International Entrepreneurship by pptfiles

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									Thinking International – Be Prepared
Dr. Jeffrey Johnson

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Why go International?
• • • • • • • Increase sales Increase profits Domestic competition Diversification Economies of scale First mover advantages Opportunity
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Product Screening Factors
• • • • • • • • • Need for product in foreign markets Likely product acceptance Profit potential Existing production capacity Marketing requirements After-sale service requirements Competition Need for adaptation Phase of product life cycle

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Product Attributes
• Cultural differences • Economic differences

• Product and technical standards
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Cultural Differences
• Range of dimensions: – Social structure – Language – Religion – Education • Most important - the impact of tradition • Impact is greatest in foodstuffs and beverages • Also, scent preferences differ from country to country • Some tastes and preferences becoming cosmopolitan, e.g. coffee (Japan and Great Britain)
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Economic Differences
• Consumer behavior is influenced by economic development • Consumers in highly developed countries tend to have extra performance attributes in their products – Price not a factor due to high income level • Consumers in less developed countries value basic features as more important – Price a factor due to lower income level – Product reliability is more important
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Product and Technical Standards
• Government standards can rule out mass production and marketing of a standardized product • Differing technical standards constrain globalization of markets – Come from idiosyncratic decisions made long ago • Video equipment • Television signal frequencies

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Factors Encouraging Standardization
• • • • • • Economies of scale in production Economies in product R&D Economies in marketing Homogeneity of world markets Integration opportunities/benefits Global competition
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Factors Encouraging Adaptation
• Economic differences in markets (e.g. income levels) • Government and regulatory influences • Differing consumer behavior patterns • Local competition • Marketing infrastructure differences (e.g. media, distribution, transportation)

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Market Selection Factors
• Company objectives/resources • Foreign market: – Economic conditions – Political environment – Competitive environment – Level of technology – Culture – Distribution structure – Geography

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Which Foreign Markets
Favorable benefit-cost-risk trade-off No dramatic upsurge in inflation or private sector debt

Politically stable nations

Free market systems Politically unstable developing nations Speculative financial bubbles have led to excess borrowing Mixed or command economies
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Foreign Market Entry Modes

Exporting

Joint Ventures Licensing

Turnkey Projects
Franchising

Wholly Owned Subsidiaries

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Exporting
• Advantages: – Avoids cost of establishing manufacturing operations overseas – May help achieve experience curve and scale economies • Disadvantages: – May compete with low-cost location manufacturers – Possible high transportation costs – Tariff barriers – Possible lack of control over marketing reps.
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Licensing

• Advantages: – Reduces development costs and risks of establishing foreign enterprise • Lack capital for venture • Unfamiliar or politically volatile market – Overcomes restrictive investment barriers – Others can develop business applications of intangible property Risk Reduction • Disadvantages:  Cross-licensing – Lack of control Joint venture – Cross-border licensing may be difficult 14 – Creating a competitor

Agreement where licensor grants rights to intangible property to another entity for a specified period of time in return for royalties.

Franchiser sells intangible property and insists on rules for operating business.

Franchising

• Advantages: – Reduces costs and risks of establishing enterprise • Disadvantages: – May prohibit movement of profits from one country to support operations in another country – Quality control
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Joint Ventures
• Advantages: – Benefit from local partner’s knowledge – Shared costs/risks with partner – Reduced political risk • Disadvantages: – Risk giving control of technology to partner – May not realize experience curve or location economies – Shared ownership can lead to conflict
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Wholly Owned Subsidiary
Greenfield Acquisition

• Advantages: – No risk of losing technical competence to a competitor – Tight control of operations – Realize learning curve and location economies • Disadvantage: – Bear full cost and risk

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Establishing a Wholly Owned Subsidiary Green-field or Acquisition?
Acquisition
• Pro: – Quick to execute – Pre-empt competitors – Possibly less risky • Con: – Often produce disappointing results 1. Don’t pay • Overpay for firm too much. 2. Avoid • Too optimistic about surprises. value creation 3. Pick • Culture clash compatible • Problems with culture. proposed synergies

