Foreign Market Entry Decisions Research Articles

Multilatinas’ foreign divestment and host country institutional uncertainty: is there a best entry strategy?

PurposeThis paper aims to investigate the divestment behavior of emerging market multinationals from Latin America – multilatinas – by examining how their foreign market entry decision impacts the likelihood of subsidiary divestment.Design/methodology/approachThe hypotheses are tested using Cox’s proportional hazard rate model in a longitudinal database of Brazilian multinational companies established in 43 countries.FindingsResults indicate that these subsidiaries can thrive in environments that bear similarities to their home country, being less likely to divest in institutionally weak countries. Contrary to developed country multinationals, these firms benefit from foreign entry decisions that entail handling partnerships abroad; thus, wholly-owned greenfield (WOGF) investments have a higher likelihood of being divested.Originality/valueTo the best of the authors’ knowledge, this paper is the first to analyze foreign divestment from multilatinas, accounting for how entry mode strategy and host country institutions may impact these firms’ de-internationalization.

Rule of law vis-à-vis foreign market entry modes: exploratory interviews of a few experts

PurposeThe purpose of this qualitative paper is to identify and amplify the voice of those experts who advise practitioners faced with foreign market entry decisions. This paper reports the importance that experts place on the rule of law, a positive ethical climate in host nations and the experts’ knowledge of investment financial performance after five years of the initial foreign market entry.Design/methodology/approachThe sample included 12 experienced expert professional interviewees who spent careers with publicly held multinational corporations, attorneys who advised multinational corporation officers, arbitrators with significant international dispute resolution experience, corporate ethics compliance experts, small global entrepreneurial business owners and an academic specializing in international commercial law and dispute resolution.FindingsThe rule of law and ethical climate significantly influence private market entry mode, dispute resolution choices and the likelihood of financial success. Finally, the findings illuminate the importance of the rule of law and a positive ethical climate in private foreign market entry decisions and their managerial and policy implications.Originality/valueThis study lays the foundation for the development of propositions to understand better the significant role of the rule of law in the private foreign investment decision-making process and the financial performance of the foreign investment.

Revisiting foreign market entry motivations: the case of Korean commercial banks

PurposeThis study examines what motivates firms to go and remain abroad despite uncertain profit potential. In a departure from probing traditional market-seeking, profit-driven motives, the authors explore how domestically driven, sociocultural motivations may shape the foreign market entry decisions of Korean commercial banks (KCBs). The authors argue that, due to the power imbalance between KCBs and their chaebol clients within the historical and cultural contexts of their relationships, KCBs' foreign market entries may depend more on their clients' presence in these markets than on their profit potential.Design/methodology/approachThe authors focus on the foreign market entries of KCBs and their client firms. Using the data of 8 KCBs and their client firms belonging to the 60 business groups (chaebols) of Korea, the authors analyze 6,577 observations involving the dyadic relationship between a KCB and its client firm in 15 host countries from 2005 to 2014.FindingsThe authors find that the number of clients' subsidiaries operating in foreign markets may increase the likelihood of KCBs entering these markets. Moreover, when KCBs earn more domestic profit from client firms, the potential Korean market in the host country is greater, and the institutional distance between the host country and Korea is smaller.Practical implicationsIn addition to the critical role of a bank-centered financing system in advancing a developing country and its firms, the authors’ findings suggest that firms should pay attention to the local diaspora and the institutional distance between the host and home countries in order to manage power-imbalanced relationships and make them sustainable.Originality/valueThe study contributes to the literature on foreign market entry by demonstrating how the home country's sociocultural factors may worsen the power imbalance, thereby pushing firms to make seemingly irrational decisions to go and stay abroad. That is, KCBs' foreign operations may be a way of seeking relational benefits with client firms, which would serve as a source of long-term domestic market profits. The authors’ findings thus highlight the need to consider how sociocultural factors may also shape firms' decision-making in their international business.

External credit and export decision: Evidence from Nigeria

AbstractThis study examines the effect of external credit on the export decision of manufacturing firms in Nigeria using the 2014 World Bank Enterprise Surveys data. The paper employs an instrumental variable (IV) probit model to assess the empirical relations. The results reveal that both bank and nonbank credit positively and significantly drive firms' foreign market entry decision in Nigeria. Policy interventions should therefore be directed at creating an enabling environment that would stimulate an increase in the breadth and depth of financial presence across Nigeria. This may be done through offering special tax reliefs to banks and nonbank financial institutions that seek to expand. Banks should also be encouraged to invest in innovative strategies such as branchless banking and mobile banking which have the capability to increase access without the huge cost outlays for physical infrastructure. They should further be encouraged to develop special ‘export credit packages’ for smaller but viable firms that are willing to go into exporting but lack the necessary collateral, and create special ‘task forces’ to monitor and redeem such loans when they fall due. The Government should also channel ‘export development credit’ through banks and nonbank financial institutions to manufacturing firms in Nigeria for efficient allocation, monitoring and collection.

A Real Options Reasoning Perspective on Uncertainty in Entrepreneurs’ Internationalization Decisions

Uncertainty plays an essential role in both entrepreneurial and internationalization decision-making processes. International entrepreneurs often face greater levels and varieties of uncertainty when making foreign market entry decisions. Yet, existing Entrepreneurship and International Entrepreneurship (IE) literature lack theoretical explanations on the role of uncertainty in entrepreneurs’ internationalization decision-making. Although both literatures treat uncertainty as precursor to entrepreneurial activities, in general they view uncertainty as the roadblock for substantial entrepreneurial commitment such as entrepreneurial internationalization. This does not adequately account for the fact that international entrepreneurs constantly face uncertainty and, thus, they often must embrace uncertainties rather than avoid or ignore them. By applying real options reasoning (ROR), we re-examine the role of uncertainty in entrepreneurs’ internationalization decision making process and propose an uncertainty leveraging perspective. We employed a 2 by 2 randomized between and within-subjects mixed design experiment on a representative sample of 181 U.S. international entrepreneurs. The findings suggest that entrepreneurs mostly align their thinking with ROR to leverage changing level of uncertainty by strategically bundle level of investment commitment and local relations development. This work contributes to entrepreneurship literature on uncertainty, further unpacks the micro-foundations, and establish the boundary conditions of real options reasoning (ROR).

When does culture matter? A multilevel study on the role of situational moderators

Extending leading-edge frameworks on ‘when does culture matter?’, we propose a nuanced theoretical model to explain the context and mechanism of how the home country’s national culture influences managerial seeking of control, conditional on ‘situational moderators’ in the foreign market entry decision context. We examine the degree of ownership equity sought as a criterion variable, illuminating the mechanism as the acquirer signaling its intention to control based on managerial perception of transaction costs. Through a multilevel analysis of acquisitions from 27 countries into India (host country), we find that ‘magnitude of impact’ and ‘firm-level uncertainty’ act as situational moderators that activate/amplify/reverse/suppress the influence of culture on the managerial preference to seek higher levels of control based on equity ownership.

Revisiting international marketing strategy in a digital era

PurposeThe purpose of this paper is to explore the opportunities and challenges facing firms in this new digital era concerning their international marketing strategy and examine how international marketing practices can be revisited in the light of these developments. Consideration is given to a range of relevant issues involved in the design and deployment of effective international marketing strategies using internet-enabled technologies. Such factors relate to internal company requirements, the external environmental situation, foreign market selection and entry, international marketing mix programs, and strategy implementation and control aspects.Design/methodology/approachA conceptual paper identifies, structures and presents systematically factors influencing international marketing strategy, implementation and control using digital technologies.FindingsThe authors point to the relevance and potentially important role that the deployment of online organizational resources and capabilities play in influencing foreign market selection and entry decisions and international marketing strategy choices, implementation and control. The authors thus explain how the use of digital technologies can facilitate the firm’s foreign market choices and the adoption of effective marketing programs, and offer insights into the adoption of digital tools in more effectively implementing and controlling the firm’s international marketing strategy.Originality/valueThe originality and value of this conceptual study is reflected in the identification and discussion of factors comprising the organizing framework of an international marketing strategy using internet-enabled technologies and in the examination of fruitful avenues of future investigation as a result of the need to redesign international marketing strategies in a new digital era.

