Small Business from Small Islands: Discussion (High-tech)

Discussion – High-tech


1. Discussion
NOT A SINGLE ONE of the five ‘high-tech’ stories above deals with a firm which was set up exclusively on the basis of local, island knowledge. We read of a shifting and shuttling from island to mainland, from mainland to island, trying to achieve and hold on to the best of both worlds. Combining the markets, clients, knowledge and technological dynamism of the city; with the serenity and more leisurely pace of the island way of life. Effective communications are crucial to make this possible and practicable. Although the internet and the world wide web facilitate this, they do not replace conventional opportunities for face-to-face exchanges. Access to regional and international airports, apart from ferry services, are important for island communities to remain ‘plugged in’ with the rest of the world. Islands which are jurisdictions have an advantage here because they are more likely to have such infrastructure, even out of sheer national pride. The Isle of Skye, in contrast, where Gaeltec is located, is still to get its own airport.

2. Two Routes towards Firm Establishment
With one exception, the firms owe their existence to the ideas, energy and financing provided by the founder-owner, possibly along with an immediate family member or a close friend with complimentary skills. The respective entrepreneurs and innovators set in motion an operation that did not require a huge outlay of capital, and therefore did not oblige a resort to outside financing that could have compromised the ownership of the operation. Baltic Workboats, in contrast, had to rely on a combination of proven management skills and external financing to be able to get going. This case represents a different, non-traditional route to the emergence of small firms: the chief executive, the plant, some of the employees and the business contacts were sourced from other, hitherto state-run operations which had folded up in previous years. Such conversions lie behind the setting up of various small firms in Eastern and Central European countries, following the aftermath of the collapse of the Berlin Wall and the Soviet Union wth its centrally planned economy.

3. Existing Firms acting as Incubators
In all five cases, spawning the idea for the eventual business product and the idea of setting up a new business for its development emerged intrapreneurially, while the eventual founder/owner was still in the employ of some other company. This feature sheds light on how the origins of entrepreneurship and product innovation are not necessarily associated with self-employment. Existing firms become, often willy-nilly, incubators of other firms, some of which may end up becoming their competitors. Business development then becomes in part a strategy of weaning away from one’s employment status, carefully negotiating the manner in which one’s former employer and the associated resources may be put to good use in one’s eventual own business. The intellectual ownership of the product idea is a crucial component of such negotiations; but technical support, marketing support and venture capital may also be vital issues to be considered.

4. Competitive Manufactures
Being small and based on a peripheral island may not confer advantages; yet, nor does it appear to be a disadvantage in exploiting the opportunities presented by the growth of modern information and communication technologies (ICTs). The internet has witnessed and spawned a completely new range of services and software. The latter are, in a sense, manufactures since they are tangible and can be bought and sold via operations that are distinct from those involving their actual production. Still their virtual nature, their weightlessness and portability remove any disadvantages that small firms on small islands might have to bear in relation to transportation costs. Consilia, Frisk and Shireburn have successfully located themselves in the global ICT market. Furthermore, Frisk enjoys the advantage of having not just adapted but created its main product: anti-virus software. It was a leader in this sector and has managed to maintain itself in this market. Shireburn has plugged into the captured market of Lotus Notes® users. Meanwhile, although Gaeltec’s main product (electronic transducers) is a conventional one in terms of occupying physical space and having physical weight, its miniature and lightweight nature makes it exportable via conventional mail: a huge saving on transport expenses.

5. Securing & Maintaining Overseas Clients
Indeed, managing to identify and maintain clients abroad is always a challenge to SMEs, and all the more so to firms which are located in relatively remote locations. This condition may oblige specific tactical measures. Consilia’s boss lived and worked in Stockholm , Sweden , for many years. That is where he sourced his business contacts which he eventually brought back along with him when he returned to the Åland Islands . The loss of such clients in 2003 reveals the dangers of too excessive a dependence on a few contacts; the latter may need to be replenished via regular visits to the metropole. Shireburn’s founder spent a decade studying in the United Kingdom and spun off his business venture with the assistance of a brother who worked in an accountancy firm in the City of London and provided contacts to potential clients. London was also the occupational base of the founder of Gaeltec, and the location which allowed him to develop the required expertise. In the case of Baltic Workboats, the firm enjoys the expertise of a Finnish marine engineer who has moved to Saaremaa . It is only Frisk which can depend exclusively on the internet for its marketing requirements; and this is a function of the very particular nature of its products.

