Exploratory Study on Emerging Market Entry Strategy
- Systems Thinking Approach*
Chang-Kwon Chung
Seoul School of Integrated Sciences & Technologies
67-7 Daehyun-Dong, Seodaemun-Gu, Seoul Korea
+82-2-390-4500/ +82-2-390-4599
cck@K ~ Bridge.org
Absract
The key foci of this study are the characteristics of emerging markets and
strategies for entering emerging markets. Three theoretical frameworks are
selected to demonstrate the characteristics of emerging markets: Institutional
Theory, Transaction Cost Economics, and Resource-Based View. As a
methodology, this study proposes five causal loop diagrams(CLDs), each of
which integrates a series of causality mechanisms drawn from a comprehensive
literature review. It was found that political activity and institutional void are
critical factors in the characteristics of emerging markets, and Corporate Social
Responsibility(CSR)/Creating Shared Value(CSV) and cultural distance should be
considered as leverage points. While this study provides significant contributions
to the field, it has limitations because the CLDs have not been tested.
Keywords: Emerging Market, Causality, Causal Loop Diagram,
Institutional Void, CSR, CSV, Cultural Distance
I. Introduction
From the viewpoint of the current world market, now is an appropriate
time to discuss and determine a new global strategy regarding global
recession and stagnation in developed countries (Kumar, 2011; Jones,
2012). As seen through the ninefold increase in foreign capital invested in
China between 2002 and 2009 (Tse, 2010), emerging markets including
China have become attractive markets as new growth engines in the
globally stagnated market. However, it is difficult to analyze emerging
markets using theories that were developed by and applied to developed
countries due to the heterogeneity of its properties in every emerging
country (Wright et al., 2005). In addition, a comprehensive study of
emerging markets is required in order to further research them and to
propose new approaches for understanding the mechanisms of modern
emerging markets, because the outcomes from individual studies have
demonstrated that fragmentary independent correlations fail to reveal the
* This paper is a part of author's Ph.D. dissertation with some modification.
entire systematic causality. Therefore, in this study, a literature review on
emerging markets is presented within the framework of three significant
theories and is used to draw causalities from each study. Finally, this
study derives a comprehensive causal loop diagram(CLD) based on the
casualties found in the literature.
I. Literature Review of Three Theoretical Frameworks
Hoskisson et al. (2000) described three theories that can be implemented
as theoretical frameworks through which the characteristics of emerging
markets can be reflected. Firstly, Institutional Theory (IT) can reflect the
socially and politically unstable systems of emerging markets when
compared with advanced markets. Secondly, the Transaction Cost
Economics (TCE) perspective illustrates various factors of transaction costs
that occur in emerging markets. Finally, the Resource-Based View (RBV)
describes the company activities in emerging markets with the view of
learning to satisfy insufficient competence, when compared with
multinational companies, and it explains the accumulation and development
of competencies. Although industry structure analyses (Gao ef al., 2010),
organizational behavior theory (Peng, 2003), and social network theory
(Khanna and Rivin, 2001) have been used previously to describe emerging
markets, this study focuses on the three abovementioned theories in order
to create new understandings of the causal loop of emerging markets.
<Table 1> Three Theoretical Frames
Theories Representative study(2000~2012)
Li & Atuahene-Gima(2001), Mahmood & Rufin(2005),
Institutional | Peng et al.(2005), Khanna et al.(2005), Meyer et al.(2009),
Theory Feinberg & Gupta(2009), Henisz & Zelner(2010),
Mair et al.(2012), Simanis(2012)
Transaction | Hoskisson et al.(2000), Peng & Luo(2000), Dharwadlkar &
Cost Branders(2000), Park & Luo(2001), Gong (2001), Douma et
Economics al.(2005), McCarthy & Puffer(2008), Bhaumik et a/.(2010),
: Li & Atuahene-Gima(2002), Spencer(2008), Kale et al.(2009),
Resource-based | Nratik & Kotabe(2009), Kumar(2009), Black & Morrison(2010),
Mew Zhang et al.(2010), Chang et al.(2012), Tomson(2012)
1. Institutional Theory (IT) Perspective and Its Implications
Institutional Theory (IT) focuses on the effect of an institutional system
on the social and organizational behaviors of the population. IT comprises
an important proportion in the study of emerging markets because the
social systems of destabilized emerging markets provide the “rules of the
game” to companies (Hoskisson ef a/., 2000). More importantly, the
institutional regulations define the limits of corporate strategies from a
sociological view, which causes companies to confront limited growth in
emerging markets that are undergoing turbulent transformations from
existing in a controlled economy to moving toward capitalism. Therefore,
companies that are engaged in the emerging markets use network-based
growth strategies in order to avoid risk (Peng & Heath, 1996). Moreover,
they can form business groups (Khanna & Rivkin, 2001; Li &
Atuahene-Gima, 2002), ally themselves with local companies (Peredo &
Chrisman, 2006), and work in a positive partnership with foreign
multinational companies (Peng et al., 2005; Mahmood & Rufin, 2005;
Bhaumik et al., 2010).
