Examining Effectiveness of Resource and Institutional based Entry modes of SMEs in Emerging Market

Examining Effectiveness of Resource and Institutional based Entry modes of SMEs in Emerging Market

Introduction:

Due to the rapid growth of globalisation, emerging markets offer many opportunities for businesses to expand their operations. The world, including emerging markets, is more connected than ever before through trade and movements of capital, people and information (Dobbs, Manyika & Woetzel, 2015). Several factors influence the decision of SMEs to enter the developing markets that includes liberalisation measures, availability of resources, cheap labour, exploration to joint ventures, local government support, straightforward foreign direct investment, acquisition. Besides, SMEs extend support to host countries by increasing employment opportunities, competition, innovation, trade of skills, technological advancement, and industry expansion. In addition, considering factors such as increased competition, scarcity of resources, less technological advances and a shortage of skilled labour, SMEs seek to enter new markets or economies in order to utilize the local resources and achieve growth.

Moreover, by geographical expansion SMEs emphasise product development and broadening their target audience in the new market and take competitive advantage of developing economies. In addition, strong competition in the home market makes SMEs seeks better possibilities of operational and financial growth in an emerging market. Also, emerging economies offer a significant difference in the formal and informal institutions. Thus, identifying appropriate rising markets is the core strategic decision that enables businesses to set long term targets and objectives. Nevertheless, SMEs can expect growth opportunities in the emerging markets, though they ought to consider risk factors.

Key Characteristics of Emerging Market:

Emerging markets refer to the economies that experience less economic growth in comparison to the economically developed nations.  Emerging economies experiencing rapid economic growth including, a rise in GDP, increase in per capita, and trading by attracting global investors and businesses to operate in their market. The BRICS economies are a group of nations that consist of Brazil, Russia, India, China and South Africa. These large economies have changed their business and trading environment by opening doors for investors, SMEs, MNCs, and talent and technology exchange. Emerging markets are a union of emerging fields, new activities, products and services for which shared rules and norms are not yet in place (Maquire, Hardy and Lawrence, 2004). Although emerging markets offer great potential, firms in countries with large, and well-organised economies might have difficulty exploiting them, which makes it difficult for them to manage volatility and uncertainty.

In recent years, many companies put extra effort to establish their presence in an emerging market by investing or sifting manufacturing and take advantage of low-cost labour, resources, better business exposer, and increased customer base. Furthermore, three main factors influence SMEs’ decision to enter emerging markets. First, work productivity in developing economies is higher than in developed economies. Therefore, the quality of work productivity affects a firm’s performance, sales, and the economy. The second is urbanisation and infrastructure development. Rural populations comprise the bulk of the population in emerging economies. As a result, people migrate to developed areas in search of better education, medical services, infrastructure, and transportation facilities, which increase demand for goods and services, which leads to better business growth. Third, the demography aspect of the emerging economy consists of an average young population. This young population will lead to a skilled younger workforce. In addition, they increase demand and supply in the consumer market, which contributes to GDP growth.

SMEs Entry mode in Emerging Market in context of Institution and Resource-based Entry:

To expand internationally, small and medium-sized enterprises need to safeguard their domestic market from resource constraints along with the emergence of international opportunities. Thus, the decision of considering a suitable entry mode is an essential task for SMEs. In general, the differences between home and host countries internal and external environments influence SMEs decisions about choosing resource or institutional base entry mode as a joint venture, acquisition, and greenfield are other options that allow firms to enter a foreign market. SMEs entry strategies focus on several factors such as understanding the local market, local firms’ performance, access to resources, ownership structure, and market volatility. Thus, to avoid the negative effects of a wrong entry mode on a firm’s performance when entering an emerging market, it is necessary to carry out extensive pre-e