The influence of Host Country Institutional Factors on
Market Entry Strategy in Developing Countries by MNEs
Supervisors: Dr. H.J. Drogendijk (University of Groningen) Dr. S. Bhattacharya (Newcastle University) Student: R.D. van der Veen
Student number: S2013002 (Groningen) / B6023966 (Newcastle)
Program: DD. Advanced International Business Management & Marketing Date: 05-12-2016
Word Count: 14.152
Abstract:
This study tried to identify how host country institutional factors influence the market entry strategy selection of MNEs. Three market entry strategies were selected for this study, namely Minority Stake, Acquisition, and Joint-Venture. The research has collected observations from 10 developing countries from across the world, and has used variables to measure the
effectiveness and stability of the governments, the effectiveness and strength of the legal frameworks, the strength of the labour unions, the capital market, and finally the openness of the developing countries. A multinomial regression analysis was undertaken, in which every variable was put in individually. The results suggest that host country government
effectiveness has a positive and significant relation to the number of Acquisitions compared to Minority Stakes. In addition, host country government effectiveness and stability have a significant positive relation to the number of Joint-Ventures compared to Minority Stakes. Furthermore, the strength of host country labour unions is positively related to the number of Joint-Ventures compared to Acquisitions. Finally, host country openness is positively related to the number of Joint-Ventures compared to Minority Stakes. These findings provide MNEs with information regarding what type of market entry strategy is preferred of selected in order to coop with these institutional factors. The other results were as well positive, but not
significant. Thus, it is an indication that the factors used in this study should be taken into account by MNEs when expanding into developing countries. In the end, this study was a step in the good direction, however future research should be conducted to find deeper relations and to find additional factors for MNEs to consider.
Acknowledgment:
First of all, I would like to thank both my supervisors for their time and effort in helping me on the path of writing this master dissertation. Without their feedback and support this dissertation would not have become the dissertation it is today.
In addition, I would like to thank my family for supporting me through the whole process, giving me guidance and advice.
Finally, I would like to thank Janniek, for sticking with me through these times, in which I was more occupied with my dissertation than I could spend time with you.
Table of Content: 1. Introduction p. 1 2. Theory p. 5 2.1 Institutional Theory p. 5 2.1.1 Government p. 10 2.1.2 Legal Framework p. 13 2.1.3 Strength of Unions p. 16 2.1.4 Financial market p. 18 2.1.5 Openness p. 20
2.2 General review of market entry strategies p. 22 2.2.1 Wholly Owned Subsidiaries p. 23
2.2.2 Joint-Venture p. 24 2.2.3 Minority Stake p. 25 3. Methodology p. 27 3.1 Dependent variable p. 28 3.2 Independent variable p. 28 3.3 Control variable p. 30 3.4 Analysing method p. 31 4. Results p. 32 4.1 Descriptive Analysis p. 32 4.2 Correlation Analysis p. 32 4.3 Multinomial Analysis p. 34 5. Discussion p. 40
5.1 Implications for theory p. 41
5.2 Implications for managers p. 42
6. Limitations p. 43
6.1 Future research p. 44
7. Reference List p. 47
8. Appendix A: List of countries and their number p. 53
9. Appendix B: Minutes of the meetings p. 55
List of Tables/graphs:
Graph 1: FDI flow: global and by group of economies 1995-2015. p. 1 Table 1: Overview of FDI stock for the developing countries in 2015. p. 2
Table 2: Conceptual model p. 9
Table 3: Overview of possible market entry strategies p. 22 Table 4: Overview of the deal types used per selected country p. 32
Table 5: Descriptive analysis results summarised. p. 32
Table 6: Correlation results of the independent variables. p. 33 Table 7: Model Fitting Summary for the Multinomial Regression Analysis p. 34 Table 8: Summary of Multinomial Regression for Acquisition compared to Minority Stake
for the individual variables p. 35
Table 9: Exp(B) results for the independent variables (for Acquisitions compared to Minority
Stake) p. 35
Table 10: Summary of Multinomial Regression for Joint-Venture compared to Minority
Stake for the individual variables p. 36
Table 11: Exp(B) results for the independent variables (for Joint-Ventures compared to
Minority Stake) p. 37
Table 12: Summary of Multinomial Regression for Joint-Venture compared to Acquisition
for the individual variables p. 37
Table 13: Exp(B) results for the independent variables (for Joint-Ventures compared to
- 1 - 1. Introduction:
According to the UNCTAD Global Investment Report from January 2016, the global FDI flow has jumped 36% in 2015, which lead to a total FDI flow of US$ 1.7 trillion, thereby reaching the highest level of FDI flow since the global economic and financial crisis in 2008-2009 (UNCTAD Global Investment Report, 2016). The rise in FDI flow is mainly due to an increase of 90% of FDI flows into developing countries (UNCTAD Global Investment Report, 2016). The total FDI amount flowing into the developing countries are now 45% of the total FDI flow in 2015. The graph below shows the FDI flow from 1995 until 2015.
Graph 1: FDI flow: global and by group of economies 1995-2015. (Source UNCTAD)
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Table 1: Overview of FDI stock for the developing countries in 2015. (Source CIA World Fact book.
The above stated table shows that although some of these countries may be classified as developing, they already take a high place on the list of recipients of FDI flow. Therefore, these countries are worthwhile to be studied. The large potential these developing countries have, it is likely that more and more investments are expected to be made into these countries. Given this likely increase in investments, this study aims to analyse host country institutional factors that could influence the market entry strategies selected by MNEs. These institutions are present in every country; however, the strength and effectiveness of these institutions could differ between countries, and thus there is no standardised method of dealing with them.
Note that these countries are not called emerging countries without a reason. There is however no clear definition as to what characterises an emerging country, however per O’Sullivan et al. (2003), a developing country is a nation or sovereign state with a less developed industrial base and which scores low on the Human Development Index (which is published by the United Nations Development Program) compared to other countries. In addition, Beugelsdijk et al. in their book International Economics and Business (2013) state
Rank Country Stock of FDI at
home (in millions)
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that some developing countries lack well-functioning institutions. Some examples of these institutions are corruption, a lack of property rights, and an imperfect legal system.
Another factor that distinguishes these countries from one and another is their background. Looking at both Russia and China, both countries have a strong communistic background. Communism was introduced into Russia by Lenin in 1917. It took until 1991 before Russia stepped away from Communism. However, given this long experience with communism, it could still be embedded in the mind-set of both Russians as well as Russian companies. Moving on to China, where Communism was introduced in 1921 with the
founding of the Communist Party of China. This party is still the ruling party in China today. However, the party does have granted certain areas in China accessible for foreign companies, and allow a market structure (Niu et al., 2012). In addition, the Indian legal framework is based on the legal system from the United Kingdom (Holtbrügge & Baron, 2013), thus companies expanding into India can expect similar laws, regulations, and judicial systems as in the United Kingdom.
