Department of Business Studies

Angola An emerging market with potential and risk

A case study of four Swedish Multinational firms

- Alfa Laval

- Atlas Copco

- Ericsson

- IGE

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Summary

DATE: 2008-06-02

LEVEL: Bachelor thesis

RESEARCH FIELD: International business - Department of business studies

AUTHORS:

Name Rikard Andersson Anna Viggeborn Erik Ringlander

Mail rian5381@student.uu.se Anna.viggeborn@gmail.com erri9807@student.uu.se

Tel 070-4414344 070-3645259 073-9656664

TUTOR: Francesco Ciabuschi

TITLE: Angola – an emerging market with potential and risk.

Abstract

The purpose of this study is to examine how the learning process of four Swedish firms in the emerging market

Angola works. Theoretical framework developed identified different theory streams such as; experiential learning,

networks and incremental steps derived from internationalization theory. These theories we believed would explain

the learning process in a market characterized by growth and risk factors. We have interviewed managers operating

in Angola at four Swedish MNC‟s, in which we identified patterns of learning between the firms. Having analyzed

elements from empirical and theoretical framework it can be clearly seen that firms learn through experiential

learning and networks. These two factors can take different pattern forms as it depend on the MNC‟s industry and

the firms experience from previous activities in Angola and nearby countries i.e. incremental steps. Added to the

developed framework are previous experience and the institutions in the market. These five elements are

interrelated, however, firms can learn about the market in a more effective way by understanding the institutional

factors that are present.

Keywords: Angola, emerging market, learning process, network theory.

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Table of contents 1. INTRODUCTION .................................................................................................................................................... 4

1.1 PROBLEM FORMULATION AND PURPOSE ............................................................................................................... 5

1.2 DELIMITATION ..................................................................................................................................................... 5

2. THE LEARNING PROCESS ................................................................................................................................. 7

2.1 THEORETICAL OVERVIEW ..................................................................................................................................... 7

2.2 EMERGING MARKETS ............................................................................................................................................ 8

2.3 THE INTERNATIONALISATION PROCESS................................................................................................................. 8

2.4 THE UPPSALA MODEL AND INCREMENTAL STEPS................................................................................................ 10

2.5 THE UPPSALA MODEL DEVELOPED WITH NETWORKS .......................................................................................... 11

2.6 EXPERIENTIAL LEARNING TO MINIMIZE THE RISKS AND TAKE LARGER STEPS ..................................................... 12

2.7 THE INSTITUTIONAL NETWORK APPROACH ........................................................................................................ 13

2.8 THEORETICAL FRAMEWORK ............................................................................................................................... 16

3. METHODOLOGY................................................................................................................................................. 17

3.1 SAMPLE SELECTION ............................................................................................................................................ 17

3.2 THE INTERVIEWS ................................................................................................................................................ 18

4. FINDINGS .............................................................................................................................................................. 20

4.1 FIRM PROFILES AND THEIR INTERNATIONALIZATION PROCESS............................................................................ 20

4.1.1 Alfa Laval .................................................................................................................................................. 20 4.1.2 IGE ............................................................................................................................................................ 21 4.1.3 Atlas Copco ............................................................................................................................................... 22 4.1.4 Ericsson ..................................................................................................................................................... 22

4.2 THE KNOWLEDGE GATHERING PROCESS ............................................................................................................. 24

4.3 PERCEIVED RISKS IN ANGOLA ............................................................................................................................ 25

4.4 FURTHER AREAS OF IMPORTANCE....................................................................................................................... 27

5. ANALYSIS ............................................................................................................................................................. 28

5.1 THE INTERNATIONALIZATION OF THE MNC’S .................................................................................................... 28

5.2 THE KNOWLEDGE GATHERING PROCESS ............................................................................................................. 29

5.2.1 Incremental steps ....................................................................................................................................... 29 5.2.2 Experiential learning.................................................................................................................................. 31 5.2.3 Networking ................................................................................................................................................ 32 5.2.4 Further areas of importance ....................................................................................................................... 33

6. CONCLUSIONS .................................................................................................................................................... 34

6.1 MANAGERIAL IMPLICATIONS .............................................................................................................................. 35

6.2 FURTHER RESEARCH AREAS ............................................................................................................................... 35

7. REFERENCES ....................................................................................................................................................... 38

8. INTERVIEWS ........................................................................................................................................................ 41

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1. Introduction

The world economy is experiencing a revolutionizing change. A fascinating potential twist of this

global economic shift is that many of the challengers to becoming important markets are those

that until the late 20th century were merely referred to as immature, undeveloped and rather weak.

Brazil, Russia, China and India are all examples of what is referred to as emerging markets.

Emerging markets are defined as growing markets that open up to become more global and who

are in the process of being transformed from an undeveloped market scene into a mature western

capitalistic economy (Jansson, 2007).

Angola is another country that has also been mentioned as being an emerging

market. When the long civil war ended in 2002, Angola‟s economy experienced a massive boost

(East-West Debt, 2005). This economical enhancement was catalyzed by a generous supply of

natural resources like oil, natural gas and diamonds. In 2008, the oil production reached 1.9

million barrels a day making it one of the most productive markets in the world (Espirito Santo,

2008). The export of diamonds is further an area for future growth, as it currently ranks 4th

in the

world with the potential of becoming the world‟s leading diamond market (NE, 2008). With the

abundance of oil, we can see a clear tendency of where the Angolan market is heading.

With general features like high growth, complexity, privatization, and general

societal reforms in the emerging market, this creates barriers. The societal reforms in these

markets often include changes in the countries governance system. This derives from the higher

financial and political instability, exposing investors to market disturbances like high inflation,

unstable GDP, widespread corruption and profound bureaucracy (Jansson, 2007). Nevertheless,

the multinational corporations (MNC‟s) that have decided to stride the current of unfavourable

investment risk and enter the emerging market anyway, may have come to experience a rich

return from their investments. Accordingly, the MNC‟s investing in Angola must regard the

double-edged sword of the emerging market.

In this setting, it is interesting to explore how MNC‟s go about to gather the

knowledge necessary to prevent it from being the victim of investment risks that are present in

the market. According to theory, a firm can learn about the market in order to minimize risks and

to avoid the possibility of making costly mistakes (Forsgren, 2001). Four Swedish MNC‟s; Alfa

Laval, IGE, Atlas Copco and Ericsson that are currently operating in Angola in different

industries, might have all chosen different ways to acquire knowledge. Regardless of what

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strategy they have carried out, a market such as the Angolan would require a lot of experience

and contacts. This is important in order to gain valuable local knowledge about the market and

due to the fact that the environment is unstable.

1.1 Problem formulation and purpose

Building on the introduction about Angola as an emerging market and the challenges firms face,

we state our problem formulation as follows;

How does the learning process work for Swedish MNC’s in an emerging Angolan market?

- A case study of four Swedish MNC’s

The purpose of this thesis is to do a case study examining four MNC‟s learning process in the

Angolan market. We aim to look at theories about experiential learning, network theory, and

incremental steps derived from the traditional internationalization theory such as the Uppsala

model and their influence on the learning process about the emerging market Angola.

By answering our research question, we hope to explore the different firms learning

strategies in a similar setting. This is interesting, as there might exist patterns of how they reduce

their respective perceived risk. Another purpose of the study is to act as a base for further

studies.

1.2 Delimitation

We wish to explore Angola as an emerging market, not the emerging market per se. Exploring

the emerging market is a complementing part of our research scope and we believe that the

characteristics of the emerging market are well applicable on the Angolan market.

The theory about the internationalization process is our base of research, describing

the firms learn, and therefore we will regard the internationalization process as the learning

process in our paper. We have decided to not bring up the theory about Born Globals by Madsen

& Servais (1997), because this theory stream talks about firms entering many countries at the

same time, which is not in our scope of research.

Of the many definitions of psychic distance, we will base our research on the

Vahlne and Wiedersheim-Paul (1973) definition where psychic distance is regarded as factors

that prevent or disturb the flow of information between actors on the international market scene,

because of differences between countries. These factors are language differences, geographical

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distance, differences in political systems and culture. Aside from the obvious language and

geographical distance, we build on the culture aspect, using Hofstedes cultural dimensions. We

acknowledge the distance between Sweden and Angola as being high; however, this includes the

west-African countries and not Angola per se. There also exists some Portuguese influence on the

Angolan culture that is not present in other west-African countries. Further, we limit our study in

not going into these cultural dimensions further. The political system we connect to the emerging

market and the political instability it is characterized with. Moreover, we will use the Vahlne &

Wiedersheim-Paul (1975) establishment chain connected to psychic distance.

