How do foreign ties affect international market attractiveness?
When considering international expansion, entrepreneurial firms use their network of social ties to gain information about which foreign markets to enter. Their assessment of each opportunity depends on many factors. This research examines three such factors.
What you need to know:
When assessing foreign markets for entry, entrepreneurs will be impacted by the characteristics of their foreign social ties. Having many strong relationships with diverse individuals and firms increases the likelihood of a positive view of the market those ties are connected to. Their market assessment is also impacted by the firm’s ability to:
- acquire, learn from and act on information from their ties, and
- their level of trust in these ties.
What did the researchers do?
Anne Domurath and Holger Patzelt asked: What impact do the following have on a firm’s perception of the attractiveness of a foreign market:
- the characteristics of the firm’s foreign social ties;
- the firm’s ability to acquire, absorb and act on information received about the foreign market (their absorptive capacity); and
- the general level of trust the firm has in their foreign social ties?
The pair studied 136 German entrepreneurs to test their model linking social ties, absorptive capacity, and trust with a firm’s assessment of international entry options.
What did the researchers find?
The team found that the number of social ties within a foreign market, the similarity of those ties, the strength of the relationship with the ties and the frequency of communication with the firm all have an impact on the firm’s perception of that foreign market. A firm having more and diverse connections to a foreign market will tend to have a more positive view of that market’s potential. Foreign ties who are willing and able to build lasting relationships with frequent communication were found to be the most influential on a firm’s market assessment.
The firm’s ability to take in, learn from and act on the information it receives from its foreign ties has a direct effect on the firm’s foreign market assessment. If a firm is unable to absorb the information available, it is likely to perceive the foreign market in a negative light.
Finally, an entrepreneur’s trust in others impacts their assessment of a foreign market. A high level of trust allows an entrepreneur to acquire information from others more easily. The stronger the tie between an entrepreneur and a foreign contact, the more trust is likely to exist in the relationship and the more positively the firm will assess the information received.
How can you use this research?
Entrepreneurial firms can use this research to develop their ability to learn and use new knowledge by hiring employees or advisors with international experience and strong ties to foreign markets of interest. They can also use this research to reflect and improve upon their current market assessment process.
Firms seeking international expansion can use this research to expand their networks to include more diverse individuals and firms who can provide new information or new contacts within the foreign market of interest.
Want to know more?
Article citation: Domurath, A., Patzelt, H. (2016). Entrepreneurs’ Assessments of Early International Entry: The Role of Foreign Social Ties, Venture Absorptive Capacity, and Generalized Trust in Others. Entrepreneurship Theory and Practice, 40, 5, pp 1149-1177.