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© 2016, American Marketing Association

Journal of International Marketing
PrePrint, Unedited
All rights reserved. Cannot be reprinted without the express
permission of the American Marketing Association.

INTERNATIONAL MARKET ENTRY: HOW DO SMEs MAKE DECISIONS?

Ali Ahi, Mr., MSc. (Eng.)

Lappeenranta University of Technology, School of Business and Management

PL 20, 53851 Lappeenranta, Finland, Phone: +358403592359, Email: [email protected]

Gianpaolo Baronchelli, Assistant Professor

University of Bergamo, Department of Management

Via dei Caniana 2, 24127 Bergamo, Italy, Phone +390352052618, Email: [email protected]

Olli Kuivalainen*, Professor

Alliance Manchester Business School, the University of Manchester, Room F8 Alliance MBS East, Booth
Street East, Manchester M13 9SS, United Kingdom

Email: [email protected], Phone +358403587020

&

Lappeenranta University of Technology, School of Business and Management

PL 20, 53851 Lappeenranta, Finland, Email: [email protected]

Mariella Piantoni, Associate Professor

University of Bergamo, Department of Management

Via dei Caniana 2, 24127 Bergamo, Italy, Phone +390352052559, Email: [email protected]

* Corresponding author
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Acknowledgment

Authors in alphabetical order. The case collection has been funded by The Foundation for Economic
Education (Finland). Funding from University of Bergamo – “Progetto ITALY – Italian Talented Young
Researcher” is also appreciated. Furthermore the authors wish to thank the JIM review team for their
helpful suggestions.
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ABSTRACT

Choosing the right international market entry mode is of utmost importance for an

internationalizing firm. However, there is a lack of analysis concerning the decision-making

process (DMP), and specifically with regard to small and medium-sized enterprises (SMEs). We

study the DMP among SMEs intent on entering international markets and how this affects their

international market development strategy. Using six cases based in Finland and Italy, we

develop a model of the SME DMP. Our results imply that the DMP evolves and goes through

different phases. By focusing on the post-entry phase, this study enhances knowledge on

decision-making frameworks by linking the traditional international marketing literature related

to initial entry mode with ‘mainstream’ international business literature. Furthermore, SMEs

adopting a more rational DMP are more likely to succeed in foreign markets and consequently

this study demonstrates the importance of real options reasoning as a theoretical lens for making

entry mode decisions in the context of SMEs.

Keywords: international market entry; market entry strategy; decision making; small and

medium-sized enterprises; entry and expansion modes

Acknowledgment:

Authors in alphabetical order. The case collection has been funded by The Foundation for

Economic Education (Finland). Funding from University of Bergamo – “Progetto ITALY –

Italian Talented Young Researcher” is also appreciated. Furthermore the authors wish to thank

the JIM review team for their helpful suggestions.

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INTRODUCTION

Selecting the mode of international market entry is, alongside the market entered, among the

most important decisions an internationalizing firm has to make. These two are among the most

popular research topics in international marketing and international business (e.g. Buckley 2002;

Malhotra, Agarwal and Ulgado 2003; Dow and Larimo 2009), and there is a plethora of studies

explaining the factors affecting the decision. However, there is a notable lack of analysis of the

decision-making process (DMP) in practice (Aharoni, Tihanyi, and Connelly 2011; Brouthers

and Hennart 2007; Nemkova et al. 2015). Ji and Dimitratos (2013) claim, for instance, that while

strategic DMPs of some kind seem to exist in internationalized firms, the area remains mostly

unexplored in the international marketing literature, even though export decision making, for

example, is seen as one of the key drivers of a firm’s success (Tantong et al. 2010). As Hennart

and Slangen (2015: p.119) note, “we lack detailed knowledge of how entry mode decisions are

actually made”, and to gain this knowledge we need to “scrutinize the decision process preceding

foreign entries” and the expansion into foreign markets in the post-entry phase. This issue is

more accentuated in the context of small and medium-sized enterprises (SMEs; see e.g., Rialp,

Rialp, and Knight 2005; Schweizer 2012), there being a paucity of empirical research on how the

decision makers in SMEs make decisions when they internationalize (Chetty, Ojala and

Leppaaho 2015; Nummela et al. 2014; Zahra, Korri, and Yu 2005), and when they select entry

and post-entry modes for the different markets in which they are operating.

The purpose of our study is to respond to the call in previous literature for more research on the

DMP behind the choice of entry mode (Brouthers 2013; Hennart and Slangen 2015). We define

an entry mode as “an institutional arrangement that makes possible the entry of a company’s

products, technology, human skills, management or other resources into a foreign country” (Root
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1977, p. 5). We further refer to the decision-making mode as the ‘method and logic’ used by

managers in SMEs when analyzing a decision to internationalize into a new market or “to

expand the scope of their existing international business” (Child and Hsieh 2014, p. 599). A

further aim is to enhance understanding of how the DMP eventually affects the firm’s

international market development strategy – in other words in the post-entry phase – and the

possibility of changing the entry mode in the future. Our study contributes to the literature in

various ways:

First, using previous literature we argue that three multidimensional constructs characterize

different decision-making modes. The current dominant stream of literature has adopted an

effectuation-causation logic (Nummela et al. 2014; Sarasvathy 2001). We take a more nuanced

view of the decision-making mode by considering rationality as a key concept. With a view to

narrowing a gap in the literature, we propose a conceptual framework of different decision-

making modes (Child and Hsieh 2014) and their implications, which takes the form of four

testable propositions. This information will increase awareness of the strengths and weaknesses

of different decision-making modes and their use during the internationalization process. This is

of great importance to SME managers responsible for international marketing activities, who

play a key role in initiating international operations, often starting with exporting.

Second, instead of focusing only on the initial entry mode, we also consider the post-entry phase,

during which, we argue, companies may adopt different decision-making modes. We suggest

that different decision-making modes affect firms’ subsequent operations, something not studied

in detail to date (cf. Hennart and Slangen 2015), and decision-making-mode evolvement. We

thus provide a more integrated picture of the DMPs of SMEs operating in international markets
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and contribute to the international marketing literature by studying not only how decisions are

made (e.g. Nemkova et al. 2015) but how that process changes.

Third, we highlight the importance of rationality in the choice of entry mode, as well as in the

post-entry phase (Aharoni et al., 2011; Dean and Sharfman, 1996). We extend the notion of

rationality to explain the DMP with regard to ‘planning comprehensiveness’ (or in other words

managers’ approach to planning), the learning process, and time frame. This enables us to study

a DMP beyond the effectuation/causation dichotomy. In addition, we suggest that the different

entry mode decision-making logics have performance implications because they affect firms’

ability to adjust their entry mode after entry. Consequently, we will contribute to decision-

making theories by providing evidence on the outcomes of DMPs (cf. e.g. Nemkova et al. 2015)

and we especially highlight the role of real options reasoning (e.g. Child and Hsieh 2014) as a

theoretical lens for making entry mode decisions in the context of SMEs.

BACKGROUND

Decision-making Process in SMEs

Decision making is one of the most important parts of management work, and in the context of

international marketing effective decision making is becoming increasingly critical to success

(Katsikeas, Samiee, and Theodosiou 2006; Nemkova et al. 2015; Sharfman and Dean 1997).

