Configuration of a multinational enterprise network to the middle east market

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(1)EGADE®. Business School TECNOLÓGICO DE MONTERREY CAMPUS ESTADO DE MÉXICO. CONFIGURATION OF A MULTINATIONAL ENTERPRISE NETWORK TO THE MIDDLE EAST MARKET. by. Cintia Cristina Román Valdés. A thesis submitted to the Graduate Faculty at EGADE Business School in partía! fulfillment of the requirements for a degree of Master in Business Management. Supervisor: Hans Lundberg, PhD. Co-Supervisors: Marcela Ramírez Pasillas, PhD Alma Delia Pérez Otero, PhD. March 2012.

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(3) EGADE.. l·LTMANS™. Business School. Abstract. This thesis aims to study perceptions of the Middle Eastern market with respect to bath plumbing fittings, the correlation involved between these extrinsic and intrinsic cues and the modeling of an MNE network, thus ultimately proposing a conceptual model on the configuration of the MNE network with emphasis on the commercialization of bath plumbing fixtures from North America to the Middle East. Four research questions in respect to the modeling of the MNE network and how it can be influenced by consumer evaluation on country of origin and other intrinsic attributes. The research was conducted by gathering empirical evidence of the construction the network and intemationalization process that a company in North America has undergone, especially in the last 3 years since its decision to enter this particular market. The study conveys empirical data on how this MNE has been conducting research and developing a strategy to enter this market in the last 19 months, it presents opportunities and weaknesses, aiming to strengthen its strategy by proposing commercialization scenarios that will bring efficiency, flexibility and availability to the market. The way Grupo Helvex SA de CV has been shaping its network to emerge as a global company provided valuable insight that helped propose a model for corporate intemationalization. The results indicated that more study is warranted in this area.. ll.

(4) EGADE.. Business School. Table of Contents ABSTRACT ....................................................................................................................................... 11 ACKNOWLEDGMENTS ................................................................................................................ 111 TABLE OF CONTENTS ................................................................................................................... V LIST OF TABLES ........................................................................................................................... VII LIST OF FIGURES ....................................................................................................................... VIII CHAPTER 1: INTRODUCTION ..................................................................................................... 1 1.1 MOTIVATION FOR THE STUDY ............................................................................................................... 1 1.2 PROBLEM DISCUSSION ............................................................................................................................ 4 1.2.1 Problem Statement ......................................................................................................................... 5 1.2.2 Purpose of this Study...................................................................................................................... 6 1.2.3 Research Questions ......................................................................................................................... 7 1.3 RESEARCH METHODOLOGY .................................................................................................................... 8 1.3.1 Unitof Analysis ................................................................................................................................. 8 1.3.2 Research Design ............................................................................................................................... 9 1.3.3 Case Study Approach .................................................................................................................. 10 1.3.4 Action Research ............................................................................................................................. 13 1.3.5 Research Process........................................................................................................................... 15 1.3.6 Data Collection .............................................................................................................................. 17 1.4 ÜRGANIZATION OF THE STUDY ............................................................................................................ 18 CHAPTER 2: LITERATURE REVIEW AND CONCEPTUAL FRAMEWORK ..................... 19 2.1 PERCEPTION ON THE ORIGIN ................................................................................................................ 19 2.1.1 Country of Origin .......................................................................................................................... 20 2.1.2 Country Image ............................................................................................................................... 22 2.1.3 Consumer uti/ity maximization perspective ..................................................................... 23 2.2 Internationalization process....................................................................................................... 24 2.2.1 Uppsa/a Model ............................................................................................................................... 26 2.2.2 Innovation Related Internationalisation Model ............................................................. 28 2.2.3 The Multinational Enterprise .................................................................................................. 28 2.2.4 Modelling of the MNE ................................................................................................................. 30 2.3 SUMMARY ................................................................................................................................................ 32 2.4 CONCEPTUAL FRAMEWORK ................................................................................................................. 33 CHAPTER 3: GRUPO HELVEX IN THE MIDDLE EAST: PRESENTATION OF THE EMPIRICAL DATA UNDERLYING THE CONSTRUCTION OF SCENARIOS .................... 36 3.1 INTRODUCTION ....................................................................................................................................... 36 3.2 AL TMANS PRODUCTS ............................................................................................................................. 43 3.3 ALTMANS IN THE MIDDLE EAST PHILOSOPHY .................................................................................. 50 3.4 ÜBJECTIVES ............................................................................................................................................. 53 3.5 MANUFACTURING PROCESSES ............................................................................................................. 55 3.6 COMMERCIALIZATION PROCESS .......................................................................................................... 57. V.

(5) EGADE.. Business School ºECMJlóG!CO DE IJC-N1El!Hf:T. 3.6.1 Packaging ........................................................................................................................................ 58 3.6.2 Shipping Documents.................................................................................................................... 59 3.6.3 Certifications .................................................................................................................................. 59 CHAPTER 4: ANALYSIS ANO RESUL TS .................................................................................. 62 4.1 IMPLICATIONS OF PERCEPTION ON COUNTRY OF ORIGIN ANO THE CONSUMER'S EVALUATION OF THE PROOUCT IN THE NElWORK CONFIGURATION OF AN MNE .................................................... 62 4.2 INFLUENCE OF THE PERCEPTION ON COUNTRY OF ORIGIN, COUNTRY IMAGE ANO COUNTRY OESIGN ON THE MNE ANO ITS PROCESSES MAPPING ............................................................................. 62 4.3 REALISTIC COMMERCIALIZATION SCENARIOS FOR ALTMANS PROOUCTS IN THE MIDO LE EAST MARKET .......................................................................................................................................................... 70 4.4 INFLUENCE OF COMMERCIALIZATION SCENARIOS ON THE MANUFACTURING PROCESSES OESIGN ............................................................................................................................................................ 77 4.5 MOOEL DEVELOPMENT ......................................................................................................................... 79. CHAPTER 5: GENERAL DISCUSSION, CONCLUSIONS ANO IMPLICATIONS ................ 83 5.1 DISCUSSION OF EMPIRICAL FINOINGS ................................................................................................ 84 5.2 LIMITATIONS OF THE STUOY ................................................................................................................ 85 5.3 DIRECTIONS FOR FUTURE RESEARCH ................................................................................................ 85 REFERENCES ................................................................................................................................. 87 APPENDIXES ............................................................................................................................... 100 APPENDIX 1: PESTLE ANALYSIS .......................................................................................... 101 KINGOOM OF BAHRAIN .............................................................................................................................. 101 STATEOF KUWAIT ...................................................................................................................................... 102 SULTANATE OF ÜMAN ............................................................................................................................... 103 STATE OF QATAR ........................................................................................................................................ 104 KINGOOM OF SAUOI ARABIA .................................................................................................................... 105 UNITEO ARAB EMIRATES .......................................................................................................................... 106 APPENDIX 2: INDUSTRY ANALYSIS ..................................................................................... 109 APPENDIX 3: SURVEY DRAFT ............................................................................................... 112 CUSTOMER PROFILE ................................................................................................................................... 112 KITCHEN & BATHROOM FITTINGS ANO SANITARY WARE ................................................................. 114 APPENDIX 4: SASO COMPLIANCE REQUIREMENTS ....................................................... 119. VI.

