Chapter II

International Management

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 BusinessDepartment of Management and Marketing

Southeast Missouri State UniversityOne University Plaza, Cape Girardeau, MO 63701

e-mail: [email protected] e-mail: [email protected]

Office Phone: 573-651-2902Home Phone: 573-332-7838

Fax: 573-651-2909

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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.

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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;

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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.

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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.

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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

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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

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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

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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.

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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.

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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.

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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).

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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.

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Mission Host Country Environment

Vision Home Country Environment

Strategy Alternatives and Choice

Actual Entry

Imple-mentation(Foreign Operationa)

Performance Appraisal

Feedback

Objectives

Company Resources,Competencies, and Capabilities

Strategy Formulation S t r a t e g y I m p l e m e n t a t I o n

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

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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.

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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

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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

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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.

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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

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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

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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.

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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

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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

23


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.

24


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