Professional Documents
Culture Documents
D-UPPSATS
Anna Puljeva
Peter Widn
D-uppsats
Marknadsfring
Institutionen fr Industriell ekonomi och samhllsvetenskap
3. METHODOLOGY .................................................................................................................................23
3.1 RESEARCH PURPOSE....................................................................................................................23
3.2 RESEARCH APPROACH................................................................................................................24
3.3 RESEARCH STRATEGY ................................................................................................................24
3.4 DATA COLLECTION ......................................................................................................................25
3.5 SAMPLE SELECTION.....................................................................................................................26
3.6 DATA ANALYSIS............................................................................................................................26
3.7 QUALITY STANDARDS ................................................................................................................27
3.7.1 Validity................................................................................................... 27
3.7.2 Reliability ............................................................................................... 27
4. EMPIRICAL DATA...............................................................................................................................29
4.1 CASE 1 MEVA...............................................................................................................................29
4.1.1 Case 1 Data regarding RQ1: How do internal factors influence firms
choice of international market entry mode?...................................................... 29
4.1.2 Case 1 Data regarding RQ2: How do external factors influence firms
choice of international market entry mode?...................................................... 31
4.2 CASE 2 PURAC .............................................................................................................................32
4.2.1 Case 2 Data regarding RQ1: How do internal factors influence firms
choice of international market entry mode?...................................................... 32
4.2.2 Case 2 Data regarding RQ2: How do external factors influence firms
choice of international market entry mode?...................................................... 34
5. DATA ANALYSIS ..................................................................................................................................35
5.1 CASE ANALYSIS RESEARCH QUESTION 1.............................................................................35
5.1.1 Theory by Koch (2001)........................................................................... 35
5.1.2 Theory by Brassington and Pettitt (2000) ................................................ 37
5.1.3 Theory by Hollensen (2001).................................................................... 37
5.1.4 Theory by Bruhno and Schilt (2001) ....................................................... 38
5.1.5 Theory by Root (1994)............................................................................ 39
5.2 SUMMARIZATION OF FINDINGS IN RESEARCH QUESTION 1 .........................................40
5.3 CASE ANALYSIS RESEARCH QUESTION 2.............................................................................41
5.3.1 Theory by Koch (2001)........................................................................... 41
5.3.2 Theory by Root (1994)............................................................................ 42
5.3.3 Theory by Bruhno and Schilt (2001) ....................................................... 43
5.3.4 Additional theory by Root (1994)............................................................ 44
5.4 SUMMARIZATION OF FINDINGS IN RESEARCH QUESTION 2 .........................................45
REFERENCES ............................................................................................................................................50
APPENDIXES
INTRODUCTION
1. INTRODUCTION
This first chapter is intended to give an introduction through a background to the
research area. The background will be followed by the problem discussion, which will
lead to the purpose and research questions of this thesis. Finally demarcations will be
presented, followed by a layout for the rest of the thesis.
1.1 BACKGROUND
Internationalization/Globalization
According to Bender and Fish (2000) the world is in an era of globalization, and
companies are continuously affected by the competition around the world.
Internationalization is necessary because, from a national view, economic isolation has
become impossible. Failure to participate in the global marketplace assures declining
economic capability of a nation (Czinkota and Ronkainen, 2004). As businesses are no
longer limited by national boundaries and therefore organizations are performing
activities outside their home countries. Barkema, Shenkar, Vermeulen and Bell (1997)
argues that through accumulate experience in foreign markets, firms gain local market
knowledge and develop routines and process for dealing with the foreign context.
Internationalization process
Kotler and Armstrong (2001) explain the process of a companys internationalization in
five stages. These stages are (1) deciding whether to go international or not, (2) deciding
which markets to enter, (3) deciding how to enter the market, (4) deciding on global
marketing programs, and (5) deciding on global marketing organizations.
According to Kotler and Armstrong (2001) first the company has to decide whether to go
international or not. The company has to compare and evaluate the opportunities and risks
of going abroad, and whether or not they have the ability to survive on the global market.
Second, the company has to try to define their international marketing objectives and
policies, and decide upon which market to enter. Then the company must choose how
many countries to enter. In the initial stage of their internalization many companies
choose to enter either one or a few countries in order to create a deep relationship. After
selecting markets, the company has to decide how to enter that/those markets. There are
several market entry modes a company can chose from, for example export, strategic
1
INTRODUCTION
alliances and foreign direct investment (FDI). Each entry mode contains commitments
and risks as well as control and potential profits. The next stage is to decide on a global
marketing program and adjust their national marketing program to international
standards. This is a question of using either a standardized marketing mix or an adapted
marketing mix, adjusted for each new market. The final stage of the internalization
process is to decide upon a global marketing organization, most companies have at least
three different ways of managing their international activities. Generally, companies start
with organizing an export department, then an international division is created and finally
they become a global organization (Kotler and Armstrong, 2001).
Eriksson, Johanson, Majkgrd and Sharma (1997) emphasize the difficulties with the
process of internationalization. They also consider international entry as an incremental
process that begins relatively late in a firms life cycle which might warn of potentially
negative consequences of early internationalization on firm survival, this is further
supported in findings made by Johanson and Vahlne (1977, 1990).
Entry strategies
According to Osland, Taylor and Zou (2001) globalization of business has grown rapidly
in recent decades, which has in turn forced companies to develop strategies for entering
and expand their businesses into new markets. One of the most crucial strategic decisions
an international company has to make is selecting a mode for entering a new foreign
market. Entry strategies for international markets are according to Hollensen (1998) a key
strategic issue for companies in todays rapidly growing and internationalizing market.
Root (1994) states that entry strategies help to set the objectives, goals, resources and
policies in order to guide the companys international business activities to reach
sustainable growth on the international market. He further emphasizes that it is important
to realize that a companys entry strategy is not a single market plan, but a combination of
several market plans.
When companies consider entering new foreign markets they have to have a specific set
of strategic alternatives that varies by different target markets, and the different entry
mode alternatives. Managers need to consider how their company best can enter a
specific market and take into consideration the risk and environmental factors that are
associated with the different entry strategies (Deresky, 2000). The foreign market entry
selection is highly significant for the companys future performance and survival on the
international market (Ekeledo and Sivakumar, 2004). According to Bradley (2002) the
concept of market entry refers to the difficulty or ease a company face when entering
international markets. Entry is one of the supreme tests of competitive ability. No longer
is the company providing itself on familiar ground, instead it has to expose its
competences in a new area (Bradley, 2002, p.244). Furthermore, Terpstra and Sarathy
(2000) state that one of the most critical decisions in the internationalization process is
the choice of method of entry into foreign markets. This, because the entry mode decision
is a macro decision, companies do not only choose a level of involvement in the foreign
market, they also make choices about their marketing program.
Entry modes
An international market entry mode is an arrangement that creates the possibility for a
companys products, technology, human skills, management, or other resources to enter
into a foreign country (Root, 1994).
2
INTRODUCTION
Bradley (2002) states that all aspects of marketing have to be of superior performance in
order for a company to have a successful market entry. When selecting the appropriate
mode of entry, companies have to answer two questions: first, what level of resource
commitment are they willing to make? And second, what level of control over the
operation do they desire? The factor influencing these two questions is the perceived risk
of entering a new country and a new market, thus it has to be taken into consideration and
the alternatives have to be well evaluated because this will eventually lead to the entry
mode choice (ibid).
Bradley (2002) further states that once a strategy is selected companies have to select the
right type of market entry mode. The foreign market entry modes can be divided into
three groups:
Export entry modes include direct and indirect exporting i.e. selling to foreign visitors on
the domestic market or to foreign agents, distributors or a subsidiary. The difference
between export entry modes and the other entry modes, contractual and investment entry
modes, is that within export entry modes the final product is produced outside the target
market. Contractual entry modes include licensing, franchising, contract manufacturing
etc. The third group, investment entry modes, includes joint ventures, foreign direct
investment (FDI), and acquisitions etcetera (Bradley, 2002).
