Master Thesis for International Business and Management

Master Thesis for International Business and Management

Foreign Entry Mode Decisions of Multinational Enterprises in the

Fast-Moving-Consumer-Good Industry – Influence Factors on a Firm, Industry,

and Country Level

Author

Malte Bo Stein

Supervisor

Dr. A.A.J. van Hoorn

Co-assessor

Dr. M. Wilhelm

University of Groningen

Faculty of Economics and Business

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Acknowledgements

This thesis forms the completion of my master studies in International Business and Management at the University of Groningen and simultanoeusly signify the end of my study career. It has been a long and intensive way to reach this final step in my collegiate education. I am proud to say that I have learned a lot and steadily improved my knowledge about international business in the last years.

Following my conception of final examination, it has been my sighted aim to imply most of the subjects out of several business areas that I had the pleasure to be teached during the last ten months. The result can be seen in this masterthesis, since it combines contents and academic papers of the courses of International Business Strategy, Foreign Direct Investment & Trade, Strategic Marketing, Comparative Corporative Governance, Strategic Management & Technology, International Strategic Alliances and Emerging Markets.

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Abstract

With increasing economic liberalization, emerging markets offer a tremendous potential for firms to extend their foreign business activities and tap into an enormous revenue and profit potential. An evolving generation of millions of new consumers result in a shift of consumer spending from saturated and developed to emerging markets. This forms attractive opportunities especially for FMCG firms since an increase in buying power of people from the bottom of the pyramid will generate demand for FMCG products first.

The aim of this study is to analyze the foreign entry mode decisions of the largest companies in the FMCG industry and examine whether factors on a firm, industry, and country level have an impact on the decision to enter by wholly owned subsidiary (WOS) or by forming an international joint venture (IJV). By taking a cross-country sample, it is shown that Western firms in the FMCG industry show comparable patterns in their mode of foreign entry. An empirical analogy with the service- and high-tech industry points out that industries are not totally equally affected by firm and country level factors. Using descriptive statistics, this study additionally supports the assumption that emerging markets are especially attractive business areas for FMCG firms. Finally, the study will be the first to examine the entry mode decision of firms in the FMCG industry using a cross-country sample.

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Content Structure

2.1 Literature review to equity modes ... 12

2.1.1 (International) Joint Venture ... 16

2.1.2 Wholly Owned Subsidiary ... 18

2.2 Emerging Economies ... 18

2.3 Fast Moving Consumer Good industry ... 22

2.4 Theoretical approaches ... 23

2.4.1 Transaction cost theory (TCT) ... 24

2.4.2 Agency theory (AT) ... 26

2.4.3 Resource-based View (RBV) ... 27

2.4.4 Institutional theory (IT) ... 28

3. Theory & Hypotheses ... 32

3.1 Economic development ... 32

3.2 Market growth ... 33

3.3 International experience ... 34

3.4 Cultural distance ... 37

3.5 Industrial-product ... 40

4. Data & Method... 43

4. 1 Operationalization and data sources ... 43

4.1.1 Dependent variable ... 43 4.1.2 Independent variable ... 44 4.2 Sample ... 47 4.2.1 Descriptive Statistics ... 50 4.3 Empirical Model ... 52 5. Empirical analysis ... 53 5.1 Results ... 55

5.1.1 Summary and discussion of the results ... 70

5.2 Conclusion ... 74

5.3 Limitations ... 75

5.4 Further research ... 77

References ... 78

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1. Introduction

Globalization and its consequences - access to new markets and growing competition - has forced firms to internationalize business activities across borders. According to Dunning (1993), firms main motivation for internalization are seeking for resources, access to markets, improvements in terms of efficiency or strategic-asset-seeking.

Once a firm has decided to widen its extent of doing business, the firm and in broader sense its managers are confronted with a set of wide-ranging opportunities for entry modes. According to Root (1998), an entry mode is an institutional composition that a firm is using to commercialize its product in a foreign market.

Entry modes differ from each other in the degree to which the firm is involved in a foreign market. All types of entry modes require different levels of resource commitment (Root, 1987). The decision for a specific mode is crucial since it cannot be changed without an immense loss of time and money once it is implemented (Agarwal and Ramaswami, 1992). Thus, it is an important strategic decision to choose an appropriate entry mode that fits the purpose of the firm. According to Favaro, a business strategy must be distinguished from a firm’s vision, mission, goal, priorities, and plans. “It is the result of choices executives make, on where to play and how to win, to maximize long-term-value” (Favaro, 2012, p.1).

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around the world. It can be concluded that the growth in the FMCG industry is strongly correlated to the growth in worldwide population.

Emerging economies are defined as countries with low income and rapid growth, fostered by using economic liberalization (Arnold and Quelch, 1998). It can be distinguished between developing countries in Asia, Latin America and the Middle East and so called transition economies as the former Soviet Union and China (Hoskisson et. al, 2000). MNE's have targeted almost the wealthy elite at the top of the economic pyramid. However, as can be seen in the World Economic Pyramid in Appendix A, the highest potential stems from consumers from the bottom of the pyramid (Prahalad and Hart, 2002). To be successful, firms need to adjust their products to local needs, tastes, and standards (London and Hart, 2004). Hence, just serving markets with globally standardized products at lower prices is not appropriate (Dawar and Frost, 1999).

Prior studies have researched the entry mode topic from several theoretical perspectives and all may explain the choice for a certain foreign market entry mode. As a result, it exists wide-ranging research between and within equity and non-equity shares modes under consideration of plenty different country, industry and firm-level characteristics.

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1.1 Problem indication

According to a study conducted by McKinsey & Company (2011), 5 billion people are living in countries where the nominal GDP per capita is less than $1,000 per year. Representing roughly 70% of today’s world population, these emerging-market consumers account for only 35% of the world’s GDP. Over the past decade, the worldwide consumer spending has grown by about 5% a year to a total consumer spending of $7 trillion in 2010.

Following McKinsey & Company (2011), the collective GDP of emerging markets will overtake that of developed economies by the year 2020. Additionally, over the next 10 years, consumer spending in emerging markets is expected to grow three times faster than consumer spending in developed countries, reaching a total of $6 trillion by 2020. These markets are highly profitable, as it is confirmed by the fact that five emerging countries were placed in the top six of the worldwide most attractive markets in 2005 (UNCTAD, 2005).

Fast-growing cities will account for the main part of growth in emerging-market consumer spending.

