1. 7
Small Business as Multinational Companies: Overcoming Barriers and Finding Opportunities

2. Learning Objectives
Understand the basic definitions of small business and entrepreneurship
Explain how small businesses can begin as global start-ups or follow the stages of internationalization
Understand how small businesses can overcome barriers to internationalization

3. Learning Objectives
Identify when a small business or entrepreneurs should consider going international
Understand how small businesses or entrepreneurs can find customers, partners, or distributors aboard
Understand how new venture wedge strategies can be used in foreign markets
Understand factors driving entrepreneurship at an international level

4. 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 has more complex definitions
- Definition varies by industry, sales revenue, and the number of people

5. What Is a Small Business?
“Small” businesses
- Over 98% businesses in Europe, N. America, and Japan
- Employ more than 50% of local populations
- Produce nearly 50% of the countries’ GNPs
- Create more than 2/3 of new jobs

6. Internationalization and the Small Business
Two models
- Small business stage model: process of following incremental stages of internationalization
- Global start-up or Born-global firm: company that begins as a multinational company

7. 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

8. 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
Stage 6: The transnational
- Develop global integrated network

9. Small Business Global Start-up or Born-Global Firms
Key elements favoring global start-ups
- Dispersed human resources
- International sources of venture capital
- The existence of a global demand
- The lack of a geographically protected market
- The necessity of worldwide sales to support the venture
- The potential to avoid later resistance to internationalization

10. Exhibit 7.1: Major Differences on Key Aspects of The Traditional Internationalization Stages between Born-Global Firms

11. Small Business E-Commerce
Web sites offer a rapid way to go international
Web site configured for e-commerce is low cost
Quick way to sell across national borders

12. Advantages of Small-Business E-Commerce
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
Utilize the Internet have higher revenues

13. Challenges of Small-Business E-Commerce
Managing upgrades
Language barriers
Shipping and returns
Assuring security for a Web site
Fraudulent activities online
Receiving international payments
Costs required to maintain the site
Finding and retraining qualified employees

14. Overcoming Small-Business Barriers to Internationalization
Liabilities of newness: a large percentage of new businesses fail within a year
Liabilities of size: lack of scale to produce goods or services as efficiently as larger companies

15. Overcoming Small-Business Barriers to Internationalization
Managers’ limited international experience
Managers’ negative attitudes
- Belief that venture too risky and not profitable
- Competition seen as domestic
- Ignoring of international opportunities

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

17. Small-Business Global Culture
Characteristics of decision makers affecting development of a global culture
- Perceived psychic distance to foreign markets
- International experience
- Risk aversion
- Overall attitudes toward international strategies

18. Developing a Small-Business Global Culture
Changing attitudes of key decision makers
- Being close in culture and geography
- Overcome skepticism regarding the international markets
- Positive attitudes more necessary for global start-ups

19. Exhibit 7.2: Attitudinal Differences Concerning Internationalization

20. Duties and the Personal Life of the Small-Business CEO
For small firm, opening new markets is CEO’s responsibility.
CEO must bear social and business costs
- Increased travel and stress from undertaking a new venture
- Can adversely affect family life
- Takes away from the daily management

21. Exhibit 7.3: Training and Knowledge Needs of Small Firm CEOs Entering Internationalization

22. Size and Small Business Internationalization
Size barrier to internationalization
- Larger firms have more resources to support international operations
Size is an issue only in the internationalization decision, however.
Eventually, international sales intensity of small firms exceed that of big firms.
- International sales intensity: amount of international sales divided by total sales of the company

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

24. The Future: Falling Barriers for Small Businesses
Barriers are becoming easier to overcome
Government support programs for small businesses are increasing
Trade agreements are making trade easier
Increase in small businesses engaged in international operations also makes it easier

25. When Should a Small Business Go International?
If the following questions are answered positively, small business is ready.
- Do we have a global product or service?
- Do we have the managerial, organizational, and financial resources to internationalize?
- Is there willingness to commit resources to face the risks of internationalization?
- Is there a country in which the company feels comfortable doing business?

26. When Should a Small Business Go International? (cont.)
- Is there a profitable market for product or service?
- Which country should be entered?
- Do we have a unique product/service that is not easily copied by multinationals or local entrepreneurs?
- Do location advantages exist upstream in the value chain?
- Can we afford not to be a multinational?

27. Exhibit 7.4: Questions to Consider in the Small Business Decision to Go International

28. Exhibit 7.5 Steps in Picking a Foreign Market

29. Getting Connected to the International Market
Participation strategies
- Same participation options as larger firms
- Exporting, licensing, joint ventures, and foreign direct investment
- Most small businesses often emphasize exporting

30. Finding Customers and Partners: Customer Contact Techniques
Trade shows
Catalog expositions
International advertising agencies and consulting firms
Government-sponsored trade missions
Direct contact

31. Exhibit 7.6: Selected U.S. Government Programs for Making International Contacts

32. Exhibit 7.7: International Trade Leads: A Web Sampler

33. Exhibit 7.7: International Trade Leads: A Web Sampler

34. Exhibit 7.7: International Trade Leads: A Web Sampler

35. Ready to Go and Connected: A Synopsis
Finding the right overseas partner: the most important step
Find a good wedge to break into a new market

36. New-Venture Strategies for Small Multinational Companies
Entry wedge: company’s competitive advantages for breaking into the established pattern of commercial activity

37. New Product or Service and First-Mover Advantage
Being the first to introduce a product or service
- Must be innovative
- Must be comprehensive
Must meet customer expectations in areas such as warranty and expected components
Technological leadership—most common source
- Being first to use or introduce a new technology

38. New Product or Service and First-Mover Advantage
Have firsts access to natural and social resources
- Can choose the best locations
Can have the best access to social relationships
- Lead to the personal contacts to build effective channels of distribution
- Lead to trust and commitment from business partners and customers

39. New Product or Service and First-Mover Advantage
Switching costs: occur when customers face some loss in turning to a competitor’s products
- because of brand loyalty, many customers may not want to face the discomfort of switching to another brand of a product or service

40. Copycat Business Copycat Business - The “me too” strategy
- Adopt existing products or services
- Find a niche or slight innovation to attract customers

41. Successful Copycat Moves
Be the first to a new standard
Go after the toughest customers
Play to different customer needs
Transfer the location
Become a dedicated supplier or distributor
Seek abandoned or ignored markets
Acquire existing business

42. International Entrepreneurship
Entrepreneur: person who creates new ventures that seek profit and growth
- Faces risks and uncertainty of new and untested business
New ventures: entering a new market
- Offer a new product or services
- Introduce a new method technology or innovative use of raw materials

43. International Entrepreneurship
International Entrepreneurship: refers to the “discovery, evaluation and exploitation of market opportunities.”

44. Why is International Entrepreneurship important?
Most experts consider entrepreneurship the driving force of all small businesses
If we want to get a complete understanding of small businesses in any nation, we need to examine the level of entrepreneurship in that country
Entrepreneurship is also seen as the driver of innovation and economic development for any nation
Entrepreneurship not only creates new job but also generates new wealth and growth

45. International Entrepreneurship and Small Businesses
Many multinational firms rely on entrepreneurs and small businesses to do business when entering a new country
Small businesses can play an important role in assisting existing multinational companies in developing or offering new products that can improve productivity

46. Exhibit 7.8: Entrepreneurial Activity Ratings by Country

47. Conclusion
Small businesses are important aspects of economies of all nations
Small businesses provide jobs, economic growth and innovation
Chapter provides crucial background information on small businesses
Chapter also discusses international entrepreneurship