Acknowledgements. We would also like to thank our examiner Dr. Soniya Billore and our opponents for valuable comments, criticism and ideas.

Transcription

1 Bachelor thesis It is when we all play safe that we create a world of utmost insecurity A qualitative study of Swedish B2B SMEs risk perception when internationalizing to East Africa [Skriv text] Authors: Marli Jaiteh & Tobias Jakobsson Supervisor: Richard Owusu Examiner: Soniya Billore Date: Subject: International Business Level: Bachelors Thesis, Spring 2014 Course code: 2FE50E

2 Acknowledgements We are extremely thankful to each and every one that has been a part of the creation of this thesis and we would like to take the opportunity to specifically thank the people whose engagement has inspired us. We would like to give special thanks to Harald von Matérn at the Swedish-East African Chamber of Commerce and Nils Marcks von Würtemberg at Swedfund whom made it possible for us to come in contact with the case firms. We would also like to give special thanks to our respondents Lennart Källbäck at Fastdev AB, Mattias Lägermo at Mattias Bygg AB, Gunnar Björklund at Procamp AB, Tom Walsh at Renetch AB and Mikael Brink at Sebab AB, without their help this research would have never been possible. Furthermore we would like to give special thanks to a person that has inspired us through his engagement, his knowledge, his genuine interest in our discussions and his ability to always challenge us, our mentor Dr. Richard Owusu. We would also like to thank our examiner Dr. Soniya Billore and our opponents for valuable comments, criticism and ideas. Kalmar 27 th of May 2014 Marli Jaiteh Tobias Jakobsson i

3 Abstract The purpose of this thesis is to describe and analyze how five Swedish business-tobusiness (B2B) small- and medium sized enterprises (SME) perceive risk when internationalizing to East African countries. By distinguishing these risks the aim has been to increase the understanding and awareness of the affect that these risks can have on a firm s internationalization process. To be able to gain a deeper insight of the reality the study has been conducted with a qualitative method and an inductive research approach. The primary data has been collected by conducting interviews with the firms that has been a part of this multiple case study. In order to increase the understanding and thereby fulfill the purpose of this study, the main research question is formulated as follows: how do Swedish B2B SMEs perceive the various risks that they face when internationalizing to East African countries? The theoretical framework has its foundation within the risk theory which is connected to the Uppsala internationalization model, the network theory, motives and triggers for internationalization and the choice of entry mode. The empirical data describes how the case companies entered the East African market, which risks they have encountered and how knowledge has affected their risk perception. In the analysis the empirical data and the theoretical framework is discussed in order to see whether the theories corresponds with the reality of these firms. Furthermore the analysis describes how the firms knowledge and relations affect their perception of risk, which risks the firms have encountered within the general environment, industry environment and the firm specific environment as well as how their previous knowledge has affected their perception of risk. The conclusion indicates that Swedish B2B SMEs internationalizing to East African countries encounter several risks, however the perception of these risks differentiates based on the firms previous knowledge of the market. The significance lie within being aware of the risks and thereby being able to see these risks as strategically manageable. Keywords Risk, uncertainty, East Africa, small- and medium sized enterprises, business-tobusiness, network, knowledge, strategy. ii

4 TABLE OF CONTENT 1. INTRODUCTION Background Problem discussion Research question Purpose Delimitations Disposition THEORETICAL FRAMEWORK Risk theory Uppsala internationalization model The process model The revised model Network theory The early starter The late starter The lonely international The international among others Motivators and triggers of internationalization Entry modes Agent Project business Joint venture Owned subsidiary Conceptual framework METHODOLOGY Research approach Research method Research strategy Formation of case study Selection of case firms Fastdev AB Mattias Bygg AB Procamp AB Renetech AB Sebab AB Operationalization iii

5 3.6 Data collection Secondary data Primary data Interviews Data analysis method Quality of research Validity Reliability EMPIRICAL DATA Fastdev AB Entering East Africa Risks Level of knowledge Mattias Bygg AB Entering East Africa Risks Level of knowledge Procamp AB Entering East Africa Risk Level of knowledge Renetech AB Entering East Africa Risks Level of knowledge Sebab AB Entering East Africa Risks Level of knowledge ANALYSIS Knowledge and relations Perception of risk General environment uncertainties Industry uncertainties Firm-specific uncertainties Emergent strategy Internationalize or not? Entry mode iv

6 5.4 Knowledge in retrospect CONCLUSION Results Practical recommendations Theoretical contribution Recommendations for future research REFERENCES v

7 INTRODUCTION 1. INTRODUCTION In the first chapter of this thesis the emphasis will be put towards describing the background of this research. The background will further lead to the discussion of the problem which in turn will result in the outcome of the research questions. Furthermore the purpose will explain the significance of this study. 1.1 Background Our modern world is built upon an intricate web that connects businesses and people from all over the world. Baylis and Smith (2005) explains that there has been a change in the way we do business, due to globalization and the revolution of communication it has become both easy and convenient to conduct business across borders. Further Baylis and Smith (2005) describes globalization as a process that creates interconnectedness between societies which lead to political, physical, economical and cultural barriers becoming more diffuse. Hamilton and Webster (2009) emphasizes that the exchange of goods and services between countries has become stimulated by the fact that barriers that where separating different regions of the world, currently are moving towards either becoming reduced or has already been completely removed. Globalization is entering the next phase and for firms all over the world this means that they have to be prepared to take some risk and make decisions without a foreseeable outcome (Ernst & Young, 2012). Audretch (2003) explains that globalization is a shift in economic activity where the activity has moved from a local or national sphere to an international or global. Globalization is without a doubt a contributing factor for businesses being able to choose between a wider selection of markets, choose between suppliers and become more cost-efficient (Hamilton & Webster, 2009). Furthermore, the authors highlight the importance of learning how to handle different uncertainties that can arise within political, economic, socio-cultural and technological areas. To be able to move towards reducing uncertainties such as the ones mentioned above we have to be percipient and willing to educate ourselves to create a market that is available for everyone (Hamilton & Webster, 2009). However, in today s business climate these uncertainties can be seen as risks for companies when entering more distant geographical markets. In some markets uncertainties are more salient than in other markets which make the perceived risk for companies entering these markets higher. Many countries in Africa are 1

8 INTRODUCTION perceived to have highly uncertain markets where historical reasons such as poverty, political instability and wars have made these markets unattractive for companies to invest in. Nevertheless McKinsey (2010) reports large developments in many areas in the African continent. Foreign direct investments (FDI) targeted towards Africa has increased from 9 billion USD in 2000 to 62 billion USD in Governments have invested in management skills, infrastructure and new technology in order to emphasize the importance of foreign firms deepening their involvement with African companies (McKinsey, 2010). Alongside with the shift in trade patterns the demographic trends has changed as well, in the year of 1980 just 28 percent of the African population lived in cities compared to 40 percent living in cities today (McKinsey, 2010). The report also projects that 50 percent of Africa s population will be living in cities by Urbanization in Africa is almost the same as in China and larger than in India which leads to the creation of more job opportunities and a demand created by a fast growing middleclass (McKinsey, 2010). The future growth of African countries is of great importance and a driving force for foreign firms investing in Africa is the richness of resources. During an annual meeting the International Monetary Fund (IMF) stressed the importance of improvements that will have to be made in infrastructure but also the usage of natural resources in order to continue the economic growth as well as reducing poverty (IMF, 2013). The resources that Africa has to offer have been the key in the economic growth that the continent has had from being seen as hopeless and turning the negative image to an aspiring market (Rielaender, 2013). Although as natural resources could be seen as the key of growth it will help to a certain extent and will need complements in order for African countries to continue with a high economic growth (Rielaender, 2013). Lamy (2013) describes the African continent as full of opportunities where the recovery from the last economic crisis stems not only from natural resources and the higher prices on commodities. Improvements in the legal environment, a growing middle-class with a higher demand and a better political stability in many areas are some important factors making the economies grow rapidly (Lamy, 2013). Many African countries have realized the importance of not only relying on its internal resources but realize the importance of investments from abroad. Countries have been making many improvements in order to ensure a long-term and sustainable growth realizing the potential of foreign firms investing in the countries (Knobe, 2010). 2

9 INTRODUCTION The Swedish Minister of Finance Anders Borg recently discussed investments in Africa and although Africa still have many challenges with corruption, bureaucracy and the lack of development in infrastructure the continent has come a long way from the picture presented above (Borg, 2014). The last couple of years there have been an ongoing debate regarding Swedish companies investing in Africa. Large scale enterprises (LSE) and multinational companies (MNC) have entered African countries as well as they have increased their exports to African markets dramatically. Today the Swedish presence in Africa, specifically in Eastern Africa, is becoming more extensive where governmental export facilitators are strengthening their positions. The increased focus on the region is motivated by the location of the so called Lion-economies where five of them are situated in East Africa, these economies are significant as they have experienced solid growth for several years (African Economic Outlook, 2013). Currently there is a focus on changing the image of Africa as an unattractive investment market towards becoming a market of opportunities (McKinsey, 2010; Ernst & Young, 2013). Borg (2014) want to increase the Swedish investments and put emphasis towards the strong ties and the relationship Sweden has with East Africa. The future for Swedish exports lays within the African market where Borg (2014) emphasizes that the population and economies in Africa will grow tremendously in the nearest future. Ultvedt (2012) highlights that the Swedish government has an aim of improving trade towards Africa where presence to a larger extent is necessary, this is mainly to be able to work with Aid for Trade as well as improving the image of Sweden. Aid for Trade is a project that focuses on giving aid that will improve trade which is seen as a sustainable way of helping Africa (UD, 2006). The business relations between Sweden and African countries has never been as important as they are today as Sweden has a variety of innovative firms that are leading within areas such as water purification and solar power. Africa is in need of technology within some of these areas which gives Swedish firms an advantage point being able to further improve the infrastructure and environment (Knobe, 2010). Previous research regarding companies entering the African markets concerns both what motivates as well as what makes companies reluctant to invest in African businesses. The focus has been on companies investing capital into a company or entity based in one or more African countries. When researching the extent of FDI in Africa researchers 3

10 INTRODUCTION have been focusing on how the development has helped African countries as well as how to further promote FDI in African governments perspective for more sustainable growth. Investing in a country through FDI or establishing export targeted towards the African market has previously not been of interest for firms due to the fact that Africa has been viewed as a hopeless continent (UN, 1999). However, companies that have been investing in Africa in one way or another have had a much higher profitability level than companies that invests elsewhere (UN, 1999). In a report from Ernst & Young (2013) they claim that returns on investments in Africa are the second highest in the world after Asia. Although the majority of the companies that do have the resources to invest are LSEs or MNCs and it therefore becomes easier for these firms to gain information which helps reduce the uncertainties. The research lacks a diversification when it comes to both investment and establishment in Africa. The emphasis of previous research has had a focus on LSEs and MNCs and their internationalization process. Risk management studies have also been focusing on larger corporations and their ability to adapt to their new market environment. We therefore stress that there is a need for research concerning small- and medium sized enterprises (SME 1 ) and their perception of risk. This because of the fact that 99,8 percent of the firms in Sweden are SMEs and therefore they stand for the employment of the larger part of the Swedish population (European Commission, 2012). The internationalizing of more Swedish SMEs will lead to the creation of new job opportunities as well as contributing to the Swedish economy by being a part of the evolvement of Lion-economies. 1.2 Problem discussion As more companies search for opportunities in more distant markets there has been an increased interest for research concerning the internationalization process of firms entering emerging markets. London and Hart (2004) stress that as the markets in developed countries are becoming more saturated MNCs instead turn their focus towards emerging economies. However, MNCs are large scale organizations and research show that they sometimes are having difficulties with reformulating their existing business strategies to fit the emerging market environment (London & Hart, 2004). On the contrary SMEs have an advantage when adapting their strategies to fit the emerging market conditions as these firms tend to make decisions faster due to fewer decision makers in the organization. Hilmersson and Jansson (2012) has conducted a 1 European Commission (2003) defines an SME as a firm with less than 250 employees and equal or less than 50 million in turnover or 43 million in balance sheet total. 4

11 INTRODUCTION research with emphasis on the internationalization of SMEs towards emerging markets where the firms studied have entered Easter European countries, Russia as well as China. The authors stress that reducing uncertainties within the internationalization process can be managed with a high degree of experiential knowledge. Petersen et.al. (2003) stress that knowledge is a significant factor when internationalizing as it influences both the chosen mode of entry as well as the pace of the internationalization process. In previous research Asia, Eastern Europe and South Africa have been of interest concerning firm s internationalization process (Owusu & Hibiyakare, 2011; Hilmersson & Jansson, 2012, Sandberg, 2012). There has been a focus on LSEs and MNCs although when studying SMEs research has primarily been conducted on rapidly internationalizing firms that tend to be small (Oviatt & McDougall, 1994; Karlsen, 2001). In accordance with prior research there has been an appearance of a research gap concerning the internationalization of SMEs and their entry into non-traditional emerging economies. When conducting research of SMEs in other emerging economies with other market conditions, uncertainties that could differentiate from other studies of emerging markets could appear. Since most African countries are considered to be emerging economies there is a lot of potential for studying the development that currently is taking place. Owusu and Hibiyakare (2011) have conducted a study of Finnish LSEs entering South Africa where they highlight that turbulence and risk are strongly interrelated. Geographical distance is a factor that creates uncertainty which in turn increases the risk involved in entering a more distant market. Today there are many perceptions of risk as well as many ways to study risk in relation to the internationalization strategy of firms. When evaluating the internationalization strategies of SMEs the most common determinant is the lack of resources which could put these firms in a difficult position when not having the ability to research new markets (Johanson & Vahlne, 1977). When not having the resources required the gathering of information becomes more difficult and since knowledge is such an important determinant some SMEs instead tend to choose markets close to home in order to reduce uncertainty (Johanson & Vahlne, 1977). According to Owusu and Hibiyakare (2011) the turbulence and risks perceived when entering an emerging market can be lowered with the help of networks, step-by- 5

