Towards a comprehensive model of entry timing in the ICT industry: Direct and indirect effects

Journal of World Business 47 (2012) 297–310

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Towards a comprehensive model of entry timing in the ICT industry: Direct and indirect effects Pedro M. Garcı´a-Villaverde 1, Marı´a J. Ruiz-Ortega *, Gloria Parra-Requena 1 University of Castilla-La Mancha, Department of Business Administration, 02071 Albacete, Spain

A R T I C L E I N F O

A B S T R A C T

Keywords: Entry timing Capabilities Utility strategy Indirect effect Comprehensive model

We propose and contrast a model that integrates the factors influencing entry timing and the way entry timing influences firm performance, using a sample of firms that carry out international activities from the Information and Communications Technology Industry (ICT) in Spain. We found that capabilities are the main factor influencing firm performance. We also demonstrate that entry timing plays a significant mediator role in this relationship. Furthermore, we found that the utility strategy, which combines efforts in costs and differentiation, is a basic factor that explains and reinforces sustainable competitive advantages for those firms that enter early into the market. Managers need to analyse the implications of entry timing at length. In this sense, managers should evaluate if they have a suitable configuration of capabilities for entering the market successfully. They should also try to consolidate first mover advantages (FMAs), developing hybrid strategies that combine low cost and differentiation. ß 2011 Elsevier Inc. All rights reserved.

1. Introduction In the 1980s, several studies appeared dealing with various aspects of first mover advantages (FMAs) (e.g. Carpenter & Nakamoto, 1989; Lieberman & Montgomery, 1988; Robinson & Fornell, 1985). The development of several theoretical approaches on management has encouraged researchers to carry out numerous studies linked to entry timing in the last few decades (Boulding & Christen, 2008; Coeurderoy & Durand, 2004; Lee, Smith, Grimm, & Schomburg, 2000; Lieberman & Montgomery, 1998; Robinson & Chiang, 2002; Suarez & Lanzolla, 2005; among others).2 The great majority of these studies, which are differently oriented in their theoretical and empirical basis, can be grouped into two lines of research, depending on the relationships analysed (Lieberman & Montgomery, 1998; Suarez & Lanzolla, 2007). On the one hand, we find studies that analyse the factors influencing entry timing (Lee, 2008; Robinson, Fornell, & Sullivan, 1992). These mainly focus on the influence of environmental conditions and certain specific resources and capabilities (Garcı´a-Villaverde, Parra-Requena, & Ruiz-Ortega, 2010; Schoenecker & Cooper, 1998; Thomas, 1996). On the other, there are studies that focus on the influence of entry

* Corresponding author. Tel.: +34 967 59 92 00; fax: +34 967 59 92 20. E-mail addresses: [email protected] (P.M. Garcı´a-Villaverde), [email protected] (M.J. Ruiz-Ortega), [email protected] (G. Parra-Requena). 1 Tel.: +34 967 59 92 00; fax: +34 967 59 92 20. 2 Management Strategy and Marketing are the main perspectives on the study of entry timing. 1090-9516/$ – see front matter ß 2011 Elsevier Inc. All rights reserved. doi:10.1016/j.jwb.2011.04.017

timing on firm performance (Durand & Coeurderoy, 2001; Szymanski, Troy, & Bharadwaj, 1995). The vast majority of these studies focus variously on the development of theoretical models (Finney, Lueg, & Campbell, 2008; Kerin, Varadarajan, & Peterson, 1992; Suarez & Lanzolla, 2007), or on partial empirical studies, in just one category of entry, for example late followers (Shamsie, Phelps, & Kuperman, 2004), in a specific resource, for example, technological resources (Coeurderoy & Durand, 2004) or without considering external factors (Schoenecker & Cooper, 1998). Furthermore, several authors highlight important shortcomings in the existent empirical literature on FMA, which may explain some of the contradictory findings (Suarez & Lanzolla, 2007). The main shortcomings are inconsistencies in the definition of the pioneer (product, process or market pioneer), the scale for measuring entry timing (tendency towards self-exclusion of late followers), the choice of dependent variables (focused on market share), industry selection (bias towards industries with stronger FMAs), and failure to account for entrant internal factors (Finney et al., 2008; Kerin et al., 1992; Lieberman & Montgomery, 1998; Szymanski et al., 1995; Vanderwerf & Mahon, 1997). The academic literature has been unable to provide conclusive evidence to explain entry timing and to support or refute the existence of FMAs (Suarez & Lanzolla, 2007). Several authors call for the proposal and contrast of integrated models that present the factors influencing entry timing and those that lead to achievement of FMAs (Finney et al., 2008; Lee, 2008; Lieberman & Montgomery, 1998). However, we have not found any empirical study offering a comprehensive analysis of the factors that exert an influence on entry timing or the influence of entry timing on firm performance. In this study we propose a global model in which

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pioneer behaviour has a relevant role to achieve competitive advantages. In this model we introduce relevant external and internal factors linked with pioneer behaviour so as to obtain a superior performance. In the literature on FMAs, there has been some controversy about the concept of pioneer (Golder & Tellis, 1993; Lieberman & Montgomery, 1998), distinguishing between inventor (first to develop patent or technologies), process pioneer (first to improve the product manufacturing process), product pioneer (first to develop working model) and market pioneer (first to introduce a product in new market). We chose to analyse market pioneering, defined as a firm that tends to be the first to offer a distinctive product to a new market (Lieberman & Montgomery, 1998). We consider that the pioneer represents a particular form of entrepreneurial orientation whereby the organisation proactively creates or is among the first to enter a new product-market arena that others have not recognized or actively sought to exploit (Covin, Slevin, & Heeley, 2000). Pioneer behaviour is not related exactly to the creation of a new product or the entering of a specific market, but a way of going about decision-making and actions. In this sense, we believe that pioneer behaviour is reflected in a firm’s higher or lower levels of leadership/following in the productmarket vis-a`-vis its competitors in the industry (Bobrow & Shafer, 1987). Lieberman and Montgomery (1998) refer to the potential ‘‘isomorphism’’ of first-mover and resource-based literature, in which FMA theory could potentially contribute to resolving the empirical deficit faced by the Resource Based View (RBV) (Lee, 2008). Several authors highlight that the traditional approach of the RBV is limited in its explanation of performance differences in an industry (Priem & Butler, 2001; Shamsie, Martin, & Miller, 2009; Teece, Pisano, & Shuen, 1997). It has been shown that not only the obtaining of specific resources, but also the development of dynamic capabilities allows firms to obtain sustainable competitive advantages (Shamsie et al., 2009). Likewise, it has been demonstrated that the effect of capabilities on a firm’s performance is not direct but indirect. Therefore, there is a need for studies on the RBV that determine which strategy orientation can lead the capabilities to obtain a superior performance (Zott, 2003). From the FMAs approach, several theoretical studies have proposed the role of entry timing to link capabilities to a firm’s performance (Finney et al., 2008; Lieberman & Montgomery, 1998). We could find no empirical studies that analyse the mediator role of entry timing leading the capabilities to obtain competitive advantages. We propose that the effect of a firm’s capabilities on performance will depend on the level in which it can develop a pioneer behaviour, which allows it to take advantage of the configuration of capabilities to explore and exploit FMAs. The literature on entry timing also creates a debate about whether early entry into the market leads to competitive advantages or disadvantages (Boulding & Christen, 2008; Lieberman & Montgomery, 1988; Robinson & Min, 2002). Suarez and Lanzolla (2005:1) state that ‘‘for every academic study proving that first-mover advantages exist, there is a study proving that they do not’’.3 Although the majority of studies have analysed the direct effect of entry timing on firm performance, some studies have included several moderating factors linked to business tactics, differentiation strategy or low cost strategy (Coeurderoy & Durand, 2004; Covin et al., 2000; Durand & Coeurderoy, 2001; Shamsie et al., 2004; among others). Despite the Strategic Position Approach proposals (Porter, 1980), firms can successfully combine

