Management Research Review

Page created by Ruben Bennett
 
CONTINUE READING
Management Research Review
Management Research Review
                                                                        Effective international expansion strategies of emerging countries: the strategies that
                                                                        helped Arçelik
                                                                        Tanses Gülsoy Özlem Özkanl# Richard Lynch
                                                                        Article information:
                                                                        To cite this document:
                                                                        Tanses Gülsoy Özlem Özkanl# Richard Lynch, (2012),"Effective international expansion strategies of
                                                                        emerging countries: the strategies that helped Arçelik", Management Research Review, Vol. 36 Iss 1 pp. 4 -
                                                                        32
Downloaded by ONDOKUZ MAYIS UNIVERSITY At 02:16 02 November 2014 (PT)

                                                                        Permanent link to this document:
                                                                        http://dx.doi.org/10.1108/01409171311284567
                                                                        Downloaded on: 02 November 2014, At: 02:16 (PT)
                                                                        References: this document contains references to 74 other documents.
                                                                        To copy this document: permissions@emeraldinsight.com
                                                                        The fulltext of this document has been downloaded 830 times since 2012*
                                                                        Users who downloaded this article also downloaded:
                                                                        Francisco José Mas#Ruiz, Juan Luis Nicolau#Gonzálbez, Felipe Ruiz#Moreno, (2002),"Foreign expansion
                                                                        strategy and performance", International Marketing Review, Vol. 19 Iss 4 pp. 348-368
                                                                        Gregory E. Osland, Charles R. Taylor, Shaoming Zou, (2001),"Selecting international modes of entry and
                                                                        expansion", Marketing Intelligence & Planning, Vol. 19 Iss 3 pp. 153-161

                                                                        Access to this document was granted through an Emerald subscription provided by 549136 []
                                                                        For Authors
                                                                        If you would like to write for this, or any other Emerald publication, then please use our Emerald for
                                                                        Authors service information about how to choose which publication to write for and submission guidelines
                                                                        are available for all. Please visit www.emeraldinsight.com/authors for more information.
                                                                        About Emerald www.emeraldinsight.com
                                                                        Emerald is a global publisher linking research and practice to the benefit of society. The company
                                                                        manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as
                                                                        providing an extensive range of online products and additional customer resources and services.
                                                                        Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee
                                                                        on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive
                                                                        preservation.

                                                                                                        *Related content and download information correct at time of download.
The current issue and full text archive of this journal is available at
                                                                                                                         www.emeraldinsight.com/2040-8269.htm

                                                                        MRR
                                                                        36,1                                 Effective international expansion
                                                                                                             strategies of emerging countries:
                                                                                                             the strategies that helped Arçelik
                                                                        4
                                                                                                                                                        Tanses Gülsoy
                                                                                                                                          Beykent University, Istanbul, Turkey
                                                                                                                                                         Özlem Özkanlı
                                                                                                                                       Ankara University, Ankara, Turkey, and
Downloaded by ONDOKUZ MAYIS UNIVERSITY At 02:16 02 November 2014 (PT)

                                                                                                                                                         Richard Lynch
                                                                                                                                            Middlesex University, London, UK

                                                                                                             Abstract
                                                                                                             Purpose – This paper aims to present the case study of Arçelik, which has become Turkey’s leading
                                                                                                             manufacturer and exporter of home appliances, as a means of offering insight into why, how and with
                                                                                                             what results companies from developing countries expand internationally.
                                                                                                             Design/methodology/approach – Primary data have been drawn from in-depth interviews
                                                                                                             conducted with senior executives and industry experts, and this has been based on a statistical
                                                                                                             analysis of the export and international strategies of Turkish home appliance and television set industry.
                                                                                                             Findings – The evidence indicates that international expansion may buffer a firm against
                                                                                                             fluctuations of demand in its home market and provide opportunities for growth. Difficulties faced by
                                                                                                             a later arrival from a developing country are greater than established rivals, and a developing country
                                                                                                             firm will have to rely on different resources and different operational strategies in developed vs
                                                                                                             developing markets.
                                                                                                             Research limitations/implications – Even though one case cannot yield general conclusions, it
                                                                                                             may indicate fruitful theoretical directions. This study raises issues worthy of further investigation.
                                                                                                             On the outset, it would be useful to apply the four propositions to more Turkish MNEs in order to test
                                                                                                             the robustness of the conclusions.
                                                                                                             Practical implications – The study has important implications for companies from developing
                                                                                                             countries. First, international expansion appears to be a viable means of offsetting home-market volatility
                                                                                                             for emerging-country firms. Second, international expansion is still predicated on significant investments
                                                                                                             in firm-specific advantages and their development may shorten the internationalization process.
                                                                                                             Originality/value – The report contributes to knowledge in the area of international expansion of
                                                                                                             companies from developing countries by providing evidence on how one company has achieved a world
                                                                                                             position in a highly competitive market through selective use of quality, innovation, and branding based
                                                                                                             on the competitive position that is available in each of its chosen markets. In particular, it contributes to
                                                                                                             the limited evidence on the international expansion of Turkish companies at the present time.
                                                                                                             Keywords Developing country strategy, Turkey, International expansion, Developing countries,
                                                                                                             Manufacturing industries
                                                                                                             Paper type Case study

                                                                                                             The authors would like to express their sincere appreciation for the kind participation of Arçelik
                                                                        Management Research Review
                                                                        Vol. 36 No. 1, 2013                  and former as well as current Koç Group executives and the two industry experts in the study.
                                                                        pp. 4-32                             The authors would also like to acknowledge the Editor of the Management Research Review,
                                                                        q Emerald Group Publishing Limited
                                                                        2040-8269
                                                                                                             Professor Joseph Sarkis, and the two anonymous reviewers of MRR for their guidance and
                                                                        DOI 10.1108/01409171311284567        insightful comments.
Introduction                                                                                 International
                                                                        Over the last 20 years, Turkey has significantly increased its international trade in           expansion
                                                                        manufactured products. It is possible that this has been built on the basis of its
                                                                        lower labor costs compared with those of developed countries. While the basic                    strategies
                                                                        evidence of Turkish trade development is clear, there has been only limited research on
                                                                        the business logic behind such growth, the reasons for choosing particular forms
                                                                        of expansion and the outcomes of such strategies at the present time for Turkish                         5
                                                                        companies.
                                                                           In order to explore these issues, we have undertaken a study of the Turkish
                                                                        manufacture and export of home appliances companies, focusing in particular on the
                                                                        market leader Arçelik. We have chosen this company because of its successful
Downloaded by ONDOKUZ MAYIS UNIVERSITY At 02:16 02 November 2014 (PT)

                                                                        international expansion in terms of sales and profitability, especially in Europe. We
                                                                        acknowledge that two Harvard case studies were developed on this company (Root and
                                                                        Quelch, 1997; Ghemawat, 2008) and a working paper (Bonaglia et al., 2008), but it has
                                                                        changed substantially since that time. It is possible that our research may provide some
                                                                        assistance both to individual companies and to national policy makers on future export
                                                                        development. However, our primary purpose is to shed further light on the content and
                                                                        process by which companies from developing countries pursue effective international
                                                                        expansion strategies. Specifically, from a Turkish perspective, we investigate what
                                                                        motivates an emerging market firm to diversify into a developed market, given that it
                                                                        operates with resource disadvantages, and how, given its relative resource
                                                                        disadvantages, it is able to compete successfully against better-endowed and more
                                                                        established rivals. The purpose of this paper is to contribute to the understanding of the
                                                                        why and how of international expansion of emerging market multinationals into
                                                                        developed countries. Specifically, it contributes to the limited literature on Turkish
                                                                        companies at the present time.
                                                                           The paper is structured as follows: following this introduction section, we review
                                                                        the literature and present our propositions. Next, we describe our research
                                                                        methodology. Using the empirical data plus archival research, we then examine our
                                                                        propositions. We conclude the paper with discussion of our findings, implications, and
                                                                        an exploration of future research considerations.

