Chapter 12 - Global Marketing Strategies For Entrepreneurs

“Nothing Sucks Like an Electrolux”

-Scandinavian Translation of English Product Slogan

“Pepsi Bring Your Ancestors Back from the Grave”

-Chinese Translation of “Pepsi Comes Alive”

Learning Objectives
Students will be able to:
1. Explain why "going global" has become an integral part of entrepreneurs marketing strategies.
2. Describe the principal strategies for going global.
3. Explain how to build a thriving export program.
4. Discuss the major barriers to international trade and their impact on the global economy.
5. Describe the trade agreements that will have the greatest influence on foreign trade into the twenty-first century.

Instructor’s Outline
I. Introduction
A. Introduction:
1. It is no longer a surprise to entrepreneurs that they face global competition in the marketplace.
2. The new economic world order is the result of the interaction of dynamic forces.
a) Culture, politics, and the basic social fabric of nations are evolving at unprecedented pace as
change is facilitated by technology and challenged by global economic and competitive forces.
b) Twenty-first century entrepreneurs recognize that the markets of today are small in comparison
to the market potential of tomorrow.
c) The world market for goods and services continues to expand fueled by a global economy,
which welcomes consumers with new wealth.
3. Global business is accepted as a natural phenomenon, and new entries join daily.
a) The tools of global business are not beyond the reach of any entrepreneur.

II. Why Go Global?

A. Reasons
1. Failure to cultivate global markets can be a lethal mistake for modern businesses, whatever their
size.
a) Increasingly, small businesses will be under pressure to expand into international markets, to
consider themselves businesses without borders.
2. The Benefits
a) Offset sales declines in the domestic market.
b) Increase sales and profits.
c) Extend their products' life cycle.
d) Lower manufacturing costs.
e) Improve competitive position and enhance reputation.
f) Raise quality levels.
g) Become more customer oriented.
3. Becoming a global entrepreneur does require a modification in the mindset of the firm.
a) Success in the global economy also requires:
(1) constant innovation
(2) staying nimble enough to use speed as a competitive weapon
(3) maintaining a high level of quality and constantly improving it
(4) being sensitive to foreign customers’ unique requirements
(5) adopting a more respectful attitude toward foreign habits and customs
(6) hiring motivated, multilingual employees
(7) retaining a desire to learn constantly about global markets
4. The entrepreneur needs to prepare by asking and answering the following questions:
1
2 Section IV Small Business Marketing Strategies
a) Is there a profitable market in which our firm has the potential to be successful for an extended
period of time?
b) Does our firm have the specific resources, skills and commitment to succeed in this venture?
c) Are there pressures domestically that are forcing the firm to seek global opportunities?
d) Do we know the culture, history, economics, value system, etc., of the country(s) which we are
considering?
e) Is there a viable “exit strategy” if the conditions change or the new venture is not successful?

IN THE FOOTSTEPS OF AN ENTREPRENEUR

Blasting Their Way into International Markets

SUMMARY
Engineered Demolition, a family business with 20 employees that operates in a unique niche market that spans the
globe: explosive demolition. The Minneapolis-based company is one of just a handful of businesses worldwide that
uses implosion to destroy old buildings in metropolitan areas to make way for new ones. Chong and Kelly spend a
great deal of time educating clients about the implosion process, dispelling the misconceived images people have of
debris shooting out for hundreds of yards from the work site. After studying the blueprints of the target building,
Engineered Demolition workers plan the blast, emphasizing four key elements: the direction of the fall, how straight
the fall is, the material structure of the building, and the proximity and location of adjoining buildings.

As one might imagine, implosion is a highly specialized field that requires extensive training. Both Kelly and Chong
hold blaster's licenses valid in the United States and internationally. Engineered Demolition currently averages about
75 jobs a year, but business is doubling about every four years. Chong says that the number of jobs from international
customers is increasing rapidly. Currently, about one-third of the company's contracts come from international clients.

Although used for years in the United States and Canada, demolition by implosion has caught on in Asia, Europe, and
Latin America only recently. Performing an implosion in these countries is more difficult because of the time required
to get the necessary permits. As their international clientele increases, Chong and Kelly have learned to be more
sensitive to their customers' cultural preferences and customs.

Engineered Demolition is actively pursuing business in European markets. Chong was one of 22 women who partici-
pated in a recent Women in Trade mission to Europe led by the U.S. Commerce Department. The exposure has
already paid off. Not long after Chong returned from the trip, Engineered Demolition landed one of its most unusual
jobs in Europe. Not only are Chong and Kelly successful, but they also love their work.

1. What factors are contributing to the growth of Engineered Demolition's international business? Which
countries should the company target? Why?
Answer - A growing need for a specific service that serves a niche market. A reputation for quality and safety--
i.e. doing the job right--and their sensitivity to national cultural issues related to the service they provide.
2. Work with a team of your classmates to brainstorm ways that Engineered Demolition can locate international
customers.
Answer - Students' responses will vary but should take the Web, direct mail to construction and architectural
firms, large city governments, etc., into consideration.

III. STRATEGIES FOR “GOING GLOBAL”

A. Introduction
1. Entrepreneurs have a variety of strategic options to choose among. The principal
strategies are:
a) The World Wide Web
b) trade intermediaries
c) joint ventures
d) foreign licensing
2. Describe the e) franchising
principal strategies f) counter-trading
for “going global”
 Chapter 12 - Global Marketing Strategies For Entrepreneurs 3
g) bartering, exporting
h) the establishment of international locations
2. Whatever the single or combination of strategic options, the entrepreneur selects the mindset of the
organizations leadership must be broadened.
3. Becoming a global business depends on instilling a global culture throughout the organization that
permeates everything the company does.
4. An entrepreneur must understand the needs of the customers in the new marketplace.
a) See Figure 12.1.

IN THE FOOTSTEPS OF THE ENTREPRENEUR

Overcoming Barriers Online

Dain Dunston, Next Wine President, knows first had that it is folly to assume any company can slap up a Web
site and become a global player overnight. Even though most of Next Wines products are sold via the Internet,
Dunston says, “We’re not a dot-com. We’re a company selling wine on the Internet.”

Sometimes the ordering process gets a little “hairy.” Web customers order wine that must be shipped from two
or three different countries. The regulatory burden is great and international restrictions sometimes mean that
wine can’t always ship together.

