The nature of knowledge and the entry mode decision

Previous work on the choice of mode of entry into foreign markets highlights the central role of knowledge and the attributes of knowledge in choosing an appropriate governance form for its transfer internationally. The literature suggests that protection of knowledge from the threat of opportunism posed by licensees and business partners in other contractual modes is a primary driver of the choice of mode. However, the knowledge construct itself is oversimplified in the entry mode literature and needs more explication to enable a clearer understanding of its implications for entry mode choice. In this article, I examine in depth the variety of different types of knowledge held by firms and how these relate to each other and combine to constitute a source of advantage. A qualitative case-based analysis of semi-structured interviews in firms entering foreign markets suggests that the combination of different knowledge types held by a firm is an important factor in reducing the risk of misappropriation of knowledge by business partners. This has important implications for the choice of mode of entry. When a firm's competitive advantage lies in a combination of multiple types of knowledge, especially experiential knowledge held by individuals, teams, and the organization rather than just easily codifiable and understandable basic technical knowledge, the threat of opportunism is mitigated to such a degree that it is often unimportant in mode of entry decisions. Hence, firms have greater flexibility in choosing a mode of entry than is suggested by current literature. In light of these findings, I suggest that it may be more useful to conceptualize a firm as a knowledge entity, rather than a contractual entity, for examining entry mode decisions.