                                                                        Literature review and research framework
                                                                        Although the literature in international business research is extensive and continues to
                                                                        grow (Werner, 2002), and research in emerging markets and MNEs has been popular
                                                                        especially over the last decade (Pillania and Fetscherin, 2009), Axinn and Matthyssens
                                                                        (2002) have argued that most theories on international strategies focus on explaining
                                                                        the behaviour of large firms from developed countries. They do not provide the same
                                                                        insights into the behaviour of firms from developing nations in the international
                                                                        marketplace. Given the emergence of companies from new international trading
                                                                        nations like India, China, and Turkey, the authors argue that it is imperative to look at
                                                                        new empirical evidence, rather than rely on existing theories of international trade. The
                                                                        existing theories such as the Uppsala model ( Johanson and Vahlne, 1977) and the
                                                                        eclectic paradigm (Dunning and Lundan, 2008) have been criticized for failing to
                                                                        account for various aspects of the internationalization of companies from emerging
                                                                        economies (Li, 2003; Mathews, 2006). Equally, Buckley (2002) commented that the
                                                                        entry of developing countries as major players in the global economy may give new
MRR    impetus to such research. This is echoed by other scholars’ calls for research into
                                                                        36,1   strategies for firms from emerging economies (Peng, 2005).
                                                                                   The existing research on the internationalization of companies from developing
                                                                               countries focuses on how these companies overcame the multiple challenges of the
                                                                               liability of foreignness and the liability of being a latecomer (Condo, 2000; Li, 2003), as
                                                                               well as the push and pull factors of internationalization for those firms (UNCTAD,
                                                                        6      2006; Amighini et al., 2010). A number of studies have examined the choice of country,
                                                                               choice of entry mode, and the sequence and timing of entry (Delios and Henisz, 2003;
                                                                               Cuervo-Cazurra and Genc, 2008; Sun, 2009).
                                                                                   The preferred mode of empirical research appears to be the case study (Duysters et al.,
                                                                               2009; Liu and Buck, 2009; Sun, 2009; Pillania, 2009) because it offers important insights
Downloaded by ONDOKUZ MAYIS UNIVERSITY At 02:16 02 November 2014 (PT)

                                                                               into the complex internationalization process of companies from developing countries.
                                                                                   In this stream of research some attention has also been devoted to Turkish
                                                                               international strategy, including routes to development (Batra et al., 2010; Anıl and
                                                                               Özkasap, 2010; Gülsoy et al., 2009; Ghemawat, 2008; Bonaglia et al., 2007, 2008;
                                                                               Bonaglia and Goldstein, 2007; Karabatı and Tan, 2005; Erdilek, 2003, 2008). However,
                                                                               the research is essentially incomplete and needs further empirical evidence. It largely
                                                                               remains to be explored, for example, how Turkish companies, operating with resource
                                                                               disadvantages against developed market companies in a mature industry, are able to
                                                                               expand internationally (in other words, whether they possess certain capabilities that
                                                                               enable them to compete with their more established rivals), their reasons for going
                                                                               overseas, why they have made their particular choices in terms of geographic market
                                                                               and market segment, timing of entry, and mode of entry, and with what consequences.
                                                                                   The above issues can be explored under the topics of the benefits and difficulties for
                                                                               developing country firms as they attempt to internationalize and the learning and
                                                                               adaptation processes they go through as they compete with their established rivals.
                                                                               Zhu et al. (2011) propose a model focusing on these four elements of the
                                                                               internationalization process of emerging-country firms: benefits, difficulties, learning,
                                                                               and adaptation. Their model suggests that developing country firms stand to gain a range
                                                                               of benefits from going global though these may be different from the ones experienced by
                                                                               their established rivals, and they face greater difficulties than their established rivals. The
                                                                               model also suggests that developing country firms may experience a shorter learning
                                                                               process because they both have the benefit of the example of their forerunners from
                                                                               developed countries and they may utilize the emerging new technologies and globalization
                                                                               to leapfrog some of the stages experienced by those forerunners. Furthermore, the model
                                                                               proposes that latecomers will need to adapt innovatively to the market environment, and
                                                                               this adaptation process will be shorter in other developing countries.
                                                                                   This paper examines the above issues using evidence from Turkey’s home
                                                                               appliances industry and the market leader Arçelik. Specifically, we look at how home
                                                                               market conditions affected international expansion strategy. We chose to study Arçelik
                                                                               because it has made international expansion part of its corporate strategy over a period
                                                                               of nearly ten years. We used personal interviews, company document analysis and
                                                                               archive research to collect the data.
                                                                                   In the following section we examine the four propositions taken from Zhu et al. (2011)
                                                                               model regarding international expansion strategies for companies from developing
                                                                               countries.
The benefits of a global strategy for later arrivals                                            International
                                                                        One of the main reasons for internationalization has been identified as diversifying               expansion
                                                                        economic and sometimes political risks (Ghoshal, 1987). Empirical work suggests that
                                                                        a recession in the domestic market acts as a trigger for domestic firms to consider entry           strategies
                                                                        into overseas markets that are less affected by recession (Kizilbash and Maile, 1977;
                                                                        Rao et al., 1983; Caruana et al., 1998; Erdilek, 2008; Çarkman, 2009).
                                                                            Intensifying home market competition due to the entry of leading international                          7
                                                                        brands can also propel firms to seek market opportunities abroad (Child and Rodrigues,
                                                                        2005). The degree of home industry competition has been shown to be a significant factor
                                                                        in driving the internationalization of firms from emerging economies (Yiu et al., 2007).
                                                                        Risk reduction has been shown to be a motive for companies from developing or
Downloaded by ONDOKUZ MAYIS UNIVERSITY At 02:16 02 November 2014 (PT)

                                                                        transition economies in their international expansion efforts (UNCTAD, 2006, p. 156). In
                                                                        fact, in a study of Thai multinationals, Pananond asserts that in the face of an
                                                                        intensifying global competition that is moving closer to the home market, “International
                                                                        expansion has moved from an alternative to, perhaps, a key survival strategy”
                                                                        (Pananond, 2009, p. 346).
                                                                            Other benefits of a global strategy can be summarized as economies of scale and
                                                                        scope, lower labor costs, location advantage, recovery of high research and development
                                                                        costs across the maximum number of customers, loyalty derived from global brands,
                                                                        and the ability to exploit home-country resources to deliver global competitive
                                                                        advantage (Porter, 1986; Craig and Douglas, 2000; Fladmoe-Lindquist and Tallman
                                                                        (1994) as cited in Zhu et al. (2011)). A benefit specifically pertinent to developing country
                                                                        firms may be access to various kinds of resources that home countries or firms are
                                                                        lacking (Mathews, 2006). Latecomers from emerging countries may exploit changing
                                                                        consumer tastes and emerging new technologies, while skipping the lengthy
                                                                        trial-and-error experience of the incumbents (Cho et al., 1998).
                                                                            This leads us to our P1:
                                                                           P1.   Companies in developing countries can gain a range of benefits from going
                                                                                 global, which can be different from those of their established rivals.

                                                                        The difficulties of a global strategy for later arrivals
                                                                        While international expansion represents opportunity for firms from emerging
                                                                        markets, it also presents significant challenges. These challenges come in the form
                                                                        of inexperience, lack of resources and capabilities, the market dominance of
                                                                        well-established rivals, and consumer loyalty to existing brands (Cuervo-Cazurra and
                                                                        Genc, 2008). Research shows that few multinational enterprises can claim to be purely
                                                                        global or local, making it difficult to fully benefit from an integrated global strategy
                                                                        (Douglas and Wind, 1987; Birkinshaw and Morrison, 1995; Rugman and Oh, 2008).
                                                                        Some of the other difficulties may be listed as differences in cultural, political,
                                                                        geographic, and economic factors (Ghemawat, 2001); barriers to trade; complex and
                                                                        costly knowledge transfer; and insufficient economies of scale (Ghemawat and
                                                                        Ghadar, 2000).
                                                                           For home appliances companies, brand loyalty may be one of the most difficult
                                                                        challenges to overcome as it is a very important competitive factor in the industry
                                                                        (Paba, 1986), and a new brand of white goods in an existing market may face a
                                                                        significant barrier in the form of costs of advertising and other selling costs
                                                                        (Baden-Fuller and Stopford, 1991). Initial negative quality associations among potential
MRR    clients due to the products’ country-of-origin may be yet another formidable barrier as
                                                                        36,1   negative country-of-origin effects lower consumer expectations of quality and
                                                                               willingness to pay higher prices (Magnusson et al., 2008). The problems of branding
                                                                               are further compounded by the lack of international marketing and managerial
                                                                               experience of latecomers from developing countries. This leads us to our P2:
                                                                                  P2.   Companies from developing countries will face greater difficulties than those
                                                                        8               experienced by well-established existing firms, especially in technological
                                                                                        capability, and international marketing and managerial experience.

                                                                               The learning process of later arrivals
                                                                               Mathews (2006) argues that the learning process of a company from a developing
Downloaded by ONDOKUZ MAYIS UNIVERSITY At 02:16 02 November 2014 (PT)

                                                                               country is fundamentally different from that of a company from a developed country.
                                                                               Cho et al. (1998) confirm the existence of the “born as latecomers” dilemma found in the
                                                                               catching up process of the Korean semiconductor industry. Thus, the building of a
                                                                               global strategy will have to be predicated on technological capabilities and
                                                                               organizational structure change. However, it may be possible for late entrants to learn
                                                                               from their established rivals and thereby overcome the difficulties faced earlier by them
                                                                               (Mathews, 2006; Craig and Douglas, 2000). This leads us to our P3:
                                                                                  P3.   Companies from developing countries may experience shorter learning
                                                                                        processes than their well-established rivals, but these need to be facilitiated by
                                                                                        advances in technology and progress in other aspects of globalization.

                                                                               The adaptation process of later arrivals: emerging market vs developed market
                                                                               The effects of globalization on companies may involve the adaptation of organizational
                                                                               forms and practices, the adaptation of products and services, and the adaptation of
                                                                               culture and custom (Tempel and Walgenbach, 2007; Calantone et al., 2004). We would
                                                                               like to suggest that later arrivals are more likely to come from developing countries
                                                                               and therefore have greater familiarity with the business opportunities and issues of
                                                                               such countries. Therefore, later arrivals from developing countries will have shorter
                                                                               adaptation processes in similar countries. This leads us to our P4:
                                                                                  P4.   Companies from emerging countries that arrive later into an existing global
                                                                                        market will have a shorter adaptation process when they enter other emerging
                                                                                        countries than when they enter a developed country.

                                                                               Research method
                                                                               We have taken an eclectic approach to the gathering of data. Our approach has been to
                                                                               examine the existing trade and company data in Turkey from an international
                                                                               development perspective.
                                                                                  In addition to undertaking a statistical analysis of the Turkish home appliances
                                                                               industry, we have also, on a historical basis, conducted 25 face-to-face interviews – two
                                                                               with senior industry representatives, 19 with senior Arçelik executives, one with an
                                                                               executive from the foreign trade company of the Koç Group, Ram, and one with the first
                                                                               country manager of Beko UK, over a period of 35 months in order to gain a historical and
                                                                               in-depth perspective on the trends in the industry. Two executives were interviewed
                                                                               twice – the two interviews were separated by 15 months in one instance, and by
                                                                               eight months in the other. The Arçelik executives included four assistant general
managers, the sales directors for the company’s two main home appliances brands                         International
                                                                        Arçelik and Beko, the sales director for Europe, America, and Asia Pacific, the strategic                 expansion
                                                                        planning director, production technologies director, supply chain director, human
                                                                        resource director, and several managers of key departments. (Please see Table I for the                     strategies
                                                                        full list of respondents.) Interviewees were selected on the basis of their position in the
                                                                        company; however, we have taken care to select whenever possible those executives
                                                                        with longer company tenure.                                                                                          9

                                                                        Order in the                                                          Arçelik or other Koç Group
                                                                        interviewing Respondent’s title/position                              Company executive’s tenure at
Downloaded by ONDOKUZ MAYIS UNIVERSITY At 02:16 02 November 2014 (PT)

                                                                        sequence     in the company                    Interview date         Arçelik or the Koç Groupa

                                                                         1            Manager – International Sales,   April 3, 2009; June 20, Entered Arçelik in 1982
                                                                                      Africa Division                  2011
                                                                         2            Industry body representative     December 10, 2009
                                                                         3            Industry body representative     January 29, 2010
                                                                         4            Assistant General Manager/       March 2, 2010           Entered the Koç Group in 2002
                                                                                      Finance
                                                                         5            Assistant General Manager/       January 24, 2011       Entered Arçelik in 2009
                                                                                      Marketing
                                                                         6            Director – Strategic Planning    January 24, 2011       Entered Arçelik in 2009
                                                                         7            Assistant General Manager/       January 31, 2011       Entered Arçelik in 1986
                                                                                      Sales – Turkey, Middle East,
                                                                                      Africa and Turkic Republics
                                                                         8            Director/Sales – Europe,         February 11, 2011;     Entered the Koç Group in 1992
                                                                                      America, Asia Pacific            October 28, 2011
                                                                         9            Arcelik Sales Director –         June 13, 2011          Entered the Koç Group in 1990
                                                                                      Turkey
                                                                        10            Beko Sales Director – Turkey     June   20,   2011      Entered the Koç Group in 1988
                                                                        11            R&D Director                     June   22,   2011      Entered Arçelik in 1992
                                                                        12            Marketing Director – Turkey      June   22,   2011      Entered the Koç Group in 1994
                                                                        13            Assistant General Manager/       June   28,   2011      Entered Arçelik in 1980
                                                                                      Chief Operating Officer
                                                                        14            Director – Production            July 5, 2011           Entered Arçelik in 1991
                                                                                      Technologies
                                                                        15            Manager – Energy and             July 26, 2011          Entered Arçelik in 1992
                                                                                      Environment
                                                                        16            Director – Supply Chain          July 26, 2011          Entered the Koç Group in 1989
                                                                        17            Manager – Central Quality        August 9, 2011         Entered Arçelik in 1981
                                                                                      Assurance
                                                                        18            Industrial Design Manager        September 15, 2011     Entered the Koç Group in 1990
                                                                        19            Human Resource Director          September 22, 2011     Entered the Koç Group in 1994
                                                                        20            Product Group Manager            October 7, 2011        Entered Arçelik in 1996
                                                                        21            R&D Innovation and System        October 11, 2011       Entered Arçelik in 1992
                                                                                      Development Manager
                                                                        22            Sales and Marketing Business     February 24, 2012      Entered the Koç Group in 1988
                                                                                      Unit Manager, Ram
                                                                        23            First Country Manager of Beko    February 27, 2012      Entered the Koç Group in 1979
                                                                                      UK
                                                                        Note: aThe tenure of some of the respondents has not been continuous, with some having left Arçelik           Table I.
                                                                        or the Koç Group for some time before returning again                                                      Respondents
MRR    The interviews were also undertaken to develop an understanding of why various
                                                                        36,1   strategies were adopted. For reasons of confidentiality, we do not identify the individual
                                                                               managers (beyond references to their titles, company association and the length of their
                                                                               tenure with the company or the Koç Group) and the senior industry representatives that
                                                                               we interviewed. However, we are confident that the insights offered by these senior
                                                                               Turkish figures throw new light on the international development strategies of the
                                                                        10     Turkish domestic appliance industry. Prior to the interviews, we identified the relevant
                                                                               senior executives and made appointments to see them. In most cases the interviews
                                                                               lasted one-and-a-half to 2 hours each. (In one instance two respondents were interviewed
                                                                               simultaneously.) 21 interviews were tape-recorded, and four interviews were
                                                                               documented by written notes. For the tape-recorded interviews we hold the full
Downloaded by ONDOKUZ MAYIS UNIVERSITY At 02:16 02 November 2014 (PT)

