Starting business operations abroad. Introduction of Monitor’s Business Systems to the Finnish market

University: Business Studies

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1.2. Presentation of Monitor Industriutveckling
Monitor Industriutveckling is developing, selling and marketing the enterprise resource
planning (ERP) system MONITOR intended primarily for small and mid-sized
manufacturing companies. The company has long experience in material planning and
scheduling systems, but also about manufacturing in general and commercial activities.
The company was founded in 1970. In addition to its product-related business,
Monitor provides training and consulting services. The company currently has around
80 employees and its headquarters is located in Hudiksvall, Sweden. MONITOR has
currently been installed in over 1200 companies in Sweden, which means that it is noe
of the most popular products in its segment. It has also been installed in 50 manufacturing
companies outside Sweden. The business system has currently been exported to
Finland, Poland, Norway, Baltic countries, Malaysia and China, mainly through existing
Swedish customers.
To provide high-quality service, support and training are important elements of Monitor’s
customer-oriented company policy. Monitor provides system solutions for manufacturing
companies within the following fields: MRP (material planning systems),
MRPII (manufacturing and resource planning) and ERP, time calculations, accounting
systems, payroll systems.
Monitor is a highly competitive supplier of comprehensive systems, and can also provide
the required hardware for the MONITOR ERP-system, such as servers, worksta7
tions, switches, hubs and printers. In addition, the company has considerable experience
in industrial and production engineering issues, and provides manufacturing industries
with qualified consulting assistance within the areas of: production engineering,
production planning, administration, logistics and accounting & financials.
The product has been awarded numerous prizes especially for its user-friendliness and
its user-centred approach. In other words – Monitor is very easy to understand and to
use as opposed to most of its competitors’ quite complex and often too difficult solutions.
Monitor is growing fast. In its long-term vision Monitor wants to become the most
popular ERP-system supplier for both Swedish and foreign small and middle-sized
manufacturing companies. In order to achieve this goal Monitor wants to evaluate its
chances to gain market share in foreign markets.
1.3. Research problem and research methodology
Research problem definition and Monitor’s choice
According to Carson et al the research problem can be seen through three different
aspects: A topical aspect of marketing, an aspect of marketing deficiency, or consideration
of a research topic in a specific marketing context (Carson et al, 2001). From
the topical point of view this thesis research problem is defined from a future and current
perspective. This means that the research problem can be taken in terms of what
is planned or expected to happen (future perspective). A current perspective considers
what is happening now (Carson et al, 2001).
According to Carson et al, further refinement towards determining the specifics of the
research problem can be achieved by positioning the research in one of a range of
concepts. The research topic may be industry specific, where consideration takes account
of characteristics which prevail within that industry. A further specific can be
added by positioning the research within a single market within an industry. In such
research, characteristics peculiar to that specific market will be considered and further
specificity can be added by positioning within an existing market circumstance or a
new market situation. (Carson et al, 2001)
In this study I will analyse the current situation of Monitor in order to find the best
solution for market-entry challenges. An important part of the thesis will be in-depth
interviews with existing Monitor customers in the target market, Finnish authorities
and business specialists as well as with the statistical information centre of Finland.
The final list of interviews is described later in this paper.
The main objective I try to achieve with this work is to get an answer to the following
research problem:
Should Monitor enter to the Finnish ERP-market proactively or be passive?
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Marketing research definition and Monitors choice
Kumar et al. defines marketing research as the specification, gathering, analysing, and
interpretation of information linking the organisation with its market environment
(Kumar et al, 2002). A good understanding of Monitor’s competitive market situation
is essential and the questions defined later are focused on this subject. Kumar says
that an understanding of competitive advantage requires detailed knowledge of the
capabilities, strategies, and intentions of current and prospective competitors. Marketing
research can contribute in two ways: by identifying the competitive set and by collecting
detailed information about each competitor (Kumar et al, 2002). Later on I will
present three models: 1) New Capabilities 2) Five forces Model and 3) PEST-analysis.
These models give answers to the problem that Kumar presents. The accompanying
empirical part consists of information gathered of the Finnish ICT-market and of
Monitor’s competitors.
I also have an ambition to create understanding and value to Monitor help them plan
the details of their market-entry strategy.
Kumar et al points out that marketing research is essential for getting answers to three
key questions about differentiation:
1. What attributes of the product or service create value for the customer?
2. Which attributes are most important?
3. How do we compare to the competition? (Kumar et al, 2002).
From these key questions I have derived more specific questions for this particular
case:
• How does the Finnish ICT-market fit Monitor?