London and Hart (2004) state that MNE's have intensively turned to emerging markets due to saturation in developed markets. However, McKinsey & Company (2011) suggests that only 30% of the top 15 FMCG companies’ revenues in 2009 came from emerging markets.

According to McKinsey & Company (2011), the expected global consumer spending will grow by $5 trillion by 2020. Thus, it will almost double compared to a decade ago.

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This offer firms an incredible opportunity to increase sales and profits. However, transferring strategies that are deployed in Western markets is not adequate to reach satisfying outcome levels (Arnold and Quelch, 1998). Instead of raising profits through high prices, outcomes will be maximized by low production costs and economies of scale (Prahalad and Hart, 2002).

The growth in consumer spending is accompanied by increasing competition that stems from domestic FMCG companies in emerging markets. According to global intelligence (2011), these firms like Indian Dabur not only strengthen their market position in their home markets, but also start doing business overseas. This is supported by research of Bagchi and Khamrui (2012) who confirm Dabur's strong performance and the continuous growth of the FMCG sector. In general, the availability of key raw materials, cheap labor costs and presence across the entire value chain gives Indian companies a competitive advantage (Bagchi and Khamrui, 2012). As a consequence, firms need to consider this development in their decision of whether and how to enter a certain market.

In conclusion, rising average household income, a growing middle-class, as well as large population size in emerging markets form an enormous growth potential for the global FMCG industry. However, business strategies must be conformed and products need to be adjusted to regional preferences, since sole implementation of Western strategies will not lead to the desired performance (London and Hart, 2004).

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competitors and finally be successful. However, beneficial tapping into these attractive markets is determined by many different factors on a firm, industry and country-level that firms have to take into consideration when they decide for an entry mode.

It seems that not all big FMCG companies have fully realized the market potential from emerging countries. Motivated by the significant change in consumer spending in the near future and the fact that the literature about emerging markets and entry modes is still quite rare, this research attempts to fill a part of this gap by examining the following research question:

To what extent are MNE's in the FMCG industry influenced in their foreign entry mode decision by firm, industry and country specific factors?

1.2 Contribution

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This growth potential is accompanied with a high degree of demand for industrial- and consumer products (Child et al., 2005) and hence offer especially MNE's in the FMCG industry profitable opportunities. In context to the annual report 2012 of Unilever, 1.8 billion consumers, mainly from emerging markets, will start participating in the consumer market in the near future. That forms a critical growth opportunity (www.unilever.com).

Regarded from a socio-economical perspective, investments at the bottom of the pyramid not just help many people leaving poverty and thus achieve closing the gap between the rich and the poor, it is even essential to secure a stable and working global economy and hence ongoing success of big western MNE's (Prahalad and Hart, 2002).

According to Hart (2002), MNE's haven't been entirely able to meet the demand of basic needs of consumers yet. In this context, it is essential to point out that serving all markets with global products will not meet the demand of the million of new consumers from the bottom of the pyramid (Prahalad and Hart, 2002). To better meet these needs, firms are dependent on local market know-how. In addition, focusing product developments to meet the needs of the poor people can also result in innovative developments that are appropriate to be transferred to developed markets (Hart, 2002; Wright et al., 2005). According to Immelt et al. (2009) this process is called "reverse innovation". That should again motivate companies to invest in these markets, since product innovations from emerging markets may enhance the success on the saturated, developed markets as well. Hence, firms need to be aware of the changing situation and include the culture and lifestyle of its new consumers in their business strategies (Prahalad and Hart, 2002).

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the new rising market potential that stem from emerging markets yet. This fact is in line with research in this area, since the main part of prior studies have focused on entry strategies among developed countries. According to Chen and Hu (2002) the strategies used by MNE's in developing countries are under researched.

In addition and according to Wright et al. (2005), previous research have less differentiate between manufacturing and service industries. It is stated that there exist significant differences between these two industries and hence, by considering this issue, this thesis will proceed research in this area of international management. Furthermore and in context to Larimo (2003), who provided evidence that there is noticeable less research about similar behaviors in terms of entry modes into foreign economies of firms from different home countries, this study attempts to contribute to fill the lack in this area of research, by concentrating on the biggest firms in the FMCG industry out of four different national origins and their FDI entry mode decision.

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2. Background

This chapter initiate the topic of entry mode decision. FMCG firms are motivated to extent their business across borders by location economies in terms of lower production costs, economies of scope in terms of the opportunity to exploits assets, and economies of scale by expanding the production- and sales volume (www.business.illinois.edu/aguilera). The entry mode decision is seen as one of the most important strategic issues firms are confronted with (Kumar and Subramaniam, 1997). Hence, it is worth to point out the most important characteristics by reviewing the entry mode literature. Additionally, the chapter indicates the specificities of emerging markets and the FMCG industry to back up the contribution of this thesis. Furthermore, several theoretical approaches in the context of entry modes find consideration in the end of this chapter.

2.1 Literature review to equity modes

The existing literature for entry modes is enormous. Especially since the 1980's entry mode research has significantly increased (Canabal and White, 2008). That is not surprising when considering that foreign direct investment has started with the shifting to market liberalization in emerging economies in this time. Furthermore, the choice of entry mode is a crucial strategic decision for the future performance of a firm (Rasheed, 2005). Next to the development of a business strategy and its necessary considerations, firms must balance the costs of strategy implementation (Barney, 1986).

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choose the best suitable institutional arrangement for a particular market (Anderson and Gatignon, 1986).

In general, equity and equity share modes are distinguished. At the next lower level, non-equity modes are divided into exporting and contractual agreements. Within the non-equity modes it is further distinguished between equity joint ventures and wholly owned subsidiaries (Pan and Tse, 2000). All of the four mentioned entry modes have several different sub-categories which are quoted in detail in Appendix C.

Following Barkema and Vermeulen (1998), once a company has decided to enter a foreign market, it is confronted with two more decisions. First, the firm decide over the percentage of ownership it desire in the foreign venture. This is known as the entry mode decision. Second, if an enterprise decides to pursue a wholly owned venture, it must decide whether to acquire an existing company or create a new (greenfield start-up) venture. This is known as the diversification- or establishment mode choice. To clarify, this view regards the choice of entry mode (JV or WOS) and establishment mode (greenfield or acquisition) as two separate made decisions (Hennart, 2000). Due to the nature of foreign direct investment this study will focus on equity share modes.

Modes of entry are significant for the success of the project since applying adequate boundaries of the firm have important influences on the level of performance (Brouthers, Brouthers and Werner, 2003). However, the literature does not provide any single best way that helps decision makers to balance the tradeoffs, and finally lead to an optimal choice in terms of risk-adjusted return on investment (Anderson and Gatignon, 1986).

