INVs' Choice of Entry Mode in Emerging Markets
The rapid growth and development of emerging markets have made them noteworthy actors in todays globalized world. These markets are no longer restricted to resourceful MNCs. The potential these markets represent has also been captured by an increasing number of opportunity seeking INVs. Meanwhile, INVs are different from MNCs. Hence, what influences the entry mode decision of MNCs may not be the case for INVs. Furthermore, studies on INVs present a dilemma between alternative governance structures and FDIs. The objective of this paper is therefore to examine how the different factors influence the entry mode decision of INVs in emerging markets. The factors considered are taken from the conceptual model of Lin (2000). These are entering firm, market environment, partner factor, transaction-specific factor, and competitive strategy. This paper performs qualitative research by conducting semi-structured interviews with four INVs from different emerging markets to address the objective.
The findings of this paper support the use of HRC modes, especially wholly-owned subsidiaries, in emerging markets. This decision is mostly influenced by transaction-specific and competitive strategic concerns. Knowledge-based INVs have to protect against leakages and expropriation of their valuable assets. This is why partner factors are of less significance when deciding on an entry mode. The risk of losing knowledge to partners is considered greater than the benefits of sharing risks. Furthermore, local presence signifies long-term commitment and makes it easier to seize emerging opportunities. Moreover, entering firm variables are also significant influencers of the decision. An international orientation is vital for the firm to risk using complex modes in highly uncertain markets. The market environment factor is therefore of less significance because the firms acknowledge that emerging markets are inevitable for niche-serving INVs.
Considering the entry mode dilemma for INVs, this paper supports the use of FDIs. INVs need to take strategically optimal choices, despite their being start-ups. Alternative governance structures are not supported due to transaction-specific and competitive strategic variables. The argument supporting alternative governance structures, namely resource and power constraints, can be overcome through leveraging on other sources. The financial constraints are also of less significance due to the low-cost nature of emerging markets. Efficiency and context-specific knowledge can be learnt over time. Meanwhile, control is important in uncertain environments marked by unpredictable conditions. Hence, extant research on this area supporting the use of alternative governance structures is discarded due to the conflicting findings, especially when considering emerging markets. However, this field needs further research to support the findings of this study. Researchers eager to explore this relatively untouched field have more than enough to keep themselves occupied with.
Place, publisher, year, edition, pages
Institutt for industriell økonomi og teknologiledelse , 2011. , 67 p.
ntnudaim:6089, MTIØT Industriell økonomi og teknologiledelse, Strategi og internasjonal forretnmingsutvikling
IdentifiersURN: urn:nbn:no:ntnu:diva-15039Local ID: ntnudaim:6089OAI: oai:DiVA.org:ntnu-15039DiVA: diva2:473556
Moen, Øystein, Professor