- KIBS and trade Project report Irma Patala December 2008
Table of contents 1 Executive summary... 3 2 Introduction... 5 3 Study goals, scope and methods... 6 4 Findings...8 5 Conclusions... 17 6 Summary of case companies... 20 7 Attachments: Case summaries... 23 8 List of interviews... 37 Table of Figures Figure 1: Study framework....6 Figure 2: Internationalization drivers and paths Retail...10 Figure 3: Internationalization drivers and paths KIBS...11 Table of Tables Table 1: Summary of case companies...22 Project team Finpro: Irma Patala, Senior Consultant, Finpro, Region North & Middle Europe, Global Services, irma.patala@finpro.fi Germany: Reape Neal, Senior Consultant, Finpro, Region North & Middle Europe, Global Services, reape.neal@finpro.fi UK: Perry Le Dain, Senior Consultant, Finpro, Region West & South Europe, perry.ledain@finpro.fi Denmark: Terhi Rasmussen, Market Analyst, Finpro, Region North & Middle Europe, terhi.rasmussen@finpro.fi Tekes: Minna Suutari, Senior technology Adviser, minna.suutari(at)tekes.fi Ella Kylmäaho, Senior technology Adviser, ella.kylmaaho(at)tekes.fi - 2 -
1 Executive summary The main goal of Services Going Global -study was to provide practical examples and learnings to encourage and support Finnish service companies internationalization. The study analyzed service companies internationalization drivers and paths, success factors and key challenges through 18 case studies from Nordic countries, UK, and Germany. Companies represented retail and knowledge intensive business services (KIBS). Case analysis was based on personal interviews with directors responsible for internationalization or business development of the company. The key drivers for internationalization in the studied cases were growth and knowledge acquisition. In retail cases most important driver was growth but from different perspectives: mature brands were looking for new markets due to limited growth opportunities in the home market, whereas online concepts were going international early on due to niche market focus and business model built on global presence. For KIBS companies key drivers were global customers and partners as well as knowledge acquisition and credibility needed to meet global competition. Internationalization paths and models for the cases were varied. Retail companies were growing international through own shop concepts except online concepts scaling through new channels. In most cases, mixture of channels was used but strategic focus was in growth through consistent brand experience (shop concept). Business model covering the whole value chain from product design to retail customer experience was regarded as competitive advantage that supported the integrity of the brand. Online concepts were innovatively exploiting personalized offering strategies. KIBS companies growth strategies were mixture of networking, acquisitions and organic growth. International networks were either first step in internationalization, followed by own operations, or key part of the business model also in home country. Key success factors included managing international service brand and experience, recruiting and committing key personnel, and integrating to local ecosystem. Key success factors for retail were ability to manage brand value across multiple markets, understanding local markets and value networks. Key personnel in entry markets played vital role in managing the balance between global brand and local demands. Brand value in KIBS context was critical in two dimensions: ability to attract and commit people that share company core values, and credibility as well as attractiveness of know how and services to customers. Networking was seen vital in building presence and credibility in local markets. Retail and KIBS companies shared fairly similar challenges and risks that were related to growth and local market know how. Shared challenges include loose, opportunistic and reactive internationalization strategies; underestimating cultural and market differences even in closer markets; too little time and resources for managing, supporting and integrating local operations; unrealistic expectations on time needed to establish presence and profitability; balancing between brand values and local demands (loosing focus); and growth exceeding the process development. Service innovations emerged in offering, delivery and finance. For retail concepts innovative thinking was most evident in how multi channel brand strategy was built by combining elements with only loose business synergies but with strong brand synergy. Online retail concepts included several innovative aspects from technology solutions to personalized service offering and redefining the role - 3 -
of consumer. In KIBS cases, innovations related to redefining the key competence or know how offering and thus differentiating from dominant competitors. External support and expertise was used especially in the market entry phase. Private sector professional services were widely used whereas public support offering was less familiar to service companies. External know how was needed in issues related to local markets and typically legal, financial, recruiting, and market research services were used to support market entry. Public support structures, on the other hand, were not well known and little used. Overall conclusions of the study highlight the need for increased measures to encourage Finnish service sector internationalization: Finnish service companies should increase their internationalization efforts to keep abreast global competition and to create new growth sectors for Finnish economy. Building effective internationalization support programs and instruments for service industries requires new thinking and support offering. More specifically, study recognized need to develop internationalization support offering that complements market entry phase services like market, competitor and value chain analysis, market entry strategy formulation and partnering support. Key areas for supporting long term internationalization strategies include Creating and managing service brand Competence sourcing and management Integration to local networks and culture - 4 -