(6) EGADE.. !1L TMANS'M. · Business School "FGNOU)GiCO Df \C('a'i!E R><f.Y. List of Tables Table l GCC lndicators ......................................................................................................... 49 Table 2 Short term objectives ................................................................................................ 54 Table 3 Medium term objectives ........................................................................................... 54 Table 4 Long term objectives ................................................................... ............................. 54 Table 5 Production capability per collection ......................................................................... 64 Table 6 Production capability per finish ................................................................................ 65 Table 7 Production capacity per finish ............ .................. ......... ....................... ............... ..... 66 Table 8 Demand per finish ..................................................................................................... 67 Table 9 Demand volume per finish ........................................................................................ 68 Table l O Demand per collection and finish ........................................................................... 69 Table 11 Market participants ............................................................................................... 11 O Table 12 Drivers Assessment .............. ................ ........... ............................ .......................... 1 t t. VII.

(7) EGADE.. !1LTMANS™. Business School. List of Figures Figure I Unit of Analysis ......................................................................................................... 8 Figure 2 Research process ..................................................................................................... 16 Figure 3 Companies of Grupo Helvex ................................................................................... 37 Figure 4 Manufacturing Locations ......................................................................................... 38 Figure 5 Helvex International subsidiaries abroad ................................................................ 40 Figure 6 Product Attributes .................................................................................................... 46 Figure 7 Attributes importance .............................................................................................. 47 Figure 8 Advantages and disadvantages ................................................................................ 48 Figure 9 Middle East project organizational chart ................................................................. 50 Figure 10 Mission .................................................................................................................. 51 Figure 11 Vision .................................................................................................................... 51 Figure 12 Objectives and values ............................................................................................ 52 Figure 13 Export process ....................................................................................................... 70 Figure 14 Scenarios ................................................................................................................ 70 Figure 15 Scenario 1a ............................................................................................................ 72 Figure 16 Scenario I b ............................................................................................................ 72 Figure 17 Scenario 2a ............................................................................................................ 73 Figure 18 Scenario 2b ............................................................................................................ 74 Figure 19 Scenario 3a ............................................................................................................ 75 Figure 20 Scenario 3b ............................................................................................................ 75 Figure 21 Scenario 4a ............................................................................................................ 76 Figure 22 Scenario 4b ............................................................................................................ 77 Figure 23 Label in arabic ....................................................................................................... 79 Figure 24 Conceptual model .................................................................................................. 80 Figure 25 Drivers Assessment ............................................................................................. 11 O. VIII.

(8) EGADE.. Business School. TECNOLÓGICO DE MONTERREY. Chapter 1: Introd uction. This chapter provides the reader with an overview and premises far this thesis. It sets out the reasons far the study, the research questions, outlines the methodology of the study, provides a description of the unit of analysis and concludes by describing the organization of the study.. 1.1 Motivation for the Study. Grupo Helvex SA de CV is a Mexican company that prides itself far controlling their entire value chain through the manufacturing and commercialization of their products and services in local and international markets. Ever since it started over 62 years ago, the company has been the leader in the bath plumbing fixtures segment in the local market. With a rather small but talented multicultural exports department, and the support of the rest of the company, Helvex lnternational, the exports and fareign subsidiaries division, has broaden its presence across the American Continent, the Caribbean and now is venturing into the Middle East. Collaborating with the company since 201 O in this very particular project, 1 have been able to witness and look back at how a company has become a Multinational Enterprise.

(9) EGADE.. Business School. TECNOLÓGICO DE MONTERREY. (MNE), centralizing and decentralizing sorne of its operations and is able to set new goals to enter new markets. In a broad sense, the Middle Eastern region is a vast territory that encompasses over 22 countries in the Arabic Península, North Africa and surrounding areas; however, in order to develop an efficient entrance strategy a selection of the countries in which to enter was conducted. This is what I began doing a few months after I started working for the company. First through a situation analysis that included the political, economical and social environments, along with the industry composition, market size and value, which led me to suggest that targeting a representative area in this region, the GCC to be more precise, would be a good start in order to further penetrate other similar markets once positioned in these 6 countries. With the support of my immediate superior and the Exports manager I have been working for the last 19 months in providing not only products but also services of the highest quality to this market, gathering knowledge of their needs, requirements and perceptions on the product and the service being provided, and most importantly with the intent to propose different internationalization scenarios supported by strong arguments on network configuration, thus developing a strong and effective business strategy for this particular market. Because consumer perception and country of origin seem to have great relevance in this market, in collaboration with the International Marketing and Business Intelligence.

(10) EGADE.. Business School. TECNOLÓGICO DE MONTERREY. Department at Helvex research to understand these two variables has been preponderant in the latter months. Withal, previous studiesii have researched the impact of country of origin and brand on consumer perception, and as it tums out, the brand name has a direct effect on country of origin, country of manufacture and/or final assembly. As Khan (2005) mentions, there is evidence that country identification influences the way products are evaluated, however these conclusions may be biased for certain industries, thus tuming it important to further research on this subject to gather more empirical data that may support such assumptions in the construction industry. In order to make this possible, 1 have set myself to conduct research on the characteristics of the market and the company's network configuration. By doing so, not only am I providing the grounds to build an effective entrance strategy for Helvex in this market, which will ultimately result on the leadership growth of the company across new markets, but I am also contributing to increase the knowledge on consumer perception on foreign products, especially in this market where little information is known. Withal, this study is of high relevance, both for the company and the industry m general, as it will help understand the perception on manufacturing and designing of products and how to build strong foundations to improve country image.. "Eroglu & Machleit, 1988; Haubl, 1996; Ahmad, Johnson, Ling, Fang & Hui, 2002; Khan, 2005.. 3.

(11) EGADE.. " Business School TECNOLÓGICO DE MONTERREY. 1.2 Problem Discussion. The construction sector is the activity of construction, and that of professional architects, developers, construction managers, engineers, contractors, specialty contractors, interior designers and manufacturers of construction materials within the Residential, Commercial and Leisure Segments. A key aspect in realty developments relates to the finishing stage, which according to their functions, these are the visible differentiator elements that result on the quality and aesthetics of a building. According to construction statistics, in a new construction this stage represents approximately 9% of the total costs of the construction, and these finishes can dramatically increase the market value of a venue or building as much as these values can detriment if creative design, quality and innovation do not match. Within the finishing stage, two of the most important items are plumbing (which also includes sanitary ware) and bathroom and kitchen plumbing fixtures. This is where Helvex establishes its core business, providing high quality fixtures that strive to meet ali customers' needs. The Arabian Península is located in the southwestem region of the Asían continent. Covering about 3 million square kilometers; the southeastem area of the península is the Rub'al- Khali, the Empty Quarter, which is the world's largest expanse of continuous sand. Politically, the Arabian Península consists of Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates, the Sultanate of Ornan, and the Republic of Yemen. Together,. 4.

