1

CE 726-COURSE SLIDES ON

“INTERNATIONALISATION”

FALL, 2009

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Why does a nation achieve international success in a particular industry? (Porter’s diamond model)

Factor conditions: The nation’s position in factors of production (skilled labour, natural resources etc.) to compete in a given industry.Demand conditions: The nature of home demand for industry’s product/service.Related and supporting industries: The presence or absence in the nation of supplier industries and related industries that are internationally competitive.Firm strategy, structure and rivalry: The conditions in the nation governing how companies are created, organised, managed and nature of domestic rivalry.

+Chance factor

Government factor

Firm structure, strategy

and rivalry

Demand conditions

Factor conditions

Related and supporting industries

The determinants of national advantage (Porter, 1998)

DIAMOND FRAMEWORK

In Porter’s study, ten nations have been selected and the industries in which the nation’s firms are internationally successful were identified.

Diamond framework gives firms an insight into “how to set strategy” in order to become more effective against international competitors.

What is really explored is “the way in which a firm’s proximate environment shapes its competitive advantage over time”. Much is known about what competitive advantage is and how particular actions create or destroy it. Much less is known about why a company makes good choices instead of bad choices in seeking basis for competitive advantage.

Porter’s diamond framework aims to answer “why firms from particular nations choose better strategies than those from others for competing in particular industries.”

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OTHER VIEWS Dunning (1981) argues that firms try to exploit their existing

resource stock (ownership advantages) by internationalisation. Thus, sources of competitive advantage for global firms are conceived to be the resources from the home market.

Mathews (2006) puts forward that skills and knowledge gained as a result of international activity can also be a source of competitive advantage. Inward internationalisation can act as a starting point to internationalisation as knowledge gained from foreign investors can be used to upgrade current skills and help to improve initial, usually technological, weaknesses. Likewise, outward internationalisation, may lead to improvement of these skills and lessons learnt as a result of international activity may result in further sources of competitive advantage.

The question is whether ownership advantages and firm-specific capabilities precede or succeed international activity ?

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DUNNING’S VIEW “The eclectic theory of multinational advantage” cast

by Dunning (1981, 1988) is based on three types of advantages: advantage derived from extending resources such as brands, technology etc. (ownership advantage-O), advantage due to integration of resources worldwide with different costs in different locations (location advantage-L), advantages derived through internalization of activities that would otherwise be dispersed between various firms (internalization advantage-I). In the 1990s, OLI framework is revised to accommodate developments such as international partnerships and appearance of number of firms from emerging economies within the global arena.

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MATHEWS VIEW Mathews (2006) argues that in order to make sense of emerging

economy multinationals’ success in the global economy, an alternative framework is necessary. These firms’ international expansion is driven by resource linkage, leverage and learning (LLL). In order to explain the concept of “resource linkage”, he argues that the firms from emerging economy multinationals is focused not on their own advantages, but on the advantages that can be acquired externally, thus, global orientation becomes a source of advantage. Thus, joint ventures and other forms of collaborative partnership are seen as principal vehicles for reducing risks and gaining competitive advantage. After firms access resources through linkage with external firms, ways are sought to leverage resources. Repeated processes of linkage and leverage may result in organisational learning to perform operations more effectively. LLL framework may explain how initial weaknesses may be turned into core competencies with organisational learning as a result of repeated resource linkage and leverage and finally, how the firms with limited resources can succeed in the global market.

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CRITICISMS TO PORTER Dunning (1993) claims that the

importance of multinational enterprises is underestimated in the diamond framework. Strategies are products of a learning process, thus, companies learn from their international activities as well as their home market conditions. To eliminate this shortcoming, the multi-national activity is defined as the 3rd exogenous variable and Dunning-Porter framework is formulated.

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INTERNATIONALISATION OF TURKISH CONSTRUCTION SERVICES

THE VALUE OF WORKS REPORTED BY THE TCA MEMBER COMPANIES IS MORE THAN 130 BILLION $

THEY ARE OPERATING IN MORE THAN 70 COUNTRIES

1,73,5

6,5

9,8

15,9

19,5

23,6

0

4

8

12

16

20

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2002 2003 2004 2005 2006 2007 2008

Türk Yurtdışı Müteahhitlik Hizmetleri (Milyar ABD $)

1972 - 2008 70 Ülke - Toplam Yurtdışı İş Hacmi 130 Milyar ABD $

TURKISH CONTRACTORS

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INTERNATIONALISATION OF TURKISH CONSTRUCTION SERVICES (1970s)

STARTED IN MID 1970S MAJOR REASONS ARE;INTERNAL FORCES: LOW CONSTRUCTION

DEMAND IN DOMESTIC MARKET. EXTERNAL OPPORTUNITIES: RAPID RISE IN

OIL PRICES CREATED ATTRACTIVE MARKETS (NORTH AFRICA, MIDDLE EAST).

