First Mover Theory

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Elisha Sonson
American Intercontinental University
Strategic Management
MGT680 – Strategic
November 25, 2012

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Commonly, for many businesses, timing of the marketplace is a critical determination.
The focus of such timing to penetrate the market is simply a decision as whether to make an
early or late entry. According to Magnusson and Boggs (2009), there has been increased
awareness over the years regarding the internalization process on businesses. Despite the
attention, the uncertainty of whether to enter the marketplace early or late still remains (2009).
However, Magnusson and Boggs add that early candidates into the marketplace most likely
would experience more advantages, which includes the knowledge curve effect, the preemption
of scare input factors, choice of promising geographic sites and the expansion of buyer changing
costs. On the other hand, some businesses prefer to respond to the competitive market later when
the first movers have paved the way, thus creating the advantage edge for the later mover
(Magnusson & Boggs, 2009).
First Mover Theory
The theory of the first mover is that they may have the opportunity to experience greater
financial performance in the short period because of good character, location or early returns.
The first mover can be labeled as the pioneer guru in the marketplace. “The early bird grabs the
worm” is a well-known line that conveys the importance of being early. In a marketplace of
limited resources, it is understandable that the first mover enjoys the best possibility of success.
The determination to move first and the identification of its value lie behind the economic theory
of the advantage of the first mover (Lieberman & Montgomery, 1987).
Advantages of First Mover
Murray, Ju, and Gao (2012), outlines the advantages of the first-mover as;
• Higher market shares
• Technological leadership

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• Establish brand-recognition
• Preemption of scarce assets
Disadvantages of the First Mover
Despite the many advantages of the first mover, there are disadvantages to this theory.
Dobrev and Gotsopoulos (2010) outline some of the disadvantages to the first mover theory to
include;
• Lesser survival chance on the marketplace
• Environmental uncertainty
• Uncertainty of long-term investment
• Competitors free-riding on first-mover
How Advantages of First Mover Affect the Theory
Both the advantage and disadvantages of the first mover theory can affect the theory.
Beginning with the advantages, higher market shares can affect the first mover theory in that
although the first mover may have a higher return, the cost of the first mover can add up quickly
thus outweighing the high return on the market. Technological leadership is another advantage to
the first mover but its impact on the first mover is that there may be changes or diffusion of
technology that may reduce first mover advantage, which means that the first mover may need to
purchase the necessary technology needed to sustain formal communication (Lieberman &
Montgomery, 1987). One such mechanism that may the cause diffusion includes informal
technical interaction, which means that the technology may not be practical to support formal
communication. This impact could affect the first mover in that it comes at a cost to the business.
Next, the benefit of having brand recognition can affect the first mover in that late
movers can imitate the brand and produce it at a cheaper cost. Another advantage that can affect

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the first mover is the preemption of scares assets. This benefit can impact the first mover in that
information on available resources may be limited, thus affecting assets that could be purchase at
market cost. These assets include prime location, which if unknown, the first mover can end up
in an unattractive niche, thus affect return on investment (Lieberman & Montgomery, 1987).
How Disadvantages of First Mover Affect the Theory
Like the benefits, the downside to the first mover theory can generally affect the mover.
First, lesser survival chance on the market is one downside to the first mover theory. This can
affect the first mover in that making an early entry into an unknown market where limited
research and development (R&D) exist could potentially affect the first movers’ experience of
surviving the market. Environmental uncertainty is another disadvantage that could affect the
first mover. Environmental conditions within the business geographic region can impact the first
mover in that they may not be familiar with the culture, needs, regulatory adjustments and
technological advances within that specific geographic region. In that case profits could tumble
quickly because of the consistent strive to adjust to the environment (Dobrev & Gotsopoulos,
2010).
The uncertainty of long-term investment can also affect the first mover in that early
movers may not be able to predict the direction of their investment because competitors have not
paved the way thus facing possibilities of unfavorable conditions that may affect future growth.
Free-riding can affect the first mover in that it paves the way for later movers to “piggyback” on
first movers who enter the market early. There is the opportunity of information spillovers in
research and development in that research regarding production development, buyer education
and infrastructure development have been conducted by the first movers thus giving late movers
the chance to “free-ride” (Lieberman & Montgomery, 1987).

