Otsikko

Otsikko

16 October 2014

Find the most compelling export countries

One of the best ways to stimulate growth is successful market entry to new, international markets. But first you need to identify the most compelling markets - and these decisions are better to be based on the facts. I have also in my own career come across with internationalisation cases, where the key motivations were, for example, the language and cultural knowledge of decision-makers, coincidences or emerging romances.  It is of course possible to be successful just by counting on luck, but a more systematic approach will probably produce better results.

Here we shall go through methods to identify the most lucrative markets, introduce a tool for Finnish companies to facilitate the first steps of the job and walk you through an example of the use of the tool. The methods are suitable not only for international market expansion, but also when evaluating country priorities in new product, service or business model commercialisation.

Methods to identify the most compelling markets


Both company internationalisation researchers and experts of the sector appear to have broad consensus on the priority-setting and choice of international markets:
  • First, select the markets worth taking a closer look, based on macro-economic variables of the markets
  • Secondly, study the market potential for company's products in selected countries, and 
  • Thirdly, estimate the sales potential of company's products in relation to required  investments
The main factors affecting the market selection are thus:
  • Company related: e.g. the type of product or service, management characteristics, the size of the company, or experience in internationalisation issues
  • Target market related: e.g. the attractiveness of the country or market, marketing infrastructures or competition
  • Target market entry barrier related: e.g. country risk, customs and other barriers or physical and psychic distance
According to the model set out above, the made plans are indeed systematic but also mechanistic. They often lead to substantial investments, without the possibility, if necessary, to change the plans.

Of course, these things can be studied by means of desk studies, but a more in-depth view can only be found by having closer contacts with customers and markets. Traditionally, the tool has been own or outsourced market research, but its disadvantage is significant time, money and resources required. Globalisation of consumption and purchasing decisions, along with online methods, has created new, more cost-effective methods; international market selection can be made more iterative, avoiding too early choices that can easily lead to waste of resources.


Internationalisation Heat Map


Internationalisation Heat Map was developed as a tool for Finnish companies to easily and rapidly evaluate the attractiveness of entering various European markets. The tool encompasses all the European countries with the exception of mini countries, as well as some of the Balkan and Eastern European countries, where no reliable information is available.

Six elements were selected as the key factors of the Heat Map, with a user giving weight to each of them:
  1. Market size: measured by the population of a country 
  2. Purchasing power of the market: the measure is country's gross domestic product (GDP) per capita
  3. Ease of doing business in a country: measured using a World Bank comparative study on barriers and incentives of doing business in different countries
  4. Market openness: measured by using a comparative study by the International Chamber of Commerce on international trade openness in different countries
  5. Physical distance from Finland: measured using distances of country capitals from Helsinki, Finland
  6. Psychic distance from Finland: there are numerous, complex formulae developed to evaluate this, but here we use a good approximation of country's total trade (exports + imports) with Finland
The tool is used so that a user will assess the significance of each of the factors 1 to 6 from his or her business and internationalisation point of view, giving each factor a number value between 0 and 100. If the number is zero, then the factor is not taken into account in assessing the attractiveness of the country. Similarly, the number one hundred means that the factor is extremely important. Each factor should be evaluated individually, but a user gives each factor a weight based on what is important in company business. Each country gets an end result between zero and one hundred: the higher it is, the more lucrative the country is for market entry.

An example of Internationalisation Heat Map use


As an example, the tool is applied to analyse internationalisation plans of Ludus Helsinki. I was heavily involved in the business operations of the consumer product company aiming for rapid international expansion. Its products inspired children and young people to move, using a gaming-based service concept consisting of the Internet, software and dedicated devices.

 The most important factors of Ludus Helsinki internationalisation plans were market's purchasing power, ease of doing business in the country and country's psychic distance from Finland. The basic reasons behind this were
the facts that the product was quite expensive compared with its benchmarks and that it required a specific distribution and retail infrastructure. The size of the market and its openness were also important, but distance from Finland was not considered to be a very vital factor. The weighting of the various internationalisation factors is illustrated in the picture above.

The factor weighting produced the results of the chart on the right side. The most interesting export destinations seemed to be Germany, Sweden, Norway, Russia, the United Kingdom, the Netherlands and Denmark. The only surprise was Russia ending up so high. The importance of Russia, however, decreased significantly, when other important points for the Ludus Helsinki business were taken into account:
  • Tablet and Smartphone penetration in the country
  • The importance of non-competing physical activity for children and young people in the country
  • Sophistication of using digital marketing methods and tools in the country
The results were also very consistent with the conclusions of Ludus Helsinki digital marketing efforts: highly ranked countries generated more customer interest and the distributors and retailers in these countries were also the keenest to start to sell the product.

