GLOBAL BUSINESS MODELS

Transcription

1 DEPARTMENT OF MANAGEMENT, AARHUS UNIVERSITY GLOBAL BUSINESS MODELS The incubator model as entry mode Author: Christine Luise Lauth Student ID: cl87612 M.Sc. in International Business Advisor: Morten Rask Characters (incl. figures): JUNE 2015

2 ABSTRACT Internationalization is an ever-important issue in today s business environment and for a small economy like the Danish, it is vital for our small- and medium-sized enterprises to expand beyond the domestic market. There are a number of approaches to this, one of them being the incubator model offered by the Trade Council of Denmark. This thesis sets out to investigate further how the incubator model helps Danish companies in their internationalization process. The theoretical background has its roots in entry mode literature and research on global business models and how these two academic disciplines link together. Looking into the existing literature it becomes clear that the incubator model does not fit into already existing frameworks as it represents a very unique configuration in terms of risk, control and flexibility compared to traditional entry modes. To understand how the incubator model helps Danish companies in their internationalization process, Danish incubator companies residing at the Trade Council in Atlanta have been taken in as the real-life cases of this thesis. Initially the interviews with Danish managers in the US confirmed a lot of the benefits associated with the incubator model but digging a little deeper, and analyzing the firms current positions in the market, showed that the incubator model can only do so much. Especially in the early start-up phase the incubator can prove very helpful for a Danish company, but based on the analysis conducted in this thesis there is a great risk of facing governance issues caused by locus and modus dimensions. The thesis contributes to the existing research by suggesting a conceptual framework for how desired risk profile, choice of entry mode and business model elements link together. Furthermore, the thesis suggests that in order to fully exploit the potential of the incubator model companies need to be aware of the pitfalls associated with this entry mode to avoid ending up in a low commitment mode. To reap the benefits of the incubator model sufficient resources and support from headquarters need to be dedicated to the local market. 1 P a g e

3 TABLE OF CONTENTS Part I: Introductory Section Introduction Problem Statement Structure Understanding the Basic Concepts Philosophy of Science and Methodology Multiple Case Study Semi-Structured Interview Élite Interview Observation Study Limitations of the Study Analytical Lenses Critique of the Learning Perspective Summing Up Part I PART II: Entry Modes and Business Model A Static Approach The Learning Perspective Classic Configuration of Entry Modes Value Chain Perspective The Incubator as an Entry Mode Summing Up Part III: Business Model Innovation and Choice of Entry Mode A Transformational Approach Business Model Innovation Choice of Entry Mode Modus View Locus View P a g e

4 3.3.3 Summing Up What is the Trigger Point? Part IV: Danish Incubators Clients Trade Council of Denmark in Atlanta The Incubator Facilities in Atlanta Regus Presentation of Cases Cabinplant JBS Team Online Trade Commissioner Analysis Risk Profile and Choice of Entry Mode Content, Focus and Structure Locus, Modus and Governance What s Next Part V: Conclusion & Implications Conclusion Managerial Implications Further Research References Appendices Appendix 1: Interview Guide Incubator Clients Appendix 2: Interview Guide Trade Commissioner Appendix 3: The Virtual Office Solution Appendix 4: The Accelerator Programme P a g e

5 PART I: INTRODUCTORY SECTION The aim of Part I is to introduce the starting point of this thesis, present the problem statement and the relevant research questions as well as establish an understanding of the author s intentions with the thesis as well as scientific approach. 4 P a g e

6 PART I: INTRODUCTORY SECTION 1.1 INTRODUCTION Business models are essential to any business, well-established or new start-ups alike, as managers are forced to carefully think about their business how the different parts of the business combined make a whole, and how value is created for the customer (Magretta, 2002). Although a number of researchers have dealt with the issue of business models there is a lack of literature more specifically investigating global business models, taking into account the numerous differences that still exist between markets (Onetti et al., 2012; Rask, 2014; Zott et al., 2011). Companies that internationalize and move beyond their domestic market face the challenge of transferring their business model to a foreign market where the domestic business model may no longer be sufficient. The starting point of this thesis is the work of Rask (2014) who investigates internationalization through business model innovation. Global business model innovation is closely linked to choice of entry mode and focuses on two decisions; modus, i.e. whether to handle activities in-house or through third parties, and locus, i.e. where to locate activities (Onetti et al., 2012). Traditionally entry modes can be divided into three groups: export, contractual and hierarchical modes (Hollensen, 2012; Root, 1987). Each of these represents a configuration and trade-off between control, resource commitment and risk. There is, however, an option that does not fit perfectly in any of these categories, when deciding what entry mode to access a new market through, namely the incubator model, which will be the focus point of this thesis. Rask s (2014) research focuses on the link between internationalization and business model innovation and presents four types of global business models accounting for both the modus and locus aspects of the decision making. This thesis aims to go one step further and specifically investigate how the incubator model facilitates internationalization. What is the relevance of studying business models and entry modes in the same thesis one might ask. Business models and business model innovation are some of the areas where companies can often achieve great benefits for their overall business very cost efficiently (Zott & Amit, 2012). In today s business environment many companies have already made a great effort to look at traditional innovations and cost savings and therefore focus is now shifting to business model innovation (Zott & Amit, 2012). The other part of this thesis, entry modes, finds its legitimacy as a relevant topic in the light of globalization and companies internationalizing their activities. We already see a great amount of literature dealing with the internationalization of firms and it is therefore important to not fall in the trap of researching further just for the sake of it rather than actually contributing with new findings (Shaver, 5 P a g e

7 2013). As we do not currently see much research on the link between business models and entry modes this thesis will claim to go beyond what is already seen in existing entry mode literature. To support the theoretical foundation empirical data will be gathered through interviews with Danish companies in the US that have used the incubator model as their entry mode to the US market. It is no secret that choosing the US as a market to focus on was very much sparked by personal experience and interest. That being said, the US is an interesting market to look into for a number of reasons. First of all the US is Denmark s largest non-european trading partner with exports for 2015 estimated to DKK 45 billion (Eksportrådet, 2014). Second, the Danish government has launched their Growth via Export strategy where USA is a special focus area along with Germany and Japan (Udenrigsministeriet - Eksportrådet, 2014). Finally, the ongoing negotiations of the Transatlantic Trade and Investment Partnership (TTIP) concerning a bilateral trade agreement between the US and the EU makes the American market very relevant and current to look further into (Børsen, 2015). As majority of Danish companies are small- and medium-sized enterprises (SMEs) (European Commission, 2013), the US might seem like a big mouthful to take on and any research that contributes to the existing knowledge on market entry can therefore prove very valuable and useful in practice. 1.2 PROBLEM STATEMENT The considerations presented in the introduction have formed the basis for the following problem statement: How does using the incubator model as an entry mode facilitate the internationalization of Danish companies? In order to sufficiently investigate the problem statement, a number of research questions have been formed: How are business models and entry modes defined and conceptualized in literature in relation to internationalization? What is the link between business models and entry modes? How does the incubator model as an entry mode differ from more traditional approaches to market entry? How do Danish incubator companies in the US perceive the benefits of the incubator model? 6 P a g e

8 The three first questions will be answered through thorough research of existing literature and will result in a conceptual model of the linkages between entry modes and business models. The fourth research question will be answered using primary data from interviews carried out with representatives from Danish companies currently running their US operations from the Trade Council s incubator facilities in Atlanta. Overall the aim of the problem statement and related research questions is to provide a sound theoretical as well as practical representation of the topic. The thesis aims at contributing to the limited literature on global business models, in particular the incubator model, but also sets out to contribute with knowledge that is in fact useful for Danish companies looking to internationalize using the incubator model. 1.3 STRUCTURE This thesis consists of five parts that link together as illustrated: FIGURE 1: STRUCTURE OF THE THESIS. OWN DEVELOPMENT Part I is an introductory section that will present the problem statement and corresponding research questions but an equally important function of this part is to provide an outline for the methodological considerations behind the thesis as well as provide an introduction to the basic concepts and main research that form the basis for the theoretical parts of the thesis. Part II will provide a theoretical foundation for the main concepts, entry modes and business models. It will clarify how the concepts are linked together and also what the relevance of linking them is. Part 7 P a g e

9 II takes a static approach to the theoretical concepts. The literature in this part takes a starting point in some of the work that is considered more traditional. Part III will continue along the lines of part II, but will take a transformational approach to the theory. The central issues here are therefore business model innovation and the choice of entry mode. Part III sets out to challenge and build on the existing research within entry modes and business model. The main literary sources for this part are of more recent date to support the aim of going one step further than much of the traditional literature in the field. Part IV focuses on Danish incubator clients at the Trade Council in Atlanta. This part sets out to put the theoretical discussions of parts II and III in the context of real life and the actual internationalization of Danish companies entering the US market. An analysis will be made to investigate how the incubator model has facilitated the internationalization of the case companies. Part V will tie up the ends and discuss the findings of the prior four parts. This last part will present the findings and answer the problem statement and research questions. Part V will also present managerial implications as well as make suggestions for further research. Following this section references and appendices are found. 1.4 UNDERSTANDING THE BASIC CONCEPTS Business model is a term widely used but the understanding of the concept in this thesis is that business models explain how companies do business and how value is created and captured, or in other words how a company s value proposition is brought to their customers (Demil & Lecocq, 2010; Zott et al., 2011). In more common language this means that a business model should identify how a company s products or services are transformed into actual value. In the field of business models there is a wide range of literature, a lot of it not accounting for the issue of internationalization of companies (Onetti et al., 2012). Therefore this thesis will primarily deal with the research of authors that do in fact consider internationalization as a relevant factor in relation to business models. One of the main pieces of literature will be the work of Zott & Amit (2010) and their activity-system approach to business models. Overall their research is about how activities are to be linked together and organized, and who is to perform them the company itself internally or external partners. They work with the elements content what activities to include in a business model, structure how are the activities linked, and finally governance who performs the activities (Zott & Amit, 2010). This is an utmost relevant discussion in relation to entry modes as entry modes address the very similar 8 P a g e

10 issues and provide a recipe for how activities are to be organized and who handles what when entering a new market. Presented graphically the elements are: FIGURE 2: DESIGN ELEMENTS OF BUSINESS MODELS. ZOTT & AMIT (2010) The elements of Zott & Amit s (2010) work mentioned above are referred to as design elements. Linked to this is another set of parameters, design themes, that deal with the sources of an activity system s value creation (Zott & Amit, 2010). For this discussion concerning business models and entry modes, the design elements, i.e. content, structure and governance, are what is really interesting as this is where the building blocks of a business model can link together with elements of an entry mode. A somewhat similar line of thought related to business models is taken up by Onetti et al. (2012) who also work with a three-dimensional approach. The three dimensions they work with are locus, i.e. the location of activities, modus, i.e. relationships with other actors and the issue of where to draw organizational boundaries, and finally focus, i.e. what selected activities the firm should focus on as core activities (Onetti et al., 2012): FIGURE 3: LOCUS, MODUS AND FOCUS DIMENSIONS. ONETTI ET AL. (2012) Especially the locus and modus dimensions will be of great importance in relation to entry modes, something Rask (2014) also points out in his research, which will be presented in more detail in Part III. The choice of entry mode is closely tied up to the decisions about locus and modus i.e where are the different activities of the firm to be located (locus) and who will manage them as well as how are they to be carried out (modus) (Rask, 2014). Working with entry modes it is of course also necessary with an understanding of the term. A generic definition of the term entry mode is an institutional arrangement necessary for the entry of a company s products, technology and human capital into a foreign country/market (Hollensen, 2012, p. 9 P a g e

