Cultural Fit and the Choice of International Market Entry Scale of Chinese Firms

Previous research on how cultural distance impacts the choice of entry mode shows contradictory findings. This study uses a strategic fit perspective to examine the impact of distinct cultural factors as predictors of equity entry scale of Chinese firms. Findings from a sample of 667 Chinese firms demonstrate that the effects of cultural fit on equity entry scale vary across cultural dimensions. Whereas a collectivism cultural fit motivates Chinese investors to secure a high-equity entry scale in foreign firms, a lower power distance cultural fit (“misfit”) leads to higher entry involvement.     

Business models and market entry mode choice of small software firms

So far the critical choice of the entry mode for a target country has been examined ignoring the special features of firms. Particularly, the impact of the wide variation of business models of software firms has been ignored. This multi case study investigates the relation between the business model and the entry mode, of eight software firms. The results imply that the product strategy and the service and implementation model of a software firm are closely connected to the entry mode choice, while the distribution model of intangible software products does not seem to have an impact on the operation mode.     

基于电子商务技术的服务企业海外市场进入模式选择研究

研究表明,数字技术的变革对服务企业的影响远大于制造企业。随着越来越多的服务企业进入国际市场,这种影响越来越大,乃至对传统的服务特性以及服务企业选择海外市场进入模式都带来了新的挑战。本文以电子商务技术对服务企业进入模式选择所带来的影响作用为切入点,在此基础上,提出了具体的概念模型,对一些服务企业进入海外市场的内部、外部及其它影响因素进行了详尽的阐述,并得出了一些有益的结论。     

Entry mode choice of Chinese enterprises: The impacts of country risk, cultural distance and their interactions

Recent years have witnessed a phenomenal growth in the number of Chinese enterprises “going global.” Drawing on three leading theoretical perspectives including the transaction cost theory, organizational capability theory and eclectic theory, this paper develops hypotheses to test how country risk and cultural distance are associated with entry mode choices of enterprises from China. Based on a sample of 167 Chinese companies, an empirical investigation has been conducted employing logistic regression and hierarchical regression analyses. Our results show that country risk and cultural distance have significant impact on entry mode choice. With the increase of country risk or cultural distance, businesses prefer non-ownership-based entry modes such as trade and licensing. However, entry mode choice is also noticeably influenced by the interaction between country risk and cultural distance, which is a new finding of international entry mode research. Furthermore, private enterprises are more likely to adopt high-involvement entry mode than the state-owned enterprises, and service enterprises are less likely to use high-involvement entry mode, which suggests that different approaches are used to deal with country risk and cultural distance by various types of enterprises.     

A study of the impact of owner's mode of entry on venture performance and management patterns

This study examines if firm performance and the associated patterns of management vary with the owner-manager's mode of entry into the firm in owner-started (OS), buyout (BO), and family firms (FF). Prior research suggests that these three types of firms differ on certain managerial characteristics but has not examined the role of the owner-manager's mode of entry in determining firm performance on the one hand and its influence on the firm's management pattern on the other.We collected data from 345 firms, employing four to 99 employees, operating in four northeastern states. Self-reported return on assets (ROA), annual sales, business strengths, competitive strategies, and management practices were compared for OS, BO, and FF firms. Performance was found to vary with owner's mode of entry. The 227 OS firms' average ROA was significantly higher than that of the 61 family firms and the 57 BO firms. Successful start-up owners may have enjoyed greater profits because they assumed greater risk compared to those who opted to buy an existing venture or took over a family firm. Annual sales were highest for FFs, second for OS firms, and the lowest for BOs. In terms of management patterns, owner-started firms rated themselves significantly higher on business strengths and tended to have higher self-ratings for competitive strategies and operations strengths than did FFs or BOs. All of these differences were significant after controlling for the age and size differences among the firms, indicating that mode of entry did directly impact performance as well as the management patterns.Examining the impact of mode of entry versus management patterns on venture performance, we found that while the OS mode of entry was associated with greater ROA, this was primarily due to the different management patterns adopted by the OSs. Looking at annual sales, the FF mode of entry was associated with higher sales, and this was independent of the types of management patterns adopted by the firms. A priori, BOs would appear to be in a better position to achieve superior performance, but this was not so in this sample.Further analysis revealed different paths to profitability for the three entry modes. For OS firms, high ROA was associated with operating in the service and retail sectors, developing a broad range of business strengths, and offering competitively priced but higher quality customized products. For OSs, ROA was also enhanced by using informal and personalized management practices. Sales performance was greatest when OSs employed trained staff for functions such as budgeting and sales. For FFs, ROA was enhanced by broad-ranging strengths, but it was hurt by price and quality competitiveness—mainly because on average, their lower prices were not supported by a competitive cost of goods. Sales performance was greatest when FFs had owner-managers with extensive industry experience, were conservative in adding workers, emphasized product customization, relied on written reports, but avoided long-range operations planning. Management patterns of BOs were not related to their ROA, but their annual sales were marginally higher when the acquiring owners had extensive industry background and employed a large workforce.Thus, this study confirms our hypotheses that performance and management patterns vary across mode of entry as does the effectiveness of strategic management patterns. Further, our findings concurred with previous studies which suggested that sales performance and profitability were likely to be influenced by different management actions. This study demonstrates that owner's mode of entry is an important explanatory variable for variations in performance as well as management patterns. Venture CEOs need to recognize that different management approaches may be needed for success depending upon whether they founded, purchased, or inherited their firms.     

