Swedish firms achieving legitimacy on the Japanese market

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Swedish firms achieving legitimacy on the Japanese market

Bachelor Thesis

Authors: Leonard Zeilon & Emil Sjöstedt Supervisor: Selcen Öztürkcan

Examiner: Susanne Sandberg Term: VT19

Subject: International Business Level: Bachelor Thesis

Course code: 2FE51E

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Abstract

The purpose of this thesis was to investigate how Swedish firm operating on the Japanese market can achieve legitimacy in consideration to the cultural context. The thesis has an exploratory purpose where the methodology was based on a qualitative method with and inductive approach. The thesis conducted a multiple case study through semi-structured interviews. The theoretical framework provides the reader with relevant concepts regarding external and internal factors influencing legitimacy. A conceptual framework was developed in order to connect the theoretical concepts with each other. Through interviews with Swedish firms established on the Japanese market empirical data was collected. The analysis chapter thereafter discusses the similarities and differences between the theoretical concepts and the empirical data. The findings of the study reveal that there are many differences in conducting business in Japan compared to Sweden, and that Swedish firms have to adapt accordingly. The thesis concludes that there are several indications of activities that can be connected towards achieving legitimacy on the Japanese market. By understand the cultural differences and accustom the Swedish firms’

business practices to align with Japanese firms, relationships and networks can be strengthened and further result in achieving legitimacy on the Japanese market.

Keywords

International Business, Legitimacy, Culture, Internationalization, Networks

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Acknowledgements

We would like to take the opportunity to show gratitude to everyone who contributed in helping us to conduct this thesis. Firstly, we would like to thank all the interview participants; Jonas Weimer at Biogaia, Michael Eneberg at Sandvik, Carl-Gustav Eklund at Höganäs and Magnus Blondell at Mölnlycke. We are very grateful for taking your valuable time to have provided us with incredibly insightful knowledge concerning your company. Without this contribution we would not have been able to conduct the thesis.

Secondly, we would like to thank all our opponents in the process of the thesis who provided great constructive criticism in order for our thesis to improve.

Thirdly, we would like to thank our Supervisor, Selcen Öztürkcan, for providing very valuable feedback and giving us guidance throughout the whole process of writing this thesis. With your knowledge of the topic and your expertise on writing academic dissertations we received great advice in order to plan and execute our thesis. Fourthly, we would like to thank our examiner Susanne Sandberg who throughout the process of the thesis introduced us to many interesting concepts within international business that helped us in our thesis process. Furthermore, with your broad knowledge of international business and academics in general you have provided us with valuable inputs.

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1 Introduction

This chapter will present a thorough background on the area of research which this study will focus on. Globalization and its impact on the global market will be presented together with the important aspects of the Japanese – and Swedish Market. Furthermore, essential concepts such as the term Legitimacy will be explained. The background will act as a foundation for the problem discussion that will develop into the research question.

1.1 Background

1.1.1 Globalization

Globalization is a frequently used term in today's academics, the description of the phenomenon has many variations. However according to Knight (2000) globalization can be defined as a gradual process with growing interdependence between national economies through governmental trade policies. Contributing factors for the rise of globalization includes technological innovations, changes in migration patterns and elimination of protectionism policies (ibid). However, through an economic perspective the term can be defined as the trend of firms purchasing, procuring, developing and producing products in several international markets and regions (ibid). In order to facilitate innovation and increase the competitiveness of the firms (ibid). This phenomenon has caused an increased domestic competition for local firms due to the presence of international actors (Cavusgil & Knight, 2015). The globalization and its embedded effects are driving companies into international markets in order to sustain and generate profits (ibid). As the global market has become dependent on international competition, many companies are willing to expand their businesses abroad to gain a better competitive advantage in their businesses. Therefore, many companies adapt their organizations to fit the foreign markets where they intend to internationalize to. However, for a company to succeed in this internationalization process, the right preparations have to be made due to the many factors that affect the company in this change of environment and business practices (Hollensen, 2016). Oviatt & McDougall (1994) argues that globalization has resulted in homogenization of distant markets, which further facilitates the internationalization of firms to international markets. Even though this might be true, that many countries have been influenced by the Western modernization, it is currently evident that cultural differences between regions exists which has to be considered, analyzed and conquered by firms when planning to internationalize (Kenichi 2006).

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1.1.2 Legitimacy

Legitimacy is a common term in academic fields with widespread definitions. We have chosen to define it through several perspectives. However, an easy explanation is through Suchman’s definition “Legitimacy is a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions” (1995, p.574).

The globalization has caused more international interactions between firms, which has led to the importance of achieving legitimacy in foreign markets due to the different cultural environments.

1.1.3 The Japanese market

Japan is currently the world´s third largest economy with 126 million inhabitants living in a geographical area smaller than Sweden (World Bank, 2019). The country has a substantial number of inhabitants which constitutes an enormous consumer-base.

However, the Japanese culture can for some Europeans be considered as rare, exotic and distant. The cultural differences further affect the need to adapt to the local markets and the strategic approaches of foreign firms has to be carefully considered before entering the market.

Development and growth

Japan has through history been influenced by foreign forces, such as the Chinese political structure in early tenth century AD to the industrialized western´s modernization process during the 20th century (Kenichi, 2006). One of the main drivers for the country´s successful economic development has been the ability to implement foreign influences through translative adoptions, which implies that the country has had a strong capacity to maintain the ownership of its national and social identity during political changes and implementations of foreign systems (ibid). The Japanese government has been able to introduce influences of the Western industrialization system by implementing practices with modifications that fits the Japanese society and its local needs (ibid). This previous mentioned process is defined as translative adoption and is a main external stimulus for a country's change and economic growth (ibid). An emerging market who's trying to implement foreign systems are heavily exposed to foreign institutions and conventions, this composes a threat for the country's national identity and the risk of being controlled by these foreign forces increases (ibid). However, as mentioned previously, Japan has succeeded to maintain the national autonomy during its transformation process from an emerging- to a developed market which further has caused substantial cultural differences between them and the West (ibid).

