Entrepreneurship between Germany and Morocco

Table of Content

List of Abbreviations

List of figures

1 Introduction
1.1 Problem
1.2 Objectives

2 Internationalization theory
2.1 Definition and objective of internationalization
2.1.1 Internationalization based on the product life-cycle phase
2.1.2 Transaction costs theory
2.1.3 Location Theory
2.2 Decisive factors for internationalization
2.2.1 Market Analysis
2.2.2 Preliminary Screening
2.2.3 Short listing of Markets
2.2.4 Selection framework
2.3 Internationalization strategies
2.3.1 Timing strategies
2.3.2 Country specific entering strategy
2.3.3 Selected market entry strategies
2.4 Internationalization process
2.5 Factors determining a successful internationalization
2.6 Internationalization in the case of "Wal-Mart"
2.6.1 Introduction
2.6.2 Background
2.6.3 Wal-Mart Strategy
2.6.4 Conclusion

3 Relevance of Entrepreneurship in the context of Internationalization
3.1 Term and characteristics of Entrepreneurship
3.2 Entrepreneurship and internationalization
3.3 Specifics of transnational management
3.3.1 Transnational organization
3.3.2 Transnational Leadership
3.3.3 Intercultural Management
3.4 Evaluation of entrepreneurship within internationalization

4 Case Study - Internationalization in Morocco as an example
4.1 Presentation of the Country
4.1.1 Introduction to Morocco
4.1.2 Brief historic background
4.1.3 Political Situation
4.1.4 Economic Situation
4.2 Internationalization in Morocco
4.3 Cross-cultural management in Morocco
4.4 Examples of business creation in Morocco
4.4.1 First Case: Auto Parts Germany S.A.R.L.
4.4.2 Second Case: Takoum Germany S.A.R.L.
4.4.3 Third Case: Zaytoon Media S.A.R.L
4.4.4 Forth Case: M7 International S.A.R.L.
4.5 Evaluation and recommendations

5 Conclusion

Appendix

List of Sources

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of Figures

Figure 1: Product life cycle model - Source: http://jpkc.whut.edu.cn

Figure 2: Market selection process - Source: Cf. de Vries, Mayen

Figure 3: Example of a country selection matrix based on McKinsey

Figure 4: Timing strategies - Source: http://business-fundas.com

Figure 5: Market entry and market processing strategies - Source: Meissner/Gerber

Figure 6: Comparison of business dimensions between Germany and Morocco Source: Hofstede

Figure 7: Morocco’s Growth Rate per quarter - Source: Trading Economics

1 Introduction

1.1 Problem

The last decade of Morocco’s economic growth of nearly 5 % a year has attracted many foreign investors. The Kingdom is a regional example regarding its political stability, economic openness and investment strategy. Many investors have chosen Morocco as a target country. Many multi-corporate enterprises are already on the spot. Especially small and medium sized enterprises (SME) tried to benefit as one of the first movers of their branch with entering this market. Some of these companies have their headquarters in Germany (The German chamber of Commerce and Industries counts for more than 350 members).¹ These companies have already stabilized their business structure in Mo- rocco. But those who are still heading towards a business expansion have to plan wisely to avoid unwanted results. Investing in Morocco seems to be an idea to be well consid- ered. Any internationalization decision is influenced by different factors. But successful business creation highly depends on meticulous research and planning. The business creation environment and intercultural issues have to be included into the strategic plan- ning. But also the transnational management after the creation process can cause diffi- culties for an entrepreneur. Finding an efficient organizational form is essential to be able to compete either in its domestic but in particular in a foreign market. Another po- tential risk of failure is the underestimation of the leadership gap resulting from the dis- tance to the headquarters.

1.2 Objectives

Methods: Due to time matters a extensive primary data research is not possible which is why this papers focuses on the utilization of secondary data (for example books, e- books and websites).

Further methods:

- SWOT Analysis of the Moroccan business environment
- Hofstede’s cultural dimensions
- Porter´s five forces

Results: This thesis analyzes the framework which determines successful transnational business creation and management between countries. A strategy will be described which considers internal and external factors of doing business between Morocco and Germany as an example. Different cases of successful entrepreneurial activities and internationalization in Morocco will be described. The findings and suggestions will be included in the conclusion.

