Research Methodology

Dissertation name: Turkish Firms` Entry Mode Strategies to Developed Countries


Holmvall and Åkesson (2010) explained the process of global trade, which is fulfilled all around the world and through which varied economies are increasingly dependent on each other. Businesses are inclined to establish themselves in foreign markets due to the fact that they are performing cross-border activities (Karabulut, 2013). Internationalization is the process of growing involvement of organisations in international markets (Susman, 2007). The internationalisation process provides growth opportunities for companies. The internationalisation process makes it possible for companies to increase their competitiveness and reach new product ideas (Hollensen, 2015). This process also offers opportunities that primarily present the possibility to find new customers and the operation of scale economies (Jansson, 2007). While it ensures various opportunities, internationalisation process involves numerous risk (Johanson and Vahlne 1990). International expansion is unlikely to be accomplished for any organization that does not have a clear strategy (Johanson and Vahlne 1990). An appropriate market entry strategy should be applied by authorities in order to reach achievement of the target market. It will compose a competitive advantage for the company in the target markets when the convenient entry mode strategy is implemented properly (Lu et al. 2011).

The research into international entrepreneurship which has been done to date has mostly focused on new enterprises based in developed economies, and this research has not paid considerable attention to new enterprises based in developing economies. The strategy of the research into developing economies has mainly been focused on the entrance and competition of foreign entrepreneurs in developing economies, and research into the internationalisation of companies based in developing economies is relatively limited (Yamakawa et al., 2007).

This research partially fills this gap by analysing the internationalisation of Turkish companies from a developing country (Turkey) to a developed country (the UK). The research covers Turkish companies that are investing in the UK. By taking advantage of the views of the people in the decision-making position in Turkish firms, it will be tried to determine the reason for choosing the UK market while expanding operations abroad. Furthermore, main challenges that Turkish companies experienced during and after the UK entry process will be identified and examined. It will be also identified the main advantages and disadvantages of entering in the UK market. Finally, it will try to determine the reason for choosing a particular type of entry mode in the UK. At this point, investment decisions of Turkish companies could be understood in depth.


Entry mode selection has a powerful effect on international operations. It may be considered as a major superiority in international marketing (Wind & Perlmutter, 1977). For a firm or an organisation which is considering entering a foreign market, it is significantly important to think meticulously with regards to which entry mode to use, and to create significant strategies accordingly (Root, 1987). In this case, the entry mode selection of Turkish companies in international markets is of considerable importance in order to understand their success.

On the other hand, the UK as a developed country has attractive advantages for Turkish companies. The UK is one of the countries with the highest ease of doing business. The country’s business ranking is in seventh place in the world (The World Bank, 2017). The UK is a highly important place in terms of reaching world markets. The country is located between the East and West markets, and also it has good transport infrastructure, and it is reachable in terms of familiarity of business culture for plenty of new entrepreneurs. There are various advantages of doing business in the UK. Also, the country has a highly capable and internationally mobile labour force. Moreover, the country has one of the biggest agreement networks in the world (PwC, 2013). While the headline tax rate for companies was 23% in 2013, this rate was decreased to 20% by the government in 2017 (, 2017).

Due to the UK is being an attractive market for investment decision, plenty of Turkish companies has been trying to enter this country by using various entry modes. Basak Food Company has been maintaining its activities by exporting in the UK as well as other European countries since 1998 (, 2013). Moreover, Ulker (Yildiz Holding) is one of the biggest chocolate and biscuit producers worldwide. The international trade of Yildiz Holding has increased very rapidly, and in 2014 the company reached 100 countries, including the UK. In the same year the company merged with United Biscuits, which is one of the most famous UK-based companies (Tatoglu et al., 2017). In addition to this, PermolitBoya, that is paint manufacturer, expanded its operations to the UK by establishing the WRX Company. Turkish Airlines as known rising star of Turkey started its operations in 1993 with just five aircraft. Now the company operates in 120 countries at 302 different

airports. Company maintains its own operations totally in 5 airport in the UK which they are 2 in London, 1 in Birmingham, Manchester and Edinburg (Turkish Airlines, 2017).


