Uppsala University
Department of Business Studies Master Thesis
Autumn 2006
The Inward-Outward Connection of Internationalisation
- A Case Study of a Turkish Firm
Supervisor: Rian Drogendijk Authors: Susan Benalcázar
Sara Rudqwist
Acknowledgements
We wish to thank:
The Swedish Institute for the scholarship that enables us to conduct our study in Turkey.
Gulay Özkan at Ericsson in Turkey for all her help and assistance.
Haluk Özbay at Turkcell for all his help and assistance.
Index
ACKNOWLEDGEMENTS ... 2
INDEX ... 3
ABSTRACT ... 4
1 INTRODUCTION ... 5
1.1 PURPOSE... 6
2 THEORETICAL FRAMEWORK... 7
2.1 INWARD-OUTWARD CONNECTION... 7
2.2 RELATIONSHIP PERSPECTIVE... 10
2.2.1 Structural and Process Characteristics in Business Relationships... 10
2.2.2 Analysing Business Relationships ... 13
2.2.3 Distance Dimension ... 15
2.3 THE UPPSALA INTERNATIONALISATION PROCESS MODEL... 16
2.3.1 Establishment-Chain... 16
2.3.2 Psychic Distance ... 17
2.3.3 Critic of the Model ... 18
3 METHODOLOGY ... 20
3.1 RESEARCH PROCESS... 20
3.2 STRENGTHS AND WEAKNESSES OF THE CHOSEN METHOD... 21
3.2.1 Interviews... 21
3.3 OPERATIONALISATION... 22
3.4 METHODS FOR THE ANALYSIS... 23
4 EMPIRICAL FINDINGS ... 24
4.1 TURKCELL... 24
4.1.1 Haluk Özbay ... 24
4.2 ERICSSON... 25
4.2.1 Gulay Özkan ... 25
5 RESULTS... 26
5.1 STRUCTURE CHARACTERISTICS OF THE BUSINESS RELATIONSHIP... 26
5.2 PROCESS CHARACTERISTICS OF BUSINESS RELATIONSHIPS... 27
5.3 DISTANCE DIMENSION... 28
5.4 UPPSALA MODEL... 29
6 ANALYSIS... 30
6.1. ACTIVITY LINKS... 30
6.2 RESOURCE-TIES... 30
6.3 ACTOR BONDS... 31
6.4 UPPSALA INTERNATIONALISATION PROCESS MODEL... 32
7 DISCUSSION AND CONCLUSION ... 33
8 FUTURE RESEARCH ... 35
REFERENCES ... 36
APPENDIX ... 38
A 1 INTERVIEW FORM ERICSSON TÜRKIYE... 38
A 2 INTERVIEW FORM TURKCELL... 41
Abstract
In this thesis we wanted to investigate whether there is a connection between the inward and outward internationalisation of a firm. To do this we have conducted a case study on the Turkish telecom company Turkcell. To examine if Turkcell’s inward internationalisation has affected its outward internationalisation we have studied the relationship between Turkcell and Swedish Ericsson. To collect the primary data for our study we performed interviews in Istanbul Turkey with the procurement manager at Turkcell and the strategic manager at Ericsson. Since there is limited research on the inward-outward connection we have chosen to see this connection from Håkansson and Snehota’s relationship perspective. Further, to analyse the results of Turkcell’s outward internationalisation we compared the findings to the Uppsala Internationalisation Process Model to see if it Turkcell’s establishments abroad was affected by the inward internationalisation by Ericsson.
We found that Turkcell and Ericsson have a very close relationship which has given Turkcell many resources such as know-how, opportunities and knowledge. Whether these resources have helped Turkcell in their establishments abroad or not is difficult to determine. However we found that Turkcell had ventured abroad relatively fast which indicates that they have gained the relevant knowledge from external sources. As our results show that Ericsson has transferred many resources to Turkcell it is reasonable to conclude that Turkcell’s success abroad is at least partly due to their relationship with Ericsson.
In this section we present why our purpose is interesting.
1 Introduction
Turkey is a dynamic emerging market that has an excellent basis for international investment.
It is strategically located at the centre of an economic and political area known as “Eurasia”, where three regions of the world; Europe, the former Soviet Union and the Middle East intersect. The proximity to the Balkans and the rest of Europe as well as to the growing emerging markets in Central Asia, the Middle East, and North Africa creates unique business opportunities. The experience of numerous global firms confirms Turkey as a predominant investment location and export platform. 1 The government offers significant incentives for manufacturing investment, encouraging regional development and favoured industries as well.2Several Swedish companies such as Volvo and IKEA have recognised the growth potential of the Turkish market with its growth rate of 10%3.
Companies that wish to expand abroad can chose from various types of entry modes.
Internationalisation strategies range from export to different sorts of foreign direct investments such as green field investments, mergers and acquisitions and joint ventures4.
The reasons for choosing one or the other of these entry modes are many. The Uppsala Internationalisation Process Model proposes that internationalisation is a process that starts with export, continues to sales subsidiaries and finally takes the step to own production facilities5.
Swedish companies that export to or establish subsidiaries in Turkey are performing an outward internationalisation. On the other hand seen from the view point of a local Turkish firm which is in some way affected by this expansion it is an inward internationalisation.
The research in the field of firms’ internationalisation is extensive. However there are several gaps left in order to fully understand this process. The research has in most concentrated on the outward side of internationalisation such as export. Internationalisation in the opposite direction, that is inward activities such as import has been studied only to a small degree. Even fewer studies have been made on the connection between the inward and
outward sides of internationalisation.6
1 DEIK-Turkish and US Business Council http://www.turkey-now.com
2 Yilmaz Arguden 2006 in DEIK-Turkish and US Business Council report
3 Svensson and Öksüz, 2005
4 Malhotra, Ulgado, Agarwal, 2003
5 Johanson and Wiedersheim-Paul, 1975
6 Karlsen et al. 2003
It is of interest to company managers as well as governments to study this connection between inward and outward internationalisation as the results can give crucial information on how foreign investments can effect a company and in turn a country’s whole economy.By knowing the connection between inward and outward internationalisation governments can regulate the foreign investments to their country and take advantage of its positive effects in a better way.
