Journal of Strategic Marketing

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International market entry mode – a systematic

literature review

Michael Schellenberg, Michael John Harker & Aliakbar Jafari

To cite this article: Michael Schellenberg, Michael John Harker & Aliakbar Jafari (2017):
International market entry mode – a systematic literature review, Journal of Strategic Marketing,
DOI: 10.1080/0965254X.2017.1339114

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Journal of Strategic Marketing, 2017
https://doi.org/10.1080/0965254X.2017.1339114

International market entry mode – a systematic literature

review
Michael Schellenberg, Michael John Harker and Aliakbar Jafari
Department of Marketing, University of Strathclyde Business School, Glasgow, UK

ABSTRACT ARTICLE HISTORY

This wholly conceptual paper examines the breadth of literature Received 27 August 2016
on Market Entry Modes, a fundamentally important and strategic Accepted 10 April 2017
issue for managers in growing organisations of all sizes in all
KEYWORDS
sectors. Key concepts and terms are defined and then a set of key Market entry mode;
Internationalisation Theories are systematically and critically reviewed, Internationalisation Theories;
these being: the Transaction Cost Approach, Institutional Theory, the Transaction Cost Approach;
Eclectic Paradigm, the Uppsala Internationalisation Model and the Institutional Theory;
Resource Based View. The final portion of the paper is integrative and Eclectic Paradigm; Uppsala
highlights three key literature gaps as signposts for future work. Internationalisation Model;
Resource-Based View

Introduction
This paper systematically examines the academic literature on international market entry
mode (hereafter MEM). Ever since the first issue of the first volume of the Journal of Strategic
Marketing this has been a topic of much discussion and research from scholars interested
in strategic marketing issues here and elsewhere (Crick & Crick, 2016; Gannon, 1993).
This paper is divided into three main sections. The first section provides MEM definitions
and conceptualisations. The second section critically reviews a series of key Internationalisation
Theories that have emerged from and been applied to a firm’s MEM choice. These are;
Transaction Cost Approach, Institutional Theory, the Eclectic Paradigm, the Uppsala
Internationalisation Model and the Resource-Based View (RBV). The third section summarises
the current position and highlights three key gaps in the MEM literature, these being; a lack
of studies on SME market entry, a lack of insight into market entry decision-making processes
and too little integrative work that brings together related literature strands. The paper is
enhanced by the inclusion of a number of tables that present an overview of key and well-
cited conceptual and empirical work, listing themes, key concepts and findings and the
location, industrial sector and other methodological details.

MEM concepts, definitions and perspectives

The question of how firms enter and operate in foreign markets has been a consistent and
persistent topic in business research generally and strategic marketing literature specifically

CONTACT  Michael John Harker  michael.harker@strath.ac.uk

© 2017 Informa UK Limited, trading as Taylor & Francis Group
2   M. SCHELLENBERG ET AL.

for decades (Canabal & White, 2008; Crick & Crick, 2016; Hennart & Slangen, 2015; Johanson
& Vahlne, 1977; Johanson & Wiedersheim-Paul, 1975). Why is this? One fundamentally impor-
tant reason is that it is widely recognised that strategic success and failure are principally
determined by which entry mode is chosen and enacted (Agndal & Chetty, 2007; Anderson
& Gatignon, 1986; Brouthers, 2013, 2002; Erramilli & Rao, 1993; Ragland, Widmier, & Brouthers,
2015; Root, 1987; Tse, Pan, & Au, 1997). Additionally, international market entry is a highly
observable form of international expansion (Benito, Petersen, & Welch, 2009; Gerrath &
Leenders, 2013; Ragland et al., 2015).
Given the eclectic nature of MEM, and the diversity and variety of investigators and inves-
tigations, a number of different and inconsistent definitions exist (Canabal & White, 2008;
Morschett, Schramm-Klein, & Swoboda, 2010). Johanson and Wiedersheim-Paul (1975,
p. 306) refer to entry modes as the development of operations in individual countries. Root
(1987, p. 5) proposes a more specific definition by considering a mode an institutional
arrangement that makes possible the entry of a company’s products, technology, human skills,
management or other resources into a foreign country.
Anderson and Gatignon (1986) consider an entry mode a governance structure that allows
a firm to exercise control over foreign operations whilst Hill, Hwang, and Kim (1990) defines
the phenomenon as a way of organising the business activities in a foreign country. Sharma
and Erramilli (2004, p. 2) define an entry mode as
a structural agreement that allows a firm to implement its product market strategy in a host
country either by carrying out only marketing operations (i.e. via export modes) or both pro-
duction and marketing operations there by itself or in a partnership with others (contractual
modes, joint venture, wholly owned operations).
Many MEM scholars (e.g. Brouthers & Nakos, 2004; Nisar, Boateng, Wu, & Leung, 2012; Ojala
& Tyrväinen, 2007; Olejnik & Swoboda, 2012) predominantly treat entry mode as a selection
from several specific and discrete alternatives, investigating MEM choice based on the cat-
egorisation of modes prior to fieldwork.
An alternative viewpoint (Canabal & White, 2008; Hennart & Slangen, 2015; Shaver, 2013;
Zhao, Luo, & Suh, 2004) is that both external and internal (firm-specific) antecedents and
determinants affect modal outcome, and should therefore be the focus of study (Benito
et al., 2009). External antecedents and determinants include (national) culture, cultural dif-
ference, market attractiveness, environmental uncertainty, legal environment. Internal ante-
cedents and determinants include control, international experience, as well as assets and
asset specificity.
Based on these premises, researchers in the field have provided a wealth of explanations
of how certain factors encourage or discourage a particular mode (Root, 1994, p. 8) and accu-
mulated new theoretical knowledge.
Table 1 provides an overview of significant scholarly contributions taking such a ante-
cedents/determinant perspective.
Such normative studies, however, commonly neglect how the actual entry mode decisions
are made in firms, and thus do not explicitly investigate the associated decision-making
processes, studies by Chen (2008) and Buckley et al. (2007) being noticeable exceptions.
Decision-making processes are affected by the characteristics of the key decision-makers
and/or their teams (Dean & Sharfman, 1993); and scholars (Canabal & White, 2008; Hennart
& Slangen, 2015) call for more research that explicitly focuses on the entry mode
decision-making processes within firms.
Table 1. Key MEM studies on external and internal antecedents/determinants and their effect of MEM choice and/or organisational performance.
Antecedent/determinant Author(s)/year
External antecedents and determinants
Culture/cultural difference Brouthers (2013, 2002)
Morschett et al. (2010)
Drogendijk and Slangen (2006)
Kogut (1988)
Johanson and Vahlne (1977)
Market attractiveness Brouthers (2013, 2002)
Erramilli, Agarwal, and Kim
(1997)
Randøy and Dibrell (2002)
Taylor, Zou, and Osland (1998)
Agarwal and Ramaswami (1992)
Research focus
Examination of entry mode choice based on
transaction cost, institutional context, and
cultural context variables; and firm performance
Meta-analysis of entry mode studies investigating
entry mode choice based on external
antecedents
Examination of the influence of cultural distance
on the choice by MNEs between expanding
abroad through greenfield or acquisition
Investigation of national culture and cultural
difference influence on entry mode choice
Investigation of entry mode patterns in relation to
increased experience and learning in foreign
markets
Examination of entry mode choice and firm
performance based on transaction cost,
institutional context, and cultural context
variables; and respective firm performance
Investigation of subsidiary ownership preferences
amongst Korean MNEs
Investigation of MNE resource commitment
through foreign market entry
Evaluation of the power of transaction cost
economics in explaining a firm’s choice between
a joint venture and a full ownership
Examination of the independent and joint
influences of ownership advantages, location
advantages, and internalisation advantages on
the choice of entry mode
Key results/conclusion
Firms that perceive high levels of investment risk due to a host country’s
national culture tend to use joint venture modes of entry
The hypothesis, that the proclivity to opt for a cooperative mode of entry
increases with the degree of cultural distance, is rejected
High scores on cultural distance measures significantly increase the
likelihood that MNEs choose greenfield investments
The greater the cultural difference between the country of the investing
firm and the host country, the more likely the firm is to choose a joint
venture or a wholly owned subsidiary over an acquisition
Firms commence international operations with a low-commitment,
low-risk mode, by targeting neighbouring countries that are considered
‘psychically close’; before psychically more distant countries are tackled
and experience grows, leading to modes of operations with higher
commitment and financial exposure
Firms are expected to enter highly attractive markets via wholly owned
subsidiaries due to the expected greater potential for long-term profit
Market size of the host country leads to an increase in resource commit-
ment in that country
Firms are expected to enter highly attractive markets via wholly owned
subsidiaries due to the expected greater potential for long-term profit
Attractive markets tend to be entered via wholly owned subsidiaries. This
is considered to reflect the expected greater potential for long-term
performance
Firms are expected to use vertical integration in order to benefit from
economies of scales and to secure a long-term market presence
JOURNAL OF STRATEGIC MARKETING 
(Continued)
 3

