UPPSALA UNIVERSITY Department of Business Studies Bachelor thesis
Tutor: Rian Drogendijk 2008-01-07
Born Globals
-Underlying Factors to Rapid Internationalization
Peter Bingman Jesper Cederäng
Abstract
The process of internationalization of firms has in the past been seen as something that is costly and time-consuming. For those reasons, companies took long before they started expanding internationally, growing strong in domestic markets first. However, now there are companies being started, that right from the outset start producing and selling on international markets. Companies that behave this way are a rather new phenomenon and are known as Born Globals.
The purpose of our thesis was to increase the understanding of factors that are important for explaining Born Globals rapid internationalization, and also how these factors have affected the process.
Most of the research done on Born Globals has been of high-tech companies. However, the phenomenon is not limited to them. Therefore we researched one high-tech company and one low-tech to see if there are similarities in the driving forces behind their rapid internationalization.
Four factors have been addressed repeatedly when trying to explain Born Global’s behavior: Globalization, Industry, Entrepreneur and Networks. These factors were used as a theoretical framework for our thesis. However, our findings point out that to gain a deeper understanding, the interdependent relationship between the variables should also be taken into consideration.
After gathering empirical data through interviews with key people in each company, our findings point out that access to complimentary resources and a possibility to control them efficiently was important in explaining both companies rapid internationalization.
By focusing on the core competencies of the company and outsourcing other value- adding functions, companies are able to internationalize rapidly even with scarce resources. Access to resources through networks, as well as entrepreneurial ambition helped speed up this process.
Keywords: Born Globals, Rapid Internationalization,
1. INTRODUCTION ... 4
1.1 Growing Importance of SMEs in International Business ... 4
1.2 SMEs Rapid Internationalization... 5
1.3 Purpose of Our Thesis... 5
2. Theory ... 6
2.1 The Traditional Internationalization Theory... 6
2.1.1 The Uppsala Model... 6
2.1.2 Innovation Related Model... 7
2.1.3 The Eclectic Paradigm ... 7
2.2 Born Globals Theoretical Framework ... 8
2.2.1 Defining the Born Global... 8
2.2.2 The Conceptual Framework... 9
2.2.3 Globalization... 10
2.2.4 Industry ... 11
2.2.5 Entrepreneurs ... 11
2.2.6 Networks ... 12
3. METHOD ... 14
3.1 Choice of Method ... 14
3.2 Case Selection and Choice of Respondents ... 14
3.3 Interview Method... 15
3.4 Data Criticism ... 17
3.4.1 Primary Data ... 17
3.4.2 Secondary Data ... 17
4. EMPIRICAL DATA... 18
4.1 Odd Molly... 18
4.1.1 Globalization... 18
4.1.2 Industry ... 19
4.1.3 Entrepreneur... 19
4.1.4 Networks ... 20
4.2 CTEK ... 21
4.2.1 Globalization... 21
4.2.2 Industry ... 22
4.2.3 Entrepreneur... 23
4.2.4 Networks ... 24
5. Discussion ... 26
5.1 Globalization... 26
5.2 Industry ... 27
5.3 Entrepreneur... 28
5.4 Networks ... 30
6. Conclusions... 32
7. References... 34
7.1 Printed sources ... 34
7.2 Electronical Sources... 35
7.3 Oral Sources... 36
1. INTRODUCTION
In this chapter we will start by presenting the topic to the reader and why we think it is an interesting topic to research. We will continue with narrowing our focus, as well as provide a background to the phenomenon of “Born Globals”. We will conclude the chapter with our purpose.
1.1 Growing Importance of SMEs in International Business
According to Hill (2007) National barriers for cross-border trade and investments are on the decline and companies can no longer afford to not exploit the possibilities of doing business internationally. The development of new technologies, such as the Internet and new cheaper means of transportation for both goods and people are decreasing the distance between markets (Rennie, 1993; Oviatt & McDougall, 1994; Hill, 2007).
National borders are becoming less and less important in commerce and are to some extent being minimized through the creation of organizations like the World Trade Organization (WTO) and the European Union. A result of these efforts has been the free- trade treaty named the General Agreement on Tariffs and Trade (GATT) which has 148 members worldwide (Hill 2007). These agreements are removing hurdles, making it easier for companies to internationalize, for example through export and performing foreign direct investment. According to the former Swedish ministry of trade, Sten Tolgfors “the foreign trade forms the foundation for the Swedish welfare” (Tolgfors 2007). In 2006 the export accounted for more than 50% of the Swedish Gross Domestic Product (Cabinet Office 2007).
Historically, Swedish Small and Medium size Enterprises (SMEs) have been of little significance to the value of the GDP. This has been especially true for the small enterprises, but this is changing. Between 2002 and 2006 the small* enterprises have grown their exports by more than ten percent annually, making them the fastest growing category of Swedish exporting companies. (Swedish Trade Council 2007)
* Between 10-49 employees, according to the Statistics Sweden (SCB)
Due to the growing importance of small companies and their subsequent increasing importance for the Swedish economy as a whole, it is becoming an area of increased interest for research.
1.2 SMEs Rapid Internationalization
Research on organizations has, until quite recently, focused on three different types of organisations: young domestic companies, old domestic companies or large, mature international firms (Oviatt & McDougall 1994). However, a relatively new strand of research has been of young international companies (Autio et al 2002, McDougall &
Oviatt 1995). The findings of these studies have showed that organizations can internationalize quickly after their inception (Autio et al 2002; McDougall & Oviatt 1995; Wictor & Anderson 2003). Firms that internationalized in this manner were
referred to as Born Globals (Rennie 1993).The Behavior of these Born Globals, could not be fully explained using the early internationalization models, which argued that the process of internationalization was slow and incremental (Oviatt & McDougall 1994).
