Entry Mode Research and SMEs: A Review and …internal resources may restrict a firm’s choice of...

Entry Mode Research and SMEs: A Review andFuture Research Agendaby Johan Bruneel and Robin De Cock

Research on SMEs’ entry modes remains limited and is spread across various, often discon-nected research fields using a broad variety of theories, sample characteristics, and methods. Thismakes it challenging for researchers to identify interesting research opportunities. Our study inves-tigates the current state of the SME entry mode literature by conducting a systematic literaturereview of 47 articles. Our review shows that scholars should be more careful when conceptualizingSMEs, and we recommend the use of both quantitative and qualitative longitudinal researchdesigns. We explain how new theories and perspectives might address existing problems and weak-nesses in this literature.

IntroductionEntry mode—the operational form used to

enter foreign markets (Brouthers and Hennart2007)—is a key issue in international businessresearch. Firms may choose to enter foreignmarkets alone through direct exports, in part-nership with other companies via contracts withdistributors, or by making a direct investment ina foreign country (FDI). In the case of equityinvestments, firms must decide on the mode(greenfield or acquisition) as well as the level ofownership (full versus shared ownership)(Dikova and van Witteloostuijn 2007). Researchon entry modes is valuable because entry modechoice is a very important strategic issue for aninternationalizing firm (Pedersen, Petersen, andBenito 2002). First, entry mode choices areimportant as forces of globalization that drivefirms to expand outside their home market toestablish effective firm boundaries (Brouthersand Hennart 2007). Second, entry mode choicehas a considerable influence on the

performance of internationalizing firms(Brouthers 2002; Lu and Beamish 2001;Brouthers and Nakos 2004). Over-investment inforeign markets (Petrou 2009), partners takingadvantage of the firm’s knowledge (Tan, Erra-milli, and Liang 2001), and coordination prob-lems caused by lack of control (Anderson andGatignon 1986) all imply inferior entry modedecisions that may significantly harm the per-formance of an internationalizing firm (Hill,Hwang, and Kim 1990).

While entry mode research has focusedmainly on multinational enterprises (MNEs),studies have increasingly identified specificcharacteristics of small and medium-sized enter-prises (SMEs) that influence not only entrymode choice but also entry mode change, man-agement and outcomes. Compared with MNEs,SMEs have a limited resource base, which exac-erbates the long-term impact of entry modedecisions (e.g., Burgel and Murray 2000;George, Wiklund, and Zahra 2005). This lack of

Johan Bruneel is assistant professor in entrepreneurship at the Department of Managerial Economics, Strategy,and Innovation at KU Leuven and senior researcher at the department of Management, Technology, and Econom-ics at ETH Zurich.

Robin De Cock is postdoc researcher at the Department of Innovation, Entrepreneurship and Service Manage-ment at Ghent University.

Address correspondence to: J. Bruneel, KU Leuven KULAK, Kortrijk, Belgium. E-mail: [email protected].

BRUNEEL AND DE COCK 135

Journal of Small Business Management 2016 54(S1), pp. 135–167

doi: 10.1111/jsbm.12291

internal resources may restrict a firm’s choice ofentry mode and force it to use inexpensivemodes such as exporting or agents (Agndal andChetty 2007). Furthermore, SMEs have differentmanagerial processes and structures that areless rigid, sophisticated and complex (Covielloand Martin 1999). They also tend to interact dif-ferently with their environment (Brouthers andNakos 2004). For example, Li and Qian (2008)find that market dynamics have different effectson the entry mode choices of small and largefirms. Small firms will show a greater preferencefor cooperative entry modes, while large firmswill prefer independent entry modes in dynamicmarkets. Therefore, SMEs will face differentchallenges during the internationalization pro-cess and are likely to make different decisionsfrom large firms. While large firms tend to followpredetermined strategic plans for internationalexpansion, SMEs internationalize in less foresee-able ways, often determined by serendipitousand uncontrollable events (Agndal and Chetty2007; Hutchinson, Quinn, and Alexander 2006).Prater and Ghosh (2005) have shown that largefirms are much more concerned about long-termstrategic planning and prefer strategic alliances,while SMEs use more short-term and informalrelationships to respond quickly to changingbusiness conditions and shorter-term operationalissues. Taken together, these findings show thatthe entry mode strategies of SMEs differ fromthose of their larger counterparts.

Although the literature points to clear dif-ferences in entry mode strategies betweenSMEs and large firms, no study has yet pro-vided a clear and comprehensive overview ofentry mode choices, processes, and outcomesin the context of SMEs. Previous review stud-ies of internationalization provide interestinginsights, but either focus only on the entrymode strategies of large, established compa-nies (e.g., Brouthers and Hennart 2007; Cana-bal and White 2008) or examine SMEinternationalization in general (Coviello andMcAuley 1999; De Clercq et al. 2012; Keuppand Gassmann 2009). This omission is surpris-ing, given that SMEs make a substantial contri-bution to economic development and growth(OECD 2009) and tend increasingly to expandoutside their home markets (George, Wiklund,and Zahra 2005). SME internationalization canbe expected to gain further momentum in anever more globalized world economy (Ripoll�eset al. 2012). Furthermore, the current litera-ture on SMEs’ entry modes is as yet limited,

calling for more extensive research (Brouthers2013; Hennart and Slangen 2014; Maekelbur-ger, Schwens, and Kabst 2012; Pezderka andSinkovics 2011; Ripoll�es and Blesa 2012).Studies in this domain have covered a widevariety of theories, sample characteristics,methods, and entry modes. However, thequestion confronting research scholars in thisfield is where to go from here.

The objectives of this article are twofold.First, we adopt the framework of De Clercqet al.’s (2012) review of the international entre-preneurship literature to review conceptual andempirical studies of the antecedents, processes,and performance outcomes of SME entry modes.We examine how these articles are distributedacross the three phases and explore the emerg-ing themes in the literature. These three phasesform our predetermined analytical frameworkfor a systematic literature review to reveal prob-lems, weaknesses, contradictions and controver-sies (Frank and Hatak 2014). Second, we seekto establish an agenda for future research. Ourreview shows that existing theories and sam-pling methods in the SME entry mode literatureoften lead to contradictory findings that requiredeeper examination and further refinement. Inaddition, the literature on SME entry modeswould benefit from introducing new theories tothe field, such as strategic decision-makingtheory, upper echelon theory, imprintingtheory, and the capability perspective.

Overall, the review offers a number of contri-butions to the literature on entry mode researchin the context of SMEs. First, we contribute tothe SME entry mode literature by pointing outinconsistent results and describing as yet unan-swered issues. Second, our review also showshow methodological and conceptual improve-ments, such as a better conceptualization ofSMEs, the use of longitudinal research designsand different levels of analysis, more consistentdefinitions of entry modes, and solutions toendogeneity issues may improve the field andhelp tackle current challenges in entry moderesearch. Finally, we contribute to the field byintroducing new theories and concepts. Entrymode research might adopt a strategic decision-making perspective to investigate individualantecedents of entry mode choice, or useimprinting theory to analyze how entry modeschange over time, or take a capability perspec-tive to gain a better understanding of the out-comes of entry mode choice.

JOURNAL OF SMALL BUSINESS MANAGEMENT136

MethodWe use a systematic literature review method

to identify, synthesize, and evaluate all relevantstudies using the transparent and replicable pro-cess explained below. Since the existing researchis heterogeneous in terms of theory, methods,and samples, we provide a narrative literaturereview with the objective of revealing problems,weaknesses, contradictions, and controversiesthat offer opportunities for future research (seeproblem identification, Frank and Hatak 2014).In the following sub-sections, we explain ourprocess of selection, screening, assessment, andcategorization of the articles to ensure transpar-ency, focus, and reliability.

Article Screening and SelectionFollowing previous review studies (e.g.,

Brouthers and Hennart 2007; De Clercq et al.2012; Jones, Coviello, and Tang 2011), weincluded only journal articles in our reviewbecause they provide more validated knowledgethan book chapters, dissertations or conferencepapers. In total, we considered five categories ofjournal: entrepreneurship, management, interna-tional business, marketing, and innovation (seeTable 1 for an overview of the journals). The firstfour categories were based on De Clercq et al.(2012), while the fifth was based on Keupp andGassmann’s (2009) review of international entre-preneurship. Entrepreneurship is considered tobe a rapidly growing but relatively young fieldthat has built up a strong knowledge of SMEs, andmore recently of international entrepreneurship.International business is a more established fieldthat is closely related to the management field(Keupp and Gassmann 2009) and is generally themost active in publishing studies on entry modes(Canabal and White 2008). Besides internationalbusiness and international entrepreneurship jour-nals, the field of marketing has proven to be afruitful place for market entry studies (Canabaland White 2008). By combining these five catego-ries of journal, we cross-referenced a broad set ofboth top-ranking and specific journals relevant toour review of SMEs and entry mode research.Two investigators, trained and guided by a seniorinvestigator, screened the journals for relevantarticles published in the last 20 years (1992–2012),as SME entry mode research grew rapidly fromthe beginning of the 1990s. We screened the jour-nals systematically using the following keywords:(1) “SME,” “start-up,” “young firm,” “new ven-ture,” “international entrepreneurship,” “early

internationalization,” “born global,” and “entrymode” in combination with theories and con-structs mentioned in a review of entry moderesearch by Canabal and White (2008); and (2)“transaction cost theory,” “resource-based view,”“institutional theory,” “foreign direct investment,”“licensing,” “exporting,” “performance,” “OLI,”“cultural distance,” “uncertainty,” “control,” “risk,”“capabilities,” and “knowledge.” We also identi-fied additional studies through manual cross-referencing (De Clercq et al. 2012). These proce-dures initially generated 901 articles.