Table 1. (Continued).
Antecedent/determinant
Environmental uncertainty
Legal environment
Internal antecedents and determinants
Control
Author(s)/year
Brouthers et al. (2008)
Agarwal (1994)
Klein, Frazier, and Roth (1990)
Anderson and Gatignon (1986)
Morschett et al. (2010)
Brouthers (2013, 2002)
Morschett et al. (2010)
Chang and Rosenzweig (2001)
Gomes-Casseres (1990)
Gatignon and Anderson (1988)
Arregle et al. (2006)
Blomstermo et al. (2006)
Research focus
Investigation of entry mode choice based on
transaction costs variables
Investigation of the moderating role of the frim
and country-specific factors of the firm’s entry
mode choice
Development of a transaction cost analysis model
designed to explain the channel integration
choices of firms entering foreign markets
Development of a transaction cost model for the
investigation of entry mode choice; clustering of
17 entry modes alongside the degree of desired
control
Meta-analysis of entry mode studies investigating
entry mode choice based on external
antecedents
Examination of entry mode choice and firm
performance based on transaction cost,
institutional context, and cultural context
variables; and respective firm performance
Meta analysis of entry mode studies investigating
entry mode choice based on external
antecedents
Analysis of differences between initial entries and
subsequent ones adopted by firms at various
stages of their international expansion
Investigation of ownership preferences adopting
transaction cost and institutional variables
simultaneously
Investigation of entry mode choice of MNEs
adopting the transaction cost theory
Development of a multilevel model to analyse
numerous determinants of modes of entry
Examination of the relationship between foreign
market entry modes of hard‐ and soft‐service
firms
4 
Key results/conclusion
In uncertain market conditions in which the value of an international
opportunity cannot be predicted accurately, firms are expected to keep
the initial investment low. Cooperative entry modes are seen as an
attractive alternative
In uncertain market conditions, the internalisation of activities may
contribute to the cushioning of the external uncertainty
External uncertainty in unsteady market conditions can be moderated
through internalisation of business activities
 M. SCHELLENBERG ET AL.
Under conditions of strong uncertainty, it is difficult to anticipate future
contingencies in the host market. Adaptations and modifications of the
collaboration (key responsibilities) with a partnering firm is required
In uncertain market conditions, firms are more likely to opt for cooperative
entry modes
Firms entering countries with few legal restrictions on entry modes tend
to use wholly owned forms of entry while firms entering countries with
many legal restrictions on mode of entry tend to use joint venture
modes
Subsidies for cooperative arrangements with a local partner firm, as well
as restrictive regulations in the host country against wholly owned
subsidiaries can change the (expected) economic advantages of the
earlier considered modes, towards cooperative entry modes
Trade barriers, as an obstacle to entering the host country market via
exports, strengthen the need for other entry modes
Legal restrictions on the wholly owned subsidiary are expected to
decrease the likelihood of a wholly owned subsidiary being established
The likelihood of a wholly owned subsidiary decreases along the legal
restrictions associated with this entry form in the host market(s)
An entry mode determines whether a company seeks full control over the
foreign unit or shares control with a partner firm
Soft‐service firms are much more likely than hard service firms to choose a
high control entry mode over a low control entry mode. As cultural
distance increases, the likelihood of this choice increases even more
 Ekeledo and Sivakumar (2004)
Anderson and Gatignon (1986)
International experience Dow and Larimo (2009)
Chang and Rosenzweig (2001)
Andersen (1993)
Erramilli (1991)
Johanson and Vahlne (1977)
Assets/asset specificity Brouthers (2013/2002)
Makino and Neupert (2000)
Hennart (1991)
Gatignon and Anderson (1988)
Development of a resource‐based framework for
entry mode choice and investigating the extent
to which the determinants apply to foreign
market entry mode choice in the service sector
Development of a transaction cost model for the
investigation of entry mode choice; clustering of
17 entry modes alongside the degree of desired
control
Investigation of international entry mode choice
based on various forms of distance and
international experience
Analysis of differences between initial entries and
subsequent ones adopted by firms at various
stages of their international expansion
Critical review of existing models of the firms’
internationalisation process
Examining the influence of international
experience on the international market and
entry mode choice of service firms
Investigation of entry mode patterns in relation to
increased experience and learning in foreign
markets
Examination of entry mode choice and firm
performance based on transaction cost,
institutional context, and cultural context
variable;, and respective firm performance
Investigation entry mode choice based on
transaction costs variables
Critical evaluation of the transaction costs theory
in light of the internationalistion of MNEs
Empirically investigation of entry mode choice of
MNEs adopting the transaction cost theory
A firm with a proprietary technology which is a sustainable competitivead-
vantage in a foreign market is expected to seek full control over its
operations. Similarly, a firm with a valuable tacit know-how which is a
competitive advantage is expected to seek total control too
The most appropriate (i.e. most efficient) entry mode is a function of the
trade-off between control and the cost of resource commitment
Only experience in similar countries affects entry mode selection, whereas
experience in dissimilar countries seems to have no predictive power in
respect to the mode choice
Prior international sales experience is positively associated with
greenfieldinvestment rather than acquisition and joint venture. The
correlation between prior international sales experience and greenfield
investment is stronger for earlier entries than subsequent entries
The more experienced a firm is in terms of international operations, the
more willing it is to opt for a high-commitment mode when entering a
new foreign market
The probability of choosing full-control modes is high at low levels of
international experience, low at moderate levels, and again high at high
levels of experience. Further, length of experience is more important in
determining entry mode choice than scope of experience
As firms gradually increase commitment in international markets as
experience rises, firms enter psychically more distant countries, leading
to modes of operations with higher commitment/exposure
The hypothesis that firms making high asset specific investments tend to
use wholly owned subsidiaries whereas firms making low asset specific
investments tend to use joint ventures, is rejected
In order to safeguard specific assets from potential opportunism problems,
firms opt for higher control governance structures, such as wholly
owned modes of entry
Firms with greater technology are subjected to higher transaction cost in
order to safeguard their technology from misappropriation. This is
expected to reflect the entry mode choice
Firms with greater technology are subjected to higher transaction cost in
order to safeguard their technology from misappropriation. This is
expected to reflect the entry mode choice
JOURNAL OF STRATEGIC MARKETING 
 5
6   M. SCHELLENBERG ET AL.