2 Introduction Services Going Global was a joint research project for Tekes, Finnish Funding Agency for Technology and Innovation, and Finpro, international growth expert and partner for Finnish companies. Project participants were Tekes Serve -programme and Finpro Global Service Industry. Serve is a Tekes programme aiming at the creation of new knowledge in service innovation and encouraging the development of innovative and internationally competitive service concepts in companies. Serve programme runs from 2006-2010 and the total budget is about 100 million Euros, where half is public funding and other half comes from the participating companies. Serve provides Finnish companies and research organizations with project funding, national and international networks through seminars and industry specific forums as well as tools to support product management and IPR questions. More information: http://akseli.tekes.fi/opencms/opencms/ohjelmaportaali/ohjelmat/serve/en/etusivu.html Finpro is a consulting organisation focused on speeding up the internationalization of Finnish companies while managing the risks involved. Finpro operates through a unique global network of over 50 offices in40 countries as well as regional offices throughout Finland. In matrix with strong market presence and local market know how, Finpro has global industry practices building competences in specific focus industries. Finpro Global Service Industry supports Finnish service companies in exploring and exploiting global market opportunities, developing internationally competitive business models and service concepts, as well as planning and managing internationalization process. Finpro Global Service Industry has four focus areas: retail and living services, knowledge intensive business services (KIBS), travel and leisure services, and service integrators. - 5 -
3 Study goals, scope and methods 3.1 Goals The goals for the Services Going Global -project include: Building know-how on critical success factors and problem areas in designing global service concepts as well as internationalization process and paths. Activating discussion on the role and development potential of public and private support structures and instruments in services internationalization. Project deliverables will support the dissemination of key learnings to relevant target groups as well as provide inspiration and best practice cases to companies on the verge of internationalization. Figure 1. represents the study framework. Figure 1: Study framework 3.2 Scope Project focuses on service sectors that are in the core of Serve-programme including knowledge intensive business services (KIBS) and trade. In this study, KIBS is defined as professional service companies providing consulting or other knowledge based services to other companies. KIBS companies include e.g following: strategy consulting; operational or process consulting (ICT, legal, financial, marketing and communications, architecture and design, R&D); HR-consulting. Trade service cases were defined as retail concepts in shop or digital channel. When going through the long list of potential case companies a need for a more focused approach was recognized. In order to provide more value to the participating companies and allow for better comparison, the - 6 -
general KIBS and retail focus was narrowed to KIBS with emphasis on marketing communications, technical and strategy consulting and retail with focus on fashion and lifestyle concepts. Company cases were selected from several countries to provide comparative data from markets with higher service internationalization rate than Finland. However, the geographical focus was set to Europe as the internationalization motives and paths were assumed to differ significantly for companies outside European Union (EU). The home market size and the trade relations in general were assumed to make companies outside EU less comparable and interesting for Finnish service companies. The focus markets were chosen to be Finland, Sweden and Denmark, United Kingdom, and Germany. For Finnish companies other Nordic countries provide natural comparison due to the market similarities as well as geographical and cultural closeness. United Kingdom is one of the leading countries in Europe in terms of service sector contribution to the GDP and service sector internationalization. Therefore it was chosen to provide cases of companies benefiting from long traditions and know how on service internationalization. Germany is a highly competitive and big home market but provided also interesting cases where growth was based on international expansion rather than home market success alone. 3.3 Methods The study conclusions are based on analyzing 18 company cases. Case studies summarize company background information available in company website, news and other public sources and personal interviews with directors responsible for international operations or business development. Interviews took place between May and June 2008. Interviews were conducted based on interview questionnaire to provide comparable information from each case. Interview questions covered basic company info, overview of international operations and growth history, internationalization motives and success factors, challenges and barriers for internationalization, innovation and global vs. local aspects of international service concepts, and the role of public and private support (know how, resources) in the internationalization process. With the range of companies in terms of size, country of origin, and service sector, similar themes emerged from case studies. Even when industry differences of retail and KIBS gave slightly different perspective to key issues, the fundamental themes were mostly shared. The case studies analyzed the critical success factors and problem areas in designing global service concepts as well as internationalization process. Cases also discussed the role of innovation and public and private support structures to build understanding on the structures that support innovative and internationally competitive service development. The following issues were studied in more detail: 1. What were the motives and drivers for internationalization? 2. What kind of internationalization paths companies went through and what kind of structures and business models were used? 3. What were the key success factors and enablers for internationalization? 4. What were the key challenges and risks these companies had recognized? 5. What new or innovative elements drove or supported the internationalization? 6. What was the need and role of public and private support (resources, know how, finance)? - 7 -
