Challenges and benefits for Swedish companies entering the … · 2008. 6. 10. · This Master Thesis is a result of an internship at the Swedish Trade Council (STC) in London, which

st i t

Lund In ute of Technology Department of Industr ia l Management and Logist ics

Divis ion of Engineer ing Logist ics

Challenges and benefits for Swedish companies entering the British market

- A guide to achieving successful establishment

2006-12-31

_____________________________________________________________________

Author: Cecilia Lauritzson

Tutor: Everth Larsson Department of Industrial Management and Logistics

Lund Institute of Technology

Supervisor: Linda Pettersson Trade Commissioner

The Swedish Trade Council, United Kingdom

http://www.lu.se/

http://www.swedishtrade.se/

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Preface This Master Thesis is a result of an internship at the Swedish Trade Council (STC) in London, which was carried out during the spring 2006. It concerns how Swedish companies perceive establishing and running a business in the United Kingdom. The report is based on personal and telephone interviews with nine Swedish companies as well as a survey sent out to a number of Swedish subsidiaries and representatives on the British market. I would like to express my gratitude to all of the participating companies in the study, especially to the nine companies which participated in the in-depth interviews. Their representatives generously took valuable time from their busy work schedule to share their experience of the British market. I would also like to thank my supervisor Linda Pettersson, Trade Commissioner at the STC in London, for valuable support and guidance during the internship. Additionally, I would like to express my gratefulness to Pia Wilson, Project Leader of Export Information at the STC in London, for her insightful support and valuable help during the spring. Further, I would like to thank my tutor at the Department of Industrial Management & Logistics at Lund Institute of Technology, Everth Larsson, for valuable advice and input during the process of writing the report. I would also like to thank Peter Fullagar for the creative drawings in the report as well as for all his support during the autumn. Last but not least I would like to thank my parents for their help and support. This thesis is especially dedicated to my dad who sadly passed away during the work of the report. Lund, 2006-12-31 Cecilia Lauritzson

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Abstract The objective of the report is to evaluate if there are any benefits and drawbacks in being a Swedish company on the British market and ultimately to outline success factors of a successful establishment. To reach the objective I have performed a study where the empirical material is based on the results of a survey sent out to almost 200 Swedish subsidiaries and other Swedish representatives, as well as in-depth interviews with nine Swedish companies. Swedish companies are generally very successful on the British market and have a positive outlook on the near future and the business potential in the UK. Further, Swedish companies have a very good reputation on the British market regarding good quality products and services in addition to being perceived as trustworthy business partners. However, the cost of producing high quality has a negative impact on the price and the British are seen not to fully appreciate good quality which implies that the companies in the study find the British market very competitive. Swedish companies choose the method of establishment based on how much control they want to have over the British operation, the information flow internally and on the marketplace along with the strength of their financial situation. Smaller companies tend to start out with contracting an agent or distributor since they do not have a lot of capital to put at risk by setting up a subsidiary on the British market. In order to facilitate a rewarding information flow from the British market to the Swedish company, it is important to outline an optimal communication system, especially when working with an intermediary such as a distributor or an agent. The British market can be difficult to penetrate for some types of businesses and it is therefore vital to do a thorough market check before an establishment. Furthermore, since the market may be characterized as complex it is very helpful to cooperate with people/market actors who have experience and knowledge of the marketplace when establishing on the British market. While operating in a very price focused environment, such as the British market, it is easy to compromise the quality level and start to compete with prices. However, studies shows that companies which focus on achieving competitive advantage on the market and which also manage to signal the benefits of the brand obtain a higher profitability than low-price alternatives. In addition, Swedish companies should also find an optimal cost structure for the British market in order to keep the price within a reasonable range so that customers find it overall more beneficial to choose their brand instead of the low-price alternatives. The Swedes and the British have a lot in common. However, there are cultural differences which can be overcome by building personal relationships and by hiring a British managing director and a British staff who understand the mindset of the customers and other employees.

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Sammanfattning Syftet med detta exjobb är att utvärdera vilka fördelar och nackdelar det innebär att vara ett svenskt företag på den brittiska marknaden. Framförallt ämnar rapporten till att identifiera framgångsfaktorer för att kunna genomföra en lyckad etablering i Storbritannien. Rapportens slutsatser baseras på en empirisk studie där materialet kommer från dels en enkät, utskickad till upp emot 200 svenska dotterbolag och andra svenska representanter på den brittiska marknaden, och dels djupintervjuer med nio svenska företag. De undersökta svenska företagen är generellt mycket framgångsrika på den brittiska marknaden och har en positiv syn på den närmsta framtiden och på företagets potential i Storbritannien. Vidare har svenska företag mycket gott rykte på den brittiska marknaden i och med att de anses erbjuda god kvalitet på produkter och tjänster samt att de uppfattas som pålitliga affärspartners. Tyvärr har kostnaderna för att kunna erbjuda en hög kvalitet negativa konsekvenser på priset och britterna verkar inte uppskatta god kvalitet i någon större utsträckning. Detta leder till att de svenska företagen upplever konkurrensen på den brittiska marknaden som väldigt hög. Svenska företag väljer etableringsmetod efter hur stor kontroll de vill ha över sin verksamhet på den brittiska marknaden samt hur mycket finansiella resurser de kan satsa på en etablering. Mindre företag inleder i regel en etablering med ett samarbete med en agent eller distributör eftersom de inte har möjlighet att investera och riskera finansiella resurser genom att etablera ett dotterbolag direkt. För att kunna uppnå ett tillfredsställande informationsflöde från den brittiska marknaden, speciellt när man använder sig av en mellanhand, är det viktigt att utforma ett optimalt kommunikationssystem mellan det svenska företaget och den brittiska aktören. Den brittiska marknaden kan vara svår att penetrera inom vissa branscher och det är därför mycket viktigt att genomföra en grundlig marknadsundersökning före en etablering. Det är även av stor vikt att samarbeta med personer/aktörer som har relevant erfarenhet och kunskap i syfte att spara tid och pengar samt minimera risken för misstag på marknaden. När man som företag är verksam på en prisfokuserad marknad, så som den brittiska, är det lätt att påverkas och dra ner på kvalitetsnivån och börja konkurrera med priser istället. Studier visar dock att företag som fokuserar på att uppnå kompetetiva fördelar på marknaden och som också kan kommunicera detta uppnår en högre lönsamhet än lågprisalternativen. Utöver detta bör svenska företag sträva efter att uppnå en optimal kostnadsstruktur för den brittiska marknaden för att kunna hålla en skälig prisnivå så att de brittiska kunderna finner det svenska alternativet mer fördelaktigt i sin helhet än lågprismärkena. Svenskar och britter har mycket gemensamt men trots detta finns det kulturella skillnader som kan överbryggas genom att satsa på personliga affärsförhållanden samt genom att anställa en brittiska VD och ha brittisk personal som förstår den brittiska mentaliteten hos kunderna och övriga anställda.

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Table of Contents

1. Introduction _______________________________________________________ 1 1.1 Background ______________________________________________________ 1 1.2 Problem discussion and formulation __________________________________ 1 1.3 Purpose of the Thesis ______________________________________________ 3 1.4 Focus and Delimitations____________________________________________ 3 1.5 Target Groups ____________________________________________________ 3 1.6 Definition of small and medium sized companies _______________________ 4

2 Method _________________________________________________________5 2.1 Scientific approaches_______________________________________________ 5

2.1.1 Positivism ____________________________________________________________5 2.1.2 System theory _________________________________________________________5 2.1.3 Hermeneutics__________________________________________________________6 2.1.4 Phenomenology ________________________________________________________6 2.1.5 Discussion of choice of scientific approach___________________________________7

2.2 Research methods _________________________________________________ 7 2.2.1 Qualitative and quantitative method ________________________________________7 2.2.2 Inductive and hypothesis deductive method __________________________________8

2.3 Data collection____________________________________________________ 9 2.3.1 Primary and secondary data_______________________________________________9 2.3.2 Primary data collection methods ___________________________________________9 2.3.3 Secondary data collection methods ________________________________________10

2.4 Method of analysis________________________________________________ 10 2.5 Criteria for a good study ___________________________________________ 11

2.5.1 Generalization of the study ______________________________________________11 2.5.2 Validity and reliability__________________________________________________11 2.5.3 Objectivity ___________________________________________________________11

2.6 Research design__________________________________________________ 12 3 Facts of the United Kingdom ______________________________________ 15

3.1 Geography ______________________________________________________ 15 3.2 Population and demography _______________________________________ 15 3.3 History _________________________________________________________ 16 3.4 Religion ________________________________________________________ 16 3.5 Politics _________________________________________________________ 17 3.6 The British market _______________________________________________ 17

3.6.1 Structure of the British market____________________________________________17 3.6.2 The labor market ______________________________________________________18 3.6.3 The present situation concerning Swedish companies located on the British market __18

4 General export theory ____________________________________________ 19 4.1 Globalization and internationalization _______________________________ 19 4.2 Why exporting products or services? _________________________________ 20 4.3 Export risks _____________________________________________________ 21

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5 Establishment on the British market ________________________________ 23 5.1 Definition of the term establishment _________________________________ 23 5.2 Entry options on the British market for Swedish small and medium sized

companies ______________________________________________________ 23 5.2.1 Factors influencing the entry option _______________________________________23 5.2.2 Indirect exporting _____________________________________________________24 5.2.3 Direct exporting_______________________________________________________24

5.3 The elements of entry strategy ______________________________________ 29 5.4 Obstacles to exporting ____________________________________________ 30

6 Market strategies ________________________________________________ 33 6.1 Competitive advantage ____________________________________________ 33 6.2 Quality positioning _______________________________________________ 33 6.3 Developing a cost structure ________________________________________ 36 6.4 Adding value to the customer_______________________________________ 36

6.4.1 Understanding what customers value ______________________________________36 6.4.2 The value chain _______________________________________________________36

7 Cultural diversity ________________________________________________ 39 7.1 Aspects of cultural diversity ________________________________________ 39

7.1.1 Deal-Focused vs Relationship-Focused markets ______________________________39 7.1.2 Direct vs Indirect language ______________________________________________42 7.1.3 Hierarchy ____________________________________________________________42 7.1.4 The generation gap ____________________________________________________43

7.2 The British business culture________________________________________ 43 7.3 The Swedish business culture ______________________________________ 45 7.4 Relationship between the representative on the foreign market or the parent

company ________________________________________________________ 47 8 Description of the companies participating in the study ________________ 49

8.1 Companies participating in the Business Climate Study _________________ 49 8.1.1 Selection process of potential participating companies in the BCS________________49 8.1.2 Overall information about the participating companies in the BCS _______________50

8.2 Description of companies participating in the in-depth interviews ________ 51 8.2.1 The selection process of the companies participating in the in-depth interviews _____51 8.2.2 Background of the companies participating in the in-depth interviews_____________51

9 Business Climate Study___________________________________________ 57 9.1 Background _____________________________________________________ 57 9.2 Business Climate in the UK for Swedish companies ____________________ 57

9.2.1 How Swedish companies estimate the profitability in the UK ___________________57 9.2.2 How Swedish companies estimate the opportunities for reaching their company’s

growth target in the UK in 2006-2007______________________________________58 9.2.3 How the Swedish companies are planning to reach their growth targets____________58 9.2.4 The main challenges during 2006 and 2007 in the UK _________________________59 9.2.5 Were the Swedish companies profitable in 2004-2005? ________________________59

10 Swedish companies’ establishment on the British market_______________ 61 10.1 Why establish on the British market? ________________________________ 61

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10.2 The choice of establishment method for Swedish companies on the British market__________________________________________________________ 62

10.2.1 Limited company (Subsidiary) ___________________________________________62 10.2.2 Distributor ___________________________________________________________63 10.2.3 Agent _______________________________________________________________63 10.2.4 Franchising __________________________________________________________64

10.3 Perceived benefits and drawbacks of different forms of establishment _____ 65 10.3.1 Limited company (Subsidiary) ___________________________________________65 10.3.2 Distributor ___________________________________________________________65 10.3.3 Agent _______________________________________________________________66 10.3.4 Franchising __________________________________________________________66

10.4 Strategy of establishment and market strategies________________________ 66 10.4.1 Market research _______________________________________________________66 10.4.2 Adapting the strategy to local conditions____________________________________68 10.4.3 Finding the right partner ________________________________________________68 10.4.4 Cooperation with already established Swedish companies ______________________69 10.4.5 Adding value to the product or service _____________________________________69 10.4.6 Creating personal relationships with customers and business partners _____________71 10.4.7 Commitment and extensive support to the British representative _________________71

11 Obstacles the Swedish companies come across when doing business in the UK ____________________________________________________________ 73

11.1 Hierarchy _______________________________________________________ 73 11.2 British employees’ approach to their role within the company ____________ 74 11.3 Not finding the right partner to cooperate with ________________________ 76 11.4 Communication between the parent company and the subsidiary/partner in

the UK _________________________________________________________ 76 11.5 General time scale of payment ______________________________________ 78 11.6 Currency fluctuations _____________________________________________ 79

12 Being a Swedish company on the British market ______________________ 81 12.1 Positive aspects of being a Swedish company on the British market _______ 81

12.1.1 Quality ______________________________________________________________81 12.1.2 Trustworthiness and reputation on the market________________________________82 12.1.3 Efficiency and cost awareness of Swedish organizations_______________________83 12.1.4 Language ____________________________________________________________83 12.1.5 Cultural similarities ____________________________________________________83 12.1.6 Positive perceptions about Sweden and the Swedes ___________________________83

12.2 Negative aspects of being a Swedish company on the British market ______ 84 12.2.1 High competition on the British market compared to Sweden ___________________84 12.2.2 Swedish products are perceived as being too expensive ________________________84 12.2.3 The British think Sweden is a too small of a country __________________________85

12.3 Swedish companies’ communication of their Swedish background on the British market ___________________________________________________ 85

12.4 Swedish and British business culture_________________________________ 87 12.4.1 Similarities between Swedish and British business culture ______________________87 12.4.2 Differences between Swedish and British business culture______________________87

12.5 Differences between the British and the Swedish market ________________ 89 13 Analysis________________________________________________________ 91

13.1 Business Climate in the UK for Swedish companies ____________________ 91 13.1.1 Background of the participating companies and its influence on the results _________91

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13.1.2 Results of the Business Climate Study 2006 in the UK_________________________92 13.2 The process of establishment for Swedish small- and medium sized companies ________________________________________________________________ 93

13.2.1 Incentives for establishing business in the UK _______________________________93 13.2.2 The choice of establishment method for Swedish companies on the British market___93 13.2.3 Benefits and drawbacks of different forms of establishment_____________________94

13.3 Obstacles the Swedish companies come across when doing business in the UK_____________________________________________________________ 96

13.3.1 Obstacles the Swedish companies come across in the British market ______________96 13.3.2 How to avoid the obstacles ______________________________________________97

13.4 Being a Swedish company on the British market _______________________ 98 13.4.1 Positive aspects and advantages of being a Swedish company on the British market__98 13.4.2 Negative aspects of being a Swedish company on the British market_____________100 13.4.3 Swedish companies communication of their Swedish background _______________101 13.4.4 Swedish and British business culture______________________________________102 13.4.5 The British market____________________________________________________103

14 Conclusions ___________________________________________________ 105 14.1 Business Climate in the UK for Swedish companies ___________________ 105 14.2 The process of establishment for Swedish small- and medium sized companies _______________________________________________________________ 105 14.3 Obstacles the Swedish companies come across during the process of

establishment in the UK __________________________________________ 106 14.4 Being a Swedish company on the British market ______________________ 107 14.5 Success factors of doing business in the UK for Swedish companies ______ 108 14.6 Suggestions for further studies _____________________________________ 110

References ________________________________________________________ 111 Appendix 1. _______________________________________________________ 113 Appendix 2. _______________________________________________________ 117 Appendix 3. _______________________________________________________ 119

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1. Introduction In this chapter the background to the thesis is given. It continues with the problem formulation, followed by the purpose of the study. Finally, the focus, delimitations and target groups are presented together with a presentation of the outline of the thesis.

1.1 Background The United Kingdom (UK) is Sweden’s fourth most important market of export, mainly due to its geographical location and a long tradition of commerce between the two countries. About 7 per cent of Sweden’s total export value goes to the UK. The most significant export products in 2005 consist primarily of goods from the manufacturing industry, such as private cars, busses, trucks, paper products and also telecommunication equipment.1 The general opinion among Swedish business people is that the British market is very open. Furthermore, the population of 60 million people implies a great market potential for Swedish companies in addition to the fact that the British think that Swedish products stands for high quality, functional design and innovative technique. However, it generally requires an in-depth understanding of a foreign market before a successful market establishment is possible. The British market is very dynamic and contains a high level of competition within all lines of businesses. 2 Even though the UK is a significant marketplace for many Swedish companies there is a surprisingly small amount of literature available about the Swedish export to the UK. Above all, there is no up-to-date information available regarding the business climate for the companies currently present in the UK. The Swedish Trade Council (STC) is specialized in helping small and medium sized Swedish companies to grow internationally and is situated in about forty countries, where a substantial knowledge of the local market is obtained and a large network has been established. The STC in the UK assists the companies with both simple and uncomplicated questions concerning export as well as being consultants in more complex business processes. These processes are performed with a focus on a special company and may concern evaluation of a certain market area in the UK, suitable strategy for entering the market, the actual establishment and continuous improvements after the company is established.3

1.2 Problem discussion and formulation Several small and medium sized companies in Sweden consider expanding their business to overseas markets and have an idea about their products’ potential. Because of the close geographical distance and the general perception that the English language does not present any significant barriers, the companies often try to accomplish an establishment

1 The Swedish Trade Council, 2006-04-05 2 Ibid. 3 The Swedish Trade Council, 2005-12-05

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on their own. In some cases the establishment is not as successful as the company had hoped initially, although the product clearly has good prospects. Additionally, small and medium sized companies are generally not financially capable of investing a lot of money into an establishment process in a new market. Therefore, they often just have one chance of succeeding. Naturally, there are also companies which have succeeded from the very beginning in making profit of the business prospects in the UK. These companies present an opportunity of things to be learned from their experience. Additionally, the British perception is that the Swedish goods and services represent quality, functional design and innovative technique implies that Swedish companies have a good reputation. Consequently, this should be a positive aspect for Swedish companies to embrace and use on the British market. The STC in the UK have assisted many Swedish companies in their aspiration for a successful business establishment. Due to a constant flow of new assignments, STC have not had the time and resources to investigate how Swedish companies in general perceive the process of establishment in the UK a period of time after the company has set off business in the UK. Further, the STC would like to know how Swedish companies established on the British market perceive the current business climate in the UK. The main intention of the STC is to be able to help more companies to establish business in the UK and ultimately increase Swedish export in general. STC also believes that an analysis on these subjects might help them improve their consultative work in the future even further. Consequently, the problems this thesis will approach are:

• How is the current business climate for Swedish companies in the UK? • What influences the choice of establishment method for Swedish companies?

o Which benefits and drawbacks can be made from the alternative forms of establishment?

o Can an ideal method of establishment be identified for Swedish companies on the British market?

• How do Swedish companies perceive the process of establishment and running a business in the UK?

o What obstacles do the companies encounter most commonly and how can they be avoided?

o Is there a pattern concerning the obstacles the companies encounter? • Do Swedish companies communicate that they are Swedish and can they draw

advantages from being a Swedish company on the British market? • Are there any negative aspects in being a Swedish company on the British market and

if so, is it possible to overcome these negative aspects and turn them into advantages?

• Which success factors can be identified in terms of setting up and run a business in the UK for Swedish companies?

The structure of the empirical chapters (chapter 9-12) is based on the problem formulation above. The author’s intent is to arrange the extensive empirical information in such way in order to facilitate the analysis of the problem formulation.

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1.3 Purpose of the Thesis The aim of the report is to address issues that Swedish small and medium sized companies come across when exporting to the UK – both positive and negative. Further, the thesis seek to investigate what can be learnt from the market experience of the already established Swedish companies in the UK and to see if it is possible to map success factors concerning the establishment for Swedish companies on the British market. Moreover, this thesis wishes to map the obstacles the companies encounter as well as to see if there is a pattern between the companies’ experiences. Most importantly, the purpose is to try to find solutions for solving the identified problems.

Additionally, the report aims at forming an up-to-date report of the business climate in which the Swedish small- and medium sized companies in the UK operates. Further, the aim is to investigate how the Swedish companies perceive the process of establishment. Finally, the thesis intends to see if Swedish companies can draw advantages from being a Swedish company as well as overcome and turn the negative aspects to advantages. The outcome of the thesis is meant to present useful information in order to assist Swedish small and medium sized companies in their aspiration to successfully sell goods or/and services to the British market. Hopefully, this will save time, effort and cost for companies where an expansion of the business is necessary in order to grow but relatively expensive. Additionally, The STC in the UK may also use this information in their consultative work when assisting Swedish companies to establish business in the UK.

1.4 Focus and Delimitations The thesis will not deal with practical details, such as legal or tax issues, which has to be handled during an establishment. Further, due to the fact that the STC mainly deals with Swedish small and medium sized companies the choice of theory reflects its relevance for these kinds of companies. Additionally, the report aims at describing the conditions for the Swedish companies on the British market specifically and not on overseas markets in general. However, general export theory will be applied to the circumstances on the British market and some of the conclusions are probably applicable for other export markets as well.

1.5 Target Groups The target group of the thesis is primarily Swedish small and medium sized companies, which consider expanding their trading area to the British market, and the STC in the UK. The thesis can hopefully also be of use for British employees working in the UK for Swedish companies in order to better understand the Swedish business culture in comparison to the British. Additionally, I believe that this report can be of appreciation by people with an interest in Swedish export or the British market in general. Finally, the thesis should also be of interest for students in Engineering Logistics and similar subjects.

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1.6 Definition of small and medium sized companies4 The European Commission has outlined recommendations for how small and medium sized companies should be defined within the EU. Small companies have less than 50 employees and a maximum turnover of 10 million euro (= £6.8 million). Medium sized companies are considered to have less than 250 employees and an upper limit of 50 million euro (= £33.8 million) in turnover.

4 The European Commission, (2006-12-04)

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2 Method

Chapter 2 contains a presentation of the classical approaches to methodology in science and the research methods. There will also be a discussion of how these theories relate to the thesis. Furthermore, the research methods used in the thesis will be described and analyzed followed by a discussion of the collection of data, which the conclusion of the report is based on. Additionally, the method of analysis of the data is explained followed by a discussion of the criteria of a good study. Finally, a description and an illustration of the research design are presented.

2.1 Scientific approaches To be able to understand investigations that are being performed and the knowledge that derive from them it is important for the researchers to reflect over the available method theories. Method theories originate from a number of scientific approaches which formulate necessary assumptions about the reality in order to make it easier to investigate, explain and understand it. These assumptions work as guidance for the creator of the knowledge, i.e. the researcher. However, it is not possible to prove these assumptions empirically or to test them logically since they are pre-made hypotheses of the reality of which all created knowledge is built up on. They can only be judged through the reflection of the user and if they no longer seem able to explain relevant issues in the surrounding environment it is possible to change, complement or synthesize them. Every person subconsciously carries assumptions of the world around them which are difficult to change, at least on a short term basis. Another term for different categories of assumptions, as referred to above, is paradigms.5

For a researcher, with the intention of generating knowledge and relevant results, it is essential that the chosen method is consistent with the researcher’s own life experience and the type of problem that is being investigated.6

2.1.1 Positivism

The French philosopher Henri-Saint Simon used the term positivism for the first time as early as the late 18th century. This approach states that scientific knowledge only is valid if it can be tested empirically, i.e. it is only true if it is proven to match the reality. Further, a positivist believes that every acknowledged method within the natural science also can be applied to every sort of investigation, no matter what its content or context is, even to studies within social sciences.7 Moreover, the researcher cannot be allowed to be affected by non-scientific values that could influence the investigation and the study should give the same results no matter who is performing it.8 Finally, knowledge is being looked upon as being developed through explanations.9

2.1.2 System theory

System theory is the most frequently used method within scientific research. It presumes that the reality consists of a number of components, each mutually dependent on another. This implies that it is not only the components that consist of individual value but their formation and combination which in turn result in synergy effects. In other 5 Arbnor, I., Bjerke, B., (1994) 6 Ibid. 7 Ibid. 8 Wallén, G., (1996) 9 Arbnor, I., Bjerke, B., (1994)

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words, the whole system constitute more (or less) than the sum of its components. The components can also be seen as persons within for instance an organization.10

To be able to fully understand a situation it is necessary to look at its different components from an overall view and the picture is not accurate if one component is removed. Within the systems approach the investigator searches for driving forces which affect the system as a whole, either in a positive or negative way. Sometimes a certain optimal constellation of the components is aspired for a certain situation to achieve a specific goal. An example of a driving force is the active behavior or ambitions rather, of people within the system. Typical for the system approach is that the achieved results can not be used in a general way and instead they are applied to similar kinds of systems with the help of analogies.11

2.1.3 Hermeneutics

Hermeneutics has originated from the interpretation of texts and recognize the distinction between natural and social science.12 There is a clear difference in explaining the nature and understanding the culture. In other words, this scientific approach implies that the methods within the natural science, even if modified, are unsuitable to use within social sciences. Further, hermeneutics believe that the social world already is as simplified by its inhabitants through models, norms and etiquettes that science should devote its time to problemize and macro orientate the surrounding environment to be able to develop a continuous understanding for it. Knowledge is therefore seen as created through understanding rather than explanations, i.e. opposite of how knowledge is created within positivism.13 The principle of hermeneutic interpretation of texts is a continuous changeover between components and the overall picture. This creates a spiral of continuous learning in which a constant deeper understanding of the situation is emerged. This approach can be applied to qualitative interviews through the conduct of first assimilating a general overall view of the interview and then analyze specific themes and expressions in order to develop its meaning followed by another look at the overall view followed by a deeper analysis of the component and so on. Further, there exists no objective interpretation of either texts or interviews since the interpreter is formed by his or her individual outlook on life and previous experiences. It is therefore of importance to be aware of the preconceived viewpoints and try to recognize them while making interpretations.14

2.1.4 Phenomenology

Phenomenology is about understanding social phenomena through the perspective of the individual and is a scientific approach which mainly embraces in-depth interviews. It describes the reality as it is interpreted by its participants and presumes that the relevant reality is what people perceive it to be without trying to analyze its cause or background, i.e. the individual experience creates knowledge and does not require any testing.15 Therefore, it is important to be capable of communicating your experience to others and to be accurately understood.16

10 Arbnor, I., Bjerke, B., (1994) 11 Ibid. 12 Kvale, S., (1997) 13 Arbnor, I., Bjerke, B., (1994) 14 Kvale, S., (1997) 15 Ibid. 16 Wallén, G., (1996)

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2.1.5 Discussion of choice of scientific approach

As the author I find that it is most suitable to use a combination of the hermeneutics and the phenomenology theory as an outlook on how knowledge is created in the report. The following research is mainly a study of conditions within the social sciences and does not investigate any subjects related to relations within natural sciences at all. The hermeneutics is therefore a very relevant theory since it embraces the importance of using appropriate methods when investigating the social environment. Hermeneutics also acknowledge the complexity of social conditions and to develop understanding through describing a full range of aspects and presenting an overall picture instead of trying to simplify things through creation of models. Additionally, due to the fact that the knowledge created in the thesis mainly derives from interviews, I find that hermeneutics is the main scientific approach to employ since hermeneutics is relevant in a double edged way through both the interview itself, which will generate a text, followed by an interpretation of this text. Phenomenology is a relevant approach because of its trust in the individual perception to create knowledge. The study engages in interviews and therefore its conclusions will be based upon the experience of individuals. Additionally, the results of the interviews are analyzed by the author who recognizes the difficulty of not letting any values and past experiences affect the interpretation. However, on the contrary to phenomenology, the cause of the experiences will be pursued.

2.2 Research methods This section deals with different types of research methods which are commonly used in research and in the thesis.

2.2.1 Qualitative and quantitative method

There are two comprehensive approaches in research: qualitative and quantitative methods. The qualitative method is normally used when access to information is limited and when the studied phenomena are immeasurable, such as feelings or opinions.17 Interviews are presumably the most frequently used method within qualitative research.18 A quantitative method, on the other hand, is used to structure and analyze great amounts of measurable data.19 Qualitative interviews focus on the standpoints of the interviewee and it is favorable to let the interview shift in different directions since it reveals what the interviewee finds relevant and important. Thus, qualitative interviews may deviate from the set up framework of the interview guide where new questions are formed in line with the interviews’ new direction. Consequently, the interviews become very flexible and the focus of the study is modified according to any important issues that might come up during the interviews.20

In the thesis, mainly qualitative methods are used for collection of data in order to achieve a more complete picture of the research area. The subject itself is more suitable to study in a qualitative way due to its complexity and difficulties regarding measurability. 17 Wallén, G., (1996) 18 Bryman, A., (2002) 19 Wallén, G., (1996) 20 Bryman, (2002)

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Additionally, it would not be realistic to make in-depth interviews with a large number of companies due to the resource and time limitation of this thesis. Instead, in-depth interviews are performed with a small amount of companies and are complemented with a survey sent out to a large number of Swedish subsidiaries and Swedish representatives in the on the British market. The interviews have been carried out according to the research method of qualitative interviews. An interview guide has been constructed prior to each in-depth interview and new questions have been addressed as the interview has taken a new direction. However, during the interviews I have aimed to go back to the interview guide after a sidetrack has been taken preventing the interview from taking a direction which would not serve the purpose of the report.