These differences present companies moving into these countries with diverse risks and challenges. Therefore, studying these host institutional factors can be of key importance.
Previous studies have mainly investigated market entry into developed countries such as the United States, Japan, and the United Kingdom, while research on market entry in
emerging economies such as the BRIC countries is hardly studied before 2010 (Canabal & White, 2008; Morschett, Schramm-Klein, & Swoboda, 2010). However, there is an increasing attention for the developing countries. Some of these studies focus on the developing
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Other studies have only handled single aspects of entry mode such as ownership or establishment mode (e.g., Dikova & van Witteloostuijn, 2007; Pan, Li, & Tse, 1999; Slangen & Hennart, 2008). According to Dikova and van Witteloostuijn (2007), the mode of
establishment as well as the market entry choice are determined by the technological intensity, international strategy and experience of the parent’s firm. In addition, a study performed by Pan et al. (1999) found that the early entrants of a market have a significant higher market share and profitability compared with companies that follow late to this market. This research also found that equity Joint-Ventures have a higher profitability compared with wholly owned subsidiaries or contractual Joint-Ventures. The source of this difference could be due to the significant interaction between order and mode of market entry. Other factors that affect firms’ performance are firm efficiency and firm size.
Despite the current interest and the growth potential of the developing countries, only a few studies have focused on the question of which market entry strategies are preferred by foreign firms in these countries (Hessels and Terjesen (2010), Höltbrugge and Baron (2013), Lopez-Duarte and Garcia-Canal (2002), and Rothaermel et al. (2006)). This study aims to find out how host country institutions, e.g. role of the government, legal frameworks, strength of the labour unions, openness of the country, capital markets, and the labour force, relate to market entry strategies. In this way, this study aims to help companies identify a proper and fitting market entry strategies, by looking at host country institutions. The institutions are present in every country; however, the strength and effectiveness differ between countries. Thus, these differences could present companies with opportunities or threats, and thus should be accounted for. But from the previous studies is becomes clear that having the right market entry strategy, and thereby coping with the host country institutions, it is possible for
companies to be successful. In order to know what market entry strategy is right, one must first understand how the host country institutions affect the market entry strategy decision. Therefore, the following research question has been developed:
How do host country institutions influence the market entry strategies of MNEs when expanding into developing countries?
- 5 - 2. Theory:
In this section the theoretical aspects will be discussed. The starting point is the main theory for this study, which is introduced and reviewed. Subsequently, the theory will be linked with the different factors identified. After having introduced and reviewed the different factors, hypotheses are developed. The final step a general review of the potential market entry strategies for companies. Due to time constraints, given that this is a master dissertation conducted in a limited time span, it would not be possible for this study to include every possible market entry strategy into this study. Therefore, a selection is made and thus the following market entry strategies are included in this research; Acquisitions, Joint-Ventures, and Minority Stakes. A further explanation about the selection will be given at the end of each section handling the different market entry strategies.
2.1 Institutional theory:
According to Baum and Oliver (1991), the Institutional theory argues that; the institutional environment shapes and frames the organizational arrangements, practices and structures in which firms operate; in short, converging norms and values in organizational settings, move organizations in the same institutional context to become homogeneous, but different from those in other contexts.
It is widely accepted and acknowledged in international management research, that the institutional context in which firms operate has a direct influence on market entry strategies and the outcomes of these strategies (Brouthers, 2002; Brouthers & Hennart, 2007; Meyer & Nguyen, 2005). The institutional environment consists of formal and informal forces. These forces affect both the human as well as the organisational behaviour via regulative, cognitive, and normative structures (Meyer & Rowan, 1977; Scott, 2007). The formal forces consist of laws, rules and regulations that are made by institutions such as the government (Scott, 2007). These institutions further influence the economic, labour, and legal system. The way these institutions influence and guide the behaviour of firms is by defining the rules of the game, monitoring, and enforcing the correct behaviour.
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the way uncertainty is assessed and experienced in foreign markets. Some examples of uncertainties within foreign countries are the level and availability of resources, and the effectiveness of host institutions (Demirbag, Tatoglu, & Glaister, 2008). Therefore, these institutions influence transaction as well as production costs and thereby influence the profitability of companies engaged in economic activities in these environments (North, 1990).
However, not only the profitability of companies engaged in these environments are influenced, but on a deeper and more structural level the fact is that organisations adopt similar organisational arrangements, structures and practices that reflect the values of their institutional context. This also means that companies operating in foreign countries adopt local practices and structures. The reason companies undertake these actions is to increase their legitimacy and chance of survival (Zucker, 1987).
Companies expanding into developing foreign countries are exposed to a wide variety of factors and forces from these foreign countries. These local factors and forces define and characterise these markets, and are most likely different from the factors and forces the companies are familiar with at home (Khanna and Yafeh, 2007; Khanna and Rivkin, 2001). Therefore, the Institutional theory is especially relevant as it helps companies to identify and think about the differences in factors and forces, and ultimately how to deal with them.
An example of such a factor is the role of the state or government, as, according to Yaprak and Karademir (2010), the state or government influences the development of the economic and social contexts of the markets. Included in the social context of markets are the social relationships, as these relationships shape the social context in which companies’ function and evolve (Yaprak and Karademir, 2010). In addition, studies performed by DiMaggio and Powell (1983), Kostova (1997), Zaheer (1995) and Shenkar (2001) fit to this subject as well, since these studies have focused on the institutions in which companies conduct their
business, and how potentially the host institution could affect conducting business in that host environment. These studies have found that companies are likely to adopt local practices in order to gain legitimacy in the host market, thereby increasing the survival changes
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Guillén (2000) and Kock and Guillén (2001) argue as well that as firms are shaped and action according to their social and institutional contexts, different social and cultural patterns and orientations will result in different types of organizations in different markets. For instance, Guillén (2000) suggests that business groups are more likely to flourish in markets with vertical relationships, such as in South Korea, but not in societies where horizontal relationships are the norm, such as in Taiwan. These are some examples of how the
institutional context of a country can shape a company, and the performance of the company. Taking this point to the international market, every country has a different institutional context. The results from the study by Guillén (2000) suggests that for firms to flourish when considering the host country’s institutional context.