11 216). As with business models there are many approaches to the topic of entry modes, one of them also being an activity perspective. This is the work of Andersen (2006) who thinks of entry modes as a bundle of activities: FIGURE 4: THE INTERMEDIARY AS AN ACTIVITY BUNDLE. ANDERSEN (2006) The illustration neatly shows how the chosen entry mode is to serve as a type of mediator that will reduce the complexity of moving from one market to another. From this perspective the different entry modes are basically different bundles of activities that can be combined in various ways to achieve the smoothest market entry. Andersen s (2006) research revolves around the penetration of the internet, and how it serves as a mediator, reducing complexity in the internationalization process. A similar discussion will be carried out in this thesis where it is suggested that the incubator model as an entry mode may take on a similar role in reducing the complexity when companies decide to internationalize. This brings us to a final important concept to understand, namely the incubator model. Briefly described the export incubator is an entry mode that has been designed by the Danish Trade Council as one of their many offerings to help Danish companies enter foreign markets (Rask & Bøllingtoft, 2008). The basic setup is that companies rent office facilities, have access to assistance and local networks and are therefore able to enter a new market with a different risk/commitment profile than traditional literature on entry modes suggests (Hollensen, 2012; Root, 1987). The incubator model will be dealt with in detail in section 2.5 but the term will appear throughout the thesis and this basic understanding of it is therefore necessary. With these important terms defined and the boundaries of the literature on business models outlined, the next section will provide some insight into the methodological considerations that form the base of this thesis. As this thesis aims to take a somewhat practical real-world approach to the issues discussed 10 P a g e

12 the choices made regarding philosophy of science and methodology are to serve as a guideline to heighten the overall level of the thesis and to ensure a sound approach to the empirical data collection. 1.5 PHILOSOPHY OF SCIENCE AND METHODOLOGY An important part of this thesis is the collection and analysis of empirical data, as an essential part of answering the problem statement is to investigate real life and how the incubator model is used by Danish companies. In order to select an appropriate research method it is therefore necessary to define what paradigm the research is conducted within. The work takes a social constructivist view of the world, meaning that the world we live in is not an independent objective reality but rather a continuous creation by us through communication and interaction (Hirtle, 1996). As a researcher this also means that it is impossible to objectively observe as the researcher s interaction with the environment will also influence the social construction of reality. Focusing on an international business environment it makes particular sense to take a social constructivist approach as the belief is that different traditions, norms and cultures will play a role in how reality is created (Hirtle, 1996). Continuing along this line of thought means taking the actors view on creating knowledge. According to the actors view the object of social science is reality as a social construction and can therefore not be analyzed using the same tools as when working under the analytical or systems view (Arbnor & Bjerke, 2009). Social reality must be described and understood by the researcher. Therefore a qualitative research approach will be most appropriate as it allows the researcher to go in-depth with select cases and get a thorough understanding of their particular circumstances (Flick, 2009). Investigating a company s choice of business model and choice of entry mode to a new market can be quite sensitive topics as they are really at the core of decision making when starting up a new subsidiary or launching operations in a new market. Furthermore, different companies may have very different reasons for their choices in business model and entry mode and a qualitative study will provide the tools to understand this reasoning in depth MULTIPLE CASE STUDY Working with case studies also means making a choice about whether to do a single or a multiple case study and deciding whether single or multiple levels of analysis will sufficiently answer the problem statement and research questions (Yin, 1994). 11 P a g e

13 FIGURE 5: BASIC CASE STUDY DESIGNS. SOURCE: YIN (1994) For the purpose of this thesis a multiple-case embedded design has been selected as it is relevant to include a number of companies to increase the sample size and thereby strengthen the findings from the research. In addition to analyzing the Danish companies, the buyers of services, an analysis of the Trade Council will also be included in the case study, the suppliers of services. Multiple case studies are often considered more reliable than single case studies as they allow for replication and thereby add to the validity of the study (Yin, 1994) A case study is a very appropriate approach for this thesis as it allows for a combination of data collection methods such as interviews, secondary data and observations methods that will be introduced in the following parts (Eisenhardt, 1998) SEMI-STRUCTURED INTERVIEW To obtain the relevant data from the interviews conducted, a semi-structured interview was selected as the most optimal approach. The semi-structured interview allows the interviewer to steer the conversation and ensure that certain themes are uncovered but still provides enough freedom and flexibility for the interviewee to speak freely and impact on the content of the interview (Gillham, 2009). The semistructured interview was also selected as this allows for the same interview approach and question structure for all interviewees, which adds to the validity of the study (Gillham, 2009). The questions have been constructed openly and general enough to be used for all the interviews with Danish companies, regardless of their size, industry etc. Interviews with native Danish speakers have been carried out in Danish to make the respondents feel as comfortable as possible and thereby giving them the chance to talk and express themselves freely. All direct quotations have been approved by the interviewees to increase validity (Gillham, 2009). The interviews were recorded to ensure proper documentation. The President of North America for Team Online did not wish to have the interview recorded and a summary of the interview was therefore created shortly after the interview to make sure important details were not forgotten. This also means that in the analysis of the interview data no direct quotes are found from this interview. As a help in analyzing the interview data from the recorded interviews, everything was transcribed. Gillham 12 P a g e

14 (2009) sets forth a number of rules for transcription. Overall these rules were followed, however, with minor deviations due to the circumstances surrounding the interview. These deviations, such as not transcribing immediately after conducting the interview, are not believed to have a significant impact on the quality of the data though. The interview guide for the semi-structured interviews with incubators can be found in appendix ÉLITE INTERVIEW A slightly different interview approach was used for the interviews conducted with the Trade Commissioner of the Trade Council of Atlanta. The interview was still planned in a semi-structured frame but as this interview was carried out by virtue of the Trade Commissioner s position, the purpose of the interview was to allow him to take that expert role and partially establish the basic facts of the incubator model, partially give his professional opinion and views on the issues discussed. As a subcategory to the élite interview the expert administrator is found (Gillham, 2009). This type of interview is carried out with senior level of an administration, which must be said to be the case here. Interviewing people in a senior administrative position often means that the interviewee will have concerns in terms of policy, finance, public image etc. depending on their field (Gillham, 2009). One can only assume that this concern will be very much true in the case of this interview as well, as the Trade Commissioner is part of a bigger system, namely the Foreign Ministry, where you have to balance a dual role of on one hand having to live up to budgets and policies set forth by management in Denmark, selling the Trade Council s services to reach their goals, and on the other hand live up to the promises made to clients in the local market and act as their ambassadors. The interview guide for the élite interviews can be found in appendix OBSERVATION STUDY Part of the interest for this thesis topic was sparked during a one-year internship at the Trade Council in Atlanta where I firsthand observed and experienced the basics of the incubator model and connected with both colleagues at the Trade Council as well as the Danish incubators running their US businesses from the incubator facilities in Atlanta. A full year working in this environment of course also means acquiring a lot of knowledge, both tacit and explicit that will be used to a greater or lesser extent throughout this thesis. Although not purposively planned as a research strategy this can be classified as a participant observation study where the researcher becomes a participant in the environment and thereby gets access to both the field and relevant persons (Flick, 2009). Another element of a participant observation study is that the observation should move in a direction that is increasingly focused 13 P a g e

15 on the aspects that are relevant for the research questions (Flick, 2009). Although maybe unintentionally as a start, this has also been the case during the course of my internship in Atlanta. With the overall problem statement and corresponding research questions in mind, much attention was given to issues related to the incubator model and finally resulted in concrete interviews with the incubator companies LIMITATIONS OF THE STUDY Any scientific approach will have its strong suits and weaknesses and the same of course also goes for a qualitative study. The main challenge for qualitative studies is their generalisability as sample sizes are often small and findings are much more context sensitive than is the case with quantitative research (Flick, 2009). In relation to the research conducted for this thesis there are some concrete issues regarding the validity that need to be addressed. For the line of interviews there was only one interviewer present as this was what circumstances allowed. In general it adds to validity to have more than one researcher present during interviews as this means two observers to confirm that what is heard and seen is in fact what the interviewee communicated (Eisenhardt, 1998). Furthermore, having an extra researcher to support the primary interviewer is a great help in terms of making notes during the interview where the primary interviewer has to focus on the interviewee and directing the interview. Finally a support interviewer can help ensure that all topics planned in the interview guide where in fact covered. As the situation did not allow for an extra researcher the interviewees have been presented with the direct quotations for them to approve to increase the validity of the interviews (Gillham, 2009). In terms of the observations made it is also important to keep in mind that this has not been a purposive observation study but rather a matter of just being part of an office and the environment surrounding it. A strict scientific approach has not been followed, nor have the results of the observations made been recorded in a sound scientific way. This is, however, not seen as a major issue for the overall validity of the thesis, as the knowledge obtained from the observations serve more as a support to the primary data gathered through the interviews. Finally one could argue that a higher degree of triangulation could be necessary to increase the validity of the results. This could be in terms of including more respondents from different locations around the world but it could also have been a matter of including quantitative research methods to support the qualitative methods used (Flick, 2009). For the scope of the thesis this has, however, not been prioritized. 14 P a g e

16 1.6 ANALYTICAL LENSES Having defined the overall paradigm for philosophy of science and appropriate research methods is important for any type of research. Working with entry modes another essential element is making a distinct choice for which analytical lenses are used to analyze theory and data, as there are fundamentally different takes on the topic (Rask, Strandskov, & Håkonsson, 2008). The four perspectives are: Institutional-economic (transaction cost) perspective Strategic competition perspective Learning perspective Interorganizational (network) perspective FIGURE 6: INTERNATIONALIZATION PERSPECTIVES. SOURCE: RASK ET AL. (2008) A run-through of the specifics of the different perspectives is not the goal of this section and is considered basic knowledge within the field of International Business. What is more interesting is the choice of analytical lenses for this particular thesis and the reasoning behind. Based on the responses of the interviewees and keeping the problem statement in mind, narrows this discussion down to two perspectives, namely the learning perspective and the network perspective. Analyzing the incubator model from the learning perspective one would focus on how it is possible to speed up the learning process or even jumping to a higher level of experience through the knowledge accumulated by the Trade Council and other incubators that a company will have direct access to by becoming an incubator themselves. Following the network perspective one would instead argue that being an incubator gives you access to certain networks in the new market that will help facilitate the internationalization process and entry to the market. In this case the rationale behind being an incubator would be quick access to networks that could otherwise have taken a long time to become a member of, and it could even mean getting access to networks that were otherwise unobtainable. As the above section shows valid arguments can be made for both perspectives, but the series of interviews revealed a common response from interviewees, namely that their experience was that the incubator model helps skip some steps of learning by drawing on others previous experience. Therefore the learning perspective is seen as the most useful analytical approach and will serve as a fundamental assumption of this thesis. 15 P a g e

17 The learning perspective originates from the research of Johanson & Wiedersheim-Paul (1975) on four Swedish companies that led to their introduction of the establishment chain. The perspective has since then been further developed by Johanson & Vahlne (1977, 2009). How it applies in relation to entry modes and business models will be dealt with in a lot further detail in Parts II and III CRITIQUE OF THE LEARNING PERSPECTIVE Each of these theoretical perspectives gives us a helping hand towards how to understand and analyze the internationalization patterns of companies. As with most other theoretical approaches these different perspectives are not perfect and all have pitfalls. For the learning perspective the main issue is that companies do not always follow the prescribed stages of the establishment chain, but rather skip some levels and jump to a higher stage of internationalization (Rask et al., 2008). This is also known as leapfrogging: FIGURE 7: LEAPFROGGING. SOURCE: (BUCKLEY, 2012) Although slightly comically presented figure 7 illustrates leapfrogging. In their revisited work on the Uppsala model, Johanson & Vahlne (2009) deal with this issue as there is a general tendency for internationalization to happen at a faster pace than was the case when the original Uppsala model was introduced and with the occurrence of the internet, e-commerce and Born Globals. Johanson & Vahlne (2009) also agree with critics that there has been a change in the international business environment and that this is the cause of changes in company behaviour in relation to internationalization. Bringing in the incubator model in this equation certainly also challenges the original reasoning behind the establishment chain and the notion that internationalization is a slow moving process. As one will understand after reading this thesis the incubator model has the potential to significantly speed up the internationalization process and provide a much steeper learning curve, allowing companies to gather valuable experience at a much faster pace than through traditional entry modes. With these comments made it is still very relevant to take the learning perspective approach to internationalization and the basic idea behind the establishment chain is also very useful still in terms of discussion firms internationalization. 16 P a g e