(12) EGADE.. Business School. TECNOLÓGICO DE MONTERREY. these countries (excluding the Republic of Yemen) constitute the Gulf Cooperation Council (GCC). Withal, in the last 12 months Helvex has continue with strong efforts to introduce and commercialize its products in the region, and though it seems that its products are perceived of high quality and enthralling design, the perception of the consumer on the origin of the product has shown otherwise, leading us to propose a different configuration to commercialize in the region.. 1.2.1 Problem Statement. According to the 2008 statistics report by the Cooperation Council, the construction sector in the region represented, in the last 5 years, an average of 38,910.9 million dollars of GDP in the current account, representing only 5% of the GDP. According to data gathered from COFACE in 2011, the construction sector in the Cooperation Council of the Arab States of the Gulf is classified as A-, which clearly indicates that the economic environment is stable and has had positive influence in recent years. Furthermore, it shows that payment experience is satisfactory and the probability of no payment is in average very low compared to the construction sector classification, with a global C+. In the last decade, the Middle East went through a period of expansion promoted by government spending in order to diversify away from their oil economy; by doing this, they. 5.

(13) EGADE.. Business School. TECNOLÓGICO DE MONTERREY. intensely invested in building infrastructure and developing new industries, including a large financial hub in the middle of the Arabic Península. This led to an increase in demand of new buildings, which boosted the construction industry in over 500% since 2002. Despite the economic recession in 2008 when the industry experienced a detriment in the value, and the political tunnoil at the beginning of 2011, the construction industry is recovering at a slow but constant pace and is set to continue on a bullish growth in the next decade. With a quick overview of this data, we can see there is significant opportunity to enter this market, providing high quality products and designs at a competitive price under an efficient strategy.. 1.2.2 Purpose of this Study. The purpose of this study is to develop a conceptual model that leads to increased understanding and a concrete configuration of an MNE network with a particular emphasis on exporting bath plumbing fixtures from North America to the Middle East. This study proposes scenarios on how to efficiently and effectively export from Mexico and/or the United States of America. The study also examines the role of consumer perception on country of origin as a valuable indicator on the selection of brand origin. The research was carried out within the MNE network through various subunits of analysis in order to acquire comprehensive knowledge on how the company should develop an appropriate entrance strategy.. 6.

(14) EGADE.. Business School. TECNOLÓGICO DE MONTERREY. 1.2.3 Research Questions. This thesis addresses the following research questions: (i) What are the implications of perception on country of origin and the consumer's evaluation of the product in the network configuration of an MNE? (ii) How can an MNE take advantage of the perception on country of origin, country image and country design in order to decide (and map) its processes? (iii) What are the realistic scenarios to commercialize Altmans products m the M iddle East Market? (iii) To what extent is the manufacturing processes design influenced by possible commercialization scenarios and how should Altmans act upon?. The findings in this study can be used to design organizational policies and practices that support an effective strategy to export bath plumbing fixtures to the Middle East, an important condition for Helvex as an MNE to take action and be part of a competitive global market as it sets to enter a new market.. 7.

(15) !. Et.JADE.. 'LTMANS'". . ,, . Ekk .t ih : ... .. 1 L , . & J. Business School TECNOLÓGICO DE MONTERREY. 3 .L :l .! , , . L. 1. X. a . : a c.,z;: e. z. 1.3 Research Methodology. 1.3.1 Unit of Analysis. Helvex is a Mexican gradual global company that has been present in the bath plumbing fixtures market for over 62 years. Through these years, the company has successfully become leader in the domestic market creating strong brand identity in the consumers mind, and has since the early 1980's expanded to foreign markets. Within the company there are two subunits that are of high relevance for this study.. Grupo. •: i3!') ff=I. S.A. de C.V.. FIGURE] UNIT OF ÁNALYSIS SOURCE: ÜWN CREA TION. 8.

(16) .,,~EGADE.. Business School. TECNOLÓGICO DE MONTERREY. The first subunit being the internationalization strategy put into action during the last decades, which is of great importance given that it resembles how an MNE begins the internationalization process and through further analysis it becomes the prologue for the internationalization continuance in the Middle Eastern market. Helvex wants to be recognized by the quality and the lavish designs that comprise their vast portfolio of products, and that is a competitive advantage the company exploits in ali the markets where it is currently present.. The second subunit are the manufacturing processes, the capacity and the capability of each one of the facilities are of great importance when it comes to deciding on the enacting processes to strengthen the internationalization strategy for this particular market. Helvex is pioneer in the kitchen and bathroom fittings in the domestic market, being the only local company that fully controls their value chain by manufacturing every one of its components, including the raw materials used to manufacture its products.. 1.3.2 Research Design. The method proposed for this thesis begins with case study, as it is paramount to understand the current setting for the company's internalization, through in-depth description of the situation and the analysis of the results parting from a theory, the identification of causal mechanisms and the validation of such theory (Yacuzzi, 2005).. 9.

(17) EGADE.. Business School. TECNOLÓGICO DE MONTERREY. It then continues with action research and its cycle proposed by Lewin in 1946 as explained by Coghlan and Brannick (2005), modified to be applied in this specific phenomenon.. 1.3.3 Case Study Approach. Case study has a various set of definitions. For instance, it might be referred to as a qualitative method that utilizes ethnographic, clinical, participant-observation research (Yin, 1994; Gerring, 2004) and that it is characterized by process tracing (George and Bennett, 2004). Schramm ( 1971) and Yin (2003) define case study as the approach that tries to illuminate a set of decisions on why they were made, how they were implemented and what was the result of such decisions. According to Yin (2003), a case study is an empirical inquiry investigating on contemporary phenomena within their real-life context, especially when context and boundaries between each other are not clear. Moreover, Gerring (2004) defines it as an intensive study of a single unit for the purpose of understanding a larger class of similar units. That of course relates to both single case studies and multiple case studies. Case study can be used for theory building when there is little knowledge on the phenomenon being researched. As Eisenhardt ( 1989) explained, it can be used when current perspectives seem inadequate or contlict or contradict with each other or with current. 10.

(18) EGADE.. Business School. TECNOLÓGICO DE MONTERREY. research. lt can help discover causal relationships, how and why the phenomena happens in a certain way, create rich understandings of the situation in its natural setting and even be used for deep investigation of dynamic, experiential and complex processes and areas (Hillebrand, Kok & Biemans, 2001; Jensen & Rodgers, 2001; Yin, 2004; Dyer & Wilkins, 1991; Eisenhardt & Graebner, 2007; Gummesson, 2006; Otley & Berry, 1998; Patton & Applebaum, 2003; Bensabat et al., 1987; Dubois & Gadde, 2002; Ghauri, 2004; Johnston et al., 1999; Lindgreen, 2011; Perren & Ram, 2004; Vissak, 201 O). Yin ( 1994) and Vissak (201 O) mention that this method is very useful as it allows the expansion and generalization of theories by combining theoretical existent knowledge and new empirical insights. Withal, it can be useful to transcend local boundaries of the cases, to capture new layers of reality and to develop new, testable and empirically valid theoretical and practical insights (Eisenhardt, 1989; Eisenhardt & Graebner, 2007; Ghauri, 204~ Glaser & Strauss, 1967; Sutart, McCutcheon, Handlfied, McLachlin & Samson, 2002; Tsoukas, 1989; Voss, Tsikriktsis & Frohlich, 2002; Vissak, 2010). As further described by Vissak (2010) this method should provide further sufficient and correct infonnation to understand complex aspects in intemational business. According to Fossey and Crow (201 1) the case study method must bear at least four essential elements: context, complexity, ambiguity and relevance. For a case study, the setting must be unique, and it should also take in consideration the organizational setting, the community, the legal-political-economical-cultural climates as well as historical information related to the proposed setting. Crow (2006) and Weick ( 1978) mention that it. 11.