Furthermore, the government’s role cannot be overlooked. Emerging
markets, which are commonly characterized by marketization, privatization,
and heavy regulation (Shenkar & von Glinow, 1994), are influenced by
government policies and social institution policies (Hoskisson et al., 2000),
which includes studies of the market intervention by the Russian
government which had a negative effect (Peng ef al., 2005; Puffer &
McCarthy, 2011) and studies on the executives of Chinese companies
being relatively well adapted to political pressure (Li & Atuahene-Gima,
2001; Lu & Ma, 2008; Gao et al., 2010; Tse, 2010). In addition, the role
of government has a significant effect on the institutional void (Henisz &
Zelner, 2010). Institutional void is an integral concept, following the
government’s role, in the study of emerging markets; a research group at
Harvard University has been investigating this concept for more than 15
years (Khanna & Palepu, 1997; 1999; Khanna, Palepu & Sinha, 2005).
The institutional void refers to insufficient infrastructure related to capital,
products, and labor power (Khanna & Palepu, 1997; Miller et al., 2009):
the greater institutional void there is in an emerging market, the higher the
operational cost that multinational companies will confront becomes
(Simanis, 2012). For this reason, operational costs are increased and the
institutional void phenomenon should be considered as a key strategic
attribute when considering emerging market entry strategies.
Entry strategies for emerging markets can be used as problem-sensing
tools that diagnose the management environment and establish strategies
when multinational companies enter emerging markets (Mair et al. 2012).
In addition, entry strategies have been investigated as drivers in relation to
overcoming inefficiencies in emerging markets that cause instability in the
social system, that increase internalization of the transactions of the
companies inside the business group in order to improve the efficiency of
the overall organization (Lu & Ma, 2008), and that network with the
leaders inside the government administrative organization or a strategic
partnership (Li & Atuahene-Gima, 2001).
2. Transaction Cost Economics (TCE) Perspective and Its Implications
Transaction Cost Economics (TCE) is an approach to interpreting the
interaction between a corporation and the external environment based on
contract transactions (Hoskisson et al., 2000). TCE is typically used in
studies of multi-structural organizations (Hoskisson, Hill & Kim, 1993),
vertical integration, and strategic partnership. It is difficult for companies
in emerging markets to expand using inherent growth engines due to
unstable political structures. Therefore, network-based growth is considered
an essential strategy for companies in emerging markets (Peng & Health,
1996). Using this strategy, companies can acquire the benefits of economy
of scale and scope through enlarging the range of available resources,
which in turn reduces uncertainty and decreases transaction costs. In this
way, unrelated diversifications, which are common in emerging markets,
can be rationalized using the TCE perspective (Banga, 2007). Furthermore,
Agency Theory is highlighted in the TCE perspective due to the
monitoring cost of watching the agency that should represent the interest
of the company but could act against the interests of the shareholders due
to asymmetric information. Therefore, Agency Theory explains the reason
for various types of partnerships, such as mergers and acquisitions
(M&As) and joint ventures, being developed as a response to asymmetric
information (Kogut, 1998; Hoskisson et al., 2000).
3. Resource-Based View (RBV) and Its Implications
The Resource-Based View (RBV) focuses on the reason for a certain
company’s performance differs from others and how - sustainable
competitiveness is created in the same industry and the same environment.
