1. Chapter Copyright© 2004 Thomson Learning All rights reserved 6 Small Business as Multinational Companies: Overcoming Barriers and Finding Opportunities

2. Copyright© 2005 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

3. 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

4. Copyright© 2005 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

5. Copyright© 2005 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

6. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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

7. Copyright© 2005 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: 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

8. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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

9. Copyright© 2005 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

10. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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

11. Copyright© 2005 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

12. Copyright© 2005 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 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

13. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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

14. Copyright© 2005 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

15. Copyright© 2005 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

16. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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

17. Copyright© 2005 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

18. Copyright© 2005 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

19. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 6.1: Attitudinal Differences Concerning Internationalization

20. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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

21. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 6.2: Training and Knowledge Needs of Small Firm CEOs Entering Internationalization

22. Copyright© 2005 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

23. Copyright© 2005 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

24. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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

25. Copyright© 2005 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?

26. Copyright© 2005 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?

27. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 6.3: Questions to Consider in the Small Business Decision to Go International

28. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 6.4 Steps in Picking a Foreign Market

29. Copyright© 2005 South-Western/Thomson Learning All rights reserved Country Ratings on Entrepreneurial Activity

30. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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

31. Copyright© 2005 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

32. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 6.5: Selected U.S. Government Programs for Making International Contacts

33. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 6.6: International Trade Leads: A Web Sampler

34. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 6.6: International Trade Leads: A Web Sampler

35. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 6.6: International Trade Leads: A Web Sampler

36. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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

37. Copyright© 2005 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

38. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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

39. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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

40. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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