12 INTRODUCTION step involvement, strategic alliances as well as choosing the right entry mode best suited for the market. When analyzing SMEs and what characterize the internationalization process emphasis has been put towards entrepreneurial activities. International entrepreneurship combines the traits of being innovative, proactive and willing to take on risk (Oviatt & McDougall, 2000). Furthermore the authors elaborate with the idea that the definition of international entrepreneurship is closely related to discovery, evaluation and exploitation where opportunities leads to international expansion (Oviatt & McDougall, 2005). In order to be competitive in the international market companies will have to see the world as a global economy where a need to be proactive and being aggressive in pursuing international opportunities is of utmost importance (Labbe, 1994). Swedish SMEs have been slow in pursuing the opportunities in Africa however, the business relations between Sweden and Africa has a long history. The relation between the two has its foundation in political policy making where Sweden strategically wants to be a part of the development of the African continent. The sectors in focus are the energy sector, the environment and sustainable extraction of natural resources where Swedish firms have niche competence (UD, 2008). The Swedish export to Africa has been dominated by large industrial firms who in turn have paved the way for smaller firms internationalization. We want to put emphasis towards SMEs since 99,8 percent of Swedish firms is placed within this category and that one out four of these firms are internationalized (European Commission, 2012; Tillväxtverket, 2014). Overall there has been an increase of export between Sweden and Africa, when looking at the flourishing economies such as Kenya in East Africa the volume of trade has increased with 310 percent between the years (Swedenabroad, 2014). The export between Sweden and East Africa has developed rapidly however, there is still reluctance from some firms to invest in the region due to the historical uncertainties. Hence the significance of the opportunities overweighing the uncertainties and the importance for firms to manage risks within the process of internationalization. 6

13 INTRODUCTION 1.3 Research question In order to understand how Swedish B2B SMEs perceive risks when internationalizing towards East Africa, we have formulated one main research question that is followed by two sub-questions. The two sub-questions have been formulated to help answer the main research question. Main research question It is of significance to gain a deeper understanding of firms perception of risks when internationalizing as this affects the company s international involvement. By distinguishing the risks companies can learn how to manage these as well as they will be able to use this knowledge in other internationalization processes. The problem identified is therefore formulated as follows: How do Swedish B2B SMEs perceive the various risks that they face when internationalizing to East African countries? Sub-question 1 There are many risks involved with a firm s internationalization process towards more distant markets and to be able to distinguish these risks there is a need for a deeper understanding of how and where these risks occur. In order to answer the main question the identification of which risks these companies can face is of importance in order to provide common indicators for how companies perceive risks. The first sub-question is therefore formulated as follows: Which are the main risks to consider? Sub-question 2 When internationalizing towards a new market the knowledge concerning the new business environment is of utmost importance. When the level of knowledge is low prior to the internationalization this could be affect the company s risk perception. The second sub-question is therefore formulated as follows: How does the firms knowledge affect the perception of risk? 7

14 INTRODUCTION 1.4 Purpose The purpose of this thesis is to describe and analyze how five Swedish B2B SMEs perceive risk when internationalizing to East African countries. We intend to contribute both with empirical and theoretical contributions regarding risk perception in this matter in order to ease the establishment for other companies wanting to expand to East Africa. Further we want to create guidelines that can be useful for Swedish business facilitators to help understand what information they need to consider in the future. 1.5 Delimitations During this thesis we have decided not to focus on business-to-consumer companies as the companies we have been able to get access to have all been business-to-business firms. 1.6 Disposition Figure 1 presented below presents the disposition of this thesis where the first chapter provides the reader with an introduction that leads to the formulation of the research question. Further the theoretical framework is presented which has been the foundation of this research. The third chapter describes the methodology where the emphasis is to provide guidelines for how the research has been conducted. Following chapter presents the empirical data which has been gathered from the case companies and this information in relation with the theoretical framework will lead to the analysis. In the final chapter the research questions will be answered as well as it will conclude recommendations and future research topics. 8

15 INTRODUCTION Main research question How do Swedish B2B SMEs perceive the various risks that they face when internationalizing to East African countries? Sub-question 1 Which are the main risks to consider? Sub-question 2 How does the firms knowledge affect the perception of risk? Theoretical framework Risk, Uppsala internationalization model, Network, Motives and triggers, Entry mode Empirical data Case company interviews Analysis Conclusion Fig.1. Disposition of the thesis (Own construction) 9

16 THEORETICAL FRAMEWORK 2. THEORETICAL FRAMEWORK In this chapter emphasis will be put towards describing the theories and concepts that have been significant in this research. The aim is to provide an enhanced understanding for the relevance of each theory and describe how the theories relate to each other within the conceptual framework. 2.1 Risk theory Risk is an expression that has been described in many ways nevertheless it has been difficult defining risk as a single entity, instead it has been easier to define the different areas affected by risk (Baird & Thomas, 1985). Previous research implies that there has been an increase of the interest concerning risk strategies in relation to both micro- and macro environment. Baird and Thomas (1985) describe risk as an important aspect that has influence on corporate strategy which mainly is based on the fact that the range of risk taking affects a firm s intended strategy. Realized strategy can be understood by studying the risk taking propensities, meaning that it is difficult to identify the outcome of potential risks within the intended strategy. Baird and Thomas (1985:231) emphasize that because of the nature of strategy, risk is embedded in most long-range decisions. In a managerial perspective managers are aware of the fact that risk can lead to not being able to reach their goals, although the level of risk is viewed differently as some recognize the potential of risk while others only sees hinders. March and Shapira (1987) recognizes that many managers sees risk as something that could affect the outcome in a negative manner. However, discovering new opportunities would not be possible without viewing some risks as possibilities. When managers decide to optimize risks in the best interest of the firm the outcome could affect the company in a positive way (March & Shapira, 1987). Aven et.al. (2014) describes the general definition of risk as arising when damage or loss potentially occurs, which could affect for instance people, assets or the environment. When interpreting the condition of risk the authors claim that the uncertainty of the potential risk could become an actual threat and affect managers decision making. Risk and uncertainty are closely interlinked, however the risk of loss or damage usually affects a certain target whereas the uncertainty depends more on whether the risk will be transferred from a perceived risk to an actual threat (Aven et.al., 10

17 THEORETICAL FRAMEWORK 2014). Miller (1992) describes that when a firm cannot foresee the external or internal environment uncertainty will occur as the firms performance will be affected and thereby increasing the risk. In this sense uncertainties and risks correlates with each other where in risk management uncertainties can be seen as a variable for risk. Baird and Thomas (1985) discuss three steps that are related to strategic risk; (i) the risk identification phase, (ii) the risk estimation phase and (iii) the risk evaluation phase. The identification phase concerns the perception of risk which mainly implies that it is up to the manager to conceptualize if the decision is risky or not. The perception of risk is an emerging problem area that concerns marketing in association with strategic risk handling, management need to decide on the amount of possible loss in relation to risk and uncertainties. The risk estimation phase emphasize that the estimations can differentiate a lot from person to person as well as the structure of the problem can be identified differently. The risk evaluation phase focuses on how much risk the firm is willing to bear in the form of resources (Baird & Thomas, 1985). The primary objective for firms that operates globally is risk management, i.e. the understanding, foreseeing and optimization of risks. In Kubickova and Tuolovd s (2013) research of risk factors regarding Czech firm s internationalization into foreign markets the authors categorizes the key factors in; (i) risks related to the geographic location of the host market, (ii) the different economic environment and differences in home and (iii) host market legislation. We believe that in order to make an accurate analysis of the risks in the micro- and macro environment a more thorough categorization will have to be used. Miller (1992) has created a framework that helps identify and assess different types of uncertainties divided in three categories; general environment, industry and firm specific. These uncertainties are categorized in figure 2. 11

18 THEORETICAL FRAMEWORK General Environment Industry Uncertainties Firm-Specific Political Uncertainties Input Market Uncertainties Operating Uncertainties Government Policy Uncertainties Competitive Uncertainties Liability Uncertainties Macroeconomic Uncertainties Social Uncertainties Natural Uncertainties Responses To Uncertainties - Financial risk Management - Strategic Management R&D Uncertainties Credit Uncertainties Behavioural Uncertainties Fig. 2. Categorization of uncertainties (Miller, 1992) Management must consider the uncertainties involved in establishing exports and/or entering a new geographical market. Risks and uncertainties are factors that needs to be taken into consideration especially concerning internationalization to geographical and cultural distant markets (Mühlbacher et.al., 2006; Albaum & Duerr, 2011; Hollensen, 2011). As Miller (1992) explains financial risks is a common response to uncertainties and if not managed it will become a major risk. We believe that strategic management is highly important for all firms internationalizing, and specifically for firms wanting to operate in emerging economies. With the help of this model we intend to identify and categorize risks related to firms internationalizing to East African countries. With the help of these categorized risks we can later see how specific risks have affected the internationalization within this specific region. 2.2 Uppsala internationalization model The internationalization process of a firm can be a very complex matter, it is therefore important to consider and have knowledge about the different variables that can help reduce risks. The Uppsala internationalization model has its foundation in research conducted by Johanson and Vahlne (1977) which was based on observations from 12

19 THEORETICAL FRAMEWORK studies within the field of international business. The two main variables that is significant when describing the Uppsala internationalization model is the depth of commitment and how to reduce risk (Figueira-de-Lemos et.al. 2010). The study showed that Swedish firms tend to expand their international operations in small incremental steps i.e. starting out by using agents when exporting, then establishing sales subsidiaries and as a last step the firm can proceed with a set-up of production in the host country (Johanson & Widersheim-Paul, 1975). Another important aspect is the psychic distance which is one of the variables that perhaps could explain where geographically Swedish firms would choose to establish themselves (Johanson & Vahlne, 1977; Johanson et.al. 2002). In research conducted by Hörnell et.al. (1973) the conclusion was that Swedish firms had a desire to internationalize towards markets with low psychic distance prior to entering a more distant market as way a reducing risk. The main drive for internationalization is a firms changing conditions, which can occur both internally as well as at externally. Johanson and Vahlne (1977) points out that alongside with the changes concerning the firm there will be an up bring of both new opportunities as well as risks and it is how the firm decides to meet these variables that will determine how prepared they will be. The problems that the authors wish to emphasize are difficulties with obtaining market knowledge when wanting to operate internationally and that the lack of market information leads to uncertainty when wanting to operate globally (Johanson & Vahlne, 1977) The process model The Uppsala internationalization model can be seen as a dynamic model where one decision leads to the next i.e. the present step of internationalization leads to the following step of global integration and where lack of knowledge is seen as the most critical part of the process (Johanson & Vahlne, 1977; Johanson et.al. 2002; Figueirade-Lemos et.al. 2010). The model is divided into four parts: market knowledge, commitment decisions, market commitment and current activities where these variables are seen as the basic pillars of internationalization. Market commitment consists of two main factors which are: the amount of resources committed and the degree of commitment. To further define the degree of commitment Johanson and Vahlne (1977) describes that the higher the commitment the more resources are interlinked with other parts of the firm in relation to the amount of resources which is more connected to the size of the investment. Market knowledge is based on different kinds of knowledge e.g. 13

20 THEORETICAL FRAMEWORK market environment, performance, present and future demand and supply, further this type of knowledge is separated within two sub-categories; general- and market specific knowledge (Johanson & Vahlne, 1977). Referring to general knowledge the emphasis is put on marketing methods and common characteristics of specific types of customers regardless of their geographical location. On the other hand market specific knowledge highlights characteristics of a certain national market, the business climate, cultural patterns, structure of the market system and the most important aspect accentuates the characteristics of the individual customer firms (Johanson & Vahlne, 1977). Nevertheless, market knowledge can further be divided into experiential knowledge and objective knowledge where the first one is linked to personal experience while the latter concerns knowledge that can be taught (Johanson & Vahlne, 1977; Penrose, 1995). Experiential knowledge is the type of knowledge that provides the framework that will be helpful when perceiving and formulating opportunities The revised model Many changes has occurred concerning business activities since 1977, Johanson and Vahlne (2009) has thereby revisited their model to make a few adjustments to make it fit the way business is practiced today. The revised model emphasizes the importance of risk reduction by the establishment of relationships which creates networks where there can be a lot of potential for firms to explore new opportunities (Johanson & Vahlne, 2009). The authors highlight that outsidership within a network can be seen as the root to uncertainty when internationalizing, they have therefore put more emphasis towards trust- and knowledge creation through a firms extended network within the revised model. Johanson and Vahlne (2009) describes that when the first model was developed the understanding of the market complexities was very basic and internationalization difficulties was therefore described with the means given. Nevertheless, subsequent research on international marketing has moved more towards a network view of the environment regarding firms that are internationalizing. Johanson and Vahlne (2009) stress that the core of the revised model is within the development of business network research where markets are seen as networks of relationships, where firms create intricate webs that interlinks them to others within the network. Furthermore, the authors describe that insidership within networks is crucial concerning a successful internationalization process (Johanson & Vahlne, 2009). The relationships that take shape within a network is the first step of learning which in a second step leads to the 14

