Small Companies
in 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
(Chapter 5, pages 159 – 161)
Easiest way to sell a product in international
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 gobetween 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
More aggressive exporting strategy
Requires more contact with foreign companies or
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.
Globalizing key value chain activities to serve
customers in your own country, and possibly
Small Business Stage Model:
Six Stages
Stage 1: Passive exporting
Stage 2: Export management
Company fills international orders but does not
seek export business
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
Stage 5: Production abroad
High demand justifies setting up local sales office
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
 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
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
 Routine production in several Asian countries,
including China
 Sales and distribution in Huntersville
Exhibit 6.3: Questions to Consider
Before Going International
Advantages of E-Commerce
for Small-Business
Ability of small firms to compete with other
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
Challenges of E-Commerce
for Small Business
Web site issues
 Site design
 Managing Web site upgrades in several
 Maintaining Web site security
 Costs required to maintain the site
 Finding and keeping qualified employees
to handle e-commerce
Challenges of E-Commerce
for Small Business (2)
Business operations
 Government regulations that affect your
 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
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

Small Companies in International Business