Unfortunately it is very difficult to determine whether there is a connection between inward and outward internationalisation. To explore if there is such a connection we have chosen to conduct a case study. We focus on the Turkish company Turkcell and
investigate if their inward internationalisation in the form of customer to Ericsson has affected their outward internationalisation. To do these we use Håkansson and Snehota’s relationship perspective and have also compare Turkcell’s outward movements to the Uppsala
Internationalisation Process Model.
1.1 Purpose
The purpose of this study is to investigate whether there is a connection between the inward side and outward side of a firm’s internationalisation. In order to explore if there is such a connection we chose to look at the relationship between a Swedish and a Turkish firm from Håkansson and Snehota’s relationship perspective. We also compared the outward
internationalisation to the Uppsala Internationalisation Process Model to study if the inward has affected the outward movement.
In this section we present all the theories and at the end we connect them in a figure.
2 Theoretical Framework
2.1 Inward-Outward Connection
It was Luostarinen who divided the concept of internationalisation into inward, outward, and cooperative internationalisation. He shared the belief with other researchers that
internationalisation starts not only through foreign selling and marketing activities but also through sourcing from abroad and international cooperation managed from the domestic market.7
Inward internationalisation is defined as both buying- and production operations (e.g. import operations for goods, purchasing units, licensing operations and manufacturing units partly owned by a foreign company) on a home market8. On the contrary outward internationalisation is defined as both marketing- and production operations abroad (e.g.
export, licensing operations, sales subsidiaries and manufacturing units) on a foreign market9. The connections between the inward and outward sides of internationalisation are shown in the following diagram. It shows the different stages of a company’s process from a domestic company to a company with both inward and outward international activities.
The white boxes in the diagram show the earliest stages of a company when it is only a local domestic company. The grey boxes within the border are the different stages of
internationalisation. The inward side of internationalisation is represented by the lighter shaded boxes showing for example import of raw materials and joint venture with a foreign partner. The darker shaded boxes show the outward side of internationalisation with for example export and a manufacturing subsidiary abroad. The dark lines between some of the boxes show the connections between the inward and outward side of internationalisation.
7 Korhonen, 1999
8 Ibid
9 Ibid
According to Welch and Luostarinen there may be a connection between the inward and outward sides of internationalisation. The connection is such that the inward activities that come before the outward process will influence the development of the latter, if the inward activities are positive for the firm then it will likely follow that the outward
internationalisation is also successful as great experience can be gained from the first
activities. 10 The inward and outward sides of internationalisation can influence each other in
10 Welch and Luostarinen, 1993
Establishment of the firm
Sales subsidiary Domestic joint venture
with a foreign partner
Import of subcontracting components, contract manufacturing goods,
licensed or OEM- products Import of raw materials/components
Technology transfer from abroad
Start of operation
Imports from manufacturing
subsidiary Subcontracting,
contract manufacturing, licensing
Manufacturing subsidiary
Exporting Import of saleable
goods DomesticStages
Outward Side Inward Side
Figure 1
= inward-outward connection
Source: adaptation from Luostarinen, 1994, 19; Luostarinen and Hellman 1995, 8 in Korhonen 1999
a number of ways. These connections are most clear in the many forms of counter trade where goods or services are exchanged for other goods or services and hence import and export are closely interlinked. Yet there is also a growing use of other types of cooperation between countries such as strategic alliances.11
Inward internationalisation activities are more frequent in the earlier phases of a firm’s life and often in the form of import of raw materials, components and machinery.
Various types of inward foreign direct investments such as joint ventures with a foreign partner are also examples of inward activities. These activities can include imports of physical equipment, employees and expertise.12 Some of the advantages of having an inward
internationalisation before the outward internationalisation can be increased knowledge of a foreign market, lower risk of failing in the new market, reduced time, new business
opportunities and larger network and therefore an improved performance 13.
The inward-outward connection of internationalisation can be divided into two parts; the direct relationship and indirect relationship. The direct relationship is characterised by an explicit dependence whereas in the indirect relationship the dependence from one action on the other is much less clear as the result of the inward activities that possibly impact the outward steps are not always obvious. For example; inward foreign licensing can after a time be followed by outward technology sales.14 In the indirect relationship there is a time gap between the inward activities and the outward actions but the relationship develops over a period of time15.
Examples of a direct relationship: counter trade, cooperation deals, strategic alliances, cross licensing, multinational corporations, in-house transfer network and international sub-contracting. These are often of contractual nature, or are subject to centralised decision-making by multinational corporations.
Examples of an indirect relationship: experience as importer of technology contributes to outward foreign licensing, foreign supplier leads to foreign contract and orders. In these there is often substantial time separation and the learning process and type of international contacts are important16
The indirect relationship in the inward-outward connection often starts with a foreign supplier through which knowledge about a foreign market and contact networks can
11 Welch and Luostarinen, 1993
12 Korhonen, Luostarinen & Welch, 1996 in Karlsen et al. 2003
13 Karlsen et al. 2003
14 Welch and Luostarinen, 1993
15 Ibid
16 Ibid
be gained. This contact can at a later stage lead to outward movements such as selling to other countries and markets.17
The development of formal and informal networks is an important part of the research about inward and outward internationalisation processes. The network theories seem very useful in the understanding of how inward-outward connections are created and
expand.18
2.2 Relationship Perspective
In order to understand how the inward side of internationalisation is connected to the outward side we look at this connection from a relationship perspective. We have used the analytical framework for company interaction by Håkansson and Snehota. However we have chosen to focus on one important relationship instead of taking a network approach where a company’s all relationships need to be examined.
2.2.1 Structural and Process Characteristics in Business Relationships Håkansson and Snehota like earlier studies point out that before analysing a business
relationship one has to look at the structure and process of the relationship. The structural and process characteristics describe the nature and the importance of a relationship.
