Factors Influencing Firm Choice of Entry Mode

Running Head: MANAGEMENT 0
GLOBAL BUSINESS

MANAGEMENT 1
Question 1)
Solution 1) There are two factors that influence a firm choice of entry mode. It includes
external factor and internal factors. In external factors, it is comprised of cultural distance,
marketing size and growth, country risk and legal barriers. On the other hand, internal factors
are comprised of firm size, international experience, technological capability and product
characteristics.
In extent with internal factors, the first is the firm size where larger firms are positively
associated to the adoption of equity entry mode due to their greater productive resources,
economy of scale, and market power. Whereas in smaller firms, there will have more chances
of failure as international investment may lead to insolvency of entire firm due to presence of
greater risks (Brouthers, Brouthers & Werner, 2008). The second is international experience
and a firm need to be the greater international experience as it helps the firm to deal with
uncertainty present in the new environment. The next is technological capability where the
organisation who have highly capitalize in R&D may opt for lower risk option against rivals.
The last is the product characteristics, which help the organisation to differentiate its products
from the competitors. With innovative products, the company can appeal customer more
effectively and thus help to capture a distant market.
In extent with external factors, the first is the cultural distance where if the culture difference
is larger between the home and host country, the company should avoid to entry and focuses
on other sorts of strategy. The next external factor is market size and growth, where the larger
the size of market, the company can use their resource more effectively with achieving
economy of scale. Country risk is next significant external factor where unstable political and
economic environment raises the risk of doing business in a particular country (Gallego et al,
2009). The last is the legal barriers, which depicts government regulations where if the
particular government regulation in the host country is tight, it may put various barriers for
the company to effectively run their operations.