In the second screening of articles, weretained those that addressed SMEs as theirmain subject or included SMEs in their data col-lection. Conceptual articles were included if thediscussion was specifically limited to SMEs orwhen the authors explicitly indicated that thetheoretical framework could also be applied toSMEs. Empirical articles were retained if theyinvestigated entry modes in the context ofSMEs. Empirical papers with mixed samples(both large firms and SMEs) were retainedwhen the authors explicitly stated that the find-ings could be applied to SMEs. As a result ofthis screening, the collection was reduced to245 articles. This procedure was carried out bythe two investigators independently to ensureobjectivity. In case of disagreement, the seniorinvestigator was consulted to reach consensus.

In the third screening, we further limited theset of articles to those that included a discussionof entry modes, articles addressing international-ization in general, without specifically discus-sing entry modes, were therefore removed fromthe set. We observed that a considerable num-ber of articles limited their discussion to SMEsand exporting, and we decided not to retainthese because the focus of our review is on theconcept of entry mode, which extends beyondexporting. Inclusion of these would haveresulted in a review with too great an emphasison exporting and too little on other types ofentry mode. However, articles that consideredexporting in combination with alternative entrymodes were included. The third and finalscreening resulted in a final set of 47 articles, ofwhich 13 were published in entrepreneurshipjournals, four in management journals, 13 ininternational business journals and 17 in mar-keting journals.

Article Analysis and CategorizationThe 47 articles were content analyzed and

coded relative to a predetermined analytical


Table 1Overview Journals

Journal Conceptualarticles

Quantitativearticles

Qualitativearticles

Total

Entrepreneurship JournalsEntrepreneurship and Regional Development 0 0 0 0Entrepreneurship: Theory and Practice 1 2 0 3International Small Business Journal 0 1 1 2Journal of Business Venturing 0 0 0 0Journal of International Entrepreneurship 0 3 2 5Journal of Small Business and

Enterprise Development0 0 0 0

Journal of Small Business Management 0 2 0 2Small Business Economics 0 1 0 1Management JournalsAcademy of Management Journal 0 2 0 2Academy of Management Review 0 0 0 0Administrative Science Quarterly 0 0 0 0Canadian Journal of Administrative Sciences 0 0 0 0Journal of Management 0 0 0 0Journal of Management Studies 0 1 0 1Management Science 0 0 0 0McKinsey Quarterly 0 0 0 0Organization Science 0 0 0 0Scandinavian Journal of Management 0 0 0 0Sloan Management Review 0 0 0 0Strategic Management Journal 0 1 0 1International Business JournalsHarvard Business Review 0 0 0 0International Business Review 2 3 1 6Journal of Business Research 0 1 0 1Journal of International Business Studies 2 1 0 3Journal of International Management 0 0 0 0Journal of World Business 0 2 0 2Management International Review 0 0 0 0Multinational Business Review 1 0 0 1Review of World Economics 0 0 0 0Marketing JournalsAdvances in International Marketing 0 1 0 1European Journal of Marketing 0 1 1 2Industrial Marketing Management 0 1 0 1International Marketing Review 1 2 1 4Journal of International Marketing 2 3 3 8Journal of Marketing 0 1 0 1Journal of Marketing Research 0 0 0 0Journal of the Academy of Marketing Science 0 0 0 0Innovation JournalsEuropean Research 0 0 0 0Journal of Product Innovation Management 0 0 0 0Research Policy 0 0 0 0Total 9 29 9 47


framework. Similarly to De Clercq et al. (2012),the articles were coded depending on whichstage of entry mode strategy they addressed: (1)antecedents of first entry mode choice, (2) proc-esses following first entry mode choice, and(3) outcomes of entry mode choice. Next, wecoded each article according to the key per-spective used to frame the discussion of thesethree stages of entry mode choice. Buildingon Brouthers and Hennart (2007), we consid-ered five key perspectives used in studies offirm internationalization: transaction costtheory (TCE), eclectic theory (OLI), resource-based view (RBV), stage theory (STAGE), andnetwork approach (NA).1 We also coded thearticles as either conceptual (9 articles) orempirical (38 articles). For the nine conceptualarticles, we described the theoretical perspec-tives and central ideas. The empirical articleswere coded as either quantitative (29) or qual-itative (9), and we recorded information about(1) sample specifications, (2) home country,(3) nature of data collection (cross-sectional/longitudinal), (4) supported predictions relat-ing to antecedents, processes, and outcomesof entry mode, and (5) unsupported predic-tions. We collated this information in tablesorganized by phase and by type of article:conceptual, empirical qualitative, and empiri-cal quantitative (see Tables 2–4).

Following previous studies (e.g., Keupp andGassmann 2009; Street and Cameron 2007), weclassified the antecedent, process, and outcomevariables into conceptual groups. Groups wereretained if they appeared in at least two articlesincluded in our review. Figure 1 provides anoverview of these groups in each entry modephase. The acronyms in each block of Figure 1refer to the underlying key perspective.

Review of SMEs and EntryMode Research: Antecedents,Processes, and Outcomes

We found that 38 articles (81 percent of allarticles) discussed the antecedents of entrymode choice, while 14 (30 percent) discussedentry processes, and 10 (21 percent) discussedthe performance implications of entry mode

decisions. We discuss the main findings by stageof entry mode below.

Antecedents to Entry Mode ChoiceThe most common types of antecedent are

embedded in TCE and OLI. Two TCE-relatedconcepts surface as important factors influenc-ing entry mode choice: environmental uncer-tainty at the level of industry and country, andasset specificity. The results regarding a relation-ship between environmental uncertainty andentry mode choice are inconclusive. In line withTCE predictions, the findings of most articlesare that SMEs tend to prefer non-equity entrymodes when environmental uncertainty is high(Bradley and Gannon 2000; Brouthers andNakos 2004; Li and Qian 2008), as partnershipsspread SMEs’ risks and thereby reduce theirdirect exposure to uncertainty in foreign mar-kets. However, one study has shown thatgreater uncertainty leads to equity-based entrymodes, as these allow more adaptive decisionmaking than partnership-based entry modes(McNaughton 1996). Results regarding the influ-ence of asset specificity on entry mode choiceare in line with TCE predictions, as SMEs optfor high-control entry modes when asset speci-ficity is high to gain greater control over the useof their knowledge (Bradley and Gannon 2000;Brouthers and Nakos 2004; McNaughton 1996).Some studies have established a link betweenthese two concepts by showing that greaterenvironmental uncertainty strengthens thechoice of high-control entry modes when assetspecificity is high (Erramilli and Rao 1993;Maekelburger, Schwens, and Kabst 2012).

Research using OLI has shown the impor-tance of ownership and location advantages.SMEs with greater ownership and locationaladvantages are more likely to adopt equity-based entry modes (Bradley and Gannon 2000;Brouthers, Brouthers, and Werner 1996; Pinho2007; Shrader, Oviatt, and McDougall 2000). Inan interesting extension to the above-mentionedstudies, Pezderka and Sinkovics (2011) haveconsidered “active online internationalization”as an entry mode in the context of online busi-nesses. In contrast to traditional entry modessuch as partnerships or subsidiaries, active

1Not every article included in this review adopted one of these five perspectives. Five papers employed analternative theory, such as institutional theory (Huang and Sternquist 2007), or the business model literature(Ojala and Tyrv€ainen 2006) to frame the study. We indicate clearly in Tables 2, 3, and 4 which theories wereadopted in each article.


