Small Companiesin 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 ConsiderBefore Going International

Advantages of E-Commercefor 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-Commercefor 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-Commercefor 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