Academic journal article Journal of Comparative International Management

Empirical Analysis of Distinct Entry Mode Strategies among Service Firms: Case Studies from Australia

Academic journal article Journal of Comparative International Management

Empirical Analysis of Distinct Entry Mode Strategies among Service Firms: Case Studies from Australia

Article excerpt

1. Introduction

Resource commitment at the time of entry is a crucial starting point for firms in a new foreign market. This paper investigates the initial resource commitment in a new host market made by service firms. They were segmented into two categories, namely capital intensive and knowledge intensive, as previous research suggests that these two types of service firms follow different patterns of internationalization (Contractor, Kundu and Hsu, 2003; Peinado and Barber, 2006, Shukla and Dow, 2010). More specifically, this paper seeks to understand the differences in the level of initial resource commitment between knowledge intensive and capital intensive service firms.

The Uppsala process model suggests that firms tend to reduce the uncertainty associated with internationalization by entering the host market with low resource commitment (Johanson and Vahlne, 1977). Since initial resource commitment is heavily dependent on the entry mode choice, the Uppsala model suggests that firms should enter new markets with low commitment modes like exporting. However, service firms tend to use various shared and/or full control entry modes such as direct and indirect exports, agents, distributors, developmental agreements, piggybacking, joint ventures and foreign direct investments through acquisitions and/or green field investments (Patterson and Cicic, 1995; Fladmoe-Linquist and Jacque, 1995; Coviello and Munro, 1995, 1997; Winsted and Patterson, 1998; O'Farrell et al., 1996; Clancy, 1998; Gronroos, 1999). This study argues that while capital intensive service firms adopt entry modes with low resource commitments, knowledge intensive service firms prefer to employ high resource commitment entry modes.

This study addresses the lack of research on services in an international context which is fairly limited in comparison with the manufacturing sector (Peinado and Barber, 2006). Currently, there is a rapid increase in the internationalization of service firms due to the liberalization, deregulation and privatization, especially in developing countries (Kundu and Merchant, 2008). Despite this, research on the service sector often has to rely on studies from the domain of manufacturing (Axinn and Matthyssens, 2002) due to the paucity of empirical studies (Javalgi and Martin, 2007; Javalgi and White, 2002; Johanson and Vahlne, 1990; Knight, 1994).

The nature and magnitude of the various entry mode choices which impact initial resource commitment in the context of service firms are reviewed briefly and the mixed findings are highlighted. Thereafter, a proposition is developed comparing the initial resource commitment of knowledge intensive and capital intensive service firms. The term "proposition" is used as opposed to hypothesis as it is investigated using case study methodology which is covered next. Discussion based on the results obtained is then presented and is followed by research contribution and limitations.

2. Literature Review

The literature search did not find any study which directly examines the initial resource commitment of a firm relative to its long run steady state resource commitment. Entry mode research has primarily used dichotomous variables as their dependent variables (DVs) to compare the entry mode of firms in a foreign market (Canabal and White, 2008). As reported by Canabal and White (2008), the most commonly used DV compared setting up a wholly owned subsidiary versus a joint venture (43 identified studies between 1980 and 2006). In the same time period, other categorical classifications tested include acquisition versus joint ventures (5 studies), export versus foreign direct investment (5 studies), majority versus minority owned (4 studies), greenfield versus joint venture (3 studies) and contract versus equity joint venture (2 studies). Thus the research on entry mode has focussed on contrasting alternative entry modes and ignored comparing the initial entry mode with subsequent modes of operation in the host market. …

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