MMHA 6999 Walden University ANCC Magnet Status External Environments Paper

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Accountable health care leaders must respond to external factors in a way that is advantageous for the organization and the community. While health care organizations must strive to improve their financial positions, it should never be at the expense of the populations they are serving. For this Assignment, examine the following scenario and consider strategies to limit the negative impact of external factors and improve organizational success.

Scenario: A small independent hospital in rural Georgia is seeking to attain Magnet Status. This designation demonstrates to stakeholders that the organization is committed to delivering high-quality patient care. With this designation, the organization can easily attract and retain a highly-engaged clinical staff. Moreover, it provides the organization an opportunity to market itself to potential patients as the place to receive top-quality care. This means that the organization could realize a greater market share of insured and private pay patients traveling as far as 100 miles just to receive the quality services. It also positions the organization to enter into joint ventures with physician groups eager to provide new services, which would lead to increased revenue streams.

Although the designation sounds like a great opportunity for the organization, the board of directors is split on their support of this designation. The board members in support of the designation understand the great value that this program will bring to the facility; however, those in opposition learned from a research study that non-magnet hospitals had better infection control and less post-operative sepsis. They also learned from another study that working conditions in a magnet facility are not better than those in non-magnet facilities. Therefore, the dissenting directors have concluded that the organization should not invest its time and resources to seek this credential. The CEO must get support from an overwhelming majority of the board to move forward with pursuing this designation.

To prepare:

Review the provided scenario and consider external environmental factors that may impact the organization’s strategic planning (e.g., policy and economics, laws and ethics, health care quality, and population health).

Note: Your Assignment should show effective application of triangulation of content and resources in your conclusion and recommendations.

The Assignment

In a 2-page executive summary, do the following:

  • Identify and evaluate the impact of external environmental factors on the strategic planning of the organization in the scenario.
  • Recommend strategies to address these external factors and limit their influence on organizational operations.

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International Journal of Business and Society, Vol. 15 No. 3, 2014, 437 - 446 THE STRATEGIC PLANNING OF SMES IN MALAYSIA: A VIEW OF EXTERNAL ENVIRONMENTAL SCANNING Wei-Hin Cheng♣ Universiti Utara Malaysia Kadzrina Abdul Kadir Universiti Utara Malaysia Abdul Manaf Bohari Universiti Utara Malaysia ABSTRACT The business world today is getting more competitive and many companies are looking for ways to survive in the market competition especially Small Medium Enterprises (SMEs). This research was aimed at investigating whether formal strategic planning is relevant to SMEs and whether the strategic planning model suggested by Wheelen and Hunger (2008) is applicable to SMEs in the Asian context and in particular the Malaysian context. The main focus was to determine how important external environment scanning was to SMEs in the Northern states of Malaysia and do SMEs perform the external environment scanning which resemble the Wheelen and Hunger (2008) strategic planning model. The sample of the research comprised of SMEs in the Northern states of Malaysia which covered Perlis, Kedah and Penang. The population of the samples was derived from the directory of SMEs from the website. A purposive sampling was used and a cross sectional study was conducted where data was collected over a period of weeks through mail questionnaire and individual administrated questionnaires. The result of the research suggested that most SMEs do have some form of formal strategic planning. Further to this, it also indicated that environment scanning is getting more attention from the SME in today’s competitive market. The findings suggested that most of the SMEs do have strategic planning which resembles the Wheelen and Hunger Strategic Planning Model. There is a strong indication that the model of Wheelen and Hunger Strategic Planning is applicable to the practice of SMEs in the Northern region in Malaysia. Keywords: Small Medium Enterprise; Strategic Planning; Environment Scanning. 1. INTRODUCTION Small and Medium Enterprise (SMEs) are vital to determine the growth of economy in all countries. In the heat of today’s competition, most of the SMEs are struggling to survive in the market. In order to be successful, SMEs need to possess various types of resources including financial, technological, human and knowledge resources (Brush et al., 2001). According to ♣ Corresponding author: Wei-Hin Cheng. School of Business Management. College of Business, COB Main Building. Universiti Utara Malaysia 06100 UUM Sintok, Kedah, Phone+ 604- 928 7438. E-mail: cheng.wh@uum.edu.my 438 The Strategic Planning Of Smes In Malaysia: A View Of External Environmental Scanning Hashim (2011), SMEs in Malaysia represent majority of the business enterprises and they make up more than 90% of the total number of businesses as they can be found in various industries. As reported in the SME Annual report 2009/2010, SMEs accounted for about 99% of total business establishments, 56% of total employment and 19% of the total exports of the country. Despite their importance in the national economy, studies have revealed that SMEs in Malaysia encounter various problems in their operations that affect not only their sustainability but also their business activities. This study intended to help managers to understand how strategic planning can be done with the model suggested by Wheelen and Hunger (2008). The main objective of the journal was to examine whether SME did strategic planning and whether the strategic planning model suggested by Wheelen and Hunger (2008) applies to the SME in the Asian context, in particular the Malaysian context. The research attempted to examine whether external environment scanning was done in SMEs in Malaysia as proposed by the model and how the environmental factors fared in terms of their importance to these SMEs. This study contributed to knowledge on how relevant the model is to SME in Northern States in Malaysia and how the Wheelen and Hunger (2008) model can help SMEs to do their strategic planning and especially the environmental scanning. 2. LITERATURE REVIEW According to Normah (2006), the Chief Statistician from Department of Statistics Malaysia, SMEs has been the backbone of the Malaysian economic growth in driving industrial development. This is due to their sheer numbers, size and nature of operations, in promoting endogenous sources of growth and strengthening the infrastructure for accelerated economic expansion and development in Malaysia. For such reasons, the success of SMEs is very important to ensure the consistent growth of the country’s economy. The main focus of this study was to examine whether SME do their strategic planning and whether their strategic planning resembles the Strategic Planning Model suggested by Wheelen and Hunger (2008) specifically in the first stage of the planning where the external environment scanning was proposed by the model. Previous researches had consistently showed that most SMEs do not engage in strategic planning (e.g., Robinson & Pearce 1984; Sexton & Auken 1985; Berman, Gordon & Sussman 1997; Orser, Hogarth-Scott & Riding 2000; Robinson& Pearce 2001 and Beaver 2003). According to Gable and Topol, 1987), environmental scanning is a necessary process which prelude to strategy formulation to enable the firm to understand its external environment in terms of factors that can influence its resources. This should be done so that SMEs can develop responses to secure or improve its future position to the changes of the environment. Scanning the environment is the first stage in the process of understanding and therefore in the process of linking strategy and the firm’s external environment (Hambrick, 1982; Daft et. al., 1988). Based on the findings from previous study done by Haase and Franco (2011), SMEs suffer from resource constraints, they have lack of infrastructure to obtain and analyze external information, unlike larger companies which are able to obtain external information from specialized sources. Previous research also indicated that SMEs faced with challenges in obtaining specialized external information and in environment of uncertainty. SMEs should, Wei-Hin Cheng, Kadzrina Abdul Kadir and Abdul Manaf Bohari 439 therefore develop effective strategic planning where they must obtain relevant information of the external environment. Since SMEs faced the problem in obtaining external information, are they able to benefit from the strategic planning model suggested by Wheelen and Hunger (2008)? Boyd and Fulk (1996) showed that systematic scanning should be used by smaller organizations to help them understand and cope with complex environmental uncertainties. Wheelen and Hunger (2008) argued that Strategic Management is a rapidly developing field of study that has emerged in response to increasing environmental turbulence. According to the authors, this area of study looks at managing the organization as a whole and attempts to explain why some organizations performed well while others did not. The Strategic Planning Model developed by Wheelen and Hunger (2008) involved four major steps which are: environmental scanning, strategy formulation, strategy implementation and strategy control and evaluation. The scope of the strategic planning process (Figure 1) covers organization –wide issues in the context of a whole range of environmental influences. The Strategic Management process involves organization, management and environment as a whole. Thus in understanding the Strategic Management process and how it works, a general knowledge of the organization, its internal and external environments and management is required (Wheelen & Hunger, 2008). Environment scanning is aimed at gathering and analyzing data from outside the organization (Daft and Weick, 1984). Aguilar (1967) defined environmental scanning as the acquisition and the use of information about events, trends and relationships in an organization’s external environment. This knowledge is vital for the organization and would assist the management in planning the future course of action. Environment scanning helps managers to better understand the development of the market and assists the strategic planning efforts (Hambrick, 1982; Lester & Parnell, 2008). Figure 1: The Wheelen and Hunger Model of Strategic Planning Notes: Legend: 1a to 4a are element for each level of strategy planning 1a: external environment (PEST); 1b: industry environment; 1c: Internal environment 2a: vision and mission; 2b: objectives; 2c: strategy; 2d : policies 3a: program, 3b: budget; 3c: procedures 4a: evaluation and control. Source: Wheelen and Hunger (2008). 440 The Strategic Planning Of Smes In Malaysia: A View Of External Environmental Scanning Stoffels (1994) suggested that studying the external environment should be the first thing to do in strategic thinking. May (2000) argued that environmental scanning used the external information for strategic decision making and these information will be used by organization to react quickly, adapting its strategy at the right moment and to guard against threats and future constraints (Strandholm & Kumar, 2003). Haase and Franco (2011) analyzed the increased importance for environmental scanning and reported that scholars have published a number of studies of environmental scanning in different industries namely the manufacturing (Jennings & Jones, 1999), services and retail (Folsom, 1991), tourism and hospitality and health care (Davis et. al. 2008), traffic management (Jennings and Jones, 1999) and biotechnology (Antunes and Canongia, 2006, Berard & Delerue, 2010) Haase and Franco (2011) also found that the discussion of the external environment information sources used in the environmental scanning is somewhat scanty and centered on large organizations and for small and medium sized enterprises, timely and relevant information sources from the socio economic surroundings is equally important. They found in their research that size of an organization do in fact have an impact on environmental scanning. Smaller firms do not scan as broadly as frequently as larger companies. Smaller firm under utilised certain external information for their competitiveness (Haase & Franco, 2011). 3. METHODOLOGY The primary goals of this study were to examine whether SMEs in the northern states of Malaysia do strategic planning and how the strategic planning process is done. The sample of the research comprised of SMEs in the Northern Region of Malaysia which covered the states of Perlis, Kedah and Penang. The researcher obtained the population of SMEs from the directory of Small Medium Enterprise which is accessible through the website. A purposive sampling was chosen as the sampling design for the reason that companies which were chosen have to qualify certain requirements before they can be used as respondents or before they are considered as SMEs. As this was a cross sectional study, the data was collected over a period of weeks and data was gathered from September 2011 to December 2011. The data came from two sources: mail questionnaire and individual administrated questionnaire. For mail questionnaire, two hundred and fifty questionnaires were mailed to the respective SMEs with the help of a research assistant. The respondents were asked on whether they do strategic planning and whether they utilized each steps suggested by Wheelen and Hunger (2008) model in their strategic plans (The strategic plan of Wheelen and Hunger (2008) consists of environment scanning, strategy formulation, strategy implementation, strategy evaluation and control). The strategic planning questionnaire was operationalzed using the Wheelen and Hunger Model (2008). As for individual administrated questionnaire, one hundred questionnaires were distributed through self-administered method with the help of research assistants. Statistical Package for the Social Sciences (SPSS) version 19.0 was used to analyze the data collected. In terms of data processing, five statistical techniques were used for different purposes. These included descriptive statistics, mean, median, standard deviation. For inferential statistics, crosstab results were obtained and chi square results were conducted. The respondents’ demographic 441 Wei-Hin Cheng, Kadzrina Abdul Kadir and Abdul Manaf Bohari variables were analyzed using descriptive statistics such as frequencies and percentages. While other items were measured based on the five point Likert scale and ordinal scale. Due to this reason, only non parametric tests such as chi squares were performed to analyze the results. 4. FINDINGS A total of 300 questionnaires were mailed to SMEs in the Northern states (Perlis, Kedah and Penang). Out of the 118 returned questionnaires, 10 questionnaires were discarded due to incomplete data. Hence, 108 questionnaires were used in the statistical analysis representing a response rate of 36%. From, the 108 companies which responded, 52(55%) companies were from Kedah, 33 (35%) companies were from Perlis and only 9 (9.5%) from Penang. In terms of industry, 73 (77%) companies were from other industries, 5(4.8%) in furniture, 7 (6.7%) in cosmetics, 3 (4%) motor vehicle, 7 (7,7%) in .hotel and 1 (1%) in education industry. Most of the companies which responded have one owner (42%), two owners (36.1%), three owners (14.8%), while 6 (7.4%) companies have four and more owners. The highest percentages were recorded for companies with 10-50 staff (58%), 51-100 staff (31%), 101150 staff (5.6%) and above 151 staff (4.1%) respectively. In terms of start-up capital 34 companies (32%) have a start-up capital of less than RM50,000, 28 companies (26%) have a start-up capital of RM50,001-RM100,000, while 26 companies (27%) have a start-up capital of RM101,000 – RM500,000 There were only 17 companies(16%) with start-up capital of more than RM500,000. Most companies which responded were established companies with 4-6 years of establishment (24%), 10-12 years (17.5%), 1-3 years (16. %), 16-18 years (10%) and more than 21 years (9.3%) respectively. Most respondents who were interviewed were 1) Managing Director (26%), 2) CEO (16.3%), 3) Sole Proprietor (16.3%), 4) Manager (16.3%) and 5) Senior Manager (8.7%). 4.1. How do SMEs do their Strategic Planning? Respondents were asked if they do formal strategic planning which resembles the elements and the four stages of Wheelen and Hunger (2008) model. 4.2. Does your company do strategic planning (conduct external environment scanning) and how important it is? The table below shows the results whether the respondents conducted strategic planning (external environment scanning) and how important it was to them. Out of 81 respondents who answered this question, 65 of them said that they conducted strategic planning formally and do environmental scanning. Only 16 of them said that they did not scan the environment. Of those who said that they scanned the environment, 47 of them felt that it was important and very important to do so. Table 1: Result of Environmental Scanning Conduct Environmental Scanning Count Very not Important Not Important Neutral Important Very Important Yes No Total 65 16 81 5 5 6 6 7 7 25 25 22 22 442 The Strategic Planning Of Smes In Malaysia: A View Of External Environmental Scanning 4.3. If your company do environmental scanning, which environmental factors would be most important? Table 2 depicts that if the respondents have done environmental scanning what are the factors (political, economical, legal, social, and technological) they would consider important and how these factors fared in terms of very important, not important, neutral, important and very important. Table 2: Importance of External Factors in Environmental Scanning For Those Who Do Environmental Scanning External Environment Scanning Factors Very not Important (Factors of External Environmental Scanning) Not Very Important Neutral Important Important Total Political and legal factors. 6 9 24 27 15 81 Environmental Scanning Factors Economic factors 1 2 8 27 43 81 Socio-cultural factors. 2 3 28 31 16 80 Technological factors. 0 4 15 34 27 80 Bargaining power of suppliers. 1 2 13 36 29 81 Bargaining power of buyers. 1 1 7 44 26 79 Threat of substitute products. 2 11 26 37 4 80 Intensity of rivalries. 1 2 18 29 30 80 Importance of trade block. 8 13 26 29 13 79 Importance of labor union 8 15 31 15 9 78 NGOs (non government organization) 14 15 34 12 4 79 Government agencies 5 4 20 36 16 81 Community 0 6 16 36 23 59 Financial institution 2 4 12 36 27 80 Threat of new entrants 1 7 20 48 5 81 From the results above, the importance of external environment factors can be illustrated in Figure 2 below. Figure 2: Importance of Environmental Factors 443 Wei-Hin Cheng, Kadzrina Abdul Kadir and Abdul Manaf Bohari The histogram shows that in terms of environment factors most SME responded that in the external environment scanning the most important factor is the economic factor (B7b). This is followed by B7f (bargaining power of buyers), B7e (bargaining power of suppliers), B7n (financial institution), B7d (technological factors) and B7h (intensity of rivalries), B7m (community) and B70 (threats of new entrants). External environmental factors that are less important (in descending order -higher to lower order) are: B7b government agencies, B7c socio-cultural factors, B7a political and legal, B7g threats of substitute products, B7i trade block, B7j labor union and B7k non government organization. 4.4. Does the Wheelen & Hunger Model diagram resemble your company’s strategic management planning? There were 100 respondents who answered this question. Out of this hundred, 59 respondents or (54.6%) answered yes, while 49 respondents or (45.4%) answered no. In other words more than half respondents agreed that their strategic planning process do somewhat resembles Wheel and Hunger Strategic Planning Model. Of those who agreed that the model resembled their strategic planning process, 52% said that the model exactly resembled their strategic planning, A Chi Square test was further conducted to see if those who think that if their strategic planning process resembled the Wheelen & Hunger model, will there be a tendency that it will exactly follow the Strategic Planning Model suggested bu Wheelen & Hunger (2008). The Chi Square Test result provided below is significant at 0.000 (“p” less than 0.001): which suggested that if the SME do strategic planning, it will follow the Wheelen & Hunger (2008) model. Table 2: Chi Square Test. (If strategic planning process resembles Wheelen and Hunger Model, there will be tendency it will be exactly the same as their strategic planning process) Pearson Chi-Square Likelihood Ratio Linear-by-Linear Association N of Valid Cases Value df Asymp. Sig. (2-sided) 101.084 137.309 77.347 108 8 8 1 .000 .000 .000 5. DISCUSSION OF FINDINGS Major findings of the study indicated that SMEs do have some form of formal strategic planning and further to this, most of their strategic planning resembles that western Strategic Planning Model suggested by Wheelen and Hunger (2008). In terms of environment scanning, most respondents indicated that environmental scanning is important to them. Among the environmental factors, the most important factor that the respondent felt was the economic factor, this was followed bargaining power of buyers, bargaining power of suppliers, financial institution, technological factors, intensity of rivalries, community and threats of new entrants. Economic factors which cover economic growth of the country, purchasing power, employment, inflation, taxation etc were the most vital factors to the SMEs to determine their survival in 444 The Strategic Planning Of Smes In Malaysia: A View Of External Environmental Scanning business and hence, formulation of strategies. This was followed by technological factors like new product development, product innovation or automation. Political factors were considered next, like stability of the government, change of the government, laws or regulations, The research provided support to earlier findings of Beck (2007) where external environmental scanning factors were examined in relation to SMEs performance, These environmental factors were found to be significantly important to the organization in terms of performance. The findings were also in consistent with the study which was done by Ngamkroeckjoti and Speece (2008) where SMEs were found to benefit from environmental scanning when a comprehensive scanning was done to their new product development. Their study clearly suggested that SMEs which conducted environmental scanning were able to develop better strategies and the environmental scanning practices have an influence in the success of the company. Further to this the authors viewed environmental scanning as a strategy tool and companies should scan the environment for a long term objectives (five to ten years). The findings were also in consistent with research done locally by Hashim (2011) who found that economic factors were the most important factors considered in environmental scanning. Although many earlier research found that smaller companies are incapable of formal strategic planning and environmental scanning, this research has proven otherwise. One of the reason of why SMEs in the Northern states do have some form of formal strategic planning and environmental scanning could be due to the reason of the active role of the Malaysian government. The Malaysian government emphasized and focused a lot on the growth of SMEs as it is the backbone of the Malaysian economy. They have provided a lot of assistance, training, education and support to these SMEs through various government agencies or bodies. In fact, each year during the Annual National Budget, the Malaysian government will announce a substantial amount of money and funds to be put aside to train and educate the SMEs. The limitation of this study was the sample selected may not be able to generalize all SMEs in Malaysia as it covered only the States of Kedah, Perlis and Penang. Furthermore, only 9% of the respondent in this study came from the state of Penang. The limited number of companies which participated in this study may be a concern on the representativeness of the sample. Future research in this study should include wider zones across all states in Malaysia. Larger sample size will increase the validity of these findings which can be used as a general reference in evaluating SMEs strategic planning. 6. CONCLUSION The overall previous studies indicated that Strategic Planning is important for the growth of SMEs especially the first stage which is environment scanning. However, earlier findings of many research indicated that SMEs do not really have a formal strategic planning and they tend to face with difficulties in obtaining external information from specialized sources when their conduct environment scanning. However, most studies agreed that External Environment Scanning is the most important stage that SMEs should look into in order to survive in the intensity of market competition. Future studies should explore wider sample range from all states of Malaysia. Wei-Hin Cheng, Kadzrina Abdul Kadir and Abdul Manaf Bohari 445 REFERENCES Aguilar, F. I. (1967). Scanning the business environment. New York: Macmillan. Antunes, A., & Canongia, C. (2006). Technological foresight and technological scanning for identifying priorities and opportunities in the biotechnology and health sector. Foresight, 8(5), 31-44. Aris, N. M. (2006). SMEs: Building blocks for economic growth. Department of Statistics, Malaysia. Beaver, G. (2003). Small business: Success and Failure. Strategic Change, 12(3), 115-122. Beck, T. (2007). Financing constraints of SMEs in developing countries: Evidence, determinants and solutions. Journal of International Money and Finance, 31(2), 401-441. Berard, C., & Delerue, H. (2010). A cross cultural analyses of intellectual asset protection in SMEs: The effect of environmental scanning. Journal of Small Business and Entrepreneurs Development, 17(2), 167-183. 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B., & Pearce, J. A . (2001). Why small businesses need a strategic plan. Business and Economic Review, 4 (1), 12-15. Robinson, R. B., & Pearce, J. A. (1984). Research thrusts in small firm strategic planning. Academy of Management, 9(1), 128-137. Sexton, D. L., & Auken, P. (1985). A longitudinal study of small business strategic planning. Journal of Small Business Management, 23, 7-15. Stoffels, J. D. (1994). Strategic issues management. Guide to environmental scanning. UK: Elsevier Science. Copyright of International Journal of Business & Society is the property of Universiti Malaysia Sarawak and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. M U LT I P L E CRITERIA DECISION Vol. 9 MAKING 2014 Dorota Górecka* Małgorzata Szałucka** APPLICATION OF MCDA METHODS AND STOCHASTIC DOMINANCE RULES IN THE ENTRY MODE SELECTION PROCESS IN INTERNATIONAL EXPANSION Abstract When a company decides to enter overseas markets, it must take a number of strategic decisions, such as, for instance, a decision on the appropriate entry mode. The company has a wide array of choices: various forms of exporting, contractual modes such as licensing, franchising and management contracts, turnkey projects and subcontracting or equity-based modes including wholly-owned subsidiary or joint venture. The various entry modes differ greatly in resource commitment, degree of risk, level of control or profit potential. The appropriate choice of entry mode is a key element of the success of foreign operations and the future of the company. Hence, it is essential for the company to conduct a deliberate and conscious analysis of advantages and disadvantages of each entry mode from the point of view of internal and external factors that influence the choice of entry mode, taking into account the opinion of different participants of the decision-making process. The aim of this paper is to carry out the simulation of the entry mode selection, using MCDA methods and stochastic dominance (SD) rules, from the perspective of a dynamically developing company that manufactures and distributes hygiene, cosmetic and medical products for women, children and adults. Keywords: entry mode selection, non-equity modes, equity modes, MCDA methods, EXPROM II with veto thresholds and SD rules. * ** The Faculty of Economic Sciences and Management, Nicolaus Copernicus University in Torun, ul. Gagarina 11, 87-100 Toruń, Poland, e-mail: dgorecka@umk.pl. The Faculty of Economic Sciences and Management, Nicolaus Copernicus University in Torun, ul. Gagarina 11, 87-100 Toruń, Poland, e-mail: m.szalucka@umk.pl. 6 D. Górecka, M. Szałucka 1. Introduction A firm seeking to run its business operation outside its domestic market must make decisions about many related but distinct issues. They are complex and complicated and affect both the likelihood of success and the probability of survival not only of the undertaking abroad, but they may have an additional impact on the success and performance of the internationalizing firm. The internationalization of the firm has many dimensions. The managers must give careful consideration to many aspects of the process. That is why companies going international should define their entry strategy for international markets in order to perform business functions abroad successfully. International market entry strategy is a comprehensive plan where the company makes decisions about objectives, resources and polices to guide its business operations abroad for a longer period of time to achieve and sustain competitive advantage in the global economy (Root, 1994). When starting to plan its international market entry strategy, the company must define the reasons why it wants to go abroad. Setting objectives and goals of internationalization has a tremendous impact on the overall strategy determining directions and frames of international expansion. When objectives and goals are set the company must decide on the products or services it wants to deliver to a foreign market. The choice is made in relation to international environment and the company’s potential. The next step is to select the target market or markets where the company will sell its products or provide services. It has been recognized widely in the literature as international market selection (Root, 1994; Koch, 2001; Kumar et al., 1994; Cavusgil, 1985; Russow and Okoroafo, 1996; Papadopoulos et al.; 2002; Sakarya et al., 2007; Górecka, Szałucka, 2013). When the target market is identified, the company must find a way to enter it and launch its products or services. Consequently, it must decide on the entry mode it wants to use to explore the market. Companies have a wide array of entry modes to choose from. The decision about the appropriate arrangements for organizing business activities located outside the home country is a critical part of an entry strategy for international markets (Wind and Perlmutter, 1977; Hill et al., 1990, Kough and Singh, 1988; Agarwal and Ramaswami, 1992). It might have critical implications for the international project’s performance (Root, 1994; Woodcock et al., 1994) and its survival (Li, 1995). Finally, when a company knows with what, when and how it intends to expand internationally, it must decide on the timing of the entry. Since the decision about the internationalization is very complex, the opinion of different persons from different levels of the company’s structure (board of directors, managers, experts) is usually taken into account. As regards entry modes, they differ greatly in resource commitment, degree of risk, level of con- Application of MCDA Methods and Stochastic Dominance Rules… 7 trol or profit potential. Hence, it is essential to conduct an analysis of their advantages and disadvantages from the point of view of a wide variety of internal and external factors and taking into account the opinion of various participants of the decision-making process. The aim of this paper is to apply multi-criteria decision aiding (MCDA) methods and SD rules to the problem of entry mode selection. Their usefulness will be illustrated by a real-life example of a company that is a leading producer and deliverer of hygiene, cosmetic and medical products seeking new markets. The paper is organized as follows. Section two focuses on an integrated framework for entry mode selection, presenting possible entry modes to explore international markets and factors that influence the company’s choice of entry mode. Section three demonstrates the methodology used in the research including the description of the case study. In section four the research results obtained due to the application of the MCDA methods are presented. 