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The unexpected booming period that Japan experienced in the 1950s and forward resulted in a consistent high GDP-growth for many decades. The market expanded into a global actor with high-technology advancement to secure their position on the international market. Thanks to the support from the US to rebuild the economic and social institutions of the country after WWII, Japan could through a combination of imitation, import and high-technology advancement produce a stable economy that still held the national identity (Tillväxtanalys, 2014). With an average GDP growth of 4-10 percent for decades, the Japanese prominence market finally stagnated with the so called “bubble-burst” in 1990-1991, causing the Japanese economy into recession. In the period of 1991-2001, Japan had an average GDP growth of 0,5%, considerably lower than what they had in previous decades. There were many factors for this, for example natural stagnation of the market process as the country had become more developed. Additionally, the age of the population grew, which resulted in a lower labor force. Another problem were the institutional changes which affected the working conditions (ibid). Up until 2001 Japan had institutional systems that were out of date. Economists argue for the failure of updating and adapting economic systems in Japan to a more modern state, arguing that it would have been better with a more market-based oriented system (Kenichi, 2016).

Despite all difficulties during their stagnation period, Japan went through many positive changes that has led them to keep being one of the strongest economies. In 2012, Prime Minister Shinzo Abe shown determination by implementing reforms and changing structures that has helped Japan towards recovering from the previous difficult economic periods (ibid).

Challenges and possibilities

Japan is Sweden’s second largest trading partner in Asia, which had caused interest for Swedish firms to establish themselves on the Japanese market. As the global market becomes more competitive with more foreign-influenced based products and brands, it is seen as an opportunity to expand to markets where potential opportunities lie (Koll, 2019;

Hofstede, 1980).

There are many challenges facing companies expanding their operations abroad, due to the existing differences in business practices and environments. This is especially true for western international companies internationalizing to Japan as the differences is considerable high (Hofstede, 1980). However, if those challenges can be overcome and one can internationalize successfully, there is a large market potential in the Japanese market that can be met. Identical to Sweden, Japan encourage entrepreneurship and innovation (Tillväxtanalys, 2014). According to statistics, Japanese companies which is younger than 10 years are considered to highly promote the importance of hiring

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employees with entrepreneurial spirits. As of recent years, many improvements have been made in order to benefit foreign direct and indirect investments which strengthens the Japanese economy (ibid). Additionally, further changes from Abe were made in order to support initiatives for companies to invest in other companies (ibid). Since there exists challenges such as, political, economic and cultural barriers for companies when trying to expand and establish themselves on international markets, many companies may fail in internationalizing their business to those markets. Therefore, it is important to gather enough information in advance and to adapt to the local market accordingly.

1.1.4 The Swedish market

Sweden is a high export-oriented country with focus on high-technology, manufacturing and pharmaceutical products. The country has a reputation for producing competitive small medium enterprises (SME:s) operating domestically as well as internationally (Elmia, 2019). Due to the great collaborations between academic institutions and the industry sector, Sweden is one of the leading countries promoting innovativeness, which attracts foreign attention (ibid). This have resulted in an increased interest for international opportunities for Swedish firms, as the demand for high-tech is attractive in the foreign markets. Another reason for Swedish firms to expand their businesses to international markets, is the small domestic market. It is common for companies where their home market is small and saturated to seek opportunities abroad to gain competitive advantage (Hollensen, 2016). In a small and saturated market companies may not be able to sustain sufficient economies of scale. By expanding abroad one can find the market where the demand for one’s product is considerably higher (Hollensen, 2016). According to a recent study regarding the perceived view that Swedish firms have of Japan, it presented a positive view of the marketing development in the country (Business Sweden, 2019). Additionally, the technology advancement of Sweden and Japan is considered to be in an identical phase and high developed. This has enabled companies in both Sweden and Japan to exchange products that fits well into the society of each country (Business Sweden, 2019).

1.1.5 Cultural context

Culture is something learned and acquired, rather than something you are born with (Leung & Morris, 2015). Culture is a broad concept, and therefore hard to fully comprehend. The focus of this study will therefore be limited to the Japanese national- and business culture and the effects these have on Swedish companies operating in Japan.

National culture is defined as the beliefs, values, norms and behavioral patterns of members of a national group (ibid).

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Japan has been considered to be one of the most homogeneous societies, which still influences how business is conducted. This is reflected towards the large hierarchy gap that occur in every sector in Japanese society, especially in firms. One is never considered to act above or below their status in any given situation, as it is seen disrespectful (Xu &

McBride, 2018). Further notion in the Japanese society is the predominance in collectivism in majority of aspects in the country (Hofstede, 1980). The importance lies on the success of the group rather than the development of individuals, this is a common view in Japan and is rooted deep in Japanese national beliefs (ibid). However, by the middle of the 20^thcentury Japan changed their approach by opening their borders to the global market. After the WWII, Japan desired to establish themselves as an impactful member of the international society, which recently has been seen in Prime Minister Abe’s structural reforms and his objective to double the international investments into the Japanese market (Xu & McBride, 2018; Lu, Menju, Williams, 2005).

The previously nationalistic ideologies which resulted in a cultural homogenous society has partially faded and what is present is a more culturally diverse society than before (Lu, et al., 2005). As a result of this, foreign companies with different cultures have an easier time internationalizing to Japan than previously due to more significant acceptance of the different cultures. However, many previous ideologies are still present in many aspects of the Japanese culture, which still poses challenges for companies trying to internationalize themselves to the Japanese market (ibid). Many Japanese firms work towards building strong ties by conducting international co-operations to further increase their position on the international market (ibid).

