accumulated knowledge to manage resources as well as an expert ability to leverage such knowledge leads to competitive advantage in international markets (sirmon et al. 2007). as firms move abroad, knowledge spillovers are expected to lead to opportunities for future growth (Ghauri et al. 2005; Peng and Wang 2000). On the basis of this, it can be argued that due to possession of indigenous knowledge, experiential knowledge and idi-osyncratic resources, only firms with existing Fsa expand abroad and generate economic rents above the opportunity costs (Fahy 2000).

Our study sees the role of Fsa in enabling the firms to transit from the initial sur-vival to growth phases (Zahra et al. 2006; sapienza et al. 2006). We consider Fsa as a firm level capability that could be seen as a higher order dynamic and a lower order substantive capability. in line with Zahra et al. (2006) and sapienza et al. (2006), we maintain that when firms build new resource combinations to exploit foreign opportuni-ties, a higher order dynamic and a lower order substantive capability emerge. the higher order dynamic capability drives the over-all international expansion, whereas substantive capability is a specific market commitment capability required to transit from the initial survival to growth stages. the survival and growth of firms following entry depend on a firm’s ability to generate new knowledge of dealing with the specific situation. a firm’s dynamic capability is established through the substantive capabilities, as these can be reconfigured over time and dynamic capability results in tangible benefits only through

Firm specific advantage in Developed Markets …


substantive capabilities (Zahra et al. 2006). Other studies view dynamic capability either as capabilities that respond to changes in the environment or as those which provide a source of competitive advantage (eisenhardt and Martin 2000; Griffith and harvey 2001; Zahra et al. 2006; Zahra and George 2002).

helfat and leiberman (2002) assert that a firm’s capability for new market entry depends on the existing knowledge base when strategic knowledge is utilized, deployed and combined to an extent which produces enhanced values (see also Zollo and Winter 2002). thus, Fsa is linked to embedding the knowledge base of an organization into vari-ous value-creating activities (Morgan et al. 2003). cavusgil and Zou (1994) mention that the organizational knowledge base may not only influence the choice of correct resources, but also influence implementation and execution of its international marketing strategy. established firms from the developed markets are at an advantage to choose an optimum mix of existing capabilities and even to develop new capabilities (eisenhardt and Mar-tin 2000; Zollo and Winter 2002; Zahra and George 2002), while iNVs may experience problems in identifying the right resource combinations. thus, Fsa could be related to a successful implementation of the international marketing strategy.

Following the initial survival, growth into the foreign markets has been considered an outcome of ownership of indigenous market knowledge (Mitchell et al. 2000; Peng 2001; Peng and York 2001). Other studies see this as a value creation process when firms exploit Fsa in another location (lu and Beamish 2001). however, value creation fundamentally requires organizational knowledge to be updated continually with knowledge from the market. Previous studies also identify that integrating the marketing activities with exist-ing organizational knowledge results in greater knowledge of how marketing tools are organized to differentiate offerings from those of competitors (Knight and Kim 2009).

FSA, Survival and Growth

according to sapienza et al. (2006), while early internationalization simultaneously increases prospects for growth, capability evolution at this stage could sap a firm’s resources, thus reducing the chances of survival in the short term. Because of learning advantages of newness that increase the probability of growth and lessen the degree of organizational inertia, iNVs are likely to grow more rapidly than established firms (autio et al. 2000). this is, however, possible only when firms take up a strategic approach to create value through the internationalization process. a failure to do so may consequently lead to lower survival rates following foreign market entry (sapienza et al. 2006). the-refore internationalization may offer threats rather than growth opportunities if market knowledge is not integrated with the organizational knowledge to develop specific mar-ket commitment capabilities shortly following entry. thus, Zahra et al. (2000) consider timing of capability evolution important and emphasize that sooner or later such know-ledge should be integrated, in order to develop specific market commitment capability, which is an outcome of the dynamic capability of the firm. On the other hand, firms that adapt their internal processes and commit market capabilities to reconfigure their resource base are in a better position to create market specific capabilities.

