Entry Mode Research Research Articles

Imbalanced trade dependence and Chinese firms’ entry mode choices: the moderating effects of state ownership and marketization

PurposeApplying resource dependence theory (RDT), this research paper aims to examine the effect of imbalanced trade dependence (ITD) on entry mode choices and how state ownership and marketization each can moderate this effect.Design/methodology/approachUsing data on 1,404 foreign projects made by 493 Chinese listed firms during the 2009–2015 period of time, this study applies logit regression to do the statistical analysis.FindingsIt finds that ITD positively affects the choice of wholly-owned subsidiaries. State ownership and marketization each can moderate this influence.Originality/valueIt develops the concept of ITD, applies it to examine entry mode choices and lets us better understand the substitutive or complementary relationship between governments and foreign firms as two sources of resources. It helps us better understand some competitive advantages of emerging market firms (EMFs) and the impacts of the state on EMFs’ outward FDI. It contributes to entry mode research by applying RDT to explain how ITD influences entry mode choices and how state ownership and marketization each can moderate this relationship.

Charting new courses to enter foreign markets: Conceptualization, theoretical framework, and research directions on non-traditional entry modes

Recent advances in digitalization and increasing integration of international markets are paving the way for a new generation of firms to use non-traditional entry modes that are largely marginalized in previous entry mode studies. While extant research revolves around the level of resource commitment and control in foreign activities, non-traditional modes are encapsulated by the extent of embeddedness required for exploring new and/or exploiting existing resources. In particular, we draw attention to four such categories of non-traditional entry modes the literature has touched on, i.e., capital access, innovation outposts, virtual presence, and the managed ecosystem. We explore the key attributes, antecedents, and strategic implications of these modes. Our paper highlights the need for enriching current entry mode research by considering a broader range of entry mode activities available to firms as well as employing new theoretical perspectives to understand the complex phenomena of internationalization.

Industry drivers of multinational companies’ externalization choice: a conceptual framework and application to Korea–China film co-productions

Purpose This conceptual paper aims to explore under what conditions multinational companies (MNCs) are more likely to internationalize through externalization modes. Design/methodology/approach This paper complements previous studies by proposing three industry-specific factors that affect MNCs’ decision for externalization. It then applies this framework to the case of Korean MNCs’ strategic choice when entering the Chinese film market which is highly regulated by the government, to illustrate how such a framework works in practice. Findings This paper suggests that MNCs are more likely to choose externalization entry modes under the three industry conditions: when the business grows fast, when there are best practices of industry standard and when the business requires multi-competence. It also shows that the three conditions explain well the growing Korea–China co-productions in the Chinese film market. Practical implications This paper provides useful implications for the government’s regulatory effectiveness. The protectionist policies of the host government are valid only in an industry where the three conditions are met, as they increase the possibility of domestic firms’ participation by encouraging foreign MNCs to shift their entry mode from sole venture toward alliances with domestic firms. Originality/value This paper enriches the entry-mode research by indicating that MNCs’ externalization decisions need to consider these industry-specific factors. In addition, it also contributes to the understanding on why some countries maintain their high attractiveness for foreign MNCs, whereas other countries do not, given the similar level of restrictive government regulations.

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

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.

Commercial diplomacy's role in entering foreign markets in the age of global value chains

We examine the role played by commercial diplomacy in firms' outward internationalisation. Based on interviews with economic counsellors and a comparative case-study analysis of firms entering foreign markets, we explore the antecedents and consequences of commercial diplomacy for foreign market entry. The moderating effects of commercial diplomacy vary with regard to the foreign market's level of institutional development as well as the entry mode. The greatest potential effect is identified in less developed, institutionally and politically less stable countries and while engaging in internalisation-related entry modes. The results also depend on firms' perceptions, the timing of the relationship that is established between firms and counsellors as well as the economic counsellors' capabilities. Commercial diplomacy is important for both recognising and exploiting opportunities in international markets. We discuss the managerial and policy implications and develop propositions for testing in later entry mode research and commercial diplomacy research.

