Financial Performance of Entry Mode Decisions: Effects of Control in an Internationalization Context

Abstract

Based on a survey of 170 Danish SMEs the paper examines influences on entry mode choices and the financialoutcome of these decisions. The main research objectives are divided into two steps: Step 1: To determine thefactors influencing the choice of foreign entry modes by Danish companies. Step 2: To determine the relationshipbetween the choice of entry mode and export performance, measured in terms of financial outcome. Drawingfrom transaction cost theory the authors develop and test a model where different factors affect the level ofcontrol chosen by the parent company. This study contributes to the existing entry mode theory by integratingboth steps into a theoretical framework that offers substantive explanation of the connection betweenindependent entry mode variables, the choice of entry mode and the resulting export performance. Personalnetworks and interruption of international activities were the most significant factors for the choice ofintermediate modes. The results also show that high control modes can positively affect the bottom line profitthrough higher market investments and better implementation of cross border strategies. Finally, further researchsuggestions and implications are provided for companies willing to invest more into foreign markets in order toachieve a higher degree of control and better financial results.