UNIT 7

GLOBAL ASPECTS OF
ENTREPRENEURSHIP

Group Members:
Osama Himpit
Pia Jovel Liquigan
Gale Gwen Javier
 DESIRED LEARNING OUTCOMES
At the end of the Unit, the students must have:
1. explained the importance of the “going global” mindset
for many small companies’ strategies
2. described the principal strategies of small businesses
for going global
3. explained how to build a thriving export program
4. discussed the major barriers to international trade and
their impact on the global community
5. described the trade agreements that will have the
greatest influence on foreign trade in the 21st century.
LESSON 1. WHY GO
GLOBAL?
This chapter describes the impact of
globalization, especially to the small
companies, and their interdependence
when it comes to trade, and how
entrepreneurs discovered that the tools of
global business can be acquired, and
benefits of conducting global business can
be substantial.
OVERVIEW
 WHY GO GLOBAL?
Trade and globalization have
brought enormous benefits to
many countries and citizens
(WTO, 2008). Trade has allowed
nations to benefit from
specialization and economies to
produce at a more efficient scale.
BENEFITS OF ACCESSING THE
GLOBAL MARKET
BENEFITS OF ACCESSING THE GLOBAL MARKET

1 OFFSET SALES DECLINES IN THE DOMESTIC MARKET.

A small company’s export sales act as a counter-cyclical balance
against flagging domestic sales.

2 INCREASE SALES AND PROFITS.

Income rising to levels at which potential sales are now
possible.

3 EXTEND THEIR PRODUCTS’ LIFE CYCLE.

Some companies have been able to take products that have
reached the maturity stage of the product life cycle and sell
them successfully in foreign markets.
BENEFITS OF ACCESSING THE GLOBAL MARKET

4 LOWER MANUFACTURING COSTS.

Global markets can lower manufacturing costs by spreading
those fixed costs over a larger number of units.

5 LOWER THE COST OF THEIR PRODUCTS.

Many companies find that purchasing goods or raw materials at
the lowest cost requires them to shop the global marketplace.

6 IMPROVE COMPETITIVE POSITION AND ENHANCE REPUTATION.

Going up against some of the toughest competition in the
world forces a company to hone its competitive skills.
BENEFITS OF ACCESSING THE GLOBAL MARKET

7 RAISE QUALITY LEVELS.

Businesses that compete in global markets learn very quickly
how to boost their quality levels to world-class standards.

8 BECOME MORE CUSTOMER-ORIENTED.

Delving into global markets teaches business owners about the
unique tastes, customs, preferences, and habits of customers in
many different cultures.

BUSINESS OWNERS MUST STRIVE TO BECOME

“INSIDERS” RATHER THAN JUST “EXPORTERS.”
COST OF ACCESSING THE
GLOBAL MARKET
COST OF ACCESSING THE GLOBAL MARKET

1 FULFILLMENT OF MINORITY INTEREST.

It is important to take into consideration the interest of the local
populace because it can be conflicting to the decisions of the countries

2 SPECIALIZATION LEADS TO OVER DEPENDENCY.

When a firm relies on supply of other goods from another
country they are at risk of a supply shortage.

3 CULTURAL IDENTITY ISSUES.

Trade leads to diffusion of culture. Others get lost while others
are capable of adopting other culture.
COST OF ACCESSING THE GLOBAL MARKET

4 SOCIAL WELFARE ISSUES.

It is important to maintain safety standards, minimum wages,
worker’s compensation and health benefits.

5 ENVIRONMENTAL ISSUES.
Implementing strict laws and regulations to keep air, land and clean
water is a costly process, so businesses decide to move their
operations in poorer countries where it is less regulated.

6 POLITICAL ISSUES.
Trade of precious commodities (e.g. gold, diamond, oil or farmland) has
caused political alliances which do not assist people in trading nations,
often powerful corporations control these commodities.
COST OF ACCESSING THE GLOBAL MARKET

7 DEPLETION OF NATURAL RESOURCES.

Increase in international demand of a natural resource can
cause over-exploitation and depletion of these resources.

8 SEIZURE OF POWER AND LOSS OF CONTROL.

Rich foreign investors will eventually control a number of local
resources and possess more power and authority in a country rather
than the natives of the land.
6 QUESTIONS BEFORE
VENTURING INTO THE GLOBAL
MARKETPLACE:
1. IS THERE A PROFITABLE MARKET IN WHICH OUR
FIRM HAS THE POTENTIAL TO BE SUCCESSFUL OVER THE
LONG RUN?

2. DO WE HAVE AND ARE WE WILLING TO COMMIT

ADEQUATE RESOURCES OF TIME, PEOPLE, AND
CAPITAL TO A GLOBAL CAMPAIGN?