These themes are discussed in more detail for retail and KIBS to highlight the differences between these sectors (Questions 1.-3.). In some themes, the differences between the service sectors were not evident and findings were generalized rather than discussed separately for retail and KIBS (Questions 4.-6.). Summary of case companies is presented in chapter 7. 4 Findings 4.1 Motives and drivers 4.1.1 Retail In retail cases most important driver for internationalization was growth but from different perspectives. The differences were caused by financial resources, ownership model (growth targets and risk taking ability), and business model (niche market focus and earnings model). In some cases internationalization started in a mature phase where brand concept was well developed and tested in home markets and high penetration limited growth opportunities. When home market matures, options for growth include extending brand concept to include new product lines or new market entry. New market entry is preferred option if brand concept is well defined, minor brand extensions do not offer enough growth potential and major extensions incur risk of loosing focus. Ownership model played an important role in goal setting. Venture capital financing drives aggressive growth and need to search for new market opportunities earlier. Limited financial opportunities tie internationalization to long term strategy where lower risk taking ability necessitate long term planning and early testing of internationalization. Online concepts had typically adopted focused niche market strategies resulting in earnings model based on global demand and born global or early internationalization growth paths. Online retail concepts were entering international markets early on as well as extending their global sales and offices rapidly. Scalability of online concepts and risk of copy cats raised the need to establish market presence and build global brand. In most cases contingency played a big role in how, where and when internationalization took place. Opportunities were related to shop location, acquisition potential, and right people with specific market expertise and networks either contacting company directly or being found. This resulted in a mixture of growth strategies (acquisition, franchising, own concept stores). 4.1.2 KIBS For KIBS companies key drivers for internationalization were internationally operating customers and partners as well as knowledge acquisition and credibility needed to meet global competition. Internationalization processes were typically triggered by global customers expecting service offering and expertise to cover major markets. Service provides had to build international resource - 8 -
base and know how to meet the customer expectations and competition. Home market size had less influence in growth strategies when customer focus and service offering were global. Several cases involved niche strategies where specific expertise area narrowed customer focus and market potential thus necessitating early internationalization. Also for KIBS companies opportunistic approach was typical where personal drive and ambitions or finding suitable acquisition target, partner or entrepreneur to start up local office had big role in the market entry decisions. Internationalization drivers mentioned by case companies include: Personal experience and motivation of founders and international corporate culture and contacts made international networking and thinking part of the everyday business. Home market was already dominated by global companies, to be able to match the competition there was need to build global know how and presence. International customer base, offering targeted to global market and open to global competition (customers, competitors) raised need to gain critical mass rapidly for credibility. Primary driver for internationalization was knowledge acquisition and need to build competences through demanding projects in key market locations. Global partner network(s) supported and drove internationalization. New growth opportunities were sought due to home market penetration. Tight customer focus exhausted rapidly home market growth opportunities. Market and competition opening up to international players due to EU, customers, partners and projects became international. Scalable business model was easy to replicate to different markets. 4.2 Paths and business models 4.2.1 Retail Retail case companies were all growing in international markets through shop concepts except online cases scaling through new channels. In most cases, mixture of operational models was used but strategic focus was in growth through consistent brand experience (shop concept). Business model covering the whole value chain from product design to retail customer experience was regarded as competitive advantage that supported the integrity of the brand. Own production was often complemented with either exclusive products or products with co-branding value. Retail growth was typically a mixture of own shops, franchising and acquisitions. There was shift in strategies to both directions, some were moving from franchise stores to own shops, some were starting new markets through franchising when own shops had been dominant earlier. Here the role played by chance and opportunity were evident. Flexibility might allow more agile strategies but can also increase overhead costs of managing different structures and partnership models with slightly differing needs. For retail shop concepts online was clearly a secondary sales channel or only marketing channel and focus was in building shop experience. Opportunities in creating online customer relationship and balanced multi channel strategy were not fully exploited. Figure 2. represents internationalization drivers and paths in retail. - 9 -