1.3 Purpose of Our Thesis
Much of the literature on the topic of Born Globals has been based on research of firms in high technology industries (Autio et al 2002; Sharma & Blomstermo 2003). The
phenomenon is however, not limited to high tech firms (Madsen & Servais 1997; Rennie 1993). We are interested in researching if there are similarities in the driving forces behind rapid internationalization, even though the levels of technology are different.
The purpose of our thesis is to increase the understanding of the factors that drive rapid internationalization and how these factors affect the process.
To achieve our purpose we performed two case studies: One study of a high-technology firm, and one of a low-technology firm. By studying two companies with different levels of technology we hope to gain a deeper understanding of the underlying factors to rapid internationalization regardless of the level of technology.
2. Theory
Here we will begin with presenting the traditional internationalization theories. Secondly we will provide theories that have tried to explain Born Globals rapid
internationalization. Thirdly we will present the theoretical framework that will be used to analyze our empirical data.
2.1 The Traditional Internationalization Theory
2.1.1 The Uppsala Model
One of the first largely recognized theories to explain the internationalization behavior of firms was put forth by Johanson & Vahlne in 1977. Their model focused on knowledge of the foreign market as the key barrier to quick internationalization. When knowledge is increased, the risks and opportunities in that market are more easily observed. Increased knowledge in turn increased the commitment in the foreign market and their study concluded that companies internationalized incrementally and slow because of this lack of knowledge. (Johanson & Vahlne 1977)
Their empirical research was based on four large Swedish industrial firms and their findings were that these companies had internationalized incrementally, going from no regular export activity –selling via agent- sales subsidiary- production subsidiary.
Based on these findings, Johanson and Vahlne created a model which explained this process. The model did not explicitly deal with the individual decision maker and in the model it was also assumed that companies are risk-averse and strive for long-term profit.
A second observation made by Johanson and Vahlne (1977) was that firms in their study started their internationalization in countries that were similar in language, business practice and culture. This notion was first observed by Johanson and Wiedersheim-Paul in 1975 and was called psychic distance.
2.1.2 Innovation Related Model
The Innovation Related model, designed by Bilkey and Tesar in 1977, studied the export development of manufacturing SMEs in Wisconsin, USA. Although this study was conducted of small and medium sized companies, their findings were similar to those by Johansson & Vahlne (1977) in the sense that it found that the internationalization was a slow and incremental process. Furthermore, these SMEs also seemed follow a trend of exporting first to markets that were close in regards to psychic distance. The proponents of this model view the internationalization process of a company as an innovative course, where the company has to adapt to new ways of doing business. The internationalization process might begin with filling an unsolicited order from a foreign company and ending in a state where the company is an experienced exporter looking for new export markets.
(Bilkey & Tesar 1977)
2.1.3 The Eclectic Paradigm
In 1980 Dunning conducted an empirical study to find which competitive advantages certain companies had, aiming to explain under which circumstances companies chose to perform Foreign Direct Investment (FDI). His model was called the Eclectic paradigm, or OLI theory. Dunning focused on three variables, which collectively helped explain a company’s choice to produce internationally. This model has later been adapted to include not only production, but all international value-adding MNE activity (dunning 2000). The variables he used to explain this phenomenon were Ownership, Location, and Internalization advantages. (Dunning 1980)
Ownership advantages are those resources that a company can make use of exclusively, such as patents, brand names and trademarks. Location advantages means that a company combines it’s mobile resources (e.g. knowledge, raw material) in one country with more immobile resource (e. g. a market) in another and does so better than when combining them in one location.
Thirdly, internalization advantages focus on market imperfections such as transaction costs to explain why companies choose to internalize* a value-adding function, rather than for example lease the technology to another company. (Dunning 1980, 2000)
In the next section we will present the framework chosen as a basis for our thesis. It will to some extent show why the presented theories above have a reduced explanatory value in understanding the rapid internationalization of Born Globals.
2.2 Born Globals Theoretical Framework
2.2.1 Defining the Born Global
SMEs that internationalize right away from their inception has been referred to as;
“Global start-ups” (Jolly et., Al 1992) “Born Globals” (Rennie 1993), International New Ventures (Oviatt & McDougall 1994) and instant internationals” (McAuley 1999). To simplify for the reader we have chose to use the term Born Globals exclusively
throughout our thesis.
Factors deciding if a company can be labeled a Born Global have been concerned with how quickly the organization internationalizes and to which degree. Rennie (1993) argues that a born global starts exporting within 2 years of inception, and has 75% of sales outside of its domestic market. Oviatt and McDougall (1994) are not concerned with the revenue derived from foreign trade but instead argue that a Born Global is “a business organization that, from inception, seeks to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries” (Oviatt & McDougall 1994 p. 49). A third definition offered by two Swedish authors, is somewhat of a combination of the two discussed. For a company to be considered as a born global it should have at least 25% of its revenues from other countries within three years of its foundation and similarly to Oviatt & McDougall (1994) it should use resources from, and sell output to multiple markets (Andersson & Wictor 2003). These authors claim that this definition is best suited for a Swedish business context. This is due to the fact that
companies should not be seen as a Born Global, solely on the basis of supplying one large domestic customer’s different international plants. As our thesis will be based on Swedish companies we have decided to use this definition.
2.2.2 The Conceptual Framework
Recent empirical studies have shown that not all companies internationalize in the manner described by the traditional internationalization models (McDougall et al 1994;
Rennie 1993). Many researchers have tried to pin-point the factors behind this phenomenon. Several factors concerning globalization have been discussed, such as:
development of process technology, advances in communications technology and an increasing role of niche markets (Cavusgil 1996; Hill 2007, Oviatt & McDougall 1994).
