Dissertation: The Factors that Influence Successful Internationalization of Firms in Emerging Markets: A Case Study of MTN International
October 4, 2010
Internationalization is essential in the modern world that is filled with many uncertainties. Companies internationalize because of many factors that include profit motives, costs minimization, diversification of the markets, search for new opportunities, saturated domestic market etc. the internationalization process of a firm involves many processes that are interlinked and the firm that wants to internationalize should always take these factors into considerations. The factors include the knowledge on the market, the availability of resources, the strategies to be used and the market environment.
Before a company takes on an international assignment it should plan first. Planning will help the organization not to make mistakes in its initiative. Despite the many motives of companies to internationalize and the advantages involved, there are obstacles that the company must overcome for successful internationalization this paper analyzes the internationalization process in emerging markets, the process, motives, obstacles and benefits to a firm. A case study of MTN international will be used. The study is important to every person interested in international business and companies.More…
1.1 Chapter overview
This chapter will give a highlight of the whole study about internationalization of companies. Included in the chapter are the objectives of the study, the hypothesis, the significance of the study, the study justification and a section that elaborates the methodology and the techniques that the study follows. In addition to the above, this chapter contains a small section that highlights the profile of MTN international, a company is that is taken as a case study for this study. By reading this chapter, the reader will gain a deeper understanding why conducting this study is important not only to companies but also to any person willing to venture into business.
The global market is gaining popularity and gaining importance as a market and a base for internationally active organizations and those that want to international. At the same time, there are organizations across the globe that supports the global economy because of their economical and technological importance. A look at the strategic management of international active firms reveal that investments being made in the world market are shaped by the current trends in internationalization of companies and the increased global competition.
In this research, the role of the global economy and especially emerging markets as a new and important business operation base for firms across the globe will be discussed. The analysis in the paper will focus on the reasons as to why companies across the globe are interested in emerging markets. Subsequently, the basic trends in research on the main motives for companies towards the global economy will be summarized with a particular interest in the MTN international while adding some more examples from other industries and continents.
This paper provides a new framework that is summarized basing on the drawings from the theories of internationalization (Lymbersky, 2008, Susman, 2007) with the aim of delivering a solid basis for further analysis and discussion about the various forms of international business strategies towards emerging markets. From the practical point of the research on strategic management, the theories of internationalization will be examined and applied to the research subject of companies across the globe in their business strategies. In theory, global companies can use various strategies to enter and venture into emerging markets that is indifferent countries; the export strategy, international strategy, joint ventures, franchising, turnkey projects and licensing among many other strategies. From this point, onwards, the paper will discuss the different strategies that are used by organizations to venture into emerging markets and the paper will consider the advantages and disadvantages of these strategies (Svetlicic, & Rojec, 2003, p. 104).
Organizations are recognized in various ways especially in the internationalization process which has been of much attention to many scholars, academicians and business people in recent years. Companies have played a great role in the global economy in the recent years with many of them going international or at least having the idea of internationalizing their operations. Firms have expanded their operations to international markets and use their diversification in the international market as an important tool and competitive advantage to achieve the much anticipated growth.
The study topic brings the theories that are talked about and the models into action like the Uppsala international process model, network theory and the international entrepreneurship theory as well as some exciting and interesting phenomenon of business today. In the past, academics explained internationalization of firms using stage model that followed a step by step process with the organization beginning from international activity and ending up owning subsidiaries abroad. Such case is depicted by the Uppsala model that was proposed by De Wit, 2002 in 1977 (Masum, & Fernandez, 2008, p. 8). This model has been criticized from the beginning. The initial and increased criticism from scholars led to other authors like as Andersen (1993) and Johanson and Mattsson (1988) to come up with another theory that that is known as the network theory which explains the importance of relationships and networks with suppliers, customers, contractors and other competitors in helping a firm to internationalize. McDougall and Oviatt (2000) introduced a new theory later by explaining internationalization through entrepreneurship in international entrepreneurship theory (IET).
Technology has advanced in the modern world and barriers to trade have reduced enabling the global economy to become more integrated and it is this globalization that is rapid that is enabling many organizations to internationalize in a faster manner that is more effective. Due to advanced technology, some scholars are questioning the validity of the Uppsala model arguing that the model is no longer applicable in the modern world where internationalization of firms has taken a different approach especially in companies that have taken on international new ventures. Researchers have tried to explain the internationalization of firms in a new manner and have come up with new modern network theory and entrepreneurial theory (Schmukler, & Vesperoni, 2006, p. 190).
Researchers have been debating over existing theories in the past few decades and trying to develop new theories that explain the modern trend of why and how firms internationalize. The theories of internationalization explain different processes that take place when companies expand across national borders. The theories discussed are seen as complementary and not parallel. There is a range of internationalization that has been discussed in a number of studies with many failing to explain clearly the behavior of various organizations regarding internationalization although it does not mean that the studies are not useful.
Internationalization process cannot be approached without a strategy or action plan for achieving the given organizational goals. Without a proper plan or strategy, any organization that intends to go international is bound to fail. The formulation of a strategy involves making a decision on when to internationalize, how to internationalize, and which market to enter. There are several methods that can be used to enter a market like export, joint venture, franchise, etc (Masum, & Fernandez, 2008, p. 8).
The process of internationalization involves taking risks and uncertainties and therefore, a good strategy is required to overcome the risks and uncertainties. Success internationalization of organizations has to reduce the risks involved through a good choice of the entry strategy. The management team has to take some time preparing on what is to happen by gaining knowledge about the market, the culture, etc. these factors and knowledge of the market are key elements for effective internationalization. Other factors that are important include the network of the business that will help the company to solicit for resources for the process, previous experiences in internationalization, management skills and the role of the owner in addition to government agencies, the age and size of the organization and ability to entrepreneur. Hill (2007) explains the advantages and disadvantages of the entry modes that a company can use to internationalize. Each of the entry methods as will be explained later can apply to any of the organizations regardless of the size of the firm, resource endowment, age etc (Masum, & Fernandez, 2008, p. 8).
1.3.1 Study objectives
This study is not aimed at asserting the already written and existing literature on the internationalization of organizations nor does it intent to set a new way that is right but it investigates the extent to which internationalization has taken place, strategies taken, obstacles and benefits of internationalization to the organization. The dissertation will use the research methods that are used in libraries and other literary materials that are necessary for the research in addition to the records that are found in the archives of MTN international.
This study seeks to fulfill the following objectives:
- Find out the strategies that are used in internationalization of companies in emerging markets;
- Investigate the obstacles that an organization can realize in its effort to internationalize in an emerging market;
- Establish the relationship between internationalization in emerging markets and the performance of an organization.
1.3.2 Significance of the study
This study is important because it examines the internationalization of companies in emerging markets and the impact that internationalization process has on the performance of those companies. Many companies always start to venture into foreign markets without prior knowledge on the market and the climate in the new market. Also, many companies that fail on attempts to internationalize their companies do not know the right strategies to use neither do they know the exact benefits the company is to get after going international. This study will be important to all those companies that would like to international because the companies will be equipped with the necessary knowledge for the exercise.
1.3.3 Study justification
In addition to the above, this study is important to the company of MTN international because it will help the company reevaluate its strategies that it uses to capture other markets apart from what it currently has given the advanced technology in the world. The research will help the company to know the strategies that its competitors are using to penetrate the market and the dangers the competitors pose to its business operations, thus it can change. Lastly, the study will help the company to know the trends of internationalization in emerging markets and the ability to also venture into such markets.
1.3.4 Scope of the study
This study is centered around the investigation of materials in text on internationalization of companies, the strategies, trends and obstacles that the companies face in their trial to venture into international markets. More over, it will investigate the strategies, obstacles and benefits of internationalization in MTN international. The reference materials will comprise of books, journal articles and reports from the archives of MTN international.
1.3.5 Key issues to be considered
The vital issues that this dissertation will consider will be centered on internationalization of companies and they include issues like the strategies used in internationalization, the obstacles and the benefits of internationalization in MTN international and internationalization in emerging markets, the trends, factors driving internationalization of companies and the benefits of internationalization.
1.3.6 Research questions
This dissertation is about internationalization of companies and will answer the following questions:
1. Determine the reasons for internationalization of companies, strategies used, obstacles and benefits derived from internationalization.
2. Determine the link between internationalization of an organization and the performance of the company.
3. Establish the attitude of the management of MTN international towards internationalization.
1.3.7 Study hypothesis
This dissertation deals with internationalization in the company of MTN international and internationalization in emerging markets. The dissertation seeks to fulfill the hypothesis that there is a positive relationship between internationalization and the performance of an organization. Therefore, it is expected that any organization that undertakes in the internationalization process will benefit rather than suffering some consequences that are related to internationalization.
1.3.8 Limitations of the study
This research does not lack limitations just like other studies. The limitations of the research emanate from the challenges that the researcher faced while conducting the research. Some of the sources of the challenges were from collection of data. The following are some of the limitations of the study;
· The questionnaires that were used contained only ten questions that may not have exhausted the whole material concerning the research topic although a thorough screening was done.