The used tool can be found here

5 October 2014

Growth financing for Finnish SMB companies

Lately I have been contacted by several SMB entrepreneurs for bank loan challenges. Indeed, access to finance is a key obstacle to the growth of many Finnish small and medium-sized enterprises. If you do not have deep enough pockets, or, for one reason or another, you do not want to rely solely on bank financing, you might want to look into what kinds of instruments public sector and private investors are able to provide. Bank financing, services offered by insurance companies or bonds for SMB companies with the First North provided marketplace, are not discussed here. If a company is in a startup phase or finds crowdfunding opportunities attractive, other potential funding sources are listed here.

The focus is on company growth and, in particular, organic growth. Thus we are concentrating on situations, where a company aims to increase its product or service sales on existing markets, to grow revenues through international expansion, or to create more turnover by developing and bringing to market new products, services or business models. Growth paths that, for example, utilise acquisitions, ownership or industrial arrangements, are not discussed here.

Financing sales growth


Growing sales require financing for e.g. manufacturing and service delivery capacity, working capital or for marketing and sales machinery. On the other hand, significant new investments in product development are usually not required. From funding point of view, just boosting sales is, therefore, often not so sexy compared with internationalisation or innovation initiatives. This is not, of course, how it should be; if a company cannot reach its revenue potential with current products on its current markets, it will also fail with new products or on new markets. A good and credible plan on how to use the new funding and how it affects enterprise value, makes it considerably easier to secure financing.

Company development grants by ELY centres are the basic public sector tool for financing sales growth. A grant may be used for investments, e.g. in land, buildings, machinery, equipment and furniture. In addition, it may also be used to finance development activities, for example, to hire external experts to develop company's strategy or sales and marketing. A small business may also apply for a grant for wage and salary expenditures required to create new jobs or for other expenditures relating to expanding business.

European Regional Development Fund (ERDF) is running a programme that improves competitiveness of SMBs, granting funds for business development and job creation. ERDF also partially finances the company development grants of ELY centres.

Finnvera may participate in the financing of investments and working capital with loans or guarantees. Depending on the amount of the grant requested, Finnvera can either be the sole financier, or funding requires co-financiers, or sufficient amount of the total financing must come from the company itself.

Private investors like Bocap, Korona, Fenno Management, MB Rahastot and Noweco Partners are among the ones that offer equity, loans or other financing to grow company revenues. Besides credibility of the business plan, many funding players have preconditions for the size of the funded company, as well as for investment size and industry focus. Garantia is, in turn, guarantee insurance company that guarantees funding and other liabilities of Finnish companies, as well as insures risks associated with investments.


Financing internationalisation

International market expansion gets a lot of interest and attracts potential public and private financiers.

Company development grants of ELY centres and SMB competitiveness development programs of ERDF can be also used for internationalisation.

Finnvera loans and guarantees can be used to cover the need for working capital arising from exports or to finance the international operations of a Finnish parent company. Export guarantees, export credit and interest equalisation services protect companies against the risks associated with export customers, banks and countries and help in the funding of export projects. Equity investments can be made together with private entities in technology-intensive or innovative service enterprises that have the potential for developing into international growth enterprises.

Suomen Teollisuussijoitus (Finnish Industry Investment) makes, together with other investors, own capital based investments to companies going international. Investments can be equity, capital loan, convertible bonds or mezzanine financing.

Tekes supports planning for global growth; it gives grants, for example, to test a new concept or product to potential clients, to develop marketing strategy and to make studies on intellectual property rights and their protection. Applicable until the end of 2014, Tekes Team Finland Explorer program gives loans to purchase professional services for e.g. target market expansion studies or new market business plans. Under Young Innovative Enterprises (NIY) business development framework, it is also possible to obtain a grant or a loan for internationalisation.

Finnfund finance companies that operate or plan to operate in developing countries or in Russia: the instruments are equity, investment loans, mezzanine financing or their combinations, as well as in exceptional cases, guarantees. Business partnership support by Finnpartnership includes grants for establishing operations in developing countries, which can be used in project planning, development and training phases.

In practise most of the private financiers require that a company is engaged in and is seeking to expand international business. For example, Conor Venture Partners, Folmer Management, Helmet Business Mentors, Innovestor and Tutor Invest underline their willingness to finance companies going international. Besides industry and size preferences, investors have - depending on their background - varying preferences on internationalisation directions.

Financing innovation and commercialisation


Tekes has traditionally been the cornerstone of developing new things: its research and development funding provides grants and loans for developing products, services, production methods, business models and competence. A mere development project does not, however, create company growth, and Tekes has rightly been criticised for supporting only technology exercises. For this reason, it is now offering also loans for demos, piloting and commercialisation, which can be used for, inter alia, machinery and equipment rent or depreciation, materials or supplies costs and for other commercialisation costs. Commercialisation costs can be also covered by NIY funding.

