Aarhus school of business
Aarhus university
2011
Topic:
Is there really a freedom in decision-making proces,
concerning internationalization of SME’s. A Case study about
factors that impact this proces, based on the experience of
Akumogroup Ltd.
Author:
Supervisor :
Borislav Valentinov Mitov
Morten Rask
MSc International business
department of management
Student number: 402773
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Is there really a freedom in decision-making proces, concerning
internationalization of SME’s. A Case study about factors that impact
this proces, based on the experience of Akumogroup Ltd.
Contents
Introduction of the firm ........................................................................................................................... 4
History ................................................................................................................................................. 4
Mission and activity ............................................................................................................................ 4
Goals.................................................................................................................................................... 6
Theory ............................................................................................................................................. 6
Goals in particular ........................................................................................................................... 7
Business model .................................................................................................................................... 8
Strategy.............................................................................................................................................. 11
Types of strategy ........................................................................................................................... 11
Problem analysis.................................................................................................................................... 18
Research Question ................................................................................................................................. 21
Theory and formulaton ...................................................................................................................... 21
Litmus test ......................................................................................................................................... 22
Why is the research question interesting and to whom ..................................................................... 22
Further research ................................................................................................................................. 24
Methodology ......................................................................................................................................... 24
Research process outline ................................................................................................................... 24
Data collection methods .................................................................................................................... 25
Interview........................................................................................................................................ 26
Studies on secondary data (desk studies) ...................................................................................... 28
Data analysis strategy ........................................................................................................................ 29
Case studies ................................................................................................................................... 29
Degrees of Freedom Analysis ....................................................................................................... 31
Grounded theory ............................................................................................................................ 31
Comparison of the three strategies ................................................................................................ 32
Choice of strategy .............................................................................................................................. 32
Theoretical background ......................................................................................................................... 33
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Andersen & Buvik’s IMS approaches ............................................................................................... 33
The Systematic approach............................................................................................................... 34
The Non-systematic approach. ...................................................................................................... 34
The Relationship approach ............................................................................................................ 35
Comparison of the three approaches ............................................................................................. 37
Entry modes....................................................................................................................................... 37
Business environment........................................................................................................................ 39
Analysis ................................................................................................................................................. 40
Internationalization proces stages...................................................................................................... 40
Factors at every stage ........................................................................................................................ 42
In the „decision for internationalization” stage. ............................................................................ 42
In strategic approach decision ....................................................................................................... 43
Which market to enter ................................................................................................................... 45
The entry mode decision-making .................................................................................................. 53
Conclusions ........................................................................................................................................... 57
List of literature ..................................................................................................................................... 61
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Introduction of the firm
History
In the end of 2009 the ex CEO and minority owner of MONBAT A/S Valentin Mitov
along with several colleagues, decided to establish own company in order to protect their
savings from the inflation and falling prise of Monbat’s shares on the stock market. The
world’s financial crises has just started to influence Bulgarian business climate and several
companies has started to feel some dificulties. The first step of some of them was to cut costs
from every possible sources. Some very skilled and experienced managers were made
redundant and some niche markets were left unserved. Akumo group was established with the
idea that the moment of crisis is the moment when a new player may enter the market and
capture those niche that has been left by other companies.
The industry where initially the company wanted to enter was starter and traction batteries
production and trading with such. But the lack of enough resources and the lack of will from
the banks to finance big projects at this time made some implications on the plan. Instead of
establishing a production facility, AkumoGroup was forced to search for other opportunities.
It could be said that the very business with starter and traction batteries is almost in the last
(decline) stage of its life cycle. (For more information check Appendix A1 page 1)
This factor, the life cycle position of the industry, is a red light that show that
establishment of a new factory may proove to be not sustainable in long turn. But the
knowledge of the industry and the good relations with many of the producers gave birth to the
idea that a trading company could be created which can establish a good distribution network.
Some companies that have the opportunity to produce product at a reasonable prices, but do
not have the marketing resources, or do not want to engage them by their own could enter
different markets by contracts with Akumogroup and to use already established network.
Mission and activity
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The mission of one company is clear and meaningful vision it carries of the future and
the purpose of its existance, and what it want to give the world by folowing certain principles
(moral, ethycs, public image, how the world will benefit from the company’s business)1. But
the mission is something that you can use to build image in front of different stakeholders.
There you do not state numbers or material interests. According to G. Mladenova –
„Marketing planning”, the mission has the following content: definition of the business,
image of the firm, sustainable competitive advantages and vision about future development.
So in the end of 2009 Akumogroup was establihed and started its operations.
AkumoGroup LTD is a company which official activity is trading with starter and traction
batteries always in competitive prices, stable quality, fast and secure services. Its deeper
mission is to establih a network built of trust, stability and common interests with its partners
and customers. Of course there are many other goals that are not propagandized among
partners like sustainable growth, profit, taking a leading role in the network, establihing its
own trademark in the market, and turning the small logo of the company into a guarantee
mark for quality and trust for the end cutomers and business clients. But as we mentioned the
role of the business mission statement is to give a socially meaningful reason for the existance
of the firm2 and to build image.
Akumo Group is still young company with many bold ambitions which needs some
time, a lot of work and some luck to fulfill them. But from nearly a year on the market it si
now clear that only the limited home market is not enough for long term sustainable growth.
Profits turn out not to be enough to finance its bolder initiatives. So internationalization
seems to be a way to cope with this problem.
In order to fulfill the ambitions and objectives of the company it needs to have a
sustainable long term strategy and clearly defined goals. The aim of the entire project
however will be to try to see if there is truely such a freedom in the choice of entry modes
and entering different new markets or there are factor that limits this choice and how in
particular.
But in some ways to pose a particular research question first it would be a good idea to
make a short analysis on what is the actual problem(s) the company is facing. We already
mentioned the mission and the field of action of the firm, but still nothing about one of the
1
2
http://www.businessplans.org/mission.html
Mladenova G., Marketing planning 2006
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most important things not only in business but in every undertaking that is made. The goals,
or the goals hierarchy of the enterprise. Now let’s go for some dose of theory about goals that
will give us more reasons to understand why internationalization is needed (motivation) and
why the research question of this thesis is interesting for the management.
Goals
Theory
In general the goal (objective) is a desired state or a preferred result, toward which the
company is aims
in a certain period of time (G. Mladenova 2006). The goal is the result of
market-centered analysis and reflects the views of managers for the future development of the
company. It is based on a thorough understanding of the status and trends in the external
environment and internal corporate factors3. The objectives are the product of the interaction
of multiple factors acting at different levels within the organization: external forces (social
values, government, law, contact groups) nature of the business (market situation, product
lifecycle, technologies used, resources, competitors), organizational culture (history and age
of the company leadership, management strength, structure and systems, rituals and symbols),
individuals and groups (managers, shareholders, owners, groups). According to P. Dracker
main areas of goal setting in the company are:
1. market presence and market position,
2. innovation,
3. productivity,
4. finances and financial resources,
5. management,
6. key staff,
7. profitability and social responsibility.
Goals can be long, medium and short term. To give precise time limits for short, medium
and long term goals is difficult as this depends on the industry, the company and the nature of
the environment, the pace of change in technology, the intensity of competition, the degree of
change in consumer tastes, though it is common it the literature to consider short-term goals
up to one year period, medium from 1 to 3, and long-term goals – those up to 5 years or more.
3
Mladenova G., marketing planning (2006)
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Corporate objectives are transformed into functional strategies, showing how this goals
will be met, and to develop specific plans in different business areas: marketing, finance,
production, personnel, R&D
When talking about trading company, as Akumogroup Ltd, marketing objectives are one
of the most important.
According to G. Lamb marketing objectives are defined for each product and market in the
following principal areas:
1). Sales - revenue from sales, sales in kind, market share,
2). Profit - the use of this indicator ensure close interfunctional coordination within the
company, and
3). Buyers - the objectives in this area reflect the desired positioning of the company and her
products.
To be well formulated objectives should meet the following requirements:
1. to be clear and specific,
2. to target the desired end without creating confusion and possible conflicts among the
staff
3. to be quantified if possible or to be measurable
4. to indicate clearly and unambiguously the period during which will be implemented,
5. to be consistent and to be in hierarchical subordination to each other (successive
decomposition of the main objective of targets, ranging objectives, vertical and
horizontal differentiated integration purposes)
6. to be both difficult and achievable,
7. to be realistic.
All this represent the so called SMART criteria in goal setting but plus several more
specifications.
Goals in particular
After this not so brief abstract definition of objectives and strategy it is time to mention
something in particular in the case of AkumoGroup. It is a small company which is 100%
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owned by one man. The company’s objectives are set, by the owner himself (according to his
words), but with some help and advices from marketing consultant. The goals are set in four
main and a bit interrelated areas.
1.
PROFIT.
2.
SUSTAINABLE GROWTH.
3.
ACHIEVING A LEADING ROLE IN THE NETWORK AND ON THE
MARKET.
4.
EXPAND AND ENFORCE THE NETWORK.
Here the goals are only stated, but in Appendix A1 you can read about Akumumogroup’s
objectives. What do we meen by each goal? Why we need to achieve it? In what time?
Business model
To give you a complete knowledge of the company only one thing remains. To present its
business model nowadays. The busines model could be defined as the rationale of how an
organization creates, delivers and capture value.4 The business model will be described as
nine building blocks that show the logic of how a firm make money. The building blocks
cover the four main areas of a business:
-
Customers
-
Offer
-
Infrastructure
-
Financial viability
Moreover, the buiness model is like a blueprint for a strategy creation. Later the strategy is
implemented through organizational structures, processes and sistems.
The business model canvas you can see on figure 2, in Appendix A1.
4
A. Osterwalder &Y. Pigneur „Buiness Model Generation”2009
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1. Customer segment(s) – this building block defines the different groups of people or
organizations an enterprise aim to reach and serve.
Akumogroup’s market consists of wide range of customers. We are going to devide them into
three groups:
1.
Business clients: big and medium sized stores, building companies, Electrocentrals,
cellphone operators, airlines, ships, transport companies, cleaning companies, taxi companies
and so on.
2.
End users: all car owners in general, but due to differentiation of brands our segment is
mostly consistent of price sensitive customers, but any way clear segmentation is impossible.
3.
Government: military batteries for tanks, stationary cannons, suppor equipment,
military transport machines, choppers and jet fighters. Also for social programs: batteries for
wheelchairs and support generators in the hospitals in case of incidents in general electric
network.
2. Value proposition. This building block decribes the bundle of products and services
that create value for a specific customer(s) segment. The value that a company creates
for its customers is the thing that actualy makes the customers willing to pay the price
for it. The value proposed must outweight the cost that customers are paying in order
to make them satisfied and make a second and so on purchase ( to become loyal).
According to A. Osterwalder activities that create value, and are met in Akumogroup,
are as follows: Performance, customization, getting the job done, design, brand, price,
cost reduction, risk reduction, accesibility, usability.
Value that Akumogroup creates for its customers is as follows:
-
Products with good quality
-
No need of storage costs for our clients
-
Delivery When they want, what they want, where they want it.
-
Maintenance free, free service within guarantee period
-
Trust
-
Credit options
-
Tested products
-
Old batteries backbuying
-
Assistance and consultations.
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3. Channels. – this business block describes how a company communicates with and
reaches its customer segments to deliver a value proposition. Chanells in Akumogroup
serves several functions, including:
a. Raising awareness among customers about company’s products and services
b. Allowing customers to purchase specific products and services
c. Deliverind the value proposition to customers ( physical distribution)
d. Providing post-purchase customer support - service.