MOST ATTRACTIVE MARKETS ARE: LIBYA, S. ARABIA AND IRAQ.

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INTERNATIONALISATION OF TURKISH CONSTRUCTION SERVICES (1980s)

1984: NATURAL GAS AGREEMENT SIGNED BETWEEN TURKEY AND RUSSIA.

MOST ATTRACTIVE MARKETS : RUSSIAN FEDERATION AND INDEPENDENT REPUBLICS.

1998: BIG ECONOMIC CRISES IN RUSSIAN FEDERATION: CONSTRUCTION ACTIVITIES SUSPENDED.

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INTERNATIONALISATION OF TURKISH CONSTRUCTION SERVICES (1990s)

MOST ATTRACTIVE MARKETS: RUSSIAN FEDERATION, A DIVERSIFICATION IN MARKETS , FALL IN SAUDI ARABIA, IRAQ.

1998: BIG ECONOMIC CRISES IN RUSSIAN FEDERATION: CONSTRUCTION ACTIVITIES SUSPENDED.

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INTERNATIONALISATION OF TURKISH CONSTRUCTION SERVICES (early 2000s)

A SHIFT IN MARKETS: RUSSIAN FEDERATION (19%), TURKMENISTAN (15%), KAZAKHISTAN (11%), AFGHANISTAN (6%) , NEW MARKETS SUCH AS IRELAND, QATAR, INDIA,OMAN ETC.

A SHIFT IN SERVICES: IN PREVIOUS YEARS, HOUSING (40%-25%), IN 2000s, 25% INDUSTRIAL PLANT, 23% ROADS, BRIDGES, TUNNELS, 11% PETR. PLANTS, 7% ADM. BUILDINGS, 5% TRADE CENTERS, 4% CULT./SOCIAL FACILITIES, 2% HOUSING

Türk Müteahhitler Tarafından Üstlenilen İşlerin Bölgesel Dağılımı (2008)

Avrupa ; 6,30%

Afrika ; 15,80%

Orta Doğu ; 27,80%

BDT ; 49,10%

Diğer ; 0,30%

Asya ; 0,70%

2008 STATISTICS

MÜTEAHHİTLİK FİRMALARIMIZIN 2008 YILINDA ÜSTLENDİKLERİPROJELERİN BÖLGELERE / ÜLKELERE GÖRE DAĞILIMI

Bölge / Ülke Proje Sayısı Toplam Proje Bedeli ($) Pay

BDT Ülkeleri 275 11.630.261.430 49,10%

Türkmenistan 97 5.375.902.770 22,70%

Rusya 78 3.387.864.932 14,30%

Azerbaycan 24 1.088.282.553 4,60%

Kazakistan 27 688.564.354 2,90%

Ukrayna 15 680.186.231 2,90%

Gürcistan 11 252.956.004 1,10%

Moldova 3 62.286.000 0,30%

Belarus 4 39.778.972 0,20%

Özbekistan 13 20.217.274 0,10%

Kırgızistan 2 18.013.599 0,10%

Tacikistan 1 16.208.741 0,10%

Orta Doğu Ülkeleri 133 6.578.604.393 27,80%

BAE 26 3.069.010.489 13,00%

Irak 72 1.436.001.931 6,10%

S.Arabistan 14 893.410.100 3,80%

Katar 6 651.799.498 2,80%

Ürdün 4 403.326.647 1,70%

İran 2 102.718.222 0,40%

Suriye 4 14.411.446 0,10%

Yemen 1 5.388.000 0,00%

İsrail 4 2.538.060 0,00%

Afrika Ülkeleri 60 3.748.521.968 15,80%

Libya 36 2.065.280.207 8,70%

Sudan 1 850.000.000 3,60%

Cezayir 14 510.082.035 2,20%

Etiyopya 2 208.299.906 0,90%

Tunus 4 112.075.959 0,50%

Gine 1 1.637.150 0,00%

Cibuti 2 1.146.711 0,00%

Avrupa Ülkeleri 68 1.490.685.210 6,30%

Romanya 42 480.627.242 2,00%

Bulgaristan 5 446.784.045 1,90%

Makedonya 9 306.446.683 1,30%

İrlanda 1 242.083.311 1,00%

Arnavutluk 2 10.790.715 0,00%

Fransa 8 2.682.634 0,00%

Almanya 1 1.270.580 0,00%

Asya Ülkeleri 21 174.640.375 0,70%

Afganistan 19 171.509.111 0,70%

Pakistan 2 3.131.264 0,00%

Diğer Ülkeler 5 62.518.000 0,30%

ABD 2 44.000.000 0,20%

KKTC 3 18.518.000 0,10%

TYPE OF PROJECTS (2008)

