Export Decisions For Small Manufacturing Firms:
A Case Study of Irish SMEs
Aidan O’Donohoe
Dublin Institute of Technology
B.Sc. (Hons) Business and Law
DT321
Supervisor: Christina Ryan
2016
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Declaration I hereby certify that this material, which I now submit for assessment as the final year
project for the programme B.Sc. (Hons) Business and Law, DT321, is entirely my own
work and has not been submitted in whole or in part for assessment for any academic
purposes other than in the partial fulfilment for that stated above.
Signed: _________________________
Date: _________________________
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Acknowledgements Firstly, I would like to acknowledge my parents Kathleen and Ciaran and siblings Niamh and Shane, for their fantastic support throughout the entire year. A special thanks to my parents in particular in regards to this research project, for aiding me with proof reading it on numerous occasions. In addition I want to give a special thanks to my girlfriend Katie-Ruby, my friends from home Andy, Daire, John and last but not least, my colleagues in DIT Sean, Ross and Sam who all, were patient and supportive over the year, particularly in helping take my mind of the project and blow of some steam. I would also like to acknowledge Christina Ryan, who supervised my work for year. The numerous meetings throughout the year were critical to keeping me on the right track with my research project. Finally I want to thank course coordinator of Business and Law Eoghan O’Grady, for his help on a number of occasions over the last four years. His guidance and support crucial in getting to this final stage of Business and Law DT321.
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Table of Contents
CHAPTER 1: LITERATURE REVIEW 1.1 INTRODUCTION 3
1.2 EXPORTING ENTRY MODE 5
1.3 FACTORS MOTIVATING FIRMS DECISION TO EXPORT 7
1.4 INDIRECT EXPORTING 10 1.4.1 EXPORT MERCHANTS 11 1.4.2 EXPORT AGENTS 11 1.4.3 IMPLICATIONS OF USING INTERMEDIARIES 12
1.5 DIRECT EXPORTING 14 1.5.1 DIRECT EXPORT BODIES 15 1.5.2 IMPLICATIONS OF USING DIRECT EXPORTING 15
1.6 DIRECT VERSUS INDIRECT EXPORTING 17 1.6.1 INTERNAL FACTORS 17 1.6.2 EXTERNAL FACTORS 18
1.7 BARRIERS TO EXPORTING 19 1.7.1 INTERNAL BARRIERS 20 1.7.2 EXTERNAL BARRIERS 23
1.8 “STAGES” MODEL OF EXPORT DEVELOPMENT 25
1.9 CONCLUSION OF LITERATURE REVIEW 27 CHAPTER2: CONTEXTUALISATION
2.1 INTRODUCTION 29 2.1.1 VOGUE BATHROOMS LIMITED (VOGUE) 29 2.1.2 CYLON CONTROLS LIMITED (CYLON) 29
2.2 MOTIVES FOR EXPORTING 31
2.3 EXPORT METHODS 32 2.3.1 VOGUE EXPORT METHODS 33 2.3.2 CYLON EXPORT METHODS 34
2.4 BARRIERS TO EXPORTING 38
2.5 STAGES EXPORT DEVELOPMENT MODEL 40
2.7 DISCUSSION AND CONCLUSIONS 43
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Table of Figures
Figure 1.0 Direct and Indirect Export Channels 7
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Abstract
Title:
Export Decisions For Small Manufacturing Firms: A Case Study of Irish SMEs Author: Aidan O’Donohoe Supervisor: Christina Ryan Year: 2016 Abstract: Internationalisation is fast becoming a must have on the itinerary of small to medium sized
manufacturers in Ireland. Exporting offers itself as the quickest and easiest method of accessing
international markets. It offers smaller manufacturers with limited resources and finances an
avenue to reach a much broader customer base without the level of risk associated with other
forms on entry .
This research aims to analyse the methods and practices, which small manufactures use to
export their products to overseas markets. Throughout the export process, firms must make a
number of strategic decisions in how they should transport, sell and market their product to
overseas markets . The literature will also examine what export methods are suited to small
manufacturers and what factors effect a firms decisions when selecting the correct method of
exporting their products abroad.
The contextualisation uses two contrasting cases to compare the alternative export practices
taken by manufacturing firms in Ireland. The first, Vogue Bathrooms Limited, a manufacturer
of bathroom fixtures and fittings, who utilises direct methods of exporting to the U.K. market.
Secondly, Cylon Controls Limited, a manufacturer of building energy control systems, who
utilise a form of indirect exporting to reach multiple markets around the world. The cases are
used to make a comparison between best practice export method identified in the literature
and the actual export practices of small Irish manufacturers.
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Chapter 1:
Literature review
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1.1 INTRODUCTION
Globalisation is an ever present process in today’s business environment. Manufacturers
around the world must not only compete with domestic competitors but also with
manufacturers from around the world. In order to compete in many industries small to medium
manufacturers must actively participate in internationalisation to ensure they stay competitive
and profitable. Internationalisation has been explained as the process whereby firms engage in
international markets in a series of stages (Johanson and Vahlne, 1977). Exporting in most
cases is the quickest and simplest method of entering foreign markets as it provides a high level
of flexibility cost effectiveness (Sousa, 2004). In regards to small manufacturers it could be
considered the first rung on the ladder to engaging in international markets.
The common thought is that international markets are dominated by large Multinational
Enterprises (MNE) with access to an abundance of resources providing them with economies
of scale which make an uneven playing field for Small to Medium Enterprises (SME) that want
to compete. However, many argue that “today’s consumers demand very specific products with
high levels of service orientation and considerable levels of corporate responsiveness”
Czinkota (1996). It is smaller firms which are better able to adapt and service these distinct
needs that customers are demanding more than ever (Czinkota, 1996). This competitive
advantage that smaller firms have allows them to compete in international markets regardless
of size. Suárez-‐Ortega & Álamo-‐Vera (2005) Argued that smaller firms which hold distinct
competitive advantages should proactively export in overseas markets.
Exporting as a business activity is one of the multiple international entry modes to foreign
markets. Albaum and Duerr (2011) define international entry modes as the “arrangement
necessary for the transfer of a firms products, technology, human and financial capital into a
foreign market”. As previously stated amongst the variety of entry modes identified, exporting
is considered easiest and simplest way to service customers needs in a foreign market.
As a firm develops from a non-exporting manufacturers to manufacturers experienced in
exploiting multiple oversea market opportunities, it must make a number of strategic decisions
along the way. The first decision to be made is whether entry to overseas markets is a viable
option for the firm and is their potential to profit and grow by internationalisation. This is
followed by the decision whether or not exporting is an entry mode that suits the business, their
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product and the overseas market. To understand the exporting process it is important to
understand why firms choose exporting as a foreign market entry mode. The literature will
begin by exploring exporting as an entry mode and what critical factors influence a firms
decision to engage with foreign markets through exporting.
The next decision manufacturers face when attempting to export their product abroad is what
method of exporting will allow them to maintain their competitive advantage in new markets.
Exporting methods can be distinguished into two broad categories, Indirect and Direct
exporting, which can be differ in how the transaction is made between the manufacturer and
the overseas buyer (Albaum and Duerr, 2011). The literature will continue by examining what
export methods are most suited to small manufacturers looking to export their products abroad.
All export decisions are moulded by what Leonidou (2004) refers to as barriers to exporting.
Firms must identify what barriers are influencing their export decisions and preventing them
from achieving their potential in overseas markets. The literature will look at how these barriers
influence export decisions in smaller firms and what effects these constraints can have on
exporters making successful decisions. The literature review will conclude with a consideration
of a theory, Bilkey and Tesar (1977) Stages Export Development Process which in some cases
my be applicable to small exporting manufacturers.
In completion of the literature it is hoped that key export decisions will be identified for small
to medium manufacturers that contribute to them selecting the best export method when
entering and growing in foreign markets. It is hoped that the research will demonstrate to
manufacturers interested or engaged in exporting, what is best practice exporting method for
their firm and what critical decision they must make to ensure success in overseas markets.
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1.2 EXPORTING ENTRY MODE
Exporting as a business activity can be seen as the first step to establishing deeper commitment
to the internationalisation process. If small firms wish to succeed in an increasingly competitive
global market they must give thought to entry mode selection and choose the correct entry
mode to a market which fits the firm and the market they are entering. Bradley (2005)
highlights two primary motives for a small firm’s internationalization. The first is the search
for new markets that will award them a competitive advantage in the domestic market and the
second is to exploit opportunities in foreign markets. Bradley and Gannon (2000) divides a
firm’s entry possibilities into three types; export indirectly through the use of agents or
distributors or directly to the overseas customer by contractual entry which includes licensing,
franchising, contract manufacturing and co-production agreements, and finally, investment
entry by means of joint ventures or foreign direct investment. Bradley (2005) concludes that a
firm must ask two questions when choosing an entry mode. What level of resource commitment
are they willing to make and what level of control they desire of their export?
An element that can impact entry mode selection is the nature of the asset. If the use and nature
of the product is easily explained then exporting will be a common mode of entry selected
(Bradley, 2005). For commodities type or mature products their use is easily understood and
explained. Therefore products can be transferred with no after sale service required from the
manufacturer. However if a products use requires a significant level of “tacit knowledge” to
use and explain firms have a high tendency to opt for other forms of modes of entry other than
exporting directly. If a firm manufactures more complex goods where the transaction process
requires special or custom modifications to suit the overseas market or the requirement of
specific knowledge to identify customers, then manufacturing firms are more likely export
Peng and Ilinitch (2001).
