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CHAPTER 10 SMALL BUSINESSES AS MULTINATIONAL COMPANIES. SMALL BUSINESSES. Europe, N. American, & Japan, over 98% of businesses are small Employ more than 50% Produce nearly 50% of the countries' GNPs Create more than 2/3 of new jobs. WHAT IS A SMALL BUSINESS?.
CHAPTER 10 SMALL BUSINESSES AS MULTINATIONAL COMPANIES
SMALL BUSINESSES • Europe, N. American, & Japan, over 98% of businesses are small • Employ more than 50% • Produce nearly 50% of the countries' GNPs • Create more than 2/3 of new jobs
WHAT IS A SMALL BUSINESS? • UN: less than 500 employees • The popular press: less than 100 employees • U.S. Small business administration: definition varies by industry, sales revenue and the number of people
WHAT IS AN ENTREPRENEUR? • Creates new ventures that seek profit and growth • Faces risk and uncertainty of new and untested business • Risk: outcomes are variable • Uncertainty: impossible to predict variable outcomes
NEW VENTURES • Enter a new market • Offer a new product or service • Introduce a new method technology, or innovative use of raw materials
INTERNATIONALIZATION AND THE SMALL BUSINESS • Two models • small business stage model • global start-up
THE SMALL BUSINESS STAGE MODEL • Stage 1--passive exporting • Stage 2--export management • Stage 3--export department • Stage 4--sales branches • Stage 5--production abroad • Stage 6--the transnational
GLOBAL START UP • Occurs when firms begin as multinationals • Requires unique conditions and organizations
SMALL BUSINESS BARRIERS TO INTERNATIONALIZATION • Liabilities of newness and size • limited financial and personnel resources • lack of sufficient scale to produce goods or services as efficiently as larger companies
Barriers to Internationalization, continued • Managers’ limited international experience = • Negative attitudes • belief that venture too risky/not profitable • competition seen as domestic • ignoring of international opportunities
THE SOLUTION A Global Culture • Values that view strategic opportunities as global • A common language to describe international operations • Owners have a global mind-set • Thinking globally
THE SOLUTION Change Attitudes of Key Decision Makers • Begin close in culture and geography • Overcome skepticism regarding the international markets • Positive attitudes more necessary for global start-ups
INTERNATIONALIZATION EFFECTS ON THE CEO • Increased travel and stress from undertaking a new venture • Can adversely affect family life • Takes away from the daily management • Job of CEO may change
SIZE AND SMALL BUSINESS INTERNATIONALIZATION • Larger firms • more likely to export • more resources to absorb risk • Differ primarily in initial internationalization
THE SMALL BUSINESS ADVANTAGE • Faster innovation • can change products and internal operations faster • speed can overcome size disadvantages
THE FUTURE • Falling barriers to small businesses internationalization • More global start-ups • More government programs • Trade agreements a positive force
The future, continued • Increase in the number of small businesses engaged in international activities • makes it easier for other businesses to develop a global culture • More managers gain experience in international business
SHOULD A SMALL BUSINESS GO INTERNATIONAL: the questions • Does the company have: • a global product or service? • the managerial, financial, and organizational resources? • the willingness to face the risks of internationalization?
The questions, continued • Is there a country in which we feel comfortable doing business? • Is there a profitable market for our product or service? • Which country should we enter?
The questions, continued • Do we have a unique product or service that is not easily copied by larger companies or local entrepreneurs? • Do location advantages exist upstream in the value chain? • Can we afford not to go global?
Exhibit 10.4 Steps in Picking a Foreign Market • Screen potential markets • target potential countries • assess target markets - key trends, competition, potential problems • Draw conclusions--make the choice
PARTICIPATION STRATEGIES • Same participation options as larger firms • Most often exporting
FINDING CUSTOMER AND PARTNERS • Trade shows • Catalogue expositions • International advertising agencies and consulting firms • Govt.-sponsored trade missions • Direct contact
READY TO GO AND CONNECTED • Finding the right overseas partner: the most important step • Find a good wedge to break into a new market
ENTRY WEDGE DEFINED ".. A strategic competitive advantage for breaking into the established pattern of commercial activity" (Vesper)
FIRST MOVER ADVANTAGE • Establishes the business before other firms can react • Must be innovative • Must be comprehensive • meet customer expectations in areas such as warranty and expected components
FIRST MOVER COMPETITIVE ADVANTAGES • Technological • Access natural or social resources • Develop close relationships with research universities • The best locations - raw materials or proximity to customers
COPY CAT BUSINESSES • The "me too" strategy • Adopt existing products or services • But-- find a niche or slight innovation to attract customers
SUCCESSFUL COPY CAT MOVES • Be the first to a new standard • Go after the toughest customers • Play to different customer needs • Transfer the location
Successful copy cat moves, continued • Be a dedicated supplier/distributor • Seek abandoned or ignored markets • Acquire an existing business
SUMMARY AND CONCLUSIONS The Small Business • Key factor in the economies of all nations • Provides jobs, economic growth, innovation • Must face the challenges of entering the international marketplace
Summary and conclusions, continued • Can go international--through stages or through global start-ups • Have the same multinational and participation strategic options as larger firms • Entering the international market is an entrepreneurial venture