Small Business Management in st the 21 Century
Small Business Management in st the 21 Century By David T. Cadden and Sandra L. Lueder © 2012, published by Flat World Knowledge 1
COPYRIGHT PAGE Published by: Flat World Knowledge, Inc. One Bridge Street Irvington, NY 10533 © 2012 by Flat World Knowledge, Inc. All rights reserved. Your use of this work is subject to the License Agreement available here http: //www. flatworldknowledge. com/legal. No part of this work may be used, modified, or reproduced in any form or by any means except as expressly permitted under the License Agreement. © 2012, published by Flat World Knowledge 2
Chapter 15 Going Global: Yes or No? © 2012, published by Flat World Knowledge 3
News & Books • • Impact of Globalization "Succeeds admirably. . . T-shirts may not have changed the world, but their story is a useful account of how free trade and protectionism certainly have. " —Financial Times 1 -4
Funny 1 -5
Small Business • A Day in the Life 1 -6
Learning Objectives 1. Understand appreciate the role of small businesses in the global environment. 2. Learn about the global growth opportunities for small businesses. 3. Understand the advantages and the disadvantages of a small business going global. © 2012, published by Flat World Knowledge 7
Learning Objectives 4. Learn about the different ways that a business can export. 5. Understand the importance of an industry analysis. 6. Understand that it is important to carefully assess a business. 7. Learn about the marketing decisions that must be made. © 2012, published by Flat World Knowledge 8
Learning Objectives 8. Learn about the kinds of legal and political issues that will affect the exporting activities of a business. 9. Understand why the currency exchange rate is important to determining price. 10. Learn about the different sources of financing. © 2012, published by Flat World Knowledge 9
Learning Objectives 11. Understand the organizational support that will be needed for exporting activities. 12. Understand the need to select the best market to enter. 13. Identify and describe each possible market entry strategy. 14. Learn about the different approaches to getting paid. 15. Appreciate the importance of business etiquette when traveling to visit customers. 16. Understand the importance of an export plan. © 2012, published by Flat World Knowledge 10
Learning Objectives 17. Understand how to contribute to customer value in exporting activities. 18. Explain how exporting can impact cash flow. 19. Explain how technology and the eenvironment impact exporting. © 2012, published by Flat World Knowledge 11
Introduction • Small businesses make up a disproportionately large share of the number of companies that export and import, but this represents only about 1 percent of the total number of small businesses. • The global opportunities are there for small businesses. • “So much of what America makes is in great demand. ” • The growth potential for small companies is outside the US. © 2012, published by Flat World Knowledge 12
The Small Business Global Presence • Small businesses actually account for close to – – 98% of US exporters 33% of the value of US exports 97% of all identified importers 32% of the known import value • Small business success in international markets is extremely important to the welfare of the US. © 2012, published by Flat World Knowledge 13
Class Participation • Pair up with a partner, use your digital device (tablet, cell phone, laptop) – Import or Export … have any of you been to the port? – Non-Profit Org Website 1 -14
The Small Business Global Presence • Small business success in international markets is extremely important to the welfare of the US. • Focus of this text: Small business exporting – Why? Exporting can be an effective way to diversify the customer base, manage market fluctuations, grow, and become more competitive. • Increasingly common for most US service firms to establish a foreign affiliate. – A branch or a subsidiary of the parent company established outside the national boundaries of the parent company’s home market. • Most of the service exporting occurs in businesses with 19 or fewer employees, with the least service exporting done by small businesses with 300 -499 employees…the exact opposite of what you would expect. © 2012, published by Flat World Knowledge 15
The Advantages of Going Global • The flexibility of a smaller company make it possible to meet the demands of global markets and redefine a company’s programs more quickly than might occur in the larger multinational corporation. – A company that operates on a worldwide scale without ties to any specific nation or region and organized under the laws of its country. • The flexibility of a smaller company is particularly true for micromultinationals. – A relatively new category of tiny companies that operate globally, having a presence and people in multiple countries. © 2012, published by Flat World Knowledge 16
The Advantages of Going Global • There are many reasons why small businesses should consider going global. Among them: 1. A small business that thinks and sells only domestically may be reaching only a small share of its potential customers because 95 percent of the world’s customers live outside the US. 2. Exporting helps small businesses grow and become more competitive in all their markets, which reduces the dependence on existing markets. • US exporting businesses experience faster annual employment growth by 2 to 4 percentage points over their nonexporting counterparts. © 2012, published by Flat World Knowledge 17
