Modes of Foreign Entry: A Transaction Cost Analysis and Propositions

A “frontier issue” in international marketing is the appropriate choice of entry mode in foreign markets. The objective of this paper is to offer a transaction cost framework for investigating the entry mode decision. This framework provides 1) a theoretical basis for systematically interrelating the literature into propositions, 2) propositions about interactions which resolve the apparently contradictory arguments advanced to date. Specifically, the paper:Illustrates the feasibility of clustering 17 entry modes into the degree of control the mode provides the entrant;Proposes that the most appropriate (i.e., most efficient) entry mode is a function of the tradeoff between control and the cost of resource commitmentadvances testable propositions delimiting the circumstances under which each mode maximizes long-term efficiency.The entry mode literature is reviewed in the context of these propositions, and guidelines are derived for choosing the appropriate mode of entry, given certain characteristics of the firm, the product, and the environment.© 1986 JIBS. Journal of International Business Studies (1986) 17, 1–26