152 J. International Business and Entrepreneurship Development, Vol. 3, No.

1/2, 2006

111
2 A critical evaluation of strategic market entry
3 theories and practices: the case of Hewlett-Packard
4
5
6
7 Demetris Vrontis* and Alkis Thrassou
8 School of Business, Intercollege,Cyprus,
9 46 Makedonitissas Avenue,
1011 P.O. Box 24005, 1703 Nicosia, Cyprus
1 E-mail: vrontis.d@intercollege.ac.cy
2 E-mail: thrassou.a@intercollege.ac.cy
3 *Corresponding author
4
5 Chia-Hung Wei
6
7 Manchester Metropolitan University, 4F, No. 31, Alley 6,
8 Lane. 4, Rd. Fu-Hsing, Taipei 116, Taiwan
9 E-mail: alexweiy2001@yahoo.com.tw
2011
Abstract: The choice of correct entry strategy for a particular market is
1 a crucial one for international firms. This research explores entry strategies
2 options and related theories, conducting also a critical evaluation of the
3 advantages and disadvantages of each option and theory. Several frameworks
4 and strategies are identified and developed from different constructs, and
5 the effect of entry strategies on wider international marketing strategies is
investigated. This research follows the ‘case study’ approach based on the
6 Hewlett-Packard market-entry method and a comparison is conducted
7 between two countries: China and the Czech Republic. Furthermore, several
8 key internationalisation issues are identified in terms of the SLEPT (social,
9 legal, economic, political and technological) framework. The results reinforce
30 the belief that before entering a foreign market, a multinational company
should construct a detailed marketing plan based on reliable data on every
1 aspect of both the macro and micro-environment of the targeted market.
2
3 Keywords: analysis; entry methods; global; Hewlett-Packard; international;
4 marketing; situation; strategy
5 Reference to this paper should be made as follows: Vrontis, D., Thrassou, A.
6 and Wei, C-H. (2006) ‘A critical evaluation of strategic market entry theories
7 and practices: the case of Hewlett-Packard’, Journal for International Business
8 and Entrepreneurship Development, Vol. 3, No. 1/2, pp.152–170.
9 Biographical notes: Demetris Vrontis is the Dean of the School of Business at
40 Intercollege in Nicosia, Cyprus. He is a Visiting Faculty for Henley School of
1 Management, a Visiting Professor for Vorarlberg University, a Visiting
2 Fellow at Leeds Metropolitan University and an External Examiner
3 for Nottingham Trent University. His prime research interests are on
international marketing, planning and, branding, areas that he has published
4 in over 45 refereed journals. He is also the author of 8 books and
5 widely contributed chapters/cases in books. He is the Editor of the EuroMed
6 Journal of Business and a member at the editorial board of many academic
711 journals.
8

Copyright © 2006 Inderscience Enterprises Ltd.

 A critical evaluation of strategic market entry theories and practices 153

111 Alkis Thrassou obtained a PhD in Strategic Marketing Management from

2 the University of Leeds, UK. From 1996 to 2002 he worked as a business
and project manager for Thrassou Bros & Associates, an engineering and
3
management group in Cyprus. In 2002 he joined the Marketing Department
4 of Intercollege, Cyprus, involving himself in various scholarly activities and
5 undertaking research in the fields of services marketing, small-firm marketing
6 and consumer behaviour. Currently he is an Assistant Professor in Marketing
7 and the acting Head of the Marketing Department at Intercollege and retains
strong ties with the industry through consulting and business activities.
8
9 Chia-Hung Wei is a Lecturer in the Department of Public Relations and
1011 Advertising of Shih-Hsin University in Taiwan. He graduated from the Business
1 School of Manchester Metropolitan University, UK. He is also a Senior Project
2 Manager in a leading mobile value-added service company in Taiwan. Based on
his past 10 years’ working experience, he uses practical marketing cases to
3 explain the academic theories.
4
5
6
7 1 Research objectives
8
9 The goal of this research is to understand the essence of entry strategies and to conduct a
2011 corresponding critical evaluation that leads to an understanding of market-entry strategic
1 marketing behaviour across different markets. The ‘case study’ approach will be adopted
2 as the methodology in this research and a multinational IT firm will be the example case
3 used to verify strategies and theories as found in literature. To achieve this goal the
4 research carries out four objectives. Firstly, it undertakes an extensive literature review to
5 find and comprehend the theories and key factors of entry strategies. Secondly, it conducts
6 an investigation into an international IT firm’s main ideas and challenges faced when
7 entering foreign markets. Thirdly, it explores the significant differences of this firm’s
8 entry approach in relation to two markets: the Czech Republic and China. Finally, it draws
9 conclusions and makes recommendations based on the above findings.
30
1
2 2 Literature review
3
4 2.1 The definition of entry strategies
5
6 The subject of market entry strategies is a much-researched but still contemporary one.
7 Terpstra and Sarathy (1994) believe that the selection of entry strategy involves long-term
8 corporate objectives related to the whole marketing programme and that challenges come
9 with the process of how to reach these markets. Anderson and Gatignon (1986) proposed
40 the entry model of entering international markets as the best choice of an enterprise when
1 it is trying to expand its overseas markets. In other words, entry models can be seen as the
2 institutional arrangement in the international market. Anderson (1997) supported the view
3 that the entry model is an institutional arrangement of an enterprise when managing the
4 international business, including contractual transfers, joint ventures and other methods.
5 Dunning (1992) identifies four motives for expanding foreign business:
6
711
8
 154 D. Vrontis, A. Thrassou and C-H. Wei

