The influence of economic and
network factors on activity
undertaking by Dutch
businesses in emerging
economies
Name:
Berend Klumper
Student nr VU / UvA:
2510532 / 10024581
Program:
Entrepreneurship MSc.
Thesis supervisor:
dr. P.J. Peverelli
2
ndassessor:
dr. M.M. Rietdijk
Preface
As the final piece of my Master in Entrepreneurship this research was demanding but fun to write. I would like to thank my supervisor dr. P.J. Peverelli and 2nd assessor dr. M.M. Rietdijk for their feedback and guidance, as well as my friends and family for their support. Also a big ‘thank you’ to my respondents who helped make this possible.
The copyright of this thesis rests by me. I am solely responsible for the content of this thesis, including mistakes. The Vrije Universiteit and the Universiteit van Amsterdam cannot be held liable for the content of this thesis.
Abstract
Internationalization can be seen as an opportunity to increase growth and profitability as a business. Moreover, internationalizing to an emerging economy gives a long-term growth opportunity compared to saturated developed economies. This research uses network factors (including the government) and economic factors as influencers of this internationalization process (activity undertaking) to an emerging economy, focused on Dutch businesses.
Data was gathered among Dutch businesses active in emerging economies using an Internet questionnaire (see appendix D), which resulted in a sample of 56 businesses. Based on previous literature, four hypotheses were derived and then quantitatively tested. The results show that a home-country network and a host-country network both play a role in activity undertaking by a Dutch business in an emerging economy. The role of the Dutch government (using its supporting activities) in activity undertaking by a Dutch business showed to be important after the activity was started rather than before. Concerning economic factors, for the sectors ‘agriculture’ and ‘business services’ economic factors seemed to play a role, but this was not the case for the ‘industry’ sector.
This research tries to add insight to existing literature by expanding the vision on Dutch businesses internationalizing to emerging economies. Dutch businesses planning to undertake an activity should carefully consider the roles of the home- and host-country networks, as well as the role of the Dutch government in their process to start an activity in an emerging economy.
Table of contents
1. Introduction ... 4
§1.1 Practical relevance ... 5
§1.2 Outline ... 6
2. Theoretical Framework ... 7
§2.1 What are the characteristics of an emerging economy and how do economic factors present there play a role in activity undertaking of a business? ... 7
§2.2 How do networks play a role in activity starting in an emerging economy? ... 10
§2.2.1 Role of the home-country network ……….. 12
§2.2.2 Role of the host-country network ... 13
§2.3 What is the role of the government in the activity undertaking of a business in an emerging economy?... 14 3. Methodology ... 16 §3.1 Sampling procedure ... 16 §3.3 Validity ... 18 §3.4 Reliability... 19 §3.5 Categorizing ... 19 4. Results ... 21 §4.1 Descriptive statistics ... 21 §4.1.1 General ... 21 §4.1.2 Economic factors ... 22 §4.1.3 Home-country network ... 22 §4.1.4 Host-country network ... 22 §4.2 Correlations ... 23 §4.2.1 Economic factors ... 24 §4.2.2 Home-country network ... 24 §4.2.3 Host-country network ... 25 §4.2.4 Government influence ... 25 5. Discussion ... 27 §5.1 Hypothesis 1 ... 27 §5.2 Hypothesis 2 ... 28 §5.3 Hypothesis 3 ... 29 §5.4 Hypothesis 4 ... 30 6. Conclusion ... 31 §6.1 Conclusion ... 31 §6.2 Theoretical implications... 32 §6.3 Practical implications ... 33
§6.4 Limitations and future research ... 33
7. References ... 35
§7.1 Literature references ... 35
§7.2 Internet references ... 43
Appendix ... 45
A. ‘Table including all variable descriptions’ ... 45
B. ‘Frequency tables of the variables’ ... 46
C. ‘Correlation table of all variables’ ... 49
1. Introduction
Imagine yourself as a Dutch company with ambitions to grow your business. You can try to expand your activities within the home country or see what opportunities other countries possess. Lets say you are on a networking event having drinks with people who are active in the same sector as you are. They talk to you about what great returns they made internationalizing their business to an emerging economy, for instance Brazil. This makes you think about what the possibilities might be in internationalizing your own business to an emerging economy as well. But, how does this work? Where should you go? Is it economically feasible? Well, a good idea might be to collect information on this from people who already have experience in doing this, i.e. the people you met on the networking event. This research tends to address this topic as to how network factors influence this choice of Dutch businesses internationalizing.
Internationalization brings the opportunity for businesses to reach foreign markets ahead of their competition and by introducing products and process innovations there firms will be able to achieve higher profitability and growth (Georgie, Wiklund and Zahra, 2005). When one decides to enact such an opportunity or activity across national borders it will be seen as an entrepreneurial act (Jones and Coviello, 2005; Oviatt and McDougall, 2005). Moreover, since the opportunity will be enacted across national borders, literature sees this as international entrepreneurship (e.g. Oviatt and McDougall, 2000; Sullivan Mort and Weerawardena, 2006; Jones, Coviello and Tang, 2011). The definition of international entrepreneurship used in this research is based on the work of Oviatt and McDougall (2005) on the definitions of international entrepreneurship: ‘International entrepreneurship is the discovery, enactment, evaluation, and exploitation of opportunities—across national borders—to create future goods and services.’ The impact of a network is of vital importance on internationalizing (Zhou, Wu and Luo, 2007), for instance the supply of information about markets and clients (Sharma and Blomstermo, 2003; Zain and Ng, 2006). A network is both important in the home-country (Zhou, Wu and Luo, 2007; Guler and Guillen, 2010) as in the host-home-country
(Meyer et al., 2009; Ellis, 2011). The home-country network also includes the aid of the home-country government (Lu et al., 2014) and its supporting activities (Luo, Xue and Han, 2010; Buckley et al., 2010; Cui and Jiang, 2012; Voss, Buckley and Cross, 2010). Next to having a network, various economic factors play a role in internationalization, e.g. labor or resources in cost savings (Wagner, 2004).
Internationalizing to an emerging economy is challenging because of imperfect institutional frameworks and weak resource bases (Khanna and Palepu, 1997; Meyer and Estrin, 2001), compared to developed economies (Webb, Ireland and Ketchen, 2014). Moreover, an emerging economy is defined as ‘low per-capita income, limited development of the capital market, an increasing rate of economic development as measured by GDP growth, a rising degree of industrialization, and growing openness toward foreign direct investment’ (Cavusgil et al., 2011; Khanna and Palepu, 2010), resulting in a long-term (high risk) growth opportunity (Sakarya, Eckman and Hyllegard, 2007).
The focus of this thesis is on Dutch businesses starting an activity (internationalizing) in an emerging economy. By focusing especially on Dutch businesses, this thesis attempts to extend the literature on (Dutch) international entrepreneurship. By integrating existing literature on international entrepreneurship and insights from Dutch businesses active in an emerging economy, this thesis develops new insights on what the roles are of home-country and host-country networks, and economic factors on Dutch activity starting in an emerging economy. Moreover, by assessing the role of the Dutch government separately, a clearer view of what role the supporting activities play in the activity undertaking of a Dutch business in an emerging economy will be established.
§1.1 Practical relevance
The findings of this thesis can be of importance to Dutch businesses that are planning to start an activity in an emerging economy. First, this research addresses how to acquire a host-country network and the role of the Dutch government in this process. Second, the importance of then utilizing your home-country network, to gain for example information and credibility (Sharma and Blomstermo, 2003; Zain and Ng, 2006), and your host-country network, to gain assistance in conducting business,
performance (Oviatt and McDougall, 2005; Zain and Ng, 2006; Meyer et al., 2009; Ellis, 2011; Sheng and Zhou, 2013; Hohenthal, Johanson and Johanson, 2014; Armanios et al., 2017). Furthermore, these findings of this thesis may also be of importance to the Dutch government. The Dutch government gets insight in how well their supporting activities are functioning on, for example, host-country network formation of Dutch companies starting an activity in an emerging economy.
§1.2 Outline
The purpose of this thesis is to provide more insight on the role economic factors, the government and home-country and host-country networks play in activity starting in emerging economies by Dutch businesses. Therefore the research question will be: ‘What is the effect of economic and network factors in Dutch businesses starting an activity in emerging economies?’ In order to effectively answer this research question, the theoretical framework will be arranged following the coming sub questions:
• What are the characteristics of an emerging economy and how do economic factors there play a role in activity undertaking of a business?
• How do networks play a role in activity starting in an emerging economy? o Role of the home-country network
o Role of the host-country network
• What is the role of the government in the activity undertaking of a business in an emerging economy?
Do note that international entrepreneurship is not only for small-medium enterprises (SME’s) but also for large corporations (Zahra and George, 2002), therefore this research does not make a distinction between SME’s and corporations and uses the general term ‘businesses’.
This thesis will be structured as follows, first the theoretical framework will be addressed accompanied by the hypotheses and the conceptual model. Second, the methodology will be explained followed by an overview of the results. Finally, implications of the results will be discussed after which the conclusions, accompanied by the limitations of this research and recommendations for future research, will be described.
2. Theoretical Framework
This part will discuss relevant theory concerning the background of this research. As stated in the introduction, the theoretical framework will consist of three sub questions; hypotheses will be formed accordingly, followed by the conceptual model (Fig. 1).
§2.1 What are the characteristics of an emerging economy and how do economic factors present there play a role in activity undertaking of a business?
Every country consists of formal and informal institutions that represent ‘rules and procedures that structure social interaction by constraining and enabling actors’ behaviour’ (Helmke and Levitsky, 2004). They are distinguished by self-enforcing informal norms, and third party (mostly government) enforced formal laws (Knight, 1992; Calvert, 1995). Formal institutions within an economy thus provide laws, as well as structural apparatuses and regulations (e.g. import laws, internet regulations, environmental regulations) in order to structure the economic activities within the market (Hoskisson et al., 2000; North, 1990). These set boundaries serve as guidelines for companies and entrepreneurs on what is legally acceptable, i.e. ‘the rules of the game’ (Webb, Ireland and Ketchen, 2014; Peng, Wang and Jiang, 2008; Brouthers, 2002; Hoskisson et al., 2000; North 1990). Institutions are not perfect in their way of working, just as firms and entrepreneurs, and thus might also miss opportunities or provide support inadequately (Webb, Ireland and Ketchen, 2014). Additionally, for formal institutions to work, the informal institutions (society’s norms and traditions) must be complementary (Gërxhani, 2004). Both these institutional forces affect the processes and decision making of an organization (Hoskisson et al., 2000). Compared to emerging economies, formal institutions in developed economies provide a relatively clearer estimation of what to expect when complying with- or breaking laws than developing countries (Webb, Ireland and Ketchen, 2014; Tracey and Phillips, 2011). This leaves for more formal institutional
voids in emerging economies, meaning they fall short in providing the necessary institutions to support basic business operations (Khanna and Palepu, 1997).
The informal economy, on the other hand, incorporates economic activities that are outside of formal institutional guidelines but inside informal institutional guidelines (Webb et al., 2009). Peng Wang and Jiang (2008) and Webb, Ireland and Ketchen (2014) add that the relatively higher imperfection of the formal institutions in emerging economies leads to a stronger role of society’s informal institutions. An example described by de Soto (2000) on imperfect formal institutions in emerging economies shows that it takes 289 days and $1231 to formally register a company in Peru compared to for example the start of a business in the Netherlands (matter of a few days (KvK, 2017)) and illustrates why formal structures have a weaker role in emerging economies than in developed countries (London and Hart, 2004). This delay in obtaining permits or excessive ‘red tape’ can also greatly affect production costs for a company (Hayakawa, Kimura and Lee, 2013).
The state of institutions of emerging economies described in the section above thus differs greatly from those in developed economies (Meyer et al., 2009). Moreover, the costs and risks of entering a market are higher when (formal) institutional frameworks are weaker, as is the case in an emerging economy (Peng, 2006; Meyer et al., 2009). Meyer et al. (2009) argue that when (formal) institutions are weak, foreign firms tend to turn to local firms to acquire local resources, mostly in the form of a joint venture. When (formal) institutions become stronger and better defined, foreign firms can access these local resources easier and this leaves room for a greenfield entry (operations being built from the ground up).
Having discussed the characteristics of an emerging economy, the role of the economic factors present there (considering internationalization of firms) will be elaborated. As Meyer et al. (2009) argued, the state of formal institutions determines the resource acquisition of firms in internationalizing. But what resources are of importance in internationalizing to a foreign market? These resources entail certain economic factors such as new customer markets and cheap (unskilled) labor (e.g. cost advantages by relocating manufacturing outlets) (Guillen, 2000; Westhead, Wright and Ucbasaran, 2001; Wagner, 2004; Hennart, 2012). Also, material cost advantages such as privileged access to natural resources (i.e. use of land) (Guillen, 2000; Wagner, 2004), social entrepreneurship (philanthropy) (Weerawardena and Mort, 2006) and/or a (more) favorable tax climate (Acs and Zerb, 2007) are factors to
internationalize. Having a solid basic infrastructure in the emerging economy aids in this process by facilitating communication, transportation and distribution networks (Guillen, 2000; Westhead, Wright and Ucbasaran, 2001; Erdal and Tatoglu, 2002). But, as described by Khanna and Palepu (1997), a solid basic infrastructure is mostly not present, mainly due to ineffective tax collections or incompetent/corrupt use of tax income (Baer, 2007; Hoskisson et al., 2000).
Wagner (2004) states that firms can achieve significant cost savings by seeking new labor and factor markets, since labor and factor costs are major drivers of operating costs, especially for manufacturing firms. Achieving significant cost savings is considered a central goal in internationalization of today’s firms. To be able to target these emerging economies, firms will have to develop new business models and skills, and emphasize agility (Cavusgil and Knight, 2015). An example of this is described by Patel-Campillo (2011) in her article on the Dutch cut flower market and its competitive role in the global cut flower market. She argues that due to increased competition of cut flowers from emerging economies, where production costs are lower, Dutch growers decided to reform their strategy. As a response to these lower production costs they decided to adapt in-house systems and start regional offices in Latin America and Africa to try to persuade foreign growers to market their flowers through them. This exemplifies the resource-based view (RBV), which suggests that ‘to achieve superior performance in an international market, an entrepreneurial firm needs to develop competitive advantages that create value through unique products or services that satisfy foreign customers’ (Lu et al., 2010). Hennart (2012) points out that cheap labor and the endowment of natural resources in an emerging economy are available to all firms (both local and foreign).