237Firm specific advantage in Developed Markets

Figure 1 depicts our arguments and demonstrates how development of Fsa moderates transition from initial survival to subsequent growth following entry. the area between the dotted lines indicates the time period when firms need to take up a strategic approach to market commitment and invest in developing specific market commitment capabilities. if firms fail to do so, a decline in the survival of the firm may result, whereas investing in specific market commitment capabilities may result in growth, consequently leading to a subsequent expansion. Fsa in terms of specific market commitment capabilities moder-ates the inverted U-shaped relationship between international expansion performance and the firm’s survival and growth following entry (Ghauri and sinkovics 2010).

a question that still remains is what Fsa should be nurtured that would lead to a transition from the initial survival into the subsequent growth stages? to deal with this question, we conducted an extensive review of the literature to identify specific capabili-ties that could enable firms at the survival and the growth stages to attain their foreign market goals.

We used our theoretical arguments as criteria for selection of Fsa at each of the stages. We earlier posited that accumulated experience from other foreign markets could be suffi-ciently utilized at the early stage of internationalization. several studies relate prior expe-riential knowledge in the context of managing strategic alliances with managing alliances in new foreign markets (annand and Khanna 2000; schreiner et al. 2009). lu and Beam-ish (2001) mention the use of alliances with firms possessing local knowledge as being a key strategy for overcoming the resource limitations that frequently constrain iNVs in foreign markets. Product advantage, another kind of experiential knowledge based Fsa at the early stage of internationalization, offers attractive opportunity for firms to enter foreign markets. Product development studies (cooper 1983; cooper and Kleinschmidt 1993; Nightingale 2000) suggest that a user-producer interaction and integration of the acquired knowledge within firm-level practices create superior value-oriented products. therefore an existing product advantage can be considered as a key to initial expansion following entry and a higher value product for customers is not only an indication of mar-ket success, but it also shows how successfully firms integrated market knowledge from previous experiences into the organizational knowledge base.

Fig. 1: the relationship between Fsa, survival and growth

Time (T)

Inte

rnat

iona

l exp

ansi

on p

erfo

rman

ce

FSA–marketcommitmentcapabilities

SurvivalGrowth following

initial survival


some studies view marketing capability (Kotabe et al. 2002; Weerawardena 2003) as a narrow construct by specifically focusing on the ability of the firm to produce a differ-entiated product and to sustain a brand position. this is similar to the idea promoted by product advantage studies mentioned earlier. Kotabe et al. (2002), however, refer to mar-keting capability as the ability of a firm to differentiate products and services from those of competitors and build successful brands. Other studies (Morgan et al. 2003) combine both of these views and refer to this as marketing planning and implementation capability, through which firms implement the planned marketing strategy into the foreign market so as to achieve expected targets. they consider it as one of the primary mechanisms by which accumulated experiential knowledge can be utilized to better adapt to their market environment. thus, utilizing accumulated learning in the area of marketing planning and implementation can be positively linked to the development of such capabilities. From this we propose;

Hypothesis 1: survival at the early stage of iNVs’ internationalization, as compared to the growth following the survival, will be more positively related to alli-ance management.

Hypothesis 2: survival at the early stage of iNVs’ internationalization, as compared to the growth following the survival, will be more positively related to new product advantage.

Hypothesis 3: survival at the early stage of iNVs’ internationalization, as compared to the growth following the survival, will be more positively related to mar-keting planning and implementation.

Nelson and Winter (1982) point out that firms convert experiential knowledge into lear-ning through organizational capabilities such as routines. in their opinion, prior experience helps to gain an understanding of the outcome of a routine for solving an organizational problem. When repeated use of previous routines leads to organizational processes, expe-riential learning can be used as a tool to formulate firm specific capabilities that enable the effective and efficient accomplishment of tasks, allowing firms to successfully adapt to the foreign market and follow market commitment (Morgan et al. 2003).

We see that the effects of experiential learning can be related to growth following entry when firms use prior learning within the process of opportunity identification and exploitation (corbett 2005). Prior knowledge of customer problems and also of markets and the ways they can be served has been positively linked to successful opportunity identification if used in combination with knowledge from the new market. carroll et al. (2002) mention that firms facing rapid changes in the environment (industry uncertainty conditions) struggle to utilize interdependent sets of knowledge and to combine skills and knowledge derived from specific as well as general knowledge. We consider new mar-ket knowledge integration as one key activity affecting evolution of Fsa in subsequent growth following entry.

