copyright © 2015 pearson education, inc. publishing as prentice hall 12-1

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. 12-2

Chapter 12

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.

It is easier than ever for small and medium sized companies to engage in international business thanks to:Powerful, affordable technologyThe InternetIncreased access to information on doing business

globallyThe growing interdependence of the world’s economies

Since 1948 the value of world merchandise exports has risen from $58 billion to $18.4 trillion

Emerging market economies are growing faster than mature marketsChina, India, the ASEAN 5

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Merchandise Exports and Imports by Region of the World, 2011


The World’s Shifting Economic Center of Gravity


Small businesses need to see the world as their marketMore than 70% of the world’s purchasing power is outside

the U.S.80% of economic growth through 2016 will take place

outside the U.S. Foreign competitors are a serious threat

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Going global can help a small company:Offset sales declines in the domestic marketIncrease sales and profitsExtend products’ life cyclesLower manufacturing costsLower the cost of productsImprove competitive positionRaise quality levelsBecome more customer-orientedIncrease chances of success

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Questions to consider before going global:1. Is there a profitable market in which our company has

the potential to be successful over the long run?2. Do we have and are we willing to commit adequate

resources of time, people, and capital to a global campaign?

3. Are domestic pressures forcing our company to consider global opportunities?

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4. Do we understand the cultural differences, history, economics, values, opportunities, and risks of conducting business in the country we are considering?

5. Is there a viable exit strategy for our company if conditions change or the new venture does not succeed?

6. Can we afford not to go global?

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Nine Strategies for Going Global


1. Creating a Presence on the Web The simplest and least expensive way to reach

customers outside the U.S. The number of Internet users is growing very fast Almost 89% of the 2.4 billion Internet users in the

world live outside the U.S.

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World Internet Users by Region


1. Creating a Presence on the Web2. Relying on Trade Intermediaries

Domestic agencies that serve as distributors in foreign countries

Export management companies Export trading companies Manufacturer’s export agents Export merchants Resident buying offices Foreign distributors

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The Value of Using Trade IntermediariesAllow small businesses to build their international

sales much faster and with fewer hassles and mistakesBut requires small businesses to surrender

control over foreign salesConduct a thorough screening to choose the “right” trade intermediary

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1. Creating a Presence on the Web2. Relying on Trade Intermediaries3. Joint Ventures

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Joint Ventures Domestic joint venture: two or more U.S.

companies form an alliance for the purpose of exporting their goods and services abroad

Foreign joint venture: a domestic firm forms an alliance with a company in the target nation Most important ingredient: Choosing the right

partnerAnother key to success: Establishing common

objectives

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1. Creating a Presence on the Web2. Relying on Trade Intermediaries3. Joint Ventures 4. Foreign Licensing

Can enter a market quickly, easily, and with very low capital investment

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1. Creating a Presence on the Web2. Relying on Trade Intermediaries3. Joint Ventures 4. Foreign Licensing 5. International Franchising

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Steps to international franchising success:1. Identify the country or countries that are best

suited to the business concept

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Franchise Potential by Country


Steps to international franchising success:1. Identify the country or countries that are best suited

to the business concept2. Generate leads for potential franchisee3. Select quality candidates4. Structure the franchise deal

Direct franchising Area development Master franchising

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1. Creating a Presence on the Web2. Relying on Trade Intermediaries3. Joint Ventures 4. Foreign Licensing 5. International Franchising 6. Countertrading and Bartering

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Countertrade: a transaction in which a company selling goods and services in a foreign country agrees to help promote investment and trade in that country

Bartering: the exchange of goods and services for other goods and services

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1. Creating a Presence on the Web2. Relying on Trade Intermediaries3. Joint Ventures 4. Foreign Licensing 5. International Franchising 6. Countertrading and Bartering 7. Exporting

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ExportingSmall and medium-size companies account for 98

percent of the 293,000 U.S. businesses that export But, they generate less than 1/3 of the nation’s export

sales58 percent of small businesses that sell internationally

export to just one countrySmall companies generate $1.8 billion in export sales

dailySmall business exporters are bigger, more

productive, and more profitable than their domestic counterparts

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Barriers to Exporting – Among Small Companies That Do Not Export


Creating a sound export strategy:1.Recognize that even the tiniest companies and least

experienced entrepreneurs have the potential to export2.Analyze your product or service3.Analyze your commitment4.Research markets and pick your target

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Countries to Which Small Businesses Intend to Export Within the Next Two Years



experienced entrepreneurs have the potential to export2.Analyze your product or service3.Analyze your commitment4.Research markets and pick your target5.Find your customer

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Distribution Strategies for Exporting by Company Size



experienced entrepreneurs have the potential to export2.Analyze your product or service3.Analyze your commitment4.Research markets and pick your target5.Develop a distribution strategy6.Find financing

SBA, EX-IM Bank, OPIC, and others7.Ship your goods8.Collect your money

1. Letter of credit and bank draft12-31


How a Letter of Credit Works


1. Creating a Presence on the Web2. Relying on Trade Intermediaries3. Joint Ventures 4. Foreign Licensing 5. International Franchising 6. Countertrading and Bartering 7. Exporting8. Establishing International Locations

Bribery Foreign Corrupt Practices Act

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1. Creating a Presence on the Web2. Relying on Trade Intermediaries3. Joint Ventures 4. Foreign Licensing 5. International Franchising 6. Countertrading and Bartering 7. Exporting8. Establishing International Locations9. Importing and Outsourcing

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Total Hourly Manufacturing Compensation Costs for Selected Countries and Regions


Importing and Outsourcing Make sure that importing or outsourcing is right for you Establish a cost target for your product Do your research before you leave home Be sensitive to cultural differences Do your groundwork 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

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Domestic Barriers Attitude

"My company is too small to export“ Information

How to get started Financing

Getting financial support

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International BarriersTariff barriers: taxes a government imposes on

goods and services imported into that countryNontariff barriers:

QuotasEmbargoesDumpingPiracy

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Political Barriers Government takeovers of private property Coups Kidnappings Bomb threats Other violent acts

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Business Barriers Human resource management

Different business practices

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Cultural Barriers Culture: the beliefs, values, views, and mores

shared by the inhabitants of a nation Need to understand and appreciate cultural

differences

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World Trade Organization (WTO)158 member countries account for more than 97%

of all world trade North American Free Trade Agreement (NAFTA)

Created a single free trade zone with the U.S., Canada, and Mexico

Dominican Republic-Central America Free Trade Agreement (CAFTA-DR)Promotes free trade among the U.S. and 6 Central

American countries

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Make yourself at home in all three of the world's key markets - North America, Europe, and Asia

Appeal to the similarities within the various regions in which you operate but recognize the differences in their particular cultures

Be willing to commit the necessary resources to make your global efforts successful

Develop new products for the world marketUse the many resources available to research potential

markets and to determine the ideal target for your products

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Familiarize yourself with foreign customs and languagesLearn to understand your customers from the

perspective of their culture, not your own "Glocalize" - Make global decisions about products,

markets, and management, but allow local employees to make tactical decisions about packaging, advertising, and service

Make positive and preferably visible contributions to the local community

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Train employees to think globally, send them on international trips, and equip them with state-of-the-art communication technology

Hire local managers to staff foreign offices and branchesDo whatever seems best wherever it seems best, even if

people at home lose jobs or responsibilitiesConsider using partners and joint ventures to break into foreign

markets you cannot penetrate on your ownBe patient

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copyright © 2015 pearson education, inc. publishing as prentice hall 12-1

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