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Late Mover Theory
The pioneers or the first movers are often known in many markets to outsell late movers
but much evidence has shown that in some instances late movers outsell those who enter early
(Shankar, Carpenter, & Krishnamurthi, 1998). Like the first mover theory, the late mover theory
shares its own advantages and disadvantaged.
Advantages of the Late Mover
• Leverage of communication
• Lower risks
• Certainty of the market
• Leverage of innovation
Disadvantages of the late mover
• Timing of product
• Acceptance of the market
• Availability of resources
• Entry hurdles
How Advantages of Late Mover Affect the Theory
The late mover into the market may enjoy some advantages over the early mover but
those benefits can also have an impact on the late mover. Leverage of communication can affect
the late mover in that they may not acquire the skills and experience to communicate their
products effectively to buyers. Next, although the late mover may have a lower risk on the
market, the probability of buyers accepting their products puts them at a high risk. Certainty of
the market can also affect the late mover in that consumers may have already become familiar

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with earlier product brands and formed a trusted relationship with the first movers, thus
generating uncertainty for the late movers. Leverage of innovation may seem advantageous to
the late mover but when newer innovation fail to sustain the market or create incompatibility
issues especially in developing countries, it can affect the late mover (Shankar et al., 1998).
How disadvantages of Late Mover Affect the Theory
The disadvantages of penetrating the marketplace late can affect the late mover in many
ways. First, timing of the product can affect late movers because launching new products take
time and resources to develop. Next, the acceptance of the market is another disadvantage to this
theory that affects the late mover. Since late movers enter the marketplace later buyers may not
accept their products as they may view them as imitations. Availability of resources can greatly
affect the late mover in that certain conditions such as environment and geographic location can
change and limit the availability of resources that can be accessible. First movers can create
barriers for late movers thus causing entry hurdles, which can affect the late mover. First movers
may want to control the market by securing patent and product design, thus creating many
hurdles for late movers (Shankar et al., 1998).
Successful Firms of the Frist Mover Theory
Today, many firms have successfully emerged as first movers. Kerin, Varadarajan and
Peterson, (1992) list Merrill Lynch as a prime example of the first mover theory. The firms’
competitive head start over its contenders placed the firm in a leading and long-term position.
Lincoln Electric Company is another successful example of the first mover theory. Lincoln
Electric penetrated the market early with excellent patented products, which has enable Lincoln
to sustain higher returns (Lieberman & Montgomery, 1987). Sony is another prime example of
the first mover theory. The company has developed innovative products by getting them to

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consumers faster than its competitors, thus continuing fast growth and success. Finally, Coca-
Cola the soft drink company, which over the years has distinctly demonstrated appeal and
longevity of the first mover into the marketplace (1987).
Unsuccessful Firms of the First Mover Theory
A real example under this theory is Kodak a leading company of photography film.
Although Kodak made an early entry into the market, changes in technology forced Kodak to
compete on the market, thus affecting the firms’ bottom line. Another pioneer of this theory is
Xerox. The firm made an early entry into the market delivering laser printers to consumers but
despite its well-known brand, Xerox failed. Motorola is another first mover to enter the market
but Apple surpassed Motorola when it entered the market. The MP3 innovator, Creative
Technology, Ltd. is another example of an unsuccessful first mover. Creative Technology was
quickly overshadowed by Apple who introduced the hard disk MP3 player. IBM a well-known
name in the technology sector was a first mover but like many first movers IBM became
unsuccessful when big names like Apple and HP came on the market (David, 2012).
Successful Firms of the Late Mover Theory
According to David (2012), it is wise to be a fist mover but that does not mean all first
movers who enter the market are viable and successful. Many late movers like Apple have been
successful in this business. Apple entered the market later than Motorola and has been successful
with annual sales reaching 24.1 million in the year 2011 alone. Another late mover that has been
successful is Nokia who introduced the N8 smartphone and the 12-megapixel camera. Hewlett-
Packard (HP) well-known brand entered late and is one of the leading brands in technology
today. EMI made an early entry introducing the CT scanners but its late rival GE (General

