Factors influencing choice of foreign market entry methods by multinational companies in Nairobi City County, Kenya

Abstract

Multinational corporations (MNCs) have been identified as crucial in closing the unemployment gap in foreign countries, enhancing foreign direct investment, as well as increasing productivity by improving existing knowledge and skills among the workers in host nations. However, despite the significance of MNCs on the development of Kenya’s economy, Kenya's flow of horizontal FDI decreased year on year continuing a general pattern of decline since 2010. If the challenges causing a decline in MNCs foreign market entry in Kenya are not identified and resolved, future non-domestic investments by MNCs will continue to dwindle further even below the average FDI inflows in the East Africa Community which seem to have increased between 2019 and 2021. This study sought to establish internal factors that influence the choice of foreign market entry methods by multinational companies in Nairobi City County, Kenya. To achieve this, the study specifically addressed the following specific objectives: to establish the influence of the availability of resources on the choice of foreign market entry method by multinational companies in Nairobi City County; to determine how the nature of products and services affects the choice of market entry method by multinational companies in Nairobi City County, Kenya; and to determine the influence of firm size on foreign direct investments as a choice of foreign market entry method for multinational companies in Nairobi City County, Kenya. The study was anchored on Internalization theory and supported by Eclectic theory. The study adopted a descriptive research design. The study's target population was 37,300 staff members of all foreign owned as well as locally owned MNCs in Nairobi County whereby 158 participants made up the study sample size. The primary data collection tool for this study was a structured questionnaire while SPSS version 28, a computer software was used in the analysis of descriptive and inferential statistics. The findings revealed a statistically significant relationship between the dependent variable (Choice of foreign market entry methods by multinational companies) and the predictor factors (Firm size, Availability of resources, Nature of products and services). The study found that a unit change in either availability of resources or products/services or firm size led to a unit change in choice of foreign market entry methods by multinational companies in Nairobi County. The study concludes that the factors influencing choice of foreign market entry methods by MNCs varies from organisation to organisation based on form size, availability of resources and products/services. The study recommends the sampled MNCs to sustain the availability of resources to enhance on the choice of foreign market entry method by multinational companies in Nairobi City County. There is need to work on the nature of products and services for effective choice of foreign market entry method. It is recommended that the sampled MNCs in the study area re-evaluate nature of products and services which has the smallest unit change in choice of foreign market entry methods by multinational companies in Nairobi County. More emphasis is needed to enhance the firm size to build up foreign direct investments since it had relatively higher influence on choice of foreign market entry method for multinational companies in Nairobi City.