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increasing level of control, commitment and risk, with the likelihood to choose a WOS when a maximum of control is pursued and the willingness of maximal resource commitment and maximal risk is accepted (Brouthers and Hennart, 2007). Resource commitment refers to the level of financial and managerial support of a company when doing business in a host market (Anderson and Gatington, 1986).

Control can be defined as an opportunity to influence systems, processes and decisions and thus finally helps firms gaining higher returns (Anderson and Gatignon, 1986). However, control is accompanied by a tradeoff, since the controlling firm is responsible for decision-making (Vernon, 1983). To clarify, an unfamiliar environment dominated by high uncertainty can exceed firms capabilities. In addition, since control is correlated to resource commitment, firms are faced with switching costs in terms of shrinked flexibility, if it turns out that their investment was not the optimal choice (Anderson and Gatignon, 1986). According to Anderson and Gatignon (1986) control is the most important source for entry modes since it implies risk and return. Therefore, high levels of control increase both risk and return, whereas low modes of control like contractual agreements go ahead with low risk levels, low resource commitment and lower return on investment.

To summarize, this perspective focus on the tradeoff between control- and resource commitment, with considering risk and uncertainty. In this context, flexibility obtains to be a key determinant since firms must pay attention to an unfamiliar foreign environment. In general, firms will reconsider their mode of entry as it becomes more familiar to the foreign market (Anderson and Gatignon, 1986). Based on this theory, scholars like Anderson and Gatignon (1986) and Erramilli and Rao (1990) illustrate how types of foreign entry can be classified due to different levels of control and profits.

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separate entry modes into contractual agreements and equity share modes (Brouthers and Hennart, 2007). From this perspective the major difference between entry modes is the procedure that is chosen to compensate investors. That mean, that equity shareholders get paid ex post in terms of return on investment, whereas contractual payment settings are settled ex ante. Thus, the mode of JV will be the point of interest if complementary resources can be more efficiently bundled together than by an ex ante payment for the participation of the other firm (Brouthers and Hennart, 2007).

In general, MNE's that pursue to enter a foreign market typically combine its superior technology know-how with locally available inputs such as labor, important local knowledge or distribution channels. In some cases, resources are purchased on the market- except for tacit knowledge since it is hardly measurable (Brouthers and Hennart, 2007). As a conclusion, in the case that a MNE has access to aimed local inputs over the market, it is likely that a WOS will be set up. The other way around apply for a domestic firm which is likely to license the complementary technology in such a situation. Thus, the formation of a JV will occur in the case of hardly transferable resources like tacit knowledge.

According to Hennart (1988), JV's are not on a medium level between market and hierarchy, since they are more a consequence of double market failure. This implies that in contrast to the perspective of Anderson and Gatignon (1986) and Erramilli and Rao (1990), the choice between contracts and equity share modes and JV and WOS is shaped by different variables.

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between the entry mode choice of IJV and WOS which is in line with Pan and Tse (2002) and their approach of a hierarchical model for entry mode decisions. These two entry modes are covered in detail in the next chapter.

2.1.1 (International) Joint Venture

There is no consent in the literature about the term of JV. Since this thesis will primarily focus on FDI of Western MNE's in emerging markets, it is essential to regard the definition for an IJV. Shenkar and Zeira (1987) have defined this international form of JV as followed: "An IJV is a separate legal organizational entity representing the partial holdings of two or more parent firms, in which the headquarters of at least one is located outside the country of operation of the joint venture. This entity is subject to the joint control of its parent firms, each of which is economically and legally independent of the other." The most common mode is a IJV between a MNE and a domestic company. The domestic firm assist the foreign firm to enter successfully the foreign market by providing significant local market-knowledge, customer values, distribution channels, labor relations, etc. (Dussage and Garette, 1999; Inkpen and Beamish, 1997). In exchange the MNE generally brings technology capabilities in terms of manufacturing skills into the IJV (Inkpen and Beamish, 1997).

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sources of authority, reference groups, and paths for advancement and compensation" (Shenkar and Zeira, 1987, p. 548). In addition, partner firms of IJV's naturally often diverge in terms of their national origin, cultural and social values and believes as well as political, economical and institutional factors (Shenkar and Zeira, 1987).

According to Hofstede (1980, p. 391) "IJV's are hybrids of the multinational and international organizations, because they have two or more dominant home cultures rather than one or none as is the case in the multinational and international organizations, respectively".

As a consequence JV's and domestic subsidiaries differ from IJV's and WOS's in terms of single- or dispersed ownership and their national- or international location (Shenkar and Zeira, 1987).

Other scholars appoint other factors as mostly crucial for the challenge of managing an IJV. Child, Faulkner and Tallman (2005) distinguish between exogenous and endogenous factors. Exogenous determinants that affect the investor decision are ambiguity about non-fulfillment of contracts, accounting standards and protection of intellectual property rights. Conflicts that stem from an endogenous site is the multiple agent problem due to the fact that both partners are simultaneous principals and agents (Child, Faulkner and Tallman, 2005).

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Another motive to engage in an IJV is that the formation of this governance mode reduces the number of competitors in an industry and thus makes it easier for firms to do business (Kogut, 1988).

2.1.2 Wholly Owned Subsidiary

In contrast to an IJV a WOS is set up by just one firm. In consideration of this fact, it is obvious that almost all conflicts which are described in the section of IJV, do not apply for the WOS. Thus, a WOS is shaped by external conditions as every other type of entry mode. Entering a foreign market by WOS provide the highest level of control for parent firms (Root, 1983). In addition, parent firms determine the level of resource commitment and degree of authority for subsidiary managers. Therefore, an efficient workload and finally the success of the project is, next to exogenous factors, based on these internal, organizational and managerial tasks.

The above stated review of entry mode literature with special intention to the entry mode of IJV and WOS highlights the determinants that come along with the decision when doing FDI. Knowing the characteristics of each type of entry mode is crucial for the further comprehensive of this study e.g. when it comes to the exemplification of the results in the empirical analysis.

In context to the introduction of the paper, the next chapter will examine emerging markets in more detail since its characteristics determine the decision whether to enter by WOS or IJV.

2.2 Emerging Economies

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something in between. In contrast to developed countries, developing and emerging countries are shaped by weak infrastructure, exchange-rate volatility, capital scarcity, rapid population growth and urbanization, rigid social structures, intervention of politics into business affairs and several other factors. In addition, especially large countries are determined by regional differences in terms of the named factors which makes it even more difficult to govern these countries (Child et al., 2005).