2.2.2 Inductive and hypothesis deductive method

Within the area of research methods there are mainly two methods that are widely discussed: the inductive and the hypothesis deductive method. The choice of research method depends on the relation between theory and empirical data within the investigation.21 The different relations are illustrated in figure 2.1, where the theoretical world is separated from the empirical world through a horizontal line.22

Figure 2.1 Illustration of the inductive and deductive method.23

Theories PredictionsDeduction

Facts Facts

Induction

Verifikation

THEORY

EMPIRICAL FACTS

Induction is a research method where general and theoretical conclusions are trying to be drawn on the basis of empirical knowledge, i.e. the collected data and material. The researcher can for example find a mathematical formula, which seams to go well with the facts that the he or she is trying to incorporate in to the theory.24 The hypothesis deductive method means that a hypothesis (drawn up from established theory) is tested, mainly through experiments, with relevant and available empirical data.25 In other words it means that a logical analysis is performed of what the general theory predicts of future events. Thereafter the researcher is ready to return to facts and see whether he or she was right about the previous predictions, which is described as verification of the theory. 26

21 Wallén, G., (1996) 22 Arbnor, I., Bjerke, B., (1994) 23 Ibid. 24 Arbnor, I., Bjerke, B., (1994) 25 Wallén, G., (1996) 26 Arbnor, I., Bjerke, B., (1994)

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In the report, the research method of induction is mainly used since the study primarily is based upon interviews along with a survey, upon which conclusions are drawn.

2.3 Data collection

2.3.1 Primary and secondary data

There are two types of data: primary and secondary data. Primary data is newly collected material with the purpose of being used in the present study. There are three different ways of collecting new data: from direct observations, interviews and experiments.27

Secondary data is beforehand collected material, not initially intended for the present study. Example of previously assembled data is literature which is being used in a research study.28

2.3.2 Primary data collection methods

In the thesis, the collection of primary data is mainly carried out through a survey sent out to a large number of Swedish companies as well as in-depth interviews with Swedish companies. The participants are either already established in the UK or considering establishing business. Survey A survey is used in the thesis to get an extensive view of the opinions of the Swedish companies. It has been distributed to almost 200 Swedish subsidiaries and other Swedish representatives in the UK and 41 companies have participated including the companies which have participated in the in-depth interviews. The survey consisted of a number of standardized questions and response alternatives, which are all outlined in advance. The response alternatives are fixed or the respondent has to rate questions by using a scale from 1 to 5. However, in some questions the respondent is given the chance to give more expressive answers via a comment box in connection to the question. More about the survey can be viewed in sections 2.6 and 8.1.1. The questionnaire used in the study can be viewed in Appendix 1. A survey with fixed response alternatives or using a scale from 1 to 5 risks measuring the interviewees’ opinions on the basis of the researchers’ values. Another criticism is that the partakers of the study only can agree or disagree with the statement and not argue.29 As the researcher in this situation, I have aimed to avoid these drawbacks through implementing comment boxes next to suitable fixed questions in the survey as well as open questions, which only consist of the individuals’ comments. Interviews A very common procedure within business economics is interviews. There are different concepts when it comes to how interviews are outlined. Standardized interviews involve the same questions asked to all respondents while non-directed interviews are characterized by a low level of standardization. The questions asked during an interview can either be open,

27 Arbnor, I., Bjerke, B., (1994) 28 Ibid. 29 Svenning, C., (2003)

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which means that there are no fixed reply alternatives, or closed, which involve fixed reply alternatives.30 The interviews are performed both via personal meetings as well as interviews over the telephone due to lack of recourses, i.e. time and money, to arrange a meeting in person. In order to compare the results of the interviews between the participating companies similar to each other, the interview guides have been standardized as much as possible. The questions asked have enabled the interviewee to speak freely, i.e. open questions, in order to obtain as much information as possible from the interviews. However, the interviews have been well prepared in advance and the standardized interview guide is individually adapted to every company according to their background. A standardized interview guide can be found in Appendix 2. Additionally, the reader finds an example of an adapted interview guide in Appendix 3. Finally, the interviews have also been recorded to facilitate the possibility to go back and check if the information was perceived correctly so as little information as possible gets lost during the processing of the material. The reader finds more information concerning the interviews in sections 2.6 and 8.2.1.

2.3.3 Secondary data collection methods

Literature In the report, the most important sources of secondary data have been books containing relevant information as well as available information at the STC in London. Books and reports regarding export practice were studied in order to get an understanding of the subject. The acquired knowledge was used to create a number of questions I thought could be of relevance for the survey and the in-depth interviews. Further, market reports have been studied in order to get up-to-date information for the chapter about the British market (section 3.6). The main part of the external information has been collected at the British Library in London. The internet has also been used when searching for relevant information, especially to obtain national statistics of the UK.

2.4 Method of analysis The method of analysis performed on the basis of the collected empirical material consists of logical discussions where advantages and disadvantages are compared and discussed in comparison to the theoretical framework in order to fulfil the purpose of the report. In other words, I have not used any established tools for analysis, such as various business models (e.g. Porter’s five forces), since I have not found a tool which would go well with the problem formulation (see section 1.2) and the purpose of the report (see section 1.3). However, I have structured the empirical chapters similarly to the analysis in order to enable the reader to follow the reasoning and main thread throughout the report. Moreover, certain sections of the theoretical framework have been applied in several areas of the analysis in order to explain different empirical aspects.

30 Arbnor, I., Bjerke, B., (1994)

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2.5 Criteria for a good study

2.5.1 Generalization of the study

It is important that scientific results are possible to generalize and apply to other situations than the actual study they are derived from. The requirement for generalization of the results affects the arrangement of the research. In general, the results can not be applied directly to similar circumstances, but they can serve as a good model in terms of approach and research method. The choice of research object is also central to be able to estimate the degree of generalization, i.e. it is important to consider how common the studied object is in reality.31 I find the method used in the thesis suitable for measuring other conditions within varied contexts. The combination of a survey sent out to a large amount of research objects in combination with in-depth interviews with a smaller number is a good way to obtain an extensive view of circumstances in general.

2.5.2 Validity and reliability

While performing a study it is important to be aware of the concept of validity and reliability. Validity is the importance of measuring what is intended to be measured. In other words, the result is valid if nothing irrelevant influence the result, thus validity regards the absence of systematic errors. A clear definition of concepts and a correct perception of cause and effect can increase the value of validity. Reliability, on the other hand, has to do with whether the object is consistent and does not differ when measured on several occasions. Consequently, reliability regards absence of random errors.32 The recourses put into the research will determine how well the result can represent the actual conditions of the reality. In the report, a lot of work has been invested into collecting the e-mail addresses of the actual people who would have the relevant knowledge to give correct answers, i.e. the CEO’s or the managing directors of the Swedish companies. This will secure that the result is consistent with what is meant to be measured, to as great extent as possible, since no one is better to represent the company than its CEO or MD regarding the actual type of questions. A lot of effort has also been put into collecting as many e-mail addresses as possible from Swedish companies having business in the UK. However, the thesis measures the momentary conditions since opinions of individuals can transform over time due to external and internal changes of the company. Consequently, the CEO’s/MD’s might not give the same answer in a year and the outcome of a similar study may differ. Furthermore, the author thinks that any company having any kind of business is a relevant object to investigate. However, the higher amount of studied objects the more representative is the outcome for all Swedish companies in the UK.

2.5.3 Objectivity

Objectivity is a term characterized by matter-of-factness and impartialness.33 It can be described on the basis of either macro or micro level. The macro level concerns the values within the scientific tradition and the social environment the researcher belongs to, which could influence the investigations. The micro level comprises the values of the 31 Wallén, G., (1996) 32 Ibid. 33 Wikipedia, (2006-05-04)

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individual researcher, in other words the way we are formed as individual characters decide which models and theories we use and how we analyze and present the results.34 Another aspect is that it is common that external assigners or the political environment choose the type of problem the researcher will deal with in addition to how it will be presented and distributed to the society.35 A good approach to facilitate objectivity is for the creator of knowledge, i.e. the researcher, to increase the level of self confidence and to be aware of the value systems that might affect the result of the research.36

As author of the thesis I find it difficult not to allow myself to let any of my opinions and previous experiences affect the outline of the study, it would be virtually impossible for anyone. However, the aim during the process of writing will be to have an open discussion within the thesis of the choices I make.

2.6 Research design As a first step, I looked for and assessed relevant theory in order to be able to outline the questions of the business climate survey (BCS) as well as a standardized interview guide for the in-depth interviews. It was important that the survey had a small number of questions covering as much as possible within the area I wanted to receive information from. A fewer number of questions demand less time from the participants in order to facilitate as many partakers as possible. While the technological framework of the survey was constructed at STC’s main office in Stockholm, I contacted suitable companies for in-depth interviews as well as collected e-mail addresses for the survey. Following this step, I performed the in-depth interviews while the survey was out. The interview questions were of the same character as in the survey with the purpose of receiving more elaborate answers from the companies. However, more questions were outlined and the interview questions were also modified on the basis of the standardized interview guide according to the specific company’s background and experience. The reader finds a general and standardized interview guide in Appendix 2. An example of a modified interview guide, in this case HemoCue’s, is available in Appendix 3. The in-depth interviews were mainly performed via the telephone. A conference telephone was used enabling a recording of the interview in order for me to concentrate fully on the interviewer instead of taking notes. Additionally, this allowed me to go back and confirm what was said during the dialogue. More information regarding the survey and the interviews can be found in sections 8.1.1 and 8.2.1. After performing the survey and the in-depth interviews it was time to assort the collected empirical material before an analysis could be made on the basis of relevant theory. Finally, conclusions were drawn and thoughts were put into writing in order to fulfill the outlined purpose of the report. The reader finds an illustration of the design research in figure 2.2.

34 Wallén, G., (1996) 35 Ibid. 36 Ibid.

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Outline the problem formulation and the purpose of

the report

Work out the most suitable research method to achieve the

purpose of the report

Chapter 1

Chapter 2

Assess available and relevant theoretical material Chapter 3 - 7

Outline survey and standardized interview guide Appendix 1 - 3

Contact companies to interview and collect contact information to

the survey’s e-mail list Chapter 8

Perform in-depth interviews while the survey is sent out

Assort the collected empirical material from the survey and the

in-depth interviews Chapter 9 - 12

Outline analysis based on the empirical material as well as the

theoretical framework Chapter 13

Conclusions aimed to serve the purpose of the report Chapter 14

Figure 2.2 illustrates the research design of the report

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3 Facts of the United Kingdom

Chapter 3 contains facts of the United Kingdom relevant for the proceeding work of the thesis. Moreover, the purpose of the chapter is also to provide the reader with basic knowledge in order to raise the awareness of the country which the thesis is focused on. Firstly, the geography of the UK is outlined followed by statistics regarding population and demography. The chapter continues with a presentation of British history as well as religious and political issues. Finally, the British market is presented roughly along with a description of how Swedish interests are represented on the British market.

3.1 Geography The United Kingdom of Great Britain and Northern Ireland was created in the year 1800 and constitutes the greater part of the British Isles. The largest of the islands is Great Britain, which comprises England, Wales and Scotland. The next largest island comprises the Republic of Ireland and Northern Ireland, which is a part of the UK. The terms United Kingdom and Great Britain are often incorrectly used synonymously by Swedes. As clarified above, Great Britain consists of England, Scotland and Wales whereas the UK consists of these three regions as well as the Northern Ireland.37 The four capitals of the UK’s regions are: London (England), Figure 3.1 The United Kingdom38

Edinburgh (Scotland), Cardiff (Wales) and Belfast (Northern Ireland).39 Finally, the UK consists of an area of one fourth of Sweden’s.40

3.2 Population and demography Those who refer to the citizens of the UK as the English, rather than the British, may risk irritating citizens of Scotland, Wales and the Northern Ireland. Although the British society is and cultures are mainly homogeneous, outsiders who work with people from these regions are advised to acknowledge the pride taken in what may appear to be superficial differences.41

The British population has long been characterized by internal and external migration. There is a constant drift to the more prosperous south.42 It is the third most populous state in the EU with a population of about 60 million, where 50 million live in England.43

37 Mole, (2003) 38 A United Kingdom Hotel, (2006-12-30) 39 Wikipedia, (2006-12-21) 40 Landrapport, STC, (2006) 41 Mole, (2003) 42 Ibid. 43 Wikipedia, (2006-12-21)

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The UK is an urban society. A fifth of the population of mainland Britain lives in eight cities, the largest being London with seven million inhabitants.44

3.3 History The British Empire was the most extensive empire in world history and was for a substantial time the leading global power. It was a product of the European age of discovery, which began with the maritime explorations of the 15th century, which sparked the era of the European colonial empires. By 1913, the British Empire consisted of over a third of the world’s population and approximately one-quarter of its territory making it the largest empire (in terms of both population and territory) in world history. Though it has now mostly evolved into the Commonwealth of Nations, British influence remains strong throughout the world in economic practice, legal and governmental systems, society, sports (such as cricket and football), and the English language itself, to name just a few.45

3.4 Religion Outside Northern Ireland religion plays little part in everyday life. About 35 percent of the British population claims to have no religion, the second highest proportion in Europe after the Netherlands. Consequently, this creates an atmosphere of religious freedom and tolerance.46

Public Holidays47

A “bank holiday” is a public holiday in the UK and also in the Republic of Ireland. Although there is no legal right to take time off on these days, the majority of the population not employed in essential services (e.g. utilities, fire, ambulance, police, health-workers) receive them as holidays. Those employed in essential services usually receive extra pay for working on these days. Bank holidays are called so because they are days upon which banks are (or were) shut and therefore could traditionally no other businesses operate. Prior to 1834, the Bank of England observed about thirty-three saints' days and religious festivals as holidays, but in 1834, this was drastically reduced to just four: 1 May, 1 November, Good Friday, and Christmas Day. In 1871, the first legislation relating to bank holidays was passed when Sir John Lubbock introduced the Bank Holidays Act 1871, which specified the days. Sir John was an enthusiastic supporter of cricket and was firmly of the belief that bank employees should have the opportunity to participate and attend matches when they were scheduled. Included in the dates of bank holidays are therefore dates when cricket games are traditionally played between the villages in the region where Sir John was raised. The number of bank holidays varies between the regions in the UK. However, in England they are: 1 Jan, Good Friday, Easter Monday, first Monday in May, last Monday in May, last Monday in August, Christmas Day and Boxing Day (26 Dec).

44 Mole, (2003) 45 Wikipedia, (2006-12-21) 46 Mole, (2003) 47 Wikipedia, (2006-12-21)

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3.5 Politics Political and economic decisions are highly centralized to London. The area within a couple of hours drive from London is known as “the South”. The rest of the country is known as “the North”. The South is perceived by those who live there as superior in wealth, sophistication and social status. It owes its image to the preponderance of service, high-tech and other growth industries, while the north is associated with heavy industry, engineering, mining and unemployment. 48

Scotland has its own parliament, legal and educational systems. Further, Edinburgh is the second financial center to London. Wales has a parliament and finds its identity in language. In some rural areas Welch is the first language and it is taught in schools and used on radio and television. Northern Ireland is characterized by its inability to govern itself through sectarian discrimination and violence. Unless it is something directly affecting the business there is no need for outsiders to become better informed about the political situation than those on the mainland. Further, there is no written constitution, bill of rights or legal code. 49

Despite the dissolution of the British Empire and the steady decline of the UK's influence throughout the world, it remains a great power. The UK is a member of the G8, and a founding member of the North Atlantic Treaty Organisation (NATO) and the United Nations (UN), where it holds permanent membership on the Security Council.50 In addition, they became a member of the EU as early as 1973.51

3.6 The British market

3.6.1 Structure of the British market

Based on market exchange rates, the UK is the fifth largest economy in the world, the second largest in Europe after Germany, and the sixth-largest overall by purchasing power parity (PPP).52 There has been a significant shift from manufacturing to service business in the British market.53

The service sector of the UK is dominated by financial services, especially in banking and insurance. London is one of the world's largest financial centres with the London Stock Exchange, the London International Financial Futures and Options Exchange and the Lloyd's of London insurance market all based in the city. It also has the largest concentration of foreign bank branches in the world. The Scottish capital, Edinburgh, is also one of the large financial centres of Europe. Further, the real estate business is also a large part of British economy as well as health care services.54 The British manufacturing sector, however, has greatly diminished since World War II. It is still a significant part of the economy, but only accounted for one-sixth of national output in 2003. The British motor industry is a significant part of this sector, although all

48 Mole, (2003) 49 Ibid. 50 Wikipedia, (2006-12-21) 51 Landrapport, STC, (2006) 52 Wikipedia, (2006-12-21) 53 Mole, (2003) 54 Ibid.

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large-volume producers are now foreign-owned. The chemical and pharmaceutical industry is also strong in the UK with the world's second and third largest pharmaceutical firms, GlaxoSmithKline and AstraZeneca, respectively being based in the UK.55

3.6.2 The labor market

The British prefer to work for others rather than themselves, only 13 percent are self-employed. About 40 percent of employees are trade union members, 75 percent in the public sector compared with 30 percent in the private sector. Employment legislation has concentrated on curbing union power and making industrial action more difficult. Further, wage negotiation has been decentralized and employee protection is reduced in the interest of creating a flexible labor market. In fact, the British labor market is the least restricted by labor legislations giving companies a greater freedom to hire and fire than any other EU country.56

3.6.3 The present situation concerning Swedish companies located on the British market

There are about 500 Swedish subsidiaries in the UK and about 1000 agents and distributors representing Swedish companies on the British market.57 The Swedish export to the UK is dominated by the engineering industry, such as machines, tools and telecommunications equipment. The Swedish export of food (+47%) and building equipment (+584%) was the fastest growing export businesses in 2005.58

55 Wikipedia, (2006-12-21) 56 Mole, (2003) 57 Landrapport Storbritannien, (2006) 58 Ibid.

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4 General export theory

In chapter 4 the theoretical framework of the relevant export theory is given. It is a smorgasbord containing theory regarding globalization and internationalization and the benefits of exporting. Finally, the chapter discusses the risks of exporting.

When a company wishes to expand its business to a foreign market there is a decision process taking place involving: deciding which market to enter, choosing the market entry option and strategies, creating a marketing plan and to choose a market organisation.59 This report is focused on the aspects of the market entry option and the suitable strategy on the British market.

4.1 Globalization and internationalization Internationalization can be seen as a result from a combination of factors in the home country market, the prospective foreign market, the global environment and the characteristics of the individual firm. A small home country market and/or competition from outside tend to encourage companies to consider exporting to foreign markets, a sort of domestic push toward internationalization. Large and open foreign markets provide opportunities that encourage outsiders to enter, a sort of international pull. In addition, global changes, as for instance improved communications and logistics, encourage exporting. Finally, company specific factors, such as competitive advantage and interest in international activities, also encourage internationalization.60

59 Branch, A., (2000) 60 Albaum , G., Duerr, E., Strandskov, J., (2005)

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Smallness

Openness

Location

Domestic push

Company-specific advantages

Enabling environment

International pull

Largeness

Openness

Home country market factors

Host country market factors

Firm factors

Global factors

Figure 4.1 shows how the forces of firm factors, home country market factors, foreign country factors and global factors explain the movement toward increasing internationalization.61

Small and medium sized companies often carry out the internationalization process in a different manner and to a different extent than larger companies. Large companies may introduce their products or services globally, entering a number of markets quickly. Small and medium sized companies are more likely to first enter markets that are close geographically and/or have the same language. Companies that have success in nearby markets may then move on to more distant markets in Europe, the Asia/Pacific area, the Latin America countries, or elsewhere. 62

4.2 Why exporting products or services?63 A company has an opportunity to benefit from several advantages when it decides to export its products or services. These benefits will naturally vary by company and the specific product/service that is offered:

• There is a potential for greatly increased company turnover. • Economies of scale are achieved through a larger order intake and better

utilization of company resources, especially in the areas of production, design, administration and procurement.

• By operating outside the domestic market, the company is able to spread their risks and opportunities throughout several markets due to that they experience peaks and periods of decline at differing times in each market. The effect of balancing risks and opportunities depends on the number of markets served, their location, level of profitability, degree of risk

61 Albaum , G., Duerr, E., Strandskov, J., (2005) 62 Ibid. 63 Branch, A., (2000)

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and market forecast and if the culture presented in each market is closely related to the company’s resources.

• The company becomes more incorporated with the market they serve. As a result, this provides new ideas and impressions which hopefully lead to development of new technology and higher standards, something that would be difficult when serving only the domestic market. Consequently, the product or service offered becomes more competitive since it needs to be matched with overseas market needs and conforms to a wider legal environment. Furthermore, the company becomes more competitive in the business area concerning management skills.

• The potential for higher profitability is increased. This offers more income for investment, research and development to ensure that the company remains competitive.

• Company exposure is greatly increased on an international level through publicity, product/service analysis and market penetration.

4.3 Export risks There are also certain risks involved in the export business: 64

• The export market may involve a longer time scale of payment. This may be

90 days, 180 days or longer in comparison to normally 30 days in the domestic market. This can lead to a serious cash flow problem for a smaller company. Possible solutions include factoring, cash in advance or operating an open account. The time scale of payment in the UK is discussed in the following section on the next page.

• There is also a commercial risk due to the possibility of not getting paid at all, which may lead to contractual disputes

• There is an economic and political risk involving the increased range of interest rates, exchange rates and economic and trade cycles. Forward planning can counter such problems with short term strategies such as hedging the market on exchange rate variation, keeping in contact with the International Bank and continuously being up-to-date on the political, legal and economic environment in the buyer’s market. Additionally, there is a potential problem concerning trade barriers, including both customs tariff and non-tariff barriers, manipulated politically and economically.

• A product launch in a foreign market is more costly and complex in comparison with a domestic launch. The product specification must comply with the foreign market legislation and the legal environment of the market in which it is to be sold.

A way to reduce these risks is to hire experienced, professional and internationally focused personnel. Additionally, the company needs a business plan with an international perspective and should also provide resources for its implementation. Further, it is an advantage to set up a thorough control system to be able to supervise performance and do follow ups. In general, the exporter must have an ongoing complete commitment to

64 Branch, A., (2000)

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and empathy with the buyer, the market and the product they are selling in the foreign country.65 General time scale of payment in the UK Swedish companies generally receive a time scale of payment of about 26 days on their invoices. However, most companies are about 10 days late in payment and in total it takes about 36 days before they pay their way. This is the shortest time scale of payment in all of Europe according to a survey made by the finance company Creditreform. They have compared nine European countries and believe that this is the effect of the Swedish attachment proceedings, which is activated if the given time scale of payment is exceeded. In comparison, companies in the UK generally wait about 55 days before paying an invoice.66 It is commonly known that British companies generally come short regarding paying invoices in time. The phenomenon might be explained by the fact that they do not risk a penalty interest, which they have in common with the majority of the European companies. There are actions to take in order to raise the security when doing business overseas:67

• Identify the customer and make sure they are trustworthy

• Make sure to set up a contract

• Ensure that the goods or service belong to the vendor until it is fully paid by the buyer

• Inform the customer that there will be extra charges if the time scale of payment is exceeded

• Set up an insurance policy in order to protect the company against non-payment and insolvency

65 Branch, A., (2000) 66 Dagens Nyheter, (2006-11-20) 67 Atradius, (2006-11-20)

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5 Establishment on the British market

Chapter 5 contains relevant theory concerning the process of establishment on the British market. Firstly, the definition of the term establishment is made by the author. The chapter continues with a description of the various entry options relevant for small and medium sized Swedish companies. Finally, the elements of entry strategy are discussed.

5.1 Definition of the term establishment The definition of the term establishment, and when a company can be considered to be established on a market, differs depending on the background of who is enquired. As the author of the thesis I have discovered that the literature does not present a definition. Additionally, the people interviewed for the empirical material of the theses have different views of what an establishment can be defined as. Therefore, I have chosen to define the term establishment used in the thesis in order to facilitate the comprehension of the following chapters. The definition used in the report is: A company is considered to be established as soon as they are selling goods or services to the British market, i.e. all from continuous direct sales from Sweden to setting up a subsidiary and similar methods of establishment. I have chosen to consider continuous direct sales from Sweden an establishment due to the company’s conscious aim to sell goods to the UK, which entails a plan for how the British market will be approached. Further, the author not only distinguishes the term establishment as carrying out one of the entry options. The term may also embrace the complementary strategies chosen by the exporting companies in order to strengthen their position on the market, i.e. strengthen the effect of the entry option.

5.2 Entry options on the British market for Swedish small and medium sized companies

5.2.1 Factors influencing the entry option68

A variety of market entry options exist and some of the factors influencing the final choice of option are:

• The company’s objectives. These will be found in the company’s business plan and will be determined by the company’s resources, the market forecast and the profitability. The small to medium sized enterprise may have limited capital, production resources and experience which make them less able to take risks. Additionally, the negotiating power of this kind of company is smaller than of a large company.

• Legal and political constraints related to e.g. channels of distribution, licensing, partner agreements or taxation employment law.

• The company’s business culture. A number of characteristics of the company culture are influential and will affect the selection of entry option, such as skills

68 Branch, A., (2000)

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and abilities, management culture, international logistics capability and technical and design competences.

• The product. This comprises the nature of the product or service and its capacity to adapt and compete in the selected foreign market.

• Any long-term development in the foreign market and the level of competition, both short and long term.

Other factors that matters are how close or distant the market is and the market openness regarding non-tariff or tariff barriers. Additionally, the company’s previous experience in the market and whether the market is homogeneous or heterogeneous also affect the choice of entry option.

There are two methods of exporting – indirect and direct:

5.2.2 Indirect exporting

Indirect exporting means selling goods to a foreign market through a third party, thereby giving up the control of the selling process. The advantage of indirect exporting is that it is not necessary to have an extensive and internationally focused organisation for the company, which is especially of interest for the small and medium sized companies. 69 There are a number of alternatives within indirect exporting: 70

• Export houses. The export house can be a merchant or an agent and can as a

large business take on a wide range of roles, while a smaller one may offer a more specialized and less widespread range of services. Most export houses specialize in particular markets, types of goods, or in certain types of products for particular markets.

• Piggybacking. The term piggybacking arises when two products are promoted one on the back of another, e.g. greenhouses and garden furniture. A manufacturer, e.g. selling greenhouses, carries and promotes the products of another manufacturer, like garden furniture. The first manufacturer has an established customer portfolio base and is experienced in the marketplace. He or she is acting as an agent or a distributor selling garden furniture and is thereby earning commission, adding value to his or her own product range as well as enhancing market penetration and sales revenue by jointly offering greenhouses and garden furniture.

• Trading companies. They are long established and take on numerous contacts with foreign buyers seeking a range of products. This alternative is often used by small- and medium sized exporters, since it is a low cost method of entering a foreign market. The trading company undertakes all the negotiation and distribution agreements and is therefore unlikely to entail any direct contact between the exporter and buyer.

5.2.3 Direct exporting

Direct exporting is a practice, where the exporter becomes fully involved and totally committed to the process of exporting on a proactive basis. Hence, the exporter becomes fully involved in the seven P:s of the marketing mix – product, place, promotion, price, process, people, physical aspects – on an international basis. This practice involves significant capital commitment and resource allocation of management 69 Branch, A., (2000) 70 Ibid.

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and production along with an adaptation of the product, if necessary, to meet the foreign buyer’s needs and preferences. 71 There are several ways for a foreign company to enter the British market within direct exporting. The most basic method is to sell a product or service directly to UK customers from Sweden. In this arrangement there might be a sales person employed in Sweden handling the sales on the British market. Furthermore, there are five main ways to set up a legal business in the UK: 72

1. Agent 2. Distributor 3. Limited company (Subsidiary)

- Private Limited Company (Ltd) - Public Company (Plc)

4. Branch Office 5. Franchising

There are also other possible ways to enter a market:73

6. Acquisitions 7. Joint Venture

Direct sales from Sweden to the British market74

The most basic method of establishing business and sales in the UK is selling products or services directly from the operations in Sweden. The company can benefit from having control of the work that is being done and a low cost relatively contracting an intermediary or setting up a subsidiary. However, the sales person situated in Sweden is likely to not have enough in-depth knowledge about of the marketplace and it may lead to an insufficient market network in the UK. Consequently, this may lead to high travel and living cost when the sales person visits the market. Most importantly, this entry solution may be perceived as less dedication to the customers and the marketplace. Agent and distributor Appointing a local agent or distributor is generally the least expensive trading method. The terms agent or distributor are widely used interchangeably. There is, however, a clear distinction in the law, and important differences as to the consequences of choosing either solution.75 These are the most significant differences between the distributors and the agents:

Agent Distributor 1) Not financially involved Buys for own account 2) Leaves importation to the buyers Imports the product whose orders he passes to the principal 3) Is paid a commission at an agreed Marks up the supply price to percentage on orders secured cover his profit 71 Branch, A., (2000) 72 BSCC, (2006) 73 Branch, A., (2000) 74 BSCC, (2006) 75 Ibid.

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Agent Distributor 4) Any service necessary is rendered Where necessary undertakes by the buyer responsibility for the service 5) Carries no stock, except for Normally carries stock showroom purposes 6) No control of retail prices Controls selling prices in countries where retail price maintenance is possible. 7) Leaves distribution to the buyers Undertakes distribution in the market 8) Unlikely to be involved in publicity Likely to be involved in local except where required to give publicity advice or report on impact Positive aspects about agents and distributors are small start up costs and that there is a low risk provided that the contract is properly set up. Furthermore, the right agent/distributor will have good market knowledge and an extensive network of contacts which also create good conditions for making an employee at the agent/distributor a managing director (MD) for future subsidiary. However, the downside of using an agent/distributor is that the exporter loses control of the marketing channel and the direct contact with the market and the customers.76 The agent can be seen as a middle hand making a profit by customers and may lead to price discussions with client. More importantly, a bad agent can ruin a patron’s reputation and make it difficult for a comeback on the market for a patron after a failure.77 Finally, for both agents and distributors, the other product lines that they handle from other companies may make it difficult for an exporter to introduce new products to those already handled by the intermediaries.78 It is common for aspiring exporters to draw up a short list of available agents and distributors to evaluate their skills and proposals as well as their degree of commitment to the task. This involves visiting the market and the agent’s/distributor’s premises and meeting their staff. 79 Most exporters, especially manufacturers, eventually establish a network of foreign distributors or sales agents. Manufacturers will usually sell through distributors, as a first-step entry into a new market. This is an excellent low cost option for entering a new market particularly where only moderate sales volumes are expected in a market area. After sales in a foreign market pass a certain level, the manufacturer may find it more effective and profitable to establish a subsidiary. However, even if a large sales volume is generated, often there are good reasons why the agent or distributor should not be eased out of the manufacturer’s channel. His or hers intimate knowledge of the market and dealers and access to various sources may not be capable of being equalled by the manufacturer’s foreign-based dependent organisation. In addition, an agent or distributor may have political influence that can not be of benefit to a manufacturer.80

76 Report 421.1, (2005), STC 77 Ibid. 78 Cook, T., (2001) 79 Branch, A., (2000) 80 Cook, T., (2001)

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The following are recommendations to be considered when choosing an agent or distributor: 81 • Execute substantial research. Check the agents and distributors thoroughly in

order to investigate its commitment to the product as well as the market. Additionally, the financial strength of the distributor needs to be checked in addition to product related factors such as the distributor’s product line and its compatibility.

• Do not enter initial contracts long term. Use monthly contracts until satisfaction is obtained with their performance.

• The exporter should clearly spell out the expectations and performance standards.

• Use available councils and authorities with global expertise and local presence in the market of interest.

Evaluating the choices of the best entry option for the particular situation is the major element of the exporting strategy. Each option has corresponding risks and degrees of managerial or financial involvement. Sometimes the best strategy is to utilize various choices - a direct sale approach in one country and agents or distributors in others. Every effort to research and learn as much as possible about the export partners should be reviewed. It is important to turn over each and every stone and to take the time to visit customers and knowledge of their supply chain.82 Limited company (Subsidiary) A limited company is a legal person which is entirely separate from its shareholders and directors. The liability of the shareholders is limited to payment of the nominal value of their shares. Furthermore, the directors have no personal liability for the acts of the company except in limited and unusual circumstances. There are two main types of limited companies, Public Companies (PLC) and Private Limited Companies (LTD): 83 Public companies (PLC): The main difference between a public company and a private company is that a public company is allowed to make offers to the public to sell shares and can invite the general public to buy its shares to raise capital. A private company can only offer its shares to private persons, such as existing shareholders and employees. Further, a public company must satisfy certain requirements. The company must for example have a minimum authorized and issued share capital of £50,000. 84

Private Limited Companies (LTD): The vast majority of companies in the UK are private companies limited by shares. There is no minimum requirement on the amount of paid up share capital for a private company. I other words, it is possible to have a company with one ordinary share constituting a value of for instance merely £1. Another advantage of limited companies is that directors have no personal liability for the acts of the company. 85

81 Cook, T., (2001) 82 Ibid. 83 BSCC, (2006) 84 Ibid. 85 Ibid.

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The limited company is owned by the parent company to a 100 % on the new market, i.e it is the equivalent to a wholly owned subsidiary. The subsidiary may consist of only a small office but can also include e.g. a production site. Having a wholly owned subsidiary can result in less flexibility and implies a greater risk. In addition, a subsidiary implies a greater control but on the other hand it requires a significant commitment in terms of resources.86 The start up cost is likely to be significant to the exporting company as well as the close down cost, should it become necessary. Additional benefit of setting up a limited company on the British market is that it shows a long-term commitment to the marketplace. Moreover, British companies prefer to deal directly with the supplier or the UK subsidiary than an intermediate.87

Branch Office Setting up a branch office may, in some cases, be a suitable means of establishing a presence in the UK. A branch is generally subject to fewer reporting requirements and formalities than a limited company, and is usually less expensive in the longer term to set up and operate. If the set up costs are high for a certain type of business it is better to set up a branch since it is tax deductible. Another reason for choosing a branch is that some contracts are so important that the British business partners want to deal directly with the parent company. However, it is a complicated administrative process to start up a branch.88 A branch offers better control of the marketplace than with an agent or distributor and a higher level of commitment to the marketplace although not on the same level as a limited company. On the other hand, a branch does not have separate liability, as it is not a separate legal entity from the overseas company as a limited company, and can therefore make the parent company liable for any UK depts. 89 Franchising Franchising is based on a legal agreement between a manufacturer, wholesaler or service company (the franchiser) and an independent entrepreneur (the franchisee) who purchases the legal right to use branding, products and methods of operations. The franchiser will receive an initial fee, royalty on sales, lease fees for equipment, profit share or some combination of these four.90

There are two types of agreements between the franchiser and the franchisee: an area development agreement and a master franchise agreement. An area development agreement entail the degree of transferability, whether exclusive or non-exclusive rights are to be granted, the number of outlets, provision of additional outlets in the event of favorable market conditions and finally termination of arrangements and disposal of outlets. The master franchise agreement involves a specified territory, exclusivity, performance schedule, agreed sales targets, fees – initial and ongoing, intellectual property safeguards, training provision, taxation aspects and the rights to be granted.91

Franchising offers the franchiser speed of entry on the market, and an outlet for the franchiser’s goods or service over which he or she has virtually complete control. However, it does involve capital commitment in terms of premises/retail outlets and

86 Álvarez, M., (2003) 87 Report 421.1, (2005), STC 88 BSCC, (2006) 89 Branch, A., (2000) 90 Ibid. 91 Ibid.

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facilitating the franchise launch in terms of stock provision, marketing, training and control system. On the whole, franchising exceedingly concerns the brand management business on a global scale.92 The franchising structure is a tighter form of relationship between an exporter and its foreign representative than that obtained with the exclusive distributor or agent.93

Acquisitions Buying a locally-based company and develop a product strategy in line with the buyer brand image is a quick way for a company to enter a market, to gain access to an established distribution network and to achieve an immediate source of revenue in a new market.94

Joint Venture A joint venture is the process of two trading companies – at least one of them local – forming an agreement and a new company to market and/or manufacture goods on a joint basis. Each company contributes with expertise or resources to the new joint company and both parties have investment obligations. A joint venture provides the exporter with a quick access to a market, evasion of import restrictions and shared costs and/or risk between two companies.95

5.3 The elements of entry strategy96 Exporting may be an international learning experience and something that takes a firm toward more and more sophistication and commitment to other modes of exporting, such as establishing a manufacturing facility in a foreign market. Each target market is unique in some ways and each product has unique market needs. One cannot assume that the market response to a particular entry strategy will be the same for different products and foreign markets. The main objective should be to build permanent market position and whatever resources needed for this should be committed. To the exporting company, different entry modes represent varying levels of control, commitment, involvement and risk. Market research97

Cook outlines market research as a factor which may enhance a company’s chances of international success. In export trade there is opportunity as well as potential reward. However, where there is opportunity there is a risk. Knowledge of the marketplace and the company’s own export capabilities are the starting point of analysis in evaluating the export potential and developing an export program. Initial market review begins in the company’s own facilities. The company should investigate the domestic clients and look for those who may be purchasing the product and then exporting it. It may have already determined that there is a global market for the product.

92 Branch, A., (2000) 93 Cook, T., (2001) 94 Branch, A., (2000) 95 Ibid. 96 Cook, T., (2001) 97 Ibid.

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Export trade opportunity information can be gathered through interviews, surveys and direct contact with potential customers or representatives. Moreover, trade shows are an affordable way to gain a first exposure to a foreign market and offer an excellent networking opportunity. It is also of importance to stay current on world political and economic events that affect the international marketplace. A change in the politics of a country or significant change in the economic activity may alter the situation on the marketplace. Many companies choose third party companies to provide export expertise regarding the target market. These are known as export trading companies, export management companies, purchasing or trading cooperatives or trading intermediaries. A market research delivers high value information but can be time consuming and expensive. It should be carried out with regards to the exporting company’s needs and recourses in order to minimize costs.

5.4 Obstacles to exporting98 Some companies never take the first step and get involved in international marketing, particularly exporting, because they feel that there are obstacles or barriers that cannot be overcome easily enough. These obstacles may be real or may only be perceived to exist. For the most part, it is smaller-sized and to some extent medium-sized companies, that have the hardest time handling these barriers. Whether barriers exist, or are perceived to exist, for any given potential or actual exporter at any point in time is, of course, and empirical question. In the end it makes no difference whether obstacles are real or imagined as managers will make decisions on the basis of their perceptions of the situation they face. Obviously barriers are important because of the impact they have on the behavior of potential and actual exporters at different stages of internationalization. How companies can overcome obstacles Some advice to small companies on how to cope with, and handle, some of the barriers that are perceived to exist are:

• Look to existing customers. Many customers can penetrate foreign markets by selling products or services to their domestic customers’ units overseas.

• Make a commitment. Exporting is not a part-time effort. It requires extensive research. Foreign business should be run by experienced managers.

• Seek advice. Some consulting firms provide a free first-time consultation. • Use trade shows. Trade promotions sponsored by government agencies abroad

draw big crowds. • Pick markets carefully. While potentially lucrative, fast-growing markets can

tank unexpectedly. Consider customer quality, not just nationality. • Manage growth. It takes time to line up financing and expand an organization

to handle exports. Many small exporters are overwhelmed by big orders. • Use letters of credit. Some first-time exporters ship a product and hope they get

paid. A letter of credit protects against default by a week or shady buyer. • Be patient. Many foreign customers do business based on relationships. Small

companies must spend time cultivating contacts before racking up export orders.

98 Cook, T., (2001)

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• Choose partners carefully. An experienced freight forwarder at home is crucial for handling customs paperwork. Additionally, an incompetent distributor abroad can ruin a company’s reputation.

The keys to achievement in foreign markets are information, preparation and commitment. Medium-sized companies’ success overseas depends on management commitment, quality, better marketing and innovation – not company size, financing or a favorable currency.

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6 Market strategies

Chapter 6 contains aspects of market strategies relevant for the analysis of the Swedish companies’ situation on the British market. Initially there is a description of the term competitive advantage followed by a discussion of quality positioning and development of a cost structure. The chapter ends with how value can be added to the customer.

6.1 Competitive advantage A company achieves competitive advantage when they are able to provide their customers with what they want, or need, better or more efficiently than competitors and in ways which their competitors find difficult to imitate. Assuming that the products or services of different businesses are more-or-less equally available, customers may choose to purchase from one source rather than another because either a) the price of the product of service is lower than a competitor’s or b) the product or service is perceived by the customer to provide better ‘added value’ or benefits than that available elsewhere.99

Customer service is the backbone of profitability, continued growth and most certainly competitive advantage. These skills must be applied to global trade but will need to be modified, adapted and enhanced for the complexities and unique persona of international business. Exporters face stiff competition in global markets due to many factors, including the pricing after cost of logistics, political and cultural differences, currency fluctuations, and communications and infrastructure imbalances. Those export companies that show creative talents, exercise patience and persistency, ally with key vendors and master the skills of global trade and international customer service will be staged for competitive advantage. This not only refers to providing a price which is competitive, while a critical issue, may be only one of many issues that determine who a foreign buyer purchases from. Looking at individuals buying habits, some, but not all individuals buy with only price in mind. We sometimes pay a higher price for a many reasons: convenience, positive relationship with the people we buy from, the service attached to the purchase, the sales and marketing factors tied into the transaction, the technical and knowledgeable sales/customer service personnel and responsive, timely communication as well as follow up and more. Cook believes that the majority of purchase decisions brings and array of factors into play. As a general rule, if the pricing from one company to another is within a reasonable range, the company with the higher price will win eight out of ten times if many of the other attributes are offered with greater advantage. A critical factor for making all these issues work for the company is communication. This will be discussed further down in this section.100

6.2 Quality positioning101 Not surprisingly, products of high quality tend to command higher prices than their low quality competitors implying a quality-profit relationship. Clearly, in a well functioning market, a low quality item would simply not sell unless it offered buyers a price advantage to offset the quality disadvantage. Business strategy research has exposed that companies

99 Johnson, G., Scholes, K., (2002) 100 Cook, T., (2001) 101 Davis, E., (1990)

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which offer high quality products earn better rates of return than those which sit lower down on the quality scale with lower prices. In other words, high quality generates premium prices which exceed the extra cost of providing high quality. However, it is not simply the case that high quality generates high profits. Normally, the pattern is nearer to one in which the existence of some form of competitive advantage manifests itself on both high quality and high prices. Consequently, there are strategic implications to be considered which create barriers preventing that every firm to head for a quality position of the industry and erode profits down to a normal level. Two important barriers can be identified. One is that quality often is difficult to supply and there is only a limited number of potential quality suppliers in each market. High quality companies have scarce resources that no one else can obtain and these generate rents that are not able to be won by any company that chooses. Another important barrier is that even if new entrants aim to achieve high quality, and do, they face a difficulty persuading conservative buyers that their quality is really as high as the already present high quality companies. Only those brands which buyers associate with high levels of quality will be able to cover the costs of making high quality products and services. High quality items with low quality images will incur the costs of high quality producers, but only reap the rewards of low quality producers. The entry barrier that maintains high return at this level is the cost of signaling quality to consumers. The reputation that some companies have can be seen as a hidden asset which generates returns in excess of those that would mount up to other producers of equal ability. Reputations are important and are difficult to establish because they require a sustained track of consistent performance in order to be credible. The reason that profits are higher for high quality producers is that they have overcome barriers that other companies would have to overcome to compete with them. Profits will be highest in industries where the cost of entry by competing firms is high. This will be highest in industries where product quality can vary, where it is hard to ascertain and where is it important for the buyer that it is ascertained. The cost of quality differs between companies because the inherited resource base of companies differs and it is expensive for companies to change their resource base. For low quality firms, high quality is often expensive to produce.

Ability to signal quality102

The benefits of adopting a high quality position are largely determined by the ability of firms to actually signal to potential buyers that their quality is high. Much of the observed high return to quality is in fact a return to a reputation or quality signal. If the customers were fully informed about the quality and price of all the items on sale, these returns would not build up. There are some goods, such as fresh fruit and vegetables, which can be inspected prior to the purchase. In these cases, quality signaling is limited and we would expect the level of quality to reflect the actual cost. All high quality producers would earn the same return and these would probably be close to the returns of lower quality producers. However, not all products are as easy monitored as fresh fruit. Probably the vast majority of products fall into the category of being hard-to-monitor to some degree. This will be true for all products that are customized, such as services. The hard to monitor firms can be segmented into two groups – those in industries in which consumers will make an effort to recognize high quality and those where they will not bother. There is a reason to think that the proportion of firms suffering from under-

102 Davis, E.,(1990)

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recognition might be higher in the category of items which are not important to buyers, i.e. those firms who have failed to achieve recognition. When markets are uninformed, quality can go unrecognized and unrewarded. In some markets, the seller knows the quality of the item being sold, while the buyer does not, but the seller is unable to signal credibly the true quality on sale. In these cases the disengaging of quality and price is even more extreme, because there will be a strong tendency for high quality vendors to refrain from offering their product on the market at all. The expectation of low quality will be self-reinforcing. Quality communication103

Quality communication can be broken down to three key disciplines: the art of communication, responsiveness and persistence. In the art of communication one must recognize that different cultures have different means of communication. How to address written fax, letters or e-mail to when to send it, whether to use first or last name, who to copy all will play an important role in how the customer will respond, how seriously they will take the export company, or how mad they will get if you have insulted them. Responsiveness can be a major factor that will provide immediate favorable “feelings” on the part of foreign buyers. This means following up in a timely fashion and acknowledging all communication, even if it is just to say “We’re working on it.” Meet all time frames promised. If you need more time, communicate that and request an extension when necessary. If the export company’s culture look to an immediate response to inquiries and rapid decision making may cause a problem if the foreign company culture operates using a different frame of reference. A company belonging to a culture of quick response and decisions my lose patience and walk away from lucrative opportunities in the process. The key to overcoming this obstacle is persistence. The steps in being persistent must be tailored to the particular culture the company is exporting to. In some cultures, such as the Japanese, being too diligent and persistent will cause aggravation and probably loss of the opportunity. Knowledge of local cultures can be achieved by researching the culture. The country deck officers at consulates and embassies are excellent sources of information. The Chamber of commerce and trade associations are often good references as well. No matter what the culture is, one must have a system of follow-up/persistence to accomplish the sale. The company should use all the powers of influence and networking with a balance of patience to obtain the order. Persistence is well served when accompanied by development of personal relationships. Building personal relationships104

In many countries, developing a close personal relationship shows confidence in both parties that will result in long-term partners in trade. If the export company has a product in high demand with no competition, then being an “order taker” is the method of operation. However, most companies deal with intense foreign competition and they must maximize their opportunities. A key strategy is to develop the personal relationship. This works in most cultures and becomes a necessary tool in developing sound global

103 Cook, T., (2001) 104 Ibid.

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business and personal relationships. Foreign buyers often buy from the individual first – the company second. Problems are likely to occur in an international trade. Shipping the wrong product or logistics delay are examples of what will happen if a company is in the exporting business long enough. The strength of the personal relationship, the trust and the bond that parallel this, will carry you through the difficulty of the problem to a favorable resolution. International litigation generally is not a workable option. It is costly, difficult to achieve, and a favorable settlement is dismal at best. A good working relationship is a much better option. Thus, a personal relationship becomes a key to many factors in developing the export business.

6.3 Developing a cost structure A company’s ability to offer competitive pricing structures will be critical to its ability to enter a new market and sustain growth. As in any market, the cost of getting the product to the consumer is a significant factor in the pricing formula and it is necessary to identify the company’s margins and costs by product.105

6.4 Adding value to the customer106 Strategic capability is about providing products or services to customers that are valued or might be valued in the future. Understanding what customers’ value is the starting point.

6.4.1 Understanding what customers value

The customers and consumers of an organization’s products or services are of critical importance. The concepts of markets and how they are structured are equally important as to the understanding of the structure of production and the concepts of market segmentation and customer value is important. In most markets there is a wide diversity of customers’ needs which can make the concept of market segmentation useful. Market segmentation involves identifying similarities and differences between groups of customers and users. Understanding what customers value and how competitors are positioned to meet these needs is a critical element of understanding strategic capability. It is important to see value through the eyes of the customer. Customers’ concept of value changes over time – either because they become more experienced (through repeat purchase) or because competitive offerings become available which offer better value.

6.4.2 The value chain

The concept of Porter’s value chain can be helpful in understanding how value is created or lost within an organization. The value chain describes the activities within and around an organization which together create a product or a service. It is the cost of these value activities and the value that they deliver that determines whether or not best value products or services are developed. Figure 6.1 shows a representation of a typical value chain. Primary activities are directly concerned with the creation or delivery of a product or service and can be grouped into five main areas: inbound logistics, operations, outbound logistics, marketing and sales and service.

105 Cook, T., (2001) 106 Johnson, G., Scholes, K., (2002)

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Figure 6.1 illustrates Porter’s value chain107

• Inbound logistics involve the activities of receiving, storing and distributing the

inputs to the product or service. They include materials handling, stock control, transport, etc.

• Operations convert these various inputs into the final product or service. Examples of these activities are machining, packaging, assembly, testing, etc.

• Outbound logistics involve storing and distribution of the product to customers. For manufacturing products these activities are warehousing, materials handling, transport, etc. In the case of services they may be concerned with for example bringing customers to the service if it is a fixed location, e.g. sports events.

• Marketing and sales provide the means where customers/users are made aware of the product or service and are able to purchase it. These activities include sales administration, advertising, selling, etc.

• After-sale service involves all those activities which enhance or maintain the value of a product or service, such as installation, repair, training and spares.

Each of the groups of primary activities is linked to support activities. Support activities help to improve the effectiveness of efficiency of the primary activities. They can be divided into four areas: procurement, technology development, human resource management and infrastructure.

• Procurement refers to the processes of acquiring the various resource inputs to the primary activities. This occurs in many parts of the organization.

• Technology development. All value activities have a technology, even if it is just ‘know-how’. The technology may be concerned directly with the product (e.g. R&D, product design) or with the processes (e.g. process development) or with a particular resource (e.g. raw materials improvement). This area can be seen as very fundamental to the organization’s innovative capacity.

107 The Australian National University, (2006-11-30)

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• Human resource management is concerned with activities involving recruitment, managing training, developing and rewarding people within the organization.

• Firm infrastructure entails the systems of planning, finance, quality control, information management, etc. These activities are very important to the performance of the primary activities within the organization. Infrastructure also consists of the structures and routines of the organization which maintain its culture.

It is far from all industries which undertake all of these activities in-house. There is usually a specialization of the role and any organization is often a part of a wider value system which connects different companies to each other within the value chain. The value system is the set of inter-organizational links of relationships which are necessary to create a product or service. Specializing within the value system on a set of linked activities often underpins excellence in creating best-value products. How the activities are performed and how they are connected, as well as its total cost, determine the value perceived by the customer in the end. The company can use the value chain when looking at where values and costs are generated within the company. Through this may the management evaluate certain decisions such as which activities they should engage in and which they should outsource to another company. Additionally, the value chain is a tool for assessing the best and most important partners within the values system. Finally, the value chain help companies understand which type of relationships they should have with their partners.

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7 Cultural diversity

Chapter 7 contains aspects of cultural diversity which may influence the establishment process for Swedish companies on the British market. The chapter also involves aspects of the British business culture as well as the Swedish business culture. Finally, the subject matter of the relationship between the representative on the British market and the parent company is discussed.

7.1 Aspects of cultural diversity Culture is a system that enables individuals and groups to deal with each other and the outside world. Culture is a living, changing system that embraces our personal and social life. When people from different nationalities come together in teams, meetings, negotiations or as employees of the same company they bring with them different expectations and beliefs of how they should work together.108

7.1.1 Deal-Focused vs Relationship-Focused markets

The fundamental differences between deal-focused (DF) and relationship-focused (RF) markets have a substantial impact on business success throughout the global marketplace. These are the key cultural values which represent the “Great Divide” between business cultures. The further south you go in Europe, the more important it is to cement social and personal relationships before you can even start to work together. Potential partners look for reassurance that the others are good people to do business with before they look at the deal itself. Northerners find it difficult to understand not only the importance of personal relationships but also their nature. This does not mean getting on well with others or even liking them. The essential element of a personal relationship in this context is mutual obligation. People in relationship cultures grow up in networks of mutual obligation, starting with family and extending to school and university, home town or region etc.109

The vast majority of the world’s markets are relationship oriented: the Arab world and most of Africa and the Asia/Pacific region. RF people prefer to deal with family, friends and persons or groups well known to them, i.e. people who can be trusted. They are uncomfortable doing business with strangers, especially strangers who also happen to be foreigners, and they want to know their prospective business partners very well before discussing business with them. In contrast, the deal-focused approach is common in northern Europe, North America, Australia and New Zealand, where people are relatively open to doing business with strangers.110

108 Mole, (2003) 109 Ibid. 110 Gesteland, R., (1999)

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Figure 7.1 maps out the deal-focused and the relationship-focused countries in the world. As shown above, Sweden is a DF country and the United Kingdom is a moderately DF country.111

DEAL-FOCUSED CULTURES Nordic Countries

Germany North America

Australia and New Zealand

MODERATELY DEAL-FOCUSED United Kingdom

South Africa Latin Europe

Central and Eastern Europe Chile, southern Brasil, northern Mexico

Hong Kong, Singapore

RELATIONSHIP FOCUSED The Arab World

Most of Africa, Latin America and Asia

Conflicts arise when deal-focused export marketers attempt to do business with prospects from relationship-focused marketers. Many RF people find DF people too pushy, aggressive and offensively blunt. In return DF typed often considers their RF counterparts dilatory, vague and unreadable. The “Great Divide” between the world’s cultures affects the way we conduct business from the beginning to the end of any commercial relationship. Even the way we should make the first approach to potential buyers or partners depends on whether they are in DF or RF cultures.112

Making initial contact113

Due to the fact that DF people are relatively open to dealing with strangers, export marketers can normally make direct contact with potential buyers in these markets, without any previous relationship or connection. Naturally an introduction or referral is helpful but not essential. Therefore, making appointments in DF countries, such as for instance USA, is quick and easy if you have the right product or service to offer.

Direct Contact DF USA

RF Japan

Indirect Contact

Figure 7.2 Making initial contact: DF vs RF cultures114

111 Gesteland, R., (1999) 112 Ibid. 113 Ibid. 114 Ibid.

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If a company’s products or services are not yet well known in a RF country, the prospects will probably not agree to a meeting based on a direct approach. Japan is for instance located at the opposite end of the DF-RF spectrum from the USA. This means that it is far better to achieve a meeting by making indirect contact with potential customers or distributors in Japan. Often the best way to contact RF business partners is at an international trade show. Business behavior at such exhibitions tends to be deal-focused because most of the attendees have come there for the soul purpose of making business contacts. Another good way of meeting business partners in RF markets is to join an official trade mission. All over the world today governments and trade associations are promoting their country’s exports by organizing guided visits to new markets. The organizer of the trade mission sets up appointments with interested parties and provides formal introductions to them. These official introductions help break the ice and smoothing the way to a business relationship. Another good way of conducting business contacts is to arrange to be introduced by a trusted intermediary, a trusted person or organization. The ideal introducer is a high-status person or organization known to both parties. Another good choice is the commercial section of the exporter’s embassy in the target market. Embassy officials tend to be accorded high status in relationship-oriented cultures, and of course it is part of their job to promote exports. Chambers of commerce and trade associations are other potential introducers. In relationship orientated markets, plan to approach your potential customer or partner indirectly, either via a trade show, a trade mission or a third-party introduction. Getting down to business115

In deal-focused markets you can usually get down to business after just a few minutes of small talk and you can learn most of what you need to know about your potential DF counterpart in a matter of days rather than the weeks or months it will take in strong RF cultures. In RF markets you first make a friend, then you make a deal. Your customer partner will want to know that you personally as well as your company are committed to the success of the partnership. Business negotiations last longer in RF than in DF cultures, for two reasons. First, it may take time to arrange an indirect approach and then comes the drawn out process of building trust and developing a personal relationship. The importance of face-to-face contact116

The technology of communication enables rapid correspondence with business partners around the world today; fax, e-mail, telephone and video conferencing makes it possible to stay in constant touch with our international counterparts. However, none the above has reduced the need for face-to-face contact with our relationship-focused customers and partners. RF people are less comfortable discussing problems in writing or over the telephone. They expect to see their suppliers and partners in person more often than would be necessary in deal-focused markets. 115 Gesteland, R., (1999) 116 Ibid.

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7.1.2 Direct vs Indirect language

They way language is used varies from culture to culture.117 RF and DF culture also differ in the way they communicate. Deal-orientated negotiators tend to value direct, frank, straightforward language, while the relationship-focused counterparts often favor a more indirect, subtle, roundabout style.118

The difference in communication originates from how the DF and RF cultures prioritize. The priority for DF business people is to be clearly understood, they usually say what they mean and mean what they say. RF negotiators on the other hand give top priority to maintaining harmony and promoting smooth interpersonal relations. Consequently, RF people watch carefully what they say and do to avoid embarrassing or offending other people.119

Direct Language DF RF Indirect Language

Figure 7.3 The cross-cultural communication gap120

Scandinavians are very explicit and they try to say exactly what they mean and use facts and figures to back it up. The British are vaguer. They are fond of illusion and understatement, hints and hedging, which many foreigners find confusing or even hypocritical. Conversely, allusive speakers can be shocked by blunter speakers.121

7.1.3 Hierarchy

Companies are per definition hierarchies, i.e. they are centralized and are run via directions from the top level of the organization and down. However, companies may be more or less hierarchical and some are more decentralized than others.122 The word hierarchy literally means “to rule through the sacred”. Hierarchy is based on three key assumptions: that the environment surrounding the company is stable, that the company’s business processes is predictable and that the output is given. In other words, a situation where the company has the same competitors, customers, suppliers, technologies and product offerings year in and year out. As long as this is true there is no motive to organize in any other way. However, this is not the reality of any company operating in an economy moving forward at turbo speed. For a company heavily reliant on brainpower, traditional hierarchies will get constant nervous breakdowns. The organizational challenge is to find a structure that will be an efficient exploiter of the specific combination of knowledge and resources which constitute a company’s competitive advantage on the market. In order to create the competitive advantage a company needs innovation and renewal, which is generated by its employees. Therefore, a company needs structures that support experimentation and the creation of novelty among the employees. Additionally, hierarchies hold other negative consequences. Nordström and Ridderstråle argue that hierarchy is an organisation with its face towards

117 Mole, (2003) 118 Gesteland, R., (1999) 119 Ibid. 120 Ibid. 121 Mole, (2003) 122 Lykta, (2006-11-20)

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the CEO and its behind toward the customer. Thus, pleasing the boss sometimes seems more important than serving the customer.123 Ljungberg and Larsson talk about a transformation of business organizations from a hierarchical structure towards a more process-based business organisation, where the approach is to look at the organization from a horizontal view rather than vertical. The idea is to focus on a specific company’s processes in order to get more customer focused, enhance flexibility and efficiency as well as facilitating performance measurements. Hence, the process-based business organisation is highly motivated due to the potential of saving time and costs. On the contrary, a hierarchical structure is focused on the various functions within the company, such as economy or product development, and does not recognize the importance of the processes leading to actual customer performance, such as for example the order process. In a hierarchical organisation there is no confusion of the framework of responsibility or who the boss is.124

7.1.4 The generation gap125

Each new generation insist that they are different from their older colleagues, more international, better educated, and not imprisoned by national stereotypes. The generation gap in business is between those who have professional training and those who do not.

7.2 The British business culture Scandinavian visitors find the British moderate relationship focused and indirect. In a land of old school ties and the old boys’ network, Britain is a market where referrals, recommendations and testimonials are extremely useful. A good tactic when making contact is to write in English with basic information about the company and the product, adding that a contact will be taken in order to set up an appointment. Follow this with a phone call requesting a meeting two or three weeks hence. Your British counterpart will suggest the time and place.126

Status in England is largely determined by one’s regional origin, social class, family background and accent. This contrasts with the situation in the Nordic countries, where people are uncomfortable with obvious status differences. This may occur when the English prefer to stay with Mr or Mrs until at least the second or third meeting. That said, visitors find that younger British business people are becoming less formal. Additionally, the extensive use of e-mail acts to informalize the communication process.127

The British also occupy an in-between position among the world’s cultures when it comes to verbal directness. Upper-class Brits favor vague, oblique language while others speak more directly. Visiting negotiators should be mentally prepared to encounter either verbal style.128

123 Nordström, K A.., Ridderstråle, J., (1999) 124 Ljungberg, A., Larsson, E., (2001) 125 Mole, (2003) 126 Gesteland, R., (1999) 127 Ibid. 128 Ibid.

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British are accustomed to understatement which imply that British buyers are turned off by hype and exaggerated claims. Presentations should be straight-forward and factual. Humor is acceptable, but visitors from abroad should remember that it rarely translates well. The safest humor in Britain is the self-deprecatory variety.129

English negotiators have been doing business all over the world for hundreds of years. They may put a wide safety margin in their opening position as to leave room for substantial concessions during the bargaining process. This practice may put off negotiators from Germany and Sweden, where the high-low tactic is frowned upon.130

Expect emphasis on the legal aspects and the fine points of the written agreement. Should a dispute arise later the British tend to rely on the terms of the contract and could become suspicious if their counterpart invokes non-contract issues such as the importance of the long term relationship.131

The British business organization132

Organization charts are not as much a map of the business than a description of the social hierarchy and there is a legal requirement for written job specifications. It is a convention that instructions should be disguised as polite requests. People expect their boss to give them instructions and then let them get on with the job without interference. Combined with British reserve and an inbred awkwardness in personal contact, this creates an arm’s-length relationship in which both sides are on their guard. Fairness in relationships is more important than closeness. The concept of the boss as a coach, creating an atmosphere of support and encouragement and providing constant feedback on performance, is making ground but is by no means universal. There is an uncertainty and debate concerning the role of the boss which has been heightened by the breakdown of hierarchical systems of control and a transition to systematic and market-orientated structures. There is a wide divergence of views between and also within companies about the relationship between superiors and subordinates. One aspect of this transformation and discussion is that the UK is the only large EU country not to have military conscription. Although the military model may not be the most appropriate model in a modern business environment, and while it only concerns the male half of the workforce, it means that there is no national consensus among managers under the age of 45 about the nature of authority systems. The British prefer to work in the security of a group within an established order with which they can be identified. They are motivated by work that is seen as valuable not only to themselves but to others and that contributes to a common goal. Opinions are encouraged and listened to, although the extent to which they are taken into account depends on seniority. British companies spend on average a sixth of what German and French companies do on training. There is a particular deficit in training at lower levels of the organization. A higher levels training is regarded as a reward for promotion rather than a preparation for it.

129 Gesteland, R., (1999) 130 Ibid. 131 Ibid. 132 Mole, (2003)

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Foreigners believe that British are more formal than they really are. First names are used immediately among colleagues of all ranks and both sexes, and are increasingly common among all business contacts, even on the phone when there has been no personal introduction. Politeness and reserve are reflected in conversation which is typically imprecise and vague, full of hints and subtleties, especially in the south. Facts and figures as definitive statements are avoided, as are direct confrontation and argument. For outsiders used to clarity, decisiveness and demonstrative professionalism this can be misleading. This is less true of people from the north that has a reputation for plain speaking.

7.3 The Swedish business culture133 Through the tax regime a universally high standard of living and relatively small differential between the highest and lowest paid, foster a society in which visible differences in status are suppressed. However, the spread between the highest and lowest incomes is growing but it is still the smallest in Europe. Environmental issues are at the top of the political agenda and represent a strong social value. The dominant social value in Sweden is egalitarianism. Managers see themselves as coaches and they rarely give what would pass for orders in more directive cultures. Both managers and managed are embarrassed by what in other cultures would be regarded as clarity and decisiveness in giving instructions. Instead, managers wait for employees to show initiative while employees expect only suggestions. The assumption is that a person doing a job knows more about it than anyone else, including the boss, and is willing to do it well. Conversely, bosses are not expected to have the answers to problems that their employees encounter. There is little sympathy with the idea that any decision is a good decision as long as it is made. Decisiveness for its own sake is not especially prized and the word ‘compromise’ does not have any negative undertones. Consequently, this makes decision making very slow, infuriatingly so to people from more action-oriented cultures, but it is compensated for by more efficient implementation. However, this gives the impression that Swedish corporate life is pleasant and conformist, this would be mistaken. Swedish managers dedicate a greater amount of time to listening and persuasion and reconciling than Anglo-Saxon colleagues would be prepared to tolerate. Disagreement and rivalry can be rife, but at the same time subjected to the stronger value of ultimate reconciliation. Organizational management is based largely on target settings and budgetary control. Swedish business culture tends to keep personal and business relationships permanently separate. A heightened sense of personal privacy maintains corporate life on a strict business level. However, more southerly Europeans often feel that they never get to know their Swedish business partners. Swedes are among the best English speakers of the world. The do not have the allusive and understated style of the British, but possess a directness and openness that can be sometimes disarming and occasionally alarming when it is interpreted as abruptness. Swedes would however be surprised if they were accused of being abrupt. There is a

133 Mole, (2003)

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strong measure of conflict avoidance that can be frustrating to those who prefer to “have things out”. Images of Sweden in the UK134

The British regard the Swedes as reliable, punctual, a bit boring, nature lovers, honest, diplomatic, shy (before you get to know them), interested in design and their home environments, and with a relaxed attitude to sex and nudity. The most well known brands are IKEA, Volvo, Saab, Absolut Vodka and H&M, and all tend to have a favorable image. Saab and Volvo are held in great esteem in terms of good engineering, design and quality assurance. Further, in British eyes, Sweden is characterized by its social democratic system, its welfare society with its social security, its gender equality and its spirit of consensus. Additionally, the British associate Sweden with modernity, progressive thinking, 134 The Council for the Promotion of Sweden, (2005)

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rationality and high taxes. People are on the whole favorably disposed to Sweden. The Swedes are responsible, live up to expectations, dutiful, they deliver what they promise and are democratic and well educated but introvert when they are not drunk. However, Swedes can be very self-satisfied and they like to impress their views on the world. Culture clashes become more apparent the longer one lives in the country – “we are amazingly dissimilar”. The British are much more polite, the Swedes are considered blunt, too direct and insensitive to the subtleties of the English language.

7.4 Relationship between the representative on the foreign market or the parent company135

Policies dealing with the relations between the exporting company and those marketing organisations that are members of its marketing channel revolve around the kinds of assistance offered to them and the cooperation received from them. The underlying premise is that whatever is done should be for the mutual benefit of all the parties concerned. The problems that the exporting company face in attempting to establish proper relations with intermediaries are perhaps aggravated by because of certain communication gaps. For such gaps – cultural, nationality, environmental and distance – are relevant. The cultural gap comes from the problems associated with communication between people from groups with different values, social background and attitudes. The nationality gap is more obvious than cultural differences. Although there may be a few individuals who have a multinational outlook, most people will clearly identify with the single country to which they have pledged their nationalistic loyalties. These gaps must be overcome or closed if the exporting company is to have an effective, smoothly functioning channel system. Unfortunately there are no easy guidelines for international or exporting management to follow. The importance of careful selection of overseas-based distributors and agents cannot be overstated. Not only are the usual business considerations involved, but there are some legal issues as well such as compensation and termination. Therefore it is essential that a good contract is developed which clearly covers all relevant aspects of the relationship and spelling out obligations of expectations of both parties. Relationships are enhanced by mutual trust between the parties involved. Trust should be built early in all relationships within an international channel of distribution. Research has shown that building trust early is more dependent upon matching, rather than exceeding, a partner’s expectations. Channel feedback The exporting company must develop an effective communication system within which feedback information flows from channel members. This puts the manager in a position to evaluate rationally the channel’s effectiveness. The manager must know how well the channel system is operating, in terms of such things as where sales are going, the adequacy of the quality of cooperation from channel members and whether conflicts within the channel are causing tensions. At the same time marketing organizations may expect the same feedback. Thus, there is a need for two-way communication. Without feedback the task of evaluating results would be impossible.

135 Cook, T., (2001)

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8 Description of the companies participating in the study

In chapter 8, the background of the companies participating in the study is presented. This is essential in order to validate and assess the conclusions made in the thesis since these companies form the result of the report. The chapter starts with an overall description of the participants in the Business Climate Study followed by a thorough presentation of the companies participating in the in-depth interviews. Additionally, the background of the interviewees is presented. The chapter is also meant to serve as a service to Swedish companies who wish to compare their own business to the ones participating in the study in order to focus particularly on their experiences on the British market. Many of the experiences made by Swedish companies on the British market depend on the actual type of business it concerns.

8.1 Companies participating in the Business Climate Study

8.1.1 Selection process of potential participating companies in the BCS

Initially, the survey was aimed to be answered by merely CEO’s or MD’s of Swedish subsidiaries in the UK. However, it proved to be quite difficult to gather the appropriate contact information to ensure that they actually received the survey form. Via STC’s contacts with the Swedish Chamber of Commerce, the author managed to get hold of a member e-mail address list of over 200 addresses. Unfortunately, the list did not merely contain e-mail addresses to CEO’s but it also had general and unspecified addresses to companies. Unspecified addresses implied that the survey may not have reached the company’s CEO. Since the list contained a vast number of addressed, they were not investigated further due to the time resources it would require. The survey was sent out via e-mail according to practical arrangements. The e-mail contained a web address, created by STC’s main office in Stockholm, at which the participants could fill in the answers directly and click ‘send’ after the form was completed. The answers were registered automatically in an Excel sheet available only to the administrator of the survey, i.e. the STC and the author. The companies were anonymous externally. However, the companies could sign their form with their e-mail address in order to take part of the final results administrated by the author. The companies had two and a half weeks to answer the survey. About 12 companies answered the survey after the first occasion of sending it. After checking the e-mail list it was clear that there were a large number of companies which was not Swedish but British members of the Swedish Chamber of Commerce. The list was revised and after the third and last time of sending out the survey the e-mailing list was down to 183 companies, including some general company addresses. The author also personally called a large number of the names appearing on the list in order to increase the number of participants. Additionally, a vast number of subsidiaries were telephoned in order to receive additional e-mail addresses to CEO’s according to a list of Swedish subsidiaries available at the STC. It was quite difficult since the personal assistants and secretaries were very reluctant to give out the CEO’s e-mail address. However, despite these efforts there were merely about 34 participants contributing in total. After checking the participants e-mail addresses, it is clear that the vast majority are CEO’s. Those who where not CEO’s functioned as financial managers or similar and may be expected to have an appropriate insight of the participating company’s business. It was only one of the participants who did not indicate their identity.

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Because the number of partakers was not as many as expected the author also included the available information provided by the companies participating in the in-depth interviews, except for two non suitable companies accounted for in section 8.2.2. They had answered questions almost identical to those participating in the survey. All in all, the number of the participants in the business climate study came down to 41. The reader finds the survey form in Appendix 1.

8.1.2 Overall information about the participating companies in the BCS

In order to analyse the result of the survey accurately, the companies answered questions regarding how long they have been present on the British market, form of establishment, type of business, number of employees and annual turnover in the UK. Almost 50% of the participating companies entered the market in the 1990s and during the 2000s. The majority of the remaining companies (about 40%) established in the 1970s and the 1980s. Furthermore, over 60% of the studied Swedish companies are subsidiaries on the British market. The allocation between the rest of the available alternatives of establishment to choose in the survey (agent, distributor, branch, sales people employed in the UK, direct sales to the UK from Sweden or the category called other arrangement) is fairly equal (see Diagram 8.1). Finally, as many as 98% of the participating companies in the survey have ticked that they offer services on the British market. The participating companies consist of a variety of sizes. Approximately 65% of the companies have less than 50 employees. Slightly over 30% of the companies have 50-1000 employees. Further, about 46% have a turnover on the British market of over £2 million per year. Less than 40 % have an annual turnover between £200 000 and £2 million. The rest has a turnover lower than £200 000 a year. % of the participating Swedish companies

010203040506070

Susid

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Diagram 8.1 shows the distribution between the participating companies’ type of establishment on the British market

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8.2 Description of companies participating in the in-depth interviews

8.2.1 The selection process of the companies participating in the in-depth interviews

The companies participating in the in-depth interviews were mainly selected from the broad contact network of the STC in London. It was primarily tips from the employees of the STC which resulted in a telephone call to suitable potential participants. Additionally, I also got in contact with a few of the participants via the daily tasks of the internship. Naturally, the fact that not all contacted companies had the time and opportunity to participate affected the composition of the participants. However, the author has aimed to have a variation among the participants considering their background, line of business and type of establishment in the UK. Each company have contributed with comments. However, some are more or less represented in different subject areas depending on their background and how recently they established a business in the UK. A newly established company contributes more to the subjects of the process of establishment whereas a company established 10 years ago reveals more information regarding business strategy on the UK market. Hopefully the reader finds that all companies contribute to the overall view and result of the report.

8.2.2 Background of the companies participating in the in-depth interviews

The content of this section is based on information provided by the internet as well as interviews with the companies’ representatives, i.e. the interviewees indicated in the text. Information taken from the website is marked with a footnote reference. Company X Company X is one out of two anonymous companies participating in the in-depth interviews. The company wants to be unnamed because they do not want their strategic ambitions regarding the UK to be known, at least not yet. The company is active in a line of business which deals with selling products to public facilities. Due to confidentiality, the interviewee is reluctant to have the number of the employees and annual turnover stated in the report. However, they may be considered a medium sized company with export sales to a handful of international markets. The name of the interviewee, Bengt Zander, is also fictitious. He is the export manager of the company and has been working there since the new owners took over the company two and a half years ago. The company acquired another Swedish company, in the same line of business as Company X, for about one and a half years ago. The acquired company had a subsidiary in the UK which meant that Company X automatically received a tool for an establishment in the UK. During six months they waited to see how the subsidiary operated. However, after six months had passed they started to question the management and the working routines of the subsidiary. The investigations resulted in firing the managing director of the subsidiary in the UK and they are for the moment working very goal orientated with the subsidiary. Zander is primarily located in Company X’s main office in Sweden but he makes personal visits at the UK subsidiary every two weeks. Company X has contributed a great deal to this report due to their recent experiences regarding their UK subsidiary. More about the events concerning Company X’s subsidiary can be read in the following empirical chapters. The interview with Bengt Zander was carried out at Stansted Airport in late April 2006.

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TradeDoubler TradeDoubler is a European provider of solutions for online marketing and sales over the internet. They offer a broad range of result oriented and efficient solutions with the aim of increasing sales and the exposure of the brand. The tools developed by TradeDoubler facilitate strategic partnership between advertisers and advertising space on the internet and make it easier for advertisers to create and analyze marketing and sales activities online. TradeDoubler has three main customer segments: advertisers and publishers on the internet and media agencies. They were founded in 1999 and operate in 18 European markets. They have 344 employees throughout Europe and their turnover for 2005 was €117 million. Thus, TradeDoubler is a large company.136 Daniel Nordström was interviewed by telephone in May 2006. He was at the time of the interview International Director of TradeDoubler and located at the main office in Stockholm. However, when TradeDoubler launched their UK investments in the beginning of the year 2000, he was responsible for setting up a subsidiary and managing TradeDoubler’s UK operations. He has previously worked at the STC in London as a Senior Consultant where he focused on helping Swedish IT-companies with their international expansion.137

During the time of TradeDoubler’s establishment, the IT market started to decline heavily after years of strong growth and they were forced to adjust their initial plan of the UK operations to the rough circumstances. Consequently, they put a lot of effort in to choosing the right type of office and the most suitable methods for marketing. Due to the declining market their potential customers really had to assess quality services on the market, which worked at TradeDoubler’s advantage. According to Nordström, TradeDoubler had a strong product to offer and did not charge their customers until they benefited from the results. Nordström says that the company initially had a modest operation in the UK with only four people located on the British market, including Nordström. Eventually the workforce in England grew and today there are ten people working mainly as a sale and marketing company together with necessary technical support functions. The development of the software is carried out in Sweden and there are a total of 55 people working with the English market, including those ten working locally in the UK. The UK presents the best profitability out of all TradeDoubler’s markets. Hoist Hospitality Group Hoist Hospitality Group (HHG) is a supplier of services and equipment designed specifically for hotels. The products and services range from advanced management software to digital interactive TV systems and internet access systems in order to ensure smooth day-to-day hotel operations. The products consist of both software and hardware.138 Veronica Millingen has worked at HHG in London for one and a half years as a Financial Controller and was interviewed via telephone in May 2006. She deals with for example staff issues, financial issues, contracts and insurances. She has previously worked for two other Swedish companies in the UK for about five years in total. 136 TradeDoubler, (2006-12-20) 137 Ibid. 138 Hoist Hospitality Group, (2006-12-20)

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http://www.tradedoubler.com/pan/public

HHG has been established in the UK as a subsidiary since 1998. They carry out export primarily to the Nordic countries but they also have a subsidiary in Russia. Furthermore, they are also represented via sales distributors in eleven other countries, such as for example South Africa, France and Thailand.139 There are nine employees in the London office working with software development, sales and technical support. The turnover on the British market was about £1.5 million in 2005. However, its share of HHG’s total turnover is quite small since the total turnover is about £12 million, i.e. indicating a share of approximately 12-13%. HHG is considered to be a medium sized company according to the EU Commission’s recommendations, see section 1.6. Kährs Kährs is a company which manufactures and supplies wood floorings. It is a very old company initially set up in Sweden in the year 1857. Today they are one of Europe’s leading parquet and wood flooring producers. The main markets are Europe and the USA, but the company is active in more than 40 markets worldwide and has subsidiaries in 11 countries. Kährs’ main customers are builder’s merchants and retailers selling wooden floors. Kährs’ products are considered to be products of great quality. They have three production units in Sweden and one in Norway. 140 David Hillier, managing director of the UK office since 1992, was interviewed via a personal meeting in Chichester in May 2006. The company established on the British market as a subsidiary in 1971. The subsidiary works as a sales company. The market channels of Kährs currently consist of a mix of a number of retailers and contractors. Also, Kährs supply to distributors and wholesalers. Kährs has a distribution policy where around 65% of the business goes to distributors and wholesalers which in turn sell to their own retailers and contractors. Further, Kährs sells directly to larger retailers that hold their own stock and also larger multinational companies such as John Lewis, which are handled directly from the UK office in Chichester. The turnover on the British market was about £15 million last year. The sales share in relation to the whole of the company is about 10%, which means that the total turnover of Kährs was £150 million. The total number of employees is almost 1400 which imply that Kährs is a large company. The company has been profitable in the UK ever since 1991. Company Y Company Y is the second and last of the anonymous companies participating in the in-depth interviews. Consequently is the name of the interviewee, Edvin Edvarsson, also fictitious. The interview with Edvarsson was performed by telephone in June 2006. Company Y’s line of business consist of physical products and solutions for presentation of information. Edvarsson has worked within the company since 1986 and is responsible for all sales and marketing as well as the export within the company. Company Y has been established in the UK in 1985. They are currently established through a partnership with a main distributor in the UK. This partner keeps stock in the UK and distributes to a number of larger retailers. The distributor is part of a religious community and therefore they do not use computers of fax machines. However, they are very good salesmen. As a result, Company Y has an arrangement of having two more

139 Hoist Hospitality Group, (2006-12-20) 140 Kährs, (2006-12-20)

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employees alongside the staff of the distributor. Company Y’s staff consists of one administrative coordinator and one sales person, who has been working with Company Y’s products on the British market since the beginning of the establishment of 1985. These two have their own office in the same building as the distributor and have all the technical equipment in order to take care of all customer orders and contacts with Company Y. The distributors’ office consists of a sales force of 7-8 people. Company Y pays the salary of the sales person and the distributors remunerate the administrative coordinator and then they share the rent of the office. Edvarsson describes that the office answers ‘Company Y’ in the phone, all letters are addressed in Company Y’s name and the office is registered under Company Y’s name, which has worked out fine legally although Company Y has not looked into it thoroughly. The distributor has a double function where they partly work as a distributor purchasing items for their own account and partly as an agent where they receive provision for the customers Company Y find in the UK. They also get provision for customers in the UK who receive deliveries directly from Sweden due to relatively big orders. Thus, the distributor is exclusive in the UK and has therefore the right to receive a provision on everything that is sold on this market. Company Y is represented in over 70 countries through an extensive network of agents and distributors. However, sales in North and South America are handled by a subsidiary in the USA. In total, the company consists of about 60 employees around the world. The company’s turnover in the UK is about £450 000, which is about 8% of the company’s total turnover. Thus, the total turnover in 2005 was roughly £5.6 million. Company Y may be classified as a small company according to the EU Commission’s recommendations (see section 1.6), which is interesting considering the number of countries they are established in. HemoCue HemoCue develops, produces, and markets medical diagnostic products for point-of-care testing. The fundamental concept behind HemoCue’s products is to perform frequently requested blood tests near the patient with the same accuracy and precision as a central clinical laboratory.141 HemoCue is established as a franchising company in the UK and the interviewee, John Clague, has been a managing director in the UK since 1992. Clague was initially working at a company which was acting as a distribution partner for various health care manufacturers around the world, among them HemoCue. The company took on HemoCue in 1987 and Clague continued to work with the products of HemoCue until 1992. In 1992 HemoCue’s products were ready to stand on their own and a franchising company was set up where Clague was employed. The interview was carried out over the telephone in May 2006. The sales office in the UK consists of 14 people and generated a turnover of £1.22 million in 2005. All technical development of the products is carried out by the parent company in Sweden. HemoCue is exporting to 120 countries worldwide via a system of franchising companies, distributors and subsidiaries. In total there are about 300 employees which generate an annual turnover of roughly £37 million. Thus, HemoCue is considered to be a large company according to the definition made by the European Commission.142

141 HemoCue, (2006-12-20) 142 Ibid.

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http://www.hemocue.co.uk/index.asp

Victorsson Victorsson AB manufactures and supplies shelter systems for egg production and is the leading supplier of egg production facilities in Sweden. Further, they develop enriched cage systems in close cooperation with the Swedish University of Agricultural Sciences. Since the start in 1977, they have produced and installed more than 400 facilities.143

During 2005 Victorsson initiated a multi market project with the STC, which involved market research and searching for potential partners on each market. In the end of 2005, the project resulted in contracting a person to be their agent on the British market. Victorsson will deliver and install whole plants and the partner will only stock spare parts locally. The interviewee, Lennart Öman, is one of the new owners since two years ago and is mainly responsible for Victorsson’s export. The telephone interview was performed in May 2006. Victorsson has not sold any products outside the Nordic countries so far. However, according to Öman there is a great interest for Victorsson’s products in the UK and a lot of potential business in the pipeline. Victorsson has about 25-30 employees in total. There is no available information regarding the annual turnover. However, according to the number of employees, Victorsson may be regarded as a small company in line with the EU Commission’s guidelines, see section 1.6.. TerraWing TerraWing develops and supplies solutions for ground anchors/wing foundations used for mainly road signs and noise barriers. Above all, they supply a unique foundation system which means that there is no need for digging, drilling or welding. They sell their products and services in Scandinavia and are looking to expand the business. TerraWing hires manufacturers to produce the ground anchors and they supervise the actual installation performed by the customer. Further, the company consists of three people. TerraWing is therefore most likely a small company in line with EU’s guidelines, although information regarding the annual turnover is not available. One of the employees is the interviewee, Magnus Johansson, who was employed in 2004 as responsible for the company’s export.144 The interview was carried out via telephone in June 2006. TerraWing started looking at what could be done in terms of an establishment on the British market less than two years ago. Since then they have carried out a market research as well as visited an international fair in Amsterdam in order to establish suitable contacts. They did find a suitable partner company with which they initiated negotiations. This company supplied closely related products to TerraWing’s business. However, the cooperation was terminated due to lack of interest from the British company. Johansson think that the British company merely was looking for providing themselves with information regarding TerraWing’s products and services. Due to a busy Scandinavian

143 Victorsson, (2006-12-20) 144 TerraWing, (2006-12-20)

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market, TerraWing has put the UK investments on hold for a while. Since TerraWing has not commenced exporting to the UK yet, they do not participate in the Business Climate Survey which measures established companies’ performance on the British market. Goodwille Goodwille Corporate Services is an independent provider of solutions within corporate services, support and development of a company. The company has years of experience in establishing and developing companies and also tackling cross-cultural issues. Further, they facilitate legal, financial and administrative requirements and help to ensure that they are properly implemented. Goodwille has worked with hundreds of clients from a wide variety of market sectors and from many different countries worldwide.145 Goodwille has been operating the British market for about ten years. The interviewee, Annika Åman Goodwille, is the founder of the company. She mainly works with Swedish subsidiaries in the UK and assists them in which type of company they should set up on the British market and also helps them with practical and financial issues. The interview was the result of a personal meeting with Annika at her office in London in May 2006. Annika is a Company Secretary, which is a coordinator for companies’ financial and legal obligations in the UK. Every company must, according to British legal requirements, appoint a Company Secretary. Large companies often tend to have their own Company Secretarial departments. However, small and medium-sized companies can achieve the same function with an out-sourced professional Company Secretary whose role it is to protect not only the interests of the shareholders but also the interest of the whole company. A Company Secretary informs, advises and supports directors both individually and collectively, ensuring compliance with statutory obligations and providing practical administrative work.146

Annika has ten years of business practice in dealing with the issues and sometimes obstacles the Swedish companies come across when establishing in the UK. The author’s intention was to try to absorb this vast experience as a complement to the in-depth interviews carried out with the regular Swedish manufacturing companies and service providers described previously in this section. Further, Åman Goodwille was not a participant of the Business Climate Study since her company is British.

145 Goodwille, (2006-12-20) 146 Ibid.

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9 Business Climate Study

Chapter 9 consists of empirical data based on a survey sent out to Swedish subsidiaries or representatives of Swedish companies on the British market. The structure of the empirical chapters (chapter 9-12) is based on the problem formulations in section 1.2. This chapter concerns the problem formulation of how the current business climate is for Swedish companies in the UK.

9.1 Background A survey was conducted in May 2006 and was sent out via e-mail to almost 200 Swedish subsidiaries and other Swedish representatives on the British market, such as agents and distributors. Additionally, seven of the nine companies, which participated in in-depth interviews, answered questions concerning how they perceive the business climate in the UK. All in all, 41 responses were collected and analyzed. Mainly CEO’s, but also people with other leading positions within the organization, such as for instance export or financial managers, were asked to answer 15 questions (see Appendix 1). The answers to questions regarding the companies’ current and future business situation are presented in this chapter. Further, the survey also contained questions regarding the companies’ Swedish background and its implication in the UK. These answers are presented in the following empirical chapters. The companies, which also participated in in-depth interviews, were able to elaborate on these answers in addition to answer other closely related questions (see interview guides in Appendix 2 and 3). A description of the participating companies and how the participating companies were selected, are accounted for in chapter 8.

9.2 Business Climate in the UK for Swedish companies

9.2.1 How Swedish companies estimate the profitability in the UK

The participants of the survey answered the question ‘How do you estimate the profitability in the UK compared to other markets, if possible?’ The participants could choose from a scale from 1 – 5, where 5 was excellent and 1 equaled very poor.

Poor 17%

Very poor 2%

No knowledge

17%Excellent

12%

Very good 35%Average

17%

The majority, 35% of the participants, gave the profitability in the UK a rating of 4 on the scale. About 17% gave the rating 3 and 12% gave the rating 5, i.e. excellent. On the other end of the scale about 17% of the participant thought that the profitability in the UK is poor and 2% thought it was very poor. Further, 17% did not have any information available or had no knowledge.

Diagram 9.1 illustrates the Swedish companies’ perception regarding the profitability on the British market.

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As a result, about 64 % think the British market is profitable from a level of average to excellent.

9.2.2 How Swedish companies estimate the opportunities for reaching their company’s growth target in the UK in 2006-2007

The question answered by the partakers was: ‘How do you estimate the opportunities for reaching your company’s growth target in the UK in 2006-2007?’ The available answers and the scale rating was the same as in previous question.

Poor5%

Average32%

Very good29%

Excellent22%

No knowledge

12%

The majority of the participants, about 32%, gave the rating of 3. About 29% gave the rating 4 and 22% gave the opportunities to reach their growth target the best rating of five - excellent. About 5% answered that they see a poor chance of growing as much as they want this and the next year. 12% had no knowledge of their opportunities for growing. Worth mentioning is that none of the participants ticked 1, i.e. a very poor chance. Diagram 9.2 shows the Swedish companies’ estimation of reaching

their growth target in the UK in 2006 – 2007. To summarize, 83% have a positive outlook on reaching their growth target from a level of average to an excellent chance.

9.2.3 How the Swedish companies are planning to reach their growth targets

The question asked to the participants was: ‘How are you planning to reach the growth targets for 2006-2007?’ It was possible to tick multiple answers. The available alternatives rated according to how many participants selected them were:

• Grow in existing segments, 76% • New products, 63% • New customer segments, 49% • New marketing channels, 32% • Hire more people, 27% • Increased sales force, 22% • Increased retail presence, 17% • New agents/distributors, 13% • Other, 2%

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As shown above most companies aim to grow in existing segments next to introducing new products to the British market.

