MODE OF ENTRY OF MULTINATIONAL CORPORATIONS AND THEIR PERFORMANCE IN NIGERIA

MODE OF ENTRY OF MULTINATIONAL CORPORATIONS AND THEIR PERFORMANCE IN NIGERIA

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ABSTRACT

This study investigates the mode of entry of multinational corporation and their performance in Nigerian market. Research on the entry mode of multinational companies (MNCs) to Nigerian market has been one of the major topics in the international business, and the performance factor has been regarded as one of the major factors to explain the entry mode selection of MNCs. Based on the developing nature of the Nigerian market, MNCs can enter a market with Franchising, Licensing agreement, Exporting, joint venture or a wholly owned subsidiary, and Turnkey. This study test reasons for entering in the Nigerian market, modes of entering, challenges faced by multinational during entry and finally the impact of mode of entry of MNCs and their performance in the Nigerian market. The research adopted the survey method, with the use of the Questionnaire.

The results from the analysis on the first hypothesis show that a MNCs come into the Nigerian market for different reasons with different modes peculiar to their organization. The second hypothesis indicated that there are various challenges MNCs faced when entry into Nigerian market.

And the third hypothesis was supported indicating significant influence of mode of entry on the performance of MNCs in Nigerian markets.


CHAPTER ONE

INTRODUCTION

1.1      Background of theStudy

The saturation of affluent companies in developed markets has greatly reduced their profit margins. This has led to the need for multinational companies to expand their operations beyond geographical borders and increase interest in emerging markets. The movement to emerging economies appears reasonable, as the sum of emerging populations, are estimated on to be average 80% of the population worldwide, which brings more opportunities to the multinationals in increasing their wealth.

Multinationals have solely been competing for the top tier of the market pyramid which is small and has been shrinking. Challenges faced by multinationals in entering emerging markets include: rise in corporate interest in these emerging markets, frequent unavailability of convertible currency resulting in barter and counter trade hence placing a burden on international managers to market products received in return to other consumers; Lack of protection some of the countries afford to intellectual property rights resulting in illegal copying, Lack of good quality products as many producers place emphasis on product performance neglecting style and product presentation.

In the recent years, the world business environment has changed dramatically through the globalization of economies and liberalization of markets, resulting in a new, furious business setting for firms (Ishimwe, 2013; Kagabo, 2012; Mutio, 2013). Advancement in political and economic changes, technological revolution and advancement in communications, transportation and information technology has resulted in the removal of trade barriers that have shaped the world as a globalvillage(Ambetsa, 2009; Ndwiga, 2012). Globalization is the result of the behavior and expansion strategy of multinational corporations (MNCs) (Syvrud, 2013).

1.1.1                    Concept of theStudy

In the recent years, the world business environment has changed dramatically through the globalization of economies and liberalization of markets, resulting in a new, furious business setting for firms. Political and economic changes since the late 1980s along with the technological revolution and advancement in communications, transportation and information technology has resulted in the removal of trade barriers that have shaped the world as a global village for business. It has been argued that globalization is the result of the behavior and expansion strategy of multinational corporations (MNCs).

The importance of the foreign market entry strategy decision has been well documented. The entry mode chosen has a major impact on the level of control the Multinational enterprise has over the venture Some entry modes, such as exporting and licensing, are associated with low levels of control over operations and marketing, but are also associated with lower levels of risk. In contrast, other entry modes such as joint ventures and full ownership of facilities involve more control, but entail additional risk. Since reversing an inappropriate entry strategy choice can be difficult, it is important that well thought out decisions be made.

1.1.2                    International Business and MultinationalCorporations

International business is any commercial transaction that crosses the borders of two countries (Obatu, 2012). It comprises a large and growing portion of the world’s total business. International business is any commercial transaction that crosses the border of two or more countries (Ngendo, 2012). International business comprises a largeand growing portion of the world’s total business. Today, global events and competition affects almost all companies, large and small, regardless of industry. This is the result of selling output to and security supplies and resources from foreign countries, as well as competing against products and services from abroad (Ssebugwawo, 2010). Thus most manager need to approach their operating strategies from international stand point, companies operating internationally have more diverse and complex operating environments than those that conduct business at home. International business has been going through the most fundamental and far reaching process of change of the post war period (Kutkut, 2013).