Commercial diplomacy's role in entering foreign markets in the age of global value chains

We examine the role played by commercial diplomacy in firms' outward internationalisation. Based on interviews with economic counsellors and a comparative case-study analysis of firms entering foreign markets, we explore the antecedents and consequences of commercial diplomacy for foreign market entry. The moderating effects of commercial diplomacy vary with regard to the foreign market's level of institutional development as well as the entry mode. The greatest potential effect is identified in less developed, institutionally and politically less stable countries and while engaging in internalisation-related entry modes. The results also depend on firms' perceptions, the timing of the relationship that is established between firms and counsellors as well as the economic counsellors' capabilities. Commercial diplomacy is important for both recognising and exploiting opportunities in international markets. We discuss the managerial and policy implications and develop propositions for testing in later entry mode research and commercial diplomacy research.

How Institutions Matter for Emerging Market MNEs Expanding in Latin America and the Caribbean

Research on the effect of institutions on entry mode choice has often obtained mixed empirical results, which can be attributed to the use of a single reference point when conceptualizing and operationalizing institutional factors. Moreover, current research on entry mode makes only incremental methodological contributions by using finer-grained measures or different samples. We address these research issues by conducting a distinctive approach on entry mode research. Adopting the configurational approach, we bundle different country-, industry-, and firm-level factors to identify how their combinations influence the choice between an acquisition and a greenfield investment. We test our framework in a sample of 316 Brazilian foreign subsidiaries operating in 16 Latin American and Caribbean countries from 2000 to 2015. Results show that emerging market multinationals have different firm-specific advantages to mitigate external uncertainty stemming from technological intensity and institutional distance when operating in Latin American and the Caribbean countries. These findings contribute to our understanding of how host country institutions matter for emerging market multinationals entering in markets located in a specific geographic region.

Limits to international entry mode learning in SMEs

Despite extensive research, the literature is unclear about the circumstances under which a firm learns from its past foreign entry modes and how this experiential learning is related to future mode choices. Building on the internationalization process (IP) model and the idea that some experiential learning is location-bound, while other learning is non-location-bound, we develop and test theory to explain how experiential learning about foreign operation modes and markets impact future mode choices in new foreign markets. Overall, we argue that mode-based experiential learning is limited. Through the repeated use of a specific operation mode firms develop routines and processes that are non-location-bound and can be replicated in new foreign markets, leading to the use of this same mode type in new locations. But when complemented by experiential learning about a target market/region firms opt for operation modes with greater commitment in new foreign markets. Drawing on a sample of German SMEs and examining four different types of entry modes we find some support. However, we also identify a number of notable exceptions to our theory. In this way, we help provide unique new insights informing future IP model, experiential learning, and international entry mode research.

What matters for hotel executives? An examination of major theories in non-equity entry mode research

This study examines the non-equity entry mode decisions of high-level executives in the international hotel industry, specifically the choice between franchising and management contracts. This quantitative study is based on a self-selected scenario-based online survey of 110 hotel executives. The primary objective of the study was to develop and test hypotheses through the combined theoretical lenses of transaction cost economics and the resource-based view. The hypotheses were tested through a logistic regression and the findings show that intangible assets and resources are the most important consideration in deciding between franchising and management contracts when internationalising hotels, generally prompting the use of management contracts. It was also found that uncertainties in the host market may lead hotel executives to choose franchising over management contracts, and finally, that asset specificity may prompt the use of management contracts over franchising.

Foreign Market Entry Mode Research: A Review and Research Agenda

ABSTRACTThis article gives a retrospective look at the main determinants of foreign market entry modes and examines the variables and conditions used in empirical studies in this stream of research. We found that there is an “analytical context hazard” in past studies. The findings suggest: first, future research should focus on developing and extending theories with reference to strategy dimension and market/industry environment; second, the interrelationship between the main entry mode determinants should be figured out; third, attention has to be paid to the entry modes of firms from non-developed economies in research.

