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International Market Entry Strategies of Multinational Enterprises (MNEs) in Emerging Markets

The Case of Procter & Gamble in China and India

Master's Thesis 2014 113 Pages

Business economics - Business Management, Corporate Governance

Excerpt

Contents

English Abstract

1 Introduction
1.1 Introduction and motivation
1.2 Structure of the thesis
1.3 Summary of research questions
1.4 Methodology

2 Theories on market entry modes and theoretical frameworks
2.1 International market entry strategies
2.1.1 Factors influencing entry strategies
2.1.1.1 Factors influencing entry strategies by Hollensen (2011)
2.1.1.2 Factors influencing entry strategies by Koch (2001)
2.1.1.3 Factors influencing entry strategies by Pan & Tse (2000)
2.2 Resource-Based Theory by Grant (1991)
2.3 Eclectic Paradigm (OLI) by Dunning (2000)

3 Emerging markets
3.1 Emerging markets and PEST analysis
3.1.1 China; PEST analysis
3.1.1.1 Political and legal dimensions
3.1.1.2 Economic dimension
3.1.1.3 Socio-cultural dimension (Hofstede´s cultural dimensions)
3.1.1.4 Technological dimension
3.1.1.5 Summary of country´s analysis
3.1.2 India; PEST analysis
3.1.2.1 Political and legal dimensions
3.1.2.2 Economic dimension
3.1.2.3 Socio-cultural dimension (Hofstede´s cultural dimensions)
3.1.2.4 Technological dimension
3.1.2.5 Summary of country´s analysis
3.1.3 China´s and India´s FMCG sector
3.1.3.1 FMCG industry in China
3.1.3.2 FMCG industry in India

4 Overview of the P&G Company, introduction of two cases and application of theoretical frameworks
4.1 Overview of the company
4.2 Case 1: P&G´s entry strategy in China
4.2.1 P&G´s resources and capabilities according to Resource-Based Theory
4.2.2 Applying OLI Paradigm
4.2.3 Findings and discussion
4.3 Case 2: P&G´s entry strategy in India
4.3.1 Applying OLI Paradigm
4.3.2 Findings and discussion

5 Conclusion and limitations of thesis
5.1 Conclusion
5.2 Limitations

Bibliography

Appendix

Zusammenfassung

English Abstract

Multinational enterprises (MNEs) are becoming increasingly present on the global market. Since their products and services are offered globally, their multinational strategies must be adapted to different cultures, environments of target countries and their internal strengths. Since the market in the 21st century is oversaturated, it is no wonder that more and more MNEs are targeting emerging markets for multiple business opportunities.

Since markets are very dynamic, entry strategies chosen by MNEs must be up to date with market changes. Although MNEs are present in the global market and well acquainted with its dynamics, entry into certain countries is not always an easy task.

The main concern of this thesis is to evaluate international entry strategies of companies operating in fast moving consumer goods (FMCG) industries in China and India. Additionally, the thesis aims in exploring and evaluating the consistency of the market entry strategies performed by one specific company (P&G) and two different theoretical frameworks, namely:

Resource-Based Theory by Grant (1991) and Eclectic paradigm (OLI) by Dunning (2000).

For the purposes of this thesis I concentrate on one of the largest and best-known MNEs delivering widely known consumer goods, namely, Procter and Gamble (P&G). My interest lies in exploring whether P&G´s market entries in two target markets can be compared to above mentioned theories. If not, the goal is to understand inconsistencies and factors which influence them.

Emerging markets have a very unique nature which could be a challenge even for the most successful MNEs like P&G. Therefore, understanding these could be a very complex but unavoidable process in order to achieve long term winning strategy.