the low-costs and differentiation advantages by means of developing a ‘‘utility’’ strategy4 (for example, Hill, 1988; Johnson, Scholes, & Whittington, 2007; Pertusa-Ortega, Molina-Azorin, & Claver-Corte´s, 2009; Spanos, Zaralis, & Lioukas, 2004). A utility strategy can be suitable for pioneer firms because it will facilitate the task of building barriers to entry and competitive imitation (De Castro & Chrisman, 1995). We propose that the utility strategy not only will improve the FMAs, but can also lead pioneer firms to obtain a better performance. Therefore, this study is the first which evaluates whether there is an indirect effect of entry timing on firm performance by means of the utility strategy, which can reduce or even eliminate direct effect. In this study, we try to answer two research questions suggested in the literature. First, how a superior configuration of capabilities can lead a firm to obtain greater performance. We propose that this connexion will depend on the level in which the availability of strong complementary capabilities encourages firms to adopt a pioneer behaviour to take advantage of their capabilities and thus obtain sustainable FMAs. Second, we ask which strategy can lead the pioneer firms to obtain a superior performance. We propose that if pioneer entry encourages the firm to develop a utility strategy, defined as a combination of efforts in cost reduction and differentiation, the firm will be able to take advantage of and consolidate more the advantages obtained from an early entry. The main aim of the study is to propose and contrast a model of the factors that influence entry timing and the influence of entry timing on firm performance. Furthermore, we will analyse if entry timing has a mediator role on the relationship between capabilities and firm performance, and if the effect of entry timing on firm performance is mediated by firm strategy. The inclusion of the above-mentioned indirect effects in an integrated model can help us to a better understanding and more satisfactory explanation of the role of entry timing in obtaining and maintaining competitive advantages. With this model, we contribute to reinforcing the theoretical link of the FMAs Theory with the RBV and the Strategic Position Approach, and to solving discrepancies that appeared in previous studies. Furthermore, we analyse a sample of firms that develop international activities from a high technology industry, the Information and Communications Technology (ICT) Industry (Ramamurti, 2000). The advantages of pioneer strategy are not normally evident as in more mature industries (Makadok, 1998). In addition, during the last two decades, the globalization process in the ICT Industry has been specially relevant (Dowling & McGee, 1994; Rai, Borah, & Ramaprasad, 2007), which lead us to focus on those firms that develop international activities and compete in broad markets. Finally, in this study we deal with certain environmental factors – imitation and dynamism – and internal factors – capabilities, entry timing and utility strategy – and the relationships between them, which have a special relevance for competition in the present international context (Hitt & He, 2008). Our paper is organised along the following lines. We have divided the paper into five sections. The first section carries an introduction to the topic under study and an exposition of the aims we wish to achieve. In the second section, we explain the hypothesis to be tested. The third section expounds the methodology for the development of our empirical study. In Section 4, the results obtained are gathered and finally, in the fifth section, we illustrate the main conclusions obtained in the study, its limitations and future lines of research.

3 Several authors highlight relevant inconsistencies in FMA empirical studies: the definition of dependent variables, biased sample selection, failure to control for entrant capabilities or no consideration of environment and strategy factors (Suarez & Lanzolla, 2007; Szymanski et al., 1995; Vanderwerf & Mahon, 1997).

4 Following De Castro and Chrisman (1995) we consider that utility strategy would be a hybrid strategy, which is defined as seeking to achieve differentiation and a price lower than that of competition simultaneously (Johnson & Scholes, 1999).

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2. Theory and hypotheses Market entry decisions are some of a firm’s most important strategic choices (Mitra & Golder, 2002). The literature distinguishes between two main approaches: entry timing and the entry mode. With regard to entry timing, the traditional approach of the FMAs, borne out by numerous empirical studies, define pioneering as the tendency to be first to offer a distinctive product to a new market (Lieberman & Montgomery, 1998). Thus, we consider that the pioneer represents a particular form of entrepreneurial orientation whereby the organisation proactively creates or is among the first to enter a new product-market arena that others have not recognized or actively sought to exploit (Covin et al., 2000). Therefore, as explained previously, we consider that pioneer behaviour is not related exactly to the creation of a new product or the entering of a specific market, but a way of going about decisionmaking and actions. The FMAs approach has been nurtured from the contributions of strategy management and marketing. This concept has attracted attention from management researchers from the 1980s, searching for theory-based explanations for why first movers tended to earn ‘‘profits in excess of the cost of capital’’ (Lieberman & Montgomery, 1988, p. 41), achieve larger market share, or survive longer than competitors (Suarez & Lanzolla, 2007). In general, the entry timing literature highlights that pioneer firms obtain competitive advantages with regard to followers. These competitive advantages allow pioneer firms to obtain greater performance (Di Benedetto & Song, 2008; Robinson & Fornell, 1985; Schmalensee, 1982). Among other effects, it is assumed that a pioneering orientation will allow the firm to establish entry barriers against new competitors (Lieberman & Montgomery, 1988). Pioneers can also gain advantages because of the possibility of their influencing both the consumers’ memory and the perception of the characteristics of the products (Carpenter & Nakamoto, 1994; Zhang & Markman, 1998). This will allow the firm to obtain a greater performance (Golder & Tellis, 1993; Lieberman & Montgomery, 1988). However, the literature also identifies a series of disadvantages to pioneering, linked to imitation, the disruptive innovation of new entrants (Christensen, 1997), the ‘‘free rider’’ effect (Lieberman & Montgomery, 1988), the ‘‘harvest’’ effect (Boulding & Christen, 2003, 2008), technological and demand uncertainty faced by pioneers (Suarez & Lanzolla, 2007), changes in technology and customer needs once the pioneers have entered the market (Lieberman & Montgomery, 1988). In general, the theory on FMAs is broadly consolidated. Thus, the concept has enjoyed ample diffusion in the practitioner oriented literature, fuelling aggressive claims and an ongoing debate about whether the advantage actually exists. In this sense, the academic literature has been unable to provide conclusive empirical evidence to support or refute the existence of FMA (Suarez & Lanzolla, 2007). We consider that the predominance of pioneer advantages or disadvantages depends on several contingency factors. Entry mode research directly relates to the international activity of firms and includes studies on ‘‘the predictors of entry mode choices, predictors of international equity ownership levels, and consequences of entry mode decisions’’ (Werner, 2002, p. 281). Sharma and Erramilli (2004, p. 2) define an entry mode as ‘‘a structural agreement that allows a firm to implement its product market strategy in a host country either by carrying out only the marketing operations (i.e., via export modes), or both production and marketing operations there by itself or in partnership with others (contractual modes, joint ventures, wholly owned operations)’’. In this regard, most research has focused on analysing the factors that determine the entry mode (Javalgi, Deligonul, Ghosh, Lambert, & Cavusgil, 2010; Tseng & Lee, 2010). The analysis of the

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influence of entry mode on firm performance being an increasingly more requested aspect in the literature (Canabal & White III, 2008; Chen & Hu, 2002). In spite of focusing on different aspects, several studies have analysed together the entry mode and entry timing (Yadong, 1998). Thus, Papyrina (2007) analyses the joint effect of entry timing, referring to the stage of institutional reforms in China, and the entry mode in the survival of Japanese companies engaged in foreign investment in China. Furthermore, although some studies have found the main effect of pioneering in market share and profitability, others have discovered that the effect of first mover advantages may be conditional on other factors, such as entry mode and resource commitment (Isobe, Makino, & Montgomery, 2000; Pan, Li, & Tse, 1999). In this sense, Cui and Lui (2005) establish that there are interactions between entry order and entry mode with respect to their effects on market share and financial performance. Finally, Pan et al. (1999) conclude that the interaction between order and mode of entry shows that, for both equity joint ventures and wholly owned operations, the earlier the entry in a given product sector, the higher the firm’s market share is. 2.1. Environment and entry timing A review of the literature includes several contributions that, from the viewpoint of industrial organisation, have demonstrated the influence of environmental conditions on entry timing. These studies indicate that managers’ decisions are faced with uncertainty in market environment because of the lack of information about their industry and competitors or from their concern over the adverse effects of market environment on company goals. As far as the decision about the time of entry is concerned, there are two factors related to uncertainty that are especially important: dynamism (Suarez & Lanzolla, 2007) and the imitation capability of competitors (Lieberman & Asaba, 2006). Our focus on the variables of the environment is reflected in managers’ perceptions of the firm’s major industry. This is because it is assumed that managerial perceptions are the main factors that determine firms’ strategic behaviour (Boyd, Dess, & Rasheed, 1993). Environmental dynamism is linked to a steady level of entry and exit in the industry (Miller & Friesen, 1983) as well as to changes in demand, competitors and technological conditions (Boyd et al., 1993; Suarez & Lanzolla, 2007). We believe that the dynamism of the market can generate more opportunities for firms that develop pioneer behaviours in order to capitalise on emergent segments and gain a head start over their competitors. In periods of strong market dynamism, such as the creation of a new market, a great number of alternative technologies appear in the market. This is a time of great opportunities for pioneer firms.5 Pioneer firms have the possibility of controlling the direction of the industry’s technological evolution and can capitalise on changing technological paradigms by creating new industries or altering the definition of existing ones. These firms can also decide how the products are configured, produced and distributed, and can even influence competition rules. In this sense, in a dynamic environment, firms will find incentives for making an early entry into the market because of the expectations of achieving a great market share (Buzzel & Gale, 1987).6 We now propose the next hypothesis:

5 Several studies have indicated that, given the possibility that pioneer firms can wrongly interpret the changes in demand and technology, follower firms would be far better placed to identify and respond to the new environmental conditions, and could also benefit from fewer entry costs than market pioneers by making use of the pioneers’ previous investments (Robinson & Min, 2002). 6 Several empirical studies support the positive relationship between market dynamism and early entry (Ali, 1994).

