The Impact of Global Mindset on Entry Mode Choice: An Empirical Study of Traditional Manufacturing SMEs in Eastern China

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The Impact of Global Mindset on Entry Mode Choice:

An Empirical Study of Traditional Manufacturing SMEs in

Eastern China

University of Groningen

Faculty of Economics and Business

Fangzhou He

Student Number: s2345110

Supervisor: Dr. Igor Kalinic

Referent: Dr. Miriam Wilhelm

Email: f.he.2@student.rug.nl

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The Impact of Global Mindset on Entry Mode Choices: An Empirical

Study of Traditional Manufacturing SMEs in Eastern China

ABSTRACT

Exporting is a critically important strategy for firms to grow, and how firms choose strategies to export seems to be an important and a hot issue for researcher to study. Yet research in this area has tended to ignore the relationship between the specific characteristics of firms themselves, especially the features of entrepreneurs, and the entry mode strategies of firms. Building on the study of global mindset of entrepreneurs, I developed a novel perspective to explain how a firm can choose an appropriate exporting strategy by considering the influence of entrepreneurs‘ global mindset, and I also took the cultural distance between home and export markets into account to see if it has an impact on the correlation between global mindset and entry mode choice. Using a unique database of Chinese exporters, I found that exporters with a high degree of global mindset prefer hierarchical and hybrid entry mode, while those with a weak global mindset prefer a market entry mode. However, I did not find significant evidence to prove that cultural distance has a noteworthy moderating effect on the relation between global mindset and entry mode choices.

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1. INTRODUCTION

Along with the rapid development of world economies, the speed of globalization has become faster and faster. According to the newest statistic of WTO (WTO International Trade and Market Access Data, 2012), the total value of world trade reached 6.3 trillion dollars in 1996, in which commodity trade value was 5.1 trillion, and service trade value was 1.2 trillion. From 1980 to 1996, the total value has increased by 3.4 times. In 2002, the total value reached up to 7.8 trillion. And in 2005, the total world trade value, including both exporting and importing, has exceeded 10 trillion for the first time, in which the exporting value was 10.39 trillion and importing value was 10.75 trillion. What‘s more, in 2010, the world commodity trade, in volume terms, ascended 14.1%, and in value terms, increased 22%, both of these two statistics showed the highest annual growth since 1950.

According to the data, we have to admit that the impact of world trade has become more and more crucial and globalization has become an overwhelming trend. Hence, in recent years, an increasing number of countries and firms have been aware of the importance of ‗go out‘, i.e. enter into the global market. More and more economies are participating in the global business activities.

Similarly, the Chinese government and Chinese firms are facing the same topic. Since China implemented the policy of reform and opening, it transformed the economic system from a planned economy to a market-oriented economy, the industry of the country has leapt forward. And the trend of globalization and China‘s entry into WTO provided more and more opportunities for Chinese firms. Firms entered into global market have more chances to get access to abundant resources and broad market. They can also have contact with a large amount of customers than ever before.

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fierce competition as well. Since China has joined the WTO, an increasing number of foreign firms entered Chinese market, this brought tremendous pressure on Chinese firms, especially those Small and Medium sized Enterprises (SMEs). SMEs in China are often regarded as fundamental elements of the economic development. However, now they have to face the cruel competition coming from both domestic and foreign Multinational Enterprises (MNEs). What‘s worse, the resources are limited when compared with the MNEs. It is evident that the combination of insufficient resources and inadequate management skills puts SMEs at a disadvantage compared with larger firms in the globalizing world (Etemad, 1999). More specifically, they have to face internationalization‘s question at the very beginning. Under such circumstances, it is pivotal for Chinese enterprises, especially those SMEs, to go out and explore the international markets.

Why do some firms gain much benefit and success in the world competition, while others lost a lot of profits and even pull out of the global market? One of the reasons could be the selection of entry mode. Entry mode is defined as ―an institutional arrangement that makes possible the entry of a

company’s product, technology, human skills, management, or other resources into a foreign country‖

(Root, 1987). It is a complex and difficult but crucial issue during international entrepreneurship decision-making process (Agarwal & Ramaswami, 1992; Lu, 2001). It is to design an effective way to enter an unfamiliar market and use resources and develop competence to achieve competitive advantage. The selection of entry mode can directly influence the export performance of the firm in their target market.

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(Anderson & Gatignon, 1986; Campa & Guillen, 1999; Klein, Frazier, & Roth, 1990; He et al., 2013). While in my research, based on different levels of control power, resource commitment, risk, and flexibility, I divided entry modes into three types, hierarchical, hybrid, and market entry mode (Angie M et al., 1997; Woodcock et al., 1994; Kumar & Velavan, 1997; Herrmann & Datta, 2002). Moreover, I extended previous researches by exploring the impact of global mindset of entrepreneurs in the export firms and the cultural distance between home and export markets.

The merely focuses on transaction cost theory and resource-based view has some shortcomings. Firstly, researchers focus on the firm level capabilities and ignore the function of personal factors. Sometimes top entrepreneurs‘ understanding of the world‘s diversity, their ability to integrate multiple viewpoints will directly influence the firm‘s decision-making process (Perlmutter, 1969; Bartlett and Ghoshal, 1998; Gupta and Govindarajan, 2001). The study of global mindset, as an attention-based perspective, is concentrated on this field. Secondly, many studies of entry mode choices do not take cultural distance between domestic and export markets into account, this ignores the impact of cultural heterogeneity and how these heterogeneous may influence the selection of entry mode. In this article, I added the consideration of global mindset – a state of mind that allows individuals to understand a business or market without regard to country boundaries (Kobrin, 1994; Murtha, et al., 1998; Perlmutter, 1969). According to Srinivas (1995), global mindset is ―the foundation for business

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the organization. Hence, I believe that if a firm wants to internationalize, the global mindset of entrepreneurs is a powerful weapon.

I also extended previous entry mode choice research by adding the impact of cultural distance on this critical decision. Not all the countries are alike and the differences in culture can have an influence in the selection of entry mode and the creation of value. I put forward the hypothesis that cultural distance between home and export market will moderate the correlation between global mindset and entry mode choice.

To test my hypotheses, I used a unique database of eastern Chinese exporting SMEs. I chose this region as the research objective for a number of reasons. Firstly, the empirical studies between global mindset and entry mode choice in the context of Chinese manufacturing SMEs are rather rare. Secondly, China is one of the world‘s biggest and fastest growing economies (Brouthers & Xu, 2002), the most important manufacturing location for firms with both local and foreign investments, and the second largest international trade country (Murray et al., 2007). More specifically, the region I chose is the eastern part of China, including Anhui Province, Fujian Province, Jiangsu Province, Jiangxi Province, Shandong Province, Zhejiang Province and Shanghai City. Since eastern region is the most vigorous economic part of China, and the importing and exporting activities are quite active there. Besides, SMEs in eastern China can represent the development level of the whole country. Thus, using data of eastern Chinese firms provides a large sample of firms and helps us control for the impact of other factors.

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global mindset tended to use market entry mode which is more effective for them. However, in my estimation, I did not find evidence shown that cultural distance has a significant moderating effect between global mindset and entry mode choice.

To sum up, my main contribution in this research is that I considered the influence of global mindset on a firm when it is choosing a specific entry mode; this extended the research field from a mere consideration of cost and resources to a broader scope of analyzing the entry mode choices. In addition, I took the cultural differences into account. I test the differences between China and every other export market, even though I did not find significant evidence; I developed a new idea of the research and give insights for further studies.

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2. THEORY & HYPOTHESES

Many prior entry mode strategy researches focus on transaction cost theory and have already made a great difference in this issue. Scholars deem that the asset specificity, external uncertainty and other cost related factors will directly influence the entry mode selection for firms entering a specific foreign market (E.g. Anderson & Gatignon, 1986; Klein et al., 1990; Shervani et al., 2007). Besides, recent researchers also take note of the importance of applying resource based view to the export decision making process (Hult, Ketchen, & Slater, 2005). For example, He et al (2013) highlights the importance of market orientation capabilities. They suggest that MO capabilities are particularly important within the context of exporting, since these capabilities help firms learn about the foreign market and adjust strategies, which should contribute to superior export performance.

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important in the global background. In addition, export markets are actually heterogeneous, cultural difference between home and target markets can make it easier or harder to gain value. And cultural distances are quite different from countries to countries. With an eye to the need to account for country differences in the entry mode selection process, including cultural distance factor helps advance my knowledge of exporting.

In the next, I attempt to deal with these issues. Based on previous entry mode (Campa & Guillen, 1999; Klein et al., 1990), and resource-based studies (Barney et al., 2001; Brouthers et al., 2008, He et al., 2013), I theorize that the entry mode a firm uses not only will vary because of transaction cost and RBV factors but will be relying on the strength of its global mindset and the cultural distance between its home and export places.

2.1 Global mindset and entry mode choice 2.1.1 Global mindset

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Firms in the developed countries have begun to realize the potentials and possibilities of this new order of globalization. They have become eager to reach the large and fast growing markets of developing countries. Consequently, much of the current management literature concerning globalization of business is written from the perspectives of developed countries and deals with issues of increasing the scope of Western business in the emerging new markets.

How are the developing countries fitting into this global situation? The majority of the developing countries seem to be left behind and stuck in the world‘s outer periphery of development. They cannot catch up with the development of advanced economies. In the changed world order of business, the developed countries appear to be placed in a dominant position over the developing countries. For many industries of developing countries, it is certainly and evident that the foreign competitors are eroding their territory step by step, and local businesses are confronted with a situation in which they must find out new strategies to survive and retain their status.

Survival is tougher, but the opportunities are even more enticing than ever. Globalization offers both opportunities and constraints to the firms in developing countries (Gupta K. A. & Govindarajan V., 2002). However, entrepreneurs generally have not been aware of the possibilities to capture opportunities, they may be stuck in the constraints and the troubles that globalization brought in. When facing the heterogeneity of cultures and markets from the outside world, entrepreneurs who are lacking the insights of globalization can make costly mistakes.

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The global mindset is rather a multidimensional concept. There is currently no single definition of it. Based on a mass of literature, I found that there are three main definitions of global mindset.

Perlmutter (1969) theorized three sorts of mindsets and these frameworks still affect profoundly in the nowadays literature. The first perspective is ethnocentric, which reflects a home country orientation with a compulsion to view the world from a ―my way is the best way‖ frame. Second, the polycentric mindset, this reflects an idea that things are not concentrated in one place, where everything elsewhere is considered effective. The third one, geocentricity, is advocated as a ―global‖ view. Because Perlmutter (1969) argued that no single culture or context contained the ―best‖ answer to global choices. During these years of study, this concept is gradually being accepted as a ―knowledge structure‖ amongst entrepreneurs.

In 2002, Gupta and Govindarajan developed Perlmutter‘s idea by building a framework which was based on the analysis of integration (ability to integrate diverse across cultures and markets) and

differentiation (openness to diversity across cultures and markets). These two factors are generally

viewed as two primary attributes of knowledge structure. They defined a global mindset as ―one that combines openness to and awareness of diversity across cultures and markets with a propensity and ability to synthesize across this diversity.‖ Moreover, they compared global mindset (High D-High I situation) with two alternative mindsets regarding the global economic environment: a parochial mindset (Low D-High I situation), and a diffused mindset (High D-Low I situation). In Gupta and Govindarajan‘ definition, global mindset is used to deal with heterogeneity across cultures and markets, it is more an organizational concept than an individual one.

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images and assumptions. He suggested that mindset existed in the subconscious determining how an individual perceives a specific situation, and his or her reaction to it. Moreover, he also argued that the concept of mindset applies not only to individuals, but also to organizations. Mindsets are the ―origination point of all workplace behavior.‖(Paul, 2000) An organizational mindset can be simply defined as ―the aggregated mindset of all of its members.‖ Naturally, such a definition must take into account the interaction between people as well as the distribution of power within the organization. Usually individuals will have an impact on the company‘s mindset, and the degree of influence is depending on their position in the organizational hierarchy. In fact, in some extreme cases the personal mindset of the Chief Executive Officer becomes the single most important factor in shaping the organization‘s mindset.

Srinivas (1995) argued that global mindset was ―a way of approaching the world, a tendency to scan

the world from a broad perspective. It is an orientation towards the world; it represents a certain curiosity about the world, to see the goals and objectives against larger backdrops and time frames; it provides an explanation and meaning of events and guidance for one’s behavior.‖ He said that global

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curiosity and concern with context. (2) Acceptance of complexity and its contradictions. (3) Diversity consciousness and sensitivity. (4) Seeking opportunity in surprises and uncertainties. (5) Faith in organizational processes. (6) Focus on continuous improvement. (7) Extended time perspective. (8) Systems thinking (Source: Globalization of business and the Third World, Kalburgi M. Srinivas, 1995). I would choose the concept defined by Srinivas, based on his framework and refine his eight components of global mindset to do my research.

2.1.2 Entry mode choice

Entry mode refers to ―an institutional arrangement that makes possible the entry of a company’s

product, technology, human skills, management, or other resources into a foreign country‖ (Root,

1987). Foreign market entry mode choice is one of the most important strategic decisions in the internationalization process (Datta et al. 2002). It directly and significantly influences firms‘ export performance in target markets and may impact firm‘s further development direction and orientation. Scholars usually use three elements to define different entry mode. These three elements are control power, resource commitment, and risk (Angie M, Paliwoda & Stanley, 1997; Woodcock, Beamish & Makino, 1994; Kumar & Velavan, 1997; Herrmann & Datta, 2002). Control power is the most important one among the three elements. Anderson& Gatignon (1986) argue that control power is an ability to influence systems, methods and decisions. Moreover, control power also influences the degree of the other two elements. High control modes are often linked with higher risk and resource commitment, while low control modes are related to less resource commitment and risk (Canabal & White, 2008). Besides, I also took the degree of flexibility as another element into account.

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and hierarchical, according to the differences in control power, resource commitment, risk, and flexibility.

(1) Market mode.Firms‘ products are manufactured in the domestic market and then transferred to the host market. There are three major types of market mode: direct export and indirect export. Market mode is characterized by low control power, resource commitment and risk, and high flexibility. (2) Hybrid mode. There is no full ownership of the export firms, but ownership and control can be shared between the firms and their local partners. Types of this kind of intermediate entry mode: licensing, franchising, contract manufacturing, and joint venture. The characteristics of this entry mode are medium level of control, resource commitment, flexibility and risk.

(3) Hierarchical mode. This is an entry mode where the firm completely owns and controls the foreign entry mode. Firms can establish their fully owned subsidiaries in host market. These subsidiaries generate their own revenue. Firms can enter in hierarchical mode in two ways: merger or acquisition, and green field. This entry mode is linked to a high degree of control power, resource commitment and risk, but low flexibility.

2.1.3 Correlation

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can adjust their production line and exploit resources at their disposal freely. Full control is also beneficial for gathering information, this not only protect firms‘ privacy but also reduce collection cost. Firms do not need to share the value with others thus they can retain profits as much as possible. However, as my study focuses on SMEs in China, an emerging economy, these firms are not just small but short of strength. Available resources, abundant capitals and advanced technologies are big flaws in their development. Similarly, when entering foreign markets, these SMEs usually are not strong enough to do business all alone, sometimes they have no choice but find a local partner and show a high dependency on the partner (i.e., hybrid entry mode), learning from them and collecting information together. Under this situation, firms may not create higher profits as those who choose hierarchical modes. But the return will still be considerable if entrepreneurs‘ commitments to this expansion are sufficient, i.e., top managers have already known much about the market, and utilize all the resources at their disposal.

As for those entrepreneurs possess a low degree of global mindset, they are unfamiliar with the global market and pay little attention on the overseas development. Selecting market entry mode is optimal for them since it is of lowest risk and least resource commitment. When firms detect a bad sign from the export market, they can pull out the market with minimum loss. Without doubt, the profits are smaller as well. Thus, here comes my first hypothesis:

Hypothesis 1: Firms with strong global mindset will use hierarchical and hybrid entry modes, while those with weak global mindset will use market entry mode.

2.2 Moderating role of cultural distance

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market. It affects both behaviors of customers and producers. Firms should design and enforce strategies on the basis of knowing the cultural context of the target market. Culture is also regarded as a key influence on operational management (Lee S-H, Shenkar O., & Li J. 2008; Agarwal, 1994; Kogut and Singh, 1988; O‘Grady and Lane, 1996).

As culture is really an abstract concept, people put forward countless dimensions and measurements to analyze it. In my study, I choose Geert Hofstede‘s framework. According to Hofstede (1991), there are four dimensions of culture: power distance, individualism/collectivism, uncertainty avoidance, and masculinity/ femininity. Power distance concerns the extent to which people expect and accept that power is distributed unequally (Hofstede, 1991). Uncertainty avoidance refers to the degree to which the members of a culture are threatened by uncertain, unknown, or unstructured situations (Hofstede, 1991). Individualism and collectivism are defined as a relative preference for the loose individual in contrast to the robust and cohesive in-groups (Hofstede, 1991). Finally, masculinity and femininity show the societal gender roles of males and females (Hofstede, 1991).

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because the cultural distance will increase transaction costs and market uncertainty. And then these factors will hinder the development of export firms by increasing difficulties of monitoring their subsidiaries or agents in the distant market. Moreover, as firms are usually unfamiliar with a cultural distant market, the cost of production and marketing will increase as well. Hence, under the pressure of higher costs, less control of overseas expansions will lessen when the cultural distance is large. Previous researches have explored the impact of cultural distance on entry mode choice (e.g. Shenkar, 2001; Lee S-H, Shenkar O, Li J 2008). I extend this research by regarding cultural distance as a moderator to influence the relationship between global mindset and entry mode choices. For firms with a higher degree of global mindset tend to choose a hierarchical model to internationalize, when the culture is distant between home and foreign markets, risk and external uncertainty will increase. Hence firms will be more conservative and cautious when deal with issues in this market. With the increase of uncertainty and decrease of profits, firms may change their operating strategy and choose a low risky one. Hence, I argue that when cultural distance is large, the possibility of firms with a strong global mindset choosing hierarchical and hybrid entry mode will decrease. However, for a firm with a low degree of global mindset, I assumed that these firms would maintain the status quo or even pull out of the market. Since the uncertainty increases, those entrepreneurs with a weak global mindset will be more afraid of loss than in a cultural similar market. So they might take more conservative actions than firms with strong global mindset. Hence, I proposed that:

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3. DATA & METHODOLOGY

3.1 Survey and sample

To test my hypotheses, I constructed my database from the ORBIS database. My primary source was a firm level survey conducted in the eastern region of China, including Anhui Province, Fujian Province, Jiangsu Province, Jiangxi Province, Shandong Province, Zhejiang Province and Shanghai City. The survey database offered us the opportunity to measure the dependent variable as well as the independent variable. I constructed my sample database in two main steps.