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.

A Longitudinal Investigation of Foreign Markets Entry and Survival in Family Firms

Despite the benefits of international expansion, family firms are commonly portrayed as being conservative, risk averse, and therefore unwilling to assume the risks associated with international markets. However, some scholars have argued and empirically shown that family firms can be better able than their non-family counterparts to take advantage of the opportunities associated with internationalization. Our longitudinal analyses of 1,054 Spanish manufacturing firms from 1999-2012 show that preoccupation with failure in family firms elicits resistance to cognitive simplification and directs attention toward comprehending signals and threats from the organization’s environment, thereby forming the basis for mindful foreign market entry decisions. Mindful internationalization choices, in turn, enable family firms to endure longer than their non-family counterparts in the broached foreign markets. Furthermore, poor performance and organizational slack enhance the positive effect of family firms’ mindfulness on continued operation in foreign markets. This paper contributes new insights that reconcile prior research on family firms’ internationalization and its outcomes.

Inbound foreign direct investment in Japan: A typology

While Japan has been attracting far less foreign investment than other mature economies, it could offer insights into FDI decision-making for international firms entering countries with a shrinking domestic market and increased international competition. Using a Delphi methodology with contributions from foreign direct investors and experts, we propose a model of inbound FDI in Japan and identify four types of investors based on the nature of investments and market maturity, namely empire builders, rescuers, niche players, and cherry-pickers. This framework, offering both descriptive and prescriptive components, highlights the importance of the predisposition and motives of local takeover targets and business partners in foreign market entry decisions. This model can help foreign firms take advantage of investment opportunities in Japan, and provide lessons for market entry in other mature economies facing similar conditions.

The influence of CEO overconfidence on ownership choice in foreign market entry decisions

Prior research on foreign-market entry determinants offers various firm-, industry-, and market-level explanations. Yet, few studies consider the subjective psychological attributes of the executives making actual decisions. Based on behavioral decision theory and the psychology literature, this study provides the first empirical evidence of the influence of managerial overconfidence on ownership decisions into foreign markets. The results show that CEOs’ tendency toward overconfidence increases the propensity for full over shared ownership, where their positive relationship is more pronounced when firms are exposed to greater information asymmetry or environmental uncertainty, in terms of greater home-host cultural and institutional distances, higher host-country risks, and inexperience in the local market. A powerful board weakens this positive relationship, but does not diminish the effect completely. The results hold with overconfidence measures based on both CEOs’ actual actions and public opinions. Our findings complement extant entry-mode decision literature by highlighting the imperative to incorporate firm leaders’ psychological biases.

Bibliometric analysis of research in international construction

There has been increasing interest in international construction since the late 1990s due to growing competition in global markets. A bibliometric analysis of international construction research is conducted to evaluate the trends and to map the productivity in the field. Using the Scopus database from 2003 to 2013; document type, research performance of leading journals and authors, geographic and institutional distribution of research is assessed. The core and sub topics of the literature is also analyzed to determine critical themes in international construction. Results reveal that (1) risk management, (2) measuring performance, (3) general strategy and (or) competitiveness, and (4) foreign market entry decision are the top four core themes in international construction research. The fluctuations in the number of papers in different subject categories reflect the new tendency in international construction debate, which emphasizes a shift from measuring performance themes to general strategy and (or) competitiveness and foreign market entry decision in international construction.

