Russian and Chinese Mid-Sized Business: Internationalization Strategies (Includes 15 Case Studies)

Abstract

Internationalization can be beneficial for firms of all sizes. While it is usually large companies which are studied, there is a host of smaller firms that have successfully tapped into international opportunities and whose experiences are worthy of investigation. Usually overlooked by academics, practitioners, researchers and journalists, mid-sized companies receive less attention than they deserve, especially those coming from emerging markets. At the same time, firms of this sort often exhibit a remarkable degree of resourcefulness and versatility. Their international trajectories can be instructive for companies from emerging and developed markets alike. This study looks at the internationalization of a selection of Russian and Chinese mid-sized firms. As a business school in Russia, we embarked on this project with the specific goal of complementing contemporary strategic thinking derived from the experience of Western multinationals by introducing the experience of smaller firms from emerging economies. Case studies of fifteen mid-sized, private businesses from the manufacturing and IT sectors form the basis of this report. The way companies approach internationalization varies considerably, and often depends on how they build their businesses at home. Self-identification is one of the underlying factors. Russian companies often see their medium size as an inherent characteristic and adapt their strategy accordingly. Chinese companies, on the other hand, tend to treat their current size as an intermediate step in their progression to big business. The environments from which the companies emerge also dictate differences in optimal competitive configurations. Russian mid-sized firms bypass competition by delivering high performance products and targeting narrow market segments. In-house integration of diverse competencies allows them to control quality and cost. Chinese mid-sized companies win markets through scale and speed. Supported by a flexible supplier network, these companies concentrate their efforts on downstream capabilities such as production and distribution. The underlying proposition of this report is that internationalization means much more than selling to foreign markets. It is about a firm’s ability to connect with the outside world in multiple areas: manufacturing, access to technology, foreign capital, the talent pool, strategic alliances and informal networks. Each area presents opportunities which can be used to a firm’s advantage. Russian mid-sized firms approach internationalization in a classical way. It is a step-by-step process whereby a company starts probing foreign markets and, as it gains more knowledge, it feels more comfortable exploring other opportunities such as localizing production, hiring local staff and building partnerships. The global niche strategy adopted by Russian mid-sized companies has many similarities with that of the German Mittelstand. The Chinese approach internationalization quite differently. Unlike Russian firms, which treat it is a separate dedicated project, Chinese mid-sized companies seem to blur the boundaries between the domestic and the foreign and exploit international opportunities more arbitrarily. Their fundamental goal is to grow and become stronger contenders, especially in the massive and fiercely competitive Chinese market. Growing in size through international sales, accessing technology through acquisitions, sourcing foreign capital or enlisting the support of stakeholders through international alliances are strategies which are deployed by the Chinese mid-sized firms in their pursuit of market dominance. Altogether, no matter what underpins a firm’s ability to connect with the outside world, it is a strategic skill which should not be ignored. This is particularly so today as the world is becoming more fragmented. The ability to discern and tap into international opportunities can be a strategic response to an increasingly uncertain environment. After all, fragmentation does not mean disconnectedness; rather it implies the changing nature of connectivity between regions, countries and companies. There is no one-directional movement. As some countries close, others eagerly open up. While the shifting patterns of global trade present companies with completely new sets of challenges and opportunities, what is clear is that these will need to be tackled with more sophisticated strategies. Internationalization is one of the range of possible answers.