growth strategies of multinational companies in asian emerging markets: a changing perspective from...

MNCs’ Expansion in Asian Emerging Markets 1

GROWTH STRATEGIES OF MULTINATIONAL COMPANIES IN ASIAN

EMERGING MARKETS: A Changing Perspective from Offshoring to Strategic expansion

Word Count: 10000


Executive Summary

The purpose of this report is to analyse the motivational factors that contribute to the shift of

operational activities of multinational corporations in emerging markets in Asia. Previously,

the global firms preferred to move lower cost operations to these emerging markets, which is

more like offshoring for cost savings. Even today, the organisations are offshoring their

operations to such economies so to gain cost arbitrage, but the trends have been changing

with the increase in growth of emerging economies in Asia. The global companies are

expanding their production facilities to Asia so that they can get access to entire market in the

region as well as reap the rewards of lower costs, high skilled workforce, and increased

economic growth.

The first chapter of the report will introduce the topic, followed by the second chapter – a

detailed literature review. The third chapter will then discuss the methodology used to

prepare this report. Basically, for this report, five articles and/or reports are selected which

will be analysed in chapter four so to look into opinions of different authors in regards to the

topic being discussed. The fifth chapter will the summary of the whole report, presenting a

conclusion. This report will lead to the conclusion that the multinational companies are not

only offshoring for cost saving, but strategically expanding to serve their business objectives.

Keywords: Asia, cost savings, emerging markets, globalisation, Greenfield investments, joint ventures, market entry modes, MNCs, multinational companies, offshoring, strategic expansion, strategies.


Table of Contents

Executive Summary.................................................................................................................2

List of FiguresFigure 1: GDP forecasts for BRICs...........................................................................................8Figure 2: Economic forecasts for Emerging Markets................................................................9Figure 3: Market Entry Modes.................................................................................................13Figure 4: Eagle – Emerging And Growth Leading Economies...............................................26Figure 5: Strategic Objectives for Establishing Operations in Emerging Markets.................29Figure 6: Operating model in Multinational Companies Emerging Markets..........................33Figure 7: Multinational Companies’ Strategies for Emerging Markets..................................34

1.0 Introduction1.1. Background....................................................................................................................41.2. The Research Aim..........................................................................................................41.3. Justification of the Study................................................................................................51.4. Limitation of the Study..................................................................................................51.5. Structure of the Report...................................................................................................51.6. Conclusion......................................................................................................................7

2.0 Literature Review and Discussion2.1.

Introduction...................................................................................................................72.2. Strategic Factors affecting Entry Mode Choices of Multinational Companies

in Emerging Markets – Offshoring or Strategic Expansion.............................................11

2.3. Factors Motivating Strategic Expansion of MNCs in Asian EMs..............................15

2.4. Strategic Issues faced by MNCs in EMs.....................................................................18

2.5. Gaps in Existing Literature.........................................................................................20

2.6.

Conclusion...................................................................................................................20

3.0 Methodology3.1.

Introduction.................................................................................................................213.2. Selection of

Articles....................................................................................................213.3.

Conclusion...................................................................................................................24

4.0 Analysis4.1.

Introduction.................................................................................................................25


4.2. Discussion and Analysis..............................................................................................26

4.3.

Conclusion...................................................................................................................35

5.0 Conclusion5.1.

Introduction.................................................................................................................365.2. Summary of the

Report...............................................................................................365.3. Limitation of the

Study...............................................................................................385.4. Future

Research...........................................................................................................385.5.

Conclusion...................................................................................................................38

References...............................................................................................................................39


Chapter 1: Introduction

1.1. Background

Emerging markets provide enormous opportunities for global manufacturers because

of growing segment of wealthy and sophisticated customers. Most of the multinational

manufacturing companies try to focus on manufacturing and developing the products that suit

the needs of the customer in emerging markets and can be sold at considerably lower prices.

Many global companies gain access to emerging markets by offshoring to sell their products

at lower level, and this is not enough to ensure long-term growth. These companies can

achieve success by relying on their product features and product diversification (Deloitte

Research, 2006), which implies that cost reduction is not the only motivation factor which

induces multinational companies to expand their operation to emerging market economies in

Asia. It is quite clear that companies are increasingly making efforts to internationalise

themselves by entering emerging markets as these markets are becoming the most important

factor of their global business model. Today global companies are giving extraordinary

importance to expanding in emerging market economies especially in Asia. Increase in global

companies’ presence in such economies is not only a result of their low cost strategies such as

offshoring, but forward thinking companies are going beyond that. Such companies have

become more strategic in their operations and are considering institution of core functions of

their value chains in emerging markets in Asia.

1.2. The Research Aim

This study is presented to examine the factors that motivate the strategic expansion of

multinational companies in Asian emerging market economies. The aim of study is to define

and analyze strategic factors that strongly impact the decisions of global firms in terms of

adopting offshoring activities and acquiring growth strategies to enter in emerging markets in


Asia. It helps to explore the strategic issues the internationalised companies are confronting

and examine the extent to which they are getting affected by these key threats that hinder

their entry and performance in these regions through strategic expansion. The methodology

used to conduct the research is meta-analysis of five relevant research articles to analyse as to

why strategic expansion in Asian emerging economies is more desired than offshoring by

global companies.

1.3. Justification of the Study

Despite the enormous amount of literature on Asian emerging markets and the success

factors of multinational companies in relation to emerging markets, the area of business

expansion of global companies in such economies is under researched. This study will answer

the questions as to why and how the global organisations enter and operate in Asian region.

1.4. Limitation of the Study

The topic of the study is deemed to be a common one, but the way it is analysed in the

study is a novel approach. The outcomes of the study are based on five research articles and

reports, which is a very limited approach to draw a conclusion. Finding articles for this report

was a challenging task because a few studies have highlighted the importance of strategic

expansion in Asian emerging economies and the comparative analysis of expansion with

offshoring. The opinions presented in some articles are likely to be biased, and the survey

studies depend on the views of respondents which also have an element of being biased.

1.5. The Structure of the Report

This chapter aims to provide the background of the research problem selected for

further study. The research aim is clearly stated and the structure of the entire report is

described. The limitations and justification of the study are also fore-grounded. It develops


the basis for the next chapter by illustrating the expected outcomes of the study. The second

chapter will be the literature review of the area of the discussion. There are a number of

studies which have established and structured the research questions for this report. Several

studies have been analysed and few are selected for the detailed analysis to derive conclusion

of the study. The literature review will first define as to why emerging markets in Asia are

given particular attention for multinational investments. It will then state the strategic factors

that may affect entry mode choices of multinational companies in emerging markets so that

the alternatives can be compared with the offshoring activities of global firms in emerging

economies. The factors that motivate the strategic expansion of global firms in Asia will be

discussed in next section. The further section will provide the critical issues in strategic

choices of these firms. The gaps in the existing literature will also be discussed, followed by a

concise conclusion.

The third chapter will explain the methodology of study used for this dissertation.

Five articles and survey reports are selected for detailed review. This chapter will define the

nature of those articles, their reliability and validity, and the criteria on the basis of which the

studies are chosen and analysed. One report is selected from the studies discussed in literature

review, while five are separately picked out particularly for the analysis section. The five

studies selected will be analysis in next chapter. The fourth chapter will be structured in a

way that can give the justification of the articles selected for the report and how they are

related to the topic. The articles and reports are compared to see which ones are more related

to the research aim and what factors they present to derive the desired outcome. Different

authors have used different approaches to answer a particular concern, but the underlying

reasons for those results are almost same. The last chapter will summarise the whole report

answering the research question.


1.6. Conclusion

This chapter provides the background of the topic chosen for the study and the

overview of the whole report. It is basically a start for further study and analysis as it

presented the core research problem and methodology by which the research questions will

be answered. This will give a clear direction toward the outcomes of the study. The following

chapter of critical analysis of literature review will assist in gaining rich understanding of the

multinational companies expanding in emerging markets.

Chapter 2: Literature Review

2.1. Introduction

Enormous amount of available literature shows that the traditional developed markets

of world have become increasingly saturated and competitive, which is why multinational

corporations have directed their attention toward emerging economies. The growth rate of

developed markets is forecasted to remain lower than 3% over two decades (Peters, Miller

and Kusyk, 2011). The emerging markets are considered as key locations for future growth as

they continue to grow faster than the developed world and promise to offer favourable growth

opportunities to many multinational companies. According to Kearney (2012), in the past two

decades, the world's emerging markets have become the focus of corroborated research for

many reasons. Majority of land and people constitute emerging markets which are

increasingly provided with a secure reputation as a diverse set of business, economic,

financial, cultural, social, institutional, political, and legal environments. A research study by

Zhang et al. (2007) reveals that emerging markets represent countries that are undergoing a

significant economic transformation and are home to about 80% of the world’s population.

Such economies are established as the primary destinations for exports as well as direct

investments. According to a study by Buckley and Ghauri (2004), multinational companies


focus on maximizing economies of scale and minimizing their costs so to attain efficiency in

emerging economies.

Lerner, Baes and Kilefors (2008) have identified that the fastest growing emerging

markets are BRIC countries which are Brazil, Russia, India and China. In 2008, a forecast by

Goldman Sachs indicates the cumulative GDP growth rate (at around 2% per annum) for G7

countries which are today’s largest developed economies is low as compared to the BRIC

countries. The biggest emerging market China is expected to grow at an annual growth rate of

more than 10%, followed by Indian economy which is predicted to grow by more than 8%

annually. This is the main reason as to why relative importance of such economic

powerhouses is leading to a strong transformation process. It is quite clear that the aggregate

GDP of the BRIC economies is around 20% of the combined GDP for the G7 countries

today, which is expected to reach at the same level by 2025. Unsurprisingly, BRIC’s GDP is

predicted to increase by more than double compared to that of G7 countries. Figure 1 shows

that the BRIC economies will be three times larger in four decades than the entire world’s

economy today.

Figure 1: GDP forecasts for BRICs

Source: Lerner, Baes and Kilefors, 2008


Two of these countries are included in Asian region. For instance, China, India,

Indonesia, Thailand, Bangladesh, Philippines Sri Lanka, Malaysia and Vietnam are

considered as emerging market countries in Asia.

Figure 2: Economic forecasts for Emerging Markets

Source: Sviokla and Gutstein, 2011

In a speech, the Managing Director of the IMF, Kohler (2003) has pointed out that

Asia is considered to have a potential to grow faster than any other region in the world.

Moreover, the importance of emerging market economies in Asia has been substantially

raised among many western companies because of the global financial and economic

upheaval in 2008 which affected developed countries severely, having minimal impact in

Asia. Emerging markets in Asia have been promoting their global competitiveness, lower

operational costs and sustainable growth. Therefore, when multinational companies plan to

invest across borders, emerging markets cannot be overlooked by the management (Peters,

Miller and Kusyk, 2011). Kohler (2003) points out that the global economy is subject to a

strong potential for long-term economic growth. The notion of economic globalisation has

benefited emerging market countries in Asia in many ways. Hence, further prosperity for


Asia can be assured by developing global markets. The major reason for the economic

growth is technological progress in Asia which is continuing at a rapid pace. The emerging

markets in Asia have directed toward gaining huge benefit from advanced technologies

because of their productive, efficient and increasingly skilled work force. Another reason is

the strong financial and trade connection with global partners to gain further productivity by

encouraging market expansion and division of labour. Such economies are deemed as a hub

for opportunities in the international market place and a major engine to derive growth in the

global market economy.

Financial success of a firm is linked with its investment in emerging markets, of

which evidence is recently provided by an Economist Unit survey which has been conducted

with multinational firms from developed countries. Merely 24 percent of the companies that

acquire lower that 5 percent revenue from emerging economies informed that they had been

performing well compared to their competitors. In opposition to that, the multinational firms

that had been gaining more than 5 percent revenue from emerging economies, a bit lower

than 40 percent of them believed their performance had been better than that of their peers.

According to (Cheni, 2004), the advantages global firms intend to achieve can be enjoyed by

diversification of their investment portfolio to different locations, thereby functioning better

in host countries to operate more proficiently in their home country. It had also been noticed

that emerging markets are investing in other emerging markets, which induced the foreign

direct investment. Kekic, (2011a) has argued that “the increased share of emerging markets in

outward investment is increasing the share of emerging markets in inward flows because a

disproportionate share of outward investment by emerging markets goes to other emerging

markets.” For instance, a significant share of total foreign direct investment inflows to Asian

countries consists of foreign direct investment inflows between the countries in the region.

Another research study by Kekic (2011b) has mentioned that 30% of the foreign direct


investment inflows to China were made by Hong Kong alone, and the other 10% contributed

collectively by South Korea, Singapore and Taiwan. These four countries are considered as

the biggest investing countries in Asia.

