An overview of case company B

3.4.1 Background

Company B, an IT house specialised in information systems and applications for the energy business in the electricity sector, was founded around 1993-94. With a total number of 96 employees, company B had sales operations in Germany, Sweden, Norway and Switzerland. The Finnish electricity market was one of the first in Europe to be liberalized and company B has since held a strong domestic sales position. After the liberalization of the Finnish electricity market, the foun-ders of the company had sensed a potential international demand for energy mar-ket products when the Central European energy marmar-ket was reputedly to be liber-alized. Company B started producing simulators, data management software and application tools in the electricity energy sector for the purposes of upcoming international sales. Due to this early opportunity in the liberalized energy market, company B succeeded in achieving continued sales in several foreign countries.

However, at the time of data collection, company was experiencing problems in international sales growth.

3.4.2 Export expansion

With new product ideas for the international market, company B utilized knowl-edge, technology and techniques from the domestic market. The first successful international product was developed in 1995 and its second generation was built in 1998. The second generation product was based on the market need for such an advanced product which came out of the opening of the energy market in Central European countries. The product was developed from scratch and customer modi-fications such as the change of language were subsequently made according to requirements. International sales began in Switzerland. The second generation product was based on company B’s knowledge about energy data management software from earlier smaller product development projects for the international and domestic markets.

The first direct international order was a huge challenge. Up to 1998, Company B had been heavily involved in the domestic market and had only 20 employees.

However, almost at the same time, sales agreements with value-added resellers in Sweden, Germany, Switzerland, Australia and New Zealand were made. It was only in Sweden and Norway that company B did not internationalize through sales partnerships. Due to the close geographical locality of these countries to Finland and a similar language, it was easier to set up offices there with 4-5 em-ployees in each.

One of the other reasons why company B did not require partnerships in foreign markets was the nature of the products sold in foreign countries. For instance, a simulator product did not need a sales partnership. District heating software needed to be sold once and for all. However, company B did recognize that if they had had local presence (partnerships) in the countries surrounding Sweden and Norway, there could have been a greater probability of continued sales.

3.5 Organizational and market knowledge

The advantage that company B had from its experience as the leader in the de-regulated domestic energy market was its knowledge concerning the deregulation phases. Company B was able to sell a product during the opening and post-opening phases of the energy business deregulation. The knowledge from the do-mestic market (experiential knowledge) about product development and the

com-pany’s understanding of the phases that deregulated the energy market was the main asset for business growth in foreign countries. For each phase of the energy business deregulation, there was a need for a different product suitable for cus-tomers, or a need for some customer-specific modifications to an existing prod-uct. Without any previous knowledge of the domestic market it would have been hard for company B to convince foreign customers about their needs for certain products. The market was so highly dynamic that even the customers failed to understand or foresee their specific requirements. The export marketing manger of company B explained it this way:

‘From the domestic market, the knowledge was the main asset, because without the knowledge it was really hard to convince the customer. In this sector if you can put the argument and have knowledge then its easy to deal with the customers and then if you have the knowledge it’s easy to put this into the package. With the growth in export, the knowledge may vary but we do it in a way that we use the same way to go to a new market as we have been doing in previous history.’

For company B, knowledge of the customers’ needs was important as it was chal-lenging for any software firm belonging to energy sector facing deregulations, to integrate customer requirements into a useable product. For the acquisition of the customers’ knowledge company B depended on its local sales partners and its own previous experience. If the partner did not bring the right knowledge to the company, it was costly and inefficient to produce a software solution where the customers’ requirements were mapped into the product.

3.5.1 Interaction between organizational processes and market knowledge Partnerships were considered as a means to access foreign market knowledge, specifically regarding the needs of the customers and the sales and marketing of the final product to the end customer. However, company B, never solely relied on the knowledge of the needs of the customers transmitted by the partners. It relied more on its previous knowledge of product development and understanding of the different phases of the electricity energy market.

For Company B a partnership was primarily evaluated on the basis of the knowl-edge of the customers’ needs in foreign countries. The customers’ needs during the opening phase of the free energy market were similar from country to country.

However, terminology and rules of operating the software could differ. In that case, the basic framework of the software solutions of company B provided gen-eral flexibility to create a custom-made solutions package for different customers.

A partnership was further evaluated on the basis of whether the partner had good

connections to local potential customers. An additional important criterion was to see if partners had enough knowledge of the business. In some cases during the initial phase of opening up the energy market, when some customers were new to company B’s product and had no knowledge of the liberalized energy market, the local sales partners had to be able to convince new customers of the software and its application, otherwise it could have affected sales. Thus, if the local sales part-ner had knowledge of the business, an increase in the customer base could be ex-pected. The dependency on the sales partner was explained in the following way by one of the export marketing managers of company B:

‘For us it is valuable if the partner has good connections to local potential cus-tomer relationships for us. It helps if they know our business and things. We need partners as customers are already in the foreign country, partner has got the cus-tomer contacts, partner has friends in the end cuscus-tomers firm, partner can talk the local language, knows the culture of that country, and understands the decision-making process of the end customer already.’

Further

‘Even in one case (one country) the customers didn’t have any previous knowl-edge of the free energy market and what was coming, when the market is opening and that knowledge was transferred to our sales partners, they (value-added re-seller partner for company B) catched up and managed to sell something and convince the customers of our software and applications. It was not necessary for us, but a challenge. So we had the knowledge and they had the connections. If they could have all the knowledge that we had, I guess we could have sold a lot more. When we have delivered the system, customer wants that there is someone near next door to talk to if there is a problem. In one way, the success of our for-eign operations depends to a large extent on selecting a right sales partner for our business.’

