The Internationalization Process Of Firms From Emerging Markets: The Case Of Tata Motors And Cherry Automobile.

Background

The concept of internationalization has received tremendous focus both from scholars and practitioners alike. The focus on the concept has been driven majorly by the allure that comes with internationalization including profitability, market growth among other advantages (Dev, 2007). However, literature on the topic has been limited to a number of conceptual frameworks that have been developed in order to help understand the process of internationalization (Cavusgil, 2004). A majority of studies have also focused on the issue of market selection, entry strategies and drivers of success in the international markets. Studies have also shown that there has been a significant focus on firms moving from developed market to the developing markets (Gripsrud, 2005).

There is a growing interest in a different dimension of internationalization. This new form of internationalization is concerned with the movement of emerging market firms to international markets including entry into the developed markets (Gabriel, 2011). The reason for this interest is the fact that it is expected that most of the developed markets are mature, with limited growth opportunities for many firms across industries (Javalgi, 2010). Entry into these markets would therefore spell doom for many firms because of limited growth and profitability. However, this is different as many firms from emerging markets are succeeding in the already developed markets (Kamakura, 2012).

Multinationals from emerging markets differ in terms of their structures and the strategies they use to enter international markets. Given that they come from different cultures, it is expected that they will employ different approaches in order to achieve internationalization success (Kamakura, 2012). A core approach of internationalization for these firms has been the exporting strategy. It has been dominant because of ease of implementation and ability of the firms to achieve success (Kuivalainen, 2012). Given that these firms are smaller, less experiences, have limited resources and international reputation, they often find it difficult to break-even an element that discourages most of them from engaging in international business (Chen, 2002). The focus is therefore to understand how some of these firms have continued to thrive in international markets despite coming from emerging markets with limited resources and competencies to compete in international markets (Raju, 2011).

Aims, Research Questions and Justification

The main aim of this study is to examine the process of internationalization of firms from emerging markets in terms of their approaches and strategies in entering international markets. The key focus will be on the automobile industry with a focus on Chery Automobile and Tata Motors.

The key research question for this study is what internationalization strategies have been adopted by emerging market firms in the process of entering and operating in international markets? The following are the specific questions and justifications.

  1. What internationalization approaches to these firms use in order to operate in international markets?

This question seeks to understand the process taken by these firms from emerging markets to internationalize. The argument is that there are firms that take the traditional approach, while there are others who skip this process. The process used by these firms will thus be key in helping to understand how they achieve success in the international markets.

  1. What market entry strategies are implemented by these firms in the process of entry in international markets?

There are a range of international market entry approaches that firms select in order to facilitate their entry and operations in international markets. However, a lot of literature focuses on the large multinational companies from the developed nations. Understanding the market entry strategies used by these firms will be novel in helping managers who are seeking entry in these markets implement their strategies.

  1. Do firms from emerging markets implement similar strategies in the process of internationalization?

This will be an important question in this study. This is because it will provide an analysis of whether there is homogeneity in terms of internationalization strategies of firms from emerging markets. The argument has been that the difficult cultures and nationalities mean different ownership strategies, different cultures and preferences among others. However, are these differences also exhibited in the process of entry in international markets? This will be important for this study allowing ease of understanding of the strategies implemented by these firms as they venture into international markets.

 

Research Context, Rationale and Contributions

Internationalization process

A key focus area of this study is on the issue of the internationalization process. Studies have identified that there are different patterns of internationalization and firms take different approaches in the process of internationalization (Chen, 2002). The large multinationals that could be considered old in the market have focussed on internationalization through the more traditional approach in which the focus on market knowledge before committing resources in these markets (Gabriel, 2011). This is basically informed by the work of Uppsala in his stages of internationalization model. However, this has changed because many of the young firms are entering international markets much faster and earlier in their developmental stages, an approach that differs from what the old firms do (Javalgi, 2010). This means that they skip stages of internationalization driven by their high tolerance for risk. However, most of the studies focus on the developed nations with a lack of studies of firms from developing nations so as to understand whether the process of internationalization is similar.

Despite the differences in internationalization approaches adopted by older firms and the younger firm’s the consequence of accelerated internationalization is growth. It is expected that newly internationalized firms will grow faster than the traditional MNE (Gripsrud, 2005). This has been the case in many firms across the globe that have internationalized. However, the problem lies in the fact that many of the MNEs from emerging nations may not pick the same process and trajectory and this is because they lack global leaders and the skills and competencies to operate in international markets (Cavusgil, 2004).

Based on this therefore, this study aims to examine the process of internationalization of the firms from emerging markets (Cavusgil, 2004). It is driven by the realization that most firms prefer the gradual and incremental approach to internationalization (Raju, 2011). However, this could be different in the case of firms from emerging markets given lack of skills, competencies and sources of competitive advantage to exploit opportunities in the international markets (Ojala, 2007). This makes it an interesting study area that will add knowledge to the field of international business and hence this study.

Market entry strategies

How do firms from emerging markets enter international markets? This is a key question that this study seeks to answer. However, previous studies have shown that the approaches implemented by firms in entering international markets will differ on the basis of their level of risk tolerance, the skills and competencies that these firms have in operating in international markets and the level of ownership required by these firms in controlling their operations (Kamakura, 2012). Other studies also indicate that the choice of the market entry strategy is driven by the firm’s internal factors in the form of ownership advantages that it has (Kontinen, 2012). Despite this, there is a limited number of studies that have attempted to examine the process of internationalization and market mode selection for firms from emerging markets.

Among the few studies examining the entry approaches of the MNEs from developing countries is the work of Chudnovsky and Lopez (1994) who found that the entry mode that was dominant among these firms is the exporting strategy (Kuivalainen, 2012). However, it was also suggested that firms that are focusing on operating in mature markets often seek to use acquisitions with the intention of benefiting from the already established distribution channels in the new markets (Lan, 2014). On the other hand, firms that are seeking to build their skills and knowledge in international markets seem to go with acquisitions because it is considered the easiest approach to growing their market share and gaining access to proprietary knowledge (Cavusgil, 2004). Studies examining firms from Latin America on the other hand argue that most of these firms tend to focus on the use of joint ventures in the initial stages of internationalization and shift to greenfield ventures because of the need to control the firm’s interests (Dev, 2007).

Thus, this study will seek to understand what approaches are most commonly used by firms from emerging markets. Literature indicates that acquisitions, joint ventures and greenfield investments are preferred. However, given that most of the studies are from large multinational firms from developed nations, there is a need to examine if the same strategies are used by firms from emerging markets.

Internationalization strategies and motivations

Dunning (1994) examined the motivations and strategies implemented by firms as they seek to engage in FDI in international markets. According to his study, there are four categories of motivations that firms have adopted and which are important in the expansion process (Cavusgil, 2004). These include: market seeking, resource seeking, strategic asset seeking and efficiency seeking. Based on his study, these strategies can affect firms from both developed and developing markets (Chen, 2002). Firms that internationalize driven by resource seeking motivation often do this driven by domestic market saturation, as a defensive strategy against the foreign multinationals and because of a reduction in demand in the domestic markets (Dev, 2007). A number of firms from emerging markets tend to use this strategy. The second motivation is asset seeking. This strategy is driven by the need to access expertise, technology, build the brand and access distribution channels. However, many firms from growing economies have been unsuccessful in using this strategy because of lack of basic competencies and skills (Gabriel, 2011). Thus, improving success in international markets may require an improvement in skills and competencies.  The efficiency seeking motives on the other hand are driven by the need to reduce costs. Such costs as cost of logistics, communications among others can impact negatively on the firm (Cavusgil, 2004). This strategy often appears later in the internationalization process. This study will thus seek to understand whether there is commonality in these motives and strategies or whether they differ among firms from different nations.

