Dyhr Ulrich & Hollensen (2014) 'The Incubator Concept as an Entry Mode for Danish SME's',...

Transnational Marketing Journal

Volume: 2, No: 1, pp. 1 - 19 ISSN: 2041-4684 & e-ISSN: 2041-4692

Article history: Received 1 Dec. 2013; last revision 11 March 2014; accepted 25 March 2014

The Incubator concept as an entry mode option

for Danish SME’s ANNA MARIE DYHR ULRICH

SVEND HOLLENSEN

Abstract The aim of this article is to investigate the relevance of an alternative entry mode, the incubator concept. Such an alternative entry mode like the so-called incubator is increasingly being used as a shortcut or bridge to a distant market. In-depth qualitative research on a selected case (Kelsen Group selling butter cookies to India) reveals the reasoning behind the entry mode choice of a company entering an emergent market (India). The Incubator Programme provides the opportunity for a company to bridge the ‘gap’ between a low-control entry mode (e.g. importer or distributor) and high-control entry mode (e.g. wholly owned sales subsidiary), without involving too high risks and still keeping a reasonable level of control. Keywords: alternative entry modes; incubator; SMEs; emerging markets; so-cial and cultural distance; Kelsen Group; India.

Introduction The attention towards internationalization of small and medium enterprises (SMEs) has increased, as companies today are characterized by a high degree of globalization and internationalization independently of their size. There-fore, the growth of SMEs, including the successful development of the inter-national markets, is being recognized as crucial for the economic development and the future well-being of nations.

The internationalization decision of SMEs includes the selection of the countries and foreign markets in which they wish to operate and the structural nature of their activities in those markets (Carazo and Lumiste, 2010). When a company decides to expand internationally it has to carefully select the foreign markets it wants to operate in. The market choice involves analyzing strategic needs and orientation of the firm beforehand. After the company has chosen which foreign market to enter its operations in the foreign market have to be determined (Hollensen, 2014; Kumar, Stam & Joachimsthaler, 1994; Papado-poulos, 1988; Goodnow, 1985).

Dr Anna Marie Dyhr Ulrich is an Associate Professor in International Marketing in Depart-ment of Border Region Studies, University of Southern Denmark, Denmark. E-mail: [email protected]. Dr Svend Hollensen is an Associate Professor in International Marketing in Department of Border Region Studies, University of Southern Denmark, Denmark. E-mail: [email protected].

THE INCUBATOR CONCEPT

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The firms operations in the market depend on its choice of foreign entry mode. An entry mode can be defined as institutional arrangement chosen by the parent company in the foreign market. As the most critical decision, for-eign entry mode strategy influences all future decisions (Kumar and Subrama-niam, 1997).

Most Danish companies are characterized as being SMEs and these often have scarce resources (Gertsen, Søderberg & Zølner, 2012). Therefore market failure has immense implications for Danish economy. For Danish SMEs, the choice of entry mode is consequently of crucial importance (Dyhr Ulrich et al., 2012 and 2014).

The Incubator concepts might be a good alternative for companies wanting to be fully represented on a foreign market. At the moment it is not clear whether this new entry strategy is an alternative to traditional export forms or it should be seen as a sub-form of a sales subsidiary.

The focus of this study is mainly to describe the role of the factors control, flexibility, risk, international experience, social and cultural distance when the SMEs chose to use the incubator concept when entering an emerging market. Furthermore the place of the incubator concept within the traditional classi-fication of entry modes (Anderson and Gatignon, 1986, Hollensen, 2014) is discussed.

The next section presents the traditional categorization of entry modes, followed by descriptions of the two Danish Incubator concepts. Next section presents a theoretical discussion of the selected internal and external factors affecting the entry mode decision. The fifth section specifies the research method. The sixth section presents the findings of the case study. The last section provides conclusion and suggestions for further research.

Traditional categorization of entry modes

A foreign market entry mode is an institutional agreement that makes possible the entry of a firm’s production, technology, human skills, management and other resources with-in a foreign country (Krishna, 1989:50).

Essentially, a choice of entry mode comprises choice of location and level of control. Thus, resources may be located domestically or in the foreign mar-ket and controlled by the firm itself (full control) or through an export con-tract arrangement (e.g. with agents and distributors), where Anderson and Gatignon (1986) define “control” as the ability to influence systems, methods and decisions. Control is an important construct in the entry mode literature because it is an antecedent for determining potential risks and rewards (e.g. returns on assets) for firms entering foreign markets (Anderson & Gatignon, 1986). A high control mode can increase the profitability and the risk; and a

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low control mode diminishes the commitment of resources; but frequently, at the expense of profitability.

