Saimaa University of Applied Sciences

Unit of Business Administration, Lappeenranta

Degree Programme in International Business
Specialization of International Business

Tea Pakarinen

INTERNATIONALIZATION AND EXPORTING

OPPORTUNITIES TO DENMARK:
CASE URJALAN KEINUKALUSTE KY

Bachelor’s Thesis 2012

Abstract
Tea Pakarinen
Internationalization and exporting opportunities to Denmark: Case Urjalan
Keinukaluste Ky, 151 pages, 9 appendices
Saimaa University of Applied Sciences
Unit of Business Administration, Lappeenranta
Degree Programme in International Business
Specialization of International Business
Bachelor’s Thesis 2012
Instructor: Lecturer Riku Hytönen, Saimaa University of Applied Sciences

The purpose of the study was to provide a guideline to support the planning
process of internationalization and exporting and examine Denmark as a target
country. Furthermore, the purpose was to provide information about the Danish
furniture industry, available internationalization services and financing opportu-
nities. Also, the objective was to provide recommendations for the case compa-
ny, concerning internationalization and initiating export activities. The work was
commissioned by Urjalan Keinukaluste Ky, a Finnish furniture manufacturer in-
terested in internationalization, exporting and Denmark as a possible target
country.

This research was carried out as a case study and therefore qualitative re-
search was chosen as the main methodology. The data for this thesis were col-
lected from literature, internet sources and by conducting three semi-structured,
theme-based interviews. Through expert interviews the objective was to acquire
current, in-depth material to deepen and support the theory.

Based on the findings internationalization is a demanding process which re-

quires careful planning and commitment. The results indicated that the Danish
market is competitive, but a potential market for the case company to consider,
however further market research is necessary. Market knowledge is extremely
important and it is recommendable to work together with experts to ensure suc-
cessful internationalization.

Keywords: internationalization, exporting, Denmark, internationalization services

Tiivistelmä
Tea Pakarinen
Internationalization and exporting opportunities to Denmark: Case Urjalan Kei-
nukaluste Ky, 151 sivua, 9 liitettä
Saimaan ammattikorkeakoulu, Lappeenranta
Liiketalous, Kansainvälisen kaupan koulutusohjelma
International Business
Opinnäytetyö, 2012
Ohjaaja: Lehtori Riku Hytönen, Saimaan ammattikorkeakoulu

Työn tavoitteena oli luoda käsitys siitä, mitä yritysten on otettava huomioon
kansainvälistymisen ja viennin suunnittelussa ja tutkia, millaista apua on tarjolla
tukemaan suomalaisten yritysten kansainvälistymistä. Työssä tutkittiin myös
Tanskaa kohdemaana viennille, sekä Tanskan huonekalumarkkinoita. Tämän
työn toimeksiantajana toimi suomalainen huonekaluvalmistaja, Urjalan Keinuka-
luste Ky, joka on kiinnostunut kansainvälistymisestä, viennistä, sekä Tanskasta
mahdollisena kohdemaana.

Työ toteutettiin tapaustutkimuksena, ja siksi tutkimusmetodologiaksi valittiin

kvalitatiivinen tutkimus. Työ koostuu teoria- ja empiriaosiosta. Tiedot tähän tut-
kimukseen kerättiin kirjallisuudesta, internetistä ja teemahaastatteluiden avulla.
Teoriaosion tarkoituksena oli luoda pohja empirialle ja siksi luoda käsitys kan-
sainvälistymisprosessista, sekä vientitoiminnasta ja kansainvälistymispalvelui-
den tarjonnasta.

Empirian tavoitteena oli syventää teoriaa ja siksi hankkia ajankohtaista tietoa

asiantuntijahaastatteluiden avulla. Työtä varten haastateltiin kahta asiantuntijaa,
sekä case-yrityksen johtoa vierailemalla paikan päällä. Empiriassa tutkittiin
myös Tanskaa kohdemaana. Tavoitteena oli luoda työ, joka toimisi apuna kan-
sainvälistymisen ja viennin suunnittelussa, tarjoaisi yleiskuvan Tanskasta koh-
demaana ja Tanskan huonekaluteollisuudesta. Työ myös antaa suosituksia ca-
se-yritykselle kansainvälistymisestä ja viennin aloittamisesta.

Tutkimustulosten perusteella kansainvälistyminen on vaativa prosessi, joka vaa-

tii huolellista suunnittelua ja sitoutumista. Tutkimuksen tulokset antavat ymmär-
tää Tanskan markkinoiden olevan kilpailulliset, mutta myös potentiaaliset case-
yrityksen kannalta. Lisätutkimus on kuitenkin tarpeellista. Markkinatieto ja -
tuntemus on erittäin tärkeää kansainvälistymisprosessissa, ja siksi onkin suosi-
teltavaa tehdä yhteistyötä asiantuntijoiden kanssa onnistuneen kansainvälisty-
misen varmistamiseksi.

Asiasanat: kansainvälistyminen, vienti, Tanska, kansainvälistymispalvelut

CONTENTS

1 INTRODUCTION ............................................................................................. 7
1.1 Thesis topic and background..................................................................... 7
1.2 Report objectives and delimitation ............................................................. 8
1.3 Theoretical framework, research problems and implementation ............. 10
1.4 Report structure ....................................................................................... 12
2 INTERNATIONALIZATION – CHALLENGE & OPPORTUNITY .................... 14
2.1 Towards global operating environment ................................................... 14
2.2 Why expand internationally? Reasons, motives and triggers for
internationalization ........................................................................................ 15
2.3 Which general requirements does internationalization pose? ................. 19
2.3.1 Company-specific requirements ....................................................... 20
2.3.2 Product-specific requirements .......................................................... 22
2.3.3 Market-specific conditions................................................................. 23
2.4 The decision on internationalization ........................................................ 26
2.5 Where? Analysis and selection of target markets .................................... 28
2.6 How? Choice of operation mode ............................................................. 33
2.7 Planning process of internationalization .................................................. 35
2.7.1 Internal analysis - Company’s own capabilities ................................. 37
2.7.2 External analysis - Market opportunities ........................................... 40
2.8 SWOT analysis ........................................................................................ 43
2.9 Success factors and most significant problems within internationalization
of Finnish companies .................................................................................... 45
3 EXPORT OPERATIONS ................................................................................ 47
3.1 Export entry modes ................................................................................. 47
3.1.1 Indirect export ................................................................................... 49
3.1.2 Direct export ..................................................................................... 51
3.1.3 Own export ....................................................................................... 52
3.1.4 Export partner groups ....................................................................... 54
3.2 Acquisition of business connections ........................................................ 55
4 SUPPORT FOR INTERNATIONALIZATION ................................................. 57
4.1 Internationalization services .................................................................... 57
4.2 Financing ................................................................................................. 58
5 EMPIRIC RESEARCH ................................................................................... 60
5.1 Qualitative research ................................................................................ 60
5.2 Data acquisition and research methods .................................................. 61
5.3 Research implementation ........................................................................ 63
5.4 Processing and analyzing the material .................................................... 65
6 INTERNATIONALIZATION & EXPORTING – EXPERT VIEWS .................... 66
6.1 Internationalization – Prerequisites and required resources .................... 66
6.2 Considerations on target market selection .............................................. 67
6.3 Export activities – Resources, prerequisites and risks ............................ 68
6.4 Export operations’ planning process ....................................................... 70
7 DENMARK ..................................................................................................... 72
7.1 Basic information ..................................................................................... 72
7.2 PESTEL analysis ..................................................................................... 73
7.2.1 Political and legal environment ......................................................... 73
7.2.2 Economic environment ..................................................................... 77
7.2.3 Socio-cultural environment ............................................................... 80
 7.2.4 Technological environment ............................................................... 83
7.2.5 Ecological environment ..................................................................... 86
7.3 Danish furniture industry.......................................................................... 87
7.3.1 Facts and figures .............................................................................. 87
7.3.2 Expert remarks on the Danish furniture market ................................ 93
8 CASE COMPANY – URJALAN KEINUKALUSTE KY .................................... 95
8.1 Introduction.............................................................................................. 95
8.1.1 History............................................................................................... 96
8.1.2 Production ......................................................................................... 98
8.1.3 Products and distribution .................................................................. 99
8.2 SWOT analysis for Urjalan Keinukaluste Ky.......................................... 100
8.2.1 Strengths ........................................................................................ 101
8.2.2 Weaknesses ................................................................................... 102
8.2.3 Opportunities .................................................................................. 103
8.2.4 Threats............................................................................................ 104
8.3 Export entry modes – SWOT analysis ................................................... 105
8.3.1 Indirect export ................................................................................. 107
8.3.2 Direct export ................................................................................... 108
8.3.3 Own export ..................................................................................... 110
8.3.4 Export partner groups ..................................................................... 112
8.3.5 Summary ........................................................................................ 114
9 INTERNATIONALIZATION SERVICES & FINANCING ............................... 117
9.1 Information, training and consulting services ......................................... 117
9.1.1 Finpro ry.......................................................................................... 119
9.1.2 ELY Centres ................................................................................... 121
9.2 Financial support ................................................................................... 123
9.2.1 Ministry of employment and the economy ....................................... 123
9.2.2 Tekes .............................................................................................. 125
9.2.3 ELY centres .................................................................................... 125
9.3 Financing solutions ................................................................................ 126
9.3.1 Banks .............................................................................................. 126
9.3.2 Finnvera Oyj ................................................................................... 127
10 SUMMARY & DISCUSSION ...................................................................... 131
10.1 Results and recommendations ............................................................ 132
10.2 Discussion ........................................................................................... 137
FIGURES ........................................................................................................ 140
TABLES .......................................................................................................... 141
REFERENCES ............................................................................................... 142

APPENDICES

Appendix 1 Intermediaries in indirect export

Appendix 2 Intermediaries in direct export
Appendix 3 Export process
Appendix 4 Export payment terms and methods
Appendix 5 List of internationalization service providers
and useful websites
Appendix 6 Finpro’s consulting services (for preparing
the growth, planning the market entry and
establishing the presence)
Appendix 7 Haastattelurunko 1: Finnvera (interview
frame 1)
Appendix 8 Haastattelurunko 2: Urjalan Keinukaluste
Ky (interview frame 2)
Appendix 9 Haastattelurunko 3: Finpro (interview
frame 3)
1 INTRODUCTION

1.1 Thesis topic and background

Today, the operating environment of companies is becoming more and more

global. Internationalization provides many opportunities for companies, but pos-
es many threats as well. Acquiring necessary information to support decision
making is crucial. Successful internationalization requires careful planning and
therefore it is important for companies to consider and analyze both their own
internal capabilities and the market-specific conditions as well. Internationaliza-
tion becomes current for many companies at some point and personally the au-
thor finds it very interesting and current as a topic.

This thesis is made as an assignment for an intriguing, small Finnish company,

which is interested in internationalization, export operations and shares the au-
thor’s interest in Denmark as a possible target country. Urjalan Keinukaluste Ky
manufactures high-quality furniture of solid Finnish wood. Resulting from the
cost structure of manufacturing these products, the domestic market for the
company’s products is small. Therefore, export markets could provide new
growth opportunities for the company. Although some of the company’s prod-
ucts currently do end up abroad, the company has not yet initiated systematic
export trade on continuous basis.

Therefore, this thesis gives an overview of internationalization and export op-

erations as well as provides information about internationalization services and
financing solutions, which are available to support the internationalization of
Finnish companies. Furthermore, Denmark is examined as a possible target
country. The objective of this examination is to provide an overview of Denmark
as a target country and the furniture industry in specific. Based on this examina-
tion, the purpose is to evaluate whether Denmark would be attractive as a target
country and specifically for Urjalan Keinukaluste Ky.

7
The instructor for this thesis was found through the search of companies, which
would be willing to participate in the originally planned research. Due to the lack
of interest and time of companies, the original content of this thesis had to be
changed. However, with a tip from one Finnish design company, the case com-
pany was found and fortunately it was interested in the idea of this thesis right
away.

1.2 Report objectives and delimitation

The main objective of this thesis is to give an overview of the issues that are to
be considered when planning internationalization and exporting operations as
well as examine exporting opportunities and Denmark as a target country, in-
cluding the furniture industry in-specific, taking into account the case company’s
field of business. By means of SWOT analysis the purpose is to view the case
company’s prerequisites for internationalization and exporting and especially
considering the Danish market. Also, by evaluating different export entry
modes, the purpose is to conclude which of them would be noteworthy for the
case company as the first step of internationalization, specifically considering
the Danish market.

Furthermore, the purpose is to find out what kind of consulting services and fi-
nancing solutions are available to support companies’ internationalization and
initiation of export operations. Ultimately, the purpose is to create a report which
provides assistance and information to support the planning process of interna-
tionalization and export operations as well as an external view of the case com-
pany’s prerequisites for internationalization and therefore provide recommenda-
tions concerning internationalization and initiation of export activities.

The topic of this thesis is very wide and therefore some exclusion is made. The-
se delimitations are also made, because the purpose of this research is to pro-
vide assistance for the case company, which is interested in internationalization
and export activities, but has not yet established systematic international opera-
tions. Therefore, these delimitations are relevant, as the objective is not to make

8
a complete plan how to implement internationalization and start export opera-
tions, but to provide a guideline to support the planning process.

Due to the delimitations, this research does not focus on strategies of interna-
tionalization. Instead, it discusses the reasons and motives for going interna-
tional, general requirements of internationalization, the international business
environment as well as analysis and selection of target markets. Theory about
analyzing the micro environment is introduced briefly. However, this study fo-
cuses on analyzing the macro environmental factors and therefore analysis of
the micro environment is not carried out in the empiric study.

This research is delimited to focus on Denmark as a target country. Also, it is

made specifically for the needs of the case company and therefore brings up
also aspects concerning the Danish furniture industry. Furthermore, the re-
search is delimited to discuss only export entry modes in which the production
takes place in Finland, as other, more demanding international operation modes
are not relevant at initial stages of internationalization, especially for small com-
panies. Moreover, the case company desires to keep its production as domes-
tic. Therefore, this research does not discuss other international operation
modes, such as direct investments, because they are not relevant options for
the company at this point. Also, theory of the internationalization planning pro-
cess is delimited to discuss only the first two stages and therefore strategy, re-
sources and implementation phases are excluded.

Furthermore, this research does not focus on discussing logistic solutions and
transportation modes profoundly. Also, discussion about legislation, customs
procedures and taxation is very limited, because the subject is very wide. Tak-
ing into account that Denmark is a member of the EU, there should not be any
major legal issues. However, legislative matters of the target country, taxation
and customs procedures are somewhat discussed or mentioned within the
analysis of Denmark in chapter 7.2. Discussion of internationalization services
is delimited to focus specifically on services, which are relevant for companies
at initial stages of internationalization. Also, discussion of financial support and
financing solutions is delimited to focus specifically on solutions, which are

9
meant for companies at initial stages of internationalization and planning export
operations. Therefore, only financing solutions related to exporting are dis-
cussed.

Theory about internationalization, export operations and internationalization

services as well as financial support and financing solutions provides a general
guideline for companies considering internationalization and exportation. The
analysis of Denmark provides a general overview of Denmark as a target coun-
try. This analysis is also made specifically for the needs of the case company,
as it has not yet carried out any research of the Danish market. In addition to
the macro environmental analysis, also industry- specific information about the
Danish furniture market is brought up, in order to produce useful information
specifically for the case company.

The SWOT analysis is also made specifically for the case company, in order to
provide an external view of the company’s prerequisites for internationalization
and exporting as well as an evaluation of potential opportunities and threats,
especially considering the Danish market. The SWOT analysis of export entry
modes includes evaluation of export entry modes which are relevant regarding
specifically the case company’s current situation and taking into account its in-
ternal factors and resources. Furthermore, information about internationalization
services, financial support and financial solutions is gathered to provide assis-
tance especially for the case company and taking into account its current situa-
tion.

1.3 Theoretical framework, research problems and implementation

The theoretical framework of this thesis consists of internationalization, export

operations and internationalization services and financing. The theoretical part
discusses issues that companies need to consider when planning internationali-
zation and export operations. Theory about internationalization discusses rea-
sons behind internationalization and general requirements that internationaliza-
tion poses. Furthermore, the analysis and selection of target markets as well the
choice of operation mode are discussed. The theory also describes the planning

10
process of internationalization and as a part of it; the analysis of a company’s
internal capabilities as well as external, market-specific conditions is discussed.
Based on previous research, the success factors and most significant problems
in internationalization of Finnish companies are introduced briefly.

Furthermore, theory about strategic environmental analysis (PESTEL, SWOT)

is presented as they are important tools within the internationalization and ex-
port operations’ planning process. The theoretical part also discusses export
operations; though only export entry modes, which are relevant in the initial
stage of internationalization. Moreover, acquisition of business connections is
discussed as the first and important stage of the export process. Internationali-
zation services are also discussed and this part covers available information-
and consulting services as well as financing solutions, which support the inter-
nationalization of Finnish companies.

Based on the objectives of this report, the main research problem in this case is
formed as follows: What are the issues that companies need to consider when
planning internationalization and export operations? As sub-problems the next
questions are discussed: Which general requirements does internationalization
pose? How to analyze and select target markets? Which export entry modes
could be suitable for the case company as the first step of internationalization?
What is the Danish business environment like and is Denmark attractive as a
target country for the case company? Which consulting services and financing
solutions are available to support companies’ internationalization and export
operations?

This research is carried out as a case study and therefore qualitative research
methodology is applied. In addition to a literary review and utilizing internet
sources, data is acquired by conducting theme- based interviews, which are
recorded. The acquired material is then transcribed, re-organized, clarified and
finally analyzed. A more detailed explanation of data acquisition, research
methods and implementation as well as processing and analysis of the material
are presented in chapter five.

11
1.4 Report structure

The report consists of a theoretical as well as an empiric part, including ten

chapters altogether. The data for the theoretical part were gathered from litera-
ture and internet sources. The theory creates basis for the empiric part of the
work as it provides insight into companies’ internationalization process and ex-
port entry modes. The first chapter consists of an introduction to the topic, re-
port objectives, delimitation of the work and the research problems.

The second chapter discusses internationalization by addressing questions

why, where and how. Therefore, reasons and motives for internationalization,
analysis and selection of target markets as well as the operation mode selection
process are discussed. Also, PESTEL analysis is introduced as a tool for ana-
lyzing the macro environment of possible target countries. Furthermore, the in-
ternational business environment, general requirements of internationalization,
SWOT analysis as well as the planning process of internationalization, including
the evaluation of both internal and external prerequisites, are addressed here.
Analysis of competitive environment and thus the micro-environmental factors is
introduced briefly. In addition, the success factors and most significant problems
in internationalization for Finnish companies are introduced briefly, according to
the results of previous research.

The third chapter discusses export operations. This part covers only export en-
try modes, due to the aforementioned delimitations. Therefore, indirect, direct
and own export entry modes as well as export partner groups are introduced
here. In addition, as the first and important stage of the export process, acquisi-
tion of business connections is addressed. The fourth chapter consists of a brief
introduction of internationalization services and financing opportunities that are
available to support the internationalization of Finnish companies.

The empiric part of the work begins in chapter five, which includes an introduc-
tion of the chosen research methodology, data acquisition and research meth-
ods as well as an overview of how the research is carried out and how the ac-
quired material is processed and analyzed. The material for the empiric part is

12
acquired partly by desk research and deepened by field research by conducting
expert interviews. The material and results of the interviews are discussed and
utilized in the following chapters, after the introduction of the research methods.

The sixth chapter introduces the results and acquired information from the ex-
pert interviews, concerning two of the central themes within the interviews.
Therefore, expert views concerning matters of internationalization and exporting
are discussed here. This part introduces views of the interviewed experts relat-
ed to prerequisites of internationalization, required resources, target market se-
lection, export operations’ planning process and acquisition of market
knowledge.

The seventh chapter discusses Denmark as a target country. This chapter con-
sists of general information about the country and discusses its strengths and
weaknesses from the perspective of business by means of PESTEL analysis,
which analyses political, economic, sociocultural, technological and legal condi-
tions of the Danish business environment. Furthermore, this part includes an
introduction of the Danish furniture industry. Also, some expert remarks on the
Danish furniture market are introduced, based on the results of the interview.

The eighth chapter consists of an introduction of the case company, a SWOT

analysis for the company based on the author’s perception as well as a SWOT
analysis of the previously discussed export entry modes, with regard to the case
company’s internal factors and resources. The ninth chapter focuses more
closely on available internationalization services and it consists of two parts:
information, training and consulting services as well as financial support and
financing solutions, which are offered for Finnish companies.

The tenth and final chapter of this report presents a summary of the key find-
ings, discussion of the results and some recommendations, according to the
objectives of this thesis. The reliability and validity of the work and also the
overall thesis process is discussed here as well.

13
2 INTERNATIONALIZATION – CHALLENGE & OPPORTUNITY

On one hand, internationalization provides an opportunity for companies to ex-

pand their business and increase profitability. On the other hand, it is a chal-
lenge, because a large amount of risks is included. Therefore, identifying and
efficiently controlling these risks is an essential skill for companies in order to
succeed. (Karhu 2002, p. 3.)

2.1 Towards global operating environment

Internationalization is no longer regionally limited but it has become more and

more of a worldwide phenomenon. Therefore, globalization is also a word for it.
All companies are more or less becoming international, either actively or pas-
sively, as in today’s globalized world the rate of change is fast. Integration of the
world market and internationalization of business are moving forward at accel-
erating speed. Barriers for trade and investments are continuously decreasing
especially through trade negotiations of the World Trade Organization (WTO).
Foreign exchange and money markets of the world are integrating. Countries
are more and more clearly dependent on the forces that prevail on the world
market. Furthermore, regional integration is moving forward all over the world
and the nearest example of this is the European Economic Area (EEA). (Äijö
2008, pp. 19–20.)

Globalization of economy and competition brings challenges but offers also

many opportunities. This requires continuous development of international
competitiveness, also when operating on domestic markets. Small and medium
enterprises (SMEs) have a significant role in economic development and em-
ployment. As a small and open economy, Finland is dependent on exportation
and internationalization of companies. Especially for small companies interna-
tionalization is a challenge, but being proactive, market- and strategic oriented
as well as being active are keys to success. By making strategic choices com-
panies can affect their performance and success significantly. (Vahvaselkä
2009, pp. 15–16.)

14
Consequently, internationalization can be defined as a group of strategic deci-
sions that are made to adapt the company’s operations to its environment in
order to ensure competitive advantage or customer benefit and through this
success in the long run. Even though, Äijö (2008, p. 41) emphasizes that it is
important to recognize that internationalization is not only a group of strategic
operations to be carried out, but it is also a comprehensive process of learning
and change for companies. However, strategic orientation is highly necessary
for a company’s international growth and thus internationalization can be
viewed as a growth strategy for companies. According to Penrose’s (1959) the-
ory of the growth, there is a clear connection between the size of a company
and the efficiency of its production and marketing. Also, competent manage-
ment has a key position when companies seek to internationalize within their
internal qualifications and external opportunities or obstacles. (Vahvaselkä
2009, p. 19.)

Continuous adaptation to the changing environment is a law of nature in busi-

ness. As the environment changes, companies have to be able to change ac-
cordingly. Along with the changes in the environment, knowledge and skills of
the employees’ are emphasized as a crucial company resource. Furthermore,
as the competition tightens it is even more important to improve cost- efficiency,
quality and innovation. Also, having the ability to examine one’s strategic op-
tions flexibly and comprehensively becomes even more important for compa-
nies. To summarize, now even more clearly than before the level of strategic
thinking and planning is a crucial factor of companies’ success in global compe-
tition. In order to achieve all this it is necessary for companies to gradually
adopt an international or a global perspective. (Äijö 2008, pp. 20–21.)

2.2 Why expand internationally? Reasons, motives and triggers for inter-
nationalization

Generally there are numerous reasons behind a company’s internationalization.

The decision to expand internationally should always be considered carefully,
because there are major risks involved (Karhu 2002, p. 19). It is important for

15
each company to take the time to consider the reasons for internationalization
as the decision of internationalization is affected by these reasons. Often inter-
nationalization is also a natural part of companies’ growth and development
strategy. The reasons and motives to expand internationally can be examined
together as factors that overall influence the internationalization of companies.
These factors are impulses that trigger export activities and therefore have an
impact on the company’s decision to initiate exporting and examination of ex-
porting opportunities. (Vahvaselkä 2009, pp. 61–62.)

According to Vahvaselkä (2009, p. 63), factors that influence internationalization

can be divided into internal and external ones. Furthermore, they can also be
categorized as proactive and reactive reasons. Proactive reasons derive from
companies’ internal incentives but reactive reasons derive from changes in the
environment, which companies’ react to. Therefore, internationalization that re-
sults from proactive reasons indicates willingness of the company. On the con-
trary, when resulting from reactive reasons, internationalization can be inevita-
ble for the company. Figure 1 below illustrates the internal factors and reasons
that influence internationalization of companies.

Company

Proactive Reactive
Internal
 Unique product factors
 Extra production
 Technological
capacity
advantage
 Decreasing
 Know-how domestic sales
 Company attributes
 Cost advantage  Seasonality of
 International orientation
 Price advantage & motivation of sales
 Economies of scale management
 Managerial  Commitment
motivation

I N T E R N AT I O N A L I Z AT I O N

Figure 1 Internal factors of internationalization

16
Internal factors are such that derive from the company itself and refer to attrib-
utes of the company, such as age, size, field of business and for example family
entrepreneurship. Furthermore, internal factors include managerial issues, such
as the level of strategic and market orientation, international education, lan-
guage skills and networks as well as matters concerning decision making. Ac-
cording to previous studies, an internationally oriented and motivated manage-
ment with readiness to take on the challenges provided by international markets
is a primary trigger for companies’ internationalization. Ultimately, the decision
on internationalization is made by the senior management of a company. Oper-
ations to be executed and the level of success are therefore highly dependent
on the commitment of the chief executive. (Vahvaselkä 2009, p. 62.)

Proactive reasons are such that increase the activity of companies and act as
triggers for internationalization. The most crucial proactive factors deriving from
the company itself include the uniqueness of the product, technological ad-
vantage or other distinguished know-how, economies of scale, cost advantage
as well as price advantage and the level of activity, motivation and ambition of
the management. Production capacity or overproduction, seasonality of sales
and decreasing domestic sales are also seen as reactive reasons deriving from
the company itself. (Vahvaselkä 2009, p. 63.)

The external factors that influence internationalization derive from the operating
environment of companies. These factors can evolve either from the domestic
market or the foreign target market of a company. The conditions of the domes-
tic market create pressure and therefore push the company towards interna-
tional markets, whereas the conditions of the foreign target market attract and
therefore pull the company towards internationalization. Figure 2 shows the ex-
ternal forces that affect the internationalization of companies. According to pre-
vious studies, small size, transparency and geographic location of domestic
markets have had crucial impact as pressure factors on the internationalization
of Finnish companies. Geographical location has had a negative impact on
gaining market knowledge and recognizing market impulses quickly enough.
(Vahvaselkä 2009, p. 62.)

17
 External factors

Domestic market Target market

 Small size Reactive  Large size & Transparency

 Inquiries & orders  Opportunities
 Unsatisfactory
 Strengthening competitive
demand from abroad position
 Transparency  Domestic market  Financing & support
 Internationalization of conditions  Positive growth forecast
Proactive  Demand
rivals
 International connections
 Bureaucracy  Opportunities of
 Balancing seasonal
 Restrictions target markets fluctuation
 Improving company image
 Geographical location

Company

INTERNATIONALIZATION

Figure 2 External factors of internationalization

Karhu (2002, p. 18) lists weak demand and restrictions of the domestic market
as well as internationalization of competitors and avoiding domestic bureaucra-
cy also as factors that create pressure and therefore push companies towards
internationalization. At the same time, conditions of foreign target markets at-
tract and therefore pull companies towards expanding internationally. Referring
to Karhu (2002, p. 18) factors which make foreign target markets attractive are
the opportunities derived by their large size and transparency as well as the
opportunity for companies to gain financing and support, strengthen their com-
petitive position and image of the company and also the opportunity to balance
seasonal fluctuation. Also, arisen international connections and demand for the
product are factors that attract companies abroad.

Vahvaselkä (2009, p. 62) also brings up positive GDP growth forecast of econ-
omies as one factor that provides opportunities and attracts companies towards
internationalization. External factors which are seen as proactive ones are basi-

18
cally opportunities that foreign target markets provide whereas inquiries and
orders from abroad as well as the excessively small size of domestic markets
are included in reactive factors. In Finland the small size and transparency of
domestic markets are the most significant pushing forces for companies at the
early stage of internationalization. The pulling factors of foreign target markets
start to affect subsequently when a company changes its policy from reactive to
a proactive one. (Vahvaselkä 2009, pp. 62–63.)

Based on survey results from 2000s it can be summarized that the main rea-
sons behind companies’ urge to internationalize are firstly, the small size,
scarce growth and harsh competition of domestic markets as pushing forces
and the demand of international markets as well as their size and growth as
pulling forces. Secondly, the results of the survey revealed that both skills and
knowledge of the company as well as the urge of the management to expand
internationally were among the main reasons. Thirdly, internationalization of
customers was mentioned. As a conclusion it can be stated that in the long run
all the reasons and motives for internationalization can be summarized into one
central necessity: ensuring the growth and profits of a company. (Äijö, 2008, pp.
38–39.)

2.3 Which general requirements does internationalization pose?

When considering internationalization and rationalized reasons for it, companies

also have to pay attention to the requirements that internationalization poses.
As companies evaluate these requirements they must consider both internal
factors that relate to the company itself and its products as well as external fac-
tors that relate to market conditions. Before making the final decision of interna-
tionalization and the choice of operation mode a company should be able to
evaluate the requirements of internationalization critically. Criticality of this eval-
uation means to realistically weigh all relevant matters on objective basis. It is
important to make this evaluation, because it limits the amount of operation
modes that are considered applicable for the company as different operation
modes pose quite different requirements. (Karhu 2002, p. 19.)

19
2.3.1 Company-specific requirements

Evaluation of company-specific requirements includes the examination of eco-

nomic and functional resources.

Economic resources

Economic resources signify the economic condition of a company, which con-

sists of profitability, financial solidity and liquidity. The most important criterion is
profitability as it is the basis for liquidity and financial solidity of a company.
Typically, to be able to ensure its competitiveness, a company should have at
least one of these criteria in order. However, international competitiveness pos-
es higher requirements for companies’ economic resources. Therefore, suc-
cessful internationalization requires solid economic conditions. Even at the early
stages of internationalization, economic conditions of a company have an es-
sential significance, because investments in fixed assets and personnel are
somewhat required. (Karhu 2002, pp. 20, 22.)

