Chapter Copyright© 2007 Thomson Learning All rights reserved 7 Small Business as Multinational...
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Chapter
Copyright© 2007 Thomson Learning All rights reserved
7Small Business as Multinational Companies: Overcoming Barriers and Finding Opportunities
Copyright© 2007 South-Western/Thomson Learning All rights reserved
Learning Objectives
• Understand the basic definitions of small business and entrepreneurship
• Explain how small businesses can begin as global start-ups or follow the stages of internationalization
• Understand how small businesses can overcome barriers to internationalization
• Understand the basic definitions of small business and entrepreneurship
• Explain how small businesses can begin as global start-ups or follow the stages of internationalization
• Understand how small businesses can overcome barriers to internationalization
Copyright© 2007 South-Western/Thomson Learning All rights reserved
Learning Objectives
• Identify when a small business or entrepreneurs should consider going international
• Understand how small businesses or entrepreneurs can find customers, partners, or distributors aboard
• Understand how new venture wedge strategies can be used in foreign markets
• Understand factors driving entrepreneurship at an international level
• Identify when a small business or entrepreneurs should consider going international
• Understand how small businesses or entrepreneurs can find customers, partners, or distributors aboard
• Understand how new venture wedge strategies can be used in foreign markets
• Understand factors driving entrepreneurship at an international level
Copyright© 2007 South-Western/Thomson Learning All rights reserved
What Is a Small Business?
• “Small” business – many definitions• UN: less than 500 employees• The popular press: less than 100 employees• U.S. small business administration has more
complex definitions - Definition varies by industry, sales revenue, and
the number of people
• “Small” business – many definitions• UN: less than 500 employees• The popular press: less than 100 employees• U.S. small business administration has more
complex definitions - Definition varies by industry, sales revenue, and
the number of people
Copyright© 2007 South-Western/Thomson Learning All rights reserved
What Is a Small Business?
• “Small” businesses- Over 98% businesses in Europe, N. America, and
Japan- Employ more than 50% of local populations- Produce nearly 50% of the countries’ GNPs- Create more than 2/3 of new jobs
• “Small” businesses- Over 98% businesses in Europe, N. America, and
Japan- Employ more than 50% of local populations- Produce nearly 50% of the countries’ GNPs- Create more than 2/3 of new jobs
Copyright© 2007 South-Western/Thomson Learning All rights reserved
Internationalization and the Small Business
• Two models- Small business stage model: process of following
incremental stages of internationalization- Global start-up or Born-global firm: company that
begins as a multinational company
• Two models- Small business stage model: process of following
incremental stages of internationalization- Global start-up or Born-global firm: company that
begins as a multinational company
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Small Business Stage Model: Six Stages
• Stage 1: Passive exporting- Company fills international orders but does not seek export
business• Stage 2: Export management
- Specifically seeking exports—usually rely on indirect exporting
• Stage 3. Export department- Significant resources dedicated to seek increased sales from
exports•
• Stage 1: Passive exporting- Company fills international orders but does not seek export
business• Stage 2: Export management
- Specifically seeking exports—usually rely on indirect exporting
• Stage 3. Export department- Significant resources dedicated to seek increased sales from
exports•
Copyright© 2007 South-Western/Thomson Learning All rights reserved
Small Business Stage Model
• Stage 4: Sales branches- High demand justifies setting up local sales office
• Stage 5: Production abroad- Use licensing, joint ventures of direct investment- Difficult stage because of the risk of failure
• Stage 6: The transnational- Develop global integrated network
• Stage 4: Sales branches- High demand justifies setting up local sales office
• Stage 5: Production abroad- Use licensing, joint ventures of direct investment- Difficult stage because of the risk of failure
• Stage 6: The transnational- Develop global integrated network
Copyright© 2007 South-Western/Thomson Learning All rights reserved
Small Business Global Start-up or Born-Global Firms
• Key elements favoring global start-ups- Dispersed human resources- International sources of venture capital- The existence of a global demand- The lack of a geographically protected market- The necessity of worldwide sales to support the
venture- The potential to avoid later resistance to
internationalization
