Internationalisation Process

Internationalisation

Process

2

Title: Internationalisation process of Bruna BV.

Name: Hendriëtte Scholma (s1840754)

University of Groningen

Faculty of Economics and Business

Master Thesis International Business and Management

Supervisor: D.J. Kamann

Co-assessor: H.C. Stek

Company:

Bruna BV

Houten

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Summary

To survive as a company it is important to keep developing and innovating. One of the options to further develop the company is expansion. Whenever expansion in the home country is no longer lucrative, one has to think of expanding outside the original borders. The key problem in internationalization is the lack of knowledge about markets. Therefore it is important to conduct an extensive analysis of the company itself and the market the firm is interested in. This thesis discusses the opportunities to internationalise the Dutch company Bruna BV. Bruna BV is a Dutch retail enterprise, founded in 1868. The company sells books, magazines, stationery, newspapers, computer software and greeting cards. In addition the company sells Dutch and English books and other products via their website. Nowadays, Bruna has about 380 stores throughout the Netherlands. 42 of these stores are owned by the company and the rest are franchises. When Bruna really wants to extend their operations, they should open new stores in foreign countries. Belgium might be a good country to start with, because this country is perceived as being quite similar to the Netherlands. Information about Bruna is collected through annual reports and by interviewing managers. Information about the Belgian market is collected through the internet and by researching what the competitors are offering to their clients first hand. In total, 153 questionnaires are conducted in three Flemish cities, namely Antwerp, Ghent and Leuven.

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5

Table of contents

C

HAPTER

1.

I

NTRODUCTION

... 7

1.1 Background ... 7

1.2 Bruna BV. ... 8

1.3 Problem statement ... 8

1.4 Structure ... 8

PART I LITERATURE STUDY ... 10

C

HAPTER

2.

H

OST

M

ARKET

A

NALYSIS

... 10

2.1 Introduction ... 10

2.2 Porter’s Five Forces ... 10

C

HAPTER

3.

D

IFFERENCES

D

UTCH AND

B

ELGIAN MARKET

... 14

3.1 Introduction ... 14

3.2 Cultural distance ... 14

3.3 Administrative distance ... 17

3.4 Geographic distance ... 17

3.5 Economic distance ... 18

C

HAPTER

4.

C

OMPANY ANALYSIS

... 19

4.1 Introduction ... 19

4.2 SWOT- analysis ... 19

4.3 Porter’s Diamond ... 19

C

HAPTER

5.

E

NTRY STRATEGIES

... 21

5.1 Introduction ... 21

5.2 Entry and establishment modes ... 21

C

HAPTER

6.

M

ETHODOLOGY

... 25

6.1 Introduction ... 25

6.2 Research design ... 25

PART II RESEARCH FINDINGS ... 26

C

HAPTER

7.

R

ESULTS

Q

UESTIONNAIRES

... 26

C

HAPTER

8.

R

ESULTS

H

OST

M

ARKET

A

NALYSIS

... 30

8.1 Introduction ... 30

8.2 Porter’s Five Forces ... 30

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9.1 Introduction ... 34

9.2 Cultural distance ... 34

9.3 Administrative distance ... 36

9.4 Geographic distance ... 37

9.5 Economic distance ... 37

C

HAPTER

10.

R

ESULTS

C

OMPANY

A

NALYSIS

... 39

10.1 Introduction ... 39

10.2 Mission and vision ... 39

10.3 SWOT analysis ... 39

10.4 Porter’s Diamond ... 40

C

HAPTER

11.

R

ESULTS

E

NTRY STRATEGIES

... 41

11.1 Introduction ... 41

11.2 Entry Strategies ... 41

PART III CONCLUSION AND DISCUSSION ... 44

C

HAPTER

12.

C

ONCLUSION

... 44

C

HAPTER

13.

D

ISCUSSION

... 49

R

EFERENCES

... 51

A

PPENDIX

1:

Q

UESTIONNAIRE

... 59

A

PPENDIX

2:

R

ESULTS

Q

UESTIONNAIRES

... 62

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Chapter 1. Introduction

1.1 Background

To survive as a company it is important to keep developing and innovating. One of the options for a company of developing is expansion. Whenever expansion in the home country is no longer lucrative, one has to think of expanding outside the original borders. When a company wants to expand abroad it must learn new skills and develop new procedures before it can become successful (Stopford and Wells, 1972). The key problem in internationalization is the lack of knowledge about markets. Therefore it is important to conduct an extensive analysis of the company itself and the market the firm is interested in. This thesis discusses the opportunities to internationalise for the Dutch company Bruna BV.

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1.2 Bruna BV.

In this research the internationalization process of Bruna BV will be described. Bruna BV is a Dutch retail enterprise, founded in 1868. The company sells books, magazines, stationery, newspapers, computer software and greeting cards. In addition the company sells Dutch and English books and other products via their website. Nowadays, Bruna has about 380 stores throughout the Netherlands. 42 of these stores are owned by the company and the rest are franchises. There are still several places where Bruna would like to open another store, like Geleen, Katwijk, Leidschenveen, Papendrecht, Rotterdam and several others. However, when Bruna really wants to extend their operations, they should open new stores in foreign countries. Belgium might be a good country to start with, therefore this study will provide a description of this market. An advice will be given if it is wise to expand to this country and which entry mode suits Bruna the best (Bruna, n.d.).

1.3 Problem statement

1.3.1 Research goal

The goal of this research is to investigate whether it is possible for Bruna to open stores in Flanders (Belgium) and which entry mode should be used.

1.3.2 Research question

The following research question is formulated:

Is it possible for Bruna to expand to Belgium and which entry mode should be used?

1.4 Structure

This thesis is divided into three main parts; literature review, research findings, and conclusion and discussion. Within these three parts the following sub-questions will be discussed.

First, what does the retail market look like and which competitors will Bruna have to deal with? This leads to the first sub-question: What are the characteristics of the Belgian market?

Second, the cultural, administrative, geographic, and economic differences between the Netherlands and Belgium will be described. This leads to the second sub-question: What are the differences

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Third, general information about Bruna will be given; who are they, what are their goals, why do they want to internationalize? A SWOT analysis will be used to provide an extensive internal analysis. This leads to the third sub-question: What are the characteristics of Bruna BV?

Fourth, this question concerns entry strategies; whether Bruna should acquire another company or start a Greenfield operation, either wholly owned or with a local partner. The final sub-question formulated is: Which entry strategy is most appropriate for Bruna BV?

