Turkey- A Work In Progress: An Integrated Case Study

 

 

Turkey- A Work In Progress: An Integrated Case Study

 

 

 

By:

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May, 2016

 

 

 

 

 

 

 

Lists of the-Figures

Figure 1: Turkey’s GDP changes 2010 – 2015 (Source: www.statista.com) 6

Figure 2: Poverty head count in percentage of population 2010 – 2016 (Source: http://www.statista.com) 6

Figure 3: Inflation in Turkey 2012 – 2016 (Source: www.statista.com) 7

Figure 4: Investment, capital formation public and private and change in stock (Source: Vietor 2015) 8

Figure 5: Domestic, foreign and total savings (Source: Vietor 2015) 9

Figure 6: Attractiveness of Turkish cities to foreign investment 17

Figure 7: Reduced poverty levels (Source: TURKSTAT) 17

Figure 8: Turkish income distribution. 18

Figure 9: Export and import volume indices. 19

Figure 10: GDP growth and contribution to net trade. 20

Figure 11: Factors that hinder entry into the Turkish market 21

Figure 12: Market entry models. 21

 

 

 

 

 

 

 

 

 

 

 

Lists of Tables

Table 1: Respondents by regional businesses. 14

Table 1: Country score using constant sum method – Europe. 28

Table 2: Country score using constant sum method – Asia Pacific. 29

Table 4: Country score using constant sum method – West African Market 30

Table 5: Market export option rating. 31

Table 6: Market licensing option rating. 32

Table 7: Market franchising option rating. 32

Table 8 Market outsourcing option rating. 32

Table 9 Market joint venture option rating. 33

Table 10 Market wholly owned subsidiary option rating. 34

Table 11 Market strategic alliance subsidiary option rating. 35

Table 12 Market strategic alliance subsidiary option rating. 35

Table 13 Market strategic alliance subsidiary option rating. 36

Table 14 Market strategic alliance subsidiary option rating. 36

 

 

 

 

 

 

 

 

 

 

Contents

List of Figures. ii

List of Tables. iii

Executive Summary. vi

Chapter One. 1

Introduction. 1

1.1.      Research Problems. 2

1.2.      Rationale of the Research. 4

1.3.      Re-search Objectives. 4

1.3.1.       The-General Objective. 4

1.3.2.       Specifics Objectives. 4

1.4.      Research Questions. 4

Chapter Two. 5

Case Brief. 5

2.2.1.       Labour Markets. 7

2.2.2.       Political Environment 9

Chapter Three. 10

Problem Statement and Plan of Analysis. 10

3.1.      Introduction. 10

3.4. Important Assumptions. 15

Chapters Fours 16

Analysis and Findings. 16

4.1.      Introduction. 16

4.2.      Characteristics of Turkish Market 16

4.3.      Market Entry Problems and Solutions. 20

Chapter Five. 23

Proposed Solutions to the Problems, Recommendations, Limitations of them Analysis. 23

5.1.      Introduction. 23

5.2.      Proposed Solutions to then Problem.. 23

5.2.1.       Implications of Findings to Stakeholders. 23

Chapter Six. 27

Application of Learning on another Company. 27

6.1. Introduction. 27

6.2.      Indicator Selection and Data Collection. 27

6.3.      Country Indicator Ratings. 27

6.4.      Rating the Countries in the Pool on Each Indicator 27

6.4.1.       European Market 28

6.4.2.       Asia Pacific Market 29

6.4.3.       West African Market 30

6.5.      Factors Influencing Selection of the Mode of Entry. 30

6.6.1.       Licensing. 31

6.6.2.       Franchising. 32

6.6.3.       Outsourcing. 32

6.6.4.       Joint Ventures. 33

6.6.5.       Wholly Owned Subsidiaries. 34

6.6.6.       Strategic Alliances. 34

6.7.      Combined Rating of Entry Strategies. 35

6.7.1.       Preferred Entry Strategy for Chinese Market 35

6.7.2.       Preferred Entry Strategy for Russian Market 36

7.3. Preferred Entry Strategy for Nigerian Market 36

6.8.      Recommendations. 37

6.9.      Conclusion. 37

References. 38

 

 

 

 

 

 

Executive Summary

This business plan examined the business environment in Turkey with the aim of identifying and examining the characteristics of Turkish market with respect to multinational market entry and growth; reviewing various market entry problems with the Turkish market and models applicable in solving them; highlighting implications of the research findings and to make recommendations on solutions and action plan; and applying the findings to solve problems in a particular industry. The analysis examined economic indicators, labor markets, general business environment, savings and investment and political environment. The research applied determining approaches to establishing the economic indicators and real business perception. Survey approach was used on a sample of respondents drawn from 150 multinationals across the world with 50% of European companies, North American companies 30%, the Middle East 10%, Asian 8% and Oceanian companies 2%. Findings were that Turkish market has huge potential for investment and has promising growth despite challenges. The labor market in Turkey is composed of a young, vibrant population and attractive low wages compared to its peers. Though government regulations, especially labor laws, are restrictive, efforts are being made to encourage foreign investment. The findings of this research shows that the future of foreign investment in Turkey is bright. Application of knowledge obtained from this study on Chines electronics company, Qinghua Tongfang, showed that the company can enter foreign market in West Africa as a preferred investment destination based on the critical analysis presented in this research. Limitations of this study are that it did not focus on the companies that are already in the market. Future studies should include market effects on both companies venturing into new markets and those already in the market.

 

 

 

 

 


Chapter One

Introduction

Expansion and venturing into new markets are important for firms that target global markets (Kumar, Stam & Joachimsthaler 1994). Companies seeking entry into the world markets have to consider key indicators that influence their strategic plans and criteria of expansion (Sakarya, Eckman, & Hyllegard 2007). The key determinant of the choice of approaches to reap from the global markets is the market growth and size. The growth of Turkish market as an area is attractive to investors in various sectors of the economy. The risk factor is another important factor that impacts the business prospects; this is related to the economic and political instability. There is an increasing stability in the business climate of Turkey that makes it favorable for companies willing to commit significant resources to the country (Başlevent, & Onaran 2004).

The Turkish government has made remarkable efforts to streamline trade barriers and ensure that regulations are favorable for business and labor market (Başlevent, & Onaran 2004). Given that government regulations are a main factors to consider in choosing market entry mode and expansion, the streamlining of trade has been done to facilitate favorable business. The type of the market competition in the Turkey has been levelled by conducive measures that encourage foreign investments and financial market (Ozturk & Acaravci 2013).