· There may be some subjectivism from the research because the conclusions that were made in the research were made solely from the findings from the answers from the questionnaire.
· MTN international is just recovering from the global recession that has affected many countries that the company operates in. Therefore, it may be difficult to judge the exact benefits or obstacles of internationalization.
· This research will base its findings on the answers from questionnaires that were filled by management in MTN international and not any other multinational company. This may also be a source of subjectivism for the dissertation.
1.4 Targeted group
This study is relevant to both academicians and business groups and people who will make use of the implications and results that the dissertation will provide. All those people in academics will gain an understanding of the internationalization process and strategies in emerging markets while the business people and groups will gain an understanding of the strategies that were used by other organizations to internationalize in emerging markets, the obstacles they faced and the benefits that they gained after internationalization. In addition to that, they will gain an understanding of the theories of internationalization discussed in this research and their application in the internationalization process with a specific case of MTN international.
1.5 Structure of the thesis
This dissertation is divided into five chapters that are; the introduction, the literature review, methodology, data analysis and findings and recommendations and conclusion. These sections of the study are highlighted below;
Introduction: this part of the dissertation contains the introduction, the background description of the research topic, the research questions, objectives of the study, significance, and the limitation of the study.
Literature review: this chapter reviews the on the research topic of internationalization in emerging markets. The chapter will highlight the strategies that are used in internationalization, factors that influence internationalization, the obstacles, theories of internationalization (the Uppsala model, the network theory, and the entrepreneurship theory), internationalization in emerging markets and the benefits that organizations derive from internationalization. The chapter concludes by giving a conceptual framework of the study.
Methodology: this chapter will give an explanation of the objectives of the study, the approach taken by the research, the strategy and the data collection methods (questionnaire).
Data analysis and presentation: this part of the dissertation will give a detailed analysis of the findings of the study. The responses from the research questions will be analyzed in detail. The findings are very important in fulfilling the hypothesis of the study.
Recommendations and conclusion: this section of the study will give the findings and recommendations for further studies. The study will be briefly concluded with further research topics being given.
1.6 MTN international
1.6.1 Company overview
MTN international is a multinational telecommunication company that is based in Africa. The company was incorporated in South Africa in 1994 as M-cell and it bought 25% of MTN holdings. The company was converted into a public company in 1996 after it bought 60% of the M-Tel and it was then called MTN service provider. The company bought M-Tel and started extending its operations in Africa between 1997 and 1999.
The company operates in several countries in Africa with its headquarters in South Africa. MTN group ltd is a leader in communication service provisions and offers cellular access to network and business solutions. The company is listed in South Africa on the JSER under industrial telecommunication sector. The company was launched in 1994 as a multinational telecommunication group operating in 21 African countries and in the middles east. The company operates in the following countries in Africa; Botswana, Cameroon, Côte d’Ivoire, Nigeria, Republic of Congo (Congo-Brazzaville), Rwanda, South Africa, Swaziland, Uganda, Zambia, Benin, Ghana, Guinea Bissau, Guinea Republic, Liberia and Sudan among many other countries in middle East.
Vision: the vision of MTN international is to be the best leader in telecommunication in emerging markets. The vision of the company is based on three pillars of diversification and consolidation, leveraging the footprint of the company and intellectual capacity of the company and evolution & convergence. The vision will ensure that the company maintains a competitive advantage in the market over its competitors (Company report, 2008, p. 1).
Objectives: there are certain objectives that are important to the company and must be met for the company to meet the dynamic high growth nature of the industry as well as enabling the company deliver high quality services to its clients. The objectives are based on the maximization of profits, minimization of costs and corporate social responsibility.
1.6.2 Company products
Being a telecommunication company, MTN International deals mainly in telecommunication products. The company provides a number of services that range from communication through calling and messaging, mobile banking services and TV services. The company specializes in innovation, marketing and corporate social responsibility. These products target a diverse market that is distributed throughout the countries that the company operates (Masum, & Fernandez, 2008, p. 8).
1.6.3 Motives of internationalization
The company decided to internationalize in Africa as one of the emerging markets because it had the motive of gaining more profits to add on what it used to get from the domestic market. This could be achieved by the ability of the company to gain access to a vast market in the markets that it internationalizes. Also, the company could reduce its cost of operations if it manufactures products in larges scale. The economies of large scale production end economies of scope would help the company realize its objective of cost minimization. Lastly, the company internationalized in order to exploit the opportunities that would emerge in the emerging markets. Through exploitation of such opportunities, it will realize more effective performance hence establishing its competitive advantage with ease.
South Africa and Africa in general is an emerging market because of its economic performance. The market in Africa is competitive and that is why MTN international ventured into these markets. The company ventured in these markets in Africa using international strategy where the company started by purchasing shares in local companies. For example in 1994, the company which came as M-cell bought 25% of shares in MTN holdings in South Africa. In the following year, it became a public corporation after buying 60% of shares in T-cell. In a bid to expand and internationalize in other African countries, the company used to acquire licenses from the local licensing company or board and then beginning to operate. The strategy that is mostly depicted by the company’s expansion activities especially in the beginning is the internationalization and joint ventures through mergers and acquisitions because the company merged with T-cell and M-cell.
The use of the above strategies helped the company to establish its competitive advantage in operations in the subsequent markets. The company continued in acquisition of the various companies in South Africa enabling it to be listed in Johannesburg securities Exchange (JSE). Despite the use of these strategies, there are other strategies that were and are still at the company’s disposal and it can employ any of these strategies in its future ventures. They are discussed below:
Export strategy: this is the strategy where the company can produce products and export products to its targeted emerging market. If at any on time the company begins the manufacture of mobile phones, it can start exporting them to the company’s targeted market in Africa. This strategy is good because it will enable the company to sell its products from a centralized point like Johannesburg in South Africa. However, this strategy may be expensive for the company if there are other locations in its markets where it can manufacture its products cheaply (Masum, & Fernandez, 2008, p. 8).
Franchising: this strategy can be used by the company if it needs to establish a long term relationship in a market. MTN international can decide to offer local companies license over its specific technology and start reaping from the profits gained by the local company in the market. In exchange for the license, the company can receive loyalty fee. This strategy is good for the company if it wants to establish long term investment in the market over a short period of time, otherwise, the company may realize low control of quality of its products and services.
Turnkey projects: this strategy can be employed by the company if it can acquire tenders in its market to construct network booster and develop some devices that are related to telecommunication. By acquiring tenders, the company will get an opportunity to understand the market and get the ability to make a decision on the best strategy to enter the market. However, this method is not the best for the telecommunication industry and is good for construction companies.
Joint ventures: this is one of the strategies that have been used by MTN international in penetrating markets. Through this strategy, the company managed to establish merge and work jointly with T-cell and M-cell after purchasing 25% and 20% share respectively in each company. The use of joint ventures enabled the company to gain a deeper understanding of the African market therefore allowing it to make further advancement into other African markets. The company was in a position to network and establish relationship with other operators, consumers, suppliers and contractors in the African market that enabled the company to grow by expanding its market operations.
Joint ventures that were used by the company are beneficial to the company because they enable the company to establish networks and gain an understanding of the market thus making further investment in the market. However, this method is did not allow MTN international to have total control of the company due to co-ownership.
Licensing: this is the method where a firm can lease its technology or asset to another company to use it in business but over a short period of time. The company that leases out its technology or asset receives a loyalty fee from the license. This type of strategy is common with pharmaceutical companies that usually lease specific technology to other companies in other countries. Though this technology is good, it could not be applied by MTN international since the company did not have any specific expertise or technology that it could lease it out to other organizations in other countries (Aykin, N 2005, p. 256).
These strategies that were used by MTN international are compatible with the theories of internationalization. Through the use of joint ventures, the company was able to network with suppliers, consumers, contractors and other players in the market. This networking and interaction enabled the company to have a deeper understanding of the market and thus invest more in the market which in line with the networking theory that is discussed later (Aykin, N 2005, p. 256).
1.6.5 Obstacles to internationalization
The entry to some of the countries was not easy. The diverse cultural background of the African societies made it quite difficult for the company to effectively internationalize. It was not easy to access enough information and knowledge about the markets. Also, internationalization was faced with difficulties of resources. It could not be possible to internationalize in all potential markets at once due to inadequate resources and uncertainty about the future of business in the market. More over, the inadequate knowledge about the markets coupled with wrong strategy led to the long internationalization processes in some markets.
Emerging markets: these are markets in nations that are experiencing rapid economic growth and industrialization. Emerging markets in the world are several and they include markets like China, Brazil and India which are the largest emerging markets. These markets contain a lot of opportunities for firms (Mitgwe, 2006, p. 91).
Internationalization: according to Welch and Luostarinen (1988, p. 25), internationalization is the process in which companies increase their involvement in international operations. Other scholars define it as the process by which organizations become aware of the direct and indirect influence of international business transactions on the organization’s future and the ability of the company to establish and be in a position to conduct transactions with other countries across the world (Masum, & Fernandez, 2008, p. 11).
