Internationalization And Small Business Management In Northern Denmark 9781909112308

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INTERNATIONALIZATION AND SMALL BUSINESS MANAGEMENT IN NORTHERN DENMARK

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Published by Adonis & Abbey Publishers Ltd United Kingdom P.O. Box 43418 London SE11 4XZ http://www.adonis-abbey.com Nigeria: No. 3, Akanu Ibiam Str. Asokoro, P.O. Box 1056, Abuja. Year of Publication 2013. Copyright © Hamid Moini, John Kuada & Arnim Decker British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library ISBN: 978-1-909112-30-8 The moral right of the author has been asserted All rights reserved. No part of this book may be reproduced, stored in a retrieval system or transmitted at any time or by any means without the prior permission of the publisher

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ernati

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IINTERNA ATIONALIZATION N AND SM MALL BUS SINESS MANA AGEMEN NT IN NOR RTHERN N DENMA ARK

Ha amid Moini, John Kuad da and Arn nim Decker

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TABLE OF CONTENT Dedication ……………………………………………………………….....vi Chapter 1 Introduction to Internationalization of Smaller Businesses …………………………………………………………………...7 Chapter 2 Dominant Characteristics of Family and Non-family Small Businesses ………………………………………………………………….14 Chapter 3 Internationalization Process of Small Businesses …………………………………………………………….……26 Chapter 4: Overview of Research Cases: Family-Owned Firms Perspective…………………………..……...39 ScanBelt.....................................................................43 Fjerritslev Tryk...........................................................58 PSE Group..................................................................67 Frontego A/S………………………….…………….81 Gl. Bedsted Industry A/S………………………....…92 Chapter 5: Overview of Research Cases: Non-Family-Owned Firms perspective………………………………………..101 Judex……………………………..………...…..….106 Kellpo..………………………………..………..….119 Scanca Isolering ApS…………………..….………132

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Logimatic Engineering A/S………….……….…..140 Tylstrup Kager A/S………….……………………150 Chapter 6 Comparison of Family-Owned and Non-family Owned Businesses ………………………………………………….………….…160 Chapter 7 Conclusions and Future Research …………………………………………………………..……164 Bibliography ………………………………………………………………..170 Index …………………………………………………………......…179

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DEDICATION

This book is dedicated to my wife Mitra -Hamid Moini To Gitte, Esi and Senyo for their love and understanding -John Kuada To my children Gereon and Judith -Arnim Decker

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CHAPTER 1 Introduction to Internationalization of Small Businesses The last two decades have witnessed a surge in academic interest in the internationalization processes of small businesses (Dyer & Dyer, 2009; Segaro, 2010). This growing interest has its justification in the awareness that most small and medium-sized businesses all over the world contribute substantially to wealth and job creation (Casillas, Moreno, & Barbero, 2011). A central conclusion from the existing literature is that ownership is a key variable in understanding the managerial decision making processes that shape the internationalization paths of small businesses (Donckels and Frohlich, 1991; Zahra, 2003). Following scholars such as Hitt, Hoskisson, and Kim (1997), Gallo and García-Pont (1996) as well as Peng (2001), a firm’s ability to leverage strategic capabilities and resources is a defining factor in its ability to seek and take advantage of international business opportunities. Thus small firms with resource advantages are more likely to exploit international business opportunities. Previous studies have shown that familyowned businesses tend to be more constrained in their access to financial resources than nonfamily firms (Gallo and García-Pont, 1996). But the strong relational networks and social capital, which constitute (the) dominant characteristic of family businesses, tend to compensate for their resource disadvantages. For example, employees of family businesses are reputed for their strong sense of duty towards their businesses (Astrachan, 2010) and this encourages them to adopt non-traditional growth enhancing strategies (Kotey and Folker, 2007;Kontinen and Ojala, 2010; Abdellatif, Amann, and Jaussaud, 2010; Okoroafo and Koh, 2010). Thus, the differences between family and nonfamily-owned businesses are significant enough to require research attention, especially in investigations of the internationalization processes of small firms.

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In spite of this awareness, comparison of the internationalization process of family and nonfamily businesses has been found to be widely neglected in the international business literature (Abdellatif et al., 2010). Furthermore, although researchers have been engaged in theory and concept development in this strand of research (Chrisman et al., 2003; Cerrato and Piva, 2012), the ownership variable seems to be neglected in most empirical investigations of factors that influence the internationalization processes of these businesses. Furthermore, with few exceptions, the available empirical investigations have been done on bigger developed countries such as the USA (Sundaramurthy and Dean, 2008; Okoroafo and Koh, 2010), Spain (Claver, et al., 2008; Puig and FerdanezPerez, 2009), France, (Ducassy and Prevopt, 2010), and Japan (Abdellatif, et al., 2010). Smaller countries appear to have been neglected in the current stream of research. In more recent years investigations in Finland (Kontinen and Ojala, 2010, 2011) and the Czech Republic (Moini, et al., 2010) have suggested that the internationalization processes of small businesses in smaller economies deserve special attention. Three reasons legitimize such a focus. First, due to the limited home market, businesses in small countries tend to undertake rapid internationalization to achieve economies of scale. Second, the operational contexts of these businesses differ from those of the larger economies. Policy makers in the small economies are more likely to show a greater inclination to adopt policies that shape the operational environments of small businesses with good results (Felsenstein and Fleischer, 2002; Pollard, 2003; Nischalke and Schöllmann, 2005). Third, previous studies have shown that new small businesses are likely to start in the home region of their founders (Stam, 2007). Once established, they tend to be economically and socially anchored in that environment and depend greatly on the locationally embedded resources to grow (Pellenbarg, Van Wisse and Van Dijk, 2002). These location-bound resources help shape their growth trajectory (Rugman and Verbeke, 1992; Kenny and Patton, 2005; Audretsch, and Dohse, 2007). It has also been 8

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noted that this locational attachment appears to be more pronounced for small family businesses. As Kahn and Henderson (1992:271) argue “Proximity to family residence or ancestral home, security of the family network, and availability of familiar recreational and cultural activities may be valued highly by the family, possibly overriding more economic concerns of the business such as proximity to markets, wage rates, and business taxes in influencing the location decision.” These considerations suggest that it is a lot easier for government institutions to encourage family business formation in regions where their entrepreneurial citizens live than to convince nonfamily businesses to relocate to such regions. The study presented in this book has been motivated by the above considerations. It is an empirical investigation of the intern ationalizati-on processes of ten randomly selected small businesses in the northern region of Denmark. The study is not intended to be a comprehensive overview of how smaller Danish businesses internationalize their operations. Its ambition is rather modest. It simply tells the stories of these businesses with the hope of throwing additional light on how ownership impacts the internationalization processes of small businesses. We seek to make three contributions to the existing literature. First, we provide additional evidence that enhances our understanding of the internationalization processes of small businesses located in small remote regions under the assumption that business location matters in understanding the comparative and competitive advantages/disadvantages that small businesses enjoy or suffer. In this regard, our aim is to investigate the similarities and differences in their internationalization process, bearing in mind the role of ownership in these processes. Second, based on the premise that ownership influences the decisions that small business managers make, we seek to compare the decision-making behaviors of family and nonfamily owned small businesses. Third, by focusing on businesses in one region, we provide evidence on how regional policies tend to impact the growth trajectories of the businesses. 9

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The Research Context The northern region of Denmark was established as an administrative region on January 1, 2007 as part of a comprehensive municipal reform in Denmark. The reform replaced the previous county structures with five larger regions. Northern Denmark region now consists of 11 municipalities, which together cover 7,933 km2 and have a population of 580,000 people. A report on the economic growth trends within the region showed that incomes in the region are 8 percent lower than the national average and have increased at a slower rate than the national average between 1995 and 2005 (Copenhagen Economics, 2005). This trend has even worsened in more recent years due to a relatively weaker rate of economic growth in the region. The region also lags behind the other four regions of the country in terms of human resource development in general and in enterprise formation. That is, the rates at which new businesses are established and grow are less than the national average, partly due to a relatively weak entrepreneurial culture in the region. Paradoxically, the region boasts high rates of innovation and new product development within certain industry sectors. For example, earlier studies have shown that a wireless communications equipment cluster emerged in the region in the early 1980s (Dalum, 1995). The cluster consisted of approximately 35 businesses some of which were at the forefront in the development of GSM mobile phone technology in the early 1990s and has also developed competencies within cordless phone and Bluetooth technologies (Dahl and Pedersen, 2002). There is also a good relationship between higher education institutions, political and administrative institutions, and the business community in the region. These inter-institutional linkages have shaped the environment for private enterprise development. Several private enterprise promotion programs have been initiated with the support from the European Regional Development since the 1990s (Halkier and Damborg, 1999). In terms of quality of life, the region harbors some of the best 10

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vacation resorts in the country. Being farther away from the major urban centers, it also has a lower crime rate. Thus, put together, the operational context of the businesses covered in this study has characteristics that can constrain or promote family business development. Approach As indicated earlier, we have used a multiple case-study method in our investigations. This allows us to do our analysis within each case setting and across the various cases. We were therefore able to discuss the similarities and differences between the cases. The choice of this approach is consistent with recent studies of the activities of small businesses, which have the objective of investigating the dynamic decision making processes of entrepreneurs and their internationalization processes (Moini et al. 2010). The data collection was carried out through personal interviews with owners between October 2011 and January 2012. The participating businesses were randomly selected from a database of 600 businesses from the region. We used the following three criteria in selecting all the cases: (1) The business is located in the northern region of Denmark, (2) The firm has less than 250 employees, and (3) The firm was already engaged in international activities. Three additional criteria were used to identify the familyowned businesses: (1) (2) (3)

The family is either wholly or the majority owner, The family must be represented in top management of the business, and The business must perceive itself as family-owned 11

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business. During the interviews, questions were asked and the interviewers took notes. Complete write-ups were prepared on each case business, focusing on the specific characteristics of each case situation. Supplementary data were also collected from secondary sources within the ten businesses. The secondary materials were used mainly to understand the history and the products of each firm. Structure of the Book The discussions in the book are presented in two main parts: (a) A theoretical part, and (b) An empirical part. Chapters two, three and four provide the theoretical platform on which our empirical discussions are founded. The empirical part of the book consists of presenting and analyzing the ten businesses, focusing attention on the critical incidents that have shaped the history of each business. We have therefore provided detailed descriptions of the background and motives underlying their establishment, the nature of their products and industries, their competitive advantages and growth opportunities. The descriptions also provide insight into the managers’ decision-making styles and processes, their assessment of the importance of various macroeconomic conditions on their operations, their market opportunity identification methods, and what they perceive as major obstacles to their growth in the immediate future. In sum we describe each business in the book in terms of the following dimensions:

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• • • • • • • • • • •

Business Background Products Focus of the Business Competitive Advantage Importance of Economic Conditions Future of the Business Systematic Decision Making Process Initial International Markets Systematic Exploration of International Opportunities Export Obstacles Future Markets

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CHAPTER 2 Dominant Characteristics of Family and Non-Family Small Businesses Chapter one presented an argument that ownership is a key variable in understanding the managerial decisions of small businesses as well as their internationalization and growth paths. A quick look at the small business literature shows that scholars frequently draw distinctions between family and nonfamily owned businesses. Following Villalonga and Amit (2004) most definitions of family businesses include at least the following three dimensions: 1. One or several families hold a significant part of the business’s capital. Ownership is therefore non-diversified and kinship-based 2. Family members retain significant control over the business (e.g., distribution of capital, voting rights) with possible statutory or legal restrictions 3. Family members hold top management positions. In contrast, nonfamily businesses operate with diversified ownership and a higher degree of professionalized management (Martínez, Stöhr, and Quiroga, 2007). Despite the apparent reluctance to “professionalize” the management of family businesses, the available literature acknowledges that the strengths inherent in family business operations allow them to survive in environments that nonfamily businesses may be unable to operate. This chapter provides an overview of some of the defining characteristics of family businesses and discusses how their ownership influences their resource configurations, management decision making, attitude to growth and the relationships between their managers and employees. This book argues that these characteristics shape the internationalization process, 14

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market entry decisions and strategies. By focusing its discussions on family businesses this book, by implication, sets them apart from their nonfamily counterparts. Familiness as a Defining Construct Prior research suggests that family businesses perform better and enjoy a stable (although not very large) financial base than nonfamily businesses (Allouche et al, 2008; Abdellatif et al., 2010). What are some of the possible sources of this advantage? Following Sharma, Chrisman and Chua (1997) the advantages may be partly derived from the shared traditions and values that are rooted in the history of the businesses and guide management decisions on issues of strategic concern for their performance. These attributes are captured in the concept of familiness, which is now used in the literature as a summary defining characteristic that distinguishes family businesses from their nonfamily counterparts (Habbershon and Williams, 1999). Zellweger, et al. (2010) argue that familiness is a multi-dimensional construct that needs to be better understood, as it can affect the competitive advantage of family businesses. It is the basic necessary condition for a family to exercise influence on the family business and sets the minimum threshold for considering a business a family business. Kontinen and Ojala (2011) argue that family SMEs use bonding capital to build and strengthen their network positions in both local and foreign markets. The family capital enhances managers’ serendipity and efficacy in their business operations. But familiness can also become a drag on business operations in some contexts. Habbershon and Williams (1999:11) define familiness as “the unique bundle of resources a particular business has because of the interactions between the family, its individual members and the business”. In practical terms family owners and employees tend to cultivate strong sense of duty towards their businesses and place a greater emphasis on the survival of the business than on their private well being (Astrachan, 2010). This encourages such businesses to adopt non-traditional growth-enhancing 15

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strategies (Abdellatif, Amann, and Jaussaud, 2010; Okoroafo and Koh, 2010) Thus, Kontinen and Ojala, (2011) suggest that familiness may encourage the development of “hard-to-duplicate capabilities” that allow family businesses to survive and grow in adverse economic environments. This attribute embraces what Sirmon and Hitt (2003) call “human capital” – i.e. the extraordinary commitment, warm, friendly and intimate relationships, and the potential for deep business-specific tacit knowledge that fosters long-term relationships with customers (Zellweger et al., 2010). Business partners feel as if belonging to an extended family. This personal approach to doing business facilitates the development of strong networks of relationships with both internal and external stakeholders. Thus, if we lean on the resource-based view scholars’ argument that intangible resources are more value-adding than tangible resources (Barney, 1991), it can be conjectured that family businesses tend to demonstrate a greater capacity to leverage intangible resources through their long-term orientation and propensity to adopt relational management approaches. It has also been argued that the boundaries between work and private lives of family members tend to be blurred in familyowned businesses (Habbershon and Williams, 1999). Familiness is, however, not a binary construct. Some family businesses may exhibit a higher degree of the above characteristics than others due (among other things) to differences in the personality of their owners and the historical events that have shaped their business cultures. Performance and Growth A number of studies have compared the performance of the family and non-family firms (Anderson and Reeb, 2003; Miller and Breton-Miller, 2006; Villalonga and Amit, 2006). Scholars leaning on agency theory argue that family firms will outperform non-family firms because the separation of ownership and control allows non-family firm managers to maximize their own utility function at the expense of firm profits (Demetz and Lehn 16

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1985; Randoy & Goel, 2003). In addition, the personal and emotional stake family members have in their firm makes them more committed to business success (Davis 1983). However, as outlined above, recent studies have indicated that family businesses are not without their own agency problems. Thus, the determination of which type of firm is most affected by their respective agency costs is a matter for empirical analysis. Some studies have suggested that making economic profit may not always be the overriding objective for family business owners socio- emotional wealth may count a lot more. The noneconomic objectives may adversely influence growth orientations of such firms (Habberson and William, 1999). The growth trajectories of successful small businesses are classified into three stages – start-up, growth, and maturity. The start-up stage is usually characterized by activities such as identification of business opportunities, shaping these opportunities into business concepts, assessment of the feasibility of the concepts, creating business plans and launching the new businesses. Some businesses may never gain sufficient customer acceptance to justify their survival and may therefore fold-up as quickly as they started, when the entrepreneur’s capital base dries up. Those that survive may grow in profitability and size and move on to the growth stage. During the growth stage the business is likely to experience expansion of its activities and enhancement of its customer base as its products and services gain acceptance in the marketplace and the number of key customer’s increases alongside profit margins. At the same time this stage presents newer and more substantial problems. One of the challenges is for the owner-manager to plough back the increasing profits and resources and pursue a growth path or to exploit the resources to serve his other non-business interests. Family-owned businesses tend to have difficulties leveraging external sources of capital since the owners may not trust outsiders to maintain the family’s values and objectives. Similarly, outsiders are also cautious of investing in family firms due to the lack of trust by family insiders. 17

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Those who opt for the growth path may need to develop a different set of skills without losing the "entrepreneurial perspective" that characterizes the start-up stage of the business. Some entrepreneurs find the transition in management approaches rather difficult. At the same time they are unwilling to give up the overall decision-making responsibilities to a team of professional managers (Tesar et al., 2010). The maturity stage is often characterized by increased competition; saturation of the market (as a result of new entrants with similar products) and, possible consumer indifference to products offered by the entrepreneur and considered highly exciting during the start-up and growth stages. Innovation therefore becomes even more critical to future success. Some entrepreneurs may develop a sense of complacency and fail to innovate. The enterprise therefore swings quickly into decline. Entrepreneurs that respond to the challenges by adopting a professionalized management style and encouraging innovative initiatives throughout their businesses tend to excel and grow even further. Profiles of Owner-Managers Growth depends on entrepreneurs’ willingness and ability to change their management styles in response to the changing needs of a growing business. It also depends on their owners’ preparedness to invite new talents to steward the transition processes. However, some managers are simply not capable of changing their management styles and abilities to make decisions. Tesar et al (2010) suggest that owner managers of small businesses may be easily classified into three broad categories, taking cognizance of their managerial abilities, skills, and approaches to decision making. These are: 1. Craftsman managers 2. Promoter managers 3. Rational managers

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Craftsman managers are normally directly involved with the operations of the enterprise and are usually not interested in innovation. They owe their survival to their ability to supply products that are totally uneconomical for larger enterprises to produce. Craftsman managers may change with experience, adjusting their managerial styles to the needs of the changing business environment and internal growth processes. As the label implies, promoter managers actively promote their enterprises and products. They tend to have very strong entrepreneurial skills and charismatic leadership qualities that motivate employees to strive for a better future. They tend to be somewhat impulsive, using their operational experiences to improve their management practices. They are also usually growth-oriented, driven by the desire to expand the market operations of their businesses and improve the competitive position of their businesses. But as rapid growth and expanding organizational complexity brings uncertainty, these managers are likely to adopt conservative business and leadership practices. Rational managers are basically promoter managers who manage to grow their businesses and change their management styles in response to the needs of their enterprises. They usually have good abilities to reorganize and restructure their businesses in a manner that enables them to compete both in domestic and in international markets. They plan systematically for technical development and automatically introduce innovation. Their employees are highly skilled and perform homogenous functions within set standards that are determined by the overall philosophy and core competence of the enterprise. Following Tesar et al (2010) some craftsman managers cannot move on to become promoter managers or, eventually, rational managers. They do not have the necessary foresight and abilities to anticipate what is needed to achieve higher growth. The differences in decision-making styles among the three categories of managers are important for several reasons. First, individual managers need to understand how and when to make appropriate decisions to grow an enterprise and, if they do not 19

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have this understanding, they need to know when to step back and let a more qualified manager take over. Second, the manager needs to anticipate the decisions that are needed to reinforce the growth of the enterprise. If the manager is not able to make these decisions, the enterprise will not grow. Third, as the operational environments of the businesses become increasingly competitive the managers must constantly be aware of their position in the global marketplace. However, the decision on how to compete and when to internationalize can be overwhelming for inexperienced managers and, again, they may have to be replaced by more experienced managers. The importance of the above discussions to the investigations reported in this book must be seen in the light of the relationship between management styles and firm growth. Previous studies have shown that there are national peculiarities in the manner in which managers behave (Hofstede, 2001). That is, whether employees are encouraged to consider themselves as owners of the businesses in which they work and to behave likewise or whether they will be closely supervised will depend on the society in which a particular business is located and the rules of accepted management behavior in that society. This book will therefore take a closer look at the dominant management styles in Denmark and examine the extent to which they are reflected in the behaviors of the managers we interview and the implications they carry for the growth of their businesses. Business-Employee Fit The concept of work engagement and its impact on job satisfaction, organizational commitment and organizational performance has been widely researched by management scholars during the past three decades (Kahn, 1990). Specifically, work engagement refers to the degree to which employees within an organization are willing to perform their best, and willingness of employees to go the extra mile to ensure organizational goal attainment (Bakker et al., 2004; Schaufeli et al., 2006). 20

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One strand of research focuses its attention on the compatibility between individuals and organizations with specific emphasis on the degree of congruence between an individual’s needs, capabilities and aspirations, and the climate created within the organizational environment to fulfill these needs. Another strand concerns itself with the fit between the demands of the organization and its management and the employees’ abilities. According to Kristof (1996: 4-5), personorganization fit refers to “compatibility between people and organizations that occurs when (a) at least one entity provides what the other needs, or (b) they share similar fundamental characteristics, or (c) both”. Thus, the compatibility construct represents a win-win situation where employees complement the organization’s demands by applying their abilities to fulfill organizational goals while owners and managers satisfy employees’ needs through financial and psychological rewards and incentives. As hinted above the family business literature suggests that the owner-managers of family businesses tend to create warm and friendly work environments for their employees and thereby enhance their work engagement and commitment. Employees tend to have easy access to management and experience a sense of identification to the business (Kets de Vries, 1993). This motivates them to commit to achieving the business and family goals (Kotey and Folker, 2007). Donckels and Frohlich (1991) argue that family businesses tend to pay more wages and care more about their employees than nonfamily businesses. It has also been argued that family businesses are more likely to have values such as honesty, integrity and straightforwardness more deeply embedded within both the family and the business (Abdellatif et al., 2010). Many family businesses therefore experience remarkable long-term commitment and employee loyalty. These characteristics create some challenges as well. Examples include hanging on to staff out of loyalty rather than because they are right for the business at any given time in the 21

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history of the business. Thus, family businesses may become too dependent on too few key members of staff and may find it more difficult than other businesses to introduce and assimilate new talents (Habbershon and Williams, 1999). Family businesses may also be less likely to be concerned with the participation of employees in decision-making than their nonfamily counterparts (Donckels and Frohlich, 1991). Owner managers seem to adopt the view that employees are looked after and therefore do not need to be consulted on issues pertaining to the business. This means employee training in strategic decision making may be limited because competent employees are perceived as a threat to the proprietor's desire to retain control of the business (Kotey and Folker, 2007). Control and Decision-making The existing literature provides divergent perspectives on how ownership impacts decision-making processes in small businesses. On the one hand, the overriding importance of family interests and values in strategic decisions has been suggested as a distinctive difference between family and nonfamily-owned businesses (Sharma et al 1997). Informality is seen as a dominant characteristic of owners’ approach to management (Reid and Adams 2001). Others suggest that the structure of family businesses tends to enable flexibility, speed of decisionmaking and pragmatism. Family businesses have a particularly ‘personal’ approach to doing business and have strong relationships with clients, customers and key suppliers, enabling deep, embedded knowledge about them. This enables businesses to respond to their needs and foster long-term relationships. On the other hand owner-managers exhibit reluctance to delegate control to professional managers due partly to insufficient knowledge of management techniques (Sharma et al, 1997; Kotey and Folker, 2007). Sibling rivalry has also been suggested as one of the major weaknesses in the decision making process of family businesses, especially when the parents are getting old and are contemplating 22

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retiring from operational duties (Friedman, 1991; Sharma et al, 1997). Suggestions to resolve dysfunctional sibling relationships include encouraging open communication and discussions among the siblings about the roots of their rivalries, establishing empathy by inviting them to imagine their roles reversed, and encouraging them to redefine current relationships (Friedman, 1991; Lundberg, 1994). It has also been argued that the ability to ensure competent family leadership across the generations in family businesses is a major challenge for family businesses and may cause the demise of some of them. Studies reveal that only one third of these firms survive into the second generation, and less than 20 per cent survive into the third generation (Birley, 1986; Danco, 1987). Locational Embeddedness We have earlier noted that location is a key factor in small business management. This factor has also received substantial attention in economic sociology as well as economic geography. For example, Granovetter (1985) introduced the concept of embeddedness to describe the dynamic interactions between businesses and their operational environments. He argues that the social and cultural context in which businesses operate can harbor forces of innovation, collective efficiency, network resources and human drive that combine to shape business-level economic action. Conversely, the socio-cultural context can also be a source of constraining forces in the form of collective inefficiencies and disadvantages as well as inclinations to mediocre performance of businesses and institutions. Thus location and the socio-cultural contexts of businesses matter in understanding the growth trajectories of small businesses. This sociological perspective on business management derives partly from the social network theory. Studies leaning on this theory emphasize relational constituents such as social and emotional attachments, information flows and general interpersonal understanding to explain the growth potentials of 23

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entrepreneurial activities. The structural argument is presented by Burt (2001:257) as follows: “certain people (in most social structures) are connected to certain others, trusting certain others, obligated to support certain others, and dependent on exchange with certain others”. But this means that social networks produce “in-groups” and “out-groups”. Expressed differently, social networks may reflect characteristics of cohesiveness or may be loose-knit. Granovetter (1985) argues that dense close-knit networks in which members interact intensively with each other (i.e. form strong ties) become exclusively self-sufficient, while the loose-knit ones (i.e. those with weak ties) are more open and are therefore likely to access new information from the environment within which they are located. Building on the social network theory scholars such as Coleman (1988), Sabel (1993), Hyden (1997), Unger (1998), Portes (1998), and Barr (2000) have popularized the concept of social capital as a construct that describes the outcomes of positive relations and forms the basis of trust building. The term “social capital” is used as a summary construct of benefits that accrue to an individual by virtue of his participation in social ties or networks (Nahapiet and Ghoshal, 1998). The benefits include new information about business opportunities, lower costs of transactions due to lower monitoring costs, willingness of business partners to engage in joint resource creation and ability to leverage external resources by the aid of referrals. Earlier it was argued that family businesses are characterized by close relationships between management and employees. The social network theory highlights the potential locational advantages that family businesses may draw from their embeddedness in a familiar social environment where commonly shared norms and values define the rules of business engagement. Thus, together, owner-managers’ leadership styles and their social network positions in their communities combine to provide them with intangible resources that may compensate fully or partly for the advantages that nonfamily businesses may enjoy. This explains why some family businesses may perform 24

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better than their nonfamily counterparts within the same industry and location in spite of their apparent limited financial resources.