Various decision-making styles, models or modes are presented in the literature, the primary

common reference point being the extent to which they are related to rationality (Aharoni,

Tihanyi and Connelly 2011; Child and Hsieh 2014). Rationality is defined as “the reason for

doing something and to judge a behavior as reasonable is to be able to say that the behavior is

understandable within a given frame of reference” (Butler, 2002 p. 226). Rational decision

making is often understood as consisting of steps. These include setting managerial objectives,
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then searching for information to develop a set of alternatives that will later be compared and

evaluated to enable the company to make the best choice. The selected option is implemented

and subjected to follow-up and control (e.g. Dean and Sharfman 1996).

Within the international marketing context, in particular when export decisions are analyzed,

decision theory has been used as a platform (Nemkova et al. 2015), from two different

perspectives: normative and descriptive. The normative approach “is associated with planning

and is defined as a process… …to formulate a solution to a problem” (Nemkova et al. 2015, p

42). The descriptive approach, however, envisages that “many decisions that affect a firm’s

performance are made outside the planning process” (Nemkova et al. 2015, p 42; see also Grant

2003). The two approaches may co-exist in reality.

The main factors that might influence the SME’s decision-making mode are ‘information

scarcity’ (Buckley 1989; Child & Hsieh 2014; Gabrielsson and Gabrielsson 2013); resource

availability (Evers and O’Gorman, 2011); decision makers’ ‘leadership characteristics’ and their

interpretations of the environment (Oviatt and McDougall 1994; Nielsen and Nielsen 2011;

Child and Hsieh 2014); the entrepreneur’s prior knowledge, experience, business and social

networks (Evers and O’Gorman 2011); the hybrid governance structures in SMEs, in which the

business model is normally co-created with partners, implying that the decision-making process

too is shared with partners (Sarasvathy 2001; Nummela et al. 2014); and goal setting

(Gabrielsson and Gabrielsson 2013). In addition, few smaller firms have the elaborate routines

found in larger organizations, and decisions may be made based on management’s existing

knowledge (see Bell, Crick, and Young 2004).

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Decision making in SMEs and Entry Mode Choice

One of the key decision-making contexts in international marketing is choice of international

entry mode, when entering a new market, or change in mode (Lu 2002). The international entry

mode choice is a multifaceted decision involving the assessment of uncertainty and risk, control,

commitment, estimated returns, and other strategic objectives (Anderson and Gatignon 1986;

Brouthers and Hennart 2007; Ji and Dimitratos 2013). The change from one non-functioning

entry mode to another may be costly and time-consuming and have negative consequences for

performance (Laufs and Schwens 2014; Nakos and Brouthers 2002).

In regard to SMEs, most studies on entry mode choice rely on the very same theories as are

employed by the multinational enterprise literature, including transaction costs and Dunning’s

OLI model (Laufs and Schwens 2014; Nakos and Brouthers 2002). There are suggestions that

decision-making approaches differ between SMEs and large companies (Child and Hsieh 2014;

Wilson and Nutt 2010). However, Laufs and Schwens (2014) found, in their review of such

papers, that specific SME characteristics are rarely considered. They conclude, “with regard to

SMEs’ sensitivity to external challenges, it remains unclear how SMEs and their major actors

(e.g., the CEO) make decisions in uncertain situations” (p. 1120).

What form, then, does the foreign market entry DMP take in SMEs? How do the decision

makers, i.e. individuals, often managers, make decisions when considering a change in entry

mode? In the case of SMEs, the main entry mode decision-making approaches studied recently

are effectuation and causation (e.g. Chetty et al. 2015; Sarasvathy 2001), two alternative logics

used by entrepreneurs taking decisions. The causation logic “sees the environment as largely

beyond the control of decision-makers… ...and consistent with the planned strategy approach”,

while the effectuation logic sees the “environment as endogenous to the actions” of decision
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makers and “closer to emergent or non-predictive strategies” (Gabrielsson and Gabrielsson 2013,

p. 1359).

In the case of an initial entry, most studies suggest that the entry mode decision first follows an

effectuation approach in which uncertainty and a lack of information induce decision makers to

adopt a ‘less rational approach’, following feelings and intuitions (Chandra et al. 2009; Evers and

O’Gorman 2011; Sarasvathy 2001). It is tempting to think that SME decision making would

evolve into a causation logic and become more systematic and rational over time (see e.g.

Chandra et al. 2009; Gabrielsson and Gabrielsson 2013; Harms and Schiele 2012; Kalinic et al.

2014; Sarasvathy et al. 2014). The available empirical evidence in the SME setting is

inconclusive (Kalinic et al. 2014; Nummela et al. 2014; Schweizer 2012), though, and the two

logics can coexist (Harms and Schiele 2012; Kalinic et al. 2014). According to Nummela et al.

(2014), other important factors that influence the decision-making mode are the managers’

backgrounds and characteristics, which have an impact on their cognitive schemas and therefore

direct them towards different decisions. The product or market type may also have a huge effect

on decision making, and on planning as a basis for decision making (see e.g. the strategic

dimensions presented by Piëst 1994). Hence, it is not clear how managers of SMEs make

decisions or change their decision-making mode, and whether it is causation, effectuation or

something else that dominates the initial entry mode and mode change decisions.

Consequently, more fine-grained approaches have also been suggested. In an attempt to organize

the decision-making styles or modes in SME internationalization, Child and Hsieh (2014)

propose four models that SME leaders may follow. They range from a low to a high level of

planning and rationality: reactivity, incrementalism, bounded rationality, and real options

reasoning (ROR). First, reactive decision making happens when the decision makers simply react
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to internal and external factors, such as unplanned encounters (Crick and Spence 2005). The

decision tends to be based on short-term planning; it is made under uncertainty without the

necessary information; and it is a reaction to an opportunity arising from a serendipitous event

(Foss, Foss, and Klein 2007; Jones, Coviello, and Tang 2011).

Second, incrementalism implies a process more rational than reactive. Incremental decision

making resembles Lindblom’s muddling-through approach (see Lindblom 1959): decision

makers compare alternatives and set objectives and goals, even if they are vague and far from

comprehensive or systematic (Child and Hsieh 2014). We are of the opinion that the effectuation

approach (Sarasvathy 2001) – which enables entrepreneurs to create opportunities by making

decisions based on the principle of ‘affordable loss’ rather than the maximization of expected

returns (Kalinic, Sarasvathy, and Forza 2014) – resembles incremental decision making in many

respects.

Bounded rationality is Child and Hsieh’s (2014) third decision-making mode. Some scholars

argue that the decision maker may be rational but the complexity of the environment and the

limited ability of humans to analyze and process information make maximization impossible in

real-life decision making (Simon 1955); in other words, he or she is boundedly rational (see

Cyert and March 1963). This approach assumes that organizations’ strategies, including strategic

decisions about internationalization, are related to the composition, cognitive orientation, and

perceptual process of the top-management team (Greve, Nielsen, and Ruigrok 2009; Kaczmarek

and Ruigrok 2013). Moreover, it considers managers with ownership to be more risk-averse and

to favor a more conservative approach to internationalization, being intent on reducing

uncertainty and potential losses (George et al. 2005).

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Finally, the highest form of rational decision making in Child and Hsieh’s (2014) model is ROR,

defined as the managerial ability to identify, maintain, and exploit real options in their business

environments (Barnett 2008; Driouchi and Bennett 2011). A real option is a specific

(international) investment in an asset with uncertain payoffs (McGrath, Ferrier, and Mendelow

2004), such as joint ventures (Kogut 1991) or investments in R&D units in other locations

(McGrath and Nerkar 2004). ROR implies that, when uncertainty is high, firms may minimize

current investments but secure an option to invest at a later time, when lower uncertainty is

expected (Brouthers, Brouthers, and Werner 2008).

