Motives of internalization and strategic advantages and traits

Motives of internalization and strategical ad new wavetages and traits beingnesswideization give nonice be defined as the desire to be a member of the abroad society by satisfying a reliable standard, or strengthening the influence of a nation on another(prenominal)(a)(a) nations. It becomes the work where multinational enterprise (MNE) engaging, it is precise important for these companies to penetrate transnational market if they want to be accepted and remain successful. (Sreenivasan Jayashree and Sahal Ali Al-Marwai). The outside(a)isation action helps MNEs in maturate their operation in outside(prenominal) market and erect their hawkish position abroad. harmonise to Hedman (1993), three main alternatives for distributing the enterprises product exist, that is, corroboratory export, engage export and alternatives to export. When distributing in choosely, the diverse distribution activities atomic number 18 assigned to one and only(a) or several in nameedia ries in the sign market. When distributing goly, the producer itself comports the distribution activities, much(prenominal)(prenominal) as distribution to a alien importer, which in his turn earlier the products to well-nigh other mediator or the end customer. (Molnar, 1990) the 3rd alternative, alternatives to export, can worry gift through with(predicate), for instance, own production in the target argonna, or licensing (Hedman, 1993).The fast changes in todays championship world c all told for new models of externalisation (Fillis, 2001 Meyer and Gelbuda, 2006), specially to be able to capture the early phase of internationalisation in a better manner than the traditional models (Johanson and Vahlne, 2003). In contemporary look into, Coviello and McAuley (1999), in line with Leonidou and Katsikeas (1996), suck pointed at three possibility directions that are desirable for speculateing internationalisation, namely Foreign Direct Investment (FDI)-theori es (a.k.a., the theory of the transnational Firm), pointedness models and Network theory. Even though these are different theory directions, they are seen to be complementary earns where a combination of views is preferred since it is toilsome to capture the internationalisation model using only one theoretic role model (Bell et al., 2003 Bjrkman and Forsgren, 2000 Coviello and Munro, 1997 Meyer and Skak, 2002). Network theory is increasingly being combined with stop theory in order to understand and explain the speedy internationalization of the slopped (in Bell et al., 2003 Johanson and Vahlne, 1990, 2003 Meyer and Skak, 2002).The exploit of internationalization has been the subject of widespread metaphysical and falsifiable search (for example, Johanson and Wiedersheim-Paul 1975 Johanson and Vahlne 1977 Bilkey 1978 Cavusgil 1980 Turnbull 1987 Welch and Loustarinen 1988) and finds a general acceptance in the publications (Bradley 1991 Buckley and Ghauri 1993 Leonidou a nd Katsikeas 1996). The internationalization process is described as a step-by-step phylogenesis taking place in distinct lay outs (Melin 1992).Internationalization processes in emerge markets, as in international markets in general, take place in a stepwise manner (Jansson, 2007). Companies commit themselves through a graduated learning process. Learning is incremental and takes place by doing. Firms learn well-nigh doing trade abroad, for example, learning to the highest degree the conditions in particular markets. Companies tend archetypical to apply themselves in geographically and culturally proximate markets and addition their consignment, head start with agents, and passing through sales companies to manufacturing companies (Johanson and Vahlne, 1977 Johanson and Wiedersheim-Paul, 1975).Within the last decades, the business world has changed drastically through globalization and internationalization -creating a new and tearing business environment for companies. We can now see a third wave of internationalization of firms in which companies domiciled in mature Western markets establish themselves on a large scale in emerging markets such as Central and eastmostern Europe (CEE), Russia, China and India (Jansson, 2007).A upstart phenomena of firm from Asian capital exporting countries were internationalizing and multinationalizing their business activities and find emerged or are emerging as Asian multinational enterprises (World Bank, 1993). They started the internationalizing activities and spend and circumstance up operation in other countries since mid-1980. Research interest which revolve around on these Asian enterprises and their direct enthronization activities arise in new-fashioned years (Ting, 1985 Ulagado et al., 1994 Yeung 1994, 1997). Foreign direct investment (FDI) started on the early eighties. According to studies done by Lall, 1983Well, 1983 Kumar and McLeod, 1981 Khan, 1986 Monkiewicz, 1986 Aggarwal and Agmon,1990 Tolentino, 1993, FDI of Third World multinational enterprises (TWMNEs), slightly different with the traditional MNEs from the horse opera substantial countries in term of their feature. The call onth of East Asia (World Bank, 1993) in late 1980 and early 1990, has increased intra- divisional direct investment. The directed investment process from Japan , followed by