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CHAPTER 3 Internationalization Process of Small Businesses Kuada and Sørensen (1999) propose that theories of international -lization can be purposefully classified into two broad categories: (1) Downstream internationalization theories, and (2) Upstream internationalization theories. Scholars adopting the first set of theories have focused their attention on understanding the processes that relate to firms' initial entry into foreign markets, including their motives for internationalization, their choice of entry modes, as well as the strategies adopted to chart the path of their onward process of internationalization and to improve their performance (Bilkey and Tesar, 1977; Johanson and Vahlne, 1977; Cavusgil, 1980; Cavusgil and Nevin, 1981; Leonidou et al 2010). The second stream of studies focuses attention on the later stages in the internationalization process of firms where many of them decide to locate parts of their production abroad or to internationally outsource some of their value creation activities. These studies also discuss linkages between home market-based firms and their foreign suppliers of inputs and other resources. They show how such firms can leverage new resources and upgrade their competencies through such upstream relationships. The theoretical foundations of these studies are found partly in Dunnings eclectic theory (Dunning, 1988), Vernon’s International Product Life Cycle studies (Vernon, 1966), and studies of international value chains and production networks (Gereffi, 1994; Gereffi et al. 2005). Mainly the first strand of research has guided studies of the internationalization processes of family and nonfamily businesses. We argue in this study that examining the internationalization process of small Danish businesses in Northern Denmark from both upstream and downstream perspectives is useful since the ability of some small firms to 26

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leverage resources through upstream international relationships help to improve their export opportunities and competitiveness. This chapter therefore seeks to provide an overview of the two streams of internationalization studies and relate them to the central issues addressed in the present study. Downstream Internationalization Theories As hinted above, large proportion of the frequently cited publications on the internationalization process of firms tend to view internationalization as a downstream activity. The dominant models of internationalization are predicated on the general assumption that firms proceed with their internationalization in a gradual and sequential manner. That is, internationalization increases in a step-like fashion, firms moving to the next stage only after sufficient experience has been acquired from the preceding stage and the uncertainty surrounding the next stage has been substantially reduced (Johanson and Vahlne, 1977; Bilkey and Tesar, 1977; Cavusgil, 1984). Stages of Internationalization This process of internationalization has been popularized in the studies of Uppsala scholars and is generally referred to as the stages theory of internationalization. As indicated above, the theory holds that the internationalization process consists of a number of identifiable and distinct stages with higher-level stages indicating higher degrees of internationalization and commitment to foreign markets. Varieties of the stages theory differ only in terms of the number of stages and the actual parameters that trigger the change (Bilkey and Tesar, 1977; Cavusgil, 1980). Further, the stages theory sees knowledge acquisition as an essential requirement in the internationalization process of firms. Knowledge is, however, acquired experientially, i.e. through reflections on individuals’ actions as well as the collective actions of the firms. The experience gained at each stage 27

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provides management with the information to either adopt or reject the option of further international commitment. Following Eriksson et al. (1997), international firms require three kinds of knowledge: (1) Foreign business knowledge, (2) Foreign institutional knowledge, and (3) Internationalization knowledge. They define the foreign business knowledge component to cover knowledge about suppliers, clients, competitors and the market. Foreign institutional knowledge covers knowledge about government policies, bureaucratic regulations, and culture (broadly defined to include business practices, as well as societal values, norms and accepted rules of behavior). Internationalization knowledge describes the firm’s general understanding of how to do business outside the home country and includes an insight into the procedures that facilitate international operations. Furthermore, it is assumed that as the export experience of a firm increases, its managers gain better understanding of export mechanisms and are likely to perceive lesser uncertainty in their exporting activities. Thus, Cavusgil (1984) argues that non-exporting firms and marginally active exporters tend to be more pessimistic in their evaluation of risks, costs and profits than active exporters. The international business literature has registered severe limitations in the stages theory. First, it has been argued that the importance attached to experiential knowledge constitutes both strength and weakness of the stages theory. Experiences are slow to build, shared and integrated within firms. Thus, if firms base their international decisions largely on experiential knowledge, their internationalization process would invariably be slow. This will be a major disadvantage in a dynamic economy where business opportunities quickly change. Second, it has been empirically demonstrated that the choice of entry strategies does not always correspond to the sequential step-by-step approach suggested in the stages theory. Some firms may enter a new 28

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market via a direct export route but may serve the same market subsequently through an indirect export route, depending on their assessment of the relative pay-offs of the two entry strategies (Turnbull 1987). Third, when firms enter a foreign market they will usually be disadvantaged vis-à-vis the indigenous firms in terms of familiarity with the local business environment. This unfamiliarity is labeled ‘liability of foreignness’ (Zaheer 1995), and is presumed to raise the entrant firms’ levels of operational uncertainty with regard to relations with local actors. This implies that some businesses may experience serious difficulties in their internationalization process in some countries. Fourth, firms may overestimate the similarities between neighboring countries. Even countries that share language, historical, and legal traditions, often have very different institutions that do not allow the simple transfer of business practices and attitudes across borders. In addition to this, the contention that most businesses must have a strong domestic market base before venturing abroad runs counter to the operational conditions found in most small countries and economies. For one thing, the small sizes of the home markets of firms in most small countries do not offer them opportunities to enjoy economies of scale and growth through the accumulation and use of domestic resources. The Network Perspective of Internationalization While proponents of the stages theory assume that firms stand alone in developing their market entry strategies, another group of researchers see business activities among firms as characterised by interactions and mutual interdependence. These scholars have worked mostly within the International Marketing and Purchasing (IMP) group and their studies constitute the core of what is now referred to as the network theory of internationalization. The main contribution of the network theory to an understanding of the internationalization process of firms lies in 29

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the emphasis on relationship as an exchange governing mechanism. It describes industrial systems as networks of firms engaged in production, distribution and use of goods and services. Firms within this network usually establish lasting business relationships. Thus, the network perspective shifts the focus of the unit of analysis from the individual firms to their relationships. For network scholars, successful international firms must have a network orientation. Having such an orientation encourages firms to identify the roles, strengths and resource configurations of other actors within the network. This helps them position themselves within the network. By positioning themselves within the network of relationships, firms are able to design strategies that improve their access to resources controlled by other firms. The higher the number of contacts, the better it is for the firm as this means access to more networks and providing their managers with greater access to opportunities. Networks exist both within and outside national boundaries. This implies that the internationalization process of firms may be initiated by activities of other firms within cross-border networks. A popular taxonomy in the network literature groups international firms in terms of the degree of internationalization of individual firms on the one hand and the degree of internationalization of the markets in which they operate on the other. Firms with low degrees of internationalization and operating in markets with low levels of internationalization are described as early starters. Those with low degrees of internationalization but operating in highly internationalized markets are classified as late starters. Those with high degrees of internationalization but operating in markets with low levels of internationalization are classified as the lonely internationals, while those whose markets are highly international and have, themselves, high degrees of internationalization are classified as international among others.

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Global Production Chains Parallel to the network studies, another body of literature has emerged to explain changing patterns of production and distribution of goods and services within the global economy. Similar to the network theory, these studies have also acknowledged the vertical linkages in industrial production processes, i.e. tracing it from the first batch of input suppliers within the production chain through to the final user of the product or service. Most of these studies have endorsed the value chain conceptualization popularized in Michael Porter’s work (Porter 1985) and highlight deliberate strategies of trans-national corporations to select firms in different parts of the world to participate in the global value chain. The result of this internationalization strategy is that production is increasingly fragmented across geographic space (Arndt and Kierzkowski, 2001). Porter’s own conceptualization of value chain is reminiscent of the assembly line view of industrial management popular in the beginning of the last century. The chain is perceived as composed of a discrete set of activities performed by independent and potentially rival group of firms, each pursuing its individual goals. Collaboration is seen as a necessity rather than a desire. The primary concern in the value chain management is therefore to ensure optimal performance of each member of the chain in terms of cost effectiveness. Stated differently, the optimization task means that the appropriate inputs are in the right place at the right time and that the flow of products and processes are facilitated through the chain. Gereffi (1994) introduced the concept of Global Commodity Chains (GCC) to describe the coordination systems in value chains dominated by trans-national corporations. He argued that value chains found in capital-intensive sectors such as the automotive and aircraft industry are driven by major producers and are therefore referred to as producer–driven commodity chains. Such industries are characterized by extensive 31

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international subcontracting, controls exercised by the administrative headquarters of trans-national businesses, and the reliance on economies of scale to reduce overall transactional costs. Therefore, there is a relatively high degree of centralization within these chains and across nations. In industries where transactions and labor costs are important to competitive positioning, the key drivers are the major buyers within the industry. These chains are therefore referred to as buyer-driven commodity chains. Prominent among such chains are those found in garment, footwear, toys, and consumer electronics. The key drivers in these chains focus their resources on research, design, sales and marketing while outsourcing other value added activities within the chain. Chain drivers send signals of cost-efficiency through the chain. In buyer driven chain, dominant buyers demand that their merchandise producers should lower prices. This reinforces the pressure on their contractors down the chain to lower prices of inputs and components supplied. This may necessitate lower wages for employees and the adoption of other cost-cutting strategies within individual firms. The decision of some producers of footwear, garment and consumer electronics to locate their production units in countries with cheap but skilled labor can be partly explained by the systemic effects of costcutting pressure initiated by chain drivers. The investment decisions may result in shifts in positions of firms within the chain. Firms whose investments in countries with cheap labor accords them with temporary static efficiencies may become major suppliers as long as these conditions remain important means of reducing costs within the industry. Successful value chain management is an outcome of a multiplex of economic transactions combined with varieties of organizational development strategies, knowledge flows, and institutional arrangements among stakeholders within a timespace stretch. In other words, the players within the value system must continuously re-assess and re-design their competencies and relationships in order to keep their value-creating systems flexible and responsive. 32

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In sum, three bodies of theory – stagesp theories, network theories and theories of global value chain – constitute the pivot of contemporary studies in downstream internationalization. Some of them have, however, hinted at the importance of the input and supply side of internationalization but fail to explicitly articulate this perspective. We argue below that linking the upstream and downstream sides of internationalization provides a more coherent frame for understanding the internationalization process of firms. Upstream Internationalization The concept of upstream internationalization covers the strategic decision of firms to source parts or all of their inputs (including technology, knowledge and human resources) from foreign sources in order to raise or sustain their competitive positions in target markets (Welch and Luostarinen, 1993; Kuada and Sørensen, 1999). The literature has treated such activities under supply chain management, outsourcing and international strategic alliances (Borys and Jemison, 1989). The theoretical logic of upstream internationalization is that no single firm possesses all resources and capabilities needed for creating value for customers in a rapidly changing economic environment. Thus, if a firm generates its entire added value using domestic resources, its export success will depend exclusively on the quality of the home - based resources only. This may limit its competitiveness in key foreign markets served by firms with more superior local resource bases. It is therefore important for local firms to seek resources from dispersed sources. The more varied their foreign resource leveraging opportunities, the greater their innovative (and therefore operational) capabilities. Upstream resource leveraging is therefore a necessary requirement for downstream international expansion. This thinking has informed strategies of many new international ventures (Zander, 1997). Firms whose internationalization process has followed the conventional 33

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traditional stages approach have also found upstream internationalization highly useful to their corporate resource leveraging strategies. Some strands of the upstream internationalization research have leaned on the resource based perspective of the firm to argue that where the resources required by a firm to generate its value-adding activities are of a general character, easily identifiable or substitutable, the firm may depend on the market to acquire them and may use them in-house to perform the valueadded activities that form the core of its business. But if they are of intangible nature (e.g. tacit knowledge and firm capabilities) the attributes of such resources would render them nearly impossible to buy directly. Therefore, the firm enters into collaborative arrangements with other firms to supply it with the required resources. Thus, most upstream international arrangements are distinctively different from downstream approaches in the sense that they involve fairly long-term inter-firm relationship rather than episodic (and perhaps, opportunistic) transactions. The literature lists several advantages of upstream collaborative arrangements. Contributions to the literature draw on theoretical traditions such as the resource-based perspective on firms (Barney, 1991 and 2001), competence-based perspectives (Prahalad and Hamel, 1990) and knowledge-based perspective (Nelson and Winter, 1982; Inkpen and Crossan, 1995; Grant, 1996; Gulati, 1998; Simonin, 1999). These scholars argue that collaborations do not only provide access to tangible resources. They also enable partners to access the embedded knowledge of co-partners and/or facilitate new knowledge generation (Inkpen and Crossan, 1995). But access to knowledge does not always translate smoothly into usage within the collaborating firms. Receiving firms may find it difficult to comprehend the knowledge due to its inherent characteristics or its cultural peculiarities. Thus, knowledge usage has been found to depend on the capacity of firms to internalize the accessed knowledge or what Huber refers to as “grafting” (Huber, 1991). The lack of absorptive capacity of co34

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partners (Cohen and Levinthal, 1990), arduousness of the relationship between the partnering firms (Szulanski, 1996), and causal ambiguity (Simonin, 1999) have been listed among knowledge transfer barriers. The wisdom in upstream internationalization has also informed discussions in the international supply chain management literature where the focus has been on the management of relations with suppliers in foreign countries and the coordination of an integrated network of business processes. In brief, international supply chain management partly entails making sure that all firms and activities, which are associated with the flow and transformation of goods from the raw materials stage to the final consumer stage, are well synchronized. That is, production scheduling at suppliers’ end of the chain are combined with elaborate logistics arrangements to make this function. Here information and knowledge management play a key role. Information about resources, inventory, output and logistic plans all help improve decisions such as safety stock placement, order replenishment and transshipment in a supply chain. Thus, from an upstream perspective, a firm must be concerned about the selection of a supplier that possesses the best bundle of resources that would deliver the inputs, components and/or resources that it requires under optimal conditions for it to maintain or enhance its competitive position as required by its strategic objectives. The key question is how can we be sure that the supplier does not misrepresent its resources and capabilities? This question has received attention in supply chain management discussions, building on agency analytical frameworks. It has been argued that firms in upstream relationships face two types of vulnerability in their operations. The first is adverse selection which describes the condition under which the firm cannot be certain that competencies that the supplier claims to have are also those required to provide the inputs and resources that it needs for the optimal performance of 35

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its own value-adding activities. The second is what is referred to in agency theory as moral hazards. Moral hazard is the condition under which the firm contracting for the inputs or resources cannot be sure if the supplier has put forth maximal effort (Eisenhardt, 1989). Internationalization of Family and Nonfamily Firms In various ways, almost all the above theories have shaped discussions of the internationalization processes of small family and nonfamily-owned businesses during the last three decades. It has been shown that the motives and attitudes of ownermanagers of family businesses provide important triggering cues for the internationalization process of their businesses (Bilkey and Tesar, 1977). For example, domestic market-dependent family businesses are more likely to initiate their internationalization processes later than their nonfamily counterparts within the same industry and location due to their risk-averse behavior and adaptation inertia. Their internationalization process is therefore likely to conform to the gradual, incremental process suggested in the Uppsala model (Kontinen and Ojala, 2010). Other family business characteristics have been cited to support the stages view of internationalization of family businesses. Following scholars such as (Sirmon and Hitt, 2003) owner-managers tend rely on patient financial capital and adopt long-term orientations to their investment decisions. Thus, Astrachan (2010) asserts that family businesses are among the longest-lived organizations in the world. The fear of losing control over the business makes owner-managers reluctant to leverage external financial resources and therefore prefer a more gradual approach to growth in general and internationalization in particular (Gallo and Sveen 1991; Gallo and Pont, 1996; Casillas and Acedo, 2005; Graves and Thomas, 2008). Some studies have shown that family businesses exhibit tremendous adaptive capacities, responding successfully to changing operational environments when they enter new markets 36

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(Dyer & Whetten, 2006). Their adaptive capacities enhance their competitive advantage in providing solutions to business customers with fluctuating demands (Kontinen & Ojala, 2010). Such enterprises have opportunities to create new high growth businesses, ushering in creative destruction that challenges larger businesses (Tripsas, 1997). Other studies have shown that family businesses are likely to face enormous challenges in their internationalization processes. For example, factors such as the level of technological sophistication, operating capacity, and enterprise resources (e.g. financial and human capital) have been listed as sources of constraint in their internationalization process (Leonidou, et al., 2010). With respect to technology, the argument is that due to financial resource constraints, family businesses may operate with outdated technology and would, therefore, be less able to meet customer requirements with respect to volume and product quality. This would reduce their competiveness in sectors where technologically sophisticated businesses exist (Bonaccorsi, 1992). In addition to these factors, family businesses may be less able to obtain adequate information about foreign market opportunities and business practices due again to human and financial resource limitations (Leonidou and Katsikeas, 1996; Morschett, et al., 2010; Moini, et al., 2010). Furthermore, in family businesses the division between business and personal objectives often becomes blurred (Fernández and Nieto, 2006). As the family investments are not diversified, their owners can be expected to be risk-averse (Donckels and Fröhlich, 1991). These limitations underscore the relevance of the upstream and downstream framework suggested by Kuada and Sørensen (1999). Seeing internationalization as concurrent or sequential upstream and downstream strategic growth activities reduces the significance of national boundaries in defining business opportunities of firms. This is especially true for resource deficient small family businesses. Such firms can leverage resources (including skills and capabilities) through linkages with firms outside their national borders. Thus, upstream 37

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internationalization can be a first step in the growth path of some firms.

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CHAPTER 4 Overview of Research Cases: Family-Owned Firms Perspective Family-owned businesses in Denmark have a long tradition of contributing not only to the local but also to the national and international economies. Many such firms have grown into major players in the global marketplace. Some large Danish multinational firms began as small family operations. Many of these firms have survived numerous domestic and international economic, social, and technological challenges, and they have adjusted by changing their business models and finding more effective and efficient ways to compete and become internationally engaged. Some of the family-owned firms in this study have followed a similar path. The following five cases illustrate some of the challenges and opportunities that owners of Danish family-owned firms are facing today.These firms were randomly selected from those firms that are located in the North Denmark Region that have functioned over a number of years and that mostly are still successfully competing domestically or internationally. They also represent firms that are managed by a group of dynamic owners with broad perspectives of their operations and growth potential. Researchers conducted a series of structured interviews with owners of five family-owned firms in 2011-12. The objectives of these interviews were to learn about how owners of Danish family-owned firms viewed internationalization, and how they manage their operations today. Based on these results we have made a series of comparisons. It is interesting to note that all five of the family-owned firms began as small locally oriented firms with no substantial involvement in foreign markets, yet shortly after they all are directly or indirectly involved with international operations.

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The oldest family-owned firm in the study was established over 100 years ago. The youngest firm was established in 2002. One firm was started by previous family member and was passed on to the current owners. Other individuals started three other firms and the current family owners bought the firms later. One of these three firms has already been passed on to the next generation in the family. Finally, two brothers established the last firm. The current owners whom we interviewed can be classified as two craftsman owners, one promoter owner, and two rational owners. Three of the firms believe that they are primarily job shops. While one of these firms is managed by a craftsman owner, the other two by rational owners. One other firm is classified by its current owner as primarily manufacturing firm managed by a rational owner. The remaining firm focuses on sales and marketing and is managed by a promoter owner. No relationship appears to exist between the primary focus of the firm and its current style of owner. In order for the family-owned firms to succeed and grow, owners need to make decisions, and one would expect that the three types of owners would approach decisions differently. Decisions about new products and markets, including international markets, were typically made by the owners, sometimes with input from other family members or teams of employees appointed by the owner. The exception to this finding was the PSE Group where decisions were made by the Board of Directors and implemented by relevant managers according to policies and procedures. Three family-owned firms began by offering a product perceived by the original owner to be unique. Reflecting on the history of those firms, the current owners pointed out that the founders recognized an opportunity in the market and proceeded to fill it. They attribute their growth and market expansion to the unique product that they manufacture. Through systematic product improvements and innovation, they have managed to maintain their growth and market expansion and in one case, due to the lack of recognition of changing market conditions, its 40

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failure. Even today, the current owners interviewed believe that they offer a unique product of relatively high quality to their customers. In fact, those owners pointed out that their primary competitive advantage is based on the manufacture of a high quality product that is based on innovative technology and supported by superior customer service. One of the familyowned firms suggested that although their products have very low technology contents, the flexibility and having an easy time adjusting to market conditions and customer demands are their biggest competitive advantages. In another case, the owner believes that his competitive advantage arrives from the fact that his company has the best brands of products for the market segments they serve and their highly effective customer service. They try to make it very easy for the customers to purchase or receive other services such as, their convenient return policies. Today, all five family-owned firms serve international markets to some degree. Some of the firms export directly. One firm exports directly but also maintains a sales and distribution center abroad. The initial involvement in international operations differs substantially among the five family-owned firms. Some owners actively pursued entering into foreign markets. Others found their way into foreign market by accident, such as Fjerritslev Tryk. In this case, their first foreign customer was a Swedish publisher whose other Danish printer had gone bankrupt. Since, Fjerritslev Tryk print machines were very similar to the bankrupt company; the Swedish company placed their order with Fjerritslev Tryk. Family-owned firms active in international markets generate somewhere between ten and ninety two percent of their sale volume from exports. Four of the owners in the five cases presented here believe that profits generated from international sales are more than or equally as profitable as those generated from domestic sales. They believe there are significant obstacles to international operations. Most obstacles are not major; for example, collecting payment and pricing products for export are typically perceived as minor obstacles. Two of the owners 41

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believed that their inability to speak foreign languages, as well as, their lack of understanding of foreign cultures as major obstacles to their international operations. Researchers also asked the five owners how they examined and assessed international operations in relation to their firms. Do they systematically examine their international operations? Four firms systematically explore export opportunities but only one of the firms has hired qualified staff to manage its export operations. One firm, which manages to export only ten percent of its products, does neither systematically explore export opportunities nor has hired anyone to improve its exports sales. One of the five family-owned firms started exporting almost from the beginning of its operations. The remaining firms used variety of forms to enter their first foreign market. Three of the five owners interviewed had no policies to evaluate international opportunities. On the other hand, the most successful exporters in the study had policies to search for new geographic markets and new opportunities. Owners of the three family-owned firms that do not have a formal policy to evaluate foreign opportunities have an ongoing process whereby they consider new opportunities as they arise, sometimes without making any real commitment. Most of the owners expect that the road to progress in the next five years will be bumpy, as they have experienced some difficulties due to global financial crisis. How the growth and the other objectives for these firms will be realized is not clear. Only PSE Group expects to grow, develop new products and markets, and perhaps diversify. It appears they have a very structured dayto-day process plan for the years ahead. The following five cases represent family-owned firms that have survived over the span of many years in the North Denmark Region’s economy. Unfortunately, one of the firms (Gl. Bested) has already found it impossible to continue its operations and filed for bankruptcy shortly after our interview. These cases are not presented in any predetermined order. They simply illustrate how current owners of family-owned firms view their present 42

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and potential growth options and their domestic and international operations. Closing comments The five family-owned firms have contributed significantly to their local, regional, and national economies and, to some degree, to the global economy. They also maintain substantial market segments. Over the years, they have survived many changes in their markets and growing competition. The important question is: What is unique about these firms and can other family-owned firms be stimulated to grow domestically and internationally to become better global competitors? A second important question is: How different are family-owned firms operating in the North Region of Denmark from those operating in other parts of Denmark or other countries? ScanBelt Firm Background Mr. Gert Vedel originally established ScanBelt in the mid-1980s. In his previous job, an American firm called Intralox in New Orleans, Louisiana, employed him. Intralox initially came up with the machines for modular plastic belts and still manufactures competing products. After he ended his employment at Intralox he acted as a distributing agent for Intralox products until he fell out of favor with them. Since he had made a lot of money he decided to make his own similar products. Couple of years later he established ScanBelt and purchased molding tools and leased some machinery in order to manufacture modular plastic belts. Unfortunately, he was not successful as he realized that it was far more difficult to compete in this business than he had anticipated. The firm went bankrupt in 1990 and was taken over by a Norwegian firm, which at the time was ScanBelt’s biggest customer. The Norwegian firm was 43

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a machine manufacturer and needed to run ScanBelt in order to fulfill its contracts to build some fishing trawlers for the Russian government. The Vejlstrup family came in 1992 when they bought ScanBelt from the Norwegian firm, which even as of today is a customer of the ScanBelt. Mr. Morten Vejlstrup, the current owner, has been involved in the firm since his father bought the firm and has worked in a number of positions in the firm. He came on board full time in 2002, and became a part owner in 2006, and the sole owner in 2011. His father still has a presence in the firm and consults with his son in managing the firm. Currently, the firm employs more than 30 workers and is one of the larger employers in town. ScanBelt is located in the town of Hjørring in the North of Northern Jutland in the municipality with the same name (Hjørring Kommune). Since the area is traditionally an agricultural region, the municipality has suffered from the decline in food processing industry. Many large slaughterhouses and a dairy firm have shut down their local production facilities in the area and have laid-off numerous employees. The area is also a popular tourist destination with the small coastal town of Løkken as its center, which attracts many domestic and international tourists during the summer months. It also includes the high sea harbor of Hirtshals with a regular ferry service to Norwegian ports. Despite its remote location, the municipality is well connected to the European transport infrastructure through its harbor and the connection to the E39 Highway. Fifty kilometers to the south is the Aalborg airport, which makes it quite easy and convenient to travel by air. The municipality has more than 66,000 inhabitants. Products Modular plastic belts are made of plastic modules and are assembled in an interlocked pattern with full-length hinge rods and have inherently strong design. They are designed to transport bulky or soft, pliable, ready-packed products, which call for the 44

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stable support of a wide chain. When production requires horizontal transport between case packers, cartoners, in-case fillers, shrink/stretch wrappers or bulk packers, the modular plastic belt conveyor is a perfect choice. These modular belts are very durable and can run seven days a week for many years. They are also very quiet, making very little noise compared to conventional plastic conveyor system. ScanBelt describes itself as one of the leading manufacturers of plastic modular conveyor belts. Its product line includes more than 40 different products. According to the firm the fact that all of them are produced in their local facility in Hjørring allows for a high degree of flexibility. Its products can do nothing by themselves rather ScanBelt is a sub-supplier to companies that manufacture conveyor belts. ScanBelt products are used in various industries for all kinds of productions, for example, automotive, bakery, fishing, food processing, and packaging. These varieties of industries have a wide range of needs for conveyor belts. ScanBelt caters to its customers’ needs by providing customized plastic-built belts in all sizes and forms. Constructed of plastic modules and hinge rods, and driven and tracked by plastic sprockets, belts have the inherent qualities that plant operators and designers look for: corrosion resistance, positive drives, high strength, low friction, abrasion resistance, and the ability to be built to almost any width and length, with a variety of flights, side guards, and other accessories. Conveyor belts have different surfaces; some are perforated, and some are elevated, as there is a need for flexibility when conveyor turns around in sharp angles. ScanBelt is positioned to satisfy these different needs to deliver customized modules to manufacturers of conveyor belts. The application of their technology has enabled manufacturers worldwide to experience dramatic savings in product loss, significant increases in throughput, and reduction in other cost drivers, like labor, maintenance and belt life. ScanBelt products are sold throughout the world through a large network of independent distributors. According to Mr. Vejlstrup, there is not a single customer or geographical region in 45

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the world that accounts for more than 10 percent of their business. ScanBelt perceives this diversity of industries, which need its products as strength for the firm. The firm is successful in exporting and today more than 90 percent of its turnover is generated from sales outside Denmark. Focus of the Firm At ScanBelt they do not focus on the short term; they focus more on the medium term. They are trying to consolidate their operations by upgrading their machine pack and production tools in order to make sure their future is secured. Of course, the additional capital expenditures will affect the profit in the short to medium term. In addition, Mr. Vejlstrup sees himself and other top managers in his firm as professional relationship builders. He realizes that in order for ScanBelt to carry on through challenging times or tight deadlines he needs to maintain a solid relationship with his long-term customers. Given the fact that ScanBelt has to deal with a network of independent distributors Mr. Vejlstrup attempts to build a relationship based on trust with his clients. Mr. Vejlstrup spends a lot of time traveling to visit his distributors around the world in order to get to know them better and select the right people with whom they can relate to and see the way of and the strength of their work. He believes sharing his struggles, resources and best practices with his distributors can really give him an edge over his competitors. He argues that business relationships are just like any other relationship. They require some efforts to maintain and they must be mutually beneficial. He and his family try to get together with his distributors’ family by inviting them to his house for a barbeque, when they are visiting ScanBelt offices instead of taking them to a restaurant. He thinks as in any relationship, you must be willing to give, share and support, not just take or receive. Although Mr. Vejlstrup does not have a technical background he is aware of the technology in his field. He also does not 46

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believe that he is a salesman. What sets Mr. Vejlstrup apart, he argues, is that he takes the time to listen to his distributors and really understand where his customers are coming from. He tries to take advantage of these opportunities to use his distributors as a sounding board to get ideas about the new products, changes in market conditions, and even his competitors. He thinks this kind of behavior has led to a number of referrals and long-term business successes. Competitive Advantage Mr. Vejlstrup believes that flexibility and having an easy time adjusting to market conditions and customer demands are ScanBelt’s biggest competitive advantages. ScanBelt has three large competitors in the market. These competitors mostly try to have large production lines but often are unable to adjust to customers and market conditions. ScanBelt’s flexibility gives it a competitive advantage over those much larger competitors. The firm has deliberately left out large segments of the market where the competition is stiff and has a low profit margin and long warrantees and guarantees. He believes there is a large segment of the market that he could have a better price but requires, for example, shorter delivery time or small adjustment in the product, where most of their large competitors would turn down. Since every aspects of their business is done in house, including product development, construction of tools, and actual design of tools, ScanBelt has much more flexibility than its larger competitors. They do not send out any task. They tried to outsource one of their heavier items to the Chinese and see if there was any cost saving or improvement in quality. They did not find any cost savings or improved quality. They even looked at some closer markets such as Eastern Europe, which has been popular, and even some of the Baltic countries where many of their major competitors had outsourced (and still do) in order to lower their labor costs. They were not satisfied. Mr. Vejlstrup thinks their products are highly innovative. He argues, it is very difficult for ScanBelt or its competitors to have 47

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much more superior products because all the machines and tools used in production of the plastic modular are available throughout the world, so all of them can produce the same quality of product. Also regardless of where the product is manufactured, prices of the products by all competitors are well known so companies cannot have any price advantage. Importance According to Mr. Vejlstrup ScanBelt will never accept any sales order for the sake of sale growth. He believes that if they wanted to expand the firm for the sake of expansion they could have done it in 1995 (when the demand for their products was rising). According to Mr. Vejlstrup, they could increase their sales and be two or three times the size of today by borrowing a few million dollars. However, it is important for them to have food on the table and buy a new car once-in-a-while. They don’t have world domination in mind in terms of sale of their products. They are more effective in terms of profit by not losing the security of their investment. Development of new market also is not a primary goal for ScanBelt. For them it is not all about boosting turnover. Mr. Vejlstrup thinks they can be more effective and increase their profit while not letting go of the security of their investment. That is why the development of new markets is not one of their primary goals. According to Mr. Vejlstrup, development of the new markets is not something that ScanBelt has the size to do. He gave an example of one of their competitors which has the size to reach to new niche markets, where their type of products have never been used before, but that requires ScanBelt to go into places where it has no desire to be and also requires an initial investment of more than two or three times of its annual turnover just to start up in this new market. For a small firm such as ScanBelt coming up with such amount of investment would be very difficult. In contrast, the security of their investments is very important to ScanBelt. According to Mr. Vejlstrup other goals are not as 48

