Do Strategic Motives Affect Ownership Mode of Foreign Direct Investments (FDIs) in Emerging African Markets? Evidence from Ghana

• Author: Kwarteng Amoako,Richard Afriyie Owusu,Samuel Ato Dadzie,Alphonse Aklamanu
• Date: 01 May 2018
• Published date: 01 May 2018
• DOI: http://doi.org/10.1002/tie.21852

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Correspondence to: Richard Afriyie Owusu, School of Business and Economics, Linnaeus University, Kalmar, Sweden, +46-76 7501 502 (phone),

richard.owusu@lnu.se

Published online in Wiley Online Library (wileyonlinelibrary.com)

© 2016 Wiley Periodicals, Inc., A Wiley Company. • DOI: 10.1002/tie.21852

Do Strategic Motives

Affect Ownership

Mode of Foreign Direct

Investments ( FDIs )

in Emerging African

Markets? Evidence from

Ghana

By

Samuel Ato Dadzie

Richard Afriyie Owusu

Kwarteng Amoako

Alphonse Aklamanu

The objective of this study is to examine the in uence of ownership, location, and internalization-speci c

factors, as well as strategic motives on ownership choice of foreign subsidiaries in Ghana. The authors

use a quantitative methodology in order to statistically explore the relationships between dependent

RESEARCH ARTICLE

280

RESEARCH ARTICLE

Thunderbird International Business Review Vol. 60, No. 3 May/June 2018 DOI: 10.1002/tie

and independent variables by using the logistic regression model. The analysis was based on 115

manufacturing investments made by multinational corporations ( MNCs ) from different countries in

1994–2013. The results indicate that contractual risk leads to the choice of whollymowned subsidiary

while cultural distance and country risk lead to the choice of the joint venture. In the case of the motives,

efficiency-seeking and resource-seeking FDIs lead to the choice of the joint venture. © 2016 Wiley

Periodicals, Inc.

Introduction

I n the past two decades, the world economy has wit-

nessed a rapid expansion of globalization, which has

led a growing number of firms to develop strategies

to enter and expand into foreign markets. Both expe-

rienced multinational corporations (MNCs) and newly

internationalizing firms are faced with the challenge of

choosing the best ownership mode in global markets.

The choice of ownership mode is, thus, widely regarded

as a very important strategic decision for firms in their

international expansion (Duarte & Garcia-Canal, 2004 ;

Hennart, 2015 ). According to Cui, Jiang, and Stening

( 2011 ), when undertaking foreign direct investment

(FDI), MNCs take into consideration two major entry

mode strategies: joint venture (JV) and wholly owned sub-

sidiary (WOS). Each of these modes differs significantly

in terms of resource commitment, the level of control,

and risk (Lee & Lieberman, 2010 ; Root, 1994 ). While

there is a large volume of research on international

market entry and FDI (Faeth, 2009 ; Nisar, Boateng,

Wu, & Leung, 2012 ), most of the research has focused

separately on ownership mode or strategic motive aspects

of the internationalization process of firms, with each

of the above areas incorporating the basic variables of

the eclectic model, that is, the ownership, location, and

internalization (OLI) factors. A number of authors have

examined the issue of ownership modes (e.g., Claver &

Quer, 2005 ; Cristina & Esteban, 2002 ; Yung-Heng & Yann-

Haur, 2009 ), while the issue of strategic motives has been

examined by, among others, Cuervo-Cazurra and Narulla

( 2015 ), van Tulder ( 2015 ), Dunning ( 2009 ), and Benito

( 2015 ). Nonetheless, there is a lack of research on the

linkage between strategic motives and ownership mode.

Most international business researches have tradi-

tionally been made in the advanced economies of North

America, Western Europe, and Japan. While the amount

of research on emerging markets is increasing, it has

mainly concentrated on Asia, Eastern Europe, and South

America. Research on African business is still limited

in all areas of international business, and many studies

have called for more empirical research to test existing

theories and develop knowledge and implications that

are relevant to the African and emerging-market con-

text (Dadzie & Owusu, 2015 ). There are few studies on

strategic motives of FDI to Africa (e.g., Bartels, Alladina,

& Lederer, 2009 ; Claasen, Loots, & Bezuidenhout, 2012 ;

Luiz & Charalambous, 2009 ), and ownership mode (e.g.,

Al-Habash, Mmieh, & Cleeve, 2015 ; Chiao, Lo, & Yu,

2010 ; Demirbag & Weir, 2006 ). We have not found any

studies on the link between strategic motives and owner-

ship mode of FDI in Africa. By focusing on the variables

of the eclectic model and the effect of strategic motives

on MNCs’ choice of ownership modes, we will contribute

to both theory and management knowledge of business

in the emerging African markets.

Thus, the purpose of this study is to analyze how the

selected variables under the eclectic paradigm and the

strategic motives of foreign investors have influenced

their ownership mode, that is, the decision between wholly

owned subsidiary (WOS) and joint venture (JV) within the

manufacturing sector in Ghana. This study will provide

insights toward improving general international business

theory as emphasized by Burgess and Steenkamp ( 2006 ).

Africa in general, and Ghana in particular, was selected

as a case for this study because the continent has been

at the forefront of the market liberalization trend in the

past decade (Nwankwo, 2012 ). Ghana has implemented

policies designed to accelerate the process of growth

and transformation of the economy under competitive

conditions. The Government of Ghana has put in place

incentives to encourage the inflow of foreign investment

(Amoako-Gyampah & Acquaah, 2008 ). They include

tax holidays in all sectors of the economy to ensure that

the country becomes the gateway to the West African

market of 250 million consumers. As a result of these

reforms, Ghana exhibited strong and sustained growth,

with a growth rate of 7.7% in 2010 and 13.4% in 2011,

which was the fastest rate of growth in sub-Saharan Africa

(United Nations Conference on Trade and Development

[UNCTAD], 2011 ). FDI rose from about US$20 million in

1990 to about US$2.5 billion in 2010 (UNCTAD, 2011 ).