There are aspects about general risks for firms entering a new market, such as the

Eclectic Paradigm (Dunning, 1988) conceptualized by Agarwal & Ramaswami, (1992).

However, we choose to not look at the risks from these theoretical patterns, but rather the risks

emanating from the emerging market characteristics as stated by Jansson, (2007).

Moreover, the theoretical debate regarding network theory includes three different

approaches to the „network‟ concept; the industrial network theory (Johanson & Vahlne, 1990),

the institutional network theory (Jansson, 2007) but also the internal and external network theory

(Forsgren et al. 2005). In our study, we will mainly emanate from Jansson‟s definition about the

institutions affecting the network in an emerging market, but also mention internal and external

networks.

Lastly, the industrial surrounding might influence the MNC in certain choices it

makes by forcing it to apply industry standards or norms. This means that we will keep in mind

the size and specific industry of the firms when analyzing the data we collect regarding their

behavior. However, we will not investigate these aspects much deeper as this dimension would

provide a completely new research project.

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2. The learning process

2.1 Theoretical overview

We begin our study by giving a comprehensive theory presentation of how Jansson (2007)

characterizes an emerging market. This is done in order to get an understanding of in which

context learning takes place. Further, the learning process is presented starting with the

internationalization process and its origins in the work of Carlsson (1966). Johansson & Vahlne

(1977, 1990) expands Carlsson‟s ideas in the developing the Uppsala model. This model is

relevant for the investigation since it provides an explanation of how firms can learn about and

enter a new country in different ways with incremental steps. The Uppsala model emphasizes the

importance of learning-by-doing by being active on the actual market as well as other markets.

Therefore, two patterns of learning will be introduced. We will briefly describe the establishment

chain and the most common entry strategies into a new market as there might be connections

between these and the factors influencing the learning process, i.e. psychic distance that are

present in the emerging market. Psychic distance is creating obstacles for firms entering a new

market, and Vahlne & Wiedersheim-Paul (1973) reveal some important factors connected to the

difficulties with learning about the risky market. Moreover, we will introduce the establishment

chain in a combination with high psychic distance by Vahlne & Wiedersheim-Paul (1975).

Emanating from this, we introduce incremental steps, networks and experiential

learning concepts starting with the incremental steps operationalization of the Uppsala model.

Further, Johansson & Vahlne (2001) introduces the industrial network approach applied to the

Uppsala model, marking the importance of network relationships. Forsgren (2002) emphazises

the experiential learning, criticizing the traditional internationalization theory such as the Uppsala

model, and saying that it describes a process that is too slow and time-consuming in a dynamic

market. He argues that the perceived risks of the firm can be diminished, which leads to fewer

and bigger incremental steps. Further, he discusses how current activities influence the firms‟

actions in order to explore new opportunities. Consequently, and as a final, we present a model

by Jansson (2007) derived from the institutional network theory that includes important network

actors and the institutional factors influencing the actors in an emerging market. Further

explaining networking patterns, Forsgren et al. (2005) describes how the MNC can acquire

knowledge both in the internal network and in the external network, and how the gained

knowledge can be transferred between different subsidiaries.

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2.2 Emerging markets

Jansson (2007) defines emerging markets as growing markets opening up to become more global,

transforming from an undeveloped market into a mature capitalistic economy. Their main

characteristics are high growth, complexity, privatization, and governance system changes.

According to Jansson, emerging country markets have been a progressively more important and

lucrative ground for the international business procedures of MNC‟s. However, the structural

change of the emerging markets entails both an opportunity as well as a threat in the form of

various market disturbances. Financial and political instability expose investors to high inflation,

unstable GDP, widespread corruption, and heavy bureaucracy.

Additionally, Jansson states that western firms usually have less experience in

emerging markets, meaning that they experience the environment as more complex, turbulent,

uncertain and risky compared to the environment in a mature western markets. Jansson believes

that relations and networks are the key to prosperity on the international scene, especially in

emerging markets.

Further Jansson declare that emerging market has a tendency to go from domestic to

global, from closed to open, and from having personal business networks to having impersonal

business networks. Furthermore, an emerging market is characterized as going from high to low

embeddedness in external networks. This implies that firms operating in the emerging market

gradually will seek to depend less on the external and internal networks in their learning process

as the market enters a more mature stage. In the process of reaching more mature market

conditions, further, the government will have a gradually less significant impact on the MNC‟s

way of conducting business. This means that the firms relying on beneficial relations with the

local government at present might instead build up alternative solutions to deal with investment

risks in the future.

From this, we argue that the Angolan market is carrying many characteristics of an

emerging market such as the growth the country is experiencing, but particularly, the big risks

derived from the financial and political instability.

2.3 The internationalisation process

Carlsson (1966) was one of the first researchers to explore the uncertainty firm‟s face in

international decision-making. He argues that firms with the aim to enter a foreign market suffer

from lack of knowledge. Moreover, he researched how firms can handle uncertainty and

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suggested that firms gradually acquire information about the market. Acquiring information is

crucial in order to incrementally invest in different markets. He states that the risks associated

with entering a new market and keeping control over foreign operations must be considered.

Taking incremental steps to acquire new information in one phase of the foreign operations are

used in the next phase to gradually build up the knowledge.

Johanson & Vahlne (1977) continued to build on Carlsson‟s ideas and developed

theories that tried to clarify firm‟s internationalization activities. The researchers‟ ideas became

known as the internationalization process, the Uppsala model. The model put main focus on

knowledge of the target market as the main tool to implement a successful market entry. Johanson &

Vahlne states that the possibilities and risks on a market are more effortlessly explored as the

knowledge rises. The authors study confirmed that enhanced knowledge increases the commitment in

the target market and that the lack of knowledge within the MNC´s in addition was the main reason

for incremental market entries.

According to the Uppsala model, not only market knowledge but also experience is

crucial. Johanson & Vahlne (1990) explains two patterns in order to achieve this. One pattern is

the process of entering a new market with an establishment chain in a specific country, and the

other one is the process of entering new markets with a successively greater psychic distance.

The establishment chain is constituted by certain modes in various commitment stages of the

internationalization process. The modes that represent the establishment chain are characterized

by different levels of market commitment, and they are exporting, licensing, joint ventures,

acquisitions and green-fields (Johanson & Vahlne, 1990). In order from the least market

commitment to the most, market commitment, the entry modes are 1)exporting, which means to

produce products in one country and sell them in another (Hill, 2007) 2)licensing, which is a

business agreement that occurs when a firm with proprietary rights over certain technology and

trademarks grants permission to another group to make use of it for royalties (Contractor, 1985)

3)joint ventures are a collaboration agreement that occurs when two or more firms pool a portion

of their resources within a common legal organization (Kogut, 1988) and most often each part in

a joint venture shares operational control (Hill, 2007) 4)acquisitions take place when a firm fully

acquires an existing foreign firm (Jung, 2004) 5) lastly, green-fields are establishing a foreign

venture from scratch (Dikova & Witteloostujin, 2007).

To understand the second pattern, how to enter new markets with a successively

greater psychic distance we must first bring up what characterizes this. Vahlne & Wiedersheim-

Paul (1973) introduce four different conditions that create psychic distance and further affect

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information exchange. These conditions are stated as; differences in language, culture, political

systems and geographical distance. This extent of psychic distance we assume would be

dependent on the distance between the company‟s assets and the market of the mentioned above

conditions, stressing the importance of knowledge as an important factor in international

business. The Angolan market is according to Hofstede, (1983) characterized by a high psychic

distance compared to Sweden when it comes to cultural dimensions i.e. power distance,

masculinity, individualism etctetera.

Johanson & Wiedersheim-Paul, (1975) describes the link between the two patterns

within the actual market. Figure 1 show the consequence of the further knowledge the firms have

gathered throughout the internationalization process, the less the psychic distance is perceived to

be. Consequently, a wholly owned subsidiary (a green-field) would be easier to pursue. The

numbers 1-4 shows number of markets that the firm is operating in, and how they lead to a

diminishing perceived psychic distance.

Establishment chain

Mode Export Agent Sales office Manufacturing

Ma

rk

ets

1

2

3

4

Figure 1. Link between psychic distance and establishment chain (Johanson & Wiedersheim-Paul, 1975)

2.4 The Uppsala model and incremental steps

There are two kinds of knowledge; market knowledge is information about operations in the

market, stored in the minds of individuals, computer memories and written reports. General

knowledge is gained from personal experiences in the foreign market i.e. interactions with other

actors (Johanson & Vahlne, 1977).