Company development grants of ELY centres can be used, for example, for patent rights of technology transfer initiatives, licenses, know-how or acquisition of unpatented technical knowledge. ELY can also cover raw material and semi-finished product costs related to product development, as well as salary and wage expenditures. In addition, also ERDF supports creation of new business activities in small and medium-sized enterprises.

EU Horizon 2020´s SME Instrument supports growth-oriented, innovative small and medium-sized enterprises. The program assists in the development of new concepts and solutions, in testing and commercialisation. The programme has identified certain priority areas, such as ICT, biotechnology and sustainable energy and transport.

Private investors are more interested in the results of innovation and commercialisation than just doing something new. Most of the investors, however, do appreciate new approaches and consider well functioning innovation and commercialisation machine as a precondition for funding. For example, Auratum, Folmer Management, GTW Group, Joy Group, Nordic Growth and Vision Plus emphasise the importance of innovation.


More information on Finnish SMB funding


All of the above mentioned financial instruments and sources require an application and negotiation process, with always uncertain end results. By pinpointing the right potential funding sources that have strategies matching with the business situation and objectives of the company, and by running the application process professionally, the odds of success can be significantly improved.

More information on the sources of funding for small and medium-sized Finnish enterprises can be found on the webpages of financiers and by contacting them directly. There is also a summary of financing sources available with more information on general conditions of funding, as well as on possible company and industry focus.

24 September 2014

More growth with marketing automation

Finnish small and medium-sized businesses have been slow to take advantage of marketing automation. The seriousness of the situation will become clearer when we notice that a company's growth and profitability strongly correlate with the use of the new digital methods and tools. The technology itself is not the solution, but as a part of systematic renewal, it will help the company to stand out from its competitors. This blog will discuss the benefits and utilisation of marketing automation, especially from business-to-business (B2B) SMEs point of view.

Why marketing automation?


B2B companies, small and large ones, are facing the disruption brought by digital channels: since customers´ purchase processes more and more rely on web based information, ignoring traditional discussions with sales persons, it's much harder than before to reach them at the right time and with the right messages. In addition, customers have adopted global approach, they are looking for products and services well beyond domestic markets.
This will make room for marketing automation. It enables companies to get better visibility on what buyers really like and how they behave; thus it will be possible to boost the implementation of growth strategies, to increase sales by improving market share, to facilitate expansion to new international markets, to support the development of new products and business models or to enhance go-to-market programs and processes.

How marketing automation creates growth?


An American study found that 63% of the companies that are using marketing automation, grow faster than their competitors. Another research revealed that 79% of the top performers have utilised it for over 2 years. A study on Finnish B2B SMEs gave similar kind of results. Next chapters discuss in more detail how marketing automation supports some key growth strategy components.

Sales growth

Marketing automation increases sales, inter alia, through the following mechanisms:
  • The results of marketing campaigns can be accurately tracked and thus campaign effectiveness is better: it is possible to get more results for the same money or the same results for less money. 
  • The number and quality of customer leads grow: there will be more closed deals. 
  • Business relationships with customers will get tighter and it is possible to identify changes in customer behaviour and needs: cross-selling and upselling opportunities with existing customers can be realised. 
  • Sales and marketing cooperation intensifies: sales persons also market products and marketing persons also sell products. 
There is plenty of backing for the above. For example, a Forrester research found that B2B companies utilising marketing automation get considerably better results in their marketing campaigns and also their sales and marketing functions have much tighter cooperation.


International expansion
When expanding business into new market areas, marketing automation can ease the process, for example, in the following ways:
  • It is possible to reliably assess already in the early stages of internationalisation planning, whether potential target country customers and distribution channels are really interested in the company's products: target country prioritisation and selection can be done faster, with lower costs, and the risks with selected alternatives are smaller. 
  • Even before the business is launched, it is possible to get good insights on the needs and purchase processes of potential target country customers: necessary changes to offerings, as well as to marketing and sales channel processes can be done in a timely manner. 
To support this, a study on Finnish B2B SMEs revealed that digital marketing maturity clearly correlates with the relative size of international operations.

Support development of new products and business models

Marketing automation will bring more insights to new product and business model innovation and decrease uncertainties related to it. The corresponding mechanisms include e.g.:
  • At an early stage, it is possible to obtain customer feedback, whether there is enough demand for a planned product or business model: return on investment of the development projects is higher, because they can either be stopped in time or the changes appreciated by customers can be built in. 
  • It is possible to see at a sufficiently early stage, what customers need in order to take a product or business model into use and to then use it actively: expanding the core product with customer valued extensions, either by the company itself or with partners, will bring greater yields. 
The agile new development model has brought good results in the domain of digital services and startups and now it is rapidly spreading also to more traditional sectors.

Enhance go-to-market

Go-to-market of products or business models can be enhanced with marketing automation e.g. through the following ways:
  • By finding the right ways to generate customer attention and interest, as well as by identifying the most suitable sales channels to customers: quantitatively and qualitatively enough customer leads, which results to more closed deals. 
  • It is possible to find early enough marketing messages that resonate with customers and a positioning that stands out in the market: company products will get attention in the marketplace and the importance of price in purchase decisions will be reduced. 
  • Marketing and sales functions cooperate effectively and aim at the same goals: sales revenues can be maximised.

What companies should do?



Utilisation of marketing automation is already in full speed also in European companies. The pioneers are technology, financial services, life sciences and energy, followed by, for example, telecommunications, manufacturing and professional services. In Finland, for example, the following small and medium-sized B2B companies are leading: Basware, Vaisala, Deltek, Metos, CRF Box, Nebula, Asiakastieto, Zeeland and SSH.

The starting point for efficient exploitation of marketing automation is the definition of company strategy for the renewal and growth; in other words, from which direction, by what means and resources, the company is trying to find a new way to prosper. Overlapping with this are company personnel and development of their knowledge, skills and attitudes, as well as implementation of processes, required by the new strategy. Only then it is the time for marketing automation as the technology and the solution, which enables and glues together the strategy, the people and their competences, and the processes.

When selecting a solution, the key is the vendor's ability to support the company's business; the key parameters include, for example, solution features, customer segments that a vendor is targeting, possible industry focus and pricing models. All these are compared in a review, which also lists Finnish company references that the key marketing automation vendors have.

15 September 2014

Where to find assistance for Finnish SME internationalisation?

Many Finnish SMEs have a good market position in their existing markets and the customers appreciate their products, but these companies are still reluctant to go international. The reasons are many. It may be missing courage, not understanding the opportunities and requirements of new markets, not having the necessary expertise in-house or missing funding or resources. There are, however, means to overcome all these obstacles. A company is not alone, when figuring out the challenges of internationalisation - there are a number of sources available that can give advice and assistance.

Internationalisation assistance needed?


Systematic internationalisation can be divided into four phases, each of which requires different skill sets:
  • Strategy: Why and in what way internationalisation serves company growth and other objectives
  • Direction and capabilities: Requirements and prioritisation of target markets, as well as identification and development of required own competences
  • Research and plans: Deeper investigation of target markets, creation of market entry plans
  • Implementation of market entry: Starting and developing operations in selected new markets
In most cases, the steps are not taken in a serial manner, i.e. it is often necessary to return to the previous steps and iterate on the basis of the latest findings. It is therefore important that an internationally expanding company itself stays at the rider's bench whole time - enabled either through permanent staff or a temporary help closely integrated with the company's objectives.

Digitalisation has brought an enormous amount of different kinds of information within reach of a company going international, but here we focus on four sources that can provide advice and help for the Finnish SME:
  • Finnish public sector agencies
  • Internationalisation consultants
  • Target country public agencies
  • Target country local consultants
The role of the advisers at the various stages of the company internationalisation is assessed in the table below: the more pluses the cell house, the bigger the typical contribution in internationalisation activities. The estimate is based on the needs of the Finnish SME, but also startups and major companies can at least partially use this reasoning. This paper does not focus on the importance of external finance as an important potential enabler of internationalisation. Therefore, public sector financial aid for internationalisation is not reflected in the assessments of the table.




Finnish public sector internationalisation agencies


Internationalisation services of the Finnish public sector are centralised under Team Finland brand. A company can get help by contacting a regional contact person in Finland or a Team Finland coordinator in a target country. The network consists of 73 teams around the world and of 15 local teams in Finland. Individual services are produced by different units working for internationalisation, such as Finpro, Tekes, Finnvera, Finnfund, Finnpartnership, cultural and scientific institutes, MEK, ELY centres, the Finnish-Russian Chamber of Commerce and the Finnish-Swedish Chamber of Commerce. Services include, inter alia:
  • Business idea coaching: Finpro offers companies expertise in international business and its challenges. Service provides feedback on company's strengths, weaknesses, opportunities and threats, as well as support for internationalisation issues. Free Of Charge.
  • Internationalisation test: With Yritys-Suomi service of TEM, a company can assess and analyse its internationalisation capabilities. Free Of Charge.
  • Business opportunities:  Concrete business opportunities throughout the world identified by the experts of Finpro. Free Of Charge.
  • Team Finland Future Watch:  Reports on changes in the international markets, brought by Tekes. Free Of Charge.
  • Networking with business and public actors: Finpro will advise how to obtain information about target markets and helps to network with public target market actors and Finnish companies already present in these markets. Free Of Charge.
  • Export trade financing expertise: The objective of the Finnvera programme is to improve financing competences required by export activities. A basic programme is Free of Charge, Charges Are Applicable for extra sessions arranged by Finnvera training partners.
  • Shipping handbookFinPro's document, contains information from 190 countries on free trade agreements, import restrictions, required documentation and legalisation of documents, special certificates, product packaging and labelling, provisions laying down special conditions governing sending of samples as well as other goods. Charges Are Applicable.
  • Advice to enter Russian market: Finnish-Russian Chamber of Commerce provides useful advice and concrete assistance to Russian business operations, at all stages of the planning. Charges Are Applicable.
  • Advice to enter Swedish market: Finnish-Swedish Chamber of Commerce can advise on all matters relating operating in the Swedish markets, as well as consult companies to start exporting to Sweden. Advice is Free Of Charge, in consulting Charges Are Applicable.
  • Advice to enter developing countries for the purpose of projects: Finnpartnership advices on issues related to developing country business activities. Free Of Charge.