Many of the logistical barriers have been overcome by the acquisition of software that allows the company to
maintain Web content in several different languages, setting different rules for each version of its site.
Dunston also made sure the software would grow with the company. The most common and vexing problem
is language.

SDL International offers translation services for those on a budget using software and the Internet. For one
cent per work, a business owner can log on to www.plustranslation.com and upload an entire document and
have it “roughly” translated into English in a few minutes. For a few cents more, SDL will run the document
past a real person for the final clean up. Why bother with this process? One language says, “You can’t have
everything in English and then ship it over to your Japanese subsidiary and say ‘translate this to Japanese.”

For small businesses like Next Wine expanding globally can be challenging, but with the help of the Internet
and some innovative software, it can be done.

1. What will be the improvements in computer software which will make it possible for smaller firms to more
effectively conduct business on a global basis via the Internet?
Answer: Computer software must be user friendly and have set of standard forms in different languages
so a small business can simply translate the documents into other language and be able to print it (in
duplicates: one in English and another in language of choice).

B. EMPLOYING A PRESENCE ON THE WORLD WIDE WEB

1. Perhaps in our technology-rich global environment the fastest, least expensive and lowest cost
strategic option to creating a global business presence is the creation of a Web site.
a) With a well-designed Web site, an entrepreneur can extend its reach to customers anywhere in
the world – and without breaking the budget!
(1) A company’s Web site is available to anyone anywhere in the world and provides exposure
24 hours a day to its products or services seven days a week.
(2) For many small companies, the Web has become a tool that is as essential to doing business
as the telephone and the fax machine.
b) Establishing a presence on the Web has become an important part of a company’s strategy for
reaching customers outside the United States.
(1) Figure 12.2 provides a comparison of the Web-using population by region for 1999 (actual)
and 2005 (projected).
4 Section IV Small Business Marketing Strategies
2. Most small companies follow a four-step evolutionary process to conducting global business on the
Web:
a) Step 1. Connecting to e-mail.
(1) E-mail correspondence often is the first step to establishing lasting relationships with
international customers.
(2) Not only is e-mail communication less expensive than international telephone calls, but it
also overcomes many of the problems associated with different time zones.
b) Step 2. Using the Web to Conduct International Market Research.
(1) Entrepreneurs quickly recognize the power of the Internet to generate sales leads by
researching customers and market characteristics in other countries.
c) Step 3. Building a Globally Accessible Web Site.
(1) This step allows the business to both educate potential customers about the specific products
of the firm, as well as generate inquires and hopefully orders.
(2) With the introduction in recent years of highly secure transaction software, orders can be
quickly and safely accepted.

C. Trade Intermediaries
1. Another relatively easy way to break into international markets.
2. Trade intermediaries are domestic agencies that serve as distributors in foreign countries for
domestic companies of all sizes.
3. They rely on their networks of contacts, their extensive knowledge of local customs and markets,
and their experience in international trade to market products effectively and efficiently all across
the globe.
4. Trade intermediaries account for about 10 percent of all U.S. exports.
a) Export management companies. An important channel of foreign distribution for small
companies just getting started in international trade or for those lacking the resources to assign
their own people to foreign markets.
(1) Most EMCs are merchant intermediaries, working on a buy-and-sell arrangement with do-
mestic small companies.
b) Export trading companies. Export trading companies are businesses that buy and sell products in
a number of countries, and they typically offer a wide range of services such as exporting,
importing, shipping, storing, distributing, and others to their clients.
(1) ETCs usually perform both import and export trades across many countries' borders.
(2) However, like EMCs, ETCs lower the risk of exporting for small businesses.
(3) In 1982, Congress passed the Export Trading Company Act to allow producers of similar
products to form ETC cooperatives without the fear of violating antitrust laws. The goal was
to encourage U.S. companies to export more goods by allowing businesses in the same
industry to band together to form export trading companies.
c) Manufacturer's export agents. MEAs act as international sales representatives in a limited
number of markets for various noncompeting domestic companies.
(1) The relationship between an MEA and a small company is a short-term one, and the MEA
typically operates on a commission basis.
5. Export merchants. Export merchants are domestic wholesalers who do business in foreign markets.
They buy goods from many domestic manufacturers and then market the goods in foreign markets.
They often carry competing lines, which means they have little loyalty to suppliers.
6. Resident buying offices. A government-owned or privately owned operation of one country
established in another country for the purpose of buying goods made there.
7. Foreign distributors. They handle all of the marketing, distribution, and service functions in the
foreign country.
8. The value of using trade intermediaries.
a) Trade intermediaries make the transition to global markets much faster and easier.
b) The key to establishing a successful relationship with a trade intermediary is conducting a
thorough screening to determine what type of intermediary--and which one in particular-will
best serve a small company's needs.
 Chapter 12 - Global Marketing Strategies For Entrepreneurs 5
c) A company looking for an intermediary should compile a list of potential candidates using some
of the sources listed in Table 12.1.

GAINING THE COMPETITIVE EDGE

What Advice Would You Give?

Specialty Building Supplies is a small company with $6.4 million in annual sales that manufactures and sells a line of
building supply products such as foundation vents, innovative insulation materials, and fireplace blowers to building
supply stores in the northeastern United States. The eight-year-old company, founded by tad Meyers, has earned a
solid reputation among its supply store customers and the builders and homeowners who ultimately buy its products.

The first product he designed (and the product that ultimately led him to launch Specialty Building Supplies) was an
automatic foundation vent that was thermostatically controlled (no electricity needed). Before long, Meyers stopped
building houses and focused on selling the Autovent. Its success prompted him to add other products to the
company’s line.

Specialty’s sales have been lackluster for more than a year now, primarily due to a slump in new home construction in
its primary market. Tad Meyers recently met the company’s top marketing managers and salespeople to talk about
their options for getting Specialty’s sales and profit growth back on track. “What about selling our products in
international markets?” asked Dee Rada, the company’s marketing manager.

The managers are questioning:

 Where should we sell out products?
 How do we find out what the building codes are in foreign countries?
 Would we have to modify our designs to meet foreign standards?
 How would we distribute our products?
 How do we find foreign distributors?
 Where do we start?”

