HT Entrepreneurship May 6 7 2008 Tuija Mainela

HT Entrepreneurship May 6 -7, 2008 Tuija Mainela D. Sc. , Professor of International Marketing Department of Marketing University of Oulu Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Objectives and contents Aim of the lectures § To create understanding of marketing and internationalization of HT firms § Describing typical features of HT marketing and internationalization § What kinds of issues make HT marketing especially challenging? § What kinds of customer strategies HT firms can utilize? § How HT firms create customer relationships in international markets? Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Lecture I: Typical Characteristics of HT Businesses and Specificities of HT Marketing Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Key marketing tasks § to attract, establish contact with and keep customers § to perform business activities that direct the flow of goods and services from producer to consumer or user § to know and understand the customer so well that the product or service fits her/him and seems like selling itself Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Exercise 1 § Form teams of 2 -3 persons § Discuss the features of HT business that create specific challenges to their marketing (10 min) § Develop a list of 5 most important features (5 min) § Characteristics of their business environment § Characteristics of their products or services § Characteristics of their customers Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Characteristics of high tech businesses High turbulence of business environment § § § difficulty of forecasting uncertainty and risks rapid changes obsolete technology -> going out of business decision making based on weak signals from the markets Short product/service life cycles § § new/better/more effective applications high development costs adoption times should be short dependence on the latest technologies self-evident Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Fast growth § demand sometimes growing faster than supply § possible quick returns attract followers and copiers Threat of too heavy product focus and technocracy § § product developers rule also marketing newest and most sophisticated technology seen always as the best solution product development without customer contact market analysis ignored Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Born globals § niche type of markets § real competition takes place in global markets Mergers and acquisitions § small producers of special applications and services § § extremely important to a few big multinationals securing critical supplies sharing product development costs and expertise Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Characteristics of high tech markets Technological uncertainty Market uncertainty HT marketing Competitive volatility Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Technological uncertainty § New technologies risky investments § Can they be commercialized? § Will the new product function as promised? § Will the new technology make our present technology obsolete? § Technological development takes often more time than expected § Several bugs may be found when the product is already in the market Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Market uncertainty § New technologies difficult for the buyers to evaluate and appreciate § What needs might be met by the new technology? § How large is the potential market? § How will needs change and how fast will the innovation spread? § Will the market adopt industry standards? Competitive volatility § Who will be our competitors? § What products will we compete with? § What will be the tactics for competition? Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Role of marketing with respect to market features Technological uncertainty § Speeding up the product launching (note! Bugs and beta versions) § Securing service for customers § User experience analysis (beta versions) Market uncertainty § Recognizing the market uncertainty customers face § Reducing fear of bad choice and reducing uncertainty § Market education Competitive volatility § Following the development also outside the industry § Being aware of the alternative ways to satisfy the customer needs Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Types of innovations and their marketing Marketing strategy Success of a new product Type of innovation -Incremental -Radical Contingency theory of HT Marketing = Marketing tools matching the innovation type -> Odds of success increase Match between customer and supplier perceptions -> Make marketing clearer Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

§ Incremental § § Extension of existing Characteristics well defined Low-cost production Response to specific market need § ”Demand-side” market § Customer pull § Radical § § New technology + new market R&D invention Superior performance over ”old” Specific market need of secondary concern § ”Supply side” market § Technology push Note! Radical and incremental innovations are the extremes and most innovations are situated somewhere in between Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Marketing of different types of innovations § Incremental § Objectives in terms of § market share § product positioning § targeted segments § Competition § Breath down our necks § Cause short window of § opportunity Emphasize differentiation § Speed to market critical § Market learning through § § customer surveys Importance acknowledged inside the firm Key customers known, possibly the idea creators § Radical § Objectives broadly in terms of § solving unsolved problems § beginning a new platform § Competitors not known § Will the technology work is the § § § critical question Close allies and partners used to validate the concept Big need to convince various stakeholders also inside the firm Application areas and early potential users unclear and unfamiliar Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Customer types Diffusion of innovations (Rogers 1983; Moore 1991) Innovators Technology enthusiasts • Just for technology Early adopters Early majority Visionaries Pragmatists • Competitive advantage • Proven applications • productivity enhancement Late majority Laggards Conservatives Skeptics • Risk averse and • If all the other alternatives of technology shy action are certainly worrse • Just to stay even Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi time

