Home Country Business Environment Change on Foreign Direct
Investment Entry Mode Decisions
by
Ramon Velthuis
University of Groningen
Faculty of Economics and Business
Newcastle University
Business School
Master Thesis AIBM&M
June 16, 2020
Supervisors:
University of Groningen: Professor J. Shin University of Newcastle: Professor E.A. Alexander
Vondellaan 304 9721 LM Groningen
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ABSTRACT
This paper examines how a changing home business environment influences a firms foreign direct investment decision and thereby the entry strategy. It shows that overall home business environment measured by change in ease of doing business factor does influence a firms foreign direct investment decision when the home business environment is deteriorating compared to other countries. This relatively deteriorating home business environment becomes more cost reducing for joint venture entry modes, so firms are more likely to participate in a joint venture. In contrary, there is no relationship found in relatively improving business environments and an increase in merger and acquisition entry modes. To review what parts of the changing home business environment are driving this relationship, different factors within the home business environment are included in the analysis. For the factor starting a business and trading across borders, it has been shown that when starting a business and trading across borders relatively deteriorates in a home country business environment, this leads towards more joint venture entry mode strategies. Whereas joint venture entry modes will become more efficient cost reducing for those firms. Moreover, an indication has been found that a relatively improving trading across borders and starting a business factor leads towards more merger and acquisition entry modes, because efficiency benefits in the host market drop relative to the home market, leading towards more merger and acquisition entry modes.
Acknowledgements
I am profoundly grateful to professor E.A. Alexander and professor J. Shin for the supervision, support, and constructive criticism I got during the process of writing my dissertation, I could not have done it without your help. Furthermore, I want to thank my family and friends for the mental support when writing a dissertation during a pandemic.
Key words: Ease of Doing business, Home Business Environment, Joint Ventures, Mergers and Acquisitions
3 TABLE OF CONTENTS 1. Introduction 4 2. Literature review 5 3. Methodology 9 3.1 Data collection 9 3.2 Factor analysis 10 3.3 Normality test 11 3.4 Control variables 12 3.5 Analysis 12 4. Findings 13
4.1 Overall ease of doing business factor 13
4.2 Factor 1: Getting Electricity, Paying Taxes, Protecting (minority) Investors 14 4.3 Factor 2: Getting Credit, Register Property, Resolve insolvency 15 4.4 Factor 3: Starting a Business, Trading across Borders 15
5. Discussion 16 5.1 Limitations 19 6. Conclusion 20 6.1 Future research 21 7. Reference list 22 8. Appendices 24
Appendix I: Factor analysis 24
Appendix II: Scree Plot 24
Appendix III: Normality test 25
Appendix IV: Kruskal-Wallis test overall EODB 25
Appendix V: Kruskal-Wallis test factor 1 26
Appendix VI: Kruskal-Wallis test factor 2 26
Appendix VII: Kruskal-Wallis test factor 3 27
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1. INTRODUCTION
In the current highly internationalised world, there is a shift towards open borders and trade agreements that make international trade and international expansion possible. However, institutional differences leading towards ownership or locational advantages remain highly important for firms expanding and investing abroad. In general (changes in) business and regulatory environments have impact on the foreign direct investments a country attracts. Transaction costs differ based on business environment measures, what leads to multinational enterprises deciding to invest in certain economies. Cross country analysis makes it possible to find and review differences in business environments and therefore find the most attractive country for expansion. The flow of foreign direct investment is influenced by the business environment within a country, countries that are easier to do business in attract more foreign direct investments (Corcoran and Gillanders, 2015).
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the investigation was 2.7 months (Wei and Christodoulou,1997). This time frame makes that changes in home business environment might become visible in the foreign direct investment entry mode data of two years after the regulatory change.
2. LITERATURE REVIEW
Business environment can be defined as a set of legal, institutional, and economic conditions which influence the firms’ behaviour (positively or negatively), but usually cannot be controlled by these firms (Witkowska, 2007, p. 1). Business environments change over time by the change of policies, firm presence and thereby competition. Several aspects of business regulation are affecting businesses inside of a specific country, causing that some countries have more favourable regulations for specific firms.
These cross-national distances can be measured in various ways: economic, financial, political, administrative, cultural, demographic, knowledge, connectedness, geographic (Berry, Guillén and Zhou, 2010). Or using more practical measures as: get credit, get electricity, how to pay taxes and the amount of tax, protection of (minority) investors, register property, resolve insolvency, how to start a new business, and how to trade across borders (World bank, 2020). The flow of foreign direct investment is influenced by the business environment within a country, countries that are easier to do business in attract more foreign direct investments (Corcoran and Gillanders, 2015, p. 17).
