Project Proposal

Market entry mode Strategy of MNCs in Indian Retail Sector

Name of the Student:

Registration Number:

GRIFFITH COLLEGE DUBLIN

2019-2020
 SECTION 1

RESEARCH METHODOLOGY
INTRODUCTION ABOUT THE TOPIC

Entry mode research, that is, academic interest and publications on entry mode decisions, has
significantly increased since 1980 (Canabal and White, 2008). This research field assumes an
enormous importance considering that the multinational companies (MNCs) choice of entry
mode is a central factor that will influence its future performance (Rasheed, 2005). Nevertheless,
the very distinct theoretical approaches to the determinants of firms’ internationalization
processes are not, in general, directly and explicitly aimed at explaining MNCs’ entry modes.
Instead they are more focused on highlighting key determinants of Foreign Direct Investment
(FDI). By adapting the existing theoretical approaches to FDI and internationalization, we
provide a new systematization to frame existing contributions on the issue of the entry mode
choices of MNCs based on transaction cost analysis, a broader theoretical framework, Dunning’s
eclectic paradigm and the institutional approach.

Particularly through the location dimension of the eclectic paradigm, and above all, the
institutional approach, corruption emerged as a key variable associated to the entry mode choices
of Multinational companies (MNCs). Indeed, MNCs are increasingly influenced by institutional
instability, perceived risk and uncertainty in their process of investing in emerging economies
(Uhlenbruck et al., 2006). Extant literature suggests the existence of a negative correlation
between inflows of FDI and corruption (Uhlenbruck et al., 2006; Javorcik and Wei, 2009).

RESEARCH METHODOLOGY

To systematically solve the stated research problem, the following research methodology has
been employed by the researcher, which includes research design, sampling procedure, data
collection methods and tools and procedures for statistically validating the research findings to
arrive at pertinent and statistically validated conclusions and recommendations.

1
RESEARCH DESIGN:

The Research design used in this study was descriptive research design. It includes surveys and
fact-finding enquiries of different kinds. The main characteristic of this method is that the
researcher has no control over the variables; he can report only what has happened or what is
happening.

DATA COLLECTION METHOD:

The data collection method for the study the researcher should keep in the mind the two sources
of data.

 Primary data
 Secondary data.

PRIMARY DATA COLLECTION:

Source of primary data:

1. Experimentation

2. Observation

3. Questionnaire schedule

Primary data has been collected through structured questioner. The questionnaire consisted of a
variety of questions that lay consistent with the objective of the research.

⮚ Questionnaire

The questionnaire was prepared keeping in view the objectives of study. Different questions
were so arranged to analyse the strategy adopted by MNCs to enter the Indian Retail Market. The
questionnaire not only focused gathering information on the above-mentioned areas but also
about the service suggestions to be envisaged under support, update and engage.

Questionnaire contains four types of questions

2
1. Open Ended
2. Dichotomous
3. Fixed Alternative Question

STUDY CONDUCTED

The primary data was gathered through personal interaction. The information was gathered from
the structured questionnaire.

SECONDARY DATA:

Secondary data has been collected from the Company Website, Internet etc.

Simplex percentage analysis:

Percentage analysis is the method to represent raw streams of data as a percentage (a part
in100‐ percent) for better understanding of collected data.

Graphs:

Graphical representations are used to show the results in simple form. The graphs are prepared
on the basis of data that is received from the percentage analysis

Simple random sampling

Simple random sampling was used in selecting respondents from the sample frame. The
researcher used this technique to ensure that each members of the target population has an equal
and independent chance of being included in the sample of this study.

Sampling size

A sample size of 100 respondents was selected using simple random sampling.

Data presentation

Data was presented using tables, frequency table and percentages these presentations helped in
the interpretation to come up with interpretation basing on the table.