111
resource seeking

2

market seeking
3
4
efficiency seeking
5

strategic assets or capability seeking.
6
7 These can be viewed as motives for internationalisation and improving global market
8 position.
9
1011
2.2 The comparisons between different entry strategies
1
2 According to Lu (2002), theorists in the entry strategies’ field have stressed the
3 relationship between a firm’s assets and its need for control and ownership. In terms of
4 the entrant and control, Anderson and Gatignon (1986) divided the entry models into
5 three types, as shown in Table 1, which shows that the level of control has a vital
6 influence on the profitability and the risk; generally speaking, higher control represents
7 more profitability and risks.
8
Table 1 Entry modes classified by the entrant’s level of control
9
2011 Entry models Types of ownership Content
1
2 High-control modes Dominate equity interests Wholly-owned subsidiary
3 Dominant shareholder – few partners
4 Dominate shareholder – one partner
5
6
7 Medium-control modes Balanced interests Plurality shareholder – many partners
8 Plurality shareholder – few partners
9 Equal partners
30 Contractual joint venture
1 Contract management
2
Restrictive exclusive contract
3
Franchise
4
5 Non-exclusive restrictive contract
6 Exclusive non-restrictive contract
7
8 Low-control modes Diffused interests Non-exclusive non-restrictive contract
9
Small shareholder – many partners
40
Small shareholder – few partners
1
2 Small shareholder – one partner
3
Source: Anderson and Gatignon (1986)
4
5
6
711
8
 A critical evaluation of strategic market entry theories and practices 155

111 Root (1987) believes that, from the economic perspective, there are two types of entry
2 modes for moving into an overseas market:
3

manufacturing the product in the home country and exporting it to the targeted
4
market
5
6
moving the technique, capital, human resources and enterprise to the targeted market
7 and cooperating with a local manufacturer.
8
From the viewpoints of management, these two types can be further divided into three
9
entry models (as shown in Table 2):
1011
1
export entry
2

contractual entry
3
4
investment entry.
5
6 Table 2 The types of entry modes
7 Models Method
8
9 Export entry models Indirect export
2011 Direct agent/distributor
1 Direct branch/subsidiary
2
Others
3
4
5 Contractual entry mode Licensing
6 Franchising
7 Technical agreement
8 Service contracts
9
Management contracts
30
1 Construction/turnkey
2 Contract manufacture
3 Co-production agreement
4 Others
5
6
Investment entry model Sole venture – new establishment
7
8 Sole venture – acquisition
9 Joint venture – new establishment/acquisition
40 Others
1
2 Source: Root (1987)
3
4 Jeannet and Hennessy (2001) use control, asset level, variable costs, fixed costs,
5 market shares and cost as the considerations for market entry decisions, as shown in
6 Table 3.
711
8
 156 D. Vrontis, A. Thrassou and C-H. Wei

111 Table 3 Consideration of market entry decision

2
Entry strategies Control Asset level Variable costs Fixed costs Market share Cost
3
4 Indirect exporting
5
Direct exporting
6
7 Sales subsidiary
8 Franchising
9 Licensing
1011 Contract
1 manufacturing
2 Assembly
3 Local production
4
5
6 Direction of arrow indicates increase or decrease in that factor
7 Source: Jeannet and Hennessy (2001)
8
9
2.3 International business perspectives
2011
1 2.3.1 Transaction cost analysis theory
2 According to the transaction cost analysis theory, Anderson and Gatignon (1986) support
3 the theory that the function of the trade-off from control and the cost of course
4 commitment is the most suitable entry mode. In addition, they use the theory, which
5 combines different factors such as industrial organisation, organisation theory and contract
6 law, to measure the tradeoffs to make a vertical integration decision. In order to reach the
7 long-term efficiency, four constructs are used to determine the optimal degree of control:
8
9
transaction-specific assets
30
external uncertainty
1
2
internal uncertainty
3
free-riding potential agents.
4
5 Makino and Yiu (2002) suggest both transaction cost and institutional perspective are
6 robust in explaining the foreign entry strategies decision-making process and the research
7 shows that the institutional theory offers extra descriptive power of entry strategies choice.
8 2.3.2 Eclectic theory
9
40 Dunning (1981) suggests that most of the foreign investment theories depend on the
1 following:
2
‘how to maintain the competitive advantage in foreign markets’. Dunning also
3 summarised that as the ownership advantages.
4

