Revisiting the Eclectic Theory of the Choice of International Entry Mode

Topics: Transaction cost, Scientific method, Theory of the firm Pages: 9 (2716 words) Published: March 25, 2013
Theoretical Issues on Marketing
UIBE PhD Program

Juan Pablo Dominguez

Fall 2012

Final Examination for Theoretical Issues of Marketing (Doctoral Course)

Nov. 28, 2012

Essay questions for “ An Eclectic Theory of Choice of International Entry Mode ”

1. What are the major variables that affect the decision of entry mode? Should they be weighted equally? Why yes or why no? 2. Given that different variables may pull the MNC in the different directions, what approach is suggested by the authors? 3. What theories have been taken as the basis for conceptualization? 4. Considering the nine propositions, do they all make sense to you? In case you find any fault with them, state it with your arguments. 5. Review the methodology adopted by this paper and make your comment on its appropriateness. 6. Discuss briefly what contributions this thesis has made to the theory of international entry mode choice. 7. What do you think of the limitation of this thesis?

During the internationalization process of a company, the decision of entry mode to a particular market is determined by a set of different considerations. The paper "An Eclectic Theory of Choice of International Entry mode" is a theoretical approach to answer the questions of which factors are relevant and which are not. It reflects on how contemporary studies (particularly, Transaction Cost Theory) had a limited view of the problem by not including a globalstrategy factor in the analysis, therefore the authors try to advance the discussion by enriching the construct of additional variables that were disregarded by economical orthodoxy at the moment. This short paper is aimed to introduce in part the aforementioned document and present more recent findings in the topic. In that fashion I have divided the paper into 4 main parts besides this short introduction. The first section is a brief literature review of the theoretical background behind the understanding of entry mode in the internationalization process given that the paper was published more than two decades ago. The second section aims at synthesizing the main propositions of the paper and what I consider its limitations and contributions. The third section displays empirical evidence that aimed to negate or confirm the different propositions of the authors and finally, the fourth and last section is a set of concluding remarks.

There is no short list about existing research regarding the internationalization process of MNEsʼ. When focusing on the entry mode (or ownership strategies), one can begin to see that there are three different streams of thought: one stream of research has often framed such a choice as determined by the need for control to minimize transaction costs arising from asset specificity and potential partner opportunism (Anderson & Gatignon, 1986; Williamson, 1985). According to transaction costs theory, for investments characterized by high asset specificity, integrated ownership structures, such as whole owned subsidiaries (WOSs), should be used to enhance MNEsʼ strategic and operational control over the assets (Anderson & Gatignon, 1986) and to protect MNEs from the risk of knowledge dissemination to their partners (Davidson & McFetridge, 1985; Hill, Hwang, & Kim, 1990). Thus, transaction costs theory advocates the use of ex ante control mechanisms to minimize transaction costs arising from asset specificity and potential partner opportunism (Williamson, 1985). Another stream of research has suggested that the institutional environment shapes such a choice and proposed that MNEs may exchange ownership for legitimacy in the host country (Chan & Makino, 2007; Yiu & Makino, 2002). When foreign ownership is not prevalent or well accepted in the host country industry, MNEs can partner with local firms or keep the ownership level lower...
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