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International Entrepreneurship

VIEWS: 10 PAGES: 33

  • pg 1
									Thinking International –
    Be Prepared


   Dr. Jeffrey Johnson



                           1
        Why go International?
•   Increase sales
•   Increase profits
•   Domestic competition
•   Diversification
•   Economies of scale
•   First mover advantages
•   Opportunity

                                2
      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           3
       Product Attributes

• Cultural differences

• Economic differences

• Product and technical standards

                                    4
         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)
                                                         5
       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

                                                      6
       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


                                               7
        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

                                         8
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)                        9
     Market Selection Factors
• Company objectives/resources
• Foreign market:
  – Economic conditions
  – Political environment
  – Competitive environment
  – Level of technology
  – Culture
  – Distribution structure
  – Geography                    10
            Which Foreign Markets

 Favorable benefit-cost-risk trade-off


                             No dramatic upsurge
Politically stable nations       in inflation or
                              private sector debt

             Free market systems

                                               Politically unstable
                                               developing nations

                             Speculative financial
                                                     Mixed or command
                             bubbles have led to
                                                         economies
                              excess borrowing

                                                                        11
   Foreign Market Entry Modes


                                      Joint
Exporting                            Ventures
                       Licensing


            Turnkey
            Projects
                                     Wholly Owned
                                     Subsidiaries
                       Franchising




                                                    12
                  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.
                                                13
                                           Agreement where
                                       licensor grants rights to
                                    intangible property to another
  Licensing                          entity for a specified period
                                            of time in return
• Advantages:                                 for royalties.
   – 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
• Disadvantages:                               Risk Reduction
                                               Cross-licensing
   – Lack of control                           Joint venture
   – Cross-border licensing may be difficult
                                                              14
   – Creating a competitor
    Franchiser sells
  intangible property
 and insists on rules
                          Franchising
for operating business.



      • 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
                                             15
                 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
                                                   16
       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:
                                          17
  – Bear full cost and risk
      Establishing a Wholly Owned Subsidiary
             Green-field or Acquisition?
                  Acquisition                       Green-field
         • Pro:                           • Pro:
             – Quick to execute              – Can build subsidiary it
             – Pre-empt competitors            wants
             – Possibly less risky
                                             – Easy to establish
         • Con:
                                               operating routines
             – Often produce
               disappointing results      • Con:
1. Don’t pay
  too much.      • Overpay for firm          – Slow to establish
  2. Avoid       • Too optimistic about
 surprises.
                                             – Risky
                   value creation
   3. Pick                                   – Pre-emption by
 compatible      • Culture clash
   culture.      • Problems with               aggressive
                   proposed synergies          competitors        18
    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

                                   19
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
                                                     20
Firm-Specific Determinants of Success for Small
   High Technology International Start-ups: A
    Performance Study of UK and US Firms




                                            21
        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
                                                     22
            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
                                              23
          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

                                        24
        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
                                                     25
Characteristics                         UK Firms US Firms
                                         (n=102)  (n=89)
Age at First International Sale (mean     1.9      1.4
years)
Number of Employees at First              22.7     28.4
International Sale (mean)
International Vision at or within One     75.2     76.4
Year of Inception (% of firms)
Number of Countries Entered during        10.4     15.3
First Five Years of International
Activity (mean)
Number of Continents Entered during       3.0      3.5
First Five Years of International
Activity (mean)
Average % Sales International for         36.9     28.2
First Five Years of International
Activity (mean)
                                                            26
Foreign Organisational



                                          None

                                    R & D Units
       Activities




                                                                                              US
                           Production Facilities
                                                                                              UK
                         Service/Support Offices

                         Sales/Marketing Offices

                                                   0   10   20    30   40     50   60   70
                                                                 % of Firms


                                                                                             27
                      Strategic Alliances

                    Equity Joint Ventures
Entry Method




               Wholly Owned Subsidiaries                                     US
                               Licensing                                     UK

                         Direct Exporting

                       Indirect Exporting

                                            0   20    40   60     80   100
                                                     % of Firms

                                                                             28
                                Initial Foreign Markets
                                            N
                                             et
                                G              h
                            Fr    er Ca J er Sw
                               an ma na ap lan ed
                        U U
                         K S ce ny da an ds en




                  0
                  20
                  40
                  60
     % of Firms
                  80
                  100
                                            US
                                       UK




29
   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                           30
Factors Influencing the Selection of
      Initial Country Markets

• Large foreign markets
• Key and important industry markets
• International contacts and sales leads




                                       31
  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                                 32
    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)
                                              33

								
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