Theacher’s Guide

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Theachers Guide


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BRIEF DESCRIPTION OF THE CASE STUDY

The Blu:sens case study describes and analyzes the process of initiation and growth, with

special attention given to the process of internationalization, of Blu:sens, a company of

Galician origin, founded by Jos Ramn Garca and Miguel Silva in 2002 to compete in thesector of large-scale consumer electronics.

Blu:sens constitutes a very interesting case study due to its very origin, a company founded

with a minimum starting capital, which manages to finance its activities of design, manufac-

turing and distribution, counting on the strong support of bank financing, a very surprising fact

given the system of the financing of new business projects in Spain.

From its modest origins, with a capital of 3006 Euros and an office of 30m2 in Santiago de

Compostela, Blu:sens was capable of positioning itself in just 6 years as one of the main

competitors in the mature market of large-scale consumer electronics in Spain and develo-

ping from the start an important process of internationalization, firstly from an operative point

of view and later by focusing on the distribution and marketing of its products.

Now towards the end of 2008, point at which this case study is formulated, Blu:sens is a

widely diversified company, as much from the point of view of products, with its entrance in

the entertainment sector, as from the geographic point of view, with the creation of commer-

cial offices and distribution points in more than 60 countries.

The creation of Blu:sens Global Corporation in 2008, with the entrance of the capital of

Iveravante, which meant the entrance of 16 million Euros, laid the foundation for the future

growth of the company and the widening of its international network at the time of its setting

new challenges for its present model of growth.

TEACHERS GUIDE Case Studies in the Internationalization of Spanish companies

2 Blu:sens


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Case Studies in the Internationalization of Spanish companiesTEACHERS GUIDE

3Blu:sens

STRATEGY FOR THE TEACHING OF THE CASE STUDY

The authors recommend a structure for the use of this case study based on the model of the

5 elements of the enterprising process:

- Enterprising Team: the Blu:sens case is a magnificent example of how a capable andcommitted team (working part-time, at weekends), with experience in the market (distribu-

tion), and belief in their project (proceeding from the banks), can initiate the start-up of a com-

plex project in a mature market such as that of consumer electronics and can manage to

attain a turnover of 50 million Euros in 6 years and be present in 60 markets with their own

brand. From the point of view of the companys internationalization strategy, it is important to

emphasize how the international experience of one of the partners was fundamental at the

beginning of the process of the companys going international.

- Idea-Opportunity: the Blu:sens case illustrates precisely the important difference whichexists in the process of new business projects between the planning of an idea (to compete

in the sector of consumer electronics at the peak of DVD sales in 2002) and the actual oppor-

tunity created by Blu:sens by means of an innovative business model, adjusting their

resources and actual capacities as far as possible and far from the prevailing model and more

integrated in the main competitors of the industry.

- Planning and Viability Analysis: the case always highlights the importance that the com-panys partners gave to the making of Business Plans, as much for the launch of an activity

(in fact, at the beginning the company was only a project and this was what they sold to the

banks), as for the planning of the later growth (for example the Internationalization Plan). By

analyzing the case, it is important for the teacher to emphasize the difference between the

Business Plan for the launch of a new initiative in the market, and the successive Business

Plans which a company already in the market elaborates to boost its growth and to adapt its

Business Model to the companys new objectives and to the changing circumstances of the

market.

- Resources: the obtaining of resources to kick-start the project, the modality of multiplefinancial entities contributing overlapping financial policies is highly unusual for a start-up,

more so in the present case where the founders did not have any guarantees. This is an

important discussion point which the teacher must bring up. Beyond the initial model of the

obtaining of financial resources, the Blu:sens case argues and provides useful information todescribe successive stages in financing a business project, with special interest in the incor-

poration via a capital increase of the 16 million Euros of Inveravante.

