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Slide multinational management 3e cullen ch06

Chapter 6
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
••
Copyright© 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


Small Business E-Commerce
••
••
••

Web
Web sites
sites offer
offer aa rapid
rapid way
way toto go
go international
international
Web
Web site
site configured
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 reserved


Advantages of Small-Business
E-Commerce
••
••
••
••
••

Ability
Ability ofof small
small firms
firms toto compete
compete with
with other
other companies
companies
Creates
Creates the
the possibility
possibility and
and opportunity
opportunity for
for more
more diverse
diverse
people
people toto start
start aa business
business
Convenient
Convenient and
and easy
easy way
way ofof doing
doing business
business
Low
Low cost
cost toto compete
compete
Makes
Makes domestic
domestic products
products available
available inin other
other countries
countries

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


Challenges of Small-Business
E-Commerce
••
••
••
••
••
••
••
••

Managing
Managing upgrades
upgrades
Language
Language barriers
barriers
Shipping
Shipping and
and returns
returns
Assuring
Assuring security
security for
for aa Web
Web site
site
Fraudulent
Fraudulent activities
activities online
online
Receiving
Receiving international
international payments
payments
Costs
Costs required
required toto maintain
maintain the
the site
site
Finding
Finding and
and retraining
retraining qualified
qualified employees
employees
Copyright© 2005 South-Western/Thomson Learning All rights reserved


Overcoming Small-Business
Barriers to Internationalization
•• Liabilities
Liabilities ofof newness:
newness: aa large
large percentage
percentage ofof new
new
businesses
businesses fail
fail within
within aa year
year
•• Liabilities
Liabilities ofof size:
size: lack
lack ofof scale
scale toto produce
produce goods
goods or
or
services
services as
as efficiently
efficiently as
as larger
larger companies
companies

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


Overcoming Small-Business
Barriers to Internationalization
••
••

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

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


Developing a Small-Business
Global Culture
•• Global
Global culture:
culture: managerial
managerial and
and worker
worker values
values that
that view
view
strategic
strategic opportunities
opportunities as
as global
global and
and not
not just
just domestic
domestic
•• Framework
Framework toto understand
understand international
international operations
operations

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


Small-Business Global Culture
•• Characteristics
Characteristics ofof decision
decision makers
makers affecting
affecting
development
development ofof aa global
global culture
culture
•• Perceived
Perceived psychic
psychic distance
distance toto foreign
foreign markets
markets
•• International
International experience
experience
•• Risk
Risk aversion
aversion
•• Overall
Overall attitudes
attitudes toward
toward international
international strategies
strategies

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


Developing a Small-Business
Global Culture
•• Changing
Changing attitudes
attitudes ofof key
key decision
decision makers
makers
•• Being
Being close
close inin culture
culture and
and geography
geography
•• Overcome
Overcome skepticism
skepticism regarding
regarding the
the international
international
markets
markets
•• Positive
Positive attitudes
attitudes more
more necessary
necessary for
for global
global startstartups
ups

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


Exhibit 6.1: Attitudinal Differences
Concerning Internationalization

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


Duties and the Personal Life
of the Small-Business CEO
•• For
For small
small firm,
firm, opening
opening new
new markets
markets isis CEO’s
CEO’s
responsibility.
responsibility.
•• CEO
CEO must
must bear
bear social
social and
and business
business costs
costs
•• Increased
Increased travel
travel and
and stress
stress from
from undertaking
undertaking aa new
new
venture
venture
•• Can
Can adversely
adversely affect
affect family
family life
life
•• Takes
Takes away
away from
from the
the daily
daily management
management
Copyright© 2005 South-Western/Thomson Learning All rights reserved


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

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


Size and Small Business
Internationalization
•• Size
Size barrier
barrier toto internationalization
internationalization
•• Larger
Larger firms
firms have
have more
more resources
resources toto support
support
international
international operations
operations
•• Size
Size isis an
an issue
issue only
only inin the
the internationalization
internationalization
decision,
decision, however.
however.
•• Eventually,
Eventually, international
international sales
sales intensity
intensity ofof small
small firms
firms
exceed
exceed that
that ofof big
big firms.
firms.
•• International
International sales
sales intensity:
intensity: amount
amount ofof international
international
sales
sales divided
divided by
by total
total sales
sales ofof the
the company
company
Copyright© 2005 South-Western/Thomson Learning All rights reserved


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

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


Falling Barriers for Small
Businesses
••
••
••
••

Barriers
Barriers are
are becoming
becoming easier
easier toto overcome
overcome
Government
Government support
support programs
programs for
for small
small businesses
businesses
are
are increasing
increasing
Trade
Trade agreements
agreements are
are making
making trade
trade easier
easier
Increase
Increase inin small
small businesses
businesses engaged
engaged inin international
international
operations
operations also
also makes
makes itit easier
easier

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


When Should a Small
Business Go International?
•• IfIf the
the following
following questions
questions are
are answered
answered positively,
positively,
small
small business
business isis ready.
ready.
•• Do
Do we
we have
have aa global
global product
product or
or service?
service?
•• Do
Do we
we have
have the
the managerial,
managerial, organizational,
organizational, and
and
financial
financial resources
resources toto internationalize?
internationalize?
•• IsIs there
there willingness
willingness toto commit
commit resources
resources toto face
face the
the
risks
risks ofof internationalization?
internationalization?
•• IsIs there
there aa country
country inin which
which the
the company
company feels
feels
comfortable
comfortable doing
doing business?
business?
Copyright© 2005 South-Western/Thomson Learning All rights reserved


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