L9 Small business entering international markets

1Introduction/overview

1 Characterisitcs

2 Key features

3 Typical problems/ some solutions

4 Sources of help - D.T.I/U.k.trade and invest.- Chambers of commerce

5 Problems of success/ explosive growth/ huge orders

6 Help from D.T.I./ UKTrade & invest

7 Overcoming problems of fast growth using networks

8 Use of international subcontractors

9 Why outsource internationally ?

2 Characteristics/ importance of small business

Paliwoda identifies three characteristics of small business

1 They usually have a small share of the market

2 They are managed in a personal way by the owner

3 They do not have access to the capital market for

public issue or the placing of securities

Importance of small business

a] ‘From small acorns oak trees grow ‘

b] Understated contribution to exports - approx. 40% of Japan’s exports are from small business [i.e. in their input to products from large companies plus direct.] In U.K. this is about 7%

3 Key features in the international marketing of small business

• Only about 10% of U.K. small businesses are interested in international markets [ Hankinson 1987 and 2007] hence no change in last 20 years.

• Little or no marketing research/ orders arise by chance. No follow through/ C.R.M.

• Some use of personal selling, agencies ,trade fairs / exhibitions • They are largely ignorant of support from Gvt. depts such as

Uktrade &invest/ DTI. • Low use / no use of chambers of commerce ditto. consultants

5 Typical problems faced in international marketing and possible solutions

1 Limited horizon – join export clubs 2 Identification of markets- use D.T.I./ Uktrade & invest ‘market

prospects service’ 3 Appointing / vetting agents- speak to other companies in that market - take up references - ask commercial dept in embassies 4 Paperwork –use SITPRO’ forms,& ‘ Single Administration Document

-get S.A.D. from H.M.customs & excise. -Consider using freight forwarders.

5 High cost of setting up overseas – use ‘ market entry scheme’ DTI/ Uktrade and invest will advise.

6 Overseas product standards – use T.H.E. [ technical help for exporters] part of British Standards Institution. Also The British design council

7 Marketing research – use D.T.I/ Uktrade&invest , chambers of commerce ,[ see lecture notes international marketing analysis ]

Typical problems faced in international marketing and possible solutions/ continued

8 Cash flow problems- appoint a good bank abroad, use early payment against shipment, discount bills of exchange,

9 Payment problems- avoid these by doing a careful credit assessment beforehand e.g .Dunn & Bradstreet, CCN systems ltd , Graydon ,A.T.P./international limited.

- Take out credit insurance with E.C.G.D*

e.g.story of vehicles for logging in South America

- Use irrevocable letters of credit ( best for bad or risky payers)

10 Raising capital - use English Export Finance Association

6 Help from D.T.I/U.K. Trade&Invest.

• Export Development Council –help / advice with export strategies

• Country Help line Advisory Groups- hold specific campaigns abroad

• Help Desks- background info. about markets, tariffs and regulations

• British Trade International-help with strategies for S.M.E.’s[ visit www.btitrade.com]

• Export market information centre[ E.M.I.C] provides key information on exporting prospects/ indicators/contacts e.g. distributors/ has its own library.

• E.M.I.C data sources include statistics / country profiles/economic data/directories/market research reports for consumer markets/ mail order catalogues/ country development plans/ overseas Government investment plans/ opportunities &sales leads /visitor guides &street maps !

• E.M.I.R.S- export market information research services/ gives access to the databases of the Institute of Export

Help from the DTI continued

• Market prospects service--access to prospects generated by the commercial departments of U.K. embassies world wide/details of competition/ and market conditions. Costs £ 150/ under review

• Export market research funds—between 33% and 50% of costs of researching • Export representative service—help to search and find importers /distributors/agents.• Technical help for exporters– help with regs. in different countries/ product

standards/technical specifications• Market entry guarantee scheme—offers loans to help meet 50% of costs for

overheads when setting up overseas trade office[ e.g. hiring of personnel , travel and promotion

