Foreign market entry mode behavior as a gateway to further entries: The NAFTA experience

Trade liberalization policies have created a vibrant economy in Mexico by successfully increasing the flow of trade and foreign direct investments. This study investigates whether involvement in Mexico is considered attractive as a market in and of itself, or whether it is also attractive because Mexico can also serve as a gateway to other Latin American markets. We call this latter idea “The Gateway Proposition” and present it against the backdrop of NAFTA. The Gateway Proposition suggests that the ability of firms to expand their markets further into Latin American countries in the future could be an additional incentive to invest in Mexico. Accordingly, we analyze entry mode strategy for U.S. and Canadian firms in Mexico as well as their involvement level, equity participation, resource commitment, risk tolerance, and control. The findings of these analyses support The Gateway Proposition, suggesting that a firm's future involvement level is motivated not only by the Mexican market potential, but also by Mexico's ability to serve as a gateway to other Latin American markets. Evidence also suggests that large multinational firms with past experience in Mexico are inclined to respond to emerging Latin American market opportunities by becoming more involved in Mexico.