The majority of MEM literature though commonly focuses on an examination of mode

choice. Shaver (2013) makes the important point that too much research artificially constrains
the range of entry modes examined, thereby limiting its scope and ignoring the broader
and more holistic research issues. In particular, these scholars use comparative dependent
variables (modal outcomes) such as Wholly Owned Subsidiary vs. Joint Venture, Acquisitions
vs. Joint Venture, Export vs. Foreign Direct investment, as well as contract vs. Equity Joint
Venture (Morschett et al., 2010) or Acquisitions over Greenfield (Chen, 2008; Slangen &
Hennart, 2008), thus reflecting the identified predominant explanatory focus and emphasis
on statistical measurement in MEM research.
Alongside the initial theoretical understanding of entry mode choice that is made
between clearly defined and differentiated alternatives (Benito et al., 2009) researchers adopt
very different classification criteria and variables in order to differentiate and determine the
entry mode. Based on the variables of control, commitment and risk, Anderson and Gatignon
(1986) identify 17 entry mode categories. Hill et al. (1990) went on to reduce those categories
to three distinct types of entry modes: Licensing/Franchising, Joint Venture and Wholly
Owned Subsidiary, a schema that only represents a singular and static perspective on entry
modes. Root (1994) differentiates Export, Contractual as well as Equity modes. Others
(Agarwal & Ramaswami, 1992; Blomstermo, Sharma, & Sallis, 2006; Sharma & Blomstermo,
2003; Zahra, Ireland, & Hitt, 2000) discuss entry modes in each of these categories according
to the continuum of low- vs high-involvement and commitment.
Osland, Taylor, and Zou (2001) differentiate entry modes according to the three charac-
teristics of resource commitment, level of control and level of (technology) risk. These three
key characteristics are highly correlated, as increased control is considered to lead to lower
technology risk, and control is highly associated with a need for resource commitment
(Woodcock, Beamish, & Makino, 1994). According to Kumar and Subramanian (1997) as well
as Pan and Tse (2000), entry modes should be distinguished between non-equity modes (such
as exporting or other contractual agreements and equity modes (wholly owned subsidiary
or joint venture). Zhao et al. (2004) differ between ownership-based entry modes (OBEs) and
contract-based modes (CBMs).
More recently, Brouthers and Hennart (2007) classified entry modes into two broad cat-
egories, namely ‘Contracts’ and ‘Equity’ and argued that the main difference in entry mode lies
in the method chosen to remunerate input providers. This definition seems to be preoccupied
with the mode’s financial and contractual implications while in turn ignoring important
aspects of how business is really conducted in foreign markets, and hence how the various
stages of the value chain are organised accordingly.
The theoretical views within this prior set of work exclude the notions of mode combi-
nations (mixed modes), inter-mode changes as well as potential modifications and adjust-
ments over time. Research has now moved away from an over-emphasis on categorisation,
attempting to reduce the discrepancy between theory and practice whilst being more
accepting of a less clear and distinct business reality.
For example, moving away from a concentration on singular modes, Benito’s et al. (2009,
p .1458) definition of foreign operations modes as the organizational arrangements that a
company uses to conduct international business activities relating to the activities performed in
particular locations at a given time advocates a less stringent but pluralistic view on entry
modes. This definition allows for the fact that firms in some cases combine operation modes
for the same business activities and in the same host market, in order to correspond and
 JOURNAL OF STRATEGIC MARKETING   7

react to specific and complex value chain characteristics and requirements. It differs from
the unitary entry mode focus inherent in the major part of the existing MEM literature, as it
allows for multiple modes in various types of combinations (Benito et al., 2009, p. 1458).
Empirical evidence confirms that firms use ‘package modes’, by combining sales subsid-
iaries with distribution arrangements with a middle man (Petersen, Welch, & Nielsen, 2001).
Firms are seen to incrementally change the modes of operation by adding new modes to
existing ones, which Petersen and Welch (2002) refer to as ‘mode combinations’. Research
by Deligonul and Cavusgil (2006) reports that the use of a distribution partner is associated
with substantial investments until these partners are partially internalised and operate as
quasi sales subsidiaries. Findings by Welch, Benito, and Petersen (2007) also suggest that
various modes could be used simultaneously in one particular market – usually across dif-
ferent activities, but in some cases, for the same activity. Multiple modes might well be
complementary, with the modes supporting each other in an overall market penetration
strategy (Petersen, Benito, Welch, & Asmussen, 2008).
A further research theme is consideration of the typical internationalisation pathways of
SMEs (Bell, 1995; Boter & Holmquist, 1996; Jones, 2001, 1999; Kontinen & Ojala, 2012, 2010)
and the respective entry mode patterns (choices) of these firms. These researchers identify
entry mode patterns in relation with the firms’ increasing engagement with international
markets, but do not address the question of how the entry mode decisions are actually made
in those firms, and how the entry mode decision-making processes are structured accord-
ingly. Jones (2001, 1999), referring to entry modes as cross border links, constructs these links
according to three dimensions, namely directional, international and functional/value chain.
Moving away from this pre-categorisation of entry modes prior to fieldwork, Spence’s
(2003) and Crick and Spence’s (2005) investigation of internationalising high-tech oriented
SMEs broadens and loosens the entry mode conception by determining the modes based
on the informants’ narrated personal experiences during the interviews. Such conceptual-
isations and methodological approaches are replicated in subsequent exploratory research
projects in similar research settings (Crick & Crick, 2014; Spence & Crick, 2009). This explor-
atory approach and move away from ‘pre-categorisation’ enhances the possibility for flexi-
bility in terms of defining and depicting the actual recalled foreign market entry, hence the
real and precise organisation of foreign operations based on the individual narratives of
the informants. These scholars, however, use a broader concept in their investigations of the
development of foreign operations, namely internationalisation strategies, and only offer a
less specific research focus, as entry mode decision-making and respective choice can be
considered only one outcome of broad investigations, rather than the explicit research
rationale.

Internationalisation theories explaining entry mode choice

The hitherto entry mode conceptualisations and categorisations discussed are embedded
in different theoretical assumptions and underpinnings. As a consequence, the following
section discusses key Internationalisation Theories that seek to explain a firm’s entry mode
choice. Critically reviewed and discussed are the theoretical perspectives of Transaction cost
approaches, Institutional theory, Eclectic Paradigm, Uppsala Internationalisation Model and
the RBV.
8   M. SCHELLENBERG ET AL.