Other variables that researchers argue have relevance when researching Born Globals are networks (Sharma & Blomstermo 2003) and the role and capabilities of the
founder/entrepreneur (Oviatt & McDougall 1994; Madsen & Servais 1997). A fourth factor is the industry in which the company operates (Madsen & Servais 1997)
The theoretical framework in the research of Born Globals lacks uniformity between the researchers (Rialp et al 2005). As discussed in the previous section, there are even differences in how a Born Global is defined. However, Andersson & Wictor (2003) has proposed a theoretical framework (see fig 1 below) that seems to encompass the most frequently discussed factors in the field according to our literature review. This framework will form the basis for our research.
Industry Entrepreneurs
Globalization
Networks Born
Global
Figure 1: Conceptual Framework, Source: Andersson & Wictor (2003)
2.2.3 Globalization
Developments in fields such as communication, transportation technology and IT- systems are facilitating the growth of the phenomenon Born Globals (Oviatt &
McDougall 1994; Knight & Cavusgil 1996; Hill 2007). Development of these
technologies as well as the reduction in costs related to them allow for smaller companies to be able to compete internationally (Rennie 1993). It has also decreased the transaction costs associated with doing business internationally (Oviatt & McDougall 1994).
Hill (2007) mentions the decreasing tariffs in cross-border trade as a driver of
globalization. Today, all members of the European Union enjoy free movement of labor, capital, goods and services. A recent and more worldwide trade agreement is the GATT from 1994. These agreements allow companies to produce in optimal locations and compete internationally, without the barriers of tariffs and quotas (Hill 2007).
Globalization has also created an increasing homogenization of the markets around the world which further enhance the possibility for companies to go abroad (Oviatt &
McDougall 1994; Hill 2007). Madsen and Servais (1997) argue that increased mobility and education across borders further promote homogenization of markets.
2.2.4 Industry
A major part of the literature in this field of Born Globals has been about firms in high- tech industries (Rialp et al 2005) and this factor has been high-lighted as an important factor in the emergence of this phenomenon (Oviatt & McDougall 1994, Autio et al 2002). Findings of Born Globals in other industries than high-tech have also been emphasized by some researchers (Rennie 1993, McAuley 1999).
McAuley (1999) found in his study, that low-tech companies which were successful Born Globals were highly specialized and more niches-oriented. Anderson & Wictor (2003) argue that growth rate in the industry might help explain Born Globals. Other factors of relevance when researching the industry aspect are the degree of market
internationalization (Madsen & Servais 1997) and an unattractive home-market (Madsen
& Servais 1997; Moen 2001). By market internationalization, Madsen and Servais (1997) mean industries where cross-national networks are commonly used to gain access to complementary resources. These networks act as a facilitating factor for the emergence of Born Globals (Madsen & Servais 1997). Complementary resources could be in any of the value adding functions to the product e.g. production, R & D, distribution etc (ibid). The ties between complimentary resources are further discussed under the heading Network.
Unattractive home market is in some cases an important driver for a firm to
internationalize from inception or early after. This could be due to the fact that the home market demand simply is too small to cover high fixed costs. (Madsen & Servais 1997)
2.2.5 Entrepreneurs
One of the criticism’s of the Uppsala model is that it doesn’t take into account the
individual decision maker (Andersen 1993). This might not be a problem when looking at a large corporation where the individual is less important. However, when researching a small company, the individual’s experience and decisions are important (Madsen &
Servais 1997).
Several studies on Born Globals have pointed out this variable as being important for the rapid internationalization (Anderson & Wictor 2003; Madsen & Servais 1997; Oviatt &
McDougall 1994).
When looking at the entrepreneurs’ role it has been argued that consideration should be taken of pre-existing factors, such as previous international experience, internationally oriented jobs, education and networks (Madsen & Servais 1997; Oviatt & McDougall 1994). Experience gained in prior positions can help reduce the perception of market uncertainty, and thereby increase the speed at which a company becomes international.
Furthermore they advocate that the background of the decision maker has a large
influence on the internationalization path followed as it reduces the psychic distance to a particular foreign market which they have gained some prior knowledge about.
The entrepreneurs’ ambition and motivational level (Andersson & Wictor 2003) and their global vision (McDougall and Oviatt 1995) should also be taken in consideration when researching Born Globals.
2.2.6 Networks
Earlier studies of internationalization have focused on large, mature companies (Oviatt &
McDougall 1994). These companies differ from Born Globals, which are often relatively small (Rialp et al 2005). Furthermore they often “lack sufficient resources to control many assets through ownership” (Oviatt & McDougall 1994, p.54). Due to these limitations companies have to rely on supplementary skills from other actors, regarding for example financing or outsourcing of production (Oviatt McDougall 1994). These relations create networks between the actors involved, and give access to information about markets and clients and consequently are a part of explaining Born Globals’
internationalization processes (Sharma & Blomstermo 2003). The notion that networks should be considered are also supported by Rialp et al (2005) who argue that personal and business networks helps understanding Born Globals rapid internationalization.
Previous research e.g. (Dunning 1980) argued that a company would internalize all value- adding functions that would otherwise be more costly to control. However, a Born Global typically does not have adequate resources to internalize all functions (Oviatt &
McDougall 1994). Rather, they have to rely on other modes of controlling assets other than internalizing them. This is referred to as an alternative governance structure. This can, according to Rennie (1993) be achieved due to advances in communications technology and mean that the information flow is no longer as slow and costly, and makes that even small firms have the capability to communicate efficiently. Since information is more readily available and transaction costs are lowered the need for internalization is greatly reduced.
