(PDF) MVM’s Nonlinear Internationalization: A Case Study

This article was downloaded by: [87.19.245.39] On: 19 February 2013, At: 13:01 Publisher: Routledge Informa Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK Journal of East-West Business Publication details, including instructions for authors and subscription information: http://www.tandfonline.com/loi/wjeb20 MVM's Nonlinear Internationalization: A Case Study a b b Tiia Vissak , Barbara Francioni & Fabio Musso a Department of International Business and Innovation, Faculty of Economics and Business Administration, University of Tartu, Tartu, Estonia b Department of Economics, Society and Politics, Faculty of Economics, University of Urbino “Carlo Bo”, Urbino, Italy Version of record first published: 07 Dec 2012. To cite this article: Tiia Vissak , Barbara Francioni & Fabio Musso (2012): MVM's Nonlinear Internationalization: A Case Study, Journal of East-West Business, 18:4, 275-300 To link to this article: http://dx.doi.org/10.1080/10669868.2012.736081 PLEASE SCROLL DOWN FOR ARTICLE Full terms and conditions of use: http://www.tandfonline.com/page/terms-and-conditions This article may be used for research, teaching, and private study purposes. Any substantial or systematic reproduction, redistribution, reselling, loan, sub-licensing, systematic supply, or distribution in any form to anyone is expressly forbidden. The publisher does not give any warranty express or implied or make any representation that the contents will be complete or accurate or up to date. The accuracy of any instructions, formulae, and drug doses should be independently verified with primary sources. The publisher shall not be liable for any loss, actions, claims, proceedings, demand, or costs or damages whatsoever or howsoever caused arising directly or indirectly in connection with or arising out of the use of this material. Journal of East-West Business, 18:275–300, 2012 Copyright # Taylor & Francis Group, LLC ISSN: 1066-9868 print=1528-6959 online DOI: 10.1080/10669868.2012.736081 MVM’s Nonlinear Internationalization: A Case Study TIIA VISSAK Department of International Business and Innovation, Faculty of Economics and Business Administration, University of Tartu, Tartu, Estonia BARBARA FRANCIONI and FABIO MUSSO Department of Economics, Society and Politics, Faculty of Economics, Downloaded by [87.19.245.39] at 13:01 19 February 2013 University of Urbino ‘‘Carlo Bo,’’ Urbino, Italy This article aims to contribute to the international and East-West business literature by discussing the nature of nonlinear internatio- nalization based on a case study of an Italian firm, Meccanica Valle Metauro S.r.l., that had activities in Central and Eastern Europe and other countries and by identifying causes of nonlinea- rities. The study concludes that nonlinear internationalization may be caused by different internal and external factors and actors; that it can occur once or several times; that foreign market exit may be temporary (followed by re-entry) and permanent; and that de-internationalization does not always mean a failure for the firm. KEYWORDS internationalization, de-internationalization, re- internationalization, case study INTRODUCTION This article aims to contribute to the international and East-West business literature by discussing the nature of nonlinear internationalization based on a case study of an Italian firm Meccanica Valle Metauro S.r.l. (MVM) and identifying causes of nonlinearities. Nonlinear internationalization is Received July 10, 2012; accepted September 29, 2012. The research was financed by the Estonian Science Foundation’s Grant No. 8546 and target financing of the Estonian Ministry of Education and Research No. 0180037s08. Address correspondence to Tiia Vissak, Department of International Business and Innovation, Faculty of Economics and Business Administration, University of Tartu, Narva Road 4-A308, 51009 Tartu, Estonia. E-mail:

275 276 T. Vissak et al. defined according to Vissak (2010a, 560) as ‘‘a process characterized by substantial increases and decreases in internationalization activity.’’ This topic was chosen because of the following three reasons. First, although internationalization processes have been actively studied since the 1970s, most attention has been paid to two types of firms: those interna- tionalizing gradually, starting from a few closest countries and simpler foreign operation modes (see, for example, Bilkey 1978; Johanson and Vahlne 1977), and those that enter several markets—some very distant— and use more complicated modes since establishment (Crick 2009; Oviatt and McDougall 1994; Zahra 2005). Several authors, for instance, Axinn and Matthyssens (2002), Javalgi et al. (2011), Jones (1999), Sheppard and McNaughton (2012), Turner (2012), Vissak (2010a), and Welch and Welch (2009), have emphasized the need of studying other internationalization pat- terns as (1) the current studies do not fully demonstrate the complexity of Downloaded by [87.19.245.39] at 13:01 19 February 2013 internationalization and (2) they have only briefly mentioned or even ignored the existence of other internationalization processes. Thus, by study- ing nonlinear internationalization that according to Vissak (2010a) occurs more frequently than linear internationalization, this article contributes to international business research. Second, Dikova (2012) emphasized the need of studying the context of firms’ international operations: Markets differ and, thus, firms also have to use different strategies. As a result, firms’ activities in transition economies may differ from their activities in other countries (Gelbuda, Meyer, and Delios 2008). Third, Majocchi and Strange (2007) stated that Italian firms have actively invested to Central and Eastern Europe (CEE) since the 1990s. On the other hand, according to Pisoni, Onett, and Fratocchi (2010), Italian firms’ activities in CEE have not received considerable research attention yet, especially the activities of small and medium-sized enterprises (SMEs) that form the majority of Italian firms. The firm analyzed in this study had con- siderable activities both in CEE and other countries, so it is also possible to compare its experience from these markets. Consequently, the article also contributes to the East-West business research. The article begins with a review of internationalization literature. It starts from a short overview of the research on linear internationalization: the Uppsala model, innovation-related internationalization models, the Finnish= target country internationalization process model, the literature on born globals=international new ventures=fast internationalizers, and late starters= born-again globals. Such studies, according to Vissak (2010a, 576), ‘‘can help to explain how internationalization begins . . . and which factors may quicken and slow down internationalisation.’’ Thereafter, it continues with an over- view of nonlinear internationalization processes (internationalizing accord- ing to the literature on de- and re-internationalization) and also some literature on internationalization (mainly exporting and investing) motives and impact factors, as these may also affect nonlinear internationalization. MVM’s Nonlinear Internationalization 277 This part ends with deriving five main conclusions about internationalization processes. After a methodology section, the internationalization of an Italian firm (MVM) is discussed. Its activities in each market are analyzed separately and, thereafter, its impressions of CEE and other markets are compared. After the discussion of the case study results, some managerial and research impli- cations are brought out. LITERATURE REVIEW Literature on Internationalization Processes According to the Uppsala model (Johanson and Vahlne 1977, 1990) and innovation-related internationalization models (for an overview, see Bilkey 1978; Morgan and Katsikeas 1997), but also to the Finnish=target country Downloaded by [87.19.245.39] at 13:01 19 February 2013 internationalization process model (Gabrielsson, Kirpalani and Luostarinen 2002; Luostarinen 1994; Welch and Luostarinen 1988), smaller firms tend to internationalize gradually and incrementally as their internationalization depends on the acquisition of experiential market knowledge. As a result, firms—especially if they lack resources due to their smallness—usually start exporting to closest or otherwise more similar countries and only thereafter enter farther=more different markets. Moreover, they initially tend to lack regular export activities but, after acquiring more experience, they will start exporting through representatives=agents, and only thereafter they will use operation modes needing more resources: for example, establish sales and production=manufacturing subsidiaries abroad. According to the literature on born globals=international new ventures= fast internationalizers, some firms—even if they are very small (Oviatt and McDougall 1994)—approach the entire world as their marketplace since their establishment (McDougall, Oviatt, and Shrader 2003). According to Madsen and Servais (1997), born globals should enter other continents during the first three years since establishment. Moreover, Kuivalainen, Sundqvist, and Servais (2007) stated that born globals should achieve a 25% or higher share of foreign turnover during this period. Thus, they ‘‘leapfrog’’ into internatio- nalization—some of them even export without generating any local sales (Chetty and Campbell-Hunt 2004)—despite lacking resources, knowledge, and experience (Oviatt and McDougall 1994). Their fast internationalization may be caused=influenced by their manager’s=owner’s background and pre- vious knowledge but also (unique) resources=products and network partners and the surrounding business environment (Bell, Crick, and Young 2004; Chetty and Campbell-Hunt 2004; Crick 2009; Madsen and Servais 1997; Moen and Servais 2002; Vissak 2007; Weerawardena et al. 2007; Wood et al. 2011). Small born globals may also benefit from greater flexibility and adaptability; moreover, they may be able to respond faster to market dynamics (Knight and Cavusgil 1996). 278 T. Vissak et al. Late starters=born-again globals are firms that have remained com- pletely domestic for a long time and then suddenly internationalized very fast (Johanson and Mattsson 1988; Kuivalainen, Saarenketo, and Puumalainen 2012; Sheppard and McNaughton 2012; Tuppura et al. 2008). They may at first prefer to stay domestic because they are unaware of international oppor- tunities, cannot find foreign customers, are not competitive enough or—if they are relatively small or their market is large—because they see sufficient domestic growth opportunities (Wilkinson, Mattsson, and Easton 2000). Their suddenly fast internationalization may be caused by a ‘‘critical incident’’ such as ownership or management change or sudden export orders (Bell, McNaughton, and Young 2001; Bell et al. 2003). Moreover, some firms start internationalization from more distant markets if their competitors have already gained considerable market shares in closest markets (Chetty and Blankenburg Holm 2000). Downloaded by [87.19.245.39] at 13:01 19 February 2013 De-internationalization means reducing geographic scope or foreign market penetration (Turner 2012). It encompasses withdrawing completely from all foreign markets but also ceasing operations only on one foreign mar- ket or some of them, reducing the depth or breadth of foreign operations (for example, decreasing ownership in a foreign joint venture), and switching to operation modes with smaller resource commitments: for instance, divesting and starting exporting instead (Benito and Welch 1997; Calof and Beamish 1995; Swoboda, Olejnik, and Morschett 2011). It may occur at any stage of internationalization (Welch and Luostarinen 1988), but smaller, less experi- enced (Benito and Welch 1994), and less innovative firms have been found to de-internationalize more frequently (Reiljan 2007). De-internationalization may be caused by outward factors such as political pressure (Akhter and Choudry 1993), dramatically changing business environment (Pauwels and Matthyssens 1999), increased competition (Javalgi et al. 2011), or changed exchange rates (Crick 2004) but also by inward factors: lack of financial resources (Bell et al. 2003), knowledge or experience, change of internatio- nalization strategy, poor performance, and the termination of cooperation contracts with previous partners (Reiljan 2007). Still, de-internationalization should not always be considered a failure: It can be a firm’s strategic choice (Benito 2005). Moreover, it can be a source of learning, especially for (re-)entering the same or similar markets (Welch and Welch 2009). Re-internationalization encompasses advancing steps after de- internationalization (Luostarinen 1994). It may be triggered by a takeover or an acquisition, getting additional resources, accessing new networks (Bell et al. 2001, 2003), or through existing network relationships (Hadjikhani 1996; Welch, Benito, and Petersen 2007), improving foreign market=industry conditions (Akhter and Choudry 1993), but also by other factors. Some firms manage to revive all previous international activities (Welch and Welch 2009): for instance, re-enter the same markets from where they previously exited (Javalgi et al. 2011) if political or market conditions improve MVM’s Nonlinear Internationalization 279 considerably (Hadjikhani 1997). Some re-internationalizers may also decide to enter different markets instead of those where they had activities before de-internationalization (Crick 2004; Javalgi et al. 2011; Pauwels and Matthyssens 1999). Moreover, some firms may also use