Entry Mode Choice and Entry Mode Performance

How is MNE entry into developed markets perceived within the host country: The case of Amazon’s entry into Australia.

Introduction

International business transactions are associated with varied societal value systems over different national borders. After a business settles for the decision of foreign market entry, the element of the culture of the host country comes into play. Besides this, other aspects such as technology are also considered and the influence that the MNE has on the market performance within the host country. The general outlook of the host country will always influence the decision that the organization makes regarding its mode of entry. The presented topic is worth researching since it provides an insight about how MNEs can utilised their local assets as resources to obtain a competitive advantage in the new international market. Having in mind that the firm is seeking to expand into a new international market for the first time, settling for the most appropriate mode of entry is regarded as the most important factor of consideration in that it is directly linked to the survival and competitiveness of the business within the new destination. The presented research topic is important to policy makers since it outlines the most favorable forms of market entry modes based on the international location.

Summary Table

Citation

Purpose of Study

Research Approach

Key findings

Blomkvist, K., Kappen, P., & Zander, I. (2010). Quo vadis? The entry into new technologies in advanced foreign subsidiaries of the multinational enterprise. Journal of International Business Studies, 41(9), 1525-1549. doi:10.1057/jibs.2010.22

The purpose of the study is to investigate the longitudinal patterns utilized by advanced foreign subsidiaries when entering into technological market which is new to the multinational organization.

Repeated events analysis

The study reveals that more firms are continually entering into new technological international markets resulting in the evolution of technological capabilities of the host countries.

Brouthers, K. (2012). A retrospective on: Institutional, cultural and transaction cost influences on entry mode choice and performance. Journal of International Business Studies, 44(1), 14-22. doi:10.1057/jibs.2012.23

The major purpose of the presented study is to explore the entry mode performance and the benefits associated with the performance of various theoretical models of international entry.

Secondary research methodology

The establishment of prescriptive tools for managers is important since it enhanced the entry mode decisions of firms, resulting in a better performance in the new destination.

Buckley, P., & Casson, M. (2010). The Multinational Enterprise Revisited (1st ed.). London: Palgrave Macmillan.

The authors of the presented book seek to outline the major aspects related with the future of MNEs.

Secondary research methodology exploring the works of authors published within the past 30 years.

The study reveals that a firm which seeks to expand internationally has an increased potential of success in comparison to those which opt to venture in local markets.

Demirbag, M., McGuinness, M., & Altay, H. (2010). Perceptions of Institutional Environment and Entry Mode. Management International Review, 50(2), 207-240. doi:10.1007/s11575-010-0028-1

The main aim of the article is to outline the data obtained from Turkish organizations which have expanded into Central Asian Republics. The researchers achieve the presented functionality by Investigating the perceptions of the executives when it comes to entry mode decisions.

The findings of the study show that a greater ethical-societal uncertainty drives most organizations to opt for the establishment of joint ventures before entering the international markets over wholly owned subsidiary.

Hennart, J. (2009). Down with MNE-centric theories! Market entry and expansion as the bundling of MNE and local assets. Journal of International Business Studies, 40(9), 1432-1454. doi:10.1057/jibs.2009.42

The presented analysis explores the transactional features related with local assets and the choice of international market entry as the major factor, which prompts equity between the firm’s owners.

Observation

The study reveals that the market where the local assets of the MNE is traded is important in establishing its relative efficiency and their choice of market entry.

Johanson, J., & Vahlne, J. (1977). The Internationalization Process of the Firm—A Model of Knowledge Development and Increasing Foreign Market Commitments. Journal of International Business Studies, 8(1), 23-32. doi:10.1057/palgrave.jibs.8490676

The authors seek to establish how MNEs can enhance their commitments in the international market through integration, gradual acquisition and the use of knowledge about the potential market destination.

Empirical research method

The article establishes that having extensive knowledge and information about a potential market destination enhances the level of commitment of the MNE in the new market.

Zeng, J., & Glaister, K. (2015). Competitive Dynamics between Multinational Enterprises and Local Internet Platform Companies in the Virtual Market in China. British Journal of Management, 27(3), 479-496. doi:10.1111/1467-8551

The study explores the relative performance of foreign internet firms, which operates within the boundaries of China.

Structured interviews

The study establishes that internet platform companies have unique features, which they employ to survive the competitive nature of the industry in China. Flexibility and experimentation are identified as the factors, which contributes to the competitive advantage of firms. Additionally, the study also points out that the active agency of an organization through diversified institutional players which is vital for establishing a competitive advantage in the new international market.

