Industry drivers of multinational companies’ externalization choice: a conceptual framework and application to Korea–China film co-productions

Abstract

Purpose This conceptual paper aims to explore under what conditions multinational companies (MNCs) are more likely to internationalize through externalization modes. Design/methodology/approach This paper complements previous studies by proposing three industry-specific factors that affect MNCs’ decision for externalization. It then applies this framework to the case of Korean MNCs’ strategic choice when entering the Chinese film market which is highly regulated by the government, to illustrate how such a framework works in practice. Findings This paper suggests that MNCs are more likely to choose externalization entry modes under the three industry conditions: when the business grows fast, when there are best practices of industry standard and when the business requires multi-competence. It also shows that the three conditions explain well the growing Korea–China co-productions in the Chinese film market. Practical implications This paper provides useful implications for the government’s regulatory effectiveness. The protectionist policies of the host government are valid only in an industry where the three conditions are met, as they increase the possibility of domestic firms’ participation by encouraging foreign MNCs to shift their entry mode from sole venture toward alliances with domestic firms. Originality/value This paper enriches the entry-mode research by indicating that MNCs’ externalization decisions need to consider these industry-specific factors. In addition, it also contributes to the understanding on why some countries maintain their high attractiveness for foreign MNCs, whereas other countries do not, given the similar level of restrictive government regulations.