Going Abroad Challenges of the traditional food and beverage manufacturing SMEs in Kyushu, Japan: a case research approach by Yau-sum Barbara Cheung ________ The purpose of this paper is to explore the possible strategies and essential factors that could possibly enhance the internationalization of the traditional food and beverage manufacturing SME in Kyushu, Japan. With culture-bounded nature, internationalization of traditional food business is not easy. Case studies research was carried out to analyze the factors that were likely to determine the success of internationalization. We found that product innovation would be one of the important strategies, and the R&D might require collaborations with universities or public technology centers. International distributors/selling-agents abroad acting as overseas business partners of SME also played crucial roles in the development of overseas markets. Trade fairs and food expos organized by the public organizations provide opportunities for the SME to meet their potential business partners. Public assistances are also essential. Keywords: traditional food and beverage manufacturing, internationalization of SME, product development, public technology centers, Kyushu _________ Yau-sum Barbara Cheung is a lecturer at Kyushu Sangyo University, Japan. Address correspondence to: Yau-sum Barbara Cheung, Kyushu Sangyo University, 2-3-1 Matsukadai, Higashiku, Fukuoka-shi, Fukuoka City, Japan 813-8503. Email: [email protected]

Introduction Small and Medium Enterprise (SME) plays an important role in the regional economy of Japan. In Kyushu, the southern part of Japan, SMEs accounts for 99.7% of the total number of enterprises, and 72.1% of the total employment (Small and Medium Enterprise Agency 2010). Many SMEs in Kyushu are involved in the Food and Beverage industry, which is the major secondary industry in that region (METI 2010).

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However, a wave of depression hit Japan. Together with the aging population and low birth rate, it is expected that the domestic market for Food and Beverage would continue to shrink in the coming future. Situation would be even worse in regional rural areas 1

like Kyushu (Kyushu Economic Research Center, 2010). Companies started putting their focus not only in the domestic markets in Japan, but also to the overseas markets. It also becomes very important for the local governments to assist the SMEs to go abroad. But SME’s internationalization is not easy. They are always facing many difficulties to go abroad (Dhanaraj and Beamish 2003; Leonidou 2004). The situation is especially hard to the Food and Beverage manufacturing SMEs. Most of the food and beverage manufacturing SMEs in Japan adopt the niche-market strategy, basically selling their products to local regional markets where the companies are located (Arai 2010), lacking in experience of opening up new markets away from their home. Moreover, prior research pointed out that food was the typical culture-bounded product, which was not easy to export or introduce to the foreign countries (Fujisawa 1997). Especially in the cases where SMEs produce national traditional Japanese food, it would be even more difficult for them to go beyond borders, as the culture-bounded nature of such national food/ beverage are much stronger than those standardized global products. It would be hard to fill the cultural gap up between Japan and other countries. With the difficulties stated above, this study seeks to explore the possibilities of internationalization of the SMEs involving traditional Japanese food/beverage production. The aim of this paper is to understand the major factors and possible strategies that would lead to the success of SME’s internationalization, especially the national culture-bounded products manufacturing SMEs which account for a large portion of the Kyushu economy. Case study research was carried out to analyze and explore the underlying factors that are likely to determine the success of SME’s internationalization.

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In the following sections, relevant literature on the internationalization and innovation of SME will first be reviewed. Then, we would explain the research methodology. Empirical data of four case studies would be presented. Findings from the in-depth case studies will then be stated and analyzed in relation to prior research on SME’s internationalization and innovation. Finally, research implication and limitations will be discussed.

Literature Review In this section, we will briefly review the relevant literature on the internationalization and innovation of SME.