1. What advice would you offer Meyers and the other managers at Specialty Building Supplies about their prospects
of “going global?”
Answer: Student’s answers will vary. However, most common answers are: first, the company should look into
its resources such as financial and human resources, information technology, production, etc. Second, contact
trade intermediaries for additional information related to the industry.

2. How would you suggest these managers go about finding the answers to the questions they have posed? What
other questions would you advise them to answer?
Answer: Student’s answers will vary. However, most common answers are: use the World Wide Web to
complete a preliminary feasibility study. After narrowing down to the country of choice, then visit the country for
additional information. Then decide on the mode of entry (export, joint venture, etc.)

3. Outline the steps these managers should take to assemble an international marketing plan.
Answer: Student’s answer will vary. While the Web will provide ideas students' plans should follow the form of
the marketing plan in the text's appendix beginning at page A-1. Their plans should also address the questions
listed in Tables 12.2 and 12.3.

A. Joint Ventures
9. Lower the risk of entering global markets for small businesses. They also give small companies
more clout in foreign lands.
10. In a domestic joint venture, two or more U.S. small businesses form an alliance for the purpose of
exporting their goods and services.
a) For export ventures, participating companies get antitrust immunity, allowing them to cooperate
freely.
6 Section IV Small Business Marketing Strategies
b) The businesses share the responsibility and the costs of getting export licenses and permits, and
they split the venture's profits.
11. In a foreign joint venture, a domestic small business forms an alliance with a company in the target
nation.
a) The host partner brings to the joint venture valuable knowledge of the local market and its
method of operation as well as of the customs and the tastes of local customers, making it much
easier to conduct business in the foreign country.
b) Sometimes foreign countries place certain limitations on joint ventures. Some nations, for
example, require host companies to own at least 51 percent of the venture.
12. The most important ingredient in the recipe for a successful joint venture is choosing the right
partner.
13. A second key to creating a successful alliance is to establish common objectives.
a) Defining exactly what each party in the joint venture hopes to accomplish at the outset.
14. Common problems leading to failure include improper selection of partners, incompatible
management style, failure to establish common goals, inability to be flexible, and failure to trust one
another.
15. What can entrepreneurs do to avoid these pitfalls in joint ventures?
a) Define at the outset important issues such as each party's contributions and responsibilities, the
distribution of earnings, the expected life of the relationship, and the circumstances under which
the parties can terminate the relationship.
b) Understand in depth their partner's reasons and objectives for joining the venture.
c) Select a partner who shares their company's values and standards of conduct.
d) Spell out in writing exactly how the venture will work and where decision-making authority lies.
e) Select a partner whose skills are different from but compatible with those of their own
companies.
f) Prepare a "prenuptial agreement" that spells out what will happen in case of a business
"divorce."

GAINING THE COMPETITIVE EDGE

Hello Havana…..Soon???

Have the entrepreneurs of the United States been out flanked by their Canadian and European competitors? Over the
past few years as the world watches the evolution of economic policy in Cuba, aggressive Canadian and European
business interest have begun to stake their claims on what they hope will be a revitalized Cuban economy when its
president, Fidel Castro, steps aside. These competitors have established over 400 joint ventures in Cuba.
Prior to the revolution, Cuba was a country with a strong agricultural and tourism base. Today, tourism is returning,
although it is illegal for American citizens to travel to Cuba. Slowly the United States government is modifying our
economic relationship with Cuba. In the short-term American policy is not likely to make a major deviation from
current policy.
If Cuba became open to United States entrepreneurs and the economic system of Cuba became more free-market in its
behavior how will they proceed?
1. Will Cuba be a viable new market for U.S. goods and services? Some estimate that Cuba could represent $20
billion per year in revenue for U.S. companies. Should we pursue this opportunity? And, if so, do you believe the
$20 billion forecast?
Answer: Student’s answer will vary depending on the relationship United States has with Cuba when this
discussion takes place.

D. Foreign Licensing
1. Some small companies enter foreign markets by licensing businesses in other nations to use their
patents, trademarks, copyrights, technology, processes, or products.
2. In return, the small company collects royalties from the sales of its foreign licenses.
3. Licensing is relatively simple.
a) They find someone who can capture the market, who is already at home in that market.
 Chapter 12 - Global Marketing Strategies For Entrepreneurs 7
4. Although many business owners consider licensing only their products, the licensing potential for
intangibles such as processes, technology, copyrights, and trademarks often is greater.
5. Foreign licensing enables a small business to enter foreign markets quickly, easily, and with vir-
tually no capital investment.
6. Risks to the company include the potential of losing control over its manufacturing and marketing
and creating a competitor if the licensee gains too much knowledge and control.
7. Securing proper patent, trademark, and copyright protection beforehand can minimize those risks,
however.

E. International Franchising
1. International franchisors sell virtually every kind of product or service imaginable--some identical to
those sold in the United States. However, most franchisors have learned that they must modify their
products and services to suit local tastes and customs.
2. Although franchise outlets span the globe, Canada is the primary market for U.S. franchisors, with
Japan and Europe following.
3. These markets are most attractive to franchisors because they are similar to the U.S. markets:
a) rising personal incomes
b) strong demand for consumer goods
c) growing service economics
d) spreading urbanization
4. There is little doubt that franchising is becoming a two-way street and that globalization will
continue to be a powerful driving force in the growth of the strategic marketing option.
5. Early entry into emerging markets with cultural sensitivity to national values and taste may be a key
to the achievement of long-term success.

F. Countertrading and Bartering

1. Countertrade involves a transaction in which a company selling goods in a foreign country agrees to
promote investment and trade in that country.
a) The goal of the transaction is to help offset the capital drain from the foreign country’s
purchases.
b) As entrepreneurs enter more and more developing countries, they will need to develop skills at
implementing this strategy.
c) In some cases, small and medium-size businesses find it advantageous to work together with
large corporations who have experience in the implementation of this marketing strategy.
2. Countertrading does suffer from numerous drawbacks.
a) Countertrade transactions can be complicated, cumbersome, and time-consuming.
b) They also increase the chances that a company will get stuck with merchandise that it cannot
move.
c) They can lead to unpleasant surprises concerning the quantity and quality of products required
in the countertrade.
3. Still, countertrading offers one major advantage.
a) Sometimes it's the only way to make a sale.
4. Because of its complexity and the risks involved, countertrading is not the best choice for a novice
entrepreneur looking to break into the global marketplace.
5. Bartering, the exchange of goods and services for other goods and services, is another way of trading
with countries lacking convertible currency.
a) Barter transactions require finding a business with complementary needs, but they are much
simpler than countertrade transactions.

GAINING THE COMPETITIVE EDGE

The Secret Language of International Business

When U.S. businesspeople enter international markets for the first time, they often are amazed at the differences in
foreign cultures' habits and customs. The key for entrepreneurs is learning to be sensitive to the business cultures in
8 Section IV Small Business Marketing Strategies
which they operate. Consider these pointers.

 Patience is a must for doing business in Spain.

 Appearance and style are important to Italian businesspeople; they judge the polish and the expertise of the
company's executives as well as the quality of its products and services.
 In Great Britain, businesspeople consider it extremely important to conduct business "properly"--with formality and
reserve.
 In Mexico, making business appointments through a well-connected Mexican national will go a long way to assur-
ing successful business deals.
 In China, entrepreneurs will need an ample dose of the "three Ps": patience, patience, patience.
 In the Pacific Rim, entrepreneurs must remember that each country has its own unique culture and business
etiquette. Starting business relationships with customers in the Pacific Rim usually requires a third-party contact
because Asian executives prefer to do business with people they know.
 American entrepreneurs doing business in the Pacific Rim should avoid hard-sell techniques, which are an
immediate turnoff to Asian businesspeople. Harmony, patience, and consensus make good business companions in
this region.
 Japanese executives conduct business much like the British: with an emphasis on formality, thoughtfulness, and
respect.
 In Japan and South Korea, exchanging business cards, known in Japan as meishi, is an important business function,
unlike Great Britain, where exchanging business cards is less popular.
 Greeting a Japanese executive properly includes a bow and a handshake--showing respect for both cultures.

1. What can an entrepreneur do to avoid committing cultural blunders when conducting global business?
Answer - He/she can avoid mistakes by studying the culture, traveling with someone who knows the
culture, take his/her cues from his host, etc. "Common sense" is culture bound and unreliable.

G. Exporting
1. Approximately 100,000, U.S. companies currently export; however, experts estimate that at least
twice as many are capable of exporting but are not doing so.
a) The biggest barrier facing companies that have never exported is not knowing where or how to
start.
2. Steps an entrepreneur must take to get an export program under way.
a) Recognize that even the tiniest companies and least experienced entrepreneurs have the potential
to export.
b) Exporting cannot only boost a small company's sales, but it also can accelerate its growth rate.
c) Analyze your product or service.
d) Analyze your commitment.
e) Research markets and pick your target.
(1) Research shows export entrepreneurs whether they need to modify their existing products
and services to suit the tastes and preferences of their foreign target customers.
(2) Table 12.3 offers a guide in conducting export research.
f) Develop a distribution strategy.
g) Find your customer.
(1) Refer to Table 12.1 for a list of some of the resources available from the government.
h) Find financing. One of the biggest barriers to small business exports is lack of financing.
(1) Several federal, state, and private programs are operating to fill the export-financing void.
i) Ship your goods. Export novices usually rely on international freight forwarders and custom-
house agents--experienced specialists in overseas shipping for help in navigating the
bureaucratic morass of packaging requirements and paperwork demanded by customs.
(1) These specialists, also known as transport architects, are to exporters what travel agents are
to passengers and normally charge relatively small fees for a valuable service.
(2) See Table 12.4 for shipping terms.
 Chapter 12 - Global Marketing Strategies For Entrepreneurs 9
j)Collect your money. Collecting foreign accounts can be more complex than collecting domestic
ones, but by picking their customers carefully and checking their credit references closely,
entrepreneurs can minimize bad-debt losses.
(1) Financing foreign sales often involves special credit arrangements such as letters of credit
and bank (or documentary) drafts.
(2) A letter of credit is an agreement between an exporter's bank and the foreign buyer's bank
that guarantees payment to the exporter for a specific shipment of goods.
(a) See Figure 12.3.
(3) A bank draft is a document the seller draws on the buyer, requiring the buyer to pay the face
amount (the purchase price of the goods) either on sight (a sight draft) or on a specified date
(a time draft) once the goods have been shipped.
(4) Rather than use letters of credit or drafts, some exporters simply require cash in advance or
cash on delivery (COD).
3. Planned carefully and taken one step at a time, exporting can be a highly profitable route for small
businesses.
4. Many small companies are forming foreign sales corporations (FSCs, pronounced "risks") to take
advantage of a tax benefit that is designed to stimulate exports.
a) By forming an FSC, a company can shelter about 15 percent of its profits on foreign sales from
federal--and in some cases state--income taxes.
b) Setting up an FSC requires a company to establish a shell corporation in the Virgin Islands,
Barbados, or one of another 40 tax-friendly offshore locations that have tax treaties with the
United States.
c) The company also must have fewer than 25 shareholders and one non-U.S.-resident board
member.
d) Because it costs about $2,500 to establish an FSC and about $1,500 a year to maintain one, a
business should earn at least $50,000 a year to make the savings from an FSC worthwhile.

H. Establishing International Locations

1. Establishing an office or a factory in a foreign land can require a substantial investment reaching
beyond the budgets of many small companies.
2. Plus, setting up an international office can be an incredibly frustrating experience in some countries.
Business infrastructures are in disrepair or are nonexistent.
a) The major advantages to establishing an international location can be the combination of lower
production and marketing cost, as well as development of an intimate knowledge of customer
preferences.

IV. Barriers to International Trade

A. Domestic Barriers
1. Sometimes the biggest barriers potential exporters face are right here at home.
2. Three major domestic roadblocks are common: attitude, information, and financing.
3. Perhaps the biggest barrier to small businesses exporting is the attitude.
a) The first lesson of exporting is "Take nothing for granted about who can export and what you
can and cannot export."
4. Entrepreneurs neglect international markets because of a lack of information about how to get
started.
a) The key to success in international markets is choosing the correct target market and designing
the appropriate strategy to reach it. That requires access to information and research.
5. An additional obstacle is the inability of small firms to obtain adequate export financing. Financial
institutions which serve smaller firms are often not experienced with this type of financing and are
unwilling to accept the perceived higher risk.