Organizing foreign market activities: From entry mode choice to configuration decisions

This article takes a critical look at the extant foreign entry mode research and argues that a richer and more and dynamic view is needed in order to provide a realistic presentation of how firms organize their foreign activities. While researchers have typically assumed a very limited range of foreign operation modes, we propose a systemic rather than a myopic view of foreign operation modes by modeling the entry mode decisions of the firm as a corporate-level process. We substantially broaden the scope of mode choice, thereby moving toward a configuration decision approach. We model and provide numerical examples of how international interdependencies impact mode configuration, and then extend the analysis by incorporating dynamic aspects.     

The entrepreneur’s mode of entry: the effect of social and financial capital

This article uses a French database of firms set up in 1998 to investigate the determinants of takeovers versus startups as a mode of entry. It focuses on two determinants that previous research has not fully analyzed: social capital and financial capital. Our findings suggest social capital affects the mode of entry. They show that entrepreneurs with social capital are more likely to create new firms from scratch than to take over existing firms. We confirm the effect of financial capital on the mode of entry. Bank loans are more often associated with takeovers than with startups and low initial wealth is more often associated with startups than with takeovers. These results show that finance affects the mode of entry.     

International acquisitions and emerging market firms' performance—a structural contingency perspective

Entry modes have impact on firms' performance in international markets. Using an organizational structural contingency perspective, we assert that firms with mechanistic structure can enhance their performance in international markets if they choose acquisitions as an entry mode. Mechanistic structure limits organizations' learning capability, which can be managed through acquisitions but not through other entry modes such as joint ventures. For managing limitations associated with the poor knowledge absorption capability of mechanistically structured organizations, firms should not follow the standard integration procedures associated with acquisitions aiming to achieve economies of scale or scope. Rather, they should provide corporate parenting advantage to the newly acquired unit by (a) granting complete autonomy and (b) contributing required resources for future growth, thus treating the acquired business as a strategic business unit. Since mechanistic structures are more common in emerging markets, we explain our perspective using illustrative caselets from these markets.     

Added distance,entry mode choice,and the moderating effect of experience: The case of British MNEs in emerging markets

Distance has been viewed as a crucial determinant of the internationalization strategy of firms. Nonetheless, in recent years, there has been considerable debate with regards to, first, the type of distance considered most important when it comes to explaining the internationalization strategy of firms, and, second, how distance should be measured. In our study, we argue that a developed market multinational enterprise (DMNE)’s decision regarding the mode of entry into an emerging market (EM) will be affected by the geographic and administrative distance between the locations in which the MNE has previously held operations. Drawing our arguments on transaction costs economics (TCE) and Internalization Theory, we propose that, for low and high geographic and administrative distance, DMNEs will opt to enter EMs via a wholly owned subsidiary, while for moderate levels of distance via a joint venture. Furthermore, we argue that DMNEs’ previous international experience in EMs will have a positive effect on the suggested U‐shaped relationship, alleviating the negative effects associated with the coordination and knowledge dissipation costs incurred as a result of the level of distance. Our study contributes to existing literature both theoretically—notably via the examination of under‐researched facets of distance on entry mode choice—and also methodologically—through the adoption of a novel methodological approach in measuring distance. We test our hypotheses against a data set comprising 316 entries of FTSE 250 British MNEs in 39 EMs spanning the period 1971–2010.     

