Chapter 1: Introduction
1.1 Background of Firm Internationalization
There is an extensive literature available on internationalization process and its associated advantages and disadvantages (Mukti, Kota and Mersini, 2009). Internationalisation is a concept of doing business globally; however this term is specifically used for other countries doing business in Europe. According to Kauter, et al (2015) firms decide to internationalise to expand their business in different countries to obtain more profitability by capturing more profitable market. Andersen & Buvik (2002) observe many organisations to internationalise and adopted various strategies to match their economic, financial and strategic goals. Gaston-Breton & Martín (2011) further observes that internationalisation have been a general phenomenon due to globalisation and technological advancements. Not only firms internationalisation assist the firm to expand their business but enable them to attain profitability. (Keskin, Anil and Canel, 2012) highlights development of new and improved manufacturing techniques and process is also a significant advantage of internationalisation.
Expansion of organisation globally refers to their behaviour when they sell and distribute brands and products in different countries. (Anil and Cakir, 2010) observe the concept of internationalisation developed due to poor conditions of governments which were unable to provide significant investments and facilities for trade. According to Sakarya, et al (2007) organisations are inclined to expand their manufacturing in different countries due to cost effectiveness. Furthermore improved and cost effective material may also be obtained from other countries. After World War II western companies started to invest and trade in other countries; several technological advancement also expanded along with innovative manufacturing style and methods. Some were adapted by west and some were influenced by West. National economies now partially or completely rely on globalisation nowadays; where governments, suppliers, producers and consumers are concerned. Through globalisations firms have been encouraged to capture new opportunities by operation internationalising which is possible due to increased connection between countries.
Firms mainly enter into internationalisation to expand their target market, enhance productivity, and thus become leaders of the market. Papadopoulos & Martín (2011) observes firms to capture opportunities present outside their country and expand in terms of scope and value, by developing their business ideas, principles orientation and work nature. Bell & Van Scheer (2013) defines firms with such strategies to be developed into transactional firms. Mohr & Batsakis (2014) consider competitiveness of a firm to be based on development of transactional in nature, where internationalisation process assists in development through integration, knowledge of foreign market dynamics and acquisition.
Firm internationalisation can be described both on macroeconomic and microeconomic approach; where macroeconomic approach refers to broad aspects describing commercial elements, and microeconomic approach is concerned with the elements which are specific to the firm. Macroeconomic approach expands firm internationalisation in terms of change in capital and theory of labour division; however Westhead, et al (2002) observes microeconomic approach to be involved in product lifecycle theory. Apart significance of internationalization for corporate advantages, the most significant factor is the selection of entry mode and investment type like Acquisition and Greenfield and ownership preferences (Joint ventures and Wholly owned subsidiaries) which defines the success of international firms. Similarly, the industries that expand beyond borders in terms of sales like exports of merchandize need to evaluate their entry modes., investment types and ownership structure to successful continue their expansion (Tsai and Cheng, 2004; Kukeli, 2007).
Textile and apparel industry play significant role in economies of many countries, economies of some countries are even based on exports of textile and clothing products. Keane and Velde (2008) conducted a theoretical and qualitative paper on evaluating the role that textile and clothing industry plays in UK economy. The researchers suggested that in the short run, textile and clothing industry provides various economic and social benefits of increased incomes, jobs, especially for women, and foreign currency receipts as well as long term benefits of sustainable growth in industry. However, in UK, the textile industry has seen decline due to various reasons and specifically low level of attention by policy makers and local industries. Karaalp & Yilmaz (2013) observes more recent inclination of international clothing and textile. Turkey is also one of the significant exporters of clothing and textile. However Milašius & Mikučioniené (2014) observe turkey to be alarmed of losing its share in UK market. Although clothes and textile of Turkey are valued more in Turkey, however Milašius & Mikučioniené (2014) observe no significant change in quantity of demand. Karaalp & Yilmaz (2013) highlight low cost production and cheap products have affected market share of several clothing and textile industries. This indicates that consumers are more inclined towards low cost and low quality products, rather than high quality and high priced product of Turkey. This paper aims to compare the markets of UK and Turkey and suggest effective strategy of entry and investment to gain competitive advantage in UK market.
