Do international entry decisions of retail chains matter in the long run?

The retailing industry, in the United States and Europe alike, faces maturing markets and stiffening domestic competition. In response, many of the industry's main players have shown a growing interest in cross-border initiatives. The success of such foreign entries obviously depends on the appropriateness of the retail firm's post-entry decisions, but may also depend on the strategic choices made at the time of entry, as they shape the platform from which competitive advantages can be gained. Little empirical evidence is available, however, on the contribution of these time-of-entry choices to post-entry performance, especially in the longer run. In this paper, we consider simultaneously five strategic entry decisions: scale of entry, mode of entry, order of entry, the adaptation of the retail format to local market conditions and the familiarity of the store format to the parent company. We focus on the estimation of these decisions' effects on the long-run performance of a retail firm's foreign operations. In addition, we account for the moderating impact of three sets of control variables: characteristics of the foreign operations' retail mix, the parent firm's resources and the host-market's characteristics. Formally, the strategic choices and control variables are linked to the foreign operation's asymptotic performance level, which we derive from S-shaped growth models. We calibrate these models on a data set covering the post-entry performance of over 160 foreign entries made by Europe's top 75 food retailers, both towards Western-European countries and to a variety of transition economies in Eastern Europe. The empirical findings suggest that the strategic decisions made at the time of entry continue to influence the foreign subsidiary's future performance, both in terms of sales performance and in terms of efficiency (sales/m 2). Specifically, higher long-run post-entry sales and efficiency can be expected when entering early, with substantial scale, using no partners or acquired assets while offering a store format that is at the same time new to the host market and familiar to the parent firm.