The situation

Company A is a Swedish company producing telecommunication equipment. The company produces mainly to customer specification. Despite being a manufacturing company with several technological processes, the company has a strong service focus. It tries to develop together with customers and to offer the best technical and economical solutions to the partners.

The company has outsourced several of its manufacturing activities into Estonia, Poland and Hungary. After the initial outsourcing period in the second half of 1990s the company has given several local network partnersa more independent role.

During the expansion period in the last decade the company has developed into a network model with several specialised suppliers in several countries. The company sees big opportunities in East Asia market but also feel certain lack of experience for operating in East Asian conditions.

The process

While looking for subcontracting partners several options were negotiated inside the firm. Eastern European and Baltic countries were viewed as the first option. There was not enough know how but one neighbouring firm had positive outsourcing experience and managers of two companies had discussion about internationalisation.

The wife of the one of directors of the firm has family connections in Estonia. Prior to the Second World War in Estonia there was a 15000 Swedish speaking Estonian minority who mainly fled during the war to Sweden. After the opening of Estonia first contacts were made in the middle of 90s.

Company A gave its first outsourcing contracts in the 1995. Two engineers from the company worked for 2 months in Estonia and one of the managers of the Estonian side worked in Sweden. After the half year period a joint venture between Estonian firm and company A was created. Company A (or new joint venture) also received support form Swedish International Development Agency (SIDA). The new joint venture operated first in the old premises of the Estonian partner. Orders and production volume grew relatively stable in the period between 1996-1999.

A change of business strategy by a business partner of company A accelerated changes in the company's structure. Several more activities were needed to be outsourced and stronger ties between local joint-ventures and end customers maintained.

The increase in demand necessitated the building of a new factory. Before investing in the new factory company A acquired all shares in the local joint venture. After the construction of new premises extensive training was given for mid level managers and several workers. Company A's local branch also developed certain new functions and there are plans to make it responsible in the future for certain types of production under company A's umbrella.

The outcome

Company A has switched a substantial part of its supply chain to Estonia and other Eastern European countries. Outsourcing has been accompanied with searching and finding the right business models and right personnel. In the second period which had been accompanied by ownership control, company A has also developed more local capabilities. In the future company A plans to develop into amore network type business operating in a decentralised form.

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Learning points

Supply network creation consumes a lot of time and effort. A Company A manager said that this is a sometimes random process with several challenges. During the expansion period several cultural differences were perceived but a strong cooperating culture and clear business focus helped to overcome difficulties.

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