Overcoming export manufacturers’ dilemma in international expansion Fang Wu 1 , Rudolf R Sinkovics 2 , S Tamer Cavusgil 3 and Anthony S Roath 4 1 School of Management, University of Texas at Dallas, Richardson, TX, USA; 2 Manchester Business School, The University of Manchester, Manchester, UK; 3 Department of Marketing and Supply Chain Management, Michigan State University, East Lansing, MI, USA; 4 Division of Marketing and Supply Chain Management, The University of Oklahoma, Norman, OK, USA Correspondence: S Tamer Cavusgil, Department of Marketing and Supply Chain Management, Michigan State University, N370 Business Complex, East Lansing, MI 488241122, USA. Tel: þ 1 517 432 4320; Fax: þ 1 517 432 4322; E-mail: cavusgil@msu.edu Received: 18 February 2004 Revised: 27 March 2006 Accepted: 21 May 2006 Abstract Learning and acquiring local market knowledge from foreign distributors are central to manufacturers’ export market performance. Drawing from the resource-based view, we propose that manufacturers need to develop stronger local market competence while simultaneously minimizing the costs of distributor opportunism in order to compete successfully in the export market. Cultural distance and other barriers, however, may hinder the development of local market competence for the manufacturer while contributing to the occurrence of distributor opportunism. In order to overcome these barriers, we examine the impact of three alternative forms of manufacturer governance – trust, knowledge sharing, and contract-based relationship – in export channels. Findings suggest that all three governance mechanisms contribute to enhancing the manufacturer’s competence to exploit local market opportunity. However, of the three, trust seems to be the only effective way to curtail distributor opportunism. Journal of International Business Studies (2007) 38, 283–302. doi:10.1057/palgrave.jibs.8400263 Keywords: manufacturer–foreign distributor relationship; export market performance; organizational capabilities; local market competence; distributor opportunism Introduction Manufacturers seek partnerships with independent distributors to overcome challenges to international expansion (Johanson and Vahlne, 1977, 1990). Market entry through independent channel members provides manufacturers with access to much-needed local market knowledge, which is central to their sustained performance in the export market (Cavusgil and Zou, 1994). However, in the process of exchanging information with foreign distributors, manufacturers often face a strategic dilemma: sharing information with foreign distributors may adversely affect their competitiveness in the export market (Chi and McGuire, 1996; Madhok, 1997). Independent ownership and asymmetric knowledge of the indi- genous market provide foreign distributors with the opportunity to guard information and knowledge, while freely exploring self- interest seeking behavior (e.g., Inkpen and Beamish, 1997; Kale et al., 2000). Although the literature (e.g., Hamel, 1991; Lado et al., 1997; Larsson et al., 1998) and the export industry (Muller, 2004) have acknowledged this phenomenon, few have offered solutions to resolve this matter. In this study, we attempt to examine this dilemma by exploring the linkage between organizational capabilities and corporate Journal of International Business Studies (2007) 38, 283–302 & 2007 Academy of International Business All rights reserved 0047-2506 $30.00 www.jibs.net