Explaining international retailers' market entry mode strategy: internalization theory, agency theory and the importance of information asymmetry

Abstract

Research on the internationalization of retailing has focused on descriptive and empirical studies centring on issues such as motivations for retail internationalization and individual company experiences of the internationalization process. One particular aspect of the retail internationalization process that has remained relatively underresearched, and consequently under theorized, is market entry mode strategy. Furthermore, with a few notable exceptions, potentially interesting research from the economics of international production and corporate finance literatures has been virtually ignored in the international retailing domain. This paper represents an initial step in rectifying these deficiencies by exploring some of the issues associated with the economics-based internalization and agency theories, in the context of international retailers' market entry mode strategy. By combining market transaction costs (associated with internalization theory), together with information and monitoring costs (associated with agency theory), and thus highlighting the interlinking issue of information asymmetry, a more coherent basis is established for analysing international retailers' entry mode choice decision.