Entry Mode

Topics: Decision making, Transaction cost, Empiricism Pages: 26 (8021 words) Published: April 2, 2013
Choice of Foreign Market Entry Mode
Cognitions from Empirical and Theoretical Studies
Xuemin Zhao and Reinhold Decker

Dr. Reinhold Decker is Professor of Marketing at the Department of Economics and Business Administration of the University of Bielefeld P. O. Box 10 01 31 D-33501 Bielefeld Germany Phone: +49-(0)521-106-6913 / 3936 Fax: +49-(0)521-106-6456 E-Mail: rdecker@wiwi.uni-bielefeld.de Xuemin Zhao is Ph.D. student of the Graduate School for Economics and Management at the University of Bielefeld (BiGSEM) P.O. Box 10 01 31 D-33501 Bielefeld Germany Phone: +49-(0)521-106-4863 Email: xzhao@wiwi.uni-bielefeld.de

Acknowledgement: We would like thank our colleagues Prof. Dr. Herbert Dawid and Prof. Dr. Stefan Wielenberg, Department of Economics and Business Administration at the University of Bielefeld, for interesting discussions and comments with regard to the topic of this paper.


Choice of Foreign Market Entry Mode
Cognitions from Empirical and Theoretical Studies
This paper analyzes critically five basic theories on market entry mode decision with respect to existing strengths and weaknesses and the results of corresponding empirical studies. Starting from conflictions both in theories and empirical studies dealing with the entry mode choice problem we motivate a significant need of further research in this important area of international marketing. Furthermore we provide implications for managers in practice and outline emerging trends in market entry mode theory as well as possible starting points for future research. Keywords: Market entry mode choice; Existing theories and empirical studies; Conflictions; Implications and future challenges.


Choice of market entry mode – a critical issue in international marketing

The interest in market entry mode choice originates from the theory of international investment. It was studied as a problem with distinctive feature, extent, form and pattern of international production (Southard 1931; Hymer 1960; Caves 1971 and 1974; Dunning 1958 and 1977). Then it was discussed as a critical issue in international marketing by many economists and marketing experts. Wind and Perlmutter (1977) argued that the choice of market entry mode has great impact on international operations and can be regarded as “a frontier issue” in international marketing. Root (1994) claimed that the choice of market entry mode is one of the most critical strategic decisions for MultiNational Enterprises (MNEs). It affects future decisions and performance in foreign markets, and it entails a concomitant level of resource commitment which is difficult to transfer from one to another, especially from high level to low level. Kumar and Subramaniam (1997), Chung and Enderwick (2001), as well as


Nakos and Brouthers (2002) emphasized that the choice of market entry mode is a critical strategic decision for firms intending to conduct business overseas. Being such an important issue market entry mode choice became the object of numerous theories and models developed to understand and explain associated phenomena. Among these five basic approaches are particularly prominent and have been applied widely. They are 1. the Stage of Development (SD) model (Johanson and Paul 1975; Brooke 1986), 2. the Transaction Cost Analysis (TCA) model and extensions (Anderson and Gatignon, 1986; Hill et al. 1990; Erramilli and Rao 1993), 3. the Ownership, Location and Internalization (OLI) model (Dunning 1977, 1980, 1988, 1995, 1998, and 2000), 4. the Organization Capacity (OC) model (Aulakh and Kotabe 1997; Madhok 1998), and 5. the Decision Making Process (DMP) model (Root 1994; Young et al. 1989). To our knowledge no prominent models or rather theories have been developed in recent years, but various empirical studies have been carried out to test the validity of the existent ones, to find factors that might have an impact on the choice of market entry mode and to measure corresponding...

References: TCA model and extensions
Anderson and Gatignon (1986); Hill et al
OC model
Aulakh and Kotabe (1997); Madhok (1998)
Root (1994); Young et al. (1989); Kumar and Subramaniam (1997)
Behavior theory, contingency theory, and some others
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