2.2. Strategic Factors affecting Entry Mode Choices of Multinational Companies in

Emerging Markets – Offshoring or Strategic Expansion

The choice of market entry mode is an essential issue in a firm’s internationalization

procedure. Identification of influencing factors in relation to firms’ entry mode choice has

been intensively studied in the extant literature. It is important to analyse what actually

determines the decision of companies whether they should opt for offshoring their operations

or acquire strategic expansion through foreign direct investment. Today the value creation

through offshoring has come forth as a famous and broadly acknowledged competitive

strategy for multinational companies in several industries. Companies, particularly, in

developed economies are seeking for exploiting opportunities that are identified offshore with

the objective of surviving in both inland and international markets, which has been a major

focus and pressure of globalization. Using international Offshoring Research Network

project’s survey data, Lewin, Massini and Peeters (2009) have empirically studied and

highlighted the causal factors of companies’ choices for offshoring innovation projects. The

authors have figured out how the probability of a firm going offshore is influenced by

knowledge, experience and deliberation of company management, and environmental

elements. The findings of the research have suggested that offshoring innovation activities

and decisions have been necessarily undertaken due to the increasing shortfall of technical

and scientific skills, and qualified and competent personnel in the US. It is evident that

offshoring may be chosen for various forms of cost savings, but labour is not much

importantly considered as the way of cost saving.


While offshoring has been viewed as a competitive strategy, emerging market

economies are considered to be best and increasingly appealing locations for innovation

offshoring by multinational companies. Asia has been emerging as an innovation offshoring

location for over the past decade. Lewin, Massini and Peeters (2009) have suggested that

internationalisation of corporations for technical and knowledge workforce and display of

intellectual penetration in organisational innovation management have been the explanatory

factors for offshoring innovation activities. At the vanguard of this orientation course of

innovation offshoring is the US firms, but now Asian governments and corporations have

been participating in the trend as advocators or supporters, and roots of innovation. Apart

from offshoring, exporting to emerging countries is considered as the essence of

globalisation, because of the growing opportunities of gaining market share in these

economies. Gao et al (2010) have examined different views of strategy determinants, and put

a structured approach in order to enquire as to what factors determine the export intensity and

also propensity. The authors have incorporated different resource-based, institution-based and

industry-based views for their analysis of the results of companies’ export behaviours and

their performance. The findings of the study reveal that export behaviours of the international

companies are significantly impacted by the institutional environment without the influences

of the resourcefulness of the companies and various industry elements. Moreover, the

resourcefulness of the companies creates impacts on their export behaviours in terms of

differentiation approaches. An important thing to note is that the companies cannot really get

benefits of exporting, which do not adequately own competencies and the ones which

compete on the basis of cost leadership strategic moves.

Apart from offshoring, a firm can enter an emerging market by adopting different

strategies depending on the internal and external environment of the firm. Market penetration,

market development, product development and diversification are key approaches that are


usually utilised by most companies when investing in emerging market economies. The

multinational firms can choose an emerging market for export of their products and get

advantages of ownership and control through licensing, joint ventures, mergers &

acquisitions, and in some cases, franchising (Growing Your Business - Growth & Expansion

Strategies, 2011).

Figure 3: Market Entry Modes

Source: Johnson and Turner, 2003

Meyer et al (2009) have argued that joint venture strategies can be enforced in a

lighter institutional model to approach to a number of resources. For a firmer institutional

model, multinational firm may not opt for joint ventures, but rather adopt acquisition

strategies that can play a more significant role to reach or gain access to the intangible

resources that are implanted in the organisational contexts. Moreover, the equity based

ownership is sought out by some global companies, small capitalists which are not much

concerned about strategic investment and the investors that are operating in large assignments

and processes especially in the extractive sectors. The business operations that are run in joint

investment with local or foreign investing partners are more organised and practicable in

sharing risk profile, enhancing the scope of functioning of business in emerging market

economies. These considerations have raised the conceptions of entities with “cross


ownership of business”, especially in Asian economies (Capital Markets Consultative Group,

2003). For instance, a research paper by Meyer and Tran (2006) has identified acquisitions

strategies and multi-tier branding schemes applied by foreign firm to penetrate local markets.

The authors also presented strategic categorisations for acquisitions described by various

types such as indirect, staged, Brownfield, and/or multiple possessions. The acquisitions

strategies are then examined Carlsberg’s entry and development in four countries (China,

Vietnam, Lithuania and Poland) that are distinctly different in various aspects.

Meyer et al (2009) have also discussed the entry strategies of the multinational firms

entering emerging market. They have enquired in their research paper as to how the business

strategies of the multinational companies are influenced by market-supporting institutions.

They have enforced and promoted the integration of institution-based strategic choices with

resource-based contexts and settings. The focus of their study is to show how different entry

modes in separate organisational settings are used in persuasion of resource-based strategies.

The authors have further highlighted that firms can get the best of different forms of

skilfulness that markets are lacking regarding the features of organisational settings and the

resources at hand. The different modes of entry strategies used for overcoming inefficiencies

are mergers and acquisition, Greenfield and joint ventures.

Generally, the main purpose of multinational corporations is to minimise their costs

and make the most of economies of scale, whilst abridging the possibilities of duplication, so

as to accomplish enhanced efficiency in their operations. Moffet (2005) has argued that

detailed analysis of large multinational firms demonstrates a number of instructive

motivational factors which represent the reasons as to why multinational corporations aim to

invest and expand their operations across borders. The explanatory factors include seeking

domestic markets for increased sales of their products, searching demanded raw materials,

and exploring managerial knowledge, expertise and/or advanced technology. Multinational


firms are more likely to figure out and invest in economies where the essential factors of

production are more inexpensive. According to Kekic (2011b), the key objectives that induce

global firms expand their operations in emerging markets deemed to be taking advantage of

economies of scale and lowering manufacturing costs. The goals can be achieved by

increasing sales and rationalising manufacturing procedures. Foreign direct investment in

emerging markets that have plentiful natural resources is stimulated by high prices for a

number of commodities.

2.3. Factors Motivating Strategic Expansion of MNCs in Asian EMs

There are plenty of literatures that identify and analyse the linkage between key

determining factors and strategic entry modes choices, but few studies have investigated

multinational companies’ strategic choices for entering in the Asian emerging economies.

Few research studies have analysed the factors affecting the level of ownership of foreign

firms in equity ventures in China (Pan, 1996), and in Vietnam (Tsang, 2004). These studies

are similar in context as China and Vietnam have various features in common, though, the

findings of the former research cannot be applied equally to Vietnam. Tsang (2004) has also

discussed the entry mode options available for the foreign investors in the circumstances of

Vietnam. The author has pointed out the critical factors that have substantial effects on entry

mode selection of multinational firms when they entre in Vietnam. The factors influencing

strategic modes are: “advertising intensity, country risk of Vietnam, project investment

amount, project duration, cultural distance, competitive intensity, and location of

investment”. Evaluating the impacts of the above mentioned factors, the author has found that

merely a few of these substantial elements have created crucial impacts on the level of

ownership acquired through joint venture and the selection of entry modes based on a certain

percentage of foreign equity.


A survey by Zhu, Wang and Quan (2011) was conducted for the investigation of the

relation between different entry modes and the features of a franchising company. The study

has been undertaken by analysing the constituents of international franchising companies

when they are looking for expansion in Chinese market, and the results of the survey and

study has shown that there are four factors that create strong impact on entry mode choices to

be made by international franchisors. Those factors include international market experience

of a company, maturity of the franchising system the company is using, risk spread and risk

modelling techniques, and difference in cultural aspects and distance of geographical region.

Kumar and Annushkina (2011) have discussed the entry modes options that can be availed by

multinational companies which are willing to enter in Indian market for expanding business.

The authors have highlighted an important finding that: Even though India has been growing

through a number of serious issues such as far-flung poverty, imperfect infrastructure, abused

or destroyed political environment, and the widespread corruption and bureaucratic

environment, the country was deemed to be the second most appealing endpoint for inward

foreign direct investment in 2005. The country is at the top level in Offshore Location

Attractiveness Index.

Enormous literature has shown that the overall economic activities and development

of emerging market economies have been improved and bettered far more than those of

developed economies, which may explain as to why foreign direct investment inflows to

emerging countries have nourished and well sustained. Kekic (2011a) has suggested that the

developed world has gone through the worst financial turmoil in 2008 since the Second

World War. Emerging markets have witnessed their growth even in periods of crisis, which

presents a picture as if these countries are to some extent dissociated with the developed

world. Fidrmuc and Korhonen (2010) have examined the contagion effect of global financial

crisis of 2008 on business or trade cycles in India and China. The findings of the study


suggest that Asian emerging markets exhibit the business cycles that are characterised by a

low level of coordination with those of OECD countries. Nevertheless, the economic

developments in Asian emerging markets have been significantly influenced by the recent

financial turmoil but to a lesser extent compared to developed countries. The foreign direct

investment inflows falling due to recession has been limited for the growing trend of

meliorating business environments and trade liberalization in many emerging economies over

past few years (Kekic, 2011a).

In Asia, China is considered as the hub for attracting foreign direct investments and is

at the top of the list of favourite countries for global foreign investors. Eichengreen and Tong

(2007) have discussed in their research paper what ways China is attracting foreign direct

investment which has a direct impact on other Asian countries foreign direct investment

inflows. The authors have suggested that Asian countries’ foreign direct investment inflows

are also increased due to China’s rapid climb that it seems the manufacturers from these

Asian countries are adjunct to the same supply chain. Many multinational companies seek

buyers in Asian countries like China, so they may opt for production close to the target

market, which makes it clear as to why investors are more inclined to put their money in

these countries as compared to OECD countries. India is the next country that is likely to be

the captivating location for foreign direct investment, despite the fact that the country is

assuming the risks of red tape and presenting unnecessary procedures with inadequate

infrastructure installations. It is not to be overlooked that these troubles can sabotage the

opinions and decisions of potential investors (Capital Markets Consultative Group, 2003).

It is not wrong to say that the China and India have been the fundamentals for the

higher-up functioning and outperformance of emerging economies, for their upheld rapid

growth. Kekic (2011a) argues that the performance of other emerging markets, let alone

China and India, must have exceeded than that of developed economies in 2009. After China


and India, for instance, Vietnam is deemed as the following emerging market economy in

Asia. The country has been the core focus of a number of huge multinational corporations of

the world to bring foreign investment in the region, which can induce economic development

of the country through technology transfer, managerial skills carry-over, capital formation,

enhancement of organisational capabilities, share of knowledge, and greater market access.

This is because the investment by foreign owned companies lead to considerable increase in

the country’s GDP, and on other hand, it adds up to the export turnover. Domestic companies

in Vietnam are also subject to feel spillover impacts of foreign direct investment (Undén,

2007). After China, India and Vietnam, other emerging countries such as Thailand and, to a

certain level Malaysia, are anticipated as the next attractive destinations for foreign direct

investment by holding up the interests if investors. Foreign manufacturing firms operating in

labour-intensive sectors and natural resources industries of Thailand and Malaysia design

strategies and plans to hold up and further enhance their investments holdings. Indonesian

environment for foreign investment is viewed as being rather weak, and the country is

considered as attractive for the investors that are functioning in natural resource industries

(Capital Markets Consultative Group, 2003).

2.4. Strategic Issues faced by MNCs in Asian EMs

Although, foreign direct investment in emerging markets are inclined to increase for a

number of reasons, some researchers have anticipated slower economic growth in emerging

markets comparative to recent years. This can be due to less supportive international

environment. Kekic (2011b) has pointed out the factors that ensure the careful analysis of

investing decisions in emerging markets. Some countries are prone to increased nationalism

and populism which, in some cases, may result in renunciation of existing contracts of local

companies with foreign firms. MNCs operating in these markets are subject to a number of

risks such as external instabilities, potential abrupt variations in exchange rates and


vacillating prices for commodities that may also hinder investment decisions of global firms.

More often than not, the international trade is settled in international currency that is US

dollar. Foreign direct investment inflows are affected by exchange rates in a number of ways.

Local currencies in emerging markets are devalued against dollar, which has been a major

reason of attracting foreign direct investment. Foreign investors are less likely to consider

investing money in emerging market economies when they are anticipating devaluation in the

local currency, and/or if exchange rate is volatile.

Udomkerdmongkol, Morrissey and Görg (2009) have provided evidence for exchange

rate impact on foreign direct investment inflows to emerging markets from the US, by

undertaking a research using sample of sixteen emerging economies and their annual panel

data from 1990 to 2002. An important point that mostly investors take account of is the

problems of individual countries in the Asian region as if the imperfections persist in the

economies, investors will lose confidence thereby ensuring a slump in foreign direct

investment to the region. On the contrary, if these problems are dealt with in a successful

manner, foreign direct investment can still be limited for the presence of excess capacity in

critical industrial sectors (Capital Markets Consultative Group, 2003). Emerging market

economies provide multinational corporations with fresh and diverse markets in which they

are growing vigorously in terms of globalising their operations and selling existing products

offerings and brands there. The markets which global enterprises are entering in require

different strategies to operate. The product offerings and brands should be produced that suit

local market needs and demands, and in a perfect match of those preferences with the

companies’ competences. Global companies can have access to the broadest market as a

market leader through enforcing multilevel strategies with local product and global branding

strategies. The local and international resources must be put to use to make the strategies

effective. The development of functional capacities and abilities is deemed necessary to deal


in the particular market. A global firm operating in local market is not efficient in production

or other operational activities, and its operations have to be complemented by the resources

that are under control of local companies. Foreign firms often face threats or hindrance from

local companies for directly acquiring their assets, or in some cases, they find local firm

incompetent to continue operating together with them. The local resources can be acquired by

foreign investors through employing improper or unlawful strategies.