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important. For example, since the firm is privately owned no investor or regularity body is watching them to see how profitable they are. The firm has no debt to worry about, and they only talk to bankers in order to know what is going on in their markets and if the banker can give them an idea or not. Therefore, they are not worried about what bankers are thinking about their firm either. They also have no board of directors to worry about profit or growth. It would be great for the firm to grow. But he argues that if the firm does not grow it doesn’t mean they should not do something about it. They, including their independent distributors, should seek for solution or answer on why it (growth) has not happened and how they can achieve it. Importance of Economic Conditions Mr. Vejlstrup disagrees with the general notion that the Danish economy is in recession. He believes that the Danish economy is generally stable and fairly strong. In terms of performance, the last 12-15 months have been the strongest months in ScanBelt history. This is not necessarily due to the fact they have been brilliant, he argues, but rather due to the strength of the Danish economy, where the market is back to where it was in late 2007 and early 2008. He also agrees that there will be certain numbers that support a weakness in the economy. However, he does not see a relationship between ScanBelt turnover and the performance of Danish economy. Since the Danish economy is relatively small compared to other developed countries he believes it flew under the radar during the financial crisis and its financial markets were not affected as badly as other countries because they never were as high as other countries. As a result they did not suffer as much as other countries such as the United States, where several millions of homeowners lost their homes because they couldn’t pay their mortgages. He emphasized that he has made his judgment on the Danish economy based on his own observations of people (shopping habits, such as purchasing 49

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new cars, or wearing new and fashionable clothing, or their happiness). He also concentrates on what are the trends in the media; do they focus on the people’s downfall or is looking at more positive things. He accepts that he has not seen all the numbers (indices) related to the Danish economy to be sure if he is correct or not. Nevertheless, he accepts that there is a slight relationship between their firm’s performance and the Danish economy. ScanBelt has a daughter firm in the southern part of Denmark, which is a trading firm. The performance of that firm was directly related to Danish economy. During the financial crisis they could see that the performance of their daughter firm was moving in the same direction as the economy. Today ScanBelt has more employees than ever before. In the last 12-15 months they have hired more people. They like to say that if there were a qualified person that comes along they always would find a place for him/her in the firm. ScanBelt always hires people with the right qualification or if they feel that person can add value to the firm. They would hire him/her even if they do not need him at that moment. They are always on the look for the right people to hire. Mr. Vejlstrup cannot say if contributing to the development of the Danish economy is one of the important goals at ScanBelt because the firm is so small he feels their contributions is not recognized. If the firm was larger he feels there would be more responsibilities on their shoulders to make sure they are in the forefront of things such as human resources and other things, which could be measured. However, they always try to do the right things but they do not necessarily go around to promote how fantastic they are because they only receive about 10 percent of their turnover from the Danish market. He believes even in Hjørring less than 10 percent of people know that ScanBelt exists, even though they are possibly one of the top five largest employers in town. He justifies this lack of public recognition to the fact that their products are not the typical products that people normally use or see on the street. If people are asked about ScanBelt products, he thinks, most will respond, “oh I have seen it somewhere or understand what it is but they 50

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may not know how it is made (plastic, rubber, or steel)”. Future of the Firm Mr. Vejlstrup believes that at ScanBelt they have had a difficult time defining themselves over the last two years. They are not sure if they are small-big firm or big-small firm. This has made it difficult for them to promote themselves. They don’t want to be a big small firm. They want to be a big small firm without letting go of their core values, their flexibility and security of their investment, which has brought them to where they are today. So, they are going to expand if the market is there, but he does not think they will go and invest based on what they feel the market would be in five years. Normally, they only know what they are doing for the next 7-10 days. Unlike other industries, which have a long delivery time for their orders, ScanBelt’s delivery time for their orders is generally 7-10 days. This means they cannot really see what the future is holding up for them, even though they see the trend in the market. They have managed to get into some new segments, which they were not present before and that should give them the possibility of growth of their overall turnover, but not necessarily more profit. Mr. Vejlstrup is convinced that the market and demand for ScanBelt products in five years will be definitely higher. They are in a fortunate situation of having 2-3 percent of the global market share for their type of products. Therefore, they have the opportunity to capture some of the remaining 97 percent of the market share that they don’t have. Not that they realistically expect to get all of the remaining market for their products but they see no problem to be a small player in the global market. Other than some Scandinavian countries, where they have more than 10 percent of the market share, they are in few other countries. But this also means they are less vulnerable to world market conditions. For example, if world market demand goes down by 20 percent (which was what most experts expected during 2008-09) then they realistically need to get very few new 51

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customers in order to maintain their current market share (2-3 percent). So, he feels that his sales staff should be capable of getting those few additional customers (otherwise, he thinks, they should be fired). According to Mr. Vejlstrup maintaining their financial situation in the next five years, especially keeping their profit margin at the present level, would be more difficult. Their internal rule of thumb is to maintain a net margin of 10 percent, which is difficult in this business to have. They don’t think they would be able to maintain that high margin in the next five years. They see that many of their competitors have a margin of about 1 percent. Of course, this means at the end they have a loss. ScanBelt has never had a losing year. They intend to keep it that way. But that would require for the ScanBelt to double the amount of its machines and buildings. He believes if his firm grows by more than 10 percent in any given year they probably can feel the lack of resources in their organization. Last year their turnover grew at the rate of 27 percent, which was a big surprise, as they had not anticipated such a rapid growth. That was a nice surprise, as they had several big projects at that time. This also allowed the firm, which is not top-heavy and has a lot of unskilled workers, prior to hiring new employees to ask its current employees if they would be willing to work overtime to make more money (above the 37 hours a week, which is the full time in Denmark). They were surprised to see that many of their current employees (contrary to some statistics) were willing to work overtime during the weekend or work an hour earlier or an hour later during the weekdays. Employees had so much overtime that they felt it was not healthy for the firm. Also at the end they were running out of resources (too many workers around, not enough containers or tables for worker to work). It was getting to the edge of what the firm could do. Systematic Decision Making Process ScanBelt has established a systematic decision making process. Every Friday morning their strategic team which includes the 52

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owner, his father, the Production Manager, and the Technical Manager meet. They discuss about the events in the firm during last week, or plans for the next week and whether they need to do anything in order to accomplish the plans, and whether there have been any complaints by customers, distributors and workers. They also have firm-wide meeting the first Friday of each month. In that meeting they inform their staff about what is going on in the firm and give them a chance to say what they think about their jobs and the firm in order to improve the performance. In ScanBelt they practice a flat-level management style, where they welcome feedback from employees at all levels. The firm does not have many mid-level managers. They believe everyone should directly go to the person they think is responsible and speak to him/her. The strategic team also has a product development planning every year: Mr. Vejlstrup believes this will help ScanBelt to survive. Also, it makes ScanBelt less vulnerable to competitors who make copy of their products. In this way competitors have to constantly chase them in terms of new products. They have had problems with their biggest competitors who have copied their products. Chinese also have copied them too but since they are not a big player in the Chinese market yet they have not been hurt from that. In the EU they are well protected and also availability of lawsuit makes it less possible to copy in the EU. They also regularly plan for the new markets. They attempt to have at least couple of new distributors every year some based in markets that they feel they have to be. In terms of market share they do not specifically plan. For example, they do not specify how much of market share they would like to have. He believes their presence in the global market is so small that they could double their turnover and still they could not gain even 1 percent of market share. ScanBelt’s planning also involves diversification into other businesses. They are always checking to see if there are any new business sectors which can use their current product lines, but they do not necessarily plan to introduce a new product from 53

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what they are making now. They also plan for their international activities. Normally, twice a year they sit down and decide which trade shows they should attend on their own and which one they should do in collaboration with their distributors. Initial International Markets ScanBelt products are sold throughout the world from the time it was originally established by the previous owner. The Danish market is so small that in order for ScanBelt to survive it must export most of its production. Their international markets are diverse, as it depends on where the conveyor belt manufacturers are located. Currently, the biggest foreign markets for ScanBelt products are Germany, Norway and Belgium. However, the biggest markets for their type of products are the United States and Brazil. ScanBelt’s international sales account for nearly 90 percent of its turnover. Its domestic sales account for the other 10 percent. Their biggest competitors are Intralox (United States), Habasit (Swiss) and Unichains (has been purchased by a Dutch firm but it is from Denmark and has plant in Denmark). They consider themselves as the fourth largest producer of the products they make. In general, operating in international markets has a positive effect on ScanBelt’s profit, growth, and investment. As was previously indicated a large percentage of their turnover comes from international sales. This is a deliberate decision on their part to spread their sales to as many countries as possible so that they are not a dominating force in any single market. Currently, the Scandinavian markets are their largest foreign markets, accounting for about 10 percent of their turnover. Mr. Vejlstrup feels that his firm’s international business has also contributed to the health of the Danish economy in a small way. In his opinion ScanBelt is creating more jobs and paying more taxes, therefore, he feels his firm does indeed contribute to the Danish economy. ScanBelt is quite concerned about its price competitiveness in international markets. They get feedback from their independent distributors and their own staff every single day. They also 54

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question their own employees and distributors who used to work for competitors. They know exactly what the cost of production for their competitors is. Mr. Vejlstrup believes that he can calculate his cost but cannot calculate his sales price. In his opinion a good salesman can get him the best price he can and never lose an order based on the price, if he is within realm of what they can sell the product. He thinks ScanBelt has the cheapest of the major players in the market (but at the same level of those who copy and sell similar product to his). In Mr. Vejlstrup’s opinion international sales are as profitable as those to domestic customers. But international customers are slower in their payments. ScanBelt only requires pre-payment from its new customers. Otherwise, they always try to establish a personal relationship with their long-term customers and distributors. They deal based on trust and give the customers possibly a 30, 60, or 90 days, or even a credit max and wait and see how the customer meets his obligations. Realistically, they give customers a term of net 30 days and for their international sales (when a customer buys a container worth of product) they give 60 or 90 days terms. The average terms for all their customers would be around 60 days. In Scandinavia it is widely accepted to be around 30 days. Systematic Exploration of International Opportunities According to Mr. Vejlstrup, ScanBelt follows a bit of both passive and aggressive strategies in exploring new foreign opportunities. ScanBelt entertains any unsolicited orders from foreign customers but they also follow a systematic approach in search of international opportunities. They do usually survey international markets, using Danish embassies or trade councils, where they explore new markets where they don’t have distributors or their sales are not at the level they think they should be, or markets that they think they should be in due to strategic reasons. For example, if their big Scandinavian customers move into markets such as Brazil or India they may 55

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feel they need to be in those markets as well because their big customers are in there and they must keep their customers satisfied. So, they have quite a systematic approach on achieving their goals. But of course they entertain the orders that come unsolicited. When Mr. Vejlstrup was asked if ScanBelt has developed any business/marketing plan for its target overseas markets, he responded, “We probably have gone the other way around and have learned what it takes to enter into a new market and how to go about it. We did not start with a specific plan but rather based on a 20-year experience we know what it takes, and we know what time frame it takes to start up. We know what to expect, we know which sign to look for, and we know where we need to help people. We know also in case people buy loose parts for further production what to recommend, we know what training they need, we know what promotion to do toward them, and how they go about promoting the strength and weaknesses of the product”. Export Obstacles Mr. Vejlstrup believes language, logistics, foreign business practices and ethics could be obstacles for any business. He thinks, in the case of ScanBelt, these are also obstacles but they can be overcome or get around them. However, he feels you have to be careful and do your due diligence when entering a foreign market or trying to enter into new business relationship with a new agent or distributor. He also feels that his industry is a bit different from others. Since this industry was originally invented in the United States and the United States is the largest market in the world, all parts used in modular plastic belts have English names, which are used throughout the world and make it easy for ScanBelt as well. Even the Chinese have adopted the English names. This alleviates the language barrier. Logistics is another obstacle that ScanBelt must deal with constantly. Its remote location in Northern Denmark and long distance from large European metropolitans makes this task very 56

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difficult to overcome. According to Mr. Vejlstrup, the delivery time in his industry is very short and demanding. Generally, 15 percent of the orders are out of factory within the first 36 hours. He explains that if you have the local stocks you will get the sales. Otherwise, you will lose it. Another obstacle for ScanBelt is custom clearance. To solve this problem, ScanBelt has hired a professional freight forwarder and also a person who has worked in tax offices, which can help them in dealing with Custom Services efficiently. Mr. Vejlstrup also singled out the ethical differences between Danish and foreign societies. Although, ScanBelt has not experienced this problem but he has heard other companies which have to deal with it. According to Mr. Vejlstrup, in the past, even the Danish government expected that up to 20 percent of invoice have to be paid as bribe but not these days. Especially, having short lead time (and many customers) cannot deal with issue. Future Markets As was mentioned earlier, the United States and Brazil are the two biggest markets for the type of products ScanBelt sells. Obviously, these are also the two markets that ScanBelt may want to enter. But Mr. Vejlstrup is also mindful of the fact that these two markets, as well as, Asia are the most competitive markets in the world, where the profit margin is very low. If ScanBelt decides to pursue its strategy of big small firm it must choose its markets very carefully, abandoning markets that have low margin (United States and Brazil) and staying with its traditional markets which have a higher margin (Scandinavian and other European markets).

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Fjerritslev Tryk Firm Background Fjerritslev Tryk A/S is a small printing operation in northern Denmark. As its name indicates, it is located in the small town of Fjerritslev, which is a part of the Jammerbugt municipality. The town’s population is approximately 3400. Fjerritslev Tryk is a family-owned firm and is currently owned and operated by the son-in-law of the founder, Mr. Peter Eigenbroth, his wife and their son. It was originally founded more than 100 years ago as the towns only newspaper, Fjerritslev Av is, which in 1963 was the first newspaper in northern Europe to introduce offset printing. The newspaper part of business was later sold to “Nordjyske Stiftstidene” from Aalborg, in early 1990s. Today, the firm concentrates on being a trustworthy graphic partner with good relationship with its customers that are considered part of "the family". At Fjerritslev Tryk the concept of "good workmanship" has not gone out of fashion. They strive for high professionalism, good and decent products, delivered on time at the right price. The firm has become a versatile graphic firm that produces books, journals, manuals, trade publications, etc., and provides graphic communications not only locally but throughout Denmark and neighboring countries. At Fjerritslev Tryk they are proud of being a "facilitator" for books and thus ensuring that exciting personal stories, views and opinions, from known and unknown Danes, have been written and produced in books, so that good stories are saved for future generations. The firm sees itself as an operation, which gives voice to persons and their viewpoints that would otherwise not be heard. That is why a cock, which was the logo for Fjerritslev newspaper, has been chosen as the mascot for the printing firm, as it raises its voice and stands up for its views.

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Products The core product of the firm is their book production, specifically; thick books printed on thin paper, such as law books, printed on a specially equipped rotary engine or advanced digital printing machines. Their modern prepress department with a team of talented graphic designers who can support their clients at all levels, from getting an idea of submission to a brochure or campaign and for the production of many pages of reference works. At Fjerritslev Tryk some tasks are handled from scratch, other times they make only a check of the customer files before they form the basis for printing, digital or offset. In recent years, Fjerritslev Tryk has acquired new Océ Copy Press digital printing machine, which is suitable for efficient production with a black/white print quality equal to offset printing. Océ Copy Press technology is particularly suited for the preparation of books and manuals. Since the temperature is not the same as in normal electrostatic printing the paper is not statically impacted. This is a clear advantage, especially in thin paper grades. Fjerritslev Tryk prints on almost all paper grades, 50 to 300 grams. Their color printer is also a production machine that effectively complements the black and white machine, and it is possible to combine prints from the two machines and thereby achieve an economically viable production. They can also print on both sides of the paper in one operation. That means 100 percent fit between the fronts and back and thus complement their "core product" of the thick books on thin paper. Fjerritslev Tryk different sheet-fed offset machines offer a high flexibility that enables them to produce orders in just the machine that best suits the individual publication. If they do not even have a machine that fits the task at hand, through chain cooperation in Prinfo Denmark, a nationwide network of more than 30 graphic arts companies with widely different skills and wide variety of machinery, Fjerritslev Tryk can ensure the production of all types of printing jobs, with a focus on high and uniform quality. 59

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Rotary Press has always played a central role in Fjerritslev Tryk. They print not only newspapers but has developed rotational pressure to include trade journals, magazines, books, timetables, and many other products on paper grades from very thin, about 36 grams, and up to 90grams.Fjerritslev Tryk specializes in A4 and A5 formats, but can also print different sizes in between. They also have both IR-and UV-drying on their rotating machinery and can thus tap on most paper types. Their rotary machines are very versatile and hit everything from thin booklets to market thickest books. FjerritslevTryk also has sophisticated bindery equipment for the completion of the digital production, whether the products are stapled or adhesive bonded. Rotation printed sheets stapled and trimmed also in the immediate continuation of printing. When it comes binding books in greater numbers, Fjerritslev Tryk cooperates with several binderies, which gives them both the flexibility of supply and the right price. Fjerritslev Tryk also performs sizing in house. Often do a nice touch with the sizing, which they also perform in house. Surface sizing of paper, which is applied to a very thin film under heat and pressure, gives it a very exclusive finish and also makes the paper water and dirt repellent. At Fjerritslev Tryk they offer the film with both a matte and high gloss polished surface and a soft touch surface. Fjerritslev Tryk mainly serves the business-to-business market. In comparison, catering to the end-users market is not significant due to the need to enter downstream in the distribution chain which is considered too costly and where margins are too low. Strategically, the firm is under pressure by the ever-increasing pressure caused by digitalization of printing industry. To counter these threats, Mr. Eigenbroth and his family are aware that their firm needs to focus its efforts on digitalization. Yet this is a difficult challenge, as the competitive situation is different from the old world characterized by printing information on paper. Due to the nature of printing industry maintaining a clean environment is very critical. Fjerritslev Tryk is located in one of 60

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Denmark's most beautiful natural areas, Han Herred, with its location between the sea and the bay provides access to large areas of pristine recreational areas. Han Herred is home to Scandinavia's only active coastal landing (Thorup Strand) and is on its way to becoming a national center for coastal culture. At Fjerritslev Tryk, therefore, environment is a priority. Fjerritslev Tryk is certified to deliver the Swan-labeled printed matter, and has met the international standard ISO 14000, by having established an environmental policy, and environmental accounting. They also cooperate with authorities and other stakeholders on environmental issues, and have involved their employees in the eco-related works so that everyone complies with their environmental policy. Focus of the Firm Although on its web site the firm has indicated, “While much has changed, craftsmanship is still the focus of the firm”. However, during our interview Mr. Eigenbroth indicated that despite of all the problems in the economy he manages the firm in a logical or rational manner. This can be justified by their decision about three years ago when they realized that in the current competitive market, which sometimes requires printing small volumes of books, the use of their aging wet machines was no longer economical and invested on digital printing equipment, as he thinks that is where their future lies. According to Mr. Eigenbroth they are not sure how long they can continue to use their old wet machines. These wet machines were acquired many years ago and are no longer good for color printing. The new digital machines would allow them to print color and still continue printing black/white by using their wet machines. These would indicate to us a rational thinking as the focus of the firm.

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Competitive Advantage Fjerritslev Tryk’s biggest competitive advantage is its ability to print books on thin paper. According to Mr. Eigenbroth not too many printers, in Denmark or Europe, are able to do it. Their advantage is the size of the paper. They are one of very few print shops, which can print on A4 papers using the wet machines. Other print shops normally use smaller size paper. When Mr. Eigenbroth was asked if his firm has any price advantage he indicated the fact that since the cost of production in Denmark is higher his firm does not have any price competitiveness. However, his firm compensates for this lack of price competitiveness through other means, by being specialized in areas that other print shops cannot provide and therefore, customers still use their services even though their prices might be slightly higher. Importance According to Mr. Eigenbroth, although they are not highly profitability these days, this is the most important goal for his firm. He thinks their industry is very competitive and making profit is very difficult. He noted that at this time, due to the tough financial situation, their emphasis is on short-term profitability rather than long-term growth. They believe, due to lack of financial resources, they are unable to sacrifice profit at this time. In Mr. Eigenbroth’s opinion other goals such as sales growth, security of investment, and development of new markets are not as important. Importance of Economic Conditions Mr. Eigenbroth sees no relationship between his firm’s performance and the Danish economic conditions. On the hand, he stressed that his firm’s sales has declined a bit in recent years. For this reason he is not hiring any new employees. When Mr. Eigenbroth was asked if he feels that his printing business does 62

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contribute to the development of the Danish economy he stressed the fact that his firm is so small that he could not see any way that his firm will be able to be a factor in the development of the country’s economic development. Future of the Firm Mr. Eigenbroth attitude about the future of his firm was cautious. Since there are very limited number of printing firms, which print on thin paper (A4 size) Fjerritslev Tryk should be in a prime position. However, digitization has certainly reduced the demand for print, as many companies, such as those publishing telephone directories or encyclopedias and dictionaries, no longer print them on paper but rather on DVDs or flash drives. Also, the new trend in e-book publishing and the increased popularity of IPad, Kindle and other electronic gadgets, which will let the readers use their electronic equipment to download the book electronically and at much lower cost, would reduce the demand for printed books. His only hope is that in the near future they could come up with new applications for their wet machines, which could help. Otherwise, they have to move towards digital printing, which also means a reduction in labor force and possibly lower turnover. The financial situation of firm is already bleak, as the firm is currently losing money. But in his opinion they already have made enough investment in machineries that will hopefully help them to generate more revenue and profit. So, Mr. Eigenbroth is more optimistic about his future finances than his present one. Systematic Decision Making According to Eigenbroth at this time Fjerritslev Tryk does not have any systematic decision making process but rather most of the decisions are made by Mr. Eigenbroth and his son during their lunchtime. His wife, on some occasion, also participates in decision-making process. But they are in the process of hiring a 63

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professional board in 2012 and are hoping the board will help them to set up such a process for their future decisions. However, they are fearful of the cost of hiring a professional board especially under their current financial circumstances that would be very difficult. On the other hand, Mr. Eigenbroth would like the idea of someone watching over his decisions and making sure they are following what they have planned. The same team of family members makes all the decisions about their international activities. In terms of planning for new activities, Mr. Eigenbroth suggested that he and his family members also constantly plan for activities such as entering new markets (i.e., Germany), diversification of their activities (i.e., digitization) and distribution. Initial International Markets Their first customer was a Swedish publisher whose other Danish printer had gone bankrupt. Since Fjerritslev Tryk’s print machines were very similar to those of the bankrupt firm the Swedish firm placed their order with Fjerritslev Tryk (a passive approach). This started the internationalization of Fjerritslev Tryk. Over the years, the firm has found other customers not only in Sweden but also in Norway. Fjerritslev Tryk found its first customer in Norway through the firm’s active search for potential customers in that market. Today, these two countries are the only foreign markets for Fjerritslev Tryk but the Swedish market accounts for a larger percentage of the Fjerritslev Tryk export revenue. Fortunately for Fjerritslev Tryk, demand for its products in Sweden is increasing. Systematic Exploration of International Opportunities According to Mr. Eigenbroth his firm is semi active in the search for foreign customers. Indeed he travels twice a year to Sweden and Norway in order to find new publishing firms in need of printing services. He emphasized that due to the weakness in 64

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their financial conditions they cannot hire any qualified staff whose responsibility would be to exclusively handle their international business. His son, including other tasks that he handles in the firm, does this job at the moment. Although Fjerritslev Tryk has been exporting for many years, unfortunately, exports account for less than 15 percent of their DKK12 million in annual turnover. His export markets are mainly Sweden and Norway. However, he recently has received an initial order for printing Swedish household income records. According to Mr. Eigenbroth the first phase of this contract is more than €300.000. When this project is finalized it will account for more than 10 percent of the firm’s turnover. Considering the fact that export business has helped Fjerritslev Tryk most of the years to remain profitable it seems very logical for Mr. Eigenbroth to increase his efforts in locating more customers not only in the Scandinavian countries but also possibly move into larger markets and take advantage of his specialty, printing on thin paper, which very few other printing firms in Europe are capable. But it seemed to us there was no such plan at this moment. Hopefully, when a new board of directors is hired they can convince him to increase his search for potential customers in other markets. Export Obstacles According to Mr. Eigenbroth since their current international activities are concentrated in Norway and Sweden, they have not faced any substantial barriers in dealing with their customers in those markets, except for transportation costs, especially, for smaller orders. However, he believes that language, especially German, has been an obstacle for them in order to move into the German market. He believes that German publishers may not want to deal with him because of his inability to communicate with them in German. They also have encountered some cultural problems in dealing with their Norwegian customers. Mr. Eigenbroth was not 65

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specific about this topic but it was a surprise to us, as it seems that Norwegian and Danish cultures should not be very much different to create such a problem for his firm. It is also possible that we are underestimating these cultural differences between the two countries. The other obstacle noted by Mr. Eigenbroth was locating prospective clients. Fjerritslev Tryk has competitive advantage in only a certain product line and locating clients throughout Europe, which may need such a product for a firm with limited resources such as Fjerritslev Tryk, is not very easy. For example, one of their main product lines is printing technical documentation for products such as mobile phone, or pharmaceutical industries. According to Mr. Eigenbroth, most companies even the Danish ones, not only outsource manufacturing of these products to the Chinese but also printing of their technical documentations in order to save cost. Future Markets Mr. Eigenbroth has realized that in order for his firm to survive they must expand into other markets. They already have some familiarity with other European markets, as their main supplier of thin paper is a French firm. They have done some research and know the key players in some of the larger European markets. They are hopeful that in the near future they will be able to expand their export activities, as these markets tend to be more profitable than the Danish market. According to Mr. Eigenbroth, their international orders are more profitable, as they will not accept any foreign order, which is not profitable. But when it comes to Danish orders, in order to maintain their operation and avoid layoffs of their employees they will accept even contracts with very low margin. So, it is in their best interest to expand their foreign business activities. Recently, the firm has solicited the help of the Danish embassies in a number of foreign countries including Norway and Sweden in order to locate potential customers for the firm but he believes it is even more difficult for these agencies to 66

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locate customers than it is for the firm itself. Furthermore, they are hiring an agent in Germany to help them with potential German customers. These clearly show that both Mr. Eigenbroth and his son, Martin, have realized the significance of their export activities for their firm. They also have tried advertising in Norwegian magazines but according to Mr. Eigenbroth that was not a successful investment, as they have not received any inquiries from potential customers in that market. With their limited finances, Mr. Eigenbroth does not believe they can afford to advertise in larger markets such as Germany, as it would be a lot more expensive. In addition, due to its limited financial resources, the firm is unable to allocate more human and financial resources committed to exporting in the near future. PSE Group Firm Background PSE Group’s journey began in 2002 by two brothers who were motorcross enthusiasts with a simple objective of selling the best product line with top quality and style. As the years passed, these goals have been attained and exceeded. According to Mr. Kasper Christensen, the CEO and co-founder of the firm, on a tour to a competition in France they discovered that in France motorcycle equipment and special garments were much cheaper than in Denmark. To take advantage of this and to finance their hobby they bought equipment in France, took it back home in their van, and sold them at local motorcycle events. At the initial stages, when they were looking for new customers, they slept in their car because they did not have sufficient fund to pay for the hotel. Highly enthusiastic about their hobby, the founders practically built it into a business out of nothing. This has allowed PSE Group to continually broaden, expand, and sell the best and most complete range of high performance products in the motorcross industry. With a good sense for upcoming opportunities, finding the right marketing strategy, and the ability 67

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to motivate their increasing number of employees, over time the two founders have developed their hobby into a full-fledge multinational enterprise. The firm is located very close to the founders’ birthplace, which is about 25km from the firm’s current location. Originally, their location was in their hometown but in 2004 there was a fire in their old location. Then they decided to move their offices into their newly built and modern building in an industrial area near the small town of Hobro. The new place is conveniently located near a major highway, which connects to Aalborg in the North (50km) and Aarhus to the South (70km), and the rest of Europe. The city of Hobro has a population over 11,500 and is situated in the Mariagerfjord municipality in northern Denmark. The biggest advantage of the location for the firm is that especially local financial institutions know them. Mr. Christensen feels that if their firm was located in a bigger city such as Copenhagen, he would have a lot of problems securing loans during the current economic crisis. However, being located in Hobro, they are well known by the banking institutions in town. That has made it much easier to get necessary funding even during these hard times. The biggest disadvantage of their current location is finding the right people for his firm. According to Mr. Christensen, they purchased an Internet firm over a year ago and it has been a challenge to hire qualified staff for that part of their operations. Recently, they have hired an information technology specialist from Norway. She commutes several times a week to their location, which is several hundred kilometers from the new employee’s residence. The other disadvantage of their location is that another unit of PSE Group, called E1 Logistics, would like to have local speaking employees for each country they serve. For example, they would like to have someone who speaks Swedish to handle their business in Sweden, or the same for other countries where the firm is doing business. Unfortunately, finding employees in Hobro who are able to speak those languages has been a big challenge for PSE. 68

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To compensate for their remote location, PSE Group has been forced to build up his office staffs in Stockholm, Oslo, Helsinki and Copenhagen in order to provide services to their customers in those countries. In Mr. Christensen opinion this is the only way to alleviate the problem of hiring employees with knowledge of local languages. They are also considering relocating all of their customer service offices to one location such as, Copenhagen, in order to reduce some of the administrative costs of having so many different offices for their customer service department. But considering that they would like to be close to their customers and also need to maintain warehouses in each location has prevented them from making such a move. The remote location of the firm has also, to some extent, affected the PSE Group business dealings. They have found out that it is very difficult to bring their dealers and distributors to their location for their meetings and presentations. Generally, the dealers and distributors’ meetings are moved to bigger cities such as Copenhagen and Stockholm, which end up costing them a whole lot more. In addition, due to the fact that there are not many flights in and out of Aalborg (the nearest big city with an airport), the cost of flying to their export markets is very high. Unfortunately, as people are migrating from rural areas, such as North Denmark Region, to bigger cities, such as Copenhagen, the government, be it regional or national; have not helped companies such as PSE Group to survive in their remote location. Mr. Christensen is aware of some support from the European Union for companies located in special areas. One of the PSE Group’s employees who live in a city far north of Hobro has received some tax subsidies for making the daily commute. According to Mr. Christensen she qualifies for that because she is Norwegian. He fears that if one of these tax subsidies is taken away or the employee finds that commuting every day is too much for her their whole Customer Service Department will be shut down. Mr. Christensen is willing to forfeit any kind of tax subsidy or other government benefit for his firm in exchange for 69

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the governments provide his employees with some subsidies so that they are willing to stay and work in such a remote location. Products Today, PSE Group both manufactures its own products and also resells high quality brands of clothing and equipment for a number of sport activities, including motorcross, mountain bike, snowmobile, and regular and casual clothing industries. They not only sell famous brands in each of those segments but they also manufacture some of the products themselves in the Far East through outsourcing. So the firm mixes both top-quality brands and reasonable prices to serve its customers a complete product line throughout the Scandinavian markets as well as Germany. Recently, the firm has split itself into three subsidiaries. One of their subsidiaries is E1 Logistics. It handles their supply chain of sourcing the products from different manufacturers and their sub-contractors and distributing them to their network of distributors and end users throughout their Northern European markets at the shortest and most effective time. Their second subsidiary, PSE Parts does not distribute products to the end users, but only through dealers. PSE Parts is the supply chain division of PSE Group and functions as a service unit to all sales divisions within the PSE Group, and other cooperating companies. PSE Parts consists of employees supporting the sales divisions within customer support, order entry, logistics, purchasing, finance, warehousing, IT and human resource. PSE Parts is present mainly in the Nordics countries. Their third subsidiary is called Martecco. This unit handles their ecommerce activities. PSE Group is trying to establish itself on the Internet and making sure that they have a presence in this market as well. Through their website, PSE Group sells specialized clothing for off-road motorcycle enthusiasts and to other customers. Their offerings also include spare parts for off-road motorcycles like chains, spark plugs, brake blocks, lubricants, etc. Other products lines include specialized branded clothing for mountain bikers or 70

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snow scooters. Recently the firm has identified interesting opportunities in the market for equestrian sport with everincreasing number of enthusiasts in Denmark. With a separate arm of their business, the firm is also active in the B2B segment. This unit, called PSE Parts. One function of this division is to internally serve the other units inside PSE. A second function is to serve the distributors network, which PSE Group has built up. PSE Parts consist of employees supporting the sales division with customer support, order entry, logistics, purchase, warehousing, and human resource. In every country PSE Group has built up a national presence, with local employees who understand the local environment well. This has the significant advantage that makes PSE Parts to appear as a Swedish firm in Sweden, a Finnish firm in Finland and so on. A customer who calls in to place an order will call a national telephone number and talk to a person who speaks the same language as the customer. For the future the PSE owners foresee an increasing competition, which will continue to lower the firm’s margin. In order to avoid problems in the future, the vision of the firm is to eventually move away from online selling and start selling its expertise in building up Internet-based value chains so that other companies who consider entering this area, but do not have sufficient knowledge and expertise, can buy the support of PSE Parts. Focus of the Firm In spite of all the problems in the economy PSE Group owners see themselves as logical and rational managers. According to Mr. Christensen, over the years, they have realized that the focus on the business side is the key to their success. He believes that most entrepreneurs get into trouble when their businesses grow by thinking that they can handle everything by themselves and they are the best at everything. He argues that it is very important for entrepreneurs sometimes on the growing stage of their 71

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business to realize that they need to get help from other sources. Evidently, Mr. Christensen had a good mentor who taught him a very good lesson the first time they met. He was told “The most important thing about being an entrepreneur is to hire people that are smarter than you”. This has become the focus of Mr. Christensen since day one. He hires competent employees from wherever he can find and let them run the firm. He does not believe in micro managing his staff. This strategy has proven very successful, as the firm has grown since 2002 into a business with more than DKK63 million in turnover and 47 employees. At PSE Group the focus is also on the sales growth rather than short profitability. According to Mr. Christensen, they are definitely willing to give up short-term profits during the start-up period on international expansion. He feels that the only way they can make money is to have a high volume for their products. The firm is expecting to see its gross margin to go down 1-2 percent every year in the next five years. This means PSE Group has to be much more effective in lowering general and administrative costs. Their strategy for the next five years is that with current number of employees (47 workers) they must increase their volume by 20-30 percent in order to remain as profitable. Competitive Advantage Mr. Christensen believes that their firm’s competitive advantage derives from the fact that his firm has the best brands of products for the market segments they serve. He also believes the other competitive advantage his firm has is its highly effective customer service. They try to make it very easy for the customers to purchase or receive other services such as their convenient return policies. The technology content of some of the products, specially clothing lines, they sell is also mentioned as an advantage. They always try to find suppliers with superior technology for all the products they sell. One of their suppliers, Klim from Rigby, Idaho in the United States, makes some of the clothing used for 72

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these sporting activities, which are made from very sophisticated state of the art fabrics. These types of clothing are not usually sold in stores and therefore PSE Group, as a reseller of these products, has a competitive advantage over retail athletics stores. The other innovative idea that Mr. Christensen thinks gives his firm a competitive advantage is his dealing with his dealers. Two years ago PSE Group, as part of its business-to-business solutions, started offering their dealers the service of designing web sites specifically for that dealer at a very reasonable cost of DKK20000, where they get complete home page with more than 15000 pages of information. The web site not only provides information about the dealer and the products it sells but also provides link to PSE Group and offers customers of that dealer the chance to order PSE Group products through that dealer’s web site. This way all parties will benefit; customers get what they want, dealer makes a sale and receives its commission, and PSE Group makes a sale. Importance According to Mr. Christensen, PSE Group definitely is neither a profit driven nor a growth driven firm. He believes they are probably a result driven firm. They always make sure when they start something they want to see it succeed. Just the process of turning that idea into a product and see it succeed is very important to Mr. Christensen. He seems to be very passionate about his firm and its success, which is something that drives him constantly. After his family nothing is more important to Mr. Christensen than seeing his firm grow and become more successful. He enjoys more from coming to work than playing golf or other sports even during his spare time. Importance of Economic Conditions There seems to be no relationship between the Danish economic conditions and the performance of PSE Group. According to Mr. 73

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Christensen this is mainly due to the fact that only 8 percent of PSE Group turnover is generated in the Danish market. The other 92 percent is coming from other countries. The other reason Danish and other Scandinavian economies, as well as Germany’s do not affect the demand for PSE Group products is that, according to Mr. Christensen, unlike some of their competitors, for example motorcycle stores, who not only sell their products to sport enthusiasts but also regular customers in street, PSE Group only sells to sport enthusiasts. He believes this group is so passionate about their sport that they are willing to forego eating their regular meals in order to buy their mountain bike or motorcross bike. So, in his opinion although the demand for motor cycle stores have declined more than 80 percent during the global economic crisis the demand for PSE Group products has gone down by less than 10 percent. In this regard he feels very lucky. The firm’s growth has slowed down a bit in the latest year. For 2011 they were expecting a growth rate of 30 percent. However, at the time of our interview they had lowered their expected growth rate to somewhere around 25 percent. Despite this slow down in their growth rate PSE Group continues to hire qualified employees. What is affecting PSE Group the most at this time, according to Mr. Christensen, is the currency fluctuations. Most of their purchasing is denominated in the U.S. dollar but their sales revenue is mainly in euro (from Germany and Finland), Swedish krona, Norwegian krone and Danish krone. So, the firm is heavily exposed to currency fluctuations. In his opinion, Danish government’s refusal to join Euro zone countries has cost his firm a lot of money over the last 10 years. For example, depreciation of Swedish krone has cost the firm more than SEK3 million over the last year and half alone. On the other hand the appreciation of Norwegian krone has helped the firm to offset some of those losses. The other issue that is affecting PSE Group’s profitability, in Mr. Christensen’s view, is taxes. He believes the amount of taxes that he pays are substantially higher than his competitors 74

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overseas. In his recent visit to the United States to meet one of his suppliers he had the opportunity to discuss and compare taxes and labor cost between his firm and the American one. According to Mr. Christensen, although the two companies have nearly identical gross margin, his net margin is far below the American firm. He attributes this lower margin mainly to tax differential between the two countries and believes the higher taxes will eliminate any chances of survival for Danish entrepreneurs. Future of the Firm Mr. Christensen believes that his firm would be substantially larger in five years but it also would be very different from what it is now. The recent global economic crisis has made the firm to change its focus and have a different approach to the market. He sees his firm as an extra cost for distributing the products from the manufacturers to end users. Therefore, he believes a lot of people are expecting the middlemen such as PSE Group to disappear in the coming years, as more and more manufacturers are trying to sell their products directly to the end users, skipping the distributors like PSE Group. That is why PSE Group is reorganizing itself. The firm has launched a new strategy, which they call “Modern Distribution Firm”. Their E1 Logistics is offering the manufacturers to take care of their distribution in the Nordic countries. Therefore, PSE Group will be using sales people as agents for the manufacturers in those markets. Even if the manufacturers decide to sell directly to the consumers in the PSE Group territories, PSE Group would offer them its services such as logistic or sales agents. So, he is predicting his firm would be different from what it is now. The firm faces stiff resentment from environmentalists. According to Mr. Christensen, green groups do not like sport activities such as motorcrossing. Therefore, his firm will not be popular with those groups. Despite these, Mr. Christensen believes that the demand for his products over the next five years will remain fairly stable. According to Mr. Christensen, in 75

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Norway snowmobiling is illegal but more than 50000 new snowmobiles are sold every year. He feels the sale of snowmobiles and their parts are a potential future market for PSE Group. Although the financial performance of the PSE Group is expected to be stronger in the next five years, according to Mr. Christensen it will be more difficult to secure financing from their financial institutions. The firm is already feeling this pain. Generally, Christmas shopping period is when the firm makes most of its annual sales and profit and also needs the most funds to finance its inventory buildup. In the past, according to Mr. Christensen, a phone call to the local bank was enough to get several million DKK krones in loan but these days banks are unwilling to make such loans and come up with all kind of excuses, including requiring a lot of paperwork, to avoid making the loan. This is making the PSE Group to be more dependent on its own internal funds for its working capital financing. Systematic Decision Making Process Generally, the owners and the board of directors make the strategic decisions at PSE Group. Seven years ago the firm’s owners decided that although they know a lot about their industry, in order to be more successful, they need to have other peers with wider business experiences to give them advice on how to run their young firm. So, they invited a group of professionals with long experience of running their own businesses to join their board. According to Mr. Christensen, this has been a very successful strategy. These days, the owners look at the structure of the board every other year to make sure it is still appropriate for their kind of business and whether they need new blood in their board or not. It has happened on several occasions that they have to let one or two of their board members to leave and brought in new members. In his opinion they do not need to have a board of directors just for the sake of having one. They want their board members to help the firm in its strategic decision-making process. What is 76

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interesting about the PSE Group board is that the owners have deliberately decided not to be in the board themselves and let the board members make their recommendations independently. According to Mr. Christensen, at the end of the day they let the board make all the decisions in the firm, even those related to their international operations. It has happened on some occasions that owners might have disagreed with the board but according to Mr. Christensen, they decided to follow the advice of the board. The firm has arranged to have regular meetings with its board to make the decision about the future direction of the firm. They meet every quarter and go through their strategy, finances, and where the firm is and its future direction. In addition, the owners have daily discussions about what they need to do on their daily routine. Initial International Markets As was mentioned earlier, PSE Group generates great majority of its turnover, about 92 percent, from overseas markets. Currently, the biggest market for the products PSE Group is selling is the United States, which PSE Group has no presence and the demand in that market is also decreasing. PSE Group, on the other hand, sells its products in Sweden, Norway, Finland and Germany, in addition to Denmark. The market conditions in these countries are more favorable for PSE Group products. He feels lucky that Nordic countries have not suffered as much from the global economic crisis. Sweden was their first foreign market. PSE Group initially entered into Swedish market through its own initiative. Mr. Christensen printed the list of all dealers working for competitors and drove to Sweden to contact those dealers. Those days his firm was young and did not make much profit; so he slept in his car because he could not afford staying in a hotel. He found one dealer who was receptive to his offer. Overtime, he started building up his dealer network to about 30 dealers. Finally, he

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decided to have a country manager for that country. This is still the same structure they are using today. Compared to domestic sales, international business activities are much more profitable. According to Mr. Christensen, his firm’s domestic sales have a negative margin. This is surprising when one considers the fact that PSE Group has to deal with currency fluctuations when dealing in countries such as Sweden and Norway. This is mainly due to small size and cost structure in Danish market. Therefore, the international activities of PSE Group have a big impact on the firm’s profit, growth, investment, and security of its markets. Their biggest competitors include Maxmc (Denmark), Duells (Sweden) and All Right (Finland). Systematic Exploration of International Opportunities PSE Group has set up an organization structure that guarantees every international opportunity will be explored. PSE Group employs a person whose job exclusively deals with international opportunities. In addition, in every country that PSE Group operates they have a country manager whose responsibilities include search for new opportunities in that country. Every other month, all country managers gather in Copenhagen and discuss their strategies and other issues related to their markets. Mr. Christensen feels that one reason they have been so successful in recent years is that in each country they operate, they try to act like a local firm. For example, when they sell in Finland, they make sure their invoice, their web site, customer service, all their employees including the country manager and everything else they do in that country is in Finnish. They want their customers to feel they are doing business with a Finnish firm not a Danish one. Customers even call a Finnish telephone number to give their orders and pay their invoices to a Finnish bank. The only time a customer may recognize he/she is dealing with a Danish firm not a Finnish one is when he/she receives packages, which are postmarked from Hobro, Denmark instead of a city in Finland. They also actively pursue advertising in foreign journals and magazines. According to Mr. Christensen, these advertisings 78

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have been quite successful. In addition, the firm is allocating more human and financial resources committed to exporting in the next few years. The strategy of being global, act as local has paid off quite a handsome return for PSE Group. In the past, some of their competitors who were selling the same attire and equipment have tried exactly opposite strategy of trying to communicate with their customers in English or their own native languages have found it very difficult to compete in those markets and soon they all left the market. But, PSE Group strategy has worked well and the firm is committed to pursue and expand this strategy in the future. Since 92 percent of PSE Group turnover is generated overseas, Mr. Christensen feels that the international activities of his firm contributes to the Danish economy, as it creates more jobs for the Danish employees in its head offices in Hobro, Denmark. Due to current economic conditions in this part of Denmark, every job created here is very important and PSE Groups is doing its share of helping the local economy. However, Mr. Christensen was also mindful of the high cost of doing business in Denmark and indicated that they are studying the possibility of moving their warehouses to Germany in order to save some costs. At PSE Group they aggressively research and compare the price of their products with those of their competitors. According to Mr. Christensen in their last country managers meeting they had a huge debate about this issue. Seven years ago he was doing these comparisons with his local Danish comparison but five years ago, he not only had to compare his prices with the domestic competitors but also with Swedish and Norwegian ones. Today, he must do the same comparison with those companies but also competitors from the rest of Europe. So, in his opinion everything is changing in his industry and his firm must be prepared to face all these changes over time and be flexible enough to bring prices and costs in line, otherwise it will

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not survive. These flexibilities, including price advantage, will enhance the market position of PSE Group in the future. Export Obstacles According to Mr. Christensen the biggest obstacle to his international activities are the environmentalists (green groups). In addition, the currency fluctuation, especially with Swedish krona, which has depreciated against Danish krone, is another obstacle in PSE Group business dealing overseas. Furthermore, banks are trying to charge a lot more for their currency conversions, which according to Mr. Christensen is costing PSE Group arms and legs. Unfortunately, PSE Group has to deal with a number of other obstacles in conducting its international business. One other obstacle mentioned by Mr. Christensen is financial barrier such as financing their export activities. It also has difficulty hiring qualified people in Hobro who can speak other Nordic languages. Allocating resources including hiring of people with special expertise such as information technology is the other obstacle PSE Group has to deal with. Transportation and logistics mainly due to the remote location of the firm are the other obstacles mentioned by Mr. Christensen. Finally, ethical differences, especially in countries such as Russia, which is one of the target markets for PSE Group, could create an obstacle for the firm in the future. Future Markets PSE Group plans for a number of activities including new products, new markets, increasing their market share and diversification. In Mr. Christensen’s opinion, in order to offset declining demand resulting from the global economic crisis PSE Group must gain more market share in order to remain a viable firm. PSE Group has also decided that beginning from January 2012, it will enter into other business segments. One area which is very attractive to them is the equestrian market. According to 80

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Mr. Christensen, there is a huge demand for equestrian products in Northern Europe. Mr. Christensen mentioned that there are 2500 active motorcross riders in Denmark compared to more than 100000 registered horse riders in the country. This is also a very popular sport in Germany as well. Markets with the greatest potential for PSE Group products in the coming years are Germany, the Netherlands, and Belgium. These markets are attractive to PSE Group mainly due to their vicinity to Denmark and their sheer size. In addition, PSE Group is actively looking at entering into the Russian market. According to Mr. Christensen, it seems nobody in his industry would like to go into the Russian market for a number of reasons but motorcross sport is gaining in popularity in that market. Also, due to the fact that Russians are getting wealthier makes that market even more attractive to PSE Group. Frontego A/S Firm Background Frontego A/S was founded in 1990 to produce wooden tables. The current co-owner and manager of the firm, Mr. Tage Nielsen, joined the firm in 2002 by purchasing 10 percent of the firm. He increased his share of the ownership to 50 percent a year later. Today, Mr. Nielsen, and his wife control the majority of the board and the firm. The other half is owned by a passive investor, Mr. Christensen, who himself runs an import outlet for kitchen furniture. Mr. Christensen’s outlet business is also a major customer of Frontego providing it with a constant flow of orders. Although most demands for Frontego’s products come from domestic costumers, a small percentage of its products are exported to foreign customers. Currently, Frontego employs 16 workers and exports approximately 10 percent of its products. The firm is located in Nykøbing Mors, which is the largest town on the Limfjord island of Mors. The city has a population of over 9000. According to Mr. Nielsen, their remote location 81

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has a number of disadvantages including lack of access to major highways which cost the firm, both in terms of time and money, as it takes longer to receive deliveries and ship finished products to their customers. However, their remote location also has some advantages. The local community of Nykøbing Mors has a long tradition in furniture production, making it very easy to find replacement workers who do not need any additional training. In recent years the Danish furniture industry has outsourced parts of the production to sub-suppliers or moved to own production sites in countries with lower labor costs. Furthermore, a number of components and ready-made furniture is bought from abroad for resale in Denmark. In addition, during the global economic crisis many of the small local companies that used to produce high-end and expensive furniture products could not sustain themselves and had to close shop. This has left a lot of well-qualified workers in the furniture construction who are unemployed. This has left Frontego a large source of qualified workers to draw upon in the local labor market. Yet essentially, this is also a sad story and is part of the larger problem as it often happens in other remote areas where the trends of industrialization and urbanization lead to an exodus of young and qualified persons, which in turn accelerates even more downturn of remote areas. The other advantage of locating in this location is that, in general, cost of production is much lower than bigger cities such as Aalborg or Copenhagen. Unfortunately, the regional government does not provide any help especially in term of financing or they require a lot of paper works and it usually takes the government more than a year to respond to any funding request. According to Mr. Nielsen it is easier to borrow from traditional sources of funds, such as banks and leasing companies than from the government agencies. The firm applies methods for lean production in order to reduce waste of valuable natural resources, mainly high quality wood, which often are imported from exotic locations. At the time of the interview Mr. Nielsen indicated that his firm has just 82

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started the process of sourcing raw materials that only come from sustainable sources. Products Today, Frontego is a well-known contract manufacturer that produces front doors for kitchen cabinets and bath, shelves and canopies in veneer or laminate. Furthermore, the firm manufactures customized kitchen countertops in solid wood. It sells its products through a wide range of channels: sales to chains of buyers and shops, sales to individual furniture dealers, contract sales for furnishing projects, etc. Mr. Nielsen is very proud of the fact that his firm is always able to finish the projects ahead of their deadlines. He also stresses the fact that his firm is known for the high quality of its products. With updated and modern machinery, Frontego focuses on a flexible production that meets customers’ and partners’ requirements and desires. Generally, Frontego’s customers are architects who design homes and need to have special kitchen furniture made for their designed homes. They contact Frontego with the blueprints and the firm manufactures the products the architect has requested. Currently, the firm works with over 150 customers mostly in Denmark but also attract orders from far away countries. Focus of the Firm According to Mr. Nielsen, Frontego wants to provide quality products for kitchen and furniture industry. Frontego believes in working closely with customers and their keywords are commitment, good service and high quality. Frontego wants to be able to fulfill the needs for individual solutions and hence to appear as a flexible supplier. The firm focuses on product development and customers’ desires, through high quality of its products, to stay ahead of the game. The firm wants to develop products that differentiate themselves against competitors, and thus being able to stand out with unique products to the end 83

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users. In Mr. Nielsen’s opinion this makes it mandatory for him not only to be a good craftsman, as he used to be a carpenter a number of years ago, but also a good salesman, which he learned in his previous employment between 1985 to 2002. He has realized that it is essential for him to be good both as craftsman and salesman in order to succeed in his business. Competitive Advantage According to Mr. Nielsen, the top quality and design of their products give them a big advantage over their competitors. Also, their flexibility in producing customized products and meeting their customers’ specific needs give them an advantage. Generally, their customers, either architects or individuals provide a general outline of their needs and Frontego staff, including Mr. Nielsen himself, is able to design and manufacture a product that customers are satisfied. He mentioned that they have a number of their customers who have come back year after year with new orders just because they were quite satisfied with what Frontego had done for them previously. Importance Although both profitability and security of his investment are important to him, right now the sales growth of his firm is even more important. He wishes his firm to become a bit larger than its present size. Currently, Frontego employs 16 employees, and Mr. Nielsen would like to double the firm’s size to about 30 employees. However, he does not want to run a large firm. He believes in order to be successful he should know his people and work with them on a regular basis. He fears that if his firm becomes too large he would lose that opportunity. He sees the small size of his firm as strength. He believes that most of his customers prefer the fact that anytime they have a question or have special request they can contact the head of the firm, rather than some customer service employees, like in large corporations. This has given him an added advantage and that is 84

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why most of his 150 customers are returning customers. Even some of his former Danish customers who have moved overseas contact him now and ask him to produce specially designed products for them and ship them overseas. Importance of Economic Conditions There are approximately 400 Danish furniture companies in Denmark, which together produced more than DKK13.6 billion worth of furniture in 2009. The industry employs approximately 15,000 employees and the combination of advanced technology and high professional expertise makes the sector highly productive. Danish furniture industry is the world leader in terms of percentage of production, which is being exported (around 84 percent) and the export volume (around DKK11.4 billion in 2009). Furniture making is the fifth largest Danish export industry. Danish furniture production has four main segments: (1) Domestic furniture accounts for the majority of Danish furniture production. Speciality areas include furniture for children and young people’s rooms, bedrooms, dining rooms, home offices, etc. Flat-pack furniture and veneered furniture are also areas of expertise and Danish producers of solid furniture in woods such as beech, ash, teak and pine are among the best in the world. (2) Contract and office furniture from Denmark is in high demand from professional architects, building owners and entrepreneurs around the world for furnishing workplaces, institutions and public areas. (3) Designer furniture has distinguished Denmark as a leading nation on the international furniture scene since the 1950s. Classic designs by famous architects and a new generation of innovative furniture designers together ensure that this enviable leading position is maintained.

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(4) The Danish furniture industry also produces a significant amount of kitchen units and sub-contract production of furniture components. Global economic crisis had a major impact on the financial performance of Danish furniture making companies including Frontego. According to Mr. Nielsen, since the 2008, the firm had to down size and reduce its labor force from 28 to 16 employees and their turnover also declined from DKK20 million to DKK12 million. However, today the firm is more profitable than fiscal year of 2008. He contributes this to the fact that during good years they were not as concern about their costs but these days they are mindful every krone they spend. In the meantime the firm is slowly reversing its employment level and has planned to hire more workers in the coming year. He is negotiating with two new companies and hopes these will result in a multi-million krones contracts in the coming year. To satisfy these new orders he thinks he will need more workers. He feels lucky that there is a large pool of qualified workers in his town who can come in and start the work without training. That is why he is reluctant to hire new workers before making sure that these negotiations will bear fruits. Mr. Nielsen believes that his firm is too small to have a big impact on the Danish economy. He is saddened that his community has lost more than 1300 jobs in recent years. According to Mr. Nielsen, his firm is one of the very few furniture companies that have survived in this region. In his opinion, more than 500 Danish furniture companies have either gone bankrupt or closed their operations in Denmark or shifted it to other countries with cheaper labor force. He feels proud that at least he has been able to maintain some employment in his community. He was complaining that it is much cheaper to produce his products in Germany than it is in Denmark. According to Mr. Nielsen it cost him more than DKK190 per hour to employ a worker in Denmark, whereas he can hire the same worker in Germany for only €10 per hour. He blames the Danish labor laws preventing him from laying-off workers 86

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during the business slow season (January and February). According to him in those two months they hardly have any business and employees sit and play cards while they are fully paid. Future of the Firm According to Mr. Nielsen, the global economic crisis has taken care of one his problems: competition. Today, there is not a lot of competition in his line of business compared to four years, as most of his competitors have gone out of business. Therefore, he feels his firm is in much stronger position and the demand for his products will grow. This will help him to be more profitable in five years. But all that depend on when the global economic crisis ends and his customers start spending more money on remodeling their kitchens. They are already seeing some increase in demand, which has made him hopeful that the crisis may not last very long. He also hopes his finances will be better, as it has become very difficult to borrow money especially in his town, as the only bank in town was closed and was taken over by another out-oftown Danish bank. The bank’s new owners are not providing many small business loans any more. He wishes that in the near future his firm’s finances would improve to a point that he would no longer need to borrow money from banks in order to expand his business. Unfortunately, at this point in time he is still at the mercy of financial institutions, which have become more conservative in their lending practice and companies such as Frontego find this out the hard way: they are more likely denied new credit today than five years ago. Another way to secure the future of Frontego, Mr. Nielsen has initiated a training program for his customers, who are mostly architects, or salesmen working for wholesalers. The firm has trained more 130 of their customers so far. Since some of the woods used in Frontego’s products are exotic and imported from countries such as Brazil and Indonesia teaching customers about wood, how it should be taken care of, how to treat it, or how the 87

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finished products would look like using different types of wood are very important. In Mr. Nielsen’s opinion this also will secure a long-term relationship with his customers, which is very critical to the future of his firm. Systematic Decision Making Process Mr. Nielsen, his wife, and Mr. Henning Christensen, the coowner, make all the decisions in the firm. Frontego does not have any systematic decision-making process. According to Mr. Nielsen, anytime they have to make a major decision, the three board members get together and make the decision. Otherwise, he runs the business without any intervention from his co-owner. Mr. Nielsen also makes all decisions in regard to international business activities without intervention from his co-owner. Frontego regularly plan for new products. According to Mr. Nielsen they are constantly watching the market trends for their product lines and always want to make sure their products meet the new market designs and needs. He gave us an example of one of their new products, which was designed by a team of three staff members in one day, and three days later that design was sold to one of their customers. So, he feels that indeed they are ahead of market trends or at least not far behind. The firm also does planning in regard to its expansion into new markets. They hope in the near future to expand to some other European markets. Planning for diversification into different lines of business is something that Frontego does not pursue at this time. According to Mr. Nielsen, diversifying into other businesses such as manufacturing kitchen stools and dining chairs require new machinery which are very expensive and the firm lacks financial resources to pursue expansion into those lines of businesses. He hopes, as his business becomes more profitable and also financial institutions become more open to financing such projects in the future, he may reconsider this strategy in the near future.