Barney (1991) argued that the RBV also contains intangible resources next to tangible resources. Intangible resources are also of importance to a firm in order to create a sustainable competitive advantage and obtain opportunities generated by internationalization (Bruton, Ahlstrom and Obloj, 2008). An intangible resource a firm may want to acquire by internationalizing is knowledge (Blomstermo, Eriksson and Sharma, 2004), which is seen as an important competitive factor (Oliver, 1997; Wiig, 1997). To successfully acquire knowledge a firm must have the essential capability of information acquisition, i.e. being able to gain knowledge (Guillen, 2000; Westhead, Wright and Ucbasaran, 2001). Moreover, information acquisition
collect, absorb and integrate information to understand the needs of the customer (Lu et al., 2010). Sirmon et al. (2007) conclude that the capabilities of the firm that enable them to transform the acquired (tangible or intangible) resources into superior services or products to customers is essential in leveraging specific market opportunities and to achieve superior firm performance. Ellis (2011) and George, Wiklund and Zahra (2005) add that being proactive as a firm is also crucial in leveraging market opportunities. Though, there is a difference in leveraging market opportunities for small entrepreneurial firms compared to large multinationals, as limited resources constrain the small entrepreneurial firms in their strategic options to internationalize as opposed to the (resource rich) large multinationals (Lu et al., 2010). For these small entrepreneurial firms the real promise for significant growth lies in tapping into markets not currently being served by these large multinationals. The importance of the economic factors (labor, use of land, resources, philanthropy, tax climate, infrastructure and knowledge) explained above might depend on the sector or industry the firm is active in (Kor and Misangyi, 2008; Buckley and Casson, 1985). Buckley and Casson (1985) suggest that that these sector-specific resources are of importance in internationalizing when obtained by a firm. Therefore the first hypothesis is as following:
H1: A Dutch company is more likely to start an activity in an emerging economy when certain economic factors (labor, use of land, resources, philanthropy, tax climate, infrastructure or knowledge) relevant for the sector they are active in are present.
§2.2 How do networks play a role in activity starting in an emerging economy?
For entrepreneurial firms networks are of vital importance in internationalizing (Zhou, Wu and Luo, 2007). According to Ellis (2011) a network of such a firm consists of two types: a business and a social network. He explains that a social network is derived from the amount of (personal) relationships a person has that connects him or her with someone else, and that a business network entails inter-firm relationships. Moreover, Zain and Ng (2006) argue that business networks usually arise out of the
relationships in the social network. Sheng, Zhou and Li (2013) add a third type a network can consist of, the political network. The political network entails the informal relationships a person has with government officials in various governmental levels such as local and central government or regulation agencies (for instance tax administrative bureaus) (Li, Zhou and Shao, 2009). A firm can have both a network in the target market (host-country network) (Oviatt and McDougall, 2005) as in the home country (home-country network) (Zhou, Wu and Luo, 2007). This will be discussed in paragraphs 2.2.1 and 2.2.2.
In relationship to opportunity recognition and/or exploitation, the richness of the relationships within a network (e.g. trust or commitment) is crucial to a more rapid market penetration, greater sales volumes and higher market performance (Ellis, 2011; Sheng, Zhou and Li, 2013), which then, if successful, encourages further cooperation (Ganesan, 1994). For example in exchanges where people know each other there is no need for comprehensive contractual safeguards and details can be negotiated for ‘on the fly’, which leads to a faster exploitation of opportunities (Uzzi, 1997).
In emerging economies in particular, Sheng, Zhou and Li (2013) argue that political network ties are of less importance to firms than business or social network ties, because of their short-term nature. For example, government officials tend to rotate in their positions (within departments or geographically), which may weaken or terminate a firm’s political connection. For accurate opportunity recognition one needs individuals, not firms (Ozgen & Baron, 2007); so, interpersonal ties (social network) rather than inter-organizational ties (business network) (Ellis, 2011). But, internationalization of a firm is influenced by inter-organizational ties that span national borders (Coviello and Munro, 1997). This means that relevant network effects for opportunity recognition will only account for markets where the firm already has business relationships (a host-country network (Oviatt and McDougall, 2005)). This results in, when using only a business network, a restriction of opportunity recognition in new markets where no active relationships are at hand (Ellis, 2011). So, a combination of both interpersonal ties and inter-organizational ties is desired. However, since business networks are derived out of social networks (Zain and Ng, 2006), one might argue that interpersonal ties are of higher importance. Though, Ellis (2011) found that the derived opportunities out of social networks are
meaning that opportunities that lie past that horizon will remain unexplored. As a possible solution to this, one should entail loose, diverse networks as they are less constraining than small, dense networks (Burt, 2000). Additionally, these networks can nowadays also be formed through social media, such as LinkedIn (Aral et al., 2013).
§2.2.1 Role of the home-country network
Home-country social networks (which are characterized by social and spatial closeness of actors involved in the home country) are of importance for a firm’s internationalizing success, especially for SME’s (Coviello and Munro, 1997). This includes the identification of global market opportunities and the ability to extend connections with foreign intermediaries (Zhou, Wu and Luo, 2007; Guler and Guillen, 2010). Yiu, Lau and Bruton (2007) add that having people or firms in your social or business home-country network with experience in internationalizing helps in gaining precious information and experience and thus overcoming the problems such as foreignness, limited resources and credibility (Sharma and Blomstermo, 2003; Zain and Ng, 2006). If there are major firm partners involved, rapid and successful growth of SMEs seems to be a result, since these major firm partners will guide smaller firms in foreign market selection and entry (Coviello and Munro, 1997). This may lead to the entry of firms into the same country, resulting in increased legitimacy in the local markets (Yiu, Lau and Bruton, 2007).
In finding partners in the host country, which enhances access to local resources, the reputation gained in the home country and amongst your social and business home-country network seems to play an important role. Guler and Guillen (2010), in their research on home-country networks and the international expansion of venture capital firms, argue that potential foreign exchange partners, who are not connected to the entering firm or its network, may suspect a lack of quality or trustworthiness of the entering firm. They note that status helps in inferring quality or trustworthiness, the status of other firms or actors within the entering firm’s network may also aid in this. However, the actual entry of other home country partners to the foreign market may cause the effect of status obtained in the home country to decline, this because of the opportunity for foreign actors to learn directly about the entering
firm through home country partners already present in that market. Based on the above information the second hypothesis is as follows:
H2: A Dutch company is more likely to undertake an activity in an emerging economy when the home-country network provides knowledge and resources concerning the emerging economy.