For firms to be able to produce alongside indigenous firms domiciled in foreign markets, it must possess additional advantages sufficient to outweigh the costs of servicing an unfamiliar or distant environment (Hirsch, 1976). Therefore, if the advantages of doing business internationally outweigh the cost it becomes relevant to firms to invest in foreign market. Transaction cost theory as a predictive model argues that both competitiveness and the form of the international operations of a multinational enterprise depend on the configuration of three critical elements; those three elements of the transaction cost theory of the multinational enterprises are: ownership specific advantages, location specific advantages and internationalization advantages. Ownership specific advantages or firm specific advantages refer to proprietary know-how (unique assets) and transactional advantages. Transactional advantages reflect the multinational enterprises’ capabilities of economising on transaction costs as a result of the multinational coordination and control of assets. In this context, recent research effort focusses on the multinational enterprise capability to develop optimal internal coordination and control mechanisms, while considering costs and benefits.
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activities in particular countries. Increase in immobile, created, or natural resources complementary to a firm’s competitive advantages favour presence in a foreign location, leading to more exploitation of those advantages in foreign direct investments. These benefits may arise from the potential to economise on transaction costs by reducing risks and benefiting from local opportunities as structural market imperfections. Internationalization advantages refer to relative benefits associated with entry modes when serving foreign markets and therefore may create and exploit a firm’s core competencies. Market failure is the main reason for internalization. These imperfections can be related towards government-imposed imperfections as well as natural market imperfections. The greater the benefit of participating in foreign markets, the more likely a firm will engage in foreign production rather than taking licencing agreements with other firms (Dunning, 1980; Rugman and Verbeke, 1992)
This transaction cost theory copes with two managerial issues, where on firm level two types of foreign direct investments must be distinguished; location and non-location bound firm specific advantages. Location bound firm specific advantages benefit a firm only in a specific location or set of locations and lead to national responsiveness benefits. These location bound firm specific advantages cannot easily be transferred and require significant adaptation to be used in other locations, leading to eventual (partial) loss of these advantages. In contrary, non-location bound advantages can be exploited globally, profiting from national differences, different scopes, and benefits of scale. When these non-location bound firm specific advantages are transferred abroad in foreign direct investment, the advantage can be used effectively in foreign operations at low marginal costs without substantial adaptation. All multinational enterprises firm specific advantages of transaction cost nature fit typically into this category (Rugman and Verbeke, 1992). On the other hand, multinational enterprises whose advantages are highly embedded in the home environment tend to adopt a multi-domestic strategy and decentralised organisational structures. Organisational embeddedness lowers the breadth of internationalisation of multinational enterprises and increases the tendency of these firms to employ a global strategy. Moreover, multinational enterprises whose competitive advantages are tacit and complex, have lower depth of internationalisation and tend to be more likely to expand into culturally similar countries (Lo, Mahoney and Tan, 2011, p. 291).
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organisation with resource contributions from two or more parent firms. The firms share operational and strategic control of the firm. A joint venture is created as a legal entity like a greenfield, but jointly by two or more firms that all contribute in resources. (Meyer and Estrin, 2004, p. 13)
Multinational enterprises evaluate the markets and regulations to find the best fitting entry mode. In a situation with sufficiently low fixed cost where greenfield investments are a viable option and other foreign direct investment modes involve sufficiently low fixed costs a joint venture will be agreed to by the local firm, although the multinational enterprise prefers a joint venture to a merger. In contrary, multinational enterprises prefer mergers to greenfield investments if the fixed cost of greenfield investments are sufficiently large. However, if a greenfield investment is less profitable than exporting, local firms may refuse to participate in a joint venture, leaving the multinational to choose between mergers and acquisitions, and exporting (Raff, Ryan and Stähler, 2009, p. 4).
If trade costs are zero, the multinational and the local firm agree on a joint venture, because of the relative advantage of a joint venture to a merger depending on its efficiency. Joint ventures are relatively more attractive for the multinational, the more efficient cost-reducing investments are (Raff, Ryan and Stähler, 2009, p. 10). Therefore, with a relatively deteriorating home business environment the investment will become relatively more efficient cost reducing. This leads towards the following hypothesis:
Hypothesis 1: Multinational enterprises active in a deteriorating home business environment are more likely to enter a foreign market using a Joint Venture.
