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1. What are the advantages of a small business going international through incremental stages rather than as a global start up?
There are many advantages of a small business going international through incremental stages, rather than as a global start up. First of all a startup that utilizes the small business stage model where it has an incremental process of internationalization gives that them a much larger chance of sustainability and success, rather than trying to start large which puts them at more risk.
This usually occurs passively, where a small business doesn’t solicit international business, but eventually conducts business internationally by filling normal orders, and as the business grows and receives more orders, they also increase the amount of international business they conduct.
In the small business stage model of internationalization there are six typical stages that a company goes through. These are:
* Stage 1 – Passive exporting
* Stage 2 – Export Management
* Stage 3 – Export Department
* Stage 4 – Sales Branch
* Stage 5 – Production Abroad
* Stage 6 – The Transnational
These stages transition a small business from merely filling international orders that aren’t solicited, to seeking out export sales, to using significant resources to increase sales which creates a high enough demand to open local sales offices, which leads to production abroad and then finally developing a global network and the company becoming a transnational corporation.
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The benefit of a company going through these incremental steps to develop its international business is based upon the company having a strong domestic customer base within their business system. Having a strong domestic business allows the small business to have a solid foundation of revenue which allows them to not have to rely on their international business to survive.
This mitigates the risks from having the liabilities of smallness, which are the challenges facing a small business in getting access to necessary resources to internationalize.
By having a strong business domestically, those challenges and risks can be taken as the survival of the company doesn’t depend on obtaining those resources to internationalize. Another benefit of a company going through incremental steps is that they also have the small business advantage. This advantage is from fast moving entrepreneurs that can use their competitive advantage of speed. Being first to market, they can capture significant sales before large competitors react. This allows a small business to adapt to market changes as they go international and allows them to more competitive as they expand into international markets. Companies can quickly change products, advertisements and operations to be able to meet the needs of the international market which is usually done with evolving technologies.
This is where the larger corporate competitors are slowing as there are usually many policies and procedures that must be adhered to that slows them down, and makes them either late to the market with the change or they miss it all together. This is extremely important not just in established international markets, but also emerging and new international markets. Furthermore, reaching customers by teaming up with foreign partners such as distributors, joint venture partners, or licensees is another benefit. By working with these partners who are in direct contact with customers is of utmost importance, as they have a direct line to the point of sale. It’s not easy to find partners, but by incrementally going international and growing a business, the resources also grow and opens up many more points of contact.
As the business grows and these points of contacts grow, the possibility for partners grows as well. Some of the ways a small business can find these partners are through trade shows, catalog expositions, international advertising agencies and consulting firms, government sponsored trade missions and of course direct contact. These partners are a great help in getting a small business’ products further into the international market and in the hands of their customers. It is not impossible for a company to go global from the first day that they start their business, but the odds are not in their favorite. It is very difficult to start out targeting such a large market. It is much easier for a small business to start domestically and build up a solid foundation for their business to gradually expand into the international market. This sets up a small business for the best chance for success to go from a small company and turning it into a corporation.
Resources
Cullen, John B., and K. Praveen Parboteeah. Multinational Management - A Strategic Approach. 5th ed. Mason, OH: Cengage Learning, 2008. Print.
International Management Case Study. (2017, Feb 03). Retrieved from https://studymoose.com/international-management-case-study-essay
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