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Matricum Software Ltd., headquartered at the Central London, UK was incorporated in 1989, it specialises in Records Management Solutions using Bar-Code & RFID technology. Steady growth has been achieved since incorporation and much of the product development has been achieved by working closely with its Clients in the same way as a 'User Group'. Its highly skilled team includes electronic engineers, programmers, architecture developers and business process consultants who work together to create new products and continuously improve existing ones. They are not therefore just "Computer Programmers" but are also design and manufacture bespoke hardware to work with software. In essence, Matricum Software Ltd. is a "Business Process System Developers and Manufacturers."
Matricum, UK having already established a good hold in the United Kingdom market has now decided to expand its business into other than European Market. Having already attempted to make a strategic entry through Romania, the CEO realised invited bids to make a strategic report for its global expansion and expressed his desire to enter into Ukraine market. But the internal sources informed that he has insufficient staff to support him. But his key idea of expansion strategy; his expression: I like dreams of the future better than the history of the past", was the important realistic foundation that worked as a motivational factor for Matricum, UK to think in terms of inviting bids for global expansion strategies. Having given an opportunity I, as an independent actor personally feel privileged to be a part of the project proposal for Matricum's Global Expansion and explore into its strategic entry into Ukraine market. As such I decided to present this project proposal. The focal ides of this project proposal is to provide deeper insights into the extent to which an independent actor like Matricum, UK can actively realize its dream of internationalizing so as to determine the choice of a market, the mode of entry and the level of investment it can make in the Ukraine market. With this basic insight the project furthers to assess the market conditions within Ukraine; present a strategic approach for market entry; suggest key focal point for internal knowledge and skill enhancement; and propose a single global strategy for Matricum , UK.
Internationalization is considered to be principally based on how well the firm in isolation, decides which market to select and the mode of entry to use for a selected market (Rasheed, 2005; Driffield and Love, 2007; Dunning, 2000). Market selection and the mode of entry being crucial, management's attitude to international business and its knowledge and experience of foreign markets become very decisive regarding which markets to enter (Moen, et al. 2004; Johansson and Wiedersheim-Paul, 1975; Johanson and Vahlne, 1977).
The above view of internationalization does not reflect some of the equally decisive internationalization process, which can be externally induced. With the help of external independent actors which may not formally be part of the focal firm which internationalizes its operations, a firm can enter into markets which it does not possess prior knowledge of nor has experience about. The extent to which an independent actor influences a firm's internationalization is not highlighted in the literature. Consequently, very little is known about the role of independent actors in the decisions regarding the selection of foreign markets, the target customers to be served, form of entry and the level of commitments to be made in a chosen market.
This project, therefore, contributes to fill that gap. Specifically, the purpose of this project is to deepen the knowledge of Matricum, UK stating how an independent actor collaborates with a focal firm to jointly determine the choice of market, the mode of entry and the level of investment in the chosen market and even after entry in the ongoing activities. Hence, the proposed project investigates to: "Identify opportunities for Metricum, UK for global expansion - Strategic Entry into Ukraine".
Framework of the report
With the stated discussion and insight into internationalisation of business this report further laid strategic foundations identify the key elements of Internationalisation of Business that include Global Strategy, Market Selection and Mode of Entry; followed by Skill force enhancement; and finally explores into the possibilities of Investing in Ukraine.
Internationalisation of Business
Technology convergence has been investigated in order to determine the economic growth policy aimed at sustainable long-run economic growth and the convergence of the development between EU-member states ( i mond and Novak, 2007). In several studies, FDI has been seen as a key driver underlying growth performance by studied enterprises and economies (Blonigen, 2005; Lee et al., 2009). Different policy reforms have been used to attract the FDI inflows, such as introduction of different investment incentives, establishment of free trade zones, provisions of favourable tax and export incentives, and open policy, which in different countries have led to a surge of FDI. In addition to favourable policy measures, it is believed that sound macroeconomic management, sustained economic growth, and the presence of well functioning factor markets, such as a financial system, have made an attractive prospect for FDI (e.g. Ang, 2008).
Generally, global strategy is thought of as a process that begins after the decision to initiate or extend internationalization and ends when it is decided whether or not to act upon the results of the selection process (e.g. Papadopoulos and Denis, 1988). As such, both the complexities and the importance of global strategy are exacerbated, since market selection and targeting decisions are closely interrelated with a number of other decisions that are part and parcel of the expansion process. This includes, notably, internationalization, i.e., the international expansion of firms. Interestingly, research is very scant on the relationship between IMSel and IMSeg, on the one hand, and various internationalization theories, on the other, including the incremental model (Johanson and Vahlne, 1977), the eclectic paradigm (Dunning, 1988), the network approach (Johanson and Mattsson, 1988), the contingency or business strategy approach (Robertson and Chetty, 2000), and research that addresses the "Born Global" phenomenon (Oviatt and McDougall, 1994). Needless to say, the decisions are also important downstream - as mentioned above, they affect all subsequent strategic decisions, such as, for example, the extent to which the firm might need or want to adapt or standardize its strategies across markets or the design of specific elements of the marketing mix.
Market Selection Strategies
International business is conducted in an increasingly globalized environment characterized by fewer barriers, growing competition, and greater opportunities for expansion. Still, notwithstanding the general trend to globalization, the particular environments in which a firm operates are the result of the various strategic decisions it takes throughout its internationalization process. One such strategic decision is the selection (Root, 1994; Sakarya et al., 2007) or segmentation (Day et al., 1988; Steenkamp and Hofstede, 2002) of international markets - namely, the decision by which firms choose the markets, whether defined geographically or otherwise, in which to be present.
More recently, a limited number of empirical studies have looked at such issues as firms' market selection approaches and expansion pattern and importantly the criteria used by firms in non-domestic market entry decisions (e.g. Whitelock and Jobber, 2004). As well, empirical findings from studies in cogent areas, such as those on the internationalization process of firms (Johanson and Vahlne, 1977) and psychic distance (Dow and Karunaratna, 2006) provide valuable insights on the market selection strategies. However, in a more recent classification, Marti Â´ n Marti Â´ n and Papadopoulos (2005) used two criteria: the degree of systematization of the search for and analysis of information for IMS, to further distinguish between three approaches to IMSel: non-systematic, where no formal methods are used at any step of the process; semi-systematic, where only the search part is approached methodically; and systematic, where both the search and the analysis components are carried out using an ordered set of rules and procedures.
As can be seen from the above overview, some areas are better developed than others, considerable overlap exists across various subfields, and each subfield seems to have developed almost in complete independence of the others, resulting in reduced (if any) cross-fertilization across all the areas, which, in one way or another, are interested in the study of markets. While it may be more reassuring for investors to presume that ï¬rms select markets on a rational basis, it is undoubtedly more realistic to recognize that a non-systematic, strongly personalized and essentially belief driven market selection process is the principle characteristic of a market selection decision.
Liability of Foreignness
From a market entry strategy standpoint, one of the greatest challenges for MNEs investing abroad is overcoming the liability of foreignness (LOF), i.e. the liability associated with foreign operations (Mezias, 2002). The theoretical foundation of LOF is the work of Hymer (1976), who indicated that foreign ï¬rms face additional costs, not incurred by local ï¬rms. Miller and Parkhe, (2002) argued that these additional costs arise from a MNE's unfamiliarity with the foreign environment in which it engages in operations; discriminatory attitudes of customers, suppliers, government agencies, etc.; and additional costs associated with operating internationally.
Mode of Entry
The issue of market entry strategy continues to be of great interest to international business academics and practitioners (Ekeledo and Sivakumar, 1998; Erramilli and Rao, 1993; Malhotra et al., 2003; Mayrhofer, 2004). The chosen market entry strategy is important as it determines the manner in which multinational enterprises (MNEs) develop and implement marketing programs, coordinate business activities both within and across markets, and ultimately the MNEs' success in foreign markets (Erramilli and Rao, 1993; Malhotra et al., 2003).
