Master’s Thesis
2019 Derin Bozbeyli
Faculty of Business Administration Masters field: Management
Title of the master’s thesis:
The Role of Networking Behavior in the Internationalization of Turkish Firms
Author: Derin Bozbeyli
Supervisor: Mohit Srivastava
Declaration of Authenticity
I hereby declare that the master’s thesis presented herein is my own work, or fully and specifically acknowledged wherever adapted from other sources. This work has not been published or submitted elsewhere for the
requirement of a degree program.
Place, date Signature
Title of the Master’s Thesis:
The Role of Networking Behavior in the Internationalization of Turkish Firms
Abstract:
This study examines the role of networking behavior in the internationalization of Turkish firms. The goal of this study is to answer the question: What kind of an influence does the networking behavior of Turkish firms have on the uncertain environment, which the firms face during the process of foreign market entry? The data, which is collected from 56 respondents, is analyzed with the first model of the moderator analysis. The findings show no support for the claim that networking increases the performance of the firms through reducing the uncertainty. However the findings supports the claim that the networking increases the performance of the firms independently from the uncertainty.
Key words:
Globalization, Internationalization, Foreign Market Entry, Emerging Markets, Business Networking, Uncertainty, Liability of Foreignness, Physic Distance
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Table of Contents
1 Introduction ... 3
1.1 Objective and Motivation ... 3
1.2 Work Structure ... 4
1.3 Work Limitations and Difficulties ... 5
1.4 Turkish Firms and Globalization ... 7
2 Theoretical Background ... 11
2.1 Growth and Globalization Process of Firms ... 11
2.2 Literature review ... 12
2.2.1 Traditional Models ... 12
2.2.2 New and Updated Models ... 18
2.2.3 Business Network ... 20
2.2.4 Emerging Markets ... 22
2.2.5 Previous studies about Turkey ... 29
2.3 Methodology ... 31
2.3.1 Reaching the Respondents ... 32
2.3.2 Preparing the Survey ... 35
2.4 Hypothesis ... 39
3 Practical Part ... 41
3.1 Sample Firms and Response Rate ... 41
3.2 Analysis ... 45
3.3 Discussion ... 52
4 Conclusion ... 58
5 Bibliography ... 62
APPENDIX ... 65
Appendix 1 ... 65
Appendix 2 ... 69
Appendix 3 ... 70
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1 Introduction
1.1 Objective and Motivation
The objective of this paper is to investigate and analyze how the networking behavior of Turkish firms moderates the effect of uncertainty in international markets and therefore affects their performance. Being a Turkish citizen and a master student in the management field was the biggest motivation source for me to write on this subject. Consulting is the minor field of my studies. The projects, case studies and in-class exercises that I have attended were mostly containing internationalization of firms in foreign markets. Emerging markets, as a topic is quite valuable, non-traditional and trending in today’s business world. It is worth to review in order to understand today’s and future’s business world by an evidence from Turkish market, which is an emerging country. The theories and researches in literature are mostly concerns the traditional markets. Hence the researches, which were made about emerging markets, are relatively less. As a master student in Czech Republic I had the chance to study and exercise about global expansion of emerging market firms since Czech Republic is considered to be one of the emerging markets. With the knowledge from my studies and expectation to learn even more about this specific subject, inspired me to make a research about my home country Turkey, an emerging market. Turkey as an emerging market is rare and a very specific subject since there are no many researches about it in literature. In this sense, another motivation to write about this topic is to contribute to the literature with a new recent research so that it can be a resource for people who are interested in the networking behavior and performance of Turkish firms in international markets. During the research I am hoping to learn more about this subject and after the research my expectations are to be able to reflect the knowledge, I will be achieving from the research study, to real life cases and become more qualified for the business life in this field.
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1.2 Work Structure
The beginning of this research has started with the selection of the topic. It was determined by depending on my interests related with my master studies and the share of opinion with my supervisor. Once the topic was determined, search of academic papers, articles, researches which are related with the topic, for theoretical part was the next step. The selection of the literature resources has shaped the structure of the theoretical part. The selection of literature resources is followed by the preparation of the theoretical part. First step of the theoretical part was writing brief information about growth process of firms and how globalization and international activities can be one type of growth process. After this introduction in theoretical part, the next step was to moving on with the literature review, which is the major section of the theoretical part. The literature review starts with the traditional models along with the new and updated models in literature. The discussion of new and updated models reveals the term “business networking” and how it is seen in firms, which exists in emerging markets. The introduction of emerging markets was prepared with examples and then it is linked with Turkish market, which is also an emerging market. The last section of literature review is concluded with writing about past researches and studies, which are about Turkish firms and their international behavior.
After finishing the literature review, the data collection part had started. For the data collection, survey questions were prepared. Questions had to be put in a survey tool that the survey can be sent out and more importantly the respondents can respond the questions easily. The questions were put in “Lime Survey”, an online survey tool. Once the questions were ready in Lime Survey, the next step was to determine how to reach the respondents. It was determined to send the survey via email by putting the link of the survey in the attachment. Therefore the research of the email contacts had started. For the contacts, LinkedIn tool was used to find the employees who work in desired companies and with desired job titles for this research. Email addresses of these contacts were generated by the method that is mentioned in the methodology part. Once the contacts were ready, an email
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message was written for the potential respondents. The message has the context of helping a master student in his dissertation research by responding to the survey and giving a feedback with their expert opinion. The emails were sent out to the potential respondents and a waiting process started for receiving the responses.
While tracking the responses, the written part for the research continued at the same time. The beginning of the introduction part was written and than it was followed by an informative part about Turkish firms and their international market experience. Brief information was written about the Turkish firms’
international expansion history and at the end, the most recent successful Turkish firms in international markets were introduced. After wrapping up some missing parts in introduction part, a partial part of the methodology was written. The main focus was on how the respondents were reached and how the survey was prepared in order to collect the data. Once the waiting time was finished and got enough responses, the analysis of the responses were made. Therefore, before writing the analysis part, the previous sections that are required the analysis part to be mentioned was completed. After finishing the missing parts about analysis in the previous sections, the analysis part itself was written. The result and the discussion parts were completed after the research of questioning the outcome of the analysis. At the end with the conclusion, the research and the paper were completed.
