1. part 2 PowerPoint Presentation by Charlie Cook Copyright © 2003 South-Western College Publishing. All rights reserved. All rights reserved. Global Opportunities 4 Entrepreneurial Strategy 12e

2. Copyright © by South-Western College Publishing. All rights reserved. 4–24–2 Looking Ahead After studying this chapter, you should be able to: 1. Describe the potential of small firms as global enterprises. 2. Identify the basic forces prompting small firms to engage in global expansion. 3. Identify an compare strategy options for global businesses. 4. Explain the challenges that global enterprises face. 5. Recognize the source of assistance available to support international business efforts.

3. Copyright © by South-Western College Publishing. All rights reserved. 4–34–3 Small Businesses as Global Enterprises Globalization –The expansion of international business, promoted by converging market preferences, falling trade barriers, and the integration of national economies.  Size does not limit a firm’s international activity, and small companies often become global competitors to take advantage of their unique resources.

4. Copyright © by South-Western College Publishing. All rights reserved. 4–44–4 Questions to Consider Before Going Global What are management’s objectives? –reasons, commitment, expected payoff How prepared is management to go global? –in-house expertise, responsibility for and time allocated to international operations, organizational structure. Is there sufficient production capacity? –Present capacity, effect of international operations on local production Is there enough financial capacity

5. Copyright © by South-Western College Publishing. All rights reserved. 4–54–5 Before Going Global Decide if firm is up to the task of globalization. Study the different cultural, political and business practices in foreign markets. Be prepared to modify products to meet design specifications that may vary from county to country.

6. Copyright © by South-Western College Publishing. All rights reserved. 4–64–6 Forces Driving Global Enterprises Fig. 4.2 Global Expansion Expanding Markets Traditional motivation: Extend the product life cycle. EMERGING MOTIVATION: FIND BUYERS FOR HIGHLY SPECIALIZED PRODUCTS. Cutting Costs Traditional motivation: Reduce labor and transportation costs. EMERGING MOTIVATION: OBTAIN TARIFF REDUCTIONS. Gaining Access to Resources Traditional motivation: Find raw materials. EMERGING MOTIVATION: OBTAIN HUMAN RESOURCES. Capitalizing on Special Features of the Location Traditional motivation: Profit from unique local features, such as Italian artisans' flair for design. EMERGING MOTIVATION: FOLLOW LARGE CLIENT FIRMS THAT LOCATE ABROAD.

7. Copyright © by South-Western College Publishing. All rights reserved. 4–74–7 Expanding the Market: Making the Most of Experience Experience Curve Efficiencies –Per-unit savings gained from the repeated production of the same good. Learning Effects –Insights gained from experience, that lead to improved work performance. Economies of Scale –Efficiencies that result from the expansion of production.

8. Copyright © by South-Western College Publishing. All rights reserved. 4–84–8 Big Emerging Markets Source: World Bank, “Selected World Development Indicators,” World Development Report 2000/2001, pp. 274–275.

9. Copyright © by South-Western College Publishing. All rights reserved. 4–94–9 Strategy Options for Global Enterprises Fig. 4.3

10. Copyright © by South-Western College Publishing. All rights reserved. 4–10 Strategy Options for Global Firms Exporting –Selling products in the home country to customers in another country –Trade mission  A trip organized to help small business owners make direct contact with potential buyers abroad Importing –Selling goods produced in another country to buyers in the home country

11. Copyright © by South-Western College Publishing. All rights reserved. 4–11 Strategy Options for Global Firms (cont’d) Foreign Licensing –Allowing a company in another country to purchase the right to manufacture and sell a company’s products in international markets –Licensee  The company buying the licensing rights –Licensor  The company selling the licensing rights –Royalties  Fees paid by the licensee to the licensor for each unit produced under a licensing contract

12. Copyright © by South-Western College Publishing. All rights reserved. 4–12 Strategy Options for Global Firms (cont’d) International Franchising –Selling a standard package of products, systems, and management services to a company in another country

13. Copyright © by South-Western College Publishing. All rights reserved. 4–13 Strategy Options for Global Firms (cont’d) International Strategic Alliances –A combination of efforts and/or assets of companies in different countries for the sake of pooling resources and sharing the risks of an enterprise

14. Copyright © by South-Western College Publishing. All rights reserved. 4–14 Strategy Options for Global Firms (cont’d) Establishing an International Presence –Cross-border acquisition  Purchase by a business in one country of a company located in another country –Greenfield venture  A wholly owned subsidiary formed “from scratch” in another country

15. Copyright © by South-Western College Publishing. All rights reserved. 4–15 “Country Risk Rankings” Fig. 4.4 Least RiskyModerately RiskyMost Risky

16. Copyright © by South-Western College Publishing. All rights reserved. 4–16 Challenges to Global Business Political Risk –The potential for political forces in a country to negatively affect the performance of businessess operating within Economic Risk –The probability that a government will mismanage its economy and thereby change the business environment in ways that hinder the performance of firms operating there.  Exchange rates—the value of one country’s currency relative to that of another country.

17. Copyright © by South-Western College Publishing. All rights reserved. 4–17 Challenges to Global Business (cont’d) Managerial Limitations –Product planning –Marketing –Finance –Management –Accounting –Legal issues

18. Copyright © by South-Western College Publishing. All rights reserved. 4–18 Assistance for Global Enterprises Analyzing Markets and Planning Strategies –Small Business Administration resources  Office of International Trade  U.S. Export Assistance Centers (USEACs)  Publications –Opportunities in Exporting – SBA Guide to Exporting –Department of Commerce  International Trade Administration –Visit the foreign country

19. Copyright © by South-Western College Publishing. All rights reserved. 4–19 Assistance for Global Enterprises (cont’d) Connections With International Customers –Trade Leads –Trade Missions –Trade Intermediaries  Export management companies  Export trading companies  Export agents, merchants, or remarketers  Piggyback marketers

20. Copyright © by South-Western College Publishing. All rights reserved. 4–20 Assistance for Global Enterprises (cont’d) Financing –Private banks  Letters of credit—an agreement issued by a bank to honor a draft or other demand for payment when specified conditions are met.  Bill of lading—a document indicating that a product has been shipped and the title to that product has been transferred