Disadvantages of Going Global • Additional costs, such as modifying its product or its packaging. • Subordinate short-term profits to long-term gains, wait longer for payments, apply for additional financing, and obtain special export licenses. • Differences in: – consumer needs, wants, and usage patterns – responses to the marketing mix – the legal environment that may conflict with US. © 2012, published by Flat World Knowledge 18
What You Should Know Before Going Global © 2012, published by Flat World Knowledge 19
Industry Analysis • Conducting marketing research ultimately portrays the business as forward-thinking, trustworthy, and credible. • Several sources should be consulted: – – – SBA Export. gov US International Trade Commission US Department of Commerce stopfakes. gov • Other sources: – – people in the same business or industry-specific magazines trade fairs seminars © 2012, published by Flat World Knowledge 20
Business Assessment: Are You Ready? • Even micromultinationals should assess its strengths and weaknesses. • Some of the questions that should be asked: 1. Why is the business successful in the domestic market 2. What competitive products are sold abroad and by whom? 3. Does the business have the money to market globally? © 2012, published by Flat World Knowledge 21
Class Participation • Pair up with a partner, use your digital device (tablet, cell phone, laptop) – Select a global company – Answer the 3 questions about being ready for this company? – SWOT analysis on the board, Porter’s 5 as well 1 -22
Marketing • It will generally be necessary to adapt the marketing mix to the global market in general and different countries in particular. • The business’s value proposition is what will differentiate one marketplace offering from the competition. • Creating a Strong Value • Given the more diversified competition in the global marketplace, identifying the value proposition is even more critical—and most likely more difficult—than in the domestic market. © 2012, published by Flat World Knowledge 23
The Marketing Mix © 2012, published by Flat World Knowledge 24
The Marketing Mix: Product • Cultural Differences – Important to know that cultural and social differences are intertwined with the perceived value and importance that a market places on a product. – Business Speaker Erin Meyer 4: 00 • The psychological attributes of a product can also vary across cultures, and the meaning and the value assigned to those attributes can be positive or negative. • The Package – There are many reasons why a package may have to be adapted for a particular country, for example: • Laws that stipulate a specific type of bottle or can • Package sizes • The use of particular words on the label 25 © 2012, published by Flat World Knowledge • Measurement units
The Marketing Mix: Product • The Business Website – A small business will need to make its website ready for international business. – Four ways to ready the website: 1. 2. 3. 4. Internationalize website content Calculate the buyer’s costs and estimate shipping Optimize site and search marketing Comply with govt. export regulations © 2012, published by Flat World Knowledge 26
The Marketing Mix: Price • Additional costs associated with going global, for example: – – – tariffs quotas embargo transportation retailer margin currency fluctuation risks © 2012, published by Flat World Knowledge 27
The Marketing Mix: Place • Distribution is even more challenging for the global market than for the domestic market. • Product has to go through a distribution process. • It would make sense to be able to take advantage of existing transportation systems, retailers, and suppliers to sell goods and provide services. © 2012, published by Flat World Knowledge 28
The Marketing Mix: Promotion • Social media is a low-cost way to catapult a small business brand into the global arena. • Facebook has developed a self-serve advertising tool that has created greatest interest among small businesses that might not have has the means to launch a global advertising campaign before. • The way a business communicates internationally will be a major determinant of success. © 2012, published by Flat World Knowledge 29
Legal and Political Issues • It is impossible for any small business to know all the laws that pertain to exporting from the US. • It is important to consult an attorney who is knowledgeable about the legal implications of globalization: – – – international trade laws tax laws and local regulations international border restrictions customs rules duties and taxes © 2012, published by Flat World Knowledge 30
Legal and Political Issues • Among the relevant political issues: stability of government policies the degree of nationalism forms of government political parties and their influence on economics policy fear and/or animosity that is targeted toward a specific country – Cargo Chavez 3: 00 – – – © 2012, published by Flat World Knowledge 31
