UNIT 7:

Global Aspects of Entrepreneurship

In this unit, you’ll be able to:

● explain the importance of the “going global” mindset for many small companies’
strategies
● describe the principal strategies of small businesses for going global
● explain how to build a thriving export program
● discuss the major barriers to international trade and their impact on the global
community
● describe the trade agreements that will have the greatest influence on foreign trade
in the 21st century

Overview
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.

How much do you know?

Try to evaluate your prior knowledge about Globalization and Trade. Answer Task 1.

Task 1. True or False

Directions: Choose True if the statement is correct, and False if otherwise. Encircle your
answer.

1. The process of applying management concepts and TRUE FALSE

techniques in a multinational environment and adapting
management practices to different economic, political and
cultural environments is called international management.

2. Multinational corporations can be defined as firms having TRUE FALSE

operations in more than one country, international sales and
a nationality mix of managers and owners

3. Nongovernmental organizations believe that everyone TRUE FALSE

benefits from globalization, as evidenced in lower prices,
greater availability of goods, better jobs and access to
technology.

4. NAFTA is a free trade agreement between the United States, TRUE FALSE
Canada and Mexico that has in essence removed all barriers
to trade and investment between the three nations
 5. NAFTA is better integrated as a single market than the EU or TRUE FALSE
the allied Asian countries

How well did you do?

Answers
1.True 2.True 3.False 4.False 5.True 6. False

Task 2. Guide Questions

The following are guide questions that will help you focus and better understand the essential
content for the entire unit. After answering the questions, you may create a discussion with
your classmates through online learning modalities.
1. Why must entrepreneurs learn to think globally?
2. What advantages does going global offer a small business owner? What are the
potential risks?
3. Describe the various types of trade intermediaries small business owners can use. What
functions do they perform?
4. Describe the barriers businesses face when trying to conduct business internationally.
How can a small business owner overcome these obstacles?
5. What impact have the WTO, NAFTA, and CAFTA trade agreements had on small
companies that want to go global? What provisions are included in these trade
agreements?

What to know?

Lesson 1
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. It has also raised productivity and incomes, increased
economic growth, supported the spread of knowledge and new technologies, and it has
enriched the range of choices available to consumers.
For small companies around the world, going global is a matter of survival, not
preference. Going global can put tremendous strain on a small company, but entrepreneurs
who take the plunge into global business can reap the following benefits:
Benefits of Accessing the Global Market
○ Offset sales declines in the domestic market. A small company’s export
sales act as a counter-cyclical balance against flagging domestic sales.
○ Increase sales and profits. Two forces are working in tandem to make
global business increasingly attractive: income rising to levels at which
potential sales are now possible.
○ 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.
○ Lower manufacturing costs. In industries characterized by high levels of
fixed costs, businesses that expand into global markets can lower their
manufacturing costs by spreading those fixed costs over a larger number of
units.
○ 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.
○ 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.
○ Raise quality levels. One reason Japanese products have done so well
worldwide is that Japanese companies must build products to satisfy their
customers at home, who demand extremely high quality and are sticklers for
detail. Businesses that compete in global markets learn very quickly how to
boost their quality levels to world-class standards.
○ 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. Responding to these differences imbues
businesses with a degree of sensitivity toward their customers, both domestic
and foreign.

business owners must strive to become “insiders” rather than just “exporters.”

Cost of Accessing the Global Market

Understanding trade costs is essential for creating policy interventions designed to
reduce such costs.
● 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 since they mainly value their businesses and profits
and not public interests.
● Specialization Leads to Over Dependency. When a firm relies on supply
of other goods from another country due to a more focused production of a
specific good, they are at risk of a supply shortage or stoppage.
● Cultural Identity Issues. Trade leads to diffusion of culture. Others get
lost while others are capable of adopting other culture
● Social Welfare Issues. It is important to maintain safety standards,
minimum wages, worker’s compensation and health benefits - all of these are
social welfare issues that cost business money.
 ● 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.
● 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.
● Depletion of Natural Resources. Increase in international demand of a
natural resource can cause over-exploitation and depletion of these
resources.
● 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.

It is important that entrepreneurs should answer these 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?
To these entrepreneurs and their companies, they see the world as a market
opportunity. An absence of global thinking is one of the barriers that most often limit
entrepreneurs’ ability to move beyond the domestic market, not the national boundaries.
This highlights the need of learning to think globally - being the first and most challenging
obstacle an entrepreneur must overcome.
Global thinking is the ability to appreciate, understand, and respect the different beliefs,
values, behavior, and business practices of companies and people in different cultures and
countries.