- Management: the Blu:sens case is a magnificent support for the teacher to impress the stu-dents with the importance of this final phase in this enterprising equation, the management

and execution of the project. In this sense there are three different phases in the case which

can be covered in a distinctive way, the launch of the project (2002-2004), the consolidation

phase (2004-2006) and the growth phase and definitive launch of the internationalization pro-

cess (2006-2008). The case also offers valuable information to cover from the point of view

of the class analysis the main areas of management which support the Key Success Factors


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4 Blu:sens

of Blu:sens, the continual innovation and adaptation in its design and portfolio, the manufac-

turing and strategy of initial externalization and later integration, the aggressive and low-cost

distribution and marketing, and the creation of a global brand.



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IN MORE DEPTH SECTION

1.- What do you think were the KSF (Key Success Factors) in the exponential growth ofBlu:sens?In the teaching of the Blu:sens case, the teacher must make the student understand that we

are dealing with an atypical start-up due to many factors, the main one being the very struc-

ture of the industry which does not precisely facilitate the entrance and success of start-ups

in the consumer electronics sector.

To focus the debate, we suggest starting the discussion on the Key Success Factors (KSF)

firstly analyzing the industry in which the company competes, and for this we suggest using

the analysis tool of Porters 5 strengths. This will indicate to us that we are dealing with an

industry which is not very attractive for new starters, with the large negotiating power of big

clients, fierce rivalry between the competitors dominated by the dimension and with high

investments in R&D and Marketing.

In relation to the KSF, in the Blu:sens case, and after reducing the list provided by the stu-dents (normally they will say things like understanding the client generating value, inno-

vating producing at a low cost efficiently managing cash flows incorporating the best

human resources, etc all of them without doubt important), the discussion must be cen-

tered in the following factors:

- Management of the R&D process and the design of the product: The innovation of

the product is a determining factor in the business model of Blu:sens (another additional

important discussion is understanding the companys business model and its evolution). In an

industry dominated by big brands which have innovation as its main element (Apple, Sony),

the efficient management of this process constitutes a key success factor.



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6 Blu:sens

- From the reading of the case study and in particular, Annex 6, the students will be

able to observe that the consumer electronics sector is very changeable, based on cycles,

with new products which come onto the market each year and become indispensable. When

the DVD and MP3 markets exploded, there was Blu:sens with an offer that hundreds of thou-

sands of Spanish consumers considered the best one for its quality-price relationship.However this initial success is not a guarantee for future success and survival. Blu:sens relied

on anticipating the tendencies of the sector to be able to offer innovative products.

- It is also important to highlight that innovation is present not only in the product, but

also in the design of the processes and in the management of the same. The teacher can use

the Value Chain of the products to bring meaning to the discussion and show that in the

Blu:sens case there is an innovating element in the whole chain.

- It is important to indicate that the company has been evolving progressively from a

model of technological creativity towards another model of technological innovation, strictly

speaking. The teacher can help the students to arrive at this conclusion by observing how in

2005 Blu:sens started to seize market quota in the MP3 subsector from brands such as

Apple, offering the consumers a wide variety of players but without proposing any ground-

breaking product (in this sense, the marketing of MP3s preloaded with music is a mere exam-

ple of creativity on a marketing level).



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- In the second phase they started to create products with already existing techno-

logy built in (for example, in the case of the MP3 with Wifi and Bluetooth, both technologies

existed but there was no hybrid product on the market which integrated them). This strategy

of recovering the novelty is key in a sector such as consumer electronics, in which every-

thing changes very rapidly. In this sense, the teacher can quote a declaration made by JosRamn to a well-known Spanish magazine, in which he recognizes the importance of inno-

vation but does not give excessive importance to the development of technology itself: We

are being very visionary, we have achieved things which from a technical point of view are

very simple, but nobody has ever thought of doing them . Finally, the case study ends in

2008 when Blu:sens has already invested in innovation projects, like Blu:brain, accessing the

entertainment or integrated leisure management sector where the company designs and

manufactures the whole product. This progressive evolution has come from the internationa-

lization process of Blu:sens, and highlights the importance of innovation for any company that

aspires to have international presence.

