Internationalisation Of Digital Media Companies
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Internationalisation Of Digital Media Companies

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Insight into digital media agencies form 2002

Insight into digital media agencies form 2002

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Internationalisation Of Digital Media Companies Internationalisation Of Digital Media Companies Presentation Transcript

  • EuroPrix Scholars Conference 2002 Tampere Internationalisation of the Finnish digital media industry - challenges and experiences November 15, 2002 Tommi Pelkonen pelkonen@hkkk.fi Helsinki School of Economics Internationalisation of the Finnish digital media industry - challenges and experiences • Background for the analysis • Theoretical approach to Internationalisation • Digital media industry - what is that? • Digital media industry in Finland • Internationalisation patterns in the Finnish digital media industry • Conclusions
  • This presentation is based on thorough desk and field studies • The background for the study – Helsinki School of Economics and Business Administration & LTT-Research Ltd. Interactive media group – University of Design and Arts Helsinki&Culminatum Oy Interactive media competence centre • Main objective of the study was to analyse the internationalisation patterns on professional business services: – To identify the Finnish digital media industry and its potential for internationalisation – To analyse the digital media industry's internationalisation patterns in both company and industry levels – To analyse the digital media industry's business network, its structure and its dynamics • Initial study was carried out in two phases during 1998-99 – Currently we are updating the analysis and new results will be published early 2003 Industry & client surveys, structured interviews and in-depth case studies were carried out • Twelve company interviews (autumn • Basic Facts’ Collection (autumn 1998) 1998) – Through public registry analysis and identification – Digia Oy / Pekka Sivonen – Basic facts collected from chosen – Grey Interactive Oy /Antti Romppainen companies (N=355 kpl) via e-mail or by – Icon Medialab Finland /Alex Nieminen phone • Industry & Client Survey (autumn 1998) – Interaktiivinen Satama Oy / Janne – Digital Media Companies: Ruokonen WWW-Survey, sample 93 companies, 72 – Nedecon Oy / Jesse Jokinen answers (78%) – Netmill Oy / Jari Ala-Ruona – Digital Media Company Clients: WWW-Survey, sample 28 large digital – Partner Group Oy / Olli Heikkilä media clients, 20 answers (71%) – Tietovalta Oy / Mika Uusi-Pietilä • Two case studies (autumn 1999) – Quartal Interactive Oy / Aarne Aktan – confidential information – one design and one technology-oriented – Terranova Visuals Oy / Kari Happonen digital media company – To The Point Oy / Tatu Kuivalahti
  • Internationalisation of the Finnish digital media industry - challenges and experiences • Background for the analysis • Theoretical approach to Internationalisation • Digital media industry - what is that? • Digital media industry in Finland • Internationalisation patterns in the Finnish digital media industry • Conclusions Companies have multiple reasons for international activities. International operations have to create benefits to the actor Proactive reasons Reactive reasons • Profit adv antage • Com petitive pressures • Unique products • Ov erproduction • Technological advantage • Declining domestic sales • Exclusiv e information • Excess capacity • Managerial commitment • Saturated domestic markets • Tax benefits • Proximity to customers and ports • Economies of scale Macro-factors Micro-factors Milli-micro-factors 1. Push factors • Economies of scale • Endurance of risk and uncertainty • Smallness and openness • Benefits from specialisation • High level of personnel learning of domestic markets • Covering R & D expenditure • High level of internationalisation in • Periferic location • Utilising global possibilities personnel • Benefits from integration of • Personnel's motivation for interna- 1. Pull factors foreign operations tionalisation • Large size and openness of international markets 1979 Source: adapted from Luostarinen, Source: Czinkota & al. 1996, p, 403, Luostarinen, 1979
  • The three key elements form a complex relationship network Actors -at different levels -from individuals to groups of companies - aim to increase the control of the Actors control network resources; some Actors perform alone and others activities. Actors jointly. Actors have a certain have a creating knowledge of knowledge of activities resources Business Network Resources Activities -heterogeneous -transformation act -human and physical -transaction act -Interdependant Activities link -activity cycles resources to -transaction chain each other. Activities change or exchange resources through use of other resources Key target for a company is obtain a dominant position Source: Hokansson & Johansson, 1992 in its business networks Network internationalisation theory bases on different situation in the markets and in the firm • Network Internationalisation modes – by international extension, i.e. through Degree of Internationalisation of establishment of positions in relation to the market counter-parts in national net that are new / production network to the firm Low High Degree of Low The Early The Later – by penetration, i.e. developing the positions Internationalisation Starter Starter and increasing resource commitment in of the firm High The Lonely The those nets abroad that the firm has already International International positions in Among Others – by international integration, i.e. increasing co-ordination between positions in Source: Johansson & Mattson. 1988, p.202 different national nets • Leads to different “situations” ”The firm establishes and develops positions in relation to counterparts in foreign countriesquot;:
  • The new “born global” companies are dependant on their network relationships Traditional Firm Born Global (Established) (Start-Up) Resources • Developed gradually • Limited • Resources build into the • Resources accessed via networks organisation • Dependence on outside resources Internationalisation • Gradual commitment • Utilisation of hybrid modes Strategy • Formation of stable units • Dependence on networks • Thorough and • Client followership to new markets conservative planning • Fast and intense extension • Highly dependent on the experiences of the entrepreneur Industries • Industrial manufacturing • High tech companies • Professional Services Markets • Experiences in domestic • Operations are directly planned to markets are utilised in international markets, no domestic learning international markets Theoretical background • Stage models • Network models Situation in the Network • Early Starter • Late Starter or International among others model Source: adapted from Madsen and Servais, 1997 Traditional internationalisation considerations and issues 1) Target Customers: Who buys the product? Who uses the product? How is the product used? Where is the product bought? Why is the product bought? When is the product bought? 2) The Macro-environment: Geography, climate, economic, socio-cultural, political/legal factorsc) Governmental:regulations, tariffs, labelling, patents/trademarks, taxesd) Competition:price, performance, design or style, patent protection, brand name, services 3) Company’s Product What are the physical attributes (size, design, materials, weight, colour, other). What are product’s package attributes (use instructions, warranties, repair/maintenance, spare parts, other), its expected profit contribution for each product adaptation? How will all of these match the market? Source: Axelson and Johansson, 1992
  • Internationalisation considerations for a born global company Network approach-based international entry check list • a) Actors and Bonds Identification – What are the actors - customers, suppliers, competitors, public agencies in the business network? Which are the important relationships they have with each other and with other actors? Are they technical, social, administrative, legal of other ties? • b) Power Structures – What are the relative positions of the actors in the network? What are the roles of the actors and what power do they have in the network? What constraints does the network impose on the firm regarding, for example, possibilities of relating to other actors, areas, fields of applications, suppliers, etc.? What possibilities do specific potential partners in the network offer to the company as regards access to suppliers and resources controlled by others? • c) Own relationships – What are the relations of the focal firm in the potential country market? Which are the direct relationships.? How can they be used? Are there any indirect relations to actors in the potential host market, e.g. through contacts with partners in other local markets who in turn have direct relationships in the entry market? • d) Resource mobilisation – How can resources of other actors be mobilised in support of the market entry? Who of the related actors should be mobilised, why, for what and by what? Source: Axelson and Johansson, 1992 Companies can gain multiple benefits by participating in network operations • Increasing the value of the product/service – Product can become more attractive for its end user due to possible broader availability and wider support • Accessing new markets – Increased distribution channels • Enforcing production possibilities (e.g.increased production capacity) • Increasing technological know-how • Creation of supplementary growth • Improving the efficiency and strength of the organisation/knowledge • Improving economic situation, creating economic power – E.g. cost & risk sharing and cuts Each company has to define its own objectives for co-operative operation modes Source: LTT, 1992
  • What makes network co-operation to succeed? • The elements for a partnership success: – Mutual dependence of actors – The business potential of co-operation – Social bonds i.e. personal relationships between the key personnel – Compatibility of resources (e.g. technology) – Compatibility of objectives for the co-operation – Clarity of roles and responsibility spread – Agreement of practical principles and methods – Investments on the co-operation, commitment to it – The exit possibilities from the co-operation Network co-operation has to benefit all its participants Sources: Eräheimo & Lahti, 1991 & 1993; Wilson, 2000 A general model of business internationalisation was formed. The main objective is to obtain beneficial positions both domestically and internationally Actors Operations Resources Partner choice Resource choice Operation choice Business Network domestic position foreign position internationalisation Domestic Markets Micro-Network International Markets Macro-Network