1.3 Work Limitations and Difficulties
This research investigates the case of Turkish firms in international markets as it is mentioned before. The past researches and studies that were made about this particular subject is very rare therefore the access to knowledge is very limited. The knowledge about general models/frameworks about the global expansion and entry modes of traditional market firms has a relatively easy access however Turkey as a country and as an emerging market makes it harder to find updated and recent literature work. It requires a deep research in order to find related literature about the subject. By this reason literature part was a limited
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area and the starting process of the research took longer time than the scheduled plan. Another restricted area about the research was the process of preparing the survey. The research is quantitative and the chosen method for this research that is most suitable to get data is generating a survey. The preparation process of the survey was quite time consuming in order to reach contacts. Along with the preparation of the survey also waiting for the responses was challenging for this research. As a survey generation tool, “Lime Survey” was chosen. The learning process of this tool was one of the difficulties that were faced during the research.
After searching for some tutorial sources in order to learn how to use it, the preparation of the survey has started right after. However, while using the tool, still some problems were occurring and to fix these problems, the sources were checked again in order to overcome the problems. Aside from the preparation of the survey from Lime Survey, reaching and getting responses were also a difficulty.
The survey’s target is the people who work in a Turkish firm, and in addition to that the Turkish firm had to have a networking in international markets. This was one of the major limitations in order to target and reach the contacts. As it is mentioned, since this research can only be applied to Turkish firms, the survey had to be both in English and Turkish. The preparation of questions was already difficult and in addition to that translation into Turkish added more difficulty in terms finding the ideal and accurate words in terms of business language.
Moreover finding an ideal way to reach the contacts and coming up with a final solution was one of the difficulties. Lastly, the response rate of the survey makes this research stay in a limited sample. The limited respondents helped this research to come up with a conclusion, however the limitation of respondents creates a small sample and therefore prevent this research to be generalized.
However, the methodology that is used in this research can be preferred for similar researches in the future.
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1.4 Turkish Firms and Globalization
Turkish firms’ international journey started in the early 1980s with exporting to foreign markets. With its geographical location, young population, government policies and dynamic entrepreneurial class, Turkey has become one of the pioneer emerging markets over the world. According to the Turkish Ministry of Trade (2017), global expansion of firms is seen as a key driver in order to increase the production, grow economically and decrease the unemployment rate by the host country. Hence, governments are more flexible now about their policies and regulations in the direction of allowing international market entries.
Over the years the expansion of Turkish firms over the world has increased along with its commitment level. The journey, which has started only with exporting, continued with other entry modes as such as licensing, networking and foreign direct investments. Turkish firms keep being active in foreign markets especially over Europe, Middle East and North Africa. According to the Turkish Ministry of Trade (2017), by the end of 2016 there were 773 investments in European Union member countries. In Russia, Balkan countries, EFTA (European Free Trade Association) member countries and other Eastern European countries this number was 345 while there were 250 investments in Middle East countries.
On the other hand there were 177 investments in North America and 106 in North Africa. The same report represents the industries of the firms, which are active in foreign markets. According to the level of investment, the top 5 industries are finance/insurance (21 billion US dollars), information technologies (2.3 billion US dollars), mining (1.8 billion US dollars), wholesale trade (1.1 billion US dollars) and logistics/warehousing (580 million US dollars) (Republic of Turkey Ministry of Trade, 2017). Turkish firms keep investing in foreign markets with the motivation of seeking variety of products and markets, increasing brand awareness and decreasing the cost. Each continent has a different type of advantage that the Turkish firms can take of. North Africa and Middle East markets are relatively more accessible by virtue of the more flexible government regulations between Turkey and the other countries in both continents. In terms of finding cheap raw
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material, Asian and African markets are the addresses for Turkish firms. Finally in terms of exporting, with its geographical advantage, European Union countries and Eastern Europe are the preferred locations.
The pioneers of international activities are the family businesses/holdings/groups, which are in conglomerate industry. Koç Holding has expanded over 23 countries with its strongest brands such as Beko. The countries that the Koç Holding has been active are Germany, Australia, Austria, Azerbaijani, Algeria, Czech Republic, China, France, South Africa, Netherlands, United Kingdom, Spain, Italy, Kazakhstan, Hungary, Egypt, Uzbekistan, Poland, Romania, Russia, Singapore, Slovakia and Ukraine. Their global expansion enables them to expand their business network and now they have partnerships with well-known brands such as Grundig. Sabancı Holding has been active over 18 countries and 6 continents. Furthermore, the firm’s own brands have been operating actively in foreign markets. Akbank is currently operating in Germany, Dubai and Malta;
Çimsa in Italy, Spain, Germany, Romania, Russia and Turkish Republic of Northern Cyprus; Kordsa Global in Germany, Egypt, United States, Brazil, Argentina, Indonesia, Thailand and China. Like Koç Holding, the firm’s international activities have enabled their business network and have partnerships with high esteemed firms such as Ageas, Aviva, Bridgestone, Carrefour, Citi, E.ON, Heidelberg Cement and Philip Morris. Yıldız Holding, after the acquisition of big players United Biscuits and Godiva, the firm now has production facilities abroad in more than 30 locations including United Kingdom, United States, France, Belgium, Netherlands, Italy, Saudi Arabia and India. The firm exports over more than 100 countries.
Doğuş Holding has been active over the countries United States, Bulgaria, Croatia, Germany, Greece, Italy, Luxembourg, Malta, Romania, Switzerland, Netherlands, Turkish Republic of Northern Cyprus, United Kingdom, Ukraine, Libya, Morocco, Azerbaijani, China, Iraq, Kazakhstan, Oman, Qatar, Russia, Saudi Arabia, Thailand, United Arab Emirates. The firm has businesses in 9 industries and especially in automative industry the firm has network with the brands such as Volkswagen, Audi, Porsche, Bentley, Lamborghini, Bugatti, Seat, Skoda, Scania and Thermo King.
Anadolu Group, with its brewery group, expanded over 5 countries (Russia,
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Kazakhstan, Georgia, Moldavia, Ukraine) and has 27 production facilities. CCI, the firm’s soft drink group, has a network with Coca-Cola and has the rights of producing, selling and distributing Coca-Cola products over 10 countries: Pakistan, Kazakhstan, Azerbaijani, Kirghizstan, Turkmenistan, Jordan, Iraq, Syria and Tajikistan. (Bektaş, 2014)
Along with conglomerates, the construction firms have been operating actively in foreign markets and bidding for many projects. Due to the economic crises and geopolitical risks, some of the industries were affected in the past however it is seen that construction firms keep going with the same pace. The focus of the firms is mostly over the markets in Middle East and Turkic Countries.
