chapter 12 entrepreneurship by zubair a khan

Chapter 12 - Global Marketing Strategies For Entrepreneurs

“Nothing Sucks Like an Electrolux”-Scandinavian Translation of English Product Slogan

“Pepsi Bring Your Ancestors Back from the Grave”-Chinese Translation of “Pepsi Comes Alive”

Learning ObjectivesStudents will be able to:1. Explain why "going global" has become an integral part of entrepreneurs marketing

strategies.2. Describe the principal strategies for going global.3. Explain how to build a thriving export program.4. Discuss the major barriers to international trade and their impact on the global economy.5. Describe the trade agreements that will have the greatest influence on foreign trade into the

twenty-first century.

Instructor’s OutlineI. Introduction

A. Introduction:1. It is no longer a surprise to entrepreneurs that they face global competition in the

marketplace. 2. The new economic world order is the result of the interaction of dynamic forces.

a) Culture, politics, and the basic social fabric of nations are evolving at unprecedented pace as change is facilitated by technology and challenged by global economic and competitive forces.

b) Twenty-first century entrepreneurs recognize that the markets of today are small in comparison to the market potential of tomorrow.

c) The world market for goods and services continues to expand fueled by a global economy, which welcomes consumers with new wealth.

3. Global business is accepted as a natural phenomenon, and new entries join daily. a) The tools of global business are not beyond the reach of any entrepreneur.

II. Why Go Global?A. Reasons

1. Failure to cultivate global markets can be a lethal mistake for modern businesses, whatever their size. a) Increasingly, small businesses will be under pressure to expand into

international markets, to consider themselves businesses without borders.2. The Benefits

a) Offset sales declines in the domestic market. b) Increase sales and profits. c) Extend their products' life cycle. d) Lower manufacturing costs. e) Improve competitive position and enhance reputation. f) Raise quality levels.

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241 Section IV Small Business Marketing Strategies

g) Become more customer oriented.3. Becoming a global entrepreneur does require a modification in the mindset of the

firm. a) Success in the global economy also requires:

(1) constant innovation(2) staying nimble enough to use speed as a competitive weapon(3) maintaining a high level of quality and constantly improving it(4) being sensitive to foreign customers’ unique requirements(5) adopting a more respectful attitude toward foreign habits and customs(6) hiring motivated, multilingual employees(7) retaining a desire to learn constantly about global markets

4. The entrepreneur needs to prepare by asking and answering the following questions:a) Is there a profitable market in which our firm has the potential to be successful

for an extended period of time?b) Does our firm have the specific resources, skills and commitment to succeed

in this venture?c) Are there pressures domestically that are forcing the firm to seek global

opportunities?d) Do we know the culture, history, economics, value system, etc., of the

country(s) which we are considering?e) Is there a viable “exit strategy” if the conditions change or the new venture is

not successful?

IN THE FOOTSTEPS OF AN ENTREPRENEURBlasting Their Way into International Markets

SUMMARYEngineered Demolition, a family business with 20 employees that operates in a unique niche market that spans the globe: explosive demolition. The Minneapolis-based company is one of just a handful of businesses worldwide that uses implosion to destroy old buildings in metropolitan areas to make way for new ones. Chong and Kelly spend a great deal of time educating clients about the implosion process, dispelling the misconceived images people have of debris shooting out for hundreds of yards from the work site. After studying the blueprints of the target building, Engineered Demolition workers plan the blast, emphasizing four key elements: the direction of the fall, how straight the fall is, the material structure of the building, and the proximity and location of adjoining buildings.

As one might imagine, implosion is a highly specialized field that requires extensive training. Both Kelly and Chong hold blaster's licenses valid in the United States and internationally. Engineered Demolition currently averages about 75 jobs a year, but business is doubling about every four years. Chong says that the number of jobs from international customers is increasing rapidly. Currently, about one-third of the company's contracts come from international clients.

Although used for years in the United States and Canada, demolition by implosion has caught on in Asia, Europe, and Latin America only recently. Performing an implosion in these countries is

2. Describe the principal strategies for “going global”

Chapter 12 - Global Marketing Strategies For Entrepreneurs 242

more difficult because of the time required to get the necessary permits. As their international clientele increases, Chong and Kelly have learned to be more sensitive to their customers' cultural preferences and customs.

Engineered Demolition is actively pursuing business in European markets. Chong was one of 22 women who participated in a recent Women in Trade mission to Europe led by the U.S. Commerce Department. The exposure has already paid off. Not long after Chong returned from the trip, Engineered Demolition landed one of its most unusual jobs in Europe. Not only are Chong and Kelly successful, but they also love their work.

1. What factors are contributing to the growth of Engineered Demolition's international business? Which countries should the company target? Why?

Answer - A growing need for a specific service that serves a niche market. A reputation for quality and safety--i.e. doing the job right--and their sensitivity to national cultural issues related to the service they provide.2. Work with a team of your classmates to brainstorm ways that Engineered Demolition can

locate international customers.Answer - Students' responses will vary but should take the Web, direct mail to construction and architectural firms, large city governments, etc., into consideration.

III. STRATEGIES FOR “GOING GLOBAL”A. Introduction

1. Entrepreneurs have a variety of strategic options to choose among. The principal strategies are:

a) The World Wide Webb) trade intermediariesc) joint venturesd) foreign licensinge) franchisingf) counter-tradingg) bartering, exportingh) the establishment of international locations

2. Whatever the single or combination of strategic options, the entrepreneur selects the mindset of the organizations leadership

must be broadened. 3. Becoming a global business depends on instilling a global culture throughout the

organization that permeates everything the company does.4. An entrepreneur must understand the needs of the customers in the new

marketplace. a) See Figure 12.1.

IN THE FOOTSTEPS OF THE ENTREPRENEUROvercoming Barriers Online

Dain Dunston, Next Wine President, knows first had that it is folly to assume any company can


slap up a Web site and become a global player overnight. Even though most of Next Wines products are sold via the Internet, Dunston says, “We’re not a dot-com. We’re a company selling wine on the Internet.”