One kind of firm specific capability that could be related to how firms learn in new foreign markets and create opportunities can be alliance learning through local partners. Due to lack of local market knowledge, partnerships with independent distributors are of strategic importance for internationalizing iNVs (Johanson and Valhne 1990; Fang et al. 2007). While the partnerships in foreign markets are mechanisms to integrate new market


knowledge, learning to utilize it for specific market commitment capability development (lane and lubatkin 1998) could depend on firms’ capacity to recognize the value of new knowledge, assimilate it and apply it for commercial purposes. earlier studies have con-sidered alliance learning as one such capability (cohen and levinthal 1990; hamel 1991; inkpen and Beamish 1997; Kogut 1988; lane and lubatkin 1998; Parkhe 1991). On this basis we propose;

Hypothesis 4: Growth following the survival will be more positively related to alliance learning.

Data and Methods

sample selection

We considered iNVs from the information communication technology industry (ict) to be suitable for our data collection as some major mergers and acquisitions in the develo-ped markets by the firms from the developing markets have taken place in that industry (for example, lenovo from china and Wirpo corporations from india). the companies which used to manufacture products for the developed market have been able now to get an access to a well-developed distribution network through these mergers and sell their cost effectively manufactured products to developed markets. investment by these deve-loping market firms poses a threat to MNes and iNVs of the developed markets as they used to outsource their products to the developing markets to attain benefits of the low cost manufacturing. the critical option for these firms to remain competitive is to build such inimitable capabilities that give a longer lasting competitive advantage. therefore testing these firms’ existing Fsa could indicate whether these firms could sustain future competition from the developing market firms investing in the developed markets.

initially, a general contact list of iNVs was drawn-up from online yellow pages. We used terms such as ‘software business’, ‘foreign operations’ and ‘internationalization’ as key words to generate a broad list. On the basis that companies had a foreign sales experience of more than two years, had foreign sales partnerships with local resellers and developed their own international product, a contact list was compiled consisting of 300 international sales and marketing managers as our target respondents.

Pre-testing and Data collection

the original items and the complete questionnaire were pretested by academics and prac-titioners. two professors studied the questionnaire and then provided feedback. Face-to-face meetings with one manager from each of the companies involved in the preliminary empirical study were then held to pre-test the questionnaire.

We sent the questionnaire to all 300 companies through survey research software. this provided the advantage of sending a large number of simultaneous emails and also sup-plied each respondent with a personal survey answering page. Respondents could visit the survey web page many times to answer at their convenience. the software saved the


answers automatically on the respondent’s personal survey page. the research software recognized each respondent through iP addresses, thus ensuring that a respondent visited his own page and a single response was received from each iP address with no double counting. after the initial 25 responses, we made direct contact through phone calls. With reminder phone calls and further emails, we received altogether 115 responses, out of which fifteen were eliminated because of missing values. after eliminating 15 responses with missing values, the usable responses of 100 firms resulted in a 33% response rate.

table 1 indicates the sample characteristics. the descriptive statistics indicated that on average, firms in our sample were founded in 1995 and started export operations within the first five years from foundation. the export product development occurred simultane-ously in the same time period. On the average, firms exported the export product through international distributors in more than two countries with a mean of international sales experience of about seven years.

as suggested by armstrong and Overton (1977), we assessed non-response bias by comparing the respondent waves. the initial 25 responses were grouped as the early respondents and compared with the group of 75 late respondents received after the phone calls were made. these two groups were evaluated by comparing export product devel-opment year, number of full-time employees and year of foundation. the groups did not show significant differences across means and the t-tests indicated no significant differ-ences (p < 0.05). We also computed kurtosis and skewness of each of these items to check for non-normality concerns. the largest kurtosis and skewness values were 1.6 and 0.40 respectively, thus sufficiently below the recommended maximum values of 2.00 for kur-tosis and 5.00 for skewness.

as our data were collected through the same questionnaire, at the same time from all of the participants, we were able to calculate common method variance in the ex ante research design stage as well as ex post statistical analysis as suggested by sea-Jin et al. (2010). in administering the data collection process, respondents were assured of the anonymity and confidentiality of the study. they therefore felt free to answer at their will as honestly as possible. Further, we used the order of questions in the instrument so that a logical correlation was not apparent as we asked performance related questions only at

Table 1: Descriptive statistics of the sample

Min. Max. Mean s.D.