• Key elements favoring global start-ups- Dispersed human resources- International sources of venture capital- The existence of a global demand- The lack of a geographically protected market- The necessity of worldwide sales to support the
venture- The potential to avoid later resistance to
internationalization
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Exhibit 7.1: Major Differences on Key Aspects of The Traditional Internationalization Stages between Born-Global Firms
Copyright© 2007 South-Western/Thomson Learning All rights reserved
Small Business E-Commerce
• Web sites offer a rapid way to go international• Web site configured for e-commerce is low cost• Quick way to sell across national borders
• Web sites offer a rapid way to go international• Web site configured for e-commerce is low cost• Quick way to sell across national borders
Copyright© 2007 South-Western/Thomson Learning All rights reserved
Advantages of Small-Business E-Commerce
• Ability of small firms to compete with other companies • Creates the possibility and opportunity for more
diverse people to start a business• Convenient and easy way of doing business• Low cost to compete• Makes domestic products available in other countries• Utilize the Internet have higher revenues
• Ability of small firms to compete with other companies • Creates the possibility and opportunity for more
diverse people to start a business• Convenient and easy way of doing business• Low cost to compete• Makes domestic products available in other countries• Utilize the Internet have higher revenues
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Challenges of Small-Business E-Commerce
• Managing upgrades• Language barriers• Shipping and returns• Assuring security for a Web site• Fraudulent activities online• Receiving international payments• Costs required to maintain the site• Finding and retraining qualified employees
• Managing upgrades• Language barriers• Shipping and returns• Assuring security for a Web site• Fraudulent activities online• Receiving international payments• Costs required to maintain the site• Finding and retraining qualified employees
Copyright© 2007 South-Western/Thomson Learning All rights reserved
Overcoming Small-Business Barriers to Internationalization
• Liabilities of newness: a large percentage of new businesses fail within a year
• Liabilities of size: lack of scale to produce goods or services as efficiently as larger companies
• Liabilities of newness: a large percentage of new businesses fail within a year
• Liabilities of size: lack of scale to produce goods or services as efficiently as larger companies
Copyright© 2007 South-Western/Thomson Learning All rights reserved
Overcoming Small-Business Barriers to Internationalization
• Managers’ limited international experience• Managers’ negative attitudes
- Belief that venture too risky and not profitable- Competition seen as domestic- Ignoring of international opportunities
• Managers’ limited international experience• Managers’ negative attitudes
- Belief that venture too risky and not profitable- Competition seen as domestic- Ignoring of international opportunities
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Developing a Small-Business Global Culture
• Global culture: managerial and worker values that view strategic opportunities as global and not just domestic
• Framework to understand international operations
• Global culture: managerial and worker values that view strategic opportunities as global and not just domestic
• Framework to understand international operations
Copyright© 2007 South-Western/Thomson Learning All rights reserved
Small-Business Global Culture
• Characteristics of decision makers affecting development of a global culture- Perceived psychic distance to foreign markets- International experience- Risk aversion- Overall attitudes toward international strategies
• Characteristics of decision makers affecting development of a global culture- Perceived psychic distance to foreign markets- International experience- Risk aversion- Overall attitudes toward international strategies
Copyright© 2007 South-Western/Thomson Learning All rights reserved
Developing a Small-Business Global Culture
• Changing attitudes of key decision makers- Being close in culture and geography- Overcome skepticism regarding the international
markets- Positive attitudes more necessary for global start-
ups
• Changing attitudes of key decision makers- Being close in culture and geography- Overcome skepticism regarding the international
markets- Positive attitudes more necessary for global start-
ups
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Exhibit 7.2: Attitudinal Differences Concerning Internationalization
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Duties and the Personal Life of the Small-Business CEO
• For small firm, opening new markets is CEO’s responsibility.
• CEO must bear social and business costs- Increased travel and stress from undertaking a new
venture- Can adversely affect family life- Takes away from the daily management
• For small firm, opening new markets is CEO’s responsibility.
