The aim of this dissertation is to determine why the proper use of the internationalization process is a key success factor for multinational enterprises in emerging economies and the necessary factors that influence this process. I would like to argue that without the process of internationalization of products of multinational firms in emerging economies, the survival of such a firm is highly unlikely. I am interested in the operations of McDonalds and Subway in China and how internationalization helped in the survival of these multinational firms.
Based on the assumption that the internationalization process is the consequence of a series of incremental decisions and the most important obstacles to internationalization are lack of knowledge and recourse, Johanson & Wiedersheim-Paul (1975) introduce the internationalization model: the Uppsala model. In this dissertation, I shall use the Uppsala model (Johanson & Wiedersheim-Paul 1975) framework as research framework for my case study. The model identified four sequential stages of the internationalization process which will be analysed further.
This section of the dissertation examines existing literatures on the research topic. This is to identify appropriate information that may be relevant and useful in answering the research questions. There has been much research on the internationalization process of a firm. The concept of internationalization has evolved in the past three decades. Johanson & Vahlne (1977) defined Internationalization as a process in which the firms gradually increase their international involvement. They claimed that internationalization is the product of a series of incremental decisions. Welch & Luostarinen (1988) discussed internationalization as a dynamic concept: the process increasing involvement in international operations, both sides of inward and outward should be involved in a broader concept of internationalization. Beamish (1990) provides another comprehensive definition: …the process by which firms both increase their awareness of the direct and indirect influences of international transactions on their future, and establish and conduct transactions with other countries. (Beamish 1990, pp. 77-92; Coviello & Munro 1997). Andersen (1997) defines Internationalization as the process of adapting exchange transaction modality to international markets. These definitions describe the concept of internationalization from a variety of dimensions. Internationalization is an essential area among international business research. Extensive theoretical and empirical studies have been conducted in regard to internationalization with the analysis of different characteristics. But this phenomenon needs constant investigation as the world economy follows constant dynamic forces making it a vital target for research. No clear definition exists as to what defines the internationalization process. Johanson and Vahlne, (1990, pp.22) believe that “the internationalization process is the result of a mixture of strategic thinking, strategic action, emergent developments, chance and necessity”. Athreye and Kapur (2009) argue that over the last two decades, firms from developing countries have regularly been at the front of internationalization. They observed that the shares of global outward foreign direct investment from developing countries have drastically increased.
Between 2006 and 2009, there has been an extraordinary growth in the number of companies into a lot of today’s newly industrializing countries such as Brazil, China, Russia and India as listed in the FT 500 list quadrupling from 15 to 62 in a two years period. These rising number of firms to emerging economies are redefining the world. This can be observed in many industry reports (BCG, 2006, 2009) and international organizations (OECD, 2006; UNCTAD, 2006; World Bank, 2007). They function in an ever more integrated global economy which is quite unlike the world economy during the ‘late’ industrialization episodes in Taiwan and South Korea (Korea hereafter) during the 1960 and 1970s. Taiwan and Korea followed a combination of the strategies of import substituting industrialization (ISI) and export oriented industrialization (EOI). Such a policy framework established a ‘carrot and stick’ incentive structure where by companies experienced both luxury of domestic protection and the strain to succeed in competitive foreign markets. In contrast, emerging MNCs today experience strong competition in their home markets, and this has made many of them to compete in markets overseas. Internationalization has become an essential means to capture ownership advantages, through acquisition of foreign knowledge. In modern industries, economies of scale and scope are not any more important than creating knowledge and enhancing learning (Chandler and Hikino, 1997).
Within a company’s internationalization efforts, identifying and selecting the most capable foreign markets is a vital success factor. Due to the impracticality of attempting to enter all the nations of the world, selecting the markets with the highest projection of success is vital, in order to use limited resources as effectively and efficiently as possible (Alon, 2004). When entering a foreign market, a firm faces a different external business environment in the targeted market, which influences the firm’s entry strategy into the precise market segment. Understanding and analyzing the external business environment is especially relevant when entering an emerging market, since markets of this category are characterized to be more complex and dynamic than mature markets (Jansson, 2007). Despite the difficulty and unsteadiness faced, emerging markets have become increasingly attractive for doing business due to the fact that growth rates in forthcoming years will be significantly higher than in mature markets (Cavusgil et al, 2002). Brazil was the latest country being affected by the worldwide financial crisis triggered in 2008, and Brazilian economists expect the country to be among the first to come out of the financial crisis (Palmeus, 2009).
