Walking in step with globalization many companies have long searched for and explored new markets in which there are sales and/or production potential for their products. This concept in which companies go abroad is order to expand business is called foreign market entry.
Recently much of attention wasdirected to an emerging markets that are characterized by risky but full of opportunities, environment.
The purpose of this work is two-fold: to put in order a large number of literatures on entry mode and through this to build some propositions on determinants for entry mode that will be more outstanding in an emerging market context and perspectives of these entry modes.
Literature Review andTheory Development
Emerging Market Literature Review
It is almost impossible to find a business leader in the global marketplace who does not operate, or at the very least, is not exploring opportunities with or within emerging market countries. Even those entrepreneurs who prefer domestic markets experience competition from companies based in these regions.
There were manycontroversial definitions of emerging markets suggested that led to extended debates on “What is a real emerging market?” In this paper some general definitions of emerging markets are presented, and on which main issues of this paper are based. Emerging markets are nations with social or business activity in the process of rapid growth and industrialization. The Center for Knowledge Societies, supportingthis concept of emerging markets, defines them as “regions of the world that are experiencing rapid informationalization under conditions of limited or partial industrialization.” Such countries are considered to be in a transitional phase between developing and developed status.
Emphasizing the fluid nature of the category, political scientist lan Bremmer defines an emerging market as “a countrywhere politics matter at least as much as economics to the markets.” The main significance of the use of the term is that investments in emerging markets are assumed to carry greater risk and offer less safety in investment. The importance of emerging markets in current economic life of the world is obvious. Specifically, these emerging markets comprise more than a half of the world’s populationand account for a large share of world output: all indicators of enormous market potential. Emerging markets are characterized by strong economic growth, resulting in an often marked rise in GDP and disposable income. As a result, people on emerging countries are often able to buy goods and services that they previously would not have been able to afford.
Of greater relevance is the high level ofrisk and their characterization as extremely volatile. Virtually any group of developing countries faces higher volatility than advanced industrialized economies. The absence of a history of foreign investment and their transition to market economies speaks to the dynamic nature of emerging markets, i.e., to the possibility that they may graduate from their current economic conditions to greaterinstitutional and policy maturity as equal participants in the global market economy (Mody, A., (2004))
Risks are associated with emerging markets just as there are in established markets, but because they are new or emerging markets, new challenges exist in assessing those risks including language and cultural barriers, differing business practices and business requirements, becomingknowledgeable of regulations and laws governing business, and many other new challenges. Besides, analysis of MSCI Emerging Market Index data conducted by Claude, B.E., Campbell, R.H. and Tadas, E.V. revealed that standard risk management is not appropriate in emerging markets.
In sum, emerging markets are generally characterized not only by huge opportunities for making business in but also by a great...