The relationship between market entry strategy and environmental analysis in U.S.-based multinational companies

This research analyzes the relationship between foreign market entry strategy and environmental analysis (EA) in U.S.- headquartered multinational companies. The moderating effects that marketing objective, primary business activity, and level of a firm's foreign investment have on this relationship were also investigated. Five entry modes ranging from import/export transactions to the operation of a foreign subsidiary were selected for study. Environmental analysis refers to the amount, type, and sophistication of a firm's information acquisition procedures. Data consisted of the aggregate responses of top international executives to a 38-item mail questionnaire. Results indicate there is a positive relationship between market entry strategy and the expenditures of money, time, and personnel made by a firm in order to conduct international EA. There is also a positive relationship between market entry strategy and the extent to which a firm scans the general business environment excluding legal factors. Both relationships depend on the number of countries in which a firm operates but are not influenced by the nature of the market served or whether a firm is a product manufacturer or a service provider. The conclusion to be reached is that as a firm moves from the use of import/export transactions to the operation of a foreign subsidiary, it will commit more resources and undertake greater risks during the conduct of business abroad. As commitment and risk increase, a firm will need to engage in increasing amounts of EA uniformly covering a wider domain of environmental issues and concerns. There is also evidence that as risk increases a firm will develop more specialized, globally-oriented information sources. The major implication of the study for scholars is that an empirical relationship can now be established between foreign market entry strategy and environmental analysis. The implication for managers is that the importance of global strategic information should not be underestimated. This is particularly true given the important link between EA and the profitability of a firm. Managers of American multinational companies are encouraged to better integrate global information systems into their long-range strategic plans.