The entry mode literature offers frameworks that explain firms' choices for entering foreign markets. However, such explanations often result in choices from limited entry mode sets. This study, in contrast, provides a comprehensive explanation of entry mode choices (EMCs), encompassing a wide range of export, foreign production and marketing modes. The thoroughness of our approach provides a solid foundation for understanding the decision-making process of managers regarding entry modes in global markets.
Using hierarchical decision-making, the study comprehensively classifies export and host-country production modes into three categories: superordinate, basic and subordinate. Applying a combination of resource-based and dynamic capability views, the study explains those choices based on a significant sample of responses from senior executives of 239 USA firms with global operations.
The results demonstrate the choice of a wholly owned subsidiary, joint venture, contractual mode, export through the company-owned channel, host-country intermediary and indirect export modes from a comprehensive set of entry modes. The study also found that managers significantly differentiate between company-owned and partnered mode choices in their decision-making.
The study presents a taxonomy of entry modes, providing flexibility to incorporate future entry mode variants for managers of globally operating manufacturing and service firms. The results show that the hierarchical decision-making process, which managers base on their confidence in establishing and sustaining competitive advantages in host-country production and marketing operations, is a key factor in making optimal EMCs and empowering managers with the knowledge to make informed decisions.
This research combines literature from market imperfection, market failure and dynamic competition paradigms, as well as managerial decision-making, to explain EMCs based on confidence in establishing and sustaining competitive advantages in host-country operations through structured pathways. This novel approach to EMCs, which the literature overlooked, is sure to spark interest and intrigue among academic researchers and managers.