• How should Monitor prepare its entry into the new market?
• What kind of analytical framework is available and can be of help?
• What authorities should Monitor trust and seek help from when entering the
Finnish market?
• With which attributes could Monitor become a successful company in the Finnish
market?
1.4. Research methodology and data collection
How this work has been performed
This work consists of the analytical framework and empirical data. The empirical data
has been collected by personal interviews. Moreover, the personal interviews are also
supporting the goal to start to create a contact net for Monitor. In case Monitor decides
to step into the Finnish market they would already have some valuable contacts.
In addition to the interviews, the information is supplemented by e-mail correspondence,
IP-calls and information found in the Internet.
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Silverman has researched methods for qualitative researches. In his book Interpreting
Qualitative Data; Methods for Analysing Talk, Text and Interaction from 2001, he
writes that there are four major methods used by qualitative researchers:
Observation
Analysing texts and documents
Interviews
and recording and transcribing
(Silverman, 2001).
As empirical data in this study has been gathered by doing personal interviews, this
method also allows observation if needed. On the opposite, in quantitative research,
observation is not generally seen as a very important method of data collection. This
is because it is difficult to conduct observational studies on large samples (Silverman,
2001). This is why the research method is qualitative and not quantitative.
Figure 1. The structure of this study
The structure consists of two main parts. The analytical framework acts as the theoretical
backbone for the thesis. Based on the analytical framework and the use of a
qualitative survey as a data collection method, the thesis will be able to answer the
research question stated earlier, and its secondary questions. The qualitative survey
part also includes the marketing research of the ICT-market in Finland.
Marketing research – Why is it important?
The qualitative survey in this thesis will concentrate on marketing research. Marketing
research arises from a desire or need for information (Dibb et al. 1997; Jobber
1998; Malhotra 1996; Tull and Hawkins 1990). Such a desire or need can be wide and
varied depending on who desires the information and for what purpose. In a general
sense, marketing research will be carried out because of a cognitive requirement that
might range across a spectrum from simple interest or awareness to requiring knowledge
and understanding (Carson, Gilmore, Perry and Gronhaug, 2001).
The research problem in this thesis has been formulated to get a specific understanding
of the market situation for a company that wants to enter new geographical markets.
Carson et al have researched the problems where one usually seeks the understanding
about a small number or a single phenomenon. Typical examples are issues
concerned with marketing in a specific context or situation. Such circumstances require
in-depth analysis of a single or specific case (group of people, company or in-
Analytical
Framework/Theoretical part
of the work
Qualitative Survey/Empirical
part of this work
Research Question
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dustry) and the context in which the company operates. Similarly, if the research is
concerned with understanding the way in which marketing happens, or the processes
behind an aspect of marketing, it is likely that these can best be determined by focusing
upon a single case or a small number of cases (Carson et al, 2001). Patton suggests
that deep understanding will require methodologies such as in-depth interviews
and analysis of a few sources, which will achieve the appropriate amount and type of
data (Patton, 1990).
Conclusion – how this kind of study should be performed
Based on these findings and recommendations from the literature this study’s research
part is carried out using in-depth interviews as a method for qualitative research. As
the target population is not too big to handle, the personal interviews will not be too
expensive and time-consuming to carry out. Also, personal contact and interviewing
the target group members might give the interviewer deeper understanding of the subject.
To answer to the research problem and to support the theoretical background I
have selected the following parties as targets for the interviews:
1. CUSTOMER
_ Wisko Teepak, owned by Eriksson Capital AB, Hangö, Finland
2. AUTHORITIES
_ Invest in Finland
o Invest in Finland is an expert service organization promoting foreign
direct investment in Finland. This means assisting companies locate
operations in Finland and also serving companies that have already established
a presence in Finland
_ The Finnish Bureau of Statistics
_ The Finnish Trade and Company register
o National Board of Patents and Registration in Finland
Motivation of the selection
I have decided to seek both the customer’s side and authorities’ point of view to get
reliable information about the subject. Moreover, I have interviewed various ICT
business professionals in Finland. The customer can see the big picture and problems
from a totally different point of view than authorities do. Wisko Teepak, which operates
in Finland, can give extremely valuable information when I start to define target
groups and find new possible customers for Monitor. Monitor’s customers in Sweden
and in other countries are not interviewed because their opinions can’t give input to
this special subject of entering this particular new market, even if their opinions as
customers could be valuable. Authorities have given their objective point of view and
presented statistical information. Authorities have also talked about visions and the
future of the ICT-industry in Finland.
