Internationalisation of small and medium-sized enterprises can pose as an opportunity as well as a challenge. Critically examine the key factors that help small businesses become more effective international businesses.
Introduction:
Increasing globalization of the economy since the 1990s has paved the way for smaller businesses to connect with stakeholders located throughout the world, access large and lucrative markets, and upgrade processes and technology. Small businesses account for the bulk of the economy and employment creation in most economies of the world, and are defined differently in various countries. Small businesses are usually defined as companies that are not publicly listed and do not sell shares or equity to the general public, have less than 100 full-time employees, and are usually based and operate in a single country. As the advent of globalization has introduced better market connectivity, ‘small businesses’ such as Spotify, Walmart, Facebook and Tesco have managed to become big. All these large multinational companies started off as small businesses managed by a few dedicated founders, and started scaling to global levels after gaining market share. This essay will evaluate the challenges as advantages posed to average small and medium businesses by internationalization, and will examine examples as well as theories for that purpose .
Normal organization and scope of small businesses:
Small businesses are regularly exclusive enterprises, associations, or sole proprietorships. The definition of ‘small’ falls under various bureaucratic categories in different countries, but are usually defined by the number of full-time employees and the revenue/turnover generated in a quarterly period. The EU usually defines any business organization with less than a 100 employees as a ‘small business while in the US the scope is considerably larger, as an American ‘small business’ can employ anything less than 500 employees. Australia on the other hand, strictly defines ‘small businesses’ as having less than only 50 employees at any given time. By common consensus, it is normally thought that less than a Billion-dollar generating business can qualify as a ‘small business’ .
The need for defining the scope and extent of these organizations arises because most counties have several government-organized, State-funded programs, incentives and subsidies to stimulate the growth and success of small businesses. Most governments around the capitalist world encourage small business growth since it signifies the preponderance of entrepreneurship and entrepreneurial culture at all levels of society, and also a major generator of equality and wealth distribution. Within the internationalization of the economy, franchising is often a path for small entrepreneurs to profit by the economies of size of the huge organization (franchiser). McDonald's and Subway are cases of an establishment. The small entrepreneur can influence a solid brand name and acquiring force of the bigger organization while keeping their own particular speculation moderate. In any case, some franchisees presume that they endure the "most exceedingly bad of both universes" feeling they are excessively limited by corporate commands and need genuine independence .
Main opportunities in international markets for small businesses:
The main opportunities for a small business to grown in the international market also constitute its main avenue of growth and internationalization. The two are interrelated. A small business must identify the market opportunities in order to take advantage of them. Apart from the obvious role played by capital financing requirements, the foremost factors that influence these are accessibility of the markets, the profitability presented by the markets, and the overall size of the market. These factors need to be analyzed in detail .
According to Madura (2010, p. 219), market accessibility is obviously of paramount importance since it is linked to the ability to access the customers and sell it with minimum cost of sales. Market accessibility features include the rules for foreign direct investment in that particular country, the rules for taxation, as well as the initial level of capital investment that is required to set up a branch of the business. Another important factor that influences this decision is whether the host country requires specific rules for partnership and liability. Many countries, for example, require the foreign investor or small business to have a 50% partnership with a local citizen. Small businesses may find thus rule unacceptable for their relatively small revenue base .
Market profitability is also an extremely important factor to consider for a small business that is intent on internationalization. Wiid & Diggines (2009, p. 145) opine that part of this includes the cost of doing business in a country. This includes the cost of setting up a business, working capital costs in the form of average fuel and wage costs, as well as the general cost of living according to which the salary costs of the company are likely to be indexed. Thus, certain small companies are known to favor countries with relatively lesser average wages so as to decrease costs and increase profit margins. High tax rates also reduce profitability and this too is a factor that is considered when analyzing market profitability. Finally, the costs of transportation and fuel are taken into account so that the company is not continuously pressed on its profitability .
Market size is also an important opportunity factor in deciding internationalization strategy for a small business. Large markets equate to a larger customer base, potentially more stable and longer-term revenue flows, as well as a huge opportunity for growth and expansion. A large market also correlates to big and growing revenue, which is a positive prerequisite for a business. Thus, countries with large populations, such as China, India, Indonesia, Brazil, the US, Germany, Russia, Egypt, and Turkey are known to be attractive markets because of their large size, all having a population of more than 80 million people .
Market segmentation strategies as increasing opportunities:
Market segmentation is necessary in order to guard against a dilution of the focus of a marketing strategy. It is all about focusing the main thrust of a marketing program on certain key segments of the population based on some unifying factors, In order to constitute a ‘market segment’, the group needs to be sufficiently large and sufficiently uniform to be of research interest. The common international market segmentation strategies are – Demographic, Psychographic, and Behavioral. Demographic characteristics of a group in the market mostly relate to their age, gender, race or ethnic background, or income group. Psychographic segmentation has more to do with the mentality and personality of the customers and their personal tastes and preferences in products . It also includes conscious lifestyle choices and attitudes, especially among young adults. Behavioral segmentation on the other hand is mostly about consumption patterns and history, brand loyalties, as well as factors that affect brand perception and brand loyalty, and how they are displayed .
