Full Text 01

Bachelor Thesis
Why do firms convert their joint

ventures into wholly owned
subsidiaries?
A multiple case study of Swedish firms' joint ventures
in India and China
Authors:
Simon Florian Stämpfli
Nikita Vladimirov
Supervisor: Tahir Ali
Examiner: Susanne Sandberg
Date: May 2017
Subject: International Business
Level: Bachelor Thesis
Course code: 2FE51E
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ABSTRACT
International Joint Ventures are important for international Business. In recent
years, firms started to convert their International Joint Ventures into Wholly
Foreign Owned Enterprises. However, there is only a limited understanding for the
conversion of International Joint Ventures into Wholly Foreign Owned Enterprises.
The purpose of this study is to offer reasoning for this phenomenon. The theoretical
framework that was developed for this thesis is based on the FDI Motive theory and
the OLI framework. From a methodological perspective, a deductive approach is
followed. The qualitative research was using a multiple case study design to collect
primary data to answer the research questions.
The results of this study suggest, that two aspects of the FDI Motive theory have an
effect on the International Joint Venture conversion into a Wholly Foreign Owned
Enterprise. For the market seeking motive, firms believe to be able to better
maximize their market share by taking full control over the subsidiary. Also, the
resource seeking motive is in this thesis identified as an important reason for the
conversions, as companies see especially advantages in taking full control over
labour in those markets. However, the Strategic Asset Seeking and Efficiency
Seeking motives are not included in the study. Also, several changes of OLI factors
were identified as impactful for the conversion. The decrease of cultural difference
between home and foreign market, the increase of perception of market size,
gaining of international experience as well as the decrease of risk in the foreign
market are all factors which are important for the reasoning of converting an
International Joint Venture into a Wholly Foreign Owned Enterprise. In addition,
no correlation between the conversion and the enforcing of contracts or the size of
the company were observed in this study.
Furthermore, this thesis suggests that there are also other factors that were not
identified by the theoretical frameworks. Lack of trust in the partner, liberalisation
of governmental regulations, bad financial performances of the International Joint
Ventures and economic crises are aspects that have an influence on conversions as
well.
The findings of this thesis will help Swedish based firms to understand the
phenomenon of firms converting their International Joint Ventures into Wholly
Foreign Owned Enterprises in India and the People’s Republic of China.
KEYWORDS: International Joint Venture, Wholly Foreign Owned Enterprise,

Conversion of International Joint Ventures into Wholly Foreign Owned
Enterprises, FDI Motives, OLI Theory, Emerging Markets
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ACKNOWLEDGMENTS
We would like to thank everyone who helped us in different ways to finalize our
thesis. To start, we would like to give some special thanks to our supervisor Dr.
Tahir Ali who contributed in many ways to this thesis. Dr. Tahir Ali gave us
guidance throughout this thesis and motivated us when difficulties occurred. He
was always available when we needed his suggestions. Furthermore, we would like
to thank our examiner Dr. Susanne Sandberg for creating a good feedback culture
throughout the opposition seminars as well as her personal feedback during the
different stages of the thesis process. We would also like to thank the opponent
groups during the opposition seminars. They gave us valuable suggestions on how
to improve the different chapters of this thesis.
This thesis would not have been possible without the generous assistance of the
executives who gave their precious time for personal interviews. Our special thanks
go to Tomas Fällman from Note AB and two anonymous interviewees from two
other companies who volunteered their precious time for personal interviews.
Kalmar, 2017
___________________ ______________
Simon Florian Stämpfli Nikita Vladimirov
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Table of Content
Tables .................................................................................................................. V
Figures ................................................................................................................. V
1 Introduction ...................................................................................................... 1
1.1 Background ............................................................................................... 1
1.2 Problem discussion and research gaps ...................................................... 3
1.3 Research question...................................................................................... 4
1.4 Research Purpose ...................................................................................... 5
1.5 Delimitation............................................................................................... 5
1.6 Definition of key terms ............................................................................. 7
1.7 Structure of the study ................................................................................ 8
2 Theoretical Framework .................................................................................... 9
2.1 Motives for FDI......................................................................................... 9
2.1.1 Market seeking ................................................................................... 9
2.1.2 Resource seeking ............................................................................. 10
2.1.3 Efficiency seeking............................................................................ 11
2.1.4 Strategic asset seeking ..................................................................... 11
2.1.5 Connecting FDI motives with the Conversion of IJVs into WFOEs
13
2.2 The eclectic paradigm ............................................................................. 14
2.2.1 Ownership-specific advantage ......................................................... 14
2.2.2 Location-specific advantages ........................................................... 15
2.2.3 Internalization advantages ............................................................... 15
2.2.4 OLI factors and conversion of IJV to WFOE .................................. 15
2.3 Framework of the study .......................................................................... 20
3 Methodology................................................................................................... 22
3.1 Deductive approach ................................................................................. 22
3.2 Qualitative research ................................................................................. 23
3.3 Research design ....................................................................................... 24
3.4 Multi-case study design........................................................................... 25
3.5 Cases ....................................................................................................... 25
3.6 Data Collection........................................................................................ 26
3.6.1 Primary Data .................................................................................... 26
3.6.2 Purposive sampling .......................................................................... 27
3.6.3 Secondary Data ................................................................................ 27
3.6.4 Structure of Interview ...................................................................... 28
III
3.6.5 Operationalisation ............................................................................ 29
3.7 Method of Data analysis.......................................................................... 30
3.8 Quality of research .................................................................................. 30
3.8.1 Validity ............................................................................................ 31
3.8.2 Reliability......................................................................................... 32
3.9 Method criticism ..................................................................................... 33
3.9.1 Ethical considerations ...................................................................... 33
4 Empirical Findings ......................................................................................... 35
4.1 Company X ............................................................................................. 35
4.1.1 Description of the Company and their IJV/WFOE .......................... 35
4.1.2 Motives for entering the foreign market .......................................... 36
4.1.3 Perception of OLI factors ................................................................ 37
4.1.4 Company reasons for converting the IJV into a WFOE .................. 38
4.2 Note AB .................................................................................................. 39
4.3 Company Y ............................................................................................. 43
5 Analysis .......................................................................................................... 47
5.1 FDI motives and Conversion of IJVs into WFOEs ................................. 48
5.1.1 Resource seeking ............................................................................. 48
5.1.2 Market seeking ................................................................................. 48
5.1.3 Efficiency Seeking and Strategic Asset seeking .............................. 49
5.2 OLI theory and Conversion of IJVs into WFOEs ................................... 49
5.2.1 International Experience .................................................................. 49
5.2.2 Firm Size .......................................................................................... 49
5.2.3 Market size ....................................................................................... 50
5.2.4 Host Country Risk ........................................................................... 50
5.2.5 Culture ............................................................................................. 50
5.2.6 Cost of enforcing Contracts ............................................................. 51
IV
5.3 Non-theory related findings .................................................................... 51
5.3.1 Bad Financial performance .............................................................. 51
5.3.2 Lack of Trust .................................................................................... 52
5.3.3 Liberalisation of Governmental Restrictions ................................... 52
5.3.4 Economic Crisis ............................................................................... 52
6 Conclusion ...................................................................................................... 54
6.1 Answering the research question ............................................................ 54
6.2 Theoretical Implications.......................................................................... 57
6.3 Practical Implications .............................................................................. 57
6.4 Limitations .............................................................................................. 58
6.5 Suggestions for future research ............................................................... 58
7 References ...................................................................................................... 60
7.1 Interview Participants.............................................................................. 60
7.2 Written sources........................................................................................ 60
8 Appendix ........................................................................................................ 68
8.1 Interview Questionnaire .......................................................................... 68
8.2 Interview responses ................................................................................. 70
Tables
Table 1: Definition of key terms (own illustration, 2017) ....................................... 7

Table 2: Structure of the study (own illustration, 2017) .......................................... 8
Table 3: Cases (own illustration, 2017) ................................................................. 25
Table 4: Operationalisation (own illustration, 2017) ............................................. 29
Table 5: Analysis (own illustration, 2017) ............................................................ 47
Figures
Figure 1: FDI motive and conversion (own illustration, 2017) ............................. 13

Figure 2: OLI Factors and Conversion (own illustration, 2017) ........................... 19
Figure 3: Connection between Motives, OLI and Conversion (own illustration,
2017) ...................................................................................................................... 21
Figure 4: Adapted Framework (own illustration, 2017) ........................................ 56
V
1 Introduction
This chapter provides an overview of the study. Firstly, the background of the
study is discussed, stressing the importance of the research phenomenon under
consideration. Then the chapter points out the importance research related to the
topic and research gaps that provides the rationale of this study. Based on the
research gaps, research question and sub-questions are constructed and the
research purpose is discussed. In order to offer readers a realistic view about the
study context and application of study findings, the delimitations of the study are
discussed. The chapter concludes with providing definitions of the key terms as well
as explaining the structure of the study.
1.1 Background
The globalization of the business environment has led the firms to internationalize
(McDougall, Oviatt & Shrader, 2003). The choice of an entry mode is a crucial
decision during the internationalization process and it has received significant
attention from many scholars (Pedersen, Petersen & Benito, 2002; Meyer, Estrin,
Bhaumik & Peng, 2009; Hoskisson, Wright, Filatochev & Peng, 2013). Different
scholars have defined an entry mode in several ways. According to Brouthers and
Hennart (2007), “an entry mode is the operational form that is used to enter foreign
markets”, and Root (1977, p.5) defines entry mode as “an institutional arrangement
that makes possible the entry of a company’s products, technology, human skills,
management or other resources into a foreign country”. IB scholars have identified
several entry modes, such as export modes (e.g., direct, indirect and own) where a
firm transfers the final product to the target country, contractual modes (e.g.,
licensing, franchising, sub-contracting and project operation) where a firm forms
partnership with other companies, and foreign direct investment (e.g., joint ventures
and wholly owned subsidiaries) where a firm invests in the foreign market (Bruneel
& De Cock, 2016). Of particular interest to this study are international joint ventures
(IJVs), which are formed as “when two or more firms bring given assets to an
independent legal entity (i.e. greenfield joint venture) and are paid for some or all
their contribution from the profits earned by the entity, or when a firm acquire
partial ownership of another firm (i.e. acquisition joint venture). A joint venture is
considered international when the nationality of one or more parents of joint
venture is other than the residence of joint venture” (Brouthers & Hennart, 2007,
p. 398).
During the past decades, Western firms have internationalized into emerging
markets of Central and Eastern Europe (CEE), Russia, China and India (Jansson,
2007). Jansson and Sandberg (2008) suggest that Swedish firms have also
developed connections and internationalized into these emerging markets. Many
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scholars have reported that Western firms initially used IJVs to expand into
emerging markets (e.g., Meschi & Riccio, 2008; Sinha, 2008; Puck, Holtbrügge &
Mohr, 2009). However, the liberalization of emerging markets in late 1990s
motivated many Western firms to convert their IJVs into wholly foreign owned
enterprises (WFOEs), which ensured them total control of local operations and
resources, rather than the shared control associated with IJVs (Meschi & Riccio,
2008; Sinha 2008; Puck et al., 2009). Of particular interest to this study is to identify
the reasons why Swedish firms convert their IJVs into WFOEs in emerging markets
of India and the People’s Republic of China (PRC). There are two particular reasons
of focusing on Swedish firms’ conversion of IJVs into WFOEs in emerging markets
of India and the PRC. Firstly, India has increased the trade connection with Sweden
and the financial volume increased from US$ 2 billion in 2009-2010 to US$ 2.4
billion in 2014-2015 (Indian Embassy, 2016). Similarly, the PRC is an important
trade market for Sweden and approximately 10,000 Swedish companies are
cultivating trade connections within the Chinese market and 500 of which are
established in the PRC (Sweden Abroad, 2016). This depicts that India and the PRC
are very important business markets for Swedish firms. Secondly, India and the
PRC both have liberalised their markets for foreign investment and many scholars
(Sinha, 2008; Puck et al., 2009) have reported that this liberalization has motivated
to Western firm to convert their IJVs into WFOEs. So, these two countries provide
a good setting for analysing the factors that explain the conversion of Swedish
firms’ IJVs into WFOEs. In the following, the backgrounds of Indian and Chinese
markets are discussed to better understand the market transition and impacts on
foreign investment.
The PRC was founded in 1949. For the first three decades, the PRC remained a
regulated market and very isolated from the global investment and the global
economy. PRC laws and understanding of an economy hindered the foreign
companies to make foreign direct investment (FDI) in the PRC. However, in 1979,
Chinese market-economy reformer Deng Xiaoping introduced a new reform which
allowed foreign investors to enter the Chinese market (Wei, 1996; Morrison &
Wayne, 2015). This reform is today also known as the “open door policy”. The
purpose of the reform policy was to catch up with other Asian countries like Japan,
Hong Kong or Taiwan, who had a bigger economic growth (Wei, 1996). Between
1979 and 1981, the annual FDI inflow in the PRC was less than 0.25 billion US$
per year (Wei, 1996). However, the FDI increased continuously over time. In 1991,
the annual FDI inflow was already 4.37 billion US$. The rapid growth of FDI
inflow in the PRC increased at an even faster rate in the early 1990s and reached
36.7 billion US$ of annual FDI in 1993 (Wei, 1996). In 2015, the government of
the PRC reported the FDI inflow at US$ 126.27 without taking into account the
financial industry (The people's republic of China, State council, 2016).
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In the beginning of the 1990s, a vast majority of foreign firms used either joint
ventures or contractual joint ventures as their preferred entry modes to enter into
the PRC (Wei, 1996). In 1990, foreign firms invested 1,886 million US$ in JVs,
673 million US$ in contractual JVs, and 683 million US$ in WFOEs (Wei, 1996).
However, the percentage of WFOEs continued growing at the much faster rate than
the different forms of IJVs in coming years (Wei, 1996).
Similarly, India is one of the most promising markets in the world today, with its
great technical and skilled human resources (Sekar, 2015). In the early 1990s, India
started its economic liberalization by allowing JVs with foreign firms with certain
restrictions on the foreign equity holdings in some priority sectors (Sinha, 2008;
Sharma, Gupta & Verma, 2009). However, in early 2000, foreign equity restrictions
were removed, and WFOEs of the foreign firms are allowed in virtually all
manufacturing and service sectors. This policy change caused widespread buy out
of the existing JVs by the foreign firms (Sinha, 2008).
In conclusion, both India and PRC are attractive markets for foreign investors and
both have received a higher volume of FDI in recent years than few decades ago
(Sinha, 2008; Dahlman, 2007; Puck, et al., 2009). The governments of both
countries allowed the formation of JVs with certain restrictions on foreign equity
holdings in the earlier stages of their liberalization, but gradually they opened up
their economies and allowed the foreign firms to set up WFOEs in many sectors.
This policy shift caused widespread buy out of the existing JVs by the foreign firms.
Because of these interesting trends, the focus of this study is to investigate the
factors that explain the conversion of Swedish IJVs into WFOEs in emerging
markets of India and the PRC.
1.2 Problem discussion and research gaps
Although a great body of research has focused on entry mode choice (e.g.,
Anderson & Gatignon, 1986; Agarwal & Ramaswami, 1992; Erramilli & Rao,
1993; Zhao & Decker, 2004), there has been very little interest in the conversion of
an IJV into a WFOE or in factors that explain the conversion of IJVs into WFOEs
in the foreign markets. One stream of research that has looked at this important
issue is the work on post entry changes (e.g., Buckley, Pass & Prescott, 1990;
Swoboda, Bernhard, Olejnik, Edith, Morschett & Dirk, 2011). These studies
suggest that choice of an appropriate foreign entry mode is a crucial decision, but
there are no guarantees that this mode will remain suitable for longer period of time
for servicing the particular market. The original entry mode may be replaced by
another operation mode (Pedersen, et al., 2002). However, the focus of this research
has been on entry mode change on general level rather on the conversion of IJVs
into WFOEs and the factors that explain this conversion.
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Puck et al. (2009) suggest that there has been very little conceptual work on the
factors that explain the conversion of IJVs into WFOEs and theory based
conceptual as well as empirical research is in a great need. One possible reason for
this limited research may be that though many Western firms initially entered India
and the PRC through IJVs due to restrictions on foreign investment level, but later
slow and continuous liberalization process in India and the PRC made these firms
to adapt slowly to market changes and wait longer for converting their IJVs into
WFOEs. Therefore, recently, when these markets were more liberalised, foreign
firms have started converting their IJVs into WFOEs.
Puck et al. (2009) and Holtbrügge, Dirk, Puck and Jonas (2008) are the exceptions
that have published research on the conversion of foreign IJVs into WFOEs in the
PRC. They investigated ownership and target country institutional factors to explain
the conversion of IJVs into WFOEs and suggested future research to use other
theories to comprehensively investigate the reasons of converting IJVs into
WFOEs. Thus, in this study, it is decided to use eclectic paradigm (i.e., OLI
framework) to comprehensively investigate the reasons of converting IJVs into
WFOEs. OLI framework has been widely utilized in literature to explain the
antecedents of entry mode since it incorporates a plethora of influential factors
including ownership specific, location specific and transaction cost/internalization
variables (Erdener & Shapiro, 2005). Given the continuing liberalization of
investment in India and the PRC considering that these both countries are important
locations for Swedish investment, it is important to use OLI framework and
investigate comprehensively the factors that explain the conversion of Swedish
IJVs into WFOEs in India and the PRC.
1.3 Research question
The preceding discussion about research problem and research gaps on the
conversion of IJVs into WFOEs steers the course of the present study. The main
research question of the study is:
Why do Swedish firms convert their IJVs into WFOEs in

