Review International Entrepreneurship SME Enterprises

Questions: A. Many entrepreneurial of small and medium Organisation's dont follow a planned or strategic approach to the issue of internationalisation, instead use of an evolutionary strategy based on a combination of methods and options. Identify every approach providing relevent examples for each, review the various options that can be used, the pro's and Con's of these options and how the probability of success can be maximised? B. The Organisation for Economic Co-operation and Development suggests that Small to Medium Business's have a tendency to move to markets that are geographically or psychologically close to them rather than distant. a) Detail the pro's and cons of these approaches.b) Discuss the problems that may be encountered by moving into new markets that geographically or psychologically distant. Are these issues specific to the business sector such as manufacturing or the service sector? Answers: Introduction: The internationalization of big global retailers is well recognized, and researchers were taken about in their procedures, aim and approaches for growth and development. It does not mean that international retailer has to be large; however enterprises which are dynamic have strong strategies, and products have shown the capability of growth internationally. SME internationalization by nature incorporates very different set of prospects in the global market. Businessmen are now looking for the environment for putting up its business. The key challenge of these SME's is to establish globally. Thus when these small and medium enterprises want to internationalize they have to look for people with strong networks so that they can benefit from the social capital that will help them facilitate overseas operations (Abebe and Angriawan, 2011). They can create networks in trade fairs and exhibitions. The internationalization of SME is decisively evaluated on the following: Timing of the internationalization Strength and sustainability of the internationalization Medium of internationalization Impact of local environment in context of internationalization Influence of external supply of commodities to internationalize Effect of the performance of SME due to internationalize A: Approaches the internalization Internalization can be vital to achieving long-term success for SME enterprises as they are assumed to show global growth in the initial stage (Atik, 2012). This paper illustrates what approaches do the SME's use to be successful in internationalizing than another firm which use network approaches. Internationalization has been considered as an augmentation process where the firms sink towards close markets and inclines and escalate dedication towards global or international markets in steady steps through a sequence of evolutionary strategy (Bell et al., 2003). Nowadays there is a quick internationalization of many "born global firms" which by its inception expand in multiple countries (Chetty and Campbell Hunt, 2003). Then there are "born-again global firms" who have an impact of events that supply them with additional financial or human resources, like change in rights and ownership, acquisition (internal or external) (Kalantaridis, 2004). Small and medium enterprises use global diversification as a strategy so as to accomplish growth (Karaev, Lenny Koh and Szamosi, 2007). There are many approaches by which SME's internationalize themselves: Uppsala Theory Uppsala Model, a theory laid down by Johanson and Vahlne, which elucidate that how small and medium firms slowly increases their activities in the international markets. The firms' gains experience first from their local markets before escalating to the foreign markets, firms start their global operations from geographically adjacent countries and slowly move to culturally more distant countries, the firms start their operations globally by using conventional exports and then moving to using rigorous and challenging operation strategies both at the targeted economy level and company level. The model also explains that sales in foreign should start with sporadic orders of exports which are followed by frequent exports. POM Model is also similar to Uppsala Model in which explains that first sales should be a physical product- knowledge, service, and systems. It presumes that expansion in should be in sales product than operation and then market strategy relates to new global markets (R odriguez, 2007). The firm finally will not obligate to higher level of resources till it gains a high level of knowledge and so the internationalization develops stepwise at a slow speed. For example, Various Swedish companies like Volvo, Sandvik, Atlas Copco, and Facit, etc. have used this particular model (www.iei.liu.se, 2015). The model was made in accordance with the establishment of the chain as well as a dynamic model. The main issue of the company is to spend some amount of money in ornamenting its ability. The textile company preferred more in investing in the building purpose rather than its ability. This building is made for the new products launched by the company for their foreign customers. This strategy helps the company to invest their money in the international business. They have chosen two countries like China and Mexico. This strategy has helped the company to get more developed company. International Entrepreneurship Theory (IET) International entrepreneurship means reducing cultural barriers, development of technology, and removing cultural ignorance has unlocked formerly isolated international markets to many different firms either small or medium, new business enterprise and also recognized companies (Internationalisation of European SMEs, 