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PART I LITERATURE STUDY

In this part an extensive literature study will be provided. First, an analysis about the host country, Belgium, will be given. Hereby Porter‟s five forces, Porter‟s diamond, and Hofstede‟s dimensions will play a large role. Second, the literature which will be used to analyse the differences between the home and the host country will be described. Third, an internal analysis gives a complete overview of Bruna BV by using a SWOT analysis. Fourth, the difference between entry and establishment strategies will be explained and what possibilities there are for companies that are planning to enter new markets. Finally, the research design will describe the research methods of this thesis.

Chapter 2. Host Market Analysis

2.1 Introduction

In order to understand industry competition and profitability, one must analyse the industry‟s underlying structure. While several factors can influence profitability in the short run, such as the weather and the business cycle, industry structure sets industry profitability in the medium and long run. “Understanding the competitive forces, and their underlying causes, reveals the roots of an industry‟s current profitability while providing a framework for anticipating and influencing competition (and profitability) over time” (Porter, 2008:80). In 1979, Harvard Business Review published “How Competitive Forces Shape Strategy” by Michael E. Porter. This article started a revolution in the strategy field, and in subsequent years it has widely been applied by formulating and implementing a competitive strategy. “The strongest competitive force or forces determine the profitability of an industry and become the most important to strategy formulation” (Porter, 2008:80) Therefore, Porter‟s five forces will be used to make an analysis of the Belgian market.

2.2 Porter’s Five Forces

11 2.2.1 New entrants:

New entrants to a market bring new capacity and a desire to gain market share. This puts pressure on prices, costs, and the rate of investment necessary to compete. Especially when new entrants are diversifying from other markets, they can leverage existing capabilities and cash flows to shake up competition. The threat of entry includes the extent to which there are barriers to entry. When the threat is high, companies must hold down their prices or boost investment to avoid new competitors. So, the threat of entry depends on the height of entry barriers that are present and on the reaction entrants can expect from existing companies (Porter, 2008).

According to Porter (2008) the threat of new entrants consists of supply-side economies of scale, demand-side benefits of scale, the capital requirement of entry, incumbency advantages independent of size, access to supply or distribution channels, expected retaliation, and legislation or government action. First, a company can have economies of scale when it produces large volumes, as the company then enjoys lower costs per unit because they can spread fixed costs over more units, employ more efficient technology, or command better terms from suppliers. For new entrants it is considered that the higher the importance of economies of scale, the higher the entry barrier. Second, demand-side benefits of scale are also known as network effects, and arise in markets where a buyer‟s willingness to pay for a product increases with the number of other buyers. Third, when a company needs to invest large financial resources in order to compete successfully can deter new entrants. Risky capital requirements make entry difficult. Fourth, competitors may have the advantage of sources as proprietary technology, preferential access to the best raw material sources, pre-emption of the most favourable geographic locations, established brand identities, or cumulative experience that has allowed incumbents to learn how to produce more efficiently. Fifth, new entrants must secure distribution of its product or service. Sometimes access might be difficult or legally restricted. Sixth,

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the expected reaction of existing players may influence new entrants in their decision to enter or stay out of the market. Low expected retaliation by existing players makes entry easier for newcomers. Seventh, a government-regulated industry could limit entry by requiring operating licenses. On the other hand, government policies can make entry easier as well, by subsidies or funding basic research. Other treats of entry are customer or supplier loyalty, because competing with established brands and loyalty is harder. Differentiation, as the firm‟s products/services might have a higher perceived value than the competition, which may be eroded if competitors can imitate the product/service. Experience, as early entrants gain experience sooner and existing companies may have scale independent cost advantages. (Johnson et al., 2006; Porter, 2008; Ten Have et al., 2003)

2.2.2 Power of Suppliers

Supplier power is high when there is high concentration of suppliers, switching costs are high, and when suppliers can compete directly. First, concentration of suppliers means that when a few suppliers are selling to relatively more buyers, they have a better bargaining position. Furthermore, the absence of substitutes increases power as buyers have limited choice. Second, switching costs are high when the supplier‟s product is indispensable or of great value to a company, and switching suppliers can lead to high expenses or rapidly depreciate the company‟s assets, because of the investments made. Third, suppliers have more power when they are able to integrate forward by producing for and selling to their customers. (Johnson et al., 2006; Porter, 2008; Ten Have et al., 2003)

5.2.3 Power of Buyers:

Buyers affect the degree of competition in two ways. First, the number of customers will influence product sales levels. Second, the influence of the buyers depends on the power position in relation to the suppliers. If power position is high buyers can force down prices and demand better quality or more service. The power position can be determined by the following factors: concentration of buyers, the cost of switching, and the acquisition of the supplier. First, when buyers buy in large volumes, they are more likely to command better prices, especially in industries with high fixed costs. Second, if buyers believe they can find an equivalent product, they can play one supplier against another. Furthermore, the more information a buyer has, the better his bargaining position is. So it can be said that low switching costs increase buyer power. Third, potential „do-it-ourselves‟ or backwards integration are strong bargaining levers. (Keuning, 2003; Porter, 2008; Johnson et al., 2006; Ten Have et al., 2003)

2.2.4 Substitutes:

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be for example the change from „hard-copy‟ books to e-books. Second, products are becoming more and more reliable and cheaper, which reduces the need for maintenance and repair services. Third, generic substitution arises when consumers decide to „do without‟, so when they do not need the product or service, and spend their money elsewhere. (Johnson et al., 2006; Porter, 2008; Ten Have et al., 2003)

2.2.5 Existing competitors:

“Competitive rivals are organizations with similar products and services aimed at the same customer group” (Johnson et al., 2006:85). Several factors affect the degree of competitive rivalry, namely in balance, growth rates, high fixed costs, high exit barriers, and differentiation. First, competition is high when there are many and or equally balanced competitors. Furthermore, price competition is high when products or services are nearly identical and switching costs for buyers are low. This forces competitors to cut prices to win new customers. Second, slow industry growth leads to focus over dividing, as opposed to growing the industry. Third, high fixed cost and asset bases making rivals compete to turn stock and fill capacity. When fixed costs are high and marginal costs are low, competitors must cut prices below their average costs, to win customers so that the fixed costs can be paid. Fourth, major exit barriers are specialized assets that are difficult to sell, fixed costs of exit and strategic importance of activities or brands for the company. Fifth, diversity of competitors and their strategies make it difficult to anticipate competitive moves. (Johnson et al., 2006; Porter, 2008; Ten Have et al., 2003)

How successful a company becomes depends on its position relative to its competitors. Differentiating from competitors means defining the company in relationship to the competition. This means that one has to understand and be able to communicate why this company is better or different than its competitors. This also includes that the company continuously has to make improvements to sustain a leadership position. Companies can differentiate on cost, quality, performance, product availability, technology, leadership, timely delivery, superior performance, durability and customer support. Creating a differentiation strategy is referred to as developing a Unique Selling Proposition (USP). This is a statement in which the company sums up the unique features, benefits, and value the company provides that no other competitor can. (Hill, 2007)

Derived from this literature, the following hypothesis can be formulated:

H1. Bruna is able to differentiate itself from its competitors

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Chapter 3. Differences Dutch and Belgian market

3.1 Introduction

When firms enter a new market it is important to pay attention to the differences between the home and host country, such as language, consumer behaviour, cultural standards, legal frameworks and purchasing power. These differences can be addressed by different theories and framework. In this research the CAGE distance framework of Ghemawat (2001) will be used. The CAGE Framework highlights the relationship of countries by different amounts of distance between them. This includes not only the physical distance between countries but also the cultural, administrative, (other) geographic, and economic differences. Several authors have cited the importance of distance in international expansion and the use of the CAGE model (Cerrato, 2009; Seno-Alday, 2009; Tieying and Cannella, 2007; Nachum and Zaheer, 2005). In Chapter 9 the CAGE model will be applied to the Dutch and Belgian market, in order to provide the differences between these two markets.

3.2 Cultural distance

There are over 160 different definitions of the term culture (Thomas, 2002). One definition which is widely accepted is presented by Kluckhohn (1962) “Culture consists of patterned ways of thinking, feeling and reacting, acquiring and transmitted mainly by symbols, constituting the distinctive achievement of human groups, including their embodiment in artefacts; the essential core of culture consists of traditional (i.e., historically derived and selected) ideas and especially their attached values” (as cited in Thomas, 2002:27-8). Culture can be either national or organisational, whereas national culture consists of shared meanings, unconditional relationships, people are born into it, and it is totally immersed. As opposed to organisational culture which includes shared behaviours, conditional relationships, people are socialized into it, and they are partly involved (Thomas, 2002). According to Schein organisational culture can be defined as the “basic assumptions and beliefs that are shared by members of an organisation, that operate unconsciously and define in a basic taken-for-granted fashion an organisation‟s view of itself and its environment (as cited in Johnson, Scholes, Whittington, 2006:196). The cultural distance concept is used to address differences in national culture, such as differences between countries in religious beliefs, race, social norms, and language (Ghemawat, 2001).

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studies which extended Hofstede´s research are Schwartz Value Survey and Trompenaars´ Dimensions. Because Hofstede conducted his research in the „60s/‟70s, researchers have wondered whether these results still apply to today. Therefore, several new studies were conducted in the Netherlands and Flanders. The results of these studies are almost the same as the results of Hofstede. Therefore, in this thesis Hofstede‟s dimensions will be used. The dimensions are: Power distance (PDI), individualism vs. collectivism (IDV), masculinity vs. femininity (MAS), uncertainty avoidance (UAI), and long-term orientation (LTO; which was added later). Power distance indicates the extent to which (it is accepted that) power is distributed unequally among individuals. Individualism versus collectivism refers to how much people want to take care of themselves and close relatives, as opposed to belonging to a larger group with a tight social framework. Masculinity indicates the dominance of assertiveness and acquisition of things, whereas femininity refers to concern for people, feelings and the quality of life. Uncertainty avoidance is measured by the extent to which people feel threatened by ambiguous situations and are therefore living according to rules, believing in absolute thrust and avoiding conflicts. Finally, long-term orientation refers to the extent of having a future-oriented perspective instead of a historic or short-term point of view (ten Have et al., 2003).

Psychic distance

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a greater psychic distance (Ojala and Tyrväinen, 2007). As a result, psychically close markets should improve the company‟s chances of success in these markets (Hosseini, 2008).

Structural differences

National culture is related to organisational structures. According to a research conducted at the University of Aston in Birmingham the structure of an organisation differs at two key dimensions, namely Power Distance and Uncertainty Avoidance (Hofstede, 1991). When an organisation wants to operate in a foreign country, it has to make two important decisions. First, it must decide whether to establish a foreign operation from scratch (greenfield) or taking over an existing company (acquisition). Second, the firm can choose to do this alone (wholly owned subsidiary) or to involve a local partner (joint venture). By acquiring another company or forming a joint venture it is important to take into account the structure of the other organisation. In general, differences in Power Distance are easier to deal with than differences in Uncertainty Avoidance. Especially, if organisations from countries with low Power Distance have to operate in countries with high Power Distance. Managers are more able to deal with high Power Distance when they are used to low Power Distance, than the other way around. Differences in Uncertainty Avoidance mostly create large problems for international companies. In cultures with low Uncertainty Avoidance managers and employees are not comfortable with strict rules and regulations, especially when it becomes clear that most of these rules are not complied with. In cultures with high Uncertainty Avoidance people are uncomfortable without structure and clear rules and regulations, even though many of these rules are not feasible. (Hofstede, 1991)

Language differences

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As Bruna only focuses on the Dutch part of Belgium, namely Flanders, it is expected that cultural distance perceptions between Flanders and the Netherlands are low. Therefore, the following hypothesis is proposed:

H2. Cultural distance perceptions between Flanders and the Netherlands are low

3.3 Administrative distance

“Historical and political associations shared by countries greatly affect trade between them” (Ghemawat, 2001:142). This is called administrative or political distance. In general, rules and regulations of individual governments set the most common barriers to cross-border competition. Sometimes the difficulties arise in the company‟s home country, but mostly it is the host-country‟s government that raises barriers to foreign companies when entering the market. Measures that the government can implement to protect domestic industries are tariffs, trade quotas, restrictions on foreign direct investment, and preferences for domestic competitors in the form of subsidies and favouritism in regulation and procurement (Ghemawat, 2001).

On 3 February 1958 the Benelux Economic Union was established, which involves an intergovernmental cooperation between Belgium, the Netherlands, and Luxembourg. The purpose of the Union is “to deepen and expand the cooperation between the High Contracting Parties so that it can continue its role as precursor within the European Union and strengthen and improve cross-border cooperation at every level” (Benelux, 2008:6). This cooperation focuses on three main topics. First, internal market and economic union, which includes free movement of persons, goods, capital and services. Second, durability, including balanced economic growth, social protection and protection of the environment. Third, cooperation in the areas of justice and internal affairs (Benelux, 2008). Because of this cooperation, between Belgium and the Netherlands, the following hypothesis is proposed:

H3.. Administrative distance perceptions between Flanders and the Netherlands are low

3.4 Geographic distance

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Second, it is less expensive to operate in markets which are geographically close (Ojala and Tyrväinen, 2007), in terms of transportation costs, knowledge transfer, and technology (Nachum, Zaheer and Gross, 2008). Several authors have proven that knowledge is shared more effectively in geographic proximity (Marshall 1920, Jaffe et al. 1993, Almeida and Kogut 1999, Branstetter 2001, Storper and Venables 2004). Moreover, it is also shown that investments in markets with a large geographic distance are less profitable, because of information disadvantages (Nachum et al. 2008). According to Ghemawat (2001) geographic distance is not only about the actual distance between two markets, but also about the size of the country, transportation and communication links, climate differences, psychical remoteness, lack of common border and lack of sea or river access. Obviously, geographic attributes influence the costs of transportation. This leads to the following hypothesis:

H4. Looking at the geographical distance, Belgium is an attractive market to start with for Bruna

3.5 Economic distance

The most important economic attribute that creates distance between countries is the wealth or income of consumers. This also has an effect on the levels of trade and the types of partners a country trades with, as in general rich countries engage in relatively more cross-border activities, relatively to their economic size, than poor countries. Moreover, most of this activity is with other rich countries, as the positive correlation between per capita GDP and trade flows implies. On the other hand, poor countries also trade more with rich countries than with poor ones. Of course, this also depends on the company itself and the industry of the company. Companies that rely on economies on scale and scope should focus on countries that have similar economic profiles, because they have to replicate their existing business model to expand their competitive advantage (Ghemawat, 2001). The Netherlands is ranked 22th and Belgium is ranked 31st at the list of countries of the world (227 in total) sorted by their GDP in millions of USD (CIA, 2010). This indicates that both the Netherlands and Belgium are rich countries, therefore the following hypothesis can be formulated:

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Chapter 4. Company analysis

4.1 Introduction

Porter‟s Five Forces show the most significant aspects of the competitive environment. These forces also provide a basis for indicating the company‟s strengths and weaknesses, opportunities and threats (SWOT analysis). Furthermore, it becomes clear where the company stands versus buyers, suppliers, entrants, competitors and substitutes. Understanding the industry may help to position the company to better cope with the current competitive forces, anticipating and exploiting shifts in the forces; and shaping the balance of forces to create a new industry structure that is more favourable to the company. Therefore, it is also important to understand the home market. In Chapter 10 an analysis of the Dutch market will be made by using Porter‟s Diamond of National competition.

4.2 SWOT- analysis

“A SWOT-analysis summarizes the key issues from the business environment and the strategic capability of an organization that are most likely to impact on strategic development” (Johnson et al., 2006:102). Strategic capability is the capability and suitability of the firm‟s resources and competences to survive and prosper. A SWOT analysis has widely been used in the field of International Marketing, to define the strengths, weaknesses, opportunities and threats of the company. Strengths and weaknesses are both internal factors, related to competitive forces. Opportunities and threats are external factors, which are emerged as a result of gaps in the market. When these factors are defined, one should identify what actions the company should take based on these strengths, weaknesses, opportunities and threats (ten Have et al., 2003).

4.3 Porter’s Diamond

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factor conditions, demand conditions, related and supporting industries, and firm strategy, structure and rivalry. This framework has widely been used to either analyse a firm‟s ability to operate in a national market, or its ability to compete in an international market.

First, factors of production, such as labour, land, natural resources, capital and infrastructure, determine the flow of trade. In sophisticated industries nations also create important factors of production themselves, such as skilled human resources or a scientific base. The most important factors, to gain a competitive advantage, are those that involve sustained and heavy investment and are specialised. As these factors are scarcer and more difficult for competitors to imitate. Second, in general, the composition and character of the home market has a great effect on how companies perceive, interpret, and respond to buyer needs. Nations gain competitive advantage when companies are forced by buyers to innovate faster and achieve more sophisticated competitive advantage then their foreign rivals. Home-demand conditions help build competitive advantage when a particular industry segment is larger or more visible in the home market than in foreign markets. The third determinant of national advantage is the presence of related and supporting industries that are internationally competitive. Finally, national circumstances and context have a great influence on how companies are created, organised, and managed, as well as how the domestic rivalry look like. Furthermore, countries also differ in the goals that companies and individuals want to achieve. (Johnson et al., 2006; Porter, 1990)

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Chapter 5. Entry strategies

5.1 Introduction

In this chapter the differences between entry and establishment modes will be described. Furthermore, it will be explained which entry and establishment mode fits best to which company. Two theories will be used to explain this, namely the resource-based view and the transaction cost economics theory.

5.2 Entry and establishment modes

When a company wants to enter a foreign market it faces at least two important decisions. First, it must decide whether to establish a foreign operation from scratch (greenfield) or taking over an existing company (acquisition). This is referred to as the establishment mode. Second, the firm can choose to do this alone (wholly owned subsidiary) or to involve a local partner (joint venture), which is an entry mode decision. The decision as to whether to establish an acquisition or greenfield subsidiary with full or partial ownership depends on several benefits and risks of each foreign establishment and entry mode. For instance, acquisitions allow firms to achieve greater market power, to overcome barriers to entry, to enter new markets quickly, and to acquire new knowledge and resources; however they also imply additional takeover costs and they may be concerned with integration failures, because of cross-cultural differences and mismatches. On the other hand, greenfields offer the opportunity to preserve and replicate valuable corporate cultures abroad, but it requires a longer establishment period and more time to create business networks locally. Several studies have found that greenfields usually perform better than acquisitions, as differences in organisation culture and management style damage performance (Li and Guisinger, 1991; Nitsch, Beamish, and Makino, 1996; Simmonds, 1990; Woodcock, Beamish, and Makino, 1994). In addition, shared ownership gives the firm the possibility to use valuable resources of a local partner and minimise investment risk, however at times it can be challenging to reach agreements due to the partner‟s diverging capabilities, interests and goals. In contrast, wholly owned subsidiaries offer the benefits of managerial autonomy and full control over local operations, but the process of overcoming the liability of foreignness might be difficult without a local partner (Dikova and Witteloostuijn, 2007; Vermeulen and Barkema, 2001).

