UNIT 7 - Global Aspects of Entrepreneurship 1
UNIT 7 - Global Aspects of Entrepreneurship 1
UNIT 7 - Global Aspects of Entrepreneurship 1
1. explained the importance of the “going global” mindset for many small companies’
strategies
2. described the principal strategies of small businesses for going global
3. explained how to build a thriving export program
4. discussed the major barriers to international trade and their impact on the global
community
5. described the trade agreements that will have the greatest influence on foreign trade
in the 21st century.
Name: ________________________________________Score:___________
Course/Section: _________________________________Date: ___________
Directions: Choose True if the statement is correct, and False if otherwise. Encircle your
answer.
4. NAFTA is a free trade agreement between the United States, TRUE FALSE
Canada and Mexico that has in essence removed all barriers
to trade and investment between the three nations
Answers
1.True 2.True 3.False 4.False 5.True 6. False
The following are guide questions that will help you focus and better understand the essential
content for the entire unit. After answering the questions, you may create a discussion with
your classmates through online learning modalities.
1. Why must entrepreneurs learn to think globally?
2. What advantages does going global offer a small business owner? What are the
potential risks?
3. Describe the various types of trade intermediaries small business owners can use. What
functions do they perform?
4. Describe the barriers businesses face when trying to conduct business internationally.
How can a small business owner overcome these obstacles?
5. What impact have the WTO, NAFTA, and CAFTA trade agreements had on small
companies that want to go global? What provisions are included in these trade
agreements?
Overview
This chapter describes the impact of globalization, especially to the small companies, and their
interdependence when it comes to trade, and how entrepreneurs discovered that the tools of
global business can be acquired, and benefits of conducting global business can be substantial.
Why Go Global?
Trade and globalization have brought enormous benefits to many countries and citizens
(WTO, 2008). Trade has allowed nations to benefit from specialization and economies to
produce at a more efficient scale. It has also raised productivity and incomes, increased
economic growth, supported the spread of knowledge and new technologies, and it has
enriched the range of choices available to consumers.
For small companies around the world, going global is a matter of survival, not
preference. Going global can put tremendous strain on a small company, but entrepreneurs
who take the plunge into global business can reap the following benefits:
○ Extend their products’ life cycle. Some companies have been able to take
products that have reached the maturity stage of the product life cycle and sell them
successfully in foreign markets.
○ Lower the cost of their products. Many companies find that purchasing goods or
raw materials at the lowest cost requires them to shop the global marketplace.
○ Raise quality levels. One reason Japanese products have done so well worldwide
is that Japanese companies must build products to satisfy their customers at home,
who demand extremely high quality and are sticklers for detail. Businesses that
compete in global markets learn very quickly how to boost their quality levels to
world-class standards.
● Cultural Identity Issues. Trade leads to diffusion of culture. Others get lost while
others are capable of adopting other culture
● Environmental Issues. Implementing strict laws and regulations to keep air, land
and clean water is a costly process, so businesses decide to move their operations in
poorer countries where it is less regulated.
● Seizure of Power and Loss of Control. Rich foreign investors will eventually
control a number of local resources and possess more power and authority in a
country rather than the natives of the land.
1. Is there a profitable market in which our firm has the potential to be successful over
the long run?
2. Do we have and are we willing to commit adequate resources of time, people, and
capital to a global campaign?
3. Are we considering going global for the right reasons? Are domestic pressures
forcing our company to seek global opportunities?
4. Do we understand the cultural differences, history, economics, value systems,
opportunities, and risks of conducting business in the country (or countries) we are
considering?
5. Is there a viable exit strategy for our company if conditions change or the new
venture is not successful?
6. Can we afford not to go global?
To these entrepreneurs and their companies, they see the world as a market
opportunity. An absence of global thinking is one of the barriers that most often limit
entrepreneurs’ ability to move beyond the domestic market, not the national boundaries.
This highlights the need of learning to think globally - being the first and most challenging
obstacle an entrepreneur must overcome.
Global thinking is the ability to appreciate, understand, and respect the different beliefs,
values, behavior, and business practices of companies and people in different cultures and
countries.