1.5. Validity and reliability of the research
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Silverman writes that the two central concepts in any discussion of the credibility of
scientific research are validity and reliability (Silverman, 2001). According to
Silverman, Seale says that high reliability in qualitative research is associated with
low-interference descriptors (Seale, 1999). This involves recording observations in
terms that are as concrete as possible, including verbatim accounts of what people say.
These factors that Seale suggests have been applied in this work.
The interviews have been made mostly face-to-face. Conversations have been recorded
and saved to be part of this work. The Interviewee’s gestures and body language
have also been observed. The interview has proceeded with questions that are
rational. Dialogue between interviewer and interviewees has been the base for writing
the empirical part of this work. In some cases face-to-face interviews have been completed
with emails and new interviews over the phone.
Kumar says that validity is seen as the ability to measure exactly what is supposed to
be measured (Kumar et al, 2001). In survey research this is mainly affected by questionnaire
design, i.e. how successfully the questions portray the research objectives.
Internal validity is reached when the measurement instruments use the constructs presented
in the theoretical part of the study. When the results can be interpreted in a
similar way by other researchers, the research is externally valid. (Heikkilä, 2002).
Kumar also says that reliability means the random error component of a measurement
instrument (Kumar et al, 2001). Although the term ‘Reliability’ is a concept used for
testing or evaluating quantitative research, the idea is most often used in all kinds of
research. If we see the idea of testing as a way of information elicitation then the most
important test of any qualitative study is its quality. Eisner has researched qualitative
studies and says that a good qualitative study can help us “understand a situation that
would otherwise be enigmatic or confusing” (Eisner, 1991).
According to Silverman the high reliability in qualitative research is associated with
what Clive Seale calls low-interference descriptors. Recording observations in terms
that are as concrete as possible, including verbatim accounts of what people say, fore
example, rather than researchers’ reconstructions of the general sense of what a person
said, which would allow researchers’ personal perspectives to influence the reporting.
(Seale, 1999)
1. ANALYTICAL FRAMEWORK
Purpose of the analytical framework
The purpose of the analytical framework used in this study is to find suitable proven
models that can be applied to answer the research problem. The analytical framework
consists of the following parts:
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Figure 2. The analytical framework of this study
Why this analytical framework?
The purpose of these three models is to build a good base to understand the new business
market better. The PEST-analysis covers the macro-environment. New Capabilities
tries to explain how the company can build something new by renewing some
parts of its basic functions. Five forces analysis is about competitors. In the following
sections I describe these three models and how they are working.
An analysis from Monitor’s point of view is also done through these three models.
The purpose of this short analysis is to make it easier to give conclusions and answer
the main question and research problem of this study: Should Monitor be proactive
and enter to the new business market or should it be passive and do not enter to the
new business market.
Here by being proactive I mean that the company takes action and moves its functions
to the new business market; to a new country by doing a merger, starting up a new
company “green field” or hiring sales agents by setting up a strategic alliance.
New
Capabilities
Five Forces
Analysis
PEST-analysis
Being proactive / Entering
to the new business
market OR
being passive / not to
enter to the new
business market
The research problem:
Should Monitor be proactive and enter to the new business market or should it be passive
and do not enter to the new business market.
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Narver et al writes that in order for any business to create and to sustain new-product
success, a responsive market orientation is not sufficient and, thus, that a proactive
market orientation plays a very important positive role in a business's new-product
success (Narver et al 2004).
1.1. New Capabilities
In this part I introduce Grant’s theory of new capabilities. Grant writes about developing
new capabilities and how to use the new capabilities when renewing the company.
(Grant, 2005). Grant reviews five approaches that are commonly utilised when creating
new capabilities.
1. Mergers and Acquisitions. If new capabilities can only be developed over long periods,
then acquiring a company that already possesses the desired capability can
short-circuit the tortuous process of capability development. In technological fastmoving
environments, established firms typically use acquisitions as a means of acquiring
specific technical capabilities – Cisco Systems and Microsoft have each benefited
substantially from such acquisitions. However, using acquisitions as a means of
extending a company’s capability base involves major risks. On its own, an acquisition
does not achieve the intended goal. Once the acquisition has been made, the acquiring
company must find a way to integrate the acquiree’s capabilities with its own.
(Grant, 2005).
2. Strategic alliances. Strategic alliances offer a more targeted and cost effective
means to acquire or access another company’s capabilities. A strategic alliance is a
cooperative relationship between firms involving sharing of resources in pursuit of
common goals. Strategic alliances comprise a wide variety of collaborative relationships,
which include joint research, technology-sharing arrangements, shared manufacturing,
joint marketing and/or distribution arrangements, and vertical partnerships,
to mention but a few. (Grant, 2005).