The four decision-making modes presented above are not categories in the strict sense of the

word because they differ in some dimensions but overlap in others. For instance, bounded

rationality and ROR-type decision making both include rational planning and decision-making

rules. These modes can serve as analytical tools in empirical analyses of SME DMPs related to

entry mode, however.

Propositions on SME Decision Making Related to Entry and Post-Entry Mode

How do Child and Hsieh’s (2014) four decision-making modes fit into this context of SMEs

deciding on their initial entry mode and likely post-entry mode? Let us elaborate on them further

by focusing on their key features, or dimensions (see Table 1). The dimensions considered

significant for this exercise have been derived from the existing literature. They are

‘comprehensiveness of planning’ (e.g. Child and Hsieh 2014; Ji and Dimitratos 2013; Piëst

1994), path dependencies and learning (e.g. Hutzschenreuter, Pedersen, and Volberda 2007), and

the planning schedule and length of the strategic planning cycle (e.g. Aharoni 1966).

************** INSERT TABLE 1 HERE *************

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The first and third dimensions can be subsumed into the strategic decision-making literature (cf.

e.g. Liberman-Yaconi et al. 2010), whereas the second is much used in the international

marketing literature and can be found in internationalization process models (e.g. Johanson and

Vahlne 1977, 2009), for example. Next, we explain these dimensions while also considering the

role of rationality, which in this context may be regarded as the key discriminant among the

decision-making modes (Aharoni et al. 2011; Child and Hsieh 2014).

The first dimension, which focuses on comprehensiveness of planning (or ‘approach to

planning’), relates to managers’ rationality in their planning for the entry-mode decision (e.g.

equity vs. non-equity, low commitment vs. high commitment), or for a change in mode. Child

and Hsieh (2014) focus on four features of decision-making modes in relation to the

comprehensiveness of planning: how planned and goal-driven the process is, whether there are

decision-making rules, and whether alternatives are compared. Entry mode choice is a strategic

decision that should be supported by all kinds of relevant information and analyzed rationally (Ji

and Dimitratos 2013). This requires the analysis of different alternatives (e.g. export, joint

venture, acquisition, or greenfield investment) and the selection of criteria on which to base the

final choice (Malhotra et al. 2003; Morschett et al. 2010). Hence, rationality tends to lead to

finding and analyzing alternatives, as well as yielding more criteria to support the decision. As

mentioned above, managers of SMEs tend to have fewer alternatives because they have limited

capacity to gather and process information. Their limited resources mean that the fully rational

approaches are not always applicable (see e.g. Aharoni et al. 2011 for the ‘full rationality

approach’). As a consequence, decision making may be ‘unplanned’ in terms of collecting

information, analyzing it, and observing decision-making criteria (Kalinic et al. 2014). This may

mean that firms follow the effectuation logic for their first entry into a new market, but then
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change to a causation logic, i.e. more rational and planned, when changing mode (Chandra et al.

2009; Gabrielsson and Gabrielsson 2013; Harms and Schiele 2012). Following Child and

Hsieh’s (2014) models, we suggest that SMEs will normally follow a ‘reactive’ decision-making

mode on first entry, then in the post-entry phase follow their ‘real decision-making mode’, be it

reactivity, incrementalism, bounded rationality or ROR.

P1: SME decision making regarding entry mode is unplanned on first entry but becomes more

rational and systematic over time for post-entry mode changes.

The second dimension refers to a pattern of behavior that forms in the context of decision

making regarding internationalization, when the key choices relate to entry mode and target

country (see e.g. Casillas, Moreno, and Acedo 2012; Jones and Coviello 2005). The

internationalization literature has focused to a great extent on incremental explanations that

emphasize path dependencies (Hutzschenreuter, Pedersen, and Volberda 2007). The key point in

path dependency is that the company will allow evolution to happen rather than trying to go

against it (Hutzschenreuter et al. 2007; Volberda et al. 2001). Such behavior develops from the

company’s accumulated experience and learning, and its achieved degree of involvement

(Andersen 1993). Johanson and Vahlne (1977) describe the evolution of international entry and

operation modes in Swedish companies as an establishment chain. If the company were not

rational in its decision making, its entry-mode and post-entry decisions would depend on its

experience in other markets. The choice of entry mode may therefore be based on, for example,

inertia, a dominant internationalization path, or earlier knowledge and history (Child and Hsieh

2014; Hashai 2011). Hence, previously used market entry modes may be chosen again without a

distinct DMP being followed.

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The assumptions underlying the model are uncertainty and bounded rationality (Johanson and

Vahlne 2009). Uncertainty can be reduced through increase in market knowledge (Liesch,

Welch, and Buckley 2011), and also through ‘learning by doing’. Therefore, post-entry, entry

mode changes made by internationalizing companies with more rational decision making

depend, first, on learning from experience, including current activities in foreign markets, and

second, on the commitments made to strengthen their positions in foreign markets (Johanson and

Vahlne 2009).

P2: Experience in international markets helps companies to develop more rational entry mode

DMPs. This should be more prevalent post-entry.

The third dimension concerns the planning schedule and the length of the strategic planning

cycle (see e.g. Aharoni 1966) during the DMP. The consideration of future market growth is

important and may play a significant role in the process, but the impact of time is still not clear.

Liesch et al. (2011, p. 137) call for better understanding of “the way in which time is experienced

by people within the enterprise, and decision makers, in particular”. Some scholars argue that

short/long-term attitude may be indicative of a company’s commitment to a particular market

(Efrat and Shoham 2012). In fact, in the present context, the time frame could affect a company’s

commitment, the information to be collected, and the kind of decision-making rationality to be

adopted (Foss, Foss, and Klein 2007; Jones, Coviello, and Tang 2011). When the time frame is

short, for example, the company may choose a lower-commitment entry mode and collect less

information, thereby adopting a less rational decision-making mode. With a longer time frame, it

may adopt the Uppsala approach (Johansson and Vahlne 1977) and increase its commitment as

its market knowledge increases, or even follow the ROR approach of minimal current

investments with an option to invest when uncertainty is lower (Brouthers, Brouthers, and
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Werner 2008). The ROR approach would indicate that the consequences of the decision(s) over

time would be considered beyond the initial entry mode.

P3 The degree of rationality in an entry mode decision-making model is directly linked to the

time frame. The greater is the rationality, the longer is the time frame

The fourth additional dimension considers the performance implications of choosing and later

changing an entry mode as the firm’s strategy for operating in international markets. To evaluate

the appropriateness of this strategy, performance may be the most important consideration

(Katsikeas, Samiee and Theodosiou 2006). Among the decision-making modes mentioned

earlier, ROR has been regarded as a useful guide to the firm’s strategic decision making under

uncertainty (Barnett 2008), with potentially fruitful performance implications. Empirically,

whether or not ROR will result in favorable performance is still in question (see Klingebiel and

Adner 2015). However, in line with past research on ROR in choosing entry modes (e.g.

Brouthers et al. 2008; Brouthers and Dikova 2010), we believe that, in the case of SMEs, ROR-

based decisions over initial entry mode choice and subsequent change will have superior

performance implications, and we examine this with empirical data. Therefore, our initial

proposition is as follows:

P4. SMEs following ROR to make strategic decisions over initial entry mode choice and

subsequent change will achieve greater performance than those following other decision-making

modes.