different operation modes (Orava 2005), but some may prefer the same modes (Javalgi et al. 2011). Thus, after re-internationalization, some firms may become more international—for example, in terms of export share, market selection, or operation modes—than before de-internationalization (Pauwels and Matthyssens 1999), but some may also become less international (Vissak 2010a). It has been found that experienced firms with higher commitment on foreign markets are more likely to re-internationalize as they can benefit from previous knowledge and contacts (Hadjikhani 1997; Welch and Wiedersheim-Paul 1980). Some authors have also stated that firms may de- and re- Downloaded by [87.19.245.39] at 13:01 19 February 2013 internationalize several times. For instance, Axinn and Matthyssens (2002) claimed that some firms use combinations of entry and exit strategies while Welch and Welch (2009, 568) stated, ‘‘Some firms engage in sporadic exports for extended periods, filling international orders as they come in but there may be considerable periods of time between each order,’’ and Bell et al. (2001, 177) agreed that ‘‘firms may experience ‘epochs’ of rapid internationa- lisation, followed by periods of consolidation or retrenchment.’’ According to Hadjikhani (1996), Malhotra and Hinings (2010), and Welch and colleagues (2007), such internationalization often characterizes project businesses for which each project has ‘‘a definite start and finish date’’ (Welch et al. 2007, 200), and a firm ‘‘makes a deliberate choice to end the process with that one project’’ (Malhotra and Hinings 2010, 342). This means that smaller firms that have only a few foreign projects (orders) may cease foreign activities in some countries temporarily or even permanently if they do not manage to get involved in new projects. Other studies on internationalization motives and impact factors. According to Moini, Kalouda, and Tesar (2008), internationalization has become a matter of survival; moreover, exporting strategy should be long- term, but many SMEs are reactive: They respond to exporting opportunities only when they arise. Miesenbo¨ck (1988) even stated that the decision maker is the key variable in a small firm’s internationalization. Ellis and Pecotich (2001, 119) claimed that some smaller firms export ‘‘for apparently irrational reasons’’ and Musso and Francioni (2012) agreed that entry methods are not actively chosen by Italian SMEs: The adopted entry mode is the result of a passive response to external stimuli: for instance, responding to unsolicited export orders. Majocchi and Strange (2007) stated that investment decisions are mainly made based on market size and growth, the availability and education level of labor, salary levels and the quality of infrastructure, but also the levels of previous foreign investment stock and foreign trade. Pedersen and Shaver 280 T. Vissak et al. (2011) showed that initial internationalization—making the first foreign investment—is much more difficult than subsequent market entries, as firms have to cover some initial fixed costs and build up a suitable organizational architecture. According to them, the geographic distance of the first market from the home market is not very important, but Dikova (2012) and Gelbuda and colleagues (2008) emphasized the importance of the institutional dis- tance: if home and host countries differ considerably, this may increase the costs of internationalization. De Chiara and Minguzzi (2002) also claimed that Italian SMEs rely mostly on exports, as they lack capital for substantial foreign investments. Meyer and Skak (2002) emphasized the importance of network relation- ships, especially for SMEs’ internationalization to CEE, as networks facilitate contact creation and knowledge acquisition, and transition economies differ from Western Europe. According to Malecki and Poehling (1999), SMEs are Downloaded by [87.19.245.39] at 13:01 19 February 2013 especially affected by lack of networking because they lack resources and management capacity for exporting successfully on their own. Network rela- tionships are also important as existing relationships can be used as bridges to other networks (Johanson and Vahlne 1990). As a result, firms—even smaller ones—can internationalize in leaps instead of internationalizing gradually and incrementally (Hertz 1996). Still, network relationships can sometimes also inhibit internationalization (Ford 1998). From the foregoing discussion, the following five main conclusions can be drawn: (1) Internationalization processes can differ considerably: Some firms internationalize gradually, while some manage to do it much faster; some experience linear and some nonlinear internationalization; (2) interna- tionalization patterns may change: For instance, firms that initially experience linear internationalization may later de-internationalize, and some of them also re-internationalize; (3) some nonlinear internationalizers de- internationalize only once (permanently or temporarily) while some others experience de- and re-internationalization several times; (4) changes in inter- nationalization patterns—for instance, from linear to nonlinear but also from de- to re-internationalization—can be caused by several inward and outward factors and actors; and (5) nonlinear internationalization does not always mean a failure for the firm. METHODOLOGY Marschan-Piekkari and Welch (2004) emphasized the need to conduct more exploratory and theory-generating research on international business as it is not a mature discipline yet. According to Buckley and Chapman (1996), qualitative research goes beyond the measurement of observable behavior (‘‘what’’) to understand the meaning of this activity. In this article, the single–case study method has been chosen because of its usefulness in MVM’s Nonlinear Internationalization 281 international business, international entrepreneurship (Ghauri 2004; Vissak 2010b; Welch et al. 2011), and other process research (Lee 1999) and its abil- ity to answer ‘‘how’’ or ‘‘why’’ questions, but also to develop, combine, and verify existing theories with new empirical insights and investigate the real-life context of complex phenomena (Eisenhardt 1989; Yin 1994; Welch et al. 2011). Selecting only one case may increase observer bias and reduce the generalizability of the results (Vissak 2010b; Voss, Tsikriktsis, and Froh- lich 2002), but it allows to retain the richness of results and the depth of the study (Dubois and Gadde 2002; Piekkari, Welch, and Paavilainen 2009). The case firm was selected according to the following criteria: a small or medium-sized firm having experienced internationalization for at least 10 years in several regions and countries and having used other operation modes besides exports. A firm from the mechanical sector was selected as it constitutes the ‘‘backbone’’ of the Italian