● Export Trading Companies. These are businesses that buy and sell products in a
number of countries, and they typically offer a wide range of services such as
exporting, importing, shipping, storing, distributing, and others to their clients. Unlike
EMCs, which tend to focus on exporting, ETCs usually perform both import and export
trades across many countries’ borders.
Joint Ventures
Joint Ventures are domestic or international enterprises involving two or more
companies joining temporarily to undertake a particular project.
Types of Joint Ventures
● Equity based - operations that benefit foreign and/or local private interests,
groups of interests, or members of the general public
● Non-equity - known as cooperative agreements which parties seek technical
service arrangements, franchise and brand use agreements, management
contracts or rental agreements, or one-time contracts
Why Joint Ventures Fail?
● Define at the outset important issues such as each party’s contributions and
responsibilities, the distribution of earnings, the expected life of the relationship,
and the circumstances under which the parties can terminate the relationship.
● Understand their partner’s reasons and objectives for joining the venture.
● Select a partner that shares their company’s values and standards of conduct.
● Spell out in writing exactly how the venture will work and where decision-making
authority lies.
● Select a partner whose skills are different from but compatible with those of their
own company’s.
● Prepare a “prenuptial agreement” that spells out what will happen in case of a
business “divorce.”
Foreign Licensing
Licensing is a relatively simple way for even the most inexperienced business
owner to extend his or her reach into global markets. Licensing is ideal for
companies whose value lies in its intellectual property, unique products or services,
recognized name, or proprietary technology. Foreign licensing enables small
businesses to enter the foreign markets with ease and with virtually no capital
investment. Although risks may include potential loss of control over its
manufacturing and marketing processes and creating a competitor. Securing patents,
trademarks and copyright protection may minimize these risks.
International Franchising
Franchisers that decide to expand internationally should take the following steps:
1. Identify the country or countries that are best suited to the franchisor's
business concept
2. Generate leads for potential franchises
3. Select quality candidates
4. Structure the franchise deal
Countertrading and Bartering
● countertrade - a transaction in which a company selling goods in a foreign
country agrees to promote investment and trade in that country
● bartering - the exchange of goods and services for other goods and services
Exporting
Growing numbers of small companies are looking to export as a way of gaining or
maintaining a competitive edge.
Exporting can be defined as the marketing of goods produced in one country into
another.
Two types of Export:
1. Direct Exports - these represent the most basic mode of exporting made
by a company, capitalizing on in production concentrated in the home
country and affording better control over distribution. There are no
intermediaries.
2. Indirect Exports - a process of exporting through domestically based
export intermediaries.
International Barriers
Two types of international barriers: (1) Tariff and (2) Nontariff
Need to know: tariff - a tax, or duty, that a government imposes on goods and
services imported into that country.
● Tariff barriers. Imposing tariffs raises the price of the imported goods—making them
less attractive to consumers—and protects the domestic makers of comparable
products and services.
● Non Tariff barriers:
○ quota - a limit on the amount of a product imported into a country
○ embargo - a total ban on imports of certain products into a country.
Political Barriers
Companies doing business in politically risky lands face the very real dangers of
government takeovers of private property; coups intended to overthrow ruling
parties; kidnapping, bombings, and other violent acts against businesses and their
employees; and other threatening events.
Business Barriers
Simply duplicating the practices they have adopted (and have used successfully) in
the domestic market and using them in foreign markets is not always a good idea.
Cultural Barriers
Differences in cultures among nations create another barrier to international trade.
The diversity of languages, business philosophies, practices, and traditions make
international trade more complex than selling to the business down the street.
In addition to the text given, you can check this link to expand your knowledge on
International Trade Agreements.
https://www.youtube.com/watch?v=-v3uqD1hWGE :
What global trade deals are really about (hint: it's not trade) | Haley Edwards |
TEDxMidAtlantic
Note:
Business practices are any tactics or activity a business conducts to reach its objectives
The following are discussion questions which you can ponder on to maximize what you’ve
learned in this unit.
1. What forces are driving small businesses into international markets?
2. Outline the eight strategies that small businesses can use to go global.
3. What are the benefits of establishing international locations? What are the
disadvantages?
4. What is a tariff? What is a quota? What impact do they have on international trade?
5. What advice would you offer to an entrepreneur interested in launching a global
business effort?
Summing - up
References: