Longenecker/Petty/Palich/Hoy

Small Business
Management, 18e

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 Global Opportunities for Small
Business
Chapter 18

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 Learning Goals:
Describe the potential of small businesses as
global enterprises.
Identify the basic forces prompting small
companies to engage in global expansion.
Understand and compare strategy options for
global businesses.
Explain the challenges that global enterprises
face.
Recognize the sources of assistance available
to support international business efforts.
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 Small Businesses as Global
Enterprises
Globalization
The expansion of international business:
Converging market preferences
Falling trade barriers
Integration of national economies.
Born-Global Firms
Small companies launched with
cross-border business activities in mind
Size does not necessarily limit a firm’s international
activity—small companies can build upon their
unique resources to become global competitors.
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 18.1 Where in the World Are Entrepreneurial Companies Doing Business?

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 18.2 Questions to Consider Before Going Global

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 Questions Before Going Global
What are management’s objectives?
Reasons, commitment, expected payoff
How prepared is management to go
global?
Expertise, responsibility for and time
allocated to international operations,
organizational structure

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 Questions Before Going Global
(cont.)
Is there sufficient production capacity?
Present capacity, effect of international
operations on local production
Is there enough financial capacity?
Capital available for marketing, expansion,
payback

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 Before Going Global
Decide if firm is up to the task of globalization.
Study the social, technological, economic, and
political forces in foreign markets.
North American Free Trade Agreement
(NAFTA)
European Union (EU)
Prepare to modify products to meet
design specifications that may vary
from country to country.
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 Expanding into International Markets

Gaining Access Cutting

to Resources Costs

Factors in
Competing
Internationally

Capitalizing on
Special Features
of Location

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 The Forces Driving Global Businesses
Expanding Markets
Traditional motivation: Extend the product life cycle.
EMERGING MOTIVATION:
FIND BUYERS FOR HIGHLY SPECIALIZED PRODUCTS.

Gaining Access Cutting

to Resources Costs
Traditional motivation: Traditional motivation:
Find raw materials. Reduce labor and transportation costs.
EMERGING MOTIVATION: EMERGING MOTIVATION:
OBTAIN HUMAN RESOURCES. OBTAIN TARIFF REDUCTIONS

Capitalizing on Special Features of Location

Traditional motivation: Profit from unique local features,
EMERGING MOTIVATION:
FOLLOW LARGE CLIENT FIRMS THAT LOCATE ABROAD

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 Expanding into International Markets:
Making the Most of Experience
Experience Curve Efficiencies
Per-unit savings gained from the repeated
production of the same good.
Learning Effects
Insights gained from experience, that lead
to improved work performance.
Economies of Scale
Efficiencies that result from
the expansion of production.
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 18.3 BRIC Markets

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 Cutting Costs
International Outsourcing
A strategy that involves accessing foreign
business operations through contracts
with independent providers.
Offshoring
A strategy that involves relocating
operations abroad.

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 Strategy Options for Global Firms
Locating facilities
Exporting
abroad

Global
International
strategic alliances Strategy Importing
Options

International Foreign
franchising licensing

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 Strategy Options for Global
Firms
Exporting
Selling products produced in the home
country to customers in another country.
Low-cost way to expand into international markets
Ease of selling on the Web has fueled export
activity.

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 Strategy Options for Global
Firms (cont.)
Exporting Challenges
Communicating in a foreign language
International shipping
Product modification
Governmental regulations and relations
Currency exchange rates and payment
methods

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 Strategy Options for Global
Firms (cont.)
Importing
Selling goods produced in another country
to buyers in the home country.
Success requires finding a good product
vendor.
Global Sourcing Strategy
Connecting with overseas suppliers
that can provide products or services
a firm needs to operate successfully.
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 Strategy Options for Global Firms
(cont.)
Foreign Licensing
Allowing a firm in another country to
purchase the right to manufacture and sell a
firm’s products in international markets.
Licensee—the company buying the licensing rights
Licensor—the company selling the licensing rights
Royalties
Fees paid by the licensee to the licensor for each
unit produced under a licensing contract
Counterfeit activity
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18–19
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 Strategy Options for Global Firms
(cont.)
International Franchising
Selling a standard package of products,
systems, and management services to a
firm in another country.
International Strategic Alliances
A combination of efforts and/or assets of
firm in different countries for the sake of
pooling resources and sharing the risks of
an enterprise.

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 Strategy Options for Global
Firms (cont’d)
Locating Facilities Abroad
Cross-border acquisition
The purchase by a business in one country
of a company located in another country
Greenfield venture
A wholly owned subsidiary formed
“from scratch” in another country

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 Challenges to Global Business
Political Risk
The potential for political forces in a country
to negatively affect the performance of
businesses operating within.
Economic Risk
The probability government mismanagement
of the economy changes the business
environment in ways that hinder the
performance of firms operating there.

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 Challenges to Global Business
Economic Risk (cont.)
Exchange rate—the value of one country’s currency
relative to that of another country. Variations in
currency values affects the profitability of
international trade deals.

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 18.4 Ease of Doing Business

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 Assistance for Global Enterprises
Analyzing Markets and Planning
Strategies
Small Business Administration resources
U.S. Export Assistance Centers (USEACs)
Publications: SBA’s Breaking into the Trade Game:
A Small Business Guide to Exporting
Department of Commerce
International Trade Administration
Speak to a recent returnee
Visit the foreign country
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 Assistance for Global Enterprises
(cont.)
Connections With International
Customers
Trade leads
Trade missions
Trade intermediaries

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 18.5 Trade Intermediaries Most Suited for Small Business

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 Financing Assistance for
Global Enterprises
Private Banks
Letter of credit
An agreement issued by a bank to honor a draft or
other demand for payment when specified
conditions are met.
Bill of lading
A document indicating that a product has been
shipped and the title to that product has been
transferred.

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 Financing Assistance for
Global Enterprises (cont.)
Small Business Administration
Financial assistance programs
http://www.sba.gov/content/financing-your-small-
business-exports-foreign-investments-or-projects.

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 Key Terms
bill of lading international franchising
born-global firms international outsourcing
counterfeit activity international strategic alliance
cross-border acquisition learning effects
economic risk letter of credit
economies of scale licensee
exchange rate licensor
experience curve efficiencies offshoring
exporting political risk
foreign licensing royalties
globalization trade intermediary
greenfield venture trade mission
importing

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