In this chapter we will present the analysis of the empirical data to get answer of the case study. Now here, an analysis of the two cases will be presented by comparing the empirical data with the frame work of the study. At last, we will also summarize the factors in form of table for more clarification.
5.1 Within case Analysis
Case (I) Socks Knitter
Internal Factors Influencing Selection of Entry Mode
Koch (2001) introduced a model of MEMS (market entry mode selection process). He defines seven types of internal factors which influence the MEMS. But we have selected six factors which are as follows: Company size/ resources, Experience in using MEMs, Management risk attitudes, Profit Target, International experience, Product
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Company size/ resources (verifies)
Koch (2001) explains that the company size / resources can affect the company’s choice of market entry mode. Because due to limited resources, smaller companies usually have fewer market servicing options. Their limited resources may not permit, or discourage from some market entry modes. Sock knitter confirms the theory. Because company is lying in the SME’s category and due to lack of recourses they don’t have a company’s own subsidiary.
Sock knitters talk about the importance of the size and resources when wanted to enter foreign market. They also said that company with huge resources and sizes have more opportunity in selections of market entry mode rather than smaller companies have less opportunity while marketing the selection of entry mode due to limited resources. Koch (2001) and sock knitter has same opinion that size of resources affect the selection of entry mode
Experience in using MEMs (verifies)
Koch (2001) argues that the experience is essential while using the individual MEMs depends on the experience of a particular entry mode.
As the base of our analysis, we came to know that according to our analysis, experience influence them in the way of entering the market entry mode; e.g. cooperation with a large international firm. Thus they support the Koch’s theory. Socks knitter knows that the experience in using MEMs is an essential key for success while making decision for entry mode. They understand how specific entry mode could be useful for selection of entry mode. So these results verify the theory argued by Koch (2001).Therefore we can see a relationship between companies’ prior experience market entry mode and it affects on selection of entry mode in feature.
Management risk attitudes ( neglects)
According to the Sock knitter risk is projected when selecting type of entry mode. So according to them if they choose a wholly owned subsidiary then they have to conduct a research in which they will try to analyze the risk which is connected to the entry mode. Then the top management will decide on the risk factors and if risk is high then they will compare it to the potential of the market. Because some markets have very high risk but still they have very high potential then it could anyway be worth investing. The potential of the market is also depending on the acceptance of sock knitter products as well as local conditions on the marketplace such as market growth and the population’s growth in the area. So management of Sock knitter argues that they are risk averse despite their positive result and it contradicts the theory of Koch (2001).
According to our analysis, the sock knitter company’s respondents are showing risk averse attitude which neglect the theory.
Profit Target (neglect)
Profit target of the company affect the choice of market entry mode Koch (2001). It depends upon the way of company’s strategy, which way a company chooses to enter a new international market; the targets for profits can vary. The author of the theory argues that it’s difficult to earn profit in a long term by choosing the profit quickly option. So the companies who choose the entry mode with a long term profit as a does not brings profits as quickly but through this strategy they can be able to sustain the long term profitability.
According to our finding, sock knitter has a project to project profit target orientation, where they believe that every project supposed to bring profit. These findings are not consistent with Koch (2001) theory regarding profit targets since sock knitter despite their short term profit targets is able to sustain long term profitability.
International experience (verifies)
With the passage of time international experience of Socks knitter increased. At the beginning socks knitter did not have any experience and did not export their products abroad now Socks knitter daily business internationally therefore they can decide on what entry mode of entry to select based in experience. They can choose any entry mode. Hollensen (2004) states international experience legitimize the cost and low understanding when working in foreign market as well as produce higher level of likelihood for committing resources to overseas markets. He also states that a company immediate experience in the international market increases the chances of committing additional resources to decreases market. Socks knitter and the theory presented by Hollensen (2004) agree with each other the much experience a company gains the more resources the company will commit.
Product (verify)
Product features influence the entry mode. So Socks knitter says that the cost of transaction and high excise duties affect the entry mode. It’s hard for the company to export their products if these are very heavy or big in the size. The product features for e.g. characteristic value/ weighs packaging and composition is important where the production should be performed. Shipments to foreign markets far away would be not affordable if the company due to high transportation costs Hollensen (2004). The research conducted by Hollensen (2004) and empirical data from the company shows that the products characteristic will affect the choice of entry mode.