Channels could be owned by the firm, to use some of our partner’s channels or a mix.
4. Customer relationships. This block represents how a company establish, nurture and
enforce its relation with customer’s segment(s). Those relations exist as peronal
assistance, co creation, stay in touch with the customer, to be interested in customer’s
satisfaction, vauchers for discounts on second purchase, special purchases (military
and some business clients), online Q&A and support, service, others.
5. Revenue streams. AG’s revenues are resulting from ongoing payments to either
deliver value to customer or providing post-purchase customer support. Some of the
sources of revenue are: sales, brokerage, out of guarantee period ervice, ect. For the
revenues our company receives, very importan factor is the pricing policy, or pricing
mechanism. Formation of the price could be cost driven, competitor driven, customer
driven or a mix of those5. But this is a topic too broad to discuss here...
6. Key resources. Either physical, financial, intelectual or human resources, they are the
neccesary means to do the work a firm is doing. Akumogroup depends more on
experience, market knowledge, personal connections of the manager, intuition and
money (only in limited cases).
7. Key activities. This block describes all the things a firm must do to make its business
model work. The activitie could be presented in several main directions:
manufacturing, marketing, finance, human resources and management.
Akumogroup main activities are: connecting manufacturers with large scale sellers,
storage, distribution, aftersales service, marketing of the products.
5
Klasova S., Pricing policy 2000
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8. Key partnerships. This building block represents who the firm is partnering with and
why. Either an strategic alliance, joint venture, buyer - supplier relations or other, this
are the relations that make the business model work. They can insure the allocation of
resources and activities in optimal way, economies of scale and scope, risk reduction,
knowledge, acces to a network and new customer sements and so on. Akumogroup
main partners are Elhim Iskra S.A; Burga Comerce LTD, Akubat LTD, Katsarsky
ervices, others.
9. Cost structure. What are the costs to operate a business model. Fixed costs, variable
cots, average cot, marginal cost, operational costs, investment costs, ect. This element
of the business model and the revenue block are important in particular for the
financial result of it. If in total the sum of the costs is larger then the revenues then
there is some problem in the business model, or it is created with speculative goals. In
battery business fixed costs are large and Average fix cots are large because the
transport costs are divided on small amount of batteries (because they are heavy and
large, especially the traction batteries).
Strategy
The Strategic alternatives form all the possible options for reaching the desired results by an
integrated assessment of the current situation and formulated goals. In essence, the
alternatives are specific ways to solve identified problems and to exploit occurring
opportunities6.
In the formulation of strategy for instance it is appropriate to include the following elements:
target market, positoining the products on the market, certain objectives, allocation of
resources, competitive advantages, marketing mix elements. Strategy should comply with
several requirements (see appendix A1).
Types of strategy
Miles and Snow
6
Mladenova G., Marketing planning (2006)
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The classification will start with the model presented by R. Miles and C. Snow:
1. Defender. The companies that follow this strategic behavior have narrow and
relatively stable product market domains. Top managers in this type of organization
are highly expert in their organization’s limited are of operation but tend to search out
side of their domains for new product opportunities. As a reult of this narrow focus,
the organization’s seldom needto make major adjustments in their technology,
structure and methods of operation. Instead, they devote primary attention to
improving the efficiency of their existing operations. Defender characteristics include
a limited product line, single capacity extensive technology, a functional structure,and
skills at production efficiency, process engeneering and cost control.
2. Prospector. Organizations that has accepted that strategic alternative are cintinuously
searching for new product-market opportunitieand regularly experiment with potential
responses to emering environmental trends. These organizations often are the creators
of change and uncertainty to which their competitors must respond. However, because
of their strong concerne for product and market innovation, these organizations are
usually not so efficient. Prospector characteristics include a diverse product line,
multiple technologies, a product or geographycally divisionalized structure, skills in
product R&D, market research abilities and development engeneering.
3. Analyzer. This organizations operate in two types of product-market domains. First
one is relatively stable and the other is a changing one. In their stable areas, these
organization operate routinely and efficiently through use of formalized structures and
processes (functional structure and higher centralization). In their more innovative
areas, key managers watch their competitors closely for new ideas, and then they
rapidly adopt the most promising ideas ( many chinee producer are doing this today –
rapidly copy products and produce them at half price). Analyzer’s characteristics are –
a limited basic product line, search for small number of related product-market
opportunities, cost efficient technology for stable products and project technologies for
new product. Matrix organisational structure, skills in production efficiency, process
engeneering and marketing. Analizer companies are defenders in their core activity
and prospectors at their satelite activities
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It is hard to classify Akumogroup’s strategy according to this theoretical frame, but most
feature of the Analyzer option are met. The firm i operationg in two product-market domains.
The first one is homecountry market. This according to I. Ansof is „existing product-existing
market” option. In the homecountry proceses and networks are set, the product is known by
general public and the urge is for finding more efficient ways to execute the same processes.
But in the second domain - „existing product – new market” thing are diferent. Here the firm
is earching for new, more efficient processes, new connections, promotions and lock in effect
(for partners). Also Akumogroup is demanding some modifications of the product for the
needs of the new market.
Ghemawat P. (2010)
Another posible framework for strategy types could be the one described by P. Ghemawat
(2010) in his work „strategy and the business landscape, edition 3 chapter 7. Here he puts
three main alternatives that concernes all building blocks in the company’s business model.
The alternatives are related to two dimensions – global integration and national/market
responsivenes. They are namely:
1. Aggregation – to overcome cross-country differances and achieve scale and/or scope
economies that extend across national border, e.g. through regionalization.aggregation
is all about using grouping devices – and intragroup coordination mechanisms – to
create greater scope/scale economies than country-by-country can provide. One option
of aggregation is the fully globalized strategy, another is this of making a regional
strategy. Regions also tend to share commonalities along the culture, administrative
and economic dimensions of the CAGE distance framework. Regional strategies
themselves come in a number of different varieties: regional focus, regional portfolio,
regional platforms, regional hubs and networks, and so on.
In Akumogroup product are mostly standartized with a few exception. If we have the
entire business model in mind we can see that the key partners are the same, plus some
more from the market of interest. The key activities and resources are standartized too.
The value pepoition is the same as are most of the products, cost tructure is a bit
changed as a ratios but standartized at all. Revenue sources are abolutely standartized,
but payment methods are adapted. Channels of distribution and cutomer relations are
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the same as methods, but different in the way of eecution. And in the end customer’s
segments – they are still the same as in Bulgaria but with differances in comparion.
2. Adaptation – to adjust to cross country differences and achieve focus advantages or
mitigate disadvantage, e.g. through variation or better ways of creating variety. If local
markets have different preferances, offer them different products and services, tailor
policies, positioning, metrics and ect..
In the business model of Akumogroup there are several adaptation to serve more relevantly
the new market. For instance for business clients we offer standartized and customized
batteries. Some of them are based on modular principle. Payment method are customized by
customer types and size of purchases and risk. Customer segments are the same by name. But
turkish tranport firms, and other business clients differ a bit from Bulgarian. End customers
are more or les the same in this industry.
3. Arbitrage – exploit differences between national or regional markets, by locating
different parts of the supply chain in different places. Arbitrage is about seeking
absolute economies rather than econoies of scale gaineg through standartization.
Arbitrage can be: cultural, administrative (use offshore taxheavens to locate main
facilities, safety, ect), geographic and economic ( low wage countries, capital costsinterest rates, resources endowment, availability of knowledge, et cetra).
For now the only feature of arbitrage trategy in Akumogroup is thet we try to get advantage of
the market with more purchasing power than our home-country. Also because we want to set
foot in a market (Istambul) with more potential than our entire home-country market.
Concentration vs diversification (Ayal I. - 1979)
Any firm attempting to expand international operations must decide on the number of
countries and market segments it will attempt to penetrate at any given period. Given a fixed
marketing budget the firm must also decide how to allocate its efforts among different
markets served. One can conceive of two major and opposing strategies for making these
decisions: market diversification and market concentration. The first strategy implies a fast
penetration into a large number of market and diffusion of efforts among them. the second
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strategy is based on concentration of resource in a few markets and gradual expansion into
new territories.
The choice of a market expansion policy is a key strategic decision in multinational
marketing. To develope such a policy, a firm has to make decisions in the following areas:
1. Identification of potential markets and determination of some order of priorities for
entering into them.
2. Decisions on the overal level of marketing effort that the firm is able and willing to
commit.
3. Selection of the rate of market expansion over time, and determination of the
allocation of efforts among different markets.
A strategy of market concentration is characterized by a slow and gradual rate of growth in
the number of markets served. On the other hand, a strategy of market diversification is
characterized by a fast rate of growh in a number of markets at the early stage of expansion. It
is, therefore, expected that a strategy of concentration will result in a smaller number of
markets served, at each point of time, relative to a strategy of diversification. Expected
evolution of the number of market, for a strategy of concentration versus a strategy of
diversification, is presented graphically in figure 1
Number of markets
served
diversification
optimal number of markets
concentration
Time
Fugure 1: Alternative market expansion strategies over time (source:Journal of marketing,
Spring 1979)
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In a long run, a strategy of diversification will frequently lead to a reduction in the number of
markets, as a result of consolidations and abandonment of less profitable markets. A fast rate
of market expansion is usually accomplished by devoting only limited resources and time to a
careful study of each market prior to entry. The firm is, therefore, bound to make a few
mistakes and is more likely to enter unprofitable markets and drop them later.7
Different patterns of market expansion are likely to cause development of different
competitive conditions in markets over time. The profitability of a late entry into a new
market is affected by product life cicle. As a result, the optimal number of markets served in a
long run is not necessarily the same for both strategies.
The two strategies lead to the selection of different level of marketing mixes in each market.
Given fixed financial and managerial resource, the level of resources allocation to each
market in a strategy of diversification will be lower than with concentration. The size of the
budget gives an indication about possible selection of means or marketing mix. Specifically, a
lower level of marketing effort implies less promotional expenditures, more reliance on
commision agents, and a stronger tendency for a skimming approach to pricing. A strategy of
concentration, on the other hand, involves investment in market share. This implies heavy
promotional outlays, stronger control over the distribution channel(s) and in many cases a
penatration pricing(lower). All this requires money. If in diversification strategy the focus is
on broad penetration into many markets simultaneously, then in concentration strategy the
focus is on „deep” penetration in a small number of countries (segments) at the same time, if
not one at a time8.
But strategy of market expansion is not only characterized by new national market we want to
enter into, but also the segments within national markets, and allocation of efforts in those
segments. The second consideration has to do more with the topic of entry modes, but
segmentation of markets is essential here. Through these segmentation we can see several
opportunities to execute a certain strategy of penetration. Concentration or diversification may
concerns not only country market as a whole, but also different segments. We broadly
discussed segmentation previously so let us present the four major opportunities in appendix
A1..
7
8
Hirsh and Lev (1973) – Empirical study
Author.
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Of course there are many considerations to have in mind when chosing a particular strategy.
According to Ayal 1979 there are several main considerations in chosing between
concentration or diversification strategy for internationalization. Those considerations are
explained better in Appendix A1.
a. Sales respone function.
b. Gowth rate of each market.
c. Sales stability in each market.
d. Competitive lead-time.
e. Spill-over effect..
f. Need for product adaptation.
g. Need for communication adaptation
h. Economies of scale in distribution.
i. Control requirements
j. Other constraints
According to this classification it is clear that Akumogroup follows the concentration
approach but mainly becaue it ha not enough experience and knowledge for fast
internationalization and because it still has no sufficient financial resources to make good
enough market researches and to finance internationalization campaigns in more markets. One
more limitation is the fear that if we work with many partners (ome of them a lot more
influential and richer than us) we might lose control over the things, and consequently to lose
our positions in the entire network.
