UNIVERSITY OF EASTERN FINLAND
Faculty of Social Sciences and Business Studies Department of Business
Finnish family-owned SME bakeries:
Network approach to internationalization
Master´s thesis University of Eastern Finland Olli Hämäläinen 259579
ABSTRACT
UNIVERSITY OF EASTERN FINLAND Faculty of Social Sciences and Business Studies Department of Business
International business and sales
Hämäläinen, Olli, T.: Finnish family-owned SME bakeries: Network approach to internationalization Instructor: DSc. Saara Julkunen
March 2020
The Finnish bakery industry is a traditional field that is highly diverse and varied in terms of its products and firms. The majority of the bakeries are family-owned small and mid-sized enterprises (SME). Even though the internationalization of family-owned SMEs´ have been documented relatively well, there are industry related areas that have acquired less attention by previous scholars. Only a handful of food industry related studies have been made from a network perspective even though the link between internationalization of a family-owned SMEs and networks have been well established.
Characteristics, networking and foreign market entry mode processes of family-owned SMEs are discussed in a literature review of this master’s thesis. In other respects, the theoretical part presents a theoretical framework and propositions for a later empirical part. Additionally, a case study method is explained before the empirical part of this study. The research is based on a multiple case study of three Finnish bakery industry. The empirical part contributes to the existing family-owned SME literature by strengthening its earlier findings and providing new insights especially to the industry.
For this thesis there were three firms selected that possess insights from Finnish bakery industry, market and internationalization. Therefore, the empirical data has been collected by interviewing the CEOs of three Finnish firms. Cross-case analysis method is applied in order to analyze the interview data. In the later part of the study findings are presented. Firstly, a comprehensive view of the case firms is provided and secondly the findings are compared with each other.
This master’s thesis verifies several existing findings yet provides also new insights. Firstly, multiple challenges that affect family-owned SME bakeries are identified. These challenges relate to bakeries attitudes and resource allocation to global markets. The role of networking as a facilitator for family-owned SME bakeries internationalization is strongly emphasized in this study. Especially interesting industry related findings include factors such as product quality and specialization which create opportunities and makes networks weaker links stronger.
Key words: family-owned SME, Networking, Foreign market entry, Finnish Bakery industry
TIIVISTELMÄ
ITÄ-SUOMEN YLIOPISTO
Yhteiskuntatieteiden ja kauppatieteiden tiedekunta Kauppatieteen laitos
Kansainvälinen liiketoiminta ja myynti
Hämäläinen, Olli, T.: Suomalaiset pienet ja keskisuuret leipomot: verkosto lähestymistapa kansainvälistymiseen
Ohjaaja: DSc. Saara Julkunen maaliskuu 2020
Suomalainen leipomoala on perinteinen teollisuuden haara, jolle on ominaista erittäin laaja ja omaleimainen tuotevalikoima. Suurin osa suomalaisista leipomoista koostuu perheomisteisista pienistä ja keskisuurista leipomoista. Vaikkakin perheomisteisten pk-yritysten kansainvälistymisestä on viime vuosien aikana tehty laajalti tutkimuksia ei tämä ole koskettanut leipomoalaa. Vaikkakin kansainvälistyvien pienten ja keskikokoisten perheyritysten ja verkostojen välillä oleva yhteys on todettu tutkimuksissa ei kyseistä tutkimusasetelmaa ole sovellettu elintarvikealaan.
Tämän Pro-gradu työn kirjallisuus katsauksessa tarkastellaan lähemmin perheomisteisten pk-yritysten ominaispiirteitä, verkostoitumista sekä ulkomaisille markkinoille sovellettavia vientimalleja ja - strategioita. Tämän tutkielman teoreettinen osuus pyrkii muodostamaan tutkimusongelman ja viitekehyksen, jonka avulla empiirisen osion tuloksia voidaan tarkastella. Tutkimus on toteutettu kolmen suomalaisen leipomon tapaustutkimuksena. Metodiosiossa perehdytään tarkemmin valittuun tutkimusmetodiin ja sisällönanalyysiin. Työn empiirinen osio koostuu kolmen suomalaisen pienen leipomon toimitusjohtajien haastatteluista ja niiden analyysistä. Haastatteluiden teemat koostuivat leipomoalasta, kansainvälistymisestä, verkostoista ja perheyrittäjyydestä.
Tämä Pro-gradu työ vahvistaa monia olemassa olevia tutkimuslöydöksiä sekä tuottaa uusia tuloksia leipomoalalle. Ensinnäkin monia pienten ja keskisuurten leipomoiden kansainvälistymistä hankaloittavia tekijöitä on tunnistettavissa. Näitä tekijöitä ovat muun muassa leipomoiden asenteet ja resurssien hallinta kansainvälisessä kilpailussa. Verkostojen rooli perheomisteisten pienten ja keskisuurten leipomoiden kansainvälistymisessä on suuri. Leipomoalan kannalta suurimmat löydökset ovat tuotelaadun ja erikoistumisen merkitys kansainvälisten mahdollisuuksien luojana ja erilaisten verkostojen vahvistajana.
