Suppliers' international strategies - CiteSeerX

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European Journal of Marketing 36,1/2 86 Received March 1999 Revised January 2000 Accepted September 2000

European Journal of Marketing, Vol. 36 No. 1/2, 2002, pp. 86-110. # MCB UP Limited, 0309-0566 DOI 10.1108/03090560210412719

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Suppliers’ international strategies Svante Andersson School of Business and Engineering, Halmstad University, Halmstad, Sweden Keywords Suppliers, International business, Entrepreneurialism, Sweden Abstract A longitudinal study of the international behaviour of Swedish suppliers is presented. Three different types of supplier are identified: simple suppliers, advanced suppliers, and own product suppliers. Factors influencing the internationalisation of these suppliers are discussed. It is concluded that the firms’ offer and the customers’ buying strategies influence the firms’ international behaviour. However, these factors do not determine the international strategies completely. Various entrepreneurs will choose various strategies. Three different types of entrepreneurs are identified: the marketing, technical, and structural entrepreneurs. The type of entrepreneur influences the firms’ international strategies in different directions.

The interest in suppliers has grown during the last few decades (Andersen et al., 1997). The main interest, however, has been from the procurement side, where key words such as supply chain management, global sourcing, single sourcing and lean supply are frequently used. The growing importance of subcontracting compared with in-house production has been shown in several studies (Brandes, 1993; Lamming, 1993; Womack et al., 1990). In this article the suppliers’ view is taken, that is, how customers’ changing procurement patterns influence the suppliers’ international strategies and what other factors are important to understand suppliers’ international strategies. The study was conducted in Sweden. Sweden is a small country, which is dependent on international trade with a successful internationalised industry. The international business is, however, dominated by rather few very large companies, such as Volvo, Ericsson, Astra, Electrolux, Stora, Tetra-Laval, ABB (50 percent Swedish, 50 percent Swiss), Saab, Scania etc. These large firms are highly internationalised. Smaller industrial firms, often suppliers to the large Swedish firms, are often doing business mainly in Sweden. Changes in the environment of Swedish suppliers, such as Sweden’s close relationship and later membership of the EC, technical improvement in communication, and changing buyer behaviour in the larger firms (for example, global sourcing), have made internationalisation easier. However, many Swedish suppliers still focus on the Swedish home market. The situation of Swedish suppliers and the need for internationalisation are themes which have been thoroughly discussed in Sweden for a long time (Brege and Moberg, 1982; Lilliecreutz, 1996). However, questions still remain. Why have not these changes in the firms’ environment led to more dramatic changes in their international strategies? What factors influence the choice of strategies in Swedish supplier companies?

The internationalisation of the firm is an area of great research interest (Bilkey and Tesar, 1977; Cavusgil, 1980; Johanson and Vahlne, 1977, 1990; Luostarinen, 1979). One of the most important models in this field is the socalled Uppsala Model, which was developed by Johanson and Vahlne (1977, 1990). The model explains internationalisation as a process of increasing experiential knowledge (Eriksson et al., 1997; Penrose, 1959). The discussion is focused on development over time, and the main theme is the firms’ behaviour when it comes to different establishment sequences according to markets and entry modes. Markets are entered with successively greater psychic distance. Psychic distance is defined as the factors preventing or disturbing the flow of information between firm and market. Examples of such factors are differences in language, culture, political systems, level of education, level of industrial development, etc. (Johanson and Wiedersheim-Paul, 1975). The firm’s international behaviour in a single market is a consequence of a successively greater commitment and is described as follows. At the beginning there are no regular export activities, then export takes place via independent representatives, later through sales subsidiaries and finally a manufacturing subsidiary is established (Johanson and Wiedersheim-Paul, 1975). The Uppsala internationalisation model and other process models have been criticised for being deterministic (Melin, 1992; Reid, 1981; Turnball, 1987). If the firms are developed in accordance with the models, individuals will have no strategic choices. In this study, however, top management and entrepreneurs are regarded as important for the suppliers’ international strategies (Andersson, 2000). In the 1990s the entrepreneurs’ importance for international business was highlighted by many researchers. For a survey of international entrepreneurship literature, see McDougall and Oviatt (1997). The present study is influenced by this research stream and will further investigate the relationship between entrepreneurs and suppliers’ international strategies. First in this article, three different types of supplier are identified: simple suppliers, advanced suppliers and own product suppliers. It is concluded that simple suppliers have difficulties surviving in a high cost country such as Sweden. In the next chapter, factors influencing the internationalisation of suppliers are discussed. The firms’ offer, customers’ buying strategies and entrepreneurs within the firms are dealt with. The discussion concludes with a theoretical framework. Thereafter, the case method used in the study is presented. Then some illustrative examples from the extensive case studies, on which this study is built, are presented. After this, the cases are analysed using the earlier developed theoretical framework. This is followed by the study’s conclusions and implications. Different types of suppliers What is a supplier? A supplier can be identified as a company that carries out activities specified by another firm (Andersson, 1990). However, this definition has proved too narrow to be useful in the analysis of the multitude of different subcontractors that exist today (Andersen et al., 1997). Suppliers not only

