17 Global Marketing
—
1
CHAPTER 17 LECTURE NOTES
Describe the potential of small firms as global enterprises.
PPT 17-1
Chapter 17
Global Marketing
PPT 17-2
Looking Ahead
A.
PPT 17-3/TM 17-3
Small Businesses as
Global Enterprises
PPT 17-4
Questions to Consider
Before Going Global
PPT 17-5/TM 17-5
Before Going Global
2
Small businesses as global enterprises

Describe the "born global" trend.

Explain why more and more startups are initiated with global plans.

Go through the questions in Figure 17-1 regarding things to consider before
going global. Ask the students if any of these deserve disproportionate attention.
If so, which ones and why?

Discuss the mistakes that can be made if small firms go global without doing
their homework on the foreign market. See if students know of firms that have
gone into international markets and made serious mistakes.

Explain how regional economic integrations such as NAFTA and the EU can
open up international business opportunities, but make it clear that these
trends do not help with a host of hurdles to successful global expansion
(e.g., cultural, political, and economic differences between countries).
Identify the basic forces prompting small firms to engage in global
expansion.
PPT 17-6/TM 17-6
Forces Driving
Global Enterprise
[Acetate 17-6]
PPT 17-7
Big Emerging Markets
PPT 17-8
Expanding the Market:
Making the Most
of Experience
B.
The forces driving global business

Explain how and why small firm attitudes toward international business
have changed.

Repeat the claim from the text: "The rival on the other side of the street may
be a minor threat compared to an online competitor on the other side of the
globe!" Do the students agree with this claim?

Globalization is becoming more important to small firms, especially those
that are involved in technology-intensive enterprises.
1. Expanding the market (reach the 95% of consumers who live outside the
US)
a. Countries targeted

In the past, the focus was on developed countries.

The Big Emerging Markets are now capturing the attention of
businesses, both big and small.
b. Products promoted

Review Raymond Vernon's product life cycle theory and explain
the patterns of trade that resulted from this mindset.

Why are businesses changing their attitudes toward globalization
as they deal in increasingly specialized products? (Answer: finding
enough buyers to justify investment required for these products.)
c. Making the most of experience

Experience curve efficiencies—per-unit savings from repeat
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2.
3.
4.
3
production

Learning effects—insights from experience promote performance
Gaining access to resources

The importance of "going to where the action is"

In the past, firms have gone abroad in search of raw materials, but this
trend has continued more recently as firms look for the labor they need.
Cutting Costs

Going Global can help cut costs related to raw materials, labor, and
manufacturing

Discuss the attractiveness of regional free trade areas to small small
businesses considering location
Capitalizing on the special features of location

Example: Many companies locate design operations in Italy where local
employees display a flair for design.

Government incentives are sometimes offered to attract businesses.

Some businesses located operations within the EU to get inside what
they thought would become "Fortress Europe".

Some small firms have to locate abroad if they want to keep their
contracts with large client firms.
Identify and compare strategy options for global businesses.
PPT 17-9/TM 17-9
Strategy Options
for Global Enterprise
[Acetate 17-9]
PPT 17-10/TM 17-10
Strategy Options
for Global Firms
PPT 17-11/TM 17-11
Strategy Options
for Global Firms
PPT 17-12/TM 17-12
Strategy Options
for Global Firms
PPT 17-13
Strategy Options
for Global Firms
C.
Strategy options for global firms

"Accelerated internationalization" is becoming a reality for small firms
today.

Exporting/importing is only a starting place—other options are available.
1. Exporting

Exporting defined: selling products in foreign countries that were made
in the home country.

Outline some of the advantages of exporting (e.g., controlling costs,
promoting business in the domestic market).

Highlight the role of the Internet revolution in promoting exports.
2. Importing

The "flip side" of exporting—selling at home products from abroad

Ask students if they can identify products that were imported. Can they
identify any of there that were introduced by small companies?
3. Foreign licensing

Foreign licensing defined: selling to another firm the right to make and
sell the firm's products in specified foreign markets.

Royalties with limited effort can be a nice financial boost.

Point out the drawbacks of the licensing approach.

Explain to students how foreign licensing can help the firm to deal with
the threat of counterfeit goods.
4. International franchising

A variation of foreign licensing—applies to services rather than goods.

Students will be very familiar with the international franchising efforts of
McDonalds, but can they identify small firms that do this?
5. International strategic alliances

These alliances allow firms to share risk and pool resources as they
enter a new country market.

Often this involves the matching of a firm with technological
knowledge with a foreign partner with knowledge of local markets.
Chapter 17 Global Marketing
165

6.
PPT 17-14
Strategy Options
for Global Firms
4
Explain the challenges that global enterprises face.
PPT 17-15
“Country Risk Ratings” Maps
D.
PPT 17-16
Challenges to
Global Business
PPT 17-17
Challenges to
Global Business
5
"Matchmakers" can help to bring strategic alliance partners together.
Locating facilities abroad

This often starts with the opening of a sales office or locating a
production facility in another country.

Cross-border acquisitions: purchasing an established business in
another country.

Greenfield ventures: forming a new subsidiary in another country.
Challenges to global businesses
1. Political risk

Political risk is the risk that a country's political forces will negatively
affect a business operating within its borders.

Review the serious drawbacks that result from high political risk.

Have the students look over the map in Figure 17-5. Any surprises?
2. Economic risk

Economic risk is the risk that a government will mismanage its
economy and change the business environment so that it hinders the
performance of firms operating within its borders.

Explain why exchange rates can be so difficult to manage for small
firms.
3. Managerial limitations

Review the questions that the global firm must consider—these relate to
product planning, marketing, financial, management, accounting, and
legal issues.

Emphasize that going global complicates things considerably, but
reassure the students that assistance is available to help with this.
Recognize the sources of assistance available to support international
business efforts.
PPT 17-18
Assistance for
Global Enterprises
PPT 17-19
Assistance for
Global Enterprises
PPT 17-20
Assistance for
Global Enterprises
E.
Assistance for global enterprises
1. Analyzing markets and planning strategy

Begin by exhausting secondary sources of information.

Mention helpful sources of information—the SBA's OIT, USEACs,
Opportunities in Exporting, SBA Guide to Exporting, World Trade and other
magazines, reports from first-hand experiences, etc.
2. Connecting with international customers
a. Trade leads—review the sample of trade leads in Figure 17-6.
b. Trade missions—a planned visit to match small business owners with
potential new markets or foreign partners.
c. Trade intermediaries -- discuss the trade intermediaries mentioned in
Figure 17-7.
3. Financing
a. Private banks

