chapter copyright© 2004 thomson learning all rights reserved 6 small business as multinational...
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Chapter
Copyright© 2004 Thomson Learning All rights reserved
6Small Business as Multinational Companies: Overcoming Barriers and Finding Opportunities
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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© 2005 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
• 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
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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
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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
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What Is an Entrepreneur?
• 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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Internationalization and the Small Business
• Two models• Small business stage model: process of following
incremental stages of internationalization• Global start-up: company that begins as a
multinational company
• Two models• Small business stage model: process of following
incremental stages of internationalization• Global start-up: 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•
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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
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Small Business Global Start-up
• 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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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
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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
• 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
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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
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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
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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
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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
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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 6.1: 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 6.2: Training and Knowledge Needs of Small Firm CEOs Entering Internationalization
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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
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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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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
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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?
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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 6.3: Questions to Consider in the Small Business Decision to Go International
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Exhibit 6.4 Steps in Picking a Foreign Market
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Country Ratings on Entrepreneurial Activity
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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
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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
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Exhibit 6.5: Selected U.S. Government Programs for Making International Contacts
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Exhibit 6.6: International Trade Leads: A Web Sampler
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Exhibit 6.6: International Trade Leads: A Web Sampler
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Exhibit 6.6: 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
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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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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
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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