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H1. A greater environmental dynamism has a positive influence on the promptness of entry timing. The influence of a firm’s perceptions about the industrial level of imitation on entry timing will also be examined. Firms develop a pioneer behaviour in order to appropriate emergent segments, achieve scale economies, dominate industry standards or control the distribution channels, which can allow them to achieve a strong market position. Therefore, pioneer firms make great efforts to invest in R&D investments, market development and customer education, which can mean high risk. The chances of taking advantage of a pioneer firm’s efforts by means of imitation is one of the advantages that follower companies can achieve, but only if these companies have suitable imitation capabilities (Lieberman & Asaba, 2006). If the competitors are capable of quickly imitating the main characteristics of the products or cost advantages, FMAs will not be sustainable. Indeed, if the imitation capability of competitors is high, firms will prefer a wait-and-see strategy, avoiding the risk of pioneer behaviour. In fact, when there is imitation the result may be a net negative effect on pioneer entry (Boulding & Christen, 2008; Lee et al., 2000). In this sense, firms will enter the market later if there is a positive difference between innovation and imitation costs (Kerin et al., 1992). In line with these arguments, it is our view that a firm’s perception about the level of imitation in the industry is one of the main factors exercising a negative influence on the firm’s expectation to obtain sustainable FMAs, as a result of which it favours a late entry into the market. In this context, we propose the following hypothesis: H2. A greater level of imitation in the industry has a negative influence on the promptness of entry timing. 2.2. Capabilities and performance: mediator effect of entry timing Several studies have highlighted the limitations of the traditional approach of the RBV to explain the differences of performance in an industry (Priem & Butler, 2001; Shamsie et al., 2009; Teece et al., 1997; Winter, 2003; among others). On the one hand, it has been shown that not only the obtaining of specific resources, but the development of dynamic capabilities allows firms to obtain sustainable competitive advantages (Shamsie et al., 2009). It is also emphasised that the effect of capabilities on a firm’s performance is not direct but indirect (Zott, 2003). Therefore, we consider it necessary to analyse the factors that lead to that indirect relationship. In this sense, Lieberman and Montgomery (1998) link FMA Theory and RBV to overcome the empirical deficit of the RBV. Thus, several authors have highlighted the role of entry timing to link capabilities to a firm’s performance (Teece et al., 1997). However, this mediator role of entry timing has only been analysed from a theoretical standpoint (i.e. Finney et al., 2008), empirical studies being noticeable for their absence. Next, we propose several hypotheses which allow us to analyse the mediator role of entry timing on the relationship between capabilities and performance. In this sense, we first justify the hypotheses corresponding to direct effects, which will allow us to explain the mediator role of entry timing and the consideration of conditions established by Baron and Kenny (1986) to analyse the indirect effect.7 2.2.1. Influence of capabilities on firm performance The RBV postulates the importance of resources to obtain competitive advantages and, finally, a greater performance (Grant, 7 The analysis of the indirect effect by means of justifying the hypotheses on each direct effect is developed in other studies for the mediator role of several factors (for example, Lee, 2008; Mehta, Feild, Armenakis, & Mehta, 2009).

1991; Peteraf, 1993). According to this theory, available and idiosyncratic resources are the result of defects in the strategic factor market and in the internal process that restricts the strategic decision. Critics of the RBV highlight that broad conceptualizations of firms’ resources ignore important differences in firms’ assets and abilities (Priem & Butler, 2001).8 Some scholars have distinguished between firm resources and firm capabilities (for example, Makadok, 2001). Thus, a resource is a tangible or intangible asset. The capability construct is ‘‘the firm’s ability to integrate, build and reconfigure internal and external competences to address rapidly changing environments’’ (Teece et al., 1997, p. 516). In the last few years, several studies have appeared analysing capabilities and their influence on the obtaining and sustainability of competitive advantages (Shamsie et al., 2009; Teece, 2007; Winter, 2003; Zott, 2003; among others).9 As is highlighted by Teece (2007), capabilities enable business enterprises to create, deploy, and protect the intangible assets that support superior long-run business performance. The sustainability of a competitive advantage based on capabilities is justified because these capabilities make the creation of both greater barriers to imitation – ‘‘isolating mechanism’’ – (Winter, 2003) and strong inter-firm causal ambiguity possible (King, 2007). Several authors suggest including intermediate factors – entry timing, demand characteristics, product development, etc. – which allow firms to understand in a better way relationship capabilities and a firm’s performance, highlighting that the development of specific capabilities does not necessarily lead to an improvement in the firm’s performance (for example, Finney et al., 2008; Lee, 2008; Shamsie et al., 2009; Winter, 2003; Zott, 2003). In our study, we have included the capabilities construct proposed by Spanos and Lioukas (2001), in which the authors include a combination of marketing, technical and organisational capabilities. Spanos and Lioukas (2001) demonstrate that this configuration of capabilities has a significant direct effect on a firm’s performance. Therefore, in spite of the possible intermediate factors to be analysed, we consider that the firm’s availability of a superior configuration of capabilities, when taken as a whole, will exercise a positive effect on the performance achieved (Teece, 2007; Teece et al., 1997). Based on the arguments expounded here, we can propose the following hypothesis: H3. The availability of greater capabilities has a positive influence on a firm’s performance. 2.2.2. Influence of capabilities on entry timing The RBV is one of the main sources of contribution to the study of entry timing (Lieberman & Montgomery, 1998; Schoenecker & Cooper, 1998). Lieberman and Montgomery (1998) make two basic contributions with regard to the interaction between resources and capabilities and entry timing. Firstly, these authors highlight that a firm’s initial resources and capabilities affect the ideal moment of entry into the market and, secondly, they establish in which conditions an early entry can increase the accumulation of superior resources and capabilities in the firm. With regard to the first contribution, Lieberman and Montgomery (1998) highlight that the ideal entry timing into the market depends on the strengths and weakness of a firm’s resources and capabilities. We find several studies in the literature that analyse this relationship. Mitchell (1989) highlights that

8 Priem and Butler (2001) make several key criticisms of traditional RBV: RBV is tautological and prescriptive, different resource configurations can generate the same value for firms and the role of product markets is underdevelopment. 9 These studies establish interpretations of dynamic capabilities linked to organisational capability, core competences, organisational routines or combinative capabilities (Lee, 2008).

