Chapter 1 Family Business (Contemporary Issues in Entrepreneurship & Innovation Fall 2024) PDF

Contemporary Topics in Entrepreneurship Chapter 1 Family Business (Understanding Key concepts) Outlines * The concept of family business (FB) * Important facts about FB * Advantages / disadvantages of FB * Issues related to family busin...

Contemporary Topics in Entrepreneurship Chapter 1 Family Business (Understanding Key concepts) Outlines * The concept of family business (FB) * Important facts about FB * Advantages / disadvantages of FB * Issues related to family business structure * Characteristics of successful FB Introduction Most of the businesses around the world have started as a small family business (FB), then started to grow to become global firms. Like any business, the FB starts around a good idea then grows. Most family businesses fail when they arrive the third generation. Conflicts appear constantly during business operations. The sustainability of a family business requires special skills to build the right structure of the family business. The Concept of Family Business A family business is a business in which one or more members of a family have a significant ownership and commitment toward the business. A business actively owned and/or managed by more than one member of the same family. Some important facts about FB Over 90% of businesses around the world are family business. An estimated 70%-85% of global GDP annually is created by family businesses – key driver to economy. Between 50-80% jobs in most countries worldwide are created by family businesses. Some important facts about FB % of family businesses % of GDP contribution 99 90 90 USA 80 75 75 Germany France Spain 0% 20% 40% 60% 80% Some important facts about FB ~ 90% firms owned and managed by family ~ 33% firms survive till 2nd generation ~ 15% firms survive till 3rd generation Some important facts about FB Some important facts about FB Family business generally take a long term view and thus balance short-term rewards with long-term sustainability and prosperity; Advantages of Family Business Advantages: Commitment by family members (sacrifice) Higher profits due to commitment Knowledge continuity Reliability and pride Raise kids around the family business Successors close to business activities Do not keep secrets Trust (loyalty) Disadvantages of Family Business Disadvantages: Hesitates to appoint outside talents Believe better to be 100% owner of stable business than to be 80% owner of a growing business Lack of initiative and creativity Lack of trust in next generation skills Hard to solve conflicts if they appear Finding the next leader of the family business Structure Model of Family Business Structure Model of Family Business Issues Related to Family Business Structure Due to the structure of FB, there are a number of common issues that arise at one time or another. These issues can cause serious problems to the business. If they are not addressed properly, they can create conflicts that disturb business activities. This is why at the 2nd and 3rd generations, many of the FBs end up losing. Issues Related to Family Business Structure Complexity: FBs are usually more complex in terms of governance (control) than their counterparts, due to the addition of a new variable: the family. Adding the family emotions to the business activities increases the complexity of issues that these businesses have to deal with. Family members can play different roles within their business, which can sometimes lead to a non- alignment of incentives among all family members. Issues Related to Family Business Structure Informality: Because most families run their businesses themselves (at least during the first and second generations), there is usually very little interest in setting clearly specific business practices and procedures. This can lead to doing things in different ways. As the family and its business grow larger, this situation can lead to many inefficiencies and internal conflicts that could threaten the continuity of the business. Issues Related to Family Business Structure Lack of Discipline: Many FBs do not pay sufficient attention to key strategic areas such as: CEO and other key management positions Succession planning Family member employment in the company Attracting and retaining skilled outside managers Delaying or ignoring such important strategic decisions could lead to business conflict and failure in any family business. Issues Related to Family Business Structure Employment Qualifications: Many FBs have trouble determining guidelines and qualifications for family members hoping to participate in the business. Some companies try to limit the participation of people with certain relationships to the family, such as in-laws, in order to minimize the potential for conflicts. FBs often face pressure to hire relatives or close friends who may lack the talent or skill to make a useful contribution to the business. Issues Related to Family Business Structure Salaries and Compensation: The issue of paying high salaries (and part of the profits) to family members who work in the FB. In order to grow, a small business must be able to use a relatively large percentage of profits for expansion. Also, giving different salaries to the same position can create unhealthy working environment and low commitment to work. Issues Related to Family Business Structure Succession: Another important issue relating to FB is succession—determining who will take over leadership and/or ownership of the company when the current generation retires or dies. The key to avoid conflicts about who will take over a business is having a well-defined plan in place. Otherwise, family members will fight and end up dividing the FB between them,or sell it. Examples of Famous Family Businesses Hyundai (South Korea, Automotive, $ 