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IMR
30,6

536

The interaction between

environment and strategic
orientation in born globals
choice of entry mode

Received 17 October 2012

Revised 7 March 2013
7 May 2013
Accepted 24 May 2013

Kalanit Efrat
Ruppin Academic Center, Ruppin, Israel, and

Aviv Shoham
Department of Business Administration, Graduate School of Management,
University of Haifa, Haifa, Israel
Abstract
Purpose Entry modes are a central aspect of international business, particularly for young firms
lacking organizational experience and capital, such as born global (BG) firms. Few studies on BG
internationalization have addressed the antecedents to entry mode decisions in BG firms. Based on the
two main groups of factors impacting entry mode decisions in general, namely environmental
(external) conditions and firms strategic characteristics, the purpose of this paper is to explore how
the interaction between country and market factors and BGs strategic orientation affects BGs choice
of low- vs high-commitment entry modes.
Design/methodology/approach Data from 104 Israeli high-tech BG firms were gathered in field
interviews with managers. Preliminary analyses assessed non-response bias.
Findings Most BGs showed a strong Prospector orientation manifested by exploration and
exploitation of opportunities. This in turn moderated the impact of several host market factors on the
choice of entry mode, encouraging BGs to choose high-commitment entry modes.
Practical implications Contrary to earlier research claiming that BGs minimize risk by choosing
low-commitment entry modes, the findings show that BGs choice of commitment level is affected
by host market characteristics.
Originality/value It is often thought that BGs choice of entry mode is decisively affected by the
host market risk profile, encouraging the choice of low-commitment entry modes in riskier markets.
As the findings show, however, BGs are also sensitive to the opportunities provided by the host
market, sometimes resulting in high-commitment entry modes.
Keywords Business strategy, Environment, Internationalization, Export markets
Paper type Research paper

International Marketing Review

Vol. 30 No. 6, 2013
pp. 536-558
r Emerald Group Publishing Limited
0265-1335
DOI 10.1108/IMR-10-2012-0171

Introduction
Globalization is worldwide, with influence at both the macro- (national) and the micro(industrial) levels. The forces associated with globalization impel many firms to enter
the international arena to gain a competitive advantage and survive by establishing
a global presence (Brouthers et al., 1996).
Firms that undergo the more traditional path for internationalization (Johanson and
Vahlne, 1977) have the advantage of first establishing a local market presence. This
presence enables them to create a foundation, in terms of tangible and intangible resources,
to overcome the disadvantages associated with initial stages of internationalization
(Contractor, 2007). However, some firms follow a different process. Born globals (BGs)
operate in international markets from their establishment (Knight and Cavusgil, 1996) and
tend to enter several foreign markets within a short time spam while focussing their

relatively constrained resources on commercialization rather than production (Burgel and

Murray, 2000). This early and rapid internationalization, derived from their entrepreneurial
orientation, impels BGs to strategize their international marketing to confront the higher
levels of risks and uncertainties associated with such operations (Aspelund et al., 2007).
Moreover, one of the main conclusions from research on BGs is that they tend to arise
within a dynamic environment (Aspelund et al., 2007; Knight and Cavusgil, 1996; Rennie,
1993; Zahra, 2004). Such conditions also impact their early and rapid internationalization
which serve in explaining why they deviate from the traditional model of
internationalization (Karra et al., 2008; Knight and Cavusgil, 1996).
Entry modes play significant part in the process of internationalization, therefore
have been the focus of much research on international marketing (Cavusgil, 1998).
Choosing the suitable entry mode affects firms international operations and
performance and hence their survival (Sarkar and Cavusgil, 1996; Zhou et al., 2012).
Previous research has addressed, in general, two main groups of factors impacting
internationalization decisions and specifically entry modes, namely environmental
(external) conditions and firms internal aspects based on strategic characteristics and
capabilities (Aaby and Slater, 1989). Given the crucial importance of entry modes as
mediators between country-market-firm antecedents and firms performance, a large
body of research has been devoted to the various aspects of entry mode choice
(Aaby and Slater, 1989; Sarkar and Cavusgil, 1996; Whitelock, 2002). However,
most previous research has focussed on firms that follow the traditional path of
internationalization. Very little attention has been devoted to entry mode choice in BGs,
despite the even greater importance of entry mode choice in such firms due to their
fragility and lack of resources, and in light of the constrains associated with early and
rapid internationalization. While some studies address BGs internal characteristics,
such as their age and size (Autio et al., 2000; Knight and Cavusgil, 1996), previous
experience (Chetty and Campbell-Hunt, 2004), field of expertise (Rennie, 1993), and
capabilities (Knight and Cavusgil, 2004), as antecedents of entry mode choice, yet
a comprehensive understanding of the set of factors influencing entry mode decision,
and how they interact with BGs unique characteristics, is still fragmented.
The present research aims to fill this gap by exploring the effect of the interaction
between BGs strategic orientation and country/market (external) factors on the level of
commitment represented by their choice of entry mode. By doing so we aim to provide
a better understanding of the factors contributing to BGs strategic planning when
entering foreign markets.
We start by outlining the review of the literature on the different factors
contributing to the choice of entry modes, from which we draw a set of hypotheses
which are then tested. We conclude by discussing our findings and their implications.
Theory and hypotheses
Firms international strategy has become a central theme of discussion in light of
globalization (Flores and Aguilera, 2007; Knight, 2000), targeting entry modes as a core
aspect of international strategy due to their immense impact on firms survival and
performance (Sarkar and Cavusgil, 1996).
Entry modes and BGs
Entry modes fall into three types: export, contractual, and equity (Root, 1994). While
entry modes tend to be viewed categorically, several researchers have discussed entry
modes in each category as falling along the continuum of low- vs high-involvement/

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commitment (Agarwal and Ramaswami, 1992; Blomstermo et al., 2006; Sharma and
Blomstermo, 2003; Zahra et al., 2000). In their view, rather than specifying the desirable
type of entry mode, firms should base their selection on the level of commitment they
are willing to make and on their assessment of the external risks associated with their
international operations. Selecting the appropriate entry mode is crucial for improved
international performance (Anderson and Coughlan, 1987). This selection represents a
complex decision influenced by factors both external (target market, target country,
home country) and internal (product and firm characteristics) (Kim and Hwang, 1992;
Koch, 2001; Root, 1994).
Choosing the appropriate entry mode is even more crucial for BGs. Being young,
BGs are forced to compensate for the lack of tangible (mainly financial) resources by
developing a strong complex of capabilities (Freeman et al., 2006; Kocak and Abimbola,
2009). This constraint evidently has an impact on the choice of a suitable entry mode,
maneuvering BGs toward those that will facilitate a better competitive position
(Knight et al., 2004; Laanti et al., 2007; Lee et al., 2001; Oviatt and McDougall, 1994).
BGs confront two conflicting forces when considering their choice of entry mode,
both of which are deeply rooted in their characteristics. The first concerns BGs
core business. Since BGs rely heavily on their capabilities, especially on knowledge
development, they depend on unique know-how to achieve competitive advantage
(Gleason and Wiggenhorn, 2007; Knight and Cavusgil, 2004; Rennie, 1993). One major
risk associated with unique knowledge is knowledge exposure or dissemination.
Firms facing high levels of dissemination risk tend to favor high-commitment entry
modes (Maignan and Lukas, 1997). By not sharing their knowledge with firms acting
as business partners or intermediaries, BGs maintain control over their core
capabilities, reducing the risk of exposure (Buckley and Casson, 1998; Hill et al., 1990),
and thus safeguarding their competitive advantage (Buckley and Casson, 1998).
The second, opposing force concerns BGs lack of resources. In contrast with the
potential impact of dissemination, this characteristic of BGs maneuvers them toward
low-commitment entry modes. Since BGs tend to possess few tangible resources,
especially financial resources (Gabrielsson and Kirpalani, 2004; Knight and Cavusgil,
2004; Rennie, 1993), high-commitment entry modes, usually represented by investment,
may not be feasible. This condition is in many cases reinforced by such BG
characteristics as high flexibility and niche expertise (Knight and Cavusgil, 1996),
which also influence BGs strategic planning and management, encouraging the use of
low-commitment entry modes (Francis and Collins-Dodd, 2000).
Gabrielsson and Kirpalani (2004) investigated the formation of channels needed for
BGs successful operations in foreign markets. One of their findings concerns the
relatively low levels of resource commitment embodied in the different channels
they describe. By selecting such channels, BGs illustrate the tradeoff at the core of their
strategic planning, wherein the need to internationalize and expand rapidly for
survival is offset by the lack of resources needed to do so properly. According to
Gabrielsson and Kirpalani, BGs goals are best served by low-resource-commitment
entry modes. Similar findings are presented in Freeman et al. (2006), who conclude that
the lack of resources typical of small BGs motivates them to form alliances with other
parties. Such alliances are a way to compensate for the lack of financial resources and
knowledge. Previous studies have thus mostly explored the types of entry mode chosen
by BGs and, to some extent, the influence of these choices on BGs performance.
Their conclusion has been that BGs choice of entry mode is mainly the outcome of
financial and knowledge constraints alongside certain firm and product characteristics

(Almor and Hashai, 2004; Knight et al., 2004; Luostarinen and Gabrielsson, 2006; Moen
et al., 2004; Weerawardena et al., 2007). Which factors impact such choices remains
partly unclear, however, mostly due to the assumption that these choices are an
outcome of constraints and not of strategic planning or calculated risk analysis
(Andersson et al., 2006). A clearer understanding can be obtained in our view by
investigating the influence of the antecedents to entry mode choice.
Earlier research concluded that firms international strategy is influenced by factors
both internal (namely firms capabilities and characteristics) and external.
Firms strategic characteristics (and therefore their strategies) are reciprocally
related to the environment in which they operate. Dynamic conditions therefore
provide strong incentives for strategic changes (Porter, 1998; Teece et al., 1997).
Discussion of the above issues has given rise to two theories, the resource-based
view (RBV) and the dynamic capabilities approach (DCA), both of which view
internationalization and performance from the perspective of strategies for exploiting
firms tangible and intangible assets in the face of dynamic environmental
conditions (Almor and Hashai, 2004; Andersen and Kheam, 1998; Das and Teng,
2000; Teece et al., 1997).
In the next section we discuss strategic orientation, environmental conditions, and
the interaction between the two, as well as the potential impact of environmental
conditions on BGs entry mode choice.
BGs strategic orientation
Firm characteristics include demographic and strategic elements. The former are
straightforward and include, for example, age and size. The latter involve complex
subcategories such as global concentration and global strategic motivation, which may
be hard to observe. Since strategy must be interpreted primarily on the basis of a firms
operations (Hambrick, 1982), scholars have tried to categorize firms according to their
strategic operations, identifying several strategic types (Dess and Davis, 1984; Miles
et al., 1978; Porter, 1980). This discussion has yielded the concept of strategic
orientation. We view strategic orientation as a business philosophy and, as such, as an
important part of a firms organizational culture (Frishammar and Andersson, 2009).
Strategic orientation is typically defined at the firm level and serves as a framework for
firms strategic characteristics. For this reason it is often viewed as the foundation of
firms competitive advantage (Shoham et al., 2002).
Studies have linked strategic orientation to firms operations (Laforet, 2009;
ke Horte, 2005; Shoham et al., 2002;
Moore, 2005), performance (Frishammar and A
ke Horte, 2005;
Woodside et al., 1999), and internationalization (Frishammar and A
Rialp-Criado et al., 2010; Shoham et al., 2002; Stewart, 1997), concluding that firms
should be classified based on strategic types by focussing on groups of firms that
share close similarities (Porter, 1980).
The concept of strategic types recognizes that similar firms subject to the same
environmental conditions may operate differently based on their managers strategic
orientation (Dess and Davis, 1984). Two major typologies of strategic types have been
proposed, one by Porter (1980), another by Miles et al. (1978). While Porters generic
strategies have received some attention in the BG context (Knight and Cavusgil, 2004),
no research has tested Miles et al.s typology in this context.
The relevance of the latter typology to BGs stems from its focus on business-level
strategy, with special emphasis on the rate at which organizations change their
products or markets (Hambrick, 1982). Miles et al. (1978) distinguish between four

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types of strategic groups (Defenders, Prospectors, Analyzers, and Reactors) based on

three managerial aspects entrepreneurial, engineering, and administrative. Depending
on the category to which they belong, firms differ with regard to attributes such as
product/market entry, approach to technology, and structure.
Defenders (Ds) are mainly motivated by stability. They define their entrepreneurial
problem in terms of how to seal off a part of the market in order to create a stable
environment. To achieve this goal, they produce a limited number of products for a
narrow segment of the total potential market. From a managerial point of view,
Ds focus on how to ensure maximum control in the organization in order to achieve
efficiency. The inward orientation of Ds precludes them from studying the environment
to identify business opportunities. Their main goals are efficiency and control, which
are achieved through hierarchical structure, technology efficiency, and cost control.
Prospectors (Ps) are, in many ways, the opposite of Ds. Their main capability is
identifying and exploiting new product/market opportunities. Ps must develop
a capacity to survey a wide range of environmental conditions and trends in order to
locate new opportunities. They need flexible technologies and structures to contend
with constant changes in the environment. Ps create technologies with multiple uses,
thereby avoiding a long-term commitment to one product or product line. They tend
to operate more through coordination between different units and projects than by
controlling the entire organization centrally, thus achieving the organizational
flexibility needed to maintain their positions.
Analyzers (As) capture the middle ground between Ps and Ds. Their foremost goal
is to minimize risk and maximize profit opportunities, with balance as the dominant
aspect. They achieve their goals by maintaining stable organizational environments
and flexibility simultaneously. Entrepreneurially, As discover and exploit new product/
market opportunities while maintaining their traditional products and customers.
Unlike the foregoing types of firm, Reactors (Rs) tend to be inconsistent and
unstable. Rs inappropriate responses to environmental changes lead to weak
performance. Unless in a protected environment (monopolistic or highly regulated),
Rs do not survive. To prevail, they must choose and follow one of the other three
strategies (Miles et al., 1978).
Most previous studies have defined BGs operationally, in terms of the time gap
between establishment and first international operations and the percentage of foreign
market sales (Knight and Cavusgil, 2005). These two characteristics, however, are
partly the result of strategic planning and of firms strategic orientation. Instead of
defining firms in terms of operational elements, BGs should therefore be defined in
terms of their strategic orientation. From this perspective BGs have a clear affinity
with Ps, in that they are young and flexible firms with a technological orientation.
Furthermore, previous studies have defined BGs as entrepreneurial firms (Karra et al.,
2008; Knight and Cavusgil, 2004; Kocak and Abimbola, 2009). Entrepreneurial
orientation shares many similarities with P-orientation due to its three constructs:
innovativeness, risk-taking, and proactiveness. These characteristics are entrenched in
BGs strategy and perception of environmental conditions and thus affect their
operations (Knight and Cavusgil, 1996, 2004; Kuivalainen et al., 2007; Miles et al., 1978;
Moen, 2002; Rennie, 1993).
BGs P-orientation further explains their choice of low-commitment entry modes. Ps
tend to coordinate their activities internally or use an external unit rather than control
them directly. Establishing such coordination enables BGs to avoid long-term
commitment of resources and to focus instead on identifying and addressing new

opportunities. This coincides with the liability of newness described by Hashai (2011,
p. 997), which results in BGs favoring low-commitment entry modes:
H1. BGs will follow a P-orientation.
Strategic orientation interacts with host market factors
According to Aaby and Slater (1989), firms strategic orientation impacts their strategic
planning, whereas environmental factors directly impact firms performance. As noted
earlier, recent studies have emphasized the interaction between firms characteristics
and capabilities and their environmental conditions, arguing that firms should adjust
their orientation to changes in their environment in order to better exploit these
changes (Knight et al., 2004). Since previous studies have found that external (target
country/market) factors influence firms international operations (Miller, 1992; Root,
1994; Sarkar and Cavusgil, 1996), it is crucial to define the essential factors which form
a firms environment.
Firms approaching foreign markets seek a favorable arena for their operations, one
with relatively low levels of perceived risk (Miller, 1992). Firms environments
incorporate risk groups of two types: market-level risk and country-level risk. Marketlevel risk largely consists of two host-market conditions which have been found to
carry significant implications for international operations, namely market potential
and competition intensity (Andersen, 1993; Brouthers, 1995; Porter, 1998; Sarkar and
Cavusgil, 1996; Whitelock, 2002). Since BGs are relatively young, inexperienced,
and resource-constrained, both factors become even more significant in shaping hostmarket attractiveness.
Country-level risk is defined by the perceived risk associated with the political,
economic, and cultural environments found in a country. The first two types of
environment are measured on scales of stability/instability, the third in terms of
the distance between the home and the host country. Regardless of these differences, all
three types of environment act as major export barriers and should therefore be taken
into consideration when strategizing for operation in a new country (Uner et al., 2013).
Political and economic risks have previously been associated with international
operations and examined for their impact on entry mode decisions (Koch, 2001;
Lopez-Duarte and Vidal-Suarez, 2010; Miller, 1992; Sarkar and Cavusgil, 1996).
Ojala and Tyrvainen (2008) discussed the perceived risk associated with political and
economic instability, suggesting that such risks incline SMEs toward low-commitment
entry modes (e.g. Brouthers, 1995; Ellis and Pecotich, 2001). This claim was supported
by Shrader et al. (2000) with regard to new international ventures. Hence:
H2a. For P-oriented BGs, the higher the host markets level of political instability,
the lower the level of entry mode commitment.
H2b. For P-oriented BGs, the higher the host markets level of economic instability,
the lower the level of entry mode commitment.
With regard to cultural risks, Hofstede (1994) has demonstrated the relevance of
national culture to international operations, arguing for a reciprocal relationship
between national and organizational culture. Since foreign operations are founded on
the relationships between the home and the host countries, they are affected by both
cultural environments; accordingly, cultural aspects have been found to influence

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firms entry mode choices (Kogut and Singh, 1988; Sarkar and Cavusgil, 1996).
Similarly, several studies have concluded that SMEs favor similarities between the
home and the host markets (Chetty and Campbell-Hunt, 2003; Coviello and Munro,
1997; Moen et al., 2004). Since BGs tend to internationalize rapidly, they should take
into account the potential impact of the cultural dimensions of each host market, in
particular their potential role as barriers to export (Uner et al., 2013).
Dimensions of culture. Hofstede (2001) offers a well-established framework for
categorizing national culture based on four major variables: power distance,
uncertainty avoidance (UAI), masculinity, and individualism. Hofstedes framework
has been used to analyze firms formation of international strategies and their
performance in circumstances of cultural distance (Brouthers, 2002; Tihanyi et al.,
2005). Kogut and Singh (1988) discuss the impact of the overall cultural distance
between the home and the host countries on equity entry mode choice, concluding that
the greater the distance, the greater the effect of cultural aspects on this type of choice.
As noted, however, Hofstedes (2001) framework consists of four subscales measuring
four different aspects of culture, each with its own impact on firms operations.
Using an aggregate measure might obscure some of these influences by running
together the different cultural aspects. By treating each of the four aspects of culture as
a standalone measure, we may obtain a more precise and comprehensive picture.
Furthermore, in order to have a full understanding of the impact of each cultural
aspect, we must compare its levels in the home and the host markets. For example, in
order to understand the full impact of UAI, we must compare its levels in the two
markets (Kogut and Singh, 1988).
In Hofstedes framework, UAI refers to societys tolerance for the risks associated
with unstructured situations (Hofstede, 2001). Previous studies have claimed that the
higher the level of UAI, the higher the tendency of firms to use low-commitment entry
modes in order to reduce the barriers to operations that high-commitment entry modes
might create (Kogut and Singh, 1988).
BGs strategic orientation is based on rapid internationalization (Gabrielsson and
Kirpalani, 2004). To facilitate such internationalization, BGs use networks and
local partners (Weerawardena et al., 2007). By relying on local intermediaries,
BGs can achieve their goals of establishing a foreign presence quickly and at
considerably lower cost (Moen et al., 2004) while avoiding possible conflicts caused by
cultural differences:
H2c. For P-oriented BGs, the larger the home/host gap with respect to UAI, the
lower the level of entry mode commitment.
Hofstedes power distance refers to the unequal distribution of power in society which
is accepted by its members. Societies with high power-distance levels will establish
ways to achieve stability and control while striving to minimize changes perceived as
dangerous (Hofstede, 2001). BGs, by contrast, thrive on changes and dynamic
environments, especially with respect to technology (Knight et al., 2004; Weerawardena
et al., 2007). BGs also contribute to these changes by producing innovation-facilitating
solutions (Knight and Cavusgil, 2004). For these reasons, BGs may threaten societies
with high levels of power distance. In such circumstances, choosing low-commitment
entry modes can promote BGs goals in two ways. First, by using either collaborationbased entry modes or local intermediates, BGs reduce potential cultural barriers to
entry. Second, since BGs are relatively small and flexible, they tend to view as

threatening high power distance and strongly hierarchical relations. Low-commitment

entry modes enable BGs to steer clear of such threats:
H2d. For P-oriented BGs, the larger the home/host gap with respect to power
distance, the lower the level of entry mode commitment.
Individualism is defined by Hofstede as preference for the I over the We. Cultures
with a strong inclination to individualism tend to appreciate behavior that emphasizes
values such as performance, personal achievements, and leadership (Hofstede, 1994,
2001). Firms that act accordingly will face lower barriers to entry and operations
and will be perceived as more successful by actors in the host market. BGs are
characterized as innovative and technological, with a strong entrepreneurial
orientation. All these characteristics are highly appreciated in highly individualistic
societies (Hofstede, 2001), providing a better foundation for operations. If the wrong
entry mode is chosen, however, all these advantages might go unnoticed. To gain
a foothold in highly individualistic societies and enjoy the advantages they offer,
BGs must attain proper market positioning and visibility; to do so, they must choose
high-commitment entry modes:
H2e. For P-oriented BGs, the larger the home/host gap with respect to
individualism, the lower the level of entry mode commitment.
Hofstedes fourth cultural dimension, masculinity, is not considered here since no
previous findings suggest it has impact over BGs choice of entry modes.
Market potential also affects firms internationalization by enhancing their
international performance (Hill et al., 1990). Market potential is assessed by several
measures such as current size, customer demand characteristics, and growth rate
(Sarkar and Cavusgil, 1996). Firms tend to approach high-potential markets first
(Ekeledo and Sivakumar, 1998), using high-commitment entry modes because of their
superior long-term benefits (Agarwal and Ramaswami, 1992; Agarwal, 1994; Chen and
Mujtaba, 2007; Ekeledo and Sivakumar, 1998; Shama, 2000). SMEs follow similar lines
when addressing the issue of market potential (Ojala and Tyrvainen, 2008).
BGs characteristics support a niche marketing strategy (Gabrielsson et al., 2012;
Knight and Cavusgil, 2004). Niches, by definition, are formed of sub-segments and are
therefore considered to be small markets. As such, they are relatively unattractive to
large firms and hence more accessible to BGs. Due to their relatively high growth rates,
however, niches possess the features of high-potential markets (Dalgic and Leeuw,
1994). Whereas firms approaching high-potential markets usually tend to favor highcommitment entry modes, the limited resources of BGs make such modes impractical.
Furthermore, in view of BGs strategic goal of achieving a foothold in international
markets (Zahra et al., 2000) and the dynamic conditions under which they operate
(Knight and Cavusgil, 2004), low-commitment entry modes are likely to facilitate their
operations and strategic performance:
H3a. For P-oriented BGs, the higher the host markets potential, the lower the level
of entry mode commitment.
Competition intensity can be defined as the amount of resources a firm invests in
fighting off its rivals. Porter (1998) holds that established, resource-rich, and

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experienced firms are better equipped to confront the threats posed by intense
competition. Since competition intensity is regarded as a risk factor, firms entering
highly competitive markets will endeavor to reduce their risk by balancing it with the
risk embodied in the entry mode. Hence, when approaching such markets, firms will
choose low-commitment entry modes (Agarwal and Ramaswami, 1992; Brouthers,
2002; Hill et al., 1990; Kogut and Singh, 1988).
As mentioned earlier, BGs tend to approach relatively small markets that are
relatively low on competitors. Under such favorable circumstances, BGs can turn their
attention to customers and operations rather than competition (Knight and Cavusgil,
2004; Rennie, 1993). Fierce competition can endanger all firms, all the more so BGs
which are even more vulnerable to competition due to their relatively small size and
lack of experience and resources (Gabrielsson et al., 2012; Uner et al., 2013). BGs will
presumably act to reduce this potential risk by minimizing their exposure to foreign
markets, using low-commitment entry modes (Figure 1):
H3b. For P-oriented BGs, the higher the host markets level of competition intensity,
the lower the level of entry mode commitment.
Method
Data are from firms in the high-tech industry in Israel. Because of their dynamic
environment, such firms tend to internationalize early. In line with Knight et al.s (2004)
operational definition for BGs, the target participants were firms that entered foreign
markets within three years of inception and at least 25 percent of whose sales
were from exports; also, because of the rapid turnover of managerial personnel, all
participating firms were established in 1999-2004. The database of the Israeli
Governments Industry Center for R&D (MATIMOP) provided the sampling list.

Country-level
Democracy
Index

Strategic
Orientation

National
Competitiveness

H1
H2b
H2a

Uncertainty
Avoidance (UAI)
Power Distance
(PDI)
Individualism
(IDV)

Market-level
Market
Potential

Figure 1.
Research model

Competitive
Intensity

H2d H2c
H2e
H3a
H3b

Entry Modes
(Low vs High
commitment)