Transaction cost approach

Transaction Cost Economics, (TCE), sometimes referred to as Transaction Cost Analysis is the
most commonly adopted and applied Internationalisation Theory in MEM studies (Canabal
& White, 2008). TCE has served as the overriding perspective for theorizing entry mode choice
and, accordingly, transaction-cost-related covariates have been recognized as major determi-
nants of entry mode decisions (Zhao et al., 2004, p. 525).
Underlying TCE are two key assumptions. That actors operate and choose within a
bounded rationality and that there is potential for actors to behave opportunistically as well
as risk neutrally (Seggie, 2012). Further, the four key dimensions of transactions are taken as
being: asset specificity, environmental uncertainty, behavioural uncertainty and transaction
frequency (Williamson, 1975). Luo (2007) proposes that opportunistic behaviour is more
likely with partners from different cultural backgrounds and Shapiro (1987) suggests this is
also true in more complex environments. Whereas a key decision-maker may find it relatively
easy to predict and forecast developments in domestic markets, this is likely to be more
difficult and complex in international markets (Klein, 1989; Seggie, 2012).
Williamson (1975) considers the unit of analysis the transaction and the focus of analysis
as transaction costs rather than productions costs. Firms are assumed to sometimes delib-
erately and opportunistically engage in self-interested behaviours within relationships
formed to construct a market entry – which might include lying, stealing or violating agree-
ments. Firms are faced with the ‘safe-guarding’ problem – assets specific to the transaction
and relationships become vulnerable to exploitation and the firm investing into those assets
is at risk of such opportunism, without being able to resort to the market and escape from
the opportunistic behaviour within the relationship.
The systematic and explicit application of TCE to MEM choice appeared for the first time
in Anderson and Gatignon’s (1986) work. They clustered 17 entry modes according to the
degree of control the respective mode provides, continuing on to suggest that the most
appropriate mode was a function of the trade-off between control and the cost of the inher-
ent resource commitment. Brouthers (2013, 2002) seminal work on TC influences (alongside
institutional and cultural influences) on MEM choice and firm performance confirms that
those firms whose MEM choice could be predicted by the transaction cost theory performed
significantly better, in terms of both financial and non-financial measures than those where
it could not.
In the case of unpredictability of the host market environment, commonly referred to as
country risk in the MEM literature, TCE implies a higher level of vertical integration (Morschett
et al., 2010). Under conditions of strong uncertainty, it is difficult to anticipate all future
contingencies for which adaptations and modifications of a contract with a partnering firm
would be required (Anderson & Gatignon, 1986). If uncertainty creates a situation in which
the value of an international opportunity cannot be predicted accurately, TCE suggests that
firms should react by keeping the initial investment low while securing an option for further
future investment (Brouthers, Brouthers, & Werner, 2008). In these situations, cooperative
entry modes are seen as an attractive alternative (Morschett et al., 2010).
Brouthers and Nakos (2004) explicitly apply transaction cost theory to SMEs entry mode
choice and assert that SMEs that adopted modes predicted by transaction cost theory per-
form remarkably better than those firms using other modes. Brouthers, Brouthers, and
Werner’s (2003) comparative study on manufacturing and service firms suggests that
 JOURNAL OF STRATEGIC MARKETING   9

differences in MEM choice can be principally explained by how the firms manage transaction
cost variables. Although a few attempts have been made to explicitly apply TCA to SMEs,
this theoretical lens seems to have a much clearer relevance for the study of MNEs (Whitelock,
2002). Since the choice of entry mode is an economic decision, an MNE is expected to choose
the entry mode that offers the highest risk-adjusted return on investment (Anderson &
Gatignon, 1986). Since aligning entry mode with transaction properties has subsequent
consequences on performance, the assessment of TCE determinants is considered to remain
important (Li, 1995), at least for larger firms. Table 2 summarises exemplary scholarly
contributions that have explicitly adopted a transaction costs perspective in their
investigations.
For a young, resource constrained firm, the TCE does not offer a suitable explanation of
their entry decisions (Burgel & Murray, 2000). In markets that are characterised by a fast
moving, dynamic and competitive environment, MEM choice would not only be based on
efficiency (transaction cost) considerations but also on other aspects, such as strategic
motives that include internationalisation or the firm’s competitive position in the global
markets (Aulakh & Kotabe, 1997; Harzing, 2002; Sanchez-Peinado, Pla-Barber, & Hébert, 2007).
The majority of studies that have investigated firms’ entry mode choice from a TCE per-
spective have adopted a purely quantitative methodological approach, developing inde-
pendent and dependent variables and testing selected factors and their influence on
respective outcomes (Seggie, 2012). Studies of this kind do not sufficiently explain ‘how’
entry mode decisions are made and/or how the respective decision-making processes are
structured.

Institutional theory
Institutional Theory investigates how firms enter and later operate in foreign markets, in an
institutional context, defined by specific rules, norms and values (Davis, Desai, & Francis,
2000; Meyer & Nguyen, 2005). A key concept of Institutional Theory is isomorphism (Di
Maggio & Powell, 1983), a constraining process expected to force one unit in a population
to resemble other units that face the same set of environmental conditions (Hawley, 1986),
as is the case with firms competing in the same industry and (foreign) market(s).
These isomorphic pressures have been found to have a significant effect on the entry
mode choice (Brouthers, 2013, 2002). Here, Institutional Theory suggests that firms entering
new foreign markets will imitate actions of both local host market firms as well as competitors
in this particular market, thus legitimising their operations as well as their market presence
(Davis et al., 2000; Yiu & Makino, 2002). Scott (1995) differentiates these institutional forces
into three specific groups, namely regulative, normative as well as cognitive. Regulative
forces include laws and rules; cognitive forcers can be considered conceptions by which
meanings are created; the normative ones refer to values and norms. Whereas the regulative
forces derive from economics, normative and cognitive forces are rooted in sociology (Peng
& Heath, 1996).
North (1990) argues that in investigating MEM choice, Institutional Theory should be
combined with TCE because institutions provide the structure in which transactions occur;
as they define the ‘rules of the game’ and include laws and regulations of the host country
(Davis et al., 2000; Oliver, 1997). Roberts and Greenwood (1997) propose that firms will
perform better in foreign markets if they pursue both institutional legitimacy and transaction
 10 

Table 2. Key MEM studies adopting a Transaction Cost perspective.

Author/date Sample Country/countries Industry/industries Data collection method Key aspects under investigation
Brouthers (2013, 2002) 113 firms European union Multisector Survey Examination of institutional, cultural and transaction cost
influences on mode choice and performance
Seggie (2012) n.a. n.a. Multisector Literature review An overview of TCE applications in International Marketing
 M. SCHELLENBERG ET AL.

– including entry mode studies

Morschett et al. (2010) 72 empirical n.a. Multisector Meta-analysis Investigation on external antecedents of entry mode choice
studies
Canabal and White n.a. n.a. Multisector Literature review A review on entry mode research: theories and constructs
(2008) used, antecedents and determinants investigated
Brouthers et al. (2008) 160 firms Dutch and Greek firms Multisector Survey Investigates entry mode choice based on transaction costs
and real option variables
Sanchez-Peinado et al. 113 firms Spain Service firms Survey Investigation on the effect of the international strategy on
(2007) entry mode choice, based on both transaction costs and
strategic variables
Zhao et al. (2004) 38 empirical n.a. Multisector Meta-analysis Investigation of transaction cost determinants’ influence on
studies entry mode choice, as well as moderating effects of
location, country of origin and industry type
Brouthers and Nakos 209 firms The Netherlands/Greece Multisector Survey Entry mode selection of SMEs and implications on perfor-
(2004) mance
Whitelock (2002) n.a. n.a. Multisector Conceptual paper Suggests a model incorporating the elements of various
theoretical approaches to explain the market entry decision
Anderson and Gatignon n.a. n.a. Multisector Literature review Development of a transaction cost framework for the
(1986) investigation of entry mode choice. Clustering of 17 types
of entry modes
 JOURNAL OF STRATEGIC MARKETING   11

