Impact of host country and product characteristics on foreign market entry mode choice: U.S. corporate perspective

This study analyzes the influence of the characteristics specific to the foreign market in the U.S. manufacturing firms' choice of exporting versus foreign production (foreign direct investment). In contrast to the internationalization path model which postulates the firm's evolutionary behavior of using export initially and later shifting to producing in the foreign country, the "one product-two markets-two entry modes" model is designed in this study to examine strategic decision behavior in selecting the foreign market entry mode. More specifically, this study sought to identify the foreign market characteristics that have a significant influence on the firm's choice of exporting versus foreign production when the same product is sold in one market by exporting while the other market is served by foreign production. The characteristics of the foreign market are divided into three types: (1) the environmental characteristics, (2) the factor endowment characteristics, and (3) the competitiveness characteristics of major indigenous competitors (barriers to entry).; Paired t-tests were performed to find differences between the markets served by exporting and the markets served by foreign production with respect to three types of foreign market characteristics which were represented by twenty variables. Furthermore, to determine if there were differences between consumer and industrial products with regard to the influence of the foreign market characteristics in the choice of entry mode, paired t-tests and binomial tests were performed for both consumer and industrial products.; The results of this study show that two of the three types of foreign market characteristics have a significant influence on the U.S. manufacturing firms' choice between exporting and foreign production. Moreover, the binomial tests indicate there are different patterns with respect to the influence of foreign market characteristics in the choice of foreign production between consumer and industrial products but not in the choice of exports between consumer and industrial products.