The ties within networks have been categorized in different forms. Johanson and Mattson (1988) talks about industrial ties and view these ties between independent firms as an important factor in explaining Born Globals internationalization. These relationships take time to establish, and make the firms dependent of each other. These networks can be categorized in three different ways.
• In networks that are new to the firm
• Through development of relationships that are known by the company
• By using existing network as bridges into other networks
Sharma and Blomstermo (2003) are distinguishing between weak or strong ties. A tie is defined as being strong when the amount of time, emotional attachment and intensity is high. These ties are further strengthened if the companies are mutually dependent.
Inversely, if these are reversed, the ties will be viewed as weak. A strong tie is costly to maintain, and implies a close cooperation between the firms. These close ties make the companies’ knowledge base similar, and the companies are less prone to discovering new knowledge.
These authors stress that companies are in a better position if they are in many
relationships with weak ties. Multiple weak ties will allow for the company to access new information and knowledge and allow for it to act with greater autonomy.
Weak ties can furthermore act as a bridge, to gain access to new relationships. (Sharma &
Blomstermo 2003)
3. METHOD
3.1 Choice of Method
The goal of our thesis is to reach a deeper understanding of underlying factors to explain a phenomenon. According to Holme and Solvang (1996) and Andersen (1998) a
qualitative study is more in line with reaching this type of purpose and therefore we have chosen this method. A quantitative study might be able to answer which factors are important, but not the reasons behind their importance (Jacobsen 2002).
One of the advantages of doing a qualitative study is that it provides a high internal legitimacy. This means that our findings should be accurate in its context. However, we will not be able to generalize our findings and say that the factors that we have uncovered are generally applicable (Jacobsen 2002).
To collect data we decided to perform personal interviews with key people in each
company. This is merited due to the fact that multiple researchers on the subject stress the importance of the key decision makers in explaining Born Globals’ behavior.
3.2 Case Selection and Choice of Respondents
After we had decided that we were going to study one high-tech and one low-tech company we started researching for firms that were comparable and that fell under our chosen definition of what a Born Global is (see 1.3 for definition). We had a personal connection to one of the companies, CTEK Sweden AB (CTEK). The second company Odd Molly international AB (Odd molly) was chosen due to the fact that a lot had been written about it in the press and after research was found to have similar revenue, age and was present on a similar number of international markets.
CTEK is a company that designs battery chargers and has reached large market shares in Europe only a couple of years after its inception.
The company’s technology is protected by multiple patents, and is the market leader for battery chargers in Europe, currently present in a little over 40 countries. This company will be representative for high-tech Born Globals.
The second company is Odd Molly, which was founded in 2002. Odd Molly is a Stockholm based company that designs and sells fashion in the upper-middle price segment for women. The company has received design awards as well as for its
marketing campaign (Odd Molly 2007). Odd Molly’s products can be found in more than 1400 stores in 35 countries (ibid). The company has its clothes hand -sewn and will therefore represent our low-tech Born Global.
The theoretical framework of Born Globals suggests that the founder/entrepreneur could have a large impact of the internationalization process. Therefore we wanted to interview people in key positions of the company. Either founders or management with extensive knowledge of their respective companies were approached. At Odd Molly we conducted an interview with one of the founders Per Holknekt. At CTEK, we interviewed Börje Maleus, the president of the company. This was not an ideal situation. However the person we interviewed is a long-time personal friend of the founder, dating back to their studies at the Royal Institute of Technology in Stockholm. Based on the information he was able to provide, as well as being part of the company for a considerable time period, we believe that he has very good insight into the company and the conditions that existed prior to the creation of the company.
3.3 Interview Method
Two main interviews were conducted. During both of these we used a tape recorder to ensure that nothing important was overlooked or missed and to ensure that the
When we found gaps in the empirical data gathered, we contacted the interviewees again for additional data. The main interviews were performed in a semi-structured manner.
We did this to avoid steering the interviewee’s responses, but at the same making sure that crucial data was collected and manageable (Jacobsen 2002). We composed a check- list of issues that we wanted addressed, but tried to let the respondent speak freely and just used the check-list if necessary to guide the interview. The interviews were conducted in Swedish to simplify for the respondents. All quotes have been freely translated by the authors. The questions can be found in its original form in Appendix 1.
The respondents knew that the topic was going to be rapid internationalization, but were not given the questions beforehand. During the interviews, we tried to not use the terms of the variables explicitly. Rather we tried to ask questions that indirectly could answer our questions. Instead of asking how globalization had affected them, we instead asked if they believed that advances in technology had affected their rate of internationalization.
After the interviews were conducted, the interviews were transcribed. Thereafter we sorted the empirical data under the four variables of our theoretical framework. This was used during the empirical section and again during the discussion.
Although we had studied the different theories of internationalization prior to our interviews, we were not focused on any one specific factor. Rather, we were more
interested in hearing which factors the respondents emphasized as key in explaining their rapid internationalization. This method has been used earlier when researching Born Globals to promote a deeper understanding of underlying factors e.g. Crick and Jones (2000) and Andersson and Wictor (2003).
3.4 Data Criticism
3.4.1 Primary Data
To validate our primary data we sent the respondents a copy of the data collected during the interview, to further ensure that we were not misinterpreting their input to this thesis.
Although there are no guarantees, we believe that the primary data we have collected is accurate. We are researching companies that are active in very different business areas and are in no way competitors. This should make the respondents more willing to provide us with truthful empirical data. The information that we are trying to obtain is probably not very sensitive for the two companies. We are not analyzing strategies from our respondents, rather how their actions in the past can explain their rapid
internationalization. Another factor that we believe to be in our favor is that we are researching companies that have been successful. This makes it more likely that they will provide us with accurate empirical input. For these reasons we believe that the
information provided by our respondents is correct.
