Joint venture versus wholly owned subsidiary

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Chapter 1 Introduction

This Bachelor Thesis is in the field of Organization & Strategy. The main topic chosen was entry modes and boundaries of the firm. A more specific subject was needed and therefore this thesis will investigate what impact different types of experience have on the choice between a Joint Venture and a Wholly Owned Subsidiary.

In this chapter the topic will be presented in the form of a problem indication. Then the problem statement that follows from the problem indication will be presented with the accompanying research questions and theoretical framework. Furthermore, the research design and data collection, and the structure of the thesis will be presented as well.

1.1 Problem Indication

Nowadays, the world is getting smaller and smaller. To survive companies need to enter in markets abroad. The type of entry mode is very important since existing research has shown that it brings long-term consequences for the firm along and it is a decision you cannot easily change (Pedersen, Petersen & Benito 2002). There are different types of entry modes such as exporting, cooperation, and foreign direct investment (FDI). This thesis will focus on FDI, which consist of Joint Ventures and Wholly Owned Subsidiaries.

A Joint Venture is defined as combining assets of two or more companies in a common separate legal organization (Kogut, 1988; Chang & Rosenzweig, 2001). A Wholly Owned Subsidiary can be created either by an Acquisition, which is the purchase of a local company, a Greenfield Investment, which builds a new plant from scratch (Chang & Rosenzweig, 2001), or by a Brownfield Investment, in where the resources of the investing company dominate over the resources in the acquired company (Meyer & Estrin, 2001).

Over the years, it has been thoroughly investigated which benefits companies have when they gain experience. With experience you can think of, for example, the international experience the company has, the experience with a specific entry mode or experience with the host country. For example, the study of Chang and Rosenzweig (2001) focused on experience with a specific entry mode and host country experience. The study of Shaver, Mitchell and Yeung (1997) focused on experience of other companies. Thus, the existing literature focuses on one or a couple of types of experience but they are not investigated together. This means that the knowledge is scattered and not integrated. Therefore, this thesis is going to investigate different types of experience and what kind of impact they have on the choice between a Joint Venture and a Wholly Owned Subsidiary, and whether increased experience leads to a switch between these two entry modes. The theory that will be used is organizational learning. The general idea of organizational learning is that increased knowledge and understanding (Fiol & Lyles, 1985) gained in the past will lead to specific routines that guide behavior (Levit & March, 1988). Companies can learn from their past behavior, due to experience, and can use this experience to adapt to the new situation in which they are involved.

1.2 Problem Statement

The problem statement that leads from the Problem Indication is:

How do different types of experience affect the choice between a Joint Venture and a Wholly Owned Subsidiary?

1.3 Research Questions

To provide an answer to the problem statement several research questions are needed. The different types of experience that are relevant to investigate here are firstly experience with the specific entry mode, thus in this case experience with a Joint Venture or experience with a Wholly Owned Subsidiary. When, for example, experience with a Joint Venture is good, which means the performance of the Joint Venture is good, it is interesting to investigate whether this will lead to choose for a Joint Venture again or not. Therefore, the fist research questions will be:

1. How does experience with the specific entry mode, Joint Venture or a Wholly Owned Subsidiary, affect the choice between these two options?

The second type of experience that is important to investigate is experience with the host country, industry, and similar investments. Since this thesis is about entering in markets abroad it is important if experience with the host country, experience with the industry and experience with similar investments (investments made in similar countries/cultures) leads to a specific choice between the two modes of entry or since the company gains experience over time whether this will lead to a switch between the entry modes. Therefore the second research question will be:

2. How does experience with the host country, industry,and similar investments affect the choice between a Joint Venture and a Wholly Owned Subsidiary?

The final type of experience that needs to be investigated is experience of other companies. This is also important, since companies can learn from each other's experience due to information spillovers and therefore they can learn from each other's mistakes and successes. Therefore, this can have an effect on the choice between a Joint Venture and a Wholly Owned Subsidiary and therefore, the final research question will be:

3. How does experience of other companies in the host country affect the choice between a Joint Venture and a Wholly Owned Subsidiary?

