The current organic structure of literature frequently used steadfast size to depict its relationship with entry manners. However, the large obscureness about the definition of house size is singular. This research will analyze the influence of industry specific factor on the entry manner determination, sing the features variables. These variables are divided into four variables, which are engineering, growing, capital strength and concentration degree in relation to the resource based position.
The first group are the touchable resources. The facets studied within this group are the figure of employees and mill size and equipment. Employee count is a logical definition of house size, nevertheless research workers analyzing its relationship with entry manners found assorted and even beliing consequences. This survey hence concluded that there is no important grounds about the influence of houses figure of employees on entry manner choice. Factory size and equipment are frequently used to find size and are characterized by their plus specificity. Looking at its relationship with entry manners it became clear that houses with extra touchable resources prefer high control entry manners to protect themselves against the menaces of plus specificity. The 2nd group are the intangible resources, which are divided into selling and technological resources. These resources can be found within employees ( e.g. information, cognition or accomplishments ) and are besides used in bing literature to find steadfast size. When a house is characterized by extra selling resources it will probably prefer high control entry manners, merely like houses with extra technological resources, unless a rapid procedure of internationalisation is desired. The last group, fiscal resources, can be divided into internally generated and externally raised fiscal resources. These two types of fiscal resources have shown an opposing relationship sing entry manners. Firms utilizing internally generated resources frequently have more assurance and will therefore prefer high control manners. On the other manus, houses with extra externally raised fiscal resources will prefer lower hazard entry manners, which is a characteristic of low control manners. The chairing consequence of houses need for size, determined by industrial features, may act upon the earlier decisions. The strength of this moderating consequence is largely determined by the degree of hazard and uncertainness of the targeted industry. The higher the hazard and uncertainness, the higher the penchant for low control entry manners
This unmarried man thesis is written as the demand to finish the Bachelor of Science at Tilburg University. A literature reasearch has been conducted, which contributes to the bing literature in the field of organisation and scheme. First, the debut will supply an overview of the subject and the job to be studied.
I.1 PROBLEM INDICATION
Differences between SMEs ( Small and Medium Enterprises ) and MNCs ( Multinational Companies ) are seen non merely from the structural facets of both endeavors but besides from the determination devising of entry manner pick ( Erramilli and D’Souza, 1993 ) . Extensive research has been conducted on the subject of entry manner pick and internationalisation. Even though much of the research taks about entry manner pick, Brouther and Hennart, ( 2007 ) stated that most of the surveies in entry manner pick focus more on the transnational house, alternatively of on SMEs.
The most common theories explicating the entry manner pick for SMEs are dealing cost theory, resource-based position and institutional theory. However, the cognition about this field scattered. Some bookmans have already examined the entry manner pick in SMEs: for illustration, Brouthers and Nakos ( 2004 ) found that the dealing theory can be applied to explicate the entry manner pick of SME and that there is no relationship between entry manner pick and house size while other research workers found that the size does matter. On the other manus, Dickson, Dicson et. Al. ( 2006 ) use the extended of resource based position to explicate behaviour in SME related to the institutional environment and its self-interest. Alternatively of looking at the differences between these theories, it will be better to unite these three theories to explicate the SMEs ‘ entry manner pick.
In understanding the internationalisation procedure in SMEs, scholars must see the external and internal factors that construction the form SMEs its entry manner pick. Since Brouther and Hennart ( 2007 ) demo how many surveies prove that most industrial sectors are exposed to international competition today, this research will concentrate on the external factor, which is the industry-specific feature.
The term “ industry ” is normally defined as the grouping of single companies into categorization based on the same features related to merchandise type, production engineering and market properties ( Bother & A ; Holmquist, 1996 ) . Existing literatures show that these industry features may hold a direct impact on a house ‘s pick of entry scheme, though how the house effects this determination still needs to be formulated exactly. Nowadays, houses must see engineering when come ining a peculiar industry. Some research workers including Li and Qian ( 2008 ) , have suggested that engineering does hold a different impact on SMEs than on larger companies in their pick on entry scheme. In add-on, Desh and Beard ( 1984 ) determined that industry growing besides influences the extent to which organisations attempt to pull off interde-pendencies and complexnesss therefore it is related to concern schemes. Capitall strength is another suggessted industry consequence which affects the entry manner scheme along with the R & A ; D strength as the consequence of technological development ( Pan and Tse, 2004 ) . Entry manner survey shows that in term of competition, the behaviour of a house in entry manner survey is affected by other houses in its industry, both its domestic challenger and officeholders ( Brouther and Hennart, 2007 ) . This consequence shapes the grade of concentration degree in its industry. Therefore, adding the concentration degree as the last variable is of import in analyzing SME ‘s entry manner pick.
Hennart ‘s the differentiation between equity and non-equity entry manner ( 1988a, 1989, 2000 ) is a good penetration to analyze the SMEs ‘ internationalisation procedure in come ining new industry. Williamson ( 1985 ) suggests that companies adopt a certain construction — markets ( non-equity manners ) versus hierarchies ( equity manners ) — based on how efficient one construction is compared with the alternate construction. This pick is besides defined by Pan & A ; Tse ( 2000 ) as the first degree of entry manner determination, where SMEs must cover with its limited resources and capablenesss. In add-on, at the macro degree at which industry factors come into drama, the impact of this type entry manner pick is high ( Pan and Tse, 2000 ) . Therefore, the undermentioned research wil concern itself with the pick between these two schemes.
I.2 PROBLEM STATEMENT
The cardinal inquiry to be answered in this research is:
What is the impact of industry features on SMEs ‘ entry manner pick between equity ( JV and WOS ) and non-equity ( contractual understandings and exporting activities ) ?
In order to avoid misunderstanding, the definitions of cardinal footings in the job statement are as follows:
Small-and-Medium Sized Enterprises ( SMEs ) : This type of endeavor is characterized as resource constrained, missing market power, cognition and resources to run viably in international markets ( Fujita, 1995 ; Coviello and McAuley, 1999 ; Knight 2000 ; Hollenstein, 2005 ) . SME may prosecute in assortment entry manners which vary significantly with regard to profit and cost ( Sharma and Erramilli, 2004 ) .
Dependent Variables: Equity and Non-Equity Entry Mode
Harmonizing to Decker and Zhao ( 2004 ) , equity and non equity ( contract ) entry manner are distinguished form each other based on the resource committedness degree. JVs and WOS are classified as the equity entry manner, while the contractual understanding and exportation activities are portion of the non-equity. Sing an equity entry manner over non equity requires clip and hazard due to the greater opportunity of failure and diversifying hazard by themselves ( See APPENDIX 1 ) .
Independent Variables: Industry features
Technology: Firms in high engineering industry are characterized by short merchandise recycle, violent market kineticss and high promotional disbursement ( Segers 1993 ; Stuart 2000 ) . In high-technology industry, fast merchandise replacing often occurs ( Qian and Li, 2003 ) , which leads to alterations in market demand construction and competition construction ( Deeds, et Al. 1999 ) . Porter ( 1985 ) argues that create market consciousness is of import in high-technology industries. Hence, puting in heavy R & A ; D and publicity are required to cover the high hazard associated with the high investing.
Growth: In a high-growth industry, many houses will see resource largess, generated by the invariably increasing grosss and chances ( Cyert & A ; March,1963 ; Dess & A ; Beard, 1984 ) . On the other manus, low-growth industries, such as public-service corporations, depend upon stableness and dependability ( Gordon, 1985 ) . Industry growing besides influences the extent to which organisations attempt to strategically pull off interde-pendencies and complexnesss. ( xxxxx )
Capital Intensity: Capital Intensive Industry refers to an industry which requires a significant sum of capital for the production of goods. As the capital strength of capital intensive industries result in higher degree of productiveness, these industries possess the power to bring forth more income and therefore more net income.
Concentration Level: a high concentration of market portion is held by the largest houses, an industry is deemed concentrated. With merely a few houses keeping a big market portion, the landscape is less competitory and closer to a monopoly. A low concentration degree indicates that the industry is characterized by many challengers, none of which has a important market portion. These fragmented markets are said to be competitory. The concentration ratio is non the merely available step ; the tendency is to specify industries in footings that convey more information than the distribution of market portion.
I.2.2 Theoretical Approach
Entry manner pick rely to a great extent on dealing cost theory and resource based position. When house make up one’s mind to come in new market, they consider the cost and resource required to sell and serve their merchandise efficaciously in foreign market ( Susman and Stites, xxx ) . Institutional theory. Therefore, this research will utilize a combination dealing cost theory, research based position and institutional theory in relation to industry features:
– Transaction Cost Theory
The two chief costs that this theory examines are market dealing costs and control costs ( Williamson, 1985 ; Hennart, 1989 ; Williamson & A ; Ouchi, 1981 ) . Williamson ( 1985 ; Williamson & A ; Ouchi, 1981 ) besides suggests that frequence of interaction is an of import determiner of dealing costs, nevertheless in entry manner surveies minutess are considered uninterrupted therefore preventing the demand for separate step of frequence ( e.g. Brouthers & A ; Brouthers, forthcoming ; Erramilli & A ; Rao, 1993 ) .
While a company can protect its proprietary know-how and minimise its market dealing costs by incorporating its foreign operations, it besides has to equilibrate the demand for integrating with the costs of commanding the hierarchal construction ( Erramilli & A ; Rao, 1993 ; Hennart, 1989 ) . Harmonizing to Hennart ( 1989, p. 215 ) “ a displacement to hierarchy agencies that one of the parties to the exchange becomes an employer [ subordinate ] to the other. ” As a consequence the party ( the new subordinate ) is non rewarded for market public presentation, but for following internal managerial orders. This increases the internal control costs of the organisation because the house may incur important bureaucratic costs in commanding the new operation. Because of these increased control costs, hierarchal equity manners of organisation construction are non ever superior to market-based non-equity signifiers. Merely when internal organizational costs are lower than market dealing costs will it be efficient for a company to form itself as a hierarchy ( Hennart, 1989 ) . Consequently, houses tend to choose entry manners that balance the advantages of integrating with the extra costs of control.
Transaction costs include environmental and behavioural uncertainnesss, self-interest, and plus specificity ( Rindfleisch and Heide 1997 ) . Environmental and behavioural uncertainnesss imply the capriciousness of market alterations and houses ‘ actions or reactions ( Heide and John 1988 ) . Such unpredictability makes the restraints by contracts that specify every contingency and attendant response less effectual ( Heide 1994 ) . Opportunism can be defined as self-interest seeking with craft ( Williamson 1985 ) . Asset specificity implies that committednesss between spouses are transaction-specific assets that can non be redeployed easy ( Williamson 1985 ) . Transaction costs can be much higher in high-speed foreign markets ( Leonidou et al. 1998 ) . High market speed associated with international trade, such as exchange rate fluctuations, adds to the environmental capriciousness and therefore increases the trouble to stipulate spouses ‘ duty in contracts ( Gray and Chan 2001 ; Wortzel and Wortzel 1996 ) . Therefore, if a steadfast develops firm-specific advantages, such as merchandise inventions or high-quality trade names, it should fall back to self trust equity entry instead than partnerships like contractual understandings ( Anderson and Gatignon 1986 ; Fein and Anderson 1997 ) . Transaction cost theory illustrates the necessity of equity entry in high-speed foreign markets when a steadfast develops firm-specific advantages. Greater plus specificity is supposed to take to equity entry manner picks. Minutess that involve intermediate plus specificity will be expeditiously governed by equity entry, whereas those characterized by high plus specificity will do usage of WOS ( Brouthers and Hennart 2007 ) .
– Resource Based View
The resource-based position of the house originates from the work of Penrose ( 1959 ) work, where the house is described as a package of resources. Penrose postulates that the growing of the house is both facilitated and limited by direction hunt for the best use of available resources. Barney ( 1991 ) provides a precise and formalistic description of this position. Resources include assets, capablenesss, procedures, properties, cognition and know-how that are possessed by a house, and that can be used to explicate and implement competitory schemes. The resource-based position relies on two cardinal premises: that of resource heterogeneousness ( resources and capablenesss possessed by houses may differ ) , and of resource stationariness ( these differences may be long lasting ) ( Mata, Fuerst and Barney, 1995 ) . If a resource possessed by a house is besides possessed by several of its rivals ( no heterogeneousness ) , this resource can non lend to competitory advantage. Heterogeneity is needed obtaining at least impermanent competitory advantage ; resource stationariness is needed to prolong competitory advantage, since rivals would confront cost disadvantage in obtaining, developing, and utilizing it compared to the house that already possesses it.