Challenges in internationalization for small businesses:
Small organizations regularly confront an assortment of issues identified with their size. An incessant reason for chapter 11 is under capitalization. This is frequently a consequence of lack of foresight instead of financial conditions - it is a typical dependable guideline that the business person ought to have entry to a total of cash in any event equivalent to the anticipated income for the main year of business notwithstanding his expected costs. For instance, if the planned proprietor believes that he will produce $200,000 in incomes in the principal year with $150,000 in start-up costs, then he ought to have at the very least $250,000 accessible. Inability to give this level of financing to the organization could leave the proprietor obligated for the greater part of the organization's obligation if he wind up in bankruptcy court, under the hypothesis of under capitalization .
Notwithstanding guaranteeing that the business has enough capital, the small entrepreneur should likewise be aware of commitment edge (deals less variable expenses). To earn back the original investment, the business must have the capacity to achieve a level of offers where the commitment edge parallels settled expenses. Small businesses often undervalue their products to a point where even at their most extreme limit; it is difficult to equal the initial investment. Taken a toll controls or cost increments frequently resolve this issue .
In the United States, a percentage of the biggest worries of small entrepreneurs are protection costs, (for example, obligation and wellbeing), rising vitality costs, assessments and expense compliance. In the United Kingdom and Australia, small entrepreneurs have a tendency to be more worried with exorbitant administrative red tape. Contracting extortion has been a continuous issue for small organizations in the United States. Small organizations are legitimately committed to get a reasonable segment of the aggregate estimation of all the administration's prime contracts as ordered by the Government. Since 2002, a progression of government examinations have discovered extortion, misuse, provisos and an absence of oversight in elected small business contracting, which has prompted the redirection of billions of dollars in small business contracts to extensive organizations .
Another issue for some small organizations is termed the 'Entrepreneurial Myth' or E-Myth. The mythic suspicion is that a specialist in a given specialized field will likewise be master at maintaining that sort of business. Extra business administration aptitudes are expected to keep a business running easily. Some of this misconception emerges from the inability to recognize small business supervisors as business people or industrialists (Dibb & Simkin 2012, p. 67). While about every single proprietor supervisor of small firms are obliged to accept the part of industrialist, just a minority will go about as entrepreneur. The line between a proprietor director and a business person can be characterized by regardless of whether their business is development arranged. By and large, small entrepreneurs are essentially centered around surviving as opposed to developing, in this way not encountering the five phases of the corporate life cycle (conception, development, development, restoration, and decrease) like a business person would (Jones & George 2008, p. 172).
Still another issue for some small organizations is the limit of much bigger organizations to impact or once in a while decide their odds for achievement. Systems administration and online networking has been utilized as a noteworthy device by small business in UK, however the greater part of them simply utilize a scramble firearm approach in an edgy endeavor to misuse the business sector which has turned out to be on no success . Over portion of small firms do not have a strategy for success. A strategy for success is viewed as a standout amongst the most imperative elements for its prosperity, business arranging is connected with energy in development and in the event that you are taking a gander at financing a large portion of them require a marketable strategy, and this additionally serves as a key arranging record which soon goes about as a book of scriptures for choice making. A global exchange study uncovers that American offer of chamber business who are sending out rose from 30% in 2012 to 40% in 2015, despite the fact that this might appear to be certain in actuality the development is moderate as small entrepreneurs modest far from trading because of saw hindrances. Taking in the details of an outside dialect could be the answer for open new markets entryways; it is a reality that not every remote country communicates in English. Vietnam was expressed to develop by 8% in 2010 and still tragically 95% of entrepreneurs who need to fare to china have no yearning and no information to take in their nearby dialect .
Conclusion and Recommendations:
Albeit small businesses have cozy associations with clients, finding new clients is a noteworthy test for small entrepreneurs. Small organizations commonly get themselves strapped for time yet with a specific end goal to make a constant stream of new business, they should take a shot at showcasing their business each day.
Regular promoting systems for small business incorporate systems administration, informal, client referrals, business catalog registries, TV, radio, outside (roadside boards), print, and Internet showcasing. Electronic media like TV can be very costly and is regularly proposed to make consciousness of an item or administration. Another means by which small organizations can publicize is using "arrangement of the day" sites, for example, Groupon and Living Social. These Internet bargains urge new guests to small organizations.
Numerous small entrepreneurs discover web showcasing more moderate. Google AdWords and Yahoo! Look Marketing are two famous choices of getting small business items or administrations before spurred web searchers. Effective online small business advertisers are additionally proficient at using the most applicable catchphrases in their webpage content. Promoting on corner locales can likewise be viable, yet with the long tail of the web, it can be time serious to publicize on enough destinations to earn a successful span. Small organizations frequently join or meet up to frame associations to advocate for their causes or to accomplish economies of scale that bigger organizations advantage from, for example, the chance to purchase less expensive medical coverage in mass.
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