Escaping the trap of low-cost production and high dependency: a case study of the internationalization networks of small subcontractors from the Baltic States

Purpose – The main purpose of this paper is to analyze the major problem faced by exporting subcontractors from emerging markets on how to leap over the barrier of low technology and high dependency. The second purpose is to develop a theoretical framework for this analysis. Methodology – The paper builds on a holistic multiple case study of eight internationalizing small- and medium-sized enterprises (SMEs) in the Baltic Sea Region (BSR). Interviews were performed with managers of four West European SMEs and four East European SMEs all crossing the Baltic Sea. In addition, interviews were performed with each firm's intermediaries/customers on foreign soil. Findings – The study identifies two main international business marketing strategies for small subcontractors in emerging country markets enabling such firms to escape the trap of low-cost production and high dependency. The first is a traditional subcontractor strategy of integrating more into the contractors' production process. The second strategy is labeled the marketing route. Here, the subcontractor becomes more independent by moving further upstream in the value chain or the vertical customer network to develop its own products. Practical implications – How a small subcontractor in a low-cost country can learn from more experienced exporters on how to develop their international business marketing network capabilities. Originality – The study is unique in that it applies the perspective of the low-cost country subcontractors. Traditionally subcontracting is studied from the contractors' point of view.