Taking a look at the countries selected for this study, the BRICS countries for example, are generally characterized by weak regulatory structures, an institutional environment that lacks credibility (Khanna & Palepu, 1997; Makino, Isobe, & Chan, 2004), and continuous
institutional transformation. Put in more concrete words, foreign firms expanding into the BRICS countries face inexperienced bureaucracies, a lack of reliable business information, underdeveloped legal systems, and widespread corruption (Makino, Isobe, & Chan, 2004).
Studies performed by Estrin and Prevezer (2010) found that these weak institutional conditions influence two of the most important decisions that are associated with market entry, namely, entry mode choice and the timing of market entry. Due to the focus of this study on entry mode strategies, the timing of the market entry is not included here. Entry mode can be defined as; the institutional or organizational arrangement that is used in order to conduct an international business activity, such as the manufacturing of goods, servicing customers, or sourcing various inputs (Welch, Benito, & Petersen, 2007, p. 18).
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Next to that, the question regarding ownership mode relates to whether a firm should use hierarchical forms of foreign operations (e.g., wholly owned subsidiaries) or share ownership with local partners (e.g., joint ventures) in the foreign country. Looking from an institutional perspective, the shared ownership is more appropriate to reduce coercive pressures by local institutions and resulting investment risks (Brouthers, 2002).
Finally, with regards to establishment mode, the firm must decide between acquisitions and greenfield investments. Especially in countries with weak institutional conditions, host country governments often pressure foreign firms to make greenfield investments (Slangen & Hennart, 2007). Moreover, greenfield investments may be an appropriate establishment mode when the evaluation of local firms is different the home firm, and the foreign firms are not deemed good enough or unreliable (Tong, Reuer, & Peng, 2008).
In the next section, the five selected institutional factors will be introduced and discussed, which in the end will lead to the introduction of the hypotheses. The choice for these five factors is based on a previous study by Khanna et al. (2005). The study performed by Khanna et al. in 2005 have identified several institutional voids of flaws in the BRIC country. The institutional flaws they have identified are categorised under the following headers: Political and Social System, Openness, Product Markets, Labor Markets, Capital Markets. These institutional voids are present in every country, and thus form a strong base to compare countries with each other. Therefore, the factors selected in this study are like the institutional voids identified by Khanna et al. (2005). In addition, the study performed by Johnson and Tellis (2008), have used similar factors in their study into the drivers of success for market entry strategies into China and India. The researchers have used the following factors: Entry Mode, Entry Timing, Firm Size, Economic Distance, Cultural Distance, Country Risk, and Openness. Under the header Country Risk the researchers have specified three sources of risk namely; Political risk, Financial risk, and Economic risk. These factors resemble the factors identified by Khanna et al. (2005), and are also applicable to every country.
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should cover the legal aspects in regards to the labour force, unions, and firing procedures etc. Given the fact that people work for companies, the expanding company is forced to obey the local labour laws, and potential labour unionisation laws. In addition, host governments specify the rules and regulations regarding the host financial market as well. If an expanding firm is looking for e.g. a loan, the firm should obey the local laws and familiarise themselves with it to know whom is responsible and what type of agency is controlling and checking the financial transactions. Finally, the factor openness could be seen as the sum of the previous factors, and shows how open a country is for foreign and/or new entrants. These factors are further explained in the next sections.
The five factors that are selected in this study are represented in a conceptual model. The model is presented on the next page. Included in this conceptual model are the
moderators/control variables as well. These variables will be explained in-depth later, in section 3.
Table 2: Conceptual model
- 10 - 2.1.1: Government:
The first factor that could influence firms market entry strategy decision is the government of the target country. Research conducted by and Niu, Dong, and Chen (2012), found that governments are the key factor in creating market entry barriers in China. The government is the institution that can implement new legislations, codes of conduct etc. In addition, the government is the institution that also has the controlling function, to check whether everyone is complying with the rules and regulation (Hall and Soskice, 2001). Next to that,
governments also have an influence on the (financial) resources available to firms. It could be argued that the government is the central institution to which all other institutions are linked.
The government’s ability to develop, implement new rules and regulations and the controlling aspect can have a great impact on companies. For example, if a government wants to create jobs for its inhabitants, it could develop and implement legislations that would force foreign companies wanting to expand into this country, to invest in either greenfield investments or collaborate with local partners. In both cases, the increase in demand for labour by the companies would mean that more inhabitants could be set to work (Hall & Soskice, 2001). This increase is jobs is beneficial for both the inhabitants as well as for the government, however it might be the case that this puts the foreign company in a difficult spot. Given the nature of greenfield investments, companies are required to make high investments, making the expansion a costly affair. In addition, the collaboration with local partners could be difficult. It could be the case that both companies differ in their way of working, differences in quality and quantity produced etc. All these factors increase the uncertainty, risks, and costs for the foreign firm (Hall & Soskice, 2001). Therefore, a stable government is desirable for companies.
The role of governments has been studied by Niu, Dong, and Chen (2012). These researchers have mainly focused on the governmental role on market entry barriers in China and their effect. The findings identified seven major entry restrictions based on a survey held among Chinese executives. The research found that there are 22 market entry barriers, which are grouped under these 7 headers; Financial Requirements, Intangible Resources of
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had considered the growing literature on institutional contexts of emerging countries (Khanna and Palepu, 2010). This expanding literature, according to Yaprak, is focussing on a variety of institutional voids which makes emerging countries unique (Yaprak, 2012). Subsequently, Zeitun and Tian (2007) have studied the effect of ownership in Jordan on performance and default risk of publicly traded companies. The findings suggest that a strong governmental role in ownership has a negative effect on the firms’ performance. A study performed by Nakos and Moussetis (2012), looked at the influence of host country characteristics on the choice between Equity or Non-Equity Entry mode in Greece. The research found that the government, legal systems, market potential and growth potential have an influence on the decision to use an Equity Mode of Entry.
In addition, recent work by Maman (2002) illustrates how common factors in the institutional contexts of Israel and South Korea, e.g. state economic policies and the protection of local entrepreneurs, fostered the development of Business Groups in these particular countries. In a similar fashion, a study by Tsui‐Auch and Lee (2003) have shown that patterns of growth by Business Groups in Singapore, South Korea and Taiwan, respectively, are functions of national economic change which were initiated by the government in these countries. This means that the local government has implemented changes and thereby creating a situation in which these Business Groups can flourish and grow. Both studies are an example of how governments can create a suitable environment for companies to grow, but also show the power of governments to create situations in which companies face a hard time. For MNEs this means that adopting to the local practices that bring success, will lead to a situation in which the MNE is likely to be successful as well. Failing to do so might result in market failure.
