Chapter 7

Small Business as Multinational

Companies: Overcoming Barriers
and Finding Opportunities

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 Learning Objectives

• Understand the basic definitions of small business and

entrepreneurship
• Explain how small businesses can begin as global
start-ups or follow the stages of internationalization
• Understand how small businesses can overcome
barriers to internationalization

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 Learning Objectives

• Identify when a small business or entrepreneurs should

consider going international
• Understand how small businesses or entrepreneurs
can find customers, partners, or distributors aboard
• Understand how new venture wedge strategies can be
used in foreign markets
• Understand factors driving entrepreneurship at an
international level

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 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 has more
complex definitions
- Definition varies by industry, sales revenue, and
the number of people

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 What Is a Small Business?

• “Small” businesses
- Over 98% businesses in Europe, N. America, and
Japan
- Employ more than 50% of local populations
- Produce nearly 50% of the countries’ GNPs
- Create more than 2/3 of new jobs

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 Internationalization and the
Small Business

• Two models
- Small business stage model: process of following
incremental stages of internationalization
- Global start-up or Born-global firm: company that
begins as a multinational company

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 Small Business Stage Model:
Six Stages

• Stage 1: Passive exporting

- Company fills international orders but does not seek export
business
• Stage 2: Export management
- Specifically seeking exports—usually rely on indirect
exporting
• Stage 3. Export department
- Significant resources dedicated to seek increased sales from
exports
•

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 Small Business Stage Model

• Stage 4: Sales branches

- High demand justifies setting up local sales office
• Stage 5: Production abroad
- Use licensing, joint ventures of direct investment
- Difficult stage because of the risk of failure
• Stage 6: The transnational
- Develop global integrated network

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 Small Business Global Start-
up or Born-Global Firms

• Key elements favoring global start-ups

- Dispersed human resources
- International sources of venture capital
- The existence of a global demand
- The lack of a geographically protected market
- The necessity of worldwide sales to support the
venture
- The potential to avoid later resistance to
internationalization
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Exhibit 7.1: Major Differences on Key
Aspects of The Traditional
Internationalization Stages between
Born-Global Firms

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 Small Business E-Commerce

• Web sites offer a rapid way to go international

• Web site configured for e-commerce is low cost
• Quick way to sell across national borders

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 Advantages of Small-Business
E-Commerce

• 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
• Utilize the Internet have higher revenues

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 Challenges of Small-Business
E-Commerce

• Managing upgrades
• Language barriers
• Shipping and returns
• Assuring security for a Web site
• Fraudulent activities online
• Receiving international payments
• Costs required to maintain the site
• Finding and retraining qualified employees
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 Overcoming Small-Business
Barriers to Internationalization

• Liabilities of newness: a large percentage of new

businesses fail within a year
• Liabilities of size: lack of scale to produce goods or
services as efficiently as larger companies

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 Overcoming Small-Business
Barriers to Internationalization

• Managers’ limited international experience

• Managers’ negative attitudes
- Belief that venture too risky and not profitable
- Competition seen as domestic
- Ignoring of international opportunities

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 Developing a Small-Business
Global Culture

• Global culture: managerial and worker values that view

strategic opportunities as global and not just domestic
• Framework to understand international operations

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 Small-Business Global Culture

• Characteristics of decision makers affecting

development of a global culture
- Perceived psychic distance to foreign markets
- International experience
- Risk aversion
- Overall attitudes toward international strategies

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 Developing a Small-Business
Global Culture

• Changing attitudes of key decision makers

- Being close in culture and geography
- Overcome skepticism regarding the international
markets
- Positive attitudes more necessary for global start-ups

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Exhibit 7.2: Attitudinal Differences
Concerning Internationalization

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 Duties and the Personal Life
of the Small-Business CEO

• For small firm, opening new markets is CEO’s

responsibility.
• CEO must bear social and business costs
- Increased travel and stress from undertaking a new
venture
- Can adversely affect family life
- Takes away from the daily management

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Exhibit 7.3: Training and Knowledge
Needs of Small Firm CEOs Entering
Internationalization

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 Size and Small Business
Internationalization

• Size barrier to internationalization

- Larger firms have more resources to support
international operations
• Size is an issue only in the internationalization
decision, however.
• Eventually, international sales intensity of small firms
exceed that of big firms.
- International sales intensity: amount of international
sales divided by total sales of the company
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 Small Business Advantage

• Speed becomes the small business advantage

- Faster innovation
- Can change products and internal operations faster
- Speed can overcome size disadvantages
- Larger firms must often overcome bureaucratic
procedures

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 The Future: Falling Barriers
for Small Businesses

• Barriers are becoming easier to overcome

• Government support programs for small businesses
are increasing
• Trade agreements are making trade easier
• Increase in small businesses engaged in international
operations also makes it easier

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 When Should a Small
Business Go International?