- The management and creation of an international distribution channel is another of

the clear KSF of the Blu:sens case. From the beginning the company defined a commercial

plan which specified the target client: beyond the final consumer, it was about getting to the

large stores and shopping centers instead of going to the traditional shops. This choice was

justified by the fact that to survive, Blu:sens needed to rapidly reach substantial sales

volumes and they could not allow the luxury of growing slowly. In fact, the teacher can men-

tion the fact, not specified in the case study, that at the beginning the shopping centers took

priority over the large stores because the former already counted on a network of between

six hundred and a thousand shops.

- The establishing of alliances with other companies: Another interesting point to

analyze is the construction of alliances as a competitive advantage for a small company

which operated in an extremely competitive market. It is well-known that new companies are

faced with various disadvantages associated with their new status on the market. Due to their

lesser experience they face larger risks of opportunism while they can be seen for their lack

of reputation as factors of greater risk by investors, suppliers and clients. To this pattern,

known as the liability of newness, another must be added, the liability of smallness, related

to the limited resources available to new companies. All of this puts the new starters at a

disadvantage in the competition in the face of established companies, making it more difficult

to establish new relationships with clients, and increasing the possibility of failure during the

first years of creation.

- In this sense, the Blu:sens case is no exception given that no sooner was it crea-

ted it faced barriers such as the lack of recognition of its brand name, the inexistence of eco-

nomies of scale, the lack of control over the supply chain, the lack of organizational legiti-

macy, etc. The teacher can help the students to analyze how Blu:sens managed to over-

come some of these barriers establishing alliances and agreements with various companies,

some of these being key players in the electronic components industry or similar sectors, like

Samsung Semiconductors, Casio or Toshiba. These alliances are important for various rea-

sons: firstly they gave the market a positive sign regarding the quality of the of the products

and activities of Blu:sens. They also increased the legitimacy and image, leading to reputa-

tion and credibility. In this sense, the teacher must highlight the importance, in the face of the

success of the internationalization strategy of Blu:sens, of obtaining outside recognition which

leads to an alliance with companies of international renown. Thirdly, it must be borne in mind



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that alliances are especially important for small and medium sized companies given that with

limited financial and organizational resources they cannot make the adequate investments in

new technologies, which represents a large risk in very dynamic industries as is that of con-

sumer electronics. Blu:sens has known from the beginning to lessen these risks making

alliances with companies such as Opera Wireless and Blom to have access to some valua-ble technological resources. If they had tried to generate these resources internally, the pro-

cess would have been costly and lengthy and they would not have had the opportunity to be

the first to bring new products to the market (MP3 with Bluetooth, GPS with real images,

etc.).

- Finally, the design of a (low cost) groundbreaking and efficient guerilla marketing

strategy determined the fourth pillar of success for the company. A groundbreaking marke-

ting strategy also has its risks, as can be seen from the experience of Blu:sens on relying on

the world of showbiz to create a spectacle and attract peoples curiosity to the stand. On this

point it is also important to emphasize that the Blu:sens marketing strategy, more than on the

promotion of product in particular, is centered on creating recognition of the brand, a stra-

tegy known as Branding (creation of a motorbike team, fashion events, etc...) These events,

particularly adapted to companies which try to consolidate their position in a sector domina-

ted by big brands, make it particularly difficult to measure in a specific way the repercussion

of the marketing campaign. This would explain why, instead of quantifying the effect of a pro-

motional event in the number of sales of a specific product, the founder relies on the number

of consumers who know the name Blu:sens as the way of evaluating if his investment is bea-

ring the desired fruits.

2.-Analyze the different phases of the internationalization process of BLU:SENS. Has thecompany following a typical internationalization process?From a theoretical point of view, there is no one way for a company to start having interna-

tional activity. However, the majority of companies tend to follow a similar process in which it

is possible to identify different phases. For example, according the internationalization pro-

gram of small and medium sized companies, the phases or stages of the internationalization

of a company are the following:



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1 PRE-INTERNATIONALIZACIN PHASE

Interest in exterior commerce. Until now, national market. Believes it has conditions.