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Electric) saw much success when it produced similar scanners and took the lead over EMI
(David, 2012).
Unsuccessful Firms of the Late Mover Theory
The introduction of the flat screen television rolled out by Mitsubishi is a prime example
of the late mover theory. Mitsubishi’s unsuccessful endeavor was outranked by leading rivals
like Sony and Samsung. On a smaller scale, the social network iParent.com rolled out into the
cyber market but with big names like Facebook, iParent.com made an unsuccessful exit. With
many investors seeking interest in the company, that was not enough to keep up with its big rival
Facebook (Zimmerman, 2011). A later comer to the auto industry was the Indian line of sedan
Renault. Delayed two years later than expected Renault still did not survive the market after its
4-year mark (Bhandari & Mukherjee, 2011). Finally, EMC a tech giant entered the market but
when rivals like IBM and Hitachi entered with high-end products similar to EMC, its stock
plunged quickly (Zimmerman, 2011).
Recommendation of the Theory
After carefully analyzing the benefits and downside to the first mover and late mover
theory, it is evident that both theories have interesting elements that make each unique. Despite
the fact that moving first is beneficial I preferably leaned towards the late mover theory.
Although many first movers have successfully draped the market, researches have shown
examples of those who have failed to stay afloat. Big names like IBM, Kodak and Xerox are
prime examples of this phenomenon. Since developing and launching new products takes time
and resources, it is best to enter the market later than early. This is because much R&D has been
done and inventors can utilize the resources of first movers to analyze the products that have
done well and those that have failed. In addition, being a late move provides a competitive

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advantage over the first mover in that newer innovative products are being designed and being
late means inventors have the opportunity to keep up with market trends and consumer buying
behaviors. Late movers have more resources and the technological advantage is endless. With
the ever changing demands of consumer, late movers have a better chance of meeting buyers’
needs than first movers who focus on being first on the market. According to Lieberman and
Montgomery, (1987), being first on the market is wise but late movers have the opportunity to
absorb from the marketing errors of first movers. For example, although Apple was not the first
to introduce a line of technological products, they utilize the experience of earlier movers and
learned from the mistakes of the first movers. In that case being a late mover paid off well
because Apple had the opportunity to use the resource of R&D that was done by first movers to
build a name that continues to be successful on the market.
To End
Prior to entering the marketplace, it is critical for firms to make an analysis regarding
whether to enter the market early or late. Although innovative ideas are endless and many firms
want to take the opportunity of introducing their innovation by penetrating the market first,
timing is of utmost importance as moving into the market too early or too late can have an
economic impact on the business. There are many benefits of moving first as there are to moving
later but the importance is introducing innovative product that meet buyers’ needs.

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References
Bhandari, B. & Mukherjee S. (2011). Late Mover Advantage, Business Standard, Retrieved from
http://www.business-standard.com/india/news/late-mover-advantage/423445/
David, F. R. (2012) Strategic Management Concepts and Cases: A Competitive Advantage
Approach, Fourteenth edition Prentice Hall
Dobrev, S. D., & Gotsopoulos, A. (2010), Legitimacy Vacuum, Structural Imprinting, and The
First Mover Disadvantage. Academy Of Management Journal, 53(5), 1153-1174.
doi:10.5465/AMJ.2010.54533229
Kerin, R. A., Varadarajan, P. R., & Peterson, R. A. (1992), First Mover Advantage: A Synthesis,
Conceptual Framework and Research Propositions. Journal of Marketing 56(33-52)
Lieberman, M. B. & Montgomery, D. B., (1987), First-Mover Advantages, Stanford Business
Library Research Paper No. 969(2). Retrieved from
https://gsbapps.stanford.edu/researchpapers/library/rp969.pdf
Magnusson, P., Westjohn, S., & Boggs, D. (2009) Order-of-Entry Effects for Service Firms in
Developing Markets: An Examination of Multinational Advertising Agencies, Journal of
International Marketing, 17(2), 23-41 doi:10.1509/jimk.17.2.23

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Murray, J., Ju, M., & Gao, G. (2012), Foreign Market Entry Timing Revisited: Trade-Off
between Market Share Performance and Firm Survival. Journal of International
Marketing, 20(3), 50-64. doi:10.1509/jim.12.0083
Shankar, V., Carpenter, G. S., & Krishnamurthi, L. (1998) Late Mover Advantage: How
Innovative Late Entrants Outsell Pioneers. Journal of Marketing Research (JMR), 35(1),
54-70.
Zimmerman, E. (2011). How Six Companies Failed to Survive 2010. New York Times Small
Business, Retrieved from
http://www.nytimes.com/2011/01/06/business/smallbusiness/06sbiz.html?_r=0