Born Globals - A comparison of success factors between manufacturing and digital firms Thomas Bergsten & Alexander Gertzell Division of Production Management Faculty of Engineering, Lund University Born Globals – A comparison of success factors between manufacturing and digital firms Copyright © 2017 Thomas Bergsten & Alexander Gertzell Division of Production Management Faculty of Engineering, Lund University Box 118 SE-22100 Lund Sweden Printed in Sweden II Preface This master thesis was conducted during the fall of 2016 with several case companies. It is our final academic project and it is ends our studies in Mechanical Engineering and Industrial Engineering and Management at the Faculty of Engineering, Lund University. The master thesis project has helped us gain insights in the phenomenon of Born Globals from the perspective of both manufacturing and digital start-up companies. Neither of the authors had any previous knowledge on the subject. Therefore, it has been a very rewarding and inspiring process with many important insights that have prepared us well for our future careers. Furthermore, we would like to thank all case companies that we got the chance to interview and the companies who participated in our survey. It was helpful and inspiring for us to get the chance and time to interview and discuss your companies’ success factors. All interviewees have been very passionate about their businesses and have had strong entrepreneurial minds that have inspired us. We would also like to express our gratitude to Ola Alexanderson who provided help in identifying Born Global firms in the Skåne region. Finally, we would like to thank our academic supervisor, Bertil I Nilsson, for his support, important feedback and quick responses throughout the whole project. Lund, December 2016 Thomas Bergsten & Alexander Gertzell III IV Abstract Title Born Globals – A comparison of success factors between manufacturing and digital firms Authors Thomas Bergsten Industrial Engineering and Management Faculty of Engineering, Lund University Alexander Gertzell Mechanical Engineering Faculty of Engineering, Lund University Supervisor Bertil I Nilsson Division of Production Management Faculty of Engineering, Lund University Background The digital evolution has created many new types of companies. One of these types are the so called Born Global (BG) firms. BG companies can be defined by that they internationalize the major part of their business right at the start or within a few years of their birth. Their internationalization strategies differ from those of traditional firms. Today’s literature on the BG phenomenon is limited, due to it being a relatively new phenomenon. The studies that have been made have been primarily based on manufacturing firms, that need to physically distribute their products globally. Therefore, a knowledge gap has been identified, that includes other types of firms. This project has decided to study digital BG firms that produce and distribute digital products that can be accessed by for example computers, tablets and smartphones. A comparison has been made between manufacturing and digital firms in order to investigate the potential differences in success factors between the two types. Purpose The purpose of the master thesis is to investigate the knowledge gap within the BG research area, build a knowledge base for further research, as well as to inspire future research. A second purpose of the project is to help and inspire new potential BG companies. V Research Questions The goal of the project is to answer the following research questions: RQ1: What characterizes a successful BG company? RQ2: What are the success factors for BG companies? RQ3: How do the success factors differ for a digital BG company compared to a manufacturing BG company? RQ4: What success factors are unique for digital BG companies and why do the success factors differ for a digital BG company compared to a manufacturing BG company? RQ5: How can the results from this project be used by potential BGs and for further research? Limitations BG firms constitute a relatively new phenomenon with a limited amount of research that focuses mainly on manufacturing BGs. This makes the BG concept vague and difficult to define. There may be differences within certain types of companies. There are many different types of digital BGs due to its nature of operating in many different types of markets. Case companies investigated in the project have been chosen based on its publicity or their willingness to participate in an interview. Delimitations The focus in this study have been the success factors of BG firms, more specifically the internal success factors. The types of companies investigated are digital and manufacturing firms, that produce and distribute digital and physical products. The focus has been on the early stages of the company life cycle. A case study has been performed where most case companies have been chosen that have some kind of connection to Sweden. Methodology The project was carried through with a qualitative approach. An extensive literature review was conducted to outline the theoretical framework that has primarily been based on manufacturing firms. A survey was sent to founders and managers of potential BG firms, both digital and manufacturing. The main source of data for the analysis was constituted by a case study of eight BG firms, categorized as SME or unicorn and digital or manufacturing. The collection of this data was VI primarily based on interviews, but also on various internet sources. An analysis was conducted, comparing the success factors between manufacturing and digital BG firms. This analysis was based on the theoretical framework, the survey and the case study. Conclusion The identified success factors for Born Global firms that correlated between digital and manufacturing firms were to have a global mindset, an ability to identify specific market opportunities and a customer oriented strategy. To have a unique product, a narrow customer segment and a commitment to internationalize did not seem as important for digital firms. Digital firms do not necessarily need previous industry and international experience, market knowledge and networks. However, this must be obtained at a later stage. Digital firms can launch unfinished products at an early stage to get feedback, which makes it easier for them to have a customer oriented strategy. A large user base is very important for digital firms. There is a need to capture as much of the market as possible at an early stage. For manufacturing firms, a large customer base may be detrimental to the quality of the distribution chain. A freemium business strategy can be used by digital companies to grow their user base. Digital firms do not necessarily have to rely on partnerships to the same extent as manufacturing firms do. This because they are not as dependent on distributors for distribution and marketing. In the early stages of internationalization, financial resources are not as important for digital firms as for manufacturing firms. Investments should rather lead to acquiring the market knowledge, networks and experience that they may lack. Therefore, sources like crowdfunding is not an ideal source of investment. New ground-breaking innovations open up for new types of products. With innovations like the smartphone, countless of new types of companies and products emerge. At this time, this seems to be most beneficial for the digital companies. VII For manufacturing firms, e-commerce has provided a way to reach a global market and to reduce costs. This may also lead to manufacturing firms shifting towards resembling digital firms in the future. Keywords Born global, Manufacturing, Digital, Software, SME, Internationalization, Globalization, Success factors VIII Terminology and Acronyms The definitions and acronyms used in the report will be described below. Born again global (BAG) A company that shift focus from their home market to start expand the major part of their business on a global scale. Born Global (BG) A company that internationalize the major part of their business right at the start or within a few years of their birth. Crowdfunding Investments for projects or companies through monetary contributions from a large number of people. Digital company A company that offers digital services or products. Digital product A product that only exists in digital form. It can for example be accessed through computers, smartphones and tablets. E-commerce Buying and selling of goods and services over the internet. Freemium business model A pricing strategy where the basic product is offered for free. Payments can unlock premium features. Global awareness The awareness of a product’s existence on a global scale. Manufacturing company A company that produce physical products. Physical product Merchandise, apparel and other physical goods that physically need to be produced and distributed. Small and medium-sized enterprises (SME) A company with less than 250 employees and with a yearly turnover up to a maximum of 50 million euro. Start-up A company that is in the first stage of its operations. Success factor A factor that lead to the success of a company. In this project, success has been defined as having a global customer base. IX Unicorn company A company that has been backed by venture capital and is valued to more than a billion dollars or has a user base of over 100 million people. Word-to-mouth marketing Oral or written recommendation of a product or service from a satisfied customer. X List of Tables Table 1: Barriers ranked by SMEs using the top ten ranking method Table 2: The survey respondent companies Table 3: The survey results, categorized by type of company and the number of markets Table 4: Case study results, ranking each case company on each success factor with red, amber or green Table 5: Case analysis comparison between unicorn and SME companies Table 6: Case analysis comparison between manufacturing and digital companies XI XII Table of Content 1 Introduction ..............................................................................................................................