Bradley and Gannon (2000) highlights that a firm must realise the importance of market
strategy, the organization, the industry and the target market when it comes to selecting an
entry mode. Bradley (2005) identifies two generic market entry strategies that exist in the
internationalisation, Diversification Strategy and Market Concentration Strategy
Diversification Strategy involves dividing resources among multiple different markets. Firms
commit minimal resources to each market with the result of a high level of return. This can be
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advantageous to a firm in that it allows for flexibility in having access to multiple overseas
markets, reduced dependence on a single markets success and it allows a firm to identify and
capitalise on a market where they might have a competitive advantage Bradley (2005). Firms
who export would more commonly select this entry strategy.
Market Concentration Strategy involves greater level of resource commitment to a single
market. This allows firms to have high level of control and establish relationships with overseas
customers. This would be more common with firms manufacturing products that require a high
level of tacit knowledge and would normally be associated with foreign direct investment as
an entry mode Bradley (2005).
Exporting compared to other modes of entry favours firms who produce goods or services that
do not require high level of tacit knowledge and those who do not want or have high level of
resources to commit to internationalization. It also allows firms a low risk entry mode but they
will have minimal amount of control. Exporting is also an ideal form of entry should a firm
wish to export to multiple markets over concentrating on one single market. Exporting allows
firms to allocate minimal resources to multiple markets and also diversifies risks to many
separate markets (Albaum et al., 2011; Czinkota et al., 2001).
Albaum & Duerr (2011) maintain there are two basic forms of exporting, indirect and direct.
They can be differentiated by three determinants, firstly by the level of vertical control the
exporter requires, secondly by the cost of the export function and thirdly by the transaction cost
that arises from the organization of the export activity. In exporting firms have a choice of two
channel options, they can indirectly export with help from an intermediary or they can directly
export to the consumer (Peng and York, 2001).
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Figure 1.0 Direct and Indirect Export Channels
(Albaum & Duerr,2011)
1.3 FACTORS MOTIVATING FIRMS DECISION TO EXPORT
In understanding which method of exporting suits small manufacturers it is important to
understand what motives influence them to engage in exporting in the first place. The literature
is extensive about small firm’s motives for exporting but often conflicting. Weaver, Berkowitz
and Davies (1998) held with small manufacturers operating out of large economies e.g. United
States, the key motivation to export is long term profit and risk diversification, meaning they
reduce risk from market failure by entering multiple markets. Other authors contest that the
key motivator comes when small firms have excess capacity to operate and export to operate
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at full capacity and be more cost effective (Brooks and Rossen, 1982). Cavusgil, Tammer, and
Nevin (1981) contend that a firm will engage in exporting when it realises it has a competitive
advantage in a market.
According to Albaum and Duerr (2011) motives can be identified as reactive and proactive.
Reactive factors are factors or happenings which result in a firm engaging in exporting to
counteract those factors whereas proactive factors involve firms making a proactive decision
to export to exploit factors. Czinkota and Taser (1982) discussed extensively over two decades
on the small firm’s motives to export.
Managerial Attitude is an internal factor. Due to the nature of smaller firms strategic decisions
depend heavily on the decisions of management and owners. If management is favourable
towards exporting then a firm is more likely to do so (Albaum and Duerr, 2011). Axinn, Savitt,
Sinkula, and Thach (1995) held that management attitudinal preference to exporting is the
greatest influencing factor to firms exporting. Managerial urge would be considered a proactive
motivator. (Czinkota et al., 2001)
Economies of Scale is an internal proactive factor that influences a firms decision to export.
Some firms may choose to export in order to benefit from economies of scale (Bradley, 2005;
Czinkota et al., 2001). Economies of scale arise when a firm achieves a reduced unit cost
overall by scaling up production, distribution and marketing functions. Exporting may result
in increased intensity of production and firms may benefit from economies of scale (Albaum
et al., 2011; Czinkota et al., 2001). Firms may export to increase customer base and benefit
from the economies of scale. Czinkota (2001) contends that The Boston Consulting Group
stated that by “doubling output, production costs can be reduced by up to 30%”.
Foreign Market Opportunities is an external and proactive factor, meaning a proactive firms
looking to internationalise may be influenced by information received about foreign market
opportunities available (Albaum et al., 2011; Czinkota et al., 2001). Often a firm may have
special knowledge about overseas customers or market opportunities. Firms may engage in
exporting as it is the quickest and simplest method to access overseas markets. Example maybe
if a manager visits a foreign market and spots potential gap in the market.
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Change Agent is a proactive external motivator to engage in exporting and refers to the support
and encouragement received by firms from semi-state bodies, financial institutions and/or trade
associations. These bodies, given their level of support, can profoundly influence a firm’s
decision to start exporting (Albaum et al., 2011; Czinkota et al., 2001)
Risk Diversification is a reactive factor that motivates a firms decision to export. This means
that the firm is examining the possibility of exporting to counteract other business forces or
factors. According to Leonidou and Katsikeas (1996) exporting firms are exposed to less
market risk then non-exporting firms. Therefore, if a firm operating in multiple markets, is
exposed to a recession in the domestic market, it can offset the loss in sales in domestically by
increasing exporting to markets with more stable conditions (Albaum et al., 2011; Czinkota et
al., 2001). Firms here are reacting to the possibility of an economic slowdown hurting the
business.
Excess Capacity is a factor that can apply to firms in smaller economies in which the domestic
market may not be able to absorb the potential output of the firm (Czinkota, 1996). Exporting
allows a firm to operate at maximum capacity and export products abroad if the domestic
market becomes saturated which reduces overall cost by not having equipment and labour idle
(Albaum et al., 2011).
Domestic Market Conditions sometimes may not be large enough to support a manufacturer or
industry, therefore exporting is necessary for a firm to exist (Albaum et al., 2011; Czinkota et
al., 2001). This is particularly common in Ireland, with a population of only 4.5 million yet it
has a high concentration of manufacturing companies, which could not survive in the domestic
market alone. Another market condition which will influence firms to seek overseas customers
is the level on competition in the market. Czinkota et al. (2001) maintain that competitive
pressures can also act as a motivator for smaller firms to export, which in turn can be caused
by the limited opportunity of the domestic market.
Unsolicited Orders is another reactive factor. Firms who are not interested or engaging in
exporting may receive unsolicited orders from overseas markets. Firms initially may ignore
these, however, there is overwhelming evidence to suggest that firms often begin exporting by
fulfilling unsolicited orders and gradually intensify activity in overseas markets over time
(Albaum et al., 2011; Czinkota et al., 2001).
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1.4 INDIRECT EXPORTING
Indirect exporting occurs when a manufacturer uses an independent intermediary located in the
the domestic market to organise the export process. Furthermore the manufacturer may have a
dependent export organisation (export department) that works with international marketing
organisations to co-ordinate the entire export effort (Albaum & Duerr, 2011). Indirect
exporting is explained by Fletcher (2004):
Whereby small firms are involved in exporting, sourcing or distribution agreements with
intermediary companies who, on their behalf manage, the transaction, sale or service with
overseas companies.
Terjesen et al. (2008) suggests that smaller firms can use intermediaries to overcome
knowledge gaps, find new customers and limit the risks associated with operating in overseas
markets. An export intermediary is defined as “a specialist firm that functions as the export
department for several manufacturers in non-competitive lines” (Balabanis, 2000).
These Intermediaries act as a “middleman” in international trade by linking independent
organizations that operate in different markets that previously would not have been able to
contact each other (Peng and York, 2001). Trabold (2002) adds some transactions would not
be able to take place in a direct form, due to geographic differences and intermediaries allow
this to happen.
Intermediaries can be described as both suppliers and customers as they can provide services
such as financing, distribution infrastructure and payment collection on behalf of customers
(Balabanis, 2000).
Export intermediaries consist of two basic categories, export merchants and export agents
(Albaum & Duerr, 2011). Export merchants differ from agents in the fact that they take the
title to the manufacturers goods with the result the buying and selling is at their own risk.
Export agents provide a service to the manufacturer and do not take the title (Li, 2004; Peng
and York 2001). Albaum and Duerr (2011) outline three different types of export merchant
based from the the domestic market.
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1.4.1 Export Merchants Export Merchants – are firms that engage in exporting and importing and operate in a similar
fashion to domestic wholesalers. They organize the sale and marketing of the commodity and
they take title of the product from the producer. Export merchants are usually large
organisations and are not dependent on exporting a certain manufacturers product to stay
profitable. This gives them a commanding position over the manufacturers they act for.
Trading Companies –operate in a similar manner to export merchants but operate on a far
greater scale. They also offer other services such as financing. An example would be Glencore
a multibillion-dollar Anglo-Swiss trading company (Glencore, 2005).
Export Desk Jobbers – primarily used in the sale of raw materials, desk jobbers rarely see the
goods. They take ownership of the goods and sell them on over a period of time.
Multinational Enterprise Intermediaries - Terjesen et al. (2008) introduced a fourth type of
export merchant available and suggested that foreign MNEs (Multinational Enterprises) can
act as an intermediary route to internationalisation. This involves smaller manufacturers
exporting their products through already established MNE who have established knowledge,
infrastructure, distribution and contacts to overseas markets. The MNEs manage the export
process, marketing and sales of the products. Smaller firms can benefit from gaining
experience, knowledge spillover and contacts to various markets. However, the potential
downsides are the larger MNEs can have too much control of the smaller venture due to the
nature of the relationship.
1.4.2 Export Agents Albaum and Duerr (2011) identify a number of types of agent that act as intermediaries. Agents
will not take ownership of the goods which leaves the burden of financial risk with the
manufacturer and generally they operate on a commission basis.