2.5. Gaps in Existing Literature

There are plenty of literatures that identify and analyse the linkage between key

determining factors and strategic entry modes choices, but few studies have investigated

multinational companies’ strategic choices for entering in the Asian emerging economies.

Apart from entry choices, most of the studies revolve around multinational firms’ entry in

BRICs, and ignored the emerging markets in Asia in relation to expanding value chains.

There are gaps in the existing literature for comparison of offshoring to strategic expansion in

emerging markets in Asia, and this study is presented to fill those gaps through detailed

analysis.

2.6. Conclusion

Prior studies have provided have provided enormous amount of evidence of

multinational companies investing in emerging markets either through offshoring or foreign

direct investment. Research works by a number of authors have discussed the factors

influencing the decisions of global companies as to why they consider investing in such

economies. There are various reasons for entering in emerging markets: the emerging

markets are providing tremendous potential for growth for global firms; the factors of

production are cheaper as compared to developed economies; financial crisis did not impact

emerging markets much severely compared to the rest of the world; the emerging countries


are mostly rich in terms of natural resources; and others. This study especially takes into

account the Asian context of emerging economies and explore as to why and how

multinational corporations prefer Asian economies for their global expansion.

Chapter 3: Methodology

3.1. Introduction

The previous chapter elaborated several research studies which depicted as to why

multinational companies are interested in Asian emerging markets. It is clearly stated that

emerging markets in Asia provide extensive opportunities for global firms. Not only

multinational companies from outside world are interested in reaping the benefits from Asian

region, but also the companies from Asian region are investing heavily in other Asian

emerging markets. Indeed, their entry modes depend on the nature of the business, but their

business models must have a particular direction as to how the business will be operating.

Although the literature review has elaborated several studies analysed through different

perspectives, the outcomes of the study are needed to be drawn out by choosing and

discussing few articles. This is to comparatively analyse different authors’ views in sufficient

detail. This section will define the criteria for choosing particular studies for further analysis,

and provide the justification for selecting them. It will then highlight the validity and

reliability of each of those articles and reports before moving to next section.

3.2. Selection of Articles

The articles selected for the study are evaluated through specifying inclusion criteria.

Only one study for analysis is selected from the literature review, whereas others have been

separately chosen for the next section. It is important to consider that discussion in the


articles and research studies focus on Asian with respect to multinational organisations

investing in the region.

A research report was presented by Mahidhar et al., (2009) for Deloitte research,

which focused on operational activities of multinational companies in emerging markets in

Asia. The concept of this dissertation was derived from this particular report. The investment

of global firm in Asia is not a new phenomenon, but their approaches of entering into and

operating in such economies are changing and becoming more challenging to be benefitted

by the economic growth. The report is based on “a survey of 247 executives from consumer

and industrial product companies with presence in emerging markets”. The study reveals that

the cost is not the only concern for global companies to move to emerging markets, but this

dissertation will consider emerging markets in Asia, thereby, taking related stuff from the

Deloitte research report.

The second article Ready for take-off (2011) is taken from a journal ‘Asian Agenda’

which is concerned about the markets in Asian region as its name suggests. The article is

basically a feature presenting views of different corporate leaders about the Asian economies

for global business. The focus is not Asian emerging markets only, but of course, they

included this element in their discussion. The article is about the entry strategies of global

organisations when they consider investing in Asian region, and it highlights the advantages

and disadvantages of each strategy. It is indeed a very important article for this report as it

elaborates the expansion strategies of companies considering the growth perspectives of

different countries in Asia.

The third article selected for the report is written by Maxwell (2011) in PwC view,

which revolved around the success factors and issues regarding multinationals entering in

emerging markets. The article depicts the concept of emerging markets first, and then directs


readers’ attention toward how these markets are growing with respect to foreign direct

investment. It talks about trading issues among emerging markets and between emerging and

developed economies.

The fourth article written by Hagel and Ho (2004) precisely focuses on the offshoring

activities of multinational companies in emerging economies, through which they concept of

offshoring is mistaken. The author argues that the outsourcing is really a beneficial approach

for international companies if used in the correct way. Most of the companies prefer moving

offshore just to take some cost savings, which is a very limited approach of business model.

They can reap far more profits by focusing on a broad strategy of outsourcing tasks as turning

them in valuables. The core concept of the report is that the outsourcing is not merely a

concept of saving costs for near-term, rather a strategic issue that needs proper attention to

get greater good and long-term success.

The fifth report selected for this dissertation is basically a report presented by Capital

Markets Consultative Group, which “reflects the views of private sector participants in a

working group examining the determinants, trends and prospects of foreign direct investment

(FDI) in emerging market countries.” This is the most important report to define outcomes of

this dissertation in intended way. It revolves around the foreign direct investment flows to

emerging markets and other countries of the world. For the purpose of this dissertation, only

the content related to emerging markets in Asia will be concentrated on.


Table 1: Brief Outline of Selected Articles

Title/Author(s)

Maxwell (2011)Ready for take-

off (2011)Mahidhar et al.

(2009)Hagel and Ho

(2004)

Capital Markets Consultative Group

(2003)

Paradigm

Success in emerging markets

beyond the BRICS

Developing and Executing entry strategy in Asia

Strategic Expansion in

Emerging Markets

Real value of offshoring in Asia

is the strategic expansion

FDI in emerging markets is increasing and is

expected to continue with the same pace

Philosophy Objective Subjective Objective Subjective Objective

Research Design

Qualitative Qualitative Qualitative Qualitative Qualitative

Data Collection

Document Analysis

Discussion of views

Survey and data analysis

Working paper Survey and data analysis

Validity and Reliability

High validityHigh Reliability



High validityMedium

Reliability

High validityMedium Reliability

3.3. Conclusion

Despite the enormous amount of literature on the globalisation, the topic of the report

is an under researched area. This report is based on meta-analysis of five articles and reports.

Three articles and/or reports were written after the Great Recession of 2008, whereas the

remaining two were written before the crisis. The methodology of the articles is objective or

based on facts, therefore, it can be used to answer the research questions of this report. The

reports are reliable and valid to serve the purpose of the meta-analysis. The studies Maxwell

(2011), Ready for take-off (2011) and Mahidhar et al. (2009) are considered to be highly

reliable as they are current and have used the approaches necessary for this report. The other

two studies Hagel and Ho (2004) and Capital Markets Consultative Group (2003) are highly

relevant to this report, but their reliability is questionable for the time when they were

written.


