Chapter 18: Global Opportunities for Small Business
CHAPTER 18: GLOBAL OPPORTUNITIES FOR SMALL BUSINESS
CHAPTER OUTLINE
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1) Small Businesses as Global Enterprises
LO1: Describe the potential of small firms as global enterprises.
i) Today many small businesses are being launched with cross-border activities in
mind. These are called born-global firms.
ii) Some important words of cautions to help entrepreneurs avoid some of the
landmines they may encounter when they go abroad:
(1) When people from multiple continents work together to bring a project to
fruition, they lack the informal “water cooler” discussions that often build a
team, making it stronger and able to push through some of the difficulties.
Management has to find a way to pull these diverse teams together.
(2) There may be significant labor savings from going abroad, but one must also
balance these against the management complexities of productivity and
efficiency.
(3) The “28-hour-day” (working across multiple time zones) is great, but holidays
in all countries must be added to the operating schedule if a company is to
avoid delays.
(4) The product is vitally important to startups. But when the design team is not
aligned with the customer, culturally or otherwise, it increases the chances of
disconnect, resulting in a product miss instead of a hit.
(5) Many countries have local labor retention challenges. Be aware of this before
any sites are selected.
(6) Entrepreneurs create a sense of urgency in the process of getting their
businesses off the ground. This is good but must be adjusted to work with the
longer learning curve that is typical in international businesses.
(7) Remember, the ability to downsize can be costly, difficult, or seemingly
impossible in some countries due to national or regional labor laws and
regulations.
2) The Forces Driving Global Businesses
LO2: Identify the basic forces prompting small firms to engage in global
expansion.
i) Motivation to go global
ii) Globalization is risky
iii) Global challengers must be met through innovation
a) Expanding Markets
i) 95 percent of the world’s population lives outside the United States. Therefore, it
follows that globalization greatly increases the size of an American firm’s
potential market.
ii) Countries Targeted
(1) Because the primary motivation for going global is to develop market
opportunities outside the home country, the focus of globalization strategies
tends to be on those countries with the greatest commercial potential.
(2) Goldman Sachs coined the term BRIC to refer to the fast-growing economies
of Brazil, Russia, India, and China (BRIC).
iii) Products Promoted
(1) Products that sell at home are likely to be introduced very quickly abroad
(1) Highly specialized products
iv) Making the Most of Experience
(1) Experience curve efficiencies – per-unit savings gained from the repeated
production of the same product.
(2) Learning effects – insights gained from experience, that lead to improved
work performance
(3) Economies of scale – efficiencies that result from expansion of production
b) Gaining Access to Resources
i) Traditionally for raw materials
ii) Increasingly the focus is on skilled labor
c) Cutting Costs
i) Raw materials, labor, and manufacturing overhead
ii) Through relocation
iii) International outsourcing – a strategy that involves accessing foreign labor
through contracts with independent providers
iv) Offshoring – a strategy that involves relocating operation abroad
d) Capitalizing on Special Features of Location
i) Unique features of local environment may be a benefit of the location
(1) Appeal of regional free trade areas
(2) Small businesses sometimes follow large client firms to their new locations
3) Strategy Options for Global Firms
LO3: Understand and compare strategy options for global businesses.
