Essentials of Entrepreneurship and Small Business Management

Essentials of Entrepreneurship and Small

Business Management

Eighth Edition

Section 3: Launching the Business

Chapter 15

Global Aspects of

Entrepreneurship

Copyright © 2016, 2014, 2011 Pearson Education, Inc. All Rights Reserved.


Learning Objectives

15.1 Explain why “going global” has

become an integral part of many small

companies’ marketing strategies.

15.2 Describe the principal strategies small

businesses have for going global.

15.3 Discuss the major barriers to

international trade and their impact on

the global economy.

15.4 Describe the trade agreements that will

have the greatest influence on foreign

trade in the twenty-first century.


Why "Go Global?"

• Offset sales declines in the domestic market

• Increase sales and profits

• Lower manufacturing costs

• Lower product cost

• Improve competitive position

• Raise quality levels

• Become more customer-oriented


Think Globally!

• Becoming a global entrepreneur requires a different

mindset.

• Learning to think globally may be the first – and most

challenging – obstacle an entrepreneur must overcome on

the way to becoming a truly global business.

– Must have the ability to appreciate, understand, and

respect cultural differences.


Figure 15.1 Ten Strategies for Going

Global


Strategies for Going Global (1 of 10)

Create a presence on the Web


Figure 15.2 Internet Users Worldwide

Source: http://www.internetworldstats.com/stats.htm

http://www.internetworldstats.com/stats.htm


The Web's Global Reach

• It’s a low-cost way to be global from day one.

• 2.4 billion Web users worldwide:

– 273 million in United States

– Nearly 2 billion in other countries

• 23% of global retail sales will be online by 2015

• It’s important to “think local” when creating Web sites to target

customers in other countries.



1. Create a presence on the Web

2. Rely on trade intermediaries


Trade Intermediaries (1 of 2)

• Trade intermediaries:

– Domestic agencies that serve as distributors in foreign

countries for companies of all sizes.

▪ Make the transition to world markets faster and

easier for small businesses, but it is important to

select an intermediary carefully.


Trade Intermediaries (2 of 2)

• Types of intermediaries:

– Export Management Companies (EMCs)

– Export Trading Companies (ETCs)

– Manufacturer’s Export Agents (MEAs)

– Export merchants

– Resident buying offices

– Foreign distributors





3. Form joint ventures


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 for success is to choose the right

partner.


Choosing a JV Partner

• Select a partner that shares the company’s values and

standards of conduct.

• Define at the outset important issues.

• Understand your partner’s reasons and objectives for

forming the joint venture.

• Spell out in writing exactly how the venture will work and

where decision making authority lies.

• Select a partner with different but compatible skills.

• Prepare a prenuptial agreement in case of divorce.






4. Engage in foreign licensing


International Licensing

• A relatively simple way for even the most inexperienced

business owner to extend his reach into foreign markets.

– Enter markets quickly and easily with virtually no capital

investment.

• Ideal for companies whose value lies in its intellectual property.

• Minimize risk by ensuring that proper patents, trademarks, and

copyrights are in place.







5. Consider international franchising


International Franchising

Steps:

• Identify the country or countries that are best suited to the

franchiser’s business concept.

• Generate leads for potential franchisees.

• Select quality candidates.

• Structure the franchise deal.

– Direct franchising

– Area development

– Master franchising








6. Use countertrading and bartering


Countertrade and Barter

• Countertrade:

– A transaction in which a company selling goods in a foreign

country agrees to promote investment and trade in that

country.

• Barter:

– The exchange of goods and services for other goods and

services.









7. Export


Exporting

• Small and medium-size companies account for nearly 98% of

the 302,000 U.S. businesses that export, but generate just 1/3

of U.S. exports.

– Small companies generate $2.1 billion in export sales.

• Key benefits of exporting:

– Increased sales and profits.

– More diversified customer base.


Assessing Exporting Potential

• Do you have a product or service that has been successful

domestically?

• Do you have an international marketing plan?

• Do you have sufficient production capacity?

• Do you have sufficient financial resources?