1.2 Problem discussion

There are currently 1.500 Swedish firms actively trading with Japanese companies, through exports and imports (Business Sweden, 2019). However, of these Swedish companies there are 150 firms that have managed to establish a physical presence on the Japanese market (ibid). This indicates that only ten percent of the 1.500 Swedish firms who´s actively trading with Japanese companies have established a physical presence on the Japanese market. To put this number in a perspective, 1.900 Swedish majority owned firms have established a physical presence on the German market through subsidiaries or joint ventures (ibid). The number of establishments in Japan is considerably lower than in Germany even though Japan currently possess a stronger economy (Investopedia, 2019), which further implies that vast opportunities and advantages can be found in the Japanese market for Swedish firms.

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However, the Japanese culture is significantly different in relation to the Swedish culture (Hofstede, 1980). The cultural differences may force companies to adapt to the Japanese market. The cultural differences between Japan and Sweden may cause frictions between Swedish- and Japanese firms business operations which may result in difficulties in the internationalizing process and establishments for Swedish companies. An important factor for companies establishing themselves on this particular market is to achieve legitimacy. This, as previously mentioned can be described as “A generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions” (Suchman 1995, p.574). This thesis will therefore examine how Swedish firms manage to become desirable, proper and appropriate in consideration to the Japanese culture. Furthermore, Knight (2011) argues that there are a lack of studies investigating how born globals achieves legitimacy on international markets. This research gap is also evident when exploring the concept of legitimacy in relation to cultural contexts for traditional businesses.

1.3 Purpose

The aim of this thesis is to provide an understanding of how, Swedish companies can achieve legitimacy on the Japanese market in relation to the cultural context.

This thesis will be conducting a multiple case-study research comprehending the expansion strategies of Swedish firm’s and their activities on the Japanese market in consideration to the cultural context. The findings should cultivate into a theoretical concept regarding how to achieve legitimacy on the Japanese market.

1.4 Research question

How do Swedish firms achieve and maintain legitimacy on the Japanese market in consideration to the cultural environment?

1.5 Delimitations

This thesis will not analyze B2C (Business to Consumer) segment. Primary and Secondary data of other Swedish companies than the selected cases will not be included in the research.

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1.6 Outline

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2 Literature review

In this chapter relevant theoretical concepts in relation to the subject of the thesis will be presented and explained.

2.1 Legitimacy

Legitimacy in business is a frequently used term, however, the concept of legitimacy has through time had numerous variations. Although, with a common denominator which is the audience's’ perception of a company. Suchman (1995) defines corporate legitimacy as “A generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions” (1995, p.574). The term can further be distinguished by two perspectives, the institutional view and the strategic view of legitimacy (Suchman, 1995).

2.1.1 Strategic & institutional view of legitimacy

The institutional view of legitimacy is illustrated as a set of constitutive beliefs and that organizations are influenced and constructed by an external force, the society (ibid).

Furthermore, the cultural context of the society determines the organizational structure and its management (ibid). In contrast to the institutional view of legitimacy, the strategic perspective describes legitimacy as an operational resource in the society which companies extract and comprehend in order to reach their objectives (ibid). This perspective implies that the management possess extensive control throughout the process of legitimation and that legitimacy is calculated and purposive (ibid). Legitimacy can further be divided into, internal legitimacy and external legitimacy. Internal legitimacy concerns the managerial strategies, values, beliefs and internal practices that originated from a company´s founding (Israel & Benson, 2013). While external legitimacy concerns external actors, such as media, independent institutions and company stakeholders (Israel

& Benson, 2013). The internal and external legitimacy are similar to the strategic and institutional view of legitimacy as Suchman (1995) described. Due to these similarities this thesis will merge external legitimacy into the institutional view and the internal legitimacy into the strategic view of legitimacy.

2.1.2 Pragmatic, moral & consequential legitimacy

Suchman (1995) further continues to distinguish the term into three categories, which is pragmatic legitimacy, moral legitimacy and consequential legitimacy. These three categories are in an interrelationship with each other although, they comprehend different aspects of legitimacy. The pragmatic category of legitimacy involves audiences such as consumers and institutions who are acting on behalf of their self-interest, this usually

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involves direct exchanges between the audiences and the organization (ibid). The audiences are further likely to become constituencies who audits the organization's activities and behavior and determines the practical consequences for these activities based on the benefits they have or have not gained (ibid). The moral legitimacy on the other hand does not rely on the self-interest from the audiences, instead this category of legitimacy includes moral judgements on whether an organization's actions and activities are rightful, just and if it promotes the social welfare of a society (ibid). These verdicts are usually based on the audience socially constructed environment and its value system (ibid). The consequential legitimacy is judgements based on an organization´s achievements. This category of legitimacy concerns the organizational performance, such as effectiveness and continuous quality in relation to the cost of the produced product or service (ibid).

2.2 Entry modes

2.2.1 Low control entry modes

When expanding to a market, the degree of control that a firm has over its products and operations is dependent on the entry mode one choses. Exporting is one choice of entry mode a firm can conduct, which is when products are produced either in the domestic-, or third country and later sold to a buyer in the foreign market (Hollensen, 2016; Driscoll

& Paliwoda, 1997). When exporting to the foreign market, firms can do it through direct export, where the products are directly exported to the importer in a foreign market (Muraközy & Békés1, 2018; Hollensen, 2016) or by exporting them indirectly. By indirect export the firm goes through an intermediary middleman in the home country that handles the export to the foreign market. By doing this, the producing firm does not require a distribution network themselves, as they utilize their distributors’ network (Bernard, Grazzi & Tomassi, 2011). Exporting are considered as a low control mode entry mode. Through indirect and direct export, the products are marketed and sold in the foreign market by the agents or distributors, which gives the exporting firm less control of their products. There exists a low risk for the exporting firm when conducting the export entry mode. This is due to the limited commitment in terms of resources the firm has to invest in their internationalization to the foreign market. The lack of commitment further results in high flexibility for the firm, as it is not costly or difficult to transition to additional way of operation or withdraw completely from the market (Hollensen, 2016;

Bernard, et al., 2011)

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2.2.2 High control entry modes

Opposite of export activities, where the control of activities for the firm is limited, there are entry modes where the firm has full control of the operations in the foreign market (Hollensen, 2016). Companies can transfer some or all their activities to the foreign market. This type is known by establishing a subsidiary and is a common way of internationalization by companies that undergo more commitment in the market. One example is by implementing a sales and production subsidiary, where production and sales are done in the foreign market, while R&D and marketing is done from the home market (ibid). Subsidiary as a foreign entry mode is most common for manufacturing firms, where the level of commitment for the specific market results in opening up physical presence in the foreign country, mostly in production and sales facilities.

However, with high commitment comes great risk. If a company has had no previous experience with the market there can exist an uncertainty with an immense commitment, like opening up a production facility (Cavusgil and Nevin 1981). Johanson and Vahlne (1977) argues for the correlation between previous market experience in the specific foreign country and successful establishment of subsidiaries. If a firm lack the market experience in a specific country, there is a higher uncertainty and therefore risk of failure in having a prosperous expansion (ibid). Additional way of entering the market with high amount of control of one’s management and activities is by establishing a wholly owned subsidiary, either by acquisition or from the ground up. If a market has tough entry barriers to distribution and network channels, acquiring an already existing company on the market can help the firm to gain access to these. Addition to this, by acquiring a company you already have a customer base. If acquisition is too costly or if there are no appropriate companies that fit the firm, one can create a wholly owned subsidiary through a foreign direct investment (FDI) from scratch, called a greenfield investment (Hollensen, 2016).

Another high control entry mode is by having a domestic based sales representative, who travels to the foreign market to market and sell the firms products (ibid). In cultures where establishing a long-term relationship is crucial for doing business, this way of selling your product is an effective but costly expense in the initiating process between two companies (Probert & Lasserre, 1988). It gives the firm close contact with the seller as personal meetings is done. By traveling to foreign markets and introducing the product oneself, the firm also has more control than if it were to be conducted by an independent intermediary, which could misrepresent the company the product is from (Hollensen, 2016).

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2.2.3 Intermediate entry modes

To gain market share in a foreign country firms sometimes feel they do not have the market knowledge or expertise to make a hard commitment to the market. By creating partnerships in the foreign market with local partners whom understand the market one can share skills and knowledge to produce sales (Hollensen, 2016). Firms can utilize their different competitive advantages through complementing each other’s’ business activities through a joint venture, where two or more parties create a partnership. The ownership of the partnership is divided; therefore, the control of the management and activities is run from both parties (Zeng & Hennart, 2005). If a company is creating a joint venture with a party that is originally located in the country the joint venture is had, the local partner’s network and market knowledge can be utilized to enter that market (Hollensen, 2016).

2.3 Internationalization theories

2.3.1 Early internationalization of firms

The phenomenon of globalization gave birth to another, which was the academic field of international entrepreneurship and the concept of born global firms (BG:s)(Cavusgil &

Knight, 2015). The homogenization of markets has caused an increasing amount of international business operations and a clearer understanding of the international business environment (Oviatt & McDougall, 1994). The process has furthermore exposed more entrepreneurs and CEO’s of international business activities and furthermore created more international financing opportunities (ibid). The globalization has been a driving factor in the field of academics regarding to international entrepreneurship. The term, international new ventures (INV) were initially stated by McDougall & Oviatt (1994), who defined INV:s as organizations that from their founding strives to acquire a substantial competitive advantage from the allocation and use of resources and output of sales in multiple international markets (ibid). International entrepreneurship has as various academic fields been remodeled over time and defined with different characteristics, covering aspects of entrepreneurship across borders and the concept of opportunity discoveries (Coviello, McDougall & Oviatt, 2011). However, a well written definition of international entrepreneurship were developed by McDougall & Oviatt ( 2000) where they described International entrepreneurship as a “combination of innovative, proactive, and risk- seeking behavior that crosses national borders and is intended to create value in organizations” (McDougall & Oviatt, 2000, p 903). Born global firms which at times are referred to as INV:s, are defined by Knight & Cavusgil (2004) as organizations that near or from their inception strives to achieve superior performance in international business the allocation of knowledge-based resources

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towards the sale of outputs in multiple nations (Knight & Cavusgil, 2004). BG:s distinguish themselves from traditional businesses by the firms international origin and their management's’ commitment of resources to international business activities, while traditional businesses usually follows a gradual internationalization pattern where they evolve from the domestic market into international markets over time (ibid). According to Knight (2015) Born global firms are said to be a subdivision of SME:s rather than multinational corporations (MNC:s). BG:s are further characterized by limited financial- and tangible resources, a quick responsiveness to market changes and a high degree of innovativeness (Knight 2015). They are experts on refining the existing knowledge produced within the company and access resources through their vast cross-border network or the international social capital which they have built (ibid). In foreign trade, these companies are usually avoiding fixed investments when entering international markets and are instead frequently relying on external coordinators such as independent foreign distributors (ibid). Born global firms has become a common phenomenon on a global scale and Sweden is no exception from this. Sweden has become known for producing unicorns (Frier, 2019), which is defined as a tech-startup that reaches a market value of one billion US dollars (Investopedia, 2019). Over the last decade, born global firms such as Spoitfy, King and Mojang has all derived from Sweden. These are billion- dollar tech- companies, who rapidly gained international experience. The entrepreneurial landscape in Sweden is strong and has set the foundation for more BG:s to arise.

