Foreign In- and Divestments in Retail and their Impacts on Emerging Economies — The Case of Turkey

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Title: Foreign In- and Divestments in Retail and their Impacts on Emerging Economies — The Case of Turkey
Authors: Gersch, Inka
Thesis advisor: Prof. Dr. Martin Franz
Thesis referee: Prof. Dr. Peter Dannenberg
Abstract: Over the past decades, globalisation dynamics have experienced a shift in regard to their driving economic sectors. At the beginning of the 21st century, the global economy will no longer be primarily driven by manufacturing companies but by companies in the service sector. Among them are large retail companies that, with their demand-driven supply chains, organise the global economy to a significant degree. The retail sector represents a particular case within internationalisation dynamics. With its special characteristics and logics it poses special challenges to internationally expanding companies. This is reflected in the facts that the intensive expansion phase of retail trade began relatively late compared to other sectors and that the sector’s level of internationalisation is still comparatively low. This paper focuses on two aspects of retail internationalisation that are underrepre-sented in research. (1) International expansion is by no means the final stage of international economic integration. Coe and Wrigley (2017) speak of a new era of globalised distribution, characterised by, among other things, the concentration of leading retailers on their strong foreign markets and the withdrawal of their operations from other countries. However, our understanding of these dynamics, their drivers, and their effects is inconsistent. This dissertation contributes to closing this gap and brings a new empirical perspective into the research literature by discussing the perspective of the market of inward for-eign direct investment (FDI). This is novel as, until now, research in this area has largely been based on the view of internationalizing companies’ Western home markets. In addition, this dissertation adds a new level of investigation through the exhaustive examination of a market (for the sub-sector of grocery retailing). (2) Beyond the import of financial capital, potential knowledge transfers into the local economy are an important argument for opening up to FDI. The extent to which the knowledge base of an economy is actually improved and upgrading processes of local companies are driven by the entry of a transnational company (TNC), seems to depend strongly on the degree of a TNC’s local embeddedness. This varies according to the sector and the corporate strategy. We know very little about knowledge transfer and up-grading in the context of internationalisation processes in the retail sector, as the discussion on cross-border knowledge transfer through FDI and the discussion on the internationalisation of the retail sector have so far largely been conducted separately. This dissertation contributes to the connection of these research strands. In this respect, it helps to correct the ‘production bias’, the strong orientation of the scientific discourse on knowledge transfer and upgrading towards the manufacturing, technology-intensive industry. The overall goal of the dissertation is to make an empirically derived contribution to research on retail internationalisation and its local effects in emerging markets from the perspective of relational economic geography. The dissertation addresses the dynamics, drivers, decision-making processes, and traces of FDI in the retail sector. In addition, it examines horizontal and vertical knowledge transfers and the upgrading processes of local suppliers of fresh food triggered by FDI. The study is based on the global production network-approach (Henderson et al. 2002), which conceptualises TNCs as networks whose subsidiaries are embedded in a particular context. The global value chain-approach (Gereffi et al. 2005) and the concept of up-grading, which is discussed in its context, are used as a framework for analysis. This approach is helpful to analyse the mobility of actors within a value chain toward a more advantageous position and the role of buyer companies in these developments. The dissertation combines the GVC research with the literature on (local) knowledge transfer. It uses the distinction between explicit and implicit knowledge developed by Polanyi (1958) to analyze the extent to which knowledge is transferred by FDI across national borders. Thus, the dissertation contributes to the link between GVC/GPN research and research on international knowledge transfer/the local acquisition of skills, which has been largely lacking. The dissertation uses the regional example of Turkey. The country stands as an example for the group of emerging countries. Due to dynamic economic development and significant FDI inflows, it represents a suitable and interesting case in the context of this thesis’s research interest. To gain a deeper understanding of the internationalisation dynamics of the retail sector, including their drivers and effects on local economic development, the study follows a qualitative research approach. The analyses are based on data collected in guideline-based, qualitative interviews. A total of 71 semi-structured interviews were conducted in Turkey between summer 2015 and spring 2016. Among the interviewees are 32 managers of transnational and local food retailers, 28 managers of supplier companies of fresh fruit and vegetables, and 10 experts of the retail and agricultural sector in Turkey. The study shows current dynamics and drivers of the retail sector’s internationalisation processes. At the beginning of the new millennium, the investment trend in Turkey reversed and foreign divestments (FD) started to