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BUS 114 Global Economies and International Markets

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Programme title: BSc (Hons) Business Management Top Up

Module Code and Title: BUS114 Global Economies and International Markets Topic: Impact of corruption on different market entry strategy

Table of Contents

  1. Introduction                                                                                                      2
    1. Research Topic and Background                                                                                                   2
    1. Research Questions                                                                                                   2
    1. Research Aim                                                                                                   3
    1. Research Objectives                                                                                                   3
    1. Significance of the research                                                                                                   3
  2. Literature Review                                                                                                      4
    1. Different modes of market entry                                                                                                   4
    1. Nature of the Corruption                                                                                                   5
    1. Corruption and Foreign Entry                                                                                                   6
    1. Corruption and Entry Mode Choice of MNCs                                                                                                   7
    1. The Determinants of The Entry Mode Choices of MNCs 8
  3. Methodology                                                                                                    10
    1. Research Onion                                                                                                 10
    1. Research Proposal                                                                                                 10
    1. Research Approach                                                                                                 10
    1. Research Design                                                                                                  11
    1. Research Data Collection Method                                                                                                  11
    1. Sample Size and Sampling Method                                                                                                  11
    1. Ethical Consideration                                                                                                  11
  4. Reference List                                                                                                    12

1.   Introduction

1.1       Research Topic and Background

The research topic is “Impact of corruption on different market entry strategy”. Corruption in government has become a major concern for international organisations and individual nation states. Corruption; the misuse of the private public power has shown that macroeconomic development as even company-level growth has been substantially reduced. Corruption research has highlighted its strong impacts on the economy and most importantly, its important repercussions for businesses. Nevertheless, administrators have not yet discussed this issue fully. This deficiency in corporate corruption research is especially troubling because the pattern of globalisation has increased the risk that businesses will experience corruption. In transitions and less developing economies, corruption is especially prevalent, which we combine in the term emerging economies; but in virtually all countries it can be problematic. However, the issue of how businesses respond to corruption has been given little attention (Luu et al. 2019).

The topic of corruption in the management theory and practise, through its strategies to enter global markets, explores how businesses respond to corrupt environments. The decision on mode of entry is a critical factor in international development. It greatly affects the commitment of businesses to capital, the risk of acquisitions, the level of control and the profits of foreign operations. Entry mode decisions are costly to reverse, and thus have considerable effects on long-term performance, even for large MNEs. Numerous factors influencing entry and country-level factors such as political risk, national culture and institutional characteristics have been described in management literature.

1.2       Research Questions

Following are the research questions:

  • What are the different modes of entry in a foreign market?
    • What are the challenges imposed by the hosting nations on the business organisations while establishing business in a foreign market?
    • What are the impacts of corruption on different market entry strategy?
    • What are the ways to address the political and corruptions challenges while entering a foreign market?

1.3       Research Aim

The aim of the research is to evaluate and understand the impact of corruption on different marketing entry strategy and business organisations. The research has also been focused on evaluating the different market entry strategy.

1.4       Research Objectives

Following are the research objectives:

  • To evaluate and understand the different modes of entry in a foreign market.
    • To highlight the challenges imposed by the hosting nations on the business. organisations while establishing business in a foreign market.
    • To evaluate the impact of corruption on different market entry strategy.
    • To evaluate ways to address the political and corruptions challenges while entering a foreign market.

1.5       Significance of the research

The research would allow the business organisations to understand the challenges related to politics and corruption that they might experience while entering a foreign market. The corruption index of the nation could be evaluated through various organisational website. However, there are impact of corporation of the different entry mode is still undefined and explained. The study would allow the business organisations and investors to evaluate the impact of corruption mainly on the entry mode strategies. The organisations could change their entry mode strategy by understand the impact of corruption.

2.   Literature Review

2.1       Different modes of market entry

In a variety of ways, a company can enter a foreign market. No single market penetration strategy operates with all international markets. Direct exports could be one region’s most successful strategy, whereas a joint venture may be formed elsewhere and production in another. Various considerations, including the rate of tariffs, the extent of adaptation necessary to your goods and the cost of selling and delivery, not only would affect the choice of your plan. Although these trends would greatly boost expenses, the rise in sales is forecast to offset those costs. The key access options for the organization are the following techniques (Leitner, 2016).

Direct exporting: Direct exports directly sell your own resources to the consumer that you wanted to use first. Many corporations turn to agents and/or dealers to represent them in the market after a distribution programme has been created. You are dealing closely with the stakeholders of your wants, distributors and distributors. It is vital to select agents and dealers when you hire key people. They are the company’s face and it is therefore crucial.

