Chapter Small Business as Multinational Companies: Overcoming Barriers and Finding Opportunities Copyright© 2004 Thomson Learning All rights reserved Learning Objectives •• Understand Understand the the basic basic definitions definitions ofof small small business business and and entrepreneurship entrepreneurship •• Explain Explain how how small small businesses businesses can can begin begin as as global global start-ups start-ups or or follow follow the the stages stages ofof internationalization internationalization •• Understand Understand how how small small businesses businesses can can overcome overcome barriers barriers toto internationalization internationalization Copyright© 2005 South-Western/Thomson Learning All rights reserved Learning Objectives •• Identify Identify when when aa small small business business or or entrepreneurs entrepreneurs should should consider consider going going international international •• Understand Understand how how small small businesses businesses or or entrepreneurs entrepreneurs can can find find customers, customers, partners, partners, or or distributors distributors aboard aboard •• Understand Understand how how new new venture venture wedge wedge strategies strategies can can be be used used inin foreign foreign markets markets Copyright© 2005 South-Western/Thomson Learning All rights reserved What Is a Small Business? •• “Small” “Small” business business –– many many definitions definitions •• UN: UN: less less than than 500 500 employees employees •• The The popular popular press: press: less less than than 100 100 employees employees •• U.S U.S small small business business administration administration has has more more complex complex definitions definitions •• Definition Definition varies varies by by industry, industry, sales sales revenue, revenue, and and the the number number ofof people people Copyright© 2005 South-Western/Thomson Learning All rights reserved What Is a Small Business? •• “Small” “Small” businesses businesses •• Over Over 98% 98% businesses businesses inin Europe, Europe, N N.America, America, and and Japan Japan •• Employ Employ more more than than 50% 50% ofof local local populations populations •• Produce Produce nearly nearly 50% 50% ofof the the countries’ countries’GNPs GNPs •• Create Create more more than than 2/3 2/3 ofof new new jobs jobs Copyright© 2005 South-Western/Thomson Learning All rights reserved What Is an Entrepreneur? •• Entrepreneur: Entrepreneur: person person who who creates creates new new ventures ventures that that seek seek profit profit and and growth growth •• Faces Faces risks risks and and uncertainty uncertainty ofof new new and and untested untested business business •• New New ventures: ventures: entering entering aa new new market market •• Offer Offer aa new new product product or or services services •• Introduce Introduce aa new new method method technology technology or or innovative innovative use use ofof raw raw materials materials Copyright© 2005 South-Western/Thomson Learning All rights reserved Internationalization and the Small Business •• Two Two models models •• Small Small business business stage stage model: model: process process ofof following following incremental incremental stages stages ofof internationalization internationalization •• Global Global start-up: start-up: company company that that begins begins as as aa multinational multinational company company Copyright© 2005 South-Western/Thomson Learning All rights reserved Small Business Stage Model: Six Stages •• Stage Stage1:1:Passive Passiveexporting exporting •• Company Companyfills fillsinternational internationalorders ordersbut butdoes doesnot notseek seekexport export business business •• Stage Stage2:2:Export Exportmanagement management •• Specifically Specificallyseeking seekingexports—usually exports—usuallyrely relyon onindirect indirect exporting exporting •• Stage Stage3.3.Export Exportdepartment department •• Significant Significantresources resourcesdedicated dedicatedtotoseek seekincreased increasedsales sales from fromexports exports Copyrightâ 2005 South-Western/Thomson Learning All rights reserved Small Business Stage Model •• Stage Stage 4:4: Sales Sales branches branches •• High High demand demand justifies justifies setting setting up up local local sales sales office office •• Stage Stage 5:5: Production Production abroad abroad •• Use Use licensing, licensing, joint joint ventures ventures ofof direct direct investment investment •• Difficult Difficult stage stage because because ofof the the risk risk ofof failure failure •• Stage Stage 6:6:The The transnational transnational •• Develop Develop global global integrated integrated network network Copyright© 2005 South-Western/Thomson Learning All rights reserved Small Business Global Startup •• Key Key elements elements favoring favoring global global start-ups start-ups •• Dispersed Dispersed human human resources resources •• International International sources sources ofof venture venture capital capital •• The The existence existence ofof aa global global demand demand •• The The lack lack ofof aa geographically geographically protected protected market market •• The The necessity necessity ofof worldwide worldwide sales sales toto support support the the venture venture •• The The potential