The authors demonstrate that gaining knowledge of the market is a question of

analyzing current state and future change in the firm. State aspects are the present knowledge of

markets and present market commitment in the foreign markets. The change aspects on the other

hand are current the activities and the decisions to commit resources to foreign operations, and

they are the prime source of experience. The commitment decisions are based on the perceived

Psychic Distance

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possibilities, for example a need to commit to future opportunities but also to problems like risks

of the market. A higher resource investment leads to a higher market commitment. For example,

a FDI, such as an acquisition or green-field has a higher market commitment than exporting, and

consequently makes the firm more exposed to the markets investment risks. See figure 2.

State Change

Figure 2. The State and change aspects in the Uppsala model by Johanson & Vahlne, 1977

Johanson & Vahlne (1977) emphasize the learning-by-doing approach to the market and that

learning gives the firm experience when it is active in current operations. This is done either

through hiring experienced personnel or by being active in the activities over a long time, which

leads to tacit knowledge. Therefore, it is vital to be able to integrate the market experience into

the firm experience. One way of doing this is to hire a person with experience in both gaining

market knowledge and general knowledge.

2.5 The Uppsala model developed with networks

Many researchers have made studies on different aspects of the Uppsala model, and it has

therefore been widely criticized. Building on the original Uppsala model in an article published

in 2001, Johanson & Vahlne (2001) relates the theory of „industrial networks‟ to the

internationalization process. First, the industrial network theory states that firms establish and

maintain business relationships with other actors. This in turn gives them access to other

networks in the industry; customers, customers‟ customers, competitors, supplier‟s etcetera. The

actors within this network are tied to each other in many ways, including social, administrative,

legal, and economic bonds.

Market Knowledge

Market

Commitment

Commitment

Decisions

Current Activities

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This latter theory is also of use in our study depending on in what stages the chosen

MNC‟s are in their respective internationalization process, and as a result, what their previous

experiences are. When investigating Angola as an emerging market, we would assume that the

firms take incremental steps in order to learn about the market and decrease risks. Moreover, we

also assume that the firms‟ managers have lived in Angola for a while, or that they have other

previous experiences or contacts in the country. Consequently, the network theory concept for

emerging markets would be applicable and for this reason we explore the network theories in its

context later on in the study.

2.6 Experiential learning to minimize the risks and take larger steps

The risks and speed of the internationalization process is not fully explained by the Uppsala

model. Forsgren (2001) therefore argues that when establishing presence on a new market the

first priority of the firm must be to gain market knowledge. He says that searching for new

knowledge is only briefly discussed in the Uppsala model, as the model only emphasizes personal

experience arising from current activities. Further, the acquisition of tacit knowledge gained

through experience will reduce the perceived uncertainty of the firm and consequently, the

internationalization process speeds up when the firm takes less incremental steps. See figure 3.

Figure 3. Relationship between experiental learning, tacit knowledge, perceived

uncertainy and incremental behvaiour by Forsgren (2001)

Forsgren also puts a strong emphasis on the role of the individual as a holder of market

knowledge. He points out that acquiring knowledge is first and foremost a question of the

individual being active in the market to gain experience and tacit knowledge, rather than

collecting and analyzing information. Either, through acquiring or interacting with a local unit,

+

Experiential Learning Tacit Knowledge

-

Incremental Behavior Perceived Uncertainty

+

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the MNC can gain knowledge of the market. Moreover, market knowledge and market

commitment is restricted to a single group in the firm, i.e. the management or a foreign unit and

due to personnel turnover; the internationalization route can take another turn, therefore being

able to reflect more than one pathway. From this, different networking patterns are derived.

Learning about existing activities of the firm and searching for new potential

activities are somewhat complementary. Searching for new alternatives takes time away from

other activities like full use of existing resources or an improvement of existing skills. However,

searching increases the possibility of further expansion, meaning that the more a firm learns

about possible alternatives, the more it increases the number of potential options in the future.

This means that an increase in general knowledge can increase the speed of the learning process,

and consequently the internationalization of the firms. Additionally, acquiring new knowledge

would reduce uncertainty and make the firm take less incremental steps, as it already has the

knowledge necessary to take the next step.

In this context, Forsgren stresses the importance of interaction with other actors

helping the firm to acquire knowledge and expand business faster. Following this reasoning, we

bring into scope the institutional network model by Jansson as it emphasizes networking in the

environment of an emerging market.

2.7 The Institutional Network approach

The main idea behind the institutional network approach (INA) is to develop a network theory

especially applicable to emerging markets. The term „institutional‟ refers to the international

dimension that the firm operates in and how the institutions in the market are interacting. The

term „network‟ is relevant in the INA theory as it describes the significance of how relationships

are oriented in the market and how the MNC itself works. (Jansson, 2007)

Following is the „basic networks model‟ presented by Jansson. The reason for

including this model is that it gives us an overview of different actors/networks in an emerging

market. Moreover, it gives a connection between the knowledge gathering processes of the firm

and in which networks this knowledge gathering can occur. In analyzing our results, it provides a

hint of what role certain network actors have in the knowledge gathering process in an emerging

market.

According to Jansson, customers, competitors, suppliers, intermediaries and

government units constitute the core of the MNC´s network in the emerging market. In order for

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the investing firm to take benefit from the actors in the network, the MNC must establish insight

in the institutional setting of the investment country. This is because the institutional surrounding

influences the information carriers in the network.

The inter-organizational networks are viewed as clusters of people who, among

other things, communicate by exchanging information in the country culture. The high

uncertainty in an emerging country market must be dealt with by gaining knowledge of the

environment. The first step in gathering knowledge is identifying which institutions that play an

important role here. However, there are no clear answers as to which actors from which the MNC

gains the most knowledge. In contrast to this, some actors carry different intentions and goals

when gathering knowledge through networks. The goal of some interaction is mostly to achieve

legitimacy for the business, or to influence governmental policies i.e. through lobbying. (Jansson,

2007)

Figure 4 on the next page illustrates the strategy of the MNC taking place through

relationships between the MNC and the major external partners in the financial and labor market

(the networks). Institutions, for example the legal and political system, the country culture and

professional interest associations create a frame around the network, as they influence the

network relationships/pattern. An institution consists of certain groups in different societal levels

which are hard to separate from each other. The model comprises the complicated network that

an MNC builds up, when operating in an emerging market. The governmental units hold a special

position within the network as it is both an institutional factor and an interacting part of the

network. (Jansson, 2007)

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Figure 4 - The basic networks model (Jansson, 2007)

In the previous part, we used the basic networks model to illustrate the key external actors in the

MNC interacting with in order actors to acquire knowledge in the emerging market. Adding to

this, Forsgren et al. (2005) argues that multinational corporations carry a lot of knowledge within

the organization. Therefore, it can be beneficial for the MNC to incorporate both internal and

external business networks into their learning strategy. The researchers further explain how

learning in the embedded MNC is a matter of both learning through transfer and learning through

problem-solving, and that this represents both an external and an internal process. Further, this

illustrates how knowledge gathered in one subsidiary in one country can be transferred to a

subsidiary in Angola.

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2.8 Theoretical framework

From the theory presented, we have created a framework as stated in figure 5. The learning

process of our study is constituted by certain learning elements from the learning process that

represent different theories i.e. incremental steps, experiential learning, and networks. With

incremental steps, we refer to the Uppsala model and entering a market through nearby markets.

By experiential learning, we refer to Forsgren and how firms acquire general and market

knowledge. Lastly, with networks we mean the networking with all the actors in the market and

the institutions that influence them. Some examples of the institutions in the emerging market

are: the political system, legal system, business mores, country culture, educational systems,

professional & interest associations, religion and family/clan.

Figure 5. Framework, theories impact on the learning process in Angola

As mentioned, the context in which the firms operate is the emerging market of Angola

constituted by a high psychic distance and with certain political and financial risks. We will

empirically test how this learning process emanates in this particular market for the four Swedish

firms. By this, we hope to find pattern/s when learning about the risks of the emerging Angolan

market, consistent or inconsistent with theory. Thus, we see it as a learning process in which the

selected MNC‟s, operating in Angola, might use different strategies to acquire knowledge about

the market, considering their previous experiences with establishments, and previous knowledge

about the Angolan market.

