Chapter II


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Chapter II

  1. 1. International Management 1 MS #408 Running Head: INTERNATIONAL MANAGEMENT Globalization Strategy Process Model Ismatilla Mardanov Southeast Missouri State University, Cape Girardeau, MO Contact Information: Mail Stop 5875, Harrison College of Business Department of Management and Marketing Southeast Missouri State University One University Plaza, Cape Girardeau, MO 63701 e-mail: e-mail: Office Phone: 573-651-2902 Home Phone: 573-332-7838 Fax: 573-651-2909
  2. 2. International Management 2 Abstract This study presents the Globalization Strategy Process Model to: 1) explore the impact of host and home country environmental factors and company specific determinants on foreign market entry mode (strategy) choice; 2) explain the effect of foreign market entry strategies on performance mediated by strategy implementation. The paper argues that foreign market entry strategy choice is a function of foreign market entry strategy determinants: host country and home country political and macroeconomic stability, market size, resource potential, market reforms, foreign trade and economic relations, interstate relations, industry characteristics, company resources, capabilities, core competencies, business and corporate level strategies, and organizational culture. The study also stresses that corporate performance is a function of foreign market entry mode (strategy) mediated by strategy implementation: systems, processes, procedures, organizational structures, governance, and leadership in foreign subsidiaries. Differently from previous research, the study suggests a holistic model of foreign business expansion and operation. Empirical testing the entire model or its parts will be useful for businesses and host countries, as well as international financial organizations.
  3. 3. International Management 3 Introduction The main concern of multinational corporations or newly internationally expanding companies is identifying and analyzing major determinants of successful market entries, effective operations, and high performance in other countries. The main concern of host countries is to develop trade and economic relations, attract foreign direct investments, create new jobs, and increase living standards of the population. International economic institutions like the World Bank, IMF, and others are concerned about analysis of the level of poverty and economic development of host countries to finance joint projects of multinational corporations and local private firms. To possess such information, businesses, countries, and international organizations must conduct research using some economic models which help make valid decisions to achieve their superior objectives. This study is to integrate previous research and develop a comprehensive model of strategy process in global business. This paper draws on Andrew’s (1971) strategy process theory (SPT). Also the Stage Models of Internationalization, specifically the Product Life Cycle Model (Vernon, 1966) and Internationalization Process Model (Johanson & Vahlne, 1977) as well as Decision Models of Foreign Market Entry (Root, 1994, Madhok, 1997) were the basis for the model development in this study. Globalization strategy process as a research term has not been used and interpreted yet. Leif Melin (1992) suggested internationalization as a strategy process based on Whelch and Luostarinen’s (1988) definition of internationalization: “Internationalization – the process of increasing involvement in international operations across borders.” Literature usually uses the terms such as foreign market entry strategies (Root, 1994; Buckley & Casson, 1998; Shama, 2000), foreign market entry modes (Davis, Desai & Fransis, 2000; Chang & Rosenzweig, 2001;
  4. 4. International Management 4 Agarwal & Ramaswampi, 1992; Sharma, 1998; Kim & Hwang, 1992), foreign market entry decision models (Parks, 1996), and so forth. In this research the foreign market entry strategy process hypothesis is defined as interdependent and dynamic process of strategy formulation, strategy choice, strategy implementation, performance assessment, and feedback loops. This study is suggesting a new model which integrates all the previously existed models. Why the new model? The world is getting complex and globalization dictates to make more comprehensive decisions. The existing models do not help that much to capture relationships of the essential factors that have significant impact on decisions on foreign market entries and operations abroad. The new model is a multiphase and dynamic model of foreign market entry and foreign operations strategies. It can be names as Globalization Strategy Process Model (GSP Model). What is the importance of the model? First, it is applicable both types of companies, newly internationalizing or already internationalized corporations to test numerous relationships of interest. Second, the model is helpful for host countries, as well as, international economic organizations. Host countries empirically testing parts of the model may be able to identify the most important factors that have significant impact on trade and investment climate in their locations. Third, the international economic organizations may be able to do country analysis and make appropriate decisions on providing economic support or loans. Finally, the model can stimulate further research in this area. Analysis of the Existing Models The Design Model of Strategy These models’ main purpose is to explain relationships among company external environmental factors, company internal factors, and its strategies in terms of formulation and implementation.