‘Why invest in foreign markets?’ Dunning attributes it to internalisation advantages.
5
6
‘Which markets are we going to?’ Dunning summarised this as the location
711 advantage.
8
 A critical evaluation of strategic market entry theories and practices 157

111 Ownership advantages are those that are specific to a particular firm and that enable
2 it to take advantage of investment opportunities abroad. Internationalisational advantages
3 determine whether foreign production will be organised through markets or hierarchies.
4 Locational advantages are those advantages specific to a country, which order the choice
5 of production site.
6 Based on the eclectic theory, Hill et al. (1990) propose a framework that contains
7 three constructs (strategic variables, environmental variables and transaction variables).
8 These affect the entry decision and intend to improve the weakness of the past theory.
9 The framework integrates not only environmental and transaction cost factors but also the
1011 global strategic variables into the entry decision mode. It offers several advantages to the
1 firms that want to enter foreign markets. On the one hand it is quite useful in identifying
2 factors and issues when evaluating the entry strategies but on the other hand it helps
3 to emphasise the probable and potential contradictions when different variables are
4 considered together (Figure 1).
5
6 Figure 1 The resource-based model of superior returns
7
8
9
2011
1
2
3
4
5
6
7
8
9
30
1
2
3
4
5
6
7
8
9
40
1
2
3
4
5
6
711 Source: Hitt et al., 2001
8
 158 D. Vrontis, A. Thrassou and C-H. Wei

111 2.3.3 Resources based view theory (RBV)

2 Resources relate largely to those created by human action rather than those occurring
3 naturally (White, 2004). The nature of the firm’s unique resources will help it to develop
4 the new geographic or product markets or a combination of both. Generally speaking,
5 the essence of RBV is how a firm evaluates its current resources, builds up its competitive
6 advantages and performs as well as can be. This relies on totally understanding a firm’s
7 resource, core competencies and capacity; that is the best way to develop a most suitable
8 entry mode (Hitt et al., 2001).
9
1011
1 3 Critical evaluation of entry strategies
2
3 ‘Strategy’ perception is a key component when expanding business in a global market.
4 Even though economics is an important factor when extending global business, the
5 complexity of the global market and the strong human-centred aspects of international
6 marketing demand that cultural, political and social issues also are significantly
7 considered when entering foreign markets (Whittington, 2001).
8
9
2011 3.1 Theories of strategy
1 Whittington (2001) introduces four general approaches of strategy. Each strategy has
2 its own unique concept of what it is about and how to actually implement it. These four
3 theories are the classical, the evolutionary, the processual and the systemic approach.
4 In terms of the classical approach, the theorists believe that the excellent strategy is made
5 through rational analysis. For classicalists the ultimate goal of business is profitability and
6 the rational planning is the means by which to reach it. However, the evolutionists believe
7 the markets are too complicated and too changeable and that heavy investment in strategic
8 planning is not a good decision. Therefore, they emphasise the need for strategies to keep
9 their costs low and their options open. For the processualists, their point of view generally
30 springs from the evolutionary criticism of rational strategy making. They believe that the
1 best strategy is not to strive after the unachievable ideas of rational changing action.
2 Rather, they expect that it appears directly from deep involvement in daily operations and
3 the fundamental strengths of the organisation. Finally, systemic approaches present that
4 the firms differ according to the social and economic system of the environment in which
5 they are involved.
6
7
8 4 Comparing Eastern Asian and Eastern European markets
9 (China vs Czech Republic)
40
1 4.1 Impact of political, regulatory and legal issues
2
3 4.1.1 Legal reform
4 One of the biggest issues in China’s political and legal environment is the ‘lack
5 of transparency’, whereby the regulatory system remains unstable (Intriligator, 1998).
6 Under the un-transparency legal system, keeping good contacts with government
711 officials is a better insurance against law (Schlevogt, 2000). However, along with the
8
 A critical evaluation of strategic market entry theories and practices 159