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Franchisor” (Doherty and Quinn, 1999). The franchisor provides the franchisee the right to use their brand and store concept in return for a franchise fee and margin on the product sold within the stores. Franchising has historically been a favoured mode among service sector companies. However, also many retail companies have become aware of the advantages of franchising. Nowadays, franchising is considered as an advantageous market-entry mode for retailing companies (Quinn and Doherty, 2000; Quinn and Alexander, 2002). This format allows companies to expand fast at a low cost, which is especially important for firms with an innovative business concept (Juste, Lucia-Palacios and Polo-Redondo, 2009). Research indicates that in Europe most franchisors move into foreign markets as a result of an approach by a potential partner, instead of a planned strategic internationalisation campaign (Doherty, 2007). In addition, organisational and environment factors can have an influence on the market entry decision. Organisational factors include increasing sales and profits, firm size, operating experience, top management‟s international experience, tolerance for risk and perception of the firm‟s competitive advantage. Environmental factors include market expansion, domestic competitive pressure, external change agent influence and perceived favourability of the external environment (Doherty, 2007). It might be possible that a retailer uses franchising in the domestic market but when they enter a foreign market they might use another entry mode or the other way around (Quinn and Alexander, 2002)

Several theories explain entry mode choices, like the organizational learning theory, resource-based view and the transaction cost economics theory. The first two theories take a dynamic approach, viewing the firm, instead of the industry, as the source of competitive advantage. Competitive advantage inheres in the firm‟s resources and capabilities, therefore it has the ability to build and advance its competitive advantage and rely on it in strategic decision-making (Ekeledo and Sivakumar, 2004). The theory of transaction cost economics uses a more theoretical approach. This theory focuses on „minimizing the costs created by uncertainties associated with protecting proprietary assets, investing in different markets, and monitoring partner behaviour‟ (Brouthers, Brouthers and Werner, 2008).

5.2.1 Resource Based View

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plant and equipment, location, and access to raw materials. Human capital resources include training, experience, judgement, intelligence, relationships, and insights of individual managers and workers in a firm. Organisational capital resources include a firm‟s reporting structure, its planning, controlling and coordination systems, and its relations within a firm and its environment (Barney, 1991). However, not all aspects of these resources are relevant to the company. Resources are valuable when “they enable a firm to conceive of or implement strategies that improve its efficiency and effectiveness” (Barney, 1991:106). These resources can become a source of sustained competitive advantage for the firm. A firm is having a sustained competitive advantage when “it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy” (Barney, 1991:102). In order to gain a sustained competitive advantage, resources must be valuable (to exploit opportunities and/or neutralise threats), rare (among competitors), imperfectly imitable, and no strategically equivalent substitutes that are valuable but neither rare nor imperfectly imitable (Barney, 1991). In order to protect the valuable resources, the preferred entry mode is sole ownership until proven otherwise (Ekeledo and Sivakumar, 2003). On the other hand, small and medium-sized firms frequently lack necessary internal resources, know how, and information about foreign markets. These limitations can be overcome by choosing partners, either in the home or host countries, which possess such knowledge (Wilkinson and Brouthers, 2006).

5.2.2 Transaction Cost Economics (TCE)

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(unpredictability) of the firm‟s external environment that makes it difficult to write complete contracts” (Yiu and Makino, 2002:669). Because contextual uncertainty is usually beyond the control of the firm, firms in countries with high environmental uncertainty are better off involving in low-control entry-modes (e.g. joint venture) or even avoiding ownership in order to be flexible against environmental changes. When a culture is uncertainty avoiding, the acquisition mode is less attractive, because managers are not prepared to handle these differences in a good manner and employees are less willing to accept changes. Thus, greenfield modes are more preferred, so that transaction costs can be minimised. Behavioural uncertainty includes the inability of a company to predict the behaviour of individuals in a foreign country. This uncertainty may lead to opportunistic behaviour involving cheating, distortion of information, shirking of responsibility, and other forms of dishonest behaviour. In order to minimise opportunistic behaviour, the firm has to have some kind of control mechanism. Hierarchical ownership can, for example, control the actions of foreign-based employees. Firms with strong control mechanisms rely on this and will therefore adopt high-control entry-modes (wholly owned), in order to gain control and to avoid risk. Contrary to this, firms without these control mechanisms may reduce opportunistic behaviour by shifting control to a local agent, and may therefore prefer a joint-venture entry mode (Brouthers and Nakos, 2004; Yiu and Makino, 2002). Several studies have also shown that firms that used TC-enhanced international entry mode choices significantly performed better than firms that did not (Brouthers, Brouthers, and Werner, 2003; Brouthers and Nakos, 2004).

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Chapter 6. Methodology

6.1 Introduction

In this chapter several hypotheses will be formulated and it will be described how information about the internal and external market analysis is collected.

6.2 Research design

Information about Bruna will be collected through annual reports and by interviewing managers. In this way a clear overview can be given on Bruna‟s mission, vision, and goals. Furthermore, Bruna‟s strengths, weaknesses, opportunities, and threats will also be collected by interviews and shown in a SWOT analysis. Information about the Belgian market will be collected through the internet and by researching what the competitors are offering to their clients first hand. This information will be formulated by using the CAGE Framework as well as Porter‟s five forces and Porter‟s diamond. Finally, information about market entries will be collected by using literature.

In order to collect primary data about the Belgian bookstore market, the 6 most important bookstore and press store chains will be checked to see what their store concepts look like and what products they are offering. Furthermore, questionnaires are conducted in three Flemish cities, namely Antwerp, Ghent and Leuven. Questionnaire surveys involve a sample of the population, which is in this case Belgium. For this research street surveys were conducted, which means that people are selected by stopping them in street, shopping malls, etc. With this type of survey the costs are not very high and response rate is medium in comparison to other types of surveys. On the other hand, street surveys place certain limitations on the interview process. First, the questionnaire cannot generally be as long as for e.g. household surveys. Therefore, the range of topics and issues which can be covered in a street interview is restricted and this must be taken into account in designing the questionnaire. The second limitation is the problem of contacting a representative sample of the population. Certain types of people might not go to shopping streets, tourist areas, etc. and other types of people might be over-represented. (Veal, 1997)

In total, 153 questionnaires were taken, 59 males and 94 females. The questionnaires were conducted in three Belgian cities, therefore most people also lived in one of these cities; Antwerp (53 persons), Ghent (38 persons), and Leuven (41 persons). The other interviewees lived in Aalst (3), Bruges (4), Hasselt (6), Kortrijk (4), and Mechelen (4). Table 1 shows the number of interviewees by age.

Age ≤ 20 years 21 – 40 41 – 60 61 – 80 ≥ 81 years

# Interviewees 36 91 17 8 1

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PART II

RESEARCH FINDINGS

The first part of this thesis described the motives for this research, which main elements are captured, assisted by the literature, and how the research was conducted.

The second part of this thesis discusses the research findings. This consists of the same main pillars, namely a market analysis, a company analysis, a customer analysis, and finally entry strategies. First of all, the results of the questionnaires will be discussed. Second, a market analysis about Belgium will be provided, including Porter‟s five forces. Third, the differences between the Belgian and Dutch market will be described by using the CAGE model. Fourth, the company analysis will provide an overview of Bruna BV and the home market. Finally, the results of the entry and establishment modes possible for Bruna will be given.