48 billion) BMW (Germany, Automotive, $ 53 billion) Walmart (USA, retailers, $ 621 billion) TATA (India, different, $ 49 billion) Successful Family Business The success of FB requires a balance between family members, management, and ownership, in order to minimize conflicts and address problems effectively. Characteristics of Successful FB Good management to establish best practices: Stimulate new thinking and fresh strategic insights. Attract and retain good managers and employees. Create a flexible and creative working organization. Create and maintain capital (to avoid crisis). Prepare the right successors for leadership. Characteristics of Successful FB Control family interfering: Family members must resolve conflicts with mutual support and trust Boundaries between work and family are appropriate and respected Family has the ability to make decisions and move forward Family is clear about business goals and work together to achieve them Family activities are managed by good leadership In-class Activity #2 1. Look for a family business that collapsed/ failed. Explain what happened. In your view, how could this issue have been mitigated/ avoided? 2. Look for a successful family businesses Try to find reasons behind their success, and how to overcome some challenges over the years. Part of your portfolio  Summary Family business is very critical to economic development. It can generate many advantages if managed properly. Expanding it over generations can be a challenging task, because we need to balance different issues. Good management team can build a good FB environment Contemporary Topics in Entrepreneurship Chapter 2 Family Business (Succession planning)  Outlines * Conflict in family business * Causes of conflict in the FB * Managing FB conflicts * Family council * Succession plan  Introduction The structure of family business can easily create conflicts between members, which can harm the business performance Therefore, we need to find ways to reduce level of conflict and ensure a smooth transition of leadership. Having a family council is one method that can help. In addition, we need to have a suitable approach to define the right successor, which is a critical issue in FB.  Conflict in Family Business Frequency of Conflicts 42% family businesses dealt with conflict three to four times per year 60% dealing with particular issues before a larger conflict 40% no communication about conflicts until a crisis takes place Causes of Conflict in the Family Business 1- Poor management in general: Top management have limited experience (F. member) No shared vision and mission Lack of communication with employees / lack of information Lack of clearly defined practices and procedures Lack of clear and coherent policies regarding career development, compensation and hiring Causes of Conflict in the Family Business 2- Interaction between family / non-family members: Differences in power and status among family and non- family members Preferences in hiring/ promotion is given to family members regardless of their qualifications Lack of proper job descriptions and clear boundaries More duties are given to non-family members Causes of Conflict in the Family Business 3- Among family members: Challenges among family members (family matters) Favorite son/son and son/daughter syndrome Unfair succession process (or not exist) The goals of a given family member does not harmonize with that of the family business Lack of code of conduct for family members Disbelief of leaders in next generation capabilities Threats to Family Business These constant conflicts will put FB under threats due to: Constant family disputes Clash between family and non-family members Discrimination in management practices Letting emotions run the business Losing qualified non-family employees No succession plan for business stability Managing Conflict Since conflict in family business is a serious matter that could negatively impact business performance / survival, it is very important to find ways to manage this conflict. Especially, that conflict can happen at any time and due to any reason. If we failed to resolve a conflict, it could damage the business and family ties. Tactics for Managing Conflict Clearly define the goals of the company and make sure everyone is on the same page. Outline each family employee’s role and responsibilities and hold them accountable. Keep an open line of communication at all times. Create a fair promotion and salary system that is based on individual merit and ability. Tactics for Managing Conflict (cont.) Address all concerns quickly and in a non- emotional manner. Take a management course to learn how to separate your emotions from the management process. Provide opportunities for advancement in your business for non-family employees. Be prepared and create a succession plan to ensure Professional Management of the Family Firm Family Council: A selected group of family members who gather periodically to discuss family-related business issues: Represent the family to the board of directors Useful in developing family harmony Increase understanding of family traditions / interest Family Business Constitution: A statement of principles and policies intended to guide a family firm through times of crisis and change. Benefits of Family Council Decide who will be involved in family business. Develop clear rights and responsibilities of family members. Encourage members of family, family employees to act responsibly towards the family and business. Control appropriate family and owner inclusion in business discussion. Develop plans and policies to manage family activity with business. Benefits of Family Business Constitution Planning employment standards for next generation. Career development policies for family employees. Family employee compensation. Succession plan, including