Joseph Johnson & Gerard J. Tellis
Executive Summary
China and India are currently the third- and fifth-largest economies in purchasing power parity. Some forecasts suggest that by 2020, China and India may surpass Japan in gross domestic product in purchasing power parity, and China may surpass the United States by 2050. This remarkable economic resurgence and future promise of China and India has made entering these markets critical to the survival and success of many firms. The rising incomes of the local populace are now attracting many firms into these countries. In 2005, China alone attracted approximately $1 billion per week in foreign direct investment.
How have foreign entrants performed in these emerging markets? What factors have led to their success or failure? Firms have been reluctant to divulge specific information on performance, and researchers have the neglected to study this issue; thus, it has gone largely unexamined. As a result, despite almost three decades of history, it is unclear how firms should enter such emerging markets.
The current study attempts to analyze the success and failure of firms entering the major emerging markets of China and India. It addresses the following questions: What factors drive the success of entry into China and India? Is entry into China more or less successful than that into India? How do a firm’s entry mode, timing, and size and a host country’s openness, risk, economic distance, and cultural distance affect success? The authors test these factors in an analysis of 192 firms’ entries into China and India.
The most important findings are rather counterintuitive: Smaller firms are more successful than larger firms, and firms entering more open emerging markets have less success. Other findings are that success is greater with earlier entry, greater control of entry mode, and shorter cultural and economic distance between the home and host countries. Importantly, with or without control for these drivers, firms have less success in India than in China.
The findings suggest five implications firms entering emerging markets. First, firms should not only consider the growth of emerging markets but also the success rates of prior entrants. Second, the progressive opening of the economies of China and India does not mean that firms should wait to enter when entry becomes easier. Third, counter to widely held priors, small firm size should not deter entry into emerging markets. Fourth, firms should choose the entry mode that affords them the highest degree of control while entering emerging markets. Fifth, when entering emerging markets, firms should consider targets that are close to their home country in terms of economic and cultural distance. In particular, firms from developing countries may be more successful in entering emerging markets than those from developed countries, if the emerging markets are close to them in cultural or economic distance.
Biography
Joseph Johnson (PhD, University of Southern California) is Assistant Professor of Marketing at the University of Miami. His research interests are consumer biases in financial products, valuation of marketing strategy, and the customization of marketing promotions. His research has appeared in leading journals, such as Journal of Consumer Research, Marketing Science, Journal of the Academy of Marketing Science, and Journal of Optimization Theory and Applications. His teaching interests are international marketing and marketing strategy.
Gerard J. Tellis (http://www-rcf.usc.edu/~tellis/) (PhD, Michigan) is Professor of Marketing, Neely Chair of American Enterprise, and Director of Center for Global Innovation, Marshall School of Business, University of Southern California, Los Angeles. He specializes in innovation, market entry, new product growth, advertising, and pricing. He has published more than 80 articles and books, which have won 15 awards, including the Frank M. Bass, William F. Odell, Harold D. Maynard (twice), and the Vijay Mahajan Award for lifetime contributions to marketing strategy. He is also a trustee of the Marketing Science Institute and a senior research Associate in Judge Business School at Cambridge University.
Journal of Marketing, Vol. 72, No. 3, May 2008
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