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INTRODUCTION

19 January, 2016 - 15:18

Even though not all MNCs start the internationalization process by exporting and end up getting into direct foreign investment, it is important for the international manager to be aware of the possible entry modes and the costs and benefits associated with each. In general, the choice of an entry mode is a strategic decision and thus can be approached using the XYZ framework presented in THE FIELD AND THE FRAMEWORK (see Figure 2.4). The manager who is confronted with the task of recommending that the firm's management choose one entry mode over another must perform a careful analysis of the company's strengths and weaknesses (X); the environmental constraints, threats, and opportunities (Y); and the objectives and goals of the management of the organization (Z). After careful and thorough analysis of these three sets of variables, the manager will be prepared to select an entry mode.

As a general rule, movements to the right along the export-investment line (see Figure 2.2) are associated with greater risk, as well as greater potential benefits. Both the size of cash outflows and the uncertainty of cash inflows increase as the company moves from the export mode to the investment mode. Investment decisions usually require a commitment on the part of the MNC to sizeable certain (present) cash outflows, in return for potential (future) cash inflows. An export decision, on the other hand, normally requires a small cash outflow and promises an almost certain cash inflow. Thus investment decisions will generally be scrutinized by many in top management, whereas an export decision may require less top management involvement. Figure 10.1 presents a sample of external (environmental) and internal (company) factors that may affect an MNC's choice of entry mode.

Source : F. Root, Foreign Market Entry Strategies (New York: AMACOM,1982),17- 19.
Figure 10.1 Factors Influencing the Entry Mode Decision 
 

SOURCE : F. Root, Foreign Market Entry Strategies (New York: AMACOM, 1982) , 17- 19.