Internationalization of small firms with scarce resources: finding potential markets and entry modes Case: FunSquare Ab. Atte Cederqvist Department of International Marketing Åbo Akademi Turku ÅBO AKADEMI Department of: International Marketing Type of work: Master’s thesis Author: Atte Cederqvist Date: 17/5/2018 Title of Thesis: Internationalization of small firms with scarce resources: finding potential markets & entry modes. Case: FunSquare Ab. Abstract: The aim of this thesis is to build a new model for searching potential foreign markets, which is applied to the identification of potential markets for a recently established furniture startup company. Furthermore, foreign market entry modes and marketing activities for small firms are being discussed with the intent of guiding the company in its initial internationalization processes. This thesis functions as a guiding tool for small firms that are considering internationalization. The information brought up in this thesis fits especially well with international new ventures, and other small firms that are facing challenges due to their limited resources, as the theme throughout this work is how to internationalize when resources are scarce. In the study, a mixed-methods approach is used to both analyze existing models for market search, and to search for freely available data that is needed to conduct a search for potential markets. No monetary resources can be used in the implementation of the new model, which is a constrain that to my knowledge, does not exist in any current market selection models. The research indicates that relatively accurate results of potential markets can be gained without using any monetary resources in the collection of the needed data. However, the market search that was conducted in this study, strongly suggests that using some resources to obtain specific data about different market sectors improves the overall accuracy of the results. Key words: Internationalization, international new venture, startup, market selection, entry methods, small firm, scarce resources. TABLE OF CONTENTS 1 INTRODUCTION ..................................................................................................... 1 1.1 Problem discussion ............................................................................................ 3 1.2 Purpose and problem formulation ...................................................................... 5 1.3 Description of case firm: FunSquare Ab ........................................................... 6 1.4 Delimitations ...................................................................................................... 7 1.5 Structure ............................................................................................................. 8 2 LITERATURE REVIEW .......................................................................................... 9 2.1 General overview of internationalization models .............................................. 9 2.1.1 The Eclectic Paradigm .............................................................................. 10 2.1.2 The Uppsala internationalization model ................................................... 11 2.2 International new ventures – Born globals ...................................................... 14 2.2.1 Definition .................................................................................................. 14 2.2.2 Why do born globals emerge? .................................................................. 14 2.2.3 Internationalization of the born-global firm ............................................. 15 2.2.4 Four clusters of born globals .................................................................... 16 2.2.5 Dominant frameworks of born-global research ........................................ 17 2.3 Internationalization of a small firm – Driving factors ..................................... 18 2.4 Internationalization of a small firm – Barriers ................................................. 20 2.5 Successful internationalization of small firms ................................................. 22 2.6 Viable market entry strategies for small firms & international new ventures . 25 2.6.1 Indirect export........................................................................................... 26 2.6.2 Direct export ............................................................................................. 26 2.6.3 Licensing .................................................................................................. 27 2.6.4 Contract manufacturing ............................................................................ 29 2.6.5 Joint ventures ............................................................................................ 30 2.6.6 Concluding remarks on entry mode decisions .......................................... 30 2.7 The search for potential markets – Market screening ...................................... 31 2.7.1 International market screening for small firms ........................................ 32 2.7.2 Models for small firms ............................................................................. 32 2.7.3 Concluding remarks on market search ..................................................... 35 3 RESEARCH METHODOLOGY ............................................................................ 36 3.1 Building market selection models .................................................................... 36 3.2 Philosophical worldview .................................................................................. 37 3.3 Deductive, inductive or abductive? ................................................................. 38 3.4 Research approach ........................................................................................... 40 3.5 Interview with the case company: FunSquare Ab ........................................... 41 3.6 Results from the interview & facts about FunSquare Ab ................................ 42 3.6.1 The company ............................................................................................ 42 4 RESULTS................................................................................................................ 45 4.1 Problems in existing models for small firms ................................................... 45 4.2 Constructing the new model ............................................................................ 46 4.3 The model ........................................................................................................ 47 4.3.1 Step 1: Economic evaluation .................................................................... 48 4.3.2 Step 2: Niche market evaluation ............................................................... 48 4.3.3 Step 3: Entry barriers ................................................................................ 50 4.3.4 Step 4: Ease of entry ................................................................................. 50 4.3.5 Step 5: Competitive evaluation ................................................................ 51 4.4 FunSquare Ab: Target customers .................................................................... 52 4.5 The search for potential markets: applying the new model ............................. 52 4.5.1 Step 1: Economic evaluation .................................................................... 53 4.5.2 Step 2: Niche market evaluation ............................................................... 54 4.5.3 Step 3: Trade barriers ............................................................................... 58 4.5.4 Step 4: Ease of entry ................................................................................. 58 4.5.5 Step 5: Competitive evaluation ................................................................ 61 4.6 Suggestions for entry methods ......................................................................... 64 4.6.1 Licensing .................................................................................................. 64 4.6.2 Joint ventures ............................................................................................ 65 4.6.3 Indirect exporting ..................................................................................... 65 4.6.4 Direct exporting ........................................................................................ 65 4.6.5 Final suggestions ...................................................................................... 66 4.7 Suggestions for marketing activities in the chosen market .............................. 66 4.7.1 Trade fairs ................................................................................................. 66 4.7.2 Other means of marketing ........................................................................ 67 4.8 Summary of the results .................................................................................... 69 5 DISCUSSION ......................................................................................................... 70 5.1 General discussion on the model ..................................................................... 70 5.2 Reliability and validity of the research ............................................................ 72 5.2.1 Discussion on step 1: Economic evaluation ............................................. 73 5.2.2 Discussion on step 2: Niche market evaluation ........................................ 74 5.2.3 Discussion