Multinational Corporations

&
Emerging Markets
Session 5 – Entry Mode in an EM

Mayank Sewak, PhD

August 23, 2021
Recap so far

• What is an emerging market

• How is it different from a developed market
• High growth markets which are plagued with institutional voids

• Institutional voids are lack of certain market intermediaries which

support the “proper” functioning of business

• Comparing BRIC

• How local companies compete with DMNEs

• What are the common features
Recap so far (cont.)

• MNE Theory
• OLI Framework
• Internalization Theory

• Implications of MNE theory to EMNEs

• Challenges faced by the theory
• Challenges face by the EMNE – legitimacy
Plan for the day

Change gears a little and start to talk about DMNE

• How does DMNE enter an EM

• A unique model of PPP – public private partnership
DMNE Entering an EM
The situation – the unique challenges of DMNE in an EM

• Unknown foreign country

• Transactions are socially driven and enforced
• Little, if any, legal recourse
• High red-tape and corruption
Making money or
achieving growth
• Low purchasing power for bulk of population is difficult for
• Little or non-existent 3rd party distribution systems DMNE in such
conditions
• Difficult market conditions to operate
• Power / electricity availability and quality
• High competition from both local and MNE players
• Two worlds – both JLR and Nano sold
• Changing institutions and government priorities
Given this difficult conditions how does the
traditional entry modes change for a DMNE
entering an EM
Entry Modes (Traditional)

Exporting Licensing Joint Ventures Subsidiary

Franchising Acquisition / Greenfield

• High Risk of Brand Dilution • Low Risk of Brand Dilution

• High Distance / Less Aware • Low Distance / Better aware
• Low Investments / Cost • High Investments / Cost
• Low Control • High Control
• Low Risk of Loss • High Risk of Loss
• Low Adaptation • High Adaptation
Entry Modes

Exporting Licensing Joint Ventures Subsidiary

Franchising Acquisition / Greenfield

There is a greater risk while Because the DMNE has no control

exporting / licensing /franchising over what the local distributor /
franchisee / licensee is actually
doing with the product / brand
Joint Ventures (or Alliances) in EM

• Sometimes the ownership in a subsidiary in an EM is capped

• Insurance is India → 100% FDI is not permitted
• Automotive in China

• Sometimes the Alliance is directly with the government

• Limiting the negotiation of the DMNE
• But also reduces risk of the entry

• Challenge of setting up a Alliance / JV

• Has to be a win-win for both parties
• Resources and capabilities have to be complimentary
• DMNE may loose IPR and create a competition instead
Modes of Entry

Most
Joint Control
Control &
ownership

Joint Control
but no
ownership
Eg Least
Covishield Control
 Joint Ventures (or Alliances) in EM (cont.)

Benefits of JV over contractual agreements

• Gives control over investments and
decision making to both parties
• In a contract, there may be lack of
commitment from both / one party
• A new entity is created, loss of IPR may be
limited

Challenges of JV over contractual agreements

• Dissolving a JV may become difficult
• Management cultures, priorities impact JV
but has limited impact on contracts
Alliances outcomes

• Alliance management differs by country, region, industry, and type of

operation.
• Building effective relationships positively influences partnership
results.
• Some companies like HP, Eli Lilly, and Philips, have established
departments which specialize in managing alliances with other
partners
• Thus, creating organizational ownership
• Creating expertise in alliance management
• Thereby increasing the alliance success rate
Typical Entry Modes for EM

Exporting Local Corp. Subsidiary

Licensing JV Acquisition / Greenfield
Franchising Govt. / PPP

Local Corporation could be private PPP → could also be two types

player • SOE (State owned enterprises)
• Govt. – Directly with the Govt.
Alliances with Government

• PPP → Public Private Partnership

• PPP in infrastructure development projects like Road, Airport, Dams etc.
• Why PPP?
• Infrastructure demand exceeds public funding
• Govt. agencies lack experience and expertise to operate businesses.
• Private player brings specialty technology and knowhow
• These are not public works projects
• Where the Govt. decides specifications, and private companies place bids
for the business
• Making these projects similar to outsourcing or subcontracting.
• In comparison, PPP agreements promote innovation within private
companies in the process of infrastructure creation through business
operation.
• The PPP framework is created with the intention to increase public
services’ return on investment (ROI).
Structure of a PPP
Challenges in an PPP

• Political change / instability kills

PPP
• EM often do not have a laws
governing PPPs
• Govt. lack knowledge to
manage PPP
• PPP in critical areas may be
challenging
• Areas such as defense /
borders
Questions and discussions

email – mayank.s@greatlakes.edu.in

Thank you