Mitigating risks in internationalization decisions : the choice of the optimal entry mode

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Southern New Hampshire University
In this paper we propose an innovative prescriptive model for internationalization strategy based on decision analysis theory that allows for optimal decision making regarding the choice under uncertainty between alternative international entry and/or expansion modes. Based on a case study of McDonalds’ expansion in a developed market and in an emerging market, we discuss the decision making implications by emphasizing the inclusion of risk and uncertainty and the importance of sensitivity analysis on the evaluation of the model results. The analysis compares the internationalization choices of franchising and foreign direct investment, as two distinct levels of foreign commitment. The findings suggest that in relatively stable environments it is relatively easier to mitigate the risks through tactics such as cost control, so that a higher level of commitment is justified under favorable macro-environment conditions. In less stable or unfamiliar countries, the risks of day-to-day operation may be too high to be mitigated, such that a lower risk alternative is always optimal, and discrete improvements of the political and economic climate are irrelevant.
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