2010). International entrepreneurship means study of entrepreneurial activities and behavior between two countries in which firms discover how to endorse, examine and utilize the prospects for the invention of new product and services. Discover refers to search for inventive opportunities. Endorse means to actively allocate opportunities to gain competitive advantage. Examine means to evaluate the measures taken to develop knowledge and experience. Chinese organization likes Buckley, Clegg, Cross, Liu, etc. have employed this specific approach (legacy.wlu.ca, 2015). Network Theory Network theory states that contemporary advanced technology firms do not display growth process; preferably they gain quicker internationalization through skills and means of the network partners. The firms in the market are implanted in more than one network through association of their suppliers, contractors, consumers and other market players (Wright, Westhead and Ucbasaran, 2007). Thus, networks are bridging system which let fast internalization. The importance of network theory is leading to engaging firms closer by means of data that the entities acquire by creating good relationships with the consumers, sellers, dealers and distributors, public agencies, industries as well as the market players. This kind of relationship is based on knowledge and skill, loyalty, and mutual trust. For example, organization like IBM Corporation, Syntex (USA) Inc , etc have chosen the Network theory for its business strategy and found that the interior of the textile company and the exterior of the company have a very relationship among themselves (www.oecd.org, 2015). This helps the Company to have more resources and have the situation to have more advantage than the other companies or the rival companies. Mainly the company has a very good position in the game structure of the company. The flow of capital in the business can be made stable condition by practicing the theory. This factor is one of the essential factors for the business purpose. Electic theory of Entrepreneurship The electic theory of entrepreneurship describes the important elements for any firm for the internalization. The decision regarding the foreign investment is depend on the three advantages of the firm namely ownership advantage, internal advantage and location advantage with the other decisions jointly. The ownership advantage involves the capabilities of the firm to fulfill the current or potential demand of the customer. This advantage of the firm is related with the firm specific or product specific such as Patent and Trade Mark, advance technology, competitive advantage or core competency of an organization. These are directly related with the ability of the firm to fulfill the demand of the customer. The firm that has the ownership advantage needs to select licensing agreement for the transfer of technology. The decision regarding the internationalization is depend on the internal activity of the firm. The firm who has the ownership advantage and internal competitive advantage should not go for agreement with a foreign firm. The company should expand and exploit the business internationally with itself. Third advantage of the firm is related with the external advantage of an organization. This advantage is named as location advantage. This is advantage is totally depend on the geographical factor of the country where the firm wants to expand the business through internationalization. There are several things are related with the location advantage of a firm such as natural resources, large population, geographical infrastructure, political system, tax barriers, policies, rules regulation, etc. Toyota is a Japanese based automobile based. At present, it is operating it automobile business operation globally. It holds 40% market share in Japan, 11.2% in US and 5% in Europe. It has observed that the company is success for the internationalization of the business through the eletic theory. The company has the advantage of producing high technology cars. The brand value of the company was already high when it taken decision for the expansion to Euro market. The company has set firm itself in European Union and in other countries without going any joint venture. The geographical advantage to the Europe was also high for the company (classes.uleth.ca, 2015). The following diagram is the theoretical structure of the three models and how they are related to each other: Internationalization gives rise to market entry. SMEs have to ponder on the best market strategy to capture the current market which is ruled by big players and create their own market. Two kinds of strategies can be drawn 1) Niching Strategy and 2) Substitution Strategy. For example, Independent Commodity Supplies a UK based chemicals and packaging SME follows niching strategy where the firms attain tactical fit and prevent straight competition with bigger companies (Crick and Spence, 2005). They use differentiated product and services (Ratten et al., 2007). It has sales of $9.91 million with only 10 employees. On the contrary, Violia Media Services a book distribution uses the substitution strategy which focusing on accommodating bigger firms (Crick and Crick, 2014). They focus on substitutable goods. The following table shows the difference between the two strategies. Comparison: Niching Strategy and Substitution Strategy Strategy Dimensions Niching Strategy Substitution Strategy Strategic Objectives Attain Strategic fit and avoid direct competition Force accommodation by bigger firms Target Market Unmet market gaps Market well established by bigger firms Product/Service Differentiated Substitutable Cost Entry Costs of market development Avoid incurring costs of market