METHODOLOGY

To further explore, refine, and develop our theoretically driven propositions, we compared six

SMEs to study how they made decisions before and after entering foreign markets. Our aim was
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to determine how the different decision-making modes could be linked theoretically to the

managers’ approach to the process. Therefore, our research is confirmatory, elaborating on

existing theories (Lee 1999) by exploring previously unexplained theoretical links. Accordingly,

and following Eisenhardt and Graebner’s (2007) recommendation, we used multiple case studies

to develop and reconnect these theoretical links. This approach is easily generalizable and

theoretically testable ( Eisenhardt 1989; Eisenhardt and Graebner 2007).

Case Selection

In selecting our cases, we used purposeful sampling, which is suitable for studying

underexplored phenomena (Eisenhardt and Graebner 2007; Yin 2003). We chose cases based on

theoretical reasoning, with regard to replication and theory extension (Yin 2003). Eisenhardt

(1989) argues that choosing cases randomly is neither necessary nor preferable. We based our

selection on several criteria that helped to describe the entry mode DMP. First, the cases had to

meet the defining criteria of an SME. We used the Organization for Economic Co-operation and

Development’s definition of SMEs as firms with fewer than 500 employees (OECD 2008). This

threshold is applied in many countries, such as Canada and the USA, for classification in many

industries, and in earlier research (Brouthers and Nakos 2004).

Second, the extent of international experience and operations governed the selection. In

particular, we included in our original samples companies that had started operations in at least

one developed market, one of the BRICS countries (i.e. Brazil, Russia, India, China and South-

Africa), and one emerging non-BRICS market. Including different host markets with varying

levels of uncertainty in our sample gave us enough variance to make a robust comparison of

decision-making modes in different environments: we considered it important to include

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uncertainty and risk perceptions since they are elements that influence the DMP (see Aharoni

1966).

Third, the companies had to have been in operation in the host markets for more than one year

prior to our interviews (conducted in 2014), so that we could observe their post-entry behavior

and entry changes. Finally, we applied accessibility criteria, choosing thirteen potential

companies and finally selecting six of them according to their willingness to participate in the

research and their fit with the criteria described above. Companies A, B and C were based in

Finland and the rest in Italyi. Table 2 gives details of the selected companies.

************** INSERT TABLE 2 HERE *************

Data Collection

Interviews are a highly efficient method by which to gather rich, empirical data, especially about

infrequent phenomena (in our research, the DMP driving foreign market entry mode choice)

(Eisenhardt and Graebner 2007). We therefore conducted in-depth interviews with key

informants from the case companies. We ensured that the interviewees were individuals who

were fully familiar with, and highly knowledgeable about, the companies’ international

operations, and who had been involved in the DMP for international expansion and entry mode

choice, namely CEOs or senior managers.

We started with structured interviewing, guided by the extant research (see Smith 2014), and we

conducted a total of eleven interviews within the six companies, each lasting between one and

two hours. They were digitally recorded and then transcribed on a word processor. Before

conducting the main interviews, we carried out two interviews with managers in two of the

companies as a pre-test so that we could make any necessary modifications. Similarly, after
 18

doing our data analysis and coding, we conducted four additional interviews with informants

from Companies A, B, and C to check the validity of the data and for follow-up purposes. The

Appendix gives a sample of the main questions asked during the interviews.

In addition, we consulted the websites of the case companies to obtain information about their

internationalization histories, products, industry branches and other related secondary materials.

Moreover, we studied the companies’ archival documents, such as company bulletins, and asked

our key informants to evaluate the comprehensiveness of our data. We also ensured our

informants had been involved in the DMPs for entry mode and post-entry changes. All this

enabled us to triangulate our data (Smith 2014). The fact that these archival sources were

produced in ‘real time’ mitigated the impact of retrospective sense making and potential memory

bias among the interviewees (Leonard-Barton 1990).

Data Analysis

Like most qualitative research, our analysis progressed through a cycle of inductive and

deductive reasoning (e.g. Walsh and Bartunek 2011). During the early stages, we were

influenced by previous research on SME managers’ decision-making modes, and were familiar

with the continuum of rationality, as discussed above. We therefore began our analysis by

classifying each of our six cases following Child and Hsieh’s (2014) categories, so as to

understand the rationality exhibited in each one (see Table 3).

*******INSERT Table 3 HERE******

We coded our data according to the principles of thematic analysis (Braun and Clarke 2006),

utilizing analytic replication in which each case served as its own experiment (Eisenhardt and

Graebner 2007; Yin 2003). We first created a list of first-order themes from our case evidence.
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We then read the relevant literature again to see how we could explain what we had found in our

data. For example, we related the statements regarding whether the managers had considered

other alternatives when deciding to enter a market (first-order theme) to alternative analyses

(second-order theme). Thereafter, we organized the second-order themes into aggregated

theoretical dimensions, as represented in our data structure (see Maitlis and Lawrence 2007).

Through this procedure, we categorized our second-order themes into three main entry mode

decision-making dimensions, namely approach to planning, path dependency, and time. These

dimensions may have varying levels of importance, depending on the SME’s decision-making

mode. Table 4 shows our data structure, and in Table 5 we use illustrative examples to explain

how we derived our second-order themes.

*********INSERT TABLE 4 HERE********

*********INSERT TABLE 5 HERE********

The companies’ performance was measured by asking informants the following: “Are you

satisfied with the success of your entry? Have the objectives set for the entry been fulfilled?”

(See Appendix). We used secondary data such as company websites to validate this subjective

performance measurement.

FINDINGS

We now describe how the different decision-making modes of the SMEs were linked to the

aforementioned dimensions, and how this affected initial market entry and post-entry changes.

First, we examine the SMEs’ rationality in their planning approaches, whether they analyzed

alternatives, and whether they used criteria in their decisions. We then assess the extent to which

they were influenced by their previous market entry choices – in other words, their path
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dependency. Finally, we explain the effect of time on the respective decisions and the decision-

making mode’s possible impact on performance. In Table 6, we summarize our findings from

each case.

*********INSERT TABLE 6 HERE********

Approach to Planning

Initial P1: SME decision making regarding entry mode is unplanned on first entry but becomes

more rational and systematic over time for post-entry mode changes.

We started our analysis with the question of whether or not rationality in the DMP characterized

the approach to planning and the effect on the choice of entry, in both entry and post-entry

phases. For instance, Company D, which we classified as following a reactive decision-making

mode, did not have a rational approach to planning: there was no advance planning; entry was

the result of serendipitous events; most of the information collected related to management

perceptions of market size and cultural distance; and possible alternatives were not considered

(see Table 5). As the manager said regarding the United Arab Emirates, “everything starts from

meetings with buyer during exhibitions followed by direct sales to department stores”. Then, in

the post-entry phase, the company had been contacted by a partner willing to develop a joint

venture. The decision was thus a reaction to a market request and, due to the alertness and

judgment of a family member, developed into successful cooperation.

We classified Companies A, C, and E as incremental in their decision-making modes. Though

limited, it is still possible to see a planning process. First, they analyzed the market. If they saw

an opportunity (e.g. Decision Making Criteria for Company A in Table 5), they entered the
 21

market in a low-commitment mode, and from that point, step by step, they increased their

commitment. The three companies, with limited planning and analysis, decided to enter different

markets (e.g., Company C in Russian Market, Company A in Chinese Market and Company E in

Indian market) with distributor agreements. Then, they started to collect relevant information

from the market through customers and distributors and increase their commitment to wholly

owned subsidiaries as soon as they felt that the market was ready to accept the company’s

product. The basic decision making criteria is evident in these cases: collect information, mostly

from trusted people and mostly regarding market opportunities based on people’s feelings and

then take the decision.