1.4 Theoretical Framework

1.5 Research Design & Data Collection

The type of research will be exploratory. A literature review will be conducted on the different types of experience and how this affects the choice between a Joint Venture and a Wholly Owned Subsidiary. This thesis will rely on secondary sources. The databases used will be from the library of Tilburg University and Google Scholar. The publications that will be used are, for example, Journal of International Business Studies, Strategic Management Journal, The Academy of Management Journal, and so on.

1.6 Structure of Thesis

In Chapter 2, firstly the theory of organizational learning will be briefly discussed. Then the research questions of the different types of experience will be examined. In order to investigate the research questions it will be firstly explained what is exactly meant by the research question, then the theory in relation to the independent variable will be discussed, followed by an application of the theory to the research question to conclude with a hypothesis based on this theory. The Hypothesis will not be tested due to time limitations, and therefore these hypotheses will be based only on existing literature.

In the final Chapter, chapter 3, this thesis will conclude with the contribution to theory that will follow from answering the problem statement given in section 1.2 by using the conclusions of the different research questions. Furthermore, this chapter will give some managerial implications. Finally, this chapter will provide the limitations/issues that were encountered during the literature review and will give some recommendations for future research. 

Chapter 2 Theory

In the following section, section 2.1 of chapter 2 the theory of organizational learning will be explained. The continuing sections, section 2.2, 2.3, and 2.4 will discuss the research questions by firstly explaining what is exactly meant by the research questions. Then the theory in relation to the independent variables, experience with entry mode, experience with host country, industry and similar investments, and other company's experience, will be discussed followed by an application of the theory to the dependent variable and each section will then conclude with a hypothesis based on this theory.

2.1 Theory of Organizational Learning

Experience is defined as companies that have already participated in this situation before, meaning that this prior experience in this situation will lead to learning and results in specific behaviors and routines. Therefore, this thesis is based on the theory of organizational learning, and as already mentioned in section 1.2, the general idea of this theory is that increased knowledge and understanding (Fiol & Lyles, 1985) gained in the past will lead to specific routines that guide behavior (Levit & March, 1988).

Organization learning is firstly viewed as “routine-based”, since, on the one hand, due to past experience companies are likely to choose for the same routine again when the experience is good, and on the other hand, the company will not choose for the same routine again when the experience was not good (Cyert & March, 1963). Secondly organizational learning is viewed as “history dependent” (Lindblom 1959, Steinbruner 1974) since companies act according to the feedback they gain due to the outcome of this routine (Levit & March, 1988). Finally organizational learning is viewed as “target-oriented” (Simon, 1955; Siegel, 1957) and that means that the behavior of companies depends on the outcomes they have received and the ambition they have (Levit & March, 1988).

In conclusion, companies learn from their past behavior and the knowledge they gain from this past behavior leads to specific routines. These routines include the forms, rules, procedures, conventions, strategies, and technologies, thus, basically everything a company needs to deal with. These routines are transmitted through socialization, education, imitation, professionalization, personnel movement, mergers, and acquisitions, and this changes due to gaining experience with a specific situation (Levit & March, 1988). Based on the above, it is investigated whether the different types of experience lead to the choice of a Joint Venture or a Wholly Owned Subsidiary and whether the experience they have gained in this situation will lead to another choice of entry mode.

2.2 Experience with a Specific Entry Mode

The first research question is: “How does experience with the specific entry mode, Joint Venture or a Wholly Owned Subsidiary, affect the choice between these two options?” The question here is whether companies change the mode of entry when their experience with one mode of entry increases or since they have experience with one of the entry modes they will stay with this particular entry mode. Off course, this also depends on whether the experience with the performance of the entry mode was successful or unsuccessful.