development Competitive Advantage First movers advantage Second movers advantage There are many pros and cons of these theories (Lloyd - Reason and Deprey, 2009). SMEs, which are looking to internationalize, will need to find out about the external and internal factors influencing their organizations (Hill, Nancarrow and Tiu Wright, 2002). At times, entrepreneurs think that by means of perpetual planning they can eliminate the shocks that might crop up from environmental uncertainty (Coviello and Jones, 2004). But in reality few might able to benefit while the other in spite of planning may not be able to triumph over growth-related crisis as they may need hasty action (Coviello and MCAuley, 1999). Thus, learning is very vital to foreign expansion and so having clarity in understanding of the location that entrepreneurs function. Limited information to analyze markets can be a big drawback for an SME while internationalizing, inadequate knowledge of the markets gives rise to gaps in information. Again failure to network with prospective foreign customers may put a firm at risk because many big players are already in the host market (The Internationalisation of Services: Trends and Barriers, 2003). Managerial skills are very necessary to acquire knowledge of the market (Hutchinson, Quinn and Alexander, 2006). There are other barriers to the theories found which are: Exchange rate Documentation Administrative issues Payment issues Technical problems Global market completion On the contrary, there are certain pros of the mentioned approaches which can be discussed in the following: Gain of knowledge/skill: In recent scenarios it has been found that knowledge is a plus point for both pull and push SMEs in the foreign markets. Pull of SMEs in the international markets help in bridging the gap of know-how that is required to uphold on markets. The push aspect gives importance of the manager's last foreign experience and his management capability factors. Growth: Growth prospects are related to the international markets. There is a possibility of growth in the foreign markets with the opportunity of earning increased profits. This gives an additional stimulus to the SMEs. They get highly motivated with the business growth, bigger market size, robust market position, and increased profits and eliminate the dependence on the single markets. The Organization for Economic Co-operation and Development suggests that Small to Medium Business's have a tendency to move to markets that are geographically or psychologically close to them rather than distant. B: A] Pros of Small and Medium Enterprise towards this approach: In comparison to big enterprises SME's has the advantages of offering individualized services like they can ask their workers to safeguard their customers whenever there is the need (Agwa-Ejon and Fore, 2011). It is seen that SME's gives one of the best customer services. They are always present for the customers help whenever they have any problem. The size of the market helps the SME's to target their audience and for that reason they can easily understand the need of their customers and offer them better products (Bouchard and Basso, 2011). SME's has a power to adapt themselves to any market changes and work faster according to the taste and need of the customers. Flexible in meeting requirements, taste and priority- SME's have the advantage to match with the specific requirements of their consumers or make the compromise when there is a request for them. Increased capacity for transformation- SME's have the capacity to innovate their products continuously and also they brings new products, services and publicity in the market without taking much risk (Chiao, Yang and Yu, 2006). As SME's are mainly of simple structure and less complicated, so they can easily adapt to the market changes to meet their needs and also to transform. SME's have straightforward and low ranking structure; they have the potential to build quick and timely big enterprises and in return allowing them with large capacity (G.JAYANTHI and Dr. R AMUDHA, 2011; Goey and Veluwenkamp, 2002). As a start up SME's can plan out their marketing plan in such a way where it is cost effective for them, and also customers can easily get attracted (Handayani, Hidayanto and Budi, 2013). Cons of Small and Medium Enterprise towards this approach are, SME's are unable to take the burden when there is the requirement of bulk products because the lays back in upgraded technologies. If also they have upgraded technologies but due to cost a factor they are unable to buy machinery in huge quantity, and they lack behind in supply of their products to the customers (Hurtley, 2011). When a big brand launches their products, they do large promotions in all over the place including the media and in these areas the SME's lacks in competing with them. When big enterprises launches their products by promoting their products with the help of big celebrities and SME's lack back in attracting their customers as they are psychologically attracted to those big stars (Irwin and Scott, 2010). SME's can easily understand the mind language of the customers like the big enterprises, but they lack in grabbing their customers when big enterprises promote their products with many offers (Jrgens en and Ulhi, 2010). SME's cannot give offers or discounts as much as the big enterprise offers to their customers keeping their profit intact. B] Problems faced by Small and Medium Enterprises when they are geographically and psychologically moving their business distant When a small and medium enterprise expands their business or rather it can be said that when they are launching themselves in other place or countries the main problems faced by