978-0134741086 Chapter 16 Part 1

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CHAPTER 16. GLOBAL ASPECTS OF ENTREPRENEURSHIP

Part 1: Learning Objectives

1. Explain why “going global” has become an integral part of many small companies’

marketing strategies.

2 Describe the principal strategies small businesses can use for going global.

3. Discuss the major barriers to international trade and their impact on the global

economy.

4. Describe the trade agreements that will have the greatest influence on foreign trade in

the twenty–first century.

Part 2: Class Instruction

Introduction

The global marketplace offers tremendous potential for many entrepreneurial companies.

The Internet combined with other forms of affordable technology, increased access to

information on conducting global business, and the growing interdependence of the

world’s economies have made it easier than ever before for companies to engage in

international trade. As entrepreneurs discover the global business tools, the costs of going

global are decreasing. American small businesses fall behind their counterparts in most

countries. The opportunities demand exploration.

Why Go Global? LO 1

Today’s business environment is highly competitive and businesses can no longer consider

themselves as domestic companies if they truly want to compete. Operating a successful

business increasingly requires entrepreneurs to see their companies as global citizens

the stringent demands of foreign customers, lower the manufacturing cost of their

products by spreading fixed costs over a larger number of units, and enhance their

competitive positions to become stronger businesses.

Chapter 16, Page 259

Success in a global economy requires constant innovation; staying nimble to use speed as a

competitive weapon; maintaining a high level of quality and constantly improving it; being

sensitive to foreign customers’ unique requirements; adopting a more respectful attitude

toward foreign habits and customers; hiring motivated, multilingual employees; and

retaining a desire to learn constantly about global markets.

Global thinking is the ability to appreciate, understand, and respect the different beliefs,

values, behavior, and business practices of companies and people in different cultures and

countries.

Strategies for Going Global LO 2

There are 10 strategies for going global as described in Figure 16.1, Ten Strategies for

Trade Intermediaries.

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, extensive

knowledge of local customs and markets, and experience in international trade. They

serve as the export departments for small businesses. There are many types of trade

a number of countries and offer a wide variety of services to their clients.

 Export merchants are domestic wholesalers who do business in foreign

markets.

 Resident buying office is government- or privately owned operations of one

country established in another country for the purpose of buying goods made

surrender control over their foreign sales. Therefore, it is essential to thoroughly screen

them, and find the ones that specialize in the products their companies sell, as well as

have experience and established contact in the targeted countries. Refer to Table 16.1,

Foreign Licensing.

Rather than sell their products or services directly to customers overseas, some small

companies enter foreign markets by licensing businesses in other nations to use their

company collects royalties from the sales of its foreign licenses. This works well for

franchisees; select quality candidates; structure the franchise deal (direct franchising, area

development, or master franchising).

Countertrading and Bartering.

A countertrade is a transaction in which a company selling goods in a foreign country

agrees to promote investment and trade in that country. The goal is to help offset the

The biggest barrier to exporting is not knowing where or how to start, but there are many

resources, training, and consulting services to help. To develop a sound export strategy

the entrepreneur should follow these nine steps:

1. Recognize that even the tiniest companies and least experienced entrepreneurs

2. Analyze your product or service.

3. Analyze your commitment. Refer to Figure 16.3, Length of Time Small

Business Owners Invest Before Exporting.

4. Research markets and pick your target. Refer to Figure 16.4, Number of

5. Develop a distribution strategy.

6. Find your customer.

7. Find financing.

8. Ship your goods.

9. Collect your money. 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. Refer to Figure 16.5, How a Letter of Credit

Works. A bank draft is a document the seller draws on the buyer, requiring

the buyer to pay the face amount either on sight or on a specified date.

lower labor costs, as well as gaining a firsthand knowledge of customers’ preferences and

culture.

Importing and Outsourcing.

More U.S. companies shop the world market for products they can sell here. For

example, due to low labor costs in some countries, businesses there offer goods and

protect your company’s intellectual property; select a manufacturer; provide an exact

model of the product you want manufactured; stay in constant contact with the

manufacturer and try to build a long-term relationship.

Expat Entrepreneurs.

Expat entrepreneurs keep their citizenship in their home country, but live and run their

governments use a variety of barriers that block free trade among nations in an attempt to

protect their own industries. Foreign firms are restricted access into global markets and all

consumers suffer and pay the price. Barriers to international trade include domestic and

Chapter 16, Page 262

international barriers. Refer to Figure 16.6, Most Frequently Encountered Impediments to

International Trade.

Domestic Barriers.

Three major domestic roadblocks are common: attitude, information, and financing.

 Attitude. “I’m too small to export.” The first step to building an export

program is recognizing that the opportunity to export exists. Refer to Table

16.3, Global Business Assumptions.

 Lack of Information. Entrepreneurs should thoroughly research the possibility

of going global and use every possible resource available to them such as

government and private organizations’ international exporting and marketing

information, in order to make valid decisions. Companies must also be willing

International Barriers.

 Tariffs Barriers. A tariff is a tax, or duty, that a government imposes on goods

and services imported into that country.

 Nontariff Barriers. Nations have lowered the tariffs they impose but they rely

on other nontariff structures as protectionist trade barriers.

These may include: excessive government and legal regulations; government takeovers of

private property; coups to overthrow ruling parties; kidnapping, bombings, and other

violent acts again businesses and their employees; and other threatening events.

Business Barriers.

Business practices and regulations in foreign lands can be quite different from those in the

Culture is the beliefs, values, views, and mores that a nation’s inhabitants share. Culture,

customs, and the norms of behavior differ greatly among nations, and making the correct

impression is extremely critical to building a long-term business relationship. There are

many examples in the chapter.

agreements among nations exist. The most prominent organizations include:

 The World Trade Organization (WTO). This organization establishes rules for

trade among nations. Members commit themselves to nondiscriminatory trade

practices and to reduce barriers to free trade. For example, the WTO’s intellectual

among partner nations.

 The Dominican Republic-Central America Free Trade Agreement (CAFTA-DR

and also referred to as CAFTA) is to Central America what NAFTA is to North

America. CAFTA was implemented between 2006 and 2008 to promote free trade

among the United States and six Central American countries.

implementation of a global strategy.

Part 3: Chapter Exercises

You Be the Consultant: “Going Global from the

1. As the global market grows, more small businesses are expanding into other

markets. What are the implications for small companies that have the potential to

2. What advice can you offer the founders of Zee Wines USA about selling their

products globally? (LO 2) (AACSB: Application of knowledge)

3. Notice that the founders of Zkipster used a direct, localized sales approach to

enter new markets. What are the advantages and the disadvantages of setting up

local sales operations? Why do most small companies that sell internationally use

trade intermediaries rather than open local offices? (LO 2) (AACSB: Reflective

intermediaries can be a more efficient process to initiate and sustain higher volume sales

over time.

You Be the Consultant: “Selling a Simple Product to a

Global Market”

1. Identify the risks and the benefits that The Pasta Shoppe faces by operating as a

global business. (LO 2) (AACSB: Reflective thinking)

2. Identify some of the barriers that companies such as The Pasta Shoppe

encounter as they expand internationally. What steps can entrepreneurs take to

overcome these obstacles? (LO 2) (AACSB: Reflective thinking)

3. What steps do you recommend that entrepreneurs such as John Aron take

before they make the decisions to take their companies global? (LO 2) (AACSB:

Reflective thinking)

To develop a sound export strategy they should follow these nine steps: