Terrorism and International Business. A
qualitative study on MNEs expansion to
countries affected by terrorism
Master Thesis
MSc. Business Studies – International Management Track University of Amsterdam
Student Name: Ioana Negoi Student Number: 10604545
Supervisor: Stephan von Delft Second Reader: Dr. Johan Lindeque Date: 30 June 2014, Final Draft
Abstract
Terrorism has impacted several levels of society and one of those is the business environment. This research attempts to investigate the relationship between terrorism and multinational enterprises (MNEs) expansion to countries affected by terrorist attacks and the extent to which terrorism level within the host country can influence MNEs' entry modes in the affected areas. The main purpose of this paper is to examine the MNEs ’expansion process following the OLI Paradigm and the Transaction Costs Theory (TCT). The literature is limited in business management and this is one of the first researches that tries to explain the impact of terrorism on international business (IB). A multiple case study was used in order to analyze the internationalization process, the history, the entry mode decisions and possible future business investments of four MNEs located in four different countries and different industries. The findings of the research have led to clear results that companies' ownership structure influences investments in terrorist areas, in high-level risk countries firms choose FDI (foreign direct investments) over exporting, organizations' investment decisions are not influenced by the level of terrorism and at least, that the home and host country governments can support business investments to terrorist countries.
Key Words: terrorism, international business, ownership, entry mode, government,
Acknowledgements
I would like to thank my supervisor Stephan von Delft for his support, understanding and patience during the process of writing the thesis. I sincerely appreciate his promptitude in providing effective feedback and valuable guidance. Without his help, I would not have been able to finish this project.
Secondly, I wish to express my gratitude to my family and friends who have been supporting me during my study and especially throughout this research. It was a long and sometimes difficult process, but their listening and understanding were extremely important for my personal motivation.
Table of Contents
1. Introduction ... 7
2. Literature review ... 12
2.1. Background on Terrorism and IB ... 12
2.1.1. Globalization ... 15 2.1.3. Effects of terrorism ... 17 2.2. Ownership structure ... 18 2.3. Entry Mode ... 21 2.4. Corporate risk ... 25 2.5. Government Support ... 27 3. Methodology ... 29 3.1. Research Philosophy ... 30 3.1.1. Ontology ... 30 3.1.2. Epistemology ... 31 3.2. Qualitative Research ... 32
3.3. Multiple-Case Study Research Design ... 33
3.4. The inductive and deductive approach ... 34
3.5. Triangulation ... 36
3.6. Validity and Reliability ... 37
3.6.1. Construct validity ... 37
3.6.2. Internal validity ... 37
3.6.3. External validity ... 38
3.6.4. Reliability ... 39
3.7. Case Criteria and Selection ... 39
3.8. Data collection ... 42 3.9. Data analysis ... 43 4. Results ... 45 4.1. Terrorism in Pakistan ... 45 4.2. Within-case Analysis ... 47 4.2.1. Unilever ... 47 4.2.2. Philip Morris ... 51 4.2.3. Nestlé ... 54 4.2.4. OMV ... 57 4.2. Cross-case Analysis ... 60
4.2.1. Ownership structure ... 61
4.2.2. Entry Mode ... 62
4.2.3. Previous international experience ... 62
4.2.4. Host and Home Country Influences ... 63
4.2.5. Business Strategy ... 65
4.2.6. The indirect effects of terrorism ... 66
4.2.7. Globalization ... 67
5. Discussion ... 68
5.1. Academic Relevance ... 73
5.2. Managerial Implications... 73
5.3. Suggestions for future research ... 74
5.4. Limitations of the research ... 74
6. Conclusion ... 75
7. References ... 78
Index of Tables and Figures
Table 1: Major terrorist incidents ... Error! Bookmark not defined. Table 2: Coding scheme ... Error! Bookmark not defined. Table 3: Number of terrorist attacks in Pakistan ... Error! Bookmark not defined. Table 4: Companies commitment in Pakistan ... Error! Bookmark not defined. Table 5: Cross-case study matrix ... Error! Bookmark not defined. Table 6: Results on the working propositions ... Error! Bookmark not defined. Figure 1: Conceptual Model………30
1. Introduction
“Trends in terrorism indicate an increasing desire and ability to cause mass destruction. [...] There are reasons to expect that businesses will become increasingly attractive to terrorists, both because they’re less well defended than obvious military or government targets, like embassies, and because of what they symbolize” (Morse, 2002).
Terrorism has impacted several levels of society and one of those is the business environment. The policy corporate and academic communities need to predict the contingent changes within the business environment (Czinkota & Ronkainen, 2008). Since business become a more attractive environment for terrorist attacks, the importance and impact of terrorism on MNEs' activities and performance have considerably increased (Czinkota, Knight, Liesch, & Steen, 2010). Once new insights about contingent terrorism threat on business activities are developed, they can reduce the risk of business investments' failure (Czinkota et al., 2010). Moreover, they can help managers to decide among different entry modes within foreign markets (Czinkota, Knight, Liesch, & Steen, 2005). While some effort has been dedicated to the study of investments in areas of conflict (Driffield, Jones, & Crotty, 2013), little effort has been made to examine the impact of terrorism on IB, especially on MNEs expansion in foreign countries. In order to establish the nature of terrorist risk and how to alleviate its effects, researchers should make a deeper analysis about the linkage between terrorism and business (Czinkota et al., 2005). By analyzing the relationship between terrorism and MNEs expansion within countries that are affected by terrorist attacks and the extent to which terrorist level in the host country can affect MNEs entry mode decision, this research aims to fill the gap in the IB literature.
organized and planned form of violence used by individuals or groups of individuals in order to obtain a political or social advantage. This definition is similar with that of the US Department of State (2003): “terrorism means premeditated, politically motivated violence perpetrated against noncombatant targets by subnational groups or clandestine agents, usually intended to influence an audience”.
The motives of terrorist attacks may differ among groups, some of them being ethno-nationalistic goals (to gain a state), anarchy, left-wing ideology, religious control, intolerance, social injustice, or issue-specific goals (Enders & Sandler, 2006). Moreover, globalization is changing the nature of terrorism, because due to economic differences and ideological competition it alleviates the collaboration and transfer of information between terrorists (Czinkota, Knight, Liesch, & Steen, 2010). Terrorists create panic and vulnerability within target areas and their actions (airplane hijackings, kidnappings, hostage tacking, assassinations, threats, bombings, suicide and armed attacks but also nuclear and chemical attacks) may differ, depending on the final goal (Enders et al., 2006).