  • Internationalisation of the Finnish digital media industry - challenges and experiences • Background for the analysis • Theoretical approach to Internationalisation • Digital media industry - what is that? • Digital media industry in Finland • Internationalisation patterns in the Finnish digital media industry • Conclusions There are multiple actors in the digital media markets The core of the network Extended network • Digital media companies (existing and new start- • Financiers (venture capitalists, direct investors, ups) financial institutions) • Traditional media companies (print, radio, television, • Governmental organisations cable companies) • Education and training organisations • Telecommunication operators • Labour organisations • Communication equipment producers • Research institutions • Information technology (IT) equipment producers • IT Software and systems companies • Consulting companies • Advertising agencies • Audio-visual producers
  • Seven related industries with blurry barriers Traditional Media Companies Audivisual Producers IT System and Software Companies Advertising Digital Media agencies Companies IT Equipment Managing Manufacturers Consultancies Telecommunications Operators Digital media activities • Three core activities are: • Companies also operate in research – Planning and implementation of digital and development projects media products and services – either by own resources or in joint efforts. – Internet-based advertising and • Third group of operations are the marketing services business network building activities. – Internet service offering – formal and informal negotiations on project co-operation, financing, sub-contracting • The two supporting activities agreements or possible research and – Digital media consulting and training development activities. • Two infrastructure-related activities – internet hosting and internet connection services.
  • F our core, two supporting and two infrastructure activities Core Activities Supporting Activities Consulting CD-ROM & DVDs Internet -solutions Computer Games Intranet/Extranet Solutions 3D-Design Information kiosks Digital TV-solutions Mobile Internet solutions Streaming Media Solutions Electronic Commerce Systems eLeaning solutions Planning and Implementation of Internet Internet Digital Media Products and Services Hosting Connection Services Internet-Based Advertising and Internet Services Offering Marketing Services Search Engines, News, Direct Marketing via Internet Weather Services etc. Virtual Communities Banner Sales Agencies Electronic Commerce Sites Training Infrastructure Activities Activities are based on five types of resources Personnel Hardware Software Organisational Financial • Business • Office prem- • Licences • Strategies • Finance for op- • Technical ises • Intellectual property • Goals erations • Design • Production rights • Organisational (e.g. R&D, com- machinery • Proprietary con- culture mercialisation, • Other tents internationalisa- • Organisational tion) • Production process structures knowledge • Knowledge about technology • Knowledge about customers • Production software The key resource is personnel of the company
  • Combination of technology, business, management, communication, design creates digital media understanding Competence management Entrepreneurship Project management Accounting and finance Communication skills Marketing Group work skills Internationalisation Business expertise Managerial expertise Technical expertise Communications expertise Digital media understanding Digital graphics creation Multimedia manuscripting Communications process Database design understanding Programming Cognitive psychology IT system design Pedagogy IT system integration Ability to combine media elements Interactivity understanding Ability to create new business models Ability to measure digital media impacts Source: adapted from Helomaa & Väänänen, 1999 pp. 40-54 The industry dynamics can be illustrated with a network diagram Actors Traditional Media Companies Audivisual Producers IT System and Software Companies Advertising Digital Media agencies Companies IT Equipment Managing Manufacturers Consultancies Telecommunications Operators Performance Control / Digital media Knowledge ownership business network Position Core Activities Supporting Activities Consulting CD-ROM & DVDs Internet -solutions Personnel Hardware Software Organisational Financial Computer Games Intranet/Extranet Solutions • Business • Office prem- • Licences • Strategies • Finance for op- 3D-Design Information kiosks Digital TV-solutions • Technical ises • Intellectual property • Goals erations Mobile Internet solutions • Design • Production rights • Organisational (e.g. R&D, com- Streaming Media Solutions Electronic Commerce Systems machinery • Proprietary con- culture mercialisation, eLeaning solutions Planning and Implementation of • Other Internet tents internationalisa- Internet Digital Media Products and Services • Organisational Hosting tion) Connection • Production process structures Internet-Based Advertising and Internet Services Offering Services knowledge Marketing Services Search Engines, News, • Knowledge about Weather Services etc. Direct Marketing via Internet technology Virtual Communities Requirement • Knowledge about Banner Sales Agencies customers Electronic Commerce Sites • Production software Training Infrastructure Activities Resources Activities
