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FOREIGN DIRECT
INVESTMENT IN SAUDI ARABIA, A CASE STUDY OF TWO SWEDISH FIRMS
Emmanuel N. Chah
International Sales and Marketing Programme
Sarah Philipson Pejvak Oghazi
Business Administration Bachelor thesis,Spring 2012
1 ABSTRACT
Author: Emmanuel Chah Examiner: Pejvak Oghazi Tutor: Sarah Philipson
Title: FOREIGN DIRECT INVESTMENT IN SAUDI ARABIA; A CASE STUDY OF TWO SWEDISH FIRMS
Keywords: Foreign Direct Investment, Saudi Arabia, FDI determinants, Sweden, Atlas Copco, Tetra Pak
Background: In today’s business climate, a growing number of corporations have chosen to explore markets outside their national boundaries. There has been a shift in marketing strategies from a domestic perspective to a global one. Of all the methods available for firms to internationalize, Foreign Direct Investment possesses several advantages; it stimulates employment; raises wages, and replaces declining market sectors. It acts as a stimulant for infrastructure development and technology transfer. For Sweden Saudi Arabia is the most important export market in the Middle East. As Saudi Arabia is a country that presents both huge business opportunities and challenges for Swedish firms, it is important to study how some firms have succeeded in entering this market and what attracted them there in the first place.
Purpose: The author’s intent is to identify the advantages and disadvantages for Swedish firms of carrying out FDI in Saudi Arabia.
Method: this thesis is based on a case study of two Swedish firms with operations in Saudi Arabia. The author has chosen to use a qualitative research method. Empirical data was gathered by e-mails and phone interviews.
Conclusions: To author answers the research questions; Why did Swedish firms decide to establish themselves in Saudi Arabia? & How did they manage to establish themselves through FDI in that region? Swedish firms get into the Saudi market because of advantages related the economy, the considerable market size and revenue, improved business climate, business opportunities, their global marketing strategy and their ownership specific advantages. As for how they succeeded to establish their FDI, it was through an incremental approach aided by a good knowledge of the market, the ability of the firm, proactive steps to reduce the impact of cultural differences and the country of origin effect.
Suggestions for future research: Future research could focus on doing broader studies involving a larger sample, focusing on one or a few FDI determinants to investigate how they affect the investment decision as well as the managerial implications of cultural distance.
2 Table of Contents
1 Introduction...4
1.1 Background...4
1.2 Problem discussion...5
1.3 Purpose...7
2 Literature Review...7
2.1 Business Strategy...7
2.2 Global Marketing Strategy...8
2.3 Foreign Entry Strategy...9
2.4 The FDI Theories...11-16 2.5 The Eclectic Paradigm in Detail...16-19 2.6 The Country of Origin theory...20
3 Research Question...21
4 Methodology...22
4.1 Research Approach...22
4.2 Research Design...24
4.3 Data Collection...25
4.4 Research Strategy...26
4.5 Data Collection Method...27
4.6 Data Collection Instrument...28
4.7 Population and Sampling...33
4.8 Data Analysis Method...33
4.9 Quality Criteria...34
5 Empirical Data...36
5.1 Background Information on Saudi Arabia...36
5.2 The Swedish trade Council...38
5.3 Atlas Copco...40
5.4 Tetra Pak...42
6 Analysis...46
3
6.1 Global Marketing Strategy...46
6.2 The Uppsala School...47
6.3 The Eclectic Paradigm...48
6.4 Country of Origin...51
7 Conclusion and Discussion...52
7.1 Conclusion...52
7.2 Discussion...53
8 List of References...55-61
4
1. INTRODUCTION 1.1 Background
The phenomenon of internationalization is very broad and can be attributed to the increasing rate of globalisation, as well as growing interdependence among countries (Hollensen, 2007).
In today’s business climate, a growing number of corporations have chosen to explore markets outside their national boundaries. Albaum et al. (2005) identify the different motives that push firms to internationalize. They differentiate these motives as originating from the firm’s internal or from its external environment. Internal motives include, marketing advantages, excess resources, risk diversification and economies of scale. External motives could be unsolicited orders, foreign market opportunities, and small, stagnating or declining home market.
Agarwal et al (2003) describe the rapid increase in firms’ internationalization efforts, and suggest a change in orientation from domestic to international in the last few decades. They maintain that there has been a shift in marketing strategies from a domestic perspective to a global one.
Firms can enter new markets by export, joint ventures or foreign direct investment (FDI).
Foreign Direct investment (FDI) refers to the investment made to obtain a lasting interest in or effective control over an enterprise operating outside of the economy of the investor, www.un.org.
FDI could also be defined as “the process whereby residents of the source country obtain ownership of assets for the purpose of controlling the production, distribution and other activities of a firm in the host country. It also involves the transfer of financial capital, technology and other skills such as managerial, marketing and accounting”, etc. (Moosa, 2002, p.1and Imad A.M 2002, p.1).
Frankel and Romer (1999) go further to describe FDI as one of the most important catalysts for economic growth in the developing countries, (Frankel & Romer, 1999, p795). They state that FDI acts as a means of technology transfer from developed to less developed or developing countries.
A study initiated by the United Nations Conference on Trade and Development (UNCTAD), has identified several positive aspects of FDI as a source of growth for developing economies, some
5 of which are described below: It contributes to gross domestic product (GDP), gross fixed capital formation (total investment in the economy), and balance of payments. FDI can also contribute toward debt-servicing repayments, stimulate export markets, and produce foreign exchange revenue (UNCTAD, 1999). It leads to product diversification and reduces a nation’s dependence on a limited number of industries/products (UNCTAD, 1999). Moreover, it stimulates employment; raises wages, and replaces declining market sectors. It acts as a stimulant for infrastructure development and technology transfer (ECOSOC, 2000).
FDI has been one of the fastest growing economic activities around the world after international trade. By 2003, total global FDI inflows were close to 560 billion dollars, (Helpman, 2006).
Being the world’s largest oil producer and exporter over the last 70 years, Saudi Arabia has attracted a substantial amount of FDI; which increased by 50% and constituted £13, 4 billion in 2005. The growth is due to the result of eased legislations in the year 2000 concerning foreign investment in the hope of diversifying the economy, (Almahmood, 2010).
For Sweden Saudi Arabia is the most important export market in the Middle East according to the Swedish trade council. In 2008, Swedish export to Saudi Arabia was estimated at 9.4 billion SEK, www.swedishtrade.se. The effects of outward FDI on production and exports is predominantly important for small countries such as Sweden in which the industry is dominated by a small number of large firms. The actual inflows and FDI from Sweden amounted to 88 million dollars in 2008, www.sagia.gov.sa. Over the next 15 years, the country is deemed to have an infrastructure need equivalent to about 1000 billion USD, www.swedishtrade.se.