When establishing business in an emerging market, understanding the external business environment is not the only critical component. The attractiveness of the targeted market segment in terms of profitability prospects is a major parameter for deciding on whether to enter the market. Analyzing and being aware of the forces driving competition in the targeted emerging market is a critical factor, since they provide opportunities and threats for growth and determine the attractiveness of the targeted market segment (Thompson & Martin, 2005). If a company lacks experiential knowledge in a volatile and unstable foreign market, accurate market segment evaluation is a challenging process. Nevertheless, being aware of the attractiveness of the targeted segment in an emerging market is a precondition for deciding on whether to enter the foreign market (Pehrsson, 2002). Furthermore, customers in emerging markets are classified to have requirements differing from Western European markets (Jansson, 2007). Therefore, it is of critical importance to evaluate the match of a company’s resources and capabilities with the prevailing requirements of customers in an emerging market (Grant, 2008).
In conclusion, evaluating the external business environment and the market segment attractiveness in an emerging market, as well as appraising the match between a firm’s resources and capabilities with the potential customers’ needs in an emerging market demonstrates a critical task for multinationals intending to further internationalize their business. These factors are of key importance for a firm’s prospects of success in an emerging market. For this reason, it is inevitably an important and current research topic. The issue might become increasingly important in future, since multinationals are more and more expanding into emerging markets in order to seize opportunities of growth (Jansson, 2007).
As seen above, a lot of research has been carried out on the subject area. The purpose of this dissertation is to increase the knowledge in the field of internationalization of business through understanding and analyzing why firms decide to internationalize their products in emerging economies and to discuss and present crucial factors for the implementation of an efficient strategy (internationalization). Secondary data will be used. To achieve the purpose, I studied multinational companies, McDonalds, which applied the internationalization strategy and SubWay, which did not; in terms of their performance and success rate i.e. their survival, employed as tools in executing their international marketing goals.
My research questions are as follows:
- Why is internationalization a key success factor for MNC in emerging economies?
- What are the main factors that influence the internationalization process of MNC? i.e. performance
With the use of existing theories and present data available for the research, I hope to develop not only my own understanding about the internationalization process but also contribute to the field of international business literature. I will give some important comprehension into the concept of the success of internationalization and also the driving forces that decide the internationalization of organisations. It should not be ignored that the company cases can complement the business literature on internationalization of companies from emerging markets.
My target group of focus for my dissertation is McDonalds. I have chosen this particular multinational firm because it is a global firm which has had tremendous success and growth rate in China. Access to data shall be through the use of secondary data which is easy to obtain from their website, other academic websites such as Institute of International Economics http://iie.com and The World Trade Organisation http://www.wto.org. I will also use different journals and articles written by academic scholars such as Harvard Business Review, Journal of International Business Studies and International Business Review and critics of reports from other journals. I assessed the suitability of using a case study by looking at my research questions, objectives and research situation. When a researcher is willing to answer a ‘how and or why’ questions and has the intention to examine a phenomenon occurring in real life context, his/her preference will be to conduct a case study (Yin, 2009). I realized that using a case study approach would be the best approach to answer my questions in my research. Yin (2009) and Ghauri & Gronhaug (2005) also argued that the use of a case study can be justified as a suitable method when an investigator conducts an explanatory research with the purpose to answer any ‘what’ question. Yin (1994) developed a comparative analysis between case studies and other different approaches with experiments, and he presented three scenarios in which the use of a case study is the preferred method, and one of them involves my research: if I intend to follow an academic research that has presented some findings on a particular topic, and if I discover a company that is embedded in that particular topic, using a case study method will afford me the possibility to confirm the theory.
A research approach describes a researcher’s intent with the research as well as nature of the case studies. Yin (1994) categorizes three different research approaches exploratory, explanatory and descriptive. This thesis follows mainly an explanatory research approach. Explanatory research attempts to establish various explanations for the same phenomenon. It aims at illustrating why one event leads to the other and therefore it deals with cause-effect relationships. My research questions have been constructed and aimed at finding an explanation why firms decide to take certain actions, for example, choosing a certain strategy over the other. I shall use the Causal Research Philosophy because it examines the cause-and-effect relationship among my variables which includes the internationalisation process and the success of the firm.
A deductive case study is based on “grounded theories”, i.e. developing propositions from current theory and testing them in the real world (Dubois & Gadde, 2002). In my thesis, the point of departure is test the existing theory i.e. internationalisation via the Uppsala Model, using a particular assumption. By conducting a logical deduction of the findings, the theory is either confirmed or modified in line with the new conclusion (Yin 1994).
Due to an increasing number of findings in the internationalization process, current and existing research has limited application. Internationalization of a firm is a broad topic and a complex phenomenon; it is difficult to recognize internationalization process from different firms, so in order to come up with good analysis and clear understanding I have to limit my research to two case studies to be able to make a realistic comparism. To contribute a coherent piece of research, the area of this study must be scoped to achieve the quality of research. Another important factor is time. The given time frame makes it difficult to compare many firms so I have to limit the study to two companies, instead of several companies to be able to compare differently how the strategies have been efficiently applied.