Internationalization of SME There are only limited materials on the internationalization of traditional national food industry in SME literature. Here we mainly review the literature on SME internationalization in general. Impacts of the size have been the focus of many prior research on the internationalization of SMEs. Calof (1993, 1994) found that small size of the firm might limit the number of markets SME can enter. Coviello and McAuley (1999) also pointed out that firm size had influence on the internationalization of SME. SMEs are always facing many difficulties to go abroad (Dhanaraj and Beamish 2003; Leonidou 2004). Internationalization of SMEs is not an easy job as a result of the relatively limited managerial resources. It would be even more difficult in the case of traditional national food and beverage manufacturing industry. Prior research on the internationalization of traditional food manufacturing SMEs was limited. But since food is the typical culture-bounded product,

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it would not be easy to export or introduce to the foreign countries (Fujisawa 1997). Especially for the SMEs producing traditional national food, it would be even more difficult. Different from the standardized global products, national food/ beverage posses high degree of culture-bounded characteristics. General marketing strategy of the standardized global products would not work in that case(Douglas and Craig, 1995). How to make the traditional food go beyond borders would be an important issue that needs further examination. Regarding the process of internationalization and mode of entry strategy, Johansan & Wiedersheim-Paul (1975) and Johansan and Vahlne (1977) introduced the U-model of studies of firm’s internationalization process. The model shows different steps that describe the firm’s level of internationalization. At the first stage, a firm often initiates its internationalization process by direct exporting to a foreign country. Later, the firm starts exporting with the help of independent representatives (agents/distributors) abroad, i.e. indirect exporting. The third stage is to develop sales subsidiaries in a foreign country. And finally at the forth stage, the firm would establish a production facility abroad. Similarly, regarding the strategies of entry mode to the overseas markets, Douglas and Craig (1995) indicated several modes of entry, including indirect export via agents, cooperative export, direct export, foreign manufacturing through contractual and licensing agreements, or joint venture, and the wholly owned subsidiaries. While cost effectiveness is a key factor in assessing alternative modes of entry, the location of production, commitment of financial and managerial resources, degree of control, and flexibility are also important factors for the evaluation. Exporting is typically used in initial entry and gradually evolves towards

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foreign-based operations. Bilkey (1978) also pointed out that export is SME’s most frequently used mode of entry in foreign makets. In the case of food and beverage manufacturing SMEs, we believe that the mode of entry strategy would probably be indirect, cooperative, or direct exporting, where the international distributors or selling agents overseas might play important role in the internationalization of SMEs.

Innovation of SME and External Sources of New Knowledge Prior research indicated that SME with limited financial resources and insufficient managerial infrastructure tended to rely less on costly R&D for innovative activities (Lim & Klobas 2000). With fewer resources, SMEs rely more on the external sources for new knowledge. Knowledge available from external sources includes those spilled over from industries and those released from basic science and technology by academia or other research institutions outside the industries (Cohen and Levinthal 1989). Information from the latter provides knowledge previously unknown to the industry and thus may contribute to the huge breakthroughs within an industry. Collection of information from external sources is instrumental for SMEs to create a new marketable product. Also, some research pointed out the weak institutional ties between universities and SMEs in Japan (Storz 2006). And as a result, public technology centers are playing a more important role than the universities. Shapira(1992), Ruth(2006) and Fukukawa (2007) also emphasized the important role of the local public technology centers. They contribute to the implementation of a triple helix structure of the state, industry and university collaboration in Japan, and thus is expected to help overcoming the traditional weakness of weak ties between universities and industry (Leydesdorff 2000;

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Hemmert 2006). Besides, Cohen and Levinthal (1990) indicated that firm’s innovation performance related to its absorptive capacity, which resided on the breath and depth of the prior experiences of their owners and critical R&D staff. In SMEs, not only the R&D staff but also the owners may play major roles in acquiring and applying the new knowledge (Omerzel and Antoncic 2008). Studies have shown that top management engaged in more knowledge and information acquisition had more superior performance (Daft et al. 1998), and an increase in knowledge acquisition led to better performance in product innovation (Ancona and Caldwell 1990).

