VIETNAM NATIONAL UNIVERSITY, HANOI INTERNATIONAL SCHOOL GRADUATION PROJECT DETERMINANTS OF THE CHOICE BETWEEN ACQUISITIONS AND JOINT VENTURES IN VIETNAM NGUYEN THUY TRANG Hanoi - 2021 VIETNAM NATIONAL UNIVERSITY, HANOI INTERNATIONAL SCHOOL GRADUATION PROJECT DETERMINANTS OF THE CHOICE BETWEEN ACQUISITIONS AND JOINT VENTURES IN VIETNAM SUPERVISOR: Dr. Doan Thu Trang STUDENT: Nguyen Thuy Trang STUDENT ID: 17071200 COHORT: IB2017A MAJOR: International Business Hanoi – 2021 LETTER OF DECLARATION I hereby declare that the Graduation Project Determinants of the choice between acquisitions and joint ventures in Vietnam is the results of my own research and has never been published in any work of others. During the implementation process of this project, I have seriously taken research ethics; all findings of this projects are results of my own research and surveys; all references in this project are clearly cited according to regulations. I take full responsibility for the fidelity of the number and data and other contents of my graduation project.
Hanoi, June 04, 2021 Student Nguyen Thuy Trang ACKNOWLEDGEMENT First and foremost, I would like to express my sincere gratitude to my supervisor, Dr. Doan Thu Trang for her continuous support, not only of my undergraduate dissertation but also of my study course in International School and related research, with her patience and broad knowledge. It was in her Strategic Management course that I became fascinated with the science of management and strategy of the organization, and I will always be grateful for her knowledge, inspiration, and passion. With the help of Dr.
Doan Thu Trang, I can complete my dissertation in preparing for my future academic career. Secondly, I would like to give my deepest thanks to International School - Vietnam National University, Hanoi for giving me the best condition to continuously learn and experience the dynamic and international environment. For all four years in International School, I have been armed with necessary knowledge and skills from both academic courses and extracurricular activities, which was the firm foundation for me to go further in my future career. Therefore, it is important for me to express my grateful for all the teachers for understanding and supporting me.
Without your help, I cannot gain sufficient knowledge and experience for the path after graduation. Last but not least, my thankfulness was given to other people, my family, friends and working partners who always by my side in this journey. It would be an unforgettable time of learning and experiencing that put me in pressure, but I was so grateful for having them around, listen and support me with all their best. I truly appreciate this rough time when I can experience the precious moment with precious people.
Hanoi, June 04, 2021 Student Nguyen Thuy Trang CONTENTS CHAPTER I: INTRODUCTION. OBJECTIVE OF THE STUDY. 4 CHAPTER II: LITERATURE REVIEW. LITERATURE REVIEW ON ENTRY MODE CHOICE.
Transaction cost perspective. Firm-specific perspective. LITERATURE REVIEW ON INSTITUTIONS IMPACT ON ENTRY MODE CHOICE. North’s (1990) institution classification.
Scott’s (1995) institution classification. 12 CHAPTER III: THEORETICAL BACKGROUND AND HYPOTHESIS DEVELOPMENT. Host country experience. 17 CHAP IV: DATA AND METHODOLOGY.
25 CHAP VI: DISCUSSION AND CONCLUSION. 34 LIST OF TABLES No. Table Page 1 Table 5.1: Descriptive statistics 26 2 Table 5.2: Correlations Matrix 27 Table 5.3: Results of logistic regression model of entry 3 28 mode choices LIST OF CHART AND FIGURE No. Figure Page 1 Figure 3.1: Analytical Framework 19 ABSTRACT This paper investigates the determinant of the entry mode choice between acquisitions and joint ventures in the context of Vietnam, with the focus on institutions and experience aspects.
There are three factors proposed in this study, namely cultural distance, institutional distance and host country experience, which can have an impact on the selection of entry mode. By employing data of both foreign acquisition and joint venture deals in Vietnam derived from Zephyr for the period of 2000 - 2018, the goal of this research is to explore the influence of each factor to the decision of acquisition or joint venture. The results of this research indicate that the higher cultural distance between Vietnam and home countries leads to the choice of a joint venture by foreign and local firms. In addition, it suggests that the greater economic growth rate of Vietnam has a positive impact to the choice of an acquisition.
NECESSITY With the development of oversea markets, multinational firms would find their interest in penetrating new markets for a variety of reasons: seeking new markets for business growth, taking advantage of low labor cost, valuable resources or local infrastructures, and the like. Grasping different motivations and expectations, the entry mode will be the first and foremost consideration for enterprises to effectively reach their business goals. It is believed that an appropriate entry mode choice enables firms to gain competitive advantages not only in the host country but also in the international market (Veberke, 2009). The choice between each type of entry mode will be based on the levels of ownership, property and commitment sought as well as the availability and need for resources which is determined by the firms (Meyer and Estrin, 2001).
It is also an important strategy in a firm’s internationalization process due to the need for local resources and market knowledge to achieve the firm’s strategic goal (Werner, 2002; Meyer, Estrin, Bhaumile and Peng, 2009). Thus an optimal mode of entry will provide a crucial means to deal with challenges emerging from the internationalization process (Meyer, 2001). It requires all the factors affecting the choice of entry mode to be taken seriously to come up with an optimal entry mode. This phenomenon opens up a research stream on the determinants of entry mode choice to provide a deeper view of the business environment as well as to help the policymakers and managers adopt suitable business practices (He and Zhang, 2018).
