Significant factors for choice of entry mode in a foreign country essay

Related Articles Executive Summaries. Childers, and Robert W. Ruekert, on their U.

Significant factors for choice of entry mode in a foreign country essay

Get Full Essay Get access to this section to get all help you need with your essay and educational issues. Growth is usually equated to the infiltration of these escalating companies to the international business scene Estrin and Meyer A firm, first and foremost, needs to determine the partner country in which it will consolidates itself into.

Next to this is the critical decision of choosing the appropriate entry mode to be used in the foreign country Yip This study postulated two hypotheses related to the entry mode choice of foreign investing firms in the United States of America.

From this article, the points that are still applicable to the modern international market will be emphasized, and the obsolete theories will be enumerated and their corresponding alternative theories will be specified at the same time.

It is also the objective of this paper to include recent studies addressing the topic of entry mode used by countries in the 21st century, in consideration with the present state of the international market. The Concepts The work of Kogut and Singh presented in their paper may have been one of the proponents of how entry mode is influenced by various factors.

What may have been true for the market in that decade may not be that applicable in the current international scene since the business world is constantly changing. Differences between market situations in a single industry in a country may be markedly changed in a span of as little as five years.

With just five years, the face of their local markets had been dramatically changed by the presence of increasing number of foreign investors Thi and Vencappa From the cited article, there were two hypotheses from the two ends of the spectrum; one postulated that entry mode is influenced by the differences in the cultural aspect of the foreign and the host country and the other suggested that it is the attitude of the foreign investor towards uncertainty avoidance which determines the entry mode.

Significant factors for choice of entry mode in a foreign country essay

From this two working theories, Kogut then presented various studies which supported their claims. Before these studies are enumerated and discussed, it is important to define commonly used terms for this topic.

First, the differences between acquisition, greenfield and joint venture. The first two were cited as the choices for a firm on how to enter a foreign country for business purposes, while joint venture may pertain to the degree by which a firm may own or control a company.

These terms which are used to describe entry mode have two parameters to describe: Acquisition is when a company procure stocks enough for the investor to take control. They then use the local resources, facilities, sales force and the like of their local counterpart while taking over the managerial side.

In this set-up, the investing firm may possess a business that does not necessarily fit the system and structure of the original firm. Acquisition implies a faster penetration of a foreign investor into the local business scene when compared with the other entry mode Estrin and Meyer Greenfield on the other hand, pertains to the approach of starting a company from the ground up once a foreign market is penetrated.

As another opposite characteristic to acquisition, greenfield can build a company homologous to the original firm. Entrance to the foreign market scene is slower since the new company is to be assembled from the most basic level Ngowi The stock holders then share all of the executive aspect of running the company, as well as the profit that may be obtained.

Another term that was mentioned in the article is psychic distance. This term is related to the theory of cultural difference as the driving force behind the choice of mode of entrance. Psychic distance pertains to the degree of uncertainty of a firm regarding a prospect foreign market.

This uncertainty can be dictated by the difference in the language and the culture of the firm and its target company. Kogut and Singh indicated that when revenues to be generated by the company is taken away from the equation, the significant factors that managers will consider when choosing the mode of entrance into a foreign market will largely depend on the costs and the management of the new firm.

The least possible amount of investment should be used for the chosen entry mode. At the same time, the effective supervision of the local counterpart must be correlated with the entry mode of choice.


Focusing on the influence of cultural difference between the local and the investing country, two analyses were enumerated in the study of Kogut. First, when there is a glaring difference between the cultures of the two companies, the preferred mode of entrance would be greenfield as well as joint venture.

Acquisition will not be favoured since common grounds for running the company may not be met if administrative practices, influenced by cultural disparity are quite different. Second, when the investing firm has a high propensity to avoid uncertainties in their investment, the chance of choosing greenfield and joint venture is greater than choosing acquisition.

Various studies had been cited by the article which supported these analyses. It was stated that the tendency to acquire is influenced by a number of variables. One, when there is a significantly small dissimilarity in the cultural setting of the companies then acquisition would be more likely to be the choice of entry.

Physical barrier may also dictate acquisition mode. Similar to cultural setting, the tendency to acquire is greater when the physical barrier between the two countries is smaller.Which of the following is a venture-specific factor that affects the choice of international entry mode for a company?

ability to protect proprietary technology According to Gupta and Govindarajan, an alliance-based entry strategy is most suitable when ________.

The central theory introduced in this article is developed based on a comprehensive framework of the entry modes choices.

These modes of choices would determine the success factor of the international business strategy, and to choose these choices there are several important factors to be considered.

The truly important is the idea of planning entry strategies. Once management accepts this idea, it will also pointed out the importance of the following factor for the choice of foreign entry modes: Relationships The External and Internal Factors That Influence the Choice of Foreign Entry Modes at Wuhan Iron and Steel Corporation.

Internal factors Influencing Selection of Entry Mode () and agree on that companies get influenced by their competitors experience and existing choice of entry mode. Target / Foreign country market factors (valid) Internal Factors influencing selection of Entry Mode.

tertwined with the set of external and internal factors that determine choice of foreign entry mode at Wuhan Iron and Steel Corporation (WISCO).

and then going more in detail into the external and internal factors influencing the choice of foreign The External and Internal Factors That Influence the Choice of Foreign Entry Modes at. The company’s choice of foreign entry modes in our case study has been primarily influenced by following external factors: Country risk and demand uncertainty Market size and growth Direct and indirect trade barriers Competitive market Laws and regulations Concerning the influence of internal factors, the company’s choice of foreign entry 50%(2).

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