Research Methodology Case Studies Approach The central research methodology for this research uses a qualitative approach involving the in-depth investigation of four SMEs in the traditional Japanese food and beverage manufacturing in Kyushu. In view of the limited materials on the internationalization of traditional national food industry in SME literature, we would like to explore how SME expand their business overseas, and what would be the important factors or possible strategies that enhance their performance of internationalization. Given the limited empirical knowledge of traditional food manufacturing SME’s internationalization, and the exploratory nature of this study, the qualitative in-depth case-study approach was considered appropriate for this research. Ghauri(2004) points out that case study is a useful method when the area of research is relatively less known, and the researcher is engaged in theory-building types of research. Yin (1994) says, case

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studies are a preferred approach when ‘how’ or ‘why’ questions are to be answered, when the researcher has little control over events and when the focus is on a current phenomenon in a real-life context. A case research methodology provides the opportunities to focus on naturally occurring and ordinary events in natural settings (Mankelow and Merrilees 2001). In-depth case study allows for theory building, not just theory testing. It also allows us to explore wholly and gain insight into the export issues of food manufacturing SME. Since the aim of this paper is to see ‘how’ or ‘why’ question, and our objective is to optimize understanding of the situation rather than generalization, a case study method is considered to be appropriate (Ghauri and Gronhaug 2002).

Selection of Cases The way we selected the samples was as follow. Every year the government or public organizations relevant to SMEs would select and award the companies for their excellent business performance. From the list of awarded companies between 2008-2010, we selected four SMEs in Kyushu involving in the traditional food and beverage manufacturing and successfully expanded their business overseas. The four SMEs we have selected are shown in Table 1. They are all traditional Japanese food and beverage production SMEs in Kyushu that succeeded in expanding their business overseas in spite of their traditional national food nature. Products of all these four firms are the typical national Japanese food/beverage, which were either originated in Kyshu, or have the major production sites in Kyushu. They are using traditional production methods, mainly hand-crafted or half-hand-crafted products. Data is primarily drawn from field interviews with the owners or the top management

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responsible for the internationalization and innovation of the firms. Interviews are open and semi structured. Each interview was recorded and transcribed verbatim so as to ensure the accuracy of information provided by the interviewees. Multiple sources of information were used. Apart from personal interviews, open data such as newspaper, magazines were cited. Field visits and observations to the companies’ factories and some of the overseas markets (supermarkets and stores) were carried out also. Using data from various sources allows us to cross check and verify data, ensuring the validity. Besides, we also conducted detailed interviews and investigation on the local public technology centers, distributors and selling-agents overseas, and the relevant local public organizations, such as JETRO(Japanese External Trade Organization), SMRJ(Organization for Small & Medium Enterprises and Regional Innovation, JAPAN) and METI (Ministry of Economy, Trade and Industry) in Kyushu.

Overview of the Case studies The four cases are summarized in Table 1. Summary table of the firms’ internationalization characteristics and strategies is presented in the Table 2 for discussion here and the next section. In this section, we show the results of our case-based empirical analysis. First, we describe each single case firm briefly, and then cross-compare them in the next section. In this way, the different aspects covered in our previously reviewed theoretical framework are matched against the empirical findings provided by the case studies. Especially we focus on the crucial factors that led to the success of internationalization in these four cases.

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Firm A: Konjac jelly (Konnyaku, in Japanese) producer Founded in 1877, Firm A is a small company specializing in the production of Konjac jelly. Firm A is aggressive in new product innovation, having good business performance not only in domestic markets but also in many overseas countries. In 2009, Firm A was awarded as one of the ‘Best-300 SMEs’ by Ministry of Economy, Trade and Industry (METI) in Japan. Konjac jelly is one traditional Japanese food, sometimes regarded as Japan’s ancient diet food. It is a hard jelly made from the starch of devil’s tongue. It provides dietary fiber, minerals and protein with a negligible number of calories. Comprised of minerals, dietary fiber and potein, Konjac is ninety-seven percent water and known to aid in normalizing blood sugar and cholesterol. With only thirteen employees including the part-time workers, all Konjac jelly products of Firm A are hand-made with the traditional production method. Different from the large companies in the same industry, Firm A refused the automation of production process, insisting on the traditional hand-made method. This gives Konjac jelly a special texture and favor, and becomes very popular among customers. Besides the domestic market in Japan, Firm A started its overseas business since 2002, when they first exported the traditional type of Konjac jelly to the USA and Singapore. Soon its products became very popular among the Asian (Japanese, Chinese, and Korean). In Asian cultures they have food similar to Konjac jelly, and was believed comparatively easier for the Asians to accept this new type of food even in countries outside Japan. However, being typically mottled gray in color, Konjac jelly was not popular among cultures besides the Asians as to most of the foreigners gray color spoils the appetite.