Key words: family-owned SME, Networking, Foreign market entry, Finnish Bakery industry
Sisällysluettelo
1. INTRODUCTION...5
1.1. Objective of the Study...6
1.2. Industry introduction...7
1.3. Structure of the Thesis...8
2. LITERATURE REVIEW...9
2.1. FAMILY BUSINESSES...9
2.1.1. Family business characteristics...9
2.1.2. Integrative model of small firm internationalization...10
2.1.3. Family firms and internationalization...11
2.2. NETWORKS...13
2.2.1. Definition...13
2.2.2. The network model of internationalization...13
2.2.3. Different types of network ties...16
2.2.4. Factors influencing network formation...16
2.3. NETWORKS AND FAMILY-OWNED SME INTERNATIONALIZATION...17
2.3.1. Network perspective in family business research...17
2.3.2. Theoretical approaches...19
2.4. FOREIGN MARKET ENTRY MODES...20
2.4.1. Definition...20
2.4.2. Entry mode decision...20
2.4.4. Intermediate entry modes...23
2.4.5. Hierarchical modes...24
3. METHODOLOGY, DATA AND ANALYSIS METHOD...27
3.2. Research method:...28
3.4. Data gathering...32
3.4. Data analysis...33
4. EMPIRICAL ANALYSIS AND FINDINGS...35
4.1. Internationalization and foreign market entry...35
4.2. Networks and network formation...43
4.3. Family-business and resources...49
5. DISCUSSION AND CONCLUSIONS...54
5.1. Key results and their significance...54
5.2. Limitations and future research...56
5.3. Summary of the research...57 REFERENCES...58 APPENDICES...63
1. INTRODUCTION
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.
2. LITERATURE REVIEW
In this section of this thesis we will take a close look at the earlier literature and theories. The next chapters will build the theoretical basis for this study. In the first part we will examine family business research and to be more exact, how family-owned firms are separated from non-family businesses as well as their internationalization process. Family business perspective is chosen to this thesis because majority of Finnish bakeries are family owned and thus, share the same qualities and traits.
After this the focus shifts to network studies. First there will be a brief history section and after that the internationalization aspect is portrayed. In an ever-increasing globalization and the shrinking world networks and relationships among people, organizations and government offers the perfect framework to study the internationalization of SME bakeries. This is why the network studies are added on this thesis.
In order to understand better, the requirements of foreign market entry, the last chapter of this literature review section is devoted to it. Concepts like low, intermediate and high control modes are defined and the path to making an entry mode decision is highlighted.
2.1. FAMILY BUSINESSES
2.1.1. Family business characteristics
As recently as the beginning of twentieth century, all businesses were family-owned which meant that the research of the family in a business context and the labeling the business as a family business was not needed. World has changed drastically from those days and different governing types have emerged, but family businesses are still a great importance for many economies. (Kuivalainen et al.
2012). However, family firms are still the most common firm governance type worldwide and especially in SME sized firms´, family ownership as well as management is still very common (La Porta, Lopez-de-Silanes & Shleifer 1999; Hennart, Majocci & Forlani 2019). Family business (FB from now on) related studies share a common criterion when it comes to the definition of a family business.
This criterion includes aspects such as ownership, management, continuity and subjective perspective.
According to the aforementioned criterion FB can be defined as a firm which managerial control and the majority of the stocks is owned by a family. (Kontinen & Ojala 2010; Hennart, Majocci & Forlani 2019).
From the continuity point of view owner–managers of family firms often wish to eventually pass on their firm to the younger generations. They tend therefore to maximize in the long run, avoid sharing control with others, and reserve management positions for family members (Verbeke & Kano, 2012).
This might explain why FBs do not internationalize the same way their non-FB counterparts.
Internationalization requires knowledge and resources which can be acquired through people who have expertise (Johanson & Vahlne 1977; 2009; Kontinen & Ojala 2010; Hennart, Majocci & Forlani 2019).
According to Fernandez & Nieto (2005) internationalization can be seen as a necessary strategical step for companies to make due to the ever-growing globalization of markets. However, the earlier studies suggest that FB´s, especially SME sized ones, are usually used to operate in domestic markets and that they are also less inclined to grow which are seen as aggravating factors in the global market sphere (Fernandez & Nieto 2005; 2006; Kontinen & Ojala 2010). Thus, it is important to devote more efforts to further study the different forms of international expansion for family firms and ways to improve them. Also, the amount of research studies made from the FB perspective is low especially in from Finnish bakery industry point of view. Due to these aspects it is only logical to devote more efforts to studying the different forms of international expansion for family firms.
2.1.2. Integrative model of small firm internationalization
Integrative model of a small firm internationalization is a combination of ideas from the Uppsala model and INV theory. It presents three different internationalization pathways of SMEs (Bell et al. 2003).
“Pathways” are refered to as a variety of strategies used in firms´ internationalization processes (Kontinen & Ojala 2012). These pathways include stages that are distinguished in terms of three dimensions which are time, referring to the pace of internationalization; scale, viewed in relation to foreign sales; and scope, a reference to the number of countries the firm operates (Kontinen & Ojala 2012).
In Bell et al. (2003) model, the first pathway is described as traditional firms that internationalize slowly and incrementally to psychically and geographically close markets. The internationalization of a traditional firm occurs in an ad hoc manner and is based on unsolicited orders or enquiries from overseas (Bell et al. 2003). Traditional firm’s product development is focused on the domestic market in mind whereas the foreign markets are seen secondary (Bell et al. 2004). It can be seen that the
internationalization of traditional firms follows the same pathway as described in the Uppsala model (Johanson & Vahlne 1977; Johanson & Wiedersheim-Paul 1975).
The second pathway forms from so called born global firms. These are firms which internationalize to several foreign markets simultaneously and rapidly straight from the inception of the company. They are also less influenced by psychic distance. This is seen to happen from internationalizing to markets where their products are sold well (Kontinen & Ojala 2012). Born global firms strive for first-mover advantage within niche markets (Bell et al. 2003). Product development is focused towards international markets rather than just catering the domestic customers (Bell et al. 2004). Firm that achieves foreign sales in a period of two to five years form its establishment, in addition to having at least 25 percent of their income from foreign markets and operating in at least five countries are commonly defined as born global firms. (Kuivalainen et al. 2012; Kontinen & Ojala 2012).