Sometimes the ordering process gets a little “hairy.” Web customers order wine that must be shipped from two or three different countries. The regulatory burden is great and international restrictions sometimes mean that wine can’t always ship together.

Many of the logistical barriers have been overcome by the acquisition of software that allows the company to maintain Web content in several different languages, setting different rules for each version of its site. Dunston also made sure the software would grow with the company. The most common and vexing problem is language.

SDL International offers translation services for those on a budget using software and the Internet. For one cent per work, a business owner can log on to www.plustranslation.com and upload an entire document and have it “roughly” translated into English in a few minutes. For a few cents more, SDL will run the document past a real person for the final clean up. Why bother with this process? One language says, “You can’t have everything in English and then ship it over to your Japanese subsidiary and say ‘translate this to Japanese.”

For small businesses like Next Wine expanding globally can be challenging, but with the help of the Internet and some innovative software, it can be done.

1. What will be the improvements in computer software which will make it possible for smaller firms to more effectively conduct business on a global basis via the Internet?Answer: Computer software must be user friendly and have set of standard forms in different languages so a small business can simply translate the documents into other language and be able to print it (in duplicates: one in English and another in language of choice).

B. EMPLOYING A PRESENCE ON THE WORLD WIDE WEB1. Perhaps in our technology-rich global environment the fastest, least expensive and

lowest cost strategic option to creating a global business presence is the creation of a Web site.a) With a well-designed Web site, an entrepreneur can extend its reach to

customers anywhere in the world – and without breaking the budget! (1) A company’s Web site is available to anyone anywhere in the world and

provides exposure 24 hours a day to its products or services seven days a week.

(2) For many small companies, the Web has become a tool that is as essential to doing business as the telephone and the fax machine.

b) Establishing a presence on the Web has become an important part of a company’s strategy for reaching customers outside the United States.

http://www.plustranslation.com/


(1) Figure 12.2 provides a comparison of the Web-using population by region for 1999 (actual) and 2005 (projected).

2. Most small companies follow a four-step evolutionary process to conducting global business on the Web:a) Step 1. Connecting to e-mail.

(1) E-mail correspondence often is the first step to establishing lasting relationships with international customers.

(2) Not only is e-mail communication less expensive than international telephone calls, but it also overcomes many of the problems associated with different time zones.

b) Step 2. Using the Web to Conduct International Market Research. (1) Entrepreneurs quickly recognize the power of the Internet to generate sales

leads by researching customers and market characteristics in other countries.

c) Step 3. Building a Globally Accessible Web Site. (1) This step allows the business to both educate potential customers about the

specific products of the firm, as well as generate inquires and hopefully orders.

(2) With the introduction in recent years of highly secure transaction software, orders can be quickly and safely accepted.

C. Trade Intermediaries1. Another relatively easy way to break into international markets.2. Trade intermediaries are domestic agencies that serve as distributors in foreign

countries for domestic companies of all sizes. 3. They rely on their networks of contacts, their extensive knowledge of local

customs and markets, and their experience in international trade to market products effectively and efficiently all across the globe.

4. Trade intermediaries account for about 10 percent of all U.S. exports.a) Export management companies. An important channel of foreign distribution

for small companies just getting started in international trade or for those lacking the resources to assign their own people to foreign markets. (1) Most EMCs are merchant intermediaries, working on a buy-and-sell

arrangement with domestic small companies. b) Export trading companies. Export trading companies are businesses that buy

and sell products in a number of countries, and they typically offer a wide range of services such as exporting, importing, shipping, storing, distributing, and others to their clients. (1) ETCs usually perform both import and export trades across many

countries' borders. (2) However, like EMCs, ETCs lower the risk of exporting for small

businesses.(3) In 1982, Congress passed the Export Trading Company Act to allow

producers of similar products to form ETC cooperatives without the fear of violating antitrust laws. The goal was to encourage U.S. companies to


export more goods by allowing businesses in the same industry to band together to form export trading companies.

c) Manufacturer's export agents. MEAs act as international sales representatives in a limited number of markets for various noncompeting domestic companies. (1) The relationship between an MEA and a small company is a short-term

one, and the MEA typically operates on a commission basis.5. Export merchants. Export merchants are domestic wholesalers who do business in

foreign markets. They buy goods from many domestic manufacturers and then market the goods in foreign markets. They often carry competing lines, which means they have little loyalty to suppliers.

6. Resident buying offices. A government-owned or privately owned operation of one country established in another country for the purpose of buying goods made there.

7. Foreign distributors. They handle all of the marketing, distribution, and service functions in the foreign country.

8. The value of using trade intermediaries. a) Trade intermediaries make the transition to global markets much faster and

easier. b) The key to establishing a successful relationship with a trade intermediary is

conducting a thorough screening to determine what type of intermediary--and which one in particular-will best serve a small company's needs.

c) A company looking for an intermediary should compile a list of potential candidates using some of the sources listed in Table 12.1.

GAINING THE COMPETITIVE EDGEWhat Advice Would You Give?

Specialty Building Supplies is a small company with $6.4 million in annual sales that manufactures and sells a line of building supply products such as foundation vents, innovative insulation materials, and fireplace blowers to building supply stores in the northeastern United States. The eight-year-old company, founded by tad Meyers, has earned a solid reputation among its supply store customers and the builders and homeowners who ultimately buy its products.

The first product he designed (and the product that ultimately led him to launch Specialty Building Supplies) was an automatic foundation vent that was thermostatically controlled (no electricity needed). Before long, Meyers stopped building houses and focused on selling the Autovent. Its success prompted him to add other products to the company’s line.

Specialty’s sales have been lackluster for more than a year now, primarily due to a slump in new home construction in its primary market. Tad Meyers recently met the company’s top marketing managers and salespeople to talk about their options for getting Specialty’s sales and profit growth back on track. “What about selling our products in international markets?” asked Dee Rada, the company’s marketing manager.


The managers are questioning: Where should we sell out products? How do we find out what the building codes are in foreign countries? Would we have to modify our designs to meet foreign standards? How would we distribute our products? How do we find foreign distributors? Where do we start?”

