Reconfiguring the Silk Route - A new paradigm for market entry analysis in emerging markets?

Abstract: Emerging markets have in recent times been acknowledged as an important source of future economic growth. However, in their locational decision making applied to investments in these markets, foreign companies are often faced with difficulties. Following a focus on transaction cost parameters when studying sub-national conditions, companies make incorrect decisions with regards to point of entry and expansion within an emerging market. Leading business advisers have recently highlighted the need to also consider the sub-national institutional conditions when analysing these markets. Despite being supported by the principles of transaction cost theory, these claims have not been verified by scientific methods. Against this background, we set out to provide a framework that assesses the claims, based on tried and tested research. India was chosen as the emerging market to study and the acclaimed CAGE framework for (C)ultural, (A)dministrative, (G)eographic and (E)conomic market analysis was the theoretical model of choice. This model, suitably amended to take theory into account was used to map sub-national transaction cost and institutional conditions in India. The model output was contrasted with the expansion pattern of 41 Swedish companies in India, and the two were found inconsistent. Reasons for why the study could not provide support to the advisers' viewpoint were deemed to arise from either (A) error in our operationalisation of the CAGE framework, (B) empirical error in chosen data or (C) error of the CAGE framework itself. Option A and B encourage future research on the topic, whereas option C would lead to questioning the validity of the business advisers' claims.