Master Thesis:
In the Light of Established EM MNCs: The Internationalization Strategies
of EM Small and Medium-Sized Companies
University of Groningen Faculty of Economics and Business
Philip Jürgensen S2996332
Supervisor: Dr. Hanieh Khodaei Co-assessor: P. J. Marques Morgado
2 Abstract
3 Table of Contents
1 Introduction ... 5
2 Literature ... 9
2.1 Emerging Market Multinational Companies ... 9
2.2 Emerging Market Small and Medium-Sized Companies ... 9
2.3 Internationalization Theories ... 10
2.3.1 The Uppsala Model ... 10
2.3.2 The Product Life Cycle Model ... 11
2.3.3 The Investment Development Path ... 11
2.3.4 The Springboard Perspective ... 11
3 Methodology ... 13
3.1 Data ... 13
3.2 Methodological Approach ... 15
4 Analysis ... 16
4.1 Within Case Analysis ... 16
4.1.1 Acer ... 16
4.1.2 Huawei ... 21
4.1.3 Lenovo ... 25
4.1.4 Emerging Market Small and Medium-Sized Companies ... 30
4.2 Cross Case Analysis ... 34
4.2.1 Size and International Spread ... 34
4.2.2 Motive and Timing ... 35
4.2.3 Entry Strategy ... 37
5 Proposition Development ... 40
6 Conclusion ... 42
7 References ... 45
4 Index of Tables and Figures
Figure 1: Acer‘s Self-Propagating Partnership Model ... 20
Figure 2: Acer’s Revenues ... 21
Figure 3: Lenovo’s Share Gains ... 28
Figure 4: Lenovo’s Shipments ... 28
Figure 5: Sanyu’s International Spread... 30
Table 1: Analysed Companies ... 14
Table 2: Indicators ... 15
Table 3: Acer’s Business Units ... 18
5
1
Introduction
Since the 1970s, in what we now call emerging markets, policy makers attracted mainly US, European and Japanese multinational companies (MNCs) through lowering tariff barriers and the permission of foreign investments. Following these policies many MNCs from the triad appeared in these newly established emerging markets. It was expected because of their financial resources, brand reputation and state-of-the-art technologies that these MNCs will sooner or later drive all local competitors out of the market. According to the research of Bhattacharya and Michael (2008) this scenario did not take place. They found that some domestic enterprises in these markets managed to challenge foreign MNCs in catching up with them or in some cases even became market leaders. Furthermore, Ghemawat and Hout (2008) argue that firms from these emerging markets started to build global leadership positions and the number of companies from emerging markets is increasing. In 2003, Forbes first released its list of the world's 2000 biggest enterprises and this list was dominated by companies from the triad. Until 2014, the composition of this list changed dramatically and 674 companies from Asia were now part of this elite group of MNCs (Frynas and Mellahi, 2015).
For instance, Acer can be seen as an example in this development: Acer was founded in 1976 in Taiwan and started as a contract manufacturer. Today, Acer is one of the major global brands in the PC business (Ghemawat and Hout, 2008; Acer, 2015). So there are local companies in emerging markets that managed to dominate foreign MNCs and managed it as well to challenge established MNCs on the global stage. As the number of companies from emerging markets making their way to the international market is rising, these successfully internationalized companies can serve as role models for younger small and medium-sized companies from emerging markets (EM SMCs). Therefore, it is interesting to know if these new players use similar approaches compared to the internationally already established emerging markets MNCs (EM MNCs). In other words: In the light of established EM MNCs: what are the internationalization strategies of EM SMCs?
6 can help to further develop the existing theories about MNCs and to offer some managerial implications for international executives from EM MNCs (Luo and Tung, 2007).
This is where this thesis contributes its part, by adding a new perspective to the picture of the internationalization strategies of EM SMCs from emerging markets by considering the internationalization strategies of EM MNCs as role models. Thereby, the strategies of EM MNCs as well as the initial strategies of EM SMCs will be compared and related to some classic internationalization theories as well as a recently EM MNCs customized theory in order to better determine their internationalization strategies. In doing so, the thesis especially tries to contrast two opposing theories. The Uppsala model which was originally developed to explain internationalization of MNCs from the triad in the 70's. The Springboard perspective which was developed more recently to explain the internationalization of today's EM MNCs. As neither the Uppsala Model nor the Springboard Perspective can fully explain the internationalization process, the thesis derives propositions which model might be more suitable. Furthermore, this thesis shows how these two opposing views combined can add new knowledge to the existing literature on internationalization strategies. These propositions can be used to further verify or falsify their accuracy to bring the research on internationalization strategies of EM MNCs (respectively EM SMCs) forward.
Furthermore, this thesis sheds new light on the one side what established companies on the global stage can expect from new players from emerging markets and on the other side to provide best practices for EM SMCs how to successfully approach their internationalization.
Research Questions
7 What are the general motivations for EM MNCs to internationalize? Do EM SMCs differ in their motivations?
Often, EM MNCs do not have the resources to compete with their global competitors, especially when their domestic market is under attack. To counter-attack their global rivals, they have to internationalize themselves to serve foreign markets which allows economies of scale and scope. In addition, internationalization enables them to overcome the threat of market saturation of their home market (Ding, Akoorie and Pavlovich, 2009; Luo and Tung, 2007; Teagarden and Cai, 2009; Wu, Hoon, and Zhu, 2011).
Becoming established in their home market also comes with gaining expertise how to achieve this in an emerging market context. Having that expertise, they can internationalize easier in other emerging markets and compete with their global competitors. As they often operate from a low-cost position, the price they are able to offer is usually more attractive than their competitor’s price (Luo and Tung, 2007; Rui and Yip, 2008).
The necessity to overcome the disadvantage of being a latecomer, is another motivation to internationalize. Even though EM MNCs have a competitive price for their products, they are confronted with lacking assets like branding, management skills, and technologies. By entering new markets, they can access these strategic assets (Ding, Akoorie and Pavlovich, 2009; Luo and Tung, 2007; Rui and Yip, 2008; Teagarden and Cai, 2009; Wu, Hoon, and Zhu, 2011).
How do EM MNCs catch up to overcome their disadvantage of being a latecomer? Do EM SMCs follow that example?
8 What can EM SMCs learn from the experience EM MNCs made?
9
2
Literature
As this thesis focuses on MNCs and SMCs from emerging markets and to which theory their internationalization strategies can be related, all terms are discussed in this section.
2.1 Emerging Market Multinational Companies
In this thesis EM MNCs are defined as international enterprises originating from emerging markets of China and Taiwan that engage in outward Foreign Direct Investment (FDI). They have control over and undertake value-adding activities in minimum one foreign market. Important to note is that companies from emerging markets that only engage in imports and exports or possess overseas minority joint ventures are excluded because they are not committed to outward FDI nor control these subunits. Moreover, companies that invest primarily or solely in so-called tax havens are excluded as well because they are not involved in value-adding activities. The last exclusion are state-owned companies because they often follow political goals and therefore do not compete in global markets. However, MNCs and their strategies from newly industrialized economies (NIE) are included as well because previous research (Yeung, 1997, 1998) has proven that strategies, motives, and processes of NIE MNCs are transferable to EM MNCs. As EM MNCs are far from homogeneous this thesis follows the typology of Luo and Tung (2007: 483) who came up with the term “world-stage aspirants“. These firms have a broad geographical diversification and are non-state-owned MNCs. Another possibility to categorize the EM MNCs of interest in this thesis is the term “multinational challenger“ by Tsai and Eisingerich (2010: 116). These firms possess surplus resources and are capable to withstand competition with MNCs from developed countries in global markets. Additionally, they are mainly involved in high-value-adding activities like branding and research and development (R&D). In order to use EM MNCs as a potential role model, the year of their foundation has to be before the foundation year of the EM SMCs. The year 1989 is set as the latest possible year of foundation for an EM MNC in this thesis.
2.2 Emerging Market Small and Medium-Sized Companies
10 construction firms are considered as SMCs (Hall, 2007). Nevertheless, to limit the number of firms of interest, they underlie some further requirements. They must originate from the emerging markets of China and Taiwan and do only occasionally engage in outward FDI. They mainly engage in imports and exports. Furthermore, they shall not appear on the list of 100 biggest brands in 2015 according to Interbrand. As there is hardly any data on these companies, they have to be an exhibitor on the Hannover Messe 2016 in order to reach them directly on the exhibition. To be able to use the EM MNCs as a role model, the EM SMCs have to be founded after the year 1990.
2.3 Internationalization Theories
In the literature about internationalization strategies are various attempts to describe the different ways to internationalize. Four of these theories are discussed in this section. Three of them can be categorized as classic old internationalization theories and one was more recently developed to especially explain the internationalization of EM MNCs.
2.3.1 The Uppsala Model
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2.3.2 The Product Life Cycle Model
Another model that is especially helpful to describe the internationalization behaviour of EM MNCs in less developed countries is the product life cycle model by Vernon (1966) (Sim and Pandian, 2003). According to this model, new products are first produced and introduced in developed countries or countries with higher income. But over time with standardization and the maturity of the product the production itself moves on to less developed countries due to lower labour costs. As some emerging markets are on the edge to become newly industrialized countries, or like South Korea which is already an NIE, this model can still be applied, even though it is an old model.
2.3.3 The Investment Development Path
As a third model the Investment Development Path (IDP) by Dunning (1981, 1986) complements the group of classical theories. This model relates a country's net outward investment to its phase of economic development. Thereby it distinguishes between five stages. Stage 1 refers to low levels of economic development and only little inward and outward investments. In stage 2 the country develops which leads to an increasing attractiveness for inward investments. Outward investments are still limited and only take place to neighbouring countries that are lower developed. While the economy develops further in stage 3, the inward investment decreases and the net outward investment increases compared to inward investments. Countries at lower IDP stages are mainly the recipients of these outward investments. The NIEs can be categorized to this stage. Stage 4 is characterized by a positive net outward investment and the production is multi-nationalized. Most developed countries can be assigned to this stage. Lastly, stage 5 describes a convergence between inward and outward investment flows. This is the outcome of a shift from benefits based on factor endowments towards benefits based on internalizing international markets. This model and the Product Life Cycle model help to put the different circumstances the EM MNCs were facing during their initial internationalization and today’s EM SMCs in a true perspective.
2.3.4 The Springboard Perspective
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3
Methodology
This is an exploratory study and therefore a case study approach will be adopted (Yin, 1994; Eisenhardt, 1989). Multiple data collection methods are combined in this thesis. This approach is best suitable for collecting data about EM MNCs that have internationalized their operations and EM DMCs that are on an early stage in their internationalization. In addition, this is an appropriate approach of research because the topic of internationalization strategies of EM MNCs still remains unclear in many cases. So, this topic can be seen as a new research area. Afterwards propositions can be shaped on the basis of the findings of this thesis. The focus is on Chinese and Taiwanese based companies because are increasingly engaging in outward FDIs (UNCTAD, 2014). Specifically, EM MNCs that already internationalized their operations and EM SMCs that are on an early stage of their internationalization. This analysis enables a comparison of the initial internationalization steps to determine whether today’s EM SMCs are taking similar measures to internationalize their operations. Or if they have learned from mistakes EM MNCs were making. How this is going to be analysed is explained in what follows.
3.1 Data
As the EM MNCs are already successfully internationalized and branded companies, there is sufficient data available about these companies. The younger EM SMCs on the other side did not attract much attention in the previous research. Therefore, the kind of data collection on these two types of companies are differing. Furthermore, as the electronics sector is one of the most internationalized sectors and has therefore a sufficient number of companies with international activities (Sim and Pandian, 2003), the focus will be on this sector.
EM MNCs
14 releases will be used as well as internet web sources and company listings to complement the data. To ensure validity, data from various sources help to cross check and verify the facts.
EM SMCs
The companies that fall into this category are CCM Automation Technology, Shanghai Sanyu Industry, and Quanzhou Machtric Automation Equipment from China and Chang Shuan Electronics and JAKI Enterprise from Taiwan. Even though these companies are not in the exact same sector as the EM MNCs, they can still be used. Before the EM MNCs finally found their niche they also started as manufacturer for various products. As there is not much secondary data available about these companies, primary data derived from interviews are used. Once a year the Hannover Messe, a leading trade fair for industrial technology (Hannover Messe, 2016), opens its gates to provide a platform for MNCs but also SMCs from around the world to present their products. This fair appeared to be an appropriate stage to conduct the interviews needed for this thesis. In order to conduct interviews with companies that follow the definition of EM SMC of this thesis, a selection of appropriate companies was chosen beforehand. This list consisted of 12 companies. These companies were directly approached during the fair and representatives of five companies agreed to participate in an interview. As this procedure was subject to time and resource constraints, all interviews were conducted by taking notes (interview guideline can be found in the appendix A). In order to ensure greater validity, information from the company websites of each interviewed company and the Hannover Messe website (Hannover Messe, 2016) were used to further verify and complement the data from the interviews.
Tab. 1: Analysed Companies
EM MNCs EM SMCs
China Huawei
Lenovo CCM Automation Technology Shanghai Sanyu Industry
Quanzhou Machtric Automation Equipment Taiwan Acer Chang Shuan Electronics
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3.2 Methodological Approach
In order to analyse the internationalization strategies of each single company an approach similar to the case study by Sim and Pandian (2003) will be undertaken. To get a structured overview of the various sources, all collected data were labelled. These labels are inspired by the indicators Sim and Pandian (2003) used to analyse the internationalization of EM MNCs (see Tab. 2, page 15). Through a within-case analysis, the data from all various sources are tabulated according to their label and company and analysed for each firm to determine their internationalization strategy.
Tab. 2: Indicators
Indicator Explanation, example Year of foundation --
Size Sales
Internationalization spread Asian region and/ or other overseas locations Timing Chronological order of established foreign locations Motive of
internationalization
Low-cost manufacturing, meeting local requirements, market factors, technology driven, etc.
Entry strategy Joint venture, wholly owned subsidiaries, etc. Future plans New markets, consolidating, innovation, etc.
Afterwards, to identify patterns in terms of similarities and differences between the strategies of EM MNCs and EM SMCs, an across-case analysis is applied (Miles and Huberman, 1994). This is done by contrasting the outcomes of EM MNCs and EM MSCs through tabular displays. Both groups are analysed according to the same indicators.
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4
Analysis
In this section, each company is going to be analysed according to the abovementioned indicators. First, a within case analysis will be conducted followed by a cross case analysis.
4.1 Within Case Analysis
The within case analysis helps to get an inside view of the internationalization strategy of each case firm.
4.1.1 Acer
Acer was founded in Taiwan in 1976 by the entrepreneur Stan Shih. Within the first ten years Acer established itself as one of the major high technology companies in Taiwan (Shih, 1996). They managed to build marketing channels and a branded business in Taiwan as well as implementing cost controls and operating standards. At this early stage the company was called Multitech and mainly acted as a contract R&D company applying their knowledge of microprocessors and providing this as a service to U.S. microprocessor firms. It took Acer several years to identify its business niche. Instead of working on its own proprietary architecture, like Apple and other US and Japanese firms were doing at that time, Acer decided to become a low-cost manufacturer for IBM-compatible computers under its own brand as well as under contract for other brands (Mathews, 2001). Since the first IBM-compatible computer was introduced into the Taiwanese market, Acer became the leading company in this particular industry in Taiwan (Chen, 1998).
17 Acer’s internationalization
Acer is a company of great interest when it comes to internationalization strategies because it has experimented with three different models within 15 years that can be classified in three consecutive stages. The focus for this thesis is only on the first two stages, as these describe the initial stages of internationalization, whereas the third stage focusses on consolidation.
Stage 1: The centralized model 1986-1991
Acer was already an internationalized company in 1986 as more than half of the revenue was generated outside Taiwan. But these earnings only came from exports. Acer’s founder had the vision of a completely internationalized company that operates in markets all around the globe, the so-called “Dragon Dream” was born (Mathews, 2001: 5). To achieve this, Acer’s initial step was guided by the superior examples of IBM, Hewlett-Packard (HP), and Compaq at that time. Therefore, they hired a CEO from IBM who brought this kind of ideology with him (Mathews, 2001). In 1987, Acer acquired US-based Counterpoint Computers Inc. (Bloomberg, 2016) which was operated as a subsidiary of Acer from then on. In the same year the name Acer was created (Acer Group, 2015). Three years later, in 1990, Acer acquired with Altos Peripherals a second US firm (White and Bruton, 2007). Because of these two acquisitions Acer became established in the PCs and mini-computers markets in the US.
In the same period, Acer expanded its marketing activities throughout the emerging markets in Latin America and Southeast Asia. In the early 1980s Acer was dealing with Printaform, a local Mexican distributor, which repackaged Acer’s PCs to sell them under their own channels and the Printaform brand. This changed in 1989 when a former manager from Printaform formed his own company. The new formed company Computec specialized exclusively in importing and selling Acer products and promoting the Acer brand (Mathews, 2002). A similar pattern can be observed in Southeast Asia, where Acer had worked together with the local Thai distributor Sahaviriya OA Group (SVOA) since the early 1980s. The partnership flourished so that Sahaviriya became Acer’s exclusive agent in Thailand to promote the Acer brand (Mathews, 2002).
18 were generated in Europe (Mathews, 2002). Especially Germany proved to be very successful, where Acer had a partnership with Cetec, from which they purchased 50% of the shares in 1989. While Acer Europe was performing well, the partnership entered with Mitsubishi in Japan did not develop as expected. Ten years after the partnership was established in the mid-1980s, Acer’s share of the PC market in Japan was still negligible (Mathews, 2002).
Furthermore, to extend their activities, Acer entered a joint venture with Texas Instruments in 1991 to boost the production of motherboards and memory chips (Taiwan Info, 1991). See appendix B for an overview of Acer’s external linkages.
This attack on a global scale came with enormous costs which stretched Acer’s financing to the limit when the revenues did not expand as expected. In addition, the acquisitions of the US firms proved to be mistakes and the expansion into new business lines ate up the cash flow for several years. By 1991, Acer was in a financial crisis, the centralized, breakneck speed model that had been tried, failed (Mathews, 2001).
Stage 2: The client server model 1991-1998
As the strategy of making acquisitions in the advanced markets of Europe and the US had failed, a different strategy was chosen to achieve market coverage in peripheral regions by Acer. A global group divided into several business units emerged. Responsibilities for production of PCs, or for sales in a certain region were assigned to a specific business unit (Mathews, 2001; Mathews, 2002). Furthermore, each of these units was responsible for their own profit and loss statements as well as expanding their business as fast as possible in their assigned region (see Tab. 3).
Tab. 3: Acer’s Business Units (adapted from Mathews, 2001)
Business unit Responsible markets
Acer Computec Latino America (ACLA) Latin America
Acer Computer International (ACI) Africa, India, Russia, the Middle East, Asia-Pacific
Acer America USA
Acer Europe Europe
Acer Peripherals Inc. (API); Acer Inc. Supplier for other business units
19 substantial autonomy and the different cells interacted through contracts rather than a central hierarchy.
The local distributor Computec in Mexico turned out to be one of these promising partners Acer was looking for. So Acer formed a joint venture with Computec taking a minority equity stake of 19% in 1992. The joint venture performed very well which led to a full 50:50 joint venture between Computec and Acer in 1994 named Acer Computec Latino America (ACLA). The initial step of ACLA was to take a small equity stake in another promising local distributor in Chile. This local partnership model prospered and resulted in initial joint ventures in other Latin American countries as well. Acer’s self-propagating partnership model emerged (see Fig. 1, page 20). By the end of the 1990s, Acer became market leader in this region, by growing into no. 1 brand in Mexico, Chile, Panama, and Uruguay, and the leading challenger in several other countries (Mathews, 2002).