1. What advice would you offer Meyers and the other managers at Specialty Building Supplies about their prospects of “going global?”Answer: Student’s answers will vary. However, most common answers are: first, the company should look into its resources such as financial and human resources, information technology, production, etc. Second, contact trade intermediaries for additional information related to the industry.

2. How would you suggest these managers go about finding the answers to the questions they have posed? What other questions would you advise them to answer?Answer: Student’s answers will vary. However, most common answers are: use the World Wide Web to complete a preliminary feasibility study. After narrowing down to the country of choice, then visit the country for additional information. Then decide on the mode of entry (export, joint venture, etc.)

3. Outline the steps these managers should take to assemble an international marketing plan.Answer: Student’s answer will vary. While the Web will provide ideas students' plans should follow the form of the marketing plan in the text's appendix beginning at page A-1. Their plans should also address the questions listed in Tables 12.2 and 12.3.

D. Joint Ventures1. Lower the risk of entering global markets for small businesses. They also give

small companies more clout in foreign lands. 2. In a domestic joint venture, two or more U.S. small businesses form an alliance

for the purpose of exporting their goods and services. a) For export ventures, participating companies get antitrust immunity, allowing

them to cooperate freely. b) The businesses share the responsibility and the costs of getting export licenses

and permits, and they split the venture's profits. 3. In a foreign joint venture, a domestic small business forms an alliance with a

company in the target nation. a) The host partner brings to the joint venture valuable knowledge of the local

market and its method of operation as well as of the customs and the tastes of local customers, making it much easier to conduct business in the foreign country.

b) Sometimes foreign countries place certain limitations on joint ventures. Some nations, for example, require host companies to own at least 51 percent of the venture.


4. The most important ingredient in the recipe for a successful joint venture is choosing the right partner.

5. A second key to creating a successful alliance is to establish common objectives. a) Defining exactly what each party in the joint venture hopes to accomplish at

the outset.6. Common problems leading to failure include improper selection of partners,

incompatible management style, failure to establish common goals, inability to be flexible, and failure to trust one another.

7. What can entrepreneurs do to avoid these pitfalls in joint ventures?a) Define at the outset important issues such as each party's contributions and

responsibilities, the distribution of earnings, the expected life of the relationship, and the circumstances under which the parties can terminate the relationship.

b) Understand in depth their partner's reasons and objectives for joining the venture.

c) Select a partner who shares their company's values and standards of conduct.d) Spell out in writing exactly how the venture will work and where decision-

making authority lies.e) Select a partner whose skills are different from but compatible with those of

their own companies.f) Prepare a "prenuptial agreement" that spells out what will happen in case of a

business "divorce."

GAINING THE COMPETITIVE EDGEHello Havana…..Soon???

Have the entrepreneurs of the United States been out flanked by their Canadian and European competitors? Over the past few years as the world watches the evolution of economic policy in Cuba, aggressive Canadian and European business interest have begun to stake their claims on what they hope will be a revitalized Cuban economy when its president, Fidel Castro, steps aside. These competitors have established over 400 joint ventures in Cuba.Prior to the revolution, Cuba was a country with a strong agricultural and tourism base. Today, tourism is returning, although it is illegal for American citizens to travel to Cuba. Slowly the United States government is modifying our economic relationship with Cuba. In the short-term American policy is not likely to make a major deviation from current policy.If Cuba became open to United States entrepreneurs and the economic system of Cuba became more free-market in its behavior how will they proceed?1. Will Cuba be a viable new market for U.S. goods and services? Some estimate that Cuba

could represent $20 billion per year in revenue for U.S. companies. Should we pursue this opportunity? And, if so, do you believe the $20 billion forecast?Answer: Student’s answer will vary depending on the relationship United States has with Cuba when this discussion takes place.

E. Foreign Licensing


1. Some small companies enter foreign markets by licensing businesses in other nations to use their patents, trademarks, copyrights, technology, processes, or products.

2. In return, the small company collects royalties from the sales of its foreign licenses.

3. Licensing is relatively simple.a) They find someone who can capture the market, who is already at home in

that market.4. Although many business owners consider licensing only their products, the

licensing potential for intangibles such as processes, technology, copyrights, and trademarks often is greater.

5. Foreign licensing enables a small business to enter foreign markets quickly, easily, and with virtually no capital investment.

6. Risks to the company include the potential of losing control over its manufacturing and marketing and creating a competitor if the licensee gains too much knowledge and control.

7. Securing proper patent, trademark, and copyright protection beforehand can minimize those risks, however.

F. International Franchising1. International franchisors sell virtually every kind of product or service

imaginable--some identical to those sold in the United States. However, most franchisors have learned that they must modify their products and services to suit local tastes and customs.

2. Although franchise outlets span the globe, Canada is the primary market for U.S. franchisors, with Japan and Europe following.

3. These markets are most attractive to franchisors because they are similar to the U.S. markets:a) rising personal incomesb) strong demand for consumer goodsc) growing service economicsd) spreading urbanization

4. There is little doubt that franchising is becoming a two-way street and that globalization will continue to be a powerful driving force in the growth of the strategic marketing option.

5. Early entry into emerging markets with cultural sensitivity to national values and taste may be a key to the achievement of long-term success.

G. Countertrading and Bartering1. Countertrade involves a transaction in which a company selling goods in a foreign

country agrees to promote investment and trade in that country. a) The goal of the transaction is to help offset the capital drain from the foreign

country’s purchases. b) As entrepreneurs enter more and more developing countries, they will need to

develop skills at implementing this strategy.


c) In some cases, small and medium-size businesses find it advantageous to work together with large corporations who have experience in the implementation of this marketing strategy.

