Cross-Border Network Effects: A Demand-Side Perspective on Early Internationalization of Latecomers

Abstract

Strategy scholars have explored the persistent heterogeneity in firm performance through the entry-order effect, particularly highlighting early internationalization. While previous studies have focused on firm characteristics and capabilities, we introduce a demand-side view of early internationalization through network effects. In the presence of network effects, theory suggests that latecomers struggle to survive due to the established installed bases of first-movers. However, in digital industries like mobile instant messaging, no single player dominates globally, and latecomers often succeed in different countries. To fill the gap, we develop a computational model in which a first-mover and a latecomer compete in global markets. Our findings suggest that latecomers can overcome disadvantages via early internationalization, especially when consumer network structures are fragmented-i.e., a small number of bridges between countries. However, this comes with a cost: while the fragmented structure enhances survivability, it also reduces the likelihood of innovative latecomers winning global markets, presenting a dilemma between ensuring survival and achieving global leadership.

Keywords: Early internationalization, network effects, social network structure, i-business firms, innovation