Figure 2: Internationalization drivers and paths Retail Online concepts were innovatively exploiting personalized offering strategies. However, as in shop concepts, also in online the customer interface was only small part of the brand experience and the whole value chain was critical in managing the overall brand promise (product design and assortment, production and logistics, payment, customer support etc). For all retail cases international structure was centrally managed from head office. The need to manage brand value is verified also in the operational model where key issues (product design, assortment, purchasing and partner networks, brand marketing, shop concept) were tightly centrally managed. Local market know how and networks were important and highly valued in bringing understanding on the product assortment, seasonality, as well local partners, networks and marketing channels. For traditional shop concepts internationalization typically started from culturally closer markets. Especially for Nordic companies other Nordic countries were preferred test markets. In Central Europe, big home markets and cultural and market differences can make entry to even neighboring countries more challenging than e.g. entering countries with historical, cultural or language ties. For online concepts global or international market presence is often prerequisite due to niche market strategies and global competition. 4.2.2 KIBS KIBS companies growth strategies were mixture of networking, acquisitions and organic growth. International networking was often first phase, followed by own operations. Local networks were also important for knowledge acquisition and gaining critical mass rapidly in new markets. Networking played important part in cases where ability to bid for big projects and customers was gained through strategic alliance or partner network. Later these partnerships were replaced by own international offices to have more consistent offering and optimize knowledge and resource sharing. - 10 -
Acquisitions were playing important part in some cases where motivation was to acquire complementing know how, broaden service offering, and need to gain critical mass and global presence rapidly due to competitive reasons. Acquisitions was main growth model for two cases where focus was in finding complementing know how and services and gain rapid access to local customers and networks. Setting up green field offices, however, was the most typical internationalization model. This was partly due to the opportunistic process where offices were set up based on personal motivations or right person found in potential markets. Opportunism and organic expansion was enabled by the low investment cost and risk in opening up office. Often the investment was based on existing customer projects or demand that supported rapid start up phase. Most cases emphasized the importance of finding people with right mix of competences as well as commitment and fit to the company values and culture. Figure 3. represents internationalization drivers and paths in KIBS. Figure 3: Internationalization drivers and paths KIBS KIBS companies internationalization paths were driven by customer and partner needs thus the key locations globally were more scattered to Asia, North America and Middle East. For Nordic companies other Nordic countries were still often first international markets, whereas UK companies preferred countries with Anglo-Saxon culture (e.g Middle East). Most case companies operate today globally. The KIBS cases operational structures reflect the importance of knowledge sharing and shared company culture. Organizations and ties between head office and international offices were described by case companies as: Matrix with regions and competence teams working together. Meshed network of international offices. - 11 -
Network where offices typically work in multi country and multidisciplinary teams. Hub structure where centralized service development scale over international locations. Global business areas based on specialist knowledge and competences, one stop shopping for customers. Customer focused global competence centers with expertise on customer industry. Local hubs, work is organized to global virtual teams. Network of entrepreneurs with global research and knowledge infrastructure. Headquarters responsible for brand, service offering and sales, service delivery globally through freelance networks. 4.3 Success factors and enablers 4.3.1 Retail Key enablers and success factors for retail brands were focused on managing brand value across multiple markets and understanding local markets and value networks. Strong brand was related to consistency of shop concept that enabled growth through mixture of own shops and franchising. In most cases brand had already raised some interest in foreign markets followed by franchisee interest and contacting. Launching brand to any new market is always a challenge where risks lie both in the attractiveness of the brand concept (market entry barriers) but also in managing the brand consistency and local expectations. The solidity or integrity of the brand concept in terms of total brand experience (shop concept and channel, product assortment, delivery and logistics, marketing and communications) support scalability (marketing, logistics, planning, corporate values and culture) and decrease the risk of brand dilution. For shop concepts, the value chain management was key in maintaining the brand promise of product quality, sustainability as well as ensuring healthy margin structure. For online, the value chain was critical performance factor (time and cost of delivery, billing and customer service). Local service offering for online was created through localized web pages as well as customer support. Finding and attracting the right persons to run local operations played key role in transferring company culture and brand values to new locations. Combining legacy knowledge to local market know how was seen vital. Local management was the key in integrating to the local partner and marketing networks as well as gaining deep understanding of local consumer preferences. In most cases shop location was mentioned as key success factor and most exit decision were based on shop location decision being wrong. This emphasizes the need to understand and analyze thoroughly the local distribution channels and shop location determinants. In several cases, external help and research had been used to find the right locations and market entry had to be planned to allow waiting for the right location to be found. In summary the key success factors include: Strong brand and brand management: consistency and clarity across markets and managed throughout the whole organization. People and company culture make or dilute brand value; recruiting challenge is to find people with entrepreneurial skills, local market know how and networks combined with commitment to brand value. Own shop concept support the integrity of the brand. Brand promise is delivered through the whole value chain (product design and quality, customer shopping experience and service, billing and delivery for online). Deep understanding of market structure and shop location determinants is needed and exit option must be planned. - 12 -