2. Countertrading does suffer from numerous drawbacks. a) Countertrade transactions can be complicated, cumbersome, and time-

consuming. b) They also increase the chances that a company will get stuck with

merchandise that it cannot move. c) They can lead to unpleasant surprises concerning the quantity and quality of

products required in the countertrade. 3. Still, countertrading offers one major advantage.

a) Sometimes it's the only way to make a sale.4. Because of its complexity and the risks involved, countertrading is not the best

choice for a novice entrepreneur looking to break into the global marketplace.5. Bartering, the exchange of goods and services for other goods and services, is

another way of trading with countries lacking convertible currency. a) Barter transactions require finding a business with complementary needs, but

they are much simpler than countertrade transactions.

GAINING THE COMPETITIVE EDGEThe Secret Language of International Business

When U.S. businesspeople enter international markets for the first time, they often are amazed at the differences in foreign cultures' habits and customs. The key for entrepreneurs is learning to be sensitive to the business cultures in which they operate. Consider these pointers.

Patience is a must for doing business in Spain. Appearance and style are important to Italian businesspeople; they judge the polish and the

expertise of the company's executives as well as the quality of its products and services. In Great Britain, businesspeople consider it extremely important to conduct business

"properly"--with formality and reserve. In Mexico, making business appointments through a well-connected Mexican national will

go a long way to assuring successful business deals. In China, entrepreneurs will need an ample dose of the "three Ps": patience, patience,

patience. In the Pacific Rim, entrepreneurs must remember that each country has its own unique

culture and business etiquette. Starting business relationships with customers in the Pacific Rim usually requires a third-party contact because Asian executives prefer to do business with people they know.

American entrepreneurs doing business in the Pacific Rim should avoid hard-sell techniques, which are an immediate turnoff to Asian businesspeople. Harmony, patience, and consensus make good business companions in this region.

Japanese executives conduct business much like the British: with an emphasis on formality, thoughtfulness, and respect.

In Japan and South Korea, exchanging business cards, known in Japan as meishi, is an important business function, unlike Great Britain, where exchanging business cards is less


popular. Greeting a Japanese executive properly includes a bow and a handshake--showing respect for

both cultures.

1. What can an entrepreneur do to avoid committing cultural blunders when conducting global business?Answer - He/she can avoid mistakes by studying the culture, traveling with someone who

knows theculture, take his/her cues from his host, etc. "Common sense" is culture bound and unreliable.

H. Exporting1. Approximately 100,000, U.S. companies currently export; however, experts

estimate that at least twice as many are capable of exporting but are not doing so.a) The biggest barrier facing companies that have never exported is not knowing

where or how to start. 2. Steps an entrepreneur must take to get an export program under way.

a) Recognize that even the tiniest companies and least experienced entrepreneurs have the potential to export.

b) Exporting cannot only boost a small company's sales, but it also can accelerate its growth rate.

c) Analyze your product or service. d) Analyze your commitment. e) Research markets and pick your target.

(1) Research shows export entrepreneurs whether they need to modify their existing products and services to suit the tastes and preferences of their foreign target customers.

(2) Table 12.3 offers a guide in conducting export research. f) Develop a distribution strategy. g) Find your customer.

(1) Refer to Table 12.1 for a list of some of the resources available from the government.

h) Find financing. One of the biggest barriers to small business exports is lack of financing. (1) Several federal, state, and private programs are operating to fill the export-

financing void.i) Ship your goods. Export novices usually rely on international freight

forwarders and custom-house agents--experienced specialists in overseas shipping for help in navigating the bureaucratic morass of packaging requirements and paperwork demanded by customs. (1) These specialists, also known as transport architects, are to exporters what

travel agents are to passengers and normally charge relatively small fees for a valuable service.

(2) See Table 12.4 for shipping terms.j) Collect your money. Collecting foreign accounts can be more complex than

collecting domestic ones, but by picking their customers carefully and


checking their credit references closely, entrepreneurs can minimize bad-debt losses. (1) Financing foreign sales often involves special credit arrangements such as

letters of credit and bank (or documentary) drafts. (2) A letter of credit is an agreement between an exporter's bank and the

foreign buyer's bank that guarantees payment to the exporter for a specific shipment of goods. (a) See Figure 12.3.

(3) A bank draft is a document the seller draws on the buyer, requiring the buyer to pay the face amount (the purchase price of the goods) either on sight (a sight draft) or on a specified date (a time draft) once the goods have been shipped.

(4) Rather than use letters of credit or drafts, some exporters simply require cash in advance or cash on delivery (COD).

3. Planned carefully and taken one step at a time, exporting can be a highly profitable route for small businesses.

4. Many small companies are forming foreign sales corporations (FSCs, pronounced "risks") to take advantage of a tax benefit that is designed to stimulate exports. a) By forming an FSC, a company can shelter about 15 percent of its profits on

foreign sales from federal--and in some cases state--income taxes. b) Setting up an FSC requires a company to establish a shell corporation in the

Virgin Islands, Barbados, or one of another 40 tax-friendly offshore locations that have tax treaties with the United States.

c) The company also must have fewer than 25 shareholders and one non-U.S.-resident board member.

d) Because it costs about $2,500 to establish an FSC and about $1,500 a year to maintain one, a business should earn at least $50,000 a year to make the savings from an FSC worthwhile.

I. Establishing International Locations1. Establishing an office or a factory in a foreign land can require a substantial

investment reaching beyond the budgets of many small companies. 2. Plus, setting up an international office can be an incredibly frustrating experience

in some countries. Business infrastructures are in disrepair or are nonexistent. a) The major advantages to establishing an international location can be the

combination of lower production and marketing cost, as well as development of an intimate knowledge of customer preferences.

IV. Barriers to International TradeA. Domestic Barriers

1. Sometimes the biggest barriers potential exporters face are right here at home. 2. Three major domestic roadblocks are common: attitude, information, and

financing. 3. Perhaps the biggest barrier to small businesses exporting is the attitude.

a) The first lesson of exporting is "Take nothing for granted about who can export and what you can and cannot export."


4. Entrepreneurs neglect international markets because of a lack of information about how to get started. a) The key to success in international markets is choosing the correct target

market and designing the appropriate strategy to reach it. That requires access to information and research.