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electronic and optical products (NACE 26). I chose 1,000 firms (almost 10% SMEs in eastern China) as my samples.

Secondly, a questionnaire (see Appendix A) was designed and the survey conducted in such a way as to optimize the chances of obtaining satisfactory response rates (Dillman, 2000). There were 27 questions on my questionnaire. Respondents were asked to provide basic information of their companies as well as the current condition of them. In addition, I also encouraged entrepreneurs to give information about their companies‘ most important export market, (which is defined as the market in which the company has its greatest sales) and the intention of the entrepreneurs to move toward internationalization. In this questionnaire, the two dimensions of my study (global mindset and entry mode) are both included.

I sent 1,000 emails to all the sample companies and invited them to take part in the survey. However, there were only 10 responses (and only 8 responses are valid). In order to get more responses, I phoned the companies and asked for their participation. According to their preference, I used direct telephone interviews for some of the firms, and for others, I sent my questionnaire again to their regular email addresses.

The data were collected in the period from the beginning of April to the end of May in 2013. As time was limited, the collection period is rather short, that could also be one of the reasons for fewer responses. Other reasons maybe the fact that entrepreneurs of Chinese companies are unwilling to answer questionnaires sent from an unknown place. In most cases, they will regard such emails as junk mails.

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seven provinces and cities consists of 220 of 1,000 traditional manufacturing SMEs (22 percent of the potential firms) that account for the employment of approximately 5,400 people. The response rate was the highest in Zhejiang Province (52 observations, 23.6 percent) followed by Jiangsu Province (45 observations, 20.5 percent), Shanghai City (36 observations, 16.4 percent), Shandong Province (31 observations, 14.1 percent), Fujian Province (27 observations, 12.3 percent), Anhui Province (23 observations, 10.5 percent) and Jiangxi Province (6 observations, 2.7 percent).

3.2 Variables:

3.2.1 Dependent variables: entry mode choice.

To construct an entry mode index, I used 5 specific statements to describe the entry mode strategies. My respondents were asked to point out which statement is the most suitable one to represent their entry mode strategy to their most important export market. And then I classify them into three types: Hierarchical, hybrid and market entry mode. I investigated this problem by asking the following question:

Your company’s exports to this market are structured as: (source: Covin and Slevin, 1989, Khandwalla, 1976/1977, and Miller and Friesen, 1982)

1) We have a wholly owned sales subsidiary.

2) We serve it directly from the USA (for example), using company personnel.

3) We are involved in a joint venture with another company to handle sales in this market. 4) We use commission agents.

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And I followed the study of Klein and Roth‘s (1990), they defined the first two statements as the hierarchical mode, and the third and fourth ones as the hybrid mode. The fifth statement is classified as the market entry mode. In my study, I combined hierarchical and hybrid mode together and assign them a value of 1. Market mode is assigned a value of 0. This is due to the fact that among the 220 valid questionnaires, there are only 11 respondents that have chosen the hierarchical mode. Most of them chose hybrid and market ones. According to the theories and my hypotheses above, the hybrid mode is quite distinct from the market mode, so I put more emphasis on analyzing and testing the different motivations and determinants of selecting between hybrid and market entry mode.

Since my dependent variable is a binary variable, I used binary logistic regression analysis to test Hypotheses 1 and 2.

3.2.2 Independent variables: global mindset

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languages. Hence the analysis of the subjective characteristics would not be much helpful and meaningful.

I garner this information by asking respondents to give their evaluations of the following seven statements:

1) “The founder/owner/manager of the company is willing to take the company into international markets.”

2) “The growth we are aiming at can be achieved mainly through internationalization. 3) “It is important for our company to internationalize rapidly.”

4) “The company’s management uses a lot of time in planning international operations.” 5) “Internationalization is the only way to achieve our growth objectives.”

6) “The company’s management sees the whole world as one big marketplace.” 7) ““We will have to internationalize in order to succeed in the future.”