According to the list of Fortune Turkey (2015), with 133 projects Polimeks İnşaat is the leader in construction industry. The firm is active especially in Turkmenistan with the projects of Ashgabat Airport and Olympic complex. TAV Holding follows up second. The firm has been active over Georgia, Macedonia, Tunisia, Saudi Arabia, Croatia, Latvia, Oman, Germany, United Arab Emirates, Egypt, Qatar and Libya. The firm finished the projects like catering facilities in Prince Muhammed Bin Abdulaziz Airport (Saudi Arabia). Also the firm is currently working on Abu Dhabi Midfield Terminal construction with its partners Arabtec and CCC. Along with the finished and on going projects, the firm is proceeding on bidding new big projects. For example, in 2015 the firm won the project of Charles De Gaulle Airport, which is the first construction project of European Union. Another big player in construction industry is Tekfen İnşaat. In recent years, the company is seemed to focus on Azerbaijani, Qatar and Saudi Arabia. (Şahin, 2017)
10 In the following tables, the rankings of global Turkish firms are listed according to their endorsement and number of production facilities.
Company Number of Production Facilities
Abroad
Pladis 34
Anadolu Efes Brewery 27
Arçelik 10
Kordsa Global 6
Sanica Isı Sanayi 6
Figure 1: Number of Facilities, Fortune Turkey (2017)
Company Industry Global Endorsement
(2015, TL)
Polimeks İnşaat Construction 8.665.289.050
Anadolu Efes Alcohol/Soft Drink 5.368.536.000
TAV Construction 2.362.185.893
Hayat Kimya Chemical 1.976.832.009
Tekfen İnşaat Construction 1.666.433.000
Çalık Enerji Energy 1.479.548.358
Mapa İnşaat Construction 1.451.496.983
Turkcell Telecommunication 1.100.000.000
Sembol İnşaat Construction 1.073.794.123
Kordsa Global Textile 1.065.813.950
Figure 2: Global Endorsement, Fortune Turkey (2015)
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2 Theoretical Background
2.1 Growth and Globalization Process of Firms
Growth process of a business is applicable for both large and small firms. It is a necessity for the firms, which are successful, economically saturated in their local markets. At the same time it is a step for the small firms, which is SMEs (Small to medium enterprises) in order to grow and larger their businesses. According to Ilhan & Yakup (2015), growth is, in fact, a part of natural process of businesses, yet it has become a necessity in today’s conditions of competition. Businesses need to develop new products and services, find new market places and consequently grow. The main goals of the growth strategy are to have a higher profit, economies of scale and higher market share. Before taking the step of growth, the firm must make a self-evaluation and see if the firm can fulfill the parameters, which are crucial for the growth. For example value, opportunity and capability are the few important parameters. The firm must generate a strategy that is in the boundaries of the value it has. The growth process shouldn’t alienate the firm from its’ core values. Also, there has to be an opportunity that can lead to a growth, otherwise the firm can fail if there is lack of resources, knowledge… The growth process can either be external and internal. Internal, or organic, growths strategies rely on the companies own resources by reinvesting some of the profits. Internal growth is planned and slow. In an external growth strategy, the company draws on the resources of other companies to leverage its resources (Sarkissian, 2018).
Globalization, internationalization and entering foreign markets are the types of growth strategies that firms choose to follow. With the right strategy penetrating in foreign markets allows firms obtain many benefits. According to Van Rossum (2017), being a player in a new market, diversification, access to talent, having a competitive advantage and foreign investment opportunities are the main benefits of a global expansion. It leads firms to cover new markets, conquer new territories and reach new consumers. Within the new territories it gives the firms the opportunity of coming up with new products/services, which
12 makes them diversify in global markets. Furthermore, the firm can explore the foreign labor market and discover the new talents, which can increase productivity, help to surpass the language barriers, bring new perspectives… If the firm expanded in a foreign market where its’ competitors do not operate, that gives the firm the “first mover advantage”. By the time the competitors enter the same market, “first mover” firm will be ahead of its competitors in terms of brand awareness, economies of scale, local barriers, know-how, discovering new technologies, adopting the new market, access to new technologies… Finally, the firms can have the investment opportunities that the home market doesn’t have. In order to have a benefit from the global expansions, the firms must be careful about choosing the right strategy as it is mentioned before. “Selecting mode that appropriate for entry into new markets is a fundamental decision for multinational enterprises (MNEs) is planning to expand its market” (Tulung, 2017, p.160). This means that there are various types of entry mode strategies that the firms can choose according to their financial status, resources, values, the seized opportunity, duration of the plan… The selected strategy must be parallel to those parameters; otherwise the expansion plan can fail or can’t even start.
2.2 Literature review
2.2.1 Traditional Models
There are various studies and analysis about international behavior, global strategy, entry modes and the patterns of the firms. The timing and the level of control in the foreign market mostly determine the entry frameworks. In other words the frameworks are formed by the entry modes and how they are used.
Basic entry modes can be considered as exporting, licensing, franchising, strategic alliances, joint ventures, merge and acquisition, green field and foreign direct investment (FDI). These are the concepts that are involved in the patterns and the frameworks that were created throughout the years. The most common models that are linked with internationalization process of the firms are the U-Model
13 (Uppsala Model) by Johanson & Vahlne (1977, 1990) and the I-Model (Innovation Model) by Andersen (1993).
After being updated throughout the years the last form of U-Model is the step-by-step expansion of a firm. The commitment to the foreign market increases in the each step of the process. The expanding firm chooses exporting as a starting point, which is the least committed entry mode to the foreign market and than, follows licensing and these steps follow each other till it reaches the mode of FDI which is the most committed entry mode to the foreign market (Johanson &
Vahlne, 1977). The primitive stages of the U-Model were “no regular export”,
“export via independent representative”, “establishment of an overseas sales subsidiary” and “overseas production/manufacturing units” respectively. The kinds and the sequence of these stages developed and changed in parallel to the evolution of international supply methods (Root, 1987). The concept “physic distance”, was mentioned as the factors that prevent the flow of information between firms and the foreign market such as political, language, culture, level of education and level of industrial development (Johanson & Vahlne, 1977, p. 24).