5. An additional obstacle is the inability of small firms to obtain adequate export financing. Financial institutions which serve smaller firms are often not experienced with this type of financing and are unwilling to accept the perceived higher risk.

B. International Barriers1. Two types of international barriers are common: tariff and nontariff.2. Tariff barriers

a) A tariff is a tax, or duty, that a government imposes on goods and services imported into that country.

b) Imposing tariffs raises the price of the imported goods--making them less attractive to consumers--and protects the makers of comparable domestic products and services.

c) Established in the United States in 1790 by Alexander Hamilton, the tariff system generated the majority of federal revenues for about 100 years.

3. Nontariff barriersa) Quotas. Rather than impose a direct tariff on certain imported products,

nations often use quotas to protect their industries. b) A quota is a limit on the amount of a product imported into a country. c) Embargoes. An embargo is a total ban on imports of certain products. d) Dumping. In an effort to grab market share quickly, some companies have

been guilty of dumping products: selling large quantities of them in foreign countries below cost.

C. Political Barriers1. Entrepreneurs who go global quickly discover a labyrinth of political tangles. 2. The complex web of governmental and legal regulations and barriers they

encounter in foreign countries often astounds them.3. Companies doing business in politically risky lands face the very real dangers of

government takeovers of private property; attempts at coups to overthrow ruling parties; kidnappings, bombings, and other violent acts against businesses and their employees; and other threatening events.

4. Their investments of millions of dollars may evaporate overnight in the wake of a government coup or the passage of a law nationalizing an industry (giving control of an entire industry to the government).

D. Business Barriers1. Business practices and regulations in foreign lands can be quite different from

those in the United States. 2. The biggest shock comes in the area of human resources management, where

international managers discover that practices common in the United States, such


as overtime, women workers, and employee benefits are restricted, disfavored, or forbidden in other cultures.

3. Business owners new to international business sometimes are shocked at the wide range of labor costs they encounter and the accompanying wide range of skilled labor available.

4. In some countries, what appear to be "bargain" labor rates turn out to be excessively high after accounting for the quality of the labor force and the benefits their governments mandate.

E. Cultural Barriers1. The culture of a nation includes the beliefs, values, views, and mores that its

inhabitants share. 2. The diversity of languages, business philosophies, practices, and traditions make

international trade more complex than selling to the business down the street. 3. Consider the following examples:

a) A U.S. entrepreneur, eager to expand into the European Union, arrives at his company's potential business partner's headquarters in France. Confidently, he strides into the meeting room, enthusiastically pumps his host's hand, slaps him on the back, and says "Tony, I've heard a great deal about you; please, call me Bill." Eager to explain the benefits of his product, he opens his briefcase and gets right down to business. The French executive politely excuses himself and leaves the room before negotiations ever begin, shocked by the American's rudeness and ill manners. Rudeness and ill manners? Yes--from the French executive's perspective.

b) Another American business owner flies to Tokyo to close a deal with a Japanese executive. He is pleased when his host invites him to play a round of golf shortly after he arrives. He plays well and manages to win by a few strokes. The Japanese executive invites him to play again the next day, and again he wins by a few strokes. Invited to play another round the following day, the American asks, "But when are we going to start doing business?" His host, surprised by the question, says, "But we have been doing business."

4. When American businesspeople enter international markets for the first time, they often are amazed at the differences in foreign cultures' habits and customs.

5. Understanding and heeding these often subtle cultural differences is one of the most important keys to international business success.

6. Entrepreneurs who fail to learn the differences in the habits and customs of the cultures in which they hope to do business are at a distinct disadvantage.

V. International Trade AgreementsA. Introduction

1. Hundreds of agreements have been negotiated among nations in this time frame with each contributing to free trade across the globe.

B. GATT1. Created in 1947, the General Agreement on Tariffs and Trade (GATT) became

the first global tariff agreement.


2. It was designed to reduce tariffs among member nations and to facilitate trade across the globe.

3. Originally signed by the United States and 22 other nations, GATT has grown to include 124 member countries today.

4. Together, they account for nearly 90 percent of world trade. 5. The latest round of GATT negotiations, called the Uruguay Round, was

completed in December 1993 and took effect on July I, 1995. a) Negotiators reduced the remaining industrial tariffs by 40 percent, established

new rules governing dumping goods at unfairly low prices, strengthened the global protection of patents, and cut the level of government subsidies on agricultural products.

b) In addition, negotiators agreed to form a World Trade Organization (WTO) with more power to settle trade disputes among member nations than GATT had.

C. The World Trade Organization, (WTO)1. WTO came into being in January of 1995 and replaced GATT. 2. Currently, the WTO has more than 140 member countries, including the newest

member China. a) These member countries represent over 97% of all world trade.b) An additional 30 nations are actively seeking membership.

3. The rules and agreements of the WTO are the result of negotiations among its members.

4. The WTO actively implements the rules established by GATT and continues to negotiate additional trade agreements.

5. Through the agreements of the WTO, members commit themselves to non-discriminatory trade practices. a) These agreements spell out the rights and obligations of each member country. b) Each member country receives guarantees that its exports will be treated fairly

and consistently in other member countries’ markets. c) Specifically addressed have been banking, insurance, telecommunications,

and tourism under the WTO’s General Agreement on Trade in Services, (GATS).

d) The WTO’s intellectual property agreement which covers patents, copyrights, and trademarks amounts to the rules for trade and investment in ideas and creativity.

e) The WTO is involved in the resolution of trade disputes among members.

D. NAFTA1. The North American Free Trade Agreement (NAFTA) created a free trade area

among Canada, Mexico, and the United States. 2. A free trade area is an association of countries that have agreed to knock down

trade barriers, both tariff and nontariff, among partner nations. Under the provisions of NAFTA, these barriers were eliminated for trade among the three countries, but each remained free to set its own tariffs on imports from nonmember nations.


3. NAFTA forged a unified United States-Canada-Mexico market of 380 million people with a total annual output of more than $6.5 trillion dollars of goods and services.