21 THEORETICAL FRAMEWORK foundation of trust and commitment, which are seen as the preconditions of internationalization. Coviello and Munro (1997) conducted a research on the internationalization of small software firms where they concluded that network relationships have a major impact on the foreign market selection as well as on the chosen mode of entry. Emphasis was put towards that firms having a developed network prior to entry into a new market became more significant in relation to the firms internationalization process (Coviello, 2006). It is the lack of market knowledge that is the main risk when first wanting to internationalize towards more distant markets (Atkins & Anderson, 1999; Johanson et.al 2002; Johanson & Vahlne, 2009). The ease of doing business in a new market is also highly interconnected with previous experience, hence the importance of being a part of a network. We therefore want to use this model to analyze Swedish business-to-business (B2B) small- and medium sized enterprises (SME) in East Africa and their ability to interpret and value the opportunities that can be presented through their extended network. We also want to highlight how risk concerning the internationalization process is affected by gaining knowledge by a step-by-step approach. The emphasis will be put towards the firm s ability to use the right tools to confront the risks that the new opportunities could be related to. 2.3 Network theory SMEs are in traditional international marketing literature described as having limited resources which in terms leads them to be innovative when it comes to their internationalization strategies. Relationships and specifically networks can therefore be seen as an important tool for companies trying to find knowledge of other markets with as low costs as possible (Mtigwe, 2006). The expression of business networks can be seen as a web of relationships that links one business to another as well as it extends to other businesses that in turns has relationships with others (Johanson & Vahlne, 2009). Johanson et.al. (2002) describes that people responsible for certain markets found that their primary work tasks was to establish long term relationships in order to gain future business. Johanson and Mattson (1988) found that the domestic network of a firm is of immense importance and can be used as a bridge towards other networks in the international market. Companies can thereby access other markets even though they have relatively limited resources. This is also described by Blomstermo et.al. (2004) as 15

22 THEORETICAL FRAMEWORK the authors explain that network experiential knowledge is important for companies that have not yet internationalized, i.e. often SMEs. Johanson and Mattson (1988) continue to describe that networks are stable although changing as firms and people move into different networks. The foundation of network theory is that a firm cannot be seen as a sole actor but instead has to be seen as a part of many actors collaborating internationally (Hollensen, 2011). The author describes companies as actors that are autonomous from each other although linked to one another with relationships. Further Johanson and Mattson (1988) argue that companies tend to be dependent on resources that other companies may possess control over and by positioning themselves in a network these resources becomes accessible. The exchange of resources and capabilities are important in networks as different actors have different goals for how the network should develop in order to help the firm strive towards their goals. Håkansson and Snehota (1995) explain that the exchange of resources is tied together by relationships that helps organize the networks resources. Activities are strategically implemented when establishing new relations, maintaining and developing relations as well as ending relations in order to provide to the collection of resources (Håkansson & Snehota, 1995). The network theory stems from the previous research on the Uppsala internationalization model where acquiring knowledge and learning gradually can be gained with the help of interactions with other people in their network (Johanson & Mattson, 1988; Johanson & Vahlne 2003). However, researchers stress that the network theory can contribute with a more adequate picture of the reality of the internationalization process of SMEs than the Uppsala model (Johanson & Mattson, 1988). Ojala (2009) emphasizes that the relationships in networks are most likely used to be able to gain access to more distant markets, both in terms of geographic as well as the psychic distance. The internationalization processes with the usage of networks can according to Johanson and Mattson (1988) be viewed in three ways; (i) International extensions by establishing relationships in new domestic networks. (ii) Penetration - by becoming deeper involved and increasing the resource commitment in foreign networks the firm is already in. (iii) International integration By integrating different domestic networks. 16

23 THEORETICAL FRAMEWORK Studies of networks have showed that depending on the network the firm is established in, different internationalization patterns appear where specifically entry modes and the selection of markets are affected (Coviello & Munro, 1997). Johanson & Mattson (1988) suggests a categorization of firm internationalization with regards to networks, taking into consideration the level of internationalization of the firm as well as the extent of commitment the firm has to the market. The four different categorizations are described as; the early starter, the late starter, the lonely international and the international among others The early starter The Early starter is described to have a low degree of internationalization both on a firm level as well as on a market level (Johanson & Mattson, 1988). The company has no previous knowledge and cannot rely on its network to provide either knowledge or assistance. In studies concerning early starter firm s the internationalization process tend to approach internationalization as the Uppsala model proposes by gaining knowledge incrementally (Johanson & Mattson, 1988) The late starter The late starter has presently been known as having a low international involvement whereas the market it is in have a high degree of internationalization. Johanson and Mattson (1988) explains that the customers and suppliers influence the internationalization of the firm which sometimes can lead to companies entering more distant markets. Late starter SMEs tends to be influenced by its network in the choice of internationalizing or not and the market choice as its suppliers and customers can contribute with knowledge (Hadley & Wilson, 2003). Communication is vital as gathering market knowledge and spreading it through the network facilitates for all actors of the network (Bonaccorsi, 1992). On the other hand entering a market where the degree of internationalization is high also comes with difficulties as suppliers and customers can be linked to established competitors, i.e. high entry barriers The lonely international The lonely international is characterized by a high degree of internationalization of the firm however, the market environment has a low degree of internationalization (Johanson & Mattson, 1988). The customers and suppliers in the firm s network are less 17

24 THEORETICAL FRAMEWORK internationalized than the firm itself which in turn makes the network connections less useful in taking initiatives to internationalize. By being present in other markets the firm has the abilities and knowledge to handle different market environments where culture and institutional structure differentiates (Johanson & Mattson, 1988). Johanson et.al. (2002) describes the situation as being a good position to be in and that the firm can use its networks to gain competitive advantages The international among others When both the firm and the market environment internationalization are high Johanson and Mattson (1988) explains the firm as the international among others. When both the firm and the other actors on the market have the experience needed as well as being active internationally the companies usually share knowledge to some extent. Johanson et.al. (2002) explains that this situation often involve large companies that spy on other companies and acts the same. In later research Chetty and Blankenburg Holm (2000) studied New Zealand SMEs where some adjustments to Johanson and Mattson s (1988) model where proposed. The authors conclude that internationalization is highly affected by the firms involved in their network, and to what extent they were internationalized. Further the relationships with companies in their network, i.e. supplying firms, customers, competitors, domestic government organizations as well as distributors, helped the studied SMEs internationalize through extension, penetration or integration whilst gaining knowledge (Chetty & Blankenburg Holm, 2000). The role of the manager is significant considering the identification and utilizing of opportunities that is provided by the network, this is specifically important within the internationalization process of an SME. Although it will be problematic in firms where the manager does not have the knowledge needed to see the opportunities when they appear which in turn inhibits the internationalization process (Chetty & Blankenburg Holm, 2000). We believe that this framework of internationalization in networks can help us evaluate the position of the Swedish B2B SMEs that currently are operating in East Africa. We will thereby be able to analyze how networks have helped the companies being studied and in turn see how networks affect the risk perception of the individual company. 18

25 THEORETICAL FRAMEWORK 2.4 Motivators and triggers of internationalization In the internationalization process of firms there are several theoretical approaches regarding what motivates and what hinders firms from internationalizing. As there is a variety of different approaches some propose small variations on how firms internationalize whereas others propose incremental steps in relation to increased knowledge (Johanson & Vahlne, 1977; Jones, 1999). Freeman (2002) determines that firms regardless on the theoretical view all have been approached by an opportunity, i.e. internationalization motives or triggers of export initiation. All companies are driven by a profit orientation as the main goal, which includes high return on investments, growth, stability and overall profit (Albaum & Duerr, 2011). Nevertheless the ultimate stimulus that motivates internationalization varies. Internationalization motives and triggers can be classified in proactive and reactive motives, if the company is being pushed or pulled into export, as well as internal and external triggers, if the initiation of exports comes from within or from outside of the firm (Mühlbacher et.al., 2006; Albaum & Duerr, 2011; Hollensen, 2011). Albaum & Duerr (2011) describes proactive motives as motivators that push management to respond to external or internal pressure whereas reactive motives stems from the firm s management reacting to external or internal factors. Further reacting to triggers from outside or inside of the firm where someone or something gives attention to an opportunity (Albaum & Duerr, 2011). There are several reasons for why a company initiates entry into a new market whereas utilizing a manager s skill in a specific area is an example of an internal trigger with a proactive motive (Gilligan & Hird, 2013). A small and saturated home market could be classified as an external trigger with a reactive motive. 2.5 Entry modes When entering a foreign market the strategy is important for the company to consider as it will have to reflect upon the intentions of the company s entry. The firm has to consider the differences in culture, legal framework and political environment (Cavusgil et.al., 2002). The traditional view on how firms commit to foreign market has been to first export, either indirect or direct, later to establish an owned subsidiary, a joint venture or acquiring local companies (Johanson & Vahlne, 1977; Cavusgil et.al., 2002; Hollensen, 2011). In the past companies have been seen to have a step by step approach 19

26 THEORETICAL FRAMEWORK to internationalization although today much has changed as companies implement strategies that best suits them on the respective market (Cavusgil et.al., 2002). Companies that want to use a low risk strategy tend to use strategies with low commitment and a minimization of costs, i.e. agents, distributors or joint venture. In contrary high risk strategies tend to be a high commitment approach with higher costs in establishing presence, i.e. subsidiary or acquisition. Lately some researchers have proposed project business as yet another strategy being used in the internationalization of firms (Owusu, 2002a; Owusu, 2002b; Owusu et.al., 2007) Agent The usage of agents is considered as a low commitment and low resource alternative as well as it lowers the risk when entering a foreign market (Cavusgil et.al., 2002). By using an agent the company is not selling their products themselves it is rather the agent that markets and sells their products in one or more foreign markets (Johanson et.al., 2002). The agent can either be located in the domestic market, indirect export, or located abroad, direct export. The risks involved could be that the company does not control the agent when it comes to regulations, laws or norms and that the agent has its own profitability to consider (Johanson et.al., 2002). As the agent is focused on the target market the knowledge required in terms of culture, politics, laws, etc. is known and the company does not have to engage time in put resources towards gaining this knowledge themselves Project business Project business is an entry mode that is characterized as a process of developing marketing and implementing technical-economic solutions to a purchaser s needs (Owusu et.al. 2007). Furthermore, the authors emphasize that the characteristics of a project is that they tend to be discrete, unique, complex and that they involve major financial commitment (Cova et.al. 2002; Artto & Wikström, 2005; Owusu et.al. 2007; Hollensen, 2011). Project business can be seen as a form of export but one can also choose to see it as a later mode that has been developed as a result of increased knowledge. This form of entry is used to bridge wide gaps such as cultural and technological differences between the marketers and the purchasers. It is also seen as an entry mode that provides some level of flexibility and risk protection where other modes have failed. Another advantage when using project business is that opportunities can surface when interacting within the network i.e. advance into other projects, the personal 20

27 THEORETICAL FRAMEWORK interactions are also crucial prior to signing the project contract (Owusu et.al. 2007). Owusu (2002b) stress that research that has been done concerning project business as an entry mode to African countries conclude that this mode of entry is significant regarding involvement in developing or emerging Africa economies Joint venture For companies that are not willing to engage fully to the risks involved with establishing an owned subsidiary can instead consider a joint venture. Cavsugil et.al. (2002) explains that in order to have a lower commitment and invest less resources the company can collaborate with one or more firms establishing a new company together in the foreign market. The companies together own the equity as well as the control of the firm (Kogut & Singh, 1988). The firms involved do not only share the risk but also complement each other as of the knowledge needed. Kogut and Singh (1988) examines the fact that most joint ventures are set up with a local partner that has the control of the legislation, culture, etc. needed however, the authors highlights that the cultural distance between the partners can also be problematic Owned subsidiary According to Johanson et.al. (2002) a subsidiary is an independent part of a parent company and it holds a significant business role, specifically within the network. Each subsidiary operates with strategic independence and has a functional control of the company s business (Johanson et.al 2002). Managers that are operating within subsidiaries have different relations to different products which help them adapt the operations to best suit the relations between the supply and demand on the market. Subsidiaries usually have functional expertise but it does not particularly mean that they are skilled in all necessary categories. Cavusgil et.al. (2002) emphasize that it can sometimes be desirable for subsidiaries to share resources and consult with each other to establish good relationships and discover new opportunities. 21

28 THEORETICAL FRAMEWORK 2.6 Conceptual framework To present a clearer perspective we have created a model that summarizes the literature review into a relevant conceptual framework for this thesis. When conceptualizing the theories we want to put emphasis on how they relate to each other and how each part is significant to this study. It also becomes clear that risk is embedded in each decision that concerns internationalization. When looking at firms internationalization process knowledge and relationships are highly significant in order to decrease uncertainties involved. We intend to analyze the level of knowledge, interactions and the different steps of commitment as these factors influence whether the market is interesting and valuable or not. The theoretical framework emphasize that the lack of knowledge is one of the main factors that interfere with companies ability when wanting to internationalize to new and specifically distant markets. Concerning the perception of risk this can be seen as the foundation of this study. Risk can be divided into three categories in different levels of the environment. To be able to understand the risks presented by the case firms as well as the different aspects of the risks the categorization is necessary. By dividing the risks in these categories we have also been able to see common traits between the companies that are specific for the region being observed. The outcome of the emergent strategy is closely interlinked with the knowledge that the firm possess as well as the range of relationships. With this as a base we can evaluate if the firms resources allow them to seize the opportunity of internationalizing, i.e. if the opportunities overweigh the uncertainties. It is also highly significant to emphasize the choice of entry mode as the risks as well as the knowledge and relations affect the establishment strategy and the level of uncertainty. After the establishment on a market the firm may have encountered other risks than first predicted. The risks in relation to the previous knowledge of the firm may have affected the outcome of the business operations although they might be of different scales. Comparing the perceived knowledge with the emergent strategy may lead to the 22