2. A framework for entry mode selection Among the most critical issues in international market entry strategy is the selection of an appropriate entry mode in order to penetrate the foreign target country. Entry mode has been defined as an institutional agreement that allows the company to enter a market with its products, technology, human skills, management, or other resources (Root, 1994). A firm entering a foreign market has a variety of mode choices to organize its business activities abroad. Entry modes can be divided into three categories: export entry modes, contractual entry modes and investment entry modes (Root, 1994; Sitek, 2000; Rymarczyk, 2004; Gorynia, 2007; Johnson et al. 2008; Duliniec, 2009). The first category includes indirect and direct export activities. It refers to the manufacture of a product outside the target market and the subsequent shipping of the product to it. Direct exporting can be done via an agent or distributor in the target country or via a direct branch/subsidiary that requires equity investment. Exporting has been considered as the most common way to enter new international markets. Contractual entry modes are understood as nonequity cooperation agreements between a company that wants to enter the market and an entity located in a foreign target market. In contrast to export modes, contractual entry modes involve a transfer of technology or other skills and knowledge between partners. In the case of export modes, the transfer is limited to physical products. The cooperating companies are characterized by their legal autonomy and simultaneous economic interdependence. Firms have a wide array of contractual entry modes to choose from, including licensing, franchising, technical agreements, service contracts, management contracts, turnkey con- 8 D. Górecka, M. Szałucka tracts, manufacture contracts and co-production agreements (Root, 1994). The last category – investment entry modes – represents operation modes that are inevitably linked to ownership and equity investment. A firm decides to engage in international expansion by setting up a completely new firm or acquiring an existing local one. An investor may do this alone; maintaining full ownership and control over an affiliate (a branch or a subsidiary) or it may do this with the support of a partner or partners sharing ownership and control. In the literature, the former form of equity-based modes is described as a sole venture and the latter as a joint venture. Entry modes differ considerably along several dimensions. The most common ones found in the literature are: degree of control (Anderson and Gatignon, 1986; Root, 1994; Kotler, 1994), level of risk (Root 1994; Kotler, 1994) and resource commitment (Hill et al., 1990; Meissner, 1990; Kotler, 1994). Moreover, entry modes have been also characterized by level of management involvement (Meissner, 1990), dissemination risk (Hill et al., 1990), skills requirement (Gronhaug and Kvitastein, 1993) or profit potential (Kotler, 1994). Degree of control, level of risk and resource commitment are highly correlated. Higher control requires higher resource commitment; increased resource commitment leads to higher risk. The establishment of a wholly owned subsidiary results in the highest level of resource commitment, risk and a level of control, but it also provides the highest level of profit potential and the lowest level of dissemination risk. Joint ventures, where ownership of and responsibility for the management of the operation are shared, is considered as the entry mode with a lower level of resource commitment, control, profit potential and general risk compared to a wholly owned subsidiary, but with a higher level of dissemination risk. In licensing or franchising, the licensee assumes the investment risk – bears the development cost and risk associated with opening up a foreign market, thus the resource commitment and general level of risk is lower than in equity-based modes. At the same time, however, the level of control or economic gains are lower and there is a higher risk that firm-specific advantages in know-how will be expropriated by a licensee. Exporting is characterized by a low level of resource commitment, risk and a level of control. From the theoretical point of view, entry mode choice is dependent on the analysis of objective information gathered systematically from the environment and the company. In practice, the companies often make their decisions how to enter the foreign market on the basis of non-systematic and ad hoc procedures (Whitelock and Jobber, 2003). This happens due to the highly complex entry mode decision that makes it difficult for the company to make a conscious and deliberate cost/benefit analysis of options. Application of MCDA Methods and Stochastic Dominance Rules… 9 Entry modes differ significantly in terms of their mix of advantages and drawbacks. The entry mode choice comes down to a trade-off between control and the cost of resource commitment under conditions of certain level of risk (Sarkar and Cavusgil, 1996) which leads to a choice that maximizes riskadjusted return on investment (Anderson and Gatignon, 1986). However the tradeoffs are not easy to evaluate and not well understood. There is still not a comprehensive and easy to apply tool which will allow managers to assimilate a huge amount of information referring to internal and external factors in order to make the right decision about the choice of entry mode. Research in this field is still very fragmented and limited in scope. This paper attempts to provide a comprehensive method to fill in the blanks in this field. Assuming that managers make decisions based on a rational model using the proposed method, they may take into account a wide range of factors influencing entry mode choice and make tradeoffs between each mode in relation to the other relatively easily. However, managers should be conscious of the limitations of the rational decision-making model and of the difficulties with making “optimal decisions”. They operate under bounded rationality and make decisions based on incomplete information, under time pressure and under conditions where particularistic goals are contradictory. In reality, their aim is to find the more or less optimal mode at a given point in time. Benito and Welch (1993) emphasize the need for a dynamic approach to foreign entry mode choice. As mentioned above, the entry mode is selected at a given point of time, when specific internal and external conditions prevail. The environment, the company and its strategies evolve over time and the concept of “optimal decision” seems to be unclear from the perspective of the rational models describing the entry mode decision-making process. A huge range of factors needs to be considered by the company when selecting the most appropriate entry mode for a target foreign market. Managers can be overwhelmed by the diversity and complexity of the required information. In the literature, researchers consider a number of variables to be significant in the decision about the choice of entry mode. Canabal and White (2008) identified around 200 different independent variables used in various entry mode studies. According to their review of empirical studies in international entry mode research, the most commonly used variables were MNE/international experience, cultural distance, risk, firm size, host restriction/host policies (host country variables), R&D intensity, host country experience, industry competition/ concentration, size of operation/scale and advertising intensity. In the context of such a large number of variables affecting the choice of entry mode, researchers suggest to synthesize and group them into sets of variables. There are several proposals for groups of variables that support the assessment process (Root, 1994; Hill et al., 1990; Gannon, 1993; Luo, 1999; Sitek, 10 D. Górecka, M. Szałucka 2000; Rymarczyk, 2004; Johnson et al. 2008). In this paper we decided to adopt the framework proposed by Root (1994) and we identify four main sets of variables: target country environmental factors, target country industry factors, company factors and company product factors. We strongly believe that home country factors in the case of some countries may be also critical; however, in our case they do not play a significant role. For each group we decided to include the factors commonly referred to in the literature. Their importance in the entry mode decision process is determined mainly by the objectives and goals of company’s international expansion and verified by a firm’s capacity. When analysing factors, it must be remembered that each of them should be considered in terms of whether it encourages or discourages a particular entry mode. Target country environmental factors When making a decision about the right entry mode, managers should pay attention to several host country environmental factors. International entry mode studies confirm their considerable impact on the choice of entry mode. The factors within this group that are considered in the decision process include: market potential, production factors, cultural distance, geographical distance, government policies and regulations of the host country, property rights systems, external economic relations and political risk. All commonly examined factors relate to the macro environment, country attractiveness and market potential. Market potential (size and growth) has a great impact on the entry mode. It has a direct impact on a firm’s size of operation, defining the potential sales volumes. Where market potential is relatively low, we can assume (ceteris paribus) that the company will favour entry modes with low resource commitment and low breakeven sales volumes such as indirect exporting, direct exporting via an agent/distributor or contractual arrangements. Otherwise the company may follow an entry strategy with a high resource commitment, such as equity-based modes, finding its justification in high sales potential and in better satisfaction of customers’ needs. One of the reasons for companies going abroad is the presence of resources (production factors) that are not available at home or are of a higher quality and/or lower cost. These factors are considered very widely in the literature and practice. Companies are seeking resources such as natural resources, raw materials, labour, technological, innovatory and created assets (e.g. patents) or physical infrastructure (ports, roads, power, telecommunication). In the majority of cases, when the company wants to exploit these resources, it must be physically present in the host country using investment equity modes. For certain resources, equitybased modes are the only entry modes that can ensure access to them. However, Application of MCDA Methods and Stochastic Dominance Rules… 11 some of resources may be also exploited indirectly through contractual entry modes. Hence we can assume that the greater benefits from factor endowments in the host country, the more companies will favour solutions that include equity investment. Cultural distance has been also recognized as a factor affecting market entry mode (Kim and Hwang, 1992; Agarwal, 1994; Brouthers and Brouthers, 2001; Anderson and Gatignon, 1986; Anderson and Coughlan, 1987; Gomes-Casseres, 1990; Erramilli and Rao, 1993). In general, it refers to the distance between the home country and the target country in terms of cultural values, language, social structure or ways of life (Root, 1994). Differences between the countries increase uncertainty and the level of risk as well as the cost of coordinating business operations. We can assume that the greater the cultural distance between the home country and the target country, the more the company will favour nonequity entry modes in order to limit the resource commitment and accompanying risk. Another way for a company to overcome cultural barriers and reduce risk is to involve a local partner or partners who are familiar with the culture of the target country in the economic activity abroad. Geographical distance has a slightly contradictory impact on entry mode strategies. Greater geographical distances and high transportation costs may significantly deteriorate the company’s position compared to its competitors in the target market. The geographical distance also reduces flexibility and the ability to respond quickly to changes