Extending the Eclectic Paradigm in International Business

Extending the Eclectic Paradigm in International Business

Essays in Honor of John Dunning

Edited by H. Peter Gray

John Dunning is undoubtedly the world’s leading scholar on the subject of multinational corporations and international business. This collection of original essays is designed to honor this work, particularly his achievements during his association with Rutgers University.

Chapter 11: Understanding the Entry Strategies of International Franchisers with Dunning’s Envelope OLI Paradigm

Yong Suhk Pak and Sam Beldona

Subjects: business and management, international business

Extract

Yong Suhk Pak and Sam Beldona INTRODUCTION Mainstream scholars of international business (IB) have tended to neglect the question of the determinants of the choice of entry modes to distribute and sell their products in foreign markets, indeed, it could be said that, with certain exceptions such as of Root (1994) and Buckley and Casson (1998), the questions of foreign marketing and distribution have not been given the importance that these issues merit. One possible reason for this neglect is the relatively small amount of capital required for a sales organization compared with that required by production units (although this reason could be less convincing when defined in terms of value-added): this explanation would suggest that the question of which entry mode is adopted for local sales by foreign multinational corporations (MNCs) is of little consequence. The activities of US firms using the franchising approach for foreign sales have grown steadily (McIntyre and Huszagh, 1995) so the problem of identifying the determinants of choice of entry mode deserves more attention. This chapter provides an empirical analysis of the choice of entry mode of MNCs, which rely on some version of a franchising mode, and addresses the determinants of the choice of mode in terms of the latest ‘envelope’ version of Dunning’s eclectic paradigm (2000b). Because firms that adopt a franchise system abroad will provide a special kind of goods and services which lend themselves to this mode of servicing markets, there is a natural tendency for believing that firms...

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