Cost leadership and differentiation
Cost leadership – this strategy is concentrated in cost reduction through different means like
situating the manufacturing facilities and other cost intensive functions in a low-wage
countries, using subcontractors, using sometimes low-quality materials, cost efficiently
processes, economies of scale and scope, concentration in the core levels of the product9.
Differentiation . this strategy is based on completely different views. Here what is important
is not to cut cost, but to increase value. It can be achieved by R&D activities and investment,
9
Baleva V., product policy (2007)
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marketing initiatives like PR, intense advertising, customer relationships building and
enforcement. In this strategic perpective the focuse is to differ from competitors and to
convince customers that it is worthy to pay premium price for the product.
For now Akumogroup LTD is trying to maintain a mix of those strategic alternatives. Low
prices for the end customers, and better offers for the business clients. At the same time the
firm is trying to maintain high quality for the price, image of a trustworthy partner, promoting
the brand „ISKRA” and „EXTREME” on the market, making the services better and
increasind the perceived value for the customers.
Problem analysis
All the information above was necessary to give an overwiew of the firm and to understand a
little bit organizational context. Mission and goals of the firm are needed to understand the
motives for internationalization. An overview of the external environment of the company
(bulgarian market) is needed to show why internationalization is the chosen way of achieving
the goals, but not another alternative. And the strategy is here to show how the goals are going
to be achieved. The mindset and the driving assumptions of the management that will be
followed. In the end of the introduction the business model was expose to show how
Akumogroup create value now and what adaptations wil be necessary in odrer to do
successfully business in the foreign market.
The next step we need is to go deeper in the problem of the firm. The goals- especially the
one connected with the absolute value of the profit and sales, plus the objective of sustainable
growth require actions. The questions that management asks are:
-
How to make more profits?
-
How to achieve sustainable growth?
The answers are at the same time simple and on the other hand not. There are many ways to
increase profit and to achieve growth. Some of them are connected with more sale as quantity,
and others are connected with aking more profit per unit. In the case of Akumogroup the
second alternative is not a viable option because all the participants in the network –
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subdistributors, business clients and end users are very price sensitive. If we increase prices
we will lose clients and they will probably go to our competitors.
So we need more sales. Again management pose the question:
-
How to sell more, and where? To whom?
To sell more of a given product, a firm has three major options:
-
To increase its marketshare
-
Mo expand to new market for the company
-
To create new market.
Market creating option is not considered among the managers of Akumogroup at all. This is
because noone can see new applications of this product. Here may be the opportunity lies in
adding new products, functional analogs10, to the product portfolio. But if this happens, it will
be in future.
As we noticed, Akumogroup is following the strategic alternative of so called Analyzer
(Miles and Snow). A prove of this is the fact that Akumogroup is trying to increase its
marketshare in Bulgaria. And along with this it is trying to enter a new market. The main
topic of this thesis is internationalization of the firm, so we are going to concentrate on how to
sell in foreign market. But it is very important to mention that the homemarket is already
established for the company and it is for now the only source of revenues. Those money are
invested into the internationalization process. Without capital any initiative is impossible.
After the management has decided to expand its activities into another market, new questions
are born:
-
To search for a new market in the home-country or in a foreign country?
In the home country the market of this kind of firms is one. We are already working with most
of the possible types of clients and we just need more of them as a number. The market for
this industry is quite narrow in respect of segments and quite wide in respec of number of
possible clients. Mostly the segmentation is made based on price sensitivity.
When the alternative of going abroad ha been accepted the questions now are:
10
Bleva V., Product policy (2007)
Page 19 of 63
-
Which market(s) to select?
-
How to select them? what approach to follow?
The importance of the part where we describe strategy becomes more and more important, as
we dig deeper into the problem. The strategy followed by Akumogroup in repect of number of
markets served is Concentration. Sales response function in bulgaria shows for now that when
more marketing effort are made the sales go up. This responds to S-curve function. According
to Ayal this shows that may be concentration approach is better. The growth rate of the
market in Bulgaria is low, but for Akumogroup there is substantial growth. Same goes for the
foreign market. There are players there but we can do the same we have done in our
homeland, or at least we hope so. Sale stability in bulgaria i not that high so we need
expansion in a country with higher market potential. About the lead time, this is not a
concern in trade with batteries business. We are not talking about new products and new
processes in general. The need for product adaptation is low. This shows that diverification
could be preffered approach. Also spill over effect could be high in repect of marketing
efforts and distribution. Adaptation in communication is needed but at low levels. Economies
of scale coul be high in distribution and communication too. As we can see there are many
evidence that shows Akumogroup should persue diversification strategy but Ayal missed one
very important factor. When doing real business a financial constraints are one of the most
important factors. And Akumogroup is going for a concentration strategy because the firm
can not afford to mainain several campaigns at once. It do not have neither the financial,
neither the human resourse to do that. So the choice of how many markets to enter is simple –
one at a time.
Now the most important question – which market? And why this market? How to enter it entry mode(s)?
To answer this questions the management needs particular information about what factors
could be taken into consideration before choosing a market and spending all the budget to
enter and possition itself on it. Also how this factors actually limits the choice and what are
the viable alternatives for the decision makers.
So we went from the need of profit and growth to the need of more sales and new markets.
And from this we derived the need of information about limiting factors infront of
Akumogrou in its internationalization campaign. And those factors will be main topic of our
case study research.
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Research Question
Theory and formulaton
The process of formulating the best suited research question for a study begins with a broad
topic11. Afterwards the topic has to be narrowed down, and finally the research question and
goals of the study can be stated. The broad topic is what affects decision-making proces
concerning internationalization in Akumogroup. This research will focus on what influence
does certain conditions have when making managerial decisions of internationalization.
This process is divided into three steps12, and ultimately ends in one sentence which includes;
the topic, the research question and the goal of the study.
In the first step the topic we are studying is stated as: “how we can make the optimal choice of
international market, entry mode and positioning strategy?” This sentence will be further
developed in the next two steps.
The research question is formulated in the next step, because we want to find out - what
impact the actual decisions, if something does?, the research question is as follows:
“Is there really a freedom in decision-making proces regarding internationalization? If yes
then what conditions limits the choice and to what extend?”
By internationalization here we understand the decisions and actions of the company
regarding market(s) election, entry modes and positioning strategy.
And finally the third step is where the goal of the study is stated. The reason for conducting
this research is to make a good internationalization campaign. Therefore the goal of the study
is to find out how to create the most efficient campaign. The final sentence is:
“We are studying what factors effect the choice of international market(s), entry mode(s) and
positioning strategy?
Because we want to find out how this factors limits the decision making process, and to what
extend?
In order to create a efective and successful internationalization campaign.”
11
12
Booth, Wayne C; Colomb, Gregory G. & Williams, Joseph M.: ”From topics to questions”, p. 37
Booth, Wayne C; Colomb, Gregory G. & Williams, Joseph M.: ”From topics to questions”, p. 42-45
Page 21 of 63
Litmus test
To evaluate the research question the litmus test was used. The first part is to answer whether
the research question really poses a quest for information or is simply a statement. Our
research question would have been a statement if it was formulated the following way; “what
factors limit the choice of markets and entry modes”. Then it would be a statement that there
are factors that really limits the choice. The next part is whether the question is impossible to
answer within the given timeframe. The data is relatively easy to collect and the subject isn’t
that new. There are many theories in this area and the company I am working with have
started their real project so I can hava access to information.
The next two parts of the test are: asking if it’s an interesting and relevant question, and
whether we beget facts or opinions. In the latter, we are generating individual opinions
(interview with the manager and stakeholders) but in this area what does „fact” means. If it
was a mathematic and 1+1=2 in every case, here one decision about one maket is differatn
than another. And the research has relevance for the company and broader public, because
they now have a better understand of what factors they have to comply with and what further
researches could be made. The final part of the litmus test is whether the answer to the
research question is self-evident or if both a confirming or disconfirming result is interesting.
In this case, it is certain that there will be factors that affect decisions but the interesting part
will be not to list them (it has been made already by some authors), but to see how they work,
how the company could try to change their effect on it or in what degree to adapt or try to
cope with them.
Why is the research question interesting and to whom
Each time when a research or a study is done it is because of someone’s interest. In the
business are the reason is simple. Every study is done because the decision makers need
particular information to help them in taking optimal decisions. In this thesis the word optimal
will be used very often. The meaning of this word is: the best suited decision, taken on the
basis of the given options in the exact time period. This particular research is done because of
the needs of a given firm – Akumogroup. The company’s management has taken a decision to
Page 22 of 63
internationalize its activities in one foreign market (concentration strategy). In this part of the
thesis it is not important why to internationalize. Here the question is: what factors the
management must be aware of when making a decision of which market to select, how to
enter it and how to position the brand on the market. What strategies to engage?. It is of
interest because the firm wants to achieve success in the new market and to make its financial
results better. Also to become more important player in the region. More specificly the
research is of interest because management wants to see what factors to evaluate, forecast or
even plan before taking action. Most of the factor are well known and can be seen in almost
every marketing or international business book. But their effect differ from company to
company, from market to market and even in time perspective (author). Akumogroup want to
see how eventually those factors will affect the firm. And in the end, what is most, interesting
and important – to create a strategy of how to internationalize successfully by coping with
those factors in the best possible(for the company) way.
Apart from the company as an entity the topic is of interest of the owner of the firm himself
because it is his source of money and capital. If Akumogroup internationalize successfuly it
will give access to richer and larger market. Also more international connections and
experience. In future international expansion, the lessons from this one could be used. This is
knowledge creation for the needs of the firm.
For general science it is of interest because it is one more case of SME’s internationalization
attempt. As every case study it gives results for the very case we study. The results are not to
be trusted that much if taken out of the context they have been achieved in. But on a larger
study, if many case studies are examined (SMEs, LSEs, ect) then a statistical generalization
can be done with higher per cent of Trustworthy. So this study can be a part of a higher level
study for general knowledge creation.
In this sence the author of this thesis wants to stess on the fact, that the knowledge crated by
this work will be based on the case study of only one company – Akumogroup. The
information and the conclusions will be made for the purpose on Akumogroup’s successful
internationalization. The facts could be used out of the context on user’s own responsibility,
because they can turn out to be not applicable in another context.
Page 23 of 63
Further research
Eventually when concluding the research the infarmation we gain, no doubt, will rise more
questions. But at this level I can not discuss this because we do not have the answeres. The
conclusion part of the thesis will serve this purpose.
Methodology
To answer this question we will cling to a certain structure of this thesis. The
methodology part will describe how the question will be approached and how to reach a
satisfactory answer.
Research process outline
1. In the beginning it is the research question formulation and testing. This give us an
option to look closely at what we are interested in. And it is what information do we
need, and what trade-offs to make due to the limitations’ effect, in order to create an
effective internationalization campaign of Akumogroup. And of course the
internationalization campaign as an entity is just the first step. After all the most
important thing is to operate profitably on the foreign and domestic market for a long
enough time after we have set foot on them. But now we concentrate mostly at the
decision for internationalization: motives, strategy, international market selection
process, entry mode(s)and internationalization strategy. The questions about
positioning on the market, sales stimulation, advertising, customers and partner
motivation, monitoring and control, cost consideration and so on we will leave for
further researches.
