Comparative Analysis of Export-Oriented and Foreign Production-Oriented Firms' Foreign Market Entry Decisions: A Comment

Published on Jul 1, 1996in Management International Review 2.28
Yung-Chul Kwon Kwon1
Estimated H-index: 1
,
Michael Y Hu3
Estimated H-index: 3
Abstract
Among the various foreign market entry modes, export and foreign production have been frequently used by firms. When entering foreign markets, some firms rely on exporting, while others rely on foreign production or both. The sequential process of internationalisation was first suggested by Vernon (1966) as part of his framework of international product life cycle. This concept was later expounded by Johanson and Vahlne (1977). These later authors suggested a chain of internationalisation stages that can be traced from export activities to the formation of foreign production. A critical review of the literature on the internationalisation of firms is provided by Andersen (1993). Andersen suggests that the current state of the internationalisation model needs to be validated empirically so that the linkage between theory and the operationalisation of the model can be more firmly established. Validation can be accomplished by correlating variables that are conceptually pertinent to the internationalisation model. At the same time, as pointed out by Andersen, the model lacks explanatory power. A remedy to this problem will be to relate the stages of internationalisation to the strategic behavioural outcomes of a firm. The first part of this study shows export/foreign production orientation is indeed a good surrogate for a firm's internationalisation process. Thus this study provides a cross-validation in using export/foreign production as a measure of the internationalisation process. Commonly used measures such as the number of years of international business experience, the number of foreign countries served, and the number of products being offered are employed in this cross-validation effort. The second half of the study reports an investigation of the differences between the export-oriented and foreign production-oriented firm's in terms of a number of firm-related foreign strategic outcomes, such as the level of activities engaged in long range planning; the sequence of foreign entry decisions; the decision rules employed in foreign market entries; and the criteria used for comparative assessment in the entry mode decisions. Results show that meaningful differences indeed exist between these two groups of firms. This study is based on a survey of 228 vice presidents/directors in charge of international operations at U.S. manufacturers. Factors identified in the literature pertinent to strategic planning in foreign market entry were examined and compared between the two groups of firms. The Internationalisation Process The internationalisation process is conceived by Vernon (1966) to be an incremental, progressive process that starts with a firm primarily engaged in exporting to a foreign market. Exporting will continue until the firm has acquired enough knowledge about the foreign market to shift production abroad. Several researchers have proposed explanation for such progression. Horst (1974) asserts that the switch from exporting to subsidiary production abroad is a function of the growth of foreign sales over time. In the initial stages of internationalisation process, a firm lacks the knowledge and experience in operating in a foreign market. In order to reduce the amount of risk due to inexperience, the firm is less likely to select an entry mode that will require substantial commitment, even though what this may mean is forsaking profits. The entry mode that requires the least commitment is likely to be exporting. As foreign market expands, a firm will be better able to maximize its profits by establishing a producing subsidiary in the foreign country. Johanson and Vahlne (1977) found a direct relation between market knowledge and market commitments. They argued that "in foreign operations, we have no such basic experiential knowledge to start with. It must be gained successively during the operations in the country." (pp. 26-27) In addition to a firm's characteristics, the process is also presumed to be related to changes in the characteristics of the foreign market and the competitive position of a product. …
  • References (10)
  • Citations (42)
References10
Published on Mar 1, 1977in Journal of International Business Studies 6.20
Jan Johanson38
Estimated H-index: 38
(Uppsala University),
Jan-Erik Vahlne17
Estimated H-index: 17
(Stockholm School of Economics)
On the basis of empirical research, a model of the internationalization process of the firm is developed. The model focuses on the gradual acquisition, integration and use of knowledge about foreign markets and operations, and on the incrementally increasing commitments to foreign markets. In particular, attention is concentrated on the increasing involvement in the individual foreign country.© 1977 JIBS. Journal of International Business Studies (1977) 8, 23–32
7,268 Citations Source Cite
Published on Mar 1, 1994in Journal of International Business Studies 6.20
Benjamin M. Oviatt16
Estimated H-index: 16
(Georgia State University),
Patricia P. McDougall30
Estimated H-index: 30
(Georgia Institute of Technology)
Organizations that are international from inception – international new ventures – form an increasingly important phenomenon that is incongruent with traditionally expected characteristics of multinational enterprises. A framework is presented that explains the phenomenon by integrating international business, entrepreneurship, and strategic management theory. That framework describes four necessary and sufficient elements for the existence of international new ventures: (1) organizational forma...