  5. 5. International Management 5 Kenneth R. Andrews first introduced such a model in 1971 in his book “The Concept of Corporate Strategy”. The name of the model was introduced by Mintzberg (1990). The model involves two stage actions that take top executives of companies in order to achieve their strategic goals. The first stage is formulation and the second implementation. This model is a very generic, at the same time genius. The first formulation (deciding what to do) stage involves: a) identification of opportunity and risk; b) determining a company’s resources; c) personal values and aspirations; and d) acknowledgements of noneconomic responsibility to society. The resulting point of the first stage is a corporate strategy. The implementation stage (achieving results) emphasizes: a) organization structure and relationships; b) organizational processes and behavior, and c) top leadership. Specific aspects of this model were tested in terms of relationships of a company’s resources or opportunities and strategy choice (low cost leadership or differentiation, growth, or diversification (Porter, 1980). But no one research indicated that it was testing Andrew’s model. The main deficiency of the Design Model is that Andrews did not depict the model as a dynamic process model. First, a company must formulate its strategy and then implement it matching the company’s resource capabilities with its environmental opportunities. The model can be easily turned into a dynamic model by adding a performance appraisal stage and feedback loops at every stage. Also the following statement is very important. Based on the constant feedback about performance and information about environmental conditions, strategy formulation and implementation can be turned into a continuous process of modification of strategy and adaptation to the changed environment not only for machine bureaucratic type of organizations (Mintzberg, 1990) but also for any organizations regardless of size.
  6. 6. International Management 6 Internationalization Models Theoretical and empirical studies in this area mainly are based on the stage models of internationalization and foreign market entry decision models. The stage models include the Product Life Cycle Model and Internationalization Process Model. Melin (1992) analyzed well the stage models of internationalization. The Product Life Cycle Model developed by Vernon (1966) is an attempt to bridge a country-based perspective of international trade theory with an individual firm’s perspectives of international investment theory. Its main contribution is developmental view on relocalization of production activities (Melin, 1992, p. 102-103). A general conclusion is that increasing product maturity makes it possible to expand business overseas. The second stage model of importance is the Internationalization Process Model (Johanson & Vahlne, 1977). This process, whereby a firm gradually increases its international involvement, is described as being sequential from the initial export activities to the setting up of foreign production units. Each firm goes through a number of logical steps of international behavior, based on its gradual acquisition, integration and use of knowledge about foreign markets and operations and its successively increasing commitment to foreign markets (Melin, 1992, p. 103). The Product Life Cycle Model’s descriptive value is weak for products with short life cycles, a circumstance which applies to more and more products (McKiernan, 1992). The applicability of this model is also limited if new products are developed in companies that already have considerable operations in foreign countries. New products are not necessarily developed only in the home country but anywhere else. In this case the concept about product
  7. 7. International Management 7 life cycle starting at home with introduction of a new product and ending abroad due to decline of demand in the home country will be groundless. The Internationalization Process Model has very serious limitations. It is too deterministic: its significance is limited to the early stages of internationalization (Melin, 1992, p. 104). The model is applicable to newly internationalizing their businesses companies. It does not say anything about multinational companies’ internationalization strategies. Additionally, this model pays no attention to environmental determinants of foreign market entry mode (strategy) choice. The decision models of foreign market entry fix these limitations of the internationalization models. The Eclectic Paradigm The eclectic paradigm represents foreign operations perspective rather than foreign market entry perspective. The object of study is companies with foreign operations. The eclectic paradigm (Dunning, 1980, 1988) argues that there are three distinct sets of advantages for firms with foreign operations. These are ownership-specific advantages, internalization advantages (Buckley, 1988; Ragman, 1980), and localization advantages (Melin, 1992). The eclectic paradigm is based on economic theory and has transaction costs and factor costs as its main explanatory variables together with the assumption of rational decision-making in international firms that make foreign direct investments. Foreign Market Entry Decision Models Most recent research done on foreign market entry decisions attempted to analyze determinants of successful entries into different markets around the World. The choice of appropriate entry