Management commitment, personal drive and brand value of key person(s). 4.3.2 KIBS For KIBS companies key success factors were clustered around three key themes: brand value, competence creation (recruiting and knowledge sharing), and networking. Other success factors mentioned include scalability and flexibility of the business model, understanding customer needs and customer focus, entrepreneurship, and global service offering. Also the low investment need and related low risk were mentioned as enablers of flexible growth strategies that allowed opportunistic and personally driven market entry decisions. Brand value in KIBS context was critical in two dimensions: ability to attract and commit people that share core values, and credibility and attractiveness of know how and services to customers. Most KIBS companies work in very competitive markets where only way to differentiate towards potential employees and customers alike is the clear brand message. Even more important than attracting talented individuals was the ability to find people that share the company core values and culture. Focus was in finding people who were able to contribute to the knowledge accumulation as well as to the creation of innovative and motivating working environment. Branding was mentioned from different perspectives including: Strong brand and clever recruitment is a virtuous circle. The foundation of the company s brand provides inspiration and vision for employees in all international offices to drive freedom and innovation within the company. Key competitive advantage in KIBS is in people; people who are genuinely engaged in the value of the brand and demonstrate passion and enthusiasm for their work We are a lifestyle company, people join for the lifestyle. Most KIBS cases mentioned knowledge sharing as one of the key success factors. Knowledge acquisition was also key driver for internationalization when global customers and competition challenged companies to seek for both functional or professional competences as well as local market know how to support the global offering. International growth challenged both recruiting and keeping critical talent as well as integrating fragmented organization where cultural as well as time and physical distances limit personal and informal communications. In some cases, inability to tie local hub to corporate values and processes necessitated exit decision. Comments related to competence sourcing and management include: We recruit people with right skills but also DNA that contribute to the competence base and company culture. The informal communication and trust among the employees creates strong ties that are critical for success. Communication is encouraged to be informal and ad hoc in order to create an environment that picks up the weak signals. Company culture and structures need to support co-creation and co-learning, sharing and accumulating knowledge and ideas. Company has set up global training program and resources to ease cultural integration and to maintain the integrity of the overall company culture. Networking was important internationalization enabler but also critical success factor in integrating to the local ecosystem, gaining credibility and making bigger impact locally. Local partners and networks have key role, integration to local value networks increase our local impact through collaboration. Partnering opened up access to international locations and customers that likely would otherwise have taken many years to build up. - 13 -
International network reduced the risk and allowed building know how and networks in international markets with limited investment and resources. We work with a cross border consortium of competitors and complementary consultants. This collaboration is an effective way to extend our international footprint. 4.4 Challenges and risks Retail and KIBS companies shared fairly similar challenges and risks which were related to growth and understanding local markets. Shared challenges include loose, opportunistic and reactive internationalization strategies; underestimating cultural and market differences even in closer markets; too little time and resources for managing, supporting and integrating local operations; unrealistic expectations on time needed to establish presence and profitability; balancing between brand values and local demands (loosing focus); and growth exceeding the process development. Especially KIBS companies found challenging managing the balance between creativity and shared practices and processes. In both retail and KIBS cases, companies recognized the need to have more focused approach to where and how internationalization took place. In most cases the early internationalization had been opportunistic and there was need to build more analytical and long term internationalization strategy. Same time most felt that the learning by doing approach had worked fairly well in the early phase of the internationalization due to flexibility allowed by relatively low investment need for market entry. Strong local competitors or highly developed local market in general can become a major barrier to entry even to close markets. For example, Germany or UK have mature and highly competitive service markets where credibility is not easily created. Also cultural differences are easily underestimated when service offering and competition is regarded as global. Especially for KIBS companies, who were entering geographically and culturally more foreign markets early on, the cultural differences presented a big challenge. This acted as market barrier in two ways: services required too much