Korea, Taiwan, Hong Kong and Singapore and the activities transferring from one level of economies to another in Malaysia, Indonesia and Thailand has been depicted as wild flying geese approach pattern. (Toh and Low,1994 Guisinger, 1991). As a result, these Asian capital exporting countries firm internationalizing and multinationalizing their business activities and have emerged or are emerging as Asian multinational enterprises (World Bank, 1993).Problem bidDuring these extremely competitive times, the international business environment is one that is usually full of immense uncertainty, volatility as well as a high rate of failure when it comes to international expansion The research on the nature, organization and operations of these emerging Asian international and multinational enterprises are confine. This is beca design research in international business and trade has been dependent for the most part upon economistic and westbound-centric theories developed predominantly in industrial and institutional economics (Buckley and Casson, 1985 Dunning, 1988, 1993). A study shown internationalization is the crucial factor for a firm to grow and develop economically and technologically (Syed Zamberi Ahmad and Fariza Hashim, 2007). Hence, it is very important for multinational companies to conduct a comprehensive examination of the various important factors that could influence the fictional character of strategy that is to be selected for international market initiation.1.3 ObjectivesThis research is dedicated to all topical anesthetic Malaysian companies who are looking at ways and actor to internationalize their operations to a extraneous market and would be of terrible assistance to them in determining the correct strategic path and remedy the understand of the Asian MNEs characteristic.1.4 Research QuestionAccording to the task averment above, the author has formulated some headland to meet the research objective. The question are What are the key characteristics and success of their foreign ventures?What are the motives for internationalization?What are the entry strategies?What are the strategic vantages and traits?Research Contribution organization Through this study, brass can carry out some regimen policy to lead more than than firm success in their international proses in expanding their business.Firms This study provides information to provide better understand characteristic and strategy for the purpose of internationalization which can increase the net loot of the firm.Economic This study enable economist to better understand how ontogen esis of economic on a acres can help MNEs in their internationalization process.1.6 SummaryThis study proposal consists 3 chapters. Chapter 1 provides the everyplaceview of the late(a) phenomena of internationalization, the problem secernment, objectives, and question. Chapter 2 displays literature review by past research, followed by concept and theories, and research framework. Chapter 3 describes the research methodology, sampling technique, entropy accrual, data analysis and research planning that use to analysis the finding in Chapter 4.CHAPTER 2LITERATURE REVIEW2.1 IntroductionThis chapter reviews the past studies about the concept and theory which included internationalization process, entry notes and process, eclectic comment, foreign direct investment, characteral and global internationalization processes, Uppsala model and Asian context. After that it follows by the research framework.2.2 Concept and Theory2.2.1 Internationalization processesInternationalization pr ocesses in emerging markets, as in international markets in general, take place in a stepwise manner (Jansson, 2007). Companies commit themselves through a gradual learning process. Learning is incremental and takes place by doing. Firms learn about doing business abroad, for example, learning about the conditions in particular markets. Companies tend prime(prenominal) to establish themselves in geographically and culturally proximate markets and increase their commitment, starting line with agents, and passing through sales companies to manufacturing companies (Johanson and Vahlne, 1977 Johanson and Wiedersheim-Paul, 1975). Research on the exports of mainly trade union American companies has reached similar results (Bilkey, 1978 Cavusgil, 1980 Czinkota, 1982 Reid, 1981). Such process theories are highly expedient especially when studying international 66 H. Jansson, S. Sandberg / Journal of International counsel 14 (2008) 65-77 business in CEE. Learning processes are essential since the corporation needs to adapt to an emerging and different business context, such as exists in the CEE (Meyer and Gelbuda, 2006).As noted by Sharma and Blomstermo (2003b) a basic confidence in internationalization process theory is that association accumulation is consecutive and dependent upon the duration of foreign operations. The longer firms have been involved in foreign operations, the more intimacy they accumulate about such operations. in that respect is a relationship among fellowship accumulation and risk so that the more noesis a firm has, the less uncertain they distinguish the foreign market to be. Firms that lack intimacy about foreign markets yet tend to overestimate risks. This corresponds to what Jansson (1989) found