On the other hand, for low productivity of the multinational, merger profits are relatively larger for low levels of general efficiency (Raff, Ryan and Stähler, 2009, p. 10). Therefore, with a relatively improving home business environment the efficiency benefits in the host market drop relative to the home market, leading towards the following hypothesis:
Hypothesis 2: Multinational enterprises active in an improving home business environment are more likely to enter a foreign market using a Merger and Acquisition.
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Hypothesis 3: Factors within home business environment have influence on foreign direct investments decisions of firms and thereby the choice between a Joint Venture or a Merger and Acquisition.
3. METHODOLOGY 3.1 Data collection:
For the dependent variable information about the amount of joint ventures and mergers and acquisitions is gathered using Orbis. All the data about the number of joint venture and merger and acquisitions completed in the years 2016 and 2014 is gathered for European countries. European countries are used because of the proximity of their economies. In 2014 there were a total of 25,871 Mergers and Acquisitions and 663 Joint Ventures across 35 countries situated in Europe, whereas in 2016 24,232 Mergers and Acquisitions and 428 Joint ventures were reported. The data from 2014 and 2016 is used because of the availability of independent variable data, the ease of doing business data was best available from years 2012 till 2014. Considering that changes in home business environment might become visible in the foreign direct investment entry mode data of two years after the change.
For the independent variable home business environments, the ease of doing business score over a period of two years is used find changing home business environments. The ease of doing business score consist of a sample of 41 indicators about 8 Doing Business topics, all those topics measure regulatory best practice (See table 3.1: Ease of Doing Business topics). Two steps are used to calculate the ease of doing business score. Firstly, individual component indicators are normalised to a common unit to rescale. Those 41 component indicators y (except contribution rate and total tax) are rescaled using linear transformation (worst – y)/(worst – best). Here the highest score represents the best regulatory performance on the indicator across the economies (World Bank, 2020). Comparing these rankings over the years 2014 and 2012 makes it possible to view if business environments are improving, deteriorating or stable relative to other economies.
10 Table: 3.1 Ease of Doing Business topics
3.2 Factor analysis
Every variable of ease of doing business correlates significantly on at least one other factor (See table 3.2: Correlation matrix). Therefore, a factor analysis will be conducted to solve these multicollinearity issues. Reviewing the eigenvalues of the ease of doing business data, the data can be deducted into three factors. The scree plot (Appendix II: scree plot) shows that there is another factor close to critical eigenvalue 1, however implementing four factors decreases factor loadings, therefore three factors are used. A factor rotation is used to get the variables to fit better within the factors, because of the correlated variables, an oblique factor rotation is used. This leads to the following factor loadings:
Factor 1 consists of Getting electricity (.776), Paying taxes (.850) and Protecting (minority) investors (.654). Factor 2 consists of Getting Credit (.754), Registering Property (.881) and Resolving Insolvency (.877) and factor 3 consists of and the Starting a business (.877) and Trading across Borders (.654). These factors solve the multicollinearity issues described above, because factors 1 and 2 are correlated for .028 (sig. .871), factor 2 and 3 for -.146 (sig. .401) and factor 1 and 3 for 0.036 (sig. .839). However, those correlations are non-significant.
Starting a business Procedures, time, cost, and paid-in minimum capital to start a limited liability company for men and women
Getting electricity Procedures, time, and cost to get connected to the electrical grid; the reliability of the electricity supply; and the transparency of tariffs
Registering property Procedures, time, and cost to transfer a property and the quality of the land administration system for men and women
Getting credit Movable collateral laws and credit information systems
Protecting (minority) investors
(Minority) shareholders’ rights in related-party transactions and in corporate governance
Paying taxes Payments, time, and total tax and contribution rate for a firm to comply with all tax regulations as well as post filing processes
Trading across borders
Time and cost to export the product of comparative advantage and to import auto parts
11 Table 3.2: Correlation matrix
Next to these 3 factors, the overall ease of doing business rank will be tested, to find out what influence an overall shift in business environment has on entry mode strategy.
Next to the groups created for the overall ease of doing business factor, groups will be created concerning factor 1, 2 and 3. The three deteriorating and three improving groups will be tested against countries that have no change on that factor compared to other countries, resulting in an analysis about if home business environment influences entry mode strategy(overall ease of doing business factor) and what parts of a changing home business environment tend to influence entry mode strategy (factor 1, 2, 3 explaining parts of the ease of doing business). 3.3 Normality tests
The overall Ease of doing business factor has a skewness of 2.029, what means that the distribution is clearly skewed towards the right. With a kurtosis of 4.907 it is leptokurtic and has a low chance of extreme outliers, it has a range of -13 till 40. With a test statistic of .979 on the Shapiro-Wilk test normality cannot be assumed with a significance .000.