However, the factors of competitive advantage are influenced by the
context of the company, which is one reason for RBV being considered a
blackbox (Hoskisson et al., 2000); furthermore, the past core competence
may raise core rigidities that lower strategic flexibility and elasticity in
different environmental and managerial contexts (Leonard-Barton, 1992).
The issue of core rigidity has resurfaced in various case studies of
multinational companies entering emerging markets and failing due to
strict adherence to their own core competence (Black & Morrison, 2010;
Ichii et al., 2012). RBV has also focused on knowledge as an intangible
resource that can generate competitive advantages (Conner & Prahalad,
1996). The interest in knowledge has evolved into studies on the spillover
effect of technology from multinational companies entering emerging
markets (Mahmood & Rufin, 2005; Peredo & Chrisman, 2006; Banga,
2007; Zhang et al., 2010). RBV is primarily used to study the
management of multinational companies, strategic partnerships, entering
new markets, globalization, entrepreneurship, and emerging market
strategies (Peng, 2001). In particular, it can explain the liability of
foreignness, product diversification, and global diversification (Barney et
al., 2001; Meyer, 2001; Peng, 2001; Miller & Eden, 2006; Lu & Ma,
2008). Furthermore, it can elucidate the mechanism of the competencies
accumulated from the experiences of overseas branches (Chang et ail.,
2012).
<Table 2> Keyword from Three Theories
‘Theories Keyword
- Institutional Void, Dilemma of Government,
Human Network
Agency Cost, Diversification of Agency,
TCE
Asymmetric information
REV Strategic Partnership, Spillover Effect
Absorption of Advanced Competence
I. Building a CLD Using the Literature Review
This paper reveals the causalities described in SSCI papers between
2000 and 2012. The primary research keywords were emerging market,
emerging countries, and developing countries; Google Scholar was used as
the initial search engine. The primary search ‘results were filtered using the
journal names on the SSCI list from the 2012 standard. The second step
used the references of the papers located in the first step in order to
locate meaningful papers that were not located using Google Scholar. The
third step classified the papers into topics of either the characteristics and
mechanisms of emerging markets or entry strategies of multinational
companies in emerging markets. Five types of journals and 55 papers
from five top ranked SSCI journals were selected as the result of the
three-step filtering process. The five journals were the Academy of
Management Journal, Academy of Management Review, Harvard Business
Review, Journal of International Business Studies, and Strategic
Management Journal. The final results of the classification are shown in
Table 3. The causalities drawn from each paper are described in Table 4
and Table 5.
<Table 3> Target References for Discovering Causality
s Academy of Academy of Harvard Journal of Strategic
Year | u Management Management Business International Management
m Journal Review Review Business Studies Journal
sum | 55 14 10 17 7 7
Hoskisson et al.,
Aulakhetal, Dharwadkar &
2000) 5 Peng & Luo, Branders
Khanna & Palepu
Li, & a Park & Luo
2001 | 5 | Atuahene-Gima Gheniawat Meyer Khanna & Rivkin,
Li &
2002) 1 Atuahene-Gima
2003 | 1 Gong
2004 | 1 Davies & Walters
Henisz & Zelner,
2005 | 5 Mebmoodsiutn, Khanna ef al.
Wright et al.
2006 | 3 | Miller & Eden etedo te Douma e¢ al
2007 |_1 Banga
Vaaler,
; McCarthy & . .
Lu & Ma, vadinoi Cuervo-Cazurra &
2008 | 7 Mesa & Hae Ready et al. Gee
azzarini
2009 | 7. | Feinberg & Gupta Kater Miller et al., Meyer et al
ig. Cup : Malik & Kotabe
Kale et al.