In Bell et al.´s (2003) model, the third internationalization pathway is called born-again global pathway. These firms have previously focused intently on the domestic market but have then internationalized suddenly due to critical events, such as a change of ownership and management, a takeover by another company, or client followership. For example, change in ownership or management can redirect the firm´s business activities and bring new people who have an international focus (Bell et al. 2004). Takeover is seen to help the firm to acquire more valuable resources such as managerial capability, foreign market knowledge, access to existing networks and financial resources.
(Kontinen & Ojala 2012). Client followership occurs when a firm´s domestic customer internationalizes its operations and the firm follows its customer to foreign markets (Bell et al., 2001).
It must be noted that the integrative model does not define how long the domestic period should be before a firm starts to internationalize its operations. In a study by Sheppard and McNaughton (2012) used a 28-year domestic period as a criterion for born-again global firms. They also found that born- again globals are larger in size than born global firms. In addition, born-again global firms seem to operate in more foreign countries than born global firms (Sheppard and McNaughton 2012).
2.1.3. Family firms and internationalization
Studies of family firms focusing on the internationalization process have found FB´s to follow sequential internationalization and launch the internationalization process in countries that are close from a geographical and cultural point of view. (Johanson & Vahlne 1977; Johanson & Wiedersheim- Paul 1975; Luostarinen 1979). Basically, these findings are following the propositions laid by the Uppsala model of internationalization. However, earlier research has recognized the emergence of
“born-again globals” which are SME´s (family SME´s in this case) that have rapidly internationalized to several countries after the reigns have been given to the next generation. (Johansson and Vahlne 1977; 2009 Kontinen & Ojala 2010).
From a managerial and strategical point of view, a big part of the FB literature claims that family businesses have lower propensity to internationalize than non-FB (Graves & Thomas 2004; 2006;
Claver, Rienda & Quer 2008; Kontinen & Ojala 2010). FB´s seem to seek maximizing the revenues from a particular market rather than aggressively across several markets. However, in a study made by Crick, Bradshaw & Chaudry (2006) found that family SMEs and non-family SMEs do not differ much in the development of bundles of resources in order to be internationally successful which indicates that there is no difference in the propensity to internationalize. Several studies have also found positive relationship between family ownership and internationalization (Fang, Kotlar, Memili, Chrisman, & De Massis 20018; Zahra 2003; 2005) Thus, it can be concluded that the current literature has mixed results on regarding the internationalization of in family firms.
Earlier literature would also suggest that factors inhibiting FB´s internationalization are organizational.
Basically, this is portrayed in FB´s as unwillingness to hire outside expertise and lose control. Also risk avoidance, lack of financial resources and difficulties in building portfolio of other strategic resources made the internationalization more difficult. (Chetty & Blankenburg-Holm 2000; Kontinen & Ojala 2010). Another difficulty FB´s face is that they do not seem to form networks as easily as non-FB´s (Basly 2007; Kontinen & Ojala 2010).
Despite all the difficulties, earlier literature includes factors that enhance FB internationalization. These include aspects such as long-term orientation and the speed in decision-making. It was also found that the likelihood of a successful international expansion is higher amongst FB´s that use information
technology, commit to the internationalization, build networks and have the capability to make innovations. (Davis & Harveston 2000; Basly 2007; Graves & Thomas 2008; Kontinen & Ojala 2010).
The entry of newer generations is also found to have a positive effect on FB internationalization (Fernández & Nieto 2005; Menéndez-Requejo 2005), although in some cases it has had no impact or even negative impact on internationalization (Graves & Thomas 2008).
2.2. NETWORKS
This chapter is a in depth overview of networking, relationships and business environment. In the beginning there will be a brief look at how networks are defined and theoretical background of the network theory approach. Before we go to examine the relationship of networks and SME internationalization, we take a closer look at different types of network ties.
2.2.1. Definition
According to one definition a network can be generally conceptualized as “a specific type of relation linking a defined set of persons, objects or events” (Donckels and Lambrecht, 1995, p. 273). Networks represent connections between actors that can be individuals or organizations (Coviello & Cox 2006).
To broaden it to business setting, a business network can be defined as the long-term business relationships that a firm has with its different shareholders such as customers, suppliers, distributors, competitors and the public sector e.g. government. (Johanson & Mattson 1988). Network ties are an important resource for SME sized firms for facilitating internationalization (Graves & Thomas 2008).
This is due to the limited resources that SMEs have for internationalization. (Kontinen & Ojala 2012).
In this thesis, individual-level network-tie analysis is applied to clarify how Finnish family SME bakeries utilize networks in order to recognize international opportunities.
2.2.2. The network model of internationalization
The network theory has widely challenged such theories like U-model and I-model (Johanson &
Vahlne 1977; Cavusgil & Nevin 1981) that promote incremental and step-by-step type of internationalization process views. And even though the theory is not a relatively new discovery, as it
has been around 30 years (Johanson & Mattsson 1988; Coviello & Munro 1995; 1997), it is accepted and recognized to be very useful in the study of small and medium sized companies that internationalize rapidly. There are several research studies that highlight the importance of the network approach and have shown the empirical support (Coviello & Munro 1995; 1997). Thus, it is quite baffling that network theory has not been applied to foreign market entry mode choice research as widely as other theory approaches (eg. transaction cost approach, U-models, Resource-based view or Knowledge-based view).
Johansson and Mattson (1988) created network model of internationalization that was based on business network research. In their internationalization of the firm study, context was firm´s own business networks as well as relevant business network structures in foreign markets. According to the approach, when a firm internationalizes, the number and strength of relationship between different parts of the business network increases. Thus, internationalizing is seen as a way to create and maintain business relationships with its counterparts in the foreign market. The model also highlights the importance of network structure outside the firm´s own business networks.
