AN IMPACT ON PERFORMANCE OF FOREIGN MARKET ENTRY CHOICES BY SMALL & MEDIUM-SIZED ENTERPRISES

Journal of Enterprising Culture Vol. 9, No. 3, (September 2001) 291-312

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AN IMPACT ON PERFORMANCE OF FOREIGN MARKET ENTRY CHOICES BY SMALL AND

MEDIUM-SIZED ENTERPRISES

STEPHEN CHOO School of Management

Curtin University of Technology Perth, Australia

and

TIM MAZZAROL

Graduate School of Management University of Western Australia

Perth, Australia

A firm’s performance in the host country to a great extent depends on its mode of market entry. Most research in the area of foreign market entry mode choice has concentrated on large firms or multi-national enterprises. This paper exam-ines the effects of different foreign market entry modes on the performance of small and medium-size enterprises (SMEs) in Australia and Singapore. The data from a sample of 104 SMEs suggests that four market entry modes - licensing, manufacturing/wholly-owned subsidiary, franchising, and acquisition signifi-cantly impact performance. It was found that Singaporean firms were more likely to use these market entry modes than their Australian counterparts. This study also reveals that good performers tend to be relatively internationalised, in better control over their export channels, less dependent on industry information sources, and more concerned over loss of proprietary rights to knowledge. Im-plications of the findings for research and practice are also discussed.

INTRODUCTION The choice of market entry mode selected by a firm is one of the most critical decisions a firm can undertake when it decides to internationalise. This decision establishes the framework for future international channel structure and the level of control the firm will have over their product or service within overseas markets (Stern and El-Ansary, 1982).

Stephen Choo and Tim Mazzarol

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The international strategies of multinationals (MNCs) such as choice of entry modes, global coordination, formation of cooperative alliances and developing global-scale efficiencies have received considerable re-search attention (Argawal and Ramaswami, 1992, Hill, Hwang and Kim, 1990). However, despite research into exporting the international market entry modes of small and medium-sized enterprises (SMEs) have hitherto not been studied in depth. Small firm characteristics such as limited finan-cial and managerial resources, personalised objectives of owner-managers, and informal centralised planning and control systems (Carrier, 1994; Car-son et al, 1995) indicate that the international strategies and structures of small firms may differ from those of MNCs.

Previously unable to afford a multinational approach to internationali-sation, SMEs now have a greater opportunity to test their products against foreign competition through a wide range of complementary or alternative strategies other than exporting (DFAT, 1995; D’Souza and McDougall, 1989; Mazzarol, Choo and Ramaseshan, 1996). Hence, for own-ers/managers of potentially internationalised SMEs, there is a heightened need to understand the impact alternative market entry modes have on ex-port performance.

Many studies have looked at the characteristics and behaviours of ex-porters from a single country (Cooper and Kleinschmidt, 1985; Cavusgil, 1984; Kaynak and Kuan, 1993). However, there have only been a handful of comparative studies that provide data on the differences between inter-nationalisation processes (Beamish, Craig and McLellan, 1993; Rolf Ser-inghaus, 1993; Krasnostein, Elliot and Evertt, 1991). This becomes par-ticularly useful when these differences are related to performance.

The purpose of this study is to empirically examine the impact on per-formance by the choice of market entry modes of SMEs between Australia and Singapore. These two countries were selected because of the follow-ing key reasons: (1) both countries’ prosperity depends heavily on interna-tional trade; (2) English is their common language used in commerce; and (3) governments from both countries have recognised the significant con-tribution of SMEs to their economic growth and have done much to pro-mote growth of these firms (EDB, 1995; BIE, 1993).

A huge gap remains in the investigations of foreign market entry choice other than exporting among SMEs. This research has made a con-siderable contribution in filling the gap. Also, this study has found that SMEs have the resources to employ a wide range of market entry modes, and it is important that they select the right one to achieve high perform-ance. Suggestions are being provided for future research into the interna-tionalisation of SMEs.