Expanding firms face these barriers or “physic distance”. Later the model was developed and the new aspects were determined. State aspects are the market commitment and knowledge about the foreign market. The change aspects are the resources of the commitment and the performance of the current business activities. Resources can be managed and used according to the investment level in the foreign market. Market knowledge is consisted of specific and general knowledge. General knowledge is about the basics in that industry and it is convertible/adaptable to any other market. However the market specific knowledge is gained through the experience in the foreign market after start operating. It is the knowledge that can be only learned in the specific foreign market and doesn’t applicable in any other market. The combination of both market specific and general knowledge is required to operate in the foreign market. The model was again updated by Johanson & Vahlne (1990) and suggested that market commitment must follow some steps. The steps that are discussed earlier, which are involved in the valid model today. In some exceptional cases the
14 steps don’t necessarily be followed in the right sequence. Such as, if firms that have larger resources can take bigger international step or the knowledge of the gained experience from other market can be applied if both markets have similarity (Andersen, 1993, p. 211).
After the U-Model, the second model to be discussed is the I-Model, which is the innovation-related model. According to Andersen (1993), there are several studies that were focused on innovation-related perspective of internationalization process. Each study defines the stages and the sequences of the process and is based the concept of the internationalization decision of the firms are considered to be an innovation. What make them different are the number and the description of the stages. The I-Models, that Andersen (1993) found, are created by the authors: Tesar & Bilkey (1977), Cavusgil (1980), Czinkota (1982) and Reid (1981). Study of Tesar & Bilkey (1977) is based on the adaptation process of a firm to the entry mode exporting. It is consisted of 6 stages.
Throughout the stages, the intention and the knowledge about exporting of the firm increase.
• Stage 1: Not interested in exporting
• Stage 2: Willing to but no effort to study feasibility of exporting
• Stage 3: Studying the feasibility of exporting
• Stage 4: Start exporting to physically close countries
• Stage 5: Becoming an experienced exporter
• Stage 6: After being experienced, start exporting physically distant countries
The study of Cavusgil (1980) is almost the same as Tesar & Bilkey (1977).
The logic behind it is exactly the same but only the definition and the intention of the firm is introduced differently. Also it is explained in one stage fewer.
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• Stage 1: Domestic Marketing: Selling local market
• Stage 2: Pre-Export Stage: Studying the feasibility of exporting
• Stage 3: Experimental involvement: Start exporting to physically close countries
• Stage 4: Active involvement: Start exporting physically distant countries with larger volumes
• Stage 5: Committed involvement: Constantly allocating resources between foreign and local market
Czinkota (1982) model mainly focuses on the intention of the firm. Likewise Tesar and Bilkey (1977) model, the first stage starts of the firm having no intention of exporting and in total there are 6 stages.
• Stage 1: The uninterested firm
• Stage 2: The partially interested firm
• Stage 3: The exploring firm
• Stage 4: The experimental firm
• Stage 5: The experienced small exporter
• Stage 6: The experienced large exporter
Last I-Model that was examined by Andersen (1993) is by Reid (1981). First stage starts more likely as Cavusgil (1980) model and unlikely as Tesar & Bilkey (1977) and Czinkota (1982). In this model all stages leads the firm to be an exporter. Like other models there is no final step of becoming a larger exporter or start exporting to distant countries.
• Stage 1: Export awareness
• Stage 2: Export intention
• Stage 3: Export trial
• Stage 4: Export evolution
• Stage 5: Export acceptance
16 In addition, Zapletalová (2013) discussed 3 other I-Models. She discussed the models studied by Lim et al. (1991), Raidu (1992) and Wortzel (1981). “Wortzel &
Wortzel (1981) were able to identify five stages of international market entry and expansion. Each of these stages was distinguished by the extent of control exercised by the exporter concerning its activities in overseas markets. That is, each successive stage was signified by a greater internationalization of marketing, production and administrative functions previously performed by foreign market-based intermediaries. Lim et al. (1991) expanded on the work of Reid (1981) and identified four levels of export innovation, these being: export awareness; export interest; export intention and export adoption. Strong evidence of support for this framework was found which suggested that innovation adoption does have considerable applicability in the context of export decision- making. Rao & Naidu (1992) analyzed groups of firms according to an a priori assignment of firms classed as: non-exporters; export intenders; sporadic exporters; and regular exporters” (Zapletalová, 2013, p. 174-175).
As it is mentioned before, U-Model and I-Model are one of the popular frames in literature. However there are also other studies that have been an inspiration for other scholars as well. Eclectic paradigm is one of those frameworks and was first introduced by Dunning (1979). It is also known as “OLI Model” or OLI Framework” and one of the broadest studies on FDI. The letters “O”, “L”, “I” stand for “Ownership”, “Location” and “Internalization” respectively. According to this model FDIs are the function of having an ownership, location and internalization advantage. Dunning (1979) defines these advantages as the factors that have to be satisfied in order a firm to make a decision of a particular FDI. According to Dunning (1979) the process of the growth of a firm is a function that converts the inputs of the firm to a better output. The inputs are defined as 2 types; as the ones, which are available to all firms independent from any differences they have and the ones that the firms can create for their best interest. First type of inputs can be natural resources, most kinds of labor, and proximity to markets but also the used- market structure, and government legislation and policies (Dunning, 1979). The second type of inputs is the part where the “OLI” advantages are described. Inputs
17 can be certain types of technology and organizational skills or can purchase from other institutions, but over which, in so doing, it acquires some proprietary right of use as Dunning (1979) describes. Ownership concept comes at this point and specified that “ownership-specific inputs may take the form of a legally protected right-patents, brand names, trade marks-or of a commercial monopoly-the acquisition of a particular raw material essential to the production of the product- or of exclusive control over particular market outlets; or they may arise from the size or of technical characteristics of firms-economies of large-scale production and surplus entrepreneurial capacity.” (Dunning, 1979, p. 10) The location, which is described, in this case is not the location that the firm expanded to but their original land. Otherwise there would be no difference between the firms operating in the same location but comes from different countries. That is the reason why some firms from specific countries are successful in some specific industries.