INCREMENTAL STEPS

EXPERIENTAL LEARNING

NETWORKS

ANGOLAN EMERGING

MARKET

THE LEARNING

PROCESS

17

3. Methodology

The theory, gathered from secondary sources in the form of academic articles and books, was

chosen after an evaluation of factors like its relevance to our work and its timeliness had been

made. In order to test the theory with real cases in the market Angola, we conducted a case study

of four Swedish MNC‟s operating in the market. This study was carried out in order to see to

what extent the theories are applicable for these four firms. Following this, we conducted phone

interviews with the executive managers in respective MNC, in order to gain primary information

from these particular actors in the market, as we hoped they would have most experience about

Angola and the firms operations. We kept in mind that the chosen sample of managers might

have given us biased answers, such as them deterring confidential information or giving us the

wrong description of how they conduct business and learning in order to protect the firm. This

was a necessary way to go about since there is not much public information available from the

problem area that we have studied (learning in Angola). As we searched for qualitative data from

these managers, we formed semi-structured interviews to be able to gather information about our

research problem in a structured but still open way. These interviews aimed to give us a better

understanding of respective firms‟ learning process and what risks they perceived in their

internationalization process. This was done in order to determine how the firms have handled and

gathered knowledge about the emerging market of Angola. This is interesting to put in the

context of the big growth potential of the market together with the investment risks it involves.

3.1 Sample selection

We received contact information to the four chosen Swedish firms‟ active in Angola through the

Swedish embassy in Luanda, Angola. It became evident that it is hard to find Swedish firms

operating in Angola, thus we decided to go for the ones recommended by the embassy and what

the firms had in common was that they were connected to the Swedish embassy for one reason or

another. Upon getting in contact with these local managers, we found out that most of them were

Swedish and had previous experience from markets carrying similar characteristics. After a

process of evaluating the potential firms, we asked for an interview. In the beginning of our

research we aimed to interview two firms, but after experiencing the firms managers‟ willingness

to help providing information, and seeing this chance to gain more sufficient information, we

decided on getting in closer contact with the four firms; Bengt Rosengren at Ericsson, Stellan

18

Lindstedt at Alfa Laval, Jorge Cifuentes at Atlas Copco, and Leif Biureborgh at International

Gold Exploration (IGE).

3.2 The interviews

In the early phase of our thesis, the scope was to investigate Angola‟s political and economical

risks, and how these factors affected firms learning in Angola. However, as we later on decided

to approach it from a slightly different perspective more relevant to our theory, there might still

be traces of this in our interview questionnaire. The scope was changed after the first interview,

but the form of the interview was kept in order to be able to evaluate the different answers. We

have sorted out the relevant data as the different scopes were compatible with our purpose and we

believe it is sufficient enough to draw valid conclusions. The interviews were based on the theory

we gathered for maximum comparability. However, while we emanated from our theoretical

framework, we kept the questions rather open in order to avoid leading the interviewees into the

answers we were looking for. Moreover, this was done to maintain a comprehensive picture of

the firms‟ learning process.

The interview setup was structured in the following way, starting with questions

regarding the certain manager and his role in the Angolan setup. Following, we asked questions

regarding the business of the firm and what kind of entry strategy that had been used. We needed

this information to understand the prerequisites in order to analyze what the firms‟ different

backgrounds were, and if this would affect their respective learning process. After this, the

interview brought into focus the perceived risks that the firms were experiencing and was

conducted in order to categorize the market and what risks the firms faced in the emerging

market. Further, the interview concerned the knowledge gathering process/ the learning process

of the firms before and after their market entry. This was the main focus of our interview that

constituted the core of our findings. The last parts of the interview elaborated on the firms‟

chosen mode of entry, and concerned the biggest negative and positive aspects of their respective

entry mode from a learning perspective and how the specific mode affected risk avoidance. This

part we believed might be of less importance, not touching upon the learning process, however it

gave us some important information about the firms different perceived risks with certain entry

modes, and how learning might aid to minimize them. The interview was finalized with a

question regarding if the interviewee felt that we had missed out on any important aspects of their

19

learning process. A summary of the data relevant to our purpose is presented in the findings with

a structure providing a more comprehensive picture.

Our aim in the beginning was to interview the managers at place, but after quickly

realizing that this was out of our economical reach, we decided to stay in Sweden to conduct

phone interviews instead. This method involved both pros and cons; the pros were that the

interviews were quick to execute and gave immediate answers. In addition, our questions could

be further explored with following up questions, and another positive thing with the phone

interview was that the questions could be restructured to follow the respondents answer, reducing

repetition of questions. However, this method required both the interviewee and the note-taking

thesis members to listen and pay attention for around an hour per phone call. As the setup was via

the internet, using Skype (internet-connection based telephone software) as a medium, only one

of the thesis members could use a headset with a microphone. However, the answers could be

heard loud and clear through the speaker unit connected to the computer. This required of the

interview person to make short breaks and ask the interviewee to wait so that the writing

members could keep up to the pace of the interview. Some other negative aspects were the effects

that came from voice and tone fluctuations of the interviewer, the interviewee, and the speaker

unit. This could affect the respondent to answer in a particular way, or the note-takers to

misinterpret some part of an answer. Some of the calls were recorded, but as we did not have

access to a recorder in every interview, two of us sat beside and wrote down what they could hear

through the speaker unit. We informed the interviewees who were recorded about the recording

process, in order to avoid a situation of ethical dilemmas like recording something said in trust to

us. After the interviews had been conducted, we transcribed the information immediately so that

we would not forget any important points.

The interviews with Stellan Lindstedt (Alfa Laval) and Leif Biureborgh (IGE) took

place on the 5th

of May 2008. Jorge Cifuentes (Atlas Copco) was interviewed on the 8th of May

2008, and our final interview with Bengt Rosengren (Ericsson) was conducted on the 14th of May

2008.

20

4. Findings

4.1 Firm profiles and their internationalization process

4.1.1 Alfa Laval

Alfa Laval was founded in Sweden in 1883. In the initial years, the firms‟ business was

concentrated on the development of separators, pumps and pasteurizers. Today Alfa Laval

constitutes a large international group that conducts business on a global scale and has 11.500

employees worldwide. The core activity is to support customers with heat, cooling, separation,

and transport equipment in the business branches of oil, water, chemicals, beverages, foodstuffs,

starch and pharmaceuticals, and the firm is today active in over 100 countries. (Alfa Laval, 2008)

As we conducted our interview with the local manager Stellan Lindstedt, the firm

had only been operating in Angola for about 5 months, making them newcomers to the market.

According the manager, the competition at this stage is quite low since customer firms in Angola

are dependent of Alfa Laval. The Angolan business of Alfa Laval is a sub-unit to the regional HQ

in Johannesburg, South Africa. Before directly entering the Angolan market, Alfa Laval

conducted occasional operations based from other countries. Through these operations and

through the regional HQ, they acquired regional knowledge that was useful when starting up

direct business in Angola. The main reason for the firm to enter the Angolan market was to more

efficiently supply the aftermarket of the oil industry. Alfa Laval used a green-field entry for a

number of reasons; it gave them the opportunity to own operations to 100 %, they already had

contacts in the international oil industry which meant that they had access to networks, they

wanted to protect a certain valuable firm culture, and they did not wish to depend on local

knowledge too early. When asking if the government interfered with the choice of entry strategy,

his answer was that the firm entered on a small scale to avoid the high perceived risks. Minimal

investments have been made in tangible assets, like office space, to minimize the risks of losing

these. The manager identifies no negative aspects in the entry mode, but he does consider the

benefits of a joint venture approach should the firm get contracts that involve more risk with

bigger actors. (Stellan Lindstedt, 2008-05-05)

21

4.1.2 IGE

International Gold Exploration, IGE, is an exploration and mining group founded in Sweden in

1988. The firm is engaged in the search, acquisition, exploration and development of high-quality

diamonds and other metals with a potential of high commercial value. IGE is conducting

operations in Sweden, Norway, Burundi, Kenya and Angola. However, in connection to the

recent diamond and mineral agreements in Angola and Burundi, the activities of today are

concentrated to those two areas in particular. IGE has negotiated mining licenses in Angola in

competition with numerous worldwide exploration and mining firms. As a result, the firm is the

third largest license holder of diamond concessions in Angola. (IGE, 2008)

Leif Biureborgh, manager of IGE in Angola, explains how the Angolan subsidiary

is a relatively small firm, but that it still exercises a big influence. Or in the words of the

manager, they are “playing on the same field as the big actors”. Currently the numbers of

employees amount to around 50 (and a slightly bigger population of state-hired employees

working close with them) at its 4 projects around Angola. Biureborgh has built up the Angolan

branch from scratch starting off in July-August 2005. He is also responsible for the firms‟

operations and network relations. The market is characterized by tough technical, financial and

political competition, where contracts are made up in advance of each project.

