Internationalization of Retail Chain Companies: A Quantitative Approach to Understand the Drivers of Strategic Entry Mode and Performance

Abstract

With the progressive globalization process and the fall of many the barriers to trade that prevented companies to go abroad, the market place widened along with the possibilities that companies have to expand in foreign markets. Given resource endowments, experience, knowledge and limited information, companies have different strategies available in order to enter foreign markets. What is the model used by successful companies? What is the strategy that maximizes profitability? Is there any way to predict future profits and the entry mode chosen by a given company? These are recurrent questions in the wide literature about firms internationalization. In this paper we try to address this issue building on a twofold analysis. On one side we attempt to predict the entry mode (in terms of resource commitment and risk bearing) and on the other profitability as a function of different variables. In our analysis mainly big companies are included so that size plays a major role and the companies have more freedom in the approach they take since they can rely on a solid position in the home market. Another important point is that, given the size, these companies have accrued some experience in internationalising so that they can somehow follow a path. According to Gatignon and Anderson (1988), increased experience decreases the possibility of entry mode mistakes since they somehow proved an internationalization strategy with a trial-and-error approach before. The assumptions we tested have been previously presented by other authors and we try to construct an integrated approach that looks at different perspectives and issues that companies are facing when internationalizing. We used a two-way analysis: a logistic regression to explain the variation in entry modes and a hierarchical multiple regression to capture the performance. The results don‘t support all of the presented hypotheses but find a correlation between the size of the company and the entry mode chosen and between the global strategy and the accrued profits. We can confirm a relationship between the size of the firm and its international presence and the likelihood of choosing a wholly owned subsidiary as a entry mode and a positive relationship between enterprises choosing a global strategy and a better performance.