Strategic choices Stable independent survivors

Internationalization and the role of local markets. For these SMEs the local market’s share in the firm’s total sales was higher than for firms in the other clusters. The share of other domestic markets and of foreign markets in the firm’s total sales were much lower than for firms in the other clusters. Most firms (60%) did not export. However, of all export firms in the sample, those who had the longest exports experience were located in this cluster. More commonly than average, the SMEs in this cluster exported directly to their foreign customers. Typically these SMEs had no indirect exports: only one third (36%) had. One quarter of the SMEs imported. None of the firms had foreign subsidiaries.

Innovativeness and technology. In this cluster, none of the entrepreneurs considered their firm’s products unique in the markets. One sixth considered their products identical to those of their competitors. Most of these firms had neither new products in the markets (63%) nor products with more than 10% annual growth in sales (56%). In other words, they had products with a relatively stable sales volume.

Moreover, the proportion of products with a falling sales volume was much higher than in the other clusters. In those who had new products in the markets or products with more than 10% annual growth in sales, the proportion of such products was lower than in the other clusters. On the other hand, the proportion of products with a relatively stable sales volume was much higher, 75-80% on average, than in the other clusters. The typical attitude towards research and development was a striving to improve the quality of existing products, to add to their value, which was the aim for 61% of the SMEs in this cluster.

Specialization. The proportion of SMEs with no coherent and clearly defined customer segments was higher than in the other clusters. The customers of one quarter of the SMEs in this cluster could be regarded as fragmented.

Cooperation and networking. In this cluster, the proportion of those who considered that interfirm cooperation has no importance to the firm (10%) was higher than in the other clusters. Also, almost all the firms who tried to avoid cooperation were in this cluster: they constituted about 10% of the total. Interestingly, these two subgroups of firms reluctant to undertake interfirm cooperation were not composed of the same firms, i.e. some firms considered that interfirm cooperation had no importance to the firm, while others tried to avoid cooperation.

It was striking that more than one quarter of the SMEs (26%) were involved in no cooperation beyond the usual customer relationship. The firms had fewer network relations than firms in the other clusters. However, cooperation relationships were longer in time than in the other clusters, and this might be explained by the firms’

older age. When looking at the content of cooperation, the most common types were subcontracting and cooperation in marketing. A smaller proportion of the SMEs in this cluster bought or sold subcontracting than in the other clusters. Fewer than half of the firms (43%) were subcontractors, and two thirds (66%) sold subcontracting. Strategic choices for stable independent survivors are presented in Figure 6.7.

• the role of local markets was important

• export firms had the longest experience in exports

• typically neither indirect exports nor own imports

• no subsidiaries or joint ventures abroad

• products were quite similar to those of their competitors

• there were more products with a relatively stable sales volume than in the other clusters

• R&D focus on improving the quality of existing products to add to their value

• the most fragmented customers

• the most reluctant to undertake interfirm cooperation

• little interfirm cooperation and few cooperation partners

• only a small proportion of the firms bought or sold subcontracting Figure 6.7 Strategic choices for stable independent survivors

Innovators with continuous growth

Internationalization and the role of local markets. For an average firm in this cluster, sales was divided as follows: one quarter in local markets, half in other domestic markets, and one quarter abroad. However, a notable difference compared with the networkers with leapwise growth was that one third of these SMEs were not export firms. On the other hand, two thirds of export firms had started their exports during the 1990s, which seemed to be associated with these firm’s younger age. These SMEs had

fewer different ways of exporting than the SMEs in the other clusters. The most typical ways of exporting were exports directly to the customer, and direct exports with a foreign intermediary. Almost half (46%) had their own imports.

Innovativeness and technology. A high proportion of the SMEs were characterized by their unique products in the markets. Half of the SMEs had products which were unique or rare in the markets. On the other hand, in this cluster there were no firms with products which could be regarded as identical to those of their competitors. Moreover, in this cluster compared with the other clusters, relatively more firms produced new products in the markets: for half of them, at least 10% of their all products were new products in the markets. Characteristic of the SMEs was the high proportion of products with more than 10% annual growth in sales, which was considerably higher than in firms in the other clusters. Four out of five of these SMEs (82%) had products with more than 10% annual growth in sales. The proportions of products with a relatively stable sales volume and with a falling sales volume were lower than in the other clusters.

Compared with the SMEs in the other clusters, the firms were considerably more R&D oriented. Typically (52%), they strove to be the first in the market so as to achieve an adequate advantage over competitors and to be able to seize the opportunities of emerging markets for a new product. More SMEs in this cluster than in the others considered that the firm’s production technology was newer than that of their most important competitors. This was the case in one third (35%) of the SMEs.

Also, the firm’s risk of failure was assessed to be lower than in Finnish firms in general in more of the SMEs in this cluster. There were 35% such firms in the cluster.