The aim of this research is to determine the factors affecting the choice of entry mode to the UK market based on decisions made by Turkish companies investing in foreign markets.


There are four objectives that will guide the direction for this research.

  • To assess and identify the external conditions for doing business in the UK market
  • To acknowledge and evaluate the market factors that provide a suitable entry mode strategy selection
  • To Analyse and identify the appropriate types of entry mode
  • To Analyse and evaluate the operational research findings towards potential success in the UK market


Academic: The importance of this research to the academic world is that it will contribute to the study of firm’s choice of entry mode to developed countries such as the UK. It is expected that this study will be beneficial to future academic research due to the particular lack of specific research on this topic.

Business: The importance of this research to the business world is that it will guide Turkish companies which are considering operating in developed markets such as the UK.

Personal: The researcher considers the topic to be an important research subject for his further PhD education. Moreover, the topic is important to him in terms of his desire to consult with companies which are looking to take their place in the international markets.

Structure of the Research

This research consists of six sections including introduction, literature review, methodology, findings, discussion, and conclusion. The literature review part includes internationalisation, definition and types of entry mode as well as evaluation of Turkish firm’s reasons for internationalization, Turkish firm’s entry mode strategies to developed countries, and internal and external factors effecting entry mode choice. Then, methodology part describes the way of processing the research. This part includes research philosophy, research approach, research method, and research strategy. Methodology part also covers data collection and analysis as well as time horizon, generalisation reliability and validity, and ethical consideration. After methodology chapter, findings part takes place which covers information about the UK market and findings of PESTEL analyse as well as the themes which Turkish companies encounter. In discussion part, discussions about analysed themes are presented. Lastly, the final part is the conclusion chapter. This part includes the summary of discussion and findings, further recommendations for the companies, the limitations which the researcher encountered during the research, then concluded with recommendations for further researches.


There are many researches available which provides of concept and ideas about internationalisation (Reiner et al., 2008). The definition of internationalisation has been expressed as the outward movement in international operations of a company. It is also explained by some researchers as "the process of growing participation in international operations" (Calof and Beamish, 1995). Nowadays, an increasing number of organisations seem eager to expand their operations abroad by utilising entry modes in the target country (Conconi et al. 2016). These organisations are competing for customer attention and loyalty in the international market. In this case, when an organisation decides to expand its operations, numerous decisions arise that should be made on how to choose a target market. Selecting the wrong entry mode may lead to critical consequences for an organisation about its survival (Anderson and Coughlan 1987).

Definition of Entry Mode

An international market entry mode is defined by Root (1994) as composing the opportunity by coordinating firm’s product, technology, management, human skills or other resources to enter into a foreign country. Entry modes assist firms to define targets, policy and resources in order to direct their global actions toward a sustainable global expansion (Root, 1994).

Types of Entry Mode

The selection of the appropriate mode of entry will emerge in expansion strategy of a company while the company is going to discover a foreign market. There are six fundamentally various entry modes, generally called as exporting, licensing, franchising, turnkey projects, joint venture together with a host country company, and establish a wholly-owned subsidiary in the host country (Hill 2007). There are advantages and disadvantages of these modes for the company which must be taken into account and explored by top management of the company (Hill 2007). In the other word, all of entry modes require various level of control, risks and resource commitment (Hill et al 1990), and the company's success in the expansion further into global markets is influenced directly by entry mode choice, managers should be attentive about choosing the most appropriate mode (Hill 2007). In the following parts, it will be explained four fundamental various entry modes including exporting, licensing, franchising and wholly owned subsidiaries.


With export entry modes, products of a company are produced in the home or in a third country and then transferred directly or indirectly to the foreign target market. Export is the most common and the easiest mode that using for the first entry into global markets (Hollensen, 2011), (Belu & Caragin, 2008). Occasionally, a local customer gives an order for its international activities due to it expands internationally, or an unsolicited order is taken from a customer in an external market. This requires the company to take into account global markets and to explore their expansion ability. For this reason, exporting is typically utilized in the first entry and progressively growths into foreign-based activities. In some cases where limited number of customers or there are existing scale economies in the global market, goods may be exported to different markets after manufacture can be carried out in a single or limited number of locations (Hollonsen, 2011).