Consequently, a company can enter a foreign market via the following three categories of entry modes, according to the level of control (Hollensen, 2014).

1. High control modes: Foreign Direct Investment (FDI) in form of whol-ly owned subsidiaries (WOS), or direct selling to big customers (OEMs = Original Equipment Manufacturers, which then use the product in the pro-duction of the final product). Both entry modes offer full control of activities in foreign markets.

2. Intermediate modes: Strategic alliances (SA) and joint ventures (JV) are somehow in-between high- and low control modes. Within this category of entry modes, partners agree to share resources, technology, profits, and jobs, and supplement each other’s needs for a long period of time. Unlike a joint venture company, a strategic alliance does not involve formation of a new company. Typically in such cooperation, the local partner provides market-specific knowledge, such as marketing skills and relationship cultivation that are fundamental to parent companies’ operations in new foreign markets.

3. Low control modes: Indirect and direct export strategies are in the low control category. Indirect export represents the lowest degree of control on the activities in the foreign market. It occurs when the parent company uses independent organizations located in the parent company’s own country (or third country). Direct export occurs when the parent company sells directly to an agent, distributor or importer located in a foreign market. This provides a bit higher control than with indirect export, but still direct export is a low control mode, as the parent company deals with a foreign independent com-pany, which can decide on its own and may choose to include products from several different parent companies. Typically the local agent is the responsible and controlling party for implementing the local marketing activities. Howev-er, planning of these activities is often done in a cooperation with the parent company.

The use of local agents is very common in international business. Agents can provide valuable information on local market conditions (e.g. social, legal, economic, political and financial); contact with local customers, suppliers and governmental institutions.

Each mode has different implications according to the degree of control that the firm can exert in the international operation, and the resources and risks that it must assume to expand in a foreign market. Therefore, the choice of an appropriate foreign entry mode, in a given context, is a difficult and complex task for the management (Hill et. al, 1990). Each foreign market en-try mode represents a continuous international expansion involving different levels of control.



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A high control mode generally implies high commitment and high business risks but allows the highest share of return on investments (Ekeledo and Sivakumar, 2004). A low control entry mode on the other hand, may be chosen due to a need for resources, and in general brings less commitment and risk (Chen and Messner, 2009). It is, however, important to note that an intermediate entry mode may also bring a relatively high degree of control. This may, for example, be the case of joint ventures or a tightly run franchise system.

The incubator concept as entry mode

Shortly defined, the ’Incubator concept’ is an umbrella term for any exporting organization which provides access to affordable office space and shared administrative services (Fry, 1987; Allan and McCluskey, 1990). Apart from offering the exporting companies physical office space and shared services, the opportunity for networking in general and among other companies at the incubator is arguably one of the most important services offered by the ‘Incubator concept’ (Hansen et al., 2000).

As stated earlier in the paper is it not clear whether the Incubator concept can be understood as a new sub-form of a subsidary or an alternative to tradi-tional export modes. In the following section, we will present two Danish Incubator concepts: The Incubator Programme and the ‘Own Man In’ con-cept.

1.1. The Incubator Programme

In 2001, Ministry of Foreign Affairs offered Danish companies a new op-tion when they were to internationalize their activities. The Incubator Pro-gramme was introduced as an entrymode option. It offers Danish companies a fully equipped office at a Danish representation abroad. Hence, the compa-ny obtains a physical appearance in the new market. The Danish Ministry of Foreign Affairs sees the Incubator programme as an alternative entry strategy in an emergent market for the SMEs. The Incubator Programme is flexible and tailored to individual companies’ needs. Several solutions which cater to the specific needs of each company are offered, ranging from a virtual office to a fully operational office with several employees. A company is entitled to change from one solution to another, at any time, as needed. As the name indicates, the concept of the Incubator Programme is to assure a smooth start-up and rapid growth. The Incubator Programme is promoted as a way to ease bureaucratic processes while enabling companies to enter foreign markets at minimum risk and expense (See www.um.dk).