The researchers argue that during the internationalization process, firm strengthens the number and strength of the relationship of different parts of the business network. By internationalizing, the firm creates new relationships with counterparts in new countries and markets. According to the scholars this occurs in three different ways: First, by forming relationships with counterparts in countries that are new to the firm (international extension). Second, by extending the commitments to already familiar and established foreign networks (penetration). And third, by integrating the current positions in networks in various countries (international integration). (Johansson & Mattson 1988).
In the study, the researchers also argue that there are four categories of internationalizing firms. The first category is called Early Starters which are firms that have a small number of international relationships. They are in a position where they do not possess much knowledge about the foreign markets and their possibilities to acquire more knowledge from the domestic market is limited.
Therefore, the early starters use facilitators such as agent(s), to market entries to acquire required knowledge thus lowering the cost and uncertainty. (Johansson & Mattson 1988).
The second category comprises out of the lonely internationals. As the name suggests, these are companies that are highly internationalized that have acquired experience and knowledge with diverse
foreign market as the rest of the market environment is domestically focused. This knowledge development provides capabilities to further succession. These companies have an advantage, over their domestic competitors, since they have a position in the business network. (Johansson & Mattson 1988).
The third category is late starters that operate in a market environment that has already internationalized. Thus, they possess indirect relationships with foreign business networks through their competitors, customers and suppliers. This forms a challenging competitive environment for the companies as the competitors have established themselves in business networks. Therefore, late starters might favor entries to more distant markets. (Johansson & Mattson 1988).
The last category composes of international among other firms that are highly internationalized and operate in a global environment. They have already gained international experience and control activities in various market areas. These firms utilize various business networks to gather external resources. (Johansson & Mattson 1988).
Johanson & Mattsons (1988) network model has not survived without critic. In a study conducted by Chetty & Blankenburg-Holm (2000), found that criteria from which the firm matrix was created was not distinctive enough thus resulting overlapping of the firms to different categories. Also, the firm´s evolvement from one part of the matrix to another is not sufficiently addressed. The network theory also fails to discuss about the role of decision-makers and the firm´s capabilities in recognizing and taking opportunities for international penetration, expansion and integration emerged from different networks.
Chetty & Blankenburg-Holm (2000) also point out in their study that the network theory model does not take into consideration how firms overcome problems that have risen in internationalization through their network relationships. For instance, networks might affect the chosen market which to enter and the market entry mode thus determining the shape of the internationalization. Altogether, the influence of external factors towards the internationalization is excluded in the model. These factors include domestic competition, customers or a government economic policy.
Relationship building in the network theory model also receives critique. Johanson & Mattsons (1988) model only focuses on relationships that evolve organically. Chetty & Blankenburg-Holm (2000) found that relationships can form through interactions in formal associations. These include hard business networks, joint action groups and industry clusters.
2.2.3. Different types of network ties
Before we take a look how networks and internationalization in family-owned SMEs comes together, we examine different network types. Earlier literature has noted that in the beginning steps of internationalization firms connect to others to alleviate their foreign market entry. Firms usually try to create relationships to firms that have already established a position in foreign networks. Thus, these connections can be seen as a bridge to new market areas. (Johanson & Mattsson 1988).
In earlier literature network ties between (local and foreign) firms or individuals have been categorized in a variety of ways. In Kontinen and Ojala´s (2011) study, network ties were divided into formal ties, informal ties, and intermediary ties and same will be used in this study. A formal tie can be referred to as an existing tie between two individual business partners (Adler and Kwon, 2002, Coviello and Munro, 1997, Ojala, 2009) where products or services are exchanged by means of money or exchange (Adler & Kwon, 2002).
Informal ties, on the other hand, are related to social relationships, for instance with friends and family members (Coviello, 2006; Larson and Starr, 1993; Kontinen & Ojala 2011). However, the boundary between the formal and informal ties is not always clear. As Larson and Starr (1993) note, there is a possibility that informal ties may become formal and vice versa.
According to Ojala (2009) in the intermediary tie, there are no existing business transactions between the seller and the buyer. However, there is a third party, such as an organizer of exhibition, and that said party forms a context by facilitating the establishment of the network tie between the buyer and the seller. These third parties may, consequently, initiate international business activities between the seller and the buyer (Oviatt & McDougall, 2005). Kontinen & Ojala (2011) note that, these categories are not mutually exclusive since they tend to develop over time.
2.2.4. Factors influencing network formation
This study recognizes a gap in the formation of networks in the family-firm internationalization literature. According to Kampouri, Plakoyiannaki & Leppäaho (2017) future research should examine individual decision-making processes in the network formation. This is especially important when examining family-firms because the key decision makers are family members. The role of individual decision makers is extremely important, because their personal characteristics and/or interpretations are highly likely to affect all strategic decisions, including those concerning international networking activities (Child and Hsieh, 2014). That is why this thesis will try to shed light on the question will FBs try to form networks in order to internationalise or whether they internationalise on the basis of their existing networks.
2.3. NETWORKS AND FAMILY-OWNED SME INTERNATIONALIZATION
This chapter of the literature review will highlight the relationship between networks and FB internationalization. The goal of this is to get you, the reader to understand why the network perspective was selected for this thesis. Networks are essential to the internationalization of firms thus they lie at the very core of internationalization. Johanson and Mattson (1988) define internationalization as: “a process of initiating, developing and maintaining international business relationships”. Therefore, it must be noted that even though earlier research has provided useful insights into specific aspects of FB internationalization, they have given only a limited understanding of the key themes driving FB internationalization research from a network perspective. The lack of knowledge of networking in FB internationalization may result from the fact that relatively few articles have been included in previous reviews adopting a network perspective. (Kampouri, Plakoyiannaki &
Leppäaho 2017).