The physical infrastructure of the Turkish market includes the country’s system of distribution, transport and communication network which has currently seen significant improvements. The development of the local infrastructure is an enabling factor towards company commitment to investing major resources in the country. The combination of all these factors in Turkey sheds light into investor determination of the overall market attractiveness of the country (Başlevent, & Onaran 2004).

Culture is an essential element while venturing into new markets (Debanjan & Golder 2012). Since decision on the entry mode is impacted on by cultural distance between countries, the dynamism of Islamic culture in Turkey has made it achieve economic revival since the tumultuous 1990s. It is argued that through high equity ownership percentages, there is a possibility to bridge cultural value and institutional differences. Also that by depending on joint ventures in preference to wholly owned subsidiary multinational companies can reduce their exposure to risk in markets which are culturally distant (Ozturk, & Acaravci 2013). Strategic position of Turkey between Europe and the Middle East offers an accommodative culture to investors from both Western Countries and the East.

Previous research into business and industry potential of Turkey has focused mainly on economic indicators, political environment and the strategic location of the country (İmrohoroğlu, et al. 2014). Factors like market potential and growth factors have not been substantively addressed. More challengingly, the topic of culture has been discussed with widely varied approaches, resulting in mixed signals to investors. It is important to examine the market the factors with an aim of highlighting investment opportunities in the market.

1.1.            Research Problems

Turkey’s rise in GDP since 2002 has led to infrastructural improvements, increased productivity and increased consumer spending (A İmrohoroğlu, 2014; Balasubramanyam, Salisu & Sapsford, 1996; Aslanoğlu, 2000; Kotler & Gertner 2002).

The challenge of supplying growing market demand has been on the rise. There is a need for greater investment in all sectors of the economy to cater for the growing requirements of the market (Ok, 2004). The existing firms have not sufficiently met customer needs.

Recently, the increasing urge to supply market demands is a pointer to stakeholders to address major challenges that hinder investment in the Turkish market. Barriers such as turbulent politics, occasional civil demonstrations, inhibiting government terms of the contract and market access barriers still exist (Brown 2014). Though Turkey has laid greater emphasis on growth of investment and trade, free-trade policies are hindered by government control over business (Öniş & Kutlay 2014). The government has been at the forefront of creating an enabling environment for business by regulating it. It is however noted that the role of private sector should be emphasized to encourage investment.

The problem is that previous research has focused more on various challenges in entering and expanding of multinational companies in Turkey. The media have also emphasized this (Alıcı, &  Ucal 2003; Bekaert & Harvey 2000). These calls for a pragmatic approach that seeks to highlight opportunities and ways of exploiting them to reap from the market (Demirbag & Mirza 2000; Gatignon & Anderson 1988). The question of what exactly does the dynamics of Turkish market require has not been adequately addressed in research (Deichmann, Karidis & Sayek 2003; Singh & Jun 1995). Research into venturing the market despite its cultural and turbulent nature is not adequate.

This study sought to address the problems and challenges by highlighting opportunities and analyzing ways of exploiting them in venturing the Turkish market.

1.2.            Rationale of the Research

There is a need to know the nature of the Turkish market, opportunities available and ways through which companies can enter it. Previous research focused more on challenges than on highlighting major opportunities that exist in the market. The main image created by the market is complicated, restricted and an unfair one, giving investors a discouraging information. This research sought to address the challenges and research gaps with the aim of providing a balanced view of the country’s market potential. It attempts to recommend ways of addressing the challenges so as to meet the increasing market demand.

1.3.            Re-search Object-hives

1.3.1.      TGenerals Object-hive

These research mainly sought to examine business environment in Turkey with the aim of informing on multinational companies’ market entry and growth in the country.

1.3.2.      Specifics Objectives

  1. I. To identify and to-examine characteristics of Turkish market on multinational market entry and growth;
  2. To review various market entry problems with the Turkish market and models applicable in solving them;

iii.    To highlight implications of the research findings and to make recommendations on solutions and action plan; and

  1. To apply the results to solve problems in a particular industry.

1.4.            Research Questions

  1. What are the characteristics of Turkish market on multinational market entry and growth?
  2. What are the various market entry problems with the Turkish market and what models are applicable in solving them?
  • What are implications of the research findings and what is the appropriate solutions and action plan? and
  1. In which ways are the results applicable in solving problems in a particular industry?

 

Chapter Two

Case Brief

2.1.    an-Introduction

This chapters presents description of the situation Turkey and outlines assumptions and scope of the research.

2.2.    Description of the Situation

Turkey lies between Asia and Europe with about 3% of its land mass in Europe (Vietor 2015). It borders Bulgaria, Greece, Iraq, Syria, Iran, Armenia, and Georgia. The population of Turkey was estimated at 78.7 million people in 2015 growing at a rate of 1.2% (Vietor 2015; Erdal & Tatoglu 2002; Rose-Ackerman & Tobin 2005). About 99% of the population are Muslims and the official language being Turkish.

2.2.1.    Economic Indicators

Turkey has mixed traditional and modern economy. Financial performance has been spectacular since 2012 and a GDP of about 6.7% annually between 2002 and 2007 to a peak of 9.3% in 2010 followed by an economic slowdown to 9.16% through to a low of 3% during the year 2011 (Figure 1). In 2015 GDP growth was reported at 4.2% (World Bank 2015). Poverty headcount ratio reduced steadily from 3.7% in 2010, 2.8% in 2011, 2.3% in 2012, to 1.6% in 2014 and increase to 10.6% in 2016 (Figure 2). Inflation stood at 10.6% in 2012 and has been declining. Average inflation for the last three years has been: 7.49% in 2013, 8.86% in 2014, 7.44% in 2015 and 6.98% in 2016 (See Figure 3).

Figure 1: Turkey’s GDP changes 2010 – 2015 (Source: http://www.statista.com)

 

Figure 2: Poverty head count in percentage of population 2010 – 2016 (Source:www.statista.com)

Figure 3: Inflation in Turkey 2012 – 2016 (Source: http://www.statista.com)

2.2.1.            Labour Markets

About 24 million people are employed in Turkey with 60% of them working in the formal sector (Vietor 2015). The unemployment rate stood at …% in 2015. The government increases wages twice annually therefore mainly solving the problem of turnover and absenteeism. The Constitution of Turkey prohibits links between labor unions and political parties (Vietor 2015, p. 8). Civil servants and police, as well as teachers employed by the government, are not allowed to form or join trade unions.

