Using PLS-SEM Technique to Model Malaysian ... - IEEE Xplore

2014 International Symposium on Technology Management and Emerging Technologies (ISTMET 2014), May 27 - 29, 2014, Bandung, Indonesia

Using PLS-SEM Technique to Model Malaysian Construction Firms’ Entry Timing Decisions in International Market Expansion 1

Che Maznah Mat Isa, 2Hamidah Mohd Saman and 3 Siti Rashidah Mohd Nasir

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Aini Jaapar

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Institute of Infrastructure and Sustainability Management, Faculty of Civil Engineering, Universiti Teknologi MARA, Shah Alam, Selangor, Malaysia [email protected]

through effective strategies. Various researchers argued that in consideration of the early and late entry timing, the EMAs and LMAs issues such as “liabilities of foreignness” and opportunity to “free ride” related to performance in terms of growth and profits are still questionable [2]. It is contended that these issues are still debatable whether first movers have enduring advantages over late movers in terms of long-term overall performance [3]. Hence, this study identifies the most important advantages and disadvantages [dis(advantages)] influencing the construction firms’ decision in to enter early or late in international market. This study focuses on one hundred and fifteen (115) Malaysian firms which have expanded into fifty one (51) countries exporting their services in various fields based on the Construction Industry Development Board (CIDB, 2013) Malaysia record. Thus, understanding the entry timing dis (advantages) is crucial for the Malaysian construction firms to perform and sustain in the international market.

Abstract— Market entry timing decision is among the most critical strategies made by a firm to expand internationally. In a dynamic and competitive international environment, the entry timing decision involves the need to balance the early entry risks and the problems in losing opportunities as a result of late entry. This study proposes a theoretical framework to investigate the influence of advantages and disadvantages [dis (advantages)] on entry timing decisions of Malaysian construction firms in their international market expansion. Survey questionnaires were sent to 115 Malaysian construction firms listed under the Construction Industry Development Board of Malaysia (CIDB) with 44.7 percent response rate. A total of twenty four (24) (dis) advantages were identified and confirmed using SMART PLSSEM (partial least square structural equation modeling) to test the model and finally established the findings. The results with β coefficient of 0.538 and t-value of 2.805 indicate that the early mover disadvantages have significantly influenced the entry timing decision of the Malaysian construction firms into international market. Hence, this study illustrates the firms’ acquirement of the (dis) advantages based on their late timing of entry into international market. It is hoped that the findings would offer valuable information to Malaysian construction firms with the intention to internationalize either as the early or late movers.

II.

INTRODUCTION

Globalization and liberalization have huge implications and bring along potentials to the new world economies which have become integrated widely in the past few decades. It is reported by Guler and Guillen [1] that, venture capital firms have increasingly turned to foreign countries in search of investment opportunities. This situation is also evident for constructionrelated firms as international construction is not a new phenomenon. Hence, in the current borderless world, no market is ever safe from foreign competition and it can no longer be seen as a localized industry.

In order to analyze the entry timing decisions, relevant entry timing theories such as the first mover advantages (FMAs) and late mover advantages (LMAs) theories were reviewed. Early mover advantages (EMAs) or sometimes referred to as the first-mover advantages (FMAs) are the

Issues on the early mover advantages (EMAs) and late mover advantages (LMAs) have drawn more attention of the developing countries hoping to achieve the economic success

978-1-4799-3704-2/14/$31.00 ©2014 IEEE

LITERATURE REVIEW

In a dynamic and competitive environment, entry timing decision involves the need to balance the early entry risks and the problems in losing opportunities as a result of late entry into a new market. A growing body of empirical literature has investigated the “order-of-entry” or known as “first-mover versus late-mover” effects ([3],[4]). As shown in many previous studies, the order of entry represents an ordinal ranking that assesses market entry in terms of first entrant, second entrants (early followers), and late entrants [4], early mover or late mover [3]. An early mover is defined by Lieberman and Montgomery [4] as the first firm or the first few firms to enter a new market when the market lead time that separates them is insignificant to enter a new product category, while, Cleff and Rennings [5] defined the early mover as the very first firms to bring innovative products or services to market.

Keywords- advantages and disadvantage; entry timing choices; Malaysian construction firms; international market; PLS-SEM model I.

