Running Head: International Entrepreneurship

International Entrepreneurship

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 International Entrepreneurship 1

International Entrepreneurship

Introduction

The process of internationalisation is related to the increased involvement of business

enterprises in global markets. Those business industrialists who take interest in

internationalisation require processing the ability to think globally and have a major

understanding of international cultures. While going global, entrepreneurs also require showing

concern for innovation, commitment to corporate social responsibility, maintain a high quality

level and continue to provide best business strategies while adjusting to different countries.

Objective 1

Options that can be used for SMEs Internationalisation

Many of the small and medium sized enterprises merely do not follow a strategic

approach in order to enter the foreign market. However, majority of them do so by means of

integrating various options and methods to enter global marketplace. In order to start a business

in a host country or foreign market, entrepreneurs have several options which they can consider

to evaluate whether they would be successful in that market based on the preferences and needs

of business. Small and medium sized businesses can enter the foreign market through

import/export approach, network approach, and foreign direct investment approach, licensing

approach, franchising approach, joint venture approach, and wholly owned subsidiaries

approach.

The network approach to internationalisation stressed on the importance of actual process

of market entry and focus firms on becoming a market player. This approach stated that the

internationalisation of business can be attained through developing and maintaining business

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relationships in networks of foreign country which are new to it (Vissak, 2004, p. 5). According

to this approach, the business requires development of relationships and enhancing resource

commitment in those business networks in which the firm already has a position, or connecting

with the existing networks in different countries. This approach claims that for development of

business, cooperation is considered more important as compared to competition. As a result,

companies can organise their capabilities and resources effectively and efficiently. One of the

most important advantages of this approach is that business can have important access to

significant experiential knowledge of firm without going through the same experiences. For

instance, a shoe manufacturing business entering into foreign market may learn more about

capabilities, strategies and needs of its partner, and the business can also get knowledge

regarding the later conditions of business as well as market networks in the shoe market of that

region. On the other hand, one disadvantage is that building relationships with local partners

could not only facilitate and drive firm’s business, but also slow down the internationalisation

process of a firm. Another disadvantage is that this approach normally neglects some external

factors of foreign country, such as relationships with competitors and strong domestic

competition. To maximise the probability of success in this approach, firm must not only require

building relationships with partners, but also keep an eye on competitors so that it can be aware

of what is going on in the market (Vissak, 2004, p. 5-6).

A business entrepreneur can also enter the foreign market by using exporting approach.

This approach to internationalisation is most common, but it poses some benefits and drawbacks

for the firm. Traditionally, entering the foreign market through exporting is considered as the first

step of enter into global markets. It serves as a platform for future expansion of business

enterprise. It is the most preferred strategy for small and medium sized firms as they might lack
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initial resources to directly enter the foreign market, and they might also lack some degree of

foreign market experience and knowledge (Hénard, Diamond & Roseveare, 2012, p. 2). For

SMEs to enter foreign markets, exporting can be easy, fats and flexible way to enter the market

with low risk and commitment. It allows businesses to respond quickly to changes in foreign

markets, either expanding or reducing activities. One of the biggest advantages of exporting to

SMEs is that it eliminates the cost of manufacturing in foreign market. This can also lead to

disadvantage if the costs of production of goods is low in home market. Through exporting,

business can get considerable scale economy from worldwide sales volume when the goods are

produced at home country and are exported to foreign country (Jones & Coviello, 2005, p. 285).

Pertaining to the disadvantage, firms might also face some problems when they export to foreign

countries, such as transportation costs. Another disadvantage is that there exist different laws

which vary from country to country which protect the home market. For instance, a firm in UAE

want to export its goods in UK. The UK government can increase the rates of tariffs that can

make it difficult for UAE exporter to export its products to UK. The probability of success in

exporting can be increased if the firm has a well-considered plan, a strong network of outside

experts and a well-built internal team. All these factors can make exporting successful for SMEs.

Another way for SMEs to internationalise themselves is through joint ventures and

strategic alliances. A joint venture or strategic alliance is formed by two or more independent

businesses who work together. The revenues and costs are together shared among businesses. For

instance, Sony and Ericson were two firms, but they enter into a strategic alliance and form a

joint venture where they share costs and profits of business (Casillas & Acedo, 2013, p. 17).

Pertaining to advantages, the major advantage to SMEs is that they can access to financial

resources of its partners, product development as well as wider channels of product distribution
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in foreign markets. Strategic alliances are becoming increasingly significant as global

competition has driven the need for specialisation and the trend for big organisations to

outsource their activities (OECD, 2005, p. 4). With regard to disadvantages, joint ventures or

strategic alliances allow SMEs with limited productive resources of firm in addition to limited

market knowledge so as to enter the global markets. If a business wants to enter through joint

venture, it can take the form of joint R&D, marketing, manufacturing, cooperation, input sources

and distribution. The disadvantage that joint venture offer to firms is that it does not give

business the tight control over the local as well as international subsidiaries. This can lead to

battles and conflicts between the joint partners. Examples of few successful joint ventures are:

 Virgin Mobile India Limited which is a joint venture between Richard Branson's Service

Group and Tata Tele service.

