Internationalisation Of Digital Media Companies

EuroPrix Scholars Conference 2002
Tampere

Internationalisation of the Finnish digital media industry -
challenges and experiences

November 15, 2002

Tommi Pelkonen
pelkonen@hkkk.fi
Helsinki School of Economics


• Background for the analysis
• Theoretical approach to Internationalisation
• Digital media industry - what is that?
• Digital media industry in Finland
• Internationalisation patterns in the Finnish digital media industry
• Conclusions

This presentation is based on thorough desk and field studies

• The background for the study
– Helsinki School of Economics and Business Administration & LTT-Research Ltd.
Interactive media group
– University of Design and Arts Helsinki&Culminatum Oy
Interactive media competence centre

• Main objective of the study was to analyse the internationalisation patterns on professional
business services:
– To identify the Finnish digital media industry and its potential for internationalisation
– To analyse the digital media industry's internationalisation patterns in both company and industry
levels
– To analyse the digital media industry's business network, its structure and its dynamics

• Initial study was carried out in two phases during 1998-99
– Currently we are updating the analysis and new results will be published early 2003

Industry & client surveys, structured interviews and in-depth case
studies were carried out

• Twelve company interviews (autumn
• Basic Facts’ Collection (autumn 1998) 1998)
– Through public registry analysis and
identification
– Digia Oy / Pekka Sivonen
– Basic facts collected from chosen – Grey Interactive Oy /Antti Romppainen
companies (N=355 kpl) via e-mail or by – Icon Medialab Finland /Alex Nieminen
phone
• Industry & Client Survey (autumn 1998) – Interaktiivinen Satama Oy / Janne
– Digital Media Companies:
Ruokonen
WWW-Survey, sample 93 companies, 72 – Nedecon Oy / Jesse Jokinen
answers (78%)
– Netmill Oy / Jari Ala-Ruona
– Digital Media Company Clients:
WWW-Survey, sample 28 large digital – Partner Group Oy / Olli Heikkilä
media clients, 20 answers (71%) – Tietovalta Oy / Mika Uusi-Pietilä
• Two case studies (autumn 1999)
– Quartal Interactive Oy / Aarne Aktan
– confidential information
– one design and one technology-oriented – Terranova Visuals Oy / Kari Happonen
digital media company – To The Point Oy / Tatu Kuivalahti


• Conclusions

Companies have multiple reasons for international activities.
International operations have to create benefits to the actor

Proactive reasons Reactive reasons
• Profit adv antage • Com petitive pressures
• Unique products • Ov erproduction
• Technological advantage • Declining domestic sales
• Exclusiv e information • Excess capacity
• Managerial commitment • Saturated domestic markets
• Tax benefits • Proximity to customers and ports
• Economies of scale

Macro-factors Micro-factors Milli-micro-factors
1. Push factors • Economies of scale • Endurance of risk and uncertainty
• Smallness and openness • Benefits from specialisation • High level of personnel learning
of domestic markets • Covering R & D expenditure • High level of internationalisation in
• Periferic location • Utilising global possibilities personnel
• Benefits from integration of • Personnel's motivation for interna-
1. Pull factors foreign operations tionalisation
• Large size and openness
of international markets 1979
Source: adapted from Luostarinen,

Source: Czinkota & al. 1996, p, 403, Luostarinen, 1979

The three key elements form a complex relationship network

Actors
-at different levels -from individuals to
groups of companies
- aim to increase the control of the
Actors control network

resources; some Actors perform
alone and others activities. Actors
jointly. Actors have a certain
have a creating knowledge of
knowledge of activities
resources
Business
Network
Resources Activities
-heterogeneous -transformation act
-human and physical -transaction act
-Interdependant Activities link -activity cycles
resources to -transaction chain
each other.
Activities change
or exchange
resources
through use of
other resources

Key target for a company is obtain a dominant position
Source: Hokansson & Johansson, 1992 in its business networks

Network internationalisation theory bases on different situation in
the markets and in the firm

