Julia Truntschnig
Going Glocal Internationalization and Glocalization of Austrian SMEs in the Russian Federation
MASTER’S THESIS
Submitted in Partial Fulfillment of the Requirements for the Degree of
Master of Science
Studies of International Management Alpen-Adria-Universität Klagenfurt Faculty of Management and Economics
Supervisor: Univ.-Prof. Dipl.-Ing. Dr. Erich Schwarz Presupervisor: Mag. Dr. rer.soc.oec. Ana Kuntaric
Department of Innovation and Entrepreneurship
April 2015
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
AFFIDAVIT
I hereby declare in lieu of an oath that - the submitted academic paper is entirely my own work and that no auxiliary materials have been used other than those indicated; - I have fully disclosed all assistance received from third parties during the process of writing the paper, including any significant advice from supervisors; - any contents taken from the works of third parties or my own works that have been included either literally or in spirit have been appropriately marked and the respective source of the information has been clearly identified with precise bibliographical references (e.g. in footnotes); - to date, I have not submitted this paper to an examining authority either in Austria or abroad and that - the digital version of the paper submitted for the purpose of plagiarism assessment is fully consistent with the printed version.
I am aware that a declaration contrary to the facts will have legal consequences.
Villach, 4th of April, 2015
ii | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
ABSTRACT
Increased globalization leads companies of all sizes to consider going international in order to broaden their customer base, increase their sales and ensure the future success of their business. Internationalization, however, also brings along several challenges, such as the adaptation of products and marketing strategy to target customers with different cultural backgrounds and origins. As a result, in order to combine global standardization and local adaptation and eventually enable companies to achieve maximum success in a foreign market, the concept of glocalization evolved and is becoming more and more popular.
This thesis investigates both the concepts of internationalization and glocalization, in the framework of Austrian SMEs internationalizing to the Russian Federation, with special focus on the food and drinks industry. An in-depth survey with fourteen representatives of Austrian SMEs of this industry active in Russia, explores whether and to which extent Austrian SMEs glocalize their products, marketing communication and distribution, and whether the combination of internationalization and glocalization is beneficial for them.
Hence, this thesis contributes to academic literature about glocalization of SMEs, a field of scientific research which has received rather littler academic attention so far, especially in the context of Austria and Russia. The results of the conducted study revealed that product adaptations are carried out by very few SMEs and are largely focused on recipe and ingredients. Marketing communication was found to be adapted more frequently, most often with regard to language of product labels and promotion material, but also concerning content and design of promotion material and promotion channels. In conclusion, the study identified an interrelation between internationalization and glocalization by clearly demonstrating that glocalization positively influences SMEs’ success in the foreign market.
In summary, this research illustrates the substantial importance of both internationalization and glocalization for Austrian SMEs in the food and drinks industry and highlights the high potential of the Russian market in this sphere. It closes research gaps regarding foreign market entry of Austrian SMEs into the Russian Federation and sheds light on the phenomenon of glocalization within Austrian SMEs, contributing to academic research in these fields by providing reference for future operations of SMEs in the market.
iii | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
ACKNOWLEDGEMENTS
I would like to cease this opportunity to express my gratitude to several people for their
support with this thesis and my academic career in general.
First and foremost, I would like to thank all company representatives who participated in my
study for this thesis. Without their contribution, this master’s thesis would not have been
possible and their support and cooperativeness is highly appreciated.
I would also like to express my sincere gratitude to my
supervisor Univ.-Prof. Dipl.-Ing. Dr. Erich Schwarz, and especially to my presupervisor
Mag. Dr. rer.soc.oec. Ana Kuntaric, for their patient guidance, encouragement and advice
throughout the writing process of this thesis.
Last but not least, I would also like to thank my beloved parents and sister, for their constant
support, guidance and inspiration not only in my academic career, but throughout my entire
life. Words alone cannot express my gratitude for all that you have given me.
Thank you for always believing in me.
iv | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
TABLE OF CONTENTS
TABLE OF FIGURES AND TABLES ...... VII ABBREVIATIONS ...... VIII
1. INTRODUCTION ...... 1 1.1. STRUCTURE OF THE THESIS ...... 3
2. THEORETICAL FRAMEWORK ...... 4
2.1. TERMINOLOGY ...... 4 2.2. SMALL AND MEDIUM-SIZED ENTERPRISES (SMES) ...... 7 2.2.1. GENERAL CHARACTERISTICS OF SMES ...... 7 2.2.2. SMES IN AUSTRIA ...... 9 2.2.3. SMES IN THE RUSSIAN FEDERATION ...... 11 2.3. INTERNATIONALIZATION ...... 14 2.3.1. INTERNATIONALIZATION OF SMES ...... 14 2.3.1.1. MOTIVES FOR INTERNATIONALIZATION OF SMES ...... 14 2.3.1.2. BARRIERS FOR INTERNATIONALIZATION OF SMES ...... 15 2.3.2. FOREIGN ENTRY MODES OF SMES ...... 16 2.3.2.1. EXPORT FOREIGN MARKET ENTRY MODES ...... 18 2.3.2.2. INTERMEDIATE FOREIGN ENTRY MODES ...... 19 2.3.2.3. HIERARCHICAL FOREIGN ENTRY MODES ...... 21 2.3.2.4. FOREIGN MARKET ENTRY MODES: AUSTRIA AND RUSSIA ...... 21 2.4. AUSTRIA AND THE RUSSIAN MARKET ...... 22 2.4.1. THE BUSINESS RELATIONSHIP BETWEEN AUSTRIA AND RUSSIA ...... 22 2.4.2. OPPORTUNITIES FOR AUSTRIAN SMES IN RUSSIA ...... 23 2.4.3. CHALLENGES FOR AUSTRIAN SMES IN RUSSIA ...... 25 2.5. INNOVATION ...... 27 2.5.1. INNOVATION IN THE FRAMEWORK OF SMES ...... 28 2.5.2. INNOVATION IN INTERNATIONALIZED SMES ...... 30 2.6. FROM GLOBALIZATION TO GLOCALIZATION ...... 31 2.6.1. GLOCALIZATION IN PRODUCT MANAGEMENT ...... 34 2.6.2. GLOCALIZATION IN MARKETING COMMUNICATION ...... 36 2.6.3. GLOCALIZATION IN DISTRIBUTION ...... 38
3. EMPIRICAL FRAMEWORK ...... 40
3.1. RESEARCH APPROACH AND TECHNIQUE ...... 40 3.2. RESEARCH DESIGN ...... 42 3.3. DATA COLLECTION METHOD ...... 44 3.4. SAMPLE DESCRIPTION ...... 45 3.4.1. COMPANY DESCRIPTIONS ...... 46 3.4.2. GENERAL CHARACTERISTICS OF THE SAMPLE ...... 49 3.5. RESEARCH FINDINGS AND ANALYSIS ...... 52 3.5.1. INTERNATIONALIZATION ...... 53 v | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
3.5.1.1. INTERNATIONAL EXPERIENCE ...... 53 3.5.1.2. ANNUAL TURNOVER AND TURNOVER ACHIEVED ABROAD ...... 54 3.5.2. THE RUSSIAN MARKET ...... 56 3.5.2.1. MAIN MOTIVATION TO ENTER THE RUSSIAN MARKET ...... 56 3.5.2.2. MARKET ENTRY STRATEGIES FOR RUSSIA ...... 56 3.5.2.3. CURRENT ACTIVITY IN RUSSIA AND EFFECT OF ECONOMIC SANCTIONS ...... 57 3.5.2.5. BUSINESS SUCCESS IN RUSSIA ...... 58 3.5.3. GLOCALIZATION ...... 59 3.5.3.1. GLOCALIZATION IN PRODUCT MANAGEMENT AND DEVELOPMENT ...... 60 3.5.3.2. GLOCALIZATION IN MARKETING COMMUNICATION ...... 62 3.5.3.3. GLOCALIZATION IN DISTRIBUTION ...... 65 3.5.3.4. RELATIONSHIP BETWEEN INTERNATIONALIZATION AND GLOCALIZATION ...... 66 3.6. CONCLUSIONS AND IMPLICATIONS ...... 68 3.7. LIMITATIONS AND SUGGESTIONS FOR FURTHER RESEARCH ...... 69
4. CONCLUSION ...... 70
5. APPENDIX ...... 74
5.1. EMPIRICAL RESEARCH: QUESTIONNAIRE IN ENGLISH ...... 74 5.2. EMPIRICAL RESEARCH: QUESTIONNAIRE IN GERMAN ...... 78 5.3. ANALYSIS OF THE SURVEY RESULTS - CALCULATIONS ...... 83
6. REFERENCES ...... 86
vi | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
TABLE OF FIGURES AND TABLES
FIGURE 1: NUMBER OF SMES PER 1,000 OF POPULATION, 2011…………………..………..………… 12 FIGURE 2: PERCENTAGE OF FAMILY INCOME SPENT ON FOOD & DRINKS, 2010…..………..………... 23 FIGURE 3: AVERAGE FAMILY EXPENDITURE ON FOOD AND EVERYDAY ITEMS (IN RUB/MONTH) …... 24 FIGURE 4: GEOGRAPHIC SPREAD OF SAMPLE……………..………..………..………..………..……... 49 FIGURE 5: COMPANY CLASSIFICATION……………..………..………..………..………..……………. 50 FIGURE 6: A) SUB-SECTORS IN EU FOOD & DRINK EXPORTS 2012 IN % B) SUB-SECTORS OF SAMPLE IN %……..………..………..………..………..…………...... 52 FIGURE 7: INTERNATIONAL ACTIVITY MEASURED BY NUMBER OF COUNTRIES.………..…………….53 FIGURE 8: INTERNATIONAL ACTIVITY IN GENERAL COMPARED TO ACTIVITY IN RUSSIA…………… 54 FIGURE 9: ANNUAL TURNOVER ACHIEVED IN DOMESTIC MARKET AND ABROAD.………..…………. 55 FIGURE 10: PERCENTAGE OF TURNOVER ACHIEVED ABROAD.………..…………. .………..…………55 FIGURE 11: A) SUBJECTIVE OPINION OF SUCCESS IN RUSSIA B) ANNUAL TURNOVER ACHIEVED IN RUSSIA.………..………….………..……………... 58 FIGURE 12: AREA AND DEGREE OF PRODUCT ADAPTATION.………..………… .………..…………. ..61 FIGURE 13: AREA AND DEGREE OF MARKETING ADAPTATION.………..………… .………..………… 63 FIGURE 14: DISTRIBUTION METHODS.………..………… .………..………… .………..…………….. 65
TABLE 1: DEFINITION OF SME.………..………… .………..………… .………..……………………... 8 TABLE 2: AUSTRIA'S 10 MOST IMPORTANT EXPORT COUNTRIES SINCE 1990.………..………………. 10 TABLE 3: SME SEGMENTATION - DIFFERENCES BETWEEN EUROPE AND RUSSIA.………..………….. 11 TABLE 4: RUSSIA’S EXPORT COUNTRIES IN 2013.………..………… .………..………… .………….. 13 TABLE 5: YEARS OF EXPERIENCE IN DOMESTIC MARKET AND ABROAD.………..…………………... 51 TABLE 6: CORRELATION BETWEEN SUCCESS AND GLOCALIZATION.………..………… .……………. 67
vii | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
ABBREVIATIONS
CEE: CENTRAL AND EASTERN EUROPE
CIS: COMMONWEALTH OF INDEPENDENT STATES
EU: EUROPEAN UNION
FDI: FOREIGN DIRECT INVESTMENT
MNC: MULTI-NATIONAL CORPORATION
SME: SMALL AND MEDIUM-SIZED ENTERPRISE
R&D: RESEARCH AND DEVELOPMENT
WKO: WIRTSCHAFTSKAMMER ÖSTERREICH (AUSTRIAN CHAMBER OF COMMERCE AND TRADE)
WOS: WHOLLY-OWNED SUBSIDIARY
viii | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
1. INTRODUCTION
Going global . . . It starts with recognizing that the world has no center . . . customers will differ from country to country and that they will expect you to respect those differences. Learn this or stay at home. (Champy, 1997, p. 25)
Technological advancements, declining trade barriers and increased communication possibilities across borders are the main drivers of globalization in today’s fast-developing, ever-changing world. Companies of all sizes need to consider going international in order to broaden their customer base, increase their sales and ensure future success of their business. However, internationalization brings along several challenges especially for small businesses, such as the adaptation of products, marketing strategy and distribution methods to target customers with different cultural backgrounds and origins. As a result, in order to combine global standardization and local adaptation and profit from both approaches, the concept of glocalization evolved and is now becoming more and more popular.
Globalization and internationalization were targets of extensive research in the last years, but research has been devoted mainly to the investigation of the concepts in the framework of large MNCs. Rather little attention has been paid to SMEs, regardless of the fact that they are increasingly active in international markets. Especially in terms of Austrian companies doing business in the Russian Federation, research has so far been restricted to MNCs, even though SMEs are actively operating in the market as well. Furthermore, the rather new concept of glocalization has received rather little attention in academic literature so far, although it is closely connected to internationalization, and the combination of both can be highly beneficial for companies of all sizes.
Hence, despite the fact that SMEs are the main driver of the Austrian economy (WKO Austria Report, 2014, p. 5ff.), a considerable research gap could be identified concerning glocalization and internationalization of Austrian SMEs, especially in the context of Russia. Neither is there any academic literature or statistics about the most frequent market entry method of Austrian SMEs into Russia, nor any information about the process of glocalization within Austrian SMEs. Therefore, this thesis contributes to these fields of academic research by investigating the internationalization and glocalization process of Austrian SMEs, operating in the Russian Federation, with special focus on companies in the food and drinks
1 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES industry. The main research questions that shall be answered in this thesis are thus: firstly - do Austrian SMEs glocalize their products, marketing communication and distribution strategy when they internationalize to Russia? Secondly, if they glocalize, which elements of the marketing mix do they glocalize and to which extent? And thirdly, is the combination of glocalization and internationalization beneficial for Austrian SMEs in the food and drinks industry?
Thus, this thesis shall reveal whether and how Austrian SMEs consider the particularities of the Russian market in their product management and development, marketing communication and distribution strategy, when they internationalize to Russia. Furthermore, it shall be attempted to illustrate whether the combination of internationalization and glocalization is beneficial for Austrian SMEs. The investigations and analysis are based on an extensive literature review and enhanced by empirical research.
The food and drinks industry was chosen as target industry for this thesis because of its high propensity to be adapted for foreign markets, since food and drinks are very subject to local tastes and preferences. Moreover, food and drinks is one of the largest industries in Austria, employing over 26,500 people in more than 220 enterprises. It exhibits a yearly production volume of € 8.1 billion and an export rate of 60%. Austrian foodstuffs are exported to more than 180 export markets and 90% of the enterprises in this sector can be classified as SMEs, making it a very interesting sphere for this thesis (Fachverband der Lebensmittelindustrie, 2013, w/o p.).
The Russian Federation was chosen as target market for manifold reasons. Firstly, it is a vast country that has always had a high demand for Western products, thus constituting great potential for foreign companies. Secondly, increasing wealth in emerging countries like Russia has led to higher numbers of potential customers, thus attracting not only big multinational companies, but also small and medium enterprises wanting to expand their business activities. Thirdly, the author of this thesis spent an extended period of time living and studying in Russia, which gave her the opportunity to experience the demand and supply of Western products in the country, as well as the general attitude regarding trade with the West.
The factors under investigation in this study are of importance in explaining the reasons for success or failure of SMEs in the food and drinks industry when internationalizing to Russia. This thesis can also serve as a reference for companies planning to enter the market in the
2 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES future in order to avoid common mistakes and become familiar with the market’s particularities and challenges, but also opportunities.
1.1. STRUCTURE OF THE THESIS
This thesis reports on the results of a theoretical academic literature review and an empirical research study. It is divided into two main sections, which are structured in chapters and subsections. The first main section of this thesis concentrates on the theoretical framework of the topic and the second main section presents the empirical study.
Chapter 2 (Theoretical Framework) is dedicated to providing the basis of this thesis by reviewing scientific research and literature. In order to ensure the understanding of the terms used throughout this thesis, it starts with a short terminology section, defining and explaining the most important terms. After that, it investigates the concept of SMEs and the process of internationalization of SMEs. Special attention is paid to the Russian market as potential target market for Austrian SMEs. Subsequently, the interrelation between innovation and internationalization is described and the development from globalization to glocalization is presented, followed by an investigation of the concept of glocalization and its relevance in product development and management, marketing communication and distribution.
In chapter 3 (Empirical Framework), the empirical study carried out for the purpose of this thesis is outlined. Data was collected from representatives of internationally active Austrian SMEs in a web-based survey. In order to ensure comparability, all selected SMEs belong to the sector of food and drinks, have their headquarters in Austria and operate in Russia. The analysis of the survey is intended to provide answers to the main research questions, or – to be more precise - to find out whether Austrian SMEs in the food and drinks industry glocalize their products when they internationalize. Eventually, the results shall reveal whether glocalization is beneficial for Austrian SMEs when they internationalize to Russia. The findings of the empirical part are summarized in this chapter and will continuously be reflected on the reviewed literature. This chapter ends with an outline of limitations of the study and suggestions for further research.
Eventually, the conclusion at the end of this thesis summarizes, reviews and connects the theoretical and empirical content presented in this thesis, providing answers to the main research questions.
3 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
2. THEORETICAL FRAMEWORK
The aim of the following chapter is to introduce theoretical concepts necessary for the understanding of the empirical study carried out for the purpose of this thesis. The first part of this chapter introduces and defines important terminology that will be used throughout this thesis. Sub-chapter two focuses on SMEs in general, but also in Russia and Austria in particular. Sub-chapter three presents research on internationalization of SMEs, also outlining the most common foreign entry methods. In sub-chapter four, the economic relationship between Austria and Russia is investigated, and characteristics of the Russian market, resulting in motives and challenges for Austrian SMEs, are described. Sub-chapter five briefly touches upon the topic of innovation in internationalized SMEs, and sub-chapter six focuses on research findings about the development of the concept of glocalization and the relevance of the concept for SMEs. All information in this chapter is based on scientific literature.
2.1. TERMINOLOGY
In the following section, the most important terms that are going to be used throughout this thesis will be explained to ensure a common understanding with regard to the research direction of this thesis. The terms are organized in alphabetical order.
ADAPTATION
The adaptation approach in international marketing suggests customizing products by adapting them to local preferences when internationalizing. It implies that companies need to take cultural and environmental differences like language, education, taste, law etc. into account when entering foreign markets and adapt their products to national standards, preferences and demand (Czinkota & Ronkainen, 2000, p. 305). According to Vrontis & Thrassou (2007, p. 8), it is highly important to change not only the product itself, but also the marketing strategy, to meet local market needs, local tastes and consumer requirements that differ from domestic markets.
GLOBALIZATION
There are many different definitions of the term globalization. Hollensen (2011, p. 6), for example, defines it as “the trend of firms buying, developing, producing and selling products and services in most countries and regions of the world”. It is a phenomenon fuelled by many
4 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES different factors, like the rapid growth of low-cost technology and easier connection between people across the world, as well as growing awareness of global business opportunities. Other factors include reduced trade barriers and deregulation of financial markets, which lead to higher integration among economies (Ruzzier, Hisrich & Antoncic, 2006, p. 477). According to Hudea & Papuc (2009, p. 302), globalization is “a process fueled by, and resulting in, increasing cross-border flows of goods, services, capital, people, information, and culture. It is like moving towards living in a borderless world”. Both definitions are valid and relevant for this thesis, but since it is going to focus mostly on one foreign target market, the second definition by Hudea and Papuc (2009, p. 302) will be applied for the purpose of this thesis.
GLOCALIZATION
The term glocalization consists of the words globalization and localization and refers to the interaction of both. It can be defined as “the way in which ideas and structures that circulate globally are adapted and changed by local realities” (Tiplady, 2003, p. 5). The concept of glocalization implies that products and services are more likely to be successful in a foreign market if they are adapted to the local culture and preferences (Matusitz & Reyers, 2010, p. 233ff.). Thus, the term combines the approaches of global standardization and local adaptation in product management and development, marketing communication and distribution, and describes products that are created to be sold globally, but are nevertheless customized to suit local cultures (Robertson, 1995, p. 28).
INNOVATION
According to the OECD & Eurostat (2005, p. 46), innovation is “the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organisational method in business practices, workplace organisation or external relations.” In general, it describes the process of change in terms of ideas, methods or devices in a company (Griffin & Somermeyer, 2007, p. 484), or as Schumpeter (1947, p. 151) puts it, “…the doing of new things or the doing of things that are already being done in a new way”.
The degree of innovativeness differs when looking at it from different perspectives, e.g. from the firm-level, market-level or world-level. The most common way to distinguish innovations with regard to their degree of innovativeness is to categorize them into radical and incremental innovations. Radical innovations include completely new technologies that
5 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES create a new market and consumer demand (Garcia & Calantone, 2002, p. 120ff.). Incremental innovations, on the other hand, contribute new features or imply minor changes to existing products or services in existing markets, for companies to stay competitive (Tidd, Bessant & Pavitt, 2005, p. 6f.).
INTERNATIONALIZATION
In general, companies are considered to be international when they pursue business activities outside their national borders (European Commission, 2010, p.6). According to Ruzzier, Hisrich & Antoncic (2006, p. 477), internationalization is “a synonym for the geographical expansion of economic activities over a national country’s border”. Other scholars, however, also define it as the establishment of business connections in foreign countries in the form of extension, penetration and integration (Lehtinen & Penttinen, 1999, p. 13).
PRODUCT DEVELOPMENT
Product development is an aspect of innovation and can be defined as “transformation of a market opportunity and a set of assumptions about product technology into a product available for sale” (Krishnan & Ulrich, 2001, p. 1). It is often considered to be the main driver of economic growth and “the largest single means by which individual firms prosper or decline in the marketplace” (Thwaites, 1983, p. 36). If a product idea is defined, conceptualized, designed and commercialized to be successfully introduced to a new or existing market, this activity is commonly referred to as New Product Development (NPD). Due to the fast, ever-changing conditions on today’s market, NPD is a main success factor for companies (Ismail, Leow, Yong, Abdul-Majid, Thwala & Ajagbel, 2012, p. 1ff.).
SME (SMALL AND MEDIUM-SIZED ENTERPRISE)
According to the OECD (2000, p. 2), SMEs are “non-subsidiary, independent firms which employ fewer than a given number of employees”. According to the definition by the European Union (European Commission, 2005, p. 14), SMEs include micro, small and medium enterprises, which employ a maximum of 250 people and have a yearly turnover of maximum € 50 million, or a balance sheet total of up to € 43 million.