Following Penrose ( 1959 ) , the resource-based position purposes to understand how resources help houses to prolong their competitory advantage and aims figure out how that competitory advantage can be consistently created. Resource-based theory suggest that houses develop resource-based advantages by developing or geting a set of firm-specific resources and capablenesss that are valuable, rare, and amiss imitable and for which there are no commonly- available replacements ( Barney 1991 ) . As such, houses develop alone resources that they can work in foreign markets, or they use foreign markets as a beginning for geting or developing new resource-based advantages ( Brouthers and Hennart 2007 ) . Both equity manners and non-equity manners can assist houses to develop or get these resource-based advantages. By contractual understandings and export, houses can pool alone resources from different spouses and unite them into “ nucleus competences ” that are hard to double ( Hamel and Prahalad 1994 ) . JV and WOS, on the other manus, protects alone resources from escape and attendant duplicate ( Grant 1991 ) . Resource-based theory suggests that inventions are of import in fast-moving industries as they make pioneers unique from other participants ( Barney 1991 ) . These non-equity manners can be a double-edged blade to develop and prolong advanced advantage ( IA ) in foreign markets. On the one manus, contractual understandings likes confederations and license enhance a house ‘s invention capabilitiesas partnerships facilitate the procedure of larning from local spouses who know their place markets better ( Hitt et al. 1997 ) . Resource-based theory illustrates the importance of prolonging firm-specific advantages. However, it does non see the differences between houses in footings of organisational properties. It is non clear whether big houses and little houses can utilize the same means to develop and prolong firm-specific advantages. Therefore, Brouthers and Hennart ( 2007 ) suggest future surveies should unite the resourcebased position with other positions to progress our cognition of entry manners.
I.3 RESEARCH QUESTION
Industry features will move as focal point in this research. It leads to the undermentioned research inquiries derived from the job statement:
What is the influence of engineering on SME ‘s equity entry manner determination?
What is the influence of growing on SME ‘s equity entry manner determination?
What is the influence of capital strength on SME ‘s equity entry manner determination?
What is the influence of concentration degree on SME ‘s equity entry manner determination?
Much literatures on SME and its relation to the entry manner determination merely discuss in a specific theory and/or factor. This survey is meant to offer new penetrations and parts to the bing literature in order to depict the procedure of decision-making whenever SME chooses equity alternatively of non-equity as their first degree entry manner pick. Furthermore, the specification and restriction in the field of industry features is of import to make deeper apprehension in the determination procedure of SME entry manner scheme.
From the managerial position, if an entry manner determination is considered an of import strategic determination and “ the success of SME ‘ under globalisation depends on the preparation, in big portion, and on the execution of the scheme ” ( Knight, 2000, p13 ) , the strategic behaviour of smaller companies must be investigated. The consequence besides proviide insight for directors taking to place their house within an industry.
1.5 RESEARCH DESIGN AND DATA COLLECTION
This subdivision will show descriptive research, get downing with an account about the nature of SME. This research will besides discourse and lucubrate the differences between taking either equity or non-equity as an entry manner. This research will besides explicate industry features as one of the considered variables that would impact the SME ‘s pick of entry manner scheme. Even though this descriptive research will concentrate on a literature reappraisal of the considered variables in relation to the trasactional cost, resource based position and institutional theory, the purposes is to offer penetrations into why SME would probably to take equity alternatively of non-equity as their entry manners based on the industry features.
This study collects informations from secondary informations beginning, utilizing on-line databases, for illustration from JSTOR, Science Direct and ABI/inform. Many articles and diary related to this subject will be paid attending particularly the recent, up dated and cited articles. There are two journal illustrations titled “ Journal for international Business Studies ” and the “ Journal of Management ” which are traveling to be used for this study and are taken from the high quality diaries available through the University ‘s information portal for Strategic Management pupils composing their unmarried man thesis. The usage of these articles involves advantages and disadvantages. One of the benefits is that a research worker can entree all relevant articles published within these high quality diaries between 1985 and the present. However, many relevant articles published in other diaries will non be found utilizing this database. In decision, in order to obtain more information about certain topics, research workers should follow the commendations in these articles to derive a broader apprehension of the current literature.
Chapter Two will analyze the influence engineering has on the SMEs ‘ entry manner determination will be studied. Subsequently, Chapter Three will look at the influence of growing on the entry manner determination. The influence of capital strength to SME ‘s entry manner will be addressed in Chapter Four, and the influence of the last variable, concentration degree, will be discussed in Chapter Five. Finally, Chapter Six will reexamine the general decision, restrictions and recommendation for both directors and future research. The reply of the job statement will be given here.