economy; moreover, this sector Downloaded by [87.19.245.39] at 13:01 19 February 2013 is characterized by a considerable share of small and medium-sized firms. To select a suitable firm, the Italian Chamber of Commerce’s database was used to create a list of Italian small and medium-sized firms from the mechanical sector. Then, the selection focused on SMEs located in the Marche region due to a significant share of such firms. Very small firms (with fewer than 10 employees) but also firms with only export activities and those without an internationalization experience of 10 years or more were excluded. MVM was selected as its size and internationalization experience fulfilled the search criteria; a brief interview made in April 2010 with Francesca Capodagli, managing director and plant manager (head of estab- lishment) of MVM confirmed this. Moreover, the interviewee was ready to share the firm’s international experience and provide additional data, if necessary: This was also an important criterion for selecting this firm to achieve depth and richness of the study. The first in-depth interview with Francesca Capodagli was made in June 2010, and it lasted for approximately two hours. The questionnaire covered the firm’s and its owner’s background, the firm’s past internationalization experience and patterns, but also its foreign operation modes and market selection strategies and the factors influencing them. The respondent was encouraged to give any kind of feedback. Additional questions were asked, when necessary. The second in-depth interview was made in July 2011, and it lasted for two hours. In this case, further questions were asked about the firm’s activi- ties in every year in every market, but also about its future plans. Moreover, in addition to Francesca, her father, Severino Capodagli (the founder of MVM and currently the chairman of the board) was interviewed. Using several informants should reduce the likelihood of misinterpretation and allow seeing multiple viewpoints (Ghauri 2004; Voss et al. 2002). The third in-depth interview was made in March 2012 with Francesca Capodagli, and it lasted for one hour. Then, additional information was collected about 282 T. Vissak et al. MVM’s activities in CEE. A short follow-up interview was made with her in the end of May 2012 to clarify some issues and to provide data for 2011 and about the firm’s progress in 2012. The interviews were conducted in Italian, and they were recorded. Within a week after every interview, they were transcribed verbatim and then translated to English. For data triangulation, data were also collected from other sources: the firm’s annual reports, other documents, and also its website. To guarantee construct validity and establish a chain of evidence (Lee 1999), the full interview texts and the resulting article were sent to interviewees for possible corrections and clarifications. CASE STUDY EVIDENCE Downloaded by [87.19.245.39] at 13:01 19 February 2013 Severino Capodagli, a graduate of Bologna University in mechanical engineering, established MVM (http://www.mvm.it/) in September 1969 in Lucrezia, Italy with two other partners. In May 1979, Capodagli bought out his partners’ shares and became the sole owner (for an overview of the firm’s developments, see table 1). Currently, MVM is fully controlled by the entrepreneur’s family: Severino (chairman of the board of MVM; he devotes the bulk of his time to a subsidiary, Valmex S.p.A, but also supports his daughters, especially when it is necessary to make decisions of strategic importance or in critical times) and his two daughters, Francesca (managing director and plant manager, she graduated in management engin- eering) and Lucia (executive sales manager, she graduated in mechanical engineering). MVM specializes in cold metal stamping and producing technology— supplying technological solutions—for cold deformation, assembly, and design in cooperation with universities and private research centers. It trains customers’ staff at MVM (with their equipment) or in their production prem- ises. MVM has developed a very prestigious customer portfolio, which includes major international corporations operating in different sectors such as automotive, home appliances, furniture, machinery, construction, and weaponry. In 2010, the firm achieved a turnover of around 412 million, a considerable increase compared to the previous year (47.8 million), during which MVM contracted due to the global economic crisis. In 2011, the turn- over increased to 415.2 million (see table 1) but, for 2012, a turnover of 414.2 million is predicted. Currently, MVM has 57 employees. MVM concentrates mostly on the Italian market, but it has also had a sig- nificant internationalization experience, not only in terms of exports but in production as it moved some production stages to Moldova and some to Romania. In the 1980s, the firm earned around 3% of turnover from foreign markets but, in the 2000s, export share was mostly above 10% and, in 2008, it increased to almost 35% (see figures 1–4 and table 2). Downloaded by [87.19.245.39] at 13:01 19 February 2013 TABLE 1 MVM’s Local and International Development: A Timeline Local developments International developments Meccanica Valle Metauro S.r.l. (MVM) established. 1969 It was initially small and concentrated on mechanical processing. Severino Capodagli left the Dutch multinational 1976 where he was working part-time and devoted himself completely to MVM. Severino Capodagli bought out his partners’ 1979 1979 Cooperation with a U.S.-owned Belgian firm shares and became the sole owner. designing, manufacturing, and selling luggage and travel accessories started. MVM’s plant and offices area was increased from 1981 2,500 to 5,000 square meters. MVM’s activities expanded: MVM developed the Early 1980s Early 1980s MVM became a supplier of pliers to charge batteries first project of heat exchangers for domestic gas for a firm producing electric cable in Stuttgart, boilers and started manufacturing special Germany. It also started exporting to France. machinery for welding pan handles. 283 Early 1990s Indirect exports to Spain and Brazil started (through a French customer). MVM was reorganized into MVM S.r.l. (the parent 1998–9 Late 1990s Sales of automatic machines for welding pan handles firm, since 2005, it uses the trademark MVM in Egypt, Lebanon, Syria, Iran, Indonesia, China, Industries), Valmex S.p.A., and Realmec S.r.l Russia, Poland, Turkey, and the United States. Valmex. It specialized in the design and 1999 production of copper and aluminum heat exchangers for domestic gas boilers; 51% belongs to the Capodagli family and 49% to Mr. Ansi Munz who, from the foundation, is a non-executive director and only attends quarterly board meetings. Realmec S.r.l. established (after merging MVM’s branch with an already existing firm, Realmec). It is active in manufacturing and metal molding for injection of thermoplastics. It also designs and manufactures machinery. It does not export. (Continued ) Downloaded by [87.19.245.39] at 13:01 19 February 2013 TABLE 1 Continued Local developments International developments A new plant and offices built (the total covered 2000 2000 MVM’s orders from Belgium started decreasing. surface: 11,000 square meters), stamping presses and equipment for welding, plastic processing and metalwork bought. Early 2000s Cooperation with a firm in Stuttgart, Germany became almost nonexistent due to Chinese competitors. 