Many cities and regions also provide internationalisation services. For instance, EnterpriseHelsinki is active in Helsinki and BusinessOulu in Oulu. Organisation for regional development organisation in Finland, SEKES, has a listing of regional players on its website.

These services are able to provide the basic knowledge both for planning internationalisation strategy and for analysing own capabilities, as well as for acquiring basic information on potential new markets. And because the services are, as a rule, free, they should also be used. On the other hand, public sector services provide little help for deeper, company-specific internationalisation activities, such as building a detailed strategy, closing the competence gaps or getting a deep understanding of new market opportunities. This is, of course, caused by the fact that the services provided are largely productised and generic, thus leaving very little time and resources for extensive company-specific assistance.

In addition, the contributions provided by network experts vary in quality and quantity, depending on personal skills, experience and service attitude. For example, I have sometimes been able to make experts of the network as an integral and high value-adding part of the team, sometimes their help equalled results that half an hour of Internet browsing would have given.

Internationalisation consultants


In the name of internationalisation consulting, a variety of services are offered: training, compiling of reports for international organisations, research of new markets, starting operations in new market areas, opening up sales channels to certain customer segments, marketing communications, strategy work, etc. Both small and big domestic players as well as international companies with their Finnish offices are present.

According to my experience, the big threat for SME is that a consultant focuses the project on his own areas of strength, not on the ones that would be the most important and useful for the paying company right now. It is, for example, dangerous to let consultant´s considerable target market experience lead to deep market studies, when internationalisation strategy and sufficiency of own competences are still in the making.

Another important consideration is that many times an SME business needs only one versatile and seasoned professional, not a bunch of constantly-changing consultants with very narrow areas of expertise. This ensures that the consultant is a solid part of hiring company operations and the company can really lead the process of internationalisation. Certain nuances, related to the organisation of work, are then manageable: for example, whether it is about consultancy or interim management cooperation, or whether it is the consultant working hands-on in the project or primarily transferring his know how to company employees.

The role of consultants is the largest in the creation of internationalisation strategy, in setting direction and in defining required capabilities, see the table above. Depending on the consultant's background, he can be - in parallel with local contributors - also an important factor in the thorough target market investigation and actual market entry.

Target country public agencies


Almost all countries have the desire to attract foreign companies to invest in the country. To this end, public sector all over the world have been busily setting up specialised agencies for this. In Finland, Invest in Finland is the name of the active public player, and the world association of agencies, Waipa, has produced a good listing of its counterparts in other countries.

The agencies that are assisting market entering companies can usually provide useful information about the target country, its market and competitive situation, market entry alternatives and setting up operations in the country. For example, GTAI, German Trade and Invest, offers mainly free services in the following areas:
  • Information about Germany, its economy and business life
  • Industry information, including market situation and news about recent developments
  • Consulting services to create market entry strategies, to make evaluations in the country and to establish operations
  • Guidance on the different market entry questions
An internationalising company should definitely check out, how target country public actors are able to assist. For the assessment and prioritisation of target markets, it is possible to get - and in most cases free of charge - important building blocks. Also, good advice on setting up local offices can be obtained. Depending on the country, more customised free advisory services may be available, in which case tailored information, contacts and services can be acquired. It should be noted, however, that willingness of agencies to help depends besides the abilities of individual experts also on the objectives of the market entering company. A big business always gets more personalised service, and planned product development or manufacturing activities always get a warmer reception than mere sales office ones.

Target country local consultants


When it's time to explore your potential target markets in greater depth, to set up a business in a new market or to expand an existing one, local consultants are often utilised. Local specialists, however, are not enough to get the business up and flying; the hiring company must ensure that the basis of internationalisation, including the role of international operations in the company´s growth strategy, initial prioritisation of target countries and trimming of the company for internationalisation, is solidly in place.

The scope of consultants´ work can vary, some examples given below:
  • Market research and competitor analysis
  • Establishment of a local company
  • Identification of potential clients and creation of contacts with them
  • Search of distribution channels and partners
  • Financial, legal or environmental issues, marketing or HR 
In most countries, you will find plenty of willing local companies to assist in market entry, see, e.g. an extensive overview of various Market entry consultants in European countries, with detailed information about the contacts, served markets, services offered and industry focus. The Association of Finnish Entrepreneurs, Suomen Yrittäjät, has also an international network with Finnish-speaking contacts.

