Risks
Internationalizing the Small and Medium Sized Firm – four cases
That the internationalization process takes a reasonable risk level seems to be an important issue. In the cases of Avanza and Glocalnet the companies said in retrospect that the chosen internationalization approach contained too much risk in comparison to the company’s size. In the case of Avanza it was said that the internationalization should not have taken place at all considering the risks involved - at least not considering the relatively aggressive approach that was used. According to them, by focusing on a niche market instead of having a very wide approach, a more appropriate risk level would perhaps have been achieved. The experience from Glocalnet shows on the same thing. They state that the Danish venture should not have been started until a strategic partnership had been signed on the Danish market. Without having this partnership the risks involved were too big. Compare with Kotler’s model in figure 1 (1991) where a direct investment is characterized by relatively high risk.
One way of significantly lowering the risk of having a too aggressive approach is by securing customers in the new market before entering. Both Edgecom and Projectplace used this approach. For example, Edgecom worked during six months to get customers at a specific market and not until this was accomplished a new office was opened. Projectplace further states that they will use this approach to an even larger extent if they decide enter new markets in the future. By already having customers on the market that a company enters it has to a certain degree already made sure that the company’s product or service will work on the new market. These customers also serve as reference customers, which have proved to be a successful concept for many companies in the USA according to SwedeLinkCalifornia. This might, of course, not be a possible alternative for all companies. In the case of Avanza, this would due to regulatory aspects probably not be a viable option. An alternative to getting real customers is making extensive customer surveys instead.
Another way of decreasing the risk is to team up with different strategic partners in the new market. This can be partnerships concerning distribution, marketing, production etc (Johanson & Mattson 1988). For example, getting access to a customer base can prove to lower the marketing costs significantly. As mentioned above, this was what Glocalnet attempted to achieve when expanding to Denmark. As they correctly point out, these kinds of partnerships can in many cases be established before entering the new market. Taking that approach will even further diminish the risks involved.
