Doing Business in the United States

Anatoly Zhuplev, Matthew Stefl, Andrew Rohm

• Publisher: Business Expert Press
• Year: 2018
• ISBN:
  9781947098213
• Topic: Business
• Subtopic: International Business
• Index: Business

This book serves as a concise guide for businesses seeking to enter the U.S. market from an international perspective. The book examines how the United States is positioned in the global marketplace, the potential for businesses entering the U.S. market, and marketing trends and applications, with an emphasis on small- to medium-sized enterprise (SME) market expansion. Chalked full of success stories, readers will develop an understanding of American markets and the American consumer, marketing mix considerations, brand building and activation tools and strategies, approaches to developing a strong and differentiated brand for U.S. market entry, and analytics tools and methods for assessing marketing entry performance.

CHAPTER 1

Internationalization of the Small and Medium Size Enterprise

Why Go International?

America is a land of wonders, in which everything is in constant motion and every change seems an improvement.

—Alexis de Tocqueville (1805–1859), a French diplomat, political scientist, and historian

Main points in this chapter

• Internationalization of the small and medium size enterprise as a competitive strategy
• Pros and cons of going international
• Applications on SMEs international expansion

Internationalization of the Small and Medium Size Enterprise as a Competitive Strategy

Arguably, the economic mission of a business enterprise is wealth creation for its owners or shareholders. In a broader context this includes job creation, company employee well-being, community/regional development, and other areas of economic and noneconomic nature. There are differences between the missions of for-profit and non-for-profit organizations. In an increasingly competitive world, companies pursue their economic missions and goals by striving for maximization of profit, cost efficiency, return on investment, and a pursuit of other economic priorities.

Globalization vastly expands geographic, political, and socioeconomic boundaries, creating business opportunities for big corporations, small and medium size enterprises (SMEs), and individual entrepreneurs. By the same token, globalization also removes or mitigates obstacles, layers of protection, and political, ideological, and economic constraints associated with government restrictions, distances, language, cultural, logistical, and other cross-country differences near and far away. The forces of globalization level the playing field across nations and industries and exert competitive pressures on companies whether they position themselves domestically or internationally.¹ These forces facilitate internationalization under which business enterprises are in a powerful way lured and/or forced to think and act internationally in search of new opportunities or just to escape competitive pressures at home. Companies and individuals that are absent or slow in embracing this process may miss the crest of the wave of opportunity or suffer strategic defeat in the evolving global competitive field. The advent of the Internet and electronic media enables SMEs to explore the fast-evolving international business landscape and engage in commerce in a cost-efficient manner, often without physically leaving domestic turf.

Unless SMEs’ decision to go international is political, personal, or emotional (while business decisions are supposed to have a rationale, rationality always coexists with irrational aspects of human nature²), it is fundamentally driven by business logic. Under this logic, the scale and forms of SMEs’ international business engagement depend on many conditions determined by the company background, current strategic position and operational situation, strategic mission and vision for the future, and personalities among the top leaders. Altogether these characteristics translate into internal strengths and weaknesses. A decision to go international is also determined by the current state, drivers, and future trends in SMEs’ external business environment and market forces prevalent in the targeted global region, nation, province, or the entire industry where the enterprise operates. From the company’s pragmatic standpoint, these external factors and dynamics in their entirety constitute strategic business opportunities and threats. SMEs’ retrospective background and developments determine their current business performance, profile, and strategic posture. Current dynamics constitute a foundation shaping SMEs’ future dynamics, developments, and growth.

Although it is conceivable for a business enterprise with a global outreach to simultaneously participate in both international manufacturing and international marketing, companies typically limit their foreign involvement as either a manufacturer or marketer. Participating in both of these typically involves high start-up costs, extraordinary capital commitment, ample financial resources or access to financial borrowing, elevated risks, and strong expertise in the host country. Those are challenges formidable even for large corporations, let alone SMEs.

Pros and Cons of Going International

A decision to go international or stay domestic involves a comparative analysis of operational, tactical, and strategic benefits, costs, and risks as well as their trade-offs in the action versus no action context. Assuming the economic mission of a business enterprise as wealth creation, we argue that in contemplating their business steps, SMEs act in the interest of maximizing their strategic benefits, minimizing/optimizing costs, and moderating risks. SMEs aiming to go international can gain immediate business benefits such as market expansion, global brand recognition, or secondary (but still critical!) advantages in the economies of scale over smaller rivals. At the same time a company expanding internationally must endure additional costs caused by product adaptation specific to foreign markets, labeling, promotion, and extra personnel designated for new markets. To act, or not to act internationally? Although inaction may often seem an attractive option, doing nothing may result in missed opportunities and loss of competitiveness in the ever changing business landscape and be fraught with its own costs and risks.