Chapter 7. Results Questionnaires

As was mentioned in the methodology, 153 questionnaires were conducted in three Flemish cities, namely Antwerp, Ghent, and Leuven. The questionnaires consisted of 13 questions (see appendix 1). One by one, the results of these questions will be provided. The results of the first three questions, respectively gender, age, and location, are already presented in the methodology. The size of the population is the total of al Flemings, which was 5.8 million in 2008 (Belgian Federal Government, 2009). Tables can be found in appendix 2.

Question 4: On average, how often do you buy a book?

The answers to this question were all converted to times per year. 9 persons were excluded from this question, as they have not answered the question (properly). With a sample of N=144 and a confidence level of 95%, the margin of error is 8.14%. This means that on average Flemings buy 6.33 (±8.14%) books per year. What is important to mention is that 14.6% (±8.14%) of the population never buys a book.

Question 5: From which genre do you buy most books?

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mostly buy cooking books (17.1%), children‟s books (15.8) and Literature and Novels. They also buy many Fantasy/Science Fiction books (13.2%) (see Table 3).

Question 6: On average, how often do you buy a magazine?

The answers to this question were all converted to times per year. 140 persons have answered this question, which means that with a confidence level of 95%, the margin of error is 8.25%. On average, Flemings buy 32.14 (±8.25%) magazines per year. 6.4% (±8.25%) of the Flemings never buy a magazine. This percentage is much lower than the percentage of the people who never buy a book.

Question 7: From which genre do you buy most magazines?

As can be seen in Table 4 most people buy women‟s magazines, namely 26.5%. The second most bought genre is tabloid (16.1%) and thirdly television guides (8.8%). Looking at the cross tabulation of gender versus genre, it can be seen that women mostly buy tabloids and women‟s magazines, while men buy most computer/audio/internet and opinion/scientific magazines (see Table 5).

Question 8: At which bookstore do you buy most of your books?

For this question people were able to give multiple answers. However, not everyone did this and there were also people who did not answer the question at all or inappropriate. Therefore, this question received 156 answers in total. So with a sample of N=156 and a confidence level of 95%, the margin of error is 7.82%. This means that on average 46.2% (±7.82) of the Flemings go to the „Standaard Boekhandel‟ to buy their books and magazines, 16.7% (±7.82) go to the „Fnac‟, and 13.5% (±7.82) go to the „Press Shop‟. 21 of the interviewees have mentioned to buy their books and magazines somewhere else, namely via the internet, local bookstores, or flea markets (see Table 6). Looking at the cross tabulation it can be seen that both men and women most often go to „de Standaard Boekhandel‟. However, for men, „Fnac‟ comes at second place (21.4%) and for women „Press shop‟ and „Other‟ (both 14.3%). Furthermore, from the interviewees none of the male respondents go to „Club‟, as opposed to 7.7% of the women (see Table 7).

Question 9: Why do you go to this store?

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Shop‟ has 290 stores, located in shopping centres, the most important metropolitan shopping streets, international institution, like EEG, SHAPE, NATO, Eurocontrol, offices, and hospitals. Standaard Boekhandel is also associated with Nearby (34.3%) and clean, orderly (29.9%). These stores are also located in the main shopping centres and streets. Furthermore, this store was founded in 1919 together with the newspaper and the publisher, and therefore the store has high brand awareness and stands out from other stores. „Club‟ is associated with choice assortment (42.9%) and friendly personnel (28.6%) and nearby (28.6%). „Club‟ stores are very spacious, with many different categories of books and stationery, and therefore a broad assortment. De Slegte is mainly associated with cheap (57.1%). These stores sell new and second hand books at very low prices, and therefore they al (almost) do not sell any current books. So the choice of assortment is not that broad, but the prices are low. Finally, „Fnac‟ is associated with choice assortment (26.9%), clean, orderly (23.1%) and nearby (23.1%). These stores are very large, and they sell not only books but also CDs, Laptops, Games, TVs etc. Therefore, customers have a broad range of products to choose from.

Question 10: Do you have a preference for a Dutch or Belgian store? Why (not)?

150 people answered this question so it means that with a sample of N=150 and a confidence level of 95%, the margin of error is 7.97%. 111 interviewees mentioned that they have no preference for either a Belgian or a Dutch bookstore (see Table 10). This means that for 74% (±7.97) of the Flemish population the nationality of the bookstore is not important. Many people also answered that the store assortment and friendly personnel is more important than the origin of the bookstore itself. Furthermore, many people answered that there are many other stores which do not originate from Belgium, such as the „Hema‟, „Aldi‟, „Carrefour‟ etc. 22% of the people did answer to have a preference for a Belgian store. However, when was asked why they have this preference, people mentioned things like „I live in Belgium‟, „I want to read Belgian tabloids/magazines‟ „I never go to the Netherlands‟, and „Belgian stores are more close by‟, which shows that the people have not properly understood this question.

Question 12: Are you familiar with the Bruna stores?

The last question was whether people are familiar with the Bruna stores. So with a sample of N=152 and a confidence level of 95%, the margin of error is 7.92%. This means that 90.8% (±7.92) is not familiar with the Bruna stores (see Table 11). However, when they associated Bruna with „Nijntje‟ (In English: Miffy), they did recognise the name Bruna.

Question 13: If yes, what is your opinion about these stores?

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have answered the first five descriptions, and only 12 the last description, therefore it is not possible to generalise this to the Flemish population. The average scores the interviewees gave are as follow. Bruna stores are (1 = low - 5 = high):

Untidy/Tidy 4.5

Unfriendly/Friendly personnel 4.4

Bad/Good service 4.3

Expensive/Cheap 3.8

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Chapter 8. Results Host Market Analysis

8.1 Introduction

In this chapter the results of the host market, Belgium, will be described. This will be done by using the model of Porter‟s Five Forces, indicating the market‟s new entrants, substitutes, buyer‟s bargaining power, supplier‟s command of industry, and existing competitors.

8.2 Porter’s Five Forces

8.2.1 New entrants:

Belgium has an open economy, which is highly dependent on imports and international trade. One-third of the top 3,000 corporations in Belgium are foreign. Belgium has a generally transparent competition policy, which is comparable to other European Union member states. Nevertheless, foreign and domestic investors can face severe regulations designed to protect small- and medium-sized enterprises. Many companies in Belgium try to limit their number of employees to 49, as larger companies need to set up certain employee committees for safety and trade union interest.

8.2.2 Substitutes:

The publishing market does not only consist of books, magazines and newspapers, but other forms like online versions and e-books, which continue to gain popularity, as well. Furthermore, other forms of entertainment, such as television, CD-ROM learning software and computer games, are also considered as substitutes (Datamonitor Plc, 2009).