Emerging countries are determined by low-income and rapid-growth, fostered by using economic liberalization (Arnold and Quelch, 1998). Economic liberalization is shaped by a reduced role of the government, privatization of state owned enterprises (SOE) and lowered trade- and investment barriers. It is a reaction to poor capital markets, low skilled labor, political and economical uncertainty and instability (Hoskisson et. al, 2000). Missing legal institutions have lead to opportunism, rent-shifting, bribery and corruption (Nelson et al., 1998). The aim of economical liberalization is to create a market economy attractive and reliable enough to attract foreign investment. According to Khanna and Palepu (1999) missing institutions constrain an economy's growth potential. Hence, the absence of institutional settings can limit a country's standard of living and prevent access to international capital markets (Khanna and Palepu, 1999). This view is supported by Rondinelli (1998) who accents that the key issue is the establishment of strong institutional environment.

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appeared in emerging countries (World Bank, 1998). Simultaneously, open-door policies of foreign governments are attended by joining regional trading organizations which further lead to help markets growth (Hoskisson et al., 2000). However, doing business in poorer countries is accompanied by difficulties e.g. due to more regulations which harm FDI and as a consequence the establishment of wealth (Child et. al., 2005).

There is no standard agreed list of emerging markets. Following Arnold and Quelch (1998) a common measurement shapes three factors. The absolute level of economic development is measured by the average GDP per capita, the relative rate of economic development which is generally indicated by the GDP growth rate and finally the existence and stability of a liberal market system are indicators that determine an emerging economy.

Anyhow, some sources define countries and their markets as emerging, others do not (Xu and Meyer, 2012). However, there are significant widespread interfaces. One widely accepted investment information source is the Morgan Stanley Capital International Index (MSCI). The MSCI Market Classification Framework correspond to three criteria: economic development, size and liquidity, as well as market accessibility. The classification of markets is crucial since it determines the opportunity sets for investors. The MSCI Index is reviewed on a regular basic to ensure actuality in the evolution of the different markets (www.msci.com).

The MSCI Index characterize the following countries as emerging economies by the year 2012: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Philippines, Poland, Russia, South Africa, Taiwan, Thailand Turkey. Following The International Monetary Fund (2012) especially several Eastern European states like Bulgaria, Estonia, Latvia, Lithuania, Romania, Ukraine but also Argentina, Pakistan, Peru and Venezuela are also seen as emerging markets.

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To summarize, the development in emerging markets has resulted in constantly rising average household incomes. In connection to large population sizes that are characteristically for emerging economies, these markets offer absolutely high sales potential for firms. Following Hart (2002), 4 billion people stemming from the bottom of the pyramid. They generate a new and incredible significant consumer stream.

Under the consideration of a growing GDP growth rate, it otherwise need to be mentioned that the average household income in emerging markets is still clearly lower in contrast to the one of developed countries. This stems from the fact that growth in emerging economies starts from a lower economic base. As a result, demand for consumer products is generally higher in these countries (Child et al., 2005). It can be concluded that especially industries that offer low priced products of daily need, gain several opportunities to sell their products in these markets to the new generation of consumers.

Investments in these countries generally call for context-specific resources which tie in with the question of type of entry mode (Delios and Beamish, 1999; Meyer and Peng, 2005). In contrast to developed economies, lots of competitive advantages result out of networks or other interpersonal relationships on a firm- or governmental level (Hoskisson et al., 2000). Closing, it is crucial that firms don't regard emerging economies as similar in their economic evolvement since the upcoming consumer generation will not follow western patterns (London and Hart, 2004).

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2.3 Fast Moving Consumer Good industry

The Fast Moving Consumer Good industry is characterized by products that are frequently purchased and consumed by the end-consumer. In general, the basic aim of a manufacturing enterprise is the maximization of the produced number of units while simultaneously maintaining the number of margin (Gubbi, 2013). Next to this, a high turn-over rate, short usage life and relatively low prices determine the set of FMCG goods. In contrast to other industries, the FMCG industry is shaped by a totally stable nature, since the need for food and other convenience goods will continue to satisfy peoples need around the world in the future.

Since the range of products that belong to this industry is of extremely high number, it is essential to classify its segments. The International Standard Industrial Classification (ISIC) of all economic activities provide a segmentation index on a world level. To get a better overview of the correlation between different cluster codes, a conceptual model is provided in Appendix D.

The ISIC is divided into 21 sections which cover all different industry sectors. An overview of the sections are provided in Appendix E. In the next step the 21 sections are clustered in 99 divisions which are again classified into several subgroups. Finally, these subgroups can be divided into several classes which form the end of this classification.

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In connection with the entry mode literature, it is crucial for firms in the FMCG industry to have access to market knowledge to adjust their products. Following Kogut (1988), straight admission to markets via IJV is important since the product lifetime of FMCG products are short. When combined this introduction of the FMCG industry with the issue of emerging markets and entry mode decisions, it can pointed out that firms lack of local market knowledge. Without local know-how, it is impossible for FMCG firms to understand consumers tastes and preferences and hence to be successful (Khanna and Palepu, 2006). This clarify that MNE's are dependent on domestic support when entering emerging markets. In this context, the next chapter will gain insight in approaches that concern the entry mode decision.

2.4 Theoretical approaches

There are four scholars that especially fostered the evolution of research about strategy research in emerging economies. Following Xu and Meyer (2012) these are Wright, Filatechov, Hoskisson and Peng (WFHP).

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In the following, the four major theories that has gained the most attention in the field of strategy research in emerging economies, and that contribute most to the influence of factors on the entry mode decision of firms, are quoted in detail.

2.4.1 Transaction cost theory (TCT)

The transaction cost theory is one of the most widely accepted theories in international entry mode research. The focus of the TCA lies on the efficiency of markets and its choices for a specific type of governance mode (Xu and Meyer, 2012).

Transaction costs occur as a result of transactions, which are transfers of property rights across firms and markets. These costs can be divided into ex-ante transaction costs for initiation (search of information) and negotiation- & contracting, and ex-post transaction costs which result out of control (in terms of monitoring) and adaption costs (Williamson, 1985). The overall goal is the reduction of these transaction costs.