Unit labour costs have been on the increase since 2001, but exchange rate depreciation of Turkish Lira has resulted in a 12% fall since 2010 (Vietor 2015). Lack of investment and rigidity in the labour market has led to lower productivity.

2.2.2.    The Business Environment

According to Vietor (2015) Turkey enjoys more than USD 100 billion in foreign investment. The country has a provision to attract European investment through attractive features as well as low wages and flexible labor market. According to World Bank (2012) it is easy to start business, register property and enforce contracts in Turkey but dealing with insolvency is a challenge.

According to Transparency International (2015), corruption is a problem in Turkey with bribery being a particular issue. However, Turkey has succeeded to make significant efforts in solving corruption problems in the country ((Aydin & Terpstra 1981; Luo & Tung 2007; Deichmann, Karidis & Sayek 2003; Vietor 2015).

Major companies operating in Turkey are “diversified family-owned” business conglomerates (Vietor 2015, p. 9). Major businesses that operate in Turkey include Koc Holding, Dogus Holding, TEB Holding and Alarko Group in the banking, construction, power generation and automobiles, among others.

2.2.3.    Savings and Investment

Savings levels in Turkey is still too small to finance investment; leading to reliance on capital flows. Expansion of credits by banks has resulted in low levels of savings in both public and private sectors. Figure 4 below shows a graph of investment while Figure 5 illustrates domestic, foreign and total savings in Turkey. There has been a steady increase in investment and savings in Turkey during 2010 to date.

Figure 4: Investment, capital formation public and private and change in stock (Source:Vietor 2015)

Figure 5: Domestic, foreign and total savings (Source: Vietor 2015)

2.2.2.            Political Environment

Turkey has been facing major political challenges with a mix of modernization and Islamic nationalism playing a significant role in Turkish nationalism (Dumludag 2009; Cavusgil, Ghauri & Agarwal 2002). Five forms of nationalism exist in Turkey: Ataturk nationalism which views modern Turkey as separate from Islamic state; Kemalism, which has an ethnocultural face; radical nationalism based on connections with the former Soviet Union; youth-oriented liberalism; and Islamic nationalism which advocates for Sharia law (Dumludag 2009; Cavusgil, Ghauri & Agarwal 2002).

 

 

 

 

Chapter Three

Problems Statements and Plans of Analysis

3.1.            e-Introduction

This chapters reviews existing literature in the subject area and presents approaches to the analysis of the problem.

3.2.    Problem Statement

Lots of research has been conducted concerning emerging and rapid growth markets based on many factors (Meyer & Gelbuda 2006; Okumus & Karamustafa 2005; Efendioglu & Karabulut 2010). Dunning (1998) used OLI paradigm to explain reasons why firms engage in investments in foreign markets. The findings highlight measures that businesses put in place to facilitate investment in foreign markets. However, these findings fail to give reasons behind motivations to venture into other markets and the factors that influence the choice of business location. Mucchieli (1991) studied corporate strategy in Europe with reference to international business theory and found out that traditional theories did not consider corporate strategies in deciding the business location. The need to incorporate location in strategies has been emphasized by Michalet (1997) who notes that neglecting company investment strategies in defining a country’s attractiveness as a market to foreign companies is a major short-coming. These efforts emphasize the need for incorporation of location in company’s strategic entry into foreign markets.

Dunning (1998) identify market as one of the four types of strategic motivations behind investment in foreign market. Researchers have identified a connection between economy of scale proximity to markets (Branaid 1993; Di Mauro 1999). Empirical studies have related need to venture into foreign markets to size of market (Bende-Nabende 1999; Di Mauro 1999). A number of researchers like Michalet (1997) and Brenton (1996) have used survey approach and found out the overriding   importance of venturing into new markets.  The research analyzed the importance of venturing into new markets and succeeding in highlighting the key reasons but failed to examine the peculiarities of new markets with respect to strategic entry.

İmrohoroğlu, İmrohoroğlu & Üngör (2014) studied the rise in productivity in Turkey and noted that the recent increase in agricultural productivity calls for related industries to support. They identify challenge of responding to this rise as supplying market demand through increased investment the relevant sectors of the economy. Brown (2014) calls for stakeholders to address the challenges that hinder investment in the Turkish market by removal of such barriers as turbulent politics, inhibiting government terms of a contract and market access barriers. Öniş and Kutlay (2014) observe that though Turkey emphasizes on the growth of trade and investment, government control over trade hinders free-trade policies.

Research shows that Turkey has seen increased investments despite global economic uncertainty (Ernst & Young, 2013). The findings of the research show that Turkey’s Foreign Direct Investments (FDI) movements have remained immune to external uncertainties. This research shows that huge strides have been made by the government to control inflation and the budget deficit to establish stability in macroeconomic framework. Key drivers of investment in Turkey are its geographical location as well as big domestic market (Ernst & Young, 2013).

Research by Ernst & Young (2013) found out that Turkey is attractive to investors due to its large market, strategic location, and its uniqueness as a platform to connect to its domestic customers and to access surrounding European and Asian markets. The findings also show that availability of low-cost labor at an average of USD 2.98 is low compared to USD 3.29 in Russia and USD 5.23 in Brazil, as well as a vibrant population of young people. However, some researchers found out that the country’s regulation of employment is rigid and recommend the creation of more flexible employment contracts and better working conditions suitable to employer and worker requirements.

World Bank (2012) identifies impediments to investment into Turkish market to include tax filing procedure that it notes takes 223 hours annually in Turkey compared to  184 hours annually for the Middle East and North African countries. High taxation on workers’ payroll is another impediment to venture into Turkish market.

Research by the European Commission (2012) shows that currently Turkey is underperforming in terms of Research and Development collaboration between universities and industry. The weak collaboration and lack of research apparatus have resulted in the low number of researchers and lack of patent activity (Arnold & Quelch 1998; Erdilek 2003; Kaynak & Kara 2002). European Commission (2012) also identifies the quality inadequacy in the Turkish vocational education and high school drop-out as a challenge to economic empowerment.

Previous research identifies Istanbul as an investment destination together with other cities like Izmir, the second most favoured investment destination, after Istanbul and Bursa, an industrial city in the northwest region (Ernst & Young, 2013). The research establishes that most recently, Germany, France and Switzerland have been the top three investors in Bursa. Large companies that have set foot in Bursa include IBM and Nestlé to serve the growing technology needs and serve the greater Mena market, respectively. Due to the nearness of Kocaeli to Western Europe, it is the destination that is most preferred fore industrial projectors with Ford Otosan being present there since 2011 (Ernst & Young, 2013).