4. Before NAFTA took effect on January 1, 1994, the average tariff on U.S. goods entering Mexico was 10 percent. Under NAFTA, these tariffs will be reduced to zero on most goods over the next 10 to 15 years.

5. Among NAFTA's provisions are:a) Tariff reductions. b) Elimination of nontariff barriers. c) Simplified border processing. d) Tougher health and safety standards.

E. Conclusion1. To remain competitive, businesses must assume a global posture. Global

effectiveness requires managers to be able to leverage workers' skills, company resources, and customer know-how across borders and throughout cultures across the world. Managers also must concentrate on maintaining competitive cost structures and a focus on the core of every business: the customer! Although there are no sure-fire rules for going global, small businesses wanting to become successful international competitors should observe these guidelines:a) Make yourself at home in all three of the world's key markets: North America,

Europe, and Asia. b) Appeal to the similarities within the various regions in which you operate but

recognize the differences in their specific cultures. c) Develop new products for the world market. Make sure your products and

services measure up to world-class quality standards.d) Familiarize yourself with foreign customs and languages; constantly scan,

clip, and build a file on other cultures: their lifestyles, values, customs, and business practices.

e) Learn to understand your customers from the perspective of their culture, not your own.

f) "Globalize," make global decisions about products, markets, and management but allow local employees to make tactical decisions about packaging, advertising, and service.

g) Train employees to think globally, send them on international trips, and equip them with state-of-the-art communications technology.

h) Hire local managers to staff foreign offices and branches.i) Do whatever seems best wherever it seems best, even if people at home lose

jobs or responsibilities.j) Consider using partners and joint ventures to break into foreign markets you

cannot penetrate on your own.2. By its very nature, going global can be a frightening experience. Most

entrepreneurs who have already made the jump, however, have found that the benefits outweigh the risks and that their companies are much stronger because of it.


Chapter Summary1. Explain why "going global" has become an integral part of many small companies' strategies.

Companies that move into international business can reap many benefits, including offsetting sales declines in the domestic market; increasing sales and profits; extending their products' life cycles; lowering manufacturing costs; improving competitive position; raising quality levels; and becoming more customer-oriented.

2. Describe the eight principal strategies small businesses have for going global. Perhaps the simplest and least expensive way for a small business to begin conducting

business globally is to establish a site on the World Wide Web (WWW). Companies wanting to sell goods on the Web should establish a secure ordering and payment system for on-line customers.

Trade intermediaries such as export management companies, export trading companies, manufacturer's export agents, export merchants, resident buying offices, and foreign distributors can serve as a small company's "export department."

In a domestic joint venture, two or more U.S. small companies form an alliance for the purpose of exporting their goods and services abroad. In a foreign joint venture, a domestic small business forms an alliance with a company in the target nation.

Some small businesses enter foreign markets by licensing businesses in other nations to use their patents, trademarks, copyrights, technology, processes, or products.

Franchising has become a major export industry for the United States. The International Franchise Association estimates that more than 20 percent of the nation's 4,000 franchisors have outlets in foreign countries.

Some countries lack a hard currency that is convertible into other currencies, so companies doing business there must rely on countertrading or bartering. A countertrade is a transaction in which a

business selling its goods in a foreign country agrees to promote investment and trade in that country. Bartering involves trading goods and services for other goods and services.

Although small companies account for 97 percent of the companies involved in exporting, they generate only 33 percent of the dollar value of the nation's exports. However, small companies, realizing the incredible profit potential it offers, are making exporting an ever-expanding part of their marketing plans. Nearly half of U.S. companies with annual revenues under $100 million export goods.

Once established in international markets, some small businesses set up permanent locations there. Although they can be very expensive to establish and maintain, international locations give businesses the opportunity to stay in close contact with their international customers.

3. Explain how to build a thriving export program. Building a successful export program takes patience and research. Steps include: realize

that even the tiniest firms have the potential to export; analyze your product or service; analyze your commitment to exporting; research markets and pick your target; develop a distribution strategy; find your customer; find financing; ship your goods; and collect your money.

4. Discuss the major barriers to international trade and their impact on the global economy.


Three domestic barriers to international trade are common: the attitude that "we're too small to export," lack of information on how to get started in global trade, and a lack of available financing.

International barriers include tariffs, quotas, embargoes, dumping, and political business, and cultural barriers.

5. Describe the trade agreements that will have the greatest influence on foreign trade into the twenty-first century. Created in 1947, the General Agreement on Tariffs and Trade (GATT), the first global

tariff agreement, was designed to reduce tariffs among member nations and to facilitate trade across the globe.

The North American Free Trade Agreement (NAFTA) created a free trade area among Canada, Mexico, and the United States. The agreement created an association that knocked down trade barriers, both tariff and nontariff, among these partner nations.

Discussion Questions1. Why must entrepreneurs learn to think globally?

Answer: Today, the global marketplace is as much the territory of small, upstart companies as it is that of giant multinational corporations. Expanding a business beyond its domestic borders may actually enhance a small company's performance.

2. What forces are driving small businesses into international markets?Answer - In the global economy, the competitive edge is swiftness to market and innovation. Small units are much better at speed to market and innovation. Their agility and adaptability give small firms the edge in today's highly interactive, fast-paced global economy. Going global is a matter of survival, not preference. Competitors are forcing the small business to think globally. Failure to cultivate global markets can be a lethal mistake for modern businesses. Small companies go global for a variety of reasons. Some move into foreign markets because their domestic sales have sagged. Other small businesses have discovered soaring demand for their products and services among foreign customers. Still other entrepreneurs realize that their future success depends on their ability to go global.

3. What advantages does going global offer a small business owner? Risks?Answer: The benefits are numerous. Offset sales declines in the domestic market. Increase sales and profits. Extend their products' life cycle. Lower manufacturing costs. Improve competitive position and enhance reputation. Raise quality levels. Become more customer-oriented.However there are some risks, as gaining a foothold in newly opened foreign markets or maintaining a position in an existing one is no easy task. Before venturing into the global marketplace, a small business owner should consider five questions.


