1 INTRODUCTION 4

1.1 Background and Problem discussion 4 1.2 Problem formulation 5 1.3 Purpose 5 1.4 Limitations 6

2 THEORY FRAMEWORK 6

2.1 Introduction 6 2.2 Current Phase 7

2.2.1 Internationalization 7

2.2.2 Market Entry Strategy 7

2.2.3 Market Entry Modes 7

2.2.4 Porter´s Five Forces - Model 8 2.3 Next Phase 9

2.3.1 Change factors 9

2.3.2 Market entry strategy change 9 2.4 Adjustments 10

3 METHODOLOGY 10

3.1 Research Journey 11 3.2 Research Method 11

3.2.1 Qualitative versus Quantitative Methods 11 3.3 Access 12 3.4 Data Collection 12 3.5 Scientific Credibility 13

3.5.1 Validity 13

3.5.2 Reliability 13

4 EMPIRICAL DATA 14

4.1 The Micropower case 14 4.2 Results from another study 17

5 ANALYSIS 18

5.1 Introduction 18 5.2 Current Phase 18

5.2.1 Internationalization 18

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5.2.2  Market Entry Strategy  19

5.2.3  Market Entry Mode - Exporting  20

5.2.4  Porter´s Five Forces - Model  21

5.3  Next Phase  22

5.3.1  Change factors  22

5.3.2  Market Entry Strategy Change  23

5.4  Adjustments  24

6  CONCLUSIONS  25

7  RECOMMENDATIONS  26

REFERENCES   27

APPENDIX 30   

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1 Introduction

1.1 Background and Problem discussion

Any company that starts to do business in foreign markets goes through a process, which is triggered by proactive and/or reactive factors. This process starts generally by finding and selecting a target market, decisions which frequently are made on the basis of marketing research. An important part of the research is to locate the market entry barriers, when entering in the foreign market. With this information the company has to develop a strategy to enter the market. Within the strategy formulation the company also has to choose an appropriate mode of entry. There are several different market entry modes and no one is the correct one, since they all have advantages as well as disadvantages. They are, however, more or less suitable depending on the company, its resources, its products etc. (Czinkota, 1993, p. 329-331, Johansson, 1997, p. 208 ff, Taylor, C. 2000).

However, a company’s internationalization process does not stop here. As the company gains experience from its current activities, it may want to make additional investments in the market, due to factors that could be described as internal or external. These factors could also motivate a change of entry mode. Extreme views even say that once the internationalization process has started, it will tend to proceed regardless of whether strategic decisions are made in that direction or not (Randoy, T. 2002, Wheeler, 1996). Although a lot of theory has been written on internationalization and on the choice of entry mode, there is little to be found on the internationalization process and particularly on the changing of entry mode.

To realize that the company could find itself in such a situation, where they need to develop in the foreign market, can be difficult. The fact that the strategy and in that also the entry mode chosen needs to be changed can be hard for a company to grasp, because change is always connected with a high degree of uncertanity. Research has shown (Randoy, T. 2002, Wheeler, 1996) that companies have found themselves in situations where their strategies and entry modes needed to be changed and, more importantly, research (Randoy, T. 2002, Wheeler, 1996) has shown that companies has managed to

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change entry modes. However, what the research lack is more indepth analysis of the process of changing entry mode. For reasons indicated above, a company in the relevant situation may need some help, some recommendations, which could make the change process less uncertain. A company that may be in such a situation is Micropower, located in Växjö, Sweden. The sales staff is built up of three employees. Since the start about twenty years ago they have exported their battery chargers through agents and distributors. Today they export to 16 different countries all over the world. In general the system has worked well but the system of agents and distributors limits the company’s options of selling to the markets, hurting their competitiveness and thereby restricting their possibilities to grow internationally. One of Micropower´s export markets is Germany. The company has been contacted by customers wanting to do business directly with the company, unwillingly of going through the agent/distributor. This puts Micropower in a difficult dilemma: on one hand they cannot steal market from their agent/distributor but on the other hand they might loose important customers. Maybe it is time for Micropower to make additional investments in Germany to take the next step in the internationalization process. 1.2 Problem formulation

The discussion above leads into the following problem:

 What characterizes the process of changing an entry mode in a small technologybased company?

By characteristics we mean, for example internal and external factors that trigger the change process. 1.3 Purpose

The purpose with this case study is to explore the characteristics of the process of changing an entry mode in a small technology-based company doing business internationally.