Green-field

• Pro: – Can build subsidiary it wants – Easy to establish operating routines • Con: – Slow to establish – Risky – Pre-emption by aggressive 18 competitors

Selecting an Entry Mode
Internal Factors:
– Financial sources/resources – Product characteristics – Extent of marketing presence – Degree of market penetration – Firm’s knowledge/experience – Speed of market entry
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Selecting an Entry Mode (continued)
External Factors:
– – – – – – – – – – Level of demand Commercial infrastructure Communication with intermediaries Investment climate Licensing regulations Tariff levels Political risk Competition Protection of Intellectual Property Rights Availability of personnel
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Firm-Specific Determinants of Success for Small High Technology International Start-ups: A Performance Study of UK and US Firms

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Research Objectives
• Identify firm-specific success factors for small high technology international start-ups • Identify factors influencing their distinctive early internationalization • Identify factors influencing the selection of their initial country markets • Identify factors influencing their common early establishment of foreign-based organizational activities
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Methodology
• Exploratory research • Qualitative phase - 12 interviews • Quantitative phase - mail survey
– 600 US & 600 UK questionnaires sent – 89 usable US responses (18.09%) – 102 usable UK responses (19.25%) – 45 US and 49 UK international start-ups – Data analysis: multiple regression
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Sampling Frame
• computer software, computer hardware, and electronics sectors • independent, UK or US owned • formed between 1981-1993 • current international sales • total sales exceeding £2 million or $2.5 million
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Population Definition
• ‘Small’ - <100 employees • ‘High technology’ – computer software, computer hardware or electronics; plus evidence of ongoing R&D activity • ‘International start-up’ – – International vision ≤ 1 year of inception – Business in at least four foreign countries with at least one in a different continent than home – International sales ≥ 20% of total firm sales
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Characteristics Age at First International Sale (mean years) Number of Employees at First International Sale (mean) International Vision at or within One Year of Inception (% of firms) Number of Countries Entered during First Five Years of International Activity (mean) Number of Continents Entered during First Five Years of International Activity (mean) Average % Sales International for First Five Years of International Activity (mean)

UK Firms US Firms (n=102) (n=89) 1.9 22.7 75.2 10.4 1.4 28.4 76.4 15.3

3.0

3.5

36.9

28.2

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Foreign Organisational Activities

None R & D Units Production Facilities Service/Support Offices Sales/Marketing Offices 0 10 20 30 40 50 60 70 US UK

% of Firms

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Strategic Alliances
Entry Method

Equity Joint Ventures Wholly Owned Subsidiaries Licensing Direct Exporting Indirect Exporting 0 20 40 60 80 100 US UK

% of Firms
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Initial Foreign Markets N et G h er Ca J er Sw Fr an ma na ap lan ed U U K S ce n y d a an d s en
0 20 40 60 80 100 US UK
% of Firms
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Early Internationalization Findings
Entrepreneur:  Founders’ international vision  Founders’ international experience  Desire to create an international mindset in the firm from the beginning  Desire to capitalize on a proprietary technology internationally  Desire to be an international market leader  International contacts and sales leads  Personal knowledge of international customers  Identification of a specific international opportunity Industry Environment:  Large proportion of prospective customers were foreign  Opportunity to supplement domestic sales  International sales required to achieve economies of scale  International and competitive nature of the firm’s industry Competitive Environment:  Need for ability to respond to competitor initiatives worldwide  Need for ability to pre-empt competitors

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Factors Influencing the Selection of Initial Country Markets
• Large foreign markets • Key and important industry markets • International contacts and sales leads

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Factors Influencing the Early Establishment of Foreign-based Organizational Activities
• To establish a physical presence in a key foreign market • To better provide regional sales and service support • To create the perception of a ‘local’ company rather than a foreign company

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Success Factor Findings
• International commitment of the founders (US & UK) • Entrepreneurial/goal-driven internal firm behavior (US & UK) • Customer-driven product design (UK) • Unique/innovative products (US) • Continuous innovation (US) • Targeting similar customers worldwide (UK)
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