in the local market. The greater the geographical distance, the greater the likelihood that firms will decide to make an investment entry. If the geographical distance is low, then export entry may be favoured over other modes (Root, 1994). The government policies and regulations may also directly or indirectly affect the choice of entry mode. The countries are analysed in terms of how favourable their policies and regulations are to foreign companies willing to enter. High tariffs and tight quotas will hinder exporting activities and encourage companies to locate production in the target country, while a restrictive host country policy on foreign investment will reduce the number of equity investments in favour of other modes such as exporting or non-equity contractual arrangements. In some countries there are legal limits on foreign equity participation in domestic enterprises and companies are forced to operate in the host market using only joint ventures. The host country may offer foreign companies a wide array of incentives in terms of taxation, access to infrastructure, local financing as well as resource or material supply, depending on entry modes favoured by the host country (Luo, 1999). In this context, external economic relations should also be taken into consideration while selecting the most appropriate entry mode. Exchange rate policy and exchange rate behaviour, the balance of payments, the level of foreign debt 12 D. Górecka, M. Szałucka and its service, restrictions on the transfer of capital, profits and salaries etc. should be carefully assessed by managers. Under restrictive exchange controls, companies are better off utilizing low control entry modes such as indirect or agent/distributor exporting or contractual agreements which allow them to reduce negative effects of transfer restrictions. When the exchange rate has depreciated, firms are motivated to produce locally using equity-based entry modes. On the other hand, when the exchange rate has appreciated, export modes are chosen above the other options. Another aspect of the target country environment concerns property rights systems. This is an essential issue, especially for companies with high technological competences and tacit knowledge. If host countries are unable to ensure effective property rights protection, the company risks leakage or unwanted dissemination of proprietary technological and marketing assets to competitors, suppliers or customers. Faced with potential infringement and piracy by local firms, companies are often willing to select higher ownership modes to reduce the risk of unwanted dissemination. Keeping the transfer and use of intellectual property rights within the company provides the highest level of protection. When property rights protection is sufficient in the host country, companies may select modes offering lower levels of control as the risk of the expropriation of assets is lower. In these circumstances the company does not need to construct a costly governance structures to protect assets. Finally, political risk is a factor that needs to be examined in order to make the right entry mode decision. In markets where political risk is high, companies try to minimize their resource commitment to ensure strategic flexibility (Anderson and Gatignon, 1986). Flexibility increases the company’s ability to exit quickly from the target market without a significant loss when the environment deteriorates. Consequently in markets with high political risk, companies will favour low control and ownership modes. They will tend to use export modes or modes that enable them to share the risk with partners. The most valuable partners will be local, with knowledge about the host country as well as relations that can help to reduce external uncertainty and the impact of a volatile environment. In markets with lower levels of political risk, the companies are more inclined to pursue investment modes such as a wholly owned subsidiary. Target country industry factors Various target country industry factors also need to be considered by a firm when entering a new market. The factors within this group considered as part of the decision process include local supply and distribution infrastructure, relations with suppliers and buyers, competitive conditions, demand uncertainty and entry and exit barriers. Application of MCDA Methods and Stochastic Dominance Rules… 13 When companies enter international markets, knowledge about the availability and quality of local supply and distribution infrastructure in the industry may play a significant role in the process of selecting the appropriate entry mode. Good marketing infrastructure in the target market allows the company to reduce its resource involvement and use an existing network of local agents and distributors to launch products. There is no need to engage deeply in the market with more advanced modes. Indirect and agent/distributor exporting is recommended. Where marketing infrastructure is poor, a branch/subsidiary may be indispensable to reach the local market (Root, 1994). Moreover, when industrial linkages with suppliers and distributors are essential in the industry, it is recommended that the company utilizes high resource commitment modes such as a wholly owned subsidiary or joint venture. Entry modes with partners will be useful when the company does not have industrial linkages and has to build and develop relations with various actors in the industry. Competitive conditions may lead companies to use high control or low commitment entry modes. One aspect of competitive conditions in an industry is its competitive structure (Root, 1994). When there are many non-dominant competitors in the target market (atomistic structure), the company may prefer to use export entry modes because there is no need for high commitment. In target countries where the competition is oligopolistic or monopolistic, the companies may favour equity investment in production, an option that should improve their ability to compete on the market. However, when competition is too strong for both exporting activities and equity-based modes, Root (1994) recommends licensing or other contractual agreements that allow the company to be present with its products without direct involvement in the market. The other dimension of competitive conditions in an industry is the volatility of competition (Hill et al., 1990). According to Hill et al. (1990), when competition is more volatile companies tend to use low control and ownership modes due to their increased flexibility. Intense competition and rapidly changing environmental factors require from the company the ability to adapt quickly, an ability which is linked with low rather than high resource commitment. Demand uncertainty is one the most essential factors affecting the entry mode choice. It directly refers to the host country demand for the company’s products. If demand is unknown or predicted to be low, there is no point in making a substantial resource commitment (higher resource commitment leads to less strategic flexibility and substantial sunk costs if a withdrawal from the market becomes necessary). Demand conditions vary depending on the stage of the industry life cycle. It has been widely recognized that uncertainty and unpredictability are greatest in the early/embryonic or late/declining stages of the industry life cycle (Vernon, 1966). Thus, when a target market is in its embryonic or de- 14 D. Górecka, M. Szałucka clining stage, managers are more inclined to favour low resource commitment and low control entry modes. More stable and predictable demand conditions encourage managers to increase their resource commitment; however, this does not necessarily imply a need for investment modes (Hill et al., 1990). Entry and exit barriers in the target industry in the host country may also influence a company’s choice of entry mode. High barriers reduce a company’s freedom to choose from a wide array of available entry modes. It may happen that the company will be forced to accept host government-instituted modes of entry into certain industries (Luo, 1999). Company factors When selecting the right entry mode, managers also need to take into consideration some features of the firm they operate. There is a general agreement in the literature that factors such as size of the company, international experience, corporate strategy, generic marketing strategies and nature of the strategic assets are crucial in the entry mode decision-making process. Firm size has been recognized as an important factor in the entry mode decision process. Sarkar and Cavusgil (1996) highlighted it as one of the key subthemes alongside international experience within firms/foreign venture specific factors. A relationship between firm size and entry mode strategy is a direct reference to resource commitments. As noted above, entry modes differ in terms of resource commitment. Hill et al. (1990) define resource commitment as “(…) dedicated assets that cannot be redeployed to alternative uses without cost (lost value)”. We have to remember that with greater resource commitment comes increased risk. Hence small-sized firms will have limited opportunities for international expansion as they must make use of those entry modes requiring resources that are adjusted to their capacity. It must be stressed that resources are understood widely, not only in terms of capital, which may be the first that springs to mind when discussing entry modes, but also in terms of technology, management, marketing and production skills. Small-sized companies often face financial and managerial constraints, forcing them to restrict themselves to the simpler entry modes with low international involvement and resource commitment. Conversely, large firms have lower resource constraints and can bear the higher risk of their international operations. Therefore they can often use more advanced entry modes that offer higher profit potential but also higher risk. An abundance of resources permits the company to limit the consequences of potential failure that could lead a small-sized company to bankruptcy. International experience is the second key sub-theme within this group of factors. According to Canabal and White (2008), it is the most commonly used variable to explain entry mode choice in empirical studies. Knowledge about Application of MCDA Methods and Stochastic Dominance Rules… 15 foreign markets and international experience is crucial for increasing involvement in international operations (Johanson and Vahle, 1977). The greater international experience allows the company to reduce risk and uncertainty, which constrain the company’s involvement in business functions outside the domestic market. Companies with more experience due to their accumulated market knowledge which have developed capabilities for managing foreign operations are more likely to make higher resource commitments and prefer high-control modes such as a wholly owned subsidiary or joint venture (Gomes-Casseres, 1990). Conversely, the companies with little knowledge and experience in foreign markets face higher levels of exposure to risk. Lack of knowledge or experience may cause errors and inefficiencies. In order to limit exposure to risk, such companies prefer modes offering low-control and low resource commitment, starting with exporting through subcontracting, licensing or franchising. When a company suffers strongly from a lack of local knowledge and experience in the host country, it may tend to prefer modes engaging local partners in business operations in order to gain knowledge and experience in the local market. Hennart (1991), Li (1995), and Delios and Beamish (1999) support a positive relationship between the level of international experience and the level of ownership and control. Corporate strategy has been also recognized as a factor effecting entry mode choice (Hill et al., 1990; Gannon, 1993; Luo, 1999). The company may pursue one of two basic corporate strategies: a multi-domestic strategy or a global strategy. The assumption on which the multi-domestic strategy is based is that national markets differ widely along many dimensions such as customer tastes and preferences, the competitive and operating conditions, and political, legal, and social structures. In order to meet the different challenges of national markets, companies must confer a high degree of autonomy and responsibility for local activities on national subsidiaries, where the majority of business functions have to be located. A high degree of autonomy for national subsidiaries is a consequence of the need to adapt operations to differing local competitive conditions and products to the specific tastes and preferences of local customers. In general, we can assume that companies pursuing multi-domestic strategy will tend to use modes with a relatively low degree of control and resource commitment to maintain global flexibility and profitability by using entry modes with low breakeven sales volumes. They may also prefer modes involving local partners such as licensing or joint venture in order to limit the resource commitment and gain knowledge and experience in the local market. Conversely, the companies pursuing a global strategy will favour modes with a high degree of control to ensure the effective configuration and coordination of all the activities a company performs all over the world. The basic assumption underpinning a global strategy is 16 D. Górecka, M. Szałucka a convergence of tastes and preferences among consumers from different national markets. The company sees its sources of advantage over other competitors in the substantial scale economies it can achieve by centralizing production activities and marketing a standardized product to a global market. The national subsidiaries are usually highly specialized units that follow central decisions from headquarters. Under these circumstances, all modes involving partners are not recommended, due to the high level of subordination and low autonomy of national subsidiaries. Besides corporate strategy, generic marketing strategies are also expected to affect the entry mode decision process (Gannon, 1993; Bradley and Gannon, 2000). One of the strategic decisions the company has to make when entering foreign markets is whether it will pursue a concentration or diversification strategy (Ayal and Zif, 1979). A