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  • 1. Chapter 6Small Business as MultinationalCompanies: Overcoming Barriersand Finding Opportunities Copyright© 2004 Thomson Learning All rights reserved
  • 2. Learning Objectives•• Understand the basic definitions of small business and Understand the basic definitions of small business and entrepreneurship entrepreneurship•• Explain how small businesses can begin as global Explain how small businesses can begin as global start-ups or follow the stages of internationalization start-ups or follow the stages of internationalization•• Understand how small businesses can overcome Understand how small businesses can overcome barriers to internationalization barriers to internationalization Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 3. Learning Objectives•• Identify when a small business or entrepreneurs Identify when a small business or entrepreneurs should consider going international should consider going international•• Understand how small businesses or entrepreneurs Understand how small businesses or entrepreneurs can find customers, partners, or distributors aboard can find customers, partners, or distributors aboard•• Understand how new venture wedge strategies can be Understand how new venture wedge strategies can be used in foreign markets used in foreign markets Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 4. What Is a Small Business?•• “Small” business – many definitions “Small” business – many definitions •• UN: less than 500 employees UN: less than 500 employees •• The popular press: less than 100 employees The popular press: less than 100 employees •• U.S. small business administration has more U.S. small business administration has more complex definitions complex definitions •• Definition varies by industry, sales revenue, and Definition varies by industry, sales revenue, and the number of people the number of people Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 5. What Is a Small Business?•• “Small” businesses “Small” businesses •• Over 98% businesses in Europe, N. America, and Over 98% businesses in Europe, N. America, and Japan Japan •• Employ more than 50% of local populations Employ more than 50% of local populations •• Produce nearly 50% of the countries’ GNPs Produce nearly 50% of the countries’ GNPs •• Create more than 2/3 of new jobs Create more than 2/3 of new jobs Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 6. What Is an Entrepreneur?•• Entrepreneur: person who creates new ventures that Entrepreneur: person who creates new ventures that seek profit and growth seek profit and growth •• Faces risks and uncertainty of new and untested Faces risks and uncertainty of new and untested business business•• New ventures: entering a new market New ventures: entering a new market •• Offer a new product or services Offer a new product or services •• Introduce a new method technology or innovative Introduce a new method technology or innovative use of raw materials use of raw materials Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 7. Internationalization and the Small Business•• Two models Two models •• Small business stage model: process of following Small business stage model: process of following incremental stages of internationalization incremental stages of internationalization •• Global start-up: company that begins as a Global start-up: company that begins as a multinational company multinational company Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 8. Small Business Stage Model: Six Stages•• Stage 1: Passive exporting Stage 1: Passive exporting •• Company fills international orders but does not seek Company fills international orders but does not seek export business export business•• Stage 2: Export management Stage 2: Export management •• Specifically seeking exports—usually rely on indirect Specifically seeking exports—usually rely on indirect exporting exporting•• Stage 3. Export department Stage 3. Export department •• Significant resources dedicated to seek increased Significant resources dedicated to seek increased sales from exports sales from exports• Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 9. Small Business Stage Model•• Stage 4: Sales branches Stage 4: Sales branches •• High demand justifies setting up local sales office High demand justifies setting up local sales office•• Stage 5: Production abroad Stage 5: Production abroad •• Use licensing, joint ventures of direct investment Use licensing, joint ventures of direct investment •• Difficult stage because of the risk of failure Difficult stage because of the risk of failure•• Stage 6: The transnational Stage 6: The transnational •• Develop global integrated network Develop global integrated network Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 10. Small Business Global Start- up•• Key elements favoring global start-ups Key elements favoring global start-ups •• Dispersed human resources Dispersed human resources •• International sources of venture capital International sources of venture capital •• The existence of a global demand The existence of a global demand •• The lack of a geographically protected market The lack of a geographically protected market •• The necessity of worldwide sales to support the The necessity of worldwide sales to support the venture venture •• The potential to avoid later resistance to The potential to avoid later resistance to internationalization internationalization Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 11. Small Business E-Commerce•• Web sites offer a rapid way to go international Web sites offer a rapid way to go international•• Web site configured for e-commerce is low cost Web site configured for e-commerce is low cost•• Quick way to sell across national borders Quick way to sell across national borders Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 