3. Incubating capabilities. Organisational structure, management systems, and behavioural
norms that support existing capabilities may be unsuitable for new capabilities.
To resolve this problem, companies may need to develop new capabilities in separate
business units. (Grant 2005).
4. Product Sequencing. If we cannot design new capabilities from scratch, but we
know what types of capabilities are required for different products, then by pushing
the development of particular products we can pull the development of the capabilities
that those products require. (Grant, 2005).
5. Managing the process. Grant writes that Gary Hamel and C.K. Prahalad emphasise
that strategic intent, resource leverage and stretch, and the drive to create the future
are more important in building sustainable competitive advantage than initial resource
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advantages (Hamel, Prahalad, 2004). Michael Porter also emphasises the need for
companies to continually upgrade their resources and capabilities in order to sustain
competitive advantage. (Porter, 1991).
How does Monitor fit into Grant’s Developing new capabilities model?
Monitor has not done mergers and acquisitions (1). Monitor’s sales function consists
of their own salesmen. They have not done any strategic alliances with other companies
(2) except one salesman in Lithuania that sells the Monitor product as a Monitor
employee and all the extra services and training through his own company. Monitor
works very independently. Monitor’s organisation has a very flat hierarchy (3). There
are two main owners who are also running operations and making the main decisions.
1.2. Five forces model
Michael Porter's innovative research in the 1980's changed managers' perceptions of
their own industry's importance as a factor for their company's strategy. Business unit
managers would now have to study their industry's characteristics since an industry's
structure determines its relative economic attractiveness and hence, the profit potential
of all companies within that particular industry.
I have chosen to include this model in this work simply because Porter points out that
by understanding the competitive forces, and their underlying causes, you can reveal
the roots of an industry’s current profitability while providing a framework for anticipating
and influencing competition (and profitability) over time. A healthy industry
structure should be as much a competitive concern for strategists as their company’s
own position. Understanding industry structure is also essential to effective strategic
positioning. As we will see, defending against the competitive forces and shaping
them in a company’s favour is a crucial part of the overall strategy. (Porter, 2008)
Prior to Porter's publication, economists studying Industrial Organisation explained
varying levels of profitability between industries on their structural differences. Porter
focused on private policy rather than on public policy, that is, how to maximize profits
instead of how to locate excess profits. Industry as a factor changed almost overnight
from a given constant to an important variable in a firm's strategic decisionmaking
process. Porter made it clear that choosing a firm's relative competitive position
within a selected industry is a decision of secondary importance.
Porter's framework consists of five fundamental competitive forces:
1. Entry of competitors
assessing the ability of new entrants to start operations and the structural barriers they
must overcome;
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2. Threat of substitutes
assessing the ability of new products with superior characteristics to replace existing
product(s) or service(s);
3. Bargaining power of buyers
assessing the relative strength and number of buyers
4. Bargaining power of suppliers
assessing the relative strength and number of sellers;
5. Rivalry among the existing players
assessing the relative competitive strength of rival firms.
Figure 3. Michael Porter’s Five forces model.
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Why if this model important?
The model helps to understand how value is shared among actors, and provides insight
into redistribution of profits. The model takes a broader view on competition
than only a firm's existing competing firms. The business unit level provides a context
beyond a single product or range of products. Porter's model emphasises an outside
analysis of the organisation's environment over an internal focus.
How does Monitor fit into the Five forces model?
1. Entry of competitors
Monitor has unique technology and the product is patented. However, if Monitor
would choose to enter the Finnish market it would be treated as one of many competitors
in the same field. Monitor’s advantage is the product that has found its segment
and clients. Based on the findings in the empirical part it would be quite easy for
Monitor to be a successful company also in Finland. One reason for this is its chosen
segment: small and middle-sized manufacturing companies. Also client and business
specialist testimonials speak for Monitor, as its product is popular among its users and
a lot of sales is generated by word of mouth.
2. Threat of substitutes
There are substitutes for the Monitor product. Monitor can however compete well
with its ability to be flexible and it’s extremely easy-to-use-product. Small and middle-
sized companies can choose Monitor over a competitor because Monitor is not
presenting a global solution but can be tailored to any company. Monitor’s strength is
to show a patented and proven model and a product that is more user-friendly than
most other products. However, in the future there could be other substitutes in the
form of on-line service providers for ERP systems, selling or renting ERP software on
the Internet with no need for local infrastructure.
3. Bargaining power of buyers
Buyers work individually. The exception is if Monitor chooses to use strategic alliances
as an entry and sales method. Then Monitor will need to bargain with the distributor.
