Foreign market entry modes: a sequentially embedded decision approach

Abstract

Mode of entry into a foreign market has consistently been singled out as a frontier issue in international business research with significant consequences for firms and policy makers (Davidson 1982; Erramilli and Rao 1993; Hill et al. 1990; Root 1987; Wind and Perlmutter 1977). For firms, entry mode choice is an important strategic decision with far-reaching consequences for competitive advantage and performance. Furthermore, since each mode of foreign market entry involves different resource deployment patterns, levels of control, and risk/return tradeoff, firms’ choice of a particular mode in serving a given host market is difficult to change without considerable loss of time and money (Root 1987). At the macro regulatory level, entry mode of foreign firms is critical as it determines the degree of foreign involvement in host economies, level of foreign control of local operations, and their level of impact on the local economy. Not surprisingly, there has been considerable research into the patterns, determinants, and consequences of foreign market entry modes. Some researchers have focused on the ownership and control issues implied by various entry modes (eg Agarwal and Ramaswami 1992; Anderson and Gatignon 1986; Contractor 1990; Davidson and McFetridge 1984, 1985; Erramilli 1991; Gomes-Casseres 1989; Hennart 1982, 1991; Hennart and Park 1993; Hennart and Reddy 1997). Others have examined the effect of cultural distance and host-country characteristics on the mode of entry (eg Cho and Radmanabhan 1995; Davidson and McFetridge 1984, 1985; Gatignon and Anderson 1988; Kogut and Singh 1988; Kwon and Konopa 1992). Research attention has also been directed, albeit to a lesser degree, to the performance implications of various modes of foreign market entry (eg Anand and Delios 1997; Brouthers et al. 1999; Busija et al. 1997; Li 1995; Simmonds 1990; Woodcock et al. 1994).