18 1.7 SUMMING UP PART I Part I has provided a sound basis for the theoretical choices made in this thesis both in terms of the literature used as well as how the empirical data has been gathered. One can see this part as a type of guiding map that will ensure that the rest of the thesis works towards the overall goal of answering the problem statement and that there is coherence between the different sections and between the different empirical and theoretical choices. Part II will dig in a little deeper and investigate the two core concepts of this thesis, namely entry modes and business models and why these are relevant to link together. 17 P a g e

19 PART II: ENTRY MODES AND BUSINESS MODELS The aim of Part II is to contribute to answering several research questions by investigating the existing literature on the concepts of entry modes and business. This part will take a static approach to the issue. Finally this part will also look further into the incubator model s configuration. 18 P a g e

20 PART II: ENTRY MODES AND BUSINESS MODEL 2.1 A STATIC APPROACH A central part of the problem statement of this thesis is to understand how entry modes and business models are linked and related to each other. This section will therefore investigate important literature within both fields, but more importantly show the relation between concepts. Both entry mode and business model literature have static and dynamic aspects and as this section will be somewhat descriptive, trying to answer what the concepts are, the static aspects will be in play. The incubator model will also be introduced to show where it fits in with the existing literature in the field. According to Demil & Lecocq (2010) a static approach to business models means treating the business model as a type of blueprint for the coherence between core business model components. The purpose of this blueprint is to enable description and classification of the business model (Demil & Lecocq, 2010). Taking the static approach to business models is a managerial tool that is great for understanding and analyzing business models. For entry modes a static approach means looking at the firm at a given time in their internationalization process i.e. at a stage where they are not moving from one stage of internationalization to the next. As this section will show, most entry mode models present an array of options for how to enter a new market, that typically depend on various factors as well as the experience and resources of the company. 2.2 THE LEARNING PERSPECTIVE Considering the initial choice of using the learning perspective as the analytical lenses of this thesis, there is no way around the work of Johanson & Vahlne (1977) when talking about entry modes. Based on the 1975 study by Johanson & Wiedersheim-Paul, who introduced the establishment chain and described how the internationalization of firms happens in incremental steps as companies gain more experience in a foreign market, Johanson & Vahlne (1977) further develop the concept of the stages model and establishment chain: 19 P a g e

21 FIGURE 8: STAGES MODEL. BASED ON JOHANSON & WIEDERSHEIM-PAUL (1975) The basic theory is still that firms internationalize in incremental steps as knowledge and experience in a market increases. Central to the learning perspective of the firm s internationalization is that risk of market entry to a foreign market is reduced as the firm increases their knowledge (Johanson & Vahlne, 1977). Built in this theory about entry modes one also finds information about Zott & Amit s (2010) elements of a business model. Following this path through internationalization the basic export option means having a business model where an external partner governs international activities. As we move further along the establishment chain the business model will also change to internalize more and more of the activities related to the foreign market, and will give a different configuration of the governance dimension than the original starting point. Similarly we can say that modus is significantly affected as we move from basic export to for example wholly-owned operations. It is again a matter of who handles the different activities, and at the different stages of internationalization different actors will be involved. Locus is also affected as this establishment chain shows that it matters where the activities are located either home or away. For the learning perspective the locus dimension becomes particularly important as the firm gradually acquires more experience and over time internationalize in multiple markets, meaning that activities may also be dispersed over several geographical locations. 2.3 CLASSIC CONFIGURATION OF ENTRY MODES Moving further along in the line of literature we find Root (1987) who is known within the field of International Business for his classification of entry modes into the overall categories, export entry modes, contractual entry modes and investment entry modes: 20 P a g e

22 FIGURE 9: ENTRY MODES. BASED ON ROOT (1987) Export entry modes are distinct in the sense that the company s product is manufactured outside the target market and then transferred to it, which means that export is limited to physical products (Root, 1987). Under the overall category of export entry modes different subcategories are found, where indirect export means using an intermediary who will do the actual exporting of goods as opposed to direct export where no home country intermediaries are used. Direct agent or distributor exporting is where the company will make use of an intermediary in the new market. Finally there is the option for the company to set up their own operating units in the target market where products are then exported from the home market to the target market, but where the company still handles marketing activities in the target market themselves from a local branch (Root, 1987). The decision to go with one or the other export entry mode is very much a decision about what governance structure the company sees fit. Contractual entry modes are long-term non-equity associations between an international company and an entity in a foreign target country that involve the transfer of technology or human skills from the former to the latter (Root, 1987). These types of entry modes differ from the other two categories in Root s model as they are primarily about the transfer of knowledge, skills and know-how as opposed to physical products (although contractual entry modes can also lead to exporting of products), and there is no joint equity between the partnering companies (Root, 1987). Modus becomes a very important dimension for these types of entry modes as having clearly defined organizational boundaries is necessary when entering into a cooperation where the governance structure of the firm s activities will change. In this case it is also relevant to discuss focus and content, as an important decision for the firm revolves around what their core activities are (there may be a wish to manage these internally), and what activities are of less importance and can therefore be handled by a third party. The final category, investment entry modes, are as the name indicates, about a company investing in manufacturing plants or other production units in the target market (Root, 1987). A clear distinction is to be made between operations that are solely owned, and thereby fully controlled, by the company and a joint venture that will be a collaboration between companies where ownership and control are shared 21 P a g e

23 (Root, 1987). Modus and focus will again be key considerations as a successful joint venture for example, will depend on creating a governance structure where the core competencies of both partners are exploited, which also means identifying a partner that can complement the company s own skill set and assets. According to Root s (1987) research the choice of entry mode is a decision influenced by both external and internal factors. External factors include the market, production and the environment whereas internal factors are made up by product factors and a resource/commitment assessment (Root, 1987). This is yet another strong link to business models and an example of how governance of activities as well modus and locus dimensions are central elements to entry modes. 2.4 VALUE CHAIN PERSPECTIVE Hollensen is a more recent contributor to entry mode literature and presents a slightly different approach to the topic as he takes a value chain perspective when presenting different choices of entry modes. Like Root (1987), Hollensen (2012) also uses the three overall categories export modes, intermediate modes and hierarchical modes to classify entry modes: FIGURE 10: EXAMPLES OF ENTRY MODES IN THE CONSUMER MARKET. HOLLENSEN (2012), P P a g e

24 To illustrate how the value chain is used to show difference in various entry modes we can take a look at the intermediate entry modes as presented by Hollensen (2012) where it becomes very clear visually how different entry modes will lead to different configurations of the value chain: FIGURE 11: INTERMEDIATE ENTRY MODES. HOLLENSEN (2012), P. 245 This visualization underlines the importance of governance of activities as well as locus and modus. The dotted border line shows that it does indeed matter where activities are located. The different choices of entry modes show how activities can be governed in various ways, and that the structure can be different from one entry mode to the next. Taking licensing and franchising as examples, licensing presents a business model where focus and locus decisions have caused R&D to remain in the home country whereas the remaining parts of the value chain have been moved to the foreign market to be governed by a third party, thereby also bringing in the modus decision. A different business model is brought in play with franchising where some of the same locus, focus, modus decisions have been made, but where marketing is governed from the home country. According to Hollensen (2012) four groups of factors are relevant when choosing an entry mode: internal factors (firm size, international experience, product/service), external factors(psychic distance, country risk, market size etc.), desired mode characteristics (risk, control, flexibility) and transactionspecific behaviour (tacit nature of know-how). The different factors will speak in favour of increasing or decreasing internalization. As some of these factors will sometimes be conflicting and a lot of the 23 P a g e

25 data needed to make the decision often unavailable it is difficult to make a completely accurate assessment (Hollensen, 2012). 2.5 THE INCUBATOR AS AN ENTRY MODE As mentioned briefly in the introduction to this thesis the incubator model is designed by the Danish Trade Council as a way to help Danish companies expand beyond domestic borders and internationalize. It is an offer directed at small- and medium-sized enterprises as these make up a large part of the Danish corporate world, and companies of this size are believed to not always have sufficient resources to internationalize to the same extent as large corporations, and it is therefore part of the overall strategy of the Danish Foreign Ministry to offer solutions that will help promote export. The incubator model is found in two versions a full office solution and a virtual solution (appendices 3 and 4). The centre of attention for the purpose of this thesis will be the full office solution but the virtual needs mentioning as well. The incubator model was first introduced by the Trade Council in Atlanta in 2001 and encompasses complete office infrastructure for the incubator clients furniture, phones, conference and meeting facilities and support staff such as a receptionist to answer the phones with the company s own greeting (Rask & Bøllingtoft, 2008). For the virtual solution the physical facilities are not part of the offering, but the phone services and having an address in the selected market are. Part of the rent that is paid for the full office solution includes a number of consultancy hours that the company can use for minor tasks or market research. Usually the incubator companies will also use the assistance and network of the Trade Council to handle the formal procedure of setting up a subsidiary or registering business activities in the relevant market. The rationale behind the incubator model is that it provides fast and easy physical presence in a market for Danish companies expanding abroad (Rask & Bøllingtoft, 2008). This setup helps reduce initial risk and allows companies to focus on establishing their presence in the market and carrying out their strategy for the company s internationalization rather than spending time and resources on searching for office facilities, reliable partners etc. Furthermore, the incubator setup allows for a quick exit from the market in question should the business not develop as hoped and planned for (Rask & Bøllingtoft, 2008). Finally, renting incubator facilities also gives access to a network of other incubator companies, which can provide benefits such as knowledge sharing on both a personal and professional level. Companies in similar industries or facing similar challenges in the new market can share experience and thereby speed up their own learning process (and potentially enter into collaboration if their prod- 24 P a g e

26 ucts/services are complementary), but can also benefit greatly on a personal level by learning from each other when it comes to all the elements that follow with living in a different country from home. This includes both formal procedures for becoming part of a new society, such as registering with local authorities, getting a driver s license, bank account etc., but can also be a matter of learning how to act in a new culture. Maybe even more so than with the traditional entry modes, it is relevant to discuss business models in relation to the incubator. All of Zott & Amit s (2010) elements of the business model activity system (structure, content, governance) are relevant here. For many companies reality of the incubator model is that it will serve as a sales subsidiary but without the ties of ownership, and a decision therefore has to be made about the different elements of the activity system: Content: What activities are necessary and should be part of the incubator Structure: How are the activities linked in the new market, but also how are they linked to the domestic operations Governance: Who is to handle selected activities and where, how much is the company to keep internally and how much should be handled by external partners with local knowledge and expertise Locus, when using Onetti et al. s (2012) terminology is an obvious dimension to bring in as the incubator facilities offered by the Trade Council are located outside Denmark. Modus and focus are also essential dimensions with the same reasoning why content and governance are important. As the empirical research in Part IV will support, the incubator model can serve different purposes for different companies and in different markets. Certain industries or markets may be more governed or regulated by local authorities where the Trade Council and the Embassies can provide diplomatic assistance by using the Danish Coat of Arms and diplomat relations. Other industries or markets may not be in need of such diplomatic attention but the choice of the incubator facilities is merely a matter of establishing physical presence in the market. What is interesting about the incubator is that it is an entry mode provided by a third party, the Trade Council, who also has a business model. This means that somehow these two business models have to click together for the setup to work. One might argue that other entry modes are also provided by external partners, but the argument made here is that for traditional entry modes only elements are provided by external partners as it will often be a choice between internalization or externalization. When it 25 P a g e

