Entry Mode Choice Research Articles

Lusophone-African SME internationalization: A case for born global and international joint ventures

This study investigates the internationalization strategies of Lusophone Africa multinational enterprises (MNEs) from Angola and Mozambique, more specifically their entry mode. Information was gathered through a survey of 29 MNEs upper management respondents and subsequent face-to-face semi-structured interviews with 24 of them in their countries. The results suggest that most MNEs opted for equity-based investment strategies, mainly joint venture and mergers and acquisitions (M&A) as their preferred mode of entry when internationalizing. A significant group of them opted for e-commerce/e-business strategies and direct and indirect exports. A smaller portion of the interviewees chose Greenfield investment as a mode of entry. Many of these MNEs could be classified as born global/international new venture (INV). Finally, this study presents a conceptual framework for use in studying the entry mode choice of enterprises from Lusophone Africa frontier markets and presents research propositions for better understanding the determinants of entry mode strategies of enterprise from Angola and Mozambique.

And yet, non-equity cooperative entries do improve international performance: uncovering the role of networks’ social capital

Drawing on social capital theory, this study analyses the moderating role of social networks in the relation between international new ventures’ choice of non-equity cooperative entries and international performance. The research adopts an alternative point of view that considers that the development of social capital is dependent upon what actions an individual or group of people carry out to build and maintain social capital. Three relational norms have been associated with effective interaction among network partners, namely, informational exchange, organizational coordination and social conflict resolution. Through these relational norms, firms can co-create the structure of the social network and define what the network benefits and social capital are. Data gathered from a sample of international ventures operating in several industries support the idea that networks’ social capital endows international new ventures with informational advantages and experiential knowledge, which are important to reduce the problems associated with the non-equity entry mode choice when partners do not come from their networks. The results point to the need for INVs’ entrepreneurs to engage in establishing routines that enable them to develop management activities in coordination with their network members. The findings provide entrepreneurs of INVs with contextual evidence for making successful foreign market entry decisions.

Family involvement and Spanish hotel chains’ entry modes abroad

ABSTRACTThe aim of this study is to analyze the relationship between family involvement and entry mode choice by Spanish hotel chains in foreign markets. Drawing on stewardship and institutional theories, we examine how family character may moderate the effect of institutional differences on the choice of entry modes entailing different levels of resource commitment and control over international activities. Using a sample of 981 hotels established abroad by 76 Spanish hotel chains, the results show that family involvement is associated with entry modes involving greater control and resource commitment. Moreover, family involvement moderates the relationship between both formal and informal institutional distance and entry mode choice. Specifically, when both distances are high, family involvement increases the likelihood of choosing entry modes involving higher control and resource commitment.

Entry mode choice in emerging markets: is there any difference between emerging and developed country multinationals

Previous research has documented that, when investing abroad, emerging market multinationals (EMMs) have a higher tolerance for risk than developed country multinationals (DCMs), highlighting their propensity to make bold acquisitions and to form alliance networks. In this paper we examine the differences between EMMs and DCMs when it comes to choosing between these options of external growth. We argue that EMMs have a higher propensity than DCMs to choose joint ownership options and, among them, those involving complex partnerships, so as to leverage their routines and imprinted capabilities to deal with partners. In order to carry out the study, we consider the differences in entry mode patterns in emerging markets by multinationals from USA, European Union, BRIC, and Next-Eleven countries between 1996 and 2012. Our results supported our hypotheses.

Entry mode deviation: A behavioral approach to internalization theory

We explore when and why decision makers choose international entry modes (e.g., hierarchies or markets) that deviate from internalization theory’s predictions. By applying a cognitive perspective on entry mode decision making, we propose that the performance of prior international activities influences decision makers’ behavior in different ways than assumed in internalization theory. More specifically, due to a representativeness bias, underperforming (overperforming) past ventures influence the decision to change (continue using) the previous entry mode choice, which may result in an entry mode deviation. In addition, the propensity to deviate from theoretical predictions is stronger when the experience is recent and/or salient due to an availability bias. In conclusion, we argue that internalization theory can benefit from incorporating more systematically important behavioral assumptions on how firms enter international markets. In so doing, we contribute to the recent conversation on how variations in human behavior influence internalization theory.