Black &
Morrison,
D’Andrea, ,
aires Bhaumik et al., ane e
2010 | 7 Marcotte & Gaaseh- als Zhang et al.,
Henisz & Zelner,
Tse
Johnson,
Kumar &
201 3 Puranam
1 Porter &
Kramer
shane ef Ichii et al.,
201 Chane. etal. Swant Jones,
8 Mair et al., Bs:
2 Surroca et al Sumas,
i es Thomson
3.1. Building CLDs for the Characteristics of Emerging Markets
3.1.1. Government Dilemma
The government is regarded as an uncontrollable exogenous variable in
existing studies; however, it can be influenced by the political activities of
companies under a unique feedback structure due to the illogical,
inefficient, and closed characteristics of emerging countries. Although the
political activities of companies can increase the transactional costs (Park
& Luo, 2001), these activities can also enhance the company and market
performance in the long term. Therefore, it is reasonable to include the
government and its policies in the feedback structure with causality. In
addition, the government displays numerous government-led technology
development policies in order to reduce the technology gap between their
country and the advanced countries; the government also encourages fast
imitation of advanced technologies and spillover effects throughout their
domestic industries (Mahmood & Rufin, 2005). However, the more that
advanced technologies become equal with the assistance of the
government-led technology development policies, the more that the policies
and markets become a deterring factor that effectively restrain the efforts
of multinational companies in sharing their advanced technologies through
partners in the emerging markets. This occurs because the technology
policies become a threat to multinational companies in the long term,
which is the dilemma that the governments confront with the limit of
innovation over time (Mahmood & Rufin, 2005).
This dilemma can be explained through the CLD presented in Fig. 1.
The CLD in Fig. 1 borrows the archetypes of the “fixes that fail”, which
emphasizes the unintended results, and “shifting the burden”, which
emphasizes the negligence of a fundamental prescription due to an
addiction in the short-term prescription (Senge, 1990).
The government’s investment activities have primarily protectionism
characteristics (Ghemawat, 2001); for example, governments can protect
infant industries against multinational companies (Johnson, 2011), which
can lead to lowering of the investment value for multinational companies
due to government policies about creating jobs that lead to inflation
(Vaaler, 2008).
The ‘R’ loop can be used as a logic that government policies can
improve the competitiveness of the domestic companies (Peng & Luo,
2000; Sawant, 2012), while the ‘B’ Loop can be used as a logic that
government policies that protect the domestic companies can curb
innovation in domestic companies and lower their competitiveness in the
long term.
Justification of
Governmental
a supporting policy o
Competitiveness of Policy for developing
domestic company domestic company
+
+
Imitation of advanced
company’s technology
Innovation in high :
level technology 0) Tes of
( Se Spillover from 7 %
+
MNCs
Efforts for
innovation He Dependency on
YT _ tovernment policy
<Fig. 1> Dilemma of government in emerging market
<Table 4> Causalities for M
m of Emerging Market
Reference Major causality Theme ‘Theoretical frame
Dharwadkar & 3 i 2 ’
Complexity of organizational structure of the company in the emerging market —>] PAéct on firm performance right after privatization
Branders ; of TMT, proprietary relations, and organizational | TCE (Agency Theory)
(2000) Agency cost(-)->Performance(-) structure
Personal human relationship with
Peng & Luo . :
‘one Relationship with the government bureaucracy — Firm Performance(+) governmental bureaucrat and relationship] TCE
between in emerging market
Guanxi Operational Efficieney(1)> Short-term Performance(+}—>Long-term Operational
Effect of Governmental Relations on firm] Organization Theory,
Pakr & Luo (2001) | Efficiency(-)
. . performance TCE, RBV
Level of Market Opening — Guanxi(-)
Cultural/Political/Local/Economical Distance — Risk(+), 2
‘Ghemawat Effect of cultural, political, local economic
Cultural Distance > Trade(-), Economy Size—> Trade(+) TCE
(2001) distance on risk of management
Governmental Investment — Protectionism(+)
; j Effect of conflicts between Russian
McCarthy & Puffer | Remain of Traditional Value of Social Culture(Blat)—> Business Network(+)
Y traditional values and market values on firm|TCE (Agency Theory)
(2008) Performance(+)
performance
Regulated Management Ei ent—> Political Activities of Corporations (=) > 7
Sawant ane le frporanions (8) Decisive Factors related to political activities
Transactional Cost (+) TCE
2012. of corporations in the regulated market
Risk of Trade Will to Change
(continued)
Reference Major causality Theme ‘Theoretical frame
Socioeconomic Stress—»Community Activities(+)—» Learning(+)—»Social Capital(+)}—> Social Network
Peredo & Chrisman Exploratory Study on _local-based.
