Financial Performance of Entry Mode Decisions: Effects of Control in an Internationalization Context

Based on a survey of 170 Danish SMEs the paper examines influences on entry mode choices and the financial outcome of these decisions. The main research objectives are divided into two steps: Step 1: To determine the factors influencing the choice of foreign entry modes by Danish companies. Step 2: To determine the relationship between the choice of entry mode and export performance, measured in terms of financial outcome. Drawing from transaction cost theory the authors develop and test a model where different factors affect the level of control chosen by the parent company. This study contributes to the existing entry mode theory by integrating both steps into a theoretical framework that offers substantive explanation of the connection between independent entry mode variables, the choice of entry mode and the resulting export performance. Personal networks and interruption of international activities were the most significant factors for the choice of
intermediate modes. The results also show that high control modes can positively affect the bottom line profit through higher market investments and better implementation of cross border strategies. Finally, further research
suggestions and implications are provided for companies willing to invest more into foreign markets in order to achieve a higher degree of control and better financial results.