Delta factor 1 containing getting electricity, paying taxes, and protecting (minority) investors has a skewness of 1.473 what means it is also skewed towards the right. Furthermore, it has a kurtosis of 1.887 with a maximum of 47.33 and a minimum of -12, making it a flatter distribution than the overall ease of doing business factor, however it is still leptokurtic. Factor 1 has a test statistic in the Shapiro-Wilk normality test of .830, and a significance of .000, so normality cannot be assumed on this factor.
Delta factor 2 containing getting credit, getting property, and resolving insolvency is skewed towards the right with a value of 1.771. Factor 2 is also leptokurtic with a kurtosis value of 4.172 with a minimum value of -14 and a maximum value of 24. Furthermore, can normality not be assumed because of a Shapiro-Wilk statistic of .825 with a significance of .000.
Delta factor 3 containing trading across borders and starting a business is skewed towards the right with value 1,502. Its minimum and maximum value are respectively -16.50 and 28.50,
Credit .223 (.099*) .168 (.168) -.050 (.387) -.281 (.051*) .326 (.028**) -.051 (.385) 0,088 (.307) Electricity 1,000 .528 (0,001***) .405 (.008***) -.087 (.309) .183 (.147) -.115 (.256) .070 (.344) Taxes 1,000 .323 (.029**) -.009 (.480) .133 (.223) -.008 (.482) -.426 (.005***) Investors 1,000 .058 (.371) -.167 (.168) .284 (.049**) -.162 (.176) Trading 1,000 -.294 (.043**) .313 (.033**) -.090 (.303) Property 1,000 .248 (.075*) .436 (.004***) Starting 1,000 .009 (.478) Insolvency 1,000 Significance: <.01***, <.05**, <.1*
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and with a kurtosis value of 3.714 it has a leptokurtic distribution. On factor 3 normality cannot be assumed with a Shapiro-Wilk statistic of .883 and a significance of 0.001.
The delta of the percentage between joint ventures in 2016 and 2014 is skewed toward the right with a value of 2.151. The dependent variable is very leptokurtic with a kurtosis value of 15.342, with a minimum of -.17 and a maximum of +.25. Normality cannot be assumed considering a Shapiro-Wilk value of .615 and a significance of .000.
Although the variables resolving insolvency, getting credit and trading across borders are individually normally distributed, this does not hold after the factor analysis. Concluding that normality cannot be assumed for any of the factors, and therefore only non-parametric tests can be conducted.
3.4 Control variables
It might be obvious that countries with a higher GDP or larger countries that have better infrastructure have a higher absolute number of mergers and acquisitions and joint ventures than smaller countries. To control for country and economy size differences, the research will look at the relative change of the amount of joint ventures compared to mergers and acquisitions. Therefore, the focus is on relative changes in home business environment and entry mode strategy. This makes countries with larger economies not able to outweigh smaller countries in this research. Factors as political stability and other economic differences are explained in the ease of doing business variables, this includes cultural factors in governmental regulations. There is no analysis of different sectors within the countries because some sectors are way more dependent on trade and regulations as others, to make sure every part of home business environment can be reviewed, no specific sectors are featured.
3.5 Analysis
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absolute deteriorating business environment. Because of the cross-country analysis, it is important not to have absolute improving home business environments while the same country home business environment is relatively deteriorating. For the relatively stable home business environment countries with relative change between -1 and +1 are included. Reviewing the scores of the doing business ranks it becomes clear that countries with +8 or more not only have a relative improving home business environment, but also an absolute improving business environment. Because of the cross-country analysis, it is important not to have absolute deteriorating home business environments while the same country home business environment is relatively improving. This is the main reason to make it a categorical variable, otherwise it would be possible for a country to improve in the ease doing business but to deteriorate in absolute doing business value. To make the research more robust groups are created to be able to control for large discrepancies in absolute and relative values. The variables are measured on the rank change, however that does not mean that the absolute numbers in a cross-country analysis should be ignored.