STANDARDIZATION
According to the standardization approach, there are cultures and countries with similar environment and demand, implying that certain marketing mix elements can be standardized and used identically in several countries. Scholars argue that declining trade barriers and
6 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES technological advancements fuel a more global approach to international marketing. Levitt (1983, p. 92), for example, states that companies should move away from customizing products and marketing communication and offer globally standardized products to “operate as if the world were one large market”. According to him, companies can offer advanced, low priced products and thus achieve greater success by concentrating on what everyone wants instead of considering particular needs of relatively small communities (Levitt, 1983, p. 96f.).
2.2. SMALL AND MEDIUM-SIZED ENTERPRISES (SMES)
Small and Medium-Sized Enterprises (SMEs) are the main driver of Europe’s economy. According to the European Union, about 99% of all businesses in Europe classify as SMEs, accounting for more than half of the total business value in Europe. Furthermore, SMEs are not only crucial to economic growth and the economy as a whole, but also regarding innovation and R&D, since they are considered to bring new innovations to the market more often than large companies (European Commission, 2013, p. 1; Stokes & Wilson, 2010, p. 112). The relevance of SMEs in the European Union can also be mirrored to Austria, but the situation in Russia is different. The upcoming sections are first going to present general characteristics of SMEs and afterwards focus specifically on SMEs in the focal areas of this thesis, Austria and Russia.
2.2.1. GENERAL CHARACTERISTICS OF SMES
SMEs in general can be defined as “non-subsidiary, independent firms which employ less than a given number of employees” (OECD 2000, p. 2). The number of employees differs across national borders, but the most frequently used measurement is a maximum of 250 people. Some nations, like Australia for example, use a ceiling of 200 employees, whereas others, like the USA, set a limit of maximum 500 employees (OECD 2000, p. 2). According to the definition used within the member states of the European Union, two basic factors determine whether a company can be categorized as SME: firstly, the number of employees working in the company and secondly, either the annual turnover or the balance sheet total. In order for a company to qualify for the status of SME, the number of employees must not exceed 250 and it can have either a yearly turnover of up to € 50 million or a balance sheet total of up to € 43 million, as illustrated in Table 1 below (European Commission, 2005, p. 14).
7 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
Headcount Turnover Balance Sheet Total in € mill. in € mill.
Micro Enterprise < 10 ≤ 2 ≤ 2
Small Enterprise < 50 ≤ 10 ≤ 10
Medium Enterprise < 250 ≤ 50 ≤ 43
TABLE 1: DEFINITION OF SME (ADAPTED FROM EUROPEAN COMMISSION, 2005, P. 14) Furthermore, SMEs can be divided into micro enterprises, small enterprises and medium enterprises. The headcount for medium enterprises must not exceed 250, with an annual turnover of less than € 50 million or a balance sheet total of up to € 43 million. Small enterprises employ less than 50 people and achieve a turnover or balance sheet total of less than a maximum of € 10 million. Micro enterprises have up to 10 employees and a turnover or balance sheet total of maximum € 2 million (European Commission, 2005, p. 14).
Typically, the owner of an SME is also the manager and sets the corporate culture of the organization. He/she provides capital and takes over responsibility for the company’s financial matters and risks (Kruse, 2009, p. 22). Relationships between employees of SMEs are usually rather informal and hierarchies are flat, because of the low degree of formalization of the organization. SMEs are generally very close to the customers and therefore responsive to them. They provide products/services that meet the customers’ requirements and can quickly adapt their offers to customers’ demands (Pfohl, 2006, p. 18 ff.). According to Stokes & Wilson (2010, p. 112), SMEs also bring innovations to the market more frequently than larger companies, since SMEs need to be faster, more flexible and more innovative than MNCs to stay competitive with them.
A very common problem for SMEs worldwide is lack of resources (Hollensen, 2011, p. 12). Many entrepreneurs are specialists in their field, but lack the necessary formal business education to manage a company (Levy & Powell, 2005, p. 33). Therefore, decision-making is often based on intuition and previous experience of the management, rather than strategic planning (Pfohl, 2006, p. 18). Due to their limited financial resources, geographical limitations and domestic outlook, the process of internationalization can also frequently pose problems for SMEs (Barringer & Greening, 1998, p. 467f.).
Nevertheless, according to Verheugen (European Comission, 2005, p. 3), “micro, small and medium-sized enterprises (SMEs) are the engine of the European economy. They are an essential source of jobs, create entrepreneurial spirit and innovation in the EU and are thus
8 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES crucial for fostering competitiveness and employment”. Furthermore, SMEs are considered to contribute to the stabilization of economies and income growth. They drive economic development by buying local resources and consequently creating new job opportunities (Mugler 2005, p. 57 f.). They are also very active in educating workforce through employing and educating apprentices (Hamer 2006, p. 34f.). However, the role and importance of SMEs differs between countries. Therefore, the upcoming sections are going to introduce the concepts and importance of SMEs in both focal areas of this thesis, Austria and Russia.
2.2.2. SMES IN AUSTRIA
SMEs account for a vital part of the Austrian economy. In 2012, about 99.6% of all Austrian enterprises were SMEs, amounting to around 256,000 enterprises with overall 1.7 mill. employees and 65,000 trainees. More than 87% of these companies employ less than 10 people, followed by 10% employing 10-50 people and 1.8% with 50-250 employees. These 99.6% of Austria’s enterprises provide about 62% of all Austrian employement, and are therefore the main driver of Austrian economy, contributing more than 58% to the national GDP (WKO Austria Report, 2014, p. 5ff.). Most SMEs in Austria belong to the wholesale and retail trade sectors (25%) and the accommodation and food service sector (15%) (European Commission, 2014, p. 2).
The largest concentration of SMEs in Austria is to be found around Vienna, with another high concentration in Lower and Upper Austria and Styria. Traditionally, Austrian SMEs base their success on the proximity to the customer. However, over the course of the last years, their focus has changed. Due to increased globalization and internationalization, Austrian SMEs slowly started to work internationally and by 2014, about half of Austria’s exports could be attributed to SMEs, as will be further explained in the next paragraph (WKO Austria Report, 2014, p. 31).
According to the BMWFW (2014b, p. 5), around 14,800 Austrian SMEs export their products to non-EU countries. These 14,800 SMEs represent 95% of all exporters, that export their products to countries outside of the EU, accounting for about 35% of the overall export-volume outside the EU. In comparison to that, SMEs represent 97.5% of all exporters to EU-countries, accounting for about 50% of the export volume. This indicates that around 65% of the export volume outside of the EU and around 48% of the export volume within the EU can be attributed to Austria’s large enterprises, which represent only 5% of all Austrian exporters (BMWFW, 2014b, p. 5).
9 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
Regardless of the size of the exporting enterprises, 68.9% of the overall Austrian exports in 2013 were carried out within the EU (BMWFW, 2014a, p. 2). Germany is Austria’s main export partner (43.7%), followed by the remaining EU-15 countries (32%) and the EU-13 countries (24.3%). 9.5% of all exports went to Asia, 8.2% to America, 1.3% to Africa and 11.3% to the rest of Europe. Traditionally, as illustrated in Table 2 below, Russia is the 10th most important export country for Austria, accounting for about 2.8% of all exports in 2013 (BMWFW, 2014a, p. 6).
Ranking Country Percentage of Overall Exports 2013 1990 1990 1995 2000 2013 1 1 Germany 36.9 38.4 33.4 30.1 2 2 Italy 9.8 8.9 8.7 6.5 3 6 USA 3.2 3.0 5.0 5.6 4 3 Switzerland 6.9 5.4 6.3 5.0 5 4 France 4.7 4.4 4.4 4.7 6 - Czech - 2.7 2.9 3.5 Republic 7 9 Hungary 2.2 3.6 5.0 3.1 8 5 Great 3.9 3.3 4.4 2.9 Britain 9 - Poland - 1.4 1.6 2.9 10 - Russian - 1.5 1.0 2.8 Federation
TABLE 2: AUSTRIA'S 10 MOST IMPORTANT EXPORT COUNTRIES SINCE 1990, RANKING: 27/6/2014 (ADAPTED FROM BMWFWA, 2014, P. 6)
Table 2 also shows that the amount of exports to Russia has risen significantly over the last 20 years, illustrating the increasing importance and relevance of the market for Austrian companies of all sizes. From a total of only 1.5% in 1995, the percentage of exports by Austrian companies to Russia rose to considerable 2.8% in 2013, making Russia the 10th most important export market for Austria.
In general, goods and services exported from Austria to other countries include mostly machinery and equipment, motor vehicles and parts, paper and paperboard, metal goods, chemicals, iron and steel, textiles and foodstuffs (World Factbook, 2015, w/o p.).
10 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
2.2.3. SMES IN THE RUSSIAN FEDERATION
The definition of SME differs between Europe and Russia. As illustrated in Table 3, major differences can be found in the categories of small enterprises and medium enterprises. In Russia, small enterprises encompass companies with up to 100 employees, whereas in the EU, companies with only up to 50 employees are categorized as small enterprises. Furthermore, in the category of medium enterprises, the definition by the EU sets a turnover of € 10-50 million, whereas in Russia medium companies may achieve only € 10-25 million of turnover. There are also differences in the category of micro enterprises, but they are rather minor. Russian micro enterprises employ up to 15 people and achieve a turnover of € 1.5 million maximum, whereas in the EU micro enterprises employ only up to 10 people, but are allowed to achieve a turnover of € 2 million (European Investment Bank, 2013, p. 6).
Russia EU Turnover Headcount Turnover Headcount in € mill. in € mill. Micro <15 <1.5 <10 <2 Enterprise Small 15-100 1.5-10 10-50 2-10 Enterprise Medium 101-250 10-25 50-250 10-50 Enterprise
TABLE 3: SME SEGMENTATION - DIFFERENCES BETWEEN EUROPE AND RUSSIA (ADAPTED FROM: EUROPEAN INVESTMENT BANK, 2013, P. 6)
Even though the Russian SME sector has experienced growth since 2005, it only accounts for about 20-25% of the overall Russian GDP. More than half of Russia’s SMEs are engaged in the trade sector, 11.5% in manufacturing, 11% in construction and 9.7% in real estate. It is also noticeable that about 80% of all Russian SMEs turnover is acquired in the European part of Russia, especially around the areas of Moscow (18%) and St. Petersburg (7%) (European Investment Bank, 2013, p. 3).
Research shows that the number of SMEs in Russia per 1,000 people is 2.5 times lower than the average in Europe, which indicates that there is an enormous growth potential of the segment in the Russian economy (European Investment Bank, 2013, p. 8). As illustrated in
11 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
Figure 1, Austria and Russia both rank below European average regarding number of SMEs per 1,000 of population. Austria is still close to the average, but Russia clearly falls behind (European Investment Bank, 2013, p. 8). Presumably, the low representation of SMEs in Russia is also due to the vast size of the country, making it difficult for SMEs to supply the whole country with products/services and thus encouraging the activities of larger companies.
NUMBER OF SMES PER 1,000 OF POPULATION (2011) 100 88 90 80 71 70 70 70 63 59 59 58 60 58 54 53 50 45 42 41 40 40 38 38 37 36 35 35 40 34 32 27 30 26 25 20 17 12 10
0
Italy
Spain
Malta
Latvia
Russia
France
Cyprus
Poland
Irleand
Austria
Greece
Europe
Finland
Estonia
Sweden
Belgium
Bulgaria
Slovakia
Slovenia
Hungary
Portugal
Romania
Denmark
Germany
Lithuania
Netherlands
Luxembourg Czech Republic Czech United Kingdom United FIGURE 1: NUMBER OF SMES PER 1,000 OF POPULATION, 2011 (ADAPTED FROM EUROPEAN INVESTMENT BANK, 2013, P. 8) In total, the number of SMEs in Russia has grown by 7% since 2008, amounting to 4.4 million enterprises in 2012. They provide around 23% of overall employment in the Russian Federation, which is also 1.7 times lower than the European average of 39% (European Investment Bank, 2013, p. 8).
According to the Russian Agency for Support of Small & Medium Business (2013, p. 5f.), exporting is not very popular amongst Russian SMEs. Only around 1% of all Russian SMEs are involved in export/import activities, even though experts believe that many Russian SMEs have good export potential (Russian Agency for Support of Small & Medium Business, 2013, p. 5f.).
In general, regardless of company size, about two thirds of the overall Russian exports can be attributed to the energy sector. Other export goods include metals (7.8%), chemicals (5.8%), machinery (5.3%) and food (3%) (Außenwirtschaft Austria, 2014b, p. 28). The main trading partners for Russia are the European Union (especially the Netherlands and Germany), the CIS countries, and China (Außenwirtschaft Austria, 2014b, p. 29). In 2013,
12 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES the top-export countries were the Netherlands, Germany, China, and Italy, as illustrated in Table 4 below.
Russia: Export 2013 Ranking Country Billions of USD Percent Share 1 Netherlands 53.6 10.7 2 Germany 41.0 8.2 3 China 34.1 6.8 4 Italy 27.4 5.5 5 Ukraine 24.8 5.0 6 Turkey 24.3 4.9 7 Belarus 20.4 4.1 8 Japan 20.0 4.0 9 Poland 18.9 3.8 10 USA 17.2 3.4
TABLE 4: RUSSIA’S EXPORT COUNTRIES IN 2013 (ADAPTED FROM: COUNTRY REPORTS: RUSSIAN, 2014, P. 14) Both Russia and Austria, are trying to encourage further internationalization of their enterprises. Thus, the following section is going to focus on the internationalization of SMEs and present the most common foreign entry modes.
13 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
2.3. INTERNATIONALIZATION
For SMEs, as for companies in general, it is crucial to constantly expand the customer base in the domestic market and abroad. Over the last few years, trade barriers across borders were dismantled steadily and technological advancements increasingly enabled the connection of people in different locations all over the world (Gjellerup, 2000, p. 16). Thus, internationalization is an ever-present topic also for SMEs and will be the object of investigation in the upcoming sections of this thesis.
2.3.1. INTERNATIONALIZATION OF SMES
According to Calof & Beamish (1995, p. 116), internationalization can be defined as “the process of adapting firms’ operations (strategy, structure, resources etc.) to international environments”. This implies that internationalization involves not just the entry into foreign markets, but also the development of international activity from within a company’s domestic country. Traditionally, SMEs target customers in their own region and remain mostly within their domestic country’s borders, which is why SME were for a very long time believed not to be particularly influenced by globalization. However, globalization and the increasing demand to attract new customers also triggered SMEs’ international activity and caused more and more SMEs to go international (Gjellerup, 2000, p. 16ff.).
In general, SMEs are more flexible than MNCs and can make decisions more easily because of less complex organizational structures, which allow them to react to changes in customers’ needs immediately. However, problems can arise because of their lack of resources in terms of finance, information, and labour force (Paunovic & Prebezac, 2010, p. 60). Due to these drawbacks, internationalization can be very risky for SMEs, since mistakes in the process can lead to the failure of the business altogether (Kruse, 2009, p. 24). Naturally, the more diverse the new target market is from the SMEs domestic market, the more complicated and difficult is the internationalization process (Lu & Beamish, 2001, p. 566). Nevertheless, internationalization brings numerous benefits for SMEs, which serve as motivators for going international. Both motives and barriers for SMEs regarding internationalization are discussed in more detail in the upcoming sections.
2.3.1.1. MOTIVES FOR INTERNATIONALIZATION OF SMES
There are manifold motives for SMEs to internationalize. The two main motives are usually to increase profitability and enhance further growth of the company (Lu & Beamish, 2006,
14 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES p. 28). Hollensen (2011, p. 6), however, states that “international expansion provides new and potentially more profitable markets, helps increase the firm’s competitiveness and facilitates access to new product ideas, manufacturing innovations and the latest technology”. Therefore, internationalization enables SMEs not only to increase profit and competitiveness, but also gives them access to new product ideas and innovations. Furthermore, as can be seen in a report by the European Commission (2010, p. 8), internationally active SMEs have higher employment rates than other SMEs. According to this report, SMEs with export activity experienced employment growth of 7% between 2007 and 2008, whereas employment growth of non-internationally active SMEs amounted to only 3% (European Commission, 2010, p. 8).
With respect to managerial characteristics, the personality of the entrepreneur is a crucial factor for SMEs when they internationalize. Personal characteristics, international experience and language skills can influence the export propensity positively (Suárez-Ortega & Álamo-Vera, 2005, p. 273). The nature of the business is also influential. Family businesses were found to be less likely to internationalize, since they are traditionally more conservative and less prone to take the risk of going international (Hauswald, 2013, p. 70).
Furthermore, the size of the SME’s domestic market impacts internationalization. SMEs from large countries, located far away from borders, are less likely to go international, whereas small domestic markets push SMEs to enter foreign markets and expand their customer base abroad (European Commission, 2010, p. 6). Bilkey (1985), as cited in Fletcher (2001, p. 26f.), also claims that the demand for products on a foreign market and export opportunities or support by the government influence the international activity of SMEs positively.
Hence, in summary, internationalization is fuelled by numerous motivators and constitutes no longer a choice, but rather a must for many SMEs, in order to be able to survive and grow further (Hurmerinta-Peltomäki, 1994, p. 24). Nevertheless, there are several barriers for SMEs willing to internationalize, which also need to be taken into consideration.
2.3.1.2. BARRIERS FOR INTERNATIONALIZATION OF SMES
Barriers for SMEs to internationalize can stem from internal or external factors. Internal factors refer to the company’s internal environment - its resources, abilities and competences. External barriers are usually connected to the industry, market, or other macro characteristics in the foreign or domestic market (Leonidou, 1995, p. 31ff.). There are
15 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES different approaches to classifying internal and external barriers of internationalization for SMEs. Kahiya (2013, p. 3ff.), for example, divides internal barriers into resource-related barriers, managerial-related barriers, marketing-related barriers and knowledge-related barriers. In contrast to that, external barriers include home-based market barriers, host-based market barriers and industry-level barriers. Wolfmayr (2004, p. 493) formulated three main categories of barriers: entrepreneurship and strategic aspects, which involve the company size, competition, transport costs etc., general regional conditions, including language barriers, custom duties etc., and information and financial aspects, such as lack of finance for export and export insurance, or lack of knowledge about the target market.
The most common problems for SMEs during the internationalization process are low demand of the product in the foreign market, high transportation costs, appropriate distribution channels (Bilkley 1978, in Rundh, 2001, p. 321), competition, product standards and safety regulations and consumer preferences (Rundh, 2001, p. 321). Corruption is also regarded as a barrier, since it raises the cost of entering the market profoundly (Acs, Morck, Shaver & Yeung, 1997, p. 10). According to Rundh (2001, p. 323), one of the main problems in the internationalization process are cultural differences between the domestic and foreign market. The larger the psychological distance in terms of language and culture, the higher is the barrier to internationalization. Therefore, it is of tremendous importance for companies wishing to enter foreign markets to become acquainted with cultural particularities and seek help by professionals to overcome cultural problems (Rundh, 2001, p. 323).
The choice of the appropriate foreign market entry mode is often considered as the first major challenge for SMEs when they attempt to internationalize. Therefore, the most common entry modes are presented in the next section.
2.3.2. FOREIGN ENTRY MODES OF SMES
Studies show that 40% of all European SMEs are involved in international business relationships (European Commission, 2010, p. 14). Most of them engage in international trade through export or FDI strategies (Lu & Beamish, 2001, p. 566). Despite the fact that the internationalization process of SMEs and MNCs differs greatly, choosing the right entry mode is one of the most important decisions in the process of internationalization for both SMEs and MNCs (Erramilli & Rao, 1990, p. 136).
According to Young, Hamill, Wheeler & Davies (1989, p. 253), there are three main approaches to choosing the most suitable foreign entry mode for internationalization:
16 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
- the economic approach, - the stages-of-development approach, and - the business-strategy approach.
The main focus of the economic approach is rational decision-making, based on the comparison of costs and benefits, in order to choose the option that maximizes profitability in the long run (Young et al., 1989, p. 253). The stages-of-development approach also concentrates on rational decisions, but it stresses that strategies need to be made step by step. It states that different stages of the internationalization process require different entry modes, replacing previous entry modes with new ones if the previous one proves to be unprofitable. The business-strategy approach focuses on pragmatic decision-making. It claims that making rational decisions is often not possible, because many factors can cause uncertainty (Young et al., 1989, p. 260). Furthermore, the internationalization objectives of a company can be manifold and conflicts between them can occur, further complicating the process of rational decision-making (Young et al., 1989, p. 260 ff.). Therefore, this approach suggests going through different stages to find the best and most profitable entry mode. These stages include a feasibility screening to get rid of alternatives that are not suitable and a calculation or estimation of the net profit contribution of the remaining alternatives. Furthermore, a comparative risk analysis and an analysis for non-profit objectives need to be carried out, followed by the final, overall ranking of alternatives. This process of analysis is then supposed to reveal the most suitable entry mode for a specific target country (Young et al., 1989, p. 260 ff.).
After the market has been entered, several theories exist as to the further proceeding of a company in the market. One of these theories is the Uppsala internationalization model, which was published in 1977 by Jan Johanson and Jan-Erik Vahlne. According to Johanson and Vahlne (1977, p. 23ff.), the internationalization process is a learning process. Companies usually enter a foreign market with very little commitment, as in exporting, but the more commitment they allow, the more experienced they get, which subsequently results in the investment of more resources. Concerning market knowledge, it is said that companies first expand to the markets they know best. After they feel that they have gained enough knowledge, they consider expanding to markets that are more alien to them. Thus, it can be concluded that both market experience and market knowledge play a vital role in the internationalization process of companies (Johanson & Vahlne, 1977, p. 29).
17 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
Foreign market entry modes in general can be divided into categories based on different criteria. Hollensen (2011, p. 317) groups them into three categories, which are export modes, intermediate modes and hierarchical modes, based on the factors of control, risk and flexibility. The decision, which entry mode to choose, depends largely on the risk-aversion of the entrepreneur, the control he/she wants to have over the foreign operation and the required flexibility. In the following, the main entry modes, based on Hollensen’s (2011, p. 317) classification, are presented.
2.3.2.1. EXPORT FOREIGN MARKET ENTRY MODES
Most internationalization processes of SMEs start with exporting, because export entry modes are characterized by low risk and low control, but high flexibility (Hollensen, 2011, p. 317). Also larger companies often prefer export entry modes when entering a new market for the first time (European Commission, 2010, p. 6).
There are three main categories of export: direct, indirect and cooperative export. They are divided based on the functions that are taken over by external agents or the company itself (Lee & Carter, 2009, p. 232). If a company chooses to export directly, it sells its products directly to the buyer in the target market, which is most commonly an agent or distributor (Albaum, Stransdskov & Duerr, 2002, p. 292). The company is responsible for the whole process, from identifying potential markets to marketing activities (Douglas & Craig, 1995, p. 157f.).
Indirect export is a process in which the manufacturing firm is not directly involved in the exporting activities. An external company, e.g. a trading company, carries out the export on behalf of the manufacturing company (Hollensen, 2011, p. 338). It is the external company’s responsibility to find potential customers and distributors in the target market and organize shipping of the product, including aspects like insurance, custom duties etc. However, there are some drawbacks to this entry mode, such as the risk of damage of reputation of the manufacturing company, since it has no influence on which channels the products or services are being sold through and how marketing activities and after-sales services are carried out. Furthermore, there is no contact with the market, which results in a potential loss of opportunity, because the manufacturing firm has no information about the foreign market’s potential, demand and customer preferences (Douglas & Craig, 1995, p. 155f.). Nevertheless, SMEs often use this entry mode because it does not require extensive resources and investment.
18 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
The third method, the cooperative export mode, involves the establishment of cooperative agreements with other companies willing to export. This is often the case when companies have limited resources but wish to maintain control over their foreign operations. The cooperating companies’ product ranges, however, should be complementing each other rather than competing with each other, in order for the cooperation to be successful. Cooperative export enables companies to reduce transportation costs and negotiate more stable prices, as well as to achieve more powerful brand names as a group. However, cooperation between companies often turns out to be very difficult, due to conflicting interests and intentions of different entrepreneurs (Hollensen, 2011, p. 348f.).
In summary, export is a rather low-risk foreign market entry mode that does not require the investment of extensive financial resources. Therefore, it is still the most common internationalization method for SMEs.
2.3.2.2. INTERMEDIATE FOREIGN ENTRY MODES
Intermediate foreign entry modes are characterized by shared control and risk, split ownership and, as a result, limited flexibility. They include options like licensing, franchising, contract manufacturing, joint ventures and strategic alliances (Hollensen, 2011, p. 317).
LICENSING
Licensing is an option to enter foreign markets without investing capital. The licensor, which is the company seeking to go international, makes an agreement with a licensee, an already established company in the target country. The licensee receives the permission to use something in possession of the licensor, like know-how, trademark, brand name etc., and in return has to produce, market and sell the product covered by the agreement in the target market. The licensee pays the licensor a fixed amount of money as a guarantee at the beginning of the deal and a fixed percentage of the annual sales volume. Licensing is most commonly used by manufacturing companies to enter foreign markets (Hollensen, 2011, p. 357ff.).
Licensing is considered to be especially suitable for SMEs, because it requires no capital investment and promises rapid market entry with low risks. For the target market, licensing can also be advantageous, since it brings new knowledge to the country (Terpstra & Sarathy, 2000, p. 392f.). However, this can be problematic for the licensor, because he needs to make
19 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES sure industrial property rights are legally protected in the target market to make sure the company’s processes and know-how are not copied (Root, 1994, p. 111).
FRANCHISING
Franchising is very similar to licensing and most commonly used in services companies. The difference between licensing and franchising lies in the fact that marketing activities are not the responsibility of each franchisee separately, but centrally organized by the franchiser (Hollensen, 2011, p. 357). The franchisee receives from the franchiser the trademarks, know- how, management and financial assistance, as well as joint advertising and the right to do business under the franchiser’s name, in return for a fixed sum and a certain percentage of the annual profit (Hollensen, 2011, p. 361f.).
Franchising is a convenient way for entrepreneurs who need to be locally present in the target country, like in the service industry. However, the franchisers’ risk is rather high and they need to make sure that the same standards are applied in every franchisee-branch around the world to ensure their reputation is not damaged by franchisees who do not respect standards (Douglas & Craig, 1995, p. 161f.).
INTERNATIONAL JOINT VENTURES AND STRATEGIC ALLIANCES
Another way to enter foreign markets is to go into a joint venture or strategic alliance with a local company. A strategic alliance is a partnership that does not involve equity investment. Regarding joint ventures, companies can choose between contractual non-equity and equity joint ventures (Lee & Carter, 2009, p. 233). The contractual non-equity JV is very similar to the strategic alliance. The most common form is the equity joint venture, which is the establishment of a new entity through capital investments of the parent companies, to pursue mutual strategic objectives (Young et al. 1989, p. 209).
JVs are considered to be international, if at least one partner company is headquartered in a different country than the country of the JV’s operation. Usually, the foreign partner brings expertise in technology and production, brand name and reputation, whereas the domestic partner provides distribution networks and market know-how (Douglas and Craig 1995, p.163). Distinctions can be made based on the functions the collaboration focuses on. Downstream-based joint ventures concentrate on marketing, distribution and after-sales, whereas upstream-based joint ventures focus on R&D and production (Hollensen, 2011, p.
20 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
367). In comparison to this, strategic alliances often concentrate on only one part of the value chain, e.g. marketing, R&D, etc. (Douglas & Craig, 1995, p. 166).
Shared costs and risk as well as foreign ownership restrictions in many developing countries are the main reasons for JVs (Hollensen, 2011, p. 367). However, because of the substantial financial investment that is necessary for JVs, flexibility is rather low in comparison to strategic alliances. Furthermore, conflicts between the parent companies are a frequent reason for failure of JVs (Douglas and Craig 1995, p. 165).
2.3.2.3. HIERARCHICAL FOREIGN ENTRY MODES
Hierarchical foreign entry modes are characterized by high levels of control and risk and relatively low flexibility (Hollensen, 2011, p. 316f.). The most frequently stated example of hierarchical modes is the wholly-owned subsidiary.
WHOLLY-OWNED SUBSIDIARY
The establishment of a WOS in the foreign market is a favorable option mostly for companies that are already very well established in their domestic market (Young et al., 1989, p. 2). Subsidiaries are local companies operated and owned by a foreign entity, and can be found either in the form of sales subsidiaries or sales and production subsidiaries (Hollensen, 2011, p. 386 ff.).
The establishment of a WOS is carried out through either acquisition or a greenfield investment. Acquisition enables the company to use already established distribution channels, brand name etc., and sell products to existing customers. In contrast to that, greenfield investments involve the building of new operations from scratch. Companies often choose to establish WOS because of tax advantages and enhanced customer contact as well as higher autonomy in the target market. However, establishing subsidiaries in foreign markets requires capital investment and bears higher risks than other foreign entry modes (Hollensen, 2011, p. 386 ff.).
2.3.2.4. FOREIGN MARKET ENTRY MODES: AUSTRIA AND RUSSIA
Unfortunately, there is no information available as to which market entry strategy is used most frequently by Austrian companies when entering the Russian market and vice versa. The Austrian Chamber of Commerce and Trade was contacted and asked for information about the most frequent market entry modes, but it could provide neither scientific information, nor statistics. According to the Austrian Chamber of Commerce and Trade
21 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES branch in Moscow, however, as expressed in an email to the author of this thesis on 7th of March, 2015, the most frequently used entry mode is export through cooperation with a Russian distribution partner and consequently the opening of either a subsidiary, or branch office (Feichtinger N., personal communication, March 7, 2015). This also correlates with the general suggestions in academic literature, described in the last sections.
2.4. AUSTRIA AND THE RUSSIAN MARKET
The following chapter is going to outline the high economic potential of the Russian Federation for Austrian SMEs. First, the current relationship and business ties between the countries with special regard to SMEs is briefly summarized. Subsequently, specific barriers and motivators to enter the market are presented. This chapter puts special emphasis on the food and drink industry in the countries of analysis, since this is the industry of investigation of this thesis.
2.4.1. THE BUSINESS RELATIONSHIP BETWEEN AUSTRIA AND RUSSIA
The Russian Federation is the largest country in the world, spanning more than 17,000 km² and 11 time zones. The Russian Federation and 14 other Soviet republics evolved as independent states after the breakup of the Soviet Union. Today, Russia has extensive resources like oil, gas, coal and timber, and is the world’s largest exporter of natural gas and the second largest of oil (Youngblood-Coleman, 2014, p. 1).
Austria, in comparison to Russia, is a very small country with little resources and reserves. Nevertheless, like already mentioned in section 2.2.1. General Characteristics of SMEs of this thesis, about 2.4% of all Austrian exports go to Russia, and 3.1% of all Austrian imports come from Russia. These 2.4% of all Austrian exports amount to € 3.477 billion (Außenwirtschaft Austria, 2014b, p. 31). Most exports to Russia are carried out by the industry of machinery and equipment (45.08%), followed by pharmaceuticals (23.18%), iron and steel (6.23%), and paper and paperboard (3%). The Austrian food industry exported food worth € 207 million to Russia in 2013, making Russia the 8th most important export country for the food and drinks industry in Austria. The imports from Russia are traditionally, and were also in 2013, dominated by oil and gas (87%), followed by metals (5.9%) and wood (1.5%). Russia is thus a very attractive market for Austria and is expected to become even more attractive in the future, despite current problems due to the economic sanctions (Außenwirtschaft Austria, 2014a, p. 31f.).
22 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
2.4.2. OPPORTUNITIES FOR AUSTRIAN SMES IN RUSSIA
Over the course of the last years, the Russian market has grown rapidly, leading to local SMEs’ incapability to serve and satisfy the vast country’s needs and demand. Local SMEs lack resources, capabilities and infrastructure to supply the whole country with their products, resulting in great potential for foreign companies to engage in trade with the country (Kouznetsov, 2009, p. 382).
Even though Russian imports are mostly dominated by machinery and equipment, Russian consumers are also keen on imported food products, agricultural products and manufactured consumer goods from Western Europe and East Asia (Country Reports: Russian, 2014, p.
14). Furthermore, around 32% of a Russian family’s income is spent on purchasing food products, which is considerably higher than the percentage European families spend, which amounts to only 15-20% (Awara Group, 2013, w/o p.). Austrian families, for example, spent only 10.2% of their monthly income on food and drinks in 2010 (Eurostat, 2012, w/o p.), as illustrated in Figure 2 below. Thus, Russia represents a very attractive market for companies in the food and drinks industry which seek new market opportunities.
EXPENDITURES FOOD & DRINKS (%), 2010 35 32 30 29,1 26,4 25 18,7 19,6 19,8 20 17,3 14,9 15 12,9 13,8 10,2 10 5 0 Austria Europe Czech Slovenia Slovakia Latvia Poland Estonia Lithuania Rumania Russia Republic
FIGURE 2: PERCENTAGE OF FAMILY INCOME SPENT ON FOOD & DRINKS, 2010 (ADAPTED FROM: EUROSTAT, 2012 & AWARA GROUP, 2013) Within Russia, financial resources spent on food and everyday items are highest in Moscow and St. Petersburg, with 19,000 RUB and 18,000 RUB per month respectively. As illustrated in Figure 3, families living in other cities spend between 11,000 and 15,000 RUB per month, which is still a considerable sum (Awara Group, 2013, w/o p.).
23 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
FAMILY EXPENDITURES ON FOOD & EVERYDAY ITEMS, RUB/MONTH
Other cities 11000 Yekaterinburg 15000 St. Petersburg 18000 Moscow 19000 0 5000 10000 15000 20000
Family Expenditures on Food & Everyday Items RUB/month
FIGURE 3: AVERAGE FAMILY EXPENDITURE ON FOOD AND EVERYDAY ITEMS (IN RUB/MONTH) (ADAPTED FROM: AWARA GROUP, 2013) More than half of the monthly expenditures in Moscow, Saint Petersburg and Nizhny Novgorod are dedicated to the purchase of fresh food. The main places for shopping are supermarkets (43%) and hypermarkets (38%). In general, Russians are considered to prefer buying local food products (Awara Group, 2013, w/o p.), but a study by Nielson revealed that 76% of all Russians are in fact interested in trying new products (Przybysz, 2013, w/o p.).
Furthermore, there is a high level of luxury consumption in the country, and foreign brands are very popular and often associated with higher quality (Awara Group, 2013, w/o p.). Therefore, the growing demand for Western products by customers especially in St. Petersburg and Moscow constitutes a big opportunity for foreign companies. International brands are considered to be of higher quality than domestic ones, causing consumers to pay higher prices for imported Western (food) products. Moreover, a trend of health-conscious eating has evolved recently in Russia, especially amongst young consumers. Increased travel of Russian consumers to European countries has also exposed them to new foods, which they would like to be able to buy at home too (Agriculture and Agrifood Canada, 2011, p. 3f.; Awara Group, 2013, w/o p.).
The Austrian government is also trying to encourage SMEs to expand to Russia and keep establishing business contacts with the country, despite the current rather difficult situation due to the economic sanctions imposed on Russia, which will be further explained in detail in the upcoming section. However, already before the crisis with the Ukraine, the Austrian government tried to encourage companies to expand their business operations to the market by offering financial incentives and know-how for Austrian companies willing to do business with Russia. The so-called Export Scheck, an initiative by the Chamber of
24 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
Commerce and Trade, enables SMEs entering Turkey, Belarus, Moldova and all markets outside of Europe, to receive financial support in the form of 75% of their net-costs regarding consulting, marketing, travel and overnight costs, legal consultation and fiscal consultation, which arise in the context of the expansion of their business activities to one of these countries. Every SME can receive up to € 10,000 in total per new market, for up to a maximum of three markets (Go International, 2014, w/o p.). The Chamber of Commerce and Trade has also reacted to the new situation caused by the economic sanctions by introducing a new support package to help SMEs with their internationalization to Russia and the Ukraine. In the framework of this package, SMEs, which are doing business with Russia or the Ukraine and had to face losses due to the crisis and the economic sanctions, receive financial support until the end of 2015, in order for them to be able to maintain business contacts with these markets. Additionally, they can make use of financial support of up to 30,000 Euro for entering alternative markets, like the CIS countries, if their business relationship with Russia and/or the Ukraine failed or has become impossible as a result from the sanctions (Go International, 2014, w/o p.).
2.4.3. CHALLENGES FOR AUSTRIAN SMES IN RUSSIA
Russia offers many opportunities, but nevertheless many foreign companies are reluctant to enter the market because of potential challenges and presumably high risk (Kouznetsov, 2009, p. 383). In fact, Russia has built institutional and administrative barriers for foreign companies to enter the market. The legal system is less transparent than in Europe and legislation changes frequently, making it even harder for foreign companies to keep up with the newest regulations and comply with the law (Kouznetsov, 2009, p. 383). Discrimination towards business licensing and registration of companies and problems with access to distribution channels, are also among the most common problems (Braodman, 2000, p. 157).
Furthermore, according to the Russia Country Monitor Report, corruption and bribery are considered to be major problems for foreign companies in Russia (Country Reports: Russian, 2014, p. 22). Corruption also affects the investment climate, causing investors to deem the Russian market as rather unattractive, due to “corrupt bureaucracy, weak standards of transparency and corporate governance, and the lack of an independent judiciary” (Country Reports: Russian, 2014, p. 3). Kouznetsov (2009, p. 383) also states that especially smaller companies are often victims of corruption due to a lack of resources and contacts in the market, which keeps many smaller foreign companies from entering the Russian market.
25 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
Another factor that negatively affects the motivation to enter Russia is cultural differences. Cultural factors can negatively influence the establishment of co-operations between Western and Russian companies, since they can lead to misunderstandings, or evoke negative feelings with one of the parties. In general, Russian companies are rather short-term oriented, making future planning often difficult (Jansson, Jansson & Ramström, 2007, p. 960). Moreover, in comparison to Western cultures, Russians tend to show their feelings openly and be very affective, even in a professional context. At the same time, having control is very important for them, in order to avoid being cheated on, resulting in managers’ strong focus on obtaining control and preserving power also within partnerships with foreign companies (Jansson et al., 2007, p. 964).
In general, the Russian economy is still overly dependent on energy export (70.6% of total export earnings in 2013), which is becoming increasingly problematic because of the sharp decline of energy prices and rising oil supplies in recent times. As a result, the economic environment in Russia is currently characterized by very high inflation, which drives investors to withdraw their money from Russia and look for safer places elsewhere (Country Reports: Russian, 2014, p. 4). Naturally, these feelings have further strengthened with the latest political and economic developments in the country, outlined in the following paragraph.
In 2014, the United States and the European Union imposed economic sanctions on Russia in response to Russia’s annexation of Crimea in the Ukraine (Country Reports: Russian, 2014, p. 22). As a result, Russia’s president, Vladimir Putin, decided to ban the import of agricultural goods and certain types of food from countries that imposed sanctions on Russia. Besides the EU and USA, also Canada, Australia and Norway are affected. The ban on food imports includes beef and pork meat, poultry and products made from poultry, sausage products, milk and dairy products, fish, vegetables and fruit (including nuts and root vegetables) (Außenwirtschaft Austria, 2014b, p. 92). Consequently, the Russian currency, the ruble, depreciated since the beginning of 2014 and is likely to be weakened further in 2015. Naturally, these developments negatively affect the Russian economy’s growth and investment environment and damaged Russia’s standing worldwide. Therefore, many companies are currently reluctant to expand their business to Russia, or even withdraw their products from the Russian market (Country Reports: Russian, 2014, p. 22).
26 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
As products often need to be adapted when companies internationalize, it can be said that internationalization and innovation are somewhat interrelated and influence one another. For this reason, the following chapter of this thesis is going to give a brief overview of innovation in SMEs in general, and internationalized SMEs in particular.
2.5. INNOVATION
Innovation, by definition, is the process by which companies launch new products or services, or improve existing products or services. The concept of innovation, however, is somewhat nebulous. It is often brought into relation with inventions, but is has to be noted that, even though the terms are related, they are not interchangeable. Invention is often a prerequisite for innovation, but only turns into innovation when it is exploited commercially (Trott, 2012, p. 15f.).
Furthermore, R&D is often regarded as equal to innovation, but R&D in fact deals with the allocation of resources to research and development of ideas aimed at the development of products and processes that can be realized commercially, whereas innovation relates to the subsequent product development process (Godin, 2002, p. 7ff.). Thus, R&D is not the best source of investigation with regard to innovation, since neither do all R&D activities result in successful product or process development, nor does every product or process innovation necessarily require R&D. Moreover, R&D is traditionally considered to be predominant in MNCs rather than SMEs, whereas SMEs are considered to get their knowledge mostly from third-party firms or research institutions, like universities (Audretsch, 2004, p. 171). Since the focus of this thesis lies clearly on SMEs, R&D is not of high relevance for this thesis and is therefore not going to be further taken into account.
In summary, innovation is a rather complex concept that was defined differently by numerous scholars. With respect to focus of this thesis, which lies on the industry of food and drinks, the definition that is going to be used for the purpose of this work describes innovation as “the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organisational method in business practices, workplace organisation or external relations” (OECD & Eurostat, 2005, p. 46). The most common drivers of innovation in this context are technological advancements, changing customer needs, changing business environment and intensified competition (Goffin & Mitchell, 2010, p. 2).
27 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
There are many different ways to distinguish and categorize innovations. According to Tidd, Bessant & Pavitt (2005, p. 10ff.), four different types of innovations exist – product, process, position and paradigm innovations. Product innovations involve a change of products or services offered by a company, whereas process innovations are described as changes in the way how products/services are created and/or delivered. Position innovation refers to change of the context in which the product or service is introduced into the market. Paradigm innovation is the change of the underlying mental models of what the company is doing (Tidd et al., 2005, p. 10ff.). Tidd et al. (2005, p. 10ff.) also distinguish between different degrees of innovativeness – incremental, which implies new to the company, and radical, which means entirely new to the world. Another way to measure innovation is to determine whether innovative products are intended to be sold at an existing market or whether, with the creation of the product, new markets need to be created as well (Tidd et al., 2005, p. 10ff.).
In today’s ever-changing environment companies of all sizes need to be innovative in order to survive. Increased internationalization, especially in the field of SMEs, has further added to the competition and made innovation absolutely necessary, especially for SMEs (Ebrahim, Ahmed & Taha 2010, p. 2247), which will be further explained in the upcoming section.
2.5.1. INNOVATION IN THE FRAMEWORK OF SMES
Innovation and new product development research in the past has been focused mainly on larger companies, leaving SMEs out of attention (Cooper, Edgett & Kleinschmidt 2004, p. 43ff.), even though innovation, especially with regard to internationalization, differs greatly between MNC and SMEs. There is no clear opinion in literature about whether small or large companies innovate more, but small enterprises can definitely profit from their size in terms of increased flexibility and enlarged possibilities to adapt to situations and implement change faster (Hausman, 2005, p. 774). Hence, they are often very successful in developing new product-market combinations, or adapting products to the demand of niche markets or individual customers (Hausman, 2005, p. 774). Innovation is also one of the most important ways for SMEs to contribute to economic development in a country (Keizer, Dijkstra & Halman, 2002, p. 1).
Nevertheless, innovation can have both positive and negative effects for SMEs. Positive outcomes of innovation for SMEs include increased operational efficiency, enhanced financial performance through cost benefits and greater in-house expertise. Negative effects,
28 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES on the other hand, are mostly operational issues and financial risk due to higher innovation costs for SMEs than for larger companies (Laforet, 2011, p. 380ff).
Innovation carried out in SMEs is largely dependent upon managerial skills and capabilities (Beaver & Jennings, 2000, p. 397ff.). It is often claimed that the inability of SMEs to be consistently innovative stems from inadequate marketing and management skills. Since innovation is a rather complex process, it requires advanced managerial skills, especially in terms of planning and financial judgement. The lack of sufficient financial resources to acquire appropriate labor force is thus one of the major problems for SMEs with regard to innovation, as it was also stated by Beaver and Prince (2002, p. 30):
Access to finance and the presence of equity gaps are commonly cited as major barriers to innovation throughout the small business literature. Innovation often requires considerable front-end sunk costs, invariably beyond the scope of the small firm’s internal resources.
There is also a considerable lack of models, describing innovation processes in the framework of SMEs. Most existing models were initially designed for MNCs, and only applied to SMEs later, or not adapted for SMEs at all. One model, however, that deals with SMEs in particular, was developed by Atherton & Hannon (2000, p. 276ff). They introduced a three-stage innovation model, designed to guide managers of SMEs in terms of new product process development in their company. In the first stage, opportunities within and outside the SME are assessed and the innovation strategy determined. In the second stage, these opportunities are implemented and in the third stage, they are strategically commercialized (Atherton & Hannon, 2000, p. 276ff).
With regard to innovation in SMEs in the industry of food and drinks, relatively little research has been undertaken so far. A study by Capitanio et al. (2010), as cited in Baragheh, Rowley, Sambrook & Davies, (2012, p. 304), revealed that food companies pursue more process innovations than product innovations, and product innovations are incremental. However, Avermaete (2002), as cited in Baragheh et al. (2012, p. 304), found that companies in this sector mainly pursue incremental product and process innovations. Besides product, process and market innovation, which were most frequently investigated by researchers with respect to the food industry, packaging innovation also proved to be of great importance (Baragheh et al., 2012, p. 304).
29 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
2.5.2. INNOVATION IN INTERNATIONAL SMES
Numerous studies (e.g. Lefebvre & Lefebvre, 2002) show that innovation activities positively influence the propensity of SMES to internationalize. One of the main reasons for this positive relationship is that the potential market is a lot wider for companies offering innovative products or services, than for less innovative companies (Autio, Sapienza & Almeida, 2000, p. 919f.). However, recent studies also report that internationalization in return triggers innovativeness of SMEs. A report by the European Commission (2010, p. 9), for example, shows that 26% of internationally active SMEs introduced products or services that were considered new in their domestic countries in 2010, in comparison to only 8% of non-internationally active SMEs that did so (European Commission, 2010, p. 9).