concerning establishment processes in a regional perspective, namely that the pace of investments in Southeast Asian countries accelerated, the more experienced the firms became in an area. Johanson and Vahlne (1990) stated that Upp sala model of internationalization bear witnessd firms reveal an evolutionary process in internationalizing through a series of evolutionary stage.2.2.2 Entry nodes and entry processesFirms entering emerging markets face several barriers according to Meyer (2001). These barriers include a lack of information, unclear regulations and corruption. According to traditional research on internationalization processes, market entries either take place through intermediaries such as agents or distributors or through a firms own representative in the exporting/ importing uncouth, mainly a hyponym.In terms of research in this area, scholars have found that relationships are at the core of the internationalization process (Axelsson and Johanson, 1992 Ford, 2002 Hkansson, 1982 Hkansson and Snehota, 1995 Hammarkvist et al., 1982 Jansson, 1994, 2007 Johanson and Vahlne, 2003 Majkgrd and Sharma, 1998).According to the network approach to internationalization, entries into local market networks take place through establishing relationships. The international marketing and purchase of products and know-how through a direct exporter/importer network implys that a perpendicular network in the exporting region (e.g. a suppliers supplier network) is indirectly connected to another vertical network in the importing region (e.g. a buyers buyer network). This large vertical network will, in turn, be embedded in other regional and national networks, such as a financial network (Jansson, 2006, 2007).From a network perspective, establishment points in foreign market networks are defined as entry nodes. on that point are various routes into these networks, or nodes by which a firm can enter a network. Entries through trade either take place H. Jansson, S. Sandberg / Journal of International Management 14 (2008) 65-77 67 directly with customers or indirectly through intermediaries. Direct relationships, dyads, can be set up between buyer and vender in the respective countries. I ndirect relationships, triads, involve an outside(a) party or other type of entry node, usually an intermediary such as an agent, dealer or distributor. Dyads can also be established through the entry mode FDI (a subsidiary in the importing country).Entry processes take place by building relationships to form networks in foreign markets. Irrespective of entry node, the culture of international buyer/seller relationships tends to follow a five stage pattern (Ford, 1980, 2002 Ford et al., 1998). each stage of the entry process can be described by a number of relationship factors, such as how the experience, commitment and adaptations of the parties increase across the stages and how the space and uncertainty between them are reduced across the stages.The first stage includes the taking-up of marketing/purchasing activities before a stately relationship begins. The next three stages show how direct buyer-seller relationships within networks are established from their beginning and to their deepening. Experience indicates the amount of experience the respective parties have with each other. They will gauge their partners commitment to the relationship, e.g. by the willingness to make adaptations. length is multifaceted and it can be split into social, cultural, technological, time and geographic distance. suspense deals with the fact that at the initial stages, it is difficult to assess the potential rewards and make up of the relationship. In the fifth and final stage, the relationship is extensively institutionalized and habitual, with commitment being taken for granted.Based on Terpstra and Sarathy, 1991 and Baek, 2003, joint ventures with host governments and local partners in the host country were among the preferred entry strategies for international running(a) operation. Petronas in South Africa entered into a commercial alliance with Engen in 1996 as a strategic partner. The acquisition was to enable both companies to implement a shared growth stra tegy in Africa and the Indian Ocean Rim, time allowing the development of potential operational synergies between the two business entities (Padayachee and Valodia, 2002).2.2.3 discriminating ExplanationEclectic Paradigm is a proverbial known story of international production.Dunnings (1977, 1988, 1993, 1995). Eclectic Paradigm stated that the extent and pattern of international production is determined by1) Ownership advantages (for example, proprietary technology, products, expertise and skill)2) internalization advantages (for example, transaction costs reduction, maximize economic return), and3) Location advantages of host and home countriesThese OLI (Ownership Location Internalization) variables listed above explain the reason internationalization occurs but degenerate the dynamic process of internationalization. The Eclectic range is provided by the Investment information Path (Dunning, 1981, 1986) with a dynamic dimension, and relates the net outer investment of a coun try to its stage of economic development.Five stages of integrated data processing ( Investment growth Path)Stage 1 At low level of economic development, in that respect is little inner or outward investments.Stage 2 secret investment becomes attractive, especially in import substitution projects as the country develops. Some outward investment may take place in neighborly countries which at lower stages of development. Most growth countries with some outward investments are at this stage.Stage 3 With economic development bleed forward, net inward investment declines while outward investment increases (relative to inward investment). Increasing of outward investment may take place in countries at lower IDP stages in order to overcome cost disadvantages in bear on intensive industries and also to seek markets or strategic assets. Singapore, Taiwan and South Korea are said to be at this stage.Stage 4 As production being multinationalized, net outward investment becomes positiv e. Most developed countries are at this stage.Stage 5 The bump from advantages establish more on factor en winment to those based on internalizing international market convergent outward and inward investment flows.Empirical research on Third World (including Asian) multinationals has given general support to the IDP concept (Dunning, 1986 Tolentino, 1993 Dunning Narula, 1996 Lall, 1996). Dunning and Narula (1996) acknowledge that country factors may influence the IDP pattern of a country, such as resource endownment, home market size, industrialisation strategy, government policy, and the organization of economic activities. TWMNEs were smaller than their counterparts from developed countries and have limited number of overseas operations. The competitive advantages of TWMNEs were based on cost advantages (particularly labour cost) and greater responsiveness to host country needs which is different from western MNEs. They served market niches which were not covered by the traditio nal MNEs and so were not in direct competition with them. The major motivation for these FDI was protecting export markets rather than exploiting rent from proprietary technological know-how (or other ownership item advantages characteristic of western MNEs) explained in theories, such as the eclectic paradigm of Dunning (1977, 1995). TWMNEs possessed first or second generation labour-intensive technologies and produced exchangeable products mainly for the domestic host country market which at stage 4 of IDP. Wells (1983) presupposes a pecking order hypothesis to suggest that the TWMNEs technologies could filling the technological gap between the advanced technology of developed country MNEs and the rudimentary technology of less developed countries (LDCs) in a pecking down order. Lall (1983) emphatic the flexibility and adaptability of TWMNEs technologies to be more suitable or charm to LDC situations.2.2.4 Foreign Direct Investment (FDI)It may seem surprising that there is si gnificant number of foreign direct investments by some firms from development countries because it is usually credited to more developed countries. A number of studies indicate that FDI flows not only from the industrialized or well-developed countries, as well as ontogenesis countries. Scholars such as Lecraw (1981, 1993), Wells (1977, 1981), Lall (1983a, and 1983b), Kumar and Lim (1984), Ulgado et. al., (1994) are only some of those who have carried out empirical studies and researched FDI flows from developing country firms in the mid-seventies and 1980s. Comparisons between the nature of international expansion of firms from developing countries and the nature of those corporations that originated from developed countries are made in most of these studies (Dunning, 1986 Vernon-Wortzel and Wortzel, 1988). In general, it has been depicted that the competitive advantages of MNCs from developed country are derived from advanced proprietary technology or other superior resources (Y eung, 1994). While ability to reduce costs of import technology through de-scaled manufacturing or smaller scale of production is centralize of the competitive advantage from developing country MNCs were derived from their This is a process whereby technologies from industrialise countries are adapted to suit smaller markets by reducing scale, alternate machinery with manual labour, and relying on local inputs (Ramamurti, 2004).Outward direct investment from developing countries started to grow rapidly to a sizeable magnitude during the mid-1980. This became the main brute of developing country multinationals in demanding that their constituent firms prepare for the drastically international competition that they were about to face(Kumar, 1996, 1997). The emergence of new technologies in the late 1980s somehow decreases the interest in outward direct investment from developing countries subsided (Kumar, 1996 Oh et. al., 1998 Pananond and Zeithaml, 1998 van Hoesel, 1999). Pananon d and Zeithaml(1998) and van Hoesel(1999) recounted that aggregate analyses of developing country MNEs conducted at the perseverance level get attention from scholars and yielded interesting results by the early 1990s. They cogitate that there were marked differences in characteristics between developing country MNEs in the 1980s and 1990s. Scholars posited that these two groups of MNEs belonged to two different waves of development in term of their respective historical backgrounds, nature of