Company F represents a more rational approach in terms of planning. First, it conducted market

research; then, it normally entered the market with a distributor partnership; finally, after a few

years of operations, it decided which alternatives suited it best in that particular market. Different

DMPs were followed for each possible post-entry mode: when a lower level of commitment was

needed, the Area Manager made the decision; with a higher level of commitment, as in the case

of the sales subsidiary, the CEO selected the manager to run the subsidiary, and everyone from

sales to production to IT would be involved in preparing the business plan. Company F clearly

followed the bounded rationality mode, with a much more well-defined process for data

collection and analysis compared to the incremental mode, even though the main decision-

making criterion was “what we can afford to lose”.

We found that Company B took the most rational planning approach. It first entered the market

through a low-commitment distributor agreement, and then collected information while

operating in the market, waiting for the right time to increase its commitment. As a result, it was

able to compare the alternatives and make a more appropriate decision in the end. It did this in
 22

the case of South Korea: first, it entered via exporting, and then, having operated there for years,

it decided to acquire a manufacturing company. “Over the years…we learned about the market

quite well… [then] we acquired a manufacturing company there [South Korea]”, the manager

noted. The approach to planning was thus rather systematic: the alternatives were compared and

the decision made accordingly. The procedure followed was rational, similar to ROR.

With regard to the above discussion, our case studies show how SMEs’ approach to planning

varies depending on the extent to which they analyze entry mode alternatives and consider

decision making criteria (see Table 4, second-order themes of ‘approach to planning’

dimension). Cases with a more rational decision-making mode, such as Company B and F,

consider more entry mode alternatives and have rigorous decision making criteria. This,

however, does not affect the initial entry-mode strategy. In fact, a low commitment mode was

selected in almost all cases (see Table 6, Initial Entry Mode (OM-E)). This allowed for market

entry with the goal of increasing market knowledge (see Liesch et al. 2011). On the other hand,

our results reveal that the planning approach affects the choice of post-entry operational mode. In

sum, we believe on the basis of our analysis that the decision-making mode has a stronger

influence on the SME’s choice of strategy post-entry. This confirms the original proposition,

which we rewrite as:

Final P1: The relationship between decision-making mode and approach to planning is

stronger in post-entry, i.e. after the SME enters a given market, than pre-entry phase. As

such, the more rational an SME’s decision-making mode, the more rational is its approach

to post-entry planning.
 23

Path Dependency

Initial P2: Experience in international markets helps companies to develop more rational entry

mode DMPs. This should be more prevalent post-entry.

The rationality of each decision-making mode is also observable through the approach to path

dependency (Child and Hsieh 2014). The main findings of our research reveal that all the firms

adopted a low-commitment mode when entering mostly new markets, in line with the Uppsala

model (Johansson and Vahlne 1977). The Uppsala model also describes a learning path through

experience and previous decision making that influences future international decisions (Casillas

et al. 2012; Hutzschenreuter et al. 2007). Our findings further show that in some cases a learning

process can be detected, with the operation mode in post entry phase repeated in some of the

cases (e.g. see Company D in Table 5).

On the other hand, we found that the companies engaging in more rational decision-making were

less dependent on their earlier experiences; for example, they considered and compared a wider

variety of operation modes in the post-entry phase (e.g. see Company A and F in China in Table

5). Company B followed a similar approach in Norway and South Africa: it started with a

distributor agreement, then, after collecting all necessary information, it decided to change to

different operational modes that it believed could produce better outcomes in the future, namely

an exclusive dealer in Norway and an acquisition in South Africa.

Experience in foreign markets can also cause companies to change decision-making mode. In

company E, for example, during the post-entry phase in Turkey, the learning path in the previous

market encouraged the management team to change its decision-making mode to a more rational

one (i.e. incremental to ROR). Instead of cooperating with a distributor for a few years and then

opening a sales subsidiary, as it had done previously, it collected all possible information
 24

regarding the investment in advance, and then decided to postpone the sales subsidiary option to

a later stage.

We therefore observe that the more rational SMEs follow a learning path in terms of decision-

making mode, have a wider variety of modes in their past entry-mode portfolio, and are more

flexible in selecting their post-entry operation modes (see Table 4, second-order themes of ‘path

dependency’ dimension). Stated differently, these SMEs are less path dependent. On the other

hand, SMEs which base their decision making on reactivity and incrementalism tend to have a

smaller number of alternatives and a smaller number of operation modes at their disposal, and

their learning path is about selecting the best operation mode for all markets. They tend to

choose modes with which they are familiar (Child and Hsieh 2014). Against this background, we

make a new proposition as follows:

Final P2: The more rational an SME’s decision-making mode, the stronger is the effect of

past experience on entry mode choice; such SMEs are likely to consider a wider variety of

alternative post-entry operation modes, and are also more likely to change their decision-

making mode for future markets.

Time

Initial P3: The degree of rationality in an entry mode decision-making model is directly linked to

the time frame. The greater is the rationality, the longer is the time frame.

Time is an important dimension of the SME’s DMP (Efrat and Shoham 2012). Our analysis

reveals that decision makers who are less rational analyze the information from a short-to-

medium-term investment perspective. Company D, for example, had considered the fact that the

market size and interest in a “product made in Italy” could change in the medium term and

therefore decided to maintain its lower commitment even in the post-entry phase.
 25

On the other hand, when higher levels of rationality prevailed, as in Company C, the planning

was somewhat longer-term; for example, expecting that the Russian market “could be about ten

times bigger in a few years”, the company decided to increase its commitment through a sales

subsidiary. At higher levels of rationality, companies collect and analyze information more

rigorously upon noticing potential opportunities, before deciding whether and how to act. When

market potential is confirmed, a goal is set for the long term and the company’s decision makers

consider potential strategic developments. Company E, for example, in the case of the Turkish

market, analyzed all the alternatives and decided – based on the strength of the market’s potential

– to enter it through a low-commitment distributor that could later become a sales subsidiary that

would meet its long-term goals. Similarly, Company B’s manager noted, “It is very important to

take into account the future [market] potential and operations… We do not make the same

agreements in [all] the markets”. After Company B enters a foreign market, it then allows itself

sufficient time to compare alternative operating modes in that market and change if necessary.

Accordingly, if appropriate, it will then make a longer-term decision and choose a higher-

commitment mode, such as a WOS in the form of an acquisition. This had happened in both

South Korea and South Africa. In the case of South Korea, the management took almost a decade

to decide to change mode, eventually choosing a production plant as the best alternative. This

approach requires a longer-term view of future operations and tends to build on long-term goals

(see Table 4, second-order themes of ‘time’ dimension). We may conclude from our data that, in

general, whether companies take a long or short-term perspective on their future operations and

market development differs according to their decision-making mode. Therefore, we confirm our

proposition as follows:
 26

Final P3: The more rational the decision-making mode of an SME, the longer is its

perspective on future operations and market development.

Performance

Initial P4: SMEs following ROR to make strategic decisions over initial entry mode choice and

subsequent change will achieve greater performance than those following other decision-making

modes.