• Network Internationalisation modes
– by international extension, i.e. through
Degree of Internationalisation of
establishment of positions in relation to the market
counter-parts in national net that are new / production network
to the firm Low High
Degree of Low The Early The Later
– by penetration, i.e. developing the positions Internationalisation Starter Starter
and increasing resource commitment in of the firm
High The Lonely The
those nets abroad that the firm has already International International
positions in Among
Others
– by international integration, i.e. increasing
co-ordination between positions in Source: Johansson & Mattson. 1988, p.202
different national nets
• Leads to different “situations”

”The firm establishes and develops positions in relation to
counterparts in foreign countriesquot;:

The new “born global” companies are dependant on their network
relationships
Traditional Firm Born Global
(Established) (Start-Up)
Resources • Developed gradually • Limited
• Resources build into the • Resources accessed via networks
organisation • Dependence on outside resources
Internationalisation • Gradual commitment • Utilisation of hybrid modes
Strategy • Formation of stable units • Dependence on networks
• Thorough and • Client followership to new markets
conservative planning • Fast and intense extension
• Highly dependent on the experiences of the
entrepreneur
Industries • Industrial manufacturing • High tech companies
• Professional Services
Markets • Experiences in domestic • Operations are directly planned to
markets are utilised in international markets, no domestic learning
international markets
Theoretical background • Stage models • Network models
Situation in the Network • Early Starter • Late Starter or International among others
model

Source: adapted from Madsen and Servais, 1997

Traditional internationalisation considerations and issues

1) Target Customers:
Who buys the product? Who uses the product? How is the product used? Where is the product
bought? Why is the product bought? When is the product bought?

2) The Macro-environment:
Geography, climate, economic, socio-cultural, political/legal factorsc)
Governmental:regulations, tariffs, labelling, patents/trademarks, taxesd) Competition:price,
performance, design or style, patent protection, brand name, services

3) Company’s Product
What are the physical attributes (size, design, materials, weight, colour, other). What are
product’s package attributes (use instructions, warranties, repair/maintenance, spare parts,
other), its expected profit contribution for each product adaptation? How will all of these match
the market?

Source: Axelson and Johansson, 1992

Internationalisation considerations for a born global company

Network approach-based international entry check list
• a) Actors and Bonds Identification
– What are the actors - customers, suppliers, competitors, public agencies in the business network? Which are the
important relationships they have with each other and with other actors? Are they technical, social, administrative, legal of
other ties?
• b) Power Structures
– What are the relative positions of the actors in the network? What are the roles of the actors and what power do they have
in the network? What constraints does the network impose on the firm regarding, for example, possibilities of relating to
other actors, areas, fields of applications, suppliers, etc.? What possibilities do specific potential partners in the network
offer to the company as regards access to suppliers and resources controlled by others?
• c) Own relationships
– What are the relations of the focal firm in the potential country market? Which are the direct relationships.? How can they
be used? Are there any indirect relations to actors in the potential host market, e.g. through contacts with partners in other
local markets who in turn have direct relationships in the entry market?
• d) Resource mobilisation
– How can resources of other actors be mobilised in support of the market entry? Who of the related actors should be
mobilised, why, for what and by what?

Source: Axelson and Johansson, 1992

Companies can gain multiple benefits by participating in network
operations

• Increasing the value of the product/service
– Product can become more attractive for its end user due to possible broader availability and wider
support
• Accessing new markets
– Increased distribution channels
• Enforcing production possibilities (e.g.increased production capacity)
• Increasing technological know-how
• Creation of supplementary growth
• Improving the efficiency and strength of the organisation/knowledge
• Improving economic situation, creating economic power
– E.g. cost & risk sharing and cuts

Each company has to define its own objectives for
co-operative operation modes

Source: LTT, 1992

What makes network co-operation to succeed?

• The elements for a partnership success:
– Mutual dependence of actors
– The business potential of co-operation
– Social bonds i.e. personal relationships between the key personnel
– Compatibility of resources (e.g. technology)
– Compatibility of objectives for the co-operation
– Clarity of roles and responsibility spread
– Agreement of practical principles and methods
– Investments on the co-operation, commitment to it
– The exit possibilities from the co-operation

Network co-operation has to benefit all its participants
Sources: Eräheimo & Lahti, 1991 & 1993; Wilson, 2000

A general model of business internationalisation was formed. The main
objective is to obtain beneficial positions both domestically and internationally

