An investigation into failure of Internet firms: Towards development of a conceptual model

Abstract

The last two decades have witnessed an exponential growth in internet and social media based commerce in China, resulting in a number of foreign Internet firms launching their businesses to capitalize on the market opportunities. Surprisingly though, having been successful globally, these firms were not able to remain competitive in China, with majority of them suffering losses from their failed ventures, and ceasing their operations. Despite this ongoing problem, little or no research exists that might explain what is causing these problems. Addressing this gap in knowledge, we build literature-based insights and through our analysis, we: (1) provide a structured understanding of some of the major issues causing failures, (2) identify and categorize factors/sources of failures into internal versus external driven, and (3) grounded in theory and supplemented by literature evidence, develop hypotheses and a corresponding conceptual model explaining the relationships among these factors/sources and the failure of foreign Internet firms. The proposed model serves as a means by which Information systems managers / Chief Information Officers / Technology and Business managers can understand the sources of failures and conduct an introspective exercise within the firm to plug some gaps before launching a business in a foreign country. Academically, the study has developed a theoretically-grounded comprehensive model to advance knowledge in a scantly researched area of challenges faced by the foreign Internet firms and to help in the development of strategies to mitigate these problems. The proposed model also adds to the current knowledge on information systems socio-technical theory and Comparative theory of Competitive Advantage.