2003 A large customer found in Poland. An Italian customer asked MVM to reduce costs. 2004 2004 MVM established IMG (Industrial Manufacturing Group), in Moldova to reduce labor costs together 284 with an Italian partner. 2005 A large customer found in Russia Two large customers lost in Italy as they wished to 2007 2007 A subsidiary in Romania (Techopainting) created. A start producing MVM’s products themselves. large customer found in the UK. Orders from Russia decreased. 2008 A large customer lost in Russia. The economic crisis. Valmex developed 2009 2009 A large customer lost in Poland and the United aluminum mini-channel condensers for the Kingdom. IMG stopped production activity. automotive industry. 2010 MVM’s orders from Belgium stopped completely. A large customer gained again in Russia. 2011 Considerable growth in Russia. MVM’s Nonlinear Internationalization 285 FIGURE 1 MVM’s total turnover and total exports in 2000–2011 (million EUR). Downloaded by [87.19.245.39] at 13:01 19 February 2013 Mr. Capodagli started considering internationalization opportunities already since the 1970s as he wished to diversify risks and expand his firm. MVM’s first foreign market was Belgium. In the late 1970s, Mr. Capodagli found an agent who had represented an important Italian firm before his retirement. Through this agent, MVM started cooperating with a U.S.-owned Belgian firm that relocated its painting phase to MVM. Therefore, MVM FIGURE 2 MVM’s exports to CEE countries in 2003–2011 (thousand EUR). 286 T. Vissak et al. Downloaded by [87.19.245.39] at 13:01 19 February 2013 FIGURE 3 MVM’s exports to selected non-CEE markets (thousand EUR) I. FIGURE 4 MVM’s exports to selected non-CEE markets (thousand EUR) II. Downloaded by [87.19.245.39] at 13:01 19 February 2013 TABLE 2 MVM S.r.l.’s Turnover by Markets, Thousand EUR, and Percent of Total Turnover 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Turnover, th. 4 11772 13700 11250 12989 13520 14815 17745 13971 14032 7789 11965 15203 Exports, th. 4 % of exports E 930 1233 1113 3013 3886 4004 4006 3057 4892 1393 1351 1485 % 100 100 100 100 100 100 100 100 100 100 100 100 Exports, CEE E 18.1 901 1468 1661 396 2522 39.1 95.0 361 % 0.6 23.2 36.7 41.4 12.9 51.5 2.8 7.0 24.3 Russia E 379 1124 1380 181 95.0 349 % 9.8 28.1 34.4 5.9 7.0 23.5 Poland E 18.1 522 340 269 138 1993 27.9 18.1 11.9 % 0.6 13.4 8.5 6.7 4.5 40.7 2.0 1.3 0.8 Romania E 529 11.2 % 10.8 0.8 Moldova E 4.0 12.0 52.0 % 0.1 0.3 1.7 Czech Republic E 24.5 % 0.8 287 Exports, other E 930 1233 1113 2995 2985 2536 2345 2661 2370 1354 1256 1124 % 100 100 100 94.4 78.8 63.3 58.6 87.1 49.5 97.2 93.0 75.7 France E 443 510 476 2525 2475 2212 2101 2399 1969 885 1160 1025 % 47.6 41.4 42.7 83.8 63.7 55.2 52.5 78.5 40.2 63.6 85.9 69.0 Spain E 3.7 11.1 63.5 130 290 252 193 211 274 248 67.9 77.2 % 0.4 0.9 5.7 4.3 7.5 6.3 4.8 6.9 5.6 17.8 5.0 5.2 Brazil E 20.9 10.4 % 1.5 0.7 Beneluxa E 271 348 237 172 135 72.0 44.1 30.6 32.1 9.8 8.9 % 29.1 28.2 21.3 5.7 3.5 1.8 1.1 1.0 2.3 0.7 0.6 Indonesia E 8.6 5.6 3.0 1.5 % 0.7 0.5 0.1 0.1 Turkey E 1.5 % 0.1 Austria E 80.9 40.7 24.5 19.3 (Continued ) Downloaded by [87.19.245.39] at 13:01 19 February 2013 TABLE 2 Continued 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 % 8.7 3.3 2.2 0.5 Germany E 126 290 302 163 58.0 3.1 9.8 % 13.5 23.5 27.1 5.4 1.5 0.1 0.2 UK E 6.5 3.7 3.3 3.0 7.7 8.0 18.4 118 167 0.3 % 0.7 0.3 0.3 0.1 0.2 0.2 0.6 2.4 12.0 0.0 Portugal E 21.0 1.1 288 % 1.7 0.1 Ex. markets, No. 6 8 8 7 8 6 7 9 6 7 6 8 Incl. CEE, No. 1 2 3 3 4 2 2 2 2 Export share, % 7.9 9.0 9.9 23.2 28.7 27.0 22.6 21.9 34.9 17.9 11.3 9.8 CEE shareb 0.1 6.7 9.9 9.4 2.8 18.0 0.5 0.8 2.4 Note. The data do not include Valmex’s, Realmec’s, IMG’s, and Technopainting’s turnover or exports. a MVM did not have data for Belgium, Netherlands, and Luxembourg separately for all years. b Exports to CEE from total turnover, %. MVM’s Nonlinear Internationalization 289 bought painting machinery from the Belgian firm and started a long and prof- itable collaboration until 2000, when the Belgian customer started relocating its activities to India, South East Asia, and Eastern Europe. Thus, MVM’s orders from Belgium started decreasing and completely stopped in December 2010. In the early 1980s, Mr. Capodagli visited a trade fair and met a Sicilian entrepreneur who created a firm producing electric cable in Stuttgart, Germany. He proposed to Severino to become his supplier of pliers to charge batteries. However, although the collaboration lasted for more than 20 years, exports gradually declined until becoming almost nonexistent when Chinese pliers entered the European market. In the early 1980s, MVM also started exporting products to France for the furniture industry. From the late 1980s, MVM started exporting compo- nents for the automotive industry that reached 40% of total export turnover. Downloaded by [87.19.245.39] at 13:01 19 February 2013 Despite the great importance of the French customer, MVM’s managers have told that they ‘‘have several problems related to a low willingness to pay.’’ Thus, while exports to France represented 85.9% of the firm’s total exports in 2010, in 2011 this share decreased to 69.0%, and exports decreased from 41.2 million to 41.0 million. The same French customer also had a production site in Spain (since the early 1990s), which allowed MVM to enter indirectly into the Spanish and the Brazilian markets as well. Nowadays, MVM regularly provides parts to the Spanish and Brazilian production sites. It receives weekly orders to provide parts to Spain and Brazil. At the end of the 1990s, MVM started exporting automatic machines for welding pan handles to Egypt, Lebanon, Syria, Iran, Indonesia, China, Russia, Poland, Turkey, and the United States. MVM sold and installed the machinery directly in these foreign markets. However, it did not patent its products and technology. Thus, other manufacturers copied them, and competition increa- sed. Moreover, several firms decided to internalize the production of these com- plements. Therefore, nowadays this business is really marginal: For instance, in 2011, the firm’s exports to Indonesia and Turkey did not exceed 41,500; its exports were limited to spare parts for automatic machines sold in the 1990s. In 2004, an Italian customer