Chapter 4: Analysis

4.1. Introduction

The definition of foreign direct investment does not include the investment of retained

earnings by foreign investors; other forms of direct investment made between the investors

that are involved in the undertaking and their subsidiaries, branches, subdivisions and

associations; and investment made in offshoring activities and local venture capital funds

established by foreign investors. This implies that the actual flows of foreign direct

investment may not be accurately stated (Capital Markets Consultative Group, 2003). There

are a number of multinational companies that pursue offshoring to gain cost savings. The

companies consider offshoring as a near term favourable chance for cutting costs through

outsourcing of “low skills, low value jobs to locations in Asia with much lower wage rates”.

These companies miss the opportunity of reaping more rewards of outsourcing through

business expansion in Asian countries (Hagel and ho, 2004).

The foreign direct investment in Asian emerging markets is growing. The areas that

come under the scope of direct investment includes the institution of different organisations

such as production operations and facilities, storage warehouses, buildings for banks, and

several other long-term institutions across boundaries, through selecting from a few

alternatives for investments such as Greenfield investments that are related to the building an

entirely new organisation by making investment, the acquisition of or merger with the

existing organisation setting across borders, and entering into joint ventures with small firms.

Such alternatives give the investors the advantages of control and ownership of firms’ assets

as for example buildings and lands (Capital Markets Consultative Group, 2003). It shows that

the multinational companies that move across borders do not do so just due to gain cost

advantages. This section will examine the views of different authors, related to the


investment strategies of multinational companies in Asian emerging markets. It will compare

the selected five articles to find out what motivates global firms enter into emerging markets

in Asia.

4.2. Discussion and Analysis

The definition of emerging markets depends on the information source, which means

different groups have defined it differently. There are 22 emerging markets divided between

“advanced” and “secondary”, as defined by FTSE group. Standard & Poor’s, the rating

authority of sovereign debt of 126 economies, has classified 19 emerging markets out of 126.

BRICS has gained success ubiquitously as it represents a few most prospering countries

identified as emerging markets. Even if one thinks of emerging markets, the term BRICS

clicks the one’s mind. Another emerging term that classifies emerging markets is found to be

the term EAGLEs that defines “the 10 emerging and growth-leading economies” (for

example, see figure 4). “Others are the 12 countries of the Big Emerging Markets (BEM), and

the rather unwieldy CIVETS, which includes Colombia, Indonesia, Vietnam, Egypt, Turkey,

and South Africa” (Maxwell, 2012).

Figure 4: Eagle – Emerging And Growth Leading Economies

Source: Maxwell, 2012


According to a report by Capital Markets Consultative Group (2003), the core

motivating factor of strategic entrance of global corporations in emerging markets seems to

be their strong and stable growth over years. The surprising aspects of these emerging

markets are how they are growing and the way these markets are recognised as growing.

Maxwell (2012) has argued that the investments in emerging markets definitely come from

the western world through North-South commerce which includes the concept of investment

coming in emerging and/or developing countries from developed countries so that they can

get fairly cheap products of same quality, which can then be exported preponderantly back to

their home countries. More often that not, it is a result of a typical nature of commerce what

is known as South-South commerce which is through as famous as North-South commerce,

yet a huge factor contributing to the growth of emerging markets. Broadman has argued that

an enormous amount of trade takes place amongst emerging economies, which further push

them up to grow. “In 1970, South-South trade was about seven percent of world trade. Today,

it is 20 percent of world trade.” It highlights another interesting fact that the global firms

from developed countries face intense competition from the multinational firms from

emerging markets which eat major markets share for many reasons. In addition, Harry

Broadman, Chief Economist and Leader of PwC’s Emerging Markets practice, has suggested

that giving proper consideration to the investments from emerging markets reveals that

almost one-third of the foreign direct investment by multinational companies goes from

emerging markets to other emerging markets (Maxwell, 2012).

There is no shortage of research works that focus on importance of emerging market

economies to multinational companies. The firms that are overlooking emerging economies

for investment are bearing serious opportunity costs for not availing the opportunity of

entering in the countries despite the growing internationalisation and rising competitive

insistence. Furthermore, the investors are permitted to broaden their reach beyond specific


business entities that is diversification across companies for increasing their strategic

advantage and existence in emerging economies (Capital Markets Consultative Group, 2003).

A survey shows that “57 percent anticipate that they’ll need to make strategic changes to

capitalize on the increasing prosperity of consumers in emerging markets.” The success of

multinational companies in emerging economies depends on the infrastructure of the

countries they are investing in. A great example of this is China which demonstrates the level

of increase in economic growth resulted from advancement in infrastructure of the country is

extremely high for over past 20 years (Maxwell, 2012).

The survey conducted by Mahidhar et al., (2009) for Deloitte demonstrated that

manufacturing companies have been trying to get access to the highly growing economies

which can provide low-cost sourcing for over past ten years. The justification they present for

their move to these markets is the globalisation of the world. The interesting part is that a

number of companies have realised cost arbitrage through developing reasonably prospering

business operations in these economies. The survey has induced the optimism in business

world revealing that many companies which have presence in emerging markets are making

more and more efforts to expand their business by developing their business model with a

core focus on emerging markets. More than 88 percent of companies planned in 2009 to

increase their presence in such economies until 2012. Moreover, about half of the companies

anticipated their 20 per cent revenues coming from emerging markets. Not surprisingly, the

proportion of the organisations which planned to inject more than 20 per cent of their

investments in the emerging economies is one third. These figures do not depict that the

organisation will end offshoring in these regions, but they have new opportunities in this

regard. The manufacturing companies do not increase their presence just for the sake of cost

savings, rather they try to expand strategically through development of the “core functions of

their value chains in these regions”. This is the characteristic of ‘forward thinking


companies’. Cost saving is essentially the main concern of approx three forth of

manufacturing companies, but this is not the only reason to get access to markets abroad.

Nearly 70 per cent of the organisations in the survey conducted are concerned about market

expansion (for example, see figure 5). More than 70 per cent organisations consider the cost

saving as equally important key motivator for expansion in emerging markets. Furthermore,

over 50 per cent of manufacturers revealed that the reason for their access to emerging

markets is the need to increase speed to market.