B. International Barriers
1. Two types of international barriers are common: tariff and nontariff.
2. Tariff barriers
10 Section IV Small Business Marketing Strategies
a) A tariff is a tax, or duty, that a government imposes on goods and services imported into that
country.
b) Imposing tariffs raises the price of the imported goods--making them less attractive to
consumers--and protects the makers of comparable domestic products and services.
c) Established in the United States in 1790 by Alexander Hamilton, the tariff system generated the
majority of federal revenues for about 100 years.
3. Nontariff barriers
a) Quotas. Rather than impose a direct tariff on certain imported products, nations often use quotas
to protect their industries.
b) A quota is a limit on the amount of a product imported into a country.
c) Embargoes. An embargo is a total ban on imports of certain products.
d) Dumping. In an effort to grab market share quickly, some companies have been guilty of
dumping products: selling large quantities of them in foreign countries below cost.

C. Political Barriers
1. Entrepreneurs who go global quickly discover a labyrinth of political tangles.
2. The complex web of governmental and legal regulations and barriers they encounter in foreign
countries often astounds them.
3. Companies doing business in politically risky lands face the very real dangers of government
takeovers of private property; attempts at coups to overthrow ruling parties; kidnappings, bombings,
and other violent acts against businesses and their employees; and other threatening events.
4. Their investments of millions of dollars may evaporate overnight in the wake of a government coup
or the passage of a law nationalizing an industry (giving control of an entire industry to the
government).

D. Business Barriers
1. Business practices and regulations in foreign lands can be quite different from those in the United
States.
2. The biggest shock comes in the area of human resources management, where international managers
discover that practices common in the United States, such as overtime, women workers, and
employee benefits are restricted, disfavored, or forbidden in other cultures.
3. Business owners new to international business sometimes are shocked at the wide range of labor
costs they encounter and the accompanying wide range of skilled labor available.
4. In some countries, what appear to be "bargain" labor rates turn out to be excessively high after
accounting for the quality of the labor force and the benefits their governments mandate.

E. Cultural Barriers
1. The culture of a nation includes the beliefs, values, views, and mores that its inhabitants share.
2. The diversity of languages, business philosophies, practices, and traditions make international trade
more complex than selling to the business down the street.
3. Consider the following examples:
a) A U.S. entrepreneur, eager to expand into the European Union, arrives at his company's
potential business partner's headquarters in France. Confidently, he strides into the meeting
room, enthusiastically pumps his host's hand, slaps him on the back, and says "Tony, I've heard
a great deal about you; please, call me Bill." Eager to explain the benefits of his product, he
opens his briefcase and gets right down to business. The French executive politely excuses
himself and leaves the room before negotiations ever begin, shocked by the American's rudeness
and ill manners. Rudeness and ill manners? Yes--from the French executive's perspective.
b) Another American business owner flies to Tokyo to close a deal with a Japanese executive. He
is pleased when his host invites him to play a round of golf shortly after he arrives. He plays
well and manages to win by a few strokes. The Japanese executive invites him to play again the
next day, and again he wins by a few strokes. Invited to play another round the following day,
the American asks, "But when are we going to start doing business?" His host, surprised by the
question, says, "But we have been doing business."
 Chapter 12 - Global Marketing Strategies For Entrepreneurs 11
4. When American businesspeople enter international markets for the first time, they often are amazed
at the differences in foreign cultures' habits and customs.
5. Understanding and heeding these often subtle cultural differences is one of the most important keys
to international business success.
6. Entrepreneurs who fail to learn the differences in the habits and customs of the cultures in which
they hope to do business are at a distinct disadvantage.

V. International Trade Agreements

A. Introduction
1. Hundreds of agreements have been negotiated among nations in this time frame with each
contributing to free trade across the globe.

B. GATT
1. Created in 1947, the General Agreement on Tariffs and Trade (GATT) became the first global tariff
agreement.
2. It was designed to reduce tariffs among member nations and to facilitate trade across the globe.
3. Originally signed by the United States and 22 other nations, GATT has grown to include 124
member countries today.
4. Together, they account for nearly 90 percent of world trade.
5. The latest round of GATT negotiations, called the Uruguay Round, was completed in December
1993 and took effect on July I, 1995.
a) Negotiators reduced the remaining industrial tariffs by 40 percent, established new rules
governing dumping goods at unfairly low prices, strengthened the global protection of patents,
and cut the level of government subsidies on agricultural products.
b) In addition, negotiators agreed to form a World Trade Organization (WTO) with more power to
settle trade disputes among member nations than GATT had.

C. The World Trade Organization, (WTO)

1. WTO came into being in January of 1995 and replaced GATT.
2. Currently, the WTO has more than 140 member countries, including the newest member China.
a) These member countries represent over 97% of all world trade.
b) An additional 30 nations are actively seeking membership.
3. The rules and agreements of the WTO are the result of negotiations among its members.
4. The WTO actively implements the rules established by GATT and continues to negotiate additional
trade agreements.
5. Through the agreements of the WTO, members commit themselves to non-discriminatory trade
practices.
a) These agreements spell out the rights and obligations of each member country.
b) Each member country receives guarantees that its exports will be treated fairly and consistently
in other member countries’ markets.
c) Specifically addressed have been banking, insurance, telecommunications, and tourism under
the WTO’s General Agreement on Trade in Services, (GATS).
d) The WTO’s intellectual property agreement which covers patents, copyrights, and trademarks
amounts to the rules for trade and investment in ideas and creativity.
e) The WTO is involved in the resolution of trade disputes among members.

D. NAFTA
1. The North American Free Trade Agreement (NAFTA) created a free trade area among Canada,
Mexico, and the United States.
2. A free trade area is an association of countries that have agreed to knock down trade barriers, both
tariff and nontariff, among partner nations. Under the provisions of NAFTA, these barriers were
eliminated for trade among the three countries, but each remained free to set its own tariffs on
imports from nonmember nations.
12 Section IV Small Business Marketing Strategies
3. NAFTA forged a unified United States-Canada-Mexico market of 380 million people with a total
annual output of more than $6.5 trillion dollars of goods and services.
4. Before NAFTA took effect on January 1, 1994, the average tariff on U.S. goods entering Mexico
was 10 percent. Under NAFTA, these tariffs will be reduced to zero on most goods over the next 10
to 15 years.
5. Among NAFTA's provisions are:
a) Tariff reductions.
b) Elimination of nontariff barriers.
c) Simplified border processing.
d) Tougher health and safety standards.

