Internationalization

Strategy in Family FMCG

company: A case of

SE MASTERARBEITSKONVERSATORIUM

o. Univ.-Prof. Mag. Dr. Rudolf Vetschera

ao. Univ.-Prof. Mag. Dr. Josef Windsperger

A PROPOSAL BY: Nicolai Rodimov

CONTENT

Structure of the Thesis

Introduction

Characteristics of Family-owned firms

Characteristics of Fast-moving Consumer Goods

Research Question

Methodology

Theoretical Frameworks

INTRODUCTION

Master Thesis

Theory

Theory of international entry modes and factors influencing

them

Theoretical frameworks

Analysis

FMCG Industry

Application of theoretical frameworks and results

analysis

Finding and Implications Conclusions and further implications

WHY?

“The essential act of entrepreneurship is new entry. New entry can be

accomplished by entering new or established markets with new or

existing goods or services. New entry is the act of launching a new

venture, either by a start-up firm, through an existing firms, or via

internal corporate venturing.”

Lumpkin and Dess, (1996)

Internationalization is perceived as a process of learning and

accumulating knowledge

(Eriksson et al., 2000)

Characteristics of Family-owned firms

“The Family-owned … enterprise shows a particular behavior for the establishment,

development, sharing, protection and transmission of knowledge” Sami Basly, 2007

Acoording to Basly (2007):

The conservatism of family companies does not directly influence the level of

internationalization knowledge

The independence orientation of family companies, then with its two dimensions

simultaneously (decisional and resource independence), does not significantly

influence internationalization knowledge

Social networking positively influences the amount of internationalization

knowledge

Characteristics of Fast-moving Consumer

Goods

First used by Prof. Neil H. Borden of the Harvard Business school in 1965

Products which have relatively a faster production time and well-organized supply chain which enables to effectively reach the end consumer

This product category has a short shelf time due to its high demand or because products deteriorate rapidly

Profit margin is relatively small, but because they are mostly sold in large volumes, the accumulative turnover reaches substantial amounts

To operate in the FMCG business field we implicitly conclude that one firm has to be open to the market, very innovative and fast-moving. What about Family?

Composite of Family-owned & FMCG:

Research question

FMCG are perceived as fast decision

taking firms

Family companies tend to be a closed, hermetic and rigid

organization

The interaction between the family

system and the firm system appears to

be the essential element preventing the

organization from quickly adapting to the

changing conditions (Moloktos, 1991)

Considering the specificity of the family-managed firms, three variables of interest characterize and

influence various business process in family enterprises(Basly, 2005):

1. Family-owned companies are very much oriented towards retaining its independence that can

have positive, as well as, negative repercussions

2. This type of ownership tends to be conservative, thus limiting the knowledge development

3. Family firms are dependent on social networking

Research Questions

Rare studies have tried to analyze the internationalization process of Family-

FMCG companies

This field of studies is specifically interesting due to the fact that FMCG business

are perceived as fast decision-taking firms and it creates a divergence against

the conservative, family-managed firms.

Methodology

Exploratory

• Identify new implications which can create new business opportunities

Descriptive

• Case study – analysis of characteristics of environments, objects or people and describes the results in a scientific way

Causal

• Identifies cause & effect relationships by means of experiment

A single-case study design will be applied and based on a family-owned and

managed FMCG company - Mars Inc.

Moreover the purpose of the research is to examine an internationally active

Family FMCG firm and will take a focal company viewpoint to the

international business processes.

“Case study is the study of the particularity and

complexity of a single case, coming to understand

its activity within important circumstances.”

Stake, (1995)

Methodology

Data will be:

Primary – collected

directly by the researcher

through direct interviews

and/or questionnaires

Secondary – use already

existing data from the

databases

About Mars:

In 1991, Frank C. Mars

made first mars bar in

Tacoma, WG (104y)

Today:

• Operates in fields:

Pet care, food,

chocolate, chewing

gum, drinks, and

Symbioscience.

• 6th largest private

company in USA

• $33billion annual

sales

• Over 75000+

employees

Theoretical Part:

Internationalization and

theoretical frameworks

Internationalization

When a company is thinking to enter new markets, it generally takes into

account several important criteria:

Control – to which extent is a firm wishing to have control over its foreign

operations

Risk – what is the maximum level of risk that a firm is willing to take

Flexibility – how flexible is a firm in its foreign processes

Three general types of market entry by

Hollensen (2011)

Indirect exporting

Direct Exporting

Licensing

Joint-Venture

Foreign Direct Investments

Contractual

modes – shared

risk and

control, shared

ownership

Exports – low control over foreign

business, low risk and high flexibility

Investment

modes – high risk

and control, low

flexibility

Two general types of market entry by

Pan & Tse (2000)

Johanson and Vahlne (1977) and Eriksson et

al., (2000)

Subsequently:

According to Eriksson et at. (2000) – internationalization is considered a practice of

organizational learning and evolution of the acquired knowledge

Further to the topic, Johanson and Vahlne (1977) suggest that there are two types of

knowledge:

1. Market (objective knowledge)

2. Practical (experiential knowledge)

Physic distance are factors preventing or disturbing the

flows of information between

firm and market.

Factors are differences in:

• language

• culture

• political systems

• level of education

• level of industrial development,

etc.

The larger

the psychic

distance the

larger is the

liability of

foreignness Johanson and Vahlne, (1977)

Hypothesis 1) Smaller Physical distance is

positively related to internationalization

activities of an enterprise

H1a) Knowledge-based internationalization is positively related

to the speed of the internationalization of an enterprise

H1b) Practical (experiential) knowledge is more likely to

influence the internationalization decission

Theoretical framework

Furthermore, this research intends to adopt Jeryl Whitelock’s (2002)

approach to theories of internationalization and use four theories to explain

the behaviour of how firms internationalize, specifically:

Uppsala model of internationalization

Eclectic Paradigm and Transaction Costs Analysis

Interactive Network Approach of the International Marketing and Purchasing Group

Business Strategy Approach

Whitelock argues that a model which will collect in itself main elements from

each theory, will be capable of giving a wealthier explanation and a broader

image to market entry choices

The Uppsala Model by Johanson & Wiedersheim-

Paul (1975), Johanson & Vahlne (1977)

Hypothesis 2) The more markets a company

entered, the greater the likelihood that it

will use equity-entry modes

H2a) MNEs are more likely to internationalize by means

of equity entry modes

H2b) MNEs are less likely to use non-equity entry modes

Eclectic Paradigm by Dunning (1988) and

Transaction Cost Analysis

Ownership advantage

• Tangible assets

• Patents and designs

• Organizational efficiencies

Location Advantage

• Low cost labor & material

• Government incentives to

FDIs

Internalization advantages

• Reduce transaction costs

• Control over operations

• Avoid tariffs and barriers

YES

YES

NO

NO

NO

Stay home

(local)

Export

License FDI!

Company’s specific

resources and

capabilities that are

unique and sustainable

competitive advantage

Attractiveness

of location

(target market)

Equity or not-

equity market

entry modes?

The eclectic paradigm sets our

to explain “the extent, form

and pattern of international

production” and is founded on

“the juxtaposition of the

ownership specific advantages

of firms contemplating foreign

production, … the propensity

to internalize the cross-border

markets for these, and the

attractions of a foreign market

for the production (Dunning,

1988, citied by Whitelock)

Eclectic Paradigm and Transaction Cost

Analysis by Coase (1937)

Transaction cost analysis theory is the firm’s theoretical relation to the market (Coase, R. 1937) serves as a trigger for firms to internationalize:

Subsequently, if ITA > ETC, then firms will look for way to take advantage of outside skills, knowledge, technology and try to ex. Outsource, FDI, etc.

Company XY

Internal

Transaction

Costs

Company AB

Internal

Transaction

Costs

External

Transaction

Costs

Market(s)

This is the

foundation

base of

starting

MNEs

Hypothesis 3) The greater the competitive

advantages of the firms, the more likely they

are to engage in their foreign production

H3a) The greater the ownership advantage, the more likely

to engage in FDI

H3b) The greater the location advantage, the more likely to

engage in FDI

H3c) The greater the internationalization advantage, the

more likely to engage in FDI

Industrial Network Approach

“Each firm in the network has relationships with customers, distributor, suppliers … there are also important competitive relations” Turnbull, (1986)

There have been identified several variable that influence the relation activities among firms (Whitelock, 2002):

1. Elements and processes of interaction

2. The characteristics of buyers and suppliers

3. The atmosphere surrounding the interaction

4. The environment within which the interaction takes place

In this setting, suppliers have to assess and analyze their position to its buyers in any given market, and vise versa; the business atmosphere and the existing environment towards other competitors

Hypothesis 4) Network relationships

positively influence the internationalization

initiation

H4a: Network relationships are likely to influence the

choice of target market

H4b: Network relationships are likely to influence the

choice of entry mode

H4c: Network relationships have a positive impact on

internationalization of SMEs to physically distant markets

Business Strategy Approach by Welford and

Prescott, (1994)

“…is based on the idea of pragmatism”

In general, according to Reid (1983)the are two main reasons that guide

internationalization of firms:

1. Contingency-based (possibility)expansion

2. Finding the balance among market opportunity, firm resources and managerial

philosophy

Furthermore, in 1987 Root and Turnnbull and Ellwood in 1986, subsequently,

discussed the various factors for market selection:

Market attractiveness, psychic distance and accessibility and informal barriers

According to these criteria, the firm is tailoring its organizational structure to serve

the market, including others like: size, export orientation and commitment, etc.

Hypothesis 5) Internationalization is

likely to be contingency-based

H5a) Internationalization of a firm is positively related to:

H5a1) Market opportunity and attractiveness

H5a2) Own resources

H5a3) Managerial philosophy

H5b) Market selection of a firm is negatively related to:

H5b1) Market attractiveness

H5b2) Psychic distance

H5b3) Accessibility and informal barriers