An Impact on Performance of Foreign Market …

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BACKGROUND Several theories have been proposed to explain the choice of foreign mar-ket entry modes by firms. The four most common modes of foreign market entry studied are exporting, licensing, joint venture and sole venture (Agarwal and Ramaswami, 1992). Because all of these modes involved resources commitments (albeit at varying levels), firms’ initial choices of a particular mode are difficult to change without considerable loss of time and money. Entry mode selection is therefore a very important, if not criti-cal strategic decision. By including firm-specific and market-specific fac-tors that influence these criteria (control, return, risk and resources), Dun-ning (1980, 1988) has developed a framework for explaining choice among exporting, licensing, joint venture and sole venture modes (see Figure 1).

Agarwal and Ramaswami (1992) in their examination of the effect of interrelationships among ownership advantages, location advantages and internalisation advantages have found the following: • Larger and more multinational firms prefer sole venture and joint ven-

ture modes to the other market entry modes in low market potential countries.

• Smaller and less multinational firms prefer no entry or joint venture

mode in high potential markets to reduce costs and risks. • Firms that have a higher ability to develop differentiated products pre-

fer to choose investment modes to exporting in countries that are per-ceived as having high contractual risks.

• Firms prefer the exporting mode in markets that have high potential

but are perceived to have high investment risks. Internationalisation for SMEs Several studies have emerged which suggest that factors which determine international marketing effectiveness for MNCs could not be directly transferable to small firms (Kirpalani and MacIntosh, 1980; Baird, Lyles and Orris, 1994). For example, the concept of the international product life cycle (PLC), whereby the technological level reflected in new products provided MNCs with an edge in export, is often not applicable to small firms with small R&D capacity and budgets (Cavusgil and Kirpalani,


1993). Smaller firms have also been found to have different managerial processes (Julien, 1993) with structures that are less rigid, sophisticated and complex than larger firms (Carrier, 1994; Carson et al, 1995). Whilst the internationalisation literature on MNCs is indeed substantial, it is im-portant to study the internationalisation process unique to SMEs.

Coviello and McAuley (1999) in their review of recent empirical re-search (1992-98) on the internationalisation of SMEs found that it was dif-ficult to capture the internationalisation concept using a single theoretical framework. As SME internationalisation patterns have been found to be dynamic and holistic, they have concluded that it is best understood by integrating major theoretical frameworks namely Foreign Direct Invest-ment (FDI) theory (O’Farrell, Wood and Zheng, 1998; Zafarullah, Ali and Young, 1998), the Establishment Chain (Stage) models (Chetty and Ham-ilton, 1996, Gankema, Snuit and van Dijken, 1997) and the Network per-spective (Coviello and Munro, 1997, Holmlund and Kock, 1998).

Figure 1. A Schematic Representation of Entry Choice Factors.

Ownership Advantages

Firm Size Multinational Experience Ability to Develop Differentiated Products Choice of

Entry Mode

No Involvement Exporting

Joint Venture Sole Venture

Licensing

Location Advantages

Market Potential Investment Risk

Internalization Advantages

Contractual Risk

Source: Argarwal, S. and Ramaswami, S.N. (1992). Choice of Foreign Market Entry Mode: Impact of Ownership, Location and Internalization Factors. Journal of Interna-tional Business Studies. 23(1): 5. Export Performance A substantial body of research has been found on SMEs’ export success factors and numerous variables have been identified as significant deter-

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minants of success (Aaby and Slater, 1989). Differences in the nature of the exporting environment considered plus insufficient attention in some studies to anchoring research in a theoretical framework, complicates the task of evaluating the significance of the widely diverging results reported (Walters and Samiee, 1990).

Two approaches are commonly employed to measure export perform-ance. The first involves a categorisation of exporters and non-exporters (Burton and Schlegelmilch, 1987; Cavusgil and Nevin, 1981; Christensen , da Rocha, and Gertner, 1987). The second measures export performance along some dimension of success such as export proportion of sales (Bi-jmolt and Zwart, 1994; Czinkota and Ursic, 1991; Moini, 1995); growth in export sales (Cooper and Kleinschmidt, 1985; Kirpalani and MacIntosh, 1980); and export profitability (Beamish, Craig, and McLellan, 1993; McGuiness and Little, 1981). However there appears to be no general con-sensus regarding the importance of many variables that have been identi-fied as determinants of export success.

The general framework for analysing export performance consists of two broad components namely the (1) external environment of which the firm has little control of and (2) internal firm level. The environmental level includes macroeconomic, cultural, political, legal, financial and physical factors that influence export behaviour, strategy and performance (Aaby and Slater, 1989). These variables provide the setting within which the firms operate. The individual exporter can only influence the environ-ment to a limited extent, and in most situations must consider the macro-parameters as given constraints. The internal level is comprised of mana-gerial controllable factors that are firm characteristics, firm competencies, and firm strategy.

Other Market Entry Modes Adopted by SMEs Research on the internationalisation of SMEs on foreign market entry modes beyond exporting has not been studied in depth. Papadopculos (1987) argues that large firms have an unlimited number of entry options while SMEs are limited to exporting in their international operations. This is attributed to a lack of human resources, capital and production, and lim-ited access to sophisticated information (Kaufmann, 1995; DFAT, 1995; Baird, Lyles, and Orris, 1994). This results in a severe growth restriction for SMEs in their internationalisation process.

Carstairs and Welch (1982) in their study of 43 firms in Australia found licensing was not often used amongst SMEs. D’Souza and McDou-gall (1989) suggest that small firms do not frequently adopt cooperative


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arrangements. However, Shan (1990) and Van Horn (1990) propose that for small firms, cooperative arrangements are a good mode of commercial-ising products in foreign markets and overcoming scarce resources. The Department of Foreign Affairs (DFAT) (1995) in a survey of 650 SMEs in Australia found a wide variety of entry modes included sole venture, agents, distribution networks, networking, strategic alliances, licensing, and joint ventures. The two most popular foreign market entry modes were sole venture and independent agents. Over 70 different patterns of combi-nations were found. An important gap remains in the investigations of the foreign market entry choice among SMEs. Mode Performance of Other Market Entry Modes of SMEs Studies examining mode performance of SMEs on other entry methods including licensing, joint venture, strategic alliance, and foreign agent are piece-meal in nature with most authors concentrating on the success de-terminants of one or two entry modes (as is seen in Baird, Lyles and Orris (1994) on strategic alliance; D’Souza and McDougall (1989) on joint ven-tures; DFAT (1995) on licensing and Choo (2000) on franchising). For example, D’Souza and McDougall (1989) have identified critical factors that affect the success of joint ventures in Third World countries. After conducting a comprehensive literature review on joint ventures, they have identified 15 dimensions that are considered being important determinants of joint venture success. Building on Dunning (1980)’s eclectic theory of foreign direct investment, these dimensions are categorised under corpo-rate level advantages, operational level advantages, and environmental ad-vantages (see Figure 2). It is important to note that this study is theoretical and not empirical in nature. A CONCEPTUAL MODEL OF ENTRY CHOICE AND PERFORMANCE Figure 3 shows a conceptual model of SME market entry mode choice and performance for SMEs. The concepts composing this model arise from a synthesis of empirical and theoretical literature on international business. There are three main constructs – influencing factors, choice of market entry, and performance.


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Figure 2. Dimensions Relating to Joint Venture Success of Small Firms.