them are geographical and psychological problem (Onwuchekwa Faith Chidi, 2012). Before analyzing the problem faced by small and medium enterprises, it is necessary to understand the entry mode available into a foreign market. Following are the three basic assessments the firms should consider before moving international (Olejnik and Swoboda, 2012): Market: The firms should consider which market to internationalize looking for equilibrium between risk, costs and benefits. Timing of entry: The enterprises should decide when to go abroad which makes them pioneers if entry is quick and experiencing high expenses or later entrants and having lower cost. Scale of entry: A firm should decide on what scale should it enter. For example, if the entry should be made on a huge scale or diminutive scale. After reflecting on these points, now the SMEs should keep in mind the following: Exporting: The conventional way of entering international market is by exporting, allocating an area for further international growth. This strategy is used widely by the SMEs because they lack in resources and to an extent also lack in knowledge and experience (Masum and Fernandez, 2015). Projects of Turnkey: The type of work involves two entities are accountable to fix a project or a factory (Ofarrell, Wood and Zheng, 1998). Such type of access is practiced by the entities in particular companies like metal, engineering, creation, sanitization, and chemicals. This sort of access method is effective in FDI (foreign direct investment) is inadequate for the congregation economy. For example, HCM Engineering, UK based SME has lately joined in a successful partnership with Ibex Engineering, India, an export-focused firm which provides with tooling, die-casting, etc. Licensing: It is an agreement where the licensee receives rights in insubstantial possessions to an additional firm for a precise phase of time and while revisiting the licensee pays a faithfulness charge to the licensor (Singh, Pathak and Naz, 2010). This type of entry is good for firms which lack in financial resources to produce abroad. Franchising: This involves long phrase obligations while licensing is minute phrase. In franchising, a firm obtains the rights from an additional entity which forces the franchising firm to play a role in specific business actions, like advertising and promoting. The entity advertising and promoting the authorization will get a monarchs payment that is connected to the authorization's gain margins. The enterprises which open authorization prevent a lot of costs and threats of starting a multitude economy. Joint venture: The firm where more than two private entities work mutually. They have the same opinion to unite mutually distributing the profits and expenses and the jurisdiction of the novel entity. The business enterprises can have long term association or new project. Wholly owned subsidiaries: In this type a firm holds 100% stock of the other firm. In this mode of entry, two ways may happen, first by putting up new Greenfield venture, and the other is acquiring a renowned entity in multitude country and utilizes that particular firm to endorse its products. As the market is new to them though before starting their enterprise they have studied about the geographical and psychological factor of the place but on a practical basis the whole thing is new to them (Pett and Wolff, 2011). They do not have any idea about the requirements of the people staying there and as it is unknown to them they are unable to approach people and for that people are not getting easily attracted towards their product (Prasad and Singh, 2013). This is also not only the reason there are many other reason like if a chemical and a packaging company like Independent Commodity Supplies wants to spread its chain in countries like India, Bangladesh then they have to see the geographical sector of these countries(Pihkala, Ylinenpaa and Vesalainen, 2002) . They earned sale of this company is around 9(m) and when they will spread their chain in this type of countries which is totally in a different continent and their total climatic condition is different from UK. So, the company has to change their strategy planning that how they will be launching they will introduce their products in the markets of these companies (Singh, Pathak and Naz, 2010). To attract the customers towards their company and products they have to give demonstrations to the people also have to do free promotions. As it is a chemical firm they also have to keep some important things in their mind that the chemicals which they are using in countries like UK whether those chemicals will work or not in this countries due to the geographical conditions (Skiver, Hong and Lee, 2013). The geographical conditions of India, Bangladesh are totally different from the geographical conditions of UK. As both the countries are developing countries, so the company also has to keep in mind the psychological factors of the residents of these countries. Langland Advertising Design is an advertising firm in UK and if they want to expand their business in East Asian countries then at first they have to study the psychological factors to the people of these countries (Songini and Gnan, 2014). Geographical factors are important but psychological factors play much more important roles for these types of enterprises (Skiver, Hong, and Lee) (Uden, 2014). In India and Bangladesh, people grabs those parts which are shown on advertisements because people's from different status sees these advertisements and people of below middle class tries to absorb these things and tries to apply in their daily life which creates many problems in the society. 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