Strategy: this is the determination of the long term goals and objectives of an organization and adopting the right course of action and the allocation of the necessary resources to ensure that the goals and objectives of the organization are achieved. Strategy employed by an organization in includes making of decisions, actions or plans that will enable the firm achieve its goals.
International entrepreneurship: According to McDougall and Oviatt (2000, p. 903), entrepreneurship is the combination of innovation, proactive and behavior of risk taking that crosses countries and creates value in an organization. It has also been defined as the discovery, the enactment, evaluation and the ability to exploit opportunities that exists across borders of nations in order to create goods and services for the future (McDougall and Oviatt, 2000, p. 903).
1.8 Chapter summary
This chapter has highlighted the overview of the dissertation with an emphasis on the various sections of the study. The chapter has introduced the dissertation by giving background information on the internationalization. Also included in the chapter are the objectives and the research questions in addition to the hypothesis of the study. The limitation of the study has been explained and the people that the study will benefit have been given. The chapter ends by defining several terms that are of importance to the study.
CHAPTER TWO: LITERATURE REVIEW
2.1 Chapter overview
This chapter reviews the various literatures that have been written concerning internationalization in emerging markets. The chapter explains the various theories of internationalization, motives for internationalization in emerging markets, the strategies that are used, the process and the benefits that firms gain from internationalization. There are several obstacles that are explained in the chapter that organizations face as they try to internationalize. The chapter ends with the conceptual framework of the literature review on the research topic.
2.2 Concept of internationalization
Internationalization of organization is a concept that is increasing in the modern world with many organizations in developed and developing world embracing the opportunity to go international. Exports and imports have increased in importance to the economy and it is important for companies to invest. There has been increase networking of suppliers, consumers, technology developers and researchers creating a higher degree of interdependence. Costs, competitive advantages, politics and changing markets are the reasons behind these networks. According to Masum, & Fernandez (2008, p. 11), internationalization is the process of availing good and services to markets that are outside the country of origin or the country where the good are manufactured or the location of the company. This process is possible through the use of technology and effective communication which are advanced today and allow the labor and technology to be flexible and stretch across countries (Bell, Crick, 2004, p. 35). Companies go international in the bid to compete for resources that are limited and depend on the global economy to provide them with the necessary market for their products. Internationalizing organizations must be in a position to deal with the rules and regulations that have been put in place in foreign countries that they operate in addition to showing the ability to deal with the fluctuation of the currency and the conflicting policies (Bell, Crick, 2004, p. 43).
While going international, organizations need to consider their own internal structure. The role of governments of other countries that the organization needs to operate in and the mode of operation in the new foreign market also needs to be considered before internationalization undertaking. Political situations of the country and the labor availability should also be considered (Ubreziova, Bujnakova, & Majorova, 2009, p. 398).
Successful internationalization of organizations requires that an organization does several things that include and are not limited to; making a thorough analysis of the location, acquisition of the site for internationalization where possible, building of the brand and position of the firm in the local market, Managing the alliances or partnerships, having a clear and consistent focus on investment, and having a continuous management team to drive international growth (Javashree, & Al-Marwai, 2010, p. 308).
2.2.1 Theories of internationalization
There have been very many theories addressing internationalization of firms in different ways. Adam Smith talked of absolute advantage basing on the classical economics thought, (Mitgwe, 2006, p. 109), while David Ricardo came up with his argument that Adam Smith was not right and came up with competitive advantage. However, not all theories are applicable to the case of internationalization of organization but they compliment each other in enabling one understand internationalization of firms (Masum, & Fernandez, 2008, p. 18).
220.127.116.11The Uppsala Internationalization Process Model (U-Model)
The Nordic incremental school put forward the U-model. The theory was first developed by Wagner, (2009) as they were studying Swedish firms. In their model, they observed that firms internationalized by following a series of incremental steps (establishment chain). This theory was refined later and it puts its focus on four aspects that a firm should encounter as it internationalizes. These include the knowledge of the market and commitment, commitment to making decisions, current activities that are divided into stages and change aspects (Wagner, 2009, p. 318).
The resources that are committed to foreign market from the state aspects as the market knowledge and commitment will affect the opportunities that the firm faces encounters in a foreign market. The knowledge of the market will help the management of the firm to succeed in its venture to internationalize. There are two types of knowledge; objective knowledge that can be transferred from one market to another and experimental knowledge that is gained through experience. Change aspects result from state aspects. The theory goes ahead to argue that once the organization is familiar with the market, it can now go ahead and plan and execute the current activities to commit itself in the market Wagner, (2009, p. 320).
This theory assumes that the knowledge of the market and the commitment to the market affects the decisions to commitment and the way decisions on current activities are formed. This will in turn change the knowledge on the market and the commitment to be accorded to the market. The commitment of resources in foreign markets affects the knowledge of the company about foreign market (De Wit, 2002, p. 214). Step by step growth means that organizations begin their internationalization process in the markets that are near and have less psychic distance. Psychic distance refers to the factors like cultural differences, language differences, and political systems etc. firms that do not have exporting links with the market will begin exporting products to the market through an agent or they can also enter the market through joint ventures and other modes (De Wit, 2002, p. 214).
18.104.22.168 Network theory
The first theory of U-model has received challenges from network theories in recent years. Network theory argues that today’s modern organizations do not exhibit incremental (step-by-step) process of internationalization but rather, they internationalize faster through the help of the resources of networks partners (Mitgwe, 2006, p. 109). All firm in the market are presumed to be embedded in one or more networks via linkages to their suppliers, contractors, customers, etc. (Johanson & Mattsson, 1988, p. 263). As defined by Masum, & Fernandez, (2008, p. 22), a network is a set of two or more interconnected business relationships in which business organizations relate to each other by exchanging things like information and ideas and goods (Masum, & Fernandez, 2008, p. 22).
According to Andexer, 2008, p. 265), networking is a source of information about the market and knowledge which are acquired in the long term when there is no relationship with the host country. Thus networks act as bridging mechanisms for internationalization (Mitgwe, 2006, p. 109). The network theory put its emphasis in the ability of parties involved coming closer using information acquired b the firm through an establishment of a close relationship with customers, suppliers, distributors etc. the relationship created is based on mutual trust, commitment in the market and knowledge on the market (Mitgwe, 2006, p. 109).
According to (Andexer, 2008, p. 263), in foreign markets, firms usually establish and develop their position in the market in relation to their competitors. Before internationalization, firms involve themselves in domestic networking to establish relationship in a foreign country. The position of the company in a local network is important since it shows the ability of the company to mobilize resources in the network. Thus all firms are related to other firms whether local or international (Muhlbacher, Leihs, & Dahringer, 2006, p. 5). The company coordinates its operations with the other actors in the market in a manner as to make profit from the activities and relations. Coordination in the market comes from the interaction of the firms in the network with price being one of the major factors influencing decisions. It is hard to imitate the ties that result from the network of a firm. The ties affect the organization in three ways which are referrals, timing and making available the information to the company (Masum, & Fernandez, 2008, p. 23).
22.214.171.124 International Entrepreneurship theory (IET)
This theory is about the trend and behavior observed internationally concerning entrepreneurship with a major focus on how companies discover, enact, analyze and exploit opportunities in the production of goods and services. According to Masum, & Fernandez, (2008, p. 25), entrepreneurship is one of the most common forms of internationalization as the entrepreneur has the knowledge on how to measure the opportunities in the market with the ability to create relationships that are stable with other organizations, consumers, suppliers and contractors in the market (Sauvant, Mendoza, & Irmak, 2008, p. 655). The entrepreneur should be objective and a risk taker and should be able to commit resources in a more efficient manner in order to attain competitive advantage for the company. In this theory, the entrepreneur needs to seek opportunity in other countries and exploit ay new opportunities that may arise in the market (Sauvant, Mendoza, & Irmak, 2008, p. 658).
2.3 Drivers of internationalization
Companies go international for various reasons that vary from one organization to another. Some believe that the global economy offers better economic value than the local economy.
Profit: many organizations internationalize with the motive of increasing the profits of the company and reduce costs. This objective of an organization to internationalize can be realized if the company can access a large market and utilize the opportunities in the market so that it can benefit form economies of scale and large scale production. These economies will help the company reduce its costs and increase its revenue (Perkins, 1997, p. 259).
Opportunity: there exists opportunities in some countries across the globe that have an opportunity for growth of a company due to the growing economy. The growth of the economy means that consumers in the country will have the ability to gain purchasing power with time and the products of the company will be bought at an increasing capacity. A good example is the Chinese market that has realized economic growth with the possibility of the large population acquiring purchasing power with time (Muhlbacher, Leihs, & Dahringer, 2006, p. 9).
Band wagon effect: this is a situation whereby the company decides to venture into the global market because its competitors in the industry or other industries are doing it. Such kind of internationalization might be good for the company if it uses the opportunity well and maximizes of the potential available. However, care should always be taken not to venture into foreign market blindly (Perkins, 1997, p. 260).