2.3.1. Network perspective in family business research
Lack of FB studies from a network perspective must be addressed accordingly especially because collaboration in business is becoming more and more common practice for companies. For companies, business relationships range informal to formal (for example as joint ventures). Firms competitive forces and capabilities are the forcing factors behind collaborations (Chetty & Blankenburg Holm 2000). Network relationships build firms capabilities and facilitates the acquiring of knowledge
(Hohenthal, Johanson & Johanson 2014). Chetty and Blankenburg Holm (2000) also state that firm´s internationalization is influenced by the internationalization of actors in its business network. They also argue that the internationalization of a firm can be seen as a “set of connected learning processes” that involves all the other actors of the network (such as competitors, suppliers, customers and government). In their study, Chetty & Blankenburg Holm (2000) also found that a firm´s current business network can form a bridge to new market entries.
It is well established that network ties are an important resource facilitating internationalization.
Especially among small and medium-sized enterprises (SMEs) that usually have limited resources for internationalization, network ties between firms have a significant role, as do the ties of individuals, especially managers or entrepreneurs (Crick & Spence, 2005; Ellis, 2008; Hadjikhani et al., 2005;
Kontinen & Ojala 2011). These ties have been seen as major factors in initiating the internationalization process, with firms following their networks to foreign markets (Kontinen & Ojala 2011). Same has been noted in Johansson & Mattsons (1988) network model of internationalization where network ties of a firm are seen as a bridge to foreign markets. FBs are seen to internationalize gradually, by building inter-organizational and inter-personal relationships. FBs are also likely to choose foreign market entry locations, based on where the network resources are abundant, and they can make maximum use of the available network resources. That is why FBs tend to internationalize to geographically close countries. (Chen 2003).
SME internationalization literature has also recognized opportunity identification as an important part of the internationalization process (Johanson & Vahlne 2009). Ellis (2008) argues that international opportunity refers to the possibility of conducting exchange with new foreign partners. These exchanges can be conducted, for example, with customers, distributors, licensees, franchisees, contract manufacturers, or joint venture partners. Earlier research seems to also suggest that entrepreneur´s network ties is positively related to opportunity recognition (Ozgen & Baron, 2007, Singh, 2000).
Earlier network theory of internationalization research would suggest that new network ties which are mainly formed at international trade exhibitions, have a crucial role in international opportunity recognition for family SMEs whereas strong ties such as family ties are less important. Hence among family SMEs, opportunity recognition does not commonly take place in existing network ties.
(Kontinen & Ojala 2011). However, there are contrasting results on the matter with studies by Bell (1995) and Coviello (2006) who found that in knowledge-intensive SMEs existing network ties had a more significant role.
Furthermore, Kontinen & Ojala (2011) argue that family SMEs are quick to develop their new weak ties into strong ties. They also mention that family SMEs also make a lot of efforts to maintain the strength of these ties. This might be because of the nature of the weak tie is seen as more important than the target country.
The academic view in the case of family SMEs thus is that a lack of bridging network ties inhibits internationalization, and that family SMEs compensate for their limited bridging network ties by attending international exhibitions where they can form new ties. Network ties mediated by international exhibitions are a crucial source of international opportunity recognition (Kontinen &
Ojala 2011).
Internationalization is always very critical decision for FBs. From a strategical perspective it seems that when FBs decide on their entry mode, they first consider how they can establish relationships with other businesses or business networks in the target market in question. After this, FBs try to find suitable partners to develop committed relationships which is very critical because failure in establishing and maintaining successful relationships with foreign partners will most likely endanger the survival of FBs international efforts and adversely affect their entry mode choises. (Kampouri, Plakoyiannaki & Leppäaho 2017).
2.3.2. Theoretical approaches
To conclude this section, it is fundamental to identify what parts of the network phenomena are studied through the prism of FB internationalization. Firstly, there is a need to clarify, how strong and weak ties are used among family firms to internationalise (Kampouri, Plakoyiannaki & Leppäaho 2017).
Academic view is that weaker ties might be better for the internationalization of SME sized firms (Kontinen & Ojala 2011), but the influence of family ownership has not been studied extensively enough to give a definitive answer to the matter.
FBs internationalise by slowly expanding their network reach from the home base (Chen, 2003).
Secondly, FBs are heterogeneous (Kampouri, Plakoyiannaki & Leppäaho 2017), which is why they are usually lumped together in studies. However, this study tries to bear in mind that there are significant differences between FBs. These differences are for example features such as size, industry, number of family members involved and years of operation (Kampouri, Plakoyiannaki & Leppäaho 2017). That is partly why the thesis focuses on bakery industry.
2.4. FOREIGN MARKET ENTRY MODES
In this part we are going to take a look at the different market entry modes. First this paper will illustrate how the entry mode choice decision is made. After that there will be an introduction to different entry modes. These include the exporting modes which consist out of indirect export, direct exporting and cooperative exporting. Second group of entry mode include intermediate entry mode which consists out of licensing, franchising and joint venture or strategic alliances. The third entry mode group are called the hierarchical modes and they include domestic sales division, foreign sales division and different types of subsidiaries.
2.4.1. Definition
A foreign market entry mode has been defined as an institutional agreement that enables the entry of firm’s different core resources that can be the production, technology, human know-how and management. The choice of the entry mode essentially consists of the preference of level of control firm wants that suits their risk tolerance and the chosen target market location. Thus, there are several approaches to entering a foreign market. Choosing the most suitable foreign entry mode is a strategically critical decision for a firm because it determines the degree of resource commitment, level of preferred risk and the level of control a firm has ability to exercise in the foreign market (Hollensen 2017; Laufs and Schwens 2014).