Therefore the location advantage of the firms comes from the ownership advantage. “… At Japanese firms have a competitive advantage in the foreign production of textiles and clothing and consumer electronics; UK firms in food and tobacco products; Swedish firms in mechanical and electrical engineering; West German firms in chemicals; and U.S. firms in transport equipment. Such differences as these can be explained only by an examination of the characteristics of the endowments of the countries in which the multinational enterprises operate, and especially those of the home country, which normally give rise to the ownership advantages in the first place” (Dunning, 1979, p. 10). According to Dunning (1979), the ownership advantage is parallel to the location advantage so in other words ownership advantage comes from the location advantage. However Dunning (1979) separated them as a two different inputs because although the ownership advantage comes from the location advantage, the firms can also create it if they have the opportunity. It basically determines in which foreign land the firm start operating. If a firm has ownerships in a foreign market, this would make it easier of the firm to expand in there. Basically it is described that the location advantage determines the mode of entry of the firm and the ownership advantage determines which foreign market to expand. However if a firm follows the way of ownership advantage this would mean the firm accepts not to do production by its’ own
18 resources and facilities in the foreign market. At this point the final input is described as the internalization advantage. “But why does a firm choose to use the ownership advantages itself to exploit a foreign market whatever route it chooses rather than sell or lease these advantages to a firm located in that market to exploit? Why does it internalize its capital, technology, management skills itself to produce goods rather than externalize their use by engaging in portfolio investment, licensing, management contracts, and so on?” (Dunning, 1979, p. 10)
2.2.2 New and Updated Models
Like U-Model, I-Model and Eclectic Paradigm there are many other studies about internationalization behavior of firms. Some of them are theories and some of them are paradigms like Eclectic, which are formed by being inspired from other theories. Especially the theories that are taught in academia and that many other scholars look up to are mostly published years ago, far from today. Today’s world is much more complex than 50 years ago and classical methods are loosing it’s effectiveness. Unfortunately the methods that were used in the past might not be effective or not add any value to the firms because the context of today is much more different and requires innovation. Companies are always looking to differentiate themselves from the classical methods that are most common in the market in order to have a competitive advantage over their competitors. Therefore there are new or updated methods and processes in industries and in parallel to that there are new or updated business models of the firms. In this perspective the business environment is totally different today than how it was in 50 years ago.
The theories in literature that introduces the primitive models and methods are sources and basis of many studies that were made after, however these models can’t explain anymore each case in today’s more complex business environment.
Some specific firms or markets now don’t fit in the territories of the classical theories and explanations. “Theories of internationalization explain the behavior and strategy of firms in international markets. However, in spite of their experiential support, these theories have been recently challenged by evidence
19 that rapid internationalization can take place in certain firms” (Chan et al., 2014, p.
37). In the market perspective, the studies that review internationalization are mostly based on the firms in developed countries or markets. “The rapid changes in the world business environment following the 1990s including the elimination of trade and investment barriers, the dominance of service industries and the emergence of new markets have created a new scenario for the global economy that is more dynamic and complex. Consequently, these theories may not be able to explain the international behavior of firms today” (Chan et al., 2014, p. 37). Even tough some theories can’t explain today’s cases; the scholars updated some of them in order to adapt the international behavior of firms today.
One example is the U-Model. After being updated the last time in 1993, Johanson & Vahlne (2009) again updated and add new aspects to the model. They wanted to adapt their model for new business environment and also to answer to criticisms such as towards the methodology and the assumptions. For instance although in this paper the review of Andersen (1993) on U-Model is mentioned, he had his criticism as well. “According to Andersen (1993), the stage model is not able to delimitate the stages and explain how a firm moves between stages. In addition, the sequential stages proposed by the theory are restricted to a specific country market. (Chan et al., 2014, p. 47)” As the authors described “the change mechanisms in the revised model are essentially the same as those in the original version, although we add trust-building and knowledge creation, the latter to recognize the fact that new knowledge is developed in relationships” (Johanson &
Vahlne, 2009, p.4). The main differences between now and then are company behaviors, economic/regularity environment and also there are some concepts and insight that did no exist when the model was first published. (Johanson &
Vahlne, 2009) The further researches of the authors provide a new aspect of internationalized firms, which is the business network view of the environment.
According to Johanson & Vahlne (2009), the business network aspect has two sides. "The first is that markets are networks of relationships in which firms are linked to each other in various, complex and, to a considerable extent, invisible patterns. Hence insider ship in relevant network(s) is necessary for successful
20 internationalization, and so by the same token there is a liability of outsider ship.
Second, relationships offer potential for learning and for building trust and commitment, both of which are preconditions for internationalization” (Johanson
& Vahlne, 2009, p.4).
2.2.3 Business Network
Before discussing further the new model it’s better to revise the original model. As it is mentioned before, the U-Model (1977) has state (market knowledge and market commitment) and change (commitment decisions and current activities) mechanisms. Firms can change with the experience they gain by their current activities in foreign market and also they can change with their commitment decisions, which they make according to how much they want be involved in the foreign market. Resource management depends on the investment level in the foreign market and the market knowledge is folded in two as the general knowledge and the market specific knowledge. In the new model the main focus is on the business network. According to Johanson & Vahlne (2009), internationalization is the outcome of firm strategies and actions in order to strengthen the business network. The significant relationship happened to be between the entry mode and the expansion of the firm, however in the new model it is the relationship between the business network and the expansion of the firm.
According to Johanson & Vahlne (1977), the entry mode of the firm is the most significant determinant of the level of success of the expansion in the foreign market. The more optimum and suitable entry mode the firms have, the better success in the global expansion they achieve. In the new model it is believed that the impact of the current business relationships have more impact in the success of the foreign market penetration. The entry mode becomes less relevant on the global expansion of a firm than the business network. If a firm already has business network in the foreign market, it has a better impact than the type of the entry mode. “As a result, we claim that existing business relationships, because they make it possible to identify and exploit opportunities, have a considerable impact
21 on the particular geographical market a firm will decide to enter, and on which mode to use” (Johanson & Vahlne, 2009, p.12).
The biggest impact of business networking is to overcome the “liability of foreignness” and providing a resource base. Having a business relationship allows firms to share their resources if there is a problem that requires firms to join together and can’t be solved individually by the firms. The management of the resources requires to be coordinated by the other firm(s) in order to reach it’s potential. The goal in business network is to joint of productivity. It is a hard process since the multiple firms have to work in harmony when they have a distance between them or in other words the “physic distance”. Johanson & Vahlne (2009) believe that the organizational units will be located in the strategic partners’ home countries. “We are convinced that international business network coordination will become an increasingly important phenomenon with strong implications for firm-specific advantage as well as for internationalization”
(Johanson & Vahlne, 2009, p.17).