Zekos, G. (2003). MNEs, globalisation and digital economy: legal and economic aspects. Managerial Law, 45(1/2), 1-296. doi:10.1108/03090550310770875

The study conducts an economic analysis on the function of MNEs regarding digital economy and globalisation while exploring the legal aspects about the e-commerce, cyberspace, and MNEs and their influence in the digital economy.

Observation

The findings of the study provide an indication that the world is moving towards a global digital economy whereby different destination will rely on others to establish a networked society.

Rathert, N. (2016). Strategies of legitimation: MNEs and the adoption of CSR in response to host-country institutions. Journal of International Business Studies, 47(7), 858-879. doi:10.1057/jibs.2016.19

The main aim of the presented study is to examine the effect that host countries institutions have on how the corporate social responsibility is adopted by various multinational enterprises.

Observation

The finding of the presented study shows that MNEs strategically adopt corporate social responsibility policies which are associated to their existence and dominance in various institutional contexts.

Parboteeah, P., & Cullen, J. (2017). International business: Perspectives from developed and emerging markets (2nd ed.). New York: Routledge.

The main aim of the presented study is to outline a balanced perspective about businesses existing within an international environment. Additionally, the authors also seek to explore the implications associated with multiple firms available in emerging and developed destinations.

Secondary research methodology

The findings of the presented study indicate that various strategies such as global competition will always vary based on the nature of the international market that a firm seeks to expand into. Apparently, each destination has a unique business strategy, which determines the success of the firm in the new international market.

Papanastassiou, M. (1997). Firm-Strategies and the Research-Intensity of US MNEs’ Overseas Operations: An Analysis of Host-Country Determinants. Global Competition and Technology, 153-179. doi:10.1007/978-1-349-25856-7_7

The presented study focuses on analysing the factors determining the intensity of research and development of US subsidiaries available in different host countries. The major aim of the presented objective is to investigate the existing relationship between the strategic role played by the operations of the presented subsidiaries as well as the need to rely on the existing technological support.

Empirical research

The findings of the study acknowledge the fact that research and development efforts come in handy in promoting the process of internalization. Apparently, R&D support the marketing activities of firms which seek to expand in international market by offering the right support required for successful international operations.

Dunning, J. (2001). The Eclectic (OLI) Paradigm of International Production: Past, Present and Future. International Journal of The Economics of Business, 8(2), 173-190. doi:10.1080/13571510110051441

The main aim of the presented article is to provide a description of the origins of the eclectic framework to the present day since the 1950s. Additionally, the article also seeks to promote an understanding of the subsequent evolution that the paradigm went through since the mid-1950s.

Observation

The findings of the study show that eclectic paradigm has managed to retain its power over the years, making it a robust framework, which examines specific theories such as the foreign direct investment as well as production in the international market.

Dikova, D., & van Witteloostuijn, A. (2007). Foreign direct investment mode choice: entry and establishment modes in transition economies. Journal of International Business Studies, 38(6), 1013-1033. doi: 10.1057/palgrave.jibs.8400297

The main aim of the study is to link two literatures on foreign direct investment. The studies are on the mode of choice of international market entry and the choice of entry mode.

Empirical investigation

The findings of the study show that the rate of the host country institutional advancement regulates the noted effect of the international strategy and the technological intensity on establishing the right choice when it comes to determining the mode of market entry.

Schu, M., Morschett, D., & Swoboda, B. (2016). Internationalization Speed of Online Retailers: A Resource-Based Perspective on the Influence Factors. Management International Review, 56(5), 733-757. doi:10.1007/s11575-016-0279-6

The presented study seeks to establish and analyse the various factors influencing the speed of the process of internalization and the effect on the rate at which firms expand into an international market.

Empirical research study

The findings of the study show that the potential destination that a firm opts to expand into as well as its diversity and scope will have a significant impact on the next step of internationalization that a firm seeks to employ.

Discussion

The development of Literature

The research on the entry mode of MNEs and how it is perceived in the host country has developed over the years. The presented factor is evident as researchers are continually expanding their research on the entry mode decisions which is important for organizations which seeks to expand their operations to new destinations (Blomkvist, Kappen & Zander, 2010). Despite the fact that organizations lack clear tools which may guide them in making informed decisions about the right mode of international market entry, the management can rely on other factors which ensures that they only make informed decisions about the appropriate modes which may benefit the firms (Parboteeah & Cullen, 2017). Normative merit related with a proposed theoretical model is an example of a factor that managers can consider to establish prescriptive models which guides their informed decisions about the appropriate model of international market entry (Brouthers, 2012). Research suggests that the potential destination that a firm opts to expand into as well as its diversity and scope will have a significant impact on the next step of internationalization that a firm seeks to employ (Brouthers, 2012).