The same strategy was applied in Southeast Asia, where Acer Computer International (ACI), based in Singapore, was formed in 1992 which had the responsibility for over 60 countries in Africa, India, Russia, the Middle East, and Asia-Pacific. In Thailand, for instance, where the relationship between Acer and SVOA performed very well, ACI and SVOA formed a joint venture in 1993 called SV-Acer Co. Ltd. (Acer: 49%; SVOA: 51%). Granting SVOA the controlling share was part of Acer’s strategy to show their partner that they are in charge of the venture and can act independently. The Acer-SVOA joint venture for its part formed joint ventures in Burma (Myanmar), Laos, Vietnam, and Cambodia (Mathews, 2002).
20 Fig. 1: Acer‘s Self-Propagating Partnership Model (adapted from Mathews, 2001)
Step 1: Firm A looks for new markets, forms links with many firms in various countries. Step 2: In country 2, firm A tests firms B, C, D. Step 3: Firm chooses firm C to form a joint venture in country 2. Step 4: Joint venture AC searches for new partners in countries 5, 6, 7. Step 5: Joint venture AC tests firms E, F, G in country 7. Step 6: Joint venture AC chooses firm F to form a joint venture ACF in country 7 and then searches for partners in neighbouring countries.
In Europe, the US, and Japan, the partnership model was abandoned in favour of national subsidiaries and wholly owned regional headquarters due to troublesome partnership experiences and legal battles with local distributors (Mathews, 2002). One example was the partnership with Cetec in Germany which Acer fully acquired in 1991 and then integrated into the Acer Group (Computerwoche, 1991). By 1992, Acer had launched national subsidiaries in Denmark, France, Germany, Italy, The Netherlands, and the UK. Some of these subsidiaries covered other European countries as well, like Acer France was responsible for Spain and Portugal. Another reason why Acer did not try the partnership model in these markets was the strong presence of manufacturers like IBM and Apple who had control over the distribution channels which resulted in entry barriers for newcomers like Acer. This was not the case in developing markets where Acer could easily develop exclusive relationships with local distributors (Mathews, 2002).
21 Fig. 2: Acer’s Revenues (Source: Mathews, 2001)
During the second stage of internationalization, the global revenues rose substantially from US$ 1.9 billion in 1993 to US$ 6.7 billion in 1998 (Fig. 2). This expansion had also led to a certain level that required consolidation and a reinforcement of coordination and integration because they had not kept pace with the autonomy of the client server model. This is a main task of the internationalization stage 3 which was implemented in the middle of 1998 and is not going to be analysed in this thesis in depth.
4.1.2 Huawei
22 biggest private-owned local switch supplier in China (Sun, 2009). In addition, with the development of the GSM mobile switch system, Huawei became the no. 1 local supplier in the mobile communication equity market in 1999. Huawei grew fast (revenues 1998: US$ 1.2 billion) and gained a sales growth rate of 85% in 2000, so that the company anticipated an upcoming stagnating domestic demand. To guarantee further growth, Huawei sold its subsidiary Avansys Power Co. in October 2001 to Emerson and raised US$ 750 million which was then used to launch an attack in the global market (Marketwatch, 2001). Only 7 years later, 75% of Huawei’s contract sales came from outside China and the revenues rose to US$ 17 billion in 2008, performing better than most of its rivals, such as Ericsson and Motorola (Sun, 2009). How Huawei got there is going to be part in the next section.
Huawei’s Internationalization
Before Huawei launched its attack in North America, it established R&D centre in India (1999), in Sweden (2000), and four R&D centre in the US (2001) (Huawei, 2016). After the divestment of its subsidiary Avansys, Huawei tried to enter the North American market via an aggressive marketing strategy and chose the promising digital communication market. Thereby Huawei challenged incumbents such as Cisco with a 30% lower price. In 2003, following a preliminary injunction, Huawei had to stop selling its products in the US market. In order to sell its products, Huawei had to partner with an American company. It gave up its brand to the networking company 3Com to form a joint venture called 3Com-Huawei (Gross, 2003). Even though Cisco and Huawei reached an agreement later in 2003, Huawei had to withdraw most of its products within the next months (Sun, 2009). See appendix D for Huawei’s external linkages.
23 Europe was a main target as well, even though it only accounted for 5% of the international sales in 2004 (Sun, 2009). In 2003, Huawei won its first contract in Europe. By winning the network contract from France’s telecom carrier LDCom Networks due to its low price and quick customer response and therefore also defeated their rival Cisco (Highbeam Business, 2003). After three years of negotiating, Huawei also entered Britain by winning a contract with British Telecom in 2004 and therefore established itself in Europe as a reliable partner. Moreover, in collaboration with Vodafone, Huawei started to develop mobile phones and also supplies Europe’s largest mobile carrier in 2006 (Weitao and Yeung, 2006). This strategic alliance was extended in 2009 when Vodafone expanded Huawei’s service orders to Turkey, Spain, Greece, Hungary, and Romania. Together with the alliance with Spain Telefónica Huawei was able to extent its market penetration in Europe and Latin America (Sun, 2009). According to the President of Huawei Enterprise in Western Europe, Leon He, remains Western Europe the key market for Huawei (Huawei, 2013). Similar alliances were established with Intel in 2005 and Google in 2009 to launch an Android phone. Through making these alliances with MNCs from developed economies, Huawei accomplished their task of a global network. Even though for most people in Europe and other developed countries the brand of Huawei was not very well known, the business sector around telecom providers, such as KPN, Vodafone, and T-Mobile were familiar with it for many years (Segers, 2016). This is underlined by the fact that Huawei is not on the list of 100 biggest brands in the world according to Interbrand (2013). To overcome this, Huawei recruited many Western executives to better understand the overseas markets (Segers, 2016). In 2015, Huawei ranked 88 in that list (Interbrand, 2015).
24 research institutions, in Beijing, Shanghai, Nanjing, Shenzhen, Hangzhou and Chengdu, Huawei operates global R&D centre in Moscow (Russia), Silicon Valley and Dallas (USA), Bangalore (India), and Stockholm (Sweden) as well (Sun, 2009). In this way Huawei could attract domestic and foreign technological personnel, and thus seize the latest trends in the sector. Especially the low-cost centre in China enabled Huawei to gain a significant cost advantage over its competitors (Ahrens, 2013). For a long time, it was Huawei’s goal to spend 10% of its sales income on R&D which would have a much bigger impact than similar investments of its competitors (Xiao and Lin, 2015).