(19) l1LTMANS'M. EGADE.. Business School. TECNOLÓGICO DE MONTERREY. helps develop effective leadership through proper response to complexity by using multiple perspectives, being broad-minded and understanding ambiguity. Using multiple methods of data collection improves the quality of the research (Eisenhardt & Graebner, 2007; Ghauri, 2004; Hurmerinta-Peltomiiki & Nummela, 2006; Johnston et al., 1999; Tellis, l 997a). Data can be collected from multiple levels and perspectives, whether it is from resources such as business papers, joumals, archival records or annual reports (Gummesson, 2006; Leonard-Barton, 1990; Dubois & Gadde, 2002; Ghauri, 2004; Johnston et al., 1999; Nieto & Pérez, 2000; Simon et al., 1996; Tellis, 1997a; Yin, 1994). According to Hillebrand et al. (2001) and Vissak (2010) case studies can also be used for theoretical generalization, since within relies the possibility of making logical conclusions supporting certain causal relations, thus opening up the possibility to generalized in similar cases, and helpful for theory building and testing (Dyer & Wilkins, 1991; Bensabat et al., 1987). Vissak (20 l O) also adds that in order to increase the generalizability of the results, meta-analysis can be conducted; this is because it can be used to study theories and statements that are central to the research field and the researcher can. provide interpretation of the literature in a way that has not been done before thus providing novel theoretical propositions (Miller, Glick, Wang and Huber, 1991; Jensen & Roberts, 2001).. 12.

(20) a;LTMANS"'. EGADE.. Business School. TECNOLÓGICO DE MONTERREY. 1.3.4 Action Research. Action Research is most commonly described as problem solving in real life situations promoting organizational change. It builds its foundations mostly in the works of Kurt Lewin and Paolo Freire, from which derive severa! authors that have described action research from various approaches. Reason and Bradbury (200 l) define it as a participatory, democratic process concemed with developing practica! knowledge in the pursuit of worthwhile human purposes, grounded in a participatory worldview. Argyris (2003) explained that action research creates meta leaming because it incorporates learning process into everyday problem solving, and as Mezirow ( 199 l) added, the researcher needs to apply retlection to the cycle to create a meta cycle of inquiry, thus reflecting on the content, the process and the premise of the former cycle. Furthermore, Argyris and Schon (l 99 l) explained that action research demand intervention in the sense of spiraling action cycles in which researchers develop and implementa plan of action to improve what is currently happening, whilst they observe and reflect on the effects of such plan in the context in which it occurs in arder to develop further planning and subsequent actions, thus creating those spiraling cycles. As further explained by Coghlan and Brannick (2005) it works through a cyclical process of consciously and deliberately planning, taking and evaluating the action thus leading to further planning and actions.. 13.

(21) EGADE.. Business School. TECNOLÓGICO DE MONTERREY. Additionally, Shani and Pasmore ( 1985) define this method as an emergent inquiry process in which applied behavioral science knowledge is integrated with existing organizational knowledge and applied to solve real organizational problems. These authors ultimately define it as an evolving process that is undertaken in a spirit of collaboration and co-inquiry, through the promotion of change in the organization, development of self-help competencies in members and adding to scientific knowledge. Herr and Anderson (2005) describe how action researchers often seek to deepen their own retlection on practice towards problem solving and professional development in their own organizations. This is because, as explained by Anderson and Jones (2000), researchers, or in this case practitioners, are motivated by the convenience of studying their own working environment, thus having already a deep leve) of tacit knowledge that they can develop and transform into contributions to their own setting and further promote organizational change. Moreover, action research has been described as an attitude brought into our own practice (Battaglia, 1995), where participating with other actors in the field is important (Spjelkavik, 1999) and it ultimately focuses on the improvement of such practice (Richardson, 1994).. 14.

(22) !1LTMANSTM. EGADE. Business School TECNOLÓGICO DE MONTERREY. 1.3.5 Research Process. Case study seems particularly enriching, as l aim to explain in detail how theoretical existent knowledge can be combined with new empírica! and practica! insights that helped build and implement a set of decisions for entering a new market. Bound to understand how previous strategies conducted by the company have shaped its internationalization, it also helps set the foundations to propase different scenarios on how to proceed next as the company endeavors to penetrate the Middle Eastern market. As it continues to sets these scenarios I venture into action research method, as it feels much more suitable given that knowledge gathered during the first process can now be implement during a participatory approach in arder to promote change thus improving performance. Action research serves to build practica! knowledge that can be implemented in a short-term basis, and through the process of reflection at ali 3 leve Is (Plan, Act, Evaluate) further contributions can be made to our own practice that will be visible in ali short, medium and long terms. Through this last process further conclusions can be drawn based on Schon's (1983) theory, which mentions that a successful reframing of the problematic situation leads to a continuation of the reflective conversation. The way these methodologies have been explained by severa! authors, 1 could derive how these two can intertwine at a more reflective leve!, that is creating Meta learning. This can actually relate to Schon's (1983) theory of reflective practice, where the researcher is. 15.

(23) !. 11. EGADE.. LTMAN S". Business School. TECNOLÓGICO DE MONTERREY. not dependent on previously established theory and technique, but actually constructs a new theory of the unique case. This is because the practitioner tries to understand the situation and change it, finding new meanings during the process that leads to reframing the situation. Figure 2 depicts the methodology proposed for this study, combining case study and action research methods as explained above.. FIGURE. 2 RESEARCH PROCESS. SOURCE: ÜWN CREATION. The way Schon explains it, one cannot always apply a rule drawn from past experience because then it would be ignoring the uniqueness of the situation, and neither is. 16.

(24) EGADE.. Business School. TECNOLÓGICO DE MONTERREY. creating a new description without any reference to previous knowledge. lt is also this reflection that can be generalized to other cases, not by giving rise to general principies, but by contributing to the practitioner's exemplary themes that can be used to compose new variations in subsequent situations (Schon, 1983). Ultimately I aim to improve my own practice at work, in this very specific project, also to understand through empirical data how this market behaves and how should a company set up its network in order to become more efficient. Thus, it becomes a methodology to understand the phenomena at the micro and macro levels.. 1.3.6 Data Collection. A web-based survey was designed to address the first research question. One of the strongest arguments for using an electronic survey was the geographic distance and the flexibility to contact the sample. A total of 6 major trading companies with at least 3 locations in the most important cities of the countries acted as respondents. These respondents are Altmans current distribution channel in the region, of which each of the markets behaves differently. With the assistance of the sales representative in the region I was able to contact and follow up on our respondents. An email message explained the purpose of the survey and included the link to the survey URL. Data gathering took place between May and September of 2011.. 17.