2.2.1 Theory in relation to experience with specific entry mode

Several studies have investigated what kind of effect experience with a specific entry mode has, in this case experience with a Joint Venture or experience with a Wholly Owned Subsidiary. For example, the study of Padmanabhan and Cho (1999) has, amongst others, investigated whether companies with prior experience in full or shared ownership are likely to choose the same mode of entry again when this experience was successful. They have investigated this as well with prior experience with acquisitions and Greenfield investments. They have found evidence that companies are more likely to choose for the same mode of entry again when this experience was successful. The study of Yiu and Makino (2002) had the same conclusion in that they have also found evidence that companies are more likely to choose for a Joint Venture again when the past entry modes of the company were also Joint Ventures.

The study of Chang and Rosenzweig (2001) has also investigated how experience with a specific entry mode affects the choice for the new investment; in particular they have investigated the sequence of entry mode choices by multinational companies within multiple lines of business. They have not found evidence that the entry mode that was first used in one particular line of business influences the entry mode choice for another line of business. They did found evidence that within a line of business companies choose the same entry mode as they have used before. Suggesting that experience with entry modes in a particular line of business is more easily collected than taking the company as a whole. For example, they found that a first entry by an acquisition leaded to subsequent acquisitions, and that a first entry by a Joint Venture leaded to subsequent Joint Ventures. One import limitation of their study is, however, that they have not taken into account performance, the performance of whether the mode of entry was successful or unsuccessful, which is an important determinant to choose for this particular entry mode again.

The study of Delios and Beamish (2001), however, did investigate on performance. They have investigated if greater experience with Joint Ventures leads to a higher survival rate and higher profitability. They have found evidence for both survival rate and profitability (Delios & Beamish, 2001), suggesting that when the performance of a Joint Venture is good the company is more likely to choose for this entry mode again. They have also compared it to experience with a Wholly Owned Subsidiary. They did find evidence for survival rate, but not for profitability, indicating that experience with the host country is important in the case of a Wholly Owned Subsidiary (Delios & Beamish, 2001).

The study of Barkema, Shenkar, Vermeulen and Bell (1997) has investigated on the longevity of Joint Ventures. They have investigated what impact experience with an international Wholly Owned Subsidiary, a domestic Joint Venture, and an international Joint Venture affect the longevity of this new international Joint Venture. They have found that experience with international Wholly Owned Subsidiary or experience with a domestic Joint Venture is positively related on the longevity of a new international Joint Venture (Barkema, Shenkar, Vermeulen & Bell, 1997), suggesting that experience with one of these two makes companies to choose for an international Joint Venture next time, since the longevity of the new international Joint Venture last longer. They have not found evidence that previous experience with international Joint Ventures has any affect on the longevity of the new international Joint Venture, suggesting that the companies in their sample have not learned from their previous experience (Barkema, Shenkar, Vermeulen & Bell, 1997). This is kind of surprising and maybe a limitation of their study, since their sample existed only of 25 Dutch Multinationals, thus, if this is tested with a larger sample the outcome would be different.

2.2.2 Application of theory to experience with specific entry mode

The studies of Padmanabhan and Cho (1999), Yiu and Makino (2002), Chang and Rosenzweig (2001), and Delios and Beamish (2001) have found evidence that experience with a specific entry mode will lead the company to choose for the same entry mode again as long as this experience was successful, which is consistent with the theory of organizational learning where it is stated that companies will choose the same routine when it was successful in the past (Levitt & March, 1988). It is important to take into account, as what Delios and Beamish (2001) have investigated, that it only holds for a similar line in business. The study of Barkema et al. (1997), however, is a bit contradicting to these other studies, since they have found that previous experience with an international Wholly Owned Subsidiary and previous experience with a domestic Joint Venture is positively related to the longevity of a new International Joint Venture, suggesting that previous experience with a Wholly Owned Subsidiary makes companies to choose for an international Joint Venture next time. Since the other three studies are consistent with each other it is, however, assumed in this thesis that experience with a specific entry mode leads the company to choose for the same entry mode again when the experience was good and successful.