External Factors Influencing Selection of Entry Mode
Industry Feasibility/Viability of MEM: (verifies)
Koch (2001) states that some entry modes could be excluded in some countries due to laws and regulations. This theory states that some entry modes could be excluded in some countries due to their specific laws and regulations. The theory based on target country’s specific factor such as labour cost, technical know how, associated risk, inadequate level of skills. Koch (2001) states that according to law in some countries do not allow to use entry modes such as joint ventures and fully owned subsidiaries. In this way state reserve their rights and selected industries in which it has interest in. Some countries use barrier, such as strict labor laws, cost of labor, inadequate skill. This may scare a company to set up a subsidiary or a joint venture operation in the foreign market. Different entry modes have particular risks and costs and that they have different sales potentials, some market entry modes will be more suitable than others in given situations.
So according to our analysis of sock knitter suggests that the management views the laws and regulations as not only specific to the theory but they also apply it in the real situation while entering in the foreign market. Company is also trying to avoid such entry modes that are not allowed to use by law in certain areas.
In this research study one can assess there is connection between the Koch (2001) theories and Socks knitter views about industry feasibility/viability influences on the selection of entry mode.
Market Growth Rate (valid)
Market growth rate is a very significant factor while market entry mode selection. Socks knitter agrees with this statement that market growth rate plays a considerable role when deciding on the choice of entry. Sock knitter carries on Koch (2001) discussion that if there is a market with large population and it continuously grows and the middleclass sector will increase in coming years and all other parameters of market growth will show positive response then they would have open up their own subsidiary. But where market is not a large scale and growth of population and market is still increasing but not with a rapid ratio and this market still seems interesting then sock knitter enters the market through agents and local partners.
So analysis shows that there is a connection exists between the theory of Koch (2001) and the company’s management statement. Thus sock knitter arguments about this factor affect the choice of market entry and koch (2001) theory on market growth rate is influencing companies choice of entry mode is connected with each other.
Image Support Requirements (oppose)
Koch (2001) states that there are companies that wants to build and maintain an image of a leading global supplier in the market. Companies could if they see it necessary license their new invention to expand their image as a global supplier of latest technology and affect relevant industry standards. Some companies try to maintain the same standards after the sale, which may lead to the preference of market entry modes, which facilitates the accomplishment of this objective by setting high control over service network and distribution.
Socks knitter argues that this factor does not affect the company’s choice of entry mode. The management quotes that they are focusing on their export planning and their also in major markets in USA, Canada, central and Eastern Europe and they have market objective but still they did not consider the market image requirement support the company. They also said that they are going to be leading exporter in the market in the future. This strategic planning does not relates to an image support requirement that would influence the choice of market entry mode. After seeing both reviews we have realized that there is a contradiction between socks knitter and Koch (2001) views.
Global Management Efficiency Requirements (Valid)
Today the world is globalizing and at the same time competition is increasing in the international market. Socks knitter is flexible and adaptable in change entry mode according to the market condition. The company adopts the entry mode depending upon the market where they are going to enter. According to company’s point of view, the global management efficiency requirements and rivalry in the world has made it more adaptable. Company has started its business with agents in some markets, and they are waiting for the right time when the circumstances on the local markets will be getting better and through this they are gaining experience, and when they consider that they have the recourses and that particular market also have potential, they will set up their own subsidiary in that market. Thus socks knitter choice of market entry mode is affected by the global management efficiency requirement
Koch (2001) states that the rising interest in international business, increases the awareness of the limitations about the company’s resources and it is a question of time before it leads to a re-define the company’s global strategy. Companies that selected a wide, multinational mode of operation, for others, the standardized, narrower global approach may be more fit from a strategic efficiency view.
Koch (2001) and socks knitter both have same opinion that the global management efficiency requirement have an influence on the selection entry mode. Therefore, the empirical data collected is match with the theory.
Popularity of Individual MEMs in the Overseas Market: (validate)
Socks knitter says that they will be influenced by the experience, degree of success of the previous market entrants and the expected market situation as Koch (2001) says because the industry where socks knitter is doing business is transparent. So socks knitter want to know that how the competitors are entering foreign markets and how successfully or not it will be. They say that they do not imitating of other companies entry mode, they have their own strategic policies and thinking but to some extent they keep the competitors selection of entry mode into consideration while making choice of market entry mode.