1.2 Purpose of the Study
Internationalization has gained significant attention in recent years, specifically due to globalization. UK is a developed country with aware and conscious consumers. Industries of developing countries tend to capture potential markets for profitability. However there are several strategies available for market penetration and adaption of suitable strategy leads to success. On the other hand, inappropriate strategy may develop failure. Suitability of a strategy depends on various internal and external factors. Turkey’s clothing and textile industry already has an exposure in UK market through various sources such as exhibitions, direct material imports and other collaborations among entities. However, nearby countries such as Russia remained Turkey’s biggest market, importing around US $514 million worth textile and fabrics from Turkey (Volkmann, 2015). Due to the declining Lira (Turkish currency) and sanctions by Russia, it is assumed by several market expansion consultancy firms; UK is expected to be one of main beneficiaries and with continued declining state of textile and fabrics industry in UK, there is great advantage for Turkey to expand to UK. This paper, therefore, aims to investigate which strategies of entry and investment should be adapted by Turkish textile industry to have competitive advantage in UK.
1.3 Significance of the Study
The significance of this study lies in significance of textile industry for economies around the globe that is highlighted by many researchers (Cadot, Iacovone, Pierola, and Rauch, 2013; Ahmed and Kalim, 2013; Fletcher, 2009). Gardetti and Torres (2013) in their study found that in 2000 alone, the world consumers’ spent around U.S. $1 trillion on clothing out of which one-third industry was represented by West European countries, one-third by North America and one-quarter by Asian economies. The same figure rose to around £8.9 billion for UK alone in 2012. In UK industry, the manufacture textiles accounts for 59.5% of industry turnover, clothes account for around 29.6% of industry turnover and leather and related products account for 10.9% (The National Archive, 2014). The figure below presents the increase/decrease in output of textile industry from 1948 to 2013.
Figure 1: Textile and total manufacturing output since 1948
Source: ONS Index of Production (2015)
Moreover, the employment that textile sector provides accounts for over 26.5 million individuals according to statistics from the UNIDO (United Nations Industrial Development Organisation), Industrial Statistics Database (INDSTAT) (ILO, 2006 cited in Gardetti and Torres, 2013). While the significance of textile industry is obvious for major exporting countries like Turkey and Pakistan, countries like UK have face constant decline in their textile industry with more focus on imports from other countries. Since the late 1970s, the industry has experienced a steady decline in output with a decline of around 64.7% between 1979 and 2013 and employments decline by 90.1%, from 851,000 to 85,000 during the same period (The National Archives, 2014).
Based on the challenegs that UK economy faces in growth of textile and rising demand for fabrics and clothing industry, as well as the sanctions applied on Turkey from Russia and declining Lira highlights the significance of this study. The study therefore, evaluates the best strategies that can be adopted by Turkish textile industry to penetrate UK market and achieve increase trade in textile and clothing.
1.4 Research Objectives
The main research objective is to develop an understanding of the market position of UK and which factors or strategies may enable successful penetration. Different entry and investment strategies shall be studied, analysing them critically according to the market of UK. The objective of the research can be summarised as follows:
- To understand current entry and investment strategy of Turkish textile industry.
- To understand market dynamics of UK.
- To compare the market dynamics of UK and Turkey.
- To recommend suitable strategy for entry and investment to Turkish Textile industry.
1.5 Research Questions
For the achievement of above research aim and objectives, following research question is suggested:
- What are the similarities and differences in market of Turkey and UK?
- What is the current strategy of Turkish textile and clothing industry to penetrate in Turkish market?
- Which is suitable entry and investment strategy to have competitive advantage in UK market?
The structure of this dissertation and its context are shown as follows:
Chapter One: Introduction – This chapter provides background the issue i.e. internationalization of Turkish firms in UK market as well as aims and objectives of the study. Moreover, the chapter also highlights specific research questions that are answered using primary and secondary research.
Chapter Two: Literature Review – This chapter presents critical analysis of previous studies conducted on similar issue of internationalization, various theories that create background for strategies of firms when expanding abroad. Moreover, previous literature on Turkish and UK textile industry is also included in the chapter.
Chapter Three: Research Methodology – This chapter presents details for research methods employed in this study along with details of sample and data collection. The chapter also presents various limitations associated with research method selected and ethical considerations in relation to the research which is conducted.
Chapter Four: Data Findings and Analysis – This chapter presents findings regarding economic and industry information of textile industry as well as external factors that need to be studied before recommending a strategy for Turkish textile industry. Based on the data analysis, various recommendations are presented to strategically enter UK market while maintaining increased market exposure.
Chapter Five: Conclusions and Recommendations – This chapter presents summary of findings from findings and secondary literature as well as recommendations based on limitations of this study for future researcher.