111 rapid development of economy and education, more and more Chinese request
2 more rights. Likewise, continuous progress in improving the regulatory environment
3 is a significant issue in the Czech Republic. In past years, even though the government
4 has been addressing the commercial and securities laws in order to meet the requirements
5 of the European Union, the foreign investors still complained about the legal environment
6 in the Czech Republic (OECD, 2004a). On the other hand research shows that, between
7 Eastern European countries, the Czech Republic has the most steady political structure
8 and relatively established leadership (Manrai et al., 1996).
9
1011 4.1.2 Corruption
1 Corruption is still a big problem in China despite the many anti-corruption campaigns
2 (Schlevogt, 2000). It twists the allocation of resources (funds, materials) and results in
3 the loss of vital funds. This negative situation exists especially outside the metropolitan
4 areas. With similar problems at hand, the Czech government promoted a ‘clean hands’
5 campaign. It is a real victory but a bittersweet reform, as even the finance minister
6 had to resign along with the colleague in charge of investment and shareholder fraud
7 (Transparency International, 2001). In order to meet the requirements of managing EU
8 funds the Czech Republic has renewed and expanded its control systems for public
9 spending and enforced new laws on functionally independent intra-governmental audit
2011 units in 2001 (Transparency International, 2003).
1
2 4.2 Impact of economic factors
3
4 4.2.1 Investment incentives
5 China has a huge domestic market, cheap labour and attractive investment incentives.
6 There are a lot of special economic zones and coastal open cities within lower national and
7 local income taxes (Schlevogt, 2000). There is also preferential treatment in encouraged
8 industries, for instance, agriculture, industrial raw material, construction material and so
9 on. The use of an investment-incentives zone by the Chinese government is the most
30 successful strategy for attracting foreign investors. These policies not only make China an
1 attractive place for the foreign investors but also help the development of specific areas in
2 the country (Cho and Tung, 1998). Generally speaking, the Czech Republic is also an
3 investor-friendly nation (Mahli, 1998). Since the government proposed certain investment
4 incentive schemes in 1998, 37 foreign companies have benefited and the foreign direct
5 investment (FDI) increased to $4.9 billion in 1999 (Bjorklund, 2001; Drury, 2001).
6 In 2002, incentives packages also became available for strategic services and technology
7 centres, I-tech service and R&D centres (OECD, 2004b).
8
9 4.2.2 The participation of international organisation
40 Since joining the WTO China has faced many new issues. Firstly, the agreements between
1 China and other countries refer to very little about the export side of China. Secondly,
2 the current agreements between China and other countries emphasise what other countries
3 have to do. However, since China’s participation in the WTO this situation has changed
4 from what other countries have to do to what China has to do instead. Thirdly, China was
5 required to extend its favourite treatment to all members, even though it had negotiated
6 with a proportion of the members of the WTO and signed an agreement with them
711 individually (Wong, 2003). Regarding the Czech Republic, on May 1st 2004, ten new
8
 160 D. Vrontis, A. Thrassou and C-H. Wei

111 countries joined the EU, the Czech Republic among them, facing some new economic
2 issues. The main ones being:
3

an end to state aid – once in the EU, state-owned enterprises will be subject to the
4
general prohibition of government support
5
6
increased competition – the EU has sought to modernise the old competition law and
7 by doing so the EU took a major step towards new antitrust procedural rules to the
8 demands of a Union of 25 member states.
9
1011
4.3 Impact of social and cultural factors
1
2 4.3.1 Relationship vs contract
3 Unlike western culture, in the traditional Chinese society, trust-based relationships are
4 sometimes more important than contracts. When conflicts occurr friendship is usually
5 given priority. This may be because they don’t want to destroy the ‘warm relationship’,
6 ‘feelings’, or ‘closeness’ between people and a further important reason is the absence
7 of a well-established legal system (Schlevogt, 2000). The Czech Republic holds
8 predominantly western-type relationships both in the social and business context.
9
2011 4.3.2 Keeping face vs economic rationalism
1 The ‘Face problem’ is another special cultural phenomenon of Chinese society and
2 business. Normally, in western society economic benefits prevail at the expense of social
3 and business image parameters. However, Chinese would rather give up the economic
4 benefits than see their public, social and/or business image being harmed. This naturally
5 constitutes a somewhat irrational approach to decision-making and furthermore potentially
6 creates a problem for foreign investors who are not used to this type of approach.
7
8
9 4.4 Impact of technological factors
30 4.4.1 Government support
1 The main organisation in charge of the technological research and development in the
2 Czech Republic is The National Research and Development Policy of the Czech Republic.
3 The national R&D policy includes the following tasks:
4
5
prioritising industrial R&D according to the most efficient disciplines towards
6 long-term economic evolution
7
offering financial support to the universities and research-active organisations
8
9
supporting the wider transmission of scientific and technological knowledge
40 (OECD, 2004b).
1 Similar systems also were applied in China. The main purpose of the existing science and
2 technology policy is to enhance technological innovation, to develop hi-tech and to further
3 the country’s industrialisation. China’s government raised the investment in reinforcing
4 sciences and technology. Furthermore, it encourages private-owned enterprises to devote
5 themselves to technological innovation, whilst the government carries out a series of
6 support measures through financing and taxation benefits (OECD, 2004b).
711
8
 A critical evaluation of strategic market entry theories and practices 161