• Export intelligence Unit • Export sales and promotions division –support for companies taking part in overseas

trade fairs• Incentives – Queens award for export • Language for export campaigns • Guide for export licences

7 Help from Chambers of Commerce

Help with import &export documentation 1 E.U. certificates of origin/ Arab –British certificates of

origin 2 Admission Temporaire [ ATA] carnets for necessary

goods that accompany your visit but which are not for sale

3 Shipping News 4 Import certificates/ advice on 5 Customs tariffs/advice on 6 Documentation requirements / advice on 7 Licenses/ advice on 8 Shipping terms/ advice on

9 Payment methods/ advice on 10 Letters of credit/ advice on

8 Problems of success and explosive growth/ huge orders

A small firm might become tremendously successful. This may itself become the problem….!

‘Knock on’ effects of this are 1 Capacity problem/ might not be able to produce enough of the product

quick enough

2 Resource constraints/ manpower , time / constraints from size of buildings

and / or equipment / layout

3 Quality may deteriorate as a result

4 Problems in getting finance for expansion e.g. of production/ time scale to get funds

5 Knowledge limitations when scalingup

6 Existing business/configuration/layout

9 Overcoming limitations of fast growth using networks

*Use of research institutes /help with technical [ e.g. scaling up of production]

*Licensees/ offload production elsewhere under licence[ beware of threat of theft of your idea and your market]

*Complementary firm arrangement/ form an alliance/ may be able to handle extra orders ( see later)

*Subcontractors/ ask them to produce part of the product e.g. sub- assemblies

*Customers / may have to use de-marketing/ rationing. This may loose goodwill and possible future orders

*Distributors/ may be able to recommend other suppliers who will ‘re-badge’ their product with your brand name on it

* Suppliers/may be able to supply their product more quickly with more of the additional components already in place

10 Using international subcontractors

Defn ‘ A subcontractor is a person or organisation who agrees to provide semi finished products needed by a main contractor to perform another contract to which the subcontractor is not a party

Hollensen 2012 O.E.M. – ‘Original equipment manufacturer’. Here the main

contractor is the o.e.m. outsourcer .The subcontractor supplies components e.g. Electric motors to the main contractor

Hollensen 2012

11Why out –source internationally ?

1 Helps create competitiveness especially if subcontractor is in a low factor- input economy e.g . Levi jeans made in Philippines because 80% of cost of jeans is in the sewing stage( labour intensive part of job)

2 Contractor can develop experience / skills / economies of scale e.g. Specialisation of bathroom taps in China 3 General cost efficiency i.e.quality in the delivery is also important ,

i.e. a dependable /good delivery saves high buffer stocks as a result of the reliability of the subcontractor

4 Subcontractor can innovate as a result of better knowledge of the component .Also use ideas gained from other customers that he makes the same product for

5 Transfer or offload some of the risk to subcontractor especially if there is fluctuating demand and short product life cycle in the domestic market

Buyer – seller processes( interaction theory)_

Subcontracting itself has taken on more activities and now includes design , R&D and other requests from the main contractor. It is the relationship between the subcontractor and main contractor that is the key to success. The relationship is affected by

1 Technology – this includes both the product and the related production process. Developments in technology may emanate from either side.

2 Complexity of products/ ambitious products may only be possible given the presence of a strong and stable relationship

3 The nature of the relationship itself may vary from a ‘one- off’ transaction to an ongoing ‘permanent’relationship

Benefits of relationships between subcontractor and main supplier

1 Better customer / long term development/ return business 2 Better service development with customer/ problem solving 3 Better platform for product development 4 Better atmosphere / useful when there are difficulties to sort

out 5 Better communication and trust 6 Shared values and decision making 7 Joint investment for the future

References

U.K./ trade and invest leaflets Hollensen(2011) ‘Global Marketing a decision – orientated approach chp 13

Hankinson (2007) Portsmouth University- Several papers on small business ( see The international journal of small business)

Chambers of commerce/ leaflets British Design council British Standards institute Commercial departments in Embassies E.C.G.D. Leaflets Dun &Bradstreet website