The September 11, 2001 four hijackings in the USA increased the interest for research about terrorism. The consequences of terrorist attacks can be disastrous and long term oriented (Czinkota et al., 2005). Scholars tend to divide the analysis of terrorism effects in three levels: the primary level, the macro-level and micro-level which emphasizes the impact of terrorist attacks on specific regions, industries and value chains (Czinkota et al., 2005). For example, the aircraft industry in the U.S. encountered difficulties in the aftermath of September 11, 2001 terrorist attacks in New York and Washington. The US Airways confronted a series of reorganization plans, including the turnover of five CEOs in a three-year period of time and in 2002 and 2004 the company suffered from
two bankruptcies (Reed, 2011). As a consequence of the disaster of September 11 and the numerous layoffs, the US Airway’s leadership have lost its credibility among employees and have been replaced for several times, compromising the reliability of firm's leadership (Gittel, Lim & Rivas., 2006). A study of the impacts of terrorism on US airlines demand, highlights that the airline industry have suffered a significant turmoil after September 11, but there are still controversial opinions regarding the longer term effects of the terrorist attacks on the airline industry (Ito & Lee, 2005). Therefore, it cannot be claimed that US Airway’s merger with ATA airlines failed as a result of the events of the September 11 or because ATA airlines preferred to work with foreign operators than with local ones (Reed, 2011).
Apart from the levels of analysis above mentioned, the literature discusses two categories of effects of terrorist attacks, direct and indirect effects (Czinkota et al., 2010). The principal characteristic of the first type is directly connected with individuals because it is about loss of life, damaged infrastructure and buildings. But the main focus in this study is on indirect effects of terrorism because they are dangerous for the economy and business activities of target country.
Therefore, the impact of terrorism on the actions and performance of IB became a source of interests for scholars (Czinkota et al., 2010). According to multiple sources, such as informal, practitioner or governmental ones, terrorism is one of the biggest issue for MNEs and for national governments (Anon, 2008; Berrong, 2009; PricewaterhouseCoopers, 2008; Wernick, 2006). Countries that are affected by terrorism can lose their ability to attract and maintain business investment and this may stop business growth. The effects of terrorism on IB may include decrease in buyer demand, declines in investments, new laws, regulations and policies and higher transaction costs
that can be harmful for both the home and host country (Czinkota et al., 2010). When MNEs decide to expand their business across borders it is obvious that target areas are countries with positive government regulation that can offer advantages for the business activity. Moreover, natural resources, policies and taxation represent other important factors that can make a country more attractive for foreign business investments. Even if the host country entails these positive factors, terrorism will reduce the attractiveness for IB.
Companies internationalize their business activities in order to maximize the profits and MNE's entry mode in a foreign market is very important for the company because each entry mode presents strengths and weaknesses for the business (Czinkota et al., 2010). For example, FDIs require past experience, great capital costs and resources, while exporting provides flexibility, a lower risk than alternative entry modes, it is relatively easy to manage and requires fewer resources and costs (Czinkota et al., 2005). On the other hand, joint ventures (Jvs) need access to local resources, whereas wholly owned subsidiaries (WOSs) do not require access to host country's resources (Meyer, Estrin, Bhaumik, & Peng, 2009). If the host country presents any kind of risk (institutional, governmental or political risk, corruption or terrorism), firms that want to internationalize business within these threatened territories must than analyze all the factors that can impact the business activities in a negative way. Apart from entry modes, there are other factors that can influence business performance, profits or sales. The ownership structure of the firm can positively or negatively impact the internationalization process or the government structure of both, home and host country can determine the business expansion in countries affected by terrorism (Dunning, 1998; Driffield et al., 2013).
This paper seeks to explain to what degree terrorism can affect companies expansion and why do MNEs choose between different entry modes in countries that are affected by terrorist attacks. Terrorism is conceptualized in association with IB. The expansion process of a company can be influenced by different factors that in turn can be associated with the Transaction Cost Theory (TCT) or the OLI Paradigm. Therefore, these theories can be related to terrorism effects on MNE's internationalization process. Terrorist attacks within the host country may present uncertainty and risk and can lead to MNE's lack of resources commitment through FDI projects (Pak & Park, 2004). In the same time, terrorism is a “market imperfection” that can lead to higher transaction costs and that can affect the possible good flows between countries (Czinkota et al., 2005).
This paper proceeds as follows: in the first part, according to the existing literature the concepts of terrorism and IB are reviewed and are used to describe the relationship between terrorism and IB. The second part presents the methodology section that describes the multiple case study design and it will check for the validity and reliability of this research. A multiple case study approach was chosen in which the qualitative data was gathering through secondary data collection. The empirical study is based on a sample of multinational companies from four different countries and from different industries. The analysis section is based on both an within-case study and cross-case study analysis that will determine the validity of the four working propositions analyzed in the results and discussion sections. The research is also based on newspapers articles and information from companies' annual reports or World Bank's databases. The paper ends with the academic relevance, managerial implications, limitations of the study and suggestions for future research and the final conclusion.
2. Literature review
The purpose of this study is to find the relationship between terrorism and IB, more exactly to what degree can terrorist attacks influence business internationalization in terrorist regions. The paper is concentrated on two main aspects, the ownership structure of the companies and the different entry modes that a firm can choose in order to expand in foreign markets. Furthermore, it is analyzed how can terrorism affects business expansion and to what degree the home and host government can support the business investments within areas of risk. In the decision of investing across borders, MNEs are influenced not only by host country's factors, such as government policies or terrorist risk, but also by internal factors, such as company's ownership structure. Apart from literature findings, the next section also frames the four working propositions that guide and determine the purpose of the research (Baxter & Jack, 2008).
2.1. Background on Terrorism and IB
Nowadays, terrorism represents a viral and worldwide acknowledged problem (Czinkota et al., 2005). The most relevant approach in the study of the relationship between IB and terrorism is made by Czinkota et al. (2010) who discuss the impact that terrorism could have on MNE's business investments. The principal threats of terrorism on IB are reflected by its direct and indirect effects that can cause loss of life, leading to lower buyers' demand, increased IB transaction costs and reduced investors' interest for FDIs in affected countries(Czinkota et al., 2010). Branzei and Abdelnour (2010) attempt to describe the extreme cases of terrorism in developing countries, but the research is limited to the level of local enterprise development, rather than IB. In their opinion, terrorist conditions (outbreak, escalation and reduction) may generate psychological motivation for companies international expansion (Branzei et al., 2010).