Global Markets: many organizations have become aware of the potential capability of gaining much revenue from the world market. Therefore, organizations attack their competitors using revenue earned from foreign markets in order to protect the local market that is more competitive.
Shifting cost priorities: the costs of manufacturing are driven by flexibility, quality of products, responsiveness of customers, required skills and the control processes. Labor costs are no longer given much consideration in the choice of locations of an organization. Therefore, companies internationalize because of low costs experienced in other international markets apart from local market.
Technology has gone global: there are many sources of new technology across the world and there is no dominance of the U.S as the only source of technology to manufacture. There are many countries that have cheap human resource and scientific infrastructure for the development of research and development of technology. Therefore, it is easier for companies to internationalize since the costs involved with technology are low (Muhlbacher, Leihs, & Dahringer, 2006, p. 10).
Complex international and political environment: the exchange rates are more flexible today than before and there are no high tariffs charged on imported products thus influencing a lot of direct foreign investments in other countries. These forces coupled with political stability have increased chances of internationalization of organizations.
Saturated home market: there are too many domestic manufacturers in a country making the domestic market saturated and too competitive for many companies. Therefore, companies internationalize to compete in the foreign market that is less competitive and profitable to protect the local market operations. A good example is the Japanese departmental stores who ventured into other markets like the Chinese markets due to saturated market at the local level (Muhlbacher, Leihs, & Dahringer, 2006, p. 11).
2.4 Methods of internationalization
Many organizations internationalize their operations using various methods with a need to be successful in their ventures. For success to be realized, the strategies that the organizations use should incorporate the following factors in order to increase their chances of success (Coviello, & Munro, 1997, p. 401);
· Development of managers that have a broad understanding of foreign markets and international competition as well as the technology and knowledge that is required by world class manufacturers.
· Construction of corporate intelligence on international markets, development of technology, strategies that are used by the competitors, the demand of the consumers and the political changes as a requirement for pursuing investment and sharing of the global market.
· Competitive capabilities should be strengthened. They include the technological know how, skills and products that provide competitive advantage for the organization in the global market and it is difficult for the competitors to imitate.
· Establish a strong relationship between the suppliers, researchers, technology developers and producers in order to leverage on the in-house resources while making the use of outside resources and absorbing expertise from outside to strengthen the competitive capability of the organization.
· Increasing commercialization of new technologies through improved access and utilization of external technology as the organization integrates the product and process design and engineering (Coviello, & Munro, 1997, p. 402).
In addition to the above, there are three decisions that the management of the organization needs to consider before internationalization of the firm;
· Which market: this should be the one market that is big and more attractive to the firm and that the firm will seek a balance between costs, benefits and the risks involved.
· When to internationalize: this can be either a first mover or later entrants. First movers are those organizations that enter the market before any other organization of its kind does so. Later entrants on the other hand are those firms that enter a market after other firms of their kind have entered. First movers act as pioneers in the market and may end up experiencing high costs of entry.
· The scale of entry: a company can enter the market as either large or small depending on the involvement that the management is willing to commit to international market. Large scale entry means the firm will invest much of its resources and will enter rapidly and start immediate involvement in resources.
After the above three issues have been decided upon, a company can now internationalize using the following six methods (Hill, 2007, p. 486-497). Each of the entry modes have advantages and disadvantages that the management of the organization has to choose from as it internationalizes.
These are mainly the strategies that companies use to venture into foreign markets. According to Donaldson & O’Toole (2007, p. 15), there are six strategies that many firms use in internalizing. The strategies are; export strategy, international strategy, multi domestic strategy, the global strategy, transnational strategy and collective strategy. All these strategies have advantages to the firms that use them. The use of each strategy will depend with the extent to which a firm wants to realize cost effectiveness (‘Donaldson, & O’Toole, 2007, p. 15).
2.4.1 Strategies / methods of internationalization
Export strategy: many firms begin their internationalization process as exporters of their products to the countries they wish to operate in (Venzin, M 2009, p. 450). Good examples of exporters are the Japanese firms that started exporting their products to the Chinese markets. Organizations that use this method to internationalize usually experience advantages of not having to develop manufacturing firms in the country of destination and also the company will experience curve effects which will translate to reduced costs for the organization. According to (Benton, C 2004, p. 566), an organization that manufactures its products from a central location and then exports it will realize economies of scale resulting from large scale production (Levine, & Schmukler, 2005, p. 75).
Contrary, exporting as a method of internationalization has several drawbacks that an organization may experience. To begin with, it may turn out to be expensive for the exporting company to manufacture its products in its home town when there are other manufacturing centers in the country of destination that are cheaper (Buckley, 1999, p. 492). In addition to that, transportation costs can make exportation uneconomical especially when transportation costs between the two or more countries are high. Also contributing to high exportation cost are high tariffs in the country of destination. Thus, it may be expensive for a company to export products to countries that have high tariff and transportation costs. It is better for the company to manufacture its products from the country rather than export (Buckley, 1999, p. 493).
International strategy: this is one of the most common strategies that are employed by firms to internationalize their operations. Through this strategy, organizations create value for their products by transferring valuable skills, qualifications, technology, and products to foreign countries and establish centers for production (Harzing 1999, p. 410). Many Japanese firms have used this strategy to sell their differentiated products to china as new market. Many organizations centralize their production activities and technology and only export differentiated products. Sometimes, an organization can have its technology and qualified staff sent to manufacture its products abroad. However, the parent company remains with more control over the newly established company. Internationalization using this strategy is good if the companies in the foreign country in which the company internationalizes are less competitive. However, when pressure from local firms is high, the company may face many problems and even driven out of the market.
Franchising: this is similar to licensing only that it is for a longer duration of time while licensing is only for a short period of time. According to Masum, M & Fernandez, A (2008, p. 17), franchising is the right that a firm acquires from another company that allows the two companies to do particular business activities like the selling of goods and services under a given specific name. Franchising is a special type of licensing where there is an agreement to follow strict rules on how to carry out the business by the franchisee. The company that sells the franchise usually receives royalty payment that is related to the revenue of the franchise. The costs and risks of operating in the host country are some of the reasons for the selling of the Franchise by the company that owns it (Venzin, 2009, p. 168).
This type of strategy can help a company to build a great presence of the company in the entire country and world over a short period of time and at a low cost and risks (Hill, 2007, p. 492). However, one of the disadvantages of the franchise is that there is low quality control since the company is big and it differs across the world.
Turnkey projects: this is a situation where a company is expected to put up a project or equipment. Such companies obtain tenders to carry out their projects in foreign countries and in that case gain access to the foreign market. This strategy is common in construction industry, metal, petrochemical refining and pharmaceutical companies. This method of entry is very useful to organizations where the foreign direct investment in the country is limited by the government. One firm could be in possession of the resources that are required and the other firm needs the technological know-how to produce.
The contractor is the firm that handles the project for the foreign organization. It offers the client the trained personnel, the contract itself and the plant that is in full operation (Hill, 2007, p. 248). Once the project is over, the contractor will not have a long tem interest in the foreign country. The firm venturing into the foreign market will have its competitive advantage as its technology and know-how while it will also be selling it to its competitors (Masum, & Fernandez, 2008, p. 16).
Licensing: this is a method of entry that involves an agreement between the licensor and firm being licensed. The licensor grants another firm the right over intangible property for a specific period of time in exchange for a loyalty fee from the license (Hill, 2007, p. 490). Pharmaceutical firms are the common types of organizations that carry out this type of strategy where patents, inventions and innovations and rights are common. Such organizations do not deal with incurring costs of entering a foreign market. One advantage of this mode of entry is that it can be effectively used by firms that lack capital for production abroad. The strategy can also be used by a firm that wants to venture into a country that has got some restrictions. However, this strategy grants a firm scarce control over the production, marketing and the strategy that is used in development and the sale of the product. Licensing that the firm does limits the ability of the organization to coordinate activities across counties and using the revenue earned from one country to support competitive attacks in another country (Hill, 2007, p. 491).
Joint ventures: this is another type of strategy that is employed by many organizations that want to go multinational. According to Masum, & Fernandez (2008, p. 17), a joint venture is an entity that is formed by two or more firms that are independent and are working together. The firms agree on joining together to work together and share the revenue that is obtained by the resulting organization and the responsibility of managing and running the organization. This type of strategy is always seen as viable business because the companies that are involved care in a position to complement their skills. A joint venture is mainly for long term benefit and not short term and due to this, the companies that are involved are in a position to gain international recognition e.g. the provision of technology by Sony to Ericsson and the company that emerged manufactured mobile phones called Sony Ericsson and innovative designs and cameras (Masum, & Fernandez, 2008, p. 17). Joint ventures are usually made in a contract on how to carry out the roles and how to share the resulting revenue.
Joint ventures are advantageous to the organization because a foreign company can benefit from the knowledge of the host company about the market in the host country, competitive conditions in the host country, culture, language, environment of business, political and economic conditions in the host country. Also, costs and risks that are incurred in the course of business transactions are shared. In fact, in some markets and countries, this is the only way to enter such a market. Through joint ventures, an organization can overcome some risks by letting the other company controlling its technology. However, joint ventures do not allow a firm to have total control over the subsidiaries of the company both locally and internationally and it may lead to battles and conflicts about control frequently.