Motives, choice of entry mode, and challenges of bank internationalization: Evidence from China

This study examines the motives, entry mode choice, and challenges of the international expansion in an emerging country context. Data were collected via interviews from 30 senior managers based on a sample of 10 Chinese commercial banks (CCBs) involved in international expansion over the period of 2001–2013. This study finds greenfield and mergers and acquisitions are the most popular foreign entry mode used by CCBs. The motives of emerging market banks’ internationalization appear to be intrinsically linked to market development to serve customers operating in overseas market, government policies, and strategic knowledge sourcing. In terms of challenges, the study finds lack of management resources/technical capacity, culture, adapting to the host country regulatory environment, and lack of experience to be the main challenges to bank internationalization.

Analysis of the Entry Mode Choice from Both Transaction Costs and Resource Based Theory

The liberalization of markets opened doors for expansion and increased the level of competition in numerous markets. This explains that firms are increasinglydiversifying across national borders. This phenomenon is related with the international entrepreneurship, since internationalization is an example of a strategy change that can be defined as an entrepreneurial act. In this context, the scholars in international business have given answers to basically three questions: Why, where, and how do companies internationalize. Since the present research deals with entry modes choice, the focus is clearly on “how.” The choice of entry mode constitutes one of the most critical decisions for international strategy success. This research analyzes the entry mode choice from the perspective of both transaction costs and resource based theory, because these perspectives use different assumptions and consider different assumptions. Given this, I propose 4 propositions related with the study of entry mode choice from the transaction costs and resource based theory.

Added distance, entry mode choice, and the moderating effect of experience: The case of British MNEs in emerging markets

Distance has been viewed as a crucial determinant of the internationalization strategy of firms. Nonetheless, in recent years, there has been considerable debate with regards to, first, the type of distance considered most important when it comes to explaining the internationalization strategy of firms, and, second, how distance should be measured. In our study, we argue that a developed market multinational enterprise (DMNE)’s decision regarding the mode of entry into an emerging market (EM) will be affected by the geographic and administrative distance between the locations in which the MNE has previously held operations. Drawing our arguments on transaction costs economics (TCE) and Internalization Theory, we propose that, for low and high geographic and administrative distance, DMNEs will opt to enter EMs via a wholly owned subsidiary, while for moderate levels of distance via a joint venture. Furthermore, we argue that DMNEs’ previous international experience in EMs will have a positive effect on the suggested U‐shaped relationship, alleviating the negative effects associated with the coordination and knowledge dissipation costs incurred as a result of the level of distance. Our study contributes to existing literature both theoretically—notably via the examination of under‐researched facets of distance on entry mode choice—and also methodologically—through the adoption of a novel methodological approach in measuring distance. We test our hypotheses against a data set comprising 316 entries of FTSE 250 British MNEs in 39 EMs spanning the period 1971–2010.

The Analysis of Entry Mode Choice in Brazil

The Analysis of Entry Mode Choice in Brazil

International Grocery Retailers' Country Environment, Resources and Local Performance. A Cross-classified Multi-level Approach

This study aims to shed light on the often-neglected effects of host country environments on firms’ local performance. We chose this topic, because host country environment is known to affect firms’ internationalization decisions (e. g., market selection or entry mode choice) while it is rarely regarded as an antecedent of local performance after a market entry. Still, country environments are expected to have substantial performance implications by international business scholars, while we know from national research that local performance is attributed to the local environment, especially in the retail industry. We hence aim to contribute to international retailing research by conceptualizing and testing such effects across nations. Because retail firms’ resources may help to overcome environmental dependencies, such resources are conceptualized as moderators of the effects of the host country environment on local performance. We thus make a second contribution by providing novel insights on the context specificity of resources. We chose the grocery retailing industry to analyze these topics for several reasons. First, grocery retailing is an important industry (e. g., market volumes of 770 billion USD in the US, 680 in China, or 280 in Germany) which is highly sensitive to host country environments. Furthermore, in this industry different levels of the environment need to be differentiated: country-level environment specific to all firms and store format-level environment specific to store formats like hypermarkets vs. discounters. We thus consider three levels of analysis: store-formats, countries and firms. We apply cross-classified multi-level modeling, which allows us to treat the complex data structure appropriately and has rarely been used in business literature so far. A Bayesian estimation is used. We thus make a methodological contribution to literature, by showing a way to treat such data structures appropriately. The results show that purchasing power and rule of law (country level) enhance local performance, whereas local intra-format competition (format level) diminishes it. Important resources in retailing (firm level) do not affect local performance directly but the results support a context-specificity of resources, i. e., a moderation role of the environment-local performance links. In particular, country level effects are moderated by retailers’ degree of internationalization, while surprising interactions occur of the format level environment. We provide important insights for managers and applicate the novel cross-classified multi-level approach that accounts for increasing complexities in data structures in international business research.

