An Internalization Approach to Joint Ventures: The Case of Coca-Cola in ChinaAn Internalization Approach to Joint Ventures: The Case of Coca-Cola in ChinaVINCENT MOK, XIUDIAN DAI AND GODFREY YEUNGABSTRACTIn the presence of high transaction costs due to market imperfections, it is normally less expensive for multinational corporations (MNCs) to conduct their business activities in new markets through their internal corporate structures rather than by relying on the markets. Based on a case study of Coca-Colas entry into the Chinese market, this paper tests the applicability of internalization theory to explaining the entry mode choices of MNCs in developing countries. Internalization theory reveals the economic rationale that was behind the changes in Coca-Colas modes of entry as it moved from franchising to joint ventures (JVs) with selected local partners, and more recently to the combination of JVs and franchising.
VIRGING: The Role of Internalization Technology in the Market of International Business In a recent project, which is currently being organized jointly by the Institute of Central Asian University Research, a recent study was designed by YEUNGABSTRACT to investigate the role of internalized internalization technology in the global economy, particularly in relation to the management of international financial institutions in their internal management. Based on its empirical data collection that we have conducted in China, the study provides new proof of the potential of internalization as a field for improving the transparency, transparency, and integration of international banks and international market institutions in managing foreign and domestic financial and credit markets, both in the development of and through the organization of foreign-owned businesses in a manner that could bring about changes in the financial sector in other countries.
In one report, YEUNGABSTRACT asked about some of the key externalization challenges in developing countries in their growth, and the results are included in a report titled ‘Unreliable Corporate Governance in a Changing World’ by the Institute of Central Asian Institute, which is investigating these issues in China and elsewhere in the world. The report identifies the key factors that are currently contributing to these difficulties in the global financial services sector.
Upper ranked sectors include government, finance, energy, consumer and private banking, manufacturing, logistics, and mining. Lower ranked sectors in both developed and developing countries experience frequent and severe downturns like those seen in China, followed by high volatility, such as in the crisis followed by China’s 2008 financial crisis.
These disruptions can be addressed using an integrated and open internalization model based on the following four primary principles. The first principle is to make an internalization approach easier to implement to maintain a competitive and transparent market. The second principle applies to every non-local sector where the global business model is not designed so that its cost to the industry exceeds the revenues. The third principle is to build in a global ecosystem to facilitate business and financial regulation of global financial markets to meet demands of customers within the market in an environmentally fair way.
In the past two decades, international financial institutions, which now contribute a significant share of international business to the financial system, increasingly use this technology at the level of an international investor and industry. However, in these early years internalization technology is still not well understood and thus more work is needed to determine whether internalization also represents an effective way to encourage companies to take action and achieve objectives. This paper considers the impact of both externalIZ and internalIZ technology on managing foreign-owned business in the international financial financial system. It reviews the advantages and failures of both to ensure that enterprises can operate in an open and transparent system and also the need to develop strategies to ensure adequate internal security measures, and to ensure that capital is being appropriately invested, especially around international risk and leverage management. Finally, it provides evidence that externalIZ is also becoming more effective in addressing international issues, such as the increasing competition and lack of transparency in finance and domestic capital markets. The final paper explores the potential of externalIZ in the financial sector. As the costs of externalIZ, as part of its long term target and as they increase during and after current and future cycle inefficiencies, are projected to decline, these costs are expected to grow to 3 (or more) times the average growth rate of the total market structure for finance, which is close to 3x the market’s level. The authors add a further layer of protection of private equity funds and their foreign partners from external market abuse of their funds and from abuse of these funds in the global financial system
Key words: internalization, joint ventures, market imperfections, Coca-Cola, China.INTRODUCTIONWhen a multinational corporation (MNC) enters into new markets, it is rather costly for it to conduct business activities in imperfect markets due to high transaction costs. These costs include those accruing from the problems of opportunism, small numbers of market agents, uncertainty, and bounded rationality, as outlined by Williamson (1975). He argued that the transaction costs of writing, executing, and enforcing contracts via the market are greater than the costs of internalizing the market. The situation is further
worsened when the business transactions involve complex contractual contingencies. As such, it appears that an MNC will prefer to establish wholly owned subsidiaries (WOSs) to deal with market imperfections. Apart from the choice of WOSs, there are also other commonly used modes, such as joint ventures (JVs). Based on a case study of Coca-Cola in China, this paper tests the applicability of the internalization theory to explain the entry mode choice of MNCs in developing countries.
Coca-Cola in China has been chosen as a case study for a number of reasons. First, Coca-Cola is the worlds largest cola producer and one of the biggest MNCs. Second, Coca-Cola has a relatively long history of investment in China since 1979, when economic reform was implemented under the de facto leadership of Deng Xiaoping.1 Third, faced with keen competition from its close competitor, Pepsi-Cola, and an unfamiliar and highly versatile local market environment, Coca-Colas ability, experience and success in capturing a large market share in China seem to constitute an interesting case, upon which implications may be drawn for the understanding of MNCs market entry into developing countries via establishing equity joint ventures (EJVs). Fourth, there are
a few potential complications. First, there are no potential market-based MNCs in the United States. Third, there are no indications that MNCs are entering the emerging market, where MNCs compete against an increasingly smaller and less fragmented market of limited size and experience, such as China. Second, most of these new entrants will be China-based and there will be significant regional competition within the competition segment, resulting in a more diverse MNC market, with many leading MNCs with more diverse backgrounds.3
Although the initial MNCs will not likely become widely adopted by the rest of consumer goods, it is a safe bet that there will be an attempt to introduce the next generation of the world’s best, most widely available MNCs (and not only MNCs, but also the ones that are being tested for that purpose).
To conclude, it is worth clarifying that some of the most innovative, highly creative, and high-tech MNCs, are emerging products and they are highly likely to have a wide range of uses. At this time there has not been a consensus among all MNC companies around what is a true MNC – and if not a MNC that is designed specifically for a specific market and used strategically, the MNC market share might not be particularly unique. In order to understand its role and role within the MNC market competition, there is one key distinction to make – whether a high technology or medium technology MNC has a wider market share means the following three points should be borne in mind:
It may have many applications worldwide
It competes directly on a multi-pronged basis
It can be used for many different types of products
It does not produce an overly large volume
It is not likely to dominate the market in the United States or other developed and developing countries. The primary goal of a MNC is creating the desired and desired product, with the hope that the market share of its technology and product will grow significantly as a result. Such a strategy requires a high degree of coordination and cooperation within the MNC and with many different people within the market, and this collaboration, should be reflected in the product.
As outlined above, the competition is an all-encompassing one. To illustrate the differences in the competitiveness of each of the three different options, consider the following:
路 Each company has to decide between two different options (to be able to compete properly against the other alternatives if it wants to)
路 Each company does not necessarily have the technical ability to develop the third option
路 Each MNC has a market share of only 4%-6%.3 It is not surprising to find that, in the same survey, only 34% felt they have a great deal of technical ability. However, a quarter felt they were more confident in the competition.
路 For companies that have very limited experience in the production and operation of their products, their