for which MVM produced mechanical anti-theft devices for the automotive industry asked MVM to reduce pro- duction costs and, at the same time, an Italian businessman with 20-year experience in Moldova, a member of the Italian-Moldavian Chamber of Com- merce, proposed that MVM invest there. As a result, Mr. Capodagli decided to establish Industrial Manufacturing Group (IMG) in Chisinau, Moldova to reduce labor costs related to assembling, welding, and testing mechanical anti-theft devices but separately from MVM. Besides the benefits associated with lower labor costs, the selection of Moldova was also affected by other factors related to the favorable political and legal-administrative situation of the country and to the market potential related to the expected growth 290 T. Vissak et al. of the Moldovan economy. Indeed, the creation of the subsidiary was quite simple in terms of bureaucracy, because within a week the Moldavian Chamber of Commerce gave all authorizations and required starting capital of only 4200. In addition, as MVM’s partner was a friend of the president of Moldova, this helped to ease bureaucratic procedures. Finally, other fac- tors such as the diffusion of Italian language, the presence of Italian banks, and a widespread mechanical culture in the city led the firm to selecting this foreign market. However, there were some difficulties as well. These were mainly related to the training of employees, as they had no knowledge of the pro- duct, the organization, and the production process. For this reason, it was necessary to create a structured training plan. In addition, MVM arranged a training course with the first phase addressed to the production and quality managers, who were hosted in Italy (on MVM premises) for 6 months to Downloaded by [87.19.245.39] at 13:01 19 February 2013 acquire all the necessary technical expertise. The training process continued with a second phase at the headquarters in Moldova, with the help of MVM’s employee, who supervised the opening of the plant. MVM also sent some Italian contractors cooperating with the firm to Moldova to transfer qualified technical expertise. However, the main disadvantage was that the Italian partner in Moldova was not used to operating as an entrepreneur but rather as a politician and when, in 2009, the demand of products produced in Moldova collapsed, the firm went through a deep crisis. According to Francesca Capodagli, ‘‘While in 2009 MVM was thinking to turn around the situation in Italy (after losing 7 million EUR in turnover), the Italian partner in Moldova did not seek either new contacts or new markets.’’ Therefore, in 2009, IMG stopped the production activity, although the plant of 2,500 square meters had been com- pletely renovated according to Italian standards. Its turnover in 2006 was 4220,000 but, in 2007, it dropped to 4140,000, in 2008 increased to 4170,000 and, in 2009, decreased to 4150,000. The number of employees— 20—did not change in 2006 to 2009. In 2007, Mr. Capodagli and his daughters decided to create a firm, Technopainting, in Romania as they met a young Romanian who had worked several years for Severino’s friend’s firm as a painting specialist. His knowl- edge and skills were impressive; thus, he moved to Romania and started working as a representative of MVM’s painting products. MVM had an auto- matic machine for powder coating but had not used it for several years due to a strong increase in competition and a decrease in prices. Therefore, in 2008, MVM moved this machine to Arad (Western Romania). The Capodagli family selected Arad mainly because Severino’s friend came from this area. However, Francesca Capodagli also said that After some evaluations and market research, we discovered that Arad is in a good geographical position because it is close to the Hungarian MVM’s Nonlinear Internationalization 291 border and it is very well connected to both Hungary and Austria, and Serbia is also not far away. Additionally, Arad has an airport and is about 45 minutes by car to Timisoara, where another airport is located. Further- more, Arad is close to Deva and Oradea, two heavily industrialized areas in which there are firms belonging to the automotive industry, firms producing electronic components, server racks, cases . . . . Finally, in Romania lots of people speak Italian. The purpose of bringing this kind of plant to Romania was to help customers to process metal surfaces, covering a new field (industrial painting) accord- ing to the newest European standards. Thanks to a close collaboration with an Italian manufacturer, this electrostatic powder-coating plant was brought from Italy, and it started working in a very short time. Because of the experience in Moldova, Francesca and Severino Downloaded by [87.19.245.39] at 13:01 19 February 2013 Capodagli carefully planned the plant’s transfer operation to Romania with a specific feasibility study to verify the possibility to technically change the system and to assess, through a specific market analysis, the potential of absorption of the Romanian market. In addition, they carried out an economic and financial analysis and, after verifying the cost-effectiveness of the operation, they started the transfer to Romania. The phase was completed with the transfer of other basic management tools from Italy, which required the local presence of Francesca, who had to teach documentation and accounting procedures to the adminis- tration manager. Nowadays, Technopainting is located in a new and modern building of 2,000 square meters, in which one of the biggest automatic electro- static powder coating plants of Romania has been installed. Technopainting can paint, coat, mount, and assemble the painted pieces and also pack them on pallets as finished products. The firm has an important Italian customer with a plant close to Technopainting, a French customer and numerous con- tacts with European firms that have a plant in Romania and, as Francesca Capodagli stated, ‘‘This situation was what we expected to happen in Moldova. However, the main difference is that in Romania our partner is very efficient.’’ In 2009, the firm’s turnover was 4105 thousand; in 2010, it increased to 4308,000 and, in 2011, to 4560,000. Technopainting started in 2008 with five employees; it doubled their number in 2009 and again in 2011. In 2012, MVM decided to renovate Technopainting’s automatic line to offer a more flexible service and reduce set-up times. Technopainting is mainly oriented at the Romanian market, especially the Romanian subsidiaries of foreign (French, U.S., Italian) corporations. It exports 15% of turnover to France, as its French customer has plants both in Romania and France. At the same time, MVM almost does not export to Romania, except in 2008, when it sold a plant (no longer used in Italy) to Technopainting. 