On the other hand the “liability of foreignness” is defined as the “all additional costs a firm operating in a market overseas incurs that a local firm would not incur” (Zaheer, 1995). It can be arise from the unfamiliarity of the environment, cultural, political, and economic differences, and from the need for coordination across geographic as in the old model described as the “physic distance”. In wider perspective it can be “higher transportation, travel and coordination costs, or to the foreign firm's lower familiarity with the market, to more subtle factors such as a lack of information networks or political influence in the host-country, or even the foreign firm's inability to appeal to nationalistic buyers” (Zaheer, 1995). According to the new model liability of foreignness is now more relevant to relationship and network specifity. When a firm enters a foreign market, the liability of foreignness will be the main problem that the firm will face.
There is no sufficient market knowledge before entering, mostly about the players and how they related or the strategies. However if a firm already has relationship with one or several actors in the foreign market that is a huge advantage of having
22 a business network. From the local players, that firms have business relationship with, they can get the insight about the market and use the market knowledge against their competitors.
2.2.4 Emerging Markets
New and updated models like U-Model (2009) are now able to explain today’s more complex business environment and cases. As it is mentioned earlier, the factors that make today’s world more complex can be updated or new methods, new technologies, innovations, changed or new regularities, and etc.
Traditional methods are restricted with the factors that aren’t trend nor valid in modern business environment. Models can differ in terms of particular aspects but most of the assumed factors are in common. Assumed market of the expanding firm is one of them. In most of the traditional models the default market is restricted with the developed, mature, saturated, advanced or traditional markets.
“Emerging markets” is one type of the markets that has as big role as the traditional markets in todays business world and also in the aim of this paper.
Then what is “emerging markets”?
According to Sraders (2018) they are economies of countries that are in the progress of becoming a developed country and typically are moving toward mixed or free markets. In literature they are best known as their roles after 1997 crisis in the world. They are the stimulator and developer of world’s global economy growth. Emerging market countries are the ones, which are abandoning their traditional economies and start focusing on more productive capacity. By this way their economies becomes more sophisticated and this gives them a rapid growth.
According to Sraders (2018) the sophistication includes increased fiscal transparency; focus on production, developing regulatory bodies and exchanges, and acceptance of outside investment. There are some characteristics about emerging markets that differentiates them from the other markets. Amadeo (2019) introduces 5 characteristics about emerging markets.
23 First one is having a lower per capita than the average. World bank defines emerging markets that have lower per capita than 4.035 US dollars. This is the characteristic that triggers the following one, which is the rapid growth. In order to have a rapid growth the economies must be in the level of a medium size or lower otherwise the rapid growth wouldn’t be possible. In a global perspective, the growth rate of emerging markets is higher than approximately 4% while the traditional/big markets are lower than 3%. China and India are considered to be the biggest emerging markets in the world. According to the World Bank statistics they have the growth rate of 6.9 and 6.681 while the traditional markets and the most developed economies like United States and United Kingdom have the rate of 2.273 and 1.787 respectively (The World Bank, 2017). This rapid changes lead to the third characteristic of the emerging markets, which is the volatility. According to Amadeo (2019), volatility depends on these 3 factors: Natural disasters, external price shocks and domestic policy instability. Natural disasters are mostly effective on the economies, which mainly relies on agriculture. Furthermore, the vulnerability of emerging markets comes from the currency and commodity swings. The reason for that is the emerging markets don’t have enough power to react instantly to these dramatic changes.
The fourth characteristic is again triggered by the rapid growth. In order to have higher rapid growth than the matured markets, a bigger size of investment capital is required. “But the capital markets are less mature in these countries than the developed markets. They don't have a solid track record of foreign direct investment. It's often difficult to get information on companies listed on their stock markets. It may not be easy to sell debt, such as corporate bonds, on the secondary market. All these components raise the risk. That also means there's greater reward for investors willing to do the ground-level research” (Amadeo, 2019).
Finally the fifth and the last characteristic of emerging markets is “higher-than- average return for investors”. The reason leads to that is the emerging markets countries have an export driven strategy. Usually the internal demand is very low.
This leads manufacturers to produce low cost commodities. Thus the emerging
24 markets become very attractive for developed countries to invest in. Briefly, the emerging markets are very attractive for investors.
Emerging markets can be identified with the 5 characteristics mentioned above. However there is another indicator and most commonly used to identify which countries are emerging markets and rank them. It is called the Morgan Stanley Capital International Emerging Market Index (MSCI). According to MSCI the emerging markets are the following 23 countries: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and the United Arab Emirates. As it is seen in figure 3, these 23 countries have positive GDP growth rate according to World Bank (2017). Again by looking at World Bank (2017) data, the countries that are having a greater growth rate than 4% are China, Czech Republic, Egypt, Hungary, India, Indonesia, Malaysia, Philippines, Poland, Thailand and Turkey. The most emerging markets are defined by having a 5.4% growth rate as minimum by the World Bank. From the figure 3, it is observed that these emerging markets are China, India, Malaysia, Philippines and Turkey.
2017 2017 2017
Chile 1.5 India 6.7 Qatar 1.6
Brazil 1.0 Indonesia 5.1 Russia 1.5
China 6.9 South
Korea
3.1 South
Africa
1.3
Colombia 1.8 Malaysia 5.9 Thailand 3.9
Czech Rep. 4.3 Mexico 2.0 Turkey 7.4
Egypt 4.2 Peru 2.5 United
Arab Emirates Greece 1.4 Philippines 6.7 0.8
Hungary 4.0 Poland 4.8
Figure 3: GDP growth rate in 2017, The World Bank (2017)
25 2.2.4.1 Russia and China as Emerging Markets
While the new models in literature covers emerging markets, the old models are updated in order to explain as well. U-Model (2009) is one of the models that are applicable on emerging markets after being included the significance and the role of business networks as it is discussed earlier. After discussing the characteristics and which countries are considered to be emerging markets, now they can be linked to business networks in particular emerging markets because it is one of the important competencies that the recent literature can explain. Thus it will lead to a clear picture of how new/updated models are able to explain emerging markets. Russia and China are one of the two emerging markets by the year of 2017. Both countries include good firm examples, which aren’t restricted with the traditional methods in literature but actually using the methods, including business networking, which required an update to some past written literature in order to adjust in today’s business world. When the international behavior of the firms is examined, in both countries, the global expansion strategy of the firms included the business networks in the foreign markets.