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specialized resources, with an idiosyncratic value in a new product or market, are the main determining factor on the decision about entry timing. Thus, this author observes that those firms with specialized resources tend to enter early into the market. Another interesting contribution is developed by Williams, Tsai, and Day (1991) who study the impact of intangible assets on the success perception of managers’ analysis of entry in a new market. These authors reach the conclusion that high levels of intangible assets and, particularly, the corporative image, increase the perception of success of a pioneer strategy and, therefore, favour the development of an early entry into the market. Furthermore, several studies analyse the factors that have an influence on entry timing, and conclude that the availability of capabilities leads the firm to develop a particular entry strategy (Lee, Beamish, Lee, & Park, 2009). Thus, Robinson et al. (1992) observe that those firms with important marketing capabilities and small corporations with an important brand image tend to enter late into the market. Another relevant contribution is offered by Thomas (1996), who analyses the effect of brand capital on entry timing, showing that those firms with a greater stock of brand capital are prone to enter early in new market niches with a new brand. Moreover, Schoenecker and Cooper (1998) highlight that previous research demonstrates the influence of certain internal factors on entry timing, without considering market conditions. In an empirical study, they establish that technical and marketing capabilities are linked to pioneer strategy. Several studies propose that networks and partnerships can facilitate the access to knowledge, learning, resources and capabilities, which are necessary to speed up and entrench the FMAs (Capello & Faggian, 2005; Suarez & Lanzolla, 2005). Several studies link the entry timing in a new market to the development of a certain entry mode – e.g. alliance, joint ventures, affiliation, acquisition, market transaction – to accede to certain complementary resources and capabilities to achieve FMAs (Belderbos, 2003; Claude-Gaudillat & Que´lin, 2006). The main capabilities analysed are those linked to entry timing are marketing, technical and organisational capabilities (Lee et al., 2009; Lieberman & Montgomery, 1998; Thomas, 1996; Williams et al., 1991). We consider that firms can expect to obtain and maintain FMAs if they are capable of combining complementary capabilities to explore and exploit the available opportunities. Therefore, following Finney et al. (2008), we consider that not only the specific resources or capabilities, but also the availability of a stronger combination of relevant capabilities – marketing, technical and organisational – will favour an early entry into the market. From these arguments we can propose the next hypothesis:

Pioneer firms can also obtain advantages because of their better positioning in the market, which will allow them to appropriate certain scarce resources. These resources will not be available when late followers enter the market (Golder & Tellis, 1993; Kerin et al., 1992; Lieberman & Montgomery, 1988; Robinson & Chiang, 2002). Finally, pioneer firms also have a greater access to distribution channels as well as the possibility of developing investments that will allow them to take over technological leadership. This leadership will provide pioneer firms differentiation advantages with regard to followers and information advantages with consumers (Golder & Tellis, 1993). As a consequence of the afore-mentioned advantages, Miller, Gartner, and Wilson (1989) argue that pioneer firms obtain greater market shares than followers. This can be explained because, in addition, the pioneer is the only firm in the market when it is created (Urban et al., 1986). Although there are many recognized advantages for pioneer firms, there are also several reasons to develop a late entry into the market (Schilling, 2002). We found several studies which propose possible advantages for follower firms (Moore, Boulding, & Goodstein, 1991; Robinson & Fornell, 1985; Schilling, 2002; Shankar, Carpenter, & Krishnamurthy, 1998). These advantages result in disadvantages for pioneer firms, linked to imitation, the disruptive innovation of new entrants (Christensen, 1997), the ‘‘free rider’’ effect (Lieberman & Montgomery, 1988), the ‘‘vintage effect’’ (Boulding & Christen, 2008), lower demand and technological uncertainty after the pioneer enters the market (Suarez & Lanzolla, 2005) and the ‘‘incumbent inertia’’ (Lieberman & Montgomery, 1988; Robinson & Chiang, 2002). Several authors highlight the role of environmental factors in FMAs, such as the pace of market evolution and the pace of technological evolution (Suarez & Lanzolla, 2007). In our study, we propose that, in general, the advantages obtained as a consequence of an early entry into the market are greater than the risks. Therefore, we consider that the promptness of the moment of entry into the market will have a net positive effect on a firm’s performance. From the previous arguments, we consider that early entrants have an important opportunity for defining the market, thus obtaining and maintaining competitive advantages. Therefore, it would be advisable to enter early into the market to obtain a greater level of performance (Di Benedetto & Song, 2008). Thus, we propose the next hypothesis:

H4. The availability of greater capabilities has a positive influence on the promptness of entry timing.

2.2.4. The mediator effect of entry timing on the relationship between capabilities and firm performance Apart from direct effects, our model also includes some indirect or mediator effects. In the previous hypothesis, a firm’s capabilities are linked to entry timing and, on the other hand, entry timing is linked to firm performance. In an implicit way, this discussion suggests that a firm’s capabilities have an influence on firm performance by means of their effect on entry timing. The direct effect of a firm’s capabilities on firm performance means that the development of greater capabilities has a positive influence on firm performance, whereas the indirect effect establishes that these capabilities also have an influence on firm performance owing to their relationship with entry timing. This is because, although a firm’s availability of capabilities has a positive influence on firm performance, this influence is reinforced by means of entry timing. So, although a firm’s capabilities exercise an influence on firm performance, it gives us an incomplete picture of the performance (Shamsie et al., 2009; Zott, 2003).

2.2.3. Influence of entry timing on firm performance In the literature on entry timing, a strong positive influence of pioneering orientation on firm performance has been emphasised (Cui & Jiang, 2009; Finney et al., 2008; Kerin et al., 1992; Kuivalainen, Sundqvist, & Servais, 2007; Robinson & Fornell, 1985; Urban, Carter, Gasking, & Mucha, 1986). Firms that develop a pioneer strategy will have an advantageous cost position with regard to followers (Lieberman & Montgomery, 1998; Robinson & Fornell, 1985). This advantage is established because of entry barriers, that have to be surpassed by those firms that enter into the market after the pioneer firm (Karakaya, 2002; Kerin et al., 1992). Furthermore, early entrants can limit the market for the products of competitor firms (Boulding & Christen, 2008; Urban et al., 1986) and can also influence the consumers’ system of preferences (Carpenter & Nakamoto, 1994; Golder & Tellis, 1993; Lieberman & Montgomery, 1998).

H5. The promptness of entry timing has a positive influence on a firm’s performance.

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According to Lieberman and Montgomery (1998), the kind of capabilities a firm has and entry timing must fit together, for the obtaining of competitive advantages. Therefore, the greater a firm’s configuration of capabilities, the earlier its entry into the market will be (Lee, 2008; Levesque & Shepherd, 2004; Lieberman & Montgomery, 1998; Thomas, 1996; Williams et al., 1991). Likewise, the more prompt the entry timing, the greater the firm performance (Carpenter & Nakamoto, 1994; Finney et al., 2008; Golder & Tellis, 1993; Kerin et al., 1992; Lieberman & Montgomery, 1998; Robinson & Fornell, 1985; Urban et al., 1986). In line with these approaches, we propose that pioneer behaviour can be a mechanism by means of which firms’ capabilities indirectly affect firm performance. In the next hypothesis we propose that the relationship between a firm’s capabilities and firm performance is mediated by pioneer behaviour. Thus, we propose: H6. The promptness of entry timing mediates the relationship between capabilities and firm performance. 2.3. Entry timing and firm performance: mediator effect of a firm’s strategy 2.3.1. Influence of entry timing on a firm’s strategy As highlighted in the marketing and strategy literature on entry timing, FMAs have been especially subject to analysis (e.g. Lieberman & Montgomery, 1998; Urban et al., 1986; Yada, Varadarajan, & Shankar, 2008). Furthermore, several authors highlight that pioneer firms tend to develop strategies that make it easier for them to take advantage of these potential advantages. Pioneer firms are encouraged to develop certain competitive tactics in order to expand and maintain these competitive advantages (Kerin et al., 1992). Along these lines, Robinson and Chiang (2002) highlight that entry timing has a durable impact on the development of certain product strategies. On the one hand, pioneer firms tend to develop competitive tactics linked to differentiation as a way of discouraging late followers’ entry into the market, especially in the most attractive markets (Hauser & Shugan, 1983). Among these competitive tactics, we can highlight the education of consumers in order to consolidate brand loyalty, and the efforts to control access to market. On the other hand, pioneer firms tend to develop competitive tactics oriented towards low cost, in order to protect themselves against those followers that introduce similar products into the market. Thus, Durand and Coeurderoy (2001) prove – contrary to their assumption – that pioneers tend to improve the FMAs with the development of a cost leader strategy. Although Porter (1980, 1985) has often argued against the simultaneous pursuit of low costs and differentiation strategies on the grounds that each of them involves a different set of resources and organisational arrangements,10 other authors have shown that low costs and differentiation may be compatible approaches for dealing with competitive forces (Miller & Friesen, 1986a, 1986b; White, 1986; Wright, Kroll, Pray, & Lado, 1995) and have postulated the pursuit of what has been termed ‘‘hybrid’’, ‘‘mixed’’, ‘‘integrated’’, ‘‘combination’’ or ‘‘utility’’ strategies (De Castro & Chrisman, 1995; Gopalakrishna & Subramanian, 2001; Johnson & Scholes, 1999; Spanos et al., 2004; Wijbenga & Witteloostuijn, 2007).

10 Porter (1980) suggested that above-average performance can only be achieved by adopting pure generic strategies based on either differentiation or cost advantage; in contrast, firms pursuing ‘‘stuck-in-the-middle’’ strategies possess no competitive advantage.