By 2008, because of the growing worldwide network the global market of Huawei was divided into eight zones, all of which report to the Marketing Management Committee (Sun, 2009):
China
Latin America North America Europe
Southern Africa
Middle East and North Africa
Commonwealth of Independent States East Pacific
25 In 2007, only six years after the first failed market entry into the USA, Huawei achieved a growth rate of more than 150% in this and other developed markets like Europe and Japan. By 2008, Huawei products covered 100 countries in the international market and 45 from 50 telecom operators used Huawei services (Xiao and Lin, 2015). The main source of Huawei’s revenues was still from developing markets. In the same period (2001-2008) the internationalization ratio (international contract divided by domestic contract in US$) rose steadily: from 10,59% (2001), 58,11% (2005), to 75% (2008) (see Tab. 4). To achieve this, Huawei adopted a localization strategy, where the local R&D centres also played an important role in accommodating the language, cultural, political, and legal differences of the target market (Segers, 2016).
Tab. 4: Huawei’s Internationalization Ratio (Source: Sun, 2009)
In 2015, the number of countries covered by Huawei increased to 150 countries, covering a third of the world population (Xiao and Lin, 2015). Even though the brand awareness of Huawei in the US is still limited (2013: 2.2% of revenues came from the US market), in 2015 Huawei was selected by Google to build its flagship Android smartphone as a co-branded product (Gilbert, 2015). Of course Google does this in turn to enter the Chinese market, but nevertheless this could be the final step to secure a foothold in the world’s biggest telecommunication’s market.
4.1.3 Lenovo
26 representatives of US and Japanese computer companies. This turned out to be very beneficial for Legend because at that time it internalized technical and management skills from their foreign partners like HP (Ahrens and Zhou, 2013). As it was restricted for foreign companies to establish distribution and retail operations in China, Legend was able to build an advantage over companies like Apple, Canon, IBM, and Toshiba that had to rely on Chinese companies like Legend. In order to move up the value chain, Legend introduced its self-branded computer and became China’s largest brand within a few years (Ahrens and Zhou, 2013). Until 1996 Legend’s own brand was still trailing foreign brands, but this changed at the turn of the year 1996-1997 when Legend cut its prices to just above costs. Most foreign competitors did not pay close attention and since then Lenovo is the top PC seller in China (1998: market share of 17,9%). This is also a result of the better understanding of and faster response to the Chinese market due to its well-built out distribution channels. Because of the internationalization failures of some Taiwan PC manufacturers, Chuanzhi was very reluctant to go global in the beginning. But as Legend’s domestic market share reached 30% Chuanzhi realized that it would be very difficult to further expand. So Legend rebranded itself in 2003, as the brand was already taken, as Lenovo and started to internationalize on a big scale. Only ten years later, Lenovo became a Fortune Global 500 company worth 34 billion US$ serving more than 160 countries (Ahrens and Zhou, 2013).
Lenovo’s Internationalization
The expansion to Hong Kong in 1988 can be seen as the first step of internationalization. It helped to overcome the inexperience of Lenovo in the global IT market. At that time Lenovo was led by its headquarter in Hong Kong and built a factory on the Mainland. Furthermore, Lenovo entered a joint-venture with DAW for manufacturing purposes and added China Technology because of its powerful shareholder (Bank of China) as a financial partner (Ahrens and Zhou, 2013; Lu, 2000; Zhou, 2007). This practice helped Lenovo to raise money and also to save money due to China’s benefitting policies attracting foreign investments (Hong Kong) (Zhou, 2007). Due to exporting activities, Lenovo already ranked first in the Asia-Pacific region overtaking IBM and Compaq in 1998 (Ahrens and Zhou, 2013).
27 1500 patents), and internationally experienced managers (Ahrens and Zhou, 2013). This is not the only connection to American companies. In its early years, Lenovo also benefitted from a partnership with HP. Lenovo was very open to learn from its partner in terms of product technology, business models, management practices, and strategic planning (Ahrens and Zhou, 2013; Velasquez, 2009). Years before Lenovo bought the ThinkPad business from IBM, it signed an intellectual property agreement with Microsoft in 1997. This agreement guaranteed that Microsoft Windows became the operating system for most of Lenovo’s PC lines. Moreover, this partnership included high-end PC product development and joint marketing in emerging markets (Microsoft, 2006). When Lenovo introduced its first Laptop in 1998, it was a result of work with GE Plastic, Nike, and the design companies IDEO and Ziba Design (Ernst, 2008). In order to develop technologies for cell phones and other products, Lenovo combined its laboratories with Texas Instruments in 1999 (Ahrens and Zhou, 2013). To realise the acquisition of IBM’s ThinkPad business and to get access to the politics in the US, they worked together with the private equity firms General Atlantic, Texas Pacific Group, and Newbridge which together contributed $350 million (Ahrens and Zhou, 2013). In 2003, the Lenovo-Intel Teach to the Future Technology Research Centre in Beijing was established after Lenovo used the microprocessors of Intel and Intel therefore decided to choose Lenovo as its first strategic partner in China (Ahrens and Zhou, 2013). The purpose of this centre was to develop products for the global market. Even though Lenovo suffered big losses between 2008 and 2009 in terms of market share and profit, it managed to turn around after 2010 (Ahrens and Zhou, 2013). In 2011, Lenovo entered a joint venture with Japan’s NEC (called NEC Lenovo Japan Group) to sell PCs in Japan and increase the market penetration in Japan to an estimated share of 25% in 2011 (Ming, 2011; Kendrick, 2015). According to the CEO Yang Yuanqing, Lenovo also set up customer care operations and is interested to expand the collaboration beyond the PC business (Lenovo, 2011). Other supply chain connections to Japan are Sony and Sanyo which supply batteries, and Hitachi which provides hard drives (Ahrens and Zhou, 2013).
28 Fig. 3: Lenovo’s Share Gains (Source: Ahrens and Zhou, 2013)
While the mature markets of North-America, Western Europe, and Japan remained important, Lenovo also put more effort toward emerging markets. This can be observed by the growth in shipments to emerging markets by 50% between 2010 and 2011, compared to 28% to mature markets (see Fig. 4). This was part of their “protect/attack” strategy they adopted until 2012 through expanding share gains in mature markets and reaching a 10% share benchmark in some key emerging markets (Ahrens and Zhou, 2013). Soon Lenovo surpassed the 10% benchmark in India (13%) (see Fig. 3). The shipments also rose significantly to key markets like Russia (88%), India (58%), members of the Association of Southeast Asian Nations (43%), and Latin America (15%) (Lenovo, 2011).
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When it comes to logistics in the key growth markets (USA and Japan) but also in Latin America and the Asia Pacific region, Lenovo relies on foreign third-party companies like the Dutch company CEVA. CEVA’s operations include these markets and serve as the supplier on the behalf of Lenovo in these regions (CEVA, 2011).