3
 SECTION 2

AIM AND OBJECTIVES OF THE STUDY

STATEMENT OF THE PROBLEM

FDI in retail sector needs to be implemented quite wisely in order to build the interest of MNCs
to invest in Indian Retail Market. India has a lot of scope for earning foreign exchange but it can
be achieved only if the policy makers formulate such strategies and plans that may prove
beneficial for the nation and its citizens. The policies need not be so liberal that international
players may start exploiting it. The hue and cry of both the politicians and the traders was not
wrong completely. The fears related to FDI were quite genuine. In this study, various aspects of
FDI in retail are considered from the economic point of view as well as the though process of
Indian consumers. The major questions that arise from FDI in retail and consumer behaviour
shall be considered in this study and relevant strategies shall be proposed further.

OBJECTIVES OF THE STUDY

 To assess the FDI policy in Indian retail sector.

 To assess the Strategies adopted by MNCs to entry the Indian Retail Sector.
 To analysis the impact of MNC’s in retail industry through SWOT analysis.
 To study the plan of action of MNC’s in order to gain consumer attention and trust
 To develop a conceptual understanding of retailing and e-tailing by the help of extensive
literature review
 To propose a consolidated list of factors that play a major role in influencing the
behavioral intention to purchase a particular product or service
 To offer suggestions based on the major findings.

4
BACKGROUND OF THE RESEARCH OBJECTIVE

International business consists of business transactions between parties from more than one
country. The parties involved in such transactions may include private individuals, individual
companies, and groups of companies and / or governmental agencies. It refers to all those
business activities, which involves cross border transactions of goods, services, resources
between two or more nations. The expansion of trade between countries and globalization which
is the growing integration of world’s economy increase in foreign trade lead to the economic
growth of nations and the world economy as a whole. Transactions of economic resources
include capital, skills, people for international production of physical goods and services such as
finance banking insurance, construction (Buckley, 2005).

Several theories have been used to facilitate the understanding of international business. Some of
them include: the product life cycle (PLC) theory proposed by Ray Vernon in the mid-1960s and
New Trade theory by Paul Krugman in the 1970s. These theories help to explain why some
countries tend to trade more with each other and not with other countries and also why some
countries are more dominant in international trade. Countries engage in international business
because no country is self-sufficient and hence they would need certain goods and services from
other countries. This leads to the countries engaging in exports and imports to cater for their
deficiencies and surpluses of their goods and services. This growth in trade has led to the need
for business companies to come up with organizations to manage their business activities.

Managers of companies that engage in international business devise strategies to engage

international markets in ways to boost the company’s profitability and sustain its growth. The
firm entering in foreign markets can adopt an international, multi-domestic, global, or
transnational strategy. The heart and soul of any strategy are the actions and moves in the
marketplace that managers are taking to improve the company’s financial performance,
strengthen its long term competitive position, and gain a competitive edge over rivals
(Thompson, Strickland 2008). Strategy formulation is concerned with developing a corporation’s
mission, objectives, strategies, and policies. It begins with situation analysis: the process of
finding a strategic fit between external opportunities and internal strengths while working around
external threats and internal weaknesses (Wheelen, 2008).

5
Today, everything has changed. Globalization, the internalization of markets and corporations
has changed the way modern corporations do business. Firms pursue internationalization
strategies for a variety of reasons and motivations which include; to seek opportunities for
growth through market diversification; to earn higher margins and profits; gain new ideas about
products, services and business methods; better serve key customers that have relocated abroad;
be closer to supply sources, benefit from global sourcing advantages, or gain flexibility in the
sourcing of products, gain access to lower- cost or better –value factors of production, develop
economies of scale in sourcing, production, marketing and research and development (Cavusgil,
2008).

LIMITATIONS OF THE SUDY

The findings are based on a very limited sample size. Thus, very certain conclusions
cannot be drawn from it as the observations reported in the present study are merely
indicative.
The study focuses on four market entry strategies. However, firms may use other
strategies to enter foreign markets, which have not been considered in this study. More
entry strategies could be considered.
The analysis provides a static picture of foreign market entry mode selection. How entry
mode choice changes over time is not considered.
The findings in this study are inferred from the outcome of the firm's entry mode
decision. More process oriented studies that investigate how managers make entry mode
decisions are needed to cross validate the findings in this study.
The study was conducted in limited span of time.

