Essay title - International Marketing Foreign
Factors which influence the choice of Foreign Market Entry Mode (MEM); the case of UK retail firms.
Internationalisation of retailing continues to receive significant amount of academic attention and debate (Akehurst and Alexander, 1996, Stemquist 1997, McGoldrick and Davies, 1995, Vida and Fairhurst 1998), however the market entry decision process of international retailers remains a very important but underdeveloped issue in the literatures on market entry modes and international business.
Research carried on the subject of market entry modes have primarily focused on manufacturing sector (Driscoll and Paliwoda, 1997, Hill et al, 1990) and service sector (Erramilli, 1991, Erramilli and Rao, 1990), while among the body of work on international retailing (Alexander 1990, Hollander 1970, Williams 1992, Alexander and Myers 2000, Evans et al 2000, Burt 1991, Dawson 1994), the primary theme has been motivations or reasons why firms internationalise and the direction and extent of international retail activities.
The aim of this thesis is contribute to the limited existing literature relating to international retailing and market entry mode choice by providing a qualitative, in-depth account of the elements influencing choice of market entry mode of retail firms with particular emphasis on the UK retail industry.
Problem discussed
Sarkar and Cavusgil (1996) carried out a comprehensive review of literatures on market entry modes to identify central themes responsible for choice of market entry mode. Grounded in behavioural theories of firms, international economics, efficiency paradigm and strategy literature, the factors identified were, firm specific factors, product market factors, host market factors and home market factors.
Dawson (1994) warns that there is a danger of directly applying some of these themes to international retail as research carried out on MEM have primarily focused on the internationalisation of the manufacturing and service industry. He also highlights that the differences between these sectors are significant and not all the work on the internationalisation of manufacturing is relevant to retailing.
Burt and brown (1992) argue that is impossible to actually explain whether the internationalisation process of retailers is similar or unique to those of other sectors because its is difficult to identify what retailers actually internationalise; whether it is the management expertise and management systems, innovative forms of trading or unique retail brands. Hollander (1970) explains that international retailers are “those firms that are in some way responsive to the head quarters located outside the country or colony in which the retail sales are made”.
Sparks’ (1996) argues that researchers in this subject area have tended to draw from international business literatures in order to define the parameters for what constitutes an international retailer. Amongst these contributor to the field of international business are Johansson and Wiedersheim-Paul (1975), who based on the study on international expansion activities of Swedish manufacturers suggested that business internationalisation was an incremental process which begins with the exporting of goods to foreign markets and comes to fruition when the firm establishes manufacturing plants in foreign markets to satisfy foreign demands.
Johansson and Valne (1977) support this definition of business internationalisation. The primary interpretation of business internationalisation as been to see this form of growth as an incremental process where manufacturers increase their involvement in foreign markets through indirect forms of investment, leading to the establishment of subsidiary companies for sale and manufacturing in foreign markets (cavusgil 1982) .
In the 1990, the research into internationalisation of service provision has challenged the appropriateness of transferring manufacturing interpretations into the service sectors. Through the identification of the intangible, perishable, heterogeneous nature of service provision, it has been noted that while the internationalisation process of manufacturing may advance incrementally, in contrast for service providers, full market involvement is typically required immediately (Dahringer 1991).
Similarly, within the context of international retail, it has been noted that the definition of internationalisation of manufacturing may not readily accommodate the scope, extent and complexity inherent to international retailing for example; Dawson 1994 argues : the balance between centralised and decentralised decision making, the relative importance of organisation and establishment scale economies, the degree of spatial dispersion in the multi establishment enterprise, the relative size of the establishment to the size of the firm, the relative exit cost of decisions are reversed, the speed with which an income stream can be generated after an investment decision has been made, different cash flow characteristics, the relative value of stock and hence the importance of sourcing, all these items and others tend to differentiate the manufacturing firm and the retailing firms not least in respect of the internationalisation process ( Dawson 1994 p 270).
Burt's (1993) study, which offers a very insightful view of the role of geographical and psychic distance and risk on aspects of the internationalisation of British retailing over a thirty-year period, asserts that internal activity and acquisition were the dominant entry modes, with some growing interest in franchising. The investigation by Knee (1993) into the cross-border moves by retailers worldwide during the period 1991-93, finds that the most common method of entering a new market at that time was through organic growth, while Treadgold (1991b) provides an overview of the entry mode strategies of many international retailers.
Like the aforementioned work, his analysis is relatively general, descriptive and not sector specific. While particularly valuable in providing a background to the current work, this existing research has a further limitation in that entry mode strategy is dealt with in the broad context of the retailer internationalisation process offering, in most cases, a description of the entry modes being used by retailers rather than any investigation of the factors which influence entry mode choice.
Additionally, with the exception of the recent study by Quinn (1998a), the approach taken is, in the main, positivistic and quantitative in nature which is a main concern because the purpose of a positivist approach to research is to build conclusions on certain knowledge (Lovlad, 2003). The approach only accepts well established knowledge and is based in strict formal logic. it doesn’t generate anything new since it only relies on already accepted research (Wiedersheim- Paul and Eriksson 1999).
Emergence of global retail marketplace and the rise of the 24/7 economy has fuelled the growth of retail across the world. Market growth, according to the global industry classification standard, increased by 4.8% to touch $11.561 billion.. USA dominates the world retail market space and accounts for 32.3% of global retailing group, Europe: 30.8% of the group’s value, Asia pacific: 25.6% and the rest of the world 11.20%.
With this increasing growth, internationalisation continues to top the agenda with retailers and suppliers coming to terms with the opportunities and threats of a global retail marketplace. Food retailers continue to dominate the world retail rankings, with key supermarket and general merchandise retailers such as Wal-Mart, Carrefour and Tesco adopting aggressive expansion strategies especially in the higher growth potential Asian markets. B&Q. the DIY arm of Kingfisher, plans to build on its successful venture into China, by opening stores in Thailand and Malaysia, and the most recent joint venture, and one which will be one of the case studies for this thesis is the opening of UK’s Argos in India.
Wind and Perlmutter (1997) and Roots’ (1994), argue that choice of market entry mode is the frontier issue in international marketing because of the huge impact it has on the future decisions and performance of firms in foreign markets. Chung and Enderwick (2001), Kumar and Subramaniam (1997), Nakos and Brouthers (2002) emphasized that the choice of market entry mode is a critical strategic decision for firms intending to conduct business overseas.
When selecting an entry mode for any industry, a wide range of factors must be taken into consideration before making the final decision (Young, Hamill, Wheeler and Davies, 1989). According to Johansson and Vahlne (1977), factors which affect the choice of MEM are divided into two main groups; the external factors which are determined by the company’s environment and internal factors which are determined by company specific factors.
Purpose
The purpose of this thesis is to carry out a comparative study on two UK firms in order to identify similarities and differences in the factors which they consider to be critical in determining their choice of foreign market entry mode and evaluate these findings alongside previously documented work on market entry mode, in order to prove or disprove Sparks (1996) argument that the international retail process has its own set of parameters which can not be defined based on the parameters of doing any other form of international business.
To increase the representative of the samples and validity of the findings, the firms will be within the same retail sector and results will focus primarily on the chosen retail sector. This is important because, there are various sectors within the UK retail market, which ranges from fashion to food and electronics, some retail firms are classified under the mixed goods sector due to their portfolio of diverse products. Due to the diversity within this industry, a generalisation of the findings conducted during the primary data collection phase of this research may prove unrepresentative of the industry as a whole.
Objectives
In order to provide a qualitative, in-depth account of the elements influencing choice of market entry mode of retail firms with particular emphasis on the UK retail industry; this thesis aims to satisfy the following objectives
- Asses and evaluate existing theories on foreign market entry mode
- Identify MEM specific to retail organisations
- Evaluate the need for market penetration of researched companies
- Research and evaluate choices of foreign MEM of selected retail firms
- Identify and evaluate sector specific factors which influence choice of MEM selected retail firms
- RQ1: How do sector specific internal factors affect the choice of MEM of a retail firm?