Actors

Operations Resources
Partner choice

Resource choice
Operation choice

Business
Network
domestic position foreign position

internationalisation
Domestic
Markets Micro-Network International
Markets
Macro-Network


• Conclusions

There are multiple actors in the digital media markets

The core of the network Extended network
• Digital media companies (existing and new start- • Financiers (venture capitalists, direct investors,
ups) financial institutions)
• Traditional media companies (print, radio, television, • Governmental organisations
cable companies) • Education and training organisations
• Telecommunication operators • Labour organisations
• Communication equipment producers • Research institutions
• Information technology (IT) equipment producers
• IT Software and systems companies
• Consulting companies
• Advertising agencies
• Audio-visual producers

Seven related industries with blurry barriers

Traditional Media
Companies
Audivisual
Producers
IT System and Software
Companies

Advertising Digital Media
agencies Companies

IT Equipment
Managing Manufacturers
Consultancies Telecommunications
Operators

Digital media activities

• Three core activities are: • Companies also operate in research
– Planning and implementation of digital and development projects
media products and services – either by own resources or in joint efforts.
– Internet-based advertising and • Third group of operations are the
marketing services business network building activities.
– Internet service offering – formal and informal negotiations on project
co-operation, financing, sub-contracting
• The two supporting activities agreements or possible research and
– Digital media consulting and training development activities.

• Two infrastructure-related activities
– internet hosting and internet
connection services.

F our core, two supporting and two infrastructure activities

Core Activities Supporting Activities
Consulting

CD-ROM & DVDs Internet -solutions
Computer Games Intranet/Extranet Solutions
3D-Design
Information kiosks Digital TV-solutions
Mobile Internet solutions
Streaming Media Solutions Electronic Commerce Systems

eLeaning solutions Planning and Implementation of Internet
Internet Digital Media Products and Services
Hosting
Connection
Services Internet-Based Advertising and Internet Services Offering
Marketing Services
Search Engines, News,
Direct Marketing via Internet Weather Services etc.

Virtual Communities
Banner Sales Agencies
Electronic Commerce Sites

Training
Infrastructure Activities

Activities are based on five types of resources

Personnel Hardware Software Organisational Financial
• Business • Office prem- • Licences • Strategies • Finance for op-
• Technical ises • Intellectual property • Goals erations
• Design • Production rights • Organisational (e.g. R&D, com-
machinery • Proprietary con- culture mercialisation,
• Other
tents internationalisa-
• Organisational
tion)
• Production process structures
knowledge
• Knowledge about
technology
• Knowledge about
customers
• Production software

The key resource is personnel of the company

Combination of technology, business, management, communication,
design creates digital media understanding
Competence management
Entrepreneurship Project management
Accounting and finance Communication skills
Marketing Group work skills
Internationalisation
Business expertise Managerial expertise

Technical expertise Communications expertise

Digital media understanding Digital graphics creation
Multimedia manuscripting
Communications process
Database design understanding
Programming
Cognitive psychology
IT system design
Pedagogy
IT system integration
Ability to combine media elements
Interactivity understanding
Ability to create new business models
Ability to measure digital media impacts

Source: adapted from Helomaa & Väänänen, 1999 pp. 40-54

The industry dynamics can be illustrated with a network diagram

Actors
Traditional Media
Companies
Audivisual
Producers
IT System and Software
Companies

Advertising Digital Media
agencies Companies

IT Equipment
Managing Manufacturers
Consultancies Telecommunications
Operators

Performance
Control /
Digital media Knowledge
ownership
business network

Position Core Activities Supporting Activities
Consulting

CD-ROM & DVDs Internet -solutions
Personnel Hardware Software Organisational Financial Computer Games Intranet/Extranet Solutions
• Business • Office prem- • Licences • Strategies • Finance for op- 3D-Design
Information kiosks Digital TV-solutions
• Technical ises • Intellectual property • Goals erations Mobile Internet solutions
• Design • Production rights • Organisational (e.g. R&D, com- Streaming Media Solutions Electronic Commerce Systems

machinery • Proprietary con- culture mercialisation, eLeaning solutions Planning and Implementation of
• Other Internet
tents internationalisa- Internet Digital Media Products and Services
• Organisational Hosting
tion) Connection
• Production process structures Internet-Based Advertising and Internet Services Offering
Services
knowledge Marketing Services
Search Engines, News,
• Knowledge about Weather Services etc.
Direct Marketing via Internet
technology
Virtual Communities

