Borders of Network Effects and Early Internationalization as a Latecomer Strategy

50 Pages Posted: 8 Jul 2021 Last revised: 11 Aug 2021

See all articles by Sanghyun Park

Sanghyun Park

INSEAD - Strategy

Sungyong Chang

London Business School; Columbia University - Columbia Business School, Management

Date Written: August 11, 2021

Abstract

Scholars have examined the persistent heterogeneity of firm performance from the entry-order effect perspective. In the international business literature, this perspective has been highlighted in research on early internationalization (i.e., the born global strategy). While prior work has focused on the heterogeneity of firm characteristics and capabilities, we present a demand-side view of early internationalization by focusing on network effects. Prior theoretical work on network effects has predicted that when network effects are prominent, survival is challenging for latecomers because of the installed bases of first movers in the global market. However, we see many cases, such as the mobile instant messenger (MIM) market, where no single winner dominates the global market and where many latecomers have survived by implementing early internationalization. We build upon Brian Arthur’s model of demand-side dynamics. The findings suggest that latecomers may overcome their disadvantages by pursuing early internationalization, especially when the direct network effects (i.e., social network effects) are stronger than the indirect network effects (i.e., installed base effects). The underlying rationale is that country borders often demarcate the reach of the direct network effect, limiting the power of installed bases.

Keywords: Early internationalization, network effects, social network effect, installed base, ibusiness firms

JEL Classification: O31, O32

Suggested Citation

Park, Sanghyun and Chang, Sungyong, Borders of Network Effects and Early Internationalization as a Latecomer Strategy (August 11, 2021). INSEAD Working Paper No. 2021/44/STR, Available at SSRN: https://ssrn.com/abstract=3878726 or http://dx.doi.org/10.2139/ssrn.3878726

Sanghyun Park

INSEAD - Strategy ( email )

Boulevard de Constance
77305 Fontainebleau
France

Sungyong Chang (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Columbia University - Columbia Business School, Management ( email )

3022 Broadway
New York, NY 10027
United States

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