Exports may be organized in different forms according to the type and quantity of intermediaries. Export and import agents change significantly in the range of functions fulfilled, as in the case of wholesaling. There are some organisations such as export management firms operate all missions relating to export due to they are equivalent of full-service wholesalers. There are other firms that deeply specialized and process just billing or clearing goods, and freight forwarding through customs (Hollonsen, 2011).

In determination export channels a company has to detect which missions will be carried out by the company itself and which missions will be the responsibility of external agents. While the export channels come out in various forms, three the most common types can be identified as indirect, direct and cooperative export marketing groups (Hollonsen, 2011).

Indirect Export: In this type, exporting activities are not taken direct care by the manufacturing firm. In place of the different domestic company, such as an export house or trading company fulfil these operations, frequently without the participation of the manufacturing company in the external sales of its products (Hollonsen, 2011). Major advantages of indirect export are the low financial risk and low entry cost while disadvantages are low transaction profitability, and full dependence on the domestic intermediary (Wach, 2014).

Direct export: This generally takes place when the manufacturing company is interested in exporting activities and is in direct connection with the initial intermediary in the external target market. The company is generally involved in handling documentation, pricing policies and physical delivery, with the product being sold to distributors and agents (Hollonsen, 2011). Direct exporting ensures an opportunity to have full control over the product. Also, it assists gain the better knowledge of the market (Baig, 2016). On the other hand, potential trade barriers are main disadvantages of this entry mode (Wach, 2014).

Cooperative export: This type includes collaborative agreements with other companies (export marketing groups) related to the exporting functions` performance. Distribution of costs for partners and synergy effect are key advantages of the cooperative export. Furthermore, dependency on the export partners is the disadvantage (Wach, 2014).


When a firm considers exporting is ineffective and it irresolute to have a direct investment in the foreign market, licensing may be a conceivable alternative (Onkvisit and Shaw, 2009). Onkvisit and Shaw (2009) defined licensing as an agreement that authorizes an external firm to utilize industrial property (such as copyrights, trademarks and patents), technical know-how and skills (such as manuals, feasibility studies, technical advice), engineering and architectural designs, or any combination of these in a foreign market (Onkvisit and Shaw, 2009). When compared licensing to franchising, licensing takes into account just on the part of the business while franchising is a comprehensive strategy (Perkins, 1987; Yong et al., 1989).

Companies can utilize licensing in foreign target markets if they do not have enough knowledge in the market and do not participate more actively in the international market. Moreover, firms may utilize licensing if the market potential is limited in order to support a manufacturing operation (Hollensen, 2004; Onkvisit and Shaw, 2004; Jeannet and Hennessey, 2004). A significant deficit of licensing is the licensors primarily come under the copyrights of the licensees. Nevertheless, licensors can face a financial issue if the sales performances are not satisfactory enough because the copyrights are generally paid considering the percentage of sales only (Jeannet and Hennessey, 2004; Paliwoda& Thomas, 1998).


Franchising is a business format that has been growing in both developed and developing countries as well as it is operated in both retailing and service industries (Hoy et al., 2017). Franchising is defined by Paliwoda & Thomas (1998) and Hollensen (2004) as franchising is a method which is marketing-oriented to sell a business service for small independent investors who have business capital but have no or limited business experiences. Therefore, franchising includes a contractual agreement between two independent companies. In this way, in return for a certain price, the franchisee may sell products or services of the franchisor and/or may use the trademark of the franchisor at a certain place and for a particular period of time (Lafontaine, 1992). Franchising is often considered as a strategy to be used only by large consumer-oriented companies for entry to the foreign market. At the same time, franchising is an appropriate option for small businesses providing a specialized business concept (Czinkota et al., 2004).