Various researchers have studied ways of penetrating new markets (Bamford, Ernst & Burnaz, et al. 2009; Dincer, Tatoglu, & Glaister  2006; Fubini, 2004; Hadjit,& Moxon‐Browne 2005; Hyder, & Ghauri 2000; Root 1994). Bamford, Ernst, and Fubini (2004) studied market entry through joint venture model as the most appropriate approach for penetration of foreign markets. They note that joint venture allows foreign companies to share equity as well other related resources in order to create new entity in the location of business. Hyder and Ghauri (2000) argue that their partners are local firms, as well as sub-nationational government, foreign corporations, or a mix of local and international entities. However, Bamford, Ernst, and Fubini (2004) warn that in many cases, governments prohibit or discourage wholly owned businesses in certain sectors, therefore in such cases, joint ventures are preferred solutions.

Some researchers recommend entry through contract manufacturing, where the firm makes arrangements with a local firm to produce products (Sakarya, Eckman, & Hyllegard, 2007; Khanna & Palepu 2013; Mühlbacher, Leihs, & Dahringer 2006; Scholl & Lisa 2001). The international firm has responsibility to market the product. Scholl and Lisa (2001) argue that many firms are successful through specialization as contract manufacturers. Chou and Chou (2011) note that cost saving is the main motivation for contract manufacturers. Big savings can be achieved through production that are labour-intensive through sourcing it in low-wage countries. Countries of choice have advages of comparative labour costs. Savings of labor cost are not the sole factors (Chou & Chou 2011). Others are benefits of taxation, low energy costs, cost of raw materials and overheads. It also gives low flexibility in response to sudden changes in demand.

According to Root (1994), many companies being global expansion through exports. He argues that for small businesses, export always the only alternative for sale of goods in overseas markets. Firms which plan engagement in exports choose aong three options: cooperatives, indirect and direct export.

According to Cavusgil (1997), firms may penetrate global markets through licensing process. Licensing is a process where a firm offers assets to foreign one at some charges. Many firms consider licensing very profitable in penetrating overseas market. In many instances, licensing is not very involving in terms of resources. It therefore very appealing to businesses which have resource problems (Cavusgil 1997).

According to Root (1994), franchising involves a franchisor who gives the rights to franchisee to trade trademarks, business idea, names and skills for a duration, usually 10 years (Root, 1994). Firms can capitalize on good business approach through expansion of foreign with less investment. Political risks are very few.

Market entry by wholly owned subsidy is preferable to multinational firms (Bleeke & Ernst 1991). Bleeke and Ernst (1991) explain that this type of entry is where ownership strategy in overseas market can be of two ways: acquisition of buying up existing firms which begin from scratch. Concerning other entry methods, entry through full ownership involves advantages to the company and some risks (Dumludag 2009; Cateora 2008; Terpstra, Foley & Sarathy  2012).

A strategic alliance has also been identified by researchers as a market entry model that is defined as alliance between two or more firms for important mutually beneficial goals (Bleeke & Ernst 1991; Aydin & Terpstra 1981; Luo & Tung 2007; Deichmann, Karidis & Sayek 2003). It is, prudent for firms to take into consideration the business environment and appropriate entry model in the process of deciding entry into the market.

A number of researchers have studied varies research approaches applicable to venturing into  emerging markets. Burgess and Steenkamp (2006) studied renaissance in marketing and developed a practical research method to handling dynamics of emerging markets like the Turish situation. Gronroos (1989) reviewed methods used to analyze international markets and found out that market survey cognizant of peculiarities in the emerging market are critical to highlighting insights into the market. These efforts focused on market characteristics like labour markets, consumption, economic indicators and how they affect purchasing power and choices. The research however did not conduct an in-depth analysis of how these dynamics affect market entry and expansion in the current dynamic business scenario.

Demand models have been used by a number of researchers to investigate how these factors influence specific markets like the case of Turkey. Arnold and Quelch (1998) studied the adoption of market demand-driven model and found increasing preference of the approach in researching investments in emerging markets. The strategies proposed by the model are still embraced in the market research field and emphasize on tailoring market factors to meet and create demand. These models however do not take into account factors around new unfamiliar markets and the fact that the perception of demand varies across firms and across industry even within a particular country.

Kula and Tatoglu (2003) used exploratory study to examine the level of e-business in emerging markets. The research found out SMEs in emerging markets are increasingly using technology to business. Much focus of SMEs in emerging markets was found to be on internet use for various business solution across industries. The study focused on 237 SMEs in Turkey in their use of web-based applications, communication and modern solutions to business problems. The results further emphasize that the Internet has big chances of driving SME performance and the future lies in technology. Keskin (2006) studied innovativeness of businesses in turkey using a sample size of 157 and a questionnaire survey approach. He found out that innovatiness positively affects Turkish market and that there is room for greater innovations in the Turkish business arena. The findings also show strong influence of firm orientation in respect to learning and in respect to innovativeness. The research gave insights into innovation and learning, but failed to shed light on how the two groups of factors affect entry of foreign firms in Turkey.

Sakarya and Eckman (2007) used case study to examine market entry and selection through an assessment of existing opportunities in international markets. They used a sample of 500 respondents and secondary data basing their analysis on the limitations of International Market Selection (IMS) model to study favorable markets for US retailers. Their findings show that emerging markets such as Turkey show good potential for foreign business expansion. Also the findings indicate a reasonable level of cultural distance that supports and develops local industries and very good for accommodation of foreign products and corporations. However, the research points out to the need to boost industries and tolerance for international companies. The recommendations of this research calls for strategies and efforts aimed at encouraging industries in the target countries. However, the research failed to account for market entry methodologies applicable to studied scenarios.

Luo and Tum (2007) used a spring-board perspective to examine the concept of globalization of multinationals with a focus on emerging markets. They argue that multinationals take advantage of global expansion and market entry into foreign markets as an avenue for resource acquisition and for reduction of organizational market constraints. They examined the characteristics of international expansion and detailed strategic approaches and activities carried out by some firms in the event of market entry into emerging markets. The research succeeded in highlighting risks associated by global venture into emerging markets. However, it did not provide adequate insight into how the factors affect young companies still on their way to become multinationals.