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To solve this problem and further expand the overseas business, Firm A found the necessity to develop new products especially for the overseas markets. Through the collaboration research projects with the universities in Kyushu, Firm A successfully developed a brand new product, Konjac noodle. They are Konjac jelly in noodle form, mixed with different kinds of cereal and vegetables such as pumpkins, carrots, and spinach. They can be used as the substitution of spaghetti or Chinese noodle, which are with rather large number of calories. Soon, Konjac jelly noodle becomes very popular among the foreigners. They regard it highly as one kind of tasty healthy food, full of dietary fiber, minerals, and low-calories. Currently, Firm A exports to more than 15 countries, including the USA, France, Russia, Singapore, Taiwan, Hong Kong, and Korea.

Firm B: Soy sauce & Soybean paste (Miso, in Japanese) manufacturer Firm B was founded in 1899, with over 110 years of history. Having been engaging in the production of Soy sauce and soybean paste for so many years, Firm B possesses lots of skills and techniques in fermentation, brewing and the relevant knowledge in microorganisms, which are the essential part of the manufacturing process of Soy sauce and soybean paste. The overseas business of Firm B began with the development a new product, Ayu Fish Sauce. Ayu Fish Sauce is a natural, additive-free seasoning made from sweet fish (Ayu, in Japanese) applying Firm B’s traditional soy sauce manufacturing skills and know-how. It combined the ancient, traditional soy sauce manufacturing techniques, with the latest modern food technologies. In the development process of Ayu Fish Sauce, Firm B created an innovative manufacturing process, in which the unpleasant odor

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usually associated with fish sauces could be eliminated. They discovered that the peptides found in the amino acids of Ayu Fish Sauce not only reduced unpleasant flavors, but also brought out the true essence of an ingredient’s taste, giving the pleasant flavors of sweet-fish. Firm B is the first company that succeeded in using river fish as the ingredients of fish sauce, and this innovative production process is patented. This new product Ayu Fish Sauce, and the innovative production technique was jointly developed by the local public technology center, Oita Industrial Research Institute (OIRI)2. They began the product development project since February 2003. After successive experiment and improvement in the favor and production method, they finally finished the new product Ayu Fish Sauce, and started exports in 2008. Currently, they are exporting Ayu Fish Sauce to France, New York and Hong Kong, not only the retail stores, but also to the chefs at three-star restaurants. The favor and quality of Ayu Fish Sauce is highly regarded by the overseas customers3. It matches not only the Japanese dishes, but also goes well with all kinds of cooking, including French, Italian and other Western dishes.

Firm C: Distilled liquor (Shōchū, in Japanese) manufacturer Founded in 1903, Firm C is one of the famous Shōchū makers in Kyushu. Shōchū is a distilled alcoholic beverage native to Japan4. It is typically distilled from sweet potatoes, barley, or rice. Kyushu region is one of the major Shōchū production areas. Especially Rice Shōchū5 (Japanese liquors distilled from rice) in Kyushu, in which Firm C is specialized, is considered as a special top-branded Shōchū among all kinds in Japan. Firm C is a well-known Rice Shōchū maker in Kyushu. It stared exports and expanded its business to overseas markets since 2008. Currently the destinations of

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export include Hong Kong, Taiwan, Shanghai, Singapore, America and Switzerland. Firm C first met its overseas business partner, a Hong Kong-based the international distributor, at a trade fair organized by the local government in Kyushu. The international distributor worked closely with Firm C, and rapidly developed the overseas markets. They played an important role in Firm C’s expansion of overseas business. At first, Firm C exported only the traditional Rice Shōchū items. Later it launched its newly developed product, Fruity herbal Liqueur, to the overseas markets, and it became even more popular, attracting not only the existing Shōchū fans, but also those potential customers who did not drink Shōchū before. Fruity herbal Liqueur which is considered to be good to health, is especially loved by female customers. Its lovely cherry-red color, and fruity-favor is another reason of the popularity. This Fruity Herbal Liqueur was developed jointly by Firm C, and the local public technology center (Kumamoto Industrial Research Institute). Firm C is very aggressive in new product development, not only for the overseas markets but also for the domestic markets. They have been keeping a good relationship with the public technology center. One of the research staff at the public technology center, who participated in the development project of Fruity Herbal Liqueur, was indeed the former employee in Firm C. This good relationship is believed to help enhancing the performance of product development projects.