(25) !, 'LTMANS". EGADE.. Business School. TECNOLÓGICO DE MONTERREY. All participants were required to state the company, their activities and the regían they serve. Respondents were the purchase agents or procurement managers directly related to the Showrooms and Projects Divisions. Empirical data gathered from the company on how it has built its MNE was used to respond to the rest of the research questions. In additional to the survey, data on how the company has built its MNE to respond to the rest of the research questions was gathered out of our meetings, my own practice, experience and conversations with the management team directly involved with this project.. 1.4 Organization of the Study. Chapter two presents the frame of reference of this study. This frame includes a review of the literature on country of origin, theories of internationalization, and MNE configuration. Chapter three describes the empirical findings in the study aiming to respond previously established research questions. Chapter four elaborates a model that combines the empirical findings with the literature review. Finally, conclusions, recommendations, and implications far further research are discussed in chapter five.. 18.

(26) EGADE.. Business School. TECNOLÓGICO DE MONTERREY. Chapter 2: Literature Review and Conceptual Framework. The purpose of this literature review is to examine the research that relates to the relevance of factors that influence perception of a product based on quality and specific attributes in a specific national context. This literature review also covers the importance of network configuration for multinational enterprises. In particular, the literature review aims to find out answers to the following questions: 1. What is the relative importance of factors such as brand origin, country of origin and country image in perceiving quality and purchase decision? 2. How do MNE's develop an efficient intemationalization strategy?. 2.1 Perception on the origin. Previous surveys on Country of Originas a cue show that only a small proportion of respondents believe that COO has sorne role in product choice, however, it is nota relevant attribute (Liefeld, 2004; Diamantopoulos, Schlegelmich & Palihawadana, 2011 ). According to these authors, if such arguments are correct, a consumer's overall image of a product from a particular country nor their perceived image of a product in a specific category from such country should impact brand image or a consumer's purchase. 19.

(27) EGADE.. Business School. TECNOLÓGICO DE MONTERREY. intention (Narayana, 1981; Jaffe and Nebenzahl, 2006). Diamantopoulos, Schlegelmich & Palihawadana (2011) mentían that the empirical data gathered showed that COO <loes not directly impact on the consumer's intention to buy a specific brand, however it <loes have a rather relevant indirect influence.. 2.1.1 Cou n try of Origin. Hamzaoui and Merunka (2006) state that while globalization has made COO identification less clear to consumers, it has also given managers more control over choosing the country to which a particular product is associated. This particular fragment becomes relevant as we decompose in various factors the terms country of origin, country image and explain several models that become relevant for this study. Khan (2005) clearly exemplifies how the definition of country of origin has become con fu sed in recent years as it could either be interpreted as where the manufacturer' s headquarters are located, where a product is assembled or where the majority of the parts originate from. lt ali depends on how it is conceptualized, thus being important to compare several definitions of country of origin and their variables. In either case, country of manufacture of a product is operationalized through the phrase ·'made in _ _", and the country of design of a product is communicated through the phrase ·'design by _ _" (Chen and Su, 2012).. 348?~. BIBLIOTECA. ~º~. 20.

(28) !1LTMANSM. EGADE.. - Business School TECNOLÓGICO DE MONTERREY. Country of origin is the tendency of how individuals infer the quality of a productor service based on its country of manufacture (Ferguson, Dadzie and Wesley, 2008). As explained by Han and Terpstra (l 988), White and Cundiff (l 978) and Peterson and Jolibert (1995), country of origin often includes the individual's evaluation reaction to the country of manufacture of products, and it comes either from extrinsic product characteristics or intrinsic attributes. Sorne individuals elaborate more on intrinsic cues because of the information they are being presented on the moment. On the contrary, Petty and Cacioppo (l 984) explain that sorne individuals rather use country of origin attributes as a focus on externa! cues. An individual's ethnocentric attitude towards the country of origin and its underlying cultural values associated with country of origin effects are also of great importance (Han and Terpstra, 1988), whereas research revealed that individuals with high ethnocentric qualities voice their opinions on the product or service, discussing their preferences and their reasons, thus being associated with the moment of selecting the product or service (Pecotich et al., 1996). Previous findings indicate a large correlation on the level of motivation and of the ability to process information that influence the use of country of origin (Gurhan-Canli and Maheswaran, 2000). Li and Wyer ( 1994) explain that the use of country of origin depends on motivation and previous knowledge; when an individual is highly motivated, he or she tends to use itas an attribute of the product, and when little knowledge is known then it is u sed as a sign of quality of the productor service.. 21.

(29) 1·1LTMANS'M. EGADE.. - Business School TECNOLÓGICO DE MONTERREY. 2.1.2 Cou n try Image. Han and Terpstra ( 1988), White and Cundiff ( 1978) and Peterson and Jolibert ( 1995) also describe how a positive country image can provide favorable evaluations from the individuals thus leading to purchase of products or services from a specific country of origin. Hamzaoui and Merunka (2006) define it as a perceptual unit that includes various country associations, more specifically in the context of a product category, such as quality, features, relative price, etc. Erickson, Johansson and Chao ( 1984) mention that country image has been found to impact the product beliefs and consumer evaluations (Laroche et al., 2005; Akaah and Yaprak, 1993). Roth and Romeo (1992) describe country image as the overall perception that individuals may form of products from a particular country, based on their own prior perceptions of the country's production and marketing strengths and weaknesses. Zhang ( 1996) mentions that since Schooler' s (1965) studies, it has been stated that consumers have significantly different perceptions about products made in different countries, directly impacting on the consumer's evaluation of products manufactured in a particular country. According to Hsieh et al. (2004) it can be define at three levels: overall country image, aggregate product country image and specific product country image. Han ( 1990) defines country product image as a general perception about the quality of products made in a given country. Hsieh et al. (2004) adds that aggregate product country image is associated. 22.

(30) EGADE.. Business School. TECNOLÓGICO DE MONTERREY. with a particular country's products or with the perceived overall quality of the products from a particular country. Demirbag, Sahadev and Mellahi (20 l O) comment that hierarchy of biases state that products from developed countries receive favorable attitudes from consumers than products from less developed countries (Schooler, 197 l ). Thus, Gao and Knight (2007) mention that the stage of development of a source country may have both an affective and a normative connotation with regard to product preferences.. 2.1.3 Consumer utility maximization perspective. Messinger and Narasimhan (l 997), Bell and Lattin ( 1998) and Chiang (l 995) explain that in this perspective ali stakeholders of a product or service evaluate and select attributes of such product or service that will maximize in either short or long term the total benefits or utilities associated with that particular product or service. This particular perspective goes beyond cultural differences and individual lifestyles, and as Klein, et al. ( 1998) indicate, in individualistic cultures country of origin effects are only relevant when. the product is of superior quality, whilst in collective cultures the effects are relevant regardless ofthe quality of the product.. 23.

