Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall 12-1

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall Chapter 12

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  It is easier than ever for small and medium sized companies to engage in international business thanks to:  Powerful, affordable technology  The Internet  Increased access to information on doing business globally  The growing interdependence of the world’s economies  Since 1948 the value of world merchandise exports has risen from $58 billion to $18.4 trillion  Emerging market economies are growing faster than mature markets  China, India, the ASEAN

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall Merchandise Exports and Imports by Region of the World, 2011

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall The World’s Shifting Economic Center of Gravity

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Small businesses need to see the world as their market  More than 70% of the world’s purchasing power is outside the U.S.  80% of economic growth through 2016 will take place outside the U.S.  Foreign competitors are a serious threat 12-6

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Going global can help a small company:  Offset sales declines in the domestic market  Increase sales and profits  Extend products’ life cycles  Lower manufacturing costs  Lower the cost of products  Improve competitive position  Raise quality levels  Become more customer-oriented  Increase chances of success 12-7

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Questions to consider before going global: 1.Is there a profitable market in which our company has the potential to be successful over the long run? 2.Do we have and are we willing to commit adequate resources of time, people, and capital to a global campaign? 3.Are domestic pressures forcing our company to consider global opportunities? 12-8

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. 4.Do we understand the cultural differences, history, economics, values, opportunities, and risks of conducting business in the country we are considering? 5.Is there a viable exit strategy for our company if conditions change or the new venture does not succeed? 6.Can we afford not to go global? 12-9

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall Nine Strategies for Going Global

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. 1.Creating a Presence on the Web  The simplest and least expensive way to reach customers outside the U.S.  The number of Internet users is growing very fast  Almost 89% of the 2.4 billion Internet users in the world live outside the U.S

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall World Internet Users by Region

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. 1.Creating a Presence on the Web 2.Relying on Trade Intermediaries  Domestic agencies that serve as distributors in foreign countries  Export management companies  Export trading companies  Manufacturer’s export agents  Export merchants  Resident buying offices  Foreign distributors 12-13

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  The Value of Using Trade Intermediaries  Allow small businesses to build their international sales much faster and with fewer hassles and mistakes  But requires small businesses to surrender control over foreign sales  Conduct a thorough screening to choose the “right” trade intermediary 12-14

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. 1.Creating a Presence on the Web 2.Relying on Trade Intermediaries 3.Joint Ventures 12-15

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Joint Ventures  Domestic joint venture: two or more U.S. companies form an alliance for the purpose of exporting their goods and services abroad  Foreign joint venture: a domestic firm forms an alliance with a company in the target nation  Most important ingredient: Choosing the right partner  Another key to success: Establishing common objectives 12-16

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. 1.Creating a Presence on the Web 2.Relying on Trade Intermediaries 3.Joint Ventures 4.Foreign Licensing  Can enter a market quickly, easily, and with very low capital investment 12-17

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. 1.Creating a Presence on the Web 2.Relying on Trade Intermediaries 3.Joint Ventures 4.Foreign Licensing 5.International Franchising 12-18

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Steps to international franchising success: 1.Identify the country or countries that are best suited to the business concept 12-19

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall Franchise Potential by Country

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Steps to international franchising success: 1.Identify the country or countries that are best suited to the business concept 2.Generate leads for potential franchisee 3.Select quality candidates 4.Structure the franchise deal  Direct franchising  Area development  Master franchising 12-21

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. 1.Creating a Presence on the Web 2.Relying on Trade Intermediaries 3.Joint Ventures 4.Foreign Licensing 5.International Franchising 6.Countertrading and Bartering 12-22

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Countertrade: a transaction in which a company selling goods and services in a foreign country agrees to help promote investment and trade in that country  Bartering: the exchange of goods and services for other goods and services 12-23

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. 1.Creating a Presence on the Web 2.Relying on Trade Intermediaries 3.Joint Ventures 4.Foreign Licensing 5.International Franchising 6.Countertrading and Bartering 7.Exporting 12-24

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Exporting  Small and medium-size companies account for 98 percent of the 293,000 U.S. businesses that export  But, they generate less than 1/3 of the nation’s export sales  58 percent of small businesses that sell internationally export to just one country  Small companies generate $1.8 billion in export sales daily  Small business exporters are bigger, more productive, and more profitable than their domestic counterparts 12-25

