As the global economy thrives and competition among “global players” grows, CEOs and top managers are debating how to identify effective globalization methods on the basis of how and where to join a foreign market.
Surprisingly, most businesses try to adhere to their old methods of doing things, which means that many Multinational enterprises are still trying to figure out the best MOE for the emerging economy they want to enter. This challenge is intensified by dynamic global environments, varying cultural values, and the impact of technology and innovation that render traditional market entry modes invalid.
Given that entering a new market takes around 3-5 years, the mode of entrance chosen has a significant impact on the company’s subsequent performance and long-term viability. As a result, it appears to be a fundamental variable that has a considerable effect on an MNE’s competitive advantage.
Because an MNE’s success, as well as its ultimate survival in an emerging market, is likely to be on the line, it appears crucial to make the proper entry mode option on the spur of the moment. Because of the continual need to increase profitability and growth, the appropriate choice of entry has become a critical issue for professionals and researchers around the world. Therefore, companies find it challenging to find a MOE that satisfies all the above needs.
A MOE is associated with a company’s initial entry into a new foreign market. Contrary to the common view, MOE is not a one-time decision. Companies are allowed to change their entry strategies as many times as deemed necessary to satisfy their needs and attain their desired position in the new market. The quality of initial research plays a crucial role in determining the MOE adopted by a company.
For instance, a company’s management may think that joint ventures would be most profitable in entering the East Asian market. However, as the company makes the first move, it may note that based on the region’s economic development and the prevalent business culture, it would gain more from foreign direct investment (FDI) than joint ventures. At this point, the company would need to change its MOE to adapt to the new developments.
It is also worth noting that a country’s business environment is subject to change anytime through several forces, such as business regulations, global economic crises, and unforeseen events, such as pandemics. Companies must keep track of their operations to understand when they need to approach the market differently. Failure to change the entry mode would result in failed operations, and eventually, the company may be pushed out of the market. Therefore, MOEs can be changed at any time throughout a company’s operating life.
There are six main market entry strategies that differ in applicability and complexity: direct exports, joint ventures, foreign direct investments (FDIs), strategic acquisitions, licensing, and franchising. Of all these strategies, FDIs and direct exports are the easiest to change. This is because these modes are entirely dependent on the investing company and can be adjusted at any time without significant effects on other stakeholders.
An MNE can decide to cut exports to any country without incurring any legal costs. Some strategies involving legal agreements among two or more parties are hard to change because they entail logging legal procedures whose costs may outweigh the expected benefits. Therefore, strategic acquisitions, joint ventures, and franchises are the hardest to change. These MOEs are usually regulated by the host countries and sealed by legal agreements. It is also important to note that regional trade agreements may come into effect concerning joint ventures and strategic acquisitions, making it difficult to alter them once enforced.