Make sure students understand the role (benefit) of letters of credit

Explain the procedure typically followed in the issuance of a letter
of credit.
b. Small Business Administration—another helpful support to the small
firm with international aspirations
166
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Part 4 Focus on the Customer: Marketing Growth Strategies
SOURCES OF AUDIO, VIDEO, AND
OTHER INSTRUCTIONAL MATERIALS
South-Western’s BusinessLink Video Series presents Second Chance Body Armor: A Study in
Entrepreneurship (15 minutes, 23 seconds), free to adopters. One day while delivering pizza, Richard Davis
was shot. This experience inspired Davis to create a product that would help save lives. With $70 in
financing, Davis created and sold comfortable body armor. During the early years, Davis struggled with
finances, supplies, and distribution, but he persevered. Now Second Chance is synonymous with body
armor. Davis is a colorful character and a true entrepreneur. To show potential customers that his product
works, he shot himself! In the video, Davis discusses the advantages and disadvantages of being your own
boss, the challenge of promoting a product, and the continuous challenge of developing new products.
This video illustrates a number of the topics in Chapter 1. You can use it at the beginning to introduce
topics to come, or you can use it in your discussion of rewards and drawbacks of entrepreneurship,
characteristics of entrepreneurs, precipitating events, or founders/risk takers. (It could also be used with
Chapter 4 on business startups or with Chapter 14 on promotion.)
To request your free copy of all five BusinessLink videos that accompany this text, contact your SouthWestern/ITP sales rep or ITP Faculty Support (fax (415) 592-9081 or E-mail review@swpco.com). Ask for
ISBN 0-538-86708-6.
Something Ventured is a comprehensive video primer with 26 half-hour programs produced by
INTELECOM to parallel this textbook. The second video, titled On Your Own?, provides an introspective
look into small business ownership, with owners themselves commenting on the difficulties of startup and
the knowledge, tools, and commitment required. Entrepreneurs featured represent different businesses,
backgrounds, and areas. Contact your South-Western/ITP sales rep or ITP Faculty Support (fax (415) 5929081 or E-mail review@swpco.com).
The Fire Within is a video from the series entitled Venturing: The Entrepreneurial Challenge and is
produced by Vermont ETV. The program introduces the concept of entrepreneurship and discusses the
qualities and capabilities frequently found in entrepreneurs: passion, the ability to embrace and welcome
risks, persistence, commitment, desire, self-confidence, good business skills, and the ability to delegate. The
program features five different entrepreneurial companies. The entire series of 13 half-hour videos is
available for under $100. Call (800) 866-1666.
Inc. Business Resources provides three videotapes on entrepreneurship: How to Really Start Your Own
Business ($59.95), How to Succeed in a Home Business ($39.95), and Women in Business ($39.95). Call (800) 4680800.
—
ANSWERS TO END-OF-CHAPTER DISCUSSION QUESTIONS
1.
p. 375 - 376
Discuss the importance of a careful cultural analysis to a small firm that wishes to enter an international market.
The chapter discusses how costly mistakes are made when firms do not understand the cultural
characteristics of a foreign market. Students may respond to this question using examples from the
textbook.
2.
How have trade agreements helped reduce trade barriers? Do you believe these efforts will continue?
Trade agreements help reduce trade barriers by reducing the number of trade requirements that serve
as nothing but obstacles to trade. In the example given in the chapter, German trade barriers were the
reason an on/off switch had to be removed from an alarm bell on surgical testing equipment before the
product could be sold in Germany.
p. 375
Chapter 17 Global Marketing
167
We appear to be in a period of positive change regarding trade barriers. The recent implementation
of the North American Free Trade Agreement and the European Union are only two examples.
Advances in these arrangements (e.g., the introduction of the Euro as the currency in the EU) are likely
to accelerate this trend.
3.
Do you believe that small firms should engage in international business? Why or why not?
This is a question that obviously calls for an opinion, so responses will vary. However, the chapter
points out that going global can provide many benefits such as expanding markets, cutting costs,
gaining access to resources, and capitalizing on special features of location. These are strong incentives.
Furthermore, "born global" and other internationalized small businesses have shown that small firms
are often up to the task, so the arguments against going global clearly would need to be qualified.
4.
Identify the four basic forces driving small businesses to enter the global business arena. Which do you think is
the most influential in the globalization of small firms?
The four basic forces driving small firms to internationalize are the appeal of (1) expanding markets, (2)
cutting costs, (3) gaining access to resources, and (4) capitalizing on the special features of location. No
strong evidence exists to suggest that one of these is more important than the others in drawing small
firms into the global business arena, so opinions may vary. Nonetheless, students are likely to focus on
market issues and thus may lean toward expanding markets as the most influential force.
p. 376 - 382
5.
Give examples of some emerging motivations persuading small business owners to go global. Are any of these
