and South-East Asia

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and South-East Asia

Assessing market attractiveness for Energy Delta Institute

Marika Dorien Stegmeijer

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Market Research in North Africa, the Middle East and South-East Asia

Assessing market attractiveness for Energy Delta Institute

Groningen, 27 August 2005

Thesis for the Master program of International Business and Management (IB&M) Faculty of Management and Organisation

Rijksuniversiteit Groningen

Author

Marika Stegmeijer 1230255

Supervisors

First Supervisor: Prof.dr.ir. J.C. Wortmann Second Supervisor: Prof.dr. L. Karsten

Company Supervisor: Evanya Breuer (Marketing, EDI)

© The author is responsible for the contents of this thesis; the copyright of this thesis belongs to the author.

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‘An institution that understands its own character, resources, and mission is in a better position to respond by setting goals and objectives

and developing an appropriate marketing program’

(Kotler and Fox, 1985: 115).

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Executive summary

Gas companies and companies that come across issues related to the gas value chain, have to acquire the knowledge that is necessary for coping with the current developments in the gas market in order to secure for their future success in this market. Energy Delta Institute is founded by Gasunie, the State university of Groningen and the Russian gas giant Gazprom with the mission to provide the aforementioned companies with their required knowledge. It offers research and educational services and aims to deal with all relevant aspects of the gas value chain. This thesis deals with EDI’s educational part.

EDI is looking for more course participants for this part of its organization. A quick scan of the world indicated that EDI should first focus on Europe, North Africa, the Middle East and South-east Asia with its marketing activities. This research looks at the attractiveness of 35 countries from the latter three regions in terms of EDI’s capabilities and therefore provides an answer to the research question ‘How attractive are the by EDI determined countries in North Africa, the Middle East and South-east Asia, in terms of these countries specific characteristics, and with respect to EDI’s needs and constraints?’

Based on the resource advantage theory, first EDI’s capabilities are measured by means of an internal analysis which results in an overview of its strengths and weaknesses. This in turn affects the final choice of market assessment criteria that are used in the market assessment.

From the existing literature in the field of international marketing it is determined that a

market assessment should look at six main criteria; natural environment, geographic

proximity, political and legal system, cultural and social influences, level of economic

development and co-operative agreements. These criteria measure whether the 35 countries

are important gas countries, if their gas market is in development and/or offers interesting

prospects, if upstream activities are important in these countries, if education is perceived to

be important, if they have purchasing power now and in the near future, if potentially

interesting strategic partners for EDI can be found in these countries and if they can be a

(future) supplier of gas to the Netherlands.

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Oman, Qatar, the United Arab Emirates and Malaysia are the most attractive countries for

EDI, based on all criteria. EDI’s marketing department should first focus on Qatar and the

United Arab Emirates with its educational program, and more specifically the promotion of its

short-tracks. It is not expected that EDI will find strategic partners in these countries rather

easy. Oman and Malaysia are countries that EDI should focus on in the future.

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Preface

The past period has been a great challenge for me. I had to find a balance between writing my master thesis and the tasks I had to perform as a board member of a student organization, UniPartners. Considering the restrictions I had due to this occupation, I first did not expect to be able to perform a research for a company for my master thesis this year, since this type of research is mostly accompanied by an internship of 4 to 5 working days a week.

Fortunately I became aware of the research project for Energy Delta Institute through the email listing of the Wetenschapswinkel of the Faculty of Management and Organization and Economics. I was very pleased, and still am, that they allowed me to perform the market research for Energy Delta Institute in North Africa, the Middle East and South-east Asia for them. I was also pleased that Energy Delta Institute allowed me to work at their office a few days a week on a flexible basis. For me this was the best possible option. In this way I could combine my tasks for UniPartners and still perform a research for a company, which I preferred to do after all. During my working days at Energy Delta Institute I was able to meet some interesting people who introduced me into the world of gas. Although this topic attracted me already from the beginning, it attracted me even more as the research project developed. Therefore I am very thankful that EDI allows me to support its marketing department for the coming half year on a part-time basis.

At this point I would like to pay special thanks to the people who supported me during my master thesis research. First my thanks go to my two supervisors, Mr. Wortmann and Mr.

Karsten who provided me with their critical feedback. Also I would like to thank Frans Sijtsma from the Wetenschapswinkel for his support and advice. Furthermore I would like to thank the employees at EDI, especially Evanya Breuer, Rob van Dorssen, Rob Badoux, Volko de Jong and Erik Noordijk for their information and comments. Last, but certainly not least, I thank my boyfriend, parents and friends for their support and understanding at times that deadlines came closer.

Marika Stegmeijer

Groningen, August 2005

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Introduction

It seems that in the coming thirty years gas will become the most important energy source worldwide. Factors that support the role of gas are the progress of liberalisation on the world’s gas markets, the development of technology, the changing views of Liquefied Natural Gas (LNG) investments and the economic and environmental superiority of natural gas in meeting the requirements of the answer to growing environmental concerns (WEC, 2004). With respect to these factors it is only obvious that gas has become an important political issue and that people that deal with gas issues have to be informed properly. Especially gas companies and their employees need to acquire new knowledge that is essential for the survival of their organizations in today’s highly competitive and rapidly changing gas environment. Energy Delta Institute (EDI) attempts to fill this knowledge gap. The specific purpose of EDI is to create an independent (top-) educational institute and research centre for the international gas world, that exports the knowledge of the North of the Netherlands to countries who are developing a gas infrastructure (Subsidieaanvraag, 2003). EDI’s aim with its educational program and research activities is to deal with all relevant aspects of the gas value chain that could be of interest for gas companies or companies that have to deal with gas market issues.

EDI has officially been founded in 2003 as a non-profit organization that is supported by

government subsidy until July 2008. It started as a company with five employees and one

course and has gradually been growing ever since. At the end of this year, it will be decided

how EDI will continue to exist. Consequently this year is very important for EDI, since

current decisions and success will affect its near future existence. Currently EDI still attracts

most of its course participants from Gasunie and Gazprom or from companies that are related

to these two companies. Through this network it can gain more participants for the future as

well, but it also wants to attract participants from other countries as is explained in its Annual

Report 2005. More international course participants would also be more interesting for

Russian and Dutch course participants. EDI also wants to attract more strategic partners for its

organization. However it lacks the necessary insights into its potential customers’ needs and

expectations. Therefore it decided to gain more information about its potential market and

customers through market research. For this reason it approached the faculty of Management

and Organisation and the faculty of Economics of the State University of Groningen. It

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divided the project in three parts: a research project about the European region, a research project about the North African, Middle Eastern and South-east Asian regions and a competitor analysis. This research forms one of the three parts and investigates the gas market in North Africa, the Middle East and South-east Asia.

Although EDI’s first intention with the research project was to investigate what its potential customers’ needs and expectations are in the regions mentioned above, it became clear early on in the research process that it was more its strategic focus that it needed to gain knowledge of. Therefore this research intends to provide EDI with advice about the focus it should have in these three regions when considering to approach them with its marketing efforts. It investigates variables that are comparable at country level. Another research will be necessary to provide insights into the exact needs and expectations of EDI’s potential customers in these regions.

In the field of international marketing, and more specifically in the resource advantage theory, it is emphasized that a company should first look at its internal capabilities before it attempts to internationalize its business operations. Furthermore its choice of internationalization should be dependent of the capabilities in which is it comparatively good to serve the markets with. With respect to this, this research attempts to determine the attractiveness of the countries included in this research based on EDI’s own capabilities. Like Kotler and Fox (1985) explain: once the environment-analysis, resource-analysis, and goal formulation steps are completed, the institution has the necessary framework for developing a marketing strategy.

The structure of this research is therefore the following. The thesis starts by outlining EDI’s organization, its activities, why it was founded and who its stakeholders are. In chapter 2 the methodology that was used in performing this research is outlined as well as its limitations.

Chapter 3 discusses the theoretical framework in which this research should be interpreted.

Thereafter chapter 4 looks at EDI’s capabilities based on an internal analysis. This chapter forms the input of the next chapter in which the attractiveness of the 35 countries that are included in this research is assessed. The thesis ends with an answer to the research question

‘How attractive are the by EDI determined countries in North Africa, the Middle East and

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South-east Asia, in terms of these countries´ specific characteristics, and with respect to

EDI´s needs and constraints?’ and some recommendations for future research.

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Chapter 1 The Company

In this first chapter the company for which the research is carried out will be introduced.

Therefore first an overall company description will be given. After this the company’s foundation will be explained. It is important to highlight this aspect of the company at this point in time, because the company is established only a few years ago and this determines many of its actions today. Next to this, the company’s stakeholders are discussed, as they also influence many of the company’s actions. The chapter ends by describing the company’s activities and explaining its organizational structure.

1.1 Company description

Energy Delta Institute (EDI) is an International Business School & Research Centre for Natural Gas. EDI was set up in 2001 and its main goal is to support organizations over the whole world, in order to obtain knowledge and skills for the development of an economic viable gas market and a sustainable gas industry, through an international network of knowledge institutions. EDI therefore performs research and provides training, particularly focused on economical, managerial and (geo)political issues that are relevant for gas people and organisations. As a guideline for its organization, EDI’s has formulated the following mission and vision

¹

:

Mission: ‘To support organizations around the world to obtain knowledge and skills for the development of an economic viable gas market and a sustainable gas industry through an international network of knowledge institutions.’

Vision: ‘To be an internationally acknowledged business school and research centre for the gas business by the year 2010’.

Thus, with their Business School for the gas world, EDI wants to become a hub in an international gas knowledge network. With all its (new) operations EDI’s focus will stay on

1 This information is obtained from interviews with the Managing Director of EDI, Mr. V. de Jong and the Marketing Manager of EDI, Mr. R. van Dorssen. Also EDI’s Business Plan and the information that is available on EDI’s website: www.energydelta.nl is used.

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the gas value chain. In order to achieve all this, EDI co-operates with companies that operate in the gas business and knowledge institutions.

1.2 EDI’s foundation

The initiative to create the international gas business school was taken by Gasunie, the largest midstream/downstream gas company in the Netherlands. Gasunie had several reasons for this.

First, Gasunie was very aware of the fact that gas has a vital role to play in the energy mix and in providing energy supply/security in the more long-term perspective (see introduction). Next to this Gasunie knew that there were gas educational institutes in several (European) countries, but not in the Netherlands. Gasunie saw an opportunity in this, because it believed that in the Netherlands and especially within Gasunie, a lot of gas knowledge is available which could be of great value to other (emerging) gas countries and companies that have a gas component. Founding a gas business school in Groningen, the Netherlands, consequently seemed a rather plausible idea. However, Gasunie lacked the experience in providing academic educational programs; therefore it approached the State University of Groningen (RuG). These two institutions were already working together on several other projects. Based on their long-term relationship and distinctive proven qualities, they together founded Energy Delta Institute.

Another important party can also be seen as one of the founding fathers of EDI. At the same time namely that Gasunie was unfolding a business plan for their Gasunie University, they also were negotiating with Gazprom, the world’s second largest gas exporter/producer.

Discussions about the delivery of Russian gas to the Netherlands between the two parties were

already taking place since the mid-nineties. Gazprom and Gasunie had agreed that the pipeline

from the vast gas reservoirs in Siberia to the market of the Netherlands and the rest of North-

West Europe should not only be used for the transportation of natural gas, but also to develop

a platform for exchange and sharing of knowledge between the two companies and countries

(http://www.gazprom.com/eng/articles/article15087.shtml, Accessed 2 May 2005). This

initiative was also considered to be of great importance by the Dutch government, represented

by the Vice Prime Minister and the Minister of Economic Affairs of the Netherlands, as well

as the Russian government represented by the Russian Minister of Energy. The two countries

agreed to stimulate the exchange of and sharing of (gas)knowledge. With these facts in mind

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Gasunie introduced Gazprom into their plans to start an international gas business school.