While little effort has been done in terms of IB and terrorism, there is a better developed literature that seeks to analyze investments in areas of conflict (Driffield et al., 2013). The instability of a country can be determined by factors such as: weak institutions, weak government policies, corruption or conflicts. The past literature emphasizes the extent to which FDI can influence economic growth in conflict areas or how can it impacts the stability of the region, whereas most recently, scholars attempt to examine the motivation of companies to invest in conflict areas (Driffield et al., 2013). Geography also affects subsidiaries in conflict zones, especially countries that signalize political risk (Dai, Eden, & Beamish, 2013). In this context, geography refers to place (location specific attributes) and space (geographic distance) (McCann, 2011). Political risk factors can be represented by the quality of political institutions, government stability, law and policies or ethnic or religious conflicts (Busse & Hefeker, 2007). Political risk for business relates to changes in host government regulations or political institutions that can affect business investments (Busse et. al., 2007). After making a connection between place and political risk, it can be considered that the political risk is an attribute of the host country and a geographic factor that influences business expansion in dangerous areas. The “location” component of the OLI Paradigm presents different threats and benefits for MNEs; for example, a subsidiary is less likely to survive if it is located inside a conflict zone or if is prone to political conflict in that host country (Dai et al., 2013). Facing political conflict in the host country means facing the possible future conflicts and “depends on the characteristics of place and space” (Dai et al., 2013, p.554). Moreover, it can be talked about the ethno-political conflict that manifests itself through war and terrorism and can destroy lives, business activities but also instigate fear among civilians. Doing business in an environment characterized by
ethno-political conflict may involve an indirect cost or lower employees’ commitment and performance (Reade & Lee, 2012).
Apart from conflict and political risk, there are other factors that can influence the tendency of MNEs to expand the business activity across boundaries. The literature provides limited information about the relationship between IB and terrorism. This aspect can be sustained through the reduced number of articles in business journals, such as Journal of International Business Studies or Journal of International Management. The terrorist attacks on September 11, 2001 caused the death of more than 3000 people from a total of 78 countries (U.S. Department of State, 2002). Before these events, terrorism did not represent a subject of interest for business scholars, but these attacks demonstrated the terrorism is a global risk (Czinkota et al., 2005). One article (Harvey, 1993), prior to September 11, 2001 treats the topic of terrorist threat and management and describes the way in which U.S. MNEs attempted to reduce the impact of terrorism at the company level.
Event Location Date Killed Injured
Hijacked planes destroy World Trade Center
New York 1 1 September 2001 2996 numerous victims Nightclub bombings Bali, Indonesia 12 October 2002 202 209 Ferry system bombing Philippines 27 February 2004 116 numerous
victims Commuter trains and stations
bombings
Madrid 1 1 March 2004 191 2050
Subway system bombings London 7 July 2005 56 700
Marriott Hotel bombing Islamabad, Pakistan
20 September 2008 53 250
Various hotels and facilities bombings
Mumbai, India 26-29 November 2008 173 308
Bombing and shooting outside government buildings
Oslo and Utøya, Norway
22 July 2011 77 319
Chemical attack Ghouta, Syria 21 August 2013 281-1729 3600 Gunmen attacks at the
international airport
Karachi, Pakistan
10 June 2014 29 24
Table 1: Major terrorist incidents around the world (since 2001) Source: Author
2.1.1. Globalization
One of the most significant aspects that have caused changes within the nature of terrorism is globalization (Czinkota et al., 2010). It is a trend that offers advantages for the transfer of information or trade among countries and increases the number of terrorist attacks because it facilitates the terrorists’ ability to perform dangerous activities (Czinkota et al., 2010). According to the literature, it is clear that terrorism is increasing around the world and it is suggested that it is “the ultimate form of anti-globalization” (Ricart et al., 2004). Apart from globalization, the increase of ‘religious fundamentalism’ especially in Islamic countries and the ‘weapons that can cause mass destruction’ are sources for terrorist attacks (Czinkota et al., 2010). Therefore, it is
important to associate IB and terrorism because of the growing trend of globalization and the increasing number of international activities of firms (Czinkota, Knight, & Liesch, 2004).
2.1.2. Types of terrorism
“The new terrorism” represents the contemporary form of the earlier terrorism and this new form of attack describes more violent acts that involve mass-destruction (Czinkota et al., 2010). The September 11, 2001 terrorist incidents in the U.S. represent the most significant and recent example of new terrorism (Li, Tallman, & Ferreira, 2005). These attacks are the beginning of a new era of uncertainty for the entire world and claim for extending the eclectic paradigm (Dunning, 1998) towards a model of global strategic management in order to explore contemporary challenges that MNEs can face in times of terrorist threats (Li et al., 2005). Terrorism causes panic and disorganization within the business environment and its effects on MNEs performance can create long-term changes among different extents of the international business environment, such as international trade, insurance claims or political area (Lenain et al., 2002).
“The distinction between international and domestic terrorism is not always apparent” (Czinkota et al., 2010, p. 828), but there are scholars who try to find differences between these two types of terrorism. The domestic and transnational terrorism vary and their impact on economic growth is also different (Enders, Sandler & Gaibulloev, 2011). Even if the literature focuses on transnational terrorism, the domestic terrorism is also important because it represents the root-cause for international terrorism and it outnumbers transnational terrorist events (Enders et al., 2011).
2.1.3. Effects of terrorism
IB is vulnerable to terrorism because this can be harmful for international activities and for the supply chain and can decrease the demand for both industrial and consumer goods (Czinkota et al., 2005). Decreasing demand can have different consequences, such as reduced profitability and sales or even business bankruptcy.
For a better understanding of the relationship between IB and terrorism, scholars tend to divide the effects of terrorism in three levels of analysis: the primary level (the effects on individual person and firms), the macro-level and micro-level (Czinkota et al., 2004). The macro-level explains the impact on countries and the global economic environment, and the latter one presents the effects of terrorism on specific industries and value chains. Researchers also differentiate between direct effects of terrorism, such as loss of life or damages for infrastructure, buildings and equipment and indirect effects which negatively contribute to the business environment (Czinkota et al., 2010). Therefore, the latter one can cause damages among national enterprises, but the effect is also significant among IB. The indirect effects of terrorism yield to “declines in buyer demand; unpredictable shifts or interruptions in value and supply chains; new policies, regulations and laws; as well as harmful macroeconomic phenomena and deteriorating international relations that affect trade. It is these indirect effects that pose the greatest potential threat to the activities of countless firms.” (Czinkota et al., 2005, p. 586). Customers tend to overreact to the impact of terrorism and mangers attempt to have the same response to the effects of terrorist attacks (Czinkota et al., 2005). Terrorism is harmful not only for the business activity, but also for employees, especially for those who have to carry off their working tasks across borders, especially within high-risk
countries (Bader & Berg, 2013). Due to increasing globalization and the rising number of MNEs that cross the home country borders, the number of expatriates is steadily growing. Working performance varies significantly among employees who execute tasks in foreign countries (Bader et al., 2013). Terrorism can create an important level of stress among employees and this leads to negative work attitudes and weaker performance (Bader et al., 2013).
