The Contingency Framework of Foreign Entry Mode Decisions: Locating and Reinforcing the Weakest Link

Abstract

This paper delves into the mechanism of the contingency framework for foreign entry mode decisions and identifies two essential tasks that jointly determine the outcome of the entry mode decision. It then recognizes a critical weakness in previous research pertaining to the comparison of entry modes along a key decision criterion, the degree of control. Existing studies generally treat equity involvement as the only source of entrant control, while largely ignoring non‐equity sources of control (i.e., bargaining power and trust). Non‐equity sources of control, when underutilized, amount to missed opportunities, increased resource commitments, and heightened risk exposures in foreign markets. Drawing from a pluralism perspective in transaction and relationship governance, the author presents a more integrative method for the ranking of entry modes along the degree of control. The central message is that companies entering foreign markets should make an earnest effort to identify trust and bargaining power situations and fully utilize their control potential in making entry mode decisions.

Citation

Gao, T. (2004), "The Contingency Framework of Foreign Entry Mode Decisions: Locating and Reinforcing the Weakest Link", Multinational Business Review, Vol. 12 No. 1, pp. 37-68. https://doi.org/10.1108/1525383X200400003