 Mitsubishi Heavy Industries first entered into a joint venture agreement with Caterpillar

Tractor and then with Borg-Warner so that it can market its earth-moving and industrial

refrigeration equipment.

Another approach for SMEs internationalisation is through foreign direct investments.

FDI can serve as better means to achieve growth. However, in majority of the countries, only a

limited number of SMEs have launched subsidiaries abroad (OECD 2005). With regard to

advantages, entering the foreign market through FDI can enable deeper penetration of foreign

markets that can result not only in increases sales but also in knowledge gaining as well as

technical expertise that may not be possible from home base of firm. Similarly, inward FDI can

provide opportunities for SMEs by acting as a vehicle for SMEs to enter global markets with the

help of joining value chain of multinational and providing an effective way to distribute

technology and enhanced business methods for firm to increase their international
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competitiveness. There exist several ways by which SMEs can invest in foreign markets. The

business can build a branch or subsidiary from scratch certainly. Another way is to invest through

acquisition or merger, by ether merging with or purchasing an existing company. SMEs can face

significant barriers when they enter through FDI (Kim, Mahoney & Tan, 2014, p. 4). These

barriers could be limited financial resources, information and managerial resources and their

behaviour to risk. But it also offers great advantages, such as broader customer base through

entering into new markets allowing firm to attain a large volume of growth and production.

Example of FDI can be:

 A person who is a citizen and investor in U.S likes to buy a controlling share in

Chinese electronics firm.

 An SME in India wants to purchase 10% shares of the company who works in similar

business working in U.S market.

 A company in China who is building a factory in U.S so as to enter into American

market is an example of Chinese FDI into U.S.

Objective 2

Advantages of Geographically closed markets to international entrepreneurs

The concept of geographic markets came from segmentation in which markets are

divided into several geographical units, be they countries, regions of world, neighbourhood

cities. Moving from local markets to geographically closed markets has many advantages. For

small and medium sized firms, expanding the business geographically can help business

entrepreneurs to gain access to new markets. It can also help them to search for pools of talents,

reduce costs and more specifically, provide a healthy pipeline to increase the future growth of
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business. If an entrepreneur does not take his business out of home markets and if they do not

adapt to changes in the competitive global environment, it might be possible that their key

competitors would go along geographical boundaries. Business entrepreneurs must keep in mind

that competition is strong and they cannot afford to let their competitors take their place in global

markets (Porter, 2011, pp. 14-17).

On the other hand, expanding the business into markets that are geographically and

physically close to the business entrepreneurs is very much effective for small firms. This is

because limited resources are required to operate in a defined geographic area so as to obtain

efficiency in operations. Additionally, working in close geographical regions is effective as there

are no significant differences in lifestyle or socio-economic status of the people who are living

around in close geographic boundaries (Hauser, Hogenacker & Wagner, 2013, p. 311). One of the

most significant advantages is that a business entrepreneur of small and medium sized firm can

cheaply and quickly obtain relevant data that is required to enter the market. This would help in

having a better insight into the consumer which can lead to the determination of underlying

motives and needs of people living in that region.

It is worth understanding that when an entrepreneur enters a new market, there is much

more to their decisions other than just an affordable physical location. Entrepreneur can have the

best priced location when he goes for expanding his business geographically and

psychologically. Entering into a closed geographical market can be a great way to expand the

business in addition to the revenues when it is done correctly. If an entrepreneur moves to

geographically close markets, it can increase the firm’s focus on various market segments into

the new market. If a firm has a better focus, it will have better return (Kontinen & Ojala, 2012, p.

497). For instance, various automobile dealer companies around the globe have been expanding
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their business geographically and are focusing on other segments of geographically close

markets. This is how they are focusing on new segments with enhanced profitability.

Small and medium sized firms can get advantage by entering into geographically and

psychologically close markets as the competitiveness of the sector increases when they enter into

new market (Kalinic & Forza, 2012, p. 496). For instance, if a business is focusing on

youngsters, the equity and brand recall of company with youngsters in new market will be very

high. As a result of increased competitiveness, market share might increase which can lead to

entering barriers for new competitors wishing to enter the market. On the other hand, one of the

key advantages could be that the entrepreneur can immediately expand itself into new

geographic market that is close to them. If the business strategy of an entrepreneur is based on

geography, then once it caters to a specific territory, it can directly expand into nearby territory.