2 Internationalization theory

2.1 Definition and objective of internationalization

There has been extensive research on the term of internationalization which lead to a wide range of definitions.² Firms can choose from a wide range of potential paths how it wants to internationalize.³ Some of the most common definitions describe internationalization as "...a process of increasing involvement in international operations"⁴ or as "...gradual process whereby a firm develops a network o global trade relationship".⁵ Internationalization cannot be fully explained by one theory but the mentioned will be taken as a reference definition. The concept of Calof and Beamish regards internationalization as a dynamic and adjustable process.⁶ Naidu emphasizes the role of relationship and its importance for an internationalizing company.⁷

Summarizing, internationalization can be seen as "a process through which a firm moves from operating in its domestic market place to international markets by adapting the firms operations such as strategy, structure, and resources, to the international envi- ronment”. Internationalization theory applies that its process is based on the reason that production done by only one company is more profitable than splitting the process into many companies. One reason for internationalization is technology transfer. A company with advanced technology might get interested in a foreign market where backward technology is used.

The transfer of technology might cause problems for example regarding the transfer mode. Especially in underdeveloped areas the actual value of knowledge is rarely ap- preciated. As packing and shipping of know-how is not always easy and intellectual property protection is not always guaranteed other approaches has be considered. That is why many companies prefer direct investment over the sale of technology to other companies in the target market. The second reason is the continuing vertical integration of the value chain. A cooperation between two companies will lead on disputes as com- pany A wants to lower and company N to increase prices of resources respectively. Continuous coordination problems will arise. There will be always supply imbalances because of the separated companies and the tie needed to adjust the supply to the de- mand. A vertical integration would solve these problems and bring out a smoother value creation process.⁸

2.1.1 Internationalization based on the product life-cycle phase

According to Vernon the internationalization process is based on the product life-cycle model. The assumption that information flow between different countries straitened and that a product runs through different stages within its life-cycle. These phases affect the company´s internationalization strategy. Three main conclusions were made regarding the different target groups and countries and the expected economies of scale within the production process. The first conclusion is "The innovation of new products and pro- cesses is more likely to occur near a market where there is a strong demand for them than in a country with little demand". The second "A businessman is more likely to supply risk capital for the production of a new product if demand is likely to exist in his home market than if he has to turn to a foreign market." And the third conclusion is..."A producer located close to a market has lower cost in transferring market knowledge into product design changes than one located far from the market."⁹

The international product life-cycle theory implies that a market entry into a foreign country´s market depends on the current phase of the product´s life cycle.

In the first stage of the newly introduced innovative product the growth rate is high de- spite of the relatively high prices. Production is completely based in the home country and heading to foreign markets in the growth phase is unusual. With the first foreign customers demand the export begins. Due to the increasing demand and market penetra- tion the production has to expand. This brings the competition into the arena. The suc- cess was observed and more companies start the production of the product and profit from their steeper learning curve. This leads to higher standardization and decreasing prices because of a higher competition and economies of scale. The need of better pro- duction costs lead on to an implementation of mass production. The decreasing growth rates in the maturity stage in the home market will then make an export strategy neces- sary. Countries in a similar industrialization stage are preferred as the first target mar- kets. With a rising demand in the foreign country building up local production is desira- ble. Especially countries with lower production costs can be taken into consideration. In the declining phase in the home country, the demand is decreasing and the production becomes unattractive compared with the better production prices abroad. The remaining demand in the home country is supplied by foreign production (figure 1).¹⁰

Abbildung in dieser Leseprobe nicht enthalten

Figure 1: Product life cycle model source: http://jpkc.whut.edu.cn

2.1.2 Transaction costs theory

With the internationalization theory of Buckley and Casson they developed an approach to describe the possibilities of international transaction especially of multinational en- terprises (MNE). These are enterprises who own and control activities in different na- tions. Casson and Buckley divide the international transactions into two different groups. The transactions which were made externally through the market (export or license agreements etc.) and in-house through hierarchy (foreign direct investments). These two different ways have to be compared. The comparison between the transaction costs when carried out externally and the internal coordination costs when carried out in-house will give a hint for the decision making. Transaction costs are always caused by market imperfections. One of them is the lack of reliable future forecasts. This be- comes necessary because of the time lag between the decision to act and the termination of the business activity. Secondly an integration of the complete process can be attrac- tive to create a monopoly. Third, unequal knowledge of product value between seller and buyer and indeterminate bargaining situations due to bilateral monopoly are possi- ble market imperfection. Fourth, the legal differences between two countries regarding tariffs, restrictions, taxation can also be the source of imperfection.