Foundation year 1974 2006 1995 7.156

export year 1985 2007 2001 3.772

export countries 1 7 2.86 1.686

export experience 1 16 6.50 5.075

export products (total) 1 50 5.07 6.585

export clients 1 10000 1.537 10.521

international distributors 1 100 8.08 16.291

international technology partners 1 15 2.43 2.835


the end. some words such as ‘capability’ or ‘skills’ which could suggest to the respond-ents a higher than normal rating were not used at all. also, respondents were instructed to give all the answers with reference to one specific market only and not the overall international growth.

as an ex post strategy, we conducted harman’s one-factor test (Podsakoff and Organ 1986), to control for the common method variance in the sample. Our test revealed 10 factors with an eigenvalue greater than 1. indicating a mix of several distinct factors, this accounted for 75% of the total variance, of which only a small percentage (22% and 11%) was explained by the first and the second factors respectively. this indicated our data were free of common method variance.

Measures

the measures of the constructs were developed mainly as reflective indicators.

Product Advantage

New product development was measured by three items that were originally used by song and Parry (1997), as a measure of a firm’s competitive advantage. Respondents were asked to rate the extent to which these items could assess a product’s superiority relative to competing products.

Alliance Management Capability

to analyse the alliance management capability, two questions were posed to the mana-gers. the first question included items adopted from heide and John (1992), heide and Miner (1992) and lusch and Brown (1996), aimed at measuring the extent to which firms were committed to building a relationship with distributors in foreign markets. a strong commitment could indicate the need to manage and build such relations. the second question consisted of four items adopted from Ganesan (1994). the degree of dependence was expected to show how critical it was for the firms to manage the alliance in order to acquire knowledge of the market.

Marketing Planning and Implementation Capability

experience in marketing implementation and planning activities was assumed to affect the marketing planning and implementation capability. three-item reflective measures were adopted from Morgan et al. (2003).

Alliance Learning Capability

in the theory of the present study, the alliance learning capability of a firm was seen to be linked to its learning orientation and the knowledge sharing processes employed to acquire knowledge from partners at the firm and market levels. thus, three questions were posed


to the respondents with these theoretical links at the forefront. the first question related to the learning orientation factors of the company and was adopted from Baker and sinkula, (1999), and calantone et al. (2002). the second question measured the extent to which knowledge sharing processes within the firm contributed to acquisition of new market knowledge (Jaworski and Kohli 1993). the third question was related to what extent the knowledge sharing processes between the firm and the partners contributed towards lear-ning the new market knowledge. For this question, four items were adopted from lusch and Brown (1996), Kaufman and Dant (1992), and heide and Miner (1992) asking the managers to rate the information exchange between the distributors and the firm.

Survival Following Entry

the survival following entry was conceived in this study as the extent to which firms have been able to achieve foreign market expansion goals in the initial two years follo-wing entry. We asked the export managers to mention the extent to which the company achieved the initial growth outcomes in a foreign market within the first two years of the foreign operations.

Growth Following the Survival

the growth following the survival was measured in this study on the basis of the sub-jective and absolute measures in two questions. We conceived it as the extent to which firms have been able to achieve foreign market expansion goals after the initial two years following entry. We asked our respondents to what extent the company’s current state of market knowledge from within the country of operations contributed to achieving the sales goals. the first question related to subjective measures of absolute gauges of finan-cial- and task-related performance. in the second question, respondents were asked to rate their satisfaction relative to the company’s current state of new market knowledge. all of these items were adapted from Moorman (1995).

Analysis and Results

We applied structural equation modelling (seM), which is particularly suitable for mea-suring and estimating a theoretical model with linear relationships between variables that may be either observable or directly unobservable and may only be measured imperfectly (chin 1998; Fornell and larcker 1981). seM enables an explicit modelling for the mea-surement error for the observable variables and avoids potential bias, thus allowing the constructing of unobservable variables, which can be measured by indicators (haenlein and Kaplan 2004; hulland 1999; Kline 2005).