There are other strategies that can also be used to enter a country and make a company international. They include wholly owned subsidiaries strategy, multi-domestic strategy, and global strategy among many others. A company should always make a comparison of the strategies to use before choosing a given strategy.
2.5 Obstacles to internationalization
There are various obstacles that firms face as they try to internationalize. The obstacles are many and depend on the location of the company and its location as well as its ability to source for resources. The obstacles include the following:
Lack of policy or strategy to facilitate the process: this is a major problem especially if the market that the organization is venturing is complex and hard to understand.
Lack of financial support: internationalization requires that a company invests a lot of resources in terms of finances in the foreign market. Proper planning will ensure that there are enough funds to see the process take off and grow well. However, there are some companies that face this problem due to poor preparation or underestimation of the market. Lack of funds can lead to withdrawal and major losses (Coviello, & Munro, 1997, p. 370).
Administration inertia or difficulties: it is good that before an organization carries out an international venture to training its management that it intends to send out into foreign markets. The management is regarded as entrepreneurs who advice the company on the best markets to invest. For effective management and success in internationalization, the management should be aware of the culture, market dynamics, language, and economic or business environment in the foreign market failure of which the company may be affected by poor performance (Venzin, 2009).
Competing priorities: some markets are too good not to venture into. Such markets may contain various opportunities that all look promising for the company. Despite the opportunities in the market, the organization should always stick to one objective and venture into others after successful entry. Competing priorities can ruin the performance of the company in a foreign market if not carefully executed (Smith-Ferrier, 2007, p. 127).
Non recognition of work done abroad: some communities may not recognize the work that a company does especially if the company is a foreign company. Such markets have customers who are to loyal to their local companies that they cannot encourage a foreign investor to operate in the country. Such cases have reduced in the current days as a result of globalization though a company that wants to venture into that market should be cautious in choosing the strategy for entry.
Lack of reliable and comprehensive information: preparation of an organization is important especially if it wants to take on an international venture. Preparation requires an organization to thoroughly study the market and understand all aspects of the market. Some companies use local agents to give more reliable information about the market.
Lack of opportunities: there are markets that are very promising and very competitive. However, the market could be saturated and there will be little opportunity for expansion and growth of the company. In such markets, it will be extremely difficult for the company to succeed (Smith-Ferrier, 2007, p. 128).
Lack of understanding of what is involved: lack of understanding occurs when little time was taken to study the market and when the market is complex. Political factors can also contribute to lack of understanding (Venzin, 2009).
Insufficiently trained or qualified staff: this will be a problem especially if, the management did not take time to study and understand the market and is they did, they failed to train the employees who are to be taken abroad as expatriates. Thus employees will lack the necessary expertise and skills to handle customers in the new market (Aykin, 2005, p. 373).
2.6 Internationalization in emerging markets
As defined above, emerging markets are those markets in countries that are experiencing sustainable economic growth. Due to economic growth, these emerging markets’ consumers have the ability to consume. Emerging markets are gaining a lot of importance in the modern world because they are very appealing to conduct business in. many investments today are being made in the emerging markets. The best examples of emerging markets are China and India among others. In fact according to Donaldson, & O’Toole (2007, p. 3), in the past two decades, china has had an open door policy that enables firms to invest and operate in the market. These reforms by the Chinese government have gained momentum and have attracted many organizations but mainly Japanese firms (Donaldson, & O’Toole, 2007, p. 3).
2.6.1 Factors influencing internationalization in emerging markets
As a general question, one can ask why many companies are rushing to invest and operate in emerging markets. There are several reasons for this behavior of firms but to begin with, we can say that there has been an increase in globalization in the world that has come with increased production with markets acting as an impetus for increased production. According to Donaldson, & O’Toole, (2007, p. 4), firms internationalize in emerging markets because they want to shift parts of their value chains that are used in production to other countries that are in emerging markets. Through such moves, organizations diversify their distribution channels and stations that are used to serve and promote products (Aykin, 2005, p. 3).
2.6.2 Traditional reasons for internationalization
Resource seeking: according to Ireland, Hoskinsson, & Hitt, (2008, p. 296), resource seeking is the behavior of firms to access supplies that they use in production like energy, minerals and other scarce raw materials at a reduced costs. Many industries whose competitive advantage lies in access or control of raw material undertake international ventures with this motive. Companies that also use this motive to go international are those whose competitive advantage is mainly driven by reduction of costs by carrying mass employment of unskilled labor Gregoriou, (2009, p. 190).
China as an example has a large supply of labor that is not expensive given its population. This is one of the major reasons as to why Japanese firms are attracted to the market to cut down on production costs (Konomoto, 1997, pp.70-73). In an industry that labor costs represent most of the costs that are incurred in the production of goods and services, there are many benefits in terms of saving costs for moving companies from a high production cost region to a low production cost region. Organizations that internationalize due to this motive usually improve their gross margins (Donaldson, & O’Toole, 2007, p. 3).
Market seeking: this is the case where companies internationalize due to seeking for a larger market especially for companies that produce their products in bulk and exploit economies of large scale production and economies of scope. Some companies like the Japanese companies look for emerging markets to carry out their operations because of lack of enough market in domestic markets. The low demand could be as a result of poor performance of the economy that affects the purchasing power of the population (Gregoriou, 2009, p. 196).
Establishment of a greater presence in the market: some multinational companies internationalize in emerging markets because they want to their presence to be felt all over the market. Good examples again are the Japanese firms that manufacture products in large scale and internationalized by going to china to make their presence felt.
2.6.3 Methods of internationalization in emerging markets
The success of a firm in a foreign market depends largely on the method that the company uses to venture into that market. There are several methods at the disposal of organization that they can use to venture into foreign markets. The choice of the method depends on the knowledge that the management of the organization has about the market of venture. A company should always spend some good time trying to understand and have a deeper knowledge about the market that the company intends to venture. This will help the company avoid a rush and employment of a bad strategy that may ruin the future going concern of the company. The strategies that can be used to venture into the emerging market by any organization have been discussed earlier in the chapter but they include the following; entry as an exporter, international strategy, franchising, joint ventures, licensing and turkey projects. Others are globalization, collective and transnational strategies. Refer to the earlier section in the chapter for more details, advantages and disadvantages (Kolodko, 2003, p. 762).
2.6.4 Advantages of internationalization in emerging markets
There are several advantages that can be realized by the organization internationalizing in emerging markets. The advantages will only be realized if the motive to internationalize and the strategies that were used were right. Otherwise, the company will not realize any advantages but rather it may be driven out of competition in the market. The following are some of the advantages that can be realized by companies due to internationalization:
Increased profit margins: this is one of the major objectives of any business organization. According to Konomoto (1997, p.70-73), a company must produce products that are of value to the customer for the company to make any meaningful profit. He adds that firm can increase their profit by adding the value of the products that they produce and sell out to consumers and by lowering costs. Increased value of a product makes customers pay more for the product (also called product differentiation). The value of a product can be added by increased quality of the product (Kolodko, 2003, p. 755).
Reduced costs of production: this is another major objective of the firm. Firms minimize costs in order to increase their profit margins. Organizations can reduce their cost of productions by engaging in activities that can lower their costs of production like internationalization and operating in low costs markets. Donaldson, & O’Toole, (2007, p. 11) argues that effective production of goods and services reduces costs, while increasing value of a product of a firm through high quality that will facilitate premium pricing and increased revenue (.
Enlarged market: internationalization exposes the company to a large and diversified market. The large market enables the company to manufacture products in large scale. If the company produces high quality products, then it will be in a position to enjoy the large share of the market that will not only enable the firm to produce goods in large scale but also enjoy economies of large scale production.
Economies of scale: these are economies that are realized when a company is carrying out its production activities on large scale. Large scale production is usually realized when a company has a large, market that consumes products of the company in large scale (Luo, 2002, p. 240). The large consumption of the company’s products puts pressure on the company to produce in large scale and at a lower cost. Internationalization exposes a company to an enlarged and diversified market that enables it to produce in large scale and at a lower cost thus making more profit.
Economies of scale: These accompany economies of scale and usually enable a company to realize increased revenue. The large scale manufacture of products reduces costs of production and enables a company to realize more revenue.
Opportunities: internationalization offers an organization other opportunities to venture into other types of businesses. The opportunities that are available to an organization will depend on the competitiveness of the market and the diversity of the market. A cop any can enter the market and start operate in it in an industry but after a study and understanding of the market, the company can venture into another industry (Luo, 2002, p. 245).
2.7 Chapter summary
This chapter ha reviewed the various literatures about the internationalization process in emerging economies. The issues that have featured in the chapter include the internationalization process, the three theories of internationalization; the Uppsala model, the network theory and the international entrepreneurship theory. The strategies that a company should be carefully chose after a clear understanding of the market. The strategies are discussed in the chapter. The strategy chosen can determine the success of failure of an organization in the international market. Despite the numerous benefits that come with internationalization there are obstacles that the firm needs to overcome.
