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Empirical Findings
In this chapter the authors will present empirical findings for this study. First the conditions for Swedish SMEs in China will be discussed. After that the interviews with the companies will be given and last the interview with a consultant and export on Swedish-Chinese trade will be shown.
Swedish SMEs and foreign investment in China
In July 2007 SEB and the Swedish trade council released a survey about Swedish SMEs en-tering china. This interview was primarily based on interviews with company representa-tives, the Swedish chamber of commerce and establishment consultants. It should also be noted that Hong-Kong were excluded from this survey.
In the 11th of December 2001 China joined the WTO (World Trade Organization, 2007). Today China’s booming economy still attracts foreign investments in a large scale. In June 2007 the FDI in China passed 750 billion USD. The largest focus is on the Chinese east coast markets like Shanghai and Beijing. Since 1978 when china opened up its markets for foreign companies over 610,000 companies (June 2007) have registered with the Chinese authorities. Most companies established themselves in Shanghai and among the Swedish companies 66% of the companies followed this pattern (Swedish Trade Council & SEB AB, 2007).
One new Swedish company enters China every 4th day. That is ninety-two companies en-tering China between the period of July 2006 and June 2007. The report also states that 55% of these companies had less than 100 employees globally and 20% of the companies had between 100-500 employees globally. That makes by the European Commission’s definitions of SMEs most of these companies small and medium sized enterprises (Swedish Trade Council & SEB AB, 2007).
Industrial products are still the most important product category both for Swedish and other foreign companies. Besides industrial products other important categories in order are corporate services, consumer goods, health care and environmental protection (Swedish Trade Council & SEB AB, 2007).
Concluding remarks from this survey argues that Swedish companies entering the Chinese market today differs from earlier years in the sense that they are smaller and also other ar-eas are represented in regard to the former high portion of industrial technology compa-nies. China can no longer be seen as a market for heavy machinery and industrial goods. Chinas as one of the markets with the highest potential in the world and soon to become the third largest economy in the world will be very interesting for Swedish companies for many years to come. The area that shows the highest potential right now is the expanding consumer goods market were the survey argues that Swedish SMEs has a lot to offer. (Swedish Trade Council & SEB AB, 2007)
Coffee queen
Coffee queen is a supplier of professional coffee making machines for offices, restaurants and fast-food chains. Today the company employs over 120 people and revenue for 2006 was 19m Euro. Coffee Queen Beverages Machinery (Shanghai) Co Ltd is a subsidiary of Coffee Queen located in Shanghai. It was established in 2006 and has 30 employees. Does not only deal with Chinese market but also other markets in the Asia/Pacific area (Coffee Queen, 2007).
Coffee Queen was founded in 1983 and started almost immediately to export to the other Nordic countries. As a small Swedish company they have to depend on the connections on different markets. The first country outside of the Nordic sphere was Greece. This market was entered due to the relationship founded with a Greek agent that immediately made it possible to enter the Greek market. In the same manor the South African market was dis-covered and entered by Coffee Queen.
During the late eighties Coffee Queen was pulled to other markets as distant as Korea, China and other south pacific markets in Asia by requests received when showcasing on in-ternational trade fairs. The success was only temporary and Coffee Queen soon withdrew from those markets when they slowly fading away.
Georg Möller, CEO and founder of Coffee Queen elaborates “You need local presence to keep your customers. Long term success on a foreign market is impossible without a local presence. When first en-tering China we were not prepared to deal with the customers after the sale was complete. A customer in China requires the same after sale service resources as a customer in our domestic market” (G. Möller, per-sonal communication, 2007-12-04).
When Coffee Queen´s ambitious aspirations in the Far East did not succeed, they decided to start over and focus on the domestic market and more closely related markets in Europe. The purpose was to build up strength and have a more controlled expansion. Markets were still entered and evaluated by the relationships made and acquired with agents on these markets. At this point Coffee Queen could not establish themselves on a foreign market without the support of an agent working in that market.
As the company was expanding in Europe the CEO Georg Möller decided to expand the domestic market further and bought a company in Norway that became a fully owned sub-sidiary.
Georg Möller explains “The reason why we did this kind of establishment in Norway was to be able to offer that market the same level of commitment and after sale service as we give at the domestic market. At this point we consider the Nordic countries as our domestic market and not just Sweden.” (G. Möller, per-sonal communication, 2007-12-04).
Coffee Queen had started producing components in China and had gained a strong posi-tion in the home and European market. The necessary resources and knowledge had now been acquired in order to make a proper attempt at penetrating the Chinese market. The strategy for the mode of entry was to open a fully owned subsidiary in order to avoid those mistakes made at the previous attempt in China. The time and place of the expansion was not made by extensive market analysis and evaluations but more decided on a hunch and by gut feeling by the CEO. He figured that this was the time for his attack and motivates his decision with:
“With good local presence, there is no difference in making business in China than with your next door neighbour. Experience from the previous attempt also let us knows that Asian customers demand for after sales services had been underestimated and was equal to the ones of the domestic market” (G. Möller, per-sonal communication, 2007-12-04).