motivations likely to remain powerful forces 10 years from now? Twenty years from now?
Several shifts seem to be emerging in the forces driving firms to globalize. Whereas firms once did this
to extend the product life cycle, now the push is on to find buyers for specialized products. Cost
cutting was accomplished by internationalizing to reduce labor and transportation costs, but obtaining
tariff reductions seems to be a stronger motivation in recent times. In the old economy, accessing raw
materials was a great motivation, but this seems to be giving way to a search for human resources in the
new economy. Finally, tapping the unique features of a foreign location continues to be an important
goal of internationalizing firms, but following large client firms as they locate abroad seems to be an
emerging motivation for small firms. These trends are likely to continue for the next 10 years, but all
bets are off when projecting out so far as 20 years.
6.
Why is exporting the most popular global strategy among small businesses? Do you think this should be the case?
Exporting is popular among small firms because it represents a way to get into the global game with
minimal costs and commitment of resources. It also offers other advantages such as promoting
business in the domestic market. Thus, exporting is a good way for small firms to get their
international feet wet. However, the alternatives hold great potential and should not be overlooked.
Indeed, many small firms that have been exporting for some time may have passed over more resourceintensive options that they could manage to try and that offer greater profit potential. Furthermore,
those that have not attempted to open avenues in foreign licensing and international franchising may be
leaving money on the table from markets that the firm will never be able to exploit in any other way.
These alternatives obviously require various investments from the firm (time, capital, managerial
attention, etc.), so there are limits to what can be done in all cases.
p. 376
p. 382 - 383
7.
What impact has the Internet had on the globalization of small firms? How do you think small companies will use
the World Wide Web for business in the future?
Obviously, the Web has opened up new opportunities for small companies that want to penetrate
international markets. It provides cheap access to consumers around the world, at least for those who
have access to the Internet. The ways in which small firms will use the Web in the future is a matter of
speculation. Students should be encouraged to pursue this avenue of thought, but there are few
definite answers.
8.
What non-export strategies can small businesses adopt? In view of the unique needs and capabilities of small
firms, what are the advantages and disadvantages of each of these strategies?
p. 383
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Part 4 Focus on the Customer: Marketing Growth Strategies
Foreign licensing, international franchising, international strategic alliances, and establishing an
international presence (e.g., cross-border acquisitions, greenfield ventures) are possible alternatives to
exporting for small firms. Foreign licensing may offer the small firm the easiest and quickest alternative
but does require it to give up a great deal of control. International franchising offers drawbacks and
benefits similar to foreign licensing, but involves only service-based firms. International strategic
alliances are more complex but may offer certain advantages that result from sharing risks and pooling
resources. Finally, establishing an international presence yields the greatest control for the firm, but the
cost of such an operation places this option out of reach for most small firms, except perhaps where
overseas operations are focused in one or a few markets.
9.
p. 386 - 388
What are the three main challenges small businesses face when they go global? What strategies can a small
company use to deal with each of these challenges?
First, small firms must take into account political risk. To deal with this risk, small firms can take a
number of approaches, such as avoiding the country or passing the risk along to a third party through
various forms of insurance. Second, economic risk can have a significant impact on the success of small
firms involved in international business. The most apparent impact from this risk comes in the form of
currency exchange rate fluctuations, and small firms can deal with this risk by taking contracts in US
dollars or using buy-forward contracts and other financial instruments with which a knowledgeable
banker can assist. Finally, small firms will continue to run up against managerial limitations. Many
questions will arise that relate to products, marketing, financial strategy, management, accounting
systems, legal issues, etc. Small firms can take care of these by going slowly and learning along the way
through trial-and-error (hoping to limit losses along the way) or they can get assistance from various
services that are available through the SBA or by employing the services of trade intermediaries and
consulting firms.
10. What forms of assistance are available to small global firms? Which is likely to be of greatest benefit to small
companies? Why?
p. 389 - 393
Many forms of assistance are available, including materials and advice provided by government
agencies (such as the SBA) or visiting with first-hand observers--these can help with market analysis
and strategic planning. Small businesses can connect with international customers through published
trade leads (many available online), by joining trade missions, or by using the services of a trade
intermediary. Financing is another serious hurdle to internationalization, but sources such as private
