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Understand And Critically Evaluating Entry Modes Of Businesses In International Market

1209 words - 5 pages

Introduction

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, their focus is also increasing profit, and to achieve these goals they favor to expand their work in a foreign market. Other reasons to internationalize their business may be to become stronger than the other competitors and also to lower their ...view middle of the document...

(http://www.palgrave-journals.com/jibs/journal/v40/n9/pdf/jibs200924a.pdf). In their empirical study Jan Johanson1 and Jan-Erik Vahlne2 found that Swedish firms mostly started their process of internationalization by exporting, companies had agents that represented them in foreign market, but companies exported in countries that had little differentiation in culture, language and political systems from their home country, this was labeled as physically close countries. Uppsala Model considers two types of knowledge objective and experience based knowledge. (UPPSALA MODEL) After first entrance firms understands how to work in foreign country, and later they step by step increase level of internationalization to physically distant countries.

Can Uppsala model be applied to services? This model was mainly reliable for manufacturing industries; a paper with contrary arguments was published by BRAZIL providing two variables; environment-related and service specific, to question whether Uppsala model can be used for service firms. 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. (BRAZIL)
Mainly services would choose a mode to internationalize that has higher control like licensing.

In 1990s in USA the business service companies used franchising as a method to internationalize their businesses, in 1999 Ilan Alon and David L. McKee conducted a research to determine the issue of franchising as mode of entry in foreign market. (http://www.emeraldinsight.com/journals.htm?articleid=856314 ). Their purpose to conduct a study was to find out what are the factors that push professional business services to franchise in process of internationalization. 71 US firms was the sample of their research with combination of 7 years (1990-1997). This research found out that there are 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 requires high level of human capital in the production in service firms.

Strategic Alliances is another mode of entry in international market which is defined in
Das and Teng paper “A resource-based theory of Strategic Alliances”. In this article the four dominant divisions of alliances are explained; equity joint ventures, minority equity alliances, bilateral contract-based alliances and unilateral contract-based alliances. (DAS AND TENG). Equity joint venture are essentially created to unify joint effort of partners, while in minority equity alliances an equity area in others is taken by one or more partners. This report point out that unilateral contract based alliances should be between partners when they both plan to contribute property-based resources to proposed alliance, whereas bilateral contract based alliances should be agreed when both...

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