Classeek Spirits of the World: E-business

Internationalization
Case

Author: Harry Matlay, Paul Westhead & Mike Wright

Online Pub Date: July 12, 2017 | Original Pub. Date: 2011
Subject: Relationship Marketing, Global Entrepreneurship & Innovation, Small & Medium-
Sized Enterprises
Level: Intermediate | Type: Indirect case | Length: 3493 words
Copyright: IP Publishing Ltd 2011
Organization: Classeek Whiskys Ltd. | Organization size: Small
Region: United Kingdom of Great Britain, Northern Ireland | State:
Industry: Manufacture of beverages
Originally Published in:
Matlay, H., Westhead, P., & Wright, M. (2011). Classeek Spirits of the World: E-business
internationalization. The International Journal of Entrepreneurship and Innovation. 12(2),
137144. DOI: http://dx.doi.org/10.5367/ijei.2011.0030
Publisher: SAGE Publications Ltd
DOI: http://dx.doi.org/10.4135/9781473996014 | Online ISBN: 9781473996014
SAGE SAGE Business Cases
IP Publishing Ltd 2011

IP Publishing Ltd 2011

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http://dx.doi.org/10.4135/9781473996014

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Abstract

This case study examines the motivations and barriers to small firm
internationalization. The entrepreneurs human and reputational capital, experience
and knowledge are leveraged to address barriers. An e-business platform strategy is
illustrated. At a secondary level, the case also demonstrates the challenges inherent
in revitalizing family businesses over generations of ownership.

Case

Various types of e-business, also known as click and sell organizations, have emerged to
exploit new and highly lucrative opportunities. Many e-entrepreneurs sustain the competitive
advantage of their e-businesses by leveraging their extensive social and professional
networks. Some smaller businesses encounter barriers that retard their efforts to tap into
lucrative international niche markets. This case study illustrates the barriers to
internationalization experienced by Jack Class, who decided to break into the top-end spirits
market of continental Europe. Barriers to internationalization are highlighted. Important
lessons can be learnt from Jacks experience relating to how to avoid and/or overcome
barriers to internationalization.

Personal and business background

Jack Class is a 34-year-old graduate, holder of a BSc in Computing Science and an MSc in
Business Web Design, both of which were obtained from a UK top ten university. From an
early age, he visited Classeek Whiskys Ltd (a fictitious name for a real business), which is a
family business that his grandfather Julius and father Cornelius jointly owned and co-
managed. They inherited equal shares in the business started in 1945 by Sigismund Class,
and had been working together as business partners since 1981. In 1990, Jack, then aged 14,
started helping out in the packing department of Classeek Whiskys during weekends and
school holidays. This second-generation family firm specialized in sourcing high-quality
whisky, which it sold on, at a premium price, to retailers and customers in the UK. At the time,
the business was prosperous and incorporated a medium-sized distribution warehouse with
spacious offices in the East End of London, and four long leases on prestigious retail outlets
in London, Birmingham, Manchester and Edinburgh. The firm provided employment for 36
full-time employees. Annual sales turnover levels varied between 340,000 and 420,000, and
profit margins varied between 200% and 300%. Classeek Whiskys adopted a bespoke
strategy focused on high-quality products, reliability and personal service. Loyalty to a small
number of top distilleries guaranteed high-quality specialist products that were purchased at
lower prices than those available to competitors. They operated in the high-quality
gentlemens whisky niche market, where they offered a high-quality personal service to a
discerning and loyal clientele. The firm operated a free, same-day delivery service for all
commercial orders placed before noon for customers domiciled within the retail catchment
area of their outlets.

Jack got on well with his father and grandfather, who each owned 50% of the equity in the
family firm. As he progressed through various jobs and departments in the firm, Jack acquired
practical business experience, and often acted as an intermediary between his father and
grandfather. Jack was called upon to contribute to strategic decisions and mediate between

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the two directors during strategy disputes.