111 4.4.2 PCs and the internet

2 The PC and internet in China’s market had wonderful performances after 1997, almost
3 doubling by 2001. However, despite the dramatic rise in the market, the PC owners
4 are largely located in the developed areas of China, such as Shanghai and Pearl Delta.
5 As to the trend in PC and internet usage, teenagers are more open to e-commerce,
6 indicating the potential of e-commerce in the future (Euromonitor, 2004). Unlike China,
7 the development of PCs and internet use in the Czech Republic is less impressive.
8 Throughout 2001 and 2003 internet usage has risen because of the intensive uptake of
9 PCs by small and medium companies and by households. Nevertheless, as a consequence
1011 of the relatively high price of PCs, the restricted possibilities of e-communication and
1 high charges of internet access, the development of technology has reached a chokepoint
2 (Euromonitor, 2004).
3
4
5 4.5 Impact of environmental issues
6 4.5.1 Air pollution
7
Air pollution is a serious environmental issue in China. The country already contains nine
8
of the world’s ten most polluted cities. One of the most important reasons is the reliance
9
on coal for energy. Even though the Chinese government has tried its best to reduce
2011
the emission of carbon, the emissions are estimated to increase by 300% of the present
1
level by 2033 (Lieberthal, 2003). A similar situation exists in the Czech Republic.
2
Two thirds of electricity production relies on brown coal with a high sulphur and
3
ash content. Nowadays, both countries are facing pressure from the rising health
4
and environmental awareness in domestic citizens and the requirement from the Tokyo
5
Agreement, which requires every country to reduce carbon dioxide and other
6
lower-volume greenhouse gases by 6–8% below 1990 levels by 2008–2010.
7
8 4.5.2 Water pollution
9
In many areas of China they are facing problems of declining water quality, spreading
30
desert areas, disappearing ground cover and shrinking lakes (Lieberthal, 2003). In the
1
Czech Republic water pollution is also a significant environmental issue (CIA, 2004). In
2
order to improve the situation, the Czech Republic’s government has developed a
3
pollution project. The project contains the building of various facilities, the purposes of
4
which are to diminish the negative impact of waste water, improve the quality and self
5
purification capacity of water, etc. (Czech Statistical Office, 2004).
6
7 4.5.3 Environment protection plan
8 The serious pollution in China also raises global concern. Therefore, the Chinese
9 government has to pay more attention to this issue. The government’s investment
40 has increased rapidly and many policies have been promoted to reduce the pollution.
1 In some areas, China’s environmental standards are stricter than other countries
2 (Gelb and Hulme, 2002). Furthermore, the Chinese State Environmental Protection
3 Administration (SEPA) still cannot but admit that the ‘overall environmental situation
4 in China is still grave’ (Bett, 2002). The environment of the Czech Republic was
5 significantly tainted under Communism and environmental concerns have been at the top
6 of public priorities after the political revolution in 1989 (UK Trade and Investment, 2004).
711
8
 162 D. Vrontis, A. Thrassou and C-H. Wei

111 The Czech Republic has invested a lot of money in environment pollution control
2 projects. These projects aim to overcome the environmental issues, such as water
3 protection, protection of air and climate, waste management, protection of nature
4 and landscape, impact of physical factors abatement and protection of soil and
5 groundwater (Czech Statistical Office, 2004a,b).
6
7
8 5 Methodology
9
1011 5.1 Research approach
1
This research is an explanatory multi-case study of a computer hardware manufacturer
2
(Hewlett-Packard) entering different markets (namely, China and the Czech Republic).
3
The ‘case study’ is adopted as the research strategy as it has the ability of generating the
4
answers to the questions ‘why?’, ‘what?’ and ‘how?’ and because it is a valuable way to
5
explore the current theories (Saunders et al., 2003). Moreover, it has been deemed to be
6
the best method for achieving this research’s objectives, which include comparing,
7
understanding, interpreting and evaluating detailed actions when entering different
8
regional markets. The breadth and complexity of the factors involved in this nature meant
9
that a qualitative research approach was more suitable than a quantitative one.
2011
Furthermore, from the perspective of data collection, this research adopts the in-depth
1 interview qualitative research method as the source of primary data, enhanced and
2 complemented by basic quantitative secondary data. This allows a more reliable
3 and complete combination that provides a more comprehensive understanding of the
4 research topic while also meeting the criteria of triangulation.
5
6
7 5.2 Criteria for judging the quality of research designs
8 Since a research design is thought to present a logical report, a series of logical tests
9 are good ways to examine all of them. Yin (2003) refers to four design tests:
30
1
construct validity – establishing accurate operational measures for the concepts
2 being studied
3
internal validity – establishing an informal relationship, whereby certain
4 circumstances are distinguished from false relationships
5
6
external validity – establishing the domain to which a study’s findings can be
7 generalised
8
reliability – demonstrating that the operations of a study, such as the data collection
9 procedures, can be repeated with the same results.
40
1
2 5.3 Triangulation
3 The basic concept of triangulation is that qualitative and quantitative methods have to be
4 seen as complementary rather than polar opposites (Jick, 1979). Denzin (1984) classifies
5 four types of triangulation:
6
711
8
 A critical evaluation of strategic market entry theories and practices 163