The sampling frame initially included 375 firms. After excluding R&D centers of
foreign firms, the usable list comprised 206 relevant companies. We conducted
field interviews with managers of 104 firms (a 50 percent response rate). Each
interview lasted approximately 60 minutes and was semi-structured, with the first half
based on open questions, the second on structured questionnaires based on existing
scales/items (for detailed constructs see Appendix A).
A one-way ANOVA compared participants and non-participants for establishment
year and number of employees; the two variables proved not statistically different
(p40.10). Cross-tabs identified no significant differences with regard to location.
The participants were thus representative of the sampling frame and response bias did
not affect the findings. Factor analysis was conducted; the first factor accounted for
o14 percent of the variance, showing no common method bias.
The largest share of responding firms were established in 2000 (32 percent). Half the
firms considered the USA their major market (49.5 percent), 8.4 percent the UK, and
6.5 percent Japan. The rest targeted diverse markets.
Measures
Strategic groups were measured based on Conant et al. (1990), with the seven items
included best representing the entrepreneurial, engineering, and administrative
aspects of the typology. Then, following Dotty et al. (1993), the scores for each strategic
type were interpreted along a continuum from Prospector to Defender, with Analyzer
as a midpoint. Pure P-type BGs and those belonging to a hybrid type with strong
emphasis on P-characteristics were all defined as P-oriented BGs (accounting for 65
percent of the firms). Further testing will focus on these firms.
Political and economic stability were measured based on two sources of secondary
data. Economic stability was measured based on the World Competitive Report
(World Economic Forum, 2012-2013) which provides a comprehensive assessment of
144 economies followed by a ranking for each. The assessments are based on various
aspects such as productivity, prosperity, and so on. Country rankings were adjusted to
the year of first operation as provided by the various BGs. Political stability was
measured based on the Democracy Index annual report published by the Economist
Intelligence Unit (2010). The report assesses over 165 independent nations along
five categories, ranking each nation on a scale running from full democracy to
authoritarianism.
Cultural distance from each of the countries mentioned as a major target market
was based on Hofstedes (2001) scores for each of the measures applied in the present
research (UAI, power distance, individualism).
Market potential was measured by two items: current need of potential customers
(MP1) and current size of the target market in terms of sales (MP2) (Song and Parry,
1997). Since the two items examine different aspects of market potential, they were
used separately.
Competition intensity was based on Jaworski and Kohlis (1993) six-item scale
(a 0.72).
Entry modes were measured by eight categorical items based on Root (1994).
This scale defines two basic modes, export and equity, with a third option, Other,
referring to all other modes. Following Quer et al. (2007), the items were transformed
into a high-/low-commitment scale.
Table I provides the correlations and descriptive statistics for the different
variables.

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Table I.
Descriptive statistics
and correlations

Mean (SD)
1. Economic
competitiveness
2. Democracy index
3. PDI-Power distance
4. IDV-Individualism
5. UAI-Uncertainty avoidance
6. Market potential
Customer needs (MP1)
7. Market potential
Current market size (MP2)
8. Competition intensity
9. Entry Mode Scale
10. Strategic orientation

5.30 (0.53) 1
7.88 (0.98) 0.61** 1
32.45 (11.76) 0.64** 0.64** 1
29.99 (11.19) 0.63** 0.15 0.58** 1
17.41 (10.49) 0.012 0.14 0.08 0.40**
4.17 (0.97)

0.09

4.53 (0.83) 0.41*

3.07 (1.00) 0.16
1.84 (0.47) 0.28**
1.75 (0.33) 0.05

0.00

0.07

0.18 0.16
0.06 0.18
0.20* 0.07
0.00
0.00

0.16

1
0.05

0.37** 0.13 0.21* 1

0.21* 0.05 0.08 0.12
1
0.20* 0.22* 0.09 0.18 0.04 1
0.00 0.14 0.05 0.33** 0.07 0.04

Notes: *po0.05; **po0.01

Analysis and results

We performed two preliminary analyses. The first was used to test our basic
hypotheses regarding the potential moderating impact of strategic orientation on entry
mode choice. The regression analysis model was insignificant (p40.1), assuring for no
direct impact of strategic orientation on entry mode choice. The second analysis
referred to the entry modes. We examined whether there were any significant differences
between the categories using an ordinal regression test and found none (p40.1), therefore
proceeded in referring to the different entry mode as located on a high-/low-commitmentbased scale.
The hypotheses were tested via a two-step approach. First, based on responses to
the strategic groups scale, companies were categorized according to whether five or
more of the seven items matched a pure type in the typology (Conant et al., 1990) in
order to establish a claim of specific orientation. Firms with no specific orientation
were categorized as hybrid. As Table II indicates, a w2 analysis supports H1, showing
that most BGs were P-oriented (65 percent; po0.01).
Once we have established the difference between the two types of BGs P-oriented
and others we split the database and proceeded to examine the remaining hypotheses
using a regression model (Table III). The moderation effect of strategic orientation on
the impact of the different foreign market factors on entry mode choice was found
significant only for P-oriented BGs (R2 0.28; po0.05) but not for the other BGs

Table II.
w2 analysis

Prospector
Analyzer
Defender
Hybrid
Total
w2
Degrees of freedom
Significance (po)

Observed n

Expected n

Residual

68
5
7
24
104
95.88
3
0.01

26.80
26.80
26.80
26.80

41.30
21.80
19.80
0.30

P-oriented BGs

Constant
National competitiveness
Democracy index
Uncertainty avoidance
Power distance
Individualism
MP1
MP2
Competition intensity

Other BGs

0.60
0.61
0.23
0.02
0.01
0.02
0.06
0.30
0.03

0.02*
0.00**
0.11
0.02*
0.22
0.12
0.33
0.01*
0.58

1.39

0.15

Notes: R2 (P-oriented BGs) 0.28. *po0.05; **po0.01

(p 0.15), yielding some interesting results. H2a and H2b referred to the impact of
political and economic stability on the level of commitment embodied in the entry
mode. While political stability was found to have no significant impact, economic
stability was found to have a positive impact on the level of commitment (b 0.57;
po0.01), as hypothesized. H2c-H2e referred to the moderation of strategic orientation
on the impact of cultural gaps on the level of commitment. H2c was substantiated
(b 0.44; po0.05), with UAI shown to have a negative impact on the level of
commitment. No impact was found, however, for the other two aspects. According
to H3a, BGs operating in high-potential markets were expected to choose lowcommitment entry modes. Yet contrary to expectations, market size (MP2) was positively
related to high-commitment entry modes (b 0.34; po0.05), whereas customers current
needs (MP1) had no impact on the level of commitment. H3b stated that when faced with
intense competition, P-oriented BGs would choose low-commitment entry modes, yet the
results were not significant in this respect.
We tested the data for collinearity. All VIF values obtained were under 5, indicating
no multi-collinearity. We also tested for common method bias using exploratory factor
analysis. We received three factors with an eigenvalue higher than 1, with the first
factor explaining 29.9 percent of the total variance, therefore concluding for no common
method bias (Podsakoff et al., 2003).
Post hoc analysis
Following the results presented here, we ran an additional analysis to check for
significance of the results. We did so by running a regression model based on the
independent and dependent variables included in the original test, ignoring the strategic
orientation construct. The model was not significant, indicating that the independent
variables could not explain the level of commitment reflected by entry mode choice.
Strategic orientation was thus shown to be a relevant moderating factor.
Discussion
Research implications
BGs are unique. They share specific characteristics which highlight the similarities
among BGs from different countries while distinguishing them from other firms in
their home markets (McDougall et al., 1994). It can therefore be assumed that BGs
strategies and operations will be impacted to a greater degree by their strategic
orientations and by the host countries environment than by their own national

Environment and
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547

Table III.
Standardized regression
coefficients

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environment. Previous studies on entry mode choice which focussed on traditionally

globalizing firms and based their assumptions on stage models or economic theories
therefore possess weak explanatory power when applied to BGs (Andersson et al.,
2006). Exploring the specific variables that impact BGs entry modes is thus crucial.
The current study links to the DCA framework by connecting entry mode choice
both with external factors and with firms strategic orientation. More specifically, our
findings show that BGs with a P-type strategic orientation are more likely to explore
and exploit opportunities in foreign markets than to view environmental changes as
threats. The high percentage of high-tech BGs with a P-type orientation can be viewed
as supporting our conclusion. In the face of ever-changing conditions and thus high
levels of uncertainty and risk, the P-type orientation provides firms with a muchneeded flexibility that enables them to create sustainability. This coincides with the
entrepreneurial orientation BGs tend to adopt. As mentioned earlier, the orientation
is based on innovativeness, risk-taking, and proactiveness. All three constructs
are strongly associated with BGs behavior and closely linked to the principles of the
P-orientation.
The results partially support this claim, showing that P-oriented BGs will choose
high-commitment entry modes when entering either highly stable economic
environments or relatively large markets. Yet, while our hypothesis regarding
economic stability was substantiated, our findings regarding market potential were
contrary to expectations. Our hypothesis regarding economic stability was that BGs
entering unstable economic environments will choose low-commitment entry modes.
Based on the same rationale, we expected that stable economic environments deemed
favorable and supportive will facilitate performance and growth by any firm, therefore
encouraging the use of high-commitment entry modes. Market potential, in turn, was
measured along two dimensions: customer needs and market size. While the first
measure yielded no results, the second was found to have a positive impact, leading to the
conclusion that BGs facing a large market tend to choose high-commitment entry modes.
The rationale here is similar to that suggested by previous studies (Gabrielsson et al.,
2012). Large target markets are considered favorable due to the large volume of expected
sales. In order to fully capture their potential, firms try to maintain closeness to their
customers as well as their rivals. Closeness is achieved by the use of high-commitment
entry modes. In both cases, the control established via high-commitment entry modes
enables the firms to position themselves competitively and thus to increase their survival
potential. Since BGs are considered to be technology oriented (Knight and Cavusgil,
1996), their time horizon for tactical moves is shortened by the rapid changes in their
environment. High-commitment entry modes increase the level of risk associated
with foreign operations, but they may also benefit firms by helping them gain a foothold
in attractive markets, a vantage position eventually translatable into rapid
internationalization. In the tradeoff between risk and gain, BGs orientation places
higher value on the latter by favoring high-commitment entry modes. These explanations
receive support from Maignan and Lukas (1997) who describe four types of managers
mental models as antecedents to entry modes. Their third mode, which they define as
market-driven, characterizes firms that are concerned with customers satisfaction as
well as with competitors pressures. This is often the case presented by high-potential
target markets. In such firms, Maignan and Lukas claim, entry mode choice is based
on rational decision-making processes and depends on the costs and benefits of each
entry mode. The flexibility required from such firms resembles to some extent similar
processes in BGs.