E. Conclusion
1. To remain competitive, businesses must assume a global posture. Global effectiveness requires
managers to be able to leverage workers' skills, company resources, and customer know-how across
borders and throughout cultures across the world. Managers also must concentrate on maintaining
competitive cost structures and a focus on the core of every business: the customer! Although there
are no sure-fire rules for going global, small businesses wanting to become successful international
competitors should observe these guidelines:
a) Make yourself at home in all three of the world's key markets: North America, Europe, and
Asia.
b) Appeal to the similarities within the various regions in which you operate but recognize the
differences in their specific cultures.
c) Develop new products for the world market. Make sure your products and services measure up
to world-class quality standards.
d) Familiarize yourself with foreign customs and languages; constantly scan, clip, and build a file
on other cultures: their lifestyles, values, customs, and business practices.
e) Learn to understand your customers from the perspective of their culture, not your own.
f) "Globalize," make global decisions about products, markets, and management but allow local
employees to make tactical decisions about packaging, advertising, and service.
g) Train employees to think globally, send them on international trips, and equip them with state-
of-the-art communications technology.
h) Hire local managers to staff foreign offices and branches.
i) Do whatever seems best wherever it seems best, even if people at home lose jobs or re-
sponsibilities.
j) Consider using partners and joint ventures to break into foreign markets you cannot penetrate on
your own.
2. By its very nature, going global can be a frightening experience. Most entrepreneurs who have
already made the jump, however, have found that the benefits outweigh the risks and that their
companies are much stronger because of it.

Chapter Summary
1. Explain why "going global" has become an integral part of many small companies' strategies.
 Companies that move into international business can reap many benefits, including offsetting sales declines
in the domestic market; increasing sales and profits; extending their products' life cycles; lowering
manufacturing costs; improving competitive position; raising quality levels; and becoming more customer-
oriented.

2. Describe the eight principal strategies small businesses have for going global.
 Perhaps the simplest and least expensive way for a small business to begin conducting business globally is to
establish a site on the World Wide Web (WWW). Companies wanting to sell goods on the Web should
establish a secure ordering and payment system for on-line customers.
 Trade intermediaries such as export management companies, export trading companies, manufacturer's
export agents, export merchants, resident buying offices, and foreign distributors can serve as a small
company's "export department."
 Chapter 12 - Global Marketing Strategies For Entrepreneurs 13
 In a domestic joint venture, two or more U.S. small companies form an alliance for the purpose of exporting
their goods and services abroad. In a foreign joint venture, a domestic small business forms an alliance with a
company in the target nation.
 Some small businesses enter foreign markets by licensing businesses in other nations to use their patents,
trademarks, copyrights, technology, processes, or products.
 Franchising has become a major export industry for the United States. The International Franchise
Association estimates that more than 20 percent of the nation's 4,000 franchisors have outlets in foreign
countries.
 Some countries lack a hard currency that is convertible into other currencies, so companies doing business
there must rely on countertrading or bartering. A countertrade is a transaction in which a
 business selling its goods in a foreign country agrees to promote investment and trade in that country.
Bartering involves trading goods and services for other goods and services.
 Although small companies account for 97 percent of the companies involved in exporting, they generate only
33 percent of the dollar value of the nation's exports. However, small companies, realizing the incredible
profit potential it offers, are making exporting an ever-expanding part of their marketing plans. Nearly half of
U.S. companies with annual revenues under $100 million export goods.
 Once established in international markets, some small businesses set up permanent locations there. Although
they can be very expensive to establish and maintain, international locations give businesses the opportunity
to stay in close contact with their international customers.

3. Explain how to build a thriving export program.

 Building a successful export program takes patience and research. Steps include: realize that even the tiniest
firms have the potential to export; analyze your product or service; analyze your commitment to exporting;
research markets and pick your target; develop a distribution strategy; find your customer; find financing;
ship your goods; and collect your money.

4. Discuss the major barriers to international trade and their impact on the global economy.
 Three domestic barriers to international trade are common: the attitude that "we're too small to export," lack
of information on how to get started in global trade, and a lack of available financing.
 International barriers include tariffs, quotas, embargoes, dumping, and political business, and cultural
barriers.

5. Describe the trade agreements that will have the greatest influence on foreign trade into the twenty-first century.
 Created in 1947, the General Agreement on Tariffs and Trade (GATT), the first global tariff agreement, was
designed to reduce tariffs among member nations and to facilitate trade across the globe.
 The North American Free Trade Agreement (NAFTA) created a free trade area among Canada, Mexico, and
the United States. The agreement created an association that knocked down trade barriers, both tariff and
nontariff, among these partner nations.

Discussion Questions
1. Why must entrepreneurs learn to think globally?
Answer: Today, the global marketplace is as much the territory of small, upstart companies as it is that of giant
multinational corporations. Expanding a business beyond its domestic borders may actually enhance a small
company's performance.

2. What forces are driving small businesses into international markets?

Answer - In the global economy, the competitive edge is swiftness to market and innovation. Small units are
much better at speed to market and innovation. Their agility and adaptability give small firms the edge in today's
highly interactive, fast-paced global economy. Going global is a matter of survival, not preference. Competitors
are forcing the small business to think globally. Failure to cultivate global markets can be a lethal mistake for
modern businesses. Small companies go global for a variety of reasons. Some move into foreign markets because
their domestic sales have sagged. Other small businesses have discovered soaring demand for their products and
services among foreign customers. Still other entrepreneurs realize that their future success depends on their
ability to go global.
 14 Section IV Small Business Marketing Strategies

3. What advantages does going global offer a small business owner? Risks?
Answer: The benefits are numerous.
 Offset sales declines in the domestic market.
 Increase sales and profits.
 Extend their products' life cycle.
 Lower manufacturing costs.
 Improve competitive position and enhance reputation.
 Raise quality levels.
 Become more customer-oriented.
However there are some risks, as gaining a foothold in newly opened foreign markets or maintaining a position in
an existing one is no easy task. Before venturing into the global marketplace, a small business owner should
consider five questions.
 Is there a profitable market in which our firm has the potential to be successful for an extended period of
time?
 Does our firm have the specific resources, skills and commitment to succeed in this venture?
 Are there pressures domestically that are forcing the firm to seek global opportunities?
 Do we know the culture, history, economics, value system, etc., of the country(s) which we are considering?
 Is there a viable “exit strategy” if the conditions change or the new venture is not successful?