a) Exporting – selling products produced in the home country to customers in another
country
i) Internet caused growth in exporting
ii) Exporting very challenging
(1) Communicating in other languages
(2) Translating payments to other currencies
(3) International shipping
(4) Exhibit 18-5 Strategy Options for Global Enterprises
b) Importing – selling products produced in another country to buyers in the home
country
i) Product from overseas that has market potential at home
ii) Link up with vendors at international trade shows
iii) Most important factor for success is finding a good product vendor
iv) Global outsourcing guidelines
(1) Learn about culture and business practices of the country to avoid making
deal-breaking mistakes
(2) Do research and select a source that is not a competitor or a company that
hope to compete against you in the future
(3) Protect your intellectual property
(4) Carefully form a relationship with a sourcing partner
(5) Work out transportation logistics ahead of time
c) Foreign Licensing – allowing a company in another country to purchase the rights to
manufacture and sell a company’s products in international markets
i) Licensee – the company buying licensing rights
ii) Licensor – the company selling licensing rights
iii) Royalties – fees paid by the licensee to the licensor for each unit produced under a
licensing contract
iv) Counterfeit activity – the unauthorized use of intellectual property
d) International Franchising – selling a standard package of products, systems, and
management services to a company in another country
i) Variation on licensing theme
ii) Especially popular with U.S. restaurant chains
e) International Strategic Alliances – a combination of efforts an/or assets of
companies indifferent countries for the sake of pooling resources and sharing the risks
of an enterprise
i) Used by small companies to gain advantage internationally
ii) Allows sharing of risks
f) Locating Facilities Abroad
i) Overseas sales office
ii) Cross-border acquisition – the purchase by a business in one country of a
company located in another country
iii) Greenfield venture – a wholly owned subsidiary formed from scratch in another
country
iv) Often difficult to set up
4) Challenges to Global Businesses
LO4: Explain the challenges that global enterprises face.
a) Political Risk – the potential for political forces in a country to negatively affect the
performance of businesses operating within its borders
i) Exhibit 18-6 Ease of Doing Business
ii) Risk may be related to instability of a nation’s government
b) Economic Risk – the probability that a country’s government will mismanage its
economy in ways that hinder the performance of firms operating there
i) Foreign economy may affect the business environment adversely
ii) Exchange rates – the value of one country’s currency relative to that of another
country
c) The Ease of Doing Business Index
i) Underscores to businesses and government the large impact that regulatory
conditions have on economic growth and development
5) Assistance for Global Enterprises
LO5: Recognize the sources of assistance available to support international
business efforts.
a) Analyzing Markets and Planning Strategy
Chapter 18: Global Opportunities for Small Business
i) Finding international markets that fit the company’s unique potentials
ii) Creating a game plan for entry into the targeted markets
b) Connecting with International Customers
i) Trade Leads
ii) Trade Mission- a trip organized to help small business owners meet with potential
foreign buyers and establish strategic alliances in an international market
iii) Trade Intermediaries – an agency that distributes a company’s products on a
contract basis to customer in another country
c) Financing
i) Perhaps biggest barrier to international expansion
ii) Private Banks
(1) Letter of credit – an agreement issued by a bank to honor a draft or other
demand for payment when specified conditions are met
(2) Bill of lading – a document indicating that a product has been shipped and the
title to that product has been transferred
iii) Small Business Administration
(1) Valuable information from SBA
(2) Extensive list of financial assistance programs
ADDITIONAL DISCUSSION QUESTIONS
1. What is a “born–global” enterprise? What factors are encouraging the increase
in the number of these companies?
A “born–global” enterprise is a small companies started with cross-border
2. How important is a careful cultural analysis to a small firm that wishes to enter
an international market.
3. Do you believe that small companies should engage in international business?
Why or why not?
This is a question that obviously calls for an opinion, so responses will vary.
4. What are the four basic forces driving small businesses to enter the global
business arena. Which do you think is the most influential?
5. What are the emerging motivations persuading small business owners to go
global? Do you think any of these motivations are likely to remain powerful
forces 10 years from now? Twenty years from now?
Several shifts seem to be emerging in the forces driving firms to globalize.
Whereas firms once did this to extend the product life cycle, now the push is on to
6. Why is exporting such a popular global strategy among small businesses? Do
you think this should be the case?
Exporting is popular among small firms because it represents a way to get into the
global game with minimal costs and commitment of resources. It also offers other
7. What impact has the Internet had on the globalization of small firms? How do
you think small companies will use the Internet for business in the future?
8. What non-export strategies can small businesses adopt? In view of the unique
needs and capabilities of small firms, what are the advantages and
disadvantages of each of these strategies?
