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University of Halmstad School of Business and Engineering Master International Marketing
Enterprises Internationalize with Firm-specific Advantages:
Case Study of Swedish Firms
Master’s Dissertation in International Marketing
Author: Lina Wang 850311-T
Qiong Wu 850514-T
Supervisor: Gabriel Baffour Awuah i
ACKNOWLEDGEMENT
This dissertation was written during the spring semester of 2009 in Halmstad University.
Firstly, we would like to acknowledge our supervisor Mr. Gabriel Baffour Awuah. Without his help, we could not have finished this dissertation. We benefit a lot from his advice during both seminars and personal supervisions. We think what we learned from him will be used not only for this dissertation, but also for our further study.
Secondly, we really appreciate our friends and other teachers who are so kind to help us with the completion of the dissertation. Furthermore, we also express our gratitude to the respondents of the companies that took part of this research. Thanks a lot for offering the information and knowledge to our research.
Thirdly, we want to express our appreciation to all the members in this seminar group, especially our opponents who also gave us many constructive suggestions.
Lastly, our parents have been a steady support during the whole process of our dissertation. Although they are in China, they always supported and encouraged our via Skype, mobile and MSN.
Halmstad, 2009
Lina Wang and Qiong Wu
ii
Tables of contents
- INTRODUCTION ..........................................................................................................................
- 1.1 Background ...........................................................................................................................
- 1.2 Problem Discussion & Research Purpose ...........................................................................
- 1.3 Research question .................................................................................................................
- 1.4 Delimitation ...........................................................................................................................
- 1.5 Previous Studies and Earlier Research ...............................................................................
- 1.6 Definition ...............................................................................................................................
- THEORETICAL FRAMEWORK ................................................................................................
- 2.1 Market Knowledge & Experience .......................................................................................
- 2.2 Entrepreneur .........................................................................................................................
- 2.3 Network: ................................................................................................................................
- 2.4 Technology .............................................................................................................................
- METHODOLOGY .......................................................................................................................
- 3.1 Choice of methodology .......................................................................................................
- 3.2 Choice of research framing ................................................................................................
- 3.3 Choice of companies ...........................................................................................................
- 3.4 Data collection .....................................................................................................................
- 3.4.1 Primary data .............................................................................................................
- 3.4.2 Secondary data .........................................................................................................
- 3.5 Research criteria .................................................................................................................
- EMPIRICAL FINDINGS .............................................................................................................
- 4.1 KRÖNLEINS ......................................................................................................................
- 4.1.1 Market knowledge ....................................................................................................
- 4.1.2 Entrepreneur ............................................................................................................
- 4.1.3 Network .....................................................................................................................
- 4.1.4 Technology: ...............................................................................................................
- 4.2 GETINGE ............................................................................................................................
- 4.2.1 Market Knowledge ...................................................................................................
- 4.2.2 Entrepreneur: ...........................................................................................................
- 4.2.3 Network .....................................................................................................................
- 4.2.4 Technology: ...............................................................................................................
- 5 ANALYSIS .....................................................................................................................................
- 5.1 Case Analysis .......................................................................................................................
- 5.1.1 Market knowledge ....................................................................................................
- 5.1.2 Entrepreneur ............................................................................................................
- 5.3 Network ........................................................................................................................
- 5.4Technology ....................................................................................................................
- 6 CONCLUSION and DISCUSSIO N .............................................................................................
- 6.1 Conclusion ...........................................................................................................................
- 6.2.1 Theoretical implications ..........................................................................................
- 6.2.2 Limitations ................................................................................................................
- 6.2.3 Further research ......................................................................................................
- REFERENCE ................................................................................................................................
APPENDIX 1. INTERVIEW GUIDE .............................................................................................
v
The aim of our study is to focus on the firm-specific advantages (FSAs) which allow firms to enter the international markets. In this dissertation, we try to get the idea of the role of the firm-specific advantages in the firm’s international expansion. Therefore, the purpose of our study will be to present a deep understanding of the firm-specific advantages that allow the firm to enter the international market by an investigation into Swedish enterprises.