Furthermore, investments in machinery and other necessary equipment may be

required in order to develop the companies’ production and delivery capacity
into a necessary level. Personnel-specific investments include for example pos-
sible training in order to acquire the necessary international know-how into the
company. Along with other investments, companies have to make significant
investments in marketing as competition in international markets is harsh and
therefore the requirements are higher in contrast to domestic marketing inputs.
These investment needs may result in difficulties of continuously maintaining a
necessary level of financial solidity and liquidity. Weak financial solidity and li-
quidity can easily become barriers of trade. Also, the established policy of long
terms of payment within international trade can make maintaining liquidity diffi-
cult. If the economic resources of a company are limited, it is likely that interna-
tionalization is implemented for example as export trade. (Karhu 2002, pp. 22–
23.)

20
Functional resources

Functional resources signify the production, administrative and marketing ca-

pacity of a company, as well as its psychological resources and adequacy of the
personnel to work within international tasks and context. These abovemen-
tioned resources have a connection to the company’s economic resources, be-
cause their adequacy is dependent on the attributes of the company, which in
turn are evaluated by economic measures. In order to be able to manage large
orders, an international company should have significant production capacity.
(Karhu 2002, p. 25.)

It is also important to be able to convince the customers in advance about the

company’s delivery capability as it can be a crucial factor in receiving orders.
The distances and difficulty of implementing market research as well as market
communication in international markets set requirements for the marketing re-
sources of a company, as for organizational leadership and management of
money processes in a changing environment call for administrative capacity.
However, the requirements targeted at the company’s functional capacity vary
according to the applied operation mode. (Karhu 2002, p. 25.)

Requirements related to the psychological resources of a company are targeted

at the personnel’s skills and knowledge in production, marketing and admin-
istration as well as the language skills, cultural knowledge and adaptability to
various surroundings and cultures of the persons who work within these tasks.
The greatest requirements are targeted at persons who are responsible for the
daily sales work. However, skills and knowledge are required also from the
management of a company, as the decisions they make have a significant ef-
fect on the company’s prerequisites for success. If the economic resources of a
company are limited it is likely not to implement internationalization through for-
eign investments such as establishing a subsidiary abroad. Even though, in
some cases ensuring the delivery capability of a company might require setting
up a unit abroad. (Karhu 2002, p. 25.)

21
2.3.2 Product-specific requirements

Product-specific requirements signify the suitability of the product for interna-

tional markets. The possible export success of the product is affected by all lev-
els of the product and therefore the core product, the additional services and
benefits as well as the image of the actual product. A strong competitive ad-
vantage is a crucial factor that influences the international success of a compa-
ny. The product’s competitive advantage can be based on attributes of any level
of the product. Practically, the superiority of the product has to be distinctly per-
ceptible, because the lack of differentiation among competing products can eas-
ily result in failure in international markets. Therefore, it is not neither recom-
mendable nor profitable to aim at international markets with a poorly distin-
guishable product, unless the company has a clear cost advantage in contrast
to its rivals. (Karhu 2002, p. 26.)

The product might be suitable for international markets as it is or as somewhat

modified, according to the specific target markets. For some target markets it is
not necessary to make changes but in other markets totally different qualities
are required from the product. The changes can be targeted at all levels of the
product. The necessity to change the core product usually derives from the dif-
ferent regulations and standards within the target market, whereas the changes
to be made to the outer levels of the product is a matter of creating and devel-
oping competitive advantage within marketing. (Karhu 2002, pp. 26–27.)

These product-specific requirements of internationalization may somewhat af-

fect the company’s choice of operation mode. In case the features of the outer
levels of the product are an important competitive weapon for the company, it is
usually most advantageous to market the product through a representative at
the target market or the company’s own unit located there. For some products
the advantages provided by local presence are so important that it is not possi-
ble to market the product successfully from their home country. (Karhu 2002,
pp. 26–27.)

22
2.3.3 Market-specific conditions

Market-specific conditions relate to demand, competition and environmental

factors at the target market.

Demand factors

The volume of potential demand affects the choice of operation mode; as if it is

probable that the demand will be scarce it is often more advantageous to start
internationalization with export business than direct investments. At the same
time, an own foreign unit might provide a good opportunity for generating de-
mand at the target market. Furthermore, presence at the target market enables
efficient data acquisition and therefore facilitates the company’s decision mak-
ing. Investments to the target market at an early stage of internationalization
might enable gaining a significant competitive advantage for the company, es-
pecially in case the demand is estimated to increase strongly in the future.
(Karhu 2002, pp. 27–28.)

Basically, the volume of demand is based on the quantity of potential customers

as well as their ability and willingness to buy the company’s products. The basis
for potential demand is the quantity of reachable customers and therefore popu-
lous countries often provide the best opportunities for successful internationali-
zation. However, many of the most populous countries in the world are quite
poor and therefore the purchasing power of these markets is much weaker
compared to smaller, industrialized western countries. Consequently, purchas-
ing power which is based on the level of income and wealth of potential cus-
tomers is an essential factor that limits the volume of demand. Another matter
possibly limiting the volume of sales is the customers’ willingness to purchase
the product, which is influenced by their conceptions and attitudes towards the
product. Influencing the customers’ willingness to buy as well as diminishing the
barriers to purchase are therefore important tasks within companies’ marketing.
(Karhu 2002, pp. 27–28.)

23
Competition factors

The level of competition at the target markets also affects the choice of opera-
tion mode, because in case the chosen market is highly competitive it probably
leads to direct investments eventually, especially if the advantages of local
presence are significant. The competitive situation at the market is relative to
the quantity of competitors operating there as well as their competitive weap-
ons. Nowadays competition is scarce everywhere, but most clearly it appears in
markets with a high purchasing power and large size. The fact that the export
price of the product is lower than its price in the domestic markets is often an
indicator of this. However, the export price of the product should in fact be high-
er than the price in domestic markets, as export marketing results in higher
costs than domestic marketing. In order to gain returns at least equivalent to
the sales of the domestic market, a company should be able to get a good ex-
port price for its products. Nevertheless, the situation being the opposite it might
be possible to increase profitability only through increased sales volume. (Karhu
2002, pp. 28–29.)

Environmental factors

Environmental factors at the target market influence the choice of operation

mode, the competitive weapons in international marketing as well as the
achievable results (Karhu 2002, p. 30). In the international operating environ-
ment several matters influencing business operations can be identified. These
environmental factors influence the potential success of a business and they
can be categorized into different sectors, which are: economical, financial, de-
mographical, technological, political, legal, cultural and social factors of a specif-
ic business environment. These factors should be examined from both the na-
tional perspective of the target country and with an international perspective,
too. It is essential to consider the international scope of the business environ-
ment especially as examining the economic, financial, political and legal envi-
ronment. (Karhu 2002, pp. 12–13.)

24
In the economic environment the matters of taxation in the target country affect
the company’s decisions most clearly. Both direct and indirect taxation have its
own influence. An exceptionally favorable direct taxation as well as indirect tax-
ation influencing trade negatively both attract companies to internationalization
through direct investments. The currency conditions of the target market are a
part of the financial environment. If a country has unstable currency conditions it
is not attractive for investments. Furthermore, the functionality of the finance
markets also influences the choice of operation mode as well-developed finance
markets attract companies to invest. Whereas developed and well-functioning
money markets most clearly increase the attractiveness of traditional foreign
trade. (Karhu 2002, p. 30.)

In the demographic environment the features of population and companies es-

tablished in the target market influence the choice of operation mode. Techno-
logical environment in turn affects the viability of practical operations in the dif-
ferent operation modes. The use of outdated technology does not attract in-
vestments that aim at utilizing high-technology, because in this case the neces-
sary know-how cannot be acquired from that particular target country. The
technological environment also signifies the physical and natural environment of
the target country and therefore its location, natural resources and the transport,
communication and energy infrastructures are included. (Karhu 2002, pp. 30–
31.)

All of these factors work either toward or against the conditions of adopting dif-
ferent operation modes. The political environment includes the political situation
of the target country, the government’s use of authority as well as the policies
and bureaucracy matters. The legal environment consists of the legal system of
the target country. A high level of technical legislation as well as its predictability
and professional applicability are matters which generate trust towards the tar-
get market. (Karhu 2002, pp. 30–31.)

The socio-cultural environment consists of the social structure of a society and

social well-being as well as both visible and invisible culture at the target market
area. If the culture of the target country differs significantly from what is used to,

25
it is important to consider how to efficiently exploit the local cultural knowledge
when deciding on the operation mode. In foreign trade practical and applicable
alternatives are direct and indirect exportation as well as licensing and franchis-
ing by using a local partner or collaboration with a local company by exploiting
their knowledge of local conditions. Direct investments can be successful even
to markets with significant cultural differences, if the requirements set by cultural
differences are respected. (Karhu 2002, pp. 31–32.)

The effects of these abovementioned environmental factors on business de-

pend on the level of complexity of companies’ international operations. When
internationalization is implemented by own exportation, without using intermedi-
aries, the environmental effects are greater than for example when direct and
indirect export entry modes are used. Therefore, the less commitment to the
target market area is expected from the company, the less impact the environ-
mental factors have on its business. Consequently, the features of the business
environment somewhat affect the company’s choices and decision making, the
same way as company and product-specific factors as well as competition and
demand factors do. (Karhu 2002, pp. 13–14.)

The requirements of internationalization that were discussed above are some-

what generalized. In the real world the actual amount of factors which influence
the decision on internationalization and along with it the overall decision making
process of companies is various. The value and significance of each factor var-
ies case by case and therefore a universal pattern of decision making, which
regards all the environmental effects, cannot exist. Merely, it is important for
companies to consider these environmental factors sufficiently enough and take
into account the minor ones as well. (Karhu 2002, p. 32.)

2.4 The decision on internationalization

A company’s rationalized decision to go international is based on the reasons

behind internationalization, which were discussed previously. The next step for
companies is to examine their motives as well as both the company and mar-
ket-specific requirements and also matters which work towards and against in-

26
ternationalization. After examining all of these factors, based on the results of
this examination the final decision on internationalization is made. (Vahvaselkä
2009, p. 61.)

Prior to making the decision to start internationalization a company has to con-

sider many issues. The various reasons and motives for internationalization
were discussed previously, but basically they can all be summarized to one
basic question: do international markets provide better potential than domestic
markets and is the company able to utilize this potential. In figure 3 the model of
decision making in internationalization process, according to Äijö (2008, p. 41),
is described. Whatever the impulse or motive for considering internationalization
is, it is important to consider whether it is sufficient and how internationalization
matches the company’s overall goals and strategy.

Company goals & basic

strategy

Impulse for
internationalization

Review & planning of

internationalization

Figure 3 Decision making in internationalization process (Äijö 2008, p. 41.)

Though, the impulse for internationalization might come from the external envi-
ronment, the actual basic motive to start internationalization should be based on
the company’s internal goals and strategy. Therefore, it is important for the
management of a company to go through a formal decision making process

27
along with supportive reviews of the current situation at this point. (Äijö 2008, p.
40.)

As mentioned before, prior to making the final decision on internationalization

and the choice of operation mode a company should critically evaluate the re-
quirements that internationalization poses. These threats and opportunities
caused by the business environment along with the company’s internal
strengths, weaknesses and especially competitive advantage should be careful-
ly analyzed before making final decisions. These analyses are important to car-
ry out as they create basis for the company’s decision making process, which
basically starts and is based on the results of the analysis of the company’s
competitive advantage. (Karhu 2002, p. 14.)

Basically, these threats of the business environment can be analyzed by mak-

ing a risk analysis. Risks can generally be divided into commercial and country-
specific risks. Commercial risks signify risks that are caused by the actions of
companies’ customers and business partners. Country-specific risks signify the
risks and uncertainty caused by different environmental factors, which were dis-
cussed in the previous chapter. These threats include risks caused by unstable
conditions of the target market as well as political risks that are caused by soci-
etal conditions and decisions of the government. (Karhu 2002, pp. 14–16.)

These possible risks can be analyzed along with the analysis of the macro envi-
ronment, which is discussed in the next sub-chapter as PESTEL analysis.

2.5 Where? Analysis and selection of target markets

As the requirements of internationalization have been examined and the deci-

sion on internationalization made, it is time to make decisions concerning mar-
ket entry, including the choice of targets markets, operation mode as well as
setting objectives for the chosen market. These are important decisions as es-
pecially for SME’s the consequences of unsuccessful choices are far- reaching
and they result in lost opportunities, additional costs and increasing risks. A sys-
tematic approach in target market selection signifies proceeding stage by stage.

28
Analysis of target markets starts by examining general information on macro
level and continues to a more detailed examination on micro level, which in-
cludes analyzing the sales potential within specific target markets. After this the
final choice of target markets is made. (Vahvaselkä 2009, p. 66.)

According to Root (1994) the selection process of target markets consists of

four stages: preliminary analysis, evaluation of market potential, evaluation of
sales potential and finally identifying desired segments (Vahvaselkä 2009, p.
66). As the company proceeds according to this model of the selection process,
the necessary information sources convert from secondary into primary ones.
Tailored, declarative information is not necessarily available before the compa-
ny already operates in international markets. Root’s (1994) model for selecting
target markets is presented in figure 4 below.

SECONDARY ALL COUNTRIES Rejected

INFORMATION - General information countries

Analyzing market POSSIBLE TARGET COUNTRIES

potential - Market size Rejected
- Market potential countries

Analyzing sales HIGH POTENTIAL

potential TARGET COUNTRIES
- Product comparison, competitive Rejected
situation
countries
- Market-, consumer &
Other
distribution structure
target
markets
HIGHEST POTENTIAL TARGET
COUNTRIES Rejected
PRIMARY - Identifying & selecting customer countries
INFORMATION segments
- Analysis

Figure 4 Model of target market selection process, after Root (Vahvaselkä

2009, p. 67.)

The first stage consists of a preliminary analysis, which is targeted at a small

amount of potential target areas or countries. This preliminary analysis includes

29
general information of countries, for example population, purchasing power,
GDP, market size, ease of market entry, level of competition and acceptability
of products. After the preliminary analysis is made, the market potential of pos-
sible target countries is evaluated. Evaluation of market potential means esti-
mating the current market size and also predicting the prospective size of the
market. The overall market potential signifies the volume of potential sales.
Therefore, this second stage focuses on analyzing countries, which according
to the preliminary analysis could be possible target areas. A useful tool for com-
paring these possible target countries is the PESTEL analysis, which is used for
analyzing the macro environment affecting all companies operating in a specific
operational environment. (Vahvaselkä 2009, pp. 66–67.)

After the preliminary analysis and evaluation of market potential it is time to ex-
amine the company’s sales potential in high potential target countries. Sales
potential signifies the part of market potential, which the company can realisti-
cally expect to achieve in the long run. Then, the target market is selected ac-
cording to these aforementioned stages and this is followed by a detailed seg-
mentation and analysis of the target market. When making the final selection of
target market(s), a company should have access to the following information
about the specific target countries:

 Is there existing demand for the product/ service or how it can be creat-
ed?
 What is a typical customer like?
 What is the current and prospective market size?
 What kind of adaptation is required for products and marketing activities?
 What are the estimated costs and profits/ revenues?
 Are there laws or regulations, which influence the company’s operations?
 Does the public sector work toward or against the company’s opera-
tions?
 Is there a tax allowance or company support available?
 Are there potential partners to be found?
 Is there necessary work force available (if needed) and what is the level
of expertise?

30
  How can the company market its products in the media?
 What is the infrastructure like?
 Is the political and economic system stable?
 Is the country safe?

Ultimately, the choice of the target country is based on the company’s own
goals and resources. (Vahvaselkä 2009, p. 70.)

PESTEL analysis

PESTEL analysis consists of analyzing the political, economic, sociocultural,

technological, ecological and legal factors of the macro environment. Here the
grouping is slightly different compared to the environmental factors related to
the requirements of internationalization, which were discussed before. Typically,
it is not possible for companies to control these macro environmental factors
directly and therefore they might even pose direct threats for the company’s
operations. At the same time, changes in these external factors can create new
opportunities for companies. The physical environment of a country, such as its
size and distance are also reckoned as macro environmental factors. Many of
these factors of the macro environment are country-specific and therefore PES-
TEL analysis should be carried out individually for each country in question.
(Vahvaselkä 2009, p. 68.)

Figure 5 below shows the different dimensions and gives some examples of the
target areas included in the PESTEL analysis. Both the political and legal envi-
ronment consists of two extents. The domestic political and legal environment
includes all political and legal issues, which influence the international business
of a company, such as the government’s actions for export promotion. Whereas
the political and legal environment of the target country consists of issues which
concern the company as it operates in that specific market.

31
 ECONOMIC
- Global
- Country- specific
- Financial SOCIOCULTURAL
POLITICAL - Culture
- Domestic - Demographics
- Target country - Trends
- Attitudes

PESTEL

TECHNOLOGICAL
LEGAL
- Technology
- Laws - Physical environment
- Regulations ECOLOGICAL - Infrastructures
- Environmental
awareness

Figure 5 PESTEL analysis

The political and legal environment may pose certain risks for the company, for
example operational and financial risks as well as risks caused by the govern-
ment of the target country. These risks include for example import restrictions,
market and price controls, and other laws and regulations concerning the com-
pany’s products, taxation and workforce for example. (Vahvaselkä 2009, p. 68.)

The economic environment can also be divided into two extents: global, world-
wide economy and individual, country-specific economies. The global economic
environment consists of issues concerning world trade, governments’ monetary
policies and trade monitoring organizations like EU (European Union) and WTO
(World trade organization), which aim at facilitating trade between different
countries and maintaining economic well-being. Country-specific economic
analysis should focus on the size and attributes of the target market. The state
of an individual country or economy is usually determined by its growth rate,
employment situation, price level, income level, availability of economic re-
sources, the amount of money in circulation and interest rates. Financial opera-
tional environment is also included in the economic dimension and it includes all

32
the risks that are related to financing and foreign payments traffic within a com-
pany. These risks include commercial risk, political risk and foreign currency
exchange risk. (Vahvaselkä 2009, pp. 68–69.)

Factors, which influence the company in the sociocultural environment, include

the culture, demographic factors, trends and attitudes of consumers. It is im-
portant to take the cultural factors into account for example in marketing plan-
ning. The effects of culture can be evaluated on macro level, which includes the
general attributes of the sociocultural environment and also on micro level,
which includes for example attitudes toward foreign products. The technological
operational environment consists of the technology included in the product and
used in the production process as well as the technology which the manage-
ment can utilize. These factors affect the competitiveness of a company. (Vah-
vaselkä 2009, p. 69.) The ecological dimension includes for example the
weather, global climate change and for example local waste issues. The grow-
ing desire to protect the environment can have a significant impact on the com-
panies’ operations as well (Oxford University Press 2007a).

2.6 How? Choice of operation mode

After selecting target markets a company should choose an operation mode

and standard of activity, which enables utilizing long-term competitive ad-
vantage. The choice of operation mode is connected to the selection of target
markets and the objectives that are set for this chosen market, as the company
should choose the kind of operation mode, which contributes to achieving these
set objectives (Vahvaselkä 2009, p. 66). When deciding on the most appropri-
ate operation mode for the chosen target market, the company determines to
what extent it is willing to engage resources and how intensively it desires to be
present at the target market. Furthermore, the company should consider the
level of gross profit that is strived for as well as what kind of control possibilities
it has; in other words how the company is able to make decisions and protect its
interests. (Vahvaselkä 2009, p. 71.)

33
The selection of appropriate operation mode is influenced by many factors,
which can be divided into internal and external ones. Internal company-specific
factors include strategy, size, goals, long-term objectives, level of commitment,
financial resources, human resources, experience, products and competitive
advantage of the company. Furthermore, factors related to the product consist
of its uniqueness, technology, maintenance issues, and price as well as intellec-
tual property issues. External factors influencing this choice include domestic
conditions, size of the target market, market potential, environmental factors on
macro and micro level, usability and complexity of operation modes, risk level
and also the easiness and quickness of market entry. (Vahvaselkä 2009, pp.
71–72.) The operation mode selection process is described in figure 6 below.

1 . S T R AT E G Y & L O N G - T E R M G O A L S
I E
N X
2 . P O T E N T I A L O P E R AT I O N M O D E S
T T
E Market conditions E
R R
N Company Product N
A A
L Competitive advantage L

F F
A 3. COMPARISON OF POTENTIAL OPERATION MODES
A
C - Basic criteria -
C
T T
A B C
O O
R + - + - + -
R
S S
SELECTION

Figure 6 Operation Mode Selection Process

The selection process begins by clarifying the company’s strategy and long-
term objectives for internationalization along with the potential of achieving
competitive advantage at the chosen target market. Next, the company consid-

34
ers which operation modes are possible and how competitive advantage could
be gained through them. The special attributes of the company and the prod-
ucts, the prevailing market conditions as well as the specific competitive ad-
vantage of the company should be put in proportion to each other. Subsequent-
ly, a comparison between the possible operation modes is made by using basic
criteria, which include the features, costs, risks, easiness, gross profit potential,
quickness of market entry and the level of control as well as the possibility of
gaining market knowledge and experience within each operation mode. Based
on these criteria it is possible to summarize the advantages and disadvantages
of each operation mode and select the one which is the most suitable for the
company. The choice of operation mode makes a difference to the company’s
volume of activity, presence and visibility at the target market. (Vahvaselkä
2009, p. 72.)

2.7 Planning process of internationalization

As the idea of initializing internationalization has arisen, the next step is to ex-
amine the company’s internal prerequisites as well as external, market-specific
conditions and prerequisites for internationalization. This examination is carried
out by means of a company analysis along with a market-specific analysis.
However, Vahvaselkä (2009, p. 110) states that before the actual planning be-
gins, the company should be assured that internationalization is determined as
a strategic way of growth and that it is a part of the company’s overall strategy.
(Vahvaselkä 2009, p. 63.)

The planning process begins with examining the background of the company
and its basis for internationalization. Company’s history and its significant inci-
dents, development of domestic business, essential successes and failures and
also reasons behind them should be considered. The strategic alignments of a
company including the vision, values, corporate culture, mission, strategic
goals, means and focus areas as well as critical success factors, should also be
clarified. (Vahvaselkä 2009, pp. 106–107.)

35
Figure 7 below describes a basic model which is used in the planning process.
The first stage includes examining the back ground and starting point of the
company, as well as its own capabilities for internationalization. After evaluating
these internal factors, conclusions are made. The next step is to examine mar-
ket opportunities. At this second stage the baseline for internationalization is
updated and the depth of research and recommended actions are specified. At
this stage an analysis of the chosen target market is made, according to the
needs of the company and regarding the selected operation mode. In case es-
tablishing options are considered, for example establishing an own foreign unit,
an in-depth market research is often needed in order to gain adequate infor-
mation for making conclusions. (Vahvaselkä 2009, pp. 106, 112.)

I. COMPANY’S OWN CAPABILITIES

1. Startingpoint2. Analysis a) basiccapabilitiesb) products/ services/ marketing
c) personneld) productivity& serviceability3. Conclusions

II. MARKET OPPORTUNITIES

1. Informationupdate& Specificationof actions3. Detailedresearchof market
opportunitiesa) basicanalysisb) in-depthmarketanalysisc) marketplan3. Conclusions

III. STRATEGY

IV. RESOURCES

V. IMPLEMENTATION

Figure 7 Basic model for planning internationalization according to Teknolo-

giateollisuus ry (Vahvaselkä 2009, p. 107.)

The most advanced option of examining market opportunities is a market plan.

After examining market opportunities conclusion are again made. At this point
36
the company should have adequate information for proceeding to the next
stage, which is formulating a strategy. (Teknologiateollisuus ry, 2011.) After
formulating necessary strategies, the company’s current resources are exam-
ined and the need for additional resources is determined. Finally, a detailed im-
plementation plan is made, along with the search of partners, execution of the
plan and follow-up. (Vahvaselkä 2009, p. 107.)

The first two stages of the planning process are discussed further in the next
paragraphs.

2.7.1 Internal analysis - Company’s own capabilities

Referring to Vahvaselkä (2009, p. 107), the examination of internal prerequi-

sites includes evaluating the company’s basic capabilities, validity of products
for exportation and marketing capabilities as well as the capabilities of person-
nel, production and technology.

Basic capabilities intend that the business plan of the company includes specifi-
cation of the growth objectives, growth strategy and the opportunity for interna-
tionalization. It is important to recognize the possible need of having to change
the business plan due to the decision to go international. These basic capabili-
ties also include the financial and ownership structure of the company, at the
moment and in the future. Also, the sufficiency of economic and production re-
sources for internationalization are included here. Another important matter is
the international orientation as well as the capabilities of the management for
internationalization, which refer to education, experience, language skills, mar-
ket knowledge, earlier connection networks, marketing skills, commitment and
capabilities for both collaboration and networking. Utilizing information technol-
ogy as well as information and communication systems is also categorized into
the basic capabilities, but they often generate competitive advantage for inter-
nationalization, too. (Vahvaselkä 2009, pp. 106–107.)

The subject areas and targets of the internal analysis are described in figure 8
below. In addition to examining these aforementioned basic capabilities, the

37
level of products and marketing should also be examined in order to analyze
their capabilities for international markets. Market communication, awareness
within the key segments and marketing materials are also to be considered, as
international marketing differs from domestic marketing. In order to access the
market, distinctiveness of products as well as marketing capabilities are re-
quired.

Basic capabilities Products,services & Personnel Productivity &

marketing service ability
- Business plan - Expertise of key
- Superioirities personnel - Level of
- Ownership
from customers’ technology
structure perspective - Language skills
- Financial - Competitiveness: - Production
structure quality & price - Capabilities for process
- Economic analysis - Productization & international
- Capabilities of trade marks business - Production
- Intellectual capacity &
management
properties - Willingness to expansion
- Abilities to
- Prodct’s collaborate potential
collaborate
dependency on
- Networking subcontracting - Ability to - Quality systems
capabilities products collaborate
- Information - Ability to adapt - Logistics
system products to new - Sufficiency
- Communication markets
system - Market position &
competitive
situation
Figure 8 Subject areas & targets of internal analysis according to Teknolo-
giateollisuus ry (2009). (Vahvaselkä 2009, p. 109.)

As considering the product’s validity for exportation, the company should pon-
der certain matters from the perspective of the chosen customer segment(s).
These matters include consideration of the following questions:

 What is the superior customer benefit provided for the desired/ chosen
customer segments?

38
  Which are the attributes of the product that provide this benefit for cus-
tomers?
 Which products are offered to each target markets?
 What is the need and level of adaptation in the target markets?

These aforementioned matters are related to each other and therefore the
product concept should be built around the needs of the target customers and
the customer benefit, which in turn influences the attributes and the different
levels of the product. The attributes of the product provide certain benefits,
which signify the customer benefit. A product with many levels includes the
physical core issues, additional services and image factors as well. The core
issues such as attributes and quality of the product as well as adaptation sym-
bolize for example durability, environmental friendliness and tailoring options for
the customer. As for, the additional services include for example guarantee and
other after sales services. The image factors signify the design, name, appear-
ance and brand for example. The product should stand out from the competing
products to its advantage. Proper segmentation is very important for companies
in order to be able to position and differentiate the product at the target market.
The life cycle and further development of the product should be planned in ad-
vance. (Vahvaselkä 2009, pp. 108–109.)

Evaluation of the company’s psychological and physical resources is also im-

portant. The sufficiency of psychological resources is examined through the or-
ganizational structure of the company, capabilities and expertise of the person-
nel and also its willingness and ability to collaborate. The physical resources
signify the productivity as well as the service ability of the company, which can
be evaluated through examining the level of technology, production process,
production capacity and expansion potential, quality of production, quality sys-
tems, logistics and also possible problems that are to be encountered. After
evaluating the aforementioned internal capabilities, the company should exam-
ine its success factors at the domestic market and consider whether they can
be success factors also at the chosen target market or alternatively how they
could be developed. Based on this examination of internal prerequisites, con-

39
clusions of the company’s internal capabilities for internationalization are made.
(Vahvaselkä 2009, p. 110.)

2.7.2 External analysis - Market opportunities

Examination of external, market-specific conditions includes analyzing the

product’s competitiveness, legislative matters and requirements of the authori-
ties at the target market. The company’s product is compared to the competing
products at the target market with the following criteria: quality, design, price,
profit margin, environmental friendliness, quality certificates and competitive
advantage. After examining the product’s competitiveness, the company’s op-
portunities at the target market and potential customers as well as their buying
behavior is examined. Essential targets of this examination include the level of
demand, competitive situation, potential customers, distribution, warehousing
and transportation issues as well as marketing opportunities and possible re-
strictions. (Vahvaselkä 2009, pp. 64–65.)

Market research is carried out mainly by desk research and the additional in-
formation is acquired with field research from the target country (Vahvaselkä
2009, p. 65). When planning internationalization it is important to understand
the importance of market knowledge in the overall internationalization process.
As analyzing market-specific conditions and evaluating market potential it is
recommendable to work together with experts. The first step of this second
stage of the planning process is an information update. Here, the company up-
dates the information concerning internationalization with an expert. There are
many materials and links for this purpose and for example Finpro provides vari-
ous information and consulting services. (Vahvaselkä 2009, p. 111.) These
consulting services and available information sources are discussed further in
chapters four and nine.

The next step is to make a detailed analysis of market opportunities at the cho-
sen target market. This analysis can be carried out concisely or more extensive-
ly and there are three options: a basic analysis, an in-depth analysis and a mar-
ket plan. A basic analysis includes general information about the target market

40
as well as competing products and their price level, expert assessments and
views of the target country, industry-specific information and also possible
product and country-specific requirements, restrictions, standards and recom-
mendations. An in-depth analysis consists of the data from the basic analysis
and in addition the following information is included:

 market size and potential

 comparison data of products, competitors and customers; market shares,
strengths and weaknesses, possible customer segments
 information about the special features of the target market and products
 distribution channels.

The third option is the most advanced examination of market opportunities; a

market plan, which is necessary for companies considering the most advanced
operation modes and aiming at pervasive coverage at the target market. A mar-
ket plan includes all the information from both the basic- and in depth analysis.
In addition, it includes also the following:

 systematic evaluation of establishing options

 evaluation of marketing activities; considering the product, design, sales
promotion, pricing matters
 concrete recommendations for accessing target markets and succeeding
there. (Vahvaselkä 2009, pp. 112–113.)

Analysis of competitive environment

The micro-environmental factors affect the company’s operations closely and

they include competition, customers, attributes of the company and its man-
agement as well as resources. Actions of subcontractors, retailers, distributors
and other close interest groups also affect the company’s operations. Industry-
specific data relates to a certain industry or a cluster and includes information
about the structure, demand and supply, process of change, developing trends
as well as legal regulations and restrictions of a specific industry. It is also im-
portant to clarify the state of rivalry at the target market. The quantity, size, qual-

41
ity and goals of the rivals in international markets impact the company’s com-
petitiveness. The competition that the company faces is categorized into the
micro environmental factors. The analysis of competitive situation at the target
market can be divided into three parts: competitive structure, competitors’ ac-
tions and their capability to respond to competition. A useful tool for analyzing
the micro environment and therefore the competitive forces prevailing at the
market is the Porter’s five force analysis. (Vahvaselkä 2009, pp. 112–113.)

The model for analyzing the competitive environment is described in figure 9

below.

New
entrants

Industry
competitors
Suppliers Rivalry of Customers
companies

Substitute
products

Figure 9 Porter’s five forces; Model for analyzing the competitive environment
according to Porter (1990, p. 17). (Vahvaselkä 2009, p. 114.)

Porter’s five force model is used for analyzing the competitive structure and at-
tractiveness of a specific industry by considering five forces within a market,
which affect the companies’ possibility to make profits. The threat of new en-
trants signifies the barriers to enter the market and the extent to which they ex-
ist. Customers in figure 9 signify the power of buyers whereas suppliers refer to
42
the power that suppliers possess. High power of buyers and suppliers affects
the companies’ ability to make profits negatively. The threat of substitute prod-
ucts is analyzed by considering how easy it is for buyers to switch to another,
substitute product. Finally, the rivalry of companies refers to the degree of com-
petition between existing companies at the market. (Oxford University Press
2007b.)

Prioritizing alternative target markets and making a country comparison can be

made on a general level at first. Also, the critical information, which has the
most importance as making decisions and comparing alternative target markets,
is determined. This information can be related to demand and market conditions
for example. The next step is to consider which information is necessary for ex-
ample for making a marketing plan and therefore the need for additional data
acquisition is determined. Subsequently, the company selects one or more tar-
get markets as a target for market research, however taking into account its
size and resources. By making an evaluation of market-specific conditions the
company gains sufficient market information and therefore creates a basis for
making the decision of initializing the internationalization process and creating
strategies. Based on information from this external analysis, conclusions about
market- specific prerequisites for internationalization and the final selection of
target markets can be made. Careful implementation of this phase ensures the
proper allocation of resources and minimization of erroneous investments.
(Vahvaselkä 2009, pp. 114–116.)

2.8 SWOT analysis

SWOT analysis (strengths, weaknesses, opportunities, threats) is a strategic

tool and useful for supporting the decision making process. It can be seen as a
summary which consists of conclusions of the company’s internal strengths and
weaknesses as well as the external opportunities and threats. Therefore, SWOT
analysis discusses the strengths and weaknesses of a company in respect to
the opportunities and threats deriving from its operating environment. (Karhu
2002, pp. 14–15; Vahvaselkä 2009, pp. 91, 114.)

43
The object of SWOT analysis may be the company’s operations to its full extent,
the position and competitive advantage of a certain product(s) or for example
the operations as well as competitiveness of a rival. Figure 10 presents a tem-
plate for SWOT analysis, consisting of two dimensions and four different fields,
as Vahvaselkä (2009, p. 115), presents it.

Company’s internal attributes

STRENGHTS WEAKNESSES
+ _______________ - _______________
+ _______________ - _______________
+ _______________ - _______________
+ _______________ - _______________

Utilize/ develop further! Develop into strenghts!

Evaluation of company’sexternalenvironment

OPPORTUNITIES THREATS
+ ________________ - _______________
+ ________________ - _______________
+ ________________ - _______________
+ ________________ - _______________

Grab, utilize & succeed! Eliminate, reduce & avoid!

Figure 10 SWOT analysis (Vahvaselkä 2009, p. 115.)

On the left side of this chart the positive issues are described and on the right
side the negative ones. The internal factors of the organization are placed at the
top and the external factors below. The results of the analysis of the company’s
internal factors are placed in the chart as strengths and weaknesses, whereas
the results of the analysis of the company’s external environment are placed as
external opportunities and threats in the chart. (Vahvaselkä 2009, p. 114.)

By means of SWOT analysis it is possible to draw conclusions about the

strengths within the company and how they can be utilized as well as the weak-

44
nesses the company has and how they can be turned into strengths. Further-
more, it can be concluded what kind of opportunities the operational environ-
ment provides and how these future opportunities can be utilized and also what
kind of threats exist in the operational environment and how they can be avoid-
ed. As a result of SWOT analysis an action plan can be made to determine
what has to be done to each issue, for example what kind of additional infor-
mation is needed concerning the final choice of target markets when planning
internationalization. (Vahvaselkä 2009, p. 114.)

2.9 Success factors and most significant problems within internationaliza-

tion of Finnish companies

According to Äijö (2008, p. 48), the success of Finnish companies in interna-

tional markets can be summarized into few crucial factors, according to previ-
ous studies. These studies were carried out by approaching companies and
asking their views about which factors they have found to be their most signifi-
cant strengths in international markets. The results of this research revealed
three main factors, by descending order of importance: the level of technology,
quality and overall superiority of products compared to competitors, customer-
orientation and finally marketing skills, awareness, size, resources and cost lev-
el were rarely mentioned.

Also, research about most significant problems of Finnish companies in interna-

tional markets have been made. The experienced weaknesses and difficulties
can be summarized into four main factors, according to many research results.
The first experienced difficulty was the lack of awareness of the company, signi-
fying the competitors’ more established and confidential relationships with the
customers, which makes cooperation with customers more difficult for an un-
known company at the market. Secondly, inadequate market knowledge, signi-
fying the competitors’ and local actors’ better knowledge of the market, culture,
competition and distribution, was mentioned. Also, the lack of resources, such
as insufficient language skills, international experience, marketing skills and
lack of financing were experienced as a significant weakness. Furthermore,
general difficulties related to external factors, such as long distance to the mar-

45
ket, trade barriers, legislative obstacles and reactions of competitors’ were men-
tioned as main difficulties. (Äijö 2008, p. 49.)

The results of these research results summarized above are supported by an-
other study made in 2007, which examined Finnish companies’ need for support
in internationalization. This study focused on examining what kind of support
Finnish companies have experienced as necessary to support their internation-
alization and the results can be summarized into three main factors. The most
important necessity was to have hands-on support for business activities at the
target market. Support was needed for finding customers, developing distribu-
tion and sales channels, building relationships with local actors, developing co-
operation, communication and sales promotion as well as sales work and nego-
tiations. The second most important necessity was to have support for develop-
ing the skills of the personnel and management, including actualization of strat-
egies and development of strategic thinking and planning. The third main factor
was the need for support in data acquisition, for example understanding the lo-
cal business practices, market research, data collection and the choice of target
markets as well as segmentation. (Äijö 2008, pp. 49–50.)

46
3 EXPORT OPERATIONS

The choice of operation mode depends on different factors, which were dis-
cussed before. Therefore, the selection of appropriate operation mode is influ-
enced by internal, company and product-specific factors as well as external,
market-specific conditions. International operation modes can generally be di-
vided into three categories: export entry modes, contractual entry modes and
investment entry modes. (Vahvaselkä 2009, pp. 71–73.) There are many differ-
ent paths for internationalization, but most often international operations begin
with exporting and as the operations are developed and expanded further, it is
usually followed by other more demanding levels of internationalization (Selin
2004, p. 23).

Initiating and making export operations a part of the company’s normal opera-
tions is a time-consuming process. The ability to make financial contributions to
initiating export operations as well as overall perseverance and determination of
the company’s operations are essential matters, because in the beginning the
costs resulting from exportation are higher than the income. This so called
breakthrough time of companies usually lasts for about three years. Further-
more, careful evaluation of production capacity and sufficiency of production
machinery is important. The start-up costs of exportation vary considerably, but
at the initial stage of exporting companies can anticipate additional costs for
example from market research, sales promotion materials, possible visits to
buyers, trade fairs, advertising, marketing activities, protection of designs and
patents and also costs resulting from the use of external expertise. (Selin 2004,
p. 17 ; Vahvaselkä 2009, p. 64.)

3.1 Export entry modes

The most common way for starting international operations is exporting. Here,
the production takes place in the company’s home country and the products are
exported abroad through different distribution channels; directly in own export or

47
alternatively by using intermediaries in indirect and direct export or export part-
ner groups. (Vahvaselkä 2009, p. 73.)

The distribution channel signifies all the intermediaries through which the prod-
uct reaches the end-customers. The selection of the distribution channel to be
used is influenced by the objectives that are set for exporting, the company’s
own available resources, attributes of the product, market-specific requirements
and perhaps as the most important influencer the customers and their quantity,
quality, buying behavior and customs. The distribution channels of the above-
mentioned export entry modes are presented in figure 11 below.

OWN EXPORT
End-
Manufacturer
customer

DIRECT
EXPORT

Intermediary Intermediary Intermediary

Countries’ border

Intermediary INDIRECT
EXPORT

Figure 11 Export entry modes according to Luostarinen & Welch (1990). (Vah-
vaselkä 2009, p. 73.)

Referring to figure 11 and according to Luostarinen & Welch (1990), the com-
pany exports the products directly to the customer without using intermediaries
in own export, whereas in indirect export an intermediary located in the compa-
ny’s home country or alternatively in direct export an intermediary located
abroad is employed (Vahvaselkä 2009, p. 73). The functionality of the distribu-
tion channel has a significant relevance in the success of the company’s export

48
activities and therefore the selection should be carried out carefully and with
assistance of experts if necessary. (FINTRA 2003, p. 25.)

3.1.1 Indirect export

Indirect export is the most passive way of operating in international markets, but
as an advantage the risks are low (Selin 2004, pp. 23, 64). In this export entry
mode, the manufacturer delivers the merchandise to an intermediary operating
in the domestic market, which from this point forward takes care of all the export
activities in practice. These domestic intermediaries are discussed further and
the exporter’s relation to them is presented in figure 12 of appendix 1. The do-
mestic intermediary delivers the merchandise further to its own foreign custom-
ers, which can be either other intermediaries or end-customers. From the manu-
facturer’s perspective indirect export quadrates with domestic trade, because
the connection to export activities is almost nonexistent. Therefore, only minor
skills are required from the company and they are often targeted at packing and
marking the merchandise as required in exporting. Furthermore, compared to
other export entry modes, indirect export requires minor marketing efforts as the
employed intermediary is responsible for the products’ marketing efforts at the
target market, either entirely or in some cases together with a foreign intermedi-
ary. (Karhu 2002, pp. 79–80.)

Indirect export offers the manufacturer four alternative ways for selling the
products for exportation: as such and labeled with the manufacturer’s own sig-
nature, with the employed intermediary’s signature or alternatively as a part of a
larger entity, as such or further modified. The selected approach affects the
company’s basis for subsequently starting direct or own export. As the products
are labeled with the manufacturer’s own signature/ trademark, the basis for
starting own export are much preferable, compared to the circumstances in
which the manufacturer’s name has not become known abroad through its
products. When the other three alternatives are used, it is considered domestic
contract manufacturing or subcontracting. However, in these cases it is in fact a
question of contractual entry modes instead of export entry modes. (Karhu
2002, pp. 81–82.)

49
According to Karhu (2002, pp. 82–83), especially small companies often have
limited economic and functional resources and they have not always gained the
necessary skills for exporting through education or experience. Therefore, for
small companies, indirect export is an effortless way at early stages of interna-
tionalization as it requires only small investments from the company (Selin
2004, p. 23). Furthermore, leaving the exporting activities for an intermediary to
take care of, gives an opportunity for the company to focus on its core compe-
tences. In case the manufacturing company’s resources are scarce, it should
strive for improving its economic and psychological resources, in order to im-
plement indirect export merely in the initial stage of exportation, when prerequi-
sites for other, more active export entry modes do exist. (Karhu 2002, pp. 82–
83.)

Indirect export is also best applicable for exporting standardized products in

bulk, which signifies undifferentiated, mass produced products. Therefore, indi-
rect export is not very suitable for products, of which competitive advantage is
based on product differentiation and either for high-tech or other complex prod-
ucts, which require product-specific knowledge. In case the manufacturer
strives for new, unknown and distant markets or to such markets in which the
culture and business practices are essentially different from what is previously
used to, is indirect export often the best or at least recommendable export entry
mode. Other market-specific conditions for implementing indirect export include
the demand volume and competitive situation in the target market. In case the
volume of demand remains scarce, for example due to the distinctiveness of the
product, indirect export is often economically the most advantageous. Similarly,
if the competitive situation in the target market is harsh, it is often worthwhile to
give the responsibility of marketing efforts to those, who possess the best re-
sources for it. (Karhu 2002, p. 84.)

According to Vahvaselkä (2009, p. 73), it is also possible to utilize export part-

ner groups, which is established by many companies and takes care of all ex-
port activities. Export partner groups are discussed further in paragraph 3.1.4.

50
3.1.2 Direct export

In direct export mode the manufacturer sells the products through a foreign in-
termediary, which can be a retailer or a representative at the target market.
There might be even many intermediaries between the manufacturer and the
end-customer as presented in figure 11 previously. More than one intermediary
can operate at the target market in case they have different sales areas and
customer groups or if the market area is too massive for one intermediary to
serve successfully. (Karhu 2002, p. 88.) Intermediaries in direct export are dis-
cussed further and the exporter’s relation to a foreign intermediary is presented
in figure 13 of appendix 2.

Compared to indirect export, direct export is much more demanding as an op-

eration mode, as there are more requirements targeted at the company’s eco-
nomic and functional resources. As the company deals directly with a foreign
buyer and does not use a domestic intermediary, more skills and expertise are
required, including language skills, knowledge of culture and market conditions
at the target market as well as knowledge of contracts and other export trade
documents. Furthermore, it is important for companies to have knowledge of
protecting themselves against risks and controlling for example exchange and
interest rate risks. In direct export the company itself is responsible for carrying
out the export activities in practice and this together with financial management
and marketing activities engages the company’s resources. In direct export
there are also higher requirements targeted at the company’s production and
delivery capacity as well as economic resources, which is required for building
up the necessary production and delivery capacity as well as coping with long
terms of payment. (Karhu 2002, pp. 89–91.)

Furthermore, costs resulting from export marketing in direct export are consid-
erable, especially at the early stages of exporting. Having to work at the target
market, sales promotion by participating in trade fairs and public relations gen-
erate remarkable costs, too. In order to manage the requirements targeted at
the economic resources, a company should have a good economic condition.
Also, in order to be successful, direct export in its entirety should be on continu-

51
ous basis, determined and well-planned. Success requires full commitment to
the sales and profitability objectives. A successful selection of the intermediary
to be used is also crucial for later success of exportation. Direct export is often
used in consumer goods trade and when the objective is to reach a wide cus-
tomer group effectively. Referring to Vahvaselkä (2009, p. 74), direct export
does call for more risk-taking, but has also advantages, as the distribution
channel is shorter, distribution costs are smaller and the company has more
direct contact with the end-customers. (Karhu 2002, pp. 88, 91.)

3.1.3 Own export

Own export requires the most resources from a company (Selin 2004, p. 65). In
own export neither domestic or foreign intermediaries are employed, but the
products are sold directly to the foreign end-customer, which is practically al-
ways a company or a corporation. Own export can be practiced from the ex-
porter’s home country or through a foreign sales office. In both cases, it is typi-
cal for the company to carry out all the export activities in practice by itself. Ex-
porting directly to the end-customer is an applicable approach, in case continu-
ous presence at the target market is not required, as for it is useful to export
through a foreign sales office in case managing customer relationships requires
accessibility and continuous presence at the target market. Likewise in direct
export, significant requirements are targeted at the company’s functional and
economic resources. Excellent language skills, cultural knowledge and practical
knowledge of international trade procedures are required, as the products are
sold directly to the foreign end-customer. The company’s business processes
in their entirety should be advanced, in order to cope with requirements set by
the international scope of the operations. (Karhu 2002, pp. 110–112.)

Own export is mainly a rationalized option when the company has only a few
customers and the deliveries are of large quantity or of high value. In these
cases it is typical that the price of an individual product is high. Own export as
an operation mode has also been used in case the company is at initial stage of
export operations, and wants to gain information about the market for the prod-
uct, instead of immediately engaging in cooperation with a local retailer. How-

52
ever, as it requires significant resources and extensive know-how from the
company, acquiring market information through own export is rarely used. As it
is typical in own export to make large individual sales, the company should have
sufficient production capacity accordingly. Maintaining sufficient functional re-
sources requires also economic resources as building and maintaining a suffi-
cient production capacity might require capital investments and increase costs.
These costs increase the company’s business risks and decrease its ability to
make profits. The fact, that using borrowed capital for investments reduces the
company’s equity ratio, should also be taken into account. (Karhu 2002, pp.
110–112.)

Furthermore, own export requires significant marketing resources, as the re-

quirements for marketing efforts are much higher compared to indirect and di-
rect export. This is because the marketing activities in own export are targeted
at the end-customers, as in other export entry modes they can be targeted at
the intermediaries. In addition, travelling in the target country for customer
meetings and actions related to public relations and sales promotion requires
economic resources as well. (Karhu 2002, p. 112.)

Therefore, own export requires investing in efficient marketing and customer

acquisition and thus, also determined planning of the company’s operations in
the target country. Even though own export as an operation mode requires sig-
nificant resources, it also has advantages as it gives the opportunity for better
control over the entire export activities. It also enables more effortless monitor-
ing of marketing development and creating good and direct customer relation-
ships in the target country. Although own export on one hand includes addition-
al sales and marketing costs compared to the previously introduced export entry
modes, on the other hand it does not include additional costs caused by the use
of intermediaries. (Selin 2004, pp. 65–66.)

According to Karhu (2002, p. 113) and Selin (2004, p. 66) own export in its en-
tirety is quite a productive operation mode and it might even be the most effec-
tive way to operate in international markets, considering the outcome. In own
export, the company’s knowledge of the target market and its customers in-

53
creases and marketing as well as the service is customer-oriented and flexible.
However, it is also worthwhile to consider export cooperation with other Finnish
companies, especially if the products complement each other and together
comprise an appropriate product range. This cooperation can also be temporary
or limited to certain occasions, such as participation in trade fairs or transporta-
tion cooperation. (Vahvaselkä 2009, p. 74.)

3.1.4 Export partner groups

According to Vahvaselkä (2009, p. 77), export partner groups are cooperative

partnerships of many companies for export promotion. It provides an effective
way to start exporting to new markets and this kind of option is provided for
companies for example by Finpro, which provides a controlled and cost-
effective opportunity for internationalization or starting operations in a new mar-
ket area. The companies participating in the export partner group develop their
capabilities for developing their business further and for successful internation-
alization. The objective of export partner group operation is the companies’ in-
dependent and permanent operation at the target market after two or three
years of activity. A skillful export manager operates as a leader of the export
partner group.

Participation in this kind of export partner group provides many advantages for
a company, such as finding new customer contacts and business opportunities,
receiving external views, experience and an additional resource from an experi-
enced export manager and also an opportunity to learn and gain experience.
There is usually from four to six companies in one export partner group and
they operate in the same industry, without competing with each other and with a
mutual interest towards a specific market area. Export partner group operation
is primarily intended for small and medium sized companies. (Vahvaselkä 2009,
pp. 139–141.)

54
3.2 Acquisition of business connections

Successful exportation requires acquiring functional business connections and

partners, which is the first and very important stage of the export process. The
other stages of the export process are presented in figure 14 and discussed as
well in appendix 3. As aiming for international markets the company establishes
strategies and creates a plan for internationalization. When acquiring business
connections it is crucial to consider the nature of the products and identification
as well as location of potential customers. It is also worthwhile to utilize the
company’s own or other Finnish exporters’ experiences or already existing net-
works. There are different ways for a company to acquire business connections.
(Vahvaselkä 2009, p. 265.)

Internet acts as one channel, as the company can create an attractive and func-
tional website with different language options and opportunity for contacting.
Introduction materials, such as brochures to be used in sales negotiations can
be produced in advance. Another option is to compile a prospect database for
building customer relationships, to which the company collects contact infor-
mation from data banks, directories and internet or utilizes lists of companies
which are compiled from internet and different customer relationship manage-
ment systems. Yet another option is to directly contact potential customers. The
contact can be made by direct marketing followed by a contact by phone, adver-
tising in industry journals, direct contacts by phone or alternatively utilizing busi-
ness connection services, such as Finpro, for finding customers to contact.
(Vahvaselkä 2009, p. 265.)

Furthermore, trips to trade fairs provide an opportunity to get acquainted with

industry supply, competitive situation, marketing methods, search potential
partners and establish initial contacts. It is also possible to get acquainted with
the chosen target market through chambers of commerce, Finpro or Centre for
economic development, transport and the environment. Visits there provide an
opportunity to explore target markets, meet experts and create contacts with
business partners. Participation as well as visits to trade fairs provides also a
good opportunity for building cooperation networks, searching foreign repre-

55
sentatives and creating contacts. Trade fair participation can be carried out by
the company’s own initiative or by a collaborative participation organized for
example by Finpro. (Vahvaselkä 2009, p. 266.)

Also, export promotion trips, campaigns and events organized by Finpro and
Ministry for foreign affairs of Finland provide an opportunity for being introduced
to customer and cooperative groups. Utilizing different support organizations,
such as industry federations, chamber of commerce, banks and insurance de-
partments is worthwhile as they create a noteworthy channel in acquiring busi-
ness connections. Information about acquiring business connections in domes-
tic markets is also available from regional business services’ web portals, Finn-
ish Customs, Statistics Finland, commercial representative offices, Fintra and in
foreign markets Finpro’s export centres and Finland’s official foreign representa-
tive offices. (Vahvaselkä 2009, pp. 265–266.)

Related to the export process, generally used export payment terms and meth-
ods are presented in appendix 4.

56
4 SUPPORT FOR INTERNATIONALIZATION

Various organizations in Finland provide internationalization services for com-

panies to utilize in different stages of internationalization. These organizations
provide for example guidance, information services, consulting and business
development services. Some of these services are free of charge and others
chargeable and for some services it is possible to apply financial support. Also,
different financing solutions are available, for example for covering the costs
resulting from the initial stage of internationalization and risks of exportation as
well as export financing. Many organizations provide internationalization ser-
vices as a part of their other activities, but for Finpro and Finnvera it is their
main function. (Vahvaselkä 2009, pp. 42–43; Selin 2004, p. 51.) A list of organ-
izations providing internationalization services is presented in appendix 5.

4.1 Internationalization services

As planning to begin export operations it is worthwhile to contact the export

commissioner in ELY Centre (Centre for economic development transport and
the environment, former TE centre). Regional ELY Centres provide internation-
alization services for companies as their objective is to lower the threshold for
internationalization, guide entrepreneurs to perceiving the opportunities as well
as the requirements of exportation and decrease the risks of internationalization
by guidance, training and financing. Furthermore, the Ministry for foreign affairs
of Finland in cooperation with other parties carries out export and internationali-
zation promotion. By promotional activities Finland’s diplomatic missions abroad
assist companies in creating contacts with local authorities, companies, con-
sultants and legal advisers. Also, honorary consuls of Finland abroad can help
companies in finding business connections. With information services the aim is
to bring the expert knowledge of countries’ political and economic development
for companies to utilize. Moreover, affecting the external business environment
by eliminating barriers of trade is also a part of the services provided by the
Ministry for Foreign affairs of Finland. (Vahvaselkä 2009, pp. 44–45.)

57
The chambers of commerce provide information, guidance and business con-
nection services for companies as well. Furthermore, Fintra assists Finnish
SME’s in responding to the increasing challenges of global business. It provides
training solutions for developing international business, examining new target
markets, sales and marketing, purchasing and procurement, practices in inter-
national trade, interpersonal skills and management.

Finpro’s objective is to accelerate the internationalization of Finnish companies

through a worldwide consultant network. Finpro provides guidance, information
services free of charge, such as country and industry-specific reports and also
consulting and business development, such as formulation of internationaliza-
tion strategy, market research and search for contacts. Companies have an op-
portunity to apply for financial assistance for some of the chargeable services
from the Ministry of employment and the economy.

Finpro’s export centers in over 40 countries are Finland’s official organizations

for export promotion and internationalization. With active anticipation of the fu-
ture, expertise in internationalization, competitive services and global network
Finpro provides a good opportunity for Finnish companies for developing their
business and competitiveness as well as speeding up their internationalization.
Finpro was established in 1919 and nowadays it has about 550 Finnish compa-
nies as members, along with cooperation with other partners, such as ELY-
Centres, Tekes and Ministry for foreign affairs of Finland. (Vahvaselkä 2009, pp.
42–43, 45–46; Finpro 2010c; Finpro 2010e.)

4.2 Financing

In addition to different financing solutions, there is some financial support avail-

able for companies at initial stages of internationalization and exporting as well.

Financial support

Tekes provides special financing for Finnish SME’s aiming for internationaliza-
tion. This initial financing is meant for making market analyses and research

58
related to competitors and legislation. The services of Tekes are provided
through regional ELY Centres. As initializing export activities, a company can
also apply for financial support from the local ELY Centre for covering some of
the costs resulting from the startup of exporting. Acceptable costs include for
example market research, making introduction materials, test marketing, trade
fairs, use of an external expert or hiring key personnel for export operations.
Furthermore, Ministry of employment and the economy complements the net-
work of export promotion services, by granting industry-specific support for in-
ternationalization, which is granted for joint projects of companies, however by
designated basis, for participation in exhibitions, market research trips, commu-
nication campaigns and export partner groups. (Selin 2004, pp. 51–52; Vahvas-
elkä 2009, pp. 43–44.)

Financing solutions

Initializing export operations creates additional costs and risks for the company.
By different financing solutions it is possible to finance for example short-term
receivables resulting from exporting or long-term financing needs resulting from
the necessary investments to start exportation. Financing is available for neces-
sities during manufacturing as well as after the delivery. Different financing solu-
tions are provided by banks and other financing institutions. Yet another option
for companies is provided by banks’ guarantees as well as Finnvera’s export
credit guarantees, which improve the financing opportunities of export trade and
protection against the risks related to exporting. Finnvera is the official export
credit agency on Finland. (Selin 2004, pp. 51, 54; Vahvaselkä 2009, pp. 296,
299–300.)

59
5 EMPIRIC RESEARCH

The objective of the empiric part of this work is to complement the theoretical
framework and to find more profound and current information to support the
theory. Through the empiric research the objective is to find and create solu-
tions to the research problems.

5.1 Qualitative research

This research was carried out as a case study, which according to Yin (1983),
can be defined as empiric research, which studies a current incident by using
information that is diverse and acquired in various ways (Metsämuuronen 2006,
p. 90). Case study is a diverse research approach, which can also be described
as a research strategy and therefore it is more of an approach rather than a
method of data acquisition or analysis (Eriksson & Koistinen 2005, p. 4). A re-
search strategy signifies the entirety of the methodological solutions of a re-
search. Robson (1995) divides traditional research strategies in three catego-
ries: experimental research, survey and case study. Typical features of a case
study include choosing a specific, individual case, situation or a group of cases,
which is then examined with interest in processes and the objective of describ-
ing phenomena. (Hirsjärvi & Remes & Sajavaara 2009, pp. 132, 134–135.)

According to Eriksson & Koistinen (2005, p. 4), qualitative material is typical for
a case study. In this case qualitative research was chosen as the main method-
ology. Referring to Metsämuuronen (2006, p. 92), case study can be under-
stood as a central strategy of data acquisition in qualitative research methodol-
ogy. Qualitative research strives for studying the object as comprehensively as
possible. Preferring a person as an instrument for data acquisition is typical for
qualitative research. Furthermore, methods which enable bringing up the views
and opinions of the examinees’ are preferred in data acquisition. In qualitative
research the object of research is chosen appropriately instead of a random
sample. (Hirsjärvi et al. 2009, pp. 161, 164.)

60
5.2 Data acquisition and research methods

The research data were acquired by both desk research and field research,
however with emphasis on acquiring new and current information by field re-
search. Desk research was used to acquire some of the information concerning
Denmark, internationalization services and advantages and disadvantages of
different export entry modes for the SWOT analysis. This information was ac-
quired from literature and internet sources. As mentioned, the research data
was acquired also with field research by conducting expert interviews.

According to Hirsjärvi et al. (2009, p. 205), interviews have been a main method
in qualitative research. A great advantage of interviews compared to other
methods of data acquisition is the possibility of flexibly controlling the acquisition
of material in a way required by the interview situation (Hirsjärvi et al. 2009, p.
205). The purpose of the research was to acquire profound, diverse and current
information of the subject. Interviews were chosen as a method, because ac-
cording to Hirsjärvi & Hurme (2001, p. 28), qualitative methods enable getting
closer to the meanings which people give to phenomena and incidents and
therefore bringing out the views of the examinees’.

Semi-structured interview

The interviews were carried out as semi-structured, which is also referred as

theme interview. This type of interview was used, because it is more flexible
than a structured interview but more focused than an unstructured interview.
Therefore, a semi-structured interview gives the opportunity to acquire more in-
depth material and the focus on certain themes enables acquiring desired in-
formation. One of the most important tasks in the planning phase of theme in-
terviews is the planning of themes to be used. As compiling the framework for
the interview, certain themes, to which the questions are then targeted at, are
comprised. (Hirsjärvi & Hurme 2001, p. 66.) An unstructured interview was not
an appropriate method to use in this case, because the interviews were planned
as based on certain themes, according to the theoretical framework of the the-
sis, which has specific delimitations.

61
The theoretical part of the thesis creates basis for the empiric part and therefore
it was important to build the interviews around certain themes in order to ac-
quire desired information. At the same time, an entirely structured interview
would not have been effective in this case, because according to Metsämuuro-
nen (2006, p. 114), it is more suitable when there are many interviewees and in
this case the amount of interviewees was small. Furthermore, as according to
Robson (1995), the form of questions and arguments in a structured interview is
completely pre-determined, there is a risk that the chosen concepts and alterna-
tives reflect more the perspective of the researcher than the interviewee
(Hirsjärvi & Hurme 2001, pp. 44–45).

It is typical for semi-structured interviews that some points of view are pre-
determined, but not all. However, only one definition of this interview type does
not exist. For example, Fielding (1993, p. 136) states that the form of questions
is the same for all interviewees, but the order of questions can be varied by the
interviewer. Whereas, according to Eskola & Suoranta (1998), the questions are
the same for all interviewees, but the answers are not tied to pre-determined
alternatives. Robson’s (1995) view is that the questions are pre-determined, but
the phrasing can be varied by the interviewer. (Hirsjärvi & Hurme 2001, p. 47.)

Therefore, the type of an interview which was used in this case could be seen
as a mixture of semi-structured, theme interview and unstructured interview, as
the answers were not tied to pre-determined alternatives, the interviews were
built on certain themes and mainly open-ended questions were used. However,
the questions were not exactly the same for all interviewees as the emphasis
was on different matters and the interviewees were approached from different
points of view, according to their area of expertise. The interview situation was
flexible, allowing specified questions and bringing up the views and opinions of
the interviewees.