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H1a: Host government stability is positively related to both the number of Acquisitions -in comparison to Minority Stakes- by MNEs in the host country
H1b: Host government effectiveness is positively related to both the number of Acquisitions – in comparison to Minority Stakes- by MNEs in the host country
H1c: Host government stability is positively related to both the number of Joint-Ventures -in comparison to Minority Stakes- by MNEs in the host country
- 13 - 2.1.2: Legal framework:
Governments can create and change the legal frameworks in countries, and therefore this factor is discussed next as a potential factor that could influence the market entry strategy used by MNEs.
According to the World Bank, generally speaking the world can be divided into two separate legal systems. On the one hand, you have Common Law and on the other hand you have Civil law (World Bank). There are differences between both legal systems that could influence companies. Especially is the firm is acquainted with one type of law, and when expanding encounters the other type of law. For example, the rules and regulations regarding working conditions, compensation, unionisation, firing procedures etc. could have a major impact on the firm (World Bank).
Next to that, the legal framework constitutes as a guideline for company behaviour, and violating these could mean the end of a company, or at least hurt their performance. Firms could also experience reputational damages as well for violating and breaking the law. These consequences of not abiding to the rules and regulations could force companies to abide to the rules and regulations.
According to Hall and Soskice (2001); ‘In the area of inter‐firm relations, non‐market forms of coordination consist of sophisticated but standardized contractual structures that facilitate the construction of new forms of industrial organization within the economy. Once firms collectively develop these frameworks, courts could use them to impose strong legal
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Next to that, by forcing companies to work together with local firms, the knowledge of the local firms will be enlarged, thereby increasing their capabilities.
On the other hand, per Hall and Soskice (2001), in liberal market economies, the rules and regulations concerning the market are far less developed and elaborate. Due to the very nature of liberal market economies, the role of governments and thus the legal frameworks are restricted. Firms are expected to treat each other fair, and if this is not the case than the market should take care of it. Given the uncertainty of fair treatment, the contracts that are drawn up in liberal market economies are elaborate, and clearly states what is expected from each actor, and the possible consequences of failing to deliver what is expected. If one party fails to deliver, they will be taken to court, and the court can simply look at the contract and punish the party. In liberal market economies, this feeling of security is not present, there is nobody looking after the employees, only they can do this by their selves. This means that it is easier for companies to lay people off without any consequences since there are no clear rules and regulations concerning this topic.
In addition, given the lack of rules and regulations regarding for example entry strategies, firms are able to select the entry strategy they think is best for that situation, or where they feel most comfortable. Therefore, firms will tend to look only after themselves, and act in their own interest and benefit. According to Khanna and Palepu (2010), who suggest that in addition to the normal business challenges that entrant firms face in any market, firms expanding to emerging markets face a variety of institutional voids that shape capital, product, and labour markets in these economies, and these can deter timely and/or efficient entry (Khanna & Palepu, 2010). Some of these voids include absent or unreliable sources of information, an uncertain regulatory environment, and inefficient judicial systems that lead to market failures or inefficiencies that foreign entrant firms find difficult to navigate when compared to their emerging market counterparts. Ironically, while these can be roadblocks for initial entrants, they can become exciting opportunities for new entrants if they can fill these voids effectively.
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Finally, a study by Tong et al. (2008) shows, how the political, legal, and societal changes in Indian institutions, such as intellectual property rights, have affected the strategies of both Indian and non‐Indian firms when competing in and out of India (Tong et al., 2008). The researchers also show that while it is the combination of formal and informal institutions that affect the strategic choices of firms, there are cases where formal institutions are
underdeveloped, and thus informal institutions, such as personal relationships (e.g. guanxi, as these personal relationships are called in China) play a larger role in internationalization.
A government should act in the best interest of the people they represent, and thus it can be expected that the legal framework within a country is there to protect the inhabitants of that specific country. Taking this point into consideration in respects to MNE’s entering this country, a strong and effective legal framework works in both the advantage of the inhabitants as well as the entering firms. The inhabitants can expect their interest to be protected by the local legal framework. On the other hand, a strong and effective host country legal framework ensures the entering company that there is an effective and fair judicial system in place to resolve potential conflicts (Nakos and Moussetis, 2012). Therefore, since both the interest of the local inhabitants as well as the interest of the entering companies are protected via the host country legal system, one could expect that a Joint-Venture is the preferred entry strategy. In a Joint-Venture, the local jobs will remain occupied by local employees, and the entering company will have full access to the host country market, as well as having the control over the Joint-Venture. Therefore, the following hypotheses are developed;
H2a: Host country’s legal framework effectiveness is positively related to the number of Joint- Ventures -in comparison to Acquisitions- by MNEs in the host country
- 16 - 2.1.3: Strength of Unions:
As shortly mentioned before in the legal framework section, the representation of employees via labour/trade unions could also have an influence on the market entry strategy of MNEs. In this section, a more in-depth analysis will be provided. The starting point is that labour/trade unions are mandated and/or protected by the laws and regulations the governments
implement.
According to the Cambridge dictionary, a labour union is an organisation that represents the people who work in a particular industry, protects their rights, and discusses their pay and working conditions with employers.
The labour unions increase the power of the employees, and providing them a combined voice against the employers. If one employee is negotiating with a company, he or she has almost no power to negotiate, but the collective voice of multiple employees could have power to negotiate. The strength and abilities of labour unions differ per country. For example, in Germany the labour unions have lots of power. The labour unions have a seat in most boards of companies in Germany, and thus have a saying in the strategy of the company (Hall and Soskice, 2001). By having such a strong voice and influence, one can expect that labour unions could force companies to select a certain market entry strategy.
In addition, some labour unions have become so large and influential that they can influence the governance. This could result in situations where the labour unions could get rules and regulations that empowers the employees, and takes some of the power away from
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Finally, the labour unions are representatives of the employees, and therefor are likely to strive for situations in which the employees will become empowered and more influential in regards to the companies they work for. In 1984, Freeman stated that businesses are more likely to excel when the interests and needs of stakeholders are satisfied. Therefore, it is important for companies to meet these interests and needs (Freeman, 1984). In line with Freeman, Gray et al. (1995) found that if a company wishes to sustain its operations, it is crucial to gain the support from stakeholders. Therefore, companies will continue to adjust their business activities to the interests and needs of stakeholders to secure their approval.
