Business’s choice of entry modes in international market and its advantages and disadvantages
Well known companies like Nike, Microsoft, Sony, Shell Group are just some of the big companies that went global and expanded their trading around the world, they are large businesses that operate internationally in many countries. Development of worldwide integration urges companies to reach out international markets and interact with foreign customers. Businesses focus on fulfilling the demand of the market by its products or services, besides their target is increasing profit, in order achieve these goals they favor to expand their work in a foreign market. Other ...view middle of the document...
How these modes were established and by whom will be defined in the following part.
In 1977 Swedish researchers at Uppsala University came up with a model/theory how businesses should grow their activities in foreign market, this model explains that companies should select an entry mode by taking into consideration their own resources and exploring costs, and risks based on market nature. (Johanson and Vahnle, 2009) Researchers at Uppsala University in their empirical study found that Swedish firms mostly started their process of internationalization by exporting, initially companies had agents that represented them in foreign market, but these firms exported in countries that had little differentiation in culture, language and political systems from their home country, this was labeled in their model as physically close countries. Uppsala Model considers two types of knowledge objective and experience based knowledge, the model describes that after first entrance in foreign market businesses understands how to work in external country, and later they step by step increase level of internationalization to physically distant countries. (Johanson and Vahnle, 2009) But, can Uppsala model be applied to services? This model was mainly reliable for manufacturing industries; a paper with contrary arguments was published in 2008, providing two variables; environment-related and service specific, to question whether Uppsala model can be used for service firms. (Jorge Carneiro, da Rocha and da Silva, 2008) Psychic distance and uncertainty in environment, need for quality, face-to-face contact with clients in service delivery, capital intensity are some of the arguments that contradicts Uppsala Model. The results from this study stated that services mainly would choose a mode to internationalize that has higher control like licensing. (Jorge Carneiro, da Rocha and da Silva, 2008) However this analysis is limited because it is sourced on previous studies and not on evidence based on real research.
Franchising as a method to internationalize their businesses was generally used by business service companies in 1990s, to determine the issue of franchising as mode of entry in foreign market, in those years an analysis was outlined with purpose to find out what are the factors that push professional business services to franchise in process of internationalization. (Alon and McKee, 1999) The sample of the research was 71 US firms with combination of 7 years (1990-1997), they found out that franchising was the best choice to internationalize because there were several barriers for the service firm to choose other mode of entry, like; professional licensing issues, transfer of the technology in other country and it required high level of human capital in the production in service firms. (Alon and McKee, 1999)
Strategic Alliances is another mode of entry in international market which is defined in Das and Teng (2000) journal called “A resource-based theory of...