Corporate Level Advantages • Relevant/complementary technology • Match with firm’s strategy and long-range plans • Venture strategy • Ownership-control relationship • Firm type and capabilities • Conflict of interest between partners

Operational Level Advantages • Managerial resources allocation • Decision-making and reporting systems • Approaches to organisational functioning • Cultural differences between firms • Local vested interests • Size of firms

Environmental Advantages • Local government incentives/constraints • Market structure and distribution channels • Perceived host country business climate

Source: D’Souza, D.E. and McDougall, P. (1989). Third World Joint Venturing: A Stra-tegic Option for the Small Firms. Entrepreneurial Theory and Practice, 13(4): 25. Influencing Factors The influencing factors were used to explain the choice of entry modes made by the SMEs. They consisted of (1) firm size (Agarwal and Ramas-wami, 1992; Calof, 1993), (2) experiential knowledge (Johanson and Vahlne, 1977; Millington and Bayliss, 1990), (3) formal information ac-quisition (Belich and Dubinsky, 1995; Cafferata and Mensi, 1995; Walters and Samiee, 1990), (4) product strength (Louter, Ouwerkerk and Bakker, 1991; Madsen 1989), (5) managerial capabilities (Aaby and Slater, 1989; Cavusgil and Naor, 1987; Rosson and Ford, 1980), (6) market potential (Agarwal and Ramaswami, 1992; Baird, Lyles and Orris, 1994), (7) cul-tural differences (Johanson and Vahlne, 1977; Klein and Roth, 1989), (8) country risk (Brouthers, 1995), (9) competitive conditions (Baird, Lyles and Orris, 1994; Brouthers, 1995; Hill, Hwang and Kim, 1990; Kaynak and Kuan, 1993) and (10) dissemination risk (Gatignon and Anderson, 1988; Gnomes-Casseres, 1990; Hill, Hwang and Kim, 1990; Kim and Hwang, 1992).

It is important to relate the inter-relationships among these three con-structs, as entry mode choice is often a compromise or trade-off among various attributes (Wei and Perry, 1995). However the inclusion of this inter-relationship dimension would significantly increase the scope of this


research, which requires the use of multinomial logistic regression analysis (Argrawal and Ramaswami, 1992).

Figure 3: Conceptual Model of SMEs’ Entry Choice Factors and Performance

Influencing Factors

Firm Size Experiential knowledge Formal information acquisition Product strength Management capabilities Market potential Cultural differences Country risk Competitive conditions Dissemination of risk

Choice of Entry Mode

Direct exporting

Licensing Strategic alliance Manufacturing Joint venture

Franchise Agents

Distributors Acquisition

Performance

FSTS FPTP

Choice of Entry Mode A company opting to internationalise can select a market entry mode rang-ing from very little risk and low capital expenditure (e.g. exporting) to relatively high risk and high capital investment (e.g. manufacturing abroad) (Johanson and Vahlne, 1977; Norvell, Andrus and Gogumalla, 1995). Meanwhile, two firms may perceive the same risk in a country but choose different strategies because of each firm’s different tolerances of risk (Shama, 1995).

The international market entry modes used for this research were taken from a study conducted by the Department of Foreign Affairs and Trade (DFAT) (1995) which had employed a fairly large sample size (650 SMEs). They are direct exporting, licensing, strategic alliances, franchis-ing, manufacturing, foreign distributor, independent overseas agent, joint venture, and acquisition. These international entry modes range on a con-tinuum in terms of capital investment and risk. To illustrate, in the case of licensing, the licensee bears most of the costs and risk of opening up and servicing the overseas market. In contrast, with the setting up of a manu-facturing facility overseas, the SME bears all of the costs and risk.

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Performance The research methodology was designed to identify the main variables that affect performing success of those SMEs. However success is not an ob-jective term, because what one entrepreneur considers to be an excellent success, another may condemn as rather poor (Louter, Ouwerkerk and Bakker, 1991). For this reason, it is important to measure performance by more than one indicator.

