How do small firms differ from large firms

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Entering Foreign MarketsStrategies for Small
Firms
Becky Reuber Rotman School of Management
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The profile of Canadian exporters

• Exports are roughly 50 of GDP.
• Sector
• 88 goods, 12 services
• Growing sectors
• High-tech exports (goods and services)
• Size of firm
• 70 of exporters have sales lt 1 million
• large firms account for 90 dollar value
• Geographic
• 85 to U.S.

3
In many sectors, Canadian firms need to export in
order to survive.
Sector Export Intensity (foreign sales/total
sales) Canadian firms U.S. firms Computer
equipment 89 40 Engineering/scientific
equipment 73 30 Games and toys 63 19
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Products are exported more than services.
Sector Canadian export intensity
(foreign sales/total sales) Computer
equipment 89 Furniture 56 Software
products 52 General management
consulting 27 Multimedia 21 Engineering
consulting 10 IT consulting 5
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Interpret industry averages with a grain of salt
there are large within-sector differences.
Sector Canadian export intensity
(foreign sales/total sales) Food
6 Fish products 57 Frozen fruit and
vegetables 30 Candy 20 Biscuits 10 Can
ned/preserved fruit and veg 5 Poultry
products 2
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Exporting improves resources and capabilities.

• Exporting provides access to a larger market.
• Exporting enables access to foreign skills,
  techniques and technology.
• Exporting helps firms compete against foreign
  firms operating here.
• Exporters can become stronger in terms of
  growth, productivity, profits, job creation, RD

7
Small firms have disadvantages compared with
large firms.

• Less money investment, pricing, recovery after a
  mistake
• Fewer economies of scale costs
• Fewer managers and employees less capacity to
  collect information and to get things done
• Less diversified greater risk
• Not as well known less able to capitalize on
  reputation and track record

8
Small firms have disadvantages compared with
large firms -contd.

• Organizational capabilities are more narrow and
  less established usually have less expertise in
  manufacturing, marketing, sales, distribution
• Customer base is more narrow
• Supplier base is more narrow

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The age of the firm also matters.
Small Firm Large Firm
disadvantages
people diversity reputation marketing/sales cust
omers suppliers
Entrant Established
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The age of the industry also matters.
Small Firm Large Firm
Entrant Established
disadvantages
people diversity reputation marketing/sales cust
omers suppliers
New Established Industry Industry
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Traditional IB stage theory

• Firms enter foreign markets successively as they
  become older and larger.
• Firms gradually increase their commitment to
  foreign markets.
• Firms enter proximate countries (in terms of
  geography and culture) first.
• Emphasizes learning through experience.

Has recently been challenged by emergence of
born global firms.
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Born Globals are enabled by

• Advances in transportation and communications
  technology
• A more open political economy
• Internationally-experienced management
• Increase in inter-firm collaboration
• Inherent advantages of small firms

13
Small firms have advantages compared with large
firms.

• Have less structural inertia can move faster
• Have less technological myopia can adapt
  faster
• Can be more entrepreneurial greater focus,
  flexibility and innovative capacity
• Can start in niches large firms arent interested
  in

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The advantages of small/new firms
Small Firm Large Firm
Entrant Established
advantages
speed adaptability flexibility innovative small
niches selective focus entrepreneurial
New Established Industry Industry
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Need to mitigate the disadvantages in order to
exploit the advantages.
Disadvantages Advantages
people diversity reputation marketing/sales cust
omers suppliers
speed adaptability flexibility innovative small
niches selective focus entrepreneurial
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Feasible options depend on

• Starting position
• Established firm / established industry
• New firm / established industry
• New firm / new industry
• Degree of industry internationalization
• Multi-domestic
• Global

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Established firm/established industry
Characteristics

• Strengths
• Current exchange partners
• Some buffering of risk from domestic business and
  accumulated resources
• Weaknesses
• Domestic mindset lack of international knowledge
  and experience
• Need for organizational unlearning

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Established firm/established industry Jumpstart
and build

• Incremental, multi-domestic expansion
• Build on current customer/supplier base
• Explore options commit gradually
• Use available export support programs
• Develop an international vision
• Board appointments
• Internationally-experienced management
• International business network

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New firm/established industry Characteristics

• Strengths
• Born with an international vision
• Can learn from existing practices
• Weaknesses
• Established competitors
• Unknown and unproven
• Limited financial and human resources

20
New firm/established industry Focus and build

• Niche focus
• Target foreign exchange partners
• Product/service with clear advantages
• Innovate quickly
• Extensions closely linked to firms unique
  advantages
• Closely coordinated management
• Geographic, product and partner expansion
• Marketing/sales depends on whether industry is
  global or multi-domestic

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New firm/new industry Characteristics

• Strengths
• Born with an international vision
• Few, if any, established patterns of doing
  business
• Weaknesses
• Limited financial and human resources
• Dependence on few exchange partners

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New firm/new industry Improvise and build

• Multiple design iterations with frequent testing
  (product, partners, markets)
• Promote learning
• International diversity (technological, cultural,
  geographic, targeted segments)
• High-control modes of foreign market entry
• Tightly integrated management team

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Summary of strategies
Firm Established New New Industry Establi
shed Established New Short
term Jumpstart Focus on Improvise with
current technology stakeholders niche Build In
ternational Marketing Integrated capabilitie
s capabilities team
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Large firm / small firm partnerships can be
difficult ...

• Inaction They are turtles. Youre not a high
  priority, so you get put on hold. Theres a
  problem of response time.
• Exploitation They are bullies. They expect us
  to work full-time for them and squeeze us on
  price. Then they try to take our technology.
• Notoriety They are considered shaky right now.
  Im not sure for how long we can rely on them.

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Need to beg and borrow to get started in the
short term ...but build capabilities and
alternatives to reduce dependence in the longer
term