We adapted anderson and Gerbing’s (1988) two-step approach to implement seM. in the first step, we estimated the validity and the reliability of the measurement mod-els through confirmatory factor analysis (cFa) for our main constructs of Fsa, initial survival and growth following the survival. in the theory, we conceptualized Fsa as


consisting of capabilities in four areas; alliance management, new product advantage, marketing planning and implementation and finally the alliance learning. in our analysis, the measurement model consisting of the four factors of Fsa is termed as ‘measurement model a’ where as constructs of initial survival and the growth are mentioned as ‘meas-urement model B’.

Measurement Models

through cFa, first of all, we estimated overall fit of a second order- four factor model for the measurement model a. in table 2, a comparison of the hypothesized measure-ment model a with a constrained and an unconstrained model indicates the best fit of the hypothesized model (χ2 = 64.5, cFi = 0.98, iFi = 0.98, GFi = 0.91, NFi = 0.92, and RMsea = 0.04). Further, the first-order factors showed high loadings on the second order factor of Fsa, except for the marketing capability as shown in column 1 of table 2. however, we did not exclude this factor from the main construct in the first stage of seM and left its further estimation in testing for the hypothesis. Overall, the preliminary results suggest Fsa as consisting of at least three capabilities of alliance management, new pro-duct advantage and the alliance learning capabilities.

We estimated validity and reliability of the measurement model B for the constructs of initial survival and growth as a separate first-order, two factor model in the same way as for the second order four factor measurement model a. the fit indices indicate overall good model fitness for this model B as seen in table 2 (χ2 = 34.4, cFi = 0.99, iFi = 0.99, GFi = 0.90, NFi = 0.91, and RMsea = 0.02).

to assess the item and scale reliability for the main constructs we examined (a) indi-vidual item reliabilities, (b) convergent validity of the measures associated with indi-vidual constructs, and (c) discriminant validity. all the items with standardized factor loadings greater than 0.52 were retained for further analysis. as can be seen from table 3, the convergent validity of the constructs was assessed by looking at cronbach’s alpha for independent and dependant variable constructs and the composite reliability values. the cronbach’s alpha was reliable at a threshold of 0.70 for all the variables. the com-posite reliability for all the latent exogenous as well as endogenous constructs of alliance management, new product advantage, marketing planning and implementation capability,

Table 2: Goodness of fit model statistics

Model χ2 D.F. Probability cFi iFi GFi NFi RMsea

Measurement model a 64.5 67 0.13 0.98 0.98 0.91 0.92 0.04

Measurement model B 34.4 32 0.35 0.99 0.99 0.90 0.91 0.02

structural model 276.47 244 0.75 0.97 0.97 0.92 0.89 0.03

constrained 0.000 – – 1.0 1.0 1.0 1.0 –

Unconstrained 1703.945 325 0.00 0.00 0.00 0.00 0.00 0.000


alliance learning, initial survival and subsequent expansion following entry was ≥ 0.70 threshold. thus, a satisfactory level of convergent validity was achieved for this study.

Further, we examined discriminant validity by using Fornell and larcker’s (1981) cri-terion of average variance extracted (aVe). the aVe signifies that a latent variable shares more variance with its own indicators than with any other latent variable.

according to this, the square root of the aVe should be greater than the variance shared between the construct and other constructs in the model, i.e., the squared correla-tion between two constructs. this is shown in table 3 along the diagonal in bold.

Structural Model

in the second stage of seM, we compute the structural model based on the measurement model estimated in the first stage. in the structural model, we specified relationships bet-ween unobserved variables as hypothesized in our theoretical model and assessed overall goodness of fit. We used t-test to test the hypotheses. From the theory, it can be noted that our hypotheses represent a comparison between the coefficients for two separate paths (for example initial survival is more positively related to alliance management than is the growth). therefore we assessed the intensity of the relationship by comparing the magni-tude of the coefficients to analyse support or lack of support for our hypotheses.