Three commonly used measures in previous studies are export inten-sity (export sales as a percentage of total sales) (Cavusgil and Nevin, 1981; Czinkota and Ursic, 1991; Kaynak and Kuan, 1993), export profit-ability (Beamish, Craig and McLellan, 1993; Kaynak and Kuan, 1993; Walters and Samiee, 1990), and export growth (Cooper and Klein-schmidct, 1985; Kirpalani and MacIntosh, 1980; Madsen, 1989). The first and second measures have been regarded as a traditional indicator of the overall importance of exports to a firm while export sales growth and prof-itability are being considered as the dynamic and crucial indicators of ex-port performance (Cavusgil, 1984; Czinkota and Ursic, 1983; Lee and Yang, 1990).

In this study, “performance” is the dependent variable. The dependent variable, measured in terms of two separate financial measures, was found to have satisfactorily operationalised the performance attribute of interna-tionalisation (Sullivan and Bauerschmidt, 1989; Sullivan, 1994; Geringer, Beamish and da Costa, 1989). These are (1) Growth of foreign sales to to-tal sales (FSTS) and (2) Growth of foreign profits to total profits (FPTP).

Foreign growth was chosen because market growth has been shown to be a good predictor of a firm’s entire orientation towards the internation-alisation process (Cavusgil, 1984; Czinkota and Ursic, 1983; Daniels and Bracker, 1989; Kaynak and Kuan, 1993; Walters and Samiee, 1990). A dividing line of 10 per cent between good and poor performers was chosen because this value has emerged as a threshold in a previous study (Moini, 1995). Further, foreign growth in the past three years was selected because of the importance of market growth in determining internationalisation behaviour (Lee and Yang, 1990; Moini, 1995). This model classified each firm into one of the two categories based on FSTS and FPTP: (1) good performers and (2) poor performers. Classification of firms into one of these categories was based on the following criteria:

1. A good performer shows an average growth of greater than 10 per cent

of either FSTS or/and FPTP over the last three financial years.


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2. A poor performer shows an average growth of less than 10 per cent of either FSTS or/and FPTP over the last three financial years.

METHODOLOGY Sample During 1995 a random sample of 320 West Australian SMEs were drawn from the Austrade Australian Exports Directory (1995) and a further 340 SMEs from the Singapore Trade Development Board Singapore Exporters Directory (1995). Of the 660 firms, 198 were removed from the sampling frame because they were no longer trading, no longer exporting or unwill-ing to participate in the study. The remaining 435 firms were surveyed us-ing a telephone and fax survey which returned 104 useable questionnaires (ie. 25 per cent response rate). Out of the 104 responses, 76 were West Australian firms and 28 were Singaporean firms. Although the responses were low, they were considered relatively superior to rates reported in other studies involving exporting firms in Australia and Singapore. For example, studies by Evangelista (1993), Kau and Tan (1989) and Geok, Hakam and Shong (1995) had responses of approximately 17 per cent. Measures A self-administered questionnaire was developed to examine the issues identified in the conceptual model of market entry mode and performance shown in Figure 1. The independent variables in the model were measured using seven point Likert scales while the performance dependent variable was measured in terms of two separate financial measures: (1) growth of foreign sales to total sales (FSTS) and; (2) growth of foreign profits to to-tal profits (FPTP). Responses were measured on the average annual per-formance over the previous three financial years. Growth ratings ranged from less than 5 per cent to over 20 per cent. This approach was deemed appropriate since it has been used frequently in previous export research (Bilkey 1978; Cavusgil and Naor 1987; Lee and Yang 1990; Moini, 1995).