Because Lenovo can rely on a trustworthy supplier cluster at China’ east coast, they focus on an approach called in-house manufacturing specialization. Many Taiwanese companies moved their production to the Mainland until 1993 and all Lenovo had to do, was to set up their factories in the same region. In this way Lenovo was able to source the components directly from the Taiwanese suppliers at a lower cost compared to the world market (Zhou, 2008). Thereby, they established five manufacturing centres in China (Beijing, Huiyang, Whitsett, Shenzhen, and Shanghai). In addition to these, they have one more site in Mexico and one site in India (Lenovo, 2016). The globalized company is led from three operational centres, Beijing (China), Singapore, and Morrisville (USA). A sign of their commitment to R&D is the establishment of nine research centres, seven on Chinese ground, one in the US, and one in Japan. Lenovo’s only centre in Europe is a sales centre in Paris (France).
At the beginning of this decade, the Chinese market is with 42% of Lenovo’s global revenue still the most important market (Ahrens and Zhou, 2013). But with the growth potential of the emerging markets in which Lenovo is most experienced and the incremental solidification in the mature markets, Lenovo is likely to play an even bigger role in the global stage. Furthermore, restructuring of key rival like HP also open up new opportunities as they are considering to withdraw from the PC business (Wall Street Journal, 2011). According to Ahrens and Zhou (2013), the government support only plays a negligible role in Lenovo’s current competitiveness. They probably still enjoy a special treatment because of their example as a successfully internationalized EM MNC. An example of this favourable treatment was the signed information contract with Turkmenistan that services for the country’s education, business, and other sectors. Hereby the Chinese government granted Turkmenistan $7.9 million that were used to buy Lenovo PCs (News Central Asia, 2011).
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4.1.4 Emerging Market Small and Medium-Sized Companies
The following section summarizes the outcomes from the interviews conducted at the Hannover Messe 2016. The first three companies are Chinese companies whereas the last two companies come from Taiwan. The notes written down during the interviews as well as a table with an overview of the companies can be found in the appendix A.
Shanghai Sanyu Industry Co. Ltd.
Shanghai Sanyu Industry Co. Ltd. (Sanyu) was founded in Shanghai in 2000. Sanyu is a manufacturer of AC drives, automation products, and inverter welding machines. The inverter welding machines are the key patent products (Sanyu, 2016). According to their website (2016), they have a total annual revenue between 10 and 100 million US$. The total number of employees are estimated between 100 and 500 (Sanyu, 2016).
Sanyu manufactures all their products on Chinese ground and according to interviewee Alan Li, there are currently no plans to expand their production into foreign countries. Within their domestic market in China, which remains their most important market (60% of total revenue) (Sanyu, 2016), they keep some sales offices. These offices are operated by authorized distributors only (A. Li 2016, pers. comm., 27 April; Sanyu, 2016).
31 40% of their total revenue is generated by exports. Thereby, Southeast Asia is their most important market accounting for 12% of total revenue, followed by North America (5%), Western Europe (5%), and Africa (5%) (A. Li 2016, pers. comm., 27 April; Sanyu, 2016). But they are also active in Latin America (3%), Russia and Eastern Europe (3%), and India (2%) (see Fig. 5). Together, their products are available in more than 30 countries and are exported only (A. Li 2016, pers. comm., 27 April; Sanyu, 2016). Since 2013, they attended the Hannover Messe three times and were present on similar fairs in India and Brazil (A. Li 2016, pers. comm., 27 April). The reason why they are coming to the exhibition is to find more customers and to get in touch with potential distribution partners in Europe. In terms of future plans, when interviewed on 27 April 2016, Alan Li verified: “we are targeting a greater brand awareness outside China and we are planning to establish our first foreign sales offices in India and to cover Europe from Italy.” According to their homepage (2016) they currently have an R&D Ratio between 20% and 40% and the drives manufactured by Sanyu are used by low end as well as high end market industries.
Quanzhou Machtric Automation Equipment Co. Ltd.
Quanzhou Machtric Automation Equipment Co. Ltd. (Machtric) was as well founded in Shanghai in the middle of the 1990s. Machtric is an automation solution supplier in several industrial automation fields such as textile and packing (Machtric, 2016).
32 CCM Automation Technology Co. Ltd.
CCM Automation Technology Co. Ltd. (CCM) was founded in Dongguan, China at the end of the 1990s. CCM manufactures a range of motion control systems, from life science to industrial equipment (CCMmade, 2012-2014).
CCM’s final products are still assembled at their factory in Dongguan, but today they are also sourcing components from their plants in Japan, Germany, and USA because of know-how advantages in these locations (CCMmade, 2012-2014; P Chan 2016, pers. comm., 27 April). In addition, CCM established its design office in Hong Kong, which is about 100 kilometres away from their factory, to be closer to the latest developments as well (P Chan 2016, pers. comm., 27 April). Most of their customer base comes from other Southeast Asian countries, but also from advanced countries, such as the USA, Japan, and Western Europe. In order to deliver their products in China as well as to ship them to foreign countries, they are cooperating with Aliexpress which is part of the Alibaba Group (CCMmade, 2012-2014). The reason why they came to the Hannover Messe is that they want to extent their customer base and brand awareness in Germany and Europe. When interviewed on 27 April 2016, Penny Chan verified that “the next steps of CCM will be a more intense focus on developing countries as well as other BRIC countries.” Furthermore, according to their homepage (2012-2014), they are holding more than 10 officially authorized patents in China which can be seen as a prove of their innovative power.
Chang Shuan Electronics Co. Ltd.
33 from the Hannover Messe, Chang Shuan is also attending similar fairs in China and the United Arab Emirates. This is part of their strategy, as they want to further extent their business in the Middle East as well as in Europe within the next years. Unless they find a reliable distribution partner in Europe, they will go it alone and establish a sales office in Europe (A Lin 2016, pers. comm., 27 April; Adtek, 2016). Currently, they are changing their brand for further global expansion from Chang Shuan to CSC Adtek. When interviewed on 27 April 2016, Angela Lin verified that “this name should be easier to recognise for foreigners and shall therefore lead to a greater brand awareness.”
JAKI Enterprise Co. Ltd.
JAKI Enterprise Co. Ltd. (JAKI) was founded in Taichung, Taiwan, in 1992. JAKI manufactures switching units and electric machinery (JAKI, 2016).
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4.2 Cross Case Analysis
The findings of the internationalization strategies of all case firms are contrasted and discussed below according to the indicators. In addition, the findings are discussed in relation to the various internationalization theories and prior research outcomes as well.