CHAPTER THREE: METHODOLOGY
3.1 Chapter overview
This chapter presents the method of data collection used in the study. The study employs a questionnaire as a quantitative tool for collecting data and the mode of selecting the sample for the study will also be discussed. In addition to these two, the chapter discusses the philosophies and methodologies of the study in addition to the strategies and perspectives of the study with the major emphasis on the strategy and approach. The chapter will justify why the given strategy or methods was chosen for this research.
3.2 Research purpose
The reasons for conducting this research can be categorized into three;
Exploratory: this is a study that deals with a phenomenon that little is known about like a new topic or a topic that is not discovered with very little research having been done on it (Yin, 2003, p. 78). Such type of study usually requires extensive research and preliminary work to be done about the topic to make the topic or phenomenon familiar. The aim of an exploratory study is to have a better understanding of the phenomenon under study because there is very little that is known about it. The achievement of this goal can enable the researcher to cover the study topic comprehensively.
As an exploratory study, the researcher will cover the topic of internationalization extensively and comprehensively hence fulfilling the given hypothesis and making suggestions for further studies. Thus, exploratory researches are good for enabling the research and the readers of the research report to gain a grasp of the idea about the study topic and for advancing knowledge by building good theories (Bryman, & Bell, 2007, p. 95).
Explanatory: an explanatory study is usually undertaken basing on the previous theories and models to explain the patterns that are related to the research topic or phenomenon and therefore enabling the researcher to answer the research questions (Yin, 2003. p. 79). An explanatory study involves the researcher formulating hypothesis and testing the hypothesis empirically in order to explain the research topic or the relationship that exists between several things. The major aim of an explanatory study is to develop relationships that are plausible between the factors that are related to the topic of study. The study uses theories to explain the phenomenon and usually focus on why questions. This research will explain the factors that influence internationalization in emerging markets (Jayaraman, Shastri, & Tandon, 1993, p. 99).
Descriptive: a descriptive study describes the phenomenon under study especially if knowledge about the topic is available. The aim of a descriptive study is to describe and learn more about the study topic especially characteristics. It describes the aspects that make up the study topic with they main focus being ‘how’ and ‘who’ questions (Bryman, & Bell, 2007, p, 96).
Although only a single aspect of the research above is fulfilled, a detailed study usually fulfils all the three purposes. The purpose of this study is to gain a better understanding of internationalization process of firms in emerging markets with the use of either one or the three theories of internationalization. There is no definitive theory that explains internationalization in emerging markets, thus the purpose of this study will be not only exploratory, but also descriptive (Etemad, 2004, p. 378).
3.3 Research approach
3.3.1 Quantitative approach vs. qualitative approach
There are two ways to approach any study, either, qualitative or quantitatively. However, a study can combine the two approaches by employing both qualitative and quantitative methods. The distinction between these two methods arises in how data is collected, treated and analyzed.
A study that is quantitative usually makes an emphasis on transforming the data quantities and the models of statistics for purposes of measuring and analyzing data. The research topics in which researchers use this method have clear idea of what they look or search for and tools like questionnaires are used to collect data. Quantitative approach has its main focus on the preciseness of data that is seen in terms of measuring data. Quantitative approach to a research involves using statistical data analyses to obtain information about the study simply because the approach is based on measuring the quantity or amount (Harvey, 2006).
On the contrary, a qualitative approach to research makes the researcher to switch his focus to gaining a better understanding of the problem of the research by giving detailed information about the main theme of the study topic. The major goal of a qualitative study is have a complete and detailed description of the study phenomenon by applying reasoning. Qualitative research involves the use of interviews and observations to collect data and there are no formal measurements involved. Qualitative approach makes the researcher understand the phenomenon understudy and be in a position to describe the whole situation as it is. The approach consists of descriptions, quotes, observations and excerpts from books and other documents (Quinn, p. 2002, p. 308).
After the above discussion, this study would like the researcher and the reader to gain a better understanding of internationalization in emerging markets and with the factors that influence internationalization in these emerging markets. Also, the researcher will gain knowledge on the various approaches that are used in internationalization, the obstacles that deter firms from internationalizing in emerging markets together with the benefits of internationalization in these emerging markets. In order for these aspects of internationalization in emerging markets to effectively tackled, the study will employ a quantitative approach to research to gather information and describe situations involving the process. This approach allows the researcher to use statistical data and measure some factors, their impacts and influence that they have on internationalization process in emerging markets.
3.4 Strategy of research
Yin (2003, 76) gives five major strategies that can be used in a research. They are; experiments, surveys, use of archival analyses, history and case studies. These strategies have there own different advantages and disadvantages and a researcher has to choose a strategy that is good for his study. The benefits derived from these strategies are based on the type of research questions used in the study, the extent of control that an investigator adheres over actual events in the field during the time of conducting the research and the degree of focus that the research employs on contemporary events as opposed to historical events.
Require control over behavioral events?
Focus on contemporary issues
How and Why
Who, what, where, how many, or how much
Who, what, where, how much or how many
Yes / No
Source: Research strategy, Harvey, 2006
This study wants to have a deeper understanding and knowledge of the process and the factors that influence internationalization in emerging markets. The study also involves investigating if the strategies and methods used fit into the three theories of internationalization and therefore, a survey and a case study will be appropriate for this research.
A case study is a strategy for the research that involves the researcher collecting and making an analysis of data from a given case. In this study, the company of MTN international has been taken as the case for study of internationalization in emerging markets. A case study is relevant to this sty as well as useful to the study in all situations that will give rise to different but relevant interpretations to the topic of study. This study only analyzes one company as a case for study although there can be many cases. According to Yin (2003, p. 78), a case is a study that is empirical in nature and seeks to investigate the unclear phenomenon. He went forth to argue there are four designs of case study and they include a two by two matrix single case study (holistic), single case study (embedded), multiple case studies (holistic) and multiple case studies (embedded). This study will employ and embedded single case study that gives an attention ta single case study for analysis. There could be more chances of comparing several cases but due to time constraints, the researcher will study factors that influence internationalization in emerging markets. A case study as the design for the study was chosen because the researcher is enabled to identify and fulfill the hypothesis of the study (Benos, & Weisbach, 2004, p. 234).
A survey is another design that the research uses. A survey is good for this study because it can be administered from any location and large sample are feasible with many questions being asked about the internationalization in emerging markets. In addition to that, the use of surveys makes the researcher employ standard questions that result in uniform definitions and responses from the respondents.
3.5 Data collection methods
It is important for the researcher to choose relevant data collections for the study because they will help him in successful completion of the study. The method that is selected by the researcher will determine how data is collected in the course of research. The various methods of collecting data will vary depending on the approach that the study is using and they range from interviews, questionnaires, observations, documentation, etc.
On the other hand, there are also primary and secondary methods of collecting data. Primary are the methods that collect data for the first time while secondary methods are those where the researcher uses data collected by other people. According to Bryman & Bell (2007, p. 10), secondary data collection methods refer to the ability of the researcher to carry out an analysis of the data that has already been prepared by other researchers. This research will use both primary and secondary methods to collect data for the study. The primary sources of data will come from the questionnaires that will be distributed to several respondents. The secondary sources will include review of both published and unpublished literature that is related to internationalization in emerging markets and reports in the archives of MTN international, while the primary sources will include the review of the findings from the responses from respondents who are from MTN international. Secondary data is easily available to the researcher as compared to the primary data which is being used mainly because the study uses a case study as MTN international (Jain, 2006, p. 376).
Despite the difficulties of collecting primary data, it is more trustworthy as compared to secondary data which come with the questions that regard its reliability and validity and the researcher has to be cautious when dealing with it. The primary data that is employed in this study was by the use of questionnaires that were filled by the top management of MTN international company which was chosen among the many companies that have internationalized in emerging markets. There were thirty questionnaires that were sent to the respondents with each questionnaire containing twenty questions. Out of all the questionnaires that were sent to the respondents, 26 were returned and the responses from these questionnaires helped the researcher understand and analyze internationalization process that the company underwent and is still undergoing and the ability of other firms to use the same strategies to internationalize in future. The researcher has gathered more knowledge regarding the factors influencing internationalization in emerging markets in relation to the three internationalization theories explained in the previous chapter (Porter, 1990, p. 452).
3.5.1 Selection of the sample
Mcneill, & Chapman, (2005, p. 226) argues that the process of sampling involves selecting elements from the study population so that by carrying a study of the sample and having an understanding of the properties of the characteristics of the subjects of the sample, it will be possible to generalize the properties to specific elements in the population. A sample is a mall section of the population and as other writers put it, it is the subset of the population. Sampling techniques that can be used in any research are many and the researcher can choose depending on the goals and objectives of the study. The use of these sampling techniques allows a researcher to choose the sample population from a subset of a large population rather than the whole population reducing the cost of the study. Concerning this study, convenience sampling was used to select the sample for the study. This involves selecting only those members of the population that the researcher deems important and available for the study. The respondents that were chosen for the study were chosen from the top management team of MTN international.