12. Advantages of Small-Business E-Commerce•• Ability of small firms to compete with other companies Ability of small firms to compete with other companies•• Creates the possibility and opportunity for more Creates the possibility and opportunity for more diverse people to start a business diverse people to start a business•• Convenient and easy way of doing business Convenient and easy way of doing business•• Low cost to compete Low cost to compete•• Makes domestic products available in other countries Makes domestic products available in other countries Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 13. Challenges of Small-Business E-Commerce•• Managing upgrades Managing upgrades•• Language barriers Language barriers•• Shipping and returns Shipping and returns•• Assuring security for a Web site Assuring security for a Web site•• Fraudulent activities online Fraudulent activities online•• Receiving international payments Receiving international payments•• Costs required to maintain the site Costs required to maintain the site•• Finding and retraining qualified employees Finding and retraining qualified employees Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 14. Overcoming Small-Business Barriers to Internationalization•• Liabilities of newness: a large percentage of new Liabilities of newness: a large percentage of new businesses fail within a year businesses fail within a year•• Liabilities of size: lack of scale to produce goods or Liabilities of size: lack of scale to produce goods or services as efficiently as larger companies services as efficiently as larger companies Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 15. Overcoming Small-Business Barriers to Internationalization•• Managers’ limited international experience Managers’ limited international experience•• Managers’ negative attitudes Managers’ negative attitudes •• Belief that venture too risky and not profitable Belief that venture too risky and not profitable •• Competition seen as domestic Competition seen as domestic •• Ignoring of international opportunities Ignoring of international opportunities Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 16. Developing a Small-Business Global Culture•• Global culture: managerial and worker values that view Global culture: managerial and worker values that view strategic opportunities as global and not just domestic strategic opportunities as global and not just domestic•• Framework to understand international operations Framework to understand international operations Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 17. Small-Business Global Culture•• Characteristics of decision makers affecting Characteristics of decision makers affecting development of a global culture development of a global culture •• Perceived psychic distance to foreign markets Perceived psychic distance to foreign markets •• International experience International experience •• Risk aversion Risk aversion •• Overall attitudes toward international strategies Overall attitudes toward international strategies Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 18. Developing a Small-Business Global Culture•• Changing attitudes of key decision makers Changing attitudes of key decision makers •• Being close in culture and geography Being close in culture and geography •• Overcome skepticism regarding the international Overcome skepticism regarding the international markets markets •• Positive attitudes more necessary for global start- Positive attitudes more necessary for global start- ups ups Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 19. Exhibit 6.1: Attitudinal DifferencesConcerning Internationalization Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 20. Duties and the Personal Life of the Small-Business CEO•• For small firm, opening new markets is CEO’s For small firm, opening new markets is CEO’s responsibility. responsibility.•• CEO must bear social and business costs CEO must bear social and business costs •• Increased travel and stress from undertaking a new Increased travel and stress from undertaking a new venture venture •• Can adversely affect family life Can adversely affect family life •• Takes away from the daily management Takes away from the daily management Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 21. Exhibit 6.2: Training and KnowledgeNeeds of Small Firm CEOs EnteringInternationalization Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 22. Size and Small Business Internationalization•• Size barrier to internationalization Size barrier to internationalization •• Larger firms have more resources to support Larger firms have more resources to support international operations international operations•• Size is an issue only in the internationalization Size is an issue only in the internationalization decision, however. decision, however.•• Eventually, international sales intensity of small firms Eventually, international sales intensity of small firms exceed that of big firms. exceed that of big firms. •• International sales intensity: amount of international International sales intensity: amount of international sales divided by total sales of the company sales divided by total sales of the company Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 23. Small Business Advantage•• Speed becomes the small business advantage Speed becomes the small business advantage •• Faster innovation Faster innovation •• Can change products and internal operations faster Can change products and internal operations faster •• Speed can overcome size disadvantages Speed can overcome size disadvantages •• Larger firms must often overcome bureaucratic Larger firms must often overcome bureaucratic procedures procedures Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 24. Falling Barriers for Small Businesses•• Barriers are becoming easier to overcome Barriers are becoming easier to overcome•• Government support programs for small businesses Government support programs for small businesses are increasing are increasing•• Trade agreements are making trade easier Trade agreements are making trade easier•• Increase in small businesses engaged in international Increase in small businesses engaged in international operations also makes it easier operations also makes it easier Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 25. When Should a Small Business Go International?