In addition, Cheng-Fei Tsai et al. (2016), state that labour unions have the large responsibility to protect the rights of the employees. Next to that, labour unions are an important stakeholder for companies in deciding policies that affect the rights of employees’ (Cheng-Fei Tsai et al., 2016). Translating this to market entry strategies, one could expect that the local labour unions are opposed to market entries which result is losses of local jobs. Therefore, the following hypotheses is created.
H3a: Host country’s labour unions are positively related to the number of Acquisitions–in comparison to Minority Stakes- by MNEs in the host country
- 18 - 2.1.4: Capital market:
Moving on to the capital markets in the host countries. According to Brooks in his book Financial Management (Core Concepts) from 2010, capital markets are markets for financial assets with maturities longer than one year. In addition, a definition given by the International Finance Corporation, part of the World Bank, offers a similar definition;
Capital Markets allow businesses to raise long-term funds by providing a market for securities, both through debt and equity. Capital Markets offer a whole range of sometimes complicated products which allow businesses and banks not just to raise capital but also to ‘hedge’ (protect) against risks.
The capital and financial markets in developing countries are known for their lack of sophistication (Khanna et al., 2005). In developing countries, there are not many reliable intermediates present, thus companies must rely on a few stock exchanges and government- appointed regulators. Some examples of good and reliable intermediaries are credit-rating agencies, merchant bankers, or venture capital firms (Khanna et al., 2005). MNEs can’t count on raising debt or equity capital locally in the developing markets to finance their operations (Khanna et al., 2015). MNEs cannot easily check and assess the creditworthiness of other firms or can they collect receivables after they have extended credit to customers. Another factor that is lacking in developing countries is corporate governance. Therefore, MNEs are having difficulty trusting their partners to abide to local laws and joint venture agreements.
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Due to the lack of sophistication of the capital markets in developing countries, businesses have difficulty in assessing the creditworthiness of other firms, or after having extended credit to customers or others, collecting the receivables from them (Khanna et al., 2005). In
addition, the corporate governance on the capital markets is also poor in emerging markets. This means that the regulations concerning the capital market are slim, and hardly overseen by an authority (Khanna et al., 2005). In this situation, companies are faced with uncertainty and risks that they do not experience in their home country.
In the study performed by Khanna et al. (2005), the researchers found that within the BRIC countries there is a variation to the level of quality and existence in respects to the capital markets in these countries. For example, the banking system in Russia is strong, however it is dominated by state-owned banks. In order for foreign firms to raise equity capital in Russia, they need to incorporate local Russian subsidiaries (Khanna et al., 2005). In addition, in the same study the researchers found that in India there are bankruptcy processes, however these processes are inefficient. This means that there are companies still in existence which would be declared bankrupt in other countries with efficient bankruptcy processes (Khanna et al., 2005). These uncertainties create a situation in which foreign firms are exposed to threats, and should therefore change their business conduct in order to protect their business from these factors. This leads to the following hypotheses.
H4a: Host country’s capital market is positively related to the number of Acquisitions –in comparison to Minority Stakes- by MNEs in the host country
- 20 - 2.1.5: Openness:
The final institutional factor is openness. Openness can be seen as the sum of all the previous factors. When the previous factors are all beneficial for MNEs, the country is more open towards them. However, when the previous factors are not beneficial for MNEs, the country is less open towards the MNEs. Therefore, openness could influence that market entry strategies selected by MNEs. According to Johnson and Tellis (2008), the term "openness" refers to the lack of regulatory and other obstacles to entry of foreign firms.
Openness can be seen as a double-edged sword, where on the one hand, the openness of the host country can have several positive influences for the country. First, by being open towards foreign companies, a country can stimulate demand by increasing the variety of products, offered for sale in the market (Johnson and Tellis, 2008). Second and related to the previous point, openness increases the competition on the market and thus companies are forced to produce better products in order to keep their market share (Johnson and Tellis, 2008). This ultimately improves the level of quality supplied. Finally, as the economy opens, the
competition increases efficiency and thereby lowers the prices, resulting in further increases in demand (Johnson and Tellis, 2008).
The other hand of the double-edged sword is less positive. Although being more open attracts foreign firms and makes entry easier for these foreign firms, it increases the competition at the same time. This increase in competition affects market success in several ways. To begin with, even a small degree or increase of competition is reason enough to lower prices significantly (Wallace 1998). Due to the competition, companies keep their margins low, permitting only the most efficient companies to survive overtime (Johnson and Tellis, 2008). Secondly, competition increases the costs of goods sold, the hiring of talent, and the
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Finally, competition causes firms to make strategic mistakes, such as targeting the wrong segment or pricing the product too high, both of which are common mistakes in entering emerging markets. The result of these mistakes is that the leadership of a company will be blamed for this, and subsequently will be disposed (Johnson and Tellis, 2008). Competitors are quick to react and capitalise on any mistake and prevent firms from recovering the lost ground (Johnson and Tellis, 2008).
This leads to the following hypotheses:
H5a: Host country openness is positively related to the number of Acquisitions -in comparison to Minority Stake- by MNEs in the host country
- 22 - 2.2 General review of market entry strategies:
According to Sydow (1992), there is a broad variety of market entry strategies available for firms. In the graph below the strategies are depicted.
Table 3: Overview of possible market entry strategies (Sydow, 1992)
- 23 - 2.2.1 Wholly-Owned-Subsidiary:
The first option selected for this study is a wholly owned subsidiary, which is acquired by the firm that is expanding its business. A wholly owned subsidiary describes a company that manages and owns all the capital invested abroad, such as R&D, the production facilities, or sales (Glowik, 2009). There are two manners is which a wholly owned subsidiary can be created, namely by setting up a new operation (either a start-up or a greenfield investment) in the foreign target country or the company acquires a firm in the foreign target country (Hill, 1998). Given the scope of this study, in the remainder of this section, and study the focus will be on the (international) acquisition.
In an international acquisition, which has a strong role in the diversification activities of organisations (Glowik, 2009), the acquiring firm buys the total equity, or at least the majority of the equity, of an existing firm in the foreign target country. In this way, the acquiring firm gains control of the foreign firm (Glowik, 2009). Taking a closer look at the types of
acquisitions, two different types of acquisitions are identified:
- horizontal acquisition: this type of acquisition is mostly used to realise a company’s growth strategy (Glowik, 2009). For example, a firm acquires another competing firm positioned in the same industry. This allows the acquiring frim to increase their market share, gain access to the know-how, and usually has potential for cost reduction
(Glowik, 2009).