Proposed Methods

There are a number of methods that are suggested for use in this study. These methods are considered important because they enable the researcher to achieve the study objectives (Walliman, 2010). Given that the research methodology is one of the major criteria used in evaluating the success of any study, it is important that the methods selected provide the researcher with the ability to effectively achieve the research objectives (Tolmie, Muijs, & McAteer, 2011).

Research approaches are considered a key approach to conducting any study. This is because they guide the researcher in implementing the research. There are two types of research approaches that have been suggested in literature. These are the qualitative and the quantitative research approaches (Thomas, Silverman, & Nelson, 2015). The former is concerned with collecting and analysing non statistical data while the latter is concerned with collection of statistical data in order to respond to the research questions. This study will focus majorly on the qualitative research approach (Salter & Mutlu, 2013). The rationale for this is driven by the need to understand from the perspective of the firm how it internationalized including the process of internationalization, entry strategies and approaches. This cannot be done through prediction and hypotheses that are part and parcel of the quantitative research approach. This makes this approach ideal for use in this strategy.

The research strategy is a key element of any study. This is because it acts as a guide in the process of conducting research. The research strategy provides a roadmap that is important for all researchers in order to improve the research process (Rubin & Babbie, 2007). Research strategies are divided into either qualitative or quantitative. Qualitative strategies include case studies, ethnography, grounded theory and participative research among others. The quantitative research approaches include approaches such as experiments and surveys (Moxley, Bishop, & Miller-Cribbs, 2016). This study focuses on the use of the case study research approach. Case studies provide a novel approach to understanding phenomena because they permit the researcher to collect a lot of information about a given issue (Martin & Bridgmon, 2013). Additionally, they allow the researcher to use a number of research instruments which increase reliability of the research outcomes. The two main cases selected for use in this study are Tata Motors and Cherry Automobile.

The selection of case studies has been a key focus of many studies. This is because case study selection can be a difficult process if not properly implemented. Cases are majorly selected on the following grounds (Walliman, 2010). First is novelty or uniqueness of the cases which help the researcher to understand important attributes about the cases. Secondly is because of their prominence of importance. Cases selected along this dimension are considered important because of a specific aspect about them in the industry that differentiates them from others (Tolmie, Muijs, & McAteer, 2011). Rationale for choice of cases used in this study is based on their rapid growth and expansion in international markets. Tata Motors is one of the largest conglomerates in India. It is a prominent firm which interests in a range of industries. Its ability to push through the international markets and succeed from India is what drives its use in this study. Cherry Motors on the other hand has grown fast as an automobile manufacturer. Its presence in international markets is being felt as a Chinese firm. Its prominence as an automobile firm is also the reason for selection of this case in order to analyse it.

Data collection is an important aspect of any research process that allows the researcher to be able to effectively achieve the research objectives. In this study, the data collection method considered for use is the desktop research (Thomas, Silverman, & Nelson, 2015). Desktop research is a secondary data collection approach that focuses on collecting data from the field. It is considered important in this study because it will allow the researcher to identify information from studies, reports, and other already published materials in order to answer the research questions (Rubin & Babbie, 2007). The issue is that it may not be possible to carry out primary research on the companies based on their locations. This will be costly and hence the need for a research instrument that is less costly and which will allow the achievement of the intended objectives (Martin & Bridgmon, 2013). This data collection instrument is thus viewed as ideal in helping to carry out the research.

Data analysis on the other hand can be divided into statistical and the non-statistical approaches to analysis. The statistical data analysis approach focuses on analysing data through the use of statistical data analysis instruments (Moxley, Bishop, & Miller-Cribbs, 2016). On the other hand, the non-statistical data analysis approach focus on the use non statistical data analysis instruments. This study in particular focuses on the use of the thematic approach (Tolmie, Muijs, & McAteer, 2011). Thematic data analysis is a type of data analysis instrument that focuses on identifying themes and patterns from research in order to achieve the study objectives (Rubin & Babbie, 2007). Themes are identified, categorised and coded before identifying the meanings that emanate from them. This method is perceived as an ideal qualitative data analysis instrument and hence its use in this study.

 

 

References

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