I adopted a 7-item (7-point) Likert-scale items measure. Which means that 1 equals to ―Disagree totally‖, 7 equals to ―Agree totally‖. The values for these 7 items are summed and averaged to create our global mindset construct.

3.2.3 Moderating variables: cultural distance

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CDj=∑{(Iij-Iic) 2

/Vi}/4

Where

Iij is the index for the ith cultural dimension and jth country,

Vi is the variance of the index of the ith dimension,

c indicates the China, and

CDj is cultural difference of the jth country from the China.

There are 22 different countries regarded as the most important export market for eastern Chinese SMEs (see Appendix B).

3.2.4 Control variables

Six control variables, R&D, external uncertainty, exporting experience, firm size, market number, and firm performance, are included in my estimation model, which have been related to firm‘s entry mode strategy according to previous research (Brouthers & Xu, 2002, He et al. 2013).

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4. RESULTS

A general sample description is shown in Table 1. On average, my respondents have about 244 employees and have 10 years of exporting experience. These firms have exported half of their products to 17 different countries, and my firms are largely concentrated on metal machinery and equipment manufacturing industry. In addition, before testing my hypotheses, I checked the correlations between all the variables. Table 2 presents the correlations for all my variables. Since I noted that there is a high variability in my variables, there is a low possibility of multicolinearity. In table 3, I did the estimation. Model 1 is the base model, which includes all the control variables. These control variables explain about 42.3% of the variance in my dependent variable, entry mode choice. Firm size (p < .05), research and development (p < .01), and firm performance (p < .10) are significantly related to the use of hierarchical and hybrid entry mode, while external uncertainty (P < .01) is significantly related to the use of market entry mode. In regression Model 2, I added my independent variable, global mindset. Model 2 explains about 47.5% of the variance in my dependent variable. In addition, the global mindset variable is significantly related to entry mode choice (P < .01). As I predicted above, firms with a strong global mindset will have a preference for exporting in hierarchical and hybrid mode. Thus Hypothesis 1 is confirmed.

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However, I found that the interaction model is insignificant (P = .765). The interaction variable global mindset × cultural distance is not significant thus my Hypothesis 2 is not supported.

Table 1

Sample Description

% Industry classification Food manufacturing 2 Clothing manufacturing 10

Paper and printing 1

Metal machinery and equipment 59

Minerals and chemicals 20

Other manufacturing 9

Exporting experience

Less than 5 years 17

5 to 15 years 71

More than 15 years 12

Firm size

Less than 249 people 81

More than 250 people 19

Export intensity (export as percentage of total sales)

Less than 20% 6

20% to 50% 53

Over 50% 41

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Table 2

Correlations

Constructs Firm Size Market number Export Experience R&D External Uncertainty Firm Performance Cultural Distance Global Mindset Entry Mode Firm Size Pearson Correlation 1 Sig. (2-tailed) Market Number Pearson Correlation .224** 1 Sig. (2-tailed) .001 Export Experience Pearson Correlation .122 .183** 1 Sig. (2-tailed) .073 .007 R&D Pearson Correlation .237** .301** .118 1 Sig. (2-tailed) .000 .000 .081 External Uncertainty Pearson Correlation -.102 -.274** -.078 -.173* 1 Sig. (2-tailed) .132 .000 .252 .010 Firm Performance Pearson Correlation .056 .141* .268** .242** -.347** 1 Sig. (2-tailed) .407 .036 .000 .000 .000 Cultural Distance Pearson Correlation .075 .069 .046 -.017 -.058 .082 1 Sig. (2-tailed) .266 .308 .496 .804 .389 .228 Global Mindset Pearson Correlation .071 .393** .268** .266** -.461** .317** .098 1 Sig. (2-tailed) .294 .000 .000 .000 .000 .000 .146 Entry Mode Pearson Correlation .216** .245** .144* .405** -.409** .315** .055 .454** 1 Sig. (2-tailed) .001 .000 .033 .000 .000 .000 .414 .000

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Table 3

Binary Logistic Regression of Entry Mode Choice

Model 1 Model 2 Model 3

Control variables Firm Size 0.002*(0.001) 0.003*(0.001) 0.003*(0.001) Market number 0.006(0.014) -0.009(0.014) -0.009(0.015) Export Experience 0.026(0.034) 0.003(0.035) 0.003(0.035) R&D 22.229** (5.229) 21.562**(5.556) 21.660**(5.586) External Uncertainty -0.892**(0.214) -0.681**(0.227) -0.680**(0.228) Firm Performance 0.337(0.193) 0.261(0.197) 0.257(0.198) Predictor variables Global mindset 0.824**(0.240) 1.006(0.662) Cultural Distance 0.371(1.227) Interactions Global mindset × Cultural Distance -0.070(0.234) Constant -1.552(1.384) -5.783**(1.919) -6.737*(3.723) χ2 83.971** 96.875** 96.968** χ2

change from Model 1 12.904**

χ2

change from Model 2 0.093

Nagelkerke R2 0.423 0.475 0.476

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5. DISCUSSION, LIMITATION & CONCLUSION