The Incubator Programme offers:

Incubation office or Virtual office

Sales support

http://www.um.dk/

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Dedicated Quality Controller (sourcing)

Distributor Management

Human Resource Management

Finance & administration services

Access to the Trade Council’s extensive network (www.indien.um.dk)

1.2. The ‘Own Man in’ Concept

The ‘Own Man In’ concept was launched by the Confederation of the Danish Industry (hereafter DI) in 2002 (See www.di.dk). The Own Man In concept gives the Danish SME an opportunity to start up in the BRIC mar-kets having an own local employee, a high degree of control and flexibility without having to make a traditional establishment, which is often expensive, demanding and time consuming. The local employee is formally employed by the DI (incubator) office.

Figure 1. The Own Man in Concept

Source: Adapted from www.dibd.dk

The local employee knows the language, the culture and the market struc-ture, and can work independently with focus on the interest of the Danish SME. At the same time the employee receives sparring, training, and daily management from the manager of the Incubator Office. The manager of the Incubator office also aims to ease communication and dialogue between the SME and the local employee.

Danish Company IncubatorOffice

Local sales employee

ReportingEvaluatingAuditing

SelectionRecuitmentInfrastructure

Administrative supportTraining and mentoringDaily management

Final selectionObjectivesIndividual training

Daily communication

http://www.indien.um.dk/

http://www.di.dk/



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The ‘Own Man In’ concept offers (www.dibd.dk):

Recruitment, selection, and employment of your local employee

Infrastructure and administrative support to your local employee

Training and mentoring of your local employee

Monitoring and reporting

In the following table the roles in the partnership are shown.

Table 1. Roles in the partnership

Roles in the partnership Danish company

DI Incubator

Office

Local employee

Identification and definition of demands and qualifications of the employee. Announcement and first scree-ning of the candidate Final partner selection Negotiation of employment terms Employment contracts and other documents Registration with authorities Local office, secretary function, IT support Training of the employee Demand generation After sale service Customer contact Follow up on action plans Daily management of employee Supervisor

x x x

x x x x x x

x

x x x

x x

x x

Source: Based on www.dibd.dk

Theories of entry mode

A number of theories and entry mode surveys have been applied to ex-plain the entry mode decision (Canabal and White, 2008). Agarwal and Ramaswami (1992) indicate that the foreign entry mode choice consists in a

http://www.dibd.dk/

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commitment of four factors: Resources, control, risk and profits. As earlier mentioned is the aim of this study to describe the role of the factors control, flexibility, country risk, international experience, social and cultural distance when the SMEs chose to use the incubator concept in relation to entering an emerging market.

Control

Control is often closely linked to the level of resource commitment by the company (Sanchez-Peinado et al., 2007). Modes of entry with minimal re-source commitment, such as indirect exporting, provide little or no control over the ways in which the product or service is marketed abroad. Joint ven-tures also limit the degree of management control over international opera-tions and can be a source of considerable conflict where the goals and objec-tives of partners diverge. Wholly-owned subsidiaries (hierarchical mode) pro-vide the most control, but also require a substantial commitment of resources (Sanchez-Peinado et al., 2007).

Anderson and Gatignon (1986) argue that the control is the centre of transaction cost (TC) economy, being the most important determinant of the risk and profitability. These authors emphasize choice of the option which offers greater profitability on investment, fit to the risk in viable surroundings and shaping the choice of the foreign entry mode according to the degree of control that each mode offers to the firm.

Transaction cost (TC) and institutional theory are among the most com-monly used theories in international entry mode research (Brouthers & Hen-nart, 2007). Most of this literature is based on economic theories emphasizing the rational choice in relation to cost-minimization and risk-adjusted return on investment (Nielsen & Nielsen, 2011; Hennart, 1988; Anderson & Gatignon, 1986; Williamson, 1985).

According to the transaction cost theory, companies should choose the en-try mode that minimizes the transaction costs. Thus, the choice between high, intermediate and low control entry modes depends on the costs and benefits of the three options available to the company (Hennart, 1988; Williamson, 1985): When market transactions or contracts are subject to high transaction costs in export contracts, sharing equity and resources (in form of a joint ven-ture) might be efficient because it aligns the incentives of the parties and thus reduces the risk of opportunism. In line with this view, the literature suggests that different modes of foreign entry represent different levels of resource commitment, risk, and control (Anderson & Gatignon, 1986).

Flexibility

Entering the foreign market company‘s international managers must also consider the degree of flexibility (Shimizu & Hitt, 2004). When choosing the entry mode it is necessary to analyse the company’s ability to adopt or change strategy when market conditions are changing rapidly (Hollensen, 2014).



