IBM 641 (GBS) UITM

1. CHAPTER 9
Small Business and
International
Entrepreneurship
NURUL SYAFIQAH BINTI ABD KADIR 2017110963
ZUKRINA BINTI ZULKIFLI 2017375445
NUR NISA IZZATI BINTI MOHD SHUKRI 2017950857
DAN SEOK JOON 2019694636
MUHAMMAD AQIF BIN RIZAL 2017568539
SYAZA AZIRA BINTI MD RAFAI 2017954007
ANIS AZIRA BINTI ROSLI 2017991461
SITI SARAH BINTI NORSHAH 2017716293
BA246 5B
GLOBAL BUSINESS STRATEGY (IBM641)
GROUP PRESENTATION

2. Small Business - Concepts and Definition
● In Malaysia, small business is being categorized under small and medium enterprises
(SMEs). It plays an important role in Malaysian economics.
● Various agencies in Malaysia, adopt different definitions of SMEs depending on
their business interests.
● For example, SME Corporation Malaysia defined SMEs on the basis of :
○ Manufacturing sector: Sales turnover not exceeding RM50 million or full- time
employees not exceeding 200.
○ Services and other sectors: Sales turnover not exceeding RM20 million or full-
time employees not exceeding 75.

3. ● However, one common definition that provided by the Small and Medium
Industries Development Corporation (SMIDEC) which defines SMEs according to
two main factors:
○ Annual sales turnover
○ Number of full-time workers
● According to SMIDEC :
Medium-sized business is
“A business establishment with an annual
sales turnover of between RM10 million
and RM25 million and which employs more
than 150 full-time workers”
Small-sized business is defined as
“ A business establishment with an annual
sales turnover of not more than RM10
million and which employs not more than
50 full-time workers”

4. Characteristics of a Small Business
Generally there are several characteristics of small business. The characteristics can be explained in
terms of ownership, management, resources, organization structure and flexibility of change.
1. Ownership
● Privately owned by individual or partners, typically registered as sole proprietorship,
partnership or private limited (Sdn. Bhd.) company.
2. Management
● The business is managed and operated by the owner(s). The entrepreneur(s) or founder(s)
of the business lead the company, and may act as both manager and worker. The
development of the business is determined by the owner(s) and owner(s) is the one that
do the decision making.

5. 3. Resources
● A small business often has lack resources. This is true for new starts up due to a lack
of track record on the business to convince potential investors and bankers to
invest. Therefore, the success of the business is highly dependent on the ability of
the owner to generate resources.
4. Organizational Structure
● For a small business, the structure is often flat and informal. The owner has to do
almost every work and the workers are normally expected to be able to function as
general workers since there is no clear separation of tasks.

6. 5. Flexibility to Change
● The business has more flexibility to adapt to changes in the environment due
to its size and informal structure.
● It is very important to be able to adapt to changes since any changes in technology
or government policy might have a great impact on the business.
● This is because with immediate changes, it requires additional capital or resources.
This might become a constraint to the business to compete and sustain itself in them
market.

7. ENTREPRENEURSHIP, ENTREPRENEURS,
AND ENTREPRENEURIAL FIRM
● The firm size and age are not the important factors that define entrepreneurship but
entrepreneurship is more defined as the identification and exploitation of previously
unexplored opportunities.
● International entrepreneurship is a combination of innovative, proactive, and risk-seeking
behavior that crosses national borders and is intended to create wealth in organizations.
● In general, SMEs that consists of entrepreneurs is one of the important factors in economic
growth in a country.
95% : Number of firms 50% : Total value added 60% - 90% : Employment
● Entrepreneurs rise easily, they can fall easily.

8. INTERNATIONALIZATION AND THE SMALL
BUSINESS:
● Internationalization is the increasing tendency of firms to operate across national
boundaries.
● Internationalization of business and firms to pursue economic activities across national
borders is not a new phenomenon in the global economy.
● Many factors that contribute to the growth of internationalization such as the rise of
proper infrastructure, institutionalization of international economic relations, reduction
of barriers to trade flows and internationalization financial system, cheaper cost of
transport and communications, and the expansion of transnational business.
● May reap many advantages such as new market share, increase in profit and revenue,
achieve economies of scale and increased knowledge.

9. Internationalization Stages of Business
● One of the strategies of internationalization of a company is called “The
Uppsala Model of Internationalization”.
● It was introduced by Johanson & Vahlne, (1977).
● The study was based on the internationalization process of large Swedish
manufacturing firms which took place in the 1970’s.
● The main finding of the study was that firms have the tendency to enter a new
market incrementally, depending on their knowledge of the market
environment.
● The Model advocates that the order of which market a firm enters would
depend on the psychic distance and physical distance, starting with countries
closer and similar to its home market.