Our analysis also reveals that ROR (e.g. Brouthers et al. 2008; McGrath 1997), in which

managers plan future developments in advance rather than reacting to the market situation, is the

most effective strategy for producing a successful entry-mode choice. Company B, for instance,

entered South Africa with a rational, long-term approach. It established a sales subsidiary only

after it had acquired extensive market knowledge, established connections, and was able to

compare alternatives. The company was happy with its performance. As the interviewed

manager said, “we are successful in the market”. It apparently used ROR in its decision-making

process.

On the other hand, examples of less rational decision-making include decisions taken for an

investment that did not produce results (Company A), and a joint venture that was not successful

(Company F). For example, Company A entered the US market following incrementalism logic.

According to one of the managers, since the USA “seemed” to be a big, promising market, they

decided to enter it via a sales subsidiary. After making a significant investment, however, the

managers found the market more complicated than expected, forcing a decrease in commitment.

This lost them “millions of euros” before they changed their market objectives.
 27

Company F faced a similar situation in China: it opened a production plant in a joint venture

with a local company, following a reactive approach in considering the options with regard to

cooperating with a possible partner. The partnership was not successful, however. The company

had to start again from the beginning, this time with a distributor that helped it acquire

knowledge and build up networks. Only then could the company select the best operating mode

for its future development and follow the correct DMP.

It thus seems that following ROR gives SMEs more alternatives from which to choose, thereby

minimizing downside exposure (to control and investment uncertainty) and maximizing potential

gains for each market. We believe this is a less risky decision-making method, in that combining

value creation with cost reduction may lead to better decisions (e.g. Company E changes to ROR

regarding the Turkish market). Accordingly, we suggest a new proposition as follows:

Final P4: SMEs adopting a more rational decision-making mode, such as ROR, are more

successful in their international operations. Such SMEs have a rigorous approach to

planning, are less path dependent, and have a longer DMP.

A model of SME decision making when entering foreign markets

On the basis of the above analysis, we now develop a dynamic model of SME decision making

when entering foreign markets and then changing their initial entry mode (see Figure 1). As our

analysis shows, most of the companies entered new markets with a low commitment without

following a pre-defined DMP. The part above the dashed line in Figure 1 describes the typical

international entry process.

We also found the managers’ decision making ‘less rational’ at the early stage of market entry,

meaning they did not make decisions very systematically. Decision making in the initial entry-
 28

mode phase can be described as very ‘path dependent’: the companies started with low-

commitment entry modes they were familiar with. Exporting was dominant (supporting existing

studies on SMEs, see e.g. the review of Laufs and Schwens 2014). This means that ‘reactive’ and

‘incremental’ decision-making modes prevailed among most of our case companies. However,

other dimensions enabled a more detailed analysis. First, limited planning took place. Second,

there were exceptions. For example, while Company B started with exporting, it clearly took a

longer time horizon in its decision making. Its management team was already using rudimentary

ROR with the ‘means they had’ at the time of the decision making.

However, as argued above, different decision-making modes, which can be described through

the lenses of different decision-making dimensions, were more likely to guide the firms post-

entry. Learning takes place ‘within the decision-making mode’ and leads companies to adopt a

new [more rational] decision-making mode (in Figure 1, see the descriptions of paths A and B

below the dotted line, showing two typical developments of the DMP). Company E provides an

example, having moved from incrementalism to ROR in its decision making when entering a

third focal market (Turkey).

Generally the case companies used ‘more rational’ decision-making logic post-entry, e.g. when

deciding to change from one operating mode to another. In fact, it can be seen that companies

deciding to change operating mode in a given market took a different planning approach, with

different methods of analyzing the alternatives and decision-making criteria. The extent of

relying on previous experience (e.g. past entry-mode choices) and consideration of future

developments in the particular market also varied. For example, Company B entered South

Korea via exporting. However, its managers constantly analyzed the market, waiting for the right

time to increase their investment – exercising the option to wait or defer (Trigeorgis 1993) – and
 29

when the time came they followed a rational decision-making path and changed the initial mode

to a higher-commitment one. This process has performance implications, as discussed above.

*********INSERT FIGURE 1 HERE********

DISCUSSION

The choice of foreign-market-entry mode is a crucial decision with regard to international

expansion, particularly in SMEs. Deciding to enter a new market via exporting, strategic

alliances, or foreign direct investment, for instance, has implications in terms of investment risk,

organizational control, and resource commitment (Anderson and Coughlan 1987; Efrat and

Shoham 2012). Our literature review reveals a lack of research on the process SMEs follow

when making this strategic decision.

Theoretical Implications

Our study makes four main contributions to the existing literature. First, by focusing on post-

entry, we enhance knowledge on decision-making frameworks by linking the traditional

international marketing literature related to initial entry mode (Buckley 2002) with ‘mainstream’

international business literature. We also contribute to the discussion concerning evolving

theories explaining SMEs’ entry modes (see Laufs and Schwens 2014). Recent DMP literature

on SME internationalization has been dominated by studies focusing on effectuation and

causation (e.g. Kalinic et al. 2014). We have shown that this simplification, focusing on (only)

two DMP logics, does not provide a full picture of what happens when SMEs make their entry-

mode decision. Instead, we have developed a comprehensive model incorporating a variety of

decision-making modes built on three dimensions (see also the conceptual work of Child and

Hsieh 2014). The results of our study enhance understanding of the entry-mode DMP.
 30

Second, we suggest that different decision-making modes affect the evolution of operations, or

post-entry changes, thereby narrowing the gap highlighted by previous research (Hennart and

Slangen 2015). While SMEs entering a new market seem to select lower commitment without

following a pre-defined DMP (exhibiting rather rudimentary ‘reactive decision making’ based on

internal or external stimuli), post-entry they use all available resources to make the appropriate

choice. As different market operations may be in different phases at the company level, less

rational and more rational planning can co-exist, although at the market level their use may be

sequential (see e.g. Nemkova et al. 2015 for propositions on the co-existence of improvisation

and planning in international marketing contexts, and Chetty et al. 2015 for differences between

decisions on foreign markets and entry modes). However, it is interesting to note that, among our

case companies, only Company E clearly changed its decision-making mode as regards entry.

The other focal companies became more rational post-entry but their evolution seemed to take

place ‘within the decision-making mode’, i.e. they did not change their DMP but became more

efficient in their use of the focal decision-making mode. Company B used ROR at the outset, so

decision-making mode change does not apply to it. Interestingly, ROR may contain both

effectuation (in the initial decision-making phase regarding low-commitment entry modes such

as exporting) and causation (post-entry when the company is following a different approach to

planning) elements.

Third, our research confirms the importance of rationality as a point of reference for the

decision-making mode in internationalization (Aharoni et al. 2011; Child and Hsieh 2014; Dean

and Sharfman 1996). Rationality, which can be assessed with a number of indicators (cf. e.g.

Liberman-Yaconi et al. 2010), drives the quantity and quality of information to collect, the

number of alternatives to contemplate, the approach to future operations, and experience. In our
 31

work we have used “approach to planning”, “path dependency” and “time” dimensions to define

the degree of rationality. We suggest that this approach has been useful and could be used in

future studies.

Fourth, we demonstrate the important role of ROR as a theoretical lens for SME entry-mode

decision making. ROR asserts that treating international investments as real options gives

managers the flexibility to defer, expand, or abandon investment projects in the future (Li and Li

2010). For instance, firms facing high uncertainty and investment irreversibility may minimize

their investment through low-commitment entry (Li and Rugman 2007; in our case exporting).

