Preferred mode of entry of multi-national enterprises when conducting business in Sub-Saharan Africa region

Abstract

ABSTRACT This study evaluates the preferred entry modes of Johannesburg Stock Exchange-listed multi-national enterprises that have ventured into the Sub-Saharan African region. A qualitative method involving an exploratory study was conducted with the aid of interviews of selected participants to ascertain entry modes their organisations have used when entering the Sub-Saharan African region, considering the institutional prohibitive business conditions that exist. Market knowledge was used as a primary explanatory variable to test if the Johannesburg Stock Exchange-listed multi-national enterprises that have ventured into Sub-Saharan African region responded as defined by scholars that have previously researched service firms. Using market knowledge, the preferred entry mode of these multi-national enterprises into Sub-Saharan African region was attained. The researcher targeted eight multi-national enterprises across all business sectors, with a set of 18 mostly open ended questions. These were used to discover what the respondents considered were the most used entry modes into the various countries their firms had ventured into within Sub-Saharan Africa. The questions evolved around a theory that links firms expanding internationally and how firms respond to external business environment environments, including the circumstances under which certain modes of entry are used. A literature review was undertaken by the researcher covering cultural differences, labour considerations, strategy and institutional based views of international business, strategy in international business and firm location causal link, multi-national enterprises’ regional strategies, innovation of multi-national enterprises as a response to changing external business environments and the different circumstances under which certain entry modes are used. Responses from participants were combined in the form of themes, which were then compared to the literature. The main findings of the research were that ‘wholly owned subsidiaries’ was the preferred entry mode when firms were confronted with political instability. Regarding poor infrastructure, the hub was evident. Wholly owned subsidiaries, acquisitions, portfolio and platform were used for purposes of ease of profit repatriation. A favourable entry mode to manage government bureaucracy, corruption, legal and religious concerns was to form alliances, collaborations or joint ventures with local entities. The findings from an industry perspective of the research were that the preferred entry modes for the construction, telecommunication, financial and FMCG firms were drawn down to home base, wholly owned subsidiaries or acquisition, when analysed using market knowledge. All these entry modes suggested that the service firms investigated all preferred to follow clients into Sub-Saharan African region. In instances where a joint venture was utilised, it was ultimately for the purposes of an acquisition. However, there was an underlining salient theme where the multi-national enterprises venture into Sub-Saharan African region to show the rest of Africa how business is done.