Probably the biggest pitfall for Finnish SMEs is the correct identification of local aid. For example, when I was once looking for a local consultant to tighten cooperation with potential customers, the selected person turned out to be the best in finding a suitable office space and in helping us to manoeuvre through local bureaucracies.

21 May 2014

Digital marketing maturity equals success - case Finnish B2B SMEs

Small and medium-sized enterprises (SMEs) are suggested to have a significant role in the revitalisation of the Finnish economy. Their current actual business performance is, however, not as good as expected. Therefore, it is necessary to look more closely at how companies´ own actions affect on their success. This post shows that based on a study, Finnish B2B SMEs do not effectively utilise digital methods and tools in their customer interface. It also finds that digital marketing maturity strongly correlates with success.

Changes in B2B business environment 


Competition in B2B markets is global, products and services are searched, compared and procured across the borders. Vendors have been forced to follow their customers, very few B2B companies can rely on domestic customers only. Local markets that used to be isolated with their own specific terms and conditions, are also changing: the same technologies, standards and processes are in place everywhere, making it easier to demonstrate and offer products by means of inside sales and marketing. Internationalisation also creates brutal cost pressure on all business operations.

Face-to-face meetings have traditionally played a central role in B2B sales. But today, customers are ready to meet sellers very late. According to a survey, on average, as much as 57% of customers´ purchase process is already over, before they are willing to meet with vendors. To win customer orders, vendor companies need thus to be able to present their offerings, references and other competitive advantages before the first sales appointment.

At the heart of the change is the Internet. It has become the first source of information for B2B buyers. And besides information search, the Internet significantly affects on all purchasing process stages. B2B company website and presence in social media are vital and indispensable anchors of Internet influence. The companies looking for information and solutions are then reached utilising inbound marketing techniques. Digital interaction with customers generates huge amount of data. Its utilisation will not only help to develop more competitive products, but also enables ever evolving customer operations. It is verified that B2B companies that effectively use digital methods and tools in their customer interface, are doing significantly better in acquiring customer leads, nurturing leads to paying customers and retaining their existing clients.

Besides evaluating overall digital marketing effectiveness, utilisation of real-time and predictive analytics as well as marketing automation are good yardsticks when estimating digital marketing maturity.

Real-time analytics (e.g. Google Analytics and Coremetrics) can be used, for instance, to follow how visitors will find company website and how they interact with it. This will improve, among other things, customer acquisition cost-effectiveness and understanding of clients' needs and priorities. In addition, it will sharpen marketing communications more relevant. Marketing Automation (for example Marketo and Pardot/Salesforce) automates communications and maintains customer interest in the marketer firm. It makes it possible to serve customers with higher quality and more cost-effectively – and thus get more sales. Studies show that B2B companies, utilising marketing automation, get more and higher-quality customer leads and grow faster than their competitors. Predictive analytics (e.g. Totango and Kissmetrics) with sensor-based customer listening capabilities can identify e.g. customers at risk of churn or intensify cross-selling and upselling.

Status of SMEs in Finland


Then, let us look at how digital tools and methods are used in Finland. A Finnish trade magazine, Kauppalehti,
database was used to pick randomly 108 B2B companies whose turnover is between 10 and 200 M€. Almost all the major industries were represented. Some, e.g. consulting, and construction were excluded, though the analysis is highly relevant to them, too. The selected companies are the best among their peers, so the general situation is hardly better.

To get an overview of digital marketing effectiveness, the companies were examined with algorithm based automatic tool, see also the box on the right. The results obtained can not in any way be regarded as an absolute truth, but anyway, the tool is accurate enough to analyse the situation.


We should be very concerned. The best Finnish B2B SMEs are below average in digital marketing, and almost every fifth of them are even rated bad, see the graph on the left. Only about 5% of the companies are good or excellent.

The situation by industry is uniformly poor, only software companies stand out better, see the graph below.

To get a domestic benchmark for the results, also the biggest B2B companies in Finland were examined (Finland top 20 in the graph). These enterprises are considerably


more advanced, even surpassing the software company results. Because there is a clear indication that the Finnish big ones are not at the utmost forefront of the global development, the SMEs sector is subject to a resounding wake-up call.

Next we examined the use of real-time analytics (by using an automated tool, see also the box above). More than one fifth of the surveyed SMEs do not take an advantage of it. It means that they in practise wander around in the dark, not understanding outcomes and shortcomings of their digital world activities. In the control group, on the other hand, all big companies in Finland are using the analytics. The most commonly used analytics solution, by the way, is Google Analytics that is free to use. US companies are a great international benchmark for the Finnish findings. There the big companies and also the SME sector seem to have faster adopted the use of analytics in their business operations than their Finnish counterparts.

