For well over a decade asian countries has been a powerful engine of the global economy, regularly posting high single-figure or even double-digit annual increases in GDP. For a long time, asian companies had the reputation for being shameless copycats of Western products. Today they are pushing the frontiers of innovation. For international businesses interested in the asian markets, the biggest difficulty is how to address the complex dynamics between cultural, social, political and economic factors.
How to start up a foreign subsidiary
Sara Borggren and Fredrik Uggla Strahl wrote a Master’s Thesis at KTH Executive School exploring how Swedish SMEs acquire and manage knowledge when starting a wholly owned foreign subsidiary. They went to Singapore thanks to the generosity of Bo Casten Carlberg’s scholarship fund to conduct a case study on Swedish information and communications technology (ICT) firms that have started a wholly owned foreign subsidiary in Singapore. Seven firms were selected, where interviews with people in management positions provided empirical data. They met representatives from Accedo, Monitor ERP System, Djenee, Westermo, Polystar, Netcom and Optimity.
External recruitment of personnel – the source to market knowledge
The findings regarding acquisition of knowledge were that market knowledge was most commonly acquired through external recruitment of personnel, followed by acting on the market. Market analysis on the other hand was rarely used. Finally, technological knowledge was most often recruited internally in the organization.
The findings regarding managing knowledge were that it was mainly shared through informal interaction between people. Documentation was rarely used to store knowledge due to lack of time and resources. Instead firms relied on knowledge being stored in people and low personnel turnover. An unexpected recurring theme in the interviews was the positive impact of culture on the ability to manage knowledge.
Market research seldom used – mistake or not?
The implications of this study are multifaceted. Firstly, ICT SMEs looking to start a wholly owned foreign subsidiary will be encouraged to take this step in an earlier stage. They will see previous examples who discredit the value of extensive and expensive market research, instead proposing experiential learning and to dare to make a leap. Furthermore, they will realize the importance of market specific knowledge when starting their wholly owned foreign subsidiary, increasing the likelihood of them recruiting this knowledge to succeed in their struggles. They might also attempt to create, transfer and store knowledge in a systematic way knowing how its value is reaffirmed in this study. Still they will be aware that while most in this study recognized the importance of documentation, they could not spare the time to do so.
Learn how to start and manage you business
Not understanding the market is the most common reason why Western businesses fail to capitalize on the huge potential in asian markets. KTH Executive School have designed a training for management in businesses with operations in China. The purpose is to provide a profound understanding of the dynamic, diverse and challenging Chinese market in order to better develop, manage, control and support Chinese operations. In short – this training will help you to do better business in China!
Read the master thesis here or read more about the training here.