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GLOBAL ENTREPRENEURSHIP

INTERNATIONALIZATION STRATEGIES
OF SMALL FIRMS
SESSION 9-10

SUBJECT MATTER EXPERT

Ika Suhartanti Darmo
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These slides have been adapted from:

Sarika Pruthi & Jay Mitra. (2023). Global Entrepreneurship and Innovation.
1st Edition. SAGE Publication Ltd., Washington DC, US.

ISBN 978-1-5264-9446-7
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LEARNING OUTCOME
LO 1: Identify theoretical concepts and opportunities of the
dynamic global entrepreneurship.
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LEARNING OUTCOME

After studying this chapter, the students should be able to define and explain:

Session 9-10:
Internationalization Strategies of Small Firms
 Foreign Market Selection
 Foreign Market Entry Mode Strategy
 Factors Influencing Choice of Internationalization Strategy
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INTRODUCTION
 Entrepreneurs often face limitations in resources and knowledge, hindering overseas operations. Yet, more
small firms are venturing into international markets. Their internationalization strategy involves selecting
markets and entry modes. Traditionally, small firms relied on exporting via intermediaries, but only a small
percentage engage in this, and their contribution to total exports is limited. However, advancements in tech
and entrepreneurship have expanded their international options, leading to the rise of micro-multinationals
(mMNEs).
 These mMNEs manage activities in multiple countries using sophisticated modes like licensing, franchising,
joint ventures, or subsidiaries. Despite size constraints, Scottish small firms have utilized advanced modes
to serve foreign markets. mMNEs show promise for future growth and may aid national economies,
attracting entrepreneurs eyeing global expansion.
 Policymakers can learn from mMNEs to foster global players amid declining foreign investment. This
chapter delves into small firms’ internationalization strategies, focusing on foreign market selection, entry
modes, and the impact of resources and external environments.
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FOREIGN MARKET SELECTION

 Foreign market selection involves the quantity and

type of markets entered by international enterprises.
Entrepreneurs' overseas operations coordination
depends on the number, type, and location of
internationalization markets (Goerzen and Beamish,
2003). Concentration or dispersion are typical
international expansion tactics (Mascarenhas, 1997).
 The study found that Scottish mMNEs had offices in
at least 40 countries (including the USA, France, the
UAE, Germany, Ireland, and Hong Kong);
manufactured in 27 countries (including the USA,
France, Italy, Germany, and Holland); formed joint
ventures in 33 countries (including the USA and
China); and entered into international licensing
agreements in 28 countries. 2004 (Ibeh et al.)
Figure: Location of overseas offices of Scottish mMNEs
Source: Ibeh et al. (2004)
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FOREIGN MARKET SELECTION

Figure: Location of foreign
subsidiaries of Scottish
mMNEs
Source: Ibeh et al. (2004)

Figure: Location of
international licensing
agreements of Scottish
mMNEs
Source: Ibeh et al. (2004)

International entrepreneurs approach internationalization in two ways: reactive and proactive. Typically, small
firms take a reactive stance. They might enter a foreign market when prompted by foreign customer interest or
due to recruitment of a new employee already situated in that market.
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FOREIGN MARKET ENTRY MODE STRATEGY

 International market entry modes are ways for firms to enter foreign markets, involving their products,
technology, skills, and resources. The easiest modes for entrepreneurs are via websites and exporting.
Exporting, contracting (like licensing), and Foreign Direct Investment (FDI) are the primary methods. FDI,
like joint ventures or mergers, involves investing in a foreign venture based on investment amount and
government regulations.
 Small firms often start with exporting but are increasingly using licensing, alliances, joint ventures, and
franchising to enter foreign markets.
1) Creating a Website
2) Exporting
3) Licensing
4) Strategic Alliances and Joint Ventures
5) Franchising
6) Mergers and Acquisitions
7) Establishing an International Location
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FOREIGN MARKET ENTRY MODE STRATEGY

1) Creating a Website. The internet allows even small businesses to sell globally. E-commerce sales have been
steadily growing, reaching 14.1% of total retail sales in 2019 and expected to hit 22% in 2023 (Clement, 2019).
Creating a website is a quick and cost-effective way for small businesses to enter foreign markets. Unlike the
traditional steps of starting local and expanding regionally, the internet enables immediate global reach from day
one. A well-designed website offers 24/7 exposure and accessibility from various devices like computers,
phones, or digital assistants.
2) Exporting. Many small firms are expanding internationally by selling products made in one country to
customers in another, known as exporting. In the US, small businesses with fewer than 20 employees
contribute 33% of the country's export sales (Scarborough, 2014).
Exporting can happen indirectly, using trade intermediaries, or directly, through agents/distributors or sales
subsidiaries/branches. Indirect exporting involves selling to a foreign purchaser through local market
intermediaries like export management companies or foreign distributors. These intermediaries, such as export
management companies or resident buying offices, help small businesses get into global markets with lower
costs and faster transitions.
3) Licensing. Licensing is when one company grants permission to another to use its intellectual property (IP)
under specific terms. The owner of the IP is the licensor, while the one using it is the licensee, paying fees
(royalties) for the rights. Small firms can expand internationally by directly licensing their products/services
abroad. This method is used by about 21.1% of Scottish mMNEs, allowing them to control their proprietary
technology or brand and earn income.
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FOREIGN MARKET ENTRY MODE STRATEGY