According to Buckley and Casson (1985) TCT helps to understand how the internalization of production through foreign direct investment authorize firms to replace or otherwise extent a market. One of the most famous representatives of this theory, Williamson (1975), has figured out five important determinants in this context: opportunism and bounded rationality (in terms of the awareness of limits to the application of rationality) are pronounced as human factors and can be seen as a risk, since these factors can't be completely handled by the governance of transactions. Other determinants arise through limitation due to small numbers of partners, market- uncertainty and complexity and information impactedness, which means that one partner is shaped by costs for achieving needed information (Child et al., 2005).

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investments that were made for a specific transaction have greater value than if those investments were used for any other purpose (McGuinness 1994). In other words, asset specificity arise when suppliers make investments that are specific to the buyer (Brouthers and Hennart, 2007). As a result, contractual agreements are used to protect these asset- specificity investments against opportunism, bounded rationality and uncertainty (Child et. al., 2005). In the case of unforeseeable uncertainty, hierarchical coordination through WOS or JV offer the best solution (Williamson, 1985). External uncertainty as country risk and cultural distance make it hardly impossible to consider all conditions in a contractual agreement (Zhao et. al., 2004). Internal or behavioral uncertainty complicate the verification of performance (Brouthers and Hennart, 2007).

Some scholars have pointed out that high asset specificity relates to a raise the likelihood of using higher control modes like a WOS (Brouthers and Brouthers, 2003, Erramilli and Rao, 1993, Gatignon and Anderson, 1988). Other researchers have seen it the other way around (Delios and Beamish, 1999).

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"Economics theories model economic decisions as made by rational utility-maximizing agents, subjects to constraints such as bounded rationality and incomplete information" (Child et al., 2005, p. 7). To clarify, agency theory relates to the way of controlling and limiting the self-seeking behavior of agents and principles. This theory is widely used by researchers to examine patterns of corporate governance such as types and concentration of ownership and the influence of board composition on performance (Child et al. , 2005). Agency problems matters more for domestic firms in emerging economies than for MNE's (Cuervo-Dazurra and Dau, 2009). However, this theory need to be considered since the FDI entry mode is subject if this study. Less agency problems in developed economies, stem from the fact that ownership and control are mostly separated and shareholder's interests are protected by legal institutions (Young et al., 2008). The traditional principal-agent (PA) conflict- the conflict between principals (owners or shareholders) and agents (managers) received the most attention by researchers (Berle and Means, 1932). Eisenhardt (1989) has pointed out that agency theory relates to the nature of human behavior in terms of self-interest, bounded rationality and risk adversity. Additionally, agency theory shapes organizations due to the fact that they imply the goal divergence of their members. Finally, it concerns the information asymmetry between principals and agents which increase monitoring costs (Hoskisson et al., 2000). As a consequence, the focus of agency theory is identified by efficient contracting to regulate the relationship between principals and agents (Eisenhardt, 1989).

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controlling shareholders an minority shareholders are emerging (Dharwadkar et al., 2000). This is exemplified by the research of Douma et al. (2006) who figured out that foreign and domestic owners on the Indian market have other interests which ends in different performance implications. This conflict has been pronounced as the principal-principal (PP) conflict (Dharwadkar et al., 2000). In general, these conflicts are characterized by concentrated ownership and control, poor institutional protection of minority shareholders, and weak governance in terms of less publicly traded firm and thus more SOE's (La Porta et al., 1997), lower firm values (La Porta et al., 2002), less stock price information (Morck et al., 2000), inefficient strategy (Filatechov et al, 2003), less investment in innovation (Morck et al., 2005) and often expropriation of minority shareholders interests by large shareholders- often families or business groups (Young et al., 2008). These facts impact firm's level of risk affection (Meyer and Xu, 2012).

2.4.3 Resource-based View (RBV)

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reputation)- and finally non-substitutable (Barney, 1991). Furthermore, it is crucial that these resources and capabilities are housed within a firm.

To clarify, firm resources that are unique and breed economic value, result in a competitive advantage and hence improve organizational outcomes (Child et al., 2005). MNE's can make use of their resource advantages by the exploitation of a foreign market or by using this market for the acquisition and development of new resources and capabilities (Tsang, 2000). If the environmental circumstances change a firm must be able to react to this occurrence in terms of improving its resources and capabilities by internal strength or external learning (Child et al., 2005).

According to Brouthers and Hennart (2007) over time developed experience in foreign markets may be seen as a firm-specific advantage. Thus, the likelihood of experienced firms to choose an equity governance mode instead of non-equity modes is higher. This relationship between length and scope of experience and entry mode choice is U-shaped (Erramilli, 1991). The learning perspective is seen by WFHP as a part of the RBV. According to Xu and Meyer (2012), the consideration of the fast changing environment in emerging markets is essential when doing research in this field. The major issue of this approach refers to the capability of MNE's to transfer their developed knowledge through the whole organization (Xu and Meyer, 2012).

2.4.4 Institutional theory (IT)

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rules of the game in a society or humanly devised constraints that influence human behavior. Institutions are considerably important for an effective market mechanism since they guarantee firms participation in markets without unreasonable costs (North, 1990). The stronger the institutional environment, the lower the costs of doing business for firms and thus the more likely is the decision for foreign direct investment, since the costs for alternative organizational modes are moderated (Williamson, 1985).

The focus of research has been mainly on host country environments (Brouthers and Hennart, 2007) where the institutional framework is totally different from that in developed countries (Meyer and Peng, 2005; Wright et al., 2005). Risk and uncertainty factors in terms of product, government policy, macroeconomic, materials and competition have been widely researched (Brouthers, Brouthers and Werner 2000,2002; Delius and Beamish, 1999).

In general, it must be distinguished between formal and informal institutions. Formal institutions, such as laws and other legal regulations, accounting requirements, information disclosure, approval procedures etc. are less well common and efficient in emerging economies. Corporate governance mechanisms are poorly enforced by the institutional framework in emerging economies (Peng, 2003).

In contrast, informal institutions are characterized by relational ties and networks, formation of business groups, family networks and government contacts and are dominant in determining the corporate governance system in emerging countries (Peng and Heath, 1996). In contrast to developed economies, firms in emerging markets are deeply shaped by informal institutions (Peng and Heath, 1996). As a consequence, it can be said that informal institutions replace formal ones.

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it can be concluded, that business activities in emerging markets differ from those in developed economies (Wright et al., 2005).

Summarizing these approaches, the TCA generally explains the entry mode choice with considering occurring transaction costs for a certain entry mode, and focus mainly on MNE's in emerging markets, sources for transaction costs and the structure of a governance. AT concerns the difficulties that stem from the general nature of diverse partner interests. This approach have its attention on local firms and examines the issue between majority and minority shareholders and the sources of arising agency costs. The RBV point out why firms differ and how they can gain a competitive advantage by internalization and accompanied learning processes. The IT focuses on the institutional environment and its influences on the level of ownership decision and the differences between home and host economies and its resulting consequences.

