David Forlani, Madhavan Parthasarathy, Susan M. Keaveney
International Marketing Review Vol. 25 Issue 3, p. 292-311
Purpose – The primary purpose of this paper is to investigate how opportunity for control and firm capability interact to moderate the amount of risk that managers associate with various international entry-mode strategies. A secondary goal is to investigate how managers perceive the need to retain control over three core functional areas (marketing, production, and R&D) when making entry-mode decisions.
Design/methodology/approach – A field experiment design was implemented in a sample of US business owner/executives. Using an online data collection method, the study asked a sample of small-business owners and managers to assess the amount of risk they associated with three modes of entering the Japanese market: non-ownership (export), equal partnership (50/50 joint-venture), and sole-ownership. They were also asked how much control they needed to retain over R&D, production, and marketing for the venture to be successful.
Findings – Ownership-provided control interacts with capability to influence managerial risk perceptions. Managers in lower-capability firms see the least risk in the non-ownership entry mode while those in higher-capability firms see the least risk in the equal-partnership entry mode. Managers believe that for a new venture in a foreign market to be successful, control should be retained over the R&D function, regardless of entry mode.
Research limitations/implications – The findings appear to reconcile some of the conflicting predictions of the transaction cost and resource-based theoretical perspectives, because it appears that international managers consider both control (internationalization theory) and capability (resource-based theory) when judging the perceived risk of an entry strategy.
Practical implications – For firms that are incapable of managing in an international context, a low-control no-ownership entry mode is perceived as the least risky approach; for firms that have some capability for international management, then a partial-ownership mode such as a 50/50 joint-venture is perceived as having lower risk than no-ownership. In non-ownership and joint-venture type entry modes, managers are more apt to outsource the marketing function to an agent/partner, but not R&D. In contrast, managers believe that marketing needs to be maintained in-house when utilizing a sole-ownership entry mode.
Originality/value – By illustrating the role of perceived risk in foreign-market entry-mode decisions and demonstrating how capabilities interact with ownership-provided control to moderate these perceptions, the paper’s findings suggest that managers’ risk perceptions may mediate the effects of firm-specific factors, and thus contributes significantly to both theory and practice.