Interconnecting financial performance and internationalization: a case of a rare metal producer

Lukason, Oliver; Vissak, Tiia

doi:10.1590/0370-44672014690102

Acessibilidade / Reportar erro

Brasil

Rem: Revista Escola de Minas

Español English

Brasil

Español English

sumário « anterior atual seguinte »

Sumário

Metallurgy and materials • Rem: Rev. Esc. Minas 69 (1) • Jan-Mar 2016 • https://doi.org/10.1590/0370-44672014690102 copy

Interconnecting financial performance and internationalization: a case of a rare metal producer

Authorship SCIMAGO INSTITUTIONS RANKINGS

Abstract

The paper aims to outline the causes that affected a rare earth metal producer Molycorp Silmet's internationalization based on case study evidence. Moreover, based on statistical analysis, it aims to study how its internationalization and financial performance were interconnected. It concludes that 1) its export fluctuations mostly resulted from external factors and that despite such fluctuations, the firm's financial health was mostly good, 2) high concentration on a single target market can lower profitability, 3) fluctuations in target market shares can increase or decrease a firm's profitability, but they are not interconnected with its bankruptcy probability.

Keywords:
internationalization; export; financial performance; rare metals; Estonia

Stream of literature	A typical internationalization process	Factors leading to such an internationalization process
the Uppsala (U-) model (Johanson & Vahlne 1977JOHANSON, J., VAHLNE J.-E. The internationalization process of the firm: a model of knowledge development and increasing foreign market commitments. Journal of International Business Studies, v. 8, n. 1, p. 23-32, 1977., 1990JOHANSON, J., VAHLNE J.-E. The mechanism of internationalization. International Marketing Review, v. 7, n. 4, p. 11-24, 1990., Johanson & Wiedersheim-Paul 1975JOHANSON, J., WIEDERSHEIM-PAUL, F. The internationalization of the firm: four Swedish cases. Journal of Management Studies, v. 12, n. 3, p. 305-322, 1975.), innovation-related internationalization (I-) models (Bilkey 1978BILKEY, W.J. An attempted integration of the literature on the export behavior of firms. Journal of International Business Studies, v. 9, n. 1, p. 33-46, 1978.; Morgan & Katsikeas 1997MORGAN, R.E., KATSIKEAS, C.S. Theories of international trade, foreign direct investment and firm internationalization: a critique. Management Decision, v. 35, n. 1/2, p. 68-78, 1997.), the Finnish model (Welch & Luostarinen 1988WELCH, L.S., LUOSTARINEN, R. Internationalization: evolution of a concept. Journal of General Management, v. 14, n. 2, p. 34-57, 1988.)	slow and incremental: closest and/or similar countries are entered first usually by exporting;later, after learning from these activities, other countries will be entered and other modes used	experiential knowledge is necessary for internationalization, but firms acquire it predominantly through their foreign operations (especially according to the U-model), thus, learning takes time
the literature on fast internationalizers: born globals and international new ventures (Knight & Cavusgil 1996KNIGHT, G.A., CAVUSGIL, S.T. The born global firm: A challenge to traditional internationalization theory. In: CAVUSGIL, S.T., MADSEN, T. (EDS.). Advances in International Marketing, 8. Greenwich, CT: JAI Press, 1996. p. 11-26.; *Kuivalainen et al.* 2007KUIVALAINEN, O., SUNDQVIST, S., SERVAIS, P. Firms' degree of born-globalness, international entrepreneurial orientation and export performance. Journal of World Business, v. 42, n. 3, p. 253-267, 2007.; Madsen & Servais 1997MADSEN, T.K., SERVAIS, P. The internationalization of born globals: An evolutionary process. International Business Review, v. 6, n. 6, p. 561-583, 1997.; Oviatt & McDougall 1994OVIATT, B.M., MCDOUGALL, P.P. Toward a theory of international new ventures. Journal of International Business Studies, v. 25, n. 1, p. 45-64, 1994.; Weerawardena et al. 2007WEERAWARDENA, J., SULLIVAN MORT, G., LIESCH, P.W., KNIGHT, G. Conceptualizing accelerated internationalization in the born global firm: a dynamic capabilities perspective. Journal of World Business, v. 42, n. 3, p. 294-306, 2007.; Wolff & Pett 2000WOLFF, J.A., PETT, T.L. Internationalization of small firms: an examination of export competitive patterns, firm size, and export performance. Journal of Small Business Management. v. 38, n. 2, p. 34-47, 2000.; Zander et al. 2015**ZANDER, I., MCDOUGALL-COVIN, P., ROSE, E.L. Born globals and international business: evolution of a field of research. Journal of International Business Studies, v. 46, n. 1, p. 27-35, 2015.)	very fast: during the first three years since establishment, firms enter culturally and geographically distant foreign markets and achieve a high (usually, 25 percent or higher) export share;in some cases, they even skip the exporting stage	firms can learn from their founders, owners and/or other network partners, not only from their own foreign activities;some have unique resources and/or or narrow but important skills
the literature on nonlinear internationalization (Benito and Welch 1997BENITO, G.R.G., WELCH, L.S. De-internationalization. Management International Review, v. 37, n. 2, p. 7-25, 1997.; *Cuervo-Cazurra et al.* 2007CUERVO-CAZURRA, A., MALONEY, M.M., MANRAKHAN, S. Causes of the difficulties in internationalization. Journal of International Business Studies, v. 38, n. 5, p. 709-725, 2007.; Javalgi et al. 2011JAVALGI, R.G., DELIGONUL, S., DIXIT, A., CAVUSGIL, S.T. International market reentry: A review and research framework. International Business Review, v. 20, n. 4, p. 377-393, 2011; Matthyssens & Pauwels 2004MATTHYSSENS, P., PAUWELS, P. Strategic flexibility in export expansion: growing through withdrawal. International Marketing Review, v. 21, n. 4/5, p. 496-51, 2004.; Turner 2012TURNER, C. Deinternationalisation: towards a coevolutionary framework. European Business Review, v. 24, n. 2, p. 92-105, 2012.; Vissak 2014VISSAK, T. Nonlinear internationalization in the context of nonlinear economic development: the case of Krenholm Group. Transformations in Business and Economics, v. 13, n. 2A, p. 431-447, 2014.; Vissak & Francioni 2013VISSAK, T., FRANCIONI, B. Serial nonlinear internationalization in practice: A case study. International Business Review, v. 22, n. 6, p. 951-962, 2013.; Vissak & Masso 2015VISSAK, T., MASSO, J. Export patterns: typology development and application to Estonian data. International Business Review, v. 24, n. 4, p. 652-664, 2015.; Welch & Welch 2009**WELCH, C.L., WELCH, L.S. Re-internationalisation: exploration and conceptualization. International Business Review, v. 18, n. 6, p. 567-577, 2009.)	fluctuating: firms experience fluctuations in international involvement: they exit some markets permanently or temporarily or decrease their involvement there (de-internationalize), later some re-enter some markets (re-internationalize) or enter others; such fluctuations can occur several times	external and internal factors: including changed external environment (exchange rates, costs, competition, demand, export quotas), changes in business partners' situation, unstable foreign orders, lost or gained access to resources, managers' changes in the firm's strategy