Furthermore Root (1994) argues that from an economists perspective, a company can
arrange entry into a foreign country in only two ways. First, it can export its products to
the target country from a production base outside that country. Second, it can transfer its
resources in technology, capital, human skills and enterprise to the foreign country, where
they may be sold directly to users or combined with local resources (especially labor) to
manufacture products for sale in local markets. From a management/operations
perspective, these two forms of entry break down into several distinctive entry modes,
which offer different benefits and costs to the company. These are:
3
INTRODUCTION
Root (1994) argues that export entry modes differ from the other two primary entry
modes (contractual and investment) in that a companys final or intermediate product is
manufactured outside the target country and subsequently transferred to it. Thus
exporting is confined to physical products. Further Root (1994) states that contractual
entry modes are long-term non equity associations between an international company and
an entity in a foreign target country that involve the transfer of technology or human
skills from the former to the latter. The third kind of entry mode is stated by Root (1994)
to be the investment entry mode, which involves ownership by an international company
of manufacturing plants or other production units in the target country. In terms of
ownership and management control (which is the distinctive feature of this entry mode),
foreign production affiliates may be classified as solo ventures with full ownership and
control by the parent company or as joint ventures with ownership and control shared
between the parent company and one or more local partners. A company may start a solo
venture from scratch (new establishment) or by acquiring a local company (acquisition)
(Root, 1994).
There is evidence that many firms develop their export business gradually (Albaum,
Strandskov, Duerr and Dowd, 1994). Several authors (Hollensen, 1998; Albaum,
Strandskov and Duerr, 1998) argues that the most common mode for entering
international markets is export. Hollensen (1998) emphasizes that this can be done direct
or indirect and Albaum et. al. (1998) states that it is often the first step of a firms
internationalization. Many companies appear to grow into international activities through
a series of phased developments. They gradually change strategy and tactics as they
become more involved. Others enter international markets after much research, with long-
range plans fully developed (Cateora, 1996). According to De Burca, Brown and Fletcher
(2004), there are various approaches when selecting entry modes for foreign markets and
these have different implications for small and medium-sized as oppose to large sized
firms. Most small and medium-sized enterprises that enter foreign markets do it in a
country-by-country basis. In this way the small actors can expand to new markets in a
suitable pace with good control over the development (ibid).
4
INTRODUCTION
Bradley, Meyer and Gao (2006) argue that many SMEs are forced to internationalize,
particularly high technology firms, due to a focus on niche markets, shorter product life
cycles and, frequently, the small size of their domestic markets relative to the potential
that exists abroad. The authors however state that these firms face a serious dilemma,
should they attempt to internationalize unaided or do they try a form of partnership with
stronger firms in their business system that can help them. The authors argue that the
primary foreign market entry mode used by small business is exporting, additionally it is
argued that this is an effect of exporting offering an effective means of
internationalization without over- extending the capabilities or resources of the firm. The
authors also stress that small firms often skip some- and/or all of the internationalization
stages as many firms must be international from the outset.
Hollensen (1998) states that if a company in the initial stage of its internalization makes a
poor selection of entry modes, it can become a threat for its future market entries and
expansions. However, there is no entry mode that can be seen as the best choice. The
selection of entry mode is different from one company to another and is influenced by a
number of factors, both internal and external to the company (ibid). How a company
deals with the external factors depends on the internal factors that a company is facing
when choosing an entry mode (Root, 1994). It is of great importance for SMEs to find
out what factors that was central in the modal choices of other companies. This is in order
to improve the SMEs strategies and entry mode selection and not make the same
mistakes as others have done (Osland, Taylor and Zou, 2001). Deresky (2000) points out
that SMEs often use export as an initial entry mode since it is a low-risk alternative, and
in addition it does not demand large capital resources or investments and withdrawal is
relatively easy.
Obadia and Vida (2006) bring up that companies more often choose to open foreign
subsidiaries to expand internationally. Additionally the authors state that the size of the
company is of great importance for the internationalization to be successful, as the SMEs
tend to be less prepared than larger firms to deal with issues such as geographic, cultural,
and institutional distance between the home country and the country in which the
investment was made. The authors pinpoint the lack of research made on the specific
reasons why SMEs performance when internationalizing and specifically regarding
issues that SMEs face with their foreign subsidiaries.
5
INTRODUCTION
Selecting the right entry mode is an important decision, which demands a lot of resources
and thorough planning. When selecting entry mode a wide range of factors must be taken
into consideration before making the final decision (Young, Hamill, Wheeler and Davies,
1989). Furthermore Koch (2001) states that all factors proposed to influence the market/
market entry mode selection process fall into three broad categories: external, internal,
and the mixed, internal/external category.
In addition to this Root (1994) states there is difference in the internal and external factors
when companies choose a market entry mode. The difference is that the company
management rarely can influence the external factors. In the final decision of market
entry mode, there is supposed to be a balance between different factors that are in conflict
with each other, and in the end a balance between risk and control must be established.
These external factors can seldom be affected by managers decisions and are external to
the company and may be regarded as parameters of the entry mode decision. Because no
single external factor is likely to have a decisive influence on the entry mode for
companies in general, these factors only encourage or discourage a particular entry mode.
The author also puts forward that a companys choice of its entry mode for a given
product/ target country is a net result of several, often conflicting forces.
The factors influencing companys choice of entry mode are according to Johansson and
Vahlne (1977) divided into two main groups, external factors and internal factors. The
external consists of determinants regarding the companys environment while the internal
are determined by company specific factors.
In order to reach the purpose of this thesis the following research questions were
developed.
1.4 DEMARCATIONS
There is vast research made in the area of companies choosing entry mode in a foreign
market. The majority of the research has been focused on the internationalization process
of firms. Our research will, in accordance with our frame of reference, focus on the
factors influencing the companys choice of entry mode in new markets. The theories on
the subject bring forward three different types of factors, internal, external and the mixed
category. We will only focus on the internal and the external factors, since the mixed
category factors can be included in one or the other of the internal and external factors.
6
INTRODUCTION
CHAPTER 1 CHAPTER 6
Introduction Conclusions & Implications
CHAPTER 2 CHAPTER 5
Literature Review Data Analysis
CHAPTER 3 CHAPTER 4
Methodology Data Presentation
7
LITERATURE REVIEW
2. LITERATURE REVIEW
In the previous chapter we outlined a research area that led to an overall purpose, landing in
two research questions. In this chapter an overview of previous studies related to the research
area is presented. This chapter will review literature studies related to our first research
question regarding the internal factors influence on firms choice of international market
entry mode and to our second research question regarding the external factors influence on
firms choice of international market entry mode. Finally, a conceptual framework, based on
theory is displayed.
8
LITERATURE REVIEW
likely it is for the company to select countries that show greater long-term prospects and
promise to enhance the firms capabilities.
Profit targets
According to Koch (2001) various market entry modes are likely to produce different levels
of profit; equally importantly, the dynamics of profit generation of various modes will be very
dissimilar. The former will show some profits almost immediately and then may soon level
off, the latter may mean no profits for three or four years (construction cycle, time needed to
establish all necessary market contacts, acquire/ build all necessary assets, train the sales force
as required, develop customer base, etc.). A long decision horizon may prefer the latter; a
short one will prefer the former.
9
LITERATURE REVIEW
INDUSTRY
FEASIBILITY/
VIABILITY OF MEM
EXPERIENCE IN CALCULATION
USING INDIVIDUAL METHODS APPLIED
MEMs
MANAGEMENT CHARACTERISTICS
RISK ATTITUDES OF THE COUNTRY
BUSINESS
ENVIRONMENT
GLOBAL
MANAGEMENT
EFFICIENCY MARKET SHARE
REQUIREMEMENTS TARGETS
External category
Mixed category
Internal category
10
LITERATURE REVIEW
Risk
The amount of risk the company is willing to take when entering a new market is according to
Hollensen (2001) influencing the choice of foreign market entry mode, the scale of risk
connected to entry mode ranges from exporting, which is the least risky; to wholly owned
subsidiaries or production facilities which, involves the most risk due to the heavy resource
committed to such entry.
Flexibility
Somewhat connected to risk, mentioned above, is the flexibility of the chosen entry mode as it
according to Hollensen (2001) influencing the choice of entry mode, as it is crucial to a
company to be able to swiftly respond to changing market conditions or even withdraw
entirely from a market. This is, as the risk factor ranging from export being the most flexible
due to the low cost involved, to wholly owned subsidiaries due to the high cost of
withdrawing from such a high involvement entry.
Product Factors
Root (1994) states that highly differentiated products with distinct advantages over
competitive products give sellers a significant degree of pricing discretion. These products
can absorb high unit transportation costs and high import duties and still remain competitive
in a foreign target country. In contrast weakly differentiated products must compete on a price
basis in a target market, which may be possible only through some form of local production.