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procure simple standard components specified by the buying firm; they can be totally different types of firm with totally different conditions for international ventures. The simple supplier still exists, that is companies that only produce what other firms order from them. For example, they can make details in plastic and steel, which are parts of other companies’ products, such as cars, refrigerators and mobile phones. However, other types of supplier also exist. For example, some develop complete systems and are responsible for product development, co-ordination of all parts of the system and logistical solutions to be able to deliver just-in-time to the customer. There are various ways to categorise suppliers. Gadde and Grant (1983) use a combination of the suppliers’ resource base and market position. Similar typologies have been developed by other researchers (Andersen et al., 1997; Brege et al., 1993; Carr, 1993; Collis, 1991; Lilliecreutz, 1996). These studies’ conclusions are that suppliers, even if constrained by environmental forces, can still choose various strategies. Further, the suppliers should not only focus on changes in the environment but also give more attention to the firm’s resource base. Following these results this study’s starting-point is the supplier’s offer to their customers, which is a result of the firms’ resource base. The earlier theoretical typologies were compared with the empirical experience of suppliers (see the method chapter) and with the purpose of this article. Three different types of supplier were identified: simple suppliers, advanced suppliers, and own product suppliers. Simple suppliers do not develop any products; they compete on production knowledge and capacity. Low prices are important to obtain orders. Advanced suppliers try to compete on more than just the price. They can be a part of the product development process, they can combine different products and deliver more complete systems to the buying company. The own product supplier develops their own products, which can be used in other products, for example, automotive tyres. Simple suppliers Simple suppliers compete first and foremost on cost. Like most developed countries, Sweden has problems competing on price; many of these producing firms have disappeared from Sweden. As the products are regarded as simple, no close communication is necessary between buyer and seller. The international pattern is that these companies will grow in areas where the production costs are low. This strategy focuses on the upstream activities in the firm (Porter, 1985). The localisation of simple suppliers depends on where they can produce at the lowest cost. A theory that can be useful when explaining the location of this type of supplier is the classic Heckscher-Ohlin theory (Heckscher and Ohlin, 1991). A country with low labour costs concentrates on labour-intensive products, and countries with extensive capital resources concentrate on capital-intensive products. The development in the Swedish rubber product industry is a good example of how Sweden is unable to compete on labour-intensive products.

Shoes, which were the first dominant products in the Swedish rubber industry, have nearly disappeared from the Swedish arena. Standard automotive tyres have also decreased their part in the rubber industry. Tyres, which are now produced in Sweden, are so-called special tyres, for use in cold climates. Industrial rubber is now the dominant part of the Swedish rubber production. Also in this field, the companies are specialising in producing rubber products of a high quality, which are capital-intensive. The big crisis for the labour-intensive rubber companies in Sweden occurred in the early 1980s. In 1979, 16 000 people were employed in the Swedish rubber product industry and in 1983 there were only 9,000 left. Since then, nearly all Swedish rubber product companies have tried to find their niches and to specialise in these areas. In the rubber product industry, where economies of scale are an important factor[1], it is very difficult for simple suppliers to be located in Sweden, as production costs are relatively high. In the plastic industry, the advantage of being large is not as important as in the rubber product industry. It is possible for small companies to exist, as they have small overhead costs. Trelleborg and a couple of other large companies dominate the Swedish rubber product industry. The plastic industry, on the other hand, consists of hundreds of smaller companies (Andersson, 1996). Advanced suppliers As the simple supplier strategy is hard to implement in a country such as Sweden with its high production cost, most Swedish suppliers try to add something more to their concept than just offering production facilities at low prices. A common strategy is to offer their production knowledge as a part of the concept. A car producer usually does not have the same expertise in rubber and plastic as the producers of these products. If the rubber supplier is involved early in the product development process, it may be possible to create a better and cheaper product. Internationalisation can be difficult, as it is necessary to have tight direct contact with the buyer, that is, it is difficult to use middlemen, and direct investments are often necessary. Direct investments imply high costs and high risk. The international strategies for advanced suppliers are more dependent on downstream activities (Porter, 1985), since the relations with the customers are of great importance. Own product suppliers The own product suppliers develop their own products and their internationalisation can be easier than for the advanced suppliers, as products are easier to sell via middlemen, which is a resource-lean alternative compared with direct investments. Own product suppliers transform more of their knowledge into a hard product than the advanced suppliers. However, the own product supplier does not compete mainly on price. They are trying to produce products that are regarded as superior to those of their competitors. They can build this position by a quality product, a brand, better market channels etc. Also in this case, downstream activities such as marketing and sales are of greater importance than in the simple supplier case.



Discussion To conclude, simple suppliers sell production services and the international settings can be found where production costs, such as wages, are low. As the simple supplier is hard to find in Sweden today, the following parts of this article concentrate on advanced and own product suppliers. Advanced suppliers can be advanced in different ways. They can have outstanding knowledge in production, materials, logistics, system-coordination etc. Their knowledge should be important to the customer in order to be regarded as an advanced supplier. As their knowledge is complex, the customer can use it as a competitive advantage, and therefore a close relationship with the customer is important. Advanced suppliers are dependent on complex close relationships that rely on close physical and psychic distances (Johanson and Wiedersheim-Paul, 1975). Own product suppliers are not as dependent on the distance as the advanced supplier. As their offer includes more ``hard’’ products, the relationship with the customer is not as complex as that of the advanced supplier. More resource lean entry modes, such as representatives, can be chosen. A lack of earlier studies into internationalisation means that they do not explicitly separate companies which internationalise as a consequence of downstream or upstream activities (Porter, 1985). Studies of internationalisation of Swedish firms (Johanson and Vahlne, 1977, 1990) have implicitly treated downstream internationalisation of firms, that is firms whose strategy is dependent on their downstream activities as well as on their relationship with their customer and their customer’s buying strategies. However, there is no discussion about the context in which the model works. Strandskov (1993) suggests that it would be more fruitful to find middle-range theories which explain a cluster of firms, which behave in a similar way, and try to understand the factors that are important for the internationalisation of these firms. In this article, different categories of suppliers and their international behaviour are discussed. It has been concluded that simple suppliers’ international location can be explained by classical trade theory. The following discussion will therefore concentrate on the international behaviour of advanced and own product suppliers. Factors influencing the internationalisation of suppliers Types of offer The product that the company offers has implications for the firm’s international strategy. Whether the company sells simple standard products or complete systems with logistical solutions will have a big impact on their relationship with their customers. However, do suppliers offer products? Many suppliers do not develop products but offer production capacity. To be able to investigate how the firm’s offer influences their international behaviour, the product concept has to be discussed. If we go to the traditional marketing literature (Kotler, 1996), the product concept includes everything that can be offered to a customer, that is, a service offer is also a product. As most offers today include both hardware and software, the borderline between service and hard products is diffuse. However, different products have different amounts of hard products and soft service

