The experience factor in foreign market entry behavior of service firms (original) (raw)
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Research on how service firms choose their initial mode of operation in foreign markets appears to have led to two contradictory conclusions. Findings from one group of studies suggest that factors determining entry mode choice by manufacturing firms are generalizable to service firms. Findings from another group of studies contradict that view. The authors reconcile the two views by means of a classification scheme that allows some services to be grouped with manufactured goods in terms of entry mode choice. A conceptual model of factors affecting the entry mode choice of service firms is proposed, research propositions are developed, and managerial implications and future research directions are discussed.
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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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The study contrasts foreign market entry behavior of small and large service firms. The sample consisted of 141 firms of which 54 were small firms and 87 were larger firms. The study provides empirical evidence that the behavior of small firms differs from that of larger firms mainly in service industries characterized by higher capital intensity. It also suggests that at lower levels of capital intensity, small firm behavior may resemble that of larger firms. More specifically, In industries characterized by lower levels of capital Intensity, small service firms are as likely as their larger counterparts to enter culturally distant markets and to choose foreign direct Investment (FDI) modes of entry. But, at higher levels of capital Intensity, small service forms are less likely than larger ones to enter culturally distant markets, and to choose FDI modes of entry.
Determinants of entry modes for international service organisations : evidence from China
Ibrc 2010 Research For Change Proceedings of 13th International Business Research Conference, 2010
This paper examines the influences on entry modes for Australian service organisations internationalising to China. A conceptual model was developed utilising past research in the field and internationalisation theory. The model incorporated the constructs of: resource commitments, previous international experience and whether or not the service could be offered independently of any physical product. The model was empirically tested using qualitative data from interviews conducted with senior representatives from 23 Australian service organisations with operations in China. The data indicated that these organisations increased the resource commitments to their Chinese operations, the longer they were in operation and the more familiar the organisation became with the Chinese environment. The data also suggested that, whilst international experience was desirable prior to entering China, it was not mandatory for success. A bias was identified amongst the respondents towards exporting those services which were separable from products to China and foreign direct investment, representative branches and significant local investment for services that were not separable from products.
Journal of International Marketing, 2009
T he internationalization process of service firms has gained increased attention in recent years (e.g., Javalgi and Martin 2007). This is not surprising considering that service foreign direct investment now accounts for nearly two-thirds of total foreign direct investment compared with less than 50% in 1990 (UNCTAD 2007) or that services has been the fastest growing sector of world trade for the past two decades (Pauwels and De Ruyter 2004). Yet despite this recent attention, the question whether timing of entry affects firm performance for service firms in developing markets has remained unanswered.