Gazprom responded positive to this idea, because they were interested in gaining more knowledge about the western way to conduct business. They also figured that the more general type of education that is usually provided in the Netherlands could complement the Russian type of education, which is mainly very specific. For Gasunie it was very important that Gazprom would also be involved in the international business school. Mostly of course, because of the extensive network that it has; Gazprom is the world’s largest gas company and the major gas producer in Russia. It supplies a large amount of Western Europe’s gas requirement (http://www.gazprom.com/eng/articles/article8511.shtml, Accessed 2 May 2005).

After an agreement was reached, the first course could take place in September 2002; the Natural Gas Strategic Course.

1.3 Stakeholders

Next to its main stakeholders Gasunie, Gazprom and RuG, EDI’s stakeholders can be found in the company’s broader environment as will become clear in the following part.

EDI is part of Energy Valley, which is an initiative of governments, institutions and

businesses who want to develop the existing energy activities in the North of the Netherlands

into a cluster of national and international meaning. Sustainable energy, knowledge and

expansion of business activities form the three main pillars in this initiative. With its

knowledge centre EDI contributes to the knowledge pillar of Energy Valley. Also in line with

the goals of Energy Valley, EDI was founded in order to stimulate the economic activities in

the North, more specifically around the Groningen (gas) Field. By doing this it should

economically open up the unique knowledge that is present in the North of the Netherlands

for the international market. The expected effects of this are that the North of the Netherlands

will be positioned as a unique natural gas knowledge centre, that the knowledge of the gas

value chain in a liberalising market will be secured, and also that name recognition of

Groningen in the international gas world will be achieved. Furthermore EDI’s existence is

expected to result in an increase of employment in the North of the Netherlands and it will

create a better business and knowledge climate. Currently there are also plans to create an

Energy Delta Group of which EDI will be a part. This Energy Delta Group is supposed to

become a technological top-institute for energy (interview Rob Badoux).

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Next to roles mentioned, EDI also functions as a communication and networking tool for the Netherlands and more specifically for Gasunie in order to assist and provide for gas supply to the Netherlands in the near future. In this way the Dutch policy to avoid exploiting the gas reserves of the Netherlands too much in the near future, will be more secured.

1.4 The company’s activities

As already indicated earlier, EDI is situated on top of Western Europe’s biggest gas reservoir.

The Netherlands has knowledge in exploiting this reservoir for more than forty years. These facts create an environment in which knowledge is visible and in which knowledge has developed into a valuable asset over time. EDI exploits this, by offering knowledge to gas companies or companies that have to deal with gas market issues in this setting about issues that are important in the natural gas value chain. The knowledge is provided in two ways;

carrying out gas research and providing education about gas (management) issues. The latter one will be explained further since this is the focus of this research.

EDI’s educational program contains several different components. In 2006 international clients can take part in two master programs; the Master of Gas Business Management and the Master of Petroleum Business Engineering, which together cover all parts of the whole gas value chain. Also six short track courses are offered, that cover different aspects and issues that are related to the gas value chain. Next to the established courses, EDI also offers in- company training.

To make things clear, the following four parts are meant with the ‘whole value chain’ by EDI:

exploration, production, transportation and consumption (Business Plan, 2003). Exploration is

the first part of the value chain and contains the search for new gas reserves. The second part

of the value chain is covered by production; this will happen if the gas reserves are indeed

suitable for production. Both former parts are related to the upstream side of the gas value

chain. The next step in the chain is distribution/transportation (midstream). The gas is

transported through the transportation network to the end-users. This transport network also

takes care of the quality of the gas that the end-user receives. The last part of the chain is the

consumption of gas (downstream). Gas is, among other things, used in industrial processes,

horticulture, electricity works and home heating.

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1.5 Organisational chart

As explained earlier, EDI operates under the influence of its three main stakeholders; Gasunie, Gazprom and the State University of Groningen. This influence is reflected in the company’s organizational chart, see figure 1.1

²

.

Figure 1.1 Organizational chart

Source: EDI

2 At the beginning of this research, this was EDI´s chart. Currently it has changed, because Rob Badoux and Annemieke Nieborg are not working anymore at EDI. However, for the purpose of this research, this chart will be used as it is only meant as an indication of the organisational structure. Also it is not clear yet who will take over Rob Badoux´s place.

International Supervisory Board

H. Dijkgraaf (Gasunie) K. Stigter (Shell) S. Kuipers (RuG) B. Ushakov (Gazprom) B. Kuzmin (Gazprom) M. Kramer (Gasunie) (V. de Jong)

(R. van Dorssen)

Board E. Dam (Gasunie) K. Vermeulen (Gasunie)

A.J. Postma (AOG) T. Wansbeek (RuG)

Programme Council

T. Ebels (Gasunie) C. Pisuisse (Gasunie) Dr. W. Groenendijk (NAM) Prof. C. van der Linde (CIEP) Prof. L. Karsten (RuG) Prof. C. Jepma (RuG) Prof. A. Schoot Uiterkamp (RuG)

Dr. L. Florusse (Essent) (R. Badoux (EDI)) Managing Director

Volko de Jong (AOG) B2B, Relations, Strategic

Partners Office support: Gatha Barghorn

Rob Badoux (Gasunie) Director Education and

Research Knowledge partners

Rob van Dorssen (Gasunie) Marketing Manager Accountmanagement

Relations

Erik Noordijk (AOG) Programme

Manager Wim Mallon

(Gasunie) Research Manager

Ruud Weijermans (TU Delft) Programme Director

Pieternel Overmars Communications & PR

Evanya Breuer Marketing

Mariella van der Net Project Manager Master program

modules

Marike Bakker Project Manager

MPBE Meike Biesma

Project Manager Short-track

courses

Annemieke Nieborg Commercial

employee

Ryco Buffinga Commercial employee

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Chapter 2 Methodology

2.1 Management Problem

At the end of this year, it will be decided in what way EDI will continue to exist and consequently, how the organization should look like in financial and organizational terms.