Figure 5: Strategic Objectives for Establishing Operations in Emerging Markets

Source: Mahidhar et al., 2009


A company must opt for such a location that assists in achieving its goals. Entering

Asian market is not difficult, but choosing the right location for business is as “Asia is not a

country”. It is a group of countries which represent an entire world of opportunities. Asian

region can be broken down so as to find the most suitable location for a foreign business.

“There are 32 countries and territories in Asia, commonly divided into four regions:

• Central Asia, including Kazakhstan and Turkmenistan

• North East Asia, including mainland China, Hong Kong, Japan and South Korea

• South East Asia, including Malaysia, Singapore, Thailand, Vietnam and Cambodia

• Southern Asia, including India and Bangladesh” (Ready for take-off, 2011)

According to Capital Markets Consultative Group (2003), in 1997, the aggregate

foreign direct investment in Asia was approx $66 billion. After the financial crisis in Asia,

the combined sum of foreign direct investment inflows in Asian countries corrected by about

30% to $46 billion in year 2000. And then again in 2002, it increased to about $63 billion for

the most part due to speedy increase in investment flows to China. China has been kept afloat

by the newly promoted market liberalization concept in the economy and accession of the

country to the World Trade Organisation (WTO). The country was gaining the benefits from

a huge and speedily growing market size that it alone was appreciated for deriving more than

80% of the aggregated foreign direct investment flowing to the Asia region, and for 43% of

the total foreign direct investment inflows in emerging market economies. In those years,

India could not record high gains with respect to foreign direct investment as most of the

investors see India as an attractive place for offshoring. Moreover, among others, Thailand

was extremely harmed by the Asian crisis. Even then, the country reported a rather

considerable contribution to foreign direct investment due to the increased number of


acquisitions of local firms, and/or enhanced share of foreign investors in existing joint

ventures.

Bob Partridge, Greater China Transaction Advisory Services Leader, Ernst & Young

said that “[m]any people think the ‘prize’ is China”. The success in this region highly

depends on two factors: market potential and ease of doing business. “The less developed and

less business-friendly the market, the better the growth prospects and the lower the

competition.” This means a country with higher opportunities and at the same time, high

barriers to entry, its growth prospects will be high, but with minimal competition. It also

depends on the sector which a business is operating in. For instance, the locations where

competition is low for state-owned organisations, or manufacturing and real estate firms,

have a lot of opportunities for foreigner investors. “South East Asia, in particular, has an

incredible appetite for infrastructure building and services, including transport, water and

waste management” says Bob Partridge (Ready for take-off, 2011).

In addition to choosing the right country to enter in Asia, formulating the right entry

strategy is a critically challenging and complex issue. This depends on the magnitude of

funding a foreigner is planning to put in the country which in turn leads to make decision of

entering through equity or non-equity modes of entry. These decisions are based on the

requirements of control in an Asian country, says Simon Moore, Oceania Transaction

Integration Leader, Ernst & Young (Ready for take-off, 2011). The global economic growth

has slacked, the emerging economies, for example, China and India, are expected to continue

growing. These countries are becoming target markets for global firms to achieve objectives

of growth. Doing business in such countries is not easy for companies from developed world.

Firms need to understand the markets, their culture, regulations and other constraints

(Mahidhar et al., 2009). The report by Capital Markets Consultative Group (2003) highlights

that “the type of business venture and the strategic approach to foreign direct investment, the


availability of capital, and opportunities for leverage and risk sharing” can fairly be

manifested by the source of equity through which foreign direct investment has been got off

the ground, and the type of equity. Growth or expansion of business can be achieved through

a number of directions. The top level management who are responsible for setting strategies

should opt for the best possible way that can assure the accomplishment of the main

objectives of the company. Multinational companies must concentrate on choosing the right

mix of operations with respect to the location so that they can “create a sustainable cost and

revenue structure across geographies.” “Companies are choosing locations like India, China

and Thailand to expand high-end manufacturing operations. The type of business activities,

market opportunities, country regulations, tax advantages, and experience in emerging

markets are the key determinants of operating model” (Mahidhar et al., 2009).

Hagel and Ho (2004) have demonstrated that offshoring for the sake of cost saving is

not a good deal. There are companies who outsource low cost operations to emerging markets

in Asia. This is not a right strategy when they can get far more benefits from this region as

the countries in Asia are considered as a platform for higher performance in product

development. International organisations can increase their manufacturing capacities and

capabilities in Asian countries to taste low wage rates, with improved production facilities

and high skilled workforce (Hagel and Ho, 2004). Exporting to Asian countries is a strategy

which does not pose much risk, but it is not a good strategy considering the operating

conditions in the region. Licensing is a useful non-equity strategy but it can expose the

companies to a greater profile of risks. Franchising, on the other hand, is a low risk strategy

in comparison with licensing. Simon Moore argues that “[w]hile a licensing agreement

usually involves IP, franchising is limited to trademarks and the operating know-how of the

business.” Hence, the ownership, “either through Greenfield investment or acquisition”, is the

only way left to gain control of the assets in Asian countries (Ready for take-off, 2011). The


start-up of a Greenfield venture is preferred by multinational corporations with the 100%

investment in equity. It ensures the foreign companies full delectation of the returns in assets

as the firms get preference for gaining control over the management as well as he operations

of the firm, with the access to proprietorship. This is how the competitive advantage is

entered in the markets (Capital Markets Consultative Group, 2003). Greenfield investments

are “often complex and potentially costly,” according to Moore. It gives the total control with

high returns, but can be effective with little or no competition. This strategy is risky due to

lack of information regarding the host country and the government policies.

According to Harsha Basnayake, many governments do not even allow total foreign

control. For instance, in China, Greenfield investments are prohibited. Also, in Malaysia,

Vietnam and Indonesia joint ventures are preferred (Ready for take-off, 2011). Joint ventures

formed with local investors or partners are mainly due to the requirements for entering in the

emerging markets and to benefit from a greater access and control in emerging economies

(Capital Markets Consultative Group, 2003). This strategy is least risky compared to other

alternatives as the results of an acquisition can be estimated with ease and correctly, yet it is

challenging in choosing “a partner with good political and business connections and a strong

customer base”. Through joint ventures, multinationals can get “instant market entry and an

established customer base, political connections and distribution channel access” (Ready for

take-off, 2011). Mahidhar et al. (2009) have also described this in their survey report that the

most widely used approach for market entry is joint ventures, whereas the companies who

have already entered the markets prefer wholly owned subsidiaries.


Figure 6: Operating model in Multinational Companies Emerging Markets


The authors have further analysed that organisations use specific and simple strategies

when they are willing to outsource their less complex tasks. Today, the companies have

shifted their strategic focus toward developing particular components of their “value chains to

account for new objectives pertaining to growth, innovation and sustainability”. There are

three strategic factor which “determine the emerging market business model: capacity,

capability and risk” (see figure 7).