They point out that major relationships have their distinct personalities and that no two relationships are alike.19Despite the variations that exist between different relationships, they have some unique features. These features characterize the nature of a relationship that has developed between two companies.
Structural Characteristics in Business Relationships
Business relationships, particularly the relationship between a customer and a supplier, have been found to often be distinguished by the characteristics; continuity, complexity, symmetry and informality20:
17 Welch and Luostarinen, 1993
18 Korhonen, 1999 in Karlsen et al. 2003
19 Håkansson and Snedhota 1995
20 Ibid.
Continuity
Relationships between a supplier and a costumer usually illustrate continuity and stability.
Studies have shown that major supplier-customer relationships are built up gradually. The older a relationship is, the more the companies involved will take advantage of it. For the development and change of a relationship it is necessary to have continuity.21
Complexity
Business relationships are complex in numerous ways. This can be demonstrated by looking at the number, type and contact pattern of the individuals involved in the relationships. The companies involved in a business relationship usually have different status, organizational roles and personal background. Another aspect of complexity is the range and use of established relationships. A large variety of products/services are often exchanged between the two companies involved.22
Symmetry
Companies involved in a relationship tend to have equal amount of resources and capabilities and hence there is a power balance between them. Both companies involved in a relationship have the possibility to exercise influence, take initiative and promote changes in the
relationship which leads to better balance.23 Informality
The relationship between companies often shows a low degree of formalization. Although formal contracts are common, their role is often limited. Formal contracts are commonly ineffective in handling the uncertainties, the conflicts, and crises that a relationship often experienced over time. Informal ties are common in business relationship. Trust and confidence are important parts of informal ties and have been pointed out as more effective for the development of the relationship than formal arrangements. 24
Process Characteristics in Business Relationships
The interaction process of business relationships is generally described by the characteristics;
adaptations, cooperation and conflict, social interaction and routinisation.
21 Håkansson and Snedhota 1995
22 Ibid.
23 Ibid.
24 Ibid.
Adaptations
Business relationships tend to generally have mutual adaptations as a precondition for the development and continued existence of a relationship between to companies. Products, routines and rules of conduct are adapted continuously on either side to improve the relationship. These different types of adaptations are the basis for mutual commitment.25 Cooperation and conflict
In a business relationship, there is both cooperation and conflict. There is a natural conflict concerning the division of benefits from a relationship. Cooperation between the two parties involved is an important factor that keeps the relationship alive. Their commitment to each other helps the companies towards constructive solutions.26
Social interaction
Subjective values such as personal bonds and convictions play an important role for the formation of a business relationship. Individuals from both companies tend to knit a network of personal relationship and this appears to be the cause for a stronger bond between the companies involved in a relationship. One significant factor that emerges from a close social interaction is trust. This in turn influences the interaction in a business relationship27
Routinisation
Even though business relationships in general tend to be complex and informal, they usually become institutionalized over time. Here we find routines, both explicit and implied rules of behaviour, and rituals. These different types of routinisation smooth the progress in possible conflicts and help to coordinate the different activities within the relationship.28
We can with the help of these two different types of characteristics investigate the nature and importance of the relationship. The connections between two parties are developed through a process of mutual orientation and commitment which result in a relation. Yet a relationship is not a constant but a variable that will change. It is therefore important to go further than simply considering that there are relationships between companies and that they are
important. One needs to look deeper, within the relationship, at the factors that are connected and the effects these connections have. In this study we concentrated on most of the different characteristics but we excluded the conflict and routinisation because our collected data did not cover these two features.
25 Håkansson and Snedhota 1995
26 Ibid.
27 Ibid.
28 Ibid.
2.2.2 Analysing Business Relationships
The two types of characteristics; structure and process are common traits found in business relationships. Even though every relationship has unique features there is still a certain pattern in the effects relationships produce.
Håkansson and Snehota’s study highlights the importance of looking at the different components being connected in a relationship and the effects the connections produce. In order to do this they look at relationships from two dimensions. The first dimension, the substance dimension, describes what effects the business relationship has on the companies involved and the second dimension, the function dimension explains who is affected in the relationship.29By using the two dimensions Håkansson and Snehota categorise and analyse business relationships.
The Substance Dimension
The substance dimension consists of three layers activity links, resource-ties and actor bonds.
These three layers are connected to each other and sum up to a business relationship.
How important the relationship is to the companies involved depends on the existence, type and strength of the three layers.
Activity links
Activity links are the different ways that connect the various activities of one company to those of another. Companies carry out and coordinate different types of activities such as the development, purchasing and selling of products. These different activities are the activity structure of a company. In a business relationship the activity structure of each company involved is connected by activity links to the other by adapting and reallocating their activities. The activity links reflect the need of coordination between companies. The
importance of these links depends on what activities they connect and how these activities are connected. The reason for this is that they can affect the cost and effectiveness of each
company by decreasing the costs of performing the activities and/or increasing the outcome of combined activities.
Resource-ties
Resource-ties are the available resources that are exchanged and transferred between two companies. The resource-ties depend on the importance and development of the relationship.
29 Håkansson and Snedhota 1995
These resources can be products, material, technology and knowledge. Resources can also be created, confronted and combined in business relationships through learning by doing, experience and joint learning. The performance and capability of a company are affected by the type and amount of resources that they can gain from a relationship 30
Actor bonds
Actor bonds connect the two companies involved in a business relationship and also influence how these companies perceive each other. It also leads to the formation of the individuals’
identities from both companies in relation to each other. Bonds are established in interaction and reflect the interaction process of the business relationships.31
The Function Dimension
This dimension observes the effects a relationship has on different actors. This means that a relationship between two companies has different functions since a relationship has an effect on and is affected by the two companies and also other actors and relationships. Håkansson and Snehota describe three different functions; function for the dyad, function for the individual company and function for third parties.
Function for the dyad:
The conjunction of two companies; their activity links, resource ties and actor bonds which leads to something new is what Håkansson and Snehota refer to as a “dyad”. When two
companies form connections in the activity, resource and actor layer, a business relationship is developed. If the activities, resources and actors are successfully integrated it will lead to the creation of something new and unique such as new resources, activities or knowledge.
