The Influence of Firm Characteristics, and Uncertainty Avoidance on the Relationship Between Foreign Market Entry Strategies and Financial Performance of Multinational Firms in Kenya

Abstract

The purpose of this study was to establish the influence of firm characteristics and uncertainty avoidance on the direct relationship between foreign market entry strategies and financial performance of listed multinational firms in Kenya. The theories that guided the study were internationalization theory as the anchoring theory, transaction cost theory and resource-based view. Reviewed literature established that several studies had been conducted on the direct relationship between foreign market entry strategies and financial performance of multinational firms. However, these studies did not consider the fact that other possible factors including firm characteristics and uncertainty avoidance of host countries could influence this relationship. The two factors were studied as moderators and hypotheses were generated from them. The general objective of the study was to determine the relationship among firm characteristics, uncertainty avoidance, foreign market entry strategies and financial performance of listed multinational firms in Kenya. Positivism research philosophy was preferred for purposes of making objective conclusions on data collected, their interpretations and their empirical findings. The research design adopted by the study was descriptive design. The type of study was cross-sectional and analytical. Secondary data was collected from the annual reports and audited financial statements of the multinationals studied for the years 2014, 2015, 2016 and 2017. The study was engrossed on publicly listed firms in the Nairobi Securities Exchange. All the 62 listed multinational firms operating in Kenya were considered for the study. Results showed that the average performance index of firms that entered in Kenya through Franchises, wholly owned subsidiaries or through acquisitions performed poorly compared to export firms. The study also established that the relationship between foreign market entry strategies and financial performance of multinational firms was significantly moderated by firm characteristics and uncertainty avoidance. The study findings revealed that exporting as a mode of entry was more profitable than the other entry strategies considered in this study. It was recommended that the selection of an entry strategy be thoroughly scrutinized as the entry chosen has a significant effect on the overall success of a firm’s financial performance. In addition, management should engage all the stakeholders involved in the internationalization process in ensuring that research and development and market evaluation of the host country is effectively carried out to ensure efficiency in choosing the right form of entry into the new market. It was also recommended that shortcomings emerging from this process should be provided to mitigate any unforeseen financial loses. The study further recommended that governing bodies of host countries where rules and regulations do not favor multinational should work towards implementing policies that do not lock out potential foreign investors. The research was confined to public listed multinational corporations operating in Kenya. The study confirmed that the combined effect of firm characteristics, uncertainty avoidance and foreign market entry strategies had more effect on the financial performance of multinational firms than their individual effects. The national government can use the results of this research to formulate and implement favorable policies that can attract foreign investment. The results can also be used to draft useful information and have the same provided to interested parties on the strength of the Kenyan economy, currency stability, and the level of risk acceptance of foreign firms. The Kenyan trade policies should also aim at creating more awareness of Franchising, Wholly Owned Subsidiaries, and Acquisition modes to investors for purposes of balancing the trade. The study suggests that future studies to introduce other variables other than the ones considered in this study. Another suggestion is that firms operating in a similar industry should be studied to arrive at a more sophisticated and precise conclusion.