2.3.2 Uppsala model

Johanson & Vahlne (1977) explains the internationalization process for firms being gradual, with incremental steps until full commitment to the foreign market. After examining several Swedish firms, they identified that it is common for firms to have a gradual internationalization process rather than entering the market with large commitments. It was shown that firms tend to firstly build up on the domestic market, then export their products through intermediaries or agents to the foreign market. In later stages, firms would set up a sales subsidiary and finally establish local production on the foreign market (Johanson & Vahlne, 1977). Johanson & Vahlne argue for the need of market- knowledge and experience for successful internationalization. When firms lack either of these, the rate of successful internationalization is lower than if they would possess these aspects. The internationalization model by Johanson & Vahlne (1977) explains how market knowledge and market commitment affects further commitment decisions and the current activities. This is also reversed, where current activities and commitment decisions affect the other. Knowledge of the market is paramount for a firm to internationalize, as it is required to know about the market to recognize problems and opportunities that may occur if further committing to the market. Deciding to internationalize or further expand one’s internationalization is dependent on the

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knowledge of the market, as it affects how well a firm can use one’s resources to successfully internationalize. The market commitment is reflected upon how much resources are used in the firm for any activity in or any development or production for the specific foreign market. It can be through e.g. investments, personnel and marketing (ibid).

The commitment decisions are affected by one’s knowledge of the market and the current commitment in that market. If an opportunity is discovered, which can be seen as a market knowledge, it can result in a further decision to enter/expand into that market. Current business activities are a type of knowledge and experience that the company have gained through the years. Johanson & Vahlne (1977) argues that acquiring market knowledge in a foreign country is best suited through one’s own current business activities, by small incremental steps.

2.3.3 Networks in International Business

The 1977 Uppsala model explains the internationalization process of firms being in small incremental steps, done to decrease the uncertainty in the perceived psychic distance between the company and the host market (Johanson & Vahlne, 1977). Since the model was introduced, there have been several changes in the business practices of firms and the environment around them (Johanson & Vahlne, 2009). Company behavior have changed as the globalization has introduced many firms to take their operations abroad to further expand their businesses (Knight, 2000).

Johanson & Vahlne (2009) explains that a market is based upon a network of relationships and that these are linked between each other in complex way. For successful internationalization, one must therefore gain insidership in the market through establishing relationships. Trust and commitment building play an important role in creating or improving a relationship with players on a market. Trust can develop into market commitment as the other party may commit or help run parts of the business in their stead. This goes the other way around as well, as the outcome of commitment from one part can turn into trust (Johanson & Vahlne, 2009).

Outsidership relates to a firm not being able to position themselves on the market due to being excluded from the network that is required to facilitate within to succeed on the market (Johanson & Vahlne, 2009). This can be explained as the firm lacks the relevant network position to gain access to the market.

Axelsson and Johanson (1992) argues for when entering a foreign market, a firm should allocate their resources towards a position-building process. This is done through identifying the different actors on the market and how they are connected in the network within the market.

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2.4 Culture theories

2.4.1 Hofstede’s cultural dimensions

Psychologist Geert Hofstedes underwent a large research study regarding understanding nations’ cultural differences between various countries. The study was conducted in 50 countries through surveys of more than 100 000 employee’s at IMB, a global IT company.

Hofstede later identified four dimensions of cultural differences that was presented as an index covering all studied countries (Hofstede, 1980).

2.4.1.1 Power distance

The first dimension Power Distance relates to the acceptance of the unequal power distribution by less influencal and powerful members of an organization. This means to what extend authority and inequality is tolerated by the individuals in the society. In high power distance societies, there would be indications that there is a high acceptance or encouraging bureaucracy and a high respect for authority and rank. A low power distance society would suggest the culture to rather encourage a flatter organizational structure, where decision-making and personal responsibilities should be more evenly delegated in the organization or institution. A country with a low power distance therefore has a lower acceptance of the misallocation of power in the organization. (Hofstede, 1980).

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Figure 1, Hofstede’s cultural dimensions (2019)

2.4.1.2 Individualism Vs Collectivism

The second dimension that Hofstede discovered is how individualistic or collectivistic a nation is. In a collectivistic society people tend to favor the interests for the group rather than one’s individual interests. High index refers to favoring the individual with respect of for privacy, individual challenges, personal development and value individuals’ time.

Rather than acknowledging individual accomplishment one would complement the success of the group as a whole, even if there were over-achievements from specific individuals that lead to the success of the group. Japan is a country very focused on collectivism, both seen in the results of this dimension as well as in other research.

(Hofstede, 1980)

2.4.1.3 Masculinity vs Femininity

The third dimension of the Hofstede’s model refers to what is valued in a society. It refers to masculine or feminine traits that a society leans towards. A culture with dominant traits of masculinity is to prioritize work before family, to strive for strength and success and the importance of materialism. Feminine characteristics is considered to focus of balance between family- and work-life, to discuss emotions, to care for the weak and that the distributions of leading roles should be equal. In countries where there is a high tendency of masculine culture it is common to have different values between woman and men.

Taking this dimension into consideration is of importance if one encounter a culture

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where their values are completely different than what you are used to (Hofstede, 1980).

Japan and Sweden have complete opposite values, where Japan is considered to be a very masculine culture whereas Sweden is a very feminine one.

2.4.1.4 Uncertainty avoidance

The fourth dimension looks at the degree to a society’s toleration towards uncertainty. It looks at the extent to which the members of a nation’s society feel threatened by unknown and ambiguous situations. Most countries are in between an uncertainty avoidance and an uncertainty acceptance society. It is common in Uncertainty avoidance societies that the population feel stress and anxiety, while in a more accepting culture it is less so.