§2.2.2 Role of the host-country network
As described in paragraph 2.1, emerging economies are still maturing (yet generally uneven (Zhou, Wu and Luo, 2005)) and the lack or weakness of certain formal institutions in this process can be overcome/replaced by informal institutions (Ahlstrom and Bruton, 2006; Meyer et al., 2009). These informal institutions are based on social contacts instead of formal contracts (de Soto, 2000), which consist of for instance networks with entrepreneurs or government officials (Meyer et al., 2009) that have added value in emerging economies opposed to developed economies (Ahstrom and Bruton, 2006). Ahstrom and Bruton (2006) continue that when firms cannot rely on formal institutions to monitor their investments, the informal institution (personal relationships in the host-country) then ‘helps to ensure that the transaction involves what it is alleged to and that there will be the fulfillment of any agreement between the parties’. Having a network within an emerging economy is thus important in conducting business, exploiting opportunities, increasing internationalization pace and achieving market performance (Oviatt and McDougall, 2005; Zain and Ng, 2006; Meyer et al., 2009; Ellis, 2011; Sheng and Zhou, 2013; Hohenthal, Johanson and Johanson, 2014; Armanios et al., 2017).
To acquire such a host-country network, a firm must actively construct or inherit it. Sometimes entrepreneurs seek export markets where they already have a network present (can be a referral by an existing domestic client) (Kontinen and Ojala, 2011) and sometimes they actively seek to build a network (Ciravegna, Lopez and Kundu, 2014). Building on existing relationships with domestic clients or colleagues may also provide the firm with new clients in the emerging market (Lopez et al., 2009; Ciravegna, Lopez and Kundu, 2014). Ciravegna, Lopez and Kundu (2014) end by stating that adopting multiple search strategies for new clients will
broaden the network and the range of opportunities. On this basis the third hypothesis is constructed:
H3: Having a host-country network in an emerging economy will have a positive effect on the decision to undertake an activity in that emerging economy.
§2.3 What is the role of the government in the activity undertaking of a business in an emerging economy?
Arguments in internationalizing such as prior entry experience and a local knowledge base (resources) are based on time-consuming learning-by-doing processes (Casillas and Moreno-Menendez, 2014). These arguments tend to forget to acknowledge a role to the home-country factors such as the government (or formal institutions) (Guler and Guillen, 2010; Lu et al., 2014). When firms decide to internationalize but lack international experience and knowledge concerning foreign markets (and the entry of it), the home government can aid in assisting this (Buckley et al., 2010; Lu et al., 2014). Through the use of FDI policies, official guidance procedures (initiated by the home-country government) and the presence of an appropriate institutional environment in the host country, firms can actually accelerate their internationalization process (Lu et al., 2014).
There is also an incentive for the home-country government in helping internationalizing firms to be successful. The spill over effects of successful investments in foreign markets (emerging economies in this case) that may occur will provide dynamic benefits or welfare gains to the home market (Buckley et al., 2010). For instance, the increase of a firm’s foreign sales due to successful foreign investments may result in an increase of sales of the home-country supplier of that firm, which leads to an increase of the domestic economy. This increase in foreign sales may also result in extra research and development expenditure in the home market, as well as a better understanding of the dynamics in the foreign market (that other domestic firms can then also benefit of) (Criscuolo, 2009).
As for the supporting activities home-country governments posses to help firms in internationalizing, home country governments can supply information of the host country to the firm, for example collected through diplomatic channels or
research by government agencies (Buckley et al, 2010; Lu et al., 2014). Government policies can also help in expanding firms’ investment opportunities in terms of favorable financial support, customs, exchange rates and other favorable treatment, which can increase the firms’ capabilities to take risks (Luo, Xue and Han, 2010; Buckley et al., 2010; Cui and Jiang, 2012). Voss, Buckley and Cross (2010) add that the government can also aid in offering special access to human and financial resources, which may influence investment decisions or capabilities. However, whether these policies are effective or not is dependent on the host country and their willingness to accept investments from foreign firms altogether (Buckley et al., 2010).
Considering the Dutch government, they focus on taking away trade barriers (i.e. by setting up trade agreements), reducing import tariffs, granting export credit guarantees and investing guarantees and offering assistance by human capital (through embassies and the like) and several support programs (Rijksoverheid, 2017a; RvO, 2017a). The ‘Rijksdienst voor Ondernemend Nederland’ (RvO), for instance, publishes reports (on behalf of the Dutch Ministry of Economic Affairs) considering opportunities and challenges for Dutch firms on certain sectors in emerging economies, for example horticulture in Tanzania (RvO, 2017b). The Dutch government mainly aims at aiding firms that are active in sectors that Holland thrives in and firms that are interested in doing business with emerging economies. Policies concerning internationalization are also constructed in cooperation with the concerned industries/firms (Rijksoverheid, 2017b). These firms are given the opportunity to join the Dutch Ministry of Economic Affairs and the RvO in foreign trade missions as well to interact with local parties directly (Rijksoverheid 2017c). Related to the importance of forming a host-country network, the home-country government may thus contribute in starting such a network for the internationalizing firm. Based on these arguments the following hypothesis is derived:
H4: The supporting activities used by the Dutch government will have a positive influence on host-country network formation.
3. Methodology
The research question this study wants to answer is the following: ‘What is the effect of economic and network factors in Dutch businesses starting an activity in emerging economies?’ According to Blumberg et. al (2014) the research approach depends on the research question. Considering the above research question is concerned about the characteristics associated with a subject population (in this case the ‘what’ of the topic), this study aims to be descriptive. For an overview and description of all the variables used in this study consult appendix A.
§3.1 Sampling procedure
In order for this study to collect data a sample was drawn from Dutch companies of any size who are or have been involved in an activity in an emerging economy (based on the list of the IMF (IMF, 2017)). The samples were drawn using non-probability sampling, meaning that the chance of being sampled out of the population is not equal for every company. This is a result of the way the population was approached. In order to get in touch with potential companies a database of the RvO (RvO Database,
2017) was used that consisted of companies that had received subsidies of the Dutch government to start a project in a certain country. Via this way companies who are active in emerging markets could be easily localized. Apart from the RvO database, social media (e.g. LinkedIn and Facebook) and my personal network (e.g. parents, friends, former neighbors) were also used to reach more potential individuals or companies.
In total 124 e-mails were sent out to companies I collected from the database or found through my personal network or social media, 56 companies or individuals have eventually filled out the online survey. This would result in a response rate of 45%, which is relatively high according to the usual response rate to an online survey of 10% as stated by Smith and Whitlark (2001). Apart from ensured anonymity (Baruch and Holtom, 2008), other explanations might be of importance. A first explanation for the high response rate is that I tried to explicitly address owners, founders or CEOs of companies personally to ask if they wanted to contribute to my study (Cycyota and Harrison, 2002). Second, at the end of the online survey, when it was filled out completely, I asked the respondent if he or she maybe knows someone that would also be relevant to this study (e.g. a network peer); hoping for a potential snowball effect (Browne, 2005) that I cannot measure. A third explanation could be that companies or individuals tagged in social media messages or contacted through my network peers, so outside of my mailing list, filled in the survey. A possible bias in the sampling procedure might be that companies of whom I could not find the personal e-mail address of the owner, founder or CEO had a possible smaller response rate (Cycyota and Harrison, 2002). This effect could occur relatively more frequent within one emerging economy compared to another.