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Con

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Tab

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Qual

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fluen

ced

by

net

work

rela

tionsh

ips

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rmal

clie

nt-se

rvic

epro

vider

exch

ange

rela

tionsh

ipem

erge

sfr

om

the

SME’s

info

r-m

alan

dfo

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net

work

rela

tionsh

ips

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l,C

rick

,an

dY

oung

2004

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nes

sst

rate

gyC

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ange

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enden

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ledge

-bas

edan

dtr

aditio

nal

man

ufa

cturi

ng

SMEs,

size

<25

0FT

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United

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gdom

Cro

ss-s

ectional

case

s:10

SMEs

-N

etw

ork

rela

tionsh

ips

influen

ceFM

Em

ode

choic

eth

rough

pre

exis

ting

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cts

of

dec

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aker

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dcl

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ip-

The

influen

ceof

rela

tionsh

ips

on

FME

mode

choic

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hig

her

among

know

ledge

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tensi

veSM

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-K

now

ledge

-inte

nsi

veSM

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chan

geto

hig

her

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erco

mm

itm

ent

modes

while

trad

itio

nal

SMEs

pre

fer

usi

ng

low

com

mit-

men

tFM

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iaan

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ida

2006

TC

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Age

ncy

theo

ry

Man

agem

ent,

Per

form

ance

Var

ious

indust

rial

SMEs,

size

range

:35

–200

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entina

(2),

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ce(2

),B

razi

l,C

olo

mbia

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rael

,Sw

itze

rlan

d,

Uru

guay

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nited

Kin

gdom

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ss-s

ectional

case

s:10

SMEs

-The

scop

ean

dsi

zeof

the

asse

tsof

SME’s

fore

ign

subsi

dia

ries

and

insu

ffic

ientin

cen-

tives

can

caus

eop

por

tuni

stic

beh

avio

r;in

for-

mat

ion

asym

met

rybet

wee

npar

entSM

Es

and

subsi

diar

ies

rein

forc

esth

ese

effe

cts

-The

econom

icper

form

ance

of

afo

reig

nsu

bsi

dia

ryof

anSM

Eis

neg

ativ

ely

affe

cted

by

endoge

nous

(intr

a-firm

)opport

unis

m


Tab

le3

Con

tin

ued

Auth

or

Th

eory

Focu

sSa

mp

leH

om

eD

ata

Fin

din

gs

Hutc

hin

son,

Quin

n,an

dA

lexa

nder

2006

RB

V,

Net

work

appro

ach,

Stag

eth

eory

Choic

eR

etai

ler

SMEs

Max

.sa

les

turn

ove

rof

£24

mill

ion

United

Kin

gdom

Cro

ss-s

ectional

vase

s:9

SMEs

in4

diffe

rent

sect

ors

-Im

port

ant

fact

or

influen

cing

FME

choic

eis

reso

urc

eav

aila

bili

ty-

SMEs

emphas

ize

the

influen

ceof

the

leve

lof

cost

invo

lved

and

the

amount

of

risk

inFM

Ech

oic

e-

low

-contr

olFM

Es

seem

tobe

more

attr

ac-

tive

:ex

port

ing,

licen

sing,

whole

sale

,an

ddis

trib

ution

agre

emen

ts-

When

pro

duct

asse

tan

dbra

nd

excl

usi

vity

are

import

ant,

SMEs

chose

for

FDI

Chet

tyan

dA

gndal

2007

Net

work

appro

ach

Chan

geH

igh-

and

low

-te

chnolo

gym

anu-

fact

uri

ng

SMEs,

size

<25

0FT

Es

Swed

en(1

0)N

ewZea

land

(10)

Cro

ss-s

ectional

case

s:20

SMEs

-The

effica

cy,se

rendip

ity,

and

liabili

tyro

leof

soci

alca

pital

of

aSM

Etr

igge

rsa

chan

geof

FME

mode

-Eff

icac

yan

dlia

bili

tyro

les

are

more

likel

yto

chan

geto

hig

her

contr

olm

odes

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rendip

ity

role

induce

sch

ange

toboth

incr

easi

ng

and

dec

reas

ing

contr

olm

odes

Agn

dal

and

Chet

ty20

07

Net

work

appro

ach

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geM

anufa

cturi

ng

SMEs,

size

<25

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Foundin

gye

arra

nge

sfr

om

1938

to19

96

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en,

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Zea

land

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ectional

case

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SMEs

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ajori

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switch

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mode,

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ena

chan

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om

dis

trib

uto

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sale

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Busi

nes

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lationsh

ips

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than

soci

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lationsh

ips

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lationsh

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likel

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dir

ect

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fluen

ceFM

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ange

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ause

of

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rim

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geis

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igge

red

by

anin

di-

rect

rela

tionsh

ipw

ith

ath

ird

par

tyorg

aniz

atio

ns


Tab

le3

Con

tin

ued

Auth

or

Th

eory

Focu

sSa

mp

leH

om

eD

ata

Fin

din

gs

Oja

laan

dTyr

v€ ain

en20

06

Busi

nes

sm

odel

Choic

eso

ftw

are

SMEs,

size

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Es

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nd

Cro

ss-s

ectional

case

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ght

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duct

stra

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mat

ters

for

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duct

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asa

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ativ

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ther

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nes

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odel

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ents

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enue

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tation

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trib

ution

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ow

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tion

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eFM

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ode

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11N

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ork

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wned

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ufa

cturi

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size

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plo

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nd

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ss-s

ectional

case

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itia

lFM

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port

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rtim

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with

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ted

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role

of

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alties

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port

ant

for

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mode

chan

gean

dso

cial

capital

gener

ally

had

effica

cyan

dlia

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tyro

les


Tab

le4

Quan

tita

tive

Em

pir

ical

Art

icle

s(2

9)

Auth

or

Th

emes

Focu

sSa

mp

lesp

ecif

icat

ions

Hom

eD

ata

Sup

port

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redic

tions

Unsu

pp

ort

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redic

tions

Err

amill

ian

dR

ao19

93TC

EC

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rvic

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s;30

.4per

cent

of

sam

ple

firm

sar

eSM

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United

Stat

esC

ross

-sec

tional

surv

ey:11

4firm

s

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Es

favo

rsh

ared

-contr

olFM

Em

odes

more

when

asse

tsp

ecific

ity

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w-

This

inte

nsi

fies

when

(1)

serv

ices

are

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par

able

,(2

)w

ith

incr

easi

ng

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yri

sk,an

d(3

)as

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bec

om

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alle

r

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ultura

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tance

does

not

stre

ngt

hen

the

inve

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nas

set

spec

ific

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and

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ared

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olFM

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ode

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l19

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age

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ry,

Net

work

appro

ach

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e,ch

ange

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l,in

dep

enden

tso

ftw

are

SMEs;

size

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nd,

Irel

and,

Norw

ay

Cro

ss-s

ectional

surv

ey:88

SMEs

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ort

ing

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ferr

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ode

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rict

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any

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(lar

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rnat

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on

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ton

1996

TC

EC

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firm

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per

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less

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ada

Cro

ss-s

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2firm

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han

nel

volu

me

isposi

tive

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soci

ated

with

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use

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ign

sale

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bsi

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ativ

ely

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ciat

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ith

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use

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ntr

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sset

spec

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ativ

ely

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ciat

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ign

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dia

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arket

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tilit

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tive

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ated

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ign

sale

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iver

sity

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asso

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edw

ith

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ket

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ola

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not

asso

ciat

ew

ith

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use

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olm

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uth

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uth

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and

Wer

ner

1996

OLI

Choic

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.S.-bas

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mpute

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ftw

are

SMEs,

annual

sale

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nge

:1

mill

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to1

bill

ion

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Stat

esC

ross

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tional

surv

ey:25

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wner

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adva

nta

ges

are

posi

tive

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soci

ated

with

use

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more

inte

grat

edFM

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odes

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ception

of

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nta

ges

are

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use

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more

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grat

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odes

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ay20

00

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eth

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E,

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Choic

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6SM

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-SM

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uto

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ore

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tern

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and

tran

sact

ion

cost

sar

enot

asso

ci-

ated

with

the

use

of

inte

rmed

iari

es


Tab

le4

Con

tin

ued

Auth

or

Th

emes

Focu

sSa

mp

lesp

ecif

icat

ions

Hom

eD

ata

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port

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redic

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pp

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dle

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pan

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mar

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man

y,Ir

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d,

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gdom

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ey:10

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arket

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tion(c

once

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amount

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activi

tyof

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ith

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choic

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ra

hig

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ode

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and

Bel

l20

00

TC

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nsi

zeof

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ada

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igh-c

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posi

tive

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th,an

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of

tech

nolo

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lle

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Know

ledge

inte

grat

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enhan

ces

the

effe

cts

of

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odes

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uis

itio

ns,

licen

sing,

and

export

sar

eposi

tive

lyas

soci

ated

with

sale

sgr

ow

th


Tab

le4

Con

tin

ued

Auth

or

Th

emes

Focu

sSa

mp

lesp

ecif

icat

ions

Hom

eD

ata

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port

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01TC

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form

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19in

dust

ries

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–499

FTEs

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of

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ith

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ativ

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fluen

ceon

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per

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ort

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ties

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ativ

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ance

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lof

export

ing

activi

ties

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ativ

eas

soci

ated

with

per

form

ance

Nak

os

and

Bro

uth

ers

2002

OLI

Choic

em

anufa

cturi

ng

and

serv

ice

SMEs,

size

<50

0FT

Es

Gre

ece

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ss-s

ectional

surv

ey:11

8SM

Es

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iffe

rentiat

edpro

duct

sis

posi

tive

lyas

soci

ated

with

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fere

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for

equity

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modes

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ina

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ket

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tive

lyas

soci

ated

with

apre

fere

nce

for

equity

FME

modes

-Per

ceiv

edhig

hco

ntr

actu

alri

skper

cep-

tions

ina

targ

etco

untr

yis

posi

tive

lyas

soci

ated

with

apre

fere

nce

for

equity

FME

modes

-SM

Esi

zes

isnot

asso

ciat

edw

ith

FME

mode

pre

fere

nce

-In

tern

atio

nal

exper

ience

isnot

posi

-tive

lyas

soci

ated

with

apre

fere

nce

for

equity

FME

modes

-Lo

wer

per

ceiv

edin

vest

men

tri

skis

not

asso

ciat

edw

ith

apre

fere

nce

for

equity

FME

modes

Bea

mis

han

dLe

e20

03TC

EC

hoic

e,per

form

ance

man

ufa

cturi

ng

SMEs,

size

<50

0FT

Es

United

Stat

es,

Japan

,W

este

rnEuro

pe

Cro

ss-s

ectional

surv

ey:42

affilia

tes

inK

ore

a

-Ther

eis

apre

fere

nce

for

JVove

rFD

Ito

ente

rK

ore

anm

arket

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eis

aposi

tive

rela

tionsh

ipbet

wee

nm

anag

emen

tco

ntr

olfr

om

the

par

ent

firm

and

ow

ner

ship

rate

sin

thes

eaf

filia

tes

-A

hig

her

deg

ree

of

contr

olan

dhig

hle

vels

of

export

ing

hav

ea

posi

tive

effe

cton

per

form

ance

of

Kore

anaf

filia

tes

-A

ge,si

ze,an

dR

&D

spen

din

gar

enot

asso

ciat

edw

ith

the

per

form

ance

of

Kore

anaf

filia

tes

Maj

occ

hian

dZucc

hel

la20

03

TC

EPer

form

ance

Man

ufa

cturi

ng

SMEs,

size

<25

0FT

Es

Ital

yC

ross

-sec

tional

surv

ey:22

0SM

Es

-FD

Iis

neg

ativ

ely

asso

ciat

edw

ith

pro

fita

bili

ty-

Exp

ort

inte

nsi

typosi

tive

lym

oder

ates

this

rela

tionsh

ip


Tab

le4

Con

tin

ued

Auth

or

Th

emes

Focu

sSa

mp

lesp

ecif

icat

ions

Hom

eD

ata

Sup

port

edp

redic

tions

Unsu

pp

ort

edp

redic

tions

Bro

uth

ers

and

Nak

os

2004

TC

EC

hoic

e,per

form

ance

Man

ufa

cturi

ng

and

serv

ice

SMEs,

size

<50

0FT

Es

The

Net

her

lands,

Gre

ece

Cro

ss-s

ectional

surv

ey:20

9SM

Es

-A

sset

spec

ific

ity

and

inte

rnal

contr

ol

mec

han

ism

sar

eposi

tive

lyas

soci

ated

with

apre

fere

nce

for

equity

FME

-Envi

ronm

enta

lunce

rtai

nty

isposi

tive

lyas

soci

ated

with

apre

fere

nce

for

non-

equity

FME

-SM

Es

that

use

FME

modes

pre

dic

ted

by

TC

Eper

form

bet

ter

than

those

not

choosi

ng

TC

Epre

dic

ted

FME

modes

Ibeh

etal

.20

04TC

E,

Stag

eth

eory

Choic

eM

anufa

cturi

ng

SMEs,

size

range

:1–

204

FTEs

United

Kin

gdom

Cro

ss-s

ectional

surv

ey:20

4SM

Es

-M

icro

-multin

atio

nal

ente

rpri

ses

do

not

show

ahig

her

pro

pen

sity

touse

contr

actu

alfo

reig

nm

arket

entr

ym

odes

ove

rFD

IPra

ter

and

Ghosh

2005

Stag

eth

eory

Choic

eSM

Es

with

man

ufa

c-tu

ring

oper

atio

ns

inEuro

pe,

size

<50

0FT

Es

United

Stat

esC

ross

-sec

tional

surv

ey:10

4SM

Es

-SM

Es

pre

fer

entr

yst

rate

gies

with

the

low

est

requir

edin

vest

men

t-

Contr

ary

tola

rger

SMEs

and

SMEs

oper

atin

gin

oth

erre

gions

(e.g

.,C

hin

a),

the

SMEs

oper

atin

gin

Euro

pe

are

not

likel

yto

use

stra

tegi

cal

liance

sfo

rco

l-la

bora

tive

oper

atio

ns;

they

pre

fer

flex

i-ble

and

info

rmal

rela

tionsh

ipR

ashee

d20

05TC

EPer

form

ance

Man

ufa

cturi

ng

SMEs,

size

<1,

000

FTEs

United

Stat

esA

rchiv

al:lo

ngi

-tu

din

aldat

a,12

3SM

Es

-SM

Es

that

use

non-e

quity

FMEs

achie

vehig

her

inte

rnat

ional

reve

nue

grow

thw

hen

dom

estic

munific

ence

ishig

h

-D

om

estic

vola

tilit

ydoes

not

moder

-at

eth

ere

lationsh

ipbet

wee

nnon-

equity

FME

modes

and

inte

rnat

ional

reve

nue

grow

th-

SMEs

that

use

equity

FME

modes

will

achie

vehig

her

inte

rnat

ional

rev-

enue

grow

thw

hen

fore

ign

mar

ket

risk

ishig

hH

olle

nst

ein

2005

OLI

Choic

eLo

w/h

igh-tec

hm

an-

ufa

cturi

ng

and

tra-

ditio

nal

/know

l-ed

ge-inte

nsi

vese

rvic

efirm

sof

whic

h81

per

cent

are

SMEs,

size

�20

0

Switze

rlan

dC

ross

-sec

tional

surv

ey:2,

424

firm

s

-O

wner

ship

and

loca

tion

adva

nta

ges

pro

vide

expla

nat

ory

pow

erfo

rFM

Ech

oic

efo

rSM

Es

-L-

fact

ors

do

not

pro

vide

expla

nat

ory

pow

erfo

rFM

Ech

oic

eof

med

ium

-si

zed

com

pan

ies


Tab

le4

Con

tin

ued

Auth

or

Th

emes

Focu

sSa

mp

lesp

ecif

icat

ions

Hom

eD

ata

Sup

port

edp

redic

tions

Unsu

pp

ort

edp

redic

tions

Eri

kss

on,

Hohen

thal

,an

dLi

nd-

ber

gh20

06

Stag

eth

eory

Choic

eSM

Es,

size

range

:50

–200

FTEs

Swed

en,

New

Zea

land,

Den

mar

k

Cro

ss-s

ectional

surv

ey:49

4SM

Es

-C

ountr

yex

per

ience

and

mar

ket

grow

thar

eposi

tive

lyas

soci

ated

with

the

use

of

inte

grat

edFM

Em

odes

-C

ultura

ldis

tance

isposi

tive

lyas

soci

-at

edw

ith

inte

grat

edFM

Em

odes

-In

tern

atio

nal

exper

ience

,know

ledge

about

cust

om

ers

and

know

ledge

about

com

pet

itors

are

not

asso

ciat

edw

ith

the

use

of

inte

grat

edFM

Em

odes

Bra

dle

y,M

eyer

,an

dG

ao20

06

Net

work

appro

ach

Choic

eSm

all-sc

ale

supplie

rsto

the

com

pute

rin

dust

ry

Irel

and

Cro

ss-s

ectional

surv

ey:7

OEM

cust

om

-er

san

d37

supplie

rs

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eis

aposi

tive

asso

ciat

ion

bet

wee

nan

SME’s

attitu

de

toth

ere

lationsh

ips

with

cust

om

ers

and

supplie

rsan

dlik

e-lih

ood

of

esta

blis

hin

gnew

cust

om

er-

supplie

rre

lationsh

ips

abro

adG

leas

on

and

Wig

genhorn

2007

Stag

eth

eory

,R

BV

Choic

e,per

form

ance

Born

global

sth

atdid

anac

quis

itio

nor

star

ted

ajo

int-

ventu

rew

ithin

6ye

ars

afte

rfo

und-

ing

and

3ye

ars

afte

rIP

O,unsp

eci-

fied

num

ber

of

SMEs

United

Stat

esC

ross

-sec

tional

surv

ey:14

9firm

s

-C

ultura

lsi

mila

rity

isposi

tive

lyas

soci

-at

edw

ith

the

choic

efo

rac

quis

itio

ns

-JV

announce

men

tsar

eposi

tive

lyas

soci

-at

edw

ith

per

form

ance

-The

stat

us

of

the

targ

etco

untr

yan

dm

anag

emen

tin

tern

atio

nal

exper

i-en

cear

enot

posi

tive

lyas

soci

ated

with

acquis

itio

ns

-La

rger

firm

spre

fer

JVove

rac

quis

itio

ns

-A

cquis

itio

ns

announce

men

tsar

enot

asso

ciat

edw

ith

per

form

ance

Pin

ho

2007

OLI

Choic

eSM

Es

inm

anufa

ctur-

ing,

reta

iling

and

oth

erse

ctors

,si

ze<

250

FTEs

Port

uga

lC

ross

-sec

tional

surv

ey:87

SMEs

-In

tern

atio

nal

exper

ience

and

abili

tyto

innova

tear

eposi

tive

lyas

soci

ated

with

equity

FME

mode

-The

pro

pen

sity

toch

oose

aneq

uity

FME

incr

ease

sw

ith

the

expec

tation

inm

arket

/sal

esgr

ow

thpote

ntial

-D

ecis

ion-m

aker

’sm

arket

spec

ific

know

ledge

isposi

tive

lyas

soci

ated

with

equity

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mode

-Fi

rmsi

ze,a

low

erper

ception

of

risk

asso

ciat

edw

ith

the

host

countr

y,an

dlo

w-o

per

atin

gco

sts

asso

ciat

edw

ith

per

form

ing

mar

ket

ing

activ-

itie

s,lo

w-d

ista

nce

inte

rms

of

culture

and

busi

nes

spra

ctic

esw

ith

the

host

countr

y-

Dec

isio

n-m

aker

’sag

e,le

velof

edu-

cation,an

dri

sk-o

rien

tation,ow

ner

-sh

ipst

ruct

ure

are

not

asso

ciat

edw

ith

equity

FME

mode


Tab

le4

Con

tin

ued

Auth

or

Th

emes

Focu

sSa

mp

lesp

ecif

icat

ions

Hom

eD

ata

Sup

port

edp

redic

tions

Unsu

pp

ort

edp

redic

tions

Forl

ani,

Par

-th

asar

athy,

and

Kea

veny

2008

TC

ER

BV

Choic

e,m

anag

emen

tMan

ufa

cturi

ng

and

serv

ice

SMEs,

size

range

:1–

1,40

0FT

Es

United

Stat

esC

ross

-sec

tional

surv

ey:81

SMEs

-M

anag

ers

inlo

wer

-cap

abili

tySM

Es

will

see

more

risk

inhig

h-o

wner

ship

hig

h-

contr

olen

try

modes

and

less

risk

inlo

w-o

wner

ship

low

-contr

olen

try

modes

-M

anag

ers

inhig

h-c

apab

ility

SMEs

will

see

more

risk

inno-o

wner

ship

entr

ym

odes

than

inJV

-M

anag

ers

inhig

h-c

apab

ility

SMEs

per

-ce

ive

more

risk

inno-o

wner

ship

FME

mode

than

man

ager

sin

low

-cap

abili

tySM

Es

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anag

ers

pre

fer

tore

tain

contr

olof

R&

Dan

dgi

veup

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olin

mar

ket

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funct

ions

inm

ixed

ow

ner

ship

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ed-

contr

olFM

Em

ode

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ritica

lity

of

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mar

ket

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funct

ion

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tive

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ated

with

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leve

lof

ow

ner

ship

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anag

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of

SMEs

with

more

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el-

oped

capab

ilities

per

ceiv

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ll-ow

ner

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try

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duct

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mix

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olFM

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ode

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rsso

n20

08R

BV

Choic

eM

anufa

cturi

ng

SMEs,

unsp

ecifie

dnum

-ber

of

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Swed

enC

ross

-sec

tional

surv

ey:17

3SM

Es

-Pro

duct

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ket

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tednes

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dte

ch-

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gym

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ina

fore

ign

mar

ket

and

the

core

busi

nes

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inth

ehom

em

arket

isposi

tive

lyre

late

dto

the

choic

eof

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olfo

reig

nm

arket

FME;both

rela

tionsh

ips

are

moder

ated

by

fore

ign

mar

ket

import

ance

-The

hig

her

the

deg

ree

of

import

ance

of

fore

ign

mar

ket

sfo

ra

SME

the

more

likel

yit

will

choose

afu

llco

ntr

olfo

r-ei

gnm

arket

FME

-Ther

eis

no

asso

ciat

ion

bet

wee

nco

mpet

itor

cert

ainty

and

the

choic

eof

afu

llco

ntr

olFM

Em

ode

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rela

tionsh

ips

bet

wee

nin

tangi

ble

reso

urc

ere

late

dnes

san

dpro

duct

/m

arket

rela

tednes

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wee

nhom

em

arket

and

fore

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mar

ket

busi

nes

sunits

on

the

one

han

dan

dch

oic

eof

fore

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mar

ket

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on

the

oth

erhan

dar

enot

moder

ated

by

com

pet

i-to

rce

rtai

nty

of

aSM

E

Lian

dQ

ian

2008

TC

E,

RB

V,

Net

work

appro

ach

Choic

ete

chnolo

gy-b

ased

SMEs<

500

emplo

yees

Unsp

ecifie

dC

ross

sect

ional

surv

ey:16

6SM

Es

of

whic

h77

SMTEs

-The

more

dyn

amic

the

mar

ket

s,th

em

ore

likel

yth

atan

SMTE

will

choose

apar

tner

ship

FME

-The

more

the

requir

edpro

motional

effo

rt,th

em

ore

likel

yth

atan

SMTE

will

choose

apar

tner

ship

FME

-A

nSM

TE

with

agr

eate

rin

nova

tive

adva

nta

geis

more

likel

yto

choose

ase

lf-r

elia

nce

FME


Tab

le4

Con

tin

ued

Auth

or

Th

emes

Focu

sSa

mp

lesp

ecif

icat

ions

Hom

eD

ata

Sup

port

edp

redic

tions

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pp

ort

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redic

tions

Schw

ens,

Eic

he,

and

Kab

st20

11

RB

VC

hoic

eSM

Es:

size

<50

0em

plo

yees

Ger

man

yC

ross

-sec

tional

surv

ey:22

7SM

Es

-H

igher

form

alin

stitutional

risk

of

the

host

countr

yst

rengt

hen

sth

eposi

tive

rela

tionsh

ipbet

wee

nth

ech

oic

efo

ran

equity

fore

ign

mar

ket

FME

and

the

inte

rnat

ional

exper

ience

of

anSM

Ean

dits

pro

pri

etar

yknow

-how

;it

wea

ken

sth

eposi

tive

rela

tionsh

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wee

nth

ech

oic

efo

ran

equity

fore

ign

mar

ket

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and

the

stra

tegi

cim

port

ance

of

the

inte

rnat

ional

activi

ty-

Hig

her

info

rmal

inst

itutional

dis

tance

bet

wee

nth

ehom

ean

dhost

countr

yst

rengt

hen

sth

eposi

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tionsh

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wee

nth

ech

oic

eof

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uity

for-

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the

pro

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igher

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itutional

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-ta

nce

bet

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ydoes

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stre

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hen

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posi

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wee

nth

ech

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efo

req

uity

fore

ign

mar

ket

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and

the

inte

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ional

exper

i-en

ceof

anSM

E;it

does

not

wea

ken

the

posi

tive

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wee

nth

ech

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req

uity

fore

ign

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ket

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and

anin

tern

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nal

activi

ty’s

stra

tegi

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port

ance

Rip

oll� e

s,B

lesa

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12

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age

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ewve

ntu

resa

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7,si

zera

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:3–

165

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ross

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tional

surv

ey:13

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Es

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tern

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nal

mar

ket

ori

enta

tion

isposi

-tive

lyas

soci

ated

with

hig

her

-co

mm

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ent

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Rip

oll� e

san

dB

lesa

2012

RB

VC

hoic

e,per

form

ance

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ventu

resa

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7,si

zera

nge

:3–

165

Spai

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ross

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tional

surv

ey:13

5SM

Es

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arket

ing

capab

ilities

are

posi

tive

lyas

soci

ated

with

hig

her

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mitm

ent

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igher

-com

mitm

ent

FME

isposi

tive

lyas

soci

ated

with

inte

rnat

ional

per

form

ance

Mae

kel

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online internationalization takes place in the vir-tual domain (Yamin and Sinkovics 2006). Sur-prisingly, few studies have included onlinemarket entry in their analysis of SME entrymode decisions, even though SMEs are morelikely than larger firms to adopt online marketentry (Pezderka and Sinkovics 2011).

Studies using RBV have echoed the findingsof studies employing TCE and OLI: SMEs tendto prefer full-ownership entry modes to protectresource-based advantages such as proprietaryknowledge and capabilities (Akhter and Robles2006; Ekeledo and Sivakumar 2004). Knowl-edge and capabilities have a tacit componentwhich may result in value erosion or loss ofcompetitive advantage when transferred to part-ners (Ripoll�es and Blesa 2012). This relationshipis stronger when the level of uncertainty in thehost market is higher (Schwens, Eiche, andKabst 2011). However, results for the level ofSME resources are inconclusive. Whereas Hutch-inson, Quinn, and Alexander (2006) have shownthat limited resource availability may force SMEsto adopt low-control entry modes, Gleason and

Wiggenhorn (2007) have found that, contrary totheir expectation, larger firms tend to preferjoint ventures over acquisitions.

Finally, some studies have emphasized therole of networks to explain the use of differenttypes of entry mode early in the internationaliza-tion of SMEs, especially those operating inknowledge-intensive industries (e.g., Bell, Crick,and Young 2004). Rather than following astaged internationalization process (Johansonand Vahlne 1977), these studies have shownthat SMEs tend to internationalize early on,using a broad set of entry modes (e.g., Eriksson,Hohenthal, and Lindbergh 2006; Ibeh et al.2004; Prater and Ghosh 2005). The importantrole of networks of formal and informal rela-tionships in the entry mode choices ofknowledge-intensive SMEs has been furtherestablished in several empirical articles usingcase study designs (Coviello and Martin 1999;Coviello and Munro 1997; Kontinen and Ojala2011).

In summary, we note that TCE and OLIare the most frequently used theoretical

Figure 1Literature Overview Framework


perspectives, followed by RBV and NA. Assetspecificity (TCE), ownership and location advan-tages (OLI), and networks (NA) are importantpredicators of entry mode choice. Comparedwith MNEs, SMEs have lower resource availabil-ity and restricted information-collecting andinformation-processing capabilities, whichmeans that they interact differently with theirenvironment (Li and Qian 2008). However, howthese factors influence SMEs’ entry mode choiceand their approach to environmental uncertaintyremains unclear.

Processes Following Entry Mode ChoiceThe literature on processes following SMEs’

entry mode choices encompasses (1) entrymode change and/or (2) management of entrymodes. Entry mode change is strongly influ-enced by both formal and informal networkrelationships (Coviello and Munro 1997) and bychanges in relationship commitment (Johansonand Vahlne 2009). Network relationships allowSMEs to move quickly to high entry modes suchas sales subsidiaries, enabling them to leapfrogstages in the internationalization process (Bell1995; Coviello and Martin 1999; Coviello andMunro 1997). However, existing studies havebeen based on samples of software- andknowledge-based service SMEs. Studies in thecontext of manufacturing SMEs have found con-tradictory results, as they conclude that mostentry mode changes involve a switch to highercommitment modes such as sales subsidiaries(Agndal and Chetty 2007; Chetty and Agndal2007; Kontinen and Ojala 2011).

Changes in entry mode are primarily theresult of reactions by SMEs to pressure from for-mal relationships (Agndal and Chetty 2007).SMEs typically move to sales subsidiaries inresponse to problems with distributors, such asunsatisfactory performance or opportunisticbehavior. This role of network relationships ininducing entry mode change reflects the liabilityrole of social capital (Chetty and Agndal 2007).In addition, SME’s network relationships mayalso induce changes in entry mode as a result oftheir usefulness (efficacy role) or by generatingunexpected opportunities for change (serendip-ity role). Kontinen and Ojala (2011) providesupport for these roles of social capital in entrymode change in the context of family SMEs.

