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In the presence of high transaction costs due to market imperfections, it is normally less expensive for multinational corporations (MNCs) to conduct their business activities in new markets through their internal corporate structures rather than by relying on the markets. Based on a case study of Coca-Cola's entry into the Chinese market, this paper tests the applicability of internalization theory to explaining the entry mode choices of MNCs in developing countries. Internalization theory reveals the economic rationale that was behind the changes in Coca-Cola's modes of entry as it moved from franchising to joint ventures (JVs) with selected local partners, and more recently to the combination of JVs and franchising.

Based on 31 case studies, this study tests the validity of four major managerial hypotheses for manufacturers in China after WTO accession. It is argued that the skills of managers will be severely tested in four specific areas after China accedes to the WTO: (1) preparing for trade disputes with their overseas competitors, (2) developing newer and higher value-added products and diversifying their markets, (3) selecting the appropriate localization strategy, and (4) upgrading manufacturing processes and work practices to comply with international (and regional) standards, as well as being aware of overseas competitors using these standards as non-trade barriers. Managers also have to strike a delicate balance to deal with these interrelated challenges under the constraints of time and available resources.