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Knowledge, physical assets, human capital and other tangible and intangible elements are resources, which allows the company to develop market offer-ings that have value in particular market segments (Capron & Hulland, 1999). Utilizing these resources company develops capabilities to manage environ-ment and performance. One of the capabilities is strategic flexibility. Strategic flexibility is a company’s capability to identify changing market opportunities and technologies (Sanchez, 1995), to quickly react to these changes by allocat-ing resources to new direction and recognize the time and apply the right re-source commitment action (Shimizu & Hitt, 2004). Grewal and Tansuhaj (2001) states that strategic flexibility can increase the effectiveness in com-munication, plans and strategies and that should increase company perfor-mance. Strategic flexibility is characterized by two dimensions: range of op-tions and response to changes by adopting these options. The first one refers to the number of alternatives, whereas the second to the time of reaction (Up-ton, 1994). The more the number of options and the less time for adopting an option the higher the level of flexibility. These strategic flexibility dimensions depend on company‘s ability to reconfigure its processes and competences in the foreign market (Hülsmann et al., 2006).

Aaker and Mascarenhas (1984) considered strategic flexibility as economic strategy and suggested to build competitive advantage by increasing a compa-ny‘s diversification, investment in underused resources and minimization of commitment in specialized used resources. Furthermore, organizational pro-cess was emphasized to build strategic flexibility by developing dynamic core competences and human capital, using new technologies, engaging in cooper-ation and developing new structures and cultures of the company (Shimizu & Hitt, 2004). Another approach on strategic flexibility was based on company’s resource-based portfolio of capabilities that creates ways to enhance flexibility (Johnson et al., 2003).

To hold a high degree of control over the international activities is seen as the main advantage of high control modes. Thus when the company chooses an entry mode it is very often a trade-off between control on the one hand (“benefit of integration”) and on the other hand, the necessary resource commitment (“benefit of integration”). Control refers to the authority over strategic and operational decisions concerning the foreign operations, and resource commitment refers to the assets the company needs to dedicate to the operations in the foreign market (Morschett et al., 2010). Resource com-mitment and flexibility are closely linked to each other. Morschett et al. (2010) define flexibility as the firm’s ability to switch the chosen operation mode quickly and with low costs or even to exit the market when market conditions have changed. Therefore high resource commitment reduces the strategic flexibility of the company. When the company selects a high control mode, it then faces a low flexibility and a high resource commitment.

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Risk

Koch (2001) states that the level to which the company will accept various business risks depends on the company’s financial situation, its strategic op-tions, the competitiveness of its competitive environment, its experience etc.

In general, foreign markets are perceived more risky than the domestic markets, therefore country risk assessment is important factor for internation-alization decisions makers (Hollensen, 2014). Goldberg and Veitch (2010) define country risk as the risk of investing in a country, involving changes in the business environment that can affect operating profits or value of assets. Meldrum (2000) divide country risks are divided into six main categories: eco-nomic, transfer, exchange rate, location, sovereign and political risks. Eco-nomic risk is a change in the economic structure or growth rate that affects expected returns of an investment, and is consequence of negative changes in economic policy or country’s comparative advantage, e.g. resource depletion, industry decline or demographic shift. Transfer risk is associated with foreign government decisions to restrict capital movements. These restrictions may limit to repatriate profits, dividends or capital. Exchange risk is related with unexpected change in currency system, e.g. change from fixed to floating ex-change rate. Location risk involves problems caused by partner or other or-ganization is the particular region. Sovereign risk emerges when a government is unwilling or unable to meet its loan obligations or reneges on loans it guar-antees. And lastly political risk is a change in a political institutions, stemming from a change in government control, social fabric or other non-economic factor (Meldrum, 2000).

The consequence of the high risk may eventually result in discontinuation of the company’s activities and the loss of company resources in a particular foreign market (Morschett, Schramm-Klein & Swoboda, 2010).

Export (low control) modes require fewer resources and involve lower risks. In many situations, exporting is a low resource commitment mode since the firm employs the assistance of agents and distributors to serve the market rather than using own company personnel facilities.

Consequently, when companies experience discontinuation of internation-al activities and loss of company resources in one market, we assume that they are risk-averse at subsequent market entries and prefer low control entry modes (Canabal & White, 2008; Kouznetsov & Jones, 2009).

