Augmenting versus exploiting entry modes in soft services : Reconsidering the role of experiential knowledge

Purpose – The purpose of this paper is to address foreign market entry mode as a way to enhance firm’s knowledge base, providing new insights into traditional explanations of entry mode choice for soft services. The authors offer an alternative knowledge-based approach to assess foreign investment decisions by considering the role of resource-augmenting (direct investment) and resource-exploiting strategies (licenses). In addition, the authors untie the type of experiential knowledge, i.e., host country and mode experience, to analyze its interactions with environmental uncertainties such as cultural distance. Design/methodology/approach – Based on a customized database of the Spanish Global Hotel industry covering practically all foreign entries until 2012, the authors use regression analysis to test the proposal. Findings – The authors demonstrate how in hotel chains (a) cultural distance influences the use of high resource-augmenting modes, due to both the difficulties in transferring the knowledge to third parties but also the imperative need of learning from local markets and (b) how strong brands tend to use resource-augmenting modes in their first steps abroad as a strategy to achieve a minimum level of resource basis to exploit it in a later stage. Originality/value – The findings question the appropriateness of prior assumptions from traditional internationalization process theories for soft services MNE and provide an alternative approach to assess entry mode choice in this context.