Next thing we must answer is to whom it is of interest. The answer is easy. It is of
interest mainly of Akumogroup and its stakeholders. And indirectly for the wider
public as researchers in the field of international business and marketing.
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2. After we have asked the question of real interest we must mention something about
the company that will be the unit of our analysis. A little bit history to give light of
some factors that will limit not only the internationalization process but the entire
decision making process in the firm.
Then a statement of the mission and the goals of Akumogroup to show what the
company is aiming for. Again some words about the strategy it has engaged in order to
fulfil it objectives. And at last but not the least – the business model Akumogroup has
now and the changes it must sustain to be able to meet the new challenges of doing
business internationally.
3. Theoretical background will be the part where the main concepts will be described.
First the process of internationalization and the internationalization perspective of
Akumogroup. Then some theory about International market selection and entry
modes. Afterwards some factors that limits the decision making process, that are well
known in the economic literature will be presented.
4. In the main part of the research the case of Akumogroup’s internationalization will be
analysed. In every step of its internationalization process there might be some factors
that limits the options in front of the management. Those factors makes decision
makers to do some trade-offs in their choice, to evaluate alternative prices of their
decisions an to try to make the optimal one, among all posibilities. The purpose of the
Analysis part will be to list limitations Akumogroup faces, to describe how exactly
they limit the choice and to outline possible options infront of the firm’s management.
5. Conclusion part will sum up the findings from the research and ouline further
questions for researches connected to the broad topic of internationalization of SME’s.
Methodology part has two more tasks, apart from the one above (to give a structure of the
research). The others tasks are:
-
To discuss data collection methods.
-
To discuss and argue for the choice of relevant data analysis strategy.
Data collection methods
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This is where the author have to explain how does he get the data in use, in the
research. In this very particular case the data could be obtained inside and outside the
company.
The motives for internationalization, the goals the company persue, the strategy for
achieving them, the resources endowment for materializing the strategy, mindset in the firm,
the process of internationalization and ect. This information is gathered by interviewing the
manager of Akumogroup. Some of the information is gained by consultations with marketing
consultants.
Interview
The interview data source is the consciousness of the respondents13. Data collection
for this class of methods is based on asking questions and getting answers to these questions.
Common to all methods of interviewing is that they are carried out using pre-designed
questionnaire, containing questions about the behavior, intentions, attitudes, knowledge,
demographics of the respondents. When the questionnaire contains mostly closed questions,
we are talking about structured interview. When questions are open then the interview is
semi-structured.
Interview could be face to face or by using some device. In Face to face interviews
there is personal contact between the interviewer and interviewee. The other types of
interviewing do not neccessarly put those two in one place. There are telephone interviews,
computer assisted telephone interviews (CATI), computer assisted personal interviws (CAPI).
With the case of Akumogroup the interviews that are done are dominantly personal
interviews. The contacts between the researcher and the respondent are face to face. Very few
conversations were made through the phone. Also the questions were mostly open. This leads
to the idea that the interviews were semistructures. although the researcher have a clear
research question and more then clear objectives of the research, we can not create completely
structured interview. This could happen only if we are sure that we know everything that is of
interest and we just want to confirm or reject certain hypotheis. In this research we do not
have clear hypothesis. We have assumed that there are factors that limits the freedom in
decision-making process, regarding to internationalization by intuition. Literature review
gives us many of those factors, but we want to be very specific in this study. We want to see
which are the factors that limits Akumogroup’s internationalization decisions. And not just to
13
Jelev S., Marketing research 2005
Page 26 of 63
see which are they but to reveal how they work, and what options they leave in firm’s
disposal.
The access to the respodents we need was easy. Company’s management showed
interest in this topic and spent some time to participate in the interviews. Marketing
consultants are used for consultations regarding the marketing of the company. For now
Akumogroup is a small firm, trading with starter and traction batteries and consulting client
to help them chose the right product for their needs. This kind of business do not require that
much marketing efforts. To keep a marketing department and even just a marketing manager,
for now, is not necessary and it is expensive. What we do is just advertising and making some
promotions. A simple consultation is more than enough and a lot more cheaper in this
moment. But concerning internationalization the opinion of marketing specialist is not just
necessary, but crucial.
The interview with akumogroup manager and owner was about motives of
internationalization, company objectives and strategy. Also if the products are of satisfactory
quality to satisfy customers’ needs in Bulgaria and potential markets.
The second interview was with a marketing consultant. The researcher is also with
marketing education and serves as something like unofficial marketing manager in
Akumogroup nowadays, but for a serious endeavor like internationalization, the opinion of
experienced marketeer was wanted. The results turned out to be not that good, because the
conversation was arround well known variables – market potential, brand awareness,
customer behavior, pricing policy and distribution, advertising and a need for a serious
marketing research. Marketing agencies are doing such a researches for other companies, and
it is one of the main sources of their revenues. By a certain request we have received an offer
for a research at the cost of 7500 euro. The interview wasn’t that sucessful because the
consultant was all the time offering his agency’s services instead of helping our cause. But the
interview with him was something like precaution measure, not to miss some factors
regarding marketing aspects of internationalization.
Then again interwiew with the manager of the firm, this time regarding market
selection and possible entry modes and internationalization strategies. What
internationalization approach, what are the possible markets, what are the choice criterias,
what motivates the choice of certain markets instead of another, concentration or
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diversification strategy, business model and standartization or adaptation of products and so
on.
The data concerning the international market selection process is achieved by desk
research on the market in interest.
The ideas concerning international market selection were clarified in the second semistructured interview with tha manager of Akumogroup. But the exact data for potential market
or markets is gained by a desk research and unofficial conversations with people with certain
knowledge about those markets (people that operates there already, or people that have lived
or still live there from many years).
Studies on secondary data (desk studies)
Secondary data is data, collected and processed in another context, and stored on any tangible
device and made available to researchers. Although collected for another purpose, it can be
used to solve different problems. Secondary data is produced by different agencies:
marketing, statistics, previous studies, information systems, data bases, address books, ect. the
obtaining of secondary data is relatively cheeper than to conduct a new research. There is
always a catch – the data is collected for different purpose, but if there is clear methodology
of how it is done then the data could be of use. Also there is information which is absolutely
usable. For instance about the population size of a country, distribution of incomes,
distribution of population, indutrial development of the regions in the country, and so on. (S.
Jelev - marketing research 2005).
The entry mode(s) decision is based on general information about different entry
modes and their main features. The actual entry mode in the case of Akumogroup is in some
way predestined by the possibilities in front of the firm, and in some sence in the entire
business with starter and traction batteries. The decision is made after a thorough
consideration of existing conditions inside and ouside of the company. Its main purpose is to
ensure high enough profit rate, enough sales and further growth. And also control on the
prices, merchandizing conditions and quality of services.
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Data analysis strategy
And after obtaining this data a case study is going to be carried out. This is the part
where we turn data into information. And information into a knowledge. For this purpose
there are three main data analysis strategies defined in the business research literature: Case
study, Grounded Theory and Degree of freedom analysis. To chose the most relevent one lets
briefly discuss and compare those three methods (look in appendix A2 for more detailed
discussion). Since Case study is the dominat strategy in Akumogroup’s case here in the actual
thesis I will describe it better than the other strategies. For broader discussion see Appendix
A2.
Case studies
Purpose
When the task is to investigate e.g. a certain contemporary phenomenon, decision,
individual, or even an event in a real-life context with no or little need for controlling
behavior during the research process, case studies can be an advantageous research strategy to
apply. Case studies can be used for exploratory research, descriptive research, explanatory
research, or for testing14 or generating a new theory.15
The purpose of a case study is not statistical generalization but analytic generalization.
Analytic generalization is when a template of existing theory is developed, and the empirical
results from the case(s) are compared with it. Statistical generalization is when an inference is
made about a population based on empirical data from a sample.16
A case study can be made by investigating a single-case or multiple-cases, combined
with an either holistic or embedded study.
When generating a new theory, Grounded Theory is probably the most well-known
strategy in this field. However, case studies can be useful when little is known about the
phenomenon, if there is little empirical substantiation or agreement, or if it suggested to find a
new perspective in existing research. In these situations, case studies can be appropriate
14
Yin, R. K: ” Case Study research. Design and Methods”, p. 1
Kathleen M. Eisenhardt: ”Building Theories from Case Study Research”
16
Yin, R. K: ” Case Study research. Design and Methods”, p. 31
15
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because generating theory based on case studies does not have to rely on previous literature or
prior empirical evidence.17
Types of Research Question
Case studies normally deals with the research questions that begin with how or why.
The interest is not on frequencies or incidences such as “how often”, “how many”, “what
outcomes”, or “who”, since these research questions are more related to surveys. 18
Use of theory in the research process
Theory is used at different stages in the research process. No matter if the study is
exploratory, descriptive or explanatory or used to test or generate theory, a literature review is
developed to produce more knowledge in the area of study. If the researcher knows more
about the topic of interest, it sharpens the research questions to be asked and the entire
research design. The theory development will direct you in what data to collect, who/what is
my unit of analysis, what propositions should be made, and it sets criteria for interpreting the
findings and when analyzing data. The empirical results are also compared to the theory
development.19 The researcher will know if a new theory is generated or if the existing is
supported.
Demands for data collection
The data collected in a case study can be qualitative and/or quantitative – depending
on the research question. A triangulation is made possible since multiple data collection
methods can be used, e.g. interviews, documents, observations, archives, artifacts. This
provides stronger substantiation of constructs and hypothesis.20
In relation to the selection of unit(s) of analysis, case studies rely on theoretical
sampling is when cases are selected for theoretical reasons, i.e. cases are chosen when it is
assessed that they can assist in developing theory by adding new data.21
17
Kathleen M. Eisenhardt: ”Building Theories from Case Study Research”, p. 548
Yin, R. K: ” Case Study research. Design and Methods”, p. 5-7
19
Yin, R. K: ” Case Study research. Design and Methods”, p. 27-29
20
Kathleen M. Eisenhardt: ”Building Theories from Case Study Research”, p. 538
21
Kathleen M. Eisenhardt: ”Building Theories from Case Study Research”, p. 537
18
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Degrees of Freedom Analysis
Purpose
The emphasis in Degrees of Freedom Analysis is on the theory testing. The research
strategy is doing that by dealing with pattern- matching between theoretical propositions and
observations in a set of data.22
The confidence of the theory that is tested by the Degree of Freedom Analysis can be
determined by these patterns that are mentioned. The confidence is high when we are able to
match a great deal of the patterns to each other, and this is illustrated in a so-called prediction
matrix, that is developed based on seven decision activities. They are 1. Problem definition, 2.
