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Development and Testing of a Resource-Based Theory of International Entry Mode Choice

Description: A firm can deploy a variety of arrangements (entry modes) like wholly owned subsidiaries, joint ventures, contracts, and export modes to implement its product market strategies in foreign countries. Each of these arrangements entails decisions about the location of production facilities and/or marketing operations, and the type of ownership of these operations. The choice of an entry mode is of strategic importance to a firm because it can involve investment of substantial amount of resources and has a strong bearing on the firm's marketing mix. Due to its strategic importance, the entry mode choice phenomenon has been extensively researched. In the past, seven major theories have been proposed but none is able to explain the choice from the complete set of entry modes. Thus, there exists a gap between the theory and practice of entry mode choice. This study provides breakthrough on two fronts. First, it develops a new theory of entry mode choice grounded in the resource-based perspective of the firm. The theory posits that the decision to locate its production and/or marketing operations in a country is related to the actualizability of the firm's competitive advantage in that country. However, the ownership decision is related to the sustainability of that advantage. Second, based on this theory, a model is developed which explains entry mode choices from the complete set of entry modes. Mail survey responses of Presidents/CEOs of 163 American firms with international operations support the model. The proposed framework is an effort to fill the gap between theory and practice of entry mode choice. It is expected to make a substantial contribution toward developing a sound theory of international operations of the firm. The framework is broader in scope than the extant theories because it transcends across industries and nationalities of firms.
Date: August 1995
Creator: Sharma, Varinder M. (Varinder Mohan)
Partner: UNT Libraries