This minimizes downside risk exposure – controlling investment uncertainties – by deferring part

of the investment until uncertainty is lower; at the same time, they obtain an option to participate

in potential upside benefits (Folta 1998; McGrath and Nerkar 2004; Sanchez 2003). Applying

ROR to the literature on SME decision making facilitates operating-mode choice, producing

superior performance. ROR is a novel approach, theoretically complementing other decision-

making methods.

Managerial Implications

Our cases illustrate the DMPs of SMEs entering new markets. International entry-mode

strategies and post-entry developments are difficult decisions, falling initially under the remit of

international marketing managers. The main problem relates to the ability to collect all the

information needed to produce the most profitable decision. The managerial implications

discussed here relate to the importance of long-term thinking when entering new markets. Even

though ‘incrementalism’ appears to be the dominant decision-making approach in our sample –

meaning that the choice “is not made once for all; it is made and re-made endlessly” (Lindblom

1959, p. 86) – it is evident that searching for information and determining what is relevant are
 32

activities crucial for ensuring continuous operational success in chosen markets. How companies

learn to find, analyze and use this information is largely related to path dependency and

experiential knowledge. In the case of (newly) internationalizing SMEs, this often means

recruitment challenges, given that international experience accumulates from learning by doing

and the required knowledge may not exist within the company. Hence, managers need to learn

from partners, or recruit wisely to acquire the necessary knowledge.

Moreover, our findings imply that ROR offers SME managers more alternatives, which, as much

as possible, lowers risk (see also Brouthers et al. 2008). This gives some support to the use of

ROR to achieve above-average performance. Managers could create options in the focal market

by entering through a low-investment mode, which would give them more flexibility. When a

market is associated with high uncertainty, for example, managers can make incremental, small

(low-commitment) investments instead of postponing the entire process (Bowman and Hurry

1993; Brouthers and Dikova 2010). They could enter a market via exporting and wait for the

right time to expand the investment. Should the uncertainty increase, meanwhile, they have the

option of abandoning the investment project without incurring high costs. This, as we have

shown, could result in superior performance. At the same time, it allows managers to exploit

opportunities in different markets without having to collect all the information. This is

particularly important when resources are tight.

Limitations and Future Research

Our research has several limitations. First, given its qualitative nature we can only make

analytical generalizations. Consequently, we would encourage future studies with large samples

and different country settings to test the refined propositions. Second, interviews with more

informants, e.g. with sales managers, country managers and CEOs, could identify any
 33

information bias between CEOs and other members of management, better validating our study.

Third, the companies analyzed are of different sizes. There could be a size bias in decision-

making mode selection, and we would recommend future studies take this into account. For

instance, a follow-up quantitative study could control the effect of firm size on the relationship

between rationality in the planning approach and performance.

Finally, we have only one primary data-collection point with most of the case companies. The

study of DMPs would naturally benefit from longitudinal data collection, which would yield a

more detailed picture; indeed, there may be some data-collection bias. All in all, longitudinal

studies may enable us to see more changes in decision-making modes, whereas the changes

identified here mostly take place ‘within mode’. More radical changes might happen through

learning over time. It is interesting, however, that despite the clear focus on experiential

knowledge in the literature on internationalization processes, there is a lack of empirical

investigation into the construct of experiential knowledge in this regard (Knight and Liesch

2002). In general, there is a need for better understanding of how managers perceive time in the

internationalization process, and how time relates to decision making (see e.g. Middleton,

Liesch, and Steen 2011).

Future research on the DMP in internationalization should concentrate on these phases of

(rational) decision making. First, our results indicate that dimensions such as market uncertainty,

experience, and network availability influence operating-mode choice, and we believe that future

analyses could assess those dimensions’ impact on decision-making mode. Moreover, we see an

interesting area for future research regarding cultural differences and the impact of psychic

distance on entry-mode decision making (Dimitratos et al. 2011); e.g. top management team

heterogeneity. In addition, an interesting avenue for future research would be the interplay
 34

between effectuation and causation decision logics and the different decision-making modes

discussed here. As an example, we are yet to identify in detail the relation between ROR and

these two types of decision-making logic. Early in the DMP, ROR suggests that companies make

small investments in uncertain environments and wait to see what opportunities arise in the

future. This resembles effectuation logic. Later on, however, ROR suggests that companies

analyze additional information and make more rational decisions over whether to increase or

decrease their investments. This resembles causation logic. Future studies could shed more light

on such unresolved issues. All in all, however, we have tackled an area of the SME

internationalization literature in which much has remained unexplored, i.e. the international

marketing DMP (see e.g. Rialp et al. 2005; Schweizer 2012), and we believe that our study and

the six cases with various entry and operating modes constitute an interesting platform for further

research.

CONCLUSION

Using six cases from Finland and Italy, we examine in detail the DMP of SMEs deciding to enter

new foreign markets. In so doing, we develop a model in which we analyze the cases based on

three different dimensions (see Figure 1): approach to planning, path dependency of entry mode,

and time planning. Each dimension comprises several factors that SMEs consider in their

decision making relative to foreign-market entry mode and post-entry operations. In further

analyses we link these dimensions to the SMEs’ different decision-making modes. Consequently,

our study gives new insights into SMEs’ DMPs around initial entry mode choice and

international market development strategy (i.e. post-entry operating mode), and how the DMP

evolves.
 35

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Appendix. List of questions asked during the interviews

What factors are important for you when making decisions about the strategy with which to enter a new
foreign market? What factors affect your decision?
Could you describe your normal decision-making process when deciding on the strategy with which to
enter a new foreign market?
How did you enter market A? [Note: A stands for the name of the country]
Did you have any pre-defined goals when you decided to enter market A?
- What was the goal? Was it a short-term or long-term goal? Did it change before the entry due to
external factors? Why? Did it change during the decision-making process? Why?
Did you consider alternative ways to enter the market?
- How did you analyze the alternatives? Did you collect any information for each alternative? If
yes, how? If no, why?
What were your final decision-making criteria?
How did you make the decision?
When did you make the decision?
How long did it take to make the decision?
When making the decision, how much did you consider your future operations and the development of
the market?
Since entry what has happened in the market?
Have you changed your operating mode? If yes, why?
Have your objectives changed since entry?
Did you use different modes of operation in market A?
What was your perception of the market at the time of entry in relation to uncertainty and risk?
Has your perception of the uncertainty and risk decreased since entry?
How important was the market for your business and your industry at the time of entry, and how
important is it now? Why?
Are you satisfied with the success of your entry?
Have the objectives set for the entry been fulfilled?
 47

Decision making modes

Dimensions Reactivity Incrementalism Bounded ROR
rationality
Approach to planning Unplanned Limited planning Some planning Systematic planning
• Alternative analysis Limited analysis Little analysis Some analysis Rigorous analysis
• Decision-making Limited number of Small number of Some criteria Many criteria
criteria criteria criteria

Path Dependency High Medium Low Limited

• Alternatives Few Some Some Many
• Initial entry mode Few Some Some Many
• Post-entry mode Few Some Some Many

Time Short term Short to medium term Medium term Long term
• Goal time Short Medium Long Long
• Long-term approach Short Medium Medium Long
• Decision-making Short Medium Medium Long
length

