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Small Businesses and International Entrepreneurship: Overcoming Barriers and Finding Opportunities

Learning Objectives (1 of 2)

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.
Identify when a small business or entrepreneurs should consider going international.

Learning Objectives (2 of 2)

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

What Is a Small Business? (1 of 2)

“Small” businesses:
Constitute over 98% of businesses in Europe, North America, and Japan
Employ more than 50% of their local populations
Produce nearly 50% of these countries’ GNPs
Create more than 2/3 of new private sector jobs in the US

What Is a Small Business? (2 of 2)

The term “Small” business is variously defined. The small business has:
UN & OECD: less than 500 employees
The popular press: less than 100 employees
US Small Business Administration:

Definition varies by industry

Uses both sales revenue and the number of people

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

Small Business Stage Model of Internationalization (1 of 2)

Stage 1: Passive exporting
Firm fills international orders but does not seek export business. Does not realize it has an international market.
Stage 2: Export management
Specifically seeks exports, usually relying on indirect exporting due to resource limitations. Major orientation change for the firm: Exporting is seen as an opportunity.
Stage 3. Export department
Significant resources dedicated to seeking increased sales from exporting. No longer see exporting as a prohibitive risk. Key is to find good local partner for distribution.

Small Business Stage Model of Internationalization (2 of 2)

Stage 4: Sales branches
High demand justifies setting up local sales office. Must have resources to transfer manager or hire local managers
Stage 5: Production abroad
Firm moves beyond downstream activities; uses licensing, joint ventures or direct investment. This is a difficult stage because failure may put whole firm at risk.
Stage 6: The transnational
Its small size does not prevent the firm from developing a global integrated network.

Small Business Global Start-ups, or Born-Global Firms (1 of 2)

Companies begin as multinationals; they must pursue a global vision from inception and globalize rapidly.
Born-globals are critical to the international business environment.
Threat to traditional multinationals: Very flexible, fast moving, knowledge intensive; introduce innovations.
Global start ups are riskier than domestic startups.
Yet, they offer an avenue for new venture success in rapidly globalizing industries.

Small Business Global Start-ups, or Born-Global Firms (2 of 2)

Steps to foster a mindset to create a born-global

Adopt global culture from the start

Network with partners with international experience

Start selling a minimally viable product

Develop a global business model

Make strategic use of information and communication technology

Overcoming Small Business Barriers to Internationalization (1 of 2)

Small size barriers include:
Limited financial and personnel resources to dedicate to international operations
Lack of sufficient scale to produce goods efficiently
Top managers with limited international experience, or negative attitudes, viewing them as being too risky
Organizational cultures with strong domestic orientation
Contextual and environmental issues that magnify difficulties in international operations

Overcoming Small Business Barriers to Internationalization (2 of 2)

Many barriers to internationalization seem internal, small businesses also have to face contextual and other environmental issues, such as liabilities of foreignness.
Liabilities of foreignness: the lack of familiarity small firms may have when facing the new country environment.

Developing a Small-Business Global Culture and a Learning Culture (1 of 3)

Global culture is achieved when managers and workers value view strategic opportunities as global and not just domestic.
Workers share common language to describe international operations at all levels.
Develop a framework to understand international operations.
Develop an international mindset.
Global thinking: Do business and conduct value chain operations anywhere in the world.

Developing a Small-Business Global Culture and a Learning Culture (2 of 3)

Characteristics of decision makers affecting development of a global culture
Perceived psychological distance to foreign markets
International experience
Risk aversion
Overall attitudes toward international strategies

Developing a Small-Business Global Culture and a Learning Culture (3 of 3)

Small businesses also need to develop a learning culture to overcome the liabilities of foreignness.
Learning culture: the willingness of the small business to learn from its international experiences to further its future internationalization plans.
How can small firms develop learning cultures?
Engage in systematic foreign market analysis
Learn by developing networks

Changing Attitudes of
Key Decision Makers

How to change attitudes of key decision makers:
Begin with sales to countries close in culture and geography
Experience and success overcome skepticism regarding the international markets.
Eventually, foreign markets perceived as more profitable than domestic.
But positive attitudes crucial for global start-ups from beginning.

Exhibit 7.2: Attitudinal Differences Concerning Internationalization for Small Business Exporters and Nonexporters

Gaining Experience:
Duties and the Personal Life of the Small Business CEO

Internationalization affects personal life and company duties of the CEO more than workers.
For small firm, opening new markets is CEO’s time-consuming and challenging personal responsibility.
The CEO must bear social and business costs:
Increased travel, stress from undertaking a new venture, can adversely affect family life, risk whole business.
Job restructuring, retraining, new skills for international business requirements .

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

Is Size a Barrier for Small Business Internationalization? (1 of 2)

Liabilities of smallness: challenges facing small businesses in the resources necessary to internationalize
Large firms serve more national markets, have access to resources, can negotiate with geographically dispersed partners, & invest in cross cultural training.
Small firms lack scale to produce goods or services as efficiently as larger companies, and absorb risks.
Size liabilities, however, may exist only in the initial internationalization stage.

Is Size a Barrier for Small Business Internationalization? (2 of 2)

International sales intensity: the amount of international sales divided by the total sales of the company.
Once involved in international ventures, small multinational companies often gain sales revenues proportionally equal to or greater than those of large multinational companies.

Using the 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, slow to take advantage of new markets
First to market allows capture of market share before larger companies can react.

The Future: Falling Barriers to
Multinational Small Businesses and More Global Start-Ups

Government programs to support small businesses are expanding.
High impact trade agreements (NAFTA, WTO) make trade less complex and reduce resource requirements.
Growth in international business information available on Internet makes knowledge easily available to small businesses.
Such knowledge encourages entrepreneurs to consider going global.

