Can the Second Mouse Get the Cheese?

YANG, Jing Yu | LI, J. T. | DELIOS, Andrew

“The early bird may get the worm, but the second mouse gets the cheese”; this quote, attributed to comedian Steven Wright and an extension on an old proverb, neatly applies to the experience of firms attempting to enter new overseas markets. Early entrants are at a disadvantage as their inexperience leads to mistakes and even failure; but can later entrants learn and benefit from their predecessors’ experiences?

“Organizational learning” theorists refer to this as a form of “vicarious congenital” learning that should help a later arrival overcome its competitive disadvantage and enhance its survival chances in the market – but research had not born that out. Jing Yu Yang, Jiatao Li and Andrew Delios questioned if this was because the research on congenital learning – in other words, prior knowledge – had not considered the conditions under which new entrants may, or may not, learn from the experiences of the first entrants.

Their study addressed this conceptual issue by drawing upon a vicarious learning framework to develop a model specifying the factors that might facilitate or inhibit a new entrant’s learning from prior failed entrants. It considered the nature of the two types of entrants, as well as their relationship. The model also identified three factors that influence the effectiveness of congenital learning: the causal heterogeneity, or diversity, of the failure experiences of prior entrants, the learning ability of new entrants, and the network ties between the failed entrants and new entrants.

They examined Japanese foreign direct investment in China between 1979 and 2000. It was during this period that the mainland opened its doors to the world, and most especially to the commercial world, and Japanese firms were among the early movers.

The study demonstrated that learning from the failures of early entrants increased a new entrant’s survival chances in the China market. Further, the researchers found that the value of this learning was less effective when there was a greater level of diversity in the causes of these failures. However, this learning was more effective when a new entrant’s parent firm enjoyed ownership ties to investors with ventures that had failed previously in the mainland.

Thus, late-entering firms differ in the extent to which they learn effectively from early movers’ failures, and this disparity affects their survival rates. It confirmed that congenital learning from early failures is critical to an organization’s success. The researchers drew on the vicarious learning framework to enhance understanding of disparities, and as a result they extended the framework into the pre-entry stage, and uncovered complex learning dynamics that may exacerbate or impair the benefits of learning from early-entrant failures.

The study complements ideas that consider congenital knowledge as being mainly inherited from the founders or key employees of a new firm. It implies that it also comes from a new firm’s congenital learning, which serves as an important channel linking the experience of peer firms’ failures with the outcomes for a new firm.

The research has integrated ideas of congenital knowledge, vicarious learning from failures, and organizational survival.  The findings confirm that a rare event such as a prior entrant failure can play a valuable role in improving the performance of newly entering firms and in helping them achieve late-mover advantages. Collectively, the findings of this study underscore the need to further explore congenital learning practices associated with failure and to determine the boundary conditions when later entrants can achieve advantages – in other words, grab the cheese – without exposing themselves to the costs of failure.

LI, J. T.

Lee Quo Wei Professor of Business, Chair Professor, Director of Center for Business Strategy and Innovation