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THEEXPERIENCEFACTORINFOREIGNMARKETENTRYBEHAVIOROFSERVICEFIRMSM.KrishnaErramilli*UniversityofNorthTexasAbstract.Thepaperexaminestheeffectofinternationalexpe-rienceonservicefirms'selectionofforeignmarketsandentrymodes.Theinvestigationutilizessurveydatafrom151UnitedStates-basedservicefirms.Resultsonmarketselectionsuggestthat,astheirexperienceincreasesandbecomesgeographicallymorediversifled,servicefirmstendtochoosemarketsthatareculturallylesssimilartotheirhomecountry.Onentrymodechoice,thepaperdepartsfromtraditionallinearconceptualiza-tionsandhypothesizesaU-shapedrelationshipbetweenexperienceandpropensityforintegratedentrymodes.Resultsgenerallysupportthehypothesis.Thepaperexplainsthesefindingsanddescribeshowservicefirmsresembleanddifferfrommanufac-turingfirmsintheirforeignmarketentrybehavior.Theinfluenceofexperienceontheforeignmarketentrybehavioroffirmshasbeenextensivelyinvestigatedintheliterature.However,pastresearchfocussedalmostexclusivelyonmanufacturingfinns.Whethertheresultsofthisresearcharegeneralizabletotheservicesectorisnotentirelyclear.Notonlyaretheproductionanddeliveryofservicesdistinctiveenoughtomakeadirecttransferofgoodsmarketingexperiencestotheservicesectorinap-propriate(e.g.,Gronroos[1983],Lovelock[1983]),servicefirmsfacesomeuniquechallengesexpandinginternationally[CarmenandLangeard1980;Cowell1983;Palmer1985].Inthispaper,weinvestigateeffectsoftheexpenencefactorontheservicefirn'sforeignmarketentrybehavior.Specifically,weexaminetheimpactofthelengthandscopeoftheservicefirm'spre-entryintemationalexperi-enceontwomajorforeignmarketentrydecisions:selectionofaforeignmarketandchoiceofanentrymode.*M.KrishnaErramilliisAssistantProfessorofMarketingattheUniversityofNorthTexas.Hisprimaryresearchinterestsareinforeignmarketentrybehavior,MNEtheoryandinternationalcompetitiveness.TheauthorwishestothankProfessorsC.P.Rao,WilliamR.Darden,andTracyMurrayfortheirsuggestionsandassistanceintheoriginalresearchprojectwhichledtothispaper.HeisalsoindebtedtothethreeanonymousJIBSreviewersandtheeditorwhosecommentswereinvaluable.Received:June1989;Revised:October1989,May,September&December1990;Accepted:January1991.479PalgraveMacmillanJournalsiscollaboratingwithJSTORtodigitize,preserve,andextendaccesstoJournalofInternationalBusinessStudies®480JOURNALOFINTERNATIONALBUSINESSSTUDIES,THIRDQUARTER1991Ourstudydiffersfrompastexperience-relatedinvestigationsinseveralre-spects.First,itmeasuresthequantityaswellasthediversityofinternationalexperience.Second,itincludestheentirerangeofexportandnon-exportentrymodes,unlikepreviousentrymodeinvestigationswhichtypicallyincludedonlylicensingandFDI.Lastly,departingfrompastinvestigations,thestudyfocusesexclusivelyonservicefinns.Inthefollowingsections,wereviewtherelevantliteratureanddevelopsomepredictionsconcerningtherelationshipbetweenexperienceandentrybehaviorofservicefirms.Next,wediscussthedatacollection,sample,andvariables.Finally,wedescribeouranalysisanddiscusstheresults.RELEVANTLITERATUREExperienceandMarketSelectionFromanormativestandpoint,severalfactorsareconsideredtobeimportantinassessingthepotentialattractivenessofaforeignmarket:marketsizeandmarketgrowth[Stobaugh1969;Davidson1980a],competition[Knickerbocker1973],servicimgcosts[Davidson1982],andthehostcountry'ssocial,politicalandeconomicenvironment[Root1987;ToyneandWalters1989].PapadopoulosandDenis[1988]provideanexcellentreviewofnumerousqualitativeandquantitativemarket-selectiontechniquesincorporatingthesevariables.Theyconclude,however,thatthereislittleevidencefirms(small,mediumorlarge)useanysuchmethodsonasystematicbasistochoosetargetmarketsinpractice.Infact,empiricalresearchonactualbusinesspracticeshasconsistentlyhighlightedonlyonemajordeterminantofmarketselection:marketsimi-larity,i.e.,similarityoftheforeignmarkettothefirm'shomemarketortomarketsitiscurrentlyserving.AsPapadopoulosandDenis[1988:44]conclude:inanoverwhelmingnumberofcases..[choicesofmarkets]..arestillbasedonsuchnonsystematiccriteriaas'psychic'distance...'cultural'distance...,andgeographicdistance.SeveralstudiesshowthatU.S.exportershaveastrongbiasformarketssuchasCanadaandU.K.(seeBilkey[1978]:Reid[1981]).Investigationsinvolv-ingU.S.multinationalcorporations,too,foundsharppreferencesforEnglish-speakingcountries,preferencesthatwerenotwarrantedoneconomicgroundsalone[Davidson1980b,1982,1983].Parallelfindingshavebeenreportedinstudiesonservicefirns,suchasbanks[Khoury1979]andadvertisingagencies[Weinstein1977].Firmspreferentryintosimilarmarketsbecauseitfacilitatestransferoftechnologyandmanagerialresources,assuresreadydemandfortheirprod-ucts,andhelpsreduceuncertainty[Davidson1983].Thislastreasonisparticularlyrelevanttothepresentstudy.Davidson[1982:118]arguesthatwhenthefirmhaslittleconfidenceinitsabilitytoestimateorpredictcosts,FOREIGNMARKETENTRYBEHAVIOR481demand,competitionorenvironmentalconditionsinvariousmarketsitcanminimizeuncertaintyinitsselectiondecisionsbychoosingmarketsaboutwhichithasbestinformation.Preferenceforsimilarmarkets,however,appearstobeconditionedbythefirm'sinternat