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Why Some Successful Multinationals Fail in Some Foreign Emerging Markets.

Nyamweya is a Kenyan scholar who has done many years of research on a diversity of topics

1.0 Introduction to the general topic

Since the global financial crisis experienced in 2008-2009, the global business environment has continued to dramatically change. Nonetheless, there is a fundamental reality that needs to be accounted for; despite the different economic opportunities and volatility, global companies are finding it necessary to pursue emerging markets as a means of business expansion. Although the pace for foreign market entry is not the same as former years, the average GDP for developing markets is presumed to grow by 2% faster compared to that of developed economies in the coming future. The emerging markets accounts for approximately 40% of consumer expenditure, translating to over $20 trillion (Lang et al, 2018). As such, multinational companies are finding it necessary to venture abroad as a way of tapping the market potential and maintaining their competitive edge. However, as many corporations have learnt over the years, succeeding in foreign emerging markets is not straightforward. It may not be easy to navigate the bureaucracies, the business environment could be complicated, and there could be poor infrastructure. While some MNCs manage to sail through, many others fail and opt to withdraw (Zhao, Park and Zhou, 2014). This is an interesting subject that requires to be investigated.

According to Hofstede (2010), the success of a multinational in a foreign market is mostly determined by two factors: external and internal. Internal factors are those which are within the corporation and mostly discussed within the realms of business management, administration and finance. Furthermore, internal factors comprise of such elements as corporate strategies, organizational structure design, and cost control. On the other hand, external factors are those elements which are outside the business control and include market entry, statism and culture.

Slater and Bennis proposed three main features that describe corporate success. These are wide user acceptance, strong competency in conflict management and high level employee satisfaction (Lai, 2012). On the same note, Kay (1993) explains corporate success to a situation where a business experiences a positive relationship with its stakeholders including customers, employees, suppliers and successful location of leadership and products or services. In this study, the abstract concept of corporate failure or success is measured in three specific ways. The first one is if the company is able to establish a presence in that specific foreign company. If a business is not able to create a strong business presence but instead continues to lose acquisitions or bids, then it is evident that it has failed. A good example is China’s Huawei, which despite its huge success in the local market failed to succeed in China. Interestingly, its counterpart, Samsung, which is also a Chinese based entity, has continued to do quite fine in the same (China) market. Similarly, social media giants, Facebook and Twitter are unavailable in China. In these contexts, such MNCS are considered failures in those foreign markets. . In this dissertation, the dependent variable will be the success or failure of MNC in a foreign market while the independent variables comprise of the identified external and internal factors.

1.2 Problem Statement and Justification

Many researchers have recognized multinational corporations (MNCs) as playing a significant role in international politics. However, reports of multinational companies failing in some foreign companies are rife. Good examples being the giant Walmart in German market, Huawei in the American market, DIY giant Home in the China market, Target in the Canada market among others. Through the use of secondary data, the aim of this study is to explain why companies are able to succeed in specific countries and less successful or total failures in other nations (Judge, and Shaomin, 2012). Findings will be beneficial to corporations and multination in identifying potential barriers to success in foreign markets, the best strategies to deploy and how to leverage on the barriers. Furthermore, this outcome of this research will also help in filling the research gap on the success or failure factors for MNCs in foreign companies. Therefore, a part from contributing to research, the findings will as well trigger interest from scholars and academicians to delve into the subject more or widen the research angle.

1.3 Aim and Objective of the Study

The main aim of this study is to explore the factors that contribute to failure of successful MNCs in emerging markets. Towards this end, this research seeks to address the following objectives:

  1. To establish the internal factors contributing to MNCs failure in emerging markets
  2. To find out which external factors contribute to failure of MNCs in emerging markets
  3. To establish how MNCs can leverage the internal and external barriers for their success.


2.0 Literature Review 2.1 Introduction

This section reviews past studies on the subject under investigation and basically in line with the stated objectives. The sources for the review are obtained from academic data bases including Emerald, Academic Search Premier, Proquest, Ebscohorst, Google, Google Scholar and University Libraries. The review is intended to provide a background of the research and help in determination of the research gap.

2.2 Factors contributing to MNCs failure in emerging markets

Henisz and Zelner (2020) explains that when a corporation with a managerial capability or value generating technological capability invests in a foreign market, the host country and the company’s shareholders stand to benefit. However, the author observes that irrespective of whether there is a fit between what the host company offers and what is needed by the host country, success is not always automatic. Factors such as economic crises, political factors/events and changing environmental and societal perceptions have a potential of disrupting even the best laid plans in both advanced and emerging economies. The interplay of such forces alongside the implication for political decisions that MNCs have to make become conspicuous as governments implements measures aimed at stabilizing their economies. The global financial crises have necessitated a change in financial regulations, taxations, international M & A, as well as many other business policies. Some of these aspects are unfavorable to foreign business entrants and as such, MNCs which are to anticipate and manage the associated opportunities and risks definitely have a competitive edge over their rivals.