Export Commission House - is a reactive type of exporting as it involves independent buyers
sourcing products from the manufacturer. A foreign buyer uses the export commission house
agent to source and export the product to them for a fee.
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Resident Buyer – is employed by an overseas buyer in the domestic market with the role of
sourcing and exporting goods to the overseas buyer. This is common practice with large retail
stores such as Walmart, who have resident buyers in China. This give both parties an
opportunity to develop a relationship.
Export Management Company – is an international sales specialist who act as an independent
sales department for several non-competing manufacturers. Export Management Companies
(EMC) can perform a range of tasks from research to sales and promotion. Manufacturers gain
international experience through the use of EMC and it also reduces costs of shipping as EMC
can consolidate shipments from all clients. This is the ideal exporting tool for smaller firms
looking to export. EMC’s often help businesses to develop their own export departments and
help companies make contacts in overseas markets.
1.4.3 Implications of Using Intermediaries
Intermediaries allow firms to benefit from improved export performance or a lower cost than
if they carried out the exporting themselves. This is as a result of the intermediaries’ expertise
in entering and operating in foreign markets (Li, 2004). Intermediaries also save clients money
by helping them to avoid costs associated with searching for new customers and monitoring
the enforcement of contracts (Acs & Terjesen, 2006).
When compared to direct modes of exporting, the use of intermediaries involves less risk and
resource commitment (Johansson and Wiedersheim-Paul 1975). However, the use of
intermediaries also adds cost in the form of transaction costs and fees/commissions (Acs and
Terjesen, 2006). Another disadvantage, which is more alarming to exporters, is the potential to
lose control over how your product is marketed and serviced in the foreign market.
(Blomstermo, Sharma, & Sallis, 2006). Loss of control when a firm uses an intermediary is a
significant issue if firms choose this option of exportation.
Export Intermediaries duties differ considerably from domestic intermediaries. Their duties
involve a much greater level of risk and exposure to variables i.e. exchange rates, government
policy, trade barriers and cultural differences (Bender and li, 2002). Williamson (1985) affirms
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the exposure to risk and cost for intermediaries is greater due to administration complexities.
Furthermore, Williamson (1985) argues that manufacturers and export intermediaries can
develop trust issues. This is down to reasons such as operating in different countries,
information asymmetry, cultural issues and environmental diversities that can hinder
communications and lead to break down in cooperation.
Terjesen et al. (2008) holds that the use of an intermediary can have associated advantages of
reducing risk, uncertainty and costs when exporting and certain disadvantages including loss
of control of goods. For small firms which lack resources and foreign market knowledge
intermediaries can be of considerable benefit as a tool for internationalization. Firms can
overcome risks and uncertainty associated with exporting by using intermediaries (Peng and
Ilinitch 1998).
In other cases, firms may have a competitive advantage in domestic markets and may rely on
these advantages to overcome uncertainty and risk associated with exporting. In order to
maintain control of their products they may select not to use intermediaries and will directly
export to the customer.
Albaum and Duerr (2011) highlight the importance of formal contracts outlining agreements
with intermediaries in most cases a firm’s agent or distributor will be the sole trader of that
product in the overseas market.
Spulber (1998) concludes that using intermediaries can give advantages over direct exporting
by “pooling and diversifying risk, reducing transaction costs and lowering costs of matching
and searching”.
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1.5 DIRECT EXPORTING
Direct exporting occurs when a manufacturer or exporter sells directly to an importer, buyer or
retailer in a foreign market area, thus the transaction occurs between two nations and between
the dependent organisation of the manufacturer and a foreign marketing organisation or
customer (Albaum & Duerr, 2011).
Czinkota and Ronkainen (2007) maintain that in direct exporting the manufacturer or firm sells
their product direct to the user in an overseas market. In order to begin exporting directly a firm
must have an export sales division or department. This division has the duty to identify
potential markets or segments abroad and manage marketing strategies for the overseas market
(De Burca, Fletcher and Brown, 2004).
Czinkota and Ronkainen (2007) maintains that a key element in direct exporting is exploiting
the use of ecommerce on an international basis. ecommerce has become a critical tool in
exporting for smaller firms looking to market their products internationally. The internet acts
as a source of information and a place to buy (Albaum & Duerr, 2011). The major advantages
of ecommerce to small exporting firms is that it reduces costs and extends reach (Sheth and
Sharma, 2005). Customers can view products offered by firms at any time from any location,
helping to overcome geographical barriers. Foley (1999) identified that e-commerce can be
advantageous to small and large firms alike, and is an important tool for people looking to
directly export.
In order for a manufacturer to engage in direct exporting it is necessary to establish a domestic
export department or division. This department can service exports in two forms, it can directly
make export sales to foreign based customers or it can act as a home based export marketing
department to control and coordinate other dependent organisations based in foreign markets
(Albaum and Duerr, 2011).
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1.5.1 Direct Export Bodies Domestic Departments - are established departments in the domestic country with the sole duty
of managing exports and come in three forms. One form is a built in export department. The
success of these departments relies greatly on the appointed manager of the department. This
method usually suits small firms new to exporting. Another form is a separate export
department which is an entire team dedicated to managing the export process on a full time
basis. The third and final form of export department is an export sales subsidiary which is
established as a separate organization and benefits from unified financial control and greater
ease of raising finances as it is separate from the manufacturer.
Foreign Sales Branch - When the intensity of sales in a particular foreign market increase a
foreign sales branch may be required. A foreign sales branch can incorporate sales, storage and
housing facilities in the foreign market. This suits a firm operating on a large export basis.
Foreign Sales Subsidiary – is similar to a foreign sales branch, however the entity has complete
operational control over the overseas market or region it is based in. This can be advantageous
in reducing barriers and there can also can benefit from tax advantages. Again this would be
associated with firms that are larger or experienced in exporting as the resource requirement
and risk is high.
1.5.2 Implications of Using Direct Exporting
Albaum and Duerr (2011) maintain that directly exporting gives firms a number of advantages
when engaging in international markets. Firms receive a full return from export sales, there are
no transaction fees required as exporting is fully controlled by the firm.
Firms who directly export have full control over the marketing methods and sales promotion
of their products, therefore they are protected from neglectful third parties who do not have as
vested an interest as the manufacturer in how a product is managed and sold (Albaum and
Duerr, 2011).
Katsikea and Morgan (2003) found that firms with foreign based sales branches or subsidiaries
benefit from “sales specific” benefits by having sales facilities in the overseas market. These
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include greater sales control, customization of product solutions to suit the market, flexibility
in marketing techniques to suit the local market, greater product knowledge amongst sales staff,
direct customer feedback and customer loyalty may be heightened due to local presence in
overseas market.
Another benefit to direct exporting is that it can result in creation of permanent export channels
(Albaum and Duerr, 2011). In indirect exporting with the use of independent intermediaries
there is often a risk that they may drop the exporter’s line in place of a competitor.
Perhaps the greatest disadvantage and deterrent for small firms to directly export is the large
initial investment of resources and finances (Albaum and Duerr, 2011). Financial requirement
for internationalisation is a key obstacle facing SMEs expanding to foreign markets Nummela,
Loane and Bell (2006).
Manufacturers must also take greater risk when exporting directly. It is usually the case that if
a smaller firm was to directly export it would have to assume credit or financial risks. Should
the product not suit the overseas market and fail, the consequences could be monumental to
the firm’s future, even in the domestic market (Albaum and Duerr, 2011). Yeoh and Calantone
(1995) comment that financial strength and commitment are the two most important criteria a
firm must possess in order to be successful through direct export methods.
Success in foreign markets may require market specific knowledge for a product to be
successful. Marketing techniques between markets can vary greatly and firms run the risk of
failing in an overseas market due to lack of knowledge. (Albaum and Duerr, 2011).
Firms attempting to directly export to a market may find it difficult to initially make contact
with potential customers (Leonidou, 2004). However, this may not have a huge implication for
small firms looking to export. As cited previously, there is overwhelming evidence to suggest
that firms often begin exporting after receiving unsolicited orders from overseas markets
(Czinkota et al., 2001).
Direct exporting is the process by which the exporter becomes totally committed to the export
process on a proactive basis.
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1.6 DIRECT VERSUS INDIRECT EXPORTING
When a company has decided to use exporting as their method of entry into a market it must
then make a decision to directly or indirectly export to the overseas markets. In examining the
factors of why companies would select indirect over direct exporting the literature highlights a
number of different factors that may influence a firm’s choice of export method. In reviewing
the literature, a number of authors identified both internal and external factors that influence a
firm’s export method decision. Internal factors deal with the firm’s internal capabilities as well
as how product specification influences decision, whereas external factors deal with the
external environments both domestic and overseas and how they influence a firm’s export
strategy.
1.6.1 Internal Factors
Industry Factors - The first internal factor is to identify what field the firm is operating in and
how it is perceived as a global industry. If a firm operates in a certain sector and
internationalisation has been a strategic goal from the outset, a firm is more likely to engage in
direct exports (Brady and Bearden, 1979). Firms of this nature are not internationalizing on a
stage by stage learning experience as suggested in Uppsala Model (Johanson and Vahlne,
2009). They are more committed to the internationalization process and therefore willing to
commit more resources with higher risk (Brady and Bearden, 1979).
Product Factors – For goods with a high fixed cost of production and where customers expect
a high level of after purchase service a firm is more likely to export directly in order to fulfill
the customers need (Peng and Ilinitch, 2001). The more commodity orientated the product the
more likely a firm will use an intermediary. However, it was also argued the lack of
requirement of after sale service with homogeneous goods results in firms having less of a need
to use more resources, therefore they can take a greater risk by directly exporting (Bernard,
Grazzi and Tomasi, 2011).
