Description
This thesis discusses the effect of country risk of seven developing countries on the behavior of ten American multinational corporations (MNC) over four decades. It shows that country risk has the explanatory power to significantly determine the corporate behavior when entering a foreign, developing country. Aside from country risk only a few other factors could prove to have contributed to the MNCs choices how to enter the new market. Further the thesis will explains that enterprises which did choose the right combination of country risk and mode of entry were in general quite successful. The framework for the analysis is built upon the eclectic model of Hill, Hwang, and Kim; a holistic model based on several managerial theories, specific transaction-cost theory, resource-based theory and bargaining power theory. Due to this comprehensive approach the model has higher explanatory power than models based only on one of the mentioned theories. The other parts of the framework are qualitative and quantitative country risk data and 51 cases of company entries into one of the seven developing markets. The thesis shows that a pure transaction cost-model or resource-based model is insufficient to explain the choice of market entry mode and, therefore the holistic eclectic model is chosen. At the same time a resource-based view provides the hypothesis, that country risk does significantly explain the behavior of the MNCs in the last four decades. In opposition to a transaction cost-model I assume that companies will tend to choose a mode of low resource-commitment for developing markets with a high country risk and vice versa. In cases where this hypothesis does not hold true the other forces of the eclectic model will be tested to determine, which the minor significant factors are. The thesis uses the PRS Group's International Country Risk Score (ICRS) in combination with qualitative data to determine country risk for each relevant period of time during the four decades. The cases are built by a mixture of corporate data and reports on the MNCs and then combined with the found risk data, to test the hypothesis.