International Experience

International experience is another firm related factor of great importance to companies who decide to internationalize (Dow and Larimo, 2009; Johan-son and Vahlne, 1977). Experience in this case is referring to a companies’ previous involvement in operating on an international level. Through interna-tional experience a company can reduce its costs and uncertainties when en-



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tering a new market, which favours the investment in a new subsidiary. Inter-national experience is considered an indicator of low levels of internal uncer-tainty (Hollensen 2014, p. 335). The outcomes of foreign expansion decisions are highly uncertain and risky. In addition, the information necessary to be processed is difficult to access and interpret due to the “psychic distance” between the home and host country (Dow & Larimo, 2009; Johanson & Vahlne, 1977). As a result, foreign expansion decisions are likely to be influ-enced by prior knowledge and experiences of decisions-makers (Abdul-Talib et al., 2011). Experience implies knowledge; thus the more experience a firm has gained in the international marketplace, the more knowledgeable and con-fident it will be about the opportunities and threats that the global market-place presents. Reliable information about international markets enhances a firm’s competitiveness by enabling it to better respond to environmental changes (Abdul-Talib et al., 2011).

Companies which have accumulated knowledge of foreign cultures and business practices through international assignment experience are better able to cope with uncertainly associated with international operations and thus they typically perceive foreign direct investments as less risky than executives without such experience (Carpenter et al., 2001). Extra experience will reduce the firm’s uncertainty about being able to manage a subsidiary in a distant market, making its managers more confident about entering with a high-control entry mode (Dow & Larimo, 2009, Pehrsson, 2008; Evans et al., 2008).

Internationally experienced companies are likely to be confident in their ability to accurately estimate risks and returns associated with foreign invest-ments and, as a result, are more aggressive in committing resources and as-suming control over foreign operations (Erramilli, 1992). As argued by Tung and Miller (1990), international assignment experience contributes to the de-velopment of a “global mind set” that leads to greater confidence in the ability to effectively handle foreign direct investments. This may result in companies with international assignment experience opting for the highest degree of ownership and control in foreign operations. Consistently, Herrmann & Datta (2002, 2006) found that companies with international experiences are more likely to prefer full-control entry modes and will favour high control entry modes over low control entry modes. Koch (2001) states, that firms which have collected knowledge in a region prefer to invest in the region rather than seek export modes there.

Social and cultural distance

People within the same country might differ in how they behave in the market place, as the individual culture is varying according to the context (Searle 2005; Hollingsworth 2000) and the value of the relationships (social capital) (Adler & Kwon, 2002). Hence comes different interpretations of it. Often culture is considered as part of a broader context, which is affected by

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the cultural layers of institutions and policies surrounding it (Dow & Larimo 2009, p.76).

Institutional theory (North, 1990) has also been applied to the entry mode decision as an extension to TC (Transaction Cost) theory. According to this view, environmental uncertainty is an important factor influencing foreign market entry. Institutional and cultural context variables determine such un-certainty and are included alongside traditional transaction cost variables to explain entry mode choices. The cultural distance between home and host country may influence managerial cost and uncertainty evaluations in target markets (Kogut & Singh, 1988). The greater the cultural distance the higher the perceived environmental uncertainty and risk of foreign direct invest-ments.

High control modes of entry are more vulnerable to environmental uncer-tainties and risks because they are less flexible and involve higher irreversible investments (Hill, Hwang, & Kim, 1990). As environmental uncertainty in-creases, companies may choose low control and intermediate entry modes over high control modes in order to limit the risk exposure and increase oper-ational flexibility (Luo, 2001; Kim & Hwang, 1992). At the same time, risk and cost associated with cultural distance between host and target countries may be reduced by reduced ownership, in form of choosing lower control modes (Nielsen & Nielsen, 2011; Slangen & van Tulder, 2009).

Data and Method

Yin (2009) differentiates between a single-case and a multiple-case design. A case-study method is useful to gain insights about how selected factors affect the choice of the incubator concept. In this article, a single-case study has been chosen because the longitudinal examination provides a systematic way of observing the events, collecting data, analysing information, and reporting the results over a long period of time.

This case study is pioneering and exploratory as no previous research has until now been conducted on the Danish Incubator concepts. Case studies that aim at theory building are especially relevant in a new research area where little is known about the phenomenon or in an area where current perspec-tives seem inadequate because they have little empirical substantiation (Eisen-hardt, 1989).

