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Evaluation of current mode performance Have objectives been met?
Benchmark mode performance with country potential Check assumptions and priority
Check alternative modes and mode combinations New mode to achieve full potential?
Check economical advantage of mode switch
Mode switch delivers positive value
Performance improve
Figure 9.1: Evaluation of switching mode – systematic decision making process
The discussion of the path dependency of the decision also raises the demand for a
significant improvement of the knowledge of options tied to foreign operation. To put
it in simple terms, it is about more than the knowledge of classic market-entry
strategies. It is about comprehensive know-how as to in what manner these
strategies can be combined and how a successful switch can be undertaken both
internally and externally so that possible reservations regarding a necessary further
development of the company can be cleared out of the way. The terms of mode
experience and mode competence repeatedly mentioned in this context are a first
step but need to be expanded on by foreign operation competence.
For the successful management of a foreign operation, there is the necessity to
integrate the concept of pathway dependency. It should be the primary goal in the
internationalisation process to avoid rigid path dependencies and to recognize and
further develop positive path dependencies. In this conclusion, this demand will be
addressed with the development of an explanatory theory on the behaviour of firms
during mode switching.
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9.5 The case for path dependence - How history matters in mode switching
The concept of path dependency is to be used here because decisions and
behavioural patterns in the past such as mode experience and their effects on future
decisions and behavioural patterns play a major role in mode switching (Benito et al.
2009). Previous research on path dependency (Eriksson et al. 2000; Araujo and
Rezende 2003; Schreyögg and Sydow 2003; Schreyögg et al. 2003; Sydow et al.
2005; Hutzschenreuter et al. 2007; Dievernich 2007) offers a good foundation for
general explanations which will be expanded in perspective in the following through
the internationalisation theories discussed and the empirical results. A further reason
for selecting the concept of path dependency lies in the process perspective. In this
manner, better understanding of the challenges involved in changing strategies and
organisations over the course of internationalization and in particular after market
entry can be gained.
First, the implication of the empirical results of this work regarding behaviour before,
during and after the mode switch will be discussed. This will be based on the phases
“path creating”, “path shaping” and “path dependency”. Then the fourth phase of
“path breaking and path creating” will be introduced. The possibility and limitations of
“path management” will be indicated with particular focus on the phenomenon of
breaking path dependency as regards decisions on foreign operation modes. This
section ends with key conclusions and the remaining challenges.
In Table 9.2 the most important influencing factors on the management of foreign
operation and mode switching are presented based on the results of this work. The
categorisation of the most important determining factors here is to be understood as
an attempt to create a holistic explanatory model regarding the development of
foreign operations.
The research subject of this study comprises, in particular, Phase 2 and Phase 3.
The mode switch can only occur after completion of market entry. In Phase 1, market
entry therefore represents the starting point. In the descriptions of Phase 2 and
Phase 3, the empirical results for the behaviour of switchers and non-switchers from
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Chapter 5 to 8 are integrated. Phase 4 comprises summarising recommendations for
the successful management of foreign operations.
Table 9.2: Most important influencing factors to explain path dependency in internationalisation and mode switching
Phase Process Components Indicators elements
1. Path creating
Market entry Historicity, Small events
- Management style (management intention/strategic objectives/ management perception to risk and opportunity)
- Company characteristics
- Mode experience, mode competence - International experience
- Mode strategy
Critical Juncture/ Critical Event Market entry as initial starting point: The market entry decision
2. Path shaping
Market penetration
Positive and negative feedback from internal and external environment
- Degree of satisfaction
- Financial results (e.g. sales growth) - Mode learning, mode experience
- Managerial style
- Business environment
Lock-In Reduced strategy options (strategy diet)
3. Path dependence
Mode pathway (mentry, m1, m2, m3,..mN)
Stabilising factors -target/strategy -ignorance -inefficacy -immunity -
-----
-
Mode strategy, pathway identified Performance, satisfaction of current mode Time to switch
Influence factors on mode switching
Context factors (industry sector, country group, mode strategy)
Mode experience
Resistance to switch, risk averse Conflict of objectives
Know-how, Capabilities Unwillingness
Economically inefficient
Un-Lock Expanded strategy options
4. Path breaking and path creating
Path management, Mode flexibility
Open mind set
Leadership by objectives
Long-term oriented
- Short-term/local and long-term/system oriented decisions
- Global mind-set
- Personal objectives/Country objectives/Internationalisation objectives
Sustainable - Alternative generation
development (management recommendations path breaking and path creating by management intention) Recommendation to improve pathway performance
Note: the dark-colored area in the table comprises of the main research area on management von foreign operation and mode switching.
