Third-party Intermediary Signal and Foreign Entry Decision:The Moderating Effect of the Composition Struc-ture and Spatiotemporal Distribution Characteristics of Prior Foreign Investors
International expansion is an important way for firms to develop.Firms can obtain substantial benefits by expanding into foreign countries.Firms may address the shortcomings of their existing markets through market expansion and internalization,and reap tax benefits,exploit low-cost sources of labor and production materials.The increase in revenue makes firms realize economies of scale,which allows them to increase their profitability.In addition,firms may further utilize the local knowledge and capabilities in the host country to enhance innovation capabilities,continuously develop and improve products,and obtain long-term benefits.However,the extent to which firms benefit from international expansion depends on their choice of international location.Previous studies have pointed out that the location choice of foreign direct investment(FDI)has a significant impact on the performance of overseas operations of firms.Due to the important role of location choice in foreign operations,previous studies have extensively examined the antecedents of location choice of foreign direct investment.Some studies focus on internal factors of firms,examining how these factors,such as firm age,firm size,firm ownership,firm internationalization experience,and independent innovation ability,affect FDI location choice decisions of firms,while more studies focus on the impact of external factors on FDI location choice decision of firms,such as infrastructure and market potential,market size,labor costs,institutional environment,institutional distance,cultural distance,geo-graphical distance,historical conflicts,ethnic communities,and characteristics of foreign investment industries.Among the external factors,the impact of prior foreign investors on subsequent foreign investor's location choice decisions has long been focused on by scholars in the fields of strategic management,international business,and economics.Previous studies have mainly examined the role of prior foreign investors from two perspectives:based on the perspective of agglomeration effect,scholars have pointed out that the gathering of prior foreign investors generates positive agglomeration effects,which in turn encourage subsequent foreign investors to make the same location choice decision;based on the perspective of learning effects,previous studies have shown that to overcome the uncertainty of location choice decisions and reduce decision-making costs,firms will imitate the location choice decisions of prior investors with certain characteristics,such as large-size,high-ranking,and well-performing firms or firms belonging to the same en-terprise group because these firms give them the confidence to imitate.These studies have improved our understanding of how prior foreign investors affect subsequent foreign investors'location choice decisions from different perspectives.However,these studies mainly focus on the number of prior foreign investors.Information asymmetry is a serious problem for firms when entering foreign markets.Signals of market quality decrease the infor-mation asymmetry the firm faces.By considering the time dimension in investors'entry characteristics to overcome the limitations of previous research,we propose the entry speed of prior foreign investors.Based on the third-party intermediary signal theory,we propose the entry speed of prior foreign investors serves as a dynamic reflection of foreign investors'entry decisions,which delivers highly objective,credible,and visible third-party signals about market quality and has an important influence on subsequent inves-tors'entry decisions.Accordingly,we propose that the entry speed of prior foreign investors positively affects the likelihood of the fo-cal firm choosing the same location.As the entry speed continues to increase,there is an inverted U-shaped relationship between the entry speed and the likelihood of the focal firm choosing the same location.From the perspective of the characteristics of third-party signalers,we further propose the moderating effect of the composition structure and spatiotemporal distribution characteristics of prior foreign investors.Specifically,when the country-origin diversity of prior investors(the composition structure)is high and the relative entry tenure of the prior investors(the spatiotemporal distribution characteristics)is long,the positive relationship between the entry speed and the possibility of subsequent foreign entry is stronger.Using the data on Fortune Global 500 firms investing in China from 1998 to 2012,our results support these argues.This paper has several theoretical contributions to the research area of FDI location choice and the third-party intermediary signaling theory.The result also provides empirical evidence and management impli-cations for local governments and multinational enterprises.
Foreign Direct InvestmentLocation ChoiceThird-Party Intermediary Signaling TheoryEntry Speed
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