• CEO must bear social and business costs- Increased travel and stress from undertaking a new
venture- Can adversely affect family life- Takes away from the daily management
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Exhibit 7.3: Training and Knowledge Needs of Small Firm CEOs Entering Internationalization
Copyright© 2007 South-Western/Thomson Learning All rights reserved
Size and Small Business Internationalization
• Size barrier to internationalization- Larger firms have more resources to support
international operations• Size is an issue only in the internationalization
decision, however.• Eventually, international sales intensity of small firms
exceed that of big firms.- International sales intensity: amount of international
sales divided by total sales of the company
• Size barrier to internationalization- Larger firms have more resources to support
international operations• Size is an issue only in the internationalization
decision, however.• Eventually, international sales intensity of small firms
exceed that of big firms.- International sales intensity: amount of international
sales divided by total sales of the company
Copyright© 2007 South-Western/Thomson Learning All rights reserved
Small Business Advantage
• Speed becomes the small business advantage- Faster innovation- Can change products and internal operations faster- Speed can overcome size disadvantages- Larger firms must often overcome bureaucratic
procedures
• Speed becomes the small business advantage- Faster innovation- Can change products and internal operations faster- Speed can overcome size disadvantages- Larger firms must often overcome bureaucratic
procedures
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The Future: Falling Barriers for Small Businesses
• Barriers are becoming easier to overcome• Government support programs for small businesses
are increasing• Trade agreements are making trade easier• Increase in small businesses engaged in international
operations also makes it easier
• Barriers are becoming easier to overcome• Government support programs for small businesses
are increasing• Trade agreements are making trade easier• Increase in small businesses engaged in international
operations also makes it easier
Copyright© 2007 South-Western/Thomson Learning All rights reserved
When Should a Small Business Go International?
• If the following questions are answered positively, small business is ready.- Do we have a global product or service?- Do we have the managerial, organizational, and
financial resources to internationalize?- Is there willingness to commit resources to face the
risks of internationalization?- Is there a country in which the company feels
comfortable doing business?
• If the following questions are answered positively, small business is ready.- Do we have a global product or service?- Do we have the managerial, organizational, and
financial resources to internationalize?- Is there willingness to commit resources to face the
risks of internationalization?- Is there a country in which the company feels
comfortable doing business?
Copyright© 2007 South-Western/Thomson Learning All rights reserved
When Should a Small Business Go International? (cont.)
- Is there a profitable market for product or service?- Which country should be entered?- Do we have a unique product/service that is not
easily copied by multinationals or local entrepreneurs?
- Do location advantages exist upstream in the value chain?
- Can we afford not to be a multinational?
- Is there a profitable market for product or service?- Which country should be entered?- Do we have a unique product/service that is not
easily copied by multinationals or local entrepreneurs?
- Do location advantages exist upstream in the value chain?
- Can we afford not to be a multinational?
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Exhibit 7.4: Questions to Consider in the Small Business Decision to Go International
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Exhibit 7.5 Steps in Picking a Foreign Market
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Getting Connected to the International Market
• Participation strategies- Same participation options as larger firms- Exporting, licensing, joint ventures, and foreign
direct investment- Most small businesses often emphasize exporting
• Participation strategies- Same participation options as larger firms- Exporting, licensing, joint ventures, and foreign
direct investment- Most small businesses often emphasize exporting
Copyright© 2007 South-Western/Thomson Learning All rights reserved
Finding Customers and Partners: Customer Contact Techniques
• Trade shows• Catalog expositions• International advertising agencies and consulting firms• Government-sponsored trade missions• Direct contact
• Trade shows• Catalog expositions• International advertising agencies and consulting firms• Government-sponsored trade missions• Direct contact
Copyright© 2007 South-Western/Thomson Learning All rights reserved
Exhibit 7.6: Selected U.S. Government Programs for Making International Contacts
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Exhibit 7.7: International Trade Leads: A Web Sampler
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Exhibit 7.7: International Trade Leads: A Web Sampler
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Exhibit 7.7: International Trade Leads: A Web Sampler
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Ready to Go and Connected: A Synopsis
• Finding the right overseas partner: the most important step
• Find a good wedge to break into a new market
• Finding the right overseas partner: the most important step
• Find a good wedge to break into a new market
Copyright© 2007 South-Western/Thomson Learning All rights reserved
New-Venture Strategies for Small Multinational Companies
• Entry wedge: company’s competitive advantages for breaking into the established pattern of commercial activity
• Entry wedge: company’s competitive advantages for breaking into the established pattern of commercial activity
