Projectplace
Internationalizing the Small and Medium Sized Firm – four cases
Brief background and history
The company was founded by Magnus Ingvarsson, Mattias Hällström and Peter Johansson in the beginning of 1998. The founders had previously run a number of international research projects aimed at developing new Internet technology for project communication and collaboration within SISU . They created the world’s first web-based project collaboration service with integrated and secure credit card payments in the spring of 1997, which was called SISU Virtual Workplace. Projectplace’s business concept is to develop and provide a web service for professional project management and team collaboration, with focus on inter-organizational projects. The business concept is very easily scalable. Projectplace launched their services in September 1998.
Projectplace is a privately held company with investors including: Investor Growth Capital, i2i Venture and Arctic Ventures. Projectplace’s latest (and largest) capital injection took place in the beginning of 2001 when 70 MSEK was raised.
International expansion
In 1999 Projectplace started their expansion to Norway. In the autumn of 2000, subsidiaries were started in the Netherlands and in the UK. Germany, which is the most recent launch, started in 2001. All subsidiaries are fully owned. There have been discussions about further countries, but no additional expansions are planned at the moment.
The decision to expand internationally was something that both management and owners considered being necessary. Nevertheless, a certain pressure from the investors (or just the fact that they had raised a lot of capital) to expand was felt within the company. International expansion was one of the main reasons for raising capital.
Thorough research was done prior to expanding to a market. The main fundamentals that formed the basis for choice of markets were Internet penetration, population size, language, work methods and geographic position. These were relatively easy fundamentals to obtain facts about.
Norway do not really qualify according to the above fundamental, but that market was chosen due to that Projectplace already had gained a relatively large customer base there and the fact that they were contacted by a person who wanted to run their service in Norway. It was also considered to be a good test market.
Besides the above fundamentals, the UK was chosen since it is a major knowledge center. It was also considered to be of strategic importance to be present in London. Internet penetration and a relative large size were the reasons for choosing the Netherlands. Germany was chosen for its size and its work environment, which was considered to suit Projectplace’s services very well. In all cases, Projectplace had already some local customers before entering each market.
The initial idea was that sales, PR and marketing should be done by the subsidiaries. Due to slower uptake than expected, the local organizations have been kept very slim. The subsidiaries are more or less pure sales offices; all other tasks have been centralized. The reason for the slower uptake is believed to be twofold. The general downturn in the economy has affected the growth. The biggest customer sector for Projectplace has been the IT-industry and this sector has experienced the biggest blow in the recent downturn. This has increased the effects of the downturn for Projectplace. The second reason is that the foreign markets were not as mature as expected. This has lead to a slower and more cautious international expansion than first intended.
The subsidiaries were/are mainly controlled through budgets and monthly reports. In addition to this the management team and the Country Managers meet 3 times per year. These control functions have been considered to be sufficient. There has been relatively little support from head-office to the subsidiaries. The reason is that, due to the low growth on the foreign markets, it has not been considered to be of highest priority. This has, of course, been seen as negative by the subsidiaries, who do not feel that they have been given the right amount of attention. A further perceived problem between the head-office and the subsidiaries has been that the head-office is very technology-driven but the subsidiaries have a pure sales focus.
Projectplace has relatively few direct competitors in Europe. There is no competitor with a European perspective like Projectplace. In each market there are some local/niche players. There are fewer competitors now compared to when they started their international expansion. This is regarded as negative by the company, since this change is mainly a result of the general slow-down in the market. There are a few companies (e.g. eRoom, onProject, eProject) with similar services in the US, but they have yet to make their entry into Europe.
Instead of any major direct competition, Projectplace is fighting with quite many substitutes, ranging from companies selling software for local installation (instead of fully web-based solution as Projectplace’s) to very simple file sharing services such as Xdrive1).
The foreign markets are characterized by more direct sales activities compared to Sweden. Advertising efforts are hard and have not really paid off. This is mainly due to the fact that it is difficult to pinpoint the customers/users (normally project leaders in different companies).
Projectplace have used limited external consultants in the internationalization process, mainly for administrational purposes. In the UK and the Netherlands Projectplace used headhunting firms to find suitable Country Managers. It was a long and costly process. Furthermore, due to changes mentioned above regarding the responsibilities of the subsidiaries, the recruited Country Managers were relatively overqualified. This has created some frustration from the Country Managers. The gained experience and the decision to take a more cautious approach when expanding resulted in that no local Country Manager was hired when Projectplace started in Germany. Instead they sent down a person from Stockholm who is still running the German office.
Outcome
The internationalization process is considered to be a success. All of the started subsidiaries are still operational, even if they have lower sales figures than expected. If just looking at the original plans/goals it might be considered to be a failure, but taking the general development of the economy into account it qualifies as a success. It has been a relatively inexpensive and low risk international expansion.
Lessons
If they would do it again they would take an even more cautious approach from start. They would do more as they have done when entering Germany. They mean that the strategy used in the UK and in the Netherlands was too aggressive, even if it compared to other companies was relatively cautious. In addition they would to a much greater extent start to work with the local market, e.g. by getting more customer references/cases, before obtaining a local presence.
Furthermore they would in more detail consider alternative expansion models, e.g. using sales agents instead of subsidiaries.
Today
Projectplace employs 37 people today. Approximately 95 000 persons across Europe use their service, of which 50% are based in Sweden. Sales on the foreign markets are picking up. Some of the subsidiaries show positive cash flow. There are no immediate plans for further international expansion. The strategy is to first strengthen their position at the present markets.