Hence high product differentiation favors export entry, while low differentiation pushes a
company toward local production and choosing an entry mode such as contract manufacture
or equity investment. Furthermore, if a companys product is a service, such as engineering,
advertising, computer services, tourism, management consulting, banking or retailing then the
company must find a way to perform the service in the foreign target country, because
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LITERATURE REVIEW
services cannot be produced in one country for export to another. Local service production
can be arranged by training local companies to provide the service (as in franchising), by
setting up branches and subsidiaries (as an advertising agency or branch bank) or by directly
selling the service under contract with the foreign customer (as in technical agreements and
construction contracts). Technologically intensive products give companies an option to
license technology in the foreign target county rather than use alternative entry modes.
Products that require considerable adaptation to be marketed abroad favor entry modes that
bring a company into close proximity with the foreign market (branch/ subsidiary exporting)
or into local production (Root, 1994).
External Factors
Target country Target country Target country Home country
Market factors Environmental Production factors
factors factors
Foreign market
entry mode
decision
Country Company
product factors resource /
commitment
factors
Internal Factors
Figure 2.2: Factors in the entry mode decision
Source: Adapted from Root (1994), p.9
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LITERATURE REVIEW
Motive
The first factor; the motive, is meant to answer questions such as: What motives were there in
the company for internationalization? A small home market and a strong competitive product
are examples of answers to that question. What motives influenced the companys choice of
entry mode? There are also examples of indirect motives that may influence the choice of
entry mode, such as a temporary contact with a company outside of the home country
(Bruhno and Schilt, 2001).
Goals
What goals did the company have with their internationalization? Have the goals changed
since the start with the international business? Are there any long-term and/or short-term
goals for the company? What specific goals exists regarding market shares and sales volume?
Does the company have any ambition to gain a great part of a market in a specific country
(Bruhno and Schilt, 2001)?
Strategy
Does the company have special strategies for the abroad activity? Are there any specific
strategies for each market? Does the company work with development of these strategies
(Bruhno and Schilt, 2001)?
Product
What qualities does the product have that will be exported? Are these products standardized
or adaptable? How many products does the company have? These questions affect the
companys way of conducting the internationalization (Bruhno and Schilt, 2001).
Management
How extensive is the international experience in the company? Is there any specific
experience of any marketing channel in the company? Are there any general ideas on how the
managers should pursuit their international strategy? How great is the managements
engagement? What competencies are demanded in the international activity? Does the
management develop these competencies? What language skills are there amongst the
management? How great is the knowledge of different marketing channels and their pros and
cons (Bruhno and Schilt, 2001)?
Resources
How does the financial, human and technological resources influence the companys choice
of marketing channel? Limited resources can limit the companys freedom of choice when
choosing a marketing channel (Bruhno and Schilt, 2001).
Customer relationships
How many customer relationships does the company have? Are the companys customer
relationships homogenous or heterogeneous? Does the company put any effort on developing
their customer relationships (Bruhno and Schilt, 2001)?
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LITERATURE REVIEW
Networks
Does the company have any existing contacts and relationships in the different markets? Does
the company have the opportunity to get any help from other Swedish firms on the different
markets? Does the company have any external part involved in their international act? Does
the company actively work with development of participation in different networks? Does the
participation in the different networks affect the choice of market (Bruhno and Schilt, 2001)?
Motive
Networks Goals
Customer Strategy
relationships
Entry mode
selection
Competitors Market
Resources Product
Management
14
LITERATURE REVIEW
15
LITERATURE REVIEW
customer protection legislation are amongst those characteristics which would normally
attract the attention of potential entrants into a foreign market (Koch, 2001). In addition
Hollensen (2001) adds to this that a highly competitive business environment may lead to the
company entering through less resource intense entry modes in order to avoid unnecessary
risk.
Market barriers
Koch (2001) states that amongst barriers that can make access to foreign markets more
difficult, the following categories are considered of major importance:
Tariff barriers
Governmental regulations
Distribution access
Natural barriers (market success and customer allegiances)
Advanced versus developing countries
Exit barriers
16
LITERATURE REVIEW
17
LITERATURE REVIEW
In addition Root (1994) also bring forward the geographic distance as an influencing factor
due to the fact of high transportation cost when the distance is great and to such markets
establishing local presence might be more suitable for the company.
Bell (1995) found that psychic distance is a key factor in the selection of export markets.
The research showed that there is an overall pattern that indicates that 50 70 per cent of
firms entered close markets in the initial stages of export development. Thus, for example,
Finnish firms targeted Sweden, Norway and the former USSR countries that are
geographically and culturally proximate with Finland, especially, in the case of the latter, has
very strong historic ties. Similarly Norwegian firms selected Sweden, the UK, or Finland. The
author also found that some 30 50 per cent of firms had initiated exports with sales to
countries that could be considered as either psychologically or geographically proximate. The
in-depth interviews that Bell conducted revealed several important factors that strongly
influenced firms initial and subsequent market selection decisions, namely: client follower
ship and sector targeting (Bell, 1995).
Market
Are there any trade barriers or laws and regulations that limit the companys choices with
internationalization? How does this affect the choice of entry mode (Bruhno and Schilt,
2001)?
Competitors
How many competitors does the company compete with in the respective market? How large
market share does the company have? How does the competition influence the companys
choice of marketing channel on the respective market (Bruhno and Schilt, 2001)?
18
LITERATURE REVIEW
19
LITERATURE REVIEW
We will not look into Management locus of control and Calculation methods applied, since
these two factors are highly individually varying and difficult to label.
Brassington and Pettitt (2000) also brings forward two internal factors that add an additional
dimension to the subject, which we will investigate, and these are:
Speed Payback
Furthermore Hollensen (2001) states three internal factors of which we will use only
Complexity and Differentiation of the product factor, as it is highly relevant to the chosen
industry of this thesis. We have chosen not to focus on the Risk and Flexibility factors, as
they are included in earlier mentioned theories.
Roots (1994) theory regarding Product factors and Resource/ Commitment factors will not be
used since there are more recent theories published regarding these factors and will be
covered with previously mentioned theories. We will however use the theories brought
forward by Bruhno and Schilt (2001), who mentions eight internal factors, of which we will
consider five, leaving out the product, management and resources factors, since they are
already included in earlier mentioned theory. These factors are:
20
LITERATURE REVIEW
Bell (1995) brings forward the predomination for exporting as an internal factor, which will
not be used, since the chosen firms already have established export channels in their
businesses. Finally, Roots (1994) summarization of internal factors in table 2.1 on page 15
will be used as a complement to the above mentioned theories since it has a clear connection
between the internal factor and the actual choice of market entry mode and these are:
The above mentioned internal factors will be used as base for developing the interview guide
which will be used to answer our research questions and thereby fulfilling the purpose of this
thesis.
We will on the other hand not use Image support requirements, Global management
efficiency requirements and Popularity of individual MEMs in the overseas market in this
current study, as these are not relevant to the research area.
Hollsensen (2001) brings forward two other external factors, which are Highly competitive
business environment and Forced choice of entry mode. We will not take these under
consideration when conducting our thesis, since both these factors are integrated in Kochs
(2001) theory of market entry mode selection. Furthermore Root (1994) adds another theory
where he discusses four external factors to consider when choosing market entry mode
selection. Of these four we will focus on:
The choice to leave out the fourth factor of Target country environmental factors was made
because environmental factors are as earlier mentioned brought up in previous theory. As a
complement to Roots (1994) model of external factors influencing the entry mode decision
Root (1994) highlights the Geographic distance as an additional important external factor,
which we will investigate together with the contribution made by Bell (1995) that firms
initially target neighboring countries and subsequently enters foreign markets with greater
physic distance.
21
LITERATURE REVIEW
The above mentioned external factors will be used as base for developing the interview guide
which will be used to answer our research questions and thereby fulfilling the purpose of this
thesis.
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METHODOLOGY
3. METHODOLOGY
In this chapter the methodology used in this thesis will be presented. This chapter presents
and motivates how, the data will be collected in order to find answers to our research
questions, and by that fulfilling the purpose of the thesis. It starts with presenting the purpose
of the research, followed by the research approach. Then the research strategy will be
examined, moving on to the data collection, the sample selection and data analysis. Finally,
the means of how to increase validity and reliability are discussed. The presentation of the
methodology is presented below in figure 3.1.