businesses, extent of the role of government in operations and transactions, geographical direction, and mode of internationalisation activity. MNEs in the 1980s are more concerned with cost competitiveness with their competitors (van Hoesel, 1999). In contrast, developing country MNEs in the 1990s placed greater emphasis on the development and reset business strategies due to the dynamic changing patterns of world business structure brought about by trade liberalisation and economic globali zation (Dunning et al., 1997). Besides this, they put more effort on technological competency as the source of competitive advantage (Pananond and Zeithmal, 1998). They noted that notwithstanding these differences, there existed several significant interrelated points of convergence between the two groups (Dunning et al., 1997 van Hoesel, 1999).2.1.5 Regional and global internationalization processesIn analyzing the early internationalization travel of smaller and less experienced companies, the internationalization process model by Johanson and Vahlne (1977) is regarded as a highly helpful tool. In internationalization research, some studies have been conducted on higher level internationalization where companies are established in several countries and have fully-owned businesses (Meyer and Gelbuda, 2006). The more countries in a region a firm exports to, the more extensive is the regional internationalization process. The more regions a firm exports to, the more global is the internationalization process.New stages of internationalization are established when a firm extends its business from one major type of market to another or from one type of foreign environment to another. The main factor behind these stages is experiential knowledge, meaning that firms piecemeal build a knowledge base through operating in foreign markets. They learn from past experience by transforming this experience to useful knowledge. There are three types of such knowledge (Eriksson et al., 1997). Internationalization knowledge about how to perform international operations is an expression of a firms electric current stock of knowledge in the form of its resources and capabilities. The more novel the foreign environment, the more difficult it is for the firm to apply its current stock of knowledge to that foreign market. This means that there is a gap between a firms present internationalization knowledge and the knowledge the company has about how to do business in the spec ific foreign market, i.e. concerning its network experiential knowledge and institutional knowledge (Blomstermo et al., 2004).Based on a firms experiential knowledge process, internationalization processes are often divided into different degrees of internationalization. Johanson and Mattsson (1991) discuss the internationalization process for firms with various degrees of internationalization and propose that the process is mainly well-grounded during the early stages of a firms internationalization inexperienced firms tend to follow a traditionally slow and gradual pattern, while the internationalization of a more experienced company is less slow and gradual.2.2.6 Uppsala modelThe Uppsala model (Johanson Weidersheim-Paul, 1975 Johanson Vahlne, 1977) provides an explanation of the dynamic process of internationalization of individual firms. The Uppsala model emphasize on the importance of gaining knowledge and experience about the characteristics of foreign markets along the inte rnationalisation path, and helps MNEs reduced risks and levels of uncertainty in unfamiliar foreign environments before investing (Wiedersheim-Paul et al., 1978).The successive go of increasing highly commitment are based on knowledge acquisition. Foreign activities started with export to foreign country through independent representative or agent, after that establish sales subsidiary and finally start production in the host country. The internationalization of the firm across many foreign markets was particularly related to psychic distance which included differences in language, education, business practices, culture and industrial development. Firstly, enter foreign market which closer in term of psychic distance, followed by incidental entries in markets with greater psychic distances. Same goes to entry mode of foreign market. The incremental expansion of market commitment meant that the initial entry was typically some form of low commitment mode and followed by more and m ore higher levels of commitment. Obviously, commitment of the level of ownership in different markets was jibe with their psychic distance. The Uppsala model had received general support in empirical research (Welch and Loustarinen, 1988 Davidson, 1980, 1983 Erramilli et al., 1999) and its largely intuitive nature and evolutionary learning perspective made it attractive as an explanatory model.A related view regards learning was that TWMNEs built up their advantages through the accumulation of technology and skills. Lall (1983) emphasized on the localization and adaptation of technology to suit local markets by TWMNEs. Tolentino (1993) focuse in term of the accumulation of technological competence in the expansion of firms from developing countries which was consistent with the resource-based view of building competitive advantage in strategic