The Choice of Foreign Entry Modes in a Control Perspective
Svend Hollensen*, Britta Boyd** and Anna Marie Dyhr Ulrich***
The aim of this article is to investigate the choice of entry modes for international markets in a control perspective. A survey from the Confederation of Danish Industry with 234 Danish Small and Medium Enterprises (SMEs) served as the data base. The entry modes are categorized into three groups depending on the control that the company has over its activities abroad. The paper examines the selected factors that influence the entry modes of Danish SMEs in different strategic settings. Results show that the most deciding factor for the choice of high control entry mode (subsidiary) was the factor ‘turnover’. The factors, personal networks and the interruption of the international activities, were the most significant factors for the choice of intermediate mode (joint ventures and strategic alliances).
Focus on the internationalization of Small and Medium Enterprises (SMEs) has increased, in as much as the companies today are characterized by a high degree of globalization and internationalization independent of their size. Therefore, the growth of SMEs, including the successful development of the international markets, is recognized as crucial for the economic development and the future wellbeing of the nations. The decision to internationalize SMEs includes: determination of the countries and foreign markets in which they wish to operate, and the structural nature of their activities in those markets (Carazo and Lumiste, 2010). When a company decides to expand internationally, it has to carefully select the foreign market in which it wants to operate. The choice of market involves analyzing strategic needs and orientation of the firm beforehand. After choosing the foreign market, the company’s operations in the foreign market have to be determined (Goodnow, 1985; Papadopoulos, 1988; and Kumar et al., 1994). The firm’s operations in the market depend on its choice of foreign entry mode. An entry mode can be defined as an institutional arrangement chosen by the parent company in the foreign market. Foreign entry mode strategy is the most critical decision as it influences all the future decisions (Kumar and Subramaniam, 1997). * ** Associate Professor, Department of Border Region Studies, University of Southern Denmark, Alsion 2, DK 6400, Sønderborg; and is the corresponding author. E-mail: firstname.lastname@example.org Associate Professor, Department of Border Region Studies, University of Southern Denmark, Alsion 2, DK 6400, Sønderborg. E-mail: email@example.com
*** Assistant Professor, Department of Border Region Studies, University of Southern Denmark, Alsion 2, DK 6400, Sønderborg. E-mail: firstname.lastname@example.org © 2011 IUP All Rights Reserved. The Choice.of Foreign Entry Modes in a Control Perspective 7
Consequently, international entry mode research is important because the chosen entry mode has significant implications on performance (Canabal and White, 2008). It determines whether a company has full control over the foreign unit or has to share control with a partner (Arregle et al., 2006). In addition, once the mode of entry is established, it is difficult to change because it has long-term consequences for the company (Brouthers and Hennart, 2007).
These arguments motivate this study, of which the main research objective is: • To determine the factors influencing the choice of foreign entry modes by Danish companies seen in a control perspective.
Categorization of Entry Modes
A foreign market entry mode is an institutional agreement that makes possible the entry of a firm’s productions, technology, human skills, management and other resources within a foreign country (Krishna, 1989, p. 50). Essentially, a choice of entry mode comprises choice of location and level of control. Thus, resources may be located domestically or in the foreign market and controlled by the firm...
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