Based On The Resource Base On The Regional Market Entry Mode Selection

Market entries are a classic strategic problem. The focus in this area is which determinants affect firm entry mode choice and how entry mode choice affects post-entry performance.Because of the huge capacity, quickly growing, large diversity and distinct market-segmentation of Chinese local market, many firms in this market are facing with the problem of new regional market entry. Firm's entry into new geographic market is the main part of growth strategy.Regional market entry is between the international market entry and firm's business entry. Traditional research of foreign market entry targets on the entry of trans-border. Firms are confronted with the large geographic range, big culture distance and many uncertainties and risks. Firms' business entry is only the simple choice of business. Although the regional market entry is also facing with the problem of differences and uncertainties, the sources of uncertainties and risks are obviously different from the ones of international market entry because of the same culture and same nation. Country risk and culture distance are not the focus of the regional market entry as of the international market entry. Regional market entry focuses more on the explorative logic than the international market entry. Compared with the business entry, it grows at the high level. And the study of regional market entry must build on the advanced experience of international market entry and change the risk-avoiding, cost-decreasing view. The research of regional market entry has both theoretical and empirical significance.Having decided to enter a new district market, a firm has to determine the appropriate entry mode. Once the mode is adopted, it cannot be modified in 3-5years. Every mode is consistent with a different level of control, resource commitment, and risk. Mode change will bring huge conversion cost, and an inappropriate mode will also bring huge opportunity cost to block superior opportunities. Different mode choice can lead to different performance.Many firms confuse the ownership dimension with the control dimension of foreign market entry mode choice. As a result, firms can only commit many resources to gain the control of new regional market. But ownership dimension and the control dimension are not one to one correspondence. When firms lack the capital, they can gain the control of core operational activities through the advantageous resources.An appropriate mode of entry is often rooted in a sound theoretical foundation. But there has been a debate in literature concerning the best theory to use in developing entry mode strategies. Therefore a model that both integrates the insights provided by major theories of entry mode choice and addresses the shortcomings of these theories is needed.Many theories of entry mode choice are based on the standard of smallest transaction cost, which focus on the external factors. Firm has been neglected. The RBV affirms the importance of the firm in mode choice and researches the entry mode choice from the perspective of resource endowments and deployment. The REV is capable of explaining not only the entry mode choices based on the exploitation of existing advantages but can also explains the those choices based upon the development of new advantages. But application of the theory to entry mode has been primarily conceptual and descriptive, and has been faulted for focusing too much on firm-specific resources to neglect the rational part of TCE. The empirical research projects are too deficient.Based on the RBV, three key issues in this study concern how resources, strategic motives and transaction-specific variables affect regional ownership entry mode choice, and how resources, strategic motives and transaction-specific variables affect the control mode of operational activities in the new regional market, and how entry mode choice of regional market affects post-entry performance.In order to answer the above three key issues, the research methodology and vision must have significant changes: (1) drawing a dear dividing line between the ownership entry mode and the control mode of operational activities; (2) marking a distinction between the motive of strategic exploitation and the motive of strategic exploration; (3) introducing the transferability of resources into the analytic model.This study has three major purposes: (1) developing a model for regional market entry mode which integrates the TCE and RBV and is based on the RBV; (2) testing hypothesises about the determinants of entry mode and the impacts on post entry performance of entry mode.The paper takes Zhejiang manufacturing firms with trans-provincial investment as subjects, considers fully complexity and reciprocity of influential factors of entry mode choice, analyzes the relationship between three categories of factors and their interactions, namely, characteristics of the strength and the transferability of resource, transaction-specific variables and strategic motive, and establishes a general resource based entry mode choice model. This model makes progress in focusing on the internal factors and not the external factors as in the traditional studies. Because none of enterprises will make decisions always on risk-avoiding and cost-decreasing, it will decide on its own initiative growing need ultimately.This study deconstructs and develops the concept of entry mode into two parts: ownership entry mode and operational activities control mode, and then, a theoretical choice model is established on above analysis. Based on the dataset (n=140) collected from top-level managers of Zhejiang manufacturing firms, this study carries out an empirical analysis on the research model using logistic regression and hierarchical regression.The results of the empirical research show that strategic motives, the strength of the firm resource and transaction-specific variables all affect regional market entry mode choice. Strategic motives have the strongest effect, and then the strength of manufacturing resource, and in the transaction cost construct, contractual risk has the smallest but statistically significant impacts.The firm's resource condition is the basis to decide the control mode of operational activities of regional market, and strategic motives follow. Transaction-specific variables have no direct impact on the control mode of technological activities of regional market, but have interactive with the resource in it.The firm's resource condition, strategic motives and transaction-specific variables mutually impact the control mode of market activities of regional market. Strategic motives and transaction-specific variables have the interactive with the resource in it.The available literatures about entry mode identified three important variables affecting the post-entry performance, that is, cognitive distance, demand uncertainty, and competitive strength. On the basis of the development of the concept of entry mode, this study mainly analyses the relationship among the activity control mode (developed