cost efficiency simultaneously. Oliver (1997) shares this viewpoint, arguing that meeting the
institutional mandates results in a better fit with the host market environment and thus
enhanced firm performance. In other words, this literature proposes that firms adopting
modes that conform to institutional considerations, as well as transaction cost efficiencies
should perform better than firms using modes based on other considerations and variables.
Arregle, Hébert, and Beamish (2006) further advocates the notion of combining theoretical
lenses to study entry mode choice, and proposes a model integrating transaction cost, insti-
tutional and organisational learning variables in order to explain the choice of an International
Joint Venture vs. a Wholly Owned Subsidiary to enter a foreign market.
A number of authors (Chatterjee & Singh, 1999; Davis et al., 2000) suggest that the insti-
tutional context significantly influences mode performance because of the direct connection
of the type and usage of specific organisational capabilities with mode choice. Institutional
structures may restrict a firm’s entry choice; firms breaching these structures in turn face
reduced legitimacy or potential extinction (Davis et al. (2000). The institutional structure, for
instance, may provide barriers to foreign market entry such as legal restrictions on ownership
(Delios & Beamish, 2001; Gatignon & Anderson, 1988; Gomes-Casseres, 1990; North, 1990).
Host governments sometimes restrict foreign firm mode choice to facilitate domestic own-
ership. Such implemented laws can limit a firm’s ability to capitalise on its capabilities through
transaction cost predicted choice of entry mode (Gatignon & Anderson, 1988; Roberts &
Greenwood, 1997).
Studies that explicitly investigated MEM choice through the institutional lens alone are
rare; this theoretical approach is commonly adopted in conjunction with other theoretical
perspectives (Arregle et al., 2006; Brouthers, 2013, 2002; Oliver, 1997; Roberts & Greenwood,
1997). Institutional variables, in particular when they are integrated with transactional var-
iables, contribute significantly to the understanding of MEM choice; and have further notable
predictive power to determine modal outcome (Canabal & White, 2008). Further MEM choice
based on considerations of these institutional variables might well be associated with better
performance outcomes in foreign markets. Table 3 summarises selected MEM studies that
have adopted the institutional theory perspective.
In summary, although this perspective significantly contributes to the existing MEM lit-
erature, it overlooks the role and influence of the key decision-maker. Moreover, it does not
advocate a process view on MEM decision-making. Institutional Theory reflects a static view
on entry mode choice based on antecedents/influencing factors on the one hand, and entry
mode choice and respective performance outcomes on the other hand.

The eclectic paradigm

The Eclectic Paradigm is the second most commonly adopted theory used in MEM research
(Canabal & White, 2008). The theory proposes that MEM decisions are made in a rational
manner and are, similar to the TCA, based on the analysis of the costs of the transaction
(Whitelock, 2002). Also referred to as the OLI paradigm, the main theoretical underpinnings
of this approach are that a firm’s entry mode choice is based on the three factors of ownership
(O), location (L) and internalisation (I) (Dunning, 1993, 1988).
Ownership advantages refer to costs, control and benefits of inter-firm relationships
(Canabal & White, 2008). They are specific to the firm and relate to the accumulation of
intangible assets as well as technological capacities (skills) and/or new product innovations.
12   M. SCHELLENBERG ET AL.

Table 3. Key MEM studies adopting an Institutional Theory perspective.

Data
Country/ Industry/ collection
Author/date Sample countries industries method Key aspects under investigation
Brouthers (2013, 113 firms European Multisector Survey Examination of institutional,
2002) union cultural and transaction cost
influences on mode choice and
performance
Canabal and n.a. n.a. n.a. Literature review A review on entry mode research
White (2008) – theories and constructs used,
antecedents and determinants
investigated
Arregle et al. 271 firms Japan Multisector Survey Analysis of numerous determi-
(2006) nants of modes of entry based
on both institutional and
transaction cost variables
Mayer and 731 firms Vietnam Multisector Survey Investigation of how institutions in
Nguyen (2005) an emerging country influence
market entry strategies
Yiu and Makino 364 Japan Multisector Survey Investigation of the choice
(2002) subsidiaries; between a joint venture and a
10 firms wholly owned subsidiary
Delios and 1124 firms Japan Multisector Survey Comparison of institutional,
Beamish (2001) transactional and experience
influences on ownership
decisions
Davis et al. (2000) 1383 firms USA Manufacturing Survey Examination of entry-modes
choice based on two sources of
isomorphic pressures, host
country institutional environ-
ment, and internal institutional
environment
Gomes-Casseres 187 firms USA Multisector Survey Investigation of ownership
(1990) preferences adopting
transaction cost and institutional
variables simultaneously

These assets are reflected by firm size as well as international experience; the skills by the
firm’s ability to develop differentiated products (Dunning, 1993). These ownership advan-
tages need to be unique and sustainable in order to facilitate the creation of a competitive
advantage in the international MEM selection (Brouthers, Brouthers, & Werner, 1996).
Location advantages refer to both institutional and productive factors existing in a par-
ticular market or geographical area and are considered to originate when, for instance, it is
more beneficial to the organisation to combine products which are manufactured in the home
market with irremovable factors as well as intermediate products of another location (Ruzzier,
Hisrich, & Antoncic, 2006). Measures of location advantages commonly include similarities in
culture, infrastructure as well as the availability of lower production costs (Dunning, 1993).
Internalisation advantages are concerned with reduced transaction and coordination
costs, stemming from internal activities in the value-added chain (Ruzzier et al., 2006). The
OLI approach has been further developed by Hill et al. (1990) as well as Kim and Hwang
(1992) who incorporate strategic variables. Further, Woodcock et al. (1994) propose that
MEM choice is based on the contingency characteristics of related requirements as well as
control factors in the organisation. The Eclectic Paradigm is considered a multi-theoretical
approach for the study and investigation of foreign entry mode choice as it draws from
International Trade Theory, Resource-Based Theory as well as TCE.
Although the Eclectic Paradigm is predominantly adopted in the context of MNEs
(Padmanabhan & Cho, 1996) ownership and locational advantages were indeed similarly
 JOURNAL OF STRATEGIC MARKETING   13

found to influence the entry-mode choice of SMEs (Brouthers et al., 1996). The main focus
of MEM studies explicitly adopting the EP was on MNEs rather than the smaller firm (Agarwal
& Ramaswami, 1992; Ruzzier et al., 2006), an imbalance addressed in more recent studies
(Meyer & Nguyen, 2005; Roberto, 2004; Somlev & Hoshino, 2005).
Empirical studies explicitly adopting the Eclectic Paradigm as the theoretical framework
primarily seek to explain the choice between two distinct mode alternatives (Caves, 1982;
Davidson & McFetridge, 1985) an approach considered to enable researchers to create new
determinants to predict entry mode choice (Andersen, 1997). Table 4 summarises key schol-
arly MEM contributions that have explicitly adopted the Eclectic Paradigm perspective in
their investigations.

Table 4. Key MEM studies adopting an Eclectic Paradigm perspective.