Consequently this year is very important for EDI, since current decisions and success will affect its near future existence. EDI now depends for a great deal on its founding fathers. For instance, although EDI receives subsidy money until July 2008, it is dependent on Gasunie money and (human) resources

³

. For its course participants EDI also mainly depends on Gasunie and Gazprom and those companies´ networks. EDI has the intention to attract more course participants from different companies and especially different countries, since this will enhance the quality and appeal of the courses. By doing this, EDI will also reduce its dependence on Gasunie and Gazprom. Thus, from the previous part follows that EDI wants to attract other companies from different countries for its organization and its activities.

EDI’s market strategy has until now mostly been based on ad hoc decision making. In order to generate more course participants in the first place and find interesting strategic partners in the second place, EDI has to know more about the world’s gas market, since this is its potential market in first instance. Because the world is an extremely large potential market, EDI has performed an quick scan together with a consultant, Jan Beijering, in order to assess interesting gas market regions EDI should focus on. This consultant has been around in the company for a while, and together with him EDI has identified Europe, North Africa, the Middle East and South-east Asia as potentially interesting countries to focus on first. EDI currently has limited insight into the knowledge and research needs of the gas markets of these regions and the priorities for this for the different countries.

Two other researches have also been carried out earlier for EDI; a strategic positioning research with a focus on EDI’s products (Bakker et. all, 2004) and a research for the strategic positioning of Energy Valley (Arentsen and Wolters, 2003). Although these researches did not

3 There is justified believe that Gasunie will continue to support EDI in the (near) future, see also chapter 4.

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in the first place look at the regions described above, they did indicate that there is clearly a need at EDI for a more extensive market research in order to assess what its focus should be.

EDI approached, for the reasons mentioned above, the faculty of Management and Organisation and the faculty of Economics of the University of Groningen to perform a more extensive market research. It divided the project in three parts: a research project about the European region, a research project about the North African, Middle Eastern and South-east Asian regions and a competitor analysis. This research forms one of the three parts and investigates the gas market in North Africa, the Middle East and South-east Asia.

From the preceding part follows EDI’s management’s question: ‘Which of the countries that EDI has identified in North Africa, the Middle East and South-east Asia are interesting for EDI to focus on in the (near) future with its marketing strategy for its educational program?´

2.2 Research question

The research question that is derived from the management’s question is: ‘How attractive are the by EDI determined countries in North Africa, the Middle East and South-east Asia, in terms of these countries´ specific characteristics, and with respect to EDI´s needs and constraints?’

2.3 Research objective

The objective of this research is to provide EDI with sufficient knowledge about the gas market in the determined countries in North Africa, the Middle East and South-east Asia. This should be done in a way that EDI will be able to make a well-founded decision about its marketing department’s focus in these regions. The focus in the first place depends on the likelihood of finding companies in the determined countries that will participate in its educational program about gas value chain topics.

2.4 Operationalizations

According to Gill and Johnson (2002), you have to create rules for making observations in

order to make a clear definition of what you want to observe in your research. These rules can

be viewed as indicators or measures and they represent empirically observable instances or

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occurrences of the concepts that are being investigated. Especially for this research, that contains the analysis of 35 countries in a relatively short time, it is very important to set clear boundaries about the scope of the research. Therefore I will use the following operationalizations for this research:

- Attractive: a country is perceived to be attractive if it offers possibilities for EDI’s marketing department to focus on.

- (Specific) characteristics of the countries: these are the variables that determine the attractiveness of a country market. These variables are explained further in the conceptual model.

- Companies: these are companies that operate in the gas value chain or companies that have to deal with issues that are related to the gas value chain. This restriction in focus of companies is based on EDI’s knowledge which is focussed and restricted to the gas value chain.

- Determined countries in North Africa, the Middle East and South-east Asia

⁴

: these are the countries that EDI has proposed to be investigated in this research based on the earlier performed quick scan. These are for North Africa (6): Algeria, Egypt, Tunisia, Libya, Morocco, Nigeria. For South-East Asia these are (9): Indonesia, the Philippines, Thailand, Malaysia, Vietnam, India, Japan, North Korea, South Korea and for the Middle East these are (20): Afghanistan, Armenia, Azerbaijan, Bahrain, Georgia, Iran, Iraq, Israel, Jordan, Kazakhstan, Kuwait, Lebanon, Oman, Pakistan, Qatar, Saudi Arabia, Turkmenistan, United Arab Emirates, Uzbekistan, Yemen.

- Educational program: this refers to the different educational components that EDI has to offer to its customers, these are the two master programs, the short-track courses, and the in-company training.

- Focus: EDI’s marketing focus refers to the countries which should be the first countries that EDI will approach with its marketing efforts.

- Future: this refers to a time elapse of a year or more.

- Interesting: see definition of attractive.

- Market: A country is perceived to be one single market. Therefore the word

‘market’ refers to a country.

4 China has also been identified as an interesting gas country. It is not discussed in this research, because another researcher at EDI is currently investigating this market.

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- Marketing strategy: this is the choice of EDI for the way in which EDI wishes to compete on the distinguished markets with its current products. Parts of this are EDI’s strategic positioning, its marketing mix and time planning. This research deals mostly with the latter aspect of EDI´s marketing strategy.

- Needs and constraints: This refers to EDI’s capabilities based on its strengths and weaknesses.

- Sufficient knowledge: the information provided by this research, should give an idea about what EDI’s focus should be concerning the countries that are included in this research. Based on this EDI should be able to adjust its marketing planning accordingly.

2.5 Subquestions

In order to give a complete answer to the research question and therefore provide EDI with sufficient knowledge about their potential markets, several investigate questions have been formulated. These questions are categorised into the three chapters in which they are answered, and they correspond to the different phases that are indicated in the conceptual model. The investigate questions are as follows:

Chapter 4 Internal analysis

- What are EDI’s capabilities based on:

o

its corporate policy;

o

its corporate strategy;

o

its management system;

o

and its operations?