Together the companies can create something that they could not have accomplished on their own. The success of this accomplishment depends on all three dimensions of the substance.
There has to be at least some substance in order for there to be any effect of the dyad.
Function for the individual company:
A business relationship has effects on each of the companies’ activity structure, resource collection and organizational structure. This entails that a business relationship has an impact on the competence, productivity and innovativeness of both companies involved. The
companies’ performance depends on the activity links, actor bonds and resource ties that
30 Håkansson and Snedhota 1995
31 Ibid.
connect companies to each other. Furthermore the relationship has effects on the individual company’s other relationships.
Function for third parties
What it is produced in one business relationships affects and is affected by other business relationships. The effects on third parties and of third parties to the business relationship depend on how closed the connectedness of relationships is in the overall network.32
In this study we want to concentrate on the business relationship between two companies and disregard any relationships they may have to other companies. That is why we exclude the function for third parties in our analysis.
The structure and process characteristics as well as the substance and function dimensions are endogenous; they are factors that companies involved in a relationship can control to some extent. There are however also exogenous factors that influence a relationship. These factors have their origin outside the relationship and are more difficult to control.
2.2.3 Distance Dimension
In his study on buyer and seller relationships Ford examines business relationships in the international industrial market. We have chosen to use the distance dimension to explain how exogenous variables can have an effect on a business relationship. He thinks that one of the obstacles that stand in the way of the business relationship is the distance dimension. This is an obstacle that companies face in a business relationship but cannot control.33 The distance dimension consists of five dimensions:
Social distance
Social distance is the extent to which both the individuals and the organizations in a relationship are unfamiliar with each other’s way of working.
Cultural distance
Cultural distance is the extent to which the norms and values of the two companies differ because of their separate national characteristics;
32 Håkansson and Snedhota 1995
33 Ford, 1984
Technological distance
Technological distance is the differences between the two companies’ product and process technologies.
Time distance
Time distance is the time which must elapse between establishing contact or placing an order and the actual transfer of the product or service involved;
Geographical distance
Geographical distance is the physical distance between the two companies’ locations.34
2.3 The Uppsala Internationalisation Process Model
According to The Uppsala Internationalisation Process Model (Uppsala Model) the largest obstacle for a firm investing abroad is the lack of knowledge about a specific foreign market.
This is overcome through an incremental internationalisation process and stepwise learning.35 2.3.1 Establishment-Chain
Firms will follow a certain order of steps in their process of internationalisation. The order of these steps is known as the establishment-chain which consists of four stages:
1. No regular export activities 2. Export through an agent 3. Sales subsidiary
4. Own production
Each step means more commitment to the new market but also stronger channels through which more and more information can be gained.36
The internationalisation process is a cycle, where the last step of one decision is the first of the next. This cycle consists of market knowledge, market commitment, commitment decisions and current activities. Market knowledge and market commitment affect the commitment decisions and the current activities which in turn influences the knowledge and commitment.37
34 Ford 1984
35 Johanson and Wiedersheim-Paul, 1975
36 Ibid.
37 Johanson and Vahlne, 1977
Market knowledge is composed of different factors. Most importantly a distinction is made between objective knowledge and experiential knowledge. This experiential knowledge is the crucial part of internationalisation. It cannot unlike objective knowledge be written down or taught, it has to be experienced and learned first hand.38
In the internationalisation process all different types of knowledge are important in order to be successful but it is the tacit experiential knowledge that is critical. Not only because it is very difficult to acquire but because it generates business opportunities39.
Experiential knowledge gives an understanding of the new market and a certain feeling for it, this enables one to see new opportunities and problems which is good for business40.
As the firm always has a lack of experiential knowledge there is constantly a risk for the firm. A risk that business will not proceed as expected and that the market situation will change. The small incremental steps, with little commitment to begin with, are taken both to learn and gain new knowledge and to minimise this risk. By following the incremental process through the establishment chain firms will be able to obtain experiential knowledge without putting too much at risk. As more information is gained the firm will stepwise make stronger commitments to the new market.41
2.3.2 Psychic Distance
Another important part of the Uppsala Model is the order of the countries in which a firm chooses to invest. This order is related to the psychic distance between the home country and the host country. The psychic distance is made up of factors such as differences in language, culture, education, political situation and industrial development, which make the flow of information between two countries difficult. Firms seem to first establish themselves in countries to which there is little psychic distance and hence are quite similar to the home country and then gradually move further away, this to avoid uncertainty due to the lack of knowledge about foreign markets. Psychically near countries are often also geographically near, but this is not always the case. For example England and Australia are far apart
geographically but are still very similar with regard to culture. The USA and Cuba are on the other hand near each other geographically but very far apart politically.42 Firms will start their
38 Johanson and Vahlne, 1977
39 Johanson and Vahlne, 1990
40 Johanson and Vahlne, 1977
41 Johanson and Vahlne, 1990
42 Johanson and Wiedersheim-Paul, 1975
internationalisation in countries that are psychically near because the markets there are easier to understand and therefore more business opportunities will be recognised43.
2.3.3 Critic of the Model
The Uppsala Model has received strong support all over the world but has also been criticised.
The Uppsala Model deals greatly with learning and even if tacit knowledge can be gained from outside the firm to some degree the model states that the important experiential knowledge is primarily obtained through the firm’s activities on the specific market.
According to Forsgren this is not necessarily so. Even tacit market knowledge can be gained in several different ways, for example by acquiring local staff that already has the required knowledge. Information could also be gained through the relationship to other firms within the network, by imitating other firms or acquiring other organisations that already possess the relevant knowledge.44 By gaining crucial information and knowledge in other ways than first hand experience means that not all steps in the establishment chain will be necessary and a firm might for example establish a production facility directly. It is also important to point out that firms may not only take into account the risk involved in a foreign investment due to a lack of market knowledge, but might also consider the risk of not investing on the new market at all. It may e.g. be of importance to be the first actor on a specific market. A firm might then take a larger step and invest abroad despite their lack of experiential market knowledge.45
In a test of Johanson and Vahlne’s theory Sullivan and Bauerschmidt wished to see weather a firm that has more knowledge about the details of international business and hence has a higher level of internationalisation will be active on markets that are both
psychologically and physically further away. However they found no evidence to support this, there was no significant difference between the different groups of firms. 46
Despite the criticisms presented above the Uppsala Internationalisation Process Model is regarded as one of the most important approaches to explaining the process of internationalisation. The Uppsala Model is normally used for manufacturing firms and is difficult to apply to service firms as many services are inseparable, meaning that they are produced and consumed simultaneously and for this reason cannot be exported.47 However
43 Johanson and Vahlne, 1990
44 Forsgren, 2001
45 Ibid.
46 Sullivan and Bauerschmidt, 1990
47 Root 1987 in Blostermo, 2006
some parts of the model are applicable for service firms and since our focus company is a service firm, we have chosen to concentrate on the psychic distance and types of entry mode for our study.
In this figure we present how all the theories and concepts are connected to each other.
TURKCELL FOREIGN MARKETS
ERICSSON
Inward internationalisation
Outward internationalisation
Relationship Perspective
Uppsala Model Inward-outward connection
3 Methodology
When we collected the data for our research we used a qualitative method with semi- structured interviews that were based on the Relationship Perspective and the Uppsala Internationalisation Process Model in order to answer the purpose of our study.
3.1 Research Process
We had the possibility to conduct our research on location in Turkey thanks to a scholarship from the Swedish Institute. In our process of collecting information for our research we visited Istanbul where we interviewed the strategy planning manager at Ericsson in Turkey Gulay Özkan and Müge Gökcek Partner Coordinator at Ericsson Mobility World. We also interviewed the Procurement manager of the Turkish telecom company Turkcell. The relationship between Turkcell and Ericsson is a good case study that suits the purpose of our research as Ericsson is a transnational corporation with a large global network while Turkcell is a fairly new company with international experience limited to its close region.
To get more knowledge about the Turkish market we also interviewed two persons at the Swedish Trade Council in Istanbul, Associate Consultant Didem Islerçelik and Country manager Ekin Ergün. Furthermore we interviewed our contact person from Sabanci University in Istanbul Ahmet Öncü who is Ph. D. at the Faculty of Management.
Since it is difficult to determine whether an inward internationalisation has led to or simplified an outward internationalisation our data was analysed by using the
Relationship Perspective by Håkansson and Snehota. We also included structural and process features of relationships and Ford’s distance dimensions as a measurement of external factors that may influence a relationship. Further to investigate if the relationship has had any affect on Turkcell’s outward internationalisation the findings were compared to the
internationalisation process suggested in the Uppsala Model.
To support our empirical findings we have also used secondary data such as articles and videos from the companies.
3.2 Strengths and Weaknesses of the Chosen Method
We used a qualitative method in which we conducted a few in depth interviews. A qualitative method unlike a quantitative method focuses on the unique or different with abundant
information on a few research objects.48
Using a qualitative method is suitable for conducting this research since it allows us to be flexible when collecting our data and also adapt to new circumstances during the process49. Due to the limited time of our study and our intention to look at the relationship in-depth, our thesis is a case study covering only one relationship between two companies. A case study provides an opportunity for one aspect of a problem to be studied in-depth and offers the possibility to investigate the unique and common features of organisations and their interactive processes.50
3.2.1 Interviews
As we mentioned above we have interviewed several parties in our process of collecting information. Our interviews were a mixture of both open-ended nature and focused
interviews. According to Ying an interview of open-ended nature is suitable for asking key facts as well as opinions. A focused interview is a shorter interview but where the questions are still open-ended. The reason why we chose this mixture is that we were looking for both facts and opinions. We conducted our interviews in a conversational manner in order for the respondent to feel at ease, but at the same time there were some specific questions that we wished to have answered. 51
One of the main advantages of using interviews as a research method is its adaptability which enables the interviewer to change and adjust according to the responses of the interviewee. It also gives the possibility to clarify and reformulate questions as well as answers. In this way the interview is more flexible than a questionnaire.52 The main problem of the interview method is that it is very subjective due to the high involvement of the interviewer. The conversation like situation of the interview calls for constant interpretations
48 Holme and Solvang, 1997
49 Maxwell, 2005
50 Bell, 2005
51 Ying, 1991
52 Bell, 2005
which can give a certain bias. Additionally only a small number of people can be interviewed due to the often limited time of the research.53
The reliability measure is to ensure that if the same investigation, using the same procedures, was done over again the same result would be reached54. It is difficult to avoid one’s own bias and be totally objective. In order to minimise the risk of bias and ensure as high reliability as possible we interviewed persons from different companies and institutions who thereby have different points of view which helped us understand several perspectives.
Moreover all our interviews were conducted by two interviewers which lessened the subjectivity somewhat.
Validity indicates if the right things have been measured in accordance to the purpose of the study. It is important to ask the relevant questions to the relevant people55. The respondents that we selected for our interviews are believed to be relevant for or purpose.
At the two companies the interviewees are managers with the knowledge of their individual companies as well as the relationship between them.
3.3 Operationalisation
In this section we present the connection between the empirical findings from the interviews and the theory. The questions that were asked during the interviews are based on the
Relationship Perspective and the Uppsala Model. These are in turn divided into different parts and factors. The questions were not specific instead they served as discussion topics. For this reason the answers from each question may cover several parts of the theory.
Structure Characteristics of Business Relationships
The structure characteristics of a business relationship are: continuity, complexity, symmetry and informality. To see if these characteristics are present in the relationship between Turkcell and Ericsson we have asked questions concerning length of cooperation, type of cooperation, extent of contact, exchange between the companies and benefits of the relationship.