4) Strategic Alliances and Joint Ventures. Strategic alliances and joint ventures are commercial collaborations.
About 24.4% of Scottish mMNEs access global markets through joint partnerships or strategic alliances.
Technological strategic alliances focus on R&D, while marketing strategic alliances combine product and
distribution capabilities to enhance sales.
Through Total's Access to Energy Program in Africa, d.light sold more solar lamps. Unlike alliances, joint
ventures form a shared entity amongst the cooperating enterprises.
Domestic joint ventures allow companies to export goods and share earnings. A local small business partners
with a foreign partner to gain market and operational insights in foreign joint ventures. These partnerships pose
challenges including aligning values and monitoring agreements, especially internationally. Finding acceptable
partners and organizing worldwide initiatives is difficult.
5) Franchising. Franchises allow successful companies to share their business model for a price. Franchised
McDonald's and Domino's Pizza have expanded globally. The franchisor grants the franchise, whereas the
franchisee receives it.
One sort of franchising permits buying things and using the name (e.g., Toyota Dealerships), while the other
provides a comprehensive business model with training. Franchising entails sharing operating methods and a
little ownership investment, unlike licensing.
The US franchising industry is booming, moving abroad to reach new customers. Domino's has over 60
international shops, more than in the US. Franchising offers established products, support, training, and growth,
but it also has costs, misunderstandings, and termination or underperformance issues.
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FOREIGN MARKET ENTRY MODE STRATEGY

6) Mergers and Acquisitions. Many startups penetrate overseas markets through mergers and acquisitions.
Mergers integrate two or more firms into one, while acquisitions buy one firm. In an acquisition, the acquirer is
the surviving firm and the target is the acquired firm.
Startups pursue mergers and acquisitions, but acquisitions are more typical. To grow faster, businesses employ
these tactics to sell to major companies. Investor-funded companies sell to produce a liquidity event to monetize
their investment. Acquisitions offer reduced competition, access to exclusive products or services (including a
brand name), and economies of scale.
7) Establishing an International Location. Entrepreneurs from APEC countries have engaged in foreign
investments, like Canadian SMEs with 0.8% investing abroad and 3.2% subcontracting in 2015. Korean SMEs
made $2.4 billion in overseas investments, while 13.4% of Japanese SMEs owned foreign affiliates by 2011.
When expanding abroad, entrepreneurs often hire local talent and establish formal and informal systems to
manage operations. Ravi Kulasekaran, a California entrepreneur with an IT venture in India, recruited US
managers to oversee teams in both countries. These managers interacted daily via phone and flew to India
regularly. Ravi also developed an intranet where teams shared updates, spending time in India initially to align
working styles and hire talent.
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FOREIGN MARKET ENTRY MODE STRATEGY

Figure: Utilization of advanced market servicing modes by Scottish mMNEs

Source: Ibeh et al. (2004)
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FACTORS INFLUENCING CHOICE OF INTERNATIONALIZATION STRATEGY

The resource-based approach is used to analyze small
enterprises' internationalization strategies. We address both Financial
internal (firm-specific) and external (environmental) elements Resources
that international entrepreneurs must consider when
choosing a foreign market and entrance mode. Financial and Technological Human
human resources are internal elements, while competitive Factors Resources
and institutional contexts in home or international markets are
external.
1) Financial Resources
2) Human Resources
 Exploitation Resources Socio-Cultural Competitive
 Access to Resources Factors Factors
 Social Networks/Ethnic Ties
 Entrepreneurs' Motivations
3) Competitive Factors
4) Political Factors
Economic Political
5) Economic Factors Factors Factors
6) Socio-Cultural Factors
7) Technological Factors
 CHAPTER SUMMARY
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# 1: International entrepreneurs pick markets based on two things: how many and which ones. They either
focus on a few markets with a lot of resources (concentration) or spread resources across many markets
(dispersion). They can react or plan ahead. Resource-based theory says they should study markets,
aligning their strengths with the best-fit markets.
# 2: Getting into foreign markets means using modes like websites or exporting. Websites are cheap but need
adapting. Exporting can be direct or indirect, but now small firms explore other methods: licensing,
alliances, joint ventures, franchising, mergers, acquisitions, setting up international locations. Each mode
has its own way of partnering or sharing resources.
# 3: What resources a business has and the foreign market's competitiveness affect how int'l entrepreneurs
plan. Govt. support in foreign markets matters, impacting market choice and the way a business enters
those markets—whether through shared or equity-based modes.
 REVIEW QUESTIONS
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1. Compare two international entrepreneur entrance mode techniques for foreign markets. Describe each
strategy and its pros and cons.
2. Define ‘international franchising’. Explain the pros and cons of franchising for international entrepreneurs
entering foreign markets.
3. How important are acquisitions for small businesses? From what you've read in this chapter, what should
businesses consider when choosing an acquisition-based approach to join an international market? Explain
your answer with examples.
4. How do international entrepreneurs' human resources affect their internationalization strategy? Support
your response with examples.
5. Explain how the foreign market political climate affects international entrepreneurs' market choice and entry
mode strategy using examples.
6. How does a foreign market's economic development affect international entrepreneurs' internationalization
strategy? Support your response with examples.
7. How does the socio-cultural context of a foreign market affect its appeal to multinational entrepreneurs?
Support your response with examples.
8. How does technical infrastructure affect foreign markets' appeal to multinational entrepreneurs? Provide
instances to support your claim.
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THANK YOU