The implication of this change pose a significant challenge both to the industry and the government throughout the world and promise to alter not only the nature and structure of competition but also the balance of economic power (Magunga, 2010). Increase in globalization has also contributed to companies re-examining the manner in which they do business internationally forcing companies to adopt global strategies for survival (Mugeni, 2013). Thus, there is a rapid growth of strategic alliance between firms in various parts of the world in a desperate attempt to gain the economies of scale in production, distribution and marketing. At the center of the international business are the multinationalcorporations

There is no formal definition of a multinational corporation, although various definitions have been proposed using different criteria (Ishimwe, 2013; Kagabo, 2012; Magunga, 2010; Mutio, 2013). Among these notions and definitions, include examination of different metrics. Multinational firm is one that is structured so that business is conducted or ownership is held across a number of countries, or one that is organized into global product divisions (Avulyte, 2014). The specific ratio of foreignbusiness activities or assets to total firm activities or assets is another criteria used in the definition of the multinational corporations (Cheptegei, 2012). In this context, a multinational firm is one in which a certain percentage of the earnings, assets, sales, or personnel of a firm come from or are deployed in foreign locations (Mutambah, 2012).

Another definition is based on the perspective of the corporation in relations to the scope of its activities. This definition holds that if the management of a corporation has the perception and the attitude that the parameters of its sphere of operations and markets are multinational, then the firm is indeed a multinational corporation (Mwende, 2013). The definition of the multinational has also been examined in context of company resources. In this context, a multinational corporation means an enterprise that allocates company resources without regard to national frontiers, but is nationally based in terms of ownership and top management (Cherop, 2011). In essence, they are international corporations with production locations in more than one country. The distribution of ownership, global products, and mixed nationalities of management are other determining characteristics (Wagitu,2011).

1.1.3                    Foreign Market Entry Strategies

There is need for foreign business to determine the mode of foreign entry that best suit its objectives and strategic fit in the foreign business environment(Ngendo, 2012; Njui, 2013; Nyaga, 2014; Nyakango, 2013). The entry mode chosen has a major impact on the level of control the Multinational enterprise has over the venture (Varmah, 2012). Huge amounts of funds are involved in international business and the choice of a particular entry mode is very significant on the business across borders. It can also be defined as the process by which firms both increase their awareness ofthe

direct and indirect influences of international transactions on their future, and establish and conduct transactions with other countries (Wanjiru, 2013). The current interest by business firms in international markets can be attributed in part to shifts in demand and supply characteristics in markets throughout the world as well as the ever-changing competitive environment (Mumelo, 2012). The process of finding new markets therefore has prompted an increasing number of firms to develop strategies to enter and expand into markets outside their home countries (Folea, Nurul, & Ajayi, 2008). Selection of foreign markets and entry modes therefore lies at the heart of any business or any organization that aspires to operate internationally (Njui,2013).

Firms may pursue internationalization due to a variety of reasons. Some of the motives may be proactive while others could be reactive (Mokeira, 2013; Muchiri, 2012; Mugeni, 2013). A good example of a reactive motive is the need to serve a key customer who has expanded abroad (Munyao, 2013). On the other hand proactive motive would be to tap foreign market opportunities or acquire new knowledge. Most firms enter regional markets sequentially beginning in markets with which they are more familiar. They also introduce their largest and strongest lines of business into these markets first, followed by their other lines of business once the first lines are successful l(Wagitu, 2011). They also usually invest in the same area as their original location.