The instructor for this thesis was found through the search of companies, which
would be willing to participate in the originally planned research. Due to the lack
of interest and time of companies, the original content of this thesis had to be

62
changed. However, with a tip from one Finnish design company, the case com-
pany was found and it was interested in the idea of this thesis right away. After
some research it was clear from where to start searching for expert knowledge.
After being in touch with a contact person in Finpro by e-mail, an expert of the
Danish market to be interviewed was finally found. When considering who to
interview concerning financing opportunities, Finnvera was contacted. A finance
manager from the Lappeenranta regional office, who was willing to give an in-
terview, was found.

The interviews included brief background information about the interviewees

and authorization matters concerning the usage of names in the report and also
permissions to record the interviews. Furthermore, the interviews were built on
three central themes, which were internationalization, exporting and Denmark.
The perspective in each interview was slightly different and the focus varied
according to the expertise of the interviewees. The interview with the case com-
pany differed from the other interviews as the role of background information
was more important, in order to gain understanding of the company’s opera-
tions, products and current position. The interview frames are presented within
the appendices of the work.

5.3 Research implementation

The research was carried out by conducting three semi-structured, theme-

based interviews. The interviews were conducted during the end of October and
November 2011. The first interview was carried out as an individual interview
with a finance manager from Finnvera at Lappeenranta regional office. The se-
cond interview was conducted in Urjala, Finland, at the case company’s prem-
ises. The company invited the author for a personal visit and therefore she trav-
elled to Urjala for a day to conduct the interview and get acquainted with the
company’s operations. A tour around the factory was very interesting and
broadening experience and helped me to understand the origin and production
process of the company’s products better. This interview was carried out as a
pair interview, as the entrepreneur couple was interviewed together. Pair inter-
view belongs to the category of group interviews, which enables fast data ac-

63
quisition simultaneously from more than one respondent (Hirsjärvi & Hurme
2001, pp. 61, 63).

This type of interview was chosen due to the distance of the case company, in
order to implement the interview during one day. Furthermore, both interview-
ees were in a key position in the company and shared a history of running the
company together. The third interview was conducted with an analyst from
Finpro’s Scandinavian office. According to Hirsjärvi & Hurme (2001, p. 64),
phone interviews are more suitable for quite structured interviews than qualita-
tive interviews, because of the lack of visible cues of discussion. Although, this
interview was carried out via phone, because of practicality, as the interviewee’s
location at the time was Denmark.

A typical part of theme interviews is recording them, because this enables get-
ting the interviews to go along quickly and without breaks. Also, when an inter-
view is recorded, it is possible to capture relevant matters from the communica-
tion situation. (Hirsjärvi & Hurme 2001, p. 92.) All of the interviewees agreed to
the recording of the interviews, which was found very necessary. The interviews
were recorded with a dictation machine, which was purchased to this purpose,
because in my opinion, processing and analyzing the material effectively re-
quired recording the interviews and afterwards transcribing the gathered mate-
rial.

Usually the duration of theme and unstructured interviews varies from one hour
to two hours (Hirsjärvi et al. 2009, p. 211). The duration of the interviews in this
case varied from 50 minutes to 80 minutes and it was longer than was ex-
pected. However, diverse, rich and interesting material was gathered and all the
interviewee’s were able to find the time necessary for carrying out the inter-
views. There was some skepticism about the skills of the interviewer, functional-
ity of the recording equipment and the sound quality of the recordings, due to
the lack of experience of the interviewer, especially concerning the phone inter-
view. However, there were no problems with these matters at all. Furthermore,
it was surprising how naturally the interview situations went along.

64
5.4 Processing and analyzing the material

In most cases, it is appropriate to transcribe recorded qualitative material. Tran-

scribing the material first is more common than making conclusions based on
the recordings. (Hirsjärvi et al. 2009, p. 222.) According to Hirsjärvi & Hurme
(2001, p. 135), processing and analyzing the material should begin soon after
the acquisition, because then the material is still fresh and inspiring for the re-
searcher and it is also easier to complement or clarify some parts of the inter-
view if necessary. Therefore, the interviews were transcribed soon after they
took place, as then the interview situation was still fresh in mind and personally,
the author was very inspired from the interview results. Furthermore, it is rec-
ommendable to transcribe the material on a computer as was done in this case,
because according to Hirsjärvi & Hurme (2001, pp. 139–140); it diversifies the
opportunities of analyzing the material.

It is common that the material gathered by theme interviews is plentiful, which

makes the analysis phase interesting and challenging but at the same time
problematic and laborious. The analysis phase of the interview material was
one of the most laborious, yet interesting tasks of this thesis. For the analysis
phase an approach described by Hirsjärvi & Hurme (2001, p. 137) was chosen.
Firstly, the material was transcribed and re-organized as it was necessary, be-
cause the material was plentiful. Secondly, the material was clarified, which sig-
nifies eliminating irrelevant parts and for example unnecessary recursion. Next,
the actual analysis was carried out, which signifies summarizing the meanings
that the interviews brought up, as well as thematizing and interpreting the mate-
rial. Thematizing signifies examining such aspects from the research material,
which are common for the interviewees. These aspects might be based on the
pre-determined themes of the interviews and it is expected that these themes
come up in this phase. (Hirsjärvi & Hurme 2001, pp. 135, 173.)

65
6 INTERNATIONALIZATION & EXPORTING – EXPERT VIEWS

The theoretical part already introduced general requirements of internationaliza-

tion and exporting. This chapter presents the results of the interviews, concern-
ing two of the central themes which were internationalization and exporting.
Conducting expert interviews enabled acquiring more in-depth and current in-
formation about the subject and utilizing the expert knowledge and experience
of the interviewees.

6.1 Internationalization – Prerequisites and required resources

Prior to internationalization it is important for companies to take the time to con-

sider their reasons and motives for going international and therefore clarify
whether there are reasonable arguments for it. The requirements of internation-
alization should also be considered and with respect to these requirements,
companies should be able to critically evaluate their own resources. Therefore,
it should be considered whether the domestic market is managed well enough
and whether relevant experience and resources to expand internationally exist
within the company. Furthermore, networking is important especially at initial
stages of internationalization. It is also recommendable to utilize professional
assistance during this process, in case the necessary skills and experience do
not exist in the company. (Aagaard 2011.)

According to Aagaard (2011), the required resources vary according to the in-
dustry which the company operates in and whether it is a service or a manufac-
turing company. Generally, it requires having mutual commitment to the whole
internationalization process within the company. Also, having the ability to
properly manage the acquired customer relationships is very important. Moreo-
ver, it is important to have clear arguments on the choice of target markets and
therefore considering the reasons behind these choices is significant. Prior to
internationalization companies should also clarify their internal goals and con-
sider whether there are rationalized reasons for going international.

66
Furthermore, implementing a totally new mindset within all levels of the organi-
zation is required. Another very important matter in internationalization is mar-
keting, because too often the marketing materials are only translated into the
language of the target country, which however is not sufficient. It is essential for
companies to specifically come to know the mindset of their target group and
the customers’ reactions to marketing. In a way it is important to know the over-
all value chain of the product before entering new market areas. (Aagaard
2011.)

If a company strives for international markets, it needs to have a quality product,

which also has something personal or unique in order to be distinguished. Qual-
ity is an important criterion; however the product should also differ in a positive
way, either by its attributes or design. Also, price is always an important matter
and therefore pricing should be considered regarding the market-specific price
level. However, for high-end products and products targeted at smaller custom-
er segments and market niches, the price is not as important as it is for mass
products. Within this kind of context, the quality, uniqueness and differentiation
of the product in particular are more important matters. (Aagaard 2011.)

6.2 Considerations on target market selection

As selecting target markets, companies need to consider whether their product

or service matches this particular market in terms of culture, too. Possible target
markets for Finnish design products could be the Nordic countries in particular
and possibly some larger export countries. The product should have some kind
of significance and value within the chosen target market and it should be rec-
ognizable as well. Even though the product has novelty value as a new product
on the market, cultural suitability is very important. The product should be famil-
iar as a concept within the chosen market and among the consumers. (Aagaard
2011.)

Furthermore, sufficient market potential, purchasing power, appropriate sales

channels as well as suitable partners are important matters within the target
market. These criteria are important to consider in the target market selection

67
process, because when they are in order, issues concerning logistics, admin-
istration and legislation are easier to manage. Merely assuming that there might
be demand for the company’s products in some particular country is not
enough. It is also essential to consider how to design the product as well as
how to plan the marketing to specifically match the particular market and cus-
tomers in question. Therefore, who the customers are is also an important con-
sideration when examining possible target markets. Moreover, already at this
point it is worthwhile to consider the logistic matters and how to get the products
to their destination and to the customers. All matters of this kind should be tak-
en into account already when selecting target markets, in order to avoid sur-
prises and consequently possible difficulties. (Aagaard 2011.)

As companies have decided to enter a specific market, it is extremely important

to know what kind of marketing appeals to the customers and retailers in that
particular country. A marketing plan should always be made individually for
each target market, because regarding the culture of the target country is very
important. Therefore, both cultural and linguistic translation of marketing mes-
sages is essential. (Aagaard 2011.)

6.3 Export activities – Resources, prerequisites and risks

When considering the necessary resources for internationalization and for ex-
ample export operations, it of course depends on how the term exporting is de-
fined. Many small companies begin their export operations and take the first
step of internationalization based on reactive reasons, when they have received
inquiries from abroad. Some companies refer to exporting, when they have reg-
ular customers from Russia for example. This kind of operation does not require
many resources, but the situation is much different when the operations be-
come more organized. Therefore, establishing a sales office abroad or other-
wise systematically building export activities requires much more resources
from the company, such as psychological resources and time, and maybe even
more of these than financial resources. (Liira 2011.)

68
One important prerequisite for exporting is being systematic. Also, as compa-
nies strive for initiating export operations, it requires having existing and well-
functioning business activities with sufficient cash flow in the domestic market,
which enables launching export operations. It is important to keep in mind that
testing the products at the domestic markets is much more economical, rather
than trying it out by exporting. Furthermore, it is important to clarify the specific
needs and demands of the customers’ and evaluate how the company’s prod-
ucts are able to meet these demands. It should also be considered how to
manage the prevailing competition at the target market. Quite often companies
assume that if something has worked out in the domestic market it will automat-
ically work out also in the target country. Unfortunately, this is not always the
case, as the culture, business practices and overall the value chain might be
totally different from the domestic market. This kind of matters should always be
clarified in advance and it is often recommendable to utilize professional assis-
tance for market research purposes. (Liira 2011.)

Prerequisites for successful exporting include having a quality product, realistic

expectations and a realistic view of the company’s own resources. On one hand
it is important not to take too wide a leap, but on the other hand having a for-
ward enough approach and adequate commitment to the export operations is
essential. It is quite common that the actual work load of initiating export activi-
ties comes as a surprise for companies. There are many matters that require
changes within the organization, such as logistics, sales coordination and the
allocation of new responsibilities. It is important to be well-prepared and have
realistic expectations, because these kind of practical matters always take time
as well as resources. Of course changes take their time, but quite often initiating
export activities is laborious for the organization and it requires a lot of addition-
al work. However, for companies that are well-prepared and have a forward
enough approach, it might be easier. Nevertheless, it is essential to carry out
the groundwork carefully and consider all relevant matters from many points of
view. It is not rational to solely go after quick sales, because in exporting there
are always some costs included and resources required. (Aagaard 2011.)

69
Contractual risks are one major issue within export business. Even though there
might be a major sale on the way, the possibility of risks should be understood.
The importance of verifying the buyer’s solvency and willingness to pay is easily
forgotten. Also, the buyer might have for example such quality requirements,
which have not emerged during negotiations, but create a conflict after the de-
livery of the merchandise. All matters related to payment terms and policies
should be paid attention to and it should be examined whether there are risks
included and what kind of risks. (Liira 2011.)

It is important for companies to consider what kind of risks they are willing to
take. Companies should be prepared to take risks and the risk taking should be
methodical. Effective risk management requires careful planning and therefore
taking the time to properly plan the operations before taking action is important.
Also, ensuring the functionality of domestic business and the stability of cash
flow in the domestic market is important, as initiating export operations is al-
ways a major effort for companies. Utilizing external assistance, for example
consulting services or acquiring necessary skills and experience by hiring new
workforce, is also an important consideration when it comes to managing and
minimizing risks. It is a very good idea for companies to consider hiring a key
person in the company, who has experience from export trade or possibly from
the specific target market to which the company is aiming at. Having experience
from the chosen target market within the company is a factor which strengthens
the organization internally. (Aagaard 2011.)

6.4 Export operations’ planning process

When planning export operations it is very important to clarify the value chain
for the company’s products, competitive situation and possible sales channels
in the specific target country to which the company is aiming at. Also, knowing
how these sales channels function, who the buyers are and who to contact or
arrange meetings with are important matters. It is much easier for companies to
initiate exporting if they have knowledge about the target market: how it func-
tions and what kinds of criteria exist within the market. There are many kinds of
assistance available for companies, but a traditional market study for finding out

70
how the market functions is a good basis. Overall, in the export process it is
important to know where the company is heading towards and why the market
functions as it does. Having more information about the market makes decision
making easier within the company. (Aagaard 2011.)

Clarifying the abovementioned matters first, rather than directly contacting po-
tential partners and searching possible sales channels is a good idea, as other-
wise the company might only waste both time and money. Of course it is possi-
ble to find the right contacts at once, but it might also turn out the other way
round. In this case, the more the company has knowledge about the market, the
easier it is to sharpen its focus. The company might even realize that its prod-
ucts will not be sold through the same channels as in domestic markets or what
was imagined. Especially for interior products, it is not possible to know this for
certain in advance. It depends a lot on the customs, traditions, trends and mat-
ters of taste at the target country. Therefore, it is recommendable to utilize the
available internationalization services and especially such with local expertise
for finding the right sales channels in the target country. Even though market
research has costs, it is economical for the company, because it is able to save
money and resources by avoiding and minimizing unnecessary travelling and
error estimates. Furthermore, having the necessary and sufficient information
about the target market enables overall more rationalized and justifiable deci-
sion making. (Aagaard 2011.)

When considering the neighboring markets, a good method for acquiring market
knowledge is through the industry trade fairs, for example. The more a company
knows people within its own industry, competing products and potential partners
as well as sales channels, the easier it is to start building export operations
within that specific market. Furthermore, events organized by industry associa-
tions are also a channel for acquiring market knowledge. Therefore, it is worth-
while to explore the home pages of these industry associations in order to find
the appropriate events. (Aagaard 2011.)

71
7 DENMARK

7.1 Basic information

Denmark is located in Northern Europe, bordering the North Sea as well as the
Baltic Sea. With the area of 43.098 square kilometers, of which 66% is agricul-
tural land and 12% forests, Denmark is the smallest of the Scandinavian coun-
tries. The Kingdom of Denmark has two autonomous provinces, which are the
Faroe Islands with area of 1 399 square kilometers and Greenland with area of
2 166 086 square kilometers. Population of Denmark is 5.564.219 (2011) with a
population density of 126, 4 per square kilometer. Ethnic distribution of the
Denmark constitutes from 93% being Danes and immigrants from Scandinavia,
EU countries, Turkey, former Yugoslavia and Pakistan constituting 7% of the
population. Capital of Denmark is Copenhagen with 1.702.388 inhabitants. Oth-
er major cities include Århus with 311.235 inhabitants, Aalborg with 199.437
inhabitants and Odense with 190.448 inhabitants (2011).

Major religion in Denmark is Evangelical Lutheran, which 95% of the population

represents. Other religions include 3% of Protestants, Roman Catholics and
others and also 2% of Muslims. The official language is Danish and the predom-
inant second language is English. English proficiency is among the world’s top
three (Ministry of Foreign Affairs of Denmark 2011e). Danes are known as the
happiest people in the world. Furthermore, Denmark is well known as a strong
welfare state and mixed market capitalist economy as well as being among the
most egalitarian societies in the world. Denmark is a member of the European
Union, United Nations, NATO, OECD (Organization for Economic Co- operation
and Development), WTO (World Trade Organization), IMF (International Mone-
tary fund) and Nordic Council. Denmark has also been a member of the Euro-
pean Economic Community since 1973. Although, Denmark meets the EU’s
economic criteria for membership, it has not introduced the Euro currency (EU-
business Ltd. 2011). (Antell 2010; Central Intelligence Agency 2011; Ministry of
Foreign Affairs of Denmark 2011a & 2011b.)

72
7.2 PESTEL analysis

7.2.1 Political and legal environment

Denmark is a constitutional monarchy and the oldest one in Europe. The politi-
cal system is based on a democratic multi-party structure. The head of the state
since 1972 has been the Queen Margrethe II. According to the constitution the
head of state together with the parliament possess legislative power while the
Queen has executive power. Denmark’s political life can be characterized as
democratic and orderly. The political methods and attitudes are generally mod-
erate and changes occur gradually through consensus. (Ulkoasiainministeriö
2006a; Bureau of European and Eurasian Affairs 2011.)

According to different sources Denmark has been characterized as an excellent

place for doing business. Referring to the results of a major international analy-
sis of global business climate by EIU (Economist Intelligence Unit), Denmark
was ranked as the best place in the world to conduct business as it took the first
place in seven out of ten categories, which included infrastructure, macro- eco-
nomic stability and political initiatives that benefit entrepreneurs. Political stabil-
ity and the special “flexicurity” model of the labor market were emphasized in
the analysis, which was based on the feedback from 650 analysts and is there-
fore considered as the most in-depth analysis of its kind. (Copenhagen Capacity
2011a.)

Denmark has also been placed among the most competitive economies world-
wide, as it was ranked eighth in the global competitiveness report 2011- 2012
which was composed by the World Economic Forum’s Centre for Global Com-
petitiveness and Performance. According to the report Denmark benefits from
one of the best functioning as well as most transparent institutional framework,
excellent transport infrastructure and first class higher education and training
system. The Danish workforce is highly educated, skilled of languages and in-
ternationally oriented (Antell 2010). Denmark has also been recognized as a
global leader when it comes to inflation policy and ethical behavior of compa-
nies. Due to the high flexibility, the Danish labor market is one of the most effi-

73
cient ones internationally as it ranked on sixth place globally. (Copenhagen Ca-
pacity 2011c.)

Furthermore, Denmark has been ranked as the easiest place to do business in

Europe in 2012 by the World Bank, which placed the country at fifth place in
“doing business index” among 183 nations. This index was based on a compar-
ison of business regulations in the nations involved and opinions of 9000 local
experts. Among others, the report included factors related to ease of starting a
business, level of taxes and employing workforce. Denmark was placed among
top ten in planning permission, resolving solvency and trading across borders.
Compared to many other European countries, the customs procedures in Den-
mark facilitate the efficient transit of goods to a higher extent (Ministry of For-
eign Affairs of Denmark 2011d). (Copenhagen Capacity 2011b.)

Establishing a company and operating in Denmark is effortless. Denmark pro-

vides very good “invest in Denmark”- services. Invest in Denmark is a govern-
ment agency situated within the Ministry of Foreign Affairs and provides detailed
information to potential investors. They provide assistance if a company wishes
to invest in Denmark, for establishing a subsidiary or a small sales organization
and hiring personnel. Compared to other Nordic countries establishing a busi-
ness in Denmark is tax efficient. Also, establishing a company, rather than a
branch, is simple, fast and cost-efficient and the registration process can be
done within a few hours. What comes to exporting, Denmark is also an attrac-
tive target country for companies, because as a Nordic country and a member
of the EU (European Union), there are no export barriers. The political condi-
tions are stable and the business environment is good. The political atmosphere
in Denmark is very good and entrepreneurship, exporting as well as overall
trading is enhanced. (Aagaard 2011; Ministry of Foreign Affairs of Denmark
2011i.)

The lack of complicated bureaucracy as establishing businesses, practically

unknown bribery and an extremely low level of corruption make Denmark an
attractive location for business activities. Moreover, the labor costs are relatively
low and there are practically no social contribution costs for employees. The

74
lack of obligatory labor costs, such as pension payments collected from the em-
ployers, sets the total labor costs on average European level. (Antell 2010; Min-
istry of Foreign Affairs of Denmark 2011e.) The Danish tax system is character-
ized by a high income tax level as well as a medium income tax level and low
social cost level for companies, in comparison with European standards (In-
wema A/S 2011b).

The rates of social contribution are low, as the high income taxes are used to
finance a large part of the State Budget and the social welfare benefits and al-
so, to a large extent, pension savings in Denmark is a private matter instead of
being a public one (Inwema A/S 2011a). High cost level and high income tax
level might be considered as negative attributes of Denmark. With income tax
rate of 42.9- 63%, which is one of the highest in the world, the large public sec-
tor of Denmark is financed. Denmark has a moderate company tax rate, which
is 25% at the highest. Value added tax (VAT) in Denmark is 25%. (Finpro
2010f.) Although the overall tax burden is high in Denmark, it enables maintain-
ing a well- educated workforce, quality transport and communications infrastruc-
ture as well as a high standard of public services (Finfacts.com 2009).

Denmark's labor market policy has been a great success and therefore it has
been copied by many other European countries (Copenhagen Capacity 2011a).
Due to the Danish “flexicurity” model Denmark offers a flexible environment for
companies and employers (Aagaard 2011). Referring to the Ministry of foreign
Affairs of Denmark (2011c), this flexicurity model successfully manages the
challenges of globalization as well as secures steady economic growth and em-
ployment. The labor market functions according to clearly defined structure,
which is based on extensive collective agreements and arbitration system (An-
tell 2010). The flexibility of Danish labor regulations compared to some other
European countries is outstanding (Ministry of Foreign Affairs of Denmark
2011d).

The legal environment, legal system and business infrastructure in Denmark are
characterized as predictable and transparent (A.M. Best Company Inc. 2011).
Denmark is among the world leaders when it comes to business freedom, prop-

75
erty rights, and freedom from corruption. The overall regulatory and legal envi-
ronment of the country encourages entrepreneurial activity and represents
transparency and effectiveness. Moreover, the independent and free of corrup-
tion judicial system of Denmark provides strong protection of intellectual proper-
ty rights, recognition and enforcement of secured interests in property and con-
sistent appliance of commercial and bankruptcy laws. As a member of the EU,
Denmark has been a leading opponent of trade barriers. Due to Denmark’s reg-
ulatory environment, the process of business formation as well as operation is
among the most efficient and dynamic in the world. The business framework in
Denmark is highly supportive to innovation and productivity growth. (The Herit-
age Foundation 2011a.)

In the Transparency International’s Corruption Perceptions Index for 2009

Denmark was ranked in the second place, among 180 other countries. Denmark
has also signed the Anti-Bribery Convention of the OECD. (The Heritage Foun-
dation 2011a.) Overall, with regard to health, environment, safety and labor
laws, Denmark applies to high standards and these policies are universally ap-
plied, without intention of confounding foreign investment. Generally, the corpo-
rate law in Denmark is in conformity with current EU legislation. (EUbusiness
Ltd. 2011.) When considering the issues of transparency and corruption, the
commercial risk in Denmark is low. Denmark is also categorized into the lowest
risk category of Finnvera’s eight country classifications, which signifies that it is
an advanced economy with a very low level of risks (Finnvera 2011b). This also
means that acquiring credit references of possible buyers is quick and easy
(Liira 2011).

Increasing international security and stability, ensuring greatest possible eco-

nomic progress and prosperity, promoting human rights, democracy and good
governance are essential goals of the Danish foreign policy. The development
assistance per capita of Denmark is among the highest in the world. Further-
more, the cornerstone of Denmark’s international engagement is its active and
constructive participation through international organizations such as the EU,
the UN, NATO and WTO. (Ministry of Foreign Affairs of Denmark 2009).

76
7.2.2 Economic environment

The private sector in Denmark is characterized by many small and medium-

sized companies. As a small, open and industrialized market economy, Den-
mark depends heavily on imported raw materials and foreign trade. (Bureau of
European and Eurasian Affairs 2011; The Heritage Foundation 2011.) Due to
advantageous geographical location, traditions in fishery and the lack of own
raw materials and few natural resources; Denmark has become a very active
country in foreign trade. The portion of foreign trade is two thirds from the GDP
of the country. The most important trading partners for Denmark are Sweden
and Germany. (Antell 2010.)

As a member of the EU, Denmark advocates a liberal trade policy. With a GDP
per capita of $58,500 (2010), Denmark was the 18th richest country in the world
and its standard of living is among the highest in the world. (Bureau of Europe-
an and Eurasian Affairs 2011.) The average quarterly GDP growth in Denmark
has been 0.41% from 1991 until 2011, reaching an historical high of 3.57% in
2005 and a record low of -2.59% in 2008 (Trading Economics 2011d.)

The worldwide financial crisis has considerably afflicted Denmark and statistics
revealed that it was still officially under recession in the summer 2011
(Ulkoasiainministeriö 2006b). Due to the financial crisis the economy of Den-
mark fell into a more profound economic downturn than many other European
countries. As a small and open economy Denmark suffered a lot from the col-
lapse of the world trade and during 2009 the country’s GDP decreased by 4.9%.
Denmark has managed to have a budget surplus since 1997, but due to the
economic downturn it has decreased and shifted as deficient in 2009. However,
Denmark is recovering slowly and the economy grew by 2.1% in 2010, 2% in
2011 and is expected to grow by 2% in 2012 (A.M. Best Company Inc. 2011).
Future growth is sought from green economy and development of welfare tech-
nology (Ulkoasiainministeriö 2006b).

Danish exports is also slowly recovering from the downturn which begun in
2008. In the beginning of 2011 exports increased by 4.8%, due to especially the

77
increase in machinery and industrial product exports to Germany and Sweden.
During spring 2011 also exporting to Finland has increased by 9%, along with
increased exports to Italy, Norway and China. (Ulkoasiainministeriö 2006b.) The
popularity of investing in Denmark will maintain in a high level. The value of di-
rect investments made in Denmark in 2009 was 7.7 billion US dollars. The por-
tion of direct investments in Denmark’s GDP of Denmark was 2.5%. Foreign
companies are generally provided the same treatment as Danish companies.
(Antell 2010.)

The financial crisis followed by recession has affected also the employment fig-
ures in Denmark (Antell 2010). Unemployment rate averaged 6.0% in 2010 in-
creasing from 2.7% in 2008. It is expected to average 6.2% in 2011. (Bureau of
European and Eurasian Affairs 2011.) At the moment, the retail sector in Den-
mark is still recovering from the economic standstill, but politically the effects of
the financial crisis are taken very seriously and the government strives to facili-
tate the situation (Aagaard 2011).

Furthermore, the financial crisis has also caused the collapse of several small
and medium-sized banks during last couple of years. In response, legislation
calling for a financing programme by private banks and the government in co-
operation was passed by the parliament. Relatively cautious lending within a
sound regulatory framework has enabled Denmark to pull through the crisis with
persistence. (The Heritage Foundation 2011.) Therefore, the most significant
short-term acts of the Danish government are ensuring the stability of financial
institutions and minimizing the aftermath of the financial crisis by means of tax
cuts, increasing public expenditure, especially investing in infrastructure and
supporting Danish banks. (Antell 2010.) Monetary stability in Denmark is well
maintained, with inflationary pressures under control (The Heritage Foundation
2011).

Because of the constant economic growth in the past and successful economic
policy, Denmark has good basis for rejecting the financial crisis. The public
economy of Denmark is still on a relatively healthy basis compared to many
other EU countries. (Antell 2010.) The economic risk for Denmark is low. The

78
economy is well balanced, wealthy and globally competitive. The political risk
for Denmark is very low. The Danish government intends to tighten its fiscal
policy (A.M. Best Company Inc. 2011). Since the 1980s Denmark has main-
tained a stable currency policy (Bureau of European and Eurasian Affairs 2011).
Denmark is not a member of the EMU (European Monetary Union), however the
Danish kroner is linked to euro through ERM II system (Antell 2010). The Dan-
ish Kroner has a fluctuation band of +/- 2.25 % of the central rate of DKK
746.038 per 100 Euro. Danish policies are to facilitate the free flow of capital as
well as support the flow of resources in the product and services markets. For-
eign exchange flows have been fully liberalized. Furthermore, credit is allocated
on market terms and it is freely available. (EUbusiness Ltd. 2011.)

Denmark’s economy is open to global trade and investment and therefore the
country is among the world leaders when it comes to investment and financial
freedom. Foreign direct investments are not restricted or prescreened with only
a few exceptions. The legal and regulatory procedures as well as investment
code is relatively transparent. Regulation and supervision are based on EU leg-
islation. The financial system in Denmark is competitive, no banks are state-
owned and the central bank is independent. The bond market in Denmark is
one of the largest in the world and also the securities market is highly devel-
oped. (The Heritage Foundation 2011.)

Furthermore, Denmark has a sophisticated financial system regulation with

deep capital markets. The Danish Financial Supervisory Authority, under the
responsibility of the Minister for Economic and Business Affairs, regulates the
financial sector in Denmark. The banking sector has improved since 2009 and it
benefits from government stabilization and recapitalization efforts. The financial
system risk in Denmark is very low. (A.M. Best Company, Inc. 2011.)

The income level in Denmark is quite high, although there is major fluctuation
regionally and also within different industries. Inflation rate forecast for 2011
was 1.8% and it is likely that it will maintain on a higher level in Denmark com-
pared to the euro zone, due to the increase in income levels. The income level
is expected to maintain high. (Antell 2010). The price level in Denmark is quite

79
similar compared to the Finnish market. However, compared to other central-
European countries the price level is high, due to the 25% VAT and both high
income level and high standards of living (Antell 2010; Pentikäinen 2010). De-
spite the economic standstill Denmark is still a country with high purchasing
power. Compared to Finnish people, the Danes have a different stand towards
consumption and generally consume more. (Aagaard 2011.)

7.2.3 Socio-cultural environment

The Danish society is characterized by coalition and conformity. Danes are very
easy going, communicative and friendly by nature. Due to embracing a multilin-
gual system, Denmark has established excellence in the field of communica-
tions. Similar to the citizens of other Nordic countries, Danes are highly skilled
in languages, as 88% of Danes report having the ability of communicating with
one, 66% with two and 30% with three foreign languages. Furthermore, 86% of
Danes speak English, 58% speak German and 12% knows the French lan-
guage. From the total population of Denmark, 87% of inhabitants live in urban
areas. The age structure is Denmark is typical for western countries; 17,6% of
inhabitants are 0-14 years old, 65,3% are 15- 64 years old and 65 years and
over inhabitants represent a portion of 17.1% of the population.

