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Home > Business Strategy Best Practice > What Entrepreneurs and Small Business Owners Can Do to Increase Their Chances of Success in the Global Economy

Business Strategy Best Practice

What Entrepreneurs and Small Business Owners Can Do to Increase Their Chances of Success in the Global Economy

by Neuman F. Pollack

Executive Summary

  • Advances in technology, communications, and transportation have transformed the world into a global village, and small and medium-size enterprises (SMEs) can take advantage of this.

  • Beyond any short-term gains they may make, SMEs also gain experience in performing on a larger stage.

  • Entrepreneurs and SMEs often go global in response to the state of their domestic market environment.

  • To be successful, SME managers and entrepreneurs who engage in international trade must demonstrate high levels of passion, motivation, competence, and advocacy support.

  • Development of an international perspective, or global mindset, facilitates engagement in international business.

  • From a practical perspective, entrepreneurs and SME managers must broaden their horizons and sharpen their skills to successfully engage with the international arena.

Introduction

Entrepreneurs and small business owners are motivated to solve problems or deliver services better, faster, cheaper than others in the market. Entrepreneurs harness creativity and innovation to seize opportunities and offer alternatives in the marketplace. Successful entrepreneurs manage risk by closely monitoring business processes and financial obligations, as well as by focusing intently on their market and the challenges of building market share. With democracy encircling the globe and once-rigid barriers to free trade being eroded, the entrepreneur in many industry sectors seeks opportunities beyond his/her local region or country in a worldwide market. Adopting a global strategy can enable a small company to enhance its growth in the face of increased competition. In some instances, a global strategy is necessary, especially when facing competition from abroad. Today’s more open world business environment is not risk-free; indeed, no market strategy is risk-free. Small and medium-size enterprises (SMEs) must recognize that doing business internationally involves added dimensions of uncertainty and risk, such as fluctuation in world currencies, global (regional) economic and political unrest, and inconsistencies in the global supply chain.

The US Small Business Administration estimates that approximately 25% of all US export volume (in dollars) is attributable to small businesses.1 In terms of the number of US companies engaged in international trade, “97 percent of all exporters are small and medium size companies.”2 A recent survey of SME CEOs revealed that 56% look favorably on engaging in international business, with fewer than 20% considering it a threat.3 Among countries in geographical proximity, as in Europe, the prevalence in terms of both the value of international trade and participation by SMEs is infinitely greater. It must be remembered that international trade is a two-way street. Indeed, import activity among American companies is far greater than export activity, a fact that shows up in the year-on-year trade deficits recorded by the United States in recent decades.

International Trade: Growth and Challenges

The recent acceleration of international trade provides greater opportunities for SMEs. Government efforts around the world promote and assist small businesses in expanding the value of their international operations. Advances in technology, communications, and transportation have transformed the world into a global village. SMEs can penetrate markets by relying on the ubiquity of telecommunications, increasing access to the global supply chain, and engaging with world markets. Language, once a barrier to small firms in the international arena, is no longer an issue, with the widespread acceptability of English as the global language of business. The growth of trade alliances, such as NAFTA, CAFTA, ASEAN, and Mercosur, the expansion of the European Union, and efforts to consolidate currencies across national boundaries, such as the adoption of the euro by a dozen Western European countries and of the US dollar in Ecuador facilitate integration in the international community. The sheer growth of China, India, Brazil, and Russia, as well as other states of the former Soviet Union, provides both great opportunities and risks for SMEs around the globe. Global telecommunications have greatly reduced the technical barriers to trade, with even the smallest firms able to operate in a virtual 24/7, 24 time-zone environment.

