Växjö University
Centre of Competitiveness

A view on reasons for Swedish SMEs to change or not 
to change export modes in the internationalisation process

von

Tobias Brüggemann 
Sören Lassek 
Christophe Gence

28.05.2004

Abstract

Nowadays, the internationalisation process of companies is moved more and more in the core of daily business life. This process is eased by reduced costs facilitated by less tariff barriers among Europe, faster ways of communications like the Internet and appealing emerging markets. These days, nearly every company is involved in the internationalisation process. 

When we have considered the internationalisation process of Swedish SMEs, we found it interesting to have a close look at their decision to change from an indirect exporting mode to a direct exporting mode within their internationalisation process. Our research shall point out the important factors which influence their decision to change or not to change from an indirect exporting mode to a direct exporting mode.

Therefore, in our research we have compared theories with empirical findings of seven conducted interviews in order to fulfil our purpose which is to increase the understanding of the internationalisation process of Swedish SMEs, especially the reasons why firms change or do not want to change from indirect to direct export modes. According to that we came up with the following problem formulation:

What are the influencing factors for Swedish SMEs to change or not to change their exporting modes?

By evaluating possible influencing factors concerning their value of similarity among case companies and their value of consistency between theories and empirical findings we could identify a couple of factors which influence a company’s export decision. We could develop a model for each case whether to change or not to change exporting mode. By that we could classify influencing factors by the value of consistency and similarity in order to identify the most valuable influencing factors.

Acknowledgements

While working on our thesis we have met a couple of helpful persons. During our interviews we made valuable experiences by talking to ten business persons. We are indebted to them for giving us an insight into their exporting business.

We would like to thank our tutor and examiner Anders Pehrsson and of course our classmates in the seminar group of international marketing strategy. A special thank is dedicated to our Swedish friend, Anja Andersson, who helped us to work with some Swedish books.

Last but not least we would like to thank each other for great teamwork, all the good moments and the high spirits despite many long sessions in our living-corridor.

Tack!

Växjö, May 28, 2004

Tobias Brüggemann Christophe Gence Sören Lassek

Table of Contents

1. INTRODUCTION ... 1
1.1 BACKGROUND ... 1
1.2 PROBLEM DISCUSSION  ... 4
1.3 PROBLEM FORMULATION  ... 5
1.4 PURPOSE  ... 5
1.5 LIMITATIONS ... 5
1.6 THEORETICAL RELEVANCE  ... 5
1.7 PRACTICAL RELEVANCE ... 6

2. THEORY ... 7
2.1 INTERNATIONALISATION PROCESS OF A FIRM  ... 7
2.1.1 Internationalisation process of SMEs ... 7
2.1.2 Internationalisation process theory: Uppsala Model  ... 9
2.1.3 Internationalisation process theory: Network Model  ... 11
2.2 THE TWO DIFFERENT WAYS OF EXPORTING ... 14
2.2.1 Indirect export  ... 14
2.2.2 Direct Export  ... 17
2.3 CHANGE WITHIN EXPORT MODES ... 20
2.3.1 Influencing factors putting forward to change exporting mode ... 20
2.3.2 Influencing factors putting forward not to change exporting mode  ... 25
2.4 CONCLUSIVE THEORETICAL REMARKS  ... 26

3. METHODOLOGY ... 28
3.1. SCIENTIFIC APPROACH ... 28
3.2 PREUNDERSTANDING  ... 28
3.2.1 General Knowledge, Specific one and Personal attributes  ... 29
3.3 RESEARCH APPROACH  ... 30
3.4 TYPE OF RESEARCH  ... 30
3.5 QUALITATIVE VERSUS QUANTITATIVE RESEARCH ... 31
3.6 DATA COLLECTION ... 32
3.7 SELECTION METHOD  ... 34
3.8 EVALUATION CRITERIA ... 35
3.9 SUMMARY OF METHODOLOGY ... 36