Only 5.6 % of the selected Finnish small and medium-sized companies take advantage of marketing automation. There are no major differences across various industries, few pioneers are emerging in almost all sectors. Every fourth of the Finnish big corporation benchmarks are utilising automation. In the United States, it is estimated that 25 to 60 % of large B2B enterprises use marketing automation. Correspondingly, studies show that the penetration in US small and medium-sized enterprises is at least 10 to 25%. High-technology sectors, followed by consulting and manufacturing industries, are leading the pack in the United States.

None of the studied Finnish companies, neither large companies nor SMEs, used predictive analytics. Because of international examples, it is expected that those companies that have digital service elements in their offering will take the lead in adoption.

Lastly, we studied how digital awareness affects business performance. Business growth, profit, return on capital, as well as the size of international operations were picked up from the Kauppalehti database. The companies under investigation were divided into two categories, based on whether they are rated to be in the top half in digital marketing  (> 50) or in the bottom (< 50), see the graph below. The conclusions are very clear: on average the digitally-leading companies are growing faster and their profitability is better than those of their lagging counterparts. In addition, the international operations' share of net sales was clearly correlated to the digital marketing maturity.


Conclusions


On average, even the best Finnish SMEs are not taking care of their digital marketing very well or even satisfactorily. This is reflected in comparisons with large Finnish enterprises as well as relative to international benchmarks. And because utilisation of digital methods and tools is a key lever to achieve business success, we are facing a similar kind of problem as the whole Finnish economy: though business premises are good, the SMEs are capable of delivering significantly less than available potential. As an outcome, a company might face e.g.:
The situation, however, can be improved. Change is in the hands of small and medium-sized enterprises: they need to re-tool their strategies, processes and competencies to embrace new methods and tools in customer-facing operations - and then implement technologies that are supporting the new approach.

21 February 2014

Internationalisation - a solution to get your troubles far away?

Internationalisation is often seen as a trick that drives company's troubles away. This is not the case, however. For example, if the choice of the first target countries, finding channel partners or optimum location for your own sales office are initially the key issues, essential homework has not been done. Then you need a lucky breakAnd although you need luck in the business world, you must make every effort to try to improve your odds.

A structured approach to internationalisation is connected to the company's objectives, strategy, competences and resources. In this case, it is not a question of tricks, but of evaluation, if it makes sense – and in what way - to aim for international markets. This post tackles the following core questions of internationalisation:
  • Why to enter new international markets?
  • Which are the key issues when planning internationalisation?
  • How to build internationalisation in a systematic way?
These questions are relevant, regardless of whether a company is small or large, whether it is already making business in some foreign countries or is purely a domestic market or startup business. The post focuses on issues that are directly linked to revenue-generating market operations. Thus, for example, manufacturing or R&D resource driven foreign operations are not discussed here.

Why international markets


In most cases market expansion is driven by the reasons related to objectives or a business idea of a company, its products or customer relationships.

Probably the most common reason for internationalisation is the desire to grow. It might be too difficult to increase market share in the currently served markets, or extension of the product range is not considered lucrative enough. Operating across borders can also be a basic premise for the business; for example, many startups coming from smaller countries find their domestic markets far too small to support a profitable business.

Especially growth companies seek to aggressively increase the value of the company: e.g. to improve access to financing or to have better financing terms. Bigger potential markets and initial success in these markets will significantly raise the value of the company and its prestige among important stakeholders.

The most advanced and demanding customers greatly assist in creation of such product functionalities, which also a wider market and laggards will find useful later. So, for example, Swedish car manufacturers were for a long time deemed the pioneers in the area of security, so cooperating with them was good for success also elsewhere. Today, Germans are leaders in many vehicle technologies, so the market pulls keen supplier companies.

Many businesses have found that they cannot find customers for their products on the domestic market. The reason may be would-be customers´ lack of courage to adopt new solutions or business models enabled by them, or simply conservatism of an industry and its playersFor example, a Finnish machinery component supplier, Visedo, were forced to seek first clients in Germany, Austria and France, because domestic players were not forward-looking enough to take the new solution.

Key issues in internationalisation planning


By identifying the business drivers of internationalisation, we can also evaluate globalisation activities conducted so far. They may turn out to be either a great platform to scale the business considerably or it might be best to forget them, because their value is null and void, or they would put the company in the wrong direction.

After this, we will look at how company business idea and strategy affect on global expansion. In a similar manner, we will study in more detail company's products and total offering to customers, its differentiation strategies on the market as well as its customer-facing strategies. This will be used to create an overview of the capabilities and resource gaps that need to be overcome before one can expect success in the new markets. 

Business concept and strategy


A company's business idea defines the target customers, its offering and how the offerings are produced and made available for customers' use. If a company is customer-centric, its target segments and their needs also strongly influence offering properties. When globalising the key is to understand how well the new market customer segments and their needs correspond to the ones in the existing marketMany companies, however, have a technology or product based strategy. This emphasis the need to find in the new markets customer segments and customers that find company technology or product features compelling and value generating.