1.3 Research question
The main research questions are as follow: How do the firm-specific advantages (FSAs) affect firm’s international expansion? Do the firm-specific advantages (FSAs) play an important role in firms going abroad?
1.4 Delimitation
This study is limited to investigating companies in the manufacturing industry context. This selection of companies delimits this study to investigating only companies which manufacture and finalize the products. What is more important is that the companies selected in our dissertation are the Swedish companies with their products selling in the foreign markets. Internationalization is a common strategy for growing firms in a small, open economy, such as Sweden.
1.5 Previous Studies and Earlier Research
The widespread interest in the firms’ internationalization has given rise to many different approaches and models to try to explain why firms enter foreign markets from different perspectives, from the macro environment to firm level. In our dissertation, we will focus on the role of the firm-specific advantages (FSA) in firms going abroad.
Rugman (1987) analyzed the structure and performance of the 16 largest industrial MNEs in Canada during the 1978-1982, when Canada was still a small, but open, economy and, from this research, he identified the FSAs of each the MNEs in the sample. He discovered that the great majority of the Canadian MNEs had FSAs in the production, distribution and marketing, and experience of resource based products; the last one is demonstrated to be the primary FSA of the set of Canadian firms. Only two of the set of MNEs possessed the knowledge or technologically-based FSAs of the typical type of U.S., European or Japanese MNEs. Furthermore, he also found that the FSAs of Canadian MNEs often built upon Canada’s country-specific advantages (CSAs).The study was based on the largest industrial MNEs in Canada thirty years ago, while our study focuses on the current companies in Sweden, including both large, publicly listed firms, and family-owned SMEs.
Kotha, Rindova and Rothaermel (2001) examined the degree to which firm-level factors lead the U.S.-based internet firms to internationalize their internet presence. Firstly, they found the intangible assets are important for the companies, especially the web traffic
and reputation, and the firm size and exposure (web traffic and reputation) affect the internationalization strategies. In addition, they found the cooperative activities influence the internationalization much more than the competitive activities. The cooperative activities can make the companies utilize their resources effectively. This indicates that the networking in cooperation activities plays an important role in exercising firms’ internationalization strategies. From this study on the U.S. internet firms, we can see that intangible assets, firm size and cooperative activities have a great impact on firms’ international operations. This study only focuses on U.S. based internet firms, while our dissertation is based on the industrial firms in Sweden.
According to the study of Andersson & Wictor (2003) and Andersson & Evangelista (2006), the main factors of firm’s internationalization are the entrepreneurs in Born Global firms. They pointed out that an entrepreneur can identify the global opportunities where others cannot, and then have to implement the global strategy within a firm. Furthermore, the studies of Andersson (2003) indicate that ambitious entrepreneurs are a key factor in the growth of the firms like the Swedish companies, which take the internationalization as an important and integrated part of the overall strategy. These studies are based on the Born Global firms and focus on analysis of the role of the entrepreneur in firms going abroad. In our dissertation, we are not only discussing the entrepreneur’s impact, but also how other firm level advantages impact on the firms’ international operations.
Rugman and Sukpanich (2006) examined interaction between the regional performance of the large multinational enterprises (MNEs), and four proxies for the firm-specific advantages (FSAs), which include firm size, knowledge (R&D), marketing ability, and industry type. They measured the regional performance of the MNEs by the proportion of intra-regional sales, and employed other variables indicating whether it is a home-region oriented firm, in contrast to a host-region oriented, bi-regional, or global firm. They found the FSA firm size is better exploited by global and bi-regional firms, but the FSA in the R&D and service sector types are exploited profitably only in the home region. Lastly, most firms do not exercise their FSA in knowledge based on its geographic reach, which indicates that firms with higher levels of R&D cannot exercise the knowledge from R&D more effectively in the home region of the triad itself. This study focuses on the FSAs impact on the intra-regional performance of the large multinational enterprises. This study demonstrates the impact of firm-specific advantages on a firm’s regional performance, while our dissertation focuses on the impact of firm-specific advantages, both on the regional performance and the international performance.
