Retail Services in China Research Paper Example | Topics and Well Written Essays - 2000 words

Retail Services in China - Research Paper Example In the raising of high transaction expenditures due to market imperfections, it is normally cheap for multinational corporations (MNCs) to do their businesses in new marketplaces by their inner business structures as opposed to depending on the markets. Derived from a case study of Coca-Cola’s entry option into China, this study tests the applicability of internalization assumption to revealing the entry choice of Coca-Cola Company into China. This theory discloses the financial rationale, which was main reason of Coca-Cola’s transformations in their entry choice as it changed from franchising to joint ventures (JVs) with significant local investors, and more currently to the combination of franchising and JVs. When a multinational corporation or company (MNC) gets into new markets, it is fairly costly for it to do business activities owing to high transaction expenses (Mok, Dai & Yeung, 2002). These expenses take in the ones arising from the problems of opportunism, uncertainty, small share of market agents and limited rationality (Williamson, 2002). Williamson (2002) quarreled that the transaction charges of executing, implementing and writing contracts through the market exceed the expenses of internalizing the market. The matter is further exacerbated when the business transactions comprise of multifaceted contractual incidents (Williamson, 2002). Therefore, it seems that an MNC will opt to set up wholly owned subsidiaries (WOSs) to cope with market defects (Williamson, 2002). Except for the choice of WOSs, there are other frequently used modes, as well, like joint ventures (JVs). Anchored in various studies of Coca-Cola in China, this study assesses the usability of the internalization theory to elucidate the entry mode option of MNCs in China. Coca-Cola in China has been considered as the study firm for numerous reasons. First, it is the globe’s largest cola manufacturer and one of the prime MNCs (Williamson, 2002). Secondly, the corporation has a fairly long history of venture in China, since 1979, when financial reform was executed under the de facto management of Deng Xiaoping. Thirdly, going through intense rivalry from its close opponent, Pepsi-Cola, as well as a strange and extremely versatile market environment, Coca-Cola’s skill, accomplishment and endurance, in securing a huge market share, in China, makes up a motivating case by which effects might be studied for the comprehension of MNCs’ entry into the Chinese market through creating equity joint ventures (EJVs) (Mok, Dai & Yeung, 2002). Fourthly, there are just two significant earlier studies on Coca-Cola’s operation in China: PU-TU-USC (2000) and Nolan (1995) (Mok, Dai & Yeung, 2002). Rooted in an encompassing survey of the company’s bottling plant in Tianjin, Nolan (1995) did the initial comprehensive study of the micro-economic effect of just one Coca-Cola plant in the country. He argued that the firm’s business structure, in general, has encouraging effects on the labor development, product markets and rising capital in China. This study corresponds to another large-scale research done by a team of economists at Tsinghua University, Peking University and the University of South Carolina (USC) (PU-TU-USC, 2000) (Mok, Dai & Yeung, 2002). Derived from an input-output model, the three institutions estimate that the financial effects of Coca-Cola’s venture, as well as recurrent operation, comprising of the downstream (distribution) and upstream (suppliers) business associations, in the Coca-Cola business structure, in China, formed an overwhelming 414,000 jobs, 1.2 billion yuan of tax payments and 21.7 billion yuan of output in 1 998 (PU-TU-USC, 2000; Mok, Dai & Yeung, 2002). Regardless of this priceless information brought out by the above studies, there is no precise literature giving theoretical foundation for the entry mode option of Coca-Cola in our concerned country (Mok, Dai & Yeung