- What are its subsequent strengths and weaknesses?

- Which criteria are important for EDI, based on the internal analysis, for a market assessment?

Chapter 5 Market assessment

- How does the gas market in the different countries look like?

- What are the other distinguishing characteristics of the different countries?

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Chapter 6 Conclusion

- Which country markets are potentially interesting for EDI to focus on?

2.6 Conceptual model

Since EDI’s marketing department wants to determine what its future strategy should be, it is looking for new market potential. It therefore decided to perform a market research in 35 countries in North Africa, the Middle East and South-east Asia. The attractiveness of the 35 country markets is dependent on EDI’s capabilities that consist of its corporate policy, corporate strategy, management systems and operations. Based on its capabilities it will find that some countries will be more attractive than other countries. This relationship has been indicated in figure 2.1. This figure also indicates the factors that determine the countries’

attractiveness based on EDI’s capabilities. The outcome of the market attractiveness

assessment determines the potential the 35 countries can offer EDI. This information about

market potential is therefore an input for the formulation of EDI’s marketing strategy. EDI

indicated that their market strategy contains for main aspects, which are: growth strategy,

target group, market positioning and product positioning. This research especially contributes

to the former two aspects. Based on the information provided by this research, EDI’s

marketing department will be able to make a decision about the focus it should have with

respect to the countries that are included in this research. This focus will affect its marketing

planning.

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Figure 2.1 Conceptual model

2.7 Data

As will have become clear from the preceding part, this research will take place at macro level. This has consequences for the data that can and should be used for this research. Samli, Wills and Jacobs (1993) point out that deductive reasoning precedes inductive research. By

EDI’s Marketing Strategy for its Educational Program

EDI’s Capabilities - Corporate Policy - Corporate Strategy - Management Systems - Operations

Market attractiveness

Market potential Gas market

- current reserves - production and growth - consumption and growth - imports

- part of total energy share

General country characteristics - geographic proximity - political and legal system - cultural and social influences - level of economic development - co-operative agreements Growth strategy/

Target Group

Focus

Planning

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this they mean that you first have to prioritise exceptions to general rules and try to bring a tremendous amount of detail early on into a model, in order to establish rules and to develop deductive reasoning. This is so, because deductive reasoning means ‘from general to general or from general to specific, but not from specific to general, detail must follow along with inductive reasoning after deductions are successfully developed’ (1993: 83). In line with Samli, Wills and Jacobs reasoning, the data that will be used for the market assessment part of this research will be secondary, mostly quantitative, data. This data is said to be most valuable when assessing the attractiveness of markets about which relatively little is known. Further if quantitative data is used, it is easier to compare variables and subsequently countries with each other. Also by using secondary data a rough evaluation of the risk and the probable returns associated with operating in a specific market will be possible (Mühlbacher, Dahringer and Leihs, 1999). The secondary data that was used in this research was selected on three main criteria. First, it should be as recent as possible, especially with respect to the information about the gas market in the different countries since this data can change considerably in a few years time. Secondly, the data should be available for as many countries as possible in order to assure a complete comparison. Another implication of this is that the same source and data from the same year should be used for one variable in order to enhance the quality of the comparison. Since it was hard to find data for some of the countries that are included in this research, it could not be avoided that for some variables that are investigated data is missing. Finally, data was used from sources that are perceived to be reliable

⁵

. By using this data the quality of conclusions that are based on this research could be enhanced. It turned out often that available data was based on estimates, since other data was not available.

For the internal analysis primary and secondary data was used. In the case of primary data interviews were held with different employees at EDI. Secondary data was collected by including existing documentation about EDI in this research

⁶

. By combining these two types of data an overall analysis could be made in which EDI’s intentions could be reflected on its actual operations.

5 Reliable sources in this case are institutions like UNESCO, the IMF, the World Bank, the CIA, the Dutch Ministry of Foreign Affairs, the European Union and so on.

6 Existing documentation is for instance its Business Plan, Annual Report and its Subsidy request.

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2.8 Limitations

For this research there are some limitations that need to be taken into account:

- Due to time, financial and accessibility restrictions none of the markets mentioned above will be visited in person;

- This research will not deal with competitor issues, because another student is performing a competitor analysis for EDI. This means that no complete market analysis is provided in this research, since a complete market assessment would also include a competitor analysis. The results of this research should therefore be interpreted together with the results of the competitor analysis.

- This research is performed based on the 35 countries that EDI has determined with its quick scan. A presumption has been made that the countries that EDI has determined are the most interesting countries for the three regions. This research does not attempt to assess other countries in the three regions than those that were determined by EDI. Consequently no absolute conclusions about these three regions potential can be made based on this research.

- The assessment of the attractiveness of the country’s included in this research is therefore only based on attractiveness compared to each other, i.e. the other 34 countries included in this research. It does not specifically aim to determine a country’s attractiveness in terms of world comparisons. Therefore no conclusions can be made about the country’s attractiveness in terms of the whole world.

- The conclusions that are made in this research are only valid based on the factors that are included in this research. Due to time and financial restrictions concessions had to be made in data collection

⁷

.

7 For example some sources could not be accessed, because they required a membership or otherwise a considerable high amount of money had to be paid in order to get access to the data. This was not possible for this research.

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Chapter 3 Literature review

In order to provide more clarity and build a solid foundation on which the results of this research in the end will be evaluated on, this chapter intends to cover the, for this research, most relevant literature that is used in the international marketing field. This chapter can therefore be seen as a literature framework in which the following chapters of the research should be interpreted. Therefore the issues that a research in the field of international marketing has to deal with, especially in the case of service firms, are broadly discussed in section 3.1. The following section outlines the current state of the most relevant international marketing theory for the purpose of this research. After that the need, benefits and most important reasons for performing an internal analysis will become clear in section 3.3. Finally section 3.4 discusses the variables that should be taken into account when assessing a country’s market attractiveness.