Table of figures

Figure 1 Outline of the thesis

Figure 2 Summary of research questions

Figure 3 Methodology of the research

Figure 4 Key elements of international decision making process

Figure 5 Classification of market entry modes

Figure 6 Market entry strategies by Pan&Tse (2000)

Figure 7 Factors affecting the foreign market entry mode decision

Figure 8 Factors influencing the foreign market entry mode decision

Figure 9 Macro-level factors influencing market entry mode decision

Figure 10 A Resource-Based Theory: framework

Figure 11 OLI framework

Figure 12 Measures of PEST analysis

Figure 13 China´s political structure

Figure 14 China´s GDP per capita from 2004-2013

Figure 15 Hofstede´s cultural dimensions: China vs. USA

Figure 16 Summary of country´s analysis: China

Figure 17 Indian´s government

Figure 18 Transportation in India

Figure 19 Hofstede´s cultural dimensions: India vs. USA

Figure 20 Summary of country´s analysis: India

Figure 21 Three main departments within FMCG Industry in China

Figure 22 Products mostly used within FMCG industry´s main departments

Figure 23 Different sale channels; Pros and cons

Figure 24 Porter´s Five Forces Model

Figure 25 Major segments in India´s FMCG industry

Figure 26 P&G´s main business units

Figure 27 Company´s sales by segment in

Figure 28 The corporate structure of P&G

Figure 29 Ownership advantages of P&G in China

Figure 30 Location advantages of China

Figure 31 Entry modes available for P&G according to OLI Paradigm

Figure 32 Why to choose WOSs over JVs in China?

Figure 33 Ownership advantages of P&G in India

Figure 34 Location advantages of India

Figure 35 Summary of research questions and main findings

List of tables

Table 1 International entry modes.

Table 2 Emerging markets according to MSCI Inc

Abbreviations

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1 Introduction

The first chapter starts with an introduction into the topic of the thesis followed by introduction of research objectives and problem statement. Using research objectives, the research questions are summarized and demonstrated graphically. Methodology of the thesis is also brought forward in this chapter. Finally, layout for the thesis is presented graphically.

1.1 Introduction and motivation

Which market entry mode to choose and which country to enter are probably the most important strategic decisions faced by management of MNEs when internationalizing. In order to meet objectives of management, a comprehensive plan including defined objectives, goals, resources and policies guiding the international business is a must (Root, 1994).

Since domestic markets are highly saturated, many MNEs are targeting emerging markets due to their great potentials. Among much potential, the cost-saving potential is probably the most important one. While emerging markets represent a huge potential for MNEs, they are also associated with a number of drawbacks which are challenges and they should not be neglected. Some of these are environmental variables (variables which cannot be controlled by the company) and firm-specific variables (internal variables that are influenced by the company itself) that can match with environmental variables (Kim & Hwang, 1992).

Environmental variables have to be studied very well in order to prevent negative outcomes. Therefore studying country´s political, economic, socio-cultural and technological dimensions are unavoidable in international business. Even if economic and/or political situation is stable (which is mostly not the case with emerging markets), cultural differences may prepare difficulties for MNEs. Additionally, companies should deal with analysis of its competitors (Porter, 1980) and customers (not only exisiting customers but also potential ones) as part of their external environment. Therefore, plenty of work is expected when entering international markets, especially emerging ones.

I have been learning a lot about MNEs and their international strategies during my studies at Vienna University. Therefore my interest lies in exploring these and factors which influence different choices. For the purposes of this thesis, I concentrate on one specific MNE, namely Procter and Gamble (P&G) operating in Fast Moving Consumer Goods (FMCG) Industry. I chose P&G since this is a perfect example of a global company which is present worldwide and serving billions of consumers (P&G, 2012). This work was inspired by the work done by Mark Sorgenfrey and Lasse Munch in 2009 (Sorgenfrey & Munch, 2009). After reading different works I was inspired by their work because my main interest was to explore the effect of theory application on the practical situation.

Therefore, this thesis aims to explore different international market entry strategies available for MNEs when enetering new markets. The main concentration lies in comparing market entry strategies performed by P&G in two target markets (China and India) with theories and potential strategies that would emerge from two theoretical frameworks: Resource-Based Theory by Grant (1991) and Eclectic paradigm (OLI) by Dunning (2000). I found it very interesting to understand, if existing, any inconsistencies between these.

