Chapter 6

Chapter 6
Small Business as Multinational
Companies: Overcoming Barriers
and Finding Opportunities

Copyright© 2004 Thomson Learning All rights reserved

Learning Objectives

•• Understand the basic definitions of small business and
Understand the basic definitions of small business and
entrepreneurship
entrepreneurship
•• Explain how small businesses can begin as global
Explain how small businesses can begin as global
start-ups or follow the stages of internationalization
start-ups or follow the stages of internationalization
•• Understand how small businesses can overcome
Understand how small businesses can overcome
barriers to internationalization
barriers to internationalization

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

Learning Objectives

•• Identify when a small business or entrepreneurs
Identify when a small business or entrepreneurs
should consider going international
should consider going international
•• Understand how small businesses or entrepreneurs
Understand how small businesses or entrepreneurs
can find customers, partners, or distributors aboard
can find customers, partners, or distributors aboard
•• Understand how new venture wedge strategies can be
Understand how new venture wedge strategies can be
used in foreign markets
used in foreign markets


What Is a Small Business?

•• “Small” business – many definitions
“Small” business – many definitions
•• UN: less than 500 employees
UN: less than 500 employees
•• The popular press: less than 100 employees
The popular press: less than 100 employees
•• U.S. small business administration has more
U.S. small business administration has more
complex definitions
complex definitions
•• Definition varies by industry, sales revenue, and
Definition varies by industry, sales revenue, and
the number of people
the number of people


What Is a Small Business?

•• “Small” businesses
“Small” businesses
•• Over 98% businesses in Europe, N. America, and
Over 98% businesses in Europe, N. America, and
Japan
Japan
•• Employ more than 50% of local populations
Employ more than 50% of local populations
•• Produce nearly 50% of the countries’ GNPs
Produce nearly 50% of the countries’ GNPs
•• Create more than 2/3 of new jobs
Create more than 2/3 of new jobs


What Is an Entrepreneur?

•• Entrepreneur: person who creates new ventures that
Entrepreneur: person who creates new ventures that
seek profit and growth
seek profit and growth
•• Faces risks and uncertainty of new and untested
Faces risks and uncertainty of new and untested
business
business
•• New ventures: entering a new market
New ventures: entering a new market
•• Offer a new product or services
Offer a new product or services
•• Introduce a new method technology or innovative
Introduce a new method technology or innovative
use of raw materials
use of raw materials

Internationalization and the
Small Business

•• Two models
Two models
•• Small business stage model: process of following
Small business stage model: process of following
incremental stages of internationalization
incremental stages of internationalization
•• Global start-up: company that begins as a
Global start-up: company that begins as a
multinational company
multinational company


Small Business Stage Model:
Six Stages

•• Stage 1: Passive exporting
Stage 1: Passive exporting
•• Company fills international orders but does not seek
Company fills international orders but does not seek
export business
export business
•• Stage 2: Export management
Stage 2: Export management
•• Specifically seeking exports—usually rely on indirect
Specifically seeking exports—usually rely on indirect
exporting
exporting
•• Stage 3. Export department
Stage 3. Export department
•• Significant resources dedicated to seek increased
Significant resources dedicated to seek increased
sales from exports
sales from exports
• Copyright© 2005 South-Western/Thomson Learning All rights reserved

Small Business Stage Model

•• Stage 4: Sales branches
Stage 4: Sales branches
•• High demand justifies setting up local sales office
High demand justifies setting up local sales office
•• Stage 5: Production abroad
Stage 5: Production abroad
•• Use licensing, joint ventures of direct investment
Use licensing, joint ventures of direct investment
•• Difficult stage because of the risk of failure
Difficult stage because of the risk of failure
•• Stage 6: The transnational
Stage 6: The transnational
•• Develop global integrated network
Develop global integrated network


Small Business Global Start-
up

•• Key elements favoring global start-ups
Key elements favoring global start-ups
•• Dispersed human resources
Dispersed human resources
•• International sources of venture capital
International sources of venture capital
•• The existence of a global demand
The existence of a global demand
•• The lack of a geographically protected market
The lack of a geographically protected market
•• The necessity of worldwide sales to support the
The necessity of worldwide sales to support the
venture
venture
•• The potential to avoid later resistance to
The potential to avoid later resistance to
internationalization
internationalization

