The dynamics of entry mode choice in challenging business environments: an exploratory study of medium sized exporters' entry into Africa

Henrik Gundelach,Michael W Hansen

doi:10.1504/ijexportm.2020.107718

Abstract

This article studies the entry modes adopted by medium-sized enterprises (MEs) seeking market access to challenging business environments in Africa. Based on a review of the extant literature on entry mode choice and organisational learning in internationalisation, we develop a dynamic model for analysing entry mode choice of exporting MEs. Via a longitudinal study of 14 Danish MEs' attempted entry into the Kenyan market, we found that gaining better knowledge of own resources in relation to the Kenyan business environment did not make the MEs adjust their entry mode. The only behavioural adjustments in lieu of better knowledge were that several MEs, rather than changing their preferred entry mode, decided to abandon entry altogether. We ascribe this lack of adaptation of entry mode strategy to organisational inertia. In conclusion, we argue that our findings have important implications for the theory of organisational learning in internationalisation.

Highlights

European exporters are looking to Africa as the significant opportunity in developing markets (Tvedten et al, 2014)
Based on Cuervo-Cazurra et al (2018), we argue that entry mode decisions in challenging business environments are best understood in the dynamic interface of firm resources and the institutional environment (Hoskisson et al, 2000)
A first contribution was that our model for predicting entry mode choice in challenging business environments proved useful

Summary

Introduction

European exporters are looking to Africa as the significant opportunity in developing markets (Tvedten et al, 2014). Even if there are significant market opportunities, and even if MEs typically have substantial export experience, they struggle to overcome the combination of the challenging business environments in Africa and internal resource constraints. The challenges are partly due to considerable differences in the institutional environment between the exporter’s home country and an African market, conceptualised by institutional distance (Kostova, 1999; Kostova and Zaheer, 1999) and institutional uncertainty (Getachew and Beamish, 2017; Khanna and Palepu, 2010). The substantial institutional differences combined with the exporting MEs’ lack of experience with the African markets place them in a precarious position with a high liability of foreignness (Kostova and Zaheer, 1999; Zaheer, 1995). Some exporting MEs succeed in overcoming the challenges and enter the African markets

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Methods

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Conclusion