RESEARCH QUESTIONS

This research paper would answer the following entry mode strategies of MNC’s in retail sector
related questions:

6
 What strategy did companies follow to penetrate Indian retail market explicitly in terms
of the services the company offers, service segments, and geographical area?
 Why and what was the reason for choosing a strategy?
 How did you execute or implement the strategies? Was there any difference between the
intended strategy or attainment of goals and the reality?
 Where is the Indian retail industry moving towards or how does the company see the
future of the Indian retail industry?

7
 SECTION 3

REVIEW OF LITERATURE
An important aspect of international strategy formulation is determining which markets to enter.
To make this decision, affirm must consider many factors including market potential,
competition, legal and political environments, and socio-cultural influences. It must also
carefully assess the costs, benefits and risks associated with each prospective market. Once a
firm has decided to expand its international operations and has assessed the potential foreign
market, it must decide how to enter and compete most effectively in the selected foreign markets.
Choosing an entry mode involves careful assessment of firm-specific ownership advantages,
location advantages and internationalization advantages.

Root (1994) defines an entry mode as an institutional arrangement that a firm use to market its
product in a foreign market in the first three to five years which is generally the length of time it
takes a firm to completely enter a foreign market. Expanding into a foreign country is one of the
most critical business strategies made by a firm relative to the international market. Nowadays,
firms are internationalizing in more different ways than ever before by using combinations of
market entry strategies in accessing foreign markets, firms commonly face a particularly difficult
decision to plan when it is best to enter a foreign market. International firms may choose to enter
a certain foreign market through a variety of strategies. Some of the most common strategies
include exports, licenses, contracts and turnkey operations, franchises, joint ventures, wholly
owned subsidiaries and strategic alliances.

Exporting is normally the first involvement for many companies in international business. This
method requires little in the way of investment and is relatively free of risks. It is an excellent
means of getting a feel for international business without committing any great amount of human
or financial resources. When the company’s management decides to export, it must choose
between direct or indirect exporting. Indirect exporting is simpler than direct exporting because it
requires neither special expertise nor large cash outlays. Exporters or independent intermediaries

8
based in their home country will do the work. Management merely follows instructions. Among
the intermediaries available are; manufacturers’ exports agents who sell for the manufacturer;
export commission agents who buy for their overseas customers; export merchants, who
purchase and sell for their own account; and international firms which use the goods overseas.
Indirect exporters however pay a price for such service: (1) they will pay a commission to the
first three kinds of exporters; (2) foreign business can be lost if exporters decide to change their
sources of supply; and (3) firms gain little experience from these transactions. This is why
management that begins in this manner generally change to direct exporting. Active exporting
takes place when the company makes a commitment to expand into a particular market (Hill,
2003). A company can carry on direct exporting in several ways: Domestic –based department or
division: Might evolve into a self-contained export department operating as a profit center.
Overseas sales branches or subsidiary: The sales branch handles sales and distribution and might
handle warehousing and promotion as well. It often serves as a display and customer service
center. Travelling export sales representatives: Home based sales representatives are sent abroad
to solicit for business. Foreign based distributors or agents: These distributors and agents might
be given exclusive rights to represent the company in that country or limited rights only (Meyer
and Tran, 2006).