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall Barriers to Exporting – Among Small Companies That Do Not Export

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Creating a sound export strategy: 1.Recognize that even the tiniest companies and least experienced entrepreneurs have the potential to export 2.Analyze your product or service 3.Analyze your commitment 4.Research markets and pick your target 12-27

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall Countries to Which Small Businesses Intend to Export Within the Next Two Years

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Creating a sound export strategy: 1.Recognize that even the tiniest companies and least experienced entrepreneurs have the potential to export 2.Analyze your product or service 3.Analyze your commitment 4.Research markets and pick your target 5.Find your customer 12-29

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall Distribution Strategies for Exporting by Company Size

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Creating a sound export strategy: 1.Recognize that even the tiniest companies and least experienced entrepreneurs have the potential to export 2.Analyze your product or service 3.Analyze your commitment 4.Research markets and pick your target 5.Develop a distribution strategy 6.Find financing  SBA, EX-IM Bank, OPIC, and others 7.Ship your goods 8.Collect your money  Letter of credit and bank draft 12-31

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall How a Letter of Credit Works

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. 1.Creating a Presence on the Web 2.Relying on Trade Intermediaries 3.Joint Ventures 4.Foreign Licensing 5.International Franchising 6.Countertrading and Bartering 7.Exporting 8.Establishing International Locations  Bribery  Foreign Corrupt Practices Act 12-33

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. 1.Creating a Presence on the Web 2.Relying on Trade Intermediaries 3.Joint Ventures 4.Foreign Licensing 5.International Franchising 6.Countertrading and Bartering 7.Exporting 8.Establishing International Locations 9.Importing and Outsourcing 12-34

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall Total Hourly Manufacturing Compensation Costs for Selected Countries and Regions

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Importing and Outsourcing  Make sure that importing or outsourcing is right for you  Establish a cost target for your product  Do your research before you leave home  Be sensitive to cultural differences  Do your groundwork  Protect your company’s intellectual property  Select a manufacturer  Provide an exact model of the product you want manufactured  Stay in constant contact with the manufacturer and try to build a long-term relationship 12-36

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Domestic Barriers  Attitude  "My company is too small to export“  Information  How to get started  Financing  Getting financial support 12-37

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  International Barriers  Tariff barriers: taxes a government imposes on goods and services imported into that country  Nontariff barriers:  Quotas  Embargoes  Dumping  Piracy 12-38

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Political Barriers  Government takeovers of private property  Coups  Kidnappings  Bomb threats  Other violent acts 12-39

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Business Barriers  Human resource management  Different business practices 12-40

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Cultural Barriers  Culture: the beliefs, values, views, and mores shared by the inhabitants of a nation  Need to understand and appreciate cultural differences 12-41

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  World Trade Organization (WTO)  158 member countries account for more than 97% of all world trade  North American Free Trade Agreement (NAFTA)  Created a single free trade zone with the U.S., Canada, and Mexico  Dominican Republic-Central America Free Trade Agreement (CAFTA-DR)  Promotes free trade among the U.S. and 6 Central American countries 12-42

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Make yourself at home in all three of the world's key markets - North America, Europe, and Asia  Appeal to the similarities within the various regions in which you operate but recognize the differences in their particular cultures  Be willing to commit the necessary resources to make your global efforts successful  Develop new products for the world market  Use the many resources available to research potential markets and to determine the ideal target for your products 12-43

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Familiarize yourself with foreign customs and languages  Learn to understand your customers from the perspective of their culture, not your own  "Glocalize" - Make global decisions about products, markets, and management, but allow local employees to make tactical decisions about packaging, advertising, and service  Make positive and preferably visible contributions to the local community 12-44

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.  Train employees to think globally, send them on international trips, and equip them with state-of-the-art communication technology  Hire local managers to staff foreign offices and branches  Do whatever seems best wherever it seems best, even if people at home lose jobs or responsibilities  Consider using partners and joint ventures to break into foreign markets you cannot penetrate on your own  Be patient 12-45

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall