Small markets favor entry modes that have low

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Unformatted text preview: ountry is a net result of several, often conflicting forces. The author has developed a model that is divided in external and internal factors where external factors are market, production, and environmental in both the target and home countries. The external factors that Root (1994) puts forward are described below. See Figure 2.2 for the model (page 12). Target Country Market Factors The present and projected size of the target country market is an important influence on the entry mode. Small markets favor entry modes that have low breakeven sales volumes (indirect and agent/ distributor exporting, licensing and some contractual arrangements). Markets with high sales potentials can justify entry modes with high breakeven sales volumes (branch/ subsidiary exporting and equity investment in local production). Further Root (1994) argues that another dimension of the target market is its competitive structure. Markets can range from atomistic (many nondominant competitors) to oligopolistic (a few dominant competitors) to monopolistic (a single firm). An atomistic market is usually more favorable to export entry than an oligopolistic or monopolistic market, which often requires entry via equity investment in production to enable the company to compete against the power of dominant firms. In target c...
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