International Entry Mode Choice Research Articles

Joint (Ad)ventures—Family firms' international entry mode choices for emerging markets

PurposeThe aim of this study is to advance knowledge on family firms' entry mode choices by examining the linkage between target market context, especially in the emerging economies of China and India, and the dominant family firm logic of keeping ownership and control in the family.Design/methodology/approachWe use an exploratory multiple case study analysis approach based on nine German family firms' internationalization endeavors. We use both primary and secondary data.FindingsTraditionally, extant research concludes that family principals prefer foreign direct investments (FDIs) in order to exert maximum control when entering international markets. In contrast, our study finds a clear preference for international joint ventures (IJVs) as an initial entry mode of choice into unfamiliar markets. Our findings propose this decision to be rooted in cultural unfamiliarity and the complexity of the target markets' legal environment. The effect of these two factors is amplified by prior IJVs experiences.Originality/valueThis article offers several original insights. First, we identify the triggers of the paradoxical IJVs’ entry mode choice among family firms and thus explain the motivation for breaking with the dominant family firm logic of maximizing control. Second, we account for factors in China's and India's particular emerging market environments. In the light of family control, the unfamiliarity with these markets triggers the decision to compensate for the high level of uncertainty by engaging in an IJV partnership. Third, our study shows that family firms are indeed willing to share control if it serves the long-term survival of the firm.

A Decision-making Perspective of the International Entry Mode Choice

Previous research considers the entry mode decision as a rational and as a single decision. In this study, we draw upon decision making theory to argue that entry mode choice is the product of a boundedly rational, sequential decision making process. In the first stage of the entry mode decision-making process, firms eliminate alternative entry modes which do not possess certain critical attributes while in the second stage, the firms select an acceptable entry mode which is a tradeoff of multiple attributes. We contend that the elimination criteria depend on the type of dominant owners. Therefore, we examine the entry mode decision making process for firms with high levels of family ownership (i.e., family dominant firms) and those with high levels of institutional ownership (i.e., institutionally dominant firms). Specifically, we propose that family dominant firms and institutional dominant firms have different risk profiles that lead to unique entry mode preferences at each stage. That is, higher family ownership leads to the preference for low control, low financial risk entry modes in the first stage. As such, family dominant firms are more likely to eliminate the wholly owned subsidiary in the first stage of the entry mode decision process. Alternatively, institutional investor dominant firms are risk- neutral, so they are more likely to choose high control, high financial risk entry modes. In addition, the tradeoff between control and financial risks is more likely to be considered in the second stage of entry mode decision making process when the counterpart type of owners are involved.

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.

Customer Interaction Uncertainty, Knowledge, and Service Firm Internationalization

Abstract Uncertainty in production processes has proven to be a useful lens through which to explain the international entry mode choices of large manufacturing firms. This paper adapts that approach to suggest that service firms determine their internationalization mode based on the uncertainty arising from their interactions with customers. In our model, service firms counter customer interaction uncertainty by deploying knowledge in two primary forms: in processes and procedures or within workers themselves. We suggest that the location of this knowledge deployment impacts the choice of which mode firms will use when they deploy their services internationally. Also, befitting the greater alternatives available for conducting business internationally for service firms, we explore and model a wider range of modes than traditionally suggested by manufacturing-centric scholarship.

"Customer Interaction Uncertainty, Knowledge, and Service Firm Internationalization Strategies"

Uncertainty in production processes has proven to be a useful lens through which to explain the international entry mode choices of large manufacturing firms. This paper adapts that approach to suggest that service firms determine internationalization strategies based on the uncertainty arising from their interactions with customers rather than production uncertainty. In our model, service firms counter customer interaction uncertainty by deploying knowledge in two primary forms: in processes/procedures or within workers themselves. We suggest that the location of this knowledge deployment impacts the choice of which strategy firms will use when they deploy their services internationally. Also, befitting the greater alternatives available for conducting business internationally for service firms, we explore and model a wider range of strategies than the entry modes traditionally suggested by manufacturing-centric scholarship.

Empirical Research on Foreign Entry Mode: Assessing Core Tenets of Four Theoretical Frameworks

Despite great empirical interest, reviews of research on firms’ international entry mode choice remain a rare sight with even the most frequently applied theoretical perspectives receiving little n...

Challenging the Conceptualization and Measurement of Distance and International Experience in Entry Mode Choice Research

Although international entry mode choice has been extensively studied, the empirical results regarding two key antecedents—various forms of distance and international experience—have been equivocal. The authors argue that the conceptualization and measurement of these variables may be contributing to the ambiguous results. They demonstrate that a broader conceptualization of the underlying factors driving the distance construct substantially increases the ability to predict entry mode. Furthermore, when a refined interpretation of international experience is employed, only experience in similar countries affects entry mode selection. Experience in dissimilar countries seems to have no predictive power. These results call for a radical change in how these two key constructs should be operationalized in further entry mode research.