For pioneer firms, the explanation of the interest in developing hybrids and not pure strategies comes from the FMAs (Lieberman & Montgomery, 1998; Miller, 1992; Miller et al., 1989).11 The main argument in defence of the compatibility between low cost and differentiation strategies is that reaching a strong position in one of these two strategies may lead pioneer firms to improve their position in the other. As Miller and Friesen (1986b) and Miller (1992) point out, achieving a strong position in differentiation may entail an increase in the demand and market share of the firm, which will allow it to exploit certain economies of scale achieved as a consequence of the FMAs (Lieberman & Montgomery, 1998; Urban et al., 1986). In this sense, creating a brand image through investments in advertising can result in efficiency improvements thanks to a greater market share and an accumulated production volume (Kroll, Wright, & Heiens, 1999; White, 1986). Furthermore, with a strong position in costs, the pioneer firm will be able to invest its profits in marketing, service or product attributes, thus reinforcing its advantageous position in differentiation (Carpenter & Nakamoto, 1994) achieved as a consequence of the FMAs. Therefore, pioneer firms tend to develop a utility strategy, which combines differentiation and low cost, especially when they have to protect their advantages from followers’ threats (Miller, 1992). In line with these arguments, we propose the next hypothesis: H7. The promptness of entry timing has a positive influence on the development of a utility strategy. 2.3.2. Influence of strategy on firm performance From the strategic position approach (Porter, 1980, 1985), firms expect to gain an attractive strategic position (competitive advantage) derived from their strategic activities. The effects of strategies, acting individually or in combination, are that these provide the conditions for obtaining sustainable competitive advantages. De Castro and Chrisman (1995) highlight the viability of the utility strategy showing that, given certain situations, the differentiation strategy can generate the needed conditions to gain a low cost position. Furthermore, it is even valid that in certain situations, the utility strategy will not be only possible, but necessary for a firm to be competitive. Following Chrisman, Hofer, and Boulton (1988), we consider that a firm’s efforts to compete with both strategies – differentiation and low cost – can be especially important when efficiency is sustainable and differentiation strategy opens new ways to gain not only competitive advantages but also cost-saving. Furthermore, those firms that develop utility strategies obtain great value, combining the benefits derived from a differentiation position with the cost-saving derived from a deliberate low-cost positioning. In this sense, Spanos and Lioukas (2001) consider that these ‘‘utility’’ effects result from the particular offer made being the right fit for the specific needs of the market addressed. Spanos et al. (2004) also show that hybrid strategies, which combine low costs and high differentiation, allow firms to obtain greater levels of performance than pure strategies. Miller (1992) considers that those firms which develop pure strategies could face several problems: (1) strategic specialization may leave serious weaknesses in product offering and ignore important customers’ needs; (2) competitors may imitate pure 11 The main streams of the literature state that, in the product life cycle, emerging products are more frequently related to high R&D investments and to differentiation strategies than to low cost strategies (Covin et al., 2000; Hill, 1988; Makadok, 2001). However, some studies highlight that pioneers can develop low cost strategies to reinforce their survival, fortify their competitive position and establish strong entry barriers with regard to followers (Durand & Coeurderoy, 2001; Kerin et al., 1992). We subsequently explain the special characteristics of first mover advantages to justify the interest of developing hybrid and not pure strategies by pioneer firms.

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strategies more easily than hybrid strategies; and (3) pure strategies can make the firm more vulnerable and rigid to market and changes in customers’ needs and tastes. Those firms that develop a utility strategy may address customers’ needs better, may be more difficult to imitate and may generate a more flexible and wider view (Pertusa-Ortega et al., 2009). This strategy is especially necessary when there are important changes in supply and demand conditions of the market environment (Proff, 2000). We propose that the hybrid strategy will be successful if the firm can offer both greater benefits for the customer and low prices, and can obtain sufficient margins to invest, maintain and develop the basis for differentiation (Johnson et al., 2007).12 Hybrid strategies will allow a firm to obtain greater levels of performance. Moreover, the emphasis on several strategic dimensions to configure a solid utility strategy will lead the firm to success (Dobni, 2010; Muafi, 2009; Pertusa-Ortega et al., 2009; Spanos et al., 2004). In line with these arguments, we can propose the following hypothesis: H8. The development of a utility strategy has a positive influence on a firm’s performance.

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strategy, by means of a combination of efforts in cost reduction and differentiation, is a mediator variable, which explains the obtaining of greater levels of performance by early entrants. We consider that early entry favours the development of a utility strategy which, at the same time, has a significant influence on firm performance. The discussion suggests, in an implicit way, that entry timing affects firm performance by means of its effect on utility strategy. Therefore, we expect to obtain not only a direct effect of entry timing on firm performance, but also a significant indirect effect by means of utility strategy. From these arguments we propose the next hypothesis: H9. The development of a utility strategy mediates the relationship between entry timing and a firm’s performance. Fig. 1 shows the proposed theoretical model and proposed hypothesis, which represents the relationships between the analysed variables. 3. Methods 3.1. Sample

2.3.3. The mediator effect of the utility strategy on the relationship between entry timing and firm performance The literature on entry timing has demonstrated the positive effect of pioneer behaviour on firm performance, assuming several advantages derived from early entry into the market (Finney et al., 2008; Kerin et al., 1992; Kuivalainen et al., 2007). In this sense, early entry allows a firm to gain low cost positions, which reinforce the entry barriers against new competitors (Lieberman & Montgomery, 1988). Furthermore, pioneers obtain a greater brand image, a favourable position in the consumers’ system of preferences and a greater control of distribution channels (Carpenter & Nakamoto, 1989; Golder & Tellis, 1993). On the other hand, several studies challenge whether pioneer entry leads the firm to obtain directly significant advantages. Indeed, pioneers in technological industries, with high technological and demand uncertainty, can endure difficult situations because of risks due to an incomplete knowledge of consumers’ preferences and reactions, the level of potential demand or established production capacity (Shepherd & Shanley, 1998; Suarez & Lanzolla, 2005). Moreover, pioneers can also endure the ‘‘free-rider effect’’, which means that followers can take advantage of the efforts developed by pioneers (Boulding & Christen, 2008; Lieberman & Montgomery, 1988). Following the strategic position approach (Porter, 1980, 1985), we can assume that competitive strategies mediate the relationship between entry timing and firm performance (Kerin et al., 1992; Shamsie et al., 2004). We consider that the obtaining of low costs and product differentiation are not only advantages derived from a pioneer entry into the market, but also competitive factors that form a utility strategy, increasing entry and imitation barriers with regard to followers (Makadok, 1998). Thus, the pioneer firms that develop both cost and differentiation strategies, will be able to consolidate the advantages from an early entry and reinforce their temporary monopoly position (De Castro & Chrisman, 1995). In this sense, pioneer entry can encourage the firm to develop a utility strategy that, at the same time, generates an indirect positive effect on firm performance. Therefore, we consider that the utility

We have chosen to concentrate on a sample of firms that develop international activities from the Information and Communications Technology (ICT) Industry in Spain.13 According to the report developed by ASIMELEC (Firms Association of the ICT Industry), this industry provides 7.07% of the Spanish GDP, generates more than 350,000 direct posts, and several million indirect posts. In 2008, the ICT Industry in Spain obtained a turnover of 77,431.5 million euros. This represents a growth of 0.1% with regard to the 77,335.4 million euros obtained in 2007. In order to establish the total number of firms in this sector we have used, first, two official data bases: SABI14 and Camerdata.15 In order to complete the original file and update records, we used the databases ANIEL16 and the census of exporters.17 We added an additional condition, namely, not to include those companies that had fewer than 10 employees since, in companies of such a small size, their characteristics differ substantially from the considerations raised in the theoretical argumentation, and hence a minimal operative structure and a specific study are required (Spanos & Lioukas, 2001). Once we had eliminated duplicated cases resulting from the use of different information sources and selected those firms that developed international activities, we were left with a database with 1623 records. Prior to sending the definitive questionnaire, we conducted a pre-test with the CEOs of nine companies in the analysed sector. Once we had the final questionnaire, we sent it to the whole population of 1623 companies. As mentioned earlier, the information we wanted to study was gathered by means of a postal questionnaire directed to the CEO of the companies involved, which was sent and returned to us completed by mail. After 3 weeks we proceeded to send the questionnaire again. After eliminating those questionnaires that were incomplete or had not been answered by the CEO, we had a total of 232 valid questionnaires, which constitutes a rate of response of 14.29%, which we can consider acceptable in view of the low index of 13

The information was gathered between January and March 2003. SABI is a directory of Spanish and Portuguese firms that gathers general information and financial data. In the case of Spain, it compiles information on more than 95% of the firms with total yearly revenues over 360,000–420,000 s from the 17 Spanish regions. 15 The Camerdata database compiles a directory of all Spanish firms from the network of local Chambers of Commerce. 16 Spanish Association of the Electronic and Telecommunications Industry. 17 It contains information on Spanish Exporters, classified by sectors, which offer easy access and release data to the public. 14

12 Johnson et al. (2007) envisage several situations in which a firm can generate advantages from an hybrid strategy: (1) the firm can obtain a greater output than the competitors, because its margins can also be greater than those obtained by the competitors; (2) the firm knows exactly what the key activities are that allow them to differentiate from competitors, reducing costs in other activities; and (3) the firm enters into a market with established competitors, detecting activities wrongly managed and entering with a better product and a lower price.