emerging markets of India and the People’s Republic of
China?
The main research question is approached and addressed by the following two
sub-questions:
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Sub-question 1:
How do FDI motives relate to the conversion of IJVs into

WFOEs?
The purpose of this sub-question is to investigate that how different FDI motives
of market seeking, resource seeking, efficiency seeking and strategic asset seeking
relate to the conversion of IJVs into WFOEs.
Sub-question 2
How do ownership, location and internalisation factors

relate to the conversion of IJVs into WFOEs?
The purpose of this sub-question is to employ OLI framework and investigate

which ownership (O), location (L) and internalization (L) factors explain the
conversion of IJVs into WFOEs.
1.4 Research Purpose
The purpose of this study is to investigate the factors that explain the conversion
of Swedish firms’ IJVs into WFOEs in emerging markets of India and the PRC.
The motives of Swedish firms’ FDI in India and the PRC will be analyzed in
relation to the conversion of IJVs into WFOEs. In addition, OLI framework will be
applied to investigate the role of ownership, location and internalization factors in
converting the Swedish firms’ IJVs into WFOEs. The thesis findings will also help
the Swedish firms’ managers to understand that how different FDI motives and OLI
factors relate the conversion of IJVs into WFOEs.
1.5 Delimitation
There are several delimitations of the thesis. Firstly, the thesis focuses on Swedish
firms that first entered into the PRC and India through IJVs and later converted their
IJVs into WFOEs. Therefore, those Swedish firms who undertook WFOEs to enter
the PRC and India are out of the scope of present thesis. Secondly, this thesis only
focuses on the Swedish firms’ IJVs into WFOEs in the PRC and India. Therefore,
findings may not be applicable to other firms from other countries who have
converted their IJVs into WFOEs in the PRC and India or in other emerging
markets. Thirdly, the thesis does not focus on the Swedish firms’ conversion of the
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WFOEs into IJVs. Fourthly, thesis does not investigate the performance outcomes
of the conversion of IJVs into WFOEs.
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1.6 Definition of key terms
Keywords Definition Source

Foreign Direct “Foreign direct investment is an investment (Luostarinen &
Investment (> 10%) in an already existing company or Welch, 1990)
in a company to be established abroad, in
whose management and control the investor
is participating on the basis of the investment
made.”
Entry mode An institutional arrangement that is used to (Welch, et al., 2007,
conduct an international business activity, p. 18)
such as the manufacturing of goods,
servicing customers, sourcing various inputs
– in fact, undertaking any business function.
International A joint venture arises whenever two or more (Brouthers &
Joint Venture firms bring given assets to an independent Hennart, 2007, p.
(IJV) legal entity (i.e. greenfield joint venture) and 398)
are paid for some or all their contribution
from the profits earned by the entity, or when
a firm acquire partial ownership of another
firm (i.e. acquisition joint venture). A joint
venture is considered international when the
nationality of one or more parents of joint
venture is other than the residence of joint
venture.
Wholly Foreign Wholly foreign owned enterprise is one in (Luostarinen &
Owned which a firm holds more than 90 % of Welch, 1990)
Enterprise ownership in the foreign company.
(WFOE) However, if a firm holds between 10-90%
ownership in foreign company, it is
considered as an IJV.
Converting a Conversion of an IJV to a WFOE is the Adapted from
IJV into a process of increasing the percentage of (Brouthers &
WFOE shares in a foreign company by starting with Hennart, 2007)
an ownership that is considered as a IJV up
to a percentage where the foreign company
is under full control, as it can be seen in the
definition of a WFOE.
Table 1: Definition of key terms (own illustration, 2017)
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1.7 Structure of the study
•The background of this topic is discussed in order to get an overview

of the topic. Furthermore the research problem is presented. In
addition, research questions are identified and the purpose of the
Introduction study is elaborated in this chapter. In the end, key terms are
explained and delimitations for the research are defined.
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•The theoretical framework that is needed to answer the in chaper

one defined research question and sub-questions are dicussed. This
chapter is fundamental for the analysis of the empirical data at a
Theory later stage.
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•The methodology regarding this research is displayed in this chapter.

Therefore it is discussing the resonings behind the chosen
Methodology methodology for this thesis.
•Results of the empirical research are elucidated in order to present

the signifficant findings of the data that is collected from the
Empirical Findings interviewees.
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•The empirical findings from chapter four are analyzed with the
theory that was defined in chapter two to find reasoning behind the
Analysis IJV into WFOE conversion.
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•Based on the analysis in chapter five, the main research question

and it's sub-questions are discussed and concluded. Furthermore,
limitations, theoretical- and practical implications are discusses as
Conclusion well as suggestions for future research are presented.
Table 2: Structure of the study (own illustration, 2017)
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2 Theoretical Framework
In this chapter, firstly the motives of FDI are discussed. Then the eclectic paradigm
(i.e. OLI framework) and related ownership, location and internalization factors
impacting the FDI strategies are elaborated. Finally, the general framework of the
study is presented where motives, ownership, location and internalization factors
are linked with the conversion of IJVs into WFOEs.
2.1 Motives for FDI
There are different types of FDI motives undertaken by firms, and these include:
(1) market seeking, (2) resource seeking, (3) efficiency seeking, and (4) strategic
asset seeking (Dunning, 1993; Dunning & Lundan, 2008). In the following, these
different FDI motives are discussed.
2.1.1 Market seeking

Dunning (1993) argues that the market seeking FDI motives are related either to
protect the firms’ competitive position in a foreign market or to boost its own
position in the target market. The main purpose of market seeking FDI is to serve a
foreign market with local production and distribution rather than exporting to the
foreign market (Nachum & Zaheer, 2005; Brouthers, Gao & McNicol, 2008).
Further, market seeking FDI is undertaken to increase the sales in target markets
(MacCarthy & Atthirawong, 2003). Dunning and Lundan (2008) suggest that
increased export barriers to target country encourage firms to take market seeking
FDI. Dunning (1998) further suggests that market growth in the target country
motivates firms to take market seeking FDI in that market. Franco, Rentocchini and
Marzetti (2008) also suggest that many firms undertake FDI for market seeking
objectives.
Dunning and Lundan (2008) and Dunning (1993) state that there are four main
factors that motivate firms to make market seeking FDI.
Firstly, firms undertake market seeking FDI in foreign market if firms’ customers
and suppliers are moved to that foreign market (Dunning & Lundan, 2008). For this
reason, cross-border mergers and acquisitions in business-service sector have
increased from 11,831 to 137,416 in 1990s (UNCTAD, 2004).
Secondly, firms also undertake market seeking FDI because of the uniqueness of
target markets (Dunning & Lundan, 2008). This means that products need to be
adapted in target markets according to local tastes or needs. Furthermore, this also
means getting familiar with target country aspects, such as business behaviour and
customs, the local justice system, the spoken language or marketing strategies in
the target market (Dunning, 1993).
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Thirdly, firms also undertake market seeking FDI to reduce production and
transaction costs. Dunning and Lundan (2008) state that if shipping products from
the home market to the target market is very expensive, then it is favourable to
move the production to the target market in order to stay competitive. In addition,
the authors also state that firms, which are further away from the attractive markets,
are more likely to take market seeking FDI.
Fourthly, market seeking FDI is also undertaken to be present physically in
attractive foreign markets (Dunning & Lundan, 2008). Physical presence in a
foreign market helps to prevent other global competitors to enter the same market
(Franco, et al., 2008). Furthermore, Dunning and Lundan (2008) suggest that firms
also undertake market seeking FDI to follow the market leader. If the market leader
in a respective industry enters into a new market, the followers also undertake
market seeking FDI to follow the leader.
Kudina and Jakubiak (2008) further explain that attractive factors for market
seeking FDI include; market size of target countries, GDP growth rate and GDP per
capita in the target countries. Luo and Park (2001) found that in 2001, 22.9 percent
of FDI in the PRC was market seeking FDI.
2.1.2 Resource seeking

Resource seeking FDI means that firms make FDI in target countries to seek cheap
resource (Brouthers, et al., 1996; Dunning & Lundan, 2008). Dunning and Lundan
(2008) further suggest that unavailability of cheap resources in the home market
motivate firms to undertake resource seeking FDI in countries where cheap
resources are available. The purpose of a resource seeking FDI is to take advantage
of lower costs of the resource in the foreign country (Dunning & Lundan, 2008).
Furthermore, firms making resource seeking FDI in target countries to get cheap
resources from the target countries for the production of their products, but mostly
these firms export the final products to developed and industrialized countries rather
than selling in the target countries (Dunning & Lundan, 2008).
According to Dunning and Lundan (2008), there are two different reasons of
resource seeking FDI. The first reason is to seek physical resources, such as mineral
fuels, agricultural products, industrial minerals and metals. Production and
manufacturing companies usually aim to get access to those physical resources at
lower cost (Dunning, 1993). Bitzenis, et al. (2007) and Navaretti and Venables
(2005) also suggest that those above-mentioned resources are the most popular
reasons for making FDI in target countries. They further suggest that other location
based resources can also be considered in this category, such as tourism, oil drilling,
medical or educational services. Many Indian and PRC firms are making FDI in the
African continent to seek such physical resources (Dunning & Lundan, 2008).
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The second reason of resource seeking FDI is to get access to cheap labour force
that is motivated and is semi-skilled or unskilled (Dunning & Lundan, 2008).
Bitzenis, et al. (2007) and Dunning (1993) state that many manufacturing firms
from developed countries invest in other countries where labor cost is low. For
example, many European companies are investing in the PRC, Vietnam, Turkey,
Morocco and Mauritius to get access to cheap labor. The authors also suggest that
these target countries have established trade and export processing zones to further
attract FDI as well. The most recent trend is that many telecommunication
companies are moving their call centers to India to access cheap labor in India
(Dunning & Lundan, 2008).
2.1.3 Efficiency seeking

Behrman (1991) argues that firms undertaking efficiency seeking FDIs look for
the economic sources of production to serve a multi-country standardized market.
Robson (1993) and Dunning and Lundan (2008) suggest that the potential benefits
derived from undertaking efficiency-seeking FDIs are especially those of
economies of scale and scope and the diversification of risk.
Dunning and Lundan (2008) state that firms, which undertake efficiency seeking
FDI, are bigger in size, have a certain degree of international experience, and
produce standardized products. The authors further state that resource seeking and
market seeking were the two major motives for FDI in the past, but recently
efficiency seeking motive has become very important. This development is also
supported by the integration of cross-border markets.
Furthermore, Dunning (1993) argues that efficiency-seeking FDI has two major
aspects. On one hand, firms allocate value adding activities in developed countries
to access capital, technology and information, but allocate labor intensive activities
in developing countries to access cheap labor (Kim, et al., 1993; Dunning &
Lundan, 2008). On the other hand, firms gain economy of scale and economy of
scope.
2.1.4 Strategic asset seeking