Our interest in writing about this phenomenon is due to our chosen area of studies, International Sales and Marketing. That FDI is vital for corporations working internationally makes this area of research important and interesting. Saudi Arabia is also a country that presents business opportunities and challenges. Acquiring some knowledge about the region will be beneficial for the authors as well as other stakeholders interested in this phenomenon.
1.2 Problem Discussion
As stated in the background, Saudi Arabia presents great profit potential for Swedish companies.
The year 2000 Foreign Investment Act by the Saudi Arabian General Investment Authority (SAGIA) has considerably increased the country’s attractiveness. Mohamed and Saee (2007), describe the purpose of SAGIA “to be a “one-stop shop” authorized to issue licenses and
6 incorporate new foreign and joint venture companies and cut through the legendary red tape of Saudi bureaucracy.”
SAGIA contains representatives of 16 government agencies in order to hasten decision-making and project approvals. The waiting period for approval will only be 30 days if the right paperwork is submitted.
Mohamed and Saee (2007) list some ways in which the new investment act is beneficial to FDI:
the right of full project ownership to foreign investors (land, plant and buildings), the right of foreign investors to receive full benefits and incentives available to Saudi investors, including funding from the Saudi Industrial Development Fund (SIDF), the right of foreign investors to hire and sponsor foreign employees, and the unlimited right to allocate financial losses to future financial years.
The new law also saw a reduction in the number of restricted activities prohibited to foreign investors to only the following: exploration, drilling and production of petroleum, manufacturing of military equipment/uniforms and civilian explosives (Mohamed and Saee 2007).
Despite all of these improvements, Saudi Arabia still seems to be a challenging market to invest in for Swedish manufacturing firms according to the Swedish Trade Council. Progresses in investment freedom, property right protection and transparency are still to be made, www.sagia.org.sa.
There clearly are a vast cultural difference between Saudi Arabia and the West. As an Islamic country, the norms and values of Saudi Arabia can be very tricky for Western investors to understand and deal with.
Researchers have argued that some foreign investors have a perception of Saudi Arabia that negatively affects the decision to do business there. Mohamed and Saee (2007), note that some foreign investors fear of ‘going at it alone’, without a local partner.
Hence, it is important to understand what attracts the outflow of FDI from Sweden to Saudi Arabia and how Swedish companies manoeuvre their way through the setbacks.
1.3 Purpose
7 The author’s intent is to identify the advantages and disadvantages for Swedish firms of carrying out FDI in Saudi Arabia.
2. LITERATURE REVIEW 2.1 Business Strategy
This segment will review the methods through which firms strive to achieve their overall business objectives. The business strategy of a firm forms the basis on which all other corporate decisions are made.
Rumelt and al. (1994) had the idea that what created difference in performance among competing firms, is strategic management. Several reasons have been proposed: the quality of strategy formation (Mintzberg, 1990), possession of resources that are valuable and difficult to imitate (Wernerfelt, 1984) and effective organization design, directed toward strategy implementation (Galbraith and Kazanjian, 1986).
Business strategy applies to how businesses achieve their competitive advantage (Slater and Olson, 2001). There are two theoretical frameworks that have been dominant; that of Miles and Snow (1978) and Porters (1980).
The framework of Miles and Snow (1978) is based on four ways that organizations define and approach their product–market domains (the entrepreneurial problem) and construct structures and processes (the administrative and technical problems) to achieve success in those domains.
The Prospectors constantly invest in new products and search for new market opportunities. The Defenders focus on manufacturing efficiency in order to preserve its share of the market. The Analysers combine the strengths of prospectors and defenders by being innovative, searching for new market opportunities but at the same time defending the market share with the established products. The Reactor does not have a consistent response to product- market domains (the entrepreneurial problem) and therefore considered not viable in the long run (Miles and Snow, 1978).
Porters (1980) contributed to the Miles and Snow’s (1978) framework by extending the entrepreneurial problem. He proposed that the entrepreneurial problem should be viewed as a
8 product of how the firm creates value (differentiated offering or low cost offering) and how it defines its choice of market coverage (focused or market-wide).
2.2 Global Marketing Strategy
Global marketing strategy is a part of the firm’s overall business strategy. This section will seek to summarize the generally accepted global marketing theory with an emphasis on the most prominent views. A firm’s decision to operate across national boundaries forms an integral part of its overall business objective. It is through this that a firm can achieve its ownership advantages in overseas markets.
With firms becoming more and more global, researchers have discussed the effect of a global marketing strategy on a firm’s performance. The claim is that the global marketing strategy plays a critical role in determining a company’s performance in overseas market (Birkinshaw and al., 1995; Hamel and Prahalad, 1985; Porter, 1986; Zou and Cavusgil, 1996).
There exist three major perspectives on global marketing.
The standardization perspective argues that world markets are becoming homogenized by ad- vances in communication and transportation technology (Jain, 1989; Levitt 1983). With such ho- mogeneity in global markets, the consequence is similar products preference and demand all over the world (Jain, 1989; Ohmae, 1985).
Levitt (1983) stated that a major source of competitive advantage in the global market is to pro- duce quality goods at a low-price. Accordingly, researchers pro the standardization perspective believe that a firm’s global marketing strategy will be efficient if its marketing programs across different countries are standardized, particularly with regard to its product offering, promotional mix, price, and channel structure (Johansson 1997; Keegan 2000). The major benefits of stand- ardization include economies of scale in production and marketing (Levitt 1983), consistency in dealing with customers (Laroche and al. 2001) the aptitude to exploit good ideas on a global scale (Ohmae 1989).
The other perspective of global marketing strategy focuses on configuration and coordination of a firm's value chain activities (Craig and Douglas 2000; Porter 1986; Roth and al., 1991). With this perspective, global marketing strategy is considered as the tool to exploit the synergies that exist across different markets as well as the comparative advantages associated with various host coun- tries. To be effective in global competition, a firm must organize its value-chain activities opti-
9 mally and coordinate its efforts in different markets (Craig and Douglas 2000; Porter 1986; Roth 1992). Consequently, proper configuration enables a firm to exploit location-specific comparative advantages through specialization (Craig and Douglas 2000; Ghoshal 1987; Kogut 1989; Yip 1995), while cross-national coordination captures synergies derived from economies of scale, scope, and learning (Kogut, 1989; Roth, 1992). The most important aspect configuration is con- sidered to be the degree of concentration of value-chain activities (Porter 1986; Roth, Schweiger, and Morrison 1991; Zou and Cavusgil 1996). As different countries have unique comparative advantages (Hill 1996), concentration of value chain activities in a few country locations where they can be achieved most efficiently enables a firm to maximize efficiency. For example, product development and engineering activities can be concentrated in a limited number of countries with good engineering skills and manufacture, where labor costs are low. In this way, a firm can bene- fit from the comparative advantage of respective countries.