4. Bargaining power of suppliers
Monitor develops and produces its product 100% in-house. This force is not valid.
5. Rivalry among the existing players
The companies working in the ICT industry and offering ERP-tools are quite equally
strong. There is not one “de-facto” product above the others. The field is changing all
the time and is very sensitive to economical changes. According to the SIF-research
(1997) Monitor outperformed its competitors and was nominated the best IT-system
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in its own class. Some of the competitors that were involved in the same research
were very big multinational companies like Microsoft, Jeeves and Intentia Lawson.
Monitor can be strong in the new market because it can show facts of its success and
user-friendly interface. Even if it is a small company compared to other multinational
players.
1.3. PEST-analysis
The PEST-analysis is based on the PEST-factors which are political factors, economical
factors, social factors and technological factors. Using PEST-analysis (or also
sometimes called STEP-analysis) the firm can scan the macro environment where it
operates. PEST-factors play an important role in the value creation opportunities of a
strategy. Macro-economical factors can differ per continent, country or even region,
so normally a PEST analysis should be performed per country (Jonge, 12manage,
2006). PEST- factors describe the surrounding macro environment and are valuable to
analyse as such.
Kotler and Keller give a simple example of the political environment’s influence on
marketing decisions. Marketing decisions are strongly affected by developments in
the political and legal environment. This environment is composed of laws, government
agencies, and pressure groups that influence and limit various organisations and
individualists. For example, mandatory recycling laws have given the recycling industry
a major boost and spurred the creation of dozens of new companies making new
products from recycled materials (Kotler and Keller, 2006). Economical factor means
the people with the purchasing power. The available purchasing power in an economy
depends on current income, prices, savings, debt, and credit availability (Kotler and
Keller, 2006). Moreover, there are lots of things that can make the purchasing power
slow down or speed up. The Social-Cultural environment forms from the factors that
are explained by purchasers’ beliefs, values and norms that largely define these tastes
and preferences (Kotler and Keller, 2006).
According to Chapman the PEST analysis is a useful tool for understanding market
growth or decline, and as such the position, potential and direction for a business. The
PEST analysis’ headings are a framework for reviewing a situation, and can also, like
a SWOT analysis, and Porter's Five Forces model, be used to review a strategy or position,
direction of a company, a marketing proposition, or idea. PEST analysis can be
used for business and strategic planning, marketing planning, business and product
development and research reports (Chapman, 1995-2006).
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Figure 4. PEST-analysis model.
A PEST-analysis can help Monitor reach its goal to plan and execute a successful entry
to a new market. As Chapman writes, this analysis can help the company seek a
direction or review its strategy or position.
According to Chapman the PEST analysis is a useful tool for understanding market
growth or decline, and as such the position, potential and direction for a business
(Chapman, 2006). In Monitor’s case the PEST analysis would look like this:
Political forces
The Finnish society is ready for new ICT companies. A good infrastructure is there
waiting for new companies to start up their business. The attitude among the Finnish
politicians is good. Laws have been renewed and the juridical decisions are up-to-date
to reply to today’s challenges.
The software product industry in Finland is a prime example of joint focused planning
and action to support the industry, and these actions have clearly helped the industry.
Economical forces
Investors are constantly seeking for new ICT-investments. Taxation is good for the
entrepreneur. Potential customers continually improve their business processes, creating
a need for supporting IT systems. Customers eagerly pay well for systems giving
them competitive advantages. The buying power in Finland is similar to that in Sweden.
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Social forces
Finland has always shown good results in education comparisons. This means that
there are plenty of well educated people to employ in Finland.
The business environment is in good shape. Finland has a skilful workforce and good
international reputation as a working country.
Finns are known as ambitious and honest workers
Technological forces
There is plenty of technological know-how in Finland.
Monitor’s product is unique with its capability to be user-friendly and give advantage
both to the user and the company using it without too much effort.
Finland has top technological knowhow. Thanks to Nokia, a strong mobile cluster has
developed in Finland, including versatile competencies in various sectors of wireless
technology. Relative to the GDP, Finland is a major investor in technological R&D.
Finland is actually one of the world leaders in R&D investments.
As I pointed out before, a SWOT-analysis is very close to a PEST-analysis. The
PEST-analysis describes more of the macro-environment where SWOT can describe
even a single product or service or some smaller object or situation. SWOT-analysis
tests the strengths, weaknesses, opportunities and threats of a specific subject. If we
carry out a quick SWOT of Monitor’s chances in Finland it would look like this:
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