management. The accumulation of knowledge and competence especially its knowledge of developing markets and not so much its technology by th e CP root in Thailand was the key to its internationalization. There are also differences between the CP sort and Western MNEs (Pananond and Zeithaml, 1998). Mathews (2002, 2006) postulated that emerging firms could foster internationalization via leverage of their contractual linkages with other foreign firms to acquire resources and learning new capabilities. He indicated that this explanation complemented the OLI framework and could be used to explain the rise of such latecomer firms which he dubbed as Dragon multinationals.2.2.7 Asian ContextYeung (1999) Zutshi Gibbons (1989) portrayed that western theories on internationalization have neglect the active role played by the state and overlooked the institutional or contextual perspective in the internationalization of Asian. Asians state eer plays a direct and active role in the internationalization of its MNEs. For example, the Singapore government played a key and direct role in the packaging of outward FDI (e.g., growth t riangles, industrial set in foreign countries), particularly from the early 1990s in its regionalization programs (Pang, 1994 Tan, 1995 ESCAP/UNCTAD, 1997). Incentives and other programs for instance tax incentives, finance schemes, training also provided to foster the rapid development of local entrepreneurship in the regionalization efforts. In Malaysia, the government took a very active role in promoting the internationalization of Malaysian firms. Investment promotion missions abroad were organized and often lead by the Prime Minister. The government provided incentives including tax abatement in 1991 and subsequently full tax franchise in 1995 for income earned overseas and remitted back to Malaysia. An overseas investment promise program was instituted. Malaysian government instructed firms to defer non-essential overseas investment in order to reduce the impact of the effects of the 1997 Asian financial crisis. In the Asian context, the state has played a very active and d irect role in promoting the internationalization of its national firms. This is much different with the western context, where the role of the state is benign and indirect.2.3 SummaryThis chapter first discussed the internationalization process in terms of entry notes and process, eclectic explanation, foreign direct investment, regional and global internationalization processes, Uppsala model and Asian context. The following chapter discusses the research method, survey development, and sample selectionCHAPTER 3METHODOLOGY3.1 IntroductionThis chapter provides an overview of the research method. It starts by explaining the appropriateness of the research method. Then discusses the research design which consists of seven steps questionnaire development, literature review, proposal, data collection, data analysis, discussion and conclusion, and write-up. Next the data collection and sample selection is discussed with reasons for each of the decisions involved. The next section discus ses the statistical methods. Lastly, a Gantt chart will be use to estimate the times use in each activity.3.2 Sampling TechniqueA facial expression study approach will be using in this paper. It tends to provide in depth information and intimate details about the particular casing being studied. This approach was used to collect comprehensive and holistic data (Eisenhardt, 1989 Internationalization Strategies of Emerging Asian MNEs 491 Yin, 1994) about firms that have internationalized their operations over time. The focus here is on MNEs from Malaysia (a fast developing country).Case studies mean that the research investigates few objects in many respects (Wiedersheim-Paul, Eriksson, 1991). Case studies are most suitable if you like to get a detailed understanding about different kinds of process (Lekvall Wahlbin, 1987). The researches may, for instance, choose a line of business and an enterprise, and conduct an in depth investigation (Wiedersheim-Paul, Eriksson, 1991). Yin ( 1994) states, that when the form of the questions is why and how, the case study strategy is most likely to be appropriate.The research problem I have investigated was how the internationalisation process of a MNEs when entering to foreign market can be characterised , which was divided into four research questions.3.3 data Collection3.3.1 Secondary dataEriksson Wiedersheim-Paul (1997) points out that secondary data is data, which already has been collected by someone else, for another purpose. Statistics, and reports issued by governments , trade associations, and so on, are some sources of secondary data (Chisnall, 1997). The annual report and the enterprises homepage, are another sources of secondary data (Wiedersheim-Paul, Eriksson, 1991). Secondary data research should always be carried out before doing any field survey (Chisnall, 1991).When I had defined the research area, I started to search for relevant literature. The databases that I have used to find relevant literatur e are EBSCOhost, Science Direct, Libris, ABI/INFORM, and Helecon. The keywords used when searching the databases were international business, Malaysian MNEs, internationalization, strategies, mode of entry. These words were co