The third perspective of global marketing strategy is the integration view. According to this view, a key to global marketing success is participation in all major world markets to gain competitive leverage and effective integration of the firm's competitive campaigns across these markets (Birkinshaw, Morrison, and Hulland 1995; Yip 1989, 1995; Zou and Cavusgil 1996). In this inte- gration perspective, the essence of a global marketing strategy is to integrate the firm's competi- tive moves across the major markets in the world (Birkinshaw, Morrison, and Hulland 1995;
Ghoshal 1987).
According to Zou and Cavusgil (2002), these global marketing strategies can be used simultane- ously depending on the external market environment and the internal organizational characteris- tics. And further define global marketing strategy as being “the degree to which a firm globalizes its marketing behaviors in various countries through standardization of the marketing-mix varia- bles, concentration and coordination of marketing activities, and integration of competitive moves across the markets” (Zou and Cavusgil, 2002).
2.3 Foreign Entry Strategy
Foreign Direct Investment, FDI, is one method of foreign entry, it is important to take a brief look at what other choices are available to the firm. To better understand why some firms might choose FDI it is important to review the characteristics of other foreign entry methods and what situations they best fit.
10 With the exception of FDI, there are 3 major strategies available to a firm when entering a new market: licensing, franchising and joint ventures.
A license is a written contract under which the owner of a copyright, know how, patents, service mark, trademark, or other intellectual property, allows a licensee to use, make, or sell copies of the original in return of royalties. The agreement usually lasts for a limited period of time. The licensee acquires exclusive rights to use the trademark or know how in a particular market in which the licensor does not operate.
Rolf (1980) proposes that when the patent to be licensed is based on relatively simple technology and owned by a small- or medium-sized firm, licensing is a favorable strategy into a market that is both physically and culturally distant.
Licensing may be used to access new markets, by granting the licensee, the licensor can penetrate markets it could not otherwise enter.
Caves and Murphy (1976) define a franchise agreement as a contract lasting for a definite or indefinite period of time in which the owner of a protected trade-mark grants, the right to operate under this trademark for the purpose of producing or distributing a product or service.' Its main features are the rental of an intangible asset (brand) and the operation of a decentralized production or distribution process.
Franchising is similar to licensing agreements but differs in terms of duration, service and motivation. The franchisor provides assistance to the franchisee in most activities along the value chain (Root, 1987).
Hollensen argues that there are mainly two factors that have contributed to the growth of the franchising; the decline of the traditional manufacturing industry and its replacement by the service-sector and government policies which ease the regulation of small businesses and self- employment (Hollensen, 2011)
Joint ventures has been explained as: “An enterprise, corporation or partnership, formed by two or more companies, individuals, or organizations, at least one of which is an operating entity which wishes to broaden its activities, for the purpose of conducting a new, profit-motivated business of permanent duration. In general the ownership is shared by the participants with more or less equal equity distribution and without absolute dominance by one party” (Young and Bradford, 1977)
11 Joint ventures are associated with the following advantages: providing access to resources and markets, technology transfer, reducing political risk and helping to improve the firm’s competitive position.
Since ownership and control is shared between the domestic and the foreign firm, joint ventures involve more risk but potentially very high returns (Anderson & Gatignon, 1986).
Ring & Van de Ven (1992) argue that since joint ventures entail a lot of cooperation, members have to rely on trust and reciprocity in order to reduce the risk of opportunistic behavior and enjoy the benefits of resource and cost sharing
According to Ning (2008) the down side of international joint ventures is that cultural differences can cause difficulties and transactions costs, increasing when cultural differences between partners arise and this can also lead to distrust.
2.4 The FDI Theories
This section focuses on well-established, as well as emerging theories in the specific field of FDI. Because this work focuses on FDI, it is important to look at how various scholars have approached the topic as well as how these views have changed or been challenged over the years. The different theories will present the reader with a broad and diverse viewpoint on FDI and hopefully lead to a deeper understanding of the phenomenon.
Some of these theories will form the basis of how the authors will proceed to obtain and analyze empirical information and subsequently come up with conclusions.
When investing in foreign markets, firms are not only concerned with decisions about which markets to enter and when, but also how to enter these markets.
Researchers have been interested in understanding how firms choose when they have the choice.
Different schools of thought have been put forward.
2.4.1 The Uppsala School
This school of thought views business operation in an overseas market as essentially risky, because of political, cultural, and market systems that the firm must adapt to. This view suggests a gradual involvement in the foreign market (Johanson and Vahlne, 1977, 1990; Root, 1987).The Uppsala School approach argues that the internationalization of firms is done progressively. At the beginning, no regular export activities are performed in the market, then export takes place via independent representatives, later through a sales subsidiary, and eventually manufacturing may follow. In terms of the process model, this sequence of stages indicates an increasing
12 commitment of resources to the market, (Johanson and Vahlne, 1977). The international experience has been divided into two categories; one being a general international experience and the other one being the experience of the specific country, (Yu, 1990). A firm that has several FDI in different countries has acquired considerable knowledge that can be reused to some extend later on. Scholars have found that there is a positive correlation between the number of FDI a corporation has and its level of investment commitment, (Contractor and Kundu, 1998;
Randoy and Dibrell 2002).
This school of thought has been questioned. Sullivan and Bauerschmidt (1990), attempt to test the assertions made by the Uppsala School. They credit the widespread acceptance of the Uppsala school to the fact that it has an intuitive logic and adopts the simplest assumptions to justify its proposition. Citing seven empirical studies that confirm the Uppsala approach, Sullivan and Bauerschmidt (1990) emphasize that they all use Scandinavian companies as their sample population. As a result they, question the theory’s relevance in making generalizations. In their research, Sullivan and Bauerschmidt (1990) expand their population sample to other European countries and come up with some new insight, suggesting that the internationalization process is affected by nation-specific factors like government programs and competition in the home market. No significant differences were detected regarding barriers and incentives to internationalize among firms with different levels of international involvement. Hence, there was no evidence supporting the incremental fashion of a firm’s path to internationalization.