banks and the SBA are available to help. None of these should be overlooked. However, the sources of
information and assistance from the government will probably provide the greatest benefit because
they are relatively comprehensive (i.e., the government provides support to deal with just about any
problem that may be encountered) and inexpensive, if not free.
—
COMMENTS ON CHAPTER “YOU MAKE THE CALL” SITUATIONS
Situation 1
1.
What types of businesses would prosper in China? Why?
China offers opportunities for small businesses that produce goods as well as those that provide
services.
Small manufacturers in certain high technology industries, including wireless
telecommunications and computers, may find success in China. Large businesses tend to dominate the
hardware side of telecommunications and computers, though, so small businesses may be successful by
providing components, peripherals, or supporting equipment. This may be done by partnering with
large firms with established brands or by selling these items directly to consumers. The demand for
consulting services in China is high. Small businesses with knowledgeable employees who can provide
consulting, training, or information technology services have numerous opportunities in the market.
Since China is shifting further toward a free market economy and has even joined the World Trade
Chapter 17 Global Marketing
169
Organization, Chinese firms (privately-owned and state-owned) are seeking greater understanding of
Western business practices. Chinese firms are hiring Western firms for training and consultation.
2.
What are the challenges and risks associated with doing business in China?
Small companies doing business in China face a number of challenges and risks. While the
potential upside of the Chinese market is its large size, the income levels in China are lower. Businesses
must therefore consider the actual size of the potential market rather than the size of China’s
population. If producing or selling goods, particularly ones that are tied to brand image or brand
names, the potential for counterfeiting must be recognized. Language and cultural differences pose
additional problems. Business practices differ significantly in China, compared to the U.S. Another
challenge, which is related to and complicated by language and cultural differences, is building
relationships with key constituents (e.g., customers, government agencies, distributors, suppliers).
Guanxi (or connections) are close links between friends and relatives that have developed over many
years. In many cases, these connections are critical to success when conducting business in China.
3.
What steps should Moss take to address these challenges and risks in order to increase his chances of success in the
market?
There are a number of approaches to addressing the language and cultural differences. The ideal
way to bridge the language gap is to speak the language. Unless a company has employees who
already speak Chinese, however, there may not be sufficient time to learn a new language before
entering the market. Small businesses can hire translators or may hire new employees who speak
Chinese. Education and training can help businesses and employees to understand cultural issues and
differences. This is likely to make the employees more aware of such differences, but they may not be
fully equipped to address these differences. Forming a strategic partnership with a Chinese firm may
help overcome language and cultural barriers. In addition, partnerships can facilitate market entry if
the chosen partner has already established relationships with distributors, target customers, and others
needed to conduct business in China. Finding a partner and negotiating a partnership agreement, in
itself, may prove a challenge for small businesses. However, small businesses can draw on their
existing relationships with other businesses and governmental agencies that have already developed
ties in China. One goal for Moss in forming such a partnership should be to begin to develop his own
relationships with Chinese customers, suppliers, and distributors. He must also remember that
patience is required for doing business in China. Results may not come immediately.
Situation 2
1.
What sources of information would be helpful to Cooper?
Cooper should consult three general sources of information. First, she should do some background
research (consulting books and Internet resources) to learn the ins-and-outs of exporting. Taking this
step will give her a rough idea of what is involved in distributing goods in foreign countries, what
options are available to her as she goes international, and how much time and effort will be required to
sell abroad. Second, she should contact the appropriate trade association(s) to learn more about
potential demand and the specifics of required documentation, government clearances, etc. Finally, it
would be helpful to talk with the owners of a few small firms (that do not compete with her own) that
have added international sales to their operations. This will provide a practical view of the potentials
and headaches involved in such expansion.
2.
Would you recommend that she consider using an international distributor? If so, what characteristics should she
look for in a distributor?
Using an international distributor is often beneficial for the novice exporter, and this is likely to be
a good option for Cooper’s business. However, it is imperative that Cooper consider several factors if
she selects a distributor, including the following: cost of services, market coverage, flexibility in
transportation and product handling, reputation and track record with other client firms, and
knowledge of distribution systems in targeted international markets. It is rarely best to choose an
