COMPETITIVE REACTION, IMITATION AND BUNCHING IN FOREIGN ENTRY DECISIONS.

Abstract

The study describes how competitive and institutional influences interact to influence the timing of establishment of foreign subsidiaries. In doing so, it examines how a firm's decision about the timing of its FDI, relative to its rivals' entry decisions, is influenced by competitors' market entry behavior, its organizational resources, and host country conditions. Our focal construct for this research is bunching behavior, which we define as a market entry that occurs immediately after a rival has entered a host country. Our analysis of the timing of 590 foreign direct investment decisions of the five major Japanese automotive assemblers and the five major Japanese electronics manufacturers shows that bunching behavior in FDI is most prevalent when a large number of competitors has entered a host country in a short time period. The number of competitive entrants leads at first to an increase in the likelihood of bunching behavior, but then to a decrease. Meanwhile, the time from the initial foreign entry shows a consistent declining relationship with bunching behavior. We also observe that the entering firm's resources and host market characteristics exert effects on bunching behavior.