II. Technology and SME ‘s Entry Mode Choice
Li and Qian ( 2008 ) define that high-tecnology industry well characterized as invest to a great extent on R & A ; D strength, merchandises life rhythm and market dynamism. The short merchandise life rhythm means merely the first movers can harvest the maximal net income ( Segers, 1993 ) . Consequently, houses must put to a great extent on R & A ; D strength in order to introduce in front of their rivals ( D’aveni, 1994 ) and to prolong competitory advantage. Therefore, in high-technology industries, house embracing advanced advantage as their cardinal success ( Porter, 1985 ) . In add-on, new merchandises in high engineering industries are normally expensive, because pioneers wish to cover their heavy R & A ; D costs and catch sensible net incomes before their inventions become disused ( Porter 1985 ) . Consequently, pioneers have to pass well on publicity to educate clients and overcome client vacillation. Without broad market consciousness, pioneers can barely accomplish rapid gross revenues growing before their inventions become disused ( Qian and Li 2003a ) .
Larger houses have a greater assortment of options than little houses in footings of resources, capablenesss and power, although their activities, excessively, are constrained by personal and institutional factors. Unlike big companies which have the resources to bring forth invention, SMEs trade with the resource constrain. They have to develop their ain typical competencies to enable them vie against big houses ( Etemad, 2000 ) . Equity entry manner such as entirely owned subordinates and joint ventures may non work good for SMEs, since it requires high investing and support. SME may non be able to cover such immense support for high R & A ; D strength. Despite their fiscal restriction, by doing the contractual understandings, SME have chance to larn and turn. Furthermore, Burgel and Murray ( 2000 ) found that the immature house in the early phase of its development operates in a high-technological industry by sing the entry procedure as the committedness to internalisation as a map of experiential cognition of foreign market.
For MNCs, equity entry manners can be the optimum option to pull off violent market dynamism. MNCs have strict control over their R & A ; D and production ( Heide 1994 ) . Such rigorous control facilitates coordination between different activities located in different states ( Hill and Kim 1988 ) . Therefore, MNCs can take their inventions to the markets at a faster gait. In add-on, when new coevalss of merchandises emerge in the market, MNCs, with rigorous control over R & A ; D, production, monetary values, can upgrade their existing merchandises and bead monetary values, to protract shelf-life. Furthermore, due to the larger economic systems of graduated table and market imperfectnesss across states, internalising MNCs enjoy cost advantages over new merchandises. All of these benefits help MNCs to widen the life span of their merchandises and cut down the effects of market dynamism.
Transaction cost theory suggests that equity entry manners save costs for MNCs. Through entirely owned subordinates, MNC avoid organizing with foreign spouses, prevent leaking of import R & A ; D information to rivals, and protect themselves from possible timeserving Acts of the Apostless by foreign spouses ( Hitt et al. 1997 ) . In contrast, organizing with foreign spouses slows down the invention procedure. R & A ; D cognition escape and spouses ‘ timeserving Acts of the Apostless can take to duplicate by rivals. With violent market dynamism, these high dealing costs can take to market failure. In contrast, non-equity entry manners provide the optimum option for SMEs to pull off the high environmental speed in high engineering industries.
Transaction cost theory suggests that equity entry manner such as entirely owned subordinates and joint venture be excessively dearly-won and complex for SMEs to manage when there is high market dynamism. Internalized operation in abroad markets incurs high coordination costs, distribution costs, and direction costs among units that are located in different states and demands high coordination, distribution, and direction competences ( Williamson 1985 ) . Differences that are encountered across states and currency value fluctuations across states add to the costs and troubles ( Wortzel and Wortzel 1996 ) . High market dynamism greatly enhances these costs and demands. The size restraints that are associated with SMEs restrict their information-collecting and informationprocessing capablenesss and therefore do internalisation excessively complex and excessively dearly-won for SMEs to pull off. Due to the industry ‘s market dynamism, hi-tech industry require high version and application of cognition. Therefore, the penchants to entry manner pick are characterized by comparatively low resource committedness.
