Internationalization Strategies for Small Business

Inhaltsverzeichnis

List of abbreviations

Illustration directory

1. Introduction

2. Definition
2.1 Smallbusiness
2.2 Internationalization

3. Internationalization strategies
3.1 Reasons and goals
3.2 Market launch
3.2.1 Export
3.2.2. Direct investment
3.2.3. Cooperation agreements

4. Opportunities and risks
4.1 Market launch potentials
4.2. Marketlaunchbarriers

5. Conclusion

Bibliography

List of abbreviations

Abbildung in dieser Leseprobe nicht enthalten

Illustration directory

Fig. 1: product - market - matrix

Introduction

Internationalization has undergone a dynamic development in the past 3 decades. The main driving force were the political changes in the world. This political opening also led to a disproportionate growth in the world trade, (cf. Krystek, 2002, p.21) These changes also affect small and medium - sized companies and are a current challenge, that should be raised, which is also reflected in the close ties, between the Term middle class and foreign trade shows, (cf. Krystek, 2002, p.35) The globalization of the econo­my is forcing medium - sized companies to rethink and restructure their business pro­cesses and value chains, (cf. von Behr, 2004, p. 17)

However, small and medium - sized enterprises (SMEs) lack specific prerequisites for carrying out international business activities. Not just capital and management but also the knowledge of internationalization is a significant success factor. Nevertheless, SMEs can develop opportunities and successfully translate them into an international activity that, especially because of its niche strategy, aims to meet the special needs of international clients that can not satisfied by large companies, (cf, von Behr, 2004, p.16) A niche production or export, however, is not enough to assert oneself against interna­tional competitors in the long term. That is why influences like use of technical advanc­es, short product cycles and fast and active presence abroad to internationalize the value chain of the company, (ibid.) For a successful and targeted internationalization strategy for small business, it should be necessary to create a concept that includes motives, market entry forms, possible potentials and conceivable obstacles.

The current term paper should explain the basics by defining the essential terms. Subse­quently, reasons and motives for internationalization strategies listed for small business. As a result, conceivable market entry forms are to be set out with their advantages and disadvantages. Based on the strategy forms, the opportunities and risks that could arise for SMEs in an international market entry strategy are then highlighted. Finally, in the last chapter, a conclusion is drawn and daring a look into the future for the small busi­ness.

2. Definition

The following chapter will present the relevant information, as well as the definition of small business and internationalization. There are considered delimitations and expres­sions of the two terms.

2.1 Small business

The term “small business” has been widely discussed and defined in the past. However, there are no uniform SME definition in the literature. In the economy, the small busi­ness is usually referred to by small and medium - sized companies, (cf. Bussiek, 1996, P-16).

These small and medium - sized companies will be distinguished by both, quantitative and qualitative characteristics. Quantitative criteria for example sales, profit, number of employees, equity or total assets, (cf. Weber, 2000, p. 7) In the empirical studies in par­ticular, the definition of the IfM (Bonn) prevailed. Thus, the IfM’s annual sales and the number of employees used as demarcation criteria, (cf. IfM, 2009)

2.2 Internationalization

Internationalization has gained popularity in public and business in recent decades. The concept of globalization has also gained in popularity, which can be understood as a form of internationalization in the sense of global corporate activities, (cf. Krystek, 2001, p. 3)

Internationalization enables cross border competition and allows a thorough application of the international division of labour, (cf. Krystek, 2001, p. 5) This leaves the term in­ternationalization and is a generic term for a variety of activities and processes, (ibid.) In a broad sense, internationalization should be considered one expansion of entrepre­neurial activities abroad. The best - known international business activities are export and direct investments. The extent of international activities is not necessarily of neces­sity companies as internationally active. But the extent of internationalization can differ in many ways. A detailed look or functional areas is not desirable: “Internationalization is a phenomenon that at least conceptually the company as a whole one”, (cf. Perlitz, 2004, p. 8) In this respect, internationalization and its extent is reflected in the from of corporate culture, management strategies and corporate philosophy. The challenges for the company or the company management lie with one foreign activity in the mental an cultural problems and means not only a mastering of spatial distance, but also a devel­opment to the internationalized corporate culture, (cf. Schmier, 2007, p. 9) It can be implied that internationalization not only affects larges companies, but also the small businesses. Not infrequently, medium - sized companies are far more active interna­tionally and are characterized by a higher degree of internationalization than some in­ternationally active large companies, (cf. Krystek, 2001, p. 6)

3. Internationalization strategies

In the following chapter we will see the motives and drivers for internationalization strategies for SMEs. Afterwards, the most common forms of internationalization strate­gies are shown.