It is important to distinguish between product and process innovations with regard to internationalization. Product innovations enable firms to target foreign markets and give them a competitive advantage over domestic companies. In contrast to that, process innovations give companies the opportunity to adapt or innovate products, produce them faster and consequently reduce costs. Therefore, new process technology can also motivate companies to revise their focus and strategy and eventually go international (Bell, Crick & Young, 2004, p. 37). Thus, innovation and internationalization are interrelated and influence one another. Through access to new markets, knowledge, technologies and product ideas, innovation is enhanced and foreign technology spillovers are probable (Kleinknecht & Oostendorp, 2002, p. 310ff.). Even though SMEs need to invest considerable financial resources to be able to engage in international activities, it also enables them to acquire resources and knowledge from abroad, and use them for their own good (Subramaniam & Venkatraman, 2001, p. 359f.).
Companies choose to internationalize their innovation for manifold reasons, but most of them seek to gain either new knowledge, new market opportunities or efficiency. Knowledge-seeking firms try to augment their existing knowledge through accessing foreign knowledge and technology, in order to integrate it in the firm’s own processes (Cantwell & Piscitello, 2005, p. 11f.). Market-seeking firms aim to sell their own innovations in a foreign market, which often requires adaptation of technologies to local environments, preferences and standards – so-called localization of the product. The main goal of efficiency-seeking companies is cost-reduction of innovation (Pearce & Papanastassiou, 1999, p. 39ff.). If SMEs decide to implement international innovations, this will have different effects than
30 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES implementing domestic innovations. Access to new knowledge and technology is likely to result in more effective innovation processes, more efficient production and higher sales of new products. However, international innovation also causes higher costs, uncertainty and failure rates, due to the fact that companies are not familiar with the foreign environment and have higher transaction costs (Rammer & Schmiele, 2009, p. 48f.).
Internationalization of innovation and the interdependence between internationalization and innovation are largely fuelled by globalization. Furthermore, the concept of glocalization also influences innovation in internationalized SMEs by creating the need for product adaptation. Therefore, the following chapter of this thesis is going to outline the development from globalization to glocalization and describe the concept of glocalization in different contexts.
2.6. FROM GLOBALIZATION TO GLOCALIZATION
Globalization is a rather new term, which appeared for the first time in the English language in the 1960s (Beyer, 2007, p. 98). It has gained popularity quickly and is nowadays one of the most discussed themes in the world. In the context of business and economics, it refers to “the trend of firms selling and distributing products and brands in many countries around the world” (Knight, 2000, p. 13). Even though it is a worldwide phenomenon, countries are globalized to different extents, but every nation, regardless of its size or level of development, is affected by globalization (Kearney, A.T., 2002, p. 47).
Globalization caused boundaries between markets all over the world to become less relevant and enabled businesses to increase their activities abroad. According to Levitt (1983, p. 92), “companies must learn to operate as if the world were one large market”. Other scholars, however, note that people living in different countries do maintain their own culture and behavior patterns and even though they share certain values and beliefs across national borders, they modify their behavior by adapting local values and customs (Champy, 1997, p. 24f.).
In literature, there are three major strategies of presence in more than one market: global, international and multinational (Schulte & Jackson, 2007, p. 62). The global strategy is characterized by centralized management of assets and resources, which implies standardized product design, worldwide manufacturing and centralized management of operations. Global companies serve customers with similar needs all over the world (Ranchhod & Gurau, 2007, p. 292). Companies pursuing an international strategy adapt the
31 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES parent company’s capabilities and knowledge to foreign markets. Every subsidiary adapts its strategy to the local market, but corporate culture, product concepts and brand names are the same as in the parent company (Schulte & Jackson, 2007, p. 62). Multinational companies have highly independent subsidiaries and strong local presence. Brand names can be common, but subsidiaries are considered more or less independent in their activities (Ranchhod & Gurau, 2007, p. 292). Levitt (1983, p. 92) also distinguishes between multinational and global companies, but describes the terms differently than in the definitions stated above. According to Levitt (1983, p. 92), multinational companies are companies that operate in a number of countries and adapt their products and practices to each country, whereas global companies use the same products and practices everywhere in the world, as if it was a single entity.
In general, the major effects of globalization on business worldwide can be categorized into global market opportunities and global market threats. Global market opportunities include increased market, trade and investment potential and resource accessibility, whereas market threats involve higher levels of competition and uncertainty (Jones, 2002, p. 325ff.). However, for SMEs globalization often poses problems, since they lack resources and capabilities to compete with multinational enterprises. SMEs thus respond differently to these changes in their business environment. On the one hand, many SMEs use the opportunity to operate outside their domestic market and participate actively in the process of globalization. Others decide to expand their market position through differentiation of their products and strengthening of their innovative capabilities to avoid price competition from foreign markets (Rammer & Schmiele, 2009, p. 18f).
It was long believed that globalization enables companies to benefit from cost reductions, improved quality of products, enhanced customer preferences and competitive leverage, but only by sacrificing responsiveness to local needs, distancing from the customer and reducing adaptation to local customer behavior and marketing environment (Yip, 1989, p. 33ff). In response to this, scholars started to investigate how companies can benefit from their global activities while staying in the game on the domestic market. In this context, Douglas & Wind (1987, p. 25) were among the first to introduce the concept of think globally and act locally. This concept can be described as a business strategy with worldwide perspective, taking individual countries’ cultures and cultural differences into account (Douglas & Wind, 1987, p. 26). However, this concept did not only receive positive feedback, but also widespread criticism, as for example by de Mooji (2010, p. 19), who said:
32 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
The global-local paradigm is a paradox: One cannot think globally; every human being thinks according to his or her own culturally defined thinking pattern. One can act globally, and that is what global companies do. When they globalize, they produce and distribute globally, which demands many strategic decisions.
De Mooji (2010, p. 9) further notes that “an important decision is whether to standardize global operations or adapt to local requirements”. Thus, the main challenge companies are confronted with when entering foreign markets is whether to apply a globalized or localized approach to product management, marketing communication, pricing and distribution. This decision is to a certain extent dependent upon the nature of the product itself and the market conditions. In general, the globalized approach, which can also be referred to as standardization strategy, implies entering the market with the same products, marketing, price and distribution strategy as in the domestic market, without any adaptation to the target market and culture. The same strategy is used everywhere, as if the world was one single, large market. In contrast to that, localization, which can also be referred to as adaptation strategy, can be described as adaptation to the foreign market in terms of cultural, regional and national aspects (Kumar & Goel, 2007, p. 2).
Scholars broadly agree that national culture is important in business (e.g. Singh, Hongxin, Xiaorui, 2005) and localization is to a certain extent necessary. However, too much localization can incur high costs, which is not always beneficial for companies in the end (Petison & Johri, 2008, p. 1400). According to Eriksen (2001), as cited in Koller (2007, p. 112), companies no longer have to decide between either localization, or globalization, since “the global and the local are seen as reinforcing and shaping each other, as the global will always be interpreted and integrated locally, and vice versa”. Bartlett and Ghoshal (2002, p. 371) also argue that companies can no longer rely on traditional strategies and therefore suggest the introduction of a so-called transnational business structure, combining global integration and local adaptation. Schulte & Jackson (2007, p. 64) introduced a strategy called globalocal, combining local adaptation with some degree of global standardization, depending on the stage of the value chain of the firm. As a result of these considerations, the new concept of glocalization evolved, combining globalization and localization and enabling companies to make use of both (Kumar & Goel, 2007, p. 2).
Glocalization is considered to “represent the interlocking duality of globalisation versus localisation in cultural change and formation” (Wu, 2008, p. 101). The term itself combines the words local and global and was first used in the 1980s in Japan. It is derived from the
33 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
Japanese word dochakua, which can be translated as global localization. In Japan, it was used to describe a strategy to adapt farming techniques to local conditions. However, Japanese businessmen quickly adopted the concept and turned it into the strategy of “a global outlook adapted to local conditions”, describing the creation of products that are intended for a global market, but customized to local cultures (Robertson, 1995, p. 28).
Unfortunately, literature about the concept of glocalization is still very limited, especially in the context of SMEs. Nevertheless, the following sections are going to outline previous research on the topic with regard to product management and development, marketing communication – or, to be more precise – promotion and packaging, and distribution.
2.6.1. GLOCALIZATION IN PRODUCT MANAGEMENT
The starting point for product development is always customer needs. If products are planned to be sold in foreign markets, however, companies also have to take the target customers’ conditions of use and ability to buy the product into account (Hollensen, 2011, p. 471). Therefore, companies use different product strategies in foreign markets. They either extent their home strategy to foreign markets by ignoring differences and selling the same product abroad, or modify products for each local market. Some choose to invent and design new products for a global market, while others introduce global products that incorporate all differences and are flexible in their design (Kotabe & Helsen, 2008, p. 351f.). When entering a foreign market, it is important for companies to consider whether and to which degree they need to standardize or adapt their products, or combine both approaches and glocalize them (Czinkota & Ronkainen, 2000, p. 305). According to the glocalization approach, products and services can be sold more profitably, if they are catered to the local region and culture, implying that companies need to be sensitive to differences between areas around the world (Robertson, 2001, p. 458ff.).
In contrast to what the glocalization approach suggests, many scholars (e.g. Woods, 1995, p. 169) argue that the product itself is the most frequently standardized part of the marketing mix for manifold reasons. Firstly, product management of standardized products is more controllable and easier to organize. Secondly, standardization allows firms to reduce costs through economies of scale and the experience effect in production, advertising and distribution (Doole & Lowe, 2001, p. 298.). But standardization is not always possible, since several factors in foreign markets can pose problems and require product adaptation.
34 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
Therefore, adapted products are often more suitable to satisfy customer demands in foreign markets (Czinkota & Ronkainen, 2000, p. 307).
Product adaptation in an international context is mostly carried out either to meet regulatory, legal and technical requirements in the target country, or to suit cultural preferences, tastes and needs of customers (Cavusgil, Zou & Naidu, 1993, p. 479). Products can be adapted for foreign markets to different extents. Minimal adaptation includes, for example, the translation of labels on packages, whereas maximal adaptation can even go as far as to create new products specifically designed for consumers in the foreign target market (Hollensen, 2011, p. 476ff.). Czinkota & Ronkainen (2000, p. 307) found that the degree of product adaptation depends also on the degree of cultural grounding in the foreign market - the higher the cultural grounding of a country, the higher is the need for product adaptation. Moreover, industrialized products are less likely to be adapted, whereas consumer goods are less likely to be standardized (Czinkota & Ronkainen, 2000, p. 307).
Another factor that needs to be taken into account is brand equity and consistency. Very prestigious brands are less likely to adapt their products in order to maintain brand consistency, good reputation and high status. Willis (2006, p. 76ff.) for example, found that Asian customers wish for products by Western luxury brands to be not adapted at all, or have only minor adjustments, because any form of adaptation makes them feel that the product loses value, prestige and exoticism, and thus the brand’s image, status and brand equity is weakened (Willis, 2006, p. 76ff.). However, there are certain products that require adaptation in order to be accepted in foreign markets whatsoever, because of different needs and desires around the world. Skin-whitening creams, for example, are immensely popular in Asian countries, since skin color reflects social status there. White skin implies wealth, because it is believed that light-skinned people do not have to work, whereas tanned skin, which is a beauty-ideal e.g. in the USA and Western Europe, is considered to be a feature of poor people in Asia, since it implies that they have to work hard under the sun. Therefore, whitening creams are booming in Asia, but are entirely unpopular in the Western world. Tanning creams, on the other hand, receive favorable attention in the West, but are completely unpopular in Asia (Seitz, Lupu, Razzouk & Chu, 2009, p. 142).
Glocalization is also of great importance in the target industry of this thesis, the food and drinks industry. Tastes and eating habits vary widely between regions, cultures and religions, which is why food manufacturers need to understand the needs and wants of the target
35 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES market customers in order to adapt their products accordingly. After all, a company’s success depends largely on whether customers appreciate its products. While meat products can be challenging due to different religious beliefs, the availability of products like grains, fruit and vegetables can also pose problems for food producers in certain regions (Kumar & Goel, 2007, p. 5ff.).
2.6.2. GLOCALIZATION IN MARKETING COMMUNICATION
Once the company decided which product to introduce to a new market, its degree of newness, and whether to follow a standardization or adaptation approach in product management, it can concentrate on marketing communication. Marketing communication in an international context consists of advertising, personal selling, sales promotions, public relations and direct marketing. It is influenced by factors such as language, economic differences, socio-cultural differences, legal and political differences, pricing etc. (Morschett, Schramm-Klein & Zentes, 2010, p. 372) and can also either be standardized or adapted (Hollensen, 2011, p. 474).
Standardized marketing implies using the same promotion and communication strategies everywhere in the world. The main reasons for companies to choose the standardization approach in marketing communication are improved efficiency and reduced costs. Furthermore, some companies feel that using the same communication strategies gives customers the perception of added value, since they believe to gain benefits and values from a consistent and widely recognized brand image. Additionally, familiar brand logos and appearance give customers the feeling of trust, loyalty and confidence and make them easily recognize the brand everywhere in the world (Doole & Lowe, 2001, p. 336f.). However, standardization is not always possible since cultural factors, especially language differences, can pose problems for customers to understand standardized marketing communication, as will be explained in more detail in the upcoming paragraph (Morschett, Schramm-Klein & Zentes, 2010, p. 374).
Adaptation in promotion is mostly done because of cultural differences between countries around the world, which marketers have to take into account when communicating with customers. One of the main problems is language – brand names can have different meanings in different languages, which is not always beneficial (Doole & Lowe, 2001, p. 338f.). In Poland, for example, where the so-called “Fart Bar”, a chocolate-bar, is produced, its name solely translates to “Lucky Bar”. In other countries, however, the name “Fart Bar” evokes
36 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES quite different, rather negative connotations. The same holds true for the golden whiskey called “Irish Mist”, which sounds just fine in English, but does not evoke the most desirable feelings with German-speakers. Customers thus respond differently to promotion depending on their cultural and linguistic background. Additionally, as already mentioned before, local legal and political constraints and religious beliefs, can make adaptation necessary (Doole & Lowe, 2001, p. 338f.).
In general, four basic types of international marketing strategies can be distinguished. Firstly, the international marketing strategy, which applies the strategy used in the home market to all foreign markets without any adaptation. Secondly, the global marketing strategy, which also follows a standardization approach by implementing the same strategy in several markets at the same time, to achieve global efficiency and economies of scale. Thirdly, the multinational marketing strategy, which is characterized by strong adaptation to every single market, and last but not least, the transnational marketing strategy, which is often also referred to as glocalization strategy (Morschett, Schramm-Klein & Zentes, 2010, p. 365f.). The glocalization strategy in marketing represents a mixture of standardization and adaptation, aiming to create a balance between the local and the global. According to Svensson (2002, p. 580):
Glocal marketing strives to optimize the balance and harmony of the focal firm’s marketing activities on the operative, tactical, and strategic levels in terms of standardization versus adaptation, homogenization versus tailoring, similarity versus differences, concentration versus diffusion, dependence versus independence, synchronization versus flexibility, and integration versus separation.
Hence, the glocal approach to marketing communication tries to adjust global standardized brand strategies to local markets to create balance and harmony between marketing activities on operative, tactical and strategic levels (Svensson, 2002, p. 581). It reflects both – the global marketing strategy and locally related factors that need to be considered in marketing activities. This implies that the corporate level gives strategic advice and direction, while local units focus on the local customers and their preferences and differences from the domestic market of the company (Kotler, Keller, Brady, Goodman & Hansen, 2009, p. 467).
According to Kotler et al. (2009, p. 467f.), the glocal marketing strategy involves balancing demands of headquarters with local needs while exploiting local and domestic knowledge and information. This process brings many advantages for companies. In the customers’ perception, the brand appears relevant to them and tailored to their own wants and needs.
37 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
Furthermore, strategic, tactical and operative harmony between different levels of marketing activity also contribute to the brand’s gaining of a greater market share. Therefore, glocal marketing allows optimization of local and global marketing activities. (Kotler et al. 2009, p. 467f.).
Most existing literature about glocalization focuses on the implementation of the strategy in product and promotion strategies. Distribution, even though it is an important part of the marketing mix and definitely affected by the glocalization approach, has mostly been neglected by literature on the topic so far. Nevertheless, the following section will give a short overview of the glocalization approach in distribution.
2.6.3. GLOCALIZATION IN DISTRIBUTION
The term distribution refers to the decisions and activities required to make products available to customers, e.g. when and where they can purchase products (De Búrca, Brown & Fletcher, 2004, p. 390.). The choice of the right distribution channels is already very difficult in the domestic market, but becomes even more complicated, when a company goes international (Anderson, Day & Rangan, 1997, p. 59f.). Managers must take manifold factors, like type of product, sales volume, cost and control, into account and estimate the potential of various distribution channels. Furthermore, the range of distribution channels has increased rapidly over the last years, as new technology has evolved and barriers between countries are declining (Black, Lockett, Ennew, Winklhofer & McKechnie, 2002, p. 161). The emergence of the internet as platform for sales, for example, can be regarded as a new opportunity to distribute products globally and has tremendously widened the possibilities of selling products internationally.
Using effective channels of distribution when entering a foreign market is crucial to the company’s success and affects all other decisions. According to literature, both global standardization and local adaptation have benefits if applied to the choice of distribution channels (Doole & Lowe, 2001, p. 376.). Standardizing distribution is usually rather difficult, because distribution channels vary from country to country, since they develop through cultural traditions of a country (Doole & Lowe, 2001, p. 376.). Nevertheless, global standardization is considered to reduce costs, improve behavioral outcomes and enhance performance (Shoham, Brencic, Virant & Ruvio, 2008, p. 142). Literature in favor of the local adaptation approach, on the contrary, argues that a standardized approach to distribution channels is difficult, especially due to cultural differences in distribution.
38 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
Traditionally, distribution tends to be rather adapted than standardized in internationalization processes (Onkvisit & Shaw, 2009, p. 439.).
Distribution channels can vary from direct to indirect, involving either just producer and consumer, or also intermediaries. International companies are likely to prefer relatively direct channels, but in foreign markets they often cannot get around using intermediaries due to low sales volume, high start-up costs and lack of local knowledge (Coelho, Easingwood & Coelho, 2003, p. 570ff.).
To sum up, whether to standardize or adapt distribution depends on many factors, such as the nature of the market, customer characteristics, culture of the foreign market, etc. (Onkvisit & Shaw, 2009, p. 439.). Both the localization and standardization approach, bring certain benefits in terms of distribution, which is why a glocal approach can be more beneficial with regard to distribution channels than sole localization or standardization. According to Jain, Khalil, Nhat-Hanh Le & Ming-Sung Cheng (2012, p. 534) companies in fact do not need to choose between globalization and localization in terms of distribution, but should rather combine both by identifying possible global dimensions of the strategy and localizing it in each market.
In the following chapter of this thesis, the theoretical framework presented so far is going to be put into the context of the empirical study conducted for this thesis.
39 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
3. EMPIRICAL FRAMEWORK
The following chapter presents the empirical research carried out within the framework of this thesis. It first gives an overview of the research methodology and describes the research approach and data collection method. After that, the criteria for case selection is explained and the sample presented. In the second half of this chapter, the results of the empirical research are outlined, analyzed and reflected on the theoretical, academic literature, which was reported in the theoretical framework of this thesis. Moreover, general remarks on the limitations of the collected data are made and potential directions for further research suggested.
3.1. RESEARCH APPROACH AND TECHNIQUE
The aim of this research is to find answers to three major research questions. Firstly, it shall be investigated whether Austrian SMEs glocalize their products when they internationalize, or in other words, whether they consider foreign markets, specifically the Russian market, in their product development and management, marketing communication and distribution, when they internationalize. Secondly, in case SMEs are found to glocalize their products, it shall be revealed which elements they adapt to which extent and whether the combination of internationalization and glocalization is beneficial for them when they internationalize. This research is prompted by motives extending past intellectual curiosity. It aims to shed light on the phenomenon of glocalization within Austrian SMEs and attempts to explore its potential for companies willing to expand their business activity to Russia in the future.
The research started with an extensive review of academic literature on the topic, presented in chapter 2. Theoretical Framework. From this review, a significant gap in literature could be identified. It became apparent that previous work about glocalization is rather limited and restricted to the framework of large MNCs, leaving SMEs mostly out of attention, even though the Austrian economy turned out to be composed predominantly of SMEs, especially in the food and drinks industry. Furthermore, a gap in literature about Austrian SMEs’ foreign market entry method and business activity in Russia was identified. This led to the conclusion that a work on these topics would fill a significant gap in literature and at the same time have high practical utility as reference for Austrian SMEs willing to internationalize to Russia. In order to achieve these goals, an attempt is made in this research to understand and explain how small and medium Austrian food & drinks companies adapt their products, marketing communication and distribution for the Russian market, and how
40 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES the nature of the market influences them in their decision-making. Also investigated is the market entry method used by SMEs in Austria, their overall success in Russia and their current limitations due to the economic sanctions.
Initially, the author attempted to conduct qualitative interviews with representatives of Austrian SMEs operating in Russia, but in response to the company representatives’ reactions, the approach was changed. The company representatives were mostly export managers, who are very busy and travel very frequently. In the initial approach, they were asked whether they would agree to either meet for a 15-20 minute personal interview about the topic, or talk on the telephone or via skype. However, they argued that they are too busy to do telephone or personal interviews because of their numerous travels and lack of time, but would be willing to answer questions in written form. Therefore, it was decided to use a web survey composed of both, qualitative and quantitative questions, for data collection.
The survey, in general, represents one of the most popular research techniques and is used mostly in quantitative research. By using surveys, “the researcher systematically asks a large number of people the same questions and then records their answers” (Neuman 2006, p. 43). In other words, information is gathered from a sample of people by having them fill in a questionnaire. According to Neuman (2006, p. 43ff.), surveys can be classified based on the communication medium that is used, as follows:
- Mail and self-administered questionnaire This type of survey is mostly distributed by e-mail, which allows distribution in a very wide, geographical area. - Telephone interview This method involves contacting respondents by telephone and allows the researcher to get high-value answers from the respondents because of its high flexibility. - Face-to-face interview When this method is chosen, interviewers ask respondents questions in face-to-face situations. This method has the highest response rate, but is rather expensive, complex and time-consuming. - Web survey Web surveys are distributed via the internet. They are the fastest and cheapest method and also allow flexible design of the survey, giving the researcher the opportunity to add visual, audio or video material to the survey.
