The influence of CEO overconfidence on ownership choice in foreign market entry decisions

Prior research on foreign-market entry determinants offers various firm-, industry-, and market-level explanations. Yet, few studies consider the subjective psychological attributes of the executives making actual decisions. Based on behavioral decision theory and the psychology literature, this study provides the first empirical evidence of the influence of managerial overconfidence on ownership decisions into foreign markets. The results show that CEOs’ tendency toward overconfidence increases the propensity for full over shared ownership, where their positive relationship is more pronounced when firms are exposed to greater information asymmetry or environmental uncertainty, in terms of greater home-host cultural and institutional distances, higher host-country risks, and inexperience in the local market. A powerful board weakens this positive relationship, but does not diminish the effect completely. The results hold with overconfidence measures based on both CEOs’ actual actions and public opinions. Our findings complement extant entry-mode decision literature by highlighting the imperative to incorporate firm leaders’ psychological biases.     

Retailers’ foreign market entry decisions: An institutional perspective

Institutional theory emphasizes the relationship between organizations and the environment. Institutions consist of political, cognitive and sociological elements that form the external and internal environment of a firm. Both external and internal environments affect firm decisions and behaviors. This paper introduces institutional theory as a complementary framework to explain international retailers’ foreign market entry choices and suggests propositions for further research. We also consider managerial implications in relation to this theoretical perspective as an explanation for retailers’ internationalization.     

SME foreign market entry mode choice and foreign venture performance: The moderating effect of international experience and product adaptation

Firms’ foreign market entry mode choice attracts considerable research attention. However, the performance implications of this choice remain inconclusive, particularly in the context of small and medium-sized enterprises (SMEs). The present paper draws on the resource-based view (RBV) and develops a theoretical model specifically tailored to the context of SMEs in order to study the relationship between entry mode choice and foreign venture performance. Testing hypotheses on 133 German SMEs, we show that international experience as a resource and product adaptation as a capability improve the performance of non-equity entry modes by mitigating liabilities of smallness inherent to SMEs. We furthermore find empirical support for the joint moderating effect of international experience and product adaptation on the focal relation. Our findings contribute to the SME foreign market entry mode literature and have implications for practitioners and future research.     

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.     

Social capital dynamics and foreign market entry

This paper explores the dynamics of social capital in 121 new foreign market entries (FMEs) of 24 Swedish and New Zealand small- to medium-sized enterprises in the early and later phases of their internationalization. Its main contribution is the systematic assessment of the roles and forms of social capital over time and across countries, thus providing greater insight into the social capital concept. We separate social capital into efficacy and serendipity roles (economic dimension) and direct and indirect relationships (structural dimension). Efficacious and direct social capital is associated with early FMEs, while serendipitous and indirect social capital is more prevalent with later FMEs, indicating that social capital changes with (and is dependent on) FME. Moreover, while geographical proximity does not appear to affect the economic dimension of social capital, it is important for the structural dimension.     

Foreign market entry mode choice of small and medium-sized enterprises: A systematic review and future research agenda

Despite significant differences between small and medium-sized enterprises (SMEs) and large multinational enterprises (MNEs), the majority of extant foreign market entry mode choice literature has focused on MNEs. The current state of knowledge regarding SME foreign market entry mode choice is equivocal. The present paper reviews the current state of SME foreign market entry mode choice literature and maps future research directions. To this end, we systematically analyze 33 relevant journal articles for their theoretical frameworks and contextual dimensions. Based on this review, we identify gaps in the literature and develop an agenda to guide future scholarship in this important domain of research in taking SME-specific characteristics into consideration.     

Theoretical foundations of equity based foreign market entry decisions: A review of the literature and recommendations for future research

This paper reviews the theoretical foundations of the equity based foreign market entry (FME) decisions literature. We analyse 1055 academic FME papers published over four decades (1970–2013). We identify and analyse the theories that informed and guided FME research over time. Our review indicates that scholars have recently started to challenge some of the core assumptions of established theories, draw on and integrate insights from multiple theoretical perspectives which, in turn, generated a multiplicity of approaches for studying FME decisions and their performance outcomes. The paper discusses the explanatory power of the different theories, assesses the relevance of the different theoretical perspectives to our understanding of current FME phenomena and recommends directions for further research.     