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Initial International Markets Frontego’s initial export activities started with a contact by a Swedish customer. According to Mr. Nielsen, a lot of Swedish customers are familiar with Danish furniture and like their designs. Since, its humble beginning of selling to a single Swedish customer, Frontego has been able to increase its sale in that market. However, at this moment, Mr. Nielsen feels that the demand for his products in Sweden, due to a number of reasons such as currency valuation and global economic crisis, is stable. He hopes this will change soon. On the other hand, Norway is becoming a bigger market for Frontego’s products. The demand in that market has increased, and also the strong value of Norwegian currency relative to Danish currency, are helping Frontego to sell more products in this market. Frontego regularly checks the prices of its competitors overseas in order to make sure its products remain competitive. Mr. Nielsen identified several Danish furniture makers such as Snedker Garden, Furncom and BKN, as their biggest competitors. Since, Norway and Sweden are the two main overseas markets for Frontego’s product it is clear that exchange rate fluctuation between Danish currency and those of Sweden and Norway affects the level of business Frontego is able to conduct in those markets. Indeed, these currency fluctuations have affected the level of profitability for Frontego’s products. According to Mr. Nielsen, at this moment their sales to domestic customers are more profitable than those in Sweden and Norway. Systematic Exploration of International Opportunities Although Frontego does not have any systematic procedure to explore international opportunities, at least in the case of Sweden, Mr. Nielsen is using the help of a friend who is helping Frontego to find more customers in that country. Mr. Nielsen hopes to copy the same approach in the Norwegian market. He also sells some of his products in Portugal but these customers 89

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are mostly Danish expatriates who used to be Frontego’s customers while living in Denmark. Now that they have moved away, they still order its products. Mr. Nielsen has never travelled to Portugal to sell his products but wishes to do so in the future. The only countries he travels regularly are Sweden (two or three times a year) and Norway (only once a year). Frontego does not regularly plan for expansion into other countries. Mr. Nielsen feels that selling in Denmark can generate enough revenue for them to succeed. He believes if they enter any other markets they will have a lot of difficulties. He attributes that to the lack of resources, mainly human resources, where he is the only one in the firm that handles all international business-related activities and does not think that he can handle any additional paperwork, and other required activities, including traveling to those countries. His preference, at this point, is to expand his business in the countries which his business has already established a relationship with the customers. He already has three big customers in Sweden and would like to see more sales in that market instead of going into new markets. Currently, the firm is exporting about 10 percent of its products. He feels these exports are very profitable and his firm cannot sustain without these additional profit from his overseas sales. He hopes that in the future he will be able export more to Sweden and Norway and possibly to other countries. But considering the fact that the rest of European economies are not doing well, compared to Scandinavian countries, he is not very hopeful. According to Mr. Nielsen, his firm’s international business activities focus on the growth of his sales revenue. He believes, if there are occasions in which international opportunities will secure long-term relationship with new foreign customers he is willing to reduce his profit margin for a time being in order to secure this relationship.

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Export Obstacles The biggest obstacle in internationalization of Frontego, as identified by Mr. Nielsen, is his inability to speak fluently any foreign language. His ability to speak English was fair but he did not feel it was good enough for him to communicate with potential foreign customers. In his previous job experiences Mr. Nielsen used to travel very frequently to both Sweden and Norway, and therefore, he feels more comfortable in dealing with customers in those two countries. He is also quite familiar with the business practices in those two countries, which are very similar to Denmark, and he sees no obstacle in dealing with customers in those countries. But he is not confident enough to deal with customer from other countries and feels that is his biggest obstacle. In his opinion, even in Germany, if one wants to succeed he must have the command of the German language and prepare his promotional materials in German. Otherwise, entering into that market will lead to nowhere. Another obstacle, which was mentioned by Mr. Nielsen, was collecting payment from his foreign customers. Due to global economic crisis some of his customers are late in making their payments. In 2011, the firm had 5 customers who could not make their payments and Mr. Nielsen was forced to make alternative arrangements to collect these payments. Thankfully, Frontego has had enough cash reserves not to despair from these late receipts. However, according to Mr. Nielsen, his firm cannot survive if more customers delay paying their account. In his opinion this is the only disadvantage of being a small firm, your finances are changing from one day to next and companies, which do not have reserve cushions, can simply go bankrupt even if one of their customers is late in payment. That is why he hopes the global economic crisis ends as soon as possible, so that his customers can make their payments on time and he does not have to worry about this issue any more. The other obstacles encountered by Frontego in dealing in foreign markets include: cultural differences, locating 91

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prospective clients/customers, logistics, and allocating resources, especially human resources. Future Markets As was mentioned earlier, Frontego was already exporting to Norway, Sweden, and sporadically to Portugal. However, Mr. Nielsen has his eyes on the Netherlands. He believes the Netherlands has the biggest potential for his products in the coming years. He had some experiences, from his previous employment, in dealing with the Dutch. He feels very comfortable dealing in that country. But he thinks he needs to improve his ability to speak English when dealing in the Netherlands. Also due to the similarity of the Danish and Dutch cultures and customers’ preference for the customized furniture in that country, he feels that would be a good market for Frontego’s products. The other country with great potential for Frontego’s products is England. Mr. Nielsen believes that market also holds a great potential because of its close distance from Denmark and also the fact that, although limited, he can at least communicate with his customers in that market. Gl. Bedsted Industry A/S Firm Background Gl. Bedsted was established in 1942. The founder was a local metal worker who decided to locate the firm in its current location. The current owner, Mr. Tom Pallisgaard Jensen moved to this community in 1970s. He then became a partner with the sons of the firm’s founder in 1997. In 2008, he bought out his partners and became the sole owner. In 2010 fiscal year, the firm generated a sales volume of DKK8.5 million and currently employs 12 workers and only utilizes 30 percent of its capacity. The firm is located in Bedsted Thy, in the district which is also called Thy in the most remote corner of Northern Jutland between the Limfjord and the North Sea. The town is fairly 92

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small. Since the Danish Municipal Reform of January 1, 2007, Thy district is roughly identical to Thisted municipality. It seems the firm suffered from its remoteness. According to Mr. Jensen, if something had to be done outside the firm, it takes a long drive. The biggest advantage of their location is its dedicated employees. Mr. Jensen is very proud of his workers and believes they are very hard working, loyal, competent and very reliable. The firm has not had any industrial accident for a number of years and many of his workers have not taken any sick leave for over a year. The remote location of the firm is its biggest disadvantage. The nearest big city, Thisted, with a population of about 30,000, is more than 30km away. According to Mr. Jensen workers in Denmark can receive additional free training/education to improve their job’s prospects. However, to send the employees for training or additional education to cities such as Aalborg requires travelling more than 100km each way, which is a big burden not only on the employees but also on the firm itself. The main reason the firm has stayed in this area is that they own the factory buildings, and it is very difficult to sell them, as no new enterprise is moving into this area. Since the disadvantages are so great, Mr. Jensen believes he would have moved the operations to a bigger city, if he was able to sell the building. The remote location of Gl. Bedsted has obviously influenced its activities. According to Mr. Jensen, in order for his firm to compete from such a remote location it products must be better, both in terms of quality and prices. Otherwise, his firm would be unable to compete with companies in big cities, with less transportation costs and easier access to potential clients. Since the remote location makes marketing of their products very difficult, in Mr. Jensen opinion, the government should establish some kind of marketing program to promote the products of companies in remote locations or provide grants to the firm to finance their own marketing programs. Furthermore, providing training and educational opportunities by the regional 93

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government in remote communities, instead of travelling more than 100km to big cities, will help companies like Gl. Bedsted and their employees. The other suggestion by Mr. Jensen was a request for proper financing arrangements. According to Mr. Jensen, most of the financial supports provided by regional government are more suitable for larger companies. Small companies such as, Gl. Bedsted do not qualify for those loans because the minimum amounts are generally more than DKK1 million, and Gl. Bedsted and many other smaller firms do not need such large loans. Product Gl. Bedsted is in the business of sheet metal, machine components, and forging in stainless steel, aluminum and steel. It is specialized in making stainless steel frames for furniture industry using computer-aided design. Their other product is stainless steel exhaust hood for kitchens. According to Mr. Jensen, his kitchen exhaust hoods are very unique in nature, as they are highly customized to the customers’ design. On the other hand, his stainless steel furniture frames are high tech and have high design value. Generally, their targeted customers are architects, engineers, consultants and furniture designers who would then integrate the expertise of Gl. Bedsted into their own products and services. The firm is able to produce customized products with various degrees of completion and according to the specification of the customers. Focus of the Firm Mr. Jensen sees himself as a rational manager who is not only good as a craftsman but also has to be a good salesman, as he is the only sales person in his firm. As a manager, Mr. Jensen’s focus is on short-term profitability. According to Mr. Jensen his firm is in dire situation and at this time cannot afford to focus on sales growth or to sacrifice short-term profit in order to expand 94

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his business. In his opinion his firm cannot survive in the coming months if he is unable to increase firm’s profit. Competitive Advantage The quality of Gl. Bedsted products is its biggest competitive advantage. Gl. Bedsted products are made from the highest quality stainless steel, which makes them very desirable for architects, interior decorators and homeowners. Unfortunately, the top quality of the products is also making them very expensive for customers. Therefore, the firm is unable to compete with products manufactured in China or other countries that use lower quality materials. Mr. Jensen believes the technology contents of his products are not so much to make it more difficult for other companies to compete with Gl. Bedsted. These days Chinese and other companies from emerging economies are offering the same stainless steel frames to furniture industries at much lower price. The fact that a lot of Danish furniture manufacturers have moved their operations from Denmark to other countries has made it even more difficult for companies such as Gl. Bedsted to compete, due to higher transportation costs. In addition, Gl. Bedsted lacks any marketing or sales expertise. This lack of sales and marketing focus has prevented the firm from being better in identifying and going after new market opportunities. As was indicated by Mr. Jensen, he is the only salesman in the firm and admitted that he lacks the necessary competency in this area. Importance According to Mr. Jensen the most important thing for him at this moment is survival of his firm. The dire financial situation, mainly due to global economic crisis, and possibly other factors have resulted in substantial decline in the firm’s turnover over the last three years. At its peak, in 2008, the firm’s sales 95

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exceeded DKK22 million. However, the global economic crisis of 2008 has had a major impact on the firm’s sales. In its latest fiscal year the firm had a turnover of DKK8.5 million. Mr. Jensen feels urgency in turning his firm’s fortune around; otherwise, he doubts his firm will survive. This makes increasing profit and security of investment very important to Mr. Jensen. His strategic direction is to find stable customers, which could be served on an ongoing basis. This way the focus has been mainly on engineering, which would require some degree of interaction with customers, but due to the remoteness of their location it is difficult to keep that close contact with existing or potential customers like architects or engineering consultants. Moreover with the downturn of the building sector in the aftermath of the financial crisis, which has affected the business of architects and construction engineers, the flow of orders have thinned out leaving the firm with less than sufficient income. Importance of Economic Conditions Business activities at Gl. Bedsted are highly connected to the economic conditions in the markets that it serves. According to Mr. Jensen, as a sub-contractor his firm will receive orders from his customers only if they cannot do it themselves. During the economic slowdown many of these customers tend to do all their works in house, instead of sub-contracting them to Gl. Bedsted. Therefore, his firm will be the first one to be cut off if his customers see a decline in their business. That is exactly what has happened to him in the last three years. Many of his customers are trying either to make the products themselves or replacing it with cheaper ones from China and other countries. Unfortunately, as was mentioned earlier, in recent years these have led to a sharp decline in both sales volume and size of employees at Gl. Bedsted.

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Future of the Firm When asked about the future of his firm in the next five years, Mr. Jensen was very pessimistic. Looking at its current financial situation, he believed that his firm would be closed. If he survives, which he doubted, he believed the demand for his products would increase. He gave us examples of times not too long ago when his business was doing fine and expecting those days will come back if the global economy recovers from it current situation. But he emphasized that he thinks it will be too late for his firm, as many of his customers are either out of business themselves or outsourcing to companies in other countries. Systematic Decision Making Process Mr. Jensen solely makes all of the strategic decisions. His firm does not have any board of directors, as he described it, they are very expensive for a small firm like his. He has hired a tax advisor who advises him on accounting matters, but has no role in strategic decision-making process. However, Mr. Jensen has established a technical group in his firm, which meets regularly to decide on issues related to the production in the firm. Still Mr. Jensen is the sole financial decision maker in the firm. He also makes all decisions related to its international business activities. At Gl. Bedsted, Mr. Jensen regularly plans for entering into new markets, and diversification of his business activities. He tries to find other related products that he can produce in order to generate additional turnover. This has led him to introduce exhaust hoods for kitchen, which is different from their traditional business of making furniture frames. Initial International Markets Initially, Gl. Bedsted export activities began as a result of an inquiry from a Norwegian customer back in 2000. The firm 97

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currently generates 22 percent of its turnover from its export activities, of which 80 percent is sold to Norway and less than 20 percent is exported to Sweden. Germany, United Kingdom and Malta (mostly in Kitchen exhaust hoods) account for very small percentage of Gl. Bedsted’s turnover. Generally, his exports to Norway are more profitable than those to Sweden. However, due to economic crisis the sales to Norway have declined but recently they have stabilized. According to Mr. Jensen the economic conditions in other markets in which Gl. Bedsted exports are not favorable either. According to Mr. Jensen, Swedish competitors have a lower production costs compared to his firm. Since most of his export to Sweden is furniture frames the demand in Swedish market has been stagnant, mainly due to economic conditions. That is why he has not been as successful selling in Sweden as he has been in Norway. Mr. Jensen feels that his firm’s foreign operations are very important to its survival. Without these profitable sales possibly the firm would have already been bankrupt. Systematic Exploration of International Opportunities Although, Gl. Bedsted does not have any specific policy or process to evaluate international opportunities, Mr. Jensen will respond to any export opportunity he receives. He attends trade shows in Scandinavian countries such as, Norway and Sweden. He also actively searches on the Internet for potential foreign clients. In Mr. Jensen’s opinion due to its small size, Gl. Bedsted cannot afford to hire any qualified staff for its international business activities. Mr. Jensen himself handles all of these tasks. Currently, Gl. Bedsted is in such dire financial situation, that Mr. Jensen’s main emphasis is on short-term profitability, rather than the sales growth. Although he is willing to give up short-term profit during the start-up period of international expansion, but his present financial circumstances prevent him from doing that. Mr. Jensen also checks his competitors’ prices on international markets but find it very difficult to make a reasonable comparison. His firm mainly acts as a sub-contractor 98

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to furniture manufacturers and also manufactures customized kitchen exhaust hoods, which are very difficult to find a similar product in the market. He also emphasized that his firm does not compete based on prices but rather tries to differentiate itself based on the quality of its products. The firm has neither developed any business/marketing plan for their target overseas markets, nor advertised in any international journal, but it has used Google Adwords to establish itself on the Internet. Although Mr. Jensen hopes to commit more human and financial resources to exporting in the coming years, he did not seem to be very confident that he would be able to achieve that goal. Export Obstacles According to Mr. Jensen, the country’s economic condition, as reflected on his own firm’s financial situation, is the biggest obstacle to his firm’s international expansions. Since most of Gl. Bedsted’s international businesses are conducted in Norway and Sweden, Mr. Jensen did not see any problem in communicating with his foreign clients. He mainly uses English in their communication with the foreign customers. Political barriers are another group of obstacles mentioned by Mr. Jensen. He is very reluctant to do any business with countries, which are ruled by the military dictatorships, such as Burma (or Myanmar) or countries known for corruption. He thinks he cannot personally deal with such nations. He also finds it very difficult to locate potential foreign clients, allocate resources, and deal with ethical differences in his dealing in foreign markets. Future Markets Mr. Jensen believes that the United States and Germany are the two countries with the greatest potential for his products. On one occasion he has exported to a small firm in the United States, 99

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with a good experience. But unfortunately that firm went bankrupt. Mr. Jensen feels that his products are very suitable for the United States market, as they tend to be more expensive to most European customers. He also feels German market has a great potential for his products, as he currently export a very small volume to that country. Postscript Shortly after our interview, while writing this case, we checked on the status of the firm and found out that indeed Gl. Bedsted has already stopped operations. A news article published in the local newspaper, “Nordjyske” on January 25, 2012, indicated that Gl. Bedsted has filed for bankruptcy with the bankruptcy court. According to the article, “Now the economic problems reached Gl. Bedsted Industry, which Monday filed for bankruptcy with the bankruptcy court”. The firm's owner Tom Pallisgaard Jensen right now does not do anything but pick up the phone when it rings. The article further indicates that there were rumors buzzing around for sometimes that Gl. Bedsted Industrial is having financial difficulties. Mr. Tom Jensen stubbornly denied these rumors. Unfortunately, the situation is now different, as he explained that bankruptcy was a consequence of lack of sales. According to Mr. Jensen, it has gone badly for a long time, at least since last October. He adds that Gl. Bedsted had an oral agreement to sell itself last fall, but it never materialized. He also worked hard to raise new capital for the firm, but he was not successful. Ironically Gl. Bedsted, according to Mr. Jensen, actually has more customers today than before the crisis, but these are customers with small orders, which do not improve firm’s financial situation.

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CHAPTER 5 Overview of Research Cases: Non-Family-Owned Firms Perspective Non-family owned firms have contributed not only to the Danish economic development but also to the entire European and global economies. Danish non-family-owned firms are not necessarily or more established than their Danish family-owned counterparts. Similar to Danish family-owned firms many nonfamily-owned firms faced the need to internationalize their operations shortly after they were established due to the size of their domestic markets. The decision to internationalize was generally made by accepting the first order judged convenient for growing the firm rather than through systematic evaluation of market options. In most instances, owners were not concerned with developing strategic business models. Demand for their products grew in response to economic development throughout Europe. Although the European market is not homogeneous, there are many social, cultural, economic, and technological differences; there are sufficient similarities in markets for a variety of products. Industrial markets especially tend to be relatively similar and stable. Only in countries where the political system has changed recently is possible to detect major changes in market demand. Political changes in China in the early nineteen eighties have created a new environment and opportunities for some Danish non-family-owned firms. Owners of these firms have a great deal to consider in their attempts to compete with their more established counterparts in the rest of world. Most published studies dealing with internationalization of smaller firms and comparisons of initial decisions to export focus on Europe, more specifically, on the Nordic countries. In order to better understand how internationalization of Danish nonfamily-owned firms has evolved, we selected five Danish

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research cases. All five-research cases represent the types of nonfamily-owned firms that have evolved in Denmark over time. Non-family-owned firms have been well established in Denmark for centuries. Most Danish firms evolved from individual initiatives and were mainly managed by craftsman owners at their founding. Smaller manufacturing enterprises in Sweden also have a long tradition. Three of the owners in these cases identified themselves as craftsman emphasizing on the fact that their firms are focusing on the technology or production capabilities of their firms. The other two owners believe that over the years their firms’ focus has evolved. Today, their businesses focus not only on the technology but also on the business and marketing aspects of the firm. Their products are highly customized in order to meet customers’ designs and needs. So, they see themselves as owners who manage their companies in a logical and rational manner despite all the problems in the economy. The oldest enterprise among the five cases was established after World War II as a cookie and candy maker and the most recent was established in 1995, manufacturing machines mostly for medical industry and a whole series of other major production activities. Individuals who also managed their organizations started all these firms. All of these non-familyowned firms are still managed by the original entrepreneurs. All Danish and Swedish enterprises are well integrated into European and international markets; the Czech enterprises are not. From a managerial perspective, these non-family-owned firms focus on well-developed lines of products and services. They believe that they offer high quality products suitably priced for domestic and foreign markets. Although they have a tendency to view their operations as job shops, they represent highly advanced and technologically sophisticated manufacturing operations and are relatively well endowed with financial resources. Owners of these firms believe that their competitive advantage is embedded in technology, superior product quality, 102

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and service. No one mentioned the price as his competitive advantage. All of the non-family firms look for growth and market expansion, however, they are concerned about technology and the role cutting edge technology plays in growth and market expansion. As one owner articulated that being a small firm in a remote part of Denmark makes it very difficult for them to compete with global giants in the field. Therefore, it is very critical for their firms to grow. Although they are willing to sacrifice short-term profitability for the sake of growth, they need to control the sales and marketing of their products in order to grow. On the other hand, another owner attributes the survival of his firm in the last 25 years to two principles: (1) They always emphasize on profitability and (2) The preservation of their investment is their primary goal. They will not accept any project that is not profitable. However, they are willing to a certain degree to accept lower profit margins (but not a loss) on new projects which have the possibility of bringing other contracts in the future. Some of the Danish non-family-owned firms are in a unique position when it comes to the impact of the global economic conditions on their turnover and profitability. In one case the owner reported that most of their customers are governments and public health institutions around the world and their business activities are not affected the same way as many others in the private sector. Others are also so dependent on international sales and therefore, changes in the domestic economy are not affecting them as much. However, the global financial crisis of 2008 had tremendous effect on all of these firms. An owner reported that his firm’s turnover declined by more than 50 percent due to the fact that the demand for his products declined in a number of countries as many projects were abandoned.

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It is interesting to note that four of the cases look for growth in their business in the near future. There is a great deal of optimism that there will be market opportunities both domestically and internationally. In one case, the owner is highly optimistic about the future of his firm. He believes the demand for his firm’s products will increase by at least 20 percent in the next five years. Expanding into new markets is another area that he feels comfortable to achieve. He is also as optimistic about the future of his firm’s finances over the next five years. In another case, the owner is not sure when the current economic crisis will end. He believes that his firm most likely will struggle over the next two or three years but he hopes that his firm will make it through these rough times. In his opinion if his firm survives this period then it will come out far stronger firm as a whole. The Danish non-family-owned firms tend to evaluate future options systematically using a team approach. For example, in one case the firm has a systematic decision-making process involving the four founders and other shareholders who make all major decisions in the firm. The board of directors is also involved in those decisions. Even if the four founding members make a decision they usually seek the approval of the board and other minor shareholders. However, the founders of the firm normally handle the day-to-day decisions in the firm. Decisions about the international activities of the firm are also made the same way. Logimatic regularly plans for activities such as new product, new markets, increase their market share, and diversification of their activities, as well as their international business. The five non-family-owned firms started international operations by exporting their products shortly after start-up and mostly into neighboring countries; this is consistent with conclusions from studies presented by earlier researchers. Some of the firms have entered into contractual agreements with partners abroad. They systematically evaluate international business opportunities and select those that contribute to their growth and profitability. They plan for their business activities such as new products and markets by watching the marketplace 104

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to see what type of issues provide opportunity for their firms to come up with new solutions for these issues. One firm reported that they remain highly flexible and constantly search for opportunities all over the world. Even if they find opportunities that are beyond the scope of their strategic plans they are willing to take the risk and either move away from their previous plans or modify them so that they can take advantage of the new opportunity. It seems the company has been quite successful in their efforts. Although many of the non-family-owned firms perceive obstacles to international operations, these obstacles vary from firm to firm. For example, one firm faces regulatory requirements for the sale of its medical equipment in the United States. The on-going process of receiving the approval has already taken the firm several years with no end in sight. Other firms perceived obstacles differently; they perceived inability to speak foreign languages, ethical and cultural differences hampering their business activities overseas. Non-family-owned firms represented in the following five research cases all believe that future markets for their product are growing in Europe and internationally. They have a strong international perspective, and they regularly explore the potential of international markets and plan for such potential. In one case, the owner is planning to transform his firm into a European firm instead of a Danish company. Germany, the largest European and the world fourth largest economy has the greatest potential for his firm. While his firm is the largest toolmaker for packaging industry in Denmark, it ranks 40th in Germany. He feels his firm must become larger in order to gain respect of its potential customers. He also keeps his eyes on the other European markets as well. Finally, the five non-family-owned firms employ from approximately twenty to 100 employees. Their annual turnover ranges from DKK10 million to DKK80 million. Furthermore, the export ratios range from 30 percent to 70 percent of their turnover. 105

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Closing Comments The oldest firm in these cases finds its roots to the end of World War II and that is also exactly the time the firm started its initial decision to internationalize. From a long-term perspective, most of the firms had ample time to get started in systematically and rationally evaluating foreign opportunities and internationalizing their operations. However, not all five non-family-owned firms included in these cases aggressively pursue foreign opportunities. In one case, the owner reported that his firm does not systematically explore foreign markets but respond to export opportunities. His foreign sales are mostly generated from the word of mouth and relationship that they maintain with other much larger construction and industrial (both Danish and foreign) companies to secure contracts. But all owners share the same philosophy that they need to be well integrated in the global marketplace in the future. Judex Firm Background Two former colleagues from Aalborg University established Judex A/S in 1981. The firm is active in the areas of biomedical engineering, medical informatics, and related projects. Judex is located in Aalborg, an industrial and University City in North Jutland region of Denmark. The city of Aalborg has a population of about 105,000 (126,556 including Nørresundby, which is located across the Limfjord, making it the fourth largest city in Denmark in terms of population. The municipality of Aalborg has a population of over 200,000, making it the third most populous municipality in the country after Copenhagen and Århus. The earliest settlements date back to around AD 700. Aalborg's location by the Limfjord made it an important harbor during the middle Ages, and an industrial center later. Today, the city is in transition from a working-class industrial city to a 106

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knowledge-based one. The firm is located in a mixed residential and industrial area where a number of high tech and engineering companies are located, together with other service-oriented companies and a local academy for business and technological education. The nearest regional airport is situated about 20 minutes driving distance from the firm with regular shuttle services to the national airport hub in Copenhagen as well as to other important European locations like Amsterdam. The reason founders of the firm decided to locate the firm in Aalborg was their connection to the University, its research resources and the availability of qualified graduates. The university connection is still strong within the firm, as one of the partners is still a professor at the University. Judex is clearly profiting from its proximity to Aalborg University, which enables it to closely follow the research activities at the university. Today the firm is mainly a software development firm for healthcare industry and as a consequence the availability of engineers who have a deeper understanding of biomedical related software design is very critical to the firm. The connection to the Aalborg University, which has a strong engineering program, serves that need. According to Mr. Erling Henningsen, the CEO of the firm, and one of the two partners, from the beginning they realized that the region’s demand for their products was limited and in order for the firm to grow, they must look at the markets beyond their region and Danish markets. Today, markets for Judex’s products span the entire globe with business and research partners in many countries. Their success in previous years has led the firm to spin off a couple of its divisions. Although Judex is holding the majority of shares in those companies, they are allowed to maintain their independence. In 2010, Judex and its sister companies generated a combined sales turnover of DKK10 million while employing approximately 20 employees and using more than 76 percent of their productive capacity. 107

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Having been active in its field for more than thirty years, the firm has accumulated a large amount of knowledge and has succeeded in setting a number of industry standards. Through the years, the firm has been involved in numerous clinical applications in a variety of specialties. The firm has gained a good understanding of the clinical environment, in other words, they are well aware of what is happening in the real world of hospital operations. This understanding helps them to develop biomedical engineering solutions that contribute to the development of state of the art healthcare products. Understanding what will actually work in clinical environments is an absolute prerequisite in this field. The close connection to both local university and to hospitals gives the firm the knowledge about the needs and ongoing development of the markets, and provides them with important input and personal connections. Judex sees itself as a product development firm. The firm puts great emphasis on state of the art technology like advanced signal analysis, decision support systems and database design. Initially the firm developed a wide range of software and hardware products for the healthcare sector. They have found out it is very difficult for small firm such as Judex to both develop and sell its products globally. As a result in recent years they have partnered with other companies around the world in order to market and sell their products. Judex core competencies have always been to focus on understanding both the clinical as well as the technical aspects, and combining this knowhow into new and innovative products for the benefit of the patient and the hospital staff. The firm offers different forms of product development through outsourcing or joint ventures. The management of the firm considers each product as a unique development project with all of Judex’s expertise and special resources readily available. These competencies can be relevant for improving the capabilities to make exact diagnosis. What is required is a deep understanding of the origins and property of neural signals, to be able to develop competitive solutions in this area. All Judex 108

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developments are done in close cooperation with their business partners using the MI-way project guidelines ensuring quality and costs. A project can embrace the whole process from idea to end product or can consist of only a part of that process e.g., development of hardware device drivers, user interface, or hospital information system integration. Projects may originate from commercial customers as well as from the research community or as ideas from individuals involved with healthcare sector. Judex long standing focus on clinical product development has given them an extensive and unique experience in joint projects with both commercial, clinical and university partners. The firm has experience in serving export markets and has successfully adapted its software to different local conditions and languages. Judex develops software in a variety of software languages both for servers and terminal devices like personal or hand-held computers. Today, practically every project for adapted software, which Judex is involved, is in close interaction with clinical hardware. This requires the ability to closely work with other companies with different specialties for succeeding in larger projects. The firm has the competencies to work on the interfaces between hardware and software and develop adapted device drivers so that their software can function with hardware solutions of third parties. Judex also possesses competencies in interface design for bio electronic equipment. Products Producing reliable software in an efficient manner, for the global market, is the Judex foundation. Almost all of their projects these days involve software development in some form. Judex is divided into two divisions, the Biomedical Engineering Division and the Medical Informatics Division. The Biomedical Engineering Division has developed many products, which are accepted as golden standard within their areas. The key to their success is their constant focus on 109

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knowledge combined with 30 years of clinical experience. They believe that understanding of solutions that will work in actual clinical environment is a necessity for the development of market leading healthcare products. Judex has been involved in numerous clinical validations, ranging over a wide area of clinical specialties. This clinical experience is an absolutely invaluable asset in the development of new medical products. Besides giving Judex precious knowledge, they have also been capable of establishing a lot of useful clinical connections making it possible for them to verify ideas, get marketing input and giving them the possibility to test new products. Handling biological signals is another line of business for Judex. It involves thorough understanding about the signals origin, features and clinical significance to be able to restore, analyze and present them in an optimal way. They have successfully done that over a wide range of different types of biological signals and clinical environments. The Medical Informatics Division is working on putting the information at the service of the user by bringing the relevant data and making the necessary data available combined with existing information to where it is needed (point of care) at the right time and in an optimal format (presentation and reporting) and with intelligence (decision support) optimizing both the medical outcome as well as the costs. The amount of information produced in hospitals today and the number of systems manipulating this information is increasing rapidly. At the same time the compatibility between the different systems is usually far from optimal and getting the right data at the right place is not easy. Healthcare institutions are considering, and a few are making, large-scale commitments to information systems and services that will affect every aspect of their organizations' function. Telemedicine is the other line of business for Judex. It is about moving medical information over wide distances but maybe more importantly it is about moving knowledge to where it is mostly needed. Typically the data is moved using radio technology, mobile phones, wireless network, Internet, etc. The .