Firm D: Spicy Mentaiko (salted Pollock’s roe spiced with hot red pepper) producer Spicy Mentaiko is the marinated roe of Pollock. It is a common Japanese cuisine, and Kyushu is the major production site of Mentaiko. Firm D, founded in 1976, is one of the

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famous Mentaiko producers in Kyushu. Facing the decreasing birth rate in Japan, Firm D’s owner strongly felt the necessity to extend its market overseas. In 2008, they started market research and see if there was any potential to open the market in Korea. They found that there was similar food Mentaiko in Korea, but not many other food products like pasta sauce or salad dressing using Mentaiko as ingredients, which were rather common Japan. Seeing the potential of market in Korea, and with the help of his friends (Alumni of the school where the owner got his MBA degree), the owner carried out a product development project with the university where he got his MBA, and created a Mentaiko Mayonnaise with favor specially for the Korean market. They found the strong difference of likes and dislikes in food between Japan and Korea, even though both of them have Mentaiko in their cultures. Though the collaboration project with the university, Firm D made a special favor Mentaiko Mayonnaise to Korea market and started launching in 2009. Currently Firm D is aggressively expanding its markets in Korea, and participating in the relevant trade fair and food expo, as they believe the most efficient way to grow the overseas business depends largely on the help of overseas distributors/agents in oversea markets.

Discussion How the traditional Japanese food/beverage can travel beyond borders and get into the overseas markets with different cultures? The cases showed that in spite of the difficulties, it was possible for the SMEs producing traditional national food/beverage to go abroad and succeed. In this section, we compare the findings on internationalization characteristics and strategies of our case studies, focusing mainly on the crucial factors

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that were discussed in the theoretical framework previously reviewed. Summary of the comparison is shown as Table 2. Several points emerged from the analysis of the case studies. Our major findings are as follow: (1) Lots of efforts being put into the internationalization and innovation in spite of SME’s nature of limited resources (2) Importance of product innovation (fusion with other cultures, healthy) (3) Importance of external sources of new knowledge (universities, and local public technology centers). Performance of innovation depends on the relationship between SME and the partners of collaboration (4) Entrepreneur’s characteristics, such as ambition towards internationalization and innovation, absorptive capacity, and business contacts, strongly affect the performance of internationalization (5) As part of the global marketing strategy, distributors/selling agents overseas acting as SMEs’ business partners contribute largely on the development of overseas market (6) Importance of trade fairs or food exhibitions organized by local govt or JETRO. Important opportunities to meet the potential overseas business partners (7) Importance of public assistance (trade fair, food events, funding, local public technology centers, etc.) First, quite contrary to what is usually believed, with even limited amount of resources, traditional national food/beverage manufacturing SMEs that succeeded in expanding export business overseas invested unbelievably large portion of their time, money and efforts in innovation, the development of new products and new production

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methods, utilizing their existing knowledge and skill accumulated from the traditional way of production method. Owners of the firms showed strong aggressiveness in product and production method innovation, carrying out R&D projects within their own companies, and also with the external organizations. Second, we find out the importance of product innovation, to develop ‘brand new products’ using the traditional ingredients and production method, but in a way that is fusion with Japanese tradition and other cultures/cooking. Not just the traditional items, new products that can go well with the foreign food cultures are necessary. Instead of using the limited resources in advertising their traditional items and filling the cultural gaps with other countries, SMEs rather use the resources in new product development, which would be a crucial factor that leads to success. Case studies showed that, compared with the traditional items, new products developed based on the traditional ingredient and production methods were more easily accepted in the foreign cultures. In these cases, “Fusion”, and “Healthiness” seems to be the essential key concepts in the product development. New products developed for the overseas markets, such as Ayu Fish Sauce in Firm B and Mentaiko Mayonnaise in Firm D, come up with innovative ways to incorporate the traditional Japanese ingredients in foreign cultures, like Italian, French, American or Spanish food. Traditional Japanese food which mainly made with natural ingredients by traditional production methods is notable for its natural and healthy nature. This enhance popularity in overseas, especially during the health boom recently, that many people recognize the potential of using Japanese traditional ingredients in the diet food. Konjac jelly noodle in Firm A and the Fruity herbal Liqueur in Firm D are the typical modern fusion dishes which is good to health also.

