BACHELOR THESIS Spring 2012 Kristianstad University International Business- and Bank & Finance Program To what extent are Swedish companies following the traditional internationalization theories when entering Africa? Authors Isak Johansson Therese Svensson Supervisor Agneta Moulettes Examiner Christer Ekelund
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BACHELOR THESIS
Spring 2012 Kristianstad University
International Business- and Bank & Finance Program
To what extent are Swedish
companies following the
traditional internationalization
theories when entering Africa?
Authors
Isak Johansson
Therese Svensson
Supervisor
Agneta Moulettes
Examiner
Christer Ekelund
ii
Abstract
Globalization has been a hot topic recently. Many firms experience that their domestic
market is too limited for them to conduct their business in. This restriction leads to
firms seeking customers on different markets, in different nations, where the
companies’ supplies meet the consumers’ demands. Therefore, companies are
constantly seeking new places to do business in. Developing economies have been in
the scope of many firms recently, with China being in the frontline with its massive
labour force and cheap labour costs. However, attention is heading towards the African
continent, with its rich natural resources and, like China, large labour force.
The purpose of this dissertation is to see how Swedish firms have tried to establish
themselves on the emerging African market. In order to achieve this, an abductive
research approach has been selected. Qualitative interviews with important people in
four Swedish companies have been conducted.
The empirical findings suggest that Swedish firms have great opportunities to enter the
African market and continue to develop there. Furthermore, there is no method of
expansion that is better than another. It all comes down to what specific assets that
characterize the company in question. Whether it is a service-oriented company, a
manufacturing company or an exporting company will perhaps decide what entry mode
would be most suitable.
To our knowledge, there is no dissertation that deals with this topic. Consequently, this
paper will highlight this research area.
Key words: FDI, Africa, Swedish companies, internationalization, traditional
internationalization theories
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Acknowledgement
First, to our tutor Agneta Moulettes, who has guided and helped us through this stressful
period of time. To Annika Fjelkner, for giving us helpful advice as well as enabling our
writing skills to improve. To Timurs Umans, for his availability and information
updates, which has helped us understand what is demanded from us.
Furthermore, to Marie Englesson, Björn Falk, Lina Jorheden and Mats Jörnell for being
very cooperative and understanding during the whole interview part of the dissertation.
Finally, to our beloved family members and friends for reviewing this dissertation and
1.3 Research questions ...................................................................................................... 8 1.4 Research philosophy ................................................................................................... 9 1.5 Research approach ...................................................................................................... 9 1.6 Theoretical limitations .............................................................................................. 10 1.7 Outline ...................................................................................................................... 10
2. Theoretical framework ................................................................................................ 11 2.1 Introduction ............................................................................................................... 11 2.2 Choice of theory ........................................................................................................ 12 2.3 Foreign Direct Investment ........................................................................................ 12
2.3.1 Acquisitions and Greenfield investments ........................................................... 13
2.3.2 The pattern of FDI ............................................................................................. 14 2.3.3 Why FDI when profitable and less riskier alternatives exist? ........................... 15
2.3.4 Benefits and costs of FDI ................................................................................... 15 2.4 Exporting and licensing ............................................................................................ 16
2.5 First mover-advantages ............................................................................................. 18 2.6 Economies of scale ................................................................................................... 18 2.7 The Uppsala model ................................................................................................... 19
2.8 Summary of theories ................................................................................................. 19 3. Methodological considerations and research techniques ............................................ 22
3.1 Choice of methodology ............................................................................................. 22 3.2 Atlas Copco, Atsoko, Findus and Samres ................................................................. 22
3.2.1 Data collection ................................................................................................... 23
4.1.2 Atlas Copco’s target groups and competitors ................................................... 28 4.1.3 Experienced difficulties and obstacles ............................................................... 28
4.1.4 Lessons learnt from previous expansions and predictions of the future............ 29 4.2 Atsoko ....................................................................................................................... 29
4.2.2 Atsoko’s target group and competitors .............................................................. 30 4.2.3 Experienced difficulties and obstacles ............................................................... 30
4.2.4 Atsoko’s predictions of the future ...................................................................... 30 4.3 Findus Sweden AB ................................................................................................... 31
4.3.1 Findus’ strategy ................................................................................................. 31 4.3.2 Findus’ target group and competitors ............................................................... 31 4.3.3 Experiences difficulties and obstacles ............................................................... 32 4.3.4 Lessons learnt from previous expansions and Findus’ predictions of the future
Appendix 3.3 Interview 3, Mats Jörnell, Head of export, Findus Sweden AB ............ 66 Appendix 3.4 Interview 4, Marie Englesson, CEO, Atsoko ........................................ 73
List of figures Figure 1.1 Abductive research process ............................................................................. 9
Figure 2.1 A decision framework ................................................................................... 18
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1. Introduction
In this chapter, the dissertation will be introduced. In addition, the purpose, research
questions, research philosophy and research approach will be presented. Finally,
theoretical limitations and outline will be described.
“Foreign direct investment in Africa -- which can make an
important contribution to the economic development of the
continent-- has increased only modestly in recent years, as the
image of Africa among many foreign investors still tends to be one
of a continent associated mainly with political turmoil, economic
instability, diseases and natural disasters”. – United Nations (1999
p. IV)
Even though international trade has existed for many, many decades, its significance for
the current global economy has increased lately. There are many upcoming economies
on the horizon – such as Brazil, India, China and many countries in Africa. Some of the
up and rising economies in Africa include Rwanda, Tanzania, Senegal and South
Africa. With China showing an impressive GDP rate of 10.3% during the second
quarter of 2010 despite the global recession of 2009, many nations will wish to copy
their winning formula (CNN, 2010). Furthermore, Brazil is also displaying impressive
growth rates, recently over passing the UK to be the sixth largest economy (The
Guardian, 2011). However, Brazil is still struggling to maintain its middleclass, with
many immigrating to Europe. If they can find a solution to the scarcity of jobs in the
middleclass, many experts believe Brazil can climb even higher up the ladder (BBC,
2012). Another up and rising player in the global economy is India. Being labor
intensive and cost effective, India has developed greatly in recent decades. Even though
they have suffered from domestic issues, that have affected the growth negatively, IMF
is still anticipating a growth of 6.9% in 2012, according to Business Standard (2012).
Furthermore, the African market has not received as much attention as it perhaps
deserves, being plagued by political and economic instability for many years which
keeps foreign investors away. We find it interesting to see as to why such a rich
continent of natural resources and labor force has been overlooked. These emerging
economies create many new possibilities for companies wishing to expand their
markets.
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Since we believe the African market offers a lot of opportunities for companies to take
advantage of, along with being relatively unexplored, we chose to focus on this
continent. Also, many of the internationalization theories explained in later chapters
have been used in expansions to Asia as well as other foreign markets before.
Therefore, we wonder if these are applicable to companies’ expansions towards an
unexplored African market today. Furthermore, we are going to focus on growing
economies such as Tanzania, Rwanda, South Africa and Senegal (Regeringen, 2011).
Most of these countries are dominated by great poverty and rely a lot on their exports,
where over 80% is exported to non-African countries (Regeringen, 2011). South Africa
is the country that has developed the most out of these four. Studying a relatively
developed country, such as South Africa, along with developing countries, as the other
three, will perhaps offer us deeper understanding of our research question. Also,
comparing countries in different phases of internationalization and development may
offer different answers or patterns. At this time, there are already a few Swedish
companies in a variety of industries located in these countries, which make these
countries specifically interesting. It would be completely unnecessary investigating
countries where Swedish companies are absent.
To expand globally is of significant interest for many companies today. A new trend
when it comes to global investment flows is mostly in FDI in developing countries
(Cotton & Ramachandran, 2001). According to Cotton et al. (2001), one of the most
important reasons behind the development of the global economy is the increased
participation of developing countries in foreign investment. With the world constantly
growing more global, many firms experience that their domestic market is too limited
for them. This creates an incentive to expand to new markets abroad where the firms’
supply meets the consumers’ demand.
There are different methods the firms can use to enter foreign markets and they all bear
different risks and costs. We are focusing on three different alternatives; Foreign Direct
Investment (FDI), exporting and licensing. An important factor to take into account
when entering a new market is the timing of entry. The theory of first mover-advantages
will be developed in the next chapter when we describe the choices of theory.
8
The latest decade the aim has been focused on Asia when handling with FDI and
expanding abroad. Many companies have relocated their companies there or exported to
those locations. We want to see if Africa can offer the same array of opportunities as the
Asian market has shown. The history of good experience when establishing in Asia
brings good strength to continue establish in developing countries and lowering the
resource gap (United Nations, 2005). Furthermore, in a world economy where
cooperation’s are constantly seeking new places to conduct their businesses, the
emerging African market will probably be in the scope of many firms in the time to
come.
For the dissertation we want to see how Swedish companies can develop and survive in
a relatively new market. Swedish firms have the latest decades expanded to new foreign
markets and the Asian markets have lately been of high interest for many of them.
Many firms take the opportunity to absorb the competence and technology that other
countries have. One large market that is relatively undeveloped is the African one. This
is why we choose to look at the Swedish companies and in which ways they can, and
how they actually do, establish themselves in this region, more specifically in the ones
we have named above. The outcome of this dissertation will shed some light on how
Swedish companies are expanding to African markets.
1.2 Purpose
The purpose of this thesis is to explore how Swedish firms can establish themselves in a
new market and if they are following the traditional internationalization theories. We
are focusing on the African market, and more specifically in South Africa, Tanzania,
Rwanda and Senegal. It is no secret that firms wish to expand their businesses to new
markets to reach more consumers. Then, what is the best possible way for a Swedish
company to enter the African market? Is there a specific industry that is more suitable
for those markets than others? Is expansion to Africa more suitable for SMEs (Small
and Medium Enterprises) or large corporations? The outcome of our research will
highlight significant factors that Swedish firms need to consider before entering these
new markets, as well as after to be able to survive.
1.3 Research questions
To what extent are Swedish companies following the traditional internationalization
theories when entering Africa?
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- Are the traditional internationalization theories still applicable to new companies?
1.4 Research philosophy
Interpretivism claims that the social life is far too complex to be generalized into law-
like assumptions, contrary to what the positivistic approach argues (Saunders, Lewis &
Thornhill, 2009). This ideology focuses on the human factor, rather than items
(Saunders et al., 2009). We have chosen the interprevistic approach, since our aim of
this dissertation is to see the emerging patterns of Swedish firms trying to establish
themselves in Senegal, Rwanda, Tanzania and South Africa. This is because we believe
that it is not sufficient to simplify this problem by creating a general model for Swedish
firm to follow. We believe that many factors can influence a Swedish firm’s chances in
Africa. Furthermore, we are of the opinion that we will gain a deeper understanding of
the firms’ reasoning by doing personal interviews. Basically, a complex topic like ours,
calls for the interprevistic approach.
1.5 Research approach
This dissertation has an abductive research approach. The dissertation is based on the
collection of qualitative interviews, which makes this approach suitable. Abductive
research, as shown in Figure 1.1, begins with examining existing theories. The middle
stages of the abductive research approach is matching these old theories with new ones,
and applying this onto real-life observations. After this point, a conclusion is drawn,
where an assumption or something similar to a generalization is created. Since it is
impossible to say that any Swedish company is applicable to the conclusions of a
qualitative study, due to the fact that only a limited number of companies are examined,
an abductive research approach is appropriate.
Figure 1.1 Abductive research process
(International Journal of Physical Distribution & Logistics Management)
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1.6 Theoretical limitations
Our dissertation is focusing on the different entering modes a firm can use for
penetrating a new market and which modes they are actually using. Thus, our
theoretical limitations will be restricted to theories dealing with companies expanding
internationally. To examine the whole African market would make the dissertation to
broad. Consequently, we have chosen to focus on Rwanda, Tanzania, South Africa and
Senegal.
1.7 Outline
This dissertation is divided into six major chapters. The first chapter introduces the
dissertation, declares the research purpose and research question. This chapter ends with
a short discussion of theoretical limitations. The second chapter introduces our choice of
theories and ends with a summary and conclusion of these. The third chapter presents
our research philosophy, research approach and an introduction of our examined
companies. Also, our choice of operationalization is described. Chapter four is
describing our empirical findings from our conducted interviews. Chapter five analyzes
chapter four’s findings and ends with a short summary. Chapter six consists of a
concluding discussion, limitations, further research and critical review.
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2. Theoretical framework This chapter will present an introduction of the reviewed literature. Additionally,
traditional as well as new internationalization theories that are relevant to this
dissertation will be presented. Finally, a summary of these theories will be found as
well.
2.1 Introduction
Traditional internationalization theories consider how establishment abroad can be
achieved. FDI, exporting, first mover-advantages and economies of scale are examples
of traditional internationalization theories. The reason why we choose to focus on these
is because we think they are the most central ones to our research question and
dissertation. These theories describe different methods used and possibilities required to
branch out to new markets.
Previous research discusses how companies reason when choosing their mode of entry.
When firms choose their mode of entry, they make the important choice of how to
market their product. This can be an important process when it comes to a firm’s
survival in the foreign market (Eckeledo & Sivakumar, 2004). According to Dunning &
Lundan (2008), three factors conclude what entry mode a company should undertake.
These are ownership-specific advantages, location factors and internalization factors;
the OLI-model. They find that the required level of local representation from the
company is decisive when choosing mode of entry. Also, determining factors include
firm specific assets and how these assets are used. It is argued by Dunning et al. (2008)
that the more a company fills these criteria; a wholly owned subsidiary is preferred. In
other words, a more active mode of entry is preferred when a high level of commitment
is necessary, suggestively FDI. Furthermore, depending on certain company goods and
assets, a certain mode of entry is of interest. For instance, if the company is in the heavy
machinery industry, export is probably not of interest, because of expensive transport
costs. If this is the case, a firm may opt to move production to the desired country.
Further research (Buch & Lipponer, 2007) argues that FDI and export should be
considered as complements rather than substitutes. This suggests that the decision is not
an absolute, and that a company may well conduct both strategies.
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2.2 Choice of theory
There are already some established modes of entry a company can use to
internationalize and expand to another country or market. The methods we think are the
most important are the ones that are covered in the following subchapters. There are of
course some theories that are more relevant to our research than others. To be able to
answer our research questions properly, we will not look to models that explain
international trade. Instead, we will focus on models that deal with internationalization
and expansion abroad. Therefore, we have chosen theories such as FDI, licensing,
exporting, first-mover advantages and economies of scale. We will use these theories as
a foundation to our dissertation. Usually, a firm is facing a decision whether to directly
invest in a foreign market, export or license its products. This is the main reason why
we chose these three modes of entry as a base. Additionally, a firm will seek to seize
certain advantages towards its competitors, and the theories of scale economies and
first-mover advantages can be used as a tool in this case. This is why we choose to
focus on the previously mentioned theories, since they are very much likely to be used
for an internationalizing company. Any further theory that could be of use is based on
these traditional theories.
2.3 Foreign Direct Investment
FDI is when a firm can choose to directly invest in a foreign firm either through
purchasing a certain percentage of that firm, or acquire the whole firm entirely. Either
way the firm chooses, the purchasing firm is facing a big risk since this method can be
very expensive (MSNBC, 2006). Also, a firm can choose to open their own factory in
another country – a so called Greenfield investment. Even if FDI is a high risk and high
cost-method it has in recent decades become more and more of a useful tool for firms to
expand abroad, whether to a bordering market or further away. FDI has become
something of an alternative to international trade, which allows businesses to expand.
This method has increased highly the past decades and in 1998 it stood for more than
half of all the private capital flows to developing countries (Alfaro, Chanda, Kalemli-
Ozcan & Sayek, 2004). This is clearly shown from recent studies when displaying the
figures of this increase. The average outflow of FDI has been raised from $25 billion in
1975 to $1.4 trillion in 2000, only to fall down to some degrees the following years and
then skyrocket up to a staggering $1.8 trillion in 2007 (McGraw-Hill, 2011). The almost
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insane growth of FDI has even outgrown the increase rate of world trade itself, with
FDI showing a growth of eight times itself from 1992 to 2008, while the world trade
“only” had an increase of 1.5 times during the same period of time. The FDI stock has
by 2008 exceeded $15 trillion, which is the accumulated amount over the years
(McGraw-Hill, 2011). These figures represent the impact of FDI in the global economy
With foreign capital entering a developing market, important feats can be obtained by
the host country. To continue to grow as a country, it is important to be open to
developments and new challenges. Nowadays, most developing countries welcome
foreign capital as it is closely linked to a countries economic growth (Alfaro et al.,
2004). FDI is a necessary driver in a developing country’s economic growth (United
Nations, 2003). Furthermore, even though Africa possesses a rich variety of natural
resources, it has not attracted as much FDI as one would predict. This indicates that it
requires more to attract foreign capital, namely political and macroeconomic stability
(Musila & Sigué, 2006).
2.3.1 Acquisitions and Greenfield investments
When a firm is entering a new market abroad through FDI, either an acquisition of an
existing firm or a Greenfield (also known as “organic acquisition”) investment is
possible. When establishing a firm abroad, the costs increase more than if the firm
would be producing in the home country, mostly because of lesser knowledge about the
market (Görg, 2000). An acquisition of an already existing firm is when a company
purchases a certain percentage of that firm, or the whole firm entirely. A large part of all
FDI inflow consists of mergers and acquisitions, namely 89% as of 2007 (United
Nations, 2007). However, in developing countries, the ratio of mergers and acquisition
is not as high. Granted, this is simply because there are not that many firms to be
acquired in this limited, however growing market. As that market is growing, the
number of firms will also grow, which will in turn lead to more mergers and
acquisitions.
However, when conducting Greenfield investment, the firms get the chance to build up
their own companies on the new market. The firms have their own businesses, but they
only have their own knowledge. With this form of FDI, the firms have to start from zero
and work their way up in the industries. This kind of method takes more time and effort
14
and to succeed they need great knowledge about the new market. Since every market
has its own culture, it could be difficult to get established without the right knowledge
and competence. This is a reason why many firms fail when conducting Greenfield
investments (Wang, 2009). Wang (2009) continues to say that it is hard to transfer
certain company culture and organizational style when merging with a local firm.
Therefore, it would be easier to invest organically if company culture and so on are of
importance. Generally, firms opt for a merger or an acquisition rather than an organic
investment due to several factors. Firstly, it is a lot faster to acquire an existing firm
than to open up an own factory. Secondly, many firms believe that if they do not
acquire a local firm, their competitors will. For instance, in an oligopoly, it is common
that competitors follow each other’s steps. A firm can simply not afford not to imitate
the competitors’ moves, since it could lose its position in the market. Usually, the
oligopoly-case deals with price-rises and price-cuts, but the general behavior can be
compared with the pattern of FDI. Thirdly, foreign firms are likely to possess valuable
strategic assets, such as brand loyalty, customer relationships, patents, distribution
systems and production systems, and so on (McGraw-Hill, 2011). Assets like these are
not easily created without the proper knowledge about the market culture or market
demand, which a foreign firm is likely to possess.
2.3.2 The pattern of FDI
The theories of strategic behavior and the product life cycle can explain why and how
firms conduct FDI. As discussed before, in an oligopoly, it is crucial to keep up with the
moves of the competitors to not lose advantages. This example is applicable when
generalizing the pattern of FDI. A firm is almost forced to acquire foreign firms if they
want to keep up in the global market. If they do not, their lack of activity will weaken
their position. According to Vernon (1966), the product life cycle theory tells us that a
firm will invest in a foreign market when production has been standardized and when
that market has grown large enough to be able to support local production. Practically,
this means that a firm that used to produce a certain product in its own country will seek
to put production in another country where production costs and labor costs are cheaper.
In other words, the same good that used to be produced domestically and exported is
now being produced abroad and imported. Furthermore, it is safe to say that the labor is
cheaper than in Sweden, which suggests Swedish companies will look to invest there.
15
However, recent studies claim that something called political and economic nationalism
can hinder FDI. Political nationalism is an increasing problem because of the difference
in language and religions (Johnson, 1965). According to Akhter (2007) the economic
nationalism in today’s global world can be hazardous for enterprises. Boycotting of
foreign products and denying the access of foreign suppliers have led to warnings of the
increasing economic nationalism in the European Union. According to Jakobsen and
Jakobsen (2011) this phenomena will always exist, even when openness towards FDI is
constantly spreading around developing nations. All in all, this should not stop the
development of FDI into Africa, since the links in between economic growth and FDI
are well established in most cases (Alguacil, Cuadros & Orts, 2010).
2.3.3 Why FDI when profitable and less riskier alternatives exist?
As we will show in the coming chapters, exporting and licensing are significantly
cheaper and less risky alternatives to FDI. As mentioned earlier, FDI could be very
expensive. Not only does a firm have to purchase another firm, other costs come along.
Additionally, lack of knowledge of market culture is a constant risk a firm is facing
when entering a foreign market. These two risks can eliminate the firm’s chances to get
established, if not managed carefully.
2.3.4 Benefits and costs of FDI
It takes two parties for FDI to occur; one giving nation and one receiving nation. Within
the dynamics of FDI, there are different benefits and costs depending on if the nation is
a giver or receiver. The receiving nation will benefit from transfer of resources,
employment effects, balance-of-payment effects, and effects on competition and
economic growth (Alfaro et al., 2004). In short, the presence of foreign businesses will
lead to an increase in competition and, thus, an increase in the quality and variety of
goods produced. However, the receiving country will also suffer some setbacks from
the presence of foreign capital. The backsides of receiving FDI are adverse effects on
competition domestically, adverse effects on balance of payments (also widely known
as trade deficit) and the seeming loss of national sovereignty and autonomy (McGraw-
Hill, 2011).
Furthermore, the company that is conducting outward FDI is also facing certain costs
and benefits. The benefits can be summarized into three parts. Firstly, an increase in
16
foreign earnings from FDI will naturally be beneficial. Secondly, an increase in
employment will also give the company conducting outward FDI an extra boost.
Thirdly and finally, it is possible to gain important knowledge from a foreign market in
terms of production and management through outward FDI (Renard, 2011). By being
present in a foreign market, it is possible to absorb these feats. On the contrary, there are
naturally costs of conducting outward FDI. Firstly, it is risky and expensive in the
beginning when investing in a foreign market or company. It takes some time before
returns on investment will pay off. Secondly, since FDI is an alternative, or at least a
complement, to exporting, the very presence of the company in a foreign market will
result in a drop in exports instead. It comes as no surprise that there are both pros and
cons with FDI.
2.4 Exporting and licensing
When a firm wants to expand internationally without risking a lot beforehand, either
exporting or licensing is a good option.
2.4.1 Exporting
Exporting is when a firm is producing at home and shipping them to a buyer abroad.
Thus, production costs and transportation costs are the only major concerns for an
exporting firm. To make matters easier, the exporting company can hire a native sales
agent in the importing country. Hopefully, this will eliminate any cultural differences
that may hinder the business. It has been argued by Decker and Zhao (2004) that
cultural differences may lure companies away from the opportunity to export. They
continue to conclude that the cultural differences factor is important in the decision
process, however not decisive.
When a foreign firm exports on a new market it often brings out new knowledge to the
market. Knowledge as marketing and technology is important and this could help the
host country to increase their export competitiveness (Cotton et al., 2001). Exporting is
also a positive method when the firm’s products are of low weight. Naturally, the
transportation becomes more expensive when shipping heavier goods. On the contrary,
trade barriers, such as quotas or tariffs, make exporting less attractive, regardless of
weight. Trade barriers often lead from exporting to FDI or licensing. Also,
governmental interventions can either promote or dampen import/export. The United
17
States’ import quota on Japanese cars in the 1980s and 1990s led to an increase of FDI
from Japan instead (McGraw-Hill, 2011).
2.4.2 Licensing
A licensing contract is an agreement in which another party is allowed to produce and
sell a company’s products. Valuable know-how and secret company knowledge is at
risk when allowing another company to produce and sell its products. Sometimes, a firm
is successful due to a secret recipe or a certain production method. When this is shared
in between companies, this may be copied and then used to the original company’s
despair. If it is impossible to protect the know-how under licensing, FDI will be
selected. Also, a firm loses its tight control over production, marketing and management
when licensing. It is also a possibility that a reason why a company is successful is due
to its specific manner of how the business is run. If tight control is lost, the profitability
might drop. Finally, when a company’s know-how is difficult to transfer through
licensing, this method will look unattractive to companies (McGraw-Hill, 2011).
Figure 2.1 below is easily illustrating a suggestion of the different steps in a company’s
process of deciding whether to export, license or directly invest in a foreign market.
According to this figure, export is only lucrative when transportation costs and tariffs
are low. Meanwhile, licensing is only an attractive option if important company know-
how is safe and well-protected under the licensing contract. In addition, if tight control
over the firm is necessary, it is better to do FDI rather than export or license.
18
Figure 2.1 A decision framework
(Based on: McGraw-Hill, Irwin, International Business, 2011, p.258)
2.5 First mover-advantages
As we briefly mentioned in the introduction chapter, the timing of entry in a new market
could be crucial. Preferably, a company will seek to develop strong customer-relations
and establish a strong brand name. When this has occurred, it will be hard for a later
industry-entrant to penetrate that market (McGraw-Hill, 2011). It has been argued that
certain products have a greater tendency to create a first-mover advantage than others
(Zantout & Chaganti, 1996). It is important for a firm to always be one step ahead and
offer good products to stay on the foreign market (Rhaman & Bhattacharyya, 2003).
According to Chen & Pereira (1999), a pioneering brand has long-term market share
advantages. However, it is no guarantee that a first-mover will be successful; as an early
industry-entrant may lack the proper skills, knowledge and, naturally, experience to
fully seize all the opportunities. A lesson could be learnt here for the next wave of
movers, and what pitfalls to avoid (CNN, 2006). There is no a guarantee to succeed as a
first-mover; an advantage in one country could be a disadvantage in another.
2.6 Economies of scale
The theory of economies of scale is closely related to the first mover-advantage theory.
If a company is established early in an emerging industry, it can seize economies of
19
scale and thus gain a huge advantage to future industry entrants. The theory of
economies of scale discusses that a firm can reduce its overall production costs by
spreading the fixed costs over a large number of produced goods (McGraw-Hill, 2011).
If a firm manages to both enter an industry in the early stages, and as well seize
economies of scale, that firm has gained a major advantage to its competitors. This can
be a great opportunity for Swedish firms if they take the step out and expand to African
developing countries. This model is perhaps more in touch with major production
companies, where a great output will spread the fixed cost over more units, rather than
service companies.
2.7 The Uppsala model
Many Swedish firms have been internationalized through this model. In short, the
model states that a firm will seek to penetrate a closely located foreign market through
export before expanding further away (Steen & Liesch, 2007). By following this
procedure, a company will gradually gain knowledge of foreign markets in order to
avoid certain pitfalls that we have mentioned earlier. An issue with the Uppsala model
is how this gradual expansion affects the companies’ investment behavior (Forsgren,
2002).
2.8 Summary of theories
We raise the question whether the previously mentioned theories are enough for a
Swedish company trying to enter the African market. First of all, the firms are facing a
decision whether to export, license or FDI, or perhaps do a little bit of everything. There
are numerous reasons and factors behind this choice, as we now know. According to
Figure 2.1, export is only necessary if transportation costs and trade barriers are low.
Additionally, if valuable and secret company know-how is impossible to withhold under
a licensing agreement, FDI should be selected. Subsequently, the firm will now have to
carefully consider all the aforementioned risks that bear with the decision of FDI, if they
should follow this figure. According to us, this figure is by no means an absolute and
should not be followed blindly by Swedish companies. The mode of entry a company
selects may defy this model, and still be successful.
FDI is usually the preferred option if tight control over management, marketing and
production is important, despite its higher costs and risks. Often, the management style
20
is the key to success and this is hard to duplicate. On the contrary, a successful product
is much easier to copy in production than something as abstract as a way of managing
the firm. Since the African market is considered as an emerging one, we argue that
certain opportunities must be seized in order to tackle competitors in the very
beginning. This is where theories such as economies of scale and first mover-
advantages come in. In order to gain a favorable strategic market position, these
opportunities must be taken advantage of.
To our knowledge, there is no evident research investigating Swedish companies’
possibilities in South Africa, Rwanda, Tanzania and Senegal. Furthermore, it is by no
means a certainty that the traditional internationalization theories offer enough of an
explanation for these firms’ establishment in these countries. Since the aim of this
dissertation is to find out how Swedish firms have made themselves successful in
Africa, how they achieved it and how future companies from Sweden may do it, it is
necessary to investigate the traditional methods of internationalization. It is an
interesting thing to investigate if Swedish companies fulfill the criteria created by
Dunning et al. (2008), regarding what mode of entry to choose. Another interesting
angle is to find out if the conclusion made by Buch et al. (2004) is a possibility, namely
that a Swedish company may use both export and FDI, instead of just choosing one of
the two.
While internationalization is heading towards developing countries (Alfaro et al., 2004),
there are many obstacles and threats to overcome along the way (Musila et al., 2006).
Recent studies show that economic nationalism may block many companies from
expanding towards certain countries (Akther, 2007). According to Decker et al., (2004),
cultural differences may as well lure exporters away, which makes the preparations
before expanding all the more important since it is a lot riskier. These issues are not
examined when simply studying the traditional internationalization theories. Therefore,
it is necessary to personally investigate some companies that have actually faced and
overcome these problems. This dissertation will provide a unique perspective as to how
Swedish firms have been, and are, reasoning when trying to enter these African nations.
Again, to our knowledge, there is no dissertation that has covered this topic. Moreover,
we ask if the traditional internationalization theories are sufficient when trying to
understand how Swedish firms have expanded to Rwanda, Tanzania, South Africa and
21
Senegal since they offer very broad suggestions. Finally, our dissertation will contribute
to new research on this field for a couple of reasons. Firstly, the outcome of this thesis
will highlight to what degree a Swedish firm is following the traditional
internationalization theories when entering the African market. This has not been
covered before. Existing research has been directed mainly to the Asian market.
Therefore, this dissertation will offer a possible comparison of how a Swedish firm is
internationalizing in Asia and in Africa. Secondly, the outcome of this thesis will also
give us an answer as to whether the traditional internationalization theories are enough,
or if a Swedish firm is perhaps using different, nonconventional internationalization
theories. Together, these two reasons will make this dissertation useful for further
research as well as offering an interesting answer to our research question. Furthermore,
we raise the question whether new companies may follow the traditional
internationalization theories, or if they internationalize in other ways.
22
3. Methodological considerations and research
techniques The third chapter of the dissertation presents the methods used in the study. In this chapter,
choice of methodology and selected companies is presented. Furthermore,
operationalization, trustworthiness, authenticity and generalizability is presented.
3.1 Choice of methodology
The largest part of our dissertation will be conducted by collecting primary data,
sampled from interviews with appropriate firms. When collecting secondary data, you
are to a great extent forced to like what you find. While, making qualitative interviews
with relevant companies, we can get broader information and answers which will help
our dissertation develop. By using the traditional theories as a frame and by asking
questions about the theories in the interviews, we predict to find some differences when
entering a new market and some new perspectives about establishing in a foreign
market. We searched online for Swedish companies active in Africa and found many
interesting prospects. We e-mailed the ones we thought were appealing to our research
and briefly introduced ourselves and our project. The responses we got were very
positive and the respondents thought our topic was interesting. Subsequently, we made
all the necessary arrangements for our interviews, i.e. decided dates and how the
interview should be conducted (personal meeting, telephone/Skype or e-mail).
We have conducted interviews with both established Swedish companies as well as
newcomers in the African market. We wanted to investigate how they got there and why
they are there. Moreover, we will also look to companies who might just be beginning
to expand to Africa. We have chosen to gather our data through interviews made face to
face, if possible. A focal point when doing our interviews has been to make the
respondent develop his or her answers to allow us to get a deeper understanding to our
research questions. Since some of our respondents are located abroad or too far away
from us, Skype has also been used.
3.2 Atlas Copco, Atsoko, Findus and Samres
As the heading above reveals, these are the companies we have interviewed to examine
how Swedish firms have established themselves and how they will try to establish
23
themselves in Africa. All four companies operate in different industries; mining,
cosmetics, food and services. Also, they are in different stages in their
internationalization process, which is interesting because it allows us to see if they
follow the same pattern as the already established ones, as well as the
internationalization theories discussed in the literature chapter. Furthermore, these
companies are of different size, with some being rather large while others are smaller.
We do not argue that the outcome of this research based solely on these four companies
is applicable to any Swedish company, since every company is unique with different
company culture, management and so on. However, it is possible to study how these
companies are internationalizing and later compare with other similar ones and see if a
mutual pattern is found. Also, since we ask “To what extent are Swedish companies
following the traditional internationalization theories when entering Africa?”, we
believe an answer is possible to find from all four companies. Again, the outcome of
this thesis is based on these companies’ experiences, and is perhaps not applicable to
any other company. However, we still believe lessons could be learnt for future
companies wishing to internationalize in similar ways, and thus is our research question
possible to answer through these four companies.
3.2.1 Data collection
Two out of four interviews were conducted face to face with the respondent. This
allowed us to have a more natural conversation where we could ask counter questions
based on the respondent’s answers, which is not possible if a questionnaire is sent out.
The other two interviews were made over the phone, due to distance issues. Similarly,
doing an interview over the phone, also allows us to have a more personal touch to the
interview, rather than a questionnaire or a chat-interview. Moreover, a live interview
allows us to further explain the questions to the respondent if they are misunderstood or
perhaps badly written. As mentioned earlier, we opted for a looser structure when doing
our interviews, since we preferred to let the respondent speak freely. The method we
used is often called a semi-structured interview, where a list of questions is being used
as a reference point by the interviewer. The interviewee is granted a rather free space
anyway, but the interviewer is always seeking to follow the reference questions. Also,
during the interview, the interviewer will ask follow-up questions that he or she finds
important based on the respondent’s answers (Bryman and Bell, 2011).
24
3.3 Operationalization
As stated before, our aim is to find out how Swedish companies reason when deciding
to expand to Africa. When we contacted our respondents’ companies the very first time,
we introduced ourselves and what we were doing, and asked if we could speak to
someone with the proper knowledge of this topic. Out of four respondents, two were
CEOs of their respective companies. The other two were perhaps not the head of the
entire company, but they still possessed the relevant knowledge and experience to be
able to provide our dissertation with interesting and enlightening responses.
Furthermore, they were higher up the hierarchy than just a mere employee – namely
head of exports and business controller respectively.
The first interview we carried out was with Lina Jorheden1, the Head of Funding and
Financial strategy at Atlas Copco, a large industrial company. This interview was made
over Skype since the respondent was located in Tanzania. Atlas Copco has been
operating in Africa since the 1920s, and, therefore, some of our questions had to be
altered to be applicable to current research. To examine Atlas Copco was very
interesting due to the fact that they are an established player in Africa, and also a very
large one. The respondent from Atlas Copco has been working there since 2010 and had
very interesting information, to be revealed in later chapters.
The second interview was with Björn Falk2, the CEO of Samres, a call center company
based in Lund. They recently gained positive attention in Swedish media for teaching
Swedish to potential employees in Senegal, to be able to receive calls from Sweden
(Expressen, 2012). Basically, when an elderly person calls for a transportation service,
the phone call is answered in Senegal by Samres employees. A recent rising
phenomenon has been the export of services, rather than goods. According to us, this
makes Samres a very interesting case study.
The third interview was conducted in Bjuv with frozen food and vegetables company
Findus. This interview was at the headquarters of Findus in Bjuv. Our respondent is
named Mats Jörnell3 and he is the Head of export of Findus Sweden, which belongs to
the Nordic cluster of Findus. Along with two other European clusters, they become
Findus Group. Findus Group is a leading player in the frozen food industry. Since our
1 Lina Jorheden, Business controller, Atlas Copcp, interview 17 May 2012
2 Björn Falk, CEO, Samres, interview 21 May 2012
3 Mats Jörnell, Head of export, Findus Sweden AB, interview 23 May 2012
25
focus in this dissertation is Africa, we will only focus on Findus Sweden and their
factory in Bjuv. This factory produces the entire assortment of products, and they export
to South Africa. This is why this specific factory is relevant to our study. Also, it was a
fortunate coincidence that this factory was close to Kristianstad. As was confirmed in
our interview with the head of export, Findus has only been on the market in South
Africa a little over three weeks, as of late May. It was very interesting listening to Mats
Jörnell, since he possessed significant knowledge about Findus’ activities in its
internationalization to South Africa.
Our fourth and last interview was conducted over the phone with the founder of beauty
and cosmetics company Atsoko – Marie Englesson4. Atsoko is in its very beginning as a
company, and its only market is in Tanzania as well as in Rwanda. We were
recommended to talk to Marie Englesson through Lina Jorheden of Atlas Copco since
she thought, and we agreed, it would be a fitting company for our dissertation. Atsoko
completes this phase of our dissertation and we are very satisfied with all our
respondents’ answers as well as their cooperation.
We basically asked all four respondents the same questions, to be able to compare their
answers. Naturally, some further questions were introduced while conversing during the
interview. However, the questions we used as a foundation were all the same. Since we
wanted to know how long they have been operating on the African market, in whatever
country they were present in, this was a core question in our interviews. Knowing how
long a company has been active, it is possible to see if it follows traditional
internationalization theories or whether it defies them. Furthermore, another important
question we asked our respondents were if great planning before the decision of
entering one of these African countries was made. This is an interesting question to
investigate, since it could highlight why Africa was the target, instead of other emerging
economies. Moreover, we believe it would be interesting to know if there were any
significant obstacles along the way, since cultural and national differences are known
for being potential business obstructers. Further questions were asked to find out if the
company had learnt from potential previous mistakes when expanding internationally.
Also, how they think their markets will develop in the near future and how their
4 Marie Englesson, CEO, Atsoko, interview 23 May 2012
26
companies will adapt to those developments. Conclusively, these were the questions we
wanted to ask our respondents. For a full list of the interview questions and our
rationale behind them, see the appendix.
3.4 Trustworthiness, authenticity and generalizability
According to Bryman and Bell (2011), qualitative research is sometimes criticized for
being to subjective. Since the interviewers form their questions from what they think are
important and significant, the critics of the qualitative research claim this causes a
biased result. Thus, the results’ validity and reliability are questioned. Instead, different
criteria should be used as measurement when conducting qualitative research – namely
trustworthiness and authenticity. However, the authenticity criteria have not reached
wide popularity, and will therefore not be included here. Trustworthiness consists of
four subparts; credibility, transferability, dependability and confirmability. Credibility
involves how the research has been conducted, i.e. in a good manner. Moreover,
transferability deals with the fact that qualitative research is focused more on depth
rather than width (Bryman et al., 2011). That is, fewer people are interviewed where a
deeper understanding of the research question is preferable. In other words, the outcome
of a qualitative research can be used as a base for further research. Dependability entails
that an auditor is being closely attached to the research process, during its entire time,
but more frequent towards the end. This is to see whether the researchers are conducting
their research properly and they are saving all records. This has not been a popular
method since it requires a great deal from the auditor (Bryman et al., 2011). Finally,
confirmability is dealing with the researchers’ objectiveness in the research.
Acknowledging that a complete and utter objectiveness is impossible, it is a good
measurement if the research has been conducted in good faith. These four parts sum up
the trustworthiness criteria.
We believe our research has been conducted in a trustworthy manner. First of all, this
dissertation is supported by relevant scientific articles. Secondly, there is room for
future researchers to base their dissertations on our paper, which makes this dissertation
transferable. Thirdly, we have been keeping regular contact with our tutor, who has
supervised this whole dissertation, guiding us to the right path. Finally, we have been
objective towards our topic, since our research question and interview questions have
been open ended as well as neutral.
27
Moving on to the generalizability criteria of qualitative research, it is being argued that
the conclusion of a small number of interviews is insufficient to be able to create a law-
like generalization. Of course, the respondents in our interviews are not supposed to
represent a wide population or segment. However, there are quite interesting things to
learn and apply to other cases, despite the limited number of samples. Bryman et al.
(2011) states that “it is the quality of the theoretical inferences that are made out of
qualitative data that is crucial to the assessment of generalization” (qtd. in Bryman &
Bell, 2011, p. ). In other words, it is possible to link the respondents’ answers to
theoretical conclusions and, thus, create something similar to a generalization.
4. Empirical findings
In this chapter, our findings will be presented. Descriptions of our respondents’
strategies, target group, competitors, experienced difficulties and predictions about the
future are presented.
4.1 Atlas Copco
Atlas Copco is a Swedish industrial company operating in the mining industry of
Tanzania. Already in 1920, Atlas Copco established their company on the African
market. The Tanzanian market offers great mining possibilities and the East African
market is the biggest reason why Atlas Copco got established there. Today Atlas Copco
is established in 80 different markets and the company sells their products to more than
170 countries. The company is still growing and this shows from the opening of new
factories in Senegal, Mozambique, Mali and Burkina Faso.
4.1.1 Atlas Copco’s strategy
Since Atlas Copco has been present in Africa for almost a century, they are well aware
of how to expand on the African markets. Every year they are establishing a new
industry and most of their expansion is in Africa. One third of Atlas Copco’s expansion
is from acquisitions, when they buy companies who possess important technology or
products. An important acquisition was when the company bought Dynapac, a road
construction company. The other two thirds of Atlas Copco’s expansion are from
28
organic investment, when they open up an industry and let another company take care
of it. This is done as opposed to sending down a project group from Sweden. When
giving managers, who possess local market expertise, responsibilities, it eliminates the
potential problem of insufficient local market competence. When that industry has
matured and they have reached their target group, Atlas Copco will move their legal
units and management there and take over.
4.1.2 Atlas Copco’s target groups and competitors
Many of Atlas Copco’s clients are international companies. They use the African
market to widen their business activities. Atlas Copco only produces a small part of its
entire sales. The major part is sold on from import, where China and India are
significant importers. Since mining is the largest industry in Tanzania, there are also
other companies present there. Some of the biggest companies and exporters have also
seen the great opportunity of mining and expanded to the Tanzanian market. Some of
the biggest are from Canada and they have been there for 10-15 years.
4.1.3 Experienced difficulties and obstacles
When we asked Lina Jorheden about the potential difficulties and business obstacles in
Tanzania, she offered a couple of answers. She testified that it is very difficult to run an
operation in Tanzania from a remote location, which is the main why Atlas Copco have
60 managers, or so, on the location site. Furthermore, Tanzania is still adapting to the
economic reforms done recently. The free market view is seen with skeptical eyes and
western companies are seen as capitalists profiting on the locals. Moreover, it is
sometimes a struggle for foreign enterprises to get the proper taxation forms and work
permits from the authorities. There are definitely differences in the way the market
economy is seen between authorities in Tanzania and in Sweden. Moving on, a positive
aspect is that Atlas Copco shares the same western values as most of their customers,
who mainly are large international companies. Because of this, business is conducted in
a legitimate manner and there is zero tolerance for corruption. This is not always the
case when dealing with local firms or companies from China and India, according to
Atlas Copco’s experience.
29
Unlike the situation in many South American countries, nationalizing industries is not a
threat in Tanzania. Instead, there are complicated laws regulating how a company may
conduct their business. There have been cases where mining companies have been
making deals with the Tanzanian government, with profitable terms (i.e. low taxation).
However, this is not how Atlas Copco has been conducting their business, which
perhaps has caused them some problems.
4.1.4 Lessons learnt from previous expansions and predictions of the future
According to Atlas Copco’s experience, expansions to markets where local market
knowledge is possessed, has been a key component in their internationalization process.
They prefer it this way, rather than sending down a project group who conduct the trial
and error-method. This makes the establishment process a lot easier, since cultural
differences and local demands are known.
Atlas Copco is hoping that the African market may follow the development of the
Chinese market, which has seen a very rapid growth. However, it is noted that there are
differences between Tanzania (and Africa in general) and China. Tanzania is still
ranked as one of the poorest countries in the world, and this is something that Atlas
Copco has noted. Furthermore, they believe that the force of globalization is strong
enough to include Africa with its rich variety of resources, both natural and human.
4.2 Atsoko
Atsoko is a newly started beauty and cosmetics company, only active since 2011. They
are operating in both Rwanda and Tanzania, exclusively. Atsoko’s target group is
women in Rwanda and Tanzania. The owner of the company, Marie Englesson, earlier
worked at a telecom company established in Africa and experienced all the
opportunities the African market displayed.
4.2.1 Atsoko’s strategy
Marie Englesson states that it is very hard to predict how things will develop in Africa
and, therefore, a plan is difficult to create as well as follow. She continued that Atsoko
has conducted a method called trial-and-error which means that they try out a product
30
and simply see if it sells. This is done, since it is very hard to plan everything in detail.
As a foreign company, it is hard to get work permits and leasing contracts
4.2.2 Atsoko’s target group and competitors
Since Atsoko is selling beauty and cosmetic products, they are focusing on women.
There are not many international or domestic competitors in this industry in these
countries. Mainly, the firms who operate in Atsoko’s markets are local companies.
However, a few Arabic and Indian businesses can be seen as a threat with similar
products. Conclusively, the competitors are only a small number, though
4.2.3 Experienced difficulties and obstacles
Atsoko has been experiencing that the lack of regulations of how business is to be
conducted has caused them some problems. Marie Englesson states that the rules are not
very clear and it is difficult to find people to trust as well as to work with. Furthermore,
the language barrier has also been an obstacle in Atsoko’s internationalization process,
since English is not spoken by everyone. Moreover, Marie Englesson believes that it is
important to be as straightforward, clear and simple as possible when doing business.
The cultural differences are a further obstacle, since it is hard to read people and
understand their intentions. These misunderstandings come from both parties since the
trust for the other party is lower when doing business than in other, more developed
economies. For instance, there are institutions and authorities in more advanced
countries that will take action if business is conducted illegally or appropriately. The
fact that a local investor is necessary by law when starting a company in Tanzania is
another difficulty the firm has faced.
4.2.4 Atsoko’s predictions of the future
Marie Englesson believes that Atsoko will adapt to the Rwandan and Tanzanian
markets. She continues to say that the company culture and company values have to fit
in these markets. When Atsoko has got further established in Rwanda and Tanzania,
markets in Ethiopia and Uganda will be of interest for potential expansion. Marie
Englesson also believes that these markets are suitable for many Swedish firms, since
Sweden is often faced with neutrality and positivism. Here are lessons to learn from
Dutch, French and British companies.
31
4.3 Findus Sweden AB
Findus is one of the most famous brands in Sweden. The company has three clusters,
Scandinavian, France-Spain and England-Ireland, and together they form Findus Group.
The company has 6000 employees and their primary products are frozen food, like
vegetables and fish. Findus Group is famous for their strong brand and their high quality
products. Findus is exporting their products to many different countries such as, China,
the US, Germany and Australia, and their latest big importer is South Africa.
4.3.1 Findus’ strategy
Findus started to make an analysis of different markets to see where their products
would suit, by investigate price levels and other important factors. Findus was first
approached by South African companies when they experienced shortcomings of
certain products. According to Mats Jörnell, one important factor in the decision of
expansion is to have a good partner and distributor. According to Findus’ experiences,
having a good business partner and distributor is vital when expanding. One of Findus’
old trading partners in South Africa helped them to find a retailer where Findus could
market their products. Mats Jörnell believes that a good dialogue between Findus and
the distributor will make the distributor work harder to market Findus’ products. A
competitive advantage of Findus is that they harvest high quality vegetables in Sweden
and only transport them a short distance to the freezer, where they are later exported.
According to Findus, they would lose their competitive advantage and argument if they
would harvest in South Africa instead of Sweden’s high quality soils. Findus does not
market themselves as a Swedish company. Instead, they state that they are now
available in South Africa. For instance, their slogan they used to market themselves in
South Africa was a play of words of their brand name – Find Us.
4.3.2 Findus’ target group and competitors
The American food company McCain is a large competitor to Findus in South Africa.
However, one of McCain’s competitive advantages is that they are competing with
lower price levels, while Findus competes with higher quality. Consequently, Findus’
target group is consumers who want to pay for high quality products. Other competitors
are local companies in South Africa. The government has campaigns for the local
brands, and this is something Findus respects.
32
4.3.3 Experiences difficulties and obstacles
According to Mats Jörnell’s experience, finding a good distributor is a difficulty since
many have hard times keeping their promises and honoring their agreements. Moreover,
local regulations and laws have been an obstacle in Findus’ internationalization to South
Africa. This is where a good business partner can help Findus out and eliminate many
of these obstacles. Findus have experienced that there are specific demands of how the
package should be designed, depending on the content of the product.
4.3.4 Lessons learnt from previous expansions and Findus’ predictions of the future
Findus have experienced that their products need to have the taste of local cuisine if
they are to be successful. Additionally, the lack of a good distributor has hindered
Findus’ expansion to the Gulf area as well as to China. Furthermore, local regulations,
language barriers and cultural differences can obstruct internationalization, according to
Findus’ experiences.
Mats Jörnell believes that it is important to be careful when trying to predict the future
when dealing with new establishments such as this one. Even though Findus have been
receiving positive feedback from consumers, they have only been active a couple of
weeks. Mats Jörnell feels that it requires at least three months before it is possible
predict the future in further detail.
4.4 Samres
Samres is a call-center company, with the alignment of public transportation. Samres’
CEO is Björn Falk. They take care of the orders of transportation; they plan the trips
and take care of all the administration around this. They started in Sweden in 1993 and
have since that grown and expanded as a company. Samres began their
internationalization in 2005 when they expanded to Estonia. In 2008, they expanded to
the Moldavian market. By January 2012, they answered their first phone calls in their
office in Dakar, Senegal.
4.4.1 Samres’ strategy
After two successful expansions to Estonia and Moldavia, Samres saw that they had
great opportunities in foreign establishment. Samres conducted a survey to find
33
potential markets. They looked for a market in the same time zone and with good
technologic infrastructure. The crucial factor was that the location had a great
educational site. Consequently, Senegal was chosen. Furthermore, since Samres works
with administration of transportation in Sweden, it is important that the employees can
speak Swedish. Since English is not the primary language in Senegal, they required
people with at least two years of English education before they taught them Swedish.
Samres saw this skill as a measurement of how well applicants could learn a new
language. Samres is conducting their business as if it would have been conducted in
Sweden, and this is a big different from how local companies do.
4.4.2 Samres’ target group and competitors
Samres got the idea of expanding to Africa when they saw that other call-centers were
established there. French-speaking call-centers are established in North Africa and
Senegal, in addition to some English-speaking companies. One of the largest languages
in Africa is French, which makes it understandable why those corporations are on those
markets. However, while these corporations have many employees, Samres have a
different niche. They are a much smaller firm with a specific orientation. Between all
the competitors, Samres competes with higher salaries.
4.4.3 Experienced difficulties and obstacles
The largest concern for Samres has been that French is the primary language. It is only
the large, international companies that are fluent in English. Of course, a translator is a
possibility. However, Samres has experienced that this is time consuming as well as a
struggle since misinterpretations are possible. Since Samres rarely exports anything to
Senegal, issues such as tariffs, taxes and quotas have been absent. On the other hand,
arranging Swedish visas for the Senegalese workers have been a concern.
4.4.4 Lessons learnt from previous expansions and Samres’ predictions of the future
Björn Falk states that it is very important that the communication between the
management and the workers is clear, since one thing in Sweden can mean another
thing in Senegal. Samres has noticed that there are many different cultures, all being
different to another country’s culture. Consequently, this is why it is vital to have a
good understanding for each other.
34
Björn Falk is positive when it comes to the development of the African market. Since
immaterial products can be produced without large factories, more responsibility is put
on the employees and the management. Björn Falk thinks that this makes it possible to
put production almost anywhere, which in turn will allow Africa to grow faster than it
has grown on other markets. However, one potential blocker of economic growth is the
interventions of governments in certain countries.
35
5. Analysis Our analysis of our empirical findings is presented in this chapter. The chapter ends
with a comparison between the results.
5.1 Analysis of Atlas Copco
According to Dunning et al. (2008) a company will seek to conduct FDI if three
conditions are fulfilled. Since Atlas Copco is internationalizing mainly through FDI, it
is interesting to examine whether they follow these criteria. Firstly, the location in
Tanzania offers great mining possibilities since they possess these resources. Also, in
Atlas Copco’s experience, local representation in Tanzania is necessary. Previously, the
whole East African region reported to the headquarters in Kenya, which was simply too
much work. Secondly, the internalization criteria of the model created by Dunning et al.
(2008), refers to how much production is needed within the own company. Since Atlas
Copco mainly imports and distributes, production is only a small part of their sales.
Consequently, we do not think they live up to this criterion of this model. Thirdly, since
Atlas Copco has been active in Africa for over 90 years, they possess ownership
advantages, such as production techniques, trademark and management. Even though
Atlas Copco “only” fulfils two out of three criteria, they are still successfully
conducting FDI – both organically and by acquisitions – through Africa. Moreover,
Atlas Copco follows the rationale made by Musila et al. (2006), since they only operate
in relatively stable countries. Even though many African nations possess rich natural
resources, Atlas Copco does not expand without sufficient knowledge about those
markets. Therefore, it is necessary to be aware of current political events, cultural
differences, local laws and regulations, and so on.
Moreover, since Atlas Copco has been present in Africa since the 1920’s, they have
gained important economies of scale and first-mover advantages. If a Swedish mining
company tries to enter a market where Atlas Copco is active in, they would probably
have problems conducting their business, since Atlas Copco have been in Africa for a
very long time. Consequently, this makes it hard for a new entrant to grow in a market
and compete with such big players. This is a major competitive advantage, since many
companies and clients know their brand. Furthermore, Atlas Copco possesses great
36
knowledge about the African markets and knows what they want to achieve. This is
shown from one of their strategies, which are one third acquisitions and two thirds
organic investments. Atlas Copco acquire local firms to obtain technological
advantages, which indicates that they are aware, and capable, of what is needed to be
done to further expand.
Conclusively, Atlas Copco has established themselves in Africa through FDI. They
have conducted both strategic acquisitions as well as organic investments to further
internationalize and maintain a competitive advantage. Since Atlas Copco is a major
player in the mining industry, they have both potential as well as capital to perform
these expansions.
5.2 Atsoko
Atsoko separates themselves from the other companies we have investigated, since they
started in a foreign market immediately. Furthermore, Atsoko is not only a newcomer in
Africa; it has only been registered as a company since 2011. This is a major difference
when comparing Atsoko to Findus, Samres and Atlas Copco. It is safe to say that
Atsoko does not follow the Uppsala model, where companies gradually expand through
similar markets as their domestic ones. Moreover, Marie Englesson testifies that it is
hard for a foreign company to operate in Rwanda and Tanzania since westerners tend to
be victims of overpricing. As opposed to what Alfaro et al. (2004) states about
developing countries welcoming foreign capital, Atsoko has experienced scepticism
towards them. Work permits as well as leases have been very difficult to obtain, even
though all regulations have been followed. Furthermore, according to Atsoko’s
experience, it is very hard to create a plan and execute it, since many things can change
rapidly in Tanzania and Rwanda. This is a reason why Atsoko conduct the trial and
error-method. Marie Englesson has previously worked in Africa for another company,
which has given her knowledge of what these markets demand and what they lack.
Since this industry is relatively undeveloped, as opposed to in Europe or the US,
importing and distributing beauty and cosmetics products are cheaper. Criticism is
directed towards the legitimacy of how business is usually conducted in these countries,
since Atsoko has a western management philosophy. Moreover, it can also be examined
whether Atsoko fulfils the OLI-model created by Dunning et al. (2008). The
37
localization factor is a vital reason why Atsoko is in Rwanda and Tanzania, since costs
are significantly cheaper than in i.e. Sweden. Furthermore, ownership-specific
advantages are also possessed by Atsoko, since Marie Englesson has experience from
Africa before. Also, a local investor is present in Atsoko, since local regulations require
this. It can be argued that this strengthens Atsokos ownership-specific advantages.
However, the third criterion is not fulfilled since Atsoko does not produce their products
at all. This is a similarity between Atsoko and Atlas Copco, since both companies fulfil
the same criteria of the OLI-model. However, there are still many differences, since
Atlas Copco has been present for almost a century, while Atsoko has only been active in
Africa a couple of weeks.
Conclusively, it is hard to study Atsoko’s internationalization since it is a brand new
company. However, it is interesting to note that they are immediately establishing on
exotic markets such as in Rwanda and Tanzania. To fully understand whether Atsoko
have established themselves successfully, one would have to wait a couple of years to
see how things develop. Although, we believe that Atsoko possess at least two very
important factors which can decide if they can survive – namely ownership-specific
advantages and localization advantages.
5.3 Findus Sweden AB
Findus is a major exporter of frozen food products. This means that they can export a lot
to a relatively cheap cost. Moreover, since they are an exporting company, they are
achieving economies of scale by spreading their large output on export. In addition,
Findus have taxation departments and customs departments who specify in foreign laws
which make it easier for Findus to keep track on local regulations. Moreover, we
believe that Findus could be obtaining first mover advantages, since they are one of
very few firms with similar products – at least in South Africa. According to Zantout et
al. (1996), certain products have greater tendency to create a first mover advantage than
others. When Findus conducted their surveys, they looked where their products will fit.
Since the quality of fish and meat is very high in South Africa, these products were not
of interest to export to Findus. On the other hand, they found that there was a market for
frozen vegetables. Even though it is positive to be an early entrant in an industry, it is no
guarantee that a company may be successful (Chen et al., 1999). According to Eckeldo
38
et al. (2004), the marketing process is vital in a company’s survival in a foreign market.
Since Findus market themselves as “Find Us – Now available in South Africa”, we
claim that Findus follows the reasoning of Eckeldo et al. (2004). Findus have received
praise for their quality of their products, when they have been pitching to local
distributors. Even though South Africa has a rich variety of crops, Findus still got a very
positive response when conducting various surveys. Since Findus market themselves as
a high quality producer, it is important that their products actually live up to their
promises – which their surveys indicate that they do. Furthermore, Findus have been
trying to export to the Gulf area as well as to China. However, Findus experienced that
certain differences hindered their success, which goes in line with Decker et al. (2004).
Moreover, Findus did not stop trying to expand to new markets, which is evident now
when they are in South Africa. They learnt from their previous mistakes and improved.
To be able to further compare our investigated companies, we will see how well Findus
fit the OLI-model. They arguably possess both ownership-specific advantages as well as
localization factors, since they have conducted analyses to find suitable markets.
However, since Findus are not producing in South Africa, it is questionable if they fulfil
the internalization criterion of the OLI-model. This is comparable with both Atlas
Copco and Atsoko, which is notable.
According to Buch et al. (2007), export and FDI should be seen as complements rather
than substitutes. Since Findus fulfils two out of three criteria of the OLI-model, along
with achieving economies of scale and first mover advantages, one can ask why Findus
is not conducting more active FDI. However, Mats Jörnell gave us an interesting answer
to this question, namely that Findus will lose its competitive advantage and competitive
argument if they would move production away from Sweden. Again, the reason as to
why Findus claim they have high quality products is that they come from great soils
along with short distances between harvest and freezing. Findus’ whole argument will
fall if they move their production location. However, if Findus’s production output
multiplies significantly, they are open to the suggestion to put production in South
Africa.
Conclusively, we believe Findus’ prospects look very bright. They have found a good
partner and distributor, who they believe will work hard to market Findus’ products.
39
Also, they found a demand for frozen vegetables with high quality. Furthermore, Findus
is achieving economies of scale and first mover advantages as argued above. In
addition, Findus have learnt from previous establishment attempts in the Gulf are and
China to improve their current expansion in South Africa.
5.4 Samres
Samres is a special case, since their target group is located in Sweden, rather than in
Senegal. This perspective puts Samres in an interesting position in our dissertation. It
can be argued that Samres has followed the Uppsala model, where closer markets such
as the Estonian and the Moldavian ones were targets. This way, Samres has gained
valuable knowledge and experience when it comes to international expansions, before
trying to enter Senegal. Previous expansions have showed them that if a targeted market
fills Samres’ criteria, it does not matter where this is located. For instance, if the
targeted market is in a similar time zone as Sweden and technological infrastructure is
existent, any market would be possible. Samres has organically invested in Senegal,
since they have opened up their on offices. Furthermore, Samres is not affected by
Senegalese market fluctuations in a way that a company with sales in Senegal would be.
Since Samres’ products are neither sold nor consumed within Senegal, Senegalese
market fluctuations will not affect Samres. This is a very interesting perspective, since
this is unique in our study. According to the product life cycle developed by Vernon
(1966), it can be argued that Samres has put production abroad since labour costs are
cheaper in Senegal. Furthermore, to further compare if Samres fit the OLI-model or not,
we argue that they fulfil all three criteria. Firstly, their location is definitely an
advantage, since lower costs are obtained. Secondly, Samres has ownership-specific
advantages since they have experiences from previous expansions. Finally, they have
internalized production by educating employees in Senegal, instead of consulting
another company.
Conclusively, Samres is different from the other investigated companies since Samres
produces services rather than traditional products. Also, their target group is not in the
country where production is conducted. This makes the analysis of Samres unique,
compared to the other investigated companies. Additionally, as opposed to Findus,
Atlas Copco and Atsoko, Samres has expanded gradually from Sweden, Estonia,
40
Moldavia and Senegal. We see a clear pattern, since Estonia is arguably more similar to
Sweden than both Moldavia and Senegal are. What all these markets have in common,
is that labour costs are cheaper than in Sweden. Also, we see that Samres is expanding
to one market at a time. Our interview with Björn Falk of Samres reveals that they
expand every three years, when they have obtained all experiences.
5.5 Comparison of analyses
Findus, Atsoko and Atlas Copco possess two out of three factors discussed in the OLI-
model. Meanwhile, Samres also possess the internalization factor, which the other
companies lack. What makes Samres fulfil the internalization criteria? Since Samres’
way of production differs from the rest, we believe it is easier for them to internalize
this aspect. One can assume that if Samres would have been producing items and selling
them from factories in Senegal, their costs would be significantly higher. This is a major
difference between Samres and the rest, and this is perhaps a lesson to learn for future
entrants. Samres has arguably been successful in Estonia and Moldavia, and these
experiences will be useful when trying to enter Senegal. It is important to note that no
mode of entry is better than another, it is more about if the mode of entry is the right
one for the company, what they have and what they stand for - since different firms
possess different characteristics. However, similar companies may look to Samres for
inspiration on how to successfully expand to foreign markets that differ greatly from the
home market. The Uppsala model can be used as an inspiration in this case, since this
model suggests that a company may be successfully expanding through gradual
expansion from closely located markets to farther ones. Even though the Estonian and
Moldavian markets may differ from the Swedish one, it can be argued that there are
more similarities between the Estonian and Swedish market than the Senegalese and
Swedish one. This is why we think the Uppsala model is applicable to Samres’ case.
Moreover, compared to the corporations we have studied; Atlas Copco is special in their
way, since they have been internationalized since the 1920’s. In other words, they have
been active in Africa longer than any of the internationalization theories, discussed in
this dissertation, have existed. Over time, Atlas Copco has gained crucial experiences
since they have been active for such a long time. They have grown to be one of the
largest players in their industry. Also, have had time to build extraordinary relationships
41
with clients and create brand loyalty, which new companies are yet to achieve. A
comparison can be made between Atlas Copco and Findus, although their time present
in Africa differs significantly. Since we argue that brand loyalty and good relationships
with clients are important for a company trying to enter a new market, we claim that
Findus is on the right path of achieving this. Findus promises very high quality and,
according to their analyses, they have received positive feedback. This indicates that the
consumers are satisfied with Findus’ products and their concept. If Findus can maintain
this positivism, brand loyalty is possible to create. Furthermore, if the expansion to
South Africa is successful, word might spread to bordering countries that Findus is of
high quality, and this will make matters easier if Findus decide to enter these countries
in the future. Regarding Atsoko, it will be interesting to see how their company will
develop and adapt to the Rwandan and Tanzanian markets, since it is a brand new
company. Atsoko’s approach differs from Findus’, Samres’ and Atlas Copco’s
approaches, since Atsoko established themselves in Africa immediately. According to
Atsoko’s experience, the unpredictability in the African market forces them to conduct
their business in a more casual way, with no major, detailed plans. We believe this will
make Atsoko grow, if they can absorb this knowledge in the beginning of the
establishment in these markets. In turn, this will be an advantage towards later entrants
and competitors. It is possible that when Atsoko’s markets have matured, Atsoko will
move to other, foreign markets through FDI or export.
Furthermore, our findings defy Alfaro et al. (2004) that developing countries are
welcoming foreign capital and foreign companies. All our respondents testify that they
are faced with scepticism from many directions when operating in Africa. The locals are
not used to trust either each other or large companies, as opposed to in the western
civilisation where trust is relatively high. There are cases where complicated regulations
and overwhelming paperwork consumes both energy and time for companies trying to
do business in these countries. Additionally, the communication problems that many
firms have experienced, is confirmed by our study. All four companies testify that
misunderstandings and misinterpretations are common, since cultural and linguistic
distances exist. Therefore, it is very important to be clear and simple when
communicating on these markets. Furthermore, a definite advantage is if the local
language is spoken within the expanding company, since these cultural distances will be
eliminated, or at least shortened. Moreover, we believe that Samres has an advantage to
42
their competitors when it comes to this, since their workers in Senegal speak both
French and Swedish. If Samres tries to expand to another French-speaking country, this
could perhaps help them.
Our research has established that there are many ways for Swedish firms to penetrate
certain African markets. According to our study, this is possible through FDI – both by
acquisitions and Greenfield investments – and export. Time will tell if Atsoko’s trial
and error-method will be successful. However, the expertise and experience of Marie
Englesson will certainly be an advantage for Atsoko in its process of
internationalization. Moreover, Samres’ chances of survival in the African market are
very bright, since they have specific factors characterizing their company. Firstly, their
labour costs are relatively cheap. Secondly, their target group is located in the home
country. This way, Samres is not as vulnerable to local fluctuations as other companies
perhaps are. According to us, Samres’ biggest concern would be if the Senegalese
people were hostile towards foreign companies. However, this does not seem to be the
case, since Samres is offering their employees lucrative salaries as well as on-schedule
pay checks.
When it comes to Atlas Copco’s internationalization process in Africa, it can be said
that having great knowledge about local markets – with cultural differences and so on –
as well as capital and technology, is definitely an advantage. Again, since Atlas Copco
has been active for such a long time, they have obtained these advantages by now.
Finally, regarding Findus’ establishment and chances, many lessons can be learnt. For
instance, we think it is crucial to have good partners and distributors that help you out
with local regulations, as the companies have pointed out being a big obstacle when you
establish on new markets, as Mats Jörnell also states. Moreover, Findus’ export
department are keeping track on taxes, tariffs, quotas and other regulations that could
affect their business.
To summarize, there are cases where Swedish companies are following the traditional
internationalization theories discussed in this dissertation. However, there are no cases
where a company has followed one model blindly. Instead, we see a mix of companies
in different industries, following a mix of theories, all depending on different
characteristics existent in the company in question. This indicates that a Swedish
43
company is somewhat unique in its internationalization, although lessons can be learnt
from others, preferably similar companies as their own. Conclusively, we believe that
our research question has been answered after studying and comparing these four
companies and applying the traditional internationalization theories to them. We asked
to what extent Swedish firms are following these theories, and the answer is that they
are all following these theories to different degrees. Again, it all comes down to what it
is that characterizes a company. Also, we could not create one rule to apply to any
Swedish company, since they are all different. The outcome of this thesis only reflects
these companies’ realities and may not be applicable to others. However, we argue that
lessons could be obtained by looking at how these companies have been conducting
their internationalization to Africa, by carefully adapting it to other companies wanting
to go similar ways as these four have.
Furthermore, our sub-question has also been answered. According to our interviews
with newer companies such as Samres and Atsoko, we have noticed that they are not
explicitly following any traditional internationalization theory when expanding abroad.
However, after examining different theories, we did notice similarities and patterns of
how they are expanding. This indicates that also newer companies are using these
theories as a tool for expansion, however perhaps unconsciously.
44
6. Conclusion This chapter includes summary, concluding discussion, critical review, limitations and
further research.
6.1 Summary and concluding discussion
As many developing countries are opening up towards inward foreign investment
(Alfaro et al., 2004), many companies will still struggle to expand to Africa since
skepticism towards western capitalism is still existent in many of these countries
(Jakobsen et al., 2011). However, according to our study, there are still many
possibilities for Swedish firms to expand to African markets, such as in Tanzania,
Rwanda, Senegal and South Africa. Our findings illustrate that all four examined
companies have bright prospects. They all possess different assets – everything from a
strong brand name, personal experiences to good partnerships – which will help them
continue to expand on their respective markets and in their respective industries.
Although, it must be noted that it is in some cases very early to be able to predict how
things will develop. For instance, Findus and Atsoko are still in their very beginning as
companies in Africa. Moreover, with their respective skills and experiences, the
prospects look positive, and this goes for Atlas Copco and Samres as well. A
generalization can be drawn from the fact that these four companies have optimistic
futures. It is possible to claim that other Swedish companies may find that the
opportunistic African market is suitable for their internationalization plans. Generally,
the only negative aspects with the African market are the political and economic
instabilities, as Musila et al. (2006) argues.
6.2 Critical review
Since the aim of this dissertation is to find out how Swedish firms are internationalizing
in Africa and what the future withholds, a different result would perhaps be found if
companies from other nations were examined. Furthermore, examining a fewer number
of companies would perhaps allow us to in greater detail examine how a Swedish firm
is expanding to an African market.
45
6.3 Ethical aspects
It is possible to question the ethical motives and the ramifications it brings when a
foreign company is trying to enter a market where labor costs and the general quality of
life are lower. If the locals, who may not be used to or aware of western standards (such
as health care, insurance or minimum wage), are exploited or lied to, it would definitely
be considered as unethical behavior. A company should not take advantage of another
party’s lack of knowledge. Granted, wages are naturally lower in certain countries than
in others. However, it is important to still fulfill certain aspects in order to ensure that
the employee can uphold a decent life, i.e. health care, insurance or minimum wage. For
instance, Samres offer their Senegalese employees higher-than-average wages and on-
schedule salary payments, which is not to be taken for granted in many countries.
6.4 Limitations
Since time is a factor, we were limited to only one interview per company. Furthermore,
availability and money have also been decisive factors when selecting companies to
examine. It would have been preferable to be able to meet with everybody in person, but
for various reasons, this has not been a possibility. Some companies did not have any
time slots open for us, while others simply ignored our approach. Conclusively, time,
money and availability have led us to four companies, conducting their businesses in
different industries and in different nations in Africa. Even though it would have been
interesting to investigate a larger number of companies, it would not have allowed us to
dig deep enough due to time restrictions. Furthermore, we chose to limit ourselves to
only Swedish companies active in the African market. Since this focus is a core
component in our dissertation, adding companies from other countries to this formula
would make our paper to wide.
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6.5 Further research
It would be interesting to examine a wider number of companies, from different nations
operating in different industries to find out if the internationalization process differs
between countries.
Another interesting angle would be if a larger number of companies within the same
industry were examined, regardless of country. This perspective would shed light on
how companies in specific industries internationalize in Africa.
47
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