- vertical acquisition: in a vertical acquisition a firm acquires a supplier or distributor, and thereby vertically integrates it (it could be a backward or a forward integration) in order to realize the firm’s growth strategy (Hitt et al., 2003).
The benefits of acquisitions are that they offer the firm the opportunity to develop
- 24 - 2.2.2 Joint-Venture:
The second option selected for this study is Venture. According to Root (1994), a Joint-Venture is characterised by shared ownership of an entity located in a host country by two partners, one located in the home country and the other located in the host country. The Joint-Venture can be in either the home country of company A, the home country of company B, or both companies can choose a third country in which is for both companies a foreign country (Beugelsdijk et al., 2013).
According to Beugelsdijk et al. (2013), most Joint-Ventures are split 50/50, where both parties have a 50% ownership stake. Next to the shared ownership, both parties share the risk and managerial control (Beugelsdijk et al., 2013). However, a Joint-Venture can also be established by a firm that seeks a majority share and, thus have the control over strategic decisions (Hill, 1998). In this case the Joint-Venture can be split 60/40 or even 50.01/49.99. A Joint-Venture can also be formed between firms that run businesses in the same industry and similar value-added activities, which is called a horizontal Joint-Venture (Glowik, 2009).
Subsequently, a Joint-Venture can also be established between firms that are located at different stages of the industry, and its value chain. This Joint-Venture is called a vertical joint venture, and an example of this is a Joint-Venture between a supplier and manufacturer. An additional Joint-Venture is called an international joint venture (IJV), which describes when at least one of the parent company is headquartered outside the venture’s country of operation, or if the venture has a significant level of operations in more than one country (Geringer and Hebert, 1989:).
According to Geringner and Hebert (1989), due to the changes that have occurred during recent decades in respect to the internationalisation of markets and competition, and the increasing costs and complexities of technological developments, International Joint-Ventures have become an important mode for international market entry.
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becomes easier for companies to engage in internationalisation, and are thus more likely to do so (Beugelsdijk et al., 2013). In addition, a Joint-Venture can be used to develop
products/services which each of the individual parties could not have developed on their own. By combining their resources and knowledge, the Joint-Venture is able to develop these new products or services (Hollensen, 2004). Given the hybrid form, and the increasing attention and selection of Joint-Ventures as market entry strategy, it will be included in this study.
2.2.3. Minority Stake:
Finally, a Minority Stake has characteristics of both before mentioned market entry strategies and can be classified under both strategies as well. A minority stake is a direct investment of a company in a local company, which can be in the home country, as well as in a foreign
country. In this sense, it is kind of similar to a wholly owned subsidiary, only the number or percentages differ, where with an acquisition a company buys the majority of the shares thereby gaining control. When acquiring a small percentage of a host company, the other company will gain access to the host company’s market knowledge, and can even demand to gain access to the financial books of the host company. In this way, the acquiring company can scan the host market, gain valuable insight in this market without having to invest heavily in it. This is a classic example of the Uppsala Internationalisation Theory as proposed by Johanson and Wiedersheim-Paul in 1975 and by Johanson and Vahlne in 1977. In this theory, the internationalisation process consists of sequential steps of increased foreign dedication (Johanson and Vahlne, 1977). Thus, the small amount companies invest in a foreign firm can be seen as the first step of the investment process. If the first investment is satisfactory, additional investments can be made to capitalise on the opportunity.
In addition, the Real Option Theory can be used as well to explain this phenomenon.
According to Damaraju et al. (2014), real options are rights, without any obligation, on real assets to undertake specific actions at a future date. A study performed by Dixit and Pindyck in 1995, and by Kogut in 1991 found that when there are real options available, it is possible for investors and companies to wait for the moment that the uncertainty about the value of a decision is resolved rather than committing to costly-to-reverse actions by making premature investments or divestments. For firms, real options provide an upside potential if the uncertain situation turns out in a favourable way, and in the same time minimise the losses if the
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- 27 - 3. Methodology:
This study investigates the influence of different host country institutions on the market entry strategies selected and used by MNEs. The countries used in this study are developing
countries, which are Brazil, Russian Federation, India, China, Mexico, United Arab Emirates, South-Africa, Kenya, South-Korea, and Indonesia.
The countries selected for this study have one thing in common, and that is that they are emerging economies (UNCTAD,2015). The most well-known emerging economies are the BRICS-countries, and these 5 countries formed the base for this research. However, in order to get a better understanding of the matter, 5 more countries were selected. With a list of top emerging economies from the UNCTAD (2015), other selection criteria were introduced in order to find the other 5 countries. Given the fact that the Zephyr database is used as a source for data, the countries that were to be included in this research should at least have more than 30 observations where foreign companies are expanding into that particular country. In addition, the countries to be included in the research should be from various parts of the world. As the country list above shows, there is variety of countries and continents represented by the selected countries.
For this study, secondary data is used for the analysis. Most data about the market entry strategies used in these countries is derived from the Zephyr database. This database can be accessed via the University of Groningen, and provides information regarding M&A activities, as well as majority- and minority stakes by companies. In addition, the Orbis database will be used in order to find additional information about the different companies. For example, data regarding the size of the firm, the year of incorporation, and US SIC-code can be found via Orbis. This database is also accessible via the University of Groningen.
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In addition, data was gathered regarding the different institutions. Country scores regarding the openness of the country in 2015 were derived from a report made by the International Chamber of Commerce. The variable openness was researched by Khanna et al. (2005), as well as by Johnson and Tellis (2008). In addition, country scores for the political stability and government effectiveness were used to measure the role of the government, the country scores for rule of law and regulatory quality were used to measure the legal framework. The
variables measuring the governments, as well as the legal frameworks was introduced by Slangen and van Tulder (2009).
Next to that, country scores regarding the strength and density of the labour unions were used to measure their influence. These scores are derived from the ILO, the International Labour Organisation.
Finally, the financial markets in the countries were measured via financial freedom. The data is found on the website; theglobaleconomy.com, which is an online database that collects the data from for example the World Bank, the United Nations, the US Energy Information Administration, UNESCO, and the World Economic Forum. The study Khanna et al. (2005) found several indicators for the capital market, and the variable used in this study combines these factors into one single variable.
3.1 Dependent variable:
- Dealtype: From the Zephyr database, three different deal types were studied. One was a Minority Stake, another one was Acquisition and the final one is Joint-Venture. In the database, a Minority Stake is coded as 1, an Acquisition as 2, and a Joint-Venture as 3.
3.2 Independent variables:
In order to measure the role of the government, both Government Effectiveness and Political Stability scores are used.