The purpose of strategic asset seeking FDI is to acquire the assets of foreign
corporations, to promote their long-term strategic objectives, especially that of
sustaining or advancing their international competitiveness (Dunning & Lundan,
2008). Lu, et al. (2010) and Wiersema and Bowen (2008) state that lack of
competitive resources either to compete at home market or in international market
motivate the firms to undertake strategic asset seeking FDI.
11
Makino, et al. (2002) further explain that firms undertake strategic asset seeking
FDI to gain marketing, technology and management expertise’s. Dunning and
Lundan (2008) and Dunning (1993) further suggest that the acquisition of these
strategic assets provides ownership advantages to the firms and strengthens their
competitive position on one hand, and guarantees that competitors would not be
able to acquire these resources on the other hand. Asset seeking FDI is undertaken
not only by developed countries’ firms, but also firms from emerging economies
are acquiring well established western firms (Dunning & Lundan, 2008).
Dunning and Lundan (2008) also state that in some cases, the motive of a strategic
asset seeker is driven by only the financial perspective of owning an asset.
Therefore, acquiring firms do not interfere with the day-to-day business activity of
acquired company, but only implement their business culture and management style
into the acquired company. In almost all cases of strategic asset seeking
acquisitions, joint ventures or mergers, the acquirer of assets expects that
acquisition will have a positive impact on the whole firm, such as opening new
markets, increased buying power in the market, decreased transaction costs,
synergies in R&D, diversity of the administration, increased skills, and
diversification of the risks (Dunning & Lundan, 2008).
Dunning and Lundan (2008) point out that there can be different reasons for
strategic asset seeking FDI. Firms may undertake strategic asset seeking FDI to
acquire key suppliers and therefore competitors would not have access to suppliers’
resources anymore (Dunning & Lundan, 2008). Furthermore, firms may undertake
strategic asset seeking FDI to gain access to key distributors. Such acquisitions help
acquiring firms to get complementary resources and sell their products in the
market. Dunning and Lundan (2008) suggest that strategic asset seeking FDI gives
firms a long-term competitive advantage over competitors.
12
2.1.5 Connecting FDI motives with the Conversion of IJVs into WFOEs
As discussed in previous section, firms undertake FDI due to four reasons. They
undertake FDI: to take advantage of the size or growth potential of the foreign
market (i.e., market seeking FDI), to access relatively cheaper labor and natural
resources (i.e., resource seeking FDI), to exploiting the cheap labor and resources
to serve the regionally integrated markets (i.e., efficiency seeking FDI), and to
access knowledge, new distribution channels (i.e., strategic asset seeking FDI).
Prior research has analysed the relative effects of these FDI motives on the choice
of FDI modes ( Dadzie, 2012) and on the intended and unintended termination of
IJVs (Makino, Chan, Isobe & Beamish, 2007). However, the relative effects of
these FDI motives on the conversion of IJVs into WFOE have not been analysed.
We expect that initial FDI motives of firms can also contribute to a more
comprehensive explanation of IJV-to-WFOE conversions. We therefore will drive
from empirical analysis that how these FDI motives affect the likelihood of IJV-to-
WFOE conversion. The following figure 1 shows the general linkages between FDI
motives and conversion of IJV-to-WFOE.
Strategic
Market Resource Efficiency
Asset
Seeking FDI Seeking FDI Seeking FDI
Seeking FDI
Converting
IJVs into
WFOEs
Figure 1: FDI motive and conversion (own illustration, 2017)
13
2.2 The eclectic paradigm
The Eclectic paradigm, also called OLI theory, is an important framework used to
explain the FDI decisions of firms over the past two decades (Zhao & Decker,
2004). The eclectic paradigm unites several theories of entry mode choice into one
framework (Goodnow, 1985). The eclectic paradigm is developed by Dunning
(1997) in response to several partial theories concerning the ownership and location
of international production. The aim of the OLI paradigm was to “offer a holistic
framework by which it was possible to identify and evaluate the significant factors
influencing both the initial act of foreign production by enterprises and the growth
of such production” (Dunning, 1988, p. 1). The OLI theory suggests that a firm's
foreign activity depends upon the possession or creation of ownership-specific
advantages, which it is beneficial to internalise in a foreign country offering
location-specific advantages. In simple words, theory suggests that firms have
ownership advantages that they want to exploit in attractive locations (i.e., foreign
markets).
The eclectic framework of global production proposes that companies mostly pay
attention on three sets of advantages during the process of FDI choice: ownership-
specific advantages (risks of inter-firm relations and transactions), location-specific
advantages (which are resources in a particular location) and internalization
advantages (which are primarily concerned with reducing transaction and
coordination costs) (Dunning, 1993). These three sets of advantages influence a
firm's FDI behaviour by affecting the management perception of asset power
(ownership-specific advantage), market attractiveness (location-specific
advantages), and cost of integration (internalization advantages) (Agarwal &
Ramaswami, 1992). In the following, ownership, location and internalization
advantages are discussed in detail.
2.2.1 Ownership-specific advantage
The ability of a firm to engage in foreign production depends upon the possession
of ownership-specific advantages than firms of other nationalities in particular
market that it serves (Dunning, 1981; Tolentino, 2001). According to OLI
framework, there are two types of advantages: asset advantages (Oa) and
transaction cost minimising advantages (Ot). The Oa is an excellence which gives
a company certain income-generating assets. Prior studies (Tan & Vertinsky, 1996;
Dunning, 1980) suggest that Oa advantages include: firm-specific technology,
patents, manpower, management knowledge, capital and product differentiation
through advertisements or brand names. While, the Ot advantages increase the
propensity of a firm to undertake new FDI project and include factors, such as firm
size, product diversity, learning experience and synergistic economies in
14
production, purchasing, marketing, research and development, finance and
transportation (Dunning, 2000).
2.2.2 Location-specific advantages
The second constituent of the eclectic paradigm is location-specific (L)

advantages. L advantages favour a particular location for production as compare to
alternative locations. L advantages are related to various characteristics in
economic, cultural, legal, political and/or institutional environments across
locations and affect the costs and/or revenues by producing in different locations
(Dunning 1988). Earlier studies have identified a number of L advantages that effect
on the propensity of firms to engage in foreign production and on the location of
that activity. The most commonly evaluated L advantages include: market size,
market growth, factor endowments, sources of supply, transportation costs, trade
barriers and physical distance (Caves 1996; Caves & Pugel, 1982).
2.2.3 Internalization advantages
The last constituent of the electic paradigm is internalization (I) advantages.

Dunning (1988; 1993) suggests that I advantages arise when the potential rents to
be realised from the O advantages are higher if they are transferred across borders
within a firm's own organisation than if they are sold in the external market. In other
words, firms usually invest in foreign production whenever the transaction costs of
using the market exceed the costs of production within the same hierarchy (Dunning
& Kundu 1995). Therefore, Dunning (1993) and Dadzie (2012) suggest that the
need to reduce buyer, supplier and governmental uncertainty, the need to protect
the quality of production, the need to possess a high level of control and
increasingly, the need to capture economies of independent activities speak in
favour of hierarchies and induce firms to undertake foreign production rather than
other servicing modes.
2.2.4 OLI factors and conversion of IJV to WFOE
2.2.4.1 Ownership-specific factors
There are several definitions of ownership-specific advantages. According to

Ikechi et al. (2004), it is a competitive advantage of the firm that helps the foreign
firm to overcome the disadvantages of competing with the local firms. In the same
15
vein, Dunning (1991, pp.123) explains ownership advantages as “any kind of
income generating assets, which make it possible for firms to engage in foreign
production”. Based on previous literature (e.g., Dadzie 2012; Sanchez-Peinado,
Pla-Barber & Hebert, 2007), following ownership-specific factors are identified
which influence the choice of FDI modes as well as can explain the conversion of
IJVs into WOFE.
Firm size
Padmanabhan and Cho (1999) suggest that firm size is an important factor
affecting the entry mode choices. Talay and Cavusgil (2008) suggest that
internationalization requires extensive capital and resources in order to absorb the
high cost of setup costs for marketing activities, achieving economies of scale,
establishing an operation centre and a legal entity in that country. Buckley and
Casson (1998) explains that firm size reflects the potential of the firm to meet
resource requirements. Prior empirical research on entry modes (e.g., Talay &
Cavusgil, 2008; Dadzie, 2012) suggests that firm size increases the likelihood of
choice of WFOE.
We expect that some foreign firms would have preferred to enter in emerging
markets of India and the PRC via a WFOE instead of an IJV, however they might
have not been able to do so because of slow liberalization of these markets. Thus,
in line with the role of firm size when entering a foreign market, we suggest that,
with more liberalization of emerging markets, firms that have bigger size and
initially entered emerging markets through IJVs are more likely to convert their IJV
into a WFOE.
Firm’s international experience
Padmanabhan and Cho (1999) argue that international experience is an important
factor that affects the entry mode choice. Internalization is a big challenge for many
companies since it involves high cost and uncertainty. However, Buckley and
Casson (1985) claim that past international experience helps companies to reduce
possible levels of costs and uncertainty. Agarwal and Ramaswami (1992) suggest
that uncertainty is not just the fear of inexperienced companies; it is a real threat for
them. They further argue that a company without any international experience has
a chance to face serious problems in doing and managing business abroad.
Erramilli (1991) argued that the benefits of a foreign firm having some previous
international experience when choosing an entry mode suggest that the more
experience the firm has, the less it will require from a partner and it will, therefore,
be less inclined to use cooperative modes. Furthermore, many studies (e.g., Dikova
& Willeloosuijn, 2007; Lee & Sukoco, 2010; Dadzie, 2012) suggest that an increase
in the firm's international experience leads the firm to use higher control mode.
Thus, in line with the role of firm international experience when entering a foreign
market, we suggest that, with more liberalization of emerging markets, firms that
16
have more international experience and initially entered emerging markets through
IJVs are more likely to convert their IJV into a WFOE.
2.2.4.2 Location-specific factors
Every firm should decide very accurately while deciding the target country for
internationalisation. Dunning (1988) argued that L advantages are the extent to
which the firm will profit by locating its ownership advantages in a foreign market.
Firms interested in servicing foreign markets, should invest into the most attractive
market. This is because their chances of obtaining higher returns are better in such
markets (Agarwal & Ramaswami, 1992). Overall, the OLI paradigm suggests that
foreign firms will prefer those countries that provide the best location-specific
advantages. Based on Dadzie’s (2012) study, following location-specific factors are
identified which influence the choice of FDI modes as well as can explain the
conversion of IJVs into WOFE.
Market Size
Prior research suggests that a large market size provides a better opportunity for
foreign firms to gain economies of scale. Wheeler and Moody (1992) argue that a
large market size attracts FDI as it gives an opportunity to the firms to earn higher
profits. Previous studies (e.g., Chung & Enderwick, 2001; Nakos & Brouthers,
2002) argued that in a large size market, firms tend to prefer WOFE so that they
can obtain economies of scale, hence reducing cost, and also to establish a long-
term market presence. Prior research (Petrochilas, 1989; Wheeler & Mody, 1992)
suggests that India and the PRC are emerging markets and their big market size is
privileged predictor of possible FDI in these countries. Therefore, in line with the
role of market size on the choice of WOFE when entering a foreign market, we
suggest that, with more liberalization of emerging markets, firms that initially
entered emerging markets of India and the PRC through IJVs are more likely to
convert their IJV into a WFOE.
Host country risk
Agarwal and Ramaswami (1992) and Dadzie (2012) point out that a country risk
reflects the uncertainty over the continuation of present economic and political
conditions and government politics, which are deemed to be critical to the survival
and profitability of a firm’s operations in that country. Kim and Hwag (1992) argue
that if host country environment is uncertain and unpredictable, then firms hesitate
to commit themselves too much as they may lose their strategic flexibility. Prior
studies (e.g., Brouthers & Brouthers, 2000; Tahir & Larimo, 2006) suggest that
under high levels of risks in host countries, firms are likely to choose low control
ownership modes.
17
Considering the liberalization process in the RPC and India had started in early
1980s and 1990s respectively (Sinha, 2008; Puck, Holtbrügge & Mohr, 2009),
therefore the present economic and political conditions will be stable now.
Therefore, we suggest that, with currently less country risk in emerging markets,
firms that initially entered emerging markets of India and PRC through IJVs are
more likely to convert their IJV into a WFOE.
Cultural distance
Chen and Hu (2002, p. 196) define cultural distance as ‘‘the difference in values
and beliefs shared between home and host countries’’. Puck, Holtbrügge and Mohr
(2009) suggest that a high cultural distance increases the uncertainty and thus the
transaction costs. Further, Jung (2004) argues that in the case of high cultural
distance ‘‘firms are more likely to have difficulties in managing foreign operations
alone’’. Yiu & Makino (2002) found that high cultural distance has negative impact
on the choice of WFOE. However, some other scholars (e.g., Padmanabhan & Cho,
1996) found that cultural distance leads toward the choice of WFOE. Thus, prior
research regarding the impact of cultural distance on the choice of initial FDI mode
is inconclusive. Therefore, the impact of cultural distance on the conversion of IJVs
into WFOE in emerging markets of the PRC and India will be empirically assessed.
2.2.4.3 Internalisation-specific factors
Kusluvan (1998, p. 175) describes that internalization advantages refer to the

advantages of controlling and coordinating ownership and location specific
advantages within the firms. Dunning (1988) also suggested that it is in the best
interest of firms possessing ownership advantages to transfer them across national
boundaries within the own organization, rather than selling them, or giving the right
to use them to foreign firms. Based on previous study of Dadzie (2012), we identify
contractual risk an important internalization factor that affects the choice of initial
FDI mode as well as affects the conversion of IJVs into WFOE.
Contractual risk
Dadzie (2012) suggests that contractual risk is made of risk of dissipation of
knowledge, risk of deterioration of quality of services, and costs of writing and
enforcing contracts, lack of patents, and license protection of laws. Dunning (1993),
further describes some of the internalization advantages as follows: minimizing
negotiation and transaction costs, ensuring adequate quality control, avoiding the
risk of dissipation of knowledge, and avoidance of property right enforcement costs.
Therefore, it is particularly critical for firms to protect their specialized knowledge
while investing in target countries (Hill, Hwang & Kim 1990).
18
Dadzie (2012) suggest that lack of protection makes sharing of specialized
knowledge risky in the long run and therefore a firm that with specialized
knowledge opts for a WFOE. Therefore, in line with the role of contractual risk on
the choice of WOFE when entering a foreign market, we suggest that, firms that
initially entered emerging markets of India and PRC through IJVs are more likely
to convert their IJV into a WFOE.
The above discussion regarding the impact of OLI factors on the conversion of
IJVs into WFOE is summarized in the following figure number 2.
Ownership Factors Location Factors Internalisation

- Firm size - Market size Factors
- Firms international - Host country risk
- Cultural distance - Contractual risk
experience
Conversion from
IJV to WFOE
Figure 2: OLI Factors and Conversion (own illustration, 2017)
19
2.3 Framework of the study
The main purpose of this chapter was to examine the motives and determinants of
firms’ conversion of their IJVs into WFOEs. Firstly, the FDI motives impacting the
conversion of IJVs into WFOEs have been classified as: markets seeking, resource
seeking, efficiency seeking and strategic asset seeking. Considering that effects of
these FDI motives on IJV-to-WFOE conversion has not been analysed in prior
studies, we therefore expect to drive from empirical results that how these FDI
motives affect the likelihood of IJV-to-WFOE conversion. Further, to investigate
the determinants of IJV-to-WFOE conversion, we employed eclectic framework
and theoretically reviewed that how different ownership-specific, location-specific
and internalization factors influence the IJV-to-WFOE conversion. The
determinants of IJV-to-WFOE conversion have been categorized into different
groups: First, ownership specific advantages include firm size and international
experience. Second, location specific advantages consist of market size, country
risk and cultural distance. Finally, internalization specific advantage consists of
contractual risk.
Based on the literature review, it is expected that a firm’s size and the firm’s
international experience will lead to IJV-to-WFOE conversion. Further it is
expected that market size and lack of host country risk lead to IJV-to-WFOE
conversion. However, importance of cultural distance into IJV-to-WFOE
conversion is implicit from prior studies and therefore it may or may not lead to the
IJV-to-WFOE conversion. Furthermore, contractual risk is expected to lead to the
IJV-to-WFOE conversion. Figure 3 provides a summary of the theoretical
framework.
20
Strategic
Market Resource Efficiency
Asset
Seeking FDI Seeking FDI Seeking FDI
Seeking FDI
Converting
IJVs into
WFOEs
Ownership factors Location factors Internalisation

