l9 small business entering international markets
TRANSCRIPT
L9 Small business entering international markets
1Introduction/overview
1 Characterisitcs
2 Key features
3 Typical problems/ some solutions
4 Sources of help - D.T.I/U.k.trade and invest.- Chambers of commerce
5 Problems of success/ explosive growth/ huge orders
6 Help from D.T.I./ UKTrade & invest
7 Overcoming problems of fast growth using networks
8 Use of international subcontractors
9 Why outsource internationally ?
2 Characteristics/ importance of small business
Paliwoda identifies three characteristics of small business
1 They usually have a small share of the market
2 They are managed in a personal way by the owner
3 They do not have access to the capital market for
public issue or the placing of securities
Importance of small business
a] ‘From small acorns oak trees grow ‘
b] Understated contribution to exports - approx. 40% of Japan’s exports are from small business [i.e. in their input to products from large companies plus direct.] In U.K. this is about 7%
3 Key features in the international marketing of small business
• Only about 10% of U.K. small businesses are interested in international markets [ Hankinson 1987 and 2007] hence no change in last 20 years.
• Little or no marketing research/ orders arise by chance. No follow through/ C.R.M.
• Some use of personal selling, agencies ,trade fairs / exhibitions • They are largely ignorant of support from Gvt. depts such as
Uktrade &invest/ DTI. • Low use / no use of chambers of commerce ditto. consultants
5 Typical problems faced in international marketing and possible solutions
1 Limited horizon – join export clubs 2 Identification of markets- use D.T.I./ Uktrade & invest ‘market
prospects service’ 3 Appointing / vetting agents- speak to other companies in that market - take up references - ask commercial dept in embassies 4 Paperwork –use SITPRO’ forms,& ‘ Single Administration Document
-get S.A.D. from H.M.customs & excise. -Consider using freight forwarders.
5 High cost of setting up overseas – use ‘ market entry scheme’ DTI/ Uktrade and invest will advise.
6 Overseas product standards – use T.H.E. [ technical help for exporters] part of British Standards Institution. Also The British design council
7 Marketing research – use D.T.I/ Uktrade&invest , chambers of commerce ,[ see lecture notes international marketing analysis ]
Typical problems faced in international marketing and possible solutions/ continued
8 Cash flow problems- appoint a good bank abroad, use early payment against shipment, discount bills of exchange,
9 Payment problems- avoid these by doing a careful credit assessment beforehand e.g .Dunn & Bradstreet, CCN systems ltd , Graydon ,A.T.P./international limited.
- Take out credit insurance with E.C.G.D*
e.g.story of vehicles for logging in South America
- Use irrevocable letters of credit ( best for bad or risky payers)
10 Raising capital - use English Export Finance Association
6 Help from D.T.I/U.K. Trade&Invest.
• Export Development Council –help / advice with export strategies
• Country Help line Advisory Groups- hold specific campaigns abroad
• Help Desks- background info. about markets, tariffs and regulations
• British Trade International-help with strategies for S.M.E.’s[ visit www.btitrade.com]
• Export market information centre[ E.M.I.C] provides key information on exporting prospects/ indicators/contacts e.g. distributors/ has its own library.
• E.M.I.C data sources include statistics / country profiles/economic data/directories/market research reports for consumer markets/ mail order catalogues/ country development plans/ overseas Government investment plans/ opportunities &sales leads /visitor guides &street maps !