Licensing is used where one firm (the licensor) will grant to another firm (the licensee) the right
to use any kind of expertise such as manufacturing processes (patented or unpatented), marketing
procedures, copyrights and trademarks for one or more of the licensor’s products. The licensee
generally pays a fixed sum when signing the licensing agreement and then pays royalty
depending on the amount of assistance given and the bargaining power of the two parties. The
licensing contract typically runs from 5 to 7 years and is renewable at the option of the parties.
While the licensor usually must provide technical information and assistance to the licensee,
once the relationship is established and the licensee fully understands its role, the licensor has
little or no additional role. The licensor typically plays an advisory role, but has no direct
involvement in the market and provides no ongoing managerial guidance. Most firms enter into
exclusive agreements, implying that the licensee is not permitted to share the licensed asset with
any other company within a prescribed territory. In addition to operating in its domestic market,
the licensee may also be permitted to export to third countries. (Cavusgil, 2008) Contracts are
used frequently by firms that provide specialized services, such as management, technical

9
knowledge, engineering, information technology, education and so on, in a foreign location for a
specified period of time period and fee. Turnkey contracts are a specific kind of contract where a
firm constructs a facility, starts operations, trains local personnel, and then transfers the facility
to the foreign owner. These contracts are usually for very large infrastructure projects, such as
dams, railways, and airports and involve substantial financing; thus they are financed by
international financial institutions such as the World Bank (Buckler, 2005). The arrangement
involves construction, installation, and training, and may include follow-up contractual services,
such as testing and operational support.

Build-operate-transfer (BOT) is an arrangement in which the firm or a consortium of firms

contracts to build a major facility abroad, operate it for a specified period and then hand it over
to the project sponsor, typically the host country government or public utility. Governments
often grant BOT concessions to get needed infrastructure built cost-effectively. Typical projects
include sewage treatment plants, highways, airports, bridges, tunnels and telecommunication
networks. Management contract on the other hand, is an arrangement in which a contractor
supplies managerial know-how to operate hotel, resort, hospital, airport, or other facility in
exchange for compensation. The contractor provides its unique expertise in running a facility
without actually owning it (Cavusgil, 2008). Franchising on the other hand is a means by which a
company can market its goods and services by granting the franchisee the legal rights to use their
business format Doole & Lowe (2001). Franchising permits the franchisee to sell products or
services under a highly publicized brand name and a well proven set of procedures with a
carefully developed and controlled marketing strategy. Franchising is more comprehensive than
licensing because the franchisor prescribes virtually all of the business activities of the
franchisee. The franchisor tightly controls the business system to ensure consistent standards.
Firms prefer franchising when they lack capital or international experience to get abroad through
foreign direct investment, or when offering the product abroad through independent distributors
or traditional licensing is ineffective as an internationalization strategy. Franchising emphasizes
standardized products and marketing. A major challenge for the franchisor is to become familiar
with foreign laws and regulations. From the perspective of the franchisee, franchising is
especially beneficial to the SME. Most firms lack substantial resources or strong managerial
skills. The big advantage of franchising to the franchisee is the ability to launch a business using
a tested business model. It greatly increases the small firm’s chances for success by duplicating a

10
tried –and-true business format. McDonald’s, Subway, Hertz and FedEx are well established
international franchisors (Cavusgil, 2008).

Joint venture is a management arrangement that involves the partnership of a foreign company
and a local company based on the sharing of capital, technological resources and other benefits.
According to Buchel et al., (1998) the reasons to form a joint venture include: to spread the cost
and risk of going global, safeguarding resources which cannot be obtained via the market,
improving access to financial resources, benefits of economies of scale and advantage of size,
access to new technology and managerial practices. The extent of control of the foreign and local
firms in the joint venture depends upon the agreement and the legal limitations (Meyer and Tran,
2006). Limitations of being in a joint venture include: Partners do not have full control of
management, it may be impossible to recover capital if need be, disagreement on third party
markets to serve and, partners may have different views on expected benefits (Keegan &
Schlegelmilch, 2001). Strategic alliance is a business relationship established by two or more
companies to cooperate out of the need to share risk in achieving a common objective (Cateora&
Graham, 2002). Their aim is to achieve faster market entry and start up; to gain access to new
products, technologies, and markets; and to share costs, resources and risks. Wholly owned
subsidiaries involve the establishment of businesses in foreign locations which are owned
entirely by the investing firm. It involves the greatest commitment in capital and managerial
effort. Where control is important and the firm is capable of the investment, it is often the
preferred choice.