Foreign licensing, international franchising, international strategic alliances, and
9. What are the three main challenges small businesses face when they go global?
What strategies can a small company use to deal with each of these challenges?
First, small firms must take into account political risk. To deal with this risk,
small firms can take a number of approaches, such as avoiding the country or
10. What forms of assistance are available to small global firms? Which is likely to
be of greatest benefit to small companies? Why?
Many forms of assistance are available, including materials and advice provided
by government agencies (such as the SBA) or visiting with first-hand observers—
Chapter 18: Global Opportunities for Small Business
SUGGESTED ANSWERS TO YOU MAKE THE CALL EXERCISES
Situation 1
1. What additional information would be helpful to Acevas as he ponders this
decision?
As Acevas considers moving to another country he must consider such things as
2. What additional advantages and disadvantages should Acevas consider when
choosing between offshoring this work to India and “nearshoring” it to
Mexico?
Small companies doing business in other locations (offshore or nearshore) will
face advantages and disadvantages in both locations. For this example, India
3. Which location would you choose—India or Mexico? Build a case to support
your final decision.
This will be individual to each student. However, the student should build a case
Chapter 18: Global Opportunities for Small Business
Situation 2
1. What types of businesses would prosper in China? Why?
China offers opportunities for small businesses that produce goods as well as
those that provide services. Small manufacturers in certain high technology
2. What are the challenges and risks associated with doing business in China?
Small companies doing business in China face a number of challenges and risks.
While the potential upside of the Chinese market is its large size, the income
3. What steps should Shipper take to address these challenges and risks in order to
increase his chance of success in the market?
There are a number of approaches to addressing the language and cultural
differences. The ideal way to bridge the language gap is to speak the language.
Chapter 18: Global Opportunities for Small Business
© 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
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market entry if the chosen partner has already established relationships with
distributors, target customers, and others needed to conduct business in China.
Finding a partner and negotiating a partnership agreement, in itself, may prove a
challenge for small businesses. However, small businesses can draw on their
existing relationships with other businesses and governmental agencies that have
already developed ties in China. One goal for Moss in forming such a partnership
should be to begin to develop his own relationships with Chinese customers,
suppliers, and distributors. He must also remember that patience is required for
doing business in China. Results may not come immediately.
Situation 3
1. In your opinion, what new country markets would be likely to hold the greatest
potential for additional sales for Altmann’s company?
Answers will vary on this but might include:
2. Of the major strategy options mentioned in this chapter, which is Altmann
currently following? Which of the other strategies would offer the safest path
to further global expansion? the fastest path? the best path? Why?
3. What are the greatest challenges Altmann is likely to face in the future? What
sources of assistance would you suggest that he use as he takes on those
challenges?
SUGGESTED SOLUTION TO CASE 18: AUNTIE ANNIE’S PRETZELS IN CHINA
1. What were the primary motivations that led Lin and his partner to try to start a new
business in China? Given their experiences there, do you think they should have
considered launching in another country instead? Where? Why?
Lin and his partner, Sze, identified China as a potential market for their new franchise
2. Of the global strategies mentioned in Chapter 18, which option did Lin and Sze
choose for their move into China? Did they choose the right strategy for them and
their enterprise?
Lin and Sze ultimately decided to bring Auntie Anne’s Pretzel to China in the form of
an international franchise. This commitment meant that the team was given access to
3. What do you think Lin and his partner did right when they attempted to start their
business? What do you think they did wrong? What recommendations would you
have for them?
© 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. 18– 11
4. Given the details of this case and other key facts that you know about China, assess
the opportunities for U.S. small companies that may want to do business there.
What features of the country should be particularly attractive to entrepreneurs who
are seeking to expand internationally by going into China?
Small U.S. companies seeking to expand their business into China face a number of
5. What challenges to doing business in China did Lin and Sze experience? List any
issues that may present distinct problems for other U.S. small companies that may
want to do business there.
Lin and Sze faced a variety of cultural, political, and ethical issues that severely
challenged the team and their dream of starting a business within China. Some of