The main goal of each MNE is to form the strategy with the purpose to succed in an emerging market and according to A.G. Lafley, President of P&G,

Winning is all about uniquely, or at least distinctively, positioning your business or brand, product or service, to deliver a better experience and better value to a certain group of customers to attain competitive advantage versus certain competitors. At P&G, I often talked about winning with “ those who matter most ” , a specific segment of consumers and “ against the very best competitors. ” When you win with consumers and against competition, you deliver superior value to your stakeholders — shareholders, employees, et al. ” (Lafley, 2013).

However, when entering emerging markets MNEs face many challenges wherefore creating the winning strategy can be a complex process which is usually affected by unstable business environments of emerging markets, different consumers´ buying behaviours and attitudes towards western products. These challenges will be addressed in this thesis.

1.2 Structure of the thesis

The thesis consists of three parts. First part is concerned with theories relavant for this research and therefore it is theoretical.

1. International market entry strategies by Pan & Tse´s (2000) and Hollensen (2011) as well as factors influencing different strategic decisions
2. Resource-Based Theory by Grant (1991) and
3. Eclectic Paradigm (OLI) by Dunning (2000).

The second part of the thesis is concerned with analysis of the first part and therefore it is analytical. The aim of analytical part is to present the emerging markets (PEST analysis) and their FMCG industries. Additionally, in this part the target company is presented through two different cases, namely:

- P&G entry to China (Case 1) and
- P&G entry to India (Case 2).

Finally, theoretical frameworks will be applied and compared to two different cases of P&G´s strategies.

The third part is the final part consisting of conclusion where main findings are discussed and limitations of the work are brought forward.

The graphical outline of the thesis is demonstrated in the Figure 1 below.

illustration not visible in this excerpt

Figure 1 Outline of the thesis

Chapter 1: Introduction of the topic and the motivation for the work. Research objectives as well as the problem statement are clearly defined and research questions are summarized at the end. Additionally, the methodology is presented.

Chapter 2: Theory and theoretical frameworks relevant for this thesis are evaluated. First, it brings forward different international entry strategies and factors influencing them. Then it goes into theoretical frameworks: Resource-Based Theory by Grant (1991) and Eclectic Paradigm (OLI) by Dunning (2000).

Chapter 3: Defines emerging markets and goes into PEST analysis of two target markets; China and India. It also analyzes FMCG industries of both markets.

Chapter 4: Introduces the target company and goes deeper into analysis of two different cases; P&G entry to China and P&G entry to India. Analytical frameworks are applied in this chapter and inconsistencies are analyzed.

1.3 Summary of research questions

Research questions and objectives are formulated and presented in the Figure 2 below.

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Figure 2 Summary of research questions (self-illustration)

1.4 Methodology

According to Craig&Douglas (2005) and Zikmund&Babin (2010, p.50), there are three research types:

- Exploratory research
- Descriptive (case study) research and finally,
- Causal research.

Exploratory research is concerned with discovering new ideas or insights. Gaining new insights or having new ideas is important because these could easily create business opportunities (Craig&Douglas, 2005; Zikmund&Babin, 2010). Descriptive research on the other hand describes features of something of interest such as: organizations, variables, individuals or similar and tries to represent the given situation. Finally, causal research tries to “ identify cause-and-effect relationships ” (Zikmund&Babin, 2010 p. 53).

According to these definitions, this thesis is classified as descriptive research since it aims to describe the way MNEs in FMCG industry enter emerging markets and what are the challenges they face there. The application of theoretical models is also considered as descriptive research since it describes different strategies performed and those forecasted by theories.

How to collect the data needed? The answer is to use either primary or secondary data (Craig&Douglas, 2005; Zikmund&Babin, 2010). If the researcher collects the data by himself/herself, then the data is called primary. This can be done through different collection techniques such as interviews. On the other hand, secondary data is collected by the third party for purposes others than the research for which it will be used. The data for this thesis was collected from books, internet, reports and different journals.

The reason of not using primary data (even though aimed to do so at the beginning) is lack of P&G´s willingness to provide the data. P&G offers annually numbers of internship positions for students who want to write the thesis regarding their company; therefore they cooperate only with those students. Others, who are not involved in the company, unfortunately cannot gain any primary information from P&G´s managers. I contacted managers from three different countries and I received the same answer; unfortunately the rejection to cooperate. The thesis is therefore based on secondary data and the methodology of the thesis is demonstrated graphically in the figure below.

illustration not visible in this excerpt

Figure 3 Methodology of the research (Source: Zikmund&Babin, 2010 p.59)

2 Theories on market entry modes and theoretical frameworks

This chapter brings forward theory from the literature regarding different market entry modes that are available for MNEs. Further, it defines factors which affect different strategic decisions. Finally, the chapter defines theoretical frameworks regarding international market entry modes relevant for this thesis: Resource-Based Theory by Grant (1991) followed by the Eclectic Paradigm (OLI) by Dunning (2000).

2.1 International market entry strategies

Companies entering new markets have to make important decisions regarding which entry mode to choose, which customers to serve and how to best satisfy them. In order to succeed, companies must answer following questions: what are the objectives of going to different market and are there sufficient internal resources (Root, 1994). Since this is not an easy process, the international expansion can last couple of years (Root, 1994).

Nevertheless, these are not the only steps that MNEs have to make when entering new markets; there are many other tasks that need to be completed before entering the new market. Each product offered by MNEs needs to be treated separately. Each one needs marketing attention that has to be well-planned.

Therefore, company has to be able to know if there are opportunities to be targeted and to set goals and objectives regarding the product(s) they will offer. This refers to design of 4Ps: Product, price, promotion and place (Root, 1994). Before the company chooses the adequate entry strategy, evaluating the target market is needed; PEST analysis is highly appreciated (Carpenter&Dunung, 2011, CH 8).

After the decision regarding which market and which entry mode to choose, the company has responsibility to monitor its performance in order to be able to react if necessary (Root, 1994). Before different international market entry modes are introduced, the following figure demonstrates the key elements of an international decision making process.

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Figure 4 Key elements of international decision making process (Source: Root, 1994 p.4)

The figure 4 is not the prescription (the strategy that must be followed) for international decision making process. Sometimes, companies are forced to evaluate alternative entry modes. Evaluation of alternative entry modes could happen due to many reasons such as; strict governmental regulations in target market, absence of adequate partners in target market, previous failures, knowledge, etc. More on factors which influence the entry mode decisions are brought forward in following sections.

Even though the source for the design of key elements in international market entry is outdated (1994), I found it compatible for my research objectives.

Once the company knows which target market it wants to enter, other difficult decision is to choose how to enter that specific market. Yet, markets are very different, dynamic and challenging.

The definition by Hollensen (2011) seems appropriate for understanding what actually market entry mode means . “ An international market entry mode is an institutional arrangement necessary for the entry of a company ’ s products, technology and human capital into a foreign country or market ” (Hollensen, 2011, p.315).

According to Hollensen (2011) there are 3 different types of international market entries that the company can choose to perform:

- Export (doing business from home)
- Contractual modes (doing business with host partner) and
- Investment modes (doing business on your own).

Hollensen (2011) and many other marketing and management authors argue that, MNEs should be concerned with 2 major decisions when entering foreign markets;

1. Level of flexibility and
2. Level of control that company wants to have over foreign operations.

Perceived risk is additional factor which influences the above mentioned concerns. The figure below demonstrates the level of control, risk and flexibility for each entry mode.

illustration not visible in this excerpt

Figure 5 Classification of market entry modes (adopted from Hollensen 2011, p.317)

Pan & Tse´s (2000), also differentiate between different entry modes. They bring forward two groups of market entry modes which are then split into different levels as shown in the Figure 6:

- Equity market entry modes (doing business either alone or with host partner) and
- Non-equity market entry modes (doing business either from home or through selling right to use your business to the third party).

There are multiple factors which influence decision regarding which one of these two groups and subgroups to choose (Pan&Tse, 2000).

illustration not visible in this excerpt

Figure 6 Different entry modes by Pan&Tse (2000 p. 538)[1]

The difference between equity and non-equity entry mode can be linked to Hollensen´s classification of market entry modes. Equity entry modes (investment modes and Joint Ventures (JVs)) are characterized by large resource commitment. However, this allows them to enjoy high or full control over foreign operations. Yet, the risk is higher (Pan&Tse, 2000 p. 538), (Hollensen 2011, and p.317). It could be concluded that high risk is closely associated with high commitment.

Non-equity entry modes on the other side require lower resource commitment; therefore, both, the control and the risk are lower.

Export modes are according to Hollensen (2011), modes that are at least risky (low financial investment and low management resource commitment). This connotes however the lowest level of control of foreign businesses. Additionally, companies involved in export have the greatest level of flexibility which allows the company to change or adopt its international strategy.

Contractual modes on the other side, which are introduced in the Table 1, share control and risk with the host partner. Because control and risks are shared, the flexibility cannot be as high as in the case of exports, what is one drawback of this strategy (Hill et al., 1990), (Hollensen, 2011).

The highest level of commitment and risk is linked to investment modes. However, this strategy allows MNEs to have full control of their foreign operations and of course, to have profits for themselves. Each category of entry modes is introduced in the Table 1 below.

Export

Even though engaged with international markets, exporting is characterized by lowest amount of investment in those markets. The company uses this type of entry mode usually when it does not have international experience or simply chooses not to internationalize through other market entry strategies, because the only goal is to increase sales (and not market shares). Exporting is characterized by local production (in the country where the company operates) and then by exporting its products to international markets. The company can also choose to produce in other country if manufacturing costs are lower. Direct exporting means that the products are exported directly through the company whereas indirect exporting involves the third party and the company is not directly involved.

Contractual

modes:

Licensing &

Franchising

Joint Venture

(JV)

In these entry modes the company gives the licensee/franchisee a right to use its proprietary (of course the payment is required). In franchising, the franchisor gives the right to the franchisee to use entire business concept. The franchisee has a close working relationship with franchisor (extension of a parent company). This is not the case in licensing because licensee holds the right to only some elements of the business.

Joint Venture is according to Hollensen (2011, p. 366), “ partnership between two or more parties ” , who create a child company. This is one of the most common strategies if the company is not willing to take the risk on its own but rather to share it with the local partner. More on JVs will be brought in following chapters.

Investment modes:

Wholly owned subsidiaries (WOSs)

Wholly owned subsidiaries (WOSs) are the highest investment modes and therefore performed by companies who want to be on their own in international market (full ownership). Two ways of creating WOSs are acquisition (taking over the local company) and Greenfield (building the new company).

Table 1 International entry modes (Source: Hollensen 2011, pp.334-398)

2.1.1 Factors influencing entry strategies

2.1.1.1 Factors influencing entry strategies by Hollensen (2011)

According to Hollensen (2011) there are four groups of factors influencing foreign market entry mode decisions: “ Internal factors, external factors, desired mode characteristics and transaction-specific behavior ” Hollensen (2011, p. 322). Each group and its components are represented in the figure below.

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Figure 7 Factors affecting the foreign market entry mode decision (Source: Hollensen, 2011, p. 322)

According to the Figure 7, internal factors are important factors influencing choice of an entry mode. The size of the company is an indicator of company´s availability of resources. Therefore, smaller companies are likely to choose international entry mode like export since they do not have resources that are required to make huge commitments (low financial base, low know-how, etc.). As the company becomes bigger, it is possible that it will choose different entry mode such as contractual or investment mode introduced in the previous section (Hollensen, 2011).

Additional internal factor is international experience. It relates to previous experience of managers. It is highly important since it shows the previous involvement in similar situations. If the manager(s) were involved in international business previously, this is from great importance for present decision-making process. Therefore, companies with managers who have previous international experience will probably choose high-control entry option.

The nature of the product is the final factor of group internal factors and it also influences the entry mode decision. According to Hollensen (2011), there are two different product types: soft and hard. If what company provides is categorized as hard (meaning that the production and consumption do not happen in the same time), the company is most likely going to choose an entry mode with lower degree of commitment and control since it can standardize the offering. On the other hand, companies offering soft products/services (“ production and consumption occur simultaneously ” (Hollensen, 2011, p.323)) would rather choose entry modes with higher level of control and commitment.