111
data source triangulation

2

investigator triangulation: when a pair of investigators examines the same situation
3
4
theory triangulation: when researchers analyse the same result from different points
5 of view
6

methodological triangulation: use of different approaches to examine the research.
7
8
9 5.4 Interviewing
1011 Interviewing is one of the most widely used methods in collecting data.
1 Any person-to-person or person-to-group interaction is called an interview.
2 Saunders et al. (2003) state that qualitative research interviews are helpful in collecting
3 rich and detailed data. The types of interview can be categorised as structured,
4 semi-structured and unstructured. In terms of the advantages of a qualitative interview
5 there are situations that lead to using this method of data collection depending on the
6 nature of the approach to research, the importance of personal contact, the nature of
7 data collection questions and the length of time required. This research was based on
8 semi-structured and unstructured interviews of twelve people holding positions related
9 to the research focus. These included HP employees as well as businessmen with
2011 reliable knowledge on the subject.
1
2
5.5 Cross-case analysis
3
4 As previously mentioned, this research will use multiple cases to examine the entry
5 strategies. Therefore, cross-case analysis skill is another crucial issue in this research.
6 According to Amaratunga and Baldry (2003), the multiple case studies are in the light of
7 comparisons between the practical evidence and the theoretical propositions and the core
8 of a good cross-case analysis is to neutralise these trends by looking at the different
9 combinations of these data. Yin (2003) argues that the multiple-case research needs more
30 resources and time as compared with other research strategies. On the other hand, the
1 proof from multiple cases is considered to be more persuasive and the general study is
2 regarded as being more robust.
3
4
5 6 Findings
6
6.1 HP’s entry strategy in China and the Czech Republic
7
8 Hewlett-Packard is the first US computer maker to enter into the China market and the
9 entry mode that HP adopted is joint venture. In 1985 HP agreed a joint venture in principle
40 with China Electronic Import & Export Corp to make and sell HP products in China
1 and the name of the company was ‘China-Hewlett-Packard Ltd’. Under the agreement,
2 both parties hold equity interest in the new company. In the Czech Republic, HP has had
3 a long and uninterrupted presence (since 1967) and the activities were originally directed
4 from HP Vienna, Austria. In 1979, an HP representation office was established in the
5 former Czechoslovakia and in 1991, HP created there a wholly-owned subsidiary HP s.r.o.
6 After the split of Czechoslovakia in January 1993, HP s.r.o. took over the responsibilities
711 for the Czech Republic.
8
 164 D. Vrontis, A. Thrassou and C-H. Wei

111 6.2 The timing of entry

2
Even though some political similarities do exist between the two countries, HP chose
3
different timings to enter these. Regarding the China market especially, timing was a
4
crucial issue for HP. Several years before HP entered China (1978), the China government
5
began to reform its economy, with the ‘Four Modernisations’ being one of its most
6
important projects, including the areas of agriculture, industry, science, military and
7
technology. According to the National Bureau of Statistics of China (2004), the average
8
economic growth rate from 1993 to 2002 was 9.32%, which means that China can easily
9
be termed as a ‘fast growing market’. On a different note though, even under the
1011
communist political system – a totally different political system from the US – HP still
1
decided to enter the former Czechoslovakia in 1967. In this case it can be seen that timing
2
was not an important issue.
3
4
5 6.3 Market-entry motivators
6
As to the motivation behind HP entrance into these markets, no single reason can cover all
7
the motivations, however, several reasons were identified through the research including
8
the potential value of both markets, the exploitation of opportunities, following existing
9
clients into the regions and maintaining the position and role of a global company.
2011
All these can be described as ‘market seeking’ (Dunning, 1992). The main criterion for
1
the decision to enter the China market was the market potential. From the viewpoint
2
of Hewlett-Packard, it is an important issue to identify what factors stopped the other
3
competitors. Though the latter was practically difficult to accurately research, some strong
4
indications did surface through interviews. These pointed primarily to the weakness of the
5
legal system.
6
Regarding China the single most important reason for entry was being able to be
7
a truly global service. China’s strong market potential naturally raised the ultimately
8
realised expectation of many multinational companies joining the market. When they are
9
selecting their IT service vendor, they prefer a global company to a local company.
30
Regarding the Czech Republic, the location advantage and the offer of global services are
1
the two main reasons. The Czech Republic is located in Central Europe and bears the
2
location advantage, as mentioned in the ‘eclectic theory’ (Buckley and Casson, 1976,
3
Tse et al., 1997). Moreover, though HP had excluded these two countries from its original
4
initial strategy its ultimate integral global strategy did welcome their inclusion.
5
Additionally, according to the interviewees, in these two countries, the subsidiaries only
6 take charge of marketing not manufacturing. Therefore, their role in essence is developing
7 and maintaining the long-term relationships with its global customers.
8
9
40 6.4 Market-entry strategic choices
1 For HP, the entry strategy choice largely relied on its strategic relationships in different
2 countries. Therefore, the adoption of any specific entry strategy decision cannot be viewed
3 in isolation. This again could be linked to the ‘eclectic theory’ (Tse et al., 1997) which
4 indicates that not only environmental and transaction costs are a consideration but also
5 global strategic objectives should be considered into the variables which influence the
6 entry strategy decision. The main reason for HP choosing a ‘joint venture’ as the entry
711
8
 A critical evaluation of strategic market entry theories and practices 165