27 comes to the incubator model the whole setup is provided by a third party, and then there is still the decision to make regarding what activities to handle internally in the firm and what activities to outsource to external partners (e.g. contacts provided by the Trade Council). In fact it could be said that the incubator is a new type of intermediate entry mode. Just like Andersen (2006) presented his research on how the internet serves as a mediator that speeds up the internationalization process, which in return created a new set of hybrid entry modes, one can argue that the incubator facilities offered by the Trade Council do the same and is a hybrid entry mode relative to traditional forms of market entry. 2.6 SUMMING UP This section has reviewed some of the significant research in the field of entry modes and has proven how business models, from an activity system perspective, are closely linked to entry modes, especially in modus and locus dimensions. The incubator model has also been introduced as a new type of entry mode that offers a new unique alternative to already existing entry modes and is presented as a mode where content, structure and governance are important elements. All these links between business models and entry modes can be conceptualized in this model: Structure Locus Choice of entry mode Governance Focus Content Modus FIGURE 12: CONCEPTUAL MODEL BASED ON ZOTT & AMIT (2010) AND ONETTI ET AL. (2012) Assuming that the starting point is making a choice of entry mode, this choice will lead to a certain configuration of structure, governance and content. As these elements are closely linked to locus, focus and modus dimensions these too will be influenced. This conceptualization must be said to be somewhat of an approximation of how the different elements are linked together as it can certainly be argued that they are even closer intertwined than this representation is evidence of. An example is the locus, focus and modus dimensions of Onetti et al. (2012) where entry modes are said to belong under the locus and modus of business models. Regardless of this consideration we continue forward with the conceptualization as is, as sound arguments can also be set forth of how choice of entry mode will influence the configuration of the business model both in relation to the work of Zott & Amit (2010) as well as the work of Onetti et al. (2012). 26 P a g e

28 One thing is knowing what the different options are when it comes to entry modes and different configurations of business models, but then follows the question of how to change an existing business model and how to make the actual choice of entry mode. These issues are central to Part III. 27 P a g e

29 PART III: BUSINESS MODEL INNOVATION AND CHOICE OF ENTRY MODE The aim of Part III is to contribute to answering the research questions from a transformational point of view and thereby complement the static approach of Part II. This part will further develop the conceptual framework regarding choice of entry mode. 28 P a g e

30 PART III: BUSINESS MODEL INNOVATION AND CHOICE OF ENTRY MODE 3.1 A TRANSFORMATIONAL APPROACH Part II provided a sound understanding of the concepts entry modes and business models and highlighted how these are tied together and how different authors within business model research contribute to further the understanding of this link. This part sets out to go one step further and understand how the choice of entry mode is related to changing an existing business model through business model innovation. As change is of the essence here, it only makes sense to take a transformational approach to business models in this section. An important aspect of the transformational approach is that it allows for a business model to adapt to the environment, meaning that moving from the domestic to a foreign market one can change the current business model, for example through choice of entry mode (Demil & Lecocq, 2010). Another important aspect of Demil & Lecocq s (2010) work is that they have a Penrosian view of the business model. This means that the firm can be viewed as a bundle of resources either internal in the company or external from the market and that these resources can influence each other and make a unique configuration for the company, something that will also have an impact on the overall performance of the company (Demil & Lecocq, 2010). Taking a Penrosian view of the firm fits well in line with the overall thoughts behind the learning perspective as resources are believed to be better exploited as more knowledge within the firm and managers accumulate. Treating the firm as a bundle of resources also works well along the lines of Zott & Amit (2010) and their view of the business model in an activity system where activities can be bundled in various configurations, where activities also influence each other. The keyword for changing how activities are linked and resources bundled, and for linking business models with entry modes, is business model innovation, as this next section will prove. 3.2 BUSINESS MODEL INNOVATION Common for the work of both Zott & Amit (2010) and Demil & Lecocq (2010) is the view that a business model can be developed and changed and that this business model innovation can reap higher benefits for the company. In a very basic definition, business model innovation is the creation or reinvention of the business itself (Rask, 2014). Building on their 2010-article Zott & Amit (2012) extend their business model research on the activity system perspective to investigate business model innovation. According to them, business model innovation can happen by adding new activities, linking activi- 29 P a g e

31 ties in a new way, or changing one or more parties that perform the activities (Zott & Amit, 2012). They claim that business model innovation is relevant for companies to understand as this is a way of redeveloping the core business, rather than merely focusing on product or process innovation to achieve growth (Zott & Amit, 2012). Part of the reason why companies need to focus elsewhere for optimization of their business is that operations have been at the centre of attention for a number of years and the benefits of continuing with this focus will therefore be minimal, whereas business model innovation has much greater potential (Zott & Amit, 2012). For companies in an internationalization process it will be particularly relevant to turn towards business model innovation when looking at entering new markets. This is what Rask (2014) has done in his research concerning how companies internationalize through business model innovation. The rationale behind taking a business model innovation approach to internationalization is that moving from the domestic market to a foreign market brings with it a whole new context in terms of clients, competitors, sourcing and a much more complex decision making about resource and activity allocation (Rask, 2014). Taking a look at what happens when a company advances in their internationalization process under the learning perspective, as a consequence of acquired knowledge and experience, it is a very dynamic process of innovating the current business model. Johanson & Vahlne (1977) explain it using their state and change model: FIGURE 13: THE BASIC MECHANISM OF INTERNATIONALIZATION. JOHANSON & VAHLNE (1977) The state aspects are to the left, market knowledge and market commitment, and the change aspects to the right, commitment decisions and current activities. In its very basic understanding knowledge about the foreign market and experience obtained through current business activities will push forward internationalization and further commitment in the target market (Johanson & Vahlne, 1977). This is an ongoing process and as a company becomes more and more established in one market, the next step will be to move on to establishing operations in other markets, thereby leading to this incremental internationalization (Johanson & Vahlne, 1977). Looking at the state and change aspects in relation to the incubator model, it is particularly market knowledge that reaps the benefits. With immediate access to 30 P a g e

32 increased market knowledge the whole dynamics of the internationalization process are changed as this kickstarts the ongoing process of learning and committing resources to the market. An important factor in increasing market knowledge and thereby market commitment is psychic distance, i.e. how foreign the target market compares to the domestic market on a number of factors such as language, education, business practices, culture, and industrial development (Johanson & Vahlne, 1977). According to this theory firms will internationalize to markets with a smaller psychic distance as a start, as risk is perceived to be smaller here, and then gradually move to markets that have a bigger psychic distance as the company gains more knowledge and experience, which are believed to be contributing factors to risk reduction (Johanson & Vahlne, 1977). This continuous development of knowledge and experience will also lead to a continuous business model innovation, something that is very well aligned with Rask s (2014) conceptualization of internationalization through business model innovation: FIGURE 14: INTERNATIONALIZATION THROUGH BUSINESS MODEL INNOVATION. RASK (2014) Behind this model lies an assumption that companies cannot internationalize in a way where they move directly from the 1 st to the 4 th quadrant. In order to reach a semi-global business model a company must go through either an export- or import-based business model in quadrant 2 and 3, to gradually 31 P a g e

33 develop their international operations. The model brings forth an important element, namely that business models can be innovated both in an upstream and downstream direction. Discussing Rask s (2014) model in the context of this thesis it is relevant to consider whether leapfrogging is an issue in terms of the model s applicability to real life. Although maybe not as often as leapfrogging occurring in the establishment chain, one could imaging companies going directly from a domestic-based business model to a semi-global business model using the incubator model to skip some of the traditional steps as the incubator model allows for immediate presence in a market without a large investment. The incubator model also allows for a company to simultaneously outsource production to one market while setting up one or several sales subsidiaries in other markets by making use of the Trade Council s facilities for the sales function, thereby jumping to a semi-global business model or at least significantly speeding up the process of going through an import-based business model first. For the case companies in Part IV of this thesis, however, it seems that they have in fact followed one of the paths suggested by Rask s (2014) model namely an export-based business model where the incubator functions as a sales subsidiary. In order to talk global business models it is of course also very necessary to understand how the actual choice of entry mode is made, which the following section will shed light on. 3.3 CHOICE OF ENTRY MODE MODUS VIEW Choice of entry mode is traditionally approached from a modus view (Rask, 2014). This involves a trade off between control, risk and resource commitment and a chosen entry mode will result in a certain risk profile. Root s (1987) work revolves very much around this trade off between risk and control and the different choices of entry mode can be placed in relation to each other on a risk-control scale that is to be understood as a kind of stage model (however, not to be confused with Johanson & Vahlne s (1977) stages model) representing the evolution of a company s decision on entry mode (Root, 1987): 32 P a g e

34 FIGURE 15: STAGES OF INTERNATIONALIZATION. ROOT (1987) Root s entry mode model focuses around the basic premises that companies will internationalize when they are unable to achieve their strategic objectives in the domestic market and that they will increasingly choose entry modes that provide greater control, paying the price of a higher level of resource commitment, which in return will lead to greater risk in the target market (Root, 1987). As figure 15 illustrates placing the incubator model in Root s control-risk framework shows how it presents a unique configuration compared to the traditional entry modes as enables companies to enter a market with a low-risk, high-control profile. Furthermore, the issue of leapfrogging is again worth mentioning as Root s work suggests that over time companies will increase commitment to a market, thereby also increasing risk. Using the incubator model allows for a much higher level of market commitment at an early stage of internationalization and at a lower risk level. Hollensen (2012) also works with the trade off between risk and control by looking at how the different entry modes go from complete externalization to complete internalization: 33 P a g e

35 FIGURE 16: CLASSIFICATION OF MARKET ENTRY MODES. HOLLENSEN (2012), P. 217 The classification of the different entry modes risk profiles match very well with Root s (1987) research. Again one can place the incubator model in relation to traditional entry modes on Hollensen s scale a unique configuration is the result as is depicted in figure 16. The incubator model actually provides the same level of integration in the market as one of Hollensen s hierarchical entry modes but with the risk profile of an export entry mode. Bringing together the positioning of the incubator model in relation to these well-established models one can summarize the risk profile as follows: Risk Low Control High Flexibility High No initial investment Monthly rent Reduced search costs Full ownership from HQ - no shared equity Very limited contractual agreement Easy to pull out of the market Capacity allowing, add staff members Easy reduction of staff FIGURE 17: RISK PROFILE OF THE INCUBATOR MODEL. OWN DEVELOPMENT Using this model as an entry mode presents little risk as initial costs are kept relatively low, no investment is needed as rent is just paid on a monthly basis and access to the Trade Council s network re- 34 P a g e

36 duces search costs when looking for partners to help handle the administrative requirements of market entry and gives some level of certainty that the selected partners will perform their job to a satisfactory level. Control is high as there is no shared equity with any partner and HQ in the domestic market can therefore maintain full ownership themselves. This is a strength as the incubator facilities are often used in the very initial phase of entering a new market where important decisions are to be made about the future strategy in the particular market and often a close dialogue between HQ and the foreign operation is needed. Furthermore, the contractual agreement between the incubator company and the Trade Council will be very limited and only revolves around a period of resignation for both parties. This also leads to the final factor, flexibility, which is high. If things do not work out as planned, it is quick, easy and inexpensive for the company to pull out. It might also be the case that there is a need to up- or downscale the size of the staff employed in the local market, which can also be done very easily (capacity allowing). This wraps up the review of the modus view s influence on choice of entry mode. On the other side of making the choice is the locus view, which the following section will take a closer look at LOCUS VIEW Including locus decisions in choice of entry mode is a logical step as locus is about where to locate the different activities of the company (Onetti et al., 2012). In traditional entry mode literature locus has not been a very central issue but with global value chains and the opportunity to innovate the business model both up- and downstream it is of great importance to also consider locus. In relation to Rask s (2014) conceptualization of internationalization through business model innovation an important factor is looking at domestic versus globalized markets and production respectively. If a company ends up having a semi-global business model this also means adapting a multi-localization strategy, placing locus at the heart of entry mode choice (Onetti et al., 2012; Rask, 2014). Similarly Hollensen s (2012) value chain approach to entry modes provides a good foundation for understanding the importance of locus. Taking the incubator model as the example the localization of activities could look like this: FIGURE 18: THE INCUBATOR ACCORDING TO HOLLENSEN'S (2012) VALUE CHAIN APPROACH 35 P a g e