Exploratory research is performed when a problem is difficult to limit and when there is little
or restricted research on the topic. According to Denscombe (2000) the purpose of
exploratory research is to gather as much information as possible through the use of different
sources, in addition Yin (1994) states that an exploratory study should state a purpose and the
criteria to judge the exploration successful. According to Foster (1998) descriptive research is
performed when studying a problem area with already existing theories or information. The
goal with this type of research is to develop careful descriptions of different patterns that were
suspected in the exploratory research. Finally, according to Yin (1994), explanatory research
explains the causal relationships between cause and effect. Moreover, Denscombe (2000)
argues that the aim of explanatory research is to develop a theory in order to explain the
empirical generalization developed in the descriptive stage.
Bearing these criteria in mind, we can define our study as being mainly descriptive, however
it will also be exploratory and to some extent explanatory. This is based on the purpose of this
thesis being to provide a better understanding of the of impact internal and external factors on
Swedish SMEs choice international market entry strategies. In order to find answers to our
research questions we will have to explore the thesis topic and in the end of this thesis we will
also begin to explain the research area.
23
METHODOLOGY
An exploratory research approach is according to Winter (1992) used when there are little
previously written about a subject. Descriptive research on the other hand is according to Yin
(2003) a complete description of a single phenomenon within its context, which goal is to
develop and explain empirical generalizations. Further Eriksson and Wiedersheim-Paul
(2001) argue that descriptive research involves the choice of perspective, aspects, levels,
terms and concepts. In addition Saunders et. al. (2000) argues that the objective of descriptive
research is accurately portraying a profile of persons, situations or events. The objective of
explanatory research is according to Eriksson and Wiedersheim-Paul (2001) to analyze cause-
effect relationships, it explains what causes produce what symptoms. In addition Miles and
Huberman (1994) state that explanatory research concerns the activity of making complex
issues understandable by presenting how their component parts connect with theory.
This thesis is exploratory, describing and somewhat also explanatory in the area of internal
and external factors influencing small and medium sized companies choice of foreign market
entry mode. The thesis purpose is to gain a greater understanding of the research area, which
makes the thesis exploratory. However, it will also be descriptive as it brings up common
matters, or patterns, within the area of research. Finally, as we will draw some conclusions of
the findings of the research, this thesis will also be somewhat explanatory. Although the thesis
will contain parts of all these three research approaches it will mainly be descriptive. As the
purpose of this study is to gain a gain a greater understanding of a specific phenomena our
research approach will be qualitative.
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METHODOLOGY
strives to provide a better understanding of the of impact internal and external factors on
Swedish SMEs choice international market entry strategies we need no control over
behavioral events. We will also focus on contemporary events and due to the fact that both
our research questions starts with how, a multiple case study is the most appropriate research
strategy for this thesis.
Documentation is according to Yin (1994) relevant to every case study topic, and is mostly
used to confirm and augment evidence gathered from other sources. The main purpose for
using documentation in this study was to gain background information regarding the internal
and external factors that influence the companies choice of foreign market entry mode.
According to Denscombe (2000) documentation often is a great source of finding background
information on a subject to be researched. It was used in the study in order to find background
information on the research subject. There are however possible drawbacks with
documentation as an information source. The researcher has to be aware that documentation
are second hand information and might therefore not always be accurate or outdated.
Interviews is best used, according to Denscombe (2000), when the researcher needs to answer
questions that are complex and/or contain emotions or experience form a specific subject. It
also allows the respondent to answer questions in his/her own words and develop the answers
as to get the full picture of the subject at hand. The interview guide was constructed through
using our frame of reference and in a chronological order we created interview questions
using the theories regarding the internal and external factors. The questions where formulated
to get the respondent to answer in a descriptive manner without the possibility to answer yes
or no. In addition, several fellow individuals have viewed the interview guide, in order to
ensure the comprehensibility of the questions and the appointed supervisor has also approved
it.
Due to the lack of resources and the great geographic distance we have chosen to perform the
interviews over the telephone. We have also chosen to send the interview guide in advance to
the respondents, in order to make sure that they had, or could get, the data regarding their
respective companys internal and external factors influencing their foreign market entry
mode that we needed for this thesis.
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METHODOLOGY
Additionally the interviews will be performed on two company officials from the companies
that are to be researched. The companies are both producing companies in the
industrial/municipal water processing appliance industry. They are both of similar size and
belong in the small and medium sized company category. The above listed demands for the
companies to be researched rendered us the two chosen companies, namely: Lckeby Water
AB and Nordic Water AB. Lckeby Water Group is a wholly owned Swedish group, with
their main office just outside Kalmar (Sweden), that offer contracting, products, and service
for industrial water processing and biogas production. The company is established in three
continents with Europe and Asia as their primary markets. The product part of Lckeby Water
Group is called Purac, and their range is internally developed licensed products
(http://www.lackebywater.se). Nordic Water Products AB is a part of the Tyco Group and is
active in industrial and public waste- water processing appliances, it has a main office in
Gothenburg on the Swedish west coast and has three product centers. The three product
centers (Meva, NWP, and Zickert) all offer own designs, products and service as part of their
range (http://www.nordicwater.se).
According to Miles and Huberman (1994) there are two forms of available analyses when
applied to empirical data, namely within-case analysis and cross-case analysis. Within-case
analysis is argued to compare the collected data against the theory used, whereas cross-case
analysis compares the data from different cases with each other. As this thesis will compare
two companies data to each other we will be performing a cross-case analysis. According to
Miles and Huberman (1994) qualitative data analysis focuses on data in the form of words,
26
METHODOLOGY
these data (in form of words) need processing in form of a three-stage analysis, referred to as
concurrent flows of activity. The three stages, which will be performed after the data has
been collected, are stated below:
Data Reduction Selects, abstracts, simplifies, focuses, and transforms the collected
data
Data Display Organizes and compresses the data which enables easy conclusion
drawing
Conclusion Drawing and Verification The researcher decides the meaning of
occurrences, noting regularities, patterns, explanations, possible configurations, causal
flows, and propositions
3.7.1 Validity
The definition of validity is according to Denscombe (2000) to what extent the research data
and the methods for obtaining these data are considered precise, correct and accurate. The
definition is further developed to include the questions of how well the data reflects the truth,
the reality and the main questions. There are three kinds of validity according to Yin (1994):
construct, internal and external. Construct validity involves the process of establishing the
correct operational measures for the studied concepts. Internal validity will not be discussed
here, since it should not be used in descriptive or explanatory studies. The external validity
deals with the issue of determining if a studys findings are possible to generalize beyond the
immediate case study.
In this thesis we have used triangulation. The components of this triangulation consist of our
data collection methods as documentation and telephone interviews. In addition, several
fellow individuals have viewed the interview guide, in order to ensure the comprehensibility
of the questions and the appointed supervisor has also approved it. The interview guide was
then sent to the respondents in order to make sure that they had, or could get, the data
regarding their respective companys internal and external factors influencing their foreign
market entry mode that we needed for this thesis. The interviews were made by both
researchers via speaker telephone as to avoid individual interpretations of the respondents
answers. In addition, both researchers took notes and the interviews were recorded in order to
avoid misinterpretations. No major generalizations will be drawn of this thesis as the research
is performed and strictly limited to Swedish SMEs in the industrial water processing
appliance industry and we have also stated some implications for further research in the end
of this thesis.
3.7.2 Reliability
The definition of reliability is according to Denscombe (2000) is that a measurement can be
reproduced with similar results and that therefore variations in the results is entirely
depending on variations in the measured area and not in the instrument of measurement. The
interviews were performed in Swedish as it is the native language of both of the researchers
and the respondents. This allows the respondent to freely answer and elaborate on the
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METHODOLOGY
questions asked by the researchers, however it forces the researchers to perform a translation
of the respondents answers which might render a reliability problem due to unintentional
translation interpretations by the researchers. Even though we have been very careful in our
attempts to perform this study we would like to point out that subjectivity is always a factor to
be considered when performing research, which might influence the respondent or his/her
answers. Therefore it is not certain that if performed again the study would lead to the same
result, however the results should be similar if performed by following the interview.
