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

Published on Jul 1, 1996in Management International Review 2.69
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
Newest
Published on Mar 1, 1994in Journal of International Business Studies 7.72
Benjamin M. Oviatt18
Estimated H-index: 18
(GSU: Georgia State University),
Patricia P. McDougall33
Estimated H-index: 33
(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...
2,514 Citations Source Cite
Published on Mar 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...
1,101 Citations
Published on Jun 1, 1993in Journal of International Business Studies 7.72
Otto Andersen10
Estimated H-index: 10
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...
1,051 Citations Source Cite
Published on Feb 1, 1993in International Marketing Review 3.45
Yung-Chul Kwon7
Estimated H-index: 7
,
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...
89 Citations Source Cite
Published on Jan 1, 1992in Strategic Management Journal 5.57
Leif Melin21
Estimated H-index: 21
(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...
514 Citations Source Cite
Published on Jun 1, 1981in Journal of International Business Studies 7.72
Stan Reid2
Estimated H-index: 2
(SU: 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 such 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.
720 Citations Source Cite
Published on Jan 23, 1980in The International Executive
John H. Dunning62
Estimated H-index: 62
(University of Reading)
131 Citations Source Cite
Published on Mar 1, 1977in Journal of International Business Studies 7.72
Jan Johanson47
Estimated H-index: 47
(Uppsala University),
Jan-Erik Vahlne19
Estimated H-index: 19
(HHS: 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
7,367 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...
2,459 Citations
Published on Jan 1, 1956
Juvenal L. Angel1
Estimated H-index: 1
48 Citations
Cited By42
Newest
Published on Dec 1, 2018in International Business Review 3.64
Eldrede T. Kahiya4
Estimated H-index: 4
(Victoria University of Wellington)
Abstract Although research on export barriers spans five decades, no single prior study has systematically reviewed findings in this field. This study enriches the discourse on internationalization through a systematic review of the factors associated with export barriers, the theories underpinning this, and the exact nature of the relationships. Findings indicate the bulk of empirical studies focus on drivers of export barriers. The study identifies thirty-six such variables, falling in the cat...
1 Citations Source Cite
Published on Apr 1, 2016in Revista de Gestão e Projetos
Ana Lúcia Moura Novais (PUC-SP: Pontifícia Universidade Católica de São Paulo), Belmiro do Nascimiento João (PUC-SP: Pontifícia Universidade Católica de São Paulo)
The aim of this paper is to provide a reflection on how academic production in International business has approached culture and its influences on entry mode choice. This paper provides: a theoretical basis for systematically interrelating the literature into four propositions: propositions about both horizontal and vertical joint ventures and different levels of profitability in an industry; the relationship between perceived cultural distance for joint venture or wholly owned subsidiaries, and...
Source Cite
Published on Jun 1, 2015in International Business Review 3.64
Maria Andrea De Villa3
Estimated H-index: 3
(EAFIT University),
Tazeeb Rajwani11
Estimated H-index: 11
(Cranfield University),
Thomas C. Lawton16
Estimated H-index: 16
(OU: Open University)
We review the extant literature on market entry modes to explain the multi-levels of the political environment that can have a moderating effect on transnational corporations’ (TNC) market entry processes. Based on a systematic review of the Uppsala model, transaction cost analysis, real options, eclectic paradigm, industrial network, and institutional approaches, we show that the market entry modes literature has largely excluded some aspects of the political environment from market entry mode ...
29 Citations Source Cite
Eldrede T. Kahiya4
Estimated H-index: 4
(Christchurch Polytechnic Institute of Technology),
David L. Dean10
Estimated H-index: 10
(LU: Lincoln University (Pennsylvania))
Purpose – The purpose of this paper is to examine the influence of export barriers at two different points in time, 1995 (t 0) and 2010 (t 1), respectively. Using “confidence” as a surrogate for affect, the study proposes an inverse relationship between affect and export barrier intensity with the influence of export barriers increasing as exporter confidence subsides. Design/methodology/approach – The study draws two random probabilistic samples (1995/2010) of New Zealand’s SME exporters, from ...
3 Citations Source Cite
Published on Apr 1, 2015 in DICTAP (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 Oct 7, 2014in European Business Review
Maria Alejandra Gonzalez-Perez7
Estimated H-index: 7
(EAFIT University),
Juan Velez-Ocampo2
Estimated H-index: 2
(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
Eldrede T. Kahiya4
Estimated H-index: 4
(LU: Lincoln University (Pennsylvania))
Twenty years after the seminal work on rapid and early internationalization, export barrier research remains detached from this path of internationalization. Thus far, export research has largely disregarded the relationship between path to internationalization and the influence of export constraints. This paper opens a new thoroughfare of inquiry by distinguishing international new ventures from conventional enterprises on the basis of the export barrier construct. Using a sample of 129 small m...
43 Citations Source Cite
Published on Jan 1, 2012
The firm-specific and economy-wide benefits of exporting are well-documented in international marketing research. Not only do New Zealand firms owe their long-term survival to international competitiveness, New Zealand cannot grow her economy without superior performance in the tradable sector. Research to stimulate firm-level export success has thus focused on two overarching questions. What prohibits ‘export ready’ firms from venturing abroad? What inhibits current exporters from expanding and...
Published on May 31, 2011in International Marketing Review 3.45
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