Appearance of Local-Based Corporations(+)-» Leaming (Spillover _Effect)(+)—»Social heory,
(2006) a corporations
Capital(+) Entrepreneurship
Shift to Market Economy-+ Sensitivity to Strategy(+) —> Customer Satisfaction(+
y a ey) = we) Effect of strategy and management
Davies & Walters
(2004)
Shift to Market Economy — Performance(+)
Abundant Management Environment (Resources) —> Outstanding Performance(+)
Consumer-centered Business Strategy —>Performanee(+)
environment on performance in emerging
market
Industrial
Organization Theory
Li & Atuahene-Gima
(2002)
Institutional Void—Agency Partnership with Chinese Hi-tech Venture business (+)
Institutional Void—> Support from Institution(+) Uncertain Environment(-)
Agency Partnership with Chinese Hi-tech Venture business — Innovation(-)
Recognized Industry Growth > Agency Partnership with Chinese Hi-tech Venture business (-)
Association with Size of Corporation and Development Products> Agency Partnership with
Chinese Hi-tech Venture business(+)
Effect of characteristics of corporations and
environment factors on agency's activities
between corporations
RBV,
Network Theory
Social
Malik & Kotabe
(2009)
Organizational Learning within Corporations in Emerging MarketFirm Performanee(+)
Reengineering of Corporation in Emerging Market—Firm Performance(+)
Effect
governmental policies on fire performance in
of dynamic competence and
emerging market
RBV
-10-
(continued)
Reference Major causality Theme Theoretical frame
le Effect of extemal environment, such as
iy
. . - politics and institution, on products
Atuahene-Gima | Institutional Void—Networking with Political Forces(+) — Efficiency(+)
innovative activities of Chinese
(2001)
technology venture businesses
Governmental Policy for Supporting Technologies —Satisfied with Governmental
Policy (vested interest)(+)>D of Innovative of] Adjusting effect of local corporations
Mahmood & . . .
fend level of Innovative Technologies(+) and muti-national corporations on |
sufin
(2005); Governmental Policy for Supporting Technologies—Imitation of Advanced | technology innovation policy of local
Technologies(+)—-Spread Effect of Technologies(+) — Spillover of Multinational | government
ci —Achieve Innovative Technology Level(+)
Relevaney— Di of C
Development of Capital Market + Scope of Management of Corporations(-) | .
Peng et al Decision variables for diversification of
Supporting System—> Diversification of Corporations(-) IT
(2005) . business in the emerging market
Relevaney—> Di of C — (delay) — Diversification
of Comporations(-)
; Effect of investment into the
Vaaler Governmental Policy(Creating Jobs) — Inflation(+)> Investment Values(-) . . .
a developing countries on investment of | IT
(2008) Governmental Policy(Attraction of Investment) — Investment Values(+)
multi-national
of Gi into Market(-) .
Johnson - Effect of understandings about the
Knowledge of Market— Sales(+) IT
(2011) . emerging market on performance
Institutional Void— Required Period to Advance into Market(+)
Strategic meanings that the institutional
Mair ef al. (2012) | Institutional Void Market(Produets, Labor, Capital) Attractiveness(-) IT
void of Bangladesh
3.1.2. Feedback Structure Related to Institutional Void
The institutional void refers to the insufficient available infrastructure
related to capital, products, and labor (Khanna & Palepu, 1997; Miller et al.,
2009). Companies in emerging markets must diversify their business in order
to avoid risks because there are political risks, as well as the institutional
void, in emerging markets. This is related to the findings that performance
becomes better through more complicated organizational _ structures
(Dharwadkar & Branders, 2000), that the performance of the companies
within a business group is higher than that of ungrouped companies in
emerging markets (Khanna & Rivkin, 2001), and that the institutional void
promotes efficiency through the ties between companies and networking
between political forces (Li & Atuahene-Gima, 2002). As well as the
supporting systems of the government, the partnership density with
multinational companies and the efforts to diversify the business are
diminished with the change to a market economy lowering the uncertainty of
the environment (Peng ef al., 2005). This is because companies in emerging
markets do not need to maintain partnerships with multinational companies
after absorbing the necessary knowledge (Li & Atuahene-Gima, 2002) and
because the more that the management environment is required, the lower
the need for partnership with advanced companies (Peng ef al., 2005;
Feinberg & Gupta, 2009).