-Firm size -Market size Factors
-International Experiance -Contractual Risk
-Host country risk
-Cultural distance
Figure 3: Connection between Motives, OLI and Conversion (own illustration, 2017)
21
3 Methodology
The following chapter discusses the framework of the methodology which is used
to conduct the study. The chapter will begin with the explanation of the chosen
approaches and a discussion why the approaches were chosen for this study.
Further, it explains selected research methods and the sorts of data that were
collected, ending by which techniques for the data collection were used in our
paper. In the end, a presentation of the operationalization and method of data
analysis are discussed, as well as the quality and criticism of the study.
3.1 Deductive approach
There are two traditional ways of scientific research, on the one hand side the
inductive approach and on the other hand the deductive research approach (Ghauri
& Grønhaug, 2010). The difference between those two approaches is that in an
inductive research, the theory is starting from empirical evidence, whereas the
deductive approach occurs from aspects such as logic, facts, but also assumptions
(Ghauri & Grønhaug, 2010). Furthermore, there is also a third different approach
which is called abductive approach and which is based on both, the inductive as
well as the deductive research approach.
An inductive approach has a conclusion drawn from empirical observations based
on a number of cases on which patterns have been established. On the other hand,
a deductive approach is based on the analysis of existing theories and knowledge
which is used for further learning (Ghauri & Grønhaug, 2010). The deductive
approach is used in social science to compare the own empirical data that is
collected in a study with the theory on which the study is based upon (Kumar,
2014). In the approach of deductive research, the researcher is using already
existing literature in the given research field, or their own assumptions and use it as
a fundament for their research. After the empirical data will be collected, analysed
and concluded based on this fundament of previous research. (Ghauri & Grønhaug,
2010)
The fact that a deductive approach is based on logical assumptions and theories,
does support the authors to generate a more reliable approach for concluding the
empirical part, as the conclusions that are drawn from the authors are based on those
already collected logics (Ghauri & Grønhaug, 2010). In addition, a deductive
approach is always based on exact observations, which does also support the
researcher (Ghauri & Grønhaug, 2010). Furthermore, by applying the deductive
approach, the research is either able to reject the previous theory with the data that
was concluded in their research, or the research fails to reject the previous research
with the conducted study.
22
In the case of this thesis, the deductive approach is seen as the appropriate
approach, as it occurs that the basis of this research can be drawn from different
theoretical frameworks, rather than from empirical findings. Even though there is a
very limited amount of literature available for this research as it is stated in the
introduction chapter, the study is based on theoretical frameworks from study fields
that are very closely linked to this specific research problem. The research question
and its sub-questions are based on previous literature and their respective theoretical
framework. Although the connection between the conversion of IJVs into WFOEs
cannot be based on existing theory, the used theory will be combined in a deductive
way.
3.2 Qualitative research
Researches are traditionally divided into two different methods; on the one hand
quantitative research, which does offer the possibility to observe in which
magnitude a certain phenomena is occurring and on the other hand the qualitative
research method, which is constructed to offer reasoning of the studied phenomena
(Kumar, 2014) Another difference between the two is that quantitative method is in
many cases used for large-scale researches, while the qualitative method is used for
research that is conducted within a lesser amount of observations, as the reasoning
does not need quantification to the same extent (Denscombe, 2010). Kumar (2014)
describes the qualitative research as a good fit for research that is targeting to offer
reasoning and understanding for the respective study. The authors of a qualitative
research paper do have to understand, that by using this method, the context of the
study cannot be seen as an isolated topic and therefore researchers have to be able
to put the research in their respective field in a wider context in order to generate
an understanding (Denscombe, 2010).
Merriam and Tisdell (2009) were observing, that for the qualitative approach, in
many cases just a limited amount of theory is available for being able to do research
in an appropriate way. To conduct a qualitative research, the researchers does have
to observe the cases, analyze documents, and conduct interviews to be able to
conduct a research by using this approach (Denscombe, 2010). The collected
interview material should be written down in a shorter version or in full text in the
qualitative approach, before starting with further steps of the analysis (Denscombe,
2010).
In the case of this thesis, the approach that will be applied is the qualitative
method, as it is more suitable and applicable for this specific research paper, due to
the reason that the conversion of IJVs into WFOEs should be discussed in a wider
context in order to find reasoning for this phenomenon. Furthermore, this research
is aiming to find reasoning behind the conversion of IJVs into WFOEs, which can
be done best by using a qualitative approach. In addition, this research will include
23
the typical characteristics of a qualitative research, as the primary data will be
collected through interviews.
3.3 Research design
Ghauri and Grønhaug (2010) were describing research design, as a design that is
offering an overall approach on the conceptual problem of research and the practical
empirical research. Furthermore, their theory is also offering a framework on how
to gather data and how to analyze the collected empirical elements in a study.
Bryman and Bell (2003) are describing the research design as a framework of how
to gather data and how to further analyze the data in an appropriate manner for
research. As there is no research design that is fulfilling the purpose for all
researches that are done, the research design can be categorized in the categories of
a case study, history, archival analysis and also a survey (Yin, 2009). Those
different designs have to be adapted and used in a way, that is best fitting for the
research that will be investigated by the authors (Ghauri & Grønhaug, 2010).
According to Yin (2009), the case study design is a good fit for research that is
trying to find reasoning with “why” questions, as well as descriptive research that
is asking “how” questions. Stake (2005) is in that regard stating, that the design of
a study cannot be made as a methodical choice, as the decision of the design will
be given by the topic that will be investigated by the researcher. The case study is
a good research design, if a research problem is very complex, which has a variety
of aspects that are important and therefore has to be understood in a wider context
(Merriam & Tisdell, 2009).
When researchers are choosing the case study design, they have to further select
either a single case study or a multiple case study design, which is depending on
the research that is conducted by the authors (Yin, 2009).
For this research, the design of a case study was chosen as it will offer the best
fitting model to find reasoning behind a phenomenon which is targeted in this
research of Swedish firms’ conversion of IJVs into WFOEs. The case study is also
a good fit for this study, as the reasoning for these conversions might be very
complex, due to the reason that many factors are playing into a conversion decision
and also for this reason the case study design is fitting well for this research. The
decision of a single or multiple case study will be discussed in the following
paragraph.
24
3.4 Multi-case study design
There are two different forms of case studies, defined as single- and multiple case-
studies (Yin, 2009). In order to do a multiple case study, data from several different
cases has to be collected an analyzed, which differs from a single case study, in
which data from a single case is collected and analyzed (Merriam & Tisdell, 2009).
Multiple case studies can be seen as superior studies, based on the reason that in a
multiple case study the conclusions can be drawn from several different cases and
not just from a single case as it is for a single case study (Yin, 2009). In addition,
the single cases studies are mainly in use when a phenomenon that is analyzed is
unique and therefore cannot be analyzed through a multiple case study. The
multiple case study design is not exclusively used for qualitative research, however,
it is the type of research that is having the largest usage of this design (Yin, 2009).
For this research, the design of a multiple case study will be used in order to
analyze the research questions. This decision is based on the reason that the
phenomenon does not only exist in a unique case. Therefore, the multiple case study
does offer the best method to analyze the research topic that this thesis is
investigating, as several cases and several reasoning’s are adding more value for
the findings of this thesis than a single case study.
3.5 Cases
The following table will list the companies that were interviewed for this thesis.
The table will give information about the company name, the name and title of the
interviewee, as well as the date and time of the interview. Companies who preferred
to stay anonymous, are listed with another name (Company X and Company Y) in
order to hide their identity.
Company Information Interview

Note AB Name: Tomas Fällman Kista, 09-05-2017
Title: Business Controller Time: 14:00-15:00
Company X Name: Interviewee X Sweden, 10-05-2017
Title: Key account manager Time: 09:00-09:40
Company Y Name: Interviewee Y Sweden, 16-05-2017
Title: Sales manager Time: 16:00-16:30
Table 3: Cases (own illustration, 2017)
25
3.6 Data Collection
The data collection is a process of searching the information for research paper
and it may be studied as ordinary fragments found in the surroundings. Data could
be in different conditions. Firstly, it may be concrete and measurable expressed in
numbers for example. Secondly, intangibles can be taking into account, for example
such things as behaviour, feelings, etc. The empirical data possibly can be collected
in two different ways and depending on that it may be called primary data and
secondary data (Ghauri & Grønhaug, 2010). The Authors claim that using the
primary data gives an opportunity to make a deep look on the problem and this data
provides relevant information on the concrete research problem. At the same time
this thesis will also use secondary data to make relevant firms search more
accessible and to facilitate our choice on which Swedish companies should be
approached in order to gain relevant information by requesting interviews from
them.
3.6.1 Primary Data

Data that is considered as primary, has to be collected by the researchers
themselves (Ghauri & Grønhaug, 2010). Direct observations by the researchers or
interviews are the most used primary data collection methods in academia
according to the authors. Out of those different methods for collecting primary data,
interviews conducted by the researcher is the most popular method to gather
primary data (Merriam & Tisdell, 2009). Also, interviews do offer the possibility
to gather an understanding on certain behaviour, or how interviewees interpret the
trends that are surrounding them (Merriam & Tisdell, 2009). Ghauri and Grønhaug
(2010) are stating that interviews can be gathered in different forms and ways, as
they can be conducted through face-to face meetings, phone calls, e-mails and more.
For the approach of this thesis, it has been decided that interviews will be
conducted in the form that is best suiting for the respective company that the
researchers are interviewing. Therefore, two of the three interviewees were
conducted through a face to face meeting and one interview was conducted through
electronic communication technologies. Primary data should be able to answer the
research questions of the motives of firms for doing FDI in the respective countries
and should also be able to answer the companies view of the eclectic paradigm and
perception of OLI theory related factors. Furthermore, it should also contribute to
the overall understanding of the reasoning of the change of strategy by transforming
IJVs to WFOEs in India and the PRC.
26
3.6.2 Purposive sampling
Research has two different points of investigation different sampling approaches
(Saunders, Lewis & Thornhill, 2012). The authors claim, that the first point is quota
sampling, in which the main attention is payed on non-random sampling to be in
correlation with the population, and the approach of self-selection or convenience
sampling, which is based on fast selection of the sample and also a low degree of
influencing it. On the scale between these two approaches, there are two other,
which gives an opportunity to the authors to choose independently on whom to
interview to have a better answer which should give an appropriate result and those
are called snowball- and purposive sampling (Saunders, et al., 2012). With the
support of this facts this paper consists of the purposive sample approach, as it gives
more reliable results.
The main fact of purposive approach is to have some special criteria of the
research to conduct an interview from the chosen cases, because it helps the authors
to not miss the required information (Denscombe, 2007). Those cases should have
two factors which values them to be included into the research as a sample. The
first one is how relevant is the sample for the theoretical part and the second one
evaluates potential sample knowledge, which is necessary for the research
(Denscombe, 2007). There are some opinions, that it is better to conduct the
interview with one respondent from each company (Coviello & Jones, 2004), thus,
there is only one interviewee of each case presented in this research. By taking the
above-mentioned information into account about purposive sampling, a list of
criteria used in this research while choosing the sample is listed below:
1. Firms that are interviewed in this study must be based in Sweden.
2. Companies must operate at the present time.

3. Companies have to have a WFOE in India or the PRC.
4. Companies must have an experience in the conversion of IJVs into WFOEs.
3.6.3 Secondary Data

Ghauri & Grønhaug (2010) are stating that data that is considered as secondary
does include books, articles in journals and also data that is collected online. For
this thesis, secondary data has been used for several chapters. Secondary data was
used in the introduction chapter by collecting data from journals. In the literature
review, both, academic journals and books have been used in order to build and
discuss the theoretical framework of this thesis. In addition, secondary data has
been used to identify cases for the empirical chapter. The cases were identified by
reading journals, articles, press releases and webpages that were offering data from
which cases could be identified.
27
3.6.4 Structure of Interview
The structure of an interviews may differ depending on what information is
needed and how broad the answers of respondents should be. There are three
different types of interview structures called structured, unstructured, and semi-
structured (Merriam, 2009). The structured interview is more applicable for a
quantitative research method, where statistical methods are applicable, because
there is a standardized manner of the interview with concrete response categories,
systematic sampling and loading procedures (Ghauri & Grønhaug, 2010). The
unstructured interview has characteristics of broader type, due to the reason that the
researcher has only an approximate list of questions or even a list of themes which
covers the research questions (Denscombe, 2010). The third option is the semi-
structured interview which differs itself from the previous two interview forms by
having the questions prepared in advance on the one hand, but in the other hand
there is no limitations on bonus questions if there is a need to gain some additional
information from the respondent according to his answers (Ghauri & Grønhaug,
2010).
In this research, the decision was made to use the semi-structured interview form.
First of all, interviewees have a better understanding and knowledge about the
company and its activities, therefore structured interviews would limit their answers
and possibly would create inaccurate results, as it would only be based on
researchers’ knowledge used during the questionnaire construction. Secondly, the
semi-structured interviews give an opportunity to have some additional information
from the respondents which could help to discover unexpected findings for the
analysis with new determinants. Finally, it will give an opportunity for the
interviewees for a more own minded answer than the limited choice answers
(Ghauri & Grønhaug, 2010). The semi structured interviewee does also fit well with
the qualitative research method. Also, for the better interview understanding in
terms of expectations of questions that would be asked, the interviewees were
shortly introduced to the interview before it was conducted. By doing so, the
researchers were able to make sure that the respondents will be able to answer the
interview in the best way possible.
28
3.6.5 Operationalisation
This paragraph is offering reasoning behind the semi structured interview
questionnaire that was used to conduct the interview, by illustrating how the
interview was operationalized. To do so, all questions that were asked during the
interview are put into different categories which should help the reader to
understand the structure of the questionnaire.
Concepts Interview Questions Reasoning

Business The questions are linked to a very
Operation general understanding of the
1-3
company as well as the interview
partner.
IJV Information The questions were asked to identify
the basic information about the IJV
4-9
that was later transformed into a
WFOE.
International To get an understanding on the
Experience of companies’ main activities as well as
the Company 9-14 creating an understanding of the
companies’ international experience
with focus on the studies countries.
Formation of More specific questions about the
IJV 15-17 formation of the IJV in terms of
ownership or form of investment.
Motives for FDI To ask about the movies that
18-19 motivated the firm to do FDI and the
development of those motives.
OLI Development of the market the IJV
was operating in terms of risk,
20 culture, market size, competition and
disputes between the IJV partners at
the time.
Conversion of Asking specific questions for the
IJV into WFOE reasoning behind the eventual
21-23
conversion of the IJV into a WFOE
by the interviewed company.
Table 4: Operationalisation (own illustration, 2017)
29
3.7 Method of Data analysis
Before being able to draw conclusions, it is necessary to analyse the collected data
to create reasoning between the different collected empirical data (Merriam, 2009).
In the quantitative method, authors should not use analytical skills, because there is
already structured data such as numbers, while in the qualitative research method,
authors should analyse mass of data collected from subjective opinions of
respondents (Ghauri & Grønhaug, 2010). According to the same authors, the main
task during the qualitative analysis is to separate the collected data into basic parts
or characteristics (Ghauri & Grønhaug, 2010).
Miles and Huberman (1994) defined, that qualitative research analysis consists of
the three interactive components: data reduction, data display and conclusion
drawing/verifying. Data reduction is defined as the process of collection-,
concentrating- and clarifying data (Miles & Huberman, 1994). The second one,
called data display is the process of the analysis where all collected data information
is transformed into conclusion phases (Miles & Huberman, 1994). Finally, the third
component is the presenting of the conclusion and clarification, which means in
other words the explanation of the collected data (Miles & Huberman, 1994).
In this research, the qualitative research method will be used, thus, there will be a
process of separating answers in different categories. The different categories are
based on aspects of the used theoretical frameworks. After, the different cases are
compared to each other to find out if there is a pattern of answers that were leading
to the conversion of IJVs into WFOEs.
3.8 Quality of research
To be able to evaluate an academic research, the two most important criterions