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EMPIRICAL DATA
4. EMPIRICAL DATA
In this chapter we will present the data collected through the interviews. First, we will present
data from Case 1, which in turn will be divided according to research question one and two,
following the order of the interview guide, which was based on the previously mentioned
theories. Then the data from Case two will be presented in the same order.
The entry modes used by Meva are direct export, indirect export, fully owned sales
subsidiaries and cooperation with other companies in the target countries. In the cases when
fully owned sales subsidiaries are established the reason for that has been that local sales
agents has been declared bankrupt. The company produces every component domestically and
then delivers the assembled product to the buyer. Mevas international sales amounts to
approximately 85 percent of the total turnover, further the company has been international
since the start-up because of the domestic market being too small to be profitable.
Today, Meva has annually sales in 45 countries and the total number of nations sold, to at
least once, is 68. The companys future goals with their extended international operations are
currently focused on increasing sales in former Soviet and east European states such as:
Russia, Belarus and Ukraine. As an example the company has received orders from both
Azerbaijan and Kazakhstan. They also strive to increase their sales in South-America, which
is hard because of the trade barriers (i.e. penalty duties). When entering a new international
market, it is of great importance for Meva that the infrastructure is well developed. They also
strive for first mover advantage and avoid entering mature markets.
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EMPIRICAL DATA
is the market leader in their segment and thereby create their own terms of competition. The
remaining internal factors stated regarding the influence on the companys choice of
international markets (resources, product adaptation, planning and control within the
company and employee motivation and ability), are considered of less importance as the
respondent views them as a part of management ability, flexibility and dedication.
When it comes to the companys choice of international market entry mode the respondent
views all the internal factors as necessary to bear in mind, however, the most important
internal factors are long-term goals, relations and management influence. The remaining
factors (time to market, resources, flexibility, risk, return on investment, type of product,
company size and international experience) are considered to be important to the company
when combined, rather than when singled out. In order to avoid risks when entering new
international markets, Meva uses contracts for terms of payment and guarantees to assure
financial security. Furthermore their strategy is to conduct sales only in SEK, and if the
customer demands any other currency, actions are taken to avoid exchange rate losses. The
respondent clearly states that the company does not take any currency risks and that this is
also clearly stated in the company strategy.
Meva considers the competition to come from mainly the same firms both nationally and
internationally. The main competitors are the German company Huber and the American
company US Filter. Additionally there are approximately 40 small local companies that
reproduce Mevas products. Finally there is also a Swedish firm, Hydro Press, which is lead
by two of the former partners of Meva that the respondent considers to be a competitor. Meva
does not actively gather any information about how these competitors enter a new
international market. However, they are aware that there are great similarities in the way
Meva and their competitors enter new international markets. The goal for Meva, when
entering a new international market, is to establish a market within three to five years. It is not
necessary for the market to be profitable, however, by the second year it is supposed to be
well established and have continuous sales. When entering a new international market there
are no stated market share targets and the company does not consider return on investment
being of great importance. Profit targets and establishment time, on the other hand, is of great
importance as the respondent says that we are in business to make money.
Regarding the internationalization and entering new markets, Meva has succeeded very well
with two exceptions, the peoples Republic of China and the USA. The reason for failure in
30
EMPIRICAL DATA
these two particular markets is according to the respondent cooperation with the wrong
partners, also the respondent state that in the USA the market approach was wrong as the
business and the legal system in America differs greatly from any other country. The
respondent states that the general agent system in America has discouraged the company
from trying to enter the market without cooperating with one of those general agents. Despite
the two failures mentioned the company is not discouraged by previous experiences when
choosing entry mode for a new international market, each specific entry is adapted to the
current market conditions rather than compared to experiences of success or failure in
previous market entry attempts. Therefore the respondent states that previous failure with a
specific entry mode does not exclude that entry mode in another market because of the ever-
changing market conditions. When entering a new market the company usually reaches
profitability within one to three years from market entry, despite the company lack of a
specific strategy when entering a new market the respondent states that Meva is well aware of
the patience needed when entering a new market. The respondent states that the closest thing
to a strategy for Meva when entering a new international market is to maximizing sales in
order to reach profitability.
Regarding the factors that affect the company choice of market entry mode, the respondent
state that trade barriers is the most important factor as they usually work through foreign
distributors. The trade barriers, make them adapt their way of reaching the target country to
avoid penalty duties in the target country, for example in Brazil. The remaining external
factors (geographical distance, social and cultural differences, laws and regulations,
infrastructure, exchange rate stability, knowledge and information about the market, political
stability, tax advantages, market size and growth rate, competition and uncertainty to access
demand) are not considered to be of great importance as the company most often enters the
market through cooperation with a sales agent in the target country, which then handles these
factors without Mevas involvement.
Mevas strategy when it comes to markets with high growth rate is to try to gain the so called
first mover advantage. This is performed by determining which markets will reach high
growth rate and establishing their presence in these types of markets before it occurs.
Meva does not have any restrictions from the Swedish government regarding trade, and there
are no home specific factors of relevance when it comes to choosing entry mode into new
international markets.
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EMPIRICAL DATA
The entry modes used by Purac are mainly direct export, cooperation with other companies
and subsidiaries in a few countries. Puracs international sales amounts to approximately 50-
70 percent of their total annual turnover and the company have been international since the
mid seventies. The internationalization process started because of a maturing Swedish market
and thereby forced Swedish companies in the industry to either change direction or search for
new markets. The internationalization process started in the Scandinavian countries and then
continued to Germany. Today, Purac is represented by subsidiaries in Norway, Denmark,
Germany and the Peoples Republic of China because these markets have high demand
according to the respondent. Furthermore, the East European and South-East Asian markets
are important to Purac although the company is not represented by subsidiaries in those
markets.
The company future goal with their extended international operations is simply to grow,
which is totally coherent with the company strategy. This is also a part of the decision as to
why the company is and should continue to conduct international business, as the
Scandinavian market is relatively small and matured. When entering a new international
market, it is of great importance for Purac that the market has enough projects with secured
financial resources for the projects to be finished, as Purac does not agree to any projects
without that project being sufficiently financed. The last time the company entered a new
geographic market, the reason was that there is a new emerging market for biogas (which is
also one of Puracs product range), which opens up because of the increasing strive to
decrease the dependency of fossil fuel.
When entering new international markets there are several internal factors of importance,
which according to the respondent, all affects the company to a various degree. The internal
factor of knowledge is of great importance since the company has to know how to conduct
business in an international environment. According to the respondent knowledge it is also a
part of their competitive advantage as well as management ability, flexibility and dedication
meaning that the company posses these factors and that they thereby affects the companys
choice of international markets. Resources are always a critical issue, since it is impossible for
the company to finish a project without sufficient resources, even though every project should
be financially viable. Regarding product adaptation the respondent state that the company
tries to find suitable markets for their product rather than adapt their product to the market.
The planning and control within the company has shown to be absolutely crucial for the
companys success with internationalization. Finally, the employee motivation and ability for
international engagement is high, since it has been a clearly stated part of the companys
strategy for many years.
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EMPIRICAL DATA
Regarding the companys choice of international market entry mode the respondent views
time to market to be a factor that is hard to assess and that is usually takes longer than
foreseen, but is not seriously affecting the companys choice of entry mode. Purac sees the
greatest risk lies in failure to secure payment rather than high investment involvement due to
the strategy of continue the internationalization through project to project. Long- term goals
are also considered very important since the future is hard to predict, and there has to be a
long- term market for their product to successfully establish a local subsidiary in a specific
geographical market. The remaining internal factors (resources, flexibility, return on
investment, management influence, type of product, company size, international experience
and relations) are of lesser importance since the company conducts business project-by-
project and thereby determine whether further establishment, with more resource intense
involvement, is desirable. As a further measure to avoid risk Purac has made it a clear strategy
to ensure that the control and decision power of subsidiaries does not leave the Swedish
headquarter.
Purac is divided in three divisions, one marketing and sales division, one production division
and one technical division. The marketing and sales division is responsible for the gathering
of information about market conditions in other countries; this is made through a wide array
of methods, mainly through international press, conferences and their sales personnel. This
type of information then creates the basis for the decision in what way to enter a new
international market, which is made by the companys management, although the basic
strategy is to conduct business project-by-project as a first involvement in a new international
market.