Figure 7: Multinational Companies’ Strategies for Emerging Markets


Successful achievement of the desired capacity is not an easy task. Today,

multinational companies are engagement in undertaking expansion activities so that they can

transmute their revenues and business models in emerging economies. The expansion is at the

level of scale as well as scope of the manufacturing capacity of the firms. This is majorly

because the demand in the emerging economies, for instance, BRICs, Vietnam, Thailand, is

increasing to attain similar level as that of developed countries and anticipated to continue

increasing with the same pace. Therefore, the multinational companies really need to enhance

their production and development capacities to meet the increased demand. Hagel and Ho

(2004) also discussed the capacity building issues with respect to moving offshore in Asian,

especially in China and India. Capacity can be enhanced by hiring more skilled workers,

lower manage to staff ratio, process improvements, ensuring high performance levels,

understanding the culture and regulations, compressed work cycles, enhanced competition

with both foreign and local firms, strong buyer-supplier relationships, and expansion of

adjacent production activities (Hagel and Ho, 2004). The companies need to look into their


capabilities so that they can build strategies accordingly and move their value chains in

emerging markets (backward integration and forward integration) (Mahidhar et al., 2009).

According to Hagel and Ho (2004), expanding backward to the supply chain is an effective

strategy in offshoring to Asian emerging markets. It can help reducing costs and enhance the

capabilities of performing in the region with lower risks. The third area that the companies

are required to cover is the “cross-border business risks” (Mahidhar et al., 2009).

4.3. Conclusion

This section has disclosed few important considerations that the multinational firms

should take into account. More often than not, the modes of directing foreign direct

investment or financing the corporate ventures in emerging economies are not plainly based

on costs and worldwide market circumstances as there are other strategic issues to be noted

upon. The type of investor and investment in emerging economies are critical to the decisions

of global firms. As shown by the results of PwC’s 15th Annual Global CEO Survey, approx

three-quarters of the companies which have established their business operations in emerging

markets want and anticipate expanding their businesses in such regions. It is also considered

that “[t]he world is turning to the East, and consumer goods companies—just like other

sectors that ultimately depend on purchasing power and attractive demographics—are paying

attention” (Maxwell, 2012).

Chapter 5: Conclusion

5.1. Introduction

This study is presented to examine the factors that motivate the strategic expansion of

multinational companies in Asian emerging market economies. The aim of study is to define

and analyze strategic factors that strongly impact the decisions of global firms in terms of


adopting offshoring activities and acquiring growth strategies to enter in emerging markets in

Asia. It helps to explore the strategic issues the internationalised companies are confronting

and examine the extent to which they are getting affected by these key threats that hinder

their entry and performance in these regions through strategic expansion. This section will

summarise the whole report and lead to a concise conclusion based on the methodology used

for the study.

5.2. Summary of the Study

To summarise the whole report, it can be stated that the emerging markets are

considered as key locations for future growth as they continue to grow faster than the

developed world and promise to offer favourable growth opportunities to many multinational

companies. Such economies are established as the primary destinations for exports as well as

direct investments. The fastest growing emerging markets are BRIC countries which are

Brazil, Russia, India and China. Two of these countries are included in Asian region. For

instance, China, India, Indonesia, Thailand, Bangladesh, Philippines Sri Lanka, Malaysia and

Vietnam are considered as emerging market countries in Asia. The notion of economic

globalisation has benefited emerging market countries in Asia in many ways. Such

economies are deemed as a hub for opportunities in the international market place and a

major engine to derive growth in the global market economy.

Multinational companies from developed companies are putting heavy investments in

Asian countries, which signal the origin of foreign direct flows to this region. In addition, a

significant share of total foreign direct investment inflows to Asian countries consists of

foreign direct investment inflows between the countries in the region. Today the value

creation through offshoring has come forth as a famous and broadly acknowledged

competitive strategy for multinational companies in several industries. Companies,


particularly, in developed economies are seeking for exploiting opportunities that are

identified offshore with the objective of surviving in both inland and international markets,

which has been a major focus and pressure of globalization. Apart from offshoring, a firm

can enter an emerging market by adopting different strategies depending on the internal and

external environment of the firm. Market penetration, market development, product

development and diversification are key approaches that are usually utilised by most

companies when investing in emerging market economies.

Formulating the right entry strategy is a critically more challenging and more complex

issue compared to choosing the right country in Asia for investment. This depends on the

magnitude of funding a foreigner is planning to put in the country which in turn leads to

make decision of entering through equity or non-equity modes of entry. Offshoring

sometimes is not considered as a right strategy when multinational firms can get far more

benefits from Asian region as the countries in Asia are considered as a platform for higher

performance in product development. International organisations can increase their

manufacturing capacities and capabilities in Asian countries to taste low wage rates, with

improved production facilities and high skilled workforce. The multinational firms can

choose an emerging market for export of their products and get advantages of ownership and

control through licensing, joint ventures, mergers & acquisitions, and in some cases,

franchising. The ownership, either through Greenfield investment or acquisition, is the only

way left to gain control of the assets in Asian countries.

5.3. Limitation of Research

Although this report includes a fairly detailed literature review of a number of studies,

the methodology of the study is limited as the outcomes are to be measured by the analysis

based in five articles. The criteria for selecting articles were reasonable, yet some issues with


the reliability came by. Meta-analysis of research studies is a good approach to be used for

this sort of study, but it somehow deteriorates the originality of the work. The report does not

include any primary research, leaving behind the element of different approaches for original

research study.

5.4. Future Research

This report leaves a room for further research in the same area. Future research can be

undertaken on the analysis of individual entry mode strategies of multinational companies in

emerging markets. The comparison of all the strategies in different Asian emerging

economies can be looked into. Another area that can be worked on is the comparison of

multinational companies entering in emerging economies and the multinational firms moving

out of the region to enter western world.

5.5. Conclusion

Previously offshoring has been the priority for the global companies when entering

Asian region, which is because of their intentions to get cost advantages. Today, the

multinational companies are not only offshoring for cost saving, but strategically expanding

to serve their business objectives. The strategic objectives for establishing functions in Asian

emerging markets include the cost savings, market expansion, speed to market, access to

talent, new market development, product development and service development.

Multinational firms are making efforts to achieve their goals more efficiently and effectively

in emerging markets in Asia. They are getting the benefits of growth of Asian region in this

way. To get success in the region, their strategies should be more effective than before. The

effective strategies can be the ones formulated and implemented in the context of expanding

value chains in emerging markets in Asia.


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