Entry Mode Strategies of Advanced Market Economies into Emerging Markets of Sub-Saharan Africa: The example of a power generation MNE

Abstract

Since the last decades researchers in the internationalization of firms have mainly focused on internationalization in developed markets and Asian emerging markets. Until recently, less attention has been devoted towards understanding how firms from advanced economies establish themselves in underdeveloped countries. This research gap is the point of departure for this study. Africa is the second largest continent and serves as a potential source of raw materials and natural resources for multinational firms. FDI inflows into Sub-Saharan Africa have also increased considerably in the course of the last decade. However, very few empirical studies have analyzed how advanced market firms enter into Sub-Saharan Africa. This thesis examines the entry mode strategy of an advanced market firm in Africa. To be precise, the purpose of this thesis is to study the entry mode of a power generation firm in the emerging markets of Sub-Saharan Africa. This is accomplished by gaining understanding of the different entry modes that this firm used as well as the challenges it faced. The author has conducted did a qualitative single case study with the power generation firm ABB which has a long history of presence in SSA emerging markets. The theoretical framework in this thesis examines various theories on entry modes. This section analyzes the challenges to doing business in emerging markets of SSA. Empirical data for this study was collected from four respondents all chosen from the company. This comprised of one respondent from the head office and the other three as country managers. Primary data was obtained through in-depth interviews and secondary data was collected from annual reports and archives of the case company. The findings indicated that ABB entered SSA through four entry mode types namely: Representative office, export, joint venture, and wholly-owned subsidiary. However, due to government’s protectionist policies in the power generation industry in SSA, the joint venture entry mode could serve as the ideal mode to enter this market. Also, due to uncertainty and institutional voids, a company could enter through a non-equity mode such as exports or through a representative office. Concerning the challenges to do business in SSA, the results indicate that corruption is the biggest impediment in the region. Other challenges include; political instability, weak legal framework, cultural differences, lack of market knowledge and weak infrastructure.