In May 1998, his grandfather died. Jack inherited 50% of the equity in the family business. In
January 1999, while enrolled on a part-time MSc in Business Web Design, he joined his father
as co-owner and co-director of Classeek Whiskys Ltd. Jack set out to modernize the family
business. His dissertation topic focused upon the design and implementation of a dedicated
website for e-businesses, involving full electronic commerce facilities and online proactive
customer feedback. His father refused permission for website implementation in their
business on the grounds that it was too time-consuming and resource-intensive to develop
and implement. Father and son had radically opposite approaches to managing and
developing the family business. Jack wanted to modernize internal systems and diversify its
portfolio of products and services, while Cornelius insisted on the retention of the old-
fashioned Classeek approach, in which quality products worked best, maintaining that all
their whisky lines literally sold themselves. The domestic market slowed down during the
early 2000s. Father and son managed to reach agreement on Jacks tentative strategy to
professionalize and to grow the business outside the domestic market. They decided to
internationalize and sell directly to distributors and general public customers located in
continental Europe. Disagreements delayed and curtailed their attempts to penetrate lucrative
European niche markets over the 2002 and 2003 period. The drive to internationalize was
abandoned. Due to the deterioration of the domestic market, the retail outlets in Birmingham,
Manchester and Edinburgh were no longer viable. To reduce costs, these outlets were closed
down. Classeek Whiskys Ltd generated income by subletting the leased premises. The
business incurred further losses during 2004 and, in spring 2005, a firm of consultants was
called in to evaluate business activities.

In June 2005, the consultants made the following recommendations: (1) the business should
be split fairly between father and son (2) Cornelius should own and manage the retail side
and the sublets and (3) the wholesale aspect and warehouse/offices should be transferred to
Jack, as the sole owner and director. Reluctantly, Cornelius agreed to the legal transfers of
ownership. From 1 July 2005, Cornelius solely owned and managed Classeek Whiskys as a
retail outlet based in a prime London location, offering high-quality and vintage spirits. The
company employed four part-time employees, with an envisaged sales turnover of 100,000
and a 200% profit margin. Jack became the sole owner and managing director of Classeek
Spirits of the World, an independent wholesale supplier of high-quality and vintage spirits.
The new company employed six full-time staff, and the projected sales turnover for the first
year was envisaged to be 180,000, with a 300% profit margin.

Jack strategically decided to pursue those continental European niche markets that offered
lucrative opportunities for profitable growth. Instead of taking immediate action, Jack decided
to discuss his internationalization plans with one of the consultants, who lent approval and
support to the plans.

Jack had not selected the most appropriate competitive focus. All his existing customers,
including his fathers retail outlet, were located in the UK. Jack believed that his ambitions for
growth were severely restricted by the limitations of the domestic market. He felt intuitively
that continental Europe offered a larger niche market for high-quality and vintage spirits. Jack
had not conducted any market research relating to the size of the niche market, or the type
and strength of the competition. He subsequently conducted market research and a feasibility
analysis relating to his idea with regard to the size and potential growth of the market and the
nature of existing competitors activities and strategies. Jack did not find any competitors that
catered for his intended clientele. He felt that he could continue his domestic activities while

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tentatively testing possibilities to expand his international sales.

To exploit the continental European market gap, in 2005 Jack selected an e-business form
that was flexible and responsive to changes in consumer tastes and demand. An e-business
strategy was a less costly and resource-demanding way to enter numerous foreign markets.
To reduce his exposure to risk, he intended to expand his e-business in line with the overseas
growth in demand for his products. The e-business platform that he had already developed to
service the requirements of customers in the UK was replicated to satisfy customers in
continental Europe. This Internet-based marketing and promotional tool was open 24/7/52.
The e-business platform required minimum maintenance and involvement, and only required
him to attend to orders when they were placed and paid for electronically.