111 mode when it entered the Chinese market was government regulations. With regards to HP
2 in the Czech Republic, in the era of former Czechoslovakia HP had only a representative
3 office there, though after the political and economic reforms HP did change its form in
4 the Czech Republic.
5 The research has shown that, unless there are legal restrictions, the computer
6 manufacturers need majority ownership so that they can control the direction of
7 their operation, mainly because of the risk commitment involved. This can be linked
8 to the theory of ‘ownership advantage’ (Dunning, 1981) and the ‘internalisation theory’
9 (Kwon and Konopa, 1993) whose purpose is to minimise the risk when entering the
1011 foreign markets.
1
2
6.5 External factors influence entry decision making
3
4 6.5.1 Political/legal risks
5 As frequently mentioned in existing literature, China faces major democracy issues,
6 though it does increasingly adopt more open economic policies. However, these issues still
7 appear to be a critical disadvantage of the Chinese market. The regulatory environment
8 remains volatile, especially in view of alleged corruption issues and a relatively weak legal
9 system. HP’s choice of the ‘joint venture’ method is in itself a result of government
2011 regulation. Irrespective of government regulation though, joint venture is a very suitable
1 option in terms of entry strategies when doing business in China.
2 As previously mentioned, HP initially entered former Czechoslovakia by establishing
3 there only a representation office. After the political and economic reforms HP created
4 a wholly-owned subsidiary in 1991, an important year of economic reform for former
5 Czechoslovakia. This year saw an economic reform programme being enforced with the
6 purpose of easing the transition to a market economy. The liberalisation of the market,
7 the efficient control of macroeconomic factors and privatisation were the three directions
8 of this economic reform programme. The result was an evolutionary transformation
9 at both the political and the economic level with a proportional decrease in both the
30 political and economic risks.
1
2 6.5.2 Economic factors
3 With the aspiration for economic development, the Chinese government offers many
4 investment incentives to foreign investors, especially for technology-based businesses.
5 There are three different types of foreign investment categories in China: the
6 ‘encouraged’, the ‘restricted’ and the ‘prohibited’. The technology-focused investments
7 belong to the ‘encouraged’ category. The Czech Republic’s government, in order to attract
8 the foreign investors, has invested a lot into attracting foreign businesses, especially
9 through the adoption of foreign investment incentives policies. In some special cases,
40 the foreign investors were asked what they wanted and what would attract them to invest
1 in the market before making the investment incentive regulations. However, there is no
2 special treatment in the destructive sense.
3
4 6.5.3 Cultural distance
5 Further to the political risks mentioned earlier, the cultural differences present another
6 significant risk when entering the Chinese market. This is especially true for the
711 businesses which are affected most by the frequently met negative attitude of the
8
 166 D. Vrontis, A. Thrassou and C-H. Wei

111 Chinese towards Western attitudes and culture, especially the USA and all associated
2 symbols and brands. Two other places though, Taiwan and Hong Kong, show the way by
3 providing tested solutions of this issue. As a consequence of their substantially different
4 modern historic development, Hong Kong and Taiwan have developed the ability to
5 accept and utilise the Western culture. That is one of the reasons why there are so many
6 Taiwanese in the Chinese HP.
7 This has minimised the negative effects of cultural distance in the case of the HP
8 entrance into the Chinese market. Nevertheless, the cultural incompatibility is not simply
9 a result of locality differentiating factors but, also, largely one of political/economic
1011 background. Within this context one needs to add the practical isolation of the country for
1 many decades from the rest of the world, an approach and attitude though that is changing
2 fast. However, its effects are still very much real and are evidently mirrored in the business
3 dealings of Chinese people and organisations even with their Western counterparts.
4 A similar situation has also occurred in the Czech Republic. This is mostly evident in the
5 case of local distributors who display limited knowledge in marketing concepts and
6 practices and find it difficult to adapt to free-market profit-orientated conditions.
7 These situations can be identified as the strategic variable (Hill et al., 1990) and the
8 internal factors in the internalisation theory (Kwon and Konopa, 1993). The governments
9 of both countries are aware of the importance of this issue. Therefore, both have tried to
2011 overcome the same problems by adopting different strategies. In China, the government
1 has largely dealt with the problem by relaxing the restrictions of going and/or studying
2 abroad as compared with the Czech Republic where the government encourages
3 transactions and interaction with other European countries such as Germany and actively
4 participates in European Union affairs.
5
6 6.6 Competitive advantages
7
8 Each multinational enterprise has its own unique combination of resources that define
9 the development of its strategy and ultimately affect its performance. For HP two appear
30 to stand above the rest.
1
2 6.6.1 Network
3 This is a homogeneous grouping of branches, subsidiaries and representative offices and
4 it operates on three levels: global, regional and national. HP is running its business in more
5 than 160 countries worldwide. In the IT industry, companies compete not only on the
6 quality of their products but also on the basis of their knowledge and experiences,
7 including R&D capabilities, technological and market knowledge, service experiences
8 and others. In the Czech Republic though HP has just three branches and still manages
9 to maintain a competitive advantage through its global network..
40
1 6.6.2 Human resources
2 As previously mentioned, the intangible assets are frequently more valuable than the
3 tangible assets. The human resource asset is probably the most important of the former.
4 Since HP has developed its business at a global level, it has many employees who have
5 a rich profile in terms of product knowledge, market understanding and international
6 experiences. This has proved to be especially helpful in penetrating the Chinese market.
711 Owing to HP’s past experiences with other Asian markets such as Taiwan, Singapore and
8
 A critical evaluation of strategic market entry theories and practices 167