In our paper, we seek to discuss the effect of the firm-specific advantage on firms going to the foreign market in Sweden.
1.6 Definition
Firm-specific advantages (FSAs): it is generally recognized that the FSAs stem from the proprietary assets of the multinational enterprises (MNEs) that arise due to their
2. THEORETICAL FRAMEWORK
Technology -product -other dimension
Entrepreneur -characteristics -background -networking
Networks -supplier -customers -partners:distributor & bank
Market knowledge and experience
Firms’ Internationalizatio n
Figure 2.1 Theoretical Framework of Firm-specific advantages to go abroad
2.1 Market Knowledge & Experience
Doole and Lowe (2008) propose that organizational learning is one of the bases for a sustainable competitive advantage in global markets: successful global operators use the knowledge gained to assess their strengths and weakness in light of their organizational learning, and ensure they have the company capability and resources to respond to their learning, in order to sustain their competitive advantages.
One of the most frequently applied models in understanding firms’ internationaliza is the Uppsala Internationalization model, which was developed by Johanson and Vahlne (1977 & 1990). The model defines the internationalization process as a causa cycle, with the firm’s knowledge as the single explanatory variable (Johansson an Vahlne, 1990). Experiential knowledge, which can only be acquired by personal experience, is viewed as the main way to reduce market uncertainty. Experiential knowledge is seen as the driving force behind the process (Brennan and Garvey, 2009). The model assumes experiential knowledge as not only a method of reducing risk, b as a vehicle for acquiring information and for generating opportunities abroad. The general knowledge concerns marketing methods and common characteristics of certain types of customers. Market-specific knowledge concerns characteristics of the specific national market expressed as: “ … its business climate, cultural patterns, structure of the market system, and, most importantly, characteristics of the individual customer fir and their personnel. ” (Johanson & Vahlne, 1977, in Johanson & Associates, 1994, pp.57). Eriksson et al. (2000) have defined three types of international knowledge as follows: a) Internationalization knowledge (IK)—a firm’s capability and resourc engage in international operations; b) Business knowledge (BK)—competitive situations in specific markets and clients in these markets; c) Institutional knowledge (NK)—information about gover
tion
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nance structures in specific countries and their rules, regulations, norms and values.
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n, affected by current activities and commitment decision (Johanson & Vahlne, 1990).
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(1977)
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In the view of the international process model, the internationalization process is see a learning process, where previous commitment and knowledge of a market are the basis for the current learning of a market (Johanson & Vahlne, 1977). Andersen ( notes this concept of a firm’s unique knowledge (experiential knowledge) assumes a time-dependent process according to a sequence of events (as cited by Brenn Garvey, 2009). As the Uppsala model shows, market knowledge and market commitment are assumed to affect decisions regarding commitment of resources to foreign markets and the way current activities are performed. Market knowledge and market commitment are, in tur
The underlying assumption of the Uppsala model is that, as firms learn more about a specific market, they become more committed to it by investing more resources i that market. In this view, firms make their export debut when they have a strong domestic market base. The basic assumptions of the Johanson and Vahlne model are that lack of knowledge about foreign markets is an important obstacle to the development of international operations, and that the necessary knowledge can be acquired mainly through operations abroad—through experiential market knowledge. The choice of markets also occurs in stages; firms begin to export to a market tha close psychic distance, and then they expand export sales into markets that have increasingly greater psychic distance. The psychic distance is defined as: “… the s factors preventing the flow of information from and to the market. These includ differences in language, education, business practices, culture, and industrial development .” (Johanson & Vahlne, 1977, in Johanson & Associates, 1994, pp.51).
From Andersson’s model, entrepreneurs’ interpretation of other factors will influence the internalization strategy. However, interpretation is based on their knowledge and background, such as their education level, work experience and family influences. Education, training and workplace experience have been associated with the success of the entrepreneur (Bates,1997; Evans & Leighton, 1989).Different types of entrepreneurs will choose different strategies for their companies, and different strategies give rise to different internationalization decisions regarding entry modes and market choices. The entrepreneurs influence the allocation of resources in their firms, and direct resources into areas in which they themselves have a great interest and knowledge (Andersson, 2000). Andersson classified three kinds of entrepreneurs:
ever,
Internationalization can be viewed as a strategy pulled by product and production.
nationalization can be viewed as a strategy pushed by active marketing actions.
y. He prefers acquisition and merger to reduce capacity in these industries.
h
ry
a s, competitors, suppliers and so on, to illustrate the internationalization strategy.
h
rough sharing international expertise, and not being restricted to its own experience.
