The Pragmatic Rule for Deciding on the Right Entry Mode

Most firms appear to start their international business careers by using the pragmatic rule. In discussing the dynamics of entry mode decisions in Chapter 1, we pointed out that a company ordinarily initiates international business with a low-risk entry mode, which is almost always some form of export. The outstanding advantages of export as a learning experience were described in Chapter 3. In practice, therefore, new international managers begin their search for an entry mode by assessing export prospects in a target country. Only if export entry is not feasible or profitable do they continue to look for a workable entry mode.

The pragmatic rule holds certain advantages for a company and its managers. The risk of entering a target market with the wrong mode is minimized, because managers reject any mode that is not workable. This rule also saves on the cost of gathering information on alternative entry modes and the management time to assess them. After all, why take the time and trouble to investigate other entry modes if one finds a workable mode, especially when the consequences of any entry mode are uncertain in some degree? And if managers are rewarded for positive results but are not punished for failing to do something that would bring better results, why search for the right or best entry mode?

These advantages are hardly trivial, but neither is the cost of lost opportunity. The fundamental weakness of the pragmatic rule lies in its failure to guide managers toward a determination of the entry mode that would best match the company’s capabilities with opportunity in a foreign target market. In short, an entry mode that works may not be the right entry mode.

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