Internationalization of Chinese Construction Equipment Firms
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Internationalization of Chinese Construction Equipment Firms “Take-off Drivers & Entry Strategies” Authors: Michael Halak, Supervisor: Hans Jannson Charlene Reinke Subject: Business Administration Program: Growth Through Innovation & International Marketing Level and Semester: Masters Thesis, Spring 2011 STATUTORY DECLORATION “We declare that all writing in this master thesis have be complete by us and no other sources have been used in its creation other than those that have been specified. Furthermore we declare that all quotations have been clearly indicated and that Linnaeus University is the only institution this thesis has been submitted to for examination purposes.” May 24, 2011 _______________________ _______________________ Michael Halak Charlene Reinke Michael Halak | Charlene Reinke ACKNOWLEDGEMENTS We would like to say thank you and express our gratitude to our Linnaeus University professor and advisor, Hans Jansson. His support and supervision helped to guide us through our research work and has resulted in a master thesis that we are proud of. We are grateful for the support and cooperation that our case company Volvo Construction Equipment: Region International has shown us, in particular our contact Tim Richardson. Tim provided us with several useful pieces of information and always took the time to answer any questions we had. Thank you to our classmates and friends in Kalmar. With your help we have learned a lot about ourselves and about other countries and cultures around the World. You are all great friends and truly amazing people, and have made this year one that we will never forget. Last but not least, we would like to extend our genuine admiration and gratitude to our families. Your constant encouragement and support throughout this year abroad is appreciated more than you will ever know. Michael Halak | Charlene Reinke 2 ABSTRACT Since the induction of China into the World Trade Organization (WTO) in 2001 the business world has become a much different place. With the Chinese economy now open domestic firms have began to purse business abroad, many of which becoming quite successful in a short period of time. International Chinese construction equipment firms have started to steal market share from established firms, cutting into a significant portion of their profits and jeopardizing the livelihood of many small and medium sized organizations. The global construction equipment industry is in a state of change, with a number of new Chinese entrants starting to flourish in emerging country markets. Often times, domestic firms lack monetary resources, preferring to purchase two lower quality, less expensive Chinese machines, rather then one higher priced, superior quality unit. International firms who build their business on high priced, high tech, quality machines with extensive after sales service are beginning to explore different strategies to help them compete in new market conditions. This master thesis investigates how Chinese construction equipment firms internationalize (i.e. how they enter new markets and how they are driven to exit their own). For this, the institutions of China and Brazil are comparatively analyzed, Porter’s five forces model is used to analyze the Chinese construction equipment industry, while distinct resources, capabilities and key success factors are defined and analyzed for Sany and Xuzhou Construction Machinery Group (XCMG). After careful analysis, the authors bring to light various take-off drivers, patterns and strategies of Chinese construction equipment firms when internationalizing or venturing abroad. Chinese construction equipment firms are beginning to follow their Western counterparts, focusing their efforts on product quality and extensive customer service. Warranties, parts centers, aftermarket service and strategically placed research and development facilities are becoming more greatly utilized, expanding the quality and offerings of Chinese firms, while adding to the customers perception of overall value. These key insights expand the knowledge base associated with Chinese construction equipment firms in developing markets, while unlocking new theoretical perspectives for supplementary research. Michael Halak | Charlene Reinke 3 TABLE OF CONTENTS 1 INTRODUCTION..................................................................................................................................7! 1.1 BACKGROUND........................................................................................................................................8! 1.2 RESEARCH BACKGROUND......................................................................................................................9! 1.2.1 Volvo Construction Equipment......................................................................................................9! 1.2.2 Commissioning Firm’s Interest .....................................................................................................9! 1.3 RESEARCH PROBLEM ...........................................................................................................................10! 1.4 PURPOSE OF THE THESIS ......................................................................................................................10! 1.5 RESEARCH QUESTIONS ........................................................................................................................11! 1.6 DELIMITATIONS ...................................................................................................................................11! 1.6.1 Industry........................................................................................................................................11! 1.6.2 Case Companies ..........................................................................................................................11! 1.7 LIMITATIONS........................................................................................................................................12! 1.7.1 Approach to Analysis...................................................................................................................12! 1.7.2 Translation ..................................................................................................................................12! 1.8 OUTLINE ..............................................................................................................................................13! 2 METHODS AND METHODOLOGY ..............................................................................................14! 2.1 PURPOSE OF RESEARCH .......................................................................................................................15! 2.2 RESEARCH LOGIC.................................................................................................................................15! 2.3 RESEARCH APPROACH .........................................................................................................................15! 2.4 RESEARCH METHOD ............................................................................................................................16! 2.4.1 Case Study Design.......................................................................................................................16! 2.4.2 Case Company Selection .............................................................................................................16! 2.5 DATA COLLECTION ..............................................................................................................................17! 2.6 DATA ANALYSIS ..................................................................................................................................17! 2.7 QUALITY OF RESEARCH .......................................................................................................................18! 2.7.1 Validity ........................................................................................................................................18! 2.7.2 External Validity..........................................................................................................................18! 2.7.3 Reliability ....................................................................................................................................18! 2.8 ETHICS IN RESEARCH ...........................................................................................................................19! 3 LITERATURE REVIEW...................................................................................................................20! 3.1 INTERNATIONALIZATION......................................................................................................................21! 3.1.1 Internationalization Process Model ............................................................................................21! 3.1.1.2 1977 Uppsala Internationalization Process Model..................................................................22! 3.1.1.2.1 State Variable: Market Knowledge and Market Commitment ..............................................22! 3.1.1.2.2 Change Variable: Current Activities and Commitment Decisions........................................23! 3.1.1.3 2009 Uppsala Internationalization Process Model..................................................................23! 3.1.1.3.1 Business Networks.................................................................................................................23!