Imperfection can be split into ex ante costs, such as the initiation and negotiation costs of contracts, and ex-post-costs which can arise through supervision and modifying the contracts. This theory suggests to carry out international transactions over the market whenever the costs are lower than an in-house coordination of the activities. But other positive effects of an integration have also to be taken into consideration. Examples are economies of scale or the direct coordination of all activities. The conclusion of the the- ory is that MNE appear only where the transaction costs are higher than an allocation of international resources within the internal organizational structure. But there are also other motives to internationalize. One of them is the need of a supplier to follow a satis- fied customer of the domestic market in a foreign country. The two presented theories do not consider the cultural and language barriers. But these are aspects who can decide about the success of an internationalization.¹¹

There are also other theories which focus on financial factors such as the theory of Rob- ert Alibe. He believes that currencies could also be a major motive to invest in foreign countries. Higher developed countries that have stronger currencies could raise capital in markets with weak currencies and lower rates of interest. Dealing in foreign exchange markets can make the investor gain just through purchase and sales of overvalued and undervalued assets. Rugman, Agmon and Lessard developed a financially based theory which suggests internationalization as an approach to spread risks to maximize the po- tential return on investment. Another aspect is the importance of the location.¹²

2.1.3 Location Theory

Historically this theory is based on the idea that specialization in international trade lets all trade partners benefit.¹³ The location theory implies that the decision about the mar- ket entry is highly depending on the location factors that a country provides.¹⁴ These location factors are mainly concerning financial matters. The available resources are determining the choice for a location including the calculation of the transportation costs and customs duties. In the case that the costs are higher than the production locat- ed in the target country a internationalization becomes attractive. The main determining categories in the analysis are the micro and macro environment.¹⁵ From these two the contextual and transactional risks can be deduced. The contextual risks cover the exter- nal uncertainties such as political risks, ownership risks, operational risks and transfer risks.¹⁶ The business environment affects directly the market entry strategy and mode of a foreign enterprise. For example are restrictions regarding FDI and holding equity of domestic companies influencing the choice of the investment type. Other risks are the protection of intellectual property and demographic matters. This affects not only the demand for technology but also the need for product adaptation.¹⁷

A permanent and consequent evaluation of the macro environment is important to react on upcoming threats to the business.¹⁸ The micro environment is as essential for the company. Internationalization is becoming more a reaction to business influences and threats in particular than a strategic entering of foreign markets.¹⁹ Porter´s model defines five major threats to analyze the micro environment of a business. The categories are the bargaining power of customers and suppliers, the threat of product substitution, the danger of new entrants to the market, and the competition with the already existing providers.²⁰ Meyer suggests that direct investments in foreign countries should analyze the market structure first relying on the following factors:

- Foreign Market potential

How big is the purchasing power of the target market and how will it develop in the future? Are there any trends visible concerning market size, growth and structure?

- Industry cluster

How is the local infrastructure? How is the disposability of local component suppliers? How are the freight rates and are there signs for the development in the future?

- Factor costs and productivity

How is the availability of labor and how high are the rates and what will they be like prospectively? Is further training necessary and how loyal are the employees abroad?

- Production and engineering

Which are the common manufacturing methods in the target country? Does the handling of the specific machines need specialized personnel and is it available?

- Political and legal factors

How is the protection of private equity against government access? How is the protection of intellectual property? Are there signs for changes regarding taxes and subsidies? How is the legal framework and how easy can companies assert legal claims?²¹

2.2 Decisive factors for internationalization

After completing the penetration of the domestic market, a company has to evaluate the possibility of developing new markets. The internationalization strategy has to be well over thought. It has to match the companies’ goals, structure, and environment. An ex- perienced company regarding internationalization can benefit from its experiences. Oth- erwise, a new methodology regarding the market selection process has to be developed from the scratch. Often an internationalization does not rely on a scientific approach or a systematic process but on experience of customers, competitors, or suppliers who are already operating in the foreign market. Customer or supplier might overrate the new market to force a partner company into the new market for its own benefits. Getting the right or any information from a competitor is nearly impossible. That is why - except when a customer guarantees a certain purchase quantity - an own investment in data acquisition is recommended. The determinants for internationalization are often not transparent, and the decisions are often pushed by individuals. If a company has often to decide whether to enter a new market or not a decision making process has to be set up. Often the process of analyzing the reasons for entering a market can bring transparency to the decision making and improve its internationalization strategy step by step. If there are no pull-factors as described earlier the decision to internationalize comes from the company itself. This lead to the next step, the selection of one of the about two hundred possible target countries. As there are millions of possible criteria which can be includ- ed in a catalog, a simplification has be done prior. One possible approach is based on Russow. He is convinced that the selection should consider at least 150 variables to make a well-informed choice.²² It is a big challenge to choose the right criteria, while not ignoring important factors and not trailing away into too many details. The next chapters will describe an approach between these two extremes which allows to be implemented in daily internationalization practice. The market selection should not be an extreme in-depth analysis, which is unusual and uneconomic to use in real business. The internationalization process can be split into three or more parts.