• Are you committed to developing export markets?

• Are you committed to serving foreign customers?

• Do you understand the local market?

• Do you understand the export payment process?


Steps to Successful Exporting (1 of 2)

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 to developing export markets.

4. Research potential markets and pick your target.


Figure 15.3 Number of Countries to

Which U.S. Small Business Export

Source: Based on data from 2013 Small Business Exporting Survey, National

Small Business Association and Small Business Exporters Association, p. 6.


Steps to Successful Exporting (2 of 2)

5. Develop a distribution strategy.

6. Find your customer.

– U.S. Department of Commerce

– International Trade Administration

7. Find financing for export sales.

8. Ship your goods.

9. Collect your money.


Figure 15.4 How a Letter of Credit

Works

Source: A Basic Guide to Exporting, 10th edition, Washington DC: U.S.

Department of Commerce, International Trade Administration, 2008, p. 5.









7. Export

8. Establish international locations


Establishing International Locations

• Having an international location can offer numerous benefits

including:

– Lower start-up costs.

– Lower labor costs.

– A better understanding of local customer preferences.

– A better understanding of local business practices.









7. Export


9. Use importing and outsourcing


Steps to Successful Importing or

Outsourcing (1 of 2)

• Make sure that importing or outsourcing is right for your

business.

• Establish a target cost for your product.

• Do your research before you leave home.

• Be sensitive to cultural differences.

• Do your groundwork.


Steps to Successful Importing or

Outsourcing (2 of 2)

• 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.









7. Export


9. Use importing and outsourcing

10. Become an expat entrepreneur


Expat Entrepreneurs

• Expat entrepreneurs:

– Keep their citizenship in their home country but live and run

their businesses on foreign soil.


Figure 15.5 Most Frequently Encountered

Impediments to International Trade

Source: U.S. International Trade Commission, Small and Medium-Sized Enterprises: Characteristics

and Performance, Publication 4189, November 2010, pp. 6–8.


Barriers to International Trade (1 of 4)

• Domestic Barriers

– Attitude: “My company is too small to export.”

– Lack of information about how to get started.

– Inability to obtain adequate financing.



• International Barriers

– Tariffs:

▪ A tax a government imposes on goods and services

imported into that country.

– Nontariff barriers:

▪ Governments that protect domestic industries.



• Quotas:

– Limits on the amount of a product imported into a country.

• Embargo:

– Total ban on imports of certain products.

• Dumping:

– Selling large quantities of a product in a foreign country

below cost to gain market share.



• Political barriers:

– Rules, regulations and political risks.

• Business barriers:

– Different cost structures and business practices.

• Cultural barriers:

– Differing languages, philosophies, traditions,

and accepted practices.


International Trade Agreements

• Major agreements reducing barriers to free trade:

– World Trade Organization (WTO)

– North American Free Trade Agreement (NAFTA)

– Dominican Republic - Central America Free Trade

Agreement (CAFTA-DR)


Guidelines for Success in

International Markets (1 of 2)

• Take time to learn before jumping in.

• Seek out assistance from professionals.

• Make yourself at home in all three of the world’s key

markets - North America, Europe, and Asia.

• Appeal to the similarities in the various regions and

recognize the differences in local cultures.

• Develop new products for the world market.

• Learn foreign customs and languages.


Guidelines for Success in

International Markets (2 of 2)

• “Glocalize” - make global decisions about products,

markets, and management and allow local employees to

make tactical decisions.

• Recruit and retain multicultural workers.

• Train employees to think globally.

• Hire local managers to staff foreign offices and branches.

• Do whatever seems best wherever it seems best.

• Consider using partners and joint ventures to break into

foreign markets.

• Evaluate opportunities to become an expat entrepreneur.


Conclusion

• Global effectiveness requires entrepreneurs to:

– Learn about the global market.

– Seek the assistance of professionals.

– Recruit and train employees to think globally.

– Consider using partners and joint ventures.

– Determine which opportunities best fit your company.


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Essentials of Entrepreneurship and Small Business Management