292 T. Vissak et al. In recent years, in addition to these two foreign investments (Moldova and Romania), MVM has exported to several European countries: Poland, Russia, United Kingdom, Austria, Portugal, The Netherlands, and the Czech Republic. MVM had some previous experience in Poland (it had sold there some automatic machines for welding pan handles) and, in 2003, MVM started selling some kitchen oven parts to a subsidiary of an important Italian customer. However, in 2009, the latter decided to transfer its own manufac- turing to Poland, and MVM lost this customer. Francesca Capodagli said, Unfortunately, transport costs affect us a lot, especially for ovens where raw material does not cost much. For this reason it is well known that a firm specializing in stamping must operate within a 600 km radius, because over this distance, it does not make sense to export as a firm will lose competitiveness in the market. Downloaded by [87.19.245.39] at 13:01 19 February 2013 In 2005 and 2007, MVM started to export, respectively, to Russia and the Uni- ted Kingdom. In these cases, collaboration with another Italian customer— one of the European leading manufacturers and distributors of major dom- estic appliances (washing machines, dryers, dishwashers, refrigerators, free- zers, cookers, hoods, and ovens)—led to exporting. MVM cooperated and supplied technological solutions for this firm. This customer has 14 pro- duction facilities (in Italy, Poland, United Kingdom, Russia, and Turkey). However, in 2008, in Russia and in 2009 in the United Kingdom, the customer decided to internalize the production of the items supplied by MVM. Thus, MVM’s sales decreased. MVM tried to revive activities in Russia. In 2008, Francesca Capodagli participated in a meeting between some representatives of the Marche region (where MVM is located) and some representatives of the Lipetsk region to evaluate cooperation opportunities. Unfortunately, MVM faced several obsta- cles. The first one was in regard to geographic distance and travel problems. According to Francesca, ‘‘Just arriving to the meeting took me a day, although the Marche region organized special flights.’’ The second problem was related to the fact that For establishing a subsidiary there a minimum investment requirement was 1 million EUR within three years and in this Russian region there was just one customer. We thought about the possibility to supply other firms, but these were located in St. Petersburg, which is over 1,000 kilo- meters from the Lipetsk area, and Russian roads are not Italian roads, thus transport costs would have increased too much. Moreover, it is important to consider the climate, as snow could further complicate the transport. The last obstacle was personal as, for establishing a subsidiary in Russia, one of the family members would have had to move to Russia for a long time, but Severino, Lucia, and Francesca did not want to do it. As a result of these MVM’s Nonlinear Internationalization 293 obstacles and also because of language barriers, MVM decided to abandon this project. Fortunately, it regained its previous Russian customer, although orders were smaller. Moreover, in 2011, MVM sold machinery to Russia. Thus, its exports increased. Other European countries and regions—Austria, Portugal, the Czech Republic, and Benelux—were not as important for MVM. It had only some sporadic exports, mainly supplying important Italian customers with a plant in these markets. They did not continue sales to these markets mainly because the majority of costumers decided to close down their plants and start producing in Asia, Eastern Europe, or South America. Consequently, it was not convenient for them any more to purchase parts from Italy because of labor and transport costs. Regarding future internationalization plans, Francesca stated, Downloaded by [87.19.245.39] at 13:01 19 February 2013 In this moment, after the crisis, I do not want to think about any other delocalization. Nevertheless, during the last years, the Serbian market became very interesting and attractive, both because Serbia could enter the European Union soon and also because some important automotive corporations are investing in this market. There is also an Austrian insti- tution that is promoting direct investment inflows to Austria. However, it is necessary to have a good plan and knowledge of this market before making the entry decision. The interviewees were also asked whether they have perceived any differ- ences between doing business in CEE and other countries. Francesca did not feel any significant differences between Poland and, for example, the United Kingdom. However, MVM experienced many problems in investing to Russia. Also, it faced problems in Moldova and Romania, especially during the establishment of production plants and due to differences in managing their business. In Romania, it was not easy to find a suitable building with all the neces- sary utilities for the plant. Due to bureaucracy, they lost time. For instance, they reported, ‘‘That is incredible but we had to contact also the Romanian Ministry for having gas.’’ In Moldova, the family encountered problems as well, mainly because institutions did not really support the subsidiary. Moreover, hiring university graduates did not guarantee labor quality. In addition, in Moldova, the main activity was agriculture, and the few industrial firms MVM contacted were producing Russian weaponry with Soviet production methods: They were highly specialized and were not used to making plans or to have commercial transactions. As a result, some activities were not performed in Moldova at all (such as galvanizing and powder coating) and, while some others were, the quality was very low. Another big problem derived from language, as the majority of procedures that were usually adopted in Italy needed to be 294 T. Vissak et al. translated into Russian or Moldovan. In addition, there was a lack of admin- istrative staff who could manage the balance sheet. DISCUSSION This study observed the internationalization of an Italian firm that experi- enced nonlinear internationalization (Vissak 2010a) in terms of several de- and re-internationalizations. In almost 30 years of activity, MVM has been active in more than 20 countries, and it has not experienced constant growth in any of them. In the 2000s, it was active in 15 foreign markets (see table 2). In 11 of them, it experienced one year of no export activities after entry. In Austria, Germany, and the United Kingdom, this occurred twice: The firm exported there, then did not, then exported again and then again did not. Downloaded by [87.19.245.39] at 13:01 19 February 2013 It had activities for 11 subsequent years only in two countries, France and Spain, but its exports fluctuated considerably. Thus, MVM has experienced both de-and re-internationalization several times. The internationalization