Strategies for Going Global

There are nine principal strategies which small companies can pursue in order to enter a
global presence: (1) creating a presence on the Web, (2) relying on trade intermediaries, (3)
outsourcing production, (4) establishing joint ventures, (5) engaging in foreign licensing
arrangements, (6) franchising, (7) using counter-trading and bartering, (8) exporting
products or services, and (9) 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.
Only after establishing themselves domestically did small businesses begin to think
about selling their products or services internationally. The Web makes that business
model obsolete because it allows small companies to maintain a low-cost global
distribution channel that they can utilize from the day they are launched.
Trade Intermediaries
Trade intermediaries are domestic agencies that serve as distributors in
foreign countries for domestic companies of all sizes. They rely on their networks of
contacts, their extensive knowledge of local customs and markets, and their
experience in international trade to market products effectively and efficiently all
across the globe.
The following are examples of trade intermediaries.
● Export Management Companies Export management companies
(EMCs). EMCs provide small businesses a low-cost, efficient, independent
international marketing and export department, offering services ranging
from doing market research and giving advice on patent protection to
arranging financing and handling shipping. The greatest benefits these
intermediaries offer small companies are ready access to global markets and
an extensive knowledge base on foreign trade, both of which are vital for
entrepreneurs who are inexperienced in conducting global business.
● Export Trading Companies. These are businesses that buy and sell
products in a number of countries, and they typically offer a wide range of
services such as exporting, importing, shipping, storing, distributing, and
others to their clients. Unlike EMCs, which tend to focus on exporting, ETCs
usually perform both import and export trades across many countries’
borders.
● Manufacturer’s Export Agents Manufacturer’s export agents (MEAs).
They act as international sales representatives in a limited number of markets
for various non competing domestic companies. Unlike the close, partnering
relationship formed with most EMCs, the relationship between the MEA and a
small company is a short-term one, and the MEA typically operates on a
commission basis.
● Export Merchants. These are domestic wholesalers who do business in
foreign markets. They buy goods from many domestic manufacturers and
then market them in foreign markets. Unlike MEAs, export merchants often
carry competing lines, which means they have little loyalty to suppliers. Most
export merchants specialize in particular industries, such as office equipment,
computers, industrial supplies, and others.
● Resident Buying Offices. Another approach to exporting is to sell to a
resident buying office, a government-owned or privately owned operation of
one country established in another country for the purpose of buying goods
made there.
● Foreign Distributors. Domestic small companies export their products to
these distributors, who handle all of the marketing, distribution, and service
functions in the foreign country.
 The Value of Using Trade Intermediaries
Trade intermediaries can get small companies’ products into foreign
markets quickly and efficiently. The primary disadvantage of using
trade intermediaries is that doing so requires entrepreneurs to
surrender control over their foreign sales. Maintaining close contact
with intermediaries and evaluating their performance regularly help
to avoid major problems, however.

Joint Ventures
Joint Ventures are domestic or international enterprises involving two or more
companies joining temporarily to undertake a particular project.
Types of Joint Ventures
● Equity based - operations that benefit foreign and/or local private
interests, groups of interests, or members of the general public
● Non-equity - known as cooperative agreements which parties seek
technical service arrangements, franchise and brand use agreements,
management contracts or rental agreements, or one-time contracts
Why Joint Ventures Fail?
● Define at the outset important issues such as each party’s
contributions and responsibilities, the distribution of earnings, the
expected life of the relationship, and the circumstances under which
the parties can terminate the relationship.
● Understand their partner’s reasons and objectives for joining the
venture.
● Select a partner that shares their company’s values and standards of
conduct.
● Spell out in writing exactly how the venture will work and where
decision-making authority lies.
● Select a partner whose skills are different from but compatible with
those of their own company’s.
● Prepare a “prenuptial agreement” that spells out what will happen in
case of a business “divorce.”
Advantages of Joint Ventures
● access to new markets and distribution networks
● increased capacity
● sharing of risks and costs (ie liability) with a partner
● access to new knowledge and expertise, including specialised staff
● access to greater resources, for example technology and finance

Disadvantages of Joint Ventures

Problems may arise if:

● the objectives of the venture are unclear
● the communication between partners is not great
● the partners expect different things from the joint venture
 ● the level of expertise and investment isn't equally matched
● the work and resources aren't distributed equally
● the different cultures and management styles pose barriers to co-
operation
● the leadership and support is not there in the early stages
● the venture's contractual limitations pose a risk to a partner's core
business operations