                                                                               evidence and have used this in the research material after presenting the industry data.
                                                                               Considering that most of the respondents interviewed belonged to the uppermost ranks
                                                                               of a multinational company, sometimes interviews had to be scheduled months in
                                                                               advance to accommodate the respondents’ busy schedules.
                                                                                  At the outset of our research, the main data sources have been developed under the
                                                                               guidance of the Turkish Statistics Institute, the Export Promotion Center of Turkey
                                                                               İGEME, the State Planning Organisation of Turkey DPT (Demir, 2001), and the Istanbul
                                                                               Chamber of Commerce (Çeşmecioğlu, 2001). We have drawn heavily on these sources in
                                                                               our initial examination of the issues. However, some of this data has been summarized in
                                                                               reports prepared by the Turkish Government and other official organizations and may
                                                                               therefore be subject to the opinions of those tasked with drawing up reports on Turkish
                                                                               international performance. To ensure that our data is accurate and not subject to
                                                                               interpretation bias, we have returned to the raw data from the relevant Turkish
                                                                               Government offices in the compilation of our research rather than rely solely on the
                                                                               finished reports. In addition to Turkish Government official statistics, we have used the
                                                                               business press and other reports to develop as full a picture as possible of the Turkish
                                                                               home appliances industry, its role and strategies in international trade development.
                                                                               Though not all of the above-mentioned sources have been referred to in the following
                                                                               analysis, they were largely responsible for informing it.

                                                                               Brief history of the home appliances industry in Turkey
                                                                               The Turkish home appliances industry has had its beginnings in the late 1950s. The
                                                                               first washing machine was produced in 1959 by Arçelik, using a Belgian license, and
                                                                               the first refrigerator was again produced by the same company in 1960, assembling the
                                                                               parts supplied by an Israeli company (Buğra, 2000, p. 71). Until the 1980s the industry’s
                                                                               development was arrested by a variety of factors: protected by import tariffs and
                                                                               quotas, the few firms operating in the industry appeared content to manufacture
                                                                               mainly for the home market, which, with its young population, continued to grow.
                                                                               There was little foreign competition to encourage industry growth, which was also
                                                                               hampered by dearth of qualified personnel, lack of advanced technology, and the low
                                                                               purchasing power of the consumer (Çeşmecioğlu, 2001, p. 6). Product types and
                                                                               technologies were considered outdated (Özbek, 2001, p. 5).
                                                                                   Following the introduction of a major stabilization program in January of 1980, aimed
                                                                               at curbing inflation, overcoming the scarcities that hindered production, and reducing
                                                                               the foreign trade deficit through the promotion of exports and trade liberalization
                                                                               (Aktan, 1997, p. 174), the industry entered a period of rapid growth, speeding up its
efforts to modernize both its product range and its technologies (Özbek, 2001, p. 5).         International
                                                                        Export incentives helped the Turkish home appliances manufacturers take a big leap in             expansion
                                                                        their early internationalization efforts. The reduction of customs duties in 1989 also
                                                                        facilitated industry growth as domestic manufacturers could now import needed                      strategies
                                                                        components and raw materials with more ease.
                                                                           It was during this period that foreign manufacturers began investing in the Turkish
                                                                        market. The German company Bosch-Siemens Hausgeräte (BSH) was founded here in 1992                      11
                                                                        (“BSH plans new dishwasher plant in Turkey”, 2006), and in 1994 the Italian company
                                                                        Indesit (then Merloni) established a production plant (“Indesit confident in Turkey”, 2010).
                                                                        The entry of foreign competitors increased competition. The end result was the availability
                                                                        of better quality product choices for the consumer (Çeşmecioğlu, 2001, p. 6).
Downloaded by ONDOKUZ MAYIS UNIVERSITY At 02:16 02 November 2014 (PT)

                                                                           Today the status reached by Turkey’s home appliances industry belies its modest
                                                                        beginnings. Turkey is the world’s fourth biggest exporter of home appliances
                                                                        (considering the four major categories of refrigerators, washing machines, dishwashers,
                                                                        and ovens and cookers) (Trade Map, 2010). More than half of all production is exported,
                                                                        and exports of the four major categories account for nearly 2 percent of Turkey’s entire
                                                                        exports in value. Furthermore, Turkish manufacturers are held up as models for other
                                                                        companies from emerging economies to emulate. How has this happened? This question
                                                                        has formed the starting point of this paper, the rest of which will be devoted to exploring
                                                                        the reasons behind.

                                                                        Research results
                                                                        In this part we analyze the four research propositions identified earlier, using evidence
                                                                        from our interviews as well as from our background research. We now use the evidence
                                                                        from our research interviews (Table I).