Solution search, 3. Data collection, analysis and use, 4. Information exchange, 5. Individual
preference formation, 6. Evaluation criteria and 7. Final choice.23
Even though Degrees of Freedom Analysis is about the understanding of qualitative
case date, the analysis done by pattern-matching is regarded quantitatively because the degree
of match to the theory is in consideration, where we use the expression hits and misses, that
can be compared to the term hypothesis, that is used in statistical testing.24
As earlier mentioned the Degree of Freedom Analysis emphasises on theory testing,
but the reverse case can also be true. Theory development is a possibility that can be done by
Degree of Freedom Analysis, in cases where there is a lack of previous theory in a specific
topic.25
Grounded theory
Purpose
Grounded theory’s purpose is to generate theory using both inductive and deductive
thinking. The theory development can be generated initially from data (in a continuous
interplay between data analysis and data collection),26 and/or it can be based on already
22
Elizabeth J. Wilson & Arch G. Woodside: ”Degrees –of- Freedom Analysis of Case Data in Business Marketing
Research”, p.216
23
Elizabeth J. Wilson & Arch G. Woodside: ”Degrees –of- Freedom Analysis of Case Data in Business Marketing
Research”, p.219
24
Elizabeth J. Wilson & Arch G. Woodside: ”Degrees –of- Freedom Analysis of Case Data in Business Marketing
Research”, p.216+217
25 Elizabeth J. Wilson & Arch G. Woodside: ”Degrees –of- Freedom Analysis of Case Data in Business Marketing
Research”, p.217
26
Christina Goulding: “Grounded Theory: A Magical Formula or a Potential Nightmare”, p. 21
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existing theories if modification and/or elaboration of these are seen as necessary.27 The
theory generated should be able to predict and explain behavior and be applicable in
practice.28
Comparison of the three strategies
The model below illustrates the three different strategies emphasis on theory-testing
and theory- building.
Emphasis is on
theory building
Grounded Theory
Case based approaches
(Yin, Eisenhardt)
Degrees-of-Freedom analysis
Emphasis is on
theory-testing
Figure 2: Comparison of the different research strategies
Choice of strategy
From everything said before and the theory about those research strategies we can say
that none of them can serve the purpose of Akumogroup entirely alone. We need a mix
because Degree of freedom analysis is mainly for theory-testing and we have a lot of theory
concerning the topic of Internationalization, market selection and entry modes. We have a lot
of literature about limitations that affect the firms too. But also we can use Case study, and we
will as a dominant approach, to see how exactly those limitation and factors existing in the
theory will affect our company. With DFA we are going just to check which of the existing
27
28
Strauss, A & Corbin, J.: ”Grounded theory methology: An overview”, p. 73
Christina Goulding: “Grounded Theory: A Magical Formula or a Potential Nightmare”, p. 22
Page 32 of 63
limitations in the theory exist in our case. Which of them affect us the way the literature
suggest and which do not. Then with the case study we are going to identify all the limitations
our company has met and the way they affected us in a real-life situation. Also we are going
to find ways to cope or adapt to those factors. And case study is a dominant research strategy
here because, generating theory based on case studies does not have to rely on previous
literature or prior empirical evidence.29 And we have just one particular case. Just one firm as
an unit of analysis. The research aims to create information that could guide Akumogroup
management in its internationalization campaign. And, perhaps, to be of help in future as
experience and gained knowledge (Uppsala model). Those are the main reasons the author is
using to justify his choice of case study as a dominant approach in this study. although we
mentioned Degree of freedom analysis as an option for listing and confirming the existance of
some limiting factors, actualy it will not be used in the real sence of Degree of freedom
analysis. Its work will be done by a simple literature review in theoretical part of the thesis.
Theoretical background
In this part the theory about international market selection, entry modes and business
environment (micro and macro), will be explained.
Andersen & Buvik’s IMS approaches
Internationalization can be perceived as a part of the ongoing strategy proces of most firms30.
The main difference between internationalization and other types of strategy processes are31:
-
When products, services or resources are to be transfered across national boundaries,
the firm has to select the country/or segment/ where or with whom the transaction
should be performed.
29
Kathleen M. Eisenhardt: ”Building Theories from Case Study Research”, p. 548
Melin 1992
31
Andersen 1997; Bradley 1995.
30
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-
The company has to select an entry mode.
The theoretical framework we are going to presen include three optional approaches.
Systematic, nonsystematic and relationship approach. While the first two consider as a unit of
analysis the country, then the third one takes as a unit – the customer. Now let’s present those
options in more depth. After all, along with the strategy, this is one of the most important
decision AkumoGroup is facing at the moment.
The Systematic approach
The decision-making process is suposed to be structured and formalized, and the
decision-maker should be able to go through and perform several activities:
-
Problem definition. The problem should be defined, structured and isolated.
-
Identify the choice criteria. The decision-maker should identify all relevant criteria
and objectives, against which the alternatives will be evaluated
-
Weight the criteria. Each criteria has different importance to firm objective fulfilment.
So a different weight must be assigned to them.
-
Generate the alternatives.
-
Rate each alternative on each criteria
-
Compute a decision. Here a several models could be used.
In Akumogroup’s internationalization decisions we can notice some features of the systematic
approach. But not in pure form. The problem in front of the company is how to increase its
role in the network and how to achieve sustainable growth. But thi problem is seen in its
surrounding context, it is not isolated. The choice criteria are almost missing. But there are
conditions that potential market(s) should meet – profitability, stable demand, political and
legal stability, low physical distance, low transportation costs, low import barriers, ect. also
alternatives are tailored to the markets wherein AG’s manager has connections, thus access to
information and chance to set foot in.
The Non-systematic approach.
The purpose of the nonsystematic approach seems to be descriptive, to describe
how firms actually behave when selecting foreign markets. A reason for using
nonsystematic approach instead of systematic could be the limited information
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procesing capacity of the dcision maker32 or that the firms are expanding
internationally on an opportunistic basis33.
One of the views is this the firms are entering new markets with less psychic
distance34. The concept of psychic distance has been defined as factors preventing or
disturbing the flow of information between firms and market, including factors such as
language, culture, political system, level of education, level of industrial development,
ect. the psychic distance procedure could often result in targeting a market limited to a
firm’s immediate neighbors because geographic proximity is likely to imply more
knowledge about the foreign market and greater ease in obtaining information35. It is
believed that smal firms, and such that are in their early internationalization proces are
more likely to use a psychic distance, than LSEs36.
The use of such an uncertainty avoidance strategy is likely to occure when the
decision-maker has a low understanding of the problem and its context. Applied to the
International Market Selection process, firms are predicted to start their
internationalization by moving into those markets they can most easily understand,
entering more distant markets only at a later stage. This pattern is known in the
literature as „the Uppsala Model” of internationalization37.
And those are the dominant features indeed of Akumogroup’s internationalization approach.
We may search for connections to find information and to chose partners, to enter the market
but other considerations are the leading ones. It is true that the information processing ability
of Akumogroup’s management is low, also we are mostly just describing the factors we have
in mind and their impact on the decision making proces in the Analysis part of the thesis.
Physical distance and ability to control partners’s actions are most important for us. Close
cultural features too. So we are going for similar markets or uncertainty avoidance
approach(Uppsala model).
The Relationship approach. It is based on the shift from research addressing transactionoriented marketing to research on relationship marketing.
32
Piercy 1982.
Bilkey 1978
34
Johanson & wiedersheim 1975
35
Papadopulus & Denis 1988
36
Johnson 1990
37
Andersen 1993; Johnson & Vahlne 1990
33
Page 35 of 63
Relationships evolve through several phases:38
-
Awareness
-
Exploration
-
Expansion
-
Commitment
-
Dissolution
The relationship development process could represent an important theoretical framework
to describe the selection of foreign market/customer as well as the firm’s
internationalization process. A moodel presented by Andersen and Buvic of international
exchange partner choice can be presented graphically in this way:
awareness
exploration
•identification of potential partners
•assessment about objective skills or qualifications
•initial negotiations, communication and bargaining.
•consideration of obligations, benefits and burdens
•trail purchases
•attitudes and standarts of conduct.
•selection of exchange partner(s) based on goal compitability, trust and performance
choice
Figure 3: The choice of international partner – a realtionship approach.
And this approach is also used in Akumogroup’s internationalization. The company could
gain information motly by communicating with people in its network. Many of those people
are either employees in companies that operate on the market of interest, or have private
business there. Also by personal observations. But personal contact are very important in the
internationalisation campaign according to the firm’s manager. Without them AG could not
assess enough and trustworthy information about the market and customers. Also the selected
entry mode is hybrid between export and joint venture, which means we are going to work
with partners outside our firm. We are searching partners with compatible goals with ours,
good positionin sense of image and sale, on the market, good credit history and so on. In the
beginning AG’s manager is establishing personal contact with them with conversations,
38
Dwyer &Oh 1987
Page 36 of 63
negotiations and trail purchases. Then all negotiations must materialize in signed official
contract for joint business ventures(obligations, terms of trade, payment schemes and terms,
benefits, burdens, other clauses).
Comparison of the three approaches
Approach
Systematic
Non-systematic
Relationship
Decison problem
Selection of
Selection of country
Selection of
couintry
exchange partner
Level of analysis
Selling firm
Selling firm
The dyad
Purpose
Normative
Descriptive
Mainly descriptive
Decision-making
Rational
Disjointed
Bounded rationality
model
Marketing paradigm
incrementalism
Discrete transaction
Discrete transaction
Relationhip
marketing
Time horizon
Not pecified
Not specified
Long term
Connection to other
IMS treated as an
IMS is a function of
Not specified
decision problems
isolated decision
the fim’s
internationalization
Information search
Extensive
Little or none
Limited
Type of information
Country and market
Perceived psychic
Perception of goal
indicators
distance (subjective)
compatibility, trust
and performance
Source of
information
Secondary data
Experimental
Business
knowledge
relationshipsnetwork
Table 1: main differences between ystematic, non-systematic and relationship approach in
IMS
Entry modes
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In literature there are three main types of entry modes39:
-
Export modes
-
Intermediate modes – licensing, franchising, joint venture, alliance
-
Hierarchical modes – wholly owned subsidiary, production
The choice of entry mode involve decisions about: control, risk and resource commitment40.
Control. This is authority over operational and strategic decision-making. Control is lowest in
the simple export mode and higher in the wholly owned subsidiary mode.
Resource commitment. Those are dedicated assets that can not be redeployed to alternative
use without costs (vernon 1983). The commitment in regard of tangible and intangible assets.
It is highes at the hierarchical modes – production, and lowest at the export modes, in all other
conditions being equal.
Risk. Here we mean all king of perceived risks – market, financial, dissemination, political,
ect. according to (Hill and Kim 1988) dissemination risk is what must be considered mostly,
but in Akumogroup case all assessed risks and limitations are taken into account.
Theoretically those entry options can be evaluated on each of those factors like this:
Figure 4: Entry modes Source: (Hollesen 2008)
control
Flexibility
wos
Prod
Int
Exp ag.
export
Risk
Wos – wholly owned subsidiary
39
40
Hollesen, Essentials of global markets 2008
Hill An Eclectic Theory of the Choice of International Entry Mode. 1990
Page 38 of 63
According to Hill (1990) firms that persue multi-domestic strategy will favour low control
entry mode. Akumogroup anyway can not be classified as multi-domestic company because it
doesn’t have the opportunity to affect that mush the elements of the marketing mix. But it is
going for low control entry mode because high control requires all activities to be coordinated
by the firm, and this in equal other conditions means more costs.
Akumogroup is going for export entry mode because of several reasons that will be explained
in the analysis part. But along with those we have found in the literature review there seems to
be other factors that have even larger influence on the freedom in decision-making process
regarding entry mode(s). Such factors are organizational culture, manager’s own culture and
experience, competitive situation, overal market attractiveness, abilities of the firm,industry
type, product life cycle, ect.