Unlike MNCs, SMEs may non be able to absorb the high hazards that are associated with high market dynamism in engineering industries. From the resource-based position, partnerships help houses to pool different resources or typical capablenesss from spouses in different states ( Hamel and Prahalad 1994 ) . Such sharing of different resources or typical capablenesss enhances the competitory advantages of the group. The logic that is described above suggests the undermentioned hypotheses.
H1. In a high-technology industries, the greater leanings for SMEs to take non-equity entry manner scheme.
III. Growth and SME ‘s Entry Mode Choice
McDougal et. Al. ( 1994 ) states that an industry ‘s growing rate has been a cardinal constituent of market attraction for both newventures and constituted houses. Growth has served as an index of disequilibrium ( Yip, 1982 ) , a status favourably associated with entry ( Yip, 1982 ; Porter, 1980 ) and as an index of industry development ( Sandberg, 1986 ) . Explicit in many prescriptions offered by both new venture research workers and venture capitalists for venture success has been entry into a high growing industry. When asked to find the most of import standard in make up one’s minding which new ventures to fund, venture capitalists in MacMillan, Siegel, and Narasimha ‘s ( 1985 ) survey identified a high industry growing rate as the critical market demand.
Quickly turning and unstable industries, which pose more beginnings of uncertainness than stable industries ( Hambrick & A ; Finkelstein, 1987 ) , frequently require a wider scope of competitory actions to turn to uncertainnesss. In add-on, Porter ( 1980 ) argues that rapid industry growing ensures that officeholders can keep a strong fiscal public presentation even though a new entrant takes some market portion. Therefore, new ventures come ining into quickly turning industries would arouse less revenge by incumbent houses. Consistent with Porter ‘s statement, Miller and Camp ‘s ( 1985 ) research on the choice of markets to come in suggested that directors should look for state of affairss in which high market growing can potentially cut down the consequence of competitory force per unit areas.
Hause and Rietz ( 1984 ) found important statistical grounds that new steadfast entry is positively related to the industry growing, since it is related to gain oriented. Therefore, house will be given to cut down hazard by restricting the resource committedness. In a high-growth industry, many houses will see resource largess, generated by changeless addition of grosss and chances ( Cyert & A ; March,1963 ; Dess & A ; Beard, 1984 ) . On the other manus, low-growth industries, such as public-service corporations, depends on stableness and dependability ( Gordon, 1985 ) .
Based on dealing cost theory, the cost will be higher in high-growth markets. Therefore, if a steadfast develops firm-specific advantages, such as merchandise inventions or high-quality trade names, it should fall back to equity alternatively of partnerships like contractual understandings ( Anderson and Gatignon 1986 ; Fein and Anderson 1997 ) . In contrast to larger houses, SMEs perceive limited capacity means that for SMEs resource dependence instead than resouce sufficiency frequently is the norm ( Calof, 1993 ) , necessitating them to seek out concerted linkage with house possessing the needed rources ( Dickson et. Al, ( 2006 ) . A resources-based position suggests that the competitory advantage can be sustained if the house has the ability to vie. However, a house should joint with another adept house to develop its ain cognition and ability. Harmonizing to institutional theory, a house can minimise hazard in high growing industry by taking non-equity manners that requires the low resource committedness such as a contract. Therefore, the undermentioned hypothesis is offered:
H2. The slower the growing within the industry, the higher SMEs ‘ leaning to choose equity entry manner.
IV. Capital Intensity and SME ‘s Entry Mode Choice
Capital ‘ proportion involved in the Capital Intensive industries is much higher than the proportion of labour. This is the ground why the industrial construction and types of industries require high value investings in capital assets. By and large, the capital intensive industries generate high degree of net income. The big sum of capital invested in these industries produce high rate of return and this in bend leads to more capital investing. Given that efficiency is typically emphasized as a cardinal success factor in capital-intensive industries, competitory actions that reflect a focal point on efficiency are likely to be associated with better house public presentation in such industries ( Hambrick & A ; Lei, 1985 ) . However, a house in a capital-intensive industry is by and large committed to a class of action as capital strength frequently creates rigidness ; new merchandises or markets can non be accommodated as divergences might turn out expensive ( Hambrick & A ; Lei, 1985 ) .