Small Business E-Commerce

•• Web sites offer a rapid way to go international
Web sites offer a rapid way to go international
•• Web site configured for e-commerce is low cost
Web site configured for e-commerce is low cost
•• Quick way to sell across national borders
Quick way to sell across national borders


Advantages of Small-Business
E-Commerce

•• Ability of small firms to compete with other companies
Ability of small firms to compete with other companies
•• Creates the possibility and opportunity for more
Creates the possibility and opportunity for more
diverse people to start a business
diverse people to start a business
•• Convenient and easy way of doing business
Convenient and easy way of doing business
•• Low cost to compete
Low cost to compete
•• Makes domestic products available in other countries
Makes domestic products available in other countries


Challenges of Small-Business
E-Commerce

•• Managing upgrades
Managing upgrades
•• Language barriers
Language barriers
•• Shipping and returns
Shipping and returns
•• Assuring security for a Web site
Assuring security for a Web site
•• Fraudulent activities online
Fraudulent activities online
•• Receiving international payments
Receiving international payments
•• Costs required to maintain the site
Costs required to maintain the site
•• Finding and retraining qualified employees
Finding and retraining qualified employees

Overcoming Small-Business
Barriers to Internationalization

•• Liabilities of newness: a large percentage of new
Liabilities of newness: a large percentage of new
businesses fail within a year
businesses fail within a year
•• Liabilities of size: lack of scale to produce goods or
Liabilities of size: lack of scale to produce goods or
services as efficiently as larger companies
services as efficiently as larger companies


Overcoming Small-Business
Barriers to Internationalization

•• Managers’ limited international experience
Managers’ limited international experience
•• Managers’ negative attitudes
Managers’ negative attitudes
•• Belief that venture too risky and not profitable
Belief that venture too risky and not profitable
•• Competition seen as domestic
Competition seen as domestic
•• Ignoring of international opportunities
Ignoring of international opportunities


Developing a Small-Business
Global Culture

•• Global culture: managerial and worker values that view
Global culture: managerial and worker values that view
strategic opportunities as global and not just domestic
strategic opportunities as global and not just domestic
•• Framework to understand international operations
Framework to understand international operations


Small-Business Global Culture

•• Characteristics of decision makers affecting
Characteristics of decision makers affecting
development of a global culture
development of a global culture
•• Perceived psychic distance to foreign markets
Perceived psychic distance to foreign markets
•• International experience
International experience
•• Risk aversion
Risk aversion
•• Overall attitudes toward international strategies
Overall attitudes toward international strategies


Developing a Small-Business
Global Culture

•• Changing attitudes of key decision makers
Changing attitudes of key decision makers
•• Being close in culture and geography
Being close in culture and geography
•• Overcome skepticism regarding the international
Overcome skepticism regarding the international
markets
markets
•• Positive attitudes more necessary for global start-
Positive attitudes more necessary for global start-
ups
ups


Exhibit 6.1: Attitudinal Differences
Concerning Internationalization


Duties and the Personal Life
of the Small-Business CEO

•• For small firm, opening new markets is CEO’s
For small firm, opening new markets is CEO’s
responsibility.
responsibility.
•• CEO must bear social and business costs
CEO must bear social and business costs
•• Increased travel and stress from undertaking a new
Increased travel and stress from undertaking a new
venture
venture
•• Can adversely affect family life
Can adversely affect family life
•• Takes away from the daily management
Takes away from the daily management


Exhibit 6.2: Training and Knowledge
Needs of Small Firm CEOs Entering
Internationalization


Size and Small Business
Internationalization

•• Size barrier to internationalization
Size barrier to internationalization
•• Larger firms have more resources to support
Larger firms have more resources to support
international operations
international operations
•• Size is an issue only in the internationalization
Size is an issue only in the internationalization
decision, however.
decision, however.
•• Eventually, international sales intensity of small firms
Eventually, international sales intensity of small firms
exceed that of big firms.
exceed that of big firms.
•• International sales intensity: amount of international
International sales intensity: amount of international
sales divided by total sales of the company
sales divided by total sales of the company

Small Business Advantage

•• Speed becomes the small business advantage
Speed becomes the small business advantage
•• Faster innovation
Faster innovation
•• Can change products and internal operations faster
Can change products and internal operations faster
•• Speed can overcome size disadvantages
Speed can overcome size disadvantages
•• Larger firms must often overcome bureaucratic
Larger firms must often overcome bureaucratic
procedures
procedures


Falling Barriers for Small
Businesses

•• Barriers are becoming easier to overcome
Barriers are becoming easier to overcome
•• Government support programs for small businesses
Government support programs for small businesses
are increasing
are increasing
•• Trade agreements are making trade easier
Trade agreements are making trade easier
•• Increase in small businesses engaged in international
Increase in small businesses engaged in international
operations also makes it easier
operations also makes it easier


When Should a Small
Business Go International?