Uncertainty in a society is reduced by laws, regulations and planning, to which extent is different in many societies. (Hofstede, 1980)

2.4.1.5 Critics to Hofstede’s cultural dimensions

Although Hofstede’s is a thoroughly used framework to understand culture differences of many countries, there are many critics to the model and its’ study for this research. The framework was firstly introduced in the 1980s, where globalization was not as present as it is today. The effects of globalization are therefore not taken into consideration in this framework, as it has affected Japan by how they have opened their market to the global world. Furthermore, the model was only conducted in one company and the industry they were operating in, IT (Magala, 2004). This can result in not entirely correct representation in other industries and companies as there can be differences depending on the industry and company’s business culture. However, no study on cultural differences on such immense scale has been done ever since, which makes Hofstede’s cultural dimensions applicable on cultural research between countries.

2.4.2 Lewis cultural model

Richard D. Lewis (2006) presented through a study of cultural differences similar and common behavioral traits within specific countries. He came up with three categories with common behavioral traits that fit with certain countries. This cultural categorization was divided into respected-orientated, introverted (reactive), people-orientated (multi- active), or task-orientated (linear-active).

2.4.2.1 Reactive, Multi-active & Linear active

Characteristics of a reactive person is introvert, prioritize work and usually accept working flexible times. Additional traits are patience, respectful to those around oneself, listens to others and prefers to avoid discussion and misunderstandings (Lewis, 2006). A multi-active person usually does not work according to planning and scheduling, but rather take everything as it comes, by solving issues when they arrive. They usually have

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a personality trait of being very extrovert, likes to talk a lot and prioritize family over work. Additionally, they prefer to work on many things at the same time rather than focus on one task at a time. (Lewis, 2006). A typical linear-active person also has hints of introvert, focuses on strict schedules and likes to follow things according to plan. They usually are calm and patience and put most of their focus in one thing at a time (Lewis, 2006). Swiss and German people are prime examples of a typical linear-active approach by being very task-oriented.

2.4.2.2 Sweden and Japan with the Lewis model

As members of different nations has their own values and priorities, it can result in confusion and misunderstandings. Lewis argue for the importance of categorizing these behavioral traits as it can help to avoid giving offense by predicting what is typical to a culture’s behavior (Lewis, 2006). Japanese people connect strongly to the reactive group.

A common trait of the Japanese is their respect towards other people, additionally, they seldom initiate discussion or give negative feedback in public towards other colleagues.

A specific trait that is seen particularly with the Japanese is the long period of silence after someone have presented or informed something. By giving the message some period of thought before commenting on it shows the weight and importance, therefore giving a respectful impression (ibid). Sweden is one of the linear-active countries that show tendencies of behavioral patterns in the reactive sphere. Much like the Japanese, Swedish tend to avoid confrontation and wish to create unanimity. All presented countries in the Lewis model are not only categorized into a certain aspect only, but rather that some show more behavioral traits close to one of the categories than others. Countries like Canada and Belgium is in between two different categories as they show different behavioral aspects from two separate categories (ibid).

2.5 Conceptual framework

The literature review presents several theories regarding internationalization processes, culture, entry modes and foremost the concept of legitimacy. The description of legitimacy and its aspects includes various factors, which is influenced by both external and internal forces. When analyzing the presented theories, it is evident that internationalization theories strongly correlates with both entry mode theories and cultural literature. The internationalization process affects the choice of entry modes and the cultural context of a market influences the decision to internationalize. All of these theoretical concepts presented, are in a continuous interplay where a decision in one of the fields impacts another. Legitimacy is affected by all of the previous mentioned theories, since it further can be influenced by the choice of entry mode, the internationalization process and social constructed values.

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Figure 2. Conceptual Framework

3 Methodology

This chapter presents the choice for the methodologies used in the thesis.

3.1 Research approach

There are different approaches to use when conducting studies, the most common ones are an inductive or a deductive approach. An inductive approach tends to let empirical data lead to the development of concepts while a deductive approach typically begins with theoretical framework deciding which relevant data that has to be collected (Yin, 2011). The two approaches differ in the way they are shifting from data to concepts. The deductive approach usually forms a hypothesis through theoretical frameworks which

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later decide which data has to be collected and further analyzed in order to confirm or reject the hypothesis (Bryman & Bell, 2017). A third option is the approach, which shifts from data to concepts back and forth. This approach is commonly used in qualitative studies that has been conducted under several months or even years, due to its allowance for scientists to shift from an inductive to a deductive approach and test the developed theoretical concepts. However, most of the qualitative studies are conducted through an inductive approach (Yin, 2011) where the collected empirical data develops into theoretical concepts. In comparison, most quantitative studies are performed through a deductive approach (Bryman & Bell, 2017). However, this does not automatically imply that an inductive approach is preferable when conducting a qualitative research even if it is the most common approach (Yin, 2011). By choosing a deductive approach the authors limit themselves to existing theories (ibid) which further might cause the study to omit relevant information extracted from the field.

By applying an inductive approach in this study, the authors of this thesis enable themselves to give the readers an extensive understanding about the Swedish firms’

operations in relation to the term legitimacy in the Japanese market. By analyzing the findings of the collected data and compare it to the presented theoretical frameworks, this thesis enables to provide the reader with new insights of the subject. This research is not based on a deductive approach due to the fact that this thesis does not initiate the study with a hypothesis that has originated from existing theories where the aim would be to confirm or reject the hypothesis. Instead this thesis starts by exploring our chosen topic through the collection empirical data with the aim to analyze the findings in relation to carefully selected relevant theories, with the aim to generate new theoretical concepts concerning the subject.

3.2 Research method

Teorell and Svensson (2007) argues that the distinction between qualitative and quantitative research method has become overcrowded by definitions which has caused more confusion than understanding. Instead the authors argue that the most important aspect of the methodology section is not to label a study as qualitative or quantitative, instead the importance lies in describing every step of the research process (ibid).

However, to provide the reader with a clear picture of the methodology of this thesis, a description of this thesis research method will be presented.

There are two main research methods, qualitative and quantitative. In addition to the main two research methods another one has developed, the mixed methods (Creswell, 2013).