Mode of entry mode into a foreign market: the case of U.S. mutual funds in Canada

U.S. mutual fund companies offer funds in Canada through two channels: foreign direct investment or trade in advisement services. The total value of U.S.-controlled funds amounts to 18% of the Canadian equity fund market. This paper investigates how the fund-level and firm-level characteristics affect the channel used to enter the Canadian market. Empirical results indicate that the funds offered through FDI are not especially successful in the U.S. market but are associated with dominant companies, whereas the funds offered through trade in advisement services are highly successful in the U.S. market and are from companies with relatively few successful funds.     

FDI entry mode choice of Chinese firms: A strategic behavior perspective

This study investigates the determinants of foreign direct investment (FDI) entry mode choice between a wholly owned subsidiary and a joint venture by Chinese firms that invest overseas. We argue that the FDI entry mode choice of a Chinese firm is primarily influenced by the variables related to the firm's strategic fit in host industry and its strategic intent of conducting FDI. Using survey data of a sample of 138 Chinese firms, the results suggest that a Chinese firm prefers wholly owned subsidiary entry mode when it adopts a global strategy, faces severe host industry competition, and emphasizes assets seeking purposes in its FDI. A joint venture is preferred when the firm is investing in a high growth host market.     

Strategic group influence on entry mode choices in foreign markets

This study examines imitation behavior in the foreign entry mode of the members of a strategic group within the industry. Following the institutionalist perspective, we argue that legitimating actors (trade associations, training institutions and investors, among others) can exert pressure on strategic group members to conform to institutionalized organizational practices and structures. We hypothesize that a company’s choice of foreign entry mode is determined by the previous choices of other companies within the strategic reference group. Thus, the probability of entry with a wholly owned subsidiary (versus shared-control entry) increases when the number of wholly-owned subsidiaries established by companies within the strategic reference group of the home-country is higher. We analyze 351 foreign direct investments of 30 Spanish banks in 55 countries between 1986 and 2008. Our results reveal imitation behavior between members of the strategic group and highlight the important role of the strategic group in strategic thinking.     

Factors influencing the foreign entry mode of Asian and Latin-American banks

The majority of past studies on the foreign market mode of entry have focused on manufacturing industries. Although some studies have explored the entry mode decisions of the banking industry, most of them have adopted the case study method, and systematic studies have been relatively few. This study intends to fill this gap through an investigation of 7041 Asian and Latin-American bank branches covering the period from 1999 to 2005. The analytical results demonstrate that both Asian and Latin-American banks are market seekers. However, Latin-American banks are not customer followers. In addition, the larger the scale of the bank or the greater the net interest margin the more likely it is that high-control entry modes will be adopted. In contrast, in countries in Asia with a greater cultural distance, banks tend to establish low-control entry modes to avoid uncertainty. However, this does not apply in the case of Latin America.     

Social capital in relation to the foreign market entry and post-entry operations of family SMEs

Scholars in the discipline of international entrepreneurship have mainly studied rapidly internationalizing firms. However, the majority of entrepreneurial firms are family-owned businesses (85% of all firms in the EU and the USA). Research on family business has focused on the importance of bonding social capital whereas, despite its importance, bridging social capital has not so far attracted much attention. It has been argued that bridging social capital plays an important role in firms’ internationalization processes. The purpose of this article is to examine the role of bridging social capital in the initial entry and post-entry operations of eight family SMEs with regard to the French market. We found that in foreign market entry social capital generally had a serendipity role, based on weak and intermediary relationships. In the post-entry situation, the role of strong and formal ties emerged strongly, and social capital most commonly took on efficacy or liability roles. Thus, it seems that the social capital of family entrepreneurs is limited to their strong bonding social capital, and perhaps to their strong national social capital. However, when such firms start to internationalize, they have to find new networks to gain the bridging social capital that will enable foreign operations. It seems that having a limited number of international ties drives family SMEs to search for relevant contacts at international trade exhibitions and trade fairs.     

