Small Business Discussion Board 10

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Chapter_18_Global_Opportunities.pdf

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Small Business Management, 18e

Longenecker/Petty/Palich/Hoy

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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. © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or

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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

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© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a

password-protected website for classroom use.

Where in the World Are Entrepreneurial Companies Doing Business?18.1

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Questions to Consider Before Going Global18.2

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

18–7

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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

18–8

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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.

18–9

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Expanding into International Markets

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Factors in

Competing

Internationally

Gaining Access

to Resources

Capitalizing on

Special Features

of Location

Cutting

Costs

The Forces Driving Global Businesses

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Gaining Access

to Resources

Traditional motivation:

Find raw materials.

EMERGING MOTIVATION:

OBTAIN HUMAN RESOURCES.

Expanding Markets

Traditional motivation: Extend the product life cycle.

EMERGING MOTIVATION:

FIND BUYERS FOR HIGHLY SPECIALIZED PRODUCTS.

Cutting

Costs

Traditional motivation:

Reduce labor and transportation costs.

EMERGING MOTIVATION:

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

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.

18–12

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BRIC Markets18.3

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.

18–14

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Strategy Options for Global Firms

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International

strategic alliances Importing

Global

Strategy

Options

Locating facilities

abroad Exporting

International

franchising Foreign

licensing

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.

18–16

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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

18–17

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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.

18–18

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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

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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.

18–20

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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

18–21

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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.

18–22

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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.

18–23

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Ease of Doing Business18.4

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

18–25

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Assistance for Global

Enterprises (cont.)

 Connections With International

Customers

Trade leads

Trade missions

Trade intermediaries

18–26

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18.5 Trade Intermediaries Most Suited for Small Business

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.

18–28

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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.

18–29

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Key Terms

bill of lading

born-global firms

counterfeit activity

cross-border acquisition

economic risk

economies of scale

exchange rate

experience curve efficiencies

exporting

foreign licensing

globalization

greenfield venture

importing

international franchising

international outsourcing

international strategic alliance

learning effects

letter of credit

licensee

licensor

offshoring

political risk

royalties

trade intermediary

trade mission

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