2.2. Ownership structure
According to the OLI Paradigm (Dunning, 1973, 1977, 1988), the ownership, location, and internalization factors that describe the theory can have a big influence within the expansion process. The structure of the firm together with the ownership advantages of the company, the location advantages of the host country and the internationalization advantages, can explain organization's activities in foreign markets (Dunning, 1998). But, the ownership structure of a company is the most powerful factor that describes the company's decision of expanding business activities across boundaries (Dunning, 1998). This theory uses a well-accepted and rational argument in the way of explaining companies' choice between different market entry modes and market development forms (Oesterle, Richta & Fisch, 2013). Even if all three factors of the OLI Paradigm are relevant for business expansion, the ownership indicator can mostly affect the decision of investing within a country that is affected by terrorism. Together with the OLI-Paradigm, the resource based view (RBV) of the firm underlines the importance of firm's specific assets and firm's capability to coordinate resources within foreign markets (Driffield et al., 2013).
Concentrated ownership outlines the fact that investors have higher control over company's management processes and decisions because of these owners' motivation to
protect their investments (Financial Times Lexicon). If the company is able to operate or invest in risky environments or conflict countries, then this is an important firm ownership advantage. Doing business in affected areas requires experience for managing company's business investments (Driffield et al., 2013). The ownership structure could be a key factor in the international diversification of a company because of its previous influence over diversification process (Driffield et al., 2013). This statement is acknowledged by all scholars who are interested in the study of the relationship between ownership structure and international diversification (Oesterle et al., 2013). There is a strong link between terrorism and declines in international investments; a high level of terrorism within a host country can increase the costs of doing business within that area and reduce the probability of investments in the affected areas (Czinkota et al., 2010; Blomberg & Hess, 2006).
It is supposed that managers have a lower degree of control in firms with concentrated ownership (Oesterle et al., 2013). Because of terrorism's harmful effects, sometimes managers tend to overestimate the probability of terrorist attacks (Czinkota et al., 2005). In order to avoid the liability of terrorism's negative effects within the business environment, managers should implement new strategies that can reduce the damages of terrorism (Czinkota et al., 2010). Managers tend to be more cautious when expanding business activities in conflict countries and they tend to maximize the current and future income of the company (Amihud & Lev, 1981; Fama, 1980). By contrast, owners are willing to assume such risk because they are interested in maximization of the firm value (Oesterle et al., 2013). Business expansion across boundaries could lead to this positive effect. Therefore, according to Oesterle et al. (2013) who support the agency theory, there is a behavioral difference between companies that are controlled by
managers, than the ones that have owners control. For example, firms that have manager control are more diversified and tend to increase rather sales than profits (Amihud & Kamin, 1979; Amihud & Lev, 1981); companies with larger ownership concentration are concerned with maximization of firm's value (Oesterle et al., 2013). Therefore, the higher the level of ownership within a firm, the more likely owners prefer to take risk in order to maximize the value of foreign investments (Oestrele et al., 2013). Whereas managers prefer not to assume such risk because if the firm fails to achieve its goals, they are in danger of losing their job which is their main source of income (Oesterle et al., 2013). The lack of intermediaries in capital market is a sign of concentrated ownership and increases the probability of a higher level of owners' decisions within the company, without the implication of other stakeholders (Driffield, et al., 2010). Not at least, it is important for the group of owners to do business across boundaries and to diminish the location specific risk (Rugman, 1975). And the higher the level of ownership concentration, the less likely firms will accept control from other shareholders and the more probably they will take into consideration risky activities (Bhaumik et al., 2010; Driffield et al., 2013).
Little research has been done in the context of ownership structure and geographical diversification (Oesterle et al., 2013) or its impact on MNE's entry modes. A study of Bhaumik, Driffield & Pal (2010) directly analyzes the outward FDI of emerging markets’ firms: “there is virtually no coherent literature covering the impact of ownership concentration on firm strategies, and certainly not in the context of outward FDI’’ (Bhaumik et al., 2010, p. 440). The relationship between ownership concentration and investments should be expanded to the distribution of profit stream and it should go further to the decision of doing business in risky environments (Driffield et al., 2013).
However, the ownership structure is a factor that has a big influence in the process of business internationalization and it seems that companies with concentrated ownership are more likely to invest within areas that are characterized by risky business environments (Oesterle et al., 2013; Driffield et al., 2013). Instead of the fact that terrorism induces uncertainty and can decrease the likelihood of firm's profit maximization, some groups of owners prefer to invest within threatened countries.
WP1: Firms with concentrated ownership are more likely to expand their business activities in regions affected by terrorism.
2.3. Entry Mode
Due to the importance that IB has in corporate and national performance, terrorist attacks represent one of the worldwide biggest threats. The company's supply chain and logistical infrastructure are particularly affected by the indirect effects of terrorism (Czinkota et al., 2005). Therefore, transaction costs increase and national governments tend to impose new policies and regulations that can deter business investments. These changes “can affect operations, regulatory compliance, and ultimate company performance” (Czinkota et al., 2010, p.838) and can directly influence MNEs decision to invest in terrorist countries. The TCT is useful for taking the right entry mode decision and increases the efficiency of the process (Brouthers, 2013). Transaction costs get bigger when there is little known about the market and about the functioning of market’s economy (Meyer, 2001). There are institutional levels around the world that can affect the transaction costs and the stability of the environment within which terrorism is existent (Czinkota et al., 2005). An increasing number of terrorist attacks leads to higher transaction costs and other expenditures in international value chains (Czinkota et al., 2005). In order to analyze the entry modes for MNEs, the literature
uses most commonly the TCT framework (Duarte and Suarez, 2010). Transaction costs are important for MNE's entry mode choice because companies perform better on both financial and non-financial dimensions, if their entry mode decision can be anticipated by the transaction costs model (Brouthers, 2002). Few firms are aware of the cost/benefit options when they come to the decision to enter a foreign market (Anderson & Gatignon, 1986). Not at least, Hennart (2000) explains the choice of entry mode related to TCT, claiming that equity entry modes involve a tradeoff between the market transaction costs and internal organization costs; as a result, full equity requires higher costs because it reduces the incentives for the agents (company executives) (Hennart, 2000). Therefore, in order to expand their business activities within foreign environments, companies will decide on a non-equity entry mode, such as exporting, (Hennart, 2000).
When MNE expands the business activities across borders, one of the most important purposes is profit maximization. Even if the foreign market offers a variety of benefits (Czinkota et al., 2005), if it is characterized by terrorism, than the company can be directly influenced by the effects of these events. Entry mode choice is endogenous, because managers are influenced in their choice by firm- and country-specific factors (Brouthers, 2013). In order to avoid all the existing risks, managers have to choose the most appropriate mode of entry in a country characterized by terrorism. The two most common entry modes in foreign markets are FDI and exporting (Root, 1994). FDI in conflict areas presents greater liability than exporting because FDI requires substantial assets that can be compromised by terrorist attacks (Czinkota et al., 2005). Compared with other entry modes, especially with FDI, exporting is less dangerous for company's investments, it offers the chance to access a great number of markets in the same time, it
provides less economic and business risk, it is more flexible and the firm has the possibility to cancel transactions without harmful consequences (Czinkota et al., 2005). It is expected that FDI’s returns on investments to be greater than for exporting (Czinkota et al., 2005). But, the capacity of dealing with terrorism is greater for exporting than for FDI and FDI entails higher degree of vulnerability to terrorism than exporting (Czinkota et al., 2005). Ownership concentration represents an advantage for FDI in conflict regions and globalization is also a factor that can influence the entry mode decison (Driffield et al., 2013; Czinkota et al., 2004); hence, more and more developing economies tend to attract FDIs because this a source of economic growth (Rasheed & Tahir, 2012). But for investors it is very important to expand the business activities in countries that are secure and do not present any kind of risk and this is why significant foreign investment takes place in countries that provide a secure business environment (Rasheed et al., 2012).