Faculty of Architecture, Planning and Surveying Universiti Teknologi MARA Shah Alam, Selangor, Malaysia

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advantages associated with entering a market early. FMA theory states that the first mover or early mover advantages arise from three primary sources namely: technological leadership, preemption of assets, and buyer switching costs [4]. Even though, Lieberman and Montgomery [2] observed that the early mover disadvantages (EMDs) can also be the advantages of the late movers, Lilien and Yoon [6] contended that the tradeoff between the advantages and disadvantages of being the early mover or the late mover is the major issue for this entry strategic decision. Nevertheless, these benefits might be counterbalanced by various first-mover disadvantages where early entrant normally entails pioneering costs, bears foreigner liability and has a low probability of survival. On the other hand, Lieberman and Montgomery [2] also acknowledged some of the late mover advantages such as the ability to “free ride” on first-mover investments, resolution of technological and market uncertainty, technological discontinuities, and various types of “incumbent inertia”.

entry timing and their firms’ entry timing decisions into international market. Moreover, most of these entry timing studies focused on non-related construction business in the international market. In addition, there is a limited literature on the international construction market penetration focusing on entry timing strategy, especially on the dis (advantages) for both early and late movers.

Late mover advantages (LMAs) have been integrated by Wu (2004) with the secondary innovation theory for the late movers to achieve a quick catch-up. Being as late movers, it is very important to maximize the late mover advantages. As technology and knowledge play a much important role in the society, the accumulation of technology and knowledge should be the top priorities for the late movers [7]. In addition, Kerin [8] hold the view that late mover advantages can manifest from lower innovation costs, rapid reverse engineering, and market knowledge of consumers already being familiar with their products, cost savings from reproduction, and even scope economies that arise from experience. Hence, Guler and Guillen [1] affirmed that as firms accumulate international experience, they develop dynamic capabilities for foreign market entry for surmounting various obstacles and constraints exist in the foreign countries. In other words, the experience may enable firms to overcome the liability of foreignness if it leads to an upgrading of their firms’ resources and capabilities.

Table I shows 24 items listed under the early mover advantages (EMAs), early mover disadvantages (EMDs), late mover advantages (LMAs) and late mover disadvantages (LMDs) consolidated from the established previous research in which some have been discussed in the literature review section.

A preliminary research by the authors based on mean ranking revealed that the most significant advantage for the late mover was the “risk reduction through the “wait-and-see” strategy and for the early mover advantages were the “ability to gain higher market shares and profitability and “attainment of benefits in terms of recognition and reputation” [9]. However, this study adds on more factors for the dis (advantages) of the early and late movers using structural equation modeling to further contribute empirically in international business body of knowledge.

III.

METHODOLOGY

This section explains in detail on the methodology related the conceptual framework, target population, design of survey questionnaire as the primary data-collection tool and the various methods of analysis adopted in this study. A. Research Model Various early mover (dis) advantages (EMAs and EMDs) and late mover (dis) advantages (LMAs and LMDs) related to the entry timing decisions identified from the literature reviews have been used as a basis to develop the conceptual framework for this study. Fig. 1 shows the entry timing decisions as the variables of primary interest (dependent variables), the variances in which are attempted to be explained by the dis (advantages) as the independent variables.

A pioneer research has been carried out to study the mechanisms that convened the advantages and disadvantages [dis (advantages)] on first-mover of manufacturing firms ([3], [6]). The findings support that the first-mover advantages theory based on the technological leadership, preemption of assets, and buyer switching costs.

SMART PLS path modeling

From the reviews, hypotheses were formed in this study to examine the relationship between the dis (advantages) and the entry timing decisions made by the construction firms in their international market expansion.

Early Mover Advantages Late Mover Disadvantages Late Mover Advantages Late Mover Disadvantages

H1: There is a significant relationship between early mover advantages (EMAs) and entry timing decision.

Logistic Regression Analysis

Entry Timing Decisions Early Mover Late Mover

Figure 1. Conceptual framework on the dis (advantages) influencing entry timing decisions

H2: There is a significant relationship between the early mover disadvantages (EMDs) and entry timing decision.

The PLS-SEM was used in this study to confirm the prediction model and explain the variance of the key construct (entry timing decisions) by different explanatory constructs (EMAs, EMDs, LMAs and LMDs) as shown in Fig. 2. The PLS-SEM is suitable to address the relatively small sample size ([10]. Moreover, the formatively measured construct (entry timing decision) is particularly useful for the explanatory constructs.

H3: There is a significant relationship between the late mover advantages (LMAs) and entry timing decision. H4: There is a significant relationship between the late mover disadvantages (LMDs) and entry timing decision. So far, not many of the previous research conducted focuses on the relationship between (dis)advantages of the

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Class G7 and Class A categories with operations in more than 50 countries. The sampling units were the directors, managers and executives in these firms. Their involvements in international projects countries include various sectors such as buildings, infrastructures, branches of engineering, mechanical and electrical, power transmission. Fifty-one (51) questionnaires were received and used for the data analysis which translates to 44.3% response rate.