Regarding external factors, cultural difference plays an important role in international business. Many international studies point this construct as the most important one, since it highly influences the business environment. Cultural distance refers to differences in culture between two markets. If there are big differences (between domestic and foreign market), the company will want first to get familiar with that culture by studying it in some way before it invests in it. Studying the culture or getting familiar with it could be done through joint ventures where the local partner helps the company in adopting to distinct business environment and distinct culture. Additional external factors are different risks in the host market; its size and growth, governmental regulations and nature of competition. Final group is transaction of know-how. If company´s know-how is tacit[2], the company will do everything to protect its property by having full control over it (investment modes).

2.1.1.2 Factors influencing entry strategies by Koch (2001)

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Figure 8 Factors influencing the foreign market entry mode decision (Source: Koch 2001, p. 353)

According to Koch (2001), following are the factors which influence the selection of international markets: “ external, internal, and the mixed, internal/external category ” (Koch, 2001, p.351). The following sections are concerned with detailed explanations of all three categories.

Internal factors

Company´s size factor leads to the same hypothesis as the same factor in Hollenson´s (2011) model introduced previously. If the company is small, it is most probable that it won’t be able to internationalize through high commitment in foreign country. Koch (2011) stresses the importance of management´s internal locus of control. This is term used by Koch (2011) to describe how managers are confident when they make some difficult decisions. If decision has to be made by multiple managers, there is a potential of discord (Koch, 2001). In that situation, managers will “ undertake actions aimed at achieving perceptual consensus with regard to the situation on hand ” (Koch, 2001, p. 357).

Experience in using MEMS is similar to international experience from Hollensen´s (2011) design, introduced in the previous section. It is highly important whether management of the company already made similar decisions and if yes how they dealt with it.

Management risk attitudes explain managers´ attitude toward risk and how managers perceive risk. Managers who are not willing to take risk (maybe because they are interested in long-term profitability and success) will choose less risky countries for their international expansion (developed countries). Nevertheless, if they choose risky countries (emerging countries) to enter, they won´t engage directly with the trade. They will rather export to that market, or, if they choose to engage directly, despite the risk, they will share the risk with local partner (JV).

Goals set by the company have to be in harmony with characteristics of different entry modes. Therefore, if the company wants for example to maximize market shares, the company could choose investment modes like WOSs. On the other side, if the only goal is to maximize sales, the company might choose lower level of control and commitment in international market through exporting.

Internal/External category

The combination of internal and external category implies that the company has to be aware of both; external factors as well as internal. If there are external factors that are risky, the company has to have internal strengths to overcome risky situations. This means that company´s internal resources are highly important in external environment.

If the company does not have internal resources or capabilities to prevent internal resources from dynamic external environment, than the company should select less risky entry mode (Koch 2001).

External factors

Some companies have to choose alternative entry modes even though they do not seem as the optimal option, due to different external factors such as local governmental restrictions or cultural difference as mentioned previously (Koch, 2001). External factors indicate that characteristics of the host´s business environment should be highly considered because they can make the international business pretty hard if neglected. If the business environment (often analyzed through PEST analysis) is not in favor of the company, then the company will have to adjust its international strategy to such environment using less risky entry mode.

In countries where the environment is highly risky, companies rely on local partners by forming joint ventures. Different market barriers (entry-, exit- or tariff- barriers) or other governmental regulations also influence the decision regarding market entry mode. The risk associated with these regulations will influence the decision making process in such way, that it will force MNEs to choose contractual form such as JV in order to share risk with local partner.

Market growth rate from Koch´s (2001) model can be compared to market growth factor from Hollensen´s (2011) model. I chose these two models (Koch, 2001; Hollensen, 2011) precisely because I wanted to stress out the importance of different factors that influence market entry decisions by different authors. They all point the same factors wherefore these are not to be neglected. Big markets and their high growth rates present huge opportunities for MNEs and therefore MNEs will enter through investment modes. Some companies choose strategies that are “in” in host market (for example, JVs in China are/were trend) in order to adapt to that particular market. If the company is global and wants to be perceived as such, it might want to choose entry modes with higher resource- and capital investments and retain control over its actions and therefore choose the strategy that uses in other markets (standardization).