Theoretical foundations of equity based foreign market entry decisions: A review of the literature and recommendations for future research

This paper reviews the theoretical foundations of the equity based foreign market entry (FME) decisions literature. We analyse 1055 academic FME papers published over four decades (1970–2013). We identify and analyse the theories that informed and guided FME research over time. Our review indicates that scholars have recently started to challenge some of the core assumptions of established theories, draw on and integrate insights from multiple theoretical perspectives which, in turn, generated a multiplicity of approaches for studying FME decisions and their performance outcomes. The paper discusses the explanatory power of the different theories, assesses the relevance of the different theoretical perspectives to our understanding of current FME phenomena and recommends directions for further research.

The Influence of CEO Overconfidence on Ownership Choice in Foreign Market Entry Decisions

The Influence of CEO Overconfidence on Ownership Choice in Foreign Market Entry Decisions

Ownership participation of cross-border mergers and acquisitions by emerging market firms

Purpose– The purpose of this paper is to adopt a multi-level approach to investigate what factors shape the content of emerging market firms’ foreign market entry decisions, particularly the ownership participation in cross-border mergers and acquisitions (M&As). In addition, the author would like to know if companies from emerging markets that possess higher (or lower) ownership in cross-border M&As receive higher valuation in the market.Design/methodology/approach– Using panel data of cross-border M&As by emerging market firms from 2000 to 2012, the author tests the hypothesized effects of the independent variables on the level of ownership participation; and uses a standard event study methodology to assess the market reaction of a particular cross-border M&A deal.Findings– The author finds that a country-level factor (institutional distance), an industry-level factor (industry unrelatedness) and a firm-level factor (board concentration) have significant impact on ownership participation in cross-border M&As. The author also finds that investors do give high valuation to those emerging market firms that chose high ownership participation in cross-border M&As. However, the author did not finds the support for the relationship between ownership participation and cultural distance. Neither did the author finds the support for the relationship between ownership participation and board independence.Originality/value– This study enhances the understanding of conditions under which the level of ownership participation in cross-border M&As would increase (decrease) and how the market reacts to high (low) ownership participation of cross-border M&As by emerging market firms.

Confidence in learning: Inter‐ and intraorganizational learning in foreign market entry decisions

From an organizational learning perspective, we argue that the information signaled by the distribution attributes of foreign investors already operating in a location will influence the entry decisions of later arrivals by affecting their level of confidence in imitating. In the context of foreign investment decisions, the proportion of experienced firms in a location was shown to first increase a follower firm's confidence about imitating them, but then to decrease it, due to anticipated competition. The impact of learning from target organizations also varies with the experience of the learning organization. Data on the location choices of 7,478 manufacturing ventures in China by U.S. firms supported the hypotheses. The results provide a more integrated and nuanced understanding of learning in foreign direct investment. Copyright © 2014 John Wiley & Sons, Ltd.

Ownership Participation and Market Value of Cross-border Mergers and Acquisitions

This paper adopts a multi-level approach to investigate what factors shape the content of emerging market firms’ foreign market entry decisions, particularly the ownership participation in cross-border mergers and acquisitions (CBMAs). In addition, we would like to know if companies from emerging markets that possess higher (or lower) ownership in CBMA receive higher valuation in the market. Using panel data of CBMAs by nine EMNCs from 2000 to 2012, we found that industry-level factor (industry unrelatedness) and firm-level factor (board concentration) have significant impact on ownership participation in CBMA. We also found that investors do give high valuation to those emerging market firms that chose high ownership participation in CBMA. However, we did not find evidence to support the relationship between ownership participation in CBMA and cultural distance. Neither did we find the support for the relationship between ownership participation in CBMA and board independence.