Requirement
• Knowledge about Banner Sales Agencies
customers Electronic Commerce Sites
• Production software

Training
Infrastructure Activities

Resources Activities


• Conclusions

There are around three hundred digital media companies
that generated a turnover of one billion FIM in 2000

Industry
Turnover characterised by
mergers and
Sales Margin
acquisitions

2800 digital media employees by 2001 - total impact larger

• Finnish digital media
companies recruited
~1000 new employees in
1999-2000.
• Yet, the total impact of
the phenomena affected
also traditional industries
is is thus larger.
Full-Time
• 1/4 of the new jobs were
part-time or free-lance Part-Time

jobs

Digital media activities are focused on the Finnish growth centers

7
7

Yritykset kunnittain 1998
n = 314
135 - 135 (1)
18 - 135 (3) 7
7
5 - 18 (6)
2 - 5 (11)
1 - 2 (36)

12
12
2
2

32
32 5
5

18
18

3
3
6
6 6
6
135
135
19
19

Current status of Finnish digital media industry – acknowledging
economic realities

• Working in turbulent digital media industry is not an easy task
• Current development trends in the companies
– From hypergrowth to cost efficiency
– From hype creation to excess caution
– From aggressive recruiting towards committing key individuals
– From ”becoming rapidly millionaires” towards ”survival battle”
– From pioneering towards a stardardised way of working
– From optimism through pessimism into realism
• In addition, digital technology keeps on evolving

Main change: using digital media has become a business
standard – no more premium pricing for digital media companies!


• Conclusions

International markets possess their special characteristics

Domestic Markets International Markets
About actors • Some very competitive and growth seeking • Highly competitive markets
new media companies • Many opportunities exist for fast movers
• Finnish companies among the world leaders • Heterogeneous technological know-how and
in mobile technology infrastructure
• Few experienced and global players in new media
• Large international IT actors are starting to be active
About resources • Well educated and skilled personnel • Shortage of skilled & experience IT personnel
available • Financial capital available for well defined business
• High-level of technological know-how ideas and concepts
• Limited number of international customers • Many large customers available, but serving them
• Skilled users and advanced infrastructure demands resources
About activities • Consolidation of companies via mergers • Internationalisation and globalisation is an actuality
and acquisitions • Large international customer projects carried out
• Mobile communication creates new • All major companies are building international
opportunities and activities relationships
• Market size in 2000: FIM 1 billion, ~3000
employees

Internationalisation brings Finnish digital media companies to
thinking their competitive edges

Domestic positioning features International positioning features
• Subcontracting activities (at the mo- • Finnish companies have some subcon-
ment only 10 %) tracting experience across borders, e.g.
• Companies knowledge of each other is to the Baltic countries
very good due to small markets • Only few companies have a strong in-
• Governmental activities encourage for ternational focus
networking, e.g. in R & D projects • The new media companies can lever-
• Finland is the test laboratory for high- age on the success stories of Nokia and
tech solutions - > reputation of the trials Sonera
• New international customers are ob-
tained through business relationships
• Foreign competitors are entering and
have entered the Finnish market <-
reputation

Companies were divided into six groups according to their
internationalisation focus

• Global actors
• Active growth seekers quot;Internationalisation for us is that
• Internationalisation trialists we grow with our clients' operations.
• Inward-internationalisators In other words this means that we
do not focus on geographical
• “Stand-Byquot; -companies markets, but rather to client
• Locally focused companies markets.”

quot;We will not start to quot;pump
ourselvesquot; to foreign markets with
our present limited resources. We
quot;We see our internationalisation so that we want to be a strategic partner for
want to work here in Finland for the some Finnish company needing
international markets. Internationalisation is assistance in digital media solutions
crucial for our existence, but we want to be abroad”
located in here. This is why we need to belong
to an international network.quot;

International dimension of the network make it even more complex and
challenging

Consolidation of
companies actuality
High level of Mobile communication activities of
Subcontracting 10-15 %
technological know-how high interest
Companies know each other well, limited co-operation
Govermental R&D support based on networking
-> leads to more active networking
Limited number of
Skilled personnel customers
available ~FIM 1 billion
~3000 employees