When Should a Small Business Go International? (1 of 2)

A small business that answers “yes” to these questions may be ready to go global:
Do we have a global product or service?
Do we have the managerial, organizational, and financial resources to internationalize?
Are we willing to commit resources to face the risks of internationalization?
Is there a country in which we feel comfortable doing business?

When Should a Small Business Go International? (2 of 2)

A small business that answers "yes” to these questions may be ready to go global (cont’d):
Is there a profitable market for our product or service?
Which country should we enter?
Do we have a unique product or service that is not easily copied by large multinationals or local entrepreneurs?
Do location advantages exist upstream in the value chain?
Can we afford not to be a multinational?

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 choose exporting, and use services of ETCs or EMCs to get their product to international markets

Finding Customers and Partners

Customer contact techniques include:
Trade shows
Catalog expositions
International advertising agencies & consulting firms
Government-sponsored trade missions
Direct contact

Ready to Go and Connected: A Synopsis (1 of 2)

Ask the diagnostic questions on readiness for internationalization.
Focus on whether the small firm has the right products and adequate resources
Then consider the competition & countries where it might do business.
If the firm is ready & opportunity exists, there are several mechanisms to make customer & partner contacts.

Ready to Go and Connected: A Synopsis (2 of 2)

Detailed research will reveal more sources, and increase the likelihood of international success.
Finding the right overseas partner may be most crucial.
Even if this is the right company, right product, and potential customer, the small firm still needs a wedge to break into a new market.
Small firms can use traditional entrepreneurial wedge strategies.

New-Venture Strategies for
Small Multinational Companies

Entry Wedge: a strategic competitive advantage for breaking into the established pattern of commercial activity:
New Product or Service and First Mover Advantage
Copycat Businesses

New Product or Service and First-Mover Advantage (1 of 2)

First-mover advantage: Being the first to introduce a product or service:
Product or service must be innovative and comprehensive.
Comprehensive: Must meet customer expectations in areas such as warranty, customer service & expected components. Without these, its easy for competitors to imitate.
Technological leadership: being first to use or introduce a new technology; most common source of advantage; gives a head start for further innovations

New Product or Service and First-Mover Advantage (2 of 2)

Advantages of being first-mover:
Have first access to natural and social resources.
Can choose the best locations for resources, proximity to customers
Have the best access to social relationships
Leads to personal contacts to build effective channels of distribution , & to build trust & commitment
Reduce switching costs, which a customer incurs when going to a competitor’s product (Apple v Windows)

Copycat Business (1 of 2)

Copycat Business: Adopts existing products or services
A copycat business follows the “me too” strategy.
Competitive advantage comes from varying the nature of a product or service, or how the firm provides the product or service.
Successful copycats do not copy existing business identically.
They find a niche or slight innovation to attract customers.

Copycat Business (2 of 2)

Successful copycat moves include these:
Be the first to change to a new standard.
Go after the toughest customers.
Play to minor differences in customer needs.
Transfer the location.
Become a dedicated supplier or distributor.
Seek abandoned or ignored markets.
Acquire existing business.

International Entrepreneurship and Family Businesses (1 of 7)

Entrepreneur: A person who creates new ventures that seek profit and growth
The entrepreneur faces risks and the uncertainty of new and untested business
New ventures: exist when:
a firm enters a new market, or
offer a new product or services, or
introduces a new method, technology or innovative use of raw materials

International Entrepreneurship and Family Businesses (2 of 7)

International entrepreneurship: The “discovery, evaluation and exploitation of international market opportunities.”
Most experts consider entrepreneurship the driving force of small business.
Without the entrepreneurial spirit, few small businesses would exist anywhere in the world.

International Entrepreneurship and Family Businesses (3 of 7)

If we want to fully understand the small businesses in any nation, we need to examine the level of entrepreneurship there.
Entrepreneurship is the driver of innovation and economic development anywhere.
In a country context which allows entrepreneurial activities to flourish, rapid industrialization occurs.
Entrepreneurship not only creates new jobs but also generates new wealth and growth.

International Entrepreneurship and Family Businesses (4 of 7)

Many multinational firms rely on entrepreneurs and small businesses to do business when entering a new country.
Small businesses can often provide critical products or services, thereby facilitating entry.
Small businesses can assist MNCs in offering or developing new products.
MNCs’ location decisions often based on level of entrepreneurship existing in country of choice.

International Entrepreneurship and Family Businesses (5 of 7)

Understanding entrepreneurship in emerging markets is also critical.
Recent research revealed findings about entrepreneurship in emerging economies.

The importance and influence of networks

Strong focus on individual entrepreneurial characteristics, such as self-commitment, dynamism, and experience)

Exhibit 7.6:
Total Entrepreneurial Activity (TEA) for Selected Countries

International Entrepreneurship and Family Businesses (6 of 7)

Family business: Business owned or controlled by members of a family.
Although family businesses can be very large, the majority of small businesses tend to be family run.
Most countries have family businesses that make important contributions to the economy.
A complete understanding of small businesses is not complete without an understanding of issues facing family businesses.

International Entrepreneurship and Family Businesses (7 of 7)

Small family businesses tend to have conservative growth strategies.
Challenges arising from the business passing hands:
Family tension and stress
Family turnover can impede growth
The role of gender: a growing percentage of family businesses worldwide are headed by women.

Summary and Conclusions

Chapter 7 provides crucial background information on small businesses, and also discusses international entrepreneurship.
Small businesses are important aspects of economies of all nations.
Small businesses often provide the most jobs, economic growth and the best innovation.
The world offers opportunities and challenges for international small business and entrepreneurship.