TABLE I. DIS (ADVANTAGES) OF THE LATE MOVERS AND EARLY MOVERS IN INTERNATIONAL MARKET No. EMA1 EMA2 EMA3 EMA4 EMA5 EMD1 EMD2 EMD3 EMD4 EMD5 EMD6 EMD7 LMA1 LMA2 LMA3 LMA4 LMA5 LMA6 LMA7 LMA8 LMA9 LMD1 LMD2 LMD3

Advantages and Disadvantages (Dis(advantages)) of the Late Movers and Early Movers Acquisition of superior resources and capabilities where early mover preempt competitors in the physical, technological, or consumer perceptual space Early movers achieve higher market shares and profitability Early movers attain benefits in terms of recognition and reputation Technology leadership stemming from proprietary knowledge, where learning creates substantial entry barriers for the late movers Early movers attain industries characterized by large scale and scope Early movers entails pioneering costs with higher market investment and higher operation risks Early movers bear “liabilities of foreignness” with low probability of survival Early movers bear higher costs for “infrastructure related” market development Early movers face risks of advances in technology Early movers face risks of uncertainty about further market development Greater efforts are required by the early movers to convince new potential clients Increase of failure risk due to lacking of critical resources which prevent the early movers from incorporating a satisfactory level of understanding of practices. Late movers have the opportunity to “free ride” on early mover investments Late movers face more resolution of market uncertainty Late movers have more opportunity to introduce technological innovation Late movers bear lower innovation costs and rapid reverse engineering due to of lower R&D expenditure Risk reduction through “wait-and-see” strategy for late movers to assess market development Late movers accumulate advanced technology and market knowledge Late movers acquired cost savings from reproduction Late movers gain scope of economies that arise from experience of early movers Late movers have the ability to influence customer preferences Late movers are less able to respond to environmental changes and competitors threats Late movers shows lower performance in major aspects of operations Late movers have shorter survival period as compared to the early mover competitors

B. Questionnaires Design and Data Collection A questionnaire using a five-point Likert scale was used to gather data for each construct of the research model. The respondents were requested to evaluate twenty four (24) statements based on the level of agreement (1: Strongly Disagree; 2: Disagree; 3: Agree; 4: Much Agree; and 5: Strongly Agree). All instruments were adapted from previous literatures and were modified to measure the dis (advantages) of the entry timing decisions. The entry timing decision as the dependent variable was measured using the logistic regression analysis and a majority of the firms were found to be the late movers. However, the results on the logistic regression analysis will not be discussed in this paper. The next section presents the assessment of the goodness of measure of these constructs in terms of their validity and reliability within the research framework. IV.

METHOD OF ANALYSIS AND RESUTS

In order to determine the most significant factors affecting the entry timing decisions by the firms in international market expansion, structural equation modeling using SMART PLS was adopted in this study. The purpose of each analysis, the results and discussion are outlined in the following sections. A. Measurement The findings in this paper are presented based only on two parts of the questionnaires. The Part A enquires on the respondents’ name, designation, firms’ international construction experience, international business locations (s), and their preferred entry timing decision either as late movers or early movers in the international market expansion. In order to justify their choices, Part B solicits their opinions on the dis (advantages) influencing their entry timing decisions. B. Assessment of goodness of measure The two main criteria used for testing goodness of measures are validity and reliability. Reliability is a test of how consistently a measuring instrument measures concept it is measuring, whereas validity is a test of how well an instrument that is developed measures the particular concept it is intended to measure [11]. C. Construct Validity

Figure 2.

Construct validity testifies to how well the results obtained from the use of the measure fit the theories around which the test is designed [11]. In order to determine that the instrument adopts the concept as theorized, an assessment through convergent and discriminant validity was carried out. First, the respective loadings and cross loadings from Table II are examined if there are problems with any particular items. A

Research model using PLS path modeling

A. Target Population and Respondents The sampling frame consists of the Malaysian construction firms listed under CIDB Malaysia's directory in 2012/13 comprises of 115 firms registered as global players under the

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cut-off value for loadings at 0.5 as significant [10] is used in which, if any items has a loading of higher than 0.5 on two or more factors, they are deemed to have significant cross loadings. TABLE II.