29 THEORETICAL FRAMEWORK creation of guidelines that the company later can use in future internationalization to other markets. Knowledge and relations - Learning - Interactions - Commitment Perception of risk - General environment - Industry environment - Firm-specific environment Knowledge in retrospect - Risk - Knowledge Emergent strategy - Opportunities vs uncertainties - Entry mode Fig. 3. Conceptual framework (own construction) 23

30 METHODOLOGY 3. METHODOLOGY This chapter will present the methodological framework that has been the foundation of this research. The choice of research approach and research method will be discussed and explained leading to the presentation of the case companies. Further the research strategy will be highlighted as well as validity, reliability and operationalization will be described. 3.1 Research approach When conducting research there are three different approaches described to be the foundation in combining theories with empirical findings. These approaches are; inductive, deductive and abductive (Jacobsen, 2002). An inductive research approach is used when wanting to contribute to existing theories and is based upon observations, i.e. the result of the observations is the foundation of the theories. Alvesson and Sköldberg (2008) explain that the focal point in the empirical findings is a number of isolated cases from where a common context can be distinguished. On the contrary a deductive approach has its foundation in existing theories and from there analyzes the material gathered in the observations. The observations and results found can therefore be seen as a prolongation of the theoretical foundation of the chosen topic. Abduction can in contrast be seen as a combination with similarities in the empirical view from the inductive approach as well as the theoretical view from the deductive approach. We consider an inductive research approach to be preferred when the area of research is relatively unknown, as is the case of business-to-business (B2B) small- and medium size enterprises (SME) and their risk perception internationalizing to East Africa. By first examining the empirical findings we wanted to be able to give theoretical implications as well as recommendations with the help of existing theories. By not wanting to limit the research towards theoretical assumptions when gathering empirical findings we believe that the inductive approach is more suitable. When deciding on what topic to research we found that both trade organizations as well as the Swedish government tried to understand why there were so few Swedish companies that had entered Africa. With the help of an inductive view we wanted to find out how the respondents viewed their level of knowledge in relation to risk before internationalizing to East Africa. While comparing and relating the empirical findings with the existing theory we have been 24

31 METHODOLOGY able to find linkages in between. We have therefore operationalized the questions for the interviews in accordance with existing theories as the foundation. By analyzing existing theories together with empirical findings we have been able to contribute to existing theories as well as formulating recommendations to facilitate for other companies wanting to internationalize to East African countries. The research approach is summarized in figure 4. Empirical findings Deviation of problem Existing theory Analysis Implications and recommenda tions Fig. 4. Model of research approach (own construction) 3.2 Research method There are two primary research methods within the field of business and these are; qualitative and quantitative (Merriam, 1994). The main trait that separates these two methods concerns how the researchers wish to study their research object. A quantitative research method has its outset in numerical data i.e. results that can be measured through input of experimental studies while research based on a qualitative method is more focused on the interpretation of the spoken word in relation to the collected data (Yin, 2014). The quantitative research method is usually interconnected with a deductive research approach where the researcher is able to assess its hypothesis (Bryman & Bell, 2013). Further the authors describe that the researcher collects information from a variety of different sources to be able to reach a result that can be seen as average within the field that is studied, this is based on the fact that the group of respondents that has taken part in the research is fairly large (Bryman & Bell, 2013). Furthermore the results of a quantitative research method should be measurable and generalized. When using a qualitative research method it is often used in combination with an inductive research approach where focus lay more on the empirical findings and the relation between that and the theoretical framework (Merriam, 1994). The qualitative research method has its foundation within psychology-, sociology and anthropology studies which all aim for a deeper understanding between humans, society, the research object and the choice of approach (Merriam, 1994). The advantage with using a qualitative research method is that it tends to project a clearer impression. Merriam (1994) highlights that quantitative research has its foundation within the field of scientific research which often tend to be objective. 25

32 METHODOLOGY In this study we have chosen to use a qualitative research method since it is the most suitable one in relation to the research questions as well as we believe that the choice of method will support the purpose. Another factor for choosing a qualitative research method is due to the fact that it has an inductive research approach which benefits to the deeper understanding for the social aspects concerning individual experiences. Further a qualitative method is preferable when researchers wish to conduct a study that is closely interlinked with reality (Denscombe, 2009). Based on the research questions that we have formulated and the depth of information we wish to collect we believe that the best way to do so is by conducting interviews with individuals that has a lot of knowledge within the field that we want to research. Our aim is to gain a deeper understanding of the respondent s reality concerning the perception of risk when they have established presence in East Africa. Furthermore we believe that conducting interviews and being able to observe is interrelated with the inductive approach whereas we are able to use the data that we have collected in relation to the theoretical framework in accordance with Merriam (1994). 3.3 Research strategy There is a variety of different ways to structure a research and the most commonly used are; experiments, surveys, historical studies, analysis of sources and case studies (Patel & Davidsson, 2011; Yin, 2014). According to Yin (2014) one of the most significant criteria s for conducting a case study is whether or not the research question is formulated in a way that gives an answer to how or why. Nevertheless, when conducting a case study the common traits is that the research often is concentrated towards a smaller group of people e.g. an organization, an individual or a situation (Patel & Davidsson, 2011). In this type of study a holistic approach is the most favorable one to be able to obtain information that is a thorough as possible through processes and change (Merriam, 1994; Merriam, 2009). The collection of data concerning case studies can be a combination of interviews, surveys and observations. We have chosen to use a case study for this research as we believe that this is a research strategy that possesses the characteristics that are significant in this study. The intention is to be able to emphasize the significance of personal experience, interpret and understand the difference concerning the interactions between different variables which will require a holistic approach that is obtained by performing a case study. Merriam (2009) 26

33 METHODOLOGY emphasize the importance of these characteristics and describe that they may help structure further research within the researched field Formation of case study Merriam (2009) and Yin (2014) describes that case studies can be divided into two sets; a single case- or a multiple case study. A multiple case study is characterized by the fact that the collection of data and analysis is based on several cases which leads to a comparative study (Merriam, 2009). With a case study as a foundation we have examined a variety of Swedish B2B SMEs and their perception of risk when entering the East African market. We decided to study five different firms in depth to reach a deeper understating of their operations in East Africa. To be able to formulate interview questions that avoid as much irrelevant information as possible we have based the questions in accordance with the conceptual framework. Yin (2014) emphasize that case studies is an excellent way to conduct research on current matters and this structure of research will help us answer questions such as; how and why. We believe that the research questions are highly relevant and that they put emphasis on a current matter that is very important. When conducting interviews we have compared the outcomes of the case firms strategies in relation to the problems that they have encountered and interlinked the data that we have collected with the theoretical framework i.e. conduct a case study comparison. 3.4 Selection of case firms In the selection process of finding firms that we wanted to include in this research we formulated a few characteristics that the firms should all have in common; they should all be Swedish small- and medium sized enterprises, use a business-to-business approach and have operations in East Africa. To come in contact with firms that would fit the criteria s we started out with contacting the Swedish East African Chamber of Commerce and Swedfund whom provided us with contact information to all of the case firms. The five case firms will be presented below Fastdev AB Fastdev is a software company that delivers web- and software applications and develops solutions for primarily Swedish customers. The company was founded in 2007 by Lennart Källbäck and has its headquarters in Stockholm, Sweden. The company s 27

34 METHODOLOGY developers can be found in Russia, Belarus, Ukraine and Kenya. Currently they have three software developers in Kenya as the company still is in their initiation phase Mattias Bygg AB Mattias Bygg is a construction company founded by Mattias Lägermo in The firm is located in Tranås in the southern parts of Sweden and also established themselves in Kenya with a joint venture named Multi & Divide Bygg Ltd Procamp AB Procamp was founded in 2008 by Gunnar Björklund and they have their headquarters in Stockholm, Sweden. The company develops safe and environmental friendly living solutions for challenging and hazardous environments and has had previous projects in South Sudan and Kenya Renetech AB Renetech develops sustainable energy projects together with local stakeholders, contractors, technology providers and equity partners. The firm was founded in 2005 by Tom Walsh and is based in Stockholm, Sweden. The company performs projects in many parts of Africa and has presence in Uganda, Kenya, Tanzania, Ethiopia and Rwanda Sebab AB Sebab was founded in 1987 in Malmö, Sweden by Thomas Andersson. The firm represents leading producers of power distribution solutions as well as they assemble customized solutions for their customers. The firm has been exporting to Africa for more than 15 years and have now started to open their own subsidiaries as well as they are involved in several projects. 3.5 Operationalization When creating the interview guide and formulating interview questions, we wanted the connection between the conceptual framework and the research questions to be closely interlinked as described by Patel and Davidsson (2011). The main research question aims to answer how Swedish B2B SMEs perceive the various risks that they face when internationalizing to East African countries. To help answer this question we have formulated two sub-questions that aim to describe the risks that the case firms have encountered and how these firms knowledge affect the perception of risk. We have 28

35 METHODOLOGY connected the research questions to the conceptual framework as a way to categorize and to help the codification. The conceptual framework has helped us structure the empirical data as well as highlighting the core of each topic and specifically risk in each topic. To be able to answer the sub-questions in the best possible manner the empirical data will be weighed in relation to the presented risk theories. The main research question is associated with risk theory, the Uppsala internationalization model, network theory, motivators and triggers of internationalizing and entry modes where the emphasis has been clarified in the conceptual framework. By integrating the theories with the empirical data gathered from the interviews with representatives from companies that operates in East Africa, we want to create a clear link between the case firms, the risks and their realized strategies within this specific region to help answer the research questions and create guidelines for other companies. During the interviews we have focused on questions that put risk in relation to knowledge, internationalization strategies, choice of entry mode and relationships. In table 1 these areas are covered by theories that are related to the sub-concepts presented in the conceptual framework. In each sub-concept we have put emphasis on different indicators which can be seen as the foundation of the interview questions. Thereby each main concept is related to different questions in the questioner which can be found in appendix 1. Main Concepts Sub-concepts Indicators Questions Network Theory and Uppsala Internationalization Model Knowledge and Relations Learning Interactions Commitment 8-10 Risk Theory Perception of Risk General Environment Industry Environment 5, 6 Firm-specific Environment Entry mode, Uppsala Internationalization Model and Motivators and Triggers of Internationalization Emergent Strategy Opportunities Uncertainties Entry Mode 3a, 4, 4a, 4b, 11, 11a Risk Theory and Uppsala Internationalization Model Knowledge in retrospect Risk Knowledge 7, 12-13, 13a Table 1. Operationalization scheme (Own construction) 29

36 METHODOLOGY 3.6 Data collection Jacobsen (2002) describes two types of data that are being used as information sources in research; primary- and secondary data. In this thesis the main focal point is primary data which according to Yin (2014) can be collected in everyday situations of people or within institutions. In case studies the author examines six sources of primary information; documentation, archival records, interviews, direct observations, participant-observations as well as physical artifacts. Interviews have been the primary source of information in this thesis which will be more thoroughly described later Secondary data Secondary data is described by Merriam (2009) as information that has been published by others with other purposes than what is currently being studied. It is therefore important to question and criticize whether the data is relevant for the study conducted or not. This data can be accessed through literature, internet and printed articles and can contribute to the study to support and to gain a better understanding of the existing problem. The relevance of the secondary data should be considered and evaluated as the high accessibility could question the quality, for instance websites or reports directly handed from a company could be presented in the best interest for the company rather the entire story (Jacobsen, 2002; Merriam, 2009). In order to lower this uncertainty we have only accessed secondary information about companies in order to present an overview of the case firms Primary data Primary data is described by Merriam (1994) as information gathered explicitly for the purpose of the study in order to help answer the research problem. The main difference between the two types of data is that primary data is closer to the source. Communication directly between the researcher and the source of information or direct observations makes it easier to connect to the research problem (Ghauri & Gronhaug, 2010). Jacobsen (2002) explains primary data to be gathered in personal correspondence with one person or a group of people. In this thesis the primary data is at focus and derives from interviews with representatives of Swedish B2B SMEs that currently operate in East Africa. The representatives are all in leading positions as they have key roles where they decide and formulate strategies for the respective firm. The foundation of this thesis is based upon primary data in order for the information to be as reliable as 30

37 METHODOLOGY possible as well as related to the purpose. In turn primary data does not demand the same level of criticism as secondary sources Interviews Interviews are the most common source of data collection in qualitative research. Merriam (1994) describes interviews as a necessary tool whereas a person s thoughts, interpretations or feelings of a situation are very difficult to understand in other ways than to ask. There are traditionally three types of interviews; unstructured-, semistructured- or structured interviews (Jacobsen, 2002). As a structured interview does not make room for additional questions or changes during the interview, we decided to discard this technique. The structured interview suits better for quantitative research as the questioning is standardized with closed questions to facilitate a compilation of the material (Yin, 2014). In qualitative research a more unstructured approach regarding interviews are usually more suitable where the interview can be either unstructured or semi-structured. Both techniques highlight the importance of being flexible although some characteristics distinguish them from each other. When using an unstructured interview approach the researcher could use one or a set of themes as notes of what topics to cover. In other situations the more experienced researcher might use one question to start with which in turn can make the respondent associate freely to lead the discussion further. We have in this study chosen to use a semi-structured interview where the usage of a predetermined scheme of questions is used although providing space for questions to follow up answers (Ghauri & Gronhaug, 2010). Depending on the answers provided the sequence of the following questions can be adapted to follow a more natural flow (Merriam, 2009). We believe that using a semi-structured interview can help provide more in depth answers than a structured interview as the respondent can associate more freely regarding the topic. We also believe that using an unstructured interview might make it more difficult to compare the results of the different interviews, making a semi-structured interview most suitable for this study. When conducting the interviews we have been able to visit three of the respondents where the companies are located. We believe that by being present in the office of the respondents we been able to observe the working environment, thereby giving us a stronger impression of the surroundings which has been significant for us in the creation of the holistic viewpoint. Both verbal and non-verbal behaviors could therefore be studied. Two of the interviews were conducted with the help of a video conference 31