2.2.3 Hypothesis 1

The first research question is: “How does experience with the specific entry mode, Joint Venture or a Wholly Owned Subsidiary, affect the choice between these two options?” and based on these studies mentioned above it is suggested that good experience with a specific entry mode is positively related to stay with this specific entry mode. Therefore, the first hypothesis will be:

h3: When the prior experience of the company is successful with a specific entry mode, a Joint Venture or a Wholly Owned Subsidiary, the greater the likelihood that the company will choose the same mode of entry again.

2.3 Experience with Host Country, Industry, and Similar Investments

The second research question is: How does experience with the host country, industry,and similar investments affect the choice between a Joint Venture and a Wholly Owned Subsidiary? Firstly, the question is if companies choose for a Joint Venture or a Wholly Owned Subsidiary if their experience with the host country increases. With the term host country experience it is taken into account three pillars of the institutional environment (Scott, 1995). These three pillars are regulative pillars (rules and laws), normative pillars (social values, cultures, norms), and cognitive pillars (the cognitive structures in society that people consider as being for granted). Furthermore, it can also be thought of experience within the industry in the host country and whether experience within this industry in this particular country has affect on the choice between a Joint Venture and a Wholly Owned Subsidiary. Finally, what is also being taken into account is experience with similar investments. Similar investments are defined by investments made in similar countries, the countries with a similar culture and whether companies who have experience in a particular host country will choose for the same entry mode in a similar country, or as the company already gained experience in a similar country the company will choose for another entry mode. In order to investigate these three variables, host country, industry, and similar investment, it will firstly examine the studies on host country and industry and then continue with examining studies on similar investments.

2.3.1 Theory in relation to experience with host country/industry/similar investments

In the study of Yiu and Makino (2002) a distinction is made between regulative, normative, and cognitive pillars. They have found evidence that when regulative and normative restrictions are very high in a particular host country companies tend to choose for a Joint Venture over a Wholly Owned Subsidiary. The question is, however, if due to experience with the host country this tendency to choose a Joint Venture over a Wholly Owned Subsidiary changes.

The study of Shaver, Mitchell and Yeung (1997) has, amongst others, investigated whether companies with experience in the host country are more likely to survive than inexperienced companies. They have found evidence for this. Delios and Beamish (2001) have concluded this as well, but in their study, as already was indicated in section 2.2.1 they only found evidence in the case of a Wholly Owned Subsidiary for survival rate but not on profitability while in the case of a Joint Venture they found evidence for survival rate and profitability, suggesting that experience with the host country is important in the case of a Wholly Owned Subsidiary. They have also found in another study that an increase in the host country and industry experience leads to the mitigation of risk since then the company gains knowledge of this host country/industry (Delios & Beamish, 2000). Therefore, they concluded, experienced companies are less likely to adjust their level of equity since they are aware and know the specific risks that can arise. Therefore, it could be argued that an increase of experience in the host country/industry leads the company to choose for a Wholly Owned Subsidiary over a Joint Venture.

The study of Chang and Rosenzweig (2001) has, besides the impact of experience with a specific entry mode as indicated in section 2.2.1, also investigated the effect of host country experience. They assumed that specific risks that are related to cultural distance (the differences between national cultures) will decline the more experience a company has with the host country due to accumulating knowledge. They have found evidence that with a higher level of knowledge of the host country a Greenfield Investment is the preferred option and an Acquisition or a Joint Venture the least preferred option. They have also found that Joint Ventures are positively related to enter with an acquisition in later entries due to the required knowledge the company already gained from the host country and that will make them more confident to enter by an acquisition (Change & Rosenzweig, 2001). Therefore, it can be suggested that a higher experience in the host country will lead to the choice of a Wholly Owned Subsidiary. Besides this, as also indicated in section 2.2.1, they have found evidence as well that within a line of business companies choose for the same entry mode as they have used before which was not the case when companies do not have experience within the line of business, suggesting that industry experience lead companies to choose for the same mode of entry again. Since, as mentioned before, they also found this positive relation between a Joint Venture in earlier entries and Acquisitions in later entries, it could be argued as well that when the company gains experience in the industry in this particular country the result would be the same as the result for host country experience, meaning that when the company gains experience in the industry the company would be more likely to choose for a Wholly Owned Subsidiary instead of a Joint Venture due to accumulating the required knowledge the company needs.

