Market entry decisions are among the most important strategic choices companies make. Entering any market requires a major commitment of financial and managerial resources, but foreign markets can be especially demanding. Most of the research on the internationalization process focuses on two factors as the primary determinants of foreign market entry: cultural similarity and economic attractiveness.
Intuitively, it makes sense that the knowledge of the economic and cultural environment of a foreign market will affect the probability of entering that market. Theories of organizational learning argue that firms develop knowledge based on their experiences. This store of knowledge constitutes an important resource and is a source of competitive advantage. At first, of course, knowledge comes entirely from the home market, and companies make comparisons between the characteristics of the home market and those of potential new markets. But such knowledge can also be generated in foreign markets in which the firm already operates that are similar to potential new markets. Operating in Argentina, for example, may have provided Wal-Mart with some insights as to how to run a store in Chile.
We have dubbed this phenomenon near-market knowledge. But the term does not refer to markets that are geographically close. Rather, it refers to markets that are economically and culturally similar.
Authors: Debanjan Mitra, Peter N. Golder
Source: STERNbusiness (NYU)
Subject: International
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