Country/ Industry/ Data collection
Author/date Sample countries industries method Key aspects under investigation
Canabal and n.a. n.a. n.a. Literature Review on entry mode research –
White (2008) Review theories and constructs used,
antecedents and determinants
investigated
Somlev and 751 subsidiaries Japan Manufacturing Survey Examination of the effect of
Hoshino (2005) location factors on the
establishment andownership
choice of MNEs
Roberto (2004) 1330 entries Italy Multisector Survey Investigation of the choice
between greenfield investment
and acquisition-based on
location determinants
Whitelock (2002) n.a. n.a. Multisector Conceptual Conceptualisation of a model
paper which incorporates elements of
various theoretical approaches
to study the market entry
decision
Brouthers, 819 German Multisector Survey Investigation of the relationship
Brouthers, and and between Dunning’s OLI
Werner (1999) Dutch variables, entry mode selection
firms and managerial satisfaction with
entering firm performance
Central
and
Eastern
Europe
Brouthers et al. 125 firms USA Computer Survey Investigation of the impact of
(1996) software ownership and locational
advantages on the choice
ofentry modes
Woodcock et al. 321 firms Japanese Multisector Survey Examination of the relationship
(1994) firms between ownership entry
entering modes and firm performance
the US
market
Hill et al. (1990) n.a. n.a. n.a. Conceptual Development of a new theoretical
paper model based on the OLI
assumptions
Dunning (1988) n.a. n.a. n.a. Conceptual Development of the Eclectic
paper Paradigm, proposing the three
entry mode determinants
ownership, location, internalisa-
tion advantages
Hill et al. (1990) n.a. n.a. n.a. Conceptual Development of a new theoretical
paper model based on the OLI
assumptions
14   M. SCHELLENBERG ET AL.

Uppsala internationalisation model

Johanson and Wiedersheim-Paul (1975) and Johanson and Vahlne (1977) developed the
Uppsala Internationalisation model (U-model), highly influenced by Penrose’s (1959) theory
of knowledge and change in organisations as well as the behavioural theory of the firm. This
model depicts the internationalisation of the firm as a process of increasing a company’s
activities as a result of various types of learning (Johanson & Vahlne, 1977). They propose
that general and experiential market knowledge as well as resource commitment (state
aspects) affects commitment decisions and current business activities (change aspects).
These change aspects increase market knowledge which in turn stimulates further resource
commitment to foreign markets in this subsequent cycle (Andersen, 1993). This model
implies that firms will increase international operations and involvement within the foreign
markets in which they currently operate in. The firms are considered to then enter ‘psychically’
more distant countries (differences in education, language, business practices, etc.). This
accumulated knowledge in conducting international operations drives the firm’s interna-
tionalisation by influencing entry mode decision-making (Ruzzier et al., 2006).
This model, also referred to as ‘establishment chain’ (Johanson & Wiedersheim-Paul, 1975)
states that a firm starts international operations with a low-commitment, low-risk mode (i.e.
exporting), and gradually increases commitment in international markets as knowledge is
accumulated and experience rises. This sequence of different ‘stages’ leads to modes of oper-
ations with higher commitment and financial exposure – from independent export repre-
sentatives to the establishment of a Sales Subsidiary and eventually a Wholly owned
Subsidiary. The notion of ‘psychic distance’ argues that firms would initially target neigh-
bouring countries that are considered ‘psychically close’ in terms of culture, economy, politics
and moreover, in terms of geographical proximity (Johanson & Vahlne, 1977).
Many (Chetty, 1999; Coviello & McAuley, 1999; Eriksson, Johanson, Majkgard, & Sharma,
2000; Evans, Treadgold, & Mavondo, 2000; Johanson & Vahlne, 2009; Kontinen & Ojala, 2010;
Morgan & Katsikeas, 1997) have made considerable efforts to test and further refine those
ideas. Although these internationalisation ‘stage theories’ have gained remarkable support
in the MEM literature, they have also been heavily criticised, and their validly is severely
doubted. In particular, the model is accused of being too deterministic (Reid, 1981) and that
it does not correspond to the strategic choices individuals in these firms have (Andersson,
2000). As a further challenge to the proposed U-model, empirical findings confirm that firms
do not follow this traditional pattern of internationalisation (Madsen & Servais, 1997;
McDougall, Shane, & Oviatt, 1994; Oviatt & McDougall, 1995, 1994).
Cannon and Willis (1981) also challenge the underlying assumptions of a step-wise devel-
opment and propose that firms may well omit stages in order to accelerate the process.
‘Psychic distance’ has become much less relevant as communication and transportation
infrastructures improved and markets became increasingly homogeneous (Czinkota and
Ursic 1987; Nordström, 1991). Reid (1983) concludes that internationalisation processes and
patterns are unique to the firm and situation, as well as circumstance-specific. Table 5 sum-
marises key MEM studies that have adopted the Uppsala internationalisation model.
There is still value in this model. It contributes to the theoretical understanding of MEM
patterns and increased engagement in international markets based on commitment and
increased knowledge, and has set valuable foundations for further investigations in the field
(Canabal & White, 2008). Hedlund and Kverneland (1985), however, found some evidence
 JOURNAL OF STRATEGIC MARKETING   15

Table 5. Key MEM studies adopting the Uppsala internationalisation model.

Country/ Industry/ Data collection Key aspects under
Author/date Sample countries industries method investigation
Kontinen and Ojala 4 firms France Manufacturing Case study Internationalisation pathways of
(2010) family firms with a focus on
psychic distance
Johanson and n.a. n.a. n.a. n.a. Critical reassessment of the
Vahlne (2009) Uppsala model, based on
advances in theory as well as an
emphasis on network
relationships
Canabal and White n.a. n.a. n.a. Literature review A review on entry mode research
(2008) - theories and constructs used,
antecedents and determinants
investigated
Evans et al. (2000) n.a. n.a. Retail Conceptual Investigation of the effect of
paper psychic distance on organisa-
tional performance
Coviello and n.a. n.a. n.a. Literature review Critical review of theoretical
McAuley (1999) concepts of the internationalisa-
tion of smaller firms
Chetty (1999) 12 firms New Zealand Manufacturing Case study Investigation of the internationali-
(interviews, sation processes of SMEs
secondary
data)
Andersen (1993) n.a. n.a. n.a. Literature review Critical review of internationalisa-
tion processes research
Johanson and 4 firms Sweden Manufacturing Case study Development of the Uppsala
Vahlne (1977) (interviews internationalisation model on
and secondary the basis of empirical research,
data) focusing on the gradual
acquisition, integration and use
of knowledge about foreign
markets and operations
Johanson and 4 firms Sweden Manufacturing Case study Examination of internationalisa-
Wiedersheim-Paul (interviews, tion pathways and mode choice
(1975) secondary
data)

of firms speeding up the internationalisation process, inconsistent with the assumptions of

the U-model. This fast-paced and inconsistent international development has been wit-
nessed amongst SMEs in hi-tech markets, where high R&D costs, shorter product life-cycles
and a fast changing environment have accelerated the speed of internationalisation pro-
cesses (Young, 1987). Bell (1995, p. 62) argues that in an increasingly global economy, the
relevance of stage-theories must be […] questioned, especially in relation to the internationali-
sation of high-technology and service firms. Jones and Crick (2001, p. 129) support this view-
point and conclude that high technology firms are often faced with different challenges that
have cast doubt on their applicability to the widely accepted stage model.
Similarly, research suggests that strategy formation cannot be considered as being as
systematic as the stage model proposes. Rather, the decision-makers anticipate and react
to internal as well as external factors in a variety of ways, which influences opportunity
recognition and exploitation, ranging from planned strategies to opportunistic behaviour
(Crick & Crick, 2014; Crick & Spence, 2005). Such firms are often considered ‘rapid interna-
tionalisers’ (Oviatt & McDougall, 1995) and the actions taken are commonly defined as ‘reac-
tive strategies’, seen as critical for survival in dynamic environments (Eisenhardt & Martin,
2000). Other firms are considered to have the competence and capabilities that enable them
16   M. SCHELLENBERG ET AL.

to operate internationally from an early stage of their development rather than by the ‘stage
model’ (Bell, 1995; Oviatt & McDougall, 1995). Autio, Sapienza, and Almeida (2000) and
McDougall et al. (1994) stress that for the majority of small firms operating in an (interna-
tional) fast-moving environment with fierce competition, the ability to adapt quickly to new
and changing market/industry conditions and a high degree of pragmatism is more impor-
tant than prior gained knowledge.