Process Characteristics of Business Relationships
The process characteristics of a business relationship are: adaptability, cooperation and social interaction. To see if these characteristics are present in the relationship between Turkcell and
53 Bell, 2005
54 Ying, 1991
55 Bell, 2005
Ericsson we asked questions concerning the development of the relationship, extent of the relationship, establishment of the relationship and exchange between the companies.
Distance Dimension
The distance dimension consists of: social, cultural, technological, time, and geographical distances. In order to see if there is a distance that affects the relationship between Turkcell and Ericsson we have analysed our empirical findings and personal observations according to these distance factors.
Substance dimension
The substance dimension is made up of three layers; activity links, resource-ties and actor bonds. To see if these layers are all present and to what extent we asked questions concerning the extent of the cooperation, cooperation development, exchange between the companies and benefits from the relationship.
Function dimension
The function dimension consists of function for the dyad and function for the company. These functions depend on the extent of the three layers of substance. Hence the functions are analysed by evaluating the substance dimension and are not part of the results.
Uppsala Model
The Uppsala Model consists of types of entry mode and psychic distance. In order to examine the outward internationalisation process of Turkcell we asked questions concerning their establishments abroad and when, how and where to these took place.
3.4 Methods for the Analysis
To be able to analyse the substance dimension we have looked at the structure and process characteristics and the distance dimensions and divided these into the three layers; activity links, recourse-ties and actor bonds. By doing this we could see the intensity of the substance and determine if new resources can be created through the dyad. With the help of the Uppsala Model we could see if the new resources have affected Turkcell’s outward
internationalisation.
4 Empirical findings
In our case study we have investigated the relationship between Turkcell and Ericsson. In this section we present the two companies and give a short background of the two main
interviewees.
4.1 Turkcell
Turkcell was established in 1994 and was the first operator of GSM-based mobile
communication in Turkey. Turkcell is today owned by TeliaSonera, the Çukurova Group and MV Holding and employed at the end of September 2006 3064 people. The Turkish mobile communications market has great growth potential with a population of 74.4 million of which a majority live in urban areas. The population is young with an average age of 29 years which is less than in Western Europe. With more than 30 million customers at the end of September 2006 Turkcell is the leading GSM operator in Turkey. There are three players on the Turkish mobile telecom market. Turkcell is the biggest of these with 62% and Avea and Telsim have 14% respectively 24%56. Turkcell has several subsidiaries outside Turkey; in Azerbaijan, Kazakhstan, Georgia, Moldova, Cyprus and Ukraine. It is thereby not only the biggest operator in Turkey but also in the region and additionally is Europe’s third largest GSM operator. Turkcell does not only supply top class wireless telephone services, they also provide General Packet Radio Services (GPRS) through out the country and Enhanced Data Rates for GSM Evolution (EDGE) in highly populated areas.57
4.1.1 Haluk Özbay
Procurement Manager and Head of GSM Warehouse Management at Turkcell. He has 24 years of experience in the Telecom industry and has been working for Turkcell since 1995.
He is a Technical and Electrical Engineer graduated from the Middle East Technical University in Ankara, Turkey.58
56 Turkcell: http://www.turkcell.com.tr/
57 Ibid.
58 Interview with Haluk Özbay 2006-12-16
4.2 Ericsson
Ericsson was established in 1876 as LM Ericsson & Co in Stockholm Sweden where the headquarters and board of directors are still placed. Ericsson provides telecommunication equipment and related services to more than 1000 fixed and mobile networks in 140 countries around the world. With 40% of all mobile calls around the world made through Ericsson’s systems puts them in a world leading position.59 In 2001 the business sector consumer products which mainly included sales of mobile telephones was transferred to Sony Ericsson Mobile Communications AB which is a 50/50 joint venture between Ericsson and Japanese Sony. Ericsson’s largest market is Western Europe which has 31% of the consolidated turnover. Eastern Europe, the Middle East and Africa have 25%, Asia and Oceania 21%, Latin America 11% and North America 12%.60
Ericsson was first established in Turkey in 1994 where they have had a close relationship with the Turkish mobile operator Turkcell from the beginning as Ericsson is the sole supplier of Turkcell61.
4.2.1 Gulay Özkan
Strategy Planning Manager within Marketing, Strategy and Communications at Ericsson Turkey. She has had her current position for nine months but has been with Ericsson for six years. Earlier she has had several positions within Ericsson; business development,
international sales, partnering and system integration.62
59 Ericsson: http://www.ericsson.com
60 National encyklopedin: http://www.ne.se
61 Ericsson: http://www.ericsson.com
62 Interview with Gulay Ökan 2006-12-13
5 Results
5.1 Structure Characteristics of the Business Relationship
Continuity
Ericsson and Turkcell have had a close relationship since the start-up of Turkcell and the establishment of Ericsson in Turkey which occurred in 1994. The fact that the two companies shared office at the beginning illustrates this closeness. Ericsson is the single source supplier of Turkcell. This relationship has not so much changed over time as it has evolved, it is
“naturally evolving” as Gulay Özkan put it.
Complexity
At Ericsson employees at all levels have contact with Turkcell. Ericsson has different
accounts for their three customers on the Turkish market. The Turkcell account consist of 13 people; 6 account managers, 2 contract manager, 1 business control manager, 1 service account manager, 1 product and services sales manager, 1 administrative assistant.
The persons responsible for the Turkcell account at Ericsson all have contact and close relations with Turkcell. At Turkcell people from the marketing, procurement and technology departments have contact with Ericsson. At the procurement 4-6 out of 20 employees have contact with Ericsson and there are even more at the technical department. The amount of contact between Ericsson and Turkcell will vary depending on the position that the person has. Some will have daily contact others will meet or speak more seldom. The frequency of the contact will also change depending on where they are in the investment cycle, for example when deciding on new investments there will be daily contact but during certain periods the contact will be closer to monthly. There is constant trading between Ericsson and Turkcell but they are not only supplier and customer, it is a partnership in which they are very close.
Symmetry
Even though Ericsson basically sells products to Turkcell they see themselves as more than a supplier. They believe that it is a partnership where information, knowledge, know-how and technology from both companies is transferred in both directions. Ericsson offers service help to Turkcell’s costumers and if Turkcell has any problems they will try to help them in the best way. Further Ericsson gives Turkcell experience, support, teaches them about new products, helps in case of any problems and also gives Turkcell access to a large network. Turkcell
contributes to Ericsson’s product and service development. The innovation teams are one way in which the transfer of knowledge, opportunities etc. takes place.
Ericsson who initiated the relationship uses any chance to develop this relationship to Turkcell as the telecom market is very competitive and changes very quickly. To develop their relationship to Turkcell, Ericsson offers both formal and informal meetings where the individuals from the two companies can interact with each other. Even though Ericsson is the single source supplier to Turkcell, it is still Turkcell who decides what quantity of products and what type of services they need by giving Ericsson a budget of the coming year.
Informality
The relationship between Ericsson and Turkcell is very close, “very hot” according to Haluk Özbay and has been so since the start. Close relationships like this are common in the Mediterranean and Middle Eastern culture. The contact is of formal and informal nature where they have official meetings during the day but also meet after office hours as friends and go out together at night. Apart from meetings and work-shops Ericsson will use any chance to develop their relationship to Turkcell and might even organise parties to do so.
5.2 Process Characteristics of Business Relationships
Adaptation
Turkcell was part owned by Ericsson from the beginning in 1994 until 1997. After this Ericsson sold their shares to Turkcell because of legal issues and remained only as the single source supplier. Ericsson and Turkcell have adapted and modified their routines so that they can cooperate better when making decisions concerning investments and production.
In 1999 these two companies also created a team together which included individuals from the two companies. This team developed a mobile internet service packet called GPRS-land.
Further Ericsson changes approximately every six months in order to stay innovative in the very competitive industry. If Turkcell wants a specific service then Ericsson develops it and brings the final product to Turkcell or if they encounter any problems such as technical difficulties Ericsson will try to help them in the best way.
Cooperation
Ericsson is Turkcell’s supplier, but there are also other forms of cooperation between the two companies. In the process from making order decisions to a final delivery there is close
cooperation between them with regard to what, and how much to produce and to what price.
Turkcell and the Turkish telecom market are both very dynamic. Therefore they can come up with new products in Turkey that are also wanted on other markets. Ericsson and Turkcell work together to develop new technology and services, e.g. through the innovation team they created in 1999. Other market units ask for their expertise because they are so advanced in Turkey.
Social interaction
That the relationship is so close is in much due to culture. In the Middle Eastern and
Mediterranean culture it is customary to have very close business relationships. The contact between Turkcell and Ericsson is of both business and personal nature. They have official meetings during the day but as they are also personal friends they also meet in the evenings.
5.3 Distance Dimension
Social distance
Ericsson and Turkcell have had a close business relationship from the very beginning as mentioned earlier. Since these two companies shared the same office in the beginning of their relationship, this helped them get familiar with each other’s way of working. Their
relationship is characterised among other things by trust, adaptability, and openness. They have worked together for more than 10 years. This indicates that both of these two companies are well aware of each other’s way of working. Their close relationship has lead to a small social distance.
Cultural distance
Ericsson in Turkey and Turkcell have the same national culture. Even though Ericsson is a Swedish company, Ericsson in Turkey is an own independent company with a majority of the employees being of Turkish background. It can therefore be expected that the norms and values of Ericsson and Turkcell do not differ much and the business relationship between the two companies consequently has a low cultural distance.
Technological distance
Both Ericsson and Turkcell operate in the Telecom industry. Their products differs but in a complementary way. Their products are dependent on each other. They have a small
technological distance since they work together to come up with new services and products.
Time distance
The process of Turkcell making orders and all the stages to Ericsson’s final delivery is well coordinated. The time that elapses between order and delivery is therefore known to both actors and will not come as a surprise. Thus there is a relatively small time distance in the relationship.
Geographical distance
Ericsson and Turkcell have their headquarters in Istanbul-Turkey. This clearly shows that they have a small geographical distance, since both are located in the same city.
5.4 Uppsala Model
Entry Modes
The entry mode that Turkcell has used in their international expansion is direct investments.
In the earlier establishments the investments are shared with Fintur as joint ventures but the later ones are wholly owned by Turkcell.
Psychic Distance
Turkcell started their investments abroad in 1996 when they started operations in Azerbaijan and Georgia. A year later they continued their international movement to Kazakhstan. In 1998 Turkcell established themselves on the market in Moldova and Cyprus and in 2004 they reached the Ukraine. Turkcell is always looking for new investments and will go wherever there is money to be made. At the moment they are especially looking for investment opportunities in the Middle East and Greece.
6 Analysis
6.1. Activity links
In the relationship between Turkcell and Ericsson there are many departments and units who have contact with each other. In these there are large numbers of people from all levels with different roles and responsibilities who interact with each other. These contact patterns show a close relationship characterised by complexity. There are also many forms of cooperation between Turkcell and Ericsson such as together deciding on issues concerning investment and production. The innovation team is also an example of cooperation between the two
companies. Turkcell and Ericsson’s relationship is in fact a partnership and the level of cooperation is one of the factors explaining why it has been so successful. The team is also an example of how they have adapted to each. As Turkcell and Ericsson both operate in a highly intensive industry adaptation is important, Ericsson adapts their products and working
processes frequently in order to keep ahead of the highly competitive market. As Turkcell and Ericsson have adapted to each other they are both well aware of the work processes of the other company. This leads to a short time distance that will not have a big effect on the activities.
There are many activity links between Turkcell and Ericsson as can be seen from the many forms of cooperation between them that have been well integrated in their operations through adaptations. These activity links are complex and occur between many departments within both Turkcell and Ericsson.
6.2 Resource-ties
Turkcell and Ericsson operate in the Telecom industry where they complement each other with their products and services. This shows that the two companies know and understand each others operations and hence there is a small technological distance between the two companies. Since Turkcell and Ericsson operate in a dynamic and innovative industry, it is not enough to rely on formal contracts instead informal mechanisms are needed. Ericsson is aware of this and provides help and service whenever necessary since they are keen to preserve the relationship with Turkcell.
Even though Ericsson has more resources than Turkcell, there is an exchange of resources in both directions between the two companies. This leads to a dependency on the other company which creates a balance and symmetry in the relationship.
The informal mechanisms and the symmetry that characterised this relationship enable the vast exchange of technology, knowledge and know-how between Turkcell and Ericsson. This exchange of resources is not affected of external factors since there is a small technological distance.
6.3 Actor bonds
Turkcell and Ericsson have had a close relationship and cooperation since the beginning in 1994 which shows that the relationship has been constant and stable as Ericsson is still twelve years later the single source supplier of Turkcell. Based on the closeness and the age of the cooperation one can see that the relationship has continuity. Ericsson and Turkcell are both located in Istanbul Turkey with a very small geographical distance that makes it possible for the employees of both companies to meet frequently. The contact between Ericsson and Turkcell takes place both in and outside the office. There is much social interaction between the employees of the two companies as they often meet after business hours and are close personal friends. Social interaction is important for the development of and trust within a relationship and it is also one of reasons for their mutual success. As Turkcell and Ericsson have cooperated with each other for a long time they are both well aware of how the other company works and their many processes. The social distance between the employees at Turkcell and Ericsson is consequently quite small. Since most employees at both Turkcell and Ericsson are of Turkish background there is also not much cultural distance between them that can interfere with or make their cooperation more difficult.
The actor bonds between Turkcell and Ericsson are continuous seen to their long commitment to each other. There is also much social interaction between the employees who often meet socially. Further there is very little geographical, social or cultural distance to limit the development of the relationship.
6.4 Uppsala Internationalisation Process Model
Entry Modes
For a service firm such as Turkcell, entering by direct investment is to be expected, as services are difficult to export. This is because most services are produced and consumed at the same time. Also to at an early stage use joint ventures is very logical as a young firm seldom has a large enough capital to invest alone. Manufacturing firms can use the
establishment chain and establish operations abroad in steps as they learn more and gain more experience. For most service firms this is not possible as the entry modes with less
commitment such as export or sales offices are not available to them. To be successful in their international operations, service firms must therefore have high levels of knowledge before venturing abroad.
Psychic Distance
The countries that Turkcell has started operations in are all fairly close to Turkey. Georgia for example, where Turkcell established operations in 1996, is one of Turkey’s neighbouring countries. It is still rather early in Turkcell’s internationalisation process as they are a fairly young company. Therefore it is not strange that they have not expanded to more countries yet.
However so far Turkcell has followed the pattern for psychic distance as all the countries, in which Turkcell has established itself, are in the area of South Eastern Europe and the Middle East. Georgia is very close to Turkey whereas Moldova and the Ukraine are slightly further away and Turkey most likely has relatively short psychic distance to these countries. In the future it is quite likely that Turkcell will establish operations in countries to which there is a longer psychic distance.
7 Discussion and Conclusion
The three layers of substance; activity links, resource-ties and actor bonds are all present making a tight relationship between Turkcell and Ericsson. This will lead to an effective integration of the two companies as a dyad which has great possibilities of creating new unique resources such as knowledge, know-how and opportunities, etc. These new resources can be beneficial to both companies and used in their individual operations if the companies have the ability to exploit them effectively.
The aim of this thesis was to see if Turkcell had benefited from their
relationship to Ericsson with regard to their outward internationalisation. To see if this was the case we compared Turkcell’s outward internationalisation to the Uppsala Model. If we
look at the psychic distance from Turkey to the countries in which Turkcell has invested we can see that they have done as suggested in the model. Turkcell started by expanding to countries with little psychic distance and which are quite similar, and then established in countries slightly further away but still in the region. Turkcell is still quite a young company and have therefore not yet expanded to countries further away. However so far they have followed the Uppsala model with regard to psychic distance. This does not show any
indications of Turkcell having benefited much from the inward internationalisation and their cooperation with Ericsson, yet it does not rule it out either. The Uppsala model says that a direct investment means much commitment and requires a lot of knowledge. This is why it is the final step of the establishment chain, but for service firms it is the only way to invest abroad as export or sales through an agent is not possible. Hence the only option for Turkcell was direct investment, but in order to be successful they need much resources in the form of capital and knowledge. It would be expected that it would take some time before they were ready for this step. However Turkcell started their outward internationalisation only two years after the start-up of the company. As Turkcell has been very successful in their international operations it is likely that they gained their knowledge from other sources than simply their own experience.
From the start of Turkcell they have had a close relationship with Ericsson, a relationship that creates unique knowledge and innovations. It is quite clear that Turkcell has gained much knowledge, experience and know-how from their inward internationalisation in the form of close connections with Ericsson and this has likely helped them in their early outward internationalisation. If so it is an indirect relationship where there is a time gap
between the inward and outward internationalisation and the connection is much less clear than in a direct relationship. However there is also the possibility that Turkcell has gained the knowledge necessary for establishments abroad through other sources such as other
companies with whom they cooperate. Turkcell could also have acquired this knowledge by own internal activities. Yet since the relationship with Ericsson is so close and has been so from the start up of Turkcell it is most probable that this is where the knowledge is created.
The literature on inward-outward connections of internationalisation implies that if the inward internationalisation is successful then that will contribute to a profitable outward
internationalisation.
As a conclusion we therefore believe that the inward internationalisation from Ericsson has affected Turkcell’s outward internationalisation by providing and with them creating crucial knowledge.
8 Future Research
It would be interesting to conduct further research on the inward-outward connection of one company and taking its whole network of relationships into account. In this way one could map the whole inward internationalisation of a company and compare it to its outward movements and the connection might be clearer.
Further it would be of interest to broaden the view of our study and look at several companies and the inward-outward connection of their internationalisation processes. By making a more quantitative study the findings can be more used in a more general manner.
Additionally it would be of great interest to investigate if there is a difference in the inward- outward connection between different industries.