9.2.4 The main challenges during 2006 and 2007 in the UK

The next question was formulated: ‘What do you perceive as your main challenges during 2006 and 2007 in the UK?’ It was possible to tick multiple answers. The available alternatives rated according to how many participants selected them were:

• Economic Climate, 41% • Competitor prices, 39% • Competitors products/service offerings, 32% • Customer demand, 27% • Internal efficiency, 20% • Sales force, 17% • Staff retention and recruitment, 15% • Competitor distribution/presence, 12% • Market regulations, 7%

To summarize, the Swedish companies fear the future development of the economic climate as well as high competition and low prices. Worth mentioning is that 63% of the companies ticked one or several of the competitor related issues as one of their main challenges in the near future on the British market. The competitor related alternatives in the survey, which can be seen above, are: competitor prices, competitor’s products/service offerings and/or competitor presence.

9.2.5 Were the Swedish companies profitable in 2004-2005?

Profitable85%

Not profitable

10%

No knowledge

5%

Furthermore, the companies were asked ‘Was your company profitable in 2004-2005 in the UK?’ The available answers to tick were: ‘yes’ or ‘no, not profitable’. It was also possible to the participating companies to choose ‘no knowledge’. Diagram 9.3 illustrates the outcome of the Swedish companies’ profitability during 2004 – 2005. The result was that as many as 85% of the Swedish companies were profitable in the UK in 2004-2005. 10% were not profitable and about 5% had no knowledge.

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10 Swedish companies’ establishment on the British market

Chapter 10 to 12 mainly contains interview material from nine companies with different background on the British market, see company presentations in chapter 8. Additionally, where results of the survey can complement the interviews, they will be presented in corresponding sections. The structure of the empirical chapters (chapter 9-12) is based on the problem formulations in section 1.2. This chapter concerns the problem formulation of what it is that influences the establishment method for Swedish companies and which benefits and drawbacks that can be made from the alternative forms of establishment. The final problem formulation this chapter addresses is if it is possible to identify an ideal method of establishment for Swedish companies on the British market.

10.1 Why establish on the British market? Nordström at TradeDoubler says that the positive aspect of being established on the British market, within TradeDoubler’s line of business, is that the British market is highly developed and therefore demanding within the IT business. TradeDoubler has therefore been forced to develop products and services on the frontline. Nordström considers this a very positive aspect of developing TradeDoubler’s business because they have been able to distribute and sell the new product in other parts of Europe. Another positive aspect is the fact that the UK is such a big market relatively to Sweden. Therefore, it is easy to gain economy of scale. In addition, TradeDoubler has been able to charge the market for quality which has resulted in an overwhelming turnover. For TradeDoubler, the British market was the entry to the rest of the European market since it was an element of security being established in the UK when they were looking for new customers in other countries. Additionally, a lot of international companies have their main office in the UK. Nordström explains that it would have been more difficult selling services to big companies, like Dell for instance, if they were not located in the UK. The success factors of TradeDoubler on the British market can be summarized in having a good business idea, good timing and skilled personnel. Åman Goodwille at Goodwille’s believes that the reason why Swedish companies choose to establish in the UK is mainly psychological. The Swedes like the British people and feel comfortable with language as well the British culture. Many companies also see the British market as a take-off platform to the rest of Europe and the USA. Öman at Victorsson states that he sees the British market as the potentially strongest market along with Germany. One of the questions in the survey, sent out to a large number of subsidiaries and representatives of Swedish companies, concerned what they perceived as the most positive aspect of doing business in the UK for Swedish companies. Many of the answers were on the subject of the numerous prospects available for Swedish companies on the British market. The answers mainly state the opportunities and potential of the British market referring to the fact that the UK has a six times bigger population than Sweden. Further, there is the perception of the British market as being very open minded to new products and companies. Thus, there are low entry barriers regarding the mindset of the British when using a new supplier. Additionally, the British market offers access to international customers being an international capital as well as the media market. Finally, a Swedish company can also get good prices for their products in the UK compared to Sweden.

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When does Swedish companies establish on the British market? Zander at Company X explains that they exported to the Nordic countries and Germany before they decided to invest in an establishment in the UK. They had reached a level of maturity on the Swedish market and a company needs incentive to develop new products, as well as establish business on new markets, in order to grow even further. Lennart Öman at Victorsson describe that the company only exported to the Nordic countries before they started their investment in the British market. Magnus Johansson at TerraWing explains that they had a small amount of export to Denmark and Norway before they started looking at the British market. Åman Goodwille says that Swedish companies traditionally establish in the UK or Germany after they are established in the Nordic countries. Nordström at TradeDoubler says that the UK was TradeDoubler’s first export market. Edvarsson at Company Y says the choice of new markets for establishment initially was made randomly from contacts instigated at fairs and exhibitions. If they found an interesting partner to work with they initiated a partnership without any thought of which country they represented. It is only lately that they have entered a market in line with geographical logic.

10.2 The choice of establishment method for Swedish companies on the British market

10.2.1 Limited company (Subsidiary)

According to Bengt Zander, it was very natural for Company X to enter the British market via a subsidiary. Due to the fact that the Swedish company they recently acquired had a subsidiary in the UK, an opportunity of a settled establishment package presented itself. Even so, they had been looking at the British market for some time prior the acquisition and they had explored the opportunity to sell goods to the British market directly from Sweden. However, they soon realized that it would be close to impossible since it would involve difficulties to listen to and get the feedback from the market. Veronica Millingen says that Hoist Hospitality Group (HHG) chose to establish as a subsidiary in the UK in 1998. The reason for choosing this type of establishment was based on the perception that it is easier to receive a credit at the UK suppliers when you can use the parent company as a security. Nordström says that TradeDoubler established on the British market in the year 2000 by setting up a subsidiary. The company initially had a modest operation in the UK with only four people located on the British market, including Nordström. The administrative issues took some time to sort out such as setting up the office etc. However, the main office in Stockholm took care of the actual legal and administrative work concerning the set up of the subsidiary. This enabled Nordström and his colleagues to fully concentrate on the sales of TradeDoubler’s’ services on the British market, which was an optimal strategy of establishment for TradeDoubler according to Nordström. Further, he finds it necessary being established locally on the British market and it would be impossible to sell the services directly from Sweden without the local sales force. He finds it essential

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to be close to the British customer physically in order to show that you are running a serious business. Annika Åman Goodwille at Goodwille’s explains that the necessity for creating a subsidiary derives from the legal requirements of the government. The government has set up certain requirements for controlling the taxes generated within the UK. If a company only needs to do marketing or market research there is no legal obligation for setting up a subsidiary. However, if there is a person located at an office in the UK and possibly out on the market selling merchandise or services it is definitely an establishment according to Åman Goodwille, which requires setting up a subsidiary. However, the issue is not black or white and many inquiries to Åman Goodwille’s company concerns variations of this and whether a company needs to set up a subsidiary or not. Further, Åman Goodwille believes that most Swedish companies initially start out via engaging an agent or a distributor on the British market since it is an inexpensive solution in order to get to know the market and build a network. Eventually, depending on the sales results, the company may set up a subsidiary.

10.2.2 Distributor

Edvarsson Company Y explains that the reason for choosing a distributor as a form of establishment is coincidental. According to Edvarsson, Company Y has not considered setting up a subsidiary because it is simply too expensive in relation to their sales volume in the UK. There has not been a problem so far not having a subsidiary in the UK. They have been able to start an account in a Swedish bank established in the UK which has settled some of the practical issues. The structure of the office in the UK, containing both a sales man hired by Company Y as well as the personnel of the distributors, is somewhat complicated (see company description in chapter 8). Their salesman supporting the contact between the distributors and Company Y is getting close to his retirement, which implies that this structure probably must be refined later on. Since the UK is such an important market, according to Edvarsson, it is possible to eventually set up a subsidiary there. Another solution is that they find another distributor who can manage everything concerning the UK business or a new cooperation solution with another distributor. Edvarsson is of the opinion that it is necessary to be careful since it takes a lot of effort and resources to establish a subsidiary in terms of laws, accounting and number of employees. Hence, the best solution would be to find a financially strong distributor. The ideal partner, according to Magnus Johansson at TerraWing is a distributor with a large stocking capacity to facilitate large orders since TerraWing’s products carries high transport costs. Moreover, they prefer a partner with a good knowledge of the market, who can take care of the marketing, has a large base of customers, who is not attached to one or a small number of customers as well as having an open attitude to the marketplace. Johansson says that they have considered selling products to customers directly from Sweden. However, he believes that it would be difficult to proceed on the British market on their own without a British partner.

10.2.3 Agent

Lennart Öman describes that Victorsson during the fall of 2005 contracted a person to be their agent on the British market. Through contacts with actors on the market, such as customers and consultants, they received a suggestion of a very suitable person for the position as a partner. Via further conversation they were reassured that this person was well known in a positive way within the line of business. The partner is a person who has

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worked several years previously within the business and he is currently only working with Victorsson’s products. Öman says that they would prefer if the partner consisted of more than one person in order to have more sales personnel working with their products on the British market. However, Victorsson is pleased with the situation for the time being. Victorsson will deliver and install whole plants and the partner will only stock spare parts locally. Lennart Öman explains that the reason for choosing an agent, instead of setting up a subsidiary is because of the financial aspect. The company is rather small for the time being and can therefore not afford to set up a subsidiary in the near future. Öman says the agent has to accomplish certain sales goals according to the contract. The agent is relatively free when it comes to marketing although every decision regarding this has to go through the Victorsson’s in Sweden. The agent and Victorsson share the cost for marketing as the agent’s commission is slightly smaller. Because of this, the marketing is more efficient since it is managed centrally, according to Öman. Further, the agent is required to report visits to customers on the British market as well as do follow ups on these visits. The business proposals are drawn up in Sweden since the agent currently not is experienced with the products yet. Öman continues to describe the Victorsson’s communication with the agent. The agent must report to Victorsson at least once a month according to the contract. However, the agent and Victorsson in Sweden generally keep in touch once a week via telephone or e-mail. Victorsson has also been over several times recently to visit the larger potential customers and to visit fairs since they are in the initial stage of establishing on the British market. Therefore, they have met the agent personally several times recently since they have carried out lots of the mentioned activities with him. The agent is also relatively free when it comes to strategy on the British market. However, Victorsson in Sweden possess more strategic knowledge within this area of products, according to Öman. Consequently, Victorsson in Sweden is currently much involved on the British market until the agent becomes more experienced. Öman finds it too early to evaluate the establishment since they just recently started to work on the market and have therefore not sold any products yet. However, he sees a great potential and thinks that they have come relatively far on the British market compared to other markets they have investigated. So far the process of establishment has been smooth and it has required as much work as they have expected. Naturally it is exhausting to travel but Öman says they are very used to the marketing and sales process and know what it takes.

10.2.4 Franchising

John Clague at HemoCue explains that the company is a franchising company to the Swedish HemoCue. In other words, the Swedish company does not own HemoCue in the UK. However, the design and framing of the website is for example almost identical and from the customers’ perspective it is the same company. According to John Clague this is because the branding of HemoCue is so strong. Clague continues to explain that the Swedish company makes profit via the margins of the goods shipped over from Sweden. There is a franchising agreement which according to Clague is a very one sided agreement in favor of the interest of the Swedish company. It contains for example minimum purchase, payment terms, and a whole raft of issues imposing on the branding of HemoCue. However, Clague does not believe that this has prohibited the ability for HemoCue in the UK to make enough profits. Further, there is no annual fee for using the HemoCue brand. Consequently, HemoCue is a franchise

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without a franchise fee and the cooperation is more based on HemoCue’s ability to do the job since they work within a very specialist sector. According to John Clague the franchising company will grow to be more integrated with the parent company and eventually become a subsidiary, according to the Swedish company’s strategy. The main motives are to gain control of the distribution.

10.3 Perceived benefits and drawbacks of different forms of establishment

10.3.1 Limited company (Subsidiary)

Annika Åman Goodwille at Goodwill’s explains that the advantage of setting up a subsidiary is that the company is perceived as more serious on the market. There are companies which only have the intention of making market surveys, which set up a subsidiary anyway in order to signal towards the British market that they are serious through a local establishment. Further, Åman Goodwille describes that it is generally easier to run a company in the UK. It is difficult to compare every aspect to Swedish conditions but the requirements of financial reports are for example less extensive in the UK. In comparison, all companies in Sweden are treated under the same requirements no matter what size they are, according to Åman Goodwille. For instance, there is no legal demand in the UK to have an accountant for companies under a certain turnover. Thus, there are many rules making it easier for smaller companies to run a business in the UK compared to Sweden. Zander at Company X say that they value the fact that they are in control of the information obtained from the customers as well as the message sent out to the marketplace regarding the company. This entails no risk of an intermediate ruining the company’s reputation on the British market. Magnus Johansson at TerraWing explains that they briefly have considered setting up a subsidiary. However, since this would require hiring more personnel they do no not see this as a realistic alternative since they are a relatively small company for the moment. If they were sure of earning revenues very quickly on the British market it would be more realistic to set up a subsidiary. According to Johansson, the company is not mature to take that step yet. The best solution, as an initial step of establishment, is to find a partner who will take care of the whole operation on the British market.

10.3.2 Distributor

According to Edvarsson at Company Y, the negative side of being established via a distributor is that they do not receive any direct information from the market. The risk is that the company lose the end customer, who is the one using the product. Company Y has a subsidiary in the USA where they are working one step closer to the retailers and are therefore closer to the end customer. Edvarsson describes further that Company Y engages in finding out market info when they are meeting with their distributors. They sit down and listen to how they work, which customers they have and which areas they tend to succeed in the most and Company Y is careful with only talking about their own ideas for the company’s future. About 95% of the information regarding ideas for new products to develop comes from the distributors. Edvarsson stresses that ideas for new products must come from the market.

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During the twenty years Company Y has been exporting to other countries they have lost a very small amount of money due to mistakes of investments on different markets. Edvarsson believes that this is the result of having a very open communication with the distributors and an extensive insight of the business. Within the model of the distributors’ network, Company Y knows instantly if there is any problem in some markets or at some distributors and try to do their best to support and help out. Edvarsson continues to explain that Company Y produces the goods, has marketing support and sells to the main distributors which in turn sell to larger retailers. This structure is beneficial as it keeps down the number of required employees within Company Y’s organisation. If there is need to make new employment they will do that within sales so that more people can travel around the UK to sell more.

10.3.3 Agent

As mentioned before, Lennart Öman at Victorsson says that the reason for choosing an agent instead of setting up a subsidiary is because of the financial aspect. The company can not afford to set up a subsidiary in the near future due to its rather small size. Additionally, he believes it is beneficial to get to know the market in the UK first before initiating any further investments. Because the company has carried out business opportunity projects at STC at five different markets simultaneously they have experienced that different forms of establishment is suitable in different marketplaces. In some countries it is best to set up a subsidiary and in some countries it is more beneficial to contract an agent. However, due to the financial situation of being a small company Victorsson mainly aims at contracting agents.

10.3.4 Franchising

According to John Clague at HemoCue, the main reason the company is a franchising company is because the parent company did not have financial recourses to establish subsidiaries in each country. They had to find another way to be able to build up an international company.

John Clague continues to explain that the parent company’s control over the UK operations is limited. They do have control over a lot of facets over the business but not over practicalities as for instance how the profit and loss accounts are generated and how it is reported locally. They do have access to the company report that is submitted to the British authorities but they do not get any financial information directly from HemoCue in the UK. Profit targets are set by the HemoCue in the UK and are totally self-motivated. Further, the UK operations decide how to invest their profit. In a subsidiary this would be controlled by the company in Sweden.

10.4 Strategy of establishment and market strategies

10.4.1 Market research

Zander at Company X describes that shortly after the acquisition of the subsidiary in the UK they realized that business did not go as well as they had hoped. As a result, he initiated a market research which consisted of talking to a number of market actors and carrying out personal visits in the UK. Company X’s own investigations indicated a great potential for their products, especially since Tony Blair has announced that the government will invest a lot of resources in the areas within the public sector, which

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could benefit Company X substantially if they are a part of the initial stage of this development. After the market research they looked into what capacity they could supply to the British market as well as investigating the working routines and management at the subsidiary in the UK. The company has selected a few products to offer in the UK of their total product collection in order to have a greater chance of success, because they can offer flexibility and short delivery times. Magnus Johansson illustrates TerraWing’s strategy for setting up an establishment in the UK. They initially collected information on their own via the internet, as well as contacting the STC in the UK, in order to find companies on the British market dealing with noise protection screens or road signs, i.e. potential partners with closely related products in regard to TerraWing’s business. Furthermore, they had also visited a fair in Amsterdam, which gave them indications that the UK would be a good potential market for their products. Step two was to contact these potential partners and to send them information about TerraWing. Among those companies there were three which they continued to have contact with. Thereafter, they visited these companies personally in the UK to receive more information about them and the market. Johansson says it was important for them to thoroughly evaluate possible partners and not just take any company that was prepared to sell their products. The strategy was that if everything felt right and the partner seemed trustworthy they would sign up a contract and let them sell TerraWing’s products. They moved forward with a British company which already knew about TerraWing’s products. The fact that this company already knew about TerraWing motivated an establishment even further in the UK. Through meetings with the potential partner they also received information regarding the profitability of the market. The impressions from the fair and the potential partner, as well as searching the internet, indicated that there was no similar system on the British market equally fast and efficient as TerraWing’s. Thus, Johansson knew that the competition on the British market would be low and that there would be a niche for TerraWing’s products on the market. Unfortunately, the cooperation with the potential partner ceased and they still have not found the right partner in order to facilitate export to the UK. When the time came to sign the contract with the potential partner Johansson realized that they were not interested any more. It took about six months from the personal meeting with the company until Johansson understood that the cooperation was not going to come about. Johansson has reflected of what happened. Maybe they contacted the wrong type of companies, which were too small and busy with their own products to engage in a new one. However, Johansson does not think that is a likely reason. They suspect that the British company merely tried to acquire information from TerraWing and that they were not really interested from the beginning. Lennart Öman at Victorsson says they made an initial market research on five markets simultaneously in 2005 via the STC in order to get a perception of the market’s structure and the potential market share within their line of business. They also performed a calculation of the profitability for their products on the British market. The results showed that there was a potential market with a good profitability as well as an acceptance for Victorsson’s products in the UK. The strategy is to put a lot of resources into working closely with the two largest potential customers in the UK and acquire reference installations, i.e. key customers, in order to have references for future installations.

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Visiting relevant fairs Victorsson’s visited a fair in Stoneleigh after contracting their new agent. Öman describes that the fair was a very positive experience. Along with the benefit of exposure on the exhibition they received a lot of inquiries from potential customers and a good response in general. Öman adds that the result of the fair was improved by the presence of the newly contracted agent. Many important market actors within the business came over to say hello to the agent, since he is a well known figure in the business, which made it natural to start to talk about Victorsson’s products. Magnus Johansson at TerraWing also visited a fair, as mentioned in previous section, in order to evaluate their product’s potential on the British market before moving forward in their process of establishment.

10.4.2 Adapting the strategy to local conditions

Veronica Millingen at Hoist Hospitality Group (HHG) says she finds it important to be sensitive towards the British market and to not just copy the strategy used on the Swedish market. This was an error that HHG made in the beginning of their establishment, according to Millingen. Products, which are popular on the Swedish market, may not be as popular in the UK It is essential to adjust the offered product line since the structure of demand may be different in the UK, and in HHG’s case it was. HHG currently focus on a basic line of products with emphasis on some specific items, which are specifically suitable for the British market. Additionally, the sales process is slightly different from the one used in Sweden, which is another important aspect to consider during an establishment.

10.4.3 Finding the right partner

Edvarsson at Company Y says that the only thing they regret during their time in the UK is that they did not end the cooperation with their first partner sooner than they did. Because of this initial mistake they lost a lot of market shares on the British market. This distributor was in the wrong line of business for Company Y’s products and did not have high ambitions enough. According to Edvarsson, they should have found a good distributor earlier. It takes time before it is clear that the sales results on the market are poor because there is no references and guidance for how big the potential is on the market. Fortunately, the latest five years with the new distributor has been progressing according to the expectations. In Edvarsson’s experience, he stresses that it takes time to get a company stable and profitable on the British market. HemoCue’s general strategy of establishment is quite clear and consistent according to John Clague. As a first step, the company finds the root of the marketplace through some existing and stable company and with the help of the right people they can develop a franchising operation and then move on to create a subsidiary. This strategy implies the progressive build up of a network on the market before establishing a subsidiary. Clague finds that a company’s success on any market depends on having local people who know the local market and who has experience in developing that market. It is also important to find the proper distribution vehicle for the particular product on the British market. Finally, only a selection of the range of HemoCue’s products is sold in the UK because not all products are applicable in the UK. In other words, the market is just not ready for some products in HemoCue’s available product range yet.

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David Hillier at Kährs are of the opinion that all companies entering the British market should have a solid strategy and a full structure determined by the context. However, they do not necessarily need to show it externally. Åman Goodwille at Goodwille’s believes that Swedish companies generally do not make enough market research before entering the British market. Further, they do not investigate the differences between British and Swedish business culture. According to Åman Goodwille, it should be obvious which channels to use during an establishment, channels such as for instance The Swedish Trade Council (STC) or the Swedish Chamber of Commerce. However, if the company knows how to penetrate the market and find a good sales person, there is an enormous profitability for Swedish companies in the UK. Also one of the anonymous participants in the survey advices Swedish companies, who is looking to expanding its business to the UK, to use the Swedish contacts on the British market such as the STC and The Swedish Chamber of Commerce.

10.4.4 Cooperation with already established Swedish companies

Zander at Company X has very recently initiated cooperation with a very significant Swedish company, which offers services and products in relation to Company X’s products. The company has a large market share within their line of business in Sweden, they are financially very strong and have been established on the British market for a few years. Company X has achieved three or four contracts on the British market through this cooperation as well as gained important market information. John Clague at HemoCue in the UK informs that they mainly aim their business to the public health care sector. They are focused on the private market to a certain extent because the decision process of employing new technology in the operation is shorter than within the public sector. The private health care sector in the UK consists primarily of about ten percent of the total market. Within the private health care sector there is a Swedish company named Capio, which is buying hospitals in the UK very aggressively. Cooperation was initiated by HemoCue in Sweden and HemoCue in the UK is currently working very closely with Capio in the UK in order to spread the utilization of HemoCue’s products. Magnus Johansson at TerraWing says they have contacted Swedish companies already established on the British market, as for example the Swedish construction company Skanska, in order to initiate a cooperation to facilitate TerraWing’s first step of establishment on the British market. However, at the moment there was no interest for collaboration at any of these companies.

10.4.5 Adding value to the product or service

David Hillier at Kährs states that business people are starting to understand that the fragmented British market is about to change. The market is polarizing, since the small high street retailer is being marginalized by the big chains’ low prices. Consequently, they have to compete in quality, add value to the product, be very professional, move up in price and only work with the high price products. Hillier explains that these retailers will never be able to compete in low prices unless they are planning to upgrade their business and sell more volume. The small and independent retailers are very important to Kährs’ business since sixty five per cent of Kährs’ sales in the UK are in the hands of them. Therefore, Kährs tries to educate this retailer segment by highlighting these issues. Kährs’ strategy is not just to tell the retailers about the product but to also inform them

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about the market and how it is changing so that they have some market orientation to their business. In the flooring industry there are about 12 000 independent retailers in the UK selling a wide spectra of flooring products from carpets, ceramic tiles and wood. Most of them have a very little knowledge of what is happening on the market. Many independent retailers are floor layers, they have a small shop and they are not business people. Hence, they have little interest and knowledge in how the macro economic factors can affect their business in a positive or negative way. Further enquiries have shown that very few of them have set up a goal for the business and they do not have any structure and no strategy for how to develop their business. These retailers will not manage to survive without guidance. Therefore, Kährs is now profiling itself more and more through giving these retailers this kind of guidance and talk about the market, how it is changing, point of sales solutions in the showroom, how to improve their selling skills and how to interact with the consumer. According to Hillier, Kährs has a program of events and workshops with their distributors. The distributors deal with a lot with the Kährs retailers so in order to get a bigger flow of information to the retailers it is more effective to work with the distributors. Hillier says that the big task for Kährs in the future is more and better education to the trade and to make them better strategically focused so that the knowledge base is improved. Being strategically focused (profile, vision for the business, managing change and innovation, forecasts, goals, etc.) is something that Kährs maybe normally would take for granted among their distributors and retailers. However, the market out there is not good at that. Kährs is currently working on a new global program for education and training which will be more structured than the present one. The management of all Kährs’ subsidiaries meet regularly and during such a meeting it was decided what was the next step for Kährs in the future and one of those where the importance of training and education and the creation of the training tools. It will become a structured skeleton of training that will work in all markets. It is not possible to educate the same way in the British market as in the German one but it helps to have a ground structure. Up until now the Kährs’ subsidiaries has run their own program. The key issue is how to create value to the distributors and retailers, a hook, to make them attend and get involved in the training with interest. One of those hooks is that certain distributors and retailers are only allowed to sell certain products if they attend training because of the fact that they don’t know enough about the product without training. Thus, it is important that the training tool has the right structure and the right hook. Most importantly, the company work with trying to achieve the ultimate total product, a package, described in a model called the product flower through strategic decisions. Each petal adds value and consists of for example brand strength, brand width, accessories, sales organization, sales training, logistics, wood locks, shop concept, marketing etc. Another task for the future is to develop the internet page towards being more customers oriented and reflect those dealers which have been educated. That in turn will be an initiative to other dealers to become a part of that club. Therefore, according to Hillier, the presence on the internet is also an important factor when it comes to branding on the market. Hillier believes that the internet will grow to a point where it will be about 35-40% of the retail sales. Further, he does not see that the consumers have a problem with buying floors via the internet since they can decide what they want in the retail high street prior to the purchase. That is why the retailers need to add value and make sure that they talk to customers in the right way. Maybe the retailer can’t offer the lowest price on the actual floor materials compared to internet but they can offer the best overall product including the installed floor. When it comes to the more expensive

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wooden floors the retailers have a great chance to present an overall solution for installing the floor where the customers take a lesser risk than when installing themselves. The price difference looking at the total cost of materials and services is not very big, especially since a wooden floor can cost about 2000-3000 pounds and considering that the floors will last for 30 years. Consequently, the internet does not have to be a threat to the retailers. On the contrary, internet is a threat to other bigger and volume focused low price stores, like Homebase and B&Q, since they too do not offer any services along with the product. However, the retailers often blame the internet for lost business. Therefore, the retailers need more knowledge of what is going on in the market around them and they need to embrace the change instead of pushing internet away. Edvarsson at Company Y describes how the British market always has been the market with the lowest price level resulting in the toughest price competition. Edvarsson stresses the fact that Company Y can not compete with low prices on the British market. The only thing Company Y can compete with is the high level quality offered to the customers and the service and support offered to their distributors and retailers as well as quick and flexible deliveries. Edvarsson explains that Company Y aims at continuing and developing this strategy otherwise they are finished as a company in the long term.

10.4.6 Creating personal relationships with customers and business partners

Company Y is according to Edvarsson extremely involved with their distributors and they call themselves the “Company Y family”. They have mutual gatherings and employees in Company Y are often friends privately with staff at the distributors. Edvarsson explains that their partners are very loyal and have often been so for a very long time. Company Y has always aimed at having a very straightforward and honest communication, which Edvarsson states is the foundation for good partnerships. Over the years they have very rarely had problems with any distributors. In those cases they have cancelled a partnership with a distributor it has been a mutual understanding from both parties without any conflicts. If neither they nor Company Y makes any money there is no use in continuing the cooperation.

10.4.7 Commitment and extensive support to the British representative

According to Clague, HemoCue in the UK receives an extensive amount of help from the Swedish company, mainly within the area of marketing. The Swedish company provides for instance the internet sites and uses an intranet for all the HemoCue companies around the world no matter if they are distributors, franchisers of subsidiaries. The intranet offers support for marketing information as for instance new papers and articles within the field, news within the distribution partnership, sharing best practice and resources etc. Further, via the intranet the Swedish company is able to monitor on a world basis how different countries are targeting and they can look at product data sheets. The information is fed back to the rest of the organization. Edvarsson explains further that Company Y has a communications forum where their distributors can log in. There are about 75 to a 100 of them in total around the world. The distributors may take part of inside information such as recourses to assist the sales process, pictures, movies and a technical information database in how to use the product correctly. It is also possible for the distributor to make contact and communicate with other distributors around the world as well as with Company Y. Also the five to ten thousand retailers located around the world may take part of information, however not exactly the same as the distributors. Edvarsson says that everything concerning the company technically or commercially should be on the forum in addition to being a

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meeting point for the distributors to ventilate and share problems. Edvarsson says that the communication forum is not only beneficial for the distributors. It is also a way for Company Y to receive and pick up on the problems being present at the distributors as well as success stories in order to share these to the other distributors. Every country may have individual types of problems, which are important to consider since it is not possible to sell products in the same way in Algeria as in Sweden. Company Y sees it as their main task to build and develop this communication forum further in the future. Edvarsson describes that Company Y has daily contact with the distributors via phone, fax machine or e-mail. Twice a year Company Y has a personal meeting in the UK to meet their salesman and the distributor in order to listen to their problems and hopefully find a solution. Additionally, the salesman and the administrator sit down every month with the distributor to go over the results and if there is any problem which needs to be solved.