2 EXPERIMENTAL INTERVENTION

Marginal exterior activity. Indirect exportation/fairs. One or two nearby markets.

3 ACTIVE INTERVENTION

Activity is not marginal. The company takes the reins. Progressive implication.

Foreign suppliers. Progressive supplies from the outside. Progressive contact.

4 COMMITTED INTERVENTIN, EXPORTATION IN COLLABORATION

Progressive connections. Exportation consortiums. Joint actions.

5. COMMITTED EXPORTATIONExportation department. Important Commitment. Growing exterior connection.

6. INTERNACIONALIZATIN WITH COMMITMENT

Exterior suppliers and clients. Sales Network. Subsidiaries / branches / alliances.

Although the number and the name given to the different phases varies, the majority of stu-

dies on internationalization coincide in identifying the first phase in which internationalization

is based on exportation, firstly in an occasional way, then experimental, and finally in a regu-lar way. On many occasions the process does not even mean crossing national borders. In

the case of small companies, these first efforts consist of extending their distribution and pre-

sence in the local markets, then regional and then national, before taking the step outside

their borders. This first phase is followed by another which is based on the establishment of

subsidiaries, firstly of sales and finally of production. That is, normally companies follow an

increasing internationalization process by which they install those activities of the value chain

closest to the final client outside their frontiers and start to work backwards. In view of these

studies, it is evident that the BLU:SENS case is clearly atypical in that related to the inter-

nationalization process of small or medium sized company. In the BLU:SENS case the follo-

wing phases can be differentiated:

1.- Start of manufacturing. Suppliers of components and assembly in China.

2.- First sales of components to the outside (up to 25% of Blu:sens turnover). A large part

of this turnover to the outside comes from the sale of other brands of consumer electronics.

3.- Integrating the manufacturing in 2006: acquisition of a Chinese manufacturer.

4.- Strategic internationalization Plan 2007-2010. Subsidiaries in Dubai, Hong-Kong,

Uruguay and Kuala Lumpur, extending the distribution network, taking care of the after-sales

service and the generation of the brand.



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5.- Definitive impulse towards internationalization:

- Creation of Blu:sens Global Corporation in 2008 and opening of subsidiary Blu:sens

Sudamrica.

- Incorporation of resources of the partner Inveravante.

- Access to help from ICEX.

6.- The Future. The Creation of a global brand.

And so, the company started its internationalization process establishing external production.

However, this initial strategy of pure outsourcing, with the organic growth of the company

does not sustain itself. At a later point, in 2006, to eliminate the risks of industrial spying, to

manage and ensure logistics and above all control the productive process, they decided to

acquire a Chinese manufacturer, horizontally integrating the production in the Blu:sens busi-

ness model. It is important that the students understand the structure of the internationaliza-tion process, its obligation in certain industries and its relationship with the resources and

capacities of the company (see ANALYZE section).

What the company does have in common with the more traditional internationalization pro-

cesses is that the process entails a gradual increase in the commitment of financial and

management resources and a greater level of risk. The following graph shows us the various

options according to the control that the company has over its external activity, the risk it

takes and the resources it employs in its international expansion.


Source: J.A. and V. Donoso. Competir en el exterior. La empresa espaola y los mercados internacio-

nales. ICEX. 1998.


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In the Blu:sens case we see how the internationalization guideline is more complex, as it

starts with the internationalization on the side of its productive process due to the demand of

the competitively rules of the consumer electronics industry. Only once the productive facet

in its value chain has been ensured does an internationalization process start in the distribu-

tion and sale of a product. In the first phase, it is done to obtain the necessary economiesof scale in the production and sale of components or with its own brand. Years later, in a

second stage competitive advantages in differentiation start to be generated, based more on

the generation of a brand, going further in the creation of economies of scale via volume by

creating commercial subsidiaries and new distribution channels in strategic markets.