The one main disadvantage of being an ICT-service provider located on an island may relate to after-sales customer support. The costs of travel, accommodation and human resources which may have to go into servicing software used by one’s clients (who would be mainly located overseas) can be very large relative to the ICT product’s cost. Frisk and Shireburn have solved this issue to their satisfaction: Frisk’s very particular software does not require any servicing; while Shireburn uses digital subscriber line (DSL) technology to assist its foreign clients: since 2001, it has only made two overseas sales calls in person. Meanwhile, given its particular services, Consilia may find that clients located ‘away’ are more difficult to satisfy.

6. Manoeuvring as Glocal Citizens
Working in cosmopolitan centres, and with multinational firms, helps one to get a feel of global markets and to nurture and plug into useful contacts and cutting-edge technologies that can prove crucial for business survival. However, the lure of the island is strong. Central to the ‘quality of island life’ is its rich ‘social capital’, defined as “networks, together with shared norms, values and understandings that facilitate co-operation within and among groups”. This is in sharp contrast to the frenetic, stress-laden and competitive environment of the city and can be strong enough to draw would-be entrepreneurs back to their island, and to encourage others to immigrate. It is the ability to become “glocal” – combining the desirability of the island milieu with the necessity to be globally competitive – that is a major, but not impossible, challenge. Both island roots and off-island routes need to be privileged. This detail cannot be stressed enough: interviewed island-based enterpreneurs were convinced that they were likely to enjoy larger turnovers if their businesses had been located in metropolitan areas: but they remain determined to keep their firm located ‘on the island’ because of the ‘quality of life’ factor.

7. Island Branding… but not too Close
Branding and customer loyalty are also important considerations; only Baltic Workboats is still in the process of branding their product, and it intends doing soon, using an English name. In all such cases, however, and in contrast to other firms operating in lower-technology manufacturing (such as craft or agro-industry), there is no attempt to brand the product closely to its island provenance. The entrepreneurs fear that such an association may reduce the perceived quality of the product they are offering in the eyes of their foreign clients; although a whiff of exoticism may contribute to make their product somewhat more attractive. Frisk provides the software to the Icelandic national genealogy database and web-site (with access limited to Icelandic nationals, and the site only available in the Icelandic language); but this has no direct relationship with its anti-virus export product and is mainly a form of sponsorship-in-kind to the very nationalist, Icelandic community.

8. Targeted External Supports
Institutional support to the ventures under consideration varies. It appears that, in spite of all the attempts at coming up with effective state support to SMEs, especially in their drive to source export markets, from around Europe, many entrepreneurs remain quite sceptical of any such function. Institutional support is nil or marginal in three of our five cases; if not negative because of an obligation towards overwhelming paperwork. In the Iceland case, the firm alleges that the local state actually prefers to source foreign supplies of the same product rather than go for the local version: perhaps an example of the prophet not being respected in one’s own land, and even more glaring when one hails from a small island where everyone knows, or can get to know, everyone else? This low penetration rate of state assistance programmes to SMEs is also evidenced in other countries. The Malta case identifies state support via export incentive schemes, lower corporate tax and training support: Shireburn Software was hived off the mother company also for the purpose of tapping such grants. In Iceland , institutional support is focussed mainly on firms operating in rural areas; since the bulk of IT-firms are located in and around Reykjavik , they are therefore excluded. Gaeltec stands out for reporting the most comprehensive institutional support package. Highlands & Islands Enterprise, as its predecessors, has supported Gaeltec’s construction costs, trips abroad and a variety of other promotional measures.

9. Seeking & Securing International Standards
The concern with product quality is met mainly via the satisfaction of external clients. After all, practically all the competition being faced by these ‘high-tech’ firms is coming from off island already. Only one of the five firms under study can source any of its required technological inputs locally. It is next to impossible to conceive of a cluster of locally based, supportive firms as could occur in other, larger locations. International awards and recognition by the UK-based Financial Times (in the case of Shireburn) are important signifies of a successful and reliable product and associated, crucial ‘after sales’ customer service. A Russian and a European ship register have both certified Baltic Workboats’ craft as meeting international standards.

10. A Professional but Loyal Workforce
The human resources required to develop and maintain such up-market products cannot be short of professional. All five firms explain that their employees, while all trained in-house, have been sourced from suitable post-secondary institutions and include a number of graduates. Many have been trained or sent on work experiences off island. Many are bilingual or trilingual, with English recognised as a key international language. Baltic Workboats’ employees have benefited from apprenticeships with a Finnish company which had placed orders for the Estonian firm’s sea-craft. Above average salaries and lean hierarchies keep staff turnover at extremely low levels, reward staff investment in higher education and recognize the scarcity of skilled, specialised yet flexible labour in small, island-based, labour markets.  

Small Business from Small Islands – NISSOS Project 

Overview | Acknowledgements | Introduction | The NISSOS Project and its Partners | Showcasing Successful Manufacturing Firms | Research Methodology | Discussion: Raw materials | Discussion: High-tech | General Conclusions

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