38 METHODOLOGY because the conditions made it impossible to visit the respondents to conduct a face-toface interview. As the interviews where performed with camera we were still able to observe the respondents as well as having focusing on listening to emphasizes that were being made. Before the interviews we sent the respondents the interview guide for them to be able to be well prepared to answer the questions, this in combination with followup questions enabled us to gain both well considered answers as well as spontaneous thoughts. During all of the interviews both of the authors of this thesis where present and took notes which is important to increase the validity and reliability to evaluate if we interpreted the respondents differently. According to Silverman (2001) the usage of a recorder in order to be able to transcribe and make correct citations makes the validity and reliability higher, therefore we have recorded all of the interviews as well as transcribed them. 3.7 Data analysis method When analyzing the data collected it is important to have the right technique in order to find and present the essentials of the study. Fejes and Thornberg (2009) underlines that the process of systematic examination of the gathered material and how the researchers arrange the material in order to gain a result to be what the qualitative analysis is built upon. By decomposing the material and codifying them the researcher can find patterns that are common for the firms. Merriam (2009) suggests that data analysis begin already when gathering the data as themes and questions are formed to help categorize the answers from the respondents. In the gathering of data for this thesis some analysis and categorization has been done after each interview where comparisons has been made towards the previous interviews. This has been done as Merriam (2009) proposes to compare the results after each interview in order to increase validity and reliability. The author also describes the analysis of data as the most difficult part of research as there are a lot of data that has to be processed, reduced and categorized to find the essence of the study. The process of analyzing data is described as philosophical where the pattern is hard to define (Fejes & Thornberg, 2009). Every analysis process is different as the research topic is different and the researchers have different objectives of looking at the data (Fejes & Thornberg, 2009). With this in mind we have built the continuation of the analysis upon the most common strategy within qualitative research, content analysis. Kvale and Brinkmann (2009) describes the 32

39 METHODOLOGY method of content analysis as using a system of codification where patterns can be seen when different topics is addressed multiple times. Further the authors explain that the different patterns frequencies can be compared and related to other connected themes in order to see similarities. We have conducted the categorization in regards to the theoretical framework where we have codified different themes in relation to each subject the respondent described. This led to us being able to see patterns in an overarching perspective of each topic, later to be codified further within each topic. This has created a close relation between the theoretical framework and the empirical data in the analysis. 3.8 Quality of research According to Merriam (2009) it is highly significant that all research produce valid and reliable knowledge and that the study has been executed in an ethical manner. Further Yin (2014) emphasize that to be able to produce valid and reliable research the study needs to show evidence of strong ties between the research approach, its design and the results. It is vital that the researchers and other stakeholders have confidence in the research that is being presented (Merriam, 2009) Validity Trustworthiness is the foundation of qualitative research which is an aspect that is viewed in relation to validity and reliability (Merriam, 2009; Yin, 2014). Further the author describe that there are two types of validity; internal- and external (Merriam, 2009). Internal validity is measured by the extent to which research findings are credible. This can be analyzed by triangulation, the interpretations of different individuals that are being interview or observed as well as comments and inputs from someone outside the research whom can be helpful in clarifying the researcher s assumptions (Merriam, 2009). External validity emphasizes the extent to which the findings of a qualitative study can be generalized or transferred to other situations. Nevertheless, trustworthiness of a qualitative study is often based on the credibility of the researcher that throughout the study can turn to a variety of guidelines and regulations concerning ethical dilemmas (Merriam, 2009). The most important aspect of the research is to follow up on the validity i.e. analyze how reliable the collected data is (Svensson & Starrin, 1996; Kylén, 2004). There are several different ways to do so but we have decided to focus on triangulation and 33

40 METHODOLOGY validity through feedback from the respondents. When conducting a case study it has been highlighted that it is of importance for the researcher to reach a holistic description which can be done in relation to triangulation where the research is viewed from two or more perspectives. Svensson and Starrin (1996) and Merriam (2009) describe that there are four types of ways to view validity trough triangulation; method-, data-, exploration or research- and theoretical triangulation. In this research we have used data triangulation based on that we have conducted interviews with different respondents on different occasions, research triangulation since both of us have been involved in the collection of the data as well as we have used theoretical triangulation where we have used a combination of different theories to create depth in this research. We also want to emphasize that we have interpreted the data we have collected from the interviews separately in order to be able to portray a picture that is as fair as possible. Concerning validity through feedback from the respondents we have followed the steps described by Svensson and Starrin (1996). The authors stress that it is of significance to reconnect with the respondents as well as to let them go through the information that we have gathered to see if they agree with our interpretation (Svensson & Starrin, 1996). The respondents are the ones that are in the preeminent position to validate the content of this research. As a final step we want the respondents to be involved and gain knowledge concerning the absolute results, we will therefore reconnect with the interviewees when the research is final Reliability Merriam (2009) and Yin (2014) describes that reliability is the extent to which there is consistency in the findings. This can be enhanced by the researcher explaining that the assumptions and theory underlying the study in detail describe how the study was conducted. Svensson and Starrin (1996) believe that validity is superior reliability which implies that if a research has good validity it will automatically lead to high reliability as well. What the authors want to emphasize is that validity and reliability is closely intertwined (Svensson & Starrin, 1996). In qualitative research it can at times be difficult to maintain the reliability because the respondents behavior, experience and circumstances is something that can interfere with the reproduction of the research material (Merriam, 2009). Nevertheless, the author stress that the reliability within qualitative research can be strengthen by that the 34

41 METHODOLOGY researchers in a clear and structured way can connect back to their theoretical framework in relation to their result (Merriam, 2009). This is what we have done throughout the research as the theoretical framework is interlinked with the empirical data which is the foundation of the study. Further, Silverman (2004) describes that to increase reliability in a study one can do so by recording the interviews as well as attaching the interview guide as an appendix. 35

42 EMPIRICAL DATA 4. EMPIRICAL DATA In this chapter the primary data that has been collected through interviews with the respondents from the case companies will be presented. The interview questions are based upon the conceptual framework where each firm will be presented separately to be able to portray a clear overview. 4.1 Fastdev AB Entering East Africa Lennart Källbäck (2014) is the CEO of Fastdev AB and his main responsibility is the further development of the firm as well as being responsible for the sales. Prior to founding Fastdev Källbäck (2014) started a firm with one of his friends called Fastpool where Fastdev has its foundation. The colleagues decided to go separate ways and therefore Källbäck (2014) created a research and development team in Russia due to the fact that he did not have the technical expertise that was needed for further development. Fastdev have their primary focus on Swedish companies although they have been exporting to the USA and Norway for a couple of years. Today the company has subsidiaries in Russia, Belarus, Ukraine and Kenya where they have three employees working on different projects. Källbäck s (2014) sister has previously worked at Business Sweden in Nairobi and was the initiator for Fastdev s involvement in Kenya. She informed Källbäck (2014) of the opportunities with establishment in Kenya with the help of Swedfunds investments. Swedfund helped fund the startup and the sister who were living in Kenya helped take care of the practicalities. One of the projects that are being developed today is Housing Africa, which is an online real estate agency that targets Kenya, Botswana, Namibia and Uganda. Initially the project was a collaboration with another Swedish company that was already established in East Africa however, Fastdev now develops this by themselves. For future development the company is also considering a project in Somalia where they plan to create a website that will be a forum for people to either sell or purchase different products, much like blocket.se in Sweden (Källbäck, 2014). This project has been initiated by his sisters fiancé whom is born and raised in England but has his heritage in Somalia. 36

43 EMPIRICAL DATA Risks General environment uncertainties Källbäck (2014) describes that a risk involved with starting a project in Kenya has been the level of education in relation to the developers that was going to be employed. When the company entered Russia they had a prerequisite of their level of education and it is commonly known that Russia has highly skilled technicians. As the company still is in the initial phase of their startup in Kenya Källbäck (2014) explains that they are uncertain about their level of knowledge. Another issue concerns the infrastructure as transportation within this country is not as developed which often leads to delays. This can be seen as a risk as it affects the company s clients if the employees often tend to be late. The accessibility and reliability of the internet connection is a factor that highly influences this type of business. Källbäck (2014) explains that it could be a big problem where disconnections and interferences occur, although this can still be solved as the developers have the knowledge needed to manage the problem when that happens. Industry uncertainties Concerning the project Housing Africa Källbäck (2014) stress that there are many competitors already established in Kenya. In turn this leads to difficulties for Fastdev to become market leaders within the real estate industry in Kenya. This realization has led to the company changing their focus to Somalia as well as redirecting their focus on real estate and instead focuses on a site for sales and purchasing advertisement. Furthermore a risk is also that there are no guidelines for the different levels of salaries, Källbäck (2014) therefore stress that it is difficult to determine an average salary. Firm-specific uncertainties A risk involved with having developers in Kenya is that it can be difficult to control and assess their work. Källbäck (2014) explains that if they would increase their involvement in East Africa they would have to control their developers from Russia. As Fastdev has Swedish clients a risk could be their perception of working together with developers from Kenya, as the Swedish clients may not be used to working together with Kenyan developers and therefore does not know what to expect. In comparison with the Russian developers that have a reputation in the industry where the clients already know what to expect. 37

44 EMPIRICAL DATA Level of knowledge Källbäck (2014) describes that his perception of the East African market was very different than what he first thought. He realized that the level of knowledge was higher than he first anticipated, the country was more developed than he thought and that there was a higher strive to succeed. The knowledge prior to entering East Africa was not sufficient enough although Källbäck (2014) had the privilege of receiving help from his sister which has made the entry more successful. 4.2 Mattias Bygg AB Entering East Africa Mattias Lägermo (2014) is the CEO of Mattias Bygg AB and is an entrepreneur that manages the company as well as he is a contractor with focus on structural engineering. At first the company had only been focusing on the Swedish market, however this changed when Lägermo (2014) travelled to Kenya on a vacation in This trip was eye opening for him and he instantly knew that he wanted to be a part of Kenya s development. Lägermo (2014) came across several opportunities during his stay in Kenya, he saw the need for clean water amongst the Maasai people and he decided that he was going to donate a water well. Back in Sweden Lägermo (2014) felt inspired so he gathered tools and equipment that he shipped to Kenya and in 2007 he travelled to a missionary station to be a part of their inauguration of an auto mechanical school. In 2009 Lägermo (2014) travelled to Maasai land to hold an inauguration for the new water well that he had donated. Lägermo (2014) explains that he wanted to do more and that he has always believed in the notion that it is better to send the fishing pole than to send the fish. Through a colleague Lägermo (2014) came in contact with an organization named Nowpartners which is a Christian organization that works with promotion of entrepreneurship and the development of projects. Nowpartners had cooperation with an organization in Kenya named Economic Project Trust Foundation (EPTF) which is a foundation that focuses on entrepreneurship, education, mentoring and micro loans. In cooperation with EPTF Lägermo (2014) and seven other swedes planned a trip to Kenya where they would conduct interviews with some of the people that had gone through with the entrepreneurial education that EPTF provides. Lägermo (2014) explains that during this trip he came to meet his partners, David Ndungu whom is the part-owner of a renowned architectural firm in Kenya and his wife Margrete Karangatha whom manages a Danish firm in Kenya as well as she is a consultant. In 38

45 EMPIRICAL DATA 2011 Lägermo (2014) told one of his friends in Sweden that he wanted to start a construction firm in Kenya whereupon his friend suggested that he should turn it into a project and apply for financial funding from Swedpartnership. His application was approved and he received financial funding and he went ahead with founding the firm Multi & Divide Bygg Ltd. together with his local partners (Lägermo, 2014). The usage of local partners has definitely been an advantage point since they already have the right expertise as well as the right contacts (Lägermo, 2014). Lägermo (2014) explains that the first construction was started in 2012 and in 2013 he had to increase his travels to Kenya as he needed to gain deeper understanding for the business environment as well as understanding for the parts that needed improvement. Lägermo (2014) wants to implement quality and educate the local workers i.e. he wants to transfer knowledge. The future is bright for Multi & Divide Bygg Ltd. right now they are negotiating a contract which will be the start of a construction of a 15 story building in central Nairobi Risks General environment uncertainties Lägermo (2014) explains that there is a significant risk regarding the political instability and that there recently has been an election that has led to mixed emotions and uncertainties regarding the future of the economy. If the Kenyan population loses faith in the economy this also affects the further development of the middle class and their purchasing power. The wide spread corruption has also lead to that the majority of the population has a mistrust in the economy. The instability within the country also affects the tourism which is an important source of income. Lägermo (2014) explains that a risk when operating in East Africa is theft and even though having security guards the company has had equipment stolen from them. Industry uncertainties The uncertainties described above also affects the investments in the construction industry as well at it become more difficult to sell apartments. Lägermo (2014) describes that in Sweden the company mainly constructs smaller buildings whereas he in Kenya have to adapt to the market where there is a demand for larger housing complexes. It can be seen as a risk as he does not have the specific knowledge required for these types of constructions although his partners have expertise in the area. In the 39

