Success factors for market expansion of Western born global firms entering China

University essay from Lunds universitet/Produktionsekonomi

Abstract: Title: Success factors for market expansion of Western born global firms entering China Author: Albin Björck Industrial Engineering and Management Lund University Faculty of Engineering Supervisor - LTH: Bertil I Nilsson Department of Industrial Management & Logistics Lund University Faculty of Engineering Supervisor - XXXXX: Rickard Mårtensson Head of APAC Development XXXXX Background: Western companies have for long followed the internationalization process described as the Uppsala model. The model states that companies gradually expand to, often nearby, regions that are similar to their domestic market. The choice of the next country to expand to is based on a low psychic distance, which takes into account factors such as culture, language, and business practice. With the emergence of the phenomenon of born global firms, the Uppsala model could not explain the new and rapid internationalization process that took place. Born global companies could expand to entirely different markets without being dependent on either physical or mental proximity to the new markets. Despite the relatively new trend of rapid internationalization to large parts of the world, some companies are avoiding entering the world’s second-largest economy, China, while other companies see it as a golden opportunity. Even if the company is successful in entering the country, their visit may be short-lived. A comparison between companies that have entered China, managed to stay in the country, and those that avoid China is made in this project to find differences and similarities, as well as identify success factors to become part of the Chinese market. Purpose: The purpose of the master thesis is to investigate the factors that make Western born global companies successful in entering and staying on the Chinese market. This should then result in a framework that can be used on companies to give them an indication of whether, and how, they can organize such an expansion. The framework is being tested at the European company XXXXX. Research Questions: The aim of the project is to answer the following questions: 1. Why do some companies want to enter China and others do not? 2. What are the characteristics of a Western born global company that is successful in the Chinese market? 3. What success factors can be identified for these companies? 4. How do these successful companies differ from those who fail to stay in China, and those who do not enter at all? 5. How can the results of the work be used by a born global firm interested in the Chinese market? Scope: Born global companies is a relatively new area, which means that the scope of academic research in the area is narrow. The number of companies that can be categorized as born global firms who have expanded to China becomes small if industry and country are taken into consideration. Due to these factors, the report focuses on companies in the Western world with similar psychic distances to each other, which includes countries such as the United Kingdom, the United States, the Scandinavian countries, and several European countries. There are many similarities between these countries such as business language and practice, culture, and politics. At the same time, there are also major differences between companies from different Western countries. These are important to identify as they can be crucial to whether the company is successful or not in the Chinese market. Method: The project is carried out through a qualitative approach where literature in the field is studied and combined with case studies on twelve companies in four areas: 1. Born global companies in China 2. Born global companies avoiding China 3. Companies that struggle in China 4. Successful companies in China This is supplemented with interviews at suitable companies and organization. The list of companies will cover different industries but share similarities with born global firms. Conclusion: This work identified critical factors for born global firms in an expansion to China. By conducting a literature study on China and born global firms, important factors were picked out. These conclusions were put together in a framework to visualize the features that characterize the market and how born global companies can adapt to these to achieve success. The framework was iterated with interviews and a case study to identify the most critical aspects of a market expansion to China. Finally, the framework got applied to the European company XXXXX. See Figure 3 for the final framework. It contains four pillars and four rows with bullet points of core attributes within each segment. The four pillars are China, Born global firms, Issues, and Actions. The four rows are Business Fit, Focus on Value Creation, Technology and Digitalization, and Risks. Each pillar is based on the previous giving that China attributes indicate which traits are affected of born global firms, which issues it leads to, and which actions are necessary to take. Keywords: China, Born global companies, Market expansion, Success factors, Globalization

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