The population growth in Denmark is slow, as the estimated population growth

rate in 2011 was 0.251%, which is placed 173th within the country comparison
to the world. Denmark is facing demographic challenges due to the projected
decline of working- age population, which is estimated to result as labor supply
shortage by 2015. Shortage of labor supply is a major risk, due to the high level
of labor participation and tendency for early retirement. (Ulkoasiainministeriö
2006c; Finfacts.com 2009; Finpro. 2010f; Bureau of European and Eurasian
Affairs 2011;Central Intelligence Agency 2011.)

Most Danes are modest what comes to their accomplishments. The Danish so-
ciety is characterized by egalitarianism, which also reflects in their language, as
gender-neutral words are employed. The domestic chores are divided similarly
to other developed countries; however men are more actively involved in child-

80
rearing activities in Denmark, compared to many other countries. Moreover,
Denmark has a very family friendly environment as the well-developed system
supports parental care and maternity as well as paternity leave provisions are
generous. Most families in Denmark are small and as the center of the social
structure is the nuclear family. The center of the social life is family and friends,
which is greatly emphasized. According to Aagaard (2011), Danish people con-
sume a lot and they particularly invest in their homes, interior decoration and
their children. (Communicaid Group Ltd 2009; Itim International; Kwintessential
Ltd 2010.)

Danes are good team players. Working culture in Denmark is cooperation ori-
ented and group success is more valuable than individual achievements. Equal-
ity, solidarity and quality are valued in working life. As an individualistic and fem-
inine society, in Denmark lenient social framework is preferred and keeping life
and work in balance is important. The atmosphere at workplaces is very open
and informal, with direct and involving communication style. Openness and
honesty is preferred without the intention of being arrogant. Managers rely on
the experience of their employees and power in organizations is decentralized.
Respect is earned by hands-on expertise. (Communicaid Group Ltd 2009;
Finpro 2010f.)

Furthermore, working without many strict rules is preferred and roles as well as
responsibilities of different levels are respected. The Danish people believe in
independency, equal rights, accessible managers and a facilitating and empow-
ering management style. Consensus is an important value. Effective managers
are supportive to their employees and strive for consensus and involvement in
decision making. Long discussions until consensus is reached are common. In
Denmark all relationships are valued and the difference between sexes is less
notable. Conflicts are preferred to be resolved by comparison and negotiation.
(Communicaid Group Ltd 2009; Finpro 2010f.)

As a highly individualistic and curious nation, Denmark has a reputation within

innovation and design. Humor, heavy consumerism for new and innovative
products as well as thriving in highly creative industries such as advertising and

81
marketing are also characteristics of the Danish society. Danish people are
generally very interested in their work and they are considered motivated and
committed as employees. In Denmark competence development is highly priori-
tized and Danes take pride of their educational system. Therefore, the chance
of continuing education is offered for employees by most workplaces. This to-
gether with values of equality, efficiency and a high standard of living, have en-
abled achieving an important position in international trade. Focus in business
life is on current issues and therefore priority is given to abstract rationality and
analytical thinking. (Finpro 2010f; Itim International.)

Moreover, unpredictability is a natural part of the Danish working life. Doing

business with Danes is relatively easy as creating a relationship first is not re-
quired. In business negotiations English is preferred as the language of com-
munication and meetings comply with a pre-determined agenda. At first, Danes
might be cautious and proceed slowly, but once basic trust has been created
between business partners, loyalty is expected. Analyzing information is done in
a thorough way. Propositions, as written contracts, are considered as serious
matter and therefore they should include a lot of written information. Being fac-
tual, well-organized and prepared is expected.(Finpro 2010f; Itim International.)

Vague statements and too much diplomacy are disliked within business nego-
tiations as they might only confuse and give an impression of insincerity.
Therefore, sharing opinions, concerns and feelings is rather open in business
culture. Letters and e-mails as forms of communication are also given im-
portance to and here too a straightforward manner is applied. Danes also ex-
pect trust and respect in return as they have a win-win approach towards com-
mercial deals. Despite the friendly approach, the Danes can also turn out to be
hard bargainers and they are usually very clear about their ambitions. It is very
important to pay attention to cultural aspects and know the business culture as
well as the Danish business practices when doing business. Danes operate with
a concept of open agreement, which signifies that nothing is final until the con-
tract is written and signed. Therefore, introducing written terms and conditions
as well as presenting written offers during negotiations may be an effective ap-
proach. (Finpro 2010f; Aagaard 2011.)

82
Denmark is known for its architecture and design (Ulkoasiainministeriö 2006c).
The Danish lifestyle is such that a lot is invested in design, furnishing and over-
all people’s homes. In terms of culture, Denmark is quite similar to Finland and
from the Nordic countries Finland and Denmark are the most alike. Broadly,
within fundamental matters Denmark and Finland are quite similar, which signi-
fies that for example basic norms, values and moral issues are shared. Howev-
er, there are differences when it comes to business negotiations, corporate cul-
ture and sales culture, but these differences are manageable. Overall, Finnish
products have a good reputation in Denmark and they are considered interest-
ing and exotic. Finland is a subject of interest in Denmark and Finnish products
have good visibility in the Danish media. (Aagaard 2011.)

The role of the Danish media is very active and driving discussion and the con-
versational culture in Denmark is lively (Ulkoasiainministeriö 2006c). Especially
interior decoration magazines and women’s magazines are a very good channel
for Finnish products to gain visibility within the Danish market. Quality is valued
by Danish consumers and therefore they understand the value of it and are will-
ing to pay for it. Furthermore, an increasing trend in Denmark is that consumers
place more and more demands on environmentally friendly products. Therefore,
the better the environmental effects of the product are documented, the prefer-
able. Environmental friendliness of a product is definitely an important and posi-
tive matter in the Danish market and it brings much added value to the product.
Danish traditions within furniture industry and design are strong. Danish people
are very proud of their own design and products, but they also purchase a lot of
other than domestic products. However, design and quality criteria are an im-
portant matter in purchase decisions. (Aagaard 2011.)

7.2.4 Technological environment

The level of technology in Denmark is high and the infrastructure in the country
is highly developed (Aagaard 2011). High quality and ground-breaking research
and development have made Denmark known worldwide. Within areas related
to biotech, wireless and mobile technology, software development and acous-

83
tics, the Danish research institutions are among the most well-known. Further-
more, Denmark has primacy within areas of clean-tech and renewable energy
such as electrical vehicles and wind power. Denmark provides an opportunity to
create new technologies in cooperation with private companies, research and
development institutions and manufacturers. (Ministry of Foreign Affairs of
Denmark 2011f.)

The results of various surveys reveal that Danish consumers are the world’ s
fastest in adopting new products and technologies. Therefore, companies have
the opportunity of improving and adjusting their products or technologies before
entering mass markets. As one of the most advanced information societies
worldwide, the Danish people are also some of the most innovative, critical and
motivated consumers worldwide as well as being independent, well-educated,
open towards risks and change and also frequent users of new media. As a
fast-adopting market, Denmark is an ideal test market for new products accord-
ing to US Commercial Service:

“The Danish market is, in many ways, a perfect test market. It is relatively small,
and all corners of Denmark can be reached within four hours from Copenhagen.
The population is very homogeneous, and the Danes are receptive to new
products and features. The purchasing power among consumers is substantial,
and the demand for quality and design is equally high.”

(Ministry of Foreign Affairs of Denmark 2011g.)

In Denmark, the power of the internet is unlimited and unlike other media, web-
sites have the potential of reaching anyone with online access. Quite often, in-
ternet is the place for people to find information about a company and therefore
careful planning of online marketing as well as a good company website are
important matters in giving a good impression for potential customers. There
are 4,750,500 internet users in Denmark (2010), which signifies over 85% of the
total population (Miniwatts Marketing Group 2001- 2011.) Denmark’s infor-
mation and communications technology (ICT) has been ranked as a world lead-
er by many institutions and it is also an essential contributor to the economic
development and growth of the country. Denmark has also taken the initiative of
investing in advancements in applications of nanotechnology and was the first

84
European country to make an investment of this kind. Future growth is sought
for example from the development of welfare technology as the objective of the
growth plan introduced by Danish government is to become a world leader in
exporting healthcare solutions (Ulkoasiainministeriö 2006b). (Finpro 2010f; The
Prysm Group 2010.)

Furthermore, Denmark was ranked first in the Networked Readiness Index

2008- 2009, made by the World Economic Forum, which examined the econom-
ic progress within 134 economies worldwide. Countries were examined and
judged based on their integration of technology in business, the available infra-
structure, whether government policy is favorable for fostering a culture of inno-
vation as well as progress and leadership in promoting the usage of the latest
information technology tools. Denmark was given recognition for its efficient
market environment, conduciveness to availability of venture capital and sophis-
tication of its financial markets. Therefore, in terms of technological advance-
ment, Denmark is regarded as a world leader. According to a senior economist
at the World Economic Forum:

"Denmark, in particular, has benefited from the very effective government e-

leadership, reflected in early liberalization of the telecommunications sector, a
first-rate regulatory environment and large availability of e-government ser-
vices."

(BBC 2007; World Economic Forum 2009.)

Operating in Denmark is cost-efficient, due to the lowest office rental and corpo-
rate tax rates, extremely low social contribution costs for employees and com-
petitive salary levels. Strong productivity growth, currency adjustments as well
as increased competition enables Denmark to offer a competitive cost-structure,
among EU countries. Also, labor costs are very competitive. High level of edu-
cation and competence of Danish workforce are often cited as advantages in
Denmark by foreign companies as well. (EUROLAW 2005; Ministry of Foreign
Affairs of Denmark 2011e.)

85
Denmark is located very centrally in Europe with an advanced infrastructure.
The Danish rail and road networks are well- developed with toll-free highways
and national roads and connecting Denmark to Europe and the Nordic coun-
tries. These extensive road and rail networks together with a well-developed air
traffic infrastructure comprise an advanced and well-functioning system. There
are seven operating airports in Denmark. Two main airports, Copenhagen and
Billund, are the center of the Danish distribution hub, with some of the fastest
clearing times within Europe. Copenhagen airport was named as the most effi-
cient in Europe in 2011. Also, the port system in Denmark is comprehensive
and well-developed. Denmark’s excellent port access infrastructure was ranked
on the third place, after USA and Singapore. Moreover, air cargo transportation
is promoted by free airspace, lack of night curfew as well as the fastest customs
clearance and shortest transfer time in Europe. Many companies have located
their distribution hubs in Denmark in order to decrease costs and increase prof-
its. (Finpro 2010f; Ministry of Foreign Affairs of Denmark 2011h.)

7.2.5 Ecological environment

Environmental factors are becoming more and more a significant issue for com-
panies to consider because of the global warming and therefore increasing en-
vironmental awareness. Demand patterns are affected by the general move
towards more environmentally friendly products. The Danish lifestyle is green
and modern. Danish consumers are placing more demands on environmental-
friendliness of products. In Denmark many people pursue creating a better envi-
ronment and this shows for example in development of new and green ways of
living, greener transportation and town planning. (Oxford University Press
2007a; Ministry of Foreign Affairs of Denmark 2011j.)

Furthermore, Denmark is well-known for wind mill production and wind power
provided 20% of Danish electricity consumption in 2006. Wind power industry
provides great benefits for exports and employment and it has become a promi-
nent industrial sector in Denmark. Denmark is also known for its biking culture
and according to the Cycling Embassy of Denmark (2010), 36% of all adults in

86
Denmark go to work by bicycle daily or at least once a week. (RenewableEner-
gyWorld 2006; Cycling Embassy of Denmark 2010.)

One of the greatest sources of pollution is the industry and therefore in Den-
mark industrial production is closely monitored and certain limits are set for
manufacturers. Reducing pollution from industries and therefore ensuring that
the best available technology is used is an important objective. Moreover, ef-
forts towards reducing the amount of waste and re-using are important goals.
Denmark also seeks for future growth from green economy. The Danish gov-
ernment has introduced a strategy, of which purpose is to drive Denmark to be-
ing totally independent from oil, charcoal and gas by 2050. The use of renewa-
ble natural resources, wind power, biomass and biogas will be strongly en-
hanced during the forthcoming years. (Ulkoasiainministeriö 2006b; Danish Min-
istry of the Environment 2009, 6.)

7.3 Danish furniture industry

This chapter provides an overview of the Danish furniture industry by presenting

facts and figures about the furniture production and exports, distribution as well
as key figures of the Danish furniture market from the last few years and infor-
mation about the Association of Danish Furniture + Interior. Furthermore, based
on the interview material, expert remarks of the Danish furniture market are in-
troduced.

7.3.1 Facts and figures

Within the European furniture industry, Denmark has a significant role and de-
sign has had a key position in the development of Danish furniture industry.
Figure 15 below presents the furniture production in Denmark by production
groups in 2010 and reveals that the largest production groups include kitchen-
and seating furniture as well as other furniture, mattresses and bedroom furni-
ture.

87
 Danish furniture production by production group 2010

Seating furniture

Office furniture
14 % 16 %
8% Kitchen furniture
7%

Bedroom furniture
17 %
18 %
Wooden dining
room&lounge furniture
9% 11 % Other furniture

Furniture components

Mattresses, quilts, etc.

Figure 15 Danish furniture production by production groups 2010. (Association

of Danish Furniture 2011e.)

The total production of Danish furniture industry in 2010 was worth almost DKK
12.5 million, of which kitchen furniture contributed 2.3 million, other furniture 2.1
million and seating furniture close to 2 million DKK. The industry consists of ap-
proximately 400 companies, which together employ about 15,000 people. High
professional expertise and advanced technology result in high productiveness
within the industry. Consumption of home furniture in Denmark is worth EUR
2.1 billion. (Worldfurnitureonline by CSIL 2011a; Worldfurnitureonline by CSIL
2011b; Association of Danish Furniture 2011d; Association of Danish Furniture
2011e.)

Danish manufacturers have distinguished themselves in producing high value-

added furniture, and therefore utilizing the strong design tradition of Denmark.
Furthermore, emphasizing the use of design-driven, green products has be-
come a central principle for Danish designers in recent years and today it is
considered to be an important matter within the industry. The Danish furniture

88
market is highly export-oriented. Figure 16 shows the division of Danish furni-
ture exports in 2010.

Danish furniture exports by product group 2010

Seating furniture

Office furniture
15 % 17 %
Kitchen furniture
10 % 6%
Bedroom furniture
8%
12 %
Wooden dining room
15 % and lounge furniture
17 %
Other furniture

Furniture components

Mattresses, quilts, etc.

Figure 16 Danish furniture exports by product group 2010. (Association of Dan-

ish Furniture 2011e.)

With 16,8% portions each from the total furniture exports, both seating furniture
as well as wooden dining room and lounge furniture were within the largest
product groups, followed by mattresses, quilts etc. with a share of 15,3% and
bedroom furniture with a 14,8% share. As 84% of the produced furniture is ex-
ported, the furniture industry is the fifth largest of export industries in Denmark.
Among the most important export markets for Danish furniture are Norway,
Germany and Sweden. (Association of Danish Furniture 2011d; Association of
Danish Furniture 2011e; Worldfurnitureonline by CSIL 2011a.)

The exports of Danish furniture have decreased significantly within the last
three years. However, in respect of the total population of Denmark, the country
is a world leader both in production and exports of furniture. Table 1 presents

89
the key figures of the Danish furniture market from 2006 until 2010. In addition
to high export orientation, also many components as well as ready-made furni-
ture are bought from abroad. The value of furniture imports in 2010 was about
DKK 8.2 million.

Table 1 The Danish furniture market. (Association of Danish Furniture 2011e.)

DKK millions 2006 2007 2008 2009 2010

Danish production 19,437 19,533 17,776 13,578 12,482

- exports 15,953 15,895 13,997 11,360 11,427

Production for the

3,484 3,638 3,779 2,218 1,055
domestic market

+ imports 8,164 9,161 9,094 7,215 8,237

The Danish market 11,648 12,799 12.,873 9,433 9,292

The effects of the economic downturn on Danish market are clear and there-
fore, in addition to the fall in exports the overall value of the market has de-
creased and furniture imports have started to increase. The total value of the
Danish furniture market in 2010 was DKK 9.3 million. (Association of Danish
Furniture 2011d.)

Since the 1950’s, designer furniture has distinguished Denmark as a leading

nation within international furniture markets and this position is renewed and
maintained by classic designs by famous architects and new innovative furni-
ture designers. The majority of Danish furniture production consists of domestic
furniture. Furniture for young people’s rooms, children, bedrooms, dining rooms
and home offices are within the specialty areas of Danish furniture production.
Furthermore, veneered furniture is another area of expertise and solid wood
furniture from beech, ash, teak and pine are among the best worldwide. Also,
there is demand for Danish contract and office furniture for furnishing workplac-

90
es, institutions and public areas, around the world. Parts of Danish furniture
production have been outsourced to sub-suppliers and own production sites in
lower labor cost countries in recent years. (Association of Danish Furniture
2011d.)

Danish furniture is sold through many different channels, which include chains
of buyers and shops, individual furniture dealers, agents, contract sales for fur-
nishing projects and retail sales through franchise shops for example. The dis-
tribution system is dominated by buying groups, such as Dan Bo, Garant
Møbler and Ide Møbler. Independent furniture chains act as the second most
important distribution channel and among others; also IKEA is a major player
within the distribution channels. (Association of Danish Furniture 2011d; World-
furnitureonline by CSIL 2011b.)

Association of Danish Furniture + Interior

The Association of Danish furniture and Interior is an independent organization,

which together with its members, who represent approximately 90% of the Dan-
ish furniture production, has shared interests of promoting the sale of furniture
and interior products. As primary members to the organization, Association of
Danish Furniture + Interior accepts: 1. Companies producing furniture and inte-
rior products, which are registered in Denmark or the rest of Scandinavia. 2.
Companies designing furniture and interior products with a view of producing or
selling them into their own account. 3. Sales companies dealing furniture and
interior products produced or designed in Scandinavia and into their own ac-
count. Through membership, companies have the opportunity to strengthen
their competitiveness by utilizing the many provided advantages such as, regu-
larly updated market information, access to a market library, legal assistance,
the trade magazine Møbel+Interiør, participation in industry seminars, the op-
portunity to participate in trade fairs as well as marketing campaigns in Den-
mark and abroad. (Association of Danish Furniture 2011f.)

Furthermore, the Association of Danish Furniture+Interior publishes a trade

magazine by the name of Møbel+Interiør, which editorial objectives are to in-

91
form the interior and furniture industry about significant matters and increase
the knowledge of Danish furniture industry. The magazine is distributed to furni-
ture manufacturers, furniture agencies, designers and all Danish Furniture re-
tailers, in a circulation of 3,054 copies. The reader division of Møbel+Interiør is
illustrated in figure 17 below.

Reader structure - Møbel+Interiør

Furniture manufacturers
etc.

5% 3% Furniture & interior

9% retailers
36 %

Furniture & interior

20 % designers

Furniture agencies
27 %

Suppliers to furniture
industry

Press etc.

Figure 17 Reader structure - Møbel+Interiør. (Association of Danish Furniture

2011c.)

Major reader groups of the Møbel+Interiør trade magazine are clearly furniture
manufacturers by 36% and furniture and interior retailers by 27% as well as de-
signers by 20%. The prices for black and white advertisements in
Møbel+Interiør in 2012 vary from above EUR 100 to about EUR 900. All the
prices are available at http://www.danishfurniture.dk/Default.aspx?ID=42. (As-
sociation of Danish Furniture 2011a; Association of Danish Furniture 2011b;
Association of Danish Furniture 2011c.) The aforementioned matters taken into
account, Møbel+Interiør might be a very good channel for reaching different
actors within the Danish furniture market.

92
7.3.2 Expert remarks on the Danish furniture market

In Denmark there are many small and medium-sized companies. Due to the
high level of competition at the furniture market, it is even more important and
especially for small companies to plan their activities carefully and make the
decision concerning market entry meticulously. Denmark is a good operating
environment for companies and though the rivalry is intense, it is a potential
market as well. The strong tradition within design on one hand makes the Dan-
ish market more competitive, but on the other hand it means that quality as well
as environmental values are appreciated and the cost and value of quality are
understood. (Aagaard 2011.)

According to Aagaard (2011), issues concerning marketing and customer rela-

tionship management have been the most common difficulties that Finnish
companies exporting to Denmark have faced. Therefore, it is important to be
intensive enough within negotiations and managing customer relationships. Al-
so, there have been some difficulties with contracts, due to the Danish concept
of open agreement and therefore it is important to ensure that all matters relat-
ed to contracts are in place

In Denmark, it is very important to pay attention to cultural aspects and know

the business culture as well as the Danish business practices. Also, having con-
tacts within the industry is considered extremely important and therefore the
value of networking is crucial. Knowing the market and the way to operate there
is considered essential as well. Furthermore, as Danes have established excel-
lence in the area of marketing, they expect this also from others. Therefore, effi-
cient marketing is unquestionably one prerequisite for success in the Danish
market, which signifies regarding cultural aspects, a strong brand and an explic-
it approach through overall marketing. As the significance of marketing is ma-
jor, it should also be taken into account that Denmark is a multicultural country
with a lenient culture. That is why over-traditional marketing is probably not an
efficient approach. Furthermore, humanity, tolerance, values of nature and envi-
ronmental friendliness are important matters in marketing. (Aagaard 2011.)

93
Denmark is an attractive market for Finnish furniture industry, due to a shared
tradition, which signifies the love for design and interior decoration as well as
the value of functionality. Danish people are interested in Finnish products.
However, as the Danish design and furniture industry is strong, there are many
different products on the market and therefore, the rivalry is challenging. At the
same time, there is not necessarily that much of rocking chairs on the market
and therefore it could be a successful product in Denmark. There are some
rocking chairs on the Danish market and they are quite similar to the Finnish
traditional rocking chairs. However, also modern designs are part of the current
supply on the market. Nevertheless, it is extremely important to carefully con-
sider who will sell the products and also to whom they are sold and marketed to.
Decisions concerning the distributors as well as target groups are therefore very
important when considering the Danish furniture market. (Aagaard 2011.)

Generally, Finnish companies have managed well in Denmark and Finnish

products have a good reputation at the market. “Finnishness” is considered ex-
otic and exciting. Faced challenges are related specifically to marketing and
introduction of the products at the market. Despite having an excellent product,
marketing should still be invested in. In Denmark, as well in other Nordic coun-
tries and worldwide, the value of good marketing is emphasized. However, par-
ticularly in Demark it is very important how the product is presented at the mar-
ket, concerning the marketing materials and overall sales work as well. (Aa-
gaard 2011.)

Direct export and own export modes might be considerable options for the Dan-
ish market. Direct export has the advantage of cooperating with a local actor
with strong market knowledge as for in own export the company is forced to
learn and therefore gain strong knowledge of the market. Selling products via
the internet is also a possible option as it is quite popular in Denmark and also
furniture is purchased online. However, internet sales require significant market-
ing efforts and finding the right channels is significant. Furthermore, at initial
stage of exporting and when products are introduced to new markets, internet
sales is not the best option to begin with and therefore the role of traditional sell-
ing is very important. (Aagaard 2011.)

94
8 CASE COMPANY – URJALAN KEINUKALUSTE KY

8.1 Introduction

Urjalan Keinukaluste Ky is a traditional carpenter workshop and a small family

business established in 1979, with ten regular employees including the family
and a turnover of about EUR 0.5 million today. The company manufactures high
quality furniture with respect to the environment and its long Finnish history.
Urjalan Keinukaluste produces domestic furniture, mainly rocking chairs and
other rocking furniture, already in third generation. The interest in making high-
quality wooden products has been passed on in the family and therefore the
company has a goal of continuing the former generation’s work within Finnish
wood processing. A fundamental principle within the company is that each pro-
duced rocking chair is a well-done and unique individual which serves its final
owner for decades to come. (Saari P&S 2011; Urjalan Keinukaluste Ky 2011.)

In addition to wood processing, the entrepreneur couple takes care of every-

thing such as marketing activities and sales promotion work. The organizational
structure of Urjalan Keinukaluste is quite a traditional one within Finnish SME’s
and it is presented in figure 18 below.

Petri Saari Sari Saari

Entrepreneur, CEO Entrepreneur

Kalle Rankka Professional Sales

Designer carpenters representatives

Figure 18 Organizational structure of Urjalan Keinukaluste Ky

95
As the CEO of the company Petri Saari is responsible for overall management
as well as production and financial management, procurement and he partici-
pates in woodwork as well. Petri’s wife Sari Saari takes care of all the marketing
activities and sales promotion work. The company has also two sales repre-
sentatives, who circle the Finnish market and are responsible for the personal
sales work. Kalle Rankka works as a designer at Urjalan Keinukaluste. The pro-
fessional carpenters are responsible for the many working stages in production,
assembling, finishing and quality inspection of the products. Some of the car-
penters have over 30 years’ history of working within the company and there-
fore they share their valuable woodworking knowledge with their younger col-
leagues. (Saari P&S 2011; Urjalan Keinukaluste Ky 2011.)

Participation to selected trade fairs has been an important part of the company’s
sales promotion and marketing activities as well as increasing the awareness of
the company. All the presentation materials such as fabric samples, wood color
samples, brochures and product files are produced at the factory. Advertising in
newspapers and on the renewed company website are also a part of the com-
pany’s marketing activities. The company’s website is also available in English
and therefore enables the many inquiries from abroad. Recently, the company
has increased its awareness within the internet through social media marketing
and a Google campaign. (Saari P&S 2011.)

Urjalan Keinukaluste is interested in seeking growth from internationalization in

the future and therefore establishing export operations. Resulting from the cost
structure of production, the domestic market for the company’s products is small
and decreasing. Furthermore, the company strives for increasing the awareness
and visibility of Finnish wood as refined products abroad. The company’s prod-
ucts have already been on display internationally, for example in France at an
ecological trade fair. (Saari P&S 2011.)

8.1.1 History

The history of Urjalan Keinukaluste extends to the years after the Second World
War when Olavi Saari established a woodwork shop in Urjala, which produced

96
doors and windows. Later he started preparing many different products such as
long-case clocks, sculptures of faces, large wooden paintings with stories from
the Kalevala and Finnish people as well as decorative bridal mirrors, trousseau
chests, cradles, clocks and later also rocking chairs, which all reflected individ-
uality, skill and sophistication. The son of Olavi Saari continued his tradition of
woodwork and the first Urjala rocking chairs were delivered to furniture stores in
1975. (Saari P&S 2011; Urjalan Keinukaluste Ky 2011.)

The company was changed to its current company form and renamed as Ur-
jalan Keinukaluste in 1979. The product range was extended within the next
years and the workshop was developed towards a modern center of woodwork-
ing and the quality of the products was maintained on a high level. The compa-
ny’s growth was significant within 1980’s until the recession in 1990’s, which still
partly affects the Finnish furniture industry even today. (Saari P&S 2011; Ur-
jalan Keinukaluste Ky 2011.)

Urjalan Keinukaluste changed ownership in 2004, when the current CEO Petri
Saari bought the company from his parents. The production and products re-
mained as before and the reputation of producing durable, high-quality and
Finnish handmade products is still maintained within the company. The tradi-
tional methods which have passed on within the Saari family are still used in the
production and even today the rocking chairs are mainly handmade. (Saari P&S
2011.)

However, the company’s production as well as the work shop is constantly be-
ing developed towards a modern center of wood processing, in order to face
new challenges and competition. During the last seven years as the current
owners have been running the company, a lot of investments have been made
in product development and developing the machinery of the workshop as well.
The recession of Finnish furniture industry has afflicted the company, however
the objective and an important principle within the company is still to keep the
production as domestic. (Saari P&S 2011; Urjalan Keinukaluste Ky 2011.)

97
8.1.2 Production

Durable, beautiful and domestic rocking chairs are made from good raw materi-
als. At the moment, the refinement process of the company’s products is 100%
domestic. One important objective of the company is to increase the awareness
of Finnish refined solid wood products abroad and focus on processing only
solid wood also in the future. Domestic, high-quality products from solid wood
as well as design are the fundamental values within the company’s production.
(Saari P&S 2011; Urjalan Keinukaluste Ky 2011.)

Furthermore, quality is considered in all stages of the production process and

environmental friendliness is also a significant value within the company’s pro-
duction. All the wood for production is harvested from the nearby forests around
Urjala where the company is located. These forests are certified and therefore
the origin of the raw materials is well-known. Every tree is carefully monitored
and nurtured by the company to ensure the highest possible quality of the raw
materials, protection of the environment and enhancing sustainable develop-
ment. (Saari P&S 2011; Urjalan Keinukaluste Ky 2011.)

Majority of the company’s products are produced 100% by the company itself.
Only the upholstery for the furniture is procured from a sub-contractor, which is
also a domestic company and therefore all the fabrics used are domestic as
well. Otherwise, the company is not dependent on subcontracting products. Fur-
thermore, as environmental friendliness is an important value, the company
does not produce consumable goods, but instead it produces durable products,
which are designed to last from father to son and from one generation to anoth-
er. (Saari P&S 2011; Urjalan Keinukaluste Ky 2011.)

Moreover, the company processes wood mainly from deciduous trees and at
the moment, any chemically preserved wood is not used in the production.
Ecology is taken into account within the woodworking stages and also in the
factory’s environment, as the wood trash goes directly from the factory to a
heating plant where it is utilized as bio fuel. The produced energy is used to
heat up the entire factory as well as two houses. Environmental friendliness is

98
also highlighted in the logistics of the company, as the raw materials are pro-
cured and arrive from the neighboring woods. (Saari P&S 2011; Urjalan
Keinukaluste Ky 2011.)

8.1.3 Products and distribution

Urjalan Keinukaluste wants to produce distinguishable products and also en-

courage other Finnish furniture manufacturers to maintaining a high level of
quality. The products of Urjalan Keinukaluste are made with high attention to
every detail. They are designed to last from one generation to another and
therefore the quality of the products is ensured to match their value. Design is
also greatly invested in and therefore the products are comfortable to sit in; they
support the sitters back and shoulders and give the feeling of being embraced
by the chair. The product range includes about 14 different models of rocking
chairs, which are made to fulfill different customer needs. (Saari P&S 2011;
Urjalan Keinukaluste Ky 2011.)

Urjalan Keinukaluste focuses on tailoring the existing products and also devel-
oping new products, according to different needs of the customers. Therefore,
also a modern collection of rocking chairs is being created to the side of tradi-
tional rocking chairs. The company strives for bringing more and more of chal-
lenging woodwork and innovation into the development of new products. The
whole product range of Urjalan Keinukaluste includes traditional rocking chairs,
modern rocking chairs for contemporary homes, rocking chairs for outdoor use
for example for balcony and terrace, a hammock style rocking chair, the North
Star dining table and chair as well as a varying range of children’s products
such as rocking horses and swings, which are available seasonally. (Saari P&S
2011; Urjalan Keinukaluste Ky 2011.)

