CIBS faculty members have edited special issue "Asian Business & Management (2013) 12."
A Special Issue of Asian Business & Management (Vol. 12, No 5, December 2013) within the theme ’The Changing Competitive Landscape in Euro-Asia Business’ has been edited by Harald Dolles, Claes G. Alvstam and Patrik Ström, including among others, the following papers:
• Ivarsson, I. and C.G. Alvstam, (2013) ’Embedded Internationaization: How small-and medium-sized Swedish companies use business-network relations with Western customers to establish own manufacturing in China’. Asian Business & Management 12(5): 565-589.
• Din, F-U, H. Dolles and R. Middel (2013) ’Strategies for small and medium-sized enterprises to compete successfully on the world market: Cases of Swedish hidden champions’. Asian Business & Management 12(5): 591-612.
Asian Business & Management (2013) 12, 499–502. doi:10.1057/abm.2013.16
"The changing competitive landscape in Euro-Asia business"
Harald Dollesa,b, Claes G Alvstamc and Patrik Ström
One of the most interesting phenomena to emerge recently in the international economic and financial arena is the new role played by emerging economies as global investors. Corporations from emerging and developing economies are becoming important players in the globalized world economy and have embarked upon rapid globalization processes targeting industrialized economies, particularly in North America, Australia and Europe. As the motives of emerging-economy corporations seem to differ from the familiar market- and/or efficiency-seeking strategies of established players, both challenges and opportunities arise for the chosen host countries. Therefore, the ascent of companies from emerging markets on to the world stage is not necessarily entirely without friction. In this context, the rise of such companies also increases competitive pressures, and consequently one needs to better understand the implications that these pressures have on strategic development by competitors in Europe, Asia and the rest of the world. Thus, the competitive strategies adopted by established firms require further attention and continuous analysis. Similarly, the rise of new ‘born-globals’ or new multinational corporations from emerging and developing economies also has significant effects on their home countries and fosters economic development.
Built upon extensive case analysis and covering a variety of industries, this special issue aims to balance both perspectives. The articles by Kumar, Robins, and Jansson and Söderman represent the perspectives of firms from India and China finding their way on the world market. Strategies by European companies on how to compete successfully in the changing competitive landscape are investigated both in the contribution by Ivarsson and Alvstam, with a focus on small transnational corporations, and in the article by Din, Dolles and Middel analyzing so-called ‘Hidden Champions’. All five manuscripts were chosen from the best papers presented at the EAMSA Annual Conference held at the University of Gothenburg School of Business, Economics and Law, Sweden, in November 2011; subsequent amendments were made by the authors during a multiple-stage peer-review process.
The first contribution, by Nishant Kumar, examines internationalization by Indian knowledge-intensive service firms and their ability to continue growing beyond the initial internationalization phase. On the basis of three in-depth cases in the IT service and software development industry, the international entrepreneurial orientation of the companies is emphasized as a basis for success. Those companies sustain their entrepreneurial orientation by implementing a continuous effort to learn from both their experiences and the environment. This learning orientation requires organizational flexibility, implemented as part of the organizational structure and routine in the case companies. They also adopt a proactive approach to managing their international business operations, including relationships with clients. The firms were highly active in networking and pursued a business strategy to deliver high-quality services, thus securing positive references and being recommended to new customers. Consequently, their networking activities focus on preserving and enhancing perceived value in existing client relationships, rather than on activities to reach completely new customers or develop new services. Paradigm shifts in technologies, such as cloud computing, social media or mobile solutions, are seen as an opportunity for further growth on the global market.
The second contribution is about China’s outward foreign direct investment (OFDI), a fast-growing feature of today’s global economy. On the basis of several cases, Fred Robins explores some of the reasons why Chinese firms’ investment is causing concern and uncertainty in many recipient countries, which usually happily welcome foreign direct investment. The article examines, in particular, the state ownership and management of major Chinese corporations, the consequences of state ownership for corporate decision making and the impact of funding through state-owned financial institutions. The author concludes that Chinese OFDI is very different from the norm of a conventional, capitalist, economy. Although Chinese OFDI is not necessarily always ‘unique’, it generally ‘differs’ rather considerably from the private-sector market-economy norm, with the Chinese state directly influencing and at times directing major corporate policy decisions, including those related to overseas expansion.