3.1 Problems for research about international marketing and service firms

Jain (2003) indicates in his book, that covers past reviews in the field of international marketing,

that this area of business research in general has to deal with two major deficiencies. The first

deficiency is that international marketing research is used to be fragmentary and exploratory

without a strong theoretical framework. This deficiency can be attributed to the opportunistic

nature (Albaum and Peterson, 1984) and lack of synthesis (Bradley, 1987) of international

marketing research. The second deficiency he indicated is that it also lacked the

methodological rigor compared to the generic (or domestic) research in marketing. This can

be attributed to difficulties as financial constraints in data collection, problems of data

comparability in cross-cultural research and the implementation of methodological techniques

in foreign markets. These difficulties were encountered in research involving more than one

country (Aulakh and Kotabe 1993). In order to assure the quality of this research and by

trying to avoid to have these same deficiencies in this research, the deficiencies that have just

been described have been taken into account in this research. Therefore a theoretical

framework will be provided in this chapter that is based on the methodology that has been

developed in chapter 2. At the end of this chapter it should become clear in which theoretical

perspective the results and intentions of this research should be interpretated.

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Besides general problems in the field of international marketing, the service sector has also specific problems which should be taken into account when performing an analysis that has to deal with this sector. Within the field of service firms there are two different types of services.

On the one hand there are the products that are accompanied by a service part and on the other hand you have the services that are the core product by itself. EDI’s service is of the latter type. Holmlund (2000) provides a definition of services that can be classified in the latter category. He citates Grönroos (1990) who proposes the following definition: ‘A service is an activity or series of activities of more or less intangible nature that normally, but not necessarily, take place in interactions between the customer and service employees and/or physical resources or goods and/or systems of the service providers, which are provided as solutions to customer problems’. Holmlund indicates that, although there does not seem to be

an universally accepted definition of service, researchers do seem to agree about the characteristics of services, which in turn are often compared to those of goods. Often cited characteristics of services are: intangibility, heterogeneity, perishability, and inseperability.

Intangibility means that the product’s source of core benefit is intangible. Heterogeneity implies that the product itself is dependent on the buyer, the provider and the situation. These factors may differ from each service delivered, therefore the service will never be exactly the same. Perishability means that the consumer cannot save the product unless it is consumed when it is offered. Inseperability finally means that to some extent the product needs to be consumed and produced simultaneously. These characteristics of services cause that specific problems may be encountered for service firms that are different from those problems encountered by firms that produce for instance manufacturing goods.

Further, as an increasing number of services companies offer services in foreign markets, important questions are also being raised concerning the internationalization of services.

Nevertheless research on internationalization of services has been more limited than for

manufactured goods (e.g. Lovelock 1999, Grönroos 1990). Furthermore, the majority of

articles published in the last two decades of the 20

^th

century have emphasized narrowly

defined issues, industries (e.g. advertising, insurance), or locations (Knight, 1999). In fact,

theory for international services lags practice by considerable degree (Clark and Rajaratnam,

1999). This fact has been taken into account for this research. The literature framework that is

further provided in the next part of this chapter can therefore only be partly based on literature

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that deals purely with service firms. For the most part literature had to be used which deals with the internationalization process of companies that manufacture pure goods.

3.2 International marketing theory

In the international marketing field there are several theories which all explain a part or parts of a firm’s potential international marketing activities. Based on the information provided by EDI, some of these theories seem to be more relevant for EDI than the other theories. Also the nature of service firms causes that some theories in the international marketing field are less relevant for EDI. Considering its intentions with this research (see chapter 2), it seems plausible to look especially at the resource advantage theory. This does, however, not imply that the other theories are not relevant for EDI either, but considering the subject of this research, i.e. market assessment, they are less relevant to be discussed in this paper

⁸

.

According to Jain (2003) the Resource Advantage (RA) theory of competition is based on two premises. First firm resources are considered to be heterogeneous and imperfectly mobile.

Further, intra-industry demand is substantially heterogeneous, thereby resulting in diversity in firms’ sizes, scopes, and levels of profitability. A firm’s resources are financial, physical, legal, human, organizational, informational, and relational. Because firm resources are heterogeneous and relatively immobile, some firms have a comparative advantage, which then results in competitive advantage and superior financial performance. The RA theory, or the international trade theory of comparative advantage, is analogous to the organizational capability theory. Andersen (1997) indicates in this context that a firm will enter global markets under the assumption that it will be able to exploit and develop its comparative advantage, capabilities, and societal resources so that it in the end it has created a sustainable competitive advantage. The kind of resource that should be exploited in turn determines the type of foreign market entry. The previous discussion points out that the likelihood that a firm will generate profits in a foreign market depends on its choice of global markets. Further, this choice of markets should be based on a firm’s capabilities, which should be relatively good

8Jain (2003) has provided a review of the most important international marketing theories. He explains that although it is worthwhile to recognize that though each international marketing theory explains entry mode using different explanatory factors and behavioural assumptions, it is the collective, simultaneous consideration of all these factors that better explains the internationalization process and entry mode choice. This means that the resource advantage alone is not enough in order to assure a complementary spectrum of international marketing aspects. This theory will therefore be combined with other theories when necessary.

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compared to competitors. A firm’s capabilities are dependent on a firm’s resources. For EDI this means that it has to find markets, in which it will be able to use its resources in the most optimal way, in order to be successful.

3.3 Internal analysis

As has been explained in the previous section, different authors emphasize the importance for a company to look at its internal capabilities in order to increase its strategic success. For one part strategic success depends on the opportunities and threats the external environment in which the company operates has (Johnson and Scholes, 2002). For the other part success greatly depends on the capabilities the company has by itself. The strategic capability should enable a company to perform at the level that is required for success. Finding a match, or a fit, between a company’s internal strengths and the opportunities the environment has to offer, will increase the company’s strategic success. Also a company’s ability to exploit and develop its capacity in order to stay innovative is an outstanding requirement for strategic capability.