3. ARE WE CONSIDERING GOING GLOBAL FOR THE

RIGHT REASONS? ARE DOMESTIC PRESSURES FORCING
OUR COMPANY TO SEEK GLOBAL OPPORTUNITIES?
4. DO WE UNDERSTAND THE CULTURAL DIFFERENCES,
HISTORY, ECONOMICS, VALUE SYSTEMS,
OPPORTUNITIES, AND RISKS OF CONDUCTING
BUSINESS IN THE COUNTRY (OR COUNTRIES) WE ARE
CONSIDERING?

5. IS THERE A VIABLE EXIT STRATEGY FOR OUR

COMPANY IF CONDITIONS CHANGE OR THE NEW
VENTURE IS NOT SUCCESSFUL?

6. CAN WE AFFORD NOT TO GO GLOBAL?

Pia
LESSON 2.
STRATEGIES
FOR GOING
GLOBAL
 NINE PRINCIPAL
01
CREATING A PRESENCE ON THE
WEB
STRATEGIES WHICH
SMALL COMPANIES
02
RELYING ON TRADE
INTERMEDIARIES CAN PURSUE IN
ORDER TO ENTER A
03 OUTSOURCING PRODUCTION GLOBAL PRESENCE:

04 05
ESTABLISHING JOINT ENGAGING IN FOREIGN LICENSING
VENTURES ARRANGEMENTS
 NINE PRINCIPAL
06 FRANCHISING
STRATEGIES WHICH
SMALL COMPANIES
07
USING COUNTER-TRADING
AND BARTERING CAN PURSUE IN
ORDER TO ENTER A
08 EXPORTING GLOBAL PRESENCE:
PRODUCTS OR SERVICES

09
ESTABLISHING
INTERNATIONAL LOCATIONS
 CREATING A
PRESENCE ON
THE WEB
The Web gives even the smallest businesses
the ability to sell its goods and services all
over the globe. With a well-designed Web
site, an entrepreneur can extend its reach to
customers anywhere in the world—and
without breaking the budget.
 TRADE
INTERMEDIARIES

Trade intermediaries are domestic agencies

that serve as distributors in foreign
countries for domestic companies of all
sizes.
● EXPORT MANAGEMENT
COMPANIES EXPORT
MANAGEMENT COMPANIES
(EMCS).

● EXPORT TRADING
COMPANIES. EXAMPLES OF
● MANUFACTURER’S EXPORT
AGENTS MANUFACTURER’S
TRADE
EXPORT AGENTS (MEAS). INTERMEDIARIES
● EXPORT MERCHANTS.
● RESIDENT BUYING OFFICES.
● FOREIGN DISTRIBUTORS.
 JOINT VENTURES

Joint Ventures are domestic

or international enterprises
involving two or more
companies joining
temporarily to undertake a
particular project.
● EQUITY BASED
Operations that benefit foreign
and/or local private interests,
groups of interests, or members
of the general public
TYPES OF
● NON-EQUITY
known as cooperative
JOINT
agreements which parties seek
technical service arrangements,
franchise and brand use
VENTURES
agreements, management
contracts or rental agreements,
or one-time contracts
● ACCESS TO NEW MARKETS
AND DISTRIBUTION
NETWORKS

● INCREASED CAPACITY
● SHARING OF RISKS AND
COSTS (IE LIABILITY) WITH A
ADVANTAGES
PARTNER

● ACCESS TO NEW
OF JOINT
KNOWLEDGE AND EXPERTISE,
INCLUDING SPECIALISED
VENTURES
STAFF

● ACCESS TO GREATER
RESOURCES, FOR EXAMPLE
TECHNOLOGY AND FINANCE
PROBLEMS MAY ARISE IF:
● THE OBJECTIVES OF THE VENTURE ARE
UNCLEAR

● THE COMMUNICATION BETWEEN PARTNERS IS

NOT GREAT
DISADVANTAGES
● THE PARTNERS EXPECT DIFFERENT THINGS OF JOINT
FROM THE JOINT VENTURE

● THE LEVEL OF EXPERTISE AND INVESTMENT VENTURES

ISN'T EQUALLY MATCHED
PROBLEMS MAY ARISE IF:
● THE WORK AND RESOURCES AREN'T
DISTRIBUTED EQUALLY

● THE DIFFERENT CULTURES AND MANAGEMENT

STYLES POSE BARRIERS TO CO-OPERATION
DISADVANTAGES
● THE LEADERSHIP AND SUPPORT IS NOT THERE
IN THE EARLY STAGES OF JOINT
● THE VENTURE'S CONTRACTUAL LIMITATIONS VENTURES
POSE A RISK TO A PARTNER'S CORE BUSINESS
OPERATIONS
 FOREIGN
LICENSING

Foreign licensing enables small

businesses to enter the foreign
markets with ease and with
virtually no capital
investment.
INTERNATIONAL
FRANCHISING
Franchisers that decide to expand
internationally should take the following
steps:

1. Identify the country or countries that

are best suited to the franchisor's
business concept
2. Generate leads for potential franchises
3. Select quality candidates
4. Structure the franchise deal
 EXPORTING

Exporting can be defined as the marketing of goods produced in one

country into
another.