•• If the following questions are answered positively, If the following questions are answered positively, small business is ready. small business is ready. •• Do we have a global product or service? Do we have a global product or service? •• Do we have the managerial, organizational, and Do we have the managerial, organizational, and financial resources to internationalize? financial resources to internationalize? •• Is there willingness to commit resources to face the Is there willingness to commit resources to face the risks of internationalization? risks of internationalization? •• Is there a country in which the company feels Is there a country in which the company feels comfortable doing business? comfortable doing business? Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 26. When Should a Small Business Go International? (cont.)•• Is there a profitable market for product or service? Is there a profitable market for product or service?•• Which country should be entered? Which country should be entered?•• Do we have a unique product/service that is not Do we have a unique product/service that is not easily copied by multinationals or local easily copied by multinationals or local entrepreneurs? entrepreneurs?•• Do location advantages exist upstream in the value Do location advantages exist upstream in the value chain? chain?•• Can we afford not to be a multinational? Can we afford not to be a multinational? Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 27. Exhibit 6.3: Questions to Considerin the Small Business Decision toGo International Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 28. Exhibit 6.4 Steps in Picking aForeign Market Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 29. Country Ratings onEntrepreneurial Activity Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 30. Getting Connected to the International Market•• Participation strategies Participation strategies •• Same participation options as larger firms Same participation options as larger firms •• Exporting, licensing, joint ventures, and foreign Exporting, licensing, joint ventures, and foreign direct investment direct investment •• Most small businesses often emphasize exporting Most small businesses often emphasize exporting Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 31. Finding Customers and Partners: Customer Contact Techniques•• Trade shows Trade shows•• Catalog expositions Catalog expositions•• International advertising agencies and consulting firms International advertising agencies and consulting firms•• Government-sponsored trade missions Government-sponsored trade missions•• Direct contact Direct contact Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 32. Exhibit 6.5: Selected U.S.Government Programs forMaking International Contacts Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 33. Exhibit 6.6: International TradeLeads: A Web Sampler Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 34. Exhibit 6.6: International TradeLeads: A Web Sampler Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 35. Exhibit 6.6: International TradeLeads: A Web Sampler Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 36. Ready to Go and Connected: A Synopsis•• Finding the right overseas partner: the most important Finding the right overseas partner: the most important step step•• Find a good wedge to break into a new market Find a good wedge to break into a new market Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 37. New-Venture Strategies for Small Multinational Companies•• Entry wedge: company’s competitive advantages for Entry wedge: company’s competitive advantages for breaking into the established pattern of commercial breaking into the established pattern of commercial activity activity Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 38. First-Mover Advantage•• Being the first to introduce a product or service Being the first to introduce a product or service •• Must be innovative Must be innovative •• Must be comprehensive Must be comprehensive •• Must meet customer expectations in areas such Must meet customer expectations in areas such as warranty and expected components as warranty and expected components•• Technological leadership—most common source Technological leadership—most common source •• Being first to use or introduce a new technology Being first to use or introduce a new technology Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 39. Copycat Business•• Copycat Business Copycat Business •• The “me too” strategy The “me too” strategy •• Adopt existing products or services Adopt existing products or services •• Find a niche or slight innovation to attract customers Find a niche or slight innovation to attract customers Copyright© 2005 South-Western/Thomson Learning All rights reserved
  • 40. Successful Copycat Moves•• Be the first to a new standard Be the first to a new standard•• Go after the toughest customers Go after the toughest customers•• Play to different customer needs Play to different customer needs•• Transfer the location Transfer the location•• Become a dedicated supplier or distributor Become a dedicated supplier or distributor•• Seek abandoned or ignored markets Seek abandoned or ignored markets•• Acquire existing business Acquire existing business Copyright© 2005 South-Western/Thomson Learning All rights reserved