Even though there are differences between the qualitative and the quantitative methods,

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they should not be perceived as distinct opposites (ibid). Instead the two methods should be considered as the opposite ends in a continuous process, where a study is either more influenced by a quantitative approach than qualitative or the opposite (ibid). The mixed method lies in between the two main research methods in the continuous process and combines aspects from both qualitative and quantitative approaches (ibid).

The quantitative method is typically associated with a deductive research approach where focus lies on testing a hypothesis based on existing theoretical concepts towards several cases (Bryman & Bell, 2017). A quantitative research method is commonly used in studies in order to allow the researcher to collect statistics or information that can be quantified to serve the purpose of the study (ibid). This method generally incorporates statistical measurements which the examined variables can be analyzed through (Creswell, 2013). In contrast to a quantitative research method, the qualitative method is typically associated with an inductive research approach where the objective of the thesis is to examine a phenomenon that occurs within a social context with the aim to achieve a deeper understanding regarding the subject (ibid). This research method allows the authors to make interpretations from the collected empirical data and emphases the importance of meanings from groups or individuals that are collected through the empirical sources (ibid). The qualitative method is typically connected with the philosophical world view constructivism which is a perspective in the epistemology. In this perspective, the aim of a study is to interpret individuals’ subjective meanings through open-minded questions and thereafter generate theories by recognizing patterns of meaning (ibid). The mixed research approach comprehends aspects from both the qualitative and quantitative methods, which has caused an assumption that this method causes a more accurate insight of a study’s subject in comparison to only one of the previous mentioned approaches alone (ibid) Since the thesis comprehend extensive focus on the cultural context of Japan, which is a complex subject that is hard to quantify, the quantitative research method has been rejected. The focus of this method is not on quantifiable variables and the testing of existing theories (ibid). The mixed method incorporates as mentioned before practices from both qualitative and quantitative approaches. However, since this study is profoundly dependent on individuals’

perceptions and meanings on a subject that occurs within a social context, the mixed method is not to prefer in this dissertation. Instead, in order to analyze the problem of this thesis the qualitative method has been applied. This method allows the authors to interpret the meaning from the collected empirical data and further generate a theoretical concept based on this data in relation to existing theories.

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3.3 Research design

A research design can be described as a blueprint that specifies which procedures that should be used within the research method (Creswell, 2013). Research designs are described as “logical blueprints” that aims to connect the study’s research question and different methods such as data collection in order to improve the validity of the study and further confirm that the evidence relate to the proposed research question (Yin, 2011).

When formulating the research design, it is imperative to consider the purpose of the study, the research question and the research method (Saunders, Lewis & Thornhill, 2009). The research purpose in terms of the methodology can be defined as in which way the research question is formulated and how it can be answered (ibid). There are typically three research purposes that can be applied to a study’s research questions, these are explanatory, descriptive and exploratory (ibid). A study’s research question can be both descriptive and explanatory, just as it can contain a mixed research method. Explanatory studies tend to seek correlation between variables where the objective is to study a problem and thereafter rationalize the relationship between different variables, typically quantitative data and qualitative data in order to answer the research question (ibid). A descriptive study is characterized by accurately profiling the subject of the study (ibid), one can imply that the descriptive study aims to accurately describe a phenomenon. The last research purpose is the exploratory study and this design is suitable when the researcher is studying a subject or phenomenon where the aim is to clarify the underlying nature of the problem (ibid). The exploratory study aims to bring new insights and create new assessments of a selected event or phenomenon, it is furthermore associated with interviews as the function for primary data collection and existing literature for the collection of secondary data (ibid). This thesis is not based on a descriptive study since the aim is not only to describe the findings and phenomenon accurately. It is furthermore not constructed as an explanatory study since this thesis do no seek correlation between variables such as quantitative statistics in relation to qualitative subjects such as behaviors. This study is instead an explorative study due to the formulation of the research question and the purpose of the study. The objective of the research question is to gather new insights on the subject and gain a deeper understanding around how Swedish firms achieve legitimacy on the Japanese market. Therefore an explorative study is suitable.

3.4 Case study design

There are several research designs connected to each of the previously described research purposes. The quantitative method is commonly associated with experimental designs which pursues to seek correlation between specific treatments to one unit and withhold this treatment to another unit and then observe the consequences of this experiment

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(Creswell, 2013). Another research design, which can be categorized as a nonexperimental, is the survey research design. This design includes a sample of a selected group of a population which further provides a numeric description of features that further might can be generalized and applied to the whole population (ibid). However, this thesis has as mentioned before a qualitative research method which according to Creswell (2013) typically incorporates research designs such as narrative research, phenomenological research, ethnographies and case studies. A narrative research design is characterized by personal interviews with individuals where the researcher presents the stories in a chronological order and further combine these stories with views from persons in the researcher’s life which creates a collaborative narrative (ibid). The phenomenological research design was introduced from the fields of psychology and philosophy, where the researcher usually conducts interviews and describes participants’

experiences of a particular phenomenon (ibid). This research design is suitable when performing a study on a phenomenon not limited to a location and period. The ethnography is a design where the data collection is performed through extensive empirical observations of a cultural group’s linguistics, actions and behavior (ibid). The ethnographical design has not been selected due to the requirements of long-term empirical observations. Case studies is a design where the researcher performs a comprehensive analysis of a process or an event, the case is usually constrained to a particular period and location (ibid). This design is common in various research fields and the researcher collects data through multiple sources, such as interviews and existing reports. The case study design is associated with a qualitative approach and it is suitable when analyzing a specific case, such as a specific phenomenon related to a particular location or organization (Yin, 2011). Within the case study design, researchers can choose to apply a single case study or a multiple case study design (Saunders, et al., 2009). The single case study design is suitable when investigating a particular critical problem within an organization (ibid). In contrast to the single case study, the multiple case study design incorporates several cases which later can be compared and analyzed in relation to each other (ibid). Yin (2011) argues that a multiple case study is to prefer when selecting between that and the single case study, since it allows the researcher to validate the findings and analyze it deeper. In this thesis the multiple case study design has been selected as the logical blueprint since the problem area of the study concern a phenomenon which is occurring for several Swedish companies on the Japanese market.

