Success through Trust, Control, and Learning? Contrasting the Drivers of SME Performance between Different Modes of Foreign Market Entry

Maximilian Holtgrave,Mert Onay

doi:10.3390/admsci7020009

Abstract

Globalization and international competition have driven a large number of small- and medium-sized enterprises (SMEs) to enter foreign markets. However, current knowledge on which factors determine SMEs’ foreign market performance and secure their success is limited. Using empirical data on 280 German SMEs’ activities in Arab markets, we contrast the performance effect of trust with those of control and learning (three of the most prominently studied success factors) across three different structural modes of market entry: non-equity entry, cooperative entry, and wholly-owned subsidiaries. Our results reveal marked differences between the three entry modes and we offer a detailed discussion of the underlying structural and cultural reasons. Consequently, this study allows for a comprehensive understanding of the determinants of SMEs’ foreign market performance and provides relevant advice as to which managerial approach to emphasize for which mode of foreign market entry.

Highlights

The globalization of the business environment and the need to compete simultaneously in multiple markets has driven small- and medium-sized enterprises (SMEs) to follow in the footsteps of their larger, multi-national counterparts and even enter culturally and socioeconomically distant foreign markets [1,2].Typically, organizations enter foreign markets via one of three modes: (1) non-equity market entry; (2) cooperative market entry; or via incorporating (3) wholly-owned subsidiaries [3]
While this may be true for large, multi-national enterprises (MNEs), which have predominantly been the subject of previous research, SMEs suffer from significant drawbacks due to their liability of smallness [12,13]
Our results indicate that the managerial requirements of all three entry modes differ markedly, with performance of non-equity market entry being driven primarily by learning, and performance of cooperative market entry and wholly-owned subsidiaries depending more on issues of trust and control

Summary

Introduction

Organizations enter foreign markets via one of three modes: (1) non-equity market entry (e.g., direct and indirect exporting, distribution, or licensing partnerships); (2) cooperative market entry (e.g., joint ventures or strategic alliances); or via incorporating (3) wholly-owned subsidiaries [3]. The choice among these three modes of foreign market entry has been the object of extensive scholarly interest, with many studies investigating the factors that determine organizations’ choice of a particular mode of foreign market entry and comparing performance levels between the different entry modes (for a review, see [4]). While this may be true for large, multi-national enterprises (MNEs), which have predominantly been the subject of previous research, SMEs suffer from significant drawbacks due to their liability of smallness [12,13]

Objectives

Discussion

Conclusion