elements (Shostack, 1984; Zeithaml, 1984), which has consequences for the international behaviour (MajkgaÊrd, 1998). As some services have special characteristics, such as that they cannot be stored and they are consumed and produced at the same time, it is difficult to use middlemen. The services that suppliers offer, however, are transformed into products, which can be stored and transported. If the above discussion is related to the different types of supplier identified earlier, it can be concluded that it is harder to internationalise advanced suppliers than own product suppliers. The discussion about the internationalisation of service products is built on the proposition that the more service or soft components an offer has, the more complicated it is to internationalise. In the supplier case it is not the characteristic of the offer which is important per se, but the complexion of the buyer-seller relationship (Axelsson and Johansson, 1992; Forsgren and Johansson, 1992). The more complex the buyer-seller relationship, the more important the distance. Simple suppliers offer a service, but the relationship with the customers is simple and international trade is easy to conduct. It can be concluded that the complexity in the customer relationship is one important factor that influences the suppliers’ international behaviour. Another important factor is the buyers’ procurement strategies, which will be discussed as follows. Customers’ buying strategies For a long time the discussion about globalisation has been a well-discussed theme. Some authors argue that soon there will be no difference for companies doing business in different nations (Levitt, 1983), while some believe that differences will still exist. However, for a supplier, the buying strategies of their customers are crucial. Here we can see a trend towards a more global buying strategy for some companies and industries. So¨ lvell (1988) found that the car industry was very national in the 1980s. Most parts were bought in the same nation or nations near the home base. In Sweden, especially Saab-Automotive has changed their buying strategy since then. Saab-Automotive is nowadays owned 50 percent by GM and their buying operations are a part of GM’s global network. This development is not an isolated incident but a trend in the automotive industry (Lilliecreutz, 1996). The global buying strategies can imply both a threat and opportunities for the local supplier. The company can be exchanged for a foreign supplier or it can get in touch with new customers through the international GM network. Entrepreneurs Although suppliers are constrained by their type of offer and buyers’ procurement strategies, suppliers can still be successful with various strategies (Carr, 1993). During an executive management program for Swedish suppliers, the following views were expressed by two managing directors in two supplier companies, which produced similar products in a similar environment: Internationalisation doesn’t suit our company. We should concentrate on our home market, where we know our customers and their requirements. The increased competition and



internationalisation in the environment we should answer by concentrating all our resources to defend our position in the home market. The increased internationalisation presents opportunities for us. Certainly the competition at home is increasing but at the same time our opportunities to compete abroad will increase.

The citation above shows that individuals interpret the environment differently and also act differently in accordance with their interpretation (Hellgren and Melin, 1993; Maignan and Lukas, 1997; Penrose, 1959). Therefore it is appropriate to analyse key individuals to enhance the understanding of suppliers’ international strategies. The importance of individuals has also been shown in many recent studies of firms’ internationalisation (Boter and Holmquist, 1996; Dichtl et al., 1990; Madsen and Servais, 1997; Maignan and Lukas, 1997; McDougall and Oviatt, 1997; McDougall et al., 1994; McGaughey et al., 1996; Preece et al., 1999; Welch, 1990). In these studies the concept of entrepreneur is common. This concept will also be used in this study and is defined as the individual who carries out innovations in accordance with Schumpeter’s (1934, p. 66) definition: (1) The introduction of a new good – that is one with which consumers are not yet familiar – or of a new quality of good. (2) The introduction of a new method of production, that is one not yet tested by experience in the branch of manufacture concerned, which needs by no means to be founded upon a discovery scientifically new, and can also exist in a new way of handling the commodity commercially. (3) The opening of a new market, that is a market into which the particular branch of manufacture of the country in question has not previously entered, whether or not that market has existed before. (4) The conquest of a new source of supply of raw materials or half manufactured goods, again irrespective of whether this source already exists or whether it has first to be created. (5) The carrying out of the new organisation of any industry, like the creation of a monopoly position (for example, through trustification) or the breaking up of a monopoly position. The concept of an entrepreneur has many different meanings, both in common language and in academic literature (Hisrich and Peters, 1989). Despite this, the concept is used instead of key-decision makers, because it focuses on individuals who act in accordance with the criteria for innovation. There are many different typologies of entrepreneurs. Most typologies are focused on their individual characteristics (Carland et al., 1988; Collins and Moore, 1964; McClelland, 1961). However, there has been a problem to find psychological traits more common among entrepreneurs than among others (Davidsson, 1992; Shaver and Scott, 1991). Some researchers have therefore argued that entrepreneurship research should focus more upon entrepreneurial behaviour than on entrepreneurs’ traits (e.g. Gartner, 1989). This recommendation is

followed in this study and Schumpeter’s (1934) classificatio n of innovations is used to identify three different types of entrepreneur. Entrepreneurs that carry out actions in accordance with points 1, 2 and 4 (see quotation above) can be called technical entrepreneurs. These points deal with technical innovations, such as new products, parts of products or new production technology. Entrepreneurs that carry out actions in accordance with point 5 can be called structure entrepreneurs. Entrepreneurs that open up new markets can be called marketing entrepreneurs. The marketing entrepreneur can also be innovative in other ways than those mentioned by Schumpeter; he can use new marketing methods in new markets, such as new distribution methods (Mattsson and HulteÂn, 1994; Mo¨ lleryd, 1996).