4. Outline the eight strategies that small businesses can use to go global?
Answer:
 Employing A Presence On The World Wide Web: With a well-designed Web site, an entrepreneur can
extend its reach to customers anywhere in the world – and without breaking the budget. Establishing a
presence on the Web has become an important part of a company’s strategy for reaching customers outside
the United States.
 Trade intermediaries are domestic agencies that serve as distributors in foreign countries for domestic
companies of al sizes. They rely on their networks of contacts, their extensive knowledge of local customs
and markets, and their experience in international trade to market products effectively and efficiently all
across the globe.
 Joint ventures, both domestic and foreign, lower the risk of entering global markets for small businesses.
They also give small companies more clout in foreign lands. In a domestic joint venture, two or more U.S.
small businesses form an alliance for the purpose of exporting their goods and services. In a foreign joint
venture, a domestic small business forms an alliance with a company in the target nation.
 Foreign licensing by licensing businesses in other nations to use their patents, trademarks, copyrights,
technology, processes, or products. In return for licensing such assets, the small company collects royalties
from the sales of its foreign licenses. Licensing is a relatively simple way for even the most inexperienced
business owner to extend his reach into global markets. Foreign licensing enables a small business to enter
foreign markets quickly, easily, and with virtually n o capital investment.
 International franchising is great for selling virtually every kind of product or service imaginable – from fast
food to child day care – in international markets. However, most franchisors have learned that they must
modify their products and services to suit local tastes and customs. Early entry into emerging markets with
cultural sensitivity to national values and taste may be a key to the achievement of long-term success.
 Countertrade involves a transaction in which a company selling goods in a foreign country agrees to promote
investment and trade in that country. The goal of the transaction is to help offset the capital drain from the
foreign country’s purchases. Bartering, the exchange of goods and services for other goods
and services, is another way of trading with countries lacking convertible currency. In a
barter exchange, a company that manufactures electronics components might trade its
products for the coffee that a business in a foreign country processes, which it then sells to a
third company for cash. Barter transactions require finding a business with complementary
needs, but they are much simpler than countertrade transactions.
 Exporting - Approximately 100,000 U.S. companies currently export; however, experts
3. Explain how estimate that at least twice as many are capable of exporting but are not doing so. The
to build a biggest barrier facing companies that have never exported is not knowing where or how to
thriving export start.
program
 Chapter 12 - Global Marketing Strategies For Entrepreneurs 15
 Establishing international locations - Once established in international markets, some small businesses set up
permanent locations there. Establishing an office or a factory in a foreign land can require a substantial
investment reaching beyond the budgets of many small companies. Plus, setting up an international office
can be an incredibly frustrating experience in some countries. Finding the right person to manage an
international office is crucial to success; it also is a major challenge, especially for small businesses. Small
companies usually have lean management staffs and cannot afford to send key people abroad without
running the risk of losing their focus.

5. Describe the various types of trade intermediaries small business owners can use. What functions do they
perform?
Answer: Trade intermediaries are domestic agencies that serve as distributors in foreign countries for domestic
companies of all sizes. They rely on their networks of contacts, their extensive knowledge of local customs and
markets, and their experience in international trade to market products effectively and efficiently all across the
globe. Trade intermediaries account for about 10 percent of all U.S. exports.

 Export management companies. An important channel of foreign distribution for small companies just
getting started in international trade or for those lacking the resources to assign their own people to foreign
markets.

 Export trading companies. Export trading companies are businesses that buy and sell products in a number of
countries, and they typically offer a wide range of services such as exporting, importing, shipping, storing,
distributing, and others to their clients. ETCs usually perform both import and export trades across many
countries' borders.

 Manufacturer's export agents. MEAs act as international sales representatives in a limited number of markets
for various noncompeting domestic companies. The relationship between an MEA and a small company is a
short-term one, and the MEA typically operates on a commission basis.

 Export merchants. export merchants are domestic wholesalers who do business in foreign markets. They buy
goods from many domestic manufacturers and then market them in foreign markets. They often carry
competing lines, which means they have little loyalty to suppliers.

 Resident buying offices. A government-owned or privately owned operation of one country established in
another country for the purpose of buying goods made there.

 Foreign distributors. They handle all of the marketing, distribution, and service functions in the foreign
country.

6. What is a domestic joint venture? A foreign joint venture? What advantages does taking on an international
partner through a joint venture offer? Disadvantages?
Answer: Joint ventures, both domestic and foreign, lower the risk of entering global markets for small
businesses. In a domestic joint venture, two or more U.S. small businesses form an alliance for the purpose of
exporting their goods and services. For export ventures, participating companies get antitrust immunity, allowing
them to cooperate freely. The businesses share the responsibility and the costs of getting export licenses and
permits, and they split the venture’s profits. In a foreign joint venture, a domestic small business forms an
alliance with a company in the target nation. The host partner brings to the joint venture valuable knowledge of
the local market and its method of operation as well as of the customs and the tastes of local customers, making it
much easier to conduct business in the foreign country. The most important ingredient in the recipe for a
successful joint venture is choosing the right partner. Important criteria in for joint venture are: picking the right
partners, and creating successful alliance to establish common objectives. Defining exactly what each party in
the joint venture hopes to accomplish at the outset will minimize the opportunity for misunderstandings and
disagreements later on. Common problems leading to failure include improper selection of partners,
incompatible management style, failure to establish common goals, inability to be flexible, and failure to trust
one another.
16 Section IV Small Business Marketing Strategies
7. What mistakes are first-time exporters most likely to make? Outline the steps a small company should take to
establish a successful export program.
Answer - The biggest barrier facing companies that have never exported is not knowing where or how to start.
Steps an entrepreneur must take to get an export program under way.
 Recognize that even the tiniest companies and least experienced entrepreneurs have the potential to export.
 Analyze your product or service.
 Analyze your commitment.
 Research markets and pick your target.
 Develop a distribution strategy.
 Find your customer.
 Ship your goods.
 Collect your money.
Planned carefully and taken one step at a time, exporting can be a highly profitable route for small businesses.
Many small companies are forming foreign sales corporations (FSCs, pronounced "risks") to take advantage of a
tax benefit that is designed to stimulate exports.