Johanson and Vahlne (1977) believe that experiential knowledge is of critical impact since in the host country the company has, at first, no experiential knowledge and this knowledge must be gained during the operations in the host country. They have found that over time companies become less uncertain and more confident of themselves that they can estimate risks and returns correctly and that they can manage their operations properly. Therefore, they have also found, just as Gomes-Casseres (1989) and Agarwal and Ramaswami (1992), that experience of companies in the host country/industry will make companies to choose for a Wholly Owned Subsidiary instead of a Joint Venture.

To investigate on experience with similar investments the study of Kogut and Singh (1988) will firstly be explained. They explain the differences in national cultures. They have investigated that a higher cultural distance (the differences between countries/cultures) between countries will lead the company to choose for a Joint Venture or a Wholly Owned Greenfield investment over an Acquisition under the premise that countries with greater culture distance will have greater costs associated with acquisitions relative to Joint Ventures or to Wholly Owned Greenfield investments. They have found evidence that cultural distance does have an effect to choose a Joint Venture over an Acquisition. But turning this around, it can therefore be suggested that the smaller the cultural distance the more likely the company will choose for an Acquisition over a Joint Venture or a Wholly Owned Greenfield investment. Davidson (1980) has investigated if similarity between countries is important and encourages direct investment due to similar languages and cultures and found that companies are more likely to invest in similar countries. Johanson and Vahlne (1977) argue that additional commitments (to choose for a Wholly Owned Subsidiary) are only taken in very small steps unless the company's market conditions are stable and homogenous, or that the company has already experience in other markets with similar cultures. This suggests that companies that have made investments in similar countries/culture are better able to make huge steps in the new host country. Leading from this it is likely that companies who have experience in similar countries/cultures are more likely to choose a Wholly Owned Subsidiary over a Joint Venture, due to accumulating knowledge the company needs to be confident to make this particular decision.

2.3.2 Application of theory to host country/industry experience

As mentioned above, the study of Yiu and Makino (2002) has found evidence that when regulative and normative restrictions are very strong companies tend to choose for a Joint Venture over a Wholly Owned Subsidiary. Furthermore, the other studies described above found clear evidence that when the experience increases with the host country/industry means that companies are aware of the risks involved in this host country and have the required knowledge they need to become confident enough to prefer a Wholly Owned Subsidiary over a Joint Venture. Johanson and Vahlne (1977) argue that companies that have made investments in similar countries/cultures are better able to make huge steps in the new host country, suggesting that when a company gains experience with similar investments they are more likely to choose a Wholly Owned Subsidiary over a Joint Venture. This is also consistent with the theory of organizational learning, since companies learn from their past experience and this experience changes the way of acting due to learning about the host country/industry.

2.3.3 Hypothesis 2

Since the second research question is: “How does experience with the host country, industry,and similar investments affect the choice between a Joint Venture and a Wholly Owned Subsidiary?” and based on these studies where the evidence found is clear visible that experience with  the host country, industry, and similar investments is important for survival and performance, and that more experience of companies leads to choose a Wholly Owned Subsidiary over a Joint Venture the second hypotheses will be:

h3: The more experience a company has in the host country, industry, and with similar investments, the greater the likelihood that the company will choose a Wholly Owned Subsidiary over a Joint Venture.

2.4 Experience of Other Companies

The third research question is: How does experience of other companies in the host country affect the choice between a Joint Venture and a Wholly Owned Subsidiary? The question here is whether the experience of other companies in the host country leads for new entrants to choose for a Joint Venture, or since the other companies already have experience and the new entrants can learn/imitate from this experience they will choose for a Wholly Owned Subsidiary.