5.1 Discussion

SMEs are really a big deal in global market while there are not many researches in the context of China. Few studies have examined the role of the level of top entrepreneur global mindset on firms‘ entry mode strategies. In this study, I extended my entry mode choice research by considering the influence of global mindset, an attention-based and managerial perspective. Previous researches deem that entry mode choices are usually determined by transaction cost theories and resource-based view. Scott (1995) suggests that foreign markets provide a business context different from the home context and Autio et al. (2000) deem that firms venturing abroad may create greater value by leveraging learning resources. Many scholars contend that channel volume, asset specificity, external uncertainty and resource-based market orientation capabilities contribute to select a suitable entry mode to the target market (Klein et al, 1990; He et al, 2013). However, I found that merely focus on these factors is insufficient to answer all the questions about entry mode choices. Chatterjee (2005) mentions the effect of managerial roles and responsibilities; he suggests that the negative effects of contemporary globalization can only be overcome through the enrichment of global mindset of managers everywhere. Building on this, I theorized and tested the assumption that management roles in firms‘ globalization may be considerably useful for exporters, since the level of global mindset of entrepreneurs directly influences the export decision-making process.

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was confirmed by my empirical analysis, which showed that the correlation between global mindset and entry mode choices is quite significant.

I also supposed that cultural distance would play a moderating role in the interrelationship between global mindset and entry mode choices. However, this hypothesis was not supported. As shown in Table 3, there is a negative but insignificant relationship (P=.765) of the interaction between global mindset and cultural distance, thus I could not reject the null hypothesis. Moreover, the chi-square change from Model 2 to Model 3 is negligible (only 0.093). Therefore, I concluded that the cultural distance did not have much moderating effect on the interrelationship between global mindset and entry mode choices in this study. This phenomenon might be attributed to my small sample size. As I only have 220 qualified responses, while the whole population of SMEs in China is much larger. This may lead to some bias and the unmatched results.

In addition, as I predicted above, firm size (P=.016), input of R&D (P=.000) and external uncertainty (P=.003) also have some impact on the selection of entry mode. Larger firms and high investment in R&D stimulate firms to choose hierarchical and hybrid entry mode and vice versa. While high level of external uncertainty makes firms tend to behave more conservative and hence they will choose market entry mode to control the risk. The market number (P=.540) and export experience (P=.922) have no influence on the entry mode decision making process in my study.

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assets and firm‘s capability per se to entrepreneurs‘ decision making process. The transaction cost theory used in the study field suggests that firms will make entry mode strategies based on the efficiency of a specific entry mode (Anderson & Gatignon, 1986; Shervani et al., 2007). And from the resource based view perspective, He et al (2013) contend that firm with strong learning-based capabilities may be more driven to use international expansion structures which help to garner more value from such resource-based capabilities. I argued, from the managerial and attention based perspective, if entrepreneurs have a high level of global mindset, their firms tend to choose a particular mode which is high risk and high return, in my study, these modes are hierarchical and hybrid modes.

Indeed, to expand business abroad, firms not only need to possess abundant resources and learning capabilities but also consider the managerial attitude and capability and transform such factors to the determinants of entry mode strategy. This conclusion may more or less change one of the most commonly accepted arguments of the transaction cost theory and resource-based view.

For practical contribution, my research is beneficial to managerial understanding of making a decision to enter into a foreign market. Top managers should cultivate a global mindset if they want to expand their business abroad, utilize it to select an appropriate entry mode is the first step for them.

5.2 Limitation

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5.3 Conclusion

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ACKNOWLEDGEMENTS

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APPENDIX

Appendix A

Thank you for agreeing to participate in our study. Please answer each question to the

best of your ability and return the completed questionnaire as soon as possible.

Section 1. Firm-specific information

1 Our company‘s main export products are______________________________.

2 Last year, our company‘s

a

annual export sales amounted to ________________% of total sales.

b

expenditures on Research and Development amounted to _________% of total sales.

3 Approximately ___________people are employed (full-time equivalent) in our company

worldwide.

4 Our company has been exporting for _________________years

5 Our products have been exported into ______________ countries.

6 Last year our firm‘s overall performance was (please circle):

Very Low

Breakeven

Very High

1

2

3

4

5

6

7 Please indicate your level of agreement with each of the following statements:

Disagree totally

Agree totally

1. The

founder/owner/manager

of

the

company is willing to take the company

into international markets

2. The growth we are aiming at can be

achieved

mainly

through

internationalization.