Foreign Licensing
Licensing is a relatively simple way for even the most inexperienced business
owner to extend his or her reach into global markets. Licensing is ideal for
companies whose value lies in its intellectual property, unique products or services,
recognized name, or proprietary technology. Foreign licensing enables small
businesses to enter the foreign markets with ease and with virtually no capital
investment. Although risks may include potential loss of control over its
manufacturing and marketing processes and creating a competitor. Securing patents,
trademarks and copyright protection may minimize these risks.
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
Countertrading and Bartering
● countertrade - a transaction in which a company selling goods in a foreign
country agrees to promote investment and trade in that country
● bartering - the exchange of goods and services for other goods and services
Exporting
Growing numbers of small companies are looking to export as a way of gaining or
maintaining a competitive edge.

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.
Steps for a sound export strategy:
Step 1. Recognize That Even the Tiniest Companies and Least Experienced
Entrepreneurs Have the Potential to Export
Step 2. Analyze Your Product or Service
Step 3. Analyze Your Commitment
Step 4. Research Markets and Pick Your Target
Step 5. Develop a Distribution Strategy
Step 6. Find Your Customer
Step 7. Find Financing
Step 8. Ship Your Goods
Step 9. Collect Your Money
● letter of credit - an agreement between an exporter’s bank and the
foreign buyer’s bank that guarantees payment to the exporter for a
specific shipment of goods.
● bank draft - a document the seller draws on the buyer, requiring the
buyer to pay the face amount either on sight or on a specified date.

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.
Importing and Outsourcing
In addition to selling their goods in foreign markets, small companies also
buy goods from distributors and manufacturers in foreign markets. Also the
trend of outsourcing in order to cut costs and remain competitive is prevalent
among companies selling low-cost items as well as luxury goods.
The following are steps for entrepreneurs considering importing goods and
services or outsourcing:
● Make sure that importing or outsourcing is right for your business
● Establish a target cost for your product
● Do your research before you leave home
● Be sensitive to cultural differences
● Do your groundwork
● Protect your company’s intellectual property
● Select a manufacturer
● Provide an exact model of the product you want manufactured
● Stay in constant contact with the manufacturer and try to build a
long-term relationship

Lesson 2.
Barriers to International Trade
Numerous trade barriers—domestic and international—restrict the freedom of
businesses in global trading.
 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

Companies must be flexible, willing to make adjustments to their products and

services, promotional campaigns, packaging, and sales techniques.

International Barriers
Two types of international barriers: (1) Tariff and (2) Nontariff

Need to know: tariff - a tax, or duty, that a government imposes on goods and
services imported into that country.

● 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.
● 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.

Need to know: dumping - selling large quantities of goods at prices that

are below cost in foreign countries in an effort to grab market share
quickly.

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.

Impact of Trade Barriers

● on Employment. Domestic economy will produce goods and services it
requires to meet its demand which inturn will result in more investment
allowing more employment
 ● 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.
● 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
● 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.

International Trade Agreements

The following trade agreements have reduced some of the barriers to free trade that had
stood for many years.
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
○ other provisions:
■ tariff reductions
■ elimination of non tariff barriers
■ simplified border processing
■ tougher health and safety standards
 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

Conclusion: To remain competitive, businesses must assume a global posture. Global

effectiveness requires managers to be able to leverage workers’ skills, company resources,
and customer know-how across borders and throughout cultures across the world.

In addition to the text given, you can check this link to expand your knowledge on
International Trade Agreements.
https://www.youtube.com/watch?v=-v3uqD1hWGE :
What global trade deals are really about (hint: it's not trade) | Haley Edwards |
TEDxMidAtlantic

Apply your Knowledge

ACTIVITY PROPER: Why Go Global?

Select a nation that interests you and write or note down its business
customs and practices. How is it differ from our country Philippine? How is it
similar. Use the matrix below.

Business Customs/Practices Similarities Business Customs/Practices Differences

Note:
Business practices are any tactics or activity a business conducts to reach its objectives
 Assess your Knowledge

The following are discussion questions which you can ponder on to maximize what you’ve
learned in this unit.
1. What forces are driving small businesses into international markets?
2. Outline the eight strategies that small businesses can use to go global.
3. What are the benefits of establishing international locations? What are the
disadvantages?
4. What is a tariff? What is a quota? What impact do they have on international trade?
5. What advice would you offer to an entrepreneur interested in launching a global
business effort?