The resource-based view

The RBV considers the firm as a unique bundle of accumulated tangible and intangible
resource stocks, such as assets, processes, knowledge and capabilities (Sharma & Erramilli,
2004; Roth, 1995). This theory was developed in the field of strategic management and
focuses on unique, costly and difficult-to-copy attributes and assets of the firm; drivers for
sustainable competitive advantage and organisational performance that are needed for
internationalisation (Ruzzier et al., 2006). A firm’s ability to reach and keep a profitable market
position will depend on the ability to gain and defend advantageous positions regarding
relevant resources (Conner, 1991). Realising the importance of intangible, knowledge-based
resources in providing a competitive advantage, resource-based models do not only address
the ownership of resources, but also the dynamic ability for organisational learning needed
to develop new resources (Canabal & White, 2008).
Due to the heterogeneity of small firms as well as their operating environments, identi-
fying the critical resources needed for internationalisation is considered very difficult (Ruzzier
et al., 2006). Considering the attributes that those resources should exhibit in order to sustain
a long-term competitive advantage, researchers have listed alternative characteristics.
According to Grant (1991), resources must capture transparency, durability, transferability
as well as replicability. Barney (1991) proposes that resources have to be valuable, rare,
imperfectly imitable and not substitutable. RBV assumes that a high county risk implies the
need to protect the firm’s resources and suggests avoidance of full ownership (Agarwal &
Ramaswami, 1992).
RBV has, in contrast to other theoretical lenses discussed here, fully incorporated the key
decision-maker’s role and influence on key internationalisation decisions (Herrmann & Datta,
2005; Alvarez & Busenitz, 2001). Managerial learning, for instance, was identified as a signif-
icant variable which corresponded to how the key decision-maker learned over time, and
further included the roles and experience of the management team (Reuber & Fischer, 1997).
In an international context, learning can take place over time, as key employees are exposed
to novel experiences, and this resource, considered as a ‘knowledge base’, which Moorman
and Miner (1998) define as ‘organisational memory’, can shape decision-making. Since in
smaller firms, the decision-maker’s characteristics drive organisational strategy, their personal
enthusiasm for overseas expansion and their international mindset is considered to result
in higher international involvement (Katsikeas, 1996; Cavusgil, 1984). Crick and Spence (2005,
p. 170) assert that as entrepreneurial learning takes place and experience grows, managers
develop an increasing amount of intellectual capital that can be used to develop strategies and
allocate resources. Higher education, a further characteristic of key decision-makers in High
technology firms (Baruch, 1997), has been linked to greater openness to foreign markets
(Bloodgood, Sapienza, & Almeida, 1996; Cavusgil, 1984). Table 6 summarises key MEM studies
that have adopted the RBV.
 JOURNAL OF STRATEGIC MARKETING   17

Table 6. Key MEM studies adopting the Resource Based View.

Country/ Industry/ Data collection
Author/date Sample countries industries method Key aspects under investigation
Sedoglavich 10 firms New Zealand High Case study Examination of how a firm’s
(2012) technology leading‐edge technology affects
the way international business is
conducted
Canabal and White n.a. n.a. n.a. Literature A review of entry mode research
(2008) review – theories and constructs used,
antecedents and determinants
investigated
Herrmann and 271 market USA Manufacturing Survey Examination of the CEO
Datta (2005) entries characteristics’ influences on
entry mode decisions
Erramilli, Agarwal, 201 USA Hotel industry Survey Explanation of a firm’s choice of
and Dev (2002) non-equity mode based on the
organisational capabilities
framework
Whitelock (2002) n.a. n.a. Multisector Conceptual Proposition of a model which
paper incorporates the elements of
various theoretical approaches
to study the market entry
decision
Alvarez and n.a. n.a. n.a. Conceptual Examination of the relationship
Busenitz (2001) paper between resource-based theory
and entrepreneurship. Emphasis
on the decision-maker’s role and
influence, as a resource, on
opportunity recognition
Reuber and Fischer 49 firms Canada Software firms Survey Investigation of the influence of
(1997) the management team’s
international experience on the
internationalisation behaviours
of SMEs

RBV has contributed specifically to the understanding of MEM choice of smaller firms
(Canabal & White, 2008; Ruzzier et al., 2006) and to the importance of transferring key assets
like technology and intellectual property (IP) from the domestic market into the host market,
and its influence on modal outcome (Sedoglavich, 2012) is undeniable. Autio et al. (2000)
and McDougall et al. (1994) stress that for the majority of small firms operating in a fast
moving environment and fierce competition, the ability to adapt quickly to new and chang-
ing market conditions is more important that prior gained knowledge. This ability has been
identified as ‘learning advantage of newness’, a process of entrepreneurial learning and a
manager’s development of intellectual capital (Crick & Spence, 2005). The same authors
argue that where high competition meets high demand, a market-orientated approach to
internationalisation rather than a resource- based approach should be expected.

Summary of the gaps in the literature

Due to the well-established nature of the MEM literature and the wealth of theoretical knowl-
edge accumulated by scholars in the field over the five past decades, Shaver (2013, p. 23)
raised the provocative question of Do we really need more entry mode studies? and argues
that MEM scholars are only marginally contributing to the extant body of knowledge. Having
reviewed the current state of the MEM literature we follow Hennart and Slangen (2015), and
18   M. SCHELLENBERG ET AL.