If a firm manufactures more complex goods where the transaction process requires special or
custom modifications to suit the overseas market or customer or the requirement of specific
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knowledge to identify customers manufacturing firms are more likely to directly export (Peng
and Ilinitch, 2001).�
Managerial Factors – is another internal factor that influences a company’s decision to export
directly or indirectly. If a manager’s attitude is more favorable towards exporting resulting in
a high perception of advantages and low perception of barriers, a firm will show a higher
propensity to directly export (Cavusgil, Tammer and Nevin, 1981) and (Morgan and Katsikeas,
1997).
Conversely, if managers have a lack of market knowledge or high perception of export barriers
and risks, the firm will be more inclined to indirectly export via an export intermediary. The
choice mode of internationalisation is dependent on “the entrepreneur’s prior experience, the
entrepreneurs prior network ties” (Brady and Bearden, 1979)
Brady and Bearden (1979) also infer that managers who have no experience in exporting show
a high propensity to choose an indirect method of exporting. Again this can be explained due
to the high perception of risk and lack of market knowledge due to inexperience. Coviello
(2006) affirms that whatever stage of development a firm is at influences its mode of
internationalisation Firms in earlier stages for development are more inclined to indirectly
export.
Dyer and Handler (1994) conclude that firms that are family ownership orientated are more
inclined to indirectly export to reduce the risks associated with internationalisation. Harris
(1994) concludes that family owned firms show “inherent conservatism and general aversion
of risk”. This is assumed to be due to the sentimental value a family business has to its owners.
1.6.2 External Factors Market Conditions - Brady and Bearden (1979) ague that a manufacturing firm has a higher
propensity to export directly should domestic market conditions be favorable. In particular, if
production costs are low manufacturers have a cost advantage over other exporters to the
overseas market. Reduced cost results in firms choosing to directly export.
19
Bernard, Grazzi and Tomasi (2011) also conclude that firms operating in smaller markets have
a greater tendency to use an intermediary to export. Smaller manufacturing markets tend to be
export orientated due to domestic market limitations. For this reason, high concentrations of
intermediary services are available. Therefore, an indirect option is favorable for smaller
manufacturers.
Schroder et al., (2003) found that overseas market access cost results in a firm’s greater
intention to use an intermediary. If the perceived level of difficulty or cost of operating in an
overseas market is high, then firms will reduce risk through use of intermediary.
Access to Finance - Bernard, Grazzi and Tomasi (2011) conclude that favorable access to
finance for smaller firms results in them showing a higher propensity to use intermediaries
They suggest this may be due to investors and banks providing a connection between
intermediaries and firms.
Although alternative methods exist for exporting a manufacturer may use various methods to
service various markets. Entry modes should not be sacred and dependent on foreign market
conditions. Entry modes should vary to suit these conditions (Albaum & Duerr, 2011).
Terjesen et Al. (2008) observe the choice between direct and indirect exporting as an entry
mode lies fundamentally with what barriers present to entry, transaction cost and level of
control the manufacturer wishes to maintain over the product.
1.7 BARRIERS TO EXPORTING
The barriers and limitations to exporting have been investigated extensively in literature. In
these studies the barriers to exporting are categorised as External and Internal, Bannock,
(1987); Bell, (1997); Neupert, Baugh and Thanh, (2006). Leonidou (2004) affirms that
“external barriers include procedural, governmental and task barriers”. The source of these
can be domestically or from the prospective foreign market. Bilkey (1978) found that lack of
finances, foreign government restrictions, inadequate knowledge of foreign sales practices,
inadequate distribution and lack of foreign market contacts were common problems in
exporting. Leonidou (2004) examined 49 barriers, identified and catagorised them into internal
20
barriers consisting of informational, functional and marketing and external barriers which
consist of procedural and environmental. They were rated in level of impact on the firms, most
already being engaged in exporting functions.
1.7.1 Internal Barriers
Informational Barriers refer to “problems in identifying, selecting, and contacting” (Morgan
and Katsikeas 1997) international markets due to information inefficiencies and the below were
identified as being the three most critical informational barriers to exporting (Leondiou, 2004).
Limited Information to Locate/Analyze Foreign Markets - Having extensive access to correct
information to analyze foreign markets is critical to export success (Welch and Wiedersheim-
Paul, 1980)
Inability to Contact Overseas Customers - Making initial contact with overseas customers acts
as the second most destructive informational barrier to both exporter and non exporters.
(Leonidou, 2004).
Identifying Foreign Business Opportunities – This is the third informational barrier that
Leonidou (2004) found to be of very high impact on a firm’s willingness to engage and expand
through exporting (Albaum and Duerr 2011). However, it was stated that most opportunities
were identified though unsolicited orders from foreign countries or by direction from external
agencies. (Leonidou, 1995; 2004). Its argued that when opportunities are not researched
properly and ‘fall into the lap’ of smaller firms, they are unprepared and uninformed to engage
in the international process.
Functional Barriers to exporting refer to the firm’s capabilities in relation to human resources,
financing and export capabilities. A firm’s structural factors play a large role in facilitating or
inhibiting a firm’s engagement in exporting (Leonidou and Katsikeas, 1996).
Firm’s size - Size can affect a small firms export development process (Reid, 1982). The
principal argument is that size translates to resource availability and a critical factor in
successful internationalization is the need to increase the amount of resources applied to the
internationalisation process (Johanson and Vahlne, 1977).
21
It is said that larger firms will have greater ability to expend resources and manage risks than
smaller ones as well as possessing greater bargaining power, thus making them more likely to
internationalize (Erramilli and Rao, 1993). However, Bonaccorsi (1992) argues that size should
not affect an exporting firm. Once a firm is engaged in exporting it usually results in increased
overall sales. Export sales usually leads to increased availability of resources beyond what is
required to operate an export process.
Suárez-‐Ortega & Álamo-‐Vera (2005) conclude that a firm’s size has a positive effect on export
development and increases a firm’s propensity to export. It is widely debated in literature
whether or not a small firm in possession of a competitive advantage can be a positive factor
when exporting. It is argued that distinctive capabilities (e.g. operating in a niche) positively
influence smaller firms to engage in foreign markets as they tend to cover certain “sunk costs”
that are usually incurred when operating within a distinctive capability (Wiedersheim-Paul et
al., 1978). Cavusgil and Nevin (1981) contested firms competitive advantages alone are not
sufficient to fully initiate internationalisation. In contrast, it is argued that firms who hold
distinct advantages should engage in exporting to reach new markets as there can be limited
domestic demand for their product (Suárez-‐Ortega & Álamo-‐Vera, 2005).
Inadequate Export Personnel - The requirement of personnel experienced in the export process
is of great importance if a firm wants to engage in exporting. Firms often lack personnel who
can manage logistics, documentation and maintain contact with overseas markets The lack of
such personnel can act a barrier to exporting (Leonidas et al, 2004)
Working Capital and Finance - Nummela et al. (2006) argues that finances required for
internationalisation are a key obstacle facing SMEs expanding to foreign markets. Bannock et
al. (1987) hold financial issues are the most significant barrier to SME internationalisation, in
the form of access to credit, cash flow and delays in payments which can dissuade an already
risk adverse small firm from exporting.
Marketing Barriers outlined by Leonidou (2004) and come in the form of barriers in relation
to product specification, pricing in overseas markets and distribution.
Product - Firms can see exporting as a managerial business function and can often overlook
the fact that overseas markets may require a variation of certain products. Firms may not
develop or adapt their product to suit foreign consumers. Another issue is meeting quality
22
standard of overseas markets which can be a large deterrent for firms exporting from less
developed nations. Also firms may not have the means to provide after sale service due to
geographic distance. Consumer taste and habits vary between international markets due to
differences in “topographic and climatic conditions, household size and structure, level of
technical understanding, income level and income distribution, educational standards,
manners and customs, and so on” (Cateora and Graham 2001; Leonidou, 2004). Firms must
adapt operations to satisfy these changes in need of consumers which inevitably incurs extra
cost and export time. (Leonidou, 2004).
Price - Smaller firms identify pricing as a barrier. They often find it difficult to match local
competitors due the extra costs incurred over the export process. This is not a huge issue with
larger firms who can benefit from economies of scale. Credit facilities can also be an issue
because customers being located in overseas markets usually means that the manufacturer and
buyer do not know or trust each other therefore firms find it difficult to offer credit facilities
which can result in loss of customer’s interest. Difficulty in matching competitor’s prices was
identified as one of the most “severe” barriers facing small firms exporting (Leonidou, 2004).
This can be explained by unfavorable exchange rates, poor price strategy, local industry
governmental support or “excessive costs” that comes with transportation and logistics.
Operating in Niche markets allows small firms to compete on “non-price considerations”
(Doole and Lowe, 2001; Leonidou, 2004).
Distribution - Distribution channels vary from market to market. Some distribution channels
can be complex and difficult to access in an overseas market. Obtaining representatives to
manage these channel can also act as a barrier to export.
Managerial Attitudes can act as barriers to exporting and was identified by Axinn (1985) to
be one of the most critical factors that can influence firms decision to engage in exporting.
Bilkey (1978) agreed that some managers “expectations, beliefs and attitudes towards
exporting” play a significant role in influencing firms decision to export.
Aversion to Risk - Bell (1997) affirmed that managements aversion to risk or negative attitude
to unknown markets are the greatest internal barriers to a small firms internationalisation, as
the owner/manager has key influence on international strategies. This works against the small
firms as the decision to export is based on managerial intuition rather then calculated and
researched approach.
