This article examines the entry of professional service firms, specifically the Big Six international accounting firms, into emerging foreign markets and explores how they develop and expand their business once established in those markets. The study is based on survey data (supplied by the Big Six) regarding their penetration of the People's Republic of China, the Commonwealth of Independent States, and Central Europe. A conceptual model is employed to illustrate the interrelationship between a firm's specific characteristics, the foreign environment, and foreign subsidiary intrafirm structure. Growth potential, client needs, favorable political/legal climate, and cultural considerations emerged as important factors in determining market entry and growth strategies for professional services firms. The research findings broaden our understanding of factors that influence professional services firms' development of pricing and marketing mix strategies. While all firms surveyed offered a full range of services, their marketing mix strategy differed from domestic approaches because of various local constraints on pricing and promotion.
The research model helps to illustrate the interrelationship between the domestic parent's firm specific characteristics, the foreign environment, the foreign subsidiary's intrafirm structure, and the marketing mix deployment for market growth and development. Market entry decisions were driven by the characteristics of the foreign business environment, the perceived growth potential of the local market, and client needs. Culture, which communicates through language, requires language facility that the Big Six obtain both by hiring foreign nationals and by training expatriates. Business culture is expressed in accounting, its language. Cultural considerations were very important in determining the professional services to be offered. The governmental regulatory environment influences accounting standards. As these emerging markets move from command economies to market and/or mixed economies, accounting standards must evolve and keep pace with the socio-economic changes. Foreign governments and professionals, and the Big Six that invested in these nations; indicate an interest in international standard setting trends. These governments are intimately involved in the formulation of national accounting standards, and they monitor international standard setting activities. Also, the Big Six participate in standard setting and practice development through training of personnel.
The Big Six have encountered organizational and human resource problems. Where necessary, the firms have formed joint ventures with local nationals. And they are seeking to overcome their human resource problems through hiring local employees and training them, and by capitalizing upon the knowledge, expertise, and skills of Western-trained personnel through rotation practices and policies.
The symbiotic relationship between the foreign market, the cost of doing business there, and the promotion/pricing of services is evident in the practice of some of the firms to accept smaller profit margins by charging less for services, particularly for new clients. This serves to attract new clients while, at the same time, recognizing their lesser ability to pay higher fees until better established. Despite the hardships encountered, and the difficulties confronted, the Big Six offer a wide range of services to their clients. Approaches to promoting professional services varied by market. However, trade journals and professional networking, through membership in trade and professional associations, were most prevalent. It is also clear that they intend to stay in these markets for the long haul; their reinvestment rates suggest that this is so. The study found that unlike manufactured products, professional services do not follow a traditional product growth life-cycle. This is probably due to the fact that “intangible knowledge assets” are unique to each of the Big Six firms and such capability is difficult to duplicate by competition. Successful efforts will likely be crowned with market expansion, as the model predicts.
This study is subject to the following limitations. The authors did not inquire into whether and how the Big Six differentiate among the regions and countries under study. Further, the study relies upon a survey of opinions. Responses to opinion surveys may not represent the actual actions of the firms, but what the respondents expect those actions should have been. The Big Six accounting firms are not the only foreign auditing firms operating in the three regions. There are several non-Big Six British, Dutch, French, and German auditing firms operating in these regions. The stimuli that motivate their entry and growth in these markets may be different from those that motivate the survey participants (i.e., the Big Six firms).