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Third, in the process of new product development or production method innovation, external resources, such as the local universities and local public technology centers, played important roles in improving the performance of innovation. This is consistent with the findings in prior research. They provide brand new knowledge or skills to the SMEs that would enable innovative development, and support them through the collaboration of innovations. In our cases, all four firms were aggressive in new product / production method development, and they carried out joint R&D projects with the local universities and/or with the local public technology centers. However, different from the findings in prior research that pointed out the weak institutional ties between universities and SMEs in Japan (Storz 2006), the cases, i.e. Firm A and Firm D, in our studies showed close and constructive collaboration relationship between them. The joint R&D projects came up with fruitful results in both cases. From the evidences we got from the field studies, we believe the performance of joint innovation projects depends largely on the trust and strength of relationship between SMEs and the collaboration partners (universities and/or public technology centers). And especially in the case of collaboration with universities, the strength of relationship is strongly affected by the attitude (aggressiveness) of the SME’s owner. In the case of public technology centers, their relationship with SMEs usually started even before the joint R&D projects. SMEs use the public technology centers’ other services, as the lab test and evaluation of their food items. This trust and close relationship grew since before, and that enables the success of food development later. They had the opportunities to know each other with the business activities they have been carrying out for the domestic markets. For example, Firm B has in fact known the

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researchers at the public technology center more than 10 years who then took charge of the joint R&D project. Firm D’s former employee is now working at the public technology center who took an active role in carrying out the product development projects with Firm D. In addition, the innovative ‘aha’ ideas and proposal of R&D projects were brought to the side of SMEs from the side of public technology centers. Researchers suggested ideas to the SMEs and proposed the joint R&D projects. On the other hand, SMEs seldom have opportunities to get to know the researchers in universities in their day-to-day business activities. SME owners have to be very active and aggressive to get in touch with the universities and keep the close collaboration relationship, such as the situation we observed in the case of Firm A and Firm D, where the owners were outgoing and always took the initiatives to carry out joint R&D projects with the universities. The proposal and ideas of innovation were mainly brought from the SME side to the university side in these cases. Forth, closely related to the above point, attitude and characteristics of the SME owners impose strong effect on the result of innovation and thus the performance of internationalization. As it is mentioned above, trust and close relations with the companies and universities and/or public technology centers enhance the performance of innovation, and the relationship is largely depends on the attitude and aggressiveness of SME owners. In our cases, all four owners played active role in product development, and take initiative in expanding their business abroad. They also showed positive attitudes towards the acquisition of brand new knowledge and skills from external resources, and always be ready to go out and join the trade fairs / food expo, meeting new people and create new contacts. Their strong intention and ambition towards international business and innovation are believed to be very essential to the overseas

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business development. Fifth, acting as the SME’s business partners overseas, international distributors and/or selling-agents overseas are crucial in the process of overseas market development. Not only did they provide subtle but important information of the overseas markets to the SMEs, suggesting them the better way to do marketing activities overseas, or how to change the favor or package of the items if necessary, international distributors and/or selling-agents overseas also carry out the sales promotion activities and expand the sales channels for the SME items. From the evidence we found in the case studies, the quality and quantity of sales promotion activities carried out by the international distributors and/or selling-agents overseas largely affect the performance of SME’s international business, especially because SME usually do not have sufficient resources to handle the promotion overseas by themselves but mainly rely on their business partners, the distributor and selling agents overseas. Sixth, from the case studies, the importance of trade fair/food expo, and other promotion events can be observed. This provides the opportunities for the SMEs to carry out the global marketing activities, and to meet their potential business partners: the distributors/selling-agents overseas, and also the chance to let the other cultures to know their items. These events are usually organized or supported by the local governmental or other public organizations such as JETRO (Japanese External Trade Organization) or SMRJ (Organization for Small & Medium Enterprises and Regional Innovation, JAPAN). Also, these public organizations provide necessary staff, including free interpreters, financial help and supports for the SMEs to join the exhibitions. Finally, as it is shown above, the balance of public assistance is crucial in the SME’s internationalization. From the case studies, we found how all these assistance have

