It is a common fact that companies which areentering a foreign market using the greenfield investment strategy sooner orlater reach the point where their business fails.
According to Görg (2000) are greenfield investments the greatestinvolvement in international business. A greenfield investment tends to be infact risky due since companys have to buy the land, build the facility andoperate the business on an ongoing basis in a foreign market. The step towards internationalization is formany companies primarily a reactionon circumstances associated with goals. Theseinclude, among othersthe requirement or chance of sales increase,the customer approach in foreignmarkets and the reduction of production andlabour costs (Hua & Upneja, 2007). Therefore, it isunderstandable why companies expand their business. Taking advantage of thedevelopment and growth of other market, gaining important information aboutother customers, markets and competitors in a particular industry or sector andeven the cultural diversity of teams in global companies (Gülsoy, Özkanl?, & Lynch, 2012). However, the decision to sell in another marketis associated with difficulties, requires different and complex strategies and istime consuming.
As noted by Gülsoy, Özkanl?, & Lynch (2012), Cuervo?Cazurra and Genc, (2008) explains that international expansionrepresents significant challenges. Most of these challenges come from inexperience,lack of resources and capabilities, the market dominance of well?establishedrivals, and consumer loyalty to existing brands. Some of the other difficulties could bedifferences in cultural, political, geographic, and economic factors; barriersto trade; complex and costly knowledge transfer (Ghemawat & Ghadar, 2000).
1 Aims ofthe researchFailure in international expansion could bejust as likely as success. Therefore, it is questionable that literature concerningthe success factors of international expansion exist in large amounts, whereasliterature concerning critical risks and factors contributing to failure in thegreenfield investments hardly exists at all. Internationalization theories aregenerally aiming to help businesses succeed (Godley,2001).
It is likely thattheories concerning the factors that may lead to failure may benefit businessequally much. As globalization seems to get more and moreimportant for more and more businesses, the need for good knowledge andtheories surrounding these topics are growing. Through this research ofcompanies’ failure when expanding in another country, the author hopes to findsome of the critical mistakes and misjudgements that were made in process ofdeciding why and where to expand.The special focus of this paper will be put on the greenfield investment, asseveral studies (Görg, 2000; Bartlett , 2000) claim this to be the most the cosliest and chansiest marektentry mode. The aim of this work is tointroduce failure businesses are facing when expanding to a foreign country.The objective is to measure the difficulties companies face when expanding businessinternationally. Moreover, the thesis will investigate the groups of companiesthat went abroad with their business.Furthermore, factors that leaded tofailure when going abroad in order to determine the reasons why the businessesfailed.
On the basis of the stated research aims theauthor has formulated the following research question:· Why docompanies fail when expanding their business to foreign countries?· RESEARCH OBJECTIVES ILI NE?!?!?2 ResearchmethodologyApplied research is carried out to solve theresearch question and to understand the issue. Additionally, explanatory researchwill be conducted in order to assess factors that contributed to the failing ofthe company. The enquiry mode applied by the author is a qualitative approach,which will be used in this paper to gain an understanding and to provideinsights why companies went abroad with their business and to generalize whysome of them failed. In the interest of collecting the informationthat is needed to answer the research questions, the researcher mentions theappropriate methods which will be applied. For the study purpose only secondarydata is used. A detailed literature review is based mainly on academic articlesand books in combination with internet sources. The secondary data has beencollected to cover every aspect of the study, showing the difficultiescompanies face when expanding their business in a foreign country and todetermine why some of them have failed.
Experimental method is not found suitable forthis study because the topic is a theoretical topic and there is no need tohave experiments. The author is investigating issues that happened in the past. To find some answersto why businesses fail when going international, the researcher will look at theexternal and internal factors and time during the sojourn in the foreigncountry they expanded in. Last but not least, the author will compare a largenumber of companies using the greenfield investment.