IGE has 4 mining constructions underway as of now, each of them in different

stages of completion. These are IGE‟s first operations in Angola, but Biureborgh mentions that

the firm has previous experience from operations in Burundi in Africa. All of IGE‟s operations

are joint ventures with Endiama, a state-owned firm that possesses all mining rights in Angola.

This entry strategy was chosen as it is the only legal way to conduct business in their industry.

However, there were also other reasons for IGE to choose this strategy. Most of all, well

established personal contacts with politicians gave IGE the opportunity to gain advantages in the

form of negotiating more beneficial contracts. He believes that a co-operation, or at least contacts

with knowledge of the Angolan market, is a reasonable way to take business further, but he also

mentions that you will need to put in a big effort to get big returns. (Biureborgh, 2008-05-05)

22

4.1.3 Atlas Copco

Atlas Copco was established in 1873 and today it has a global reach span that covers more than

160 national markets. In 80 of these markets the firm has set up sales facilities of their own. In

the additional 80 markets the firm uses outside distributors and extended service networks. In the

beginning of 2008, Atlas Copco had 33 000 employees. The firm supplies its customers with

industry optimizing solutions; their services and products stretch from air and gas compressors, to

generators, mining & industry tools, and montage systems. Today, 6 employees are involved in

the Angola operations. (Atlas Copco, 2008)

Regarding Atlas Copco‟s Angolan operations, the local manager Jorge Cifuentes

clarifies how the firm has been represented on the Angolan market through various distributors

for nearly 50 years and it is the local market leader in compressed air and construction & mining

equipment. In 2006, the Portuguese branch of Atlas Copco was given head responsibility of the

Angolan market and the firm started conducting in-and-out business. In early 2008, Atlas Copco

Portugal established a fully-owned customer center in Luanda. The reason for this was that the

firm hopes to strengthen its‟ support to customers in this very fast growing market. The idea is

that the center will serve the aftermarket of construction, manufacturing, mining and the oil and

gas industry. Cifuentes mentions that his firm has to engage in a joint venture with local business

if the project is worth over $ 5 million, but as Atlas Copco does not have any projects reaching

above this value the firm can use a green-field approach to avoid the risks of an acquisition. This

is in contrast to other African markets where the firm has made use of the acquisition entry mode.

Atlas Copco regarded an establishment through the Portuguese subsidiary to be favorable as the

Angolan society is heavily influenced by Portugal in terms of culture, language, and laws &

regulations. Knowing the language and law context makes the operations from Portugal better

since there is already a great understanding of the Angolan business climate from there.

(Cifuentes, 2008-05-08)

4.1.4 Ericsson

Ericsson was established in Sweden in 1876 and is today a leading provider of telecom networks

solutions on a global scale. By a joint venture with Sony, Ericsson has access to extensive

technical solutions. Because of this the firm is also one of the worlds‟ leading suppliers of mobile

telephones. Ericsson has operations in 175 countries, including business with the biggest telecom

operators in Europe, Northern America, Southern America, Asia, Middle East and Africa.

23

Ericsson has been conducting business in Angola since the 70´s but it was not until 2007 that the

firm decided to directly invest into the country. (Ericsson, 2008)

As we conducted the interview with Bengt Rosengren, manager of Ericsson‟s

Angolan operations, he explained that the main reason for opening up a sales subsidiary in

Angola was a $ 70 million deal with Angola Telecom regarding an underwater fiber-optic cable.

This differed a little from the usual business deal for Ericsson in Angola, as 90 % of sub-Saharan

business is done with private actors. However, under these special circumstances, Rosengren

mentions that the good government relations between Sweden and Angola helped Ericsson in

securing the underwater fiber-optic cable project. Ericsson Angola has two main customers. At

present there are 9 persons working for the firm in Angola. Including the hired consultants, this

number reaches 30 employees. Unitel is a GSM operator and Angola Telecom is a fixed line

operator. The manager experiences a high level of competition and according to him this is usual

in high-growth markets where everyone tries to establish themselves very quickly. Many other

big operators are present, including Alcatel, Nokia, and Siemens. (Rosengren, 2008-05-14)

Ericsson Angola operates under a regional hub located in South Africa. Rosengren

explains that Ericsson entered the Angolan market with a green-field entry, since the firm tries to

remain 100 % self-owned whenever possible and they experience that there are certain risk

factors in getting involved with a local partner. In addition, the firm could not find any suitable

local firms to acquire even if they wanted join up with one. However, he does recognize the

benefits of teaming up with a local partner to circumvent problems like “traps” (in the form of

hidden fees, etc) and timesaving from already knowing a lot about the market risks. The business

they conduct does not tie them to any political or governmental affairs, unlike the oil and

diamond business, so they are not required to get involved in joint ventures. In the Angola case,

Ericsson used the experience from both the surrounding hubs in Africa, and the experience from

Rosengren‟s operations in Brazil. (Rosengren, 2008-05-14)

24

4.2 The knowledge gathering process

It was not in the area of Stellan at Alfa Laval to gather knowledge before entering Angola.

Rather, he was picked from operations in the USA to establish new operations in the market. He

presumes that Alfa Laval contacted the export council in Sweden before entry to gain knowledge

of the market. Furthermore, the connection to the regional hub in Johannesburg has also

contributed to the knowledge gathering. After having entered the market, Alfa Laval gathered

knowledge mostly from “leg work”; talking to people, attending business lunches, or just plainly

asking for advice from e.g. the export council. (Lindstedt, 2008-05-05)

Having experience from the Angolan market since the 70‟s, the manager at IGE has

obtained a lot of experiential knowledge about how to conduct business in the local context from

being a journalist, documenting the war of colonial independence, and later on, working for

Ericsson. He has extensive contact networks on both the political and economic scene of Angola.

Today, the firm gathers knowledge about the market mostly through this experience and the

network of Leif Biureborgh. (Biureborgh, 2008-05-05)

Atlas Copco gathered knowledge through networks with Portuguese businessmen

before they entered the market, as there is a big community of Portuguese people in Angola. The

firm has a number of Angolan born people close to the firm who give links to friends in other

businesses. After the establishment, they have not initiated any political connections. They do not

wish to do this either, as this can be subject to any ethical dilemmas. They do not experience any

problems with regulations because of the choice of not getting close to political contacts. Since

establishment, they have started to read reports from a major Portuguese research bank, and they

receive newsletters from the Portuguese embassy. The firm has not experienced any “unexpected

surprises”, and Cifuentes believes that this is due to the similarity between Portuguese and

Angolan culture, like laws and regulations, a similar business culture etc. (Cifuentes, 2008-05-08)

Rosengren at Ericsson believes that experience and local knowledge helps him in

everyday business interaction. Also, a great source of knowledge for Ericsson is the working

staff. They are all of Portuguese origin, carrying a high amount of local knowledge. The usual

procedure of the firm when entering a new market is to contact consultancies like PWC or

Deloitte in order to get an idea of what the tax rules, country stability, legal requirements, and the

risk situation looks like. Normally, the firm recruits its own consultants with local knowledge that

can provide Ericsson with further information. Once established, the role of the manager is to

25

“triangulate” information, meaning to find at least three sources for the same information. This is

to make sure that the information acquired is solid and reliable. Further, especially informal

networking is important. This involves meeting up under more personal circumstances through

dinners, out on night clubs etc. These networks are in more than just the own business; with

Luanda being a quite small market you get in contact with many people from different areas. The

embassy is one medium for these inter-firm connections, and diplomats also provide an excellent

source of information. Rosengren believes that networking is a non-stopping activity, especially

between actors in the same industry and believes that combining the knowledge gained from

networking with knowledge gained from operating on similar markets makes the firm resilient

enough to withstand threats that arise from investment risks of the market. (Rosengren, 2008-05-

14)

4.3 Perceived risks in Angola

Stellan Lindstedt does not perceive Alfa Laval to be operating in a very risky environment as the

firm is active in the oil sector; this industry is under tight governmental control and there is a

strong governmental wish to keep the industry stable. However, he continues by saying that there

are always risks in conducting business in a third world, war-ravaged country. There has been a

lot of paperwork in the establishment process and some processes have taken a very long time to

complete. This has put some operational restrictions on the firm in the process. The manager does

not identify any risks concerning the banking system, but he very much acknowledges the

problem with the inflation rate. This risk has also influenced the way Alfa Laval is conducting

business as they deal a lot in cash business. However, comparing his own firm to another like

Atlas Copco, Alfa Laval is in a different game making much smaller deals. He believes that

having a smaller presence on the Angolan market might help the firm not to be subject to political

hazards to the same extent as bigger firms. (Lindstedt, 2008-05-05)