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11 Obstacles the Swedish companies come across when

doing business in the UK Chapter 11 continues with illustrating interview material from the nine companies presented in section 8.2.2. As in previous chapter, comments and results from the survey will complement the in-depth interviews wherever it is possible. As mentioned earlier, the structure of the empirical chapters (chapter 9-12) is based on the problem formulations in section 1.2. This chapter concerns the problem formulation of the obstacles the Swedish companies come across most commonly in order to find patterns among the companies and ultimately find solutions to avoid them.

11.1 Hierarchy For Company X, the problem of hierarchy has been considerable in the UK and its consequences have resulted in the need of reorganising their subsidiary’s organization. Bengt Zander gives some examples of hierarchy they have experienced within their UK business. Before Company X made changes of the subsidiary’s business routines, the sales staffs’ working methods was influenced by a hierarchical structure within the organization. According to Zander, the sales people seemed to work without imagination, creativity or ability to make independent decisions in order to develop the sales process. They were dutiful and went to work every day without questioning their working procedures and thought they worked in the right and appropriate way because they had never been taught anything differently by the management. Zander continues to illustrate Company X’s problem with hierarchy by describing the situation which appeared after the previous managing director (MD) was fired. The employees in the UK found it difficult to continue working independently and instantly asked who was going to be the new MD. Zander is of the opinion that it is irrelevant who has the title MD as long as the operation is run under supervision and guidance, but that is not the view of the British staff. The present MD of the subsidiary is currently based in Sweden as a preliminary solution until a suitable person can be appointed and based locally in the UK. However, Zander finds it difficult to locate and appoint a suitable British MD, i.e. which leadership do not seem to be influenced by hierarchical views. Their aim is to continue to search for an appropriate British MD, in order to be appointed as soon as possible. Veronica Millingen at Hoist Hospitality Group (HHG) also describes the importance of roles and titles in the UK. If a Swede comes to the UK to do business and there is not an important title printed on his or her business card, it will generally be difficult to make contact with the right person and do successful business. If the Swedish business negotiator does not have a proper job title, preferably ‘manager’ or head of a business area, the British may think they have no authority. Consequently, any potential UK business partner tends to think that this is most likely not the right person to meet and do business with. Millingen at HHG continues to describe another aspect of how hierarchy can be noticed within British organizations. She often finds it difficult to get hold of the right person at British companies, i.e. the decision maker. People higher up in the organization at British companies often have personal assistants or secretaries who are perceived to have the function of gatekeepers. Many times it is difficult to get beyond them in pursuing a booking of a meeting in order to present the product and in the end establish new customers in the UK. This differs considerably compared to the market situation in

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Sweden, where it is generally no problem to get through to the right person via telephone at any company and to book a meeting with for example the hotel manager. Millingen perceives that this situation is particularly troublesome within the hotel business. However, she has also experienced this in other lines of businesses she has worked within on the British market. Zander at Company X stresses the importance of finding the right decision maker within the British organisation culture, unfortunately so often characterized by a hierarchical structure. However, Zander believes that the new generation of employees has a different attitude mainly originated from education which forms a positive attitude of how to work in a positive way. On the contrary, Nordström at TradeDoubler did not experience any trouble getting hold of the right people and the decision makers in the beginning of their establishment. His experience of the British business people is that if you have a good business idea and you know how to communicate its usefulness they are quick on making decisions and taking acts. Åman Goodwille at Goodwille’s is of the opinion that the Swedes should be better at networking and make contact with the right person in the right position. It is important to do enough market research in order to know that you are speaking with the right person at the right level of the company, at for example a potential customer. If you receive a negative response to a business proposition by the wrong person at the wrong level within the organization, it may be too late to get hold of the right person, i.e. the decision maker, since a decision already is made at another level of the company. David Hillier at Kährs does not think that the British business culture is as hierarchical now as it used to be. The hierarchy is moving out because the people who have insisted on keeping a hierarchical business structure has retired or is about to leave the marketplace. British companies are starting to realize that they can not afford to have personal assistants and secretaries, etc. Hillier finds that the issues with hierarchy is a very stereotypical view of the companies in the UK, although there are some companies left which are running business according to the ‘old school’.

11.2 British employees’ approach to their role within the company Zander describes Company X’s negative experience with their previous MD at their newly acquired British subsidiary. They perceived that the former British MD’s approach to his own role in the subsidiary was quite bad for business. In addition, it did not correspond with Company X’s own company values. For Company X, it is important that everyone in the organisation works without any prestigious considerations. However, the previous MD seemed to recognize his own function as mainly representative. Zander exemplifies by telling about a situation which occurred while the previous MD was still working in the company. A truck of products needed to be loaded quickly at the UK subsidiary and there was no lift truck available at that moment. Zander, present at the time, telephoned the MD in order to come and help with the loading. However, the MD could not imagine him self taking on that operative role and wanted to hire external help instead, which Zander think is a totally unacceptable approach within Company X’s business culture. Zander continues to explain that he has found it quite difficult to motivate the employees in the UK. He believes that this is a general mentality which is shown by the fact that it is common in the UK to motivate the staff via giving goal oriented bonuses. By consequence, Company X now presents

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personal related bonuses instead of a joint one which was the previous situation. Furthermore, Zander’s experience is that British employees are not used to work under pressure, i.e. time and result targets. Åman Goodwille at Goodwille’s explains that salaries may vary substantially in the UK. The younger an employee is, the higher the basic salary is and the lower is the share of the provision. On the contrary, the older an employee is the higher is the share of the provision and the lower is the basic salary. When a Swedish company employs sales personnel they should make sure to provide a higher share of provision within the salary. Millingen at Hoist Hospitality Group explains that there is generally not a shared sense of responsibility among the employees within British organisation, which often is the case at Swedish companies. The employees in the UK only take responsibility for their own small area of responsibility and nothing beyond that. In Sweden it is more common to work in a group where everyone feels responsibility and where everyone is allowed to express their opinion. This does not seem to be the case in many companies in the UK. Millingen exemplifies through describing the occasions when the right person is not present to sign a delivery form at the customer’s and there is no one else willing to step up to solve the situation. Nordström at TradeDoubler says that they were fortunate to hire good and qualified people from the beginning of the establishment. Additionally, they were young and hungry people with a newly acquired education. He stresses the importance of trying to keep those people in order to build some continuity within the organization. However, the Swedes were a bit more independent while the British personnel needed a bit more pointers and guidance. Åman Goodwille at Goodwille’s says that the reason why Swedish companies may fail on the British market is a combination of not finding the right salesman (see section 11.3) and not having clear enough guidelines and objectives to offer the British employees or their partners. British employees generally have a job description outlining their tasks while the responsibility frameworks are more open in Sweden. This may explain why British employees often do not take their own initiatives at work since the frameworks are set. To exceed the job description would mean a risk to become criticized by the management. When the British employee start to work within a Swedish organization it can be problematic for the individual to suddenly be expected to take initiative and make individual decisions. Also, any uncertainty concerning what is going to happen in the organization in the future may enhance the anxiety, which is a common situation after an acquisition. Therefore, it is of great importance not to make too drastic changes too quickly from a British business organization to a Swedish one. Initially the Swedish management should outline job descriptions and make follow ups on how these guidelines are observed, make a lot of phone calls, personal visits etc in order to show interest. Unfortunately, according to Åman Goodwille, this is opposite of how the Swedes normally are used to work. In many situations the Swedes feel awkward to take regular contact with the British partner or subsidiary since they feel like they do not know the British well enough.

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11.3 Not finding the right partner to cooperate with Åman Goodwille at Goodwille’s believes that most common problem newly established Swedish companies come across is to have employed a less suitable salesman or sales personnel. If a company is unfamiliar with the English mentality it is difficult to know where to look for background information concerning the salesman and what information to trust. Åman Goodwille explains that it is considerably easier in Sweden to check references. However, a population in the UK of 60 million makes information less controllable. Åman Goodwille says that those companies who manage to find a good sales force generally do it through a network of previous customers and contacts from fairs. Another method is to hire a well known sales man from a previous agent or distributor. To merely put in an advert for sales personnel can be hazardous, according to Åman Goodwille.

11.4 Communication between the parent company and the subsidiary/partner in the UK

Zander at Company X explains that six months after the acquisition of the subsidiary in the UK, they started to look into the UK business more thoroughly. They had previously received reports from the MD and had not questioned their accuracy. At that point the subsidiary was making a modest profit on the market. However, eventually Company X wanted to look into what was behind the numbers. They did their own independent research by investigating the market potential in the UK, how much resources that was put in to each customer and how much profit they each generated. Company X realised that the way the subsidiary worked was not as good as it could be and very inefficient. Zander explains that they pretty soon understood that the problem had its roots within the management. The managing director did not seem to initiate or inform the rest of the employees of the changes the parent company, i.e. Company X, had suggested after the acquisition and they had continued to work according to the old way they had done in the past. Furthermore, the sales staff had not received coaching from the management and they worked without any sales goals. They thought they worked in the right way because they had never been taught anything differently. As it appeared, according to Zander, the subsidiary had worked by themselves for eight years without having any support, guidance or goals from its previous owners, i.e. the previous parent company. The modest profit they generated every year was enough to satisfy the previous owners. As a result, the subsidiary continued to work in the same way they always had and therefore lacked inspiration, creativity and fantasy in terms of development of the business. At the same time the marketplace has changed and new actors have entered the market. According to Zander, Company X should have been tougher from the beginning of the acquisition and looked into how the subsidiary actually worked and been more aware of the situation of hierarchies within the British business culture. Now the parent company has set up goals and deadlines accompanying information about the actions which needs to be taken if this is not fulfilled. They receive reports via e-mail from the subsidiary every Friday and the parent company follows up on any changes of results, number of new orders, number of fulfilled orders etc. Furthermore, Zander makes personal visits every two weeks based on the reports and the dialogue with the subsidiary. Additionally, Company X checks up on and make reports of the personnel’s attendance. Prior to the acquisition there was not really any communication to speak about between the parent company and the subsidiary. The subsidiary was just there to deliver money and the

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ownership was not an active one. Zander at Company X explains further how they have planned to run the UK business from Sweden after the experience of running a subsidiary in the UK for two years. He believes that having a British MD is of utmost importance for a Swedish company with a business in the UK. The recipe for success in the UK, according to Zander, is good local management and being a Swedish company on the inside with a British front to the outside world. Additionally, is also important to have a British management in order to communicate efficiently to the personnel in a British manner. However, for the time being the management of Company X’s subsidiary is based in Sweden until they find the right person to lead the operation. Edvarsson at Company Y also finds it very important to have a British sales force to contact and meet the customers. Millingen at Hoist Hospitality Group is of the opinion that it is common that the staff at the subsidiary in the UK, especially the British employees, feel that the parent company in Sweden does not understand them and how the market works in the UK. The parent company makes decisions and does not understand why something which works in Sweden does not work in UK. Millingen has experienced this situation at the two Swedish subsidiaries she has worked for previously, where the parent company are of the opinion that if it can be done in Sweden it can be done in the UK. Another reason for misunderstandings between the parent company and the subsidiary may be the lack of good and direct internal information. The support and the quantity of contacts between HHG and the Swedish parent company are currently sufficient. Millingen give the parent company financial reports every month and there is daily contact over the phone with the Swedish office. However, the quality of communication is not as good as it can be. It has occurred that the parent company has initiated activities on the British market without informing the UK subsidiary. The parent company have for example sent out brochures to all the hotels on the British market without informing the UK office. Millingen stresses the importance of the parent company informing the local subsidiaries about new product releases, local activities and organisational changes as well as giving consistent information to each subsidiary. If not, this can easily be perceived as unprofessional both within the company and towards the customers. Further, Millingen also stresses the importance of having a British managing director. A Swedish company in the UK is perceived as more serious and it signals that the establishment is not temporary. Hoist Hospitality Group has a British MD. Nordström at TradeDoubler points out that the parent company in Sweden should expect it to take a bit of time to get sales going when an operation is newly established on the British market, thus it takes time to succeed. In TradeDoubler’s case it took about a year before operations on the British market started running properly. The board of directors in Sweden could not understand why it took such a long time for TradeDoubler to show results in the UK and why it cost so much money and they almost made the decision to close down the UK investment. Nordström explains that if the board of directors had made that decision, TradeDoubler would probably not have existed or it would at least have a different structure, since the British market is currently the most profitable one in TradeDoubler’s business. Therefore, according to Nordström, it is essential that the subsidiary and the parent company consistently have a good relationship as well as a frequent and effective communication, especially in order to exchange knowledge. Åman Goodwille at Goodwille’s does believe that there are often misunderstandings between the British in the subsidiary and the Swedes at the parent company. Swedish

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business organization has a flat structure while the British is more guided by the management. As a result, the subsidiary may not receive enough direction from the parent company and they are left more or less to run business on their own. Consequently, if there are any problems on the British market it might be a consequence of too little contact between the parent company and the subsidiary. Åman Goodwille believes that the Swedish company initially should offer job descriptions to the employees, i.e. a description of the employees’ tasks and responsibilities. Further, the ideal solution would be to find a Swedish-British MD who is familiar with both cultures. David Hillier at Kährs says that Swedish companies should primarily focus on hiring Anglo-sized people who have good personal communication skills rather than good business communication within the organisation. He finds the structure of Kährs very well set up for good communications. Hillier communicates with the parent company in Malmö through telephone conferences every week and regular personal meetings, which is very easy due to cheap flights. Hillier has worked within the company for so many years that he is well known and knows most of the key people in the company. On the contrary to many opinions illustrated in this section, John Clague at HemoCue has never come across any cultural issues or problems when communicating with Swedes at the parent company.

11.5 General time scale of payment One aspect the Swedish companies rarely think about, according to Åman Goodwille at Goodwille’s, is that payments from British customers are generally not fulfilled within the same amount of time as they are used to on the Swedish market. It can take everything between 30 to 90 days before the payment is carried out and the average time is 47 days. Consequently, this may lead to cash flow problems since there is likely no precautionary planning carried out by the Swedish company. According to Åman Goodwille, the larger the British company is the longer they wait to fulfil their payments. Zander at Company X believes there is a low morality among British companies when it comes to paying the bills on time. The more you know about your customer and its background the easier it is to get paid within the set period of payment. According to Zander, the time period given for paying the bills is generally 45 days in the UK. However, Company X only offers the customers in the UK 30 day’s respite of payment. According to Zander, as long as there is a communication with the customer concerning the agreements there is no problem getting paid within 30 days. In this case it is an advantage being an international company since the UK companies seem to accept different payment agreements a lot easier. Millingen’s experience is that Hoist Hospitality Group often has a big problem with collecting payments from their customers and often it is necessary to make contact and demand the money. The customers never pay until it is absolutely necessary. However, Millingen believes that the hotel business has an extra bad reputation when it comes to paying within the time limit since there is always a high turnover in staff and they run the business with a tight budget. HHG offers their customers 30 days of payment respite. Unfortunately it is not possible for the customers to receive a payment remark at the authorities if they pass the 30 day’s respite of payment. It is legal to take interest for the days passed beyond the time limit. However, according to Millingen the companies often do not bother to pay the interest and it is not economically justifiable to go to court to

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collect the interest separately after the company has paid the original bill although their 30 days has passed. Nordström at TradeDoubler agrees with the fact that the Brits can be perceived, from a Swedish perspective, to have a poor morality when it comes to payment. It is often 60 day’s respite of payment. Edvarsson at Company Y says that the British do not have poor moral when it comes to paying in time. They may be slightly less punctual than the Scandinavians but the South Europeans are much worse. An anonymous participant of the survey says that the most negative thing about the British market is the difficulty of getting paid in time.

11.6 Currency fluctuations According to John Clague at HemoCue in the UK, it is a challenge for them to have to pay the shipments from the Swedish parent company in crowns due to fluctuations in the currency. Therefore, HCUK is forced to buy Swedish currency in advance to secure the cost of transactions in order to estimate which prices to offer the British market to make a profit. Three anonymous Swedish participants in the survey mention that they perceive that the most negative aspect of being a Swedish company on the British market is the currency variations. According to one of the companies, it would be ideal if Sweden and the UK were both members of the EMU.

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12 Being a Swedish company on the British market

Chapter 12 continues with presenting interview material from in-depth interviews carried out with nine companies with various backgrounds on the British market. The reader can find company presentations in chapter 8. Furthermore, where results of the survey can complement the interviews, they will be presented in corresponding sections. As mentioned previously, the structure of the empirical chapters (chapter 9-12) is based on the problem formulations in section 1.2. This chapter concerns whether there are advantages in being a Swedish company on the British market and if Swedish companies communicate their Swedish background. Moreover, the chapter also concerns if there are any negative aspects of being a Swedish company on the British market in order to find solutions to overcome them and turn them into advantages.

12.1 Positive aspects of being a Swedish company on the British market

The partakers of the study were given the question ‘What is the most positive aspect about doing business in the UK for Swedish companies’. The Swedish companies interpreted the question from two different standpoints. The majority has answered the question on the basis of what advantages Swedish companies have on the British market. The other group of companies interpreted the question as what the British market has to offer Swedish companies. These answers are discussed in section 10.1. This section deals with the advantages of being a Swedish company in the UK. There was a very coherent view about of the advantages of having a Swedish background among the first category of answers. Most of the companies in the study answered that Swedish companies have a very good reputation on the British market regarding trustworthiness and quality. Thus, the Swedish companies have a reputation of offering uncompromised standard of their products and services. The participants of the study were also asked ‘From a business perspective, we believe our Swedish background to be: positive, neutral or negative?’ Although the participating companies found negative aspects of being a Swedish company on the British market, see section 12.2, more than 80% found their Swedish background positive in general.

12.1.1 Quality

Bengt Zander at Company X says that Swedish companies generally produce items with higher level of quality than the British companies. Therefore, there is a lower standard level of quality in the UK than in Sweden and the Brits seem to be used to a bit of a shabby looks on certain types of products. According to Zander, Company X’s ability to offer high quality to the British market is working in their advantage as they now are looking to expand on the market. Also Edvin Edvarsson at Company Y mentions that the UK generally accepts a lower quality due to a lower accepted level of quality than in for example Scandinavia, France or Germany. John Clague at HemoCue states that it is an advantage for them to have a reputation of offering uncompromising standard of the products, since they are operating within the healthcare market. Also Lennart Öman (Victorsson) says that the most positive aspect about being a Swedish company on the British market is that the products are associated with good quality.

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Annika Åman Goodwille explains that Swedish companies generally offer good quality products to the British market. However, a lot of times the British do not care about good quality and look mainly at the price. On the contrary, Daniel Nordström’s experience at TradeDoubler is that the British are used to pay for good quality. If a company has established a reputation of supplying good quality products/services, act professionally in addition to having established a position as a market leader, it is easy to keep up the prices in a good way. According to Hillier, Kährs has had a consistent quality focused approach over the years from the start of their establishment in 1972. Hillier stresses the extreme importance of being consistent as a company, especially in the flooring market which Kährs operates in. It also helps that Kährs has been present on the market for such a long time. He describes that they are working all the time with trying to get the look that the customer wants and they always aim to achieve the optimum quality. Kährs focus a great deal on overall quality of the products and services. According to Hillier quality is the absolute main strategic advantage of Kährs. Seven companies participating in the survey, besides the interviewed companies, highlight the positive aspect that Swedish companies are perceived to offer products and services of the best quality. A company in the survey gives Swedish companies, looking for expanding its business in the UK, the tips of keeping the quality perception and continuing to work with that. Another participant in the survey says that many British perceive Swedish companies as innovators with technical quality backup and service. Succeeding on the British market, or any market, depends on the customer’s perception of quality and service.

12.1.2 Trustworthiness and reputation on the market

Veronica Millingen at Hoist Hospitality Group says that the best thing about being a Swedish company on the British market is that they are assumed to have a good reputation. The Brits generally trust that Swedes will accomplish the things they promise to achieve. However, this is not something that HHG market actively in the UK. Annika Åman Goodwille explains that the best aspect in being a Swedish company on the British market is the status on the market of being honest, trustworthy as well as supplying good products and services as mentioned in previous section. Edvarsson at Company Y confirms that the Swedes and Swedish companies have a good reputation on the British market and Öman at Victorsson says that Swedish companies are well known for their business methods and ethics. Six companies in the survey clearly state that Swedish companies are seen as representing stability and continuity on the British market. The Swedish companies also find that a Nordic profile brings a good approach to the business in terms of being perceived as cool, relaxed and trustworthy which gives peace of mind to customers on the British market. On the other hand, a company in the survey mentions that customers generally do not care that the company has a Swedish background since the company in question are able refer to the company name and its self-earned reputation on the market instead.

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12.1.3 Efficiency and cost awareness of Swedish organizations

According to Zander at Company X, it is an advantage being a Swedish company on the British market due to the fact that Swedish business management generally is more cost-conscious and efficient than British organizations. Swedish companies have been inspired by the goal orientated American way of doing business. Additionally, Sweden has been fortunate to be able to develop companies in a country without political disturbances, such as warfare, for a long period of time. Zander’s experience is that the British employees at the newly acquired subsidiary were intimidated when Company X started to make changes within the subsidiary towards a more goal orientated and efficient organization. However, in this situation the management needs to inform the personnel that there is a win-win situation, that there are possibilities and not just the risk of them losing their jobs. Nordström at TradeDoubler finds it beneficial to adopt a company spirit with certain basic values as well as cost efficiency awareness from the Swedish parent company. However, it is important to have British personnel managing the contacts with the British customers. According to Nordström, there is also an ideal organization structure which TradeDoubler’s main office in Sweden has tried to communicate to all their subsidiaries. Hillier at Kährs is of the opinion that Swedish businesses are very well organized and structured. However, he does not think this aspect is something that will give Swedish companies an advantage on the British market initially.

12.1.4 Language

Edvarsson at Company Y finds it easy to work in the UK because of the English language. Being a Swede, this makes it convenient to communicate and do business in the UK. Further, Zander at Company X perceive that they are less hesitant of investing in the British market due to the convenience of using the English language than is the case in for instance the French market because they are worried of what obstacles their lack of French language skills might create.

12.1.5 Cultural similarities

Edvarsson at Company Y finds is very easy to be Swedish on the British market. There is always something to talk about with the Brits and they always seem to know something about Sweden. They are familiar with some Swedish companies and Swedish music, as for example ABBA. Additionally, the British are very easy going and the UK is one of the easiest countries in Europe to work in, according to Edvarsson. Edvarsson adds that he find Swedish and British people quite similar as people.

12.1.6 Positive perceptions about Sweden and the Swedes

Environmental consciousness David Hillier at Kährs explains that there is an advantage being a Swedish company because there is a natural assumption that they are environmentally conscious. According to Hillier, this derives from having a good standpoint on environmental issues over many years. The Brits almost have an inbuilt understanding that if you are a Swedish company you have some consideration for the environment in your company’s business. Hence, there is a natural assumption that Swedish companies are environmentally conscious.

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High-quality public sector According to Zander at Company X, their salesmen in the UK frequently point out that the company has a Swedish background when they sell products to the public sector due to the good reputation of a high quality public system in Sweden.

12.2 Negative aspects of being a Swedish company on the British market

Next question the partakers of the study was given is contrary to the previous one, i.e. ‘What is the most negative aspect of doing business in the UK for Swedish companies?’ The majority replied that the main disadvantage, in the Swedish relationship to the British market, is the high competition. Furthermore, the Swedish products are perceived as being too expensive. A few companies found no negative aspects in being a Swedish company on the British market.

12.2.1 High competition on the British market compared to Sweden

Edvarsson at Company Y explains that during the twenty years they have exported goods to other countries, the UK has always been the market with the lowest price level resulting in the toughest price competition in general. According to Edvarsson, it is not possible for Company Y to compete with low prices. The only thing Company Y can compete with is the high level of quality products offered to the customers and the service and support offered to their distributors and retailers as well as quick and flexible deliveries. Edvarsson explains that Company Y aims to continue and develop this strategy or else they are finished as a company. According to David Hillier at Kährs, there are no negative aspects of being a Swedish company on the British market, except for the high production costs in Sweden. Consequently, the major challenge ahead is the price competition on the British market. The prices of Kährs’ products are generally 50-60% higher than similar looking products on the market. The Asian products do not keep their looks for more than a couple of months, where Kährs’ floorings look practically the same 30 years after the installation. However, Kährs’ products and Asian products come across as the same in the shop since they seem to have a similar appearance. Consequently, the retailers and the consumers need constant education about the difference in quality. Five companies in the survey, besides the interviewed companies, find that the most negative aspect in being a Swedish company on the British market is the difference in competition between Sweden and the UK. The British market is very competitive and as one company stated, it requires ‘staying power’ such as financial means. In the survey, the companies where also asked about what they perceived to be their main challenges during this and next year in the UK. Over 60% indicated that competitive issues were their main challenge, such as competitors’ prices, products/service offerings or competitors’ distribution/presence.

12.2.2 Swedish products are perceived as being too expensive

Zander at Company X says that Swedish companies unfortunately have the prejudiced reputation in the UK of selling too expensive products. He explains that Company X has been forced to educate and inform their own sales personnel in the UK to think in sales margins in relation to sales volume as well as identifying their direct customers, i.e. the

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retailers and distributors. The sales personnel had previously focused on the end user, resulting in high cost since each contract and customer required a lot of money and resources. The aim is to press down costs and keep up the volumes in order to be able to have lower sales margins so it is possible to sell the products at a reasonable price to the customers at the end of the supply chain. Considering the sales margins through the supply chain, it may not be more expensive to buy Swedish products for British customers. Being competitive on a tough market, like the British, is all about which sales margins is used in the supply chain in correlation to the sales volume and if this relation is optimal the Swedish companies also have good quality to offer on top of reasonable prices. Zander stresses that there is no point in selling the same product as the competitors to a lower price if there is no profit to be made. Another way to facilitate lower prices is to optimize the transport packaging of the products. Zander states that it is necessary to press down the costs of distribution if a Swedish company wants to be successful on the British market. Öman at Victorsson explains that there is no competition to talk about in Sweden and the market has stagnated for their products, thus there are no market shares to compete over on the Swedish market. Further, Öman describes that although the British market does not indicate high competition within Victorsson’s products, they have been forced to lower their prices in order to not be perceived as too expensive when trying to establish on the British market. Two companies in the survey, not counting the interviewed companies, mentions that the most negative about being a Swedish company on the British market is that they are perceived as having expensive products.

12.2.3 The British think Sweden is a too small of a country

According to Millingen at Hoist Hospitality Group, the most negative about being a Swedish company on the British market is that the British feel that it is a too small of a country situated too far away. Smaller Swedish companies doing business in the UK may worry the British business partners and the customers of what might happen if the company goes bankruptcy in the UK and they must turn to the company in Sweden instead. On the contrary, if it would be a British company they feel a greater security that there will be some business left in the UK. Edvarsson at Company Y also thinks that the most negative aspect of being a Swedish on the British market is that the British think Sweden is such a small country. The survey shows that two companies perceive that the most negative aspect of being a Swedish company on the British market is that Sweden is too small and too unknown in British minds. A company in the survey also mentions that they have encountered that the British think that Sweden is a too small of a country.

12.3 Swedish companies’ communication of their Swedish background on the British market

As mentioned in previous section, more than 80% of the participating Swedish companies find their Swedish background positive on the British market. Consequently, almost 90% state that they communicate their Swedish background externally on the market when asked in the survey. The question was outlined: ‘We communicate our

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background externally: never, sometimes or often’, see survey form in Appendix 1. About 60% communicate their Swedish background often and almost 30% do it sometimes. Millingen at Hoist Hospitality Group says that they do not actively market their Swedish background on the British market. However, it is not something they withhold either and they communicate the term Scandinavian to a greater extent than Swedish. In some cases having Swedish background can be used for marketing purposes. Millingen recognize the fact that HHG have a Swedish background as being a security factor among their customers due to the perception of being trustworthy. Clague says that HemoCue is very proud of its Swedish background and communicates it on the British market. HCUK is well known as a Swedish based manufacturing company on the British market. According to Clague, HemoCue has a very powerful logo perceived by the customers as a little red box. However, Clague does not consider there to be a strategic advantage as such in being a Swedish company on the market. The communication of the Swedish background is more explained by the personal relationships to Swedes and the pride it brings. Åman Goodwille at Goodwille’s definitely thinks that Swedish companies should communicate their Swedish background on the British market since the reputation of Swedish companies in the UK is very good. Magnus Johansson at TerraWing says that when the time comes for establishing on the British market he sees it as an advantage to communicate the Swedish background. Anyway, it will not be negative. Öman states that Victorsson communicates their Swedish background as a part of their sales argument as well as communicating their profile on the British market. For instance, they communicate their Nordic reference customers and the cooperation with the agricultural university in Uppsala. David Hillier at Kährs explains that the company used to communicate their Swedish background very often but not as much any more since the brand Kährs has a very good strength on the market and is currently very well positioned, i.e. the brand speaks for itself nowadays. Nevertheless, there is an unconscious awareness on the market that Kährs is a Swedish company according to Hillier. Edvarsson at Company Y says that they do not really communicate their Swedish background to the market. However, there have been occasions when they use the label “Made in Sweden” as a sales argument because of the advantageous perception of quality it brings as well as the trustworthiness factor. Additionally, Swedish companies are seen to keep promises that have been made. According to Zander at Company X it is necessary to be careful with how you as a Swedish company communicate your background. Initially you should not display the Swedish background too much and most importantly – have a British approach to the outside world, i.e. customers and suppliers. It all depends on how much reputation there is behind having a Swedish background. According to Zander, for the time being Company X will be discrete about communicating their Swedish background until they have gained the reputation behind its name. A company like IKEA can afford to express

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having a Swedish background since they have a reputation supporting it and making it a positive attribute. A number of companies in the study stated that, from a business perspective, it does not make any difference that a company has a Swedish background. Daniel Nordström explains that TradeDoubler never has informed the British customers of their Swedish background or used that they are Swedish on the British market. He finds it more beneficial to take advantage of the fact that they are market leaders in Europe. When TradeDoubler was entering the British market they pointed out to any potential customers that they were registered on the stock exchange in Sweden, rather than just having a Swedish background. This gave financial credibility as well as assurance of stability and seriousness to the potential British customers. Seven companies in the survey, besides the interviewed companies, also think that a company’s national background does not make any difference from a business perspective.

