Foreign Market Entry Strategies
Summary Articles
Kirsten Huetink
Week 47 (1): Foreign entry strategies
• Hennart, J.-F.2009 Down with MNE-centric theories! Market entry and expansion as
the bundling of MNE and local assets. Journal of International Business Studies,
40(9): 1432–1454.
• Xu, K., Hitt, M. A., & Miller, S. R. (2020). The ownership structure contingency in the
sequential international entry mode decision process: Family owners and institutional
investors in familydominant versus family-influenced firms. Journal of international
business studies, 51(2), 151- 171.
Week 48 (2): Cross-border acquisitions
• Hasija, D., Liou, R. S., & Ellstrand, A. (2020). Navigating the new normal: Political
affinity and multinationals' post‐acquisition performance. Journal of Management
Studies, 57(3), 569-596.
• Yiu, D. W., Wan, W. P., Chen, K. X., & Tian, X. (2022). Public sentiment is
everything: Hostcountry public sentiment toward home country and acquisition
ownership during institutional transition. Journal of International Business Studies,
53(6), 1202-1227.
Week 49 (3): International alliance portfolio
• Lavie, D., & Miller, S. R. (2008). Alliance portfolio internationalisation and firm
performance. Organisation science, 19(4), 623-646.
• Bos, B., Faems, D., & Noseleit, F. (2017). Alliance Concentration in Multinational
Companies: Examining Alliance Portfolios, Firm Structure, and Firm Performance.
Strategic Management Journal, 38(11), 2298-2309.
Week 50 (4): Cross-border acquisitions: in and out of emerging markets
• Zhou, C., Xie, J., & Wang, Q. (2016). Failure to complete cross-border M&As: "to"
vs. "from" emerging markets. Journal of International Business Studies, 47(9), 1077-
1105.
• Amendolagine, V., Giuliani, E., Martinelli, A., & Rabellotti, R. (2018). Chinese and
Indian MNEs' shopping spree in advanced countries. How good is it for their
innovative output?. Journal of Economic Geography, 18(5), 1149-1176.
Week 2 (5):
• Luo, Y., & Park, S. H. (2004). Multiparty cooperation and performance in
international equity joint ventures. Journal of International Business Studies, 35(2),
142–160.
• Mohr, A., Wang, C., & Fastoso, F. (2016). The contingent effect of state participation
on the dissolution of international joint ventures: A resource dependence approach.
Journal of International Business Studies, 47(4), 408–426.
• Puck, J. F., Holtbruegge, D., Mohr, A. T., Lee, S.-H., & Makhija, M. (2009). Beyond
entry mode choice: Explaining the conversion of joint ventures into wholly owned
subsidiaries in the People's Republic of China. Journal of International Business
Studies, 40(3), 388–404.
,1.1 Hennart, J.-F.2009
Down with MNE-centric theories! Market entry and expansion as the bundling
of MNE and local assets.
This essay is about the different models of internationalization, and how they explain the
foreign market entry of multinational enterprises. The three models are the OLI model, the
Anderson model, and the Gatignon model. The OLI model sees the foreign market entry as
unilateral decision by multinational enterprises (MNEs), while the Anderson and Gatignon
models see it as a result of the increased commitment of MNEs as they gain experience in
the target market. The model that I proposed in the text, the bundling model, sees foreign
market entry as the optimal assignment of equity between their owners and MNEs. This
model has implications for the evolution of the MNE footprint in host countries and for the
reasons behind the emergence of Dragon MNEs.
INTRO
This text discusses the different models that scholars have used to explain why multinational
companies choose to enter a foreign market. The models focus on the decision of whether to
enter through a wholly owned subsidiary (WOS), equity joint venture (EJV), or licensing of
proprietary assets. The text introduces a new model that takes into account the role of
owners of complementary local assets.
The model suggests that the optimal mode of entry is one that maximizes the welfare of both
the MNE and the owners of the complementary local assets.
MNE-CENTRIC THEORIES OF INITIAL AND SUBSEQUENT ENTRY MODE CHOICES
This text discuss the theory of MNEs within the international business literature. Anderson
and Gatignon's model is widely accepted and states that MNEs should insist on a WOS
when exploiting highly proprietary products and processes abroad, but should choose an
EJV when their products and processes are not proprietary. Down with MNE-centric theories
argues Jean-François Hennart.
Other IB models of the evolution of an MNE in a host country also see it as determined
primarily by the MNE itself, with owners of complementary local assets playing no explicit
role in the outcome. The Uppsala internationalization model (Johanson & Vahlne, 1977,
1990) predicts that an MNE will progressively deepen its commitment to a specific market,
moving from contractual entry to EJV and to WOS as it gains additional experience from its
current activities in the host market. Other authors have argued that MNEs unilaterally
choose between greenfield entry and acquisition based on their international experience
(Barkema & Vermeulen, 1998; Vermeulen & Barkema, 2001), or mode-specific experience
(Padmanabhan & Cho, 1999).
