Challenges Faced By Companies In The Adaptation Of Different Modes

CHALLENGES FACED BY COMPANIES IN THE ADAPTATION OF DIFFERENT MODES OF ENTRY INTO FOREIGN MARKETS
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Context
A foreign entry mode is a crucial and important decision that companies need to make when venturing into foreign markets. The different modes discussed in this paper include international agents, exporting and joint ventures. The three relevant theoretical perspectives that are most suitable for determining the choice of entry mode include the resource-based theory, the transaction cost theory and the institutional theory. Despite that, the choice of entry mode is also determined by factors such as regulations, cultural differences and the resources that are presented in the foreign country. Companies need to choose the mode of entry based on these factors since they will influence the success of the strategy.
Introduction
This paper will argue that the entry mode chosen by organizations as they try to penetrate foreign markets is dependent on factors such as regulations, cultural differences and resources. The push for firms to venture into foreign markets has greatly been attributed to the saturation in mature markets in developed economies. Companies are turning their attention to foreign markets because they have a potential for further economic growth. Nonetheless, such ventures are often accompanied by significant challenges as the firm tries to penetrate the market. These challenges force firms to adapt new strategies. This essay, therefore, purposes to describe the different modes of entry used by organizations to penetrate foreign markets. Included in the discussion will be a description of the analytical framework which will define the theoretical perspectives that were most relevant. Thereafter, an analysis of the modes of entry will be provided together with a conclusion that restates the main points. Despite the various modes of entry that are currently present, the decision by a company to choose a certain mode is dependent on the circumstances, time and available resources.
Analytical Framework
Since the paper discusses entry into foreign markets, it would be most relevant to explain the theoretical structures that are most suitable for determining the relevant entry mode factors. The three relevant theories are the resource-based theory, the transaction cost theory, and the institutional theory (Gundersen 2012, pp. 10-11). The resource-based theory is focused on the efficient and effective use of the useful resources by the company to gain a competitive advantage (Gundersen 2012, p. 12). The transaction cost theory states that the optimal solution for the boundaries of the organization, and the entry mode, is one that maximizes the costs of transacting (Mroczek-DД…browska 2014, p. 52). Whereas, the institutional theory suggests that for a company to survive in foreign markets, it needs to conform to the procedures, norms and rules that prevail in that particular location (Ferreira & Serra 2008, p. 15). Institutional theory is important since foreign markets are considered to have weak institutions, which make them vulnerable to rise in costs of making transactions; hence the impor...