8.2.3 Buyer’s bargaining power:

Alternate forms of published media for business, education, news and entertainment purposes are of high importance to customers, and this increases buyer power. As Belgium has not implemented fixed prices on books, buyers can force down prices by playing one supplier against another. However, in this industry most buyers will not buy in large volumes, unless the company will sell their products also to schools and libraries. Overall, buyer power is moderate.

8.2.4 Supplier’s command of industry:

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10.000 inhabitants, while in Flanders this is one (Standaard Boekhandel) store per 40.000 inhabitants. This means that there are still possibilities to grow (Standaard.biz, 2010).

8.2.5 Existing competitors:

Important bookstore and/or newspaper/magazines chains in Flanders are „Press Shop‟/„Relay‟, „Standaard boekhandel‟, „Oxfam Solidariteit‟, „Club‟, „de Slegte‟, and „Fnac‟. Moreover, independent bookstores join together the „Colibro‟ to defend the small bookstores against the policy of chain bookstores (Datamonitor Plc, 2009).

‘Press Shop’

„Press Shop‟ was founded in 1923 and is the only specialised press chain in Belgium. The company is part of the international group Lagardère Services. Since 2000 „Press Shop‟ is certificated with the ISO 9001 certificate. With this certificate the company can “increase value to their activities and [...] improve their performance continually, by focusing on their major processes. The standards place great emphasis on making quality management systems closer to the processes of organizations and on continual improvement. As a result, they direct users to the achievement of business results, including the satisfaction of customers and other interested parties” (ISO, 2010).

Throughout Belgium, „Press Shop‟ has 290 stores, under the names „Press Shop‟ and „Relay‟. These stores are managed by independent entrepreneurs. The Press Shops stores can be found in shopping centres, the most important metropolitan shopping streets, international institution, like EEG, SHAPE, NAVO, Eurocontrol, offices, and hospitals. „Relay‟ is the international name for stores in the transport zones; airports, train and metro stations. According to the „Press Shop‟ the chain is successful because of their store outline. Clients can find easily their choice in the broad assortment and will return because of the service and the right opening hours. The company is selling principally fast moving goods. Their assortment takes into account the changing demands of customers.

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‘De Standaard Boekhandel’

In 1919 „de Standaard NV‟ was founded, of which the newspaper „de Standaard‟, the bookstore „de Standaard Boekhandel‟ and the publisher „Standaard Uitgeverij‟ are established. In the ‟70s and „80s the group was separated. Nowadays, the three companies operate completely independent (website Standaard Uitgeverij). In 1984, Frans Schotte became the CEO of „de Standaard Boekhandel‟. At that time the company had a loss of 2.6 million Euros. The company was almost bankrupt. However, instead of economising Mr. Schotte started expanding even more. At the end of 1987 the company owned 52 stores. Nowadays, „de Standaard Boekhandel‟ has 134 stores throughout Belgium. Their mission is to characterise as the most important supplier of products concerning information, education, edutainment, and recreation, via several pillars such as books, press, gift vouchers, CD-ROMs, DVDs, and Blu-ray. „de Standaard Boekhandel‟ also has stores within the toyshops of Fun. In these stores children and juvenile books are sold. This year, they are going to do the same within the stores of AVEVE. In 29 stores garden, baking, and animal books are going to be sold. The turnover increased strongly over the years, from 16.5 million in 1984 to 186 million in 2009. Moreover, in the first 4 months of 2010 turnover increased with almost 8 percent while the book sale in Flanders decreased with almost 5 percent (Standaard.biz, 2010).

‘Oxfam Solidariteit’

„Oxfam‟ in Belgium consists of three different, independent organisations. Solidarité/Solidariteit‟ is a national, bilingual organisation. Next, in Flanders the stores „Oxfam-Wereldwinkels‟ are present, and in Wallonia „Les Magasins du Monde-Oxfam‟. Throughout Belgium „Oxfam Solidariteit‟ has 27 stores where also second-hand books are sold. 13 stores are in Flanders, and in 4 of these stores only second-hand books are sold.

‘Club’

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loyalty card gives a discount of 10% at almost all products, extra discount vouchers per e-mail, and Club‟s magazine (Club, 2006).

‘De Slegte’

„De Slegte‟ is founded by Jan de Slegte at the beginning of the 20th

century. He started with stores in the Netherlands and at the end of „50s he opened a store in Antwerp. Nowadays, „de Slegte‟ has 9 stores in Belgium (de Slegte, 2010). This company sells new and second hands books. However, all books are sold at very low prices, and therefore they (almost) do not sell current books.

‘Fnac’

„Fnac‟ has 9 stores throughout Belgium, of which 5 in the Flemish region. The stores of „Fnac‟ are very large, selling not only books but also CDs, Laptops, Games, TVs etc. „Fnac‟ offers loyalty cards to their clients as well. There are 3 different cards, namely the Fnac-card, the FNAC!ON-card, and the Fnac Maestro® card. The Fnac-card costs €20 for three years, and with this card, clients get 8% discount at their first purchase day, 5% discount on their purchases throughout the year, 20% discount on comic books, 10% discount on photo activities, 1 hour free parking (with a purchase of €25), and several other offers. The FNAC!ON-card is especially designed for people between 12 and 25 years old. It costs €5 per year and with this card people get a 20% discount on comic books, 1 hour free parking, or bus/tram ticket (with a purchase of €25), and 10% discount on books, TV-series, Japanese animation movies, mp3- and GSM-accessories, CDs, PC- and videogames, and photo activities. The discounts are changed into points, where 100 points is €10 discount on their next purchase. The Fnac Maestro card is a banker‟s card, with which people can pay and enjoy the advantages of a Fnac-card (Fnac, 2010).

CoLibro

CoLibro is a collaborative by several independent bookstores. Together, they are better able to compete with the large bookstore chains. The „Boekenkrant‟ is a book magazine which is presented for free to the customers of the CoLibro stores. The „Boekenkrant‟ provides the current books supply to a broad public, emphasizing on Dutch and Flemish literature (Uphill Battle, 2009).

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Chapter 9. Results Belgian and Dutch market

9.1 Introduction

In this chapter the CAGE Distance Framework will be applied to the Dutch and Belgian market.

9.2 Cultural distance

Bruna wants to expand to Flanders (Belgium) because this country is perceived as being quite similar to the Netherlands. This is mainly because they have the same language and because Belgium is geographically bounded by the Netherlands. However, there are still quite a few differences between these two countries in culture, structure, and even language. In this chapter these differences will be further explained.

