Holtbrügge and Baron (2013) investigate the effect of market entry strategies, specifically how to enter and when to enter. In the article they specifically focus their findings on the BRIC countries and how to apply general similarities and difference that influence market entry decisions for foreign firms. The research addresses two major issues, what market entry strategies do firms chose when deciding when to enter, and what market entry strategies show the greatest They base their research off of widely accepted research, that institutional context and formal constraints. These influence the market entry strategies and guide the behavior of firms by monitoring and enforcement. The article suggests that firms should efficiently chose an entry mode to reduce the threats of institutional and formal constraints.
Holtbrügge and Baron (2013) discuss the choice of activity modes, stating that the most important decisions for a firm is when to enter a foreign market. Export is the choice of entry when firms are seeking for low resource commitment and risk. This may be ideal when corruption and pervasiveness is prominent in the foreign market begin considered. They also suggest that Foreign production is also a choice of entry. This requires high complex management tactics and it also exposes a firm more to the economic and political risk that may result for a foreign market characteristic. On a positive note, this method allows a firm more control of business activities if a firm can first, secure and protect the vital resources, and secondly, implement internal control of operations. From this they propose their first set of hypotheses was that “Firms are more likely to enter the BRIC countries through foreign production than through export.”, and “Firms entering the BRIC countries through foreign production achieve greater market success than firms entering through export.”
They also propose that choice of ownership is related to whether a firm should share ownership, through joint ventures with foreign partners, or completely owning subsidiaries. If considering joint ventures, previous research from K.D Brothers (2002) bring forward investors are more likely to pursue markets through joint ownership modes compared to completely owning subsidiaries. This was especially true when the markets were prevalent with high pressures from regulative institutional practices and high uncertainty pertaining to the environment. In comparison, owing a subsidiary completely allow a firm managerial freedom and control over the operation in the foreign market. This method exposes the firm to external uncertainty, especially without a local partner that may help overcome the foreignness. Lack of connection may lead to unfair treatment from stakeholders. Firms also encounter problems because foreign markets require a firm to conform to the foreign markets rules and norms that may differ from the companies' home country norms. To compensate, most firms enter the firm offering lower control and commitment to resources to avoid conflict. This lead them to the following hypotheses “Firms are more likely to enter BRIC countries through joint ventures than through Wholly owned subsidiaries” and “Firms entering the BRIC countries through joint ventures have a greater market success than firms entering through wholly owned subsidiaries”
Next, they discuss the methods of acquisitions and greenfield investments. Acquisitions provide a firm with an instant presence in a foreign market, as well as knowledge of established institutions and knowledge. On the downside, this method exposes a firm to oddities, due to cultural and organizational influences. If a market has weak organized environments, this may make it difficult for a firm to succeed due to ineffective markets. To avoid this, firms should ensure that the financial markets are predictable, facilitate transactions, and provide transparency. In contrast, greenfield investments are a result of large pressures from formal institutions. This knowledge led them to propose the following hypotheses “Firms are more likely to enter BRIC countries through greenfield investments than through acquisitions.” and “Firms entering the BRIC countries through greenfield investments have a greater market success than firms entering through acquisitions.”
Lastly, they discuss the timing of when a firm enters a market. Previous research suggests that when firms enter into a market early, they are often faced with liabilities of newness and foreignness Zaheer (1995). This may be a result of lack of knowledge of the market and institutional environments. In order to overcome this, firms should implement policies that will increase the knowledge through experience. This experience is necessary to sustain in a foreign market and reduce financial and operational risks. When a company has established a strong local presence, the company has more likely accumulated knowledge about the market, which include culture specific business practices and legitimacy among the local market increases. They also review the term guanxi, introduced by Luo & Chen (1997) which is the concept of drawing connections or networks to secure favors in personal or business relations. This practice impacts a firm accounting and marketing performance in a positive manner. These relationships with key distributors, suppliers, government officials, nongovernmental organizations help with build legitimacy and come from longer years of operation. This led them to propose their final hypothesis “Firms with more years of operation in the BRIC countries achieve greater market success than those with fewer years of operation”
Their study used four performance criteria: market share objectives, market growth objectives, financial objectives, and cost objectives. They also evaluated the importance of objectives and the degree to which these objectives were met in the past 5 years using a Likert scale. The results of the research provided some insight on the hypotheses proposed. The positively related hypotheses were that market success is highly related to length of operation, and the establishment of production facility. An important contribution of this study provides a comprehensive approach on decisions about when and how to enter a market. It also provided insight on entry strategies on market success. The study addressed 3 significant limitations. First analyzing different dimensions of entry mode and length of operation only explains a small variation of market success. Another limitation, the dependent and independent variables used may suffer from a common method bias and creates a false consistency. Lastly, a dynamic perspective is missing. The design of the study doesn't consider the extent to which organizations change their initial market entry.
Three implications to that were proposed for future research, first, one should consider future determinants of market success. Secondly, future research should address the changes of market entry firms may transform into after the initial entry method. Lastly, future research should use internal heterogeneity as a guide when investigating market entry strategies.
We chose this article because it explored what market entry strategies foreign firms choose for their entry into countries and how successful certain strategies are.
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