However, it is not only SMEs’ networks thatinfluence entry mode changes. Building on RBVand international product life-cycle theory(IPLC), conceptual work indicates that entry

mode changes may also be shaped by matura-tion of SMEs’ products (Malhotra, Agarwal, andUlgado 2003). Empirical evidence suggests thatSMEs tend to switch to lower-control entrymodes when knowledge-based assets can beprotected and when there is little investment inproduct marketing (McNaughton and Bell2000). These studies have also shown importantdifferences between knowledge-based and tradi-tional manufacturing SMEs. Knowledge-basedSMEs exhibit a higher propensity to changefrom direct and indirect exporting to higher-commitment modes, whereas traditional manu-facturing SMEs follow the predictions of STAGE(Bell, Crick, and Young 2004).

Studies focusing on the management of entrymodes have drawn mainly on TCE. TCE high-lights the potential problems and risks relatingto opportunism for companies entering intopartnerships or other types of entry mode. Inthe case of parent-foreign subsidiary relation-ships (Obadia and Vida 2006), insufficientincentives and the value of the assets of foreignsubsidiaries may cause endogenous opportun-ism, which is exacerbated by information asym-metries due to inadequate monitoring by theparent firm. In the case of SME-foreign agentrelationships (Zacharakis 1997), it is concludedthat contracts mitigate opportunistic threats.Agents prefer behavior-oriented contracts,whereas SMEs prefer outcome-based contracts.However, agents have a stronger bargainingposition than SMEs because the former are ableto diversify their relationships with differentSMEs and are more familiar with the marketthan the SMEs.

We conclude that NA, RBV, and IPLC arefrequently-used perspectives to explain entrymode change in SMEs. SMEs’ network rela-tionships (NA) and the maturation, protectionand marketing investments of SMEs’ products(IPLC) explain entry mode changes. Studies ofprocesses of entry mode change have notonly shown differences between SMEs andMNEs, but have also found differences in thespeed and propensity of entry mode changebetween SMEs in knowledge-based and tradi-tional manufacturing industries. Researchfocusing on management of entry modes hastended to use the TCE concept of“opportunism” to understand how SMEs han-dle their weaker bargaining positions andincreased vulnerability to opportunism com-pared with MNEs.


Outcomes of Entry Mode ChoiceThe most important perspective in analysis of

outcomes of SMEs’ entry mode choices is TCE.Researchers using the TCE perspective haveanalyzed the impact of various entry modes onfirm performance, such as non-equity versusequity (Brouthers and Nakos 2004; Rasheed2005) and export versus FDI (Lu and Beamish2001; Majocchi and Zucchella 2003). Entrymode choice based on TCE predictions provesto be normative: SMEs that adopt entry modesbased on TCE tend to perform better than SMEsthat do not. Other studies have considered therole of the environment and have shown thatSMEs benefit more from non-equity modeswhen domestic munificence is high, and morefrom equity entry modes when foreign marketrisk is high (Rasheed 2005).

Some researchers have found more complexrelationships between the type of entry modeused by SMEs and firm performance. Using arare longitudinal data set, Lu and Beamish(2001) found a flattened U-shaped relationshipbetween degree of FDI and firm performance.They further report that export activities have anegative impact on the relationship betweenFDI and performance, and argue that the combi-nation of exporting and FDI increases coordina-tion costs. A study by Majocchi and Zucchella(2003) provides further insights into the rela-tionship between exporting, FDI, and the per-formance of SMEs. They have shown that thenegative relationship between FDI and SME per-formance becomes positive when FDI is pre-ceded by a high level of exporting. Thisresonates with stage theory.

Other work has discussed the performanceof internationalizing SMEs’ affiliates from a TCEperspective. This line of inquiry argues that theperformance of SMEs is negatively affected byendogenous opportunism in foreign subsidiaries(Obadia and Vida 2006), and that a higherdegree of control over foreign affiliates has apositive effect on performance (Beamish andLee 2003).

Despite the dominance of the TCE perspec-tive, researchers have also used RBV to under-stand the relationship between SMEs’ entrymode choice and firm performance. Articlesusing RBV have focused mainly on the linkbetween SME capabilities and performance(Ripoll�es and Blesa 2012), and the influence ofinternational activities on learning (Zahra, Ire-land, and Hitt 2000). Ripoll�es and Blesa (2012)

have shown that marketing capabilities enablegreater benefits to be gained from a choice ofhigh-commitment entry modes, while Zahra,Ireland, and Hitt (2000) find that high-controlentry modes have a positive effect on thebreadth, depth, and speed of technologicallearning.

In conclusion, we find that TCE has domi-nated research on the relationship betweenentry mode and SME performance. Similarly tothe findings on the performance implications ofMNEs’ entry mode choices, SMEs adopting entrymodes based on TCE tend to perform better. AsSMEs’ capabilities differ significantly from thoseof their larger counterparts (Coviello and Munro1997; Forlani, Parthasarathy, and Keaveny2008), RBV also provides useful insights intothe importance of certain types of SME capabil-ities for SME performance. Interestingly, onlyone study has used a longitudinal data set tomeasure performance and found a more com-plex and nuanced relationship.

Future ResearchIn this section, we suggest several avenues

for future research based on our literaturereview. First, we explain future research oppor-tunities by considering methodological issuesfound in our literature review. Then, based onthe analytical framework adopted, we identifyseveral directions for future research on theantecedents, processes, and outcomes of entrymode choice.

Methodological Considerations: SMEs,Sector, and Home Country, Concepts, andData Collection Methods

Empirical studies should seek theoretical con-sensus on the concepts employed and use simi-lar operationalization to ensure comparability offindings between studies to move the field for-ward. Our literature review reveals great diver-sity in the conceptualization of SMEs. Withregard to the age of SMEs, our findings appearsimilar to those of Keupp and Gassmann (2009)and De Clercq et al. (2012): generally, the age ofSMEs is not considered as a sample criterion,and only five articles explicitly mention age as acriterion specifically addressed in the context ofthe entry mode strategies of new ventures. Incontrast, in the studies included in our literaturereview, size proves to be an important criterionfor defining SMEs. The maximum size of an


SME ranges from less than 200 employees toless than 1,000 employees. These differences insize as a selection criterion for SMEs hindercomparison of the findings of different entrymode studies. However, we suggest that futureentry mode research should be more consciousof conceptualizing SMEs. The use of arbitraryquantitative definitions of SMEs, such as thenumber of employees, considers SMEs as ahomogeneous group of firms. The differing andsometimes even contradictory findings of thesestudies may be caused by their failure to con-sider the heterogeneity of SMEs attributable toqualitative characteristics. Future studies mighttackle the problem of heterogeneity either bytaking a descriptive approach to defining differ-ent typologies of SMEs, or by using a prescrip-tive method to define the type of SME on whichthe study focuses (Frank and Roessl 2015).2

For example, future studies might focus onage differences in sample firms. Older SMEsentering foreign markets will already havedeveloped certain routines and capabilities indomestic operations, while new internationalventures will not be hampered by establishedroutines and structures (Autio, Sapienza, andAlmeida 2000). The learning advantages of new-ness may allow new international ventures tomake bolder moves when entering foreign mar-kets. Age at entry may also influence a firm’sability to change entry mode in response tochanging environmental conditions. Inertia maycause older SMEs to be slow to change entrymode when necessary, whereas new venturesmay have greater ability to respond quickly tochanging requirements. Age at entry may alsohave an impact on the extent to which the SMEis able to reap the benefits of using differenttypes of entry mode. The learning advantages ofnewness may accelerate young internationaliz-ing SMEs’ learning from foreign marketsthrough different types of entry mode. Thisaccelerated learning, in turn, may result inhigher firm performance. Similarly, future stud-ies might provide a more nuanced perspectiveon the role of size in entry mode research. Forexample, size may be an important moderatorin the relationship between transaction costs orresource-based variables and entry mode choice,as resource constraints may prevent SMEs fromadopting the best entry mode according to these

theories. This raises the important question ofwhether SMEs really face an entry mode“decision,” or whether, owing to financialresource constraints, they actually have nochoice.3 Quantitative studies that focus on therole of financial resources might deepen ourunderstanding of how these resources shapeSME entry mode decisions and subsequentchanges for internationalizing SMEs.

In addition to differences in definitions ofSMEs across studies, our review also revealssample heterogeneity with respect to industrysectors, with most empirical articles (25 of 38)relying on samples consisting of SMEs fromboth high-tech and low-tech sectors. Industrysector matters: a key finding of empirical studiesis that knowledge-based SMEs do not follow thesequential stages of internationalization buthave a notable preference for high-control entrymodes (Bradley and Gannon 2000) and buildstrongly on their networks to serve foreign mar-kets (Coviello and Munro 1997). However,industry sector is often relegated to a controlvariable in quantitative studies, while there isgreat potential for further exploration of theinfluence of sector characteristics on entry modechoice and change. Industry characteristics call-ing for more detailed examination include theappropriability regime and the distribution ofcomplementary assets (Teece 1986). Interestingissues include how the strength of the appropri-ability regime or level of specialization of com-plementary assets influence entry mode choice;the moderating effect of the appropriabilityregime and the distribution of complementaryassets on the extent to which SMEs may reapthe benefits of adopting certain entry modes;and the influence of the interplay betweenappropriability regime and distribution of com-plementary assets on the entry mode strategy ofSMEs.