12.4 Swedish and British business culture

12.4.1 Similarities between Swedish and British business culture

David Hillier at Kährs thinks there are an awful lot of similarities between Swedes and British, as for instance the sense of humor. As an example, many Swedes like and understand the humor of Monty Python. Magnus Johansson at TerraWing describes that he did not experience any cultural differences during the meeting with the potential customer. They perceived that the Swedes and the British were quite similar. Öman at Victorsson explains that they have not yet come across any cultural differences in the contact with the agent or the potential customers. Öman thinks it is an advantage to have an agent with high experience on the market and who knows the British business culture well.

12.4.2 Differences between Swedish and British business culture

Zander at company X says that the English definitely perceive the Swedes to have a too direct approach and it is an aspect to think about when doing business in the UK. A Swedish company should therefore not try to change the English employees and their manners towards the Swedish way and any changes in the direction of a Swedish business culture should be made slowly and gradually. Åman Goodwille at Goodwille’s says that the British often have a difficulty to understand the Swedes since we are perceived as too blunt and direct. The Swedes tends to start discussing business almost immediately during a business meeting without any small talk. On the contrary, the British like to wait a while in order to get to know the person they are about to make business with and evaluate if the person is trustworthy. However, when the British get more acquainted with the Swedish way of working, they like it. The British companies, which Åman Goodwille has been in contact with over the years, like the Swedes and are very fond of working in Swedish companies.

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Åman Goodwille at Goodwille’s finds that many Swedish companies are deceived to think that they are perfectly skilled enough at the English language to manage any business situation. However, it is difficult to notice the undertones which are present in spoken English. According to Åman Goodwille, the English language is an incredibly coded language. She explains that the English never say the word ‘no’ since they think it is too blunt and straight forward. Instead they use other expressions which may cause the Swede to think that they are interested in a business proposition. According to Åman Goodwille, when a Swedish business man understands when the British say no, it is a great advantage. Nordström at TradeDoubler points out that it is helpful to be open and prepared for cultural differences. However, TradeDoubler’s line of business is quite informal and can perhaps be explained by the number of young people within the IT business. Edvarsson at Company Y has sometimes perceived that British can say one thing and mean another. They do not always keep their promises entirely and have a slightly less honorary codex than the Swedes in general. Company Y’s cooperation with their British distributors has worked very well. However, as a Swede it is easy to be fooled because the British often make it sound better than it is since they tend to speak between the lines. Furthermore, relations between employees and employers as well as between client and supplier are tougher. According to Edvarsson, there is more of a “take it or leave it” mentality. Swedish conditions are a bit nicer and pleasant in these situations. David Hillier at Kährs perceives the Swedish ‘meeting culture’ within the organization as a negative aspect with its amount of superfluous meetings. It is very difficult to get hold of people at the Swedish parent company due to this. There are too many meetings and committees leading to indecisiveness within the company. Democracy is good but that is not how things get done. Swedish people are very polite but they are not very confrontational. There is no consequence for bad performance among the employees within the Swedish business culture. Aspects of the Swedish business culture that Hillier likes are the flatness, freedom and the respect for other people in the business and the lack of hierarchy. Further, he finds it strange that Sweden shuts down business in July, which may be devastating for deliveries and the quality level before the production is coming up to speed again. A participant of the survey also states that it is impossible to get an order fulfilled from the factory in Sweden during July. He finds this awkward when being an international company. Tips to Swedish companies, given by a company in the survey, is that it is important to not forget the cultural differences that really do exist. The solution is to get more focused in understanding the British business processes and to hire local personnel. Another company in the survey says that the Swedes and the British often have different expectations from business collaborations. Often there is a lack of understanding between the two cultures. Swedes generally expect more of a meeting and start to act on it immediately while the Brits expectations usually are lower. This behaviour is closely related to the perception of the Swedes as being very calm, sensible and prudent. The British on the other hand react more immediate, stronger and dramatic than the Swedish mentality.

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12.5 Differences between the British and the Swedish market According to Bengt Zander at Company X there is no big difference between British and Swedish business climate as long as you learn how the market works in the UK and how the channels of communication are structured etc. The main difference is that the Swedish market is more regulated and the product is taking more direct ways out to the marketplace. There exist more informal channels for the product to enter the market in Britain. Furthermore, Zander explains that there are no set definitions for terms such as for instance retailer or wholesaler. There are a vast number of small entrepreneurs and anyone may claim to possess any type of these roles on the marketplace. Consequently, this result in a complicated structure of the marketplace which makes it more difficult for Swedish companies to penetrate the market. Moreover, Zander believes the competition in the UK is much tougher than what most Swedish companies face on the Swedish market. Therefore, the most important thing for a Swedish company trying to enter the British market is to find out how the market works for the specific product. The key is to find the right people to cooperate with who have gained experience from the market of the specific product. Edvarsson at Company Y thinks the market offers high tempo and decisions are generally made faster than on the Swedish market. David Hillier at Kährs says that the British market has been and still is very fragmented. However, the market is about to change, at least within the market of floorings. The market is polarizing since the small high street retailer is being marginalized by the big chains low prices and the number of retailers is therefore decreasing rapidly. Hillier thinks that the internet is underestimated in the British market compared to Sweden. The internet is a very strong sales tool on the British market due to the fact that the infrastructure is one of the best in Europe, which make it an easy market when it comes to selling via the internet and to transfer products within the country. It’s not a big country and it’s got a lot of people says Hillier. Hillier’s tip to Swedish companies trying to sell goods on the British market, especially consumer type products, is that they must focus on is the internet and have a good internet solution, both when it comes to their own webpage and internet retailers. Additionally, presence on the internet adds a certain credibility and respectability since only the branded and well known products are sold on the internet. A company in the survey say that it is necessary to have a long term view of the business when looking to establish on the British market.

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13 Analysis

Chapter 13 contains the analysis performed regarding the problem formulation in section 1.2, the theoretical framework as well as the information disclosed in the empirical chapters (chapters 9-12). The chapter is structured similarly to the empirical chapters in order to facilitate the reader with a possibility to compare the empirical data with the analysis. Additionally, the structure of the chapter is also influenced by the problem formulation to smooth the progress of finding solutions.

13.1 Business Climate in the UK for Swedish companies

13.1.1 Background of the participating companies and its influence on the results

More than 60% of the participating companies in the BCS survey are subsidiaries and about 5% are agents. Remaining companies are equally distributed between other forms of establishment, such as agents, distributors, branch and direct sales. Looking at the distribution between Swedish subsidiaries and agents in reality, there are about twice as many agents as subsidiaries on the British market (about 1000 agents and 500 subsidiaries). Consequently, the share of participating subsidiaries in the study is not proportional in comparison to the facts of reality. Naturally, this should be taken in to account when evaluating the results of the survey. However, I believe that subsidiaries may be more suitable to answer questions about the business climate in the UK than an intermediate, such as an agent, because the Swedish parent company are in full control of the subsidiary. Further, many agents represent more than just a Swedish brand and may therefore find it difficult to estimate the actual financial situation for the Swedish company specifically. Consequently, the information provided by a subsidiary is first hand information and should therefore likely be more reliable and trustworthy than from an intermediate. The majority of the participating companies entered the British market during the 1990s and the 2000s (about 50%). I find it positive that the main part of the participating companies is relatively new on the market. Companies established in for example the 1960s, have had plenty of time to root it business and to create a business reputation in its own. Companies which are fairly newly established do most likely have more current information regarding the aspects of being a Swedish company on the British market. Up to 98% of the participating companies ticked that they offer service business on the British market. However, there were only two available alternatives to choose from in the survey form: manufacturing or service operations (see Appendix 1). The purpose of the question was to indicate the share of businesses which offer manufacturing goods as well as those offering services. The author recognises that sales offices in the UK for companies with manufacturing operations based in Sweden may have ticked that they are service companies, since that is how they see their business in the UK. Consequently, the question should have been more specified and the result of the question may be misleading. The majority of the participating companies (about 65%) have less than 50 employees. Slightly less than 30% have 100-1000 employees. Further, about 46% have a turnover on the British market of over £2 million per year. The rest has a turnover lower than £2

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million a year. The definition of small companies, made by the EU Commission (see section 1.6), sets a limit of less than 50 employees and annual turnover of £6.8 million. This indicates that the vast majority of the companies are defined as small companies. However, it is difficult to say how many companies which are medium sized since the structure of the available alternatives in the survey make an evaluation difficult. Since the survey did not have a higher turnover alternative than ‘over £2 000 000’ to choose from, it is difficult to know how many of these companies who have a turnover lower than £6.8 million (the limit for being a small company according the EU commission). Most of the companies with less than 50 employees most likely have an annual turnover of less than £6.8 million. Therefore, the large part of the participating companies is considered to have a small company operation on the British market. However, the survey does not indicate how large the Swedish parent company is.

13.1.2 Results of the Business Climate Study 2006 in the UK

The majority of the participating companies, 64%, think that the British market is profitable from a scale of average to very good compared to other markets. About 20% thought that the profitability was below average and the remaining companies have no knowledge. This shows that Swedish companies in general find a good profitability on the British market. Swedish companies in the UK are successful in their business and see a bright future ahead. More than 80% of the companies were profitable in 2004 and 2005. The same high percentage has a positive outlook on reaching their growth target for 2006 and 2007. The participating Swedish companies have a positive outlook since over 80% was indicating a level of average to a very good chance on reaching their growth target in 2006 and 2007. This illustrates a great confidence among the Swedish companies regarding growing in the British market in the near future. According to the survey, the Swedish companies fear the future development of the economic climate the most as well as high competition and low prices on the British market. Over 60% mentions competitor prices, competitor’s products/service offerings and/or competitor presence as their main challenge in the near future on the British market. In order to overcome the future challenges and reach the growth target for this and next year, the companies in the survey mainly aim at growing in the existing segments as well as introducing new products. The survey shows a very high profitability among the Swedish companies. Over 80% were profitable in 2004-2005, which is a positive indication. Nonetheless, the following analysis investigates if there is any way for Swedish companies to become even more profitable in the British market.

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13.2 The process of establishment for Swedish small- and medium sized companies

13.2.1 Incentives for establishing business in the UK

The companies in the study mention a variety of benefits for Swedish companies carrying out an establishment in the UK. Mainly they highlight the potential of the British market due to the fact that the population is six times bigger relative to Sweden. Moreover, being established in the UK may serve as a platform for reaching other markets as well. The companies also stresses that the British market to a large extent offers access to international customers, which provides big prospects for finding significant business opportunities both in the UK and indirectly in other markets overseas. Additionally, the Swedes are one of the best English speaking people in the world not having English as mother tongue. Thus, Swedish companies feel comfortable in initiating an establishment process on the British market, which is indicated in the fact that many companies appear to initiate an establishment in the UK after the Nordic countries or Germany. Consequently, I believe there are many incentives why Swedish companies should look at an establishment in the UK. However, in order to take part of these benefits it is required to engage in making the process of establishment as successful as possible and, of course, aim at running a successful business on the British market. The potential benefits validate a huge effort from the Swedish companies to prepare their business for exporting to the UK. Since the British market is one of the first countries where Swedish companies aim to establish after the Nordic countries, I find it important for Swedish companies to be as aware as possible before an establishment. Nordström at TradeDoubler mentions a benefit which might be seen in a negative light. He sees the British market as being developed and demanding, a facet also labelled as high competition and seen as a negative aspect by many Swedish companies in the study. Nordström lift this aspect forward as a positive thing since it has forced TradeDoubler to evolve and make cutting edge products and services. I believe that continuously move forward and develop the business is a prerequisite for surviving as a business in the long term. Thus, having the ability to establish and run a successful business in the UK means a great deal for a company’s future prospects overall, especially when the Swedish or the Nordic markets become mature and therefore too small for future growth.

13.2.2 The choice of establishment method for Swedish companies on the British market

According TerraWing, the main reason for choosing a distributor to represent the company on the British market is the low cost and the opportunity to establish a partner with a good knowledge of the market. According to John Clague at HemoCue, the reason the company is a franchising company is because the parent company did not have financial recourses to establish a subsidiary. Company Y’s reason for establishing a partnership with a distributor was coincidental although they find it optimal due to the high costs in comparison to their revenues on the British market. Company X acquired a Swedish company which happened to have a subsidiary in the UK. Thus, it was quite coincidental that they established in the UK via a subsidiary. Öman says that they chose contracting an agent on the British market due to its relatively small cost compared to setting up a subsidiary. He explains that through their efforts in

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making contacts with actors on the British market they found their current agent, which was highly recommended by a number of market actors. In other words, their preparation work before the establishment led them to choose the agent. I find that the main influence on how to establish in the UK is how much money a company is able to invest on the British market. Small and medium sized companies have less money to spend and put at risk and therefore aim to establish via intermediaries such as agents, distributors or franchising. However, which intermediate the company contract may be a result of coincidence or due to hard investigation work, such as in Victorsson’s case.

13.2.3 Benefits and drawbacks of different forms of establishment

Subsidary I find that an obvious benefit of being established via a subsidiary is the amount of control of information it brings. Without an intermediary the Swedish parent company is in direct contact with the marketplace and they decide what message the market receives. This means that there is no risk of an intermediate ruining the company’s reputation on the British market. As several companies mention, such as TradeDoubler, HHG and Goodwille, a subsidiary signals seriousness to both suppliers and customers. The starting capital for starting up a limited company is £1. Initially, this is a positive aspect financially since it is cheap to set up a company. However, I find that the consequence is that more companies without a great deal of prospects are able to set up business which ultimately results in a higher rate of economic failures. Ultimately, many British companies make sure to have a wide range of financial security arrangements before entering business with another company, which may cause problems for a serious newly established subsidiary on the British market. However, the downside of setting up a subsidiary is the amount of time, resources and dedication it requires from the company. This form of establishment requires hiring of personnel, hiring of office facilities as well as other general initial costs. Small companies are likely to not being able to spend the money in order to set up and run such an operation. Distributor and agent I find that the negative side of contracting an agent or distributor on the British market is that the Swedish company does not receive any direct information from the customer or the market. According to Edvarsson at Company Y, this is a big disadvantage since ideas to new products and services come from the market. Being in this situation I find it important to set up a contract which regulates the structure of the information flow between the companies. Additionally it is important to try to obtain a personal relationship with the business partner as well as show dedication and interest in order to facilitate the information flow. According to Edvarsson, having a distributor instead of a subsidiary keeps down the number of employees within the organisation, which indicates that it is financially beneficial entry option on a market. The partnership with an agent also involves the same financial benefits. According to Lennart Öman at Victorsson, they recognize the benefit of getting to know the market first before investing more money on the market. Consequently, initially contracting a distributor or an agent is very interesting for small

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Swedish companies since it means that another company can take the cost of investing in the British market, which presents a high level of competition. The obvious downside is that the agent or distributor takes a part of the revenue. Additionally, I find that there is an evident downside that the Swedish companies have less control over the how the product or service is handled on the market. Also, the Swedish companies receive less direct information from the marketplace regarding the end user or the customer in order to make suitable developments of the products/services or the strategy on the market. I find that the smaller the Swedish company is the less is the incitements to start up a subsidiary. Since the UK is perceived as a complex and competitive market I find it a very good idea for smaller companies to contract a business partner, preferably someone who has a good knowledge of the marketplace. The Swedish company receives a chance to get to know the market before any further investments are carried out. When the company feels ready to set up a subsidiary, it may be ideal to hire the employees of the business partner in order for them to continue working with the products/services. Franchising Based on the in-depth interview with John Clague at HemoCue, I find that the Swedish HemoCue has aimed to keep the brand ‘HemoCue’ intact through setting up a franchising company along with, for them, a beneficial contract. Consequently, I find them to have a high level of control of how the product is marketed even if they are not in charge of what happens with the UK profits. The concept of franchising is quite a compromising entry option between not having to set up a subsidiary and still have a lot of control over the brand. However, it is important that the Swedish franchisee facilitates the capital commitment which comes with brand management and training of the franchiser. Different forms of communication with the partner – various levels of control of the British business I find that the Swedish company’s control of the British operation is proportional to the information received from the British operation which in turn depends on the contract as well as the personal relationship with the partner. Many small and medium sized companies are forced to compromise the control they have over the British business due to the fact that they in most cases do not have financial ability to initially set up a subsidiary. Therefore, I find it important that Swedish companies show interest in the operation of their business partners, such as distributors and agents etc, and aim to build a personal relationship. I find that a good personal relationship raise the mutual level of responsibility, which is good for the Swedish company’s ability to receive information and have some control over what is happening on the British market. Additionally, a good personal relationship makes it easier to solve problems and misunderstandings between the companies. A good example is Company Y, which has formed a term called ‘The family of Company Y’ among their large network of distributors around the world. Edvarsson says that the employees at the Swedish companies are close and personal friend with many of their distributors’ employees and they have annual gatherings.

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13.3 Obstacles the Swedish companies come across when doing business in the UK

13.3.1 Obstacles the Swedish companies come across in the British market

Hierarchy and the British approach to their role within the company are two closely related issues which many of the participating companies in the in-depth interviews seem to find an obstacle on the British market. It is worth pointing out that it is only companies with experience of being established via a subsidiary who has expressed a concern for these issues. I think that the level of hierarchy in a company influence the employees approach to their role within the company greatly. I find that a strong hierarchical organization affect the employees’ ability to be initiating, creative, imaginative and to take responsibility in a negative way. Also, British employees also receive a job description by law which even further frames their position on the job. Thus, Zander at Company X has experienced these phenomenons in the hierarchical subsidiary they took over two years ago. Less ability for the employees to be creative and initiative the more difficult it is to create competitive advantage in a changing environment, which is especially important for Swedish companies on the British market (see discussion in section 13.3.2). The issues of hierarchy and British employees’ attitude to their work may well affect the Swedish companies’ growth and success on the British market. Additionally, the subsidiary may not work in the most efficient way on the British market due to these issues. Many of the interviewed companies also found that job titles are very important in the UK in order to be taken seriously. Further, the interviews show that it is often difficult to get hold of the decision-maker within a company due to gatekeepers in form of personal assistants and secretaries. I find these matters an effect of hierarchical structures, which confirms its presence in many British businesses. However, hierarchical organizations will most likely be phased out over time since the new generation of work force holds newer business educations. Also, new theories regarding business organizations are becoming more popular due to the potential benefits of time and cost savings, better efficiency and flexibility etc. One of those is the process-based business organization mentioned in section 7.1.3. I also find that hierarchies are more likely to be found in the traditional industry, such as the manufacturing industry. As an example, Nordström at TradeDoubler (IT business) says that he has never experienced the effects of hierarchies. This can be explained due to higher and newer education levels in these new businesses. Older traditional systems, such as hierarchies, have never been present to influence the structure of the organization. Not finding the right partner to work with is another obstacle the Swedish companies may come across on the British market. It may turn out that the contracted partner is not as ambitious or skillful as the Swedish company had hoped for and may lead to insufficient results on the market. Even worse, a non-trustworthy partner can ruin a company’s reputation on a market. The interviewed companies also find that the communication between the subsidiary and the parent company may be unsatisfactory due to cultural differences and misunderstandings. It is mainly companies with experience of dealing with a subsidiary or a Swedish parent company, which has mentioned this issue.

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The problem of long time scale of payments in the UK is confirmed by many of the participating Swedish companies in the study. Their perception that British companies generally go by a substantial longer respite of payment than in Sweden is verified by studies made by a financial institute, see section 4.3. The time scale of payment is about 19 days longer in the UK than in Sweden, which naturally may cause cash flow problems. Therefore, a Swedish company in its initial stages of establishment may be extra sensitive of not getting paid in time depending on their financial planning. Thus, it is important to be aware of the situation of payment respites in the UK and it may not cause any cash flow problem if the company has planned for these delays. Zander at Company X think that there is a low morality among British companies when it comes to paying the bills in time. However, I find that it is mainly not low moral among the British causing the situation of not paying in time but more a consequence of functioning in a legal system which does not penalize late payments. Millingen at HHG says that it is virtually no point in taking legal actions against late payments in the UK due to the time aspect and the legal costs. The long time scale of payment in the UK is about what is common practice and not about morality. Hence, Swedish companies should be aware of the situation and plan accordingly to avoid problems. Further actions can also be taken, see next section. Currency fluctuations are problems which most internationally trading companies have to deal with. Suitable financial methods and solutions are the only tool for solving problems with currency fluctuations in the best way possible. I will not approach these financial solutions further according to the focus and delimitations of the report.

13.3.2 How to avoid the obstacles

As in many situations where obstacles are encountered, it is important to be aware of them in order to take every possible preventive action. Thus, I therefore find it relevant to look into what tools are available for Swedish companies to become more aware. Every type of business can be different in terms of obstacles faced on the British market. An obvious and common methodology before entering a new market is to do a market check. However, this market check can be performed in various degrees. I find that every Swedish company, aiming at exporting to the UK, should perform an extensive market research prior to the establishment. Unfortunately, smaller companies tend to be less able to put a lot of time and resources into an extensive market research. Smaller companies are also more vulnerable regarding mistakes of investments on the market making them more in need of a proper market research, in other words a catch 22. A market research should map out the important actors on the specific market, the market channels and prices. Furthermore, a market check should involve definition of the target group and the potential of the product on the British market. Moreover, a market research can also engage in calculating margins through the whole supply chain in order to evaluate the financial effects of an establishment. Additionally, it is difficult to ensure that a potential partner is 100% reliable. However, a thorough market investigation contributes to ensure their reliability to a greater extent than not performing one at all. Visiting a relevant fair, as well as performing a market check, may be a good way assessing market information as well as searching for suitable and reliable partners. Visitors and partakers of fairs are likely to be more receptive to making contacts and open to new solutions. Fairs may therefore be a good way of meeting the “right person”, i.e. a decision maker of a potential customer or partner. As mentioned by Hoist Hospitality Group, among other companies, managing directors and purchase managers

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may otherwise be difficult to get hold of via telephone due to gate keepers such as secretaries and personal assistants. Further, I find that Swedish companies should look up already established Swedish companies with closely related business, in order to try to set up cooperation. I find it important that Swedish parent companies develop efficient communication systems with the subsidiary in the UK as well as initiate good communication routines. This is necessary in order to avoid any misunderstandings. Additionally, it is essential that the parent company receives information from the British market in order to be able to make well founded decisions regarding the market. Moreover, a good communication system is beneficial for spreading and sharing good practice, knowledge and successes with the rest of the organisation. I think that a good flow of information within the company creates a sense of responsibility and involvement, which is in effect good for business. Moreover, most interviewed companies find it essential to have a British managing director in order to be able to communicate with the British employees and the customers. For example, Hillier at Kährs find it more important for a managing director to have good communication skills with staff and customer rather than with the parent company. However, I find it an optimal solution to have a British MD who understands the Swedish mentality and business culture. Further, it is important to engage in the subsidiary or partner via frequent telephone calls and personal visits. A parent company should set up goals and deadlines for the business and communicate their expectations. When a Swedish company commence to work with British staff they should think about to give the staff strong guidelines in the beginning, since many Brits are used to work within more or less hierarchical organisations in the UK. Hence, they may not be used to be allowed to take initiatives and suddenly entering a Swedish organization may therefore be confusing. It is also important to think about that British employees often are used to being motivated by provisions or bonuses. In order to avoid cash flow problems due to long time scale of payments it is first and foremost important for the Swedish company to be aware of the problem and to plan accordingly, as mentioned in previous section. Further, it is important to fully identify the customers and to make sure they are trustworthy. Additionally, a proper contract set up between the Swedish company and the UK customer may facilitate a mutual understanding of the payment terms enhancing the UK customer’s incitements for paying in time. The contract may for example involve financial consequences for the UK customer if payment is not fulfilled in time as well as an agreement that the Swedish company has a right to take back the goods if the time scale of payment is exceeded. This may naturally be difficult for a company which offers services to the British market. As Zander at Company X mentions, it may be more accepted for an international company to demand a shorter time scale of payment than it is for a domestic company. The important issue is to communicate to the British customer what the terms and the expectations are, where a contract may be a good tool.

13.4 Being a Swedish company on the British market

13.4.1 Positive aspects and advantages of being a Swedish company on the British market

There is a great unanimity among the partakers of the study that Swedish companies are perceived by the British market to offer very high quality products and services. Further,

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many companies indicate that offering good quality to the market is a vital part of their strategy. However, several companies have observed that the UK has a lower standard level of quality in general, which means that they in many areas do not appreciate good quality. If good quality is not recognized it is difficult to keep up the prices, which is a problem for Swedish companies in the UK. It may seem like an obvious solution to lower the prices in order to try to compete on the market. However, I find that the only way a Swedish company, which offers good quality products/services, should go is to continue working on producing good quality. As Zander at Company X points out, ‘there is no point in selling the same product as the competitors to a lower price if there is no profit to be made’. Business strategy research has exposed that companies which offer high quality products/services earn better rates of return than those located lower down on the quality scale with lower prices. However, it is not just quality which generates this effect. It is more a question of being able to achieve competitive advantage on the market. Customer makes their choice of which source to buy from based on either lower prices than the competitors or if they perceive that the product or service provides better value or benefits than available elsewhere. Only those brands which buyers associate to high level of quality will be able to cover the costs of making high quality products and services. Therefore, I find it not just important for Swedish companies to achieve competitive advantage but also find ways to signal quality and benefits of the product or service. However, the situation is often that the Swedish company is depending on various intermediaries (retailers, distributors and agents) to signal the quality to the actual end user. Therefore, I find it vital to for Swedish companies to develop tools for how to educate these intermediaries in order to have a good communication with the end user. An example of this is Kährs, which has developed a training program for their intermediaries. The important thing is that the British customers recognize the high quality and perceive the benefits enough for them to feel that it is worth paying a higher price. Hence, it is important to understand what it is that the British customers value. Since there might be a variety of preferences it may be useful to do market segmentations. It is also important to know how the competitors on the British market are positioned in order to meet the needs, finding a niche and thereby creating competitive advantage. Edvarsson at Company Y says the British market is very dynamic and quick decisions are often made. This implies the importance of being persistent on the British market in order to signal quality. Another key strategy is to develop personal relationships. The theory states that foreign companies often buy from the individual first and the company second, which often is the situation in relationship focused countries (discussed in section 13.4.4). Since small Swedish companies most likely do not have the financial means to invest in marketing it is important to find other ways to signal quality. For instance, the company should aim to find good reference customers or distributors in order to create a foundation for success. Further, I find it important to place the products and services with opinion leaders and trend setters in the specific business area of the company in order to create acceptance and trustworthiness. The cost of higher quality has an impact on the price and will consequently reduce competitiveness. Even if a company’s products and/or services provide great value to the customers the price has to be within a reasonable range in order for the customers to choose the brand instead of the low price alternatives. Therefore, I find that Swedish companies need to work on trying to lower their production cost, whether it concerns services or products. The British market is very price focused and, according to the study, the UK is one of the first countries Swedish companies aim to export to after the

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Nordic countries. Consequently, the Swedish company’s abilities to develop an optimal cost structure will be put to a test. Since the Swedish market is perceived as offering less competition it is likely that the company not yet has put much attention to its products’ cost structure. An underdeveloped cost structure and not enough focus on creating competitive advantage on the British market is probably the reason why Swedish companies often find that the British market offers tough competition. However, the study also shows that many of the participating Swedish companies already tend to have a more efficient and cost aware organization than most British companies. I find it important to point out that this may vary between different types of business and more and more companies are learning more and more about how to tighten their costs due to the process of internationalization. Additionally, Swedish companies do not only compete with British companies on the British market. Most companies in the study state that Swedish companies have a good reputation of being trustworthy on the market. Swedes tend to keep their promises and are reliable business partners. However, the British seem to think that it brings certain insecurity dealing with companies from a small and, as Brits find it, distant country as Sweden. I find this aspect slightly odd. However a handful of Swedish companies state that this is a problem. The British probably think that companies exporting from for example Germany or France are quite stable since their domestic markets are big and they would not export if things were not going well at home. However, since Sweden is quite a small market, it may create a bit of insecurity among the British customers concerning the company’s financial stability. Swedes are generally good at the English language and Swedes seem to have a lot in common with the Brits such as the close sense of humour. However, the English language is full of undertones, which according to Åman Goodwille, may be difficult to interpret. This implies that Swedes presumably think they understand most business situations in the UK fully, when it may be the opposite. Another advantage of being a Swedish company on the British market is that they are perceived as being environmentally conscious. Hopefully, this may be an advantage in these times when the debate about global warming and sustainability is a central issue for many of the worlds’ countries, including the UK. Swedish companies also have a good reputation concerning the education and the health system. Swedish companies with business within these areas may clearly have an advantage of being Swedish. However, it is the offered product or service which makes a difference in the end and not the Swedish background.

13.4.2 Negative aspects of being a Swedish company on the British market

A large part of the participating companies thinks that the most negative aspect of being a Swedish company on the British market is the tough competition compared to the Swedish market. Over 60% indicated that competitive aspects were their main challenges in the near future. The reason for exporting is partly because the domestic, i.e. the Swedish market, no longer have any market shares left to attain for the Swedish company. When they enter the British market, as perhaps one of their first export markets, it may therefore be chocking to find a fierce competition which they may not have experienced in Sweden. Consequently, they may not have thought about strategic advantage and how to create value for British customers for a low cost.