Companies that operate in a changing environment should possess the internal capability to deal with these changes, e.g. they should have a flexible production system. Strategy should therefore be developed in line with external opportunities and internal strengths.

Since EDI’s main strategy is to internationalize its business operations (see chapter 2), the success of EDI’s international marketing strategy depends for a great deal on EDI’s capability to internationalize its business operations. Several factors that determine this potential can be distinguished (see figure 3.1). According to Mühlbacher, Dahringer and Leihs (1999) an organization’s international marketing success depends first on the match between the company’s personnel and the expectations of customers and other important stakeholders in the market. The organization’s personnel should also be motivated to apply their skills internationally. This motivation to adjust to new markets and their macro-environments depends on the dominating values and social norms that form the firm’s corporate culture.

The organization’s personnel’s skills times their motivation to apply those skills in ways

desired by top management in turn determine an organization’s capabilities.

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Figure 3.1 General factors influencing a company’s potential for international marketing success

Source: Mühlbacher, Dahringer and Leihs, 1999: 304

Next to an organisation’s capabilities, the available resources determine its international marketing success as well. These resources include financial, technological, production, information and organisational elements. According to Kotler and Fox (1985) there are five major resources in an educational institution. These are: people, money, facilities, systems and market assets, e.g. its educational portfolio. In order to determine EDI’s strengths it should strive to identify its distinctive competencies, the resources and abilities it is especially strong in, and areas in which it can outperform its competitors, i.e. its differential advantage (Kotler and Fox, 1985). In order to assess a company’s potential for international marketing success, the described internal factors should be evaluated. By performing an internal analysis that will result in an overview of the company’s strengths and weaknesses, EDI’s potential for international marketing success will become clear. Hitt et al (2001) also explain that resources, capabilities, and core competencies are not inherently valuable; they have value only because they allow the firm to perform certain activities that result in a competitive advantage. To create a sustained competitive advantage, these activities must be unique (Hitt et al, 2001: 99). ‘Emphasizing core competencies when formulating strategies is how companies learn to compete primarily on the basis of firm-specific differences, rather than seeking competitive advantage solely on the basis of an industry’s structural characteristics’

(Hitt et al, 2001: 103). Contrary to what was emphasized for decades, it seems that an

Knowledge

Skills Motivation

Capabilities Activity

Company resources

Potential for international marketing success

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organization’s resources and capabilities, are as important or even more important than industry characteristics and competitive strategy in developing a competitive advantage for the 21

^st

- century competitive landscape. The difficulty of managerial decisions that concern resources, capabilities, and core competencies are characterised by three conditions:

uncertainty, complexity, and intra-organizational conflicts. Exercising judgement (by managers) can also be a competitive advantage. By exercising a judgement decision makers demonstrate a willingness to take intelligent risks in a timely manner.

The company should have company wide appreciation of the commitment the company is planning to make with its international strategy (Goodman, 1999). Further on, everyone in the company should be aware of the role he/she plays in the internationalization process. Also Mühlbacher et al (1999) indicate this in their model (see figure 3.1). Engaging people from the beginning in the internationalization strategy of a firm, causes that these people will feel that they have a personal stake in the (international) success of the company. Goodman (1999) proposes some characteristics of a company that should be reviewed when considering international expansion: company’s age and stability, the product base, domestic sales volume, company commitment (timelines), available resources (difference can and should), money and financing (credit risks), fit with overall strategy. According to Goodman a company should ask itself the question: ‘What kind of foreign partners do you want to attract and what kind of foreign partners will you be able to attract?’.

Mühlbacher et al (1999) provide a checklist of characteristics that should be taken into account when performing an internal analysis for a company that wants to operate in an international market. This checklist includes the following characteristics: corporate policy, corporate strategy, management systems and operations. All these characteristics should be analysed in order to have a clear idea of the internal organization of a company.

After going through the previous discussion, it seems clear that a company should look

carefully at its internal environment in order to determine its capabilities, or competitive

advantages, that will provide the company with a greater likelihood to be successful with its

intended international marketing activities. The most important aspects of a company’s

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internal environment are its resources, especially its human resources. This is even more true for service firms, the type of firm educational institutions can be classified as.

3.4 Market assessment

Although EDI has determined in an earlier research that all the 35 proposed countries are interesting or potentially interesting countries for the gas market, some country markets are more attractive to EDI than other country markets. To be able to decide which country markets EDI should focus on, a comparison has to be made between the capabilities and resources a firm needs to have in certain country markets to be successful and the extent in which the company possesses those capabilities and resources (Jain, 2003). Therefore before EDI will enter certain markets it is necessary to determine which markets are most attractive to them in terms of its own capabilities. As was explained in the previous section, an internal analysis will provide the necessary insight into EDI’s capabilities. The next part has to provide more insight into the market itself. Several authors and their views about the criteria for performing a market assessment are therefore discussed. The section will end with a recommendation for the desired market assessment criteria for this research.

Kotler and Fox (1985) make clear that an educational institution’s market broadly consist of students, alumni, donors and people the institution hopes to add to those categories. These groups differ in age, income, preferences, academic ability, geographical location, and other characteristics. Different variables can therefore be used in order to segment the market, which results in suggestions for the institution to implement its marketing activities. This segmentation is based on the fact that consumer preferences are often clustered. However, there is not one correct way to segment a market. Market segmentation is derived by using different variables independently and in combination with other variables. This is done in order to assess which suggest the most useful marketing opportunities. Consequently, the choice of segmentation variables will depend on the problem the institution seeks to clarify.

Kotler and Fox (1985) distinguish four major types of market segmentation that can provide

an institution with more clarity; geographical segmentation, demographic segmentation,

psychographic segmentation and behavioral segmentation.