                                                                        Company profile
                                                                        Arçelik is the leading manufacturer in Turkey’s home appliances market with over a
                                                                        50 percent market share. In 2010 the company had sales of 3.49 billion euros
                                                                        (Arçelik Annual Report 2010), reaffirming its leadership position in Turkey’s consumer
                                                                        durables. White goods accounted for the bulk of net sales by 63.32 percent. In addition to
                                                                        home appliances, the company manufactures consumer electronics and built-in
                                                                        products. Arçelik’s main product group includes refrigerators, washing machines,
                                                                        ovens, dishwashers, and dryers. Refrigerators account for around 38.8 percent of unit
                                                                        sales in the five main categories of white goods, followed by washing machines
                                                                        (29.1 percent), ovens (14.6 percent), dishwashers (13.6 percent), and dryers (3.9 percent)
                                                                        (interview note). The company’s two main brands of Arçelik and Beko together hold
                                                                        nearly 50 percent of the home market and together have accounted for the biggest
                                                                        market share for decades. A third brand, Altus, is positioned as a “value brand” (Arçelik
                                                                        Annual Report 2010, p. 25). Grundig home appliances are a recent addition to the
                                                                        company’s home market offerings. Arçelik also manufactures air conditioners in a joint
                                                                        venture with LG (Arçelik-LG).
                                                                            Founded in 1955, Arçelik produced Turkey’s first washing machine (1959) and
                                                                        first refrigerator (1960). Today it is the flagship of the Koç Group of Companies,
                                                                        Turkey’s largest conglomerate and among the 100 largest publicly traded companies in
                                                                        Europe, which owns 57.2 percent of Arçelik (Koç Holding – 40.51 percent, other
                                                                        Koç Group – 16.69 percent). The Burla Group controls 17.6 percent of shares while
MRR    25.2 percent of shares are traded publicly on the Istanbul Stock Exchange
                                                                        36,1   (Arçelik Annual Report, 2010, p. 17). The company was Turkey’s sixth largest
                                                                               industrial organization in 2010 (Istanbul Chamber of Industry, 2011).
                                                                                  Arçelik is Europe’s third largest manufacturer of home appliances, commanding the
                                                                               leadership position in the Romanian market and the number two position in the UK
                                                                               market (Arçelik Annual Report 2010, p. 26). The company has 11 production plants in
                                                                        12     four different countries (these include besides Turkey, Romania, Russia, and China),
                                                                               a sales and marketing organization in 19 different countries, and sells its products and
                                                                               services in more than 100 countries (Arçelik Annual Report 2010, pp. 22-3). The company
                                                                               has 19,000 employees around the world, with nearly 23 percent located outside of
                                                                               Turkey in the company’s subsidiaries (Arçelik Annual Report 2010, p. 60). In July 2011
Downloaded by ONDOKUZ MAYIS UNIVERSITY At 02:16 02 November 2014 (PT)

                                                                               the company agreed to purchase Defy Appliances in South Africa from Franke Holding
                                                                               AG (“Arçelik, Franke’nin elinden”, 2011), which added three more production plants and
                                                                               brought the total number of employees up to 21,500 (note from short telephone interview
                                                                               with the company’s corporate communications director in February 2012).

                                                                               Arçelik’s international expansion
                                                                               Enjoying the largest share of a growing domestic market for decades, Arçelik could
                                                                               perhaps be thought of as a company that did not need to expand beyond national
                                                                               borders. Apparently, so did Arçelik – until about the 1990s. The story of Arçelik’s
                                                                               international expansion has important implications for other companies from emerging
                                                                               markets. (See Table II for a summary of the company’s internationalization venture).

                                                                               Phase I of Arçelik’s international expansion – until the 1990s
                                                                               The founder of the Koç Group of Companies, Mr Vehbi Koç (1901-1996) ardently
                                                                               believed in the benefits of exportation and foreign partnerships. In his memoirs he
                                                                               narrates that he set up a canned foods company with exporting as his aim from the start
                                                                               (Koç, 1983, p. 79). In the 1940s Mr Koç became a sales agent for US Rubber, Oliver,
                                                                               Burroughs, York, and Ford (Dündar, 2006, pp. 286, 288), and in 1948 he laid the
                                                                               groundwork for a factory to manufacture light bulbs with General Electric (Dündar,
                                                                               2006, p. 288).
                                                                                  Exportation of Arçelik production began in 1967 on a limited and sporadic basis,
                                                                               mostly as a response to government incentives. In the words of one Arçelik executive,
                                                                               the attitude towards exportation was “selling abroad what was left over after domestic
                                                                               demand was met” (Mamulattan Markaya, 2001, p. 309). Exporting was looked upon as a
                                                                               way of raising foreign currency to finance the company’s importation, and as such it was
                                                                               a “necessity” (Mamulattan Markaya, 2001, p. 244). Thus, the late 1960s and the 1970s
                                                                               turned out to be the period of Arçelik’s “exportation experiments,” as the company
                                                                               learned about upgrading product quality, packaging and shipment (Mamulattan
                                                                               Markaya, 2001, p. 310).
                                                                                  A serious decline in home demand in the early 1980s caused the company to
                                                                               reexamine its product-oriented strategy, and Arçelik reorganized in 1983 to be more
                                                                               consumer-oriented (Mamulattan Markaya, 2001, pp. 265-7). In 1983 an export
                                                                               department was established (Mamulattan Markaya, 2001, p. 320), which engaged a
                                                                               series of original equipment manufacturing (OEM) contracts in the 1980s and 1990s to
                                                                               American and European manufacturers (Table II). By 1996, 50 percent of washing
International
                                                                        1967   The company exports for the first time
                                                                        1970   The trading company Ram, Turkey’s first foreign trade company, is established                         expansion
                                                                        1975   General Electric technology licenses received for white goods                                          strategies
                                                                        1983   An export department established
                                                                        1985   Washing machine technology licensed from Bosch-Siemens
                                                                        1988   Turkey agrees to a schedule of phased tariff reductions with the EU
                                                                        1988   Arçelik starts OEM exporting to the USA for Sears Roebuck                                                          13
                                                                        1991   The company’s R&D Center set up
                                                                        1996   Turkey enters the Customs Union with the European Union
                                                                        1997   Start of OEM exporting to Europe: a contract with Whirlpool signed for dishwashers
                                                                        1997   All manufacturing plants receive ISO 14001 certification
                                                                        1998   Six-Sigma quality program introduced
Downloaded by ONDOKUZ MAYIS UNIVERSITY At 02:16 02 November 2014 (PT)

                                                                               Reorganization of the household appliances division of Koç Holding begins
                                                                        1999   Joint venture with LG of Korea to set up Turkey’s first air conditioner manufacturing facility
                                                                        2001   Turkey enters one of the most severe economic recessions in its history
                                                                        2001   The marketing and sales activities for products bearing the Beko brand name, formerly carried
                                                                               out by Beko Ticaret, are taken over by Arçelik
                                                                        2002   After an unsuccessful bid for France’s Brandt the previous year, Arçelik buys Blomberg
                                                                               (a subsidiary of Brandt in Germany), Elektra Bregenz (Austria) with its brands Elektra Bregenz
                                                                               and Tirolia, the British home appliances brands Leisure (cookers) and Flavel (appliances and
                                                                               TV sets), and the Romanian refrigerator producer Arctic
                                                                        2004   Joint acquisition of Grundig brand of televisions with the British Alba Plc
                                                                        2005   A greenfield plant is launched in Russia (Fedorovskoe Village, Kirzhach Region) to manufacture
                                                                               washing machines and refrigerators, with production beginning in 2006
                                                                        2006   Reorganization of Arçelik and Beko Elektronik in Turkey, with Arçelik becoming the majority
                                                                               shareholder in Beko
                                                                        2007   A washing machine factory (Changzhou Casa-Shinco) in China acquired, with production
                                                                               beginning later the same year
                                                                        2007   Beko Elektronik acquires the remaining shares of Grundig, thereby becoming the sole owner
                                                                               of the company and brand
                                                                        2009   Grundig Elektronik merged with Arçelik
                                                                        2011   Agreement to acquire Defy Appliances in South Africa from Franke Holding AG.
                                                                               The acquisition is finalized by the end of 2011 (Kara, 2011, p. 19)
                                                                        Notes: Brands: Arçelik, Beko, Blomberg, Elektra Bregenz, Arctic, Leisure, Flavel, Altus, Grundig                     Table II.
                                                                        (Arçelik Annual Report 2010 and www.arcelikas.com)                                                               Milestones in
                                                                        Source: Arçelik and Koç Holding annual reports, Arçelik web site www.arcelikas.com; Mamulattan       Arçelik’s international
                                                                        Markaya (2001), Ghemawat (2008), Bonaglia et al. (2007) and Root and Quelch (1997)                         expansion strategy