market concentration strategy assumes a high level of marketing efforts and significant levels of resource commitment to each foreign market in which it operates. It is a consequence of the company’s objective to achieve a strong market position in each of its foreign markets. Only when the company achieves a significant share in the foreign market it can enter other new markets. The strategy is based on concentrating resources in a limited number of markets and a slow, gradual increase in the number of markets, country by country. Following a concentration strategy may result in preferring high control entry modes such as wholly owned subsidiaries and joint ventures which are supposed to enable the company to have greater control over strategy and tactics. In contrast, a market diversification strategy assumes a high level of return from low resource commitment in many markets. The company following this strategy is trying to enter many foreign markets within a short period of time. Although this approach permits the immediate penetration of a larger number of foreign markets, it also involves resource dispersion. Hence, following a diversification strategy by the company may result in a preference for low control entry modes and non-equity modes such as indirect exporting, agent/distributor exporting or licensing. The internationalization theory suggests that the nature of strategic assets also shapes the entry mode decision. High transaction costs associated with a marketbased exchange of strategic assets, particularly in the case of firm-specific know-how, result in a positive relationship between the level of control and the specificity of assets (Anderson and Gatignon, 1986, Hill et al., 1990; Delios and Beamish, 1999). In an attempt to avoid the cost of drafting, negotiating, monitoring, and enforcing contracts with economic market actors (with bounded rationality and opportunistic tendencies), companies internalise the transactions within the company’s structure. By establishing a wholly owned subsidiary they reduce dissemination risk (risk of losing control) and avoid the market failures related Application of MCDA Methods and Stochastic Dominance Rules… 17 to information (problems related to the evaluation of those assets by the market). In addition, the internal transfer of assets is considered to be more appropriate and efficient than the market mechanism, when assets, particularly know-how, are tacit and deeply embodied in the company, and it might be problematic to separate it out for a transfer to the partner. Hence we can assume that the more specific and tacit company’s assets, the more likely it will choose high-control entry modes. Company product factors The last group of factors to which managers should pay attention are factors directly related to the company’s product, such as product adaptation, life-cycle stage of the product, levels of customer service, and transaction specificity of the product. When the company needs to adapt the product to local needs and preferences, it must have considerable knowledge about the local market. Root (1994) indicates that the selected entry mode should assure the company of the close proximity to the foreign market in order to be able to tailor the product to the local customer. An active approach and a deep involvement with the market are essential to fulfil customers’ expectations. If so, we can expect that the more customized their products, the more companies are likely to enter a foreign market through high-control entry modes, which seem to be more efficient in this case (Anderson and Gatignon, 1986). A similar approach to entry mode selection is used in relation to customer service levels. If a product requires pre- and post-purchase service, proximity to the foreign market and customers seems to be crucial. It is hard, sometimes even impossible for the company to fulfil the service requirements at a distance. Thus, we can assume that companies with high service requirements tend to prefer more high-control entry modes in order to achieve the necessary proximity to customers (Lee, 1986). Life cycle stage of the product (PLC) is related directly to the proprietary content. Anderson and Gatignon (1986) indicate that immature products in the early stages of the PLC are characterized by high proprietary content which generates problems with its transmission and valuation. Moreover, there is a potential risk of loss of technology or property, leading to a need for control. Therefore, the more mature the company’s product, the greater the propensity to choose a low-control entry mode. Transaction specificity of the product (Gannon, 1993; Bradley and Gannon, 2000; Anderson and Gatignon, 1986) is related directly to the nature of the assets that the company possesses. Products of a company might be classified into “high tech” and “high touch” (Levitt, 1983). High tech products are defined as 18 D. Górecka, M. Szałucka products with highly intangible components for which objective valuation may be problematic: it is difficult for the buyer to estimate the value of the intangible asset component because it is poorly understood, unless it is disclosed. Those intangible components are related to technological know-how, marketing knowhow or brand loyalty (Gannon, 1993) and stand behind the company’s technical leadership, product image and reputation or its capacity for fast and flexible response. High touch products are based on tangible assets and are well understood. That’s why the objective valuation of them is relatively easy. Thus, when the company possesses highly proprietary products (or processes) it may tend to use entry modes offering greater control due to the hazard of valuation. 3. Methodology The present study shows the possibility of applying multi-criteria methods from the PROMETHEE family and SD rules to aid decision-makers in the entry mode selection process. It is based on the example of a dynamically developing company that manufactures and distributes hygienic, cosmetic and medical products for women, children and adults. This company is an enterprise with entirely Polish capital, which is organized in 17 countries. The capital group is composed of 54 companies including 17 manufacturing companies (in Poland, Russia, Ukraine and India), 27 trading companies (in 14 European countries, India and the USA) and 10 service (medical and information technology) companies (in Poland and Russia). It employs over 7.3 thousand people and markets its products in more than 65 countries worldwide (they are available on all inhabited continents). Thanks to the firm’s own Research and Development Centre that cooperates closely with experienced scientific institutions, its products are based on the cutting edge technologies. This helps the company to compete successfully with international companies in the highly competitive markets in which it operates1. The concise history of the firm, emphasizing especially its foreign operations and R&D related activities, is presented in Table 1. 1 Information about the company comes from its brochure and its website: http://www.tzmoglobal.com/en_GLO (7 March 2014). Application of MCDA Methods and Stochastic Dominance Rules… 19 Table 1 Company’s history in brief Years Event 1950s The company is established as a state-owned enterprise Dressing material is produced for the Ministry of National Defence and the Central Mining Office Supply. Production is set to shut down after completing the order but due to the high quality of work further orders appear The company begins conquering foreign markets: products are sold in European, African and Asian countries 1990s The company is privatised – a joint-stock company is created by individuals (Polish citizens): the employees of the company and representatives of the academic and medical environment In 1997 the company receives – as the first firm in Poland – a certificate confirming that it produces medical products in accordance with the requirements of GMP (Good Manufacturing Practice) – the principles set by the WHO (World Health Organization) In addition, the company obtains certificates of conformity of quality management system ISO 9001 and ISO 13485 Since the end of the 1990s the company is entitled to mark its products with the European CE safety mark 2000s In the early 2000s the company opens a hospital in Poland which – since 2007 – has been serving as a modern polyclinic. Since the beginning of 2000s it has been also providing a sterilization service for hospitals In 2003 R&D company joins the capital group. Thanks to that the offer of the company is extended of biomaterials and other technologically advanced products Production of hygiene products in the newly built plants in the East market starts – in 2003 in Russia and in the first quarter of 2004 in Ukraine In 2002 the company establishes a joint venture with its Indian partner. A new factory in India begins manufacturing hygiene and medical products in 2005. At the end of 2000s it obtains the CE mark for medical production In 2004 the company builds a modern logistic centre in Poland (which serves as a central distribution warehouse). The following year a training, marketing and logistics centre is opened in Germany. Another logistics centre is founded in 2007 in Romania In 2008 new business units are established in Poland (e.g. a films and laminates production plant and a clean room for medical production) At the end of 2000s the company starts business activity in North America − it establishes its headquarters in the United States 2010s In 2011 the company finishes work on a modern machine for the production of absorbent pants. This is one of the few high-tech machines in the world for the production of absorptive products The company consistently develops its business overseas. In 2012 it takes part in the largest trade show in the United States for those who are interested in home medical equipment market – Medtrade The company receives many prestigious awards, for instance: Business Eagles in Germany 2011, President’s Economic Award – ‘Polish Economic Nobel Prize’ for ‘the presence on the global market’ 2012, ‘Orzeł Rzeczpospolitej’ for ‘the best production company’ 2013 Source: http://www.tzmo-global.com/en_GLO/companyHistory (7 March 2014). 20 D. Górecka, M. Szałucka The present simulation of an entry mode selection refers to a project already carried out by the company, namely the investment made in India (see Table 1). Hence, it is assumed that the target market had been already selected by the firm. After considering the various alternatives we have selected six entry modes, which seemed reasonable to apply in the case considered, namely: indirect export, agent/distributor export, licensing, branch/subsidiary export, joint venture and wholly owned subsidiary. Factors affecting the company’s choice of the entry mode have been identified through the literature review. We have selected 15 criteria that should be considered from the point of view of encouraging or discouraging a particular entry mode. They are presented in Table 2. Table 2 Factors influencing the company’s choice of the entry mode Factors (criteria) Measures (units) Evaluation scale Target country environmental factors Total population (number of inhabitants) Market potential Urban population (number of inhabitants) GDP growth rate (annual %) GDP per capita (GDP per capita constant 2000; USD) Production factors Cotton production (thousand bales) Labour cost (USD per hour) Geographical distance Distance between capital cities (kilometres) Cultural distance Cultural distance: power distance, individualism, masculinity, uncertainty avoidance, pragmatism, indulgence (index) Political risk Political risk: corruption, government non-payments/non-repatriation, government stability, information access/transparency, institutional risk, regulatory and policy environment (index) ƒ ƒ ƒ ƒ ƒ Very low Low Medium High Very high ƒ Low (unattractive) ƒ Medium ƒ High (attractive) ƒ Low (up to 1500 km) ƒ Medium (from 1500 to 3000 km) ƒ High (over 3000 km) ƒ Low ƒ Medium ƒ High ƒ ƒ ƒ ƒ ƒ Very low Low Medium High Very high Application of MCDA Methods and Stochastic Dominance Rules… Government policies and regulations Demand uncertainty Marketing infrastructure Size of the company International experience Economic freedom: property rights, freedom from corruption, fiscal freedom, government spending, business freedom, labour freedom, monetary freedom, trade freedom, investment freedom, financial freedom (index) Target country industry factors Product-market development: growth rate, number of competitors, competitive structure, technologies, sector access Outlet density (number per 1,000 inhabitants) Modern Trade density (number of retail stores per million population) Company factors Employment (number of employees) Sales turnover (thousand PLN) Sales on foreign markets (revenue in thousand PLN) Number of markets served Number of projects abroad Corporate strategy Corporate strategy analysis (based on cost pressure, local responsiveness and global integration) Generic marketing strategies Generic marketing strategy analysis (based on number of markets and time horizon) Nature of the strategic assets R&D intensity Product technical complexity ƒ ƒ ƒ ƒ ƒ Repressed Mostly unfree Moderately free Mostly free Free ƒ ƒ ƒ ƒ Birth stage Growth stage Maturity stage Decline stage ƒ Poor ƒ Moderate ƒ Good ƒ Small ƒ Medium ƒ Large ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ Very low Low Medium High Very high Global Mostly global Mostly multi-domestic Multi-domestic Concentration Mostly concentration Mostly diversification Diversification ƒ Low ƒ Medium ƒ High Company product factors Product adaptation Degree of product customization Product lifecycle PLC analysis (based on proprietary content) ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ Very low Low Medium High Very high Introduction stage Growth stage Maturity stage Decline stage 21 22 D. Górecka, M. Szałucka Finally, five experts − specialists in the field of foreign investments (two scientists, two practitioners from FMCG sector and one scientist with practical experience) − scored the selected entry modes individually and independently according to their knowledge and experience on scales established by a main expert and taking into account their own evaluation of 15 factors affecting the company’s choice of the