2.4.1 Theory in relation to experience of other companies

The study of Shaver, Mitchell and Yeung (1997) has, amongst others, investigated what kind of impact experience of other companies have on survival of foreign direct investments. Later entrants can namely learn from previous entrants due to information spillovers, since this knowledge becomes public knowledge. Such information can be information about product-market segmentation, suppliers, and plant locations and so on. Therefore the new entrant can learn from mistakes and successes of the earlier entrants. They have found evidence that foreign direct investments undertaken by companies who already have invested in this country before but not in the specific target industry will benefit from experience of earlier foreign entrants. They have also found evidence that companies who did not have already invested in the host country are not able to learn from previous foreign entrants. Investments of companies in the specific target industry will also not benefit from information spillovers, since they have already obtained the required knowledge they needed (Shaver, Mitchell, & Yeung, 1997). Therefore, it is suggested that experience of previous foreign entrants is positively related to the survival of foreign direct investment, as long as the company who wants to invest in that specific target industry has already experience in another target industry in the host country.

The study of Delios and Henisz (2000) has, amongst others, investigated if companies from the same business group learn from each other's experience in a host country. Business groups exist in a variety of countries but the study has focused on Japan's Keiretsu, especially on horizontal Keiretsu. Horizontal Keiretsu are basically business alliances where member companies are integrated with each other, therefore there is a good information flow in different areas, such as in ongoing trading relationships, collaborative projects, and personnel exchanges (Gerlach, 1992). Therefore, they have investigated what kind of impact expropriation hazards (with a distinction in public and private expropriation hazards) have on companies who belong to a Keiretsu. Public expropriation hazard is for example that the state of the host country is present in every economic transaction (North, 1981, 1990), in the form of regulatory or tax policy shifts. Private expropriation hazard is for example cooperation with a company of the host country in the form of a Joint Venture, where the partner company behaves in an opportunistic behavior. It is assumed that the greater the public hazards the more companies have a tendency towards a Joint Venture and the higher private hazards the more companies have a tendency towards a Wholly Owned Subsidiary. They have found evidence that experience of companies in the same business group reduces the sensitivity of a firm to public expropriation hazards, suggesting that experience of the other companies in the same business group will benefit the new entrant and is basically a substitute for own-company experience (Delios & Henisz, 2000). It can be suggested from this result that new entrants have a tendency to choose for a Joint Venture due to the existence of greater public expropriation. No evidence was found for experience of companies in the same business group concerning private hazards, suggesting that experience of the other companies will not benefit new entrants concerning private hazards (Delios & Henisz, 2000).

The study of Yiu and Makino (2002), however, has investigated if companies follow their competitors in the way that they choose the same mode of entry when that mode of entry was successful for the competitor in the host country. They have found evidence that when the past entries of the other company were Joint Ventures the more likely the company will choose a Joint Venture as well.

2.4.2 Application of theory to experience of other companies

Based on these studies it can be suggested from the study of Shaver et al. (1997) that experience of previous foreign entrants is positively related to the survival of foreign direct investment, as long as the company who wants to invest in that specific target industry has already experience in another target industry in the host country. The study of Delios and Henisz (2000) suggest, however, that companies are not required to already have experience in the host country, although in this case companies belong to the same business group. From this study it can also be suggested that new entrants have a tendency to choose for a Joint Venture due to the existence of greater public expropriation hazards. They have not found evidence that companies have a tendency towards a Wholly Owned Subsidiary when the private expropriation hazards are higher. The study of Yiu and Makino (2002) found evidence that companies are likely to follow their competitors and use the same mode of entry. It is clear from these studies that companies can learn from the other company/competitor due to information spillovers and they are also able to imitate the mode of entry. What is said in the study of Delios and Henisz (2002) that the experience of the other company is basically a substitute for a company's own experience which is also consistent with the theory of organizational learning where companies can also learn by imitation.

2.4.3 Hypothesis 3

Since the third research question is: How does experience of other companies in the host country affect the choice between a Joint Venture and a Wholly Owned Subsidiary?” and based on these studies above it is assumed that companies are able to learn from each other and are able to imitate the other company. Therefore, the third hypothesis will be:

H3: When the prior experience of the other company is successful with a specific entry mode, a Joint Venture or a Wholly Owned Subsidiary, in a particular host country the greater the likelihood that the new entrant will choose the same mode of entry.