answered in the affirmative. Specifically, we now identify three main gaps which are sum-
marised in the following passages. These are; the imbalance towards larger firms and away
from smaller ones, the lack of focus on the process of entry mode decision-making and the
clear need for integration between different perspectives to produce more holistic insights
and understanding.
The first gap refers to the fact that most explicit MEM studies have commonly investigated
MNEs rather than smaller firms, and/or have attempted to provide generalisable explanations
regardless. Predominant internationalisation theories (TCE, Institutional Theory, Eclectic
Paradigm, Uppsala Model, RBV) fall short in adequately reflecting small firm characteristics
and the challenges they face in foreign markets. After decades of research, the predominant
focus on MNEs in explicit MEM studies (Hennart & Slangen, 2015; Laufs & Schwens, 2014;
Shaver, 2013) prevails, even though SMEs differ significantly from large firms in terms of;
financial and personnel resources (Brouthers & Nakos, 2004; Nakos & Brouthers, 2002; Ripollés
& Blesa, 2012), sensitivity to external influences (Cheng & Yu, 2008), differences in ownership
structure and management characteristics (Cheng, 2006; Pinho, 2007); willingness to share
control with a partnering firm (Fernández & Nieto, 2006), decision-making characteristics,
operations and managerial style (Carson, 1990; Gilmore, Carson, & Grant, 2001; Smallbone,
Leig, & North, 1995). The managerial work in small firms itself has been characterised by
short, interrupted and fragmented activities; a need to react to events, problems and require-
ments of others, a preoccupation with the exigent, ad hoc and unforeseen, rather than the
planned, a tendency for activities to be embedded in others rather than undertaken separately…
(Hales, 1999, p. 338)
While studies that draw on existing theoretical frameworks to explain SME foreign MEM
choice remain are very rare, studies that do so largely apply the Internationalisation Theories
that have been used to explain large MNEs’ MEM choice. This present research asserts that
focusing on SMEs does not mean focusing on sample setting – for the sake of sample setting
(Shaver, 2013, p. 25), which he considers a major deficiency of current MEM contributions,
but means investigating these firms in order to enhance existing knowledge beyond what
scholars know about MNEs. Consequently, there is a need for more explicit investigations
of MEM decision-making in smaller firms (Laufs & Schwens, 2014; Maekelburger, 2012).
The second gap in the literature stems from the relative absence of research that explicitly
focuses on the entry mode decision-making processes within firms. Investigating how these
processes affect mode choice can lead to valuable new theoretical insights (Canabal & White,
2008; Hennart & Slangen, 2015). Based on a unitary and static MEM conceptualisation, and
both external and internal (firm-specific) antecedents and determinants (Canabal & White,
2008; Hennart & Slangen, 2015; Ruzzier et al., 2006; Shaver, 2013; Zhao et al., 2004), the
Internationalisation Theories discussed previously do possess substantial explanatory as well
as predictive power and help in understanding which factors encourage or discourage (Root,
1994, p. 8) MEM decisions. They do, however, offer only limited insights into the decision-
making processes in firms. In line with Shaver’s (2013) criticism that recent scholarly contri-
butions have been commonly preoccupied with the advancement of statistical ­measurement,
the actual entry mode decision-making processes in firms and the associated how and why
questions associated with those processes have been widely neglected by MEM scholars.
Two noticeable exceptions remain the studies by Buckley et al. (2007) and Chen (2008).
Whereas Buckley et al. (2007) identify a stepwise decision-making approach amongst
managers, empirical findings by Chen (2008) do not confirm these propositions. These
 JOURNAL OF STRATEGIC MARKETING   19

contradictory findings confirm that further insights are needed. The lack of theoretical under-
standing of MEM processes also reflects the assertion that the study of choices can be meth-
odological complex, since the choice process itself might well be complex (Shaver, 2013).
The questions of How is the entry decision process structured? (Hennart & Slangen, 2015,
p. 114) and: Does the decision-making process of entry mode choice vary? (Canabal & White,
2008, p. 278) provide a promising departure point for further MEM research. Future MEM
research should also differentiate itself from the large body of normative studies and static
views on the MEM conceptualisation, by explanatorily investigating entry mode deci-
sion-making processes. Further, the identification of imperfections in the process through
which managers arrive at MEM decisions would enable researchers more concrete and more
valuable managerial recommendations (Hennart & Slangen, 2015).
The third gap concerns the calls made by MEM scholars to combine and integrate theo-
retical perspectives in order to investigate entry mode decision-making. Dominant
Internationalisation Theories emphasise and investigate only certain aspects and variables
while neglecting important others. As no single theory may be sufficient to explain a firm’s
MEM decision-making another important approach that could strongly benefit entry mode
research is for scholars to continue to combine and integrate theories (Canabal & White, 2008,
p. 278). This call is in line with Nisar’s et al. (2012) proposition to employ an integrated the-
oretical perspective to investigate MEM decision-making.
In smaller firms, the decision-maker’s characteristics drive organisational strategy; hence
the individual’s personal enthusiasm for overseas expansion and their international mindset
affect internationalisation decisions (Cavusgil, 1984; Katsikeas, 1996). Scholars (Acedo &
Galán, 2011; Brouthers, Andriessen, & Nicolaes, 1998) have highlighted the significant role
the key decision-maker plays; and Peiris, Akoorie, and Sinha (2012) claimed that further
research on internationalising SMEs should take these key decision-makers as a focal point.
Foreign market entry can be considered an entrepreneurial activity (Knight, 2000; Lu &
Beamish, 2001) and international business opportunities are identified by individuals, not
by firms (Shane & Venkataraman, 2000). Scholars (Andersson & Florén, 2008) have thus called
for a closer focus on the relationship between the key decision-maker’s behaviour and the
firm’s internationalisation.
The relative importance and significance assigned to the decision-maker’s role, however,
varies amongst various theoretical perspectives on MEM choice. The U-model (Johanson &
Vahlne, 2009, 1977), the Eclectic Paradigm (Dunning, 1993, 1988), TCE (Erramilli & Rao, 1993;
Williamson, 1975), Institutional Theory (Davis et al., 2000; Di Maggio & Powell, 1983; Meyer
& Nguyen, 2005) have merely overlooked or neglected the role of the key decision-maker
in internationalisation decisions. RBV (Barney, 1991; Grant, 1991) regards managerial learning
and knowledge as firm specific and valuable assets but other scholars (Autio et al., 2000;
McDougall et al., 1994) point out that that for the majority of small firms operating in
fast-moving environments and fierce competition, the ability to adapt quickly to new and
changing market conditions is more important that prior gained managerial knowledge.
RBT states that the firm’s internal capabilities would drive the firm’s internationalisation
strategy, but reactive strategies (Eisenhardt & Martin, 2000) have been witnessed among
small firms in dynamic markets, by identifying windows of opportunities that might not stay
open for long (Crick & Spence, 2005), as opposed to the ‘inside out’ approach the RBV
advocates.
20   M. SCHELLENBERG ET AL.

Network Approaches, in contrast to other theoretical lenses discussed, confirm the critical
role that the individual decision-maker’s characteristics play (Collinson & Houlden, 2005).
Understanding small firms as actors embedded in business networks (Johanson & Mattson,
1993; McAuley, 1999), decision-makers are strongly influenced by those social relationships
(Granovetter, 1985). As SMEs face hardship in obtaining resources and foreign market knowl-
edge (Zahra, 2005), networks support these firms to overcome these resource constraints
(Sharma & Blomstermo, 2003). Surprisingly, the network perspective has still to be fully
applied in the MEM literature (Canabal & White, 2008). The questions of how and to what
extent the interaction of the actors in the networks impact on the key decision-maker’s
choice and/or the structure of the decision-making processes remains under researched in
the MEM literature.

Conclusion
This paper presented a focused review of the MEM literature, through a discussion of its
conceptualisation and classification criteria, as well as a critical evaluation of predominant
Internationalisation Theories that have attempted to explain a firm’s entry mode choice. Even
though MEM is a well-established research area, there is a need for further exploratory
research as opposed to the predominant focus on explanatory and predictive research. It
can be concluded that So far, we lack detailed knowledge of how entry decisions are actually
made. (Hennart & Slangen, 2015, p. 119). More research is needed to investigate how these
processes are structured. The predominant Internationalisation Theories discussed fall short
in respect of small firm characteristics and challenges and the individual decision-maker’s
role in the MEM decision-making remains relatively overlooked.

Disclosure statement
No potential conflict of interest was reported by the authors.

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