Purac considers themselves as market leaders and their main national competition to be
Malmberg Water AB and VA-ingenjrerna, furthermore they consider their main international
competitors to be Veolia and Degrmont, two large French companies. Purac does not gather
any information about how these, or their other, competitors enter new international markets.
However, although it is not a clearly stated strategy they do get some information through
various business contacts. When entering a new international market, the goal is to continue
to win projects and finish them, this hopefully creates a basis for establishment of subsidiaries
in that particular market.
Purac does not consider return on investment to be very important, since every project is
supposed to be financially viable. This is also true for the profit target factor as it is supposed
to already be met due to the earlier mentioned strategy that every project brings profit. The
Establishment time however is according to the respondent very important, since the
companys objective is to grow internationally. However, the respondent states that Purac has
to have at least one to three years patience with new establishments to give them time to
grow before deciding whether to consider the entry successful or not, and thereafter decide
whether to continue their efforts in that market. Market share targets are not a strategic
objective for the company as they strive to win contracts regardless of how this will affect
their total market shares. So far Purac has, according to the respondent, succeeded very well
with their internationalization with one exception, Poland. The reason for failure in Poland is
argued to be the loss of control and decision power coming from Sweden. This previous
experience has taught the company not to let go of the control from the Swedish headquarters
when establishing on a new international market. The time it takes for a new market entry to
reach profitability depends on how long time it takes for the company to win their first
contract. The respondent states that the companys main strategy for entering new
international markets is to grow through finding strong local partners, which allows them to
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EMPIRICAL DATA
win contracts and at the same time become as locally oriented as possible without losing
control and decision power from the headquarters in Sweden.
The respondent argues that if there are trade embargoes, it is not of interest for Purac to
establish on that market and when it comes to penalty duties, it is more important to increase
the local cooperation to be able to bypass the penalty duties, which can have a clear influence
of the companys choice of market entry mode. Furthermore, Purac always assess the
competition before entering a new international market, as a way to measure if a successful
market entry is possible and through which way the entry should be performed. If the
competition is regarded as high, the company does not use entry modes that demand heavy
resource commitment. Also, presence of political stability is important for the company,
before establishing in the market. Furthermore the respondent states that, the geographic
distance increases the interest to cooperate with a local partner. It is therefore considered the
single most important external factor when choosing market entry mode. The remaining
external factors (exchange rate stability, knowledge and information about the market, tax
advantages, market size and growth rate, uncertainty to assess demand, social and cultural
differences, laws and regulations and infrastructure) are of less importance even though they
influence in various degree for the decision of which way to enter a new international market.
Puracs strategy when it comes to markets with high growth rate is to follow the development
of new emerging markets such as Peoples Republic of China and India, and await the right
opportunity to make a market entry. The markets financial resources have to be sufficient in
order for the company to get involved. Purac does not have any restrictions from the Swedish
government regarding trade, except for following the national restrictions and trade
embargoes regarding which countries not to enter, for example North Korea. There are also
no home specific factors of relevance when it comes to choosing entry mode into new
international markets.
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DATA ANALYSIS
5. DATA ANALYSIS
In this chapter the analysis of the empirical data received during the case studies will be
presented. To begin with, a case analysis will be presented for the two cases comparing the
empirical data in chapter four with the conceptual framework in chapter two. Finally a
summary will be presented for each research question in form of a table for clarity reasons.
This data analysis will be displayed in line with the research questions.
Company size/resources
Koch (2001) states that the company size/resources often affect the companys choice of
market entry mode since smaller companies usually have fewer market servicing options, as
their very limited own resources may simply not allow, or discourage from, some market
entry modes. The data collected in case one does verifies the theory, in that the company is
regarded as a SME and as such they do not have a company representative for market
information gathering, but rather it is included in the everyday work assignments of the sales
and marketing personnel. This is also consistent with our findings regarding case two as the
company is regarded as a SME with no specific department for information gathering. Kochs
(2001) theory is regarding case one, also supported in the way that international market entry
is somewhat discouraged from establishing fully owned subsidiaries. In the cases when fully
owned subsidiaries have been established, it has been because local sales agents have gone
bankrupt and Meva has then taken over their organization. By taking over an already existing
organization the demanded investment is not as great as developing an entirely new sales
subsidiary. Kochs (2001) theory were further verified in case two, as the company according
to the respondent use several different market entry modes, although direct export and
cooperation with other companies are preferred, subsidiaries only occurs in a few countries
with favorable target country conditions.
35
DATA ANALYSIS
is contradicted. Additionally the respondent in case two argues that they are also risk averse
despite their positive result and adds to the contradiction of the theory. The company in case
two also has a great amount of experience in their industry and considers themselves among
the best in the industry. They consider their main competitors being two French companies
and predict their future development to be positive. Their competitive environment should
according to the theory make them less risk averse than our findings constitute.
Profit targets
Koch (2001) states that the profit targets of the company affect the choice of market entry
mode. Depending on which way a company chooses to enter a new international market, the
profits will vary. The author argues that an entry mode that reaches profit quickly often shows
difficulties to bring long-term profits, while entry modes with a long-term profit as a goal
does not bring profits as quickly but is able to sustain a long-term profitability. Our findings
in case one showed that Meva has a long term profit orientation and clearly states that
patience for generating profit is necessary. Although there are no immediate profit targets the
company expects to reach continuous sales within two years. These findings support the
theory stated by Koch (2001). Our findings in case two shows that Purac has a project-to-
project profit target orientation, where every project is supposed to bring profit. These
findings are not consistent with Kochs (2001) theory regarding profit targets since Purac
despite their short-term profit target is able to sustain a long-term profitability.
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DATA ANALYSIS
Payback
With payback Brassington and Pettitt (2000) mean the time it takes for the company to create
revenue from an investment in a new market that influences the companys choice of foreign
market entry mode. Our findings in case one reveled that time to return on investment did not
independently have significant importance on their choice of market entry mode, but rather as
an underlying factor, in combination with several other factors, toward the long-term goal of
achieving profitability. These findings do not support Brassington and Pettitts (2000) theory.
Our findings in case two also contradicts the theory argued by Brassington and Pettitt (2000)
as the company conducts business project-by-project and thus not pay any special attention to
the time it takes for the company to create revenue from an investment.
Speed
With speed Brassington and Pettitt (2000) mean the time it takes to reach the target market,
also greatly influences the choice of entry mode. Our findings in case one revealed that the
companys goal is to establish a market within one to three years and to have continuous sales
by the second year of entry. The time to reach the market does not affect the choice of entry
mode, thereby contradicting the theory argued by Brassington and Pettitt (2000). Furthermore,
the findings from case two also contradicts the theory stated by Brassington and Pettitt (2000),
thus the company states that time to market is a factor that is hard to assess and often takes
longer time than predicted, and thus not seriously affect the companys choice of market entry
mode.
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DATA ANALYSIS
Motive
Motives for entering a new international market can according to Bruhno and Schilt (2001) be
small domestic market and/or strong competitive products. Our findings in both case one and
case two showed that the motive for internationalization and entering a new international
market was that the domestic market was relatively small and matured. These findings
support Bruhno and Schilts (2001) theory.
Goals
Goals can according to Bruhno and Schilt (2001) be long and/or short-term and influences the
choice of international market entry mode. Our findings in case one showed that the
companys short and long-term goals with their internationalization are to maximize sales
especially in the Former Soviet Union states and South-America. As the respondent
mentioned long-term goals as one of the critical factors for the companys choice of
international market entry mode, the theory stated by Bruhno and Schilt (2001) is verified.
Furthermore, case two revealed that the companys short-term goal is to continuing winning
projects and create a large customer base, enabling the establishment of subsidiaries in new
emerging markets such as Peoples Republic of China and India. The companys long-term
goal is to increase their sales of biogas in the United States. Thereby further verifying Bruhno
and Schilts (2001) theory, as long-term goals were considered very important to be able to
successfully establish local subsidiaries.
Strategy
According to Bruhno and Schilt (2001) strategic goals for entering international markets and
the development of these strategies, can affect the choice of market entry mode. Our findings
in case one revealed that the company does not have any clearly stated strategy regarding
international market entry. The closest to a strategy is according to the respondent
maximization of sales. This finding contradicts Bruhno and Schilts (2001) theory, since a
non-existing strategy cannot affect the companys choice of market entry mode. Our findings
in case two however, verifies Bruhno and Schilts (2001) theory as their outspoken strategy is
to become as locally oriented as possible without loosing control and decision power from the
headquarters in Sweden.