2,487 Citations Source Cite
Published on Jan 1, 1956
Sidney Schoeffler1
Estimated H-index: 1
,
Joe S. Bain1
Estimated H-index: 1
Conditions of entry into markets where sellers are few are analyzed intensively by Professor J. S. Bain in his Barriers to New Competition.1 In the tightly written first chapter the theory of entry is developed far beyond what was previously in the literature. There emerges a series of hypotheses as to the conditions of entry, and the probable degree to which they serve as barriers to new competition. A bold attempt is then made to measure the height of these barriers in 20 manufacturing industr...
2,428 Citations
Published on Jan 23, 1980in The International Executive
John H. Dunning51
Estimated H-index: 51
(University of Reading)
129 Citations Source Cite
Published on Jun 1, 1981in Journal of International Business Studies 6.20
Stan Reid2
Estimated H-index: 2
(Syracuse University)
This paper examines the varied empirical findings of the relationship between firm, individual characteristics, and foreign entry expansion behavior. The results support the view that activity is neither exclusively determined by structural or managerial factors and is really the result of interaction between both types of variables. The paper proposes that foreign entry and expansion can best be understood as an adoption of innovation-type behavior.© 1981 JIBS. Journal of International Business...
710 Citations Source Cite
Published on Jun 1, 1993in Journal of International Business Studies 6.20
Otto Andersen8
Estimated H-index: 8
Even though international marketing has been challenged because of theoretical and methodological shortcomings, very few researchers have actually attempted to analyze the weaknesses based on principles of theory evaluation. In this article, the author examines two types of models addressing the individual firm's internationalization process. A theory evaluation is performed based on the explanation and the falsification criteria. In order to improve the internationalization models, some measure...
1,040 Citations Source Cite
Published on Jan 1, 1994
Franklin R. Root1
Estimated H-index: 1
The New Global Economy: Challenges and Opportunities. Designing Entry Strategies for International Markets. Deciding on the International Product Candidate and Target Market. Entering International Markets Through Exports. Entering International Markets Through Licensing and Other Contractual Arrangements. Entering International Markets Through Investment. Deciding on the Right Entry Mode. Designing the International Marketing Plan. Designing and Managing Entry Strategies Across Cultural Differe...
1,095 Citations
Published on Feb 1, 1993in International Marketing Review 2.60
Yung-Chul Kwon6
Estimated H-index: 6
,
Leonard J. Konopa1
Estimated H-index: 1
Focuses on characteristics of a host country′s market that influence a firm′s entry mode choice of exporting versus producing in that foreign country. A survey was conducted among US manufacturers who exported a given product to one country and locally produced the same product within another country. The host country′s market characteristics were described in terms of their business environment, production factors, and competitiveness of local competitors. The hypotheses tested indicated that t...
88 Citations Source Cite
Published on Jan 1, 1992in Strategic Management Journal 5.48
Leif Melin18
Estimated H-index: 18
(Linköping University)
This paper critically reviews the field of international business research. The field is characterized by considerable intellectual diversity, where theoretical focus is blurred by the multidisciplinary nature of the field. The review focuses on three themes that help shed light on internationalization as a strategy process; stage models of internationalization, studies of the link between strategy and structure in MNCs, and studies of administrative processes in MNCs and recent organizational m...
507 Citations Source Cite
Cited By42
Published on Mar 1, 2000in Small Business Economics 2.86
Timo Lautanen1
Estimated H-index: 1
In this paper, I model small firms' decisions to export by applying an existing model of the theory of diffusion of innovations and test the predictions of the model with data on Finnish SMEs. The model, incorporating so-called epidemic learning and rank effects, describes nicely the different phases of this decision-making process. The data used in the empirical analysis has been collected by interviewing directors of small industrial firms especially for this study. The results suggest, among ...
56 Citations Source Cite
Leila Hurmerinta-Peltomäki3
Estimated H-index: 3
(University of Turku)
The internationalisation process of firms has accelerated during the last few decades. Firms start their export operations earlier than before, and they reach a higher level of internationalisation more quickly than ever. All this constitutes a challenge to the theoretical basis that underlies studies of the internationalisation process.