called validity and reliability according to Bryman and Bell (2003) have to be
discussed. In addition, Merriam and Tisdell (2009) are discussing, that the issue
with qualitative research does exist, based on the research method and therefore it
is essential that authors are able to describe the validity and reliability of their
studies in a form that readers can be convinced of the trustworthiness of their
research. Therefore, the following paragraph will elaborate the approach in terms
of validity as well as reliability for this study, as it will describe the theories, as well
as the actions undertaken by the authors go guarantee that the guidance of theory
was put into practice for this thesis.
30
3.8.1 Validity
In academic research, the term validity of a study is referring to the accuracy of a
study (Denscombe, 2010). The term accuracy can be used, when the data collection
of a research has been done in a diligent way and therefore, the drawn conclusion
from the data collection is accurate and reflect reality (Yin, 2009). However, as
reality is cannot be represented in a research, the aim of validity within a research
is that the findings and conclusions of the study can be considered as trustworthy
(Merriam & Tisdell, 2009). In order to fulfill the criteria that a researcher validate
the thesis, it is essential to ask questions wheather the collected data and
information is appropriate for concluding the research question or not (Denscombe,
2010). Qualitative research that is conducted through interviews is however
difficult to determine as valid or invalid, however, the data collection through
interviewing can be determined by different degrees of validity (Arthur, et al.,
2012). Also, Arthur, et al. (2012) are describing that there are two aspects that
should be taken into account for the validity of interviews. On the one hand side,
the evaluation of the accuracy of information that is provided by the interviewee
and on the other hand the interviewees experience for providing those answers
(Arthur, et al., 2012).
Merriam and Tisdell (2009) are suggesting that in order to validate the collected
data that was gathered from the interviewee, researchers should give the possibility
to the interviewee to control weather the interviewer was interpreting the answers
from the question in a proper way and did not misinterpret the given answers of the
interviewee. This is also called triangulation (Patton, 2002). A further option to
validate the interpretation of the respondents by the interviewee is called
triangulation analysts, which means that the data that was collected will be analyzed
by more than one person independently, after they can compare their individual
interpretations of the data, to make sure that there is no bias of interpretation from
one researcher (Patton, 2002).
For this research, the interview partners were selected in a way, that is going to
guarantee that the interviewee does have the competences to be able go give
meaningful answers in the interview regarding the investigated topic. Furthermore,
the interviewee has been given a chance to read the material that was contributed
by him for the empirical part. As it is mentioned above, this will guarantee that the
researchers did not misinterpret the responses that were given during the interview
and therefore the conclusions that will be taken out of those interviews are based
on the proper meanings of responses from the interviews. Also, the aspect of
triangulation analysis can be guaranteed, as both authors of this thesis were
analyzing the collected data on interviews separately, and combined and discussed
the interpretation in a later stage.
31
3.8.2 Reliability
According to Kumar (2014), reliability of a research is dealing with the aspect of
constant measurement of the study. Constant measurements in research is leading
to trustworthiness to the reader (Arthur, et al., 2012). Yin (2009) states, that the
target regarding the reliability of a study is, that if another researcher would do the
same research by follow the same procedure as the authors, would eventually come
to the same findings and conclusions as the previous author. Therefore, the
reliability of a study is aiming to minimize biases and errors within the research.
Instead of reliability, also the word consistency of the study could be used in order
to describe this research tool (Merriam & Tisdell, 2009).
With the involvement of people however, reliability is difficult to measure as
different researchers could come to a different result while doing the same study.
Due to the reason that people do not always behave in the same way as they did
previously and for this inconsistency in human behaviour, the authors have to focus
on documenting their research in a sufficient way in order to be able to prove to the
reader that study was conducted in a consistent manner (Merriam & Tisdell, 2009).
For doing so, the authors have to focus on stating the procedure in a clear way. By
doing so, the reader should be able to follow the process through the different parts
and also be able follow the thinking steps that were leading to the results and the
conclusion (Denscombe, 2010).
To be able to achieve the replication of the research, it does require a
documentation of the steps of the research, otherwise, not even the author would be
able to achieve the same results while doing the same research again in a later stage
(Yin, 2009). Yin (2009) is suggesting that the best approach of delivering research
that can be considered reliable is to write it in a way, as someone would constantly
observe the authors. In order to be able to prove that this thesis is fulfilling the
measurements regarding the reliability, the methodology part should offer a good
description for the reader to understand and interpret the provided data, as well as
the results and conclusion of this thesis. For further assurance to the reader, an
interview guide was created to get a better understanding of this research. In
addition, the interviews that were conducted for this research, were collected on
audio tape, and later written down on paper or written down as an interview
protocol, to be able to prove that the data that was taken out from the interviewees
responses were conducted and written down in an adequate way and no not
misguide the reader.
32
3.9 Method criticism
Although, the methodology presented is suitable for the research, as it directed to
the in-deep data collection through the interviews, it still has several points which
deserves to be mentioned and method of the study criticized.
One point is that there were some forces or troubles to find case companies for the
interview by our sample. Most of the companies were unavailable for calls and e-
mails, or were not able to agree on an interview, because of different factors such
as lack of time, lack of persons with knowledge in this topic or because of they were
not willing to share information about their FDI. These factors made this research
more difficult, because a very small amount of the companies responded.
Also, not all of the respondents were a part of the companies which they
represented during the conversion process from the IJV into WFOE, thus there is a
possibility of some bias of information. To manage this trouble, the questionnaire
was sent to the interviewees before the meeting or conversation, what hopefully
gave them some time to prepare the answer by collecting information at the
workplace by asking their colleagues who worked at the time of conversion.
3.9.1 Ethical considerations

The process of data collection and analysis in the qualitative research requires
high attention to ethical considerations (Merriam, 2009). The meaning of ethical
responsibility in research is to conduct all data in an appropriate manner. The
researcher has to do so in transparent way, with clear definition of what and why
data was collected as well to answer the research questions precisely. To complete
that, the methodology part should be described and presented in a form that does
fulfil all requirements (Ghauri & Grønhaug, 2010).
Another important stage of the data collection from an ethical perspective are
interviewees. Researchers should ask questions in a way which is not trying not to
embarrass or hurt the respondent (Ghauri & Grønhaug, 2010). There were
numerous researches written in the past what gave an opportunity for Denscombe
(2010) to define the four main measures that should help to keep all ethical
considerations during the data collection process. Those are:
(1) “Participant will remain anonymous”

(2) “Data will be treated as confidential”
(3) “Participants understand the nature of the research and their involvement”
(4) “Participants voluntarily consent to being involved”
33
This research contains of several ethical requirements which are listed above.
Participants are anonymous, however only if the interviewee was preferring an
anonymous interview. All data which was asked to be kept confidential was not
mentioned in this research. All respondents who were interviewed, were in a clear
understanding what is this research about and why their knowledge was needed to
for this research. Also, all respondents who were interviewed in this research are
volunteers and nobody was forced to answer questions during the interviews.
34
4 Empirical Findings
In the following chapter, the gathered empirical data is presented to the reader.
In a first step, the interviewed companies are presented in context with their former
IJV and the conversion into a WFOE. Afterwards the parts are split up according
to the questionnaire which is based on the theoretical frameworks which are
elaborated in the literature review. In a final step, the response regarding the
conversion of the IJV into a WFOE are discussed in this chapter
In this thesis, the interviewed companies did fulfill the criterion that were set in
the methodology chapter. They are Swedish based and either had a joint venture in
India or the PRC that they later converted into a WFOE according to the definition
that was set in the introduction chapter. The interviews for the empirical part was
conducted through personal meetings with the interviewee of the respective
company or by using telecommunication. In the case of Company X and Company
Y, the firms preferred to make the interview anonymous and therefore it is listed as
Company X and Company Y.
4.1 Company X
4.1.1 Description of the Company and their IJV/WFOE

Company X was founded in the late 19th century in Sweden. At the time the firm
entered the IJV in the early 1990th, another Swedish based company owned
Company X. Currently Company X is not owned by the same firm anymore that
owned them at the IJV formation, but is yet part of another Swedish based group.
However, Company X was always a legal person (having legal rights and
obligations- in this case Juridical person) themselves. When Company X entered
the joint venture, they were owning a share of 55 percent of the Joint Venture
whereas the local Chinese partner owned the other 45 percent. The joint venture
they were forming was at the point of its formation already an existing firm and
Company X was buying into the existing firm that was previously owned 100
percent by the local partner. At the formation stage of the Joint Venture,
approximately 400 employees were working in the Joint Venture. The resources
that were brought into the Joint Venture during the time of its formation by
Company X were resources such as Research and Development, production
technology, the brand name and the trademark for the products, distribution
channels for the international market, knowledge about the markets that they were
already operating in, raw materials, capital as well as they built a new factory
complex for the joint venture. Also, Company X was originally interested in
acquiring the firm with a share of 100 percent, but due to legal restrictions the firm
was unable to get hand on the preferred ownership structure for the first years of
the existence of their investment. The joint venture was converted into a WFOE in
35
the end of the 1990th when the legal restrictions in the PRC were allowing to own
the firm with 100 percent ownership. When the Joint Venture was acquired,
approximately 300 people were employed in the IJV and currently between 150 and
200 employees are working at the WFOE of Company X in the PRC. In terms of
experience, Company X did not have any joint ventures before they entered the
South East Asian market, however the firm that owned Company X was engaged
in hundreds of companies all over the world. For the specific target market, the firm
was already trying to operate in another form than investing in this country,
however, they did not succeed to serve the local market from the outside and also
local competitors started to copy their products.
4.1.2 Motives for entering the foreign market

For entering the Chinese market, several aspects were taken into consideration
and were finally factors that convinced Company X to enter the Chinese market. To
get access to low cost input factors, to get access to cheap labour which are both
elements of a resource seeking motive, also serving the local market in PRC and
the potential in the market in terms of future growth of the market that they were
identifying at the time of the joint venture formation was an aspect that motivated
Company X to commit FDI in the PRC. In addition, Company X was identifying
the purchasing power of the consumers in the local market as a motive to enter the
PRC. Also, they were planning to have the IJV in the PRC to have better access to
the local market at the time of the formation of the IJV. Better usage of the capacity
and resources was also a driving factors for entering the IJV. Furthermore, to
gaining strategic assets such as access to local distribution channels and knowledge
of the local target markets were elements that Company X was expecting to get
access to when they were forming the IJV in the early 1990th. At the formation stage
of the joint venture a very important reason to enter the Chinese market was also
the development of the industry in which Company X is operating in, as well as the
trend of most industry to be present in the Chinese market. In connection to this,
the company that was owning Company X was deciding to enter the Chinese
market. At the time of the IJV formation it was seen as essential for the interviewed
firm that every company that is operating multinational should be present in the
PRC. Therefore, the most important reason was the presence in the Chinese market
itself. Many companies were thinking the same, as a lot of companies were making
a strategic change because of the understanding that the Chinese market was the
market to be in at the time. The interviewee was in connection to that saying, that
this was also affecting the Indian market as companies were moving to the PRC. In
addition to being present in the PRC market, also starting to generate money from
this investment was seen as an important factor. The above-mentioned factors that
Company X was seeking for, can all be linked to the overall reason which was a
strategic one to be present in the market as it can be seen above. These factors can
36
be seen as they became factors after the company had the overall intention just to
be present in the market.
Over time however, the motives for Company X were changing and are not the
same as when they originally entered the Chinese market. One reason for the change
of the motive for doing FDI in the PRC can be connected to the reason, that at the
time of the IJV formation, Company X belonged to another firm than at the
conversion. Therefore, the firm does not have the same strategy anymore because
that strategy was connected to the owning company’s strategy. For the time after
the acquisition, the main motive that can be identified in the case of company X is
the low-cost input factors that they do have available in the PRC.
4.1.3 Perception of OLI factors

There were several factors that developed during the time Company X was
operating in the PRC. In terms of culture, the aspects that were related to operate in
the PRC was very different at the joint venture formation than it is right now.
However, the business culture did stay stable over the time of the firm’s operation
in this market. When Company X was entering the Chinese Market in the early
1990th, the risk in the PRC was very high. Factors for the very high risk were
identified as the labour had a very high power in companies at the IJV formation,
as they were almost able to decide who should be make redundant and who should
stay with the Company. Also, because Company X was just owning 55 percent of
the shares, both companies had their own respective strategy and therefore they
were not just able to manage the IJV in the best interest of their company. At the
acquisition in the end of the 1990th the risk was still considered as high, but not as
high as before because otherwise the company would have not have made that
investment. In recent years, the risk is not considered as high anymore, because
there are now many different non-Chinese firms operating in the country and the
region which makes it less risky to operate in the PRC. However, government
policies are still considered as a risk, as companies can never be certain about new
policies and regulations. When Company X was entering the PRC market, they
were expecting that the market size would be very high based on the population,
however, after they were entering the market, the company identified that the local
market was rather small, as many possible customers are still operating with very
old machines. Therefore, it can be noticed, that the market for Company X in the
PRC is small today. In terms of competition, Company X was forming the joint
venture originally with the biggest competitor in the market, who was copying their
products and sold them to the local market. After entering the Joint Venture, the
competition within the PRC was low afterwards and nowadays the competition for
the products they are selling is still low in the PRC. During the time of the existing
joint venture, the costs for enforcing contracts and agreements with the other joint
venture partner was high for Company X, as there was one employee who was
37
exclusively working for managing the regulations that were set by the government
and which were always changing at the time of the formation. Also, the fact that the
partner who owned the other 45 percent of the Joint Venture was a state-owned firm
was responsible for the high costs in enforcing the agreements between the partners
during the whole time of the existence of the IJV from the early 1990th to the late
1990th before Company X took full ownership of their subsidiary in the area of
Shanghai.
4.1.4 Company reasons for converting the IJV into a WFOE

The most important reason for converting the IJV into a WFO in the case of
Company X was to take full control of the subsidiary and managing it themselves.
During the time of the IJV, the firm was not able to make decisions by themselves,
so they were unable to decide on the number of employees that were working in the
IJV in the PRC. Company X was already identifying at the formation of the IJV
that having full ownership over the subsidiary would be the ownership share that
would help them to achieve their FDI in the best possible way. Another factor that
was taken into account for the complete ownership of the subsidiary in the end of
the 1990th was, that the Company X was able to observe, that other firms were
suddenly producing the same machines as they were producing themselves in the
IJV in the PRC. By owning the whole subsidiary by themselves they were able to
minimize the risk of such cheating where knowledge was taken out of their
company illegally and was used in other competing firms. When they were
developing new technologies and machines, Company X was not able to fully put
trust in the Joint Venture and share all the latest developments of their innovations
with the IJV, which was also leading to a less effective business performance of the
IJV and by taking full ownership this risk could also be avoided by Company X.
As soon as the governmental regulation was allowing them to increase the
ownership share from 55percent to 100 percent. From a financial perspective, the
IJV had a very bad business performance in the years after Company X was
acquiring their share, especially when it is put into relation to what they were paying
for the 55 percent of shares in the early 1990th. This bad financial performance can
also be connected to the factors that are mentioned above. However, the company
felt that it was a necessary step to enter the Joint Venture. In terms of the
relationship with the local IJV partner, the interviewee was stating that they were
having a lot of problems with the local partner. They were not used to the same
things that Company X was used to. Over the time of the IJV, the relationship with
the local partners did increase and in the end, they considered the satisfaction with
their local partners as medium satisfactory.
38
4.2 Note AB

Note AB is a Swedish globally operating company which was founded in 1999.
The major business lines of the company are the production of circuit cards and the
services of programming these circuit cards in dependence on the customer’s
preferences. The interviewee’s name is Tomas Fällman, he is working the company
in the function of a business controller. The company has engagements in many
locations around the world and what is significant for this research, they have
experience in IJVs. Their first IJV was in Poland with a local partner. Later on, Note
AB entered Chinese market through an IJV, but converted the IJV into a WFOE
after a few years. The conversion of this specific case was the basis of this
interview. According to Tomas Fällman it was Note AB’s first attempt to enter
Chinese market and the decision of the formation of a IJV was the preferred entry
mode because of lack of knowledge in the host country. In 2007 Note AB entered
the Chinese market by the formation of a IJV in form of a 50/50 ownership split
with Ionics EMS from the Philippines. Ionics EMS had already an existing
subsidiary in the PRC and was located in Tangxia. Due to low profitability, Ionics
EMS was looking for a partner to form an IJV. As a consequence of this search,
Note AB became their IJV partner. The main Note AB investment into this IJV was
equipment that would allow the IJV to produce at a higher standard/level than the
tools that were used before. In 2010 Note AB converted the IJV into a WFOE as
they were buying out the Philippine partner and therefore possessed 100 percent of
the shares of their previous IJV called IE Note electronics control. There were
difficult conditions in the Chinese market for all companies, but without any special
restrictions in terms of ownership for foreign companies during the years when
Note AB was first locating their business in the PRC. According to Tomas Fällman
the number of employees in the company was 1213 in 2007. Later, in 2010, the year
of the conversion of the IJV, the number decreased to 1000 employees and currently
in 2016 the number employees decreased to 976 in Note AB. Also, Tomas Fällman
was stating the number of employees that they had in their IJV in the PRC. The IJV
had 100 employees in 2007 during the time of the IJV formation. In 2010, when
they converted the IJV into a WFOE the number increased to 175 employees, while
in 2016, the WFOE has already 400 employees, what illustrates very high growth
of the number of employees’ in the WFOE in the PRC. It shows that almost half of
Note AB group employees are today employed in the WFOE in the PRC.

