Entry Mode Deviation: A Behavioral Approach to Internalization Theory

Stefano Elia, Marcus M. Larsen*, Lucia Piscitello

*Corresponding author for this work

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Abstract

We explore when and why decision makers choose international entry modes (e.g., hierarchies or markets) that deviate from internalization theory’s predictions. By applying a cognitive perspective on entry mode decision making, we propose that the performance of prior international activities influences decision makers’ behavior in different ways than assumed in internalization theory. More specifically, due to a representativeness bias, underperforming (overperforming) past ventures influence the decision to change (continue using) the previous entry mode choice, which may result in an entry mode deviation. In addition, the propensity to deviate from theoretical predictions is stronger when the experience is recent and/or salient due to an availability bias. In conclusion, we argue that internalization theory can benefit from incorporating more systematically important behavioral assumptions on how firms enter international markets. In so doing, we contribute to the recent conversation on how variations in human behavior influence internalization theory.
Original languageEnglish
JournalJournal of International Business Studies
Volume50
Issue number8
Pages (from-to)1359–1371
Number of pages13
ISSN0047-2506
DOIs
Publication statusPublished - Oct 2019

Keywords

  • Entry mode
  • Deviation from prediction
  • Internalization theory
  • Bounded rationality
  • Cognitive bias

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