23
Lack of Managerial Knowledge – stems from difficulty managers have accessing appropriate
information or where decision makers lack resources and business skills to gather and interpret
the information required to make the most informed and effective decisions on market strategy
and entry mode selection (Morgan and Katsikeas, 1997). Johanson, & Vahlne (2011) s “The
more knowledge firms acquire, the greater their perception of risk.”. Modern global
information platforms give managers access to a much larger source of information, which
results in managers perceiving greater risks as they make strategic decisions based on
incomplete information sets. Some argue that sometimes too much information is available to
owner or decision makers which results in a “Logical, intuitive, and de-structured” decision
processes taking place. (Figueira-de-Lemos et al., 2011)
Education Level - An Entrepreneurs education can be a significant factor (Schlegelmich, 1986).
McConnell (1979) concludes that younger and newly qualified decision makers tend to be more
internationally minded. Younger managers maintained a high propensity to engage in
international activities (Hook, Ralph and Czinkota, 1989).
1.7.2 External Barriers
The classification of export barriers undertaken by Leonidou (2004) identified external barriers
to be stemming from the foreign environment, including foreign rules, regulations, tariff
barriers, and different customer habits. Cateora and Graham (2001) in contrast identified
changes in consumer habit or taste to be a marketing barrier to exporting.
Procedural Barriers include aspects that prevent the ease of payments from overseas markets.
These can come in the form of unfamiliarity of procedures, difficulties in communications and
slow payment processes (Moines 1997; Leonidou, 2004)
Procedural Expenses - SMEs who are first engaging in exporting find that procedure and
unfamiliarity with documentation can give firms a negative attitude towards exporting. Moini
(1997) held that the thought of “excessive cost, time loss and red-tape” are the most
discouraging factors to exporting when it comes to procedures. However, Leonidou (2004)
argued that procedural expenses only account for 7% of total export costs and continues to state
that freight forwarders can be used to handle these procedures at the early stages of
development for reasonable prices.
24
Communicating with International Customers -This can cause a big issue that limits the
effectiveness of an SMEs exporting process. Leonidou (2004) stated that issues can come in
the form of misunderstandings from information exchange, loss of control of activities in
overseas markets, delayed decision making and receipt of inadequate feedback from foreign
market
Environmental Barriers incorporate primarily the economic, political–legal, and
sociocultural environment of the foreign markets within which the company operates or is
planning to operate (Kedia and Chhokar 1986; Moini 1997). These barriers usually are subject
to rapid changes and are very difficult to predict and control. Of these, the highest impact seems
to come from barriers of an economic and regulatory nature.
Strict Foreign Country Rules and Regulations - Foreign governments can impose a number of
controls on companies that sell goods in their markets. These may include; entry restrictions
which delay or restrict the flow of the product in the market; price controls which limit the
firm’s profitability particularly in inflationary economies; special tax rates which increase the
export price of the product in the foreign country; and exchange controls which create
difficulties in sales and/or profit repatriation (Cateora and Graham 2001). Clearly, the diversity
and intensity of these controls may turn the exploitation of export opportunities into a tedious,
expensive, and prolonged task, which deters many small firms from venturing into foreign
markets.
Governmental Barriers include the actions or lack of action taken by foreign and domestic
governments. Firms new to exporting find struggle with unfamiliar export documentation or
government rules and regulations, which can put them of engaging in exporting. (Terpstra and
Sarathy 2000; Leonidou, 2004).
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1.8 “STAGES” MODEL OF EXPORT DEVELOPMENT
Andersson (2000) maintains that a firm’s internationalization is a learning process. It is noted
that use of intermediaries is a step towards more direct forms of internationalization (Lamb and
Liesch, 2002). Brady and Bearden (1979) concluded that small firms that begin exporting
indirectly and over time change to direct exporting show the export development process. This
change in export methods arises from the export development process which occurs in stages
(Bilkey and Tesar, 1977).
Bilkey and Tesar (1977) conceptualized the export development process in which at least six
stages exist on the export development model in relation to managerial attitudes to exporting.
The stages differ in terms of the level of commitment and intensity of the firm to exporting.
The first two stages are common with newer firms who still have growth opportunities in the
domestic market. Stage 1 firms show “lack interest in exporting” and Stage 2 firms will “fulfill
unsolicited orders” from abroad usually by means of intermediaries, however they still have
no intention to invest resources into overseas sales.
Stage 3 “Exploring feasibility of Exporting” warrants greater discussion as firms become more
dynamic in their decision making. It was found that a firms interest in exporting is not
stimulated by expectation of profit but influenced by the perceptions of the competitive
advantages they may possess abroad (Bilkey & Tesar, 1977) Managerial attitudes towards
exporting or managements perception of a foreign markets are the greatest influences for a firm
interested in exporting (Langston and Teas, 1972). It has been suggested that “Stage three of
the export development process seems to be much more nearly a function of managements
general images of exporting and of foreign lands, than of any immediate economic
considerations” (Bilkey & Tesar, 1977).
In Stage 4 of “experimental exportation” the most significant factors influencing firms
exporting involved firms receiving unsolicited orders displaying a large tendency to
experiment with exporting and also the quality and dynamic of management, meaning they
may hire export managers or establish departments to focus on exporting.
26
This stage was also seen as a test stage to see if engaging in exporting could contribute to the
firm’s success. Firms in Stage 4 of the export development model need to make decisions on
export methods to suit the firms strategic goals (Bilkey & Tesar, 1977). It is suggested that
firms may find the use of an intermediary as a method of experimental exporting. Brady and
Bearden (1979) as previously cited state firms with no experience in exporting show a high
propensity to choose an indirect method of exporting. Intermediaries can help to overcome
knowledge gaps, find new customers and limit risks associated with exporting (Terjesen et al.,
2008).
Stage 5 “experienced exporters” make rational decisions based on overseas demand and what
competitive advantage a firm may have in a particular market. Bilkey & Tesar (1977) found
that in this stage of developments performance expectations and perceived barriers influence
the decision making process. It was also concluded that top performing firms in this stage may
have some production facilities in overseas markets, which considerably cut the exporting
costs. It could be inferred that during this stage of export development firms move from indirect
methods to direct methods as Lamb and Liesch (2002) determined that the use of intermediaries
is a step towards more direct forms of internationalization.
Stage 6 in the export development process involved “exploiting export opportunities” far from
domestic markets with production facilities located to cover regional markets. Firms in this
stage exploit multiple export methods depending on which is most cost effective to the market
in question (Bilkey & Tesar, 1977)
Leonidou and Katsikeas (1996) maintain that exporting could be viewed as a learning process,
as firms familiarize them selves with overseas markets and operations they are likely to choose
to take greater risks and explore new markets.
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1.9 CONCLUSION OF LITERATURE REVIEW Ultimately small manufactures have a number of options they can take to export their product
to overseas markets. In selecting their method of exporting they must take in to consideration
a number of factors both internal and external to the business.
Firms must assess their motives for exporting and whether or not their decision to export a
justified and is exporting viable option for the firm or should they use alternative entry modes
of entry. Next it is important to identify what method offers them the highest possibility of
success in overseas markets. They must examine what export methods are suitable for their
product, suit the overseas market and what effect will its managements characteristics have on
their exporting practices. Firms must also realise the effect certain barriers may have on their
export decisions and take necessary steps to overcome these.
For small manufacturing firms, the literature can be perceived to identify the best practice
export method is to initially use indirect methods of exporting. The strongest barriers facing
smaller firms are informational barriers and functional barriers including lack of knowledge of
overseas markets, lack of ability to make overseas contacts and lack of access to capital and
finance. The use of intermediaries to begin exporting allows firms to export their products and
overcome these barriers at a relatively low cost.
The literature also reveals that exporting is a development process. Firms must realise that their
export practices should not be stagnant and remain in one form. Exporting offers firms an
opportunity to learn and develop their business practices. Knowledge spillover from
intermediaries allows firms to understand better exporting procedure, make overseas contacts
and develop an understanding of overseas markets. Once a firm begins exporting with the use
of intermediaries it should make a proactive effort to better understand the process, allowing
them to move towards more direct methods of exporting, which grant them greater control over
their products and are more cost effective in the long run.
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Chapter 2:
Contextualisation
29
2.1 INTRODUCTION
The purpose of this section is to test the literature reviewed based on manufacturers strategic
decisions in export mode selection and implementation. The literature will be tested against
two small Irish manufacturers established in Dublin. The manufacturers will be studied from
their motives to export, factors that enable and inhibit the export process and decisions in
selecting export channels and the method selected. The first company, Vogue Bathrooms
Limited, is a medium sized manufacturer of bathroom fixtures. Information was sourced from
a body literature of primary research carried out on Vogue Bathrooms limited (Muldowney,
2008). The second company Cylon Controls Limited is a manufacturer of building
management systems. Information has been sourced from a number of cases studies (Lachet,
1993) and academic articles (Terjesen, O’Gorman & Acs, 2008).
2.1.1 Vogue Bathrooms Limited (Vogue)
Vogue was established in 1984 as a business based out of Dublin. It had three locations
including manufacturing, storage and retail facilities. The business originally started as a
manufacturer of plumbing materials. The business experienced expansion over the 1990’s and
in 2001 Vogue Bathrooms Limited was incorporated. Vogue acted as a distributor of heating
and bathroom fixtures as well as a manufacturer of own brand bathroom furnishings. Vogue
began exporting to the UK in 2004 (Muldowney, 2008).
Vogue manufactured bathroom furnishings and supplied their own brand to the UK and Irish
markets. The company employed 32 people and 20% of its turnover was derived from
international activities up until 2012 . The company was dissolved in 2012. The company’s
purpose was described to manufacture and retail affordable luxury bathroom fixtures
(Muldowney, 2008).