+ void
Intensity of i) {
BI
governmental
supporting a Speed of eas ition to
activity : market economy
~~ Perceived risk —
Alliance with
MNCs =
iS Performance ris) 3
+: Spillover - —Y
as — ;
ii ication
<Fig. 2> Feedback structure related to Institutional Void
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The study by Peng et al. (2005) had a significant effect on drawing the
CLD shown in Fig. 2: they clarified an exact feedback structure and time
delay, which have been developed in this paper as the BI] and B2 feedback
structure. According to Peng ef al.’s study (2005), the importance of
institutional relatedness and the scope of the firm are likely to increase in
the short term. This is consistent with other studies (Khanna & Rivkin,
2001; Li & Atuahene-Gima, 2002) that found that the companies tend to
expand their businesses to take advantage of the supporting policies of the
government.
3.2. Building a CLD for Entry Strategies for Emerging Markets
3.2.1. CLD Related to Risk of Emphasis on Wayism
Wayism refers to the manner of operations that large multinational
companies use, such as the ‘Toyota Way’, ‘Hyundai Spirit’, and ‘Samsung
Way’; wayism is also used to increase the efficiency of the resources in the
company (Black & Morrison, 2010). However, unlike vision, wayism focuses
on the way of working, which tends to neglect cultural differences.
Therefore, wayism that integrates the way of working has a significant role
in increasing operational efficiency in the initial stages of market entry.
However, it fails to bridge the cultural distance (including cultural
differences) and it fails to understand emerging markets, which is followed
by errors in entry strategies (Black & Morrison, 2010; Ichii et a/., 2012).
The CLD presented in Fig. 3 was developed based on the archetype of
“shifting the burden”, which emphasizes the negligence of a fundamental
prescription due to an addiction to a short-term prescription (Senge,1990).
The key feature of this CLD is the B1 loop in which the cultural distance
increases with time. This demonstrates the transferring dynamic mechanism
from the R1 loop to the R2 loop and R3 loop as a result of the B1 loop,
which is the mechanism that drives research including strategic alliances with
local companies rather than M&As as alternatives to decreasing the gap in
the cultural distance (Banga, 2007; Spencer, 2008; Zhang et al., 2010),
staffing strategies for high level expatriates in institutionally distant
environments (Gaur et a/., 2007), and human resource development (HRD)
strategies to develop the specialists in emerging markets (Kumar & Puranam,
2011; Ichii et al., 2012).
-13-
Value-centered
fo management of HQ
Performance i *
eA Cultural
a efficiency BI ) distance
Development of <
customized product R2 Abiltiy to understand 4
+ emerging market
+
Business innovation
+
+
~ BOP quotient
- R3 J
Knowledge transfer .
ww Knowledge sharing
er Oem
<Fig. 3> CLD Related to Risk of Emphasis on Wayism
3.2.2. Feedback Structure Related to Cultural Distance
In emerging markets where the institution is not well established,
companies justify their political activities through notions around economic
development and urge governments to make institutional improvements, of
which the mechanism creates a virtuous circle. Unlike companies in
emerging markets, however, multinational companies should move beyond
economic causes in order to take advantage of government policies. It is
necessary to prepare other alternatives in order to reduce political risk. This
occurs because the outcomes of partnerships are shared and partners in
emerging markets are competitors in the political activities (Henisz & Zeiner,
2010). Therefore, it is necessary to prepare practical alternatives that have
strategic CSR activities that reduce the political risk and that increase the
cultural competence of the consumer products in the emerging market. For
-14-
this reason, the concept of creating shared value (CSV) has been emphasized
recently (Porter & Kramer, 2006; 2011; Henisz & Zelner, 2010). Porter and
Kramer (2006; 2011) assert that companies manage CSR in a strategic way
in order to share societal values and economic values, namely CSV. The
final point, together with the strategic partnership with the local companies
and CSV activities, is that the entry strategy into emerging markets should
focus on decreasing the cultural distance between the multinational company
and the local market (Miller & Eden, 2006; Gong, 2003; Thomson, 2012). It
is not possible to enhance performance through cultural competence without
attempting to close the gap of cultural distance as seen through the RI loop
of Fig. 4(D'Andrea et al., 2010).
