Chapter Small Business as Multinational Companies: Overcoming Barriers and Finding Opportunities © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 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 © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 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 •• Understand Understand factors factors driving driving entrepreneurship entrepreneurship atat an an international international level level © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 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 © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 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 © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 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 or or Born-global Born-global firm: firm: company company that that begins begins as as aa multinational multinational company company © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 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 salesfrom from exports exports â 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 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 © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Small Business Global Startup or Born-Global Firms •• 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 © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Exhibit 7.1: Major Differences on Key Aspects of The Traditional Internationalization Stages between Born-Global Firms © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Exhibit 7.7: International Trade Leads: A Web Sampler © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Exhibit 7.7: International Trade Leads: A Web Sampler © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 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 © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 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 © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part New Product or Service and 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 © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part New Product or Service and First-Mover Advantage •• Have Have firsts firsts access access toto natural natural and and social social resources resources Can Can choose choose the the best best locations locations •• Can Can have have the the best best access access toto social social relationships relationships Lead Lead toto the the personal personal contacts contacts toto build build effective effective channels channels ofof distribution distribution Lead Lead toto trust trust and and commitment commitment from from business business partners partners and and customers customers © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part New Product or Service and First-Mover Advantage •• Switching Switching costs: costs: occur occur when when customers customers face face some some loss loss inin turning turning toto aa competitor’s competitor’s products products because because ofof brand brand loyalty, loyalty, many many customers customers may may not not want want toto face face the the discomfort discomfort ofof switching switching toto another another brand brand ofof aa product product or or service service © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 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 © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 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 © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part International Entrepreneurship •• 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 © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part International Entrepreneurship •• International International Entrepreneurship: Entrepreneurship: refers refers toto the the “discovery, “discovery, evaluation evaluation and and exploitation exploitation ofof market market opportunities.” opportunities.” © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Why is International Entrepreneurship important? •• Most Most experts experts consider consider entrepreneurship entrepreneurship the the driving driving force force ofof all all small small businesses businesses •• IfIf we we want want toto get get aa complete complete understanding understanding ofof small small businesses businesses inin any any nation, nation, we we need need toto examine examine the the level level ofof entrepreneurship entrepreneurship inin that that country country •• Entrepreneurship Entrepreneurship isis also also seen seen as as the the driver driver ofof innovation innovation and and economic economic development development for for any any nation nation •• Entrepreneurship Entrepreneurship not not only only creates creates new new job job but but also also generates generates new new wealth wealth and and growth growth © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part International Entrepreneurship and Small Businesses •• Many Many multinational multinational firms firms rely rely on on entrepreneurs entrepreneurs and and small small businesses businesses toto do business business when when entering entering aa new new country country •• Small Small businesses businesses can can play play an an important important role role inin assisting assisting existing existing multinational multinational companies companies inin developing developing or or offering offering new new products products that that can can improve improve productivity productivity © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Exhibit 7.8: Entrepreneurial Activity Ratings by Country © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Conclusion •• Small Small businesses businesses are are important important aspects aspects ofof economies economies ofof all all nations nations •• Small Small businesses businesses provide provide jobs, jobs, economic economic growth growth and and innovation innovation •• Chapter Chapter provides provides crucial crucial background background information information on on small small businesses businesses •• Chapter Chapter also also discusses discusses international international entrepreneurship entrepreneurship © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part ... 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 relyon... 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 © 2011 Cengage Learning All Rights Reserved May not