The technical entrepreneur’s main interest is technology, with his most important activities in strategy discussion in product and production development. How a new product can become known abroad through the international network.
The marketing entrepreneur has found a need in the market and has an idea of how to fill this demand. He is proactive in the internationalization process and is creating new channels to reach the customer. Personal preferences and networks may be more important. Inter
The structure entrepreneur acts in mature industries. He is trying to restructure companies and industries. From this perspective, internationalization is not a separate strategic goal but a consequence of the overall strateg
2.3 Network:
Focusing only on the firm’s experience individually, Johanson & Mattson (1988) added later that network factor has an influence on a company’s international activity, whic became known as the Networks Theory, and is considered to be an evolution of the Uppsala Model. A firm in its daily operations relates to several other actors, such as customers, suppliers, government, partners, agents and consultants, as well as regulato and other public agencies, which consist of the network of relationships into which a company is placed (Jahanson and Vahlne, 1990). Besides, Jansson (2007) proposed basic networks model, which contains the variables of customers, intermediarie
Johanson and Vahlne (1990) also pointed out that a company can benefit from the international experience of the partners from its network, when placed on a hig international network, and can also lead other partners to internationalization. Companies can gain th
Karlsen (1997) also stated that the relationship may enable the firms to enter new
markets at a faster rate than would otherwise be possible. As we mentioned, the Upps internationalization model above, Camuffo et al. (2007) takes the consu
ala mer-supplier interaction context into the consideration in the commitment decision.
s. However, in this part of this dissertation, we will focus on the firm-level’s network.
o
influences the companies’ current business activities (Jahanson and Vahlne, 1990).
Karlsen (1997) pointed out that for the companies, especially for the SMEs, the relationship plays a crucial role to affect the internationalization strategy. This relationship is not only for the entrepreneurs, but also for the key employee
The companies face the problem of not only establishing a new network, but als retaining and improving the old network. From the existing network, while the commitment and knowledge increase in the foreign market, this experience also
2.4 Technology
Vernon and Well (1966) firstly proposed the international product life cycle (IPLC) theory; they took the USA, the most developed, country as their example. The IPLC begins with a company in a developed country, which exploits a technological breakthrough by launching a new, innovative product in its home market. The reason IPLC starts in the developed countries is that the consumers in those countries are able to buy, and are willing to experiment with, new and expensive products (www.provenmodels.com). After the domestic market, the company starts to export technically superior goods to other technically advanced countries. The product’s design and production process becomes stable, the unit cost is decreased, as the labour and transportation costs decrease (www.provenmodels.com). After the developed countries, the products will be exported to the developing countries. Finally, the company pays attention to reducing costs rather than the addition of new product features, the production facilities will relocate to countries in which people have lower incomes. However, in the domestic markets, they also face the challenge from the products with new technologies from other countries. Thus, the company should retain the advantage of innovative technology. Doole and Lowe (2008) pointed out the product life cycles are shortening more than ever before; the reason for this is that the increasing pace of technology means that a technical lead in a product is not likely to be held for very long, as competitors catch up quickly. Thus, the company faces much more pressure to find out about new, breakthrough products as quickly as possible.
product,
r
For the international trade, technology also shortens the distance between the countries.
Secondly, besides the innovative products, technology does not just affect the but also for the other dimensions, these are what scholars call the “enabling technologies”. Doole and Lowe (2008) explain there is no single technology ; othe aspects include the e-commerce, telecommunications, information management, computer aided design, process, and inventory and logistics management. Osarenkhoe (2008) concludes that the firms also have a high dependence on the technological tools, such as how the internet can reduce the costs of transactions.