Institutional
a ement by Justification of political
_ government activities by companies
Cultural competence
related to goods
et Void te) ‘
x a3 with Performance Public support
7 i of or
Fostermg
i -
Knowledge + advantage CSR, CSV
( transfer = ——® a ~y
XS Understading about p> Cultural distance
local market
<Fig. 4> Feedback Structure Related to Cultural Distance
-15-
<Table 5> Causality Related to Entering Strategy of AMultinational Companies
into Emerging Market
Reference Major causality Theme Theoretical frame
os ose Effect of cultural distance on dependency and
Gong | Cultural Distance —> Dependency on staff dispatched to their own countries (+) > :
. performance related to the dispatched staff to |TCE, RBV
(2003) | Performance of the branches(+) Delay — Dependency(-)
own counties.
Ownership of Foreigners —> Performance of limited partnership in emerging market (+)
Douma | Operated by owner of domestic groups’ grouped —_corporations—> Performance(-) Effect of characteristics of ownership structure |.
et al. Ownership of foreign financial agencies > Performance of listed corporations (+) of foreign corporations in emerging — market on
. . . (Agency Theory)
(2006) | Branch of Foreign Agencies’ —> monitoring effect(-+) > Agency Cost(-) > ce of
Beneficiary related to corporations in emerging market— Performance(-)
Kanter | Learning through M&A —> Performance(+)
‘ Successful M&A strategy TCE, RBV
(2009) | Respecting Culture of Acquired Corporation after M&A — Performanee(+)
Inefficiency of | Market—> Transactional — Cost(+) oS | . RBV,,
Hoskisson et Effect of institutional void in emerging market
Asymmetric Information Agency Cost(+) = TCE
al, (2000) . on strategy for advancement
Asymmetric Information —> Personal Interest of Agency(+) (Agency Theory)
5 Effect of advancement info emerging market
Spencer
en FDI of — Multi-national corporations + Long-term spillover of knowledge (+) through FDI of multi-national corporation on | RBV
spillover of knowledge
-16-
(continued)
Theoretical
Reference Major causality Theme
frame
Emphasis on Wayism — Efficiency of resources(+) —-Performance of overseas advancement (+)
Black & |— Reinforcement of Wayism (+) -
; Effect of closed culture/core values, such as
Morrison | Emphasis on Wayism —> Understanding about the culture of the partner(-) RBV
. Japan, on overseas advancement
2010. Institutional Void—Entry barrier related to foreign corporations(+) —> Dependent on domestic
market (+)
Effect of characteristics of consumers in
D'Andrea et | Cultural competence of consumer in the emerging market—> Purchasing power(+) ,
emerging market on — advancement _—_of | RBV
al. (2010) | Field closing strategy — Sales(+) |
multi-national corporations into the markets
Effect on FDI technology spread effect for
- each country of origin of corporations that
an
i Diversification of countries providing FDI-+ Performance of corporation in the emerging market(+) |advanced into emerging market and for each]
eta
— Diversification of countries providing FDI Performance corporation in the emerging market (+) | absorption competence of the corporations from
cae the countries advanced into the emerging
marekt
-17-
(continued)
Reference Major causality Theme Theoretical frame
Iehii et al. . . . Cases of failure of Japanese that advanced
Investment for emerging market investment —> Competitiveness in emerging market(+) RBV
2012.. . 7 into emerging market
Targeting upper class —> Competitiveness in emerging market (-)
Joint > Market Understanding(+) —> Advancing into emerging market of MNC (+)
Thomson Strategy for overseas advancement of
Joint Learning advanced competence(+), Institutional difference > Advancemen (-) RBV
(2012) . . emerging giants by partnership.
Cultural dif , comp of local staff
(Ability, Motive, Searching opp Spillover of Knowledge(), Spillover of
Knowledge Performance of the branches(+) Effect of spillover of knowledge through
Chang et al. (2012) | Absorption ability of the branches —>Performance of the branches (+), overseas joint and absorption ability of foreign | RBV
Sharing identity —> Share of Knowledge(+) branches on performance of overseas branches
Share of Vision + Share of Knowledge (+)
Institutional Void—+ Transactional _Cost(+) + Partnership with MNCs(+) .