4.2.1 Size and International Spread
The EM MNC case firms varied in revenues from US$ 1.9 billion (Acer), over US$ 2.6 billion (Lenovo), to US$ 12.6 billion (Huawei) (see appendix J for a summary of all case firms) in the first years of their internationalization processes. It turns out that the Chinese MNCs Huawei and Lenovo had much higher revenues than Acer from Taiwan. Even though the EM SMCs indicated differing revenues, one can see that they are much smaller with maximal US$ 100 million. Especially Taiwanese SMCs play a major role in internationalization as they engage in FDIs in the Southeast Asian region (Chen, Chen and Ku, 1995). This can also be observed by the EM SMC case firms, as four out of five indicated that most of their activities take place in the region, like Taiwanese Chang Shuan that operates offices and plants in China.
When it comes to international spread the EM MNCs initially tend to focus on the Asian region and other emerging markets like Latin America. Nevertheless, it seems that their ultimate goal is to enter developed markets as soon as possible, especially the US market. With internalized knowledge, acquired through partnerships or serving as a distribution partner, they initially manufacture their products in their home country. However, over time, as they are active in more markets, they open new manufacturing plants closer to the final markets. For instance, Acer opened new production facilities in Malaysia, China, Mexico, and the UK (1999: 26 plants in 21 countries), whereas Lenovo opened new facilities in India and Mexico as well. In general, the activities of the EM MNC case firms abroad cover all developed countries, most emerging markets, and range from 150 (Huawei) to 160 (Lenovo) countries.
35 there seems to be a crucial difference. While the EM MNCs, as soon as they felt confident enough, tried to enter the US market and subsequently other developed markets in a rather aggressive way, the EM SMCs tend to be more cautious in their internationalization into developed markets. The EM SMCs appear to focus on other emerging markets (BRIC) in a more sustainable manner than the EM MNCs did at their initial internationalization. The EM MNC case firms started to consider other emerging markets as important once their first market entry into a developed market failed. The EM SMC case firms on the other side try to focus on these emerging markets right from the beginning, while also gaining a foothold in developed markets, but in a less aggressive way. Furthermore, in terms of entering developed markets, the EM SMC case firms tend to focus on European, while the EM MNC case firms decided to attack the US market before all other developed markets.
The initial internationalization processes undertaken by the EM MNC case firms can be closer linked to the springboard perspective (Luo and Tung, 2007). Here, the companies also served other emerging markets, but mainly as a means to enter the US market as soon as possible. Once this strategy failed, they adapted their internationalization processes towards emerging markets and locations with similar economic conditions. This second step, however, can be related to the Uppsala model (Johanson and Vahlne, 1977). These findings are consistent with the findings of Sim and Pandian (2003). They found out that electronics firms tend to move more directly to developed markets compared to other firms that have more focussed on Asia. The approach undertaken by the EM SMC case firms is in general more consistent with internationalization processes of the Uppsala model (Johanson and Vahlne, 1977). Even though they have some linkages to developed countries, they tend to focus on countries that are nearby and/ or with similar economic conditions. The EM SMC case firms dispose of less financial resources compared to the EM MNC case firms at beginning of their internationalization. This might have a constraining effect on the geographical spread into more expensive locations like the US market. This is consistent with Sim and Pandian’s (2003) finding that firms with limited resources extent their products to countries with similar economic environments.
4.2.2 Motive and Timing
36 further growth was to expand to other markets. However, the means how they approached these internationalizations differ (see tables in appendix J for a summary of all case firms).
Acer, for instance, as a first step, entered partnerships with local distributors in Southeast Asia and Latin America in order to sell their products in these markets. Huawei, in contrast, firstly established R&D centre as well as joint R&D labs with MNCs (USA: Motorola; Japan: NEC; Germany: Siemens) in mostly developed countries with the purpose to track the latest technology trends in these advanced markets. Lenovo’s approach was similar to Huawei’s. They also engaged in joint ventures and partnerships with established players to internalize skills and tracking the latest trends. But as the very first step they moved their headquarter to Hong Kong to benefit from China’s policy concerning FDIs and getting better access to the international market to attract foreign investments. The initial step all three EM MNCs were undertaking afterwards are again similar. They all tried to enter the biggest market, the US market. While Huawei decided to do it alone, Acer and Lenovo pursued major acquisitions in the US (Acer: Counterpoint Computers; Lenovo: IBM’s ThinkPad business). These motives are similar to the findings of Sim and Pandian (2003) that appeared to be very aggressive in terms of pursuing acquisitions and alliances in the US market. This aggressive approach of the EM MNC case firms (esp. Lenovo and Acer) to expand beyond Asia shows their commitment to establish themselves and attack western MNCs on the global stage.
37 Taiwanese JAKI. This case firm also entered partnerships with foreign companies like Lenovo and Huawei did in order to develop their product or internalize new knowledge. But there is a crucial difference. In contrast to the EM MNC case firms, the companies the EM SMC case firm is partnering with do not come from developed markets (besides South Korea). With China, India, and Turkey, they have partners in countries that rather belong to the category of emerging markets.
Taking the internationalization process of the EM MNC case firms, it can be argued that they followed the product life cycle model by Vernon (1966). Even though, the way they approached their internationalization differed, they intended to introduce their latest product in the developed US market first. In all three cases, their initial try to enter the US market failed, so they adapted their strategy and focussed on emerging markets and therefore less developed countries. On the other side, the model by Vernon (1966) can hardly be applied to the EM SMC case firms. Although they also want to enter developed markets, they tend to do this with a lower priority and focus more on emerging markets, such as the BRIC countries. To explain this discrepancy between the two groups the Investment Development Path by Dunning (1981, 1986) might be a solution. The BRIC countries, when the EM MNC case firms first internationalized in the 1980’s and 1990’s can be categorized to stage 2. Today, however, they can be categorized towards stage 3. This might allow the assumption that the gap between developed markets (stage 4) and emerging markets decreased over time. This trend is also underlined by the World Investment Report (UNCTAD, 2014). Therefore, one can say that the emerging markets today are much more attractive to invest in for the EM SMC case firms than they used to be for the EM MNCs in the 1980’s and 1990’s. Furthermore, as these countries are in a similar economic condition compared to the domestic markets of the EM SMC case firms, they have more experience how to approach a market entry in these markets which might lead to a greater probability of success.
4.2.3 Entry Strategy
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5
Proposition Development
Keeping these findings in mind, four propositions are put forward. As they are based on qualitative observations, they should be further verified/ falsified by quantitative measures by future research in order to gain significance.
