Foreign Direct Investment

TABLE OF CONTENT

CHAPTER 1 2

1.1 INTRODUCTION 2

1.2 RESEARCH QUESTION 2

1.3 METHODOLOGY 3

1.4 THEORY REVIEW 5

CHAPTER 2 7

2.1 COMPANY PROFILE 7

2.2 CARLSBERG'S GLOBAL ENTRY STRATEGIES 8

2.3 CARLSBERG IN RUSSIA 10

2.4 CONCLUSION 12

CHAPTER 3 13

3.1 CARLSBERG'S ENTRY MODE IN THE LIGHT OF RUSSIAN INSTITUTIONAL ENVIRONMENT 13

3.2 CONCLUSION 13

4. FINAL CONCLUSION 13

Chapter 1

1.1 Introduction

Emerging markets became important players on the global scale. Entry into emerging economies by western multinationals has been driven by competitive pressures in their home countries . FDI literature defines several FDI-motives, which defined as market-, resource, strategic asset-, and efficiency -seeking investments . However, it is acknowledged, that uncertain environment in emerging countries poses serious challenging for western companies while considering investment opportunities . When operating in a developing country or emerging market the surrounding environment is quite different from developed countries and often firms are exposed to higher levels of market failures and uncertainty, which they need to overcome. Multinational enterprises entering transition economies have to adjust their strategies to the local institutions. Countries with the former planned economy are given a particular concern. Institutional framework in these countries is only partially reformed, high level of instability and rapid implementation of new reform programs that lead to "high transactional costs for economic agents " .

One of these countries is Russia, that " at the opening if new millennium...looms on the horizon as an immense opportunity for investors, domestic and foreign alike " . There is an increased interest from foreign investors in the Russian economy, which has seen a continuous growth over the last years, quickly rebounding from the 1998 financial crisis. However, throughout the 90's and up to this date the inflow of FDI to Russia has remained rather small in comparison with other emerging economies. Such a low level of foreign direct investments can be explained from many points of view.

On the managerial level, the common attitude is revealed through Harward Business Review, when a number of CEOs were asked about advisability to invest in Russia . The crux of this debate was not whether to undertake investment in Russia - the participants were all positive about long -term prospects in the country and planned investments there. Instead, the debate was when and how to invest. They were not sure about market form of participation and timing decisions. Number of concerns was mentioned: Russian mafia, infrastructure, and commercial code.

Still, there are examples of successful investment in Russia. One of them is Carlsberg A/S. Today, sales in Russia are responsible for the third part of the company's total profits, and Russian beer market is considered as the most important single market for the company. Market share in 2004 was 33% and as Carlsberg's vice -president Poul Bergkvist mentioned, " Carlsberg expects growth of market share".

In conjunction to that, it is interesting to analyse how Carlsberg dealt with issues of entry mode while entering uncertain Russian environment.

1.2 Research Question

How can Carlsberg's entry to the Russian market be explained from the institutional and transaction costs perspectives?

The questions that we attempt to uncover in the project are how Carlsberg has become established in Russia, and why that entry mode was chosen in the light of transaction costs and institutional theoretical frameworks.

In order to have our project structured, we have chosen the following sub-questions:

* What entry mode has Carlsberg chosen for entry to Russia?

* How can that choice be justified from transaction costs and institutional theoretical frameworks?

The former question intends to examine Carlsberg's entry mode to Russia. We are also interested in placing an entry mode tailored for a particular country, in our case Russia, side by side with overall Carlsberg's global entry strategy. We expect some similarities to occur, but our motive is to clarify the exact entry mode chosen for Russia by Carlsberg.

That leads us to the latter question, where we attempt to explain Carlsberg's choice of entry mode from the theoretical perspectives, indicated above.

1.3 Methodology

We now would like to outline the way we intend to answer our research question in terms of what theories we apply and what empirical evidence we base our conclusions on.

Our overall approach is deductive, although rather than attempting to strictly justify the theory by empirical evidence, we use the theoretical framework mainly for systematizing and explaining our finding.

Our choice of applying institutional theory in this paper can be justified as ''...in the early stages of market emergence, institutional theory is preeminent in helping to explain impacts of enterprise strategies... because government and societal influences are stronger in these emerging economies than in developed economies...'' We would like to establish the fact that there exists a difference between emerging economies and economies in transition, e.g. institutions are going through a transition in the former and are being formed in the latter. However we abide by the following definition: " in emerging economy can be defined as a country that satisfies to criteria: a rapid pace of economic development and government policies favoring economic liberalization and the adoption of a free market system." We think that transition countries do fall into the indicated category; hence we use emerging ad transition economy equally.