Due to the specific nature of the energy deregulation processes in energy sector, the interaction between organizational processes and market knowldge knowledge for company B concentrated around acquiring customer specific knowledge and transforming it into a viable product.

The most challenging job for company B had been product customization - to understand customer-specific features and market-specific formats and to trans-form them into a commercial product. Due to such developments, several ver-sions of the products were produced for different end customers. Customers’ spe-cific requirements were diverse in each foreign market and managing these needs in each country and their product versions to suit 400 different customers was a

time-consuming job for the company. If product specifications were updated, they were updated in all the software versions. This took much of company B’s time and managing the existing portfolio of customers was in itself a barrier to expand-ing exports.

The other challenging job for the company was quality assurance according to industrial standards. Customer-specific requirements and different market-specific versions somehow influenced the speed of exports for the company.

Company B had to manage all 200 installations as long as its customers were us-ing this software product. All this required a complicated process of acquirus-ing knowledge about the customers’ needs, exchanging several conversations via partners to understand the end-users needs and then sharing the information with the company to respond accordingly. With an increased customer base and less formal means of knowledge sharing, company B is having some problems in managing the process. It was explained as:

‘In our company the decision-making practices and planning are much more practical and simple, we don’t only handle the matter in a precise way and things are not so organized in practice. In the beginning we have been very adaptable - easy to change things, distribute info, just ask in the coffee rooms. It’s easier to organize and adapt when we have only 10-20 people. Now when we are 100 it’s really difficult to get the info and inform everybody. Information sharing has been difficult. We have the same persons doing the parallel things, not separate per-sons. Now we need documents, planning as we are bigger company and can not adapt fastly.’

Some of the common routine work in company B was managed through software.

For example, the customers’ contact information, summary of their specific re-quirements, their feedback and an automatic email reply system was managed through internal software. The small size of the company was one other advan-tage in that every employee knew by heart what had been sent to the foreign cus-tomers. Thus, the practices and organized routines of company B had increased efficiency. The management was rather demanding but fully supportive when problems arose. Furthermore, again due to the small number of employees, and especially to the very small team dealing with foreign operations, it was easy and efficient to informally share information at the beginning of international opera-tions. Company B was learning to build formal processes of knowledge sharing to remain efficient in dealing with international customers. It was explained as:

‘One of our feature is the continuous development, we have gained the experience and also tried to accumulate the knowledge, and then the knowledge is stored somewhere, its available for new person, who comes to the organization or to the

project, so that information is documented. In the beginning when there are few people who work you don’t have a big organization, everyone does everything, and when the number of installations increased, then we had to analyze our own business processes, how we serve our customers, and then our organization was structured according to these processes. That was one step further, first there was handful of people and no organization, and then we had 60 people and formal processes.’

Concerning the best practices of the company, it is clear that the evolutionary nature of the energy deregulation, company developed best practices in the area of product development and learning the customer’s needs through their value-added resellers. Further, best practices were also developed in the area of partner-ship management with foreign distributors. It was explained by the export man-ager as:

‘Knowledge and experience of our business is the core capability of our business.

Our core capability to develop a successful product and then to be able to man-age our sales partnerships has given us an edge above others.’

3.5.2 Contextual factors to organizational and market knowledge

Knowledge about market dynamics: In the free energy market customers did not fully understand how the market would grow over a certain period of time. Simul-taneously, it was hard for company B to convince customers that the free energy market needed a variety of different data management products for different phases during the growth period. For example, for German customers it was a little too early to understand the data management needs for the opening phase of the market.

Further, export expansion barriers were also partnership related. In addition to a lack of understanding by the German customers regarding their market needs, company B’s foreign distributor in that country had no substantial experience in data management systems and furthermore lacked a good local network of cus-tomers. The foreign distributor was only interested in selling electricity meters and hardware. Company B learnt from this experience that the contact network and the sales track record of the foreign distributor needed to be checked as a se-lection standard for future partnerships in other foreign countries. However, an over all learning orientation by the company B in areas concerning business, cus-tomers and its partners were regarded as critical to export expansion. The export expansion barriers were explained by one manager in following:

‘When we have already decided to enter a new market, we must understand how the customer needs to handle the energy information processes. If we think what our customers are, we must understand the limitations of the business, how our customers, retailers, distribution companies work. We must understand the mechanism of the hierarchy of the energy transmission system. We must stand the process how does the liberalized energy market works, we must under-stand how our partners (foreign distributors) communicate, what are the formats they are using and must know the processes of the individual player in the market to whom we are supplying our software. In principle, when you go to one market, you understand the other market too but certain things maybe are organized in different ways. Language of the foreign market is another practical problem, be-cause your product must support the local language.’

As another manager mentioned:

‘The optimal case for our business is that in the beginning it is good to get more contacts number of customers, but with time you need to establish your own op-erations everywhere. We must learn to move into that direction. Our previous success in the track record sales has been limiting us from opening up our own sales offices in foreign countries. We had lot of things to do and currently need to prioritize things. We are one year late in that.’

Success: The managers of company B described that in order to expand into fur-ther foreign markets, they must focus. At that moment the company was involved at both the horizontal and vertical levels. This was a too broad an area for the company due to the increasing and demanding needs of the customers. It was ex-plained as:

‘We must choose a market segments, because a small company can’t be present in very many places. We must choose the strategy how to further internationalize.

One alternative is that we have got a standard product, we have got very good software, however we still need to establish strong markets. We are good in pro-ject modification aspects and are able to handle the existing propro-jects which need common modifications. However, we have to learn to run bigger projects also, and must develop internal processes and cumulative knowledge. A practical chal-lenge for company B is to improve the quality of the software, and the quality of the processes within the firm.’