Theoretical framework The theoretical discussion gives rise to the framework shown in Figure 1. Different types of supplier have different degrees of hard products and services in their offers. This implies different types of buyer-seller relationship, which influence the suppliers’ international strategies. The customers’ buying strategies also influence the suppliers’ international strategies. Last but not least are different types of entrepreneurs’ influence on international strategies included in the framework. International strategy is defined as the process of involvement in international operations (Welch and Luostarinen, 1988). Important issues in the

Figure 1. Theoretical framework for suppliers’ international strategies

European Journal of Marketing 36,1/2

internationalisation concept are market choice and choice of entry mode (Johanson and Vahlne, 1977, 1990). Internationalisation is not an activity that is isolated from other activities in the firm. Internationalisation is a part or a consequence of a firm’s overall strategy. Strategy is defined in a broad sense (`à pattern in a stream of action’’), as advocated by Mintzberg and Waters (1985).

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Method In the executive management program UKOMP[2], case studies of the companies taking part in the programme were used. Together with colleagues, 15 supplier cases and five buying company cases were developed. These cases are confidential. However, some companies have allowed some of the material to be disclosed. The programme initiated a deeper study of entrepreneurs’ influence on firms’ international behaviour. Deep longitudinal case studies were conducted. Three firms, Trelleborg, Skega and Sunnex, in the Swedish rubber product industry were chosen. The case companies were chosen because their international development was hard to explain based on previous research (Eisenhardt, 1989). Another reason was that the rubber product industry was dominated by few players, which were easy to cover in a study. Furthermore there was ease of access to some of the players through earlier consultancy work. The multiple-case design has improved the internal and external validity (Yin, 1994). Similar and contrasting case results are compared with earlier research. Furthermore, by keeping the industry factor constant, other factors must be important if different international patterns are to be found. As the aim of the study was to investigate the change over time, a longitudinal approach was considered the most appropriate. The longitudinal approach is under-represented in studies about internationalisation and has been recommended as a fruitful way to expand the knowledge in this area (Andersen, 1993; Cavusgil, 1980; Johanson and Vahlne, 1993; Melin, 1992; Nordstro¨ m, 1991; Reid, 1981). The case studies are partly built on secondary data, such as business magazines, annual reports and internal documents, but primarily on personal interviews. The individuals who took a direct part in the decisions and implementation of the companies’ different establishments abroad (such as chairmen of the boards, presidents, export directors, area managers, export salesmen, presidents of subsidiaries, etc.) were interviewed. In all 41 people were interviewed. The individuals who had the greatest influence on the internationalisation processes were interviewed several times. Former interviews led to the identification of individuals who were central in the internationalisation process. The interviewees have had the opportunity to read and comment on the drafts of the different cases. By this method, information from annual reports and business magazines could be complemented with oral sources. The above actions are in accordance with Yin’s (1994) recommendation about construct validity as well as increasing the study’s reliability. The company case studies were complemented with an industry study, which was mainly based on secondary data. The industry study made it possible to

focus the interviews on details, which were not published in the secondary data. By choosing three companies, it was possible to compare similarities and differences, which would make the results more reliable (Yin, 1994). ``How can you generalise anything from a couple of case studies?’’ is a question frequently asked (Yin, 1994). Generalisation is not a simple concept and the meaning of the concept has to be discussed before the question can be answered. The concepts of statistical generalisation and analytic generalisation have completely different meanings (Yin, 1994), but are not always treated as different concepts in scientific discussions. If this distinction is made, the question about generalisation is easier to answer. Case studies are not suitable to create statistical generalisations. Analytical generalisation, however, can be made by case studies (Yin, 1994). As with all case studies, this study has no intention to claim any general statistical results. Cases Parts of the cases are presented below to illustrate the international behaviour of Swedish suppliers (the complete cases and the industry study are published in Swedish (Andersson, 1996)). Sunnex Êke Wester and Olof Jonsson established Sunnex in 1966. They had worked A earlier at another Swedish rubber component company in Sweden, called Forsheda. First Sunnex operated only as an advanced supplier and did not develop any of their own products, but after a while they developed machine Êke Wester, who was the managing director and the most dominant of mounts. A the two owners, was very interested in the fast internationalisation of the company. He saw a potential in the new product and wanted to secure market shares before the competitors would copy the concept. He contacted different experts to prepare the internationalisation of the company and received the advice to start carefully with small resources and to grow slowly to minimise risk. In spite of the advice he received he wanted to start sales subsidiaries directly on important markets, instead of searching for representatives. In a short time Sunnex established four own sales subsidiaries. Sunnex was bought by Hexagon in 1971. Hexagon was a company whose business idea was to buy family-owned companies and create growth in the firms by helping them with financial and international matters. However, the Êke Wester was still CEO. founders were still active in the company and A The internationalisation of the own product supplier part The first sales subsidiary was established in West Germany, 1970. The subsidiary was not a success and was closed down in the beginning of the 1980s. In 1980 Sunnex also started a second subsidiary in West Germany together with Snickers, who sold working clothes in Sweden. The idea was that the machine mounts and working clothes should be sold through the same market channels in Germany (this is common in Sweden). The distribution