2.2.1 Market Analysis

Regarding the definition of the term "market analysis" this study refers to the idea of Olfert and Rahn. They see market analysis and market research as synonyms while market research is any organized effort to gather information about markets or custom- ers and market analysis is made at a fixed date. Otherwise it would concern the market monitoring which studies a time period.²³ There are two methods of market analysis: Primary and secondary research. The first one can also be called "field research". It means that primary data is been selected on its own while secondary research is indicat- ing "desk research". During desk research existing data will be evaluated. A direct data collection is not part of it. Often market research is already made in this area and the data only has to be reviewed and analyzed. The first thing to do is to realize the compa- ny´s international marketing objectives. Only after doing that and considering the over- all marketing objectives and the company´s corporate strategy a matching international marketing strategy can be created. A specific criteria which can be in favor of an activi- ty regarding one objective might threaten achieving the other objectives. The next step is defining the parameters for the market selection. As mentioned, this paper will con- centrate on the most important factors which are determining the selection of a market and its decision making process. The chosen criteria have to be based on measurability, accessibility, profitability, and enforceability.

2.2.2 Preliminary Screening

The next part after the selection of the determination factors, a screening of possible target markets has to be made. Countries for example who are obviously not matching the attractiveness of the company due to the market size can be separated out. Each branch and each domestic country might focus on other determinants for the preliminary screening. Very important factors are the local infrastructure, the size of the population, per capita income and political situation. Of course the political stability play also an important role as a indicator for investment protection. The required data for the pre- screening is often easily available through the Statistical Year Book of the United Na- tions, the World Bank´s World Development Report, or rating agencies. But these only examples for a large variety of possible indicators and key figures to be considered within the decision process.²⁴

2.2.3 Short listing of Markets

The last step before the final decision after the preliminary screening and preselecting a few key markets is analyzing this markets more fine-grained. These markets have to match the company´s needs. For the final selection an evaluation matrix can help to get an overview. It compares different markets focusing on chosen determinants and indicate the market attractiveness through visualizations or key figures.²⁵

Abbildung in dieser Leseprobe nicht enthalten

Figure 2: Market Selection Process Source: de Vries, Mayen

2.2.4 Selection framework

Of course not every country and every market is equally attractive to the company. There are three criteria to prioritize target markets by their potential:

- their future attractiveness
- their firm’s strengths and capabilities relative to the segments’ needs
- competitive situation

As mentioned in chapter 2.2 not every business unit should be allowed to develop an own approach to evaluate the potential of alternative market segments. An overall strategy with a common analytical framework across segments is recommended. One possible approach to compare the future potential of different segments is the marketattractiveness/competitive-position matrix (figure 3 as an example). It uses the a set of criteria and then prioritizes them to decide which segments to target and how resources and marketing efforts should be allocated. Managers have to utilize a models like this at the corporate level to decide how to allocate resources.

Abbildung in dieser Leseprobe nicht enthalten

Figure 3: Example of a country selection matrix based on the McKinsey matrix

Step 1: Select Market-Attractiveness and Competitive-Position Factors

A list with possible questions to define the criteria for market attractiveness and competitive advantage is attached - Appendix 1)

Step 2: Weight Each Factor

Each of the chosen factors in step one have to be arrange by indicate its relative importance in the overall assessment. This is made by choosing a weight which will be assigned to each of the major factors.

Step 3: Rate Segments on Each Factor

For this step qualitative and quantitative data has to be collected which assess each of the criteria identified in Step 1.