Real Options, International Entry Mode Choice and Performance

abstract Recent scholarship suggests that combining insights from real option theory with transaction cost economics may improve decision‐making models. In response to this suggestion we develop and test a model of international entry mode choice that draws from both perspectives. Examining samples of Dutch and Greek firms entering Central and Eastern European markets, we found that adding real option variables to a transaction cost model significantly improved its explanatory power. Additionally, firms that used the combined real option/transaction cost predicted choices had significantly higher levels of subsidiary performance satisfaction than firms that did not. Our results suggest that effective managerial decision‐making may involve more than mere transaction cost minimization considerations; real option value creation insights also appear to influence the success of decision outcomes.

Determinants of mobile network operators' choice of cross-border entry modes

This study provides empirical findings on determinants of Mobile Network Operators' (MNOs) choices of cross-border entry modes. Announcements of 111 international expansion moves by 27 MNOs between 1989 and 2004 are used to test study hypotheses. Logistic regression analyses suggest that cultural distance, country risk, demand potential and competitive intensity substantially influence the MNO international entry mode choices. These factors are complemented by the embeddedness of entries into the overall internationalisation patterns of MNOs and by the MNO foreign market entry timing. Geographic proximity and economy size, as well as five control variables did not significantly affect the MNOs' cross-border entry mode.

Boundaries of the Firm: Insights From International Entry Mode Research

Deciding on the boundaries of a firm as it expands abroad is a critical decision for managers. Despite the rapid growth in research addressing this issue, many questions remain unanswered. In this article, the authors review the international entry mode choice literature, identify weaknesses and shortcomings, and provide suggestions on how researchers can add to the knowledge of mode choice and help managers make better international boundary decisions.

Why Service and Manufacturing Entry Mode Choices Differ: The Influence of Transaction Cost Factors, Risk and Trust*

ABSTRACT In this study, we suggest that disparities between service and manufacturing firms’ international entry mode choices can be explained by differences in their reaction to transaction cost based variables and by the influence of risk and trust propensity. We find that: (1) due to the investment intensive nature of manufacturing, environmental uncertainties and risk propensity influence manufacturers’ mode choices; while (2) behavioural uncertainties, trust propensity and asset specificity influence service providers’ entry mode choices because of the people‐intensive nature of services. Implications for future research are discussed.

Explaining international retailers' market entry mode strategy: internalization theory, agency theory and the importance of information asymmetry

Research on the internationalization of retailing has focused on descriptive and empirical studies centring on issues such as motivations for retail internationalization and individual company experiences of the internationalization process. One particular aspect of the retail internationalization process that has remained relatively underresearched, and consequently under theorized, is market entry mode strategy. Furthermore, with a few notable exceptions, potentially interesting research from the economics of international production and corporate finance literatures has been virtually ignored in the international retailing domain. This paper represents an initial step in rectifying these deficiencies by exploring some of the issues associated with the economics-based internalization and agency theories, in the context of international retailers' market entry mode strategy. By combining market transaction costs (associated with internalization theory), together with information and monitoring costs (associated with agency theory), and thus highlighting the interlinking issue of information asymmetry, a more coherent basis is established for analysing international retailers' entry mode choice decision.

Dimensionalizing international market entry mode choice

The different dimensions of the mode of entry decision and the situational determinants which bear on mode choice have received little empirical investigation. This paper examines three mode choices, four underlying dimensions of mode choice and seven situational influences on choice as determined from the extant literature, in‐depth interviews with executives of firms operating abroad, and survey data collected from 117 top executives of Canadian manufacturing companies with international activities. In examining the direct effects of situational variables on mode choice, one variable, socio‐cultural distance, was found to significantly influence the choice among export, contractual and investment entry arrangements. As socio‐cultural distance increases, firms are more likely to choose contractual rather than investment modes. Three situational determinants — socio‐cultural distance, tacit knowhow and product differentiation significantly influenced separate choice dimensions. Resource commitment was primarily influenced by the nature of a firm's knowhow and to a lesser extent, by the socio‐cultural distance between a firm's home and host country. Dissemination risk was influenced by product differentiation and to a lesser degree, the tacit nature of a firm's knowhow. Finally, control was significantly influenced by socio‐cultural distance. Resource commitment emerged as the most important dimension of mode choice, followed by the control dimension.