Status-Based Rivals, Client Ties, and Non-Conformity in Emerging Market Entry

Abstract

This paper seeks to shed light on a social mechanism behind emerging market entries of foreign professional services firms (PSFs). We contend that the entries by similar-status rivals into an emerging foreign market, beyond providing some information about the attractiveness of that market, are likely to create ‘status anxiety’, or the fear of looking less than one’s peers (i.e., home- market rivals) of similar social standing, prompting a subsequent entry by a focal firm. We predict that this social-comparison based imitative behavior is more likely to occur when firms face the possibility of losing their existing clients (i.e., pre-entry, indigenous clients) to the rivals by not acting upon those rivals’ entries and when their previous foreign expansion paths were more deviated from their home-country peers’. We find support for our hypotheses through the analyses of large U.S. law firms’ branch office openings in China during 1985-2012. Further analysis of firms’ exits from China reveals that firms entering just for the sake of ‘keeping up with the Joneses’ tend to be at higher risk of exit. Overall, this study shows that imitation dynamics unfolding in emerging market entries are more complex than previously thought and how status anxiety can serve as an important behavioral driver.