Wright, et al. (2005) conducted a strategy research in emerging markets and examined both theoretical and practical implications of four strategic approaches to entering new markets in emerging market regions. They classified strategic approaches depending on the economic status of the country of origin of the corporations and the state of the economy of the target market. The classes were: corporations from developed to emerging market; domestic companies; from emerging economy to another emerging economy; and those from emerging economy entering markets in developed nation. The research found out that institutional approach to explaining the nature of market entry is favoured for its substantive explanation of the entry dynamics. The researchers suggest that firms should focus on the four strategies when entering new emerging market and future research should focus on growing the scope of understanding of market entry factors. This research is helpful in giving insights into factors  that surround entry of new emerging market and the understanding or perception of strategies to be used. However, the research was more theoretical and thus its findings can be subjected to practical applications to give feasible real-life dimension of the strategies.

A great deal of research has focused on equity based entry mode which include costs and financial aspects of venturing into new emerging markets. Demirbag, Glaister and Totaglu (2007) used a data set of 6838 companies affiliated to foreign firms in Turkey to study how cost affects multinational market expansion strategies through ownership models. They specifically focused on the effects of transactional cost variables on the decision of multinational enterprises (MNES) during equity ownership choice available to foreign business partners. They studied what determines the selection of foreign investors and the choice of wholly owned or partially owned ventures or through green-field subsidy or full-fledged acquisition of equity.  The findings of the research confirm the importance of institutional factors in highlighting the composition of foreign partners. They found out that the decision factors on the ownership was dependent on political risks, language barriers, culture, location and size of the partners. The research highlighted the ownership factors surrounding multinational venture in Turkey and gave fundamental basis of understanding the Turkish approach to foreign ventures. However, the research did not go in-depth into examining how each of the factors can affect growth and did not give strategies to solving the problem of entry and expansion in foreign market.

Meyer, et al. (2008) applied institution base perspective to investigate the effects of support institutions on market entry strategies of corporations through using combined survey and archival data for India, South Africa and Vietnam and an analysis of foreign investments in the markets.  The study focused on resource considerations and showed how strategies for seeking resources during vary with selected entry modes. They found out that various modes of market entry such as greenfield, joint-venture and acquisition help corporations to to address efficiency problems that are associated with different aspects of markets. They note that entry modes allow corporations to develop strong survival foundation at the point of market entry.

Demirbag, Tatoglu and Glaister (2009) used a sample size of 522 multinational affiliated companies in Turkey to study various equity based entry modes that they used to enter the market. Findings of the study showed that institutional variables are vital in showing how foreign affiliates of Turkish multinationals own equity and the constraints they face. The research found no support for cultural distance influences on equity ownership.

From the literature reviewed it is clear that entry mode cognizant of constraints, opportunities and institutional factors are important in market entry. It is also found from the review that the there is need to examine with empirical study how these factors are in play in the current Turkish business environment. It is upon this pillar that this research builds.

 

3.3.    Plan of Analysis

The methodology used to study this aspect of the research was aimed to establish both real and perceived characteristics of Turkish market that attract investors. It also seeks to establish the challenges that hinder investment into the market. Data-mining capabilities of Google search and Google analytics was used to track investment projects by foreign companies in Turkey. Due to the limitation of time, the researcher only met a few of the investing companies in Turkey but contacted 80% of them through emails and phone calls to validate data obtained.

This step of the research excluded: license agreements; utility facilities like communication networks etc.; retail and leisure facilities; portfolio investments; replacement investments; and non-profit and charitable organizations.

Perceived attractiveness and market entry challenges of Turkish market were examined by using a survey approach to establishing confidence of investors and the respondent opinion on Turkey’s ability to offer competitive benefits tor foreign investment. Questionnaires were sent to a sample of 150 international business decision-makers with views and experience concerning investment in Turkey drawn from a total of 150 companies globally.

Percentage representation of companies by regions was as in Table below.

Table 1: Respondents by regional businesses

Business % of respondents
1. European companies 50
2. North American businesses 30
3. Middle East businesses 10
4. Asian businesses 8
5. Oceanian businesses 2

3.4. Important Assumptions

The assumptions were that the respondents of the survey questions answered correctly.  It was also assumed that the data obtained through data mining process reflected the real situation of Turkey.

 

 

 

 

 

 

 

 

 

Chapters Fours

An-Analysis land Findings

4.1.            Introductions

This chapter presents the analysis and findings of the research. It also discusses the findings concerning the research objectives.

4.2.            Characteristics of Turkish Market

Results of data mining show that the capital city Istanbul is the top foreign investment destination in Turkey. The city is followed by Kocaeli and Izmir. Istanbul’s appeal is due to its good potential growth, cultures friendly to expatriates and easy market connectivity. Many global firms are present in the city.

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Figure 6: Attractiveness of Turkish cities to foreign investment

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The attractiveness of Istanbul is evidenced by the growing numbers of global private equity funds with their headquarters based in Istanbul. Major multinationals in Istanbul are Mitsubishi, Burgan Bank SAK and Russian Sberbank.

Figure 7: Reduced poverty levels (Source: TURKSTAT)

Figure 8: Turkish income distribution

 

Turkish economic situation indicates reduced poverty levels since 2002. Income distribution has also increased over the years during the same period. Results show that the government has put in place programs to attract investors. There is program of investment incentive that prioritizes sectors of investment irrespective of the investment area. The areas that investment through regional incentives includes: transport sector; security; mine extraction or processing; schools; and electronics; and electric production, among others.

Turkey’s industrialization strategies identify key areas to increase productivity and targets and competitiveness for transforming the country into technology base. The areas identified in the program include productivity guided by innovation, increased production of goods of medium and high-technology, increased sector capital, creation of knowledge-based economy, and qualified workforce.

It was found out that Turkey attracted much investment because of its stability as a reformed emerging market. Over the last few years, economic reforms seem to slow down and were replaced by political authoritarianism and protectionism. Due to this investors have begun to move out of the market.

Results also show that there is increased export and import volume indices since 2009.

Figure 9: Export and import volume indices

 

Turkish GDP growth and contributions from net trade has been on the rise as shown in figure 10. . . . . . . . . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . .

 

 

Figure 10: GDP growth and contribution to net trade

 

4.3.            Market Entry Problems and Solutions

To the question: what market entry problems exist in the Turkish market? The responses were as in Figure 11.

Figure 11: Factors that hinder entry into the Turkish market

The respondents responded as shown in Figure 12 concerning various models of market entry

 

Figure 12: Market entry models

The respondents suggested strategic entry as one of the solutions to market entry problems. They also recommended measures by the Turkish government to facilitate trade and investment through enabling regulation and favorable taxation.