37 Although the incubator is flexible enough to present different options to different companies this seems to be a reasonable setup for an imagined sales subsidiary where R&D and production still takes place in the home market whereas marketing activities and sales have been relocated to the foreign market in order to allow for local adaptation. Placing this configuration in Rask s (2014) model of global business models (figure 14) it is equal to an export-based business model where the business model innovation has happened downstream in the globalized market. Thinking logically about a firm s internationalization process this seems quite reasonable that many companies using the incubator facilities will go through this type of business model innovation as this requires far fewer resources than for instance setting up production facilities abroad as could be the case with an import-based business model SUMMING UP This section has shown how the basis for choice of entry mode is made up of modus and locus decisions. Traditionally modus has been the strongest determining factor as it involves a trade off of risk, control and resource commitment, something which will often be of high importance to a company when entering a new market. It is, however important not to neglect the locus dimension in choice of entry mode, especially in a business environment where both markets and production can be globalized, potentially leading to a semi-globalized business model with activities widely dispersed geographically. 3.4 WHAT IS THE TRIGGER POINT? The final, but maybe most important, question in this discussion is what then triggers the decisionmaking process and what elements take a leading role in influencing the remaining elements. In section II it was argued that choice of entry mode will influence structure, content and governance and thereby also locus, modus and focus. But is this really the correct way of viewing things? Rask s (2014) conceptualization of internationalization through business model innovation certainly challenges this perception. According to Rask s (2014) framework the business model takes the lead on what entry modes are available. For example having an export-based business model means that a company will choose either direct international sales, direct export through agents or establishing a sales subsidiary abroad. Following the initial line of thought, that entry modes are the starting point and will result in a certain risk-control configuration, companies have to be very careful in choice of entry mode to ensure that the outcome presents itself as a risk profile and a resource commitment that the company is willing to and capable of working with. 36 P a g e

38 But what if this idea was flipped around and that entry modes were not the determinant of a certain risk profile, but a desired risk profile would lead to a choice of specific entry mode? As we have seen, different entry modes result in different risk profiles, and it is therefore possible for a company to set up requirements for a desired risk profile by making deliberate choices regarding entry mode, structure, content governance as well as locus, modus, focus. As no existing literature has been found, that can help clarify the causality between these different elements, and further explain what the trigger point is, the empirical data gathered for this thesis form the basis of argumentation. What became evident during the interviews with Danish incubator clients at the Trade Council in Atlanta was that trying to minimize risk in entering the American market was the primary reason for the choice of the incubator as entry mode. The analysis of the interview data will show this in even further detail but for now we accept that the trigger point for companies in choice of entry mode, followed by related business model innovation is a desired risk profile. Continuing on from the desired risk profile, the easiest way to ensure that this is achieved, is through choice of appropriate entry mode, which in the last two links will influence the configuration of the business model: Structure Locus Desired risk profile Choice of entry mode Governance Focus Content Modus FIGURE 19: CAUSALITY BETWEEN DESIRED RISK PROFILE, ENTRY MODE AND BUSINESS MODEL CONFIGURATION This conceptualization of the causality of entry modes and business models will be the basic assumption when we move on to looking at actual companies using the incubator facilities at the Trade Council in Atlanta in part IV. 37 P a g e

39 PART IV: DANISH INCUBATOR CLIENTS IN ATLANTA, USA The aim of Part IV is to contribute to answering the overall problem statement and research questions by analyzing the empirical data gathered through interviews carried out with Danish incubator companies in Atlanta, USA. 38 P a g e

40 PART IV: DANISH INCUBATORS CLIENTS 4.1 TRADE COUNCIL OF DENMARK IN ATLANTA The Danish Foreign Ministry is represented at five locations in the US: the Embassy in Washington DC, Consulate Generals in New York and Chicago, an Innovation Centre in Silicon Valley and finally the Trade Council (TC) in Atlanta: FIGURE 20: DANISH REPRESENTATIONS IN THE US. SOURCE U.S. GEOLOGICAL SURVEY, 2015 The different offices handle certain industry sectors (and in some cases diplomatic affairs) to try and reach a higher level of expertise and specialization rather than offering scattered expertise throughout the country, and the office in Atlanta is thus responsible for Industrial Machinery, Oil & Gas, Automotive and finally Food & Agriculture. Their incubator facilities are, however, open for Danish companies to rent regardless of industry. As the map of the US in figure 20 shows, Atlanta is in the Eastern time zone meaning there is a 6-hour time difference to Denmark. 39 P a g e

41 4.1.1 THE INCUBATOR FACILITIES IN ATLANTA Making use of TCs incubator facilities comes in two solutions the Virtual Office Solution or the full office solution also known as the Accelerator Programme: FIGURE 21: INCUBATOR SOLUTIONS IN ATLANTA. SEE APPENDICES 3 & 4 Both solutions are created to provide quick and easy access to the US market for Danish companies. The Virtual Solution is directed at companies that do not wish to have permanent staff in the US but still need a physical presence where American customers or partners can direct calls and mail. In order to establish a US incorporation it is required to have an American address and the Virtual Solution can therefore be a necessity for many companies in order to establish themselves and do business in the US. The full Accelerator Programme is for those companies that wish to start up with staff present in the US, but of a limited sixe (1-3 staff members). Common for both solutions is that the Trade Council helps connect the companies, if they wish, to relevant service providers who can assist in setting up a US incorporation, managing bookkeeping, providing legal assistance etc. For the scope of this thesis focus will be on the full office solution incubator clients as this is a more interesting unit of analysis in relation to the overall topic of global business models. 40 P a g e

42 4.1.2 REGUS Regus needs mentioning as this is the primary alternative to the incubator facilities offered by the Trade Council. Regus offers 3000 locations in 120 countries worldwide, with offices available in 45 US states (Regus, 2015). They thus provide a much wider geographical coverage than the Trade Council, and offer some of the same services in terms of office facilities, mail and phone handling etc. The Trade Council in Atlanta has also been in touch with clients that have used Regus incubator facilities and see that it is a more complex setup in terms of paying a base price, but then adding extra fees for any additional services (e.g. phone and mail handling) rather than having an overall price: we have a more socialistic approach, we have all inclusive whereas Regus is the opposite. It s an American solution where you pay for your coffee and your phone and you pay for copies and everything else. And if you add it all up then it s almost the same price as being here anyway. And with that you get a Regus-address which is a significantly poorer facade than what we have. (Trade Commissioner, Atlanta). The feedback the Trade Council has received from clients using Regus office solutions has not been very positive. One can of course discuss the objectivity in this statement but nevertheless it is an indication that the Trade Council does not see Regus as a direct competitor. 4.2 PRESENTATION OF CASES The companies interviewed for this thesis have all been incubator clients of the Trade Council in Atlanta in As the overview below shows they are in very different industries and have different characteristics in terms of single or multiple locations in the market and whether or not they are still incubator clients: FIGURE 22: 2014 INCUBATOR CLIENTS AT THE TRADE COUNCIL IN ATLANTA In all the incubator offices of these Danish companies only Danes are found. The employees have either been sent out as expats from headquarters (HQ) in Denmark or were already living in the US. A more detailed profile of the companies and interviewees follows here: 41 P a g e

43 4.2.1 CABINPLANT Cabinplant was founded in 1969 with headquarters in Haarby, Denmark (Cabinplant, 2015). The company has more than 230 employees and several subsidiaries around the world as well as international sales through agents. Cabinplant develops specialized food processing equipment for a number of industries including convenience foods, fish, poultry and vegetable processing and much more (Cabinplant, 2015). Cooperation with the customer goes all the way from designing special solutions to satisfy specific needs to providing start-up and training of personnel to after sales service. In the US the VP of Sales is the main representative of the company, with his wife employed to help out with various administrative and minor sales tasks. It is planned to add a technician to the US staff (sent out from HQ in Denmark), but due to visa issues it is unknown when this will be a reality (VP, Cabinplant). Years back Cabinplant had sporadic sales in the US when approached by customers, but never actively sought out opportunities in the market. The core business was focused on Europe but with the downturn in the European economy, especially in Southern Europe that had previously been important to Cabinplant, a new strategy was formed and the US moved from being a B market to an A market that was to be given strategic focus (VP, Cabinplant). At the time of writing they are still incubator clients at the Trade Council in Atlanta JBS JBS was established in 1939 and is a leading socks and underwear manufacturer in Scandinavia (JBS, 2015). The company employs more than 300 employees with HQ in Herning and global sales. In 2013 JBS entered into a partnership with soccer star Cristiano Ronaldo to launch an underwear collection under the CR7 brand (Ferslev Pedersen, 2013). This partnership was quite the scoop for JBS and gave them a lot of international attention. Moving into the US in 2014, with the VP of North America as the only representative of JBS, the strategy was to let the CR7 brand be the main profile of the company. Things did not, however, play out as expected and Cristiano Ronaldo as well as JBS Textile Group was faced with a law suit over trademark rights to the CR7 brand (Chung, 2014). Due to these circumstances JBS was only an incubator client for a shorter period of time and the future of JBS and CR7 in the US is at the time of writing unknown. 42 P a g e

44 4.2.3 TEAM ONLINE Team Online is a software company that has developed the information management system Bosted designed to meet the needs of human service agencies with special focus on the handicap area (Team Online, 2015). The Danish part of the company was in 2014 sold off to the IT company EG that is one of the largest players in Scandinavia (Beenfeldt Nielsen, 2014). In the US the company has employed a Dane as President of North America but they also have a team of local staff with primary locations in Georgia and Arizona (Team Online, 2015). Team Online got in touch with the Trade Council when they participated in the so-called VITUS programme, an offer targeted at small- and medium-sized companies with large growth potential internationally. The participating companies receive assistance from the Trade Council over the course of a year at a very favorable price with a 65% discount compared to the normal hourly rate and the overall goal of the programme is to get sales in the selected market within the 12 months the programme runs (Udenrigsministeriet, 2015). Team Online has been incubator clients for a longer period of time at the Trade Council in Atlanta but moved to Atlanta Tech Village in TRADE COMMISSIONER Without giving much more attention to the Trade Council in Atlanta itself, the Trade Commissioner deserves an introduction as well. With a long career within international sales in the private sector, the Trade Commissioner in Atlanta is employed differently than the traditional career diplomats, and therefore takes a very operational approach to the consulting tasks the office is faced with. The former Trade Commissioner gave a lot of attention to attracting new incubator clients and saw it as one of the core business areas whereas the current Trade Commissioner does not actively attempt to bring in incubator clients, but rather include it as a natural part of the discussion when talking to Danish companies about providing assistance in setting up a US subsidiary (Trade Commissioner, Atlanta). The core focus of the way the Trade Council in Atlanta does business revolves around strategic partnerships with the clients in so-called sales alliances that are more long-term oriented and where the trade advisors in Atlanta are to function as a sales person for the Danish company. With this brief outline of the companies and interview persons, the next section will take one step further and dig into the actual interview data. 43 P a g e