  8. 8. International Management 8 modes to a right country and at a right time with right entry mode is the main concern of research and corporations. Environmental factors in host and home countries, target country market factors, target country production factors, company product factors, and company resource/commitment factors (Root, 1994; Chang, 1995) are the most important variables in research. Various views effecting entry decisions have been developed: transaction costs theory (Anderson & Gatignon, 1986), eclectic theory (Agarwal & Ramaswampy, 1991; Kim, Hwang, & Burger, 1989; Kim & Hwang, 1992) entry mode choice, entry timing, firm size (Caves & Mehra, 1986), multinational experience (Erramilly & Rao, 1993; Kogut & Singh, 1988), and the ability to differentiate products. Hitt and Tyler (1991) have emphasized that decision process involves relationships among three factors: strategic choice/executive characteristics (Child, 1972); external control/industry characteristics (Lawrence & Lorsch, 1969); and rational normative model/objective criteria (Andrews, 1971; Ansoff, 1965; Hofer and Schendel, 1978). Hitt and Tyler (1991) say that current research supports the necessity of integrating elements of the rational normative, external, and strategic choice perspectives in models of the strategic decision process. They empirically tested these models. Strong support found the rational analytical normative choice perspective with objective criteria explaining the greatest amount of total explained variance (almost 82 percent) in evaluation of target firms. The decision-making perspective has some pitfalls. It is constrained by examining only making decisions and does not consider decision-performance relationships. Root (1994) introduced foreign market entry decision model that considers decision- making as a function of external and internal company factors. To make a decision on foreign market entry one must: (1) assess products and foreign markets; (2) choose the target
  9. 9. International Management 9 product/market; (3) set objectives and goals; (4) choose the entry mode: export, contractual arrangements, or investment; (5) design the marketing plan: price, promotion, distribution, etc.; (6) conduct entry operations (a moderator variable); and (7) conduct target market activities. Control system (monitoring operations/revising entry strategy) influences the first four elements and gets feedback from the ‘target market’ element (Root, 1994). Besides the decision phase, it includes entry operations and the target market activities, structural arrangements and control systems to fit strategy. Root’s model is the most attractive because it includes all the stages of formulating foreign market entry strategies and implementation. This model has not been tested empirically. In this study the Root’s model serves as the basis for new empirically testable model development. Buckley and Casson (1998) presented a new fully integrated analysis of foreign market entry decision, encompassing the choice between exporting, licensing, joint venturing, and wholly owned foreign investment. The model extends the insights of internalization (foreign direct investments) theory, and draws on concepts from the economics of industrial organization (Buckley & Casson, 1998). This study introduced twelve strategies in various combinations. The model has such variables as production, research and development, marketing and distribution activities in the home country and host country and joint production and distribution activities of a joint venture. All these variables are determinants of demand. Relationships between the determinants and demand are mediated by the twelve foreign market entry modes. The model as said is very flexible, in the sense that it is easy to modify the assumptions to address other issues (Buckley & Casson, 1998). It can be used in competitor analysis including two host country rivals, or two entrants vying with each other to enter the same market.
  10. 10. International Management 10 The model is more dynamic and allows entrants to determine the timing of entry. However, it is difficult to know the exact determinants of market entry modes from this model. Other considerations are order of entry and strategic and financial performance issues that can be achieved employing one or another entry mode. The model is theoretical and has not yet been empirically tested. Davis, Desai, and Francis (2000) introduced an isomorphic perspective of mode of international entry. As it has been pointed out above the previous research on foreign market entry-mode choice draws extensively either from transaction-cost economics (Anderson & Gatingnon, 1986; Erramilli & Rao, 1993), or resource-based view, or eclectic theory (Agraval & Ramaswampy, 1991; Kim, Hwang, & Burgers, 1989; Kim & Hwang, 1992). The isomorphic perspective (Davis, Desai, & Francis, 2000) links the determination of entry modes to an institutional theory framework. They stress that two sources of isomorphic pressures affect a strategic business unit’s (SBU) entry mode choice: (1) host country institutional environment, and (2) internal institutional environment (the parent organization). This research relates the entry mode choice to institutional environment only. Shama (2000) tested determinants of entry strategies of U.S. companies into Eastern Europe, as well as factors that determine satisfaction of these companies with their economic performance in this area. He empirically tested the introduced model which postulated that entry mode depends on the variables of business activity, year of entry, level of competition, and market potential. The second part of the model hypothesized that satisfaction with economic performance in these markets is dependent on the variables of business activity, entry mode, business outlook, level of competition, market potential, and number of competitors.