According to Blumberg et al. (2014) a sample should be at least 5% of the total population to allow for the research to make knowledgeable claims. Assuming that not all the Dutch companies who are active in an emerging economy are present in the RvO (2017) list, this research cannot make a feasible claim on the exact total population. However, we may assume that there are more than 1120 (5% of 1120 = 56) Dutch companies active in some way in emerging economies. Because of this, this research will make cautious knowledge claims about the effects of network and economic factors on activity undertaking by Dutch companies in emerging economies.
§3.2 Measurement instrument
In order to investigate the stressed research question of this study, a structured online survey was used to collect data (see appendix D). Information sought of the companies or individuals was related to network and economic factors concerning their starting of an activity in an emerging economy. Next to the previous factors, demographic information concerning the firm size and the market of the activity was also collected. In total between 11 and 13 questions were asked of the respondents (depending on what answers one would provide), which include two demographic questions (open-ended). The survey consists of a total of 13 pre-structured questions including five ‘yes/no’ questions, four questions using a 5-Likert scale (1 = strongly disagree; 5 = strongly agree) and four multiple-choice questions (three of which include an open-ended ‘other’ option).
For question 12 (Q12) the options of economic factors that were used were discussed in §2.1. Furthermore, the options of question nine (Q9) were derived out of the theory discussed in §2.2 and §2.3.
§3.3 Validity
To ensure internal validity within this study questions that measure approximately the same should correlate with each other, for example Q9-3 and Q11 or Q4 and Q13 (see table 1), this indicates convergent validity. The variables Q4 and Q8 measure the opposite (home-country network influence versus host-country network influence) and have very low (non-significant) correlation, which indicates discriminant validity. In order to assure external validity among the population (Dutch entrepreneurs that are/were active in an emerging economy), this research did not use random selection of respondents, because of the special characteristics needed of the respondents (i.e. started an activity in an emerging economy) (Ferguson, 2004). Note that the small sample size (56) might be a problem for generalizing the results. Ferguson (2004) argues that to ensure external validity for the application of the findings in other points of time, replication studies should be done. This will also be the case in this research, since markets can change overtime (e.g. policy changes
(Vogel and Kagan, 2004) or market preferences (Jaworski and Kohli, 1993)). Note that the results of this research might not be generalizable to other countries, since government policies may vary as well as the importance of different economic factors influencing activity starting. Furthermore, the snowball sampling method, used in combination with non-probability sampling, might also jeopardize the generalizability of the results (Blumberg et al., 2014).
§3.4 Reliability
Some of the questions in the survey are related to a certain variable (e.g. host-country network or home-country network), though we may not see them as multi-item scales but as single-item scales since they entail different aspects of the variable (for instance the importance of a host-country network versus the host-country network formation). To ensure reliability in this case, a test-retest should be done on the single-item scales, this means testing the same single-item in two different points in time and correlate these scores to be able to give an estimation of the reliability (Gliem and Gliem, 2003). For some questions that measured the same outcome (for instance question 9 (option 3) and 11) positive correlations were recorded, serving as a reliability check (Saiia, Carroll and Buchholtz, 2003).
§3.5 Categorizing
In question 2 (Q2) of the questionnaire respondents had to fill in the sector their business is active. The sector ‘agriculture’ (Q2-1) is concerned with activities related to utilizing natural resources. The sector ‘business services’ (Q2-2) is concerned with activities to deliver an intangible good (a service) (Vargo and Lusch, 2008). Micro financing is seen as a service as well (Sievers and Vandenberg, 2007). Finally, the sector ‘industry’ (Q2-3) is concerned with activities to deliver a tangible good.
Sector Type of activity
Agriculture (Q2-1) Horticulture, food processing and flower growing
Business Services (Q2-2) Consultancy, micro financing, education and development aid
Industry (Q2-3) Energy, construction, software development
In question 3 (Q3) of the questionnaire the respondents were asked to fill in in which countries their business is active. The presence of a business in an emerging economy is categorized by continent. Note that a business can be active in multiple countries.
Continent Countries
Africa (Q3-1) Kenya, Uganda, Tanzania, Congo, Ethiopia, Nigeria and Ghana
Asia (Q3-2) Nepal, China, Myanmar, Indonesia and India
South America (Q3-3) Colombia, Peru and Brasil
Considering the open-ended ‘other’ answers at questions 9, 12 and 15, these will be categorized with a similar pre-given answer option or coded to a separate category. For instance, a respondent in question 9 responded that he had built a network because he lived there for multiple years, this will be categorized under ‘own initiative’. Also, a separate category was created for question 9 concerning ‘previous work/study’ related.
Considering question 12, respondents were asked to fill in economic factors that resulted in them starting an activity in an emerging economy (referred to as ‘economic pull factors’). A total of seven options were given, which will be coded 1: labor, 2: resources, 3: use of land, 4: knowledge, 5: tax climate, 6: infrastructure and 7: philanthropy. The open-ended ‘other’ options resulted in an eighth category ‘opportunities’, because of multiple answers stressing favorable market opportunities and market demand in the host-country (in some cases compared to the home country). Furthermore, one respondent answered ‘our products cannot be shipped
Table 3.2 ‘Continent categorization’ Table 3.1 ‘Sector categorization’
worldwide. Having local production facilities is crucial in deploying an international brand’, this will be categorized under the ‘infrastructure’ category since it is shipping related. Another respondent answered ‘asked by the Dutch government (RvO)’; this will be categorized under ‘opportunities’, because this study sees this as an opportunity handed to the respondent by the Dutch government. Respondents who had no economic reason to start an activity will be categorized under the ninth ‘none’ category. For question 15, a respondent answered ‘via the Embassy’ in the ‘other’ option. This answer is most likely an explanation of how the direct personal contact was established, considering the other given answer was ‘through direct personal contact’.
Additionally, of all the questions where the respondents were able to fill in multiple responses (multiple response variables), this involves questions 1, 2, 3, 9, 10, 12 and 15, dichotomous (yes/no) dummy variables were created of each possible answer. This will allow for further data analysis. The dichotomous dummy variables were then clustered in a multiple response set for each variable they belong to in
SPSS, this in order to provide correct frequency calculation.
4. Results
This section will elaborate the results of the quantitative analysis on the collected data. For an overview of all the descriptive statistics and correlations of each variable, please consult appendix B (for descriptive statistics) and C (for correlations).
§4.1 Descriptive statistics
The descriptive statistics of the government related questions are included in the other 3 paragraphs (economic factors, home-country network and host-country network).
§4.1.1 General
As stated in the appendix part A, 73.2% of the respondents’ companies are active in Africa, 30.4% in Asia and 32.1% in South America. The biggest activity is in the
sector (10.7%). Note that these companies can be active in multiple continents. Six of them were active in all three continents (10.7%), four in only South America and Africa (7.1%), three in only Africa and Asia (5.4%) and one in only South America and Asia (1.8%).
Whether the respondents helped out or advised someone in their network (both host-country or home-country) in starting an activity in an emerging economy (question 14), the majority (42 (75%)) answered ‘yes’, where 14 (25%) answered ‘no’ to this question. Advice or help (question 15) was given mostly through direct personal contact (49.2%), for example a (networking) reception, and direct contact (44.3%), for example Skype or e-mail. Social media (e.g. LinkedIn or Facebook) was used in only 6.6% of the cases. Of the respondents (14) who have not helped someone in their network before (question 16), the majority (12 (85.7%)) was willing to do so in the future, two (14.3%) were not.