Currency Exchange Issues • The exchange rate is the rate at which one country’s currency can be exchanged for the currency of another country. • Exchange Rate 5: 00 • Currency exchange rates change daily, and they are important because currency fluctuations can present additional problems for the small business looking to go global. • 10 Places to do Business In 2: 00 © 2012, published by Flat World Knowledge 32
Sources of Financing • How a business finances an export project is often a critical factor in its success. • International Business Loan 1: 00 • Financing decisions extend to working capital and export transactions. • Among the factors that are important to consider when making financing decisions: – – risks associated with financing the transaction length of time the product is being financed cost of different methods of financing need for financing to published makeby the sale © 2012, Flat World Knowledge 33
Key Management Decisions and Considerations • Several important questions need to be answered. Among them: 1. Do the company’s reasons for pursuing exports include solid objectives, or are the reasons frivolous? 2. How committed is top management to the export effort? 3. What level of return is expected from the export project? © 2012, published by Flat World Knowledge 34
Key Management Decisions and Considerations • After deciding to jump into the global pond, several key management decisions must be made. © 2012, published by Flat World Knowledge 35
Market Selection • After identifying the country or countries that may offer the best market potential for a product, serious market research should be conducted. • A business should look at the following factors: • Demographics • Geographics • Political • Economic • Social • Cultural • Market access • Distribution • Production • Existence or absence of tariffs • Nontariff trade barriers © 2012, published by Flat World Knowledge 36
Market Selection • Tariffs: taxes imposed on imported goods so that the price of imported goods increases to the level of domestic goods. • Nontariff trade barriers: laws or regulations enacted by a country to protect its domestic industries against foreign competition. Examples: – – import licensing requirements government procurement policies fees and border taxes packaging, labeling, and marking standards © 2012, published by Flat World Knowledge 37
Class Participation • Pair up with a partner, use your digital device (tablet, cell phone, laptop) – Learning about trade barriers, does this defer you from going global? – Which trade barrier does it the most? – What about culture, society, politics? 1 -38
Market Entry Strategies • Direct exporting and indirect exporting are discussed in Section 2. © 2012, published by Flat World Knowledge 39
Market Entry Strategies: Joint Venture • Joint Venture (JV): a partnership with a foreign firm formed to achieve a specific goal or operate for a specific period of time. • A legal entity is created, with the partners agreeing to share in the management of the JV, and each partner holds an equity position. • Each company retains its separate identity. • Strategic Alliance: a partnership formed to create competitive advantage on a worldwide basis. • An agreement is signed between two corporations, but a separate business entity is not created • Direct foreign investment: investment in a foreign country. • If a business is interested in manufacturing locally to take advantage of low-cost labor, gain access to raw materials, reduce the high costs of transportation to market, or gain market entry, direct foreign investment is something to be considered. © 2012, published by Flat World Knowledge 40
Comparison Strategic Alliance 4: 00 © 2012, published by Flat World Knowledge 41
Getting Paid • Both the business owner and the buyer must agree on the terms of the sale in advance. • The primary methods of payment for international transactions are: – – – Cash in advance Documentary letter of credit Documentary collection or draft Open account Consignment sales © 2012, published by Flat World Knowledge 42
Business Etiquette and Travel • Offend People 2: 00 • Having a successful global business requires getting to know the history, the culture, and the customs of the country or countries in which a business hopes to expand. • Among the cultural differences to be faced: • business styles • greetings • attitudes toward business relationships • giving gifts to customers • negotiation styles • meanings of colors © 2012, published by Flat World Knowledge 43
The Export Plan • There are many elements to an export plan. • Among them: – description of the company – its market and industry, including trends and forecasts – an examination of competitors and their strengths and weaknesses – international marketing strategies – after-sales and customer service • Launching export activities with no planning will tend to result in unsuccessful efforts. © 2012, published by Flat World Knowledge 44
Cash-Flow Implications • A small business exporter will face cash-flow challenges that are unique to selling products overseas. • One of these challenges comes from the value-added tax (VAT) in Europe. • VAT 2: 00 • A business is required to charge the VAT. • Shipping costs pose another threat to cash flow. © 2012, published by Flat World Knowledge 45
Follow-Up • Module 15 – Chapter 15 Test • Due on Wednesday 11: 55 pm, May 16 1 -46
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