Part - I

Executive Summary

MNCs can enter a host country either through subsidiary route or through a joint venture with a local firm. In case of subsidiary route it can chose to enter either through Greenfield investment route or through acquisition. The entry mode decision of a firm is guided by three important aspects: quantum of risk that a MNC is willing to take, nature and importance of resources that firm is seeking and the extent of control desired by the company.

The factors that affect the choice of entry mode are objectives of the firm, whether the firm is resource seeking or market seeking, importance of host country in MNC's strategic plans, importance of proprietary technology and intellectual property to MNC, importance of local resources, country of origin of MNC, transaction cost associated with a particular mode, host countries government policy and regulatory framework, privatization in the host country, and prior experience of MNC or a company similar to it in the host country.

We analyzed the above-mentioned factors in the light of 37 companies selected by us from different sectors in India belonging to different geographies. We also looked at IT, Pharma and FMCG sector to make appropriate inferences and to determine the impact of various factors on the entry mode decision of a firm.

Recommendations: The companies that are "market seeking" should look at both the JVs and subsidiary route. They should opt for JV route if the tie up with local partners helps in mitigating costs associated with understanding markets, developing business and distribution networks and the agency costs associated with sharing proprietary technology is less than the benefits. Otherwise "market seeking" companies should generally prefer the subsidiary route.

The companies that are "resource seeking" and are looking at host country for some critical resources should enter through the subsidiary route. Similarly, the companies which technology or IP intensive should prefer the subsidiary route so as to have better control.

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* Contributed by: -
Abhishek Gupta & Anurag Ghuwalewala,
PGP-2, Batch 2003-2005,
IIM Bangalore.