Pace of Expansion Across Latin America
By: Mariam Zafar
Mentors: Dr. Joseph Johnson, Dr. Sherry Bartz, Raju Parakkal
Introduction:
Empirical Analysis:
Regional expansion is an important aspect of global
marketing. Yet what determines the pace of regional
expansion? How is it affected by managerial decisions,
firm resources and country characteristics including
government policies? How critical is the first country
that a firm enters (i.e. the beachhead country) in a
regional expansion strategy? The closest research that
addresses these important questions borrows the
sprinkler-vs.-waterfall analogy to explain the timing of
international expansion. This study proposes that a
continuous variable —the pace of market entry —
underlies both the sprinkler and waterfall expansion
strategies.
The study models the pace of entry as a function of
firm-specific and country-specific factors and test
their model with a uniquely compiled data from the
region of Latin America.
The following regression model was used to test the
hypotheses:
Firm strategy
High control entry modes impede the pace of regional
expansion
Size is not a significant factor in the pace of regional
expansion
Economic and cultural differences slow down the rate of
regional expansion
The greater the beachhead economic knowledge, the lower
the pace of regional entry.
Geographic distance between a firm’s beachhead country
and the subsequent countries entered does not affect the
pace of regional expansion
Entry mode
Entry
Timing
Firm
resources
Theory:
We define the number of countries a firm enters
in a given period of time as the pace of entry .
Our survey of the marketing and international
business literature revealed three groups of
factors that can affect the pace of regional
expansion: firm, country, and the interaction
between the firm and group of countries in a
region.
1. The first group of variables relates to the
firm—its decisions and resources.
2. The second group of factors that can affect a
firm’s pace of entry is country related – the
economic and cultural distances between
the host and home countries
3. The third group of factors relates to how a
firm interacts with the countries of a region.
The most important of these are what we
call knowledge variables: regional economic
and cultural knowledge.
Results:
Pace of Regional EntryiT = b0 + b1*Entry Modeij +
b2*Sizeitj +b3*Opennessj +b4*Economic Distancejkt +
b5*Cultural Distancejkt + b6*Beachhead Economic
Knowledgebpt +b7*Beachhead Cultural Knowledgebpt
+ b8*Regional Geographic Pathbpt +e,
Implications:
Firm size
Economic
distance
Choice of
Beachhead
Host-home
location
Cultural
distance
County
risk
Host country
characteristics
Openness
Sample:
The sample consists of 227 cases of entry – both
beachhead and subsequent – into various countries in
the LATAM region by 78 firms between 1990 and 2003.
Firm
perform
ance
Firms must choose low control modes of entry if they want
to increase their pace of regional expansion. Since larger firms
do not enjoy any special advantage, smaller firms should also
consider rapid expansion into regional markets. Firm size is
not a constraint to the pace of expansion.
 Firms should pick countries that are economically and
culturally close to the beachhead. This will ensure that they
need to spend less time acquiring new economic knowledge.
Firms from emerging market countries will also have a
better shot at LATAM because of their economic closeness.
Firms should be careful in selecting the country they choose
as a beachhead because much of their subsequent success in
the region will depend upon how well they do in their
beachhead.
Governments must continue to liberalize if they want to
attract foreign capital through firm investments.
Firms should balance the need for speed of regional
expansion with success.
Scholars should use a measurable rate of entry rather than
just waterfall and sprinkler characterization for studying the
pace of international expansion.