It is a common fact that companies which are
entering a foreign market using the greenfield investment strategy sooner or
later reach the point where their business fails. According to Görg (2000) are greenfield investments the greatest
involvement in international business. A greenfield investment tends to be in
fact risky due since companys have to buy the land, build the facility and
operate the business on an ongoing basis in a foreign market.
The step towards internationalization is for
many companies primarily a reaction
on circumstances associated with goals. These
include, among others
the requirement or chance of sales increase,
the customer approach in foreign
markets and the reduction of production and
labour costs (Hua & Upneja, 2007). Therefore, it is
understandable why companies expand their business. Taking advantage of the
development and growth of other market, gaining important information about
other customers, markets and competitors in a particular industry or sector and
even the cultural diversity of teams in global companies (Gülsoy, Özkanl?, & Lynch, 2012).
However, the decision to sell in another market
is associated with difficulties, requires different and complex strategies and is
time consuming. As noted by Gülsoy, Özkanl?, & Lynch (2012), Cuervo?Cazurra and Genc, (2008) explains that international expansion
represents significant challenges. Most of these challenges come from inexperience,
lack of resources and capabilities, the market dominance of well?established
rivals, and consumer loyalty to existing brands.
Some of the other difficulties could be
differences in cultural, political, geographic, and economic factors; barriers
to trade; complex and costly knowledge transfer (Ghemawat & Ghadar, 2000).
Failure in international expansion could be
just as likely as success. Therefore, it is questionable that literature concerning
the success factors of international expansion exist in large amounts, whereas
literature concerning critical risks and factors contributing to failure in the
greenfield investments hardly exists at all. Internationalization theories are
generally aiming to help businesses succeed (Godley,2001). It is likely that
theories concerning the factors that may lead to failure may benefit business
As globalization seems to get more and more
important for more and more businesses, the need for good knowledge and
theories surrounding these topics are growing. Through this research of
companies’ failure when expanding in another country, the author hopes to find
some of the critical mistakes and misjudgements that were made in process of
deciding why and where to expand.
The special focus of this paper will be put on the greenfield investment, as
several studies (Görg, 2000; Bartlett &
Ghoshal, 2000) claim this to be the most the cosliest and chansiest marekt
The aim of this work is to
introduce failure businesses are facing when expanding to a foreign country.
The objective is to measure the difficulties companies face when expanding business
internationally. Moreover, the thesis will investigate the groups of companies
that went abroad with their business.Furthermore, factors that leaded to
failure when going abroad in order to determine the reasons why the businesses
On the basis of the stated research aims the
author has formulated the following research question:
companies fail when expanding their business to foreign countries?
RESEARCH OBJECTIVES ILI NE?!?!?
Applied research is carried out to solve the
research question and to understand the issue. Additionally, explanatory research
will be conducted in order to assess factors that contributed to the failing of
the 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 provide
insights why companies went abroad with their business and to generalize why
some of them failed.
In the interest of collecting the information
that is needed to answer the research questions, the researcher mentions the
appropriate methods which will be applied. For the study purpose only secondary
data is used. A detailed literature review is based mainly on academic articles
and books in combination with internet sources. The secondary data has been
collected to cover every aspect of the study, showing the difficulties
companies face when expanding their business in a foreign country and to
determine why some of them have failed.
Experimental method is not found suitable for
this study because the topic is a theoretical topic and there is no need to
have experiments. The author is investigating issues that happened in the past.
To find some answers
to why businesses fail when going international, the researcher will look at the
external and internal factors and time during the sojourn in the foreign
country they expanded in. Last but not least, the author will compare a large
number of companies using the greenfield investment.