Meyer Effect of institutions and transactional cost on
Absorption competence of corporation in emerging market Transactional Cost(-) IT, TCE
(2001) , . . advancement into Eastern European countries
— Tactic spillover of knowledge of multi-national corporations(-)
Scope of comuption within emerging market —> Direct advancement of | __ _
. Effect on advancement of multi-national
Peng et al multi-national corporations(-)
. . corporations into foreign markets according. to | IT
(2005) Randomness of corruption within emerging market—»Direct advancement of,
multi-national
characteristics of corruption
-18-
3.3. Building an Integrated CLD
The integrated CLD in Fig. 5 includes the variables of the IT perspective
(institutional void, government-related variables), TCE perspective (transactional cost,
operational cost, investment cost), and RBV perspective (competence, knowledge
spillover). This also integrates the characteristics of emerging markets and entry
strategies used by multinational companies to enter emerging markets in the feedback
structure. The keywords related to emerging markets are the role of government and
institutional void, that related to the entry strategies of multinational companies is
cultural distance, and those related to global expansion strategies of emerging
companies are continuous investment and knowledge transfer. The overall keywords are
culture, competence differences, and innovation competence accumulation. The practical
implications are described in the feedback structure with time delays. In addition, it is
necessary to examine the variables in the feedback loop that influence the innovation
competencies and those that influence the government efforts to remove institutional
voids. For multinational companies, attempts to close the cultural distance should have
a high priority in their entry strategy. This map also indicates the political activities
that could be used to create favorable business environments.
geo seaheieeat ——
a wi
Institutional
improvement
by government yy
— Leow isi sates —" seg a ee
‘Overseas sense
is performance oat Bie / ication Justification of
ee Lt) i" or aaa x i" @s reel activity of
Productivity of Innovation \ j Operatio ‘i
invented RL *] compeencies |
| ho
i a en ae
ead
— Domestic 4 Pe es » a
Gus ae distance @s ae
ye at "Sacciead
: ae
pace cost
<Fig. 5> Integrated CLD on Emerging Market Strategy
IV.Conclusion
The focus of this study was the clarification of the characteristics and mechanisms of
emerging markets and entry strategies into emerging market. It is difficult to create a
successful business in emerging markets in which unique mechanisms are functioning.
This study reveals reasons for the numerous companies that have rushed into emerging
markets have not yet become profitable: it is because they move into emerging markets
with a short-term perspective without sufficiently understanding the emerging market
itself. From a long-term perspective, drivers of sustainability in emerging markets
should be considered in the company activities around closing the cultural distance.
In this study, the CSR and CSV are highlighted as key drivers of leverage effects in
emerging markets. The characteristics of emerging markets and entry strategies for
= {9=
theses markets should be a measuring tool for companies that have already entered
emerging markets or plan to enter them. In particular, it can be applied to human
resource strategies, strategic partnerships, M&As, and CSR/CSV strategies. In addition,
this study can guide researchers who examine issues related to the emerging markets
due to the extensive literature review undertaken here. Furthermore, three theoretical
frameworks were selected to demonstrate the characteristics of emerging markets:
Institutional Theory (IT), Transaction Cost Economics (TCE), and Resource-Based View
(RBV). However, each theoretical framework can be impractical if used alone without
an integrated view of the emerging market issues.
As a methodology, this study proposes a set of CLDs that integrate a series of
causality mechanisms that were drawn from the literature. This approach is valuable
because it is the first attempt to extract the causalities from the existing literature
regarding emerging market strategies. The five CLDs presented in this paper
demonstrate and clarify strategies for the expanding into emerging markets for
multinational companies. Furthermore, political activity and institutional void are critical
factors related to the characteristics of emerging markets, and CSR/CSV and cultural
distance should be considered as leverage points in emerging markets. Although this
study contributes to the clarification of the causality of emerging market strategies
through an extensive literature review, it is limited because it has not tested the CLDs;
moreover, further research with more data about various emerging markets is
recommended.
— 20 -
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