Our literature review shows that mostresearch has been carried out on SMEs with ahome base in Europe or the United States. Apartfrom three articles that include New Zealand asthe home country, no other articles compareEurope, the United States, and the rest of theworld. We therefore suggest an examination ofentry mode strategies for SMEs from emergingeconomies, which are growing at a much fasterpace than advanced economies, and are

2We thank the editor for this suggestion.3We thank an anonymous reviewer for this suggestion.


increasingly integrating into the worldwideeconomy (Aulakh and Kotabe 2008). The stud-ies included in this literature review show thatmanagers’ experience and networks of informalrelationships influence entry mode choice (Bell,Crick, and Young 2004; Burgel and Murray2000; Coviello and Martin 1999). However,entrepreneurs and managers in emerging econo-mies often do not have relevant business exper-tise and business-related knowledge (Kiss,Danis, and Cavusgil 2012), which raises someinteresting research questions regarding whatmechanisms SMEs in emerging economies relyon to make entry mode decisions. Are they dif-ferent from their counterparts in advancedeconomies and, if so, how? The role of institu-tionally based differences between emergingand advanced economies provide particularopportunities for future research, and such stud-ies might, perhaps, explore the effect of regula-tive, normative, and cognitive burdens on entrymode choice (Kostova and Roth 2002). Ourreview indicates that few studies have examinedentry modes from an institutional perspective,even though this is a core perspective in inter-national entry mode research (Brouthers andHennart 2007). Entry mode research on SMEsfrom both emerging and advanced economiesfrom an institutional perspective would be awelcome extension to the current literature.

Similarly to Brouthers and Hennart (2007),we observe some ambiguity in definitions ofjoint ventures. Some articles treat joint venturesas a stage between a hierarchical and marketgovernance structure (e.g., Forlani, Parthasara-thy, and Keaveny 2008), while others considerthem as purely hierarchical (e.g., Gleason andWiggenhorn 2007). The contradictory findingsof Bradley and Gannon (2000) and Brouthersand Nakos (2004) on the one hand andMcNaughton (1996) on the other hand regard-ing the influence of environmental uncertaintyon entry mode choice are caused by differentdefinitions and operationalizations of environ-mental uncertainty.

Finally, the empirical articles in our reviewhave made use of case studies (8), surveys (25),archival data (4), and a combination of surveyand archival data (1). This shows that the litera-ture has tried to maintain diversity in data col-lection methods, yet the vast majority ofquantitative empirical articles have been basedon cross-sectional data. Only two articles in ourreview have used longitudinal data: Lu andBeamish (2001) used data from 1986 to 1997

and Rasheed (2005) used data from 1992 to1994. Consequently, there is only a limited viewof the effect of changes to factors influencingentry mode antecedents, processes, and out-comes. Further empirical research using quanti-tative and qualitative longitudinal researchdesigns would be valuable to examine thedynamics of entry mode strategies deployed bySMEs and to allow examination of causal ratherthan correlational relationships.

Future Directions for Research onAntecedents

Our literature review reveals five broad ante-cedent categories, ranging from individual- tomeso-level (firm and business relationships), andfinally to broader macro-level (industry and coun-try). While some articles include individual-levelvariables, such as preexisting contacts of decisionmakers (Burgel and Murray 2000), previous man-agerial international experience (Gleason andWiggenhorn 2007), or the entrepreneurial orien-tation of the CEO (Ripoll�es, Blesa, and Monferrer2012) as antecedents, only one paper explicitlyemphasizes the role of the entrepreneur/managerin the decision-making process of entry modechoice (Pinho 2007). This is somewhat surprising,as the small business management and entrepre-neurship literatures emphasize the role of theentrepreneur in firms’ decision-making processes(Shepherd 2011).

Future studies on SMEs’ entry mode strat-egies should draw on the strategic decision-making perspective (Eisenhardt and Zbaracki1992) and upper echelon theory (Hambrick andMason 1984), since these take into account thecharacteristics of managers, the nature of thedecision-making process, the internal powerand politics in an organization, the organiza-tional culture, and the influence of stakeholders.The influence of characteristics of entrepreneursor managers may be of special interest forSMEs, as it is widely considered that entrepre-neurs have an important imprinting effect, notonly on the general strategy of SMEs but also onthe internationalization of small firms (Gilbert,McDougall, and Audretsch 2006). Entrepre-neurs’ characteristics or traits and their roles inidentifying, accessing and leveraging resourcesin the pursuit of opportunity creation and inno-vation are relevant to the body of internationali-zation research (Jones and Coviello 2005).

Decision making may also be influenced bythe personalities of entrepreneurs (Zhao andSeibert 2006). Individuals are confronted by so


many stimuli, laden with so much ambiguity,complexity, and contradiction, that their person-alities influence how they distill and process thisinformation (Nadkarni and Herrmann 2010).This filtering process influences their strategicchoices and is considered to be central to devel-oping strategies (Shimizu and Hitt 2004). Forinstance, conscientious individuals have a strongneed for achievement and may make differententry mode choices from those with high levelsof openness to experience and a strong toler-ance for ambiguity and flexibility.

Our literature review also reveals that littleattention has been paid to the influence of teamdiversity and team processes on SMEs’ entrymode strategies. Future studies should thereforefocus on how the sum and diversity of individ-ual characteristics lead to certain decisions inthe internationalization process through well-developed intermediary team constructs such asconflict and cohesion (for an overview, seeKlotz et al. 2014). For example, conflict mayhelp teams to consider and thoroughly analyzemore and better entry mode options, but mayalso lead to team exits and loss of the experi-ence and knowledge necessary to guide theSME through the internationalization process.As entrepreneurial teams are dynamic and tendto change over time (Ucbasaran et al. 2003), theimpact of team exits and entries at differentstages of the internationalization process mayshed new light on changes in SMEs’ entry modestrategies.

Finally, not only do individual and team char-acteristics have an impact on decision making ininternationalizing SMEs, but the preexisting net-works of managers may also explain how SMEsenter new international markets. Studies in ourreview have focused on how firm networksinfluence entry mode decisions and have foundevidence that foreign entry choices are drivenby the networks of relationships that venturesestablish (e.g., Coviello and Munro 1997). How-ever, a more detailed approach is needed toinvestigate how personal relationships withinnetworks are built and how personal interac-tions between partners influence entry modechoices.

Our review shows that the current literatureon entry mode strategy draws primarily on TCE,OLI, RBV, STAGE, and NA perspectives. Weencourage future studies to employ other per-spectives to provide novel insights into SMEs’entry mode strategies. The influence of businessmodels and business strategies on entry mode

choices and entry processes offers an interestingavenue for further investigation. Although onlyone study in our literature review devoted atten-tion to the impact of business models on entrymode choices (Ojala and Tyrv€ainen 2006), webelieve that the burgeoning literature on busi-ness models offers an interesting frameworkwithin which to explain variations in the entrymode strategies of SMEs. A business model maybe defined as an organization’s architecture ordesign for creating, delivering and capturingvalue (Zott, Amit, and Massa 2011). It distin-guishes several components or structural ele-ments: (1) the technology and featuresembedded in a company’s product or service,(2) the customer segments targeted, (3) the mar-ket approach, (4) the way in which customersare served and hence value is captured throughcustomer relationships, and (5) the company’scost structure and revenue model (Chesbroughand Rosenbloom 2002; Osterwalder and Pigneur2009). Although not explicitly referencing busi-ness model scholarship, various studies in ourliterature review have pointed to possible rela-tionships between the components of a businessmodel, particularly product characteristics, andthe choice of entry mode (Bell 1995, 1997).These studies indicate that few steps have so farbeen taken to investigate the impact of particu-lar characteristics of an SME’s business modelon entry mode choice, and much more needs tobe done to explore the impact of each of thefive business model components, separately orin concert, on entry mode choice. Future studiesmight, for example, focus on how characteristicsof customer segments targeted in the businessmodel influence entry mode choice. Businessmodels targeting high-end customers requireSMEs to be close to their customers, therebypotentially demanding a different entry modestrategy from SMEs adopting a business modelfocused on low-end customers. The customerrelationship component might also influenceentry mode strategy. For SMEs adopting a busi-ness model that requires dedicated personal cli-ent assistance, equity-based entry modes maybe more appropriate, while for SMEs adopting asoftware-as-a-service (SAAS) model followingthe principles of self-service, non-equity-basedentry modes might be preferred.

Future Directions for Research onProcesses

Initial work in this field has observed thatentry modes change over time as a result of the


development of network relationships (e.g.,Coviello and Munro 1997). Subsequent qualita-tive studies have examined the role of networksin greater detail and have provided insights intohow the types of relationship and social capitalroles impact entry mode changes (Agndal andChetty 2007; Chetty and Agndal 2007; Kontinenand Ojala 2011). An alternative explanation hasbeen offered by Jones and Coviello’s (2005) con-ceptual work. Entry mode change is invoked byinternal and external triggers and as part of anadaptation process in response to organizationallearning. These two conceptual mechanismsprovide several opportunities for empiricalresearch. For example, attracting venture capitalincreases the resource availability of SMEs sig-nificantly, allowing them to switch from low-control to high-control entry modes. Anotherinteresting internal trigger is negative perform-ance feedback from the current entry modestrategy. When performance falls below a cer-tain aspiration level, firms will take strategicactions to address the performance problem athand (Cyert and March 1963). Building on this,SMEs may change their entry mode strategy ifthe current strategy fails to meet expectations.The behavioral theory of the firm and the con-cept of problematic search might provide afresh perspective on entry mode change.