Capital intensive industries involve high degree of fixed cost. For this ground they involve higher grade of hazard. If the gross revenues volume diminutions, net incomes earned by the industry will see a crisp lessening as the fixed cost portion can non be removed or reduced. So, if market demand diminutions, so the capital intensive industries will non be suffer from more loss compared to the labour intensive industries. Harmonizing to Porter ( 1985 ) high fixed costs result in an economic system of scale consequence that increases competition. When entire costs are largely fixed costs, the house must bring forth near capacity to achieve the lowest unit costs. Since the house must sell this big measure of merchandise, high degrees of production lead to a battle for market portion and consequences in increased competition. Automobile industry, chemical industry and oil refinery industry are fundamentally capital intensive industries, which require big capital investing for get downing up the concern and to run the concern every bit good. Due to the fact that all capital intensive industries require big volume of fiscal resources for get downing up, the figure of fledglings to any capital intensive industry is comparatively less than any labour intensive industry.
The benefit of capital intensive industry is that it guarrantees high degree of productiveness ( xxxx ) . This could be possible since the capital investings are used to fit the industry with indispensable tools and high tech machinery. Furthermore, the use of advanced engineering raises the productiveness of labour ensuing in a greater end product.
In capital intensive industry, high plus turnover can be achieved if the house has the capableness to make so. Asset turnover measures the ability of houses in an industry in order to utilize the plus for increasing gross revenues ( xxxx ) . In industries with high plus turnover, a given sum of the plus could bring forth higher sum of gross revenues. Firms runing in industries with high plus turnover are more likely to internalise their operations overseas ( Erramilli and Rao, 1993 ; Gatignon and Anderson, 1988 ) , because of the lower plus demand in these industries for targeted gross revenues degree. Firms have less troubles seting up the needed capital.
To sum up with the old surveies, it is expected that foreign houses in industries of high plus turnover are more likely to follow equity entry manners. However, this outlook is more approprite in MNC. On the other manus, With its limited capacity, a house can non be good at all activities required in the market entry and market incursion procedure ( Miles and Snow 1992 ) . It is because the control cost and market dealing cost will be high in a capital-intensive industry. Thus, based on dealing cost theory it is more good for SME to hold non-equity entry manner such as confederation and licence with the larger house.
H3. The more capital-intensive industry, the greater leaning for SMEs to choose non-equity entry manner.
VI. Concentration Level and SME ‘s Entry Mode Choice
Pepall et.al. ( 2009 ) states that concentration degree is one of the most common measurings in market construction and industry. It is of import to see these variables in analyzing a house ‘s entry manner pick, particularly for SMEs which want to come in a new industry. Harmonizing to Demsetz et. Al. ( 1973 ) Industry concentration refers to the figure of major rivals in a given industry ” . Oil refiners and car shapers are some illustrations of concentrated industries.
The grade of industry concentration, which is an index of the degree of competition in an industry, has been extensively used as a cardinal eventuality variable in anterior empirical surveies ( e.g. , Hambrick & A ; Lei, 1985 ) . High degrees of competitory mutuality are implied by high concentration, which in bend serves to restrict the scope of competitory actions ( Bain & A ; Qualls, 1987 ) .
Existing houses known as incumbent houses, in extremely concentrated industries earns lower return because they deal with less hazard and less invention ( Hou, 2006 ) . In come ining a new market, new houses need to cover with these officeholders. Whenever an entered industry is extremely concentrated, officeholders may fall in and revenge against the entrant. Alternatively of contending against bing officeholders, houses might cut down revenge by sharing straight the resources and capacity with the officeholder ( Brouther & A ; Hennart, 2007 ) . This reading is supported by institutional theory, which states that the deficiency of resources, high costs, high hazards, and inflexibleness in international markets force houses to work together in order to portion assets, costs, and hazards ( Styles and Hersch 2005 ) . High concentrated industries besides need high control and market dealing cost. Thus, based on the combination of dealing cost theory and reseource based position, penchant for lower control entry manner is suited for SMEs in enter this type of industry.
As antecedently mendtioned before, larger houses have a greater assortment of options than the little houses in footings of resources, capablenesss and power. As antecedently be mentiones before, SME has limited resources that can do it competinge in high industry concentration more hard. It is constrained by personal and institutional factors ( xxxxx ) . SMEs must develop their ain typical competences to enable them to contend against big houses ( Etemad, 2000 ) . Support is one of the barriers that SME will be face. Alternatively of seeking excessively hard in high equiy investing, confederation and licence are more preferrable in this term. It can be advantageous to develop an experiential cognition to engange in higher committedness and control equity entry manner scheme.