The Case: Kelsen Group’s planning for higher market shares in In-dia

The Denmark-based Kelsen Group has a history of producing premium butter cookies for over 75 years (www.kelsen.com). Over the years, the company has expanded its distribution network to Asia, South America,



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Africa, the Middle East and the U.S. and presently sells its cookies in 85 countries.

The Kelsen Group was founded in 1933 as a small family bakery in the heart of Jutland, Denmark. Today the premium butter cookies are sold under brand names as Kjeldsens, Royal Dansk, Copenhagen, Riberhus, Ripensa and Queen’s. Royal Dansk is particularly in the United States synonymous with traditional Danish butter cookies, baked according to original recipes.

Over the last couples of years the Kelsen Group has experienced a strong growth. According to Kelsen Groups’s financial reports their revenues increased from DKK 619 million in 2009 to DKK 838 million in 2012. In the same period the net profits increased from DKK 23 million to DKK 74 million (Proff – The Business Finder, 2013).

Today the group consists of two modern bakeries in Denmark with a total of 12 production lines plus sales subsidiaries in the USA and Hong Kong. In Kelsen Group (Headquarters), there are 200 employees and they manage to bake and sell app. 20.000 tons of cookies every year.

Overall, Kelsen is the the world’s number one premium butter cookie bakery. They are market leaders within the premium butter cookie category in Russia, the Middle- & the Far East, South America and on the European continent. In the USA, China and Hong Kong they are the largest importer of premium butter cookies.

Kelsen Group has its presence in the Chinese market for over 20 years, with its Kjeldsens brand being popular with retailers and consumers in major cities. Significantly, from 2009 to 2012, the brand's sales had grown at an average rate of over 28% per year in China (DI, 2013).

In June 2013, US-based Campbell Soup Company announced having completed the acquisition of Kelsen Group A/S from Maj Invest, a Danish private equity firm. The strategic acquisition would boost Campbell Soup's growth prospects in the Chinese market and increase its global footprint as well (Tholstrup, 2013).

Expanding consumer market for cookies in India

With rapid economic growth over the last decade, the income of the average household in urban India has grown by about 35% between 1994 and 2010. In this period, economic growth not only lifted millions of households out of poverty, but also gave rise to an emerging middle class – with new consumption patterns. These years the Indian retail sector is undergoing big changes. Still nearly 90% of the sales takes place from small family-owned shops, but the number of supermarkets is now exploding, and the food retail sector is expected to increase to increase 10-15% per year in the coming years. Today it is estimated that there is over 22 million ‘urban middle-class

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households’ in India. This figure is expected to increase to 91 million within the next 20 years (DI, 2013). These households are expected to increase their demand for foreign brands, which can provide them with a kind of “mini status Symbols”, like imported ‘butter cookies’.

In general, India’s bakery industry can be classed into two separate sectors – organized and unorganized. Biscuits and breads are the major components of the Indian bakery industry and together these two account for almost 80 percent of the aggregate production. The biscuit industry is said to have a better production and value level than the bread. Nowadays the biscuit industry contributes approximately 33 percent of the total production of the bakery industry. 70 percent of the biscuits in India are produced by the small scale sector that is made up of both the non factory and factory workers (Euromonitor, 2014, p. 2).

Per capita consumption of biscuits in India has been estimated at 2 kilos per year. India is one of the leading producers of biscuits in the world along with the US and China. The composition of India’s biscuits market (to which butter cookies belongs) has changed significantly over the past couple of years with the share of glucose biscuits, traditionally the largest selling category, going down. In 2010, glucose biscuits (the most famous brand is here Parle-G) were leading the market with a 26% share, while cookies trailed behind at 24%. In 2013 the situation was opposite with 26% for the cookies and 19% for glucose biscuits money (Euromonitor, 2014, p. 3). In volume terms the supply of cookies for the total Indian market has increased from 125,000 tons in 2008 to 360,000 tons in 2013. This development happened because the local biscuits manufacturers such as Parle, Britannia, and ITC Foods introduced a range of non-glucose products, in pursuit of higher margins. Earlier cookies were considered a special occasion treat but now biscuits makers have introduced new cookie products. There seems to be the trend that Indian customers are willing to spend a little more if they find the proposition to be value-for-money (Euromonitor, 2014, p. 4).

The Indian biscuits category (under which the cookies belong) is characterised by domestic playsers, such as Britannia Industries (35% market share), Parle Products (31% market share), ITC (15% market share), Surya Food & Agro (6% market share) and Anmol Biscuits (3% market share), with a combined market share of 90% in 2013 (Euromonitor, 2014, p. 4).

International players, such as Cadbury and Unibic Biscuits, although present in the country, have a niche presence with market shares of less than 2% market share each in 2013 (Euromonitor, 2014, p. 5).

Kelsen Group in India

Through Kelsen is a world market leader in premium butter cookies, they do not have a strong position in India. In India the market leaders regarding



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the broader ‘sweet biscuit’ category are the local producers Parle Products and Britannia Industries, each with app. 30% market share.

Kelsen has been on the Indian market for 15 years, but until 2013 they only sold through low-control modes, like independent importers and distributors. In 2013 Kelsen decided to make a more proactive market plan for the Indian market. By using the DI’s ‘Own Man in India” Kelsen started their proactive plan (with help from the DI) by hiring recruiting a Country Manager, Srikant Panda, who has increased the sales in India, significantly. The DI’s office in Mumbai takes care of all Kelsen’s practical administrative tasks in India, like accounting, payment of salaries, VAT etc. In this way Srikant Panda can concentrate on getting Kelsen’s butter cookies on the shelves in the Indian supermakets and ultimately capture the planned market shares in India (Tholstrup, 2013).

Overall, Kelsen Group regards the use of the ‘Own Man in India’ as a transition stage from a pure distributor solution towards forming its own sales subsidiary in India. In this way, Kelsen can minimize its financial risks, and still keep a relative high degree of control, by having its own country manager in India (DI, 2013).

Conclusion, implications and suggestion for further research

Based on our explorative and initial findings, we find that the export incubators promise of a market entry with high control, limited risk and less resource commitment is largely confirmed on a theoretical level as well as in practice by the Kelsen case, which demonstrates the need of being physical present in order to build network relations with external customers on the basis of face-to-face communication.

The minimal costs associated with the Incubator programme makes it pos-sible for Kelsen to use this as a transition to establish a wholly owned sales subsidiary in India, without too high risks. Consequently, the Incubator con-cept constitutes a good alternative for companies wanting to be fully repre-sented in a foreign maket. Consequently, the Incubator concept is perceived as a transition stage from having an importer or distributor (low-control mode) until forming a wholly owned subsidiary (high-control mode).

The different entry mode options can be described by the following char-acteristics.

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Table 2: The Incubator concept as a transition stage Low Control

Mode (Importer/ distributor)

Incubator Concept

(‘Own man in ....’)

High Control Mode

(Sales Subsidary)

Control Low Medium High

Flexibility High High Low

Risk Low Low High

International experience

Low Medium High

Social and cultu-ral distance

High Medium Low

Kelsen’s choice of the Incubator concept (‘Own man in India’) was per-ceived by the Kelsen management as being connected to:

- Medium control: One of the important tasks of the new Kelsen coun-try manager was to pick out the right customers (supermarket chains).

- High flexibility and low risk: By using the ‘Own man in India’ Kelsen did not need to invest in any expensive facility in India. The contract with DI is also relative short-termed (high flexibility).

- Medium experience and medium ‘social and cultural distance’: Nor-mally the ‘distance’ to India is perceived as high, but Kelsen has already got some international experience (from other international markets) and they already had some experience in India (15 years), so the ‘social and cultural distance’ can be described as being perceived as medium.

The authors are aware of the limitation imposed by the chosen methodol-ogy. Single case study method is often criticised in terms of its lack of robust-ness. Consequently, a multiple case design, on the other hand, including more companies entering India or other emerging markets would generate more generalisable results (Yin 2009). However, either single or multiple case de-signs are still useful tools in theory development and understanding new trends.

When it comes to the promise of a faster and more network-based profound foreign market entry and thereby to leverage export assistance through networking, we suggest that the export incubators deserve further attention as well as investigation.

One highly interesting proposition for further investigation relates to the opportunity for networking among the export companies at the incubator office. This article has mainly focused on the creation of networks of business relations outside the export incubator office. However it could be highly interesting to examine whether the export incubator office might have a



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central and important role as to being a formal mechanism for facilitating some kind of networking between the companies in the incubator office.

Depending on the result of this further investigation, the result could be that the exporting companies in the incubator office wish more than just access to a complete office infrastructure as well as administrative support and specialized professional services. Consequently, the people behind the export incubator concept might consider adjustments of the concept. For example, extending the incubator concept towards more value added through business development might be beneficial.

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