Leif Biureborgh of IGE does not identify many risk factors aside from some

connected to politics and some contract substance issues. He sees a diminishing influence from

risks connected to the economy, especially the inflation rate as it has started to stabilize below 10

%. He notes that he tends to perform some business in cash and that rents on office and apartment

space are very high. Bureaucracy remains an obstacle that no longer even surprises the firm. This

happens in many areas of their activities; in the import of equipment, when getting working

permits etc. As a last note in this area, Biureborgh sees a potential risk area in the political

26

decision to close down the Swedish embassy in Luanda. He believes that closing down the

embassy will weaken the support to Swedish firms in the future. (Biureborgh, 2008-05-05)

Jorge Cifuentes at Atlas Copco points out rent levels and bureaucracy/ rules &

regulations as especially risky areas. These problems have resulted in expenses through slowed

down operations; an example of this was when some employees who went abroad for Christmas

were not granted access back into Angola. Further, once these employees were granted new visas

they were only valid for two months at a time. The firm solves risks like these by hiring people

that deal with these problems, and today Atlas Copco does not experience these problems to a

very wide extent any more. The next, although minor, direct regulatory problem that Cifuentes

experiences is that the firm needs to recruit 70 % Angolans in its workforce. He also explains that

a 24 hour security guard is needed because of the risk of damage to property. A way for Atlas

Copco to minimize the regulatory problems has been to try not to keep state-owned firms as

customers. Rounding up the major risk areas, the manager sees the rent levels as a big problem in

establishing operations in Angola. A house with a four car garage costs $ 11 000 / month, and

rent for 600 m2 office space lands around $ 17 000 / month. Cifuentes believes that this is the

result of that the real estate and office markets do not keep up with the overall growth. (Cifuentes,

2008-05-08)

Bengt Rosengren at Ericsson acknowledges that corruption is a major problem area,

especially in state-owned firms in Angola. He does not see many risks connected to inflation

levels or banking systems, only some problems with rent levels and infrastructure. Examples of

this are the very high costs of hiring consultants and general administrative costs of setting up a

new office. Still, he expects these to have become marginal problems in five or ten years.

Rosengren experiences Angola as a country influenced by its‟ former communistic administration

and bureaucracy. Even though Ericsson avoids corruption by doing business mostly with private

actors, the firm minimizes its tangible assets in the country (e.g. their office space) because of the

unsure market environment. As another example, the firm does not want operative responsibility

of finished projects, so the 1.500 km cable is a project that the firm leaves full responsibility of to

the customer when it is finished. However, he also sees positive actions to minimize risks from

the Angolan government. As an example, the government gives investors a tax break extending

15 years into the future. Ending up the discussion by talking about the closing of the Swedish

embassy, Rosengren feels that this will remove an opportunity for Swedish firms to gain formal

business contacts in Angola. (Rosengren, 2008-05-14)

27

4.4 Further areas of importance

Most managers mention firm reputation as an important factor either enabling or preventing

business. Both Lindstedt and Biureborgh stress the importance of their (Swedish) firm reputation

giving easier access to markets and new contacts. With a good reputation, the government

already trusts them in doing business and this facilitates the business establishment. Looking at

reputation from another perspective, the main reason for Atlas Copco to do a green-field

establishment was that Angolan firms have a bad reputation in doing business, so consequently

the firm could find no suitable Angolan firms to acquire.

Aside from this, Biureborgh regards their competitive advantages of culture &

language knowledge to have helped the establishment further. Rosengren has previously carried

out assignments in other parts of Africa and Brazil and because of this he speaks fluent

Portuguese, something that has helped him much when performing business in Angola. Cifuentes

also agrees to that language knowledge is a vital part of performing business in Angola.

28

5. Analysis

5.1 The internationalization of the MNC’s

When analyzing the results and putting them against theory, we wish to explore how networks,

experiential learning and incremental steps have affected the learning process in the emerging

Angolan market. After speaking to four managers in four different firms, we can see that there

exist both patterns of similarity and difference. The firms established their operations between the

years 2005-2008 and originate from different backgrounds i.e. their special industries and

experiences. However, most of the firms used a green-field setup, except from IGE adopting a

joint venture with the state-owned firm Endiama, as shown in table 1. A reason for different

strategies could be that the industries the firms are active in operate under different transition

speeds and this could also be a consequence of the transition the Angolan market is facing. These

differences in their establishments could lead to that they possess different perceptions of the

present risks in the market.

Table 1. Similarities and differences between the four firms

As stated, the MNC‟s entry strategies took different forms. The rules & regulations from the

government together with the industry and investment of the firm turned out to be the main

reason for the different modes; a joint venture was required for IGE since the industry requires

strict control, and a co-operation was required of Atlas Copco if the project value would exceed $

Firm IGE Atlas Copco Alfa Laval Ericsson

Industry

Mining Compressors,

mining &

industry tools, the

aftermarket of oil

Heating, cooling,

the aftermarket of oil

Infrastructure, telecom

Set-up Joint Venture Green-field Green-field Green-field

Experience

from Africa

Yes Yes Yes Yes

Experience

from Angola

Yes Yes Yes Yes

Conducts

networking

Yes Yes Yes Yes

29

5 million. Since Atlas Copco decided to invest in a small-scale venture, the firm could establish a

wholly owned green-field. Ericsson also pursued the green-field investment. However, in the 70

USD million deal with Angola Telecom, the firm were by legal requirement enforced to team up

with the government for the project but the establishment as a whole could stay green-field.

Nevertheless, from a firm perspective and despite the impact of government, the firms had

different arguments to why their strategy was beneficial in gaining knowledge. Further, as we can

see from table 1, experience from Africa points to that the firms use incremental steps and have

experientially learned about the Angolan market, and the firms use networking. This is in

compliance with theories regarding these areas. This was consistent with our proposed theoretical

framework, and below we will analyze the learning process further from the four firms‟

perspective in the Angolan market.

5.2 The knowledge gathering process

5.2.1 Incremental steps

When analyzing the first pattern of the Uppsala model, entering a new country with a high

psychic distance, Atlas Copco decided to enter the Angolan market through its‟ Portuguese

subsidiary as it was considered a way of quicker understanding of the market, appointing the

manager and employees that understood the way the market worked. Biureborgh had several

years of experience from the Angolan politics & market and this made him a good entry channel

for the firm. In addition, the previous experiences in Burundi helped IGE in understanding the

Angolan market. Ericsson and Alfa Laval gained previous experience of the market by operating

on an in-and-out basis in Angola through South Africa. Moreover, both managers had a lot of

experience of operating abroad in similar markets, especially Rosengren who had been operating

in Brazil before Angola. Ericsson perceived this knowledge gathered in an area culturally close to

Angola as enough to establish operations through a green-field. See table 2.

The firms have conducted businesses in African markets before entering the

Angolan market, but they have also been active in Angola in order to gain experience, except for

IGE, whose manager was active on the market, not the firm itself. This indicates that the firms

entering into Angola is consistent with Johanson & Vahlne‟s (1990) findings about incremental

steps into new markets with a greater psychic distance.

When analyzing the second pattern regarding the establishment chain, not all of the

firms fully follows the incremental establishment chain. For example, IGE experienced a bigger

30

governmental impact on their industry since it forced the firm into a joint venture. We do notice

that all of the firms had previous experience of the market, which gives them a better position to

make further decisions and commitments to the market. All firms, except IGE, committed to the

new market with a systematic approach. This mainly began with small-scale, in-and-out business

until the market stabilized after the civil war. Going from an This was when the firms saw an

opportunity for direct investments. In this stage, Alfa Laval, Ericsson and Atlas Copco all

circumvented the step of teaming up with a local actor in their establishment chain. The three

firms mentioned a number of reasons for not acquiring a local firm in the entry. This is a sign of

the importance of perceptions that Forsgren mentions. First of all, teaming up with locals or

acquiring local firms constitutes a risk of the MNC´s to be connected with risk linked with the

reputation of the Angolan firms and their way of conducting business. Instead, the firms

conducted green-field investments and decided to find alternative sources for the market

knowledge such as previous experience and networks. This was conducted in order to gain the

knowledge that the firms would otherwise gain in a local partnership. This choice is not only a

cause of the governmental regulations, but also the firm‟s respective industry and size of

investment. To sum up, this is in contrast to what Forsgren says about gaining knowledge by

acquiring a local actor.

Source of

knowledge

IGE Atlas Copco Alfa Laval Ericsson

Experience/

knowledge

within the firm

Manager Biureborgh

done previous business

in Angola but not for

IGE

IGE from operations in

Burundi

General manager Cifuentes

from in and out business in

Angola.