Terrorism becomes increasingly more significant, causing hazards. Terrorism cannot be eliminated but it can be reduced and better analyzed and understood with regard to IB (Czinkota et al., 2010). Even if the scientific articles about the study of terrorism and IB are in a limited number, the literature offers ample information about the relationship between IB and institutions or government policies. For example, the level of corruption not only reduces the level of FDI inflows, but also emphasizes the propensity of companies towards JV (Javorcik et al., 2009). When MNEs transact business across national borders, they take into account laws, regulations and institutions in the host country. Volatile environments present uncertainty for MNEs that intend to operate in such markets because they limit the access to local resources or do not offer a proper business environment (Rodriguez, Uhlenbruck, & Eden, 2005). WOSs as MNE's entry
mode give the possibility to control company's activities and assets (White et al., 2014). Managers of the subsidiaries operating in risky environments must deploy resources and assets in order to obtain subsidiaries financial performance (White, Hemphill, Joplin, & Marsh, 2014). Institutions and resources of the host countries can have a significant influence on MNEs entry mode (Meyer, Estrin, Bhaumik & Peng, 2009). If the formal (political risk level) and informal (cultural distance) risk level of the host country environment is highly uncertain, than MNEs choose to internationalize their business activities through equity JVs over WOSs (Slangen & Tulder, 2009). The lower the quality of the host country’s government, the higher the likelihood that MNEs will come down in favor of JVs over WOSs (Slangen et al., 2009).
An FDI project can be established in many ways, such as JV, acquisitions, setting up subsidiaries or greenfield projects. While the first two entry modes require access to local resources embedded in another organization, the last two have no need to access local firm resources and have the possibility to buy or contract local resources (Meyer et al., 2009). Terrorism poses risk and uncertainty and MNEs will hesitate to invest resources through FDI projects within countries that are characterized by terrorist attacks (Pak et al., 2004). If the institutional framework is weak, then firms are more likely to adopt JVs in order to access local resources, whereas stronger institutions provide advantages for acquisitions that play a more significant role in assessing intangible resources (Meyer et al., 2009). Obviously, institutions directly influence entry strategies into emerging markets and the need for local resources has greater control over these entry modes.
Terrorism can influence the tendency of companies to invest in risky areas. Terrorism can be related to political risk, but differs from it through different characteristics
(Czinkota et al., 2010). For example, terrorism is rarely seen as a government policy, while political risk can be a result of government's political actions (Czinkota et al., 2010; Butler & Joaquin, 1998). Moreover, terrorism cannot be predicted with high precision and firms cannot make decisions regarding their exposure to terrorist risk, whereas the political risk is visible and firms can avoid investments within countries that present high levels of such a risk (Czinkota et al., 2010). Once established abroad, companies may adapt to the business environment of the host country, but this does not guarantee the expected success and performance of doing business across boundaries. Companies facing terrorism or political risk, have the possibility to avoid, control, cooperate or be flexible regarding their risk's exposure (Miller, 1992). Overall, terrorism is a dangerous factor for IB and in order to chase the host country's benefits, managers should select the most appropriate entry mode for a foreign market (Czinkota et al., 2010).
WP2: When the host country is affected by terrorist attacks, firms tend to choose exporting over FDI.
2.4. Corporate risk
Within overwhelmed countries, terrorism creates instability and uncertainty for the business environment (Czinkota et al., 2004). Terrorism reduces the likelihood for MNEs to expand in affected areas. Therefore, firms take into consideration the terrorist risk when they internationalize the business activities in these countries and the majority of managers prefer not to assume such risk, most probably because they are not well prepared to face terrorist attacks (Czinkota et al., 2010). Managers of subsidiaries within conflict areas should assume the risk and they should prepare the company for the possible terrorist attacks through implementation of new strategies and tactics within the
supply and value chains (Czinkota et al., 2005). For example, bombing attacks on November 26, 2008 at Taj Mumbai Hotel in India were detrimental. But the general manager of the hotel, Karambir Singh Kang, took charge of the evacuation of guests and coordinated the efforts of firemen (Deshpandé & Raina, 2011). He demonstrated good training and loyalty that can be advantageous for facing risk within a crisis situation. As some scholars find the need to classify the effects of terrorism in two categories, direct and indirect effects (Czinkota et al., 2010); the latter ones present interest in this study because it directly affects the business environment. One of the most important and long-term oriented effects is the increased IB transaction costs, such as: “higher transportation costs, higher costs of input goods and supplies, increased controls in customs clearance, and costs related to heightened security measures (from various terrorism-related factors)” (Czinkota et al., 2005, p. 591). Before engaging in internationalization of business activities, a firm should make a deep analysis about every cost involved in this process. This will be helpful to understand if business’s expansion can be profitable or not. Czinkota et al. (2005) presents terrorism as a risk that can rise the transaction costs and reduce the possible good flows between countries. Entering a foreign market offers a variety of benefits for the company and its principal purpose is profit maximization through increased sales; but terrorism is a dangerous environmental factor that can reduce these benefits (Czinkota et al., 2005).
WP3: When the salience of terrorism in the host country increases, MNE will tend to limit the expansion within these affected areas.
2.5. Government Support
The national governance structure of the host country and the firm, both have a significant impact on the decision to invest in conflict regions (Driffield et al., 2013). It is acknowledged that terrorism represents one of the biggest issue for MNEs and for the national government (Anon, 2008; Berrong, 2009; PricewaterhouseCoopers, 2008; Wernick, 2006). Also Czinkota et al. (2010) reinforces the idea that terrorism has a big impact on MNEs operations and performance; but governments have the power to provide different incentives that can increase foreign business investments (Douma, George & Kabir, 2006).
MNEs invest in foreign markets in order to maximize their profit and to achieve this goal they should keep their business under control. The home and host country government policies toward international business and investors suppositions about political risk can be changed through a strong relationship between the countries that are engaged in international exchanges (Li & Vashchilko, 2010). Interstate military conflict and security alliances provide incentives to strengthen these interstate security relations (Li & Vashchilko, 2010). According to Li et al. (2010) interstate military conflict represents a characteristic of political relationships between countries that can affect business investments through inappropriate government policies.