Complementarily, researchers might studythe impact of external triggers such as environ-mental jolts. While our review shows that spe-cific entry modes are preferable under certainenvironmental conditions, we know very littleabout how change in the environment in whichSMEs operate forces them to adjust their entrymode strategies. Future research might analyzethe impact of environmental changes by makinga distinction between the home country and thehome base, which is the combination of coun-tries in which the SME is active and has accumu-lated operational experience (Zhou and Guill�en2015). For example, imprinting theory(Stinchcombe 1965) might provide the neces-sary theoretical background to analyze whetherthe mode used to serve customers in the homecountry might have long-lasting effects on entrymode strategies in the home base, despitechanges in the external environments of homebase countries.

Our literature review also points to an inter-esting but under-researched topic: the manage-ment of risk associated with foreign marketentry modes (Figueira-de-Lemos, Johanson, andVahlne 2011). Such risk may be the result of

uncertainty relating to potential opportunisticbehavior and information asymmetry whenworking with partners to serve foreign markets(Anderson and Gatignon 1986). This gap is sur-prising, given the importance of agents and dis-tributors to SMEs entering foreign markets (Bell,Crick, and Young 2004). In particular, largepartners provide opportunities for market entry,raising issues about the vulnerability of SMEsand their potential dependence on large part-ners (Coviello and Munro 1997). Future researchmight study how SMEs manage such relation-ships, with a specific focus on non-equity sour-ces of control such as trust. Trust might offer avaluable alternative to equity- or contract-basedcontrol in managing networks of business rela-tionships, and might thereby provide SMEs withthe ability to enter, via intermediaries, foreignmarkets that would otherwise be impossible toaccess (Gao 2004). Future studies might investi-gate the extent to which sharing of knowledge-based assets with intermediaries and environ-mental uncertainty, conceptualized as psychicdistance, might hinder the development of trustand its subsequent use as a control mechanism.Empirical work on such questions might pro-vide novel insights into the boundary conditionsof trust as a non-equity source of control.

Our review shows that all qualitative andquantitative studies on the processes followingentry mode choice have taken a cross-sectionalresearch approach, while longitudinal researchdesigns might reveal more interesting resultswhen studying entry mode processes over time.Longitudinal case studies that examine the inter-play of influence between formal and informalnetworks would bring novel insights into entrymode research. Such studies might movebeyond the observation that networks matter(Agndal and Chetty 2007; Chetty and Agndal2007) and shed light on the dynamics and inter-play between informal relationships at the indi-vidual level and formal relationships at theorganizational level, and how these may influ-ence entry mode change.

Finally, the business model literature alsostresses the dynamic nature of business models(Zott, Amit, and Massa 2011). In fast-paced,globally competitive environments, consumerneeds, technological opportunities, and compet-itor activity are in a constant state of flux. Newopportunities for value creation open up, whileestablished SME profit streams are put at risk(Teece 2007), forcing firms to change or inno-vate in their business model to remain


successful. This implies that the business modelframework might also be used to explainchanges in entry mode. Future studies mightfocus on how certain components of a businessmodel evolve alongside changes in entry modestrategy.

Future Directions for Research onOutcomes

Similarly to the literature on entry mode strat-egies of MNEs (Brouthers 2013), this reviewshows a lack of research on SME entry modeand performance. The number of articles cover-ing performance outcomes (10) is considerablylower than the number covering the antecedents(38) and processes (14) of entry mode strategy.A potential reason for this lower number is thedifficulty of collecting performance data onSMEs. This gap in the literature is important,since entry mode change is particularly difficultfor resource-constrained SMEs, and thus entrymode choice has long-term implications for firmperformance. Future studies on entry mode–per-formance relationships should pay careful atten-tion to the issue of endogeneity (Brouthers2013). Entry mode choice is often not randombut the result of a managerial decision-makingprocess that includes the analysis of internal andexternal factors. There is a plethora of statisticaltechniques to address endogeneity, rangingfrom relatively simple methods, such as includ-ing control variables and fixed effects, to moreadvanced econometric methods, such as match-ing and propensity models and the instrumentalvariable approach (for an overview, see Reeb,Sakakibara, and Mahmood 2012). However, sta-tistical methods are often used as “crutches orsubstitutes for critical thinking” (Reeb, Sakaki-bara, and Mahmood 2012, p. 216), whereasendogeneity ought to be addressed in terms oftheoretical predictions and mechanisms. Com-parison of the performance of the entry modechoice predicted by theory (e.g., based on TCE,OLI, or RBV) and the actual entry mode used istherefore a fruitful avenue for future research.

Various objective and subjective performancemeasures have been used by the empiricalarticles in our review. These include financialmeasures, such as return on assets and returnon sales (Lu and Beamish 2001), profitability(Majocchi and Zucchella 2003), and interna-tional revenue growth (Rasheed 2005). Otherstudies have used subjective measures, such asthe manager’s overall satisfaction (Beamish andLee 2003) and relative performance compared

to the main competitors (Ripoll�es and Blesa2012). An important consideration when usingfinancial performance measures is the age of thesample firms. Whereas older SMEs may be moreconcerned about the implications of entry modechoice for profitability, their younger counter-parts may be more growth-driven. Future stud-ies should go beyond financial performance toconsider other performance variables such asemployment growth and survival. Studies usingemployment growth as an outcome variablewould be able to examine the influence of entrymode strategy on organizational complexity andresource and knowledge accumulation (Delmar,Davidsson, and Gartner 2003). We find it sur-prising that no study in our review of entrymode research on SMEs has considered survivalas an outcome variable, given its importance inthe literature on small business and entrepre-neurship (Shepherd, Douglas, and Shanley2000). We therefore strongly encourageresearchers to study how SMEs’ entry modestrategies influence firm survival. Although thegrowth and survival of internationalizing SMEsare closely intertwined, they are conceptuallydistinct: “survival does not guarantee growth,and not all growth is profitable” (Sapienza et al.2006, p. 915). The type of entry mode employedby an SME may increase its opportunities forgrowth, but at the same time may expose it togreater survival threats. For example, sales sub-sidiaries may have a positive influence on reve-nue growth but may be detrimental to firmsurvival owing to the greater complexity andrisks associated with managing foreign salesoffices. Consequently, future studies shouldexamine how different types of entry modeinfluence the growth and survival of SMEs.

One study has focused on the effects of dif-ferent types of entry mode on technologicallearning (Zahra, Ireland, and Hitt 2000). Webelieve there is a great opportunity to explorefurther how SMES’ entry mode strategies influ-ence organizational processes. Future studiesmight, for example, use a capability perspectiveto examine whether the heterogeneous experi-ences resulting from the use of different typesof entry mode stimulate the development ofinnovative and marketing capabilities.

LimitationsDespite our attempt to analyze the received

literature on SME entry modes rigorously andobjectively, this review has several limitations.


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First, we excluded empirical papers that limitedtheir discussion to SMEs and exporting. The aimof our study was to focus on entry mode as aconcept that extends beyond exporting, andincluding these studies would have resulted in areview with too great an emphasis on exporting.Second, we only reviewed entry mode studiespublished in the last 20 years (1992–2012).Third, we screened papers in five different cate-gories of journal. Although this is in line withother reviews on internationalization (De Clercqet al. 2012; Keupp and Gassmann 2009), theremay be other relevant papers and journals thatwe did not consider. However, as we combinedkeyword searches with a cross-referencingsearch, we are confident that we identified themost important articles in the SME entry modeliterature. Fourth, many existing studies havefocused on the entry mode choice of MNEs,while their samples also include smaller firms.We brought together a team of three investiga-tors to assess whether or not we should alsoinclude studies with mixed samples. Weretained those that explicitly reported insightsinto SMEs. While this process was rigorous, westill see this as a limitation of this study.

ConclusionDespite the growing importance of SMEs

choosing, changing and managing entry modestrategies effectively, the literature on SMEs’entry mode strategies is as yet immature: it doesnot provide answers to compelling issues, butreports inconsistent results. We have provided acomprehensive, systematic literature review ofresearch on SMEs’ entry mode strategies organ-ized by antecedents, processes, and performanceoutcomes. Based on our review, we have devel-oped a research agenda by highlighting severalinteresting opportunities at all three stages, andhave provided guidance on how to pursue thesein future studies (for an overview, see Table 5).

From a methodological point of view, moreempirical studies using quantitative and qualita-tive longitudinal research designs are needed toprovide a better understanding of the effects ofchanges in factors influencing entry mode antece-dents, processes, and outcomes. Future studiesshould also pay close attention to endogeneityissues when analyzing entry mode–performancerelationships. From a conceptual point of view,entry mode scholars should be more carefulwhen conceptualizing SMEs, either by describingdifferent types of SMEs or by defining the types

of SME on which their study focuses. Inconsistentresults in the entry mode literature have alsooften been caused by varying definitions of entrymodes and other important concepts.

Finally, introducing new theories and per-spectives might address the existing problemsand weaknesses in this literature. Futureresearch might use a strategic decision-makingperspective to investigate individual antecedentsof entry mode choice, or apply imprintingtheory to analyze how entry modes change overtime, or adopt a capability perspective to gain adeeper understanding of the outcomes of entrymode choice. We hope that the research agendaput forward in our review may inspire furtherexploration of SMEs’ entry mode strategies.

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