According to Koch (2001) in some countries there is a huge attraction for specific market entry modes in specific industries. The new potential entrant’s selection of market entry mode will be affected by the experience, degree of success of the earlier entrants and the expected product market position. when a company have a good experience in a specific entry mode and when there is hope on increased demand and there is a steady business environment it will support the entry mode most popular. However companies that have successfully been using other entry modes in other markets may be trying an option to use the mode of entry that is common in the new market, if that would improve strategy match.
However socks knitter and Koch (2001) have the same opinion on that companies to some extent get influenced by their competitors experience and past and current selection of entry mode. Socks knitter confesses that to some extent they got influenced by the popularity of individual MEMs.
Target / Foreign Country Market Factors (valid)
Root (1994) commits that this is the one of the crucial factor which affects while making decision regarding market entry modes. When company is at initial stage and deciding to enter a new market, then they make a plan for entering a new market. So at first stage, company conducts some research on that market size and growth rate. After analyzing the result they make decision whether to adopt agents or go for their own subsidiary. If there is a consistent growth in population size, parameters and all other factors, then they will decide to open their own subsidiary. And where the market and population size is growing but not to fast and market still seems interesting then company enters the market through agents and local partners.
At the start Socks knitter first made some research on the country by themselves or through Experts to check how the markets size and growth looks. Where there is a market with a large population and if the market is growing fast all factors and parameters are saying that Socks knitter should set up their own subsidiary, while at situations where the market is not big and the market growth and population size is growing but not to fast and the market still seems interesting then Socks knitter enters the market through agents and local partners.
Root (1994) says the size of the foreign country market has affect on the entry modes. Where there is tiny markets entry modes that have low break even sales volumes (indirect and agent/distributor exporting, licensing and some contractual arrangements) are appropriate. On the other hand, markets with high sales potentials it is appropriate to work with entry modes which have high break even sales volumes (branch, subsidiary, exporting and equity investment in local production (ibid).
Socks knitter and Root (1994) have the same opinion regarding the foreign countries market factors, influence on the selection of market entry mode. Socks knitter says that the market growth and size of the market is affecting the selection of market entry mode. Company has the same opinion on this question, so we can see there is a connection between market entry mode selection.
Target / Foreign Country Environmental Factors (oppose)
Socks knitter says that political factors decide if the government in the foreign country will favor or not, foreign investment on their domestic market. Depending on the countries stand towards foreign investors they will provide investment subsidies. Some countries do want to see well-developed foreign companies to create joint ventures together with the home countries companies then they will support foreign companies trying to enter their markets through subsidies.
According to Root (1994) economical, political and socio cultural factors of the foreign country can affect the selection of entry mode. The most important factor seems to be government policies and regulations. Strict import rules could be viewed in form of high tariffs and hardly regulated quotas, these set of laws complicates an export entry mode, and pushes the company to find other entry modes.
Socks knitter agrees to the most with what Root (1994) have said regarding the environmental factors have influence on selection of market entry mode. The difference between what Root (1994) has said and what Socks knitter is saying, is that they do not agree on how the socio cultural distance have an impact on the choice of market entry mode.
Within-Case Analysis
5.2 Case Study (II) RK International Pvt. Ltd.
Internal factors Influencing Selection of Entry Mode
Company Size/Resources: (verifies)
RK international discuss the significance of size and recourses while making decision to enter into new markets. They also believe that the companies with larger size and recourses have more options regarding the choice of entry mode, and the smaller companies have are more restricted while selecting the market entry modes due to less recourses. Therefore it could be more challenging as well as harder for small companies to use some market entry modes that need a large amount of resources. For example, to start a fully owned subsidiary often demands heavy investments; small companies usually do not have satisfactory management skill to enter international market abroad through establishing fully owned subsidiary or international joint ventures.
The observation of RK International and the theory provided by koch (2001) agree with each other saying that the company size / recourses affect the choice of entry mode.
Experience in Using MEM: (verifies)
RK international said that experience gained from the use of different market entry modes have had an impact on their selection of entry modes. RK international agrees that past experience from entry modes will fit companies’ selection in the future. They also said that agents and distributor’s experience can be successful for selection of market entry modes. Moreover one has to be very conscious and keen while using agents and distributors because RK international history has had tough time with some distributors and agents. That can naturally affect their selection of entry modes.
Koch (2001) quote Paliwoda and Thomas, (1998); Root, (1994); Van Fleet, (1991) saying that how many times, how recently, in what conditions or if it is similar or dissimilar the company or if the companies competitors have used any particular market entry mode and their success and degrees of all these factors clearly affects both the market entry selection process and the choice of entry mode.