Is there a profitable market in which our firm has the potential to be successful for an extended period of time?

Does our firm have the specific resources, skills and commitment to succeed in this venture?

Are there pressures domestically that are forcing the firm to seek global opportunities? Do we know the culture, history, economics, value system, etc., of the country(s) which

we are considering? Is there a viable “exit strategy” if the conditions change or the new venture is not

successful?

4. Outline the eight strategies that small businesses can use to go global?Answer: Employing A Presence On The World Wide Web : With a well-designed Web site, an

entrepreneur can extend its reach to customers anywhere in the world – and without breaking the budget. Establishing a presence on the Web has become an important part of a company’s strategy for reaching customers outside the United States.

Trade intermediaries are domestic agencies that serve as distributors in foreign countries for domestic companies of al sizes. They rely on their networks of contacts, their extensive knowledge of local customs and markets, and their experience in international trade to market products effectively and efficiently all across the globe.

Joint ventures , both domestic and foreign, lower the risk of entering global markets for small businesses. They also give small companies more clout in foreign lands. In a domestic joint venture, two or more U.S. small businesses form an alliance for the purpose of exporting their goods and services. In a foreign joint venture, a domestic small business forms an alliance with a company in the target nation.

Foreign licensing by licensing businesses in other nations to use their patents, trademarks, copyrights, technology, processes, or products. In return for licensing such assets, the small company collects royalties from the sales of its foreign licenses. Licensing is a relatively simple way for even the most inexperienced business owner to extend his reach into global markets. Foreign licensing enables a small business to enter foreign markets quickly, easily, and with virtually n o capital investment.

International franchising is great for selling virtually every kind of product or service imaginable – from fast food to child day care – in international markets. However, most franchisors have learned that they must modify their products and services to suit local tastes and customs. Early entry into emerging markets with cultural sensitivity to national values and taste may be a key to the achievement of long-term success.

Countertrade involves a transaction in which a company selling goods in a foreign country agrees to promote investment and trade in that country. The goal of the transaction is to help offset the capital drain from the foreign country’s purchases. Bartering, the exchange of goods and services for other goods and services, is another way of trading with countries lacking convertible currency. In a barter exchange, a company that manufactures electronics components might trade its products for the coffee that a business in a foreign country processes, which it then sells to a third company for cash. Barter transactions require finding a business with complementary needs, but they are much simpler than countertrade transactions.

3. Explain how to build a thriving export program


Exporting - Approximately 100,000 U.S. companies currently export; however, experts estimate that at least twice as many are capable of exporting but are not doing so. The biggest barrier facing companies that have never exported is not knowing where or how to start.

Establishing international locations - Once established in international markets, some small businesses set up permanent locations there. Establishing an office or a factory in a foreign land can require a substantial investment reaching beyond the budgets of many small companies. Plus, setting up an international office can be an incredibly frustrating experience in some countries. Finding the right person to manage an international office

is crucial to success; it also is a major challenge, especially for small businesses. Small companies usually have lean management staffs and cannot afford to send key people abroad without running the risk of losing their focus.

5. Describe the various types of trade intermediaries small business owners can use. What functions do they perform?Answer: Trade intermediaries are domestic agencies that serve as distributors in foreign countries for domestic companies of all sizes. They rely on their networks of contacts, their extensive knowledge of local customs and markets, and their experience in international trade to market products effectively and efficiently all across the globe. Trade intermediaries account for about 10 percent of all U.S. exports.

Export management companies. An important channel of foreign distribution for small companies just getting started in international trade or for those lacking the resources to assign their own people to foreign markets.

Export trading companies. Export trading companies are businesses that buy and sell products in a number of countries, and they typically offer a wide range of services such as exporting, importing, shipping, storing, distributing, and others to their clients. ETCs usually perform both import and export trades across many countries' borders.

Manufacturer's export agents. MEAs act as international sales representatives in a limited number of markets for various noncompeting domestic companies. The relationship between an MEA and a small company is a short-term one, and the MEA typically operates on a commission basis.

Export merchants. export merchants are domestic wholesalers who do business in foreign markets. They buy goods from many domestic manufacturers and then market them in foreign markets. They often carry competing lines, which means they have little loyalty to suppliers.

Resident buying offices. A government-owned or privately owned operation of one country established in another country for the purpose of buying goods made there.

Foreign distributors. They handle all of the marketing, distribution, and service functions in the foreign country.


6. What is a domestic joint venture? A foreign joint venture? What advantages does taking on an international partner through a joint venture offer? Disadvantages?Answer: Joint ventures, both domestic and foreign, lower the risk of entering global markets for small businesses. In a domestic joint venture, two or more U.S. small businesses form an alliance for the purpose of exporting their goods and services. For export ventures, participating companies get antitrust immunity, allowing them to cooperate freely. The businesses share the responsibility and the costs of getting export licenses and permits, and they split the venture’s profits. In a foreign joint venture, a domestic small business forms an alliance with a company in the target nation. The host partner brings to the joint venture valuable knowledge of the local market and its method of operation as well as of the customs and the tastes of local customers, making it much easier to conduct business in the foreign country. The most important ingredient in the recipe for a successful joint venture is choosing the right partner. Important criteria in for joint venture are: picking the right partners, and creating successful alliance to establish common objectives. Defining exactly what each party in the joint venture hopes to accomplish at the outset will minimize the opportunity for misunderstandings and disagreements later on. Common problems leading to failure include improper selection of partners, incompatible management style, failure to establish common goals, inability to be flexible, and failure to trust one another.

7. What mistakes are first-time exporters most likely to make? Outline the steps a small company should take to establish a successful export program.Answer - The biggest barrier facing companies that have never exported is not knowing where or how to start. Steps an entrepreneur must take to get an export program under way. Recognize that even the tiniest companies and least experienced entrepreneurs have the

potential to export. Analyze your product or service. Analyze your commitment. Research markets and pick your target. Develop a distribution strategy. Find your customer. Ship your goods. Collect your money. Planned carefully and taken one step at a time, exporting can be a highly profitable route for small businesses. Many small companies are forming foreign sales corporations (FSCs, pronounced "risks") to take advantage of a tax benefit that is designed to stimulate exports.