Results

the overall goodness of fit indices show that our structural model fits well to the data. (see table 2 for the structural model. χ2 = 276.47, cFi = 0.97, iFi = 0.97, GFi = 0.92, NFi = 0.89, and RMsea = 0.03). Parameter estimates as in table 4 also indicate an overall acceptance for the hypothesized relationship as in the theory of the study. thus, on the basis of the

Table 3: inter-construct correlations matrix and square roots of aVe along the diagonal

latent variables alleaR allMGt MKtGPli NPa sUR GRth

alleaR 0.632

allMGt 0.331 0.774

MKtGPli 0.183 − 0.075 0.815

NPa 0.259 0.392 0.149 0.732

sUR 0.302 0.251 0.223 0.393 0.801

GRth 0.455 0.306 0.111 0.257 0.533 0.671

Factor loadings 0.98 0.76 0.75 0.71 – –

cronbach’s alpha 0.84 0.76 0.74 0.90 0.76 0.84

composite reliability 0.92 0.80 0.85 0.87 0.91 0.84

aVe 0.72 0.52 0.67 0.40 0.61 0.58


overall goodness of fit indices and the coefficient estimates, we accept our theoretical model (structural) as the most parsimonious model.

comparative analysis of survival and the Growth: hypotheses testing

We employed t-statistic tests to analyse the intensity of comparison indicating whether Fsa (alliance management, new product advantage, market planning and implementa-tion, and alliance learning) related more to the initial survival or growth phases in the internationalization of iNVs. the results of the hypotheses testing are shown in table 4. the first three hypotheses of the study postulated a more positive relationship with initial survival than the growth following the survival. hypothesis 1 which stated that alliance management will be more positively related to initial survival than the growth following the survival is positive (b = 0.159, t = 1.814, p < 0.1), however, statistically is not signifi-cant at the 95% confidence level. in comparing the alliance management with growth, the path coefficient between alliance management and growth following survival is also positive but statistically not significant (b = 0.272, t = 0.548, p > 0.1). therefore, our first hypothesis did not receive support.

hypothesis 2 stated that new product advantage will be more positively related to initial survival than growth following the survival. it can be seen from table 4, that the path coefficient between new product advantage and the initial expansion following entry are positive and statistically significant (b = 0.30, t = 3.23, p < 0.001). the path coefficient between new product advantage and growth following survival is negative as assumed in the hypothesis. (b = − 0.003, t = 0.037, p < 0.001). this supports our second hypothesis fully that new product advantage will be more positively related to initial survival than is the growth.

hypothesis 3 stated that marketing planning and implementation will be more pos-itively related to the initial survival than the growth following the survival. the path coefficient between marketing planning and implementation and the initial survival are positive and statistically significant (b = 0.37, t = 3.24, P > 0.05) as shown in table 4. the path coefficient between marketing planning and implementation and growth following

Table 4: t-statistic test for comparative hypotheses testing (N = 100, D.F. = 97)

theoretical relationship Result estimate (t-stat) s.e c.R. P

h1: iNisUR ← allMGMt Not supported 0.308 (1.27) 0.2425 1.814 < 0.1

GRth ← allMGMt Not supported 0.148 (1.57) 0.0949 0.548 > 0.1

h2: iNisUR ← NPa supported 0.309 (3.23) 0.0959 7.351 < 0.001

GRth ← NPa supported − 0.003 (− 0.09) 0.0375 7.351 < 0.001

h3: iNisUR ← MKtGPli supported 0.370 (3.24) 0.1142 1.836 > 0.05

GRth ← MKtGPli supported − 0.37 (− 0.83) 0.0447 0.465 < 0.1

h4: iNisUR ← alleaRN supported 0.55 (1.88) 0.2951 0.207 > 0.1

GRth ← alleaRN supported 0.21 (1.97) 0.1155 1.998 < 0.05


initial survival, however, was not statistically significant (b = − 0.37, t = − 0.83, p < 0.1). thus, our third hypothesis is confirmed.

in hypothesis 4, alliance learning was considered as more positively related to the growth following the initial survival. Our standardized beta coefficient confirmed a sig-nificant positive relationship between alliance learning (b = 0.21, t = 1.97, p = < 0.05) and the growth stage. however, alliance learning indicated a non-significant relationship with the initial survival stage. the fourth hypothesis was also significantly confirmed.

Our results demonstrated that from a portfolio of specific areas of Fsa, new product advantage and marketing planning and implementation were indeed more significantly positively related to initial survival in the foreign market. alliance management, on the other hand, did not receive any significant support in its relationship with either the initial survival or the growth stages. in comparison, new product advantage was most positively related, then marketing planning and implementation and alliance management stood third in comparison showing a positive, but non-significant relationship. Out of all the firm specific advantages, only alliance learning was related in a significantly positive way with the growth stage.

