Question

Evaluating the prospect of entry, an entrant may fear that engaging in head to head competition post-entry with the incumbent may result in severe losses. Some companies manage to make a virtue out of staying small when entering markets dominated by large incumbents. Why is it that entering small and remaining small can be an advantageous entry strategy (describe it in the context of a sequential game)?

Answer 1

Entering small and remaining small can be advantageous entry strategy because it is beneficial to maximize opportunities to learn about specific dimensions including political, economical, social, cultural, technological, and legal and competition level of national environment. By engaging in international market sequentially, firm can minimize the extent of uncertainty and risks in international expansion. When a firm gets entry in a new market, it can be effective to sequentially invest in different resources such as technology, human resources, physical resources, etc. to get advantage significantly. It is crucial for the organization to develop understanding and knowledge about business environment initially. After this; it can be beneficial for the organization to increase investment level to achieve higher success.

A firm can avoid losses by avoiding head to head competition post-entry with the incumbent through small and sequential investment. Entering and remaining small through sequential entry can help the organization to gain experience regarding business aspects of country including political hazards, legal issues and socio-cultural trends and further invest more to establish the business at large extent. Sequential entry strategy can enable the firm to develop strategies to mitigate future public and private expropriation hazards through better learning of business environment in a new market. Consequently some organizations are likely to follow sequential expansion paths by entering small and remaining small to minimize the requisite amount of new knowledge and learning and get further success.