Mode of entry into a new market: does the timing of entry and/or effect of innovation on competencies matter?

Focusing on the timing of entry has led to a relative neglect of the mode of entry into a new market. The purpose of this research is to extend the literature on market entry by developing and testing a model that predicts the entry mode into a new innovative market. The entry mode is here characterized as a function of two parameters: the entry timing and the effect of innovation on firm’s capabilities. Four modes of governance are included in the model: internal development, acquisition, alliance, and market transaction. The empirical analysis examines 76 entries that occurred in the U.S. online brokerage market between 1995 and 1999. Results of the multinomial logit indicate that: 1) internal development is favored by late entrants, 2) alliances and acquisitions are favored by late entrants, 3) market transactions play a significant role during the emerging phase of the market. Results regarding internal development and market transactions are contrary to our predictions. Results also indicate that the impact of innovation on firm’s capabilities does not appear to influence the mode of entry into a new innovative market.