dominate the sector. In the meantime, all transnational food retailers have divested from the market. This development illus-trates the dynamics of the new era of retail distribution to an extent not previously described. The actors in the (former) host market emphasise the defensive character of this FD. They see the operational challenges and the inability or unwillingness of the TNC to adjust to the market as reasons for the failures in the foreign market. This assessment contradicts the statements of the management in the TNC's home markets and partly also the scientific literature, which is mainly based on interviews with these actors. They emphasise the offensive character of FD. By bringing together the perspec-tives of the host- and the home market a holistic picture of the decision-making process behind FD emerges. It shows that the divestment decision is not only the reversal of an expansion decision, but follows its own logic (see Figure 8 on page 72). The dissertation demonstrates that foreign retailers import company-specific re-sources from their corporate networks into the host market and thus influence the development of the local retail sector. Comparing the results of this work on the channels of horizontal knowledge transfer with the results of the literature subject to a produc-tion bias, it becomes clear that demonstration and imitation effects are of particular importance due to the high visibility of retail practices. However, despite the compara-tively low-tech nature of retail, transfer processes go far beyond demonstration and imitation. All transfer channels discussed in the literature on the manufacturing sector are relevant to retail. The transfer of implicit knowledge takes place in particular through joint ventures/acquisitions and the fluctuation of personnel. The study further reveals vertical knowledge transfers from foreign retailers to local suppliers of fresh fruit and vegetables and shows that TNCs proactively shape the de-velopment of their suppliers in the host market. Motivated by an initial lack of adequate suppliers, transnational retailers are proving to be an important driver for the moderni-sation of this supplying industry. The deep (purchasing) network embeddedness of re-tail favours knowledge transfer through backward integration. In order to remain a permanent part of the modernizing supplier network, suppliers must vertically inte-grate functions up and down the value chain, including agricultural production. This is driven forward by retailers through direct involvement and through the targeted selection of suppliers. After TNCs withdraw their capital from the host market, the knowledge of the subsidiaries, in former employees and incorporated in established practices, remains in the host market. The dissertation shows that local companies that take over the TNCs’ subsidiaries use this knowledge in different ways. The successful among them develop hybrid business strategies. They use the TNCs' company-specific knowledge, in particular purchasing practices. But they also bring their local resources into the company which is particularly expressed in a deep sales-side network embeddedness and speed in decision-making processes. The dissertation makes conceptual contributions at various levels. First, it illustrates the broad spectrum from localisation to internationalisation within which the processes summarised under the term globalisation are classified. Localisation processes seem to overlap with internationalisation processes, especially when internationalisation is driven by market seeking motives, which are often central in the service sector. The dis-sertation further expands the research literature by linking the literature on retail internationalisation with the literature on local knowledge transfer in the context of FDI. It thereby contributes to a better understanding of the role of TNCs in the dissemination of knowledge in global networks or chains and the formation of local capabilities. Detached from the transnational and sectoral context, the study establishes causal links between FDI and local effects by providing insights into mechanisms of knowledge transfer that remain hidden in quantitative research. The work moreover contributes to the literature on upgrading in GVCs by refining the upgrading concept for the specific context of the agri-food sector. The results of the dissertation are of applied relevance for both actors from emerging countries receiving FDI and for managers of transnational retail companies. One of the most important findings for actors from FDI-receiving economies is that FDI in the re-tail sector can also be a constructive force. A certain degree of target compatibility can create advantages for all parties involved. Local retailers can acquire knowledge from international retailers operating in the country. The dissertation shows retail managers how they can make use of this possibility. It also shows managers of local suppliers of fresh food how they can take advantage of upgrading opportunities through cooperation with foreign retailers and how they can secure themselves a place in the supply network in the long term. The dissertation further provides orientation for managers of transnational retailers in their entry into foreign markets. It gives insights into how to actively embed in the host country in the context of cross-border expansion and which factors should be taken into account when deciding on a FD.
Subject Keywords: retail internationalisation; service sector; foreign direct investment; foreign divestment; knowledge transfer; supplier upgrading; Turkey
Issue Date: 19-Dec-2019
Type of publication: Dissertation oder Habilitation [doctoralThesis]
Appears in Collections:FB01 - E-Dissertationen

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