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Received 3 September 1997
Final revision received 15 November 2000
Key words: mode of entry; foreign direct investment; foreign entry; sequential investment; knowledge-based perspective
Relatively few studies have examined the importance of an entry's sequential position to the choice of foreign entry mode. We use a dynamic model to analyze sequential entries into the United States from 1975 to 1992. Our findings show that several independent variables which explain a firm's initial mode of entry do not explain the modes of subsequent entries. These findings underscore the importance of experience in foreign investment, as companies learn from early entries and adapt the modes of subsequent ones. Copyright ?2001 John Wiley & Sons, Ltd.
The choice of entry mode is an important part of a firm's foreign investment strategy. Firms are not only concerned about what foreign markets to enter, and what activities to perform in those markets, but how to enter: whether by greenfield investment, by acquisition, or by joint venture. Choosing one or another entry mode can have enormous strategic consequences for the firm.
Not surprisingly, there has been considerable research into the patterns and determinants of foreign entry modes. Some researchers have focused on the ownership and control issues implied by various modes of entry (Davidson and McFetridge, 1984, 1985; Gomes-Casseres, 1989; Contractor, 1990; Erramilli, 1991; Agarwal and Ramaswami, 1992; Hennart, 1982; Anderson and Gatignon, 1986; Hennart, 1991; Hennart and Park, 1993; Hennart and Reddy, 1997). Others have examined the effect of cultural distance, country risk, and level of economic development on the mode of entry (Kogut and Singh, 1988; Gatignon and Anderson, 1988; Cho and Radmanabhan, 1995). Both streams of research have been valuable, but both are limited in two important ways. First, while some studies discussed the role of experience in choosing a foreign entry mode, they have relied on static research designs, studying each entry decision by itself, but have not explored how each entry may be part of a sequence. As a result, they have been unable to show how the mode choices in earlier entries may systematically differ from the later ones.1 Second, by looking at each entry independently, these studies have not examined the relationship among lines of business within the same firm. Given...