SMALL BUSINESSESSMALL BUSINESSES

• Europe, N. American, & Japan, Europe, N. American, & Japan, over 98% of businesses are over 98% of businesses are smallsmall

• Employ more than 50% Employ more than 50% • Produce nearly 50% of the Produce nearly 50% of the

countries' GNPscountries' GNPs• Create more than 2/3 of new Create more than 2/3 of new

jobsjobs

WHAT IS A SMALL WHAT IS A SMALL BUSINESS? BUSINESS?

• UN: less than 500 employeesUN: less than 500 employees• The popular press: less than The popular press: less than

100 employees 100 employees • U.S. Small business U.S. Small business

administration: definition administration: definition varies by industry, sales varies by industry, sales revenue and the number of revenue and the number of peoplepeople

WHAT IS AN ENTREPRENEUR?WHAT IS AN ENTREPRENEUR?• Creates new ventures that Creates new ventures that

seek profit and growthseek profit and growth• Faces risk and uncertainty Faces risk and uncertainty

of new and untested of new and untested businessbusiness

• Risk: outcomes are variable Risk: outcomes are variable • Uncertainty: impossible to Uncertainty: impossible to

predict variable outcomespredict variable outcomes

NEW VENTURES NEW VENTURES

• Enter a new market Enter a new market • Offer a new product or Offer a new product or

service service • Introduce a new method Introduce a new method

technology, or innovative technology, or innovative use of raw materials use of raw materials

INTERNATIONALIZATION INTERNATIONALIZATION AND THE SMALL AND THE SMALL

BUSINESSBUSINESS

• Two modelsTwo models– small business stage small business stage model model

– global start-up global start-up

THE SMALL BUSINESS THE SMALL BUSINESS STAGE MODELSTAGE MODEL

• Stage 1--passive exportingStage 1--passive exporting• Stage 2--export managementStage 2--export management• Stage 3--export department Stage 3--export department • Stage 4--sales branches Stage 4--sales branches • Stage 5--production abroad Stage 5--production abroad • Stage 6--the transnational Stage 6--the transnational

GLOBAL START UPGLOBAL START UP

• Occurs when firms begin as Occurs when firms begin as multinationalsmultinationals

• Requires unique conditions Requires unique conditions and organizations and organizations

SMALL BUSINESS BARRIERS SMALL BUSINESS BARRIERS TO INTERNATIONALIZATION TO INTERNATIONALIZATION

• Liabilities of newness and Liabilities of newness and sizesize– limited financial and limited financial and personnel resourcespersonnel resources

– lack of sufficient scale to lack of sufficient scale to produce goods or services produce goods or services as efficiently as larger as efficiently as larger companies companies

Barriers to Barriers to Internationalization, Internationalization,

continued continued • MManagers’ limited international anagers’ limited international

experience =experience =• Negative attitudesNegative attitudes

– belief that venture too belief that venture too risky/not profitable risky/not profitable

– competition seen as domesticcompetition seen as domestic– ignoring of international ignoring of international opportunities opportunities

THE SOLUTION THE SOLUTION A Global Culture A Global Culture

• Values that view strategic Values that view strategic opportunities as globalopportunities as global

• A common language to A common language to describe international describe international operations operations

• Owners have a global mind-set Owners have a global mind-set • Thinking globally Thinking globally

THE SOLUTION THE SOLUTION Change Attitudes of Key Change Attitudes of Key

Decision MakersDecision Makers• Begin close in culture and Begin close in culture and

geography geography • Overcome skepticism Overcome skepticism

regarding the international regarding the international markets markets

• Positive attitudes more Positive attitudes more necessary for global start-ups necessary for global start-ups

Exhibit 10.1 Attitudes Exhibit 10.1 Attitudes Concerning Concerning

InternationalizationInternationalization

0 1 2 3 4 5

5 = Strongly Agree

Potential Profits

Fosters Growth

Greater Risk

Greater Cost

Too Complicated

Non-Exporters

Exporters

INTERNATIONALIZATION INTERNATIONALIZATION EFFECTS ON THE CEOEFFECTS ON THE CEO

• Increased travel and stress Increased travel and stress from undertaking a new from undertaking a new venture venture

• Can adversely affect family life Can adversely affect family life • Takes away from the daily Takes away from the daily

managementmanagement• Job of CEO may change Job of CEO may change

Exhibit 10.2 Training & Exhibit 10.2 Training & Knowledge Needs of Small Knowledge Needs of Small

Firm CEOsFirm CEOs

0 10 20 30 40 50

Knowledge of Customs Regulations

Ability to Work in Different Cultures

Cross-Cultural Negotiation Skills

Adapt Marketing Skills

SIZE AND SMALL SIZE AND SMALL BUSINESS BUSINESS

INTERNATIONALIZATIONINTERNATIONALIZATION• Larger firms Larger firms

– more likely to export more likely to export – more resources to absorb more resources to absorb riskrisk

• Differ primarily in initial Differ primarily in initial internationalizationinternationalization

THE SMALL BUSINESS THE SMALL BUSINESS ADVANTAGEADVANTAGE

• Faster innovation Faster innovation – can change products and can change products and internal operations fasterinternal operations faster