This review of theoretical approaches demonstrate important theoretical background information that are needed for the development of a plausible theory of the entry mode decision of FMCG firms and its influence factors. Taken the provided information together, this thesis will follow Dunning's (1993) eclectic or OLI (ownership, location, internalization) framework in further process. This framework states that an entry strategy can't be seen in isolation since it must be viewed in context to the firm variables and strategies firms pursue in other countries.

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3. Theory & Hypotheses

This chapter will demonstrate the theory that is developed out of the before mentioned information, and the intention of this thesis to examine firm, industry and country-level factors that impact FMCG firms' decisions of enter foreign markets by WOS or IJV.

3.1 Economic development

For longtime MNE's extremely focused their investments on developed countries. Next to the issue of globalization which fostered firms to extent their business activities across borders and the fact of saturated home markets, evidence can be found by having a look at the IT.

A working and secured institutional environment is indispensable for an effective market system since it guarantees firms investments and outline the conditions of doing business (North, 1990). Williamson (1985) have pointed out that stronger institutional settings form a significant precondition for FDI. This view is supported by Rondinelli (1998) who have stated that the key issue is formed by the establishment of a strong institutional environment.

Additionally, trade barriers of foreign governments hamper FDI activities of Western firms in these countries. The extent of these influence factors might have played an important role when looking for explanations why Western firms hesitated with investments in foreign developing countries. Hence, it can be concluded that location criteria in the form of secured economic development have an influence on the entry mode decision of firms (Pan and Tse, 2000).

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FMCG firms to successfully do business since e.g. the distribution of products is dependent on a working infrastructure.

Foreign governmental policies and incentives for FDI comes along with a rising likelihood to enter these markets with high equity-based investments (Pan and Tse, 2000). In this context, firms investments are less risky. Due to this fact, MNE's in the FMCG industry are likely to pursue WOS since they are willing to commit resources to reach high outputs (Agarwal and Ramaswami, 1992). In context to Cho and Padmanabhan (1995) I hypothesize the following:

Hypothesis 1: Higher economic development in markets let MNE's in the FMCG industry pursue a WOS over an IJV.

3.2 Market growth

In contrast to the level of economic development, market growth refers to the efficiency of a market. In general, economies that have a low market potential are less attractive for FDI (Agarwal and Ramaswami, 1992). In consideration of the McKinsey & Company report (2011) emerging markets will represent close to 50% of total consumer spending by 2020 and about 70% of the overall growth in consumer spending from 2010 to 2020. As a result, MNE's have shifted increasingly to emerging markets (London & Hart, 2004). Consequently, the average GDP growth rate in emerging markets is higher than in developed markets which is supported by the illustration an Appendix G. As mentioned above, the aim of economical liberalization is to create a market economy attractive and reliable enough to attract foreign investment. Economical liberalization and thus a starched institutional framework are preconditions for the growth of markets.

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FMCG industry are focused to maximize their resource advantages by the exploitation of a foreign market or by using this market for the acquisition and development of new resources and capabilities (Tsang, W.K., 2000). As a consequence of growing markets, firms have the opportunity to raise their profits due to higher economies of scale. MNE's in the FMCG industry heavily make their money out of high economies of scale, since the offered products are generally low priced and of high turnover-rate. In addition, the growth potential that stems from emerging markets comes along with millions of new consumers, which offers FMCG firms an incredible high potential to raise profits. Thus, FMCG firms are likely to establish long-term market presence to achieve economies of scale and raise their profitability, caused by the market potential (Agarwal and Ramaswami, 1992). As a result, the following is suggested:

Hypothesis 2: High levels of market growth let MNE's in the FMCG industry pursue a WOS over an IJV.

3.3 International experience

Child et al. (2005) generally standardize the entry mode decision in dependence to the targeted country of destination. In this context, JV's are the preferred forms for foreign expansion in emerging economies while acquisitions form the favored type of market entry in developed countries. This view don't really meet consent with other perspectives as will be stated in the following part.

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become to handle situations of uncertainty and in general doing business in a new environment. Thus, they become experienced in foreign markets which can be seen as a firm-specific advantage (Brouthers and Hennart, 2007). As a consequence they tend to be more risky in their entry mode decisions and are likely to choose a WOS over a IJV to ensure a higher level of control and hence performance (Delios and Beamish, 1999). In the case of none previous experience in foreign markets, firms are likely to lower their risk investment and thus start by exporting their products or using IJV's (Delios and Beamish, 1999).

Barkema and Vermeulen (1998) have researched the issue of experience from a learning perspective. They have pointed out that firms that do business in diverse national contexts and with diverse product segments develop a significant know-how. Thus, it can be concluded that MNE's in the FMCG industry with their highly segmented product sets, gain more experience than firms in industries with less diversified products.

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increasing their returns. Hence, a firm is expected to choose the entry mode that offers the highest risk-adjusted return on investment.

International experience lower the risk of uncertainty since previous gained knowledge may help them to avoid mistakes they might have done in the past. This learning attitude can support them to better meet customer needs. Especially FMCG companies are dependent on meeting exactly the demand of local needs through adjusting their products to local tastes. Otherwise they do not have a chance to purchase their products successfully. Previous knowledge out of other national contexts about different tastes and food behavior help MNE's to save time and money to adjust their products to local tastes and as a consequence minimize their costs and maximize their profits. In addition to experience and knowledge, reputation might help firms to establish their products in a foreign market. According to Hennart (1982), reputation that is developed in one country can probably profitably exploited in another economy.

To summarize, experience, reputation and knowledge which are derived from host countries help the firm in taking their strategic decisions and finally develop the capability to operate more or less independently in a foreign country (Delios and Beamish, 1999). Following Zhao et al. (2004) and his meta-analysis, internal uncertainty is lower when MNE's have more international experience. As a conclusion out of the above mentioned statements I assume the following:

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3.4 Cultural distance

In context to globalization and its determinants the influence of culture becomes importantly interesting. All human beings, nations and business's are directly or indirectly affected and influenced by different kinds of culture. It predominated peoples way of thinking, feeling and acting in the past as well as in nowadays (www.geerthofstede.nl)

Cultural differences are the result of distinct home countries and cultures. This is exemplified by the expression cultural distance between two countries. The degree of cultural distance- measured by differences in values, norms and beliefs between host-and home country- shape firms entry mode decision (Kogut and Singh, 1988; Yiu and Makino, 2002).