Chapter 3 Conclusion

This final chapter will first discuss the hypotheses presented in chapter 2 to answer the problem statement. Furthermore, this chapter will continue with managerial implications and finally, this chapter will end with limitations and provide some recommendations for future research.

3.1 Contribution to Theory

The problem statement that this thesis will provide an answer to is: “How do different types of experience affect the choice between a Joint Venture and a Wholly Owned Subsidiary?” To examine this problem statement several research questions were investigated which leaded to the development of hypotheses based on the theory of the different independent variables which were experience with entry mode, experience with host country/industry/and similar investments, and experience of other companies. These hypotheses are, basically, the answers to the research questions presented in chapter 1.

These conclusions are that, first of all, successful prior experience of the company with a specific entry mode will lead to choose the same mode of entry again, in this case a Joint Venture or a Wholly Owned Subsidiary. Secondly, the more experience a company has within the host country, industry, and with similar investments makes companies confident enough to choose a Wholly Owned Subsidiary over a Joint Venture due to accumulating knowledge which mitigates the risks involved. Finally, successful prior experience of the other company within a particular host country will make the new entrant to choose the same mode of entry as well since the experience of the other company is seen as a substitute for the experience of the new entrant.

To come to the problem statement, the answer is that the different types of experience have a different effect on the impact on the choice between a Joint Venture and a Wholly Owned Subsidiary. Experience with entry mode and experience of other companies have the same effect on the choice between a Joint Venture and a Wholly Owned Subsidiary, in that when the mode of entry was successful the company will choose the same mode of entry. The effect of experience with host country/industry/and similar investments is different in that the result is that companies switch from a Joint Venture to a Wholly Owned Subsidiary when the experience increases with these different variables. What needs to be taken into account, however, is that host country experience is a very important variable in that most studies concluded that in the most cases they have examined much is related in the end to host country experience meaning that it can be suggested that host country experience is one of the most important variables considering the choice of entry mode.

3.2 Managerial Implications

From a practical perspective, it is really important that managers think over their decisions thoroughly when deciding about the mode of entry in markets abroad. Since, as mentioned in the Problem Indication in Chapter 1, the type of entry mode is very important because as existing research has shown it brings long-term consequences for the firm and besides that it is not a decision you can easily change (Pedersen et al. 2002). Furthermore, managers are recommended to look closely to the experience they have with the company with the specific entry mode, experience with host country/industry/and similar investments, and the experience of other companies, since these types of experience have shown that they have an effect on the choice of entry mode. Moreover, it is important that managers learn and are able to learn from this prior experience or experience of other companies to make the right choice to be able to be successful. 

3.3 Limitations and Recommendations

There are several limitations to this thesis. First of all it is important to take into account that this thesis was conducted in a very short amount of time, although the literature review reviewed many studies who are considered to be of (very) high quality it needs to be noticed concerning the generalize ability of this thesis. Furthermore, also due to time restrictions the hypotheses developed in chapter 2 were not tested and are only based on prior research, thus on secondary sources. Besides this, some studies used in chapter 2 to develop the hypothesis consisted of small samples, for example the study of Barkema et al. (1997) which consisted of only 25 Dutch Multinationals, meaning that the result could sometimes be different then if it was tested with a larger sample, meaning that there could be a bias in the result. Furthermore, this sample consisted only of Dutch Multinationals which means that from a globally perspective it is not guaranteed that the outcome will be the same. Finally, this thesis only focused on Joint Ventures and Wholly Owned Subsidiaries instead of considering all the entry modes.

Due to the limitations mentioned above, it is recommended that first of all for future research larger samples from different parts of the world need to be tested to make sure there is no bias in the results. Furthermore, it is also recommended to include more entry modes in the research to make the result more complete, since in this thesis the focus was only on Joint Ventures and Wholly Owned Subsidiaries. Finally, what could be recommended is to include more types of experience that could be important for the choice of entry mode, although this thesis tried to include already many of them.

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