In the case of China, the firms started to be involved more in the foreign market. While being the Chinese market leader by the end of 2016, Lenovo entered in North America market by acquiring IBM for 1.75 billion US dollars in 2005 and by the first quarter of 2017 with 21% market share, it remains the third after Apple and Dell in North America PC market (Daxue Consulting, 2017). Huawei is another Chinese firm which expanded oversees after being a top player in its domestic telecommunication market. Their business networks are the key factor in their international success. In order to compete with the big players such as Apple and Samsung, Huawei followed the strategy of partnering with other big telecommunication players in the market such as T-Mobile and Vodafone. By the end of 2016 Huawei reached the 75.1 billion US dollars (Daxue Consulting, 2017).
Final example from China is Haier, which is one of the largest consumer electronics and home appliances manufacturers in the world. Likewise the previous examples, as 2016, it was the domestic market leader by 29.8% market share. After globally
26 expanding (North America, Europe, Middle East/Africa, Asia-Pacific, ASEAN, and South Asia), the global revenue of the firm became 28 billion US dollars with 6.8%
annual growth in 2016 (Daxue Consulting, 2017). The key to this success was the acquisition of General Electrics (GE) in 2014.
Russia, as another emerging market, has its firms who are globally expanding after being a top player in local market. It is known as one of the biggest natural resource provider in the world, as matter of fact approximately 30% of natural resources in the world. Therefore the most successful Russian firms in global markets are the natural resource miners, producers, exporters, and sellers.
Gazprom is one of the examples that fit to those definitions in the field of natural gas. By the end of 2017 it has revenue of 97.6 billion US dollars (Chepkemoi, 2017).
Russian government owns the 50.23% of the company (Statista, 2017). Main countries that Gazprom exports to are Kyrgyzstan, Tajikistan, Uzbekistan, Algeria, Nigeria, Netherlands, Bangladesh, India, Vietnam, Argentina, Bolivia and Venezuela. After Gazprom the second largest company in Russia is Lukoil with 84.4 billion US dollars (Chepkemoi, 2017). In 2012 with producing 1.813 million barrels of oil per day, making it the largest oil producers in the world. Lukoil is providing oil more than 40 countries including USA, Mexico, Spain, Italy, Netherlands, Austria, Finland, Norway, Croatia, Serbia, Romania, Macedonia, Bulgaria and Turkey.
From the case of two emerging markets, China and Russia, the firms, which are operating overseas, are seizing the opportunity of networking in order to penetrate the foreign market and become successful in a relatively short amount of time. As it is mentioned before, the big Chinese firms are targeting the acquisition of the big local players in the foreign market in order to compete with even bigger firms and Russian firms have business networks in the process of exporting. The success of emerging market firms, using the network in foreign markets, comes from their past experiences and applications in their local markets. Especially the business networking with the local players sometimes can be defined as “informal business network”. In the case of Russia and China, both countries have their
27 unique way of networking, which was shaped by their culture and their activities in the local market.
Chinese way of networking is called “Guanxi”. Business Insider defines it as
“Fundamentally, Guanxi is about building a network of mutually beneficial relationships which can be used for personal and business purposes” (Business Insider, 2011 ). Like in any other country business networking is an important part of doing business however it is even a more important case for China. The difference between the Western understanding of business networking and Chinese is the intimacy that the Chinese people are expecting. “While in the other parts of the world, you may be able broker a deal just through formal business meetings; in China it is necessary to spend time getting to know your Chinese counterparts outside the boardroom during tea sessions and dinner banquets (Business Insider, 2011 ). The “Guanxi” between the firms or individuals, allows them to spend much more time with each other and this may lead to other business opportunities and transactions. Sometimes it can be misunderstood as if being successful in the business relationship is being able to build a strong relationship with Chinese firms aside from the business part. It is the biggest misunderstanding of the concept Guanxi. It should be used as the final step of success while doing business. The firm must be prepared and generate a business plan according to the settlement environment and than Guanxi must be the indicator tool of the agreement by both sides.
On the other hand the Russian informal way of networking is called “Blat”. As a concept, it depends on the networking between family, friends and close contacts in order to exchange benefits that are mutually can be exchanged at the needed time. It comes from the Soviet times and was different than how it is today. During the times of shortages of the needed items led black markets to grow and a corrupted system was formed. Outlaw businesses, bribery, extortion and such cases were seen at that time. Blat was such in a dimension that businesses were sealed illegally; people were hired in prestigious positions informally and items were traded with different prices than the free market. It was the connection of the
28 people who are hierarchically in higher position in society. It still exists today, however since the political and business environment is now different in Russia, it was shaped according to today’s conditions. Today it is accepted as informal rather than illegal. The transformed status of Blat for today can be called, as “you need to know some people if you want to do business”. It is still not quite accepted by Western side and a struggle factor for Western firms when they try to do business within Russia or with Russian firms. In literature, the most given example to explain the contrast between Western culture and Blat is the Ikea example. In 2000 Ikea wanted to launch its first store in Russia. Ikea was aware of the Blat networking, so that they had to make some contacts including the president of Russia at that time. However they couldn’t predict how they should have gone through in this network. Because of the officials they skip to pay, the electricity of the store was cut off. (Word Press, 2013)
The developed markets such as Japan, has more economic security, robust industries and stable infrastructure than the emerging markets. It took years in order to become a developed market. Now it is seen that the emerging markets have a better potential and growth rate in order to reach the level of developed markets. By the end of 2018 the GDP growth of emerging and developed markets are 60% and 40% respectively and by the end of 2022 it is expected to be 65% and 35% (Seeking Alpha, 2018). The reason of the rapid growth rate is, among other factors, the new expansion strategies of the firms. Like in the U-Model, the stage base strategies were the most effective ones back in its time but today most of the firms, which are planning to expand on foreign markets, are trying to avoid of stage base model. In today’s business world, it is considered as time consuming and non-effective method. The other methods such as networking enable firms to get faster and more effective returns and in parallel to that it is the most seen case in emerging markets in order to compete with developed markets.
