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Following in Partners’ Footsteps: An Uncertainty‐Reduction Perspective on Firms’ Choice of New Markets
Author(s) -
Makarevich Alex,
Kim YoungChoon
Publication year - 2019
Publication title -
journal of management studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.398
H-Index - 184
eISSN - 1467-6486
pISSN - 0022-2380
DOI - 10.1111/joms.12346
Subject(s) - business , perspective (graphical) , context (archaeology) , panel data , general partnership , industrial organization , test (biology) , relevance (law) , marketing , economics , artificial intelligence , computer science , paleontology , finance , political science , law , econometrics , biology
ABSTRACT In this paper, we develop a new perspective on what determines firms’ choice of new markets for entry. First, drawing on the open‐system theoretical tradition and literature on inter‐organizational networks, we advance and empirically test the proposition that firms tend to enter new markets to which they are connected by partnership ties. We then show that this network influence is filtered through the structure of firms’ network connections to new markets and firms’ experience. Specifically, we find that multiplicity of connections to new markets, as well as the extensiveness of firms’ experience and its relevance to new markets weaken the effect of network ties on firms’ choice of new markets. The results of this study indicate that firms’ choice of new markets for entry is a nuanced process that is affected by the interplay of firms’ collaborative ties, the structure of their network, and firms’ internal capabilities. We test our hypotheses in the empirical context of the U.S. venture capital (VC) industry using panel data over a 23‐year period and find broad support for them.