(31) EGADE.. Business School. TECNOLÓGICO DE MONTERREY. 2.2 Internationalization process. Johanson and Vahlne (l 977) comment that severa! previous studies in intemational business have indicated that the intemationalization of the firms is a process in which the firms gradually increase their intemationalization involvement, and that intemationalization is the product of a series of incremental decisions. McDonald ( 1961) establishes that the evolution of a domestic company into a functioning world enterprise normally follows four stages: 1. Export - lmport activity with minimum change m management outlook, company organization or product line 2. Foreign licensing and the intemational movement of technical know-how with little impact on domestic operations or management outlook 3. Establishment of overseas operations involving development of special intemational skills, substantial intemational investments with little effect on domestic operations 4. Emergence as a world company with an integrated global approach encompassing both domestic and overseas operations. McDonald (l 961) mentions that it is possible that a company can go through this process one by one or can actually be involved in ali four at the same time. Johanson. and. Vahlne. ( 1977) mention. in. their model. proposal. that the. intemationalization process of the firm focuses on the development of the individual firm,. 24.

(32) EGADE.. Business School. TECNOLÓGICO DE MONTERREY. and particularly on its gradual acquisition, integration, and use of knowledge on foreign markets and operations and successively increasing commitment to those foreign markets. Krug and Daniels (2008) mention that the focus on international business has been on three primary areas: the globalization of business, the multinational enterprise and foreign direct investment. These authors also mention that companies that go through the internationalization process face the problem of geographical distance, which increases both the costs of communication and travel and the complexities of managing geographically dispersed assets. lt is said that firm motivations for going abroad are often separated into resource seeking versus market-seeking motives. Krug and Daniels (2008) say that the first drive firms to go abroad to find raw materials or strategic resources that are less costly, more readily available, or more valuable than in the home country. In this sense, emphasis is made when companies include knowledge seeking and establish subsidiaries abroad to improve organizational learning. Market seeking motivators drive companies to invest directly when exporting becomes an inefficient method of serving the foreign market. Hymer's theory on a company's internationalization states that once it has been achieved, the MNE experiences an ownership advantage that appears similar to a Bain-type asset power advantage (Dunning and Rugman, 1985). Dunning and Rugman ( 1985) also comment that Hymer's asset power viewpoint can be linked to modern strategic management literature, where Michael Porter ( 1980) and others have suggested that it is about identifying entry and exit barriers (what Hymer referred to as Bain-type advantages). 25.

(33) EGADE.. . Business School TECNOLÓGICO DE MONTERREY. and the operating generic strategies based upon price competition, product differentiation, or the seeking of market niches for product lines of the firm. McManus ( 1972) establishes that no evidence has been presented to show that the extent of foreign control is significantly correlated with the technological complexity of industrial processes or with the proportion of the total costs of an industry or administration. He says that we find intemational firms entering industries abroad that are the same as, or complementary to, their activities at home. Empirical evidence shows that the intemational extension of a firm' s control is specific to the sector in which its production is concentrated orto closely related sectors (Brash, 1960; Dunning, 1958).. 2.2.1 Uppsala Model. Vissak (201 O) mentions that the case study method has been repeatedly used in intemational business research, where the Uppsala model proposed by Johanson and Wiedersheim-Paul in 1975 is illustrative. This model states that in initiating intemational activities, companies lack of market knowledge and thus decide on exporting, as it is easier than establishing sales or manufacturing subsidiaries abroad. (Johanson and Wiedersheim-Paul, 1975). Vissak (2003) mentions that in this model the authors assume that intemationalization is usually a long, slow and incremental process driven by experiential market knowledge that is gradually acquired through operations abroad, and because of the lack of previous knowledge, tend to. 26.

(34) l1LTMANS'M. EGADE.. Business School. TECNOLÓGICO DE MONTERREY. avoid uncertainty, thus begin exporting to neighboring countries that are similar or wellknown. This model also states that a firm typically begins exporting to a country via an agent, later establishing a sales subsidiary, and eventually, in sorne cases, begins production in the host country. Johanson and Vahlne (1977) mention that exporting is a means for reducing costs of market development, also helping determine the nature and size of the market, and as it develops, warehouse facilities, sales branches and subsidiaries are established (Singer, National Cash Register, United Show Machinery). Behrman (1969) complemented that selling affiliates allow the slow development of manufacturing from repairing, to packaging, to mixing, to finishing, to processing or assembling operations, to foil manufacture. The way Johanson and Vahlne (1977) comment, similar successive establishment of operations in new countries have been observed, more specifically in related to the psychic distance between the home and the import/host countries which are the factors preventing the tlow of information from and to the market such as language, education, business practices, culture and industrial development (Homell, Vahlne & Wiedersheim-Paul, 1972; Johanson and Wiedersheim-Paul, 1974). The intemationalization model proposed by Johanson and Vahlne ( 1977) is dynamic, where the outcome of one decision - or more generally one cycle of events - constitutes the input of the next. lt utilizes state aspects and change aspects, where the first are the market commitment and knowledge of foreign markets and operations, whilst the latter are decisions to commit resources and performance of current business activities.. 27.

(35) IILTMANS'M. ,,,,,~EGADE. Business School TECNOLÓGICO DE MONTERREY. 2.2.2 Innovation Related Internationalisation Model. According to Czinkota (1982) and Vissak (2003) this model agrees that the decision to go intemational is a gradual process, where intemal and extemal factors such as knowledge, competitors, managers, the company's competitive advantages and general economic conditions can impact internationalisation (Bilkey, 1978). In the case of foreign owned firms, Wiederhseim-Paul, Olson and Welch (1978) state that the intemationalisation process might differ as the headquarters might take the initial decision to start exporting and organizing sales through a global marketing network.. 2.2.3 The Multinational Enterprise. Krug and Daniels (2008) say that the MNE is typically viewed as the most important factor distinguishing intemational business as an independent field of study (Buckley and Casson, 1976). Behrman (1969) and Vemon ( 1971) have said that scholars viewed an MNE as a company with plants located in multiple countries, parent companies that control large clusters of corporations of various national ities, and organizations with a single management strategy center that guides the actions of the affiliates abroad. Hillman and Wan (2005) mention that MNE's are those corporations that engage in foreign direct investment and own or control value-adding activities in more than one country (Dunning, 1992).. 28.

(36) EGADE.. Business School. TECNOLÓGICO DE MONTERREY. Root ( 1990) defines it as an entity whose parent company engages in foreign production and other activities through its own affiliates located in severa) different countries; exercises direct control over the policies of those affiliates and strives to design and implement business strategies in production, marketing, finance, and other functions that transcend national boundaries. Adler and Hashai (2007) define a Multinational Enterprise as an integrated network of value-adding activities that are interconnected through knowledge flows, seeking to minimize its costs by optimizing its location and control configurations. A bom global company is one that goes through the intemationalization process despite being young and small, with constrained resources and littler or no experience in a market (Oviatt and McDougall, 1994; Vissak, 2003). According to Bell, McNaughton and Y oung (2001) a bom-again global company is well established in its domestic market with no apparent motivation to intemationalize, but gane through the process as a caused by a critica! incident such as a takeover by another enterprise or an acquisition of a company with intemational connections. Birkinshaw and Hood ( 1998) and Vissak (2003) conclude that in a multinational network, the subsidiary role and activities depend on parent company, subsidiary and host country factors. However, in a more entrepreneurial approach entrepreneurial behavior can fue! the development of value-added activities in the subsidiary, thus enhancing credibility and encouraging and supporting entrepreneurship to strengthen the subsidiary's reputation and. 29.