10. Stage 1: The internationalization process of trading goods.
● The first stage of international business development is the internationalization process of
trading goods.
● At the initial stage, it is in the form of international transactions or the business/commercial
operations.
● Firms will export goods, supplies and services, and combined operations with other firms to
re-export or establish trade offices in foreign trade.
Stage 2: The internationalization of production.
● This can be done through various forms of alliances and international cooperation that
aimed at the technology transfer for the multi- production of goods abroad (by using mode
of entry such as licensing, franchising, selling know-how, etc).
● Firms may locate part or the whole of their production plant.
● At this time, firms may integrate distribution system for domestic and international markets
and may use joint venture with local firms for production and marketing system.

11. Stage 3: The internationalization of the firm
● The main way of achieving internationalization is foreign direct investment (FDI), in
which the firm invests directly in physical investment.
● At this point, firms build up plants, hire local human resources, and use local and
imported resources for production.
● Firms may develop their own value chain members and internalize many of its business
functions.

12. THE STAGE MODEL OF INTERNALIZATION
FOR SMALL BUSINESS
Small business are prepared go global if the firms followed the stages of international
development, with each next stage lead to greater involvement. But for smaller businesses, it
involves six (6) stages:
STAGE 1: PASSIVE EXPORTING
In this stage, small orders but do not seek export business and the owners do not recognize that
they have an international market.

13. STAGE 2: EXPORT MANAGEMENT
It is where the firm or the CEO will finds export sales in this stage. Due to limited resources, many small
business rely or indirect channel of exporting and considered as the major transition for small
businesses to expand broad.
STAGE 3: EXPORT DEPARTMENT
In this stage, the small business will use significant resources to find ways to increase sales from
exporting. At this time, export is not considered as a prohibitive risk by small businesses and it must
find proper international partner to distribute the products or services.
STAGE 4: SALES BRANCHES
When there is high demand from the foreign countries for the products or services, it is acceptable for
the small businesses to set up local offices at those countries. In this case, small business must choose
whether to hire local managers and workers to manage the business or to send expatriates to the
foreign countries.

14. STAGE 5: PRODUCTION ABROAD
Production abroad allows companies to gain local advantages, local adaptation, and production
efficiencies. In order to expand abroad, small businesses may choose mode of entry such as licensing,
joint ventures or direct investment. In this stage, is always tough because high cost involved. The
failures that jeopardize the whole company.
STAGE 6: THE TRANSNATIONAL
The last stage, the size companies is irrelevant in influencing whether they can go abroad or not. The
small business may develop a global integrated network that may be categorized as transnational firms.
All of the stages conveyed benefits small business and also large corporations that firms may equate the
expansion with their resources. In addition, along with the process firms may minimize the risk
exposure and grow their international capability gradually.

15. GROWING AND INTERNATIONALIZING THE
ENTREPRENEURIAL FIRMS
There are 3 reasons why entrepreneurs rise. Among the reasons are growth, innovation and
financing.
1. Growth
● Entrepreneurs arise because of the excitement of setting up business by individuals.
● In the resource-based view theory (RBV), if firms have sufficient resources and
capabilities, they may venture into setting up their business.
● In entrepreneurship, a good vision, drive, and motivation and leadership are the core
capabilities that any entrepreneur must have inside them.
● Since many entrepreneurs consist of small and medium enterprises, most of the time they
are dynamic and flexible.

16. 2. Innovation
● Innovation is important for entrepreneurs. With innovation, it allows entrepreneurs to be
more sustainable.
● Innovation is the competitive advantage of any entrepreneur. With the spirit of
innovativeness, the entrepreneurs tend to take more risks than the larger firms.
● They will introduce new products and services, new radical ways of doing business.
● One major reasons why entrepreneurs arise is because large corporations may shun their
innovative ideas or limited personal gains for any innovations that stem from their own
ideas.

17. 3. Financing
● People have always been afraid of venturing into something that they are not used to,
especially the process of raising capital.
● But the truth is that, there are many investors, bankers, foreign entrants, banks, and
government agencies willing to help entrepreneurs to start their business.
● But these parties always demand some assurance like collateral upfront, examine a good
business plan and require strong management teams and skills.

18. FIVE ENTREPRENEURIAL STRATEGIES

19. SMALL BUSINESS & INTERNATIONAL
Overcoming barriers to go International for Small Business
Barriers:
Small in size means….
❏ limited financial and human resources,
❏ lack of economies of scale to produce goods and services as larger firms,
❏ Smaller biz often plagued with inexperienced managers with limited international
exposure and sometimes with negative attitudes towards foreign countries,
❏ they are risk averse and may view going abroad is not really profitable for them,
❏ past success with home market may also prevent small businesses to expand their
businesses abroad.

20. SMALL BUSINESS & INTERNATIONAL
Overcoming barriers to go International for Small Business
Ways to overcome:
1. The first way is to develop a small business global culture. Global culture occurs
when an organization has managerial and subordinates that view by going global
has strategic opportunities. Thinking global and changing into global mindset is a
must any small businesses to expand.
1. For any companies that go abroad, each stage of going abroad requires increasing
commitment from the top executives of the businesses. Because of different
perception and negative attitudes towards internationalization, most small
businesses expand their products and services to nearby countries that have
similar values and culture.