2.1.1.3 Factors influencing entry strategies by Pan & Tse (2000)

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Figure 9 Macro-level factors influencing market entry mode decision (Source: Pan & Tse, 2000 p.539)

Host country factors

Location refers to the location of target market. This factor is important only for those companies that are performing equity entry modes. It is so because through this kind of entry strategy they have closer relationship with host markets (Pan&Tse, 2000). For non-equity entry modes location is not as important. If the company does not have direct contact with host market, the location disadvantages cannot affect it. Therefore, it is to conclude, that location factor matters only for JVs and WOSs. However, location factor is according to Pan&Tse (2000) only important in the first stage of decision making process; which strategy to use at all?

As already seen in Hollensen´s (2011) and Koch´s (2001) design of factors, Pan & Tse (2000) also bring forward host country risk as a major factor influencing entry mode decision. Differentiating between contextual (host environmental uncertainties) and transactional risk (company´s internal risks), Pan & Tse (2000) state that equity entry modes are exposed to both risks whereas “non-equity modes have better chance to know what the risks are involved and guard against these risks ” (Pan&Tse, 2000, p.541).

Home country factors

Risk orientation (uncertainty avoidance) is perceived differently by managers from different countries. Therefore it can be linked with Hofstede´s cultural dimensions (Hofstede, 2011). Managers from countries with low score on uncertainty avoidance (they are risk-takers) will be willing to take risks. On the other side, managers from countries with high level of uncertainty avoidance (risk-averse) will be more careful and will try to avoid risky markets (Pan&Tse, 2000).

Management orientation factor could be linked with another Hofstede´s dimension; power distance. In high power-distance countries there is a clear difference between authorities and all others, whereas in “ low power-distance cultures, managers see themselves as relatively equal ” (Pan&Tse, 2000, p.541). Therefore, companies with high power distance usually choose equity entry modes when going abroad (Pan&Tse, 2000).

A host-home country factor is concerned with comparing home and host markets. If they are similar, it should be easier for managers to cooperate because of their common values. If home and host market differ significantly, it is more likely that the company will invest in that country through equity entry mode to avoid potential conflicts (Pan&Tse, 2000).

Industry factors

There are two important variables for industry- specific factors; “ advertising intensity and capital intensity ” (Pan&Tse, 2000, p.543). In countries with high advertising intensity, companies are most likely going to want to internalize their operations in order to protect their brand. Therefore, according to Pan&Tse (2000), they will use equity entry modes. Asset turnover measures “ the ability of firms in an industry to use the asset to generate sales ” (Pan&Tse 2000 p.543). Companies from high asset turnover industries internationalize with equity modes (Pan&Tse, 2000).

As seen, it is crucial to evaluate all the factors stated in this section for an effective choice of an international market entry mode. Some of the factors, such as instability of the target market, the cultural distance etc., are of minor importance when companies enter developed countries and markets with similar background as the home market. However, these and other factors demonstrated in Hollensen´s (2011), Koch´s (2001) and Pan&Tse´s (2000) models may be of great importance when the company invests in emerging markets where there are significant differences such as language and culture (these are few among many differences).

These may affect the strategy of the company in the way that they could require selection of an alternative entry mode not desirable by the company. Considering all differences between home and host market carefully is crucial to management in order to avoid mistakes (Wintranslation, 2011). Therefore, extensive market research and evaluation of each factor that might influence the strategy set by MNE are critical part of decision-making process (Wintranslation, 2011).

[...]


[1] Not all entry modes are shown on the figure. For detailed graphic look Pan & Tse (2000 p.538)

[2] “Difficult to express in words” (Hollensen, 2011, p. 327)

Details

Pages
113
Year
2014
ISBN (eBook)
9783656765882
ISBN (Book)
9783656765875
File size
3 MB
Language
English
Catalog Number
v282072
Institution / College
University of Vienna
Grade
1
Tags
international market entry strategies multinational enterprises mnes emerging markets case procter gamble china india

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Title: International Market Entry Strategies of Multinational Enterprises (MNEs) in Emerging Markets