As a result, any plans to internationalise raise the following questions:
  • Is the business model in today's market well-tested and can it be replicated to new, international markets?
  • Is there willingness and ability to change the current model and how much?
Most of the incumbent companies will end up on the fact that the way of working of the home market cannot and should not be directly copied into new markets. On the other hand, if the business is created global from scratch, as in the case of, e.g. cloud service or application startups, the biggest challenges will again be product, differentiation and customer interface related ones.

Product


Absolute requirements of the market, customer preferences and total offering required by customers are the key product related dimensions. The Internet and social media tools have brought tremendous agility and cost efficiency to the understanding of these issues.

The absolute requirements are usually easy to understand and find out. They include local government approvals and other compulsory localisations. The latter include, inter alia, translations of marketing and user documentation and support of local standards or practises. For example accounting programs require support of local regulations.

More challenging is to evaluate new customer preferences in target countries and their influence on product properties. Of course, there are self-evident things, such as the need to adapt sizing of clothing company collections when moving from Northern Europe to Southern Europe or South East Asia. When we move from technical characteristics to emotional likes and dislikes, local preferences start to dominate. For example, a children's outdoor clothing manufacturer, Reima, has discovered that in Russia, consumers prefer different colours in children´s winter clothes compared to Finland. Increasing global uniformity of values, practises and consumption have created very homologous, international segments - in these cases the need for local preference modifications is small. E.g. many Internet consumer service companies take advantage of this.

Also in new markets, customers usually expect to have a total solution. In many cases, it may significantly differ from the one in established markets. When complementing products or services require external partners, availability and access to them in target markets should be separately assessed.

Differentiation


It is important to be different from competitors, because without it, a company needs to typically compete on price. And because most of the competitors have the same customer value-adding product features, differentiation based on artificially created new product features will succeed rarely. Unless there is something new in the product or business model that clients really appreciate, the solution is to look at a company and product image - which again puts emphasis on company's positioning and branding.

Differentiation formulae of the domestic market is not necessarily transferable to the new target countries. For example, a clothing and textile design house, Marimekko, have a strong brand in Finland supported by a long history, distinctive, locally-luminous leading figures and unique collections with locally well-known designers. When company activities have become more globalised, it has been noted that the domestic brand concept is not necessarily bringing success in other markets.

It is essential to understand that a company and its products do not have to be widely known in the new market, as long as it is well-known in the target customer groups. Who, for example, knows Wärtsilä and its ship engines, if one is not belonging to their target customer groups? In addition to being able to create awareness of the product, it is important that the company's products have a reasonably good reputation and that the target customers are hungry for these products. When we go into a new market, a company usually starts from scratch: it is not known and the clients do not have a special longing for its products - on the other hand, it still has a very neutral reputation. It is worth considering how much, for example, current market references, globalised sourcing decisions and consumption habits, as well as international operations of existing clients could help in the development of the brand. And it is always possible to re-position the company completely, at least in the international markets.

Customer acquisition and retention


Although business idea and strategy, products and total offering as well as differentiation in the new markets would be okay, no success will come without being able to acquire and retain customers. Looking this another way: even the best systems, people and partnerships for demand creation, deal closing and customer loyalty do not bring results, if the previously discussed basics are not in good shape.

The essential steps of the customer relationship cycle include creating awareness among potential customers, building interest and willingness to buy, deal closing and customer retention. If a company is capable of differentiating itself in the market, it is already a good start. A model that has been developed and tested in the domestic markets and that is capable of generating enough demand and revenues, is a good basis for developing activities in the new markets, too.

The key is to understand to what extent the established market practises are suitable for the new markets: which of them can be utilised and what kind of capabilities and resources the company has to change the existing way of working. For example, use of media advertising, solution sales process renewal or web enabled customer service could be considered as corrective tools.

Entering new markets will be most often done with thin investment and expense structureFortunately, different types of Internet and social media based marketing, sales and customer relationship management tools provide cost-effective ways to get ahead. A more traditional approach is to build partnerships based marketing and sales activities: the danger is loosing touch of customers and the market, which, at worst, will soon destroy company's competitiveness.

Systematic internationalisation


After own motives and capabilities in relation to the company´s business objectives have been studied, the decision can be either to go forward or to focus on other business initiatives that are more lucrative or urgent.

If it is decided to continue, a preliminary assessment of capability and resource gaps in the internationalisation should be made. It is also important to determine whether the gaps should be filled with building the capabilities and resources in-house or whether partnerships would be the solution. For example, a company may decide to build sales, marketing and customer service capabilities in the new target countries by itself or it can rely on channel partners.

When still known gaps in the market information have been filled in, a detailed plan for the internationalisation can be made with priorities, timings and budget. At this stage, the target market and channel partner selection issues are already relevant.