                                                                        machine exports and 30 percent of refrigerators’ were under OEM contracts (Bonaglia
                                                                        and Goldstein, 2007, p. 22).
                                                                            From its OEM experience, Arçelik appears to have gained significant benefits. These
                                                                        include learning the standards of production to be achieved so as to be competitive in
                                                                        foreign markets, the packaging, and the logistics of volume exporting, as well as the ability
                                                                        to leverage this knowledge in its home market (Mamulattan Markaya, 2001, p. 310).
                                                                            Until the 1990s Arçelik appears to be building its technology and improving the
                                                                        quality of its processes and products through strategic alliances with foreign companies.
                                                                        But, the focus was decidedly on the home market. The preceding decades appear to have
                                                                        been a period of learning for the company. The primary benefits to be gained from
                                                                        international expansion at the time were seen to be opportunity provided by large-scale
                                                                        sales to neighboring markets, desire to compensate for foreign currency shortages, and
MRR    through OEM contracts, access to more advanced technology and market knowledge,
                                                                        36,1   both of which could be leveraged to the company’s advantage in the home market. Thus,
                                                                               these were different from such benefits as economies of scale, lower labor costs, or access
                                                                               to natural resources that are traditionally associated with international expansion.

                                                                               Phase II: the challenge of the Customs Union – the 1990s
                                                                        14     The 1994 annual report of the Koç Group included the following warning:
                                                                                  The prospect of Customs Union with the European Union from 1996 means that over time we
                                                                                  may see some erosion of the impressive dominance that we have had in all major household
                                                                                  products (p. 21).
Downloaded by ONDOKUZ MAYIS UNIVERSITY At 02:16 02 November 2014 (PT)

                                                                               The Customs Union with the EU that went into effect in 1996 signalled an important
                                                                               turning point for Turkish manufacturers. The removal of protective barriers meant
                                                                               that Turkish goods would now be exposed to more intensive competition from import
                                                                               brands. The Customs Union could, therefore, be considered a litmus test of a brand’s
                                                                               competitiveness.
                                                                                  One executive who has been with Arçelik since 1994 recalled:
                                                                                  The Customs Union was a turning point. It caused important changes in the company. “If [the
                                                                                  customs barriers] are going down, then we will persevere, and in fact, be better than
                                                                                  they.”[. . .] We never lost our confidence (Respondent 16).
                                                                               This was a challenge Arçelik had been preparing for since the 1980s by upgrading
                                                                               quality and productivity (Mamulattan Markaya, 2001, pp. 282-8). In fact, the Koç Group
                                                                               appears to be one of the first Turkish companies to adopt such total quality
                                                                               management practices as quality circles in 1983 (Muluk et al., 2000). By 1995 all Arçelik
                                                                               plants had received ISO 9001 quality certification. Using just-in-time and flexible
                                                                               manufacturing systems, productivity was improved (Root and Quelch, 1997, p. 4). The
                                                                               company chose to focus on increasing productivity because competing on price would
                                                                               have been more difficult as Arçelik had to source some of its inputs from abroad
                                                                               (Mamulattan Markaya, 2001, p. 336).
                                                                                   Earlier the company had licensed technology from GE and Bosch-Siemens in order
                                                                               to maintain its market leadership at home (interview note). After the Customs Union,
                                                                               however, producing its own technology became an imperative for Arçelik because
                                                                               onetime partners in the protected Turkish market would now become rivals unwilling
                                                                               to share technology (Mamulattan Markaya, 2001, p. 344).
                                                                                   To get around the restrictions accompanying licensed technology and to be able to
                                                                               compete against would be rivals in the home market post-Customs Union (interview
                                                                               note), Arçelik established a Research and Development Center in 1991. Today around
                                                                               700 people work there, and nearly half of all international patent applications from
                                                                               Turkey are made by Arçelik, which, in 2008, was the only Turkish company in the WIPO
                                                                               list of the world’s top 500 patent league. Annual R&D budget is around 2 percent of
                                                                               annual revenues (interview note).
                                                                                   At the beginning of 1995 a major reorganization throughout the company, which
                                                                               resulted in a more horizontal structure, was aimed at facilitating product development
                                                                               and launch as well as increasing communication and initiative (Arçelik Annual Report
                                                                               1994, p. 13). At that time a separate R&D tier was formed at the individual factory level.
                                                                               While the central R&D department would focus on basic research activities, the “product
R&D” departments were going to carry out product development. An executive who has                     International
                                                                        been with the company since 1991 remembered:                                                              expansion
                                                                           At that time responsibility and authority was expanded to lower levels in the company, and              strategies
                                                                           teams were formed. These teams were enabled to conduct the functions of production and
                                                                           product development. [. . .] Product research and development was given to the factory, which
                                                                           means the factory was empowered (Respondent 14).
                                                                                                                                                                                         15
                                                                        Again in the mid-1990s total productive maintenance was adopted – a management
                                                                        approach aimed at eliminating line stoppages and the concomitant losses by
                                                                        maintaining all systems and equipment continually and promptly all of the time, with
                                                                        machine operators doing most of the work (Goetsch and Davis, 2006). The director of
Downloaded by ONDOKUZ MAYIS UNIVERSITY At 02:16 02 November 2014 (PT)

                                                                        production technologies explained the consequences of the implementation of total
                                                                        productive maintenance principles from the perspective of the individual machine
                                                                        operator:
                                                                           Before I was simply pressing the start-and-stop button. Now I begin to check whether the
                                                                           machine is leaking oil. [. . .] I begin calling the station my own. Before I would call
                                                                           maintenance people if there was a problem. Now I am preventing those problems from
                                                                           occurring, or when they occur, I fix them. Consequently, first of all, I feel more important, and
                                                                           secondly, I own up my job. When you look at it, this is an important change (Respondent 14).
                                                                        The initial total quality management and research and development efforts were
                                                                        mainly targeted at bolstering the company’s position in its home market and were not
                                                                        in and of themselves a preparation for eventual internationalization. Explained an
                                                                        executive who, in 1986, started out at Beko Ticaret, the distribution firm for Beko
                                                                        products, and later passed on to Arçelik:
                                                                           In those days I don’t think large-scale exporting was the intention. In fact, consider that none
                                                                           of our manufacturing plants is located near ports, but inland (Respondent 7).
                                                                        Nonetheless, as production capacity grew, exportation came to be seen as a necessity.
                                                                        Recalled another executive who also started out at Beko Ticaret in 1988 to
                                                                        subsequently join Arçelik:
                                                                           The production numbers did not meet costs. Either we were going to grow or we were going
                                                                           to quit (Respondent 10).
                                                                        Another challenge came in the form of a steep devaluation of the Turkish lira in 1994.
                                                                        Exports were important also to counter the increase in imports. In December of 1995, an
                                                                        executive meeting reached the decision to open up to markets beyond Turkey
                                                                        (Mamulattan Markaya, 2001, pp. 325-6).
                                                                           Despite these strategic goals, however, even in the year 2000, foreign sales accounted
                                                                        for only about 16 percent of Arçelik’s annual net sales (Table III). Part of the reason may
                                                                        have been management indecisiveness regarding the balance of domestic vs
                                                                        international focus, owing to the complacency nourished by an already large
                                                                        and growing home market that delivered a higher unit profit margin (Root and
                                                                        Quelch, 1997, p. 12).
                                                                           In summary, the 1990s were a period of upgrading quality, laying the groundword
                                                                        for technology production, and organizational restructuring in preparation for the
                                                                        impending arrival of powerful foreign competitors post-Customs Union. This was also
                                                                        the beginning of developing an international strategy, based on the desire to take
MRR
                                                                                                                                                                            Share of net international
                                                                        36,1                                 Net sales       Net domestic sales   Net international sales    sales in total net sales
                                                                                                    Year   (million euros)    (million euros)         (million euros)                   (%)

