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 prospects service’ use D.T.I./ Uktrade & invest ‘market 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 design council – use T.H.E. [ technical help for exporters] part of British Standards Institution. Also The British 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 promotion —offers loans to help meet 50% of costs for overheads when setting up overseas trade office[ e.g. hiring of personnel , travel and 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