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In the following, the most important findings will be discussed and expanded based
on the model of path dependency previously introduced (Chapter 2.3.7).
9.5.1 Path creating: Decision for international expansion as point zero and
market entry
The decision regarding international expansion represents the start of a foreign
market operation. At this point, the company at least theoretically has a free choice of
countries and market-entry strategy. In fact, however, the company begins in a
specific environment of existing network structures in the home country and the
foreign country, with experiences with other countries, successes and failures.
Though all options seem open to decision makers at this point, they are nevertheless
influenced by motivation, capability and their own perceptions regarding
internationalisation, the already existing mode strategy, mode competence and
experience with strategic changes in their home and foreign markets (Jones and
Coviello 2005; Hutzschenreuter et al. 2007, Brouthers and Hennart 2007; Chirico and
Nordqvist 2010).
Although it is a new foreign market – there are already organisational persistencies
and stabilities which have crystallised from the internationalisation of the company to
date and the internationalisation experiences of its decision makers (Buckley et al.
2007). Both a high and low degree of experience can limit the choices of market-
entry decisions (Brouthers 2002). With extensive experience, the company relies on
familiar patterns of action that have been successful in other markets. Market entry
as an economic process is thereby, in its totality, not wholly without presuppositions.
It is influenced by previous decisions and the perceptions tied to these (Winter 2000;
Zollo and Winter 2002; Hutzschenreuter et al. 2007).
The structural and cognitive embedding of the company contributes to the successful
initiation of the internationalisation process and mobilisation of resources. As a result,
uncertainty is reduced and temporally limited stabilities are created. Small events in
the form of first contacts with country experts, coincidental acquaintances, visits to
trade shows, market-research results, the behaviour of competitors or also direct
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contact with interested partners from the foreign country promote opinion building
regarding future internationalisation and create the foundation for the market-entry
decision. Small events as process-effective occurrences can be of accidental nature
but can also come about consciously as intended management behaviour. Whether it
was a accumulation of information or single ideas of particular significance for the
market-entry decision can only be observed retrospectively; it cannot yet be
ascertained during the actual decision-making phase. As precursors to the market-
entry decision however, such small events are of high importance because they
unintentionally narrow freedom of action.
At a certain moment, the market-entry strategy itself finally forms as a kind of big
event, a “critical juncture” (Schreyögg and Sydow 2003). This is to be understood as
the first emergence of an event that exerts sustainable, self-reinforcing effects and is
thereby responsible for the persistence. The market-entry strategy as a critical event
marks the transition to the phase of path creation.
The decision-making process regarding market entry is based on organisational
structures that have emerged in the past (Holtmann 2008; Barreto 2010). It is not a
fully autonomous decision. On the contrary, decision makers are predisposed based
on past organisational decisions made for internationalization (Zollo and Winter 2002;
Hutzschenreuter et al. 2007). The historically prominent mode strategy, the flowing
processes and decisions from this determine the selected mode of operation and
thereby internationalisation behaviour.
Once the decision regarding the market-entry strategy has been made, there is
therefore a clear narrowing of the future field of action. For example, this study
showed a particular frequency of switches to a subsidiary after market entry with an
importer (market-entry decision as a big event). In this sense, the selection of the
market-entry mode acts as an imprint for all further mode decisions which may follow
and thereby reduces the initial result-openness to a few options.
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