Rocking chairs are also known for their various health effects and research
about this has been made. Rocking chairs have been used for example in hos-
pitals for a long time for facilitating women’s’ labour pains as well as pains of
patients with neck and back illnesses. Swinging is also used for improving blood
circulation and making breathing easier for asthma patients. Urjalan

99
Keinukaluste delivers rocking chairs also to retirement homes as well as shel-
tered homes for relaxation and as training equipment. (Urjalan Keinukaluste Ky
2011.)

Majority, which is 98% of the company’s production, is distributed through a na-

tionwide retail network in Finland. The domestic distribution network consists of
about 150 individual furniture dealers and in addition one chain of furniture
shops. Urjalan Keinukaluste operates nationwide in Finland and therefore the
products are available all around Finland. Urjalan Keinukaluste also handles a
varying amount of individual sales abroad each year. Currently, individual prod-
ucts are shipped abroad every month and some rocking chairs are exported to
a Swedish customer on regular basis. However, the company has not yet estab-
lished systematic larger scale export operations. There has been some export
operations in the company’s history as in the 90’s rocking chairs were exported
to Russia. Furthermore, in the beginning of 2000’s a container full of rocking
chairs was shipped to Japan, but unfortunately it did not result in continuous
export operations. (Saari P&S 2011.)

8.2 SWOT analysis for Urjalan Keinukaluste Ky

The following SWOT analysis, made for Urjalan Keinukaluste Ky, is based on
the author’s evaluation and perception of the company’s current internal
strengths and weaknesses from the perspective of internationalization and es-
pecially exporting as well as the Danish market. Evaluation of future opportuni-
ties and threats is based on analysis of the company’s external environment.
This analysis emphasizes the findings of the PESTEL analysis and attributes of
the Danish furniture industry, which were presented before, and therefore is
carried out by considering specifically the Danish market. The data acquired
from the interviews is utilized here as well. Overall, this analysis is based on
data acquired from the interviews and findings of the analysis on Denmark and
the Danish furniture industry, which were presented in chapter seven.

The SWOT analysis is presented in figure 19 below and discussed after.

100
Figure 19 SWOT analysis for Urjalan Keinukaluste Ky

8.2.1 Strengths

Long traditions in woodwork and professional expertise in wood processing are

major strengths within Urjalan Keinukaluste. The company has invested in de-
veloping the workshop towards are modern center of wood processing and
therefore their production machinery is very competitive, which enables also
complicated woodwork and also subcontracting to some extent. The high level
of expertise combined with up-to-date machinery enable the production of indi-
vidual, quality products with high attention to details and design. All the products
are made from solid wood, which also contributes to high quality and durability
of the products as well as distinguishes the company from other domestic man-
ufacturers. The quality-price ratio of the products is good and the price might
actually be low in respect of other similar products with the same level of quali-
ty.

101
Furthermore, having its own workshop and production is an advantage for the
company, as it enables treasuring quality within all stages of the production pro-
cess. Therefore, the company has the advantage of being able to ensure the
high quality of used raw materials and control the monitoring of the production
process as well as quality inspection of the products. In addition, the company
is able to easily modify the products if necessary. Own production also minimiz-
es the risks resulting from the performance of subcontractors and therefore for
example the reliability of deliveries is not affected by their actions.

As an advantage, the company is almost fully independent from subcontracting

products, because only the upholstery is procured from a subcontractor, with
which the company has established a long and trustful relationship. Environ-
mental friendliness is also a major strength for Urjalan Keinukaluste, as today
environmental concerns are increasingly highlighted and especially as consider-
ing the Danish market. Sufficient language skills are also an advantage as con-
sidering capabilities for international operations.

8.2.2 Weaknesses

Utilizing others’ experience and existing networks could provide advantages for
the company in planning and initial stages of exporting. Therefore, remote loca-
tion can be considered as one weakness within the company as it has affected
negatively in the company’s ability of networking within the Finnish market. As a
small company, Urjalan Keinukaluste has limited resources. The owners’ active
participation in woodworking among other responsibilities in the past has also
partly limited the possibility of actively creating contacts and awareness, acquir-
ing customers and promoting the company.

Moreover, reviving and developing the company within the last seven years has
required a lot of investments from the owners, both time and money, which has
partly affected negatively in the company’s visibility within the market and effi-
ciency of marketing activities. Both visibility and marketing are areas in which
the competitors have been more active and therefore these factors are im-
portant to focus on in the future, especially as considering export operations.

102
High production costs are also a weakness, which has to some extent resulted
in insufficient investment in marketing and advertising activities. It also makes
competing with price more difficult. Domestic production is an important com-
petitive advantage for the company within the Finnish market, but it can also be
considered as a weakness, because there amount of imported low-price prod-
ucts is increasing, which can make competing more difficult in export markets
as well. Also, the lack of strong and solid export experience could be a weak-
ness, as considering export operations, though the skills required depend on
the chosen export entry mode and the target country.

8.2.3 Opportunities

Economic and political stability, efficient infrastructure and predictable as well

as transparent legal environment make Denmark an attractive and low risk tar-
get country. Denmark is a potential market for Urjalan Keinukaluste with high
purchasing power and the culture of heavy consumerism. Also, ecologic think-
ing, increasing environmental awareness and overall green lifestyle of the Dan-
ish consumers is a major opportunity for the case company, because environ-
mental friendliness is also an important value within its production as well. Envi-
ronmental friendliness is a major competitive advantage and it creates signifi-
cant additional value for the products, especially within the Danish market (Aa-
gaard 2011).

The modern lifestyle of Danish people and demand for quality are also opportu-
nities for Urjalan Keinukaluste, as the company invests in design and delivering
high quality. Furthermore, as the company has the possibility of adapting and
tailoring its products, product development can provide major opportunities, too.
Effective brand management provides opportunities as well. According to Aa-
gaard (2011), a strong brand and good presentation of products are very im-
portant matters and can be crucial for success as well as create competitive
advantage for the company, especially within the Danish market. As mentioned
before, in Denmark, the culture as well as the prevailing trend is being child-
centered and families expend considerably into children’s clothing, carrycots

103
and overall into their children, which also creates opportunities for Urjalan
Keinukaluste. Therefore, products for new parents, for example a rocking chair
for mothers and babies, might be an interesting product for the Danish market.
(Aagaard 2011.) Consequently, as considering the company’s products, there
seems to be potential customer segments within the Danish market, however
referring to Aagaard (2011), good segmentation and targeting is extremely im-
portant.

Furthermore, Denmark has a culture with interest and love for design and interi-
or decoration, which is also a positive attribute within the market, considering
the case company’s products. Moreover, in Denmark networking is considered
very important and trade fairs have an important role in this. Therefore, trade
fairs provide a good opportunity for networking, creating contacts within the in-
dustry and visibility within the market. As considering exporting to Denmark, it
would be a good idea to invest in a well-selected, specific trade fair, because
participation gives the opportunity to create visibility for the company and re-
ceive feedback as well as observe the reactions of potential buyers and possi-
ble distributors towards the product. (Aagaard 2011).

8.2.4 Threats

The economic downturn can be considered a threat as it effects the consump-

tion and therefore might have a negative effect on demand of high-end prod-
ucts, which are not a necessity. Also, changes in buying behavior, consumer
taste and acceptance of the company’s products within a new market can be
considered as threats. Competition within the furniture market and the increas-
ing amount of imported and low-priced furniture as well as outsourced produc-
tion into low-wage countries, pose a threat as well, as it might affect the compa-
ny’s competitiveness negatively. Insufficient or ineffective marketing and failure
in presenting the product within the new market are relevant threats as well,
because marketing has an important role when entering new markets. Further-
more, as mentioned before especially within the Danish market the significance
of good and right kind of marketing as well as presentation of products is major.

104
Increasing production costs are also a threat for the company’s operations, be-
cause the export price of the products should be higher than domestic prices
and major price escalation might affect the demand of the products negatively if
the products become over-priced compared to the market prices. On the other
hand, too low a trade price affects profitability. Therefore, careful planning and
market knowledge are essential, because especially for small companies, con-
sequences of error estimates are far-reaching.

Furthermore, not finding good partners and the right distribution channels,
which match the company values, image, goals and target groups is a potential
threat to be considered. However, this threat is possible to be minimized by uti-
lizing professional consulting services for finding the right distributors for exam-
ple. Reliability and suitability of the chosen partners as well as functionality and
applicability of the distribution channels are also essential matters and therefore
problems related to these issues pose a threat as well.

8.3 Export entry modes – SWOT analysis

This chapter introduces a comparison of export entry modes, which were dis-
cussed previously in the theoretical part. This comparison summarizes the ad-
vantages and disadvantages of indirect, direct and own export entry modes as
well as export partner groups by means of SWOT analysis. Data of this SWOT
analysis is based on the previous discussion of export entry modes in the third
chapter of the theoretical part.

This comparison is made with respect to the case company’s internal factors
and therefore introduces the author’s perception and evaluation of the suitability
of each export entry mode for the case company, taking into account its current
situation and resources. This analysis also brings up aspects concerning ex-
porting to Denmark in specific and therefore also utilizes the interview results
which were presented before. The SWOT analysis of export entry modes is
presented in figure 20 below and discussed further in the following sub-
chapters.

105
 Strengths Weaknesses Opportunities Threats
In-
direct - low risks & - low trade price - utilizing resources - no contact
export initial invest- - increased and to end-
ment
costs & price for experience of inter- customer or
- low operating
& marketing end- customer mediary market
costs - difficult to mon- - possibility for “easy - reliability of
- no export itor marketing & deals” intermediary
formalities SP - visibility of
- short terms of - no connection company
payment to export activity - limited
- effortless communica-
- minor skills tion
required

Direct - shorter distri- - long terms of - more direct contact - higher risks
export bution channel payment with end- customer - unsuccess-
 smaller - requires more - monitoring buying
costs & better skills & re- behavior ful choice of
profitability
sources - efficient communi- intermediary
- gaining prac-
tical experi- - marketing cation
ence costs - ready customer
- local network
knowledge

Own - no costs from - sales & mar- - direct contact with - marketing
export using inter- keting costs & customer
end- customer
mediaries - requires ex- acquisition
- monitoring market
- better overall tensive know- - high risks
control how & marketing devel- - lack of rep-
- creating good - travelling costs opment resentative
& direct cus- with local
- experience from
tomer relation- knowledge
ships foreign markets

Export - effective way - dependency - cost- effectiveness - functionali-

partner for new mar- on export man- - developing capabili- ty of cooper-
groups kets ager ties & business ation
- gaining expe-
- suitability of - new customer con- - commit-
rience & learn-
ing other companies tacts & business op- ment of
- valuable ex- involved portunities companies
pertise - inter- - internationalization involved
- shared risks dependence grant
- primarily for
SME’s

Figure 20 SWOT analysis of export entry modes

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8.3.1 Indirect export

Indirect export is an effortless way to begin export operations because only

small investments are required, which is an advantage especially for a small
company with limited resources and therefore the case company as well. The
risks are low for the manufacturing company, because the products are sold to
a domestic intermediary, which takes care of export formalities, delivery as well
as marketing efforts at the target market, which enables the company itself to
focus on its core competences. Also, short terms of payment are usual in indi-
rect export mode, which can also be considered as an advantage, because
even though the ability to grant credit for the buyer can be a competitive ad-
vantage, it also weakens the seller’s liquidity. Furthermore, as an advantage
only minor skills are required from the company and they are mainly targeted at
packaging and labeling the products.

However, using a domestic intermediary has also disadvantages, as it signifies

increased costs as well as low trade price for the company and therefore in-
creased price for the end-customer, due to price escalation. Price escalation is
a disadvantage if the products’ prices are desired to be kept affordable and rea-
sonable, as within the case company. Also, indirect export mode does not pro-
vide the possibility for the company to get acquainted with export formalities and
therefore gain valuable exporting experience and know-how. This is a disad-
vantage as it does not contribute to initiating for example own export later on.
Furthermore, it is difficult for the company itself to practice sales promotion and
monitor the sufficiency and quality of marketing at the target market, which is a
major disadvantage as marketing activities have a very important role when the
products are first introduced and presented in a new market.

Indirect export mode provides an opportunity for easy deals as the company
deals directly with a domestic intermediary. Also, as the company has the op-
portunity to utilize the intermediary’s resources, experience and knowledge of
the target market. However, having no contact to end-customers and the target
market is a significant threat for the company, because as the cooperation with
the intermediary ends, the company has no contacts with its customers and

107
therefore also lack of awareness and visibility at the target market are signifi-
cant threats. Furthermore, the reliability and performance of the used intermedi-
ary has a significant effect on success. Also, as a disadvantage in indirect ex-
port, communication between the manufacturer and the end-customer can be
very limited and this can result in difficulties as well.

In addition to the abovementioned disadvantages, indirect export mode is best

suitable for exporting standardized products in mass and therefore it is not ap-
plicable for exporting products, of which competitive advantage is based on
product differentiation. Therefore, it would not be the best option for Urjalan
Keinukaluste. Also, as indirect export is applicable when exporting to distant
markets with significantly different culture and business practices, it would not
be an appropriate choice for the Danish market in that matter. Indirect export
might be the most economical option for the company if the demand for the
product remains scarce on the target market, but otherwise it should be consid-
ered only as an option for the initial stage of exporting, while improving the
company’s economic and psychological resources.

If the selected intermediary has strong knowledge of the market and existing,
well-functioning sales channels there are no barriers to use one. However, who
will sell the product is an important consideration and might create some re-
strictions. Therefore, in indirect export it is important for the company to actively
monitor who sells its products and where they are sold. (Aagaard 2011).

8.3.2 Direct export

Compared to indirect export, an advantage of using direct export mode is a

shorter distribution channel, which signifies smaller distribution costs, increased
potential profitability, an opportunity for a better trade price for the manufacturer
and a lower price for the end-customer as well as for the consumers. Even
though direct export mode requires more skills and resources, which can be
considered as a disadvantage, it also provides an opportunity for the company
itself to gain practical experience and knowledge of exporting formalities and
therefore the company does not have to pay for an intermediary to take care of

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this. This is an advantage as it decreases costs and increases valuable experi-
ence within the company and therefore strengthens its psychological resources.
Furthermore, as an advantage the company can utilize the knowledge of a local
intermediary and therefore increase its own knowledge of the target market.

The commonness of long terms of payment in direct export might be a disad-

vantage as it creates higher requirements for the company’s economic re-
sources and can weaken the company’s liquidity. However, as mentioned be-
fore, it can also bring competitive advantage for the company if it is able to grant
credit for the buyer. As a disadvantage for a company which does not have ex-
tensive know-how and exporting experience, direct export mode requires much
more skills and resources, as the company deals directly with a foreign buyer.
On the other hand, it saves time to deal directly with a retailer or a representa-
tive at the target market.

Direct export requires language skills, cultural knowledge and knowledge of

market conditions as well as knowledge of export activities, contracts and ex-
port trade documents. Also, higher requirements are targeted at the company’s
production and delivery capacity. Moreover, in direct export the costs of market-
ing are higher, especially within the early stages of exporting. Also, sales pro-
motion activities and having to work at the target market create additional costs,
which can be considered as a disadvantage.

However, direct export provides many opportunities for the company. A major
advantage for the company is having more direct contact with its end-
customers. Having more direct customer relationships also contributes to more
efficient communication which signifies better access to market information as
well as more efficient monitoring of buying behavior. Furthermore, the company
has an opportunity to utilize the retailer’s ready established customer networks
and market knowledge. This is a major advantage, as especially in Denmark the
contacts one has and who one knows is considered very important.

Direct export requires more risk-taking compared to indirect export. As it re-

quires more investments and resources the risks for the company are higher

109
and thus ineffective risk management is a potential threat. Therefore,
knowledge of potential risks and protection against them is very important. Fur-
thermore, successful selection of the intermediary to be used is crucial for later
success of export activities. Consequently, functionality of the relationship as
well as reliability and solvency of the intermediary to be used are essential mat-
ters. Also, as mentioned before, especially within the Danish market it is im-
portant to find the “right” distributors for the product and therefore who will sell
the product is an important consideration.

In direct export it is extremely important to find the right partner, as trust and
overall functionality of the relationship is crucial. Of course establishing and
building a new business relationship is a process which takes time. As in indi-
rect export, also in direct export it is important to actively monitor who sells the
company’s products and where they are sold. This enables maintaining owner-
ship and control over the company’s products. Having a clear view of who has
sold the products, how they have been marketed and to which target groups at
the target market is particularly important, if the objective is to initiate own ex-
porting later on. Therefore, appropriate marketing, communicating the brand
and creating the right kind of image for the product are important matters to
consider if using an intermediary before initiating own export operations. (Aa-
gaard 2011).

Direct export mode would provide better opportunities for Urjalan Keinukaluste
compared to indirect export, however it requires more resources and includes
more risks and therefore it would be a more challenging alternative. Neverthe-
less, if an appropriate local partner is found at the target market, it is a good
opportunity for initiating export activities.

8.3.3 Own export

As an advantage, in own export mode there are no additional costs resulting

from the use of intermediaries, as the products are sold directly to the foreign
end-customer, such as a retailer. Not using intermediaries also benefits the
company by providing a better overall control on the overall export activities. As

110
a major advantage, own export enables creating direct and therefore better cus-
tomer relationships, contacts, networks and practicing more intense customer
relationship management as well as more flexible marketing and overall cus-
tomer service.

Compared to other export entry modes, own export requires extensive know-
how and resources from the company, which is a disadvantage for an inexperi-
enced company with limited resources. Own export requires language skills,
cultural knowledge and practical knowledge of international trade. Furthermore,
in own export there are increased costs for sales and marketing as well as trav-
elling, as the company takes care of everything by itself.

Having direct contact with the end-customers provides a better opportunity to

monitor market development as well as marketing development and efficiency
at the target market. Moreover, the company has an opportunity to gain valua-
ble experience and knowledge of foreign markets, which improves the compa-
ny’s resources significantly. Own export sets high requirements for marketing
activities as well, because they are targeted at the end-customer instead of an
intermediary. In addition, customer meetings and sales promotion at the target
market as well as activities related to public relations create additional costs.

Own export requires efficient customer acquisition as well as marketing and

sets high requirements on both the company’s economic and functional re-
sources. Therefore, it is very important to be prepared and able to manage this
cost burden. Furthermore, as in own export the company itself carries all the
risks, effective risk management is crucial. Also, lack of having a local repre-
sentative and therefore the opportunity of utilizing its market knowledge is a
threat as the role of market knowledge is significant when entering new mar-
kets.

Within own export, finding the right and good contacts through which the com-
pany can start building its export operations is extremely important. As own ex-
port requires more resources it can be challenging for a small company. Fur-
thermore, own export requires a lot of initiative from the company itself in order

111
to find the right contacts as well as organize the sales and overall operations at
the target market. Therefore, it should carefully be considered whether it is pos-
sible to take care of everything without establishing some kind of a sales organ-
ization at the target market. Compared to other export entry modes, overall
careful planning of operations is even more important in own export entry mode.
(Aagaard 2011).

Own export provides major advantages, but taking into account that it includes
high risks, requires extensive know-how and does not provide the opportunity to
utilize local knowledge of an intermediary, it might not be the best option for Ur-
jalan Keinukaluste as the first step of internationalization. However, it depends
on what kind of risks the company is willing to take. Especially within own ex-
port, utilizing expert assistance in initiating export activities at new markets
would be very important for an inexperienced company. Nevertheless, initiating
own export eventually is a desirable objective.

8.3.4 Export partner groups

Export cooperation is one way of promoting the internationalization of Finnish

SME’s and export partner group operation is an established form of this kind of
cooperation between companies in Finland (Nummela & Pukkinen 2004, p.
132). Export partner group operation is primarily intended for small and medi-
um-sized companies and therefore it would be one option to consider for Ur-
jalan Keinukaluste. As an advantage, export partner group operation provides
an effective way to start exporting to new markets, an opportunity to learn and
gain valuable experience as well as the possibility to utilize the expertise of an
experienced export manager, which is a valuable resource for inexperienced
companies and thus decreases the risks. As another advantage, the risks are
shared between the participating companies. According to a previous research,
export partner groups had succeeded particularly well in increasing the orderli-
ness of export operations and sharing the risks as well as costs and the set ob-
jectives considering these matters had mainly been achieved (Nummela & Puk-
kinen 2004, p. 72).

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In some cases, the dependency on the export manager can be seen as a dis-
advantage in export partner group operation. According to Nummela & Puk-
kinen (2004, p. 79), choosing an appropriate person as the export manager has
been crucial for the success of the export partner group’s operation and there-
fore it is important that the export manager is committed, operates efficiently
and has knowledge of the target market, the participating companies’ field of
business as well as their products. Also, interdependence and compatibility of
the participating companies can be a disadvantage. Research results have re-
vealed that good team spirit and commitment to the shared objectives from
each company involved as well as succeeding in gathering together a compati-
ble group of companies have been experienced as important matters.

Furthermore, the participating companies within export partner groups have

considered not having competitors within the group as very important. On the
other hand, it has been experienced important that the companies involved are
not too far from each other. Having companies from too different industries or
with overly different target groups within the export partner group has disturbed
the synergy between the companies, which has been experienced as an im-
portant matter as well. Therefore, lack of commitment from other companies
involved and dysfunctional cooperation are potential threats. (Nummela & Puk-
kinen 2004, p. 79.)

Export partner groups provide an opportunity for finding new customer contacts
and business opportunities. Moreover, it provides an opportunity for cost-
effective internationalization. According to Nummela & Pukkinen (2004, p. 111),
a previous research has revealed that participating companies experienced ex-
port partner groups as a functional way to reach international markets. Further-
more, the costs were considered reasonable and the possibility to share risks
was appreciated. Also, the opportunity of utilizing valuable expertise was con-
sidered even more important than the reasonableness of the costs. According
to one company which participated in the research, a major strength of export
partner group operation was receiving practical, useful and affordable market
information for example about customers, potential partners, representatives,

113
agents and local manufacturers. This could definitely be an advantage for the
case company as well.

Export partner groups also provide an opportunity for companies to develop

their capabilities for successful internationalization as well as their business.
Referring to Nummela & Pukkinen (2004, p. 68), research has revealed that
export partner groups with; duration of three years, set up from companies
which business activities complete each other and with common product or tar-
get group, have had the greatest effect on the development of both the know-
how and volume of international trade within the participating companies. Fur-
thermore, in export partner groups controlled by Finpro, an internationalization
grant for the project is applied from the Ministry of employment and the econo-
my (Finpro 2010g), which assists the participating companies financially.

The purpose of export partner groups is that after the support period the partici-
pating companies are capable of independently continuing their business activi-
ties at the target market. Therefore, export partner group operation is applicable
for companies, which need temporary support in order to initiate permanent
business activities at the target market. (Nummela & Pukkinen 2004, p. 136).

8.3.5 Summary

As a conclusion, even though indirect export has the advantage of being both a
low-risk and low-cost option, it would not be an attractive alternative for Urjalan
Keinukaluste, due to having no contact to end customers or export activities and
therefore not having the opportunity to gain market knowledge and experience.
Furthermore, poor visibility at the target market, increased price for the end-
customers and also limited possibility to controlling the operations make indirect
export unattractive. Also, it is not best applicable for exporting products, of
which competitive advantage is based on product differentiation as within the
case company.

Direct export and own export require more skills and resources and include
higher risks. At the same time, these export entry modes might be considerable

114
options for Urjalan Keinukaluste and for the Danish market, as they better con-
tribute to acquiring strong market knowledge and gaining experience, which is
very important as considering the future success of the company’s export oper-
ations. Moreover, within these export entry modes the distribution channel is
shorter, which decreases the costs and the company would have a more direct
contact with its customers.

Own export would be an ideal option as it would provide the opportunity for cre-
ating good and direct customer relationships, having better overall control and
gaining experience of export activities and knowledge of the target market.
However, it should be considered whether it is possible to manage the opera-
tions and customer relationships effectively without establishing a foreign sales
office. Otherwise it would require significant investments, which might not be an
attractive alternative at initial stage of exporting. Also, both direct and own ex-
port would contribute to better visibility at the target market.

Considering the company’s limited resources and lack of solid exporting experi-
ence, own export would be very risky as the first step of internationalization.
However, it is definitely worth striving for in the future. Direct export might pro-
vide a good opportunity to begin export operations with, if a good partner is
found. This way the company would have an opportunity to gain market
knowledge as well as exporting experience and the opportunity of utilizing local
knowledge and possibly ready customer networks.

Export partner groups or some other kind of export cooperation is definitely an

option worth looking into for the case company. Export partner group operations
is a good opportunity especially for small companies, because it would provide
the opportunity of sharing the risks as well as costs, gaining valuable experi-
ence, utilizing external experience and resources, receiving practical and af-
fordable market information and also the possibility to develop their capabilities
for successful internationalization as well as prerequisites for operating inde-
pendently after the support period. Export partner group operation would pro-
vide a great opportunity for cost-effective internationalization; however it would

115
be important to find suitable companies to the group and also a person with the
right kind of skills and knowledge as the export manager.

In direct export and own export entry modes it is recommendable to utilize ex-
ternal assistance and expertise in case the company does not have experience
and knowledge of the chosen target market. Expert assistance is recommenda-
ble to consider for example for finding the right partners and thus sales chan-
nels at the target country or for example for acquiring targeted market feedback
for the products before making significant investments, in order to start the op-
erations cost-effectively and by successful cooperation from the very beginning.
Industry-specific expertise and local knowledge are very important as initializing
export operations and therefore providers of internationalization services with
expertise of the chosen target market can provide valuable assistance for com-
panies.

116
9 INTERNATIONALIZATION SERVICES & FINANCING

Finland provides a very good support system for companies to initiate export
operations and therefore it is definitely recommendable to utilize this advantage.
Regional ELY centres are extremely good partners for companies considering
export activities. Providers of internationalization services provide confidential
service as well as view and experience in respect of specific industries and cus-
tomer segments. Therefore they can provide valuable assistance for companies
aiming at international markets. (Aagaard 2011.) Furthermore, there are differ-
ent kinds of financial support as well as financing solutions available.

9.1 Information, training and consulting services

Ministry of employment and the economy is responsible for Finland’s economic

development policy and as a part of this policy; promoting the internationaliza-
tion of Finnish companies. Companies, especially growth-seeking SME’s, are
encouraged to internationalize their business or strengthen their already exist-
ing international activity by public business services as well as grants. This ser-
vice entirety under the administration of the Ministry of employment and the
economy includes guidance, training, development and financing services.
Companies can find comprehensive information about public business services
from an online service, yrityssuomi.fi, in which among others, the ELY- centres,
Finnvera, Finpro, Tekes, National Board of Patents and registration of Finland,
Finnish Customs, Finnish Tax Administration and Ministry for Foreign affairs of
Finland are involved in. (Työ- ja elinkeinoministeriö 2012b.)

Many different organizations provide information services related to internation-

alization and exporting for companies to utilize. A list of useful websites with
versatile information is presented in appendix 5, together with providers of in-
ternationalization services. Free of charge guidance service regarding interna-
tionalization and possible problem situations are provided for companies by re-
gional ELY centres as well as by Finpro ry. The most important provider of in-
formation services in Finland is Finpro, which provides a comprehensive range

117
of country profiles as well as industry-specific reports and therefore enables an
easy way for companies to monitor the markets and business opportunities of
various countries. Finpro also maintains different databases through which
companies are able to search for customers and foreign partners for example.
In addition, Finpro provides a manual including information of 190 countries,
concerning for example legalization of documents, import restrictions, required
documents, packaging and marking regulations and other special requirements.
(Järvelin & Laiho & Larjovuori & Talonen 2003, p. 21; Finpro 2010e.)

In addition, there are different training services and guidance available for com-
panies to utilize. The purpose of these services is to increase the knowledge of
international trade, market conditions of the target country as well as new busi-
ness opportunities among the key personnel within the company. For example,
regional ELY centres organize many different events, seminars, trade fairs and
training programmes. Also, Finpro organizes numerous seminars annually as
well, providing information supporting the companies’ internationalization objec-
tives. Many of these seminars are free of charge and further details of current
and upcoming events are found from the organizations’ websites. (Järvelin et al.
2003, p. 22; Työ- ja elinkeinoministeriö 2012a.)

Moreover, different training solutions are provided for companies by Fintra,

which is the leading trainer of international trade in Finland and has trained
Finnish companies towards international success since 1962. Training pro-
grammes of Fintra cover all sectors of international trade and in addition it has
become well-known as the training expert of leadership, interpersonal skills as
well as international sales and marketing. Research results from 2007 reveal
the good quality of Fintra’s services and overall satisfaction of companies with
the received training (Laiho & Larjovuori 2007). (Fintra Oy 2012.)

Finpro is the largest provider of consulting services related to internationaliza-

tion in Finland and in addition to free of charge services it provides a diverse
selection of expert service packages for different stages of internationalization
(Järvelin et al. 2003, p. 21). The services provided by Finpro and regional ELY
centres are discussed further in the next sub-chapters.

118
9.1.1 Finpro ry

Finpro provides a unique network for companies to utilize, which is a combina-

tion of expertise in Finnish business and different industries as well as local
markets. Finpro represents a worldwide organization with over 350 experts,
which work in 66 outlets altogether in 45 different countries and according to
Finpro’s mission enhance the international success of Finnish companies.
Finpro serves companies by assisting them in being at the right markets at the
right time and with competitive products, services and concepts. Finpro is a reli-
able partner for companies planning to go international, striving for international
growth or strengthening their international competitiveness and therefore it pro-
vides services for all stages of internationalization. Companies interested in
growth and internationalization can apply membership in Finpro and as mem-
bers utilize many advantages. Detailed information of these advantages as well
as membership fees is found on Finpro’s website. (Finpro 2010a–2010d.)

The basis for Finpro’s services is to understand different industries as well as its
customers’ business. Finpro cooperates with companies aiming at different in-
ternational markets and which are at different stages of the industry-specific
value chain as well as their internationalization process. Over the years Finpro
has built a strong view on the development of different industries and their chal-
lenges as well as special characteristics. This knowledge is utilized to contribute
to profitable international growth of Finpro’s customers. (Finpro 2010h)

Finpro Navigator – Consulting services

For companies at initial stages of internationalization Finpro provides consulting

services for preparing the growth, planning the market entry and establishing
presence at the target market. For preparing the growth there are three different
services available: an international growth plan, test drive and finding the right
markets. The international growth plan creates a good basis for the company’s
internationalization as it contributes to identifying the prerequisites, competitive
advantage as well as customer segments of the company and therefore ena-

119
bles appropriate allocation of resources and a better opportunity to succeed.
The test drive-service can be used for acquiring targeted market feedback from
the company’s existing products in a new target market, before making signifi-
cant investments or sales expansion. The right markets-service helps in select-
ing the most appropriate market areas, understanding the market differences
and therefore enables companies to begin their operations within the most
promising markets. (Finpro 2010i–2010k & Finpro 2010q.)