As for UAI, we expected to find this variable to have a negative impact on the choice
of low-commitment entry modes. The rationale here was that the more the home and
the host markets differ with respect to their uncertainty tolerance, the more BGs will
tend to choose low-commitment entry modes. As previous studies have shown, UAI
represents relatively high levels of risk (Kogut and Singh, 1988; Pan and Tse, 2000).
Diverging perceptions of risk among actors from different countries may give rise to
conflicts. Firms approaching foreign markets with different perceptions of risk will
try to minimize the chances of such conflicts by using local representatives. Since
P-oriented BGs strive to establish a global presence in relatively short periods of time,
UAI is likely to be regarded as an even bigger obstacle, motivating firms to find ways
to avoid its potentially harmful impact.
Other national aspects (political instability and the remaining two cultural aspects)
were not found to interact with BGs strategic orientation in determining entry
mode choice. With respect to political instability, one possible explanation may be the
relatively low variance of this variable. Whereas some BGs targeted countries with
highly diverse political regimes, the vast majority operated in highly stable countries
(USA, UK, Japan, etc.). Thus, while political instability could carry certain risks, this
variable could not be tested properly in the current study.
As for the remaining two cultural aspects, a different possible explanation suggests
itself. As noted earlier, BGs become international or even global soon after inception.
In doing so, we claim, they tend to adopt a chameleon-like behavior, that is, they adapt
to the cultural norms and behaviors typical of their target markets, thereby reducing
the impact of the cultural aspects in question so that they become irrelevant.
As for the last variable, competition, we assumed that its interaction with firms
strategic orientation will lead to the choice of low-commitment entry modes. No such
impact was found, however. One possible explanation has to do with the core
characteristics of Prospectors. Such firms are highly capable of exploring and exploiting
opportunities. In the case of BGs, these opportunities will be technology-oriented to some
extent. Flexibility combined with a P-orientation tends to direct BGs to competition-free
markets (Knight and Cavusgil, 2004). Therefore, competition is almost irrelevant.
It is important to emphasize that the above discussion refers to P-orientation BGs.
The model testing other BGs showed no significance. This finding can be accounted
for by the relatively small sample in each group. Nevertheless, given this limitation,
the impact of the variables which have been substantiated becomes even more
important.
Managerial implications
The current studys findings have several managerial implications. First, since entry
modes are among the major tools firms can and should use to overcome target-market
risks and compensate for lack of resources, managers should identify their targetmarket characteristics in terms of various aspects of potential risk before determining
the suitable entry mode. By understanding the diverse ways in which these aspects
affect firms operations and by choosing their strategies accordingly, BGs could
improve their operations in each target market. This might sounds like stating the
obvious, but our field interviews indicate that only two out of the 104 companies
actually undertook market research of this sort. The other companies relied on
previous experience gained in similar industries or simply imitated their competitors.
Both means have their shortcomings and might divert companies from more suitable
entry modes.

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Second, whereas previous studies treated BGs as homogenous, we found BGs to

be diverse in their willingness to adopt a P-orientation. From a managerial point of
view, this indicates that by promoting the strategic fit between certain environmental
conditions and entry mode choice based on their strategic orientation, BGs can
outmaneuver their competitors and gain a strong foothold in the market. Future
research should therefore continue to explore subgroups in the BG category.
Limitations
Some weaknesses in the present study should be acknowledged. We focussed on
high-tech firms because of the high ratio of BGs in this industry. This choice involves
a tradeoff. The narrower sample improves the internal validity of the findings and
eliminates potential alternative explanations for some of them, yet limits their
generalizability. Future research should include a more heterogeneous sample of BGs
from a greater variety of industries.
Another issue stemming from the focus on high-tech firms involves the relatively
low number of firms on which our analyses are based. We have focussed on the
68 firms that showed P-orientation, or 65 percent of all firms included in the study.
Some may consider this a relatively small sample; yet the small sample size makes the
significant results even more remarkable. It should further be noted that gathering
data from privately owned firms is not an easy task due to their sensitivity to exposure.
Given this constraint, most previous research has adopted a more qualitative approach.
The present study thus has merit despite the relatively small sample size.
In investigating the direct and indirect impact of external factors, we have aimed to
gain a better understanding of firms proclivity to act in certain ways; we have not
aimed to provide an absolute model for behavior. Our aim has been to examine
the leading factors in this context; a full exploration of the subject is beyond the scope
of the present study. Our results provide a clearer understanding of the complexities of
entry mode choice, indicating the likelihood that certain entry modes will be chosen
under specific conditions; yet, they do not provide any certainty on the subject.
The use of Hofstedes cultural measures as indicators of country barriers may raise
several questions. The scale was formally developed to identify differences among
nations. Though previous studies have lent support to the validity of Hofstedes
measures, they might nevertheless fail to provide a full picture of the impact of national
variables on foreign operations.
Last but not least, the present research explores the reciprocal relationships
between the various factors affecting BGs choice of entry mode. Whereas most
previous research on the subject addressed the direct impact of internal and external
factors, we have aimed to explore the interaction between the two. By focussing on the
relation between firms strategic orientation and their external environment, we have
been able to obtain finer-grained results.
Conclusion
Most prior studies on BGs have described their entry mode choices and other
operational decisions as outcomes of their strategic configuration. The present study
explains BGs choice of high- vs low-commitment entry modes as a function of the
interaction between a firms strategic orientation and a set of environmental factors.
The papers main finding is that P-oriented BGs tend to view certain environmental
conditions such as economic stability and large markets as opportunities, which they
try to exploit by choosing high-commitment entry modes. Similarly, in markets

characterized by a large home/host UAI gap, BGs tend to choose low-commitment

entry modes. The studys post hoc test, which compared BGs with the other firms
included in the study, shows that firms strategic orientation combines with external
conditions to impact entry mode choice. As a result, firms sometimes choose highcommitment entry modes because of the opportunities they introduce, regardless of the
risk associated with them.

Environment and
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orientation
551

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Appendix. Measures of constructs

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About the authors

Dr Kalanit Efrat (PhD, Marketing, University of Haifa, Israel, 2008) is a Lecturer of Marketing at
the Ruppin Academic Center, Israel. Dr Kalanit Efrat is the corresponding author and can be
contacted at: kalanite@ruppin.ac.il
Aviv Shoham (PhD, University of Oregon, 1993) is an Associate Professor of Marketing and
Head of the Business Administration Department at the University of Haifa, Israel. He serves as

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a Visiting Professor at the Ljubljana University, Slovenia. His research focusses on international
marketing management/strategy and international consumer behavior. His research has been
published in journals such as the Journal of the Academy of Marketing Science, Management
International Review, the Journal of International Marketing, International Marketing Review, the
Journal of Business Research, the Journal of Advertising Research, International Business Review,
the Journal of Applied Social Psychology, the European Journal of Marketing, European Journal
of Management, and the Journal of Global Marketing.

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