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Imitation

H2 (-)

H7 (+)

Utility Strategy

Size

H8 (+)

H9 (+)

Entry Timing H6 (+)

General Performance

H5 (+)

H1 (+)

Dynamism

H4 (+)

Resources & Capabilities

H3 (+)

Age

Fig. 1. Proposed model and hypotheses.

response to mail surveys. With regard to the sampling error, for a confidence level of 95%, and the least favourable situation of p = q = 0.5, we have an error of 6.08%. We developed a t-test for all the variables included in the study between the firms that responded during the first 3 weeks (161) and the firms that responded later (71). No significant differences were found between these two groups. Furthermore, we have compared the mean value of the size variable between all firms and those included in the sample. We have obtained similar values in both cases. Therefore, following Amstrong and Overton (1977), a ‘‘nonresponse bias’’ was not detected. 3.2. Measurement The questionnaire design was developed from a wide review of the literature, which allowed us to measure the great majority of analysed variables from valid scales. In order to improve content validity, we developed a pre-test with nine companies of the sector. Likewise, we also developed in-depth discussions with academics and experts in the design of questionnaires. In these meetings, we went through the questionnaire, so that these experts could establish possible critiques and improvements. We ensured that, for every variable, we had chosen the best possible scale of measure. 3.2.1. Control variables In this study, we included the variables size and age as control variables. Size is frequently included in studies to control the effect that it can have on firm performance. Big firms can own more resources to obtain a better position in the market and develop scale economies that will help them achieve a better performance (McEvily & Zaheer, 1999). This variable has been included through the natural logarithm of the number of employees (Spanos & Lioukas, 2001). The variable age is usually included in the studies in order to control its influence on firm performance (Zahra, Ireland, & Hitt, 2000). 3.2.2. Entry timing/pioneer behaviour Entry timing has been measured in two distinct ways. Thus, a large number of studies, especially those in the U.S., use the PIMS database, which differentiates between pioneers and followers according to the self-classification of the firms (Lieberman & Montgomery, 1998; Robinson & Fornell, 1985; Urban et al., 1986). On the other hand, there are other studies that measure the entry timing as continuous, spreading from the market pioneer to late follower, in line with the approaches of Shepherd and Shanley (1998). In our case we reviewed the scales proposed by Zahra (1996) and Covin et al. (2000) and we decided on the use of the latter, since the items comprising it perfectly reflect the definition of pioneer behaviour upon which our study focuses. Thus, this variable was measured with a three-item scale adapted from the study of Covin et al. (2000). The scale finally included in the study removes an item from the original because of individual reliability.

This scale is as follows: we compete heavily on the basis of being first to the market with new products, we typically precede our major competitors in bringing new products to the market and we offer products that are unique and distinctly different from those of our major competitors (Chronbach’s alpha of 0.71). This scale has allowed us to use a variable that reflects the propensity of high technology firms to develop a pioneer behaviour, which is not only to create a new product or to enter a specific market, but also a way of going about making decisions and taking actions (Covin et al., 2000). We have used a five-point Likert scale which, though supporting a bias derived from a subjective valuation of the moment of entry in the market, eliminates the tendency of the late follower group existing in the PIMS database to self-exclude (Golder & Tellis, 1993). In order to establish the response consistency of the variable moment of entry, we examined the correlation between the moment of entry and the variable of competitive proactiveness, which is measured with two items adapted from Venkatraman (1989) (Chronbach’s alpha of 0.77). The results obtained show a level of correlation of 0.55 positive and significant to 99%, so that we may consider the response consistency established. 3.2.3. Capabilities In order to select the most suitable and solid configuration of a firm’s capabilities, we have reviewed several studies (Lilien & Yoon, 1990; Robinson et al., 1992; Spanos & Lioukas, 2001). Finally, we have included the Spanos and Lioukas (2001) scale because it gathers a variety of aspects linked to the achievement of FMAs. This scale distinguishes three kinds of capabilities: marketing, technical and organisational capabilities. Marketing capabilities refer to the output-based competences. The construct includes four items: advantages in the relations with clients, customer ‘‘installed base’’, control and access to the distribution channels and market knowledge. Technical capabilities refer to the necessary technical and technological abilities needed to transform inputs into products. The construct includes three items: technological capabilities and equipment, economies of scale and technical experience, and efficient and effective manufacturing department. Finally, organisational capabilities are linked to organisational and managerial processes. The construct includes five items18: efficiency in the organisational structure, knowledge and skills of employees, managerial competences, the procedures of strategic planning and the ability to attract creative employees. We have used a ‘‘second order’’ construct to measure the key capabilities as a whole (Spanos & Lioukas, 2001). Therefore, the capabilities construct is composed of all three ‘‘first order’’ constructs – marketing, technical and organisational capabilities.

18 The original scale included 7 items for measuring managerial capabilities. However, the tests we developed for checking the validity of the measuring model led us to eliminate these items.

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3.2.4. Environment The environmental variables we have included in the study are dynamism and level of imitation. Market dynamism reflects the difficulty of predicting industrial changes and a steady movement of entry and exit in the industry (Miller & Friesen, 1983). In this case, after revising several scales: Miller and Droge (1986), Miller (1987), Bantel (1998) and Zahra and Bogner (1999), we decided to include an adaptation of the scale proposed by Miller (1987). In order to adapt the original scale to the aims of our study, we briefly modified the original items. The adapted scale gathers the level of change on several variables that are especially important for the development of pioneering. This variable was measured by means of a four-item scale. The scale is as follows: the opportunities of the environment grow strongly, the technology in my sector changes frequently, the innovation in processes and products or services grows strongly, and the research and development activity in my sector grows strongly. The imitation level in the sector can be defined as the group of market reactions to a new product’s introduction (Chaney, Devinney, & Winer, 1991). The imitation level will be high if, when a new product is introduced into the market, there are many actions to imitate it. Conversely, the imitation level will be low, if there are hardly any actions to imitate it at all. In this case, we have not found a validated scale for measuring this variable, so we have created a scale for this purpose. This variable was measured with a two-item scale adapted from Lee et al. (2000). The scale is as follows: the firms in the sector usually imitate new products introduced into the market rapidly and competitors have unique capabilities of imitating new products introduced into the market. 3.2.5. Strategy In order to measure strategy, we use the scale developed by Robinson and Pearce (1988), a modified version of the scale proposed by Dess and Davis (1984). We have chosen this scale because the set of variables measured includes key variables which have been shown to be associated with research on entry timing and lay the fundamental basis for competitive advantage, namely differentiation and low cost (Covin et al., 2000; Porter, 1980, 1985). Both scales have been included in a wide range of studies (e.g. Doty, Glick, & Huber, 1993; Kotha & Vadlamani, 1995; Kotha, Dunbar, & Bird, 1995; Spanos & Lioukas, 2001). In our study, strategy is conceptualized as a ‘‘second order’’ construct, which is composed of two ‘‘first order’’ strategic dimensions: low cost and differentiation (Spanos & Lioukas, 2001). We regard this construct as the ‘‘utility’’ strategic dimension, on which a firm can score low or high. We determined low cost and differentiation strategic dimensions from a factorial analysis with the scale developed by Robinson and Pearce (1988). We obtained three representative items of the low cost strategy – lower costs per unit, pricing below competitors and low priced market segment – and four items19 for measuring the differentiation strategy – influence on distribution channels, innovation in marketing techniques, advertising and promotion and efforts for improving the quality of advertising. 3.2.6. Firm performance In this study we have included general performance as the dependent variable. In order to reflect the performance of the company adequately, we calculated the product of CEOs’ selfreported importance and satisfaction (Gupta & Govindarajan, 1984) for five items20: profitability over investment; net margin of benefit; market share; growth of sales; and general performance 19

After developing the factorial analysis we obtained 5 items; however, the tests we developed for checking the validity of the measuring model led us to eliminate these items. 20 We established the extension of the temporary horizon of measure to 3 years (Dowling & McGee, 1994) as an approximation to the sustainability of performance. In this sense, respondents were asked to evaluate the five items over the previous 3 years (Spanos & Lioukas, 2001).