Addressing barriers to internationalization

International entrepreneurship (IE) is the process of creatively discovering and exploiting

opportunities that lie outside a firms domestic market in the pursuit of competitive advantage
(Zahra and George, 2002). Jack felt that he had learnt a great deal from the previous attempt
to enter the European market during 2002 and 2003. While he mainly blamed his father for
the failure of the previous attempt to internationalize, Jack admitted that he had overreached
himself and had been poorly prepared for the costs and efforts involved in internationalizing a
traditional retail business. He learnt that an overseas hub of internationalization approach
was a high-risk and expensive strategy that involved high overheads and increasing marketing
expenses, and provided no guarantees for a commensurable growth in sales turnover and/or
profitability. Instead, a flexible, low-cost and gradual strategy, such as that provided by an e-
business platform, would facilitate a less risky and costly attempt to break into the continental
European high-quality vintage spirits niche market. Confident that his internationalization
ambitions represented the best way to increase his companys market share and profit
margins, Jack chose to start by researching the barriers to internationalization.

During his online research, he discovered that smaller firms faced attitudinal, resource (that
is, information, finance, etc), managerial, operational, market-based, industry and firm-specific
barriers to internationalization (Leonidou, 1995 Morgan and Katsikeas, 1997). He noted that a
lack of internationalization experience and knowledge restricted an entrepreneurs ability to
exploit foreign opportunities.

According to the resource-based view of internationalization, a new ventures ability to enter

foreign markets can be shaped by its accumulated resource stocks (Wright et al, 2007). Some
studies suggest that a firms decision to enter export markets follows a gradual sequential
process associated with several stages of internationalization. As the firm enters into a new
stage, its international commitment and involvement in international marketing activities
increase. The firm selects a mode of operation to service customer needs in foreign markets.
This stage model theory of internationalization is less useful when studying the
internationalization of knowledge-intensive and service firms. It fails to take into account the
aspirations of entrepreneurs, the resource needs of new smaller firms and the network context
in which firms are embedded. Firms with weaker resource pools may compensate for their
disadvantages by developing their networks. They can create a capital of trust through
effectively utilizing their institutional and social networks.

Practitioners can introduce initiatives to remove the attitudinal, informational, technical and
financial barriers to foreign market entry. Initiatives have been introduced to raise the
expectations of owner-managers, develop their competencies, broaden their international

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networks and bring to their attention several potential profitable opportunities in foreign
markets. Utilization of government incentives could, to some extent, mitigate financial barriers.
Jack identified several government agencies and industry-wide commercial bodies that offered
information, training and support to smaller firms seeking to internationalize.

Jack decided that in its current form and size, his business could not fully justify the
overheads incurred in maintaining offices and a medium-sized warehouse. He decided to run
the e-business from his home office. Jack relocated his wholesale operation to his home,
which reduced the overhead costs. Income generated by renting out his warehouse and office
facilities was used to set up the electronic business facilities in his home.

The strengths, weaknesses, opportunities, threats (SWOT) analysis, which Jack undertook
with the consultants help, revealed that managerial, financial and cost-related barriers were
unlikely to impact on his internationalization strategy. Market, industry and firm-specific
barriers, however, emerged as obstacles. Jack reflected that, despite the lessons learnt from
the previous attempt to internationalize, his lack of exporting experience and knowledge could
hinder his internationalization efforts. He decided to convert the perceived weaknesses into
strengths and opportunities. While his domestic e-business ticked over, Jack enrolled on
several courses relevant to exporting, most of which were offered free or at a competitive cost
by Chambers of Commerce and Business Links. He also took advantage of online training
and support opportunities made available free on the Internet. While perusing relevant
Internet sites, Jack came across an International Notice Board advertising a series of trade
events and exhibitions to be held in European cities. These, Jack decided, were . great
opportunities to network and learn from the experts in the field. These trade events became
his springboard to better and greater business opportunities than I have dared to imagine
for myself.

Accumulating knowledge and experience relating to internationalization

Jack felt that unless one is prepared to jump in, at the deep end and sink or swim, gaining
knowledge from the experiences of other entrepreneurs is not only the next best thing but
also a safe and cost effective entrepreneurial learning strategy. He recalled his experiences
during the first trade event he attended, which was held in October 2005 in Marseille, France:

Oh dear me, I was as green as green can be, but also flexibly like a Weeping Willow
branch. I tried to be everywhere, see everything on offer and listened to every
word spoken about spirits, markets, sales and profit margins.

His first positive break came at the evening meal table. Jack sat at a table where one of the
elderly delegates recounted his many failures and disappointments as a novice international
entrepreneur. Jack listened carefully and occasionally asked clarifying and challenging
questions. Even though he was the youngest of the delegates at the table, Jack was readily
accepted into the brotherhood. He was later invited to an unorthodox taste-and-buy event
that was taking place the next day in Lyon. Here, Jack began enlarging his network of
international wholesalers and collectors of high-quality and rare spirits. Back home in London,
he followed up leads on seven of the collectors that he had met in Lyon by telephone and e-
mail. Within one week, he had converted all 17 Lyon leads into sales, and 11 of these became
regular buyers of Jacks highly profitable first cask line of top-end whiskies.

Regular contact with his dinner table spirits buddies also resulted in sales, including one
large consignment of whisky destined for Hong Kong, and smaller shipments to Thailand,

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Japan and Australia. Although surprised by demand from outside Europe, Jack reacted
positively to the interest in whisky from other countries. The next international event he
attended was in Naples, Italy. This networking event brought further leads and an increase in
demand for high-quality whiskies from continental Europe as well as North and South
America. He also met two connoisseurs from Australia and New Zealand, both of whom were
keen buyers of out-of-the-ordinary spirits, including English Whisky, a product that Jack had
neglected to include in his portfolio of quality spirits. Jack noticed that, at the dinner table, his
companions purposefully debated issues appertaining to the management of their
businesses, including administrative, marketing, operational and staffing problems. Everyone
was keen to contribute towards cost-effective solutions, and there was no shortage of advice
and examples offered from several perspectives.

The ease with which these entrepreneurs shared their experience and knowledge surprised
Jack, who had been taught at university to be very cautious about discussing confidential
aspects of his business affairs with actual or perceived competitors. Jack also noticed that,
while most of the contacts he met at these events preferred to interact informally as well as
socially, others in the network insisted on semi-formal or formal networking arrangements.
Individuals who enjoyed a semi-formal approach tended to keep the formal business
relationships that they engaged in strictly separate from the informal social aspect of their
networking. Conversely, entrepreneurs who adopted formal networking arrangements tended
not to become involved in social events, and even during formal dinners kept up their
reserved and detached attitude towards participants. Jack felt relaxed with all three
approaches to networking and responded in a courteous manner to queries, requests and
suggestions. He welcomed advice and was grateful for the time that other participants spent
encouraging and guiding him. Jack found networking exciting, challenging and highly
rewarding. Back in his hotel room, he would stay up until the early hours of the morning
writing up his notes and impressions, categorizing contact details and drafting marketing
strategies to exploit them.

Accumulating human and relational capital

The SWOT analysis included an entrepreneurial capital audit to establish the unique
competitive advantage that accrued to his proposed e-business. Jacks human and relational
capital represented his firms unique resource as well as its sector-specific competitive
advantage.

In terms of human capital, the consultant outlined in detail Jacks educational achievements
and his extensive industry-specific experience. During his undergraduate years, Jack
deliberately chose entrepreneurship education options that consolidated and developed his
experiential business skills. He set out to mix and match everything that was needed, in
terms of skills and knowledge, to start and grow a new business. Since graduation, the
mainstream business and specific entrepreneurial skills that Jack had acquired after his
compulsory education were supplemented by focused training in those areas that were most
needed in his previous managerial position within the family firm. Both Cornelius and Jack
believed in continuous training as a route to skill acquisition and personal development within
the family firm. Training entailed management modules in strategic planning, market
research, relational marketing and human resource management. Firm-specific training
involved courses relating to spirit distillation, storage, stock control and quality assurance.
Jacks extensive apprenticeship in the family firm provided him with invaluable firm-specific
and industry-specific experience and knowledge. Jack believed that every important
aspect of spirits retail management was covered one way or another and revisited regularly.

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Cumulatively, his educational achievements, industry-specific knowledge and a range of soft

skills, such as creative problem-solving abilities, innovation and autonomy, endowed Jack with
the drive and self-confidence necessary to grow his new business beyond limiting domestic
boundaries. Jack also felt that his university education had contributed positively to his
capacity to learn about product, service and knowledge innovation, global markets, new
technology and entrepreneurial opportunity recognition.

Experiential knowledge accumulation often incorporates an area of overlap between human

and relational capital development. His previous business experience covered aspects of
operational, managerial and human resource development within the family business. It did
not involve the creation and development of a new business or the search for entrepreneurial
opportunities to exploit. He felt that most of his personal knowledge was tacit and specific to a
well established family business that was struggling to survive under difficult economic
conditions. Although only partially appropriate to his new e-business, Jacks accumulated tacit
knowledge was useful as a base from which he set out to develop specific entrepreneurial
knowledge and a range of dedicated national and international business networks. Jack felt
that, as the sole owner and manager of Classeek Spirits of the World, he needed to
accumulate rapidly a great deal of entrepreneurial capital from which to start, manage and
develop a successful international e-business. The chance discovery of an Internet-based
International Notice Board advertising a series of relevant trade events and exhibitions in
European cities provided Jack with an entry point into a fabulous world of international
networks and contacts, rich in opportunities beyond all expectations.

From his reading of relevant articles on barriers to business internationalization, Jack was
aware of the importance of relational capital. Feeling disadvantaged by his limited
entrepreneurial and internationalization experience/knowledge, Jack made an early decision
to attend as many of these trade events in Europe as he could afford. His initial success in
making contact with experienced international entrepreneurs helped him develop and
consolidate a number of tentative networks in continental Europe and countries in North
America and Australia. Jack reflected that . hard work and commitment as well as a single-
minded focus on accessing lucrative contacts helped break into the world of personal and
professional connection. He proudly lists the positive outcomes of developing relational
capital for the purpose of overcoming barriers to internationalization, including . knowledge
acquisition, discovery of cross-border entrepreneurial opportunities, identification of
international customer needs and future business partners.

Jack attributes his growing international sales to individuals he met at these events. However,
Jack felt that his ambitions were limited considerably by his inability to be in more than one
place at a time. He wanted to act locally, in the domestic market, and also have a virtual
and profitable presence all across Europe. His newly developed network of entrepreneurs
would later provide Jack with new opportunities and ideas, including the development of his
own virtual team of e-entrepreneurs, and would propel him amongst the major players in his
chosen global niche market.

References
Leonidou, L. C. (1995), Empirical research on export barriers: review, assessment, and
synthesis, Journal of International Marketing, Vol 3, No 1, pp 2943.
Morgan, R. E., and Katsikeas, C. S. (1997), Obstacles to export initiation and expansion,
Omega, International Journal of Management Science, Vol 25, No 6, pp 677690.
Wright, M., Westhead, P., and Ucbasaran, D. (2007), The internationalization of small and
medium-sized enterprises (SMEs) and international entrepreneurship: a critique and policy

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implications, Regional Studies, Vol 41, No 7, pp 10131029.

Zahra, S. A., and George, G. (2002), International entrepreneurship: research contributions
and future directions, in Hitt, M. A., Ireland, R. D., Camp, S. M., and Sexton, D. L., eds,
Strategic Entrepreneurship: Creating a New Mindset, Blackwell, Oxford, pp 255288.
http://dx.doi.org/10.4135/9781473996014

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