Entry mode strategy of Australian high value-added manufacturing companies and the Chinese market

Abstract

Recent interest in international marketing studies focuses on a 'frontier' issue - entry mode strategy. There are two major different views about market entry strategy - internationalization and contingency. Both of them have more than one theoretical model. The major difference between these two views is whether the company can choose an optimal entry mode. This research explores this important issue of entry mode choice by focusing on Australian high value-added manufacturing companies entering the Chinese market. This is a contemporary issue with great importance to Australia and China because Australian high value-added manufacturing companies are the fastest growing exporters in Australia and the Chinese market is an emerging market with enormous market potential. Therefore, the research problem of this research is: RP: How do Australian high value-added manufacturing companies develop their entry mode strategies for the Chinese market? The research reviewed the literature relating to the parent discipline of entry mode strategy, and supports the transaction cost model in particular. This model of entry mode choice believes that entry mode choice is closely related to a host country's external environmental factors and internal factors of companies entering the market. Moreover, entry mode choice is directly decided by trade-offs of four critical constructs - risk, return, cost and control. From the literature review, this research tends to support the idea that an optimal entry mode may be chosen instead of adhering to the sequential stagesapproach of the internationalization process. Therefore, four research propositions were developed on the basis of these discussions. Research proposition 1 examined whether the proposed four critical constructs capture most of the considerations in the choice of entry mode. Research proposition 2 examined whether each type of entry mode can be charted on the above four constructs. Research proposition 3 examined various external environmental factors of the Chinese market and their impacts on Australian high value-added manufacturing companies' entry activities. Finally, research proposition 4 examined various internal factors of Australian high value added manufacturing companies and their impacts on entry activities of these companies. Data was collected by using the exploratory and explanatory case study methodology, with two pilot case studies carried out in Brisbane to refine the research protocol and procedures. Thirteen Australian high value-added manufacturing companies from five industry clusters operating in Beijing were examined in the major stage of data collection. Data was analyzed by using both case descriptions and cross-case analysis methods. The research findings showed the importance of those four critical constructs for entry mode choice. Moreover, relationship networks emerged as another critical consideration. Research findings for research propositions 3 and 4 also identified some important external and internal factors for entry mode choice. Therefore, on the basis of research findings about the research propositions, an entry mode strategic model was developed to meet the special needs of managers in Australian high value-added manufacturing companies to develop their entry mode strategy. Practical implications of this model were discussed in detail. Furthermore, the impacts of the findings of this research on the parent disciplines of entry mode choice were also examined. Further research should focus on Australian service companies and other areas of China to replicate the research findings of this research