Millington and Bayliss (1990) also present some criticism to the incremental process of internationalization proposed by the Uppsala School. They emphasize the role of strategic planning in the process of internationalization and found that the incremental development of firms was less common. They suggest that firms with international experience and formal planning systems tend to bypass the incremental process of internationalization. In a study of 50 UK firms in the EC (EU), they found that 10 of the firms had no previous experience in the market and a further 28 had made a ‘jump’ from activities low in the incremental chain (licensing, agents etc.) directly to having manufacturing facilities in the market. They concluded that, in the early stages of international involvement, firms rely on market experience and make gradual and incremental adjustments. However, with increased degree of international experience, planning systems are implemented formalizing strategic analysis and information search.
2.4.2 Transaction Cost Approach
The second school of thought derives from the perspective of transaction cost (Anderson and Gatignon, 1986; Beamish and Banks, 1987; Caves, 1982; Erramilli and Rao, 1993). The basic
13 principle is that firms will internalize activities that they can perform at low cost, but will subcontract activities if suppliers have a cost advantage. When firms subcontract part of their operation, they inevitably face transaction-related costs. In the broadest sense, these transaction costs include all costs, as well as outputs and inputs, associated with various aspects of the value- added chain from the production to the consumption of goods and services.
Anderson and Gatignon (1986), in their work on the transaction cost theory present a number of hypotheses:
According to their model, the efficiency of an entry mode is dependent on the degree of control the firm has over its products and processes. The degree of control depends on what form of international activity the firm is involved in. For example, the firm has more control over its processes when it establishes manufacturing facilities abroad, than when it acts though agents or sales subsidiaries.
They present a series of hypotheses relating to a firm’s appropriate level of control in different market situations.
Greater control is required for highly specialized products. Because the processes required for highly specialized products will likely be more complicated, it is important that the firm has enough control to oversee these processes directly.
Higher degrees of control are more efficient for unstructured, poorly-understood products and processes as well as customized products.
Firms with little international experience should not seek a level of control that is too high. When sociocultural distance between the home and host country is great, the firm should use a method that gives it lower control (agents/subsidiaries). Because the agents understand better the culture of the foreign market, they will be more efficient.
Entry modes offering higher degrees of control are more efficient the higher the value of a brand name.
2.4.3 The Product Life-Cycle Theory.
Raymond Vernon (1966) in hindsight adopted a rather simplistic approach to the decision to invest abroad. According, to this theory, the decision is based on the stage in the product’s life, rather than host country advantages.
For new inventions, production takes place at home due to a desire to centralize production and R&D and ease collaboration. Another advantage of producing at home is the proximity to potential customers. New and innovative products often experience very high demand. Higher prices can be charged due to the high inelasticity of demand.
14 When the product is maturing, increased demand and greater popularity allows the firm to export to other countries. As a result, competing firms seek to copy the product. With increased competition, the innovating firm must seek new markets abroad and thus, resorts to FDI.
Once the product is standardized, the firm loses its monopoly over the product and its production processes. Investing in developing countries is a means of reducing cost. Bende- Nabende (1999) suggests that this type of foreign investment is defensive with the intention of protecting profit margins.
Even though the theory adequately explains the flow of investment from developed countries such as the US to developing countries, it fails to explain the reverse scenario. Therefore, it is not an adequate explanation of all the motives of foreign direct investment Sanyal (2001).
2.4.4 Oligopolistic Reaction
Other researchers have attempted to explain the FDI phenomenon as an oligopolistic reaction.
In an oligopolistic industry, firms are few enough to recognize the impact of their actions on their rivals and thus on the market as a whole (Caves, 1982). Because the firms are mutually interdependent, the behavior of the firms will tend towards a pattern of action-reaction, move- countermove (Knickerbocker, 1973). Knickerbocker (1973) proposed a behavioral approach to explaining FDI decisions. He asserts that firms operating in oligopolistic industries tend to imitate each other’s FDI actions. This behavior is an oligopolistic reaction where, ‘the decision of one firm to invest overseas raises competing firms’ incentives to invest in the same country’
(Head, Mayer & Ries, 2002). FDI by one firm into a foreign country pushes others to do the same. In such a situation, the follower intends to minimize the overall competitive advantage of the original investor. The aim of oligopolistic firms is not only to outplay rivals, but also to improve profitability by benefitting from emerging opportunities. Knickerbocker states that foreign investment is driven by the following motives: movement to supply the native market, investment to gain resources, and investment to gain a strategic export platform.
The reason why one firm follows another is certainly logical; however Knickerbocker does not explain the triggers behind the initial investment by the first firm (Moosa 2002). Therefore, it is difficult to use Knickerbocker’s theory to predict the motivation the first firm’s decision and why exporting or licensing were disregarded.
2.4.5 The Eclectic Paradigm
by Dunning (1980, 1988, 2001) states that a firm will engage in international production if it possesses ownership-specific advantages, will benefit by exploiting those ownership-advantages
15 in a specific country, and will internally exploit best those advantages rather than through licensing or franchising.
The discussed theories above infer that key factor to success in oversea markets is partly due to its size, experience and resources. The born global firm’s performances in foreign market demonstrate otherwise.
2.4.6 Born Global
Born global firms are young firms that despite limited human or financial resources manage to internationalize within three or less years after domestic establishment. One of the scholar’s arguments concerning that phenomenon is that the ability to internationalize early and successfully in an overseas market is a function of internal capabilities, (Autio et al., 2000;
McDougall and Oviatt, 2000).
Findings by Knight and Cavusgil (2004) reveal that the strongly innovative nature of born-global firms supports these businesses in developing particular types of knowledge, which drives the development of organizational capabilities that support early internationalization and superior performance in diverse international markets.
A key element of born-global firms is that they appear to lack the deeply rooted managerial tradition (Collis, 1991; Miller and Friesen, 1984) of long-established businesses. Well-established firms typically must unlearn routines rooted in domestic operations before new, internationally oriented routines can be learned. Unlearning rooted habits becomes more difficult as firms get older, because new knowledge that leads to new routines tends to conflict with existing operations and management's embedded mental models (Autio et al., 2000; Barkema and Vermeulen, 1998). Knight and Cavusgil (2004) research has validated the importance of specific key organizational capabilities that cause international success of born global firms. At the strategy level, global technological competence, unique products development, quality focus, and leveraging foreign distributor competences all appear to be significant drivers of superior performance overseas. Leveraging quality and technological excellence helps born global to develop offerings that appeal to niche markets around the world. The finding is consistent with research in Australia (Rennie, 1993), which found that early exporters succeed by leveraging proprietary technologies and high-quality goods.