THE EXTANT ASSET-BUNDLING LITERATURE
The text discusses the theories of Jean-Francois Hennart and James Teece on the role of
complementary local assets in foreign market entry. Hennart's theory revolves around the
idea that MNEs will opt for EJVs when venturing abroad in resource-based industries due to
the privileged access that local firms often enjoy. Teece's theory revolves around the idea
that innovators will capture the profits from their innovations based on the nature of their
interaction with the owners of complementary assets. Hennart and Teece's theories are
integrated into a model of the modes of foreign market entry and expansion.
HENNART (1988, 2000)
Hennart's goal is to show that transaction cost theory can be used to describe the necessary
and sufficient conditions for the choice of efficient joint ventures (EJVs) as a first-best
strategy. He argues that EJVs will arise when at least two owners hold complementary
assets that they want to bundle, and that the market sale of those assets would incur high
information, bargaining, and enforcement costs. To illustrate the argument, he considers the
case where efficient production requires the combination of two types of complementary
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,knowledge held by firms A and B. He uses a 2x2 matrix to show that EJVs occur whenever
the knowledge contributed by both A and B is subject to high information, bargaining, and
enforcement costs. In the second part of his argument, he investigates the circumstances
under which bundling the services of assets through EJVs is preferable to bundling them in
the market for assets or asset services through greenfields, or in the market for firms through
acquisitions.
He argues that EJVs are preferable to acquisitions whenever…
1. Bundling the assets via the market for firms would incur higher information,
bargaining, and enforcement costs than other options.
2. Besides cases where acquisitions are illegal, or would lead to ill will, EJVs are
preferable to full acquisitions when the assets that each party needs are a subset of
the assets held by the respective firms, but are hard to separate from the assets that
are not needed. Bundling the service of assets through EJVs is preferable to
bundling assets through greenfields whenever assets can be shared by many users
without reducing the amount available to each.
TEECE 1986
The article discusses how a company's profits from an innovation may go to the owners of
complementary assets, rather than the innovators. This is illustrated with the story of the CAT
scanner developed by the UK firm EMI. EMI failed because it did not invest in the service
network needed to train users, while GE (a competitor) did have such a network.
Teece argues that whether innovators or imitators capture the fruits of innovation hinges on
three factors:
1. the appropriability regime
2. the dominant design paradigm
3. the nature of complementary assets.
A BUNDLING MODEL OF FOREIGN MARKET ENTRY MODE
In Figure 2, the axes refer to the three markets in which agents can interact-the market for
the service of assets, the market for assets, and the market for firms owning the assets. The
model predicts the most efficient way to bundle assets, not necessarily the way economic
agents will always end up doing it. Agents will make mistakes, but we would expect that
inefficient arrangements would not survive in the long run.
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, Markets for Knowledge and Appropriability
The text discusses the transfer of knowledge from multinational enterprises (MNEs) to local
owners of complementary assets. The cost of transferring knowledge on the licensing market
is impaired by factors such as the high cost of patenting and the difficulty of separating tacit
knowledge from the firm in which it has been developed. The market for consulting services
is more efficient, as is the market for products. The third market for accessing knowledge is
through buying components and being trained in their use.
Markets for Complementary Local Assets
The text discusses how MNEs need access to local complementary assets in order to
integrate into foreign markets. These assets can be accessed in different markets, and the
efficiency with which these markets can transfer the assets varies depending on the asset
and the host country's institutional environment. In some cases, all markets will fail, and MNE
entry will not be possible. When contracting for land services, for example, MNEs may have
to buy the land on which they want to establish their business, which can be difficult if there
are no private property rights in land or if the land is subject to zoning laws. When contracting
for distribution services, MNEs may have to integrate into local distribution by hiring their own
sales force or by taking over existing distributors. Access to local distribution is often a
challenge, and the inability of MNEs to do so has often hampered their entry and jeopardized
their survival.
Determinants of MNE Equity Levels
The text discusses the three possible ways an American MNE could enter the Japanese
market, and how the choice of mode of entry depends on a comparison of the costs that
MNEs must incur to obtain access to the complementary assets necessary to incorporate
their knowledge into locally produced goods and services relative to those that local owners
of complementary assets incur in accessing knowledge on all of its markets. If the market
sale of the knowledge held by the MNE is subject to high transaction costs, but the MNE can
acquire complementary local assets on efficient markets, then the MNE could potentially
inflict higher costs on local owners of complementary assets than those owners could inflict
on the MNE. The solution that maximizes the total rents from the bundle of assets is then to
give the MNE the right to the residual, and have it contract for the complementary assets.
The MNE will then enter with a WOS (cell 3). Inversely, if the market for knowledge is
efficient, and so knowledge sellers can be expected to reliably deliver as promised, but,
because of inefficient markets for complementary assets, their owners cannot be expected to
behave as reliably, then the best solution is to have those owners hold the equity. This is the
case when an MNE finds it very difficult to contract with local distributors, or to manage them
as employees. The optimal solution for both parties is then to have local distributors hold the
equity and obtain knowledge on relatively efficient markets, for example by taking a license
from an MNE, by hiring its employees, or through the purchase of parts or components
incorporating the needed knowledge (cell 2).
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