Domestic Position Domestic positioning
Heterogenous markets in
Advanced Infrastructure & Operations
Resources technology skills and
skilled users
infrastructure

Highly competitive markets
Some competitive and growing Micro-Network Many opportunities for
new media companies fast movers

impact
Actors
Finnish Actors
Few experienced and
global players
World leaders in mobile technology New Media
development (operators and
equipment)
Domestic Business
Markets Network
impact
Lack of trained &
experienced
Global actors personnel
Active growth seekers
Internationalisation trialists
Inward-internationalisators
Stand-by companies Resources
Locally focused companies Financial capital well
available for good
Macro-Network business ideas

International
International
Positioning Markets
International position Many large customers
available, but operations
demand resources
Only few internationally focused Finnish companies Global expansion
Expansion through the Finnish quot;success storiesquot; (e.g. Nokia & Sonera) Operations
Internationalisation for new media
Cration of international network through existing customer relationships companies
Foreign competitors have entered the Finnish markets
International financiers interested about Finland
Finland is the quot;test laboratoryquot; in mobile communications
International subcontracting relationships exist to some extent
Finnish companies ether in quot;Late Starterquot; or quot;International Among Othersquot; situation
Large international projects Global network building

Companies use multiple strategies in their international entry.
The most important is leveraging existing customer relationships

The most important channel for
• Finnish digital media companies internationalisation are the existing customer
internationalisation modes relationships
– Fast growth with the support of external
Strongly disgree
financiers 3% Totally agree
Mostly disagree
– Fast growth via networking strategies 17 %
20 %

– Acquisition of a local company in a foreign
country
– Greenfield investments to a foreign country
– Going with quot;luckquot;, i.e. no planning, just 'ad
hoc' activities
– Internationalisation with customer's operations

Mostly agree
60 %

“We have four internationalisation strategies: forming of an own subsidiary, forming of a
joint venture with a local partner, expanding with our clients operations and exporting our
own products, know--how and technology. Also we have discussed about participation to
different international alliances.“

Large digital media companies are more involved with international
operations than smaller ones - business networks are crucial
Our company has international partners

less than 1 MFIM

1-4 MFIM
Company Turnover im MFIM

No answer
Does not describe
5-9 MFIM
Partly describes
Decribes

10-29 MFIM

Our company has international partners
over 30 MFIM

0% 10 % 20 % 30 % 40 % 50 % 60 % 70 % 80 % 90 % 100 %

Describes our
relationships
well
31 %

quot;We made our largest international deal so far through good Does not
describe our
personal relationships. We were extremely lucky.. Furthermore, relationships
we were able to organise the project to be internationally carried 47 %

out by our network.quot;

Describes our
relationships
partially
22 %

Shortage of skilled personnel is the most limiting factor for
international operations

Financial
resources

Educational
quot;Simply there are so
few of those who can
resources
say quot;Been there,
No answer 'done it!quot;. This makes
Not enough the entrepreneurs to
Clients They are scarce fear, become
Sufficiently disappointed and/or
Plenty available at worst not to find
the right contacts
Skilled personnel abroadquot;

Growth
opportunities

0% 20 % 40 % 60 % 80 % 100 %

High expectations exist for internationalisation,
but also high risks.

“In Sweden, market far behind Finland still about two years ago, digital media
industry had a turnover of FIM 7 billion in 1998. We should not feel to sorry
about ourselves but analyse thoroughly why the Swedes are so much more
successful. Yet, we should remember that this kind of “slow and conservative“
approach that we have in Finland may become more fruitful in the long run.“

“Internationalisation is most often based on growth and market share
expectations dominated by external financiers. The companies seek for growth
for growths sake only. Do these companies remember to follow their
profitability? - we are sceptical about that.“

“The future growth expectations are incredible, even outrageous. The
bubble must break someday. There is so much air in the stock values of
the international companies. Yet, if the expectations will become reality,
there is room for many new large and international players.“

International operations demand resources. Yet, they may bring
higher returns for the same effort.