Demirbag, McGuinness and Altay (2010) shows that the managers of firms seeking to expand internationally can now rely on an integrated risk management framework which would guide them when it comes to making an informed decision about the perceptions of the environmental uncertainty when it comes to making decisions about the most effective mode of international market entry (Brouthers, 2012). The presented factor stems from the notion that economic dynamics of an organization is likely to improve when it expands its operations on an international spectrum to benefit from a globalized world economy. Joint ventures have been established as one of the most effective forms of international market entry in comparison to the establishment of wholly owned subsidiary (Demirbag, McGuinness & Altay, 2010). The presented factor suggests that firms are more aware of the best form of market entry to consider when entering destinations such as the Central Asian Republics despite the fact that there are no tools which are directly associated with the task of monitoring the benefits related to the use of other tools. The mode of entry that firms choose will always be perceived by the host country as a factor, which drives the firm’s competitiveness in the new market.

The development of internet and internet technology has enhanced the rate at which organizations are entering new markets. However, it is clear that the presented framework has prompted organizations to establish a new platform, which it is continually relying on entry new markets such as in the case of Amazon’s entry into the Australian market. The e-commerce strategy of market entry has worked in favor of the presented organization by enhancing the process at which the organization ventures in the presented destination. Within the Australian market, it is true that the mode of market entry that the firm settles for will always determine the ability of the organization to administer its intended services. Globalization provides an indication that firms have a great opportunity, which drives them to perform their business within a foreign market (Buckley & Casson, 2010). Various studies show that eclectic paradigm has managed to retain its power over the years, making it a robust framework, which examines specific theories such as the foreign direct investment as well as production in the international market (Buckley & Casson, 2010).

Despite the fact that theories of international market entry can be applied within the concept of international service firms, there is need for the presented factor to be carried out with great caution. The presented fact stems from the notion that the service features that the firms offer in the international market are distinctive in nature (Hennart, 2009). Additionally, under the presented globalization trend, the development of the intranet and the internet technology has enhanced the operations efficiency of firms while intensifying competition such as in Amazon’s case where the internet has enabled its entry into the Australian market (Schu, Morschett & Swoboda, 2016). The presented factor indicates that the e-commerce strategy adopted by the firm has enhanced its ability to expand its business scope as well as the tension of the competition while forcing the firm to go beyond its traditional businesses (Demirbag, McGuinness and Altay, 2010).

The entry mode strategies employed by businesses to enter the international market destinations are highly important in increasing the service operability of the business in various ways (Papanastassiou, 1997). For instance, Amazon has established a desirable way of overcoming the existing environmental barriers, which are likely to affect the firm’s ability to expand internationally (Zekos, 2003). Through the internet, Amazon has still managed to obtain a positive perception in Australia, based on its e-commerce features. The presented characteristics has allowed the business to engage in a process of communicating and interacting with the consumers even in a dispersed market at varied stages of buying (Johanson & Vahlne, 1977). The competitiveness of the organization in the presented potential destination is enhanced based on the fact that the mode of international market entry has significantly contributed towards bringing the experiences of the consumers together despite their location. Additionally, the entry mode has also enhanced the ability of the firm to exchange service and production details while communicating with customers in different environments despite their different buying stages.

The ecommerce strategy is also regarded as an effective strategy of market entry, which allows service firms to extend their operability to different foreign organizations (Zeng & Glaister, 2015). Based on the service characteristics that an organization is directly involved with the EC strategy of entry is regarded as the most desirable one for consideration for most firms. The EC mode of international market entry embraced by Amazon to enter the international market has played a significant role in bring the experiences of the customer together (Dunning, 2001). Apparently, the strategy enables the customers to understand the type of products offered by the company to the Australian market. Additionally, the strategy also aims in promoting the quality of its products to the consumers as well as effectively coordinates its marketing functions. The presented aspect stems from the notion that the firm has the capability of marketing its brand over the online platform thanks to the mode of entry that the organization settled for to enter the international market.

Through the exploration of the EC as a strategy, which can be effectively adopted by international firms, it is clear that the chosen strategy for international market entry determines the success of the organization in the industry. The selection of the right mode of international market entry is important for an organization since it provides a description of the success rate of the firm in the international environment based on the advantages, which the business can explore in the presented case. The use of EC strategy of international market entry is considered as an effective mode of entry for service firms such as Amazon as a result of various factors. For instance, the presented strategy is considered as effective since it enables the firm to enjoy the distinctive features, which comes along with the chosen mode of entry such as the concept of timeliness and the ability to engage in a virtual form of communication.