Differences between the mean of these groups can elucidate if these groups differ in entry strategies. Considering these data types and a non-normal distribution, the Kruskal-Wallis test will be conducted to find if there are statistic differences between the groups differing in business environment and the type of entry mode. Because the Kruskal-Wallis test only gives an indication that there is difference between groups, and not what groups are significantly different, a follow-up Mann-Whitney test will be conducted to find out if there are significant differences between the relatively stable (parts of) home business environment group and the groups with relatively deteriorating or improving (parts of) home business environments. To test for hypothesis 1 and 2 the overall ease of doing business factor is used, because those hypotheses are about the overall changing business environments and their influence on entry modes. For hypothesis 3 there will be looked at which factors within the home business environment might influence the decisions concerning entry modes.
4. FINDINGS 4.1 Overall Ease of Doing Business factor
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than the relatively stable group(mean rank = 7.2), whereas the relatively improving group its mean rank (mean rank = 5.67) is lower than the relatively stable group. Indicating that in the group of a relatively deteriorating business environment there is a higher percentage of joint venture market entry compared to merger and acquisitions market entry. In contrary to the relatively improving group, where the mean rank is lower, what indicates that there are relatively more merger and acquisition entries compared to joint ventures. To find out if these indications have a significant statistical ground a follow up Mann-Whitney test is conducted to examine if group 1: relatively deteriorating home business environment and group 2: Relatively stable home business environment differ in mean rank. Significant differences are found between these two groups (Mann-Whitney U = 2.000, Z = -2.373, p = .009). The delta of percentage of joint ventures in group deteriorating home business environment is significantly higher than the delta of percentage of joint ventures in stable home business environments. So, companies in relatively deteriorating business environments tend to enter markets more often using joint ventures instead of mergers and acquisitions. This means we can reject the null hypothesis of hypothesis 1 and therefore state that multinational enterprises active in a deteriorating home business environment are more likely to enter a foreign market using a joint venture.
To test for hypothesis 2 by finding out if group 3: relatively improving home business environment and group 2: relatively stable home business environment differ in mean rank a second Mann-Whitney test is conducted. Although there is a lower mean rank for the relatively improving home business environment group, no significant differences are found between these two groups (Mann-Whitney U: 11.000, Z = -.730, p = .268). Meaning that there is no statistical evidence that when a home business environment improves more merger and acquisition entry modes are used compared to joint ventures, so the null hypothesis of hypothesis 2 cannot be rejected.
4.2 Factor 1: Getting Electricity, Paying Taxes, Protecting (minority) Investors
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does not significantly influence the strategic decision of firms to enter a market with a joint venture or merger and acquisition entry mode.
4.3 Factor 2: Getting Credit, Register Property, Resolve Insolvency
Kruskal-Wallis test was conducted to examine the differences in the change of percentage of joint ventures/mergers and acquisitions over the years 2014 till 2016 between groups with significantly different scores on the home business environment factors: getting credit, registering property and resolving insolvency. No significant differences (Kruskal-Wallis H: 2.094, p = .388, df = 2 N = 17) were found between relatively deteriorating, relatively stable and relatively improving groups on factor 2. This indicates that when the home business environment changes in ability to get credit, register property and resolving insolvency this does not significantly influence the strategic decision of firms to enter a market with a joint venture or merger and acquisition entry mode.
4.4 Factor 3: Starting a Business, Trading across Borders
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acquisitions. To find if group 3: relatively improving starting a business and trading across borders and group 2: relatively stable in starting a business and trading across borders differ in mean rank another Mann-Whitney test is conducted. No significant differences were found between these two groups (Mann-Whitney U = 3.000, Z = -1.443, p = .100). Although there is no statistical significance to be found, on a .10 scale there is an indication of a difference between the group 3: relatively improving starting business and trading across border factor and group 2: relatively stable starting a business and trading across border factor. The mean rank of the relatively improving starting a business and trading across borders factor is (mean rank = 3.25) lower as the mean rank of the relatively stable starting a business and trading across borders factor (mean rank = 5.75). This indicates that the delta of percentage of joint ventures in the group relatively improving in starting a business and trading across borders is lower than the delta of percentage of joint ventures in relatively stable starting a business and trading across border situations, however there is no statistical proof on a .05 scale. However, hypothesis 3 can be rejected because when factor 3 starting a business and trading across borders deteriorates within the home business environment, firms tend to use more joint venture entry modes. In contrary with an improving starting a business and trading across borders factor because there is no significant proof of influence on entry mode strategy.
The other factors containing getting electricity, paying taxes, protecting (minority) investors, getting credit, registering property and resolving insolvency in the home business environment do not influence entry mode strategy of firm.