Cultural distance,political risk,or governance quality? Towards a more accurate conceptualization and measurement of external uncertainty in foreign entry mode research

It is well accepted that multinational enterprises (MNEs) prefer equity joint ventures (JVs) over wholly owned subsidiaries (WOSs) in foreign countries where the formal and informal external environment is highly uncertain. Many entry mode studies have modeled the external uncertainty faced by MNEs in foreign countries as the cultural distance to these countries (thus focusing on the informal environment), or as their political risk level (thus focusing on the formal environment). We argue that both approaches are suboptimal because (1) cultural distance not only reflects the external uncertainty associated with WOSs but also the internal uncertainty associated with JVs, and (2) political risk covers only one aspect of the formal external environment. We contend that the governance quality of foreign countries is a better proxy for external uncertainty. The lower this quality, we hypothesize, the higher the likelihood that MNEs will choose JVs over WOSs. An analysis of 231 entries by Dutch MNEs into 48 countries offers support for this hypothesis. We also find that cultural distance has no impact on entry mode choice and that political risk has the weakest impact of all aspects of governance quality.     

外资服务企业中国市场进入模式的实证研究

我国加入世贸组织以来,服务业已成为吸引外商直接投资的重要领域。本文选取2001年进入上海市的外资服务企业作为样本,采用描述性统计和列联相关分析的方法,对外资服务企业中国市场进入模式的特征进行了实证研究。研究表明,外资服务企业的进入模式选择具有更强烈的独资倾向,并对服务行业类型、经营期限、资本密集度以及文化距离因素对外资服务企业进入模式选择的影响进行了深入分析。     

Multinational firms and host country market structure: A review of empirical literature

We address the impact of multinationals on host country market structure through reviewing existing empirical literature. Our main conclusion is that the majority of studies focus on samples of manufacturing industries/firms, neglecting the service sector, despite its importance. Future research should be directed to this sector and explore the possibility of bidirectional causality between foreign presence and host country industry concentration. Studies concerning the impact of multinationals on entry, exit and survival of host country firms must use more recent data, investigate the role of vertical linkages and taking into account other control variables that may affect the exit rate. Finally, future work should take into account the mode of foreign firm establishment in the host country.     

The share of small and medium-sized enterprise in Greek manufacturing

This paper examines the determinants of small establishment shares in Greek manufacturing and compares the results to previous findings for U.S. small firms. Two groups of explanatory variables are used: Industry variables and small-firm performance variables. Both types of variables are found to have an impact on the determination of small firms shares, with performance variables being at least as strong as industry variables. Measures of entry barriers give mixed results. Capital intensity exercizes an expected negative impact. Advertising intensity shows a trace of positive impact for medium-sized establishments in consumer goods sectors. Operating efficiency of small firms also appears as a strong influence on their shares whereas investment intensity does not appear significant. These results are in partial agreement to earlier findings for U.S. small firms. Their generality is tempered both by the fact that they come from a small country of middle level of development and by the recognition that the year of observation (1983) was at the start of Greece's industrial adjustment to entry in the EEC. Both these concerns constitute areas of future research.     

Bridging what we know: The effect of cognitive distance on knowledge-intensive business services produced offshore

The rise of offshoring of knowledge-intensive business services (KIBS), causing a physical separation between clients and service providers in co-created services, is a major trend in practice but challenges existing theories. International business literature has addressed many types of distance that may affect (service) offshoring, such as cultural or geographic distance. However, limited emphasis has been placed on the implications of differing cognitions of individuals that produce a cognitive distance (CD). We address this gap and ask how increased CD through offshoring affects KIBS production processes. This conceptual paper focuses on how CD interacts with the modularity of different process stages in service production and what effect CD has on repeated production processes. In order to do so we first predict what stages of KIBS production processes can be offshored and what implications offshoring has on these services. We contribute to literature by deepening the understanding of CD and providing a process perspective on KIBS offshoring that looks at modularity within services, rather than firms as bundles of modular production, and on the impact repeated production processes have on service characteristics.     