Step 4: Project Future Position for Each Segment

To forecast the potential future of a market is surely more difficult than evaluating its current stage. But it is a manager´s or entrepreneur´s job to determine how the market’s attractiveness will be in the next three to five years. On the one hand manager has to determine the possibility of changes concerning customer need and behavior, the entry or exit of competitors, or changes in their strategies. On the other he has also to consider possible adjustments in product or process technology, shifts in the economic climate, the impact of social or political trends etc. Additionally a picture of how the business’s competitive position will develop regarding environmental changes.

Step 5: Choose Segments to Target, Allocate Resources

Finally the managers decides if a market is an attractive target. This decision depends mainly on how positive on at least one of the two dimensions, market attractiveness and potential competitive, the indicator is located. Figure 3 shows an example in which all markets positioned in any of the three cells in the upper right-hand corner of the matrix would be an attractive target. But a company might also decide to enter a market that currently falls into one of the middle cells:

(1) If the managers expects an improvement of the market’s attractiveness or their competitive strength over the next few years.
(2) If the markets is seen as stepping-stones for entering larger, more attractive markets in the future
(3) Cost are lower due to a benefit from another entry.

The model of market-attractiveness/competitive position matrix is a guide for strategic objectives and allocation of resources. It helps to decide which segments should currently be targeted.²⁶

2.3 Internationalization strategies

2.3.1 Timing strategies

After selecting the target country and market a decision about the appropriate timing strategy has to be made. Two main approaches can be described. The first is the country specific timing strategy and the other one is the transnational strategy. Especially small and medium sized enterprises (SME) often develop foreign market stepwise within a long period. Usually commencing with export activities in a foreign target country, the SME builds up its own sales company. As this investment poses a risk to the enterprise the right choice regarding the entry and the timing strategy is significant to its success. After defining the target countries the next step is the choose whether to enter different target markets simultaneously or successively. The two different approaches are named waterfall strategy and sprinkle strategy.

2.3.1.1 Waterfall strategy

The waterfall strategy describes an approach which enters one country after the other (figure 4). One advantage is the steeper learning curve. The investor can optimize its strategy by learning from mistakes done in previous markets. Another advantage is that the resources are focused on one market and the risks are minimized. This strategy is especially relevant for entering markets with products with long life cycles. Otherwise a subsequent market entry into the next markets might become irrelevant.²⁷,²⁸

2.3.1.2 Sprinkle strategy

Within the sprinkle strategy the market entering enterprise spreads the risks to different countries. (figure 4). Furthermore the company might profit from economies of scale and has an advantage through the surprise effect. This might be important for a success in highly competitive markets. This strategy assumes that the company cannot handle all entered markets simultaneously. The company has to decide quickly which markets to leave for lack of success and which to follow up.²⁹

Abbildung in dieser Leseprobe nicht enthalten

Figure 4: Timing strategies Source: http://business-fundas.com

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¹ Cf. German Chamber of Commerce and Industry Morocco (2008)

² Cf. Chetty / Campbell / Hunt (2004)

³ Cf. Welch & Luostarinen (1988a)

⁴ Cf. Welch & Luostarinen (1988b)

⁵ Cf. Naidu / Cavusgil / Murthy / Sharkar (1997a)

⁶ Cf. Calof / Beamish (1995)

⁷ Cf. Naidu / Cavusgil / Murthy / Sharkar (1997b)

⁸ Cf. Glowik (2009a)

⁹ Cf. Vernon (1972)

¹⁰ Cf. Market Entry Strategies (2009a)

¹¹ Cf. Glowik (2009b)

¹² Cf. Ryszard Barnat (2005)

¹³ Cf. Hill (2005)

¹⁴ Cf. Welge / Holtbrügge (2003)

¹⁵ Cf. Kutschker / Schmidt (2011c)

¹⁶ Cf. Pan Tse (2000)

¹⁷ Cf. Davidson / McFertidge (1985)

¹⁸ Cf. Glowik (2009c)

¹⁹ Cf. Jones (2001)

²⁰ Cf. Porter (1999)

²¹ Cf. Meyer (2006)

²² Cf. Russow (1989)

²³ Cf. Olfert / Rahn (2010)

²⁴ Cf. World Bank Group (2010):

²⁵ Cf. Cherunilam (2011)

²⁶ Cf. Marketingblog (2013)

²⁷ Cf. ebd., p.256

²⁸ Cf. Backhaus / Büschken / Voeth (2001)

²⁹ Cf. Kutschker / Schmid, (2011a)