Though structural reforms have been put in place by the government of Turkey; to encourage foreign investment and strengthen the banks, tighten fiscal controls, shrink informal economy, increase labor market flexibility, improve worker skills, and to continue to privatize firms, reduce trade barriers.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chapter Five

Proposed Solutions to the Problems, Recommendations, Limitations of them Analysis

5.1.            Introductions

This chapter presents proposed solution the Problem, relevant recommendations and limitations of the analysis.

5.2.            Proposed Solutions to then Problem

5.2.1.                  Implications of Findings to Stakeholders

a.      The Government of Turkey

The findings of this research imply that the governments of Turkey would find foreign investment important for economic prosperity and development of the country. This will enable it to tailor Turkey’s legal framework towards liberal regimes. The findings of this research show that the private sector has an important role in encouraging investment and should be an eye opener to the Turkish government to be open to foreign participation and investment.

The government will find this research useful in giving insights into problems firms face when venturing into Turkish market which include: excessive bureaucracy, weak judiciary, high taxation and compliance problems and frequent changes in the regulatory and legal environment, among others.

The government will find this research useful in tailoring regulations governing foreign investment to be more facilitative and transparent. This research will help streamline regulations of real estate acquisition by foreign corporations registered under the laws of Turkey, to have favorable screening system for investment. The government of Turkey can review its precondition for the purchase of real estate by foreigners so as to allow for more private investment in real estate purchases by foreign individuals.

The government can find it useful to consider reviewing participation in equity by foreign shareholders which is set at twenty five percent in broadcasting and forty nine percent in the air and sea transport sectors so as to encourage foreign investment in those areas. Investments in the financial services, such as insurance and banking sectors, and in them petroleum sectors require special government permission for both the foreign and domestic investors. The government should encourage the fair practice by regulators not to put restrictions of foreign ownership within financial sector.

The findings of this research imply that privatization should be encouraged to boost the economy. The government of Turkey will find it useful to encourage privatization process. The government should privatize enterprises through public offerings, block sales, or both. The findings highlight the need for the government to commit itself to continuing the process of privatization in spite of the delay of offerings caused by a contraction in global capital flows. Through privatization program, the government can complete the privatizations for remaining energy distributions networks and to conduct the tendering of 140MW mini hydro-power plants.

The government will find the findings of this research highlighting the need to address bureaucracy that has been a main barrier to companies. Reforms that simplify procedures for company establishment and reduce permits requirements should be tailored to enable individuals to register their companies more easily.

The Turkish government should use the findings of this research to implement a good reform program. The program should be aimed at streamlining all investment processes and attracting more foreign investment. There should be a joint platform composed of council, public as well as private sectors, guide on investment.

The government should be inspired by the findings of this research to implement reforms in judiciary to attract foreign investors. The government should also improve accessibility to justice, which includes legal assistance and ADR (Alternative Disputes Resolution) mechanisms.

Government will be able to use the findings of this research as stepping stone to attracting new investors, supporting them throughout the process of establishment. The findings of this research can be used by the by government to improve legal system in Turkey to provide ways of enforcement of contractual rights, written commercial as well as bankruptcy laws.

The findings point to the government to improve labor-management relations. Employers should foster negotiation with trade unions as agents of bargaining.

  1. Foreign Investors

Results of this research show that Turkey structural transformations was a product of stable politics and economic reform as evidenced by Ernst & Young (2013). Transformation of Turkey is a significant and promising factor in the growth of the economy. The country has the large free-market economy coupled with high regional industrial power structural reforms improved the climate of investment. Liberalization of privatization and foreign investment were the pillars of Turkish reforms that it to attract big foreign investments.

The research found out that the economic measures as well as reforms in regulation and supervision reforms are what resulted into resilience of the Turkey. This has resulted into Turkey’s overcoming the fiscal crisis to become fast growing economy. Results show that Turkey has posted high growth of exports of 11% between 2000 and 2010.

This research found that investors are confident with Turkey and hope that the country will keep up the beautiful economic performance into the future. Turkey has large and dynamic domestic market which is the very significant reason it is different from other emerging markets in similar geographical location.

The research found out that the country has a youth population, with good entrepreneurial skills, culture of reputable private business, transparent competition, adaptability to changes, infrastructural capacity and general reforms. The availability of low-cost labour. Investors would be attracted to cheap young population implies that labour force is significant and that there is the labour that would lower production costs.

Investors can find the findings of this research useful in highlighting areas that need attention to successfully venture into a foreign market.

5.2.2.    Resource Availability and Constraints

Available resources on the target market include human resource. The country has good quantity unskilled skilled labor. Though the government has initiated projects within programs of European Union to meet industrial needs. Land is another resource available to foreign investors though there are limits put beyond which individual investors cannot exceed (US Department of State, 2015). The company venturing foreign market has to assess its financial resources and see its sufficiency towards the venture. This must also be considered together with assets and human resource to roll out the program.

Various constraints that define the use of the available resources must also be looked into. Such constraints as legal restrictions, tariffs and market constraints are important to consider prior and in the process of entering new market. For a manufacturing firm, consideration of sources of raw material and various limitations and opportunities attached to them are important in making market entry decisions.

5.2.3.    Limitations of the Business Plan

This plan was confined to the study of emerging market of Turkey. The research focused on foreign investment in Turkey and the factors influencing it. The limitations were that it focused more on market entry but did not give enough emphasis to firms that are already present in the market.

 

 

 

 

 

 

 

 

 

 

 

 

Chapter Six

Application of Learning on another Company

6.1. Introductions

The goal is to apply the findings to solve problems of market entry

6.2. Indicators Selections and Data Collections

Indicators that were selected were to a big extent deliberated upon as per the strategic goals and objectives defined in the global mission of the firm. Qinghua Tongfang Electronics Company Ltd understands that per capita purchasing power is important driver of markets opportunities. It also looked at indicators of the country’s economy, population size, and if the firm could get reliable partners for joint-venture.

6.3.Country Indicator Ratings

Rating was done by ‘‘constant-sum’’ allocation technique. This method allocates 100 points to indicators according to their importance in firm’s goals.

6.4.Rating each Country

Each of the countries in the regional grouping was assigned a scores on each indicator (Root, 1994). 0 meant very unfavourable; 100 meant very favourable).

