Toward a contingency model of incremental international expansion: The impact of firm, industry and host country characteristics

As firms have responded to the increasing pressure to compete on a global basis, the process of incremental expansion has received considerable attention. The incremental approach to international expansion contends that firms build up their operations gradually to reduce uncertainty that stems from their operating in unfamiliar foreign countries. It has intuitive appeal, but empirical tests of the model have yielded mixed results. This dissertation sets out to better understand the process of international expansion by addressing two important questions: (1) Does the level of foreign market uncertainty firms face affect the extent to which they follow the incremental expansion process? And (2) why do firms that face similar foreign market uncertainty vary in their extent of incremental expansion?;This study's data set consists of sixty-one Korean firms and covers the forty-three year period from 1954 to 1996. Unlike previous studies, which assumed a relationship between foreign market uncertainty and incremental expansion, this study provides empirical confirmation of the long-standing assumption that foreign market uncertainty increases the extent to which firms undertake incremental international expansion. By taking a contingency approach toward international expansion, this study also finds that firm, industry and host country characteristics moderate the relationship between foreign market uncertainty and incremental expansion. Specifically, when cultural distance is used as a measure of foreign market uncertainty, the results of this dissertation indicate that the effect of foreign market uncertainty on incremental expansion is weaker for firms that (1) have higher levels of organizational slack, (2) are operating in industries in which invested resources are more recoverable, or (3) are operating in foreign countries that offer greater labor-cost advantages. For the second and the third conditions, these results also hold true when firm inexperience is used as a measure of foreign market uncertainty.;As a whole, this dissertation provides theory and empirical evidence that help us understand how foreign market uncertainty affects incremental expansion, and when foreign market uncertainty is more or less likely to influence the pattern of incremental expansion. It thus furnishes a more complete view of international expansion than previous work has offered.