Foreign Entry Mode Choice Research Articles

Born Globals' foreign market channel strategies

Foreign entry mode choices are decisions of paramount importance for the long-term survival and growth of companies that are in a process of rapid international expansion. In this paper we seek to understand the foreign market channel strategies of Born Globals. We examine whether these companies develop a similar strategy regarding foreign entry mode choices and whether their market channel strategies differ from contemporary theories treating this problem. A comparative case study conducted on four companies meeting the criteria of Born Globals suggests that they do not show a common foreign entry mode. Instead, the companies seem to have very different market channel strategies even if they all have internationalised very rapidly. These findings are discussed against the current range of theoretical models that seek to explain the companies' foreign entry mode choice. We conclude the paper with some implications and suggestions for future research.

The Impact of Political Culture on Firms' Choice of Exploitation–Exploration Internationalization Strategy

This article discusses the impact of political culture on the exploitation–exploration internationalization strategies of firms. In particular, we propose that four dimensions of political culture – nationalism, internationalism, patriotism, and cosmopolitanism – influence firms’ willingness to explore new opportunities and/or to exploit existing products and capabilities across borders. We suggest that firms in nationalist home country cultures are more likely to pursue exploitation strategies, whereas those in cosmopolitan cultures are more likely to pursue exploration strategies. For firms embedded in patriotic or internationalist cultures, a mix of exploitation and exploration internationalization strategies might be the more likely choice. We conclude that these political culture dimensions may be useful to understand and predict many firm-level strategic choices, such as the type of internationalization strategy pursued, the choice of foreign entry mode and location, and decisions concerning the management of foreign subsidiaries.

Parent‐Affilate Agency Conflicts and Foreign Entry Mode Choice

We theoretically identify two levels of agency conflicts related to foreign direct investment (FDI): within a parent firm and between parent(s) and an affiliated firm. For a sample of 182 firms that announced U.S.‐related FDIs in 1995, we examine the effects of agency conflicts on the choice between a wholly owned subsidiary (WOS) and a joint venture (JV), and the relative share ownership of a parent. Firms with higher management ownership, especially the firms that made related FDIs, and firms with higher foreign affiliate monitoring efficiency are more likely to choose a WOS. Differences between U.S. and non‐U.S. parents are also examined.

The Choice Between Joint Venture and Wholly Owned Subsidiary: An Institutional Perspective

The study of foreign entry-mode choice has been based almost exclusively on transaction-cost theory. This theory focuses mainly on the impacts of firm- and industry-specific factors on the choice of entry mode, taking the effects of country-specific contextual factors as constant or less important. In contrast, the institutional perspective emphasizes the importance of the influence of both institutional forces embedded in national environments and decision makers' cognitive constraints on the founding conditions of new ventures. Still, this theoretical perspective has yet to provide insights into how institutional factors influence the choice of foreign entry mode. The primary goal of the present study is to provide a unifying theoretical framework to examine this relationship. We synthesize transaction-cost and institutional perspectives to analyze a sample of 364 Japanese overseas subsidiaries. Our results support the notion that institutional theory provides incremental explanatory power of foreign entry-mode choice in addition to transaction-cost theory. In particular, we found that multinational enterprises tend to conform to the regulative settings of the host-country environment, the normative pressures imposed by the local people, and the cognitive mindsets as bounded by counterparts' and multinational enterprises' own entry patterns when making foreign entry-mode choices.

Absolute And Relative Resources As Determinants Of International Acquisitions

We analyze the impact of absolute and relative levels of a foreign investing firm's resources on the choice of foreign entry mode. Specifically, we study the relationship between the fungibility of a firm's capabilities and the propensity of foreign investors to acquire domestic firms. On one hand, we argue that technology is fungible across national borders, and the relative technical capabilities of foreign investing firms, as compared to domestic firms, determine the entry mode. On the other hand, we argue that marketing capabilities are less fungible. Hence, the marketing capabilities of host country firms receives greater prominence in the entry mode decision. Our empirical tests, which are based on 2,175 foreign entries made into the US in the 1974-1991 period, largely support our predictions. From the analysis, we derive implications for the study of capabilities and entry mode choice.

Foreign expansion in service industries: Separability and human capital intensity

We investigate the effect of operating in service industries, in which separability and human capital intensity factors influence the choice of foreign entry mode and expatriate staffing decisions. To look into this issue, we compared 14,863 instances of Japanese foreign direct investment (FDI) into manufacturing and three service industries (wholesale trade, retail trade, and financial services). Our theoretical and empirical analyses support the assertion that in situations where required capabilities must be developed through (1) close contacts with end customers and (2) high levels of professional skills, specialized know-how, and customization, wholly owned subsidiaries and expatriate staff are preferred. From our results, we draw implications for the FDI literature and offer a novel perspective on the factors influencing the internationalization of service firms.

Foreign exchange rates and the corporate choice of foreign entry mode

This study is the first attempt at examining the effects of foreign exchange (FX) rate and volatility on the corporate choice of foreign entry mode and shareholder wealth. For all worldwide US-related foreign direct investments (FDIs) announcements in 1995, we find evidence that, on average, a stronger home currency is related to a higher propensity to choose a subsidiary and that the change in shareholder wealth around subsidiary announcements is greater when the home currency is stronger for non-US parents. On the effects of host currency volatility, the data support the flexibility option (international diversification) hypothesis for the US (non-US) parents.

The choice of entry mode in sequential foreign direct investment

AbstractRelatively few studies have examined the importance of an entry's sequential position to the choice of foreign entry mode. We use a dynamic model to analyze sequential entries into the United States from 1975 to 1992. Our findings show that several independent variables which explain a firm's initial mode of entry do not explain the modes of subsequent entries. These findings underscore the importance of experience in foreign investment, as companies learn from early entries and adapt the modes of subsequent ones. Copyright © 2001 John Wiley & Sons, Ltd.

Local Ownership Restrictions, Entry Mode Choice, and FDI Performance: Japanese Overseas Subsidiaries in Asia

This study examines the moderating effects of a host government's local ownership restrictions on the linkage between the choice of foreign entry mode and its performance, using a sample of 917 Japanese foreign subsidiaries in Asia. The study focuses on two foreign entry modes, joint ventures (JVs) and wholly-owned subsidiaries (WOS), and two performance measures, financial performance and termination rate. The results suggest that the extent of local ownership restrictions is negatively and significantly associated with the financial performance of WOS, whereas it does not directly influence that of JVs. There is no clear association between the extent of local ownership restrictions and the termination rate for the JV and WOS samples.

Location Specificity and the Transferability of Downstream Assets to Foreign Subsidiaries

We investigate the effect of firm-specific advantages being ‘local’ in scope, and the influence of subsequent location-specific disadvantages, on the choice of foreign entry mode and subsidiary performance. To look into this issue, we examine Japanese FDI data from the wholesale and retail industries – two sectors that have productive activity concentrated in downstream processes and location-bound resources. Our theoretical and empirical analyses demonstrate that, in situations where required capabilities must be developed through local experience and where location-specific resources were subject to market failure, acquisition and joint venture strategies were preferred. Greenfield entries were successful in industries that permitted the offsetting of location-specific disadvantages with firm-specific advantages. From our results, we draw implications for the entry mode literature and offer a perspective on the performance of the entry mode choice.