Entry mode as a chain of establishment
Critically analyze a journal article on “Internationalization and Market Entry Mode.
The purpose of this paper is to critically analyze a journal article on “Internationalization and Market Entry Mode: A Review of Theories and Conceptual Framework” so as to elaborate on internationalization and market entry mode asserted in appendix 1. Therefore, in this paper, we aim at discussing various aspects of conceptual frameworks concerning foreign entry mode decision as outlined in appendix 1. This will be elaborated basing our argument on perception portrayed by the author of this research article. Thus, different contributions on entry mode will be elaborated so as to critically understand the importance of studying different perspectives in internationalization and market entry mode. In appendix 1, table 1 involves comparison of different frameworks for studying foreign entry mode. In that connection, this paper will elaborate on theoretical and methodological aspects relating to the mode of entry. These aspects include:
Entry mode as a chain of establishment
The transaction cost approach
The eclectic framework
The organizational capability perspective
This is the first aspect to be considered in appendix 1 based on author’s perspective on the mode of entry. Basically, this aspect has been discussed from wider perspective and school of thought by determining methodology applied by firms to initiate internalization and market entry mode. This process has been initiated through a set of sequences so as to facilitate the operations set so achieve development goals and objectives of the firm. In this phase, there are several stages applied by various firms to initiate entry mode as a chain of the establishment. These stages are very vital to any firm willing to achieve international market entry. These stages include limiting export by ensuring no regular export, performing export services through an agent or export representative, enhancing sales subsidiaries and initiating a long-term production and manufacturing plans. These stages are very important for a firm willing to venture into this kind of market mode. The stages will propel the firm to enter the market via increasing market knowledge. In this entry mode, it I important to understand that increase in market structure will result to increase in market knowledge (Ryan & Deci, 2017). In that connection, the final result will increase in market commitment. The reverse is also true in this case. In this entry, behavior assumption is based in bounded rationality. According to the article, this assumption is based on idea used in decision making process. This is because rationality of firms is limited by the information they apply in the market as well as cognitive limitation of their ideas.
The transaction cost approach
Another aspect of this mode of entry is based on organizational capability perspective. There is a close perfect positive correlation between chains of the establishment as a model of entry with organizational capability perspective. This is because the chain of establishment involves making market entry decisions based on time. This is entry mode is a time-dependent process. Therefore, each entry mode is based on various factors that can be elaborated from a particular entry mode to another so as to incorporated entry framework on chain establishment on independent and moderate factors. However, co-operative mode of entry has not been included in establishment chain as described by Johansson and Vahlne. This is one of the weaknesses of this mode of entry. Firms in this mode of entry need to move sequentially from stage to another. From the deterministic point of view, firms will be denied opportunities to enter the international market if their strategic point regarding the mode of entry is inappropriate in oversee market.
This is another aspect that needs to be elaborated in relation to internationalization and market entry mode. This mode of entry has become effective through the application of vertical integration decision. This mode of decision making strategy in this market entry has become so applicable to firms dealing with service delivery and manufacturing. This mode of entry involves hybrid modes unlike entry mode of a chain of the establishment as formulated by Johansson and Vahlne. Interfirm co-operation and vertical co0ordination make transaction cost approach much applicable in the market as compared to the chain of the establishment. This approach applies several dimension that makes the process relevant to the market (Ryan & Deci, 2017). These dimensions include transaction cost theory, uncertainty in exchange of resources involving sellers and buyers, specific assets and frequency of economic exchange. In that connection, the decision-making process should consider these dimensions so as to enable the decision maker to display opportunistic behavior that would propel cost-effective and efficient governance in this mode of entry.
In addition, this approach applies transaction cost theory to enrich our skills and knowledge in this mode of entry. Thus, minimization process in transaction cost in this entry is based on cost theory modification. In that case, firms are required to use decision criteria such as minimax, maximin, and Bayes decision criteria rather than using cost theory approach. This leads to conclusions in the choice of internalization and mode of market entry. If firms apply for benefits as a decision criterion, then this entry will be selected by these firms other than using transaction cost minimization as decision criteria. To elaborate this approach, firms have applied this modification to initiate the dependent variables in this mode of entry. Lastly, this approach has been applied in a different partnership that can be propelled from low, medium and high modification. In this case, behavior assumption is bounded on rationality and opportunism. Rationality is similar to chain of establishment. Opportunism in this case relates to ability of a firm to take advantage of SWOT analysis in order to fit in this mode of entry.
The eclectic framework
This is another important mode of market entry in internationalization and market mode of entry in overseeing markets. There are a number of factors that are likely to affect the choice selected by firms in order to enter the market using this mode of entry. These factors include ownership advantage, locational benefits and internalization benefits (Richard, 2013). These advantages must be considered by decision-makers so as to enhance operations propelled through this entry. Through ownership advantages, firms are able to initiate their assets towards opening a better entry level in oversee markets. Investment firms are able to increase competitive advantage in the market based on the level of ownership.
Assets in a firm determine the size of the firm that can be compared to the market structure to be entered by such firms. Firms with higher ownership advantage imply that the firm has more assets which will determine the market structure to be entered. Through asset ownership advantage, firms are able to determine their ability to develop differentiated products. On the other hand, locational advantage determines how strategic a county is in the market. Countries that are more strategically located are likely to have more entry in the market structure. Lastly, internalization advantages are based on the nature of interrelationship between local and international market. The choice of entry has a correlation with independent decision process applied by firms to venture a given market entry. In this case, behavior assumptions are similar to transaction approach since they are bounded on rationality and opportunism.
This is the last market mode of entry as per Appendix 1. This perspective is deeply rooted in resource-based theory. This article provides some ideas and propositions that relate to organizational capability framework. In that connection, the resource-based theory is very applicable to firms with the ability to make corporate strategies (Richard, 2013). That is, boundaries of the firms and strategies relating to single business strategy. In this case, managers are able to determine resources that can be applied to achieve competitive advantage in the market. In that case, managers are able to distinguish valuable resources from non-valuable resources.
Moreover, this perspective is also very applicable when assessing intangible resources in the market. The firm is able to determine skills and competencies required for a particular position in the firm. This will increase the accessibility of the firm to enter the market at international markets. This mode of market entry must be applied by firms to balance between development and exploitation. These aspects are very important and are very critical in performing activities in the firm. It is important to determine how dynamic environment facilitate market entry using this perspective. In conclusion, the concepts heightened in appendix 1 are so much connected since the resource-based theory is applicable in the chain of establishment perspective and eclectic framework. Therefore, the four domains in appendix 1 are integrated to initiate a well-established internalization and mode of entry in the market. In this entry, behavior assumption is based in bounded rationality. According to the article, this assumption is based on idea used in decision making process. This is because rationality of firms is limited by the information they apply in the market as well as cognitive limitation of their ideas.
Richard, A. (2013). Job Satisfaction from Herzberg’s Two Factor Theory Perspective. Grin publishing.
Ryan, R.M., & Deci, EL. (2017). Self-Determination Theory: Basic Psychological Need in Motivation, development, and Wellness. The Guilford Press
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