(37) !1LTMANS'M. EGADE. Business School TECNOLÓGICO DE MONTERREY. accornplishrnent, to further increase its potential bargaining power with the rnultinational (Birkinshaw, 1993; Zahra, Dharwadkar and George, 2000) Dunning and Rugrnan ( 1985) also rnention that the great advantage of being and MNE is the ability to use interna! rnarkets across nations, where it can use transfer prices, rnaneuver liquid assets and rnove around production facilities, thus acquiring a greater degree of freedorn than a uni-national firm.. 2.2.4 Modelling of the MNE. The country-by-country approach rnentioned by McDonald (1961) establishes that sorne cornpanies develop a systernatic approach to go through the intemationalization process, thus analyzing the feasibility of manufacturing or rnoving sorne of its processes in a specified country. These steps include: 1. An acadernic rnarket study cornbined with estirnates on cost and profitability. 2. lf the investrnent looks profitable, an on-the-spot investigation is conducted, resulting in a first approximation or feasibility report. 3. A second and final on-the spot confirmation study is conducted resulting in a final approxirnation report with a acceptance o rejection of the project. 4. In the final stage, a long-term analysis of actual results rnust be conducted and cornpared with the estimated results with a feedback to irnprove the original technique.. 30.

(38) ""~EGADE.. Business School. TECNOLÓGICO DE MONTERREY. According to Adler and Hashai (2007) an MNE emerges because of its relative efficiency in transferring knowledge compared with the company's choosing of alternative modes of entry (Kogut and Zander, 1993; Madhok, 1997; Martin and Salomon, 2003). Buckley and Carter (2004) mention that concentrating activities within a geographical space is expected to facilitate transfer of knowledge within the company, as dispersion in various markets can encourage bilateral knowledge flows (Hirsch, 1989; Simonin, 1999). Adler and Hashai (2007) state that the need to simultaneously make decisions for multiple activities and countries with regard to the location and control of operations is extremely complex. These authors also propose a model of location and allocation that permits the evaluation of a relatively large number of location and control configurations in order to identify an optima! configuration. Accordingly, an MNE's optima) location configuration emerges from two sets of decision variables: where to locate each activity and how to allocate the output of R&D, production and marketing, including predicting production levels and distribution of R&D and marketing activities within the MNE. According to McDonald ( 1961) in a global think approach, sorne of the major advantages in planning are: •. Setting long-range objectives and developing a long-term strategy before moving abroad enables ali the interim moves to be coordinated.. 31.

(39) a;LTMANS'M. EGADE.. Business School. TECNOLÓGICO DE MONTERREY. • Investigating a whole area in depth enables action to be taken in as many countries as desired, so that later integration can be achieved with a mínimum of expensive overlapping and duplication.. • Developing statutory plans ahead of time on an area basis enables countryby-country decision to be made.. 2.3 Summary. In the previous sections of this chapter numerous studies were reviewed. From those I aim to answer the questions established at the beginning of the chapter. Of the theory presented above, it is important to emphasize how Diamantopoulos, Schlegelmich & Palihawadana (2011) showed that particular product categories and brands are matched with specific countries whereas the consumers buy only from these because of their superior capabilities or reputation. With ali this explained, we can refer to the Fishbein Model, where according to Fishbein and Ajzen (1975) and Zhang (1996), this theory comprises that the consumer's beliefs about the attributes of a product precede and influence the formation of attitudes towards the product, thus, when consumers evaluate a product, they base their evaluation on intrinsic and extrinsic descriptive, inferential and informational cues. Applied to this particular project we find that this is visible, as consumers believe those products with U .S. and European origin, or whose brands are from such countries. 32.

(40) EGADE.. Business School. TECNOLÓGICO DE MONTERREY. regardless of the manufacture have superior capabilities and ultimate quality. This is why it is suggested that the roles of COO and brand image are relevant. When it comes to defining an efficient internationalization strategy the theories presented above singlehandedly do not present the most viable solution, however a combination of sorne, may prove to find sorne of the most efficient strategies to configure an MNE network. The next section presents the theoretical model that integrales the concepts described above and from which conclusions and further recommendations will be drawn.. 2.4 Conceptual Framework. After having done the literature rev1ew I now want to describe the conceptual framework that guides the study. Though these theories on their own present distinct internationalization patterns, 1 do not believe they fully explain the internationalization and MNE configuration process. This process should be the result of incremental adjustments to the company's and its environment changing conditions, where the location and allocation of resources and activities is preponderant to ultimately explain all the steps in an MNE configuration. An important theoretical contribution of this framework is in recognizing the interrelationship among factors that represent direct implications for network configuration. Within the boundaries of the study, empirical evidence will help develop commercialization scenarios for the company.. 33.

(41) EGADE.. Business School. TECNOLÓGICO DE MONTERREY. Growth in world trade is one signficant consequence of globalization (Dagger and Raciti, 2011 ). As Dagger and Raciti (2011) explain, as consumers contemplate purchasing products from different nations, the intluence of country of origin has become even more important in their evaluation and purchase decision. Should we apply the Fishbein model, we would be looking ata consumer that bases its evaluation in various descriptive, inferential and informational cues. These cues can be intrinsic such as design, finish, technical specifications, etc., and when sorne of these are lacking, extrinsic cues such as COO, price, guarantees or brand reputation are used to evaluate the quality of a product. Dagger and Raciti (2011) concluded that consumer evaluation of products and their purchase intention is strongly influenced by the perceived degree of match or mismatch between country and product image. Thus, MNE companies should look into tailoring their marketing strategies to the match or mismatch between country and product, as COO can serve as a controllable cue in sourcing and \ocation decisions made by the MNE (Zhang, 1996). Extrinsic cues such as country of origin, country image and country of manufacture are of great relevance when deciding on the intemationalization process, which as Johanson and Vahlne ( 1977) explain, it is a series of incremental decisions: gradual acquisition, integration and use of knowledge on foreign markets and. operations and successively. increasing commitment to such markets. This process begins when a domestic firm has made the decision to become a functioning world enterprise following a set of stages (McDonald, 1971 ). Czinkota ( 1982) establishes that it is a gradual process where factors such as knowledge, competitors, the. 34.