Technological capabilities, political connections and entry mode choices of EMNEs overseas R&D investments

Through the combination of resource-based view (RBV) and institutional perspective, this study investigated how different types of ownership advantages interact to influence the entry mode decisions of emerging market multinational enterprises (EMNEs) investing in R&D overseas. Data from a survey of 82 Chinese manufacturing firms were analysed to determine that the technological capabilities (i.e., traditional ownership advantages) and political connections (i.e., non-traditional ownership advantages) jointly influence decisions by firms to choose Greenfield investments (i.e., resource-exploitation entry mode) over some sort of acquisition or joint venture (JV) (i.e., resource augmentation entry mode). Specifically, the study showed that strong political connections at home encourage Greenfield investments. Strong technological capabilities have relatively little direct impact, but interact with political connections to encourage Greenfield investments.

Technological capabilities, political connections and entry mode choices of EMNEs overseas R&D investments

Through the combination of resource-based view (RBV) and institutional perspective, this study investigated how different types of ownership advantages interact to influence the entry mode decisions of emerging market multinational enterprises (EMNEs) investing in R&D overseas. Data from a survey of 82 Chinese manufacturing firms were analysed to determine that the technological capabilities (i.e., traditional ownership advantages) and political connections (i.e., non-traditional ownership advantages) jointly influence decisions by firms to choose Greenfield investments (i.e., resource-exploitation entry mode) over some sort of acquisition or joint venture (JV) (i.e., resource augmentation entry mode). Specifically, the study showed that strong political connections at home encourage Greenfield investments. Strong technological capabilities have relatively little direct impact, but interact with political connections to encourage Greenfield investments.

Is Social Media a Passport to SMEs’ Foreign Market Entry?

Social media has provided opportunities for businesses to develop close relationships with customers leading to customers’ engagement as it influences loyalty and satisfaction, and assists in expanding the markets. While small and medium enterprises (SME) are at a disadvantage compared to large firms, establishing management control in a foreign market remains a challenge. In addition, a considerable number of studies on foreign market entry mode choice have concentrated on large firms. Moreover, social media has become increasingly relevant for SME to “level the playing ground” with large firms. However, little is known about the SME role in engaging with their customers and especially in how SME use social media capabilities. We respond to this gap in the literature by exploring how SME use social media platforms to connect with customers in a foreign market. A qualitative analysis was conducted through in-depth interviews with six Portuguese firms. The findings indicate that social media provides a distinctive pathway to SME to connect emotionally with customers in a foreign market.

Family businesses from emerging markets and choice of entry mode abroad: insights from Indian firms

Internationalization of family businesses (FBs) is an interesting topic that has received extensive attention in the literature during the last decades. Prior studies emphasized the conservative attitude toward risk of FBs. However, studies addressing international decisions of emerging-market FBs (EMFBs) are still scarce. We investigate whether home and host countries matter when EMFBs choose the entry mode abroad. By doing so, we discern whether they follow the same behavioral pattern as developed-country multinational enterprises (MNEs) or they show a distinctive strategic behavior. Drawing on a sample of 298 foreign market entries carried out by Indian MNEs, our results show that Indian FBs prefer acquisitions instead of greenfield investments. Moreover, host country factors matter, since outward foreign direct investment (OFDI) of Indian FBs in developed markets is associated with a preference for acquisitions, whereas OFDI in developing countries is associated with greenfield investments.

Institutional logics and social enterprises: Entry mode choices of foreign hospitals in China

When social enterprises, being defined by their social mission and profitability, internationalize, they need to respond to institutional logics in the host country. By juxtaposing institutional logic and entry mode choice literature, this paper shows how social enterprises accommodate different institutional logics when they enter foreign markets. We collected data on Chinese healthcare reform, governmental policies and their changes, and conducted 36 in-depth interviews and three expert group meetings. By analyzing five non-Chinese hospitals entering China, we show how social enterprises, as hybrid organizations, respond to governmental, commercial, and social institutional logics, when entering a foreign market.