Period	Internationalization	Factors that led to such internationalization	The firm's activities
2000-2001	exports increased considerably	demand and prices increased	started investing in reducing environmental risks
2002	exports decreased considerably	demand and prices fell	developed some new products
2003	exports still decreased	demand and prices fell and U.S. dollar weakened but some competitors exited the market	ceased the activities of its rare earth metals factory for 3 months
2004	exports stabilized	demand stabilized	invested in production, focused mainly on rare metals and started buying some raw materials from Brazil
2005	exports increased considerably	demand and prices of rare metals and, to some extent, rare earth metals increased	Zimal (Switzerland) acquired a 50%+1 share in the firm, it continued investing in technology andnew product development
2006	exports increased	prices of rare earth metals continued increasing: demand increased and China started protecting its environment more	continued investing
2007	exports increased	U.S. dollar weakened, China restricted exports of rare earth metals	continued investing in technology and new product development
2008	exports increased	prices increased in the beginning but thereafter, started falling	focused on cutting costs
2009	exports decreased	the economic crisis, demand and prices fell, especially for niobium	stopped all major investment projects
2010	exports increased considerably	due to a Brazilian competitor's problems, demand for ferro-niobium-tantalum alloy increased and demand for rare earth metals started recovering	decreased production costs in the first quarter but continued investing in the second quarter, bought back its shares from Zimal
2011	exports increased	demand for tantalum but also other metals increased, prices for tantalum increased considerably	due to change in ownership, started importing several raw materials from Molycorp, it invested in increasing production capacity
2012	exports decreased slightly	demand fluctuated and in the end of 2012, prices fell	doubled niobium production, invested in increasing efficiency, production capacity and flexibility, opened a modern laboratory
2013	exports decreased considerably	prices decreased, demand for niobium and tantalum was low	increased production capacity of REMs and made adjustments in its technology to start using American raw materials
2014	exports decreased considerably	prices decreased slightly, exchange rates were unfavorable	invested in increasing efficiency, production capacity and flexibility
2015	export data are not available yet	demand and prices fluctuated, Molycorp had major financial difficulties, a considerable part of Molycorp Silmet's tantalum and niobium production building burned down	continued operating and started reconstructing its production building after the fire

