International strategy

Internationalisation is vital for New Zealand business. But how do our companies make this move, what strategies are required – and why? Otago Business School's Professor Sylvie Chetty and Professor Elizabeth Rose are exploring these issues and more.

Going global

New Zealand is too small an economy to be inward looking, so internationalisation is key. But just how do New Zealand companies go global – at what stage do they look to export and to what country?

These are questions Professor Sylvie Chetty and her team are addressing in a collaborative research project supported by the Marsden Fund, by looking at businesses here and abroad.

Chetty, a leading expert in international business, has been researching the growth and internationalisation of small and medium-sized enterprises (SMEs) in New Zealand and other countries for more than two decades, and was involved in the FRST-funded Competitive Advantage New Zealand project.

She has valuable insights into the processes used by Nordic and New Zealand business people to develop export markets.

Finland is a small open economy like New Zealand. This makes a comparison of New Zealand companies with high-tech equivalents in Finland – such as the biotech and software clusters – helpful, particularly in understanding why Finnish companies export more quickly and are more confident about the internationalisation process.

The research she is currently heading comprises a large quantitative survey over the next two years, interviewing SME owners in New Zealand, Australia, Sweden and Finland. The completed research will combine Swedish, Finnish, Australian and New Zealand data.

The aim is to build theory around understanding how internationalisation opportunity is created to grow the firm.

In particular, she will be looking at how companies make decisions to go to foreign markets.

“How do you maintain quality, do you manufacture overseas, how do you protect IP when you diversify into many countries, when do you bring in shareholders and if there is a cash shortage, how do you fund sales and marketing? Do you need the credibility of exporting to the USA first before entering other markets? And how do you distribute abroad – through an agent, a sales subsidiary or do you need to create partnerships, and how do you collaborate?”

Answers to some of these questions will help policy-makers understand the needs of future business, and can guide up-and-coming start-ups to set their sights well beyond traditional markets. It will also inform teaching, and information will be disseminated back to local business.

Chetty's international collaboration also provides opportunity to globally profile New Zealand business – particularly around its innovative thinking.

“Finland looks to us for ideas and its policy-makers follow New Zealand with interest, particularly when it comes to business clustering.

“Despite being far away, New Zealand is very innovative – thinking outside the box is normal; we're not the bottom of the world when it comes to leadership.”

Chetty's team, which includes a postdoctoral fellow and a PhD student, are only part way through their research, but they're already finding that successful high-tech companies are creating a new business model in getting into collaborations and into new markets like Latin America, India and Dubai.

The common thread is that exporters doing well in these emerging markets are open to opportunity, flexible to change and have the skill to know when to move.

“The really successful people use business plans as a guide, but are open to seeing new opportunity in the unexpected, particularly around collaborations into new countries. They have the ability to use a serendipitous opportunity from a chance meeting to pursue new options.

“Policy-makers, therefore, need to see that while companies need planning, agility is also an important skill.”

Chetty has worked in Iran, South Africa, Swaziland and New Zealand. She is also a research associate in the Department of Business Administration, Uppsala University in Sweden. She enjoys the positive outward focus of the University of Otago, particularly the international visitors from the USA, Chile, Finland and Sweden wanting to collaborate on projects.

Business across borders

Some New Zealand companies are leading the charge in the emerging “born global” trend.

While early internationalisation for young and growing companies is nothing new – companies back in the 1700s were selling goods in foreign countries right from start-up – the more traditional approach for New Zealand businesses has been “stepping stones”, usually starting with Australia then organically extending into other countries.

However, Professor Elizabeth Rose, Associate Dean (International) at the University of Otago Business School, says that “born global” is a rapidly increasing phenomenon and it is interesting to see just how much New Zealand businesses' attitudes to internationalisation have changed over the years.

Take mobile gaming developers in New Zealand, for instance: these software entrepreneurs choose to operate internationally as soon as their products are developed. The IT sector is finding it easier than ever to cross into new countries with products and services – national borders are nearly non-existent in this business.

In many cases, very successful exporting companies are not well known in New Zealand, because these businesses have no need to establish a strong position in the domestic market. Rose says this can provide us with valuable insights.

“We can learn from the activities of some of the high-tech 'born global' New Zealand and international companies who view the whole world as their market.”

It's worth noting that “born globals” are not just companies with high-tech products or services.

It's also interesting to compare these New Zealand companies with what is an emerging trend in Finland. Rising from the ashes of the downsized Finnish communication and information technology multinational Nokia is a growing number of Finnish “born global” micro firms. Many of them operate in the gaming sector – the wildly successful Angry Birds is a Finnish product – and are creating new global markets that don't require them to customise their products to appeal to various cultures or languages.

Rose is interested in understanding how such companies operate and grow. Although there is increasing awareness, here and overseas, of the entrepreneurial “born globals”, there are still gaps in knowledge about these firms' particular internationalisation strategies, and the factors that make them succeed or fail.

Most of what is understood about internationalisation strategy is based on the experiences of large European and US firms. It's also important for research to help to understand the export drivers and entry strategies for New Zealand small and medium-sized enterprises (SMEs), given that firms based in small and open economies often need to look beyond their domestic markets to survive and flourish.

Rose's research is now focusing heavily on the service sector and on SMEs, something that's very important given that 97 per cent of New Zealand businesses employ fewer than 20 people.

She has been looking at interview and survey data from New Zealand and Australian companies, with an eye to comparing them to firms in Finland. There is considerable information to glean from Finland, which maintains extensive data involving approximately 22,000 businesses with international experience. Understanding export readiness among SMEs will help to guide policy and business advisors to support businesses aiming to expand their presence in both existing and new markets.

“The new realities mean that companies that internationalise early and rapidly have to learn to do things differently.”

A further study is taking an in-depth quantitative look at how internationalisation differs in the service and manufacturing sectors.

Rose teaches in the field of international strategy. A specialist in international business, she gained her PhD from the University of Michigan and was Professor of International Business at the Aalto University School of Business in Finland before coming to Otago. Her work is highly regarded and published internationally and she has served in leadership roles for several international professional organisations.