The relationship between foreign entry mode choice and the performance of small-medium sized enterprises (SMEs) has been an overarching theme of research of the past decade. However, the research in this area has been hampered by the difficulty of defining and measuring performance. In this study, we used a multi-item measure of performance, which takes into account the relative importance of each measure and the perceived level of satisfaction, to analyse 146 SMEs in Norway. Our regression analysis shows that firm characteristics: size and sector of operation, significantly influence performance. However, prior international experience did not significantly influence performance. In terms of entry mode via international joint venture, trust and congruity of goals between partners have a positive and significant influence on performance.

Introduction

The entry mode choice is one of the most important decisions in a small firm’s internationalisation strategy because it determines the amount of resources to be committed, the level of control and market implementation strategy in the host country. These factors have major implications for performance (Caves and Mehra, 1986; Brouthers, 2002; Brouthers and Nakos, 2004; Tsai and Tung, 2014). However, despite the advances in entry mode theory, there remains a gap in our understanding of the performance implications of entry mode by SMEs (Choo and Mazzarol, 2001; Schwens et al., 2011; Stoian et al., 2016). Small firm characteristics, such as limited financial resources, ownership structure, managerial styles and managerial resources, suggest that the international strategies and structures of SMEs differ from large multinationals. However, past empirical efforts have concentrated on large multinational firms (see, Coviello and McAuley, 1999; Carrier, 1994). This raises the question: do SMEs characteristics lead to an improved performance? While past empirical efforts have attempted to address this important question, albeit in a limited way, it is pertinent to note that studies have produced mixed and inconclusive results. For example, Brouthers and Nakos, 2004 and Lu and Beamish, 2001 found a positive relationship between entry mode and performance, others found no effect (Morck and Yeung, 1991; Hoskisson and Hitt, 1990; Geringer et al., 1989); and still Collins (1990), Kumar (1984), Shaked (1986) found negative effects. A number of researchers attribute the inconsistent results to the difficulty of measuring the key dependent variable (i.e., performance). Researchers have highlighted the lack of uniformity across different studies and the employment of one or two performance measures that may not fully capture the performance of the SMEs, especially if the objective of the firm is broad (see Geringer and Hebert, 1989; Pangarkar, 2008 Pangarkar, 2008). In this paper, we attempt to address the issue of performance measurement by adopting a broad multi-item measures, which encompass product market outcomes, accounting and market-based measures, human resources measures, customer satisfaction and other objectives of the respondent firms. An intriguing aspect of our investigation is that we take into account both the relative importance and the level of satisfaction when measuring the performance of each respondent firm. We believe that such a measure represents the true economic health of the firms in the study sample. The overall purpose of this paper is to examine the measures of performance and consider firm-specific and selected contextual factors that may influence the performance of three equity modes of entry in Norway by SMEs: international joint ventures (IJVs), cross border mergers and acquisitions (CBM & As) and foreign wholly-owned greenfield start-ups (FWOGS) by SMEs. The choice of Norway is significant because Norway is a small developed country, very open, and highly dependent on natural resources, which makes this study different from prior studies based on the U.S., UK and other developed countries. The Norwegian market attracts most of its investment opportunities to few target sectors including the high-tech, natural resources and service sectors (Boateng et al., 2015). Moreover, as SMEs tend to have relatively limited resources and the foreign direct investment (FDI) inflows in Norway are concentrated on extractive and high-technology industries, which are capital intensive in nature, it would be interesting to assess the performance implications of the choice of entry mode. The remainder of the paper is organised into five sections. The following section reviews the relevant literature and presents the hypothesis of the study. Section three describes the methodology and sample characteristics. Section four presents the statistical analysis and discussion of results. Section five provides the managerial implications and conclusion.