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RESULTS Descriptive Sample Information Firms in the final sample represented all industry categories with 41 per cent of the Australian firms being engaged in Manufacturing and 18 per cent in the Agriculture, forestry and fishing sector. Of the Singapore based firms 36 per cent were manufacturers, 25 per cent retail and wholesale traders and 11 per cent engaged in computer electronics and communica-tions. Each country sample was broadly representative of the distribution of firms within their respective economies. The majority of firms (79%) had fewer than 100 employees, while a further 15 per cent had between 100 and 200 employees suggesting that the majority were small rather than medium in size. Just under half the sample (47%) had annual sales turn-overs of less than $5 million while the rest exceeded this figure. The aver-age length of time the respondents had been in existence was 19 years and the average time the firms had been engaged in overseas markets was 9 years. Sixty-five per cent of the firms indicated their most important over-seas markets were in the Asia-Pacific region. Relationship between Influencing Factors, Entry Mode and Performance The relationship between the influencing factors and market entry modes and firm performance was undertaken using a discriminant analysis. This is an appropriate technique to use when there is a categorical dependent variable and interval or ratio data (Holbert and Speece, 1993). Discrimi-nant analysis identifies the combination of two or more independent vari-ables that best discriminate between a priori defined groups. The discrimi-nant function used in this analysis is (Hair, Anderson, Tatham and Black, 1995): Z = W1 X1 + W2 X2 + ... + Wn Xn

Where Z = Discriminant score Wi = Discriminant weight for variable i Xi = Independent variable i

The dependent variable used in this analysis was based on the two

performance measures of FSTS and FPTP. The threshold of good and poor performers was 10 per cent over the past three years. A composite measure of the two performance measures was created producing a dichotomous dependent variable where 1 = good performers and 2 = poor performers.


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Fifty-six independent variables were included in the analysis. These measured demographic variables such as firm size, country of origin, sales turnover, age, industry sector, choice of market entry modes and foreign markets.

The level of control the respondent had over each of these entry modes was also examined along with their perception of the importance of a series of factors to the firm’s decision to select a particular market entry strategy. Also examined was the degree of internationalisation of the firms. This was measured by a variable that examined the firm’s growth of foreign assets to total assets (FATA) over the previous three years. The majority of respondent firms (77%) reported their average growth of FATA to be less than five per cent.

A total of 98 cases were processed in the analysis. Of these, 23 were excluded due to missing variables leaving 75 for use in the final analysis. The initial number of cases selected for analysis was:

Unweighted Cases Weighted Cases

Group 1 “Good Performer” 27 27 Group 2 “Poor Performer” 48 48

Total 75 75 A stepwise procedure was used in the discriminant analysis along

with the Mahalanobis (D squared) selection rule. This is the preferred pro-cedure for a stepwise approach and is considered a superior measure when the number of predictor variables is large and maximum use is to be made of available information (Hair et al, 1995). Four variables were subse-quently identified as being significant at 95 per cent confidence level. These are shown in Table 1.

Table 1. Final Significant Variables.

Variable

Wilks Lambda

Signf*

Min D

Signf*

Average growth of foreign assets to total as-sets over previous 3 financial years.

.763

.0000

1.313

.0000

Level of firm’s control over independent over-seas agents

.713

.0000

1.703

.0000

Regularly seek information from industry associations

.658 .0000 2.195 .0000

Risk of dissipation or misuse of propriety knowledge in the overseas market

.622

.0000

2.571

.0000 * Significant at 95 per cent confidence level


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It can be seen from Table 1 that the four variables identified from the analysis all had significant Wilks Lambda statistics. This measures the ra-tio of within-groups sum of squares to the total sum of squares. A lambda score of 1 indicates that all observed group means are equal, while values close to 0 indicate that within-groups variability is small compared to the total variability in the population. Large lambda values indicate that no differences are to be found between group means, while small lambda val-ues indicate that group means are different (Norusis, 1994). In this case all the lambda values for the four variables were significant to the 95 per cent level of confidence.

The other values shown in the table are from the Mahalanobis D pro-cedure. In the stepwise procedure the best one-variable model is developed followed by the best two variable model and so forth until a model con-taining all suitable variables is identified. A final variable selection is based upon the Min D values being significant to the 95 per cent level of confidence (Hair et al, 1995). It is acceptable in some circumstances to include variables with lower confidence intervals, however, in this case the decision has been not to do so due to the relatively small sample involved.

The final model produced by the analysis identified one function with the following results:

Function 1.Average growth of foreign assets to total assets over previous 3 financial years.