structure in Germany was completely different and the sales company had to close down not long after. The second international establishment was in France, in 1971. Sunnex received help from the Swedish export council in the search for a suitable partner. The man appointed by the export council to find a partner became very interested in the project himself and he became the managing director of the French subsidiary. The managing director was a Frenchman who was married to a Swedish woman. The establishment had some difficulties with profitability in the first few years, but became a profitable business later. In 1973, the third sales company was established in Êke Wester from his student days, the USA. Sven-Olof Emilsson, a friend of A Ê had emigrated to the USA. Ake Wester contacted him and Emilsson then became the managing director of the US subsidiary. The subsidiary is profitable and later on developed own production facilities. A fourth subsidiary was established in Great Britain, around 1975. The company was not a success and was closed down after a couple of years. The US and the French subsidiaries were, still in the late 1990s, successful. Internationalisation of the advanced supplier part The part which was internationalised was the company’s own product department. An attempt was made to internationalise the advanced supplier part of the company, but this attempt was not successful. The importance of being close to the customers meant that this part of the company sold most of its products in Sweden. The later managers, appointed by the new owners, Hexagon, carried on with the same positive view towards internationalisation until Nolato became the new owner in 1989. New management and owners Gunnar Ljungberg in Sunnex has a background from an international company with production and sales units abroad (Skega). When he was appointed CEO in Sunnex in the beginning of 1987, Hexagon recruited him mainly on account of his international experience. Sunnex had some international ventures and their vision was to expand their international activities. However, later the same year Nolato bought Sunnex. Nolato was a family owned rubber and plastic product producer. Sunnex had made some diversification into new business areas during the Hexagon era but the new owner sold the new parts and Sunnex concentrated their business in the rubber product area. Nolato was a family owned company, which started as a supplier in rubber products and expanded via acquisitions in Sweden. Their strategy was more inbound-oriented. They started a program to rationalise the production and improve the quality. The company’s `òwn product department’’ was separated from the supplier department and then carried on their international activities, while the supplier part concentrated their sales efforts in Sweden. An attempt with production in the Czech Republic, started by the former manager, who was in favour of internationalisation, was abandoned.

Skega O.A. Svensson founded the company Skega at the beginning of the 1920s. The first products were working shoes and rubber gloves. After a while they received orders from the dominant company in the region, the mining company called Boliden. After the Second World War the founder’s son, Assar Svensson, returned to the company. During his military service he was a pilot and he came back with ideas that he developed from that experience. Sweden was cutoff from rubber deliveries during the war, which inspired the use of substitute materials. When the army trucks were short of rubber wheels they tried to replace them with steel plates. The experiment was not successful. Assar Svensson thought that the same principles could be applied in the mining industry. In the mining industry the ore was ground in mills and the mills were lined with steel. Svensson thought that it would be better to line the mills with rubber. As Skega had good relations with the big mining company in the region, Boliden, he was allowed to test the idea in one of their mills. In the beginning the results were not positive, but some of the engineers at Boliden thought that the idea was good Skega was allowed to carry out new tests and after a while the tests succeeded. Rubber lining was not the only product that was developed. Rubber bands for bandwagons and snow scooters, lining used in the timber industry and rubber grounding for roads and sport-tracks were other products that were developed. The rubber lining for ore mills was, however, the most successful product internationally. This part of the company could be categorised as an advanced supplier. Internationalisation of the advanced supplier An important customer of Skega was MorgaÊrdshammar, which produced pumps and mills for the mining industry. MorgaÊrdshammar licensed one of their products out to the US company, ASH Pump. As the pump from MorgaÊrdshammar included rubber from Skega, the US company contacted Skega and asked if they could also produce Skega’s products on licence. Skega agreed and the first step of Skega’s internationalisation occurred in 1963. The internationalisation continued with some agent agreements, but the real boost for the internationalisation strategy was when the family company was bought by Incentive in 1969. The Wallenberg family, who dominated a major portion of the Swedish export industry, also dominated Incentive. Incentive’s idea was to develop former family-owned companies by helping them with technical, marketing and financial expertise. Marcus Wallenberg, the leader of the Wallenberg family, had a world-wide reputation and a network of contacts. With a new owner, Skega was able to raise funds for investment abroad, which was necessary because the export of capital from Sweden was restricted. Assar Svensson received an introduction letter from Marcus Wallenberg. Equipped with this letter, he was treated as a VIP in banks world-wide. With the entrance of Hexagon the internationalisation proceeded much faster. Production



subsidiaries were established in Chile in 1969, in Canada in 1975, and in Mexico in 1979. Sales subsidiaries were established in South Africa in 1973, in Singapore in 1974 and in Finland and Brazil in 1975. Trelleborg Trelleborg was founded in 1895 as one of the first rubber product companies in Sweden. It is still the dominant player in the Swedish rubber product industry. Its first main product was tyres for bicycles. It took a long time before the company ventured abroad. Until the Second World War the company expanded in Sweden with many new rubber products such as industrial rubber and automobile tyres. Early internationalisation of the own product supplier In the 1950s the internationalisation started. The first engagement was often at the representative level. The first products sold abroad were hoses and special Êke StaÊhlbrandt, tyres,where the company had built a competitive advantage. A who became managing director in 1949, was very supportive of the internationalisation but he did not take part in the operative activity. He formed an export division, whose first director was Fredrik Bergstro¨ m. His successor was Kjell Larsson, who became export director in 1974, and who had started in the export division already in 1956. Kjell Larsson, having in the establishment of subsidiaries in the 1960s, had a good knowledge of French. This influenced the relatively early establishment in France. In the 1960s the company expanded mostly via sales subsidiaries and this continued into the 1970s: . Denmark (1959); . Norway (1960); . USA (1961); . Switzerland (1961); . Great Britain (1962); . France (1962); . Austria (1962); . Belgium (1967); . Spain (1970); . Italy (1970); . Australia (1971); . Brazil (1972); . Iran (1976); . Canada (1978); . Mexico (1979).