entry mode. Table 3 provides the performance matrix for the six entry modes considered and the 15 criteria used to evaluate them. Table 3 Input data Factors (criteria), scale2 Market potential (1-5) Production factors (0/1) Geographical distance (1-3) Cultural distance (1-4) Political risk (1-4) Government policies and regulations (1-4) Demand uncertainty (1-3) 2 Indirect Export 1 3 1 1 1 0 0 0 0 0 1 3 1 2 1 3 1 2 1 3 4 1 2 4 3 4 3 2 3 2 1 2 2 2 2 Agent/ Distributor Export 2 5 2 2 1 0 0 0 0 0 1 3 2 3 1 4 2 3 3 4 4 1 4 3 3 4 3 2 3 3 1 2 3 3 3 Entry modes Branch/ Licensing Subsidiary Export 2 4 1 1 2 3 1 5 3 2 0 0 0 0 0 0 0 0 1 0 2 1 1 3 3 2 2 2 3 2 4 2 2 3 3 3 4 1 3 2 4 3 3 3 4 3 4 2 4 2 3 2 4 4 2 1 4 2 3 3 1 3 1 3 3 2 2 1 3 2 Joint Venture 5 2 5 2 5 1 0 1 0 1 3 1 3 2 3 3 4 4 3 3 2 4 4 4 2 1 4 4 4 2 2 3 3 3 2 Higher values indicate that the entry mode is better tailored to the specific situation. Wholly Owned Subsidiary 5 1 4 5 5 1 1 1 1 1 3 1 3 1 3 1 4 3 1 2 1 4 3 2 2 1 4 2 2 2 3 3 3 1 2 Application of MCDA Methods and Stochastic Dominance Rules… Marketing infrastructure (0/1) Size of the company (1-4) International experience (1-4) Corporate strategy (1-3) Generic marketing strategies (1-3) Nature of the strategic assets (1-3) Product adaptation (1-3) Product lifecycle (1-3) 0 0 0 0 0 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 0 0 1 0 1 2 1 1 2 1 2 1 1 1 1 2 1 1 1 1 1 1 2 1 2 1 1 2 1 1 1 1 1 2 1 1 1 2 2 1 0 0 1 0 1 2 1 1 1 2 2 1 1 2 2 1 1 1 2 2 1 1 1 1 2 1 1 2 2 2 1 1 1 2 1 1 1 2 1 2 1 1 0 0 0 3 3 3 3 3 4 2 3 3 2 3 2 3 1 3 3 2 2 2 3 3 2 2 2 2 4 2 2 1 3 3 2 3 2 2 1 1 1 1 1 3 3 4 3 4 3 2 4 3 3 2 3 2 2 2 2 2 2 1 2 2 2 2 1 2 2 3 3 3 1 2 2 3 1 1 23 1 1 0 0 0 4 4 3 4 4 4 4 2 4 4 3 3 3 3 3 3 3 3 3 3 2 3 2 3 3 3 3 3 1 2 3 3 3 3 3 To rank entry modes from the best to the worst from the point of view of the expansion of the considered company to the Indian market, the PROMETHEE II method (see Brans and Vincke, 1985; Brans, Vincke and Mareschal, 1986) with SD rules and veto thresholds (see Nowak, 2005; Górecka 2009) and the EXPROM II method (see Diakoulaki and Koumoutsos, 1991) with SD rules and veto thresholds (see Górecka, 2010; Górecka 2011) have been applied. Although expected utility models and outranking relation models used to be often treated as competitors, it is possible to benefit from both approaches in the situation when the performances of various alternatives are evaluated in a probabilistic way (as it is in this case because the number of experts participating in 24 D. Górecka, M. Szałucka evaluation is greater than one). Namely, stochastic dominance rules can be employed to establish preferences with respect to each criterion and the criteria aggregation method based on the outranking relation procedure can be used to obtain global preference (Martel, Zaraś, 1995). Moreover, the concept of pseudo-criteria can be employed to distinguish situations of strict preference, weak preference and indifference (Nowak, 2004). As a matter of fact, applying this combined approach seems to be an appropriate solution in the case of entry mode selection. The following characteristics of the decision-making problem analysed and the following expectations of the decision-makers should be taken into consideration in the process of selecting the most appropriate multi-criteria decision aiding method for the problem of choosing the most proper entry mode: • the decision-making problem should be formulated as a problem of ordering a finite number of alternatives; • the problem is a group decision-making problem – experts engaged in the entry modes’ appraisal evaluate them individually and independently and it is required to incorporate diverse individual views into a blended final decision; • decision-makers are able to present the information about their preferences but they do not have much time for interaction and cooperation with the analyst; • participants of the decision-making process have very diverse educational background and their knowledge about multi-criteria decision aiding methods is usually limited; • the decision aiding technique should not be too complicated to enable decision-makers to understand how it works; • it should be taken into account that experts appraising entry modes may not be consistent in their evaluations, especially in view of uncertainty and inaccuracy characteristic for the decision-making problem discussed; • the possibility of the occurrence of complete compensation should be removed as in the case of some criteria it may be hazardous; • it is desired that the final solution takes the form in which the points occur, otherwise it may be unconvincing for the decision-makers. Taking into account all the above-mentioned information the most suitable methods to aid the decision-making process seem to be PROMETHEE II and EXPROM II with SD rules and veto thresholds. They are considered to be userfriendly, i.e. simple and easily understood – all steps can be quite effortlessly explained to the decision-makers as they are neither very complex nor mathematically challenging. Additionally, thanks to the introduction of the veto threshold the techniques are partially compensatory (a really bad score on one criterion cannot be compensated with a good score on another). Moreover, these techniques allow us to obtain a complete pre-order of the alternatives to which the points are assigned in the final solution. When comparing both methods, the Application of MCDA Methods and Stochastic Dominance Rules… 25 PROMETHEE IIv method with SD rules results in an ordinal scale of measurement, while the EXPROM IIv method with SD rules, which is based on the notion of ideal and anti-ideal solutions, enables the decision-maker to rank alternatives on a cardinal scale. To check the influence of changes in the weights of evaluation criteria on the final rankings of entry modes examined the analyst in cooperation with the main expert have established four different vectors of weighting coefficients. The first vector was determined arbitrarily, the second one was created with the help of the AHP method (Saaty, 2006; Saaty and Vargas, 1991), and the third one used Hinkle’s method, which is also called the ‘resistance to change’ grid (Hinkle, 1965; Rogers and Bruen, 1998). In the last approach all factors were presupposed to be equally important. The analyst and the main expert established also the values of indifference (q), preference (p) and veto (v) thresholds. The model of preferences for the decision-making problem is presented in Table 4. Table 4 Model of preferences Vectors of weighting coefficients Factors (criteria) Max /min I II III IV Market potential max 0.11 0.1379 0.140 Production factors max 0.11 0.1379 Geographical distance max 0.04 Cultural distance max Political risk max Government policies and regulations q p v 0.067 0 1 3 0.140 0.067 0 0 1 0.0305 0.013 0.067 0 1 5 0.06 0.0520 0.070 0.067 0 1 5 0.09 0.0861 0.100 0.067 0 1 3 max 0.04 0.0305 0.013 0.067 0 1 5 Demand uncertainty max 0.09 0.0861 0.100 0.067 0 1 2 Marketing infrastructure max 0.06 0.0520 0.070 0.067 0 0 1 Size of the company max 0.09 0.0861 0.100 0.067 0 1 3 International experience max 0.11 0.1379 0.140 0.067 0 1 3 Corporate strategy max 0.06 0.0520 0.070 0.067 0 1 5 Generic marketing strategies max 0.02 0.0195 0.005 0.067 0 1 6 Nature of the strategic assets max 0.04 0.0305 0.013 0.067 0 1 5 Product adaptation max 0.04 0.0305 0.013 0.067 0 1 5 Product lifecycle max 0.04 0.0305 0.013 0.067 0 1 5 D. Górecka, M. Szałucka 26 4. Results Tables 5 and 6 provide, respectively, a summary of the results obtained by applying the PROMETHEE IIv and EXPROM IIv techniques with SD rules using four different vectors of weighting coefficients. Table 5 Rankings of the entry modes obtained using PROMETHEE II with veto thresholds and SD rules for four different vectors of weights No. PROMETHEE II with veto thresholds Vector no. 1 Vector no. 2 Vector no. 3 Vector no. 4 No. 1 Joint Venture Joint Venture Joint Venture Joint Venture 1 2 Wholly Owned Subsidiary Wholly Owned Subsidiary Wholly Owned Subsidiary Wholly Owned Subsidiary 2 3 Branch/ Subsidiary Export Branch/ Subsidiary Export Branch/ Subsidiary Export Branch/ Subsidiary Export 3 4 Licensing Licensing Licensing Licensing 4 5 Agent/ Distributor Export Agent/ Distributor Export Agent/ Distributor Export Agent/ Distributor Export 5 6 Indirect Export Indirect Export Indirect Export Indirect Export 6 Table 6 Rankings of the entry modes obtained using EXPROM II with veto thresholds and SD rules for 4 different vectors of weights No. EXPROM II with veto thresholds No. Vector no. 1 Vector no. 2 Vector no. 3 Vector no. 4 1 Wholly Owned Subsidiary Wholly Owned Subsidiary Joint Venture Wholly Owned Subsidiary 1 2 Joint Venture Joint Venture Wholly Owned Subsidiary Joint Venture 2 3 Branch/ Subsidiary Export Branch/ Subsidiary Export Branch/ Subsidiary Export Branch/ Subsidiary Export 3 4 Licensing Licensing Licensing Licensing 4 5 Agent/Distributor Export Agent/Distributor Export Agent/Distributor Export Agent/Distributor Export 5 6 Indirect Export Indirect Export Indirect Export Indirect Export 6 The rankings presented in Tables 5 and 6 show the robustness of the solutions to the changes in the vectors of weights as the modifications of the parameters’ values do not lead (with only one exception) to alterations in the rankings of entry modes. Application of MCDA Methods and Stochastic Dominance Rules… 27 The rankings of the entry modes we have obtained are not in complete agreement. The best entry mode, taking into account its appropriateness as the institutional agreement allowing the considered company to enter the Indian market, is joint venture or wholly owned subsidiary. Branch/subsidiary export also turned out to be quite a good solution – the values of net flows determined for it are in all cases positive. In turn, licensing and agent/distributor export do not seem appropriate arrangements for organizing business activities in India by the company examined as the values of net flows determined for them are in all cases negative. Finally, the worst mode to enter the Indian market is indirect export. To sum up, taking into account all the results obtained, joint venture is recommended for the analysed company (top-ranked five times). Above and beyond, the firm may consider wholly owned subsidiary (top-ranked three times) or branch/subsidiary export as the entry modes to explore the Indian market. 5. Conclusions In the paper we have proposed a universal tool, based on the outranking MCDA methods combined with stochastic dominances, namely PROMETHEE II with SD rules and veto thresholds, and EXPROM II with SD rules and veto thresholds, which can be used to solve the entry mode selection problem for international expansion. In fact, applying this approach can enhance the evaluation process and improve decision-making since the assumptions on which it is based are in line with reality. The usefulness of the presented tool is confirmed by the fact that in reality, the firm that formed the basis of our analysis of its international expansion chose joint venture as the entry mode to explore the Indian market and it has succeeded on it. 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J Manag Gov (2014) 18:51–76 DOI 10.1007/s10997-012-9233-6 Partnerships as strategic choices in public management Les Metcalfe • Antonio Lapenta Published online: 18 October 2012  Springer Science+Business Media New York 2012 Abstract Partnerships are not new phenomena in public administration. However, there is now a more explicit recognition that managing public policy networks involves partnerships within and across policy fields and linking interdependent levels of government nationally and internationally. The aim of this paper is to widen the scope of strategic choice in designing partnerships in public management by developing an alternative approach: the Power-Role Analysis. As the term suggests, Power-Role Analysis uses distinctions between types of power and the roles and relationships corresponding with them to clarify and define different forms of partnership. Power-role analysis provides a basis for considering systematically the problems that arise in managing partnerships of different kinds. It also gives guidance for establishing congruence between forms of partnerships and the results to be expected from selecting one form rather than another. The Power-Role analysis is afterwards performed, its focus being two empirical cases. Keywords Partnerships  Strategic management  Power-role analysis  Strategic choice  Public management 1 Introduction: fashion and fundamentals in the partnerships debate Strategic management involves setting new policy directions in response to changing policy needs and political circumstances. External changes may trigger new policy responses or redefined political objectives may prompt revaluation of L. Metcalfe Durham Business School, Durham University, Mill Hill Lane, Durham DH1 3LB, UK e-mail: les.metcalfe1@btinternet.com A. Lapenta (&) Independent Public Management Consultant, Potenza, Italy e-mail: antonio.lapenta@yahoo.com 123 52 L. Metcalfe, A. Lapenta existing policies. Whatever the motivation, political leaders routinely employ the rhetoric of strategic management when launching new initiatives. But the success of new political strategies often requires the parallel development of administrative capacities because existing organisations are not fit for new purposes. Strategic management includes creation of appropriate organisational structures and management systems that will ensure that policies will work. In recent years ‘‘partnerships’’ have become the fashionable solution in public management reform. The favoured response to the question ‘‘How will this work in practice?’’ has been to invoke the idea of ‘‘partnerships’’, especially public–private partnerships. It is a step forward that this has moved debate away from the polar opposites of state versus market. It is increasingly apparent that neither the state alone nor the market alone provides adequate solutions to many problems of managing public service provision and social development. Implementing strategic change frequently requires a combined effort with public and private actors working together in partnership. Howeve...
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Running head: ASSIGNMENT 1: EXTERNAL ENVIRONMENTS