2.1.2 Cylon Controls Limited (Cylon)
Cylon Controls Limited provides building management control systems (BMS) to a global
market. The company manufactures and markets systems to control buildings temperature,
ventilation systems and energy conservation equipment. Cylon building and energy control
30
systems have been installed in Europe, North America, Asia, the Middle East and Africa
(Cylon, 2013).
The company provides building energy control systems to commercial facilities, colleges,
hospitals, schools, health and fitness centres and industrial housing. Cylon has a competitive
edge over its competition as its systems are designed to be easily upgraded even 10 years after
initial installation. Cylon also promises to provide the correct control system fine tuned to
client’s requirement (Cylon, 2013).
Cylon was established in 1985 by John Byrne, Sean Giblin and Naveen Goswami, all graduates
of University College of Dublin (UCD)’s school of engineering. While studying at university
the trio developed a timing application that was intended to control energy use in building
systems. The potential behind their application was realized by UCD and Enterprise Ireland.
The graduates received financial backing to develop the timing application further from both
organisations which funded further research and development. resulting in the production of a
number of prototypes. In continuing the support UCD had the first operational prototypes
installed in a number of new buildings on the UCD campus in Belfield Dublin (Lachet, 1993).
The three engineers then developed a commercial product and established the company which
operates in the niche market of Process Control and Instrumentation Sector. Cylon’s first client
was a Multinational Enterprise with its European headquarters in Ireland (Lachet, 1993).
The three engineering graduates found themselves under-experienced and lacking in marketing
and financial know how to establish and run a successful operation. In order to overcome this
barrier, the three decided that the use of a domestic intermediary would help them to overcome
their lack of market knowledge. The company found an already established intermediary with
experience and credibility in the niche sector. In 1987 Cylon established a distribution deal
with ABB. It was agreed that ABB would manage the distribution of Cylon’s new system, but
only in servicing the Irish market. However, the ABB deal was not the only distribution
agreement Cylon arranged. It also made several other agreements to have Cylon's timing
control system distributed in Ireland (Lachet, 1993).
Peng and Ilinitch (1998) affirmed that SMEs lacking in market knowledge and resources
looking to export can benefit from using intermediaries. Cylon, interestingly, due to the nature
of the industry and probably its management inexperience, used intermediaries to distribute its
product in the domestic market.
31
2.2 MOTIVES FOR EXPORTING
In small economies the size of the domestic market can be a motivator for small manufacturers
to export overseas (Albaum et al., 2011; Czinkota et al., 2001). The principal motivator for
Vogue to engage in exporting was limited domestic market opportunity. This was also a
prominent issue for Cylon as it is in many cases influencing firms to internationalize from
Ireland. To put it into perspective for Cylon it was estimated that in 1992 the domestic market
accounted for 1% of the entire European market for BMS. For both companies the limited size
of the Irish market was a key motivator to export (Lachet, 1993).
Managing Director Conor Whelan also acknowledged that Vogue was profitable in 2004 and
had the excess capacity which acted as an encouraging factor to engage in internationalisation
which was affirmed by Czinkota et al. (2001).
Another influencing factor to export for Vogue was the receipt of a number of unsolicited
enquires from the U.K., which they failed to fulfil. However these unsolicited orders acted as
an incentive to export to the U.K. as its first overseas markets (Muldowney, 2008). Czinkota
et al. (2001) concluded that firms receipt of unsolicited orders from abroad will eventually
motivate a smaller firm to export to markets from which they receive unsolicited orders.
The three entrepreneurs in Cylon, from the outset, had internationalization in mind, John Byrne
was quoted (Lachet, 1993).
we only ever saw Ireland as a stepping stone to get started, we never based our company on
doing business in Ireland alone … We wanted to be the leading BMS firm in Europe by 1994,
but we knew we couldn’t get there on our own
Albaum and Duerr (2011) maintained that managerial or decision makers attitudes towards
exporting are key to whether or not a firm will engage in exporting. Cylon’s management from
the offset showed favorable attitudes to exporting.
On a manufacturing level Vogue were experiencing increased levels of competition in
bathroom fixtures from UK manufacturers. The increased level of competition from overseas
manufacturers and the fact that Vogue’s two main competitors had begun exporting to the U.K.
were influencing factors in Vogue’s decision to also engage in exporting. Vogue’s decision to
32
enter into the U.K. market was influenced by a number of factors. Due to internationalisation
Vogue experienced a growing level of competition from foreign companies entering the Irish
market. From a the domestic distribution aspect Vogue Bathrooms Ltd experienced increased
levels of competition from distributors sourcing products from cheaper manufacturing markets
like China. Director of Vogue Conor Whelan states “I would bet that any distributors worth
their salt are going to the far east for more competitively priced products” (Muldowney, 2008).
Czinkota et al. (2001) highlights that competitive pressures play a role in a firm’s decision to
export. Vogue was experiencing increased levels of competition from foreign competitors in
the U.K. which acted as a motivator to export to the U.K. market.
2.3 EXPORT METHODS Vogue and Cylon operate in very different sectors. Cylon operates in a high tech manufacturing
sector developing and manufacturing building energy management systems whereas Vogue
specialized in manufacturing bathroom furnishings. Bradley (2005) maintains that when a firm
is deciding what export method they want to use, they must, among other matters, assess the
level of resource commitment they can make to internationalization and what degree of control
they wish to maintain over their product.
Bradley (2005) argued that the nature of the product plays a large role in the decision.
Commodities or mature products which are easily understood (which would apply to Vogue
products) are easily and often exported. Vogue initiated its exports to the U.K. in 2004 and
after the first four years international sales accounted for 20% of turnover. Vogue selected
direct exporting to U.K. retailers as their mode of entry. The retailers acted as customers in
taking ownership and rights to distribution of the Vogue products in the U.K. market
(Muldowney, 2008).
In contrast Bradley (2005) argues that manufacturers producing goods that require greater tacit
knowledge and after sale services may use alternatives modes of entry other then exporting.
Interestingly Cylon who produce a complex product, which requires a level of expertise when
transferring the product to the customer, identified the use of intermediaries as the best solution
to export their product to overseas markets. They sought out already established firms
33
providing BMS in overseas markets, and decided to distribute their product through these
credible firms. Cylon decided to internationalize by acting as a supplier to distributors who
typically re-branded the products under their own ‘badge’ (Lachet, 1993).
2.3.1 Vogue Export Methods Albaum and Duerr (2011) illustrate direct exporting to include a manufacturer selling to an
importer or a buyer in a foreign market area, thus the transaction happens between two
independent organisations in separate markets. Vogue’s export method selected was to export
directly to U.K. retailers who would take ownership and rights to the products. After the sale
was complete Vogue. would pass ownership on to the U.K. retailers, who would take
responsibility for marketing, retailing and distribution in the U.K. market.
Czinkota et al. (2001) maintain that competitive pressures can also act as a motivator for
smaller firms to export, which in turn can be cause by the limited opportunity of the domestic
market. The size of the Irish domestic market was seen to be a factor that influenced Vogue to
export to the U.K.. Bernard, Grazzi and Tomasi (2011) held that in smaller markets small firms
have a greater tendency to use an intermediary due to high availability of export services,
however this was not the case with Vogue as the barriers to exporting to the U.K. were not very
restrictive and they were enabled to directly export instead (Muldowney, 2008).
Vogue established a “built-in” export department to manage international sales. Albaum and
Duerr (2011) maintain that this is a suitable method of export management for small firms with
limited resources. It was also highlighted in the literature that “built-in” export departments
rely greatly on the appointed manager of the department. Vogue recognized the importance of
export management and hired an export manager whose duties included international activities,
sourcing new customers, and servicing overseas markets. The internet was identified by Vogue
as being under utilised and was developed as a mechanism to service direct export to the U.K
(Muldowney, 2008).
With excess capacity available and ease of transportation and communications between Irish
and U.K. markets the use of a third party intermediary may have been considered unnecessary.
34
Bradley and Gannon (2000) highlights that a firm must realise the importance of market
strategy when deciding to export. Vogue followed a market concentration strategy, focusing
greater level of resources on a single market, which allowed Vogue to maintain control over
their product and establish better relationships with their customers (Muldowney, 2008).
Vogue also rely on the internet as a tool to reach customers in the U.K. When their new export
manager joined the Vogue team he highlighted the importance of ecommerce in connecting
with overseas customers. An interesting note that owner Conor Whelan identified was that the
Irish market was a lot less responsive to purchasing online (Muldowney, 2008). Czinkota and
Ronkainen (2007) maintain that a key element in direct exporting is exploiting the use of
ecommerce on an international basis
2.3.2 Cylon Export Methods
Terjesen et al. (2008) suggests that the use of foreign Multinational Enterprises (MNEs) as an
intermediary to gain access to foreign markets is a recognized form of entry to an export
market. Smaller manufacturers export to MNEs in overseas markets and benefit from already
established infrastructure, distribution and market contacts.
Cylon entered the UK through a UK BMS company, Landis & Gyr, which was a supplier to
their Irish distributor ABB. Landis & Gyr. agreed to distribute Cylon's timing application,
however as part of the deal Cylon’s product was sold under the Landis & Gyr name and Landis
& Gyr reserved the rights of sale of Cylon’s products in the United Kingdom and Cylon gained
from Landis & Gyr. distribution to a number of overseas markets simultaneously (Terjesen,
O’Gorman & Acs, 2008). Interestingly Albaum and Duerr (2005) states that indirect exporting
occurs when a manufacturer uses an independent intermediary located in the the domestic to
organise the export process. However in the Cylon case they use an independent intermediary
in a foreign market, who organises the export process to other overseas markets.