Customer relationships
According to Bruhno and Schilt (2001) the number of, as well as, the nature of the customer
relationships affects the choice of international market entry mode. Our findings in case one
revealed that both companies is case one and two, did not consider their customer
relationships as a influencing factor when choosing a entry mode, and thereby our findings
contradict the theory stated by Bruhno and Schilt (2001).
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DATA ANALYSIS
Networks
Bruhno and Schilt (2001) state that the companys existing or lack of existing contacts and
relationships can influence the choice of international market entry mode. Our findings in
case one shows the importance of networking when choosing a way of entering a new
international market, as it is a great part of the companys way of conducting business through
attendance at trade-shows and their cooperation with industry-specific consultancy firms.
These business activities induce cooperation with local partners rather than opening
subsidiaries in a specific market, thereby supporting the theory stated by Bruhno and Schilt
(2001). Furthermore, our findings in case two also verifies the theory stated by Bruhno and
Schilt (2001), since the company has an ambition to become as locally oriented as possible,
which only is possible through successful networking according to the respondent.
When placing the company in case one in Roots (1994) table our findings reveled that the
companys products are differentiated and technology intense. Furthermore, the products are
highly adaptable and the company has substantial resources and uses mainly low commitment
market entry modes. After a compilation of the factors influencing the market entry mode
decision the company should according to Roots (1994) theory use the entry mode of
Licensing or Branch/ subsidiary exporting. After comparing our findings to the factors in
Roots (1994) theory our findings showed that the company uses mainly indirect and agent
distributor exporting, which thereby contradicts the theory. It is however worth mentioning
that our findings placed the company in the Licensing or Branch/ subsidiary exporting entry
modes by only slight margin, which therefore makes the contradiction to theory not
conclusive. Furthermore our findings in case two revealed that the companys products are
standardized and technology intense. Additionally the company use low product adaptation
and has substantial resources. This together with their high commitment should place the
company in the category of equity investment/ production according to Root (1994).
However, our findings show that the company mainly uses Indirect and Agent /distributor
39
DATA ANALYSIS
exporting, which contradicts the theory argued by Root (1994). The results in case two were
more conclusive in the contradiction against theory than our findings in case one.
40
DATA ANALYSIS
41
DATA ANALYSIS
this statement as it does not affect the choice of entry mode for the company, instead the
company sees the importance of market growth rate when prospecting new emerging
international markets. Furthermore, our findings in case two revealed that the company in
case two has a more restrictive strategy regarding markets with high growth rate, as they
follow the development and await the right opportunity before entering the market. According
to the respondent the high growth rate itself does not affect the company choice of market
entry mode, thus contradicting the theory stated by Koch (2001).
Market barriers
Koch (2001) state that market barriers can make access to foreign markets more difficult. Our
findings in case one reveled that market barriers are important as the company regards them
as the most important factor when choosing market entry mode. The trade barriers make them
adapt their way of reaching the target country to avoid penalty duties in the target country, for
example Brazil. These findings verify the theory brought forward by Koch (2001).
Furthermore our findings in case two revealed that the company regards it as important to
increase the cooperation with local partners in order to avoid penalty duties, which thereby
influences the choice of market entry mode, and verifies the theory argued by Koch (2001).
42
DATA ANALYSIS
Competitors
Bruhno and Schilt (2001) state that the amount and the strength of competitors in an
international market affects the choice of market entry mode, as the willingness to allocate
resources will be greater in a market with less competition. Our findings in case one revealed
that although the company has competitors, they view themselves as market leaders in their
industry and does not consider competition to be of great importance when choosing a market
entry mode, thus contradicting the theory argued by Bruhno and Schilt (2001). Furthermore,
our findings in case two revealed that Purac, even though they consider themselves as market
leaders, always assess the competition before entering a new international market, as a way to
measure if a successful market entry is possible and through which way the entry should be
performed. If the competition is regarded as high, the company does not use entry modes that
demand heavy resource commitment, thus verifying the theory stated by Bruhno and Schilt
(2001).
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DATA ANALYSIS
When placing the companies in case one and case two in Roots (1994) table, our findings
reveled that both companies have similar demands for the international market, such as high
sales potential, good marketing infrastructure, restrictive import policies, dynamic economy
44
DATA ANALYSIS
and low political risk. These factors are considered to be basic demand for interest in any
international market. Furthermore, the factor of production cost is not relevant for case one as
they produce all their products in their domestic market. In case two on the other hand, the
company preferred low production cost although they adapt their prices to the cost of
production. The geographical distance has no bearing on the decision of which international
market to enter for neither company. In addition, exchange rate depreciation/ appreciation
does not affect the companies as they take measures to avoid currency losses. When it comes
to the factor of cultural distance the company is case one argues that the cultural distance
factor is of less importance and does not affect the choice of international market. The
company in case two however, prefers markets with a small cultural distance, as they consider
it easier to conduct business with a similar business culture. As for the home country factors,
both companies have the same domestic market and similar domestic market conditions such
as small market, high production cost and strong export promotion. When these terms are
fulfilled the company has to choose a mode of entry and according to a compilation of
influencing factors in the theory argued by Root (1994) the company in case one should use
the entry mode of Branch/ subsidiary exporting. It is however worth mentioning that our
findings placed the company by only slight margin in this category. Our data revealed that the
company in case one mainly uses the market entry mode indirect and agent distributor
exporting, thus contradicting the theory. Furthermore, a compilation of influencing factors in
the theory argued by Root (1994) the company in case two should use to the entry mode of
branch/ subsidiary exporting or equity investment/ production, but are in fact using Indirect
and Agent /distributor exporting, which contradicts the theory argued by Root (1994). The
results in case two were more conclusive in the contradiction against theory than our findings
in case one.
45
CONCLUSIONS AND IMPLICATIONS
When choosing an international market entry mode payback should affect the decision,
according to theory, however the companies do not consider this to be an issue worth much
thought. We found that the reason for this could be their obvious preference for low resource
committing entry modes, at least for their initial entry mode decision. Although we found
Speed, is not considered important by the respondents in this thesis, it could have a serious
impact on managerial decisions regarding international market entry modes. We found that
there are issues regarding the speed factor that are hard to determine, such as when it is
important to reach a specific market quickly, and as an effect of this companies might miss
great opportunities in new international markets.
The complexity and differentiation of the product could according to theory affect the market
entry mode decision, as different product features could render difficulties of various kinds
when entering a new international market. We found that the companies do not take their
product features into consideration when choosing market entry mode, which might render
additional costs and missed opportunities regarding economies of scale.
We found that the motive for engaging in internationalization is that the domestic market is
insufficient due to size and maturity. The goal with the internationalization is according to our
findings growth. We also found that the goals can be both short-term and long-term and in a
long-term perspective the goal of growth will develop a need to internationalize the entire
46
CONCLUSIONS AND IMPLICATIONS
company and create sales and production platforms outside the domestic market. Furthermore,
we found that the companies in order to reach their goals, employs different strategies. When
the long-term goal is to open a subsidiary the companys short-term goal, will try to become
as locally oriented as possible, as this enables them to establish contacts for future
establishment. When the long-term goal is to maximize sales, the short-term goal is to reach
as many profitable markets as possible. Despite the great importance of customer
relationships when conducting business, it does not affect the companies choice of market
entry mode, but rather how business is conducted when reaching a specific market. Networks
are according to out findings of great importance for both our companies due to two main
reasons: meeting potential sales agents and customers in trade-shows, which induces
internationalization through entry modes such as sales agents/distributor exporting, and
secondly gaining contacts through which you can increase the local knowledge, needed for
entering markets through local presence, such as the opening of sales or production
subsidiaries, thereby affecting the choice of market entry mode. This choice of market entry
mode will most likely be performed through using previous experience in using individual
MEMs.
We found that despite the companies similarities regarding industry and target markets, the
companies have different preferred entry modes. However, both companies are profitable
which leads us to the conclusion that there is not just one single effective market entry mode,
but rather different ways of reaching ones objectives, thus there is no right or wrong regarding
internal factors influencing the companys choice of market entry mode. It is not the product
or the company that should be deciding which market entry mode to use, but rather the current
conditions regarding strategy, product and target market.