localizing to fit local needs and/or local people did not fit to the company culture and integration of local operations was unsuccessful. In several cases the time and commitment needed for supporting and integrating the global operations was higher than expected. Thus even when eventual capital investment in the market entry is low, the time and attention required from the top management are significant and tie up the valuable human capital of the company. Finding right location (retail) and / or recruiting (KIBS and retail) were mentioned as time consuming processes. Expectations for time needed to establish operations were minimal especially in KIBS where new market investments were triggered by existing customers. However, integrating to the local networks and building up support structures takes time. Several companies mentioned the challenge of expanding further without compromising brand integrity. Also the long term roles of head office and global network where an issue: should global brand mean also value discussion moving from head office to global network? To build successful brand, company must have a clear vision of what the brand stands for. Internationally operating company needs to crystallize the core brand elements that should carry across all markets and be able to manage conflicting market demands with other concept dimensions that can be used flexibly. - 14 -
Especially in KIBS cases, the high autonomy requirements of professionals make it difficult to manage the right balance between committing to shared goals and structures and creativity and customer responsiveness. Clever people don t like process. The lack of discipline means its like trying to herd cats. Similarly growth puts strain on adopting more professional internal processes where requirements for maintaining open and innovative culture and need for more structured and professional organization were conflicting. It is difficult to keep up with the tool and process development when creativity is the value add sold to customers. As in most growth companies, also international growth took in most cases place faster than company processes and structures could adjust to the new demands. Internationalization challenged process development even further due to increasing fragmentation of the company and more varied needs (legal, cultural, language, market, operating model etc differences). Networking was seen as key success factor and enabler for internationalization. However, in loose international networks the synergies were sometimes difficult to realize and they were considered only first phase or complementary resources. 4.5 Role of innovation Case analyses considered what kind of new elements or innovations were involved in the original internationalization drivers, processes or service offering. Innovative elements were recognized in framework of process, offering, delivery and finance. For retail concepts innovative thinking was most evident in how multi channel brand strategy was built by combining elements with only loose business synergies but with strong brand synergy. Online retail concepts included several innovative aspects from technology solutions to personalized service offering and redefining the role of consumer. In KIBS cases, innovations related to redefining the key competence or know how offering and thus differentiating from dominant competitors. Redefinition took place e.g. when customer relationship was deepened to strategic partnership by refocusing the competence offering from general professional expertise to building excellence in supporting customer s business solutions. Know how based differentiated offerings include cases where new combinations of expertise supported customer s emerging business challenges (e.g. innovations and sustainability, online technology and marketing know how). KIBS companies were also building new type of business models where collaboration and partner networks were seen not as support functions but as key source of competitive advantage. All KIBS companies were looking for new ways to encourage creativity and knowledge transfer which were vital to their competitive advantage but increasingly difficult to manage in the fragmented organization. The interviews were not able to cover the theme of knowledge management in international context in detail but being one of the key success factors, as discussed earlier, this might be an area were organizational innovations are emerging. 4.6 Role of private and public support Interviews discussed also the need and role of external resources (know how, resources, and financial support), including private and public sector services. Market specific analysis on local - 15 -
structures or programs for supporting service sector internationalization or growth was not included in this study. As background data on the availability of these services or resources were not analyzed, the interview outcomes were not reflected against supply and demand or quality and quantity of support. In general, case companies were not very familiar with the public support networks or availability of support instruments. Only few had used any public funding or advisory services. For Swedish and Finnish companies the public support network and their services were most well know, and their services were also used. Only one case outside Finland and Sweden mentioned public support. Private sector consultants were not mentioned as strategic partners supporting internationalization process even if several type of support services were typically used e.g. financial, legal, market research, market location analysis, recruiting. These were often local partners offering know how in specialized area. Internationalization was mostly financed from ongoing operations. In some cases, companies were already in stock exchange or had acquired venture capital financing. External financing typically pushed for more aggressive and systematic growth strategies. - 16 -