.The next step for Coffee Queen was now to make a successful entry in to Germany. Cof-fee Queen products had been on the German market for many years but Coffee Queen was a very small actor. Since they had not found an agent that could fulfil a satisfactionary relationship at such a giant market the same strategy was used as in Norway and in China. A smaller company was found that suited the specific requirements and was purchased. Not with the purpose to gain that company’s customer base but merely to have a good starting point and foundation for a successful establishment at the German market. With this subsidiary in hand Coffee Queen could now offer the German customer a higher level of after sales service that was not managed with simply an agent.
Georg Möller, CEO reflects on the subject “Coffee Queen does not have a specific strategy to estab-lish subsidiaries on markets. When an agent that fulfils our needs is not found and we believe that the market is lucrative for us we believe that a subsidiary is needed for us to do well on that market” (G. Möller, personal communication, 2007-12-04).
Today the company is active in approximately thirty markets in Europe and Asia and have three fully owned subsidiaries. The main office is still in Arvika where a majority of the 120 employees are situated. Most of the export and business decisions are entirely made by the CEO, Georg Möller. The relationship and communication between the different affiliates go through Georg Möller himself. He believes that the knowledge and experience that ex-ists in the organisation is valuable and precious but the competence within is not fully util-ised. The solution for a more effective flow of information is presently uncertain. A coor-dinator is an option that is discussed that would handle these issues and make it easier to communicate within the organisation. The only opportunity for the subsidiaries to be united under the Coffee Queen brand is during trade fairs where all the parts of the organi-sation in assembled as one.
The next step for Coffee Queen in China was to start sourcing the production in order to be able to compete fully on the Chinese market. Georg Möller, CEO explains why: “It is possible to produce our product in Sweden and sell it in Germany, but it is not possible to sell that machine in China and make it in the long run anymore due to different levels of production costs. Being able to pro-duce the products at a lower cost in China will give us access and possibility to enter new markets from there in the future, such as the North American market which would not happen with a production facility in Sweden” (G. Möller, personal communication, 2007-12-04).
During Coffee Queen´s endeavours abroad they have noticed that different business cul-ture or a different kind of culture in the country does not make a big impact as long as you the product and service you offer is of high quality and sold at a decent price. “As long as you treat them well, they will treat you well” is a rule that the CEO Georg Möller tries conduct business and to live by. “Cultural differences has not had a big impact for us, there is no difference be-tween doing business with a person in China than a person in Åmål. Business is always Business” (G. Möller, personal communication, 2007-12-04).
Regin AB
Regin offers products and systems for building automation. Regin is represented in more than forty countries. Regin has offices in Hong Kong, Paris and Singapore that are respon-sible for China, other countries in South-East Asia, and Australia (Regin, 2007).
When Regin was founded in 1947 and began to export to surrounding Nordic countries very soon but the export was not a big focus and had little attention from the management. During the early eighties Regin implemented a more aggressive strategy and started to expand outside of Scandinavia. A person was hired whose sole purpose was to travel and find export possibilities. This was not the most efficient way to gather clientele, new markets was mostly found through trade fairs where offers were received and contacts made. The first new markets were the U.K, the US and the Netherlands. The management at Regin was not satisfied with this and believed that the interesting emerging markets in Asia were a good strategic option for Regin. The new active approach resulted in the purchase of a smaller sales company in Singapore. This was Regin’s first subsidiary but it was not an in-stant success. The company was kept but most focus did lie on Europe where a second subsidiary had been set up and also Russia had gained Reign’s attention and resources were aimed at these markets. It had become clear to Regin that in order to succeed on a foreign market they had to provide it with full attention. Johan Ohlsson Managing Director and in charge of sales, explains:
“In order to succeed on a foreign market you have to be present and struggle to penetrate the market. You have to visit the country with the purpose to create relations and network. You cannot handle that from Sweden and that way we cannot sell large volumes” (J. Ohlsson, personal communication, 2007-12-05).
Table of Contents
1 Introduction
1.1 Background
1.2 Problem Discussion
1.3 Purpose
1.4 Definitions
2 Theories and previous research
2.1 Measuring successful export
2.2 Uppsala Internationalisation Process model
2.3 The psychic distance path
2.4 Behavioural internationalisation model
2.5 Different Types of Knowledge
3 Methodology
3.1 Research approach
3.2 Inductive and deductive approach
3.3 Research strategy
3.4 Data collection
3.5 Gathering of Primary data / Interviews
3.6 Data analysis
3.7 Reliability and validity
4 Empirical Findings
4.1 Swedish SMEs and foreign investment in China
4.2 Coffee queen
4.3 Regin AB
4.4 SAJO Maskin International AB
4.5 Stafsjö Valves AB
4.6 Jörgen Malmberg, consultatant Mafic Trade AB
5 Result and case comparison
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Swedish SMEs’ Export Experience What did they learn and how did they use it in China