The distribution deal showed immediate effects, when after the first year of exporting to the
U.K. market, Cylon’s turnover increase by 700% to €800,000. Cylon, to encourage growth,
invested 20% of all turnover back into research and development. Cylon continued to seek
other international distributors, however four years after the deal with Landis & Gyr., over 65%
of Cylon’s revenue was came from its U.K. distributor (Terjesen et al., 2008).
35
Johanson and Wiedersheim-Paul (1975) explain when comparing indirect to direct modes of
exporting, the use of intermediaries involves less resource commitment. Cylon decision to
export indirectly was influenced by its difficulty in committing resources to achieve direct sales
to overseas.
Cylon’s founders felt that reduced costs in marketing and development of infrastructure as well
as reduced risk were major factors in the decision to use intermediaries. Terjesen et al.
(2008) confirmed that the use of an intermediary can have associated advantages of reducing
risk, uncertainty and costs when exporting (Terjesen et al., 2008).
Brady and Bearden (1979) also infer that if a firm has no experience in exporting it may opt
for indirect exporting. Cylon, only distributing their control system in Ireland, had no
experience in exporting or overseas markets. The entrepreneurs were aware of their lack of
experience and foreign market knowledge when deciding to sell through an established firm.
The directors at Cylon realised soon after establishing their distribution arrangement with
Landis & Gyr, that while their control systems timing application was performing well in a
number of overseas markets, in order to continue growing it would have to develop a new
complete control system capable of controlling all sizes of building from a high rise office
block or a single level retail outlet. As apposed to producing a singular component of a building
management system, they wanted to develop an entire control system that could compete with
their distributor in the U.K. directly. Developing such a product would give Cylon a much
greater potential customer base (Terjesen et al., 2008).
Terjesen et al. (2008) declares that smaller firms who export through MNE intermediaries
operating in the same industry can benefit from knowledge spillover and various market
contacts. The Cylon founders explained that a major motivator to use an intermediary was the
ability to attract future foreign clients. They also expected to benefit from the reputation that
they gained from being connected to a well established MNE.
Czinkota et al. (2001) indicate that semi-state bodies, financial institutions and trade
associations, given their level of support can profoundly influence a firms decision to start
exporting. In 1989, with funding from state development agencies promoting indigenous
exporting, Cylon completed a new software interface that was compatible with Microsoft
36
windows. Although Cylon were already exporting through an intermediary in the U.K., this
financial support allowed and motivated them to intensify exporting and move to the next stage
of the export development process.
In 1992 Landis and Gyr acquired ownership of a US based company producing a similar timing
control product to Cylon. Due to the nature to its agreement with Landis & Gyr., Cylon’s access
to overseas markets was limited to the U.K. and Switzerland. Landis & Gyr. began sourcing
the similar product from their newly acquired US company and drastically reduced its orders
from Cylon (Terjesen et al., 2008).
A year on the directors of Cylon recognised that they would have to reach a deal Landis & Gyr
which would get them out of the distribution agreement without being too damaging to the
firm’s future prospects. The company renegotiated the distribution deal with Landis and Gyr
and established agreements with intermediaries with in Italy and Germany. They reduced
turnover dependency with Landis and Gyr to 20% and decided, going forward that no customer
would be responsible for over 20% of the company’s turnover, which put Cylon in a better
position of control (Terjesen et al., 2008).
Growth in new customers rocketed as the company was now trading under Cylon Control
Limited and its products were branded the same. All customers they were previously losing to
Landis & Gyr. were now coming straight to Cylon as direct customers which the owners
maintain was due to the level of innovation and quality of the product they were producing
(Terjesen et al., 2008).
As cited in the literature Andersson (2000) maintains that a firm’s internationalization is a
learning process. It is suggested that use of intermediaries is a step towards more direct forms
of internationalization (Lamb and Liesch, 2002). Cylon established a foreign sales branch in
the U.K. with a managing director, technical director and secretary. Cylon at the time employed
20 people in the UK and sales reached the equivalent of €1.6 million annually. Albaum and
Duerr (2011) found that as sales increase in a certain overseas market a foreign sales branch
may be established to manage the market (Terjesen et al., 2008).
In reviewing the case, Cylon’s use of intermediaries as a method to engage international
markets a number of drawbacks become apparent. Blomstermo, Sharma, & Sallis, (2006)
37
identify loss of control when a firm uses an intermediary as a key issue if firms choose
intermediary exportation.
In the case of Cylon we get an insight into how larger MNEs can leverage their size and power
over a smaller firm in the intermediary dealings. Prior to signing the deal Landis & Gyr. had
insisted that Cylon expand its capacity, which required it to seek additional financing and move
premises (Terjesen et al., 2008).
Cylon experienced a loss of control in a number of aspects from the outset of the agreement.
Cylon were restricted from sales to the U.K. markets unless they went through Landis & Gyr.
The directors also described how when expanding to other European markets they were limited
to markets that would not compete with Landis & Gyr’s exports. They then suffered greatly
when Landis & Gyr. procured a U.S. firm producing a competitive component to Cylon’s
product which resulted in their restriction to sales in only two European markets (Terjesen et
al., 2008).
This ultimately led to Cylon having to negotiate out of the export distribution agreement, no
doubt at a cost, in order to continuing growing. The level of control Landis & Gyr. maintained
throughout the relationship was significant. Williamson (1985) argues that manufacturers and
export intermediaries can develop trust issues. This is apparent with Cylon as over time the
entrepreneurs felt that the relationship was undesirable and Landis & Gyr. had become
overpowering and self-interested in the agreement.
By the late 90s Cylon was considered by some to be the largest privately owned manufacturer
of BMS products in Europe. However, the goal of the founders was not to be market share
leader, their mission is to be leaders in product concepts and design (Terjesen et al., 2008).
38
2.4 BARRIERS TO EXPORTING Informational barriers identified by exporters include Limited Information to Locate/Analyze
Foreign Markets, Inability to Contact Overseas Customers and Identifying Foreign Business
Opportunities (Morgan and Katsikeas 1997; Leondiou, 2004).
Vogue found that its knowledge of foreign markets and ability to identify customers abroad
was limited. However Vogue at the time were highly profitable and had the excess resources
to establish an export department. These barriers were easily overcome by hiring an
experienced export manager. Vogue had apprehensions about expansion to further markets due
to informational barriers. Its export manager was experienced in the U.K. market so that was
identified as a significant asset in engaging in exporting (Muldowney, 2008).
As explained earlier the three engineering graduate founders of Cylon found themselves under
experienced and lacking in marketing and financial know how to establish a significant
international operation. In contrast to Vogue, Cylon overcame this barrier through the use of
an intermediary they could help them to overcome their lack of market knowledge.
Vogue and Cylon used different export methods in order to overcome similar barriers. This
may be explained due to the differing nature of their products they manufacture. Bernard,
Grazzi, and Tomasi (2011) believed commodity orientated products such as Vogue’s bathroom
fixtures that do not require high levels of tacit knowledge to sell were suited to direct exporting.
Vogue had the ability to use more resources and could take greater risk by directly exporting.
Due to the technical nature of the product Cylon was producing, making foreign market,
contacts and lack of foreign market knowledge were identified as significant barriers to
exporting.
Peng and Ilinitch (2001) highlight if a firm manufactures more complex goods, where the
transaction process requires special or custom modifications to suit the overseas market or
customer, or the requirement of specific knowledge to identify customers, the firms are more
likely to directly export. However, in Cylon’s case the owners lack of resources and markets
knowledge were too great and the use of a MNE Intermediary to export their product was the
most viable option.
39
Functional Barriers, which are common place among small manufacturing firms, were
identified to be firm’s size/ limited resources, inadequate export personnel and lack of working
capital and finance (Erramilli and Rao, 1993; Leonidas et al, 2004; Nummela et al., 2006)
Vogue did not experience difficulty with functional barriers. However the firms limited size,
meant it experienced management time shortages from exporting to the U.K.
Management time shortages were noted as one of the most significant barriers, in that
management found it difficult to service the international markets over domestic market
commitments. Mr. Whelan commented that with 80% of revenue coming from domestic
markets, it was important not to neglect the it. He emphasised the importance of overseas
expansion, however “growth on the export side takes time” (Muldowney, 2008). The result
was that Vogue could not dedicate as much resources to exporting as was needed without
sacrificing resources already focused on domestic markets.
Cylon’s founders began to consider internationalization, however it had 4 employees and
finances valued to approximately €100,000. They realised that access to finance was a critical
issue if Cylon wished to engage in international markets (Terjesen et al., 2008). These barriers
to exporting were very strong with Cylon but the Intermediary export method allowed for a
firm of small size, with limited resources and finances access international markets with
relative ease.
Cylon’s directors experienced functional barriers on multiple levels throughout the export
development process. Bilkey and Tesar (1997). When establishing themselves in overseas
markets they experienced all of the above barriers, however, again their decision to indirectly
export helped them to overcome all functional barriers.
After Cylon exited its agreement with Landis & Gyr. it began to manage its own exports,
however, it continued to export using intermediaries as distributors globally. Cylon found that
it still lacked adequate personnel to manage the international exports (Erramilli and Rao, 1993).
Cylon in order to control sales in Europe hired a European Marketing Manager whose addition
to the company was invaluable according to the founders. The new European marketing
manager changed the strategic direction of the company, marketing a product that could be
sold worldwide (Terjesen et al., 2008).