Year	Ohlsonscore	CF/S	EUsales %	USAsales %	Othersales %	Standarddeviationof targetmarketshares	Differencebetweenmaximumandminimumtargetmarketshare	Maximumtarget marketshare
1999	0.35	0.02	57.7%	26.4%	15.9%	21.7%	41.8%	57.7%
2000	0.16	0.05	60.2%	29.5%	10.3%	25.2%	49.9%	60.2%
2001	0.09	0.11	51.7%	32.8%	15.5%	18.1%	36.2%	51.7%
2002	0.42	-0.01	59.4%	27.3%	13.3%	23.6%	46.1%	59.4%
2003	0.58	-0.02	57.4%	6.6%	36.0%	25.5%	50.9%	57.4%
2004	0.57	-0.04	46.2%	40.4%	13.4%	17.5%	32.9%	46.2%
2005	0.19	-0.04	52.6%	19.5%	27.9%	17.2%	33.2%	52.6%
2006	0.31	0.05	51.3%	22.0%	26.7%	15.8%	29.3%	51.3%
2007	0.33	0.04	61.4%	6.4%	32.2%	27.6%	55.1%	61.4%
2008	0.13	0.04	51.0%	25.0%	24.0%	15.3%	27.1%	51.0%
2009	0.33	0.06	38.7%	34.4%	26.9%	6.0%	11.8%	38.7%
2010	0.08	0.01	58.5%	25.5%	16.0%	22.3%	42.4%	58.5%
2011	0.13	0.08	40.2%	50.1%	9.7%	21.1%	40.5%	50.1%
2012	0.74	0.10	43.2%	40.2%	16.6%	14.6%	26.6%	43.2%
2013	0.03	0.18	45.7%	41.6%	12.7%	18.0%	33.0%	45.7%
2014	0.17	0.16	34.8%	47.0%	18.2%	14.4%	28.8%	47.0%

		EU sales %	USA sales %	Other sales %	Standard deviation of target market shares	Difference between maximum and minimum target market share	Maximum target market share	Aggregate sales
Ohlson score	SCC	0.071	-0.202	0.356	0.022	0.006	-0.021	-0.533
	Sig. (2-tailed)	0.795	0.454	0.175	0.935	0.983	0.940	0.033
CF/S	SCC	-0.524	0.603	-0.293	-0.380	-0.395	-0.472	0.728
	Sig. (2-tailed)	0.030	0.013	0.270	0.146	0.130	0.065	0.001

		EU sales %	USA sales %	Other sales %	Standard deviation of target market shares	Difference between maximum and minimum target market share	Maximum target market share	Aggregate sales
Ohlson score	SCC	-0.007	-0.068	-0.156	0.202	0.213	0.097	0.079
	Sig. (2-tailed)	0.980	0.810	0.580	0.470	0.446	0.732	0.780
CF/S	SCC	-0.177	0.315	-0.353	-0.179	-0.174	-0.158	0.659
	Sig. (2-tailed)	0.527	0.253	0.197	0.523	0.536	0.536	0.008

Escola de Minas Rua Carlos Walter Marinho Campos, 57 - Vila Itacolomy, 35400-000 Ouro Preto MG - Brazil, Tel: (55 31) 3551-4730/3559-7408 - Ouro Preto - MG - Brazil
E-mail: editor@rem.com.br

Acompanhe os números deste periódico no seu leitor de RSS

[TFN01] Note: all values have been rounded, but in statistical analysis exact values have been applied