3.4.2 Secondary Data
As for the secondary data we believe it to be relevant pertaining to our thesis. Although some of the theories used concerning Born Globals date back more than ten years e.g.
Rennie (1993) Oviatt and McDougall (1994) subsequent authors on the topic have almost all referred to these studies and that is why we have chosen included them in our thesis.
Furthermore, the amount of data and empirical studies available is limited as the field of Born Globals is relatively new.
4. EMPIRICAL DATA
Here we will present our empirical data obtained. Empirical data will mainly be from the two respondents. When other empirical data than the two interview is presented we will cite the source. The findings will be analyzed in the following section.
4.1 Odd Molly
4.1.1 Globalization
According to Per Holknekt, founder and brand director of Odd Molly, advances in the area of information technology has been a facilitating factor for their rapid
internationalization. The Internet, for example, has been helpful for the marketing of the company; “We have an international shop-front open 24-hours a day; the Internet”. The possibility to access credit information about potential partners around the world was another explicit way that the company had benefited from advances in information technology. Holknekt said that this allowed them to lower their risk when doing business internationally. He continued by saying that an IT-system that had been recently
implemented further helped reduce uncertainty about demand in the different markets. By being able to access sales statistics for their different markets, production can be adjusted accordingly, which helped reduce the risk in foreign markets.
Odd Molly uses agents in countries which they deem as safe, i.e. where they can access credit information about its potential clients. In countries where the risk is seen as higher, because of the difficulty of accessing information, Odd Molly chooses to work with distributors. This is done to minimize the business risk, as the distributor then stands the risk.
Odd Molly products can be purchased in over 40 countries, and the company has a subsidiary in the United States. Still, 75% of the company’s revenues are still derived from the European market. “This is a comfortable transaction, both logistically and monetary”.
4.1.2 Industry
According to the statistics company Euromonitor (2005), the clothing industry is a growing market. The forecast for the period 2005-2009 is that the global market for clothing will grow on average 5, 9 % annually (inflation disregarded).(Euromonitor 2005). The growth for Odd Molly, however, has been larger than this. During the first nine months of 2007 Odd molly’s revenue grew by 137 % to 107 million SEK and orders placed for the 2008 season shows a growth of 158 %. (Avanza 2007)
Odd molly does not view itself as a company that it is competing with the others in the latest trends. “We don’t want to make black pants like everybody else, rather contribute to fashion”. To achieve this, Odd Molly’s business idea is delivering a product that is of good quality, but backed up with “core values that are shared by all women, regardless of culture religion and nationality”. The target group has become women, aged 20-45 with a price tag that is “within reach”, which was described as being more expensive than Filippa K, but cheaper than haute couture. The products can be found in exclusive warehouses like NK in Stockholm and Galerie Lafayette in Paris (Odd Molly 2007).
These factors put together have combined a unique niche for the company. Analyst firm Avanza, argue that Odd Molly’s price tag puts them in the luxury segment for clothing (Avanza 2007).
The market for fashion is highly international, and there are many international fairs. The largest and most renowned shows are held in France and Italy, and this is where one can find the largest purchasing firms. These firms attend the large fairs, but they also like to attend smaller fairs. One example of a smaller international fair is the one held in Copenhagen, which is seen as the Nordic fashion hub to the rest of Europe.
4.1.3 Entrepreneur
Odd Molly was founded in 2002 by Per Holknekt and Karin Jimfelt-Ghatan. They came from different backgrounds. Per has a degree in marketing and an extensive experience in
In the past he has worked as a distributor, owned retail stores, worked as a marketer as well as a designer. “I have worked both sides of the counter, and it has been a great advantage” (Holknekt). Besides working in fashion, and a quick stop in advertising, he has also lived in the US, where he made his living as a professional skateboarder. Karin has studied design in both Sweden and England, and has worked with design for over 20 years. She has worked for companies such as Bondelid and Peak Performance (Odd Molly 2007).
When they decided to start the company, they had an idea for a brand and a design, but not the capital. Therefore they tried to attract investors, with the deal that they would work for free for one year. In exchange the investor would put in an amount of capital equal to that workload.
As the marketing budget was tight (8000 SEK) to launch the company, Per and Karin handwrote roughly 500 postcards to presumptive retailers, both Swedish and
international. The campaign won an award for best direct marketing campaign in Sweden. “You have to be creative when your resources are slim” (Posten 2007 s. 1).
Per’s comment to why they also tried to reach international customers was that “we think in a borderless way” and “we are not Swedish, we are a brand” (Holknekt).
Also from a production point of view they realized that they had to go international to find appropriate partners to be competitive.
For the American market, Odd Molly has chosen to open a subsidiary. Per said that they could use a distributor, but the growth potential of the American market, as well as their knowledge of the market made Odd Molly want to pursue this market on their own.
Lastly, Per felt that the business mentality in the US was similar to theirs.
4.1.4 Networks
As mentioned under the heading entrepreneurs, Per and Karin had an idea and a design but no capital.
After several attempts, they finally found an investor who was willing to invest the capital, through a friend of Karin. “It is a lot easier to get them (investors) to the table through social networks, where there are emotional ties“(Holknekt). Besides the financial aspect the investor also had supplementary skills concerning the legal aspects of starting a business.
After her years in design at previous companies, Karin had contacts with several garment production companies in other countries with lower costs. This was very important for getting their foot in the door, especially when Odd Molly initially wanted to produce rather small quantities.