Firstly, planning the market entry includes entry options-service, which contrib-
utes to selecting the most appropriate operation mode from the available op-
tions as well as understanding the business culture at the target market, identi-
fying opportunities and choosing the market entry option which best suits the
company’s situation. Secondly, the sales channel development-service signifies
preparing to make a good impression on the preferred partner candidates as
well as finding the most suitable ones for successful cooperation. This service
helps companies in succeeding within the negotiations and therefore saving
time and money. (Finpro 2010l & 2010m.)

For companies that are in the stage of establishing presence at a new market
area, Finpro provides for example the partner search-service, which enables
choosing the best partner candidates and planning a successful model of coop-
eration. This service contributes to finding the guideline for successful coopera-
tion and appropriate future phases as well as controlling the risks and avoiding
delays in initiating the cooperation. Launching export activities requires local
knowledge and also a network to support the companies’ business operations.
Consequently, for companies considering exporting, export partner groups-
service is also a very noteworthy option, as it provides the opportunity of start-
ing export activities quickly as well as utilizing the expertise of a skillful export
manager with local market knowledge. Furthermore, export partner groups ena-
ble sharing the risks and therefore also reducing and controlling them. (Finpro
2010n & 2010o.)

More detailed information about Finpro’s aforementioned services is presented

in appendix 6.

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Projects & Programmes

In addition to other services, Finpro arranges several projects and programmes

each year, which are targeted at one or more industries and their objective is to
promote Finnish companies’ international business. The activities within these
projects and programmes are aimed to meet the needs of groups of companies
and they are carried out in cooperation with Finpro’s different partner organiza-
tions. Central elements of these service packages include different market anal-
yses, examination of market entry options, communication and marketing under
a common brand, media contacts and also meetings with possible partners and
customers. Furthermore, Finpro’s projects and programmes provide an excel-
lent mutual platform for networking for the participating companies. The content
of each project is always formed according to the project-specific objectives.
Within these projects, Finpro’s tailored consulting services for individual compa-
nies are possible to be utilized as well. (Finpro 2010p.)

9.1.2 ELY Centres

Regional ELY centres assist companies in developing their internationalization

and provide a variety of services for companies to utilize. According to the
needs of the company, a professional team of experts is gathered and financing
opportunities are examined. These services for companies initializing export
activities include guidance in matters related to internationalization and export-
ing as well as formulating internationalization plans, evaluation of exporting ca-
pabilities, developing capabilities for internationalization within companies and
their personnel, financial guidance and support, creating export cooperation
networks between companies (export partner groups) and also guiding compa-
nies to different sources of information as well as towards the services provided
by ELY centres’ cooperation partners. (TE- keskus 2011a.)

ELY centres’ own as well as the national expert network for promoting exporting
and internationalization is available for companies to utilize. In addition to guid-
ance by ELY centres’ own experts, also Finpro’s services are offered for com-
panies. Furthermore, it is possible to receive services of private experts which

121
are specialized in specific field of internationalization, industry or market area.
(TE- keskus 2011a.)

Globaali – Internationalization programme for SME’s

It is important to evaluate the sufficiency of companies’ capabilities for interna-

tional markets before starting any activities. Therefore, in addition to free of
charge guidance services, ELY centres also provide an internationalization pro-
gramme for companies, with which companies’ capabilities for international ac-
tivities is evaluated and a development programme is formulated. Globaali in-
ternationalization programme is targeted at companies initiating international
activities. This programme includes getting acquainted with different compo-
nents of the internationalization process with assistance of an expert and after
this; an individual programme for developing the company’s capabilities for in-
ternationalization is formulated. (Elinkeino-, liikenne- ja ympäristökeskus 2011.)

Furthermore, the companies’ market-specific competitive advantages are eval-

uated and specified. The quality of Globaali programme has been ensured by
selecting experienced experts specialized in internationalization for its imple-
mentation. As result of the programme, companies will have a development
plan, which helps in improving their capabilities for internationalization as well
as strengthening their operations. The price of Globaali programme for small
companies is 760 euros (excl. VAT) and additional consulting is available for
300 euros per day. (Elinkeino-, liikenne- ja ympäristökeskus 2011.)

Globaali includes analyzing the current state of the company, reasons for inter-
nationalization, prerequisites, visions and evaluating the company’s internation-
al competitiveness as well as market-specific competitive advantage. As an
outcome of the programme, companies receive a concrete and written expert
view; a report, which summarizes the results and analysis of the aforemen-
tioned matters. The objective of this report is to summarize the focus areas as
well as development necessities for the company’s internationalization and pre-
sent functional development recommendations. According to previous research
and evaluation of Globaali, the service process as well as the quality of the pro-

122
gramme was considered good among the participating companies. The price-
quality ratio of the programme is good and the price of the program was consid-
ered optimal, downright inexpensive within the participants. Also, the report as
an outcome was considered as a clear and functioning entirety from the per-
spective of participating companies. (Niinikoski & Pekkala & Virtanen 2005, 11,
pp. 27–29.)

Furthermore, ELY centres organize different seminars, training programmes

and events related to internationalization. The provided internationalization
training is practical, affordable for entrepreneurs and aimed especially at SME’s.
The trainers are experienced experts of internationalization and each training
programme is planned according to the needs of the participants. Moreover,
ELY centres organize lengthy, market-specific exporting and internationalization
programmes, which are business development programmes through which
companies receive information concerning the markets, business culture as well
as business practices in the target country. Dates and more details of current
and upcoming events, training and market-specific programmes are found on
the homepages of regional ELY centres. (TE- keskus 2011b & 2011c.)

The common aim of internationalization service providers is by cooperating to-

gether to provide the best possible assistance for companies. The services are
tailored according to the needs of each company. As considering internationali-
zation and exporting, it is worthwhile to contact the local ELY centre to begin
with. Alternatively, companies can also contact Finpro directly and receive guid-
ance on how to proceed and information about suitable assistance which is pro-
vided by the ELY centre. (Aagaard 2011.)

9.2 Financial support

9.2.1 Ministry of employment and the economy

Grants for joint internationalization projects of companies can be applied from

the Ministry of employment and the economy. These joint projects must have at
least four participating companies. The grants can be used for making Finnish

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export supply as well as expertise known in new markets, extending market
shares and also for joint export promotion events of Finnish export companies,
which support the internationalization of companies. Therefore, financial aid can
be granted for:

 exhibition participation
 organizing seminars, product demonstration and other similar events for
increasing the awareness of Finland
 market surveys, strategic analyses and purchasing consulting services,
which purpose is to improve the company’s exporting facilities
 market survey trips including fact finding trips for companies at initial
stage of exporting
 jointly implemented visits of foreign buyers, experts or journalists to Fin-
land
 TV or press advertising of general nature or other information dissemina-
tion abroad
 preparing joint brochures, videos, internet advertising and other material
for Finnish exporters
 organizing common training events for improving the export facilities of
Finnish companies
 labor costs of a joint export manager or marketing personnel, which are
jointly recruited (i.e. operating in export partner groups or other exporting
networks)
 large communication campaigns and programmes, including material ac-
quisition as well as planning and research related to their initiation and
implementation
 at the discretion of the Ministry, for other activities promoting marketing
and internationalization of Finnish companies abroad.

This financial aid can usually be granted up to 50 % of the aforementioned ac-

ceptable costs. It is also possible to individualize the grant, so that SME’s partic-
ipating in the project receive a larger aid than the large companies. (Työ- ja
elinkeinoministeriö 2012c.)

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9.2.2 Tekes

Tekes promotes research, development and innovation and provides funding,

expertise and opportunities for networking. Customers of Tekes consist of com-
panies, research organizations and providers of public services. The most im-
portant target group of Tekes consists of SME’s which seek growth from inter-
nationalization. Tekes’ programmes are entireties of funding and expert ser-
vices, which are aimed at companies as well as public research departments. In
addition to financing, the participants also benefit from the programmes by hav-
ing the opportunity of networking as well as receiving new and current infor-
mation about their field of business. (Tekes 2011a & b.)

About half of Tekes’ financing is channeled through its programmes. Tekes’ in-
ternational programmes provide an opportunity for international research and
development cooperation. Part of these international programmes provide also
funding and for some of them companies can apply funding from Tekes. Ac-
cording to Vahvaselkä (2009, p. 43), Tekes funding for research and develop-
ment covers internationalization and market research costs which are included
in the projects. The extent of Tekes’ financing varies according to the nature of
the project, size of the company and the form of financing as well. However, it is
between 15 % and 70 % of the project’s acceptable costs (Vahvaselkä 2009, p.
301). (Tekes 2011c.)

9.2.3 ELY centres

ELY centres grant discretionary preparatory financing for preparing challenging

research and development projects. This special financing is targeted at pro-
jects, which promote for example initiating new and innovative business activi-
ties, or internationalization of SME’s. The financed operations are typically
short-term research and include purchased services from external, independent
experts. This preparation financing is an aid, which is granted utmost 70% of
the projects’ acceptable costs, however EUR 15 000 at the most. The prepara-
tion financing cannot be granted for large companies or for projects which re-
ceive some other public financing. (TE- keskus 2010.)

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Primary basis for this financing include, for example, the applicant’s commit-
ment to the pursued business activity; resources and know-how; financial re-
sources and stable economic state and also the competitive advantage and tar-
get markets of the business idea. This particular financing is not granted for ad-
vertising, marketing, selling or other corresponding sales promotion activities,
export activities or export marketing. Costs resulting from the use of external
services and experts as well as labor costs resulting from recruitment of a new
key person to the company can be approved as acceptable costs, however with
certain terms. Applications for the grant can be filed continuously. It is recom-
mended to negotiate with an expert from the ELY centre before applying the
grant. (TE- keskus 2010.)

9.3 Financing solutions

Good export management includes careful planning of export financing, which

means calculating the short and long-term needs for financial resources, exam-
ining possible financing sources and opportunities, making liquidity plans and
overall necessary preparations well in advance. The sufficiency of funds is en-
sured by making financing plans for expenditure and financing sources. Precise
cash flow statements should be made in order to secure the sufficiency of funds
and liquidity. (Vahvaselkä 2009, pp. 295–296.)

9.3.1 Banks

Among other providers, financing solutions for foreign trade are provided by
banks. For example, OP Pohjola Group provides opportunities for export financ-
ing both during the manufacturing and after delivery. As alternatives to consider,
the bank offers, for example, forfaiting, which enables providing a short or me-
dium term financing for the buyer and financing claims founded on export letters
of credit, which signifies providing the buyer a credit period, however receiving
the payments in cash. As an advantage, these aforementioned financing alter-
natives in fact improve the company’s competitive ability. Another financing al-
ternative is export factoring, which means that as using this solution long pay-

126
ment deadlines will not affect the company’s liquidity. In addition to financing,
export factoring provides a versatile service package and completed reports for
monitoring as well as accounting. (OP Pohjola Group 2011.)

Also, foreign bank guarantees are provided by banks. A bank guarantee is a

convenient way for managing the company’s possible needs for issuing guaran-
tees for a foreign buyer. For the company’s contracting party a bank guarantee
is effortless to accept and manage. Bank guarantees can be issued for guaran-
teeing the fulfillment of delivery, payment of the trade price, warranty period or
other obligation within the contract. (OP Pohjola Ryhmä 2012.)

9.3.2 Finnvera Oyj

Finnvera is a specialized financier owned by the State of Finland and acts as

the country’s official export credit agency (ECA) as well. Finnvera promotes the
internationalization of SME’s. For companies already practicing export opera-
tions it provides for example different guarantees. Therefore, Finnvera provides
financing for start-up, growth and internationalization of companies as well as
for covering the risks of exportation. As a state-owned financier, Finnvera com-
plements the finance market and promotes the development of entrepreneur-
ship, different regions and exportation. The financing opportunities for Finnish
companies are improved and diversified, and their operating potential as well as
competitiveness is strengthened by providing loans, domestic guarantees, capi-
tal investments and export credit guarantees. (Vahvaselkä 2009, p. 43; Finn-
vera 2011a.)

Finnvera’s operations are controlled by a specific legislation as well as industrial

and ownership policy goals set by the State of Finland. The objectives of Finn-
vera’s operations include increasing the amount of starting businesses, ena-
bling financing for changes which SME’s confront as well as promoting the
growth, internationalization and exportation of companies. The funds needed in
granting credits for SME’s are acquired from the financial market and the Euro-
pean Investment Bank is a significant creditor as well. The State of Finland par-
ticipates in covering some of the credit- and guarantee losses and therefore

127
Finnvera is able to take higher risks and share these risks with other financiers.
The State of Finland is responsible for the guarantees provided for export fi-
nancing by Finnvera. (Finnvera 2011a.)

Finnvera’s financing solutions

Initiating or expanding export activities as well as aiming at new markets in-

crease the risks of business and the need for financing. Finnvera provides in-
ternationally competitive solutions for covering export and project risks both for
exporters and export financiers. In the domestic market Finnvera has a com-
plementary role and it acts as a financier together with banks. Together with
other financiers Finnvera negotiates financing packages in order to actualize
companies’ rationalized projects. However, as a requirement, prerequisites for
profitable operation must exist within the financed company. Export financing of
Finnvera is more of insurance type of financing, which signifies decreasing the
risks related to exporting and export deliveries for example. Finnvera’s role is
more of a complementary financier instead of being the main financier for com-
panies. (Finnvera 2009; Liira 2011.)

Finnvera’s financing solutions related to exporting are presented in the next

paragraphs.

Export guarantees

Export guarantees contribute to the exporters’ financing opportunities. In-

creased need for working capital is typical in export trade. If having difficulties in
receiving financing or arranging appropriate guarantees, one solution for SME’s
is Finnvera’s export guarantees. In situations when a company needs additional
working capital, it can acquire pre-delivery or post-delivery financing from a
bank, by means of an export guarantee, which is a guarantee for a credit grant-
ed by a Finnish bank, insurance or financing company. An export guarantee can
also be used in case a guarantee is required by the export contract and there-
fore it can act as counter-security for a bank. Often the buyers may issue ad-
vance payments, which is quite a common way of pre-delivery financing in ex-

128
port trade. However, usually a guarantee is required for the payment. An ad-
vance payment guarantee represents pre-delivery financing for the exporter and
a guarantee for the buyer (Selin 2004, p. 54). The guarantee is arranged by a
bank, and in these cases a common service from Finnvera is issuing a counter-
security for the bank. As a requirement for issuing export guarantees, the pro-
ject in question must serve a Finnish interest, which signifies that for example
the products are sufficiently refined in Finland. Finnvera’s export guarantee can
cover at the most 80% of the guaranteed loan or other financial commitment.
(Finnvera 2009; Finnvera 2011c; Liira 2011.)

Export credit guarantees

Export credit guarantees signify minimizing risks instead of direct financing for
the exporter. Finnvera provides export credit guarantees for covering political or
commercial risks related to export financing. Realization of an export transac-
tion might require arranging financing for a foreign buyer and thus in export
trade, the seller’s ability to arrange financing for the upcoming deal is often an
important competitive advantage. However, for small companies and compa-
nies initiating export activities this might create challenges due to limited finan-
cial resources. (Finnvera 2009; Liira 2011.)

Credit for a foreign buyer is granted by a bank and a buyer credit guarantee is a
security for the creditor. In this case, Finnvera can issue a buyer credit guaran-
tee for the bank and therefore share the possible credit risks resulting from the
foreign buyer itself or the buyer’s country. This means that the exporter receives
the payment of the goods sold on credit in cash and the credit risk is transferred
to the creditor and further to Finnvera. A buyer credit guarantee can be used for
both medium and long-term credit arrangements as well as short-term exports.
The guarantee is assignable for both domestic and foreign financial institutions.
Buyer credit guarantees are commonly used within large deliveries with high
value. (Finnvera 2009.)

A credit risk guarantee is risk insurance for the exporter. With this guarantee the
exporter is able to insure its export transactions for credit loss. A credit risk

129
guarantee covers risks prior to the delivery as well as possible credit risks re-
sulting from the buyer or the buyer’s country. This guarantee can be used in
short-term as well as medium and long-term credit periods and granted for con-
tinuous deliveries and for individual export transactions as well. By means of an
export receivables guarantee, the exporter can insure its foreign receivables
against credit losses. This guarantee is a lighter version of the credit risk guar-
antee and covers commercial risks resulting from the buyer and political risks
resulting from the buyer’s country. Export receivables guarantee is intended for
short-term exports and for countries with political risks. (Finnvera 2009.)

The cover percentage of these guarantees varies from 50 % to 90% and for
political risks it is usually 100 %. Guarantees with a risk period of less than two
years cannot be granted for example to the Danish market and other EU coun-
tries or western industrialized countries. Also within export credit guarantees,
the requirement of serving a Finnish interest exists. The Finnish interest signi-
fies examining the export project’s significance for the Finnish economy. The
most important individual criterion continues to be the Finnish content, signifying
the portion of Finnish work within the production of the exported products.
(Finnvera 2009.)

The pricing of Finnvera’s export and export credit guarantees is determined

case by case. The price is affected by the risk period, the risks to be covered as
well as the credit standing of the buyer, the debtor and the target country for
example. (Finnvera 2009; Liira 2011.)

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10 SUMMARY & DISCUSSION

The main objective of this thesis was to clarify and give an overall view of mat-
ters which companies need to consider as planning internationalization and ex-
port activities. Furthermore, Denmark was examined as a target country, includ-
ing attributes of the Danish furniture industry in specific. The objective of this
examination was to evaluate whether Denmark would be an attractive target
market for the case company. A comparison of export entry modes was carried
out in order to draw conclusions about which of them could be appropriate for
the case company and specifically as considering the Danish market.

The instructor of this thesis was Urjalan Keinukaluste Ky. The company manu-
factures domestic high-quality furniture, mainly different rocking chairs. Produc-
ing domestic, high-quality products from solid Finnish wood as well as design
and environmental friendliness are the fundamental values within the compa-
ny’s production. Currently, the products are distributed through a nationwide
retail network and some of them also end up abroad. However, the company
has not yet initiated systematic larger scale export activities.

The author gained insight into the case company’s operations and products
through an interview and a personal visit to the company. Moreover, the author
was initially interested in examining Denmark as a target country and found this
intriguing company as the instructor, which was interested in seeking growth
from internationalization in the future, export activities and Denmark as a possi-
ble target country. Therefore, this thesis was made to provide a guideline for
companies considering internationalization and initiation of export operations.
The work also provides information about available internationalization services
and financing solutions as well as an overview of Denmark and the Danish fur-
niture industry. In addition, for the case company in specific, this study provides
an external view of its prerequisites for internationalization and exporting as well
as an evaluation of the suitability of different export entry modes.

131
The objective of the empiric research was to complement the theoretical frame-
work and find answers to the research problems. Qualitative research was cho-
sen as the research methodology as it enabled studying the object as compre-
hensively as possible. The overall goal of the research was to acquire profound,
diverse and current information of the subject, by conducting three theme based
interviews. Semi-structured interviews were chosen as a method of data acqui-
sition, because it enabled bringing out the views of the examinees’ and acquir-
ing more in-depth material as well as the desired kind of information. Overall,
the interviews were successful. The acquired material was as desired; rich and
inspiring and turned out to support the theory but brought up new aspects as
well, as intended.

10.1 Results and recommendations

Globalization of economy and competition brings challenges but also offers

many opportunities. Therefore, internationalization provides an opportunity for
companies but poses many threats as well. Internationalization is not only a
group of strategic decisions, but also a comprehensive process of learning and
change for companies. Successful internationalization and effective risk man-
agement requires careful planning and commitment. Utilizing external assis-
tance is an important consideration in managing and minimizing risks. It is very
important for companies to critically consider and analyze their motives, re-
sources, own internal capabilities and the market-specific conditions as well.
Especially for small companies internationalization is a challenge, but being
proactive, market and strategic oriented as well as being active are keys to suc-
cess. Whatever the impulse is, internationalization should match the company’s
overall goals and strategies.

Analysis and choice of targets markets as well as the appropriate operation

mode are important decisions as especially for SME’s the consequences of un-
successful choices are far-reaching and they result in lost opportunities, addi-
tional costs and increasing risks. Hence, having clear arguments on the choice
of target markets is important. Acquiring necessary information to support deci-
sion making and thus understanding the importance of market knowledge in the

132
overall internationalization process is crucial. As analyzing market-specific con-
ditions and evaluating market potential it is recommendable to work together
with experts. A range of different internationalization services is available and it
is recommendable to utilize professional assistance, if the necessary skills and
experience do not exist within the company. Altogether carrying out the
groundwork well before initiating international operations is essential. Even
though market research results in additional costs, it ultimately saves money
and resources by providing the opportunity to avoid and minimize any error es-
timates.

Prerequisites for successful exporting include a differentiated quality product,

realistic expectations and also a realistic view on the company’s own resources.
It should be considered whether the products are suitable for international mar-
kets as such or if modification is necessary, whether potential demand for the
products exist and whether the product matches the chosen market in terms of
culture as well. Also, the state of rivalry at the target market should be clarified.
Initiating export operations is a time-consuming process and therefore perse-
verance and determination of operations are essential.

The start-up costs of exporting vary considerably according to the chosen oper-
ation mode, but generally initiating export activities requires investments and
the results are not visible overnight. Along with other investments, companies
have to make significant investments in marketing as competition in internation-
al markets is harsh. Overall, the international scope of marketing activities sets
higher requirements for companies. Furthermore, financial matters should be
clarified and the sufficiency of economic resources evaluated carefully in ad-
vance in order to avoid difficulties. Ignorance of the target market, culture and
business practices as well as not finding the right partners might result in diffi-
culties, too. Moreover, as there are many risks involved, it is important for com-
panies to consider what kind of risks they are willing to take and the risk taking
should be at least methodical.

The research results revealed that Denmark is a good business environment

and overall a low-risk target country. Also, as considering especially the case

133
company’s industry, many positive attributes were found. The Danish culture
signifies heavy consumerism, green and modern lifestyle, interest in design,
furnishing and overall investing in homes and one’s children. Also, an increas-
ing trend in Denmark is consumers placing more and more demands on prod-
ucts being environmentally friendly. Based on these findings, Denmark would
be an attractive target market for the case company to consider. Moreover,
Danish consumers value quality as well as design and they are known as the
world’ s fastest in adopting new products and technologies. Overall, Finnish
products do have a good reputation in Denmark.

According to the research results, the Danish market seems to be attractive for
the Finnish furniture industry, due to the shared tradition, which signifies the
love for design and interior decoration as well as valuing functionality. Though
the rivalry is intense, Denmark represents a potential market as well. The strong
tradition within design on one hand makes the Danish market more competitive,
but on the other hand it means that quality as well as environmental values are
appreciated and the cost and value of quality are understood. These matters
definitely increase the attractiveness of Denmark from the case company’s per-
spective.

However, the Danish market also poses some challenges. In Demark it is very
important how the product is presented at the market and knowing the market,
the ways to operate there and having good contacts is considered essential as
well. These matters in turn might create challenges for companies that do not
have experience of systematic exporting or operating in Denmark. Moreover,
efficient marketing seems unquestionably to be one important prerequisite for
success in the Danish market, which might create challenges for companies
and therefore it is important to focus on. Nevertheless, these challenges are
possible to overcome by careful planning, overall preparation and utilizing ex-
ternal local expertise.

Furthermore, the EU membership of Denmark contributes to facilitating export

trade. The research results revealed that there have not been major difficulties
in exporting to Denmark and the problems that Finnish companies have faced

134
are mainly related to marketing, customer relationship management and igno-
rance of business practices. This indicates that the faced difficulties are possi-
ble to overcome by strengthening the companies’ internal prerequisites and
market knowledge. Overall, Denmark seems to be quite an attractive target
country for exporting and the cultural differences compared to Finland are not
significant.

Based on the research results, the author’s perception of internationalization

being a challenging process was strengthened. However, commitment, careful
planning, perseverance and determination of operations contribute to success-
ful internationalization. As strengths, Urjalan Keinukaluste Ky has long tradi-
tions, professional expertise, competitive machinery, high-quality products and
the possibility of modifying the products. Also, environmental friendliness brings
significant additional value for the case company’s products, especially as con-
sidering the Danish market. What might increase the challenge of internationali-
zation is that the company does not have solid experience of systematic and
continuous international activities, yet. Also, export marketing could create chal-
lenges for the company, as both visibility and marketing are areas in which the
competitors have been more active in the past.

As the case company has not yet initiated large scale export operations on con-
tinuous basis and therefore has limited experience of international trade, it is
recommendable to contact the regional ELY centre before initiating international
operations. ELY centres provide a wide selection of services and therefore val-
uable assistance for companies beginning export activities. As considering in-
ternationalization it is a good idea to begin by contacting the regional ELY cen-
tre or alternatively Finpro, as they can provide guidance and information about
internationalization services as well as financial support, which is available to
support the company’s internationalization process. All free of charge guidance
is definitely recommendable to be utilized, because it provides the opportunity
to review the company’s basis for internationalization and receive information
about available support and guidance on how to proceed.

135
Denmark would be an attractive option as a possible target market for the case
company; however, additional market research is necessary to acquire compar-
ison data of competing products and their price level as well as competitors and
potential customers and distributors. Therefore, analysis of the competitive situ-
ation at the market should be made, as it was not possible to carry out within
this research. Moreover, a profound internal analysis of the company’s own ca-
pabilities and resources should be made. It is important to consider the current
situation within the company and whether there is enough willingness, time and
resources for planning and initiating export activities.

Based on the made analysis, direct export and own export entry modes might
be considerable options for the Danish market, as they contribute to acquiring
strong market knowledge and gaining valuable experience, which both contrib-
ute to successful and independent export operations in the long run. However,
with high risks and required resources, own export might not be the best option
as the first step of internationalization. Export partner group operation or other
kind of export cooperation is definitely an opportunity worth looking into. Espe-
cially for small companies this kind of cooperation is an opportunity as it pro-
vides the opportunity of sharing the risks as well as costs and also gaining valu-
able experience, utilizing external experience and resources, receiving practical
market information and developing prerequisites for successful internationaliza-
tion.

Despite some perceived weaknesses, the author’s overall perception of the

case company’s prerequisites and basis for export operations is good. Moreo-
ver, the company has already received inquiries and generated interest towards
its products from abroad. The company could improve its opportunities for suc-
cessful export operations by further investments in marketing and focusing on
effective market communication especially considering the Danish market as
well as by strengthening its internal resources, acquiring strong market
knowledge, actively networking and finding the appropriate partners and chan-
nels at the chosen target market. As considering export operations, knowledge
of export contracts, documents and overall international trade procedures is
important to acquire, however the significance of market knowledge seems to

136
be even more important. Thus, acquiring all necessary information concerning
the target markets to support the company’s decision making in the planning
process is essential.

The research results also revealed that Finland provides a very good support
system for companies to initiating export operations. Especially for small com-
panies this network for export promotion provides important advantages and it
is recommendable to be utilized. It is also possible to apply financial assistance
for example to cover some of the costs resulting from the use of external ser-
vices or experts. In addition, this financing can be granted for covering the costs
resulting from recruiting a new key person to the company, which improves its
internal resources, however with certain terms. Overall, providers of internation-
alization services provide confidential service as well as view and experience in
respect of specific industries and customer segments. Therefore they can pro-
vide valuable assistance for companies aiming at international markets. Fur-
thermore, there are financial support and different financing solutions related to
internationalization and exporting available for Finnish companies.

10.2 Discussion

Despite some difficulties along the way, the overall thesis process was success-
ful. Though the original idea of the thesis had to be changed, the author sees
that the actualized idea turned out to be better and more focused compared to
the original one. Furthermore, the use of time was underestimated and there-
fore completing this thesis according to the made schedule was not achieved.
However, despite the scheduling of the report was unsuccessful the author is
satisfied with the outcome. Making this report was a comprehensive learning
process and it provided the author a great opportunity to combine together all
the different areas of her previous studies and thus create a deeper understand-
ing of the internationalization process as a whole and the Danish business envi-
ronment. Especially in the beginning of the thesis process there were some dif-
ficulties in perceiving the expectations and the work as a whole, due to not hav-
ing had to carry out similar projects before. However, as proceeding step by
step, it became more and more clear.

137
The overall objective of this thesis was to create a report, which would act as a
guideline to support the planning process of internationalization and exporting
and moreover provide an overview and evaluation of Denmark as a possible
target country and also the furniture industry in specific. The author thinks that
this objective was achieved quite well. However, the topic of internationalization
and exporting is very wide and therefore; taxation, customs procedures, logistic
solutions, transportation modes, internationalization strategies and international
operation modes, other than export entry modes, were excluded from the re-
port, which partially affects the reliability of the results. However, the purpose
was to provide a guideline, instead of a complete plan of how to start interna-
tionalization and exporting. Therefore, the work does provide a fairly good
guideline as a whole, according to its purpose.

The research results can be perceived as quite reliable. Arguments for the reli-
ability of the results are the quality of data acquisition and processing the mate-
rial as well as the reliability of the interview material. The interviews were well-
planned and thought was given to what kind of information was desirable and
how to deepen the different themes within the interviews. Also, the interview
situations were flexible. Moreover, the author had a fairly good general view of
the thesis topic and research objectives as conducting the interviews, which
was provided by getting acquainted with the topic as writing the theoretical part
of the work before conducting the research. This also enabled sharpening the
focus on certain issues, instead of acquiring too general kind of information.

Furthermore, conducting the interview with the case company first enabled
planning the next interview in a way to be able to acquire useful information
from the case company’s perspective. The interview material was transcribed
soon after the interviews, the recordings were successful and processing of the
material was made in a consistent way, which all contributes to the reliability of
the results. However, the inexperience of the author as a researcher may affect
the reliability of the results partially and it is probable that a more experienced
researcher would have gotten even more reliable results.

138
As considering the validity of the work, it can be concluded that the research did
produce at least somewhat useful information for companies in general and es-
pecially for the case company to utilize in its internationalization planning pro-
cess. Also, the research about Denmark as a target country produced valuable
information for the case company, as it has not yet made any research about
the Danish market. Also, the research implementation was explained in detail
within an individual chapter, which purpose was to present the different phases
of the research profoundly and therefore improve the validity of the results.

Furthermore, the reliability of the information sources also contributed to the

validity of the results. What comes to the interviewees, the author experienced
they were very reliable information sources as being experts in their fields. The
purpose of the interviews was to acquire deep and current information on the
research topics. The chosen method turned out as an efficient one for this pur-
pose and the objective was achieved well, as the author was able to acquire the
desired kind of information, which also contributes to the validity of the results.

Overall, this study provides a good general guideline for companies considering
internationalization and export activities as well as an overview of Denmark as a
target country and the Danish furniture industry. Moreover, important and useful
information about available internationalization services, financial support and
financing solutions related to initiating export activities is provided.