Skill force enhancement
The internationalisation of enterprises can take different modes (e.g. Heather, 2002; Allen, 2005; Hilletofth et al., 2011). In this process of internationalisation, new skills and the organization of production and a more strategic place for knowledge and management practices, learning and innovation plays an important role for industries and different sizes of enterprises (Guillou et al., 2009; Wang et al., 2010). One of the modes of the internationalisation of enterprises is foreign direct investment (FDI) and technical cooperation programmes.
There are signs that new approaches to managing human resources taking account of the complexity of knowledge management are now emerging (Swart and Kinnie, 2009; Ulrich, 1998). Alongside these critiques is an aspiration that new modes of research melding academic and practitioner perspectives may redraw the future of both academia and the world of practice. Developments in our knowledge about innovation capabilities a socially robust knowledge management as a profession (Khurana, 2007) and the rediscovery of the practice of management reflect some of the trajectories, new ideas and thinking in this area. Perhaps pre-eminent among debates emanating from the flux of new ideas is what Gibbons (2008) calls the shift from concern with the mechanical language of knowledge transfer to a concern with knowledge exchange where knowledge itself is affected by the transfer process. This approach challenges conventional understanding of knowledge exchange in training and other forms of human resource development.
In recent years there has been much hope that moves towards a knowledge economy will reignite western economies and provide them with a new source of competitive advantage on the global stage. Simultaneously businesses aim to exploit and use knowledge to enhance competitiveness (Easterby Smith and Prito, 2009). Governments are advised to increase the output of researchers, especially those at doctoral level. However this system does little to address the challenges of bringing a commercial focus to research. In an Irish context, Jordan (2009) highlights the latent problems of the present system. He critiques the structures and policies underpinning Irish science policy that allows researchers and businesses little input deciding research areas of value and points to how research is but one input to the innovation process. Another key input, the commercialisation of research is omitted entirely. The role of a business school that is both interdisciplinary and looks outward to other faculties may provide a mechanism. Re ecting this view Starkey and Tiratsoo (2007) posit an alteration in our view of the school from a knowledge carrier to becoming a node on various knowledge creating networks. The authors see this as placing a demand on the school in the shape of a greater re exivity on the part of school management and academics. The literature on dynamic capabilities and their role in organisational learning (Easterby Smith and Prito, 2009; Eisenhardt and Martin, 2000) provides a context within which future models of knowledge exchange between academia and practice may be linked.
Investment in Ukraine
"Country risk analysis (or assessment)" (CRA) refers to the many extant rating systems and methods for measuring foreign market risk, which are used by most of the world's largest global companies and organizations as aids in investment, financial, and political decisions. Some of these systems have been developed by academic researchers, some by private research agencies, and some by major international organizations (e.g. United Nations, World Bank). Examples include credit risk ratings by major banks and investment agencies (e.g. Moody's), the "Business Environment Risk Intelligence" system of BERI S.A., and the "International Country Risk Guide" (ICRG) of the Political Risk Service Group.
With the above stated facts the project further investigates into the various factors of the target country 'Ukraine' to discuss the possibilities of the expansion strategy of Matricum; this is important because of the concept of CRA tends attracting more attention during periods of major international crises, such as the international debt debacle of the early 1980s, the period immediately following 9/11, and the 2008-2010 global financial crisis. Needless to say, a key difference between International Market Strategies and CRA methods is the types of indicators used in each case. IMS studies are more likely to stress market potential, while those in CRA clearly emphasize "risk".
