INTERNATIONALIZATION CHALLENGES OF FINNISH SOFTWARE FIRMS –
INDIA AND CHINA AS MARKET AREAS
Anne-Marie Touru, University of Turku
Keywords – Internationalization, Software Industry, China, India
Introduction
Since 90’s research on firm internationalization has focused on firms belonging to new business areas
like high-technology (Bell, 1995; Coviello & Munro, 1997; Oviatt & McDougall, 1994). However,
internationalization of firms to and from transnational countries is still understudied, although, some
resent studies can be found (Bin, Chen, & Sun, 2004; Ellis, 2007; Legewie, 2002). In addition studies
on firm internationalization have concentrated more on internationalization patterns (Bell, 1995;
Johanson & Mattsson, 1989; Johanson & Vahlne, 1977; Ojala, 2008; Oviatt et al., 1994), than on
challenges firms meet in international markets (Alajoutsijärvi, Mannermaa, & Tikkanen, 2000; Bell,
1997; Leonidou, 2004). In order to fulfill this gap the objective of this paper is to answer to following
question: What kinds of challenges Finnish software firms meet, when they operate in India or in
China?
In order to answer this question empirical research was made on internationalization challenges which
Finnish software firms face in India and in China. Empirical research combines quantitative and
qualitative research method. To gather quantitative research data survey was made to 668 Finnish
software firms on which 19 operate in India or in China. In addition, ten semi-structured interviews
were made to directors of Finnish software firms which operate in India or in China. In the discussion
challenges found from these interviews are compared with the challenges found from the literature.
Internationalization Challenges in Literature
Problems in internationalization have been widely studied by Leonidou (2004). He has divided barriers
that firms face in international markets to two groups: internal and external. Internal barriers derive
from the company itself and they can be solved inside the organization. Oppositely, external barriers
are caused by environment, where company operates or wants to operate. Thus, company cannot affect
external barriers; instead it can only react to them. This description of export barriers presented by
Leonidou (2004) is used as a framework in this study. Other challenges of internationalization (Bell,
1997; Bin et al., 2004; Neupert, Baughn, & Dao, 2006) are compared with it.
Based on Bell’s (1997) research it seems that internationalization barriers of Finnish software firms are
usually external. According to Bell (1997) export problems of Finnish firms are usually finance
related, like delays in payments, high communication costs with foreign clients and high labor costs of
R&D professionals. However, other studies reveal that Finnish software firms have also internal
barriers of internationalization. For example, Alajoutsijärvi et al. (2000) found out that firms have
especially problems with marketing because they lack marketing capabilities and adequate personnel.
In addition, Ruokanen (2008) claims that marketing strategy of Finnish firms is often wrong. It should
be more focused on individual customers than to whole market segment.
In India and in China Western firms face internal and external barriers of internationalization. For
example, Demir and Söderman (2007) have noticed that managing side office in China is difficult for
Swedish firms. Often the managers of the side offices have communication problems with the
personnel in the head office. Thus, information about critical issues in Chinese market does not reach
the directors in Sweden early enough. In addition country managers have difficulties to get support
from the head office for their actions in China. Also different languages pose problems for
international companies which have to adapt to languages existing in China (Bin et al., 2004) or in
India (Keniston, 1998). In addition infrastructure in India and in China is different from Western
countries (Cateora, 2000; Terpstra & Sarathy, 1997), which can cause challenges for delivering
customers orders in time and in good condition (Bin et al., 2004). Collecting payments can also be
difficult, because payment opportunities (Bin et al., 2004) and banking system (Cateora, 2000) are
different. For software companies it is important to understand that immaterial property rights are not
as well protected in India and in China than they are in Western countries (Cateora, 2000).
Empirical research
This study combines quantitative and qualitative research methods. Part of the data comes from the
survey, which was made to Finnish software firms. From those 668 firms, which answered to this
survey, 19 were chosen to be studied in this paper, because they operate in India, China or Taiwan.
Data from these firms was analyzed with quantitative methods.
Based on the analysis of survey data internationalization challenges of Finnish software companies,
which operate in India or in China, are related to finding personnel, finding partners, immaterial
property rights, piratism, language and culture, and customer contacts. Because the focus group is
quite small it is difficult to analyze, which is the most severe problem. Finding personnel, immaterial
property rights and piratism were most often reported to have very high impact on internationalization.
However, problems related to culture and language, as well as problems of finding partners in host
country were reported to have high or moderate impact on internationalization by more than 60 % of
answerers. Although, the survey gives direction for further studies on internationalization challenges in
India and China, its results are not country specific. Thus, it is apparent that these challenges had to be
studied more precisely in Indian and Chinese context.