Business environment
Another theoretical framework that seems to be very important in this research will be to
review the factors that have to be considered in doing business on a given market. Those
factors surely attend in any analysis. Later we will see how they affect Akumogroup’s
decision-makers. But now our goal here is just to present them briefly. In the economic
literature they are separated into two groups:
1. Makroenvironment. It is consistent of factors that influence all firms on the market.
Specific feature of those factor is that they can hardly be influenced just by a single
firm. They are unit on forecast rather than planning. Factors of the makroenvironment
are as follows:
(G. Mladenova – „marketing planning” 2006) and (Baleva
V., Penchev p., others, Marketing – the introduction” 2000)
-
Technology
-
Political situation
-
Legal conditions
-
Economical situation
-
Social environment
-
Culture
-
Demography
-
Ecological factors
-
Climate and landskape
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-
Infrastructure
-
Access to sea or ocean.
1. Microenvironment. Those factors are closely related to the firm we are analyzing.
They have direct and very strong impact on its activity and decisions. Those factors
are4142:
-
Customers
-
Markets
-
Competitors
-
Suppliers
-
Brokers
-
Medias
-
Non commercial organizations
How do those factor affect in our given case we shall see in the Analysis part. And also if
there are other factors that have impact on the decision-making process.
Analysis
Internationalization proces stages
This part of the thesis is supposed to be less theoretical and more practical. Its objective is,
through the experience of Akumogroup Ltd to outline the factors its management faces in
their internationalization initiative. More precisely – to make a list of factors that affect
decision-making process, to analyze how do they affect the firm and what alternatives do they
give to decision-makers.
To do that we will follow the internationalization process Akumogroup is following. And the
limitations, that occure at every step.
41
Mladenova G., – „marketing planning” 2006
42
Baleva V., Penchev p., others, Marketing – the introduction” 2000
Page 40 of 63
figure 5: Internationalization process outline (source: Tanushev H -„International
marketing” 2000.)
decision for
int
chice of
strategy
search for
alternatives
IMS
entry mode
decision
positioning
We can notice that the process is iterative, and findings at every step can change those before
it and after it. The internationalization process is a system, consistent of elements in direct and
indirect interactions with one another. Those elements, in respect, are systems of lower
level43. Some of them are object of planning, other are object only to forecasting. But they
have their influence on the decision-making process in every company. Those below are the
effects that Akumogroup ltd meets in its internationalization campaign.
Every internationalization starts with something that motivates management44 for it. In the
foundations of everything are the objectives of the company (author). Akumogroup has
clearly defined its goals in respect of profit, sustainable growth, achieving leading role in its
network, and expanding that network along with firm’s activities. In long run, Akumogroup
wants to become a hub, where many distributor can find most of the brands that customers
seek (owner of AG). And eventually to establish its own brand that customers will associate
with trust, stability and of course price, quality and services, better than direct competitors.
Direct competitors are those brands that are in the same cluster in the customers’ map of
perception to our brands. This means that we can not compete in some indicators with brands
that are at least 100% more expensive than ours.
But after one year of existance Akumogroup now have one main supplier of products. And
this supplier has limited our market in Bulgaria to a certain region – Eastern Bulgaria. 25% of
the population of the country are living in this region. Several of the leading cities are here too
– Varna, Bourgas, Shumen and many smaller ones. All the sea harbours are located in this
43
44
Manov V. – Forecating and planning (2000)
Angelov A., Management – introduction, Stopanstvo ed1, (2003)
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region too. And there are 2 international airports (but not the main one of the country). Also
the border with Turkey, part of the border with Greece and Romania. The region is developed
well (for the country). But it is not enough if we want to become a real factor in batteries
industry in the region (this time the region is – Central and Eastern Europe). We can operate
in our domestic market efficiently and through the connections, experience and profit from it
we can support our internationalization. This matches with the choice of the ANALYZER
strategy (Miles R., Snow Ch. – Designing strategic human resources systems). Our motives
are also connected with the certain market we have chosen. This market is Turkey. But for
now not the entire country but a certain part – Istambul metropolitan area. We want big
market in respect of market potential. We want close market in respect of distance. We want
relatively cheaper transport and stability in demand. Also we need a market where we will be
able to control, in some degree, what is happening with our products. And at last but not the
least we are motivated because of the fact that we have certain connections that will help us in
case of opportunistic behavior of the partners behalf.
Factors at every stage
In the „decision for internationalization” stage.
-
The nature of the firm’s ownership and the nature of the business. The firm is new
player in well established industry. It is as the literature suggest – Late starter. Many
companies have fortified their positions in the customers’ consciousness and it is hard to
impact it. Akumogroup do have some financial and intelectual resources to advertise and lead
marketing campaigns but the nature of the industry is a barrier. Our main supplier has given
us the Eastern region of the country, but the period is one year, then we need to resign the
contract. If we put a lot of money in developing the brand, and our contract is given to another
company next year we will lose our money. Advertising has a lag effect, so it takes time to
achieve increased sales through it. So we spend more resources in protecting our place in the
market than to develop this market. It seems not right but this is the reality. This limits many
decisions. Instead of spending money for marketing, we are spending money to keep
information for the supplier and for our clients hidden from everyone. Instead making larger
purchases from Elhim Iskra (the supplier), we are spending a lot of money in searching for
other possible suppliers. Instead of taking advantage of customers’ awarenes of the main
brands of Elhim, we are promoting our own brand, becaue if customers search our brand, and
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we hold the trade mark, then our position in the network is secured. I guess this is enough to
show how much the nature of the business affects negatively the very business of
Akumogroup. Also the ownership. Akumogroup is now owned by one person. This company
is his source of money. He is more interested in securing himself and his family a high life
standart than to develop the company in the optimal way. I mean bying new cars in order not
to pay taxes, spending money from the behalf of the firm (again evading taxes). In another
case most of those money could be spent for better services or marketing.
And as a late starter Akumogroup has many competitors that are more experienced. But on
the other hand the financial crisis has helped the company to gain some of the marketshare of
other companies that were not able to serve all of their clients.
-
Goals. Because of the goal set for the next year, and in longer run, Akumogroup has
decided to internationalize. If the goals were for less profit and smaller network and position
in it, then may be the company would be a DEFENDER (miles and snow) and stay in
Bulgaria. But the goals are – to become a big player in the distribution network. This requires
not only financial resources, but connection, tacit knowledge, and intelectual property to
secure positions of the firm. Thats why Akumogroup management has decided to go abroad.
But due to other factors it has decided to enter the Turkish market.
-
Alternatives. The alternatives in front of Akumogroup management were just two.
First, to carry out a competitive war based on price. Second – to internationalize. Since
competitive price wars will affect badly the entire industry, and perhaps will end up with
alliances against Akumogroup, sabotage and so on, another direction has been chosen. To
internationalize. Of course we do not expect that in the foreign country they are waiting for
us. And there are not enough players. But there are niches that are left because of many
reasons. And we have some information about those niches. Also we are not going anywhere
just because of our decisions. In SME’s most of the initiatives are made because either a
rumors (author) or offer by someone (relationship approach – Andersen & Buvic).
In strategic approach decision
We still can not make a solid strategy for this internationalization as we have made for the
domestic market. There are still too many unknown factors. So instead of a solid strategy we
just have taken some decisions regarding adaptation and standartization in the business
model, concentration or diversification, competitive advantages we offer, image of the firm,
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prices, distribution and so on. So I will not call this strategy but rather – strategic behavior.
With clarifying different factors and their effect on the decision-making process in
Akumogroup this strategic behavior would change accordingly. And when most of the effects
are forecasted or planned then a real strategy could be made, with operational plans, budgets
and schedules. In the strategic behavior choices the limiting factor that were identified are:
-
Lack of resources. Akumogroup has identified that according to Ayal’s consideration
when choosing strategy (ayal), there are many matches in favour of diversification
strategy. Ther could be a spill over effect. Most of the marketing mix’s parts could be
standartized, e.g. product, some of the communications, economies of scale in
distribution. Also we can spread the risk of unstable demand by diversifying into
several markets. And if we chose diversification strategy, this could have a synergic
efect on the image of the brands we offer. But most of the times SME’s do not have
enough resources to follow diversification strategy. In Akumogroup’s case it is the
reason to follow concentration. We do not have enough experience to enter many
different markets at the same time. We do not have enough and sophisticated human
resources to achieve this. And at last, but may be most important – we do not have
enough money or a source of money to finance such a strategy. Knowledge and HR is
not that much of a problem because with enough money we can hire proffesional
marketing and planning specialists with experience, knowledge and connections to do
the job for us. But to make a suphisticated market research, to came up with a strategy,
to possition on the market and to create customer awareness and desire for purchase
require a lot of action and money. Plus the nature of the product of course. To supply
even the market we aim at require roughly between 1 and 1,5 million euros only for
the product. Distribution, communication, operational costs comes in addition. If we
diversify into many markets at the same time then we will not be able to meet the
demand, and we will slowly lose positions and image as a trustworthy supplier. So the
lack of resources is the main reason to chose concentration strategy. This is truely a
limitation that actually makes one of the options impossible. What management could
do is to follow concentration strategy and slowly to try to set foot on other markets. So
in time we may be able to operate at larger number of market, but we won’t enter them
simultaneously.
-
Actual needs of the market. When talking about adaptation and aggregation in
Akumogroup’s business model we must have in mind the customers and their needs.
Customers in Turkey are different from those in Bulgaria, but the work that batteries
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do is the same, the way it is used is the same, and the expectations are the same. So we
do not need adaptation in the product itself. A little bit is adapted in regard of package
and markings on the batteries due to different language, culture and legal
requirements. Communications are adapted to the needs of turkish market. The
information that advertising gives is the same, but the pictures, colors and actors looks
different. We have decided to advertise with nice cars and girls on the billboards in
Bulgaria, but in turkey the billboard is with the battery and lightnings (most of the
islam cultures do not put human images as a decoration). Prices are a bit higher than in
Bulgaria, because we have decided, after converations and observations, that turkish
customer is willing to pay more that the bulgarian. And competitors do the same so we
will not change the picture of the perception’s map. Distribution is the same, but with
the fact that the trucks pass a border and the packages and markings should fit with
requirements. Customer segment is the same wide segment as it is described in the
business model in „introduction” part. Revenue and cost structure is the same. Key
partners are added. We are using export entry mode and key partners are very
important. They sell our products and they are the people that actually are positioning
the products on the market. Key activities in Turkey are: control, distribution,
marketing. Customer relations are left mainly to our partners, but with some
requirements from our side. Limitations here are connected with the choice of partners
and control mechanisms. But on a closer look the limitation is the uncertainty of the
information we have gathered. The way we are trying to cope with that is to collet
information from many sources and to crosscheck it.
One of the most important question when internationalizing is
Which market to enter
In the theoretical part I explained widely the concept of international market selection
approaches (andersen and Buvik). But in reality things are different. If we want to classify the
approach of Akumogroup’s market selection first lets explain how the market has been
chosen, along with the factors that lead to this choice, and made another choices impossible.
In Akumogroup the management is trying to systemize everything. From their purchases
to the act of sale and in the aftersales service. But when going for internationalization there
have been really few charactersitics of the „systematic approach”. There was clearly defined
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problems (achieving the corporate objectives). There were certain expectations that potential
market should acomplish. But that’s it. The dominant approach is hardly to be distinguished
for sure. Connections with different people in Turkey were the factor that triggered the
internationalisaton to Turkey. Also connections with people in charge of international
transport companies helped to find information and better conditions for ditribution if we go
to Turkey. But Akumogroup’s manager has connections in other countries too. In Ukraine,
Belarus, Russia mostly. But the choice wasn’t any of those. Here comes the features from the
non-systematic approach. Now let us check the factors that were in favour to chose, or more
precisely – to agree on, turkish market.