                                                                                                    2000        1,564              1,317                     247                      15.79
                                                                                                    2001        1,295                823                     472                      36.45
                                                                        16                          2002        1,900                944                     956                      50.32
                                                                                                    2003        2,082              1,082                   1,000                      48.03
                                                                                                    2004        2,686              1,516                   1,170                      43.56
                                                                                                    2005        3,741              1,876                   1,865                      49.85
                                                                                                    2006        3,873              2,005                   1,867                      48.21
                                                                                                    2007        3,725              1,928                   1,797                      48.24
Downloaded by ONDOKUZ MAYIS UNIVERSITY At 02:16 02 November 2014 (PT)

                                                                        Table III.                  2008        3,574              1,804                   1,770                      49.52
                                                                        Distribution of net sales   2009        3,065              1,474                   1,591                      51.91
                                                                        between domestic and        2010        3,487              1,718                   1,769                      50.73
                                                                        international markets,
                                                                        2000-2010                   Source: Company annual reports

                                                                                                    advantage of growth opportunities, economies of scale, and the ability to develop
                                                                                                    technology. While the impetus behind Arçelik’s drive to develop its own technology
                                                                                                    was the desire to overcome licensing restrictions in the home market, the leverage that
                                                                                                    capability provided for the company in foreign markets soon became apparent as will
                                                                                                    be discussed in the section on “Capability upgrading and organizational restructuring.”
                                                                                                    This suggests that any emerging-country firm attempting to become a player in the
                                                                                                    international arena must first develop some firm-specific advantages.

                                                                                                    Phase III: recession of 2001 and after
                                                                                                    In 2001 Turkey experienced a severe recession with the GNP falling in real terms by
                                                                                                    9.4 percent (Öniş, 2003, p. 15). The subsequent rise in unemployment contributed to a
                                                                                                    38 percent reduction in domestic demand for household appliances in the four major
                                                                                                    categories (TÜRKBESD, 2010), and the company revised its strategy. Two critical
                                                                                                    decisions were made: to turn westward and to accelerate growth through acquisitions.
                                                                                                       Remembered one longtime-serving executive:
                                                                                                       One of the most important reasons for our expanding abroad was the contraction of the home
                                                                                                       market. Turkey was a widely fluctuating market. Inflation was very high. There were days
                                                                                                       we could not see as far as the next day. How realistically can you do annual planning [under
                                                                                                       those circumstances]? 2001 was the most critical turning point (Respondent 10).
                                                                                                    Another executive explained the impact of the 2001 economic crisis:
                                                                                                       The 2000-2001 crisis was a crisis that affected the management’s outlook. The crisis
                                                                                                       apparently showed management that the company had to increase its presence in foreign
                                                                                                       markets. 2001 showed that a single-market growth strategy was not a sustainable growth
                                                                                                       strategy. What happened after 2001? The company did what it had to do in international
                                                                                                       markets: chose to grow through acquisitions (Respondent 4).
                                                                                                    In 2002 Arçelik acquired a number of well-known brands in Europe one after another
                                                                                                    (Table II), thereby increasing its revenues and market share in Europe (Arçelik Annual
                                                                                                    Report 2004). Between 2001 and 2002, international sales increased by 146 percent
                                                                                                    (Arçelik Annual Report 2002, p. 7).
This was also the time when the company decided to concentrate on Western                    International
                                                                        markets. Explained Respondent 7:                                                                  expansion
                                                                           The question was should we go to Europe or to other countries? In 2001 we turned our face       strategies
                                                                           to Europe. We chose the UK because we had had an operation there for ten years. The
                                                                           groundwork of those ten years was a big asset to us.
                                                                        The same respondent also emphasized that in 2001 the company realized international                      17
                                                                        expansion was an imperative for growth.
                                                                           In 2004 the Koç Group of Companies announced that to compensate for signs
                                                                        of contraction detected in the domestic market for 2005, the target would be to
                                                                        derive half of Group revenues from international sales (Koç Holding Annual Report
Downloaded by ONDOKUZ MAYIS UNIVERSITY At 02:16 02 November 2014 (PT)

                                                                        2004, p. 7). In 2005 Arçelik invested in a production plant in Russia; in 2007 it
                                                                        bought a factory in China (Table II). Acquisitions look likely to continue; in July
                                                                        of 2011, Arçelik agreed to acquire the South African home appliances manufacturer
                                                                        Defy.
                                                                           Between 2002 and 2006, the company nearly doubled its net sales (Arçelik Annual
                                                                        Report 2006). In 2009, a global recessionary year, the company achieved the highest
                                                                        profitability level in its history, and in a contracting European market, managed to
                                                                        increase its sales by 15 percent. By 2011 Arçelik was drawing 51 percent of its annual
                                                                        net sales from international sales (Arçelik Annual Report 2010).
                                                                           The 2001 recession appears to have provided the main impetus behind Arçelik’s
                                                                        accelerated internationalization efforts in the 2000s. Diversification of risk through
                                                                        diversification of geographical markets was the main benefit realized from the strategy
                                                                        vigorously pursued in the years following 2001. Reaping the benefits of international
                                                                        expansion, however, was predicated on decades-long investments in quality upgrading,
                                                                        human resources, and technology development, as to be outlined in the following two
                                                                        sections.

                                                                        Choice and succession of foreign markets: benefits, difficulties, learning, and adaptation
                                                                        In the early years of its internationalization effort, the company was mainly exporting to
                                                                        the countries of Middle East and North Africa. The main reasons were the constraints
                                                                        imposed by the technical standards of Western markets (Mamulattan Markaya, 2001,
                                                                        p. 315), and proximity and logistics.
                                                                            Thus, Western markets were shied away from due to concerns regarding standards
                                                                        rather than cultural distance or dearth of ethnic communities there. Apart from the
                                                                        unfamiliar standards, an issue in some European markets was the image of poor
                                                                        quality associated with Turkish products. Consequently, exporting to the markets of
                                                                        Western Europe appears to have become an ideal, and its achievement was regarded a
                                                                        significant accomplishment.
                                                                            The markets of the Middle East and Africa, by contrast, had compatible standards
                                                                        and similar ways of conducting business. But, they presented challenges as well. These
                                                                        challenges came in the form of institutional constraints such as the legal framework,
                                                                        protectionist import regimes, transportation costs, problems in banking transactions,
                                                                        and the necessity of training the after-sales personnel; as well as small markets and
                                                                        a myriad different product types (interview note). In some of these markets political
                                                                        instability was also a problem. These difficulties were apparently surmounted
                                                                        by the resourcefulness of the company’s managers. The cultural affinity, the similarity
MRR    of the markets – or in some cases the sense of having passed through the very same
                                                                        36,1   stages earlier – were helpful in taking a hold in these markets.
                                                                                  The markets of Western Europe became more attractive as the Customs Union
                                                                               approached. The company regarded those markets as an opportunity to learn its would
                                                                               be competitors in the home market and a testing ground of its capabilities in preparation
                                                                               for defending its domestic market share post-Customs Union (Root and Quelch, 1997, p. 8).
                                                                        18        The regime changes in Eastern Europe in the late 1980s gave Arçelik a unique
                                                                               business opportunity. The company took advantage of a rise in prices in East European
                                                                               countries to move in the UK market to meet demand for table-top refrigerators
                                                                               (Mamulattan Markaya, 2001, p. 316; Çarkman, 2009, p. 141). Choosing the UK market
                                                                               because it was price-sensitive and not dominated by domestic brands (Root and Quelch,
Downloaded by ONDOKUZ MAYIS UNIVERSITY At 02:16 02 November 2014 (PT)