8. What are the benefits of establishing international locations? Disadvantages?Answer - Establishing an office or a factory in a foreign land can require a substantial investment reaching beyond the budgets of many small companies. Plus, setting up an international office can be an incredibly frustrating experience in some countries. Business infrastructures are in disrepair or are nonexistent. Finding the right person to manage an international office is crucial to success; it also is a major challenge, especially for small businesses. Few small businesses begin their global ventures by establishing international locations, preferring, instead, to build a customer base through some of the strategies already


covered. Small companies that do establish international locations can reap significant benefits. Start-up costs are lower in some foreign countries, and lower labor costs can produce significant savings as well. The major advantages to establishing an international location can be the combination of lower production and marketing cost, as well as development of an intimate knowledge of customer preferences. Finding the right person to manage an international office is crucial to success; it also is a major challenge, especially for small businesses. Small companies usually have lean management staffs and cannot afford to send key people abroad without running the risk of losing their focus.

9. Describe the barriers businesses face when trying to conduct business internationally. How can a small business owner overcome these obstacles?Answer - Sometimes the biggest barriers potential exporters face are right here at home, domestic barriers. Three major domestic roadblocks are common: attitude, information, and financing. Two types of international barriers are common: tariff and nontariff. Political barriers--entrepreneurs who go global quickly discover a labyrinth of political tangles. The complex web of governmental and legal regulations and barriers they encounter in foreign countries often astounds them. There are also business barriers. Business practices and regulations in foreign lands can be quite different from those in the United States. The biggest shock comes in the area of human resources management, where international managers discover that practices common in the United States, such as overtime, women workers, and employee benefits are restricted, disfavored, or forbidden in other cultures. Finally there are cultural barriers. The culture of a nation includes the beliefs, values, views, and mores that its inhabitants share. The diversity of languages, business philosophies, practices, and traditions make international trade more complex than selling to the business down the street.

10. What is a tariff? A quota? What impact do they have on international trade?Answer - A tariff is a tax, or duty, that a government imposes on goods and services imported into that country. Imposing tariffs raises the price of the imported goods--making them less attractive to consumers--and protects the makers of comparable domestic products and services. Quotas. Rather than impose a direct tariff on certain imported products, nations often use quotas to protect their industries. A quota is a limit on the amount of a product imported into a country. It is a type of nontariff barrier.

11. What impact have the GATT, WTO, and NAFTA trade agreements had on small companies wanting to go global? What provisions are included in these trade agreements?Answer - Created in 1947, the General Agreement on Tariffs and Trade (GATT) became the first global tariff agreement. The latest round of GATT negotiations, called the Uruguay Round, was completed in December 1993 and took effect on July 1, 1995. Negotiators reduced the remaining industrial tariffs by 40 percent, established new rules governing dumping goods at unfairly low prices, strengthened the global protection of patents, and cut the level of government subsidies on agricultural products. The World Trade Organization, (WTO), came into being in January of 1995 and replaced GATT. WTO has more than 140 member countries, including the newest member China. These member countries represent over 97% of all world trade. An additional 30 nations are actively seeking membership. The rules and agreements of the WTO are the result of


negotiations among its members. The WTO actively implements the rules established by GATT and continues to negotiate additional trade agreements. Each member country receives guarantees that its exports will be treated fairly and consistently in other member countries’ markets. Specifically addressed have been banking, insurance, telecommunications, and tourism under the WTO’s General Agreement on Trade in Services, (GATS). In addition, the WTO’s intellectual property agreement which covers patents, copyrights, and trademarks amounts to the rules for trade and investment in ideas and creativity.The North American Free Trade Agreement (NAFTA) created a free trade area among Canada, Mexico, and the United States. A free trade area is an association of countries that have agreed to knock down trade barriers, both tariff and nontariff, among partner nations. Under the provisions of NAFTA, these barriers were eliminated for trade among the three countries, but each remained free to set its own tariffs on imports from nonmember nations. NAFTA forged a unified United States-Canada-Mexico market of 380 million people with a total annual output of more than $6.5 trillion dollars of goods and services. Before NAFTA took effect on January 1, 1994, the average tariff on U.S. goods entering Mexico was 10 percent. Under NAFTA, these tariffs will be reduced to zero on most goods over the next 10 to 15 years.

12. What advice would you offer an entrepreneur interested in launching a global business effort?Answer - To remain competitive, businesses must assume a global posture. Global effectiveness requires managers to be able to leverage workers' skills, company resources, and customer know-how across borders and throughout cultures across the world. Managers also must concentrate on maintaining competitive cost structures and a focus on the core of every business: the customer. Although there are no surefire rules for going global, small businesses wanting to become successful international competitors should observe these guidelines: Make yourself at home in all three of the world's key markets: North America, Europe,

and Asia. Appeal to the similarities within the various regions in which you operate but recognize

the differences in their specific cultures. Develop new products for the world market. Familiarize yourself with foreign customs and languages. Learn to understand your customers from the perspective of their culture, not your own. "Globalize," make global decisions about products, markets, and management. Train employees to think globally. Hire local managers to staff foreign offices and branches. Do whatever seems best wherever it seems best, even if people at home lose jobs or

responsibilities. Consider using partners and joint ventures to break into foreign markets.

Step into the Real World1. Go to lunch with a student from a foreign country. What products and services are most

needed? How does the business system there differ from ours? How much government


regulation affects business? What cultural differences exist? What trade barriers have the government erected?

2. Review several current business publications and prepare a brief report on which nations seem to be the most promising for U.S. entrepreneurs. What steps should a small business owner take to break into those markets? Which nations are the least promising? Why?

3. Select a nation that interests you and prepare a report on its business customs and practices. How are they different from those in the United States? How are they similar?

chapter 12 entrepreneurship by zubair a khan

Documents

global markets

global entrepreneur

global economy

global competition

global opportunities

global marketing strategies

tools of global business

international trade