47
CONCLUSIONS AND IMPLICATIONS
We found that Target country market factors are initially more important for the choice of
market than the way to make a market entry. The impact of Target country market factors on
the choice of market entry mode occurs only if a specific market is considered desirable
enough to enter. Furthermore we can conclude that the two companies avoid the influence of
target country production factors on the companies choice of market entry mode by using
two different strategies. The companies avoid additional cost to the company by having their
production in their domestic market, in case one, and adjust their prizing to cover the
additional cost, in case two. The companies can therefore use a single market entry mode even
though the target country factors vary greatly between different markets. Target country
production factors can be overcome through effective implementation, of well thought
strategic plans, without affecting the companies choice of market entry mode.
In addition, we found that the geographic distance is of great importance in the initial stage of
the companies internationalization. However, the importance tends to decrease with time due
to the companies increasing resources and knowledge. This together with the globalization of
the business environment enables the companies to reach markets farther from their domestic
market. When trying to reach does distant markets the companies also have to accept the
increase in psychic distance. The increase of the geographic/psychic distance will
influence the choice of market entry mode, as the companies will be forced to adapt their way
of entering a market to the costs, market barriers, business culture and political climate to
reach the target country.
The great amount of varying external factors that could influence a companys choice of
market entry mode, will make it hard to pass judgment of right or wrong regarding which way
to enter a new international market. There is according to our findings a thin difference
between when to use a specific entry mode or not. The conclusion drawn from this is that the
external factors will always exist and there is little the companies can do to eliminate the
effects of these factors, therefore they have to adjust their own behavior rather than trying to
change the way of the world.
48
CONCLUSIONS AND IMPLICATIONS
49
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52
APPENDIX 1
Background questions
1. Name and title of the respondent?
2. Who founded the company and when?
3. Company turnover and result?
4. How many employees does the company have?
5. What is the companys core business?
International operations
6. What kind of international market entry modes have the company used to enter
international markets?
Direct export (without intermediaries)
Indirect export (with intermediaries)
Licenses
Franchising
Contract production
Sales subsidiaries
Production subsidiaries
Strategic alliances (joint ventures)
Cooperation with other companies
Internal factors
16. How has the following internal factors influenced the companys choice of
international markets?
Knowledge?
Resources?
Product adaptation?
Competitive advantages?
Management ability, flexibility and dedication?
Planning and control within the company?
Employee motivation and ability?
17. How has the following internal factors influenced the companys choice of
market entry mode in new international markets?
Time to market?
Resources?
Flexibility?
Risk?
APPENDIX 1
Return on investment?
Long-term goals?
Management influence?
Type of product?
Company size?
International experience?
Relations?
18. How does the company handle risk when entering new international markets?
Company structure
19. How does your organizational scheme look?
20. How does your decision process look when deciding how to enter a new international
market?
22. How is decisions made regarding which market entry mode is used to enter a new
international market?
Competition
23. Who are the companys competitors nationally/internationally?
24. How does the company gather information regarding the way your competitors enter
new international markets?
Targets
25. What targets does the company have when establishing on a new international market?
26. How has the following target factors influenced the companys choice of entry
mode into the international market?
Market share targets?
Profit targets?
Establishment time?
Return on investment?
International establishment
27. How have you succeeded in your previous international market entries?
28. How does the companys previous experience of specific entry modes affect your
choice of market entry mode when establishing on a new international market?
29. How fast has the company shown positive results with your previous new activities on
new international markets?
Strategy
30. What strategy does the company have when entering a new international market?
APPENDIX 1
External factors
31. How has the following external factors influenced the companys choice of
international markets?
Geographic distance?
Social and cultural differences?
Laws and regulations?
Infrastructure?
Exchange rate stability?
Knowledge and information about the market?
Political stability?
Trade barriers?
Tax advantages?
Market size and growth rate?
Competition?
Uncertainty to assess demand?
Costs to be active on the market?
32. How has the following external factors influenced the companys choice of entry
mode in new international markets?
Geographic distance?
Social and cultural differences?
Laws and regulations?
Infrastructure?
Exchange rate stability?
Knowledge and information about the market?
Political stability?
Trade barriers?
Tax advantages?
Market size and growth rate?
Competition?
Uncertainty to assess demand?
33. What is the companys strategy when it comes to entry modes into international
markets with high growth rate?
34. Which restrictions does the company have from the Swedish government when it
comes to trade?
35. Which home specific factors have influenced the companys choice of entry mode into
new international markets?
APPENDIX 2
Bakgrundsfrgor
1. Namn och titel p respondenten?
2. Vem grundade fretaget och nr?
3. Fretagets omsttning och resultat?
4. Hur mnga anstllda har ni i ert fretag?
5. Vad r fretagets huvudsakliga verksamhet?
Internationell verksamhet
7. Hur stor del av fretagets totala frsljning r internationell? (i procent)
8. Under hur mnga r har fretaget bedrivit internationell handel?
9. Varfr valde fretaget att bli internationella?
10. Hur brjade fretaget internationalisera?
11. Till vilka lnder brjade fretaget sin internationalisering?
12. I vilka lnder r fretaget representerat idag?
13. Vilka framtida ml har fretaget med att utka sin internationella verksamhet?
14. Vilka r de viktigaste motiven idag nr fretaget vljer internationella marknader och
typ av intrde p marknaden?
15. Varfr valde ni att g in i en ny geografisk marknad den senaste gngen ni gjorde det?
Interna faktorer
16. Hur har fljande interna faktorer pverkat fretagets val av internationella
marknader?
Kunskaper?
Resurser?
Produktanpassning?
Konkurrensfrdelar?
Ledningens frmga, flexibilitet och hngivenhet?
Planering och kontroll inom fretaget?
Anstlldas motivation och frmga?
17. Hur har fljande interna faktorer pverkat fretagets val av intrde p den
internationella marknaden?
Tid att ta sig in p marknaden?
Resurser?
Flexibilitet?
Risker?
terbetalningstid av investering?
Lngsiktiga ml?
APPENDIX 2
Ledningens pverkan?
Typ av produkt?
Fretagets storlek?
Internationell erfarenhet?
Relationer?
Fretagsstruktur
19. Hur ser ert organisationsschema ut?
Konkurrens
22. Vilka konkurrenter anser ni att ni har nationellt/ internationellt?
23. Hur skaffar ni kunskap om p vilket stt era konkurrenter gr in p nya internationella
marknader?
Ml
24. Vilka ml har ni nr ni etablerar er p en ny internationell marknad?
25. Hur har fljande mlfaktorer pverkat fretagets val av intrde p den
internationella marknaden?
Marknadsandelsml?
Vinstml?
Etableringstid?
Tid till avkastning p investering?
Internationell etablering
26. Hur har ni lyckats i tidigare internationella marknadsintrden?
27. Hur pverkar era tidigare erfarenheter av specifika intrdesstt era val av
etableringsstt p nya internationella marknader?
28. Hur snabbt har ni visat positivt resultat p era tidigare nystartade aktiviteter p en ny
marknad?
Strategi
29. Vad har ni fr strategi vid intrde p en ny internationell marknad?
APPENDIX 2
Externa faktorer
30. Hur har fljande externa faktorer pverkat fretagets val av internationella
marknader?
Geografiskt avstnd?
Sociala och kulturella skillnader?
Lagar och frordningar?
Infrastruktur?
Stabilitet i vxelkurs?
Kunskap och information om marknaden?
Politisk stabilitet?
Handelshinder?
Skattefrdelar?
Marknadens storlek och tillvxt?
Konkurrens?
Kostnader att verka p marknaden?
Oskerhet att bedma efterfrgan?
31. Hur har fljande externa faktorer pverkat fretagets val av typ av intrde p
den internationella marknaden?
Geografiskt avstnd?
Sociala och kulturella skillnader?
Lagar och frordningar?
Infrastruktur?
Stabilitet i vxelkurs?
Kunskap och information om marknaden?
Politisk stabilitet?
Handelshinder?
Skattefrdelar?
Marknadens storlek och tillvxt?
Konkurrens?
Oskerhet att bedma efterfrgan?
32. Hur ser fretagets strategi ut fr intrde p internationella marknader med stor
tillvxthastighet?
33. Vilka reststriktioner har ni att flja frn svenska staten vad gllande handel?
34. Vilka faktorer p svenska marknaden pverkar fretagets val av intrdesstt p nya
internationella marknader?