3. METHODOLOGY
3.1 Choice of methodology
Two research strategies that can be employed: quantitative and qualitative. A fundamental difference between quantitative and qualitative reasearch strategies is about the theory. Quantitative strategy is used to test the theory whereas, in contrast, qualitative strategy is employed to generate the theory (Bryman & Bell, 2007, pp 28). Epistemological orientation is another aspect by which to distinguish these two research strategies ; positivism is used in the quantitative strategy and interpretivism is used in the qualitative research. Lastly, from the perspective of ontological orientation, we should distinguish the difference between objectivism and constructionism ( Bryman & Bell, 2007, pp 28).
Positivism advocates the application of the methods of the natural sciences to the study of social reality and beyond (ibid, pp 16). Interpretivism is predicated upon the view that a strategy is required that respects the differences between people and the objects of the natural sciences and, therefore, requires the social scientist to grasp the subjective meaning of social action (ibid, pp 19). Objectivism implies that social phenomena, and the categories that we use in everyday discourse, have an existence that is independent or separate from actors (ibid, pp 22). Constructivism implies that social phenomena and categories are not only produced through social interaction, but that they are in a constant state of revision (ibid, pp 23). In this dissertation, we will employ interpretivism and constructionism. We will collect data from different companies, combine our views to describe and explain ”what, how, and why”. We also consider it is important to find out which factor is missing in previous research; new variables deserve to be taken into consideration in order to build a thoughtful framework.
Eisenhardt (1989) recommends conflicting literature, which is an important goal in this study. The case studies are mainly built on personal interviews and complemented with secondary data, such as business magazines, annual reports and internal documents. Individuals who have taken part in the decisions and implementation of the companies’ internationalization decisions can be chosen as respondents. As the topic of this dissertation is, chiefly, about the export business of companies, thus, the target respondent will be either the export director, or someone else in the marketing department who is familiar with the export business.
In this dissertation, our purpose is to have a deep understanding of the firms’ specific advantages, which allow firms from both developed, and developing countries to enter the international market. Furthermore, we will construct a new theoretical framework instead of testing a theory, based on reviewing the previous theories and studies related to our research. We also explain how the variables influence the companies to enter international markets. Thus, we decided to employ the qualitative strategy in this dissertation.
3.2 Choice of research framing
The research framing chosen in this dissertation is case study. The strengths of the theory is that it is built from cases which include the likelihood of generating a novel theory, which is testable, and likely to be empirically valid (Eisenhardt, 1989). Multiple-case study is employed in this dissertation, and this method has become increasingly common in business and management research because the researchers can compare and contrast the findings deriving from each of the cases (Bryman & Bell, 2007, pg 64).
As to the multiple-case study, Eisenhardt (1989) also proposed three tactics: First, select categories or dimensions to look for the within-group similarities and inter-group differences; second, select pairs of cases, and then to list the similarities and differences between each pair; third, divide the data-by-data source.
In this dissertation, we will try to find the similarities and differences between the samples on the four variables, which have been stated in our theoretical framework.
3.3 Choice of companies
According to the purpose and delimitation of this dissertation, the companies which are chosen as examples should be in line with the requirement as follows: the samples are Swedish companies, companies belonging to the manufacturing industry; the products have been sold in the foreign market.
Both of the Swedish companies are located in Halmstad. In this dissertation, the authors decided to employ face-to-face interviewing for the Swedish company, thus, when we chose the sample, distance and cost should be taken into consideration. With the help of webpage http://halmstad.sireh.com/, we found all the companies which accord with our requirement in Halmstad and sent emails to these companies. Eventually, two companies agreed to participate in our interviews, and they were Getinge and Krönleins.
3.4 Data collection
3.4.1 Primary data The case studies are mainly built on personal interviews and complemented with secondary data, such as business magazines, annual reports and internal documents (Eisenhardt, 1989). Individuals who took part in the decisions and implementation of the companies’ internationalization, such as CEOs, export directors, area managers, export salesmen, presidents of subsidiaries, etc., were interviewed.