• E.M.I.R.S- export market information research services/ gives access to the databases of the Institute of Export
Help from the DTI continued
• Market prospects service--access to prospects generated by the commercial departments of U.K. embassies world wide/details of competition/ and market conditions. Costs £ 150/ under review
• Export market research funds—between 33% and 50% of costs of researching • Export representative service—help to search and find importers /distributors/agents.• Technical help for exporters– help with regs. in different countries/ product
standards/technical specifications• Market entry guarantee scheme—offers loans to help meet 50% of costs for
overheads when setting up overseas trade office[ e.g. hiring of personnel , travel and promotion
• Export intelligence Unit • Export sales and promotions division –support for companies taking part in overseas
trade fairs• Incentives – Queens award for export • Language for export campaigns • Guide for export licences
7 Help from Chambers of Commerce
Help with import &export documentation 1 E.U. certificates of origin/ Arab –British certificates of
origin 2 Admission Temporaire [ ATA] carnets for necessary
goods that accompany your visit but which are not for sale
3 Shipping News 4 Import certificates/ advice on 5 Customs tariffs/advice on 6 Documentation requirements / advice on 7 Licenses/ advice on 8 Shipping terms/ advice on
9 Payment methods/ advice on 10 Letters of credit/ advice on
8 Problems of success and explosive growth/ huge orders
A small firm might become tremendously successful. This may itself become the problem….!
‘Knock on’ effects of this are 1 Capacity problem/ might not be able to produce enough of the product
quick enough
2 Resource constraints/ manpower , time / constraints from size of buildings
and / or equipment / layout
3 Quality may deteriorate as a result
4 Problems in getting finance for expansion e.g. of production/ time scale to get funds
5 Knowledge limitations when scalingup
6 Existing business/configuration/layout
9 Overcoming limitations of fast growth using networks
*Use of research institutes /help with technical [ e.g. scaling up of production]
*Licensees/ offload production elsewhere under licence[ beware of threat of theft of your idea and your market]
*Complementary firm arrangement/ form an alliance/ may be able to handle extra orders ( see later)
*Subcontractors/ ask them to produce part of the product e.g. sub- assemblies
*Customers / may have to use de-marketing/ rationing. This may loose goodwill and possible future orders
*Distributors/ may be able to recommend other suppliers who will ‘re-badge’ their product with your brand name on it
* Suppliers/may be able to supply their product more quickly with more of the additional components already in place
10 Using international subcontractors
Defn ‘ A subcontractor is a person or organisation who agrees to provide semi finished products needed by a main contractor to perform another contract to which the subcontractor is not a party
Hollensen 2012 O.E.M. – ‘Original equipment manufacturer’. Here the main
contractor is the o.e.m. outsourcer .The subcontractor supplies components e.g. Electric motors to the main contractor
Hollensen 2012
11Why out –source internationally ?
1 Helps create competitiveness especially if subcontractor is in a low factor- input economy e.g . Levi jeans made in Philippines because 80% of cost of jeans is in the sewing stage( labour intensive part of job)
2 Contractor can develop experience / skills / economies of scale e.g. Specialisation of bathroom taps in China 3 General cost efficiency i.e.quality in the delivery is also important ,
i.e. a dependable /good delivery saves high buffer stocks as a result of the reliability of the subcontractor
4 Subcontractor can innovate as a result of better knowledge of the component .Also use ideas gained from other customers that he makes the same product for
5 Transfer or offload some of the risk to subcontractor especially if there is fluctuating demand and short product life cycle in the domestic market
Buyer – seller processes( interaction theory)_
Subcontracting itself has taken on more activities and now includes design , R&D and other requests from the main contractor. It is the relationship between the subcontractor and main contractor that is the key to success. The relationship is affected by
1 Technology – this includes both the product and the related production process. Developments in technology may emanate from either side.
2 Complexity of products/ ambitious products may only be possible given the presence of a strong and stable relationship
3 The nature of the relationship itself may vary from a ‘one- off’ transaction to an ongoing ‘permanent’relationship
Benefits of relationships between subcontractor and main supplier
1 Better customer / long term development/ return business 2 Better service development with customer/ problem solving 3 Better platform for product development 4 Better atmosphere / useful when there are difficulties to sort
out 5 Better communication and trust 6 Shared values and decision making 7 Joint investment for the future
References
U.K./ trade and invest leaflets Hollensen(2011) ‘Global Marketing a decision – orientated approach chp 13
Hankinson (2007) Portsmouth University- Several papers on small business ( see The international journal of small business)
Chambers of commerce/ leaflets British Design council British Standards institute Commercial departments in Embassies E.C.G.D. Leaflets Dun &Bradstreet website