The value-adding functions that are in the company are design of the products and the marketing. Production is outsourced to places like Portugal, Morocco and Hong-Kong.
“We are trying to work with productions partners that have both depth (volume) and width (able to produce with different techniques), so that we don’t have to change manufacturers”.
Through international fairs, they were able to make contact with agents and distributor in other countries. Odd Molly has 16 agents and three distributors, and to remain connected with these partners, Odd Molly travels two times a year to visit key partners and discuss strategy.
4.2 CTEK
4.2.1 Globalization
CTEK has its products manufactured in China. To be able to monitor their production partner CTEK performs a videoconference in English with its production partners in China on a weekly basis. Besides the digital communication CTEK engineers travel to the production plant on a regular basis, both when problems occur, and when CTEK are introducing new products. The production partner is quality certified according to ISO
To stay on top of the company there is a lot of traveling. Bengt Wahlquist, the founder and CEO travels to the production plant in China 4 times a year, and Börje Maleus, the president, estimated that the company’s sales staff travel in excess of 500 days per year total. Sometimes, he has day trips, to for example England or Germany to meet with current or potential customers. The European market is the most important for the company with more than 85 % of the revenues.
For the American market, CTEK decided that it had to start a subsidiary. This was a step away from its regular strategy, where the company relies on distributors and agents for its’ different markets. The main reasons for doing this was that it was a fast growing market and the size made it interesting for CTEK to enter. There were however other reason, such as difficulty of employing American personnel from a Swedish company, as well as the need for local warehousing of the products. This subsidiary is handled through telephone conference as well as extensive travels.
4.2.2 Industry
“The market for batteries is growing, and more and more applications are becoming dependent on batteries” (Maleus). As an example of this he mentioned that Interstate Batteries, the world’s largest supplier of batteries in the world has increased its sales projection from 14 millions batteries in 2006 to 21 million in 2011.
The market for battery chargers can be described as being both global and local, with some actors in the marine and motorcycle industry being global. Access to multiple markets was made possible by contacts made at international fairs. (Maleus 2007)
CTEK chargers work with any 12 Volt batteries, and are thereby not limited to a certain clientele on technical grounds. With the adaptations of technology the product can be used on almost all markets. The product is technically advanced and protected by multiple patents, but that in itself wasn’t enough. According to Börje Maleus the reason for CTEKs success lied in combining the technology with a new way of looking at battery charging.
This allowed them to produce a charger that was safe, powerful and relatively cheap.
“Half the power but at a third of the cost made us very competitive”. (Maleus)
4.2.3 Entrepreneur
The founder and owner of the Company, Bengt Wahlquist, went to school with the President Börje Maleus to study engineering at the royal institute of Technology.
After graduation they started a product development company together called Creator AB, which Börje later left and Bengt continued to run and still owns. Bengt is also the founder and CEO of CTEK.
After leaving Creator, Börje worked at several positions at ABB including director of design and director of production. Prior to working for CTEK Börje Maleus worked in Denver, Colorado for two years as plant manager and vice-president for a Swedish company called Optima Batteries. “I realized that skills I had acquired during these years to sell my ideas internally, where equally effective, when selling to external customers”
(Maleus).
The ambition was even on the design stage to be an international company. “To run an international company demands global prices, and that means you have to produce in China” (Maleus 2007) When designing the product, it was intentionally designed in a way that allowed for a lot of manual labor. “Producing a product in a low-cost country, but using advanced production equipment does not create a competitive price, however, labor is cheap, and a lot of manual soldering instead of integrated circuits pushes down production costs” (Maleus). The decision to manufacture the chargers in China had already been decided, but not where. This decision was facilitated by the sister company Creator ABs prior knowledge. Creator had earlier worked on a consulting project with a Swedish company called SM Power. SM Power already had its product fabricated in China. Through this connection with SM Power, CTEK was able to have its products fabricated in the same factory that SM Power used in China.
To create interest in the brand they participated in many international fairs during the early years, and still do as a way to contact potential partners, as well as help existing customers. The first fair that they attended was in Stockholm 2002, and later that year the first international fair in Frankfurt, Germany. “We didn’t know how to ship the material for the fair, so I just loaded it up in my car and drove to Germany” (Maleus). Apart from this, Börje drove around to different magazines and did PR for the product. “I must have visited around 30 magazines and demoed the product for them. Later they did articles on our product, and the response was phenomenal!” (Maleus)
4.2.4 Networks
To commercialize the product, CTEK needed capital. This was funded in part by the sister company and in part by loans from a local bank. “A lot of trust capital had been built up with that bank during the founder’s 25 years of doing business with each other”
(Maleus)
Creator had since 1992 been working on developing technical solutions for a company called Optima Batteries. In 97 they were approached to create a battery charger for Optima Batteries. When finished, Optima didn’t want to produce the product, so Creator started a company to promote the product themselves: CTEK. From this relationship they gained access to Optima’s already international distribution channels.
In 2002, Optima no longer wanted to work as closely with CTEK. However, CTEK managed to keep some of the contacts made during this time, in for example Germany and France. In 2002 they didn’t have a large distributor network, so they had to create one. (Maleus)
This break forced CTEK to find its own distribution channels for its products. That year, they decided to attend two international fairs, one in Frankfurt and one in Munich. At the show in Frankfurt, CTEK was noticed by Porsche who approached them, but no deal was made at this point. At the same time, Mercedes was performing individual tests of all chargers on the market.