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Lasserre (2003) also discusses ways to segment markets into attractive and less attractive markets. He says that a country’s attractiveness can be determined by looking at the function of the market prospects, the competitive context and the risk of operating in a country. Two main issues are relevant for companies in this case. At first a company should determine if the markets and the competitive conditions in a particular country are such that given a set of competitive advantages, the business is likely to generate a return equal to or higher than the cost of capital. Further the company should have an idea about the risks of operating in this country. These risks should be acceptable for the shareholders and employees. Two dimensions come out of these two questions: market and industry opportunities on the one hand and country risks on the other. A country’s attractiveness should first be evaluated in absolute terms. In this way it will become clear if the country presents minimum characteristics of opportunities and risks, and then it its generally compared with other countries having similar features. In general a country is perceived to be attractive if it has high market and competitive opportunities and low risks. Assessing a market’s opportunities involves measuring the potential demand in the country for products and services of the firm, its market size, market growth, and the quality of demand. Indicators at macro level can be used to investigate the different country’s opportunities. Lasserre (2003) mentions four different macro economic indicators that can be used for this, these are; economic, sociological, demographical and institutional indicators. Next to an assessment of a country’s market opportunities an analysis of the industry opportunities provides insights in how easy it is to compete in the country, the quality of the competitive climate, the quality of the industry competitive structure, and the investment incentives granted by governments. An industry’s resource endowment, which consists of natural, human and infrastructure and supports industries resources, can also attract foreign investors. Finally, a market assessment has to include a country’s risk analysis which looks at political risks, economic risks, competitive risks and operational risks.

According to Mühlbacher, Dahringer and Leihs (1999) a market assessment procedure has its

foundation in a firm’s statement of corporate policy, because this explains the reason for the

firm’s existence. This corporate policy contains information about a company’s mission and

business philosophy. A company’s mission is the framework that guides the decisions and

actions of all the members of the firm. It therefore defines the organization’s business domain

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and the major objectives it hopes to achieve. Further on the corporate mission determines which product-markets will be served and which geographic markets are most attractive for an organization that wants to broaden its (international) market. A company’s business philosophy that contains values, norms and rules of behaviour, also points out which geographic markets should be avoided (Mühlbacher, Dahringer and Leihs, 1999) and this in turn will affect a company’s strategy. Figure 3.2 indicates the relationship between an organization’s corporate policy and the kind of markets that it will choose to operate in.

Mühlbacher, Dahringer and Leihs (1999) further indicate six main potential assessment criteria on which a market can be screened relatively quickly. These are geographic proximity, natural environment, political and legal systems, cultural and social influences, level of economic development and co-operative agreements.

Figure 3.2 Assessment of country-markets

Source: Mühlbacher, Dahringer and Leihs, 1999: 265 Corporate Policy

Assessment of Country-Markets

Most Attractive Country-Markets Potential Assessment Criteria

Choice of Assessment Criteria

Determinants of Attractive Country-Markets Market exclusion procedure

Future market attractiveness

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The first criterion evaluates the location of the country market in order to assess if country markets can be grouped together and if geographic distance can form a problem. By looking at a country’s natural environment, it should become clear what characteristics of the country’s environment are making the country interesting to invest in. One aspect of a country’s environment is its natural resources. The political and legal system give an idea about the business climate and the rules that govern the conduct of business in a certain country as well as the norms and standards that products and services have to fulfil. Host country risk and host government policy are important variables in this case. The cultural and social influences criterion looks at customer’s needs, tastes and expectations. Language is an example variable in this case. The level of economic development covers the assessment of course of economic variables, like purchasing power and GDP size. The last criterion, co- operative agreements, indicates that a country becomes more attractive if it has signed co- operative agreements with other countries.

The different authors that have been cited above all indicate more or less common features that an international market assessment or market segmentation analysis should have. The authors agree that it is important to look at economic indicators, social indicators, political and legal indicators and demographic indicators. More importantly the criteria that are used in a market assessment should provide more insight into market opportunities and country risks.

Most of the variables that have been discussed above should therefore be included in the market assessment analysis of this research. Mühlbacher et al (1999) provided the most complete range of market assessment criteria. Therefore their criteria will be used in this research as the major assessment criteria. These criteria will nevertheless be completed with the criteria that the other authors provided. This results in an assessment that first looks at a country’s geographic proximity, its natural resources, its political and legal system, its cultural and social influences, its level of economic development and finally its co-operative agreements. It has to be noted that in this market assessment a competitor analysis, that was especially emphasized by Lasserre in his discussion of industry opportunities, will not be included

⁹

. Therefore this research will not provide for market opportunities and risks that come out of a competitor analysis. These opportunities and risks should however be combined

9 As was indicated in chapter 2 this research does not deal with EDI’s competitive environment.

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with the overall market and country assessment’s opportunities and risks in order to derive at a complete market assessment.

3.5 Conclusion

The theoretical framework that has been developed in this chapter indicates that a market assessment for EDI should take place mainly in light with this company’s internal strengths.

The resource advantage theory explicitly states that this is a necessary requirement before a company will arrive at a competitive advantage for a certain market. A company’s internal strengths further become clear if an internal analysis is carried out. This analysis subsequently results in an advice about which markets are interesting for EDI based on their capabilities.

The chapter ended with providing potential assessment criteria for a market assessment. These potential assessment criteria should be combined with EDI’s internal strengths in order to arrive at the final choice of assessment criteria. During the market assessment procedure certain markets will be excluded from being potentially interesting countries for EDI to focus on. The analysis ends with an indication of the most attractive country markets for EDI to focus on, based on the used assessment criteria. The theoretical framework that guides this research process is consequently very much comparable to the market assessment procedure that has been described by Mühlbacher et al, see figure 3.2. This means that this chapter provided the potential market assessment criteria for this research, based on the advice given in the existing international marketing literature. These assessment criteria, combined with the recommendations given after the internal analysis has been performed (chapter 4) results in the final choice of assessment criteria. Finally, the most attractive markets can be selected based on the market exclusion procedure that chapter 5 provides for.

and South-East Asia