Internship Report Master in International Business RUSSIAN MARKET INTERNATIONALIZATION: CERAMIFOR CASE STUDY Aliaksandr Lasianok Leiria, May 2017 Internship Report Master in International Business RUSSIAN MARKET INTERNATIONALIZATION: CERAMIFOR CASE STUDY Aliaksandr Lasianok Internship Report developed under the supervision of Phd Vitor Ferreira, professor at the School of Technology and Management of the Polytechnic Institute of Leiria and co- supervision of Paula Cardoso co-supervisor, commercial coordinator at the CERAMIFOR. Leiria, May 2017 Acknowledgements I’m grateful to my curator and professor of IPL Vitor Hugo Ferreira for his patience to my mistakes, support and clear guidance of a working process. Would like to thank all the CERAMIFOR’s team for a friendly reception, warm environment and helpfulness. Special gratitude goes to the managing director Bruno Bras for provision of opportunities of exhibition attendance, what I liked so much. Additionally, I want to acknowledge the company’s curator Paula Cardoso for her efforts and care of my adaptation in the company and all advices done. Thanks for all your encouragement! ii Resumo (in portuguese) O desenvolvimento das tecnologias tornou o mundo "mais pequeno", promovendo o surgimento de conexões entre todas as partes do mundo. Sob tais condições as empresas tendem a envolver o processo de internacionalização expandindo-se para diferentes mercados, empurradas por vários objetivos e motivos. Os negócios e empresas internacionais têm tentado desenvolver uma estrutura ideal que permita às empresas evitar riscos e implementar a estratégia inicial mais apropriada. Entre as perspectivas mais populares podem ser destacadas: Resource based view, Transaction costs view, Institutional view, Uppsala model etc. O trabalho baseia-se no estudo do caso da empresa CERAMIFOR, um fabricante português de equipamentos de indústria cerâmica e tratamento térmico. A empresa tem uma grande experiência de atividade em todo o mundo e agora está interessada em entrar no mercado russo para ampliar a base de clientes e melhorar o seu desempenho. Uma análise cuidadosa do panorama russo permitiu identificar as tendências e dinâmica da economia do país, pontos cruciais na vida política e cultural. De acordo com as informações recolhidas, foram determinadas algumas características específicas da negociação com a comunidade russa. O banco de dados de clientes, incluindo a maioria das empresas da indústria cerâmica, foi organizado. Concluiu-se que os resultados das abordagens teóricas conjuntas e a análise de mercado conduziram à apresentação de ofertas que consideram a estratégia de entrada potencial da CERAMIFOR no mercado russo. Palavras-chave: Internacionalização, Modos de entrada, Mercado russo, Indústria cerâmica, Tratamento térmico, Cultura, CERAMIFOR iii Abstract The development of technologies made the world “smaller” fostering the emergence of connections between all parts of the world. Under such conditions companies tend to evolve into internationalization process expanding to different markets, pushed by various goals and motives. International business and management have been trying to develop ideal framework allowing companies avoid risks and implement the most appropriative entry strategy. Among the most popular perspectives we can highlight the Resource based view, Transaction costs view, Institutional view, Uppsala model, among others. The work is based on the case study of CERAMIFOR company, which is Portuguese producer of heat treatment equipment. The company has a large experience of world activity and is now interested in expanding into the Russian market to widen customers’ base and improve performance. Careful analysis of the Russian environment allowed to identify trends of the country’s economy movement, crucial points in political and cultural life. According to collected information specific characteristics of the negotiation with Russian community were declared. Customers’ database including most of companies from ceramic industry was organized. Concluding, results from joint theoretical approaches and the market analysis led to suggestions for CERAMIFOR potential entry strategy, which we think should focus on Export. Key-words: Internationalization, Entry modes, Russian market, Ceramic industry, Heat treatment Culture, CERAMIFOR iv List of figures Figure 1: Uppsala model of internationalization ................................................................. 18 Figure 2: The strength of rule of the law ............................................................................. 20 Figure 3: Relation between the factors and firms’ types ..................................................... 22 Figure 4: GDP growth rate dynamic, 2000-2017 ................................................................ 31 Figure 5: Heat map of The Index of Economic Freedom for Russia, 2016 ........................ 32 Figure 6: Comparative the Index of Economic Freedom dynamic, 2005-2016 .................. 33 Figure 7: The Global Competitiveness Index for Russia, 2009-2016 ................................. 34 Figure 8: The Public trust to politicians’ index in Russia, 2010-2016 ................................ 35 Figure 9: The Property rights´ index in Russia, 2010-2016 ................................................ 36 Figure 10: The Business costs of crime and Organized crime indexes´ dynamic in Russia, 2011-2016 ............................................................................................................................ 37 Figure 11: The Ease of doing business index´ dynamic in Russia, 2010-2017 ................... 38 Figure 12: The Fiscal freedom index´ dynamic in Russia, 2005-2016 ............................... 40 Figure 13: The Freedom from corruption index´ dynamic in Russia, 2005-2016 ............... 41 Figure 14: Irregular payments and bribes and Favoritism in decisions of government official indexes in Russia, 2005-2016 .............................................................................................. 41 Figure 15: Hall´s dimensions for The Russian and Portuguese cultures ............................. 44 Figure 16: Export of the kilns for ceramic industry in Russia by countries ........................ 47 Figure 17: Growth rates of the Bricks and Tiles production in Russia ............................... 49 Figure 18: Growth rates of the Refractories production in Russia ...................................... 50 Figure 19: Growth rates of the Sanitary ware production in Russia ................................... 51 Figure 20: Growth rates of the Tableware production in Russia ......................................... 52 Figure 21: Evaluation of the main Russian market risks by the foreign agents, 2017 ........ 57 Figure 22: Evaluation of the main enter strategies .............................................................. 58 v List of tables Table 1: Relations between factors and mode entry choice ................................................ 12 Table 2: Connections between main research strategies and main conditions .................... 27 Table 3: Taxes´ rates in Russia ............................................................................................ 39 Table 4: Main producers of kilns for ceramic industry in Russia ....................................... 47 Table 5: Depreciation of fixed assets in non-metal mineral goods manufacture ................ 48 Table 6: Depreciation of fixed assets in non-metal mineral goods manufacture .............. 54 Table 7: Main actors of the Russian kaolin clay market ..................................................... 61 vi List of acronyms GDP – Gross Domestic Product GCI – Global Competitiveness Index IPLC – Internationalization Product Life Cycle Model RBV – Resource-Based View FDI – Foreign Direct Investments TC – Transaction Costs OLI – Ownership-Location-Internalization IMF – International Monetary Fund EFI – Economic Freedom Index EDBI – Easy Doing Business Index APKSM – Association of manufacturers of ceramic wall products APKM – Association of manufacturers of ceramic materials SME – Small-Medium Enterprises vii Table of contents AKNOWLEDGEMENTS ................................................................................................. ii RESUMO (IN PORTUGUESE) ....................................................................................... iii ABSTRACT ....................................................................................................................... iv LIST OF FIGURES ........................................................................................................... v LIST OF TABLES ............................................................................................................. vi LIST OF ACRONYMS ..................................................................................................... v TABLE OF CONTENTS .................................................................................................. viii 1. INTRODUCTION ........................................................................................................ 1 2. INTERNATIONALIZATION ..................................................................................... 3 2.1.1. Motives of internationalization ............................................................................................. 3 2.1.2. Location choice ..................................................................................................................... 4 2.1.3.