Firm age, marketization, and entry mode choices of emerging economy firms: Evidence from listed firms in China

Prior entry mode studies have not paid close attention to the impact of firm age. This study applies an organizational ecological perspective to address the impact of firm age on international entry mode choices. This study also utilizes the institution-based view to theorize on the interaction effect of firm age and the degree of marketization in a firm’s local economy. Using listed firms from China as the study sample, an inverted U-shaped relationship between firm age and the choice of high-equity modes was found, and a higher degree of marketization further reinforced this relationship. Hence, this study contributes to entry mode research by building new theoretical mechanisms and by providing new empirical results, while incorporating marketization.

The effect of comparative advantage of host country’s industry on multinationals’ M&A vs greenfield FDI decisions

Purpose The purpose of this paper is to argue that comparative advantage of host country’s industry can be one of the significant determinants of the decision on mergers and acquisitions (M&A) or greenfield in foreign direct investment (FDI). Design/methodology/approach The authors extract five-related properties of an industry with comparative advantage in a host nation from Bernard et al.’s (2007) international trade model with heterogeneous firms and attempt to empirically test their roles in a multinational enterprise’s (MNE) M&A or greenfield investment decision, using the inward FDI data set in Korea from 1999 to 2006. Findings The theoretical framework finds that the five properties derived from an industry with comparative advantage in a host country have mixed motives for M&A or greenfield. The empirical results show that selected conventional independent variables generally affect the M&A or greenfield entry mode decision with significance individually and that their impacts become more or less prominent when the authors employ interaction terms combining them with comparative advantages in the industries. Research limitations/implications This implies that MNEs not only consider their own firm-specific advantages or other country-level factors for foreign market entries as the previous research generally found, but also seriously take into account industry-specific factors, especially industry-wide comparative advantages based on heterogeneous productivities of firms. Originality/value This paper reconciles multinationals’ strategic motives under an oligopolistic market with their efficiency gains under a monopolistic competitive market, which are considered as two main factors for cross-border M&A. Furthermore, this paper adds a new firm-level data set into entry mode research.

From uncertainty to risk—A risk management framework for market entry

This paper contributes to entry mode theories by proposing to integrate the distinction between uncertainty and manageable risk (Knight, 1921). Acknowledging firms’ ability to diversify, transfer and mitigate certain sources of risk provides an additional layer of analysis, improves empirical modelling and managerial practicability of entry mode research. We provide a framework of instruments including capital structure, contractual and network-based risk management. We illustrate the theoretical and empirical value of our framework using a large sample of project financed infrastructure investments. Finally, we position project finance as a risk-motivated, cooperative market entry mode complementing existing categorizations.

Problem-solving dissension and international entry mode performance

Purpose – The purpose of this paper is to examine international decision making, information processing, and related performance implications. The authors aim to explore the relationship between international decision making and problem-solving dissensions related to entry mode decisions. In addition, they aim to investigate the effects of dissension on entry mode performance, and the moderating effect of the foreign direct investment (FDI) vs non-FDI decision as it relates to dissension-mode performance. Despite their significance from an information processing perspective, these issues have not been sufficiently explored in international entry mode research. Design/methodology/approach – This research presents data collected from 233 privately owned internationalized Chinese firms. The analysis in this investigation includes hierarchical ordinary least squares regression. Findings – The findings suggest an inverse U-shaped relationship between dissension and entry mode performance, as opposed to a linear one, and a moderating effect of FDI vs non-FDI decisions on this curvilinear dissension-performance association. These findings support and refine the rationale of the information processing perspective. Originality/value – These findings add realistic elements to the alleged “rational” international decision-making doctrine assumed in previous entry mode literature. The findings show the importance of the heterogeneity of information processing in entry mode strategic decision-making processes (SDMPs), and its effects on specific decision types. The authors believe that this is the first empirical study to use an information processing perspective to examine the effects of SDMPs on entry mode performance.