The board mechanism and entry mode choice

Prior studies on entry mode choice are mostly grounded in rational analysis models made from the economic perspective without considering the orientations or concerns of managers. Based on agency theory and resource dependency theory, our work explores how the board of directors, the highest authority in a firm's control system, influences the managerial selection of foreign market entry modes. By simultaneously addressing the monitoring and advisory roles of the board, and the influence of director incentives and competencies, we find that the board mechanism has a significant impact on a firm's foreign market entry mode choice. Directors with experience in foreign direct investment decisions, either regarding a specific target host country or a variety of environmental settings, tend to encourage the choice of acquisitions over joint ventures in foreign market entry decisions. Equity holdings of directors are also positively associated with the choice of acquisitions. The proportion of outside directors, conversely, is not found to have a significant influence. Furthermore, we find that directors' stockholdings positively affect the relationship between director experience and entry mode choice.

The Valuation Model of Real Option Approach and Their Applications for Foreign Market Entry Decision Making

The Valuation Model of Real Option Approach and Their Applications for Foreign Market Entry Decision Making

Expanding globally with local vision: foreign market entry and the value chain

PurposeIn this paper it is argued that value chain structure, that is the way that skills and activities are divided between different firms within an industry, often evolves in a locally specific way and this has serious implications for the global expansion of firms. It is argued that for managers to be successful with global expansion they must consciously consider both the division of activities in the value chain of the new market, and the degree to which their own skills and capabilities can readily compliment or interface with those of local partners and suppliers.Design/methodology/approachData was collected and case studies developed on firms that have faced challenges related to value chain structure when undertaking foreign market entry. The study followed directives for case‐based research, and was based upon multiple sources of evidence: archival data, industry publications, interviews and direct observation. The study conformed with Yin's recommendations for developing construct validity and reliability. Multiple sources of evidence were used to achieve data triangulation, thereby reinforcing construct validity. As analysis of the companies under analysis evolved, progress was communicated to key executives and managers in the firms under analysis, thereby encouraging the early identification of possible rival explanations and ensuring internal validity. From the academic literature, field visits and the development of case studies, the research was refined during 2007‐2008 in a reiterative process of application, testing and adaptation. Common issues were identified and used to build theory and make the concepts generic enough so they could be utilized by other managers.FindingsDecades of wisdom about foreign market entry tells managers to assess whether their unique skills and capabilities might offer comparative competitive advantage in markets where aspects such as socio‐cultural attributes, regulatory and legal structure, level of economic development and the availability of supporting administrative and physical infrastructure can differ from the home market. They are encouraged to analyze these potential hurdles carefully, and to decide if their company‐specific skills and capabilities outweigh country‐specific challenges in operating abroad. But beyond the firm and country specific elements that are traditionally considered as part of foreign market entry decisions, the structure of the foreign industry's value chain, and the capabilities of the firms operating within that chain, can also play a very significant role in the potential of global expansion. Industry value chains, and the activities and skills of the firms within those chains, can evolve in distinctly different ways, even within industries that produce similar products or services.Practical implicationsThe paper takes a cross‐industry view to draw practical recommendations for managers considering foreign market entry from both the manufacturing and service sectors. It is argued that for managers to be successful with global expansion they must consciously consider both the division of activities in the value chain of the new market, and the degree to which their own skills and capabilities can readily compliment or interface with those of local partners and suppliers.Originality/valueEven the smartest managers can put a great deal of effort into the “traditional” tools of foreign market entry analysis while at the same time remaining blissfully ignorant of the value‐chain‐related problems that they might encounter. This is not because they are negligent, but because they have come to take for granted the manner in which the value chain functions in their home market, and almost no one from the consulting or academic world has challenged them to question these deeply held assumptions as part of typical approaches to market entry analysis. The paper takes a cross‐industry view to draw practical recommendations for managers considering foreign market entry from both the manufacturing and service sectors. It is argued that for managers to be successful with global expansion they must consciously consider both the division of activities in the value chain of the new market, and the degree to which their own skills and capabilities can readily compliment or interface with those of local partners and suppliers.