Foreign Direct Investment (FDI) is the establishment of production facilities in overseas

countries and therefore represents a more direct involvement in the local economy, Worthinton
& Britton, (2006). FDI is a high-control strategy for entering foreign markets. The firm invests
equity or capital in foreign countries for the purposes of building or acquiring manufacturing
plants, subsidiaries, sales offices, or other needed facilities. Ownership abroad facilities, enables
the firm to maintain a physical presence and secure direct access to customers and partners.
Local presence is especially critical when significant value-chain activities must be performed in
the market. Large firms such as Sony, Nestle, Nokia, Motorola and Toyota have extensive FDI-
based operations around the world (Cavusgil, 2008).

11
 SECTION 4

CRITICAL ANALYSIS OF A TEXT

Root (1994) defines an entry mode as an institutional arrangement that a firm use to market its
product in a foreign market in the first three to five years which is generally the length of time it
takes a firm to completely enter a foreign market. Expanding into a foreign country is one of the
most critical business strategies made by a firm relative to the international market. Nowadays,
firms are internationalizing in more different ways than ever before by using combinations of
market entry strategies in accessing foreign markets, firms commonly face a particularly difficult
decision to plan when it is best to enter a foreign market. International firms may choose to enter
a certain foreign market through a variety of strategies. Some of the most common strategies
include exports, licenses, contracts and turnkey operations, franchises, joint ventures, wholly
owned subsidiaries and strategic alliances.

Exporting is normally the first involvement for many companies in international business. This
method requires little in the way of investment and is relatively free of risks. It is an excellent
means of getting a feel for international business without committing any great amount of human
or financial resources. When the company’s management decides to export, it must choose
between direct or indirect exporting. Indirect exporting is simpler than direct exporting because it
requires neither special expertise nor large cash outlays. Exporters or independent intermediaries
based in their home country will do the work. Management merely follows instructions. Among
the intermediaries available are; manufacturers’ exports agents who sell for the manufacturer;
export commission agents who buy for their overseas customers; export merchants, who
purchase and sell for their own account; and international firms which use the goods overseas.
Indirect exporters however pay a price for such service: (1) they will pay a commission to the
first three kinds of exporters; (2) foreign business can be lost if exporters decide to change their

12
sources of supply; and (3) firms gain little experience from these transactions. This is why
management that begins in this manner generally change to direct exporting. Active exporting
takes place when the company makes a commitment to expand into a particular market (Hill,
2003). A company can carry on direct exporting in several ways: Domestic –based department or
division: Might evolve into a self-contained export department operating as a profit center.
Overseas sales branches or subsidiary: The sales branch handles sales and distribution and might
handle warehousing and promotion as well. It often serves as a display and customer service
center. Travelling export sales representatives: Home based sales representatives are sent abroad
to solicit for business. Foreign based distributors or agents: These distributors and agents might
be given exclusive rights to represent the company in that country or limited rights only (Meyer
and Tran, 2006).

1. My research question of this text is “What strategy did MNC’s follow to penetrate Indian
retail market?”
2. It is a Research Study
3. This research has been undertaken for
a) knowledge for critical evaluation.
b) The study I have undertaken will take the past study further and look deep into
different marketing entry mode strategies adopted by MNC’s in Indian Retail Market.
4. With the help of this study the author has come up with finding that companies can adapt
their business model to countries while keeping their core value propositions constant,
they can try to change the contexts, or they can stay out of countries where adapting
strategies may be uneconomical or impractical.
5. They applied the factors to emerging markets in four countries, i.e. Brazil, Russia, India
and China, the differences among them became apparent.
6. In my opinion companies should thoroughly review the laws favoring the industry and
formulate the strategies accordingly.