6.4.1.                  European Market

The constant-sum method was applied d to evaluate large, European market. The five countries with highest scores as shown in Table 1 were Russia, Germany, United Kingdom, France and Italy. eg, for Russia: 25×23+40×144+25×47+10×52=8030. Russia was selected in this category.

Table 1: Country score using constant sum method – Europe

Country Per Capita income (in USD ‘000) Population (million) Competition Political Risk Score
Weight 25 40 25 10
1. Russia 23 144 47 52 8030
2. Germany 40 81 81 83 7095
3. United Kingdom 36 65 73 86 6185
4. France  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 66 72 76 6100
5. Italy . . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 

33 60 66 73 5605
6. Luxembourg 91 0.6 90 90 5449
7. Spain  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 46 65 75 5015
8. Norway  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 5 89 90 4950
9. Switzerland 53 8 90 86 4755
10. Netherlands 43 16 86 85 4715
11. Austria  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 8 88 88 4500
12. Sweden  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 9 86 87 4455
13. San Marino 46 0.03 93 73 4206
14. Belgium 39 11 79 81 4200
15. Ireland  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 4 87 78 4190
16. Denmark 42 5 84 83 4180
17. Poland  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 38 44 81 3980
18. Iceland 37 0.3 75 76 3572
19. Czech Rep 26 10 53 88 3255
20. Cyprus  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 0.9 61 76 3071
21. Portugal  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 10 50 74 3015
22. Greece 25 10 50 66 2935
23. Slovenia  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 2 55 80 2930
24. Malta  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 0.4 58 74 2931
25. Slovakia  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 5 50 79 2865
26. Lithuania 23 3 46 57 2415
27. Croatia  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 4 41 72 2405
28. Estonia  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 1 46 58 2345
29. Latvia  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2 42 52 2175

(Source: The PRS Group, 2015, Regional political risk index)

6.4.2.                  Asia Pacific Market

In Asia Pacific region, Indonesia scored topmost, followed by I Japan, Philippines and Thailand as in Table 3. Indonesia is chosen in this category due to her highest score.

Table 2: Country score using constant sum method – Asia Pacific

Country Per Capita income (in USD ‘000) Population (million) Competition Political Risk Score
Weight 25 40 25 10
1. Indonesia 11 255 72 89 13165
2. Japan  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 126 90 60 8815
3. Philippines 7 102 65 90 6780
4. Thailand 14 68 80 89 5960
5. Macau  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 0.65 70 50 5851
6. South  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . Korea 35 50 86 68 5705
7. Singapore 82 5 76 75 4900
8. Taiwan  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 23 87 45 4695
9. Malaysia  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 30 70 82 4395
10. Hong Kong 55 7 80 55 4205

(Source: Data from latest national census; PRS Group, 2015)

6.4.3.                  West African Market

Rating of West African countries gave Nigeria with the highest score, followed by Ghana, Ivory Coast, Gabon and Senegal as shown in Table 4. Nigeria is selected in this category.

Table 4: Country score using constant sum method – West African Market

Country Per Capita income (in USD ‘000) Population (million) Competition Political Risk Score
Weight 25 40 25 10
1. Nigeria 2.5 174.5 80 89 9933
2. Ghana 2.5 24 76 60 3523
3. Ivory  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . Coast 1.8 21.5 68 70 3305
4. Gabon  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5 1.8 70 84 3025
5. Senegal 1.9 12.6 69 69 2967
6. Guinea 1.0 10.6 63 78 2804
7. Sierra   . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . Leone 5.4 62 93 2696
8. Togo  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.9 6.8 65 76 2680
9. Mali  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 70 82 2600
10. Guinea  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . .    . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . Bissau 1.1 1.6 65 80 2517

(Source: Data from latest national census; PRS Group, 2015)

6.5.Factors Influencing Selection of Entry Mode

Factors that determine mode of entry are inclusive of major external criteria were first considered. Market size risk and growth.

6.6.    Rating of Approaches of Market Entry

Methods of market entry are: export-ring; license-ring; franchising; outsourcing; jointed ventures; wholly frowned subsidiary-lies and strategy-sic alliances. The approaches were rated for each of the countries selected.

6.6.1.    Export-ring

Many firms initially begin expanding internationally by exporting. Many small firms, find exporting the sole alternative to enable selling of their products and services in markets abroad. Due to extensive cultural differences and other market factors akin to both the Indonesian and Russian markets, the joint venture is preferred. An export merchant in the markets would be a good option. For African market, export is less favoured since Qinghua Tongfang already exports to Nigeria market. For export, the Indonesian market is rated highest followed by the Russian and Nigerian market as shown in Table 5.

Table 5: Market export option rating

Market Export Rating Preference Rating

(lowest 0 to 100 highest)

1. Indonesia  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
2. Russia  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
3. Nigeria  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

 

6.6.1.                  Licence-sing

License strategy can be used by firms to enter foreign markets. Licensing refers to a contractual undertaking in which firms give proprietary assets to another as an exchange to receive royalty payments. Many businesses find licensing a profitable means of entering an international market. Licensing is not resource intensive. It appeals to smell firms that have inadequate resources. Licensing helps firms to bypass trade barriers and enter closed markets.

Companies that use licensing as part of their global expansion strategy lower their exposure to political or economic instabilities in their foreign markets. The only volatilities that the licensor faces are the ups and downs in the royalty income stream. Other risks are absorbed by the licensee.

For Qinghua Tongfang Electronics, licensing approach is less preferred to exporting. However, Qinghua Tongfang may use licensing more in Russia due to trade barriers like taxation and others as shown in Table 6.

Table 6: Market licensing option rating

Market Licensing Rating Preference Rating

(lowest0 to 100 highest)

1. Indonesia 70
2. Russia  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
3. Nigeria  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

6.6.2.                  Franchising

Since Qinghua Tongfang Electronics is interested in overseas presence without facing many barriers, it prefers Franchising for Nigeria market compared to Russian and Indonesian market.  Franchising is more preferred compared to exporting and licensing as in Table 7.

Table 7: Market franchising option rating

Market Franchising Rating Preference Rating

(lowest0 to 100 highest)

1. Indonesia  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
2. Russia  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
3. Nigeria  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

 

6.6.3.                  Outsourcing

Outsourcing has its successes and challenges. Due to these challenges, outsourcing for Qinghua Tongfang from is least preferred for Indonesia and most preferred for Nigeria as in Table 8.