§4.1.2 Economic factors
Question 12 of the survey tries to determine the economic factors within an emerging economy that were of importance in starting the activity for each respondent/company. Of all the 56 respondents, labor (23 (20.5%)), opportunities (20 (17.9%)) and use of land (19 (17%) were the majority of the given answers (for the rest of the answers see table [..]). Whether the acquiring of knowledge about these economic factors was impacted through the home-country network (question 13), 22 (39.3%) respondents stated they ‘agree nor disagree’, 19 (34%) ‘agreed’ (10 ‘strongly agreed’) and 15 (26.7%) ‘disagreed’ (4 ‘strongly disagreed’).
§4.1.3 Home-country network
A small majority (30 (53.6%)) of the respondents stated that the home-country network played a role in them undertaking an activity in an emerging economy (question 4). Twelve (21.4%) ‘agreed nor disagreed’ and 14 (7 ‘disagreed’ and 7 ‘strongly disagreed’, a total of 25%) disagreed with the statement.
§4.1.4 Host-country network
Of all the 56 respondents, the majority (91%) found that having a host-country network is of importance in the process of starting an activity in an emerging economy (15 (26.8%) ‘agreed’ and 36 (64.3%) ‘strongly agreed’) (question 5). In total, 36 (64.3%) of these respondents said they already had a host-country network
before they were active in a certain emerging economy (question 6), 20 (35.7%) did not. The 36 respondents that answered ‘yes’ to this question stated (with a majority of 32 (88.9%)) that having a host-country network in a specific emerging economy before starting the activity influenced the choice to start their activity there (question 8). Of the 20 respondents that did not have a network in the host-country before the activity, 14 (70%) now do compared to 6 (30%) that do not (question 7).
According to the respondents that answered ‘yes’ to if they currently have a host-country network (50 in total), the home-country network (36%) and own-initiative (39.5%) were the most important factors in the formation of this network (question 9). Social media (8.1%), help of the Dutch government (14%) and previous work or study related factors (2.3%) were of less importance. The host-country network consisted mainly of (local) businesses or people (48.2%) or a combination of local authorities and (local) businesses or people (37.5%); a host-country network consisting of only (local) authorities was not common (3.6%). To determine the possible role of the Dutch government in the host-country network formation in more detail, a statement was rated by all 56 respondents to assess how important this role was. A mean of 2.63 was recorded, meaning that the majority of the respondents were on the ‘unimportant’ side. Moreover, 16 (28.6%) respondents ‘strongly disagreed’ with the statement compared to 4 (7.1%) who ‘strongly agreed’, (partially) explaining this negative attitude.
§4.2 Correlations
In this paragraph, a Pearson product-moment correlation was used to assess the relationship between two variables (questionnaire questions in this case). A correlation of 0.7 or higher is considered highly correlated, between 0.3 and 0.7 moderately/low correlated and lower than 0.3 very low correlated (Berenson et al., 2009). This paragraph will be divided into four different sub-paragraphs corresponding to one, home-country network, two, host-country network, three, government influence, and four, economic factors. For all correlations between the variables and exact variable descriptions consult table 1 in the appendix. Note that even if two variables are significantly correlated, this does not imply that these two have a cause-and-effect relationship. The observed linear relationship between the
Also, having a small sample (56) leads to a higher sampling error resulting in almost no statistically significant relationships compared to large samples (De Vaus, 2002).
§4.2.1 Economic factors
For 1000+ FTE companies (Q1-4) there was a positive correlation of r(54) = 0.282 (σ = 0.034) with the economic pull factor ‘opportunities’ in the emerging economy (Q12-8). The rest of company size variables (Q1) had very low non-significant correlations with all of the economic pull factors (Q12).
Considering the sectors, ‘agriculture’ (Q2-1) has a positive correlation of r(54) = 0.327 (σ = 0.014) with the economic pull factor ‘use of land’ (Q12-3), as well as with economic pull factor ‘philanthropy’ (Q12-7) (r(54) = -0.421; σ = 0.001). The ‘industry’ sector (Q2-3) is positively correlated (r(54) = 0.320; σ = 0.016) with the economic pull factor ‘philanthropy’ (Q12-7). Finally, the ‘business services’ sector (Q2-2) shows a negative correlation (r(54) = -0.293; σ = 0.029) with economic pull factor ‘use of land’.
Considering countries of activity, companies active in Africa (Q3-1) had a positive correlation of r(53) = 0.323 (σ = 0.016) with the economic pull factor ‘infrastructure’ (Q12-6). Companies with an activity in South America (Q3-3) positively correlated with the economic factor ‘knowledge’ (Q12-4) (r(54) = 0.293; σ = 0.028). Finally, the ‘opportunities’ economic pull factor (Q12-8) is negatively correlated (r(54) = -0.375; σ =0.004) with the variable considering whether the economic possibilities shown by the home-country network or not (Q13).
§4.2.2 Home-country network
The relationship between the influence of the home-country network (Q4) and the country of activity (Q3) resulted only in a significant negative correlation of r(54) = -0.301 (σ=0.024) between the influence of the home-country network and South America (Q3-3), both Africa (Q3-1) (r(54) = 0.035; σ = 0.795) and Asia (Q3-2) (r(54) = -0.029; σ=0.833) had low non-significant correlations. Furthermore, a positive correlation (r(54) = 0.363; σ=0.006) was recorded between the influence of the home-country network (Q4) and the importance of a host-country network (Q5). The correlation of the influence of the home-country network (Q4) and the ‘home-country network’ option of how the host-‘home-country network was formed (Q9-2) resulted in an, expected, positive correlation of r(48) = 0.422 (σ = 0.002). Additionally, an
expected positive correlation (r(54) = 0.551; σ = 0.000) between the influence of the home-country network (Q4) and the extent to which the home-country network showed the economic possibilities in the emerging economy (Q13) was found. An unexpected negative correlation that was found was between having a home-country network influence (Q4) has (r(54) = -0.367; σ = 0.005) and if the respondent has helped someone in his/her own network (Q14). Finally, the influence of the home-country network (Q4) showed a negative correlation (r(48) = -0.280; σ = 0.049) with the ‘own initiative’ option of the host-country network formation (Q9-4).
§4.2.3 Host-country network
The importance of having a host-country network in the emerging economy when starting the activity (Q5) is positively correlated (r(54) = 0.325; σ = 0.014) with having a host-country network before starting an activity there (Q6). The importance of a host-country network (Q5) is also positively correlated (r(34) = 0.373; σ = 0.025) with the influence of this host-country network in the emerging economy has to start an activity there (Q8).
Considering the formation of the host-country network (Q9), the home-country network option (Q9-2) is positively correlated (r(50) = 0.457; σ = 0.001) with the variable entailing the economic possibilities shown by the home-country network (Q13). A moderate correlation (r(34) = 0.500; σ = 0.002) was found between the ‘own initiative’ option in host-country network formation (Q9-4) and host-country network influence (Q8). The ‘own initiative’ option (Q9-4) also (negatively) correlated (r(50) = -0.449; σ = 0.001) with the ‘home-country network’ option (Q9-2).