41 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
For this thesis, the web survey research method was chosen. There were manifold reasons for this choice, but the most decisive factor was the preference for a survey in written form expressed by the respondents. Factors including cost, respondent demographics and research objective also contributed to the decision. Furthermore, the decision for a web survey was positively influenced by the fact that this survey type can be implemented in relatively short periods of time, is easy to use for respondents and can be tested before being made available to respondents.
Several online platforms offer survey tools, but the most popular ones that were also recommended by the presupervisor of this thesis are Lime Survey and Survey Monkey. The survey for the study carried out for this thesis was eventually set up with Survey Monkey, a private American company that allows users to create their own web-based surveys and analyze the results after completion, because of its excellent usability.
From 10th of February 2015 to 25th of February 2015 the online survey was openly available by clicking on the link that was sent to the potential respondents via e-mail. Within this time period, seventeen companies filled in the survey, three of which did not meet the criteria to be used for analysis. According to the companies’ preferences, the survey was available in German, but it was translated into English for this thesis and attached in both languages in the appendix section (see chapters 5.1. and 5.2.). The average amount of time required by the respondents to complete the survey was 5-15 minutes, which was considered to be both adequate for data collection objectives and fast enough to avoid respondents lose interest in participating, due to an excessive use of their valuable time.
3.2. RESEARCH DESIGN
It was the aim of the author to receive high response rates while collecting the maximum amount of information and ensuring comparability of the results. Therefore, the questionnaire was kept to a reasonable size and designed to have good usability and be completed rather fast. The survey was comprised of 25 matrix-type, open-ended, single- choice or multiple-choice questions, which would also allow appropriate classification of the collected information in the analysis process after completion of the survey. The questions were based on the theoretical literature review of this thesis and formulated at the author’s discretion. They were designed to collect data relating directly to the research questions under study and were grouped into five categories, as follows:
42 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
- Section A (Internationalization) was intended to gather information regarding participants’ international business activities. It included questions about how long the company has been active abroad and in how many countries it operates. - Section B (The Russian Market) collected data about the companies’ activities in Russia, asking for how long they have been active in the market, their market entry mode, their main reasons for entering the Russian market and how they currently operate in the market. - Section C (Glocalization) is the most extensive section and was designed to gather information relating to adaptation of products, marketing communication and distribution to local needs and demands. The section is structured in three parts, each concentrating on one particular topic. The first part of section C asks for adaptation in terms of the characteristics of the products, giving the respondents the opportunity to indicate in a matrix-type question which elements of the products they adapt to which extent. The matrix type question is followed by an open question asking for the respondents’ reasons for adaptation. The same structure is used for the second part, which is focused on adaptation in marketing communication. The third part is dedicated to distribution and merely tends to investigate which distribution method is the most popular with Austrian SMEs in Russia, and how the particularities of Russia as a country influence the choice of distribution channels. - Section D (Success in Foreign Markets) provides data about the success of Austrian SMEs in the Russian market. It asks for the turnover achieved in Russia and the respondents’ own, subjective perception of how successful the company operates in the market and why it is successful or unsuccessful. This section also includes a question about the influence of the current economic sanctions on the company, as to enable the author to consider these limitations in the analysis of the data. - Section E (General Information) is designed to retrieve general categorical data from the respondents, asking for their name, role in the company, company name, number of employees and foundation date, as well as annual turnover and turnover achieved abroad. This data is collected to put turnover achieved abroad and turnover achieved in Russia in relation. Furthermore, the respondents were asked to indicate whether they would be ready to answer follow-up questions if they arise during the process of analysing the data.
43 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
Several students in the field of business and communications reviewed and tested the questionnaire. Furthermore, several people working in business, as well as the presupervisor of this thesis reviewed it, before it was sent to the potential respondents. Numerous changes were made to the survey during this process, but eventually the feedback suggested that it was comprehensive and easy to use. The questionnaire itself can be found for reference in both English and German in the appendix section of this thesis (see chapters 5.1 and 5.2).
3.3. DATA COLLECTION METHOD
In literature, it is recommended that qualitative research presents all processes and steps involved in data collection and data analysis (Shaw, 1999, p. 59f.). Even though this study is a hybrid of qualitative and quantitative research, all steps of the data collection and analysis process adopted to arrive at the results of this thesis are described and presented in detail in the following chapters.
The sample for this survey is comprised of Austrian SMEs that can be attributed to the food and drinks industry and are either currently operating in the Russian market, or used to do so before the economic sanctions were imposed. In order to identify SMEs that fulfil these requirements, the Austrian Chamber of Commerce and Trade was contacted and asked for information. Unfortunately, only a list of Austrian companies which established a branch office or subsidiary in Russia could be provided. This list included mostly large companies in the machinery and construction industries and no SMEs from the food and beverage industry. Therefore, the author was advised by the Chamber of Commerce and Trade to use the website of Advantage Austria (2015, w/o p.), which lists Austrian companies with a general business interest in the Russian Federation. Based on this list, 60 companies could be identified as potential respondents. Unfortunately, having a business interest in Russia and the actual doing of business in Russia are not equivalent, resulting in the fact that the majority of the 60 companies turned out not to be doing business in Russia. Many of them had also terminated their business relationship with Russia due to the situation in the Ukraine and the economic sanctions and therefore either considered themselves as not relevant enough for the purpose of this study, or were simply reluctant to be confronted with the topic in such a difficult time.
The companies identified as potential respondents were contacted first via e-mail and asked to fill in the web survey to collect information. The export manager was the target contact person. In cases when companies did not have an export manager, either the international
44 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES sales manager, marketing manager or CEO were contacted, depending on which email addresses could be retrieved from the company websites. When no contact information was available on the company’s website, the office was called and asked for the export manager’s (or, if the company does not employ an export manager, another responsible representative’s) contact information. When no answer was received to the initial email request within a week, the company representatives were also reminded of the survey with follow-up telephone calls.
Eventually, 17 out of 60 companies filled in the survey, which represents a response rate of roughly 28.3%. Considering the purpose of this survey, which is scientific research within the framework of a master’s thesis, and the current, rather difficult economic situation with regard to doing business in the Russian Federation, this response rate was considered to be acceptable for the study. Due to missing data in some questionnaires, three of the 17 questionnaires could not be used for analysis, leaving the author with 14 sufficiently completed surveys for analysis. According to Tabachnick & Fidell (2001, p. 58ff.) surveys that are missing data can either be deleted from analysis or, where there are only a few missing values, replaced with an estimate. For the purpose of this study, the information missing in some questionnaires was rather extensive, causing the author to delete the deficient surveys and concentrate on the remaining 14 sufficiently-completed questionnaires. The three surveys that were taken out of analysis did neither indicate the respondents’ name, nor which company he/she works for, which made it impossible to tell, whether the criteria of SME in the food and drinks industry is met. The data missing in the remaining 14 questionnaires could either be found on company websites, or was given to the author in follow-up telephone conversations with representatives of the respective companies. The data that still could not be retrieved was not absolutely necessary for analysis, which explains why even not 100% fully-completed questionnaires could be used for analysis.
3.4. SAMPLE DESCRIPTION
All companies of the sample are internationally active Austrian SMEs operating in several foreign markets, including Russia. They employ between 2 and 200 people and achieve an annual turnover of up to € 49 million, thus classifying as SMEs, according to the definition by the European Union (European Commission, 2005, p. 14). All of them operate in the B2C market, except for one company that also sells products to other companies in the food
45 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES industry for further processing. In the following, the companies the sample is comprised of, are briefly described.
3.4.1. COMPANY DESCRIPTIONS
The information outlined in the company descriptions below was either retrieved from the companies’ websites, or given by representatives of the company within the survey or in follow-up telephone calls. In order to protect the companies’ confidential data, the company- specific findings will be presented in a coded way. The Greek alphabet was used for coding and the companies are listed in Greek alphabetical order.
The completed questionnaires of the following companies are used for analysis:
Company Alpha Company Alpha is a leading food manufacturer in Austria, producing mostly seasonings and sauces, as well as products for baking, decorating and preserving fruits or vegetables. The company’s production site and headquarters are located in Upper Austria, it employs 70 people and achieves an annual turnover of about € 24.5 million. Company Beta Company Beta produces natural food products and is a leading producer of food products made from soybeans in Austria. The company is located in Vienna and has around 150 employees. The annual turnover amounts to about € 45 million, 85% of which are achieved outside of Austria. Company Gamma Company Gamma is a leading producer of seasoning mixes for the food industry. The company is specialized in the production of seasoning mixes for the meat processing industry and is selling its products in more than 30 countries worldwide. About 80% of the company’s turnover is achieved abroad. The company, based in Salzburg, employs 85 people and achieves an annual turnover of around € 43 million. Company Delta Company Delta is based in Salzburg and produces cheese of all kinds made from regional ingredients, provided by farmers. Company Delta has about 120 employees and achieves an annual turnover of 43 million, 40% of which are achieved abroad.
46 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
Company Epsilon Company Epsilon is based in Styria and employs about 20 people. It produces pumpkin-seed-oil and exports its products to about 20 countries worldwide. The company’s representative did not indicate any turnover rate, but it was assured that the company classifies as medium-sized enterprise (Company representative, personal communication, February 22, 2015). Company Zeta Company Zeta produces organic foods and is a leading producer of muesli in Austria. Besides muesli, the manufactured products include dry fruits and snacks, soy drinks, desserts and other organic dry foods. The company is located in Upper Austria and employs 51 people. The annual turnover in 2014 amounted to € 24.9 million, 8% of which achieved abroad. The company’s products are sold in seven foreign markets. Company Eta Company Eta produces cheese and antipasti from finest, regional ingredients and is located in Lower Austria. The company has about 180-200 employees and achieves an annual turnover of around € 23 million. 45% of the annual turnover is achieved abroad in more than 50 export countries. Company Theta Company Theta employs around 30 people and produces organic soy snacks from Austrian, genetically unmodified soy beans. The company is located in Lower Austria and exports to 32 countries with a strong focus on the Japanese market. It achieves 45% of its annual turnover abroad and has an overall annual turnover of around € 4 million. Company Iota Company Iota employs 11 people and is the market leader in the Austrian natural apple-juice segment, producing organic drinks like juices, sodas, coke etc. It is located in Lower Austria, exports to more than 35 countries and achieves an annual turnover of around € 8 million. Company Kappa Company Kappa is a family business and is located in Lower Austria. It produces flour, cereal, baking ingredients and mixtures, snacks and dry fruits and similar products. It employs 18 people and achieves an annual turnover of around € 2 million.
47 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
Company Lambda Company Lambda produces innovative, organic breakfast cereal and porridge, snacks, seasoning mixes, soups and spread, as well as food products for people with special dietary needs, like gluten-free and lactose-free products. It is located in Tyrol and employs 45 people. 70% of the annual turnover of around € 15 million is achieved abroad. Company My Company My employs about 196 people and produces high-quality chocolate and confectionary products that are exported to numerous countries. Its annual turnover amounts to € 22 million, around 10% of which is achieved abroad. The company is headquartered in Vienna. It has to be pointed out that the respondent with regard to company My works for an external company, but it was explained that he/she is working exclusively for Company My and the information given in the survey relates to Company My (Company Representative, personal communication, February 24, 2015). Therefore, the data of company My is used for analysis and data that is specific for company My was added to the general information section of the survey during the analysis process. Company Ny Company Ny employs two people and is located in Vienna. It produces premium- cider from Styrian apples and achieves less than 10% of the annual turnover abroad. The company representative did not indicate any overall turnover rate, but it was assured that the company classifies as micro-enterprise (Company representative, personal communication, February, 27, 2015). Company Xi Company Xi produces dairy products and employs about 120 people. It is located in Vorarlberg and declares an annual turnover of around € 49 million, 30% of which achieved abroad.
The following section is going to summarize the general information given by the respondents in the survey in order to outline the specific characteristics of the sample.
48 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
3.4.2. GENERAL CHARACTERISTICS OF THE SAMPLE
In this section, general characteristics of the sample are presented. It is intended to describe the sample in more detail and give a basic overview of the demographic and economic features of the sample. The illustration in the upcoming sections as well as in chapter 3.5. Research Findings and Analysis are based on the survey results and were developed by the author of this thesis, if not indicated otherwise.
GEOGRAPHIC LOCALIZATION OF THE SAMPLE
FIGURE 4: GEOGRAPHIC SPREAD OF SAMPLE (DEVELOPED WITH GOOGLE MAPS, 2015)
As illustrated in Figure 4, the sample is spread among all of Austria. The majority of the sample companies are located in Northern Austria, with Lower Austria (Eta, Theta, Iota, Kappa), Vienna (Beta, My, Ny), Upper Austria (Alpha, Zeta) and Salzburg (Gamma, Delta) exhibiting the highest representation of companies. Styria (Epsilon), Tyrol (Lambda) and Vorarlberg (Xi) accommodate one company each. The only provinces not represented in the sample are Burgenland and Carinthia. This result also correlates with the SME report by the Austrian Chamber of Commerce and Trade (WKO Austria Report, 2014, p. 29), according to which the highest concentration of SMEs in Austria is to be found around Vienna, Lower and Upper Austria and Styria.
COMPANY REPRESENTATIVES
As already mentioned, the survey was targeted at export managers. However, when this position did not exist within the company, or no contact information was available, the CEOs of the company were asked to either fill in the survey themselves, or forward the e-mail to the responsible employee. In summary, five export managers (Alpha, Delta, Zeta, Eta, My), four CEOs (Theta, Iota, Lambda, Ny), two sales managers responsible for international sales
49 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
(Gamma, Xi) and one marketing manager (Beta) filled in the survey. Two companies (Epsilon, Kappa) did not indicate who filled in the survey.
COMPANY CLASSIFICATION
All companies employ between 2 and 200 employees and thus fulfill the first criterion to be categorized as SMEs, according to the definition by the European Commission (2005, p. 14). If only employees were taken into consideration, one company would fall under the category of micro enterprises (Ny), five companies (Iota, Kappa, Epsilon, Theta, Lambda) could be categorized as small companies and eight would qualify as medium enterprises. However, the annual turnover or balance sheet total also have to be taken into account for the final classification.
COMPANY CLASSIFICATION Micro 7%
Small 21%
Medium 72%
FIGURE 5: COMPANY CLASSIFICATION ACCORDING TO THE DEFINITION BY THE EUROPEAN COMMISSION (2005, P. 14) Company Lambda, even though it employs only 45 people, needs to be classified as medium enterprise due to its turnover of € 15 million, which exceeds the limit of € 10 million set by the European Commission (2005, p. 14). Company Epsilon refused to indicate any turnover rate and does not have any information regarding turnover on the company website, but it was assured that the company can be classified as medium enterprise (Company representative, personal communication, February 18, 2015). Therefore, in summary, the sample is comprised of one micro enterprise (Ny), three small-sized enterprises (Theta, Iota, Kappa), and ten medium-sized enterprises (Alpha, Beta, Gamma, Delta, Epsilon, Zeta, Eta, Lambda, My, Xi), as illustrated in Figure 5 above.
YEARS OF EXPERIENCE
Table 5 below shows the range of experience of the sample companies, which differs widely, with 100 years being the oldest, and 3 years the youngest company. On average, the
50 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES companies have about 33.9 years of experience in the market. Most of them (9 out of 14) have also been active internationally for more than ten years. Three companies (Kappa, Lambda, Xi) have been active internationally for 2-5 years, one company (Delta) for 6-10 years and one (Ny) for less than one year. Hereby, it has to be considered that the latter is a very young company that was founded only three years ago.
Company Foundation Date Years of Years of International Experience Experience Alpha 1915 100 >10 Epsilon 1935 80 >10 My 1953 62 >10 Zeta 1975 40 >10 Gamma 1988 27 >10 Theta 1989 26 >10 Eta 1991 24 >10 Iota 1998 17 >10 Beta 2001 14 >10 Delta 2001 14 6-10 Kappa 1932 83 2-5 Lambda 1993 22 2-5 Xi 1993 22 2-5 Ny 2012 3 < 1
TABLE 5: YEARS OF EXPERIENCE IN DOMESTIC MARKET AND ABROAD Naturally, companies that were founded very early have the largest amount of experience and also international experience. However, it can be seen that also younger companies have already quite considerable experience abroad in comparison to their domestic experience, which also indicates that internationalization has gained importance and popularity in the last 30 years.
PRODUCT CATEGORY
Most of the companies in the sample cannot clearly be attributed to just one particular product sector, since they produce many different types of products. Nevertheless, it was attempted to categorize them in order to find out, whether the sample is representative. The sectors with the highest company representations in the sample are: dairy products with
51 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
21.5% (Delta, Eta, Xi), soy-products and snacks with 21.5% (Zeta, Beta, Theta), spices and seasonings with 14.3% (Alpha, Gamma), drinks with 14.3% (Iota, Ny), and grain mill products with 14.3% (Lambda, Kappa). One company, or 7.15%, can be categorized as confectionery (My) and one, or 7.15%, falls under the category of oils and fats (Epsilon). This ranking roughly reflects the share of sub-sectors in the overall EU food & drinks exports 2012, as illustrated in Figure 6 A and B below.
SUB-SECTORS IN EU FOOD & SUB-SECTORS DRINK EXPORTS 2012 (%) OF SAMPLE (%)
Drinks 7,15 Oil & Fat 3% 7,15 3% Various food products 4% Confetionery 4% 14,3 5% 30% Meat products 14,3 Grain Mill 6% Dairy products Drinks 11% Fruit & vegetable products 43 Oils and Fats Various food 13% 21% products Bakery and farinaceous 21,50 Dairy products Fish and seafood products P R O D U C T CATEGORIES
FIGURE 6: A) SUB-SECTORS IN EU EXPORTS 2012 IN % (ADAPTED FROM FOODDRINKEUROPE, 2014, P.24) B) SUB-SECTORS OF SAMPLE IN % According to Eurostat (in FoodDrinkEurope, 2014, p. 24), drinks (30%) rank highest in EU food and drinks exports 2012, followed by various food products (21%), meat products (13%) and dairy products (11%). According to the categories used for this ranking, the sample categories of spices & seasonings and soy products & snacks would fall under the category of various food product (43%) (Eurostat in FoodDrinkEurope, 2014, p. 24), as illustrated in Figure 6B.
In order to judge whether the sample is representative concerning sub-sectors, it has to be considered that not all product categories listed in Figure 6A are relevant for this study. Meat products, fish and seafood, animal feeds and fruits & vegetables are rather unadaptable, and thus unlikely to be glocalized for foreign markets. Furthermore, these food categories were affected most severely by the economic sanctions, which is a further reason why they were not target of this study. However, since the sample covers the most relevant sub-sectors, as illustrated in Figures 6A and 6B, it can be regarded as representative for the European food and drinks export sector, used as reference due to the lack of Austria-specific data.
52 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
3.5. RESEARCH FINDINGS AND ANALYSIS
The following chapter presents the findings of the survey and attempts to analyze and interpret the collected data, while continuously reflecting the findings on the academic literature reviewed in chapter 2. Theoretical Framework. The findings and analysis are grouped into the sections of Internationalization, the Russian Market and Glocalization, depending on the respective subject matter.
3.5.1. INTERNATIONALIZATION
The following section first outlines the results of the survey regarding internationalization in general, in order to facilitate the drawing of comparisons with the information acquired in the Russia-specific internationalization section, which is presented in the second part. Subsequently, the results of both parts are compared and contrasted.
3.5.1.1. INTERNATIONAL EXPERIENCE
All companies of the sample are active internationally. As the results show, illustrated in Figure 7, the vast majority of them (9 out of 14) are actively operating in more than 10 foreign countries. Three companies (Zeta, Xi, Kappa) are active in 6-10 countries and two (Alpha, Ny) operate in 2-5 foreign countries.
INTERNATIONAL ACTIVITY 2-5 countries 14%
6-10 countries more than 10 22% countries 64%
FIGURE 7: INTERNATIONAL ACTIVITY MEASURED BY NUMBER OF COUNTRIES The respondents were also asked to indicate how long they have been operating actively in foreign countries in general and how long specifically in Russia. In Figure 8, the comparison of the results of these two questions is illustrated.
Figure 8 clearly shows that the number of years companies have been active internationally does not correlate with the number of years they have been operating in Russia. Only two companies (Alpha, Gamma) have been active in Russia for more than 10 years, but nine
53 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES companies indicated that they have been operating internationally for more than 10 years. Out of these nine companies, three (Epsilon, Zeta, Eta) said that they have 6-10 years of experience in Russia and six (Beta, Delta, Xi, Theta, Iota, My) indicated that they have been operating in Russia for 2-5 years. Furthermore, only one company (Ny) stated that it has less than one year of international experience, whereas three companies (Kappa, Lambda, Ny) have less than one year of experience in Russia, even though two of them (Kappa, Lambda) have 2-5 years of overall international experience.
INTERNATIONAL EXPERIENCE 10 9
8 6 6
4 3 3 3 2 2 1 1
0 less than 1 year 2 bis 5 yrs 6 bis 10 yrs more than 10 yrs
International Experience Experience in Russia
FIGURE 8: INTERNATIONAL ACTIVITY IN GENERAL COMPARED TO ACTIVITY IN RUSSIA In conclusion, it can be said that only 21.4% of all respondents (Alpha, Gamma, Xi) have the same amount of years of experience in international markets in general and in Russia. The remaining 78.6% have been active internationally already in other countries, before they entered the Russian market. This indicates that Russia is not one of the first markets the majority of companies chose to enter when they internationalized. This can be due to various reasons, like the nature of their products, aim of the company, networks and contacts, or a stronger focus on other countries, but it could also be related to the market entry barriers and challenges they are confronted with in Russia, as outlined in section 2.4.3. Challenges for Austrian SMEs in Russia of this thesis.
3.5.1.2. ANNUAL TURNOVER AND TURNOVER ACHIEVED ABROAD
Only 10 out of 14 companies indicated both their annual turnover rate and their percentage of turnover achieved abroad. In Figure 9, the overall turnover in € million is illustrated, broken down into turnover achieved in domestic and foreign markets. For Figure 9, only the 9 out of 14 respondents that indicated both variables or had the numbers publically available on their company websites were used. As the illustration shows, companies Xi, Beta, Gamma
54 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES and Delta achieve the highest turnover rates of the sample. These companies are to be found in the categories of dairy (Xi, Delta), seasonings and sauces (Gamma) and soy products and snacks (Beta).
SHARE OF OVERALL TURNOVER ACHIEVED IN DOMESTIC MARKET AND ABROAD
THETA 2,2 1,8 LAMBDA 4,5 10,5 MY 19,8 2,2 ETA 12,65 10,35 ZETA 22,908 1,992 DELTA 25,8 17,2 GAMMA 8,6 34,4 BETA 6,75 38,25 XI 34,3 14,7
Annual Turnover achieved in Domestic Market (€ mill.) Annual Turnover achieved Abroad (€ mill.) FIGURE 9: ANNUAL TURNOVER ACHIEVED IN DOMESTIC MARKET AND ABROAD It can also be seen that three companies (Beta, Gamma, Lambda) achieve a very large percentage of their turnover abroad, followed by four companies (Eta, Theta, Delta, Xi) that achieve almost half of their turnover outside of Austria, as illustrated in Figure 10 below. This indicates that foreign markets are of very high importance for Austrian SMEs, especially medium-sized enterprises, in the food and drinks industry.