CAGE analysis
Culture
And now we came to culture dimensions. Always when it is about culture –
Hofstede’s cultural dimensions came in my mind. Hofstede’s methodology I will not
discuss here. The goal is to compate culture of AG’s home country and potential host
country. To make it obvious I’ll compare Bulgaria with two other countries.
Figure 6: (Source:
http://www.geerthofstede.com/hofstede_dimensions.php?culture1=12&culture2=93)
Page 46 of 63
Pdi – power distance index
Ind – individualism
Mas – masculinity
Uai – uncertainty avoidance index
Lto – long term orientation
Many people think that the culture of Turkey is arabic or too oriental. But check this out:
Figure 7: Comparison of Denmark and Bulgaria by 5D.
Thus Turkey has a different religion, different folklore, music, cuisine, the business
meaningful features of the culture (mostly for our products and service) are quite the same.
Administration
Administration. Here we do not have enough information, but from unofficial conversations
we assume it is more or less like in Bulgaria – heavy administration that you’d better avoid.
Or train your nerves if one day you need it. But again some personal relations on any level of
the administration can really be useful and productive. Akumogroup, anyway, do not get in
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touch with administrative system of the host country because of the atures of the Export entry
mode. The only point where we deal with it is at the customs, or if payment is not on time or
if partner decide not to pay.
Geography
Turkey is close to Bulgaria and Varna region (our region). Transportation costs to Istambul
are lower compared even to some cities in our home country. There is well developed
infrastructure since it i the major way from Europe to Asia. Good highways almost all the
way. Many cargo companies serve these routes. Most of the time there are turkish cargo
trucks that returns from germany or western europe. Some of them are even empty nowadays
with the crisis. So owners of this trucks are ready to charge even a lower price. After all the
truck is going back - empty or not, why not making some money. Climate is not the best, but
good for our products. Our brands are not among the well known world best producers. But
We can deliver the same utility in certain conditions (in respect of climate it is between -18 to
35 degrees Celsius and normal level of humidity).
Economy
Economy of the country has been checked by thea desk research to prove that it needs and
can afford products like ours. There are a lot of cars in Istambul. There are many transport
companies and large storehouses. Also there is a harbour – some of our top products are used
for weightlifting machines. Turkey has trade relations with many countries and this
strengthten their economy. Average salary (but subjectively to people in Akumogroup’s
network) is high enough to maintain their cars. Also about the ecomomical level of the
country we will speack at the part where market is dicussed, because one of the most
important things when checking market attractiveness is the economical situation in the host
country. This would define purchasing ability, market potential, customer behavior (in parts)
and so on. Most of the companies in our target group are situated either in Ankara or
Istambul, and this, along with cost, distance, culture and ect. considerations makes makes
Istambul a good target for our company.
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PESTEL analysis
Political and legal factors
Political stability and legal stability are at a satisfactory level. It is not the best place
actually but one who ventures in Turkey must realize that Istambul is quite different from
asian part of the country. Istambul is quite an European city today. Legal stability is good
there, if something comes up you can depend on authorities to help. It is good to have some
relations too. Then things go easier and more certain
Economical factors
They were discussed in cage analysis earlier, though in CAGE analysis we search for
differances, and in PEST analysis we just analyze the factors.
Social factors
Social system in Turkey and especially in Istambul is more or less European. It is close to
Bulgarian. Social status is defined by the role you olay in the sosiety (mostly financial), not
by age, gender, origin. In other parts of Turkey, however, gender is an important factor. But
this is not something that affects Akumogroup. Only thing that we are interested here is who
play what role in the decision-making proces concerning purchases. Mostly man are taking
the decisions for purchasing products like ours, and they are those who maintain the vehicles.
Also in the firms peole responsible for purchasing batteries are man and we should
concentrate on them in our advertising and offerings.
Technology
technology development level is important. Most of the developed countries now tries to get
rid of oil dependancy. They develope technologies for different kind of transportation. And
governments give incentives to people to use those alternative forms. Now it is the electric
vehicles (with different kind of batteries, we do not offer yet). Turkey, however is not among
those countries. And this is good for our business.
Ecologycal concerns
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Environmental concerns are now rising in Turkey, but we do not produce our products. We
are interested only in one tax called ECO TAX. And it is included in the price so its not a
barrier for us. Competitors also pay it and put it in the price (it is a must for all). On the
border we have to pay import tax, but it is ok because of the larger discount we get for the
products, because of the export.
Market
Now this is the main thing. Market in Istambul is flooded with everything, but the developed
economy and trade, and the number of cars and population always gives an incentive to enter
there. Market potential is really big in respect of maximum possible revenue that the entire
market could generate. With a good, already positioned partner we can grab, as our intuition
suggest arround 5% of the market there. Which is completely enough to reach our short term
objectives.
Market potential of Turkey as a country has been measured by desk research. Here is some
data that encouraged Akumogroup management to choose Istambul and Turkey:
The population of turkey is 77 804 000 people45.
The total GDP PPP is 1, 038 trillion $ and per capita it is 13 206 $.46
Nominal GDP is 729 billion $ ,and per capita it is 10 000$.47
Gini coeficient is 0,38. It is commonly used as a measure of inequality of income and wealth.
Worldwide, Gini coefficients for income range from approximately 0.23 (Sweden) to 0.70
(Namibia) although not every country has been assessed.
Turkey has the world's 15th largest GDP PPP and 17th lardest nominal GDP. The country is a
founding member of theOECD and participate in the list of the G-20 major economies in the
world. (from europe there are UK, France, Russia, Germany and Italy.)4849.
4545
July 2010 census and https://www.cia.gov/library/publications/the-world-factbook/geos/tu.html
http://siteresources.worldbank.org/DATASTATISTICS/Resources/GDP_PPP.pdf
47
World Economic Outlook Database, October 2010". IMF.. Retrieved 2010-08-08.
48
The World Bank: World Economic Indicators Database. GDP (PPP) 2008
49
The World Bank: World Economic Indicators Database. GDP (nominal) 2008
46
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This factors show many things.Turkey is a vast market. Largest in Europe only after Germany
and France by population. This is very important for us because the greatest number of units
sold comes from private cars. And there are really many cars in Turkey, especially in
Istambul. The people has money to by some car and to maintain it (which includes buying of
a battery too). The economy is the best in our region, many transport firms, developed tourism
(great consumers of our product class), many production facilities that use weight-lifting
machines ( they need traction batteries, some of which are the largest source of profit for us).
We can meet all our goals for profit, development, and gaining a leading role in the network if
we succeed to enter and position ourselves in this market.
Also never to forget that this data is mainly for Turkey as a country. Istambul is the richest
and most developed city. So the indicators for Istambul metropolis are higher than those
exposed here. In the data above many poorer regions of the country have their negative effect
on the average indicators.
Competition
Competition in our business, either in Bulgaria or Turkey is intense and highly based on
prices50. Our direct competitors are brands like monbat, enexye, banner, mutlu and ect. Also
there are Exide, Bosch , Varta, ect that are at a higher price segment but they are also a
competitors. We analyze them all to try to forecast their abilities and actions. And to plan our
actions and purchases. Competition is very important factor. The fact that almost all brands in
battery industry have entered in turkish market is a limitation for us. We enter a market that is
already taken. But there are niches we have perceived we can capture and serve. Our
products’ features are good and our price is competitive. We have advantages in distribution,
and knowledge of the market and competitors. And we want a small market share for now.
That’s why we think we can succeed, although the fierce competition. How does this factor
limits us – we can not serve all possible segments we want. How we cope with the factor – we
serve less attractive niches that are left unserved, proving that we are serious partner and
slowly adding clients from more and more attractive (profitable) segment,s in our portfolio.
We have done this once and Akumogroup has gained knowledge of how to do it. We just
hope it will work in Istambul too. But also we know that hope is not enough. We are taking
actions too.
50
Klasova S., Pricing policy 2000
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Another thing to be aware when talking about competition and taking a leading role in a
network are Porter’s five threats (M. Porter). Actions done by competitors is just one side of
the coin. We already talked a little about all threats, but here I am going just to systemize
them. bargain power of clients/partners and suppliers are among those factors Akumogroup
have to consider. Our main supplier have greater negotiating power than us for the moment.
But by increasing the value of our orders and establihing and developing our own brand will
increase our power against this force. Also the supplier has been carefully chosen because of
the possibility one distributor to gain a big share of the supplier’s sales. If we try to gain
negotiating power against Varta, for instance, it would take more than now. Partner are
planned to be less than four or even three, because we want to concentrate and plan our
distribution and to give incentives to partner to work for our cause. This is the time when we
give up of some benefits in order to set foot on the Istambul market. Barrier to entry are low,
but till to enter successfilly is hard and a matter of series of well estimated decisions and
actions. Barriers to exit are also low, in difference if we were producing the products. The
only barrier of exit to Akumogroup are the contracts and if there is punishment clause if we
decide to give up. But for now we are working on that – we are trying to make our contracts
in our favour. We mai sacrifice oe of our profit, but we are not signing bad contracts for us.
And the last porter’s force are substitute products. For now only litium batteries and fuel cells
are substitutes. Fuel cells do not disturb our business with cars and cargo machines, but do
influance our most profitable segment – power plant’s equipment. And in the market we
operate electric vehicles are definately not dominant. May be in future their number will only
increase, but in the near 10 years starter batteries will be dominant (if the crude oil’s price do
not rise to drastic levels).
In the choice of market actualy the factors are not limiting. They are factors that help to
estimate the possibility in doing busine in these market. In the theoretical part of the thesi
those factors were grouped as Macro and Micro environment factors. As we can see from the
analysis Turkey, and more precisely, Istambul’s market is quite attractive for Akumogroup.
Although the overal market attractiveness is measured by intuition instead of solid measures
(numbers), there is no doubt that if the company take a good position on that market,
Akumogroup could generate really good profits and could grow a lot more than the home
market potential allows. The factors form CAGE distance analysis and PESTEL analysis
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shows that Akumogroup can operate successfully on Turkish market. But we need to analyze
several more factors:
-
entry mode (risk, control, flexibility, profitability, commitment)51
-
competition (analysis of the competition)
The entry mode decision-making
The entry mode, that Akumogroup has chosen is EXPORT entry mode. But when we look
more carefully it seems that there are features of some intermediate entry modes (joint
venture). The procedure is as follows. Akumogrop orders the products and then store them in
its warehouse. Workers of the firm check a sample of the products for damaged units and then
pack them in pallets. Then when the truck o workers load it and seal it. Then the truck passes
the border, receive documents for this and goes to the partner’s warehouse. There the partner
pays border and import taxes and receive documents to be able to sell legally the products.
And we receive our money. But after our partner have the products he has to comply to some
conditions we have signed a contract for. Namely:
-
partner have to keep the products in good merchandizing condition
-
products are sold to the end customer at any price between a given maximum and
minimum price (we define those in order to keep our products at the position we have
decided on the market)
-
aftersale service is a duty of our partners. When a product prove to be defected,
Akumogroup is obliged to replace it for its cost in 10 work days.
-
Partner and Akumogroup share costs for advertising
-
Customers oppinions and complies are made to Akumogroup.