8. What are the benefits of establishing international locations? Disadvantages?

Answer - Establishing an office or a factory in a foreign land can require a substantial investment reaching
beyond the budgets of many small companies. Plus, setting up an international office can be an incredibly
frustrating experience in some countries. Business infrastructures are in disrepair or are nonexistent. Finding the
right person to manage an international office is crucial to success; it also is a major challenge, especially for
small businesses. Few small businesses begin their global ventures by establishing international locations,
preferring, instead, to build a customer base through some of the strategies already covered. Small companies that
do establish international locations can reap significant benefits. Start-up costs are lower in some foreign
countries, and lower labor costs can produce significant savings as well. The major advantages to establishing
an international location can be the combination of lower production and marketing cost, as well as development
of an intimate knowledge of customer preferences. Finding the right person to manage an international office is
crucial to success; it also is a major challenge, especially for small businesses. Small companies usually have lean
management staffs and cannot afford to send key people abroad without running the risk of losing their focus.

9. Describe the barriers businesses face when trying to conduct business internationally. How can a small business
owner overcome these obstacles?
Answer - Sometimes the biggest barriers potential exporters face are right here at home, domestic barriers. Three
major domestic roadblocks are common: attitude, information, and financing. Two types of international barriers
are common: tariff and nontariff. Political barriers--entrepreneurs who go global quickly discover a labyrinth of
political tangles. The complex web of governmental and legal regulations and barriers they encounter in foreign
countries often astounds them. There are also business barriers. Business practices and regulations in foreign
lands can be quite different from those in the United States. The biggest shock comes in the area of human
resources management, where international managers discover that practices common in the United States, such
as overtime, women workers, and employee benefits are restricted, disfavored, or forbidden in other cultures.
Finally there are cultural barriers. The culture of a nation includes the beliefs, values, views, and mores that its
inhabitants share. The diversity of languages, business philosophies, practices, and traditions make international
trade more complex than selling to the business down the street.

10. What is a tariff? A quota? What impact do they have on international trade?
Answer - A tariff is a tax, or duty, that a government imposes on goods and services imported into that country.
Imposing tariffs raises the price of the imported goods--making them less attractive to consumers--and protects
the makers of comparable domestic products and services. Quotas. Rather than impose a direct tariff on certain
imported products, nations often use quotas to protect their industries. A quota is a limit on the amount of a
product imported into a country. It is a type of nontariff barrier.

11. What impact have the GATT, WTO, and NAFTA trade agreements had on small companies wanting to go
global? What provisions are included in these trade agreements?
Answer - Created in 1947, the General Agreement on Tariffs and Trade (GATT) became the first global tariff
agreement. The latest round of GATT negotiations, called the Uruguay Round, was completed in December 1993
 Chapter 12 - Global Marketing Strategies For Entrepreneurs 17
and took effect on July 1, 1995. Negotiators reduced the remaining industrial tariffs by 40 percent, established
new rules governing dumping goods at unfairly low prices, strengthened the global protection of patents, and cut
the level of government subsidies on agricultural products.
The World Trade Organization, (WTO), came into being in January of 1995 and replaced GATT. WTO has
more than 140 member countries, including the newest member China. These member countries represent over
97% of all world trade. An additional 30 nations are actively seeking membership. The rules and agreements of
the WTO are the result of negotiations among its members. The WTO actively implements the rules established
by GATT and continues to negotiate additional trade agreements. Each member country receives guarantees that
its exports will be treated fairly and consistently in other member countries’ markets. Specifically addressed
have been banking, insurance, telecommunications, and tourism under the WTO’s General Agreement on Trade
in Services, (GATS). In addition, the WTO’s intellectual property agreement which covers patents, copyrights,
and trademarks amounts to the rules for trade and investment in ideas and creativity.
The North American Free Trade Agreement (NAFTA) created a free trade area among Canada, Mexico, and the
United States. A free trade area is an association of countries that have agreed to knock down trade barriers, both
tariff and nontariff, among partner nations. Under the provisions of NAFTA, these barriers were eliminated for
trade among the three countries, but each remained free to set its own tariffs on imports from nonmember nations.
NAFTA forged a unified United States-Canada-Mexico market of 380 million people with a total annual output
of more than $6.5 trillion dollars of goods and services. Before NAFTA took effect on January 1, 1994, the
average tariff on U.S. goods entering Mexico was 10 percent. Under NAFTA, these tariffs will be reduced to zero
on most goods over the next 10 to 15 years.

12. What advice would you offer an entrepreneur interested in launching a global business effort?
Answer - To remain competitive, businesses must assume a global posture. Global effectiveness requires
managers to be able to leverage workers' skills, company resources, and customer know-how across borders and
throughout cultures across the world. Managers also must concentrate on maintaining competitive cost structures
and a focus on the core of every business: the customer. Although there are no surefire rules for going global,
small businesses wanting to become successful international competitors should observe these guidelines:
 Make yourself at home in all three of the world's key markets: North America, Europe, and Asia.
 Appeal to the similarities within the various regions in which you operate but recognize the differences in
their specific cultures.
 Develop new products for the world market.
 Familiarize yourself with foreign customs and languages.
 Learn to understand your customers from the perspective of their culture, not your own.
 "Globalize," make global decisions about products, markets, and management.
 Train employees to think globally.
 Hire local managers to staff foreign offices and branches.
 Do whatever seems best wherever it seems best, even if people at home lose jobs or responsibilities.
 Consider using partners and joint ventures to break into foreign markets.

Step into the Real World

1. Go to lunch with a student from a foreign country. What products and services are most needed? How does the
business system there differ from ours? How much government regulation affects business? What cultural
differences exist? What trade barriers have the government erected?

2. Review several current business publications and prepare a brief report on which nations seem to be the most
promising for U.S. entrepreneurs. What steps should a small business owner take to break into those markets?
Which nations are the least promising? Why?

3. Select a nation that interests you and prepare a report on its business customs and practices. How are they
different from those in the United States? How are they similar?