40
Following the appointment of the new marketing manager Cylon signed distribution
agreements in Norway, Sweden and France. A restructuring took place resulting in the
establishment of a technical support department to service customer care and a marketing
department (Terjesen et al., 2008) which allowed for a better system of servicing client needs,
which is an expectation that customers have with Smaller sized manufacturers over larger
multinationals which is, “a higher level of service orientation and cooperate responsiveness”
(Czinkota, 1996).
According to Leonidas (2004) small exporters can experience marketing barriers in the form
of price differences, requirement of product modifications or distribution barriers. Director of
Vogue, Mr. Whelan, identified similarities in product specifications as an incentive to export
to the U.K. market, however he identified that further expansion to other European markets
may require modifications to products.
2.5 STAGES EXPORT DEVELOPMENT MODEL Bilkey and Tesar (1977) conceptualized the export development process in which at least six
stages exist on the export development model. Elements of the model are visible in both the
cases of Cylon and Vogue.
Vogue can bee seen to follow the export development process proving the model. Stage 1
involves firms concentrating on domestic market. Stage 2 follows in which firms receive yet
do not fill unsolicited orders from overseas markets. In following Bilkey and Tesar (1977)
model Vogue’s director described how their interest from exporting came from receipt of
unsolicited orders. They then followed the model by investigating the viability of exporting to
the market they received unsolicited orders from.
In the 4th stage of “experimental exportation”, the most significant factors influencing firms
exporting in this stage, showed that firms who received unsolicited orders had a large tendency
to experiment with exporting and hire or appoint export specialists to explore the potential in
exporting. It can be argued that Vogue were operating in this stage. Director Conor Whelan
explained that although 20% of sales were coming from overseas markets, they were still
focusing main resources on domestic markets and he acknowledged that the exporting process
was experimental and would take some time to grow.
41
With the development of Cylon exporting process stages 1 – 3 of Bilkey and Tesar (1977)
export development model do not apply. From the outset the three founders of Cylon knew that
the domestic market could not support their industry. The export development model is based
on managerial attitudes to exporting. It is clear that if a company manager’s intention is to
export from the outset, the early stages of the model do not apply. It is also the case that if a
firm operates in a specific type of sector, like Cylon, internationalisation can be a strategic goal
from the outset (Brady and Bearden, 1979).
As soon as they had established manufacturing facilities and a domestic subsidiary for
distribution. Brady and Bearden (1979) argued that small firms that begin exporting indirectly,
over time change to direct exporting as they learn.
Cylon began with using the U.K. distributor Landis & Gyr. to indirectly export their product
to the U.K. and other overseas markets. Based on Bilkey & Tesar (1977) at this stage they were
operating in the 4th stage of “experimental exportation”. Terjesen et al. (2008) held that at this
stage of a small firms export development intermediaries can help to overcome knowledge
gaps, find new customers and limit risks associated with exporting.
As referenced in the literature Stage 5 “experienced exporters” make rational decisions based
on overseas demand and what competitive advantage a firms may have in a particular market.
Cylon realized that they could develop a product that could compete or outperform Landis &
Gyr. In recognizing this as well as a relationship breakdown with their intermediary MNE,
Cylon exited its agreement with Landis & Gyr. and sought to export directly to overseas
markets. Cylon signed distribution agreements in Norway, Sweden and France (Terjesen et al.,
2008). A restructuring took place resulting in a technical support department to service
customer care and a marketing department which allowed for a better system of servicing client
needs, which is an expectation that customers have with smaller sized manufacturers have over
larger multinationals which is, “a higher level of service orientation and cooperate
responsiveness” (Czinkota, 1996). Due to the nature of the industry Cylon adopted a
diversification strategy when expanding their exports, Bradley (2005) highlighted this benefits
firms as it reduces dependence on a single market.
It could be inferred that during this stage of export development firms move from indirect
methods to direct methods as Lamb and Liesch (2002) determined that the use of intermediaries
42
is a step towards more direct forms of internationalization. Cylon arranged a distribution deal
with a company based out of Singapore which allowed them to produce a branded control
system to export directly to Singapore which had been agreed with their European distributor
ABB. Now Cylon were producing their own product for the Asian market but they had to figure
out the correct distribution channel (Terjesen et al., 2008).
Bilkey and Tesar (1997) found that in this stage of development performance expectations and
perceived barriers influence the decision making process. Cylon’s growth continued over the
next decade establishing distribution agreements in countries around the globe where it was
acting as a supplier producing unbranded BMS for distribution, except in the U.K. where they
established their own distribution and sales center now competing directly with Landis and
Gyr. Cylon has established foreign sales branches in a number of European cities and a
distribution network for “Approved Cylon System Integrators” (Terjesen et al., 2008). Bilkey
and Tesar (1997) found that in this stage of developments performance expectations and
perceived barriers influences the decision making process.
Bilkey and Tesar (1997) also concluded that top performing firms in this stage have some
production facilities in overseas markets, which considerably cut the exporting costs, however
this was not the case with Cylon in the UK, Cylon established its own distribution, although
over time it found that this was too expensive and closed the office (Terjesen et al., 2008).
Cylon arranged a distribution deal with a company based out of Singapore which allowed them
to produce a branded control system to export directly to Singapore which had been agreed
with their European distributor ABB (Terjesen et al., 2008). Trabold (2002) maintains some
transactions would not be able to take place in a direct form, due to geographic differences and
intermediaries allow this to happen. As mentioned previously now Cylon were producing their
own product for the Asian market but they had to figure out the correct distribution channels,
the further use of intermediaries may be required to tap into the manage successful expansion
to the Asian market. Albaum and Duerr (2011) also highlight that distribution channels can be
very different from market to market, which may cause Cylon trouble in the future as the Asian
market may differ greatly from the European.
43
2.7 CONCLUSIONS AND RECCOMMENDATIONS In reviewing the literature, I identified the use of an intermediary as best practice export method
for small manufacturing firms looking to internationalise. However, in concluding the
contextualization it is apparent that this may not always be the best possibility for firms. Best
export practice can be majorly influenced by a number of factors relating to the firm.
A firms initial motives to export can play a role in deciding which export practice is operated.
Managerial motives have a great impact in both cases export decisions. Vogues management
were interested but not fully invested in the export process. It was mentioned that their
predominant focus was on the domestic market and they were exporting to the UK on a fraction
of what was possible. The management decided to directly export to a large consumer (retailer),
handing over control of sales and marketing of their products to their UK customer.
In contrast, Cylon from the outset were fully invested in the export process and Ireland only
played the role of helping to establish the firm. For Cylon, best export method was to use
intermediaries to export their product, which allowed them to access multiple markets all over
the world. Motivation to export can influence the level of intensity and resources a firm will
apply to the export process, in turn it will select the method of exporting which allows the firm
to export its products to the level it desires.
It was also discovered that the nature of the firm can influence what practice is most suitable
to the export requirement of a firm. Market conditions and can the nature of the industry play
a role in the export decision. Ireland being a small market place influenced firms to export.
More so the nature of the product can effect and export method. Vogue produced products with
relatively low level of tacit knowledge, meaning they could directly export to a large consumer
without the requirement to provide an after sale service or the need to identify specific
customers. Alternatively, Cylons product required a high level of tacit knowledge, carrying
with it a prerequisite to identify specific customers in overseas markets. By using MNE
Intermediaries to export their products to other EU markets, they can benefit from the
intermediaries overseas contacts and provide a knowledge based service to them, which would
be unlikely should they have attempted to directly export their product.
Firms size and access to capital and finance also influence what export method is most suitable
for a specific firm. Vogue did not suffer from issues when deciding to export allowing them to
invest easily in a more direct method of exporting. Vogue was a newly established firm and
44
was indeed lacking in capital and financial resources in order to export. Again Landis & Gyr.
allowed the small manufacturer to overcome traditional barriers as they could benefit form the
intermediaries already established sales and distribution channels, reducing the cost of the
exporting significantly.
Small manufacturers looking to export are subjected to a multitude of barriers. In the case of
Cylon Intermediaries provided a method to overcome a number of these perceived barriers,
however it is not to say that it does not come at a price. Apart from the cost of using an
intermediary, firms are exposed to a number of downsides including lack of control of their
product, intermediaries becoming overpowering and risk of break down in relationships. In the
case of Cylon, their MNE intermediary used their controlling position over Cylon to limit their
competitiveness in the BMS industry, restricting their product sales to two European markets
and ultimately resulting in a breakdown of the relationship. Cylon exited the agreement with
their intermediary, however at an undisclosed, yet assumed to be, costly price.
In both cases Vogue and Cylon follow exports in a development process. Although they engage
in exporting at a different level of intensity and follow different stages of export development,
for both firms exporting presents itself as a learning process. It is apparent that managements
decision making and characteristics have the most significant impact the export development.
In both cases managements orientations and attitudes to exporting, influence the impact and
success of the export process.
To conclude this research, I have a number of recommendations for small manufacturers in
deciding what export practice to adopt. Firstly, the method of export chosen as previously
stated is largely influenced by factors specific to the firm, the sector and the market of
operation, however I feel that use of intermediary to establish export channels for small
manufactures are the best practice to begin exporting to overseas markets. However, it is
recommended that firms do not become over dependent on their intermediary and take action
to develop an understanding of the export process though their intermediary.
Secondly, from my research, export success regardless of what method selected is greatly
influenced by management of the firm. I recommend that firms ensure they have the right
personnel motivating, developing and managing the export process.
Finally, it is of great importance that firms realise that exporting is a development process and
not just a business activity. It is important that firms do not stay stagnant in their export methods
45
and continuously look to grow and develop by adopting new or additional forms of export and
entry to multiple overseas markets, this is the key to export success.
46
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