5 Conclusions Structural change taking place in Western economies is shifting focus from manufacturing to services. Developed economies are already moving from information economy to knowledge economy and also in Finland economic development is increasingly dependent on service sector growth and internationalization. Finland is still lacking behind EU in private service sector employment, productivity, and share of total economic activity. Services are increasingly becoming also global business. Multilateral trade agreements, technology development, and globalizing customer base support and also create market opportunities for new services. Internet is enabling scalable, global business models also for services and at the same time creating new demand for expert services. Globalization is polarizing consumer preferences and supporting emergence of international retail brands. Strong brands are becoming internationally attractive also in services and the lack of scalability is partly compensated with franchising and new channels. Global customers and competition drive in special professional service companies to challenge their know how in international markets and to build credibility and competences in key markets. In Finland, high share of public sector services and protected home market have not challenged private sector services productivity or international competitiveness. Opening service markets and lack of competitive home market has made it fairly easy for international service providers to enter Finnish markets. At the same time Finnish companies internationalization is lacking behind most European countries. Finnish service companies should increase their internationalization efforts to keep abreast competition and to create new growth sectors for Finnish economy. Internationalization must be based on strong drivers and supported by long term goal setting and top management commitment. Finnish service sector lacks in ambition as well as history and best practices in internationalization. The few international success stories are regarded more as exceptions of the rule than something to strive for. Finnish public support structures and instruments have in past focused on historically strong export sectors and technology driven industries. Services are now gaining new attention from public support organizations but the service offering does not yet effectively reach companies with internationalization opportunities. Major characteristics of services, namely intangibility, inseparability, variability, and perishability, increase the complexity of service development and internationalization and consequently challenge the related public support structures and offering. Lack of scalability and focus on process, life cycle management across different channels and customer experience in services differ fundamentally from product based industries. Consequently, building effective support programs and instruments for service industries requires new thinking and support offering: how innovation is defined and evaluated, what are the potential sources of competitive advantage and what are the specific support needs of service companies. Based on the key learnings from the cases, the study recognizes potential areas for support which complement market entry phase internationalization services like market and competitor analysis, market entry options and partnering support. Key areas for supporting long term internationalization strategies include service branding, competence management, and integration to local ecosystems. - 17 -
Creating and managing service brand: International markets challenge companies to crystallize the core value proposition both to attract new customers and to support effective transfer of core values across market boundaries. Service experience is created through the whole service process where service touch points, different channels and total lifetime of customer relationship must be managed. Cultural and market differences increase further the complexity of managing international service brands. Brand is also reflected in company culture which plays a key role in attracting the right people with competences covering entrepreneurship, fit with the company values (DNA) and expertise and networks in local markets. Potential areas for support: Building and managing consistent service experience with sensitivity to different cultures and market conditions. Managing balance between global and local needs. Exploiting multichannel strategy how to exploit different channels, co-branding opportunities or local networks in maximizing brand presence. In special, how to exploit online channel in creating new services and relationship with customers that support overall service experience. Understanding local markets and consumers, integrating to local value networks (e.g. market research, consumer preferences, shop location analysis) Branding with emphasis on how employee brand and corporate culture can effectively support attracting, committing and motivating key people. Competence sourcing and management: Consistent service concept and talented local management provide good base to local operations. Managing local operations is, however, continuous challenge. International operations require constant support and attention from shared resources and top management to integrate them effectively to the global organization as well as to ensure knowledge transfer. Personal interaction play important role in service quality and customer experience. Consequently people management and motivation to commit to shared goals plays vital role in creating consistent brand experience. For KIBS companies competence base can provide source for differentiation and more customer centric offering where redefining competence offering increases value add to customers. Potential areas for support: Supporting brand experience through motivating and integrating local people or partners to shared goals and values. How fragmented organization with cultural, language and geographical differences challenges leadership and corporate culture? Recruiting key personnel with a mix of skills (e.g. entrepreneurial and networking skills, commitment to brand values): defining recruiting needs, reaching and attracting right people. Managing service excellence across locations e.g. through training, knowledge transfer and/or tools and concepts. Maximizing collaboration, knowledge transfer and synergies across markets and projects (KIBS). Managing balance between creativity and shared processes. How to foster creativity and corporate learning across different markets and offices (KIBS). Differentiating through competences creating customer centered solutions that go beyond traditional expertise offering (KIBS). Integration to local ecosystem and culture. Customers, partners and networks are key enablers for service internationalization. Effective networking decrease market and cultural barriers and increase credibility and impact of local operations. Networking strategies can also offer opportunities for building new business models allowing more effective use of resources and adding complementing competences and service modules to meet customer needs. - 18 -
