Competitor identification and entry mode analysis: case Valmet services in Mexico

Abstract

Competitor identification and entry mode choice are crucial components of a firm's entry to a new geographical market. The purpose of the thesis is to identify competitors and analyze possible entry modes for Valmet Services in the Mexican electric power industry. Ultimately, the thesis aims to answer the question: "How should Valmet Services enter the market in Mexico?"

In order to answer the research question, I start by building a framework for competitor identification and entry mode analysis in a foreign market. The aim is to create a framework that best fits the needs of an industrial service provider expanding into a foreign market. A major portion of the external analysis is understanding the Mexican Energy Reform that is revolutionizing the industry in Mexico. In addition to environmental and market factors, entry mode analysis requires knowledge on the asset specificity of the focal firm, which can be derived from comparisons made in the competitor identification analysis. The empirical study includes semi-structured interviews with professionals in the electric power industry in Mexico and a small survey of potential competitors.

The findings suggest that Valmet Services should proceed to the market in Mexico using a cooperative entry mode. All four host country specific factors point towards cooperative modes of entry. Studies have found that large market size, fast market growth, absence of legal restrictions and high environmental uncertainty all result in cooperative modes as the preferred option. Only asset specificity, which is the one firm specific factor, points towards an integrated mode of entry. Even though most firms prefer an integrated mode under high asset specificity, this is not always the best approach. In their entry to the Mexican market, Valmet Services should look for a partner that has complementary knowledge on either the market or service.