Internationalization In China Case Study

1.1 Background of the study
Internationalization significantly represents value creation and growth for firms of all shapes and sizes (Root, 1994). This is mainly because it creates new opportunities for the majority of firms. Internationalization is a very broad term; however, it can be defined as “Expanding a firm’s business from its original location to one or more additional foreign markets to enter” according to Barringer and Greening (1998). Recently, internationalization has increasingly become a crucial issue even for small and medium enterprises (SMEs) due to the international growth (Hollensen et al., 2014). The internationalization of SMEs has increasingly been facilitated by the reduction in trade barriers, transport costs as well

Since China joined the WTO in 2001,which has significantly further opened up the massive Chinese market for foreign investments and trading. China has witnessed a remarkable economic growth and due to its huge population, China has become a major player in the world economy. Furthermore, China has a huge potential consumer market due to a dramatic expansion of the middle class in China (KPMG, 2004). Therefore, China appears to be one of the most attractive markets for many multinational companies (KPMG, 2004). Since 2003, China has become the biggest target country for international investments following by the United States (KPMG, 2004). In addition, China has recently further liberalized the government regulations and restrictions toward foreign business operation in China. These basically allow foreign firms to pursue their preferred entry mode choices. However, the Chinese market is heterogeneous, large, complex and not easily accessible (MOFCOM, 2013). Therefore, the choice of the entry mode is significantly considered as a frontier issue in the international marketing (Root,

al, 1990). Significantly, the initial selection of entry mode can have a huge impact on the survival and success of firm international operations (Hollensen, 2011; Root, 1994). The international operations in the target market basically depend on the firm’s choice of foreign entry modes (Hollensen et al., 2014). Many scholars on international market entry strategies examined that whilst making the decision regarding foreign market entry mode, there was a wide range of factors that influenced a firm’s entry mode decision. The entry mode decision can be influenced by different set of factors as the entry modes involve with different levels of control, ownership and resource commitment (Hollensen et al., 2014). The choice of entry modes between exporting, contractual agreement (licensing and franchising), joint venture and wholly owned enterprise are all strategic alternative (Lin, 2000). Therefore, managers need to analyze and determine the most suitable international strategy to enter a foreign country. After reviewing previous entry mode research, most of the research primarily focused on the experience of large multinational enterprises rather than SMEs that discussed about their entry mode strategy in foreign markets (Luo, 2001). Moreover, extant literatures on the entry modes have been