45 4.3 ANALYSIS Having investigated the existing field of research within entry modes, business models and how it all links together clearly proved how the incubator model as an entry mode is very unique in its configuration and risk profile. But how is it perceived by real Danish companies that have chosen this solution to their market entry in the US and does reality present the same benefits as theory suggests? The following analysis of the interview data will confirm some of the theoretical conclusions but also reveal challenges related to the incubator model. The backbone of the analysis will be the conceptual model of how risk profile, choice of entry mode and business model elements link together: Structure Locus Desired risk profile Choice of entry mode Governance Focus Content Modus FIGURE 23: BASIS OF ANALYSIS As the analysis will reveal, the elements of governance, locus and modus will be the most prevalent. The starting point will be taking a look at what type of risk profile the case companies operate with and that have lead to the choice of the incubator model as their entry mode for the US market RISK PROFILE AND CHOICE OF ENTRY MODE Desired risk profile Choice of entry mode Structure Governance Content Locus Focus Modus Looking at the setup for all three case companies it is quite clear that we are looking at a low-risk, lowinvestment setup for their US operations. Therefore the choice of the incubator model is the optimal solution as there is little initial investment, a relatively low monthly rent, and as the companies have not entered the market with a large staff the office space fits perfectly for one or two employees. Furthermore, a start-up phase in a new market will almost always be very chaotic and here it once again reduces the risk for the companies to choose an entry mode where the outline is that you as a Danish company can receive extra help if needed. 44 P a g e

46 All three respondents do also agree that it has been helpful choosing the incubator model as their entry mode to the US market: It s time consuming getting established. [ ] I think I could ve handled it but I think it s been a help says the VP of JBS when asked about the matter. The VP of Cabinplant answers along similar lines when asked about the process of setting up their US subsidiary it s been a help because if not, then we would have had to hire someone over here to help with it. It s a good way of doing it. During the interview with the President of Team Online it was also confirmed that choosing the incubator facilities in Atlanta after the VITUS programme provided an easy transitioning from Denmark to the US. Furthermore, the company benefitted from the Danish Coat of Arms and the appearance of the Crown Prince and Crown Princess at events hosted by the Danish Foreign Ministry to promote Danish businesses (appendix 5). The ease of the transition from Denmark to the US in the start-up phase by making use of the incubator model is also how the Trade Commissioner of Atlanta sees the offering: It s a service so Danish companies can get started quicker in the markets where we [the Trade Council] exist. And then they can get help with their administration and everyday in a start-up phase that can be difficult. [ ] It s plug and play in the sense that you don t have to worry about going out and establishing yourself all kinds of infrastructure aspects in a company, in a phase where you really need one thing, that is to make sales. (Trade Commissioner, Atlanta). On the cost side of things there are a number of factors of importance for why the Trade Council and Atlanta were chosen. First of all there is the monthly price of being an incubator: It s definitely cheaper. [ ] We were briefly looking at something ourselves because we are going to be one more person and we were going to move on and then we had the opportunity to stay [as an incubator] in a bigger office. Price-wise we pay more out [i.e. elsewhere]. And then the facilities are just better here, the office area and so on are just nicer, so alternatively we would ve ended up in a typical American office. Without windows and just a cubicle and no buzzing in the hallways, just sad in a way. So in that way it s great to be here (VP, Cabinplant). The VP of JBS backs this I think the price is competitive. I think you get more also socially and help-wise. Another aspect of the cost items is also that Georgia as a state is quite cheap both in terms of doing business but also when it comes to rent, taxes for private persons etc., which is of course very beneficial both at a business and individual level (appendix 6). For Team Online the state of Georgia proved an obvious business opportunity as they were in the process of privatizing the handicap sector just around the time the company made its entrance in the market (appendix 5). 45 P a g e

47 Summing up we see an element of risk averseness in all three case companies due to lack of knowledge and experience in the market as neither have had significant strategic sales prior to using the incubator facilities as a sales subsidiary. Risk averseness is a basic assumption that will follow companies in their internationalization process according to the learning perspective. The following sections will now take a closer look at how the low risk setup of the incubator model affects business model elements CONTENT, FOCUS AND STRUCTURE Desired risk profile Analyzing how the business model elements presented by Amit & Zott (2010; 2012) and Onetti et al. (2012) are influenced by choice of entry mode this section will deal with structure, content and focus under the same section as the interviews revealed that they were of less importance than the remaining elements. A natural starting point in analyzing business model elements is looking at content as this is the basic decision about what activities should be performed (Zott & Amit, 2010). In general the issue of what activities to carry out in the US and what activities to keep in Denmark did not present itself as an issue for any of the interviewees. For both Cabinplant and JBS there is an already-existing production setup that is to continue as long as the business is at the current level in the US (appendix 6 & 7). Therefore the office in Atlanta primarily has a sales function, whereas all other activities are to be handled elsewhere. In addition local marketing activities such as different campaigns, trade show participation etc. is also a task that belongs in Atlanta. As Cabinplant sells machinery that sometimes requires service it is also clearly defined that technical support is an activity handled in Denmark, sending over people when needed. Moving on to the element of focus a somewhat similar discussion is relevant. Focus is essentially determining the company s core activities on which efforts and resources should be concentrated (Onetti et al., 2012). Again the interviews did not present this to be an issue or challenge. Focus on activities in the US are concentrated on sales as the primary task with the support of local marketing activities. Keeping in mind that the companies have chosen a low investment setup is also a good indicator that focus is quite clear and narrow as resources are somewhat limited. For Cabinplant for example, engaging in marketing activities such as trade shows is something that the VP has only recently started participating in as the initial focus was solely on the sales tasks and building up a network (VP, Cabinplant). Choice of entry mode Structure Governance Content Locus Focus Modus The final element to be discussed in this section is structure. Structure is about how activities are linked and sequenced (Onetti et al., 2012). Yet again the interview data did not show signs of problems related 46 P a g e

48 to the structure of the companies business models as a result of entering the US market. Focusing on sales from the Atlanta office means that it is not necessary to add a number of new activities or change the current business model in relation to how the existing activities link together. It is an easy add-on to the existing business model that there is now just a new sales branch in the US. For a company such as JBS with an international supply chain it does not cause significant changes to the links of the supply chain to send orders to the US as they are already shipping orders to various places around the world (appendix 7). Having presented this brief overview of why these three elements are not the cause of issues it is much more relevant to move on to the remaining three elements of the conceptual model locus, modus and governance that turned out to be of much more interest to the central problem of this thesis LOCUS, MODUS AND GOVERNANCE Desired risk profile Choice of entry mode Structure Governance Content The line of interviews revealed that these highlighted elements are really at the core of investigating the incubator model in relation to Danish companies market entry in the US. Both the locus and modus dimensions proved to present significant challenges for the companies in their internationalization process and combining the two it is essentially a question of governance. Furthermore, the interviews supported the choice of the learning perspective as the analytical lenses for this paper as the following will support. Locus Focus Modus LOCUS Choosing the Atlanta location was based on quite common criteria for all three companies and can be narrowed down to two overall drivers geographical benefits and costs. The cost issues have already been discussed in relation to the risk profile of the companies that led to choosing the incubator model in the first place. This section will therefore focus on the locus dimensions of entering the US and choosing the facilities in Atlanta. Take Team Online for instance. Sector-wise they would be more appropriately placed at the Innovation Centre in Silicon Valley, but the 6-hour time difference from Georgia to Denmark was one of the main reasons why they decided to make use of the incubator facilities in Atlanta (appendix 5). Similarly the VP of JBS says I was looking all over the US for where we were going to be, and I quickly narrowed it down to saying, well because of the time difference we were going to be on the East Coast to have some time with Denmark every morning. For the VP of Cabinplant the issue of time difference is actually a critical factor for being able to do business efficiently Even just to make an offer I have to go through the technical department [in Denmark], so from 47 P a g e

49 here it s only 6 hours and that means that if you start work at 6am or 6.30am you get half a day with the office at home. Therefore Atlanta is an obvious choice and then the Trade Council is situated here. All three respondents also mentioned easy access to a large number of domestic flights from Atlanta Airport as an important geographical factor (appendix 5, 6, 7). Having to cover a large country like the US means a lot of travel activity for the expats. All these arguments make perfectly good sense and Atlanta is therefore a logical choice for setting up a US subsidiary. There is, however, also a more challenging aspect to the locus dimension, namely the psychic distance paradox. Recalling that psychic distance is about differences from the domestic to the foreign market on a number of parameters, the psychic distance paradox is the situation that arises when perceived similarity stands in the way of decision makers realizing that there may be significant and important differences even when the psychic distance on paper is low (O'Grady & Lane, 1996). Coming from a country like Denmark the US is not considered an alien culture - we are exposed to American brands, food, holidays, television etc. and it is therefore easy to neglect that there may still be important cultural and societal differences that will have an impact on how you can do business. For two of the respondents the danger is even bigger as the President of Team Online has resided in the US for years and the VP of JBS has previously lived and worked in the States. During the interview with the VP of Cabinplant it became clear that a lot of the sales approaches that are effective in other locations around the world just do not have the same effect in the US and that there is generally a much longer lead time on getting orders: And I also think, if you want to do the US, then you probably just have to be here, but it just takes time, it takes It s not something you do in a year or two. It just takes more time than you d expect (VP, Cabinplant). One can argue that the danger of the incubator model is the promise of easier market access than traditional entry modes. The challenges this presents is that Danish companies may neglect that in spite of skipping some basic problems associated with entering a new market there are still a number of factors they need to account for in the internationalization process and they will still be entering a foreign business environment where they need to learn the local cultures and rules of the game. Being part of a Danish office environment, being greeted by the Danish Coat of Arms upon entry, finding other Danes at the office creates a risk of making a nest with a feeling of home even though you are in fact in a foreign market that is significantly different from the one you are used to. As the empirical evidence also shows, the Trade Council can help walk companies through, and speed up, some of the formal procedures of setting up a new subsidiary in the new market. When it comes down to it there are, however, a number of things the company still has to go out and figure out on 48 P a g e

50 their own because the Trade Council possesses too little industry knowledge, or because the company is so specialized that it is difficult for a somewhat small consultancy such as the Trade Council to actually add value to the companies. Or it may be the case that the Trade Council would be able to obtain the required knowledge, but that this would take too long for it to be relevant for the company - e.g. when trying to establish a new customer base. The psychic distance paradox is crucial for decision makers to be aware of to avoid failure entering a new market. One can easily imagine that Danish companies entering China would not end up in the same situation simply because they expect to be met by a significantly different environment. And this is actually one of the keys to overcoming the psychic distance paradox. Even markets that appear to have very low psychic distance should be treated as foreign markets with the same level of preparation as when entering markets that are known to be very different (O'Grady & Lane, 1996). This also includes being open towards learning about the new business environment so the psychic distance is in fact reduced through learning rather than just neglected. Another locus aspect that the interviews revealed are all the practicalities that come with moving employees and their families to a foreign country. It may seem trivial but does in fact matter a lot when sending expats abroad, and even more so in a setup such as the incubator where the expat is very much alone in handling both private and business matters as opposed to having a larger multinational corporate setup. The location becomes relevant as there are more official matters to handle in a country such as the US as opposed to for example within the EU where a lot of the administration related to moving to and working in another country is much more simplified. In fact activities related to the private side of becoming established in the US was a very central topic for the interviewees and will therefore be dealt with further under the modus section as these challenges are not only related to locus MODUS Modus concerns relations with external partners and is a matter of who will manage the various activities as well as how these activities are to be carried out (Onetti et al., 2012; Rask, 2014). It is therefore highly relevant to continue the analysis of the issues related to setting up a private life. They may be a consequence of locus decisions, but very much become a result of modus decisions as well because the companies in this case have chosen a modus configuration where these practical matters are to be handled by the interviewees themselves rather than outsourcing to external agents. This decision is well in line with the initial setup of entering the market with a minimum of costs. The VPs of Cabinplant and JBS both emphasize that the startup in the US has been a somewhat chaotic process and not just from a business perspective but also in the private sphere: A lot of it is practical problems. [ ] One of the 49 P a g e

