chapter 9 Flashcards
an institutional arrangement for the entry of a company’s products and services into a new foreign market.
Entry mode
Entry modes (3)
- Export mode
- Intermediate mode
- Hierarchical mode
Different rules for selecting an entry mode (3)
- Naive rule: same entry mode for all foreign markets
- Pragmatic rule: workable entry mode for each foreign market, start with low-risk
- Strategy rules: all alternative entry modes are systematically compared and evaluated
transaction costs
the friction between buyer and seller, which is explained by opportunistic behavior
self-interest with guile, misleading, distortion disguise and confusion
opportunistic behavior
Concludes that, if the friction between buyer and seller is higher than through an internal hierarchical system, then the firm should internalize
transaction cost analysis
Externalization
Doing business through an external partner
Internalization
Integration of an external partner into one’s own organization
Externalizing leads to transaction costs (4)
Ex ante cost
- Search costs
- Contracting costs
Ex post costs
- Monitoring costs
- Enforcement costs
Factors influencing the choice of entry mode (4)
- Internal factors
- External factors
- Desired mode characteristics
- Transaction-specific factors
Internal factors (3)
+ hierarchical / internalization
- Export / externalization
- Firm size +
- International experience +
- Product/service +
External factors (6)
+ hierarchical / internalization
- Export / externalization
- Sociocultural distance -
- Country risk/demand uncertainty -
- Market size and growth +
- Trade barriers +
- Intensity of competition -
- Small number of intermediaries available +
Desired mode characteristics (3)
+ hierarchical / internalization
- Export / externalization
- Risk-averse -
- Control +
- Flexibility -
Transaction-specific factors (1)
+ hierarchical / internalization
- Export / externalization
- Tacit nature of know-how +