At the present time, franchising is the most favourite business model due to its sufficient advantages to the franchisors (Salar and Salar, 2014). The significant advantage of franchising is that it provides a chance to the company to quickly enter a number of global markets. Thus, if franchising is done organically, it expands the business over a wider area as possible (Bradley, 2002). Furthermore, franchising allows firms (franchisees) to carry out their work at a certain level of independence. The business success of companies may reach the chance to rise thanks to franchising because companies (franchisees) are operating with proven products and methods (Beshel, 2001). Franchising mode has easy access to financial support. Banks and other financial organisations ensure credit to the franchisee because of the low failure risk rate in franchising (Salar and Salar, 2014). Moreover, there is a ready customer portfolio in the franchising system thanks to the comfort of knowing which means the customers know that they may reach the same quality of service and product (Salar and Salar, 2014). On the other hand, although franchising has some advantages, this business model also has some significant drawbacks (Salar and Salar, 2014). First of all, the franchisee is not exactly independent. It is necessary that franchisees carry out their operations by taking into account the procedures and restrictions presented by the franchisor in the franchise agreement. These restrictions generally contain the products or services which may be offered, pricing and geographic area. This is the major drawback of becoming a franchisee (Beshel, 2001). Furthermore, owning a franchise has various costs which are listed as initial and ongoing costs such as start-up expenses, rent, utilities, franchising fees, employees and taxes (Salar and Salar, 2014).

Joint Venture

Joint Venture entry mode is defined by Mariti and Smiley (1983) as a cooperation agreement in which two independent legal organisation set up a third independent legal organization. Moreover, Harrigan (1985) explained that joint venture is establishing a third cooperative entity with minimum two organisations as parents. Joint venture entry mode ensure opportunity the organisations to enhance their comparative advantages by integrating the supplementary assets of the local and foreign partners (Hamill and Hunt, 1993).Joint venture also may be a beneficial strategy because the organisation may utilise from the local partner’s experience and infrastructure when entering a target market. Due to establishing a third company with partners, the joint venture allows the more participate situation in the foreign market compared to franchising or licensing (Parnapuu, 2018). On the other hand, the major disadvantage of the joint venture is that very difficult to combine into an international strategy which covers substantial cross-border trading. In these situations, some indispensable issues may arise in terms of inward and outward transfer pricing and the sourcing of exports, especially, in favour of wholly owned subsidiaries in other countries (ITC, 2009).

Wholly Owned Subsidiaries

Wholly owned subsidiary can be explained as a company that sets up a presence in a foreign country by buying an established organisation (acquisition strategy) or establishing a unit from scratch. The mother company is fully owner of a subsidiary, and this mother company can be an industrial firm or non-industrial, a service company (Kazmi et al., 2013). The firm owns hundred percent of the stock in a wholly-owned subsidiary (Hill, 2003).

According to Hough and Neuland (2000), there are several benefits of wholly-owned subsidiaries. First of all, in case of the risk of losing know-how and technological expertise is high, it is the preferred this mode of entry. Moreover, This entry mode ensures efficient coordination and control with subsidiaries in a global network of organisations. Also, wholly-owned subsidiaries might be a favoured alternative for benefiting from experience curve and location economies, particularly where global and transitional systems are pursued (Hough and Neuland, 2000). On the other hand, the risks associated with setting up a new business in a foreign country are high. Setting up a new business for a company requires much more time to build relationships with suppliers and customers. Due to the possibility of any cultural obstacles that can affect the integration of parent and subsidiary operations, searching for capable personnel and managing them in accordance with the cultural characteristics of the foreign country might not be easy (Basu, 2015). The company can have to need the expertise and knowledge of the target market, due to this situation the company may face costly solution such as hiring target country nationals or consultants (Hitt, 2009).