46 EMPIRICAL DATA construction industry in East Africa the people employed has a certain structure in how they work as they are not used to working with power tools and other helpful equipment s. Lägermo (2014) stress that this affects the efficiency which is a risk that concerns construction projects and the significance of them being finalized in time. Firm-specific uncertainties The contractors in Kenya are used to a more old fashioned work structure that in turn affects the quality of the end product where the risk lay within knowledge transfer. Lägermo (2014) explain that correcting mistakes is very time consuming as well as it affects the financial outcome of the project. A large risk is the ineffective leadership, this type of work requires that someone tells the workers what they are supposed to do and when they are supposed to do it, the process needs to be well structured. Another risk is related to that the subcontractors are having difficulties with delivery and Lägermo (2014) explains that they do not always deliver on time as agreed upon Level of knowledge Lägermo (2014) is indecisive concerning if his knowledge prior to entering East Africa was sufficient enough. He believes that there is as a significant difference between Sweden and Africa and that you have to be willing to adapt to your new business environment to become successful. Lägermo (2014) emphasize that he has gained a lot of knowledge through his partners and their network. 4.3 Procamp AB Entering East Africa Gunnar Björklund (2014) is the CEO of Procamp AB and his responsibilities include managing the company s economy, business development as well as project management on site. Previously Björklund (2014) founded the security firm Vesper Group which included missions for the Swedish Department of Foreign Affairs on embassies located in countries with high risk. Procamp is currently established in East Africa, Europe as well as the Middle East where the motivation has been to provide Swedish technology in combination with sustainable solutions. Björklund (2014) explains that another motivation has been to be able to change the conditions for people living in less developed regions through the organization Procamp Aid. Network connections were the main contributing factor for establishing presence in East Africa. Björklund (2014) had connections with a Somali network in Sweden which has helped 40

47 EMPIRICAL DATA him discover opportunities in Somalia, but mainly in Kenya. In 2010 he travelled to Bosasso in Somalia followed by a trip to Nairobi where the company established a smaller factory with financial support from Swedfund. Björklund (2014) stress that he saw a demand for their products and their services in East Africa. The company s local agents has been an essential part of their internationalization strategy as well as they have been able to provide them with new business opportunities. Procamp s main establishment strategy has been to cooperate with local firms in joint ventures as a complement to the agents. Previously the company has been involved in all stages when operating in East Africa, from sales to project management, unfortunately it did not turn out as planned and the company decided to change their strategy. Today the company do not provide the full management of projects but instead offer the customers supervisors to lead the assembly. Björklund (2014) stress that the project management risk is now being transferred to the customer instead and that they have learned a lot from previous mistakes Risk General environment uncertainties Björklund (2014) describes that there are high risks concerning the ethics of doing business which is related to the corruption and financial risks. He describes Kenya as a country highly affected by corruption and political instability which significantly complicates the establishment in the country. Concerning the financial risk the problem is that they sometimes do not receive payments from local customers in agreement with the contract and Björklund (2014) therefore emphasizes payment in advance. Further he describes a scenario that occurred when the company was building a bank for a local customer. The agreement was to receive half of the payment when signing the contract, 40 percent prior to delivery and the rest when the projects were finalized and the customer was satisfied. Due to difficulties with transferring the money of the second payment Björklund (2014) decided to trust the customer and deliver as well as assembling before receiving the payment. This resulted in a project without profit as the customer did not pay the two final payments. Therefore Björklund (2014) emphasize that payments in advance is important and that you should always ensure the profit. Industry uncertainties The environment within this industry is very competitive, Björklund (2014) explains that there are few Western firms in the region and that the competition mainly consists 41

48 EMPIRICAL DATA of Chinese and Indian firms. Procamp s products tend to be in the higher price range in comparison with the Chinese and Indian products and the people of East Africa usually prioritize price over quality. There is also a risk concerning competing with local production where high tariffs and corruption affects the price of the company s products. Björklund (2014) explains that foreign firms are very dependent on local agents and local contacts which can lead to disadvantage as the local firms can take advantage of foreign firms. Firm-specific uncertainties The main risk with being dependent on the local contact is that it could position the employees of the company in extortion situations where they would be powerless (Björklund, 2014). Being extorted in a country where the society have a different structure than what they are used to is seen as high risk as they do not have any rights neither can they expect any help from the Swedish embassy. Björklund (2014) stress that it is a risk that you need to be aware of, they see you as a Westerner with loads of money Level of knowledge Björklund (2014) explains that the knowledge prior to entering East Africa was insufficient and that they were a bit naive. Nevertheless they have learned a lot during the years specifically with the help of their contacts in their network and through working experience. 4.4 Renetech AB Entering East Africa Tom Walsh (2014) is the CEO of Renetech AB and his main responsibility is the establishment of different projects in markets where the company is present. Walsh (2014) has been involved in exports within business-to-business transactions for over 20 years within the technological company Ericsson however, Renetech s exports to East Africa first started in Walsh (2014) has previous experience from North America, South America, The Middle East and Asia although during his years with Ericsson there was no focus on Africa. Renetech does not offer a specific product they rather provide solutions concerning resource recovery of energy and bi-products. Within the markets the company is present on their role is to be consultants and project developers. Between 2007 and 2008 the company made a prefeasibility study concerning bio fuel 42

49 EMPIRICAL DATA that was initiated by Tillväxtverket which in turn helped the company to get to know the East African market. Walsh (2014) explains that some of the people that they established contact with during this time are still considered to be strong partners in the region. In East Africa Renetech have had previous projects in Uganda, Kenya, Tanzania and Ethiopia as well as future projects that is taking place in Rwanda and other parts of Africa. Internationalizing to East African countries was not a strategic decision instead it was more of a reaction to increasing requirements and the need for Renetech s expertise. Today there are more requests than ever, on average Renetech receives about one project request per day from developing markets, sometimes it can be up to four requests per day and this is a trend that has increased enormously since 2012 (Walsh, 2014). Even though requests can be seen as the main motivator for internationalizing to East Africa, the curiosity of the owners and the notion of being one of the few Swedish small- and medium sized enterprises (SME) in the region also made it interesting to proceed. Further he explains that East Africa has high growth rates and that there are a lot that needs to be done within the energy sector and the infrastructure within it. Walsh (2014) explains that one thing sort of lead to another, we viewed the African market as being high risk so the only way we could do business there was from the point of view of the opportunity. Walsh (2014) stresses that networks and personal relations has been important in their internationalization process. The core of the projects is the local partner selection, this is highly significant due to the fact that it brings with it local networks that helps enable these projects to take shape. By using project business as an entry mode the partner selection mechanism can be viewed as being a risk reduction tool as well as the project collaboration agreement helps create an interdependent business model. The company s main establishment strategy is based around projects and local partners. The local partner is typically taking care of the interactions with the local government, the company supports them in their dialogue but they do not engage as they do not want to get involved in bribery or corruption (Walsh, 2014) Risks General environment uncertainties Walsh (2014) explains that when working with energy projects in East Africa the government has policy frameworks that has to be considered and these can differ a lot from country to country depending on the level of development. Another significant risk concerns the financing of the projects where it is highly important to create a financial structure that isolates the potential risk. He explains that they do not start any projects 43

50 EMPIRICAL DATA until they have received a first payment of 15 percent which is followed by payments as the project proceeds as well as after it has been finalized. The usage of The Swedish Export Credits Guarantee Board (EKN) and Swedish Export Credit Corporation (SEK) is another way to reduce financial uncertainties where the local partner can seek help to finance the project through these governmental organizations. Before doing any business in East Africa Walsh (2014) explains that there were some critical voices that implied that they would never get paid when doing business in Africa. This risk was later seen from a different perspective as they have always been paid although sometimes later than expected which has affected the company s cash flow. The delays in payments can be explained by reasons such as delays in transportation and delays concerning customs. If you are running an infrastructure project, a four to five month delay is definitely something that can be a significant risk (Walsh, 2014). Transportation is definitely an issue, where delays often occur especially at the boarders where there are tolls that have to be paid in different regions and therefore there are many implementation issues. Walsh (2014) also stress that cultural differences also occur but these issues is something one can learn over time. A significant risk is that Swedish companies and specifically SMEs tend to believe that their way of doing things is the best way, however this may not always be the case because the local environment is very different than the Swedish environment. It is therefore important to pay attention and listen to the local partner to be able to understand the context as they understand their business environment much better than any Swedish company can ever do (Walsh, 2014). Industry uncertainties Concerning industry uncertainties Walsh (2014) emphasizes that the selection of the local partner is a way to decrease risk. The local partners tend to be either in the construction business or in the agricultural processing business, common characteristics for these firms is that they usually are family and privately owned organizations. These companies have their own cash resources due to the fact that some of them have been established on the market for years, where the growth of the past ten years has enabled them to save some capital. Their history also makes it possible for them to run projects with limited resources, but the key factors for these projects to become successful is the interconnection of their resources combined with external finances and knowledge (Walsh, 2014). 44

51 EMPIRICAL DATA Firms-specific uncertainties Walsh (2014) explains that credit within East Africa is very expensive and that the interest rate can be as high as percent. Renetech has to educate their customers about the financial plan and how it will proceed, for a small company this can be very difficult as it is a long and complex process. When negotiating contracts Walsh (2014) stress that they try to minimize the liability where it is important to specify who bears the risk. Nevertheless, the emphasis should be put towards protecting the company s assets and a common recommendation is that legal issues should be addressed in more developed countries. In terms of the skills possessed by the local electricians and the mechanics Walsh (2014) explains that they have had a very positive experience, the quality has been high and the impression is that they know exactly what they are doing Level of knowledge Walsh (2014) explains that the knowledge concerning the East African markets where they are present has not been sufficient. Further he explains that you learn as you go along as his perception was completely out of date with the reality. My perception I would say where wrong in that sense, it has changed enormously and the speed of change is moving very very fast (Walsh, 2014). 4.5 Sebab AB Entering East Africa Mikael Brink (2014) is the Business Unit Manager for exports at Sebab AB where he is responsible for the business development, the partner selection and he initiates business opportunities in foreign markets. Sebab s export focus is put towards Africa and the Middle East however, they are still open for opportunities elsewhere. The company has been present on the African market for more than 15 years although the focus on exports became more significant in Brink (2014) explains that Africa is a market with a lot of potential due to the fact that it is the fastest growing market in the world, its amount of natural resources and that there are many opportunities where development is necessary. The company possesses specific knowledge that is needed where the demand for energy helps develop many of the countries in the region as well as it boosts their economy. Currently the company is established with owned subsidiaries in Liberia and Rwanda as well as working on projects together with Swedish consultancy firms, such as Business Sweden in Tanzania, Kenya and Uganda. The company has been working 45

52 EMPIRICAL DATA on several projects in the region and right now they are considering a large future project in Ethiopia. Brink (2014) explains that working together with large Swedish companies such as ABB and ELTEL is a part of their strategy as they get the opportunity to cooperate in projects where their competence alone would be insufficient. Having these contacts is important when entering markets where the company has no previous knowledge, where they do not have an establishment Sebab turns to their business partners such as ELTEL, Business Sweden or local consultants to provide them with valuable information. Brink (2014) believes that they gain knowledge about the countries they want to enter by using the contacts in their networks, without these contacts the company it would quite difficult to get access to the right people in the new market. Brink (2014) explains that it can be seen as a chain of process where the first step is to get to know the country, in a second step the company uses an external consultant to conduct a market strategic analysis, this helps pinpoint which local companies that can become potential partners. To be able to establish a strong relationship with the potential partner it is crucial that the communication is clear and effective between them. Another important aspect is that previous experiences help them understand the business climate as well as how to do business in these countries. Brink (2014) emphasize that a common trait for Swedish people is that they can easily adapt to new environments which can be seen as a competitive advantage when entering new markets. A significant part of Sebab s strategy is that they do not only sell a product, they also want to implement value such as after sales. Brink (2014) also stress the importance of transferring knowledge to their local partners as this in turn creates new job opportunities as well as it gives them the right tools to be able to maintain the future power supply. Passion, love, religion, history and knowledge. Mix these components, sell it and then share. This is how you will gain reliability and this is why we are successful (Brink, 2014). The company has high beliefs for Africa and plans to expand further, the aim is to increase their operations with three to five new countries every year. Brink (2014) is of the belief that the future for Sebab is in Africa as the market in Sweden will become saturated in the upcoming years. 46

53 EMPIRICAL DATA Risks General environment uncertainties Brink (2014) stress that financial risks are highly significant and that you need a wellstructured payment plan to lower the risk. One way to do so is to make the customer pay in advance or by using a letter of credit through a bank. Further corruption is a risk that needs to be considered where Brink (2014) emphasize that even though Africa is seen as the most interesting market in the world, it can also be seen as the world s most corrupt market. A way to lower this risk is by including statistics from the corruption index in the company s marketing strategy analysis. When assessing the level of corruption there is also a need to consider the political risks such as the stability of the country and the ease of doing business. Brink (2014) explains that difficulties can occur when the company has been negotiating a contract for a long time and all the sudden the political decision maker is replaced which could lead to a lost contract. This scenario emphasizes the importance of being paid in advance. Brink (2014) describes that when doing business in East Africa cultural aspects are highly important. To illustrate an example he describes that there is a difference in how people perceive time, i.e. when deciding on when a product will be delivered it is important to be extra specific on what day, week and time that should be. Hence the importance of communication between the parties specifically concerning that there are many languages that are spoken in the region which could lead to the language barrier being seen as a risk. Further there is a huge difference in the infrastructure of transportation which often leads to transportations of goods being delayed. Countries that are located by the coast has an advantage as it is both easier as well as cheaper to ship products as these countries are more accessible. Transporting products to countries that are located in more central parts of Africa such as Rwanda and Uganda tend to be more difficult as transportation will have to be conducted through other countries or by air cargo, also referred to as landlinked or landlocked countries. Industry uncertainties Risks within the industry category could be competitors, trade barriers and the choice of partner. Brink (2014) describes that the competition in East Africa is intense specifically within the energy sector. Within this sector the majority of the investments are made from Chinese and Indian firms that can provide products with a lower price, resulting in lower quality. Further he explains that trade barriers is a risk meaning that clearing the products in customs can take some time and therefore the products needs to be properly 47