5. DISCUSSION
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(Raff, Ryan and Stähler, 2009). However, there is no significant relationship found for this factor in this research, the groups with a deteriorating, stable or improving factor 1: getting electricity, paying taxes, and protecting (minority) investors do not differ significantly from each other. This makes that a relatively changing getting electricity, paying taxes, and protecting (minority) investors in the home business environment -together as factor 1- do not significantly influence entry mode strategy of firms in host countries.
For factor 2: Getting credit, registering property, and resolving insolvency, there is no significant difference found between groups of relative deteriorating and improving in comparison to the neutral group. This means that getting credit, registering property, and resolving insolvency are together not influencing the choice between a joint venture or a merger and acquisition entry mode. Where registering property as a variable was influencing foreign direct investments in the host market, it is not found to be a significantly influencing the choice of entry mode when relative changes are made in home market (Morris and Aziz, 2011). This might be because in ability to register property in the home market does not have inferences in the host market, whereas only a worsening situation in the home market might cause firms to seek other market opportunities. However, no statistical ground is found for this. To get credit more easily in the home market does not influence host market entry mode decisions, this is because firms tend to borrow money for setting up in the host market to hedge for currency risks. Resolving insolvency in the home country business environment does not influence the way a country enters in the host business environment. So, factor 2: getting credit, registering property, and resolving insolvency do not influence foreign direct investment decisions of firms and thereby the choice between a joint venture or a merger and acquisition.
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statistically significant on a .05 scale. However, does this seem to have overlap with the theory, that in relatively improving home business environment the efficiency benefits in the host market drop relative to the home market (Raff, Ryan and Stähler, 2009). In this situation only trading across borders and starting a business improves in the home business environment, but this might be enough for firms to do more mergers and acquisitions when expanding abroad. Factor 3 tends to be the driver of change in entry mode when the home business environment changes relatively to other countries, whereas factor 1 and 2 are not significantly influencing entry mode strategies. Therefore, it is possible to reject hypothesis 3 and state that the factor trading across borders and starting a business has influence on investments decisions of firms and thereby the choice between a joint venture or a merger and acquisition. Where a deteriorating factor 3 significantly influences the entry mode leading to more joint ventures, and an improving factor 3 gives direction to be (on a .10 scale) influencing entry modes leading towards more mergers and acquisitions.
This research not only adds to the literature on home country business environment changes, but also gives direction on host country business environments. It becomes clear what are the drivers of foreign direct investments on a country level. In a situation of a foreign direct investment from a firm in a deteriorating business environment, the entry mode is more likely to be a joint venture. Therefore, in a competitor’s analysis, it is possible for firms to look at other business environments and when these economies are relatively deteriorating to their own home business environment, a market entry by a competitor in the host market using a joint venture becomes more likely. Next to the overall business environment, focus should be on the ability of a home business environment to trade over borders and how to start a business. When it gets more difficult to start a business in a home business environment, companies tend to search for joint ventures across borders more. Moreover, a deteriorating trading across borders factor makes it more likely to use joint ventures in entry modes, to use partners experience in the market because the costs to either export or do a merger and acquisition rise.
5.1 Limitations
This study has a few limitations. First it looks only at secondary country level data, were it is dependent upon the availability and correctness of the data collection of Orbis. Moreover, dependency on the ease of doing business measure by the world bank, computing scores for all business environments worldwide. However, the ease of doing business score is a widely used comprehensive measure to declare cross-country regulatory differences.
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country gets a lower relative score. To account for these changes groups with relatively high changes are tested against groups with relatively no changes, however it cannot be fully be controlled for, because a slight decrease on a ease of doing business factor might still lead to a small increase on relative basis.
The third limitation is timing issues, because of lack of time no more entry modes could be included in the research. This makes the research dichotomous, however it gives an indication on how foreign direct investment ownership structures change and the influence of home business environments change on this change.
6. CONCLUSION
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improving trading across borders and starting a business factor leads towards more merger and acquisition entry modes, because efficiency benefits in the host market drop relative to the home market, leading towards more merger and acquisition entry modes.
6.1 Future research
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7. REFERENCE LIST
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Witkowska, J. (2007). Foreign Direct Investment in the Changing Business Environment of the European Union's New Member States. Global Economy Journal, 7(4), 1850118.
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8. APPENDICES Appendix I: Factor analysis
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Appendix III: Normality test
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Appendix V: Kruskal-Wallis test Factor 1
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Appendix VII: Kruskal-Wallis test factor 3:
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Appendix X: Mann-Whitney test factor 3 deteriorating/stable