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New Product or Service and First-Mover Advantage
• Being the first to introduce a product or service- Must be innovative- Must be comprehensive
• Must meet customer expectations in areas such as warranty and expected components
• Technological leadership—most common source- Being first to use or introduce a new technology
• Being the first to introduce a product or service- Must be innovative- Must be comprehensive
• Must meet customer expectations in areas such as warranty and expected components
• Technological leadership—most common source- Being first to use or introduce a new technology
Copyright© 2007 South-Western/Thomson Learning All rights reserved
New Product or Service and First-Mover Advantage
• Have firsts access to natural and social resources- Can choose the best locations
• Can have the best access to social relationships- Lead to the personal contacts to build effective
channels of distribution- Lead to trust and commitment from business
partners and customers
• Have firsts access to natural and social resources- Can choose the best locations
• Can have the best access to social relationships- Lead to the personal contacts to build effective
channels of distribution- Lead to trust and commitment from business
partners and customers
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New Product or Service and First-Mover Advantage
• Switching costs: occur when customers face some loss in turning to a competitor’s products- because of brand loyalty, many customers may not
want to face the discomfort of switching to another brand of a product or service
• Switching costs: occur when customers face some loss in turning to a competitor’s products- because of brand loyalty, many customers may not
want to face the discomfort of switching to another brand of a product or service
Copyright© 2007 South-Western/Thomson Learning All rights reserved
Copycat Business
• Copycat Business- The “me too” strategy- Adopt existing products or services- Find a niche or slight innovation to attract customers
• Copycat Business- The “me too” strategy- Adopt existing products or services- Find a niche or slight innovation to attract customers
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Successful Copycat Moves
• Be the first to a new standard• Go after the toughest customers• Play to different customer needs• Transfer the location• Become a dedicated supplier or distributor• Seek abandoned or ignored markets• Acquire existing business
• Be the first to a new standard• Go after the toughest customers• Play to different customer needs• Transfer the location• Become a dedicated supplier or distributor• Seek abandoned or ignored markets• Acquire existing business
Copyright© 2007 South-Western/Thomson Learning All rights reserved
International Entrepreneurship
• Entrepreneur: person who creates new ventures that seek profit and growth- Faces risks and uncertainty of new and untested
business• New ventures: entering a new market
- Offer a new product or services- Introduce a new method technology or innovative
use of raw materials
• Entrepreneur: person who creates new ventures that seek profit and growth- Faces risks and uncertainty of new and untested
business• New ventures: entering a new market
- Offer a new product or services- Introduce a new method technology or innovative
use of raw materials
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International Entrepreneurship
• International Entrepreneurship: refers to the “discovery, evaluation and exploitation of market opportunities.”
• International Entrepreneurship: refers to the “discovery, evaluation and exploitation of market opportunities.”
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Why is International Entrepreneurship important?
• Most experts consider entrepreneurship the driving force of all small businesses
• If we want to get a complete understanding of small businesses in any nation, we need to examine the level of entrepreneurship in that country
• Entrepreneurship is also seen as the driver of innovation and economic development for any nation
• Entrepreneurship not only creates new job but also generates new wealth and growth
• Most experts consider entrepreneurship the driving force of all small businesses
• If we want to get a complete understanding of small businesses in any nation, we need to examine the level of entrepreneurship in that country
• Entrepreneurship is also seen as the driver of innovation and economic development for any nation
• Entrepreneurship not only creates new job but also generates new wealth and growth
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International Entrepreneurship and Small Businesses
• Many multinational firms rely on entrepreneurs and small businesses to do business when entering a new country
• Small businesses can play an important role in assisting existing multinational companies in developing or offering new products that can improve productivity
• Many multinational firms rely on entrepreneurs and small businesses to do business when entering a new country
• Small businesses can play an important role in assisting existing multinational companies in developing or offering new products that can improve productivity
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Exhibit 7.8: Entrepreneurial Activity Ratings by Country
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Conclusion
• Small businesses are important aspects of economies of all nations
• Small businesses provide jobs, economic growth and innovation
• Chapter provides crucial background information on small businesses
• Chapter also discusses international entrepreneurship
• Small businesses are important aspects of economies of all nations
• Small businesses provide jobs, economic growth and innovation
• Chapter provides crucial background information on small businesses
• Chapter also discusses international entrepreneurship