International Opportunities for Small Firms

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Table of Contents

Introduction
Technology as an opportunity
Financing as an opportunity
Franchising as an opportunity
Emerging economies as a opportunity
Conclusion
References

Introduction

Global managers are recognizing the ever increasing opportunities in the global markets and the need to expand internationally. In order to position in the global market, small and medium sized firms need to develop skills, come up with innovations, aptitude and knowledge so as to compete effectively with the multinational corporations and other established firms in the international markets (Doole & Lowe 2008, p.3).

In fact, the opening of the global market to all firms including the small and medium sized has been brought about by many factors particularly the development in the information communication technology.

This paper will critically examine the international opportunities that come with the emerging globalized markets for the small and medium sized enterprises in the manufacturing sector. Specifically, the paper will explore the opportunities that arise in the manufacturing industry as a result of the advancement in technology.

It will further look at the international opportunities that relates to funding, free market zone, franchise and the knowledge flows within the international industries. Conclusion and recommendations will then summarize the reasons why small enterprises should go global and exploit the emerging market opportunities.

Technology as an opportunity

Technology has changed the way businesses are being conducted in the global arena. In fact, technology has not only expanded the market for the small and medium sized enterprises, but it has also enabled and enhanced the information flow. It has facilitated the exchange of information, payments as well as the transaction of goods and services (Bennett 1998, p.28).

Moreover, the open information has propelled production of goods and services besides fostering competitiveness of firms which in turn led to innovativeness. In addition, the information exchange have expanded the accessibility of manufacturing capabilities by all small firms in the sector thereby representing an opportunity to those that are in the start up stage.

According to Hamill and Gregory (1997, p.18), the manufacturing industry enjoys low barriers to entry as a result of the advancement in information technology (IT). Basically, IT provides greater opportunity for many firms to venture in the domain. The structural composition of the sector is ever changing due to the information technology.

When these structural changes are combined with the outsourcing model, greater opportunities are created for smaller enterprises found within the manufacturing sector.

For this to be achieved, conditions must exist where large firms outsource or subcontract smaller firms, thus creating opportunities for the latter firms. Currently, such conditions are in existence but are driven by higher labor and operation costs. With marginal shifts towards the products as well as value addition, larger firms continue to outsource smaller enterprises for the much needed services.

Other areas where small firms in the manufacturing sector can benefit as a result of technology are e-commerce. E-commerce can help small firms in the manufacturing sector to locate and expand anywhere in the world and compete well with established organizations (Treese & Stewart 1998, p.16). Adoption of e-commerce practices together with its infrastructure can foster the firm’s performance and growth. Moreover, e-commerce increases the small firms’ competitive advantage over others that operate within the same global markets.

Research carried out in the manufacturing industry indicate that those small firms that conduct business through the internet increase the value of their products which in turn add value to the customers (Hamill & Gregory 1997, p.18). The small firms can as well integrate their existing infrastructure such as inventory, sales and distribution systems with the new technology to increase their effectiveness and efficiency as regards to production and other related business processes. The result is considerable reduction in the operation costs.

Baldwin et al. (2001, p.107) claim that there are several opportunities that small businesses in the manufacturing sector can gain from when they effectively use the internet. For instance, internet has relatively improved the quality of the small firms’ customer products to an extent that larger manufacturing firms cannot match. The reason is that larger firms take too long to adapt to the new technologies and benefits that come with it.

The comparative advantage that comes with the internet use can tremendously benefit the small firms. For example, the internet technology allows small firms situated in various geographical regions to attract and retain customers who are widely dispersed and who they would have not been able to reach (Baldwin et al. 2001, p.107).

Though there are some barriers to internet such as lack of time and specialized technical expertise, a majority of small firms in the industry have adopted the internet use and have proper internet accessibility.

Basically, the internet provides small firms with opportunities such as niche marketing, export generation and strategic alliances brought about by the development and utilization of information technology (D’Cruz & Hussain 2004, p.7). Internet has influenced on the way small firms communicate with their clients around the world, how they manage their information and the way they present their image.

The result is that, the created positive business processes will have considerable impacts at various business levels including internal organization, industry, external contacts, manufacturing and administration. The business processes will also influence other areas such as small firms’ productivity, knowledge management information retrieval and operating environment.

Financing as an opportunity

One of the factors that hinder the growth of small firms is lack of financial infrastructure to support their expansion. In most cases, especially in the developing countries, many small firms found within the manufacturing industry lack enough capital to fund their activities. In fact, every growth phase of any small firm not only in the manufacturing sector, but also in other industries, requires funding.

In most cases, growth opportunities for these firms within the global market are being hampered by inaccessibility of finance (Baldwin et al. 2001, p.107). This trend is now changing with new innovations in the financial and capital markets. Even though most financial infrastructures found in various countries do not favor the growth of small businesses, new innovative institutions such as the venture capitals are now filling the gap.

Small firms venturing into the global opportunities requires further injection of capital so as to fund their manufacturing growth as well as distribution capacity to meet the global market needs. Moreover, such firms require additional capital to fund the assumed research and development. Venture capital increases thus increasing small firms opportunities by alleviating the information asymmetries and uncertainty that are often associated with these firms.

Venture capitalists intensively scrutinize firms prior to the capital provisions and help the firms to manage invested capital. Indeed, venture capitalists spread out the financing overtime, form alliances and syndicates with other venture capitalists so as to reduce the ensuing business risks. Venture capitalists equally raise their capital from various investors and they invest them in funds that are often structured as limited partnership (Stokes & Wilson 2010, p.27). The resulting effect is that investors’ liabilities are limited by the amount that was invested

The major objective of venture capitalists is to optimize the rate of return on the invested amounts. However, there are several mechanisms through which venture capitalists can use to turn illiquid stakes of the private companies into realizable profits. One of the mechanisms is the use of the initial public offerings, where the smaller manufacturing firms can offer their securities to the public and get their capital for expansion and exploitation of the global opportunities (Stokes & Wilson 2010, p.27).

Another means is to merge with other companies or consequently allow large firms to absorb the smaller firms. Nevertheless, this would not be tenable. Whichever method used, the key function is to finance the activities of the smaller manufacturing firms.

The other advantage with the IPO is that smaller firms can cheaply obtain more finance from banks for its expansion. The reduced costs of the bank credit are partly related to the improved financial information that is associated with the securities exchange listing and partly associated with the stronger bargaining position gained. As the companies continue to grow and venture into the global opportunities they majorly rely on the banks and institutional investors as the principal financial source.

Franchising as an opportunity

In today’s business environment, many entrepreneurs are getting rid of the routine schedules and expanding their business internationally. However, expanding small manufacturing businesses internationally is risky and could lead to failure. It is under the light of such situations, franchising becomes alternative way of expanding into global market.

Although an entrepreneur is expected to work hard and focus on the businesses, he/she is never required to have competence in business management to internationalize through franchising. This is the reason franchising has emerged to be an important opportunity among the small manufacturing businesses that wish to expand internationally. Indeed, recent studies reveal that every eight minutes of a business day, a new franchise is opened.

One of the challenges facing small manufacturing businesses when deciding to enter international markets is lack of confidence given the presence of larger manufactures. As a matter of fact, franchising creates this confidence in manufacturing entrepreneurs. When the higher roles are taken by another person, the entrepreneur is more prepared to invest in the market. In as much as the franchiser is performing well, small manufacturing businesses are assured of success in new markets.

Furthermore, a potentially important aspect of a franchise business is the ability to enhance competitive advantage of small manufacturing businesses (Roelofse 2006, p.182). It is apparent that a franchiser has an upper hand in terms of market knowledge and resources that make him able to position the franchisee better in the market.

For instance, if a small manufacturing business makes an arrangement with a Chinese franchiser, there is the possibility of manufacturing products at a lower cost and building on the low cost strategy. At the same time, the franchisee is advantaged to have the products manufactured with new technologies that can add to economies of scale.

Emerging economies as a opportunity

In the recent past, we have witnessed several economies emerging such as Brazil, India and China which create new opportunities for internationalizing small manufacturing businesses (Stokes & Wilson 2010, p.20). These growing economies have impacted on several important factors that determine the success of these businesses.

First, the emerging markets are characterized by technological changes that can drive the manufacturing businesses towards success. Technology is directly related to manufacturing activities and hence important to small businesses as well.

Secondly, the emerging markets can offer not only skilled labor, but cheap labor as well to small manufacturers. Since manufacturing cost is a challenge to the businesses, this provision is more important to small manufacturers. By investing in these markets, small manufacturing entrepreneurs are able to leverage their prices better than manufacturers whose facilities are established in developed markets. Therefore, they are able to compete for new markets through low cost strategies.

Moreover, the emerging markets have revised their policies and regulations in favor of small businesses. For instance, a small manufacturer wishing to expand business in European markets will certainly face stricter polices and regulations than one expanding in the Asian market.

Many of the emerging markets have smaller charges on exports and imports when compared to developed markets. Such policies are exactly what small manufacturing businesses want in order to fully implement their expansion strategies. They have little capacity to meet high tax policies and at the same time make profits in some developed markets. Therefore, internationalizing strategies emphasizing on the emerging markets will ultimately position small investors better in the global market.

Conclusion

The unrestricted development of the worldwide internet accessibility has not only led to the globalization of consumer tastes, but also the emergence of a more open global economy.

These in effect have contributed to the interconnections and interdependencies of international economies around the globe creating an expanded market for not only for the multinational corporations, but similarly for smaller firms. The opportunities arising from the expanded markets have enabled the small firms’ managers to rethink their strategies and grab these opportunities.

References

Baldwin, A., Lymer, A & Johnson, R 2001, Business impacts of the internet for small and medium-sized enterprises, Heinemann, Butterworth.

Bennett, R 1998, “Using the World Wide Web for international marketing: internet use and perceptions of export barriers among German and British businesses”, Journal of Marketing Communications, vol.4, pp.27-43.

D’Cruz, B & Hussain, Z 2004, “The role of the internet in the globalization of small to medium-sized enterprises”, Journal of Marketing Management, vol.17 no.2, pp.1-13.

Doole, I & Lowe, R 2008, International marketing strategy: analysis, development and implementation, Cengage learning, Florence KY.

Hamill, J & Gregory, K 1997, “Internet marketing in the internationalization of UK SMEs”, Journal of Marketing Management, vol.13, pp.9-28.

Roelofse, J 2006, From innovation to profit: an entrepreneur’s guide, Juta and Company Ltd, Cape Town.

Stokes, D & Wilson, N 2010, Small business management and entrepreneurship, Cengage Learning EMEA, Florence.

Treese, G & Stewart, L 1998, Designing systems for internet commerce, Longman, Addison Wesley, USA.

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