0.984

Level of firm’s control over independent overseas agents 0.607 Regularly seek information from industry associations

- 0.646

Risk of dissipation or misuse of propriety knowledge in the over-seas market

0.415

It can be seen from the above that the canonical discriminant function coefficients for the model ranged from 0.415 to 0.984. The variable “aver-age growth of foreign assets to total assets over the previous three finan-cial years” appears to have the most importance in distinguishing the Good Performers from the Poor Performers. The next two variables were slightly less important but worked in opposition to each other. While the level of control the firm exercised over its independent overseas agents appears to have a positive influence on identifying Good from Poor Performers, the opposite appears to the case with which the firm seeks information from industry associations. Finally, the last variable “risk of dissipation or mis-


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use of proprietary knowledge in the overseas market” had also a positive influence on distinguishing the Good Performances from the poor ones.

The final classification results for the analysis are shown below:

Predicted Group Membership Cases 1 2

Group 1 “Good Performer” 33 21 (63.6%) 12 (36.4%) Group 2 “Poor Performer” 55 7 (12.7%) 48 (87.3%)

Percent of ‘grouped’ cases correctly classified 78.4%

It can be seen from the results shown above that the analysis correctly predicted 64 per cent of the “Good Performers” and 87 per cent of the “Poor Performers”. Overall the percentage of ‘grouped’ cases correctly classified was 78 per cent, which suggests a reasonably reliable estimation. DISCUSSION OF THE FINDINGS The findings from the discriminant analysis suggest that there are four dis-tinguishing characteristics of Good Performers: 1. Internationalised - these firms had a higher average growth in the

proportion of their foreign assets to total assets suggesting that they had been internationalising faster than their “Poor Performer” coun-terparts.

2. Better able to control export channels - the better performers were

also found to be more likely to report higher levels of control over their independent overseas agents when seeking foreign market entry strategies.

3. Less dependent on industry information sources - these same firms

were also found to be less likely to have regularly sought information from industry associations prior to making decisions about entering their major overseas markets.

4. More concerned over loss of proprietary rights to knowledge - the

Good Performers were also more likely to be concerned over the loss of proprietary rights to knowledge when operating in an overseas market.


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The other variables identified in the analysis also support the conten-tion that success is related to commitment and control over the export channel. A bi-variate analysis of the two performance groups and the vari-ous market entry strategies was undertaken by using a series of t-tests to measure the differences between the mean rating scores. This results in measuring the importance placed on each entry mode by the firms. Table 2 shows the results of this analysis. It can be seen from Table 2 that the Good Performers were significantly more likely to place higher impor-tance on the use of licensing, franchising, offshore manufacturing and ac-quisition of offshore assets when selecting foreign market entry modes than were their ‘Poor Performer’ counterparts. The use of such market en-try modes as acquisition, offshore manufacture or wholly-owned subsidi-aries are likely to result in a greater degree of internationalisation (as measured by the increase in foreign assets as a proportion of total assets). Table 2. A Comparison of Good and Poor Performers in Terms of Market Entry Modes. [means based on scale where 1 = totally unimportant and 7 = extremely important with respect to the entry mode for the respondent firm’s most important overseas market].

Market Entry Mode: Good Performer Poor Performer mean std. dev. mean std. dev. Signif.Direct exporting 6.00 1.37 5.60 2.04 0.258 Licensing 3.11 2.10 1.94 1.57 0.002** Strategic alliances 3.92 2.23 3.73 2.17 0.667 Franchising 2.95 2.20 1.95 1.60 0.011* Manufacturing 3.42 2.38 2.27 1.87 0.009** Foreign distributor 4.05 2.44 3.97 2.52 0.869 Independent overseas agent 3.76 2.19 3.40 2.25 0.435 Joint venture 3.82 2.23 3.14 2.21 0.145 Acquisition 2.73 1.95 1.86 1.59 0.012* * p<0.05 ** p<0.01

t-test of the differences between the mean scores for these scales

found significant differences (at the 0.05 level) between Australian and Singaporean firms in their choice of market entry mode. Singaporean SMEs were more likely to consider licensing, franchising, manufacturing, joint ventures and acquisitions as important. Although these entry modes range on a continuum in terms of both resource commitment and risk, firms in Singapore were found to be significantly more likely to employ entry modes that require relatively more resource commitment and risks.


