In recent years, firms have been rushing to start new business in India and China, however there has not been enough research conducted on what factors drive success and failure in companies entering such countries. Gerard Tellis undertook a study to identify some of these factors.
The two broad categories of factors proposed by the study include – (1) Firm Factors; and (2) Country Factors. Seven specific factors were examined for companies entering India or China. All seven fall within the two aforementioned categories, each one being correlated to “success” (measured on a specially designed five point scale ranging from the market entry being successful to failure) of the business entering the market:
- Entry Mode – Joint venture or opening a subsidiary
- Entry Timing – Early or late entry
- Firm Size – Large or small
- Economic Distance
- Cultural Knowledge – How well can you understand consumers?
- Country Risk – Uncertainty about the political and economic environment
- Economic Openness – The lowering of regulatory barriers
- Each of the above factors had a specific rating scale devised for the study.
The methodology was to search press archives for key words. A sample size of 192 firms was used, with 64 of those Indian and 128 Chinese. The results of the study were as follows:
- Companies are less likely to succeed when entering India as compared to China
- The greater the economic distance, the lower the success rate
- The greater the cultural distance, the lower the success rate (especially in India)
- Smaller companies are more likely to be successful than larger
- Wholly owned subsidiaries are more likely to succeed than Joint Ventures with local companies. This was the most unexpected result observed.
- The greater the lateness of entry, the lower the chance of success (especially in India)
- The greater the country risk, the lower the success rate
- The higher the country openness, the lower the success rate due to increased competition
In conclusion, the opening up of India and China’s economies does not mean business success will get easier. Small companies should not be deterred from entry and partnering with local organisations may not be the best option.
Dr Gerard J Tellis
Trustee, Marketing Science Institute; and a Senior Research Associate and Visiting Chair of Innovation, Marketing, and Strategy, Cambridge Judge Business School
Dr Gerard J. Tellis (PhD, Michigan) is an expert in innovation, new product growth, global diffusion, market entry, advertising, quality, and pricing. He has published four books and over 100 papers that have won over 15 awards, including the Frank M. Bass, William F. Odell, Harold D. Maynard (twice), and the Vijay Mahajan award for lifetime contributions to marketing strategy.
Dr Tellis is a Trustee of the Marketing Science Institute and a Senior Research Associate and Visiting Chair of Innovation, Marketing, and Strategy at Judge Business School, Cambridge University, UK. He has also been a Visiting Fellow of Sidney Sussex College, Cambridge University, and a Distinguished Visitor, Erasmus University, Rotterdam. Previously he worked as a Sales Development Manager for Johnson & Johnson. Dr Tellis is an Associate Editor of the Journal of Marketing Research and has been on the editorial review boards of the Journal of Marketing Research, the Journal of Marketing and Marketing Science for several years.