Foreign market entry strategies in developed and emerging economies: A case study of how the entry strategies of Norwegian oil service firms are affected by the differing institutional contexts of Australia and Brazil
When firms expand to foreign markets, their entry strategies unfold. Traditionally, research on entry strategies has focused exclusively on firm- and industry-specific factors and largely ignored the context constituted by the institutions of the host country. The institutional context determines the ?rules of the game? in any market, and includes both formal institutions such as laws and regulations and informal institutions such as norms and culture. With the increasing relevance of emerging markets, in which institutions differ significantly from developed economies, researchers are embracing the notion that firms adapt their entry strategies to the specific institutional context of the markets they are entering.
This study responds to a lack of research addressing how institutions affect firms? entry strategies across different institutional contexts. A case study of four Norwegian oil service firms is conducted, in which their entry strategies into Australia and Brazil ? one developed and one emerging economy ? are thoroughly investigated.
The findings indicate significant differences between the institutional contexts of Australia and Brazil. Formal institutions such as laws, regulations and political systems are considered less familiar, more uncertain and less market-supporting in Brazil than in Australia, while informal institutions such as values and culture are considered more different from those in Norway. In Brazil, local content regulations, bureaucracy, political uncertainty and a fundamental protectionist sentiment are found to significantly affect entry strategies.
The aspects of foreign market entry strategy considered in this study are (1) the rationale for market selection, (2) the choice of entry mode and (3) staffing and establishing foreign operations. Firms? rationale for market selection is driven by factors such as market potential and the fit between firm resources and market characteristics, but institutional aspects such as regulations and political uncertainty are found to strongly affect the final decision of whether to enter. The choice of entry mode is similarly not found to be driven by institutional considerations, but rather by a desire for proximity to customers, the nature of the business and the size of foreign operations. However, the ultimate level of local presence is found to be strongly affected by institutional pressures, as in Brazil where a heavy local presence is demanded. Thus, the institutional context is found to affect entry strategies, not in isolation, but in interplay with other factors.
The total costs and the time it takes to enter foreign markets are found to be significantly increased by bureaucracy and more complex ?rules of the game? in Brazil. In total, Brazil is found more challenging to enter and the single, most clear, advice for entering the Brazilian market is to employ an all-or-nothing approach to achieve the necessary local presence. The findings further indicate that firms that deliberately take the institutional dimension into account when entering foreign markets are more likely to enter successfully.
For researchers these findings support the notion that institutions cannot be disregarded when studying foreign market entry strategies, rather, a multi-theoretical approach is needed. For managers, the findings imply that firms should explicitly and deliberately consider the institutional context when entering foreign markets to make an informed decision about whether or not to enter and to appropriately adapt their entry strategies.
Place, publisher, year, edition, pages
Institutt for industriell økonomi og teknologiledelse , 2013. , 90 p.
IdentifiersURN: urn:nbn:no:ntnu:diva-25422Local ID: ntnudaim:9791OAI: oai:DiVA.org:ntnu-25422DiVA: diva2:735294
Aspelund, Arild, Professor