Entry mode choice in vietnam

One of the most determinant factors affecting the choice of an entry mode for a target market is ownership advantages of a firm which is directly related to the behavior and performance of that firm(Dunning 1977, 1980, 1988). Recognizing the importance of the ownership advantage or ownership structure of a firm many researches have been conducted to examine this fact as findings in a Riahi-Belkaoui’s(1996) study and as the result of the research that Cho and Padmanabhan(2001) did to examine the effect of both old and recent decision specific experiences for current ownership structure.

Firms, especially MNCs deciding to enter a foreign market must make one of the most important strategic decisions about the choice of foreign market entry mode such as licensing, equity joint venture(EJV), and wholly owned subsidiary(WOS) which result from the differences in the expansion of ownership level. In other words, the first important strategic decision of multinational corporations must make when they decide to invest in a foreign country is the entry mode choice, and the second essential decision they must make is the level of equity ownership which is directly related to the extent of control if EJV is chosen as their entry mode.

Many studies have been conducted in order to explore thoroughly in China since the first research was carried out by Shan in 1991 about foreign equity ownership level in American EJVs in China, whereas there are few studies made in other emerging economies. As a result, the question arises as to whether or not these results could be generalizable to other emerging economies. To clarify this issue, Tsang decided to replicate previous researches so as to re-test the hypotheses and explore the issues in the same way.

Tsang’s study not only makes a valuable substantial contribution towards Vietnam which is regarded as a less researched emerging economy on account of investigating the determinants of foreign ownership level in equity joint ventures and foreign market entry mode choice in Vietnam, but his study also has strongly influence on Vietnamese economic policy, especially on attracting FDI – one of the most important and strategic objectives of Vietnamese government.

Analysis

Project rationale

In general, research questions are “specific questions that researchers seek to answer”(Creswell 2005).Therefore, expanding a good research question is the most important part of the research process(Lipowski 2008). This leads to the question that what and why the importance of a good research question is. Research question is the central core of most studies and is regarded as a guideline for the investigation(Mertler and Vannatta 2001). As a result, Tsang’s study is not an exception since he also lists some good guiding research questions that is theoretical orientation for his study in collecting data, namely whether or not the previous study findings are generalizable to other emerging economies ?(Page 442, line 29) and whether certain factors perform similarly in predicting EJV ownership preference versus entry mode choice or not ? (Page 443, line 1). According to O’Leary(2004), a good research question must define the investigation, set boundaries and provide direction for a study. That means helping researchers to get the information and leading them to understand what they should focus their energy on so as to explore and investigate their research issues(Maxwell 2005). As regards this issue, Tsang’s research questions are good guiding ones on account of helping him to draw up a list of three important objectives highly regarded as targets that should be obtained before achieving the last aim of his project. Tsang’s research questions emphasize following specific objectives:

Investigating the issue of ownership structure in the context of foreign direct investment(FDI) and examining the decisions concerning market entry mode and equity ownership level made by MNCs when they invest in Vietnam.(Page 442, line 10)

Investigating the determinants of foreign market entry mode and EJV foreign ownership level in Vietnam.(Page 442, line 20)

Investigating both issue concurrently – EJV ownership level and entry mode choice, especially comparing the factors influencing one issue with those influencing the other.(Page 443, line 11)

According to Ellis and Levy(2009), there are four key categories to distinguish among types of research, namely approach, type of data, stage of problem and theory. They emphasized that there are three types of research studies: theory building, theory testing, and theory revising. Theory building represents research studies that aim is to build a theory where no prior solid existed theory to explain phenomena. Theory testing represents research studies that aim is to validate existing theories in new context, and theory revising is related to research studies that aim at revision of an existing theory. According to the classification above, Tsang’s study is theory testing category since its aim is to examine the determinants of ownership level in equity joint ventures and foreign market entry mode choice in the context of Vietnam(Page 441) by replicating Pan’s study and testing hypotheses.

According to Ellis and Levy(2008), “in order for the research to be at all meaningful, there has to be an identifiable connection between the answers to the research questions and the research problem inspiring the study”. In this study, the research problem is Pan’s findings in 1996 about influences on foreign equity ownership level in joint ventures in China are not generalizable to Vietnam although China and Vietnam have some common characteristics. Tsang fully recognized this issue, and consequently Tsang did a good job when he clarified the connection between the research question and research problem.

Maxwell(2005) pointed out that “research questions are not the same as research hypotheses”. In general, a research hypothesis is defined as a “prediction or conjecture about the outcome of a relationship among attributes or characteristics”(Creswell 2005 p.117). As mentioned earlier, Tsang did the same study again so as to re-test the same hypotheses. Therefore, this study has 10 hypotheses classified into 3 groups: country-, industry-, and venture specific factors(Page 445, line 4). Each hypothesis is a prediction about the relationship between one independent factor and EJV ownership level and entry mode choice.

Hypothesis 1 is about the relation between EJV ownership level, entry mode choice and country risk.(Page 446, section 1.1.1).