External Factors Effecting Entry Mode Choice

According to Hollensen (2001) there are several factors effecting entry mode choice of organisations. Five major external factors may be summarised in this research including socio-cultural factors, country risk and demand uncertainty, market size and growth, direct and indirect trade barriers, and intensity of competition. Socio-cultural factors: Differences between home and host country of a firm lead to uncertainties for the firm which cause to impact entry mode choice (Hollensen, 2004). A large cultural gap illustrates that levels of language and education, and cultural characteristics are very distinct besides business and industrial implementations (Hollensen, 2011). Markets with low socio-cultural distance are frequently more attractive for a firm when entering a foreign market. In order to enhance successful business relationships in the host country, less time and exertion is required. Due to these factors, organizations mostly chose geographically close markets like a neighbouring country for their first foreign market entry. Thus, companies may have experience in these markets before expanding operations to more distant markets (Hollensen, 2001). Country Risk and Demand Uncertainty: Generally, foreign markets are observed as riskier than domestic markets. While an entry mode choice is being considered, a risk analysis of both the country market and entry mode should be conducted first. Country risk is a concept that involves both political and economic risks. Instability and unpredictability in the political and economic environment in a host country lead to rise the firm's risk and uncertainty perception. This prevents firms to enter the market by using entry modes that require various resource commitment and flexibility which are extremely precious in this kind of situations (Hollansen, 2004). If demand uncertainty exists in the host country, organisations should select entry modes that require low investment. Because these organisations must be flexible in order to deal with changing conditions and should be able to exit the market as easily as possible (Hill et al., 1990). Market Size and Growth: Market size and its anticipation in future are significant indicators to consider when deciding on entry mode selection (Kaffash et al., 2012). A target market that has a great size and great growth rate makes managers become more eager to invest in this target market. (Hollensen, 2001). For this situation, managers can consider choosing entry modes that have a high level of risk like wholly owned subsidiaries (Chen and Hu, 2001). However, sometimes a market grows rapidly, but it may be assumed that growth is unsustainable. Companies should utilize this opportunity quickly by using direct or indirect export (Koch, 2001). Direct and Indirect Trade Barriers: In addition to tariffs and quotas for imports of foreign goods and components, product or trade regulations, standards and local supplier preferences are also influential on entry mode choice. Tendencies or priorities of local suppliers to buy national frequently encourage a firm to take into account an intermediate mode such as licensing or franchising. Similarly, firms prefer intermediate entry modes which they can provide information and facilitate access to local markets against product and trade regulations and customs formalities (Hollensen, 2007). Intensity of Competition: Organisations will perform well to prevent internalization if competition intensifies in a foreign target market. This kind of markets is inclined to be less profitable and consequently they do not justify heavy resource commitments. Therefore, the greater the intensity of competition in the foreign target market, the more the organisations will utilize entry modes like export that include low resource commitments.

Internal Factors Effecting Entry Mode Choice

Hollensen (2001) stated that there are also internal factors that play significant role in selecting entry modes including complexity and differentiation of the product, risk, and flexibility. The product complexity and differentiation can impact the selection of entry mode due to it has the impact on economies of scale, the cost of shipping, and already available know-how. For instance, large goods may lead to the intolerable expenses because of high shipping costs (Hollensen, 2001). Moreover, choice of entry mode is affected by the amount of risk that the firm is ready to take when entering a foreign country. According to risk-taking positions of the firms, they may choose an entry mode from exporting which has the lowest level risk, to wholly owned subsidiaries which involve the most risk (Hollensen, 2001). On the other hand, related to the risk mentioned above, the flexibility of the selected entry mode impacts the choice of entry mode since it is significant to a firm to be able to rapidly respond to changing market situations or even withdraw completely from a market. Firms may choose an entry mode from exporting which is the most flexible entry mode because of the low cost involved, to wholly owned subsidiaries which are the least flexible because of the high cost of withdrawing (Hollensen, 2001).

Reason of Turkish Firms for Internationalisation

Internationalization has a great importance for companies` growth and competitiveness today (Buckley and Casson, 1976; Czinkota and Ronkainen, 2013). There are varieties of reasons that called push and pull factors cause companies to internationalization and enter international markets (Biggs, 2013; Tatoglu et al., 2003; Treadgold, 1988). Some researchers describe push factors as home country characteristics such as economic conditions, domestic saturation and competition, they also described pull factors as host country characteristics such as economic opportunities and risk profiles (Madanoglu et al., 2015). There are both push and pull factors that cause Turkish firms tend to internationalisation (Erdilek, 2008). After the 1980s, Turkey opened the domestic market to foreign companies by the liberalization of the home-country economy, and this caused in intense competition in certain industries (Erdilek, 2008; Karadeniz&Göçer, 2007). Due to the high level of competition already in Turkey, companies focus on geographic diversification and expansion into international markets (Mfa, 2018; Breinbauer and Leitner, 2017). Moreover, the negative economic situations in Turkey acted as push factors for internationalisation of the Turkish firms (Erdilek, 2008). The basic cost for such items as taxes, energy, raw materials and utilities are very high in Turkey, and this situation rises the cost of production and adversely influence the company competitiveness (Erdogmus et al., 2010; Yosun and Çetindamar, 2013). When considered especially in terms of taxation, Turkey has high personal income and corporate tax rates compared to many countries that attracted Turkish companies. Turkish tax laws and regulations which changed too constantly and unpredictably have become progressively complicated even for experts over the years. All of these revisions and changes caused financial uncertainty and complexity in investment and long-term planning decision of Turkish firms (Erdilek, 2008). As a result of all these reasons, general economic problems and instability faced by Turkish companies make doing business increasingly risky in Turkey (Erdilek, 2008). On the other hand, major pull factors can be listed as market growth and access to natural resources and technologies (Erdilek, 2008; Madanoglu et al., 2015). All the companies prefer to enter the foreign markets where show potential growth (Erdogmus et al., 2010). European countries are mostly observed as a growth market and Turkish firms generally concentrate on these neighbouring countries (Breinbauer and Leitner, 2017). Furthermore, the capability of natural resources is very significant in the host countries such as oil and minerals. This reason causes frequently backwards vertical integration in search of cheaper or more secure inputs into the productive process (Wall and Rees, 2004). A Turkish Company HaznedarRefrakter`s acquisition of high-quality dolomite deposits in Macedonia can be an example for this situation. This improved considerably competitiveness of HaznedarRefrakter both at Turkey and Foreign markets by increasing its product range and vertical integration (Erdilek, 2008). Moreover, many companies consider it cheaper to invest in a present company instead of creating a new team of research specialist (Wall and Rees, 2004). For instance, Koc Holding succeeds access new technologies including hundreds of patents thanks to its acquisition of international brands such as the German electronics brand Grundig (Erdilek, 2008).

Turkish Firms` Entry Mode Strategies to Developed Countries

Turkish companies seem to be willing to follow strategic investment occasions abroad especially nowadays (, 2017). Regarding this situation, various examples can be given about entry of Turkish firms into developed markets. According to World Integrated Trade Solution (WITS), seven of the first ten countries in which Turkish companies operate their export activities are developed countries (WITS, 2018). Especially EU countries are the biggest export partner of Turkey. For example, Basak Food Company has been operating a fast-growing export activity in all European countries including the UK, Germany, Belgium, Holland, France and Austria (, 2013). On the other hand, in terms of wholly owned subsidisation, there are important examples that have attracted attention recently such as Turkish food group Yildiz Holding which has 320 major brands. In order to assist the holding compete in a progressively competitive global food industry, it established a new company in London called Pladis which is a wholly owned subsidiary in 2016 (Geller, 2016). Furthermore, Sisecam, the manufacturer of glassware products is maintaining its operations in the USA, Spain, Italy and Germany with Pasabahce that is another company of the Group (, 2018). With respect to franchising entry mode, Boydak Furniture that is targeting mostly the Turkish population in developed countries has its franchise stores located in Germany and USA (Ayden et al., 2018). In addition to this, Mado Company that is Turkish Coffee Shop is maintaining its operations with franchise store in Australia (Herman, 2008).


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