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1.4 Limitations

The results of this study are not meant to be valid for more companies than Micropower. That is because we believe that every company is unique. The results will be affected of the fact that Micropower is a small technology-based company in a special branch that has used agents and distributors for exporting for almost twenty years. We also limit ourselves to one market, Germany, since we believe that the situation in that specific market is different from that in other countries. 2 Theory framework

The theory framework consists of two parts. The first part consists of theories about internationalisation and to evaluate a company´s situation, whereas the second part is about theories to explore the process of changing entry mode. 2.1 Introduction

According to the authors Ellis and Williams ¹ and Wheeler the internationalization of a company is a process, which means that the company develops in the market after the initial establishment, which can be described as the company’s current phase. The process which causes the company to develop is triggered by either external or internal factors or a combination of both. Due to these factors the company has to formulate a new strategy, which will bring them to the next phase in the company’s internationalization process. However, Ellis and Williams argue that this process can work both ways, saying that the company may be forced to withdraw from the market if required. Wheeler does not agree, he reasons that once this process has started it will tend to develop forward (Ellis and Williams, 1995, pp. 50-55, Wheeler, C, 1996).

¹ For further readings we recommend appendix: Figure 2.2 and Ellis & Williams, 1995

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2.2 Current Phase

2.2.1 Internationalization

Internationalization has been defined by various authors in different ways. What internationalization is about is that it is a process, by which a company starts doing business transactions with parties in other countries. This process is triggered by either proactive or reactive factors (motivations). Proactive motivations are initiated by the firm´s management and reactive motivations are the responses of management to environmental changes and pressures. Typical proactive and reactive motivations for going international are shown in the appendix (Figure 2.1). Whatever the factors for the company’s internationalization are - it is most effective when developed as a carefully planned process for increasing penetration of international markets (Oakley, E. 1999, p. 49, Albaum, 2002, p. 4-5, 50, McAuley, 2001, p. 80, Czinkota, 1993, p. 329-331). 2.2.2 Market Entry Strategy

The success of a company under internationalization depends in large part on the formulation and implementation of strategy. The entry strategy will be logically considered, where and how to open the new market and reflects the company´s short-and long-term responses to the challenges and opportunities posed by the business environment. Companies execute strategies to attract customers and deal effectively with competitors, suppliers and scarce resources. The selection of markets and entry modes lies at the very heart of any international strategy (Knight, 2000, Koch, 2001) ² . 2.2.3 Market Entry Modes

An international market entry mode is defined by Root as:

“…an institutional arrangement that makes the entry possible of company’s products, technology, human skills, management, or other resources into a foreign country.” (Root, 1994, p. 5).

² We will recommend following author for further reading in this area: Koch, A., 2001

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There are different types of market entry modes such as indirect and direct exporting, contracting manufacturing, licensing, franchising, joint ventures and foreign direct investments ³ . There is no optimal entry mode. All the different entry modes have their advantages and disadvantages depending on the characteristics of the company and its environment. Whereas direct exporting through distributors/agents is a relatively lowrisk way to begin international expansion or to test out an overseas market. Little investment is involved, and fast withdrawal is relatively easy (Taylor, 2000 and Root, 1994, p. 6-7, 57).

In this case study we will focus on direct exporting via distributors/agents due to our research problem and our research purpose mentioned in chapter one. Direct exporting relies on two principal channels: the foreign agent/distributor channel and the foreign branch/subsidiary channel. Agents and distributors are often used synonymously to eachother, which is wrong because there is at least one distinct difference: A distributor is a merchant and therefore a customer of the exporter, whereas an agent is a representative who acts on behalf of the exporter (Albaum, 2002, p. 300-301).

2.2.4 Porter´s Five Forces - Model

We used this model in order to understand external triggers and to understand Micropower´s situation in the German market. Based upon Porter´s model we will analyze the most important force(s) in relation to Micropower. Therefore we will only concentrate on the most interesting component(s) in the later section. In every industry, whether it is domestic or international or produces a product or a service, the rules of competition are embodied in five competitive forces: Threat of new entrants; Bargaining power of suppliers; Bargaining power of buyers; Threat of substitutes; Intensity of rivalry among the existing industry competitors. The strength of each of the five forces varies from industry to industry and is a function of industry structure, or the underlying economic and technical characteristics of an industry. The five forces framework allows seeing through the complexity and helps to identify the critical

³ For further explanation on the different entry modes we recommend: Root, 1994

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