54 EMPIRICAL DATA treated prior to delivery. Another industry specific uncertainty is the choice of the local partner and the uncertainty whether they are interested in a long-term collaboration or not. Sebab therefore puts a lot of effort into getting to know the local partner where clear communication is the main priority (Brink, 2014). Firm-specific uncertainties As the products that the company delivers requires a certain level of technical knowhow a part of Sebab s vision is to export knowledge as well. However the risk that is related to this area is that the prior education of the local workers is limited. Brink (2014) highlights the high costs of implementing the projects in that it can sometimes be very difficult to get the financial support that is needed. Sebab knows who to turn to concerning financing of projects nevertheless there are unfortunately difficulties with raising the amount that is needed. The organizations that could be able to provide capital consider the projects to be too large as well as too expensive of an investment. Furthermore he describes that some projects never gets further than the initiation phase due to not having the resources needed, this also puts constraints on the personal relationships that has been established within the network. In a next step this can lead to the counterpart not trusting Sebab when asking for help concerning future business opportunities. Throughout the interview Brink (2014) stress that communication is highly important in many ways, it is significant that both parties are able to portray what they want and what they can offer Level of knowledge Brink (2014) believes that the negative picture of Africa that is being portrayed by the media is far from the whole truth and it is nothing he can relate to at all. As the company has been present in other parts of Africa during many years entering East Africa was not too much of a difference. Brink (2014) explains that as they are new in this region the company relies on their network to help them gain knowledge about the new country and its business climate. 48

55 ANALYSIS 5. ANALYSIS In this chapter the empirical data will be analyzed in relation to the theoretical framework presented in previous chapters. Each section of the analysis will be divided according to the conceptual framework as this will provide increased understanding of the relation between selected theories and the empirical data. 5.1 Knowledge and relations Hörnell et.al. (1973) concludes that Swedish firms has had a desire to internationalize towards markets with low psychic distance before entering a more distant market in accordance with the Uppsala internationalization process model. When comparing this to the case companies in this study we can see that internationalization to some extent has been done incrementally which can be described as the firms gradually increasing the commitment within their new markets. The foundation however, has been the focus of gaining knowledge by learning through their network connections in accordance with the revised Uppsala model described by Johanson and Vahlne (2009). Fastdev has learned through their incremental expansions to Russia, Ukraine and Belarus where the company has subsidiaries and by exporting their services to customers in the USA and Norway. When expanding to East Africa the company was given the information needed by Källbäck s (2014) sister who helped the company gain the knowledge necessary to access a country with higher perceived psychic distance. Mattias Bygg had no previous experience of internationalization, instead Lägermo (2014) used his network to gain more knowledge about East Africa after having visited Kenya. Lägermo (2014) gained access to partners and their resources through their network where his colleague introduced him to Nowpartner who later introduced him to EPTF in Kenya. We are of the impression that interactions within networks have been crucial for all case firms. Regarding Mattias Bygg s internationalization this has paved the way for Lägermo (2014) meeting his partners in Kenya and learning about the new market. Johanson and Mattson (1988) and Håkansson and Snehota (1995) explains that companies are dependent on resources other companies may possess and that the relationships with other firms in their network can enable the exchange of these resources. We can clearly see that this has been of importance for Mattias Bygg as the collaboration between Lägermo (2014) and his local partners has given both parties 49

56 ANALYSIS access to resources the other part has control over. Lägermo (2014) has the qualitative knowledge of construction that is requested by the partners and they possess the knowledge and relations needed to be successful in Kenya. By interacting within different networks the firms could bridge domestic networks with international networks which have been important for Procamp s internationalization process towards East Africa. Björklund (2014) received help from the connections he had with the domestic Somali network which enabled the company to seek opportunities in both Kenya and Somalia. For Renetech the initiation of the internationalization stems from the collaboration with Tillväxtverket where they had the opportunity to learn about the East African market before starting their own projects in this region. Furthermore when analyzing the empirical data we believe that the relations with the local partners have been a very crucial part for all of the case firms in their learning process. Sebab stress that their local partners helps the firm gain knowledge where the partner can help provide access to the right people in the new market. When being able to establish trust and a clear communication with the local partner the foreign firm can rely on them to seek new business opportunities and manage the necessary administration. The local firm can teach the foreign firm about the local culture, business climate and the ethics of doing business in the country. We thereby stress the importance of having a trustworthy local partner where communication is the key for Swedish business-to-business (B2B) small- and medium sized enterprises (SME) internationalizing to East Africa. One important aspect that we can clearly see is the financing of either the initiation of the new establishment or of new projects that has been problematic for many of the case firms. We believe that the network has helped provide solutions for the financing where the firms have found solutions to their problems with the help of their relations. For Renetech the company has been able to provide its local partners with financing solutions with the help of Export Credits Guarantee Board (EKN) and Swedish Export Credit Corporation (SEK) who are a part of Renetech s network. Mattias Bygg came in contact with Swedpartnership through their network as they could provide funding of the initiation phase. This has enabled the company to start their joint venture in Kenya as well as it equally provides the developing economy with knowledge and work opportunities. Swedfund helped fund the establishment of Procamp s factory and their initial establishment in East Africa. We believe that by these Swedish governmental organizations helping the funding and financing of specifically B2B SMEs 50

57 ANALYSIS establishments in East Africa enables the companies to gain access to more distant markets. This would otherwise require resources that the company might not be able to provide themselves. Mtigwe (2006) explains that networks can be seen as an important tool for companies trying to find knowledge with as low cost as possible. Although we do believe that by incorporating these governmental agencies in the company s network, the funding helps the companies to gain the necessary knowledge to proceed with their establishments in the region. Furthermore the funding and financing does not only facilitate the internationalization for the Swedish firms in turn it also help the transferring of knowledge to their partners and workers in East Africa which enables the development of the countries. Johanson and Mattson (1988) describe that internationalization with the usage of networks can be viewed in three ways: international extensions, penetration or international integration. Examining the empirical data of the case firms and applying the usage of their networks on the network theory s internationalization process we can see that the domestic network has been crucial for all of the firms. A common trait is that the companies have established themselves in a new and domestic network that in turn has enabled them to gain access to the East African market. As the companies have gained a certain extent of market knowledge from their domestic networks we believe that the internationalization through international extensions could be seen as a tool of risk reduction. By establishing themselves in a new domestic network the companies have been able to access new international networks in East Africa. Sebab has also been able to take part of projects initiated by other companies such as ABB and ELTEL where these projects has given the firm access to other international networks and new business opportunities. Johanson and Mattson (1988) categorization of firms commitment within their network when internationalizing is described as; the early starter, the late starter, the lonely international and the international among others. At a first glance the simplicity of the model appears to be applicable for the case firms, however as Chetty and Blankenburg Holm (2000) explains the contents of the categories overlap which makes it difficult to position the case firms within model. We do however see common traits of the firms having international domestic networks which have been a significant part of linking the companies to other networks in East Africa. For Swedish B2B SMEs internationalizing 51

58 ANALYSIS to East African countries we recognize the immense importance of the local partner selection, concerning this choice the firms domestic network is of utter importance as they can motivate the choice of local partner. When analyzing the empirical data we can tell that the local partners have a large domestic network which we believe is of great importance when entering this region. With their expertise they can help the companies gain knowledge of the market as well as a deeper understanding for the business environment as this information tend to be difficult for firms to gather. 5.2 Perception of risk Baird and Thomas (1985) discuss three steps that are related to strategic risk and we believe that these three steps can all be applicable to the case firms that we have analyzed. The three different phases are; (i) the risk identification phase, (ii) the risk estimation phase and (iii) the risk evaluation phase. As the risk identification phase concerns the perception of risk we believe that this can be closely interlinked with the first step of the risk analysis. We have analyzed the empirical data and we have been able to distinguish risks that are applicable for all of the case firms while some risks are more specific within a certain industry or for the specific firm. The risk estimation phase emphasizes that the risks can be viewed differently depending on whom it concerns. This is interesting for us as there are some risks that the case companies view in a similar manner while some risks are very specific for each firm. Furthermore the evaluation phase puts focus towards how much risk a firm is willing to bear and if there are enough resources to stand behind this decision. Each one of the case firms has at an early stage evaluated if their process of internationalization has been in accordance with the firms resources as well as they have assessed if the opportunities has overweighed the uncertainties. Baird and Thomas (1985) describes that risk highly influences a firms strategy and that the intended strategy might be different than the realized strategy due to uncertainties. Miller (1992) divides risks within three different categories described as the general environment-, industry- and firm-specific uncertainties General environment uncertainties For Swedish B2B SMEs establishing presence in East Africa there tend to be some common uncertainties. The risks within the general environment that has been emphasized in the majority of the case firms are financial risks, corruption, communication difficulties and infrastructural shortcomings. Concerning financial risks Procamp, Renetech and Sebab have all highlighted the risk of the difficulties of 52

59 ANALYSIS receiving payments from their customers. Therefore the respondents stress the importance of payment in advance as well as Renetech and Sebab want the customer to understand the structure of the financial plan. We believe that the financial uncertainty concerning doing business in East Africa can be seen as a common prejudice and in hindsight this tends to be true. This can also describe the problem with corruption that unfortunately is a widespread risk in East African countries. All case firms are aware of the fact that corruption is a part of doing business in the region, although the firms have been affected in different ways. Procamp and Sebab believes that even though East Africa is an interesting market the corruption still have to be considered when entering these markets. Further Mattias Bygg believes that corruption leads to economic instability in the countries, i.e. there is mistrust in the further development of the economy. We can also see that communication and language barriers is an uncertainty that is specific for the region, foremost for the case companies that have complex products that needs education and explanation. Furthermore we can see that transportation is an issue in the region due to shortcomings within the infrastructure. This difficulty significantly affects both travelling and the transportation of products and this matter specifically concerns countries without a coastline. The problem affects the logistics and deliveries of products as the underdeveloped infrastructure results in delays which in turn can lead to a question of profitability. When expanding globally such as all the case firms has done in one form or another cultural issues is an aspect that has to be taken into account. Accordingly this is an issue that is emphasized by both Mühlbacher et.al. (2006) and Albaum & Duerr (2011). Both Renetech and Sebab stress that cultural indifferences do occur, however the cultural traits are something that the firms can learn to manage over time. We believe that cultural issues can be managed by the firms willingness to be perceptive and their ability to adapt. When internationalizing to more distant markets such as East Africa the politics as well as the ethics of doing business are quite different from the environment in Sweden. Some of the countries in the region are known for being politically unstable and many of these countries lack strong leadership. These risks are significant for a firm s establishment in East Africa as these uncertainties could affect the outcome of the case firms intended strategy as highlighted by Baird and Thomas (1985). Other important risks that have been emphasized throughout this research are the levels of education within the population in East Africa, nevertheless, this mainly concerns the 53

60 ANALYSIS ability for the firms to find local employees with skills related to the products that the firms offer. The emphasis has been put towards the significance of the case firms and their ability to transfer knowledge, we believe that when exporting knowledge the firms contribute with sustainable development and the creation of new jobs which can be seen as a corner stone for East Africa s further development Industry uncertainties March and Shapira (1987) stress that it is common for managers to see risks as an aspect that could affect the outcome of the internationalization process in a negative manner. Nevertheless, we believe that some risks should be seen as possibilities. The case firms analyzed in this research have all decided to internationalize to East Africa even though they have been aware of the risks but as Baird and Thomas (1985) stress there are risk embedded in most long-range relationships. One aspect that could be seen both as a major risk as well as a possibility has been the partner selection. Renetech emphasize that the partner selection is a way to decrease risk while Sebab addresses the partner selection as an uncertainty as it sometimes can be difficult to know if it will be a long-term collaboration or not. When analyzing the empirical data a common characteristic that is highly significant is that a trustworthy partner is of utmost importance and that the choice of local partner is what could be the foundation of discovering new opportunities. We have noticed that industry uncertainties can vary a lot depending on which industry the focus is put towards however, a common trait for three of the case firms have been the risk related to competitors. Fastdev has many competitors in Kenya within the sector that they want to penetrate and the risk related to this is that their project might not have the ability to grow and reach its full potential. Procamp and Sebab are operating within two different industries but their main competition comes from the same actors, the Chinese and Indian firms whom offer products to a lower price. These firms need to convince the East African population that higher quality equals a higher price which can be very difficult as the people within these markets tend to prioritize price over quality. However, this is a risk that could be seen as an opportunity as competition can be highly important for the case firms further development. A part from the industry related risks that tend to be of importance for any firm that has internationalized is that there are a few that are more interconnected with the personal 54

61 ANALYSIS experiences of each industry. Fastdev discusses the risk with that there are no guidelines for salaries in Kenya which in turn makes it difficult to adjust the salaries accordingly. Mattias Bygg has concerns about investments within the construction industry and describes that instability within a country affects the investment and it became more difficult to sell apartments. The type of construction projects that Lägermo (2014) conducts in East Africa is not the same type of projects that he is used to doing in Sweden, therefore a risk could be that the expertise needed is missing. Procamp sees a risk involved with being too dependent on the local agents and the local contractors as this can lead to a power struggle where the foreign firm is placed in a disadvantaged position. Furthermore, another risk involved with global operations are trade barriers as the process of clearing the products in customs can take quite some time and therefore it is of importance that the goods are properly treated prior to delivery as the products could become damaged Firm-specific uncertainties Concerning firm-specific risks of Fastdev Källbäck (2014) highlights that when having employees in distant markets it can be quite difficult to control and assess their work. This is a concern that is more crucial in the initial phase of the project as you do not really know your employees, at a later stage Fastdev s local developers in East Africa would have to be controlled and evaluated from Russia. Another uncertainty that Källbäck (2014) highlights are the Swedish clients perception of Kenyan developers. The risk related to this matter is that there might be preconceptions concerning Fastdev s developers, mainly as their clients do not have a lot of experience of working together with Kenyan developers. Lägermo (2014) describes that firm-specific risks within the construction industry in East Africa are the different structures, lack of leadership, struggles with communication and that the sub-contractors are having difficulties with delivering the supplies on time. The risk involved with the different structure is that the Kenyan contractors are used to working in a different way and mainly the risk lay in being able to transfer knowledge. Lägermo s (2014) aim is not to change the structure completely, rather he wants to improve their work and increase the quality through strong leadership and clear communication. Furthermore, a risk that construction firms in East Africa commonly stumble upon is difficulties with the sub-contractors as the delivery of supplies frequently are delayed. 55