The Independent Ukraine
Ukraine has been an independent state since achieving independence from the Soviet Union in 1991. Despite Ukraine's difficulties in attracting levels of foreign investment comparable to neighbouring countries such as Poland, its economy in the past few years has managed to grow strongly and foreign investment is beginning to bloom in a hitherto unwelcoming economic landscape (Roman, 2009). Ukraine is the largest country by land area wholly within Europe (approximately 604,000 sq. kms) and has a population of 46.8 million people (Ukraine Fact Sheet, 2006).
Ukraine's relationship with EU
The EU is Ukraine's largest trading partner, with 27.1% of exports and 33.7% of imports in 2008; and trade with EU has seen strong double-digit growth in recent years. The Russian Federation is Ukraine's second largest trading partner, with 21.1% of exports and 28% of imports in 2009. On June 24, 2010 Ukraine's Foreign Minister Kostyantyn Hryshchenko signed an agreement on free trade with the EFTA (European Free Trade Association). Since 1991, when Ukraine gained independence, the European Union and Ukraine have developed an increasingly dynamic relationship. Ukraine is a priority partner country within the European Neighbourhood Policy (ENP) and the Eastern Partnership. The current legal framework for EU-Ukraine relations is provided by the Partnership and Co-operation Agreement (PCA) (Delegation of European Union to Ukraine).
Economy & Foreign Investment in Ukraine
FDI-related issues acquire particular importance in the context of the services sector, which, most likely by default rather than by design, is studied only or mostly within the FDI literature when it comes to location choice. This is, again, because of the traditional IMS focus on exports, which are rarely an option for services. Instead, the producer-consumer inseparability in services means that in most cases international expansion necessitates direct investment in the target market.
With the collapse of the Soviet Union in 1991, Ukraine was rated the highest on economic potential (27 on a scale of 30 exceeding even Russia with 24) by Germany's Deutsche Bank. The economy grew by 12.1 per cent in 2004 and 2.4 per cent in 2005. According to Roman, (2009) the steady investments and recovery of exports, Ukraine's real GDP is expected to rise by 7.6 per cent in 2011; however the statics show a different picture (figure-1).
Ukraine's GDP (1990-2010)
Source: New figures from World bank, including a 2010 forecast. Reference: http://www.interfax.com.ua/eng/main/22220/)
As can be seen in figure-1 with a negative growth rate of -15 GDP in 2009 Ukraine was able to grow to 2.5 GDP by 2010. However, in terms of foreign investment unlike some of its neighbours such as Poland and Hungary, and even Russia, Ukraine has received comparatively little foreign direct investment (FDI) on both an absolute and per capita basis (Table I).
Table : FDI in selected Central and East European Countries
Source: Hunya and Schwarzhappel, (2006)
As can be seen in table-1, although Ukraine has received little FDI compared to other countries in the region, that situation is beginning to change slowly, given its recent impressive economic performance.
Corruption is seen as a major barrier to the expansion of business in Ukraine, particularly for foreign companies. Using Transparency International's annual Corruption Perceptions Index (Transparency International, 2005) Ukraine was ranked 107th in terms of the perceived level of corruption, in 2005. Near neighbours Poland was ranked seventieth and Russia was ranked 126th (Roman, 2006). A better insight of establishing a business in Ukraine can be had from table-2.
Table : Measures of Ease of Doing Business
Source: World Bank Doing Business (www.doingbusiness.org)
As can be seen in table-2 Ukraine stands at a position of 124/172 in terms of overall ease of doing business as against New Zealand and Australia that stand at 1st and 6th position.
The other major hurdle is the prevalence of workplace crime; this aspect is very well demonstrated in the studies of Rodgers, Williams and Round, (2008); who categorically stated that informal economies and corrupt practices are widespread in the Ukrainian workplace. The works also emphasized on imbalance by exploring informal practices that occur within, and around, formal workplaces in post-Soviet Ukraine.
Another reason according to Vikulina, (2005) is high levels of crime that is making very hard for foreign firms to invest in Ukraine as they are fearful of potential losses and also because it is hard for them to ascertain the processes that are in operation. This deprives the country not only of foreign investment (Shelley, 1999), but also expertise and management techniques (May et al., 1998).