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(Chronbach’s alpha of 0.81). These items were selected to reflect the variety of goals relevant to different strategic thrusts and are consistent with the desirability of a multidimensional approach to performance measurement. Subjective performance measures have been widely used in research related to competitive strategy (Dess & Davis, 1984; Robinson & Pearce, 1988; Venkatraman & Ramanujan, 1986). In addition, this scale has been used very frequently in the literature, such as recently in the study of Subramanian, Kumar, and Strandholm (2009). Subjective measures of performance were used for two reasons: first, the difficulty in accounting for industry differences on objective financial data; secondly, the strong reluctance of firms to provide objective data (Robinson, Salem, Logan, & Pearce, 1986). In addition, in order to verify the reliability of the self-reported measures of performance included in the study, we proceeded to calculate the correlations between these measures and objective measures of performance, which were obtained from the SABI21 database – return over investment and growth of sales. We found, for a sub-sample of 81 firms, that the correlations were positive and significant. Therefore, the hypothesis of independence between the variables was rejected by a significant level of 95%. 3.3. Analysis Structural equations analysis was used since it has some advantages over traditional multivariate techniques (Haenlein & Kaplan, 2004). We used partial least squares (PLS) with PLS-Graph software to analyse data. We consider that this technique is especially useful for our study since PLS is particularly suitable for data analysis during the early stage of theory development, where the theoretical model and its measures are not well or definitely formed. On the other hand, we consider that PLS is a suitable analysis technique for our study with the advantages it offers over the structural equations models based on the covariance because PLS does not require assumptions about multivariate normality, places minimum requirements on sample and measurement scales, and is more suitable for small samples (Chin, 1998; Falk & Miller, 1992; Fornell & Bookstein, 1982; Hulland, 1999). Furthermore, a large number of variables can be handled with PLS, it employs simpler algorithms, estimates of latent constructs in PLS have a more practical meaning since its formation is clear and it allows building a complex framework of a multi-block analysis (Diamantopoulos & Winklhofer, 2001; Tenenhaus, 2008). On the other hand, PLS is quite robust against skewed distributions in the manifest variables, multicollinearity, both among latent variables and among indicators, and the incorrect specification of the structural model – omission of regressors (Cassel, Hackl, & Westlund, 1999). Furthermore, SEM techniques are particularly recommended to test the mediation hypothesis (James, Mulaik, & Brett, 2006). In fact several recent studies can be found using PLS technique (i.e., Ainuddin, Beamish, Hulland, & Rouse, 2007; Cording, Christman, & King, 2008; Khoja & Maranville, 2009). The level of statistical significance of the coefficients of both the measurement and the structural models was determined through a bootstrap re-sampling procedure (500 sub-samples). 4. Results 4.1. Measurement model To evaluate item reliability we examined loadings (l). In this study, all loadings exceeded the recommended threshold of 0.7 21 It was not possible to obtain information about objective measures of firm’s performance for all the firms from the SABI database because of the anonymous character of the questionnaire.

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Fig. 2. Results. Table 1 Reliability. Constructs

Composite reliability

AVE

Entry timing Performance Capabilities Strategy Imitation Dynamism

0.83 0.88 0.86 0.79 0.89 0.85

0.63 0.59 0.68 0.65 0.79 0.60

(Carmines & Zeller, 1979). Construct reliability was assessed using composite reliability (rc), which is similar to Cronbach’s alpha. Nunnally (1978) suggests 0.7 as a benchmark for ‘modest’ reliability and 0.8 for ‘‘strict’’ reliability. As we can observe in Table 1, all constructs, except strategy construct, exceeded the value of 0.8. To assess the convergent validity we used average variance extracted (AVE). All constructs exceeded the recommended 0.5 threshold (Fornell & Larcker, 1981). Finally, in order to achieve discriminant validity, a construct must relate more strongly to its indicators than to other constructs in the model. In order to value discriminant validity it is necessary to use the mean extracted variance (Fornell & Larcker, 1981). In this sense, we compared the square root of the AVE (the diagonal in Table 2) with the correlations among constructs (the off-diagonal elements in Table 2). We can observe that the square root of AVE for all constructs is greater than the correlation between constructs, which suggests that, on average, each construct relates more strongly to its own measures than to others. 4.2. Structural model Structural model evaluation is conducted by examining the size and significance of the path coefficients and the R2 values of the dependent variables. Fig. 2 shows the results of the model analysis and the amount of explained variance. The results allow us to corroborate all the study’s hypotheses. The two proposed hypotheses on the influence of environmental conditions on entry timing have been corroborated. Thus, we can observe that market

dynamism has a positive and significant influence on entry timing (H1: b = 0.19, p < 0.01), whereas the level of imitation has a negative and significant influence (H2: b = 0.23, p < 0.01). The results also allow us to corroborate hypothesis 3. There is a direct, positive and significant influence of a firm’s capabilities on firm performance (H3: b = 0.37, p < 0.001). We have also corroborated hypothesis 4, which proposed a positive influence of a firm’s capabilities on entry timing (H4: b = 0.40, p < 0.001). On the other hand, the obtained results show a positive and significant direct effect of entry timing on firm performance (H5: b = 0.12, p < 0.05), which allows us to corroborate hypothesis 5. In hypothesis 6, we proposed an indirect effect of a firm’s capabilities on firm performance by means of entry timing. To corroborate this hypothesis the four conditions established by Baron and Kenny (1986) have to be met. We observe that, for this mediator effect, the first condition is satisfied because the independent variable – capabilities – has a positive (b = 0.52) and significant influence (p < 0.001) on the dependent variable – firm performance. The second condition establishes a positive relationship between the independent variable and the mediator variable, that is, entry timing. This condition is satisfied by means of the corroboration of hypothesis 4. On the other hand, the third condition requires a relationship between the mediator variable and the dependent variable – firm performance. This condition is satisfied by means of the corroboration of hypothesis 5. The fourth condition establishes that the relationship between the independent variable and the dependent variable should be eliminated or at least reduced, when the mediator variable is included in the model. In this sense, when we introduce these three variables in the model, the coefficient b diminishes (from b = 0.52 to b = 0.47), but the relationship between capabilities and firm performance is still significant, p < 0.001, which means that entry timing mediates partially the relationship between a firm’s capabilities and firm performance. Therefore, we can accept hypothesis 6. In hypothesis 7 we proposed a positive effect of entry timing on the utility strategy. As we can see from Fig. 2, the results obtained allow us to corroborate this hypothesis (H7: b = 0.28, p < 0.001). Furthermore, the results obtained allow us to corroborate hypothesis 8, that is, there is a positive and significant influence of the utility strategy on firm performance (H8: b = 0.21, p < 0.01).

Table 2 Discriminant validity and correlations.

Entry timing Performance Capabilities Strategy Imitation Dynamism

Entry timing

Performance

Capabilities

Strategy

Imitation

Dynamism

0.792 0.336 0.415 0.282 0.141 0.210

0.771 0.525 0.427 0.037 0.129

0.823 0.484 0.099 0.198

0.806 0.298 0.164

0.893 0.240

0.774

P.M. Garcı´a-Villaverde et al. / Journal of World Business 47 (2012) 297–310 Table 3 Direct and indirect effects.

Dynamism ! entry timing (H1) Imitation ! entry timing (H2) Capabilities ! performance (H3 and H6) Capabilities ! entry timing (H4) Entry timing ! performance (H5 and H9) Entry timing ! strategy (H7) Strategy ! performance (H8) Size ! performance Age ! performance

Direct

Indirecta

Total

0.185 0.225 0.369 0.400 0.120 0.282 0.214 0.046 0.023

– – 0.072 – 0.060 – – – –

0.185 0.225 0.441 0.400 0.180 0.282 0.214 0.046 0.023

a We obtained the indirect effects by multiplying the coefficients of the different ways which have significant values.