One of the main motives of Note AB to do FDI in the PRC market was to reduce
costs of production. They decided to move production jobs from the cost expensive
Sweden to the cheaper PRC market where they had an opportunity to save money
on labor expenses. Also, raw materials were an important factor. Note AB reduced
costs for the shipping, because it was not so expensive to ship the products from the
39
PRC to western Europe, as there were already developed ways of goods
transportation through shipping.
Another significant motive for Note AB was the opportunity to reach higher
demands, because of the purchasing power of customers in the PRC that Note AB
identified at the time. As Tomas Fällman explained, in the year Note AB entered
the IJV in the PRC, there were a lot of Chinese customers, however, there was a
tendency of western European companies to move their factories into the PRC, what
made the demand in that location much higher. Note AB noticed that trend and
today it is an advantage for Note AB, that European based customers were moving
to the PRC market themselves, which is increasing the market in the PRC as well
as they can take advantage of lower transportation cost due to this movement of
clients to the PRC.
Also, prospects of market growth were relevant motive for Note AB during the
time they were considering entering the PRC market. Tomas Fällman claims that
that Note AB saw the tendency of European companies moving into the Chinese
market, therefore the company had some expectation of Chinese market growth.
In addition, Tomas Fällman shared the information that Note AB expected that
production will be cheap and that it they could take advantage to produce in the
PRC and ship the circuit cards to western Europe. However, it did not happen as
Note AB expected, because the majority of the European companies moved their
factories into the PRC as well, thus there is no need for product shipment to Europe
today, as most customers are located in the same country. Despite the fact, that
company’s expectations did not occur, today Note AB has a huge advantage of
producing and selling their products in the same market as their consumers instead
of producing circuit cards in the low cost European market and ship them to the
PRC for the customers. Thus, Note AB is very satisfied of how it all happened.
Summing up, Tomas Fällman stated that motives of investment into the PRC were
still the same at the conversion into a WFOE as in 2007 when the company formed
the IJV in the PRC. Additionally, the motives did not change between the
conversion and today either. By operating in the PRC, Note AB sees opportunities
to have a low-cost production and the market growth perspective which are still
highly valued in the company.

During the period that Note AB was entering in the PRC market and when they
were converting the IJV into a WFOE, the company experienced some motives and
factors related to OLI advantages. During the interview, Tomas Fällman discussed
how the company perceived the PRC market in accordance of each motive and
factor mentioned in the theoretical part. These factors were applied for both the
period of the IJV formation and the time of IJV conversion into a WFOE.
40
The first factor was the culture in the PRC. Tomas Fällman stated that the
company perceived the Chinese market’s culture differently in 2007 and 2010. In
2007 company’s perception of the target market from the culture perspective was
very different and in 2010 it became just a little bit closer to the company culture,
but remained different. According to Tomas Fällman such a change could be
explained with the reason that during the time of the IJV formation in 2007, there
were a lot of local customers what made the business process difficult as the culture
of the Chinese market was totally new for Note AB. Although, the culture
perception level grew in 2010 there still were a lot of local consumers and it was
difficult for Note AB to find the right approach and get used to the way of traditional
negotiation. To reduce such differences, Note AB hired a sales manager after they
converted the IJV into a WFOE who lived and worked in the PRC for fifteen years
and who knows all nuances of doing business with the local customers. Today the
perception of the PRC market from a culture perspective is seen to be neutral and
closer related to the western European market as Tomas Fällman explained. The
reason is that the PRC has changed and European companies became more adopted
to the Asian market and vice versa.
Another factor which was discussed during the interview was the risk in the
market. Tomas Fällman explained that in 2007 the risk of doing business in PRC
for the Note AB during the period of the IJV formation was very high, because of
the lack of experience in the Chinese market and Note AB was completely
dependent on the Philippines partners in the most business-related questions. The
management team was the Philippine partner’s and they had more knowledge about
the market which was leading to a very high risk to enter into IJV with them.
However, in 2010 at the period of the conversion to a WFOE, Note AB hired a lot
of new employees what gave them the possibility to have representatives of the
company in the host country’s market. However, it did not change the risk
perception. Tomas Fällman still claimed that risk remained high. He explained it as
the reason of a tough economic period and lack of the business tools in the Chinese
market. Also, today the risk is still high as Tomas Fällman claims, because it is still
difficult to manage with Chinese customers. For example, when sending an invoice
to customer with the payment term of 30 days, the company can be sure that it will
be paid in that period by Swedish firms, while in the PRC it is more of a
recommendation to pay in that period rather than a requirement.
Moreover, market size was discussed in the interview in accordance of the
company’s perception of the Chinese market to their product during the formation
of IJV and at the conversion to WFOE. Tomas Fällman claimed, that in 2007 the
PRC was a good market of electronic productions and they had a lot of export for
such products. For Note AB the level of market size perception was seen as neutral
in 2007 at the time of IJV formation and it has grown to a high or even very high
market size at the moment of the conversion in 2010. There were local companies
and also European companies that moved to that market, thus it became the
41
potential was seen as increased at the time of Note AB IJV conversion. Today, the
market is continuing its development and this year Note AB made several important
investments which are one of the most significant in the past years.
Telling about the situation of Note AB perception of competition, Tomas Fällman
mentioned that in 2007 there were not so many western Europe competitors in
production in PRC, but it changed very quickly, therefore, in 2010 already a lot of
competitors started IJV or WFOE in the PRC. Today it is seen that all competitors
have their own production in PRC, thus competition has grown significantly and
now it is seen as complicated to predict in what direction the company should
differentiate the product or services.
Finally, Tomas Fällman explained how the company perceived the costs of
enforcing contracts at the time of IJV and at the time of acquisition. In 2007, it was
not a problem, because Note AB and their Philippines partner company were
interested to reach the mutual goals and both sides managed all business according
to the agreements. However, after the acquisition in 2010 it became as a more
serious problem, because companies started doing business apart of each other and
became the competitors. Both companies had production in PRC, but Note AB
found the ways to gain more profitable results and it did not arise as a problem, so
the costs of enforcing contracts were still not so high.

The reason to convert the IJV into WFOE according to Tomas Fällman was mostly
about growth possibilities, which mean not to share factory with any other company
what makes it more complicated and limited. Also, low cost production
opportunities, because consumers in western Europe were pushing the company for
lower prices, as well as competitors who started their production in PRC. The last
reason is that Note AB was hit hard by the financial crises and were not moving
into a direction of bankruptcy, however, they were able to generate additional
funding from their owners during the economic crises. By having that additional
funding, Note AB had the leverage and “financial muscles” to buy the reimaging
50 percent of the shares of their IJV. The Philippine partner was struggling as well
during the financial crises. However, in comparison to Note AB, they were not able
to generate additional funding and were therefore keen on getting money by selling
their 50 percent share of the Joint Venture. Due to the above described situation
those two IJV partners were in, Note AB was able to convert the IJV into the WFOE
for a very reasonable price according to Tomas Fällman.
Moreover, Note AB was not satisfied about their IJV, because profitability was
extremely low and the company’s management was realising that there is some
need of acquisition. They though that by possessing 100 percent of the subsidiaries
shares would improve the financial performance into a better direction. Tomas
42
Fällman claims that looking backwards from today, it was the right choice and
despite the fact that 2010 still was not a profitable and successful year, it was still
the right decision to convert the IJV into a WFOE. After several years, the company
stabilised their situation and profitability grew continuously in comparison to the
period of IJV.
Finally, the relationship with their partners was good. In the beginning Note AB
experienced the feeling of insecurity about the business in the PRC and their
Philippines partners helped them, because their company as more acknowledged
company in the PRC market. However, good relationships with partner did not give
Note AB an opportunity to grow financially, therefore after the conversion in 2010
Note AB was able to make all business-related decisions by themselves and today
Tomas Fällman claims that company realise that it was much unprofitable in the
period of IJV than after acquisition in 2010. He summed up the relationship as not
so satisfied, because of the lack of motivation to invest as the whole business was
unprofitable.
4.3 Company Y

The company was founded in Sweden and their production is divided into two
areas. They produce iron powder and high-alloy metal powder. Today, the company
operates globally and has around 99 percent of its product sales in the international
market. Also, the company has its own production in 15 different countries,
employing 1700 people within the whole organisation. Their main industry is the
automotive industry. From the beginning, Company Y was in a JV with another
Swedish company, but in 1969 they converted it into a WFOE. Iron powder
production in India began in 1969 within their IJV. Penetration in the Indian market
was not easy, because company was entering in the early years of FDI inflow in
India and not many companies were brave enough to invest in India at that time. In
1969, Company Y bought 51 percent of IJV share from the Indian company. There
was uncertainty about doing business in the Indian market and the first period of
the IJV formation was not very promising, because India was not very open to
foreign investors and only after several years the company did not feel the hard
pressure from the Indian government restrictions. The best thing is that Company
Y had the opportunity for an IJV, what helped them to establish their iron powder
production in the Indian market. However, Company Y converted their IJV in 2001
to a WFOE, after buying the remaining 49 percent of shares. At the time of the IJV
formation in 1969, the company had around 300 employees in total and 50 of them
were in India. In 2001, when the company converted their IJV, the number of
employees in total was 950 and the numbers of employees was growing rapidly in
India to 500 employees. Before the formation of the Indian IJV, Company Y had
43
no experience of forming such ventures, but as it was mentioned, they had a JV
from the beginning with an establishment in Sweden. The main investment of the
Company Y during the period of the IJV was the complete technical know-how for
the manufacture of iron powder and also the installation of the plant as well as the
machinery. The main customers were local companies who produced sintered
powder metallurgy components, stainless steel and welding electrode.

The Interviewee Y named that there were several motives for Company Y to enter
the Indian market through FDI. In 1969, the company was looking to expand their
business on a global level. Therefore, they were searching for a big market to
expand their business. In correlation to the big market, Company Y also set the
criteria that this big market should offer them access to cheap labour as Interviewee
Y was describing. By analysing, different markets, India was fulfilling the set
criteria and was therefore attractive for Company Y to enter.
As it was mentioned above, having access to cheap labour, as it was available at
the formation stage of the Joint Venture was a motive that made the Indian market
very attractive for Company Y. As it was mentioned in the previous part in the more
general information, the company’s employees number in India grew rapidly
between the formation stage of the IJV, throughout the conversion phase till today.
This growth in the numbers of employees can be explained by their initial motive
of having access to cheap labour, as it is from a financial point of view more
efficient, to employ workforce in the cheap labour cost country of India, than having
them in their domestic market where labour costs are much higher than in India.
Secondly, Interviewee Y was stating, that the firm realised that investing their
know-how and equipment in India will give the opportunity to be the first company
in the Indian market and therefore be able to establish a market leading position in
the Indian market, by being the first firm who is offering high quality products to
customers in the domestic Indian market. In addition, Interviewee Y was
explaining, that Company Y was convinced at the time, that in the nearer future,
more and more non-Indian companies would seek to enter the Indian market, which
would according to their thinking at the time lead to additional customers in that
market. Therefore, they were convinced that the Indian market would develop in a
positive direction in terms of domestic demand from which Company Y would be
able to take advantage of.

The company’s factors which were discussed during the interview have
significantly changed over the time of IJV formation to the conversion into a
WFOE. In the beginning, Company Y had a very limited understanding of the
44
market they were investing in. Therefore, Interviewee Y was explaining that
decisions were made without a profound market/country knowledge. The
comparison of factors perception in the beginning stage and final stage shows
significant difference.
First of all, Interviewee Y was stating, that the company was not very
knowledgeable about the Indian Culture, when they entered the market through the
formation of their IJV in 1969. Interviewee Y claimed, that the company had a very
different perception of how business has to be done in India at the time. Also, the
Interviewee Y explained that that they were having a difficult time with delays of
meetings or with late payments of invoices by their customers. However, when they
converted the IJV into a WFOE in 2001, Company Y perceived the Indian market
culture neutral. According to Interviewee Y, the difference is due to the reason that
they were then thirteen years present in the Indian market and therefore they were
able to gain a lot of experience in the market and were also able to benefit from the
experience of the local IJV partner during that time span, which is described as very
important by the interviewee.
Another growing perception of the factor presented in the interview was the
change of risk. In 1969, the company had a high level of uncertainty for entering
the market, as the market was new for Company Y and the political environment
was not so stable, therefore, they identified the risk as very high. However, it did
not make any serious troubles for a company in doing business in India, therefore
when the company was converting the IJV, the level of risk was lower and evaluated
as high by the interviewee. At the time of the conversion, the risk was not big
enough to hinder them from the conversion and they believed at the time that the
risk would decrease for the years to come.
Moreover, when the company entered the market with the IJV, they saw the
market as very small and were even thinking that FDI in India was a mistake, due
to the small market size. However, in 2001 when the conversion of the IJV
happened, managers of the company who worked there from the IJV formation
already, realised that it was one of the best decisions made in that period, states
Interviewee Y. The reason behind the change of market perception is due to the fact
that many clients of company Y entered the Indian market, which would allow
Company Y to sell their products to more clients. Due to this development, the
interviewee was evaluating the Indian market potential as very high. They even
opened a second manufacturing plant in India due to the demand in this market.
However, the level of competition changed in the other direction as the
interviewee was hoping for. In 1969, when Company Y first engaged with FDI in
India, they were able to establish themselves with their new technologies for the
Indian market at the time. With their good products, the level of competition in the
early stage of the IJV was very low. The reason for the low competition was due to
a lack of local producers and also no international competitors, but also due to their
45
superior technology and equipment. At the conversion stage of the IJV, more
international competitors have entered the market during the time as well as an
increase of local Indian competitors evolved. However, the established networks
during their presence in India helped Company Y to stay competitive and the
competition was and is seen as medium.
The cost of enforcing contracts was a real problem for the company in the period
of the IJV formation and operation in India, as they were having a lot of
expenditures to enforce contracts. Therefore, this was seen as very high during that
time period. Their local partner was trying to take advantage of the advantages in
knowledge and would therefore be able to dictate the conditions. The company Y
was not planning such dependence on their partners and there were several
negotiations later which gave more freedom to the company. Thus, in 2001 during
the conversion period, the company had no problems with their partners and the
perception of enforcing cost of contracts was as medium by Interviewee Y.