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big challenge is to do this in a reliable and efficient manner, optimizing response time, guaranteeing functionality, and utilizing the typically limited bandwidth in the best possible way. The other line of product that Judex is known for is providing decisions support system to the healthcare industry. Even if the data is compiled into a homogenous environment, filtered and presented in a simple and accessible way it can still be an overwhelming task for the user to deduce the proper decisions from it. This is where decision support systems can make a big difference. Decision support systems can make existing knowledge easily accessible, reveal hidden dependencies, support existing practices, present dynamically validated options, guide user through a predefined workflow etc. Judex has successfully been developing decision support systems right from the start, using many different types of mathematical algorithms, rule-based systems, neural networks, and causal networks. Validating a decision support system clinically is one of the most demanding but necessary steps. Frequently this can only be done through clinical international multi-center studies. Judex has successfully been a partner in a number of such validation processes. With the advent of new information technology and more and more commercialization of the Internet many private and public healthcare providers are storing their patients’ medical records electronically. For example, Electronic Health Records (EHR, a general term describing computer-based patient record systems) is sometimes extended to include other functions like order entry for medications and tests, amongst other common functions, and Hospital Information Systems (HIS, typically used to describe hospital computer systems with functions like patient admission and discharge, order entry for laboratory tests or medications, and billing functions) are terms that cover several different clinical and administrative solutions, spanning from smaller department specific systems, to larger solutions integrating several departments and/or hospital information systems. Judex has a lot of experience in both EHR and HIS, integrating existing 111

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proprietary databases as well as data generated by medical instruments together into standardized storage streams and making them available in a central EHR or HIS. Judex is a vendor independent developer and as such all development is done with open standards like Health Level 7 (HL7) or Diagnostic Images and Communication (DICOM). HL7 is a healthcare specific communication standard for data exchange between computer applications. DICOM has become one of the most popular standards in medicine. In the beginning, DICOM was used for communication of image data between different systems. Actual developments of the standardization enable increasingly more DICOM-based services for the integration of modalities and information systems. Finally, clinical databases within many clinical specialties are widely used today and new databases are rapidly emerging. Clinical databases are a wide concept stretching over many different clinical tasks. It could be a single clinic database used for optimizing workflow or healthcare quality to a national multicenter database used for treatment, evaluation and research. Judex has developed a set of tools and features that can easily be applied in a standardized way to existing clinical databases or when developing new databases ensuring high level of functionality at an affordable price. Focus of the Firm According to Mr. Henningsen, Judex has always focused on understanding both the clinical as well as the technical aspects of its business and combining this knowhow into new and innovative products for the benefit of the patient and the hospital staff. He sees his firm as a research and development organization focusing on finding solution for problems in healthcare industry. The clear goal for his firm is “to develop and market state-of-the-art solutions for the healthcare sector solutions that make a difference.” According to Mr. Henningsen, they receive a lot of inquiries from doctors and healthcare organizations, which have specific problem and seek help from 112

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Judex in resolving those issues. Some of the products that Judex has developed over the years are the results of those inquiries. In the meantime Judex has let its partners around the world to take care of the sales and marketing aspects of the business. In this respect, Mr. Henningsen sees Judex as a craftsman focusing on production capabilities. Therefore, what matters to Judex is the combination of the ability to model a problem correctly, the knowhow to select the proper technology, the experience to realize it in the best possible way and above all the ambition to only develop software that one can be proud of. Competitive Advantage Judex sees itself as a bridge builder between the clinical work at the hospitals and technical work. According to Mr. Henningsen, “we speak the same language as doctors. We are good in identifying the problem and then conducting research in order to come up with solution”. He believes this unique relationship between his firm, doctors and healthcare providers gives Judex a competitive advantage in product development and technology over other companies in this field. This unique relationship shortens the length of time to identify a problem in the healthcare sector and also reduces the time to come up with a solution to the problem. As a result many healthcare providers, which have a unique problem frequently come to Judex for help in resolving the issue. Importance The research and development has been the hallmark of Judex since its establishment. Being a small firm in a remote part of Denmark makes it very difficult for Judex to compete with global giants in the field. Therefore, it is very critical for the firm to grow. Although they are willing to sacrifice short-term profitability for the sake of growth, Mr. Henningsen made it very clear that as a product development firm they need to control the 113

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sales and marketing of their products in order to grow. However, they have deliberately decided to let their partners manage the sale and marketing aspects of their business. Impact of Economic Conditions Judex is in a unique position when it comes to the impact of the global economic conditions on its turnover and profitability. Most of their customers around the world are hospitals and other healthcare providers. According to Mr. Henningsen in many countries governments and other public entities own these institutions. Therefore, their business activities are not affected the same way as others in the private sector. It has a lot to do with government budget. In many of these countries the government spending in healthcare is increasing therefore Judex’s revenue is not affected the same way as other businesses. Indeed, ongoing global economic problems have not negatively affected the firm in a big way. As a matter of fact the firm’s turnover over the last three years has increased and the firm is currently hiring new employees. Judex turnover in 2010 was more than DKK10 million. Currently, the firm is operating at the near full capacity. Due to their higher turnover they are also paying more taxes to the Danish government. Mr. Henningsen takes great pride in the fact that his small firm is known worldwide and is able to contribute to the health and growth of the Danish economy. The Future of the Firm According to Mr. Henningsen, Judex intends to continue to grow in the future. It is expected that the demand for its products, which improves the efficiency in which patients’ medical records are maintained, will increase in future. Judex is well positioned to take advantage of these opportunities. Yet, given the fluid nature of many of the driving forces behind progress in information processing methods and their technologies, progress in medicine and healthcare, and the rapidly changing needs, 114

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requirements and expectations of human societies, Judex expects many changes in future medical informatics. This would require Judex to be in the forefront of its industry in research and development in order to maintain its position in the industry. Mr. Henningsen sees more opportunities for new products development and growth: he emphasized that in the past when Judex became larger they spun off a couple of their divisions and he feels his firm will do the same in the coming years. The growth agenda is very much based on Judex’s innovative capabilities and clear view of the future. In order to implement its growth strategy, it needs to be financially strong. Over the years it has experienced satisfactory financial growth to support its new product development. The recent economic slowdown has not affected its growth potential; even in the depressed markets, the demand for Judex’s products seems to be relatively strong. Mr. Henningsen attributes this success to the fact that in many countries spending on healthcare equipment are rising and believes that Judex will grow considerably in the next five years, primarily due to increase in demand for its products. Judex’s financial situation also seems more secure. Despite the global economic crisis in the last three years the firm has made profit and is expecting its financial situation to be even stronger in the next five years. Systematic Decision Making Process Judex is a typical owner managed firm that has been innovative and competitive in relatively specialized markets. The decision making process in the firm is highly centralized. Mr. Henningsen and his partner are the key decision makers. The firm has hired a board of directors, which meets annually to advice on strategic decisions. However, the two partners are evidently the main decision makers. According to Mr. Henningsen, Judex does not systematically and regularly plan for such activities such as new products, new markets, or diversification into other businesses. These centralized decision making propensities may limit 115

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Judex’s view of the future. Although many of the decisions are made with substantial input from research or publicly available formal sources of information, personal knowledge and direct feedback from customers tend to determine the potential market opportunities. Involvement in day-to-day operations by employees was not visible during our interview but their suggestions for product development or other activities could be very beneficial for the future of the firm. Even if the employees are empowered on some levels, they are not empowered on other levels. Their input into corporate decision-making was not noticeable from our conversation with Mr. Henningsen. Mr. Henningsen and his partner in consultation with the board of directors solely make the decisions on their international activities. Initial International Markets Judex is heavily dependent on international business. Domestic sales account for 40 percent of their sales, with the United States accounting for another 30 percent, and the rest of the world for the remaining 30 percent. This heavy dependence on overseas market has had a major impact on the firm’s profit and growth. Judex’s involvement in international markets began when it started exporting in the early 1980s, shortly after it was established. Initially, Judex tried to sell its products overseas using distributors. According to Mr. Henningsen they quickly found out this was costing them a lot of money. They changed strategy and used joint ventures with foreign companies as a method for penetrating foreign markets. However, recently, again, they are using distributors for selling their products in markets such as, Hong Kong and Malaysia. Recently, Judex has had an issue for the sale of its products in the United States. They have successfully sold the same product in Europe and the United States for a number of years but more than a year ago they decide to apply for the approval by the United States Food and Drug Administration (FDA). Unfortunately, FDA rejected their application and they reapplied 116

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about a year ago with no response yet. The ultimate rejection by FDA could be a big blow to the future of Judex as the United States is their largest foreign market. Such a loss will not be easy to replace by Judex and that would make the future of the firm somewhat uncertain. Also the competition from American and Japanese competitors is heating up which makes the future even more uncertain. Systematic Exploration of International Business Opportunities Although Judex is active in international markets is very selective in terms of the markets they choose to enter. In this regard Judex has specific policy or process to evaluate international opportunities. According to Mr. Henningsen, Judex plans for business activities such as new products and markets by watching the marketplace to see what type of medical issues provide opportunity for Judex staffs to come up with new solutions for these problems. However, the firm does not have any qualified staff to handle their logistic, finance, marketing, or other activities related to their international expansion. When the profitability of domestic and international operations is compared, there appears to be a difference in the levels of profitability between domestic and overseas markets. According to Mr. Henningsen, Judex foreign sales are more profitable. This is primarily due to the fact the Judex is maintaining a 40 percent market share for the type of products they make. So, as a market leader in its own sector, Judex is able to dictate the price. But he emphasized that his firm focuses more on sales growth than short-term profit maximization and was willing to sacrifice the short-term profitability during the start-up period when they enter any new international market. Export Obstacles What seems to be the greatest obstacle for Judex in the highly competitive international markets is the fact that as a small firm 117

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from rural area of Denmark, it is very difficult to be recognized by larger multinational companies in the world as a valuable partner. Judex has to build trust with its customers first. Most hospitals both in Europe and in the United States prefer to buy from larger domestic companies. Even though Judex has fewer problems in Scandinavian countries, finding a partner is not easy for them. Unfortunately, there are a number of barriers, which could hamper their sales in foreign markets. These include: cultural differences, language barriers, locating prospective clients and resource allocation. Doing business in a number of countries is making it difficult for Judex employees to deal with cultural differences that exist between Denmark and those especially in Asia and Africa. One of the key barriers mentioned by Mr. Henningsen is the knowledge of foreign languages. Although he is very fluent in English and understands a fair amount of German he feels that the lack of understanding of other languages is hurting his business. Also, due to the fact that Judex produces a number of different products, it has become very difficult for it to provide any after sale support for their products. Judex occasionally faces a more complicated obstacle in the international marketplace and that is the regulatory requirement for its products. As was mentioned earlier Judex had been selling its products in the United States (through partners, such as GE) for a number of years. But then it decided to receive FDA approval for its products. The initial rejection of the application and subsequent appeal by Judex has hurt its business in the United States. Future Markets Electronic health record is one of the areas that provide the great opportunities for the Judex to grow in the future. Judex’s products empower both patients and healthcare professionals. They also provide opportunity to governments, in countries with national health system, and healthcare providers, in countries with private healthcare system to save tremendous amounts of 118

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money by improving the record keeping and other medical functions. Governments in countries such as, the United States have already passed legislations requiring the shift to more electronic health record system. They are investing billions of dollars on these systems. Judex should be in prime position to take advantage of these opportunities. The future of biomedical engineering also seems very bright. Currently, this industry is centralizing and integrating life science, physics, chemistry, and engineering technology. The biomedical industry and pharmaceutical industry constitute two major parts of the modern medical industrial system. The industries stimulated by them are becoming more and more important in the national industrial economy. Judex, again, is in a prime position to take advantage of these opportunities. Kellpo Firm Background Kellpo was established by two toolmakers, Kjeld and Poul Pedersen (no relation) in 1995. The two partners were born and raised in the same area, Thisted, where the firm is located. The municipality of Thisted is in the remote Western part of Northern Jutland. Located between the North Sea in the West and the inland water of the Limfjord, the main economic activities in the municipality have been agriculture and fisheries as well as trade with products derived from these activities. The municipality as an administrative entity has about 45000 inhabitants; it includes the port town of Hansholm with a commercial open sea harbor. There are also some industrial activities; the city of Thisted is home to one of the larger producers of hearing aids. Because of its long beaches and unspoiled nature the area is a popular destination for summer tourism and boast some of the most attractive spots for high wave wind- and kite surfing in Europe. Although, their location is very far from large Danish and the European markets, a number of advantages offset those 119

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disadvantages. The two owners used to be co-workers at a local firm called CB Værktøj, which Kellpo later took over. The closeness to their birthplace and also the knowledge of the local market were the two main reasons the partners decided to locate their business in the area. Since its beginning, the partners’ philosophy has been that there is no job too small or too big for them. The partners had clearly defined their goals for the development of the firm, with emphasis on the demanding and quality-conscious group of customers. According to materials posted on the firm’s web site, the firm’s objectives are: (1) To be a knowledge-based enterprise based on technology, professionalism and skill, (2) To be known as a positive, nontraditional and committed workplace, interested in developing our employees and promoting pleasure in their work, and (3) To create financial results that ensures our future development continued growth and independence. They would take on any project if they feel comfortable in handling it. Both partners are educated in tool making. Since its foundation, the two partners have developed the firm into a specialist in machinery construction for products that are made of plastic. The firm has delivered either the entire system or subsystems to a variety of customers, such as the medical industry and food packaging. They build machinery for largescale module structured production of packaging, which for instance is used in supermarkets. The firm is also able to deliver custom-made high precision small parts in a variety of plastic substances. In addition, Kellpo has built up competencies in mechanical engineering, project management and related services as well as in computer aided design. Strategically, the firm is positioned for delivering production machines and services in the business segment with a high degree of 120

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specialization. To successfully compete in the future, the firm is committed to developing its export activities and be able to technologically follow its customers in order to deliver custommade products and services. Since the financial crisis of 2008 Kellpo has sharpened its focus and today the partners feel they are the best toolmakers for the packaging industry. According to Kjeld Pedersen in 2008 many customers did not know this firm even existed and exports accounted for less than 5 percent of their turnoverand the rest was sold locally. Today they are well known in their field and exports account for more than 50 percent of their sales turnover. He contributes this success to their policy of always being prepared to help their customers no matter how big or small the job is. He believes if they can help their customers with their tools and machine problems they would come back regardless of the job size. This policy not only has helped their customers but also has helped Kellpo to gain some loyal customers who have come back to them again and again for new tools and machines. Also the firm is one of the five enterprises associated in the export firm Toolpartners A/S. Although the competition from Chinese toolmakers is fierce, Kellpo’s owners feel that the superior quality of their tools would give them an advantage in competing with the Chinese. Products Machine construction is one of Kellpo’s production lines. It builds machines ranging from large, complete production machines to minor sections and machine parts. In recent years they have produced machineries mostly for the medical industry and a whole series of other major production activities. They produce the major parts of the mechanical components included in their machines in their own factory. They also deliver complete projects based on the customers’ specifications and right up until the machine has been test-driven and approved to begin production. For these projects Kellpo has agreements with 121

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sub-suppliers working at the same level of top quality and expert-knowledge as itself in order to provide the required components. This applies to areas such as design, control systems, testing and documentation. According to the firm’s web site “We understand the relationship between the quality of the product and the machine that makes that product.” When, in 2004, Kellpo started its first major machine-building task for one of Denmark’s most successful companies, previously it had only produced machine parts for them. The new task became an unconditional success in spite of the fact that it was a matter of a prototype and that the delivery deadline was very short. The machine was delivered on time and that applied to all the subsequent machines. This is why Kellpo is now the preferred supplier to the firm involved. Kellpo’s other line of business is in plastic technology. For years, Kellpo has offered the development, design, manufacture, and running in of tools as a package deal to its customers. This package deal will save time and expense for the customer and ensure a competitive edge in the progress from concept to finished product. Kellpo has a long experience in injection molding and production of injection molding machines ranging from 25 to 500 tons clamping force. They provide product design and construction, tool design and manufacturing, tool testing, product testing, production, and packaging and dispatching. With this capacity they also offer to make the products themselves for their tools customers. This simplifies the customer’s development process and can often provide a number of other advantages, for example in terms of costs. This way, Kellpo can help to improve its customers’ competitiveness. Kellpo’s many years of experience in construction and design are put at the disposition of its customers in connection with any task. All their tasks are executed with top-quality equipment such as SolidWorks and CATIA. Kellpo can also quickly and efficiently prepare experimental models in plastic material and in many cases also offer to execute the necessary tests themselves. They provide assistance in the 122

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choice of materials and, in cooperation with raw material suppliers and science centers, suggest the best materials for a given job. Manufacturing tools for the packaging industry is the third line of Kellpo’s business. The firm has more than 25 years’ experience in the manufacturing of top quality tools for the packaging industry. This is part of a long-term strategy that has included the procurement of a complete assembly of high-end machine tools. Kellpo can, therefore, manufacture extremely effective injection molding tools for the production of plastic packaging. It produces super-efficient multi-quality tools with a high productivity, long working life and the lowest possible consumption of material. According to its web site, Kellpo cooperates with leading Danish and foreign manufacturers of packaging. Customers have chosen Kellpo because its solutions always work and because it follows through the whole process from idea to finished product. And Kellpo doesn’t just stop there. Its creative designers will often have improvements to suggest to its customers when, after a productive life of many million units, a tool is sent to Kellpo for renovation. Finally, machining is the other line of business for Kellpo. The firm manufactures and machine finishes all types of product, mechanical parts, form parts, models, prototypes etc. Kellpo’s strength is in the area of high-precision mechanical solutions. It has a broad range of product sizes. The size of its machine assembly ensures that it can take on a whole range of product sizes from a few milligrams up to approximately four tons. Kellpo carries out 5-axis machining of all types of complex work pieces up to 1,600 mm x 1,200 mm. Irrespective of size, products can be completely finished in once they are set up. This ensures a rapid completion of the final machined product. Kellpo also has assembled a group of expert employees and regularly accept projects, which require maintenance and replacement of precision mechanical components. Its assembly department offers top-quality assistance with partial or complete assembly of components and mechanical parts. 123

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Focus of the Firm According to Kjeld Pedersen everyone who works at Kellpo first and foremost is a craftsman and focusing on production capabilities. This seems in line with the partners’ background that are not only educated but also worked as toolmakers before establishing Kellpo. Mr. Kjeld Pedersen believes that this is also a shortcoming for his firm, as no one at Kellpo has any sales or marketing background. This is why Kellpo has a plan to build up its sales department. He feels the demand for Kellpo’s products will exist but their prices must be much more competitive in order for the firm to grow as well as to compete against cheap imported machines and tools from China. To remain a viable firm and grow, Kellpo needs a bigger sales force. This also the reason Kellpo has joined ToolPartners A/S, which is a one-stop shop of four independent companies in one. It comprises of three Danish mold manufacturers plus a strong cooperative and sales organization. Customers only need to turn to one source, and yet they get the competency and capacity of five different companies with different cultures and different background experience. Together these companies create a synergy effect that they call "The Fourth Factory". They attempt to reach unique solutions and put them into practice as highly efficient products and molds. ToolPartners A/S wants to be the customers' business partner. They can enter all phases of any development project where the goal is an efficient and solid tool solution. After receiving the customer's task specification, ToolPartners A/S puts together the best team for developing and producing the desired product. Competitive Advantage Mr. Kjeld Pedersen believes that Kellpo’s competitive advantage is in being a good toolmaker, and providing products with advanced technology. He gave examples of a number of firms in the region who shifted their production overseas (mainly to China) in order to become more price competitive but Kellpo stuck to the same strategy of making good tools locally and at 124

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reasonable prices. Many of those competitors have left the business or are taken over by other companies, including Kellpo. He attributes this to the fact that Kellpo can offer very good solutions with high quality for any problem in tool manufacturing, machine construction and machining. According to Kellpo’s web site the firm has worked hard to develop skills in these areas, so that they can make a unique offer to their customers. By offering a package deal for development, design, manufacture and running-in of tools they save their customers time and money and ensure a competitive advantage for the firm. Importance According to Mr. Kjeld Pedersen the security of their investment and development of new markets are the two most important goals for his firm. Since the beginning of the recent global economic crisis the firm has been in a survival mode and therefore it is very critical for the firm to secure its investment in order to survive. He also added that his firm works a lot on developing new markets for products. As mentioned before they have been quite successful in expanding into other markets and increasing their export markets by more than tenfold. In his opinion this has helped his firm to survive the economic crisis even though he argues that they are still feeling the pinches of the crisis due to the fact that many of their customers are holding back in giving orders for the new tools and machine. Importance of Economic Conditions According to Mr. Kjeld Pedersen, historically Kellpo was immune to ups and downs in the economy. In their sixteen years of history the only time the firm had a down year in it earnings was in 2003. But the global economic crisis of 2008 was a different story. When the global economy was hit by the crisis in 2008, Kellpo’s earnings were at its highest level. However, the following two years their earnings dropped substantially. The rationale for such lagged performance, according to Mr. Kjeld 125

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Pedersen, is that generally it takes two or three years for Kellpo’s customers to decide whether to invest in new tools and machines for their projects or not, and also it takes Kellpo several months to complete the orders. Therefore, any economic crisis does not have an immediate effect on Kellpo’s business. In the following years, orders started to decline and Kellpo felt the pinch on its earnings. Their turnover (which in 2008 was more than DKK41 million), declined to Dkk27 million in 2010. At that point they thought they couldn’t survive. In one respect Kellpo was lucky as its fixed cost accounts for only 30 percent of its total cost of production. Therefore, when its turnover declined by about 50 percent, its profit only declined by 23 percent, as the firm was able to reduce its cost of production by reducing its variable cost (through workers lay off). To maintain the firm afloat, Mr. Kjeld Pedersen and his partner started traveling overseas looking for customers and got lucky to receive some orders from France, England and Belgium, which have helped them to stay in business. Over the last two years the firm has shrunk its labor force by more than half and existing employees know that their job security is at minimum. They can be sent home at any time; as a matter of fact he had laid off one worker the day before our interview. Unfortunately, he is not very optimistic about the future, as his customers are taking their time to send any new order his way. According to Mr. Kjeld Pedersen, when he contacts his customers they all say they must receive their board of directors’ permission before they order any new equipment and that usually means a delay of several months. This shows that his customers do not feel comfortable to expand their businesses at this time, which is unfortunate for Kellpo. The Future of the Firm Even ‘ever optimistic’ Mr. Kjeld Pedersen is not sure when the current economic crisis will end. He believes that his firm most likely will struggle over the next two or three years but he hopes that his firm will make it through these rough times. In his opinion if Kellpo survives this period then it will come out far 126

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stronger firm as a whole. He believes his firm will make some profit in 2011 but needs stronger performance for it to become a viable firm. He believes demand for his firm’s products, as well as, profit will be much higher in five years. In fact, his firm will be able to pay back most of its debt and Kellpo will be financially more solid five years from now. Mr. Kjeld Pedersen takes great pride to be a Danish citizen and would like to be remembered as a good citizen of the country. For this reason when many of the local companies, including the largest clothing manufacturer in his region transferred their production to other countries such as China, he decided to maintain his production in Denmark. He reminisced on a discussion he had with the head of the Danish clothing firm who shifted production to China in order to save 30 percent in the cost of their production. In his opinion that firm might have saved 30 percent in the production costs but in the meantime had to layoff its local workers which will lead to a reduction in the purchasing power of its local customers. Also, the firm had to invest in the Chinese facilities. Therefore, in his opinion, the clothing firm had not saved much from this transfer of jobs to China but in order to survive it had to increase its sales in the Danish market. According to Mr. Kjeld Pedersen, the clothing firm shut its doors a week before our interview. On the other hand, not Kellpo only did not transfer jobs overseas but also went ahead and purchased some of its local competitors. Kellpo now is the largest manufacturer of tools and machinery for the packaging industry in Denmark. It seems his strategy has worked, as many of those companies have gone bankrupt. Today, although not financially in perfect shape, Kellpo has survived the crisis so far. Systematic Decision Making Process Historically, the owners, Kjeld and Poul Pedersen, have made all strategic decisions in the firm. They sporadically have used three or four outside consultants for variety of issues that owners felt 127

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unqualified to tackle. For example, in 2006 they hired a consultant to help them to create a leader group helping the owners in their decision making process. This consultant created an organizational structure including chief of production, chief of factory, and the head of accounting group to facilitate the decision-making process in the firm. After that Kellpo hired a three-member team of professional board of directors. Unfortunately, not too long after the firm was hit by the global economic crisis and the owners decided that the cost of employing these professionals was more than what they could afford. In addition, the owners felt that under those unusual circumstances, where the decisions needed to be made quickly they cannot wait for the board of directors to meet and make those decisions in their normal meeting schedules. As a result, they decided to fire the board of directors. According to Mr. Kjeld Pederson, perhaps in five years they would rehire the board again but at that moment he felt to keep the firm from sinking they had no choice but to let the board go. In his opinion that has helped the firm to recover from a loss of more than DKK3 million to a profit position in less than 12 months. Presently, Kellpo has a systematic decision-making process, called “Kellpo’s Leading System”. Although the owners still make all the major decisions such as the sale of the firm, they have created a leader group to help them in making other decisions such as hiring a new leader for their construction area. The leader group has helped the owners to decide on the job description for this position and whether the group members know anyone in the region who is qualified for that position. In recent years, the firm has obtained ISO 9001, 14001, and 18001 certificates which establish specific processes, for example for quality management system, pollution control, and the working environment. In his opinion, they have not benefited much from those but believes that he and his partners feel that they should know about their mistakes and correct them before they are brought up to their attention by someone from outside, such as governmental inspectors. He feels establishing these processes in the firm would do exactly that and therefore, in the 128

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long run the firm will benefit from them. Initial International Markets Kellpo sells its products both in domestic and international markets. However, in recent years it has become more dependent on international sales. As was previously indicated, Kellpo generates more than 50 percent of its turnover from international sales. Its initial international sales started with inquiries from employees of Danish companies operating overseas. For example, Grundfos, which had used Kellpo’s tools for its domestic operations, started a new manufacturing facility in China and its employees who were familiar with Kellpo’s products contacted Kellpo for new tools to be used in the Chinese operations. Indeed, Grundfos’ Chinese subsidiary was Kellpo’s first international customer. And that has been the story of Kellpo’s internationalization. Many of Kellpo’s international customers (specially, in France and England) have employees who used to work in Denmark and were familiar with Kellpo’s products and now that they have moved overseas they continue to contact Kellpo to order tools and machines for their new employers. It is great of importance for Kellpo to grow its international sales. According to Mr. Kjeld Pedersen, the firm will be developing a new business plan in 2012 and he is hoping to increase the portion of sales generated from overseas to more than 90 percent. In the past Belgium and France were Kellpo’s biggest export markets. But in 2011 Norway is becoming firm’s biggest market. It has taken Kellpo several years to develop this market. Originally, Mr. Kjeld Pedersen visited Norway four years ago with no success but suddenly one customer called and they filled his orders. Evidently, he was so satisfied with the Kellpo’s job that he recommended Kellpo to his neighboring companies and now Norway is becoming Kellpo’s biggest market. Unfortunately, the economic conditions in Kellpo’s foreign 129

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markets are not favorable at the moment. Many of their foreign customers are hesitant to order new tools or machines out of fear that there may not be any demand for their products to justify these investments. Mr. Kjeld Pedersen hopes that as the global economy, specially, the European economy, starts growing again the demand for his products from foreign customers will increase. Systematic Exploration Opportunities

of

International

Business

Although, Mr. Kjeld Pedersen claims that there is a systematic decision making process in the firm exploring the international business opportunities, it seems to us that most of their current foreign customers are their domestic firms which have expanded overseas and now order tools and machines for their foreign subsidiaries. The other foreign customers also used to work in Denmark and are familiar with the firm from their experience in Denmark. In general, the co-owners mainly make international decisions. Mr. Kjeld Pedersen described a scenario of how these international decisions are made. Currently, the firm does not have any customers in German market and the co-owners have decided to expand their export activities into Germany and have at least two or three customers in Germany. However, the leader group is informed about this decision so that they are prepared for when they receive orders from their new German customers. Export Obstacles According to Mr. Kjeld Pedersen, Kellpo faces a number of obstacles in its internationalization, including barriers such as language, finding customers in foreign markets, and cultural differences. Although both partners speak English fairly fluently, their lack of knowledge of other languages such as German and French has hampered some of their efforts to expand in those markets. French market, which up to this year was the biggest market for Kellpo’s products, could have been even bigger if 130

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they could speak French with their customers in that country. Same is true for potential German customers who feel more comfortable in dealing with a firm whose employees speak their language, rather than Danish or English. He also believes another reason his firm has not been successful in selling its tools and machines in Germany is that the German customers think a small firm, such as Kellpo, is not capable of delivering what it promises. Those customers think this is job for large companies and their projects are beyond the Kellpo’s capabilities. Although Kellpo is currently the largest toolmaker for packaging industry in Denmark, it is a very small in the global scale and that is their biggest obstacle entering into big markets such as Germany. He believes that in the past Kellpo was a regional firm serving its customers in the northern Denmark region. In recent years the firm has grown and has become a Danish firm satisfying its customers throughout the country. The new plan is for the Kellpo to become a European firm, serving customers throughout the Europe. It is interesting that Kellpo does not consider financing as a barrier to its internationalization. According to Mr. Kjeld Pedersen, Kellpo has always been able to secure financing from its creditors with no problem. As a matter of fact the firm has already arranged a loan of DKK7.5 million from its leasing firm to purchase a robot in order to be able to manufacture on 24-hour basis. He justifies the willingness of local financial institution in extending loan to Kellpo to the fact that most of Kellpo’s customers are very large multinationals and they are always on time in their payment. Kellpo has never lost money on any of its large customer accounts. Their losses were mainly due to failure of smaller customers to make their payments. Mr. Kjeld Pedersen also identified cultural differences, especially in dealing with countries such as china and Thailand, as obstacle for their export activities. However, he did not elaborate on this issue.