Entry modes in reshoring strategies: An empirical analysis

The Entry Mode (EM) choice is a fundamental issue in reshoring initiatives. Despite several authors have studied the determinants of offshoring EM, no study has investigated so far the factors affecting the reshoring EM and its relation with the offshoring EM. The purpose of this paper is to examine which factors influence entry mode choice in reshoring initiatives. We develop a conceptual framework that explains the reshoring EM in terms of country-, industry-, firm- and project-specific factors, in addition to the offshoring EM choice. Next, we test this model by using a sample of 677 cross-industry and cross-country reshoring projects. Based on the results, we find that offshoring EM significantly constrains the subsequent reshoring EM. More in detail, firms adopting offshore insourcing entry modes tend to retain these modes in reshoring. Furthermore, reshoring EM is explained by industry- and project-specific factors, while offshoring EM is influenced by a broader set of industry-, country-, and firm-specific factors. This study fills a gap in the reshoring literature by analysing influential factors in EM choice and by offering a comparison between the determinants of offshoring and reshoring EM.

Revisit the CD Paradox in Entry Model Choice: Toward the Perspective of Strategic Fit

The effect of cultural distance (CD) on the entry mode choice (EMC) has been intensively studied but the empirical results are mixed. This study adopts the strategic fit perspective to examine how firms’ strategic motives and technological ownerships may influence the EMC in face of different cultural distances. Analyzing Taiwanese outward FDI cases from 2004 to 2007, this study found that firms entering the culture-distant countries would choose the wholly-owned subsidiary (WOS) mode when emphasizing more about the protection of technological competence than market expansion, or else would choose the joint-venture (JV) mode when the market expansion is prioritized.

Factors Affecting the Choice of Equity-Based Mode by Foreign Firms Entering Kazakhstan

Choice of modes is a critical decision that firms conducting equity-based foreign direct investment must make since it has a significant effect on performance. Entry mode choice has been a major topic in international business research up to now. As the largest country in size in Central Asia and a large economic potential, Kazakhstan became one of the main destinations for foreign direct investment in this area while transitioning to a market-based economy after gaining independence from the Soviet Union in 1991. This paper investigates the main firm- and country-specific factors that affect the choice of equity-based entry modes of foreign investors entering Kazakhstan between a joint venture (JV) and a wholly-owned subsidiary (WOS). We establish hypotheses regarding the effects of such factors on the mode choice and empirically test the hypotheses with secondary data on foreign companies’ entry in Kazakhstan, using binomial logit regression analysis.

Entry Mode, Market Selection, and Innovation Performance

Recent studies highlighted the need for multi-perspective research on the internationalization and performance of emerging market multinational enterprises (EM-MNEs) and revealed why many EM-MNEs perform negatively when they respond to the host-country environment. Using a sample of listed Chinese manufacturing firms from 2003 to 2014, this study examines the relationship between entry mode choice, which is driven by different environmental response patterns, and firms’ innovation performance. We further analyze the moderating role of market selection on the relationship between host-country institutional factors and firms’ innovation performance. The results show that the international breadth of firms and the economic stability and investment protection of the host country significantly promote firms’ innovation performance. While the entry mode is unilaterally driven by the host-country response, early international experience and the international depth of firms have significant negative effects on firms’ innovation performance. The level of economic development in the invested area plays a moderating role in the relationship between the host-country institutional factors and firms’ innovation performance. Our findings enrich the literature on the relationship between internationalization and EM-MNE performance, and provide inspiring and straightforward empirical evidence.

Technology interdependence and entry modes of the Taiwanese technological multinational companies: moderating effects of political instability, technological uncertainty, and Confucian dynamism

ABSTRACTThis study aims to examine how technology interdependence and three environmental variables, namely political instability, technological uncertainty and Confucian dynamism, in the host country collectively influence Taiwanese technological multinational company’s (MNC) entry mode choice between joint venture (JV) and wholly owned subsidiary (WOS). Grounded on theories of transaction cost economies and organisational design, this study hypothesises a positive technology interdependence–WOS relationship that can be explained by appropriation and coordination concerns. Moreover, the aforementioned relationship can be positively moderated by technological uncertainty while negatively moderated by political instability and Confucian dynamism. These hypotheses were examined and supported using logistic regressions in the analysis of 195 foreign entries undertaken by Taiwanese information and electronic MNCs.