PERCENTAGE OF TURNOVER ACHIEVED ABROAD 100 85 80 75 45 45 50 40 30 10 8 0 Beta Gamma Lambda Eta Theta Delta Xi My Zeta
% achieved abroad
FIGURE 10: PERCENTAGE OF TURNOVER ACHIEVED ABROAD Three of the companies with a relatively large share of their turnover achieved abroad (Eta, Delta, Xi) produce dairy products. Two companies (Theta, Beta) can be attributed to the category of soy products and snacks, and one each to the grain mill (Lambda) and seasoning and sauces (Gamma) categories. Company Lambda, however, also produces snacks and dry fruits, which is why it can be concluded that the categories of dairy products and soy products and snacks achieve the highest turnover rates abroad in this sample. However, it has to be
55 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES pointed out that this can also be due to the fact that these categories have the highest representation of companies in the study sample.
3.5.2. THE RUSSIAN MARKET
In the following section, the results of the survey regarding the respondents’ activity and success in Russia are presented and discussed. The results are continuously compared and contrasted with the findings of the literature review.
3.5.2.1. MAIN MOTIVATION TO ENTER THE RUSSIAN MARKET
The most popular motivation to enter the Russian market, according to the answers given by the respondents to an open question, is the country’s high market potential, since 50% of the respondents indicated market potential or high market potential as main motive for them to enter Russia. One respondent also expressed a very similar motive, which is the opportunity to expand his/her market. Other motives that were mentioned are contacts to distributors, inquiry by importers, experience in the CIS markets, increased demand for quality products in Russia and the opportunity to become more independent from Europe. By and large, this result correlates with the main motives mentioned in the theoretical part of this thesis (see section 2.4.2. Opportunities for Austrian SMEs in Russia), according to which the potential of the Russian market and the demand for quality products constitute decisive factors for SMEs wishing to expand their market and increase their sales by internationalizing.
3.5.2.2. MARKET ENTRY STRATEGIES FOR RUSSIA
The results of the survey concerning market entry show very clearly that the most common strategy applied by Austrian SMEs, when entering the Russian market, is foreign trade through exporting, since 78.57% of the respondents entered the Russian market by exporting. Furthermore, one company (Gamma) indicated FDI as its strategy, one (Iota) said that it used a strategy based on contractual agreements (e.g. franchising, licensing, and strategic alliance) and one (Kappa) chose the option other, stating that it entered the market through its presence at trade fairs.
As explained in more detail in section 2.3.4.2. Foreign Market Entry Austria and Russia, it was attempted to find statistics about market entry strategies to Russia of Austrian SMEs or European SMEs in general, for comparison, but unfortunately there is no information available in academic sources and databases. Nevertheless, the result achieved complies with what was revealed in the literature review (see section 2.3.2.1. Export Foreign Market Entry
56 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
Modes), according to which export is the most frequently used market entry method for SMEs because of its low risk and high flexibility (European Commission, 2010, p. 6; Hollensen, 2011, p. 348ff.).
3.5.2.3. CURRENT ACTIVITY IN RUSSIA AND EFFECTS OF ECONOMIC SANCTIONS
Currently, four companies (Alpha, Beta, Zeta, Eta) are operating in the market through export. Company Alpha additionally also stated to have established a subsidiary in the country. Four companies (Delta, Iota, Kappa, My) are inactive at the moment and two (Lambda, Ny) cooperate with an importer. One (Gamma) stated to be working with distributors and one (Xi) said its products are sold through wholesalers.
It was initially assumed that the economic sanctions and the overall economic situation in Russia would have a large influence also on Austrian SMEs operating in the market. The decline of the ruble and the sanctions, which affect the food industry in particular, were expected to be given as reasons for rather low activity in the market at the moment. However, this assumption was confirmed only partially by the results of the survey. Even though all companies are food- or drinks-manufacturing companies, not all of them are affected by the sanctions. A total of 6 out of 13 (Gamma, Epsilon, Zeta, Eta, Xi, Kappa), who answered this question, which represents 46.15% of the respondents, stated not to be affected by the sanctions at all. Two companies (Alpha, Beta), or 15.4%, reported that they are affected because some of their products are currently not allowed to be imported into the country. One of these two additionally also said that it is affected by the decline of the ruble. Four companies (Delta, Iota, My, Ny), or 30.76 %, declared that they are fully affected by the sanctions and are therefore currently not operating in the market at all. One of these four (Iota) added that this is due to the cancellation of the contract by its partner in Russia, whereas another one (Ny) gave the weak ruble as the main reason for no more business activity in the country. One company (Lambda), or 7.7%, could not judge how affected it is, since it is still in the process of building up its business in Russia. Company Theta did not answer this question.
3.5.2.4. TURNOVER ACHIEVED INTERNATIONALLY AND IN RUSSIA
Only 10 out of 14 companies indicated which percentage of their turnover is achieved abroad. The turnover achieved in Russia of these 10 companies was thus compared to the overall turnover achieved abroad. The comparison showed that the turnover achieved by the majority of companies in Russia amounts to less than 3% of their overall turnover achieved
57 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES abroad, and is thus rather minor. Most companies achieve relatively large percentages of their turnover abroad (Gamma (80%), Beta (85%), Lambda (70%), Eta (45%), Theta (45%), Delta (40%), Xi (30%)), but only company Gamma achieves more than 10% of its turnover in Russia. All the other companies claimed to achieve less than 3% of their turnover in Russia. These percentages comply with the general trend in Austria, as was already described in section 2.4.1. Business relationship between Austria and Russia, according to which Russia ranks 10th most important export market for Austrian companies in general, accounting for about 2.8% of all Austrian exports, and 8th most important export country for the Austrian food and drinks industry.
3.5.2.5. BUSINESS SUCCESS IN RUSSIA
With the objective of identifying the respective respondents’ success in Russia, they were asked to indicate their subjective opinion of how successful their company is in the Russian market. They had the opportunity to position their companies’ success on a scale ranging from very successful to not successful. Subsequently, in order to collect more objective data, the respondents’ answers were compared to the percentage of the companies’ annual turnover achieved in Russia. In a follow-up open question, the respondents could explain the main reasons for their success or failure in the market according to their own opinion. The results are illustrated in Figure 11 A and B below.
RESPONDENTS' OPINION ANNUAL TURNOVER
Not successful Very ACHIEVED IN RUSSIA 23% successful more than 10% 15% 3-10% 7% 14%
Not very successful Relatively 23% successful less than 3% 39% 79%
FIGURE 11: A) SUCCESS IN RUSSIA, RESPONDENTS SUBJECTIVE OPINION B) ANNUAL TURNOVER ACHIEVED IN RUSSIA As Figures 11A and 11B show, the subjective opinion of what can be considered successful differs greatly between the respondents. 11 out of 14 stated that they achieve less than 3% of their annual turnover in Russia. Two (Epsilon, Gamma) said that their turnover share
58 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES achieved in Russia accounts for more than 10%, and one company (Alpha) makes 3-10% in Russia. In comparison to that, 5 (Alpha, Beta, Eta, Xi, My) out of 13, who answered the subjective question of how successful they are in Russia, stated to be relatively successful. Three (Delta, Theta, Kappa) claimed to be not very successful and three (Iota, Lambda, Ny) not to be successful at all. Only two (Gamma, Epsilon) said that they are very successful in Russia. The respondents, who said that they are very successful, both achieve more than 10% of their annual turnover in Russia. All three companies, which said they are not successful, achieve less than 3% in Russia. However, the categories of relatively successful and not very successful are rather blurred. One company, which considers itself rather successful, achieves 3-10% in Russia. Four companies, which also said that they are rather successful, achieve less than 3% in Russia. Three others, which classified themselves as not very successful, also achieve less than 3% in the Russian market. How success is defined thus depends on the expectations and goals of the respective companies and also on their size, resources and capacities. Some companies, even though they might achieve less than 3% in Russia, consider this as success, for example because they were initially aiming to achieve just a very small percentage of their turnover there. Others, which achieve 6-10%, might not consider this a success, if Russia is for example one of their main target markets and they are aiming to achieve high percentages of their turnover there.
The main reasons for failure in the market that were given by the respondents in an open follow-up question were the current sanctions and the weak ruble (Ny, Iota). Reasons for success included the high quality of products (Delta, Zeta), the special character of products (Eta), the taste of the products that appeals to the Russian customer (Xi), clear strategy and close contact to the customers (Gamma), well-established brands in Russia (Alpha) and own production site for products sold in Russia (Alpha), as well as long-term planning and strategic partnership (Beta). Some companies stated that they cannot indicate any reasons for success or failure, because they are either new to the market and cannot judge yet how successful they are (Lambda), or they are currently not operating in the market (Kappa).
3.5.3. GLOCALIZATION
The following section reports and analyzes the results of the survey on the topic of glocalization. This section of the survey involved the largest number of questions, designed as single and multiple choice, matrix-style and open questions. As glocalization is one of the main themes of this thesis, the questions in this sections were not only the most numerous,
59 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES but also the most extensive and detailed of the survey. The first part of this section concentrates on glocalization in product management and development, the second part examines the results concerning glocalization in marketing communication and pricing and the third part presents the results regarding glocalization in distribution. Finally, this chapter puts the results of internationalization and glocalization into relation and leads to the ultimate conclusions of the study.
3.5.3.1. GLOCALIZATION IN PRODUCT MANAGEMENT AND DEVELOPMENT
First and foremost, it has to be clarified that all companies in the sample produce and sell products that are adaptable. However, some product categories, like seasonings and sauces, or dairy products, are more likely to be adapted to taste preferences abroad than others. Company Epsilon, a producer of pumpkin-seed oil, is the only company of the sample that offers a very regional product that is unique to Styria and is characterized by its very typical taste, which leads to the assumption that it might be less likely to glocalize in terms of product management and development when selling its products in foreign markets, than the other companies of the sample.
Before the respondents were asked to identify how they adapt their products specifically to the local environment in Russia, they were asked whether in general they adapt products when they sell them in Russia. 50% of all respondents answered that they do adapt their products, whereas the other 50% (Beta, Epsilon, Zeta, Theta, Iota, Lambda and Ny) said they do not adapt their products. Only those respondents, who answered this introductory question with yes, were transferred to the next, matrix-style question about what aspects of their product management and development they adapt and to which extent.
During the analysis of the data, it became apparent that four (Xi, Kappa, Delta, My) out of seven companies which stated to adapt products, claimed to adapt neither ingredients, nor recipe, production mode or package size. In fact they used the Others option in the matrix style question and indicated to adapt their product labelling. Product labelling is an adaptation of product packaging in terms of language and can to a certain extent be regarded as an aspect of glocalization. It has to be considered, however, that companies in this case are obliged to translate their product labels into Russian by Russian law, as will be explained in more detail in the next part of this section, which concentrates on glocalization in marketing communication. For the analysis of product-related glocalization, adaptation of product labels will therefore not be considered further.
60 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
In summary, three companies (Alpha, Gamma, Eta) turned out to adapt their products other than in terms of language, but their adaptations are very diverse. It can be seen that the three companies which actually adapt their product all belong to the category of medium enterprises. Two of them (Alpha, Gamma) can be attributed to the sector of seasoning and spices, which is a sector that is very much subject to differences in taste preferences, making adaptation necessary. The third company (Eta) produces dairy products. In terms of ingredients, one company (Gamma) adapts products strongly, one (Alpha) little and one (Eta) very little. Regarding recipe, one company (Alpha) stated strong adaptation and one (Gamma) very strong adaptation. The mode of production is adapted very little by one company (Alpha) and strongly by another one (Gamma). Furthermore, the package size is changed very little by one company (Eta) and very strongly by another one (Gamma).
PRODUCT ADAPTATION
Production mode
Package size
Ingredients
Recipe
0 0,5 1 1,5 2 2,5
Weighted Average of Degree of Adaptation
FIGURE 12: AREA AND DEGREE OF PRODUCT ADAPTATION In summary, three companies, which represent 21.5% of all respondents, glocalize their products other than by adapting product labels. For the calculation of Figure 12, the analysis tool offered by Survey Monkey was used, taking all seven companies that claimed to adapt products into account for calculation. The analysis of the data shows that based on the calculation of the weighted average, the recipe is the most strongly adapted element, followed by ingredients and package size. The mode of production is, according to the data collected in the survey, the least strongly adapted product element. To ensure that the result is not biased, the same calculation was also carried out by taking only companies Alpha, Gamma and Eta, which actually adapt elements listed in the matrix question, into consideration. This calculation, however, resulted in the same ranking of elements. The
61 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES respective calculations are included in the appendix chapter 5.3. Analysis of the Survey Results of this thesis.
Subsequently, the respondents were asked in an open question why they adapt their products the way indicated in the matrix-style question. The vast majority of the respondents stated legal requirements as the main reason, pointing out that there are legal regulations in Russia that need to be followed, which complies with the fact that the majority only adapts product labels. However, two of the three companies (Alpha, Gamma) that glocalize their products other than by adapting the language of the product labels stated differences in taste as major reason for adaption. Company Eta, unfortunately, did not answer this question.
The result of this section shows that half of the responding companies do not make any adaptations to their product management and development when selling them in Russia. The adaptations of products made by the other 50% of the companies are carried out mainly for legal reasons. 21.5% of the sample were found to truly glocalize their products for the Russian market, or in other words – to adapt products other than in terms of language of product labels. This glocalization rate is rather low, considering that major cultural differences and taste preferences between Russia and Austria exist, in particular in the food industry (Kumar & Goel, 2007, p. 5ff.). This complies, however, with section 2.6.1. Glocalization in Product Management, which pointed out that product adaptation in an international context is mostly done either to meet regulatory or technical requirements, or to suit cultural preferences, tastes and needs of customers (Cavusgil, Zou & Naidu, 1993, p. 479).
3.5.3.2. GLOCALIZATION IN MARKETING COMMUNICATION
The result of the survey concerning this section showed stronger adaptation than the product- specific glocalization section. Even though fewer companies claimed to adapt their marketing communication, the degree of adaptation is mostly stronger and not merely due to legal regulations in Russia.
When the respondents were asked, whether they adapt their marketing communication, 6 out of 14 companies (Alpha, Gamma, Delta, Xi, Kappa, My), which amounts to a total of 43%, said yes, the remaining eight companies, or 57%, of all respondents, said no. The respondents that claimed to adapt their marketing communication were consequently transferred to a follow-up matrix question, in order to find out which elements of their marketing concept they adapt to which degree. The results are, again measured by weighted average, based on
62 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES the calculation by Survey Monkey (see appendix, chapter 5.3. Analysis of the Survey Results), illustrated in Figure 13 below.
MARKETING ADAPTATION
Packaging: Design
Price
Promotion channels
Promotion material: Design and Content
Promotion material: Language
Labelling: Language
0 0,5 1 1,5 2 2,5 3 3,5 4 4,5 5
Marketing adaptation by weighted average
FIGURE 13: AREA AND DEGREE OF MARKETING ADAPTATION As expected and illustrated in Figure 13, adaptation is most strongly and frequently carried out by translating product labels into the target country’s language. Linguistic adaptation of product labels was already mentioned by four companies in the Others field of the product management and development matrix-question, which clearly shows that there is a very strong focus on adaptation of linguistic aspects. As already mentioned before, however, it has to be considered that the Russian law regulates product labelling of products sold in the Russian Federation. According to Russian law, product labels must be in Russian language, and food product labels must include the product name, the name of the producer and the producer´s legal address, type of product, volume or weight, nutritional value, date of expiry and storage conditions, ingredients, food contents, terms and conditions of use and information about side effects (Alpha International Trade, 2015, w/o p.). This kind of adaptation is inevitable and mandatory also for foreign companies selling their products in Russia. Therefore, linguistic adaptations of product labels, even though they are adaptations to the target environment, can only be considered very minor aspects of glocalization with respect to the definition of glocalization used for the purpose of this thesis (see chapter 2.1. Terminology Overview). The same holds true for linguistic adaptation of promotion material. Except for cases in which English is used, promotion material needs to be translated from
63 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
German into Russian in order for Russian consumers to be able to understand it, regardless of culture-specific aspects and preferences.
Furthermore, relatively strong adaptation was found to be carried out in terms of design and content of promotion material, followed by rather strong adaptation of promotion channels. Packaging design and pricing are adapted less strongly, but were also chosen by several companies. By and large, these results show what was already expected – adaptations in terms of language are the most common. However, also the promotion materials’ design and content and promotion channels are adapted frequently and to a considerable extent. This implies that how to reach and appeal to customers through communication material and channels differs between countries, which needs to be considered by companies internationalizing to Russia. Furthermore, it was rather unexpected that the product price is adapted only slightly by most respondents and two companies (Delta, Xi) even stated that they do not adapt the price at all. This is surprising for two reasons: firstly, the price level in Russia differs between large cities and rural areas of the country and is in general considerably lower than in Austria. Secondly, the current decline of the ruble influenced prices, especially of foreign products, and forced many companies to increase the prices of their products to remain profitable.
Only 4 out of 6 companies gave reasons for their adaptation in terms of marketing communication. One company (My) stated to adapt marketing in order to be competitive in the market, one (Kappa) wants to achieve customer loyalty, one (Alpha) gave differences in preferences regarding taste and product design as main reason, and one (Gamma) claimed that the distributors are taking care of marketing adaptations. Thus, the reasons for the adaptation of marketing are rather inconsistent.
In summary, adaptation in terms of marketing communication is carried out by 43% of the respondents. Even though language is the most commonly and most strongly adapted element, all companies also adapt other elements of marketing communication to a certain extent. The only elements not adapted at all by several companies were packaging design (Delta, Xi, Kappa) and price (Delta, Xi). Thus, it can be concluded that the adaptation of marketing communication is with an adaptation rate of 43% more common amongst Austrian SMEs regarding Russia than the adaptation of the products themselves, which amounted to an adaptation rate of only 21.5%.
64 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
3.5.3.3. GLOCALIZATION IN DISTRIBUTION
The result of the distribution-related part of the survey was very straightforward, as can be seen in Figure 14 below. The respondents had the opportunity to choose from ten distribution options (and Other option) and could pick multiple options. The result clearly shows that the distribution methods most frequently used by Austrian SMEs in the Russian market are importers and wholesalers, followed by sales representatives and authorized dealers. Furthermore, some also distribute their products through travelling salesmen and sales branches.
In two follow-up questions, the respondents were asked why they chose these particular distribution methods and whether/how the character of the Russian market influenced their decision. The reason that was given most often was contact to importer(s) (Beta, Gamma, Eta, Lambda, Ny). These respondents stated that due to bureaucratic and legal regulations, the fact that the importer takes over the decision of distribution method facilitates the companies’ business activity in the country. Other reasons for the predominant choices of importer or wholesaler included the straightforwardness and convenience of the distribution methods (Delta, Lambda, My, Ny), personal contact at fairs (Zeta), experience from other markets (Beta) and the geographic dimensions of the country (Alpha). Furthermore, the seven respondents, who answered the question about the influence of the character of the Russian market on the distribution method, indicated that the characteristics of Russia as target market hardly influenced their decision or did not influence it at all.
ADAPTATION OF DISTRIBUTION 12 10 10 8 8 6 4 3 2 2 1 1 0 0 0 0 0
Distribution
FIGURE 14: DISTRIBUTION METHODS
65 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
With this result, Coelho, Easingwood & Coelho’s (2003, p. 570ff.) assumption is confirmed. As already mentioned in section 2.6.3. Glocalizaion in Distribution, it is believed that international companies prefer relatively direct distribution channels, but often have to use intermediaries due to low sales volume, high start-up costs and lack of local knowledge (Coelho, Easingwood & Coelho, 2003, p. 570ff.). It can be assumed that, as it was also mentioned by some respondents, the lack of local knowledge especially with respect to legal and bureaucratic regulations is a decisive factor in choosing distribution channels for Russia. In European markets, like e.g. Slovenia or Germany, Austrian companies are more likely to distribute their products more directly because of their broader knowledge about local conventions and distribution opportunities. Most companies are less likely to be equally informed about distribution in Russia due to a lack of knowledge of the country’s language and customs, which can serve as an explanation for the predominant choice of importers and wholesalers.
In conclusion, it can be said that distribution decisions are to a certain extent glocalized and the respondents opt mostly for the distribution method that is the least complicated for them. However, the target country’s specific characteristics do not seem very relevant for the decision, since the respondents stated to choose their distribution methods for Russia in accordance with the methods chosen for other, especially non-EU, markets and not because of the specific characteristics of Russia.
3.5.3.4. RELATIONSHIP BETWEEN INTERNATIONALIZATION AND GLOCALIZATION
Based on the data collected in the survey, it was attempted to draw a comparison between the success of internationalization in Russia and glocalization. This was done in order to find out whether there is a correlation between these two factors and eventually answer one of the third main research questions of whether the combination of glocalization and internationalization brings benefits for Austrian SMEs when they internationalize to Russia. In order to do so, the relationship between turnover achieved in Russia, subjective success and glocalization of product and marketing is investigated and illustrated below, in Table 6. As distribution turned out not to be very dependent upon the characteristics of the country itself, it is not further taken into account for the purpose of this analysis.
66 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
Company Glocalization of Turnover achieved Subjective Success Company Product/Marketing in Russia Size Gamma Yes/Yes >10% Very successful Medium Alpha Yes/Yes 3-10% Relatively Medium successful Xi Yes/Yes < 3% Relatively successful Medium My Yes/Yes < 3% Relatively successful Medium Eta Yes/No < 3% Relatively Medium successful Beta No/No < 3% Relatively successful Medium Delta Yes/Yes < 3% Not very successful Medium Theta No/No < 3% Not very successful Small Iota No/No < 3% Not successful Small Ny No/No < 3% Not successful Micro Lambda No/No < 3% Not successful Medium Epsilon No/No >10% Very successful Medium Kappa Yes/Yes < 3% - Small Zeta No/No < 3% - Medium
TABLE 6: CORRELATION BETWEEN SUCCESS AND GLOCALIZATION As Table 6 shows, when the results of the survey regarding glocalization and success in the foreign market are compared, a certain correlation between glocalization and success in the foreign market becomes evident. All three companies (Iota, Ny, Lambda) that indicated to be not successful at all in Russia glocalize neither their products, nor their marketing communication. The two companies (Gamma, Alpha) that indicated to be very successful or relatively successful and also achieve the highest turnover rates, glocalize both products and marketing. These two companies, along with Company Eta, were also the ones that could be identified to glocalize elements of their product management and development not related to language. The product glocalization of the others (Xi, My, Delta), which only indicated product labelling as adaptation, is indicated in bold letters in the table. Furthermore, two (Xi, My) of the relatively successful companies glocalize product and marketing and one (Eta) glocalizes only products, in comparison to the not very successful company (Theta) that does not glocalize at all. Company Delta presents an exception, since it glocalizes both product and marketing, but nevertheless categorizes itself as not very successful.