Assignment 1: External Environments
Student’s Name
Institutional Affiliation

1

ASSIGNMENT 1: EXTERNAL ENVIRONMENTS

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Assignment 1: External Environments
The corporate world today is becoming more competitive, compelling many small
organizations to look for ways in which they can increase the competitiveness, survival, and
promote their sustainability (Cheng, Kadir, & Bohari, 2014). Therefore, Cheng et al. (2014)
posited that engaging in strategic planning requires an organization to carry out an environmental
scan. Notably, this crucial process preludes to the establishment of a strategy to allow a company
to comprehend its external environment regarding factors that can affect its resources.
External Environmental Factors
From the given scenario, the small independent facility in rural Georgia plans to acquire
Magnet Status, which an award provided by the Americans Nurses’ Credentialing Center
(ANCC) to healthcare facilities, which satisfies given standards of their nursing. Therefore,
attaining Magnet Status would mean that the hospital’s nurses deliver quality patient outcomes,
have high work satisfaction, have reduced staff turnover, and proper complaint resolution. The
idea is to allow a facility to engage their nurses in research-based nursing practices and promote
them in advancing their nursing practices. Urban and Mothusiwa (2014) posit that enterprises
should implement a level of flexibility in their strategic planning, which supports and captures
current competitive advantages.
Therefore, some of the external environmental factors include financial funding. Besides,
being a small facility, the management may b...


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