According to Hofstede (1980) there are four dimensions of cultural differences: Power distance, uncertainty avoidance, individualism and masculinity.

One important differentiation can be made between national- and organizational culture. According to Hofstede, firms are faced to manage both national and organizational cultural differences simultaneously. Organizational culture might be generally manageable, when highly forced by the whole company and especially by the top management (Hofstede, 1994). In contrast, national cultures are not subject for changes. MNE's that operate in emerging markets are shaped by both national- and organizational culture.

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willing to work most efficient to reach the maximal outcomes, and when the human resource management (HRM) retain in the foreign partners responsibility who are more conversant and efficient in managing employees and relationships to suppliers and the government (Stopford and Wells, 1972). Following Kogut and Singh (1988) IJV's offer MNE's a solution for the problem of managing cultural differences, but it comes along with the sharing of ownership and thus control. In context to the TCT, transaction costs may be lower if the targeted host country and its culture are less different from the cultural environment in the home country (Larimo, 2003).

As a result, MNE's are challenged to consider and imply cultural differences between their country of origin and- destination in their strategy to do successful business. A firm’s capability to find an appropriate business strategy that address to the issue of cultural differences, is the key for the establishment of its products in the foreign country and the option of achieving a relative competitive advantage.

That culture has an impact on a firm’s strategy is widely accepted and demonstrated through plenty of studies in many contexts. From a IT perspective, MNE's are dependent on local know and support to do successful business in a new and uncertain environment. These informal institutions like relational ties, networks and government contacts are significant for the establishment of the firm in the foreign market (Peng and Heath, 1996).

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and adjust every product in correlation to the cultural difference in all countries these firms are performing in.

Following Arnold and Quelch (1998), at the entry stage firms- especially small and medium sized companies- absorb the strategy they use in Western markets, since the adaption to cultural differences are time- and cost intensive. However, regarding large Western FMCG MNE's, it is necessary to adapt their products to local tastes to reach high economies of scale. Evidence is provided e.g. by the beverage producer Coca-Cola. On its webpage the company states that they work locally and tailor their drinks to local tastes and demands (www.coca-cola.co.uk). This means, that even if consumer choice and brand preference don't widely exist when it comes to emerging economies and the demand that stems from the bottom of the pyramid (Schuh and Holzmüller, 2003), it is crucial for firms to adapt their products to local tastes. As a consequence gaining local knowledge is the key success factor.

Another aspect that incorporate in cultural distance, is language. This issue is easily clarified when considering that e.g. Indian people can often speak, or are at least understand the English language. Regarding other emerging markets, the English language isn't that widespread. Out of this fact, Western MNE's operating in India may have it easier to communicate their products to consumers and thus have a lower cultural distance to India than to other emerging countries. This issue can be backed-up by considering TCT. In the case of low cultural distance, gaining local knowledge and information become less cost intensive, since customer behaviors and values are not that divers and thus transaction costs lower (Erramilli and Rao, 1993). For high cultural distance it is the other way around.

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the involved risk of the investment they are likely to pursue medium levels of entry mode when cultural distance is high. Therefore, I hypothesize:

Hypothesis 4: The lower the cultural distance between home and host economy the more likely MNE's will pursue a WOS over an IJV.

3.5 Industrial-product

Regarded from a transaction cost perspective Anderson and Gatignon (1986) state that products that are highly customer specific, significantly need the input of local knowledge. This can also happen in form of contracting with a domestic agency. In this context, MNE's are hardly forced to work efficiently with their foreign domestic partners to tailor their products to the local demand (Anderson and Gatignon, 1986). To clarify, if the capability of the domestic partner can be procured by the MNE by low involved transaction costs, a WOS will be preferred and the needed local knowledge will be obtained by contractual agreements on the market (Hennart,1988).

However, the unfamiliar environment combined with high uncertainty and risk generate lots of influence factors that can't be completely considered in a contract (Zhao, et al., 2004). Thus, the internalization of important local knowledge may be gained easier when the entry mode is offering a higher level of control.

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Ciborra (1991) state that firms in the high-tech industry are more likely to choose an alliance over M&A's, whereas low-tech firms may prefer M&A's since learning and flexibility is less important in the latter. Learning and flexibility might be generally less important in low-tech sectors, however they still take a major role when it comes to the FMCG industry since, in contrast to other low-tech industries like e.g. the oil and gas sector, firms in the FMCG industry need to adapt their products to local demands.

In context to Balakrishnan and Koza (1991,1993) JV's are a governance mode that reduce transaction costs. When acquiring a firm these costs are higher. In contrast, firms may prefer acquisitions over JV's when the pursued resource is not mixed with any other resources that are not needed by the buying firm (Hennart, 1988). In the case that the targeted resources are entangled with non-desired ones, firms foster an IJV since they though achieve the needed resource (Hennart and Reddy, 1997).

Viewed from a TCA, an IJV is a hybrid mode of market entry, characterized by sharing of risk, control etc. between partners. Thus, IJV's are the preferred mode of entry when the forced assets are not easily to identify for the foreign firm. Especially when considering large and not divisionalized companies this will be the case (Hennart and Reddy, 1997). The other way around, acquisitions will be the preferred mode choice in the case of small or large, but divisionalized companies where the needed division can easily be identified and acquired (Kay et. al, 1987).

Thus, the focus of Hennart's perspective lies on the integration costs, whereas Balakrishnan and Koza (1991,1993) point out the transaction costs that occur from the market for firms.

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environment. By nature, services are characterized by offering a product where production and consumption happen simultaneously (Erramilli and Rao, 1993).

In contrast to low capital intensity of service firms, high-tech firms are of highly capital intensive and interact in a business area that is considerably more sensible and complicated. WOS's are accompanied by much higher risk since targeted assets like technical skills are not directly measurable or even visible from an outside perspective. As a consequence firms may be more likely to follow a risk-adjusted strategy and prefer doing FDI by the entry mode JV. Thus, I assume the following:

Hypothesis 5a: In contrast to firms in the service industry, MNE's in the FMCG industry are likely to pursue more often IJV's than WOS's.

Hypothesis 5b: In comparison with high-tech firms, MNE's in the FMCG industry less often engage in JV's.

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4. Data & Method

This chapter provide detailed information about the different variables that are used in the analysis, and the way of how they are integrated in the models. Furthermore, the data sample and data sources will be exemplified.