67 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
Companies Kappa and Zeta were taken out of analysis because of missing data in terms of subjective evaluation of company success in the foreign market. Company Epsilon was also not used for analysis with regard to the correlation of glocalization and success, because of the nature of the company’s products. Its main product, pumpkin-seed oil, is very specific as already explained at the very beginning of this section, and thus does not necessarily require adaptation apart from linguistic aspects.
As a result, it can be assumed that glocalization in terms of product development and management, as well as marketing communication, influences a company’s success in the foreign market. This confirms what was outlined in the theoretical part of this work (see chapter 2.6. From GloBalization to GloCalization onwards). The literature review concluded that products and services can be sold more profitably if they are catered to the local region and culture, implying that companies need to be sensitive to differences between areas around the world (Robertson, 2001, p. 458ff.). As already mentioned, the target industry of this thesis, the food industry, is particularly sensitive in terms of differences regarding taste, food habits, cultural and religious conventions (Kumar & Goel, 2007, p. 5ff.). Even though the sample is quite small and the results are partly rather blurred, the overall result confirms the conclusion that glocalization influences success in the foreign market positively, which was drawn in the academic literature review section of this work. Table 6 clearly illustrates that companies which glocalize are to be found in the upper section of the table as successful or rather successful, whereas companies that do not glocalize turned out to be unsuccessful or rather unsuccessful in the market and are thus listed at the bottom of the table.
3.6. CONCLUSIONS AND IMPLICATIONS
The present study attempted to investigate the business activity of Austrian SMEs in the food and drinks industry in the Russian Federation. It was the aim of this study to reveal whether Austrian SMEs glocalize their products, and if they do so, in which way. Finally it was also designed to show whether the combination of both internationalization and glocalization, brings benefits for Austrian SMEs operating in Russia. The academic literature review led the author to infer that SMEs would be likely to glocalize their products due to major differences in culture, law, taste etc. between Russia and Austria. Furthermore, it was assumed that the current business activity would largely be influenced by the current economic and political situation in Russia.
68 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
The results achieved in this study seem largely inconsistent with these assumptions. Only 21.5% of all respondents were found to glocalize elements of their products not related to language, and 43% their marketing communication. Furthermore, according to the results of the survey, the characteristics of the specific target market did not have a considerable influence on the choice of distribution channels. However, the findings confirm the assumption that glocalization is done mostly because of legal obligations or cultural differences. Product adaptations were only made by very few companies and were largely focused on recipe and ingredients. Marketing communication was adapted more frequently, most often with regard to language of product labels and promotion material, but also concerning content and design of promotion material and promotion channels.
When the results were compared to the success of the respective companies in the Russian Federation, it could be concluded that glocalization is beneficial for Austrian SMEs when they enter the Russian market. These findings are of considerable importance because they close a research gap and can also serve as reference for future operations by Austrian companies in the Russian Federation. Furthermore, it can be suggested from these results that SMEs need to concentrate more on the nature and particularities of the foreign market and adapt their products and marketing communication accordingly, in order to be successful.
Naturally, the results of this study are largely dependent on the current economic and political situation in the Russian Federation and the sample selection. Therefore, limitations based on these factors need to be taken into account. In order to assess the academic relevance of the research, the forthcoming chapter is going to present and discuss limitations of this empirical work and outline suggestions for further research.
3.7. LIMITATIONS AND SUGGESTIONS FOR FURTHER RESEARCH
Even though this study showed results of considerable importance, it has certain limitations that need to be pointed out. First of all, the overall sample size of this study was very limited. Only 60 Austrian SMEs of the food and drinks industry with potential business ties to Russia could be identified, and only 14 out of 17 completed surveys could be used for analysis. Therefore, the results achieved in this study can serve as a guideline, but are by no means representative for all Austrian SMEs in the food and drinks industry operating in Russia. Secondly, it is acknowledged that not all product categories are represented in the sample, which is why the results cannot be applied to the whole food and drinks industry. It has to
69 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES be taken into consideration that the results are valid only for the presented product categories and do not apply for others, like e.g. meat-manufacturing companies, which are not represented in the sample. Thirdly, the current political and economic situation in the focal country of this thesis, the Russian Federation, definitely presents a constraint for this study, since it influenced not only the response rate, but also the results achieved.
Therefore, it is recommendable to repeat this study with a larger sample, and possibly target companies that manufacture products of one certain category, which is highly subject to adaptation for foreign markets, in order to ensure even greater comparability and relevance of the findings. A survey with a larger sample of companies should also be more illuminating in explaining the totality of glocalization processes in Austria. Furthermore, the study should be replicated in the future, when the political and economic situation in the Russian Federation has gone back to normal and sanctions are no longer imposed. Possibly, the concept and methodology approach of the study could also be applied to other target countries for further investigation and comparison in the future.
4. CONCLUSION
Technological advancements, declining trade barriers and increased communication possibilities across borders are the main drivers of globalization in today’s fast-developing, ever-changing world and have caused companies of all sizes to increase their international business activity. This activity leads SMEs to face certain challenges, such as the adaptation of their products and marketing to target customers with different cultural backgrounds and origins. As no previous work exists in the area of glocalization and internationalization of Austrian SMEs in Russia, this thesis set out to investigate these processes in in the sphere of the food and drinks industry and contributes to a better comprehension of the importance of glocalization for SMEs.
The first section of this thesis (chapter 2. Theoretical Framework) constitutes an extensive review of academic literature, revealing several important theories and assumptions, which were either proved or refuted in the empirical study of this thesis. First and foremost, it became evident that not only the definition of SMEs, but also their relevance for the economy differ between Austria and Russia. While SMEs present the main driver of the Austrian economy (WKO Austria Report, 20140, p. 5ff.), Russia is very much dependent on large companies. Russia’s vast geographical dimensions restrict SMEs possibility to supply customers in the whole country with their products (European Investment Bank, 2013, p.
70 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
3ff.), which, eventually could be identified as opportunity for foreign SMEs to engage in trade with Russia.
Secondly, it could be derived from academic literature that even though internationalization is more complicated for SMEs because of the extensive financial resources it requires, it is highly beneficial for them. It was found that internationalization does not only increase profitability and further growth of SMEs (Lu & Beamish, 2006, p. 28), but it also enables them to increase their competitiveness and gives them access to new product ideas and innovation (Hollensen, 2011, p. 6), resulting in higher employment rates of internationalized SMEs than non-internationalized SMEs (European Commission, 2010, p. 8). Furthermore, the literature review showed that the most frequently used foreign market entry strategy for SMEs is export, because of its low risk and high flexibility (Hollensen, 2011, p. 338).
Thirdly, a considerable interdependence between internationalization and innovation was identified, largely fuelled by globalization. Innovation was found to positively influence the propensity of SMEs to internationalize (Autio, Sapienza & Almeida, 2000, p. 919f.), whereas internationalization, in return, was found to also trigger innovativeness (European Commission, 2010, p. 9). With regard to this thesis, innovation was mostly investigated with regard to the concept of glocalization, which creates the need for product adaptation and innovation for foreign markets.
The concept of glocalization itself was also reviewed in detail in the theoretical part of this thesis. It was found to be a hybrid of local adaptation and global standardization, suggesting that products, even though they might be intended for a global market, need to be customized to local cultures and preferences in order to be successful (Robertson, 1995, p. 28). Glocalization proved to be important not only in the sector of product management and development, but also in marketing communication and distribution.
Moreover, the economic relationship between Austria and Russia was investigated, especially in the context of the food and drinks industry. Findings showed that Russia is a very important business partner for Austria, accounting for about 2.8% of all Austrian exports in 2013 (BMWFWa, 2014, p. 6), and ranking 8th most important export country for the Austrian food and drinks industry (Außenwirtschaft Austria, 2014a, p. 31f.). It also became apparent that Russia presents a very attractive market for Austrian manufacturers of food and drinks, because of the considerable monthly expenditures of Russian families on food and drinks (Eurostat, 2012, w/o p.; Awara Group, 2013, w/o p.). Furthermore, Russia
71 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES exhibits a high level of luxury consumption and a general consumer preference for foreign brands, associating them with high quality (Awara Group, 2013, w/o p.), which represents an opportunity for foreign companies.
The theoretical framework formed the basis for the empirical study of this thesis, presented in chapter 3. Empirical Framework. A survey consisting of a combination of qualitative and quantitative questions was designed and distributed to potential respondents for data collection. The sample was comprised of Austrian SMEs in the food and drinks industry, operating in Russia. The analysis and outline of the results of the study was broken down into three sections, based on the literature review.
In terms of internationalization, the study demonstrated that Austrian SMEs achieve a large percentage of their turnover abroad, indicating that foreign markets are of high importance for them. It could also be seen that their international activity increased especially over the course of the last 30 years, confirming the assumption that the trend of globalization has fuelled international activity of companies of all sizes.
Concerning the Russian market in particular, high market potential and demand for foreign, high-quality products were found to be the main motivators for SMEs to enter the market. The most frequently used market entry mode turned out to be export, as already expected from the literature review. However, the study also showed that 78.6% of the sample had been active in other foreign markets before entering Russia, which implies that Russia is not one of the first markets Austrian SMEs choose to enter when going international. This might stem also from the market entry barriers and challenges they are confronted with in Russia. Moreover the study showed that despite all companies belonging to the industry of food and drinks, only 46.15% claimed to be affected by the current economic sanctions.
As for glocalization, adaptation in marketing communication turned out to be the strongest, since 43% of all respondents claimed to adapt their marketing communication. Adaptations were found predominantly in terms of language of product labels and promotion material, followed by design and content of promotion material and promotion channels. Regarding product management and development, 21.5% of the respondents stated to adapt their products, mostly regarding recipe, ingredients and package size. Distribution in Russia was found to be dominated by importers and wholesalers, and was considered to be hardly influenced by the specific characteristics of the Russian market, even though legal
72 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES regulations and requirements, and lack of local knowledge were stated as main reasons for the choice of distribution method.
This thesis demonstrated that Austrian SMEs in the food and drinks industry are very active also outside their domestic market’s borders. The main research question of whether Austrian SMEs glocalize their products when they internationalize to Russia, could not be answered clearly. About half of the sample was found to adapt certain elements of the marketing mix to the target market conditions, with linguistic adaptations as the most important and apparent. Furthermore, the study revealed that the combination of glocalization and internationalization indeed brings benefits for Austrian SMEs in the food and drinks industry, since the most successful companies were found to glocalize both product and marketing, in contrast to the least successful, which were found to glocalize neither product, nor marketing.
In summary, this thesis illustrated the substantial importance of both internationalization and glocalization for Austrian SMEs in the food and drinks industry. It highlighted the high potential of the Russian market for SMEs in this sphere and confirmed the assumption that glocalization is beneficial for companies with regard to internationalization to the Russian Federation. Furthermore, this thesis closed research gaps in terms of foreign market entry of Austrian SMEs into the Russian Federation and the degree of adaptation applied to product management and development, marketing communication and distribution. It shed light on the phenomenon of glocalization within Austrian SMEs and contributes to academic research in the field by providing reference for SMEs in the food and drinks industry, planning to enter the Russian market in the future.
73 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
5. APPENDIX
5.1. EMPIRICAL RESEARCH: QUESTIONNAIRE IN ENGLISH
Going Glocal: Internationalization and Glocalization of SMEs Thank you for participating in this survey and thus helping me with the completion of my master’s thesis about “Internationalization and Glocalization of SMEs”, in partial fulfilment of the Master’s programme “International Management” at the University of Klagenfurt. Completing the questionnaire will take you about 15-20 minutes maximum. The answers given and data collected will be treated confidentially and will only be used for research purposes within the framework of this master’s thesis. Kind regards, Julia Truntschnig
Section 1: Internationalization 1. How long has your company been operating internationally? - less than 1 year - 2-5 years - 6-10 years - more than 10 years 2. In how many countries is your company operating (except Austria)? - 1 country - 2-5 countries - 6-10 countries - more than 10 countries Section 2: The Russian Market 3. How long has the company been operating on the Russian market? - less than 1 year - 2-5 years - 6-10 years - more than 10 years 4. How did the company enter the Russian market? - Foreign trade (export) - Direct investment (investment or take-over of foreign company, subsidiary) - Contracting (Franchising, Licensing, Strategic Alliance) - Other (please indicate): ______
74 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
5. What was the main motivation for the company to enter the Russian market? A:
6. How is the company currently operating on the Russian market? (Export, subsidiary etc.) A:
Section 3: Glocalization 7. Are your products adapted for the Russian market? - Yes - No 8. If yes:
How are your products adapted for the Russian market?
Not at all Very little Little Strongly Very strongly Ingredients Recipe Mode of production Package size Other: ______
9. Why are your products adapted for the Russian market? A: 10. Is your marketing adapted for the Russian market? - Yes - No 11. If yes:
How is your marketing adapted for the Russian market?
75 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
Not at all Very little Little Strongly Very strongly
Labelling: Language Packaging: Design Promotion material: Language Promotion material: Design and content Promotion channels (print, online etc.) Price Other: ______
12. Why is your marketing adapted for the Russian market (except for language adaptation)? A: 13. How are your products distributed on the Russian market? - Importer - Exporter - Sales representative - Travelling salesman - Authorized dealer - Commission agent - Wholesaler - Direct sale to customers/Sales branch - Licensing/Franchising - E-Commerce/Online-shop - Other (please indicate): ______
14. Why did you choose this distribution method for the Russian market? A:
15. How did the foreign market (Russia) influence your decision of how to distribute products? A:
Section 4: Success in foreign markets 16. In your opinion, how successful is the company in Russia? - Very successful
76 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
- Relatively successful - Not very successful - Not successful
17. How many percent of the annual turnover is achieved on the Russian market? - less than 3% - 3-10% - more than 10% 18. How is the company influenced by the economic sanctions against Russia and the Ukraine? A: 19. Why do you think the company is successful/not successful in the Russian market? A:
Section 5: General Information The information given in this section will be treated highly confidentially and will only be used to categorize companies in the evaluation and analysis process of this survey.
20. Please indicate your name, the name of the company you work for and your role within the company. A: 21. When was the company founded? A: 22. How many employees are working in the company? A: 23. What is the annual turnover of the company? A: 24. What is the annual turnover achieved abroad? A: 24. Would you be ready to answer further questions, if they arise from the answers given in this survey? - Yes - No
Thank you for your participation!
77 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
5.2. EMPIRICAL RESEARCH: QUESTIONNAIRE IN GERMAN
78 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
79 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
80 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
81 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
Survey: Designed with Surveymonkey.com
82 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
5.3. ANALYSIS OF THE SURVEY RESULTS – CALCULATIONS
Analysis of Glocalization in Product Management & Development Screenshot 24/3/2015, Survey Monkey
83 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
Own Calculation only for Alpha, Gamma, Eta (which changed elements other than language):
The other four respondents’ answers were taken out for this analysis because they indicated “not at all” as answer for all elements of the matrix-style question How are your products adapted for the Russian market?
Not at all Very Little Strongly Very Overall Weighted Ranking little strongly Answers mean average Ingredients 0 1 1 1 0 3 3 2
Recipe 1 0 0 1 1 3 3,33 1
Mode of 1 1 0 1 0 3 2,33 4 production Package 1 1 0 0 1 3 2,67 3 size
Calculations for Marketing Adaptation:
84 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
Analysis of Glocalization in Marketing Communication Screenshot 24/3/2015, Survey Monkey
85 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
6. REFERENCES
1. Acs, Z., Morck, M., Shaver, R. & Yeung, B. (1997, February). The Internationalisation of Small and Medium-Sized Enterprises: A Policy Perspective. Small Business Economics, 9(1), pp. 7–20. Doi: 10.1023/A:1007991428526.
2. Advantage Austria (2015). Austrian Companies in Russia. w/o. Author. Retrieved 15/1/2015, from: http://www.advantageaustria.org/international/zentral/business-guide- oesterreich/importieren-aus-oesterreich/branchen/nahrungsmittel-und- getraenke/ueberblick.ru.html.
3. Agriculture and Agrifood Canada (2011). Agri-Food Consumer Profile: Russia. w/o Author. Retrieved 20/2/2015, from: http://www5.agr.gc.ca/resources/prod/Internet- Internet/MISB-DGSIM/ATS-SEA/PDF/5705-eng.pdf.
4. Albaum, G., Strandskov, J. & Duerr, E. (2002). International Marketing and Export Management. (4th ed.). England: Prentice Hall.
5. Alpha International Trade. (2015). Country Profile Russia: Selling. Retrieved 22/3/2015, from http://www.alphainternationaltrade.com/en/choose-your-markets/country- profiles/russia/selling.
6. Anderson, E., Day, G. S., & Rangan, K. V. (1997). Strategic Channel Design. Sloan Management Review, 38 (4), pp. 59-69.
7. Atherton, A. & Hannon, P. (2000). The innovation process and the small business: A conceptual analysis. International Journal of Business Performance Management, 2 (4), pp. 276-292. DOI: 10.1504/IJBPM.2000.000084.
8. Audretsch, D. B. (2004). Sustaining Innovation and Growth: Public Policy Support for Entrepreneurship. Industry and Innovation, 11, (3), pp. 167-191. Doi: 10.1080/1366271042000265366.
9. Außenwirtschaft Austria (2014a, April). Länderreport Russische Föderation. Vienna, Austria: w/o Author. Retrieved 4/2/2015, from: https://webshop.wko.at/index.php?idp=59&idpm=2697&idpd=4847.
10. Außenwirtschaft Austria (2014b, November) Länderreport Russische Föderation. Vienna, Austria: w/o Author. Retrieved 24/2/2015, from: https://webshop.wko.at/index.php?idp=59&idpm=2697&idpd=4847.
11. Autio, E., Sapienza H.J. & Almeida J.G. (2000). Effects of age at entry, knowledge intensity and imitability on international growth. Academy of Management Journal, 43 (5), pp. 909-924. Retrieved 5/1/2015, from: JSTOR database, http://www.jstor.org/stable/1556419.
12. Awara Group. (2013). Consumer Behaviour in Russia. Author: Samuli Pesu. Moscow, Russia. Retrieved 15/3/2015, from http://www.awaragroup.com/upload/pdf/Awara-
86 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
Group-Consumer-Behaviour-in-Russia.pdf.
13. Baragheh, A., Rowley J., Sambrook, S., & Davies, D. (2012). Innovation in food sector SMEs. Journal of Small Business and Enterprise Development, 19 (2), pp. 300-321. Doi: /10.1108/14626001211223919
14. Barringer, B. R., & Greening, D. W. (1998). Small business growth through geographic expansion: A comparative case study. Journal of Business Venturing, 13(6), pp. 467- 492. Doi: 10.1016/S0883-9026(97)00038-4.
15. Bartlett, C. A. & Ghoshal S. (2002). Managing Across Borders: The Transnational Solution (2nd ed.). Boston: Harvard Business School Press.
16. Beaver, G. & Jennings, P. L. (2000). Small Business, Entrepreneurship and Enterprise Development. Journal of Strategic Change, 9 (1), pp. 397-405.
17. Beaver, G. & Prince, C. (2002). Innovation, Entrepreneurship and Competitive Advantage in the Entrepreneurial Venture. Journal of Small Business and Enterprise Development, 9 (1), pp. 28-37. Doi: 10.1108/14626000210419464.
18. Bell, J., Crick D. & Young, S. (2004). Small Firm Internationalization and Business Strategy. An exploratory study of ‘knowledge intensive’ and traditional manufacturing firms in the UK. International Small Business Journal, 22 (1), pp. 23-56. Doi: 10.1177/0266242604039479.
19. Beyer, P. (2007). Globalization and Glocalization. in Beckford, J.A. & Demerath, N.J. (eds.), The SAGE Handbook of the Sociology of Religion (pp. 98-117). London: Sage Publications Ltd,
20. Black, N. J., Lockett, A., Ennew C., Winklhofer H. & McKechnie S. (2002). Modelling consumer choice of distribution channels: an illustration from financial services. The International Journal of Bank Marketing, 20 (4/5), pp. 161-173. Doi: 10.1108/02652320210432945.
21. BMWFW Bundesministerium für Wissenschaft, Forschung und Wirtschaft (2014a). Warenverkehr 2013. w/o. Author. Retrieved 12/2/2015, from: http://www.bmwfw.gv.at/Aussenwirtschaft/oesterreichswirtschaftsbeziehungen/Datenu ndFakten/Documents/Oesterreichs_Warenverkehr_2013endg%C3%BCltig.pdf.
22. BMWFW Bundesministerium für Wissenschaft, Forschung und Wirtschaft (2014b). Die Wettbewerbsfähigkeit der österreichischen Exportwirtschaft: Die Rolle der KMUs. Policy Brief Nr. 25, Dezember 2014. Author: Oberdorfer, H. Retrieved 5/3/2015, from: http://www.fiw.ac.at/fileadmin/Documents/Publikationen/Policy_Briefs/25_FIW_Polic yBrief_Oberhofer.pdf.
23. Braodman, H. (2000). Reducing Structural Dominance and Entry Barriers in Russian Industry. Review of Industrial Organization, 17 (2), pp. 155-175. Doi: 10.1023/A:1007809813284.
24. Calof, J. & Beamish, P., (1995). Adapting to foreign markets: explaining internationalisation. International Business Review, 4 (2), pp. 115-131. Doi:
87 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
10.1016/0969-5931(95)00001-G.
25. Cantwell, J. & Piscitello, L. (2005, February). Recent Location of Foreign-Owned Research and Development Activities by Large Multinational Corporations in the European Regions: The Role of Spillovers and Externalities. Regional Studies, 39 (1), pp. 1-16.
26. Cavusgil, S.T., Zou, S. & Naidu, G. M. (1993). Product and promotion adaptation in export ventures: An empirical investigation. Journal of International Business Studies, 24(3), pp. 479-506.
27. Champy, J. (1997). Think Globally, Sell Locally. Sales & Marketing Management, 7(1), pp. 24-25.
28. Coelho, F., Easingwood, C. & Coelho, A., (2003). Exploratory evidence of channel performance in single vs. multiple channel strategies. International Journal of retail & distribution management, 31 (11), pp. 561-573. Doi: 10.1108/09590550310503294.
29. Cooper, R. G., Edgett, S. J. & Kleinschmidt, E. J. (2004). Benchmarking best NPD practices - III. Research Technology Management, 47 (6), pp. 43-55. Retrieved 7/2/2015, from: http://www.stage-gate.com/downloads/wp/wp_42.pdf.
