Small Companies
in International Business
Chapter 6
Lecture Outline
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Small businesses and their importance
Exporting and export strategies
Internationalization for the small business
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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?
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“Small” business – many definitions
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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
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“Small” businesses
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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)
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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
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Indirect exporting: uses intermediaries or gobetween firms
The most common intermediaries
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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)
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Direct exporting: direct contact with
intermediaries or customers in the foreign
market
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More aggressive exporting strategy
Requires more contact with foreign companies or
customers
Export Strategies (3)
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Channels in direct exporting
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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
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Two approaches for internationalizing sales
and possibly production
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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
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Stage 1: Passive exporting
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Stage 2: Export management
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Company fills international orders but does not
seek export business
Specifically seeking exports—usually rely on
indirect exporting
Stage 3. Export department
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Significant resources dedicated to seek increased
sales from exports
Small Business Stage Model
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Stage 4: Sales branches
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Stage 5: Production abroad
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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
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Develop global integrated network to supply
customers' needs.
Globalizing Key Value Chain Activities
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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)
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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 Consider
Before Going International
Advantages of E-Commerce
for Small-Business
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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-Commerce
for Small Business
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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-Commerce
for Small Business (2)
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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
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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)
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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
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Small Companies in International Business