A study on the impact of the entry mode and the financial performance of foreign subsidiaries

Financial Management

International Conference on "Innovative Management Practices"

The mode of entry is a fundamental decision a firm makes when it enters a new market because the choice of entry automatically constrains the firm’s strategy. The mode of entry also affects how a firm faces the challenges of entering a new country and deploying new skills to market its product successfully. A firm entering a foreign market faces an array of choices to serve the market which includes: Export, License and franchise, Alliance, Joint venture and wholly owned subsidiary. A firm can choose any of these entry modes or some combination of them to enter a host country. The key attribute that distinguishes the different modes of entry is the degree to which they give a firm control over its key marketing resources. Control and commitment are linked in mode of entry. High control in entry strategies entails high commitment. Higher costs imply that higher levels of investments are needed for the firm to break even and make a profit. From their entry specific experience, firms can learn the specific knowledge of how to manage subsidiaries of one kind of entry mode. Compared with general entry experience, entry specific experience represents deeper knowledge within a given entry mode.

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