Chapters 6 and 7 examine how firms have built the organizations that enabled them to exploit opportunities both at home and abroad, and in different industries. This chapter examines the strategies that firms have used to exploit and enhance their competitive advantages by crossing borders. It begins with corporate strategies for entering and exiting countries. It then turns to collaborative strategies with other firms. Finally, the chapter considers the role of subsidiaries in the evolution of multinationals.
Firms have employed a range of modes to enter foreign markets. The 'classic' organizational form was a wholly owned affiliate, but this has always coexisted with a range of equity and nonequity modes including joint ventures, cartels, licensing, franchising and long-term contracts. Firm-, industry-, location-, and time-specific factors influenced which mode was employed at any one time.
Multinationals follow an incremental process as they enter and evolve in a foreign market (Johanson and Vahlne 1990). Manufacturing companies often progressed from exporting, to selling through agents, to the establishment of a distribution company, to local production. A company makes an initial commitment of resources to a foreign market, and through this investment gains local market knowledge. Gradually, and through several cycles of investment, the multinational develops local capabilities and market knowledge. This evolutionary pattern might also be understood using transactions costs theory. While low volume transactions can be mediated through markets, recurrent transactions encourage the use of intermediate modes such as licensing and agents. As the use of agents and licensing involves the risk of opportunistic behavior, there are incentives to shift to hierarchical modes (Nicholas 1983 , 1986).