ITC Sector in Ukraine
"Despite the potential to become an advanced technological country and develop this rapidly expanding global market that in many cases effortlessly reaches across national boundaries, Ukraine is lagging behind. As an example, among countries in the region it still tops the list for violations of intellectual property rights. The Government of Ukraine has been working on addressing this problem and on following through on promises to end piracy of software as well as entertainment products. Despite some progress and the adoption of several important legislative acts including: "On Protection of Personal Data," "On the Introduction of a National Program of Electronic Documents Using Digital Signatures," the state program for the introduction of digital television, and the Convention on Cybercrime ratified by the Ukrainian Parliament, Ukraine is still failing to fulfill its full potential".
- Zukoski, President of the American Chamber of Commerce in Ukraine (http://blog.chamber.ua/2010/07/communications-challenges/)
As discussed in the previous section there seems to be a numerous hurdles for starting a business in Ukraine; the unsteady economic growth, informal format of workforce, influence of criminal within the workforce all make is hard for Matricum to explore into the market of Ukraine. However, if the dreams of the CEO of Matricum stating: "I like dreams of the future better than the history of the past"; this report suggests a possible option of franchise. According to the Franchising Association of Ukraine (2006), the Ukrainian experience of franchising begins from a fashionable buzzword in the late 1990s, franchising is now becoming a new way for Ukrainian businessman to develop their enterprises. The first franchise to open in Ukraine was McDonald's in 1997 (Parkharenko-Anderson, 2003). These stores were owned by the franchisor rather than run by franchisees (Hnatiuk, 2001). In 2000, the first Ukrainian branded fast food chains began to appear, including (Mister Snack), (Fast), (Home Cuisine), (Rostik's) (all Kyiv based), (Pan Pizza) (based in Odessa), and (Potato House) (based in Lviv) (Parkharenko-Anderson, 2003). However according to World Franchise Council (2006) currently, franchising is a relatively underutilized method of conducting business in Ukraine; the principle reasons for this include:
A lack of expertise in various business sectors, including knowledge of franchising and judicial expertise to deal with franchise agreements
The novelty of franchise agreements and their complexity relative to other types of commercial contracts.
The reticence of franchisors to train franchisees in their business due to their fear of creating future competitors.
Franchising is a contractual form of doing business. It is a type of licensing where the nature of the contractual terms is usually much more complex in de ning the rights and obligations of the parties. The agreement is known as a franchise. The party awarding the franchise is known as a franchisor and the party accepting the franchise is known as the franchisee (or franchise holder). Franchising has been one of the most popular means of engaging in business in recent years. There are two key theories generally used to explain franchising, resource scarcity (Oxenfeldt and Kelly, 1969) and agency theory (Lafontaine and Slade, 1997). Although the conceptual bases underpinning franchising activities have been well documented, it is not the intention of this paper to discuss them in detail, as this is an exploratory study, which hopefully will act as a catalyst to researchers to engage in further research and attract investors. The rate of growth of franchises has been quite strong around the world. For example, in Australia (population 20 million), there are approximately 850 business format franchises representing about 54,000 individual outlets around the country employing 507,000 people (Frazer and Weaven, 2004, p. 2).
In the concluding remarks of his studies on franchising in Ukraine Raman, (2006) state that "Despite the difficulties of operating in the Ukrainian business environment, with its twin problems of bureaucracy and corruption, franchising has managed to establish itself as a viable way of doing business in Ukraine. Both foreign and local franchisors are beginning to make headway in establishing a strong presence in the Ukrainian business landscape".
The study of Roman, (2006) also offers better insights and assistance to investors hoping to open up franchises in Ukraine. As such this report strongly recommends that Matricum before opting for expansion into Ukraine market can opt for franchise as franchisors become better prepared for the next upturn in the economic cycle."