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Further, the Swedish companies are perceived to have expensive products on the British market. The combination of a perceived high competition on the British market and the fact that Swedish products and services are perceived as being too expensive together with the fact that the British customers do not seem to appreciate good quality in many areas, offers a challenge for the Swedish companies on the British market. This varies with different types of businesses. For instance, Nordström at TradeDoubler (IT-business) says that the British are used to pay for good quality. As mentioned in previous chapter it is important to identify the market in the UK in order to for the companies to find a niche and develop competitive advantage. Competitive advantage implies adding value. At the same time it is vital to find a cost structure which puts the company’s products and/or prices in a price range which makes the British customers choose and appreciate the high quality product/service instead of the low price alternatives. Consequently, I find it necessary for Swedish companies to understand how value is created within the organization, i.e. understand the value chain. Value, as it is perceived by the customer, is created on the basis of how activities are connected and performed within the organization considering its total cost. David Hillier illustrates the concept of adding value by describing that Kährs look at their overall product as a flower with petals, where each petal adds value. The petals consist of for instance sales organization, logistics, shop concept, marketing, brand strength, sales training etc.

13.4.3 Swedish companies communication of their Swedish background

Almost 90% of the participating Swedish companies state that they communicate their Swedish background on the British market sometimes or often. I find this a remarkable high share and it implies that there must be benefits involved for the Swedish companies since so many of them choose to do so. However, this does not mean that all companies actively communicate their background in marketing purposes. Although, the results imply that it at least is not negative to have a Swedish background on the British market. I find that benefits of communicating a Swedish background depends on what the British customers associate this with. Certain areas, such as health care and education has a good reputation in the UK and might therefore be an advantage to communicate. However, Zander at Company X says that it is necessary to be careful with how you as a Swedish company communicate your background. He finds it important to initially have a British approach to the customers and suppliers until they have created a reputation behind its name. According to Hillier, they do not actively communicate their Swedish background since their brand speaks for itself nowadays after more than 30 years on the British market. Thus, the reputation of the brand takes over. It is important to mention that a handful of company’s in the study said that a company’s national background does not make a difference from a business perspective. I find that the British companies mainly want to ensure themselves about their business partners regarding financial credibility, stability and seriousness, like most companies in general. However, in the UK there is not the same possibility to check information and backgrounds of companies which I find lead to higher demands of security assurances on the British market. As a Swedish company in its initial stages of an establishment, it is important to try to communicate financial trustworthiness. Coming from a small country

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and not being used to communicate financial security in Sweden may seem like a disadvantage for Swedish companies, especially small ones.

13.4.4 Swedish and British business culture

Some of the participating companies express similarities between Swedish and British culture such as a close related mentality and a shared sense of humor. However, there are also differences which may affect Swedish companies’ business in the UK. The UK is characterized as a moderately deal-focused country while Sweden belongs to the more deal focused ones. Consequently, the British are more focused on building relationships prior to doing business than the Swedes. Many of the aspects regarding the differences between relationship-focused and deal focused cultures are confirmed by the experiences of the Swedish companies. Zander at Company X and Goodwille confirms that Swedes are perceived as being too blunt and direct. On the other hand, Edvarsson at Company Y says that it can be difficult to try to interpret what the British really mean during a business meeting. He finds that the British tend to say one thing and mean another and they often sound more positive than they really are. Goodwille confirms that the British do not tend to use the word ‘no’ since this feels to blunt to express if a business proposition does not sound interesting enough. According to theory, the British are fonder of an indirect, subtle and roundabout style while the Swedes are more frank and straightforward. However, Goodwille says the British companies she has been in contact with over the years like the Swedes and are very fond of working in Swedish companies after a while. Another interesting aspect is that an anonymous Swedish company in the survey said that the Swedes and the Brits generally have different expectations of a business meeting. Swedes generally act on the results of the meeting immediately while the expectations of the British usually are lower. I find it important to be aware that cultural differences do exist and may in worst cased jeopardize the business of the Swedish company on the British market. Because the British are more relationship focused than the Swedes I find that Swedish companies should look at other alternatives of contacting British companies than merely calling up and propose a business meeting. The best way of getting in contact with companies in relationship focused countries is to make an indirect contact. An indirect contact might be carried out by visiting a trade show since the business behavior at such exhibitions tends to be deal-focused. After all, most attendees come for the purpose of making business contacts. Another good way for Swedish companies to try to arrange a business meeting is to be introduced by an intermediary, such as an organization or a trusted person – preferably known to both parties. Examples of such intermediaries are the Swedish Trade Council in the UK, the Swedish Embassy in the UK and the Swedish Chamber of Commerce. Also, I find that Swedish companies looking for contacts on the British market should try to get in touch with already established companies, preferably successful ones, in order to be introduced. To motivate help from other Swedish companies it is a good idea to look at companies with a closely related business in order to try to find synergies and cooperation prospects for both companies. This might be a beneficial solution in order for a small company to receive help to establish on the British market. I find it positive that David Hillier (Kährs) and John Clague (HemoCue) represent the British side when discussing cultural differences in order to get their opinions of their contacts with Swedes. Hillier finds that Swedes are not very confrontational and there is no consequence for bad performance among the employees. I find this interesting since

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Swedes on the other hand are perceived as very direct and almost too honest by the British. He also finds it difficult to get hold of people at the Swedish parent company due to a large number of meetings. However, he appreciates the lack of hierarchy within the organization as well as the freedom of taking individual initiatives. Clague has not experienced any cultural differences and misunderstandings between the UK subsidiary and the parent company in Sweden. He confirms the importance of having a British MD and above all sales personnel who understand the British sales process. When it comes to differences between Swedish and British culture it is important to be aware in order to not risk any business opportunities due to misunderstandings.

13.4.5 The British market

According to the Swedish companies, the British market is generally more complicated and unstructured than the Swedish. However, it is difficult to say if that is the case for every line of business. Since it is not possible to gain knowledge of every aspect of the marketplace despite a prior market research, the key is to find the right people to cooperate with in order to save time and money during an establishment. Additionally, the likelihood of making mistakes and bad investments will also decrease. The right people are characterized by having the right experience from the specific market and also the right contact network. Both Hillier at Kährs and Zander at Company X points out that the British market may be very fragmented. The Swedish market is more regulated and the products and services tend to take more direct ways out to the marketplace. The British market consists of more informal channels and the number of small actors on the market can be very high. However, the fragmented market is about to polarize, probably not only within floorings, which Hillier at Kährs pointed out. Many smaller retailers are pushed out leading to a less fragmented market which is easier to penetrate and handle. The fact of the high street retailer being marginalised by wholesalers can be identified within many different lines of businesses. Hillier points out that the internet is a significant market tool on the British market due to the fact that the UK consists of an area of only one fourth of Sweden’s and has six times as many people, which emphasises its importance. It facilitates quick deliveries and a good base for selling plenty of goods or services. Thus, it may be very beneficial to have good internet solution on the British market.

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14 Conclusions

In chapter 14 conclusions are drawn on the basis of the analysis. The chapter aims at answering the problem formulations outlined in section 1.2 as well as to draw a general picture of the results of the report. The chapter ends with a chart of the success factors which I have identified during the study of Swedish companies’ situation on the British market.

14.1 Business Climate in the UK for Swedish companies Swedish companies in the UK are successful in their business and see a bright future ahead. More than 80% of the companies investigated were profitable in 2004 and 2005. The same high percentage has a positive outlook on reaching their growth target for 2006 and 2007. Additionally, over 60% finds the British market profitable from a scale from average to excellent compared to other markets. The Swedish reputation and trustworthiness on the British market is very high and Swedish quality is seen to be one of the best on the market. However, the Swedish companies find a tough competition on the UK market and over 60% states that this is one of their main challenges in the near future. I find that the main part of the thesis relates to how Swedish companies perceive the business climate in the UK. Business climate embraces so much more than what is brought up in the numbers stated above. However, it indicates in concrete numbers how Swedish companies look at their situation on the British market as of today and provides necessary up-to-date information.

14.2 The process of establishment for Swedish small- and medium sized companies

Swedish companies tend to choose the method of establishment on the basis of how much money they can afford to risk on the British market. For a company, which set up a subsidiary on the British market with the purpose of showing a commitment to the market, there is an element of risk and a big cost if they are starting their business from zero. The company needs to find their market first. That is why I find the most common way for smaller companies to enter the market is via an agent or distributor as a first step. The problem is that a distributor may not do what you want them to do and there is a smaller chance of influencing them. The worst case scenario is if there is a risk of an intermediate ruining the company’s reputation on the British market. If the Swedish company has their own subsidiary, it gives them the opportunity to set up the company’s own vision and have a closer and more influencing relationship with the distributors and retailers. If the company finds a person with the right experience on the marketplace they are aiming at, the establishment might be cheaper initially when starting to develop a business in the UK. Depending on the cost issue the company can set up a subsidiary, attack the market aggressively and have big losses the first few years or the company can be patient for growth and start very small. Choosing a distributor on the other hand means loss of control but at least it implies business revenues from the market from the beginning. However, I find the concept of franchising to be quite a favourable entry option since it involves not having to set up a subsidiary and still have a lot of control

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over the brand. Finding an ‘ideal establishment’ is all about how much money the company is prepared to invest and how the company’s goals are outlined. The company should attain competitive advantage on the market, i.e. a product/service that is really in demand from the market in order to get a strong growth quick. Either there has to be competitive advantage or there has to be the right people, with the right connection and network to drive the product/service forward. Otherwise it is tough to achieve growth on the British market because there are so many products/services available on the market. The company is therefore forced to consider how to make the product different. A great product or service on the market may create substantial revenue relatively quickly and being in total control is most likely the best solution, i.e. the benefits of having a subsidiary. Additionally, I find it important to focus on the sales during the initial stages of establishing a subsidiary in order to generate revenues fast since this form of establishment is expensive. Further, for cost reasons it is important to start with a modest operation on the British market with as few employees as possible as well as low cost activities. Piggybacking may be a good method for Swedish companies to either receive help from another company to establish on the British market or help another company to establish. Adding a complementary product to the assortment can add value to both companies’ products and services. In order to ease the financial barriers which may prevent smaller companies to establish in the UK, mainly due to a high competition, Swedish companies should to a greater extent look at which Swedish companies which are already offering business in the UK related to their own products or services. Another option to ease the process of establishment for smaller companies would be to try to arrange cooperation between companies, perhaps from the same geographical region in Sweden, which aim to start a business in the UK in order to share costs and knowledge. Acquisitions and joint venture is not methods likely to be used by small companies due to the cost it involves. However, for some medium sized companies like Company X, these methods might be a good entry option.

14.3 Obstacles the Swedish companies come across during the process of establishment in the UK

The main obstacles seem to be the hierarchical structures which are still present among many British organizations. Hierarchy leads to another obstacle, which is the British approach to their role within the company. Some Swedish companies say the British employees lack the ability to take initiative, to be creative and to take responsibility. However, I find these issues merely a result from functioning in a hierarchical British organisation. British employees are very used to having framed job roles, outlined by job descriptions, which also give them tight guidelines of what to perform in the workplace. Hence, when dealing with British employees it is important to be aware to give them stronger guidelines than would be normal in Sweden in order for them not to be confused initially. Eventually, a more ‘Swedish’ view of the organisation may be implemented gradually. Additionally, hierarchical organizations are about to be phased out from the marketplace due to new cost efficient organization theories as well as a new generation of employees with a more up-to-date education.

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Not finding the right business partner is another obstacle. The Swedish companies may be unsatisfied due to bad results. Additionally, cultural differences between the parent company and the subsidiary are other obstacles mentioned by the participating Swedish companies. Further, the companies experience a longer time scale of payments (about19 days longer) on the British market compared to the Swedish. All of the obstacles mentioned above may cause a problem unless the Swedish companies are aware and carry out suitable preventative actions. A vital action in order to become aware of the situation in the marketplace is to perform a market check as described in the section of success factors (see section 14.5). Further, it is important for the Swedish companies to set up a good communication system as well as hiring a British managing director and local sales staff to overcome communication issues (see section 14.5). Finally, cultural differences and various other problems can in many aspects be overcome by developing a personal relationship with the business partner or the staff of the subsidiary (see section 14.5).

14.4 Being a Swedish company on the British market The great advantage of being a Swedish company on the British market is that the British perceive them to offer very high quality products and services. Additionally, the survey and the in-depth interviews clearly illustrated that Swedish companies are perceived to represent stability and continuity in business and business relations. However, the study also shows that Swedish companies are perceived to have expensive products and services by the British. This offers a challenge for the Swedish companies since the British also seem not to value high quality. The cost of higher quality has an impact on the price and will consequently reduce the competitiveness of the Swedish companies. This is most likely the reason why the participating companies in the study find the tough competition the most negative aspect for Swedish companies trying to establish on the British market. Over 60% of the Swedish companies mention competitor prices, competitor’s products/service offerings and/or competitor presence as their main challenge in the near future on the British market. Therefore, I find that Swedish companies need to work on obtaining competitive advantage on the British market as well as optimizing their cost structure in order to still offer reasonable prices, which is discussed further in section 14.5. However, high competition does not necessarily have to be a negative thing. Swedish companies, which aim to establish in the UK, are forced to learn how to deal with developing their products and services to fit a highly competitive market. In order to survive on the market they have to investigate how to obtain competitive advantage. Additionally, they have to develop a cost structure in order to place their products and/or services within a price range which attracts the British customers to choose their brand above low-price alternatives. To continuously develop the business is a prerequisite for surviving as a business in the long term. Thus, Swedish companies should perhaps embrace the tough competition and see it as an opportunity to move forward. Additionally, the UK offers access to several important international customers which bring opportunities to find business prospects indirectly to other markets overseas. Hence, succeeding in the UK is a good platform for further export to other international markets. Depending on the reputation and perception on the market for the actual product it may be beneficial to emphasize the Swedish background. However, it is of importance to live

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up to the reputation. In the end, reputation of having good quality and being trustworthy will depend on the company name rather than having a Swedish background. Another advantage of being a Swedish company on the British market is that they are perceived as being environmentally conscious, which may be an advantage during the revitalized debate regarding global warming and sustainability. Well over 80% of the investigated Swedish companies generally perceive their Swedish background to be positive on the British market. By a consequence, nearly 9 out of 10 companies communicate their Swedish background and use it in their UK business. My aim was to find out if there was any strategic advantage in being a Swedish company on the British market. I found that it might be an advantage initially depending on how much reputation there is behind having a Swedish background in the specific business area. In some cases it may be better to be discrete about being a Swedish company in order to not create any insecurity among customers and suppliers. Most of all, I found that it is mainly when a company has been active for a while in the UK, and created its own reputation behind the brand, that it is an advantage to communicate the Swedish background as a part of the strategy on the market (e.g. IKEA). However, it might also be the case that after a very long time on the market the reputation of the brand takes over, which has been the case for Kährs after more than 30 years on the market.

14.5 Success factors of doing business in the UK for Swedish companies

The main success factors I have identified during the study of performing a successful establishment or engaging in prosperous business in the UK are: • Performing a thorough market check. This is vital before an establishment in

order to know the market and to be able to see the potential of the product/service on the marketplace. A market research should involve an investigation of the market potential in terms of market share and the corresponding profit. By doing this it is easier to measure the performance of the business on the new market as well as detecting fairly quickly when things are not preceding as they should. Performing market research on the British market seems extra important due to indications from the studied companies that the market is generally quite complicated and difficult to penetrate. A market check also facilitates finding the right people to cooperate with as described further down in the list.

• Due to the high level of competition in most lines of businesses, I find commitment and awareness a central factor for succeeding on the British market. Commitment involves engaging in continuous contact with the business in the UK and show interest whether it concerns a subsidiary, agent, distributor or another type of establishment. Further, it is important to recognize the fact that the British are more focused on building relationships prior to doing business than the Swedes. Thus, Swedish companies should invest in personal visits and put effort into attaining a personal relationship with their business partner, which may solve problems such as misunderstandings as well as overcome and create an understanding for cultural differences. Awareness is raised by performing a thorough market check which highlights any preventive action which should be carried out prior or during an establishment.

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• The described character of the market also implies the importance of finding the right people to cooperate with on the market, i.e. people with the most suitable experience and contact network of the market for the company’s specific products. Since the British market might be difficult to penetrate this is an important aspect in order to approach the market in an efficient way. A thorough market check (see the first bullet point in this section) increases the possibilities of finding a skillful partner or employee and reduces the risk of contracting someone with a questionable background.

• Setting up a good communication solution, which provides a tool for the Swedish company to overcome any cultural differences and the risk of misunderstandings with the subsidiary or the business partner in the UK. Additionally, it is very important for the Swedish companies to try to absorb as much information as possible regarding the marketplace in order to develop products and services suitable for the marketplace. Additionally, it is necessary in order to facilitate well founded decisions regarding the British market and to support the process of creating a niche and competitive advantage on the market. A communication solution can for instance be facilitated by establishing communication routines or/and an organizational intranet. In order to share expectations and goals for the business, a well designed contract should be set up with the partner in the UK which regulates the information the Swedish company wants to take part of and how often. A prerequisite when establishing a communication system is to develop a personal relationship, which smoothes the process of receiving relevant information from the partner or subsidiary and raises the mutual level of responsibility for the British business.

• It is essential to have a British manager on the British market with the ability to communicate with the British customers and the local staff. An optimal solution is to have a British MD who understands the Swedish mentality in order to avoid cultural clashes and misunderstandings.

• Find a niche on the British market and develop a competitive advantage. A market research prior to the establishment enables the company to receive information about the marketplace, find out which the important market actors are and receive indications on how to outline a suitable strategy for the British market. A small company is not likely to have a lot of money to put into marketing in a new exporting market. Therefore, I find it essential to know how to position the products/services and have a working concept of the best overall product for the specific market so that the products and services virtually can sell themselves. Knowledge about the marketplace enables the company to develop a concept which distinguishes them from the competitors on the specific market. Competitive advantage relates to the company’s ability to understand how to create value for its customers. Adding value to the customers concerns understanding how the company’s activities are connected and performed within the organization.

• Facilitate an optimal cost structure for the British market. Even if a company’s products and/or services provide great value to the British customers the price has to be within a reasonable range in order for the customers to choose the Swedish brand instead of the low price alternatives. Cost efficiency may be obtained by investigating for instance the best transport solution for the British market and the best packaging solution.

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Since smaller companies are more financially sensitive, I find it important that they are conscious regarding the success factors on the British market. These success factors may however vary depending on the type of business. Even so, smaller companies generally have to make a strong commitment in relation to their size to facilitate success on the British market. This report and the aspects it highlights is hopefully a step on the way to perform a successful establishment and to accomplish prosperous business in the UK.

14.6 Suggestions for further studies Suggestions for further studies are to take a closer look at the business contracts set up between small and medium sized Swedish companies and their partners on the British market, such as agents and distributors, in order to optimize these relationships. The report has viewed the general situation for Swedish companies in the UK. Therefore, it would be interesting to concentrate on a certain type of business, such as for example the IT business or the food industry, in order to outline more specific conditions. Further, the report also highlights the importance for Swedish companies to offer well positioned products on the British market. Thus, it would be interesting to look at a single company and their specific resources and abilities in order to assist them in a successful establishment in the UK on a more strategic level.

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References Books

Albaum, G., Duerr, E., Strandskov, J., (2005), International marketing and export management, Prentice Hall, 5 th edition

Arbnor, I., Bjerke, B., (1994), Företagsekonomisk metodlära, Studentlitteratur, Lund

Branch, A., (2000), Export Practice and Management, Thomson Learning, 4 th edition, London

British-Swedish Chamber of Commerce (BSCC), (2006), The Business Directory, Greenwood Communications, Stockholm

Bryman, A., (2002), Samhällsvetenskapliga metoder, Liber Ekonomi, 1 th edition, Malmö

Cook, T., (2001), The ultimate guide to export management, AMACOM (American Management Association), New York

Davis, E., (1990), High quality positioning and the success of reputable products, London Business School, Centre for business strategy, London

Gesteland, R., (1999), Cross-cultural business behaviour, Copenhagen Business School Press, 2 nd edition, Copenhagen

Johnson, G., Scholes, K., (2002), Exploring corporate strategy, Prentice Hall, 6th edition, Prentice Hall, Harlow, England

Kvale, S., (1997), Den kvalitativa forskningsintervjun, Studentlitteratur, Lund

Ljungberg, A., Larsson, E., (2001), Processbaserad verksamhetsutveckling, Studentlitteratur, Lund

The Council for the Promotion of Sweden, (2005), Images of Sweden abroad – summarized version, Alfa Print AB, (available at: www.fritzes.se)

Mole, J., (2003), Mind your manners, Nicholas Brealey Publishing, 3 rd edition, London

Nordström, K., Ridderstråle, J., (1999), Funky business – talent makes capital dance, BookHouse Publishing, Stockholm

Svenning, C., (2003), Metodboken, Lorenz Förlag, 5 th edition, Eslöv

Wallen, G., (1996), Vetenskapsteori och forskningsmetodik, Studentlitteratur, Lund

The Office for National Statistics, (2004), UK 2005, TSO (The Stationary Office), London

Reports

The Swedish Trade Council in the UK, (2006), Business Development UK – Comfort Audio, Report 421.1, London

The Swedish Trade Council, (2006), Landrapport Storbritannien, London

Álvarez, M., (2003), Wholly-owned Subsidiaries Versus Joint Ventures: The Determinant Factors in the Catalan Multinational Manufacturing Case. Working paper, Institut d’Economia de Barcelona

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Internet

Atradius, <http://www.atradius.com/se/omoss/inthemedia/pressreleases/brittiskaochitalienskafretagblanddesmstabetalarnaieuropa.jsp>, (2006-11-20)

The Australian National University, <http://www.anu.edu.au/people/Roger.Clarke/SOS/StratISTh3.gif>, (2006-11-30)

Dagens Nyheter, <http://www.dn.se/DNet/jsp/polopoly.jsp?d=145&a=241666>, (2006-11-20)

Goodwille, <www.goodwille.co.uk>, (2006-12-20)

HemoCue, <www.hemocue.co.uk>, (2006-12-20)

Hoist Hospitality Group, < www.hoistgroup.com>, (2006-12-20)

Kährs, <www.kahrs.com>, (2006-12-20)

Lykta, <www.lykta.se>, (2006-11-20)

TerraWing, <www.terrawing.com>, (2006-12-20)

The European Commission, <http://ec.europa.eu/enterprise/enterprise_policy/sme_definition/index_en.htm>, (2006-12-04)

The Swedish Trade Council, <http://www.swedishtrade.se/storbritannien>, (2006-04-05)

The Swedish Trade Council, <http://www.swedishtrade.se/storbritannien>, (2005-12-05)

The United Kingdom Hotell, <www.aukhotell.com>, (2006-12-30)

TradeDoubler, <www.TradeDoubler.com>, (2006-12-20)

Victorsson, <www.victorsson.se>, (2006-12-20)

Wikipedia, <http://sv.wikipedia.org/wiki/Objektivitet>, (2006-05-04), (2006-12-21)

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Appendix 1.

Business Climate Survey 2006

Please answer the following questions as you believe they will apply to your company in the United Kingdom and send it back before June 9: Your company has been present in the UK since:

Year: Comment:

Form of establishment for your company in the UK: □ Subsidiary □ Agent □ Distributor □ Branch □ Sales person/persons employed in the UK □ Direct sales to the UK from Sweden □ Other Type of business in the UK (you can tick multiple boxes): □ Manufacturing □ Services Business climate in the UK 1. How many employees do you have in the UK?

□ 1-10 □ 10-50 □ 50-100 □ 100-1000 □ 1000+

2. What is your company’s turnover in the UK?

□ 0 – £50 000 □ £50 000 – £200 000 □ £200 000 – £1000 000 □ £1000 000 – £2000 000 □ £2000 000+

3. How do you estimate the profitability in the UK compared to other markets, if

possible? (1 Poor – 5 Excellent, 6 No information available) □ 1 □ 2 □ 3 □ 4 □ 5 □ 6

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4. How do you estimate the opportunities for reaching your company’s growth target

in the UK in 2006-2007? (1 Poor – 5 Excellent, 6 No information available) □ 1 □ 2 □ 3 □ 4 □ 5 □ 6

5. How are you planning to reach these targets (you can click multiple boxes)?

□ New products/services □ New customer segments □ Grow in existing segments □ New marketing channels □ New agents/distributors □ Increased retail presence □ Increased sales force □ Hire more people □ Other

6. What do you perceive as your main challenges during 2006 and 2007 in the UK (you

can tick multiple boxes)? □ Competitor prices □ Competitor product/service offerings □ Competitor distribution/presence □ Internal efficiency □ Sales force □ Staff retention and recruitment □ Market regulations □ Customer demand □ Economic climate □ Other

7. Was your company profitable in 2004-2005 in the UK?

□ Yes □ No, not profitable 8. What is the most positive aspect about doing business in the UK for Swedish

companies? 9. What is the most negative aspect about doing business in the UK for Swedish

companies?

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10. From a business perspective, we believe our Swedish background to be? □ Positive □ Neutral □ Negative Comment:

11. We communicate our Swedish background externally:

□ Often □ Sometimes □ Never Comment: 12. Do you have any general tips and advise for Swedish businesses looking for

expanding its business to the UK?

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Appendix 2.

Standardized interview guide

Introduction

1. How many employees do you have in the UK? 2. What is your company’s turnover in the UK?

The British market

1. How do you estimate the profitability in the UK compared to other markets? 2. Was your company profitable in 2004-2005 in the UK? 3. How do you estimate the opportunities for reaching your company’s growth

target in the UK in 2006-2007? 4. What is the most positive aspect about doing business in the UK for Swedish

companies? 5. What is the most negative aspect about doing business in the UK for Swedish

companies? 6. Do you communicate your Swedish background externally? – Has this changed

over the years? 7. In what way is the British market different from the Swedish market and other

markets (if the company is established in other countries)? 8. What is your company’s main export product in the British market? Have you

been forced to modify any of your products in order to satisfy local demand? 9. Have your company experienced any cultural, political or social obstacles when

exporting to the UK? For instance, difficulties in closing agreements, motivate employees, hierarchies within the organization etc.? How is it different from doing business in Sweden?

10. What, in your opinion, is important to think about when doing business in the UK from a cultural perspective?

11. If subsidiary: Do you strive to have a Swedish ”company spirit” in the UK company or is there room for adjustments to local situations?

The process of establishment

1. How long have you been established in the UK? 2. Why did you choose the UK as a new exporting market? 3. Which countries did you export to before entering the British market? 4. What are your sales channels to the British market (i.e. how do you sell

products/services to the British market, for example via distributors or direct sales etc.)?

5. Why did you choose this form of establishment? Motives… 6. Does the company structure affect the choice of establishment? 7. How did you perceive the process of establishment?

i. What was easy and if so, why? ii. What was difficult and if so, why?

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8. Did you encounter any problems during the process of establishment? 9. After the actual establishment was completed – did you encounter any problems

after that? 10. Looking back at the establishing process and the time you have been in the UK –

what would you have done differently? Did the outcome live up to your expectations?

11. Did the form of establishment suit your company?

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Appendix 3.

Interview guide –HemoCue

The process of establishment

1. You are a franchising company – please elaborate on this form of establishment.

2. How did it come about that a franchising company was formed? Why did you want to keep the Swedish brand name HemoCue, i.e. why franchising?

3. How does the franchising of the brand HemoCue work? Do you pay a fee to use

the name HemoCue (initial fee, royalty on sales, lease fees for equipment, profit share or some combination of these four)? How much does the Swedish company decide over your operations in the UK?

4. What is the advantage for the Swedish company by not having to own a company

in the UK but instead having a UK company franchising their business? Disadvantages?

5. Are there any agreements between HC in the UK and HC in Sweden about for

example sales targets? Are there any agreements on how you can develop the market for HC’s products in the UK?

6. Do you have any communication with, coordination or support from the

Swedish company? What tools have you used to facilitate communications with the Swedish HemoCue?

7. Has there been any problems regarding your agreements or communication with the Swedish company? What would have made things better?

8. How do you sell your products in the UK? Which sales channels do you use?

9. When did you establish HemoCue (as a franchising company) in the UK?

10. How did you perceive the process of establishment?

- What was easy and what was difficult?

11. If you look back at the time you have operated in the UK, would you have done

anything differently? Did the result live up to your expectations?

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Business Climate in the UK

1. How do you perceive the profitability on the British market for companies in

your business? 2. Was your company profitable during 2004-2005?

i. How big is your turnover in the UK? ii. How many employees do you have in the UK?

3. How do you estimate the possibility to reach your growth target during 2006-

2007?

4. Do you communicate your Swedish background, although you are not owned by a Swedish company, on the British market? Why? Has this changed over the years?

5. What, in your perception, is the most positive aspect about being a Swedish

company on the British market?

6. What, in your perception, is the most negative aspect about being a Swedish

company on the British market?

7. How is the British market different from other markets – for example the Swedish – both considering the process of establishment and the business climate?

8. Have you been forced to modify HemoCue’s products in order to sell them on

the British market?

9. How are Swedes and Brits different when it comes to business culture and mentality? What problems, in your experience can this lead to?

10. Has your company experienced any cultural, political or social obstacles during

your time in the UK? (For example contract negotiations, motivating staff, hierarchies within the organization etc.) Which problems have occurred due to these obstacles? How are these situations different from the Swedish business climate?

11. What is important for a Swedish company to think about when doing business in

the UK - from for example a cultural perspective?

12. Besides the name HemoCue, how have you been influenced by the Swedish company - considering for example organization structure?

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Documents

Challenges and benefits for Swedish companies entering the … · 2008. 6. 10. · This Master Thesis is a result of an internship at the Swedish Trade Council (STC) in London, which