Table 1. Key Features of Each Decision-Making Mode

 48

Table 2. Details on the Firms Investigated

Company Case A Case B Case C Case D Case E Case F

Establishment year 1987 1985 1986 1983 1922 1963
Ownership Family Family Family Family Family Family
No. employees 56 90 40 13 252 288
No. markets 80 104 9 25 105 80
Turnover (2013) €8.5 M €34 M €5.3 M €1.7 M €72 M €40.3 M
Foreign Sales/ Total 90% 80% 70% 90% 65% 48%
Sales
Product type/ Chemical Mining Materials Leather Electrical Electrical
industry handling accessories devices components
Years of international 24 28 25 30 50 40
experience
Operation mode Export Export/WOS Export/Sales Export/JV WOS/JV/ WOS/JV/
Subsidiary Export Export
 49

Table 3. Decision-Making Mode of the Cases

Company Decision-making Process Decision-making Mode
Company A [to enter markets] we find that in one country, there will be big demand Incrementalism
[…] we find a potential partner […] and we discuss the mutual interest
concerning the project and decide on the distributor, agent and other
issues.
Company B We only considered exporting through a distributor in the first place. ROR
Different alternatives are analyzed based on our experience in the post-
entry phase.
Company C First, we analyze market potential. Then, we look for a potential local Incrementalism
partner, as a distributor.
Company D Everything started from meeting during an exhibition. Then we collected Reactivity
info on market opportunities and interest in our products, […] then we
started to collect proposals from partners.
Company E Normally we start with distributor agreements; then, if we feel that there Incrementalism (ROR
is scope for interesting growth in the future, we may decide to open a for Turkey)
sales subsidiary and later even a production plant.
Company F When we enter a new market we analyze the market potential and the Bounded rationality
people. The DMP varies in relation to the post-entry strategy.
 50

Table 4. Data Structure

First-order theme Second-order theme Aggregated

dimensions
Statements regarding whether or not managers considered other Alternative analysis (AL-AN)
modes of entry when making the decision; and if so, the extent
to which they analyzed them Approach to
Statements about the final decision-making criteria for Decision-making criteria planning
choosing a specific entry mode (DMC)
Statements showing whether managers considered any Alternatives (AL)
alternatives to the chosen entry mode
The initial mode of entry into the foreign market Initial entry mode (OM-E)
Path dependency
Changing the initial mode to other modes after entry Post-entry mode (OM-F)

Statements showing whether the managers’ goals were short Goal time (GO-TI)
term or long term
Statements showing how much they considered their future Long-term approach (LTA)
operations and market development Time
Statements indicating how long it took to make the decision, Decision-making length
and how long the decision-making process was. (DML)
 51

Table 5. Data Supporting the Interpretation of the Emergent Themes

Dimension Second- Illustrative quotations
order theme
Approach Alternative “Over the years [in South Korea] we gradually got to know mining companies and
to planning analysis identified the most advanced one.” – Company B
“Our capacity is limited [so we do not analyze alternatives.]” – Company C
“We consider information collected through banks and other intermediaries, but considering
that in order to manage operations in Japan we need to have a local partner, the most
important factor was the management feeling that the persons were reliable.” – Company D
“We consider information from the managers now running the sales subsidiary, we analyze
them within the management team (marketing, sales, production, finance and CEO) and
with the support of an external financial advisor.” – Company E
Decision- “One of the important factors [to enter a market] is that there should be a market.” –
making Company A
criteria
“[F]irst if there is a market and demand […] then we study the market size; [then] we look
for a distributor selling similar products.” – Company B
“Our first decision-making criterion is the management’s perceptions of the people (buyers
or consultants) that we meet, then we consider market size and finally the cultural distance
to understand if we can have direct contact or if we need an intermediary.” – Company D
“We first consider management perceptions during a meeting with possible distributors,
first, and the sales sub-manager later in terms of trust and future cooperation.” – Company
E
Path Alternatives “A joint venture was one option in China at the beginning.” (For other markets, no entry
dependency alternatives were analyzed.) – Company A
“If you have the right partner, the right contacts there [in the host market], there’s no risk.”
“[In Russia] it’s impossible without a partner [to operate].” – Company C
“In Japan we considered other alternatives at the beginning (1988) with a distributor and an
agency, but then we found the partnership with the company …. ‘with a similar position
and product’ … successful and we also adopted it in UAE and China.” – Company D
“We also try other alternatives. For example in China we entered first with a production
plant in JV, but it was not successful, so we decided to re-start with the distributor, then
with a representative office and then sales subs.” – Company F
Time Goal time “We set annual targets which are based on longer-term work.” – Company A
“It was a long-term goal to enter the US market because we knew it was an enormous
market.” – Company C
“We always consider long-term goals in our approach.” – Company E
“Considering the need to understand the market and develop the best strategy for our
company, we need to set a long-term goal.” – Company F
Long-term “Future operations are of absolute importance when we decide to enter a market.” –
approach Company B
“We expected that in a few years, the business [in Russia] could be about ten times bigger
[than at the beginning of entry].” – Company C
“We considered future developments in market size and customer interest in products made
in Italy.” – Company D
“We did not focus on market development but we considered the market size and therefore
the possible opportunities for our company.” – Company F
 52

Table 6. Findings from the Cases

Company D Company A Company C Company E Company F Company B
Japan UAE China China Poland USA USA Swede Russi India Turkey UK China Turkey USA Norway South South
n a Korea Africa

APPROACH AL- Only for Japan Only for USA Only for Sweden Only for future development Only for future development Only for future development
TO AN
PLANNING
DM Management Market potential Market potential + Management perception + Affordable loss Market potential + Intermediary
C perception + Market Market knowledge Market potential
size
PATH AL Only for Japan Only USA Partner comparison Only for Turkey Only for future development Only for future development
DEPENDE through different DMP
NCY
OM Dist. Direct Direct Dist. Agency Sales Dist. Dist. Direct Dist. Dist. Dist. Plant Dist. Dist. Dist. Dist. Dist.
export export subs export
-E
OM Partnership with local Prod. Agency Sales Dist. Dist. Sales Sales Dist. WOS Sales Sales subs Sales Exclusive Prod. plant Sales
company to open corners plant subs Subsi subs sales subs subs dealer subs
-F and shops diary subs
TIME GO From medium- to long- From medium- to long- From short- to long-term Long term goal Long term goal Long term goal
- TI term goal term goal goal

LT YES - future YES - future sales and YES - future potential YES - future development YES - market size and YES - future potential and
A development and operations and market share considering market size future development operations
opportunity
Note: Dist. is an abbreviation for Distributor. Prod. is an abbreviation for Production plant.
 53

Figure 1. Integrated Model of the SME Decision-Making Process related to Initial entry phase and Post entry phase

Decision-making process - dimensions Decision-making process - dimensions

of Decision-Making Modes of Decision-Making Modes

Approach to Approach to
planning planning
(limited) (strong)

Path Entry mode Path

Decision to Decision to change
dependency (low dependency Performance
enter the a mode (mode
(strong) commitment) (medium)
market change)

Time (short Time (longer

time-horizon) time horizon)

Initial entry phase Post entry phase

Highly rational decision-
Decision-making mode change making modes (more
A information, learning path in
Less rational decision-
making modes (less decision-making mode, wider
information, path dependency choice of operation mode,
Learning within the decision- Learning within the decision-
in operation mode, shorter longer time plan)
making mode making mode
time plan)
B
 54

Endnote

i
The choice of Finland and Italy was based mainly on accessibility due to the authors’ geographic locations. Further,
both Italy and Finland are advanced European economies. Factors such as the cultural differences between these two
countries, the different psychic distances to the host countries, and the different market sizes fall beyond the purpose
and scope of this research.