Diversification and market entry choices in the context of foreign direct investment

Multinational enterprises (MNEs) consider many factors when making decisions in the context of foreign direct investment (FDI). The MNE must decide whether to diversify or to concentrate on its main line of business (LOB). It must also decide whether to enter into a foreign market through a greenfield or acquisition strategy. This paper analyzes both decisions. The international business literature has generally treated these strategic choices as independent. This paper introduces a more realistic selection model, in which the diversification choice and the entry mode choice are made sequentially, and are therefore related. The model is tested using a data set of FDI into the United Kingdom by MNEs in engineering and related industries. The analysis indicates a strong relationship between the diversification choice and the entry mode decision. In virtually all cases, the statistical significance of the selection model is higher than that of the independent model, indicating an improvement over previous research. Overall, the results indicate that the decisions on product diversification and foreign mode of entry are related. Diversified firms are more likely to enter through acquisition. Firms focusing on their main LOB are more likely to enter through greenfield entry. The paper also identifies a number of managerially relevant factors affecting these relationships.     

Motives,choice of entry mode,and challenges of bank internationalization: Evidence from China

This study examines the motives, entry mode choice, and challenges of the international expansion in an emerging country context. Data were collected via interviews from 30 senior managers based on a sample of 10 Chinese commercial banks (CCBs) involved in international expansion over the period of 2001–2013. This study finds greenfield and mergers and acquisitions are the most popular foreign entry mode used by CCBs. The motives of emerging market banks’ internationalization appear to be intrinsically linked to market development to serve customers operating in overseas market, government policies, and strategic knowledge sourcing. In terms of challenges, the study finds lack of management resources/technical capacity, culture, adapting to the host country regulatory environment, and lack of experience to be the main challenges to bank internationalization.     

Service characteristics as moderators of the entry mode choice: empirical evidence in the hotel industry

Although a considerable amount of research has explored the entry mode choice, results regarding the direct influence of some variables on the entry mode choice evince a lack of a clear consistency. By introducing the moderator effect of the nature of the services being provided by the firm, we explain some of these inconclusive results. We use a comprehensive database on the Spanish hotel industry which covers nearly all the operations carried out by the majority of Spanish hotel chains up to 2011. We found that both intangibility and complexity of the services offered by the hotel moderate the relationship between environmental uncertainties and entry mode choice by increasing the propensity to use greater commitment entry modes when faced with conditions of country risk and cultural uncertainty.     

A transaction cost perspective on foreign market entry strategies of US and Japanese firms

A large scale survey of top US and Japanese executives is conducted in order to assess the power of transaction cost economics (TCE) in explaining a firm's choice of entry mode (e.g., joint venture vs. full ownership) when it enters a foreign market. Results suggest that several TCE tenets are useful in explaining US firms' choice of entry mode. However, TCE predictions were not supported by the entry mode choices of Japanese firms. Implications of these findings for researchers and managers are discussed. © 1998 John Wiley & Sons, Inc.     

Foreign market entry mode in the hotel industry: The impact of country- and firm-specific factors

One of the key decisions in the internationalisation process of hotel firms is the choice of the entry mode into a foreign country. Many different factors influence this strategic decision. From a sample of 127 entries carried out by Spanish hotel firms between 2001 and 2003, this study provides new empirical evidence that cultural distance reduces the likelihood of choosing equity entry modes, while firm profitability and internal financial funds availability favour the assumption of greater commitment in the international expansion process.     

The influences of governance quality on equity-based entry mode choice: The strengthening role of family control

This study examines the possible heterogeneity of governance quality's influence on entry mode decisions made by firms with different degrees of family control. When entering a country with low governance quality, ceding control of the subsidiary in exchange for local partners’ help enables foreign firms to tackle institutional flaws. However, such a motivation diminishes as governance quality increases. This study thus hypothesizes that firms tend to choose WOSs over JVs when entering a host country with high governance quality.Firms controlled by family members, due to concerns regarding the preservation of socioemotional wealth, prefer to maintain high ownership levels of their affiliates. This study thus hypothesizes that firms with a higher degree of family control are even more likely to choose WOSs when entering a country with high governance quality. The results support the hypotheses.