EMA1 EMA2 EMA3 EMA4 EMA5 EMD1 EMD2 EMD3 EMD5 EMD6 EMD7 LMA1 LMA2 LMA3 LMA4 LMA5 LMA6 LMA7 LMA8 LMA9 LMD1 LMD2 LMD3

Late Mover Disadvantages

Early Mover Disadvantages (EMD) 0.537 0.625 0.679 0.659 0.666 0.714 0.714 0.703 0.588 0.760 0.810 0.422 0.295 0.169 0.197 0.415 0.190 0.190 0.461 0.201 -0.082 0.071 -0.008

Late Mover Advantages (LMA) 0.088 0.276 0.336 0.168 0.187 0.303 0.294 0.270 0.147 0.235 0.411 0.731 0.707 0.759 0.771 0.813 0.784 0.768 0.785 0.687 0.307 0.589 0.408

TABLE IV. Model Construct Early Mover Advantages

D. Convergent validity Next, the convergent validity was tested, to ensure the degree to which multiple items to measure the same concept are in agreement.

Model Construct Early Mover Advantages

Early Mover Disadvantages

Late Mover Advantages

Early Mover Disadvantages

Late Mover Advantages

RESULTS OF MEASUREMENT MODEL Measurement Item EMA1 EMA2 EMA3 EMA4 EMA5 EMD1 EMD2 EMD3 EMD5 EMD6 EMD7 LMA1 LMA2 LMA3 LMA4 LMA5 LMA6 LMA7 LMA8

Loading

CRa

AVEb

0.816 0.915 0.917 0.853 0.890 0.714 0.714 0.703 0.588 0.760 0.810 0.731 0.707 0.759 0.771 0.813 0.784 0.768 0.785

0.944

0.772

0.864

0.516

0.881

0.712

As suggested by Hair et al. [10], the extracted factor loadings, composite reliability and average variance were the indicators to assess convergence validity. Table III depicts loadings for all items exceeded the recommended value of 0.5 [10]. While, the composite reliability (CR) values which depict the degree to which the construct indicators indicate the latent construct range from 0.864 to 0.944, which exceed the recommended value of 0.5 [10]. The average variance extracted (AVE) measures the variance captured by the indicators relative to measurement error, and it should be greater than 0.50 to justify using a construct (Barclay et al. 1995). The results for the extracted average variance were in the range of 0.516 and 0.772. Table IV summarizes the results of the measurement model. The results show that all the four (4) constructs, early mover advantages, early mover disadvantages, late mover advantages and late mover disadvantages are all valid measures of their respective constructs based on their parameter estimates and statistical significance [12].

Late Mover Disadvantages (LMD) -0.121 -0.066 0.006 -0.027 -0.159 -0.160 -0.044 -0.020 0.004 0.036 0.129 0.341 0.373 0.368 0.384 0.357 0.514 0.548 0.277 0.492 0.859 0.912 0.752

It can be seen from Table II that all the items measuring a particular construct loaded highly on that construct and loaded lower on the other constructs thus confirming construct validity. The highlighted and bold values are loadings for items which are above the recommended value of 0.5.

TABLE III.

0.687 0.859 0.912 0.752

a Composite reliability (CR) = (square of the summation of the factor loadings)/{(square of the summation of the factor loadings) + (square of the summation of the error variances)} b Average variance extracted (AVE) = (summation of the square of the factor loadings)/{(summation of the square of the factor loadings) + (summation of the error variances)}

DIS (ADVANTAGES) OF THE LATE MOVERS AND EARLY MOVERS IN INTERNATIONAL MARKET

Early Mover Advantages (EMA) 0.816 0.915 0.917 0.853 0.890 0.696 0.538 0.516 0.538 0.468 0.510 0.291 0.156 0.082 0.134 0.117 0.222 0.205 0.442 0.169 -0.118 0.024 -0.123

LMA9 LMD1 LMD2 LMD3

Late Mover Disadvantages

SUMMARY RESULTS OF THE MODEL CONSTRUCTS Measurement Item EMA1 EMA2 EMA3 EMA4 EMA5 EMD1 EMD2 EMD3 EMD5 EMD6 EMD7 LMA1 LMA2 LMA3 LMA4 LMA5 LMA6 LMA7 LMA8 LMA9 LMD1 LMD2 LMD3

Standardized estimate 0.816 0.915 0.917 0.853 0.890 0.714 0.714 0.703 0.588 0.760 0.810 0.731 0.707 0.759 0.771 0.813 0.784 0.768 0.785 0.687 0.859 0.912 0.752

t-value 6.686** 7.824** 9.970** 6.814** 8.486** 5.451** 3.585** 3.010** 2.038* 5.170** 5.993** 4.503** 3.400** 4.654** 4.377** 5.418** 4.459** 4.001** 6.597** 3.972** 4.188** 5.650** 2.827**

T-values >1.96*(p2.58**(p