Globalstrategy and Multinationals' Entry Mode Choice

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GLOBAL STRATEGYAND MULTINATIONALS' ENTRY MODE CHOICE W. Chan Kim* INSEAD Peter Hwang** Baruch College Abstract. This paper makes a case directed towards establishing the importance of global strategic considerations in choosing multinationals'entry mode. Specifically,it is our contention that beyond the environmental and transaction-specificfactors well established in the literature to affect the entry mode decision, we should also consider the strategicrelationshipa multinational envisages between its operations across borders in reaching this decision. After incorporating various global strategic variables into an eclecticframeworkof the factorsinfluencing entrymode the choice, this paper tests both the validityof the overall framework and the importance of each entry mode determinant in differentiating among entry modes. This is done based on ninety-six multinational managers' responses to a survey questionnaire concerning their entry mode decision experiences. The results suggest that an express incorporationof global strategicvariables into an analysis of the entry mode decision is warranted. This paper is concerned with the critical decision of multinationals' foreign entry mode choice. While existing studies have already identified a diversity of variables that influence this decision, in our view these variables can or essentiallybe collapsedinto one of two categories:environmental ftansactionspecific factors. Common to existing studies identifying these factors is their underlying assumption that each entry decision is made in isolation and is driven essentially by efficiency considerations at the level of the individual entrant or subsidiary unit. Recent works by Anderson and Gatignon [1986]

*W. ChanKim is associateprofessorof strategyand international at management INSEAD.His researchandpublications focus on strategydesign for multinational and corporations economicandorganizational analysisof multinational enterprises. **PeterHwangis assistantprofessorof marketing BaruchCollege. His research at andpublications focus on market entryanddiversification strategyof multinational corporations. C.W.L.Hill, Sumantra Thanksto Renee A. Mauborgne, at Ghoshal,and the participants the annual International BusinessAssociationfor theircommentson an earlierdraft conferenceof the European Thanksalso to threeanonymous of this manuscript. reviewersfor theirhelpfulcomments. Received:September1989;Revised:May & October1990;Accepted:May 1991. 29

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JOURNAL OF INTERNATIONALBUSINESS STUDIES, FIRST QUARTER 1992

and Gatignon and Anderson [1988] provide an excellent review and intecost withina transaction framework. grationof existing entrymode explanations factors and Notwithstandingthe centralrole environmental transaction-specific play in influencing multinationals' institutional mode choice, this paper makes a case directed towards establishing the importance of a third group of factors-global strategic considerations-in determiningthe foreign entry mode choice. Specifically, it is our contention that beyond the subsidiary it unit level considerationsalreadyestablishedin the literature, is also important to consider the role that the global strategic posture of a multinationalplays, namely the strategic relationship it envisages between its operations across borders, in reaching its entry mode decision. The theoretical heritage of our contention can be traced in part to the seminal work of Perlmutter[1969] which acknowledged the increasing existence of geocentric approachesto multinationalmanagement.The geocentric approach outlined by Perlmutterprovided a succinct explanation for the existence of and benefits attached to managing subsidiary units not as a portfolio of independent units but as an interdependentnetwork. The more recent foundation upon which our...
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