In addition to highlighting the differences between the level of investments in risky regions, Driffield et al. (2013) tend to sustain that the type of home country governance and culture have a big influence on the decision to invest within regions that are characterized by conflict.
In order to become profitable, companies should take into consideration not only the local resources of the host country, but also host government's rules and regulations
(Caroll, 1991). The indirect effects of terrorism on IB talk about changes within the government policies and laws (Czinkota et al., 2010). These new government policies, regulations and procedures tend to deter terrorist activities, and in the same time can have a big impact on business environment, leading to lack of coordination within the value chain activities (Czinkota et al., 2005). Therefore, countries that present an inappropriate business environment due to ineffective rules and regulations tend to discourage foreign companies from emerged markets to invest in such locations because the place's instability and uncertainty represent weaknesses for global commerce and business profitability.
Even if rarely terrorism achieves the desired outcomes of the people who drive the terrorist attacks, governments should be prepared to face any kind of risky situation. The government structure can also be influenced by institutions, that according to Driffield et al. (2013) positively affect investments in conflict regions. Firms and governments attempt to face terrorism through allocation of scarce resources for economic analysis (Czinkota et al., 2010). A weak government structure is represented by the fact that government and firms work separately in order to reduce terrorist resources or to diminish terrorism's effects. The places from where terrorists emerge are in general regions characterized by poverty, low economic development or spaces governed in a wrong direction (Innes, 2007; Li & Schaub, 2004; Stern, 2010; Suder, 2004). These negative effects are caused especially by the lower level of government's involvement, such as poor basic needs or inadequate rule of law, encouraging terrorist actions (Czinkota et al., 2010). People tend to overreact to terrorism consequences and they tend to demand substantial help from governments (Sunstein, 2003). In these situations, governments should be well prepared in order to face all people requests,
even if the effects of terrorist attacks are not significant among people's lives and nor among business performance and investments. It is remarkably that nowadays governments are better prepared regarding the threat of terrorism and they have made deeper analysis on how to take action against it (Czinkota et al., 2005).
H4: The government structure of the home and host country can support the decision of investing in markets affected by terrorism.
3. Methodology
This section will discuss the methodology of the study and it will describe in detail how the validity of working propositions will be reached. The paper proceeds with the philosophical concepts that serve as basis for this research. Thereafter, the characteristics of the qualitative multiple case study will be described, followed by the data collection and data analysis methods. The research design is based on a multiple case study that will describe the cases, and the data collection is based on secondary data. The results will be interpreted using thematic coding and a qualitative software will assist the evaluation of the working propositions and the collected data. Myers (2013) recommends NVivo software for analyzing qualitative data by thematic coding; it will facilitate the data analysis by establishing key themes that will lead to discovering patterns within the sample. The next section will describe the research design and each step of the analysis that have led to the final results.
Figure 1: Conceptual Model Source: Author
3.1. Research Philosophy
All qualitative research is based on some basic assumptions about what is the meaning of a “valid” research and which research methods are proper for a specific study (Myers, 2013). Due to the fact that there is a significant number of research methods, the researcher should be able to choose the most appropriate one regarding to the nature of research question and the subject that is going to be analyzed. Each method presents specific features that can better suited with the research purpose.
3.1.1. Ontology
Ontology is a philosophical concept that describes the researcher's view of the 'reality' and 'human being' (Saunders, Lewis & Thornhill, 2009). Brannick and Goghlan (2007) assume that the ontological assumptions about 'reality' can have either a subjective or an objective approach. The 'reality' can be perceived different because the first concept,
subjectivism, seems to be shaped under the human being imagination and consciousness that are distinct for every human mind. The second one talks about reality as a “concrete structure” and supports the idea that social entities exist in reality external to social actors involved in their existence process (Morgan& Smircich, 1980; Saunders et al., 2009). These two concepts of subjectivism and objectivism are the extremes of a continuum ontology concept that encompasses other views in between the objective-subjective approach (Morgan& Smircich, 1980). Being a qualitative research, based on secondary data, this study adopts an objective approach to create 'reality'. This is the way that correlates with the research purpose, because business expansion and entry mode decision are seen differently within the board members of a company. Positivism is one of the most common form of research in business and management (Myers, 2013). This research paradigm is the concept of ontology that is the most appropriate with this study because can analyze organizational phenomena and the working propositions that underline the subject matter.
3.1.2. Epistemology
The philosophical concept of epistemology deals with the concept of 'knowledge' (Myers, 2013) and interrelates with the ontology concept. For this specific study, acceptable 'knowledge' refers to researchers’ understanding about the existing grounds and limitations of the relationship between terrorism and IB. Thereafter, the researcher should be able to use these facts to improve the existing 'knowledge' and to increase the validity of the study. The ways of knowing and learning about the social life are the principal epistemological concerns and attempts to understand researchers’ perception about reality and what he or she already knows about it (Ritchie & Lewis, 2003). As the concept of ontology does, the epistemology concept can also be included in the
framework of subjective-objective continuum. The subjective view, where reality is a result of people imagination, encourages an epistemology that underlines the importance of the way in which the human beings accomplish their relationship with their world (Morgan & Smircich, 1980). At the other end of the continuum, the objective epistemology would be favorable to investigate the nature of the relationship between components of the social world; it has the capacity to measure phenomena as ‘facts’ such as laws and regularities (Morgan& Smircich, 1980). As the analysis of the study is made on the assumptions of objective view of the ontology concept, the research will continue with the objective epistemology, being beneficial for the post-positivism paradigm (Myers, 2013). Positivism and post-post-positivism are two similar stance because both of them attempt to expose the reality; but post-positivism supports that the researcher can make assumption about reality without being directly involved in this phenomena, therefore it cannot be verified.
3.2. Qualitative Research
Qualitative research in IB and management is still undervalued because of the noticeable predominance of quantitative methods and statistics over qualitative ones (Gephart, 2004). Scholars with very interesting data sets do not know how to evaluate their potential at the maximum level by using qualitative methods (Gephart, 2004). The statistics reveal that the majority of business scholars may prefer to conduct a quantitative study, mostly when there is a need for a larger sample size; it is easier to apply the new trends and patterns across many people and organizations (Myers, 2013). A qualitative research is appropriate to analyze the relationship between international business (IB) and terrorism, because this is one of the first studies that attempts to explain and understand it. There is a lack of literature on this topic and this qualitative
approach provides the possibility to realize an in depth analysis about the subject matters. Moreover, the small sample size (four MNEs) is also representative for a qualitative approach. Gephart (2004) assumes that qualitative research is important for managerial purpose because it describes real-life actions, helps to better understand social activities that are basis for management and not at least offers a variety of management issues and concepts that reinforce the area of management. Compared with a quantitative research, a good qualitative paper requires more time for research and maybe qualitative researchers should be evaluated considering the impact of their work in the specific field of study (Gephart, 2004). The powerful linkage between qualitative documentation and mainstream deductive research could increase the relevance and validity of a case study research (Eisenhardt & Graebner, 2007). For this specific paper, a qualitative approach was selected mainly because of the lack of information about the linkage between terrorism and IB. A qualitative approach gives the chance to individual judgments and due to its flexibility is open to unexpected events (Gephart, 2004).