ANALYSE SECTION

1.- Do you consider BLU:SENS decision to internationalize as an option or rather an obliga-tion to grow given the sector and the environment in which the company operates?The aim of this question is to make the students reflect on whether companies with an inter-

national vocation really exist or whether it is something necessary especially in some sec-

tors, in which extending abroad is not an option, but rather a need to be able to survive in

the market.

In the particular case of BLU:SENS, internationalization is an obligation from the beginning,

because in the consumer electronics sector off shoring is absolutely necessary, in that from

the beginning the company was obliged to externalize production in Asian markets to

reduce costs.

In addition, internationalization is also an obligatory strategy for the generating of an interna-

tional brand. The creation of this brand is associated both with the direct implantation over-

seas and with exportation. In an ever more globalized environment, the creation of an inter-

national brand has become a fundamental element for the competitively of companies. The

more global a sector is, the greater is the advantage for a company to obtain from the joint

use in various countries of its technology, of its production capacity, brands etc. The consu-

mer electronics sector is clearly a global sector because in it, the key to generating compe-

titive advantages lies in the companies capacity to innovate and in the incorporation of new

technologies and these know no barriers. This is a sector characterized by a very short pro-

duct life cycle, which means that the recovery of investments in R&D demands presence in

various markets.

The decision to internationalize is also necessary for growth, given that the Spanish market

supposes a very small percentage of the world market of the sector. As mentioned in the

case study, in 2006 BLU:SENS became the leader in MP3 sales in Spain, but compared with

the sales of APPLE in Europe, the sales figures are ridiculous. (Figures 1 and 2).



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Figure 1. MP3 sales in Spain in 2006 by Apple and Blu:sens

Figura 2. Ventas de MP3 en Europa en el 2006 por Apple y Blu:sens

On the other hand, in the context in which the case is situated, the end of 2008 with a world

immersed in international crisis, it seems difficult for the company to maintain the growth rates

experienced up until then unless it is based on the search for new markets for its products.

Internationalization will help the company to dilute the dependence on the domestic market

and be able to lengthen the life cycle of its products (that is, marketing in certain countries,

above all those in development, products which already start to become obsolete in the more

competitive markets like Spain). On this point, it is important to reflect on how a domestic



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market is defined, in the sense that if the frontiers of the sector are defined as national or glo-

bal. Figure 3 may help the students to understand the importance of this decision for the

expectations of the companys growth.

If only the national frontiers, the production decisions and the expectations of the growth ofdemand are considered, they will be very different if the company takes into account the glo-

bal market.

Figure 3. New monthly users of mobile telephones in 2006

On this point, it is important to reflect on the fact that although it is true that the

Internationalization Plan responds to the specific needs of the industry and of the companys

business model, as this evolves it passes from being an accidental internationalization to

becoming a real internationalization strategy, planned and adjusted to the growing resources

and capacities of the company. Although this evolution is clear in the BLU:SENS case, it is

important to analyze the fact that, despite having a well-planned strategy, this has been con-

tinually adapted according to the changes in the environment. In particular, as highlighted inthe case study, the economic crisis obliged the company to cancel their European expansion

plan, while the need to continue growing obliged it to seek new markets. The most acciden-

tal part of this point comes from the fact that, making the most of the contacts of the new

partner Manuel Jov in Latin America, the founders of BLU:SENS considered the Latin

American market as their next international commitment.

It is equally interesting to highlight how the internationalization process in its definitive

impulse phase is done with simple structures and by developing centers of benefit in the sub-

sidiaries generated by its own resources.



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BLU:SENS

CASE STYDY BY: IE - Instituto de EmpresaAUTHORS: Ignacio de la Vega

Cristina Cruz

Rachida Justo

Documents

Theacher’s Guide