§4.2.4 Government influence
The companies who are active in Africa (Q3-1) have a positive correlation of r(54) = 0.324 (σ = 0.015) with the Dutch government taking a part in the host-country network formation (Q11). The ‘Dutch government’ option in host-country network formation (Q9-3) also positively correlates (r(50) = 0.392; σ = 0.005) with Q11, which can be expected. But, being active in Africa (Q3-1) has a very low very non-significant correlation (r(48) = 0.013; σ = 0.930) with the ‘Dutch government’ option in host-country network formation (Q9-3), which is strange. Furthermore, the importance of Dutch government influence in host-country network formation (Q11)
has a positive correlation (r(20) = 0.625; σ = 0.003) with having a host-country network after starting the activity (Q7).
A host-country network that consists mostly of local businesses (Q10-2) has an expected negative correlation (r(50) = -0.421; σ = 0.002) with the ‘Dutch government’ option in host-country network formation (Q9-3). The ‘importance of the Dutch government influence in host-country network formation’ variable (Q11) also has a negative correlation (r(54) = -0.381; σ = 0.006) with a host-country network that contains mostly ‘local businesses or people’ (Q10-2). The companies/respondents that have a host-country network that contain ‘both local businesses and authorities’ (Q10-3) correlate positively (r(50) = 0.471; σ = 0.001) with the ‘Dutch government’ option in host-country network formation (Q9-3), as well as with the importance of Dutch government influence in host-country network formation (Q11) (r(54) = 0.339; σ = 0.016). Notable is that the correlation between a host-country network consisting of mainly ‘local authorities’ (Q10-1) and the ‘Dutch government’ option in host-country network formation (Q9-3) is very low, negative and non-significant (r(50) = -0.115; σ = 0.428). Also, the correlation between ‘local authorities’ (Q10-1) and the ‘importance of the Dutch government influence in host-country network formation’ variable (Q11) is very low and non-significant (r(54) = 0.116; σ = 0.423).
5. Discussion
Following the results, a discussion of the hypotheses will be conducted. An analysis of the results will lead to implications resulting in either rejecting or accepting the hypotheses. Furthermore, this section will evaluate each hypothesis separately.
§5.1 Hypothesis 1
Considering the first hypothesis (H1): A Dutch company is more likely to start an activity in an emerging economy when certain economic factors (labor, use of land, resources, philanthropy, tax climate, infrastructure or knowledge) relevant for the sector they are active in are present. Even though this hypothesis seems like a sine qua non, the results of this research show differently.
According to the results, companies that are active within the ‘agricultural’ sector positively correlate (r(54) = 0.327; σ = 0.014) with the economic pull factor ‘use of land’. Agricultural businesses often make use of land in order to develop goods (i.e. grow crops or raise cattle), so this might indicate that they deem this economic factor as relevant. The correlation between ‘use of land’ and the ‘agricultural’ sector thus implies that agricultural businesses tend to go to emerging economies with the availability to utilize land there. For the sector ‘business services’ a negative correlation (r(54) = -0.293; σ = 0.029) was recorded with economic pull factor ‘use of land’. Since companies active in the ‘business services’ sector (consultancy, micro financing, education and development aid) are occupied with delivering intangible goods (Vargo and Lusch, 2008), making use of land will probably not be of interest, as the correlation implies. Additionally, ‘business services’ has a (low) correlation (r(54) = 0.238; σ = 0.077) with ‘philanthropy’. Even though this correlation is just non-significant and quite low it shows that it is in line with companies who are dealing with consultancy, developmental aid, micro financing or education. This assumption is based on the ‘service’ nature of these businesses combined with the definition by Payton (1988) on seeing philanthropy as a voluntary service to a public good. The ‘industry’ sector only has a significant positive correlation (r(54) = 0.320; σ = 0.016) with ‘philanthropy’. Since the
not expect this (in comparison to the ‘business services’ sector, as explained above). An explanation for this might be that companies ticking the ‘philanthropy’ box may be biased, since these companies might have the social desirability to be seen as philanthropic (Saiia, Carroll and Buchholtz, 2003). Furthermore, the ‘industry’ sector had very low correlations with both ‘labor’ (r(54) = -0.172; σ = 0.205) and ‘resources’ (r(54) = 0.083; σ = 0.534). Since the ‘industry’ sector (especially construction) is concerned with delivering a tangible good (Johnstone, Dainty and Wilkinson, 2008), one might expect the sector to correlate well with both economic pull factors. This can, however, be due to the small sample size of this research (Allison, 1999).
According to the arguments above this research partly accepts the first hypothesis, since only significant relationships has been found for the ‘agriculture’ and ‘business services’ sectors combined with certain economic factors. This also coincides with existing literature on firms seeking new customer markets, cheap (unskilled) labor, factor markets (i.e. use of land), philanthropy and/or a (more) favorable tax climate (Guillen, 2000; Westhead, Wright and Ucbasaran, 2001; Wagner, 2004; Weerawardena and Mort, 2006; Acs and Zerb, 2007; Hennart, 2012). Concerning the ‘industry’ sector, only ‘philanthropy’ was deemed as a significant economic pull factor, but as this may be due to a bias, there is no ground to accept the hypothesis on that matter. Additionally, the findings indicate that there is a significant relationship between Africa and economic pull factor ‘infrastructure’ (r(53) = 0.323; σ = 0.016), possibly implying that companies who are active in Africa went there because of the infrastructure. Also, a significant relationship was found between South America and economic pull factor ‘knowledge’ (r(54) = 0.293; σ = 0.028), which might indicate that companies seeking knowledge chose a country in South America as the emerging economy they wanted to start an activity in. As a side note, do consider the fact that every company may have its own economic preferences for why they decide to start an activity somewhere.
§5.2 Hypothesis 2
Hypothesis 2 (H2) entails that ‘A Dutch company is more likely to undertake an activity in an emerging economy when the home-country network provides knowledge
and resources concerning the emerging economy.’ The results indicate that 28.6% of the respondents agreed and 25% strongly agreed to the variable concerning the role of the home-country network in the undertaking of an activity in an emerging economy (Q4), which is a total of 53.6%. Additionally, 34% of the respondents stated that the home-country network has given them knowledge about the economic possibilities in the emerging economy (Q13) compared to 26.7% that did not. The significant correlation between these two questions (r(54) = 0.551; σ = 0.000) indicates that these are positively related. These results partially endorse the findings of Yi, Lau and Bruton (2007) that a home-country network (with experience in internationalizing) helps in gaining previous information and experience, which will lead to overcoming certain problems as limited resources (Zain and Ng, 2006). As Coviello and Munro (1997) add, having major firm partners in your home-country network will lead to the guidance of smaller firms into foreign market selection and entry. Since this research does not know the composition of the home-country networks of the Dutch companies in the sample, this cannot be confirmed and should be examined in future research. However, based on the previous arguments this research accepts hypothesis 2.