Summing - up

Globalization is the process of integration of national economies into a global

economic system. Trade is the action of buying and selling goods and services and
allowed nations to benefit from specialization and economies to produce at a more
efficient scale. It has also raised productivity and incomes, increased economic
growth, supported the spread of knowledge and new technologies, and it has enriched
the range of choices available to consumers.
Going global can put tremendous strain on a small company, but
entrepreneurs who take the plunge into global business can reap the following
benefits:
○ Offset sales declines in the domestic market.
○ Increase sales and profits
○ Extend their products’ life cycle.
○ Lower manufacturing costs
○ Lower the cost of their products.
○ Improve competitive position and enhance reputation.
○ Raise quality levels
○ Become more customer-oriented
Understanding trade costs is essential for creating policy interventions designed to
reduce such costs.
● Fulfillment of Minority Interest
● Specialization Leads to Over Dependency
● Cultural Identity Issues
● Social Welfare Issues
● Environmental Issues
● Political Issues
 ● Depletion of Natural Resources
● Seizure of Power and Loss of Control
Global thinking is the ability to appreciate, understand, and respect the
different beliefs, values, behavior, and business practices of companies and people in
different cultures and countries.
There are nine principal strategies which small companies can pursue in order
to enter a global presence: (1) creating a presence on the Web, (2) relying on trade
intermediaries, (3) outsourcing production, (4) establishing joint ventures, (5)
engaging in foreign licensing arrangements, (6) franchising, (7) using counter-
trading and bartering, (8) exporting products or services, and (9) establishing
international locations
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 are domestic agencies that serve as distributors in
foreign countries for domestic companies of all sizes. They rely on their networks of
contacts, their extensive knowledge of local customs and markets, and their
experience in international trade to market products effectively and efficiently all
across the globe.
Joint Ventures are domestic or international enterprises involving two or more
companies joining temporarily to undertake a particular project. Its two types are
Equity based and Non-equity.
Licensing is formal permission from a governmental or other constituted
authority to do something, as to carry on some business or profession. It is ideal for
companies whose value lies in its intellectual property, unique products or services,
recognized name, or proprietary technology. Foreign licensing enables small
businesses to enter the foreign markets with ease and with virtually no capital
investment.
Exporting can be defined as the marketing of goods produced in one country
into another. 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. Indirect
Exports is a process of exporting through domestically based export intermediaries.
Numerous trade barriers—domestic and international—restrict the freedom of
businesses in global trading such as:
● 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.
● 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
● Business Barriers
● Cultural Barriers
 To remain competitive, businesses must assume a global posture. Global
effectiveness requires managers to be able to leverage workers’ skills, company
resources, and customer know-how across borders and throughout cultures across
the world.

References:

Christiansen, B. (2015). Handbook of Research on Global BusinessOpportunities.

Hershey, Pennsylvania, United States of America: Business Science Reference.
Retrieved from
https://www.academia.edu/10012606/Handbook_of_Research_on_Global_Business_
Opportunities
Goyat, S., & Nain, A. (2016, October). STRATEGIES OF ENTERING IN FOREIGN
MARKET. International Journal of Management Research & Review, 6(10). Retrieved
from
http://ijmrr.com/admin/upload_data/journal_Jyoti%20Goyat%20%203oct16mrr.pdf
Joint ventures and business partnerships. (n.d.). Retrieved from NI Business Info:
https://www.nibusinessinfo.co.uk/content/joint-venture-advantages-and-
disadvantages
Mittal, S. (2018, October). International Trade Barriers. International Journal of
Research and Analytical Reviews, 5(4). Retrieved from
https://www.academia.edu/37960838/INTERNATIONAL_TRADE_BARRIERS
Scarborough, N. M. (2011). Global Aspects of Entrepreneurship. In N. M.
Scarborough, Essentials of Entrepreneurship and Small Business Management (6th
ed., pp. 559 - 595). Prentice Hall Inc.
Sharp, A. G. (n.d.). Joint Adventures. Encyclopedia of Business. Retrieved from
https://www.referenceforbusiness.com/encyclopedia/Int-Jun/Joint-Ventures.html
University, L. S. (n.d.). MCQ Chap 01 - Chapter 01 Globalization and International
Linkages. Retrieved from coursehero.com:
https://www.coursehero.com/file/13070293/MCQ-Chap-01/