The main motivation for converting the IJV into WFOE was the independence of
the company in the market, as they gained experience and familiarity with the local
market in India. Also, the future of doing business looked much better at the time
when they were converting the IJV into a WFOE, then the future looked years prior
to the conversion. Another aspect which was mentioned by Interviewee Y, was that
Company Y was not very satisfied with the financial performance of the IJV. A
significant role in the conversion was also, that the fact their local partner was
having financial problems at the time, which also affected the IJV in a direct way.
Even though Interviewee Y considered the financial performance of their IJV in the
year of the conversion in 2001 as medium, Company Y had the opinion, that the
financial performance could be increased if they would manage the subsidiary by
themselves and without their local partner at the time.
Summing up, the partnership satisfaction during the IJV existence from 1969 to
2001 was seen as medium by Interviewee Y. This level of satisfaction was not
already perceived in the same way. When they entered the partnership, the level of
satisfaction was high, as the Indian market was not familiar at the time. However,
it developed in a direction of less satisfaction till the end of the 1990th to share
ownership of the subsidiary. Interviewee Y is stating that the company is very
satisfied with the conversion and having full ownership today.
46
5 Analysis
In the analysis chapter, the empirical findings are connected and compared to the
theories that are presented in the literature review chapter in order to find
similarities and differences between the empirical findings and the literature.
Furthermore, the different empirical data are compared, discussed and analyzed
against each other.
The table below is offering an overview of the empirical findings, by presenting the
FDI motives of the companies as well as OLI related factors. Furthermore, the most
important reasons for the conversion are listed. The answers from the formation are
written in italic letters and the answers from the conversion are listed in bold letters.
Company X Note AB Company Y
Market seeking serving the local Purchasing power of Serving local market
(FDI motive) market, market customers Market growth
growth Market growth Serving local
Market growth market
Market growth
Resource seeking Low cost input Low-cost input Cheap labour
(FDI motive) factors, cheap factors Cheap labour
labour Cheap labour
Cheap labour Low-cost
Low-cost input production
factors
Efficiency seeking Better resource and Not applicable Not applicable
(FDI motive) capacity usage
Strategic Asset To gain strategic Not applicable Not applicable
seeking (FDI motive) assets
Firm Size (OLI) Large sized Large sized company Large sized company
company (>250) (>250) (>250)
Large sized Large sized Large sized
company (>250) company (>250) company (>250)
International No experience Medium experience No experience
Experience (OLI)
Culture Very different Very Different Very different
(OLI) Neutral Different Neutral
Risk Very high Very high Very high
(OLI) High High high
Market size Very high Neutral Very small
(OLI) Small High/very high Very high
Level of competition Low low Low
(OLI) Low High Medium
Cost of enforcing High Low Very high
contracts (OLI) High Medium Medium
Reasons for Full control Growth possibility Knowledge
Converting IJV into Original plan Cost pressure Business
WFOE (restrictions) Financial crisis performance
(OLI) Business Business Market growth
performance performance
Table 5: Analysis (own illustration, 2017)
47
5.1 FDI motives and Conversion of IJVs into WFOEs
5.1.1 Resource seeking

As Dunning and Lundan (2008) were stating, the second factor of the research
seeking motive is to have access to cheap labour force. Bitzenis, et al. (2007) were
further describing, that this factor is especially attractive for companies who are
either in the manufacturing industry or service industry due to the reason that
business processes in this field are often labour intensive. In the cases, that are
discussed in this thesis with empirical data, all companies were in the
manufacturing industry and some were in addition also in the service industry. In
all cases that were investigated cheap labour was one of the main, or the main
aspects for operating in either the PRC or India at the formation stage. Also, all
firms were still seeing cheap labour cost as a motive at the conversion into a WFOE.
The importance even increases, as other motives became less important to the
companies. Based on the reasons of converting the IJV into a WFOE, a pattern can
be observed, that companies felt that they could seek this motive better by owning
the subsidiary by themselves. Interviewee X was stating “we were not able to
decide about the number of employees by ourselves.” Also, more general statements
that were made during the interviews, such as the fact that they would be able to
make business decisions alone, does suggest that optimizing the resource seeking
motive better, when the subsidiary is wholly owned. These answers lead to the
result, that firms convert IJVs into a WFOEs, due to the reason that they prefer to
have the whole decision-making authority on how to seek resources in the best way,
specially for the labour cost factor.
5.1.2 Market seeking

In the cases that were studied in this thesis, the market seeking motive was an
important motive for entering the IJV originally. For all companies that were
interviewed, serving the local market was seen as one of the most important motives
to enter their IJVs in either India or the PRC. In addition, the prospect of market
growth was perceived as important at the formation stage. At the conversion stage
into a WFOE, two of the three companies did not change the motives, as they are
still seeing market growth and serving the local market as an important aspect for
the reasoning of operating in the local market. Also, in this case, having full control
over the subsidiary, was seen as beneficial to reach the increasing market potential,
and also not to share the income generated by the increasing market with the local
partner is a motive to convert the IJV into a WFOE.
48
5.1.3 Efficiency Seeking and Strategic Asset seeking
In the empirical part, just one of the interviewed companies was listing Efficiency
Seeking Motives and Strategic Asset seeking Motives to enter the IJV in the
respective country. For this reason, those two motives are not analysed in this
Thesis.
5.2 OLI theory and Conversion of IJVs into WFOEs
5.2.1 International Experience

When the case companies entered the Indian or the PRC market, they had no
international experience or just a limited international experience. Puck, et al.
(2009) were stating, that IJV partners were able to acquire knowledge of the local
market over time to an extend, where firms did no longer have a need to have a
local partner who is providing this information. Therefore, he concluded that the
adaptation of relevant market information increases the chance of a conversion of
IJVs into WFOEs. By conducting interviews in this thesis, similar behaviour was
observed. Company Y was describing, that wen they originally entered the market,
they did not have profound knowledge about the market they were entering in. Over
the years of being part of the IJV however, they were able to learn about elements
of the market, which was leading to the thinking to be able to manage an own
subsidiary in the specific local market without needing the information of the local
partner. Based on the interviews in can be observed, that were able to catch up the
lack of international experience from when they entered the market, and as a result
of the gain in international experience, the local partner became obsolete.
Therefore, this thesis is agreeing with previous results which was found by Puck,
et al. (2009) that gaining international experience is influencing the conversion of
IJVs into WFOEs.
5.2.2 Firm Size

Regarding the firm size of the interviewed companies, it can be observed that all
interviewed companies were large companies (more than 250 employees) at the
formation stage of the IJV. When the company converted the IJVs into WFOEs, the
interviewed companies were still considered as large companies. Analysing the firm
size and the conversion of the IJV into a WFOE does therefore not offer a
correlation.
49
5.2.3 Market size
The observations in this research regarding the perception of the market size do
differ from one company (Company X) in China to the two others (one in China
and one in India). One company saw the market size as very large when they entered
the market, they realized however, that the market was very small. For the two other
companies however, the market was considered as very small or neutral, but
developed to very high at the stage of the conversion into a WFOE. The perception
of market size was named as a reason for the conversion, as firms prefer to take
advantage of those increasing markets rather by themselves than by sharing it with
a local partner. Based on the perception of the market, it can be seen that the change
of market size can have a positive effect on the conversion of an IJV into a WFOE.
5.2.4 Host Country Risk

Puck, et al. (2009) observed in their study, that there is a correlation between the
perception of uncertainty and the conversion of IJVs into WFOEs. The authors are
describing, that when the uncertainty in the foreign market decreases, foreign firms
are more likely to allocate more resources into that market by converting their IJVs
into WFOEs. In this research, the perception of risk was also a questioned during
the interview. In all cases for both India and the PRC the perception of risk was
seen as very high when they originally entered the IJV, as the firms had a lot of
uncertainty regarding the market, governmental regulation and other uncertainties.
At the stage of the conversion into a WFOE all interviewees were rating the risk in
the respective countries as high. Therefore, this research came to similar findings
as Puck, et al. (2009), due to the reason that the risk was decreasing in all studies
cases. Interviewee X was stating, that the risk in the PRC market is seen as lower
today, because there are much more non-Chinese firms active in the PRC, which is
reducing governmental risks, as more companies would be affected by change of
regulations.
5.2.5 Culture
Puck, et al., (2009) were also investigating the cultural difference between the
foreign market and the culture of the firm and the correlation between a conversion
of an IJV into a WFOE. They are arguing that a high cultural distance does lead to
an increase of cost in different aspects such as handling suppliers, local buyers, or
governmental institutions. Therefore, firms prefer IJVs over WFOEs, because local
partners are more efficient in handling those factors (Puck, et al., 2009). The
analyzed cases in this thesis do support the findings of the previous research of
Puck, et al. (2009). Both in India and the PRC, all interviewed companies were
rating the level of cultural difference between their FDI market and the Swedish
home market as very different at the formation stage of their respective IJV. At the
conversion stage to a WFOE however, the cultural difference has developed to
50
either different or neutral, which is a development for closer to neutral in all studied
cases. Therefore, this research is also suggesting, that when the cultural difference
perception of Swedish IJV partners is getting more neutral, Swedish firms are more
likely to convert their IJVs into WFOEs. A reason for that change in perception is
according to Tomas Fällman that: “the culture in the foreign market has changed,
but also western companies adapted to the market and vice versa.”. The
interviewees were also suggesting, that the increase in western activities in those
two markets was leading to an adaptation of local culture. The adaptation to local
culture is also leading to a decrease of the need for foreign companies to have a
local partner who can provide the understanding of the culture.
5.2.6 Cost of enforcing Contracts

In terms of cost of enforcing contracts, the answers of the interviewees differed
from each other. In the case of Company X, the costs were high from the IJV
formation stage to the conversion stage into the WFOE. For Note AB, the costs of
enforcing contracts were low at the formation stage, and was seen as neutral at the
conversion. For Company Y, the costs were very high at the formation stage of the
IJV, and later decreased to a medium level. Based on those different responses of
the costs of enforcing contracts with the local partners, there is no correlation seen
in this thesis between an increase of costs for enforcing contracts and the conversion
of an IJV into a WFOE. Therefore, the thesis cannot conclude this as a factor for
conversions
5.3 Non-theory related findings
5.3.1 Bad Financial performance

In terms of financial performance of the IJV, all interviewees were stating that the
satisfaction during the IJV was not considered as high or even very high. In some
cases, the financial performance of the IJV was even considered below medium.
The reasons for those performances were not the same in all cases however. In one
case the market was smaller than the company was expecting, whereas in other
cases, the global economy had an influence on the dissatisfaction of the IJV among
other factors. However, all interviewees were describing that at the time before the
conversion into a WFOE, the company was thinking that the satisfaction of the
financial performance would be higher, if they would convert it and make all
performance related decisions by themselves and not with a partner. Furthermore,
in all cases that were observed in the empirical part, the financial performance was
or is now more satisfying than during the time of the IJV. Therefore, the empirical
data is suggesting, that the satisfaction of the financial performance of an IJV is a
significant factor for the conversion into a WFOE.
51
5.3.2 Lack of Trust
By analyzing the cases, it can be observed, that for the foreign IJV partners who
are bringing aspects such as technology or knowledge in a Joint Venture, the
conversion into a WFOE is beneficial for several reasons. On the one hand,
companies with those technological and knowledge based investments are able to
make sure that local partners and their employees do not take away the knowledge
to other companies. Interviewee X was therefore stating: “A other local Company
was suddenly selling the exact same machine as we were producing in the IJV.” On
the other hand, it was discussed during interviews, that a mistrust in terms of
stealing knowledge from the IJV can lead to the result that the foreign IJV partner
hesitate to bring all his resources and knowledge in the IJV, which will have a
negative effect on the business- and financial performance of the IJV. By having
those negative effects that are based on trust, Swedish firms can improve the
performance of their subsidiary, if they are able to trust their subsidiary and
therefore a conversion into a WFOE is a reason for partners who are offering
knowledge and technology.
5.3.3 Liberalisation of Governmental Restrictions

The empirical part is also suggesting, what was already discussed in the
introduction chapter regarding ownership limitations. Two of the three interviewed
companies did have governmental restrictions at the time when they were entering
their IJV and therefore had no option to establish a WFOE right away. Those
restrictions were an issue when they entered in both India and the PRC. Interviewee
X was in that regard stating: “We were already thinking that having an WFOE
would be better for us at the formation of the Joint enture, but we could only enter
through an IJV at the time.” Because of those restrictions, the firms were
explaining, that due to the reason that they were not able to open a WFOE at the
time, having a IJV, would be therefore the best option to serve the motives that the
companies were seeking in those markets. Based on those observations, the
liberalisation of governmental restrictions is one of the reasons that were found for
Swedish based firms to convert their IJVs into WFOEs.
5.3.4 Economic Crisis

An aspect that was not identified in the literature review, but which was relevant
in a case of this research was related to economic cycles and timing. During the
economic crises, some of the Swedish based firms that were interviewed were able
to get additional funding from their shareholders, when their financial situation was
not stable. This additional funding and therefore having additional financial
resources, can allow companies to convert IJVs who are not performing well
financially into WFOE, when the local partner of the IJV is also hit by the crisis but
52
is unable to get additional funding. In the two analyzed cases, the local partner was
not able to generate additional financial resources, therefore, they were looking to
get funding through the sellout of their share of the IJV that was not making money,
to prevent their company from illiquidity or bankruptcy. In the case of Note AB, it
was described, that due to the pressure their partner was in, they were able to acquire
the not profitable IJV at the time to a very reasonable price. In those observations,
it can therefore be seen, that external circumstances such as economic cycles, can
lead to conversions of IJVs into WFOE, as assets are evaluated differently by firms
who are short of financial resources, as they would evaluate them during better
business cycles.
53
6 Conclusion
This chapter contains the answer for the main research question as well as sub-
questions. Also, theoretical and practical implications will be discussed with an
addition of limitations of this research. Finally, suggestions for future research in
this field are presented.
6.1 Answering the research question