                                                                               1997, p. 9) and had minimal customs duties (interview note), the company emphasized
                                                                               brand sales from the beginning and built a successful business selling Beko-branded
                                                                               table-top refrigerators.
                                                                                  Arçelik chose not to concentrate on a niche market in the UK, in contrast to some
                                                                               developing country multinationals who enter developed countries through niche
                                                                               markets (Khanna and Palepu, 2006; Child and Rodrigues, 2005). Explained Respondent 1,
                                                                               who started out at the foreign trade company Ram in 1982 and was one of the closest
                                                                               witnesses of the company’s internationalization venture at the time by being personally
                                                                               involved in sales (though in different markets):
                                                                                  We did not begin as a niche [player], no. Our vision was to be one of the top ten brands in the
                                                                                  world with Beko by 2010. This cannot be done as a niche player.
                                                                               In the UK the product had begun to be regarded as a commodity, and therefore a new
                                                                               brand did not face a disadvantage; the consumer was open to trying it if you gave the
                                                                               requisite service, explained Respondent 12. Hence, it appears as though being a late
                                                                               entrant provided the company an advantage in a mature industry and a mature market
                                                                               that is different from the benefits enjoyed by early movers. Today the UK is the
                                                                               company’s biggest market after Turkey. In time the company upgraded its product
                                                                               range to include larger home appliances with more distinctive features. In fact,
                                                                               the widening of the model range, necessitated by the decision to enter the UK market
                                                                               with the Beko brand, served to increase the company’s export markets in Europe in the
                                                                               1990s, noted Respondent 23, who also credited the Beko brand’s growth in its home
                                                                               market partially to its success in the UK.
                                                                                   Some of the problems encountered in European markets, apart from negative
                                                                               country-of-origin associations, were the many different competitive brands already
                                                                               established in those markets and the different channels of distribution, which included
                                                                               chain stores, hypermarkets, kitchen channels, and wholesalers (interview note).
                                                                               Its OEM production in the 1980s and 1990s helped the company in countering some of
                                                                               these challenges when it increasingly emphasized branded growth in the 2000s: the
                                                                               channels were familiar with the company, and the fact that it had manufactured for
                                                                               some of the world’s best-known brands served as a reference (interview note).
                                                                                   The ways in which Arçelik has countered the challenges regarding its branded
                                                                               products are detailed in the next section; these can be summed up as investments in
                                                                               quality and research and development, flexible production planning, and innovative
                                                                               channel management. But, the difficulties encountered are not minimized by company
                                                                               executives. “A new battle is won every day,” remarked Respondent 6.
By 1992, Arçelik was accounting for 60 percent of Turkey’s entire refrigerator exports    International
                                                                        (Mamulattan Markaya, 2001, p. 344), and in 1993 the company had already become one of             expansion
                                                                        Europe’s top ten manufacturers, with 40 percent of refrigerator production and
                                                                        20 percent of dishwashers exported to Western Europe (Mamulattan Markaya, 2001,                    strategies
                                                                        p. 357). In 1995, when Arçelik’s internationalization could still be considered in its
                                                                        infancy (the entire export volume totaled 40 million dollars), the company had already
                                                                        started looking westward, and within three-and-a-half years, exports nearly quadrupled                   19
                                                                        to 150 million dollars (Mamulattan Markaya, 2001, p. 320).
                                                                            A big part of the reason for taking on the European market was the
                                                                        existence there of a market with a higher purchasing power (interview note).
                                                                        Working initially with local importers and distributors in Europe, the company learned
Downloaded by ONDOKUZ MAYIS UNIVERSITY At 02:16 02 November 2014 (PT)

                                                                        to deal with both local and international competition (Mamulattan Markaya, 2001,
                                                                        p. 320).
                                                                            The former Eastern bloc countries also offered an advantage: the absence of
                                                                        latecomer liability. Arçelik entered these markets around the same time as the big
                                                                        global players. Additional advantages may have been the low brand loyalty to global
                                                                        brands and, concomitantly, the absence of prejudice against brands of developing
                                                                        countries (interview note). In fact, in some of these markets, the company’s products
                                                                        were more advanced than the available local brands, which facilitated their adoption
                                                                        by the consumer.
                                                                            Furthermore, the chain stores commonly used for the distribution of home appliances
                                                                        in West European markets were often nonexistent in the former Soviet bloc countries,
                                                                        and Arçelik could capitalize on its decades-old experience of setting up an exclusive
                                                                        distributor network (through main distributors), which proved to be a competitive
                                                                        advantage especially in some of the East European markets (such as Serbia and
                                                                        Bosnia and Herzegovina) and the Turkic Republics (interview note). For instance,
                                                                        of the 500 exclusive Beko dealerships the company has overseas, 150 of them are in
                                                                        Azerbaijan. That skill, which the company had painstakingly built over the years
                                                                        (Buğra, 2000), helped Arçelik gain a competitive advantage over its foreign rivals also in
                                                                        its home market.
                                                                            In the countries of the Middle East and Africa, “made in Turkey” holds a lot of
                                                                        prestige, noted Respondent 7, as do the names of Arçelik and Koç. Since the main
                                                                        competitor brands in each market are different, the brand has to be positioned anew
                                                                        market by market. The company uses different product mixes for its different markets.
                                                                        For instance, the appliances for some of the markets in the Middle East and Africa
                                                                        have to be designed to withstand voltage fluctuations.
                                                                            The end result was that in 2010 the majority of overseas sales in monetary terms were
                                                                        accounted for by Western Europe (27.96 percent), followed by CIS and Eastern Europe
                                                                        (14.17 percent), with Africa and the Middle East constituting 7.02 percent – a small but
                                                                        growing share (in 2008 this region of the world represented only a 5.15 percent share)
                                                                        (company records). Today, Arçelik is active in 13 Middle Eastern countries, 19 African
                                                                        countries, and all of the Turkic Republics.
                                                                            In short, Arçelik’s international expansion followed a traditional trajectory. The
                                                                        company first began exporting to developing countries, and then with growing capacity
                                                                        and increasing capabilities, entered developed countries.
                                                                            Around the same time, the company also entered the countries of Eastern Europe and
                                                                        the Turkic Republics, with the regime changes of the 1990s. While the developed
You can also read