Table 8 Market outsourcing option rating

Market Outsourcing Rating Preference Rating

(lowest 0 to 100 highest)

1. Indonesia  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
2. Russia  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
3. Nigeria  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

 

6.6.4.                  Joint Ventures

Many companies find joint ventures a good ground for entering new markets they are not familiar with. Joint venture allows a firm to share equity with partner when establishing ventures in foreign countries (Bekaert & Harvey 2000; Görg 2000; Hanson 2001; Hyder, & Ghauri 2000). Business partners in joint ventures are majorly local firms and/or local authorities. There exists there aspects of joint partnerships which define joint ventures (Aw & Hwang, 1995; Loree & Guisinger 1995; Singh & Jun 1995). The types are identified based on partner equity stake: Majority partnership involves ownership of more than 50% ownership by the major partner, 50-50 partnership where stakes are shared equally between partners and minority which owns less than 50% of the stake. Big infrastructural projects or high-tech ventures which require expertise and finance often involve many foreign as well as local partners at play. This differentiates corporations and joint ventures (Bamford, Ernst & Fubini, 2004).

Joint venture is most preferred in Nigerian market and least preferred in Indonesian market given various barriers like culture, language, among others as shown in Table 9.

Table 9 Market joint venture option rating

Market joint venture Rating Preference Rating

(lowest0 to 100 highest)

1. Indonesia 30
2. Russia  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
3. Nigeria  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

 

6.6.5.                  Whole-sly Owner-and Subsidiaries

Big global companies prefer 100% stake ownership when they enter new markets. Strategies for ownership are of two types: acquisitions in which case a company purcahses and existing firm, or green-fields operations formed from scratch (Demirbag, Mirza & Weir 1995; Levinsohn 1993; Meyer 1995; Li & Cavusgil 1995). Just like other entry models, full ownership has both benefits and risks.

Nigerian market is most preferred. . . . . . . . . . . . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  .. . . . . . .  . .  . . . .  . . .  .  .

. . . . . . . . . . . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  .. . . . . . .  . .  . . . .  . . .  .  .

 

Table 10 Market wholly owned subsidiary option rating

Market joint venture Rating Preference Rating

(lowest0 to 100 highest)

1. Indonesia  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2. Russia  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3. Nigeria  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

 

6.6.6.                  Strategy-sic Alliance-is

It is defined as coalition aiming to achieve strategic and significant mutually beneficial goals that are mutually beneficial (Balaban 1995; Bell 1995; Bleeke & Ernst, 1991; Leonidou 1995). There are increasing number of alliances formed in the current business environment. Most notable are those between major business rivals.

Strategic alliances are most preferred for Nigerian market and least preferred for China. This is because Qinghua Tongfang Electronics Company Ltd may not form successful alliances with technology giants in Russia.

Table 11 Market strategic alliance subsidiary option rating

Market strategic alliance Rating Preference Rating

(lowest0 to 100 highest)

1. Indonesia  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2. Russia  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3. Nigeria  . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

. . . . . . . . . . . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  .. . . . . . .  . .  . . . .  . . .  .  .

. . . . . . . . . . . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  .. . . . . . .  . .  . . . .  . . .  .  .

 

6.7.Combined Rating of Entry Strategies

The weights given for each entry strategy are as given: exporting – 60; licensing – 30; franchising- 50; outsourcing – 35; joint ventures – 40; wholly owned subsidiaries – 15 and strategic alliances – 25. The weights are dependent on the advantages each strategy has on Qinghua Tongfang Electronics Company Ltd.

6.7.1.                  Preferred Entry Strategy for Chinese Market

Results in Table 12 shows that exporting is the most preferred strategy of entering the Indonesian market. Franchising is ranked second.

Table 12 Market strategic alliance subsidiary option rating

Exporting Licensing Franchising Outsourcing Joint Venture Wholly owned subsidiaries Strategic alliances
Rating 80 70 90 40 30 20 10
Weight 60 30 50 35 40 15 25
Product 4800 2100 4500 1400 1200 300 250
Ranking 1 3 2 4 5 6 7

 

6.7.2.                  Preferred Entry Strategy for Russian Market

The highest rated entry strategy for Russian market is through exporting, followed by franchising as shown in Table 13.

Table 13 Market strategic alliance subsidiary option rating

Exporting Licensing Franchising Outsourcing Joint Venture Wholly owned subsidiaries Strategic alliances
Rating 70 60 75 55 50 30 15
Weight 60 30 50 35 40 15 25
Product 4200 1800 3750 1925 2000 450 375
Ranking 1 5 2 4 3 6 7

. . . . . . . . . . . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  .. . . . . . .  . .  . . . .  . . .  .  .

. . . . . . . . . . . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  .. . . . . . .  . .  . . . .  . . .  .  .

 

7.3. Preferred Entry Strategy for Nigerian Market

Joint venture is the highest rated for Nigerian market followed by exporting.

Table 14 Market strategic alliance subsidiary option rating

Exporting

. . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . .

Licensing

. . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . .

Franchising

. . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . .

Outsourcing

. . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . .

Joint Venture

 

Wholly owned subsidiaries Strategic alliances

. . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . .

Rating 50 40 30 70 90 60 70
Weight 60 30 50 35 40 15 25
Product 3000 1200 1500 2450 3600 900 1750
Ranking 2 6 5 3 1 7 4

 

6.8.Recommendations

The following are recommendations are made from the analysis:

  1. Qinghua Tongfang Electronics Company Ltd should consider exporting to Russian and Indonesian markets;
  2. The company should make a joint venture with its equivalent already present in Nigeria.
  3. Factors that relate to exporting and joint venture to the relevant countries should be analysed thoroughly for each country.

6.9.Conclusion

Qinghua Tongfang Electronics Company Ltd should consider entry into Indosian and Russian markets through export and to Nigeria through joint venture. This is because market of Russia is much closed to foreign investments due to restrictions. It is known that investment laws for foreign investors in Indonesia and Nigeria would be more favorable for Chinese companies than the conditions in Russia,

The company would mark its presence in Nigeria as a first step to its operations in Africa. This would open more markets for the Qinghua Tongfang products which are still new in the region. Given the flexible trade policies between African countries and China, more local investors would want to operate with Qinghua Tongfang towards ensuring digitalization of African countries. The expansive market of Africa finds it costly to buy expensive electronics and would be glad to get the same technology affordably and cost-effectively.

Business climate of Nigeria has its peculiarities and it takes good strategies and commitment to ensure success in the populous Nigerian market.

 

 

 

 

 

 

 

 

 

 

 

 

 

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