2.4.2. Entry mode decision
Earlier literature shows four attributes that the entry mode decision comprises out of. These are risk, returns, resource availability and control. Entry mode decision can be seen as a trade-off between risk and returns. For example, normative decision theory suggests that the firms expected choice of entry
mode is the one that offers the highest risk-adjusted return on investment (Agarwal & Ramaswami 1992; Hollensen 2017). Resource availability is referred to as the financial and managerial capacity that is focused on serving a particular foreign market (Agarwal & Ramaswami 1992). Control is an integral part as it is the antecedent determining the potential rewards and risks. (Hollensen, Boyd and Ulrich 2011). Agarwal and Ramaswami (1992) define control as firm´s need to influence systems, methods and decisions in a foreign market. It can be a way to maximize the returns on assets and improve a firm
´s competitive position. However, risks are also perceived to be higher due to greater responsibility of decision making and resource commitment (Agarwal & Ramaswami 1992).
2.4.3. Low control export modes
Low control modes are used mostly by smaller companies because said modes do not require as much firms’ resources as high control modes do. On the flip side, these modes might not be as profitable as modes that require higher control (Hollensen et al. 2011). Low control modes consist of indirect exporting, direct exporting and cooperative exporting.
Indirect export takes place when the exporting producer uses independent organizations that are located in the producer’s domestic country. In indirect exporting, the sale can be referred to domestic sale; the firm is not really engaging in global marketing, because its products are carried abroad by some other entity. Such an approach to exporting is most likely to be suited for a company that has limited international expansion aspirations. Indirect export modes are appropriate, if the international operations are seen as marginal or it can be utilized in disposing of surplus production. This method may also be adopted by a firm with minimal resources to devote to international expansion which wants to enter international markets gradually, testing out markets before committing major resources and effort to developing an export organization. (Hollensen p.368-370, 2017).
It is important for a firm to recognize, that the use of agents or export management companies might carrie a number of risks. The first thing to keep in mind is that, the firm has little or no control over the way the service or product is marketed in other countries. This means that products may be sold through channels that are inappropriate, with poor servicing or sales support and inadequate promotion, or be under- or over-priced. This can further damage the reputation or image of the service or product
in foreign markets. Limited effort may be devoted to developing the market, which may result in loss of potential opportunities. (Hollensen p.368-370, 2017).
It is particularly significant for the firms to note that in the case of being interested in gradually edging into international markets the fact is that, with indirect exporting, the firm has little or no contact with the foreign markets. Consequently, the firm will have limited information about foreign market potential and obtains little input to develop a plan for international expansion. The firm will have a harder time to identify potential sales agents or distributors for its products and form contacts to them.
(Hollensen p.368-370, 2017).
While indirect exporting has the advantage of being the least costly and risky of any other entry method, it also allows the firm to have only little control over how, when, where and by whom the products are sold. In some cases, the domestic production company may even be unaware that its products are being exported to foreign markets. (Hollensen 2017 p.368-370)
Direct exporting takes place when a producer or exporter sells directly to an importer or buyer that is located in a foreign market area. Compared to the indirect exporting, which examined ways of reaching foreign markets without working very hard, the direct approach requires a bit more resources and work.
As it was mentioned above, in the indirect approaches, foreign sales are handled in the same way as domestic sales: the producer does the global marketing only by so called proxy (i.e. through the firm that carries its products to abroad). However, the indirect approach severely limits achieving both the global marketing know-how and the sales. (Hollensen 2017 p.372-379).
As exporters gain more confidence through experience, they may decide to undertake their own exporting operations. This will involve building up contacts from foreign markets, carrying out marketing research, handling related documentation and logistical chains, and designing marketing strategies. Direct export modes include export through foreign-based agents and distributors which can be also defined as independent intermediaries. (Hollensen 2017 p.372-379).
Even though the terms ‘distributor’ and ‘agent’ are often used to portray the same there are distinct differences: distributors, unlike agents, take title to the goods, finance the inventories and bear the risk of their operations, whereas agents do not. Distributors are paid according to the difference between the buying and selling prices whereas agents are paid by commission. Distributors are often appointed
when the product of service requires after-sales service. This due to the fact that they are more likely than agents to possess the necessary resources for it. (Hollensen 2017 p.372-379).
To address the lack of resources that SME usually face, they might attempt entering export markets for the first time via export marketing groups. Many SMEs do not achieve sufficient scale economies in manufacturing and marketing because of the size of the domestic market or the inadequacy of the management´s knowledge and marketing resources available. These characteristics are typical of traditional, mature, highly fragmented industries such as bakeries, furniture and clothing. Interestingly the same characteristics can be found among small, recently established high-technology firms.
(Hollensen 2017 p.379-380).
The idea is that the cooperating firms form a broader product concept that might be more attractive to the foreign buyer. The cooperation amongst the firms can be tight or loose. In a loose cooperation the separate firms in a group sell their own brands through a same agent, whereas in a tight cooperation the end result is the creation of a new export association. Such an association can act as a so-called exporting arm of all member companies, presenting a united front to world markets. This has the potential to gain significant economies of scale as foreign operations can be concentrated. (Hollensen 2017 p.379-380).
Considering all the advantages for an SME of joining an export marketing group, it is surprising that so few groups are actually running. One of the reasons for this could be found in the firms conflicting views as to what the group should do. In many SMEs, especially family-owned ones, there might be strong feelings of independence which are inspired by their founders and entrepreneurs. This may be contrary, for example, to the common goal setting of export marketing groups. In order to succeed, one of the major obstacles to tackle for the export group is to balance the interests of its different stakeholders in the group. (Hollensen 2017 p.379-380).