139
FIGURES
Figure 1 Internal factors of internationalization, p. 16

Figure 2 External factors of internationalization, p. 18

Figure 3 Decision making in internationalization process (Äijö 2008, 41.), p. 27

Figure 4 Model of target market selection process after Root (Vahvaselkä 2009,
67.), p. 29

Figure 5 PESTEL analysis, p. 32

Figure 6 Operation mode selection process, p. 34

Figure 7 Basic model for planning internationalization, according to Teknolo-

giateollisuus ry (Vahvaselkä 2009, 107.), p. 36

Figure 8 Subject areas & targets of internal analysis according to Teknolo-

giateollisuus ry (2009). (Vahvaselkä 2009, 109.), p. 38

Figure 9 Porter’s 5 forces; Model for analyzing the competitive environment ac-
cording to Porter (1990, 17). (Vahvaselkä 2009, 114.), p. 42

Figure 10 SWOT Analysis (Vahvaselkä 2009, 115.), p. 44

Figure 11 Export entry modes according to Luostarinen & Welch (1990). (Vah-
vaselkä 2009, 73.), p. 48

Figure 12 Exporter’s relation to domestic export agent, commission merchant or

export firm. (Karhu 2002, 86–87.), appendix 1, p. 1

Figure 13 Exporter’s relation to foreign retailer or representative e.g. an agent.

(Karhu 2002, 94, 102.), appendix 2, p. 1

Figure 14 Export process. (Vahvaselkä 2009, 264.), appendix 3, p.1

Figure 15 Danish furniture production by production group 2010. (Association of

Danish Furniture 2011e.), p. 88

Figure 16 Danish furniture exports by product group 2010. (Association of Dan-

ish Furniture 2011e.), p. 89

Figure 17 Reader structure - Møbel+Interiør. (Association of Danish Furniture

2011c.), p. 92

Figure 18 Organizational structure of Urjalan Keinukaluste Ky, p. 95

Figure 19 SWOT analysis for Urjalan Keinukaluste Ky, p. 101

140
Figure 20 SWOT analysis of export entry modes, p. 106

TABLES
Table 1 The Danish furniture market. (Association of Danish Furniture 2011e.),
p. 90

141
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 APPENDIX 1

1 (2)

Intermediaries in indirect export

In indirect export mode, the manufacturer can use an export agent, commission
merchant, export firm, joint export organization or possibly another industrial
company as the domestic intermediary. The exporter’s relation with an export
agent, commission merchant and an export firm is presented in figure 12 below.
An export agent operates in the name of the manufacturer, finds customers and
acquires orders from these foreign buyers on behalf of the manufacturer and
therefore receives a commission fee from the forwarded deals. As for, a com-
mission merchant operates in its own name, but likewise trades on behalf of the
manufacturer. The legal status of a commission merchant is such that the obli-
gations which result from the sales contract are targeted at him or her instead of
the manufacturer, but the ownership of the merchandise is transferred directly
from the exporter to the buyer.

$
SELLER BUYER
CONTRACT
%

EXPORT
AGENT

$
SELLER BUYER
%

COMMISSION
MERCHANT

SELLER BUYER
€
$

EXPORT
FIRM

Figure 12 Exporter’s relation to domestic export agent, commission merchant or

export firm. (Karhu 2002, pp. 86–87.)
 APPENDIX 1

2 (2)

An export firm or a trading house can also act as a domestic intermediary. It

operates in its own name and on its behalf, as it buys the products from the
manufacturer and sells them to its foreign customers with its own terms. An ex-
port firm is responsible for all the export activities and therefore for the commer-
cial risk of exporting, too. Basically, these export firms are specializes in specific
markets or products and they usually operate in distant market areas. When
using an export firm the price of the product for end-users becomes higher as a
result from price escalation as if an export agent or a commission merchant is
used.

A joint export organization is a cooperative export organization established to-

gether by manufacturers, which carries out export activities regionally, industry-
specifically or specialized in specific customer segments. As an advantage for a
small company is the democratic decision making as hence, larger companies
are not able to pursue their own interests at the expense of the smaller compa-
nies. Another industrial company can also act as a domestic intermediary and
buy products from the manufacturer to then sell them to its own foreign custom-
ers in its own name and with its own terms, as a part or in addition to its own
products. (Karhu 2002, pp. 84–86.)
 APPENDIX 2

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Intermediaries in direct export

Retailer as a foreign intermediary is an independent company, which buys the

products from the manufacturer in its own name and sells them forward with its
own terms. The relation between the exporter and a retailer or a representative,
such as an agent is presented in figure 13 below.

SELLER BUYER
$
$
Distribution
agreement RETAILER

$
SELLER BUYER

% REPRESENTATIVE
( e.g. AGENT)

Figure 13 Exporter’s relation to foreign retailer or representative e.g an agent.

(Karhu 2002, pp. 94, 102.)

The manufacturer and retailer make a distribution agreement. The retailer takes
care of warehousing, possible after sales services and distribution as well, at its
own risk. Instead of a retailer, the manufacturing company can also use a for-
eign representative, such as an agent, commission merchant or broker, which
all act as independent representatives instead of trade partners. An agent oper-
ates likewise a domestic export agent. Commission merchant quadrates with an
agent, and is usually an independent company responsible for the sales in a
specific sales area. As for, a broker’s job description includes in addition to an
agent’s responsibilities, all the sales and promotion work, invoicing, warehous-
ing and advertising for the manufacturer. (Karhu 2002, pp. 93, 97, 102, 107.)
 APPENDIX 3

1 (3)

Export process

Export transactions consist of six different stages, which are presented in figure
14 below. In addition to acquisition of business connections, which was dis-
cussed in the text, also quotation, ordering, preparation of delivery, delivery and
post deliver- stage are an important part of the export process.

1
Acquisition of business connections

2
Quotation

3
Ordering

4
Preparation of delivery

5 Delivery

Post- delivery stage

6

Figure 14 Export process. (Vahvaselkä 2009, p. 264.)

At the second stage, especially the contents and legal effects of quotations
should be paid attention to. In order to limit the rights and responsibilities of the
author of the quote as well as prevent possible misunderstandings, the quota-
tion should be unambiguous. Regardless of the target country, making an offer
always has legal effects. Mainly, an obligatory contract has been arisen be-
tween the seller and the buyer, when the buyer accepts the offer. At the next
stage, after receiving an order, it is important to go it through carefully and make
a written verification to the buyer, including terms of delivery and payment. In-
formation about generally used export payment terms and methods is present-
ed in appendix 4. It is also important to pay attention to the contents of the sales
 APPENDIX 3

2 (3)

contract and if necessary utilize the expertise of a lawyer who is specialized in

international agreements. Mainly, the contracting parties are free to define the
contents of the contract/ agreement, yet within the national laws and regulations
of EU countries. The delivery is prepared based on the verified order, according
to the terms of delivery and payment. Incoterms are used to define the opera-
tional responsibilities of the contracting parties as well as responsibilities con-
cerning the merchandise and responsibilities of payment in transportation costs.
(Vahvaselkä 2009, pp. 267, 270–271, 276.)

Important steps in the delivery stage are packing, transportation, forwarding,

insuring the shipment, preparing necessary documents and actions related to
financing, payment methods and payments traffic. Transportation and packing
are an essential part of the delivery as they ensure that the products remain in
good condition all the way to the buyer. Labeling must also be paid attention to.
As planning appropriate packing, the regulations of Incoterms 2000, related to
packaging, should also be taken into account. As for, a central criteria in the
selection of transportation method is the service level of the customer, which is
affected by the size, quality and value of the shipment as well as the urgency
and reliability of the delivery and transport time. Using a freight forwarder de-
creases the risks and makes the delivery more efficient. A freight forwarder acts
in the name of the manufacturer and takes care of transporting the merchan-
dise, possible warehousing, customs clearance, possible unloading and loading
along the way as well as assists in managing export documentation, advices
with transport and distribution matters, takes care of local distribution if agreed
and upon request also insures the merchandise. (Vahvaselkä 2009, pp. 271–
273.)

Export shipments are insured in case of risks that occur during transport or
warehousing. Incoterms are used to define how the insurance is taken care of;
who has the responsibility for risks and which party takes the insurance. The
post-delivery stage includes ensuring the arrival of goods to the buyer, control-
ling the delivery and payment, checking incoming invoices, post-processing and
comparison as well as post-marketing. The exporter takes care of the post-
 APPENDIX 3

3 (3)

processing of the delivery and therefore collects all payments related to the de-
livery, such as freight bills, insurance charges and makes a summary of the to-
tal costs and compares it to the calculations from the quotation stage and corre-
sponding deliveries. Thus, the actual profitability of the delivery can be discov-
ered. Post-delivery marketing is also an important phase. After the delivery the
seller can contact the buyer to inquire contentment in the delivery as well as the
merchandise. (Vahvaselkä 2009, pp. 273, 275.

The incoterms were renewed in 2010 and the new rules are valid from 1 of Jan-
uary 2011. The incoterms-rule collection facilitates the delivery of merchandise
and clarifies the responsibilities of the seller and the buyer and risk sharing. By
incoterms 2010 the seller and the buyer are able to agree on the delivery, in-
cluding freight, insurance, customs clearance and transfer of risk. Nearly all
Finnish export and import companies use incoterms as a part of their interna-
tional trade contracts. Correct usage of the new Incoterms 2010 enhances the
trade logistics, decreases risks and brings cost savings for companies.
(Keskuskauppakamari 2010).

A brief summary of Incoterms 2010 made by International Chamber of Com-

merce is available at:
http://www.i-b-t.net/PDFs/Incoterms_2010_chart.pdf (InterMart, Inc. 2011.)
 APPENDIX 4

1 (2)

Export payment terms and methods

A well-prepared sales contract includes also payment terms, which are affected
by the credit standing and previous payment behavior of the buyer, duration of
the trade relation, established trading practices as well as different currency-
and license-related regulations. Furthermore, risks, including political and eco-
nomic risk, should also be taken into account as agreeing on the payment terms
with the buyer. Agreed terms of payment include the currency, amount, date
and place of payment, possible discounts, late-payment penalties, method of
payment and agreement on paying bank charges. Methods of payment include
payment in advance, cash payment and payment on credit. Payment methods
in international trade are categorized in direct payments; check and payment
order, which are based on trust between the seller and the buyer and in docu-
ment payments; documentary collection and letter of credit (L/C) or documen-
tary credit (D/C). (Vahvaselkä 2009, pp. 289–290, 292.)

Documentary collection is a traditional payment method used in export trade.

Here, the seller sends the commercial documents through its bank to the buy-
er’s bank for collecting the payment. The banks monitor the delivery of the doc-
uments and the payment, but they are not responsible for the payment. Docu-
mentary collection is suitable for situations, in which there is no reason for sus-
pecting the solvency of the buyer, but the seller wants to ensure that the buyer
does not get possession of the merchandise, until it is paid for or until the buyer
accepts the bill of exchange and commits to paying it on the due date. There-
fore the method of payment is D/P, documents against payment or D/A, docu-
ments against acceptance. Utilization of documentary collection is based on the
consolidated code of collections, by ICC. (Vahvaselkä 2009, pp. 290–291.)

The greatest risks for the exporter are credit risk, such as the buyer’s insolvency
and unwillingness to pay as well as risks deriving from the operational environ-
ment of the buyer. These problems are highlighted as the trade relation is new
and the geographical or cultural distance between the trade partners is high.
This problem of risks being high can be solved by selecting letter of credit as
 APPENDIX 4

2 (2)

the payment method, which signifies that the buyer’s bank gives a written com-
mitment of paying the contract price to the seller. Letter of credit is always con-
ditional, signifying that the seller receives the payment after delivering the mer-
chandise and presenting the required documents to the bank. A letter of credit
should be irrevocable and it has to be determined whether it is available by
payment at sight (immediately) or if it is deferred. If the payment is agreed as
deferred and payment time is granted for the buyer, the payment deadline
should be unambiguously determined and stated in the transport documents.
Handling of letters of credit complies with the consolidated code of letters of
credit by ICC. (Vahvaselkä 2009, pp. 292–294.)
 APPENDIX 5

1 (1)

List of internationalization service providers and useful websites

Enterprise Finland
http://www.yrityssuomi.fi/web/guest/kehittyminen-kansainvalisesti

Finnvera
http://www.finnvera.fi/

Finpro
http://www.finpro.fi/

Fintra
http://www.fintra.fi/fi/etusivu/

Ministry for foreign affairs of Finland

http://formin.finland.fi/public/default.aspx?culture=fi-Fi&contentlan=1

Ministry of employment and the economy

http://www.tem.fi/index.phtml?s=2067

National board of patents and registration of Finland

http://www.prh.fi/fi/prh_palvelut_ja_tietoa_prhsta/pk-yrityksille.html

Nopef
http://www.nopef.com/pages/fi/etusivu.php?

Pirkanmaa ELY centre

http://www.ely-keskus.fi/fi/ELYkeskukset/pirkanmaanely/Sivut/default.aspx

The Federation of Finnish technology industries

http://teknologiateollisuus.fi/fi/palvelut/kansainvalistyminen.html

Tampere Chamber of commerce

http://www.tampere.chamber.fi/

Tekes
http://www.tekes.fi/fi/community/Etusivu/307/Etusivu/381

Viexpo
http://www.viexpo.fi/fi/home
 APPENDIX 6

1 (5)

Finpro’s consulting services (for preparing the growth, planning the mar-
ket entry and establishing the presence)

International growth plan

International growth plan service helps in creating good basis for internationali-
zation and therefore recognizing one’s prerequisites, competitive advantage
and customer segments, which enables proper allocation of resources and im-
proving the opportunities for success. Usually, internationalization is a slow pro-
cess if it is initialized based only on the experience from randomly acquired cus-
tomers. Often identifying suitable customer segments and competitive ad-
vantage remain inadequate and also the way of communicating might be incor-
rect. Too often companies try to reach wrong customers with unclear messag-
es. It is very essential to communicate the offered added customer value in an
understandable way, identify one’s target segments, identify the actual competi-
tive advantage and find a suitable and effective way of communicating.

This consulting service includes working through the following stages together
with the customer company:
 creating a clear view of the company’s initial situation and prerequisites
 identifying the company’s significant competitive advantages within the
target market and the added value within the customer segments
 developing the ability to communicate the company’s offering to the right
customers in a right way
 outlining how the company’s internationalization could proceed quickly
and cost- effectively as possible. (Finpro. 2010i.)

Test Drive

The test drive-service enables acquiring actual market feedback for the compa-
ny’s products or idea, before significant investments. Therefore, it helps in
avoiding error estimates and maximizing commercial potential. This service is
 APPENDIX 6

2 (5)

suitable for testing new products in international markets but also for acquiring
targeted market feedback for an existing product before expanding sales over-
seas.

This consulting service includes working through the following stages together
with the customer company:
 Clarifying the way to produce the company’s product or idea in order it to
have commercial potential for example from the perspective of foreign
customer segments, competitive advantage, pricing principles and distri-
bution channels. (Finpro. 2010j.)

Right markets

This consulting service helps in selecting appropriate target markets which are
suitable for the company’s business, understanding the market differences and
starting with the most promising market. It is very important to start internation-
alization within such markets, where clear demand for the company’s products
exists. Rarely there is time to wait for a market to open up as it is selected
based only on assumptions or take a risk and then discover that there is no real
demand for the company’s products. Starting internationalization operations
with the most promising country enables correct allocation of actions and saving
time.

This consulting service includes working through the following stages together
with the customer company:
 Evaluating market potential in agreed market areas.
 Comparing and prioritizing potential target markets from the perspective
of their suitability and the company’s business.
 Creating a country-specific strategy. (Finpro. 2010k.)
 APPENDIX 6

3 (5)

Market entry options

This consulting service contributes to selecting the most suitable operation

mode from the available options, understanding the business practices and how
the market functions as well as the company’s opportunities at the target market
and therefore selecting the entry option which suits the company’s current situa-
tion. Investments for opening up a new market vary significantly depending on
the chosen operation mode and therefore it is important to find the one which
matches the requirements of the company and the chosen market as well. This
ensures on one hand not investing too much but on the other hand not failing
because of investing too little or in a wrong way. Selecting the correct operation
mode enables initializing operations in a controlled way and decreasing the risk
of error investments.

This consulting service includes working through the following stages together
with the customer company:
 Clarifying the special attributes of the chosen target market and the re-
quirements set by local conditions.
 Analyzing applicable operation modes and providing assistance in select-
ing the one that best suits the company. (Finpro. 2010l.)

Sales channel development

With the help of this consulting service it is possible to save time and money,
find the suitable partner candidates and succeed in negotiations. Making a good
impression on the partner candidates is essential, as it is not desirable to lose
the opportunity of creating a relationship which is suitable for the company’s
business and significant for future success. Having selected sales channel
mode as a way of operating, the company needs a partner which sells the
products in a right way and if necessary is able to produce added value for the
customers by providing additional services which reinforce the company’s core
competence. Overall, careful preparation ultimately saves time and money.
 APPENDIX 6

4 (5)

This consulting service includes working through the following stages together
with the customer company:
 Clarifying the customers’ expectations for new entrants at the target mar-
ket and the way to differentiate from the competitors.
 Determining what kind of a partner is most suitable for the company, how
the responsibilities should be shared and how to present your company
convincingly to potential partners.
 Creating a detailed plan of initiating operations stage by stage. (Finpro
2010m.)

Partner search

This consulting service provides assistance in finding the appropriate partner

candidates and creating a successful model of cooperation, which contributes to
controlling risks and avoiding unpleasant surprises and delays in initiating the
cooperation. It is essential to find partner candidates which are suitable for the
company’s business and convince them of cooperation with mutual benefits. It
is not desirable to discover later on that the choice of partners was unsuccessful
and the cooperation begins slowly.

This consulting service includes working through the following stages together
with the customer company:
 Identifying and analyzing the best partner candidates at the target mar-
kets and providing assistance in comparing and selecting the most suita-
ble ones.
 Arranging interviews of the candidates and further negotiations according
to the company’s wishes.
Planning the combined offering and following stages to ensure successful
cooperation with the chosen partner. (Finpro 2010n.)
 APPENDIX 6

5 (5)

Export partner groups

This consulting service provides the opportunity for initiating export operations
quickly, utilizing local knowledge and decreasing the risks of internationaliza-
tion. Initiating export operations requires local market knowledge and a network
which supports the company’s business operations as it is desirable to initiate
operations effectively and control the risks.

This consulting service includes working through the following stages together
with the customer company:
 Building an export partner group by gathering together exporters which
support the company’s core competence or otherwise complement its
business activities. In addition, verifying the level of commitment within
the participants.
 Appointing a skillful export manager with local knowledge from the target
markets as the leader of the group.
 Organizing funding if necessary, handling financial transactions and fi-
nancial reporting to the financier. (Finpro 2010o.)
 APPENDIX 7

1 (1)

HAASTATTELURUNKO 1 - FINNVERA

TEEMA 1 TAUSTAKYSYMYKSET JA LUVAT

Nimi?
Organisaatio ja asema?
Saako haastattelun tallentaa?
Saako nimeänne ja organisaationne nimeä käyttää opinnäytetyössäni?

TEEMA 2 KANSAINVÄLISTYMINEN

Mitä resursseja kansainvälistyminen yleisesti vaatii ja erityisesti pienyritykseltä?

Mitkä ovat mielestäsi tärkeimpiä yritys-, tuote ja markkinakohtaisia edellytyksiä
kansainvälistymiselle?
Kansainvälistymisen suunnittelu: mitä asioita on otettava huomioon?
Mitä asioita on erityisesti otettava huomioon silloin kun aikaisempaa vientiko-
kemusta ei ole?

TEEMA 3 VIENTI

Mitä resursseja viennin aloitus vaatii, tärkeimmät edellytykset?

Mitä asioita yrityksen on otettava huomioon viennin suunnittelussa?
Viennistä aiheutuvat riskit? Riskien hallinta, erityisesti pienyrityksissä?
Mitkä ovat yleisimmin käytettyjä viennin rahoitusmuotoja/ lähteitä?
Mihin tarkoitukseen rahoitusta voi saada?
Mitä yritykseltä edellytetään, jotta rahoitusta voi hakea/ saada?
Miten/vaikuttaako viennin kohdemaa rahoituksen saamiseen?
Miten/ vaikuttaako vientimuodon valinta rahoituksen saamiseen/ rahoitusmah-
dollisuuksiin? Vaikuttaako vietävä tuote?
Onko muita asioita, jotka vaikuttavat rahoitusmahdollisuuksiin?
Ovatko viennissä vakiintuneita pitkät maksuajat?

TEEMA 4 TANSKA KOHDEMAANA

Kohdemaana Tanska, rahoitusmahdollisuudet? Riskit?

Yleiset maksuehdot ja –tavat Tanskan viennissä?
Yleisimmin käytetyt rahoitusmuodot Tanskan viennissä?
Mistä lähteä liikkeelle kun mietitään viennin aloitusta Tanskaan?

TEEMA 5 ORGANISAATIONNE

Mikä on Finnveran toiminta- ajatus?

Miten viennin rahoitus käytännössä toimii?
Miten yritykset hyötyvät käytännössä Finnveran tarjoamista palveluista?
Millaisia rahoitusratkaisuja Finnvera tarjoaa viennin rahoitukseen?
Rahoitus tuotteiden hinnoittelu, mihin perustuu/ miten hinta muodostuu?
Finnveran vientitakauksien ja -takuiden etuja ja haittoja? Mahdolliset/ yleisim-
mät ongelmat?
Rahoituksen hakeminen käytännössä, miten ja missä vaiheessa?
 APPENDIX 8

1 (2)

HAASTATTELURUNKO 2 – URJALAN KEINUKALUSTE KY

TEEMA 1 TAUSTAKYSYMYKSET JA LUVAT

Yrityksenne nimi?
Nimenne ja asemanne yrityksessä?
Saako haastattelun tallentaa?
Saako nimeänne ja organisaationne nimeä käyttää opinnäytetyössäni?

TEEMA 2 KANSAINVÄLISTYMINEN

Miksi kansainvälistyminen kiinnostaa, syyt/ motiivit?

Kokemukset/ ajatukset kansainvälistymisestä?
Mitä mahdollisuuksia näette kansainvälistymisen tarjoavan yrityksellenne?
Millaisena näette yrityksenne edellytykset kansainvälisille markkinoille?
Tuotannolliset resurssit ja niiden riittävyys; tuotanto/hallinnollinen/markkinointi
kapasiteetti, henkiset resurssit, osaaminen, kielitaito?
Tuotteiden soveltuvuus kansainvälisille markkinoille; kilpailuetu, erottuvuus,
markkinoinnin merkitys kilpailukeinona?
Onko yrityksenne osallistunut aikaisemmin esimerkiksi kansainvälisille messuil-
le tms?
Onko ulkomaisilla asiakkailla (ollut) kiinnostusta yritystänne/ tuotteitanne koh-
taan?

TEEMA 3 VIENTI

Onko yrityksellä aikaisempaa kokemusta viennistä/ vientiosaamista? Miten aiot-

te hankkia tarvittavaa osaamista jos sitä ei ole?
Oletteko tutustuneet vientitoimintaan/ riskeihin /edellytyksiin?
Oletteko tehneet aikaisempia selvityksiä mahdollisista kohdemarkkinoista?
Miten paljon resursseja olisitte valmiita sitomaan kohdemarkkinoille?
Kuinka näkyvillä/ läsnä haluaisitte olla kohdemarkkinoilla?
Onko myynnin ja asiakassuhteiden hoitamisen kannalta tärkeää olla läsnä koh-
demarkkinoilla?
Markkinoinnin tärkeys? Onko välttämätöntä markkinoida tuotetta paikanpäällä?
Oletteko tutustuneet jo eri vientimuotoihin/ mahdollisuuksiin?
Millaisina näette yrityksenne omat valmiudet viennin aloitukseen?

TEEMA 4 TANSKA KOHDEMAANA

Onko teillä omakohtaista kokemusta/ tietoa Tanskasta?

Millainen kuva teillä on Tanskasta ja miksi se kiinnostaa kohdemaana?

TEEMA 5 YRITYKSENNE

Koko; henkilöstö, liikevaihto? Millainen organisaatiorakenne on?

Yrityksenne missio; visio ja arvot? Yrityksenne historia ja toiminta?
Tilanne kotimarkkinoilla/ tulevaisuuden näkymät?
 APPENDIX 8

2 (2)

Tuote; tärkeimmät ominaisuudet ja asiakashyöty, mitä tuotteet ”antavat” asiak-

kaille, tuotteiden imago, onko itse tuote tärkeä kilpailukeino?
Hinnoittelu; tuotteiden hinta verrattuna yleiseen hintatasoon markkinoilla, onko
hinta tärkeä kilpailukeino?
Jakelukanavat; mitä kautta tuotteet myydään/ kenelle, jälleenmyyjät, tuotteiden
saatavuus?
Markkinointi; yrityksen näkyvyys, markkinoinnin tärkeys/rooli kilpailukeinona?
Markkinoinnin kohderyhmät? Mainonta, myynninedistäminen, suhdetoiminta?
Resurssit; taloudelliset ja toiminnalliset resurssit ja niiden riittävyys kotimarkki-
noilla, kokemus ja erityisosaaminen?
Kilpailuetu?
Mitkä asiat näette yrityksenne vahvuuksina?
Mitkä asiat näette ns. heikkouksina eli mitä asioita haluaisitte kehittää?
 APPENDIX 9

1 (2)

HAASTATTELURUNKO 3 - FINPRO

TEEMA 1 TAUSTAKYSYMYKSET JA LUVAT

Nimi?
Organisaatio ja asema?
Saako haastattelun tallentaa?
Saako nimeänne ja organisaationne nimeä käyttää opinnäytetyössäni?

TEEMA 2 KANSAINVÄLISTYMINEN

Mitä resursseja kansainvälistyminen yleisesti vaatii ja erityisesti pienyritykseltä?

Mitkä ovat mielestäsi tärkeimpiä yritys-, tuote ja markkinakohtaisia edellytyksiä
kansainvälistymiselle?
Kansainvälistymisen suunnittelu: mitä asioita on otettava huomioon ja mistä
lähteä liikkeelle?
Mitä asioita on erityisesti otettava huomioon silloin kun aikaisempaa vientiko-
kemusta ei ole?

TEEMA 3 VIENTI

Mitä viennin aloitus vaatii yritykseltä, erityisesti pienyritykset?

Onko yrityksillä yleensä realistinen kuva omista resursseistaan?
Mitä asioita yrityksen on otettava huomioon viennin suunnittelussa?
Menestyksekkään viennin edellytykset?
Kohdemarkkinoiden valinta, tärkeimmät kriteerit?
Markkinatutkimuksen merkitys?
Markkinatiedon hankinta, miten? Mistä yritys voi itse hankkia tietoa?
Vientimuodon valinta, mitä asioita on otettava huomioon?
Vientimuotojen edut ja haitat? (epäsuora-, suora-, oma vienti)
Oma vienti vientimuotona, onnistumisen edellytykset, mitä resursseja vaatii ver-
rattuna muihin vientimuotoihin, erityisesti pienyritykseltä?
Yleiset ongelmat ja haasteet viennissä?
Millaiset edellytykset yrityksellä on oman viennin harjoittamiseen jos aikaisem-
paa vientikokemusta ei ole?
Jälleenmyyjien löytäminen ja liikesuhteiden solmiminen uusilla markkinoilla, mi-
ten? Mitä kautta lähteä liikkeelle?
Vientirenkaat?
Viennistä aiheutuvat riskit ja niiden hallinta, erityisesti pienyrityksissä?
Viennin rahoitus (avustukset ja itse vientitoiminnan rahoitus)?

TEEMA 4 TANSKA KOHDEMAANA

Millainen Tanska on liiketoimintaympäristönä, viennin näkökulmasta?

Tanskan viennin onnistuminen, mitä se vaatii, erityisesti pienyritykset?
Tanskan vahvuudet ja heikkoudet liiketoiminnan (viennin) kannalta?
Miten suomalaisyritykset ovat menestyneet Tanskan markkinoilla ja mitkä ovat
suurimpia haasteita joita ne ovat kohdanneet?
 APPENDIX 9

2 (2)

Onko Tanska houkutteleva kohdemaa suomalaiselle huonekaluteollisuudelle?

Miksi/ miksi ei?
Millainen on Tanskan toimintaympäristö, erityispiirteet? (Poliittinen toimintaym-
päristö, taloudellinen toimintaympäristö, sosiokulttuurinen toimintaympäristö,
teknologinen toimintaympäristö, ekologinen toimintaympäristö, juridinen toimin-
taympäristö)
Tanskan huonekalualan erityispiirteet? Toimintaympäristön tekijät, jotka vaikut-
tavat erityisesti huonekalualan yrityksiin ja viejiin?
Tuotteiden ympäristöystävällisyyden merkitys?
Kilpailutilanne Tanskan huonekalumarkkinoilla
Toimiiko markkinoilla muita keinutuolin valmistajia ja onko markkinoilla paljon
tuontikeinuja?
Kysyntä tekijät? (asenteet ulkomaisia tuotteita kohtaan, mitä asiakkaat arvosta-
vat, ostovoima, onko tuotteille kysyntää)
Menestystekijät, mitä vaaditaan yritykseltä, jotta se voi menestyä ja vastata kil-
pailuun? Onko pienyrityksen vaikea päästä markkinoille/ menestyä/ vastata kil-
pailuun?
Yleisimmät ongelmat Tanskan viennissä (suomalaisyrityksillä?)
Onko viennin aloittaminen juuri Tanskaan ongelmallista/vaikeaa?
Markkinoinnin merkitys Tanskan viennissä ja markkinointia koskevat lait tai ra-
joitukset?
Verkostoitumisen/ hyvien liikesuhteiden merkitys Tanskan viennissä?
Mikä olisi suositeltava vientimuoto Tanskan ollessa kohdemaana ja miksi?
Onko Tanskan viennissä vientimuotojen toteutettavuudella suuria eroja?

TEEMA 5 ORGANISAATIONNE

Mikä on Finpro: n toiminta-ajatus?

Mitä palveluja Finpro tarjoaa yrityksille, kansainvälistymisen ja viennin suunnit-
teluvaiheessa (maksuttomat & maksulliset)?
Tanskan viennistä ja omasta viennistä vientimuotona kiinnostunut pienyritys,
jolla ei aikaisempaa vientikokemusta; miten voi hyödyntää Finpron palveluja,
mistä lähteä liikkeelle?
Yritysten kokemuksia Finpro: n palveluista?
Miten palvelut hinnoitellaan, kustannukset yrityksille?
Voivatko yritykset saada rahallista tukea maksullisiin palveluihin?