As it is discussed in the introduction chapter, internationalisation has gained more
interest during the past decades, because of the influence of globalisation
(McDougall, Oviatt & Shrader, 2003). Thus, companies make different decisions
during this process trying to maximize their advantages. One of the presented entry
modes was FDI, which is the bases of this research. The main problem that is
discussed in previous researches, was which entry mode firms should choose and
also why they should choose it (Agarwal & Ramaswami, 1992; Zhao & Decker,
2004), whereas this research is discussing a related topic which is not discussed
often in academia (Puck et al., 2009). Therefore, the purpose of this research was
to answer the following research question “Why do Swedish firms convert their IJVs
into WFOEs in emerging markets of India and the People’s Republic of China?”
which was supported by two sub-questions: “How do FDI motives relate to the
conversion of IJVs into WFOEs?” and “How do ownership, location and
internalisation factors relate to the conversion of IJVs into WFOEs?”.
The theoretical part is offering linkage between motives and ownership, location
and internalisation factors to understand and explain this study’s research
questions.. By answering the research questions, reasoning behind those decisions
with the support of theory are presented in the paragraph below.
In this study, one very important motive companies were seeking to do FDI in
India or the PRC was resource seeking. More specifically low input factors and
cheap labour cost. Based on the analysis of the interviews, companies convert their
IJVs into WFOEs, because they feel like they would be able to maximize the motive
by managing the subsidiary by themselves, due to the reason that local partners are
not sharing their opinion on how to maximize the benefits from those resources.
For the market seeking motive, it can be concluded that companies are converting
the IJVs into WFOEs, when they think that the potential of the market can be
maximized in a better way when applying the companies’ strategy rather than a
shared strategy with the partner. There is no conclusion on the efficiency seeking
motive and the Strategic Asset seeking motive, due to the reason that those motives
were not included in this study.
54
In the analysis, several OLI factors were identified to have a positive effect for
Swedish firms converting IJVs into WFOEs. One of the factors is the perception of
culture in the foreign market. Based on the samples in this research, cultural
adaptation is a factor which is influential of IJV conversions. The reason for this
adaptation of culture which is leading to conversions is both, Swedish firms getting
more familiar with the local markets, but also the local markets getting more
familiar with the western business culture and adapt the culture themselves.
Therefore, they need a local partner at the beginning, but over time, a partner who
is offering cultural knowledge can become obsolete. Another factor which was
changing during the IJV operation was the perception of risk. All companies were
describing that the risk decreased from “very high” to “high” at the conversion
stage, which does also have a positive effect. Also in this case, the increase of
foreign firms has according to the data an influence on the risk. Therefore, both of
the above-mentioned factors are influenced in a positive way for the conversion of
IJVs into WFOEs by the increase of foreign firms entering these markets, due to
the reason that this has a positive effect on both culture and risk. As the research is
also suggesting, that the growth in the market was leading to the conversion, as
companies were planning to reach the potential and profits by themselves and their
own strategy. In addition, the gain of international experience during the time of the
IJV was identified as an influence on converting IJVs into WFOEs, as the
companies entered the countries with very limited international experience, but
were able to learn during the IJV operation. However, the analysis of the empirical
findings does not suggest a correlation between enforcing contracts with the partner
and the conversion, as the answers did not show a pattern and also no correlation
between the company size with the conversion of IJVs into WFOEs, as the company
sizes did not change significantly.
This research findings and analysis of the findings give a clearer picture of issues
which exist during FDI operations. Also, it clarifies what internal and external
changes that may influence the company’s decision to convert IJVs into WFOEs.
However, there were some issues which were not discussed in the theoretical part
by using the FDI motive theory and the eclectic paradigm theory, but were
according to this research also important reasons for the conversion of IJVs into
WFOEs.
First of all, the financial performance of IJV plays significant role for the
conversion of IJVs into WFOEs. The data collected in this research suggests that
the satisfaction of financial performance of an IJV is an important reason for the
conversion, as in all cases the financial performance was not satisfying before the
conversion into a WFOE and companies felt to be able to manage it more successful
by themselves. Moreover, trust between IJV partners is an important reason for the
conversion. Companies who bring knowledge and technology in an IJV, are
avoiding losing their knowledge by converting IJVs into WFOEs. Also, this thesis
is suggesting, that liberalisation of governmental restrictions, made companies
55
convert their IJVs into WFOEs in India and the PRC, as some companies already
knew at the IJV formation, that owning a WFOE would be the best decision for the
company but they were not able at the time. Finally, this research is suggesting, that
economic crisis is a reason why Swedish firms are converting their IJVs into
WFOEs. During crisis, companies with enough financial resources are able to
convert IJVs into WFOEs at reasonable prices, due to the reason that the local
partner is desperate to sell their shares to generate funding for their main firms.
By analyzing the empirical data, the thesis is suggesting an adaptation of the
model that was defined as the framework of this study. Therefore, the two FDI
motives that were not applicable for this study are removed. Furthermore, there are
four new aspects (bad financial performance, Financial Crisis, Liberalisation of
Governmental Restrictions, Lack of Trust) that were discovered in this research and
therefore added to the framework below.
Resource Seeking
Market Seeking FDI
FDI
Liberalisation
Bad Financial of
Performance Governmental
Restrictions
Converting
IJVs into
WFOEs
Financial Crisis Lack of Trust
Ownership factors Location factors Internalisation

-Firm size -Market size Factors
-International Experiance -Contractual Risk
-Host country risk
-Cultural distance
Figure 4: Adapted Framework (own illustration, 2017)
56
6.2 Theoretical Implications
Research on IJV conversion into WFOE is an understudied field, as there is just a

very limited number of previous scholars on this topic available (Puck et al., 2009).
Moreover, this research paper is focusing on concrete countries, Sweden as the FDI
outflow country and India and the PRC as FDI inflow countries. That differs from
the previous researches, which is not focusing on such a concreate case and
therefore helps to complete the research gap. Also, the theories used in the previous
researches were different with current research, as they were using theories such as
the transaction cost theory and institutional theory (Puck et al., 2009). The
combination of this phenomena with the FDI motive theory and the Eclectic
paradigm theory offers a new connection between the theories and the conversion
of IJVs into WFOEs. Thus, it is important to find more theories which may fit for
this research and can therefore bring other angles to the research area. Such
development of the theories with that topic should give more transparent
information for academia. Also, this research is showing, that the theories used in
this study are supporting the conclusions of Puck et al. (2009) who were using
different methods, but had findings in common with this research.
6.3 Practical Implications
The analysis of the empirical data was showing interesting findings. This paper
should therefore help Swedish firms who are operating with IJVs in India and the
PRC to guide through the decision making of converting to a WFOE or to keep
operating with an IJV. With the help of the theory and the conversion reasons, firms
should have a better overview on reasons who are favourable for converting to seek
a specific asset in the foreign market. Also, the eclectic paradigm is offering
guidance in the conversion for companies, as it is offering cases, where they can
orientate themselves, on how those changes of the factors have influenced other
companies in their decision making towards a conversion of an IJV. Also, these
factors can be used as a benchmark for companies to measure their internal
readiness for a conversion, as they can observe if those factors have increased in a
better direction or not.
Furthermore, companies should think about the financial situation and potential
profitability in the IJV with the local partner, as in the studied cases, companies
who were taking full control over a subsidiary that was struggling financially, were
able to perform better in the long run by managing the subsidiaries themselves.
Also, it should offer companies a new perception of crises, as the study is showing,
economic crises can be very beneficial for international firms in terms of IJV
conversions into WFOEs, due to the reason that the study is showing that companies
57
were able to convert their subsidiary at a price which made the conversion
beneficial by the acquisition cost itself.
6.4 Limitations
There are several limitations regarding this thesis. First of all, this study is limited
to Swedish firms who were converting their IJVs into WFOEs and does therefore
not include companies from other countries who were doing FDI in the PRC or
India. Secondly only conversions that happened in either India or the PRC were
studied and does therefore not offer reasoning for other markets. Furthermore, no
reasoning behind other conversions such as WFOE to IJV are discussed in this
research thesis. Furthermore, the thesis is only offering reasoning behind the
conversion and does not evaluate performance which is related to the conversion.
In addition, the used theory is limiting the outcome of this thesis, due to the reason
that not all factors of IJV conversions into WFOE that are not linked to either the
FDI motive theory or the eclectic paradigm theory were discussed with the
interviewees. The final limitation of this research is, that this qualitative research
has the reasoning of three different companies included in the empirical part.
Therefore, not all motives that are listed in the FDI motive were discussed in the
thesis, due to the reason that the case companies did not cover all different motives
for FDI.
6.5 Suggestions for future research
As it was already stated in the introduction chapter, the conversion of IJVs into
WFOEs is a highly-understudied topic in academia. After this topic has been
studied, both, though literature review and empirical findings, it can be observed
that the topic is still understudied. Also, the topic is understudied with the
connection of the phenomenon and theoretical frameworks. Therefore, we are able
to observe several research gaps in this research field that could be studied in the
future:
1. Future researchers could investigate this phenomenon in more depth, by

analyzing the conversion of IJVs into WFOEs isolated to one specific
industry to get more specific results for the reasoning of conversions in
those markets.
2. To investigate the same research topic of IJV conversions into WFOEs, but
limit it to a certain company size such as SMEs or MNCs, which would
58
offer another angle based on the reasoning in correlation to company sizes.
Also, reasoning between company sizes could be compared and explained.
3. Researchers could also investigate the phenomenon by studying the same

research question with a context of another BRIC country or countries.
Therefore, also comparisons between different BRIC countries could be
drawn.
4. The study can be researched based on northern Countries in the same target
market instead of reducing it to the Swedish Market, which would offer a
bigger picture to investigate.
5. Researchers can investigate the conversion of IJVs into WFOEs in a lager

scale than just a limited number of cases. A larger scale of research can
increase the meaningfulness of reasoning of the results, as this case is
limited in responses.
6. Researchers can investigate the research topic by using different theories

other than the FDI motive theory and the eclectic paradigm theory and
compare the outcome to the existing research.
59
7 References
7.1 Interview Participants
1. Interviewee X, Key account manager at Company X, face-to-face interview,
2017-05-10
2. Tomas Fällman, Business Controller at Note AB, face-to-face interview, 2017-
05-09
3. Interviewee Y, Sales Manager at Company Y, telecommunication interview,
2017-05-16
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8 Appendix
8.1 Interview Questionnaire
SEMI-STRUCTURED QUESTIONS FOR INTERVIEW
1. Company name:
____________________________________________________________
2. Interviewee’s name:
____________________________________________________________
3. Interviewee’s title:
____________________________________________________________
4. Name of IJV and location:
________________________________________________________
5. Year of IJV formation:
___________________________________________________________
6. Partner company name:
__________________________________________________________
7. Ownership split between partners at formation of IJV:
__________________________________
8. Were there any legal restrictions on foreign ownership in target country at
the time of IJV formation? ________
9. Which year your company acquired the IJV:
_______________________________________
10. Company information:

11. What are your firm’s major business lines:
__________________________________________
12. What was the number of employees in your firm at the time of IJV
establishment and at the time of IJV conversion to WFOE? (Rough
estimate) _____________________
13. How many manufacturing IJVs and WFOE your company had before
forming this IJV? ________________ How many were in South Asia?
________________________
14. What were your firm’s operations in the target country before forming this
IJV? (No prior activity, sales office, licensing agreement, exporting, a manufacturing JV, a
manufacturing WFOE, several manufacturing units, or other operations)
___________________________________________
68
IJV information:
15. Was the joint venture a new separate firm established or you partially
acquired the partner firm?
16. Did your firm seek for another ownership share (e.g., 100% Greenfield
investment, acquiring 100% of partner firm, or another ownership share in
IJV) in the IJV at the formation stage of IJV?
17. When firms form IJVs, they usually made some important investments in the IJVs.
What kind of resources have your firm and partner firm invested in the IJV (e.g.,
Basic R&D, production related technology, brand names\trademarks,
distribution channels to local market and international markets, local market
knowledge, raw material, HR, capital)?
a. ______________________________________________________
__________________
Target Country Information:
18. Why did your firm choose to invest in this country?
a. To gain low-cost input factors (e.g. raw material)

b. To get access to cheap labor
c. To serve the country local market
d. Because of the purchasing power of customers
e. Because of prospects of market growth
f. Access to regional markets
g. Better resources and capacity usage
h. To gain strategic assets (technology, access to distribution channels,
target country knowledge)
19. Would you consider that the motives to invest in target country were still
the same at the time of IJV acquisition?
20. How did your firm perceive the target market at the time of IJV formation
and at the time of IJV acquisition:
a. Culture at the time of IJV formation (1: Very different, 2: different,

3: neutral, 4: similar, 5: very similar)
b. Culture at the time of IJV acquisition (1: Very different, 2:
different, 3: neutral, 4: similar, 5: very similar)
69
c. Risk at the time of IJV formation (1: very small, 2: small, 3:
medium, 4: high, 5: very high)
d. Risk at the time of IJV acquisition (1: very small, 2: small, 3:
e. Market size at the formation of IJV formation (1: very small, 2:
small, 3: medium, 4: high, 5: very high)
f. Market size at the time of IJV acquisition (1: very small, 2: small,
3: medium, 4: high, 5: very high)
g. Level of competition at formation of IJV (1: very small, 2: small,
3: medium, 4: high, 5: very high)
h. Level of competition at acquisition (1: very small, 2: small, 3:
i. Cost of enforcing contracts at the time of IJV formation (1: very
small, 2: small, 3: medium, 4: high, 5: very high)
j. Cost of enforcing contracts at the time of IJV acquisition (1: very
small, 2: small, 3: medium, 4: high, 5: very high)
More specific reasons of IJV conversion to WFOE
21. What factors motivated your firm to convert the IJV into WFOE?
22. What was your firm’s level of satisfaction with financial performance of
IJV at the time of IJV acquisition? (1: very low, 2: low, 3: medium, 4: high,
5: very high)
23. How satisfied was your firm’s relationship with IJV partner at the time of
IJV acquisition? (1: very low, 2: low, 3: medium, 4: high, 5: very high)
8.2 Interview responses
Two of three responses are saved as an audio file.

The third interview is written as a phone protocol.
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Bachelor Thesis

Why do firms convert their joint

KEYWORDS: International Joint Venture, Wholly Foreign Owned Enterprise,

Table 1: Definition of key terms (own illustration, 2017) ....................................... 7

Figure 1: FDI motive and conversion (own illustration, 2017) ............................. 13

1.2 Problem discussion and research gaps

1.3 Research question

Why do Swedish firms convert their IJVs into WFOEs in

How do FDI motives relate to the conversion of IJVs into

How do ownership, location and internalisation factors

The purpose of this sub-question is to employ OLI framework and investigate

1.4 Research Purpose

Keywords Definition Source

•The background of this topic is discussed in order to get an overview

•The theoretical framework that is needed to answer the in chaper

•The methodology regarding this research is displayed in this chapter.

•Results of the empirical research are elucidated in order to present

•Based on the analysis in chapter five, the main research question

Table 2: Structure of the study (own illustration, 2017)

2.1 Motives for FDI

2.1.1 Market seeking

2.1.2 Resource seeking

2.1.3 Efficiency seeking

2.1.4 Strategic asset seeking

Figure 1: FDI motive and conversion (own illustration, 2017)

2.2.1 Ownership-specific advantage

2.2.2 Location-specific advantages

The second constituent of the eclectic paradigm is location-specific (L)

2.2.3 Internalization advantages

The last constituent of the electic paradigm is internalization (I) advantages.

2.2.4 OLI factors and conversion of IJV to WFOE

2.2.4.1 Ownership-specific factors

There are several definitions of ownership-specific advantages. According to

2.2.4.2 Location-specific factors

2.2.4.3 Internalisation-specific factors

Kusluvan (1998, p. 175) describes that internalization advantages refer to the

Ownership Factors Location Factors Internalisation

Figure 2: OLI Factors and Conversion (own illustration, 2017)

Ownership factors Location factors Internalisation

3.1 Deductive approach

3.2 Qualitative research

3.3 Research design

Company Information Interview

3.6.1 Primary Data

1. Firms that are interviewed in this study must be based in Sweden.

2. Companies must operate at the present time.

3.6.3 Secondary Data

Concepts Interview Questions Reasoning

3.8 Quality of research

To be able to evaluate an academic research, the two most important criterions

3.9.1 Ethical considerations

(1) “Participant will remain anonymous”

4.1.1 Description of the Company and their IJV/WFOE

4.1.2 Motives for entering the foreign market

4.1.3 Perception of OLI factors

4.1.4 Company reasons for converting the IJV into a WFOE

4.2.1 Description of the Company and their IJV/WFOE

4.2.2 Motives for entering the foreign market

4.2.3 Perception of OLI factors

4.2.4 Company reasons for converting the IJV into a WFOE