2.4.4. Intermediate entry modes
As the name suggest, these modes are somewhere between the high control modes and the low control modes. To be more exact, sometimes the firm may find it either impossible or undesirable to supply all foreign markets from domestic or third country production facilities. In these instances, intermediate
entry modes can be distinguished from low control export modes in that the knowledge and skills are transferred between partners to create foreign market sales. The distinction to high control modes is that there is no full ownership as it is shared with a partner. For example, this is the case in strategic alliances and joint ventures where companies partner up and share everything; the resources, profits, risk, technology etc. for a long time (Hollensen et al. 2011; Hollensen 2017 p. 388).
In a study of choice of market entry mode in Danish SMEs, Hollensen, Boyd and Ulrich (2011) found that in local networks that work close together, the parent company will select collaborative approach in their entry mode selection and thus lean towards intermediate entry modes. Intermediary modes usually consist of a variety of agreements and arrangements. These include for example licencing, franchising and joint ventures.
Licencing is an entry mode where company establishes its production, product or service to a foreign market. For this mode it is distinctive that it does not require capital investment. In a more specific definition, the licensor (operating in the domestic market) gives rights to a licensee (operating in the targeted foreign market) for a certain patented product against a specified royalty. From a licensor’s viewpoint, licensing can be a two-way street as it can gain profits from trademarked products and get further product development from the licensee, but risk is that the licensee can build own operations based on the information supplied by the licensor. For example, the licensee gets access to the technology and product. This is highlighting the importance of laying out a specified legal contract.
(Hollensen 2017 p. 389-391).
Franchising is very similar to licensing to certain extent. In franchising the franchisor also gives a right to the franchisee against a specified payment. The difference is that the right contains a total business concept or system that already includes all trademarks, for example a brand. Franchising is very well suited to service activities and activities that are people intensive. (Hollensen 2017 p. 392-395).
Joint venture is defined as equity partnership that is typically formed between two partners. These partners create a form a venture together that operates in the designed market. A joint venture or a strategic alliance is a partnership between two or more parties. These ventures can be conducted at domestic as well as in international markets in different countries. Yet this obviously complicates the management of such an arrangement. (Hollensen 2017 p. 398).
2.4.5. Hierarchical modes
The final group of entry modes are so-called hierarchical mode, where the firm has a complete ownership and controls of the foreign entry mode. Here it is a question of where the control in the firm lies. The degree of control that focal firms head office can yield on the subsidiary will depend on how many and which value chain functions can be transferred to the market. This again depends on the allocation of responsibility and competence between the focal firm’s head office and the subsidiary, and how the firm wants to develop this on an international level. An organization that is not wholly owned (i.e. 100 per cent) will here be viewed as an export mode or an intermediate mode. However, it has been noted in earlier literature that even though the ownership percentage is less than 100%, (yet is over 50 %) the mode might be a hierarchical as the parent company still has a force exert its will.
There are a lot of different hierarchical modes but next we will showcase the most common ones. The most preferred high control modes are foreign direct investments such as wholly owned subsidiaries and original equipment manufacturer. These modes require a lot of control and resources from the focal company. Thus, they imply high commitment and high risks but also have the highest return on investment compared to lower control modes. (Hollensen et al. 2011).
Wholly owned subsidiaries divide to two categories. In deciding to establish wholly owned operations in a foreign country, a firm can either acquire an existing company at the target market or build its own operations from scratch to said market (greenfield investment). (Hollensen 2017 p.429).
Acquisition enables rapid entry and often provides access to existing distribution channels, customer base and, in some cases, established brand names or firm reputations. In some cases, also the existing management might remain, which could be provide a facilitated to entry into the market and allowing the firm to acquire more experience in dealing with the local market environment. This may be particularly advantageous for a firm with limited international management expertise, or little familiarity with the local market. (Hollensen 2017 p.429).
However, there might be difficulties encountered with acquisitions. This may lead firms to prefer to establish operations from the ground up, especially where production logistics is a key industry success factor, and where no appropriate acquisition targets are available, or they are too costly. The ability to integrate operations across countries, and to determine the direction of future international expansion,
is often a key motivation to establish wholly owned operations, even though it takes longer to build plants than to acquire them. Sometimes the host country might also motivate for greenfield investments by offering incentives. Furthermore, if the firm builds a new plant, it can incorporate the latest technology and equipment. A new facility means a fresh start and an opportunity for the international company to shape the local firm to its own image and requirements. (Hollensen 2017 p.429).
A significant notion from that earlier studies have found is correlation between higher firm size / higher turnover and the selection of high control market entry modes. This would indicate that higher turnover will enable companies to make stronger commitments in foreign markets and thus hierarchical modes are a more viable option to bigger companies (Hollensen et al. 2011).
3. METHODOLOGY, DATA AND ANALYSIS METHOD
This chapter will explain the selected research agenda of this master´s thesis and the arguments behind the chosen methods to conduct the research. In the next three chapters there will be a thorough examination of chosen the research methodology. The goal of this chapter is to prepare the reader to the empirical part of this thesis. This can only be achieved by justifying the process how the results are gathered.
The following chapter will examine how the empirical research approach was selected. After that there will be a presentation of the study method. Third chapter will shed the light on the chosen companies.
After this data gathering and source selection and potential challenges are discussed. Just before the empirical part of this thesis we will take overview of the limitations and potential ethical issues that affected this work, and all will be concluded to the discussion of the reliability and validity of the findings.