  11. 11. International Management 11 Using a very large sample size (1,189 firms) Taylor, Zou, and Osland (2000) examined determinants of entry modes of Japanese firms into foreign countries. In their study a survey of Japanese MNCs was conducted to assess the factors that are the most influential in the foreign market entry decisions of Japanese MNCs. Using bargaining power theory eight factors were identified in the study. The findings indicate that five of the eight factors (stake of the host country, need for local contribution, riskiness of the host country, resource commitment, and host government restrictions) are significant predictors of Japanese MNCs entry mode choice. Sharma (1998) developed and empirically tested hypotheses delineating how a set of industry- and firm-level factors are differently associated with post-entry performance of de novo and acquisitive entrants. The independent variables were structural entry barriers such as sunk costs or irrecoverable investments. The dependent variables were survival and sales growth. Chang and Rosenzweig (2001) found that several independent variables, which explain a firm’s initial mode of entry, do not explain the modes of subsequent entries. These findings underscore the importance of experience in foreign investment, as companies learn from early entries and adapt the modes of subsequent ones. Pan and Tse (2000) proposed and tested a hierarchical model of market entry modes. According to them entry modes can first be viewed as equity-based versus non-equity-based. Within equity-based modes, the choice is between wholly owned operations and equity joint ventures, while within non-equity-based modes, the choice between contractual agreements and export. The empirical test demonstrated that there are factors that exert substantial influences at the equity versus non-equity level, but rather weak influences at the lower level of choice hierarchy.
  12. 12. International Management 12 The foreign market entry decision models are available in different variations and have a more complete form in Root’s (1994) book “Entry Strategies for International Markets.” Decision models differ from each other relative to the involvement of factors that determine foreign market entry modes and research methodology. There are at least four approaches to such models. First, transaction cost (Anderson & Gatington, 1986), second, competitive strategy - environmental variables, industry characteristics, global strategy (Kotha & Nair, 1994; McGahan & Porter, 1999), third, organizational capability - firm resources ( Root, 1994), and fourth, the eclectic paradigm (Madhok, 1997; Pan & Tse, 2000; Kim & Hwang, 1992; Schoenecker & Cooper, 1998; Dunning, 1988). The transaction cost approach is limited with analysis of costs of entry and does not provide enough information for decision makers because of uncertainty of all other factors (Madhok, 1997). The same is true for only analysis of firm resources, capabilities, and distinctive competencies. The eclectic approach (Dunning, 1988) involves more of (but not all the) factors influencing foreign market operations and performance – transaction costs and factor costs with the assumption of rational decision making. Due to limitations of information for individual researchers most studies are focused on specific aspects of globalization strategies: transaction cost economics, determinants of entry mode choice decision; effectiveness of joint venturing; foreign operations and performance; entry timing; order of entry; green field entry strategies; acquisition strategies, strategic alliances, doing business in emerging markets; and so forth. Companies do more extended research involving numerous factors effecting their decisions. The scope of research depends on company capabilities and resources. The full and reliable research can be conducted when a complex integrated globalization strategy process model is being tested. Such an integrated model involves multi phase company actions and relationships among numerous constructs (variables).
  13. 13. International Management 13 This model has an integrated dependent variable as foreign subsidiary performance, particularly profitability (competitive advantage over rivals). The Globalization Strategy Process Model Globalization strategy process model (Figure 1) is important to link many stages of decision and implementation process with performance of a multinational corporation. In the first phase a company determines its mission and vision, as well as objectives for its foreign business. In the second phase external home and host country environment, as well as the company’s internal capabilities are examined. In the third phase entry strategy alternatives are developed and the best alternative is chosen. In the forth phase foreign market entry is implemented. In the fifth phase the company’s business, corporate, and other strategies are implemented on place. In the sixth phase performance is appraised and in the seventh phase feedback is communicated to each of the previous phase of strategy formulation and implementation. The power of the model is that it can be used for each of the stages of action to test relationships among different factors having impact on outcomes. For example, company external and internal situation have impact on the company’s vision and mission, as well as its objectives. At the same time these factors have impact on foreign market entry modes choice. A company’s vision, mission, and intent have relationships with foreign market entry mode (strategy) choice mediated by company situation factors (opportunities and threats, strengths and weaknesses: external environment and internal factors). As such in all other phases of the model we observe multiple relationships that can be tested empirically. Developed in detail propositions could address these relationships.
