The influence on ethical behaviour of established foreign companies when entering emerging markets - A case study of two Swedish companies in Kazakhstan.

University essay from Linnéuniversitetet/Institutionen för ekonomistyrning och logistik (ELO)

Abstract: Background: Companies always look for opportunities to expand their businesses internationally as it is the way for them to grow beyond its current status. Nowadays, emerging markets seem to be very attractive in terms of economic growth. Thus, there is a tendency towards foreign direct investment inflows to emerging market economies. However, these markets can be very risky and there is no guarantee of success. Companies would have to be ready to face challenges and obstacles related to the unfamiliar environment. They would have to deal with the internal confrontation of whether to accept or reject the local rules of the game as well as to face difficulties in terms of maintaining a high standard of business ethics and promoting best corporate governance practices. Overall, the conditions of these markets can negatively affect the ethical behaviour of established foreign companies which in turn can negatively affect the reputation and brand value of these companies.  This paper describes and analyzes the above issues through a case study of two Swedish companies in the market of Kazakhstan: Tele2 and TeliaSonera. Purpose: The aim of this study is to analyze the effects of emerging market economy conditions of Kazakhstan on companies control structure or code of conduct, specifically how they can handle the internal confrontation and maintain a high standard of business ethics and corporate governance practices. Therefore, the tasks were also set to describe and analyze the entry process of two Swedish telecom companies into the market of Kazakhstan in order to improve the understanding of Swedish companies’ preparations, strategy of entry and operations when entering an emerging market of Kazakhstan. Methodology: The research thesis is based on the case study approach which uses a qualitative method to obtain the necessary data. Primary data was collected through interviews with the above mentioned two Swedish telecom companies in Kazakhstan. Secondary data was collected from e-sources. Findings/ Conclusions: In this research, I found that the best entry strategy for entering Kazakhstan is to form a joint-venture with the local partner, but if the company had an earlier experience in similar markets, then the acquisition strategy can be chosen. With regard to the ethical issues, factors such as a weak legal framework, a high level of corruption, poor corporate governance and cultural differences between Sweden and Kazakhstan as well as individual factors of all stakeholders including the manager may have a negative effect on the ethical behaviour of Swedish companies entering and operating in Kazakhstan. It is revealed in this study that Swedish companies manage to confront ethical dilemmas by choosing to “go at it alone”. To be able to confront these issues, companies should set their own bar for how to act as ethically and responsibly. Also, they should ensure the enforcement of codes of conduct, corporate governance, ethics training, ethical role model of top management and whistle-blowers policy.

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