The semi-structured interview, one of qualitative interview types, is used in this dissertation. This kind of interview is less structured,and the interviewee can give the researcher his own point of view, so the researcher can get rich and detailed answers (Bryman and Bell, 2007). Bryman and Bell (2007) also suggest using the interview
Internal validity means whether or not there is a good match between researchers’ observations and the theoretical ideas they develop (Bryman and Bell, 2007). External validity refers to the degree to which findings can be generalized across social settings (Bryman and Bell, 2007). The interviewees in this dissertation both work in the marketing department, and are in charge of the export business, the information they offered about the facts and phenomena are precise. After the transcript, the “member check” is used. We sent our transcripts to all the interviewees in order to find if there had been any misunderstanding. In addition, the questions we asked were consistent with the framework. In addition, because of the theories which we used to construct the framework have been tested, and trustworthy data from the personal interviews obtained, the framework and the findings of the dissertation would also be helpful to understand how the firm’s FSA impacts on the internationalization process.
External reliability means the degree to which a study can be replicated (Bryman and Bell, 2007). Internal reliability refers to whether or not, when there is more than one observer, members of the research team agree about what they see and hear (Bryman and Bell, 2007). The framework, which is conducted in this dissertation, combines several classical theories, which have been tested and researched before in each field. Moreover, in order to avoid mistakes that can happen in the interviews, both authors participated in both interviews, took the notes, and transcribed them. Field notes for collecting data are also used. Throughout the dissertation, all the parts are accomplished by both authors, which means both authors express their opinions, and after discussing them, arrive at a much more thoughtful conclusion. The authors also sent this dissertation to the English supervisor in order to avoid the grammatical mistakes, this would also help readers have a better understanding.
4. EMPIRICAL FINDINGS
4.1 KRÖNLEINS
KRÖNLEINS is the fifth largest brewery company in Sweden. It is also the oldest private family brewery company in Sweden. Krönleins has a long and strong brewing tradition stretching back about 200 years, and across six generations, and its origins were in Germany. The company’s main products are beers and ciders, which are also their main exports. In addition to beers and ciders, Krönleins also produces and sells other kinds of drinks, such as soda, juice, wine and spirits. (Henrik Lundburg, 2009)
Krönleins has developed beers that are not only highly rated by the consumers, but also by beer experts and juries in international competitions and beer quality assessments. Krönleins has, since 1990, been given five international awards that the company and brewmaster has received with great joy and pride. What makes Krönleins Brewery extra unique is that the company is the only brewery in the world that has received both the Golden medal in the Brewing Industry International Awards and the Gold prize in the DLG-Prämierung. No other brewery has succeeded in this. (http://www.kronleins.se)
4.1.1 Market knowledge As the first brewery in Sweden, Krönleins began to produce a high grade strong beer in the beginning of the1950’s. The beer was given the name Three Hearts Export. In the beginning, the strong beer was made solely for export, since beer of this strength was prohibited in Sweden at the time. Norway was the first export market of the company, and then the company entered other Scandinavian countries--Finland and Denmark. According to the export manager, Henrik Lundburg (2009), there are two reasons for the company to choose the Scandinavian countries: one is that these countries are geographically close to Sweden, and the other is that the company has the unique products for the Norwegian market and these export products were not produced in Norway.
According to Henrik Lunburg (2009) of Krönleins, the company started to sell their products in the European market such as Germany, France, UK, Belgium, Poland, Italy, Spain, Portugal, and Greece, after successfully exporting to Scandinavian countries.
Three Hearts Export products were shipped across the ocean and exported all the way to the United States, with a shipping company called Broströms Tenderservice. Krönlein also managed to sell its beer to Africa, where the bottle caps were used in a most unexpected way. The natives of the Ivory Coast were delighted with the bottle caps with the three hearts printed on them and sewed them onto their clothes as lucky- buttons. They believed the buttons protected them from evil spirits.
At present, Krönleins sells their products in nearly 20 foreign markets all over the world. According to the export director, Krönleins has entered the Asian market, China, Hong Kong, and Thailand. In addition, the company also exports its products to the South