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helped the SME in their challenges of going abroad. That could be in the form of trade fairs, food promotion events, financial assistance or the establishment of public technology centers. For example, in an effort to promote the fusion healthy Japanese food to overseas markets, JETRO is also offering professional food events in the major overseas cities, demonstrating ways to make fusion dishes with Japanese ingredients, introducing new ways to enjoy Japanese food. These kinds of supports from the public and governmental organizations are very essential. With limited internal managerial resources, traditional food manufacturing SMEs need the external resources and assistances from the local governments and other public organizations.

Conclusion and Limitations Through the analysis of in-depth case studies, we managed to explore the possible strategies and essential factors that could enhance the internationalization of the traditional food and beverage manufacturing SME in Kyushu, Japan. With culture-bounded nature, internationalization of traditional food business is not easy. But we found that product innovation would be one of the important strategies, and the R&D might require collaborations with universities or local public technology centers. International distributors/selling-agents abroad acting as overseas business partners of SME also contributed crucially in the development of overseas markets. Trade fairs and food expos organized by the public organizations provide opportunities for the SME to meet their potential business partners. Public assistances are essential in enhancing the internationalization of traditional food / beverage manufacturing SMEs. This research makes original contributions in that it uses case studies to examine how the traditional food making SME can go abroad, and the relationship between SME and

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the public technology centers. This research makes three specific contributions to the existing research and the policy making by focusing on the internationalization process of SMEs in the national food and beverage industry. First, it shed lights on the possible international strategies of SMEs in the rural areas like Kyushu. There is not much prior research regarding this topic, although we recognize the importance to boost the regional economy by helping also the national products manufacturing SMEs going abroad. This paper is a new try to address this issue. This research suggests the possibilities of successful strategy for these kinds of SMEs. Second, this research points out the importance of new product development and the collaboration of innovation with the public research institutes. It provides several hints to the policy making which would be more effective in improving the performance of SMEs’ business overseas and boosting the regional economy in rural areas in Japan. “Fusion” new products, which were born from the traditional Japanese food, still made in handcrafted style, but in conjunction with good taste and good to health concepts, may be one of the crucial hints to success. Third, this study extend prior research of resource-based approach to the analysis of SME’s internationalization, especially in the way that SMEs use much of their limited resources in the product development and the utilization of external open resources outside the companies. However, one of the primary limitations of case research is the limited generalisability of the findings (Eisenhardt 1989). The major limitation of this research is that it was based on only four case studies. It is suggested that a quantitative survey be carried out to test the possibility of generalization of the findings.

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Firm Firm A Firm B Firm C Firm D

Table 1 Profile of the Case Studies Business nature Year Founded Number of (major product) Employees Konjac Jelly 1877 13 Soy Sauce 1899 25 Shōchū 1903 45 Mentaiko 1976 20

Capital (Yen) 8 million 10 million 15 million 50 million

Table 2 Characteristic Traits of Internationalization Strategies of the Four Cases Characteristics Firm A Firm B Firm C Firm D of the firms Year of export debut Destinations exports

2002

2008

2008

of Hong Kong, Hong Kong, Hong Kong, Taiwan, USA, France Shanghai, Singapore, Korea, Taiwan, USA,

2009 Korea

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North America, France, Russia (over 15 countries) Items exported (Traditional product)

Traditional Konjac Jelly

(New product)

Konjac Noodle

Switzerland

Traditional Soy Traditional Sauce and Soy Shōchū Paste Jelly Ayu Fish Sauce

Characteristics of Strong business the executive contacts and good entrepreneur at maintaining good relationship with the clients, universities, and local governments