Cultural differences

Hofstede (1980) designed indices for every national culture and each of the four (in some cases five) dimensions ranking from zero to 100. Zero means that a country scores very low on that dimension and 100 means that a country scores very high. In Table 12 the results are presented for the Netherlands and Flanders. As well as the difference between these two countries and the world average. Because Hofstede conducted his research in the „60s/‟70s, researchers have wondered whether these results still apply to today. Therefore, several new studies were conducted in the Netherlands and Flanders. The results of these studies are almost the same as the results of Hofstede, especially for power distance and uncertainty avoidance. For masculinity, Flanders scores higher than the Netherlands, however there is a decrease in the difference between the scores of the various studies. This is mainly because the Dutch have become more masculine over time (Gerritsen, 2001).

Country PDI IDV MAS UAI

World average 55 43 50 64

The Netherlands 38 80 14 53

Flanders 61 78 43 97

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Looking at Hofstede‟s dimensions for the Netherlands and Flanders it can be seen that there are large cultural differences. “In fact, no two countries [...] with a common border and a common language are so far culturally apart […] as (Dutch) Belgium and the Netherlands” (Hofstede, 1980:335). The gap occurs in Power Distance, Uncertainty Avoidance, and Masculinity. Only in Individualism do Belgium and the Netherlands come together. First, Power Distance in the Netherlands is lower as the world average, indicating that there is a greater equality between societal levels, within government, organizations and families. For Belgium it is the other way around, there is greater inequality between societal levels. Second, individualism is both in the Netherlands and in Flanders far above the world average. This indicates that people are more self-reliant and less committed to others. Third, the level of masculinity indicates that the Netherlands experiences a lower level of differentiation and discrimination between genders. Females are treated more equally to males in all aspects of society. In Flanders masculinity is slightly below average, which means that there is almost an even distribution between the masculine dominance of assertiveness and acquisition of things and the feminine‟s concern for people, feelings and the quality of life. Fourth, uncertainty avoidance is lower than the world average. This means that the Netherlands has less rules and a higher level of tolerance for different ideas, thoughts, and beliefs. Flanders‟ highest value is on uncertainty avoidance, indicating that there are strict rules, laws and regulations and a low level of tolerance (Hofstede G., 2010).

Gerritsen (2001) conducted a research to show the differences and similarities in business communication between the Netherlands and Flanders, by using Hofstede‟s dimensions. When cultures differ in Power Distance, it is expected that they also differ in the amount of information employees receive, as sharing knowledge can be seen as giving power away. The results indeed showed that Dutch employees received more information than Flemish. When cultures differ in Uncertainty Avoidance, it is expected that cultures with high UAI have less trust in their colleagues compared to low UAI cultures. According to this research the Dutch have indeed more trust in their colleagues than the Flemish. In relation to Masculinity vs. Femininity, Flemish agreed significantly more to the fact that a meeting is successful when the best proposition is accepted, even though not all the members of the meeting agreed.

Structural differences

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Language differences

Belgium has three official languages; Dutch (60%), French (40%), and German (less than 1%) (CIA, 2010; Eurostat, 2010). Bruna is focusing only on Flanders, because language is the same here as in the Netherlands. However, even when people speak almost the same language, communication problems can arise. This is mainly because of the cultural differences. Culture can be compared to an iceberg. Only a small part of the iceberg is visible, this includes what one feels, observes, and notes when entering a new culture. These are the cultural artifacts, such as physical environment, language, technology, clothing, manners, dress, etc. However, only when one asks insiders what these artifacts exactly mean, the espoused beliefs and values can be discovered (Schein, 1985; Schein 1990). Deep below the surface are the basic underlying assumptions of a culture. These values are the ultimate source of values and actions. These beliefs, perceptions, thoughts and feelings are taken for granted by members of the same culture. However, these aspects can lead to misunderstandings when people from different cultures communicate (Thomas, 2002).

Next to the cultural differences, there are also explicit differences in the meaning and emotional value of words. One example; Dutch people associate work with money and pleasant, while Flanders associate work with money, boring and tired.

It was expected in H2 that cultural distance perceptions between Flanders and the Netherlands are low, however after conducting this analysis it became clear that there are large differences between these to cultures. Therefore, H2 is rejected.

9.3 Administrative distance

In Belgium, there are no differences in regulations between domestic and foreign companies. Foreign companies may enter into joint ventures and partnerships on the same basis as domestic parties. “All investors, Belgian or foreign, must obtain special permission to open department stores, provide transportation and security services, produce and sell certain food items, cut and polish diamonds, or sell firearms and ammunition” (PRS Group, 2009).

Between Belgium and the Netherlands there is a large difference in law for the books market. The Netherlands have implemented the retail price maintenance or government-mandated price setting on books on the 1st of January 2005. This means that the publisher determines the price of the book. The

Figure 3 : Division of Belgium

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vendor has to apply this price at all time, otherwise a fine or order for penalty payment will be given (commissariaat voor de media, 2008). Belgium is one of the few countries in Europe that has chosen not to implement fixed prices. This makes it easier to offer products at very competitive prices. Therefore, books are in Belgium about 25% cheaper than books in the Netherlands.

Because of the cooperation between Belgium, the Netherlands and Luxembourg (Benelux Economic Union) it was expected in H3 that administrative distance perceptions between Flanders and the Netherlands are low. Looking at the results of this analysis it can be said that especially for the book market there is an important difference in law, as Belgium did not implement fixed prices on books. However, as there was no information collected about the differences between the Netherlands and Belgium according to corporate law, H3 cannot be accepted nor rejected.

9.4 Geographic distance

As mentioned in the literature review, in general, the larger the actual distance between the home and host country, the harder it will be to conduct business in that country. Markets with low geographic distance are usually familiar to the home country, in terms of language, culture, and business practices. However, as was explained above, these three aspects are quite different between the two countries. As it is less expensive to operate in markets which are geographically close, in terms of transportation costs, knowledge transfer, and technology, Belgium is attractive for Bruna, because of its proximity to the Netherlands. This means that H4 can be accepted.

Geographic distance is not only about the actual distance between two markets, but also about the size of the country, transportation and communication links, climate differences, psychical remoteness, lack of common border and lack of sea or river access (Ghemawat, 2001). Belgium has a total of 30,278 sq km land with 10,666,866 habitants (in 2008), of which 6,161,600 are living in the Flemish region (5.8% are foreigners; Belgian Federal Government, 2009). Transportation and communication links are well organised. Belgium has 43 airports and a total of 3,233 km of railways. Plus it has 4 ports/terminals, namely Antwerp, Ghent, Liege, and Zeebrugge. This means that Belgium is easy to reach by plane, car, truck, train, or boat. Climate is the same as in the Netherlands, namely temperate; mild winters, cool summers; rainy, humid, and cloudy (CIA, 2010).

9.5 Economic distance