Licensing: Licensing means that a company passes the rights to use the product or service to another company in a reasonably sophisticated way. If the purchaser has a reasonably high market share in the market you wish to join it is especially effective strategy. Marketing or development licences may be. Licenses (Sohail, 2020).

Franchising: Once a distribution system has been developed, often businesses turn to agents and/or dealers to represent them on the market. The stakeholders, retailers and manufacturers you want are in good contact with. When you recruit key individuals, it is important to pick agents and dealers. They are the face of the business and so it is important.

Partnering: Partnerships are almost a prerequisite for accessing foreign markets, and in some areas of the world, for example, Asia, are unavoidable. Partnerships will take a spectrum to a complex manufacturing management relationship, from basic marketing partnerships. In markets where culture is different from your own culture, both business and social, collaborations are particularly beneficial. Local partners have experience of local industry, partnerships and strategically chosen clients (Lojacono et al. 2017).

Joint Ventures: Joint-specific alliances include the creation of a third, independently run enterprise. Two businesses, be it in location or in goods, plan to co-operate and establish a third business in a particular sector. Risks and risks are usually shared equally. A joint vendor example is the Sony/Ericsson Cell Phone.

Buying a Company or a Brand: In some countries, the most efficient entry technique may be the acquisition of a local firm. That may be that the corporation has a large share of the market, is a direct trading competitor with you or because only by means of governmental legislation you can enter the industry. The actual worth of a company on the foreign market is probably the most expensive and important thing. The entrance strategy grants you instant status as a small enterprise and profits from experience in the local industry, a strong consumer base, and is therefore viewed by local councils as a local corporation (Lojacono et al. 2017).

Piggybacking: Piggybacking is a special way to reach the global arena. You would like to contact large national businesses, currently active in global markets, if you have a particularly interesting and special product or service you are selling in order to see if your product or service can be included in its inventory on the international markets. This decreases the risk and costs because you simply sell your product or service on the international market and the larger corporation market your product or service for you.

Turnkey Projects: Key ventures are specifically planned for businesses providing services such as environmental advice, construction, building and engineering. A Turnkey project is the construction of the factory from the ground up and ready for use by the customer – switch the key and the plant is operational. This is an excellent way of accessing international markets because buyers are typically governments and sometimes a global financial institution like the World Bank finances the project in order to eliminate the possibility of non-payment.

Greenfield Investments: Greenfield Investments need the greatest participation in international business. You buy the ground, build the facilities and continue to run the company in an international market, which is a greenfield investment. It definitely is the most expensive and carries the greatest risk, but it may take the expense and risk of other markets because of legislation of government, transport costs and the ability to access technology or professional jobs (Stevens and Newenham‐Kahindi, 2018).

2.2       Nature of the Corruption

Extensive research on corruption shows that businesses operating in countries with severe state corruption have a lot to pay directly and indirectly. Cost involves bribery and queuing charges, inadequate infrastructure and a tendency to skew public expenditure on projects that include kickbacks and bribes. Some research indicates that the strongest impacts of corruption are due not to their monetary cost and frequency but to the incertitude surrounding

corrupt transactions. Experts differentiate between two aspects of corruption in relation to this insight into management science. Corruption is the average company’s risk of getting bribery in its usual dealings with state officials. The cumulative chance of an organisation and its money being engaged with corrupt officers is expressed in pervasiveness. Where corruption is extremely prevalent, it is part of the entire institutionalised sector (Bahoo et al. 2020).

Corruption differs greatly across nations, both in its economic scope and in the degree to which it causes instability for businesses. The degree of incertitude linked to corruption or arbitrariness reflects the degree of uncertainty in a particular state associated with corrupt transactions. In cases of arbitrary corruption, conflicting and tiny laws can lead to many unsuccessful corrupt transactions. State authorities enter the extort market capriciously and are ready to vary the number of approvals needed to extract maximum bribes. Furthermore, mysterious institutional structures are hindering trade. Existing literature has shown that “organised” corruption regimes can be financially more extractive but less detrimental to corporate efficiency than disorganised regimes. Bribes paid under organised systems are also close to taxes. In comparison, transactions are usually volatile under disrupted regimes because they don’t come from a stable power system or social arrangement (Biswas and Thum, 2017).

2.3       Corruption and Foreign Entry

A rising number of researchers are finding that corruption substantially reduces FDI to an economy. Corruption decreases the overarching FDI even while monitoring the gaps between home and host countries on the political danger, cultural distance and degree of corruption. Research has also shown that FDI is reduced separately both by the extent and the arbitrariness of corruption. Considering the option of entry mode, it illuminates the finer effects of corruption on company behaviour.