potential toto avoid avoid later later resistance resistance toto internationalization internationalization Copyright© 2005 South-Western/Thomson Learning All rights reserved When Should a Small Business Go International? (cont.) •• IsIs there there aa profitable profitable market market for for product product or or service? service? •• Which Which country country should should be be entered? entered? •• Do Do we we have have aa unique unique product/service product/service that that isis not not easily easily copied copied by by multinationals multinationals or or local local entrepreneurs? entrepreneurs? •• Do Do location location advantages advantages exist exist upstream upstream inin the the value value chain? chain? •• Can Can we we afford afford not not toto be be aa multinational? multinational? Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 6.3: Questions to Consider in the Small Business Decision to Go International Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 6.4 Steps in Picking a Foreign Market Copyright© 2005 South-Western/Thomson Learning All rights reserved Country Ratings on Entrepreneurial Activity Copyright© 2005 South-Western/Thomson Learning All rights reserved Getting Connected to the International Market •• Participation Participation strategies strategies •• Same Same participation participation options options as as larger larger firms firms •• Exporting, Exporting, licensing, licensing, joint joint ventures, ventures, and and foreign foreign direct direct investment investment •• Most Most small small businesses businesses often often emphasize emphasize exporting exporting Copyright© 2005 South-Western/Thomson Learning All rights reserved Finding Customers and Partners: Customer Contact Techniques •• •• •• •• •• Trade Trade shows shows Catalog Catalog expositions expositions International International advertising advertising agencies agencies and and consulting consulting firms firms Government-sponsored Government-sponsored trade trade missions missions Direct Direct contact contact Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 6.5: Selected U.S Government Programs for Making International Contacts Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 6.6: International Trade Leads: A Web Sampler Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 6.6: International Trade Leads: A Web Sampler Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 6.6: International Trade Leads: A Web Sampler Copyright© 2005 South-Western/Thomson Learning All rights reserved Ready to Go and Connected: A Synopsis •• Finding Finding the the right right overseas overseas partner: partner: the the most most important important step step •• Find Find aa good good wedge wedge toto break break into into aa new new market market Copyright© 2005 South-Western/Thomson Learning All rights reserved New-Venture Strategies for Small Multinational Companies •• Entry Entry wedge: wedge: company’s company’s competitive competitive advantages advantages for for breaking breaking into into the the established established pattern pattern ofof commercial commercial activity activity Copyright© 2005 South-Western/Thomson Learning All rights reserved First-Mover Advantage •• Being Being the the first first toto introduce introduce aa product product or or service service •• Must Must be be innovative innovative •• Must Must be be comprehensive comprehensive •• Must Must meet meet customer customer expectations expectations inin areas areas such such as as warranty warranty and and expected expected components components •• Technological Technological leadership—most leadership—most common common source source •• Being Being first first toto use use or or introduce introduce aa new new technology technology Copyright© 2005 South-Western/Thomson Learning All rights reserved Copycat Business •• Copycat Copycat Business Business •• The The “me “me too” too” strategy strategy •• Adopt Adopt existing existing products products or or services services •• Find Find aa niche niche or or slight slight innovation innovation toto attract attract customers customers Copyright© 2005 South-Western/Thomson Learning All rights reserved Successful Copycat Moves •• •• •• •• •• •• •• Be Be the the first first toto aa new new standard standard Go Go after after the the toughest toughest customers customers Play Play toto different different customer customer needs needs Transfer Transfer the the location location Become Become aa dedicated dedicated supplier supplier or or distributor distributor Seek Seek abandoned abandoned or or ignored ignored markets markets Acquire Acquire existing existing business business Copyright© 2005 South-Western/Thomson Learning All rights reserved ... has has more more complex complex definitions definitions •• Definition Definition varies varies by by industry, industry, sales sales revenue, revenue, and and the the number number ofof people... butdoes doesnot notseek seekexport export business business •• Stage Stage2:2:Export Exportmanagement management •• Specifically Specificallyseeking seekingexports—usually exports—usuallyrely... configured for for e-commerce e-commerce isis low low cost cost Quick Quick way way toto sell sell across across national national borders borders Copyright© 2005 South-Western/Thomson Learning All rights