  14. 14. International Management 14 Mission Host Country Environment Strategy Vision Home Alternatives Actual Imple- Performance Feedback Country and Choice Entry mentation Appraisal Environment (Foreign Operationa) Objective Company s Resources, Competencies, and Capabilities Strategy Formulation Strategy ImplementatIon Figure 1. The Globalization Strategy Process Model Phase I. Company Vision and Mission in Globalization A company’s mission, vision, and objectives are function of the company’s external environment and internal capabilities. The external environment has two different settings. The first is host country political-legal, economic, social, industrial, technological, infrastructural, demographic conditions as well as market size and resource potential. The second is home country general environment and industry (Porter, 1980) conditions. The internal company situation is the company’s material, human, and financial resources, capabilities, and core competencies. The external and internal company factors are determinants of its mission, vision, and objectives. The task of the model is to determine the power of the internal and external factors in identifying the
  15. 15. International Management 15 company’s mission, vision, and objectives. Many propositions may be developed which can be converted into hypotheses in empirical research. Phase II. Analysis of Determinants of Foreign Market Entry Modes Choice When we consider determinants of entry mode (Root, 1994) choice again external and internal factors will be the major factors. Entry mode choice will be a function of those factors. Also the company’s mission, vision, and objectives will be determinants of entry mode choice. Depending on the company’s situation equity based or non-equity based foreign market entry modes can be chosen (Pan & Tse, 2000). If the host country’s political, economic, social, industrial, and other conditions are favorable, then a multinational corporation may decide to enter the country’s market with capital investments. Otherwise it may consider non-equity options of entry or exclude the country from consideration for doing business. In this model determinants of foreign market entry strategies are classified into three groups of factors: host country business environment, home country business environment, and company specific factors. Host country business environment includes host country political stability, macroeconomic conditions, resource potential, market size, internal economic relations consistent with the requirements of a market economy, external economic relations consistent with Western standards, cultural dimensions, five forces of industry, and relations with a company’s home country. Home country business environment involves such factors as market conditions, regulatory environment, and governmental encouragement and support of foreign economic expansion. Company specific factors are company resources, capabilities and core competencies. Favorable combination of these three groups of factors is a condition for successful foreign market entry and operations.
  16. 16. International Management 16 Host Country Environment and Entry Mode Choice Empirical research conducted previously took host country business environment as an essential factor influencing formulation of entry strategies (Root, 1994; Shama, 2000; Madhok, 1997; Taylor, Zou, & Osland, 2000; Pan & Tse, 2000; McCarthy & Puffer, 1997) and found significant relationships among environmental variables and company foreign market entry mode choice and performance. Propositions to examine relationships among these factors and foreign market entry mode choice decision are the following Proposition 1a: Host country stable political conditions will be positively related to all the modes of foreign market entry. Proposition 1b: Host country stable macroeconomic conditions will be positively related to any foreign market entry mode choice. Proposition 1c: High market potential of the host country will be positively related to any foreign market entry mode choice. Proposition 1d: High resource potential of the host country will be positively related to any foreign market entry mode choice. Host country internal economic relations are one of the major conditions affecting foreign market entry decisions. Governmental policies on foreign economic relations may encourage or discourage export and import operations and investments. Availability of a legal basis and possibility of enforcement of adopted laws and regulations on brands and property rights provide protection of advanced technologies and know-how of MNCs from fraud and illegal imitation (Filatotchev, Wright, Buck, & Dyomina, 1999). In strategy literature, sometimes, related constructs are hidden in a host country’s economic potential or simply in economic environment
  17. 17. International Management 17 construct. This study determines every possible factor in host country internal economic relations affecting foreign market entry decisions. Proposition 1e: Host country internal economic relations consistent with the requirements of market economy will be positively related to equity-based foreign market entry mode choice. Host country external economic relations are analyzed to determine impact of the country’s economic integration into world economy on foreign market entry mode choice. There is abundant research in economic theory and empirical studies on transition economies (Popov, 1998, 1999, 2000; Heybey & Murrell, 1999; Murrell, 1993), but strategy research often inconclusive when it concerns external economic relations of a host country in general. External economic policy liberalization is very important condition for market entry decisions. Proposition 1f: Consistent external economic policy liberalization will be positively related to any foreign market entry mode choice. Political relationships of the home country with the host country have very significant impact on foreign market entry strategies of business companies. Proposition 1g: The higher the intensity of economic and trade relations of the home country with the host country the higher the possibility of any foreign market entry mode choice. Proposition 1h: The higher the intensity of political and military relationships of the home country with the host country the higher the possibility of any foreign market entry mode choice. Negative assessment of any of the host country factors may affect entry mode. Having all the factors assessed positively companies are likely to decide to make capital investments in the country. Having some of the factor negatively assessed countries are likely to decide to choose