Strategic Benefits

Strategic benefits that for-profit companies aim to achieve in their international expansion differ, depending on whether this expansion pursues marketing or manufacturing in foreign destinations. In general, marketing-related international expansion (typically through exporting) gravitates toward countries with a high GDP/capita and a large population, which translate into higher economic gains from business. In this rationale, a high GDP/capita signifies strong spending power, while a large population signifies a sizeable consumer/customer base. Other conditions prompting SMEs in their export-based international expansion may include geographic proximity of the host (foreign) country to their home country, strong market perception of the product in the host, and cultural closeness between the host and the home country. In contrast, manufacturing-related international expansion often strives for strategic efficiency through utilization of cheap local factors of production—labor, minerals, energy, land, etc.—in a host country (Carraher and Welsh, 2017).

More specifically, overseas expansion can bring potential strategic benefits stemming from the company’s international outreach and scale. These include

• increasing market share, sales, and profits;
• advancing corporate competitiveness and brand;
• gaining access to cheap factors of production and resources (primary extracted mineral resources, labor, capital, energy, etc.);
• diversifying geographically and reducing dependence on existing markets;
• taking advantage of geographic proximity to important global markets when product shipping costs from the manufacturing site to the market are prohibitively high;
• extending sales potential of existing product line by expanding the marketing life cycle overseas;
• exploiting existing corporate technology characterized by short shelf life, intellectual property, proprietary know-how, or managerial core competencies as competitive advantages and softening seasonal market fluctuations;
• mitigating temporary excessive production capacity that is hard to realize domestically;
• gathering intelligence about foreign competition by probing their defenses through overseas offenses;
• escaping intensity of domestic competition;
• sharpening competitive edge by engaging in global competition;
• escaping tight domestic business regulations, high taxes, or bad corporate image (an increasingly challenging task under the fast-evolving global electronic media);
• taking competitive advantage of the economy on scale, and others.

Along with a wide availability of commercial research databases³ specific to companies, industries, and countries, there are electronic sources available for free public access that can be easily engaged as a starting point in international business research. One of them is the globalEDGE portal (2017), a mega depository containing research information and analytical and decision-making tools for international business. For example, globalEDGE’s annual market potential index⁴ (MPI) 2017 provides global rankings for 97 countries worldwide categorized under eight criteria: market size, market intensity, market growth rate, market consumption capacity, commercial infrastructure, market receptivity, economic freedom, country risk, and overall score. Table 1.1 provides a fragment from MPI 2017 comparing market potential across the BRICS (Brazil, Russia, India, China and South Africa) countries. Depending on the specific goal of foreign expansion, SMEs can rationalize their selection of the best target markets in first approximation by conducting a comparative analysis of the global rankings under one of the eight selection criteria.

Table 1.1 Market Potential Index (MPI) 2017 of the BRICS countries

In addition to the MPI country index, globalEDGE publishes annual global indexes for 12 industries: advanced manufacturing, aerospace, agriculture, alternative energy, automotive electronics and composites/lightweight materials, biosciences, chemicals, food processing, information technology, land-based products, machinery, and medical devices.⁵ As its name suggests, MPI index provides only a general picture, not thorough analytical information sufficient for specific decision making on overseas expansion. Industries vary in their profitability, strategic drivers and constraints, trends, cost structure, and other dynamics; therefore, decisions like this involve gathering business intelligence resulting from comprehensive, specialized international market research and industry- and country-specific consulting assistance.

Major international institutions such as the International Energy Agency (2017), International Monetary Fund (2017), Organization for Economic Co-operation and Development (2017), United Nations Conference on Trade and Development (2017), World Bank (2017), World Trade Organization (2017), and others publish a wide variety of respective country and thematic reports rich in factual and analytical information that can be useful in a background analysis preceding SMEs’ international expansion decisions.

The annual Global Competitiveness Report (GCR, 2017)⁶ by the Switzerland-based World Economic Forum is another useful analytical tool that can be used for country/market selection designated for international expansion. On the one hand, rich and reasonably concise analytical information presented in this report reflects the state of competitiveness across countries worl...