More ever, the born global firms create strong relationship with their foreign distributors in order to achieve superior performance abroad, (Knight and Cavusgil, 2004).
16 2.5 The Eclectic Paradigm in Detail
Dunning (1988) integrates various components of international business theories. His paradigm is based on three pillars of ownership-specific factors, location-specific factors (Hill and al.1990) and internationalization factors.
2.5.1 The Ownership-Specific Factors
The Multinational Enterprise (MNE) possesses ownership advantages that are not available to host country firms. These advantages can be tangible (such as superior technology, superior product, or transferable economies of scale and scope), or they can be intangible (brand name, trade mark, etc.), (Dunning, 1988).
Within the ownership advantage, it has been argued that there are criteria’s that determine the FDI.
One of the criteria is the size of the investing firm. Larger firms have the means to invest and undertake the risks involved, (Dunning, 2001). Moreover, different scholars, (Agarwal and Ramaswami, 1992; Campa and Guillén, 1999; Rialp and al., 2002; Brouthers and al., 2003) have proven the relationship between the size of the investing firm and the level of investment to be positive. The research and development (R&D) intensity is determined by the size and thus financial means of a corporation. The investing firm should have a competitive advantage and maintain it to be able to compete on the foreign market, (Fladmoe-Lindquist and Tallman, 1994).
2.5.2 The Location-Specific Factors
There can be some location-specific factor that would make the investment (i.e. FDI) in the host country more profitable or easier than exporting to that country, (Dunning, 2001). Scholars have identified different determining criteria for the choice of investment location such as cultural distance, market size, geographic position, and business climate, and economic climate, and other variables.
Cultural distance refers to the possible differences prevailing in relation to the way individuals from different countries perceive certain behaviours, which will influence the work practices and methods from one country to another. Hofstede (1980, 1991) argued that those cultural differences could be understood by the following dimensions: power distance (or the extent to which individuals accept the existence of inequalities between subordinates and superiors within a hierarchical structure); uncertainty avoidance (which refers to individuals’ willingness to coexist with uncertainty about the future); individualism (which describes how the individuals in a society value individualistic behaviours as opposed to collective ones); and long-term or short-term orientation (i.e. the focus on future re-wards or the concern about the maintenance of the
17 stability related to the past and the present). Using these cultural dimension helps understand the predominant values regarding quantity or quality of life, that is, whether more importance is given to material aspects or a stronger emphasis is laid on interpersonal relationships.
By using the Hofstede cultural dimension index to compare Sweden to Saudi Arabia; Saudi Arabia scores high on power distance (score of 95) compared to Sweden (score 31). The implication, as mentioned above, is that the population of Saudi Arabia accept a hierarchical order in which everybody has a place and which needs no additional explanation. In organizations, it is reflected by hierarchical organizational structure with the decision making concentrated on the top level of management and where subordinates expect to be told what to do.
When it comes to uncertainty avoidance cultural dimension, Saudi Arabia scores 80 unlike Sweden (29) and consequently has a preference for avoiding uncertainty. Societies with high uncertainty avoidance maintain rigid codes of belief and behaviour and are intolerant of unconventional behaviour and ideas.
On the individualism versus collectivism culture dimension, Saudi Arabia scores 25 whereas Sweden scores 71. Saudi Arabia is therefore considered a collectivistic society. This is manifest in a close long-term commitment to the member group including family, extended family, or extended relationships. Loyalty in a collectivist culture is vital, and prevails over other societal rules and regulations. In collectivist societies offence leads to shame and loss of face and employer/employee relationships are perceived as a family link, www.geert-hofstede.com.
One of the culture distance consequences have been researched by Newman and Nollen (1996) when they conducted a study on the fit between management practices and national culture using the research done by Hofstede’s cultural dimensions and collected date from 176 units of one American MME based in eighteen European and Asian countries.
They argue that management practices should be adapted to the local culture to be most effective. This is due to national culture playing an important role in the management of MME overseas operation. The national culture, according to Newman and Nollen (1996), determines how employees understand the work assigned to them, the way they handle it and the way in which they expect to be treated. They stated as well that when management practises differs entirely to core values, the outcome might be employee’s dissatisfaction and non-commitment to the assigned tasks. That could result into unwillingness to perform well and thus affect the overall company performance.
18 Some other consequences of cultural distance could be that they generate additional costs related to information collection and disturb communication processes, which require a common ground in order to code and decode the information (Pak and Park, 2004).
Randoy and Dibrell (2002) argue that the more the target country is culturally distant, the more the enterprise will prefer an entry mode with less commitment.
Market potential (size and growth) has been proven to be an important determinant of foreign investment (Forsyth 1972; Weinstein 1977; Khoury 1979; Choi, Tschoegl and Yu 1986; Terpstra and Yu 1988). In countries with high market potential, investment modes are expected to provide greater long-term profitability to a firm, compared to non-investment modes. Consequently there is an opportunity to achieve economies of scale and thus lower marginal cost of production (Sabi 1988). According to Agarwal and Ramaswami (1992), scale economies are not significant because a firm may still choose investment modes since they provide the firm with the opportunity to establish long-term market presence.
The business climate, including corporate taxes, trade agreement, laws and regulations are determinants that affect directly or indirectly the foreign investment, (Dunning, 2001). The reason is that those governmental policies have an effect on market imperfections (anything that is an obstacle to trade) and on FDI. Brewer states that by changing governmental policies, a host country can increase or decrease its FDI inflows, (1993).
Political risks are changes in the business environment caused by unexpected political changes affecting the expected outcome or value of an investment (Robock, 1971).
Butler and Joaquin (1998), describe political risk as being related to the risk that a sovereign host government would unexpectedly change “the rules of the game” under which businesses operate.
Matthias and Carsten (2007), identify 12 different indicators of political risk based on information from the International Country Risk Guide (ICRG). Through an empirical study of these indicators in 83 developing countries from 1984-2003, the authors identify 3 indicators with a significant impact on the inflow of FDI. The results show that countries with a lower political risk and better institutions with respect to the three indicators; government stability, religious tensions, and democracy experienced more FDI per capita in the period 1984 to 2003.
Researchers mention economic variables such as inflation and exchange rate fluctuations as investment risks. Fluctuations in both variables can involve large amounts of financial loss as well
19 a general notion of instability which may affect the firm’s decision to invest abroad, (Tahir and Larimo, 2002; Agarwal and Ramaswami, 1992).
Schneider and Bruno (1985), draw from popular theory to identify six hypotheses linking economic conditions and FDI.