The mode of entry is an important factor of consideration for any organization, which seeks to expand on an international spectrum. However, the mode of choice of international market entry should be considered in that they directly influence the rate at which the host country will perceive the firm especially when it comes to the ability of the organization to remain competitive in the industry (Rathert, 2016). Looking in the case of Amazon in Amazon’s entry into the Australian market, it is clear that the choice of entry is directly related with the general performance of the organization in the new market.

The service characteristics of an organization will always provide an indication whether the chosen EC strategy will serve the mission and purpose of the organization on the international market. Apparently, the culture of the host country is an important consideration in this case since the strategy will imply if the firm will easily adopt to the noticeable differences for it to be successful and effective in the industry (Dikova & van Witteloostuijn, 2007). Apparently, the manner in which the services of an organization are marketed will always provide a reflection of the nature of the values of the society.

Research gaps

Lack of appropriate tools with a capability of measuring the effectiveness of the different modes of market entry is one of the research gaps evident under the presented topic. Despite the fact that organizations have established similar techniques which guides them in making informed decisions about international market entry modes, it is evident that a gap still exists on the appropriate tools which can be considered by firms to gauge the direct economic impact of various modes of international market entry. Additionally, it is also clear that the existing research has failed to explore the existing relationship between service intangibility, cultural aspects, and the e-commerce entry strategy.

Proposed future research

There is need to explore and identify the most effective tools which can be used in gauging the effective modes of market entry. In addition, there is need to explore the existing relationship between service intangibility, e-commerce entry strategy and cultural aspects from the perspective of the service recipients and providers. Having knowledge of the presented factors would play a vital role in eliminating the problems noted in research as well as the existing gaps to ensure that the members of the firms seeking to expand internationally can make informed decisions on the presented issue for a successful performance.

References

Blomkvist, K., Kappen, P., & Zander, I. (2010). Quo vadis? The entry into new technologies in advanced foreign subsidiaries of the multinational enterprise. Journal of International Business Studies, 41(9), 1525-1549. doi:10.1057/jibs.2010.22

Brouthers, K. (2012). A retrospective on: Institutional, cultural and transaction cost influences on entry mode choice and performance. Journal of International Business Studies, 44(1), 14-22. doi:10.1057/jibs.2012.23

Buckley, P., & Casson, M. (2010). The Multinational Enterprise Revisited (1st ed.). London: Palgrave Macmillan.

Demirbag, M., McGuinness, M., & Altay, H. (2010). Perceptions of Institutional Environment and Entry Mode. Management International Review, 50(2), 207-240. doi:10.1007/s11575-010-0028-1

Dikova, D., & van Witteloostuijn, A. (2007). Foreign direct investment mode choice: entry and establishment modes in transition economies. Journal of International Business Studies, 38(6), 1013-1033. doi: 10.1057/palgrave.jibs.8400297

Dunning, J. (2001). The Eclectic (OLI) Paradigm of International Production: Past, Present and Future. International Journal of The Economics of Business, 8(2), 173-190. doi:10.1080/13571510110051441

Hennart, J. (2009). Down with MNE-centric theories! Market entry and expansion as the bundling of MNE and local assets. Journal of International Business Studies, 40(9), 1432-1454. doi:10.1057/jibs.2009.42

Johanson, J., & Vahlne, J. (1977). The Internationalization Process of the Firm—A Model of Knowledge Development and Increasing Foreign Market Commitments. Journal of International Business Studies, 8(1), 23-32. doi: 10.1057/palgrave.jibs.8490676

Papanastassiou, M. (1997). Firm-Strategies and the Research-Intensity of US MNEs’ Overseas Operations: An Analysis of Host-Country Determinants. Global Competition and Technology, 153-179. doi:10.1007/978-1-349-25856-7_7

Parboteeah, P., & Cullen, J. (2017). International business: Perspectives from developed and emerging markets (2nd ed.). New York: Routledge.

Rathert, N. (2016). Strategies of legitimation: MNEs and the adoption of CSR in response to host-country institutions. Journal of International Business Studies, 47(7), 858-879. doi:10.1057/jibs.2016.19

Schu, M., Morschett, D., & Swoboda, B. (2016). Internationalization Speed of Online Retailers: A Resource-Based Perspective on the Influence Factors. Management International Review, 56(5), 733-757. doi:10.1007/s11575-016-0279-6

Zekos, G. (2003). MNEs, globalisation and digital economy: legal and economic aspects. Managerial Law, 45(1/2), 1-296. doi:10.1108/03090550310770875

Zeng, J., & Glaister, K. (2015). Competitive Dynamics between Multinational Enterprises and Local Internet Platform Companies in the Virtual Market in China. British Journal of Management, 27(3), 479-496. doi:10.1111/1467-8551