Example: possible customer segments in HT-markets Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Different types of customers for new mobile services Resources & knowhow Motivated Pioneers Profit Hungry Willingness to invest Technical Non. Experts Idea Supporters Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Different types of customers for new mobile services Resources & knowhow Profit Hungry • Don’t yet see the opportunities • Don’t want to experiment • Have resources but don’t want to use them without proofs Technical Non-Experts • Inexperienced electronic advertisers • Little time and other resources for testing -> impatient • Taking care of basic business the most important Motivated Pioneers • Can imagine the possibilities • Want first-hand experience • Expect a lot from technology and user experience • Have both marketing and technological resources Idea Supporters Willingness to invest • Don’t really have resources • No view of the possibilities • Positive attitude towards experimenting Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Exercise 2. Marketing to different customer types Resources & knowhow Motivated Pioneers Profit Hungry Willingness to experiment Technical Non. Experts Idea Supporters What kind of a product/service package would you offer? What do these customers value in new HT products/services? What kind of marketing arguments could be effective? Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Lecture II: Internationalization of High-Tech Firms Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Challenge: Distance between business partners DISTANCE GEOGRAPHIC PHYSICAL TIME -time zones -conception of time -from contact to delivery Influence on: Transfer of products Transfer of knowledge PSYCHIC CULTURAL -national -language -norms, values -political env. -economic env. TECHNOLOGICAL -product and process tech TRUST-BASED -firm-level a) competence b) contractual c) goodwill SOCIAL -individual level -knowledge on each other -experience Influence on: Communication Team work Understanding needs of the other Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Challence: Information needs in internationalization § 3 types of knowledge: § Institutional knowledge § Foreign institutions and their activities § Laws and regulations § Business knowledge § Knowledge on customers § Knowledge on the needs of the customers § Knowledge on the decision making processes of the customers § Internationalization knowledge § Knowledge on internal resources (e. g. adoption capability) § Knowledge on external resources Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Basic assumptions in traditional internationalization § Market uncertainty § Difficult to evaluate current and future market development § Lack of market-specific knowledge § Market commitment § Market uncertainty leads to minimum commitment of resources § Increase in commitment leads to decrease in uncertainty § Knowledge § Central regulator of market commitments § Lack of knowledge creates uncertainty è Leads to gradual, experience-based internationalization Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Basic assumptions in traditional internationalization § Operation strategy § § no regular exports via an agent sales unit manufacturing subsidiary § Market strategy § company starts from a foreign market to which the psychic distance is considered to be low § Factors explaining internationalization: § Experience (”learning by doing”), psychic distance § Development of internal knowledge and experience and other resources Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Critics of process models from the HT-viewpoint § Deterministic, no room for strategic choice and decision making § Fits only to small firms § Leapfrogging in the development processes § Phenomenon of ”born globals” § Early, significant internationalization of activities of the firm Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Internationalization of born globals § From inception seek to derive significant competitive advantages from use of resources and sale of outputs in multiple countries § Traditional stepwise approaches in internationalization not followed § Why not? § highly competitive and turbulent environment § short life-cycles of the products & rapid speed of innovation § small domestic markets (niche-markets) § following growth opportunities § being close to particular customers § R&D cooperation to exploit the technological know-how Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Exercise 1: What kind of factors favour born globals? § Form teams of 2 -3 persons § Discuss the features of HT business that favour fast internationalization (10 min) § Develop a list of 5 most important features (5 min) § Characteristics of entrepreneurs § Characteristics of production processes § Characteristics of business environment Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Internal drivers of Born Globals § Technically oriented, market oriented people § Entrepreneurial drive (search for opportunities, organizing, networking capability, ability to handle risks, innovativeness) § International experience and enthusiasm for internationalization of the managers § Basis in a significant product- or process innovation § Products with remarkable added value § Internationally recognized leadership in certain product category (specialization) § More resources than the average SMEs have Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

External drivers of Born Globals − Success in foreign market entry more dependent on the relationships with current markets than on the chosen market and its cultural characteristics • Existing relationships • initial trigger to foreign market and entry mode selection • • • e. g. a distributor taking contact Relying on trusted persons with e. g. common history offer contacts to customers help to develop partners and positions • • • provide access to local market knowledge provide initial credibility provide access to distribution channels may restrict the firms growth initiatives Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Major network partners have a great influence • • • Important to follow the “right” partner Great dependence Good in the beginning • To compensate the limited marketing experience and infrastructure Following the performance of the partners • Unsatisfactory relationships terminated or replaced • • • Not sufficiently committed or qualified Serving own interests through marketing policies Establishing own sales/service offices Developing new products for diversified markets Acquiring equity ownership in the partner • To increase management control and market performance Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Activities kept on oneself • Core competence of software development Activities given to/shared with the partners • • • Market research Customer education and service Market intelligence • • Product modifications Technical service Pricing New market entry decisions Along time firms develop in-house marketing and sales expertise • To preserve independence Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

§ To High Tech firms the network-based activities are almost unavoidable § To realize innovations § To get information and knowledge § To share costs and risks § Possible problems § Lack of coordination of cooperation § R&D cooperation takes time and results are to be seen slowly § What information to share and what to keep on oneself Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Networks and information for internationalization § Network relationships § company-specific i. e. difficult to copy § same information not available to everyone § relationships influence § availability of information: what is going on in the market? § timing of information: when does the information reach the firm? § spread of information: e. g. reference customers/ partners take care that the company is on view in positive way in the right place § central position in the network is relevant Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Networks as a basis for born globals Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Influence of social network on acquisition of knowledge for internationalization § Social networks § May initiate unplanned internationalization § § Tell about opportunities in foreign markets e. g. upcoming purchases Provide information to evaluate possible business partners Introduce you to a potential customer Informally market your products § May be the basis for initial market and operation mode selection § Personal trust § Common background § e. g. Finnish HT-firm starting international business in Thailand because of a previous colleague working there § When you hire a person you may hire his/her relationships also Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Influence of social network on acquisition of knowledge for internationalization Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi

Feedback § What do you consider as the most important/ interesting issue that you learned today or yesterday? § How did he different exercises influence your learning? Faculty of Economics and Business Administration P. O. Box 4600, 90014 University of Oulu Tel. +358 8 553 2595, Fax. +358 8 553 2906 e-mail: tuija. mainela@oulu. fi