Specialization. For these SMEs, the proportion of turnover due to the biggest customers was higher than in the other clusters. One third of turnover was due to the biggest customer, and the three biggest customers together generated half of the firm’s turnover.

Cooperation and networking. Half of the SMEs actively looked for new interfirm cooperation relationships, and the rest were interested in investigating cooperation possibilities if some other firm approached them. When looking at the content of cooperation, the most common types were subcontracting and cooperation in research and development. Compared with the other clusters, the use of interfirm cooperation in R&D was more common, whereas interfirm cooperation in purchasing was exceptionally rare among these firms.

Four out of five SMEs bought subcontracting, and almost half were subcontractors. These SMEs who were subcontractors could be divided into two equal-sized groups: those with a small proportion of subcontracting in terms of turnover (less than 20%), and those with a high proportion of subcontracting (more than 50%).

Strategic choices for innovators with continuous growth are presented in Figure 6.8.

• two thirds were export firms

• short experience in exporting

• the proportion of firms which had unique or rare products in the markets was higher than in the other clusters

• a high proportion of products with more than 10% annual growth in sales

• R&D-oriented with an attitude of “first in the market”

• the firm’s risk of failure was assessed to be lower than in Finnish firms in general in more of the SMEs in this cluster

• a few big customers

Figure 6.8 Strategic choices for innovators with continuous growth

Networkers with leapwise growth

Internationalization and the role of local markets. More firms in this cluster than in the others could be regarded as internationalized. Almost four fifths were export firms.

The firms’ sales were divided between market areas as in the case of innovators with continuous growth. Almost half of the SMEs had started exporting in the late 1980s and almost half in the early 1990s. These SMEs had a wider range of ways of exporting compared with those in the other clusters. Almost all SMEs with direct exports through their own unit abroad were in this cluster. Also, project exports was emphasized. More SMEs in this cluster than in the others (66%) had indirect exports.

Also, more than a half (56%) of the SMEs imported. One fifth had a subsidiary abroad.

Innovativeness and technology. There were relatively fewe r SMEs with unique products than in the cluster of innovators with continuous growth. Similarly, the proportion of SMEs with the attitude “we are first in the market” was lower than in the cluster of innovators with continuous growth. However, 38% of the SMEs strove to be the first in the market so as to achieve an adequate advantage over competitors and to be able to seize the opportunities of emerging markets for a new product.

Typically, these SMEs had new products in the markets, and products with more than 10% annual growth in sales. However, such products constituted a small proportion of the total. One fifth of the firms had no products with more than 10%

annual growth in sales. Products with a relatively stable sales volume constituted a major proportion of the total, 57-60% on average. Products with a falling sales volume accounted for less than 5% of all products of the firm.

Specialization. The SMEs in this cluster were more specialized in terms of products than firms in the other clusters. Almost all had focused clearly on one product or product area in their production, or they produced a few products or operated in a few related product areas. Similarly, they were more focused in terms of customers than SMEs in the other clusters.

Cooperation and networking. A high proportion of the SMEs considered that interfirm cooperation is of vital importance for the firm (41%). Also, more SMEs in this cluster than in the others actively looked for new interfirm cooperation relationships. This was the case for almost two thirds of the SMEs (62%). High cooperation activity may be explained by bigger size and specialization. Looking at the content of cooperation, the most common types were subcontracting and cooperation in marketing. Interfirm cooperation in purchases and finance were more common than in the other clusters. Negative experiences in cooperation were considerably rarer than in the other clusters.

More SMEs in this cluster than in the others were subcontractors (56%) or bought subcontracting (90%). The proportion of bought subcontracting in terms of turnover was higher than in the other clusters. Strategic choices for networkers with leapwise growth are presented in Figure 6.9.

• the highest proportion of internationalized SMEs

• the most export-oriented cluster of SMEs

• more SMEs with indirect exports than in the other clusters

• own imports

• subsidiaries abroad

• typically, products with a relatively stable sales volume played the major role, but there were also new products in the market, and products with more than 10% annual growth in sales

• the most focused SMEs in terms of products and customers (the most specialized SMEs)

• the most active in cooperation

• they were subcontractors and bought a considerable amount of subcontracting Figure 6.9 Strategic choices for networkers with leapwise growth

The major statistical differences in the strategic choices for the SMEs between the clusters were found in (1) local market’s share in the firm’s sales (p<.0005); (2) proportion of products with growing volume (p<.0005); (3) proportion of products with stable volume (p<.0005); (4) uniqueness of the products in the markets (p=.001);

(5) the number of network relations (p=.001); (6) importing (p=.003); (7) indirect exporting (p=.005); (8) R&D orientation (p=.007); and (9) proportion of new products in the markets (p=.008). In addition, there were differences between the clusters in (10) subsidiaries or joint ventures abroad (p=.012); (11) bought subcontracting as a share of turnover (p=.042); and (12) attitude towards interfirm cooperation (p=.044).

6.6 Success and survival factors