of this firm does not completely follow the Uppsala model, innovation-related internationalization models, the Finnish= target country internationalization process model, or the ones that can be found in the literature on born globals=international new ventures=fast interna- tionalizers and late starters=born-again globals. MVM did not internationalize very fast as born globals=international new ventures=fast internationalizers are expected to do (it took about 10 years for the firm to start its first foreign activities), but it was also not a late starter=born-again global as it did not experience very sudden internationalization starting from very distant markets. Moreover, it did not start gradually from closest markets as the Uppsala model, innovation-related internationalization models, and the Finnish=target country internationalization process model would have expected for a relatively small firm: Its first foreign market was Belgium. Several factors led to the firm’s nonlinear internationalization: For instance, somewhat reactive behavior toward exporting, changes in the external environment, and its customers’ strategic changes. Moini and collea- gues (2008) stated that many SMEs are reactive in their exports; they respond only to exporting opportunities when they arise. MVM was also sometimes reactive as it depended on customers’ direct contacts=unsolicited export orders; when an Italian customer wished it to export to its plant in another country—for instance, Austria, Portugal, or the Czech Republic—MVM did it, but it did not export there on its own (however, now it considers entering Austria). On the other hand, the firm’s smallness led to greater flexibility (Knight and Cavusgil 1996). According to Swoboda and colleagues (2011), de-internationalization may be caused by changes in the external environment. The firm’s experi- ence in Belgium confirmed that: Its customer decided to relocate its activities MVM’s Nonlinear Internationalization 295 to Asia and CEE to cut costs. Moreover, a customer in Poland decided to move its own production there, while MVM’s activities in Germany stopped because of the influx of Asian products. Internal factors were sometimes also important; for example, the firm did not establish a subsidiary in Russia as the family members did not wish to move there. Thus, it can be agreed with Miesenbo¨ck (1988) that decision makers have a very important role in SMEs’ internationalization. Moreover, in this case, large institutional (Dikova 2012; Gelbuda et al. 2008) and geographic distance also affected the firm’s decisions. It can be agreed also with Hadjikhani (1996); Malecki and Poehling (1999); Meyer and Skak (2002); and Welch et al. (2007) that networks can facilitate internationalization and sometimes also re-entry: For MVM, several export opportunities arose through network relationships, especially through Italian customers. Moreover, it can be agreed with Ford (1998) Downloaded by [87.19.245.39] at 13:01 19 February 2013 and Reiljan (2007) that network relationships may also cause problems. Furthermore, sometimes both positive and negative effects can be observed: For instance, MVM suffered from its French customer’s low willingness to pay. On the other hand, through this customer, it managed to enter Spain and Brazil. Moreover, in Moldova, its partner was very helpful in establishing the firm but later did not manage to contribute enough to its development, while an Italian customer was useful for entering Russia and the United Kingdom but, when it decided to internalize production, MVM’s exports decreased. It can be also agreed with Welch and Welch (2009) that a firm may learn from de-internationalization and use this knowledge for re-entry. For ins- tance, having problems in Moldova made the firm more cautious when it entered Romania and, as a result, Technopainting is doing well. Thus, de-internationalization may also have indirect positive effects. CONCLUSIONS AND IMPLICATIONS Based on the experience of MVM, it can be argued that a firm may experi- ence de- and re-internationalization on several markets several times. For MVM, considerable fluctuations occurred both in CEE and in other countries. Still, despite that, it regards itself relatively successful, and it recovered from the financial crisis quite well by growing considerably in 2010 and 2011. Naturally, not all firms should try to follow a nonlinear internationalization pattern, but managers should understand that de-internationalization in itself does not have to be a sign of failure, as it may be caused by external forces; moreover, it may be a source of learning, and previous contacts may be used again in the future. This article contributed to the international business research by concluding that nonlinear internationalization may be caused by different 296 T. Vissak et al. internal and external factors and actors; that it can occur several times; that foreign market exit may be temporary or permanent; and that de- internationalization does not always mean a failure for the firm. Moreover, it contributed to East-West business research by comparing the case firm’s activities in these regions. The comparison of the firm’s experience in some CEE countries and some Western markets showed that besides substantial market opportunities offered by CEE countries, there are still considerable obstacles related to complex bureaucracy, inadequacy of human resources, but also cultural bar- riers. Such obstacles may result in exiting a market temporarily or perma- nently, especially if the firm is small and lacks financial and organizational resources and contacts and professional skills to overcome them. Thus, it can be proposed that in the case of operating in CEE, nonlinear interna- tionalization may become a likely path for SMEs, even if they are, in general, Downloaded by [87.19.245.39] at 13:01 19 February 2013 successful in their overall international development. Indeed, due to the high flexibility that characterizes them, SMEs can adapt and respond to changing conditions (that are more unpredictable in CEE countries) and can enhance their experience in order to undertake more effective strategic patterns in the future. In addition, it can be proposed that although Western markets can be expected to be more stable, SMEs may also experience nonlinear internationalization there. As this study was based on only one case, more research should be done to increase the generalizability of the results. In the future, more atten- tion should be paid to nonlinear internationalization processes: how often they occur in different regions (for example, in CEE, Western Europe and elsewhere), countries, sectors, and industries, among larger and smaller, family-owned, and other firms. This would provide helpful managerial and policy insights. 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