• If the following questions are answered positively,

small business is ready.
- Do we have a global product or service?
- Do we have the managerial, organizational, and
financial resources to internationalize?
- Is there willingness to commit resources to face the
risks of internationalization?
- Is there a country in which the company feels
comfortable doing business?
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 When Should a Small
Business Go International?
(cont.)
- Is there a profitable market for product or service?
- Which country should be entered?
- Do we have a unique product/service that is not
easily copied by multinationals or local
entrepreneurs?
- Do location advantages exist upstream in the value
chain?
- Can we afford not to be a multinational?
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Exhibit 7.4: Questions to Consider
in the Small Business Decision to
Go International

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Exhibit 7.5 Steps in Picking a
Foreign Market

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 Getting Connected to the
International Market

• Participation strategies
- Same participation options as larger firms
- Exporting, licensing, joint ventures, and foreign direct
investment
- Most small businesses often emphasize exporting

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 Finding Customers and
Partners: Customer Contact
Techniques
• Trade shows
• Catalog expositions
• International advertising agencies and consulting firms
• Government-sponsored trade missions
• Direct contact

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Exhibit 7.6: Selected U.S.
Government Programs for
Making International Contacts

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Exhibit 7.7: International Trade
Leads: A Web Sampler

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Exhibit 7.7: International Trade
Leads: A Web Sampler

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Exhibit 7.7: International Trade
Leads: A Web Sampler

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 Ready to Go and Connected:
A Synopsis

• Finding the right overseas partner: the most important

step
• Find a good wedge to break into a new market

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 New-Venture Strategies for
Small Multinational
Companies
• Entry wedge: company’s competitive advantages for
breaking into the established pattern of commercial
activity

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 New Product or Service and
First-Mover Advantage

• Being the first to introduce a product or service

- Must be innovative
- Must be comprehensive
• Must meet customer expectations in areas such
as warranty and expected components
• Technological leadership—most common source
- Being first to use or introduce a new technology

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 New Product or Service and
First-Mover Advantage

• Have firsts access to natural and social resources

- Can choose the best locations
• Can have the best access to social relationships
- Lead to the personal contacts to build effective
channels of distribution
- Lead to trust and commitment from business
partners and customers

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 New Product or Service and
First-Mover Advantage

• Switching costs: occur when customers face some loss

in turning to a competitor’s products
- because of brand loyalty, many customers may not
want to face the discomfort of switching to another
brand of a product or service

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 Copycat Business

• Copycat Business
- The “me too” strategy
- Adopt existing products or services
- Find a niche or slight innovation to attract customers

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 Successful Copycat Moves

• Be the first to a new standard

• Go after the toughest customers
• Play to different customer needs
• Transfer the location
• Become a dedicated supplier or distributor
• Seek abandoned or ignored markets
• Acquire existing business

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 International Entrepreneurship

• Entrepreneur: person who creates new ventures that

seek profit and growth
- Faces risks and uncertainty of new and untested
business
• New ventures: entering a new market
- Offer a new product or services
- Introduce a new method technology or innovative
use of raw materials
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 International Entrepreneurship

• International Entrepreneurship: refers to the “discovery,

evaluation and exploitation of market opportunities.”

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 Why is International
Entrepreneurship important?

• Most experts consider entrepreneurship the driving

force of all small businesses
• If we want to get a complete understanding of small
businesses in any nation, we need to examine the level
of entrepreneurship in that country
• Entrepreneurship is also seen as the driver of
innovation and economic development for any nation
• Entrepreneurship not only creates new job but also
generates new wealth and growth
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 International Entrepreneurship
and Small Businesses

• Many multinational firms rely on entrepreneurs and

small businesses to do business when entering a new
country
• Small businesses can play an important role in
assisting existing multinational companies in
developing or offering new products that can improve
productivity

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Exhibit 7.8: Entrepreneurial
Activity Ratings by Country

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 Conclusion

• Small businesses are important aspects of economies

of all nations
• Small businesses provide jobs, economic growth and
innovation
• Chapter provides crucial background information on
small businesses
• Chapter also discusses international entrepreneurship

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