The Springboard perspective (Luo and Tung, 2007) which was developed to explain the internationalization processes of electronics EM MNCs in the 1980’s until the early 2000’s can be verified by the findings about EM MNCs in this thesis. All three internationalized to overcome domestic market constraints and especially Acer and Lenovo did this via aggressive and risky acquisitions in developed markets. Nevertheless, this theory seems to lose touch when looking at the initial internationalization strategies of today’s EM SMCs. Although they also try to enter developed markets in a more cautious way (exports and occasional sales offices), they tend to focus on other emerging markets, such as the BRIC countries.
Proposition 1: While explaining the internationalization of today’s EM MNCs between the 1980’s and early 2000’s, the Springboard perspective already loses touch to explain the internationalization of today’s EM SMCs.
The Uppsala model (Johanson and Vahlne, 1977) on the other side seems to experience a sort of renaissance. Even though today’s electronics EM SMC do not fully follow the pattern of gradually internationalizing to markets in terms of increasing distance, they show more accordance than with the Springboard perspective. They are mainly engaging in exporting activities and subsequently establish sales offices in foreign locations. Besides developed markets, they are mainly focussing on markets that are closer in terms of cultural (Southeast Asia) and economical (other emerging markets) distance. These findings are in contradiction with the outcome from Luo and Tung (2007).
Proposition 2: The Uppsala model is the most suitable theory to explain the internationalization processes of today’s EM SMCs.
41 markets in the past failed or came with great costs. Therefore, one can argue that today’s EM SMCs are more reluctant to internationalize in a risky and aggressive way into unfamiliar developed markets because they have the initially failed examples of today’s EM MNCs in mind. So they are focusing on markets where they have more experience and are more cautious when entering mature markets.
Proposition 3: Because of the initially failed internationalizations of today’s EM MNCs into developed markets, today’s EM SMCs are more cautious when first entering these markets and focus on emerging markets instead.
The second possible solution might be the different circumstances the EM MNCs were facing during their initial internationalization compared to today’s EM SMCs. Taking the IDP, it can be argued that many emerging markets appear tomore attractive for today’s EM SMCs than they used to be for the EM MNCs during their initial internationalization. Furthermore, do these markets show a bigger growth potential and the EM SMCs are already familiar with these kind of markets.
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6
Conclusion
Both the EM MNC and EM SMC case firms are still evolving. While the EM MNC case firms are mainly consolidating and extending their product range, the EM SMC case firms are constantly entering new markets through new entry modes. But looking at the initial internationalization strategies of all case firms reveals discrepancies as well as similar patterns between EM MNCs and EM SMCs. So, in order to answer the overall research question what the internationalization strategies of EM SMCs are, in the light of established EM MNCs, it helps to take a closer look at the sub-questions asked in the introduction.
Concerning the motivations, all EM MNCs internationalized their operations because of an upcoming stagnating domestic demand after they became market leaders in their home countries. Furthermore, they aggressively tried to enter developed markets first to internalize skills and knowledge enabling them to compete with established products in these mature markets. However, the means how they approached these internationalizations differ and vary from aggressive acquisitions to joint R&D labs in developed markets. The motivations of the EM SMC case firms differ in terms of not willing to internalize skills and knowledge (except CCM Automation) from developed market companies and mainly focussing on emerging markets and their companies instead. Although they are no market leaders in their domestic market, they still want to extent their customer base by exploiting new markets.
Concerning the latecomer disadvantage, it has to be mentioned that all case firms enjoy lower R&D and manufacturing costs, and a well-organized supplier network in their domestic markets. However, there appears to be a discrepancy between the EM MNC case firms and the EM SMC case firms by overcoming their disadvantage of being a latecomer. As the EM MNC case firms see themselves confronted with lacking assets, such as branding, skills and technology, they initially enter developed markets through acquisitions, joint ventures, or strategic partnerships in order to access these strategic assets as soon as possible. The EM SMC case firms on the other side seem to prefer to make use of their experience in the emerging market context and focus on entering these markets first. They are also interested in internalizing skills by entering partnerships, but they rather partner with companies from similar contexts, other emerging markets.
43 they engaged in very expensive activities, such as acquisitions that turned out to be inefficient and did not guarantee a gain in market share. Therefore, the managers of the EM SMCs should be very cautious about their next steps whether and how to approach a market entry into mature markets. These failed examples might already be a reason why the EM SMC case firms already focus on markets they are familiar with instead of entering mature markets. Second, even though the EM MNC case firms failed with their initial market entry, they still became very successful and leaders in their respective industry. Or as Acer’s founder Stan Shih had put it: the failed strategy was “the necessary medicine to make Acer a global competitor” (Mathews, 2001: 7). Meaning that the managers of the EM SMC case firms must be able to adjust their strategy immediately if circumstances are changing or at least not make the same mistakes, like taking risky acquisitions as a guarantee for success. Moreover, the success of the EM MNC case firms of selling their products in developing countries which have a lower distance and then successfully invading the mature markets again should be a lesson for the EM SMCs. This suggests a gradual international expansion: first markets with lower distance, followed by entering markets with a higher distance with an adapted strategy. These findings also verify the Uppsala model and disprove the Springboard perspective as a successful approach to internationalize for an emerging market company.
For a further research these findings are reflected in the propositions to make this claim more concrete. The cases show that the Uppsala Model and the Springboard Perspective each partially explain the internationalization of the case firms. But together they provide a better basis to explain the various stages of the internationalization of emerging market companies and where the Uppsala Model more likely appears to be an example for a successful internationalization. As these findings are based on qualitative findings, the propositions need to be further verified by quantitative measures. This should be part of the further research in this field.
Limitations
44 qualitative approach was conducted which concluded with propositions. These propositions can be used to further test these patterns empirically and bringing the research on internationalizing companies from emerging markets further.
The choice of companies from the Hannover Messe can also be seen as a limitation because they are not established in the exact same sector compared to the EM MNC case firms. However, it also took the EM MNC case firms several years to finally find their niche. For instance, Huawei originally manufactured switches and is today about to become known for its smart phones. Therefore, it is almost impossible to foresee the future niche the EM SMC case firms will end up.
Another issue that arises is the reliability of the primary data conducted at the Hannover Messe. The people interviewed at the fair were not completely familiar with the exact strategy their company pursuing. To overcome this, the information was complemented by the company websites and the website of the fair in order to further verify the data. Nevertheless, the numbers according to employees and annual revenue differed among the sources. However, for reasons of clarity and comprehensibility, the numbers published on the respective company homepage were used.
It might also be arguable whether the secondary used for the EM MNC case firms is comparable with the mainly primary data conducted for the EM SMC case firms. As this thesis was subject to time and resource constraints, it was not possible to conduct interviews with the EM MNC case firms. However, part of the secondary data used for the EM MNCs is derived from interviews that were conducted with executives in the past.
45
7
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