Despite its complexity, the task of choosing a specific foreign market entry mode (or a combination of modes) usually is a step-by-step process. Most firms internationalize their activities and operations through a process of "creeping incrementalism." A firm will begin by exporting some product. Gradually, because of environmental pressures, problems with the firm that the company has been doing business with, or a deliberate plan, the company will move into selling its knowledge and expertise via one of the many contractual agreements available.
Most traditional contractual agreements involve licensing the production of a product or the use of a process, franchising the entire production process, or a management contract. In all of these cases, the international company exchanges knowledge for fees, royalties, goods, or a combination of the above.
The most serious entry mode, in terms of both risks and benefits, is investment. Some companies begin the equity-sharing process with the acquisition of a foreign company's outstanding common stock. Usually this investment leads to more extensive involvement, with the investing company actually running the new venture. Finally, in a wholly owned subsidiary the investing company acquires a "home away from home" in the form of production and distribution facilities in a host country.
The last part of the chapter described a method for analyzing and comparing possible entry modes. In the first phase, the feasibility of each mode is examined. Here the emphasis is on identifying the existence of invariants conditions that preclude a specific entry mode or combination of entry modes. Such invariants may be imposed by either the company or the environment. The second phase involves determining the suitability of a specific entry mode to a company's profit, risk, and nonprofit requirements. One can envision the profit, risk, and nonprofit requirements as a series of filters which become progressively finer as the management team moves through the entry mode analysis.
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