Hypothesis 2 is about the relation between EJV ownership level, entry mode choice and cultural distance.(Page 447, section 1.1.2).

Hypothesis 3 is about the relation between EJV ownership level, entry mode choice and brand equity.(Page 447, section 1.2.1).

Hypothesis 4 is about the relation between EJV ownership level, entry mode choice and competitive intensity.(Page 448, section 1.2.2).

Hypothesis 5 is about the relation between EJV ownership level, entry mode choice and investment amount.(Page 449, section 1.3.1).

Hypothesis 6 is about the relation between EJV ownership level, entry mode choice and duration.(Page 449, section 1.3.2).

Hypothesis 7 and 8 is about the relation between EJV ownership level and partner alignment.(Page 450, section 1.3.3 ).

Hypothesis 9 is about the relation between EJV ownership level, entry mode choice and Hanoi as the location of EJV.(Page 450, section 1.3.4).

Hypothesis 10 is about the relation between EJV ownership level, entry mode choice and Ho Chi Minh City as the location of EJV.(Page 451, section 1.3.4).

Literature Review

In the previous section, both the rationale of Tsang’s research and the important role of research questions has been fully clarified. According to Bryman and Bell(2007), reviewing the literature is one of the most common ways to refine and revise the research questions. It is usually required more than one year for a research to be published, and an journal article or research considered to be up-to-date should not be older than 5 years(Yount 2006). By examining Tsang’s references, it is acknowledged that most of them was published after 1996. Therefore, most of the journal articles cited in this research is up-to-date, which means that the literature review of this study is not out of date and the content is relevant to the title of the research since Tsang focused on an extensive review of relevant literature basing on the concept of foreign ownership level and entry mode choice. The structural system of the literature is extremely clear and easily understandable. At first, he explained the importance of ownership structure to the performance of multinational corporations(Page 442) and narrowed the focus of this study just in the context of foreign direct investment. By narrowing the scope of a research it can help researcher to make the research be more focus and not be able to fail to answer the research questions. Nunamaker, Chen, Purdin(1991) pointed out that narrowing sufficiently research domains leads to the use of only limited methodologies. Then the researcher had reasonably explanation for the classification of the entry mode and noted that entry mode choice is one of the most important strategic decisions for firms engaging in FDI(Page 442). At the second half of page 442, the researcher showed that there have been many studies of foreign equity ownership level in EJVs in China one of the emerging economies and emphasized that the need of replication of Pan’s(1996) results is an objective of his study. By ordering his literature review logically, Tsang achieved remarkable success in not only helping the readers of this study to catch up with current knowledge in this area easily and quickly but also showing that he had scanned the valuable published researches. What is more, he also identified different view points and contradicting results as analyzing cultural distance independent variable for an example(Page 446).

The researcher also showed that the entry mode choice and EJV ownership level still have been developing separately and pointed out successfully the major contributions of his study when it examined the two issues simultaneously and drew a direct comparison of the factors influencing one issue with those influencing the other(Page 443). The researcher also emphasized that and the reason why this research is vital and meaningful to Vietnam since one of the most important objectives of Vietnamese government is attracting FDI. Accordingly, he successfully proved that his study is important.

Moreover, Tsang identified successfully the research gap in current knowledge, namely there has never been a research on examining the determinants of ownership level in equity joint ventures and foreign market entry mode choice in the context of Vietnam before(Page 441) through making direct references to some of the most relevant important prior studies and strongly emphasizing the fact that Vietnam is a less researched emerging economy.

Paradigm & Design

Paradigm

The research is conducted so as to re-test the hypotheses; therefore, it is based on deductive approach(Bryman and Bell 2007). In particular, 10 hypotheses is examined through the data capture of independent variables and dependent variables that provide the basis of relationship between the two types of variables. The research is completely objective since data is collected from not only other researcher’s data but also from official sources, namely The List of Licensed Projects from the Ministry of Planning and Investment of Vietnam. In order to analyze data, Tsang used logistic regression which is sometimes called logistic model, a statistical model used for prediction of the probability of occurrence of an event by fitting data to a logistic function or logistic curve, as well as statistical method as Bivariate analysis; consequently , Tsang’s research was conducted in a way that is value free. Moreover, there is a clear suitable distinction between scientific statements which are come from the critical analyzation of Tsang’s models(Page 454, 455, 456, 457) and normative statements based on empirical studies, which justifies the reasons why there are discrepancies between Pan’s study and Tsang’s study(Page 459). As mentioned earlier, the object of this study is not dependent on the researcher; accordingly, Tsang’s study is based on positivist paradigm(Krauss 2005), and listed reasons above are seriously considered as principles to present the ontological and epistemological bases for the paradigm used in this study.