The empirical data and theories quoted by Koch (2001) both agree. Therefore one can see a connection between companies’ past experience of entry mode and its influences on selection of entry mode.
Management Risk Attitudes: (Oppose)
RK international says management risk has not seen that affects the selection of entry mode.
Risk associated with International business depends on the financial position, and strategic alternatives of the company as well as the competitiveness of its competitive environment and its experience. The supposed risk related to an individual market entry mode or country can affects a company’s selection of market entry mode in a significant way as Koch (2001) quotes from (Johansson, 1997, p 124).
RK international do believe risk is not any factor that influences their selection on mode of entry. This makes it very hard to see any connections between empirical data and previous research presented by Koch (2001).
The research study conducted by Koch (2001) considers risk while making the selection of entry mode.
Profit Targets: (verifies)
RK international says selection of entry mode is not affected by profit objectives. Profit objective are decided depending on the business area. Each product and business area has got its own separate profit targets and there are also overall profit goals for the company no matter if the company is using agents or if it is a wholly owned subsidiary or both.
Different market entry modes are most probably going to generate profit at different degrees; equally importantly, the differences of profit generation of different modes (take, for example, indirect export and investment in a new manufacturing and marketing overseas operation) will be very different (Koch, 2001).
RK international says how each product and has got its own separate profit targets and there are also overall profit goals for the company. Our finding shows that company has a long term profit strategy and it clearly states that endurance for profit generation is essential. So these findings support the theory stated by Koch (2001).
International Experience (oppose)
Hollensen (2004) quotes johanson & vahlne (1977) saying that a firm’s immediate experience in the international market place increase probability of committing extra resources to foreign markets.
RK international says international experience have not made more bold in this that the more experience they got the more money. According to RK international there is no connection between international experience gained and the selection of entry mode. Therefore there is no connection between degree of international experience and selection of entry mode.
Product (verifies)
Product plays an important role while deciding the mode of entry. It was harder to compete in markets far away than it was five years ago due to transportation barriers; it might be very costly for the supplier to ship the heavy or large product due to high shipping cost. The product characteristic for example features as value/weight ratio, and packaging is important while making decisions regarding choice of entry mode
So the complexity and differentiation of the product could according to theory affect the market entry mode decision, as different product features could render difficulties of various kinds when entering a new international market
Data collected from the RK international as well as research study by Hollensen (2004) tend to show that the products characteristics will affect the selection of entry mode.
External Factors Influencing Selection of Entry Mode
Industry feasibility/ viability of MEMs (Validity)
RK international selections of entry mode have not been affected by industry feasibility /viability such as those industries of countries that do not permit certain entry modes. But in this global village, there are many areas where it is used to see foreigners used this to enter in a market. e.g. in central Europe RK international working through agents, they have also been influenced by industry factors in Africa where black economy is in empowerment. So that’s why management tries to support black people to run their own business. Company tries to use them as agents as a substitute of their own subsidiaries.
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As Koch (2001) says in some countries entry modes are forbidden for e.g. subsidiaries & joint ventures. Some countries uses barriers like labour laws lack of skills those may restrict a company for making her own set up. By analyzing the Koch (2001) theory and RK International views we understand that there is a connection between Koch theory and RK international views about industry feasibility/ viability influence on the selections of entry mode.
Market Growth Rate: (agree)
Koch (2001) argues that market growth has been used as a criterion while choosing entry mode, market growth is having an important role. When a market has a high growth, The Company has to take benefit of the occasion as speedy as possible and use indirect or direct exporting. If demand in market in a foreign country is forecasted to be large but only in short time setting up an own manufacturing/marketing subsidiaries may be a proper way.
RK international says while selecting entry mode market growth rate is important factor. They says in large markets with rapid growth they usually prefer to open up wholly owned subsidiary and in smaller markets with medium degree of growth they favor to enter the markets indirectly through the distributors and agents. Therefore, the theory and the empirical data from the company are on the same line saying that market growth affected on the selection of entry mode.
Image support requirements (oppose)
RK International also said that image support requirement does not influence their strategy regarding market selection of entry mode. RK international is focusing on its strategic thinking and its core markets in international market so it has no market image requirements support that would affect the choice of market entry mode. But Koch (2001) theory differs with data for industries that demand companies to build and maintain image of leading global supplier.
Therefore the inspected theory and the empirical data does not lying on the same line. So RK does not consider the image support requirement factor while making their choice of entry mode.