concept), environment and the performance. The fitness between environment variables and the control mode can improve the performance.The contribution or innovation of the dissertation may be:1. This research expands the concept of entry mode. Traditional concept concerns only the structure dimension; this study developed the concept in two dimensions: structure (traditional ownership entry mode) and relation (the control mode of core activities in regional market). The development can help select the appropriate mode of entry to maintain and strengthen firm competitive advantage in existing resource limitation.This research established an analytic framework of entry mode based on the general resource based theory. In the traditional studies, when researchers analyze the impact of resource on entry mode choice, they actually use the strength of resource. This research provides a new theoretical perspective that studies the entry mode choice from the interaction of the transferability of resource the strategic exploitation, the interaction of the strength of resource and strategic exploration. Striving to grasp the complexity of entry mode choice, this research analyzes the relationship between resource, strategic motives, transaction-specific variables and entry mode choice, develops an analytic framework of entry mode choice based on the general resource based theory and carries out an empirical test. This study provides a new theoretical perspective and systematic framework for the study on entry mode choice. 2. This study validates the impacts of resource, transaction-specific variables and strategic motives on ownership entry mode, expands its geographically applying bound, finds out some conclusions belonging distinctively to Chinese scenario and advances the entry mode theory. Traditional entry- mode-choice theory is put forward under the background of western developed countries, and is empirically examined under the MNC's foreign investment background. As a theory put forward in the background of western developed countries, it is a worthy piece of research whether above hypotheses are still supported in the Chinese background, especially in the trans-provincial investment background. This study suggests that the conventional entry-mode-choice theory cannot be directly transferred to Chinese background. Consistent with the studies put forward in the western developed country, driven by resource exploitation motives, firms are more likely to use full-control mode; the strength of resource has significant impact on entry mode choice. The strategic motives of Zhejiang manufacturing firm in trans-provincial investment comprise not only the resource-exploitation one but also the resource-exploration one. This research has got some different conclusions in the specific context through the empirical tests on the research model. Exploration motives don't significantly affect the shared-control mode as in the experience of developed country. Asset specificity does not significantly affect the ownership entry mode selection of Chinese manufacturing firms. In the literature, transaction-specific variables are the most important considerations for foreign investing firms to internalize their technological and managerial know-how through a wholly foreign owned subsidiary when producing overseas. Different from developed MNC's, Chinese manufacturing firms normally don't posses advanced proprietary technologies and know-how. Therefore, the risk of technology leakage is not so critical for them. Due to the low asset specificity of most firms, this variable is not so relevant to the explanation of their entry decisions.3. Through the empirical test of the theoretical model, this research has found that fitness between exploitation motives and the transferability of resource and fitness between exploration motives and the strength of resource affect the selection of entry mode (the control mode of core activities outside Zhejiang province). When Firm is entering into new district market, it has to deal with the problem of resource-transferring. Conventional study based on transaction cost used the transactional specificity of asset to solve this problem. Because this research introduced resource based view and found the low asset specificity of Chinese firms, a new perspective must be used to study the transferring problem. Based on previous studies, this research concluded that fitness between exploitation motives and the transferability of resource can be the new perspective to maintain the competitive advantage. The empirical study finds that exploitation motives moderate the relation between the transferability of resource and the control mode. When Firm is entering into new district market, it also has the intention of increasing the competitive advantage. This study fit the exploration motives with the strength of resource and starts with seeking complementary resource. Empirical test found that exploration motives moderate the relation between the strength of resource and the control mode.We also found transaction cost moderate the relation between the resource and the control mode. Empirical studies have reported some inconsistent results. So this study concluded that tarnsaction cost moderate the relation between the resource and the control mode. Empirical study validates this hypothesis.We believe that the moderating effect study of strategic motives and transaction specific variables holds promise for further research on the entry mode choice. It has important implications for giving some advice for Chinese manufacturing firms to select the control level according to specific motives and transaction cost.4. Some IB researchers adopted a contingency perspective of organization theory to study post entry performance. However, research has largely been conceptual and prescriptive in nature. The results of the empirical research show that fit between environment factors and entry mode (the control mode of core activities outside Zhejiang province) affects the performance. The results of detailed test show fit between cognitive distances and control mode, fit between demand uncertainty and control mode and fit between competitive strength and control mode significantly affect the post entry performance.The significant difference of the study from the conventional studies is the moderating effect of cognitive distances. The research based on the transaction cost concluded that the firm will select the entry mode which is flexible, and which has low-control and low-resource commitment to decrease the uncertainty of difference as the culture distance increases. This kind of choice has a beneficial effect on performance. But this research has found that the low control mode will have a beneficial effect on performance when the culture distance is short. These two contradictory conclusions come from the theory and the firm practises. Theoretical reason may be the difference of selection standard of entry mode and the practical reason may be the effectiveness of cooperative R&D and the implementation of the concept of culture management.