1.2     ResearchProblem

In the modern times, the business environment is dynamic, complex and in continual change. The choice of foreign market entry mode greatly influences the entrant’s future decisions and performance in foreign markets (Gathirua, 2013). They firms alsoneeddeviseentrystrategiesthatwillprepositionthemtotakeadvantageoftheopportunities in the economy in a manner that is sustainable (Lepa, 2012). For an international firm to enter to the foreign market is a function of various parameters some of which are firm specific others are influenced by the foreign business environment, while others are influenced by the very context in which the decision is being made (Ngendo, 2012). Entry mode are very challenging to international business managers, wrong decision on entry mode choice can be very costly to the organizations in terms of time and resources (Ndwiga, 2012). Research shows that a firm’s foreign market entry strategy is directly related to the firm’s performance. An appropriate strategy can be an important source of competitive advantage in a new market and on the other hand can be competitive liability leading to a competitive disadvantage (Mutio, 2013; Ndwiga, 2012). Most multinational corporations would prefer to remain domestic but several factors push them into entering foreign markets. Some of these factors are; higher profit opportunities in international market, need for a large customer base to achieve economies of scale, reduce dependency on any one market, counter attacking global competitors in their home markets and Global customers who need international service (Cheptegei, 2012; Kagethe, 2012; Kavata, 2013; Kiandiko,2010).

Organizations require massive resources of time, energy and personnel on the national level. Adding an international component greatly intensifies the amounts of resources needed; this commitment is staggering and is generally avoided by many domestic businesses (Avulyte, 2014). Organizations must consider many factors before going international; among other things, it must evaluate its personnel, assets, international experience and the suitability of its products. These factors should be reviewed in terms of the overall short-term and long-term strategic goals and objectives of the firm (Ishimwe, 2013). Organizations have to review all these factors in order tousethe appropriate entry strategy to enter a foreign market(Kiandiko, 2010). Nigeria is the largest economy in Eastern Africa and among the biggest in Africa, and this study wishes to explore the different market entry strategies adopted by the multinational corporations and the challenges associated by those strategies.

1.3     ResearchQuestion

The following research questions will guide the study

i. What foreign market entry strategies do multinational corporations adopt to  enter Nigeria market? This will give the best market entry strategy that leads to the success of thebusiness.

1.4     ResearchObjectives

The general objective of the study is to examine the market entry strategies used by multinational corporations’ entry into Nigeria.

1.5     Significance of theStudy

This study is valuable to different stakeholders. The study will contribute to the existing literature on the strategies that multinational corporations use to enter the Nigerian market. The study will further shed knowledge on the reasons multinational corporations leave their national markets and enter foreign markets. In this context, the study will be useful to firms considering entering Nigerian market. The study will help them have a better understanding and appreciation of the prospects of development strategies, and the formulation and implementation of ideal competitive strategies to distinguish a company from theothers.

The government agencies whose interested lies in upgrading the country’s economy by increasing the revenues earned through global trading and creation of investor confidence can use the finding and recommendations of this study to act on the challenges facing firms intending to enter at the foreign market. The findings of this study would also be valuable to Government of Nigeria policy makers. This is in regards to firms seeking entry into Nigerian market. Through the findings of this study, the policy makers would gain knowledge on how to draft policies to govern foreign firms’ admission intoNigeria.

The research study will enable practitioners and academicians in both public and private to have a wider knowledge on the concept of foreign entry strategies. The study will also contribute to the existing body of knowledge in the area of international business in carrying out of similar studies as a point reference for related research topics. In this context, through the findings of this study, future researchers and academicians would be able to find source of literature to guide their future research works besides providing areas for further research that they can research on. This would help suggest topics that future researchers can research on to further the existing knowledge on market entrystrategies.

1.6 Limitation of the Study 

The time frame for this study has made it impossible for the researcher to sample a larger population because it has to be conducted and submitted within a stipulated time. This is the reason why the study was limited to information on a few multinational corporations in Nigeria.

1.7      Organization of the Study

The study comprises of five chapters. Chapter one consists of the background to the study, statement of the problem, purpose of the study, objectives, research questions, significance, limitation of the study, delimitation of the study, basic assumptions, definitions of key terms and organization of the   study.   Chapter two   comprises of literature review theoretical and conceptual frameworks. Chapter three deals with research methodology, covering   research sampling, procedures, research instruments and their validity and reliability, procedures for data collection and data analysis. Chapter four comprises of findings and discussions which were generated by the study. Chapter five presents summary, conclusions and recommendations.


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