Soft Service Firms: A deep dive into foreign entry mode decisions

Abstract: With the forces of globalization, previously safe home markets open up to foreign competition. This urges companies to expand internationally to keep growing. Current literature on how a company should enter a foreign market, namely the choice of entry mode, is based on findings for manufacturing firms and studies on service firms are scarce. In recent years, the service sector has grown steadily and stands for an increasing share of the overall economy, leading to studies on service companies gaining importance. This study looks at a sub-set of the service industry, soft services, and discern what factors are important for their choice of entry mode. Soft service companies are generally identified as companies where the production and consumption of a product cannot be separated, ruling out export as an entry mode. A literature review was conducted to create a comprehensive framework of the influencing factors for the choice of entry mode. This framework was evaluated by interviewing five soft service companies: Max Burgers, Nordic Choice Hotels, BrewDog, O’Learys and Espresso House. The cases were selected based on their international experience and industry criteria. Each company represents a different sector within soft services to ensure conclusions from contrasting companies within soft services. The framework was then modified to incorporate the findings from the case studies. The factors with substantial support from theory and emphasized as important in the interviews were categorized as primary factors. These were: Internal resources with emphasis on financial resources, capabilities with emphasis on international experience, strategic objective and legal considerations. The interviews also revealed the complex relationship among factors, which limit the applicability of general models and decision trees. A further discovery was that the relationship between the degree of control and chosen entry mode was not as strongly supported as theory suggests, with multiple companies stating that franchise, considered a low-control entry mode, enabled sufficient control. This points towards a difference for soft service companies compared to manufacturing firms in influencing factors and preferred entry mode, raising the importance for further research to better understand how service firms in general and soft service companies in particular, decide on entry mode.