The key to success for SMEs, however, is learning how to overcome the many internal barriers that exist. SMEs face a lack of resources related to acquiring and understanding information, managerial knowledge and experience, short time horizons, and inadequate planning.4

Yet, despite such limitations, many SMEs engage in international trade with varying degrees of success. At best, international trade activities can be risky for all firms due to regional and global political instability, exchange rate fluctuations, climatic and other environmental uncertainties, the pace of change in telecommunications and transportation, shifting markets, and new entrants (competition) in those markets. Some understanding of these factors and adopting the right mode and timing of internationalization—for example, whether to export directly or through intermediaries—can minimize the inherent risks. The worldwide economic downturn in 2007–08 presented a particularly difficult set of circumstances for SMEs around the world.

Firms that view their initial foray into international trade as part of a business learning curve or as an investment in their future are more apt to succeed in the long term, especially compared to firms that are monetarily or psychologically unprepared or are unwilling to adopt a long-range view.5 Indeed, research has long suggested that, for firms that are developing a capacity to operate abroad, success in the international arena depends on proceeding gradually. This gradualism is often referred to as staged or incremental internationalization.6 Enhanced knowledge and an incremental approach, however, are not sufficient for success, particularly for SMEs with limited resources. SME managers also need to develop an outlook based on contextual factors7 and their inherent operating environment, industry structure, and marketing strategy.8

Beyond the short-term gains, SME managers also gain confidence and experience by performing on a larger stage. Horizons are broadened, and they become sensitive to economic and geopolitical changes to which they formerly paid scant attention. This learning can affect manager’s perspectives and strategies more than short-term financial success, reinforcing the decision to engage in international trade. As SME managers gain more experience, their knowledge increases, enhancing their confidence to further expand international activities. This learning not only provides reassurance, but it also reinforces their decision-making.9

As a group SMEs differ from large, established firms in terms of complexity and formality. Small, entrepreneurial firms are generally more flexible in developing their strategies and are swift to embrace the global environment as a learning opportunity. However, SMEs will only be successful if they are able to manage the multitude of dimensions associated with globalization. For example, success in the international arena correlates with an ability to engage in highly complex relationships.10 These may include the establishment of subsidiaries and joint ventures, or the initiation of subcontracting and materials importation as core elements of the business plan. SMEs learn and benefit from such activities, but they become successful only if they take advantage of them. Mastering the learning curve reduces the complexity of doing business globally, enhancing the prospects of financial success.

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Further reading

Websites:

  • There are many useful resources that entrepreneurs and owners of SMEs can readily access. Articles, books, and information guides are produced by academics and practitioners alike. In addition, governmental, nongovernmental agencies, organizations, and consulting groups provide valuable information through their websites and web-based newsletters. The following listing provides some resources that will be useful to entrepreneurs and owners of SMEs in the United States and around the globe.
  • Alibaba is the world’s leading B2B e-commerce company serving SMEs in China and around the world: www.alibaba.com
  • Entrepreneur Press is a provider of books, information, and guidance for entrepreneurs and small business on all aspects of business: www.entrepreneurpress.com
  • Entrepreneurship.org is the website of the Ewing Marion Kaufman Foundation and the US Commerce Department’s International Trade Administration’s public–private partnership. The focus is on encouraging best practices in entrepreneurial leadership, to promote economic growth around the world, and to assist all nations in developing the environment to allow entrepreneurs to organize and operate business ventures, create wealth, and employ people: www.entrepreneurship.org
  • International Entrepreneurship provides entrepreneurs from around the world with access to import and export information, general business data, financing sources, and entrepreneurial success stories for over 100 countries. Links to domestic entrepreneur help sites are provided for each country: www.internationalentrepreneurship.com
  • MarketResearch.com has the world’s largest and continuously updated collection of market research, with more than 160,000 market research reports from over 600 leading global publishers. Country reports provide strategic insight into geographic, political, and business environments and their effects on economic performance and potential: www.marketresearch.com
  • The Indus Entrepreneurs’ (TiE) mission is to foster conscious entrepreneurship globally by educating, mentoring, and networking: www.tie.org
  • World Franchising’s website provides a comprehensive directory of franchise opportunities, leading you to the most up-to-date franchise information available on the internet: www.worldfranchising.com

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