Atlas Copco from

connections to Portugal

In and out business in

Angola

Connections to and

previous experience

from hub in

Johannesburg

Rosengren from

operating in similar

markets.

Portuguese employees

with local knowledge.

In and out business

since the 70s

Sources

outside the

firm

Political and business

actors

Hired local consultants.

Portuguese business

community in Angola.

Portuguese embassy

newsletters and research

bank.

Export council in

Sweden, lunches with

business actors,

help from lawyers etc

Local consultants i.e.

PWC and Deloitte,

Informal networking

Table 2. The firm’s knowledge gathering activities

31

5.2.2 Experiential learning

The Uppsala model defines current activities as the activities that aim to expand business, since

they are the main source of acquiring experience and general & market knowledge. When

analyzing the firm‟s activities we assume the reason for their activities are to expand their

business. According to Forsgren, being active on the market is crucial in order to gain these two

types of knowledge as it increases the number of opportunities, and in turn increases the speed of

the learning. In our study, the market knowledge regarding the Angolan market is stored in

reports, research banks, and the embassies but also in the mind of the actors and mainly concerns

the risks associated with political instability, e.g. bureaucracy, corruption, governmental rules &

regulations. The high bureaucracy that is present in the country slows down the respective

learning processes and prevents the MNC from taking further steps. Economic risks, like the

inflation, and the infrastructure are only influencing the operations to a limited extent.

Following Forsgren‟s (2001) arguments, from learning about the risks, the firms can

take actions to try to minimize these in future commitments. According to Forsgren et al (2005),

one way is that the firms incorporate both internal and external networks in their learning

strategy. It is therefore interesting to analyze these risks from an emerging market perspective,

and is also the reason to why we present them from the firms‟ perceived perspective, moreover

how the managers perceive the risks that are present in the market. As an example, all of the

firms have considered minimizing investments in tangible assets due to the high rents and costs.

The size of the Alfa Laval operations in Angola is directly a result of this level of perceived risks

as they entered on a small scale, which led to Alfa Laval being less exposed to political hazards.

IGE for example, being in collaboration with a state-owned firm, does pursue lobbying to a

certain extent in order to have a chance of dictating the conditions for their operations. Alfa Laval

does not yet make very big business in Angola, but already the firm prefers cash business due to

the inflation rate. Biureborgh sees a diminishing influence from risks with inflation rates as it has

started to stabilize around 10%. He does not see any risks connected to politics except

bureaucracy that no longer surprises him. He regards a co-operation with state-owned firms as

reasonable to diminish political risks. This we believe could be the reason of the firm being half

state-owned and because Biureborgh has already established relationships with political actors.

Working the other way around, Ericsson and Atlas Copco avoids contact with state-owned firms

and without going into more detail, Rosengren believes that corruption would be a major problem

when interacting with such firms.

32

Forsgren argues that the general knowledge is tacit and derives from interactions

with other actors, making the firms confident to make future commitments. Thus, the more the

firms interact and acquire general knowledge, the faster they can explore opportunities and

continue learning. Further, the firm‟s development is dependent on this knowledge and therefore

influenced by the personnel turnover, stressing the importance of the manager with the acquired

knowledge to stay in the firm for a while. Biureborgh becomes a clear example of how market

knowledge is stored in the mind of the individual.

Following this, we continue to explore the role of networking for the firms.

5.2.3 Networking

By referring to the industrial network theory, we wish to see if there are certain key actors in this

process. Examples of key actors mentioned in the network theory are customers, competitors and

suppliers. Further, in the institutional network theory, the government unit is also a potential

actor. In our case, these contacts are entertained and in order to acquire general knowledge,

giving firms more tacit knowledge and minimizes the firm‟s perceived risk. Actors can exist

outside or within the MNC. From our study we can see that employees, managers, political

actors, business actors like diplomats & consultants, locals and different MNC subsidiaries are

important actors in the market. For example, Ericsson hired local employees that had lived in

Angola for a while, Atlas Copco gathered knowledge through the Portuguese subsidiary, and IGE

made use of the manager‟s extensive political contact net. These networks might also have taken

an informal or a formal character and are according to the institutional network theory influenced

by the institutional surrounding in the market e.g. political and legal systems, professional

interests, business mores, and culture etcetera. These mentioned institutions are the emerging

market characteristics hindering information flow. From what we have found in our study,

bureaucracy and corruption are the most prominent risk factors in Angola, and combined with the

firms different industries, they influence the firms. This might lead to firms possessing varied

networking patterns.

Ericsson and Atlas Copco both try to avoid state-owned firms when looking for new

business opportunities, and instead Atlas Copco exchanges information with private Portuguese

businessmen through the big Portuguese community in Angola. All firms emphasize the more

informal approach when networking. For example, Ericsson works a lot under more personal

circumstances like dinners, night clubs etcetera. From this, we can see that the informal network

constitutes an important part of the learning process in the emerging market. For example in

33

social events, information trading might be hindered and information shared can be inaccurate

due to the lack of knowledge about the institutions. The operations of Atlas Copco were built on

already acquired market knowledge from subsidiaries in Portugal.

On the other hand, there are more formal ways of gaining knowledge and contacts.

Alfa Laval, not yet as interconnected with the market as Atlas Copco, uses a more formal

approach through business lunches and contact with the export council. Ericsson also mentions

the good relations between the governments of Sweden and Angola, as a cause of being

appointed the big underwater cable project. Biureborgh highlights the importance of his political

contacts or knowing someone on the market with a deep knowledge. Alfa Laval contacted the

Export Council and local lawyers to gain knowledge, and the Swedish embassy has been an

important source for gaining formal inter-firm connections. Ericsson contacted consultants to

gain market knowledge for even deeper understanding of the market situation and Atlas Copco is

receiving reports and newsletters from Portugal.

5.2.4 Further areas of importance

When networking and gaining information using different approaches, the managers need to

make sure that they acquire accurate information. Therefore, Rosengren triangulates information

(gathers the same information from at least three sources) in order to guarantee that it is correct,

this could be a reason of the influence of institutions such as the political and legal systems,

country culture and business mores etcetera, but also the education level that is present in the

country. Therefore, it is vital to have knowledge about these institutions.

An important note on current activities that we got from the firms is the importance

of how their reputation has helped them in their respective establishment, giving them access to

new contacts and access to markets. As mentioned, governmental contacts between Sweden and

Angola made it easier to enter the Angolan market for Ericsson. Not only this, but the reputation

of many Angolan firms made the Swedish MNC‟s reluctant to entering partnerships with them.

This we see as the reputation working in two different ways; either facilitating business

connections, or hindering them.

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6. Conclusions

As previously stated, we wanted to investigate how incremental steps, experiential learning and

networks affect the learning process of firms active in an emerging market. From analyzing our

findings, we can discern a pattern being of importance in the learning process. Atlas Copco, Alfa

Laval, Ericsson and IGE have all approached the growing market in quite similar ways. This

study finds that the theories mentioned are applicable for these firms. Overall, the firms only

differ somewhat in their establishment chain and chosen ways of networking.

What we found is that the firm‟s respective previous experience is crucial in order

to successfully learn about the market and its institutions. The institutions that are present in the

market affect the actors within the network, and consequently, the firms‟ experience is affected

by both the network and the institutions. Experience comes from experiential learning deriving

from the incremental operations in Angola and other nearby markets. Networking serves as the

main source of knowledge and can take many different forms. Interaction can take place

internally and externally with actors such as political, business, locals, employees, managers and

subsidiaries. Further, networking is conducted in formal and informal ways and for effective

interactions, the MNC‟s understanding of the institutional settings is a key factor for firms

learning about the market. Previous experiences have helped the firms in understanding the

institutions. In addition, reputation and language are also factors influencing the learning in

networks. Therefore, networking is a dynamic process under constant change and this is a

consequence of a changing market environment, being under development

When analyzing Angola as an emerging market where a fast entrance often is

desirable, we believe that it is hard to distinguish whether the firms enter the market fast or slow,

as it depends on the speed of the learning process. There are evidently no acquisitions in Angola

as it is regarded a risky business, also indicating that firms needed to acquire market knowledge

in other ways. By the fact that the speed of the learning process is affected by the firms‟ previous

experience, networking, and knowledge about institutions, these firms can avoid external risks by

jumping the step of teaming up with a local actor in the establishment chain. When learning about

the market and taking actions, internal and external networking is important as this speed up the

learning process and in turn the internationalization process. External networking, transfers of

knowledge between subsidiaries, and the actors within the firm shares this knowledge. By

35

implementing this into the firm, they can minimize risks, facilitate further steps, and

consequently achieve a competitive advantage.