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- Political Stability: “The index is a composite measure as it is based on several other indexes from multiple sources including the Economist Intelligence Unit, the World Economic Forum, and the Political Risk Services, among others. The underlying indexes reflect the likelihood of a disorderly transfer of government power, armed conflict, violent demonstrations, social unrest, international tensions, terrorism, as well as ethnic, religious or regional conflicts. The methodology of the overall index is kept consistent so the numbers are comparable over time” (The World Bank, 2016).
In order to measure the local legal framework, the scores for Rule of Law and Regulatory Quality have been used in this study.
- Rule of Law: “The index for Rule of Law captures perceptions of the extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence” (The World Bank, 2016).
- Regulatory Quality: “The index of Regulatory Quality captures perceptions of the ability of the government to formulate and implement sound policies and regulations that permit and promote private sector development” (The World Bank, 2016). - Openness: The definition for openness is provided by the International Chamber of
Commerce (2015); “Open markets are characterized by the absence of man-made barriers impeding the cross-border flows of goods, services, capital and labour. Various indicators can be aggregated into an index that reflects each country’s degree of openness to trade. Countries can then be ranked per their degree of openness. The most open economies will rank at the top. The Open Markets Index (OMI) in this report comprises four key components:
• Observed openness to trade • Trade policy
• Foreign direct investment (FDI) openness • Infrastructure for trade”
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extended to third parties by law; (5) if the law allows closed shops; (6) if workers, or unions, or both have a right to appoint members to the Boards of Directors; and (7) if workers’ councils are mandated by law” (ILO, 2016).
- Financial Freedom: This variable is used in order to account for the strength of the local capital markets in the host countries. “The Financial freedom index evaluates: the extent of government regulation of financial services, the degree of state
intervention in banks and other financial firms through direct and indirect ownership, the extent of financial and capital market development, government influence on the allocation of credit and openness to foreign competition. Higher index values denote banking efficiency and independence from government control and interference in the financial sector” (The World Bank, 2016).
3.3 Control variables:
In order to control for other explanations of the outcome, some additional control variables were used in this study. The list of control variables and their definitions are mentioned below.
- COO: This variable indicates the Country-of-Origin of the expanding company. A list containing the meaning of the numbers is included in Appendix A
- FirmSize: This variable measures the size of a company based on the number of employees. A small company would have 0-250 employees, a medium size company would have 250-500 employees, and finally a large company has more than 500 employees. Therefore, a small company is coded as 1, a medium company as 2, and a large company as 3.
- Experience: Is the difference between the year of incorporation and the current year (2016).
- 31 - 3.4 Analysing method:
Malhotra (2010) made classification on research design based on the purpose of the research: exploratory, descriptive and causal. Exploratory research is commonly used to explore or research a problem or situation in order to provide or gain understanding. It is also used for the further examination of key variables and relationships from previous research (Malhotra, 2010). Since the purpose of this research is to find out if host country institutions influence the market entry strategy of MNE’s, this study will have an exploratory nature.
- 32 - 4. Results:
4.1 Descriptive Analysis:
The first step taken was to use a descriptive analysis in order to get a general overview of the selected observations, and to see how they are distributed across the selected countries. The results are presented below in Table 4.
Table 4: Overview of the deal types used per selected country
From Table 4, it becomes clear that there are variations between the selected countries. For example, in South Africa 26 out of the 30 observations were acquisitions, and on the other hand in South Korea, 22 out of the 30 observations are Minority Stakes.
4.2 Correlation Analysis:
Next, a correlation analysis was conducted, and the results are summarised in the table below.
Table 5: Descriptive analysis results summarised.
Country Deal
type
UAE Brazil China Indonesia India Kenya South Korea
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Table 6: Correlation results of the independent variables.
- 34 - 4.3 Multinomial Regression Analysis:
The next step undertaken was to perform two multinomial regression analyses. As mentioned before, due to the high degree of multicollinearity, each factor will be individually added to the analysis, and the subsequent results will be added to the table. In this way, the
multicollinearity problem can be taken care of, since now the individual relation between a variable and the overall model is calculated. Given the output of the multinomial regression analysis, combined with the hypotheses in this study, three different tables will be used to present the output. The first two tables show the output of Acquisitions and Joint-Ventures compared to Minority Stakes, and the other table shows the output of Joint-Ventures compared to Acquisitions. In addition, in a separate table, below the different output, the Exp(B) scores will be presented. These scores could not be incorporated in the original tables as it would disrupt the tables and hinder the readability. Below, the Model Fitting Summary is given for the analysis, where all variables are put into one single multinomial regression analysis.
Table 7: Model Fitting Summary for the Multinomial Regression Analysis (compared with Minority Stake)
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Table 8: Summary of Multinomial Regression for Acquisition compared to Minority Stake for the individual variables
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From the table8, the score Political stability is positive and significant, as the significance level is below ,05. This positive score supports hypothesis 1a. This means that as
governments become stable, more Acquisitions will be used as market entry strategy compared to Minority Stakes. Combined with the Exp(B) score, as presented in table 9, the odds of selecting an Acquisition is more than 2 times higher compared to selecting a Minority Stake. Looking at the score for Government effectiveness, the Wald score is positive which means that there is a positive relation, however, the significance level is above ,05, thus hypothesis 1b is rejected. The hypothesis did predict the right direction, as the positive score indicates, however the significance is above the threshold.
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Table 11: Exp(B) results for the independent variables (for Joint-Ventures compared to Minority Stake)
From table 10, both the positive and significant, below the ,05 significance threshold, scores for Political stability and Government effectiveness supports both hypotheses 1c and 1d. The relationship is positive, thereby indicating that as governments become stable and effective, more Joint-Ventures are used as market entry strategy compared with Minority Stakes. Looking at table 11, the Exp(B) scores indicate that for Government effectiveness the odds or more than 2 times higher compared to the odds for selecting a Minority Stake. In addition, the score for Political stability indicates that the odds of selecting a Joint-Venture is more than 3 times higher than the odds of selecting a Minority Stake.
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Table 13: Exp(B) results for the independent variables (for Joint-Ventures compared to Acquisitions)
Moving on to hypotheses 2a and 2b. From table 10, the positive Wald scores indicate that the hypotheses were correct in the direction of the relationship, however due to the significance scores for both Rule of Law, being 0,119, and Regulatory Quality, being 0,893, the
hypotheses are rejected. Both significance levels are above the 0,05 threshold.
