Failure-induced interorganizational learning: Entry and survival analysis of Japanese firms in China, 1980--2000

This thesis advances a failure-induced interorganizational learning framework to explain foreign entry strategy as well as to predict foreign investment survival in a host country. The framework investigates two causal models: (1) how failures of early foreign direct investments (FDI) in a host market affect subsequent foreign entries in that market; and (2) in turn after controlling for their entry probabilities, how the survival prospects of these foreign entries are influenced by the same source of FDI failures. The thesis further introduces a set of contingency factors, depicting the nature of pivotal learning components which include sender organizations, receiver organizations, and the relationship between them, as moderators in the two baseline causal models. The three contingency factors emphasized here are the ambiguity of FDI failures, the firm-level host-country experience, and the joint ownership between potential foreign investors and early FDI investors in the host market. I address these issues in two separate studies and draw on the empirical context of Japanese MNCs' foreign investments in manufacturing industries in China in the 1980-2000 period.; Study one examines the first causal model and found that a firm was less likely to enter a foreign market when observing a large number of failures by peer firms in the host market. This negative effect became stronger when the failure experience was at a lower level of ambiguity, or as the firm had direct experience in the host country, or as joint ownership existed between the firm and early FDI investors in the host market.; Study two investigates the second causal model and found that later foreign entries enjoyed a reduced risk of failure by benefiting from the experience spillovers of FDI failures that had occurred before their entries. This main effect became stronger when the observed failure experience was at a lower level of ambiguity, or as the parent firm had joint ownership ties with early FDI investors in the host market. In addition, this study controls for foreign firms' entry probabilities exported from the first study as an indicator for foreign firms' self-selection process. Results illustrate that this self-selection indicator had an expected positive effect on FDI survival.