They started production companies in two nations, The Netherlands in 1962 and West Germany in 1964. The sales subsidiaries started to increase their marketing efforts with one exception, the subsidiary in Switzerland, which was started for financial reasons. The production company in The Netherlands started to secure a production facility inside the EEC. As Sweden was not a member, Trelleborg feared trade restrictions. In the 1970s the company had problems with profitability, and the international competition forced the company to close the department which produced standard automotive tyres. The later internationalisation of the own product supplier Rune Andersson was appointed CEO in Trelleborg in 1983, which led to a tremendous change in the company’s strategy. Trelleborg was traditionally a rubber product industry, and the former CEO had no intention of changing its strategy in order to enter into other business areas. Then, an increasing international competition forced Trelleborg to close one of their large business units (automotive tyres). In 1986, Trelleborg was a rubber product industry with a turnover of 2,843 MSEK, and in 1987 the company was a conglomerate with business in the rubber, mining and distribution areas with a turnover of 17,843 MSEK. The strategy was to acquire companies in mature businesses, which were cheap because of problems with profitability and then to restructure these companies to create profitable companies. This change in strategy also has implications regarding the companies’ international behaviour, since some of the mature businesses which Trelleborg entered were very international, like, for example, mining. Acquiring production companies was the most common way of internationalisation, and the markets which were entered were chosen, depending on the possibility of finding interesting objects to acquire. Analysis The influence of buyer-seller relationships and customers’ buying strategies on suppliers’ international strategies The Sunnex case shows that their own product supplier was easier to internationalise than the advanced supplier, mainly because of the differences in the complexity of the relationship with the buyers. Skega, however, was able to internationalise as an advanced supplier. The mining industry could be regarded as more international than the automotive industry (at the time of this study). It is easier for a supplier to go international, if foreign customers have global buying strategies and consequently are used to having relationships with suppliers from abroad. Trelleborg started internationalisation with their own products with resource lean entry modes, and their commitment in the market grew over time. The pattern follows that suggested by Johanson and Vahlne (1977). This study shows, however, that other firms do not follow this pattern. Sunnex started sales subsidiaries in many markets without any prior representation on the markets, and Skega started production companies in many markets without having any sales subsidiaries established in the



markets. The Johanson and Vahlne (1977) model explains the international pattern with organisational learning. Here it is shown that other factors can be more important for understanding firms’ international patterns. The type of product that a supplier offers leads to a more or less complex relationship with the buyer. A more complex relationship makes it advantageous to be near the buyer both geographically and psychically (Johanson and Wiedersheim-Paul, 1975). The dominant buyer strategy in the buyer industry also influences the probable international behaviour of the supplier. Figure 2 illustrates how different circumstances make an internationalisation more resource dependent for a supplier. In the darker areas in the Figure an internationalisation strategy is easier to conduct as well as being realisable with fewer resources. As the complexity in the relation is low, a close geographic and psychic distance is not necessary; and, as the buyer has a global buyer strategy, local presence is not necessary. In the lighter areas in the Figure more resources are needed to internationalise. Complex relations and local buyer strategies, as a consequence, lead to companies with production near the buyers, geographically and psychically, being advantageous to companies further away. To be able to serve international customers, the company has to start foreign production units abroad. Entrepreneurs Buyer-seller relationships and customer buying strategies do not completely determine the international strategies of firms. Suppliers can choose different strategies to achieve competitive advantages (Child, 1972). The entrepreneurs in the firms influence the strategies chosen. Different strategies are chosen in accordance with the entrepreneurs’ view of doing business (Maignan and

Figure 2. Structural influences on suppliers international strategies

Lukas, 1997). Many Swedish suppliers are family-owned SMEs. Their interest in international marketing is often very limited (Klofsten et al., 1996). The goal of their companies is often not to create fast growth, which can be a risky project that needs external financing. An internationalisation is an investment, which needs capital to succeed. This may imply that financing from external partners is necessary. The external financing means that the family will lose some of its control of the company. However, some supplier firms choose to internationalise and, as is shown in this study, the individuals in the firm are important in order to understand the firms’ different international strategies. The technical entrepreneur The individuals’ intentions and persistence in carrying out different strategies are decisive for the firms’ strategic directions. Assar Svensson’s strong drive for technical improvements made him direct many resources to technical development. Sometimes Skega succeeded with their inventions and sometimes not. As one researcher in the development department said ``When Assar had an idea it was impossible to stop him and, even if natural laws dictated that his idea was impossible, he wanted to test it’’ (Technical manager of Skega). Assar Svensson is an example of a technical entrepreneur. The technical entrepreneur’s main interest is technology. When he discusses strategy, the most important activities are product development and production. The strategy leads to new products. Internationalisation is not the main interest of the entrepreneur, but new products can be known abroad through the international network of which the firm’s customer is a part. A request from abroad can lead to export or a licence-agreement, which are establishment modes that demand relatively small resources. Which markets are entered depends on from which countries the inquiries are coming. The marketing entrepreneur Êke Wester was important as an individual to understand the early In Sunnex, A development of Sunnex’s international expansion. He started four sales subsidiaries abroad, although he received the advice to be more careful and to start the internationalisation with resource-lean alternatives, such as representatives. However, his strong motivation for internationalisation was not sufficient to be able to internationalise the supplier part of the company. When Nolato became the owner the attempt to internationalise the supplier part was abandoned and a strategy building on efficient production knowledge was Êke Wester in Sunnex is an example of a marketing entrepreneur. established. A The marketing entrepreneur identifies a need in the market, and he has an idea how to fulfil this demand. The product is being seen in a wider context; the market channels and brands can be more important than the physical product. He is proactive in the internationalisation process and creates new channels to reach the customer. He is willing to develop new international ventures and choose establishment modes, such as the greenfield establishments of subsidiaries that require lots of resources. These establishment modes make it



possible to penetrate markets quickly. Markets are chosen actively, but not in accordance with ``rational’’ calculation. Personal preferences and networks may be more important. It is important to note, however, that, although Wester had a strong desire to internationalise, the external circumstances, with complex relationships and local buying strategies by customers, as a consequence led to Wester not being able to internationalise the advanced supplier part of the firm. The structure entrepreneur In the Trelleborg case, Rune Andersson changed the business arena for Trelleborg. He broadened the strategic views and entered into a completely new business area. This was an opportunity that former dominant individuals of the firm had not considered. Andersson’s actions followed the ideas of Hamel and Prahalad (1989) to think in new ways and not to be locked into old industrial structures: The strategist’s goal is not to find a niche within the existing industry space but to create new space that is uniquely suited to the company’s own strengths, space that is off the map (Hamel and Prahalad, 1989, p. 73).