A research by Neuland and Hough (2010), unearthed a number of reasons why some multilateral companies fail in emerging markets. Among the significant challenges noted by this author is the business environment represented by some of these markets. Typically, the researcher noted factors such as utility shortages, poor infrastructure, unsympathetic authorities, and ill equipped talent pool as some of the reasons why some companies could not succeed in some markets. Furthermore, the researchers went on to note that the political environment including but not limited to corruption, unfriendly business policies were a great impediment to growth of foreign business ventures. Besides, lack of efficient physical infrastructure on many of the emerging markets is also considered to be a legendary obstacle for both local and foreign investors.

Seale (2020) identifies and review a number of MNCs that failed to succeed in some foreign countries. The author cites Target’s recent withdraw from the Canadian market as being attributed to poor market strategy and approach, poor timing and culture shock. Interestingly, this is despite the fact that the company had achieved a record success at home. Similarly, the United States based DIY giant Home had to shut its doors in China after just six years presence. The closure was attributed to high taxation, unfriendly business environment, and cultural differences. What is more, Walmart, another American retail giant is said to have failed to consider cultural factors and business regulatory environment while venturing into the German market. In particular, the company found the local market in German hard to crack owing to restricted business hours, intricate labor laws, complicated regulatory red tape, and unique business practices that did not align with the local customer tastes. This company was forced to pull out of German, at a cost of more than 1 billion U.S dollars.

2.3 Summary

From this review, it is evident that there is no guarantee for a company, whether or not it is successful at home to register success at a foreign country. Arguably, there are factors that could lead to failure including but not limited to unfriendly business regulations, harsh political climate, high taxation, cultural differences, the business environment including infrastructure and or different customer tastes. In this regard, businesses need to take into account carefully designed strategies that take into account those aspects while seeking foreign market entry in a particular market. In addition, they also need to craft an effective exit strategy to avoid a huge loss in case the strategies fail to work.


3.0 Research Method(s) 3.1 Data Collection

The current study seeks to explore the factors that contribute to failure of some multinational companies in foreign markets. The research will be secondary in nature in the sense that data will be obtained from the already completed study findings and literature on this subject. The sources include peer reviewed search articles, organizational websites, case studies, and government websites. Peer reviewed articles will be retrieved from academic databases including Academic Search Premier, Emerald, Proquest, and Ebscohorst. However, information from specific companies that have failed in some particular foreign market for one reason or another will be obtained from the specific websites of these companies, or case studies about the specific organizations. The main search term to be employed includes “factors contributing to failure of MNCs in foreign markets”. Inclusion criteria include articles published within the last five years that is from 2015- to 2020. In addition, the articles must contain relevant information pertaining the subject of the study.

3.2 Analysis and Evaluation of Data

In analyzing the secondary data, the steps will entail identification of biases and noting the overall impression created by the researchers. The next step will entail coding the information obtained into themes created by the research objectives. I will also go on to search for inter-connections and patterns from the findings so obtained. The subsequent section will be to map and build themes and finally drawing conclusions.

3 Analysis of Texts and Documents

In analyzing the texts and documents, the factors that will be considered include the publishing body, the year published, the author behind the article, and the content. In other words, the article must be either from an organizational websites or government sources. The criteria used in analyzing articles will also be applied in this case.

4.0Timeline 4. Proposed Research Timeline

Month

Dissertation Activity (parts)

April

Introduction and literature search

May

Literature search cont. and literature review

June

Designing the Methodology Part

July

Preparing for data collection

August

Conducting Data analysis

September

Presenting the Results, discussion

October

Making conclusions and recommendations

November

Compiling and proofreading the dissertation


Reference List Henisz., W., and Zelner, B. (2020). The Hidden Risks in Emerging Markets. Havard Business Review: Havard Publishing House .

Hofstede, G.( 2010) Cultures and Organizations: Software o f the Mind. New York: McGraw-Hill.

Judge, W., and Shaomin, L. (2012) ‘Organization Design for Foreign Subsidiaries of Multinational Enterprises: A Contingency Perspective’, International Journal o f Business and Management 7, (3),

Kay, J (1993). Foundations o f Corporate Success: How Business Strategies Add Value. Oxford: Oxford University Press.

Lai, K. (2012) ‘Differentiated Markets: Shanghai, Beijing and Hong Kong in China's Financial Centre Network’, Urban Studies 49,(6).

Lang, N., Khana, D., Bhattacharya, A., Chraïti, A. (2018). Why MNCs Are Winning Big in Emerging Markets. Available at: https://www.bcg.com/publications/2018/mncs-still-winning-big-emerging-markets.aspx (accessed on 17th, May, 2020).

Neuland, E., and Houg, J. (2010). KEY SUCCESS FACTORS FOR BUSINESS OPERATIONS IN EMERGING MARKETS: QUALITATIVE RESULTS FROM SUBSAHARAN AFRICA. Corporate Ownership & Control / 8, (1), p.4

Seale, A . (2020). Seven Epic Cases of Companies That Failed Internationally. Available at: https://www.firmex.com/resources/blog/seven-epic-fails-by-businesses-that-tried-expanding-into-foreign-markets/ (accessed on 17th May 2020).

Zhao, M., Park., S., and Zhou, N. (2014) ‘MNC strategy and social adaptation in emerging markets’, Journal of International Business Studies 45(7), pp90-100.

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