Mercedes later approached CTEK and CTEK adapted the product to their specifications and became OEM i.e. allowed Mercedes to brand their product. When Porsche
approached, it was with the term that it could be used world-wide. That meant that CTEK had to make technical adjustments for it to comply with the American standards. This market had not yet been approached, but in order to get the deal with Porsche, it had to be made. With that technical adjustment in place, they finally decided to enter the US
market also under its own brand. These internationally recognized brands have helped the company in accessing other networks, and are quite profitable for the company as well.
Another way that CTEK tried to create a network was to simply ask for help. Börje identified non-competing companies in the same industry that were strong internationally and asked for help opening doors and finding distributors. An important outcome of this search was a meeting with an export executive of a Danish company, which resulted in 10-15 good leads. This allowed for a quick international access into the motorcycle parts after-market. Another important contact was made with an Italian distributor, who in turn had daughter companies in German, France and Spain.
To gain location advantages right from the start, CTEK followed an old client of the sister company Creator who had experience with production partners in Taiwan. This tie was once again used when CTEK changed production partner to a Chinese company, where the cost for production was even lower.
This partnership has continued to grow and CTEK and the Chinese production partner have been working together for several years. CTEK now stands for roughly 25 % of the revenue for the production company. CTEK has committed to not allow anyone else to manufacture their chargers, and the production company in turn has committed to not produce chargers for another company. This long-term commitment has implications for both partners. CTEK knows that if they were to switch manufacturer, the manufacturer would probably make a copy of their product. “it is not explicit, but probable” (Maleus ).
This interdependency reduces the chance of opportunistic behavior of both parties.
5. Discussion
Here we will start each heading by analyzing our empirical data, in connection with the theories. We will conclude each heading with a discussion of the finding.
5.1 Globalization
Increased speed of information flow due to improvements in communications technology have been important factors, when looking at globalization as a facilitating factor for Odd Molly’s rapid internationalization. The ability to access information about foreign
markets and partners has allowed for the company to minimize its business risk whilst growing internationally. Declining trade barriers, such as free trade within the European Union allows for the company to comfortably make transaction, both monetary as well as logistical.
For CTEK, using different communications technologies enables the company to gain information about its different markets and also monitor its production partners. Although digital communications such as videoconferences and telephones are used widely, some business has to be conducted face-to-face. Therefore the CTEK employees travel extensively to maintain and develop new and old partnerships. By using a production company that is certified according to an international quality standard, CTEK lowers its business risk.
When we analyze the empirical data that we have gathered, and compare it to our theoretical framework, we do find some similarities between the two companies. Both are, regardless of their different industries, using the Internet and other digital technology to communicate and gain access to information from its international partners. This reduces their risk and the cost of doing international business. These factors have allowed the companies to quickly gain access to information of foreign markets and thereby facilitate their quick internationalization.
It is striking that, similarly to Odd molly, CTEK’s revenue is derived mainly from within the European Union. These companies have both internationalized rapidly, in a manner which is described by the Born Global proponents. However, both companies have done so mainly within the European Union, with more than 75 % of their business in Europe respectively. This supports the traditional internationalization theories in regards to the notion of psychic distance.
5.2 Industry
From the empirical data, we can see that Odd Molly is present on a growing market, and growing exceedingly faster than the market projections. The product is marketed towards women in their 20s to 40s. Although it is difficult to say definitively that Odd Molly is working in a niche market, the high price, award-winning design and exclusive retailing outlet point to the fact that Odd Molly is working in a niche market. The values that the brand associates with itself are values that are similar all over the world and that do not change rapidly over time, such as intimacy and love. These factors collectively point to the fact that they are working with a rather standardized product, but in a small niche market. These factors combined give the company a possibility to work in a small niche, but on a global market. Large international fairs are held in many countries, and this facilitates the creation of cross-national relationships.
CTEK is in a market where the demand is growing. Its products are not limited to a certain national market or to a niche segment within the potential market. The technology is suitable for all users of 12 volt batteries around the world. CTEKs success lies not only in the advanced technology of the product. It is the technology in combination with a radical approach to product design that has helped create the large international demand.
This point was exemplified when Mercedes Benz contacted them after having performed extensive testing of different chargers to ask them to be their exclusive supplier.
Both companies are present in growing markets, which increases the market potential for
One of the examples of how the companies have made use of the fact that they are in an international market is by attending international fairs. Through these, both companies have been able to make international contacts with distributors, who already have an infrastructure set up in their respective markets. This should increase the proliferation speed of the product, as opposed to having to grow organically in each market.
The fact that Odd Molly produces a niche product and CTEK does not, is support to the theories that argue that low- tech products are more niche-oriented, whereas high tech products are not. However standardized products are most often associated with high tech- Born Globals, but in this case we seem to have found a standardized low-tech born Globals.
5.3 Entrepreneur
Prior to starting Odd Molly, the founders of the company had long experience in the fashion industry, but from different areas. Both had international experience, either from studies abroad, working internationally or with international brands. Their view of their brand was that it was not only a Swedish brand. The way the two founders created the company, working for free, creating a cheap, but award-winning marketing campaign, have all helped in their internationalization, and the method is still used when
approaching new markets. The company did not from the very beginning have an outspoken global vision, which has been viewed as an important characteristic of the entrepreneur. However, the founders did not limit the view of the company as being restrained by national borders. The choice to start an American subsidiary was aided by Per’s market knowledge of the American market, gained from living in the US. This gives merit to the traditional theories of internationalization as well as the Born Global theories. For the former, good market knowledge allows for greater investment due to lower perceived risk. For the latter, that the entrepreneur has a large influence on the internationalization path that is followed.