Choice of Foreign R&D Entry Mode and Its Relation to Firm Performance: A Firm-level Analysis for Switzerland and Austria

Abstract The objective of this study is to identify the determinants of a firm’s foreign entry mode choice and the relationship between mode selection and firm performance for the specific case of R&D—a topic not yet investigated in entry mode research. Separate estimates of a Heckman selection model for Austria and Switzerland based on comparable firm-level data and variable specification show for both countries that the OLI model is well-suited to explain not only the propensity to invest in R&D abroad but also the related choice between an equity-based and a non-equity governance mode. Moreover, the research reveals that foreign R&D activity is positively related to firm performance and that this relationship is stronger in the case of an equity-based mode of governance, however only in the Swiss case. The differences between the two countries primarily reflect the much higher degree of internationalisation of the Swiss economy. Data available upon request (see the following link): http://www.economics-ejournal.org/economics/journalarticles/2015-34/dataavailability-2015-34/view

Learning and institutional change: Implications for foreign market re-entry commitment

In this paper we demonstrate that international expansion decisions extend beyond initial market entry and exit by examining the foreign market re-entry commitment decisions of multinational firms. In doing so, we contribute to prior market entry and entry mode research in three important ways: (1) by introducing a novel context in which to assess the influence of prior host market knowledge and experience on commitment decisions; (2) by addressing whether host institutional changes occurring between exit and re- entry influence the degree of commitment upon re-entry; and (3) by providing the first empirical evidence of re-entry and re-entrants. We bring together insights from the learning and institutional change perspectives to examine re-entrants choices between equity and non-equity mode decisions. We found no evidence for the role of prior host market experience on re-entry mode decisions. We found some support that, favourable changes in host institutional environments increase the likelihood of equity re- entries. Most interestingly, we found strong inertial effects suggesting that foreign market re-entry mode decisions are significantly influenced by to how firms operated in the host market prior to exit.

Mimicry in the Choice of FDI-based Market Entry Modes and its Impact on Performance

The dominant perspectives in entry mode research such as the transaction costs perspective and Dunning’s OLI paradigm have come under criticism from researchers who recommend integrating efficiency...

Yes, we really do need more entry mode studies! A commentary on Shaver

In a recent commentary published in this journal, Shaver raises the provocative question of whether we need more entry mode studies. After assessing the reasons for Shaver’s doubts and further developing his broad research suggestions, we conclude that this question should be answered affirmatively. We derive three important questions for future entry mode research: (1) What determines the evolution of operations resulting from suboptimal mode choices? (2) What causes the replication of past mode choices? (3) How is the entry decision process structured? Focusing on these questions should assure a bright future for entry mode research.

Innovations in marketing of higher education: Foreign market entry mode of not-for-profit universities

Purpose – The purpose of this study is to examine the innovations in the international activities of not-for-profit (NFP) universities. While the entry mode literature is well addressed, particularly by international marketing and business scholars, an academically interesting and managerially relevant question relates to the applicability of extant research to the emerging phenomenon of internationalization in the NFP sector. Design/methodology/approach – Using an inductive constructivist qualitative methodology grounded in 12 case studies of internationalization in the NFP education sector, this study applies Dunning’s eclectic framework as its theoretical anchor. Findings – This study identified that entry mode choice in the NFP context may not always be reconciled with extant literature derived mostly from a for-profit context. In particular, the broader definition of offshore equity investment is in sharp contrast to previous entry mode research which is largely, if not exclusively, grounded in a for-profit context. Originality/value – Extant frameworks developed to explain the entry mode phenomena tend to assume a profit maximization philosophy. The propositions advocated in this study are a step further to develop our understanding of internationalization of NFP universities.

Determinants of Equity-Based and Co-Operative Foreign R&D and Impact on the Parent Firm’s Performance

The paper complements entry mode research by dealing with the choice of alternative modes of governance in the specific case of foreign R&D and its impact on a parent firm’s performance. Firstly, we identify the factors that determine whether a firm locates abroad any R&D activities, and, if it does so, whether it chooses an equity-based rather than a non-equity co-operative mode of governance. The OLI paradigm is used as theoretical background of this analysis. Secondly, we determine the impact of foreign R&D on a parent firm’s performance in terms of innovation output and labor productivity, and investigate whether this effect differs among firms using the one or the other governance mode. The study is based on separate estimations for Switzerland and Austria using comparable firm data and model specifications. The two countries are interesting cases as they strongly differ in terms of level and pattern of internationalization.