100 %
90 %
80 %
70 %
60 %
50 %
40 %
30 %
20 %
10 %
0%
Very high
High
Medium
Figure 1: Impact of different challenges on internationalization
In order to have deeper perspective to internationalization challenges that Finnish software companies
face in India and China, ten semi-structured interviews have been made to directors of Finnish
software companies. Six of these companies operate in India and in China, where as four companies
operate only in China. Thus, more research data could be gathered on Chinese market. The amount of
interviews is also quite limited; however, the survey showed that only a minority of Finnish software
companies is already in Indian or Chinese market. Thus, it is probable that interviewed companies
represent significant part of Finnish software companies, which operate either in India or in China or
in both countries.
Analysis of interviews was based on open coding described by Strauss and Corbin (1998).
Internationalization challenges in Indian and in Chinese market were analyzed as well as differences
between these markets differences between these markets. It is important to notice that all the
comparisons are made from the viewpoint of Finnish software companies.
Based on the interviews the main challenges in Chinese market are related to language, regulations of
immaterial property rights and piratism. Unlike in India, English is not widely spoken in China. Each
Chinese company has someone who can speak English, but every worker cannot speak English. In
India well educated people can speak English, because English is locally used as the language of
education and business. Accordingly immaterial property rights are respected more in India than in
China. Some interviewees told that this difference could have cultural roots. They think that copying
ideas of other people is acceptable in Chinese culture, where as Indians are costumed to give respect to
innovator.
However, interviewees see that special problem in Indian market is the local infrastructure. Electricity
networks as well as internet are not as reliable in India than in China. Electricity and internet
connection do not reach rural areas, and even cities suffer from electricity cuts. Interviewees suppose
that Indian infrastructure is developing at a slow pace because decision making process in India is
slow. As a contrast, they think that decisions are made very quickly in China. In addition one
interviewee told that Chinese government has been eager to develop their economy by investing to
infrastructure.
Finnish software companies are challenged by cultural differences as well in India as in China;
although, the differences compared with Finnish culture vary significantly between these countries.
Based on the interviews segregation seems to be the dominant differences between Finland and India.
In addition, Indians belong to different cultural, linguistic and ethnic groups they are further divided to
casts. Thus, conversation and democracy are important in India. On the other hand, some interviewees
think that the openness to debate can make the decision process slow, which has affected the
development of Indian infrastructure from their opinion.
To interviewees Chinese appear more homogenous than Indians. Most of them belong to same ethnic
group. Despite the different dialects Chinese language is written in the same way everywhere in China.
This facilitates localization of software to Chinese market. Interviewees consider that Chinese culture
is very authoritarian. This allows decision process to be fast, because there is not as much need for
debate than in India. However, interviewees also see negative characteristics in the lack of
conversation. It is difficult to communicate with people who are responsible for doing the work itself.
In some cases, foreign people cannot even discuss with them and when it is possible, they may not be
able to tell the truth.
Interviewees have also noted nationalistic characteristics in China. Chinese people prefer to by
Chinese products, and make business with Chinese companies and people. For some interviewees
India appeared different in this respect. They think that Indians welcome foreign companies and
business men very hospitably. Other difference between Chinese and Indian culture is the perspective
for quality. Many interviewees consider that Chinese culture still prefers to deliver orders very fast
even at the risk of losing quality. Interviewees think that for Indian’s quality is more important value
than for Chinese, even if Chinese culture is changing in this respect. However, those interviewees, who
have experience on outsourcing to India and to China, emphasized that accurate and rigorous
documentation is needed for successful outcome in both countries. Some companies have considered
off shoring software production or other design work to India, but they have came to conclusion that
specification of the order and verifying the result would demand large amount of work from Finnish
employees. These expenses would annul the savings deriving from lower cost of Indian labor force.
Discussion
In the previous studies it appeared that Western software companies have many internal challenges in
transnational countries like India or China. However, based on this research Finnish software
companies appear to have problems in India and in China because of external reasons. This research
finding is in line with Bell’s (1997) study, which found that Finnish software companies usually have
external barriers of internationalization. On the other hand, it is possible that the chosen research
method was not suitable for finding internal barriers of internationalization.
In the survey questions were defined before hand and they were not focused on internal barriers of
internationalization. In semi-structure interviews people answered to questions from their own
perspective. Interviewees may have had difficulties to notice the internal problems in their firm or they
may not be willing to admit these. In addition, all the interviewees were directors in Finnish software
companies, they were interviewed only once, and only one person was interviewed from one company.
Thus, more qualitative research would be needed to study internal challenges that Finnish software
companies have in Indian or in Chinese market. For example case study in few companies could be
suitable research method for this purpose. On the other hand, interviews to personnel in Indian or
Chinese sub-office as well as to Indian and Chinese customer could also bring more information of
internal challenges of Finnish software companies in Indian and Chinese market.
This research is very country specific and it is limited to one industrial field. Thus, the focus group
was biased by Finnish companies and the questions focused on challenges faced in India and in China.
It would be interesting if in future the perspective of this research would be turned around. Interesting
topic would be internationalization of Indian or Chinese companies to Western countries for example
to Finland. Why Indian and Chinese companies are interested in Western markets? How Indian or
Chinese companies manage their sub-offices in Europe or in United States? How Western employees
adapt to Indian or to Chinese management?
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