13
 SECTION 5

BIBLIOGRAPHY
1. Arora A. & Fosfuri A. (2000), "Wholly Owned Subsidiary versus Technology Licensing
in the Worldwide Chemical Industry", Journal of International Business Studies, pp. 555-
572.
2. Bamford 7, Ernst D. and Fubini D.G.February (2004), "Launching a World Class Joint
Venture", Harvard Business Review, pp.91-100.
3. Brouthers K.D. (2002), "Institutional, Cultural and Transaction Cost Influences on Entry
Mode choice and Performance", Journal of International Business Studies, Vol. 33, pp
203-221.
4. Cheng Y.M. (2008), "Asset Specificity, Experience, Capability, Host government
Intervention, and Ownership based Entry Mode strategy for SMEs in International
Markets", International Journal of Commerce and Management, Vol.18, pp. 207-233.
5. Davis P.S., Desai A.B., and Francis J.D. (2000), "Mode of International Entry: An
Isomorphism Perspective", Journal of International Business Studies, pp. 239-258.
6. Doherthy A.M. (2007), "The Internationalization of Retailmg", International Journal of
Service Industry Management, Vol. 18, pp. 184-205.
7. W.Douglas S.P and Craig C.S. (June 1995), "Market Entry Strategies: An Emerging
Market Perspective", Foreign Trade Review, pp.115-127.
8. Ekeledo I. & Sivakumar K. (2004), "International Market Entry Mode Strategies of
Manufacturing Firms and Service Firms: A Resource based Perspective", International
Marketing Review, Vol.21, pp. 68-101.

14
9. ErramilK M.K., Aganval S., &Dev C.S. (2002), "Choice between Non-Equity Entry
Modes: An Organizational Capability Perspective", Journal of International Business
Studies, Vol.33, pp. 223-242.
10. Forlani D., Parthasarthy M. and Keavenej S.M. (2008), "Managerial Risk Perceptions of
International Entry Mode Strategies", International Marketing Review, Vol 25, pp. 292-
311.
11. Kay a H. and Erden D. (2008), "Firm Specific Capabilities and Foreign Direct Investment
Activities of Turkish Manufacturing Firms", Journal of Management Development,
Vol.27, pp. 761-777.
12. Khanna T., Palepu K.G. and Sinha J. (2005), "Strategies That Fit Emerging Markets",
Harvard Business Review, pp.63-76.
13. MC Nareghton R.B. (2001), "The Export Mode Decision Making Process in Small
Knowledge Intensive Firms", Marketing Intelligence and Planning, Vol.19, pp. 12-20.
14. Mellahi K., Guermat C, Frynas G. and Al Bortamani H. (2003), "Motives for Foreign
direct Investment in Gulf Cooperation countries: The Case of Oman", Journal of
International Economics, Vol.33, pp. 57-76.
15. Nargundkar R.(2008), Marketing Research: Text and Cases, 3"* edition, Tata McGraw-
Hill, New Delhi.
16. Osland G.E., Taylor C.R. & Zou S. (2001), "Selecting International Modes of Entry and
Expansion", Marketing Intelligence and Planning, pp.153-161.
17. Pan K (2002), "Equity Ownership in International Joint Ventures: The Impact of Source
Country Factors", Journal of Inteniational Business Studies, Vol. 33, pp. 375-384.
18. Sun H. (1999), "Entry Modes of Multinational Corporations into China's Market: A
Socioeconomic Analysis", International Journal of Social Economics, pp.642-659.
19. Tahir R. and Larimo J. (2004), "Understanding the Ownership Structure choices of
Finnish firms in Asian countries", European Business Review, Vol.16, pp. 494-510.
20. Wltitelock J. and Jobber D. (2004), "An Evaluation of External Factors in the decision of
UK Industrial Firms to enter a New Non Domestic Market: An Exploratory Study",
European Journal of Marketing, Vol.38, pp. 1437-1455.
21. Wood V.R. and Robertson K.R. (2000), "Evaluating International Markets", International
Marketing Review, pp. 34-55.

15
22. Zhang K, Zhang Z. and Liu Z. (2007), "Choice of Entry Modes in Sequential FDI in an
Emerging Economy", Management Decision, Vol. 45, pp.749-772.

16