49 Citations Source Cite
Published on Oct 1, 2002in Management International Review 2.28
Jay Hyuk Rhee7
Estimated H-index: 7
,
Joseph L. C. Cheng12
Estimated H-index: 12
Abstract * This study first tests the basic proposition of Johanson and Vahlne's (1977) internationalization theory that foreign market uncertainty leads firms to adopt an incremental approach to international expansion. This is done using a pooled, within-country research design with historical data on firms' internationalization processes. * It then conducts a contingency analysis to investigate the theory's boundary conditions by examining the impact of firm, industry, and host country charac...
47 Citations
Published on Jun 1, 2003in Asia Pacific Journal of Management 2.47
Peter Ping Li18
Estimated H-index: 18
(California State University)
Despite their growing proliferation and importance, the multinational enterprises (MNEs) from the developing countries have not received adequate attention. Further, there is a growing concern with the validity of the extant MNE theories in the context of globalization and network. This paper seeks to address two questions: (1) how much can we apply the extant MNE theories (which are built on the evidence from the developed countries) to the MNEs from the developing countries as latecomers; and ...
96 Citations Source Cite
Published on Sep 25, 2009in International Journal of Emerging Markets
Alex Kouznetsov3
Estimated H-index: 3
(Melbourne Institute of Technology)
Purpose – The purpose of this paper is to examine entry modes employed by foreign multinational manufacturing enterprises entering Russia. It is designed to discover how multinational firm decision makers perceive country conditions in Russia and to provide the basis for further study to uncover what factors influence their decision to locate manufacturing in such volatile markets rather than employing other, less riskier modes of entry.Design/methodology/approach – This paper uses in‐depth inte...
16 Citations Source Cite
Published on Apr 1, 2015 in Digital Information and Communication Technology and Its Applications
Atef Harb2
Estimated H-index: 2
(Notre Dame University – Louaize),
Carol Yaacoub1
Estimated H-index: 1
(Notre Dame University – Louaize)
+ 1 AuthorsCésar Baena1
Estimated H-index: 1
This paper deals with the target country, market and timing factors potentially influencing the transaction costs of a company in its international ventures, which are used as transaction cost proxies, based on “Determinants of Mobile Network Operators' Choice of Cross-Border Entry Modes”. In addition, they are assigned as corresponding hypotheses in order to test their effect on Zain Telecom's entry mode choices. This model did not seem to explain all factors influencing the entry mode choices ...
1 Citations Source Cite
Published on Aug 13, 2001in Journal of Global Marketing
Yung-Chul Kwon6
Estimated H-index: 6
(Yeungnam University),
Michael Y. Hu3
Estimated H-index: 3
(College of Business Administration)
Abstract This paper further empirically tests the Internationalization Process Model (IPM) by using a sample of small/medium Korean companies. Survey results provide support for IPM. Results further show there are differences across stages of the internationalization process with respect to international marketing commitment.
15 Citations Source Cite
Published on May 31, 2011in International Marketing Review 2.60
Poh-Lin Yeoh10
Estimated H-index: 10
(Bentley University)
Purpose – The purpose of this paper is to contribute to the literature on emerging multinationals by studying the internationalization strategies of two established companies in the Indian pharmaceutical industry: Ranbaxy and Wockhardt.Design/methodology/approach – The study utilizes a longitudinal case‐study approach to capture Ranbaxy's and Wockhardt's dynamic internationalization patterns. An extensive literature review using recently published works, government documents, and organizational ...
28 Citations Source Cite
Published on Oct 7, 2014in European Business Review
Maria Alejandra Gonzalez-Perez5
Estimated H-index: 5
(EAFIT University),
Juan Velez-Ocampo1
Estimated H-index: 1
(EAFIT University)
Purpose – This paper aims to provide an examination of the ongoing internationalisation processes undertaken by 30 major multinational Colombian-owned firms. It also presents a theoretical overview and a conceptual framework for the understanding of internationalisation patterns from emerging countries’ multinational enterprises. Design/methodology/approach – This study is built based both on the results collected from comparative case studies based in the literature and empirical observations o...
12 Citations Source Cite
Published on Oct 1, 2009in Journal of World Business 3.99
Peng-Yu Li1
Estimated H-index: 1
(Fu Jen Catholic University),
Klaus E. Meyer38
Estimated H-index: 38
(University of Bath)
Experienced firms act differently than newcomers, yet such differences vary with the context and with the type of experience. This research examines the effects of international experience on multinational enterprises' (MNEs') ownership strategy across a range of developed and developing economies. We distinguish competence-building and partner-selection effects of experience, which vary between general international experience and country-specific experience, and across host contexts. This cont...
75 Citations Source Cite