Strong contacts and good relationship with the local government, and local public technology centers

Attitude towards Very strong strong Internationalizati international international on ambitions ambitions

Fruity Liqueur

n.a.

herbal Mentaiko mayonnaise

Strong contacts and good relationship with the local government, and local public technology centers strong international ambitions

Aggressive in expanding business overseas

Good contacts with the universities. Strong business contacts with alumni Very strong international ambitions Aggressive in expanding business overseas. Feel the necessity to develop overseas markets

Attitude towards Aggressive in innovation expanding overseas market, and product developments

Carrying

Active in new product development, not only for the overseas markets, but for the domestic market also

out Carrying

Active in new product development, not only for the overseas markets, but for the domestic market also

Active in new product development, not only for the overseas markets, but for the domestic market also

out

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several product development projects with different universities at the same time

Innovation Collaboration (New Product with universities Development, or New Production method development)

several product development projects with different companies/local public technology center at the same time Collaboration with local public technology center

Collaboration with local public technology center

Collaboration with the university at which the owner got his MBA degree (old school) Got help and advices from other alumni

Relation with Good relation external with many knowledge different sources universities

Good relation with public technology center long before (good friends)

Good relation with public technology center.

Connections with the university at which the owner got his MBA degree (old school)

Former employee is working at the local public technology center Entry to overseas Export market Took the initiative to develop overseas market from the beginning.

Participated

Export

Export

Export

Took the initiative to develop overseas market from the beginning.

Took the initiative to develop overseas market from the beginning.

Took the initiative to develop overseas market from the beginning.

in Participated

in Participated

in Participated

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trade fairs for trade fairs for trade fairs for in trade fairs overseas market. overseas overseas market. for overseas market. market. Developed Developed Developed products for the products for the products for the overseas market. overseas market. overseas market.

Developed products for the overseas market.

Export traditional products only at the beginning but found that only Asians were buying.

Export traditional products only at the beginning, but not doing very well.

Export traditional products at the beginning, and were successful.

The overseas market research, and contact were done directly by the firm.

Decided to develop brand new products that even the Westerners would like. The new products became very popular and sales amount showed significant increase

Later introduced new product fish sauce which tasted totally different from the traditional soy sauce, and could be used for many different kinds of dishes. Fish sauce became popular item.

Even more popular after introducing the new product which not only attract the existing Shōchū fans, but also those who did not drink Shōchū, opening up new market

They found there was still not many items made from Mentaiko overseas, and saw the potential of the overseas market.

International distributors/ selling agents overseas

Overseas markets developed with the help of overseas distributors. Also sold on internet.

Overseas markets developed with the help of overseas distributors.

Overseas distributors rapidly develop the market for them, not only to the retail stores but also the hotels and restaurants

Overseas markets developed with the help of overseas distributors.

Situation where firm met their international distributors/sellin g agents overseas

At the trade fair/food expo organized by JETRO, and other public organizations

At the trade fair/food expo organized by Local government, JETRO, and

At the trade fair/food expo organized by Local government, JETRO, and

Introduced by owner’s friends (alumni of the MBA school)

Export Development process

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other public other public organizations organizations

According to the data from METI(2010), Food & Beverage manufacturing industry is the most essential secondary industry in Kyushu, accounting for around 19.4% of the total volume of output, even higher than the automobile industry (16.2%) and the electrical equipment manufacturing industry (13.2%). 2 Oita Industrial Research Institute (OIRI), a public technology center, ran by Oita Prefecture Local Government. Its major role is to provide technological support for the companies in Oita Prefecture in the process of new technology or new products development, and coordinate the R&D collaboration projects between companies and universities.

1

Ayu Fish Sauce is preferred by many top professional chefs in the world, used as a secret ingredient in French or Italian cooking. 3

It is said that Shōchū was originated in Persia, and the technique of production spread east to Kyushu Japan in the mid 16 century where Shōchū was born. 4

Rice shōchū shares its basic ingredients with sake. It has a fairly thick taste, and is said originally developed in regions where were too warm for sake production.

5

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