Small Companies in International Business

1. Small Companiesin International Business Chapter 6

2. 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

3. 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)

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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.

12. 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.

13. 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

14. Exhibit 6.3: Questions to ConsiderBefore Going International

15. 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

16. 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

17. 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

18. 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.

19. 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