Экономические науки./ 6. Маркетинг и менеджмент.

Akayev G.U.

Kazakh-British Technical University, Kazakhstan

Firm size as a factor that determine market entry timing

Company size is ‘frequently used in the literature on entry timing decisions’ (Fuentelsaz et al., 2002:248). As an example provided by Fuentelsaz et al. (2002), the study of Schoenecker and Cooper (1998:1131) analyzes ‘the effect that organization size has on timing of entry.’ Also, ‘the relationship between organizational size and change by new market entry’ is examined in Haveman (1993a:20).

Firm size is the size of its resources which as per Johnson et al. (2008:95) constitutes part of organization’s strategic capability, which is ‘needed for it to survive and prosper.’ Resources are distinguished by Johnson et al. (2008:95) as ‘tangible resources of physical assets of an organization such as plant, people and finance; and intangible resources of non-physical assets such as information, reputation and knowledge.’

Fuentelsaz et al. (2002:249) highlights ‘the main reason’ for mentioning size ‘is that organizational size may be considered as a proxy for the amount of slack resources available to a firm.’ ‘Large organizations are more capable of taking advantage of the opportunities to enter new and promising markets than are small organizations’ (Haveman, 1993a:20).

‘The most dominating definition of slack resources is provided by the work of James March’ (1958 in Bourgeois, 1981:30), which states that:

“Organizational slack is that cushion of actual or potential resources which allows an organization to adapt successfully to internal pressures for adjustment or to external pressures for change in policy, as well as to initiate changes in strategy with respect to the external environment”.

Further in Bourgeois (1981:30-31) ‘slack resources help top management in initiating and executing strategic changes, and in this case slack is the resource that allows an organization both to adjust to changes in the external environment at low costs, and to experiment with different positioning towards that environment, either through new product introductions or through innovations in management style.’

In Haveman (1993a:20), ‘if organizational size is related to the possession of slack resources (along with differentiated and decentralized structures, and market power), then large organizations will be more fluid than small organizations.’ Johnson et al. (2008:338) outline that ‘large established organizations have financial, manufacturing, marketing and distribution assets that allow them to dominate entering a market once it has begun to emerge.’ Haveman (1993b:598) argues that small-, medium-, and large-sized organizations ‘face different levels of risk of failure.’

‘A related outcome holds that organizational size increases market power’ (Fuentelsaz at al., 2002:249), ‘which helps to overcome barriers to entry into new markets’ (Haveman, 1993b:598). ‘Market power facilitates overcoming the entry barriers associated with product differentiation, absolute cost advantages, and economies of scale’ (Bain, 1956 in Fuentelsaz at al., 2002:249). ‘Thus, larger firms may benefit not only from the possession of slack resources that may help to satisfy capital requirements associated with entry, but also from the existence of a strong brand reputation or from cost reductions related to size’ (Fuentelsaz at al., 2002:249).

Fuentelsaz at al., (2002:249) state that ‘a contrast view is provided by some authors.’ Haveman (1993a:23) provides findings of different authors on ‘the relationship between size and several aspects of organizational structure.’ ‘First, larger organizational size is generally attended by greater differentiation and therefore structural complexity’ (e.g., Caplow, 1957; Grusky, 1961, Pugh et al., 1969; Blau, 1970; Blau and Schoenherr, 1971. – all in Haveman 1993a:23). ‘Second, larger organizations are subject to greater formalization of behavior’ (e.g., Chapin, 1951; Tsouderos, 1955; Caplow, 1957; Grusky, 1961, Pugh et al., 1969; Blau and Schoenherr, 1971. – all in Haveman 1993a:23). ‘Third, larger organizations tend to have more decentralized managerial decision-making authority’ (e.g., Hage and Aiken, 1967; Pugh et al., 1969; Blau and Schoenherr, 1971. – all in Haveman 1993a:23). ‘Fourth, larger organizations exhibit greater task specialization’ (e.g., Tsouderos, 1955; Grusky, 1961; Pugh et al., 1969; Blau, 1970; Blau and Schoenherr, 1971. – all in Haveman 1993a:23-24). ‘Together these findings suggest that large organizations are more bureaucratic which makes them more rigid and inflexible thus showing that the relationship between size and change may be negative’ (Haveman 1993a:24). ‘Bureaucratic inertia, which may delay entry’ is also mentioned in Crozier (Crozier, 1964 in Fuentelsaz at al., 2002:249).

However, in Schoenecker and Cooper (1998:1127) ‘the organizational attributes that influenced early entry included greater size.’ The outcomes studied by Haveman (1993a:20) show ‘positive relationship between size and strategic change by expansion into new markets.’ Testing results of Robinson et al. (1992:618-621) provide positive relationship between parent corporation size and market entry. In Mascarenhas (1992:509) distinction is done on timing of entry between multinational firms (first entrants, early followers), local firms (first entrants), and small local firms (later entrants).

The conclusion can be derived from the outcomes of these empirical studies that company size does have a positive influence on the market entry timing decision.

Literature:

1. Bourgeois, L.J., 1981, On the Measurement of Organizational Slack, Academy of Management Review, 6, pp. 29-39.

2. Fuentelsaz, L., Gomez, J., and Polo, Y., 2002, Followers’ Entry Timing: Evidence From the Spanish Banking Sector After Deregulation, Strategic Management Journal, 23, pp. 245-264.

3. Haveman, H.A., 1993a, Organizational Size and Change: Diversification in the Savings and Loan Industry After Deregulation, Administrative Science Quarterly, 38, pp. 20-50.

4. Haveman, H.A., 1993b, Follow the Leader: Mimetic Isomorphism and Entry Into New Markets, Administrative Science Quarterly, 38, pp. 593-627.

5. Johnson, G., Scholes, K., and Whittington, R., 2008, Exploring Corporate Strategy, Text and Cases, 8^th Ed., FT Prentice Hall.

6. Mascarenhas, B., 1992, Order of Entry and Performance in International Markets, Strategic Management Journal, 13(7), pp. 499-510.

7. Robinson, W.T., Fornell, C., and Sullivan, M., 1992, Are Market Pioneers Intrinsically Stronger than Later Entrants? Strategic Management Journal, 13(8), pp. 609-624.

8. Schoenecker, T.S., and Cooper, A.C., 1998, The Role of Firm Resources and Organizational Attributes in Determining Entry Timing: a Cross Industry Study, Strategic Management Journal, 19(12), pp. 1127-1143.