3.3. Multiple-Case Study Research Design
By definition, a qualitative research demands for qualitative methods. Therefore a case study approach will be used because it focuses on contemporary events and it is more helpful to prove the validity of working-propositions. Compared with a single-case study approach, an explanatory multiple case study will be applied because it is less vulnerable and offers stronger conclusions, and because the paper includes multiple cases of the same phenomena (Yin, 1994; 2009). As the qualitative research does, also the case study approach maintains the 'holistic' and real-life time aspects and events (Yin, 2009). Moreover, the case study method can add strength to previous research and findings. According to Yin (2009) the case study method provides some advantages for
the researcher, especially when: (i) 'how' and 'why' questions could describe the research question, (ii) the problem that is analyzed represents an up-to date problem in a real-life time context, and (iii) the researcher has little control over events. The research question of this paper can be addressed with 'how' and 'why' questions and this is another reason to proceed with an explanatory case study research. The subject that will be analyzed in this study is the expansion process of MNEs and how do they choose their entry modes within countries that are affected by terrorism, more exactly in Pakistan. The internationalization process of a MNE is a contemporary and IB subject of interest and because there is a variety of factors that influence this process, a multiple case study is best to be used. There is not a necessary or significant number of cases for a study (Yin, 2009), therefore this paper analyzes the internationalization process of business activity of four MNEs from different countries and from different industries. Yin (2009) supports the idea that case study uses not only an explanatory strategy, but also the exploratory one. Therefore, for this paper will be used both, the explanatory and exploratory approaches. The first one will try to explain the internationalization process of each company and the later will attempt to describe the different effects of terrorism on business expansion. Not at least, multiple cases give the resources for a more comprehensive exploration of research question and theoretical aspects (Eisenhardt, 2007). Compared with theory building from single-case approach, multiple cases provide “more robust, generalizable and testable theory” that can enhance the results of the study (Eisenhardt, 2007, p.27).
3.4. The inductive and deductive approach
In general, there are two main approaches to conduct a research: induction and deduction. According to Saunders et al. (2009), the deductive approach builds theory
and hypotheses and the research design tests these hypotheses, while the inductive approach is used to collect data and the resulted data analysis will help to develop a theory. Therefore, “the deductive and inductive logics are mirrors of one other” (Eisenhardt & Graebner, 2009, p.25). A multiple case study provides the opportunity not only to build theory from the cases which fits with induction, but also to test the existing theory that is suitable with deduction (Eisenhardt et al., 2009; Yin, 1994). The topic of IB and terrorism is a relatively new subject of interest for researchers and the literature provides little information about this theme, hence a more inductive approach is proper to be used. A deductive approach is useful when the literature provides sufficient data to draw the theoretical framework and hypotheses (Saunders et al., 2009). Induction involves using theory that leads to conclusion, whereas deduction uses theory to show support for conclusion (Ritchie & Lewis, 2003). Moreover, deduction is a more common process for quantitative research, and induction handles better with qualitative research (Saunders et al., 2009). Equally important, the first one is in need to select relevant samples to generalize conclusions, while the latter one is less concerned with conclusion's generalization. As Bryman and Bell (2011) underline, deductive and inductive approaches can be framed more as tendencies rather than fixed and distinct strategies. Taking into consideration the above presented characteristics of deductive and inductive approaches, it can be concluded that the actual multiple case study is a combination of both approaches with prevalence on deduction's features. It is a qualitative study with a necessity of related samples for a strong conclusion and it presents a relatively new research topic based on limited literature. In terms of results' resilience, this mixture processes could be more advantageous for the final outcome (Saunders et al., 2009). The deductive approach is based on the existing theoretical
considerations that lead to propositions which are subject for empirical examination (Bryman et al., 2011). This study is guided by some theoretical approaches, such as OLI Paradigm (Dunning, 1998) and the TCT and by the working propositions that have been formulated after literature findings on the subject of terrorism and IB. Due to the fact that the study is limited through reduced literature, the final results about MNEs' expansion process and entry mode decision within countries affected by terrorism will be subject to future research
3.5. Triangulation
A qualitative research is appropriate to analyze the relationship between IB and terrorism because this is one of the first studies that attempts to explain and understand it. The findings from a study can be more credible and can increase the quality of the research when multiple data sources are used, i.e. triangulation (Hussein, 2009; Yin, 2013). Due to the fact that an interview-based method was not possible to obtain, the study is based mainly on secondary data sources. Triangulation method (Gibbert & Ruigrok, 2010) will be used to collect qualitative and quantitative documentary secondary data that can lead to a greater support for the conclusion and can gather data that are more difficult to obtain through interviews or surveys. Such data collection method is useful because it offers a large variety of information that are ready to be used for the analysis (Van der Velde et al., 2004). Examples of these secondary data are articles on the web, interviews by researchers or journalists, organizations' websites or annual reports, and the most important source is newspaper articles about the investigated companies. Apart from using triangulation to gather data, it is also used as a “within-method” that is important to investigate internal consistency or reliability and “between-method” that checks the level of external validity of the study (Jick, 1979).
3.6. Validity and Reliability
Yin(1994) argues that the quality of a case study can be established through four tests, construct validity, internal validity, external validity and reliability. The research design, data collection method, data analysis and the framing of the final findings are important factors that can ensure the validity and reliability of the study (Herling et al., 2000).
3.6.1. Construct validity
Construct validity is an important tool that drives the researcher to a right selection of methods for the concepts being studied (Dooley, 2002). When conducting a case study, this first test is especially challenging because can be biased by the insufficient operational measurements developed by the case study’s researcher or because the data collection process can be driven by researcher's subjective perspective (Yin, 1994). The construct validity of a case study can be improved by three tactics: using multiple sources of evidence, establishing a chain of evidence and using key informants to review the report (Yin, 1994). For this study, the first two tactics are the most relevant in order to increase the construct validity. Therefore, multiple sources of evidence were used to demonstrate that besides a high level of terrorism within a host country, firms are still expanding business activities within these areas and they choose between different entry modes in the process of internationalization. Such sources are newspaper articles, organizations' websites or annual reports or companies' history.
3.6.2. Internal validity
Internal validity is available only for explanatory or causal studies, not for those that use an exploratory strategy or are descriptive in their nature (Yin, 1994). It describes a cause-and-effect relationship between concepts; the actual conditions that are under observation will result in other conditions and the researcher has the duty to confirm
these conclusions (Yin, 1994; Dooley, 2002). As this study uses both an explanatory and exploratory strategy, the test of internal validity can also be applied for this research. Yin (1994) claims that there are many “threats” for validity's identification; but the most important and applicable in this case is that the researcher must pay sufficient attention in order to make 'inferences' (Yin, 1994). The researcher is not able to observe every event that is relevant for the study, therefore the case study demands for inferences derived from documentary sources (Yin, 1994). It is important to take into account that the formulated propositions acquired through the existing literature's review can lead to a causal relationship with the motives of MNE's expansion in terrorist countries.