111 Hong Kong, the company was ready to face up to problems and it had the background,
2 mechanisms but most importantly the people to deal with these. Though HP faced
3 different situations when it first entered the Czech Republic (Czechoslovakia at the time)
4 it still largely relied on the human resources of its international network to resolve
5 the problems that appeared. This human resource advantage had been a key factor in
6 their success in view of the fact that, at the time, the consistency of the local company
7 (HP s.r.o.) was largely regulated.
8
9
1011 7 Conclusions
1
2 For a number of reasons, including cost-reduction and benefits from economies of
3 scale, many multinational enterprises use the standardisation strategy in manufacturing
4 and marketing when entering foreign markets. However, owing to different macro- and
5 micro-environmental factors, standardisation strategies are, equally, frequently
6 incapable of serving the companies that adopt them towards internationalisation.
7 Correspondingly and proportionately therefore, multinational enterprises have to adapt
8 to the local environment or adopt other, integrated strategies. This research has examined
9 the case of HP which adopted different entry strategies when it entered different foreign
2011 markets. In both these cases, China and the Czech Republic, the most important factor
1 which affected the entry strategy decision was the political-legal environment.
2 HP entered China and the Czech Republic markets at different chronological
3 and historic points in time and for different reasons that were mainly determined by
4 host-country specific characteristics. The main reason for entering the Czech Republic
5 was the location advantages it offered along with the need to satisfy a network of global
6 customers. Upon arrival in the Czech Republic (Czechoslovakia at the time), HP had only
7 one representative office as a result of the high political risk and large cultural distance.
8 However, after the political and economic reforms in the Czech Republic that liberalised
9 the market and secured foreign investments, HP changed its strategy from having a
30 representative office to a wholly-owned subsidiary.
1 With regards to China, its size and consequent potential was the major reason HP
2 chose to enter its market. In contrast to the case of the Czech Republic though, China is
3 deemed still to face substantial issues of democracy and state intervention, while
4 overall political risk is – despite the many positive changes – still comparatively high.
5 HP therefore, chose in this case a different and more secure strategy; that of ‘joint venture’
6 which also satisfies the Chinese government’s regulatory constraints. Despite the apparent
7 shortcomings of entering the Chinese market though, there are some major attractions that
8 large companies at least cannot allow to pass unnoticed. Apart from the obvious market
9 size and global customer service needs, the first attraction is the investment incentives.
40 The Chinese government offers many incentives to the ‘encouraged project’ category
1 (see analysis above), such as taxation benefits and priority treatment in the provision of
2 basic infrastructure services and supplies. Unfortunately, owing to the confidentiality
3 of the subject matter this research was unable to establish the specific-to-HP
4 incentives. Another significant attraction is the fact that the ‘cultural-differences-problem’
5 is offset by the fact that companies like HP can locally utilise personnel from other
6 countries which is more culturally understanding than the Chinese market and system
711 demands. The China HP makes good use of its major global competitive advantage
8
 168 D. Vrontis, A. Thrassou and C-H. Wei

111 (the internationally experienced employees) to make up for this risk. Owing to the huge
2 cultural gap between the Western and Eastern countries, HP called up the employees
3 who worked in the branches both in Taiwan and in Hong Kong to work for the China HP.
4
5
6 8 Research limitations and further research
7
8 Owing to strict company policy there was very limited willingness on behalf of employees
9 to be interviewed and when they did accept they were very apprehensive and conservative
1011 in their responses, asking for their identities to be concealed. Additionally, interviews
1 were conducted out of company time and this made interviewees very time-conscious.
2 Further to the above and regarding the wider research approach and findings, another
3 limitation is the case-study method itself. The research specifically focuses on the case
4 of HP and only two countries. This provides valuable understanding of the case and it
5 does test a number of theories but at the same time it provides only indications as far
6 as its applicability is concerned to other countries and/or other industries and/or other
7 companies.
8 Though the subject of internationalisation and market-entry strategies is
9 well-researched, it is not saturated. First of all, the subject is correspondingly dynamic
2011 to the continuous macro-environmental changes in global business. Secondly the subject
1 appears to be relatively less developed in connection to important markets such as China.
2 As a result it is recommended that further research should be conducted that will add
3 case studies but also interrelate and compare for comprehensive findings. Moreover, the
4 research should be across industries to look for differences and similarities. Finally, the
5 area that surfaces as the least developed in terms of academic research is that of SME
6 market entry, especially in China. Research concentration on this would provide excellent
7 value both to the academic and the business community internationally.
8
9
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