– speed can overcome size speed can overcome size disadvantagesdisadvantages

THE FUTURE THE FUTURE

• Falling barriers to small Falling barriers to small businesses businesses internationalizationinternationalization

• More global start-upsMore global start-ups• More government programs More government programs • Trade agreements a Trade agreements a

positive forcepositive force

The future, continuedThe future, continued

• Increase in the number of small Increase in the number of small businesses engaged in businesses engaged in international activities international activities – makes it easier for other makes it easier for other

businesses to develop a businesses to develop a global culture global culture

• More managers gain More managers gain experience in international experience in international businessbusiness

SHOULD A SMALL SHOULD A SMALL BUSINESS GO BUSINESS GO

INTERNATIONAL: INTERNATIONAL: the questionsthe questions

• Does the company have:Does the company have:– a global product or service? a global product or service? – the managerial, financial, and the managerial, financial, and organizational resources? organizational resources?

– the willingness to face the the willingness to face the risks of internationalization? risks of internationalization?

The questions, continuedThe questions, continued

• Is there a country in which we Is there a country in which we feel comfortable doing feel comfortable doing business? business?

• Is there a profitable market for Is there a profitable market for our product or service? our product or service?

• Which country should we Which country should we enter? enter?

The questions, continuedThe questions, continued

• Do we have a unique product Do we have a unique product or service that is not easily or service that is not easily copied by larger companies or copied by larger companies or local entrepreneurs? local entrepreneurs?

• Do location advantages exist Do location advantages exist upstream in the value chain? upstream in the value chain?

• Can we afford not to go global? Can we afford not to go global?

Exhibit 10.4 Steps in Exhibit 10.4 Steps in Picking a Foreign MarketPicking a Foreign Market

• Screen potential marketsScreen potential markets– target potential countries target potential countries – assess target markets - assess target markets - key trends, competition, key trends, competition, potential problemspotential problems

• Draw conclusions--make Draw conclusions--make the choicethe choice

PARTICIPATION PARTICIPATION STRATEGIESSTRATEGIES

• Same participation options Same participation options as larger firmsas larger firms

• Most often exportingMost often exporting

FINDING CUSTOMER AND FINDING CUSTOMER AND PARTNERSPARTNERS

• Trade showsTrade shows• Catalogue expositions Catalogue expositions • International advertising International advertising

agencies and consulting firms agencies and consulting firms • Govt.-sponsored trade Govt.-sponsored trade

missions missions • Direct contact Direct contact

See exhibit 10.6 for See exhibit 10.6 for international trade leads international trade leads

on the world wide web!on the world wide web!

READY TO GO AND READY TO GO AND CONNECTED CONNECTED

• Finding the right overseas Finding the right overseas partner: the most partner: the most important stepimportant step

• Find a good wedge to break Find a good wedge to break into a new marketinto a new market

ENTRY WEDGE ENTRY WEDGE DEFINED DEFINED

".. A strategic competitive ".. A strategic competitive advantage for breaking advantage for breaking into the established into the established pattern of commercial pattern of commercial activity" (Vesper)activity" (Vesper)

TYPES OF ENTRY WEDGESTYPES OF ENTRY WEDGES

FIRST MOVER ADVANTAGE FIRST MOVER ADVANTAGE

• Establishes the business Establishes the business before other firms can reactbefore other firms can react

• Must be innovativeMust be innovative• Must be comprehensive Must be comprehensive

– meet customer meet customer expectations in areas such expectations in areas such as warranty and expected as warranty and expected components components

FIRST MOVER FIRST MOVER COMPETITIVE COMPETITIVE

ADVANTAGES ADVANTAGES • TechnologicalTechnological• Access natural or social Access natural or social

resourcesresources• Develop close relationships Develop close relationships

with research universities with research universities • The best locations - raw The best locations - raw

materials or proximity to materials or proximity to customers customers

COPY CAT BUSINESSESCOPY CAT BUSINESSES

• The "me too" strategy The "me too" strategy • Adopt existing products or Adopt existing products or

services services • But-- find a niche or slight But-- find a niche or slight

innovation to attract innovation to attract customerscustomers

SUCCESSFUL COPY CAT MOVES SUCCESSFUL COPY CAT MOVES

• Be the first to a new standardBe the first to a new standard• Go after the toughest customersGo after the toughest customers• Play to different customer Play to different customer

needs needs • Transfer the locationTransfer the location

Successful copy cat Successful copy cat moves, continuedmoves, continued

• Be a dedicated Be a dedicated supplier/distributorsupplier/distributor

• Seek abandoned or ignored Seek abandoned or ignored marketsmarkets

• Acquire an existing Acquire an existing businessbusiness

SUMMARY AND CONCLUSIONS SUMMARY AND CONCLUSIONS The Small BusinessThe Small Business

• Key factor in the economies Key factor in the economies of all nations of all nations

• Provides jobs, economic Provides jobs, economic growth, innovation growth, innovation

• Must face the challenges of Must face the challenges of entering the international entering the international marketplacemarketplace

Summary and conclusions, Summary and conclusions, continued continued

• Can go international--through Can go international--through stages or through global start-upsstages or through global start-ups

• Have the same multinational and Have the same multinational and participation strategic options as participation strategic options as larger firms larger firms

• Entering the international market Entering the international market is an entrepreneurial venture is an entrepreneurial venture