1. The higher GNP per capita, the better the nation’s economic health, and the better are the prospects that direct investment will be profitable. A positive influence on foreign direct investment is expected.
2. A high rate of growth of GNP is an indicator of a good development potential in the future. This suggests a positive influence on direct investment from abroad.
3. A high rate of inflation is a sign of internal economic tension and of the inability or unwillingness of the government and the central bank to balance the budget and to restrict money supply. As a rule, the higher the rate of inflation, the less are foreign direct investment decision-makers inclined to engage in the country. A negative relationship is hypothesized.
4. A large deficit in the balance of payments indicates that the country lives beyond its means. The danger increases that free capital movement will be restricted and that it will be more difficult to transfer the profits from the direct investments into the investing country.
5. The lower the wage costs are, the more profitable it is directly to invest in the country concerned. This means that the investing firm experiences lower production costs. Even though low wages means that consumers have low buying power, firms are likely to use such countries for production and then export products to other countries that have a higher buying power.
6. For direct investment to be worthwhile, a skilled work force is needed. It is hypothesized that the larger the share of an age group with secondary education, the more direct investment will flow in (positive relationship).
2.5.3 The Internationalization- Specific Factor
The factor is present when the MNE believes that its ownership advantages are best exploited internally (through FDI, etc.), rather than sold directly through spot markets, or offered to other firms through contractual arrangements such as licensing, the establishment of joint ventures, or managerial contracting, ( Dunning, 1988)
20 2.6 The Country of Origin Theory
Some researchers have focused on finding a correlation between country of origin and consumer acceptance. The pioneer of this notion was Dichter (1962) who suggested that the country of origin of a product had significant effects on the consumers’ approval and eventual product success. Schooler (1965) conducted the first empirical study of this notion. By using identical products with labels showing different countries of origin, he found out that consumers evaluated them differently.
Further research by Bilkey and Nes (1982), sought to relate these different evaluations to country of origin characteristics. They showed that people’s general impression of a particular country affect how they evaluate products from that country. For example, consumers believe that in order to produce technical products of high quality; a skilled and well educated labour force is needed. As a result, they perceive these types of products to be of superior quality when they are produced in developed countries.
Verlegh and Steenkamp (1999) based their research on 41 of the most important empirical studies on the effect of country of origin. One of their findings was that the effects of country of origin impacts both consumer goods and industrial even though industrial buyers are generally considered to be more rational and better informed than the average consumer.
State of the Art
This section will present an analysis of the FDI theories discussed previously with regards to their status in the scientific community. Status in this case has been ascertained by looking at the extent to which the works containing these theories have been cited by other scholars and the degree to which these scholars have been able to empirically validate said theories. The theories will be grouped into three categories; dominating theories, emerging theories and gaps.
The Eclectic paradigm as presented by Dunning (1988) is also a dominant FDI theory. His work is the most widely accepted based on the large extent to which other scholars have cited it.
One reason for this could be the broad nature of this theory as it divides the determinants of FDI into ownership-specific factors, location-specific factors and internationalization factors. The Eclectic paradigm has received wide empirical validation in the scientific community. For example, the theory’s view on the importance of ownership specific factors FDI determinants have been empirically validated by several scholars (Agarwal and Ramaswami, 1992; Campa and Guillén, 1999; Rialp and al., 2002; Brouthers and al., 2003) who have proven the relationship between the size of the investing firm and the level of investment to be positive.
21 In terms of citations, the Uppsala School is also a very widely accepted theory within this field. Of the studies that cite this theory, a good number have empirically validated the claims made by the Uppsala school.Some scholars, for example, have found a positive correlation between the number of FDIs a corporation has and its level of investment commitment;
(Contractor and Kundu, 1998; Randoy and Dibrell 2002). Nevertheless, it also faces a lot of opposition, for example; Sullivan and Bauerschmidt (1990), the widespread acceptance of the Uppsala school can be credited to the fact that it adopts the simplest assumptions to justify its proposition. Even though this theory has been widely cited, it is an emerging theory because of the vast amount of criticism it has faced in the scientific community.
The Product Life Cycle theory Raymond Vernon (1966), though widely cited in the scientific community has not been widely validated empirically. Most of the works that cite this theory present some kind of criticism to it. One example of these opposing works is that of Sanyal (2001), who states that, even though the theory adequately explains the flow of investment from developed countries, such as the US, to developing countries, it fails to explain the reverse scenario. Therefore, it is not an adequate explanation of all the motives of foreign direct investment.
The oligopolistic reaction theory, as explained by Knickerbocker, (1973) is considered a påroposal to fill a gap, due to the fact that it has neither been widely accepted (few citations), nor empirically validated. For example, Moosa (2002) presents the following criticism; the reason why one firm follows another is certainly logical; but the major flaw in this theory is the failure to explain the triggers behind the initial investment by the first firm.
3. RESEARCH QUESTION Why did Swedish firms decide to establish themselves in Saudi Arabia?
Sub-question
How did they manage to establish themselves through FDI in that region?
22 4. METHODOLOGY
Kothari (2004) defines research methodology as a subject that deals with how research is carried out scientifically. Kothari (2004) points out that research methodology is important for researchers because it highlights and gives essential training in the collection and arrangement of material in a way that can be easily followed and understood.
4.1 Research Approach
4.1.1 Inductive versus Deductive Research
According to Bryman and Bell (2007), the purpose of research is to find answers to questions based on theoretical foundations and these questions can be answered through the use of either a deductive or inductive method.
The inductive approach denotes a situation where the researcher uses data as a starting point from which theories emerge. In other words the outcome of research in this case is theory. This is done by the researcher drawing conclusions out of observations and findings. Inductive reasoning moves from the more specific (observations) towards the more general (generalizations/theories).
The deductive approach on the other hand implies the testing of already existing theories.
Deductive reasoning moves from the more general to the more specific. The researcher in this case, creates a hypothesis based on already existing knowledge about a particular topic and then empirically investigates the validity of this knowledge. In this situation, theory is the starting point.
The researcher then formulates research questions and collects relevant data to assess if the theory holds true or not. (Bryman & Bell 2007)
In this work, the deductive research approach has been chosen. Here the focus will be on testing already existing knowledge described in the theoretical framework. The relevant FDI theories that have been presented will form the basis on which data collection will be carried out. In seeking to identify the determinants that pull Swedish FDI into Saudi Arabia, the authors will try to find out if the determinants present in prominent FDI research hold true for Swedish firms in Saudi Arabia as well as identify other determinants that might exist. After an empirical analysis of
23 findings, the theoretical model will be either confirmed or revised based on the primary information obtained during data collection.
Another reason for choosing the deductive approach is that because the inductive approach culminates in the creation of new theories, it will be impossible to use it in this case. As a multiple case study, the nature of this work does not allow for generalisations to be made or theories to generate about foreign direct investment. It will also not be possible to come up with theories about FDI between Sweden and Saudi Arabia because the nature of the work, as evident in the size of our sample population, does not allow for such ambitious goals.
4.1.2 Qualitative versus Quantitative Research
Bryman and Bell (2007) identify two other approaches to research; qualitative and quantitative.
According to Bryman and Bell (2007) quantitative research implies the quantification of data and findings. The researcher converts data into numerical form and analyses this data statistically. Its view of social reality is much more objective and based on measurable proof.
Other researchers contribute to this definition. Quantitative research is an approach in which research is carried out based on measurements of quantity or amount (Kumar, 2008). Muijs (2004) states that quantitative research can be defined as the explanation of a specific
phenomenon by gathering numerical data and then analysing the data by applying mathematical approaches or methods.
By contrast, the qualitative method is more geared towards a subjective interpretation of data. It emphasizes the importance of words and opinions in the description and interpretation of social reality. This social reality is said to be dynamic and constantly changing and is thus uniquely interpreted by different individuals and in different situations. The qualitative method is more commonly used when a deeper and more complex problem is being analysed. (Bryman & Bell 2007)
Other definitions provide a broader understanding. “Qualitative research is the collection, analysis and interpretation of data that cannot be meaningfully quantified, that is, summarized in the form of number” (Diggines & Wiid, 2009). Beije (2010) adds that the definition of qualitative research contains three key components:
(1) Looking for meaning
24 (2) Using flexible research methods to enable contact
(3) Providing qualitative findings
According to Wiid & Diggines (2009), qualitative research is preferable when investigating or examining, attitude, perception, motivation and understanding.
This work falls within the category of qualitative research. This is because the data collected will be based on individual opinions and beliefs about the determinants of FDI in Saudi Arabia. The authors have chosen to interview individuals who have high knowledge about this particular subject in order to gain a deeper understanding of the phenomenon. Also, the sample population for this work is a small one, thus the aim is not to make generalizations about FDI in Saudi Arabia, but specifically about Swedish FDI. The nature of this work requires that a qualitative approach is used because relevant information on aspects such as the cultures and values of Saudi Arabia cannot be quantified and different individuals will have differing opinions about this.
Another reason why this work requires a qualitative approach is that we seek to describe a complicated situation. Not all firms will face the same issues when investing in a particular country due to differences such as resources or experience. For example, a firm that has operated in a particular country through other modes may find it easier when they decide to carry out FDI because of a greater knowledge of the environment and an established network. Because different firms will experience these issues differently, the situation becomes a more complex one that requires that experiences be explained rather than quantified.
Also, because we do not intend to draw general conclusions about the phenomenon of FDI, the qualitative approach is best suited. The conclusions that will be made will be specific only to the limited scope our work intends to investigate.
The quantitative method is more effective when a large number of variables are being studied on a large number of entities. Because we intend to study a very large number of variables, the qualitative method is best suited. This approach better suits our intention of studying a large number of variables on a small number of entities.
4.2 Research Design
Research design is referred as the plan and structure of a study in order to answer the research question. The two major research designs are explanatory and descriptive (Sachdeva, 2009).
25 The explanatory design seeks to answer the question of why a phenomenon is happening. It is a less structured format and is more flexible. This approach can be used when there is a low understanding of the subject or the subject is new. The disadvantage of the approach is that the result is not always useful in decision making afterwards. However the exploratory approach can provide direction for a more formal effort (Sachdeva, 2009).
The descriptive research purpose is to explain data and characteristics of the phenomena being studied. It consequently answers the questions who, what, where, when and how and it is an accurate and methodical approach. The disadvantage with such approach is that it cannot be used to create a causal relationship and thus has a low requirement for internal validity (Sachdeva, 2009).For this project, the descriptive approach is the appropriate method as objective is to determine the advantages and disadvantages of carrying out FDI in Saudi Arabia by interviewing companies that have established themselves in that region as well as the Swedish Trade council in Saudi Arabia. The collected data are to be analysed with the literature review.
4.3 Data Collection
The collection of data can be done two ways; through primary and secondary data.
Primary data are first-hand information, collected for a certain purpose. They often give the researcher a better control and comprehension about the topic, as there is a direct contact with the sources of the information (Sanjeev, 2010). For this study, primary data are required as are secondary data. Due to the inability to obtain sufficient primary data, the authors have supplemented with the use of secondary data. As the authors intent was to study a phenomenon that has already occurred; the first task was to find Swedish companies established in Saudi Arabia. The authors made contact with four Swedish corporations, of which two agreed to participate; Atlas Copco and Tetra Pak.
Secondary data are information that have already been collected and processed by someone else.
The main advantage with this type of information is that they are time-efficient (Sanjeev, 2010).
The secondary data source concern the evolution of FDI in Saudi Arabia, the impact of the year 2000 Foreign Investment Act by the Saudi Arabian General Investment Authority (SAGIA), provided country information from the Swedish Trade Council and the overall country information (ex. Risk country analysis) and some information about the interviewed companies.
26 4.4 Research Strategy
There are five established research strategies when writing an essay; being experiment, survey, archival analysis, history and case study (Yin, 2009).
The experiment is a research strategy which intends to validate, falsify or establish the validity of a hypothesis. The survey is a research strategy that ought to make statistical implications using a sample of population. The archival analysis is an observational method that studies previously collected documents. The history research approach to gather, review and analyse historical documents. And the case study is an intensive investigation of an individual unit that have for purpose to highlight the developmental factors in relation to the context and relevant theory (Bryan & Bell, 2011).
Those strategies have specific advantages and disadvantages which depend upon the type of research question, control of behavioural events and focus contemporary versus historical phenomena.
Research Strategy Form of research question
Requires control over behavioural events
Focuses On contemporary
events
Experiment How, why Yes Yes
Survey Who, what, where, how many, how
much
No Yes
Archival analysis Who, what, where, how many, how
much
No Yes/ no
History How, why No No
Case study How, why No Yes
Table 1.Source: Yin 2009, p.8
Since the research question to be answered is “why”, and the focus is on contemporary events and that there is no control over behavioural effect; the case study is the appropriate research strategy approach (Yin, 2009).
27 The authors have decided to use more than one company for this paper by selecting two companies within different industries to widen the perspective of the research.
