Choice of Market Entry Mode is Contingent on Environment: Integrating the Resource Dependence and Contingency Theory Perspectives

Abstract

Selection of the appropriate entry mode for internationalization is a crucial decision. Global firms contemplating foreign direct investment may incur huge costs due to wrong selection of entry mode. Environment, as a non-controllable factor, should guide these firms to choose a pertinent entry mode. This conceptual paper provides key propositions of the potential impact of entry mode selection on the success of the firm, building on resource dependency theory and contingency theory. The study proposes that the choice of entry mode selection by internationalizing Chinese firms, targeting developing as well as developed economies, is contingent on the level of environmental uncertainty and risk profile of the host country. The study highlights significant environmental factors as prime determinants of the selection of an entry mode. The proposed framework can serve as a guideline for global firms to choose the host market depending on the nature of environmental factors. Choosing right entry mode will help them to reduce failures arising from the wrong choice of entry mode. Future empirical studies should test the framework to add to the international business literature.