4. EMPIRICAL DATA ... 37
4.1 GALVIN GREEN  ... 37
4.1.1 Internationalisation process  ... 37
4.1.2 Influencing factors putting forward to change exporting mode ... 38
4.1.3 Influencing factors putting forward not to change exporting mode  ... 39
4.2 HAMMARPLAST AB ... 40
4.2.1 Internationalisation process  ... 40
4.2.2 Influencing factors putting forward to change exporting mode ... 41
4.2.3 Influencing factors putting forward not to change exporting mode  ... 41
4.3 LINDER AB  ... 42
4.3.1 Internationalisation process of the company ... 42
4.3.2 Influencing factors putting forward to change exporting mode ... 43
4.3.3 Influencing factors putting forward not to change exporting mode  ... 43
4.4 BERGKVIST-VÄXJÖ KB ... 44
4.4.1 Internationalisation process  ... 44
4.4.2 Influencing factors putting forward to change exporting mode ... 45
4.4.3 Influencing factors putting forward not to change exporting mode  ... 45
4.5 FLÄKT WOODS AB ... 49
4.5.1 Internationalisation process  ... 46
4.5.2 Influencing factors putting forward to change exporting mode ... 47
4.5.3 Influencing factors putting forward not to change exporting mode  ... 47
4.6 ACKURAT AB ... 49
4.6.1 Internationalisation process  ... 49
4.6.2 Influencing factors putting forward to change exporting mode ... 50
4.6.3 Influencing factors putting forward not to change exporting mode  ... 50
4.7 ABSTRACTA AB ... 52
4.7.1 Internationalisation process  ... 52
4.7.2 Influencing factors putting forward to change exporting mode ... 53
4.7.3 Influencing factors putting forward not to change exporting mode  ... 53
4.8 COMPILING SUMMARY OF THE EMPIRICAL DATA  ... 54

5. ANALYSIS  ... 55
5.1. INTERNATIONALISATION PROCESS ... 55
5.1.1 Internationalisation process of SMEs ... 55
5.1.2 Uppsala model ... 56
5.1.3 Network Model  ... 57
5.2 THE TWO DIFFERENT WAYS OF EXPORTING ... 59
5.2.1 Indirect Export ... 59
5.2.2 Direct Exporting ... 60
5.3 CHANGE WITHIN EXPORT MODES ... 61
5.3.1 Influencing factors putting forward to change exporting mode ... 62
5.3.2 Influencing factors putting forward NOT to change exporting mode ... 66
5.3.3 Additional Comments on other influencing factors  ... 70

6. CONCLUSION ... 72
6.1 INFLUENCING FACTORS PUTTING FORWARD TO CHANGE EXPORTING MODE  ... 73
6.2 INFLUENCING FACTORS PUTTING FORWARD NOT TO CHANGE EXPORTING MODE ... 76

7. RECOMMENDATIONS ... 79

8. FINAL REMARKS ... 80
8.1 CRITICISM TO OUR WORK  ... 80
8.2 SUGGESTIONS FOR FURTHER RESEARCH  ... 80

9. REFERENCES ... 81
9.1 ARTICLES:  ... 81
9.2 BOOKS:  ... 84
9.3 WEBSITES ... 85
9.4 INTERVIEWS  ... 86

APPENDIX 1: BOSS MEDIA AB ... 87
APPENDIX 2: SÖRMAN AB ... 89
APPENDIX 3: QUESTIONNAIRE  ... 91

Table of Figures
Figure 1: Steps in the Uppsala-model; own creation, p.10
Figure 2: Degree of internationalisation f the firm & network, Hertz & Mattson, 1994, p.12
Figure 3: Factors influencing the change of export channel according to Rameseshan & Patton, 1994; own creation, p.24
Figure 4: Compiling model about influencing factors putting forward to change or not to change export mode; own creation, p.27
Figure 5: Empirical Matrix; influencing factors putting forward to change or not to change exporting mode; own creation, p.54
Figure 6: Application of the Network-model from our seven case-companies; own creation, p.64
Figure 7: Analytical Matrix; influencing factors putting forward to change and not to change exporting mode, own creation, p.62
Figure 8: Analytical Matrix; influencing factors putting forward NOT to change exporting mode, own creation, p.66
Figure 9: Influencing factors putting forward to change exporting mode; own creation, p.75
Figure 10: Influencing factors putting forward NOT to change exporting mode; own creation, p.77

1. Introduction

In this chapter, we will first describe the background of our chosen problem area and why we have decided to have a closer look into this topic. Further on, this will be followed by the problem discussion that defines the base of the thesis. This chapter will end with the problem formulation, purpose, limitations, theoretical and practical relevance of our thesis.

1.1 Background

Almost four decades ago, Sune Carlson a famous researcher within the area of firm internationalisation, stated that firms intending to go abroad especially suffer from lack of knowledge about how to conduct a business in a foreign market. In 1966, Carlson argued that besides foreign risk, the desire to keep control over foreign operations of a firm need to be included in a firm’s internationalisation model. Such an internationalisation model of a firm is mainly characterised by an incremental decision-making process in order to build up knowledge of how to conduct business in different foreign markets and to keep control over a firm’s foreign ventures. By gathering information in one phase of foreign investment the information are applied to take further steps in the next phase of foreign investment in order to handle the risk problem (Forsgren, 2002). Carlson’s rationale was the stimulus for Johanson & Vahlne to develop a model which also incorporates the essence of knowledge acquisition. This model is familiarly known as the Uppsala model.