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Future Markets As the European economy recovers from the current economic crisis companies hopefully will increase their investments in new tools and machineries. Kellpo hopes that some of those increases in demand for new tools will come in their way. That is why the firm is preparing itself for the additional sales by investing on new machineries such as robots, as was discussed earlier. Also, Kellpo is certain that it can overcome the negative view of its potential customers about its size and capabilities to deliver on the project by making sure that customers are familiar with Kellpo’s abilities. The firm is planning to become a European firm instead of a Danish firm. Germany, the largest European and the world fourth largest economy has the greatest potential for Kellpo. Mr. Kjeld Pedersen believes his firm, while being the largest toolmaker for packaging industry in Denmark, is ranked 40th in Germany and must become larger in order to gain the respect of its potential customers. Kellpo also keeps its eyes on other European markets as well. As was mentioned earlier, Norway, which for many years was not on Kellpo’s radar, now has become its largest market. But of course, the Norwegian market is far smaller than the German one. That is why Kellpo certainly wants to gain a foothold in that market. Scanca Isolering ApS Firm Background Scanca Isolering is a firm owned by a Danish Canadian citizen and his partner. With a prior background in mechanical engineering about a decade ago the two men decided to buy and run the firm from its previous owner. The firm is located in a commercial area in the West of Aalborg not too far from the Aalborg University campus. A cluster of smaller industrial ventures surrenders the area. To the East is a short drive toward the beaches of the Kattegat (Baltic Sea). 132

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The firm has found its special market niche in insulating large tanks for storage of liquid. In large industrial installations, such as chemical production or food industry, it is often important that liquid substances can be stored at stable temperatures to avoid risks related to food spoilage or explosion of chemicals. Being a small firm with less than 20 employees, it is interesting to notice that the firm is not engaged in any marketing activities except for the personal contacts of the owners. The firm has neither any advertising materials nor an Internet web site. Instead, the firm finds its customers by means of having an excellent reputation with other partner firms. Apart from its domestic sales, the firm also engages in exporting activities through its large partner firms when they ask Scanca Isolering to participate in their foreign projects. Scanca partner firms, which usually are considerably larger than Scanca are able to attract large projects and Scanca is able to capitalize on these efforts and avoid any of its own costs for marketing. For example, one of the recent project in which Scanca was involved was the construction of a large brewery, where Scanca contributed with insulating the large tanks, which are used for storing the ingredients for production of beer. Products The availability of raw materials, fuels and the storage of end products are critical in almost all fields of industry. Generally, large tanks are used for raw materials, fuels and end products. To conserve the substance and ensure the stability and safety of the production process, it is important to keep the temperature inside the tank between certain temperature limits. Therefore, insulation of storage tanks is a major factor in the functionality of storage facilities. It also serves the following purposes: • Costs savings: Insulation significantly reduces the heat and the so-called breathing losses of the substance. The pay-back time for the hot insulation is, even at lower 133

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temperatures (30oC), usually less than 1 year, whereas the life time of the insulation may be many years. • Environment: In addition to the cost savings achieved, reduced heat losses will also lead to lower CO2 emission. Reduced breathing losses of hazardous substances are also beneficial to our environment. • Process control: Insulation will prevent tanks from freezing or being heated by solar radiation. It will also reduce the cooling of the stored substance, preventing it from setting and remaining in a solid form. In both cases additional heating or cooling may be applicable. • Safety: A fire resistant insulation reduces the risk of a fire outside the tank igniting a flammable medium. It is also protection against contact by minimizing the surface (contact) temperature of the tank. Scanca Isolering’s products meet the above purposes. The firm has gained a reputation amongst its customers for providing the best products for specific projects. Most of its customers are returning customers or those who have seen their jobs on other projects and now are coming to Scanca Isolering for their new projects. That is why the firm’s owners feel they do not need to advertise their products as the word of mouth over the years has provided them with enough projects to sustain the business. Focus of the Firm Scanca Isolering, in Mr. Christensen opinion, is focused on a narrow line of insulating tanks used for storing liquid and gas. He emphasized that Scanca Isolering neither manufactures the tanks nor pursues insulation business in other segments of the market, such as housing. He sees himself purely as a craftsman focusing on production capabilities. According to Mr. Christensen, although his firm does not actively pursue growth for the sake of becoming a larger firm, his focus is on profitability and that can only be achieved through 134

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participating in more projects. His rationale was that they know what their profit margin on each project is and, therefore, if they want to become more profitable they need to participate in more projects. But this does not mean they would actively pursue an expansion policy. They have managed to survive and make a good living mainly through the word of mouth from their previous business engagements and they are very content with that. Competitive Advantage Mr. Christensen emphasized the fact that his firm’s narrow line of business has given them enough experience to be the expert in the field. Since most of the business in his industry is built upon the relationship with major corporations, which use insulated tanks in their projects, he perceives this long experience as his competitive advantage. Otherwise, according to Mr. Christensen they hardly advertise their products and there is very little technology in his products that none can have any advantage in this industry. Importance Mr. Christensen contributes survival of his firm in the last 25 years to two principles: (1) They always emphasize on profitability and (2) The preservation of their investment is their primary goal. They will not accept any project that is not profitable. However, they are willing to a certain degree to accept lower profit margins (but not a loss) on new projects which have the possibility of bringing other contracts in the future. They have absolutely no intention of expanding their business. They are quite content with where their firm is and growth of the firm does not cross the minds of the co-owners. According to Mr. Christensen he and his partner have reached an age that they 135

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would like to retire soon and also have become more conservative, and preserving their investment before entering into retirement is important to the two partners. But also the size of the firm is big enough for the two partners to manage it properly. Evidently with no second generation in the families to take over the firm, they are hoping to find a buyer for the firm before their retirement. Importance of Economic Conditions Since Scanca Isolering does work in so many countries, the domestic economic conditions barely affect its profitability. According to Mr. Christensen the diversity of the countries in which Scanca Isolering does its business has provided them with a buffer against the domestic economic conditions. However, the recent global economic crisis had a major impact on Scanca Isolering. Its turnover declined by about 50 percent, in his opinion, mainly due to the fact it was a global crisis and demand for their products declined in a number of countries and many major projects were abandoned. However, in 2011 their turnover has recovered to some extent and he sees that some of those abandoned projects are restarted. Mr. Christensen and his partner, although optimistic, are cautious and are not adding any new employees to their payroll. But as a good citizen of Denmark, he would like to be able to contribute more to the health of the Danish economy through his firm especially by providing more jobs or income for his employees. Future of the Firm When asked about the future of his firm in five years, Mr. Christensen’s immediate reaction was that he hopes someone else owns it. However, he feels that the demand for his firm in five years will be slightly higher. He believes that due to development of new energy sources such as natural gas and also dairy farmers’ decision to convert their animal waste into gas, demand for his products will increase. According to Mr. 136

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Christensen, even though it is very difficult to predict his firm’s financial situation five years from now, he believes that, provided the global economy continues growing, his firm’s finances will be improving in the coming years. Systematic Decision Making Process According to Mr. Christensen, the two partners jointly make all strategic decisions. The firm does not have any kind of systematic decision-making process through which decisions in the firm are made. Anytime a problem arises the two partners meet and try to resolve the issue. The same is true about the international decisions; the two partners also jointly make those decisions. The firm does not pursue any planning activities. In Mr. Christensen’s opinion there has never been a need for his firm to plan about any activities such as new product, new market, diversification or distribution. Their customers simply call them and ask for a bid on certain insulation jobs and due to their good reputation and reasonable profit margin they normally get the project. So, they see no need for the firm to plan ahead for any of the afore-mentioned activities. They are quite content with their current business strategy and have no intention of changing it. Initial International Markets Their first international project was initiated by one of their Danish customer, which was a subsidiary of a large Belgium brewery tank manufacturer. The Belgium firm had a project in Russia and asked Scanca Isolering to provide insulation for that project. They also got into Germany through the word of mouth by sub-contracting on a German project and coincidently met another sub-contractor, which was also part of the German project. Shortly after, Scanca Isolering got a phone call from that other sub-contractor asking them to participate in a project in which they were the main contractor. Over the years their 137

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international business has expanded through these contacts and today, as was mentioned before, their international business accounts for more than 70 percent of their annual turnover. Currently, they are active in Germany, Belgium, the Netherlands, Russia, China, Canada, Africa, and a number of other countries through third parties contracts. Systematic Exploration of International Opportunities According to Mr. Christensen, his firm does not systematically explore foreign markets but responds to export opportunities. As was mentioned before, his firm depends on the word of mouth and relationship that they maintain with other much larger construction and industrial (both Danish and foreign) companies to secure contracts. When a large Danish construction firm bids on large projects, it asks Mr. Christensen to give them a bid for insulating the tanks, which are used in those projects. This way he enters into those projects as a subcontractor. They do have the same relationship with foreign construction companies (especially Germans and Dutch) when they participate in projects in Denmark. They do ask Mr. Christensen to give them a bid for insulation of tank on those projects. He does not pursue participation in any project independently. Therefore, he is very passive in searching for foreign opportunities and has no fulltime staff whose job would be to exclusively look for these kinds of opportunities. Still Mr. Christensen and his partner have succeeded in attracting so much business from overseas. According to Mr. Christensen these international projects have helped the firm’s profitability, as they generate more profit than their domestic ones and have helped to secure their investment over the years. He also believes that his international business is helping the Danish economy, as he pays taxes to the Danish government on revenues generated from those businesses overseas. According to Mr. Christensen, they regularly check their competitive position in the global markets but when asked to name some of his international competitors he could not recall 138

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any name. We presume this is mostly due to their passive behavior, which reduces their need to know their competitors. But he believes their prices are in line with their major competitors. However, due to global economic crisis Scanca Isolering is feeling a bit of pressure on its prices. Their regular customers these days are asking the firm to accept a lower profit margin for the new projects. But as the economic conditions in those markets recover from the crisis he believes the conditions will be more favorable. As a matter of fact, he indicated, this year, those conditions have improved markedly. Export Obstacles According to Mr. Christensen the type of obstacles his firm faces depend on the location of their projects. If they have a project in Russia, the bureaucracy and bribery are their biggest obstacle. But for projects in Germany they do not have any obstacles, not even language, as in his business the English language is only language used and being a Danish Canadian he is fluent in both Danish and English, so he faces no obstacles in dealing in Germany. They also face no obstacles in dealing with other major Western European countries such as France, Belgium, the Netherlands either. Their biggest obstacle arises from their dealing with countries such as China, Thailand, and Africa, which are mostly due to cultural differences than anything else. Future Markets Scanca Isolering future international markets depend on where their customers will have projects. They will go where their customers ask them to go. They do not plan for entering any specific market but as more European companies moving east toward China, and other Asian countries, it seems Scanca Isolering will do more business in those markets in the future. According to Mr. Christensen, the firm is already involved in some projects in China and Thailand and even Africa. The 139

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expectations are that those markets will account for a bigger part of Scanca Isolering’s international business in the future. Logimatic Engineering A/S Firm Background Starting with the idea to offer services and the design of maritime electricity installations and automation, four engineers laid the foundation for Logimatic in 1987. Originally, the firm was established as a consulting firm. Today that idea has developed into a firm, which offers engineering and software solutions, both in new product development and maintenance of existing installations. The firm is located in Aalborg in a mixed commercial/residential area about 5 kilometers from the center of the town. It employs 65 workers and in its latest fiscal year it had a turnover of DKK60 million. The main reason the firm is located in Aalborg is that the Logimatic’s founders used to work for the Aalborg Shipyard before it was closed down. The former managers of Electrical and Automation Departments at Aalborg Shipyard decided to start their firm. The other reason for the choice of location is the proximity to the Aalborg University, which has a strong Engineering Faculty and provides a pool of talented engineers every year. This easy access to source for hiring new employees is very important to companies such as Logimatic, which needs these employees in order to expand. Also, the founders of the firm have their roots and family who have lived in this area for many generations. The possibility of hiring the qualified staff was mentioned by Mr. Severinsen, the CEO and one of the four co-owners of the Logimatic, as one of the biggest advantages of locating the firm in its current location. The other advantage is the lower cost of labor compared to bigger cities such as Copenhagen. The biggest disadvantage of the firm’s location is that due to the nature of their business most of the meetings and negotiations for new contracts, specially government contracts are conducted in Copenhagen and the long distance from Aalborg to 140

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Copenhagen makes it difficult for the executives of the firm. However, most of the firm’s business is conducted overseas and Mr. Severinsen did not feel this would be a big disadvantage, as they have to travel anyway. It just involves spending a little bit more traveling time for them. The recent addition of a direct flight from Aalborg Airport to Amsterdam has also made it easier for them to travel to their foreign markets. According to Mr. Severinsen, Logimatic has not been forced to spend any additional resources to compensate for being located in a remote part of Denmark. In addition, their remote location has no impact on the type of products or services Logimatic offers. According to Mr. Severinsen, their niche market does not depend on the location of their offices. The firm has been quite lucky to be the recipient of many aids and supports from the regional government over the years. The area has received a number of grants from the European Union (EU) and the firm itself also has tried to fund some of its projects through those grants. The firm has been very active, according to Mr. Severinsen to qualify for both Danish government and EU funds. As Logimatic grew, it has expanded its operations into other areas. Today, it is organized into four different units. One unit handles all of their administrative tasks and the other three units are their business units, which are treated as independent entities. Their first business unit is the Logimatic Solution A/S. It builds customized software catering to the needs of ship owners, waste handling companies, industrial companies and other sectors by developing and implementing customer specific solutions. The software unit employs a number of qualified engineers, who are experts in software development, production management and other relevant areas. The second business unit of Logimatic is the Logimatic Engineering A/S. It constitutes the engineering branch, which has built up expertise in automation design, electrical design, system integration, installation and consulting services. Their main customers are ship owners, shipyards and various sorts of 141

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industrial companies. Today, the firm has more industrial than marine customers, but they have more installations in the marine segment. The third business unit is Logimatic Industrial Data Systems A/S. It has built up special competencies for managing processes in logistics, distribution and related areas like storage. They also develop customized software solutions. They offer services in data warehouse management and automation, data capture and labeling by using technologies which builds up on wireless networking and Radio Frequency Identification (RFID). This unit employs specialists in project management, feasibility studies, software development and service and support. After 25 years in business the firm can look back at its proud history. It has gained major attraction in different markets and has built up a customers’ list of more than 100 companies among them ship owners, shipyards, various kinds of industrial and distribution companies, public agencies such as naval forces. The firm is highly internationalized and has presence in major markets like China, Germany, India, and the United States. On their website Logimatic presents an impressive and ongoing list of customers and projects which are currently being pursued. These include projects, for the Danish navy, aerospace related activities in Malaysia, development of maritime technology for car deck transportation on ferries in the Mediterranean Sea and so on. The firm has gained a high profile by winning prizes for excellence and is frequently visited by major politicians. Products According to Mr. Severinsen, Logimatic products and services are highly unique because they are mostly customized in order to meet their customers’ needs. As a result their products and services require extensive training for customers to use. Generally, 10 to 15 percent of the firm’s turnover is generated from its considerable after-sale support. 142

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Logimatic develops and implements various software solutions – each of them with their own business focus and purpose. LOGIA is a specialized warehouse management system that uses simple tools for the optimum management of the entire internal flow of goods from reception to dispatch, through intelligent warehouse management. It integrates manually controlled and automated warehouse sections into a single system and ensures efficient execution of incoming and outgoing orders, as well as maximum utilization of human resources, warehouse capacity and automated equipment. Standard interfaces to Enterprise Resource Planning (ERP) systems provide sales, purchasing and financial departments with online status of stock levels, transactions and processes. LOGIA is the “nerve center” in internal logistics in business enterprises ranging all the way from small manually controlled warehouses to major distribution centers. Installations range from terminalbased goods reception, picking and dispatch to voice-activated picking and control of fully automated warehouses. SERTICA is another product of Logimatic. SERTICA is the new name for Logimatic user-friendly IT-solution for maintenance, purchasing and fleet management. It is the best solution for the technical departments on the market today. It is a strong solution with great flexibility and a high level of service, which makes SERTICA the best choice. The solution is easy to implement and easy for everyone in the organization to use. It can be delivered with an integrated asset structure, but this is optional and customers can choose to build and structure the contents themselves. Customers decide the level of detail in both the start-up and the operating phase, which enables them to start using SERTICA very quickly after implementation. SERTICA minimizes possible non-productive time or unnecessary downtime. It can also increase productivity and improve methods, which will reduce the costs of maintenance. Over time, it can increase the profit of any firm. This solution is aimed at all industries, which need to document, systematize and create an overview of the maintenance activities. 143

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RENOMATIC is another line of product from Logimatic. It is a modern IT system used for waste handling – like refuse collection, collection of dangerous waste etc. Municipalities use RENOMATIC, waste handling companies and refuse collectors for administration and control of waste collection. The payment of the customers is also incorporated in RENOMATIC on the basis of the arrangements chosen by the individual household or firm. RENOMATIC gives a general view of the individual customer but at the same time it is a strong tool for planning and controlling the refuse collecting tasks. Logimatic has a skilled staff that through years of project experience; have made the firm an obvious and loyal partner on the market. Throughout the years Logimatic has carried out several national and international projects as system integrator within the fields of maritime automation. Maritime automation is very much the use and implementation of those techniques and procedures in cohesion that are used within the areas of automation and IT. Within the field of maritime design Logimatic has a deep know how within design of larger systems. For example, they have programmed a system (IPMS) that is used by the Danish Navy. This system is used at the Danish Navy’s standard flex ships as well as the new flexible support ships. Logimatic is a member of Naval Team Denmark that is an export organization formed by the major Danish defense industries within the naval sector. The organization works in close cooperation with the Royal Danish Navy. Within the field of industrial automation, Logimatic has worked on various projects for the clean tech sector (environment, energy and boiler plants). Years of project experience makes Logimatic an obvious choice as a partner. Logimatic employees have achieved unique know-how within integration between automation and administration.

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Focus of the Firm Mr. Severinsen stresses that when his firm was originally established its focus was mainly on their technology. Over the years his firm’s focus has evolved. Today his business focus is not only on the technology but also on the business and marketing aspects of the firm. Their products are highly customized in order to meet customers’ designs and needs. So, he sees himself as a manager who manages his firm in a logical and rational manner despite of all the problems in the economy. These days, Logimatic uses the mantra of “Efficiency, Reliability and Business” as the focus and key words in order to ensure complete customer satisfaction. Logimatic has numerous private and public customers. The size of their customers differs from some of the largest shipyards in the world with more than 20,000 employees to minor industrial companies. They also count a number of public agencies, institutions and authorities as their customers. Logimatic’s customers drive the functional development in the firm as it maintains a very close cooperation with its customers. In order to do that Logimatic often arranges user conferences, newsletters, satisfaction surveys and onsite customers’ visits. Competitive Advantage Mr. Severinsen believes Logimatic has found its niche products where they may not be the only manufacturer in the market but there are not many competitors. In addition, he feels that Logimatic’s technology and flexibility give it added advantages in the market. Logimatic undertakes a lot of projects that bigger competitors are not willing to take due to the fact that they are not standardized. He believes sometimes they take projects, which are very big and more suitable for bigger manufacturers, but the projects require a lot of customization. Therefore, bigger manufacturers usually turn down those projects. Logimatic, on the other hand, has a lot more flexibility and is willing to 145

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undertake those projects, even though they may be too big of projects for a firm the size of Logimatic. To remain competitive, Logimatic regularly compares the price of its products and services with those of its competitors throughout the world. According to Mr. Severinsen, Logimatic’s prices are fairly competitive which has given it some advantages over the competition. Also because of additional risks and highly customized nature of their products and services, Logimatic earns more profit from its international business. Logimatic faces competition from a number of well-known companies such as Rolls Royce (UK), MTU (Germany), Amos (Norway) and Lynsø Marine (Denmark, but part of U.S.-based L3-Communication). Importance According to Mr. Severinsen, it is essential for Logimatic to grow and become a larger firm. He feels that sales growth is the necessary ingredient for other objectives such as, maximizing shareholders’ wealth, security of their investment, and development of new markets. In his opinion, without the firm’s growth the other objectives are not attainable. For these reasons, Mr. Severinsen is prepared to give up short-term profits during start-up period of their international expansion if he is confident that would lead to more expansion and profit in the long run. Importance of Economic Conditions Mr. Severinsen feels that his firm’s performance follows a cyclical pattern, as the Danish economy slows down Logimatic finances are also negatively affected. However, the firm has been trying hard to reduce this negative impact on their firm as much as possible. Fortunately for Logimatic, many of their projects are multi-year and this will give them some cushion to protect the firm during the recession. If the economic slowdown last for a long time and the firm finishes its portfolio of long-term project without being able to replenish them the firm will suffer. 146

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Currently, the firm is highly optimistic about its future. Recently, it has been hiring new employees, even though its turnover has been steady in recent months. However, Mr. Severinsen feels his firm is too small to have an effect on the Danish economy but believes that his firm has contributed greatly to the local economy through employing many workers. Future of the Firm Mr. Severinsen is highly optimistic about the future of his firm. He believes the demand for his firm’s products will increase by at least 20 percent in the next five years. Expanding into new markets is another area that he feels comfortable to achieve. He is also as optimistic about the future of his firm’s finances over the next five years. Systematic Decision Making Process Logimatic has a different corporate structure than most of other companies we interviewed. The four founding members jointly own its administrative unit. However, their three business units also have some minor shareholders, which include some key employees in each unit. Originally, the firm had a single board of directors, which oversaw all four units of the firm. Since 2004, each of its units has its own board of directors, which include one or more of the founders plus some minor shareholders and one outside member who is the chairman of the board. According to Mr. Severinsen not only founders are represented in the firm and its units but also other shareholders have the opportunities to be represented in the unit which they have ownership. The other advantage of having such a corporate structure is that since their three business units are in different types of businesses they prefer to have a group of directors who concentrate on the strategic decision-making for that particular unit. Logimatic has a systematic decision-making process involving the four founders and other shareholders who make all major decisions in the firm. The board of directors is also 147

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involved in those decisions. Even if the four founding members make a decision they usually seek the approval of the board and other minor shareholders. However, the founders of the firm normally handle the day-to-day decisions in the firm. Decisions about the international activities of the firm are also made the same way. Logimatic regularly plans for activities such as new product, new markets, increase their market share, and diversification of their activities, as well as their international business. Initial International Markets Logimatic has been quite successful in its international business activities. A former customer from Finland initiated their first export. However, most of their current international contracts are received through the networks of connections that Logimatic has established over the years with other companies throughout the world. Currently the firm exports to Norway, Sweden, Spain and Germany. Although the demand for Logimatic’s products and services in these markets are fairly stable, the current global economic crisis has impacted the firm. According to Mr. Severinsen, some companies, especially in Spain, are hesitant to order for new products or services due to uncertainty in their own businesses. Exports account for more than 30 percent of Logimatic turnover in the latest fiscal year. The international activities have contributed to not only the profitability but also the growth and the security of Logimatic’s investment. Although, Logimatic is a relatively small firm and may not have been a major contributor to the well-being of the Danish economy, in Mr. Severinsen’s opinion, it has made major contribution to the local economy in Northern Denmark. In certain business units, Logimatic uses agents in certain overseas markets. They generally meet these agents in trade shows or the agents have contacted Logimatic in order to represent the firm in their own markets. The firm also has 148

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advertised in a number of international trade journals but, in Mr. Severinsen’s opinion, they were not successful. Systematic Exploration of International Opportunities According to Mr. Severinsen Logimatic is highly flexible firm and is constantly searching for opportunities all over the world. Even if they find opportunities that are beyond the scope of their strategic plans they are willing to take the risk and either move away from their previous plans or modify them so that they can take advantage of the new opportunity. It seems the firm has been quite successful in their efforts. Logimatic does not have any specific policy of process to evaluate international opportunities. It also does not have any qualified employees whose job is exclusively handling their international activities. But they do have a number of people, including Mr. Severinsen, who monitor the international activities of the firm as well as other business activities at the firm. The firm also plans to increase its human and financial resources committed to exporting in the future. Export Obstacles According to Mr. Severinsen the biggest obstacle to his firm’s internationalization is the small size of his firm. Generally, Logimatic’s customers tend to be very large multinational enterprise or government agencies. With those companies which Logimatic has already established a business relationship, it is well known and has no problem convincing them that it is quite capable of handling big projects. But its size and its financial capabilities are usually questioned when the firm enters into new markets and working with new customers. The new customers wonder if such a small firm from Denmark is capable of finishing a big project and tend to hesitate to deal with Logimatic.

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The firm has also confronted some problems with cultural differences when dealing n certain overseas markets. Mr. Severinsen gave us an example of dealing in Dubai when a Danish newspaper printed a cartoon depicting Prophet Mohammad. It was a difficult circumstance for Logimatic to deal with its customers in that emirate during that time. Language barrier is another obstacle mentioned by Mr. Severinsen. The firm had a problem communicating with Chinese and Russian. They also have had problems with political and ethical issues around the world, locating prospective clients around the world. Future Markets The market with the biggest potential for Logimatic, in Mr. Severinsen’s opinion, is Malaysia. Logimatic has already started working on some projects in that country but Mr. Severinsen believes this market has great potential for additional projects in the future. China and Canada are also the other markets in which Mr. Severinsen sees a good chance of getting into good projects. China with its rapid growth is becoming a great market with products and services that Logimatic provides. Also, Canada, a nation, which has not suffered much from the current global economic crisis, is a great market for Logimatic in the future. In addition, Nordic countries have been and will be Logimatic biggest markets in the future. Tylstrup Kager A/S Firm Background Tylstrup Kager A/S can trace back its roots to the immediate post-World War II period, when the current owner’s (Allan Fjelsten) parents (Per and Elly Fjelsten) started producing candies in Copenhagen. In those tough postwar times it was difficult to get hands on ingredients such as sugar. The immediate proximity of Copenhagen to Sweden made it easier 150

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for the firm to find the necessary raw materials. Later the firm was moved to Støvring, to a location, which was owned by the owner’s grandfather. In 1976, the firm moved to its newly-built location in Støvring. The town is located in the Rebild municipality in northern Denmark. It has a population of less than 7,000 and is one of the centers of industry and retailing in the area. In 1995 Mr. Fjelsten’s father decided to retire and sold the business to a Finnish firm. The new owners closed the operations in Støvring and moved it to Kolding in the southern Denmark, where they already owned another factory. At the time Mr. A. Fjelsten who used to work for his father continued working for the new Finnish owners. According to Mr. A. Fjelsten while the plant in Støvring was making money, the plant in Kolding was losing. Therefore, a year later the Finnish firm decided to close Kolding plant as well. Mr. Fjelsten was not happy with the closure of the old plant in Støvring and offered to purchase it from the Finnish firm. The Finnish owners who were happy to get rid of the building agreed to sell it to Mr. A. Fjelsten and his partner, Givesco A/S. Currently, Mr. A. Fjelsten controls 53 percent of the firm’s shares, while the remaining 47 percent was acquired by Givesco A/S. Through its subsidiaries, Givesco produces bakery products. The firm was incorporated in 1980 and is based in Give, Denmark. This partnership between Tylstrup Kager and Givesco has provided Mr. Fjelsten with the opportunity to combine his acquisition of raw material with those of his partner’s at much lower costs. Since Mr. A. Fjelsten was already familiar with making candies he purchased several candy-making machines, even some of their own old machineries from the Kolding operation, and restarted the old operations. Today the firm is housed in a building facility with 8000m2 at its old location in an industrial zone outside Støvring. They generate an annual turnover of more than DKK80 million, with cookies and candies each accounting for 50 percent of turnover.