While there are inconsistent findings on this topic, it is essential to have further research with different viewpoints to better understand the strategy of cross-border businesses. Shedding light on various aspects of determinants, the previous research brings a wide range of factors affecting entry mode selection, from the general ones such as institutions, industries,. to more specific factors such as venture or firm characteristics. It is important to note that though other elements pose significant effects on the deal and 2 performance of multinational enterprises when entering a new market, the institutions should be taken priority as it relates to all aspects of the external environment which directly decide the business practices of the firms.
Institutions of a nation provide formal and informal “rules of the game” to govern firms’ economic behavior and the ways they interact in a market (Lahiri et al., 2014; North, 1990; Peng, Wang and Jiang, 2008). Under North (1990) classification, a country's institutions can be formal, such as regulations and laws, or informal like norms, values and customs. Since the institutional environment varies with different countries, it generates an institutional context difference as a multinational enterprise invests in a foreign country (Gaur and Lu, 2007; Vo et al. The institutions provide the structure in which transactions and business take place, therefore, the gap of institutions may cause the rise in transaction costs and risk level which directly influence the strategy of firms when going global, especially for the choice of entry mode (Demirbag et al.
Thus, with the aim to enrich the literature of international business, this paper is dedicated to investigate the relationship between the institutions and the selection of entry mode by multinational firms. There have been a significant number of studies on factors that influence the entry mode choice of multinational enterprises. However, the majority of them focused on the context of developed countries. Previous research indicate that the institutional framework in transition economies, in particular, provides significant differences from institutional setting in developed markets (Gelbuda, Meyer and Delios, 2008; Khanna, Palepu and Sinha, 2005; Meyer and Peng, 2005; Wright et al., 2005), resulting in a profound effect on foreign firms’ strategies (Dikova, 2012).
The absence of specialized intermediaries, regulatory systems and contract-enforcing mechanisms in emerging markets, referred to as “institutional void”, interferes the implementation of globalization strategies of many multinational enterprises (Khanna, Palepu and Sinha, 2005). This is consistent with Meyer and Nguyen (2005) and Dikova (2012) which stated that the strategy to enter the transition market is totally different from that in developed countries. This gap in literature on emerging markets and transition economies calls for more papers on this topic, especially in the context of rapid development of these markets with increasing income and growing demand of domestic customers. OBJECTIVE OF THE STUDY From the standpoint mentioned above, this paper focuses on the impact of institution and experience on the choices of entry mode between acquisitions and joint ventures in emerging markets, particularly in Vietnam.
Adopting North (1990) classification, this paper will examine two institutional factors: cultural distance - refer as informal institution, institutional distance - refer as formal institution and also consider the experience factors. Since the two former factors are the fundamental aspects of institutions, the host country's experience appears as a cognitive factor suggested in Scott (1995) institution framework, which is isolated from the influence of industry. Thus it would be interesting to include the host country experience with other institutional factors to examine its impact on the entry mode choice. Taking Vietnam as a typical emerging market, there are two reasons for this paper to choose Vietnam: Firstly, in recent years, Vietnam is outstripping the GDP average of ASEAN region and among the fastest-growing economies, while still in an economic transition process which can be an interesting case of a developing economy.
Although the positive changes were introduced in Enterprise Law 2000 and Vietnam’s Investment Law 2015, there are remaining obstacles in cultural differences, level of competitiveness and restriction on investors who enter the Vietnam market (Nguyen et al., 2020; Vo et al. Thus, the types of relationships between foreign and local firms in this economy demonstrate a big difference to those in developed countries (Giround, 2007; Meschi, Phan and Wassmer, 2016; Vo and Le Hoang, 2017). Secondly, despite the fact that some recent studies on entry mode choice in emerging markets have been published, the number of research in Vietnamese context, especially with the view on institutional factors, is still limited. The available research mainly covers developed or developing countries that already established market economies (Kogut and Singh, 1988; Agarwal and Ramaswami, 1992).
Therefore, it is essential to contribute to the literature on transition economies like Vietnam. CONTRIBUTION My study contributes to the literature and practical implication in many ways. Firstly, this paper contributes to the literature of entry mode choice in transition economy 4 with the effect of cultural distance and economic growth on the entry mode choice. Secondly, the findings have practical implications for the Vietnamese government to establish a favorable investment climate and the quality of governance to attract foreign companies to improve Vietnamese business performance.
The remainder of this paper is organized as follows: Section one presents the review of literature, followed by hypotheses development on different institutional factors that may influence the selection of foreign investors on choosing entry mode. The data and methodology will be discussed in section three and section four will be the empirical findings. The last section discusses and brings this paper to the conclusion. 5 CHAPTER II: LITERATURE REVIEW 2.
LITERATURE REVIEW ON ENTRY MODE CHOICE An entry mode plays a key role in multinational enterprise internationalization strategy (Agarwal and Ramaswami, 1992). It is defined as “a structured agreement that allows a firm to implement its product market strategy in a host country either by carrying out only marketing operations (i. via export modes) or both production and marketing operations there by itself or in a partnership with others (contractual modes, joint venture and wholly-owned subsidiaries)” (Sharma and Erramilli, 2004).