3.5.2 Design of questionnaire
The questions that are commonly used in surveys and questionnaires are usually open ended, closed-ended questions and likert scales. Open ended questions do not always give answers that a respondent can choose from but allow participants to answer freely. A good example is “How long did the process of internationalization take?” On the other hand, closed ended questions provide answers for the respondent to choose from. Likert scale questions requests respondents to respond to the question along a given continuum from the given responses. An example is; “an organization should have past experience of internationalization for a successful process” (1) strongly agree (2) agree (3) disagree (4) strongly disagree
The questionnaire that was used in this study contained questions that had the above three structures. The questionnaire is contained in the appendix 2. The development of the questionnaire considered questions that will give rise to information that is relevant to the internationalization in emerging markets.
3.6 Limitations of the study
Time was the major limitation that the researcher had. Instead of collecting data form several organizations that have internationalized in emerging markets, the study collected data only form one company; MTN international, a company that has internationalized in Africa. Also, the findings from the study are the ones that have been used to base the findings and conclusions of the study. There could be many other factors that influence internationalization in emerging markets like the type of industry, economic factors, and infrastructure, products etc of foreign country. Given the limitations of time and the little resources used, this study does not provide enough resources concerning internationalization in emerging markets though it is the belief of the researcher that it can provide a path for further extension of the study on this phenomenon (‘Harvey, 2006, p. 3).
3.7 Chapter summary
This chapter has reviewed the various strategies and methodologies that the research has used in carrying out the study. A distinction has been made concerning qualitative and quantitative methods with the study employing quantitative methods. The chapter also justified the use of case study and survey in the study with the research purpose encompassing the three purposes of study that are exploratory, explanatory and descriptive. The chapter ended by discussing the questionnaire and the types of questions that are used after analyzing the convenience sampling techniques that the study employs in selecting the respondents.
CHAPTER FOUR: DATA ANALYSIS RESULTS AND FINDINGS
4.1 Chapter overview
This chapter presents the empirical data that was gathered from the questionnaires concerning the factors that influence internationalization in emerging markets. The chapter will analyze the responses and present the findings. The chapter will begin by giving the general information that the respondents were asked about and thereafter, we shall analyze and present findings on the questions that were in likert scale format.
This part analyzes the responses from the questions that were used in the questionnaires to gather information about internationalization in emerging markets. To achieve the objectives of the study, the reliability and validity of data collected was measured. The company of MTN international is big and has several managers at the top position. Random sampling techniques was used to select thirty managers that are influential in the company and are mostly involved in decision making in the company. However, a lot of care was taken to ensure that there was proper representation. The distribution of the questionnaires was done by the researcher to his representatives on the ground to ensure that the research is completed in time.
Out of the thirty questionnaires that were distributed, only 26 were returned which represent 86.6%. the questionnaires that were used had two sections; the first section contained open ended questions that asked the respondents about general aspects of internationalization in emerging markets while the second part of the questionnaire contained likert scale questions that were analyzed basing on the scale of four that was used. All questions were analyzed except those questions that were poorly or wrongly answered. In that connection, only eight questions of the likert scale format will be analyzed together with the other general questions. The eight questions were rated using a likert scale of 1-4. The analysis that was done was based on the objectives of the study.
4.2.1 Analysis of questionnaire questions
126.96.36.199 Importance of domestic market position
There was a question that requested the respondents to rate the role that the position of the firm in the domestic market played in the internationalization of the company. The figure below shows the responses. 77% of the respondents replied that the position of the company in the domestic market was very important for effective internationalization process of the company. Some of the managers of the company that represented the company in newly internationalized markets where the market was yet to adapt to the market responded by arguing that the position of the company in its domestic market did not matter. This amounted to 22% while 11% gave no answer because again the company was yet to adapt to the market.
Despite the findings, Harvey, (2006), argues that the position of the firm in the domestic or international market matters because it affects the commitment that the organization makes in the new market. He adds that the competitive advantage of an organization in one or more nations will definitely affect its position of operation in other nations.
188.8.131.52 Reasons for internationalization
There are several reasons that can influence an organization to internationalize in emerging markets. The figure 4.2 below shows some of the basic reasons that influenced MTN international to internationalize in emerging markets in Africa. The major reasons are to gain a greater market opportunity, maximize on profits of the company and to expand and have a greater feeling of the market.
The profit seeking motive of MTN international can be described by the International Entrepreneurship Theory of internationalization which argues that the behavior and motive of a firm to entrepreneur is the basis of the ability of the firm to enter into new markets (Mitgwe, 2006, p. 370). The entrepreneurial behavior of an organization can be in form of exploiting new innovative ventures in new markets and using those new opportunities as the organization’s competitive advantage to enter into the market (McDougall & Oviatt, p. 2005, p. 218). Other motives that drove the company to internationalize are search for expansion, production of new products in the new markets, motivation and saturated and very competitive domestic market. Despite the contribution to the decision to internationalize, these latter factors contributed less to the final decision to internationalize (Casadesus-Masanell, & Ricart, 2009, p. 98).
184.108.40.206 Income from international sales
This question was asked to gauge the role of subsidiary markets in other countries in the company’s performance. The question requested respondents to give the percentage of overall international markets to total revenue earned by the company. The answers that were obtained ranged between 50% and 70% of the total company’s revenue that was coming from international sales. These results indicate the importance of international markets to the company.
220.127.116.11 Importance of strategy
Next we asked the respondents about the importance of the strategy for the internationalization process. As shown in the figure 4.6 below, very few respondents indicated that the strategy was not important to the internationalization process of the company and it can be explained by the behavior of the management of the company in the country that the mangers represented or the network theory which explains that firms may internationalize without having any strategy or methods of internationalization in place and depending mainly on business relationships. However, many of the respondents indicated that the employment of a good strategy in the process is responsible for the company’s ability to internationalize fast and become successful.
18.104.22.168 Best strategy for internationalization
The response on the question on the best strategies to use for internationalization were diverse with many of the respondents indicating that entering a market as an exporter was the best strategy because it will ensure that the company networks with the customers and will understand their tasted and preferences and thus produce products that are readily in line with consumer preferences. However, this could only apply to some industries and not others. Other strategies that were deemed important for an internationalizing company were international strategy, joint ventures, franchising and turnkey projects as well as licensing.
4.2.2 Likert scale questions
Below are the responses from the respondents regarding the likert scale questions.
22.214.171.124 Hypothesis testing
This research was conducted on the basis that internationalization in emerging markets impacts positively on the performance of an organization. This hypothesis can be tested using the response to the questions asked in the questionnaire. The means of the values for each response was obtained from the rating that corresponded to that of the likert scale. The mean weights (were ranging from 1-4) were multiplied to give rise to percentages. The weighted averages were used to test the study hypothesis that internationalization impacts positively on the performance of an organization. This is illustrated below.
4.2.3 Section 1: The motive of internationalization
Several questions in the questionnaire were about the factors and motives of internationalization including the speed, the role that previous internationalization knowledge and the position of the company in its previous market played in influencing the management to internationalize. The questions that were on this aspect included questions 1, 2, 3 and 6. A combination of findings for the four questions and values yield the following table that is used to generate the figure that follows.
Basing on the above findings, we can analyze the data by arguing that the internationalization process of MTN international was effective given the fact that 73% of respondents indicated so. The success of the process depended on the past experience of the management of the company in the internationalization process, the knowledge about the market and the position of the company in its domestic market. The three can also explain the high speed of internationalization in the respective markets. On the other hand, the rest of the respondents indicated that the process of internationalization was not effective with 17% indicating that the process was infective and 20% indicating that the process was extremely ineffective. These two negative results can be explained by the long time that the company took to enter certain markets. The long time taken for the company to adapt to the market is because of either internationalization without adequate knowledge of the at hand, use of wrong strategy to enter the market, inexperience of the employed personnel and inadequate investment of resources in the market. All these three contribute to the low speed of internationalization in the market. The responses to the specific questions are as below:
126.96.36.199 The role of Managements’ previous experience
The prescience of previous management in the management of the company is vital for internationalization. Basing on the responses, the experience of the top management of MTN international in international business had a great impact on its successful internationalization in Africa. The experience is especially important to small and medium enterprises as argued by Gozzi, Levine, & Schmukler, (2005, p. 325). As suggested by the figure 4.3 below, 8 out of 10 managers of the company had previous experience in international business.
Since the company has been very successful in the internationalization process in the many of the African markets that it operates then this study can conclude that the previous experience of the management of the company in internationalization is very important especially in the speed of internationalization.
188.8.131.52 Internationalization speed
Another question in the questionnaire was about the speed at which the company has internationalized. 11% of the respondents who happen to be form the latest internationalization ventures of the company indicated that the process was slow given the pace at which the company was picking up in their respective countries. 22% percent indicated that the speed of the company was very high while the rest of the respondents 67% indicted that the speed of internationalization was medium i.e. the speed was neither high nor low.