The Uppsala model was developed by among others Johanson & Wiedersheim-Paul and Johanson & Vahlne at Uppsala University in the mid-1970s. The model describes the different steps of a firm’s internationalisation. By examining the internationalisation of Swedish manufacturing firms, they developed a model of the firm’s market selection and entry modes used when they went abroad (Johanson & Wiedersheim-Paul, 1975; Johanson & Vahlne, 1977 in Nordström, 1991).

Moreover, Johanson & Vahlne state that firms develop their international-activities over time based on the firm’s knowledge development. The experiential knowledge is considered to be essential. Experiential knowledge embraces knowledge which can be gained through personal experience in contrast to objective knowledge which can be taught (Whitelock, 2002). Further internationalisation depends on the level of experiential knowledge in firms knowledge bases. Next, gradual steps of the firms’ international involvement are facilitated through learning from experiences made in foreign markets. Development of knowledge is explained by the concept of psychic distance. According to Johanson & Vahlne psychic distance describes why firms expand first into markets which are psychically close and expand later into more distant markets after their knowledge has developed (Johanson & Vahlne, 1977). The concept of psychic distance is a key aspect within their interpretation why and how firms go abroad. Therefore the definition of psychic distance covers “factors preventing or disturbing the flow of information between the firm and target nations, including linguistic, institutional, cultural and political factors” (Clark & Pugh, 2001, p.286).

The concept of psychic distance is situated in the core of one of two main aspects within the Uppsala model. In terms of psychic distance the expansion of firms across national markets is explained, whereas the step-by-step pattern of institutional development within a particular market is the core of the second aspect, which is explained and predicted by the Uppsala model. With regard to the Uppsala model, the step-by-step pattern of institutional development describes the so-called establishment chain of an internationalising firm. Foreign investments start in just one or in a few neighbouring countries and the investments are carried out sequentially, cautiously and concurrently with the learning of the firm’s employees acting in that foreign markets (Forsgren, 2002). Beginning with exporting, finally establishing a production facility, meaning that the firms’ institutional-process of foreign involvement is covered by this term (Clark & Pugh, 2001). The Uppsala model is built up on three important assumptions and four core concepts to explain the internationalisation process of a firm. 

More recently in 1990 another variable, the relationships to other bodies as customers, suppliers, competitors in the foreign market, was added by the Johanson & Vahlne as an influential feature (Whitelock, 2002). As this supplement shows, developments in research and developments within the general internationalisation processes demand re-considerations of underlying implications of the Uppsala model.

Applications of organisational learning allow the firm to be guided through the “establishment chain” of export through independent intermediary, export through sales subsidiary and finally manufacture within the market (Whitelock, 2002). Different entry modes for business development exist to target markets in which to expand. Besides Joint Ventures and full ownership often the previous mentioned modes of export are named. The second step within the establishment chain of the Uppsala model, namely export through independent intermediaries, is also known as “indirect export” when firms participate in international business through an intermediary and do not deal with foreign customers or firms (Czinkota et. al., 1994). Therefore, Albaum states that “indirect export occurs when the exporting manufacturer uses independent organizations located in the producer’s country” (Albaum, 2002, p. 275). The following step within the Uppsala model, namely export through sales subsidiary, can be summarised under the term of “direct export” which means that the enterprise works with foreign customers or markets. According to Albaum, “direct exporting occurs when a manufacturer or exporter sells directly to an importer or buyer located in a foreign market area” (Albaum, 2002, p. 292).

As the implications of the Uppsala model show, the development from indirect exporting to direct exporting demands mainly the acquisition of knowledge, i.e. learning (Forsgren, 2002). However, during the last decades the shape of organisations changed and findings of collective learning within organisations offer new valuable contributions to explain the path of a firm through the typical establishment chain or a changed version of the establishment chain nowadays. One influencing factor for companies to change its export mode is Collective Learning. Firms gather information about the foreign market in order to apply it for their knowledge development. Collective learning takes place and enables firms to develop in foreign markets. Due to latest developments in terms of researches in the field of collective learning and simultaneously the adaptation in the Uppsala model, new paths for internationalising companies are possible.

However, the internationalisation of Small and Medium-sized Enterprises (SME) business has moved to more crucial importance for the success of SMEs. Developer of the Uppsala model strived to explain and predict internationalisation processes especially of Nordic firms in the 1970s. Changes of competitive situations in international business environments have taken place after the creation of the model. Promising opportunities like non-tariff barriers within the EU as well as possible obstacles like not participating at the fiscal unification (€) in Europe mean changed internationalisation prerequisites for Swedish SMEs since the mid 1970s.

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