Global Management Efficiency Requirements (valid)
RK international makes assessment regarding how they will try to increase their sales volume in a market and then examine and compare the costs to the forecasted revenues they will get from the sales. If the costs are higher than the revenue, RK international will not enter the new market. If the revenue is greater than the costs then RK international try to enter the new market and they will also consider the relationship between success and the time it takes reach for each entry mode, means RK international have to make a decision on what entry mode is most suitable in use the recourses spend and the desired time into consideration, for the entry mode to reach success.
Koch (2001) says the growing interest in international business increase the awareness of the limitations about the company’s resources and to re-define the company’s strategy. Companies that have chosen a wide, multinational mode of operation, for others, the standardized, narrower global approach may be more suitable, seen from a strategic efficiency perspective.
Success elements and companies core capabilities must be inspected to find the most favorable organizational structure and strategy. Avoiding extreme diversity of the global market entry portfolio may be a good idea for most global companies. Economies of scale may come from that portfolio has to be studied. Organizational structures and strategies of all rivals have to be taken into consideration. Low participation is required from the company head office but some entry modes it may be another decision factor.
RK international and Koch (2001) agree that the global management efficiency requirement have an influence on the selection of market entry mode.
Popularity of Individual MEMs in the Overseas Market (valid)
RK international is not immediately affected of the entry modes that are commonly used in their industry or by their competitors. RK international has their own plan and policies since they have been international for a long. RK international try to be aware of what the competitors do. But this will not lose their opportunities and become unknowing. However RK international said that sometimes it is very beneficial from them to select the same entry mode as their competitors and believe this mode of entry is sufficient and lead to success and profitability in the future.
According to Koch (2001) in some countries markets there is a great charm for particular entry modes in particular industries. The new potential entrant’s selection of entry mode will be influenced by the experience, degree of success of the previous entrants and the expected product market situation. Often, when a company has a good experience in a particular entry mode and when there is hope on increased demand and there is a steady business environment, it will support the entry mode. However companies that have successfully been using other entry modes in other markets may be want to try an alternate to the mode of entry common in the new market, if that would improve strategy match.
RK international’s choice of entry mode will be effected by the experience, degree of success of the previous extracts and that expected product market situation as presented by Koch (2001)
RK international got influenced but they have their own strategic policies that they follow; they do not copy what somebody else select entry mode. Both RK international Koch (2001) and agree on that companies get influenced by their competitors experience and existing choice of entry mode.
Target / Foreign country market factors (valid)
RK international agree with the theory presented by Root (1994) that foreign country market factors influence the selection of market entry mode. RK international try to focus on big markets that grows rapidly, in that case to start a wholly owned subsidiary is suitable geographical point of view where there are insanities and problem regarding payments and non trustable environmental company relays on distributors and agent.
Root (1994) says the size of the target market is affected on entry mode. Small market with low break even sales volumes use entry modes like (indirect exporting distributors/ agents) licensing and contractual arrangements are suitable market with high sales volume (subsidiary, branch exporting and investment in local production. Quality and accessibility of the local marketing infrastructure e.g. local distributors and agents are co-operating with other firms or if they do not exist then the exporting company has to research the market through a branch or subsidiary.
Analysis shows that foreign country market factors affects the selection of entry mode and also add the fact quality and security of agents also influence the selection of entry mode.
Target / Foreign Country Environmental Factors (agree)
RK says that political factors decide if the government in the foreign country will favor or not foreign investment on their domestic market. Depending on the countries stand towards foreign investors they will provide investment subsidies.
According to Root (1994) economical, political and socio cultural factors of the foreign country can affect the selection of entry mode. The most important factor seems to be government policies and regulations. Strict import rules could be viewed in form of high tariffs and hardly regulated quotas, these set of laws complicates an export entry mode, and pushes the company to find other entry modes.
RK agrees to the most with what Root (1994) has said regarding the environmental factors have influence of the selection of market entry mode.
5.3 Cross Case Analysis
Internal Factors influencing selection of Entry Mode
Table I
Cross case analysis showing internal factors influencing the selection of entry mode. Shows how internal factors affect the selection of entry mode. Both companies agree with each other, but at on Profit target, international experience is not agreed with each other. Both companies have their own views on above mentioned factors. But both companies opposed the influence of management risk attitude on the selection of market entry mode.
Company
Theory
Socks Knitter Pakistan
RK Inter
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