Rune Andersson is an example of a structure entrepreneur. The structure entrepreneur acts in mature industries, his strategy is on a corporate level and he does not directly intervene in operational matters. He is trying to restructure companies and industries. The internationalisation is not a separate strategic goal but, as most industries are international, the strategic entrepreneur becomes an important international player. As he works in mature industries, he prefers acquisition and mergers so that he can reduce the capacity in these industries. Markets are chosen in accordance with the competitive situation. Markets where there are no attractive acquisition or merger prospects are not entered. International strategies The discussion above shows the importance of individuals when analysing the different international strategies among suppliers. In this study three different types of entrepreneur have been identified: the technical, the marketing, and the structure entrepreneur. The close connection between international strategies and firms’ overall strategies is shown in this study. The technical entrepreneur chose a strategy focused upon technical development, while international market development was not focused upon. The international strategy was reactive. The marketing entrepreneur’s international strategy was proactive and central to the overall strategy. The structure entrepreneur’s strategic goal was to restructure companies and industries, and the international behaviour was a consequence of the overall goal. Individuals interpret their environment, and their interpretations influence their decision making and international strategies (Maignan and Lukas, 1997; Penrose, 1959). Some will perhaps argue that individuals follow trends that all individuals follow. However, different ideas about doing business exist during the same period. Even if diversification is not in vogue, Rune Andersson, in Trelleborg, argues that diversification can still be efficient and logical. He does

not consider that companies should be totally mixed but a company can own activities in different areas and the corporate management could still be efficient. A reason why conglomerates are not regarded as effective has been discussed under the concepts of dominant logic (Prahalad and Bettis, 1986) and strategic intent (Hamel and Prahalad, 1989). That is, the same person cannot grasp too many industries. However, other studies show that financially controlled conglomerates sustained the highest rates of profitability (Carr, 1993). This study is an argument for the use of many different strategies. As Carr showed, global strategies may not always result in better performance compared with nationally based strategies; and conglomerates can sometimes be successful. A strategy should be a result of the situation and of the context of the individual firm. The importance of the owners (Collin, 1998) is shown in this study. When Incentive (a Wallenberg company[3]) bought Skega, Skega could use Wallenberg’s international networks. This was especially important during the 1970s when the capital market was strongly restricted. Skega was not able to export capital from Sweden to start a production company abroad but had to find local financiers. It was not possible to do this in the name of Skega but, with a reference from Wallenberg, there was no problem in finding capital from any part of the world. Also in the case of Sunnex, the importance of the owners is visible. When Nolato bought Sunnex, they replaced the more internationallyoriented manager with one more production-oriented. The strategy became more focused on internal production, and resources on international ventures were reduced. This is in line with the findings of Benito and Welch (1997), that closing down of foreign activities is not easily accepted by executives who are heavily involved in international investment. Managerial succession is one key to explaining an international divestment. This supports Boddewyn (1983), who discusses the concept of a new man providing `ìmpetus’’ as an important factor explaining foreign divestment decisions. The discussion above is in line with this study’s view of entrepreneurship. That is, the entrepreneurial change is executed by individuals with power over the firm’s behaviour. These individuals may be CEOs but can also, as in the case above, be owners. This also shows the importance of a governance structure (Collin, 1998). Internationalisation is easier if the focal firm is a part of an international business group (such as the Wallenberg group) than if the firm is in a group, which focuses on the local market (such as Nolato). This study confirms the classical notion of strategy, that is the fit between external opportunities and internal resources[4] (Andrews, 1980). However, this study points up the importance of individuals in the firm as a crucial resource for the firm (Boeker, 1997; Hambrick and Mason, 1984). In accordance with this study, the individuals’ knowledge and ambition should be the starting-point for strategic analysis. To find a fit between the entrepreneur, other resources in the firm (Barney, 1991; Porter, 1985; Prahalad and Hamel, 1990) and external opportunities are crucial to gaining competitive advantage. Even if this study highlights the importance of entrepreneurs, external opportunities and constraints (Porter, 1980) must not be forgotten. For suppliers the relationship



with the customers and the customers’ buying strategies are important external factors that influence suppliers’ international strategies, as shown in Figure 2. Conclusion There are structural factors, which make different strategies and internationalisation opportunities more or less likely to succeed. Simple suppliers have difficulties surviving in Sweden, especially in industries with economies of scale. In industries where economies of scale are not crucial, small suppliers can survive due to low overhead costs. Most Swedish suppliers are, however, not simple suppliers but advanced suppliers or own product suppliers. There are structural factors that make it complicated to internationalise, even for these firms. If the customers have a global procurement strategy, it is easier for a supplier to go international. Even if some industries are becoming more global, this alone cannot explain suppliers’ international behaviour. Most Swedish suppliers still focus on the home market. The importance of a close relationship with the customers is also crucial for a supplier’s international opportunity. If a complex and close relationship with the customer is important, it is harder to internationalise. As an advanced supplier is often dependent on close complex relations with their customers, they have to invest many resources to be able to expand abroad. An own product supplier can choose more resourcelean alternatives. However, these structural influences cannot determine the entire strategy and the international patterns of the suppliers. Suppliers, in nearly the same circumstances, can choose completely different strategies. In this article it has been proposed that the type of entrepreneur in the firms is important in order to understand these different patterns. A technical entrepreneur’s firm has a slower and more incremental internationalisation pattern, which is in line with the stage theory of internationalisation (Aharoni, 1966; Bilkey and Tesar, 1977; Johanson and Vahlne, 1977, 1990). The marketing entrepreneur’s firm, however, has a more rapid international growth, which is initiated by the entrepreneur (Boter and Holmquist, 1996; Madsen and Servais, 1997; McDougall et al., 1994; McGaughey et al., 1996). The structure entrepreneurs’ actions are dependent on the other players in the industry and can be characterised as oligopolistic reactions (Knickerbocker, 1973). However, the strategic change will not take place without an active individual. Entrepreneurial change is also possible in mature industries (Stopford and BadenFuller, 1994), and active individuals are crucial to this change (Brandes and Brege, 1993; Greiner and Bhambri, 1989). The discussion above shows the importance of building an understanding of the complex phenomenon of internationalisation on many different theories (Morgan, 1986; Strandskov, 1993). To understand the strategy of a supplier, the firm’s resource base has to be analysed (Barney, 1991; Carr, 1993). As the entrepreneur in the company is an important resource, his knowledge and ambition (Penrose, 1959) have to be taken into account to understand different strategic patterns of suppliers. The entrepreneurs are especially important for understanding radical changes in the company’s strategy.

