Foreign Market Development As Well As Entry: An Empirical Analysis of Two Fast-Food Chains.

Abstract

This dissertation consists of three empirical studies on foreign market entry and development by US fast-food chains. While prior international business research has principally sought to explain when, where and how firms enter foreign markets, surprisingly little attention has been given to what happens after entry. The first study considers the predictions of internationalization theory and transaction cost theory in explaining McDonald’s choice of entry mode: contract, joint venture or subsidiary. Exploiting a cross-section of 72 foreign market entries, I specifically assess whether regional or global operating experience and scale of operations influence choice of entry mode. I methodologically isolate the influence of experience in other markets from merely the timing of entry into those markets. Results proved statistically insignificant. Additional data is being collected to determine whether international experience and scale does not influence foreign entry mode choice or if instead the insignificance stems from a lack of data. The second study also uses McDonald’s international expansion to investigate which factors influence the timing of foreign market entry, which factors and post-entry expansion separately, and how closely the two are related. I find that rather than expanding into new markets after having saturated existing markets, McDonald’s allocates resources simultaneously across markets, favoring those with greater potential profits. Certain factors effecting expansion post-entry differ from those that effect entry. These results suggest that sunk costs play a role in both entry and expansion. The third study explores how firm capabilities develop in foreign markets. Specifically, I examine how binding ownership boundaries are to knowledge transfer and how knowledge accrues from operating experience across different countries. Using weekly sales and cost data for all outlets in the 10 largest foreign markets of a single franchised fast-food chain over a period of 13 years, I find wide variation in learning economies both within and across countries. More importantly, experience gained at outlets operated by country developers—firms responsible for overseeing a foreign market—have a greater influence than even outlet-specific experience for franchisee-owned outlets. These findings challenge the unqualified view that knowledge transfers more readily within firm boundaries than across them.