51 major challenges that hits all Danes coming to the US is this thing about having a credit score. [ ] The first two months I think the private part took up at least 80% of the time. Getting everything up and running. Meeting with banks, electrical companies, telephone companies, everything (VP, JBS). Although one might think these practical issues are of lesser importance than actually getting the business up and running, they do in fact matter a lot, especially for smaller companies such as these where there is not a large organization abroad, but only that one expat sent out from headquarters. The VP from Cabinplant supports this: I would ve liked that there was some kind of script. Given that we come over here as the only ones, we ve never had people here before. You could for example quickly make 3-4 A4 pages with points you need to be aware of. (VP, Cabinplant). One can assume that Team Online was somewhat spared for these very basic time-consuming issues partly because of their President s long-term establishment in the US and partly because of their participation in the VITUS programme where they have received more assistance than a plain incubator client. To avoid these modus issues the companies could either have invested in hiring a company to handle these practical matters. Alternatively a different entry mode, e.g. a wholly-owned subsidiary with more employees would most likely also lead to a different modus configuration where the handling of practicalities was much more formalized. In relation to business activities modus is an issue because the incubator model presents a business model where some activities are still handled by headquarters in Denmark, some activities are handled by the sales subsidiary that has now been created at the Trade Council s address and finally some activities are handled by the Trade Council. This gives a more complex setup and being in a new market might also mean having to do things differently than how things are done in Denmark. A way for the incubator clients to solve these modus challenges about who does what could be to have the Trade Council take over even more tasks but this has not been the case: we haven t used the office for more than it being a kind of social network and not so much work related. You could have used it more, I don t know, but there s also a bill to be paid in the other end (VP, Cabinplant). Once again the consequence of a low investment setup is clear and leads to modus challenges as it becomes a matter of who does what and most likely the result will be that the President or VP of the company ends up performing tasks that are maybe not all that relevant for his job and not the most value adding. These modus issues really lead up to the overall issue that is prevalent here namely governance. 50 P a g e

52 GOVERNANCE Combining locus and modus issues brings us to the very core of the issues with the incubator model that really come down to a matter of governance. Governance is about who should perform the activities that were selected under the content dimension and where (Zott & Amit, 2010). In its nature this means that governance is very closely linked to both locus and modus, in fact one could probably have combined the locus and modus discussion in the two previous sections under this combined. This section will therefore aim at shedding light on the overall issue the companies experience with the incubator model that to a large extent can be gathered under the umbrella of governance. What the interviews and the following analysis of locus and modus dimensions revealed is that there is a major governance paradox in the sense that the case companies on the one hand express that they are happy with the limited costs and the easy market access the incubator provides, and at the same time they experience facing a number of challenges related to locus and modus, which comes across as a feeling of discontent with some of the services provided, or not provided, by the Trade Council. The VP of Cabinplant expresses: but it s a little learning by doing that you could probably have been spared for a little. And I m not sure if it belongs under the office [the Trade Council] here but I still think, you rent a spot in this office, it would be a good service to have for people who haven t been here before. Similarly the President for Team Online also demands more attention and assistance from the Trade Council as part of the incubator package (appendix 5). The rent includes 5 consultancy hours but according to the Trade Commissioner the incubator clients generally do not make use of these hours: No it s actually not a lot we have of that and we re so busy on an everyday basis so it s also difficult for us to go down and say do you need anything, do you need anything, do you need anything. We let them know when they come through the door remember you re not just paying rent, you re paying for all sorts of other things as well (Trade Commissioner, Atlanta). This presents an interesting situation where the incubator clients are discontent because they are not receiving a service they are in fact entitled to. But at the same time they are not actively seeking out the help and resources available from the Trade Council. In fact it seems that this low risk, low investment setup the incubator model offers is actually a low commitment setup where there is an expectation that things will be much easier than with other entry modes and that it is therefore not necessary to show the same level of commitment to the business. And this does not fall back on the individuals running the business on an everyday business but rather a lack of commitment from management at headquarters: You can t find a cheaper model than what we re doing here. Just don t expect a turnover that is 51 P a g e

53 equivalent to the market s size. And then you have to be willing to put in more money and resources if you re looking to start out with a bigger turnover from the beginning (VP, Cabinplant). Although for very different reasons these governance issues have actually resulted in the case companies finding themselves in a kind of limbo. With the sales of the Danish business it of course raises questions about the US operations for Team Online, for JBS they cannot move forward with their business in the US until their lawsuit has been settled or an alternative solution to the trademark dispute has been found, and finally there is Cabinplant who has been an incubator much longer than average: This [the incubator facilities] is what you use the first year tops. We ve been here 2½ years but that s because we haven t moved forward quick enough. And then because it s convenient for us as we live here and rather than having to rent something else (VP, Cabinplant). It is also the experience of the Trade Commissioner that companies do not usually stay around for that long: I don t know the exact average duration because I haven t calculated it but usually at least 6 months and then for 90% of cases up to 2 years (Trade Commissioner, Atlanta). In the Trade Commissioner s experience most incubator clients have either decided to leave the US altogether or to expand when they hit the 2-year mark (appendix 8). These governance issues give a more nuanced view of the incubator model than the initial theoretical presentation suggests. For Danish companies it is a highly relevant issue to be concerned with as limited resources would result in many companies turning to the Trade Council and incubator model as the first entry to a new market. Based on the findings from the interviews some moderations to the conceptual model are appropriate: 52 P a g e

54 Structure Locus Desired risk profile Choice of entry mode Pri Governance Focus Content Modus FIGURE 24: MODERATED CONCEPTUAL MODEL As became quite clear in the analysis the governance issues are highly a result of both locus and modus dimensions so a two-way arrow has been added to the model to show how governance not only influences locus and modus but is also influenced the other way around. Although the practical issues related to the expats private lives have been discussed as part of locus and modus it might be more correct to include it in the model as a surrounding element that cannot be neglected but is not exactly part of entry mode or business model factors, but rather a consequence of these. Having discussed both benefits and challenges of the incubator model it is time to take a step back and reflect on what the implications are for the companies WHAT S NEXT Revealing the governance challenges that are seen for Danish incubators in the US demands a discussion of whether or not they had then been better off not entering the market using the incubator model. Team Online might be the trickiest of the companies when it comes to evaluating whether their US setup has been a success or not. One of the main challenges is that their product requires an institutional infrastructure and a desire from state government to want to implement software to help with the administration of social services. The basic business opportunities are therefore very much influenced by external factors and with the sales of the Danish company it is difficult to give a qualified guess about the future of the company in the US. Looking at what the incubator model has contributed with overall it has probably been a good way for Team Online to enter the market. Considering time 53 P a g e

55 difference, the state of Georgia privatizing the handicap area etc. there have been a lot of benefits for the company choosing this solution. Being a software provider the space available has probably also been sufficient and has not been a limiting factor in regards to the company s expansion in the market. It does, however, also make very good sense that Team Online has relocated to Atlanta Tech Village where there is a larger industry network and relevant resources available (appendix 5). One can also assume that certain governance issues may be solved by moving into an environment where the needed partners are more readily available. Looking at JBS the future is also quite uncertain. If the trademark issue is solved there is no doubt that their opportunities in the market are grand if the cooperation with Cristiano Ronaldo continues. There is much more uncertainty related to the alternative, that they are not able to continue doing business under the CR7 brand. Although JBS is a large company for Danish standards they are not large in a market such as the American and not having a famous front figure will most certainly make their opportunities smaller. Considering if they had been better off with a different entry mode than the incubator model the answer must be that they could have been a lot worse off. Although they are far from successful in the US currently, they would have ended up in the same law dispute regardless of choice of entry mode and this way they have managed to minimize losses, as opposed to moving in with the full cavalry and large investments. Finally there is Cabinplant who seem to be doing well enough to stay in the market, but are not yet fully exploiting the market potential. It has probably been beneficial for the company to use the incubator as a start, especially considering that they have previously had sales in the US and therefore potentially an existing network that needed to be revived. This said it does, however, seem that they have been stuck at the incubator facilities for too long and that if they want to do the US for real, they need to invest more in the market. With a large market such as the US there should be grounds for setting up a larger establishment with a bigger sales force as well as technical staff. Whether Cabinplant s market entry has been successful or not of course depends on what success is measured on but they are still in the market and they do make money on their sales orders (appendix 6). Challenges aside there is still a lot of optimism from the interviewees when looking towards the future of the American dream for the companies: so in that way, the past 20 years it has never been a big market for us, the US. It is now, it s both bigger and we ve become more known here but we still haven t gotten a hold [of the market] (VP, Cabinplant). Along similar positive notes the VP of JBS says: If all trademark issues are solved I think the opportunities are outstanding. 54 P a g e

56 PART V: CONCLUSION & IMPLICATIONS The aim of Part IV is to tie up the strings of the thesis, present the conclusion to the problem statement and research questions as well as provide implications for managers and for further research. 55 P a g e

57 PART V: CONCLUSION & IMPLICATIONS 5.1 CONCLUSION The overall aim of this thesis was to investigate how the incubator model as an entry mode facilitates the internationalization of Danish companies. Guided by the supporting research questions the existing literature in the fields of entry modes and global business models was investigated and the link between the two concepts was established. Working with different entry modes is very much a discussion about business models as the choice of entry mode will have a great impact on the configuration of the business model, especially in terms of locus, modus and governance. Going one step further and specifically looking at the incubator model it was clear that its configuration is quite unique compared to traditional entry modes as the low risk-high flexibility-high control configuration is not seen with any other entry mode. Moving on to analyzing how this configuration then worked in practice, interviews with Danish incubators in Atlanta showed that there are indeed a lot of the theoretical benefits that also hold true in reality, but the interviews also revealed locus and modus issues that can be summed up as an overall problem with governance. The low risk setup of the incubator actually turned out to be a low commitment setup for the case companies, which was the main cause of the governance issues. The analysis also revealed that the psychic distance paradox was an issue for the incubator clients in the US leading to a much longer and more complex market entry for the companies than anticipated. Combining the findings from the theoretical investigation with the empirical data resulted in a conceptual model showing how a company s desired risk profile will lead to actual choice of entry mode, which in the end will influence business model elements. A consequence of analyzing the empirical data was modifying the model to include a private sphere, as this was a highly prevalent issue for the respondents and too important to be neglected. In conclusion the incubator model is a fantastic concept but in order for Danish companies to truly benefit from the easy market access and access to the resources provided by the Trade Council it is crucial that there is sufficient support from headquarters in Denmark to expats in the local market and that one does not mistake this entry mode for a shortcut that requires less attention and hard work than other entry modes would. For companies that manage these hidden traps successfully the incubator mode is a great opportunity for Danish SMEs to kickstart their internationalization process. 56 P a g e

