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Introduction
The choice of foreign market entry modes has been a topic of considerable inquiry in the international business literature (for reviews see Andersen, 1997; Luo, 1999). The primary objective of these studies is to uncover the factors that determine the modes used to enter foreign markets. The key assumption underlying this literature is that the best entry mode is one that aligns the entrant's strengths and weaknesses with the local market's environment as well as with the firm's structural and strategic characteristics (e.g., Hill et al., 1990; Ekeledo and Sivakumar, 1998).
'[Foreign market e]ntry mode has been defined as an institutional arrangement for organizing and conducting international business transactions...' (Andersen, 1997, 29). In their hierarchical model of market entry modes, Pan and Tse (2000) argue that the choice of foreign market entry modes involves two steps. First, entrants decide whether to make an equity investment in the foreign market. Next, within the equity or non-equity choice, entrants select the specific entry mode (e.g., indirect exporting, licensing, franchising, joint venture, wholly owned subsidiary). Although the ownership dimension and the control dimension of foreign market entry mode choice are strongly correlated (Anderson and Gatignon, 1986; Keegan, 2002), the key insight of the Pan and Tse (2000) model is that these dimensions can be separated.
We extend that insight by arguing that not only can the ownership and control dimensions be split, but the foreign market entry mode decision must also be made for each business activity that the entrant undertakes on behalf of the foreign market. Previous research on the foreign market entry mode decision, however, has centered on the production and distribution functions (Buckley and Casson, 1998). But in the service industry, which makes up 20-25% of the total world trade and is growing by 20-30% annually (Ekeledo and Sivakumar, 1998), firms view foreign market entry in terms of a variety of business activities, not just production and distribution. For this reason, we explicitly study the separate entry mode choices for two key business activities: investment in local market physical facilities, and control over local market operations and marketing. Thus we contribute to the literature by broadening the concept of foreign market entry to include business activities beyond production and distribution.
Recently, researchers have...