  18. 18. International Management 18 non-equity modes of entry or not to decide to enter. Assessment of candidate countries is done by ranking the countries on the basis of determining their ratings. Home Country Business Environment and Entry Mode Choice In this study home country environment is defined as external conditions to multinational corporations that affect their foreign market activities. Globalization of company activities has twofold consequences for the home country. First, a company’s foreign economic activities will increase gross national product of the country bringing additional benefit for the company and the country. Secondly, companies searching cheap resources around the world cut the future internal investments, which leads to decrease of creation of new jobs. Therefore, home country governments sometimes impose restrictions against global expansion of capital. The internal political, economic, legal, and technological environment makes it possible for American companies to internationalize their businesses. Recession usually puts majority companies in disadvantageous position due to decrease of demand in the market. To sustain their competitive advantage or market position many companies try to outsource work places to other countries. They seek low competition and entry barriers, and cheap labor. If the home country competitive environment makes MNCs withdraw some businesses from home country location and the host country environment attracts them, then it increases social problems (job losses) in the home country and decreasing rates of unemployment in the host country. Low home country restrictions imposed against foreign market expansion encourage companies making foreign direct investments. Proposition 2a: Low home country restrictions imposed against foreign market expansion will be positively related to equity based foreign market entry mode choice in all other things being equal.
  19. 19. International Management 19 Proposition 2b: Economic power of the home country will be positively related to internationalization of domestic companies. Proposition 2c: Home country government’s systematic negotiations with the host countries on such issues as trade and economic relations will be positively related to foreign market entry mode choice. Proposition 2d: Home country shortage of natural resources will be positively related to equity based foreign market entry mode choice of multinational corporations. Proposition 2e: Home country narrow market size will be positively related to internationalization of domestic companies. Proposition 2f: Home country high intensity of competition will be positively related to equity based foreign market entry mode choice of MNCs. Proposition 2g: Home country political instability makes it possible for MNCs go overseas to do business to prevent capital from possible losses. Proposition 2h: Home country macroeconomic instability makes MNCs go overseas to do business to prevent possible financial losses. Company Specific Factors Company resources, core competencies, and capabilities are the initial factors to consider possibilities of its internationalization. Company resources, product availability, and managerial commitment determine their decision to globalize their businesses. The decision to globalize is a function of these three major factors. Appropriate propositions can be developed based on these relationships. Phase III. Entry Mode Choice Based on analysis of the company external environment factors and its resources managers develop alternative foreign market entry strategies. Depending on the host and home country as well as company conditions they may chose equity- or non-equity based foreign market entry
  20. 20. International Management 20 strategies. Companies first develop alternatives for each of the country under consideration. Based on country ratings obtained during country analysis (host country environmental condition) they chose a target country. Alternatives are chosen using different techniques as they are developed. Phase IV. Foreign Market Entry Strategy and Actual Entry After a company has chosen the most attractive country to do business with, it conducts entry operations. This task is conditional upon procedures of registration, governmental loyalty, and company expenditures: transaction costs, operational costs for creation of new facilities, joint ventures, regional offices, and alliances. The actual entry must be cost efficient and strategically effective. Overall foreign market entry effectiveness depends to some extent on successful entry operations. Successful entry operations depend not only on favorable local context, but also proper entry operations, planning, and financing. Successful entry operations are function of the local context and a company’s entry arrangements: resources, organization, coordination, and commitment. Appropriate propositions and hypotheses examine effectiveness of relationships of successful entry operations measured by on time completion and cost effectiveness. Phase V. Foreign Market Operation Strategies and Implementation Strategy implementation in a foreign country is the next step in the Model. Companies use different business and corporate level, as well as specific international strategies there. Corporate and business level strategies usually match with their strategies in the home country. Companies with low cost leadership strategies usually use global strategy and with differentiation strategy multidomestic strategy. Depending on local market demand these companies may use
  21. 21. International Management 21 transnational strategy combining global and multidomestic strategies. Successful implementation of these strategies is function of created management systems: policies, processes, procedures, organizational structure, organizational culture, subsidiary and joint venture governance, human resource practices, and leadership styles. But the political, economic, and social context in other countries in some cases differs significantly. The context has significant impact on strategy implementation. All the patterns of strategy implementation must be adapted or modified to local business environment conditions. MNCs doing business in different cultural contexts must employ different or modified management systems to implement their strategies. Implementation is function of: 1) company mission, vision, and objectives; 2) host country and home country general and industry environment; 3) company core competencies and capabilities; 4) chosen foreign market entry mode; 5) actual entry operations’ effectiveness and performance; 6) employed management systems. Phase 6. Performance Assessment in Foreign Operations In this study performance as an integrative outcome involves two aspects: strategic and financial. Strategic outcomes are measured by the level of fulfillment of strategic goals, increase of market share, and achievement of competitive advantage over rivals. Financial results are measured by company profitability, above average returns on investment, and other essential ratios. Performance in foreign operations is function of the same factors as in implementation phase but one additional factor “strategies and their implementation in a foreign country” is added.