Another advantage is that the business can increase its profitability by expanding into

geographically close markets (Jones, Suoranta & Rowley, 2013, p. 707). As business expansion

tends to increase competitiveness and it can have a significant effect on many business factors

including company’s profitability.

Some Examples

 History and Heraldy is a business organisation in England which specialises in gifts for

history buffs and those with English ancestry. Within a few years of foundation of firm,

the company was selling its products in around sixty countries with exports more than

70% of company’s total production.

 Cosmos Corporation Inc. is a young company in U.S which produce telescopes,

binoculars, and other optical devices. After few years of its foundation, the company

begun selling its products in Japan and Europe.

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 T-box, a company from Istanbul was found in 2003. The business expanded its sales in

twenty countries in 2005, which totalled $13 million.

 A company having a juice manufacturing business is currently located in one of the

metropolitan areas in UK where the demand for juices is high. The owner is considering

to expand his business into a new geographic area and the business have located the ideal

space in the region where is close to the sea and where handful of independent juice

manufacturing businesses exist. If a company expand its business to this new location, it

is more likely that business will grow as the demand for juices is high in tropical season.

Challenges of Geographically or Psychologically Distant Markets for Entrepreneurs

If a business expands into new geographically or psychologically distant markets, it can

face many challenges when entering into new market. One of the most common challenges is

related to human resources. As stated by Paliwoda and Thomas (2013), majority of the Western

companies in China rate human resources as among the common challenges of doing business

there (p. 64). Not only in China, might almost every new business face human resource challenge

when they enter into any new market which is geographically distant from it. Way of working

might be different in different regions (Törnroos, 2012, p. 126). This can be illustrated by taking

an example that most of the Western workers more likely to delegate responsibility and have

flexible lines of authority; however, workers in other countries might be familiar with more

hierarchical structure where each worker has a clear defined role. Such differences in way of

working can lead to tensions between the business’s way of working and the host country way of

working. The challenge of human resources can be major problem for both service and

manufacturing sector. But when we make comparisons, service sector can have great impact as
 International Entrepreneurship 9

human resources are the key who provide services to final consumer. However, in manufacturing

sector, it can have minor impact as manufacturing principles and guides can be similar as that in

own regions.

Another important challenge is the difference in business culture. In comparison to

geographically close markets, those markets which are distant may have huge differences in the

business culture (Weinstein, 2013, p. 16). The entrepreneur cannot take the same business model

as it has been using in his own geographic area, and that might have proved to be well in own

region. When entering into markets which are geographically distant, the entrepreneur must

require being flexible and adjusting to the business norms and practices of host region. It must

also require relating its business traditions to the traditions in which it is entering (Gesteland,

2012, p. 67). Taking into consideration the service and manufacturing sector, service sector can

be badly impacted as a result of this challenge as business cultures greatly differ from country to

country. As a result, it might be difficult for an entrepreneur to adjust to the business principles

and culture of geographical area where it is expanding. With regard to manufacturing sector,

difference in business culture can also have major impact on manufacturing sector to little extent.

On the other hand, expanding into geographically distant markets might pose a great

challenge to small and medium sized entrepreneurs as they did not know from where the

business will actually start in new geographical location (Lee, Kelley & Lee, 2012, p. 8). Even if

the company is already operating overseas, it can face such problem. This is because no two

countries operate in the similar exact manner. Therefore, rules always change. Similarly, finding

the local partner in geographically distant market is one of the most challenging issues. It would

be difficult for business entrepreneurs to search for local partners in new market who can be

trusted (Sullivan Mort, Weerawardena & Liesch, 2012, p. 543). In order to expand
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internationally, a highly skilled team is needed to succeed. Although this principle is applied for

both domestic as well as international business, but for international business, it is worth needed.

Searching for local partner can be major challenge specifically for manufacturing firms as land

and equipment is required for manufacturing operations which cannot be made easy without the

co-operation of some local partner. In some regions, foreign entrepreneurs are not allowed solely

to own a land for business purpose. They require share of some local partner in order for foreign

business to expand its manufacturing operations in geographically distant markets.

Conclusion

There are many ways by which small and medium sized firms can expand their business

globally. A firm can increase its global presence through exporting its products in other countries,

investing directly in foreign markets, licensing a particular product in foreign market or join with

existing firm who operate similar business. One of the advantages of internal entrepreneurship is

that firm can cheaply and quickly obtains relevant data that is required to enter the market. All

such options can be considered when a business wants to enter into global market, but aside from

benefits of each option, it has also some disadvantages which firms require to consider. When

planning is not done correctly, it may lead to decrease revenues. However, competition is

increased when a firm enters into new market. As a result of increased competitiveness, market

share might increase which can lead to entering barriers for new competitors wishing to enter the

market.
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