Alt Sektörler Proje Bedeli ($) Pay

YAPI

Askeri Tesis 130.303.980 0,6%

Hastane 1.210.156.624 5,1%

İdari Bina 420.546.267 1,8%

Konut 3.915.507.428 16,5%

Sosyal-Kültürel Tesis 2.565.405.800 10,8%

Ticaret Merkezi 2.075.713.530 8,8%

Turistik Tesis 347.274.113 1,5%

ULAŞIM

Havalimanı 1.551.771.358 6,6%

Karayolu/Tünel/Köprü 2.164.743.234 9,1%

Liman 1.019.781.485 4,3%

ENDÜSTRİ

Depo-Ambar 48.987.981 0,2%

Enerji 1.591.080.251 6,7%

Fabrika 1.498.408.417 6,3%

İletişim 224.036.440 0,9%

Santral 1.414.601.300 6,0%

SU İŞLERİBaraj 689.679.613 2,9%

Sulama Sistemleri 856.324.642 3,6%

ALTYAPI

Atık Su 16.005.791 0,1%

İçme Suyu 52.970.209 0,2%

Şehir Altyapısı 1.748.537.166 7,4%

DİĞEREleman Temini 44.312.949 0,2%

Diğer 99.082.798 0,4%

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REASONS OF INTERNATIONALISATION

RECESSION IN THE DOMESTIC CONSTRUCTION MARKET

AS A DIVERSIFICATION STRATEGY FOR RISK REDUCTION

STABILISATION OF CASH FLOWS (US $ EARNINGS )CONCLUSION: UNFAVOURABLE DOMESTIC MARKET

CONDITIONS MOTIVATE TURKISH CONTRACTORS RATHER THAN HIGH PROFITABILITY IN INTERNATIONAL MARKETS. THEY AIM TO DECREASE SENSITIVITY TO DOMESTIC MARKET UP AND DOWNS.

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WHY INTERNATIONALISATION ACCELARETED AFTER 2000?

2001 crises: Low domestic construction volume, “abnormally low tenders”-very competitive domestic market

Learning from foreign partners during 1985 - 2000 in the domestic market (project management, relations with international finance organisations etc.)

Attractive markets: Rich countries (due to rise in oil prices) which are also geographically and culturally close toTurkey

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MAJOR STRENGTHS

RANKING OF TEN LISTED STRENGTHS: CULTURAL, LINGUAL AND RELIGIOUS FAMILIARITY GOOD REFERENCES\CLIENT RELATIONS HIGH RISK TAKING ABILITY LOW LABOUR COSTS RAPID CONSTRUCTION AVAILABILITY OF SKILLED HUMAN RESOURCES HIGH QUALITY OF SERVICES MANAGERIAL CAPABILITY, GOOD PLANNING FINANCIAL STRENGTH GOVERNMENT RELATIONS

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COMPETITIVE STRATEGY

LOW COST ADVANTAGE AS A RESULT OF;

1. LOW COST OF LABOUR

2. CHEAP AND QUALITY MATERIAL FROM TURKEY

3. LOWER TRANSPORATATION COSTS DUE TO GEOGRAPHICAL PROXIMITY

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MARKET STRATEGY

FOCUS MARKETS WHERE ;1. LOW COST ADVANTAGE CAN BE ACHIEVED2. BEING FIRST ENTRANTS ADVANTAGE CAN BE USED3. CULTURAL AND LINGUAL FAMILIARITY GIVE THEM

MAJOR COMPARATIVE ADVANTAGE4. CONDITIONS RESEMBLE TURKEY SO THAT THEY

GAIN ADVANTAGE BECAUSE OF THEIR HOME EXPERIENCE (DEALING WITH BUREAUCRACY, RISK-TAKING, ADAPTATION TO INSTABILITY ETC.)

MAJOR WEAKNESSES: FINANCIAL RESOURCES

GOVERNMENT SUPPORT

STRATEGIC PROBLEMS: OVER-DEPENDENCE ON A SINGLE MARKET DEPENDENCE ON LOW COST ADVANTAGE

WHICH CAN BE EASILY IMITATED LOW LEVEL OF DIFFERENTIATION