In the last fifteen years, there has been a significant growth of studies in the field of family-owned and managed firms. The focus of the scholars has been heavily on internationalization of these firms (especially small and medium sized ones) and how their internationalization process differs from non-family firms. The distinction between the two firm ownership modes is usually defined as that the family owned firms have the majority of ownership within a family and the day to day operations are managed by family members whereas in comparison, non-family firms usually have dispersed ownership and professional based management. (Hennart, Majocci & Forlani 2019; Kontinen & Ojala 2010).
The current view amongst the scholars who study family owned firms´ internationalization is that family ownership and management discourage internationalization. For example, qualitative studies have shown that family-owned SMEs have a lower propensity to sell abroad (Thomas & Graves 2005) and that in comparison the family firms are less internationalized than non-family firms (Fernández &
Nieto 2005, 2006; Graves & Thomas 2006; Kontinen & Ojala 2010). The majority of scholars have come to the conclusion that family firms are reluctant to obtain financial resources because it might force them to dilute the family ownership or to put more focus and effort on human resources by recruiting external managers (Hennart, Majocci & Forlani 2019).
It must be noted that the aforementioned arguments are applied mostly to family-owned and managed SMEs. The reason for this is that, large family-owned firms have already surmounted these problems by hiring professionals with required skill set and by opening themselves to outside shareholders.
(Verbeke & Kano 2012; Hennart, Majocci & Forlani 2019). This is one of the reasons why the focus of this thesis is on the SME-sized family firms. The second reason is that the Finnish bakery industry, which is the context of this whole study, consist of roughly 90% from small bakeries that are mostly family-owned, and the majority of the industry’s revenues come from SME sized bakeries altogether (Hyrylä 2017).
In their study Erikson et al., 2000 describe that internationalization can be conceived as a process of learning and accumulation of knowledge. Also, in the studies of Johansson and Vahlne (1977; 2009) knowledge is a big part of the internationalization context as the process of international development is seen dependent of the firm´s ability to gain knowledge and learn from the international environment. In order to gain knowledge from global markets and learn from it, firms are reliant from networks. For example, Basly (2007) states in his article that networking strongly influences the process of organizational learning and knowledge development in family owned SMEs. Networks are also seen as an important way for firms to form bridge to new foreign market entries (Chetty & Blankenburg Holm 2000). Due to the characteristics of this thesis, the network perspective is thus best suited to examine the internationalization of the family-owned SME bakeries.
According to Plakoyiannaki et al., (2014) network approach to FB internationalization complements existing FB entry mode research. Foreign entry mode decision is a very critical for internationalizing firms (Hollensen, Ulrich & Boyd 2011). This is due to the fact that the operations in the market depend on the firm’s choice of foreign entry mode (Dyhr Ulrich, Hollensen & Boyd 2014). Foreign market entry modes have been studied from many perspectives, but the number of studies made from network perspective is not sufficient (Dyhr Ulrich, Hollensen & Boyd 2014). This presents an opportunity for this master´s thesis to research it. Combining the Finnish SME bakery context to the internationalization and foreign market entry theme and examining it from the network perspective we get to the research problem of this thesis.
1.1. Objective of the Study
The core objective of this thesis is to reveal reasons and factors why Finnish SME bakeries tend to stay at the domestic market even though the market is saturated and profit margins declining. At first glance foreign markets would provide great opportunities for growth and better profit margins. The underlying question remains as such: why haven´t Finnish small and midsized bakeries tapped the vast possibilities of the global market sphere? Thus, it is interesting to study the reasons behind factors that are holding the industry back. The different attributes of the context field have border lined the study approach towards such elements as network perspective and family business research. Thereby the primary and secondary research questions in this thesis are defined as such:
The main research problem of this thesis is:
How does networks impact Finnish family-owned SME bakeries internationalization process?
Research questions are:
1. How do networks affect to the selection of foreign entry mode?
2. What type of resources family-owned SME bakeries possess? How do these resources facilitate internationalization?
3. What role does the family ownership play in the internationalization process of a family-owned SME bakery?
1.2. Industry introduction
The Finnish bakery industry is the biggest sub-industry of the Finnish food industry when measured by number of companies. In 2016 there were a total of 670 bakery companies and the industry turnover was roughly 1084 million EUR. Compared to other countries the Finnish bakery industry is highly diverse and varied. The majority of the businesses in the industry are small and medium-sized and family operated. Smaller companies are usually local bakeries or confectionary shop, yet there are some nationwide distributing industrial bakeries in that category too. (Hyrylä 2017).
The bakery industry's business environment is challenging, and the competitive situation of bakery companies of different sizes varies in different parts of Finland. These challenges include fierce price competition, the increased import of bakery goods, changes in consumer behavior, the increased prevalence of outsourced bakery services and store baking points, overcapacity and the increased range of so-called replacement goods as well as the lack of natural growth in the domestic market. (Hyrylä 2017).
According to the Hyrylä´s (2017) industry report, bakeries should try to tackle these challenges by focusing on finding core competence or field of specialization, being more customer-oriented, increasing cooperation with-in the industry and by utilizing new technologies and automation.
Furthermore, the importance of export and internationalization is highlighted as a potential source for growth.
1.3. Structure of the Thesis
The second chapter lays the theoretical foundations for this study. Firstly, earlier network and internationalization of family business research is introduced and thoroughly inspected. Following this there will be a depiction of the internationalization process of family businesses from the network perspective. Finally, at the end of the chapter, the foreign entry mode literature is examined which concludes the literature review section of this thesis.
The third chapter describes the chosen research method and the data collection of this study. First, there will be an explanation for the selected research agenda and the arguments behind the chosen methods to conduct the research. Second, the data gathering process is portrayed and the challenges that arose in it. Also, the limitations and potential ethical problems are analyzed.
The fourth chapter presents the results of this study. In this chapter the three case firms are introduced and their outlook on internationalization of family business, networks and foreign market entry analyzed. The first case firm X will portray a small industrial bakery which focuses solely on frozen products. The second case firm Y selected for this thesis is bakery consulting firm, which focuses on new bakery product development, industrial consulting and bakery industry networking. The third case firm Z is a "half industrial” bakery (as their CEO describes it), which is also focusing on frozen bakery products. At the end of the chapter, the results based from the interviews conducted to the CEOs of these firms, are analyzed and showcased.
The fifth chapter concludes the main points of this thesis and compares the key findings that can be drawn from the interviews to the previous findings and literature. In this chapter, there will also be suggestions for future research as well as the limitations that might have affected the validity and generalizability of the results of this study.