Ontology:

Although the measures of the independent variables followed Pan’s study very closely in order to facilitate a fair comparison of findings(Page 452), far few hypotheses were supported in this study than in Pan’s(Page 459, section 4.1). Tsang also listed four reasons to explain why there are discrepancies between the two studies; consequently, Tsang is the same as a positivist researcher holding a belief that reality is existing independently of researchers’ mind and interpretation(Lynch 1996; Krauss 2005).The ontological orientation of this study is objectivism since the research gives expression to a view of social reality as an external and objective reality(Bryman and Bell, 2007).

Epistemology:

The ontology above decides the epistemological basis of this study, the epistemological orientation of this study is positivism since the researcher is outsider to ensure the objectiveness of the truths and prevent any biases from influencing his study(Mertens 1998; Bryman and Bell 2007). Tsang wanted to replicate Pan’ study to test the hypotheses in the context of Vietnam. In epistemology, he considers that the social world can and should be studied according to the same principles, procedures like what Pan did, and ethos as the natural sciences(Bryman and Bell, 2007).

Methodology:

By entailing the collection of numerical data, showing an objectivist conception of social reality, Tsang exhibited the principal orientation to the role of theory in relation to research as deductive and testing of theory; therefore, this research is based on quantitative strategy.

Design:

Cross-sectional design since data is collected in more than one case. However, data are collected more or less at the same time because Tsang used the Vietnamese official database to get information from all FDI projects registered with the Vietnamese government and other statistics sources like annual country risk ratings of Vietnam taken from Institutional Investor. Tsang wanted to examine the variation in entry mode and foreign equity ownership level effected by factors such as country risk, cultural distance, advertising intensity, competitive intensity, investment amount, duration, number local of partners, number foreign of partners, and location(Bryman and Bell 2007, p.55). The researcher also had a systematic and standardized method for gauging variation and succeeded in examine the relationships between variables.

Methods

Tsang’s (2005) research data are collected from The List of Licensed Project published by the Ministry of Planning and Investment of Vietnam(Page 451, section 2.1), and the independent variables used to re-test the hypotheses are gathered from other organizations such as Institutional Investor(Page 452, section 2.2) and other previous researcher’s data such as cultural distance was measured by Kogut and Singh’s(1988) index with updated cultural dimension scores extracted from Hofstede(2001)(Page 452), and from Almanac of Business and Industrial Ratios(1998 edition).Therefore, Tsang’s data collection method is from secondary sources(Greener 2008).

Data analysis:

To examine the determinants of foreign EJV ownership level and market entry mode choice in the context of Vietnam, Tsang used the probability of choosing one level of foreign equity ownership in the EJV versus another level as the dependent variable(Page 451, section 2.2) and determinants of foreign equity ownership level in EJVs are independent variables(Page 452, section 2.2). By replicating Pan’s study, Tsang wants to show the relationship between independents variables and dependent variables or to point out whether or not the hypotheses are supported(Page 454).That is why Tsang used the Bivariate analysis(Table 3) since this analysis “is concerned with the analysis of two variables at a time in order to uncover whether or not the two variables are related”(Bryman and Bell 2007). To measure the central tendency of independent variables and their correlations(Page 451), Tsang used the Univariate analysis(Table 1).

Impact and Access issue:

The research does not break the ethical principles because data is all published and from official organization as well as other’s researchers.

Results & Presentation

Tsang has tremendous success in his study aim through examining the determinants of ownership level in equity joint venture and foreign market entry mode choice – two important strategic factors for firms engaging in FDI – in the context of Vietnam. Tsang also concluded that some hypotheses were supported and provided evidence consistent with past research(Page 460). Besides, Tsang also admitted that far few hypotheses were supported in his study than in Pan’s. However, he also made some normative statements giving possible reasons for the discrepancies between the two studies such as the bias to one country or the bias to large EJVs(Page 459) and implicated future research should remove the Hong Kong observations from Pan’s database, re-run the regressions, and compare the findings(Page 459). Therefore, Tsang not only mentioned which hypotheses were supported but also had implications for future research. This leads to the questions that what reliability, validity and replicability in this study are. In reliability aspect, because the data is collected from official sources and other researcher’s result, the same result would be obtained if someone repeated this research. In terms of validity, Tsang used effectively mathematical way to measure the relationship between independent variables and dependent variable that is statistics. Besides, the researcher used Bivariate analysis – the method for analyzing relationship between two variables. This method is valid since it “measures what is supposed to measure”(Leedy and Ormrod 2005). Regarding replicability, Tsang fully detailed his procedures, so the replication is possible. Actually, the research also had a good peer-review as a good evidence to illustrate the reliability, validity of the research at the acknowledgements section of Tsang’s study.

Conclusion

In conclusion, the research is presented with a clear logical structure and effective expression. By clarifying the aims of the research and the two main part of the study, Tsang succeeded in not only pointing out the research gap from the previous studies through giving clear explanation, relevant concepts and updating some previous researches to illustrate hypotheses in a comprehensive and persuasive way but also in showing effectively the way he collected and analyzed data. As a result, Tsang’s study made valuable contributions to current knowledge that other researchers would be able to make easier replication.