With regard to hypothesis 9, and reviewing the same conditions expounded in hypothesis 6, we observe that the first condition is satisfied, because individually, entry timing has a positive (b = 0.33) and significant influence (p < 0.001) on firm performance. The second and third conditions are satisfied with the corroboration of hypotheses 7 and 8. Finally, when we include the effect of the ‘‘utility’’ strategy on firm performance, the coefficient b diminishes (from 0.33 to 0.23), although the relationship between entry timing and firm performance is still significant, so there is a partial mediator effect and, therefore, we corroborate hypothesis 9. The proposed model shows an acceptable capacity to explain entry timing and firm performance. Entry timing is reasonably well explained by three dimensions of the model (R2 = 0.24). The main factor is capabilities, which explains 16.6% of variance of entry timing. The environmental factors, market dynamism and level of imitation, explain only 3.9% and 3.2% of variance of entry timing respectively. Firm performance is better explained by the model factors (R2 = 0.33). Concretely, capabilities, ‘‘utility’’ strategy and entry timing explain 19.4%, 9.1% and 4% of the variation of the firm performance construct. All the explanatory variables overcome the minimum level demanded by Falk and Miller (1992) – 1.5% of the variance. In Table 3 we offer a summary of the direct and indirect effects for the variables included in the model.

5. Discussion and conclusions In this study, we propose and verify a model that provides a better understanding about the implications of entry timing. Focusing on a sample of firms that develop international activities from the ITC industry, we have shown that a high level of dynamism, linked to changes in market and technology, leads firms to an early entry into the market. On the other hand, given high imitation capabilities of competitors, firms tend to develop a later entry into the market. These results contribute towards demonstrating the influence of certain environmental conditions on entry timing, following the industrial organisation approach. This study provides support for the RBV. When a firm has superior capabilities with regard to competitors, it achieves important competitive advantages. First, we have demonstrated that a solid base of capabilities encourages firms to enter early into the market, according to Lieberman and Montgomery (1998). We have also shown that relevant capabilities have a strong influence on firm performance. In any case, the most important contribution is the verification of the mediator role of entry timing. This mediator effect gives a stronger explanation for the advantages obtained from a greater accumulation of capabilities. Indeed, this study shows that the total effect (direct and indirect) of capabilities on firm performance (0.44) is the greatest effect of those analysed.

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The results obtained lend empirical support to the contributions of the strategic position approach on the FMA perspective. In this sense, we prove that those firms that enter early into the market tend to develop hybrid strategies, which combine a great effort in efficiency with a superior differentiation. The implementation of these strategies, named utility strategies, gives a better explanation for the obtaining of superior FMAs. Furthermore, the results obtained show that the direct effect of entry timing on firm performance is reduced when we include other independent variables – capabilities – and especially, the mediator effect of utility strategy. However, this direct effect is still significant. These results highlight the relevance of strategy for linking entry timing and firm performance (Covin et al., 2000; De Castro & Chrisman, 1995). In this sense, we consider that the competitive advantages of low cost and differentiation gained by early entrants are also increased because these firms tend to develop utility strategies that promote entry and imitation barriers against followers to gain greater levels of performance. We also offer researchers a way of overcoming several traditional limitations of entry timing research (Lieberman & Montgomery, 1998; Suarez & Lanzolla, 2007; Szymanski et al., 1995). In this respect, we can emphasize that we have restricted our analysis of the pioneer, focusing this study on the moment of entry into the market. With this purpose in mind, we have followed the recommendations of different authors (Golder & Tellis, 1993; Lieberman & Montgomery, 1998), paying special attention to the market pioneer and differentiating it from other figures (product pioneer and process pioneer), which can be confused with the market pioneer and generate ambiguities in the results obtained. On the other hand, in order to measure entry timing, we have treated this variable as continuous, spreading from market pioneer to late follower, in line with the approaches of Shepherd and Shanley (1998). Furthermore, our measurement of performance includes profitability items, an aspect that has been greatly missed in previous studies. Vanderwerf and Mahon (1997) highlight that there is a strong tendency to detect FMAs in studies that include market share as measurement of performance. We also propose broader capabilities and strategy measures. Thus, we have proposed two ‘‘second order’’ constructs, which have a high reliability and have allowed us to reduce the complexity of the model. The capabilities construct is composed of three relevant capabilities, which the entry timing investigations study only partially. ‘‘Utility’’ strategic dimension is composed of two competitive factors – low cost and differentiation (Li & Li, 2008; Spanos & Lioukas, 2001) – and only De Castro and Chrisman (1995) have related these factors holistically to entry timing. Another contribution of the study is that, for the development of the empirical analysis, we have chosen a sector in which it is more difficult to prove the sustainability of competitive advantage (Makadok, 1998). In this way, unlike the limitations of numerous studies that have detected advantages in being the first to enter in mature sectors, traditionally profitable sectors for pioneer companies (Lieberman & Montgomery, 1988), we have developed the study in a sector in which the advantages of pioneer strategy are more dubious, precisely because these advantages are more easily eliminated and on account of the risk that this strategy implies for the companies. In the development of the present study, we assume several limitations that concern, in part, the extension of the results obtained. First, we must indicate the cross-sectional and nonlongitudinal approach of the study. Nevertheless, we think that, because of the detailed information required to achieve our research aims, a longitudinal study would be excessively complex. In any case, we believe that the cross-sectional approach of the study suffices for the proposed aims, having already been put to good use in other studies on entry timing (Wiklund & Shepherd,

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2005). Furthermore, in spite of the efforts developed to validate scales and measures, the potential bias cannot be excluded. In any case, the broad effort to select the measures included in the study guarantee, as much as possible, their validity. Furthermore, the perceptions of the CEOs with regard to the main aspects of this study would not necessarily coincide exactly with objective reality, which might lead to possible limitations in the results obtained. In our case, in agreement with the approaches of Spanos and Lioukas (2001), we think that managerial perceptions are very important in shaping the extension of the company’s strategic behaviour. Finally, we must acknowledge that some of the proposed hypotheses have been tested previously in the literature. However, we needed to include them in order to propose and test the model of entry timing and the indirect effects that constitute the main contribution of our study. 5.1. Managerial relevance Several implications for managers can be drawn. First, firms should analyse the industry environment conditions before establishing their pioneer or follower orientation. In this sense, high technology and market dynamism should lead managers to a pioneer orientation, whether these changes generate expectations for obtaining FMAs. However, given the difficulties in appropriating the FMAs because of the competitors’ high capacity for imitation, managers should move towards a follower orientation. On the other hand, managers should evaluate whether their firms have the capabilities suitable for market conditions and so be able to enter the market as pioneers. Thus, because of the influence of the capabilities on pioneer behaviour and the obtaining of competitive advantages, we recommend firms to develop a configuration of complementary capabilities – marketing, technical and organisational – for the long term, which will allow them to explore and exploit opportunities for FMAs. With this aim in mind, firms should nurture themselves from the relationships with internal and external agents. From a complementary perspective, we would caution firms that the availability of strong capabilities does not necessarily lead to a high performance. In this sense, firms with strong complementary capabilities, should take advantage of them and exploit them adequately through a pioneer orientation that leads them to the achievement of a high performance. Finally, in contrast to the traditional proposal, which encourages firms to be pioneer regardless of the context in which they are placed, we recommend that firms properly assess the potential long-term advantages and risks of a pioneer entry. In this sense, firms should also try to consolidate and boost new FMAs, developing strategies that combine low cost and differentiation. 5.2. Future research The conclusions of this paper lead us to establish a series of proposals for future studies. We propose to include other factors to improve the explanation of entry timing behaviour, for example, hostility or inertia of the main competitors. A possible extension of this study would be to develop a longitudinal study, which would allow us to analyse how the evolution of capabilities influences entry timing and firm performance. Furthermore, a more detailed study is called for, on how pioneer entry influences the development of new resources and capabilities, as proposed by Lieberman and Montgomery (1998). On the other hand, it would be interesting to include in future studies the effect of partnership advantages and entry mode in our model. Following Belderbos (2003) and Claude-Gaudillat and Que´lin (2006), we could analyse the role of the entry mode to reduce technology and demand uncertainty and to access relevant complementary capabilities in order to have earlier entry and

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