Internal & External Corporate Governance Mechanisms

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Swedish SMEs

According to an article by Berggren and Silver (2010) there are different behavior in different regions of Sweden when it comes to how firms search for financing, “In the metropolitan areas, firms are more active in searching for new owners, especially professional investors. In smaller municipalities, banks dominate as the most important.” (Berggren et al, 2010, p.230) The Swedish economy is well known for its different form of high-legislated financial status. It continues to grow strongly in terms of enterprises and is equivalent to the EU average (Tillväxtverket, 2007). The expansion of the economy has continued to grow during the past years, through various forms of financial factors such as an improving labor market and global demand. Swedish SMEs have been an important factor for the country´s economy. More than 99 % of the Swedish enterprises are classified as smalland medium size enterprises, i.e. they have less than 250 employees. The SME sector accounts for 60 % of enterprise profit (Tillväxtverket, 2007). It is estimated to employ more people and in addition to the increased employment it is believed to produce more value on SMEs today than it did in the base year of 2005. The total value added in the SMEs share in Sweden’s economy is stated to be 58.4%. The performance of the SME sector in Sweden is significantly more than the average EU country (Europa.eu, 2012). The SME sector accounted for 66 % of Sweden’s net investment in 1998 and therefore it became Sweden’s major contributor when it came to economic- and employment issues (Jacob et al. 2003).

Research Method

Financial research methods, techniques and sources come in various forms depending on different reasons. These can be; the purpose of the research, the aim and the specific research questions and also the data collected. As mentioned in the previous section, this study is conducted with a combination of qualitative method and hermeneutic phenomenology to provide a level of understanding that is relative and accurate for the study. During the course of the continuous research, there was no limitation to any oneresearch method but more a use of combination of methods and theories since there is more than one that is optimal. Together with an empirical study, consisting of various 9 interviews with companies and financial institutions, the writers intend to put together the results in the analysis part.

Primary and Secondary Data

When it comes to collecting data, the chosen option has been to collect the information mainly by using primary and secondary data. There are several types of primary data, for example interviews, surveys and observations. The optimal choice for the writers of this thesis was through interviews that were conducted with representatives for five various Swedish SMEs and three financial institutions. The writers received the support of a Chinese teacher at School of Education and Communication, our tutors as well as some of the respondents, to access contact information to representatives for Swedish SMEs and banks established in China. In addition, primary data is a useful tool to assist the writers to complement the study with secondary sources. The secondary data was retrieved through articles, academic literature, journals, books, and reports that were found to be relevant for the thesis.

Selection of the Respondents

To be able to create an interesting analysis and conclusion it was necessary to interview people in both Swedish SMEs as well as people within the financial institutions with experience and knowledge in this field. The writers therefore contacted various people in SMEs and financial institutions in both Sweden and China and this resulted in interviews with a total of eight respondents. The writers did not limit themselves by only selecting participants situated in Sweden. Some of the participants are currently seated in China. This made it more difficult for 11 the writers to be able to conduct interviews, due to the fact that the writers could not get face to face contact. The writers took first contact with all of the companies and financial institutions via e-mail and when possible set up a personal meeting with the respondent in Sweden.

Interviews

The writers interviewed eight respondents (see Appendix D) and conducted semistructured interviews that allowed for some topics relevant to the subject of this thesis to be discussed. By conducting a semi-structured interview, one can make sure to collect all types of clarifications from the relevant source. This gave the respondents the freedom and opportunity to speak or write more about their experience and personal views. The questions prepared for the interviews were designed to study the financing conditions for Swedish SMEs established in China, which was found to assist the writer’s research purposes well (see Appendix F & G). The questions were not exactly the same for all of our participating SMEs but they all covered the firm´s background characteristics, financial conditions, how financing is used by the company and if there are any advantages or disadvantages in financial support. The interview questions were, as stated earlier, constructed prior to the interviews. They were aimed at helping the writers answer the problem of this thesis; how are Swedish SMEs established in China financing their business? People learn about how SMEs can be successful in the business world through developing the business, increasing the volume of productivity as well as competing in the global market. However, what really is behind this success can only be answered directly by the companies. The answers to the questions during the interview process gave the writers a feeling of how this success is accomplished along with the relationships Swedish SMEs have with creditors. Many of the interview questions were prepared together with the theoretical part, which speaks about, for instance, corporate governance, agency cost, and the problems that may arise when using debt as financing in the company. Along with the theories, questions were prepared to answer how difficult it really is for Swedish SMEs to take credit loan from a bank and how the internal process of financing is working.

Table of Contents :

• 1 Introduction
  • 1.1 Problem Question and Purpose
  • 1.2 Perspective
  • 1.3 Delimitation
  • 1.4 Thesis Outline
• 2 Background
  • 2.1 Swedish SMEs
  • 2.2 Chinese SMEs
• 3 Methodology
  • 3.1 Research Approach
  • 3.2 Research Method
    • 3.2.1 Research Process
  • 3.3 Data Collection
  • 3.4 Primary and Secondary Data
  • 3.5 Selection of the Respondents
  • 3.6 Interviews
    • 3.6.1 Qualitative process
  • 3.7 Validity and Reliability
• 4 Theoretical Framework
  • 4.1 Corporate Governance
    • 4.1.1 Internal & External Corporate Governance Mechanisms
    • 4.1.2 Corporate Control and Agency Conflict
    • 4.1.3 Corporate Governance associated with SMEs
  • 4.2 Trade-off Theory
  • 4.3 Financing Gap
  • 4.4 Pecking-order theory
    • 4.4.1 Asymmetric Information

• 5 Swedish SMEs and Financial Institutions
  • 5.1 Empirical Sampling
  • 5.2 Participating Small and Medium-Sized Enterprises
    • 5.2.1 Exir
    • 5.2.2 Checkpoint China
    • 5.2.3 Liljas Plastic Ltd, China
    • 5.2.4 Swede-Wheel QLC (Quality Logistic Centre)
    • 5.2.5 Tobii Technology
  • 5.3 Participating Financial Institutions
  • 5.4 Additional Financing Options & SAFE
    • 5.4.1 State Administration of Foreign Exchange
• 6 Results & Analysis
  • 6.1 Answers from participating SMEs
    • 6.1.1 Ownership
    • 6.1.2 Capital angels or joint venture
    • 6.1.3 Difficulties/complications
    • 6.1.4 Financing
    • 6.1.5 Access to financing, increasing or decreasing
    • 6.1.6 Perception of Banks
    • 6.1.7 What can governments do
    • 6.1.8 Exit-plan
    • 6.1.9 Currencies and SAFE
  • 6.2 Answers from participating financiers
    • 6.2.1 The criteria and demands to gain finance
    • 6.2.2 How often are SMEs financed by outside financiers
    • 6.2.3 Financing SMEs
    • 6.2.4 The demands/criteria for the size of the company
    • 6.2.5 Failure to establish & repayment
    • 6.2.6 Increase or Decrease of SMEs finance seeking
  • 6.3 Analysis
    • 6.3.1 Ownership and Financing
    • 6.3.2 Obstacles and Difficulties
• 7 Conclusion
• 8 Further Research
  • List of References

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Swedish SMEs Established in China – How to Finance Business and Financial Obstacles Encountered