  22. 22. International Management 22 Phase 7. Feedback Loops Feedback is the last phase in globalization strategy process. Based on performance outcomes it is possible to make feedback to the all phases of the process. First feedback is made to performance appraisal phase. If performance appraisal contains errors, the appraisal activity must be revised. If not, then feedback is directed to the implementation stage for detecting and fixing errors and problems. If the implementations process was errorless, then problems will be searched in phase of execution of entry operations. If there is no error, then strategy mode choice is examined. If there are no problems to fix in this phase, then all the strategy alternatives are revised. A company might not pick the best entry mode. If the company picked the best strategy alternative among the available ones, then the error is searched in the phase of analysis of external environment, and company internal factors. Based on them company might formulate wrong strategic vision, mission, and objectives. The nature of the feedback is function of all the previous phases of the globalization strategy process. Feedback may be positive or negative depending on the quality of performance at each of the phases of the model. Discussion The strengths of the GSP Model are as follows. First, the GSP Model is a multi-phase model because it includes all the steps in strategy formulation and implementation starting with environmental scanning and ending with performance assessment. In the framework of this model based on a company’s vision and objectives: 1) external environment in a host country and home country is analyzed; 2) company mission, vision, and objectives are identified; 3) company resources and capabilities are determined; 4), strategic alternatives are worked out and chosen; 5), actual entry is performed; 6) the company’s strategy(ies) is (are) implemented; 7), the performance outcomes are estimated, and 8) feedback is communicated. The model not only
  23. 23. International Management 23 describes, but also explains relationships among factors existing in different phases of globalization strategy process. Explanatory power of the model is to identify as many as possible relationships for empirical testing and determining the significant constructs/variables having importance in strategic decision-making. Different statistical techniques must be used to test the model fully, starting from exploratory factor analysis ending with multiple regression analysis for predictions. The GSP Model goes far beyond the Product Life Cycle and Internationalization Process Models and significantly improves the existing foreign market entry decision models (Root, 1994; Meyer, 2000; Madhok, 1997; Shama, 2000). The theoretical outlay associated with foreign market entry strategy process and outcomes represent a new research framework that has not been developed and empirically tested within the strategy process research literature. How these constructs significantly support, or inhibit, one another represents a strong basis for empirical research hypotheses. Implications for Future Research The model was partially empirically tested in Mardanov’s (2003) dissertation involving archival and survey data about the Eastern European and Former Soviet Countries. The empirical testing of relationships of host country environmental factors with equity-based foreign market entry mode choice using archival data yielded very valuable predictions (country scores and ratings). The task of the future research must be the following. First, propositions for each of the phases of the model must be developed. Second, propositions must be converted into hypotheses. Third empirical testing (full and partial) of the model must be conducted. Forth, data from different sources must be used: archival data of host and home countries, international economic
  24. 24. International Management 24 institutions, company records and survey data from companies, customers, suppliers, host and home governmental agencies, as well as panels of experts. Fifth, the results of the research must be published, and communicated to host and home governments, international economic organizations, and interested business companies. It is clear that, for this kind of research, a longitudinal design is superior to capture trends in host and home countries, as well as in companies. Conducting systematic survey in the future is very important. It must be at least two years between surveys so that considerable changes can occur in host country environments and company performance outcomes. Research can be conducted in any emerging markets of Europe, Asia, Africa, and Latin America.
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