Экономические науки./ 6. Маркетинг и менеджмент.

Akayev G.U.

Kazakh-British Technical University, Kazakhstan

New Market Entry Timing and Company Performance

The decision on timing on new market entry may be one of the major reasons for new product or service success or failure, and to be a key factor for company performance relative to its rivals. Theories focus on both the advantages and disadvantages of being first to market, as opposed to a late mover or a follower. In addition, empirical studies provide the analysis of the benefits and risks associated with the decisions on early entrance and with late entrants to market. Attention is also paid on company specific competitive conditions and market characteristics.

Theoretically, a first mover advantage exists when company is better off than its competitors as a result of being first to enter the market with a new product or service. In practice, first mover can have both advantages and disadvantages of entering first to the market. Early entry may provide the basis for the acquisition of superior resources and capabilities. Companies may be able to attract and retain skilled labor, occupy superior locations, or have access to key raw materials. The pioneer can also occupy the preferred market position, and obtain advantages from recognition and reputation once a dominant company has been established in the market. Early entrant may preempt competitors in technologies or areas of consumer awareness. First mover advantage allows a company to charge high prices, which can be reinvested for consolidation of its position against late entrants.

On the cost side, production costs for the pioneer tend to be lower than those for later entrants. Company undertaking any activity gets greater experience and competences over time, which gives cost efficiency – described by theory as experience curve effect, this increases the first entrant's cost advantage and profit potential. Pioneers may put barriers to its consumers to move to another company by charging switching costs.

However, early entrants also have to assume the risks arising from the development of the product and the market, and their technology and innovations can be subject to imitation by competitors at lower costs providing with potential advantages for late movers. For late entrant to be in a position to become market leader, to set standards and influence the market, a company must hold a dominant position in a product category related to the new product-market, allowing to leverage assets such as name recognition, an existing supplier and distribution networks, production facilities or managerial expertise. Moreover, late movers can learn what worked well for innovators thus avoiding mistakes.

Empirical studies of the benefits of early entry have produced conflicting results. Pioneering entrants generally maintained their market share advantage having long-term success of a new product. First entrants tend to have higher quality products, broader product lines, and stronger distribution supports.

On the other hand, some other studies showed that later entrants who offered ‘therapeutic novelty’ also achieved substantial volumes when the entry was supported by heavy promotional expenditures. First movers may get the easy sales of fast growth, however later entries in rapidly growing markets or entries that were significantly differentiated from existing products could gain substantial shares or even overtake the first entrant from its dominant position. These late entrants often used non-product competition, such as superior distribution, heavier advertising, or lower prices.

Right choice of entry timing frequently depends on the resource base of the company, and pioneers may have resources and capabilities different from late entrants. However, the consideration of industry features should be also important when explaining entry and timing decisions. If the timing of entry are influenced by the strengths and weaknesses of the company’s existing resources and capabilities, industry characteristics possess the threats and opportunities companies face. A strategic window, as proposed by theory, may occur when the best fit arises between a market’s key success requirements and specific company competencies. Therefore, it is proposed that both company characteristics and industry features should be taken into account when explaining the whether and when of entry decisions.

A key decision for managers is whether to be first mover or to follow assessing the advantages of each case. Managers are continuously looking for the ways to arrange the current, and potential strengths and weaknesses of the organization with the current, and potential, opportunities and threats in the environment.

Conclusion provided by studies state that, while first-mover advantages exist, they may not be a determinant factor of company performance. First mover advantages may disappear with time, although they may be supported by longer leading times before other companies enter the market. Also, the advantages from first mover effects may be weaker than price and advertising effects of later entrants. In the cases of large established companies that have financial, manufacturing, marketing and distribution assets, dominance can be achieved once entering emerged market.

Literature:

1. De Wit, B., and Meyer, R., 2004, Strategy: Process, Content, Context, 3^rd Ed., Thomson Learning.

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

4. Lilien, G., and Yoon, E., May 1990, The Timing of Competitive Market Entry: an Exploratory Study of New Industrial Products, Management Science, vol. 36, no. 5, pp. 569-585.

5. Muhlbacher, H., Dahringer, L., and Leihs, H., 1999, International Marketing, 2^nd Ed., International Thomson Business Press.

6. Robinson, W., and Chiang, J., 2002, Product Development Strategies for Established Market Pioneers, Early Followers, and Late Entrants, Strategic Management Journal, 23, pp. 855-866.