Before its inception, CTEKs CEO Bengt Wahlquist had extensive knowledge of product development and the technology that was the basis for the CTEK line of products. Börje had international experience from working for a battery company in the US, prior to working for CTEK. As well as this international experience he had worked for many years for the multinational enterprise ABB. The entrepreneurs in CTEK had a global vision. This is showed by the fact that even on the design stage they had decided that they had to use foreign resources to become competitive. Early on, CTEK gained advantages from pre-existing factors. The technology that was the foundation for CTEKs product was already developed and the distribution was carried out through existing channels.
When CTEKs relationship with a prior partner ended they had to find other distribution channels. These were created in part by visiting potential distributors and attending international fairs to create demand for their product.
It is plausible that both companies’ internationalization processes have been positively affected by the characteristics of the individual decision makers. Both companies have people in key positions with international experience and actions taken by both
companies point to high levels of ambition and motivation. Both companies knew they had to produce in other countries to gain location advantages. However, CTEK started selling internationally from day one, whereas Odd Molly did not have an outspoken international vision from day one. Odd Molly did not limit itself to seeking only national partners for their products.
It is striking that both companies have chosen to start subsidiaries in the American market where both companies have key management with experience from living in the country.
This could be interpreted as having high levels of market knowledge and therefore not being perceived as being as risky according to the Uppsala Model. However, Borje Maleus from CTEK did not say outright that experience from living there had given a good knowledge of the market, or that it was a deciding factor in starting a subsidiary in the country.
5.4 Networks
A small company can not internalize all functions; therefore it has to rely on other companies to bring supplementary resources. When odd Molly was founded they had an idea and design, but no capital and no production facility. An investor was found through a social tie, and a production partner was found through a contact that Karin had made during a previous employment. The company has used both networks that were known to the company, as well as accessing networks that were new to the company. The latter was used for example when Odd Molly participated in an international Fair in Copenhagen.
Odd Molly’s ties to its production partners should be seen as strong as they try to have a long term relationships with suppliers who could adapt to changes in demand and design.
This is in line with Johanson & Mattson, who argue that networks take time to build and To sell their product they work mainly with agents to represent the brand in the different markets. These agents work with a lot of different brands, making their interdependence weaker. Hence, according to the theories presented earlier, these ties should be seen as weak. These weak ties are less costly to maintain, and thereby made it possible to reach many international markets in a limited time.
In the early stages of the internationalization process, CTEK could rely on old network connections to access supplementary resources in many different ways. The sister company Creator supplied the technology, as well as the capital. Furthermore, an earlier project between Creator and another company allowed CTEK to gain access to their production facilities. The possibility to go through Optima batteries distribution channels was enabled due to the ties between Creator and Optima. When the ties were cut with Optima, CTEK had to find other distribution channels. This was done by accessing networks that were mainly new to the firm. From these new contacts they were able to access other international networks, which the company used to further speed up the internationalization process.
Both companies seem to value the connection to their production partners, and want the partnerships to last for a long time. Through these ties the companies are becoming
dependent of each other. CTEK now stands for a considerable part of the revenue for its production partner and they have made a mutual agreement to not work with other partners. This is in line with research in network theory which argues that these relationships take time to build and make companies more dependent of each other.
CTEK works as OEM for Porsche and Mercedes amongst other prestigious brands. To be able to work with these companies, the products had to be adapted technically. This would, according to the theory, make this a strong connection. Strong connections are supposed to limit new information and be very costly. However, for CTEK it has also been quite lucrative, accounting for nearly 10 percent of the revenue. To be strongly connected to these companies has helped the company access other networks and has also been lucrative for the company.
Similarities displayed between the two companies are that both of them have few value- adding functions within their companies. However, the most value-adding functions in each company; product design and marketing were internalized.
Hence, both companies worked in hybrid structures, using partners with supplementary resources for e.g. production and distribution.
Early internationalization theories focused on internalization and argued that companies would vertically internalize functions that would otherwise be to expensive to operate.
The fact that these companies choose to not internalize all functions point to the fact that transaction costs are decreasing or are at least lower than the cost of internalizing an operation. These alternative governance structures are made possible by quicker information flows, which lower the transaction costs. This affects the rapid
internationalization in multiple ways. By only performing key-value adding functions within the company, the scarce resources in a newly founded company can be allocated in an effective way. Alternative governance structures further enables a company to gain location advantages without owning the resources. Since the company doesn’t have to perform expensive FDI to become international, the cost and risk of becoming
To access supplementary resources, they had to make use of existing networks, or gain access to new networks. Both companies attended fairs to access to new network, and old network were used to help finance the companies. In some instances domestic networks were used as bridges to international networks.
6. Conclusions
The purpose of our thesis was to gain a deeper understanding of the forces behind rapid internationalization. By researching one high technology firm and one low technology, we also wanted to see if the factors explaining their rapid internationalization were similar even though the companies displayed different levels of technology.
The factors explaining the rapid internationalization has been quite similar for both the high-tech and the low-tech company, and it is difficult to say if anyone factor have been the most contributing.
The model that we used as a theoretical framework for this thesis shows that all four variables create an environment that is needed for the emergence of Born Globals. Based on our empirical data, we believe this to be true, but we also believe that the four
variables affect each other. The observation of this interdependent relationship between the variables increases the understanding of the underlying factors that facilitate the emergence of Born Globals. For example the underlying factors for globalization such as advances in communication technology also affect the creation of international networks and this in turn affects globalization because it in the end increases the homogenization of the markets.
Some authors have argued that high levels of technology are important for becoming a Born Global. Our findings, however, point to the fact that the level of technology is not a deciding factor for how a born global internationalizes. Instead, we found that these two companies had internationalized in a similar way using distributors and agents in foreign markets. We believe that access to resources through the use of alternative governance