30. Country Reports: Russian (2014). Russia Country Monitor. Retrieved from Business Source Premier: http://search.ebscohost.com.
31. Czinkota, M. R. & Ronkainen, I. A. (2000). International marketing. Fort Worth: Harcourt College Publishers.
32. De Búrca, S., Brown, L. & Fletcher, R. (2004). International marketing: an SME perspective. Harlow: Financial Times Prentice Hall.
33. De Mooij, M. (2010). Global Marketing and Advertising. Understanding Cultural Paradoxes. Los Angeles/London/New Delhi/Singapur/Washington DC: Sage Publications.
34. Doole, I. & Lowe, R. (2001). International marketing strategy: Analysis, development and implementation. London: Thomson Learning.
35. Douglas S.P. & Wind, Y. (1987). The Myth of Globalization. Columbia Journal of World Business, 22 (4), pp. 19-29.
36. Douglas, S.P. & Craig, C.S. (1995) Global Marketing Strategy. New York, NY: McGraw-Hill.
37. Ebrahim, N.A., Shahsuddin A. & Zahari T. (2010). Critical factors for new product development in SMEs virtual team. African Journal of Business Management, 4(11), pp. 2247 -2257. Retrieved 18/1/2015, from: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1688931.
88 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
38. Erramilli, M.K. & Rao, C.P. (1990). Choice of foreign market entry modes by service firms: Role of market knowledge. Management International Review, 30 (2), pp. 135- 150.
39. European Commission (2005). The new SME definition: User guide and model declaration. Enterprise and Industry Publications. Brussels, Belgium: w/o. Author. Retrieved 15/1/2015, from http://ec.europa.eu/enterprise/policies/sme/files/sme_definition/sme_user_guide_en.pdf.
40. European Commission (2010). Internationalisation of European SMEs. Brussels, Belgium: w/o. Author. Retrieved 15/1/2015, from: http://ec.europa.eu/enterprise/policies/sme/market- access/files/internationalisation_of_european_smes_final_en.pdf.
41. European Commission (2013). Small and medium-sized enterprises (SMEs): Fact and figures about the EU´s Small and Medium Enterprise (SME). Brussels, Belgium: w/o. Author. Retrieved 16/1/2015, from: http://ec.europa.eu/enterprise/policies/sme/facts- figures-analysis/index_en.htm.
42. European Commission (2014). Enterprise and Industry SBA Fact Sheet: Austria. Brussels, Belgium: w/o. Author. Retrieved 16/1/2015, from: http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/performance- review/files/countries-sheets/2014/austria_en.pdf.
43. European Investment Bank (2013). Report on: Small and Medium Enterprises in Russia Report 2013. Luxembourg: w/o Author. Retrieved 16/1/2015, from: http://www.eib.org/attachments/efs/econ_study_small_and_medium_entrepreneurship_in_r ussia_en.pdf.
44. Eurostat (2012). Europa in Zahlen – Eurostat Jahrbuch 2012. Ein Portal zu europäischen Statistiken. w/o. Author. Retrieved 14/3/2015, from: http://europa.eu/rapid/press-release_STAT-12-70_de.htm.
45. Fachverband der Lebensmittelindustrie (2013). Die Lebensmittelindustrie. Zahlen- Daten-Fakten 2013. Vienna, Austria. Retrieved 14/3/2015, from: https://www.wko.at/Content.Node/branchen/oe/Nahrungs--und-Genussmittelindustrie-- Lebensmittelindustrie-/LMI-Folder-Zahlen_Daten_Fakten.pdf.
46. Fletcher, R. (2001). A holistic approach to internationalisation. International Business Review, 10 (1), pp. 25-49. Doi: 10.1016/S0969-5931(00)00039-1.
47. FoodDrinkEurope (2014). European food and drink industry 2013-2014: Trends and data. FECC Workshop. w/o. Author. Retrieved 21/3/2015, from: http://www.fecc.org/fecc/images/stories/downloads/Events/Food_Safety_WS_2014/1_ Dollet_Presentation%20FECC%2017%20sept.pdf.
48. Garcia, R. & Calantone, R. (2002). A critical look at technological innovation typology and innovativeness terminology: A literature review. Journal of Product Innovation Management, 19 (2), pp. 110-132. Doi: 10.1016/S0737-6782(01)00132-1.
89 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
49. Gjellerup, P. (2000). SME support services in the face of globalization. Concerted action seminar on SME support services in the face of globalisation. Opening address. Conference Proceedings. Danish Agency for Trade and Industry, Copenhagen, pp. 16- 28. Retrieved 22/3/2015, from http://ec.europa.eu/enterprise/policies/sme/files/support_measures/docs/cph- seminar_2000_en.pdf.
50. Go international (2014). Exportscheck: Russland-Ukrainepaket. w/o. Author. Retrieved 20/2/2015, from: http://www.go-international.at/ueber-go-international/Russland- Ukrainepaket.html.
51. Godin, B. (2002). The Rise of Innovation Surveys: Measuring a Fuzzy Concept. Retrieved 13/3/2015, from: http://www.csiic.ca/PDF/Godin_16.pdf.
52. Goffin, K., & Mitchell, R. (2010). Innovation Management. Strategy and Implementation using the Penthathlon Framework. (2nd ed.). London et al.: Palgrave Macmillan.
53. Griffin, A. & Somermeyer, S. (2007). Appendix II: The PDMA Glossary for New Product Development, in: Griffin, A. & Somermeyer, S. (eds.). The PDMA Tool Book 3 for New Product Development. Hoboken, NJ, USA: John Wiley & Sons, Inc.
54. Hamer, E. (2006). Volkswirtschaftliche Bedeutung von Klein- und Mittelbetrieben. in: Pfohl, H.-Ch. (ed.) Betriebswirtschaftlehre der Mittel- und Kleinbetriebe. Größenspezifische Probleme und Möglichkeiten zu ihrer Lösung (pp. 33-40). (4th ed.), Berlin: Erich Schmidt Verlag.
55. Hausman, A. (2005). Innovativeness among small businesses: Theory and propositions for future research. Industrial Marketing Management, 34 (8), pp. 773-782. doi: 10.1016/j.indmarman.2004.12.009.
56. Hauswald, H. (2013). Stakeholder trust in family businesses. Wiesbaden, Germany: Springer Gabler.
57. Hollensen, S. (2011). Global marketing. A decision-oriented approach. Pearson Education Limited, 5. Edition: Harlow, England.
58. Hudea, O. S. & Papuc, R. (2009). International marketing strategies in the globalization era. Lex ET Scientia International Journal, Economic Series, 2 (16), pp. 301-311. Retrieved 15/1/2015, from: http://lexetscientia.univnt.ro/en/article/INTERNATIONAL- MARKETING-STRATEGIES-IN-THE-GLOBALISATION-ERA~295.html.
59. Hurmerinta-Peltomäki, L. (1994). Success factors and their sensitivity to internationalization: Some empirical findings among Finnish SMEs. in Veciana, J.M. (Ed.) SMEs: Internationalization, Networks and Strategy (pp. 24-37). Great Britain: Avebury,
60. Ismail K., Leow Y. R., Yong C. Y., Abdul-Majid I., Thwala W.D. & Ajagbel M.A. (2012)). Critical success factors of new product development in technology based firms: A case study. African Journal of Business Management, 6 (33), pp. 9442-9451. Doi:
90 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
10.5897/AJBM11.2622.
61. Jain M., Khalil S., Nhat-Hanh Le A. & Ming-Sung Cheng J., (2012). The glocalisation of channels of distribution: a case study. Management Decision, 50 (3), pp. 521 – 538. Doi: 10.1108/00251741211216269.
62. Jansson, H.A., Jansson, M. & Ramström, J. (2007). Institutions and networks. Business networks in the Chinese, Russian, and West-European institutional context. Journal of Industrial Marketing Management, 36 (7), pp. 955-967. doi: 10.1016/j.indmarman.2007.05.013.
63. Johanson, J., & Vahlne, J.-E. 1977. The internationalization process of the firm: A model of knowledge development and increasing foreign market commitments. Journal of International Business Studies, 8 (1), pp. 23–32.
64. Jones, M. T. (2002). Globalization and Organizational Restructuring: A Strategic Perspective. Thunderbird International Business Review, 44 (3), pp. 325-51. Doi: 10.1002/tic.10024.
65. Kahiya, E.T. (2013). Export barriers and path to internationalization: A comparison of conventional enterprises and international new ventures. Journal of International Entrepreneurship, 11 (1), pp. 3-29. Doi: 10.1007/s10843-013-0102-4.
66. Kearney, A.T. (2002). Globalization’s Last Hurrah? Foreign Policy Magazine. 128, pp. 38-51. Retrieved from EBSCO Business Source Premier, http://search.ebscohost.com.
67. Keizer, J. A., Dijkstra, L. & Halman, J.I.M. (2002, January). Explaining innovative efforts of SMEs. An exploratory survey among SMEs in the mechanical and electrical engineering sector in The Netherlands. Technovation, 22 (1), pp. 1-13. Doi: 10.1016/S0166-4972(00)00091-2.
68. Kleinknecht A. & Oostendorp, R. (2002). R&D and export performance: Taking Account of Simultaneity. in Kleinknecht, A. & Mohnen, P. (eds.). Innovation and firm performance: econometric explorations of survey data (pp.310-320). Hampshire/New York, NY: Palgrave.
69. Knight, G. (2000). Entrepreneurship and Marketing Strategy: The SME under Globalization. Journal of International Marketing, 8 (2), pp. 12-32. Doi: 10.1509/jimk.8.2.12.19620.
70. Koller, V. (2007). “The world's local bank”: glocalisation as a strategy incorporate branding discourse. Social Semiotics, 17, (1), pp. 111-130. Doi: 10.1080/10350330601124718.
71. Kotabe, M. & Helsen, K. (2008). Global Marketing Management. (4th ed.). New York, NQ, Wiley & Sons.
72. Kotler, P., Keller, K., Brady, M., Goodman, M. & Hansen, T. (2009). Marketing Management. European Edition. Harlow, England: Pearson Prentice Hall Publishing.
91 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
73. Kouznetsov, A. (2009). Country conditions in emerging markets and their effects on entry mode decisions of multinational manufacturing enterprises. Evidence from Russia. International Journal of Emerging Markets, 4 (4), pp. 375-388. doi: 10.1108/17468800910991269.
74. Krishnan, V. & Ulrich, K.T. (2001, January) Product Development Decisions: A Review of the Literature. Management Science, 47 (1), pp. 1–21. Doi: 10.1287/mnsc.47.1.1.10668.
75. Kruse, P. (2009). Internationalisierung der Absatzmärkte für kleine und mittelständische Unternehmen (1st ed.). Wiesbaden: Gabler.
76. Kumar, S. & Goel, B. (2007, June). Glocalization in Food and Agribusiness: Strategies of Adaptation to Local Needs and Demands. 17th Annual World Food and Agribusiness Forum and Symposium on Food Culture: Tradition, Innovation and Trust – A positive Force for Modern Agribusiness, June 23-26, 2007, Parma, Italy. Retrieved 17/1/2015, from: http://www.researchgate.net/profile/Sushil_Kumar74/publication/241869506_Glocaliza tion_in_Food_and_Agribusiness_Strategies_of_Adaptation_to_Local_Needs_and_Dem ands/links/53fb47d80cf20a4549706516.pdf.
77. Laforet, S. (2011). A framework of organisational innovation and outcomes in SMEs. International Journal of Entrepreneurial Behaviour & Research, 17 (4), pp. 380-408. Doi: 10.1108/13552551111139638.
78. Lee, K. & Carter, Dr. S. (2009). Global Marketing Management. Changes, New Challenges, and Strategies (2nd ed.). Oxford: Oxford University Press.
79. Lefebvre, E. & L.-A. Lefebvre (2002). Innovative Capabilities as Determinants of Export Performance and Behaviour: A Longitudinal Study of Manufacturing SMEs. in Kleinknecht, A. & Mohnen, P. (eds.). Innovation and firm performance: econometric explorations of survey data (pp. 281-310). Hampshire/New York, NY: Palgrave.
80. Lehtinen, U. & Penttinen, H. (1999). Definition of the internationalization of the firm, in Lehtinen, U. & Seristoe, H. (eds.). Perspectives on Internationalization (pp. 3-19). Helsinki: School of Economics and Business Administration.
81. Leonidou, L. (1995). Empirical research on export barriers: Review, assessment and synthesis. Journal of International Management, 3 (1), pp. 29-43.
82. Levitt, T. (1983, May/June). The globalization of markets. Harvard Business Review, 61 (3), pp. 92-102.
83. Levy, M. & Powell, P. (2005). Strategies for Growth in SMEs. The Role of Information and Information Systems. (1st ed.). UK: Butterworth-Heinemann.
84. Lu, J.W. & Beamish, P. W. (2001, June-July). The internationalization and performance of SMEs. Strategic Management Journal, 22 (6-7), pp. 565-586. Doi: 10.1002/smj.184.
92 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
85. Lu, J.W. & Beamish, P.W. (2006). SME internationalization and performance: Growth Vs. Profitabilty. Journal of International Entrepreunership, 4 (1), pp. 27-48. doi: 10.1007/s10843-006-8000-7.
86. Matusitz, J., & Reyers, A. (2010). A behemoth in India: Glocalization perspectives. South Asia Research, 30 (3), pp. 233–252. doi: 10.1177/026272801003000302.
87. Morschett, D., Schramm-Klein, H. & Zentes, J. (2010). Strategic International Management. Text and Cases. (2nd ed.). Wiesbaden: Gabler.
88. Mugler, J. (2005) .Grundlagen der BWL der Klein- und Mittelbetriebe. (1st ed.). Vienna: Universitätsverlag Facultas.
89. Neuman, W.L. (2006). Social Research Methods. (6th ed.). Boston: Pearson Education.
90. OECD & Eurostat (2005). Oslo Manual: Guidelines for Collecting and Interpreting Innovation Data (3rd ed.). Paris: OECD. Retrieved 17/1/2015, from: http://www.oecd.org/sti/inno/oslomanualguidelinesforcollectingandinterpretinginnovati ondata3rdedition.htm.
91. OECD (2000). Policy Brief. Small and Medium-sized Enterprises: Local Strength, Global Reach. OECD Observer, Organisation for Economic Co-operation and Development, June. Retrieved 17/1/2015, from: http://www.oecd.org/regional/leed/1918307.pdf.
92. Onkvisit, S. & Shaw, J. (2009). International marketing: Strategy and theory. (5th ed.). London: Routledge.
93. Paunovic, Z. & Prebazac D. (2010). Internationalization of Small and Medium-sized Enterprises. Tržište/Market, 22 (1), pp. 57-76.
94. Pearce, R. & Papanastassiou, M. (1999). Overseas R&D and the Strategic Evolution of MNEs: Evidence from Laboratories in the UK. Research Policy, 28 (1), pp. 23-41.
95. Petison, P. & Johri, L. (2008). Localization Drivers in an Emerging Market: Case Studies from Thailand. Management Decision, 46 (9), pp. 1399-1412. Doi: 10.1108/00251740810912019.
96. Pfohl, H.-Ch. (2006). Betriebswirtschaftslehre der Klein- und Mittelbetriebe. Größenspezifische Probleme und Möglichkeiten zu ihrer Lösung (4th ed.). Berlin: Erich Schmidt Verlag.
97. Przybysz, M. (2013). How to Win With the Russian Shopper. Retrieved 1/3/2015, from Nielsen: http://www.nielsen.com/us/en/insights/news/2013/how-to-win-with-the- russian-shopper.html.
98. Rammer, C. & Schmiele, A. (2009). Drivers and effects of internationalizing innovation by SMEs. ICFAI Journal of Knowledge Management, 7 (2), pp. 18-62.
93 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
99. Ranchhod, A. & Gurau, C. (2007). Marketing Strategies: A Contemporary Approach. Harlow: Pearson Education Ltd.
100. Robertson, R. (1995). Glocalization: Time-space and Homogeneity-heterogeneity. in Featherstone, M. et al. (eds.). Global Modernities (pp. 25-44). London: Sage.
101. Robertson, R. (2001). Globalization theory 2000+: Major problematic.in Ritzer, G.& Smart B. (eds.). Handbook of social theory (pp. 458– 471). London: Sage.
102. Root, F.R. (1994). Entry Strategies for International Markets. New York: Lexington Books, Maxwell Macmillan International.
103. Rundh, B. (2001). International market development: new patterns in SMEs international market behaviour? Marketing Intelligence & Planning. 19 (5), pp. 319- 329.
104. Russian Agency for Support of Small & Medium Business (2013). Export potential of the Russian small and medium enterprises & their state support system. Author: Ermakov V. Moscow, Russia. Retrieved 3/3/2015, from: http://www.liaa.gov.lv/files/liaa/attachments/ermakov_-_eud_-_eng.pdf.
105. Ruzzier, M., Hisrich, R. D. & Antoncic, B. (2006). SME internationalization research: past, present and future. Journal of Small Business and Enterprise Development, 13 (4), pp. 476-497. Doi: 10.1108/14626000610705705.
106. Schulte, W.D. & Jackson, D. (2007). Project-based international business strategies: the case of the international construction services industry. In: Advances in Competitiveness Research, 15 (1/2), pp. 54-70.
107. Schumpeter, J. A. (1947). The creative response in economic history. The Journal of Economic History, 7(2), 149-159. Retrieved 18/1/2015, from: JSTOR database, http://www.jstor.org/stable/2113338.
108. Seitz, V.A., Lupu, O., Razzouk, N., & Chu, K.M.C. (2009). Print Advertising in the US and Hong Kong: A Comparative Analysis. Review of Economic and Business Studies, 4, pp. 125-148. Retrieved 15/3/2015, from: http://rebs.ro/resource/REBS_4/Research%20Paper/Seitz,V_- _Print_Advertising_in_the_US_and_Hong_Kong.pdf.
109. Shaw, E. (1999). A Guide to the Qualitative Research Process: Evidence from a Small Firm Study. Qualitative Market Research: An International Journal. 2 (2), pp. 59–70.
110. Shoham, A., Brencic, M.M., Virant, V. & Ruvio, A. (2008). International standardization of channel management and its behavioral and performance outcomes. Journal of International Marketing, 16 (2), pp. 120-151. Doi: 10.1509/jimk.16.2.120.
111. Singh, N., Hongxin, Z. & Xiaorui, H. (2005). Analyzing the cultural content of web sites: A cross-national comparison of China, India, Japan, and US. International Marketing Review, 22 (2), pp. 129-145. Doi: 10.1108/02651330510593241.
94 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
112. Stokes, D. & Wilson, N. C. (2010). Entrepreneurship and marketing education: time for the road less travelled? International Journal of Entrepreneurship and Innovation Management, 11 (1), pp. 95-108. doi: 10.1504/IJEIM.2010.029770.
113. Suárez-Ortega S.M. & Álamo-Vera F.R. (2005). SMES' internationalization: firms and managerial factors. International Journal of Entrepreneurial Behaviour & Research, 11 (4), pp. 258 -279. Doi: 10.1108/13552550510603298.
114. Subramaniam, M. & Venkatraman, N. (2001, April). Determinants of Transnational New Product Development Capability: Testing the Influence of Transferring and Deploying Tacit Overseas Knowledge. Strategic Management Journal, 22 (4), pp. 359- 378. Doi: 10.1002/SMJ.163.
115. Svensson, G. (2002). Beyond global marketing and the globalisation of marketing activities. Management Decision, 40 (6), pp. 574-83. Doi: 10.1108/00251740210433963.
116. Tabachnick, B.G. & Fidell, L.S. (2001). Using multivariate statistics. (4th ed.). Needham Heights, MA: Allyn & Bacon.
117. Terpstra, V. & Sarathy, R. (2000). International Marketing (8th ed.). USA: The Dryden Press.
118. Thwaites, A. T. (1983). The employment implications of technological change in a regional context. In Gillespie A. (Ed.). Technological Change and Regional Development (pp. 36-53). London: Pion Limited.
119. Tidd, J., Bessant, J. & Pavitt, K. (2005). Managing innovation: Integrating Technological, Market and Organizational Change. (3rd ed.). Chichester: John Wiley & Sons.
120. Tiplady, R. (2003). World Of Difference: Global Mission at the Pic’n’Mix Counter. Carlisle: Paternoster Press.
121. Trott, P. (2012). Innovation Management and New Product Development. (5th ed.). Harlow, England: Pearson Education Limited.
122. Vrontis, D. & Thrassou, A. (2007). Adaptation vs. standardisation in international marketing – the country-of-origin effect. Journal of Innovative Marketing, 3 (4), pp. 7-21. Retrieved 12/1/2015, from: http://businessperspectives.org/journals_free/im/2007/im_en_2007_04_Vrontis.pdf.
123. Willis, M. (2006). To Adapt or to Standardise: Testing Asian Views About Purchasing Western Luxury Products in Seven Asian Locations. Journal of East - West Business, 12(1), pp. 65-94. Doi: 10.1300/J097v12n01_05.
124. WKO Austria (2014). Report: Wirtschaftskraft KMUs. Vorfahrt für Österreichs KMU. Vienna, Austria: w/o. Author. Retrieved 1/2/2015, from: https://www.wko.at/Content.Node/Interessenvertretung/Standort-und-
95 | PAGE
GOING GLOCAL: INTERNATIONALIZATION AND GLOCALIZATION OF SMES
Innovation/Standortpolitik/Wirtschaftskraft_KMU.html.
125. Wolfmayr, Y. (2004). Schwierigkeiten und Hindernisse für die Erschließung neuer Exportmärkte. Ergebnisse einer Unternehmensbefragung. WIFO-Monatsberichte, 2004, 77 (6), pp. 491-499. Retrieved 17/2/2015, from: http://publikationen. wifo.ac.at/pls/wifosite/wifosite.wifo_search.get_abstract_type?p_language=1&pubid=2 5117.
126. Woods, M. (1995). International business. London: Chapman & Hall.
127. World Factbook (2015). Austria. Retrieved 16/1/2015, from: https://www.cia.gov/library/publications/the-world-factbook/geos/au.html.
128. Wu, D. D. (2008). Patterns of Global-Local Fusion in Chinese Internet Advertising. in Wu, D. D. (ed.). Discourses of Cultural China in the Globalising Age (pp. 99-112). Hong Kong, China: Hong Kong University Press.
129. Yip, G.S. (1989). Global strategy . . . In a world of nations? Sloan Management Review, 31 (Fall), pp. 29-41.
130. Young, S., Hamill, J., Wheeler, C. & Davies, J.R. (1989). International market entry and development. Strategies and management. Prentice Hall: Harvester, Wheatsheaf.
131. Youngblood-Coleman, D. (Ed.) (2014). Country Review: Russia, 2014. Houston, Texas: Country Watch Publications. Retrieved 12/1/2015, from: http://www.countrywatch.com/Intelligence/CountryReviews?CountryId=142.
96 | PAGE