The Naive Rule for Deciding on the Right Entry Mode

Managers follow the naive rule when they consider only one way to enter foreign markets.¹ Statements such as “We only export” or “We only li­cense” are examples of the naive rule. Commonly, this rule is implicit in the behavior of managers rather than explicit in a policy statement. Whatever its expression, the naive rule ignores the heterogeneity of country markets and entry conditions. Managers using this rule are guilty of “tunnel vision.” Sooner or later, they will make mistakes of two kinds: either they will give up a promising foreign market that cannot be penetrated with their only entry mode, or they will enter a market with an inappropriate mode. If managers learn in time that the “only” entry mode is simply unprofitable for a target country, they cease any further effort to enter that market. In effect, they are selecting foreign markets not for their sales potentials but rather for their accommodation to the company’s entry mode. Entering a foreign market with the wrong mode is also a likely consequence of the naive rule, because managers acting on the presumption that their preferred mode is also the right one do not bother to assess the long-run profitability of the preferred mode for a particular target country. In sum, the inflexibil-ity of the naive rule prevents a company from fully exploiting its foreign market opportunities.

Source: Root Franklin R. (1998), Entry Strategies for International Markets, Jossey-Bass; 2nd edition.