International expansion is one of the key strategic devices available to any firm looking to grow its operations. However, once the decision to internationalise has been arrived at, organizations have at their disposal numerous options in terms of mode of entry.
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Each of these strategies offers advantages and drawbacks in regards to the opportunity for the firm to realise transaction savings, enhanced market access and returns, and improved level of control (Sitken and Bowen, 2010). This paper critically appraises the key choices available to businesses seeking to expand globally. Following an empirical comparison of the costs and benefits of these approaches, and drawing on the key theoretical framework in the international business literature (OLI eclectic paradigm), the paper seeks to identify whether one mode of entry is preferred above others. In examining both the international business literature and the empirical movements of internationalising firms, it is clear that the number of options open to globally expanding businesses is myriad (Hennart, 2001). It is worthwhile, therefore to provide an overview of the principal benefits and drawbacks of those options. Table 1 demonstrates that in making their decision, internationalising firms must balance a number of possible gains and losses.
Mode of entry
|Exporting an existing product or service||Transaction costs may be high. Trade and tariff barriers may exist||Firm may realise economies of location and experience|
|International franchising or licensing||Limited control over overseas product/service quality. Limited capacity for international strategic coordination||Relatively low risk since the business model has already been tested in a market.|
|Turnkey contracts||Long term market presence is limited||Opportunity to realise process technology returns in economies with limited experience of Foreign Direct Investment|
|Horizontal acquisition||Relatively high risk, particularly in relation to cultural differences||Capacity for international strategic coordination Firms can realise economies of experience and location. Technology/patents are protected|
|Joint Ventures/Strategic alliances||Firm loses control over quality and technology.||Costs of development and other risks are shared with the collaborative partner. Internationalising firm can access the localised knowledge of its partner.|
In the modern globalised economy, the most popular international activity of producing firms is exporting (Buckley, 2009). Although there is some scholarly debate regarding the extent to which exporting activity can truly be deemed ‘internationalisation’
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