4.5 Data Collection Method
After choosing the appropriate research strategy, the case study, the next phase was to find out the suitable data collection method. The source of evidence refers to data collection procedure.
There are six sources of evidence; documentation, archival records, interviews, directs observations, participant’s observations and physical artefacts. Their strength and weaknesses are explained below in table 2 (Yin, 2009).
SOURCE OF
EVIDENCE Strengths Weaknesses
Documentation - Stable -can be reviewed repeatedly
- Unobtrusive
- Exact- contains exact names, references and details of an event - Broad coverage –long span of time, many events and settings
- Can be difficult to find
- Biased selectivity, if collection is incomplete
- Reporting bias – reflects (unknown bias of author - Access – may be deliberately withheld
Interviews - Targeted – focuses directly on case study topics
- Insightful – Provides perceived casual inferences and explanations
- Bias due to poorly articulated questions
- Response bias
- Inaccuracies due to poor recall - Reflexivity – interviewee gives what interviewer want to hear
Table 3.Six Sources of Evidence: Strengths and Weaknesses. Source: Yin 2009, p.102.
Documentation could be study reports, or any items that could add to the data base. It was mentioned that the validity of the documents should be carefully reviewed in order to avoid incorrect data being included in the data base. The use of documents is to verify evidence gathered from other sources, (Yin, 2009).
According to Rubin & Rubin (1995) interviews are the most important sources when it comes to case studies. Contrary to surveys, interviews are a guided conversation rather than structured and controlled queries. Questions in a case study interview are likely to be fluid instead of inflexible.
28 There are three types of case study interviews; in-depth interview, focused interview and focus group. The in-depth interview is where the researcher asks the respondent questions related to the research topic (Yin, 2009). In accordance with Yin (2009), this form of interview might last longer than anticipated and might take place more than once.
As previously mentioned, this research requires specific information from the corporations that are established in Saudi Arabia in order to understand why they have chosen that region and how they have succeeded in their enterprise. Due to that, in-depth interview is the coherent choice of interview.
4.6 Data Collection Instrument
Earlier, it was mentioned that interviews are the most relevant when it comes to case studies (Rubin & Rubin). Nevertheless, this method of data collection has weaknesses that should be taken into account (Yin, 2009).Yin (2009) stated that a successful case study research requires prior skills from the investigator; training and preparation.
It might be achieved by learning how to ask good questions, listening carefully, being flexible and adaptive and knowing how to avoid bias (Yin, 2009). It implies that the interviewer needs to have an active mind before, during and after the interview.
An advice on how to formulate questions was given by Becker (1998, pp. 58-60), who believes that “why” questions should be avoided as they create defensiveness from the interviewee. On the other hand, formulating “how” questions are considered to be more effective during an interview.
4.6.1 Interview Guide
There are three options when conducting an interview; fully structured, semi-structured or unstructured. For this research the semi-structured interview is the most accurate since the researcher aim is to compare information gathered from different companies. With the semi- structured interview there are predetermined questions or key words that are used when interviewing. The difference from a structured interview is that the questions are asked at the time that seems to fit and in an open ended way and therefore more information form the interviewee can be obtained (Tutty, and al., 1996)
29 4.6.2 Operationalization and Measurement of Variables
Operationalization is a process which involves several steps starting by selecting the major concepts of the research topic and of the purpose of the study in order to obtain a measurement, (Krishnaswami, Satyaprasad, 2010).
The major concept in the research topic is the determinants of foreign direct investment in Saudi Arabia by Swedish manufacturing firms. Those determinants have been classified into three categories; the ownership advantages factors, the location specific factors and the internationalization specific factor, (Dunning, 1980, 1988 and 2001). Those FDI determinants factors are said to either impact positively or negatively the inflow of foreign investment in a specific country.
Those concepts, according to Krishnaswami and Satyaprasad (2010), should be used to determine the appropriate quantitative measurement; which could either be abstract or concrete concept.
In this case, the appropriate quantitative measurement for the concepts will be a mixture of both since some concepts are simply not measurable and others derive from a personal interpretation
Interview template:
When companies seek to expand in overseas markets, there several options such as:
using distributors, contractual agreements (licensing, franchising), joint venture and foreign direct investment (FDI).
What entry mode does your company use when entering a new market?
How about Saudi Arabia?
The reason behind those questions is to test the Uppsala school theory (Johanson and Vahlne, 1977, 1990; Root, 1987), which states that companies gradually increase their commitment in a region once they have gained sufficient experience.
What were the reasons behind that choice?
This question will help determine if it was uncertainty guided the firms in entering the market with less risky means (Johanson and Vahlne, 1977, 1990; Root, 1987), unfavourable business climate (Dunning, 2001), culture distance (Hofstede, 1980, 1991; Pak and Park, 2004)
30 When evaluating the market potential of a market, what variables (GDP, market size, target customer buying power, other) are mostly important for your company?
The question relates to country-specific factors that influence a company in making a direct investment in foreign country (Dunning, 2001; Choi, Tschoegl and Yu 1986; Terpstra and Yu 1988; Tahir and Larimo, 2002; Agarwal and Ramaswami, 1992; Schneider and Bruno, 1985).
What were the motives in establishing a subsidiary in that region?
With this question, we intend to determine which of the FDI theories is behind the choice. Is it because those companies needed more control over their operations (Anderson and Gatignon, 1986)? Or they have gained sufficient experience in that country that they have decided to increase their commitment (Johanson and Vahlne, 1977, 1990; Root, 1987)? Could the high market potential of the region have an influence on the decision (Terpstra and Yu 1988; Sabi, 1988)? Is the change in business climate an influencing factor (Brewer, 1993)?
Where you the first company in your industry to make a foreign direct investment in Saudi Arabia?
Our target is to see if those companies established themselves because their competitors did so (Knickerbocker, 1973).
We would like to know more about your global marketing strategy since it determines a firm success in overseas market. How do you achieve your marketing objectives abroad?
By asking this question, the authors want to understand how these companies achieve their objectives in international markets (Birkinshaw et al., 1995; Hamel and Prahalad, 1985; Porter, 1986; Zou and Cavusgil, 1996) since it is a part of the enounced ownership advantages of a firm (Dunning, 1988; Fladmoe-Lindquist and Tallman, 1994). These ownership advantages, if substantial, would explain why the firm would want to exploit them internally (Dunning, 1988).
What did you find mostly challenging before and after setting up a subsidiary in Saudi Arabia?
The reason of asking this question is to find out which aspect (Dunning, 2001) of the country is mostly challenging for companies looking into investing there.
In your opinion, is there a culture distance between Sweden and Saudi Arabia?