Entry and exit in disequilibrium

Most entrepreneurship theory depicts disequilibrium as the most common state for entrepreneurial activity and yet remarkably very little empirical research investigates the role of entry and exit in this type of external environment. Drawing on economics and organizational ecology we outline reasons why the interrelation between entry, exit and incumbent firms is likely to vary when the actual number of firms is higher or lower than the number that a market can sustain. We also introduce a new empirical methodology to explain entry and exit levels in two different types of disequilibria comprising situations when markets under and over shoot carrying capacity. Using a data set on the retail industry, we find that in undershoots a lack of competition between incumbent firms restores equilibrium by creating room for new-firm entry. In contrast, in overshoots competition induced by new firms (in particular strong displacement) restores equilibrium. We also find that equilibrium-restoring mechanisms are faster in over than undershoots. The results highlight that the behaviour and impact of entry and exit varies depending on the type of disequilibrium.     

Patterns of Entry,Post-Entry Growth and Survival: A Comparison Between Domestic and Foreign Owned Firms

This study compares the patterns of entry, survival and growth of domestic and foreign owned firms. We show that the post-entry behavior of foreign owned firms is quite different from that of their domestic counterparts. Among foreign entrants, we were able to distinguish between those which proceed by creating a new firm and those that acquire an already existing business. Our evidence reveals that the choice of the mode of entry in foreign markets exerts an impact upon the performance of firms that persists long after the moment of entry. As a consequence, our work clearly indicates that there is much to be gained in the understanding ofthe process of entry in foreign markets by studying the behavior of entrants over their first years in these markets.     

Creative destruction and regional productivity growth: evidence from the Dutch manufacturing and services industries

Do firm entry and exit improve the competitiveness of regions? If so, is this a universal mechanism or is it contingent on the type of industry or region in which creative destruction takes place? This paper analyses the effect of firm entry and exit on the competitiveness of regions, as measured by total factor productivity (TFP) growth. Based on a study across 40 regions in the Netherlands over the period 1988–2002, we find that firm entry is related to productivity growth in services, but not in manufacturing. The positive impact found in services does not necessarily imply that new firms are more efficient than incumbent firms; high degrees of creative destruction may also improve the efficiency of incumbent firms. We also find that the impact of firm dynamics on regional productivity in services is higher in regions exhibiting diverse but related economic activities.     

Explaining employment changes in foreign manufacturing investment in the UK

This article tests the view that the impact which foreign direct investment (FDI) has upon employment within the host economy will vary according to the entry mode which the multinational enterprise (MNE) chooses, the type of subsidiary and the nationality of the parent organisation which is established in the regional economy. Data were collected from the subsidiaries of foreign-owned firms in the UK. A model was devised and tested with estimations using this data. The results provide support for the view that the impact of FDI may be differentiated by entry mode, nationality and subsidiary type. Specifically, firms which entered by way of greenfield investment created positive employment effects as compared to those which entered by means of a merger or acquisition where the effects were relatively negative. There is some evidence that impact is also ownership specific. Finally, those subsidiaries which performed more value-added functions had a positive effect on employment.     

Domestic transport infrastructure and firms’ export market participation

Investment in transport infrastructure reduces the cost of distance and enables firms to establish contacts over larger distances. Using data from a panel of Spanish manufacturing firms and geographic information system techniques, this article studies the impact of domestic transport cost reductions on firms’ export market participation, taking into account the role of entry costs and other firm characteristics. We estimate dynamic probability models, controlling for the unobserved heterogeneity of firms and for the simultaneity of firms’ export and location decisions. Our results demonstrate a positive effect of domestic transport infrastructure improvements on small and medium-sized firms’ probability of exporting.     

Born globals,the choice of globalization strategy,and the market's perception of performance

This paper analyzes which characteristics of born global firms determine their choice for international entry mode. Using a logistic regression analysis, we study 124 newly public firms in the United States that undertake 261 international joint ventures or international acquisitions within the first 6 years of their founding. We find that the market responds positively to announcements of international expansions by born global firms, and that larger, more profitable, and more liquid firms have a higher propensity to engage in joint ventures rather than acquisitions. We also find that the market favors firms that announce joint ventures, rewarding them with significantly positive abnormal returns. Furthermore, while we find that cultural similarity affects mode choice, it does not affect the market's reaction to the announcements.