Introduction

As transnational corporations expand in emerging market economies, they find not only new opportunities for trade and investment, but also new challenges, uncertainties, and risks in countries still undergoing the long process of economic, political, and social transition. The success of transnational corporations (TNCs) depends not only on their ability to assess specific business opportunities and the viability of potential partners, suppliers, distributors, and other components of their value chains in emerging market economies, but also on their capacity to determine how effectively governments support market-oriented policies that allow domestic and foreign corporations to compete fairly, expand their market share, and increase profits.

The uncertainties facing TNCs in emerging market countries vary among nations and regions of the world. Many countries that had government-controlled economies in Latin America, Asia, Central and Eastern Europe, and Africa have undergone fundamental changes in their political and economic systems and in their societies and cultures over the past decade (UNDP, 2000). Yet, TNCs entering emerging markets face complex uncertainties that can lead to economic, transfer, regulatory, exchange rate, operational, sovereign debt, and political risks (Meldrum, 2000). Not the least of their problems is the difficulty of calculating risks associated with potential political and economic instability and adverse government policies toward business (Rondinelli, 1994a; Iankova and Katz, 2003).

Country business climate affects all aspects of TNCs' international expansion. US firms entering Eastern European countries have selected different entry modes depending on their perceptions of host country market potential and national competitiveness (Shama, 2000).