21. SMALL BUSINESS & INTERNATIONAL
Overcoming barriers to go International for Small Business
Ways to overcome:
● Smaller size will lead to rapid decision making. One advantage for a small business
is speed.
○ Since they can decide faster, most of the time small businesses can be the
first in the market and capture potential sales before the larger corporation
may react.
○ The ability of speed is important for small businesses as they can adopt the
new changes in the market place and the changes in the global demand.

22. Small Business Global Start Up (Born-Global
Firms)
1. Global start-ups occur small businesses go abroad since the day of inception. The definition
of born-global firm is any firm that pursues a global vision from inception and globalize
rapidly. With the advancement in technology, production method, transportation and the
emergence with internet, any small firm may start their global business presence almost
instantaneously.
2. Born global firms have many advantages compare to traditional multinationals. Born global
firms are often very flexible and fast moving, especially in high tech industry. This is because
born-global firms tend to be knowledge based intensive.
3. Born-global firms tend to market value-added offering that comes from the developments of
science, technology or design. Therefore, the offerings are innovative, progressive,
differentiated and unique. The leadership of born-global firm is often driven by founders or
employees who aggressively board into export mode, leaving others behind the
internationalization effort. The founders and employees possess an entrepreneurial
orientation, willing to take risk to go international. Born-global firms incline to be very
effective in building global networks between distributors, agents, representatives and
suppliers.

23. Factors that trigger early internationalization of
firms (born-global firms) such as:
● Size of the firm’s home market
● New market conditions in world market (e.g.,
the emergence of global niche markets)
● Technological developments in communications
and productions
● Emergence of global networks and alliances
● Organizational capabilities

24. The existence of the Internet has given a big opportunity for any firms to be a born global. Born-
global firms represent a fashionable trend for international business in which any firm can join
actively in across-border trade. Regardless of their size, experience or resources , firms are able
to be born global because the Internet has opened a wide opportunity for them to exist in the
global market.
Since any firm’s competitiveness depends on a set of renewed and contemporary strengths,
born-global firms will continue to flourish if they attend to fundamental sources of competitive
advantage. There are six fundamental sources of competitive advantage that born-global firms
need to attend to:
1. Continuously focusing on entrepreneurial orientation and innovation
2. Ability to improve offering and retain a technological edge
3. Dynamic engagement of networks of customers, suppliers, partners and external
stakeholders
4. Managing evolution to a more complex organization without losing entrepreneurial
competencies
5. Improving the ability to balance opportunity and risk
6. Possessing an agile and experimenting organization

25. 8 Distinctive Characteristics of Born-
Global Firms
Born-global firms possess the following distinctive characteristics:
1. High activity in international markets from or near the founding
2. Limited financial and tangible resources
3. Present across most industries
4. Managers have a strong international outlook and international entrepreneurial orientation
5. Emphasis on differentiation strategy
6. Emphasis on superior product quality
7. Leveraging advanced information and communications technology (ICT)
8. Using external, independent intermediaries for distribution in foreign markets

26. 1. High activity in international markets from or near the founding
● Born-global firms begin exporting their products or services within a couple of
years after their founding and may export a quarter or more of their total
production. Most of them advance through subsequent stages of
internationalization, collaboration with foreign partners , or undertaking of direct
foreign investment.
1. Limited financial and tangible resources.
● Born-global firms tend to be relatively small and have far fewer financial, human,
and tangible resources as compared to large multinational enterprises that have
been considered as dominant in global trade and investment. That is why born-
global firms have limited financial and tangible resources.

27. 3. Present across most industries
● Many born-global firms are technology firms. However, recent evidence suggests
that the born global phenomenon is widely spread beyond the technology sector.
Born-global firms are found in industries such as metal fabrication, furniture,
processed food, and consumer products.
4. Managers have a strong international outlook and international entrepreneurial
orientation.
● The managers of born global firms do not see foreign markets as a mere addition to
their domestic markets. They possess a strong entrepreneurial mindset. They
proactively and aggressively compete in international markets. They also take
risks, and innovate. For a born-global firm, it is important that the managers have
the combination of creativity, knowledge, and resourcefulness of the top
management team and not just of the personal qualities of a single entrepreneur.

28. 5. Emphasis on differentiation strategy
● Born-global firms tend to adopt differentiation strategies by developing
differentiated designs and highly distinctive products that target niche markets,
Which may be too small for the tastes of larger firms.
6. Emphasis on superior product quality
● Born-global firms are often at the leading technological edge of their industry or
product category. They are founded to exploit business opportunities based on the
development of now products or services that are better designed and of higher
quality than the competitors’ offerings.

29. 7. Leveraging advanced information and communications technology.
● Many born-global firms leverage information and communications
technology(ICT) to segment customers into narrow global-market niches and
skillfully serve highly specialized buyer needs.
8. Using external, independent intermediaries for distribution in foreign markets.
● Most born-global firms expand internationally through exports by engaging in
direct international sales or using independent export intermediaries located
abroad. Many of them rely on external facilitators to organize international
shipments. Exporting and using independent intermediaries enables flexible
international operations including the ability to enter or withdraw from foreign
markets relatively quickly and easily.