In regards to the hypotheses about the labour unions, hypothesis 3a is rejected. The score for Labour union strength, as stated in table 10, is positive, as the hypothesis stated. However, the significance level of 0,640 is above the threshold of 0,05. On the other hand, hypothesis 3b is supported. As presented in table 10, the score for Labour union strength is positive, and the significance level of 0,003 is below the 0,05 threshold. This means that when a labour union is strong in host countries, more Joint-Ventures will be used as market entry strategy
compared with Minority Stakes. The odds for selecting a Joint-Venture is barely higher than the odds of selecting a Minority Stake, as the Exp(B) score of Union strength indicates in table 11.
Looking at hypotheses 4a and 4b, which cover the capital market, both their scores in table 10 and 12 indicate that there is a positive relation, however, since both significance levels are above 0,05 both hypotheses are not supported and thus rejected. The rejection of both hypotheses indicates that there is a positive relation between the capital market and either an Acquisition or a Joint-Venture market entry strategy compared to a Minority Stake, however this relation is not significant.
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significance level is below the threshold, the conclusion is that hypothesis 5b is supported. This conclusion indicates that one a country is more open to foreigners, more Joint-Ventures will be used as a market entry strategy compared to Minority Stakes. From Table 11, the odds of selecting a Joint-Venture is more than 2,5 times higher compared with the odds for
- 40 - 5. Discussion:
The aim of this study was to identify and measure the extent to which host country
institutional factors were influencing the market entry strategy decisions of MNEs. This study selected 10 different developing countries, all with different backgrounds and developing paths, and have selected 30 observations per country. The selected observations were all executed in the last year.
The finding suggest that compared to Minority Stakes, both Government Effectiveness and Political Stability have a positive and significant relation with the selection of Joint-Venture as market entry strategy. In addition, the positive and significant result for Political stability in relation with the selection of Acquisitions compared with Minority Stakes as market entry strategy, indicates that the local governments can and should be considered by MNEs
expanding into developing countries. In addition, the positive relation between the strength of labour unions and the market entry strategy Joint-Venture provides MNEs with an option to coop with strong host country labour unions. Finally, the positive relation between the Openness of a country and the preference of selecting Joint-Ventures over Minority Stakes provides MNEs and indication to take a closer look at the openness of a country, and to act upon it. This result is in line with the outcome of the study performed by Khanna et al. (2005), which found that MNEs should adopt to the openness of a country as there are differences in Openness between the BRIC countries. Additionally, the results of this study also give indication that MNEs should adopt to the local government, and should consider the local work force and market.
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On a more general note, this study only used secondary data, were much of studies in this field used surveys (Höltbrugge and Baron, 2013), questionnaires (Puck et al., 2009), or interviews to collect primary data. There are certain benefits by using primary data, such as collecting the data from the people that directly deal with market entry strategies, and how to select and analyse host countries. Therefore, these studies could be able to get more in-depth knowledge and insights, and therefore increase the quality of the study. But on the other hand, targeting people to be part of a survey, questionnaire, or interview might be problematic. Especially with online surveys and questionnaires, one cannot be sure that the person targeted fills in the document, or lets an assistant do it. This creates a situation in which a study can be based on the comments and answers provided by someone who is not the person targeted and required for the study. By using secondary data, especially from databases that are well-known and checked thoroughly, the quality of the data is assured. Next to that, by using databases researchers can find more observations compared to sending out a restricted number of surveys or other documents.
5.1 Implications for theory:
The results of this study have some effect on the theory. To begin with, the institutional factors used in this study, and especially the factors which were supported by the results of this study, can be used as a starting point for further theory development and research. For example, knowing that the effectiveness of governments, combined with the stability of these governments, have an influence on the market entry strategy. In addition, previous studies, such as the study by Höltbrugge and Baron (2013), Puck et al. (2009), have mostly used surveys as well as interviews in order to gather data about institutional factors and their potential influence on market entry strategies. This study is solely based on secondary data, and can thus be used as a substitute for surveys or interviews, or next to it to gather additional information. This all leads to a better understanding about the topic, the relation between institutional factors, or provide a deeper analysis about the outcome of the surveys or interviews.
- 42 - 5.2 Implications for managers:
The implications for managers and practitioners are of a more practical outcome. By having identified certain factors, such as government effectiveness and the openness of a country, managers are able to better study the host country, and specific factors, in order to make better market entry strategy decisions. By knowing beforehand how certain factors relate to
- 43 - 6. Limitations:
To begin with, the lack of significant relations is a big limitation of this study. Out of the 12 hypotheses set out in this study, only 5 were supported. There can be a variety of reasons why this study found limited significant relations. Firstly, the variables used in this study might not measure exactly what was necessary to find significant relations. This means that if other variables were used in this study, the relations might be significant. Next to that, the number of variables used might have been limited. By using additional variables, maybe more significant relations could have been found.
Related to the variables, this study had problems with a high level of multicollinearity
between the independent variables. Therefore, every independent variable had to be included in the analysis separately. By selecting variables which do not correlate, the overall model might have been better, and subsequently the relations might have been more significant.
In addition, the research method used by this study could be a cause as well for the restricted significant relations. By using secondary data, no deeper insights or stronger relations could have been found, leaving the current relations more superficial. The in-depth manner of collecting data via surveys etc., could provide better relations. Previous studies have mainly used these primary sources of data in order to find and support the relations. Maybe the difference in outcome might be a result of the difference is data gathering.
Next to that, the sample of 300 observations. Comparing the number of observations used in this study with the number of observations in other studies, this study consists of less
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One common factor that lead the country selection, as well as the number of observations used in this study, is related to a limited time span and subsequent resources. Thus, this factor could have limited the potential outcomes of the study. If more time was at hand in this study, additional market entry strategies might have been included, thereby increasing the
significance of the results. Not only the number of market entry strategies covered in this study would have increased, also the number of observations included in this study would have been higher. By using a larger sample size, the results could have been different.
Furthermore, this research might lack up-to-date usage of articles. Most articles used in this study are relatively old, and could be out-dated. It could be the case that this study has proven some hypotheses that were previously rejected by others, or even supported before. Therefore, future research should use the latest developments in the field in order to conduct their
research.
6.1 Future Research:
Future research should try to find additional data in order to find and support the hypotheses that were rejected in this study. As mentioned before, this study used secondary data and future research should use additional secondary data, or even use primary data to find and support different relations as proposed in this study. Previous studies have mainly used primary data in their studies, so maybe this study should be conducted again, only using primary data instead of secondary data. By conducting interviews, surveys, or questionnaires the researchers should be able to find relations between variables, or even identify new and additional institutional factors that could influence the market entry strategy selection.