-
Others
The entry mode is something like non equity joint venture. But with features of export entry
mode. What determined this choice were considerations for:
1. Risk. The risk is divided into three main directions52:
51
Hollesen S. - Essentials of global marketing 2008
Page 53 of 63
-
The risk that our supplier(s) will try to take us out of the network. They have
motivation for that. Without us our suppliers and our partners could have larger profit
by dividing ours between them. We try to establish trust between different levels of
the network, but we will never forget, even for a second, that the interests are those
that matters. We will not let our guard down. In the beginning we are more vulnerable.
Because we do not have enough bargain power and finances to position our products
and brand on the market, we depend on others. We are entering with the brand of the
producer, but we are going toward establishing our own brand and registering it as
intelectual property. But for that we need higher bargain power in front of suppliers.
This means to become their top distributors in respect of quantity purchased.
Internationalization is a way to do that.
Our partners are those who will position the product on the market by replacing others.
We give them incentives to sell our product instead of another by sacrificing our own
profit rate to ensure partners motivation to work with us. The next step after we start to
sell enough and be able to make our supplier(s) to produce under Akumogroup’s brand
we will do the same thing to possition our brand. During this time it is crucial to keep
information asymetry between producers and our customers.
-
The next perceived risk is that some of our partners can decide not to pay us. But we
have checked the legal system in the PESTEL analysis, and it is possible to get our
money back by using legal means. Both countries do not forbid legal persuit of their
citizens, and as it was mentioned before, connections in the administration works very
well. For now (before the next elections) we have some connections that makes thing
easier. But we depend more on developing less risky payment schemes then to the
administrative system. With foreign clients, especially in the beginning, we work on
20:50:30 scheme. 20% on purchase, 50% on delivery, before custom authorities let the
truck and its content (on our signal, by confirming the invoice), and 30% in 20 work
days after delivery with 0,5% interest for every day after. This scheme can differ(but
not too much), for different partners and purchases. Another way is to use insurances
companies to guarantee we get our maney anyway. But in Bulgaria the services of
such companies are expensive and long time binding. So we think the best way is by
developing a good payment scheme, and having the rest two mechanisms in mind,
just in case.
52
Hill, Charles W. L.; Hwang, Peter & Kim, W. Chan. (1990). An Eclectic Theory of the Choice of International
Entry Mode.
Page 54 of 63
-
Market risk – this is the risk that Istambul customers could reject our proposal. Every
enterpreneur is exposed to this risk. This is a limitation because it decrease our profit.
Why? Because our business is extremely price sensitive. And when quality is at
satisfactory level (to work) then a small differences in price affect customers a lot. To
keep competitive price we need sometimes to sacrifice our margin. This is very actual
for Istambul, because we are trying to motivate our partners (2 at the moment, on trail
purchase stage) to convince customer to by ISKRA or EXTREME ENERGY instead
of MUTLU, COCABAY, MONBAT, START, ENEXYE, Q-POWER and so on. In
the map of customer’s perception we are positioned on a good place.:
Varta
Quality
Bosch
Exide
Monbat
Extrem
Iskra
e
Enexye
Q-power
Price
Figure 8: Map of customer’s perception about several brands, where Iskra and Extreme are
the brands AG offers.(source: Akumogroup’s own research)
Also to cope with market risk we have planned marketing initiatives, we are observing
how our partners promote and take care of the products, their services and we strictly try to
control supplier’s quality, as far as it is possible.
2. Control. Here by control we mean to observe how our partners sell the brands we
offer: price, positioning in the shop, service, merchandising conditions,how they offer
it. Advertisind and promotions. Control is executed by observations. We go to a shops
where our products are distributed to, or we send someone to by one battery, or just to
ask for a battery to check if partners promote our brands. We have contracts with
conditions for sale and both sides obligations and rights. About the quality of our
Page 55 of 63
supplier(s), we are checking a sample of the products in our storehouse before it is
loaded on the truck(s) for Istambul. If there is something wrong we have a contract
with the supplier that he is obliged to replace the defected unit with a new within two
days, plus to pay us a fine for lost benefits, if we are able to prove it (with a request
with delivery date on it).
3. Flexibility and commitment. Flexibility is high because of the export entry mode.
We can change the partner ot sieze export without suffering big losses. Commitment
is low because we almost do not have sunk costs. We only share marketing costs that
are not very high for now. If we succeed to establish our own brand then marketing
costs will increase for us. And we are going to increase our commitment. But for now
we are using less risky, less commitment, highly flexible entry mode.
4. Profitability. If we were using investment entry mode (subsidiary) we could have had
larger profits, but the extend of risk would have been higher. We are avoiding risk and
commitment at the moment. At export/joint venture entry modes we have seen the mix
of risk, profitability, commitment, flexibility and chances of successful
internationalization we want.
Those factors have been estimated in Akumogroup’s entry mode decision-making process.
Trade-offs has been made between profitability on the one hand and risk, commitment and
flexibility from another hand. Also the resources availability has a role here. Akumogroup
management is highly concerne not to make a wrong move in internationalization process.
One expensive failure in Istambul may shake our positions in Bulgaria too, and there are firms
that are just waiting for that.
About the positioning on the market there are decisions concerning product portfolio, prices,
service, distribution, communications, competition and control (marketing – the introduction
– V. Baleva, P. Penchev, V. Manov, ect 2000). Although it is stated as a distinct proces in the
chart in the beginning of the analysis part, all those questions were discussed above as a part
of market selection (products, prices, service, customers, competition, ect.) and entry mode
decisions (distribution, communications, partners and control).
Although all the factors that affect our decision-making process and possible options,
Akumogroup has found a way to operate successfuly in Bulgaria. Now the firm is trying to
internationalize, to cope with those limiting factors, but this time on international stage. If it
succeed then not only new source of profit, but also a new source of knowledge and
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connections will be added to the firm’s assets. By choosing Turkey as a target Akumogroup
clearly follows Upssala Internationalization model53. But if things go well then I guess Turkey
will not be the only possible market to serve. Concentration strategy do not mean only one
market. It allows serving many markets, but we just plan to enter them one by one.
Every initiative should be seen not only as a source of money, influence and power, but a
source of knowledge and experience. But to turn the actions into knowledge thing must be
analyzed and crosschecked. By this case we can create some firm specific knowledge. But the
results from this case study can be also used in higher level study, of many companies to
create academic recognized knowledge. To confirm or reject hypotheses that exist or may be
to give rise to new ones in the broad area of international business.
Conclusions
In the summing up part lets summarize all factors that Akumogroup met on its way toward
internationalization.
At the phase before internationalization where the decision for serving foreign markets has
been born, the factors that the firm has to keep in mind are:
1. The nature of the business in the home country
2. The nature of the business in the perceived host country(es)
3. The stage of the business life-cycle (Akumogroup is a late starter)
4. The experience and mindset of the management.
5. Goals of the firm
6. Perceived alternatives in front of the decision-makers.
Some of those factors are motivating factors, others are limiting factors. But their combined
effect on Akumogroup management was the reason for searching for new alternatives to
exploit.
53
Hollesen S., Essentials of glabal markets (2008)
Page 57 of 63
At the next step the company’s management had to take a decisions about what strategic
approach to follow in order to achieve its long and short term goals. Here managers should
make their choices concerning adaptation or standartization(Ghemawat) of the building
blocks in the business model, concentration or diversification strategy(Ayal), price leadership
or diversification, analyzer or prospector or defender (Miles & Snow) and ect. also to decide
on which component of the value preposition to concentrate in order to compete successfully
(sustainable competitive advantages) and how to position firm’s offer on the market and in
customers’ mind. Main factor on this stage are:
1. Objectives of the firm
2. Available resources (financial, knowledge, human)
3. Time to set foot on the market
4. Number of markets to serve
5. Criterias that potential markets have to meet to become real markets for Akumogroup
6. Ability of the firm to serve those markets and to meet customers’ needs.
The next phase was to decide which market(s) to enter. The international market election
approach was defined somewhere between non-systematic and relationship approach
(Andersen & Buvic). Concentration strategy has been chosen by firm’s management, and the
number of markets was defined as one. Because the lack of resources, knowledge, and access
to other markets. Because of the connections Akumogroup manager has in Turkey and the
promising results of the desk study of its capital – Istambul, its has been chosen as a target
market. But to systemize the factors that have been assessed:
1. Akumogroup’s manager private and strategic network (people involved in different
industries in Bulgaria and Turkey, marketing agencies officers, friends, ect.)
2. Phisical distance
3. Transportation costs
4. Import/export additional cots – taxes, fees, ect.
5. Climate and landscape of the host country
6. Infrastructure
7. Political stability and trust in the legal system and administration system in host
country.
8. Culture distance (general culture of Bulgaria and Turkey, corporate culture, fit
between Akumogroup and possible partners).
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9. Technological development of the host country and green policy opportunities
regarding incentives for the people to switch from oil cars to alternative energy
vehicles.
10. Environmental concerns (taxes, restrictions, conditioned import, quotas)
11. Economical development of the region and the need of our product in the bain branche
of the economy in Istambul. Plus financial ability of end users to buy our products,
and at what price.
12. Competition – competition, competitive advantages, prices of competitors, perception
of customers for different brands, barriers for entry and exit, sales, products portfolio,
connected businesses, communications, distribution, suppliers, main clients, perceived
financial power, human resources, management resources, knowledge, experience,
network.
13. Market conditions – market potential, needs of the customers, prefered way of
purchase, cutomers behavior, service, ect.
14. Entry mode – flexibility, risk, control, commitment, perceived profitability and
effectiveness, available resources (money, management, human, knowledge), partners,
network, merchandising conditions, payment schemes, ect.
The last stage is to position on the market and to operate effectively. Positioning on the
market in the beginning depends on the wright decisions and actions in the stages we have
discussed above. And effective oeration on the market depends mostly on that
Akumogroup should never forget, that to position on the market is just the beginning,
even then all factors must be forecasted and actions planned to stay on the market and
fulfill the objectives set.
All those conditions and factors were assessed while gathering information about Istambul
and and doing some studies of previous internationalization experience of other firms. Their
impact is important in the decision-making process. As much of their effects we are able to
forecast, the more successfully we can react to them by building adequate strategy and well
planned business model.
The importance of this internationalization campaign in long run may by that Akumogroup is
gathering and analyzing data, turning it into information. From it the company’s management
build corporate knowledge and experience. It could be used for further internationalization in
Page 59 of 63
other markets (uppsala model), or through the expanded network – to give new ideas for
different or connected business.
The answers of the question „What factors affect the decision making process in
Akumogroup’s internationalization?” can be used mainly for the purpoes of Akumogroup –
the unit of analysis. But could bu used as an example for further research. I mean for
academic knowledge building. Either by Degree of freedom analysis to check hit’s and
misses54 with the existing knowledge and this way to confirm it or to fill in some gaps in it.
Or by a large scale study of many examples of companies in order to confirm or reject some
hypotheses.
And to finish with. As folklore says – every answer rise more questions. The question that
Akumogroup have after identifying the factor that impact their deciion-making process,
described their effect and the options they give to the decision-makers, management needs to
find out how to cope with those factor. There are different options, but where different paths
lead to? But this is a research question for another research, and for future needs of
Akumogroup. Management needs to know more about:
-
How to position on the market – exactly what marketing mix to use?
-
How to deal with competition?
-
How to decrease dependancy from suppliers and partners?
-
Where to internationalize further? How?
-
Where is the optimal number of markets? Optimal sales and profit? Is there such thing
as optimal sales? How to define them? what could limit the desire for more
development?
-
54
Others.
Dfa theory
Page 60 of 63
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