Basing the discussion on the Uppsala model, it is not easy to explain the speed of internationalization since the company in question (MTN international) does not seem to have a slow or a step by step process that is described in the Uppsala model. Since the speed of internationalization of the company is neither very fast nor very slow, it means that the company does not follow the Uppsala model at all (Ireland, Hoskinsson, & Hitt, 2008, p. 360).
184.108.40.206 Commitment of resources
The question on resources required the respondents to estimate the degree of commitment of resources that the company employed in its internationalization process in Africa. From the response, 78% of the respondents indicated that the company employed between medium and high amount of resources in the various markets of the company in Africa (Deitsch, & Czarnecki, 2001, p. 239).
Basing on the findings above, the company is endowed with abundant resources that enable it to invest much of its resources in a market. Through the internationalization process, the company was able reduce the psychic distance which existed before the whole process of internationalization began.
4.2.4 Section 2: Relationship between internationalization and performance
This part tested the hypothesis of the study that there is a positive relationship between internationalization and the effective performance of an organization (Jain, 2006, p. 310). In this section, there are several questions both in the likert scale and in other open ended format that related the benefits of internationalization of the company to its performance in terms of revenue. The questions that were asked include questions 5, 4, 18 and 7 among many other that related to the performance of the company. The findings above were generated from the combined results of the questions that in the likert scale (Jain, 2006, p. 310).
The analysis of the findings indicates that 67% of the respondents indicated that there is a relationship between internationalization and the effective performance of the company. Also related to these questions were the questions that asked the revenue that international ventures contribute to the total revenue of the company and the response obtained indicated that the revenue generated form international ventures ranged between 50% and 70% of the total revenue earned by the company. This shows how important internationalization can turn out to be. The effective performance of the company especially in foreign ventures can be attributed to the entry strategy that the company used in its international ventures. Most of the markets were entered by the company using the international strategy and joint ventures. In addition to the entry modes, the success can also be attributed to the plenty of knowledge the company had on the markets, availability of resources for investment, the time that was taken to strategize and plan and lastly the past experience of the management of the company on international business experience (Benton, 2004, p. 122).
On the other hand, 11% and 22% of the respondents indicated that there was little and no relationship between internationalization and the performance of the company respectively. The negative response towards the hypothesis of the study was as a result of the poor performance of the company in the international markets that the respondents represented. The poor performance of the markets was as a result of the dynamism in the market so that despite the knowledge that the management had on the market, the company could not venture into the market successfully. Also, due to dynamism of the market, the company failed to choose the best strategy and time to plan on the entry mode for the market (Patro, & Wald, 2005, p. 1676).
Apart from the revenue that the company was making in its international ventures, the respondents argued that the company was exposed to more opportunity in the international markets. According to Miller, (1998, p. 359), it is the ability of the company to embrace the opportunities that it is exposed to that will enable it to adapt to the market and perform well. In fact it is the ability of the company to embrace the opportunities that arose in the various markets that has enabled it to perform well. The respective questions are analyzed as below;
220.127.116.11 Satisfaction with internationalization
Another question asked the respondents about their level of satisfaction with internationalization. The satisfaction was to be guided by the effective performance of the company in its international ventures and its overall performance. 66% of the respondents indicated that they were satisfied about the performance of the company and would recommend the company to go ahead and venture into other markets. This response was because of the analysis of the effective performance of the company. This question was related to another that requested respondents to give their ability to quit internationalization. Many of the respondents indicated that they will not likely switch form internationalization and they gave some of their reasons as the effective revenue that a company earns form international activities as well a security to the domestic company. They argued that even if domestic market conditions worsen for the operation of the company, the organization can still make profit with international markets.
4.3 Summary to findings
The analysis of data form MTN international can be summarized by mentioning that the company has been successful in most of its international ventures. The success can be attributed to several factors that include past experience of its managers in international business, choice of a good strategy, planning, availability of resources for investment and above all availability of knowledge on the market. These factors helped the company to internationalize faster. The comparison of the above factors and the three theories of internationalization, we can say that the company employed the network theory in almost everything that it did with the entrepreneurship theory describing the ventures of the company in its ventures. Despite the criticism to the Uppsala model, it is still in use though it was heavily employed.
5.1 Recommendations and conclusion
Basing on the findings from this research concerning the factors that influence internationalization in emerging markets, this research makes the following recommendations;
* There are companies that have internationalized and have not been successful in their international ventures. We recommend that such organization should re-evaluate their internationalization strategy and see whether it is the best given the position of the firm.
* Before a company internationalizes, it needs to gather enough information about the market in question, plan, collect resources and then initiate the process. This process is inline with the Uppsala model. However, given the level of technology and the dynamic nature of the market, it is possible for a company to employ the network theory and the International entrepreneurship theories in the process (Baena, 1999, p. 15).
* It is important that a company employs management that has had some past experiences in international business.
* Depending on the prevailing market conditions, the initial resources that a company invests in an emerging market will contribute to eth effective performance fop the market. The company can invest large amounts of resources and have its impact felt in the market and therefore increasing the customer base and the speed of internationalization.
* Before a country internationalizes, it should ensure that it has grasped the domestic market because the impact created will help the company to internationalize fast.
This dissertation has been analyzing the factors that influence internationalization in emerging markets. The research focused on internationalization in emerging markets relating the theories of internationalization and the internationalization process that was underwent by MTN international. Uppsala model was the first theory followed by the network theory and lastly the international entrepreneurship theory. The three theories featured in the internationalization process though the network theory and the entrepreneurship theory was the dominant theories.
Companies internationalize for many reasons. Some of the motives that led to the internationalization of MTN international included the motive to earn more revenue from international markets, market diversification, need to be felt, search for cheap raw materials, search for more opportunities, saturated markets, among many other reasons. Therefore, other companies can also internationalize for the same reasons or even more. Internationalization process of companies in the emerging markets can take different forms that include, exporting, franchising, joint ventures, turnkey projects, licensing etc. the strategy taken by a company differ form one company to another (Harvey, 2006, p. 45).
There are some factors that are of vital importance for internationalization. The factors can increase the speed at which a company can internationalize. These factors include,; the ability of an organization having management that has past experience in international business, the position of the company in the domestic market, availability of resources, the business environment, the industry and the government policy of the foreign country. Most of these factors affect effective internationalization of a company. In fact they form some of the obstacles that some companies may experience in their bid to internationalize. Other obstacles to effective internationalization are lack of adequate knowledge to a given market and the dynamic nature of the market and loyalty of customers to their locally manufactured goods.
There are many benefits to be experienced by a company that internationalizes. Some of these benefits include; increased revenue, reduced costs due to cheap raw materials, economies of scale and economies of scopes. The revenue that is generated for international ventures can be even higher than the revenue generated in the domestic market and thus enables the company to support the domestic production. This is common in saturated domestic markets. This research is not only useful to organizations that have internationalized or would like to internationalize but it is also important to academics and business people. The readers will gain a deeper understanding of internationalization in emerging markets.
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Gender: Male Female
What is your management position in the company? _____________________________
1. How would you rate the speed of your company’s internationalization?
Very high very low
Please give the percentage ________________________________________________
2. Did the founder / owner of the company or the management of the company have any previous experience in internationalization or international business activities?
Very high None
High very little
3. How would you rate the degree of resource commitment during the initial stage of internationalization?
Very high very low
Please state the percentage_________________________
4. What was the role of formulating strategy and methods of internationalization?
Very important Unimportant
Important of little importance
5. Please rate the importance of internationalization to your firm;
Very important not important
Important of little importance
Give a percentage…………………………….
6. Which of the following best describes the internationalization process of your firm?
a) Step-by-step, risk averse, slow, cautious process
b) Use of networks, contacts and partners
c) Entrepreneurial activities of management or firm or an individual, rapid internationalization
d) Combination of the all above
7. On a scale of 1 to 4 where 1 represents ‘extremely satisfied’ and 4 represents ‘extremely dissatisfied’ How would you rate your level of overall satisfaction with internationalization?
8. How likely are you to switch from internationalization and why?
When necessary any time
9. How likely are you to recommend internationalization to a friendly organization in another industry? Do you think the chances are? Which strategies would you advise them to use?
Very good Fair
10. What are some of the obstacles that you encountered in the process of internationalizing MTN?
11. What suggestions would or advice would you give to other organizations that are planning to internationalize in emerging markets?
12. How did your company collect the information about the emerging market in Africa before internationalizing?
13. From the following entry modes which one best described the process your company used?
Exporting turnkey projects licensing franchising joint ventures
Wholly owned subsidiaries none of the above other (specify)
14. Please describe the position of your company in the market before internationalization?
15. What factors or the main motives of internationalization of your company in the emerging market?
16. What is the percentage of the total annual sales that the company realizes from international sales?
17. Could there be a relationship between internationalization and the performance of the company?
18. What other suggestions would you like internationalizations to be like in order to improve performance on businesses and industries?
Paper Author: Writer U3197