  • Internationalisation of the Finnish digital media industry - challenges and experiences • Background for the analysis • Theoretical approach to Internationalisation • Digital media industry - what is that? • Digital media industry in Finland • Internationalisation patterns in the Finnish digital media industry • Conclusions There are around three hundred digital media companies that generated a turnover of one billion FIM in 2000 Industry Turnover characterised by mergers and Sales Margin acquisitions
  • 2800 digital media employees by 2001 - total impact larger • Finnish digital media companies recruited ~1000 new employees in 1999-2000. • Yet, the total impact of the phenomena affected also traditional industries is is thus larger. Full-Time • 1/4 of the new jobs were part-time or free-lance Part-Time jobs Digital media activities are focused on the Finnish growth centers 7 7 Yritykset kunnittain 1998 n = 314 135 - 135 (1) 18 - 135 (3) 7 7 5 - 18 (6) 2 - 5 (11) 1 - 2 (36) 12 12 2 2 32 32 5 5 18 18 3 3 6 6 6 6 135 135 19 19
  • Current status of Finnish digital media industry – acknowledging economic realities • Working in turbulent digital media industry is not an easy task • Current development trends in the companies – From hypergrowth to cost efficiency – From hype creation to excess caution – From aggressive recruiting towards committing key individuals – From ”becoming rapidly millionaires” towards ”survival battle” – From pioneering towards a stardardised way of working – From optimism through pessimism into realism • In addition, digital technology keeps on evolving Main change: using digital media has become a business standard – no more premium pricing for digital media companies! Internationalisation of the Finnish digital media industry - challenges and experiences • Background for the analysis • Theoretical approach to Internationalisation • Digital media industry - what is that? • Digital media industry in Finland • Internationalisation patterns in the Finnish digital media industry • Conclusions
  • International markets possess their special characteristics Domestic Markets International Markets About actors • Some very competitive and growth seeking • Highly competitive markets new media companies • Many opportunities exist for fast movers • Finnish companies among the world leaders • Heterogeneous technological know-how and in mobile technology infrastructure • Few experienced and global players in new media • Large international IT actors are starting to be active About resources • Well educated and skilled personnel • Shortage of skilled & experience IT personnel available • Financial capital available for well defined business • High-level of technological know-how ideas and concepts • Limited number of international customers • Many large customers available, but serving them • Skilled users and advanced infrastructure demands resources About activities • Consolidation of companies via mergers • Internationalisation and globalisation is an actuality and acquisitions • Large international customer projects carried out • Mobile communication creates new • All major companies are building international opportunities and activities relationships • Market size in 2000: FIM 1 billion, ~3000 employees Internationalisation brings Finnish digital media companies to thinking their competitive edges Domestic positioning features International positioning features • Subcontracting activities (at the mo- • Finnish companies have some subcon- ment only 10 %) tracting experience across borders, e.g. • Companies knowledge of each other is to the Baltic countries very good due to small markets • Only few companies have a strong in- • Governmental activities encourage for ternational focus networking, e.g. in R & D projects • The new media companies can lever- • Finland is the test laboratory for high- age on the success stories of Nokia and tech solutions - > reputation of the trials Sonera • New international customers are ob- tained through business relationships • Foreign competitors are entering and have entered the Finnish market <- reputation
  • Companies were divided into six groups according to their internationalisation focus • Global actors • Active growth seekers quot;Internationalisation for us is that • Internationalisation trialists we grow with our clients' operations. • Inward-internationalisators In other words this means that we do not focus on geographical • “Stand-Byquot; -companies markets, but rather to client • Locally focused companies markets.” quot;We will not start to quot;pump ourselvesquot; to foreign markets with our present limited resources. We quot;We see our internationalisation so that we want to be a strategic partner for want to work here in Finland for the some Finnish company needing international markets. Internationalisation is assistance in digital media solutions crucial for our existence, but we want to be abroad” located in here. This is why we need to belong to an international network.quot; International dimension of the network make it even more complex and challenging Consolidation of companies actuality High level of Mobile communication activities of Subcontracting 10-15 % technological know-how high interest Companies know each other well, limited co-operation Govermental R&D