3. It is important for our company to

internationalize rapidly

4. The company‘s management uses a lot of

time in planning international operations

5. Internationalization is the only way to

achieve our growth objectives

6. The company‘s management sees the

whole world as one big marketplace

7. We will have to internationalize in order to

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For the following questions, please circle the number that best represents your view.

With regard to the activities of my firm, we generally...

1. Favor the marketing of

tried and tested products or

services

1 2 3 4 5 6 7 Favor

Research

and

Development, technological

leadership innovations

2. Favor low risk projects (with

normal and certain rates of

return)

1 2 3 4 5 6 7 Favor high risk projects

(with high chances of very

high return)

In general, we believe that owing to the nature of the external environments it is best to

achieve the firm‘s objectives via ...

3. Cautious and incremental

behavior

1 2 3 4 5 6 7 Bold and wide-ranging acts

In dealing with its competitors in the marketplace, my firm ...

4. Typically responds to

actions

which

competitors

initiate

1 2 3 4 5 6 7 Typically initiates actions to

which

competitors

then

respond

5. Is very seldom the first

firm

to

introduce

new

products/services, administrative

and/or operating technologies

1 2 3 4 5 6 7 Is very often the first firm to

introduce

new

products/services,

administrative

and/or

operating technologies

6. Typically seeks to avoid

competitive clashes preferring a

‗live-and-let-live’ posture

1 2 3 4 5 6 7 Typically adopts a very

competitive

‗beat-the-competitors‘

posture

When confronted in the marketplace with decision making situations involving uncertainty,

my firm typically adopts a …

7. Cautious. ‗wait and see‘

posture in order to minimize the

probability of making costly

decisions

1 2 3 4 5 6 7 Bold, aggressive posture to

maximize the probability of

exploiting

potential

opportunities

How many new lines of products/services has your firm marketed in the past 5 years?

8. No new lines of products or

services

1 2 3 4 5 6 7 Very many new lines of

products or services

9. Changes in product or

service lines have usually been

of a minor nature

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Thanks for agreeing to complete the second part of this study. Please answer each

question to the best of your ability and return the completed questionnaire as soon as

possible.

Section 2: All questions in this section are about your firm’s most important export

market

Which country is your most important (largest sales) export market? _________

For how many years have you been exporting to this market? _______________ years.

This market accounted for______________% of total export sales last year.

Your company‘s exports to this market are structured as: (Please circle only 1 type)

1. We have a wholly owned sales subsidiary.

2. We serve it directly from the USA (for example), using company personnel.

3. We are involved in a joint venture with another company to handle sales in this market.

4. We use commission agents.

5. We sell to a merchant distributor who takes title to our product and contacts buyers

directly.

6. Other (please specify). _______________

In how many other export markets have you used this same export structure? _______ countries.

Please indicate whether you agree or disagree with the following statements about your

firm’s most important export market:

To be effective, a salesperson, whether our own or an intermediary‘s, has to take a lot of time

to get to know the customers.

Strongly disagree

Strongly agree

1

2

3

4

5

6

7 It takes a long time for a salesperson, whether our own or third party, to learn about our

products thoroughly.

Strongly disagree

Strongly agree

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A specialized sales effort is needed to market this product line.

Strongly disagree

Strongly agree

1

2

3

4

5

6

7 To be effective, a salesperson, whether our own or third party, has to take a lot of time to get

to know our competitors and their products.

Strongly disagree

Strongly agree

1

2

3

4

5

6

7 How easy is it to measure the collective performance of the individuals who perform the

exporting function in your most important market?

Very easy

Very difficult

1

2

3

4

5

6

7 Compared to other products in your industry, for your most important export market it

is:

Easy to monitor trends

1 2 3 4 5 6 7 Difficult to monitor trends

Sales forecasts are accurate

1 2 3 4 5 6 7 Sales forecasts are inaccurate

Easy to gauge competition

1 2 3 4 5 6 7 Difficult to gauge competition

The market is well known to us

1 2 3 4 5 6 7 The market is not known to us

Please indicate whether you agree or disagree with the following statements regarding

your most important export market

During the last 3 years, our most important export market…

Strongly

Disagree

Strongly

Agree

has been very profitable

1

2

3

4

5

6

7 has not achieved rapid sales growth

1

2

3

4

5

6

7 has very satisfactory export performance

1

2

3

4

5

6

7 has achieved our company‘s objectives

1

2

3

4

5

6

7

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Appendix B

The Impact of Global Mindset on Entry Mode Choice: An Empirical Study of Traditional Manufacturing SMEs in Eastern China