3.6.3. External validity
The external validity determines the extent to which the results of the case study can be generalized, whether it is about a single or a multiple-case study research. (Dooley, 2002). External validity has been a significant impediment in conducting case study and before generalizing a finding, this should be tested on a second or even third party source (Yin, 1994). It can be difficult and biased to apply the findings about a MNE's reasons to choose a particular entry mode to the decision taken by other international companies. The four cases of this study represent cases for conducting the theoretical sampling. When talking about case studies, the analogy to samples and generalization for a larger circle of examples does not properly work (Yin, 1994). Yin (1994) makes a differentiation between statistical and analytical generalization, where the first one is valid for survey research and for the second one a comprehensive theory is based on results' generalization. For this specific study it can be applied the latter one because the study is mainly based on the eclectic paradigm and the TCT. The purpose of the case study is to generalize the findings to the fact that terrorist risk can influence MNEs'
expansion and entry mode decision, where all four cases are multinational companies already established within international markets.
3.6.4. Reliability
The reliability is based on the idea that the procedures of a study, like the data collection process, can be repeated by other researchers and will deliver the same results (Yin, 1994). The main purpose of this test is to guarantee the fact that if another examiner will use the same procedures and exactly the same case study for a research, the final outcome will be identical with the former’s results (Yin, 1994). In order to make a study reliable, the research procedures should be documented and there are two specific tactics that deal with these processes: using a case study protocol and creating a case study data base (Yin, 1994). The data collection process for this paper consists mainly on newspaper articles and MNEs' annual reports, therefore any future interested investigator has the possibility to use the same sources and can verify the reliability of the initial research study.
3.7. Case Criteria and Selection
The researcher is responsible with the case selection that will reflect the research question and that is an important tool in building theory from case studies (Dooley, 2002; Eisenhardt, 1989). Before selecting the cases, another important step is choosing a relevant country affected by terrorism and where MNE currently has business activities. Therefore, after reviewing different websites and multiple maps reflecting the degree of terrorism within each country in the world, Pakistan became the targeted country. It is an emerging market that in the latest years have shown rapid market growth and developing business environment. It is important to understand how terrorism attacks can harm the business environment and why it can impact the
internationalization of business activities within this risky area. For example, an article in the Pakistan Observer suggests that terrorism is one of the factors that have led to declines in hospitality business. Terrorist attacks, such as the bombing at Marriott Hotel in September, 2008 killed around 40 people (Gall, 2008) and might have determined tourists or business travelers to cancel their reservations for going to Pakistan.
In order to answer the research question, a non-probability sampling technique will be used, more exactly purposive sampling that offers the possibility to use judgments to choose the most suitable companies that meet the research objectives (Saunders & Lewis, 2012); in this case, companies that have already expanded their business activities in Pakistan.
The purpose of the study is to analyze different organizations that have been chosen after reviewing The National Government of Pakistan and Pakistan Board of Investments websites. There is not a necessary or significant number of cases for a study (Yin, 2009). Therefore, this paper analyzes the internationalization process of four MNEs (Unilever, Nestlé, Philip Morris International and OMV) from five countries (UK and Netherlands, Switzerland, USA and Austria) and from different industries (consumer goods, tobacco, hospitality, respectively oil and gas).
The case selection was based on a rational and practical thinking. Given the fact that the literature about IB and terrorism is limited, the same happens with the available data about terrorism and companies that invest in Pakistan. In order to find as many information as possible, the selected cases had to be MNEs, with business activities around the world and with a long history in internalization process. The special case is OMV because its business investments are concentrated especially in Europe, but in order to have diversified industries and to acquire more relevant findings, another
company with successful business operations in Pakistan was necessary. One strength in this case selection is that OMV is active in a different industry with a positive tendency of expansion within this country. These four cases are not the only MNEs that operates in Pakistan, but can be considered among the most important foreign companies that efficiently and effectively are doing business in Pakistan.
These four companies are doing business in Pakistan and according to their annual reports their business's investments continue to grow. The purpose of this sampling is to identify multiple factors that have influenced firms' internationalization process and their decision between different entry modes, why have they chosen to expand their business activities within areas that are affected by terrorist attacks and how do they proceed in order to increase business's performance and revenues. As the sample consists only of firms that are internationally-oriented, it is sufficient for finding patterns of their internationalization process and entry mode decisions. The analysis is still relevant and valid, even if there are some differences, such as the companies are located in different countries or different industries. But this aspect could also be an advantage for the analysis, because it can be observed how firms within different industries respond to the internationalization process. Moreover, the case selection is an important driver in the process of data collection that will be discussed in the next section (Yin, 1994).
This research tries to link the level of terrorism in Pakistan and its impact within the internationalization process of foreign investors that decide to enter Pakistan's business environment. Each case is examined and analyzed as a single case, but it will be used also to make comparisons and to find analogies with the others, resulting in a parallel multiple case study (Dooley, 2002; Eisenhardt, 1989).
3.8. Data collection
Multiple data collection methods lead to triangulation that enhances the case study validity and increases the credibility of working propositions (Dooley, 2002; Eisenhardt, 1989). Johnston (1999) claims that case study collection data can be driven by different methods, but to identify the influence of terrorism on MNEs entry mode decision within affected countries, documentary evidence and archival data will be used. According to Saunders (2011) it is significantly difficult and expensive for a researcher to design and distribute surveys to a large number of potential participants or to get interviews with MNEs' chief executives. Therefore, for this particular study data was collected through systematic reading of different newspaper articles on the web about terrorism in Pakistan and its effects on the business environment, or organizations' websites and annual reports such as financial reviews. Each of these particular sources is one piece of the ‘puzzle’ that helps strengthen researcher's understanding and perceptions about the subject of interest (Baxter et al., 2008). The researcher should control the process of data collection and organize the multiple sources in a structural order in order to avoid the risk of being 'lost' in a large amount of data (Dooley, 2002; Baxter, 2008). LexisNexis is one of the largest database that offers a variety of international and local newspaper articles and was used to find the samples of this study. Due to the fact that international sources such as The Financial Times or The Economist provide little information about MNEs investments in Pakistan, then local sources are exploited, such as The Express Tribune, Daily Times(Pakistan) or Pakistan Today to search for articles about the focal firms between 2007 and 2014. The newspaper articles about these companies will be helpful for investigating firm's strategic decision to invest within areas characterized by terrorism, i.e. Pakistan. Company's official websites were used in order the information about the expansion process and about the mergers and