The study analyses decisions on modes of entry that involve choices for MNEs from three options: equity entry by a wholly owned subsidiary, joint-venture equity entry and non- investment. We may not treat equity entry as including all the entry activities affecting the MNE and which are not part of the technological and management capabilities (i.e. management contracts). We also deem situations containing original equity investments to be non-equity entrants but where the government usually transfers the ownership interest to a local party as part of the initial arrangement (construction-own-transfer). These ways of entry are historically called main-scale ventures with know-how exporting businesses, while equity

entrants involve building projects where firms maintain ownership and influence, including the long-term participation of the country (Sartor and Beamish, 2018).

Institutional theory has recently been developed that strong predictions of entry are possible in view of the host nation, particularly when entering emerging economies. Institutional theory assumes that organisations can comply with their institutional context, where laws and procedures are commonly diffused. Many activities are rendered “obvious” or “natural” in their success by taking for granted consistency. But when adjusting to different institutional environments, MNEs can create unwieldy institutional pressures, probably reducing internal uniformity if subsidiaries adjust to local conditions which clash with rules in other parts of the organisation. Companies should follow strategic actions, such as changing entry modes, in order to overcome these competing pressures (Matovic, 2019).

2.4       Corruption and Entry Mode Choice of MNCs

Corruption is an integral aspect of governance, systemic accountability and even political stability, since it has a direct effect on and a negative influence on both of these dimensions. It is important to distinguish this term into two very diverse forms of political corruption and administrative or bureaucratic corruption, in addition to the broad definition of corruption.

Political corruption includes policy-makers who use their political influence to retain their power, prestige and resources. This form of scheme is far more widespread and impactful than bureaucratic corruption, taking place on the high ranges of the political system. Some scholars make a distinction between the prevalence and the extent to which corruption is widely distributed in a country (institutionalised) through the government and the degree of instability and captivity that represents corruption in the public sector.

Both the institutional corruption and the general corruption are completely reflecting in the so-called bribery phenomenon, which is when public officials are paid to private actors to profit or prevent harm and they are pocketed by the beneficiary or employed to partisan political ends. Bribery appears to be the subject of economic literature on corruption. In this context it is called corruption by many bribery studies (Lai et al. 2017). Bribery appears to be the subject of economic literature on corruption. In this context it is called corruption by many bribery studies.

Figure 1: Taxonomy of corruption

(Source: Dinu, 2018)

2.5       The Determinants of The Entry Mode Choices of MNCs

It must be recalled that most FDI and MNC theories are intended to understand why businesses take part in different forms of internationalisation processes. The most popular theoretical approaches are early FDI studies, the neo-classical exchange theory, ownership advantages, agglomeration variables, ownership, position and internalisation advantage (OLI) paradigm, FDI horizontal and Vertical model of knowledge-capital model, risk diversification models, and policy variables. With the adaptation of current theoretical approaches to FDI and internationalisation, we are developing a new system for framing existing contribution within three main theoretical frameworks: cost analysis, a wider theoretical context, the eclectic model of Dunning and institutional approach (Dinu, 2018).

Figure 2. Taxonomy of entry modes

(Source: Dinu, 2018)

 DeterminantsImpact on MNC’s entry mode strategy
    Direct CostsFixed CostsMNCs tend to reach international markets through JVs in order to reduce Greenfield’s fixed costs, fusion and acquisition.
Exist CostsIt is more likely that MNCs reach a foreign market through JVs because they need less capital and cost less than WOS.
Entry CostsIf    entry   costs    are      extremely       high, MNCs      prefer Greenfield projects to acquisitions.
Indirect CostsTrade BarriersFixed costs are too high for markets with high barriers to entry, instead of exports, to favour entry through FDI.
Market imperfectionsMNCs tend to perform their business operations by non- equity approaches in cases with high cost due to market imperfections.

Table 1: Impact on MNC’s entry mode strategy

(Source: Lai et al. 2017)

3.   Methodology

3.1       Research Onion

3.2       Research Proposal

Figure 3.1: Research Onion

(Source: Saunders et al. 2015)

The research philosophy can be defined as the rule on how the information concerning the particular event or subject to be collected, analysed and used can be collected. The study has followed positivism in the study, since it is focused on moral values and makes it possible for anyone to select acceptable steps and examples in order to accumulate data. This way of thought is that it renounces truth and actualities that are now in proximity and deciphers them. The philosophy of realism will not be pursued in this study because it focuses on eye- friendly social knowledge. Furthermore, the research would not adopt the principle of interpretivism because it centres upon data obtained from the recognition and social points of view of others. Recognition and suspicion-dependent research may end up being invalid (Shen et al. 2017).

3.3       Research Approach

The research approach may be evaluated as a blueprint that involves many steps of the process of data collection. The research would mainly focus and follow the deductive approach because it allows an individual to have credible and valid sources of evidence. The data should be collected via trustworthy sources or the study will be unreliable and invalid.

The deductive approach will understand the value and effect of professional leadership in boosting the morality of employees. Inductive methods will not be pursued, as the analysis will need to frame another hypothesis based on available data. The inductive approach is dynamic and ideal for a professional scientist in any respect (Nacken et al. 2018).

3.4       Research Design

The research design can be deciphered as the general system, which a person chooses to consistently and solidly integrate the various fragments of the research. The research design allows exploration issues to be addressed. Additionally, the study configuration is known as the outline of the exploration. The study follows the descriptive design in which the answers to the research questions are discovered. This is the most sensible plan of research that will make it possible for professional leadership to understand the value and effect of increasing the morale of employees. The exploration cannot say why and how the problem happened (Nacken et al. 2018).

3.5       Research Data Collection Method

An appropriate process of data collection from a substantial and genuine source should be chosen for the research. As indicated Nacken et al. (2018), primary and secondary methods are considered to be the method of data collection. The study has followed the primary information collection method which allows the collection of data from solid and actual sources. The research will not follow the secondary method of information collection.

3.6       Sample Size and Sampling Method

The research will perform both a survey and an interview to obtain factual and authentic information. In total, 50 participants would participate in the survey, and the participants would be staff of various organisations. A total of four managers would be approached and interviewed. The answers from workers and supervisors helped to address questions about the study.

3.7       Ethical Consideration

The study guarantees that activities and practises will not impact the climate and the environment. Furthermore, the analysis will ensure that none of the general members is pressured to take an interest in this report. The discovery does not include any accidents or conclusions. The research will infer the original restaurant from the sources chosen. Each person will be approved to add to the inquiry.

4.   Reference List

Bahoo, S., Alon, I. and Paltrinieri, A., (2020). Corruption in international business: A review and research agenda. International Business Review, 29(4), pp.101660.

Biswas, A.K. and Thum, M., (2017). Corruption, environmental regulation and market entry.

Environment and Development Economics, 22(1), pp.66-83.

Dinu, A.M., (2018). International market entry strategies. Academic Journal of Economic Studies, 4(2), pp.20-25.

Lai, J.H., Lin, W.C. and Chen, L.Y., (2017). The influence of CEO overconfidence on ownership choice in foreign market entry decisions. International Business Review, 26(4), pp.774-785.

Leitner, J., (2016). Political risk and international business: Where they interfere, consequences, and options. In State Capture, Political Risks and International Business (pp. 52-66). Routledge.

Lojacono, G., Misani, N. and Tallman, S., (2017). Offshoring, local market entry, and the strategic context of cross-border alliances: The impact on the governance mode.  International Business Review, 26(3), pp.435-447.

Luu, H.N., Nguyen, N.M., Ho, H.H. and Nam, V.H., (2019). The effect of corruption on FDI and its modes of entry. Journal of Financial Economic Policy. 4(2), pp. 12-14.

Matovic, I.M., (2019). Entrepreneurs and Small Businesses: International Expansion Strategies. In Proceedings of FIKUSZ Symposium for Young Researchers. 6(2), (pp. 141- 148). Óbuda University Keleti Károly Faculty of Economics.

Nacken, T., Karreman, B. and Pennings, E., (2018). Entry Timing and Uncertainty in Transition Economies: Location and Firm Contingencies Revisited. 4(2), pp. 12-14.

Sartor, M.A. and Beamish, P.W., (2018). Host market government corruption and the equity- based foreign entry strategies of multinational enterprises. Journal of International Business Studies, 49(3), pp.346-370.

Saunders, M.N., Lewis, P., Thornhill, A. and Bristow, A., (2015). Understanding research philosophy and approaches to theory development. 4(2), pp. 12-14.

Shen, Z., Puig, F. and Paul, J., (2017). Foreign market entry mode research: A review and research agenda. The International Trade Journal, 31(5), pp.429-456.

Sohail, H.M., (2020). Foreign direct investment and corruption paradigm impacts: a panel data study. International Journal of Economics and Business Research, 20(4), pp.467-482.

Stevens, C.E. and Newenham‐Kahindi, A., Avoid, acquiesce… or engage? (2018). New insights from sub‐Saharan Africa on MNE strategies for managing corruption. Strategic Management Journal. 4(2), pp. 12-14.

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