Discussion

in this study, we examined the relationship between Fsa and iNVs’ cross-border perfor-mance and analysed how Fsa accrue initial survival first and then growth, when iNVs enter foreign markets (hitt et al. 1997; lu and Beamish 2001; sapienza et al. 2006; Zahra et al. 2006). We viewed iNVs’ initial survival and growth following entry into foreign countries as an outcome of ownership of the prior indigenous market knowledge and a firm’s ability to combine it with new market knowledge in a Fsa and survival/growth relationship. We conceptualized iNVs’ Fsa as a firm’s overall ability to create new resources and an expert ability to exploit opportunities in foreign locations in four areas of alliance management, new product advantage, marketing planning and implementation and alliance learning. On the basis of the results of the study, in this section we discuss how Fsa in these four areas could pose opportunities and threats for the firms from the developed markets in their internationalization stages. here we present some suggestions concerning how to benefit from firms’ Fsa when firms from the developing markets have started undertaking outward investment.

From the findings of the study, we infer that development of capabilities in the new product advantage and marketing planning and implementation areas can be complemen-tary for influencing firm performance at the survival and alliance learning capability at the growth stage. the implications of capabilities in these areas can be related to how familiar firms can be with a foreign market.

One of the areas where developed market firms may take advantage is the lack of familiarity of the emerging market firms with the foreign market. earlier studies identify this as lack of market orientation (liu et al. 2010; luo and tung 2007). emerging market firms will need to invest heavily in learning the customer preferences, beliefs and atti-tudes. Only then could product development success and an appropriate response to the market follow (elg et al. 2008; Narver and slater 1990). Further, learning the competi-


tor’s actions and producing the right products at the right time could possibly pose threats to these firms if new market knowledge is not integrated shortly after market entry. For this reason, such firms could easily face obstacles in transiting from the initial survival to the growth stage.

We emphasize that managers from the developed markets should build Fsa that con-sists of difficult to imitate, firm specific capabilities in the four areas which are signifi-cantly related to survival and the growth stages of internationalization. Our suggestion is based on the assumption that firms from the emerging markets may face the disadvantage of being latecomers and possibly would follow the strategic orientation to imitate com-petitors’ knowledge, products or services. emerging market firms that may be at the tran-sition stage from the survival to the growth may follow this strategy in order to shorten the time until international expansion. thus, developed market firms need to protect their competitive edge from emerging market firms pursuing a transition stage.

as suggested by liu et al. (2010), the sharing of knowledge from local partners could happen mostly following entry, therefore alliance learning could play a significant role in learning about the new market at the growth stage. since most firms from the emerging market could lack substantial human, financial and physical resources, following on the success by building on the market based knowledge and innovative capabilities seem to be a feasible route to international expansion for these firms. thus, firms from the devel-oped markets may offset these effects by investing in their learning mechanisms and inte-grating the market and the organizational knowledge faster to come up with inimitable Fsa.

Limitations and Future Research Directions

the main objective in our study was to identify the existing Fsa of the developed market firms and to analyse its association with the survival and growth of the newly internatio-nalizing firms. the results of the study were then discussed to develop suggestions con-cerning how the firms in the developed markets can sustain their competitive advantage when emerging market firms undertake outward investment in the same markets. in this view, our study only presented Fsa of the developed market firms and lacked a compa-rative view of the Fsa of emerging markets’ firms and their outward investment in the developed market. to enrich further learning for the developed market firms about the potential behaviour of the emerging market firms in the developed markets, we suggest future research to analyse Fsa of firms from both the markets in a cross comparative research methodology.

We only emphasized four areas within the Fsa which could be utilized for capability development. in practice a firm’s Fsa can be a portfolio of several different capabili-ties. For example, entrepreneurial orientation can also be treated as an Fsa. For future research, an investigation into the Fsa for forms from both the markets based on several capabilities could be useful to increase our knowledge of how to deal with the challenges by the emerging market firms’ outward investment.


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Firm Specific Advantage in Developed Markets Dynamic Capability Perspective