The Differing Foreign Entry Mode Choices for Sales and Production Subsidiaries of Multinational Corporations in the Manufacturing Industry

Seok Jin Ko

doi:10.3390/su11154089

Abstract

Foreign market entry mode research has been a popular area of study. However, a clear agreement between the usage of conventional constructs and their impact on a firm’s entry mode choice has not yet been found. This paper focuses on how, depending on the type of subsidiary that is established, multinational corporations (MNCs) in the manufacturing industry use different foreign market entry strategies. Previous research either treated types of subsidiaries synonymously or investigated them separately. However, due to the changing competitive landscape and disaggregation of value chain activities into separate subsidiaries, I find it necessary to compare how these entry mode choices differ depending on the activity each subsidiary is responsible for. My analysis finds that MNCs in the manufacturing industry are more likely to use joint ventures rather than wholly owned modes of entry for their production subsidiaries in comparison to their sales subsidiaries. I further explore how the international experience of the MNC strengthens this effect. This research utilizes a sample of 201 listed Korean manufacturing firms and 833 foreign market entry mode choices into 49 countries.

Highlights

Research on entry modes into foreign markets has been carried out extensively due to the lasting decisions and significant impacts these choices have on consequent firm performance and firm sustainability [1,2,3,4]
The results indicate that the international experience of multinational corporations (MNCs) moderates the relationship between subsidiary types and foreign market entry mode decisions
This study extends the significance of examining not just the type of industry an MNC is in but the types of subsidiaries that exist within an industry and MNC, as this can lead to distinct input needs which can further contribute to their resulting foreign entry mode decisions

Summary

Introduction

Research on entry modes into foreign markets has been carried out extensively due to the lasting decisions and significant impacts these choices have on consequent firm performance and firm sustainability [1,2,3,4]. While one group of scholars has allocated contracts, joint ventures and wholly owned subsidiaries along a continuum of increasing control, commitment and risk [13,14], another group of scholars have found entry mode choices to be based on how firms want to compensate their contributors of business or input providers [15,16,17] This latter stream of research suggests that firms tend to establish joint ventures with a local partner when the required resource for foreign entry is difficult to purchase in the market. This study builds on this latter stream of research to examine how the different characteristics and input needs between sales and production subsidiaries within multinational corporations (MNCs) in the manufacturing sector can impact their foreign entry mode decisions

Objectives

Methods

Results

Discussion

Conclusion