Implications A manager in a supplier company has to be aware of the structural factors influencing the business. What are the company’s strengths and what opportunities and threats exist in the environment? Does your company compete on cost and are there advantages in being large? The future can be difficult if you cannot change your company’s strategy. Another important factor is the relationship with your customers. Are there complex relationships important for the co-operation or perhaps you have built up close ties with your customers? Caution is recommended in the development of a close relationship. If the customers change their buying behaviour from local to global, you will be compared with international competition. The globalisation with mergers and acquisitions in the automotive industry will cause dramatic changes among Swedish suppliers. GM owns parts of SAAB and Ford has bought Volvo. Suppliers must be prepared to be compared with suppliers worldwide. Internationalisation is not behaviour separated from the firm’s total strategy, but an integrated part. First, the company should try to figure out what their competitive advantage is and what strategy can be used based on this competitive advantage. The individuals in the firm create the competitive advantage. The manager’s motivation and knowledge are regarded as one of the firm’s crucial resources (Barney, 1991; Penrose, 1959). If the managers have a technical interest, their competitive advantage is often of a technical nature. As companies’ resources are scarce, most resources will probably be directed to technical development, which is the proper strategy for the company, as the interest in technology is also connected to knowledge and persistence, in order to achieve results in that area. The technical entrepreneur should choose resource-lean international strategy, and use establishment modes, such as licensing. The technical entrepreneur’s market choice is reactive and a consequence of other players’ actions. If, on the other hand, the dominant individual is interested in marketing and internationalisation, knowledge is more likely to be created in these areas, and more resources should therefore be directed to marketing and international strategy. A market entrepreneur should choose entry modes which demand many resources, such as subsidiaries. He will have a great opportunity to be successful in the management of these entry modes, since he will commit himself to the project. The market choice is an important part in the strategy. The decision is, however, a consequence not of a ``rational’’analysis but more of the entrepreneur’s interpretation of the situation. A structure entrepreneur acts in a mature industry and should choose establishment modes that fit the overall strategy of restructuring the industry. Acquisitions are the most common way to implement this strategy. The structure entrepreneur chooses markets depending on the competitive situation in the industry. Strategies should be a consequence of the core competencies of the firm, a competence which is built on the individuals’ knowledge. However, different individuals have different power in firms, and the most powerful individuals,



such as managers and active owners,will direct resources to the areas that they find most important. This is also important for governments and other institutions that help companies go international. If there is no interest in internationalisation from the dominant individuals in a company, success in an international venture is unlikely, even if the company receives financial support that is earmarked for international activities. This study is built on information from the Swedish rubber product industry and cannot automatically be generalised to other countries and industries. The cost level in Sweden is high, which makes it difficult for suppliers in Sweden to compete on a low cost strategy. This can be generalised to other countries with a high cost level. Buying strategies are different among different companies and industries. There is an ongoing concentration and globalisation trend in the automotive industry, while other industries are more local (Brandes, 1993). The importance of a close buyer-seller relationship is not country- or industry-specific but related to relationships in general in order to create value for the customers. Nor is the importance of entrepreneurs and their mental models country- or industry-specific. In this study three types of entrepreneur influence suppliers’ international strategies. Entrepreneurs’ influence on firms’ international behaviour has been shown in many recent studies (Boter and Holmquist, 1996; Madsen and Servais, 1997; Maignan and Lukas, 1997; McDougall et al., 1994; McGaughey et al., 1996; Preece et al., 1999), but more quantitative and qualitative research is needed to further explore entrepreneurs’ influence on firms’ strategies. Notes 1. In the rubber product industry, the mixing of the rubber material is an important strategic factor, the mixing machines are capital-intensive and large production units have competitive advantages. In the plastics industry, the plastic per se is often not important. Different qualities are available on the market and you do not have to produce any of your own plastic material. 2. UKOMP was an executive programme conducted by the Institute of Technology, Linko¨ ping University, in cooperation with the Swedish government and representatives from Swedish industries (1990-1992). The following five customer companies took part in the programme: ABB, Alfa-Laval, BT, Electrolux, and Ericsson, and the following 14 subsuppliers took part in the programme: Boxholms StaÊl, Gislaved Gummi, Nefab Emballage, Vadstena Industriplast, Oxelo¨ Komponenter, Sunnex, Skogslund Fabriks AB, Bergqvist Hydraulik, Nystro¨ ms i Gnosjo¨ , Svensk Tryckgjutning, RIFA, Munksjo¨ , Skultuna Produktion, and Osby Armatur. 3. Swedish industry is dominated by two business groups: the Wallenberg group and the Handelsbank Group. In 1995 the two groups controlled approximately 52 per cent of the stock value on the Stockholm stock exchange. The Wallenberg Group controlled 39 per cent and the Handelsbank Group 13 per cent (Collin, 1998). 4. The author uses Mintzberg and Waters (1985) processes to define strategy, but some may argue that this is inconsistent with Andrews’ (1980) definition. Mintzberg (1990) would certainly argue that the difference is immense. However, if Andrews is carefully read, one can see the similarities. The following two quotations show that: ``Corporate strategy is the pattern of decisions in a company that determines and reveals its objectives, purposes or goals, and defines the range of business the company is to pursue, the kind of economic

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