Hence, the last hypothesis can be formulated:
H4. The higher the industry concentration degree, the greater the likeliness SMEs will take non equity entry manner determination.
This last chapter contains the sum-up of consequence and the replies to the job statement from the first chapter. Subsequently, the chapter will turn to theoretical part and managerial deduction. Finally, the last subdivision wil offer the restrictions and future research suggestions.
V.1 Theoretical contributionn
Looking at the findings sing the influence of the industry features on the entry manner determination, the undermentioned consequences have been found. Industry features consist of engineering, growing, capital strength and concentration degree within the industry, considered of import determiners of house entry manner scheme, both for MNCs and besides SMEs. However, the empirical findings sing the relationship between these industry features, determination seem to be assorted. It is because of this deficiency of convincing and profound statements about this relationship.
MNCs with sufficient fiscal and resource capablenesss come ining an industry characterized by high technological uncertainness and plus specificity will probably alter their penchant towards high committedness of resources, equity entry manners ( xxxxx ) . Eventhough the houses has sufficient resources to come in an industry which characterized with high degrees of selling and technological resources besides might alter their penchant towards lower control entry manners. This is because this type of industries are frequently characterized by their economic systems of graduated table and range ( Yin & A ; Shanley, 2008 ) . This instance occur on SME. Non-equity entry manners provide the optimum option for SMEs to pull off the high environmental speed in high engineering industries.
Similar to the account in features based on engineering, industry growing affect the determination of SMEs entry manner pick in the same manner. Firms characterized with extra resources like MNCs may prefer high control entry manners to keep full and incorporate control of the house ( Yin & A ; Shanley, 2008 ) while SMEs are better to collaborate with larger house to bask resources advantage of the larger house. It can be done by doing contractual understanding such as confederations and license.
When an industry is really capital intensive the possibility grows that houses do non possess a sufficient degree of resources themselves like SMEs to be success enter this industry ( Rickard, 2006 ) . When it occurs lower control and resource committedness, market entry manners will be preferred. Last, in extremely concentrated market, the grade of coompetition is high. It gives a force per unit area for SMEs to vie with the bing houses. These bing house ain already the market portions and its client. Therefore, it is better for SMEs to take the market entry manner as this entry manner will increase the experiential cognition.
The most of import determination, replying the job statement from the debut ( aˆzWhat is the impact of industry features on SMEs ‘ entry manner pick between equity ( JV and WOS ) and non-equity ( contractual understandings and exporting activities ) ? aˆY ) is that industry features has proven to be of important importance to explicate entry manner determinations. . This research has taken into history all industry finding variables and it can be concluded that most of these variables show a penchant towards lower control entry manners. In the other word, the stronger the influence of industrial features, the higher the penchant for lower control entry manners. However, this penchants is related to the other imporant determination that SME do differ from the larger house in making this determination. While larger house concern on sutaining and invent new competitory advantage in the market prefer to establised such as JV and WOS ( higher control and resource committedness, SMEs must cover with resources contrain and learn to develop their cognition to be competitory in the market.
V.2 Managerial deductions
This research is an of import part for SMEs and besides larger endeavors ‘ directors who decide to come in the international market with their concern. When doing certain determinations, directors must cognize the industry features sing their external barrier and advantages. When directors know the strengths and failings of the house expressed in its industry, they can see them when come ining the international market. Choosing the appropriate entry manner sing their industry features is the first measure towards internationalisation and proven to be of important importance.
V.3 Limitations and future research
This research besides has some restrictions. First, industry features is one of the many variables that must be taken into history when choosing the appropriate entry manner. Besides looking at industry features, a house should besides look at other external influencers, such as state and cultural factors. Other internal factors, such as experience must besides be taken into history. Second, this research merely focus on direct influences of the industry features. It is hoped that this research will give more penetration for future research on any possible moderating consequence. Third, this is a literature based survey. Meaning that no existent research has been done, except for the meeting of bing literature. Therefore the possibility exists that the proposed hypotheses are non right. It is recommended for future research workers to prove the dependability of these hypotheses. Finally, future research workers desiring to prove the relationship of industry features on other variables are advised to turn to all industry finding variables. This will take to consensus about the function of industry features within different state of affairss.