§5.3 Hypothesis 3
Concerning hypothesis 3 (H3): ‘Having a host-country network in an emerging economy will have a positive effect on the decision to undertake an activity in that emerging economy.’ Literature stated that entrepreneurs sometimes choose an export market where they already have a network present (Konitnen and Ojala, 2011) and that this can lead to, among others, an increase in the internationalization pace (Oviatt and McDougall, 2005; Zain and Ng, 2006) The results on question 5 (Q5), entailing the importance of having a host-country network in the process of starting an activity, indicated a majority of 91% (64.3% ‘strongly agreed’) agreeing to this. Additionally, the results on question 8 (Q8) concerning if having a host-country network before starting the activity was of influence resulted in a majority of 88.9% of 36 respondents stating ‘yes’. These findings underwrite the literature that having a host-country network can influence the decision to start an activity in, in this case, a certain emerging economy (e.g. Meyer et al., 2009 and Ellis, 2011). According to these
the internationalization pace of the Dutch companies was not a part of the questionnaire and should be further examined.
Furthermore, literature states that host-country networks can be established through a referral by a domestic client (the home-country network) (Kontinen and Ojala, 2011), through social media (Aral et al., 2013), with the help of the home country government (Buckley et al., 2010; Lu et al., 2014) or actively sought on their own (own-initiative) (Ciravegna, Lopez and Kundo, 2014). The findings of this research indicate that for 50 Dutch companies the home-country network (36%) together with own-initiative (39.5%) were of main importance in forming the host-country network. A positive significant correlation (r(48) = 0.422; σ = 0.002) was also found between the influence of the home-country network in starting an activity (Q4) and home-country network influence in host-country network formation (Q9-2). This implies that when the home-country network plays a role in starting an activity, it is also of importance in forming the country network. So when the host-country network plays an important role in activity undertaking in an emerging economy, the home-country network does so as well, underwriting the second hypothesis (H2).
§5.4 Hypothesis 4
The fourth and final hypothesis (H4) concerns ‘The supporting activities used by the Dutch government will have a positive influence on host-country network formation.’ As the literature suggests, the government (or formal institutions) can aid in assisting internationalization of, in this case Dutch, companies to emerging markets (Buckley et al., 2010; Lu et al., 2014). According to the findings, Dutch companies did not use the help of the Dutch government in their host-country network formation (Q9-3) often, as only 14% of 50 companies said they used help of the Dutch government. Furthermore, the results of Q11, concerning the impact of the role of the Dutch government in host-country network formation, correspond with the results of Q9-3 as 44.6% disagreed with the statement against 28.6% who agreed; as is also seen in the correlation between these two variables (r(50) = 0.392; σ = 0.005). However, a positive correlation (r(20) = 0.625; σ = 0.003) was found between forming a host-country network after they started the activity (Q7) and the role of the Dutch government in host-country network formation (Q11). This might imply that for
companies who first started an activity and formed a host-country network afterwards did find the role of the Dutch government important. So, the supporting activities of the Dutch government in forming a host-country network (e.g. through assistance by human capital, i.e. trade missions and embassies (RvO, 2017a; Rijksoverheid, 2017a; Rijksoverheid, 2017c) were not seen as relevant for Dutch companies before starting the activity in an emerging economy, but were relevant for Dutch companies after they started the activity. The fourth hypothesis is thus rejected for host-country network formation of Dutch companies before the activity and accepted for host-country network formation of Dutch companies after the activity. Note that the effects of each of the supporting activities (e.g. reduction of import tariffs, export credit and investing guarantees (Rijksoverheid, 2017a; RvO, 2017a) separately should be investigated more thoroughly.
This research did found that there is a relationship (0.324; σ = 0.015) between companies active in Africa and the role of the Dutch government in host-country network formation (Q11), but not with Q9-3 (0.013; σ = 0.930) concerning the help of the Dutch government in host-country network formation. This is strange since Q11 and Q9-3 do correlate with each other (r(50) = 0.392; σ = 0.005), an explanation for this might be the small sample size. However, this research deems the evidence not convincing enough to imply a relationship between Africa and the role of the Dutch government in host-country network formation, since the correlation between Q9-3 and Africa is very low and very non-significant.
6. Conclusion
This chapter will provide an overall conclusion of this research. The theoretical implications as well as the practical implications will be discussed, followed by the limitations and recommendations for future research.
§6.1 Conclusion
that foreign market (e.g. Wagner, 2004), this study tends to see what the effects of both these constructs are on Dutch businesses. In order to do so, the following research question has been derived: ‘What is the effect of economic and network factors in Dutch businesses starting an activity in emerging economies?’
To answer the research question, first four hypotheses were constructed. Secondly, data was collected by sending out a questionnaire to businesses who are or have been active in an emerging economy (see IMF (2017) for specific countries), which was eventually filled in by 56 businesses. The data gathered by the questionnaire was then quantitatively analyzed to enable this research to reject or accept the constructed hypotheses. One should keep in mind that these claims were made on the basis of a small sample size.
According to the findings, economic factors seemed to have an effect on Dutch businesses in activity undertaking in an emerging economy but only for two of the three sectors, namely ‘agriculture’ and ‘business services’. The results also implied that companies seeking ‘knowledge’ were mostly active in South America and companies seeking ‘infrastructure’ in Africa. Considering the home-country network, the findings show that the home-country network played a role for Dutch businesses active in an emerging economy, building on the findings by Yi, Lau and Bruton (2007). The role of the host-country network also seemed to play a role in activity undertaking in an emerging economy. Moreover, this research found that the home-country network plays a role in the formation of the host-country network in the emerging economy, reinforcing the role the home-country network plays in activity undertaking. The findings on the influence of the Dutch government in activity undertaking in an emerging economy showed that the supporting activities were not relevant for Dutch businesses before undertaking the activity but were relevant for Dutch businesses after activity undertaking.
§6.2 Theoretical implications
The findings of this research add to existing literature that home-country and host-country networks play a role in activity undertaking in an emerging economy for Dutch businesses. Furthermore, literature states that the government can aid in assisting the internationalization of (Dutch) companies to emerging markets (Buckley
et al., 2010; Lu et al., 2014). This research adds that a distinction should be made when supporting activities are relevant; these supporting activities (i.e. trade missions, human capital) are relevant for Dutch businesses after activity undertaking in the emerging economy compared to before.
Concerning the economic factors, the results of this research add to existing literature (e.g. Wagner, 2004; Wright and Ucbasaran, 2001; Buckley and Casson, 1985) that the role of relevant economic factors in activity undertaking is not the same for every sector. Additionally, this study adds insight to the preference of certain continents concerning the acquiring of specific economic factors by Dutch businesses (i.e. Dutch businesses going to Africa for infrastructural reasons). This should be investigated more thoroughly.
§6.3 Practical implications
For Dutch businesses that are planning to start an activity in an emerging economy, the findings of this research may be of importance. For instance, the role that the home-country network plays in internationalizing and also in host-country network formation. Furthermore, the importance of having a host-country network is acknowledged in this research, what firms who do not have a host-country network at the moment might encourage to start the process of forming one.
The influence of the government in the activity undertaking of Dutch businesses in an emerging economy investigated in this research may be important for both the government and businesses. On the one hand, Dutch businesses will know what the supporting activities of the Dutch government are and that they are probably more relevant after the activity has been started. On the other hand, the Dutch government gains knowledge in when their supporting activities are probably most relevant (i.e. before or after activity undertaking). So, if they for instance want to increase the relevance of the supporting activities before the activity undertaking, they may need to change the way these supporting activities are functioning.
§6.4 Limitations and future research
