Academic journal article Management International Review

Interactive Effects of International Strategy and Throughput Technology on Entry Mode for Service Firms

Academic journal article Management International Review

Interactive Effects of International Strategy and Throughput Technology on Entry Mode for Service Firms

Article excerpt

Abstract

* This study proposes that international entry decisions by service firms depend on the type of throughput technology used by the respective service and on the international strategy espoused by the organization.

* Logistic regression was run on 157 entry choices of firms in three service sectors and support was found for the hypothesized relationships.

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Key Results

* Logistic regression on entry choices (n=157) of firms in computer software, restaurant, and lodging industries indicated significant interaction between international strategy and type of throughput technology.

With service firms accounting for approximately 30% of world trade (Edvaardson/Edvinsson/Nystrom 1993), foreign direct investment (FDI) in services providing about 50% of the total worldwide FDI (UNCTC 1993), and dramatic growth in the mid-1990s in international franchising (Maynard 1995), there is a critical need to develop a more comprehensive understanding of the issues that influence the strategic issues that affect how service firms pursue internationalization. However, most of the large body of research on entry mode, motivation, and the performance implications of internationalization has been completed in the manufacturing context.

Over the past several years, a growing body of literature investigating the entrance of service firms into foreign markets has emerged, primarily in the strategic marketing literature (Carman/Langeard 1980, Cowell 1983, Sharma/Johanson 1987, Erramilli/Rao 1990, Erramilli 1991). The thrust of much of this empirical research has been to apply transaction cost analysis to identify the circumstances under which service firms entering individual foreign markets would accept shared control of the venture. Only more recently has the resource-based perspective been combined with the eclectic view of the firm (Dunning 1988, Hill/Hwang/Kim 1990) to suggest that service firms seek international diversification to protect and fortify the causal ambiguity associated with their core routines (Erramilli/Rao 1993, Bharadwaj/Varadarajan/Fahy 1993) and create resource position barriers enabling the firm to maintain a sustainable competitive advantage (Peteraf 1993).

Moreover, several researchers (Boddewyn/Halbrich/Perry 1986, Lovelock/ Yip 1996, Sarathy 1994, Swartz/Bowen/Brown 1992, Zeithaml/Parasuraman/ Berry 1985) have argued that there is tremendous variation within the service sector in the way that services are produced. These researchers have recommended that more attention be given to comparing the various subsectors within services to identify what strategic practices are effective for specific types of services in particular situations.

This study reports on the results of a logistic regression testing the relationship between international strategy and choice of international entry mode for service firms that vary by type of throughput technology (Figure 1). The paper first reviews the relevant literature on international entry modes and international strategy, and then identifies a useful taxonomy along which service firms can be mapped based on their principal throughput technology. The paper then argues that such differences in throughput technology moderate the relationship between the firm's international strategy and the firm's choice of entry mode. Research hypotheses and methods are presented, and the implications of the interactive effects of international strategy and throughput technology are discussed for researchers and managers.

[FIGURE 1 OMITTED]

Literature Review

Entry Mode and International Strategies

A mode of entry is a way of organizing and carrying out international business transactions (Root 1987). Firms entering new markets choose from a variety of different forms of entry, ranging from licensing and franchising, through exporting (directly or through independent channels), to foreign direct investment (joint ventures, acquisitions, mergers, and new, wholly owned subsidiaries). …

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