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According to Mr. A. Fjelsten, the relative remoteness of his firm has the advantage that workers have fewer alternatives to find other jobs, for example compared to Copenhagen. This creates certain stability for the firm as they incur fewer expenses for retraining new workers. When asked if Mr. Fjelsten is aware of or has received any governments’ (both regional and federal) support he responded that he is unaware any such support. In his opinion, even if there are any such supports, they involved a lot of paper work and at the end you do not get much help from them. Products Tylstrup Kager has two product lines: cakes and candies. Their cake production has its roots back to 1965, when it started its biscuit production. Cakes are produced in various flavors: there are chocolate cakes, butter baked cakes, honey cakes, and small cakes, both with sugar and without. Depending on the season the firm produces brown cakes and nut cakes too. They also produce biscuits without added sugar. To achieve the good taste they add sweetener, which makes a crisp and delicious cookie for those who want to avoid sugar. Another line of cookies at Tylstrup Kager is their traditional chocolate cakes which both kids and adults love. During the Christmas season, Tylstrup Kager also bakes the Christmas cakes, including vanilla wreaths, Brown Cakes, Pepper Nuts and Jew-cake. Ginger breads are also a specialty of Tylstrup Kager. They have revamped their honey cakes with a delicious fluffy cream and finished with chocolate coating and made into a cake consumers can eat all year round. There is a good workmanship and good ingredients behind the production of every cake and biscuit. The composition and quality of ingredients are essential for taste, appearance and volume of cookies. Therefore Tylstrup Kager cookies taste great. Tylstrup Kager also bakes biscuits with butter, which makes them crispy and delicious. According to Mr. A. Fjelsten, it would never occur to us to compromise on the craft-related virtues, for every one of our cookies. His firm’s motto is that "If it is worth it 152

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to bake, it is worth to bake properly." A large part of their production is sold under private labels. Candies (Bolcher, or Bon Bon) are the Tylstrup Kager other line of business. Its roots go back to 1946 when his parents started the production of candies in Copenhagen. The most unique product the firm produces is its Danish Pepper candy. The firm is known throughout Denmark and other Scandinavian countries for this product. Candies are made from sugar, glucose syrup and colorings and flavors. The sugar and glucose syrup are heated to approx. 150°C and the remaining ingredients are added. The mixture is kneaded and cooled to a temperature of approx. 70°C. Thereafter candy is formed in a stamping machine and powder filler is added after further cooling to 20°C, the finished candies are packed in bags/bins. The firm is especially proud of its strong tasting pepper candies with intense taste of licorice for which it is well known. They also produce a large number of different candies with more traditional tastes of sour, sweet; there is something for every taste. The firm has also developed candies, which are produced without added sugar. Like the cookies, a large portion of all candies produced is sold under private labels. As was mentioned earlier, cookies are mainly sold domestically. In contrast, half of the candies production is exported to foreign markets such as Norway, Sweden, Finland and Germany. The firm offers candies in special can of 750 grams for cross border trade. As prices in Denmark are considerably higher than in the southern neighbor, Germany, many Danes drive over the border to do their shopping. With this special product, the firm taps into this business opportunity. As it often happens with smaller producers of foodstuff, they are forced to be price takers as large retailers can leverage their negotiating power and thus dictate prices. With the unfavorable position in the supply chain, Tylstrup Kager finds itself in a strategic disadvantage, which limits the growth of the firm.

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Focus of the Firm Mr. A. Fjelsten sees himself as a good technician. Due to his technical background Mr. A. Fjelsten has always worked in the firm as a technician. He has tried to learn the baking and candymaking techniques but still depends on the workers he has hired to handle those jobs. According to Mr. A. Fjelsten, Tylstrup Kager pursues a strategy of high sales growth through low margin. Since most of their products are sold to chain stores and wholesalers, Tylstrup Kager is forced to sell at a very low margin, as it lacks any bargaining power due to fierce competition in his industry. Competitive Advantage According to Mr. A. Fjelsten the quality of his products is the only competitive advantage his firm has. They try to make their products with the best ingredients. Otherwise, his firm cannot compete with Chinese producers who sell their product under the name of Danish cookies at far lower prices. Also, the production of his product does not require any advanced technology that the firm takes advantage of. He also faces fierce competition from some big Danish companies such as Bisca (for cookies) and Gustov Hede (for candies). Importance Mr. A. Fjelsten has a problem. He would like for his firm to grow but his profit margin is very low. According to Mr. A. Fjelsten, due to the nature of his industry, where the wholesalers and large stores dictate pricing, he is lucky if he has 2 or 3 percent profit margin; most of the time it is only 1 percent. Therefore, he does not know how he can grow if he continues to have such a low profit margin for a long time. He understands that growing is not the most important thing. In his opinion, growth cannot be achieved unless the firm also makes a decent profit from its operation. He believes more sales 154

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do not necessarily translate into more profit. For his firm to grow, Mr. A. Fjelsten needs to invest millions of krones in new machinery and expansion of their facilities. These days, due to global economic crisis financial institutions in Denmark have become very risk averse in their lending practices and companies such as Tylstrup Kager will have difficult times securing any new loan from them. The only avenue left for Mr. Fjelsten is his internal sources of fund (profit). In order to have internal funds, the firm must generate a lot of profit. Of course, operating in an industry that has a profit margin of 1-3 percent does not guarantee much of internal funds for investment. Without internal funds he would be unable to invest in any new machinery. Furthermore, due to uncertainty caused by the global economic crisis, the security of the investment in the firm is also a prime goal for Mr. A. Fjelsten. He also indicated that due to fierce competition in Denmark it is important for his firm to diversify into other foreign markets such as Germany and even Southern Europe. But that would require him to change his candies and cakes recipes, as Mr. A. Fjelsten acknowledged, Southern European consumers have a different taste compared to the Northern European ones. Importance of Economic Conditions Mr. A. Fjelsten believes that the demand for his products do not change much with the changes in the Danish economic conditions. In recent years, his turnover has remained fairly constant. This might be due to the fact that the firm sells more than 95 percent of its cookie production domestically and also the fact that the Danish, as well as other Scandinavian economies have not suffered from the global economic crisis as much as the rest of the European countries. This is of course a blessing for a firm with such a low profit margin. If the demand had declined and if in order for the firm to survive, Mr. Fjelsten was forced to

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lower its profit margin even more, the firm possibly would not have survived today. The employment level at the firm is highly seasonal. During the Christmas season, they increase the number of their employees to around 100 workers. After the Christmas season is over they go back to their normal production, with about 60 permanent employees. When asked if he plans to increase his labor force in the near future, Mr. A. Fjelsten responded that at this point he does not think he can afford such an expansion. Mr. A. Fjelsten also feels that his firm is too small to make any meaningful contribution to the Danish economy. But locally, they are one of the larger employers in the Støvring area. Therefore, they are contributing to the health of Danish economy by helping their own local community by creating some permanent and temporary jobs. Future of the Firm Mr. A. Fjelsten hopes his firm will survive in the future mainly due to the fact that he expects that many of the smaller bakeries in Denmark will close. He believes small bakeries will not be able to compete with the imported Chinese cookies and also due to high labor cost in Denmark. However, he expects the demand for cookies in general will remain the same in the future. The recent legislation by the Danish government imposing a “fat tax” will definitely impact on the demand for his cookies. He believes that the new tax, which meant to encourage Danish consumers to eat more healthy food, is meant to raise revenue for the government than caring for the consumers’ health. He sees this tax detrimental to his industry in the coming years. Mr. A. Fjelsten is not as optimistic about his firm’s finances in the near future. He would feel lucky if he can maintain the same level of profit margin in the coming years.

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Systematic Decision Making Process Mr. A. Fjelsten and his partner have established a systematic decision-making process at Tylstrup Kager. The partners meet three times a year to formalize the strategic decisions affecting the firm in the coming months. In case there are emergency situations in which there is a need for the partners to meet there could be more frequent meetings. Otherwise, Mr. A. Fjelsten feels that, as the majority owner of the firm, he is in control of the firm and day-to-day decisions are generally left to him to make. He also makes the decisions about their international activities, with some inputs from his partner. According to Mr. A. Fjelsten his firm generally plans for a number of activities such as new product, entering new market, or increasing their market share. He acknowledged that in the past they have tried planning for diversification of their activities but have realized how difficult it is for them to enter into other lines of business. All his life Mr. A. Fjelsten has worked as a candy and cookie maker. He found it very difficult to move into another line of business, even those close to candies and cookies. Another key process in Tylstrup Kager decision-making is to check and monitor their prices not only in Denmark but also their foreign markets. Mr. A. Fjelsten acknowledges that it is very difficult for them to have a control over the pricing of their products. Generally, chain stores and large wholesalers dictate the prices in the market. The more competitive a market is, the lower would be the profit margin for Tylstrup Kager. That is why in some instances their profit margin is as low as 1 percent. Initial International Markets According to Mr. Fjelsten their initial export activity started back in 1946, when his father started the business. Due to the rationing of sugar and other ingredients used in candies; there were shortages all over the Europe. The firm’s first foreign customer was a Swedish one who contacted the firm. He wanted to sell 157

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these candies as a replacement for sugar. Today the firm exports to not only Sweden but also Finland and Norway. It sells 50 percent of its candies and only 5 percent of its cookies overseas. The remainder (50 percent of candies and 95 percent of cookies) is sold in Danish market. According to Mr. Fjelsten Scandinavian consumers have the same taste for cookies and candies. However, if he decides to sell those in other European markets he has to modify his recipe for them. Systematic Exploration of International Opportunities Tylstrup Kager actively pursues international business opportunities. The firm has a salesman whose job includes not only covering the Danish market but also look for any opportunity to expand Tylstrup Kager market into other countries. Currently, Tylstrup Kager exports to Scandinavian countries. However, as was mentioned earlier, Tylstrup Kager is more successful selling its candies overseas than selling its cookies. When Mr. A. Fjelsten was asked to explain the reason(s) for lack of success in selling his cookies in other countries, he was not sure except for possible taste preferential among other Scandinavian consumers. He explained that they have tried hard in the past to increase their cookies sales in other countries but have not succeeded. Mr. A. Fjelsten is hopeful that in the future they can expand into other markets, such as the Southern European countries, which might partially remedy this problem. Mr. A. Fjelsten feels that selling overseas is not necessarily more profitable than selling in Denmark. However, due to sheer size of their candy export to Scandinavian markets Tylstrup Kager has been able to survive all these years. Therefore, Mr. Fjelsten believes that their international activities have indeed helped the growth of his firm and the security of his investment. In his opinion, the overseas markets create a kind of cushion for his firm to offset any negative trend in domestic demand for his products. He gave the example of the recent Danish legislation taxing fatty foods such as cookies. He believes this tax would lower the demand for cookies in Denmark but is hopeful to offset 158

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that by selling more overseas. Unfortunately, his cookies are not his best-selling products overseas. Furthermore, he is unable to give up short-term profits during the start-up period of international expansion. In his opinion their profit margin is already very low and his firm cannot survive by cutting this margin any lower. Export Obstacles According to Mr. A. Fjelsten his inability to speak fluently a foreign language, even English, has been his biggest obstacle in dealing with foreign customers. He is able to speak English at a level that is understandable, but he does not feel comfortable when it comes to his commercial dealings with foreign customers. He also acknowledges that he has a very limited knowledge of German language. The other obstacles identified by Mr. Fjelsten are cultural difference, locating prospective clients and resource allocation. Future Markets Mr. Fjelsten believes the biggest potential marketfor his products is Germany. His optimism is mainly due to the fact that Germany is very close and he is familiar with the culture. He has already tried selling in China and the United States but his efforts were not very successful. He attributes the failure to his higher prices compared to domestically produced products in those two countries. Unfortunately, these days Mr. A. Fjelsten has to compete with Chinese-made cookies (called Danish cookies) in Denmark. Again, he believes this is due to the fact that his prices are higher because of higher cost of production in Denmark compared to China or even the United States.

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CHAPTER 6 Comparison of Family-Owned and Non-Family-Owned Firms Comparison of Danish family-owned and non-family-owned firms produced similarities and differences with respect to their internationalization perspectives. One similarity is that all of these firms were started by individuals who had an innovative idea, technology, or product that had the potential to have a major impact on an industry, manufacturing process, or consumer life styles. In some cases it was found that the original owners eventually passed on the management of the firms to the next generations but in most cases they are still managing their firms. Both family-owned and non-family-owned firms believed in their strengths or competitive advantages, which helped them to grow. Almost all owners believed that their products had unique attributes and have superior quality but competitive pricing is not one of the characteristics of their product. Although some of the firms (both family-owned and nonfamily-owned) were most likely to make the decision to internationalize after receiving an unsolicited order from abroad or were motivated to internationalize because they perceived technological or product advantages, others decided to internationalize because of the size of their markets and close proximity to neighboring countries. For some family-owned firms internationalizing operations seemed to be a difficult decision that had a major impact on the entire firm and its resources (three firms had less than 22 percent export ratio), while non-family-owned firm found the internationalization process a normal extension of their domestic operations (only one firm has an export ratio of less than 50 percent). Due to small size of Danish market, both family-owned and non-family-owned firms found it difficult to expand their market domestically; therefore, they had to look for markets in neighboring countries. 160

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Once they decided to internationalize, non-family-owned firms are more likely to formalize and internalize the decision than family-owned firms. Owners of family-owned firms frequently did not choose to do so. When family-owned firms received orders from abroad they examined them one at a time, assessed the potential risk in filling the order, and then decided if they would fill the order. A relatively small number of Familyowned firms introduce fixed policies and formal procedures to routinely explore international opportunities. The non-familyowned firms tend to introduce policies and procedures concerning international opportunities earlier and generally relied on a team decision rather than decisions made just by the owners. Both family-owned and non-family-owned firms started their foreign market entry almost exclusively by exporting their products. As they gained more international experience, a couple of the non-family-owned firms, have used other foreign markets entry methods such as licensing, and joint ventures among others. On the other hand, a couple of the family-owned firms tend to internationalize their operations by setting up sales offices, distribution, and even manufacturing abroad very early in their internationalization process. In one case a family-owned firm (PSE Group) was willing to purchase licenses to distribute foreign products in their markets. Non-family-owned firms also evaluated the potential of foreign markets more systematically and objectively than the family-owned firms. It seems that family-owned firms not only felt closer to potential customers in the other, mostly European markets, but they also noted similar applications for their products, particularly in evolving industries or economic sectors. They learned from these experiences and improved their products to meet foreign customers’ needs. Some of the familyowned firms were more likely to fill order without identifying foreign customers and understanding the applications for which their products were used. In other word, family-owned firms

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were likely to be reactive than pro-active regarding foreign sales and customer focus. Although both family-owned and non-family-owned firms look for geographic market expansions they tend to look at future markets differently. Family-owned firms mostly look for established markets such as, the United States, Germany, France, and Scandinavian countries. They emphasize marketing existing products with as little modification as possible. Non-familyowned firms, on the other hand, tend to look for future markets in the emerging markets such as, China, Russia, Malaysia, etc. They are also more willing to adapt their products to foreign customers’ applications, and local industry standards in order to enter foreign markets. Both groups of firms also differ in their perceived obstacles to international transactions. Family-owned firms perceived obstacles are closely related to inability to speak foreign languages, shipment and associated transactions such as shipping documents, financial transactions, or understanding business practices in foreign countries. As they gain more experience they look for information about customers and markets. In contrast, European managers look for information that describes the actual needs of potential customers, market requirements, and industry standards. The study did not find any evolutionary differences among family-owned and non-family-owned firms. Internationalization as a process evolved at the same rate between both groups of firms. Since the Danish domestic market is fairly small both family-owned and non-family-owned firms have realized that in order to survive, they must start their internationalization process shortly after their establishment. Cases reported above show that both family-owned and non-family-owned firms have a long tradition of operating internationally and using several modes of operations. Different internationalization approaches are developed by both groups of firms. Finally, the growth of both family-owned and non-familyowned firms is managed similarly. Both groups of firms tend to be innovative in introducing new products, technologies, and manufacturing processes that provide bases for start-ups in other 162

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industries (see Judex, a non-family-owned firm and PSE Group, a family-owned firm). Consequently, some of the firms (Scanca Isolering and Tylstrup Kager, both non-family-owned firms, as well as, ScanBelt, Frontego, and Gl. Bested, all family-owned firms) were purchased or taken over by their current owners. Many of them changed ownership and managerial structures early in the growth stage and were internationalized by their new owners. The fundamental differences between the family-owned and non-family-owned firms tend to be their longer-term management orientation. But it seems family-owned firms tend to be more stable. Owners of non-family-owned firms are most likely to change ownership while owners of family-owned firms retain ownership and grow their firms.

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CHAPTER 7 Conclusions and Future Research Our objective was to focus exclusively on the owners of familyowned and non-family-owned firms and provide a perspective on their managerial decision making and the internationalization process of their firms. The study on which this work is based focused on individual owners of these firms. Similar to the existing literature (Donckels and Frohlich, 1991; Zahra, 2003) the central finding of this study is that ownership is a key variable in understanding the managerial decision making processes that shape the internationalization paths of small businesses. We have also illustrated how the internationalization experiences of family-owned firms compare to those of nonfamily-owned firms. We believe that such comparisons are useful in attempting to understand internationalization of smaller firms. Internationalization of both family-owned and non-familyowned firms is extremely important in light of the growing global marketplace and international competition. In order to survive even locally focused firms need to examine their competitive posture, assess their market position, and evaluate their technological competence in the international context. Global markets and competitive environments have changed for smaller firms. Today they are expected to participate in international supply chains, complex value chains, and rely on foreign sources of supply. Owners of such firms need to consider these unavoidable international developments and respond to them appropriately. The internationalization process and more specifically the decision to internationalize by both family-owned and nonfamily-owned firms consist of distinct stages. Before owners of such firms decide to internationalize, they need to understand who they are, what are their perceived strengths and weaknesses, and plan for their firms. Once they understand their management 164

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style these owners may decide to internationalize. This is not an easy decision for both family-owned and non-family-owned firms. These owners need to understand both the internal and external implications of internationalization for their firms and consider the decision to internationalize. After considering whether or not to internationalize, some owners may make a formal, well documented decision, while others may make an informal, undocumented decision, which may conveniently change from one situation to the next. Owners of both familyowned and non-family-owned firms may anticipate obstacles to internationalization, which influence their final decision to internationalize. The number and types of obstacles are substantially reduced as these owners gain more experience. One other issue that we examined was whether the small size of the Danish domestic market was a factor in the internationalization process of both family-owned and nonfamily-owned firms. Once these owners decide to internationalize they tend to manage international operations inconsistently. In most Danish family-owned and non-familyowned firms, international operations frequently take precedence over domestic operations. This is primarily due to the small size of their domestic market; owners do not have to be motivated to respond to foreign offers and inquiries. They do understand what motivates them internally to make the decision to internationalize and start international operations, and what motivates them externally. Some owners believe that their strengths and weaknesses have an impact on their decision to internationalize; however, external forces such as foreign competitors or encouragement from various private or public entities can also motivate them. Therefore, Danish policy makers should show a greater inclination to adopt policies that shape the operational environments of small businesses with good results. The comparison between family-owned firms and nonfamily-owned firms shows that those firms that successfully internationalized their operations and are aggressively managing in the global marketplace are growing and expanding their 165

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market share (i.e., ScanBelt, a family-owned firm, and PSE Group, a non-family-owned firm). It is clear that there are some similarities between family-owned firms and non-family-owned firms in the way they evolved, decided to internationalize, and manage their growth. Both Danish family-owned firms and non-family-owned firms were established and evolved in a relatively small domestic market with low sales potential for their products. Initially, they focused on markets geographically close to their homes. In order to grow they had to operate beyond their national borders early in order to reach the efficiency of production necessary to stimulate growth. Eventually they expanded into the larger international markets in neighboring countries. Therefore, internationalization of operations was a natural step in their growth and market expansion strategies; they had to consider the domestic market along with the European, and more recently, the global marketplace. Internationalization of family-owned firms and non-familyowned firms in Denmark are not only internally driven but are also encouraged to do so by public entities. In the context of expanding global markets and intensified international competition, internationalization of both family-owned firms and non-family-owned firms may not only be important for their community, state, or even the whole country; but also for the owners of these firm who are managing the growth of their firms. Local, regional, and national governments are concerned about employment, taxes, and economic stability and want to help these firms to succeed and survive. One fundamental difference between family-owned firms and non-family-owned firms is their approach to how they manage growth. Non-family-owned firms, generally, tend to be innovative in introducing new products, technologies, and manufacturing processes they provide bases for start-ups in other industries. The same new products, technologies, and processes frequently become reasons why many start-ups are quickly purchased, or taken over, by domestic and foreign competitors. However, the above statement cannot be generalized. As one of 166

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the non-family-owned in this study (i.e., Scanca Isolering) is hardly try to come up with new applications for its product or try to expand into new territories. The two partners in this firm are extremely passive in their managerial styles. Owners of family-owned firms manage their firms more aggressively. Owners of both PSE Group and ScanBelt were much younger and at the same time extremely aggressive. These owners have grown their firms rapidly, and evaluate their market options more systematically. When the internationalization decision needs to be made, it is made appropriately and consistently with expectations of growth. The exceptions to this approach are Gl. Bedsted, and to some extent, Fjerritslev Tryk, which tend to be more conservative and not quick enough to respond to market conditions for their products. As a result, the first one has already filed for bankruptcy and the second one is shedding some assets in order to preserve itself. It seems that both family-owned and non-family-owned firms are facing numerous challenges in the global marketplace. They are confronted with increasing and more dynamic international competition both at home and abroad. They have no option but to internationalize their operations. With increasing adoption of new Internet-based business models, it is even more important for both groups to undertake internationalization of operations early in their growth cycle. Today, it is not necessarily the new products, technologies, or manufacturing processes but their international Internet visibility that provides the basis for market acceptance, growth, and successful future. Future Research This study examined family-owned and non-family-owned firms in Northern Denmark and produced a great deal of information about these firms compared to the variety of firms that exist worldwide. Northern Denmark is unique economically, socially, and even technologically from the rest of Denmark. Although in Denmark, the existing infrastructure encourages establishment 167

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and growth of new firms, Northern Denmark, unfortunately, has not benefited from that as the rest of the nation. Firms studied in this book are not known for their high technology contents. A close examination of some of the high technology start-ups suggests that researchers know relatively little about the managerial prosperities of technological innovators. Little is known about their managerial styles and international perspectives. We need to learn more. In this study we explored managerial styles of ten smaller firms. However, their management styles evolved over time. One of the firms in the study takes back its history to over 100 years ago. Another one was started after the WWII. The rest are relatively younger. However, the conditions for starting and managing enterprises have completely changed since most of these firms have been established. Still most of them started their operations when the Internet had not been introduced and international communication options were limited. Today, younger owners, and innovators, have been exposed to new concepts and theories of management, information technology, and internationalization. In order to promote internationalization and competitiveness among both family-owned and non-familyowned firms, researchers need to examine management styles today and relate them to efficient and effective international expansion strategies and business models. Although researchers, and even owners, of smaller firms are aware of many different internationalization strategies and business models, we offered a comparison of family-owned and non-family-owned firms in Denmark. Additional comparisons are needed of these firms in different economic and geographical environments such as, Africa, South America, or South East Asia. These parts of the world could provide a better understanding of how these firms are managed, grown, and internationalize. Each country provides a unique environment for smaller firms and need to be explored on how positively or negatively the environments stimulate their founding, growth, and internationalization. 168

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Researchers frequently think of small and medium-sized enterprises (SMEs) as all types of enterprises offering a variety of services, products, and processes. This definition tends to be too broad in the context of the contemporary global marketplace. As researchers, we need to focus on homogenous sets of firms that can be identified and studied by using the latest qualitative and quantitative research methods and knowledge. Firms that need systematic explorations are the smaller high technology service firms that tend to be internationalized at its incipiency. The decision to internationalize carries different implications in various economic and political systems. Economic and political changes stimulate establishment of both family-owned and non-family-owned firms but their owners may not have the knowledge to grow, compete, and internationalize. Failure of Gl. Bedsted clearly illustrates how quickly owners of such firms need to learn about internationalization after their founding in order to compete. The introduction of the Internet created many challenges for both family-owned and non-family-owned firms, old or new. Does the Internet play an important part in how these firms secure their presence in domestic and foreign market? These are issue that researchers need to explore. Finally, whatever studies are conducted, it is important that they include substantial numbers of firms contained in definable environment to generate statistically significant results. Researchers need to build a strong foundation for future knowledge about both groups of firms because such firms are the source of innovation, new technology, and knowledge on which new industries thrive.

169

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INDEX

A

E

Aalborg airport, 44 Aalborg University, 106, 107, 132, 140 Abdellatif et al., 2010, 8, 15, 21 Africa, 118, 138, 139, 168

Early starters, 30 Economic, 115 Eisenhardt, 1989, 36 Employees, 19, 116 Enterprise Resource Planning (ERP), 143 Entrepreneurial, 19 European market, 101 European Regional Development, 10 European Union, 69, 141

B Barney, 1991, 16, 34 Belgium, 54, 81, 126, 129, 137, 139 Brazil, 54, 55, 57, 87

F

C

Familiness, 15 Finland, 8, 71, 74, 77, 78, 148, 153, 158 Fjerritslev Tryk, 41, 58, 59, 60, 62, 63, 64, 65, 66, 167 France, 8, 67, 126, 129, 139, 162 Frontego, iv, 81, 82, 83, 84, 86, 87, 88, 89, 90, 91, 92, 163 Future, 19, 115, 116

Capabilities, 115 China, 95, 96, 101, 124, 127, 129, 131, 138, 139, 142, 150, 159, 162 Competitive, 19, 115 Copenhagen Economics, 2005, 10 Craftsman, 19 Customers, 116 Czech Republic, 8, 175 D

G

Dalum, 1995, 10 Decision maker, 116 Denmark, i, iii, 9, 10, 11, 20, 26, 39, 42, 43, 46, 50, 52, 54, 56, 58, 61, 62, 67, 68, 69, 71, 77, 78, 79, 81, 82, 83, 85, 86, 90, 91, 92, 93, 95, 102, 103, 105, 106, 113, 118, 122, 127, 129, 130, 131, 132, 136, 138, 141, 144, 146, 148, 149, 151, 153, 155, 156, 157, 158, 159, 166, 167, 168, 172 Department, 69 Diversification, 115 Domestic, 19, 117 Donckels and Frohlich, 1991, 7, 22, 164 Dyer & Dyer, 2009, 7

Germany, 54, 64, 67, 70, 74, 77, 79, 81, 86, 91, 98, 99, 105, 130, 131, 132, 137, 139, 142, 146, 148, 153, 155, 159, 162 Gl. Bedsted, iv, 92, 93, 94, 95, 96, 97, 98, 99, 100, 167, 169 Global Commodity Chains (GCC), 31 Global marketplace, 20 Growth, 19, 20, 115 H Habbershon and Williams, 1999, 15, 16, 22 Homogenous, 19 Human capital, 16, 37

179

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I

N

Inkpen and Crossan, 1995, 34 Innovative, 115 International among others, 30 International business, 116, 117 International Marketing and Purchasing (IMP), 29 International markets, 19, 116, 117 Internationalization, 7, 8, 9, 14, 26, 27, 28, 29, 30, 31, 33, 34, 35, 36, 37, 39, 64, 91, 101, 129, 130, 131, 149, 160, 161, 162, 164, 165, 166, 167, 168, 169 Internationalize, 20

Netherlands, 81, 92, 138, 139 Northern Denmark, 10, 167 Norway, 54, 64, 65, 66, 68, 76, 77, 78, 89, 90, 91, 92, 98, 99, 129, 132, 146, 148, 153, 158 O Obstacle, 117 Operations, 19, 116, 117 Opportunities, 115, 116, 117 Owner, 18, 115 P

J

Potential, 115, 116 Prahalad and Hamel, 1990, 34 Product, 116 Profitability, 117 Promoter, 19

Japan, 8 Judex, 106, 107, 108, 109, 110, 111, 112, 113, 114, 115, 116, 117, 118, 119, 163

R

K

Randoy & Goel, 2003, 17 Rational managers, 19 Reinforce, 20 Russia, 80, 137, 139, 162

Kellpo, 119, 120, 121, 122, 123, 124, 125, 126, 127, 128, 129, 130, 131, 132 Knowledge, 116 Kontinen and Ojala (2011), 15 Kristof (1996), 21 Kuada and Sørensen (1999), 26, 37

S ScanBelt, 43, 44, 45, 46, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 163, 166, 167 Scanca Isolering, iv, 132, 133, 134, 139, 163, 167 Schaufeli et al., 2006, 20 Skills, 18, 19 Small and medium-sized enterprises (SMEs), 169 Standards, 19 Strategy, 115 Sweden, 64, 65, 66, 68, 71, 77, 78, 89, 90, 91, 92, 98, 99, 102, 148, 150, 153, 158 Systematic exploration, 117

L Leadership, 19 Logimatic, v, 104, 140, 141, 142, 143, 144, 145, 146, 147, 148, 149, 150 lonely internationals, 30 M Malaysia, 116, 142, 150, 162 Management, 18 Managers, 18, 19 Marketing, 116

180

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T

V

Tesar et al., 2010, 18 Thailand, 131, 139, 178 Tylstrup Kager A/S, 150

Villalonga and Amit (2004), 14 Vries, Kets de (1993), 21 W

U

Welch and Luostarinen, 1993, 33

United States, 49, 54, 56, 57, 72, 75, 77, 99, 105, 116, 118, 119, 142, 159, 162

Z Zellweger, et al.(2010), 15

181