Failure-induced learning, causal ambiguity, and foreign market entry

Abstract

A key question in organizational learning research is how firms use information from the experiences of other firms in guiding their own strategic choices. In contrast to frequency- and trait-based imitation, this study emphasizes how firms respond when observing negative outcomes of peer firms, and how causal ambiguity moderates this failure-induced learning. Two key findings emerge from our analysis of market entries into China by Japanese multinationals from 1980 to 2000. First, firms are less likely to enter the market when observing a large number of failures by others. Second, the causal ambiguity for prior failures weakens the effect of other firms' failures. The results highlight the importance of considering causal ambiguity in failure-induced learning.