Modes of Foreign Entry: A Transaction Cost Analysis and Propositions (original) (raw)
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Analysis of the Entry Mode Choice from Both Transaction Costs and Resource Based Theory
Revista Perspectiva Empresarial, 2019
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Environment and Planning A, 1999
The author continues the discussion of foreign-market entry-mode research begun by O'Farrell, Moffat, and Wood. These authors reviewed and compared the contributions of economic geographers and marketers to our understanding of the channel choices of business service firms. Their central argument was that extant research methods, especially those employed by marketers, suffer significant limitations which impede the advancement of knowledge about channel decisionmaking. They also implied that the dominant theoretical paradigm, transaction cost analysis (TCA), provides a poor explanation of observed behaviour. They made a significant contribution by bringing together the economic geography and marketing literature on this topic. However, they did not fully review the contributions of the TCA approach to entry-mode studies in marketing, and this may have biased their conclusions about the value of this theory. An alternative account of this literature is provided, along with a response to each of O'Farrell et al's criticisms. p
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Some peculiar characteristics of service firms, such as low capital intensity and the inseparability of production and consumption, have necessitated the modification of the traditional transaction-cost framework used to study entry-mode choice. By relaxing some unduly restrictive assumptions of the conventional transaction-cost analysis (TeA) model, the paper argues that firms prefer to start with full-control modes. It postulates that substantial variation in entry-mode choice occurs when firms that are characterized by low asset specificity relinquish control in response to the rising costs of integration or the diminishing ability to integrate. Several hypotheses on the propensity of service firms to employ sharedcontrol entry modes are developed and tested. The results not only provide insights into entry-mode choice by service firms but also indicate how the transaction-cost framework can be broadened to develop a more comprehensive model for understanding entry-mode choice. A FTER a finn decides to enter a certain foreign market, it must choose a mode of entry, i.e., select an institutional arrangement for organizing and conducting international business transactions, such as contractual transfers, joint ventures, and wholly owned operations (Root 1987). The choice of the correct entry mode for a particular foreign market is "one of the most critical decisions in international marketing" (Terpstra and Sarathy 1991, p. 361). The chosen mode determines the extent to which the firm gets involved in developing and implementing marketing programs in the foreign
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Drawing on multiple theoretical perspectives, this paper develops an organizing framework that incorporates the antecedents and consequences associated with the choice of foreign market entry modes. The framework is then used to classify, review, and synthesize past empirical research and to identify major patterns and contradictions within and across the various research streams. Further, based on the review, the paper identifies key gaps in extant research and suggests several directions for future research
Foreign Market Entry Mode Research: A Review and Research Agenda
This article gives a retrospective look at the main determinants of foreign market entry modes and examines the variables and conditions used in empirical studies in this stream of research. We found that there is an " analytical context hazard " in past studies. The findings suggest: first, future research should focus on developing and extending theories with reference to strategy dimension and market/industry environment; second, the interrelationship between the main entry mode determinants should be figured out; third, attention has to be paid to the entry modes of firms from non-developed economies in research.
Journal of International Management, 2010
The choice of a mode of market entry is a critical component of the internationalization strategy, and numerous empirical studies have focused on this topic. Prior research, however, has provided mixed empirical evidence and thus, is difficult to interpret and review. This study examines the external antecedents of the choice of entry mode by meta-analyzing data from 72 independent primary studies. We focus on the decision between wholly owned subsidiaries and cooperative entry modes. For each variable, hypotheses about the theoretically expected direction of effect are posited and tested. We find a strong positive relationship between power distance as a cultural trait of the firm's home country and the propensity to establish a wholly owned subsidiary. On the other hand, we find a negative association between country risk, legal restrictions, market growth, and market size and the preference for wholly owned subsidiaries. We extensively discuss the implications of the meta-analytical results and investigate moderating effects of industry type and the time of the study. The relationship between income level of the host country and entry mode depends, to some degree, on the industry type. Service companies exhibit a negative relationship between income level and wholly owned subsidiaries, while manufacturing companies show a positive relationship.
Choice of Foreign Market Entry Mode: Impact of Ownership, Location and …
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Previous studies in the areas of international trade, industrial organization, and market imperfections have identified a number of factors that influence the choice of an entry mode for a selected target market. Integrating perspectives from these areas, Dunning [1977, 1980, 1988] proposed ...
CHOICE OF FOREIGN MARKET ENTRY MODE: IMPACT OF OWNERSHIP, LOCATION AND INTERNALIZATION FACTORS
Firms interested in servicing foreign markets face a difficult decision with regards to the choice of an entry mode. The options available to a firm include exporting, licensing, joint venture and sole venture. Several factors that determine the choice of a specific foreign market entry mode have been identified in previous literature. These factors can be classified into three categories: ownership advantages of a firm, location advantages of a market, and internalization advantages of integrating transactions. This study examines the independent and joint influences of these factors on the choice of an entry mode. Multinomial logistic regression model is employed to test the hypothesized effects.
Institutional, Cultural and Transaction Cost Influences on Entry Mode Choice and Performance
Journal of International Business Studies, 2002
In this study, we examine foreign market entry mode choice and firm performance for a sample of European Union firms. Examining both financial and non-financial performance measures, we attempt to determine if firms that select their entry mode based on transaction cost, institutional context, and cultural context variables perform better than firms that make other mode Research effortsin the areaof international entry mode selection have tended to concentrateon transactioncost explanations (Makino and Neupert,
Journal of International Business Studies
Brouthers, Chen, Sali and Shaheer argue that recent increases in economic integration coupled with technological advances, such as digitization, have led to the use of new foreign market entry modes which they say have not been sufficiently acknowledged nor satisfactorily explained by an extant literature dominated by transaction cost theory (TCT). To make sense of these new entry modes, they introduce a framework based on the exploitation–exploration distinction and on embeddedness. I first outline current thinking on the TCT theory of foreign entry modes and then review Brouthers et al.’s four novel entry modes, identifying what is genuinely new about them, and what is similar to what we already know. I conclude that these four modes constitute changes in kind rather than substance, and show that they have already been satisfactorily explained using TCT. In contrast, Brouthers et al.’s exploitation–exploration–embeddedness framework is unconvincing, because (a) exploration is not ...