29 2.2.5 Previous studies about Turkey
Since this paper focuses on Turkish firms and their networking behavior, last section of the theoretical part consists of the previous studies made by the scholars, which investigates the globalization, especially networking behavior, of Turkish firms. Turkey, as an emerging market, includes many firms, which enters foreign markets and showed the behavior of networking. Like other emerging markets, stage base expanding isn’t preferable for Turkish firms in order to challenge and reach the Western developed markets. Hence networking behavior is one of the reasonable and preferred options for Turkish firms to accomplish a rapid and efficient global expansion.
According to Holtgrave et al. (2019), the networking behavior of Turkish firms comes from its own culture. “The Turkish culture differs greatly from that of most Western countries; while Western societies score high on individualism, meaning that actors seek to maintain independence, the Turkish society is considered collectivistic, which means that action evolves from social units which typically encompass a variety of actors” (Holtgrave et al., 2019). Globe project (House, 1991), results are supporting the two culture differences. Turkey has the score of 5.88 and USA, as a western sample, has the score of 4.25 in the category of in-group collectivism. Another result that can support this argument is from the category of team-oriented leadership. Turkey has the score of 6.01 while USA having the score of 5.8. One of the other claims of Holtgrave et al. (2019) is the social and business networking of Turkish society is the key driver of organizational innovation. The networking can be both internal and external.
Holtgrave et al. (2019) defends that the external networking has much more value for the Turkish firms than the internal networking. “As external contingencies, network ties not only provide access to knowledge, but also confront Turkish organizations with diverse perspectives and thereby enhance their internal learning capability and capacity to innovate” (Holtgrave et al. 2019).
Another research made by Yaprak, Turkan, & Cetindamar (2018),
30 investigates the internationalization pattern and its indicators of emerging markets through the examples from Turkish firms. As it is mentioned in this paper, Yaprak, Turkan, & Cetindamar (2018) also attaches importance to the emerging markets because they believe some of the firms are growing rapidly and become world-class players globally. According to Yaprak, Turkan, & Cetindamar (2018), besides the fact that Turkey has one of the best rapid growths (over 4%) among emerging markets it is a good sample since with its location it is linked with multiple regions such as Europe, Middle East and North Africa. The findings from their research pointed out that there are firm-specific and country-specific advantages of Turkish firms during the process of internationalization. Main firm specific advantages are: “financial and operations supremacy; excellence in value chain activities; inexpensive resources; rapid learning capabilities in production and technology development; and adaptability in foreign markets” (Yaprak, Turkan, & Cetindamar, 2018). The focal firms in this study are successful and dominant players in Turkish market so the basis of their global success comes from their infrastructure they have built at home. According to Yaprak, Turkan, &
Cetindamar (2018), this infrastructure can be technological and business model innovations. Furthermore they experienced to develop their resource sets in their value chain. This gives them the awareness of the underdeveloped suppliers at home market and search for ventures abroad. On the other hand the main country specific advantages are: “government policies supporting internationalization;
logistical advantages arising from geographical position; adaptability capabilities resulting from survival through institutional voids; strong social ties formed through networks; and low cost resources” (Yaprak, Turkan, & Cetindamar, 2018).
Similar research made by Erdil (2012) and it is the analysis of internationalization behavior of firms through the examples from Turkish market.
According to the article, the process of internationalization comes from the experience and the time commitment made to international business. The risk of internationalization process drives the firms to start the process from a closer market first in order to reduce the risk by being close to the home market. If the first launch becomes successful, it is a great chance for the firms to practice their
31 knowledge and skills on foreign market operations in order to expand to other distant destinations. In other words the expansion on the near markets is the field for the firms where they can make self-evaluation for the other possible distant country expansions in the future. According to Erdil (2012) this behavior is defined by the industrial network approach. This approach is considered in the stage base approach, which is discussed in this paper before. Erdil (2012) continues to define other approaches such as business networking. Same concept of “gaining experience” is also valid in this case. This time it isn’t from foreign market activities but from the business relationships with other players, customers and suppliers. The significance of the usage of Internet is mentioned in the article in the sense of how it strengthens the business networks. “Also the internationalization of entrepreneurship is becoming increasingly facilitated through the use of the internet. This process may be compared to the firm’s adoption and use of the Internet and the internet-based processes in transforming the firm to a hybrid network internally and externally within the firm’s home and international markets, especially when the members of its external network have already internationalized” (Erdil, 2012). After mentioning the different approaches, the author comes up with a conclusion that once Turkish firms starts the process of internationalization by the mode of traditional exporting, the following path they choose to prefer is either foreign direct investment or partnerships.
2.3 Methodology
This paper is conducted by a quantitative research. In order to collect data, the method of preparing a survey is chosen. The methodology is consisted of two major parts. One part is related with the survey itself and the other part is the way of reaching the survey respondents. The survey related part is the conduction of the survey and analyzing the responses. On the other hand reaching respondents is about determining the companies, job titles of employees, minimum number of respondents and the channel of reaching the respondents.
32 2.3.1 Reaching the Respondents
The target respondents of the survey were selected in parallel with the aim of the research. Employees with significant job titles who work in Turkish firms, which have international activities, are the main targets to in order to get accurate responses from the people who can be related with the research with their area of profession. The first source for reaching out respondents is people that are reachable without any mediator person or computer program. These respondents are family, friends and people that the survey can be given by first hand. The second source of reaching out respondents is the second hand network. These respondents are family and friends of the first hand network. First and second hand network are good starting points to receive initial results. It gives you an idea how the responses will be shaped like. However the number of responses wasn’t enough that is received from first and second hand network in order to finalize the survey results. Therefore a third source was needed in order to finalize the results and moving on to the analysis part. For the third source, after many research and discussion, the internet/app service LinkedIn was chosen. As it is known, it is an employment-oriented service and there are many employees that are registered from many different countries and companies with many different job titles. In order to target respondents there are many filter options on LinkedIn that the respondent pool can be narrowed down. For the filter options; company and job title had to be determined. Before proceeding on LinkedIn, company research was made. The most active Turkish companies in foreign markets were determined.
After generating the company list the job titles was determined. It had to be relevant job titles and seniority of employees in order to get accurate responses.
On LinkedIn’s filter options, Boolean search is possible. In order to put the job titles and seniorities as Boolean formula, key words was determined.
