The Effect of International Experience on Entry Mode Choice: Evidence from Korean Franchisors

Abstract

This study reexamined the validity of the internationalization process model and Agency theory in studying internationalization of service firms to reconcile mixed findings from previous research on prior international experience and entry mode choice. This study proposes two sets of competing hypotheses to analyze the effect of international experience on entry mode choice of service firms. By using data on foreign market entries by Korean food service franchisors, this study proved that franchisors that have greater and more dissimilar experience are more likely to choose master franchising rather than foreign direct investment. This study lends credence to the Agency theory and the Organizational Learning theory in international franchising literature. In addition, this study adopted a new measurement of international experience to examine the similarity of prior experiences acquired by franchisors. Furthermore, this study suggests that franchisors need to be cognizant of the pitfalls of myopic managerial thinking when they consider entering new foreign markets.