quot;If we, for example, form a subsidiary to London, we will hire a few locals and send
a few persons from Finland there. They need an office, portable computers and
accounting systems at minimum. Sounds easy - but - the problems arises from
management allocation. Let's say we make one hundred units of turnover in
Finland. The London unit would make at the starting stages one unit more units
later. Still, as we have noticed, the operation will take 20-30 % of our management
time. Also it is difficult to obtain local customers, we are not a part of local business
network.

quot;In Finland, consulting and planning is badly compensated. The digital media
companies under-priced their services a couple of years ago, and still we are
suffering from it. We have noticed that international customers are much more
willing to pay for good planning, Finns just want the pure product, nothing else.quot;

Create the mindset for being international and know your motives.
Financing exist for well justified ideas.

quot;The main question lie in the motive for internationalisation - why to do it?
There is and will be market to be shared here in Finland, too. Foreign operations
will demand resources from domestic operations. Do we want to utilise them
here or abroad and now or later? I do not know. Only thing I know that we
have to be ready to reactquot;

quot;Special interest should be put on the mindset of being and becoming an
international actor and reflect this thinking in all activities.quot;

quot;There is plenty of capital available. Still, we do not want pure money, we need
grey hair expertise to supplement the investment. These kind of investors are
harder to find. We want strategists to assist us, not short-term profit makers.quot;

Governmental support efforts are fragmented and uncoordinated.

quot;The government should realise that in this business half a million FIM is in
international context small potatoes. The investments needed for international
penetration are much higher. We are doomed to small scale business without
large scale support”

quot;Oh, I wish so much that we would be able to get all the services from the same
address or from the same advisor. It has taken at least a year from us to learn
the different application and discussion 'protocols' that different support or
financing organisations have - it a really a pain - and I do not understand that
why don't these organisations co-operate?quot;

• Conclusions

Four main statements rose from the study

• The internationalisation of the digital media industry does not differ from other
professional service businesses

• The main driver for internationalisation is demand for continuos growth.
In addition, the ambition level and the experiences of the entrepreneur have a
great impact to the internationalisation

• The main success factors in internationalisation of Finnish digital media
companies is the utilisation of business relationships across borders

• The main internationalisation operation channel for digital media companies is
leveraging the existing customer relationships

Professional service with high growth potential.
Success depends on the reaction time and customer relationships.

• Digital media business is by its birth very global and the companies operating
in the industry carry heavy service and know-how export potential.

• The Finnish digital media industry is already in some markets in quot;late starterquot;
situation. On the other hand the companies are able to arise to be quot;international
among othersquot; by own actions and by technological advancement.

• The success of the industry is heavily dependant the companies' capability to
meet the requirements of the customers and leverage its existing customer
relationships

Alliances crossing industry barriers bring access to additional
resources.

• Product innovation in the industry requires flexible coalitions crossing
traditional industry barriers. The number of these will grow with technological
advancements.

• The main resource shortage for the Finnish digital media companies'
internationalisation is the lack of skilled personnel.

• Financial capital is available in the markets. Yet, the Finnish companies are not
experienced to work with external financiers and high growth requirements

The way forward

• At LTT-Research/Helsinki School of Economics we will continue
to analyse the digital media industry
– from industry development perspective
– from financial analysis perspective
– from convergence perspective
– from internationalisation perspective

• We have follow-up data of the Finnish companies from 1996 onwards
– Surveys and interviews in 1996, 1998, 2000 and 2002 (ongoing)

• Possible co-operation areas
– Comparitive studies between counties
– Internationalisation analyses
– Service business success factor identification and analyses
– Analyses on convergence and its implications

For more information

Tommi Pelkonen
pelkonen@hkkk.fi

Useful web sites and publications:
http://www.culminatum.fi/uusmedia.html
http://www.uiah.fi/mediastudioverkko/tutkimus.html
http://www.hkkk.fi/ltt
http://www.mol.fi/esf/ennakointi/raportit/uusmedia.pdf
http://www.tukkk.fi/media/

Convergence (lähentymiskehitys)- what is that?

Source: Oxford Dictionary for Business, 1998
To Converge=
1) Come together or towards the same point, or
2) Approach from different directions

Source: European Union, 1997

Convergence=
1) The ability of different network platforms to carry essentially
similar kinds of services, or
2) the coming together of consumer devices such as the
telephone, television and personal computer

Internationalisation Of Digital Media Companies

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