Two types of Export:

1. Direct Exports - these represent the most basic mode of exporting
made by a company, capitalizing on in production concentrated in the
home country and affording better control over distribution. There are no
intermediaries.

2. Indirect Exports - a process of exporting through domestically based

export intermediaries.
 ESTABLISHING
INTERNATIONAL
LOCATIONS
Establishing an office or a factory in a foreign
land can require a substantial investment
reaching beyond the budgets of many small
companies. The major advantages to
companies establishing international
locations are lower production, marketing,
and distribution costs as well as the ability to
develop an intimate knowledge of local
customers’ preferences, tastes, and habits.
 LESSON 3
BARRIERS TO
INTERNATIONAL
TRADE
DOMESTIC BARRIERS
Three major domestic roadblocks are common:
ATTITUDE, INFORMATION, and FINANCING.
The biggest barrier to small businesses exporting is the
(1) attitude that “My company is too small to export,
(2) Lack of information about how to get started,
(3) Lack of export financing
INTERNATIONAL BARRIERS
Two types of international barriers: (1) TARIFF and (2) NONTARIFF

Tariff barriers - Imposing tariffs raises the price of the imported

goods—making them less attractive to consumers—and protects
the domestic makers of comparable products and services.
INTERNATIONAL BARRIERS
● Non Tariff barriers:
○ quota - a limit on the amount of a product imported into a
country
○ embargo - a total ban on imports of certain products into a
country.
POLITICAL BARRIERS
Companies doing business in politically risky lands face the
very real dangers of government takeovers of private property;
coups intended to overthrow ruling parties; kidnapping,
bombings, and other violent acts against businesses and their
employees; and other threatening events.
BUSINESS BARRIERS
Simply duplicating the practices they have adopted (and
have used successfully) in the domestic market and
using them in foreign markets is not always a good idea.
CULTURAL BARRIERS
Differences in cultures among nations create another
barrier to international trade. The diversity of languages,
business philosophies, practices, and traditions make
international trade more complex than selling to the
business down the street.
CULTURAL BARRIERS
Differences in cultures among nations create another
barrier to international trade. The diversity of languages,
business philosophies, practices, and traditions make
international trade more complex than selling to the
business down the street.
LESSON 3
IMPACT OF
TRADE
BARRIERS
IMPACT OF TRADE BARRIERS
on Employment. Domestic economy will produce goods
and services it requires to meet its demand which in
turn will result in more investment allowing more
employment
IMPACT OF TRADE BARRIERS
on Domestic Firms. Protectionism makes domestic firms less
competitive in the export market,as import barriers raise
domestic prices through higher costs for mediocre inputs. Due
to this, export products also become costlier resulting in
decrease in market share against the international competition.
IMPACT OF TRADE BARRIERS
on Consumers. Consumers pay more with protectionism. Trade
protectionism harms consumers by giving them little or no
access to advance foreign products and non-domestic that offer
unique products subjected to low market share
 IMPACT OF TRADE BARRIERS
on Balance of Payment. Tariffs and other barriers allow the deficit in the
balance of payment to be corrected.

on Economic Growth. Trade barriers affect economic growth in developing

countries, which are unable to export goods because of high tariffs, limiting
their ability to prosper and expand their operations.
LESSON 4
INTERNATIONA
L TRADE
AGREEMENTS
THE WORLD TRADE ORGANIZATION (WTO)
● WTO was established in January 1995 replacing the General Agreement of
Tariffs and Trade (GATT)
● only international organization establishing rules for trade among nations
● the multilateral trading system (rules and agreements of WTO) are the
result
of negotiations among its members
● the WTO’s General Agreement on Trade in Services addresses specific
industries, including banking, insurance, telecommunications and tourism
● it is involved in the resolution of trade disputes among its members
NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA)
● created a free-trade area among Canada, Mexico and the United States.
Need to know: free trade area - an association of countries that have
agreed to eliminate trade barriers, both tariff and nontariff, among partner
nations.
● barriers were eliminated for trade among the three countries
● forged a unified United States-Canada-Mexico market of 431 million
people
with a total annual output of more than $13 trillion dollars in goods and
services
● provisions called for the reduction of tariffs to zero on most goods traded
among these three nations by 2008
CENTRAL AMERICAN FREE TRADE AGREEMENT (CAFTA)
● the agreement took effect on August 2, 2005
● designed to promote free trade among the United States and
six Central American countries: Costa Rica, El Salvador,
Guatemala, Honduras, Dominican Republic, and Nicaragua