3.1. Research approach
Usually studies have been conducted by using either, deductive, inductive or abductive research approach to explain the method reasoning. In a deductive approach, the scholar uses previous theory to create propositions that are then tested empirically to the real world (Ghauri & Gronhaug 2002).
Inductive approach on the other hand relies on so called “grounded theory” where the theory is systematically generated from data (Dubois & Gadde 2002). The abductive approach is to be seen as different from a mixture of deductive and inductive approaches. An abductive approach is best applied when the researcher's objective is to discover new things, for example other variables and other relationships. (Dubois & Gadde 2002). In this thesis, an abductive research approach was used as the method of reasoning.
The empirical data of this thesis has been gathered to answer to the thesis research questions the best way possible. In order to answer to the research problem “how networks impact Finnish family-owned SME bakeries foreign entry mode choices” an abductive research approach was selected. Due to the nature of this thesis an abductive approach is the obvious choice since it matches the, pre-existing
knowledge and pairs it up with the empirical data. The goal is to create new understanding and knowledge to the subject without trying to generalize it.
This research paper has combined many research elements. The context revolves around the Finnish SME bakery field which further leads to study of the internationalization of SME family businesses and challenges they face in their internationalization process. The role of networks is examined and how they facilitate the internationalization process and further, impact the foreign market entry mode choices.
3.2. Research method
The “research paradigms” can be divided to three major ones which are qualitative, quantitative and mixed methods research. Qualitative research is most often described in contrast to quantitative research. It must be noted that quantitative research dominates the body of scientific work undertaken in social sciences, including business research (Eriksson & Kovalainen 2008). This master’s thesis represents the qualitative method research. Many qualitative approaches are concerned with interpretation and understanding, whereas many quantitative approaches deal with testing of hypothesis, statistical analysis and explanation (Eriksson & Kovalainen 2008). To justify the selection of a qualitative research it must be noted that the purpose of this study is to provide in-depth findings from cases that have numerous variables that differ from each other (e.g. size, age, business environment etc).
Focus of this thesis is on three separate cases thus it is a multiple-case study. Case studies are frequently used in industrial network research (Dubois & Gadde 2002) which makes it perfect for this thesis considering the bakery context and network approach. Another reason for the chosen method lies in the case studies strengths which are the learning possibilities. The interaction between a phenomenon and its context is best understood through in-depth case studies. (Dubois & Gadde 2002).
It must be noted that case study method is not suitable to investigate the phenomena prevalence and generalization (Yin 2003). The upcoming empirical part and its results are not aimed towards generalization and thus, the findings cannot be generalized to all firms with various conditions.
However, the chosen methodology provides the required tools for examining the prevalent research problem and questions that could not be examined with other methods.
Yin (2003) argues that multiple case studies are more preferable over single-case studies. It has been also noted that multiple-case studies might provide more conclusive evidence that will influence on the credibility of the research (Herriott & Firestone 1983). The disadvantage of the method is that it might require more resources such as time and expenses. This study has three case firms with different conditions and as connective factors consists from Finland, industry and the network impact to the internationalization process.
This research strives to provide a holistic understanding of the utilization of networks when Finnish family-owned bakeries choose their foreign entry modes. Purpose of this study is to find answers to the research problem: How do networks impact Finnish family-owned SME bakeries foreign entry mode choices? This research problem has resulted in the creation of two research questions that has guided the literature review as well as helped in choosing the right research methodology for this study. The research questions are:
(RQ1). How do networks affect to the selection of foreign entry mode?
(RQ2). What type of resources family-owned SME bakeries possess? How do these resources facilitate internationalization?
(RQ3). What role does the family ownership play in the internationalization process of a family-owned SME bakery?
It has been noted that the international business research is dominated with by quantitative research (Eriksson & Kovalainen 2008). This might be due to the fact that quantitative research provides more rigorous results whereas qualitative research can be seen as the, one that can be used as complimentary when studying something that is expressed in words and cannot be translated into numbers. (Eriksson
& Kovalainen 2008). Considering the theme and nature of this thesis: its topic and research problem it can be noted that they have influenced heavily on the chosen research methodology to be the qualitative.
3.3 Case firms
This part of this thesis begins with an in-depth description of the case firms that were interviewed. The interview data consist insightful data that might include delicate or confidential information and therefore permissions to publish were requested in advance. Permission to use the names was granted from all the interviewees but due to the mistake from the authors part these permissions were not recorded accordingly. In conclusion the names of the CEOs and the case firms are not revealed in this thesis.
The first interview was held in the middle of October 2019 with the CEO of firm X. The CEO´s background is purely commercial as she has a Bachelor of Business Administration degree majoring in international business and sales. Additionally, her working history includes few years at Loreal Finland as a product manager and a year as a product manager at the firm X before being promoted to the CEO position. Despite the degree and working for multinational corporation, the CEO has not gained much experience with international sales operations during her career.
Firm X is a family-owned bakery that is now in its third generation as the CEO and her two brothers run the company. The bakery is specialized in baking variety of frozen bakery goods. The product portfolio consists of such frozen products as rolls, sweet buns and breads. The firm has approximately 15 employees and makes turnover roughly 2,4 million euros per year.
The firm was founded in 1958 and it started as a small home bakery that provided products for local grocery stores and marketplaces close to the city of Lahti. With time the company grew, and it delivered fresh products around the county of Päijät-Häme. As the business grew, the production facilities were moved in the late 1960´s to its current location.
In 2000 the bakery started baking frozen products to hotels, restaurants and cafés (also known as HoReCa -sector) alongside with the fresh deliveries to grocery stores. During the time period of 2000 and 2010, grocery stores started chaining which meant that bakeries had a tough time negotiating with local grocery store owners and thus the fresh deliveries margins started to plummet.