Emerging markets today represent over 60 per cent of global growth. This implies increased South-South FDI and trade, which may have serious consequences for Euro-Asia business relations. There could also be an indirect effect of increased competition from Chinese firms for established local as well as foreign firms in emerging markets. Using a case study approach, Hans Jansson and Sten Söderman explore how two Chinese multinational corporations operating in the construction equipment industry built up their competencies and entry strategy in the Brazilian market. The global competition is intense in the construction equipment industry, being both highly globalized for many years with a few major dominating global firms from Europe, the United States and Japan, while at the same time having a large number of regional and local players. The reason why Chinese firms could successfully enter and compete in Brazil is built upon their competitive strength in the low-price segment. The authors conclude that both case companies copied the strategy applied in their home market to this foreign market, as Chinese firms appear to rely on the same resources and capabilities that are well developed in their home market when internationalizing. Their core business practices are adhered to, with few or no changes being made upon entry.
The fourth contribution, by Inge Ivarsson and Claes G. Alvstam, shifts perspective and researches how small- and medium-sized Swedish companies (so-called ‘small transnational enterprises’ or STNEs) succeeded in setting up and expanding manufacturing operations in China, despite a general lack of local market experience. This was done through a strategy whereby manufacturing units provided customized industrial products, mainly to Swedish and other international customers’ operations, both in China and through exports. Initially this was part of a cost and risk-minimizing strategy, and later as part of a more proactive growth and opportunity-development strategy. The authors use detailed firm-level data and apply a business network perspective to internationalization to show that such STNEs have become more export oriented, compared with their original intentions. An explanation for their success might be found within firm-specific advantages that helped them to establish wholly owned manufacturing operations in China. Theoretically, the findings suggest that in unfamiliar markets where foreign firms face the liability of outsidership and the liability of foreignness at the same time, both obstacles can be overcome through ‘embedded internationalization’, where resource-poor investing firms target other international customers by using their own reputation, their international market experience and their background in similar business cultures as critical firm-specific advantages to lower barriers to entry.
The last contribution focuses on a specific group of small- and medium-sized enterprises, which are characterized by being highly successful and innovative and erstwhile market leaders in their niche, with strong export performance and at the same time low public visibility. These companies are referred to as ‘hidden champions’. The research by Fateh-Ud Din, Harald Dolles and Rick Middel is focused on identifying the abilities and strategies of ‘hidden champions’ to successfully innovate and compete on the world market. The results from this exploratory case study indicate that their long-term success is rooted in a focused strategy of soft diversification, continuous innovation through close relationships with customers and employees, provision of superior quality and customized services compared with competitors, and not following management fads. Swedish hidden champions are not afraid of low-price competitors from developing countries such as China and India, as their success lies in their excellent innovation governance. They offer many lessons for other companies on how to foster innovation.
In conclusion, this ABM special issue addresses the need to better understand the changing nature of competition, the different patterns of strategic decision making and the strategic actions of actors from developed economies as well as new competitors from emerging markets. The articles also emphasize the need to consider how macro-level institutional foundations formed by the state are influencing the strategic choices of firms on the micro-level, when, for example, state policies play a key role in pushing firms to go abroad. Being embedded in global value chains works in the other direction; here, it pulls firms into operations outside their home market with benefits that ex ante are not predictable. By mainly building on existing customer relations or by developing new businesses with Western clients, STNEs lower entry barriers to setting up operations abroad significantly, thus providing a pathway for greater entrepreneurial ambitions. In defining their markets, hidden champions and Indian knowledge-intensive service firms display surprising similarities of using customer-oriented criteria such as tailored applications and addressing specific customer needs. In both cases, the applied-focus strategy leads to deep problem solutions, whereby hidden champions feature their products and technology, whereas the Indian counterparts emphasize their knowledge processing services.
To sum up, in all cases investigated in the articles of this special issue, specialized competencies have evolved over time that are difficult for competitors to match. For the people involved (entrepreneurs, managers and employees), we might conclude that ‘mental internationalization’ gradually emerges from increased knowledge of foreign markets, experiences, comparisons and learning. We hope that this special issue will contribute to this development.