(42) IILTMANS'M. EGADE.. Business School. TECNOLÓGICO DE MONTERREY. company's competitive advantages and general economic conditions influence this process (Bilkey, 1978). McDonald (1971), Johanson & Wiedersheim-Paul (1975) and Johanson & Vahlne ( 1977) explain it usually begins with export - import activities that usually have minimum to no change in company organization or product lines. ln this stage, exporting is usually done via an agent and it is the means for reducing costs of market development, also helping determine nature and size ofthe market (Johanson and Vahlne, 1977). When exporting becomes an inefficient method of serving the foreign market companies are driven to invest directly (Krug and Daniels, 2008) often deriving in foreign licensing, intemational movement of technical know-how and commonly establishing overseas operations involving development of special intemational skills, substantial intemational investments with little effect on domestic operations or management outlook (McDonald, 1971 ). As it continues on developing, the subsidiaries abroad begin from repamng, to packaging, to mixing, to finishing to processing or assembling operations until they reach full manufacture (Behrman, 1969). Often, when it has reached this stage it emerges as a world company with an integrated global approach encompassing both domestic and overseas operations (McDonald, 1971). Finally, the goal of this study is to develop and validate empirically the conceptual model described above, which analyses the relationship among factors that may influence an MNE network configuration, and how different scenarios can be applied for the commercialization of Altmans products based on process mapping.. 35.

(43) EGADE.. Business School TECNOLÓGICO DE MONTERREY. Chapter 3: Grupo Helvex in the Middle East: Presentation of the Empirical Data Underlying the Construction of Scenarios. 3.1 Introduction. Grupo Helvex S.A. de C.V. was established in 1950 in Mexico City. With swedish and mexican investments, since the beginning the company's internationalization nature was inherent. lt started as a domestic company that aimed to provide products of the highest quality to meet the market's demands and needs. With a portfolio of products that range from lavatory sets, tub/shower faucets, showerheads, deck sets, bidets, accessories, flush valves, metering faucets, drains to toilet and urinals, Helvex is leader in the domestic market in the kitchen and bathroom fittings and sanitary ware segment, which is part of the finish segment in the construction industry. Through the decades, it began growing and expanding its business units, to what has now become a group that manufactures and commercializes in the construction and metals industry. Based on standards established by Ministry of Economy in Mexico, with o ver 2000 employees Helvex is considered a large company. As a manufacturer, Helvex is pioneer in the kitchen and bathroom fittings in the domestic market as the only local company that fully controls their value chain by. 36.

(44) - ~ EGADE.. Business School. TECNOLÓGICO DE MONTERREY. , L. - 1 La, . J,,.L. 1 J_a. ,,; ,,, ; .,(Jfüh JU .... Li ¿,,.z;. ,;. 2. ... & &UiUw n&.Lnill. manufacturing every one of its components, including the raw materials used to manufacture its products.. Grupo Helvex SA de CV 1. 1. 1. Metalvex. Pulitec. FIGURE. Helvex. Altmans. Sanivex. 3 COMPANIES OF GRUPO HELVEX. SOURCE: ÜWN CREATION; INFORMATION PROVIDED BY HELVEX. As mentioned before it participates in the metals industry with Metalvex, a unit dedicated to handle brass alloy to further manufacture fixtures. It also participates in the construction industry with Helvex and Altmans Products in. the kitchen and bathroom fittings and fixtures, with Sanivex in the sanitary ware segment and Pulitec serving the first two in ali plating related. In the Mexican market, Helvex is the leading player with over 60% of the market share. With a complete value proposal, Helvex does not only manufacture and. 37.

(45) a· 'LTMANS'". EGADE.. Business School. TECNOLÓGICO DE MONTERREY. commercializes bath plwnbing fixtures, but also provides services and technical support and training while at the same time it strengthens its global distribution network. The group's headquarters and one of the manufacture, assembly and warehouse facilities is located in Col. Industrial Vallejo in Mexico City. Other locations include: •. Queretaro, Mexico, where ali malleability of the alloy brass and most of the plating is done.. •. Guanajuato, Mexico, where ali the sanitary ware is manufactured.. •. California, United States, where ali Altmans Products LLC lines are assembled and plated with special finishes not available in the Mexican locations.. 9 Q. >;l. FIGURE. 4 MANUFACTURING. LOCATIONS. SOURCE: ÜWN CREATION; INFORMATION PROVIDED BY HELVEX. ,,. ;. ,.. ;. a a"· , e. a. ,w. . w .x. 11,. a , K • e za. z. sac ... Q;,._$ %. ., 38.

(46) a;LTMANS'M. EGADE.. Business School TECNOLÓGICO DE MONTERREY. As explained earlier the company is a Mexican gradual global company that has been present in the bath plumbing fixtures market for over 62 years, from which the last three decades the company was able to expand to foreign markets, operating in more than 20 countries outside Mexico. The internationalization process commenced in the early l 980's when the current CEO began working for the company as Chief Commercial Officer envisioning the company to expand across frontiers and distribute its products in other markets. Outside Mexico, the company first began selling in the Caribbean, Central and South American Market, initially exporting in ali cases and through time establishing sales subsidiaries in sorne markets. In particular cases, company owned showrooms have also been established, a format that is not present in the domestic market. lt then moved onto capture the North American market by acquiring an American brand based in Beverly Hills, California in the early 2000's. With this acquisition Helvex aimed to reach the high-end luxurious segment through its handcrafted and exclusive lavish designs. lt was with Altmans Products that their plans of becoming global truly began. The first motivator to go global was in fact the will to establish and exploit a global presence, which would allow them to offer a wide range of products at better price points, while optimizing their economies of scale, seeking to expand their technological knowledge, know-how and develop special internationalization skills.. 39.

(47) EGADE.. Business School. TECNOLÓGICO DE MONTERREY. Helvex intemationalization process began by exporting bathroom fittings through channel partners, developing alliances with sales agents, large retail companies in the local markets and partnerships with Hotel Chains in the Leisure Sector. Later five of these markets developed into Foreign Direct Investment in the form of Helvex offices in local markets, where not only did they invest in office facilities, but also in warehousing and showrooms were Helvex maintains full control as compared with those where it has not reached this stage.. FIGURE. 5. HELVEX fNTERNAT/ONAL SUBSIDIAR/ES ABROAD. SOURCE: ÜWN CREATION; INFORMATION PROVIDED BY HELVEX. 40.

(48) EGADE.. Business School TECNOLÓGICO DE MONTERREY. By emerging as a global company, Helvex was able to intemationalize and leverage sorne of its company operations, establishing a global distribution system and an integrated manufacturing capability that tumed into competitive advantages for the company. Helvex is also a clear example of how an intemational entrepreneur acts. And through its intemationalization process it is easy to identify the entrepreneurial spirit that the company has, where the individual is important to the success of the company. Helvex is constantly seeking to innovate and challenge industry trends. Thinking outside the box, the company embraces change in every aspect of the corporate culture, and is always thriving to improve perfonnance while empowering the human capital and teaching them how to manage change. Through its human capital, the company holds knowledge of the global industry and has the ability to build and manage global value networks and teams while embracing diversity. Through its wide distribution network, Helvex holds the ability to understand and manage the tension between corporate requirements and local needs and challenges. This is seen in the management team that is comprised by different nationalities, which combined with local workforces in the foreign markets, helps Helvex understand cultural differences and similarities between the markets where it holds presence, thus reducing psychic distance. To the company it is of high importance to promote collaborativeness, generate positive energy and excite the people that work together to help Helvex become a leader across markets.. 41.