Foreign Market Entry 1.0 Objectives The authors objective in this article is to discuss on the effective modes of entry for businesses that is planning to venture into international market. The entry modes methods discussed are aimed to help businesses to formulate an effective international business strategy and to position themselves to be successfully established in the global market. 2.0 Central Theory The central theory introduced in this article is developed based on a comprehensive framework of the entry modes choices. These modes of choices would determine the success factor of the international business strategy, and to choose these choices there are several important factors to be considered. These factors include situational firm factors, foreign environment review, and moderating factors that would directly influence the firms desired mode of choice. Referring to Appendix A is the mode choice of framework by Driscoll that depicts the whole concept discussed.
To briefly illustrate, the firm would need to evaluate the two situational factors that would directly affect its desired level of different modes of characteristics. Subsequent from the selected desired modes, the firm would also need to determine the potential moderating influences, which would affect the desired mode. Thus, reassessment based on the moderators would take place to determine the most effective modes of entry. By selecting the right mode of entry, the firm would incorporate an effective business strategy for its international business plans. 3.0 Arguments The article written by Driscoll is set to present an argument for the development of a comprehensive framework for understanding the mode of entry choices. In the article, she illustrated about the different modes of entry to international markets, analyzed on the different characteristics of the entry modes, discussed on the number of situational influences and moderating factors, and presented a comprehensive model of understanding with remarks on managerial implications.
Some of her arguments include the three broad grouping of the foreign entry modes that should not have any other classification, unless it has similar meanings such that quoted by some reference; and the five key characteristics of the entry modes that is similarly supported by other authors such as Agarwal and Ramaswami 1992; Anderson and Gatignon 1986; Douglas and Craig 1989; and etc. 4.0 Methods and evidence supporting the author’s viewpoints Driscolls methods and evidence is based on the centralized theory of the framework of entry modes choices. The following are the various methods used and supporting evidence in the framework model. 4.1 Modes of entry to international markets According to Driscoll, there are 3 main foreign market entry methods; namely export, contractual and investment modes, which is supported also by other authors like Anderson and Gatignon’s (1986), Root’s (1987) and Young’s (1989). These three methods encompass a broad area for a firm that is planning to enter into foreign market.
As Driscoll explains, export modes can include either a direct export from its local market to the foreign market or an indirect involvement through an appointed trading house. Then, in a contractual entry mode, a firm can arrange various methods such as licensing, franchising, turnkey projects, non-equity joint ventures and etc. to tap into its international market. In general, this method reduces the level of equity investment and direct participation by the firm. However, some evidence that Driscoll related, such that for franchising, where Burton and Cross (1995) argued that there are possibilities of higher level international involvement and equity investment by the firm. Then, investment modes are methods used for some form of ownership by the firm in the foreign market. For instance, the investments may involve acquisition, merger or greenfield strategy and joint ventures basis, where Driscoll quoted some reference from Kogut and Singh (1988).
4.2 Characteristics of different entry modes Driscoll proposed that the key characteristics of the entry modes methods are level of control, dissemination risk, resource commitment, flexibility and ownership. These characteristics are also supported by many authors such as Agarwal and Ramaswami 1992; Anderson and Gatignon 1986; Douglas and Craig 1989; and etc. As Driscoll argues that control is the key functionality for a firm to maximize its economic efficiency and return of investment in international markets. This was also supported by Hill et al. (1990) where control allows firm to directly manage its operation and decision making which would ensures desired level of achievement in its whole operation and target market. The next method relates to the risk of disseminating the firms knowledge asset to its contractual partner. Driscoll explains that protecting the firms know-how asset is critical to avoid unnecessary threats of survival for the firm.
She quoted Williamson (1985) where risk can be minimized through comprehensive contingent contracts and continuous improvement of technology in products or services would gain a long term competitive advantage. The following entry mode method is resource commitment. Driscoll pointed out that there is a high tendency for firms to commit more business resources as the international business progress. This was supported by Johanson and Vahne (1977) in the Uppsala Internationalization Model as a firm needs to increase its resources commitment when it becomes more experienced and knowledgeable about the foreign markets. The commitment involves financial and physical cost, opportunity cost, and unforeseen risks and threats; for instance, threat of employee abduction and hostile occurrence.
Flexibility is another substantial method that has inverse relation to the former method. According to Driscoll, a firm needs to be flexible in changing its entry modes quickly and efficiently, and thus gaining better competitive edge in the market. Her statements was also supported by Porter (1976) on the concept of flexible exits barriers strategy, while Klein (1989) added that firms should have less formalized and centralized organization structures to adapt to its dynamic environment. The final entry mode is ownership where Driscoll argues that by having full equity ownership, a firm should have greater control as compare to sharing that causes risk dissemination. Gatignon and Anderson (1988) asserted that ownership should have a direct relation to the amount of control, however there are cases where control can be achieved despite the above argument. For example, McDonalds standardized franchise business.
In relation to the above entry modes, Driscoll summarized a comparison of the entry modes characteristics across the generic foreign entry modes (refer to Appendix B). Some of the significant analysis includes the ideal level of entry modes characteristics through investment modes but has low level of flexibility, then exporting method that gives higher degree of flexibility despite the drawbacks of other modes, and contractual modes that facilitates as intermediate level for all the modes of entry as compare to the former methods. Some of the evidences supported in the article are by Erramilli and Rao (1993) and Klein (1989) that emphasizes on the needs of firm to weigh the factors (actual environment) that could affect their desired level of characteristic when making entry mode choices. (Remember to attach the summarize …