3.1 Reasons and goals

The need for internationalization has set a milestone in corporate goals and business activity, not only in Europe’s foreign trade -oriented countries, which conduct interna­tional business, (cf. Krystek, 2001, p. 38) The development and dynamic of global for­eign trade have produced significant changes in the global economy over the past centu­ry. (ibid.)

The reasons for internationalization can be seen among others in the reduction of trade barriers, free trade zones and economic and monetary union. However, innovations in information and communication technologies have also led to steady internationaliza­tion. In this environment, medium - sized companies must face the challenges in order to defend themselves against the national and international competitors. Due to in­creased competitive pressure, which especially on the prices, can be determined and the small business was not spared, too when the impact varies across different industries, (ibid.) The processes of internationalization, is increasingly affecting small and medium - sized companies, which often appear threatening, (cf. von Behr, 2003, p.6)

In this context, SME’s face the question of being strategically involved in this process in order to play an active role or not to participate in it and be pushed out of the market, (ibid.) at the present time, many medium - sized companies operate across borders. Nevertheless, with their internationalization, all medium - - sized companies pursue specific goals, which thus have a significant influence on their corporate goals. In cor­porate management, there are corporate goals, subordinate and derived are the interna­tionalization goals, (cf. Macharzina, 2005, p. 205) The goals, also the resulting and planned strategies are different for the companies the internationalization goals can be subdivided into market and sales - oriented, cost - and income -oriented, procurement - oriented as well as strategic goals, (cf. Welge, 2003, p. 23) Especially the former goal is for an internationalization of medium - sized companies applied. However, it is for the medium - sized companies foreseeable that a sales - oriented cross - border activity alone is not sufficient to survive on the international world economic market. The glob­al integration of SMEs, increasingly includes innovation, production, management re­sources and capital markets, (cf. Krystek, 2002, p.39)

As a result, more and more companies will relocate their business processes to interna­tional location, financing, selling or producing products, (ibid.) In order to achieve the goals and thus to open up foreign markets, to exploit production capacities, to increase competitive advantages or to reduce costs, it is inevitable that companies in small busi­ness have their own individual concept for a systematically create internationalization and conduct a reasoned analysis, (ibid.) Especially the strengths of a company should be considered. These include resources, skills and competencies, (cf. Schmid, 2005, p. 9)

3.2 Market launch

It depends on the strengths and weaknesses of a company which internationalization strategy is implemented. In order to withstand the high pressure of internationalization and to see the circumstances as an opportunity, medium - sized companies are follow­ing different international strategies and realize these also differentiated, (cf. von Behr, 2003, p.46) Which form of internationalization is finally selected is also indirectly linked to the destination country. Furthermore, when choosing a location and the asso­ciated international strategy considers geographical conditions, technological know - how, logistic prerequisites, linguistic and cultural circumstances, (cf. von Behr, 2007, p. 63) Subsequently, the common market launch forms will be explained and described.

3.2.1 Export

The market launch in the form of export is divided into direct and indirect export. In the case of indirect export, the product or service manufacturer sells to a customer who as­sumes all the processes, costs and risks associated with the export, (cf. Macharzina, 1997, p. 356) Indirect exports often involve foreign trade companies or export agencies. The advantages for SMEs are their existing know - how and expertise experience of foreign trade agencies and in low risk. (cf. Welge, 2003, p. 102) This is particularly ad­vantageous for medium - sized companies that are new to export because they concen­trate on core competences and compensate for the lack of knowledge from export com­panies. To be disadvantageous the pure production function of the manufacturer and necessary legal contractual clauses in order not to be deceived by the export partner and other competitors, (cf. Macharzina, 1997, p. 356)

The direct export is the direct sale of products and services to the customer. In this case the entrepreneur manages the export by himself and special demands are placed on or­ganization and personnel in the company, (cf. Macharzina, 1997, p. 357) For the medi­um - sized companies, this means providing resources in the company in the run - up to business activity. Thus, in the negotiations of the treaties, knowledge in international commercial law is required, which at the best can be covered by a lawyer, (ibid.)

It is useful for business management in SMEs to provide specialist knowledge in for­eign trade or export available, which can be covered by a wholesale or foreign trade merchant, (ibid.) Compared to indirect export are beneficial, the low transaction costs, that the entrepreneur can act more flexible and take much more influence on the export activity, (cf. Welge, 2003, p.102) In addiction, direct exports has the advantage that the company can directly affect the market. Therefore, trend in the market can be more easi­ly recognized, the competitors in the environment can be better observed and possible risks of reexport can be identified in advance, (cf. Macharzina, 1997, p. 357)

3.2.2. Direct investment

Another possibility for cross - border activities is foreign production through direct in­vestment. A company that builds an international location or buys a foreign company does so through a direct investment, (cf. Macharzina, 1997, p. 211)

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