•• If the following questions are answered positively,
If the following questions are answered positively,
small business is ready.
small business is ready.
•• Do we have a global product or service?
Do we have a global product or service?
•• Do we have the managerial, organizational, and
Do we have the managerial, organizational, and
financial resources to internationalize?
financial resources to internationalize?
•• Is there willingness to commit resources to face the
Is there willingness to commit resources to face the
risks of internationalization?
risks of internationalization?
•• Is there a country in which the company feels
Is there a country in which the company feels
comfortable doing business?
comfortable doing business?

When Should a Small
Business Go International?
(cont.)
•• Is there a profitable market for product or service?
Is there a profitable market for product or service?
•• Which country should be entered?
Which country should be entered?
•• Do we have a unique product/service that is not
Do we have a unique product/service that is not
easily copied by multinationals or local
easily copied by multinationals or local
entrepreneurs?
entrepreneurs?
•• Do location advantages exist upstream in the value
Do location advantages exist upstream in the value
chain?
chain?
•• Can we afford not to be a multinational?
Can we afford not to be a multinational?

Exhibit 6.3: Questions to Consider
in the Small Business Decision to
Go International


Exhibit 6.4 Steps in Picking a
Foreign Market


Country Ratings on
Entrepreneurial Activity


Getting Connected to the
International Market

•• Participation strategies
Participation strategies
•• Same participation options as larger firms
Same participation options as larger firms
•• Exporting, licensing, joint ventures, and foreign
Exporting, licensing, joint ventures, and foreign
direct investment
direct investment
•• Most small businesses often emphasize exporting
Most small businesses often emphasize exporting


Finding Customers and
Partners: Customer Contact
Techniques
•• Trade shows
Trade shows
•• Catalog expositions
Catalog expositions
•• International advertising agencies and consulting firms
International advertising agencies and consulting firms
•• Government-sponsored trade missions
Government-sponsored trade missions
•• Direct contact
Direct contact


Exhibit 6.5: Selected U.S.
Government Programs for
Making International Contacts


Exhibit 6.6: International Trade
Leads: A Web Sampler


Ready to Go and Connected:
A Synopsis

•• Finding the right overseas partner: the most important
Finding the right overseas partner: the most important
step
step
•• Find a good wedge to break into a new market
Find a good wedge to break into a new market


New-Venture Strategies for
Small Multinational
Companies
•• Entry wedge: company’s competitive advantages for
Entry wedge: company’s competitive advantages for
breaking into the established pattern of commercial
breaking into the established pattern of commercial
activity
activity


First-Mover Advantage

•• Being the first to introduce a product or service
Being the first to introduce a product or service
•• Must be innovative
Must be innovative
•• Must be comprehensive
Must be comprehensive
•• Must meet customer expectations in areas such
Must meet customer expectations in areas such
as warranty and expected components
as warranty and expected components
•• Technological leadership—most common source
Technological leadership—most common source
•• Being first to use or introduce a new technology
Being first to use or introduce a new technology


Copycat Business

•• Copycat Business
Copycat Business
•• The “me too” strategy
The “me too” strategy
•• Adopt existing products or services
Adopt existing products or services
•• Find a niche or slight innovation to attract customers
Find a niche or slight innovation to attract customers


Successful Copycat Moves

•• Be the first to a new standard
Be the first to a new standard
•• Go after the toughest customers
Go after the toughest customers
•• Play to different customer needs
Play to different customer needs
•• Transfer the location
Transfer the location
•• Become a dedicated supplier or distributor
Become a dedicated supplier or distributor
•• Seek abandoned or ignored markets
Seek abandoned or ignored markets
•• Acquire existing business
Acquire existing business


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