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No significant differences were found for the other market entry modes, including direct export, strategic alliances, use of foreign distribu-tors and independent overseas. Table 3 summarises these findings.

Table 3: Comparison of Australian and Singaporean SMEs Market Entry Modes [means based on scale where 1 = totally unimportant and 7 = extremely important with respect to the entry mode for the respondent firm’s most important overseas market].

Market Entry Mode: Australia Singapore mean std. dev. mean std. dev. t-test.Direct exporting 5.80 1.81 5.64 1.77 0.70 Licensing 2.13 1.82 3.29 1.98 2.52* Strategic alliances 3.64 2.22 4.33 2.06 1.30 Franchising 1.85 1.64 3.62 2.08 3.58* Manufacturing 2.20 1.88 4.43 2.18 4.65* Foreign distributor 3.95 2.49 4.33 2.39 0.63 Independent overseas agent 3.34 2.27 3.86 2.15 0.93 Joint venture 2.93 2.17 5.38 2.04 4.81* Acquisition 2.93 1.48 3.48 2.11 3.57* * p<0.05

Why firms in Singapore should be more likely to make use of these

forms of market entry requires explanation. This finding could be attrib-uted to two factors. The first is that many Singaporean SMEs seek to glob-alise by accessing market opportunities and alliance partners in Southeast Asian countries. This is in line with the Government of Singapore policy of cooperation on a regional basis (Yeo et al, 1993). Another possible rea-son is the relative concentration of Singaporean SMEs in the retail and services sector. This allows for a wider range of market entry choices as compared to their counterparts in Australia, many of whom were in agri-business and may therefore be limited to exporting or using agents. CONCLUSIONS AND IMPLICATIONS The findings of this study provide additional evidence that different mar-ket entry modes have different performance levels. The discriminant analysis suggests that the distinguishing characteristics of the better per-forming international SMEs were in relatively advanced levels of interna-tionalisation and exhibited a desire to have greater control over their ex-port channels.

The results of the bi-variate analysis suggest that firms using licens-ing, franchising, manufacturing and acquisition as principal market entry


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modes outperformed firms that were using direct exporting, strategic alli-ances, foreign distributor, independent overseas agent and joint venture. These results support previous studies that have attempted to assess the relationship between performance and entry mode of multinationals by Li and Guisinger (1991), Simmonds (1990) and Woodcock, Beamish and Makino (1994).

More research is needed into the internationalisation of SMEs. Given the relatively small size of the sample some caution is needed in evaluat-ing the findings. This research offers several key insights into the choice of market entry modes by SMEs. Firstly, SMEs should consider using al-ternatives such as licensing, franchising, manufacturing and acquisition rather than relying on low risk market entry modes such as exporting or foreign distributorship. In particular, licensing and franchising should not be seen as a loss of control over a firm’s technological knowledge and ex-pertise but rather as a springboard to other forms of more sophisticated market entry modes such as joint venture, manufacturing or acquisition. Secondly, it is important for SMEs to possess a certain degree of control over how their products/services are being marketed and distributed over-seas. This is to ensure that the brand reputation and equity is not being un-dermined by the overseas firm. Lastly, it pays for SMEs to commit finan-cial resources in their overseas markets by increasing their investment or ownership in market entry modes (such as manufacturing, joint venture or acquisition) that have the potential to offer significantly higher returns.

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AN IMPACT ON PERFORMANCE OF FOREIGN MARKET ENTRY CHOICES BY SMALL & MEDIUM-SIZED ENTERPRISES

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