- RQ2: How do sector specific external factors affect the choice of MEM of a retail firm?
Research Philosophy
There are two philosophical perspectives commonly discussed in literature; the positivist and the hermeneutics philosophy (Wiedersheim- Paul and Eriksson 1999). Positivism was widely used in the 20th century and was the dominant paradigm in marketing which implied the use of quantitative methods, the adoption of realism, and the assumption of determinism, the search for causality (S. Hunt, 1994). The origin of this research is founded in the natural sciences and its purpose is to build conclusions on certain knowledge (Lovlad, 2003).
The approach only accepts well established knowledge and is based in strict formal logic. Critics of this approach say that it does not generate anything new since it only relies on already accepted research (Wiedersheim- Paul and Eriksson 1999). Doole and Lowe (2004) argue that international marketing contradicts the whole notion of positivism which aims to give an absolute answer based on absolute knowledge.
Hermeneutic researchers, on the other hand do not aim for absolute answers, instead they seek to explore the environment from different angles. “Hermeneutic researchers view the world as a social constructed entity based on social interactions and thus can not be investigated with the same methods used in natural science” (Cooper and Schindler, 2005).
Critics of hermeneutic approach say that research results run a risk of over interpretation to a degree that they lose validity (Wiedersheim- Paul and Eriksson 1999). Based on the flexibility for knowledge exploration associated with the hermeneutics approach, this philosophical view will be envisaged throughout this dissertation.
Research Approach
There are three categories of research as stated by Yin (1994); they are exploratory, explanatory and descriptive. These categories differ based on how much knowledge the researcher has before investigation and also the type of information required for the thesis. Exploratory research is carried out when there is little or restricted research on the investigated topic.
According to Dencombe (2000), the purpose of exploratory research is to gather as much information as possible from various sources; Yin (1994) adds that it should state the purpose of the research and the criteria to judge the exploration successfully. Descriptive research on the other hand, according to Yin (2003) is a complete description of a single phenomenon within a context, with a goal to develop and explain empirical generalisation. Dencombe (2000) argues that the aim of explanatory research is to develop a theory to explain the empirical generalisations developed during descriptive research.
With this in mind, this research is classified as descriptive however it will also be exploratory and to some extent explanatory. This is based on the purpose of the research which is to provide an in-depth understanding of elements which influence choice of MEM of UK retail firms. In order to answer the research questions an exploration of the literature on market entry mode will be conducted so that a conceptual framework is created which will aid the formation of the interviews question and the end of the thesis will be an explanation of the research area.
Research Method
Hollensen (2004) identified two methods of collecting empirical data; qualitative and quantitative method. Quantitative research involves counting and measuring of events and performing the statistical analysis of a body of numerical data (Smith, 1988). It focuses on formulating research hypotheses and verifying empirically on a specific set of data (Frankfort-Nachmias & Nachmias, 1992).
Qualitative research attempts to accurately describe, decode, and interpret the meanings of phenomena occurring in their normal social contexts (Fryer, 1991). It is less driven by very specific hypotheses and categorical frameworks and more concerned with emergent themes and idiographic descriptions (Cassell & Symon, 1994).
This report will use qualitative and not quantitative research for primary data collection. The reason is that the type of primary research necessary to fulfil the purpose of this report requires specific and in-depth data. According to Kaplan and Maxwell (1994) “the goal of understanding a phenomenon from the point of view of the participants and its particular social and institutional context is largely lost when textual data are quantified”. These data build on the following elements
- To understand the impetus for foreign market entry of the analysed retail firms
- 2: To establish the factors which influence the choice of MEM
- 3: To understand the companies selected for analysis
Research Strategy
There are various research methods for generating qualitative data. “A research method is a strategy of inquiry which moves from the underlying philosophical assumptions to research design and data collection” (Yin 2002). It focuses on how the research questions will be answered.
For qualitative research, a researcher can opt of an ethnography strategy, a case study strategy, an action research strategy or a ground theory strategy. Of these strategies, the case study approach is the most suitable for this research because it allows for cross case analysis and provides an in-depth situational picture due to the use of few entities with many variables.
Case studies provide a systematic way of looking at events, collecting data, analyzing information, and reporting the results. This enables the researcher gain a sharpened understanding of why the instance happened as it did, and what might become important to look at more extensively in future research (Orlikowski and Baroudi, 1991; Alavi and Carlson, 1992).
Data Collection
Hollensen (2004) defines two sources of collecting data for international marketing; primary data sources and secondary data sources. Secondary data is data that has already been collected and therefore readily available. Sources for such data include, textbooks, articles, journals such as the journal of retail management, journal of international marketing and international management, databases such as emerald, keynote, Mintel, Euro monitor, data monitor. These sources will be reviewed in order to get information relevant to the purpose of the thesis and also derive information which will form part of the theoretical framework.
Primary data is obtained through original research aimed at answering a specific research question (Hollensen 2000). Unlike secondary data, primary data is more time consuming and difficult to collect (Lundal and Skarvad 1999). In order to make this research process more time effective, the primary data research will focus on understanding more in-depth information about the selected companies which can not be found else where.
Documented data will be used in this study to gain background information on the factor which influences the choice of foreign MEM of the researched companies. Dencombe (2000) argues that documentation is a great source of finding background information on the subject to be researched; however they do have their drawbacks as documentations are second hand information and therefore could be outdated or inaccurate.
Saunders et all (2000) states that non probability sampling is the most appropriate when conducting a case study research. Non probability sampling can be conducted using quota, convenience, snowball and judgemental sample. In selecting the companies to be investigated, convenience sampling will be used. This allows the researcher define the parameters for each selected sample. These parameters include;
- Selected firms must be based in the UK
- Selected firms must belong to the retail industry
- Selected firms must be in the mixed goods market
- Selected firms must have internationalisation experience
- Selected firms must be the same size
Patton (1990) argues that a purposeful sample should be used when selecting respondents to interview. These respondents should have a lot of knowledge and insight which illuminates the questions of the research. A representative for each company will be contacted in order to get access to key personnel for the interview process. The interview will be conducted over the phone due to the issue of distance.
An interview guide will be sent in advance to respondents to ensure that they have the relevant information to answer the research questions before the research is conducted. The information required during the course of the interview will focus on the companies strategy, resources, competencies, history, experience in foreign market, etc.
According to Mile and Huberman (1994), there are two forms of analysing empirical work; within case and cross case analysis. Within case analysis involves comparing collected data with theory used while cross case compares data from different cases with each other. As this thesis aims to compare empirical data from two UK retail firms, cross case analysis will be used in order to establish the similar factors with the two companies. A within case analysis will be conducted to compare themes in conceptual frameworks on market entry modes with elements derived from the empirical research.
Ethical Consideration
The ethical principals which guide data gathering are rooted in two human right laws; free speech and privacy. Interview participants have the right to speak freely without constraint or choose to be silent or set limits on personal information they divulge 9unless consent to disclosure). The researchers obligation to the data provider is to ensure voluntary participation; meaning the respondent has the right to refuse to be interviewed or not answer specific questions.
The researcher will also maintain a high level of confidentiality and non attribution. The results from the interview have no institutional or legal constraints however to gain cooperation, a covering letter will be sent to respondents explaining how interview data will be used and how privacy will be safeguarded. The covering letter will emphasis that the data collected from the interviews will only be used for the purpose of this thesis.
Risk and Contingencies
The research method adopted for this thesis involves conducting interviews with two UK retail firms in order to identify common factors which influence their choice of foreign MEM. Due to the sensitivity surrounding company strategy, it is likely that such data required to achieve a coherent and cohesive conclusion may not be disclosed, resulting in increasing uncertainty with the research findings.
As a contingency, the researcher will rely solely on secondary data available from sources such as Mintel, keynote, etc. By benchmarking resources, value chain, processes and other factors highlighted in the conceptual frameworks using information derived from secondary sources, the research may be still be to satisfy its initial aim.