international distributor merely because its services are the cheapest (though this is an important
matter), but the exporter should make this decision looking across all relevant factors.
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3.
Do you think that exporting is a feasible alternative for Cooper at this time? Why or why not?
Exporting is probably a good idea for Cooper. From a rational perspective, her firm is likely to
benefit from international sales as long as marginal revenue from these sales exceed marginal costs of
offering the products abroad. However, several cautions should be heeded. For example, international
business is complicated, so Cooper should be sure that she knows what she is getting into. If the added
hassles of international expansion will take the pleasure out of overseeing her business, she should
think twice about this option. Also, companies find it challenging to manage overseas operations where
circumstances are more likely to be beyond their control. Is it wise for Cooper to start exporting now to
promising markets abroad and jeopardize the reputation of the firm when an order is mishandled or
contract misunderstandings arise? Missteps early on will not bode well for expanding business later
on, especially when it comes to critical products such as the surgical equipment Cooper’s firm supplies.
Situation 3
1.
What obstacles would an entrepreneur have to overcome to establish a pizza restaurant in a country with a
developing market-based economy, such as Kazakhstan?
Since pizza restaurants do not currently exist in Kazakhstan, local entrepreneurs (including
Afgazar) are unlikely to have the requisite expertise to start one. For example, pizza requires unique
inputs and combinations of ingredients (specified by recipes), as well as special equipment (pans,
ovens, etc.), and these features of the business will be completely unfamiliar to the entrepreneur and to
those who might be hired to work in the new restaurant. Thus, the restaurant is not likely to work
without a great deal of training, which can be costly. Established U.S. pizza franchises have not yet
entered far more promising markets, so they are unlikely to be interested in supporting such a venture,
so knowledge of the business must be cobbled together from wherever sources the entrepreneur can
find.
Beyond initial concerns, several other questions arise. Is there sufficient market demand for a
foreign food that is unknown to locals? How would the entrepreneur conduct inexpensive marketing
research when potential customers do not even know what pizza looks like? Will the necessary
ingredients and equipment be available to operate such a restaurant? What about the reliability of
suppliers to the local market for required inputs? Will the perishability of ingredients be a problem?
These issues and many others should be settled before making a decision to commence operations.
2.
Is Dr. Afgazar’s idea of developing a pizza restaurant in Kazakhstan ahead of its time? That is, do you think the
economy of Kazakhstan is sufficiently developed to support a pizza restaurant?
This is an important question. The primary issue here is whether the local market will be able to
afford to buy pizza. In emerging markets, most people and do not have enough discretionary income
to eat out, so exotic foods are financially out of reach to the majority of consumers. The obvious
response is to reduce the price to make pizza affordable, but this cuts into profit margins where costs
are already high (i.e., inputs will be costly to procure because the food is unique and thus its inputs are
not readily available).
3.
What methods could an entrepreneur use to evaluate the likelihood of success of a pizza restaurant in Kazakhstan?
To reduce risk exposure, Afgazar should concentrate on testing the market in small ways to get a
feel for reactions in Kazakhstan. For example, she could begin by importing small quantities of the
ingredients she would be likely to use in restaurant operations later. Then, she can make a few crude
pizzas at home and invite friends to come and see if they like it. If the response is positive, she could
make more pizzas at home and do taste tests by setting up a stand and handing out samples to those
who pass by. If market reaction is favorable at that point, more sophisticated marketing research would
be warranted. In addition to testing the market directly, Afgazar should assess demand indirectly by
determining how well other restaurant operations in the area are doing. If restaurants in general are
not thriving, the potential for success of a pizza restaurant may not be great.
Chapter 17 Global Marketing
—
171
ANSWERS TO EXPLORING THE WEB EXERCISES
For each chapter, the instructor’s manual will include a short summary of suggested results students will have after
completing the various Web exercises. Because the Web is a constantly changing medium, the answers may vary, and
the links may change as well. For this reason, answers are only suggested, and the direct URL for resources, where
required, is provided.
Exercise 1
The U.S. Small Business Administration provides export information and development assistance to help
small businesses take advantage of export markets including trade counseling, training, legal assistance, and
publications. More specifically, the U.S. SBA offers the following services.
 U.S. Export Assistance Centers
 Export Publications
 Export Legal Assistance Network (E-LAN)
 Small Business Development Centers (SBDCs)
 Service Corps of Retired Executives (SCORE)
 Trade Links
 TradeNet's Export Advisor
Exercise 2
The BuyUSA Web site can connect one with thousands of qualified international buyers, distributors and
agents. For a $50 annual subscription fee, BuyUSA allows you to:

Post your company profile for automatic matchmaking

Search for and email qualified international buyers

Receive email notices of new trade lead opportunities

Submit and respond to offers to sell your product

Conveniently track trade leads and matches in your "MyBuyUSA"
Exercise 3
Chapter 3 addresses methods of market entry with an emphasis on exporting.
—
SUGGESTED SOLUTION TO CASE 17:
SUNNY DESIGNS, INC.
1.
What is the primary force that motivated Hwang to internationalize? Did he make a good decision when he located
his manufacturing facility in China? What other countries should have been considered? Why?
Hwang was obviously moved to give China a try because of his concern for the cost of producing his
furniture. And who could blame him, with the 20-1 advantage over American labor costs, lumber costs cut
in half, and the cost of facility rental at only 20% of that in the U.S. However, he learned some very difficult
lessons about managing an operation in China. It seems that he was aware near from the start of some of the
challenges of doing business in China, such as maintaining quality of production, but other developments
seemed to catch him off guard. For example, the political risk of doing business became apparent and the
172
Part 4 Focus on the Customer: Marketing Growth Strategies
lack of respect for contracts was another huge hurdle. (In many Asian countries, negotiating a contract is
only the beginning of a relationship and adjustments along the way are to be expected.)
Given the cost emphasis and the labor intensity of Hwang's business, locating production in a low-cost
labor country makes sense. However, cost isn't everything and poor quality furniture is unlikely to sell in the
U.S. market, regardless of how cheaply it can be produced. Since labor costs are critical, other countries that
could have been considered would include Asian nations nearby (Indonesia, Thailand, and India come
quickly to mind). However, the NAFTA agreement should make Mexico an attractive production location,
given its low wages and reputation for excellent handcraft skills. It would also be an advantage where
transportation costs (which are considerable when shipping furniture) and tariffs are concerned.
2.
What strategy option did Hwang select for his China-based enterprise? Did he select the right strategy?
At first he tried a sourcing strategy, whereby a Chinese manufacturer produced furniture for
Hwang, which was then imported into the United States. However, this was not a successful attempt.
To correct for the shortcomings of his first endeavor, Hwang decided to establish his own international
presence via a Greenfield startup. In other words, he decided to start his own factory operation there
and did so from scratch, rather than trying to acquire an established furniture manufacturer there. This
seems to have been the best strategy, and was certainly more successful than the earlier effort, but even
this alternative had to be adjusted to local cultural and political practices.
2.
Given the details of the case and the key facts about China, assess the opportunities for U.S. firms in China. What
features of the country should be particularly attractive to small businesses seeking to expand internationally?
It is China's huge population that draws many large businesses to the country, and this is also
attractive to small businesses as well (though perhaps not as critical as to their large firm counterparts).
The fact that China is the fastest growing market for exports from small- and medium-sized firms
indicates that market appetite for foreign-made products is strong, but it may also be a sign that smaller
operations are of interest to the Chinese since these firms are in a weaker bargaining position and often
offer cutting-edge technologies (e.g., in computer software) in which China is interested. However,
Chinese business partners like to do business through established relationships, so large firms may
have an easier time establishing connections, given their long-term experience in overseas markets,
perhaps even in China.
3.
What challenges to doing business in China did Hwang experience? Given the key facts about China, list issues
that may present distinct problems for small U.S. firms doing business there.
Hwang's problems in China were mostly cultural and political in nature. This is not unusual for
any firm, large or small, but smaller competitors should brace themselves the hardest for this, given
their limited bargaining power. Also, small firms may be particularly plagued by counterfeit rip-offs.
This activity is difficult to stop in China. Smaller firms will be disproportionately affected since large
companies are likely to have already contracted with the strongest local partners who then would have
a vested interest in reducing counterfeit activity.