4. 1 Operationalization and data sources

This section start with an exemplification of the variables and their way of integration in the analysis. In context to Kogut and Singh (1988) the entry mode choice can be expressed by the specification: Entry Choice = f (firm variables; industry variables; country variables).

Next, the used data sample and sources are explored. This section is followed by the presentation of descriptive statistics and its implications. The final part introduce the used empirical model.

4.1.1 Dependent variable

The dependent variable consists of the mode of entry into a foreign market. As mentioned before the distinction that is made in this thesis relate to the decision between WOS and IJV. Due to limited access to databases, greenfield investments will not find consideration. Consequently, WOS's will just be measured by the number of acquisitions that have been done by selected firms in the FMCG industry. I will follow research done by Brouthers (2002) and Delios and Henisz (2000) and consider the entry mode of a WOS if ownership share is 95% or more. JV's are covered if the ownership share is ranked between 5- 95%.

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and JV's are counted separately. The results are pointed out by the differences between WOS and IJV, expressed by the likelihood for a WOS.

The dataset for the dependent variable is filtered out of two databases. On the one side, Orbis (www.orbis.bvdinfo.com, 2013)- a database which provide financial market and other information on companies worldwide- is used to get access to the necessary company information. On the other side, Zephyr (www.zephyr2.bvdep.com, 2013)- a common database for M&A deals- provide the M&A deals that have been done by the selected companies between 1997-2013.

4.1.2 Independent variable

The independent variable economical development is measured by using a dummy variable which takes a 1 if the considered country is an OECD member, and 0 if not (Cho and Padmanabhan, 1995; Larimo, 1993). The necessary data is adopted from the list of OECD member countries stated on the OECD webpage (OECD, 2013).

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Foundation (www.heritage.org, 2013) and Worldbank (www.data.worldbank.org, 2013) provide information for this variable.

International experience has been captured in various ways before (Brouthers and Hennart, 2007). Padmanabhan and Cho (1996) used the logarithmic number of years of worldwide experience. Other commonly used measurements are the total number of foreign investments (Delios and Beamish, 1999; Gatington and Anderson, 1988; Gomes-Casseres, 1989; Kogut and Singh, 1988), the logarithmic number of years of presence in the foreign country (Delios and Beamish, 1999; Delios and Henisz, 2000; Hennart, 1991; Luo, 2001; Padmanabhan and Cho, 1996) or number of country specific ventures (Luo, 2001). In this thesis, the latter method is applied, and thus international experience is measured by the logarithmic number of subsidiaries per country. The number of subsidiaries stem from the database Orbis (www.orbis.bvdinfo.com, 2013).

Cultural distance between the home (i.e. Switzerland, USA, Netherlands and France)- and host country is measured by using Kogut and Singh's index (1988). The index is calculated by using Hofstede's (1980) cultural dimensions- namely power distance, individualism, masculinity and uncertainty avoidance:

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Ramaswami, 1992; Barkema et. al, 1996; Barkema and Vermeulen, 1998). The data for each cultural dimension is widely accessible on Hofstede's webpage (www.geerthofstede.nl).

To highlight the specificity of the FMCG industry, two other industries find consideration in the analyses. As mentioned before, these industries are the service- and high-tech industry. The intention is to choose the biggest firms of every industry to have comparable starting points. Next to the fact of comparable firm-level determinants, all considered firms stem from developed countries which is relevant, when taking into account that the focus of this research lies on FDI entry modes from MNE's from developed countries in emerging markets.

Both industry variables are measured in the same way as it is explained in chapter 4.1.1. Identically with the data sources for the dependent variable, the data sets for the service- and high-tech industry are also selected out of the databases Orbis and Zephyr.

Additionally, freedom of corruption will be used as a control variable. Supported by Meyer et al. (2009), who state that companies are shaped in their entry mode choice by the institutional environment of the host country, this variable is representative to control for the institutional environment. The data is taken out of the economic freedom index from the Heritage Foundation (www.heritage.org, 2013), which offers information about market-supporting institutions with a focus on the freedom of individuals and companies and their opportunities of doing business (Meyer et al., 2008).

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4.2 Sample

The dependent variable that is used in the empirical analysis is the foreign market entry decision of firms in the FMCG industry. The analysis is based on secondary data. To test my hypotheses, I take a cross-sectional country sample of four developed countries- namely Switzerland, the USA, the Netherlands and France. In these countries the headquarters of the worldwide biggest and leading firms in the FMCG industry, measured by annual revenues and employee size, are settled. It is not surprising that all firms origin from developed countries, since almost all of the worldwide biggest companies are based in these countries (Prahalad and Hart, 2002). The used data comprise the following companies: Coca-Cola the Company, the Group Danone S.A, L'Oreal S.A, Mondelez International Inc. (previous name Kraft Foods Inc.), Nestlé S.A., PepsiCo Inc., Procter & Gamble Co. and the Unilever Group.

Even if these firms stem from different countries, it is expected a similar entry mode behavior, since they all stem from developed countries, the same industry and have comparable firm- level characteristics, with annual operating revenues over $25 billion and at least 70,000 employees. As mentioned before, industries are divided into ISIC segments. The concern is to pick out firms that together comprise all four main product categories with food, beverages, personal- and household care since.

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meat and alcoholic beverages are excluded, since these companies would bias my intention of putting out classical FMCG represents.

In total the eight mentioned firms have interacted in 1596 M&A deals in the time back to 1997. However, it is necessary to refine the data. To clarify, to shrink possible biases I just consider completed deals which have been done directly by the parent companies. Furthermore, I decide to include just deal types that can clearly assigned to the definition of WOS and JV.

Finally, I exclude eleven host countries where data for some independent variables e.g. cultural distance have not been available. After implementing these characteristics the data size shrinks to 215 investments. However, when conducting the regression analyses it is figured out that the home countries of the eight firms bias the results, since these countries have been the location for high numbered investment deals. Hence, I decide to exclude all investments that have been made in the US, Netherlands, Switzerland and France for the FMCG industry and equally the countries of origin of the firms in the other industries. In addition, Greece is excluded as well, since its 5-year GDP growth is that much lower than the mean that the other findings are deeply biased when running the regression analyses.

This line of action might be supported, when taking into account that from a total number of 215 investments, solely 51 have taken place in the US.

Even when the final data size shrinks to 136 investment deals in 36 countries (details are provided in Figure 1), the quality of information is risen. Out of these 136 investments, 57 are done by French firms, targeted in 23 of the 36 countries.