However, when first entering the emerging market with a high psychic distance, the

firms used incremental steps from near-by countries in order to learn and be more prepared. In

our study, the firms gained knowledge from nearby markets in Africa or Portugal. These

countries served as a step stone to establish a more risk resistant venture on the Angolan market.

For that reason, we see that there are other factors than just the ones mentioned in

our theoretical framework that influence the learning process. The most prominent factors have

proven to be; previous experience, the institutions in the market, experiential learning,

incremental steps, and networking. These are interrelated, and derives from previous experience.

Thus, when firms can handle the institutions, they can be more successful in their networking and

gain more valuable knowledge for further expansion. It is foremost a question of the perceptions

of the actors and the actual market, and this makes it a dynamic process.

6.1 Managerial implications

We found some coherence to Forsgren‟s statement that general and market knowledge minimizes

perceived risks of the firm. Building on this, we conclude that in order to minimize risks, there

are some managerial implications that firms can implement and which can be done in more than

one way. For example, firms can; 1) minimize their economic risk such as size of the investment,

which in turn minimizes political hazards 2) gather knowledge from external sources 3)

understanding the institutional environment and more consciously choosing external actors to

network with.

6.2 Further research areas

The firm reputation has influenced two of the firms in doing business, thus we suggest that

further research can be made on what impact this will have on firm establishments. This study

further supports informal/personal networks and the government to have profound impact on the

learning process of the emerging market. However, Jansson states that the influence of both

governmental impact and informal/personal relations will incrementally decrease when Angola‟s

market have reached a more mature stage in its development. Therefore, at this future stage this

could be an interesting area of research.

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Building on the fact that Angola is an emerging market and that we investigate the

learning process of different actors, we have noticed that the findings are very dependent on the

previous experience of the actors. This makes our findings hard to generalize. To add to our

suggestion of a future investigation, we recommend that the research take place on a bigger scale.

37

Acknowledgements

We wish to thank a number of people for their contributions during the making of this

thesis. First off, we wish to thank our supervisor Francesco Ciabuschi for the very

rewarding seminars he held. We also thank the interviewed managers at the firms; that is

Björn Rosengren, Stellan Lindstedt, Jorge Cifuentes, and Leif Biureborgh. They have been

very helpful in providing us with the opportunity to receive first-hand information.

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7. References

Articles

Dikova, D. & van Witteloostuijn, A. (2007), Foreign direct investment mode choice: entry and

establishment modes in transition economies, Journal of International Business Studies, Vol. 38, pp 1013-

1033.

Forsgren, M. (2002), The Concept of Learning in the Uppsala Internationalization Process Model: a

Critical Review, International Business Review 11, pp. 257-277.

Hofstede, G. (1983), The Cultural Relativity of Organizational Practices and Theories, Journal of

International Business Studies. Vol. 14. No. 2, pp 75-89

Johanson, J. & Vahlne, E. (1977), The internationalization Process of the Firm – A model of Knowledge

Development and Increasing Foreign Market Commitments, Journal of International Business Studies,

Vol 8. No.1, pp 23-32.

Johanson, J. & F. Wiedersheim-Paul (1975), “The Internationalization of the firm – Four Swedish Cases”,

Journal of Management Studies, 12 (3): 305-322.

Johanson, J. & Vahlne, E. (1990), The mechanisms of Internationalization. International Marketing

review, 7 No 4, pp 11-24.

Jung. J. (2004), Acquisitions or Joint Ventures: Foreign Market Entry Strategy of U.S. Advertising

Agencies, The Journal of Media Economics 17(1), pp. 35-50.

Kogut, B. (1988), Joint ventures: theoretical and empirical perspectives, Strategic Management Journal

No. 9, pp. 319-32.

39

Literature

Contractor, F. (1985), Licensing in International Strategy – A Guide for Planning and Negotiations,

Quorum Books, Westport, Connecticut, p. 6.

Forsgren, M., Holm, U., Johansson, J. (2005), Managing the Embedded Multinational - A Business

Network View. Edward Elgar, Cheltenham, UK. Northampton, MA, USA pp. 170, 178, 179.

Hill, C. (2007), International Business, Competing in the Global Market Place 6 th edition, McGraw-Hill,

pp. 491, 493, 708.

Hörnell, E. Vahlne, J-E. & Wiedersheim-Paul, F. (1973), Export och utlandsetableringar, chapter IV.

Ekonomiskt avstånd och etablering, Almqvist & Wiksell, pp. 166, 167, 169, 170.

Jansson, H. (2007), International Business Strategy in Emerging Country Markets, Edward Elgar,

Cheltenham, UK. Northampton, MA, USA pp. 2, 4, 7, 32, 43, 110,111, 114, 195.

Report

Banco Espirito Santo Research report, Angola 1st quarter 2008, acquired from Jorge Cifuentes

Internet

Emerging Markets: Angola (2005), East-West Debt

http://www.eastwest.be/emerging-markets/Angola.html

The Swedish National Encyclopaedia – search words “Angola – industry”

http://www.ne.se

Company Web-Sites

Alfa Laval

www.alfalaval.com Accessed 2008-05-15

http://www.alfalaval.com/about-us/our-company/history/pages/history.aspx.

40

http://www.alfalaval.com/about-us/our-company/alfa-laval-in-2-minutes/pages/alfa-laval-in-2-

minutes.aspx.

IGE

www.ige.se Accessed 2008-04-27

http://www.ige.se/?file=about_ige/overview/index.xml.

Atlas Copco

www.atlascopco.com Accessed 2008-03-15

http://www.atlascopco.se/sesv/AtlasCopcogroup/

http://www.atlascopco.se/sesv/AtlasCopcogroup/History/EvolutionofAC/index.asp

http://www.atlascopco.com/us/news/corporatenews/080219_atlas_copco_opens_customer_center_in_ang

ola.asp

Ericsson

www.ericsson.com Accessed 2008-04-23

http://www.ericsson.com/corpinfo/index.shtml

http://www.ericsson.com/solutions/operators/news/2007/q4/20071203_angola.shtml.

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8. Interviews

Part 1 Background information about the interviewed MNC’s

In this first part, we would like to ask some general questions regarding the firm and your role in

the company.

1. What is your title/task?

1.1 How many employees are involved in the Angolan operations?

1.2 For how long time has the firm been operating in Angola?

1.3 How many projects are you involved in?

1.4 Is it a competitive environment?

Part 2 Internationalization process and entry mode

The questions here focus on providing us with knowledge regarding the operations and the

internationalization process of the firm.

2.1 Can you please give us a brief overview of what kind of business you conduct on the Angolan

market?

2.2 Is this your first business activity in the country?

2.3 If not, what kind of operations has the firm conducted earlier in Angola?

2.4 Please explain the firm’s entry strategy into Angola.

2.5 Can you describe the process of setting up your Angolan operations?

2.6 What reason is there to why the firm chooses to establish their Angolan operations and the

entry mode way you just described?

Part 3 Risks

Here, we try to find out whether the firm has been familiar with the economical and political risks in

Angola and to what extent the firm has been exposed to it.

3.1 What political risks did the firm identify before entering Angola?

3.2 How have the political risks influenced the way you conduct business in Angola?

3.3 What economical risks did the firm identify before entering Angola?

3.4 How have the economical risks influenced the way you conduct business in Angola?

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Part 4 Knowledge

In part 4 and 5, we would like to ask you about two aspects of your internationalization process. We

begin with your knowledge gathering process.

4.1 HOW did you gather knowledge of the political and economic risks BEFORE deciding to enter

Angola?

4.2 HOW does the firm go about in gathering knowledge about these risks AFTER HAVING

ESTABLISHED operations in the country?

4.3 According to your knowledge, has the firm in Angola been the subject of any “unexpected

surprises” connected to the stability of the market?

Part 5 Entry mode

The next phase will be about the entry mode strategy of your internationalization process.

5.1 When deciding on what entry strategy to use, what political risk factors did the firm consider?

5.2 When deciding on what entry strategy to use, what economical risk factors did the firm

consider?

Part 6 Questions of relevance to chosen entry mode

Here, we present some questions of relevance depending on what entry mode strategy we have

identified in the firm.

6.1 Does the firm usually use this entry strategy when entering new markets?

6.2 What are the biggest negative aspects of not co-operating with a local actor regarding reducing

your risks?

6.3 What are the biggest positive aspects of not co-operating with a local actor regarding reducing

your risks?

Part 7

Do you feel there are factors regarding your learning process that you feel we have not touched

upon in this interview? If so, which factors?