support based on networking -> leads to more active networking Limited number of Skilled personnel customers available ~FIM 1 billion ~3000 employees Domestic Position Domestic positioning Heterogenous markets in Advanced Infrastructure & Operations Resources technology skills and skilled users infrastructure Highly competitive markets Some competitive and growing Micro-Network Many opportunities for new media companies fast movers impact Actors Finnish Actors Few experienced and global players World leaders in mobile technology New Media development (operators and equipment) Domestic Business Markets Network impact Lack of trained & experienced Global actors personnel Active growth seekers Internationalisation trialists Inward-internationalisators Stand-by companies Resources Locally focused companies Financial capital well available for good Macro-Network business ideas International International Positioning Markets International position Many large customers available, but operations demand resources Only few internationally focused Finnish companies Global expansion Expansion through the Finnish quot;success storiesquot; (e.g. Nokia & Sonera) Operations Internationalisation for new media Cration of international network through existing customer relationships companies Foreign competitors have entered the Finnish markets International financiers interested about Finland Finland is the quot;test laboratoryquot; in mobile communications International subcontracting relationships exist to some extent Finnish companies ether in quot;Late Starterquot; or quot;International Among Othersquot; situation Large international projects Global network building
  • Companies use multiple strategies in their international entry. The most important is leveraging existing customer relationships The most important channel for • Finnish digital media companies internationalisation are the existing customer internationalisation modes relationships – Fast growth with the support of external Strongly disgree financiers 3% Totally agree Mostly disagree – Fast growth via networking strategies 17 % 20 % – Acquisition of a local company in a foreign country – Greenfield investments to a foreign country – Going with quot;luckquot;, i.e. no planning, just 'ad hoc' activities – Internationalisation with customer's operations Mostly agree 60 % “We have four internationalisation strategies: forming of an own subsidiary, forming of a joint venture with a local partner, expanding with our clients operations and exporting our own products, know--how and technology. Also we have discussed about participation to different international alliances.“ Large digital media companies are more involved with international operations than smaller ones - business networks are crucial Our company has international partners less than 1 MFIM 1-4 MFIM Company Turnover im MFIM No answer Does not describe 5-9 MFIM Partly describes Decribes 10-29 MFIM Our company has international partners over 30 MFIM 0% 10 % 20 % 30 % 40 % 50 % 60 % 70 % 80 % 90 % 100 % Describes our relationships well 31 % quot;We made our largest international deal so far through good Does not describe our personal relationships. We were extremely lucky.. Furthermore, relationships we were able to organise the project to be internationally carried 47 % out by our network.quot; Describes our relationships partially 22 %
  • Shortage of skilled personnel is the most limiting factor for international operations Financial resources Educational quot;Simply there are so few of those who can resources say quot;Been there, No answer 'done it!quot;. This makes Not enough the entrepreneurs to Clients They are scarce fear, become Sufficiently disappointed and/or Plenty available at worst not to find the right contacts Skilled personnel abroadquot; Growth opportunities 0% 20 % 40 % 60 % 80 % 100 % High expectations exist for internationalisation, but also high risks. “In Sweden, market far behind Finland still about two years ago, digital media industry had a turnover of FIM 7 billion in 1998. We should not feel to sorry about ourselves but analyse thoroughly why the Swedes are so much more successful. Yet, we should remember that this kind of “slow and conservative“ approach that we have in Finland may become more fruitful in the long run.“ “Internationalisation is most often based on growth and market share expectations dominated by external financiers. The companies seek for growth for growths sake only. Do these companies remember to follow their profitability? - we are sceptical about that.“ “The future growth expectations are incredible, even outrageous. The bubble must break someday. There is so much air in the stock values of the international companies. Yet, if the expectations will become reality, there is room for many new large and international players.“