58 5.2 MANAGERIAL IMPLICATIONS Having investigated the incubator model presents managerial implications in two directions towards the businesses and towards the Trade Council. Decision makers and managers of private businesses need to be very much aware that choosing the incubator model as the entry mode to a new market is not a shortcut and still takes a lot of hard work in order to become established and successful in the market. It is important that headquarters do not become indifferent towards what is happening out in the market. Actually quite the opposite. Because the incubator is equivalent to a low investment setup where there is often only one or two company representatives it is extremely important that there is sound support from the domestic headquarters. This is both in terms of providing the necessary tools and resources to get the business up and running but it is also about providing a sound private base for the expat and his or her family to avoid governance issues. Furthermore, it is important to use the incubator strategically and have a business plan for the future of the company in the market. Although it would of course be utopia to believe that you can make a plan and follow it exactly in a new market, it can still serve as a guideline and help push towards continuing forward and not risk that the company all of a sudden is stuck, still being an incubator because it is comfortable and easy. For the Trade Council it would be very relevant to consider how they can help get their clients through a chaotic start-up phase and potentially, by providing very basic services as the expats are getting established, reduce the sense of discontent from their clients. Knowing that the incubator clients to some extent are left to handle things on their own with limited support from their headquarters is an opportunity for the Trade Council to step in and provide some extra support. As the Trade Council of course cannot do everything for free or as part of the rent the incubator clients pay, one could consider changing the cost structure. Rather than paying the flat rate of 8 hours per month there could be a start-up fee to cover the extra services needed in the initial entry, or consultancy hours could be moved around so more were available in the first couple of months. Alternatively one could use interns to help solve this task as it is not directly billable work and especially for the practical matters it would not be necessary to have an export advisor helping out. 5.3 FURTHER RESEARCH Working with a topic for months is of course also a task of establishing boundaries and keeping focus to ensure that the paper is within scope. Looking into existing literature and conducting research in the field reveals a number of other aspects of the topic that could also be both interesting and relevant to 57 P a g e

59 look further into. Some of these ideas are presented here as they are unfortunately too extensive for the scope of this thesis. First and foremost it would of course be very relevant to expand the current study to investigate all the offices around the world under the Foreign Ministry that offer an incubator solution. This would add tremendously to the research on the incubator model, which is currently quite scarce. Also it would allow for cross-country comparisons and even comparisons of offices in the same country (especially relevant in large markets such as the US and China with several incubator locations). As for the results a larger-scale study would increase the validity and generalisability for the qualitative data. Facing a much larger group of respondents it would also make a lot of sense to include quantitative research methods. The challenging part of designing such a study is developing a research format that allows for national and regional differences and it will be very important to formulate questions that are as universal as possible to allow for comparison and to reduce the risk of misunderstandings. If the funds were available for such a study the potential is great for both private Danish companies to learn how they best approach new markets using the incubator model and for the Foreign Ministry to get valuable input on how to improve the incubator facilities on a more overall scale. A different angle to the incubator as a topic is to investigate what function the incubator has around the world. As part of the research for this thesis an interview with the head of the Trade Council in Ho Chi Minh City in Vietnam was conducted, as the author had an idea at an earlier stage of the thesis process to include data from Vietnam for comparison (audio file attached, but no transcription). The interview revealed that the Trade Council in Vietnam seems to have a different role than in the US as Vietnam is a market where network and connections are crucial to doing business successfully. In Vietnam the Trade Council is often involved in connecting Danish companies with local authorities in order to achieve different types of permits for example. Furthermore, the interview also revealed that the way Danish companies use the incubator facilities differ in Vietnam from the US. In the US the employees are all Danish and they have a position in the company where they have been granted autonomy to make most decisions about the company s strategy in the market. In Vietnam it is, however, local sales staff who use the incubator facilities where the decision makers of the company are at headquarters in Denmark and then make business trips to Vietnam to ensure that the business runs as desired. One can assume that one factor here is language because Vietnamese is simply such an uncommon language for Danes that it is necessary to employ local staff. In general psychic distance would be a central issue. Vietnam is certainly a country where it seems unlikely that companies would face the psychic distance paradox as we have seen for the US. 58 P a g e

60 A final consideration for further research is analyzing the companies when they decide to leave the incubator facilities. The data gathered for this thesis revealed that a central topic was getting access to more industry-related networks as the companies developed in the market over time. For Team Online it seems that access to networks and industry-specific resources was a major reason for leaving the Trade Council s facilities. This also brings up the discussion about analytical lenses again. The learning perspective was believed most relevant for the problem statement in this thesis, but if further research was to be done it would probably make better sense to analyze the case companies from a network perspective. As there is limited research available on the incubator model this is another topic that could contribute with interesting findings to the literature on firms internationalization. 59 P a g e

61 6. REFERENCES Arbnor, I., & Bjerke, B. (2009). Chapter 2: The act of creating knowledge. Methodology for creating business knowledge (3rd ed., pp ). Thousand Oaks, California: Sage Publications. Beenfeldt Nielsen, J. (2014, August 12). Stifter sælger fynsk it-succes. Fyens Stiftstidende. Retrieved from [accessed 6/4-15] Børsen. (2015, March 20). FAKTA: Den transatlantiske frihandelsaftale. Børsen. Retrieved from [accessed 22/5-15] Buckley, P. (2012). Leapfrogging your competition. Retrieved from [accessed 5/3-15] Cabinplant. (2015). About cabinplant. Retrieved from [accessed 6/4-15] Chung, A. (2014). U.S. man sues soccer star cristiano ronaldo over CR7 trademark. Retrieved from [accessed 6/4-15] Demil, B., & Lecocq, X. (2010). Business model evolution: In search of dynamic consistency. Long Range Planning, 43(2 3), doi: Eisenhardt, K. M. (1998). Building theories from case study research. Academy of Management Review, 14(4), 532. Eksportrådet. (2014). Eksportudsigten. Retrieved from [accessed 11/10-14] European Commission. (2013). SBA-faktablad danmark. (). Retrieved from [accessed 19/5-15] Ferslev Pedersen, S. (2013, November 5). Ronaldo har sat jyske underbukser på verdenskortet. Berlingske Business. Retrieved from [accessed 6/4-15] Flick, U. (2009). An introduction to qualitative research (4th ed.). London, Great Britain: Sage Publications. Gillham, B. (2009). Research interviewing - the range of techniques. Berkshire, England: Open University Press, McGraw-Hill Education. Hirtle, J. S. (1996). Social constructivism (coming to terms) Retrieved from 60 P a g e

62 Hollensen, S. (2012). Essentials of global marketing. Essex, England: Financial Times Prentice Hall. JBS. (2015). CR7 - the company behind. Retrieved from [accessed 6/4-15] Johanson, J., & Vahlne, J. E. (1977). The internationalization process of the firm - A model of knowledge development and increasing foreign market commitments. Journal of International Business Studies, 8(1), Johanson, J., & Vahlne, J. E. (2009). The uppsala internationalization process model revisited: From liability of foreignness to liability of outsidership. Journal of International Business Studies, 40, Johanson, J., & Wiedersheim-Paul, F. (1975). The internationalization of the firm - four swedish cases. Journal of Management Studies, 12(3), Magretta, J. (2002). Why business models matter. Harvard Business Review, 80, O'Grady, S., & Lane, H. W. (1996). The psychic distance paradox. Journal of International Business Studies, 27(2), Retrieved from Onetti, A., Zucchella, A., Jones, M., & McDougall-Covin, P. (2012). Internationalization, innovation and entrepreneurship: Business models for new technology-based firms. Journal of Management & Governance, 16(3), doi: /s President Team Online. (2015). Interview with the president of team online USA Rask, M., & Bøllingtoft, A. (2008). The export incubator: Leveraging export assistance through networking? Unpublished manuscript. Rask, M., Strandskov, J., & Håkonsson, D. D. (2008). Theoretical perspectives on the internationalization of firms. Journal of Teaching in International Business, 19(4), Rask, M. (2014). Internationalization through business model innovation: In search of relevant design dimensions and elements. Journal of International Entrepreneurship,, doi: /s Regus. (2015). Regus. Retrieved from [accessed 22/4-15] Root, F. (1987). Chapter 1: Designing entry strategies for international markets. Entry strategies for international markets (pp. 1-23). Toronto: Lexington Books. Shaver, J. M. (2013). Do we really need more entry mode studies? Journal of International Business Studies, 44, Team Online. (2015). Bosted system. Retrieved from [accessed 6/4-15] Trade Commissioner in Atlanta. (2015). Interview with the trade commissioner of the trade council of denmark, atlanta, USA 61 P a g e

63 Udenrigsministeriet. (2015). Vitus. Retrieved from [accessed 8/4-15] Udenrigsministeriet - Eksportrådet. (2014). Vækst via eksport: Danmark-USA - 23 konkrete vækstinitiativer inden for eksport, investeringer og innovation. ().Udenrigsministeriet. Retrieved from [accessed 16/7-14] VP Cabinplant. (2015). Interview with the VP of cabinplant north america VP JBS. (2015). Interview with the VP of JBS textile group north america Yin, R. K. (1994). Chapter 2: Designing case studies. Case study research. design and methods (2nd ed., pp ) Sage Publications. Zott, C., & Amit, R. (2012). Creating value through business model innovation. MIT Sloan Management Review,, Zott, C., Amit, R., & Massa, L. (2011). The business model: Recent developments and future research. Journal of Management, 37(4), doi: / Zott, C., & Amit, R. (2010). Business model design: An activity system perspective. Long Range Planning, 43(2 3), doi: 62 P a g e

64 7. APPENDICES APPENDIX 1: INTERVIEW GUIDE INCUBATOR CLIENTS Spørgsmål Hvad fik jer til at vælge inkubatormodellen som jeres indgang til det amerikanske marked? Stikord - Lav risiko - Nemt setup - Andre services/projekter varetaget af TC - Adgang til interne/eksterne netværk - Tidligere erfaring med inkubatormodellen Her eller på andre markeder - Havde I allerede salg i USA? Hvordan passer inkubatorløsningen i USA med jeres forretningsmodel i DK? - Styres virksomheden anderledes i USA end i DK? - Var alternative løsninger mere passende? Hvilke alternative løsninger overvejede I? - Hvorfor/hvorfor ikke? Giver inkubatormodellen nok assistance til at komme ind på markedet? - Hvad mangler? - Er noget overflødigt? Interne netværk mellem inkubatorkunder - Er der behov/ønske/forventning om dette? - I forretnings- eller socialt øjemed? - Er uformel networking nok? Oprindelige forventninger til inkubatormodellen - Opfyldt/ikke opfyldt - Positive/negative overraskelser - Har der været situationer, hvor inkubatorløsningen var en klar fordel? - Forslag til ændringer eller forbedringer? - Synes du samlet set, at løsningen har været en succes for virksomheden? Hvad er fremtiden for virksomheden i USA? - Datterselskab? - Lukke forretningen ned? - Styre forretningen fra DK? - Lokal agent/distributor? - Andet? 63 P a g e

65 APPENDIX 2: INTERVIEW GUIDE TRADE COMMISSIONER Spørgsmål Giv venligst en kort beskrivelse af inkubatorfaciliteterne Stikord - Hvad får kunderne? - Til hvilken pris? Hvad er, efter din mening, formålet med inkubatormodellen - At yde offentlig service til danske virksomheder? - At sælge TCs ydelser? - At fremme interne netværk mellem inkubatorkunder? - At fremme netværk med eksterne partnere? Hvad er betydningen/vigtigheden af at have flere inkubatorkunder i faciliteterne? - Hvor stor en prioritet er inkubatorkunderne i forhold til andre forretningsområder? - Hvilke tiltag har I for at tiltrække nye inkubatorkunder? Ser du særlige fordele for danske virksomheder i USA ved at benytte sig af inkubatorløsningen? - Ville det amerikanske marked være sværere at komme ind på gennem ved en mere traditionel tilgang? Samlet set hvad ser du som fordele/udfordringer ved inkubatormodellen? - Vil du foreslå ændringer til den nuværende løsning? - Synes du at inkubatormodellen har sin plads mellem TCs ydelser? Ser du inkubatormodellen tjene forskellige formål rundt om i verden? - Sydøst Asien vs. USA 64 P a g e

66 APPENDIX 3: THE VIRTUAL OFFICE SOLUTION 65 P a g e

67 APPENDIX 4: THE ACCELERATOR PROGRAMME 66 P a g e