Furthermore, by applying a multiple case study design, the authors of this thesis are able to collect relevant data from multiple sources which enable the authors to analyze the findings in relation to the different cases and create an in-depth understanding of the subject.

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3.5 Data collection

Data and the collection of it, is essential for a study. The data collection can be described as a set of interconnected activities which the researcher uses in order to gather relevant information that fits the purpose of the study (Creswell, 2013). The researcher develops a sort of protocol for data collection and in qualitative studies, it is important to implement a purposive selection in the data collection activities (ibid). In qualitative studies the most common data collection descends from field-based activities, such as interviews, observations and interpretations of feelings (Yin, 2011).

3.5.1 Primary- and Secondary data

Primary data is characterized by its origin, the data is collected directly from the source while secondary data is reused from an external party (Joop & Hennie, 2005). Secondary data can be described as data that is accessible through systematic archives where they have been interpreted by external parties, while primary data generally is collected through direct contact (ibid). The process of secondary data collection is generally a lot faster than the process of collecting primary data, which is an argument for its usage and its value (ibid). However, by collecting and using primary data in comparison to secondary data, the researcher acquires a vast advantage since it enable one to modify parts of the study, such as the research design and the operationalization of theoretical concepts to suit the purpose of the study (ibid). The main disadvantage with the collection of primary data is that it can be inefficient, if one can find relevant data available it might be wise to reuse it to achieve advantages (ibid). A study can also combine the two types of data which often is called triangulation, this refers to when a researcher uses multiple sources of data in order to assure the validity of the study (ibid). Triangulation is often associated with the mixed research method (ibid). The different data collection techniques vary between the selection of research method, where quantitative research methods commonly use secondary data and qualitative research method frequently is associated with primary data collection (ibid). Since this study is based on a qualitative method with focus on a social phenomenon which is hard to quantify, the researchers have been conducting a minor purposive sampling while collecting a large amount of primary data through semi-structured interviews (ibid). The primary data collection fits this thesis well in regard to the qualitative character of the study and since there is a lack of data regarding the thesis problem area. The secondary data is collected through relevant theoretical concepts which applies well and contributes to insights of this thesis subject. In order to triangulate the authors of this thesis have incorporated secondary data from previous literature. Additionally, the empirical data regarding entry modes of two of the selected cases is considered as secondary data since the company had their internationalization before the participants were employed. However, to validate this data, the authors of this

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thesis have strengthened the credibility of the information by comparing it to data provided by the official companies.

3.5.2 Operationalization

In the process of creating an interview guide, it is important to have reviewed previous theoretical frameworks in order to gain an understanding of what have and have not been researched upon (Jacob & Furgerson, 2012). Furthermore, there has to be connections between the theoretical concepts and the interview questions. This is done by an interview guide that will provide both the authors and the reader sufficient information of what is expected to be asked about in the interview. The secondary data of the company with primary data of personal experience of the participants will give the study a basis of information to connect previous theoretical research in the analysis in later stage of the thesis.

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Table 1. Operationalizaion summary

3.5.3 Method of Data Analysis

The data collected in qualitative research is frequently collected through interviews or participation observations which results in dense and unstructured data (Miles &

Huberman, 1994). The data processing usually results in literal transcripts from verbal interactions. The information usually originates from individuals’ experiences, observations or interactions which forces the researcher to inherit structure and consistency in the data management (Gilham, 2008). The foundation of a qualitative

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research lies on gaining an in-depth understanding of a specific topic, through interpretation and exploration of the collected data (Miles & Huberman, 1994). The analysis method has to facilitate these just mentioned qualities. Two important analytical stages are the familiarization stage and the mapping and interpretation stage (ibid). The former means that the researcher has analyzed all of the collected the data, absorbed it and further, established key concepts and recurring themes (ibid). The latter includes the initiation of a systematic process of recognition and definition of key concepts (ibid). This process is influenced by a pattern-seeking behavior of the data in relation to the findings from the familiarization stage (ibid). This is not a mechanical procedure and researchers approach this stage in different ways. However, the mapping and interpretation stage is characterized by the researchers’ work with defining concepts and finding associations (ibid). In this thesis the researchers have been working vigorously with reading each other’s transcripts from the interviews and discussed these between them. The authors have further listed the most distinguished key concepts that have occurred by the data. In the interpretation stage, the researchers of this thesis have thoroughly analyzed the data in relation the first key concepts that were discovered and thereafter have been able to make associations.

To be able to make connections between the empirical findings and previous literature, there has to be a process of managing the collected data. The first step is by transcribing the collected material, which is to convert the material to written format (Gillham, 2008).

Miles and Huberman (1994) describe the data reduction, which refers to the process of selecting, transforming and simplifying written data in a research. This is done to simplify the process of drawing connections between the conceptual framework, the cases and the empirical data that has been collected. The data reduction refers to the full process of selection and summarization of empirical data until the final report is done (ibid).

3.5.4 Semi-structured interviews

There are numerous options to collect primary data in a research, one can for example gather it through participants observations or through interviews (Joop & Hennie, 2005).

However, since the subject of this thesis concern the Japanese culture in relation to Swedish companies established in Japan, the limited time and resources of the authors resulted in the rejection of the participants observation method. This resulted in the usage of interviews as the primary data collection method of this study. Interviews are considered as one of the most flexible methods for data collection which has allowed the authors of this thesis to adjust the guidelines throughout the study. When the authors decided to use interviews as the main tool for data collection, one can further choose between various options of how the interviews should be designed and performed.

Interviews can be structured, unstructured or semi-structured. Structured interviews

Swedish firms achieving legitimacy on the Japanese market