Potential areas for support: Analyzing strategic options for market entry and how they fit company s business model, resources and growth targets (exports, shop in shop, franchising, own shops, licensing). Specific know now on different entry models e.g. franchising, M&A. Integrating effectively to local market infrastructure: networking, value chain analysis and partnering support. Creating effective partnering strategies to expand local and global credibility and resources: international, local or Finnish partners or networks with complementing know how and services (KIBS) Managing service delivery and customer relationship in networked business model. Role of technology platforms or tools in supporting service process and quality The findings of the study have been discussed with Tekes and Finpro partner organizations as well as service companies to test the relevance of the conclusions. Additional conclusions that came from discussing study findings with the reference groups include: Public support focus and relevance must be increased. Leading service companies in Finland are still small in global markets. Complexity of services internationalization makes it important to support even mature service companies looking for new growth opportunities in global markets. High potential lies also in small but globally scalable service concepts where early globalization is essential for competitive and business model reasons. New instruments or programs as such are not needed but in order to reach and attract the most promising companies and concepts communications on support availability and offering must be more focused and relevant. Mixture of methods should be used in supporting internationalization of service companies. Consultative support services should be completed with opportunities for networking and sharing of learnings e.g. training, sparring and mentoring, networking and exchange of learnings with Finnish or international service companies and networks, case analysis/presentations and benchmarking studies, market studies, thematic workshops or consultations, and networking with target market industry organizations or research. - 19 -
6 Summary of case companies The cases study covers 18 companies in retail and KIBS sectors. Six cases are from retail with focus on fashion and lifestyle concepts. 12 cases are KIBS companies with focus on management consulting, technical consulting and marketing communications. Retail cases include four home design and lifestyle brands and two online concepts based on innovative mass customization strategies. The lifestyle cases include Zone Company - Danish home design chain, Hemtex - Swedish home textile chain, Pentik - Finnish home lifestyle brand, and Conran shop - UK home lifestyle brand. Conran brand is one the most well know lifestyle brands in UK. The Conran group consists of several business units related to lifestyle and design (D&D restaurants, Conran Shop, Conran design studio, and licensing). Conran Shops are located in key cities worldwide (New York, Paris, Tokyo and other major cities in Japan) and even with only few international shops the brand visibility is maintained by the Conran group promotion. Hemtex is the leading home textile chain in the Nordic region. Hemtex started in Sweden in 1973 and today they operate 208 stores in Sweden, Norway, Denmark, Finland, Estonia and Poland. Pentik is a major interior design retailer in Finland growing international through own shops and franchising. The retail operations include over 70 stores in Finland, Sweden, Norway and Switzerland. Zone Company was founded in 1997 and after home based growth it has grown international through wholesale operations and franchise shops. Zone has total 28 shops in Sweden, Iceland, Poland, Middle- and Far-East. Online channel enables building totally new retail concepts with innovation opportunities in personalized offering and mass customization. Success cases combined innovative customer proposition with total service offering covering cost effective production and logistics processes for mass customized products. Leftfoot is a Finnish retail concept offering mass customized shoes through specialized service points (shop in shops) and online. The concept combines specialist software and technology for customized shoe design and production as well as online repeat order and delivery system supporting global sales. Left foot has currently nine retail shops serving global customers (Finland, Germany, Malaysia and Japan). Spreadshirt is a German online service that allows individuals, companies or institutions set up their own online shop and design their own products for sale. Current product range includes T- shirts and some closely related articles. Spreadshirt has today 10 international branch offices in Europe and US and they serve 13 countries, with 2/3 of turnover coming outside German market. KIBS cases include consulting companies in strategy consulting, marketing/digital marketing, engineering, architecture and design. Quest Worldwide, Roland Berger, ICUnet and Whatif offer management consulting services, ranging from more traditional strategy consulting to innovation management, intercultural services and policy consulting. Force Technology, Whitbybird, and Evata are engineering based KIBS offering engineering, technology, architectural and real estate consultancy services. Marketing related cases include TradeDoubler (digital marketing), YouGov (online research), Komdat (online marketing), and Contra (marketing agency). Contra is a Finnish marketing agency focusing on B2B customers. Taking very untraditional growth approach the company started with a focused internationalization strategy and opened their first international office during the company s start up phase. - 20 -