The relevance of the hierarchy model of market entry modes to South African manufacturing firms entering Mozambique

Abstract

The decision to enter a foreign market has long-term implications for the investing firm, as has its choice of entry mode. The hierarchical model of market entry modes proposes that entry modes can be categorised as equity-based or non-equity based, and further categorised by type as joint ventures and wholly owned subsidiaries, exports and contractual agreements. The hierarchical model of market entry modes proposes that there are factors that influence the entry mode at the level of equity versus non-equity but not within the type of equity or non-equity. This study evaluated the applicability of the hierarchical model of entry modes to Mozambique. The study included exploratory analysis of criteria considered when firms entered Mozambique, criteria considered unique to Mozambique and the approach to the entry mode decision. Research was limited to South African manufacturing firms who had entered the Mozambique market between 1990 and 2005. The independent variables (determinants of entry mode) considered were: prioritised location, host country risk, management orientation, trade relationship and industry factors. The results showed that the firms entering Mozambique did not follow the hierarchical model of entry modes. The exploratory data revealed other factors that had important implications for both the Mozambique government and firms intending to enter Mozambique, namely bilateral trade and country credit rating. This research has highlighted several areas of value to the Mozambique government with regard to where legislation may be amended to create a business-friendly environment. The considerations for firms wishing to enter Mozambique centre on criteria found to be unique to Mozambique, which may therefore not form part of the firms’ normal screening process and which may hitherto have been unconsidered.