Small Companies in International Business Chapter 6

Lecture Outline Small businesses and their importance Exporting and export strategies Internationalization for the small business Small business stage model Global start-up Globalizing key value chain activities Questions to consider E-commerce and the small business Finding customers and suppliers

What Is a Small Business? “Small” business – many definitions UN: less than 500 employees The popular press: less than 100 employees U.S. Small Business Administration definition varies by industry. Both sales revenue and the number of employees are used to decide whether a business is "small" Some definitions refer to "small and medium-sized enterprises" (SME's)

Importance of Small Businesses “Small” businesses Over 98% of businesses in Europe, North America, and Japan are small Employ more than half of the work force Produce nearly 50% of GNP Create more than 2/3 of new jobs

Exporting (Chapter 5, pages 159 – 161) Easiest way to sell a product in international market Passive exporter: company that treats and fills overseas orders like domestic orders Alternatively, a company can put extensive resources into exporting with dedicated export department

Export Strategies Indirect exporting: uses intermediaries or go- between firms The most common intermediaries Export Management Company (EMC) and Export Trading Company (ETC) Specialize in products, countries, or regions Provide ready-made access to markets Have networks of foreign distributors

Export Strategies (2) Direct exporting: direct contact with intermediaries or customers in the foreign market More aggressive exporting strategy Requires more contact with foreign companies or customers

Export Strategies (3) Channels in direct exporting Sales representatives use the company’s promotional literature and samples Foreign distributors resell the products Sell directly to foreign retailers or end users sales offices and distribution centers for goods sold to manufacturers retail stores direct mail e-commerce

Internationalization and the Small Business Two approaches for internationalizing sales and possibly production Small business stage model: process of following incremental stages of internationalization Global start-up: company that begins as a multinational company (Example: Surftech, p. 200) Globalizing key value chain activities to serve customers in your own country, and possibly elsewhere

Small Business Stage Model: Six Stages Stage 1: Passive exporting Company fills international orders but does not seek export business Stage 2: Export management Specifically seeking exports—usually rely on indirect exporting Stage 3. Export department Significant resources dedicated to seek increased sales from exports

Small Business Stage Model Stage 4: Sales branches High demand justifies setting up local sales office Stage 5: Production abroad Use licensing, joint ventures of direct investment Difficult stage because of the risk of failure and the resources required Stage 6: The transnational Develop global integrated network to supply customers' needs.

Globalizing Key Value Chain Activities Example: GMI Manufacturing, Huntersville, North Carolina Products: custom-designed circuit boards to control equipment Compete on design, short time to market, price. 3 stages in developing a product: design, initial production run, routine production Originally, all design and production was done in Huntersville.

Globalizing Key Value Chain Activities (2) GMI Manufacturing (continued) A competitor outsourced production to Asia and took most of GMI's business GMI's competitive response Design and initial production in Huntersville and Taiwan Routine production in several Asian countries, including China Sales and distribution in Huntersville

Exhibit 6.3: Questions to Consider Before Going International

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

Challenges of E-Commerce for Small Business Web site issues Site design Managing Web site upgrades in several languages Maintaining Web site security Costs required to maintain the site Finding and keeping qualified employees to handle e-commerce

Challenges of E-Commerce for Small Business (2) Business operations Government regulations that affect your product Pricing in several currencies Receiving international payments International shipments Managing returns

Finding Customers and Suppliers: Contact Techniques Trade shows: companies display their products, provide catalogs, etc., to retailers, distributors, or business customers. Direct contact with potential customers. Catalog expositions: company catalogs are displayed. Low-cost method. Government matchmaker services: identify potential customers for the company to contact. Federal or state trade missions: trips made by a group of business executives. Appointments with potential customers are pre-arranged.

Finding Customers and Suppliers: Contact Techniques (2) Trade lead Web sites: search for potential suppliers or customers. Limited to businesses who have registered. Some sites require fees. Marketing agreement with a foreign distributor or retailer. Particularly good when it is hard to access marketing channels. Often used to enter the Japanese market. International advertising agencies and consulting firms. May be an expensive option