This chapter focuses on the internationalisation processes of national telecommunications companies (telcos) from small and open economies (SMOPECs) who have moved from a domestic monopoly to an actor within the global industry. This chapter aims to increase our understanding of how these companies have internationalised, what factors have been the most influential in this process, and how the position of these companies has changed in the evolving value network of the industry. The basis of the analysis will be a theoretical discussion about the concept of value networks and research on the internationalization process of a firm. The study reported in this chapter is part of a wider research project on the internationalisation strategies of telcos from SMOPECs. Case examples from that study will be used to illustrate the internationalisation processes of telcos from SMOPECs within the context of the whole industry value network. Finally, conclusions will be drawn and future research opportunities suggested.
The telecommunications industry has experienced significant transformation: value chains have changed from vertical to horizontal, and there has been an important shift from value chains to value networks (Cave & Waverman, 1999; Fjeldstad, Becerra, & Narayanan, 2004; Li & Whalley, 2002; Sabat, 2002; Steinbock, 2003). Many factors, such as digitalisation, deregulation and privatisation, have contributed to these developments (Häikiö, 2001; Ramamurti, 2000). Li and Whalley (2002), who explored the complexity of value networks, argued that new research is needed in this still evolving area. They emphasized that ”To survive and thrive in this new environment, every company needs to understand their positions in each of the value chains within the value network, and to re-evaluate their strategies and business models” (Li & Whalley, 2002, p. 469).
This chapter will analyse these developments by focusing on the internationalisaton processes of national telecommunications companies (telcos) from small and open economies (SMOPECs), who have moved from a domestic monopoly to be an actor within the global industry. SMOPECs include countries such as Austria, Denmark, Finland, Ireland, New Zealand, Portugal, Norway, Sweden, and Switzerland, who have integrated in the world economy by lowering or eliminating their trade barriers (Benito, Larimo, Narula, & Pedersen, 2002; Kirpalani & Luostarinen, 1999; Maitland & Nicholas, 2002; Merrett, 2002). Multinational companies (MNCs) from smaller countries face specific challenges due to their relatively smaller size and limited resources, especially in capital-intensive service industries such as in the telecommunications industry. In these types of industries where expensive foreign direct investments (FDIs) are commonly the mode to enter international markets, the largest MNCs from the largest economies of the world often dominate the sector (Knight, 1999). Research findings are still limited on how MNCs from smaller countries have managed these challenges and if there are alternative strategies available for them internationally (Knight, 1999). This chapter aims to increase our understanding of how these companies have internationalised, what factors have been the most influential in this process, and how the position of these companies has changed in the evolving value network of the industry. An analysis of telcos from SMOPECs provides valuable longitudinal empirical data on this topic, as many of these companies were among the first telcos to internationalise.
The study described in this chapter is part of a longer ongoing research project on the internationalisation of telcos from SMOPECs (Laanti, 2008). The purpose of the project has been to analyse the applicability of traditional internationalisation theories, especially internationalisation process theories and the latest strategic theories on globalisation, to a service network industry. Case examples from the empirical data of the wider study will be used here to illustrate the different phases of the internationalisation process of telcos from SMOPECs within the context of the whole industry value network.
The findings described here should be useful to researchers and managers of internationalising telcos from SMOPECs, and telcos more generally, for other companies in the telecommunications industry or the whole ICT industry’s value network, and for policy makers to increase their understanding of the internationalisation process and associated factors.
The next section focuses on the concepts of value chain and value network, and discusses the telecommunications industry´s value network and telco’s position and role in it. It is followed by a brief review of the research on internationalisation theories, with a more specific description and analysis of the internationalisation process of telcos from SMOPECs. Finally, conclusions are drawn and future research opportunities suggested.
Key Terms in this Chapter
Value Chain: The concept of value chain has been widely covered in the strategic management literature, most notably by Porter (1985). A value chain arises from a company’s activities and internal business processes to create value for its customers (Porter, 1985). This value chain of a company then belongs to an industry value chain or system (Porter, 1985)
Telcos: Telco is the term for a telecommunication operator, that is a company that provides telecommunications services such as fixed-line, mobile and data services for end-customers. Most of the traditional telcos have been government owned telecommunication companies and usually also national monopolies, or at least duopolies
Internationalisation Process: describes a dynamic process of a firm’s entry to international markets. In most cases the longitudinal studies of international processes include analyses of firms’ operation modes and market strategies. Most of the traditional internationalisation process models have emphasized the gradual and incremental nature of the firm’s internationalisation (see e.g. Bilkey & Tesar, 1977
Telecommunications Industry: Consisted traditionally of the manufacturers and network operators in fixed, mobile and data communications businesses. More recently many other companies, such as contract manufacturers, service providers, and application and content providers have emerged to be important players in the industry (see also the definition of the ICT industry)
Value Networks: The difference in the definition of value networks, when compared to the traditional definition of value chains, is that in a value network there are several entry and exit points, and that activities take place simultaneously instead of successively (Li & Whalley, 2002)
Small and Open Economies (SMOPECs): Small and open economies include countries such as Austria, Denmark, Finland, Ireland, New Zealand, Portugal, Norway, Sweden, and Switzerland, who have integrated themselves with the world economy by lowering or eliminating their trade barriers (Benito et al., 2002
Globalisation: The OECD (2007) defined globalisation from an economic perspective: “The term globalisation is generally used to describe an increasing internationalisation of markets for goods and services, the means of production, financial systems, competition, corporations, technology and industries”. Whereas Clark and Knowles (2003) included a broader view in their definition: “The process by which economic, political, cultural, social, and other relevant systems of nations are integrating into World Systems is called globalisation.” It seems that when analysing the internationalisation of many service companies, especially in network industries such as the telecommunications industry, it is necessary to include this broader perspective of globalisation into the conceptual framework, as often political and cultural systems play a significant role in the internationalisation of services
ICT Industry: The convergence of the telecommunications industry with the computing and broadcasting industries resulted in a broader definition of Information and Communications Technologies (ICT). As defined by OECD: “… ICT sector refers to equipment and services related to broadcasting, computing and telecommunications, all of which capture and display information electronically.” (in UN Social Economic Council’s Report of the International Telecommunication Union on information and communication technologies statistics, 2004)