How to pic a suitable market entry model? - An Introduction

Today's economic and mainly political situation in several EU countries (e.g. Poland, Hungary, etc), is showing the importance of selecting the right entry mode in order to ensure the right level of risk exposure when entering foreign markets.[1] But besides the initial choice of mode, the last decades have shown that the focus has shifted from “going” international to “being” international. The mode chosen at the initial entry is not as important to companies today as the mode chosen at a certain point in time. This series of articles will give an overview of the different entry modes available today to companies, outlining the advantages and disadvantages between the different modes.[2]

Various external and internal factors, like power distance or resource intensity, are influencing the entry mode decision. The selection of the right set of factors for the initial mode selection is important and to maintain these set of factors and re-evaluate the initial decision on a regular basis, to cater for changes that might have occurred since the market entry, is critical for a being successful internationally.[3]

For classifying the different entry modes an equity based approach seems the most practical one. This approach allows looking at the market entry mode from the perspective of where the value-add is predominantly delivered.

With non-equity modes the value-add is dominantly delivered in the home country of a company. Furthermore the resource intensity of non-equity modes is rather low compared to equity modes, but the control is low too. Non-Equity modes most commonly used today are export and alliances.[4]

Equity modes used today are typically joint ventures, greenfield or brownfield investments in the host country. But there are some mixtures where contractual alliances are seen to be mixed with equity modes, i.e. some forms of franchising.

Figure 1: Market Entry Modes[5]

Up next week: What models are available today? - A description

[1] (Dirk, Strategic International Management, 2009, p. 241)

[2] (Klug, 2006, p. 35)

[3] (Dirk, Swoboda, & Schramm-Klein, 2008, p. 505)

[4] (Klug, 2006, pp. 35-38)

[5] (Dirk, Strategic International Management, 2009, pp. 242-244)