  • International operations demand resources. Yet, they may bring higher returns for the same effort. quot;If we, for example, form a subsidiary to London, we will hire a few locals and send a few persons from Finland there. They need an office, portable computers and accounting systems at minimum. Sounds easy - but - the problems arises from management allocation. Let's say we make one hundred units of turnover in Finland. The London unit would make at the starting stages one unit more units later. Still, as we have noticed, the operation will take 20-30 % of our management time. Also it is difficult to obtain local customers, we are not a part of local business network. quot;In Finland, consulting and planning is badly compensated. The digital media companies under-priced their services a couple of years ago, and still we are suffering from it. We have noticed that international customers are much more willing to pay for good planning, Finns just want the pure product, nothing else.quot; Create the mindset for being international and know your motives. Financing exist for well justified ideas. quot;The main question lie in the motive for internationalisation - why to do it? There is and will be market to be shared here in Finland, too. Foreign operations will demand resources from domestic operations. Do we want to utilise them here or abroad and now or later? I do not know. Only thing I know that we have to be ready to reactquot; quot;Special interest should be put on the mindset of being and becoming an international actor and reflect this thinking in all activities.quot; quot;There is plenty of capital available. Still, we do not want pure money, we need grey hair expertise to supplement the investment. These kind of investors are harder to find. We want strategists to assist us, not short-term profit makers.quot;
  • Governmental support efforts are fragmented and uncoordinated. quot;The government should realise that in this business half a million FIM is in international context small potatoes. The investments needed for international penetration are much higher. We are doomed to small scale business without large scale support” quot;Oh, I wish so much that we would be able to get all the services from the same address or from the same advisor. It has taken at least a year from us to learn the different application and discussion 'protocols' that different support or financing organisations have - it a really a pain - and I do not understand that why don't these organisations co-operate?quot; Internationalisation of the Finnish digital media industry - challenges and experiences • Background for the analysis • Theoretical approach to Internationalisation • Digital media industry - what is that? • Digital media industry in Finland • Internationalisation patterns in the Finnish digital media industry • Conclusions
  • Four main statements rose from the study • The internationalisation of the digital media industry does not differ from other professional service businesses • The main driver for internationalisation is demand for continuos growth. In addition, the ambition level and the experiences of the entrepreneur have a great impact to the internationalisation • The main success factors in internationalisation of Finnish digital media companies is the utilisation of business relationships across borders • The main internationalisation operation channel for digital media companies is leveraging the existing customer relationships Professional service with high growth potential. Success depends on the reaction time and customer relationships. • Digital media business is by its birth very global and the companies operating in the industry carry heavy service and know-how export potential. • The Finnish digital media industry is already in some markets in quot;late starterquot; situation. On the other hand the companies are able to arise to be quot;international among othersquot; by own actions and by technological advancement. • The success of the industry is heavily dependant the companies' capability to meet the requirements of the customers and leverage its existing customer relationships
  • Alliances crossing industry barriers bring access to additional resources. • Product innovation in the industry requires flexible coalitions crossing traditional industry barriers. The number of these will grow with technological advancements. • The main resource shortage for the Finnish digital media companies' internationalisation is the lack of skilled personnel. • Financial capital is available in the markets. Yet, the Finnish companies are not experienced to work with external financiers and high growth requirements The way forward • At LTT-Research/Helsinki School of Economics we will continue to analyse the digital media industry – from industry development perspective – from financial analysis perspective – from convergence perspective – from internationalisation perspective • We have follow-up data of the Finnish companies from 1996 onwards – Surveys and interviews in 1996, 1998, 2000 and 2002 (ongoing) • Possible co-operation areas – Comparitive studies between counties – Internationalisation analyses – Service business success factor identification and analyses – Analyses on convergence and its implications
  • For more information Tommi Pelkonen pelkonen@hkkk.fi Useful web sites and publications: http://www.culminatum.fi/uusmedia.html http://www.uiah.fi/mediastudioverkko/tutkimus.html http://www.hkkk.fi/ltt http://www.mol.fi/esf/ennakointi/raportit/uusmedia.pdf http://www.tukkk.fi/media/ Convergence (lähentymiskehitys)- what is that? Source: Oxford Dictionary for Business, 1998 To Converge= 1) Come together or towards the same point, or 2) Approach from different directions Source: European Union, 1997 Convergence= 1) The ability of different network platforms to carry essentially similar kinds of services, or 2) the coming together of consumer devices such as the telephone, television and personal computer