62 ANALYSIS In Procamp s case the firm-specific risks are related to the fact that the firm has to be very dependent on their local contacts which could position Procamp in a disadvantaged position. Unfortunately Procamp became the subject for extortion and Björklund (2014) stress that the business environment in East Africa is significantly different from the Swedish environment. Firm-specific risks concerning Renetech are risks such as transferring knowledge regarding financial aspects, credit in East Africa and liability. Walsh (2014) describes that they have to educate their customers about the structure of their financial plan as it is highly important that both parties has reached an agreement. When transferring knowledge concerning complex matters it is always a risk that the knowledge is perceived differently. The credit within East Africa has interest rates that can be as high as percent which is very expensive and therefore this becomes a risk as well. Further Walsh (2014) stress the importance of being very clear in their contracts concerning the significance of minimizing the liability i.e. specify who bears the risk. As Sebab delivers a product that is very complex and that requires a certain level of technical know-how transferring knowledge can be viewed as a risk. This aspect is seen as a risk due to the fact that the local workers prior education within this area could be limited which could impede the learning process. Financial support is another risk as the projects that Sebab are involved in has very high costs and there have been difficulties with raising the financial support that has been needed. Brink (2014) emphasizes that communication errors could lead to risks as it is highly significant that both parties are able to communicate their wants and needs. When looking at the firm-specific uncertainties we can tell that some risks are recurrent within the majority of the case firms as well as some are very specific for each firm. We can see that the most recurrent risks concerns knowledge transfer and communication which we believe are two significant aspects when wanting to create sustainable projects and build long-term relationships. We can also see that the risk with transferring knowledge are more related to firms that have complex products as that requires a certain level of prior education of their local workers. Further we believe that transferring knowledge is closely interlinked with clear communication, it is highly significant that both parties are able to portray their needs. 56

63 ANALYSIS 5.3 Emergent strategy Internationalize or not? The foundation of whether a company should internationalize to a new market or not lies within if the company believes that the opportunities of the market will overweigh the risks and uncertainties. Albaum and Duerr (2011) determine that all companies are driven by a profit orientation as the main goal, however what ultimately motivates and triggers a firms internationalization varies. As the authors describe, earning a higher profit by establishing presence in East Africa is a common proactive motive for all of the case firms of this study. However, the combination of motives and triggers is what ultimately made them internationalize to East Africa. When analyzing the empirical data we can see that the market demand of the firms knowledge and products have been an external trigger for the companies. This combined with trade associations, outside experts or other network partners providing them with opportunities within the East African market. Mattias Bygg was triggered by Lägermo s (2014) colleague, Nowpartner and EPTF in order to find his partners in Kenya whereas Fastdev was given the information from Källbäck s (2014) sister that ultimately lead to the company expanding their business to East Africa. We also believe that both Sebab and Renetech have had reactive motives where the companies have been pulled into internationalization towards East Africa. Brink (2014) described that the company does not believe that the Swedish market is the future for their products. We believe that a part of Sebab s internationalization has been that the company has been pulled into exports due to the domestic market being too small and due to high competitive pressure. A part of Renetech s choice to internationalize has been the reactive motive of an unsolicited order where the company made a prefeasibility study which was initiated by Tillväxtverket. Furthermore Walsh (2014) explained that Renetech s main motive for the establishment in East Africa was the requests that came from customers in the region but also explains that the internal trigger of the curiosity of the owners made them decide to establish themselves in the region. We can also see that a common fact for all of the case firms have been their specific knowledge of niche products. This can be described as a proactive motive for the companies where their technological competence and the uniqueness of their products have been a factor that has been motivating the companies specifically to East Africa where their knowledge is needed. 57

64 ANALYSIS We believe that when internationalizing to East Africa the financial aspect is of utmost importance as an external trigger for internationalization. Commonly all of the case firms have explained that the help of funding their establishment or projects has been of utmost importance. We believe that the high psychic distance combined with SMEs lack of resources would have otherwise made it difficult for them to expand to the region. For these firms internationalizing to this region we believe that even though there are several motives and triggers that made the companies interested in the market, the factor that influenced the reduction of uncertainty the most has been the initial funding. When examining the motives and triggers of the studied firms internationalization towards East Africa, we can clearly see that the combination of opportunities and seeing the potential that the market has to offer has overweighed the uncertainties and risks when entering a psychically distant market Entry mode When internationalizing the choice of entry mode is highly significant as the firm has to consider differences in culture, legal framework and political environment in accordance with Cavusgil et.al. (2002). Furthermore the Uppsala internationalization model is of importance as the knowledge provided by others will affect the depth of commitment (Johanson & Vahlne, 1977; Johanson & Vahlne, 2009). Considering the case firms choice of entry there has been different variables affecting their choices however, a common factor for all of the firms has been the utilization of local partners. With the help of the relationship between the firm and the local partner they can help decrease the uncertainties as they become the link towards the East African market. Fastdev established themselves in Kenya through a local subsidiary where the network was the initiator for grasping the opportunity. One of the first projects the firm was involved in was Housing Africa and currently the Kenyan developers are also working on projects together with Swedish customers. Mattias Bygg established their company Multi & Divide Bygg Ltd. in Kenya as a joint venture together with their local partners and has thereby gained access to their knowledge of the market. The Kenyan subsidiary is building housing complexes in the form of projects that has been initiated by the local partner. In Procamp s case they started out by cooperating with local firms in joint ventures where they constructed different projects. Today the company has chosen to use agents as an entry mode as they wanted to decrease the risks involved with joint 58

65 ANALYSIS ventures. Sebab utilizes local partners in order to get a feel for the new market where they first enter by starting out with projects as their first business venture. Furthermore the company has established subsidiaries in some countries in East Africa to increase business. When analyzing the case firms and their choice of entry mode we can tell that each firm has chosen a mode that has been the most suitable for that specific firm. This mainly as each firm operates within different industries and therefore views the significance of risks differently. The key factor is adapting the mode of entry in order to reduce their specific risks and uncertainties. This can also be explained by the companies being in different phases of their internationalization and therefore they need to apply different entry strategies as explained by Johanson and Vahlne (1977; 2009). We have seen that a common factor for the case firms concerning the decrease of risk when entering East Africa has been the usage of business projects as an entry mode. Owusu et.al. (2007) claims that project business can be seen as a form of export but also as a mode that has evolved through increased knowledge. We believe that an advantage of using this type of entry mode is that projects tend to be time-limited which implies that the company can withdraw from the market when the project is finalized. This reduces the long term commitment to the market whereas establishing a subsidiary would require a higher degree of commitment and involvement to the market. By analyzing the case firms we believe that project business has been helpful to bridge the gap between Sweden and East Africa foremost as the companies has become more closely interlinked with the local partners through the projects. Working together with partners can also lead to the surfacing of new opportunities. This can be seen with all of the case firms as they have started out with relatively small local networks in East Africa that later has been extended both through new possibilities and new partners. 5.4 Knowledge in retrospect When analyzing the empirical data we can see that there is a characteristic that applies to all case firms which is that the knowledge they had prior to entering East Africa has been completely wrong. The majority of the respondents explain that their knowledge concerning their new market has been insufficient. Several authors that have contributed to the revised Uppsala internationalization model stress that when first wanting to internationalize to a more distant market, the lack of knowledge is the main risk (Atkins 59

66 ANALYSIS & Anderson, 1999; Johanson et.al., 2002; Johanson & Vahlne, 2010). Therefore we believe that the main risk prior to entering the East African market has been the lack of knowledge where some of the companies have had an image that has been completely out of date. This was also explained by Brink (2014) as he believes that the image that the media is portraying primarily is focused on the negativity within Africa. Fastdev and Renetech both stress that the level of knowledge of the local workers has been much higher than first anticipated. Lägermo (2014) emphasize that Swedish companies that enters East Africa needs to be able to adapt and be perceptive in order to become successful as the business environment is very different to the Swedish environment. However, having experience from other parts of Africa can be helpful for Swedish B2B SMEs prior to establishing presence in East Africa. According to Brink (2014) experiential knowledge has been a significant factor when internationalizing towards East Africa where the utilization of the network connections from other regions in Africa can be very valuable. 60

67 CONCLUSION 6. CONCLUSION In this final chapter the emphasis will be put towards the analysis in relation to the formulated research problems. This analysis will thereafter culminate into a conclusion where the answers to the research questions will be presented. Furthermore the conclusion will lead to practical recommendations, a theoretical contribution as well as recommendations for further research. 6.1 Results The research questions of this thesis have been divided into one main question followed by two sub-questions. The main question aims to answer how Swedish business-tobusiness (B2B) small- and medium sized enterprises (SME) perceive the various risks that they face when internationalizing to East African countries. To be able to answer this question we will first answer the two sub-questions that will provide answers to which the main risks are and how the firms knowledge affects the perception of risk. Regarding the first sub-question the theory describes risk as an important aspect that has influence on corporate strategy which mainly is based on the fact that the range of risk taking affects a firm s intended strategy (Baird & Thomas, 1985). Miller (1992) categorizes risk in regards to the general environment, the industry environment and the firm-specific environment. The empirical data concludes that there are several risks and uncertainties that affects a firms internationalization process towards East Africa, however some risks depends on which industry the firm operates in while other risks are very specific for each firm. Nevertheless, there are some risks that are common for these Swedish B2B SMEs when internationalizing to East Africa within all risk categories. Through the empirical data it is apparent that the most common general environment uncertainties concerns financing and funding, corruption, communication, political instability, education and knowledge and transportation. Regarding industry uncertainties we can tell that partner selection and competitors are the most recurrent risks for the case firms. The firm-specific uncertainties are the risks that are the most differentiated, nevertheless there tend to be some factors that apply to all firms where transferring knowledge and the communication with the local partner are highlighted. To answer the question the main risks for Swedish B2B SMEs to consider when internationalizing to East Africa are financial risks, corruption, communication 61

68 CONCLUSION difficulties, political instability, infrastructural shortcomings, partner selection, competitors and the transferring of knowledge. Regarding the second sub-question the theory stress that when firms are having difficulties with obtaining market knowledge this can lead to uncertainty when wanting to internationalize towards more distant markets (Atkins & Anderson, 1999; Johanson et.al 2002; Johanson & Vahlne, 2009). The empirical data concludes that many of the case firms knowledge prior to entering East Africa has been insufficient as they have had a more negative view of the market than what they later experienced. The lack of knowledge as well as having an image that is far from the reality is what can be seen as the perceived risk. The firms perception of risk in East Africa is affected by their knowledge as the seizing of opportunities in a market with a negative image tend to be unappealing. Regarding the case firms they have been able to move away from the prejudice perception of East Africa and thereby been able to see the opportunities. To answer the question the firms lack of knowledge affects their ability to see the opportunities that the East African markets can provide. Thereby the perception of risk becomes enhanced as the company sees more risks to enter the East African market due to the negative image that is being portrayed. The main question is highly interlinked with the sub-questions presented above. The theory stress that risk is embedded in almost all long-term decisions and that the managers tend to see risks as an aspect that could affect the outcome of the internationalization process in a negative manner (Baird & Thomas, 1985; March & Shapira, 1987). In the Uppsala internationalization model there are two variables that are highly significant, the depth of commitment and how to reduce uncertainty (Figueira-de-Lemos et.al., 2010). The theory suggests that by establishing new relationships it will lead to the creation of networks where firms can find new opportunities and increase commitment. Being a part of a network can be seen as a risk reduction tool as well as a significant way to transfer knowledge. The empirical data concludes that the case firms perception of risks is more common when it concerns the general environment however, most of these risks are perceived as being manageable. As Miller (1992) explains there are two ways of managing uncertainties, financial risk management and strategic risk management. To answer the question we thereby conclude that by being aware of the risks and being able to adapt the entry strategy as a 62

69 CONCLUSION reaction to these risks is of utmost importance. Firms adapt their strategies by utilizing their network through increased interactions where the company can learn from other network connections. The local partner provides access to the extended network and through these parties new opportunities can be discovered. By interacting within the network the appearance of the most suitable mode of entry will be clarified and thereby the firm can choose whether to increase the commitment or not. Furthermore the empirical data implies that knowledge gained through the local partner is crucial for firms when internationalizing to East African countries in order to understand the local business environment and the ethics of doing business. Network Learning about the market Local partner Interacting Strategy for managing risks Become aware of risks Entry mode Fig. 5. Concluding framework (Own construction) Figure 5 presents a framework for the conclusion of this thesis where the relation between the different functions and how these functions enables the firm to strategically perceive and manage risks when internationalizing. The relation of these functions has been of importance for the case firms of this study as well as it can be seen as guidelines for other B2B SMEs internationalizing towards East Africa. 6.2 Practical recommendations Many Swedish B2B SMEs has the niche expertise within various industries where development and sustainable solutions can be applied within the East African region. It has been highlighted by the case firms that the region is in great need of competence within fundamental areas such as energy and infrastructure. The countries in East Africa are experiencing rapid growth and alongside with a growing population the need for 63