retirement ages. Ownership agreements which include buy and sell agreements. Succession Plan At certain time, the FB management will be transferred to the next family member, who should have the adequate skills and knowledge to take full responsibility. Otherwise, he could end up making the wrong decisions. Having a good succession plan that guides the transfer process, can lead to selecting the right family member and avoid family conflict. Succession Plan The following steps represents a good succession plan: Succession Plan Components 1- Pre-Business Involvement Evaluate readiness and capabilities of family members Get objective advice from managers / non-family members Check their reactions to work in FB 2- Education and Personal Development Insure that education is relevant to business activities Advanced education/ certificate can add value Promote soft skills for effective social interactions Succession Plan Components 3- Proof of Competence Have the right skills and knowledge to enter the business Spend some time in training under supervision 4- Formal Start in the Business Take specific position matching capabilities Climb the ladder as experience and knowledge permit that 5- Declaration of Succession Take full responsibility of FB when ready Create History for Family Business History of family business refers to reason why business came into existence, vision and mission, people contributions towards success of business and contribution of business towards development of society on the whole. It is important to know the founder of the business, long-time or retired employees who have contributed towards success of FB. This shows appreciation for those who put significant efforts and deserve to be a role model for next generation. This increases loyalty and feeling of Report of FB in the Middle East 34% of FB do not have a succession plan, which represents a major threat to FB, especially that Arabic families are large. Report of FB in the Middle East Good involvement of the first Large participation of family generation in managing FB members in managing FB, which can create conflicts with non-family members if policies are not clear and respected. Report of FB in the Middle East Most FB strategies depends on serving existing market or entering new markets using the same products. There is little interest in introducing new products, which reflects low importance in the innovation process. Report of FB in the Middle East Most FB have medium confidence in market growth, which reflects low ability to compete with other companies. Knowing that Middle East markets are relatively attractive for foreign companies. This can be due to low innovative capabilities. Report of FB in the Middle East The 1 sector depends on innovation process  Summary * Family conflicts represent a real threat to FB if not handled properly by effective system that manage the FB. * Family council and FB constitution are important to protect FB from protentional conflicts * Having a good succession plan is important for smooth transfer of FB to the next generation.  Contemporary Topics in Entrepreneurship Chapter 3 Conducting Cross-Cultural Business (Hiring and Managing Employees) Copyright © 2014 Pearson Education © Mai Al-Naemi. All rights reserved. Chapter Objectives Describe culture and explain the significance of both national culture and subcultures Identify the components of culture and describe their impact on international business Describe cultural change and explain how companies and culture affect each other Explain the three different types of staffing policies used by international companies Discuss the importance of training and development programs, especially cultural training 2-2  What is Culture? Culture is the set of values, beliefs, rules, and institutions held by a specific group of people. Ethnocentricity Cultural literacy Belief that one’s Detailed knowledge own ethnic group of a culture that or culture is enables a person to superior to that of function happily and others effectively within it 2-3 National Culture Nation states build museums and monuments to preserve the legacies of important events and people 2-4 Subculture People who share a unique way of life within a larger culture (language, race, lifestyle, attitudes, etc.) Examples: Arabs Globally China’s Dialects Groups in U.S. 2-5 Culture Matters: Creating a Global Mindset Cultural Bridging Adaptability the Gap Building Flexibility Global Mentality is Key 2-6  Discussion Question Why should business people try to avoid ethnocentricity and develop cultural literacy? 2-7 Components of Culture Aesthetics Physical Values & environments attitudes Manners & Education Culture customs Personal communication Social structure Religion 2-8 Aesthetics Music Painting Dance Drama Architecture 2-9  Values and Attitudes Values Attitudes Ideas, beliefs, and Positive or negative customs to which evaluations, feelings, and people are tendencies people hold toward objects or emotionally attached concepts Freedom Time Responsibility Work Honesty Cultural change 2 - 10  Example of Attitudes Attitude toward time Attitude towards cultural change Attitude toward work 2 - 11  Cultural Diffusion Spread of cultural traits across cultures causes much cultural change 2 - 12 2 - 12  Quiz Is a global culture emerging? Why or why not? Provide an example. 2 - 13 2 - 13  Manners and Customs Manners Customs Appropriate behavior, speech, Traditional ways or behavior in and dressing in general specific circumstances 2 - 14 Is it Manners or Customs?! 2 - 15 Personal Communication Spoken and written languages: Mother tongue Dialects Foreign languages Lingua franca: A common language used to unify communication across all business units and entities. 2 - 16  Body Language Forming the thumb-and-index circle in most of Europe and the US means “okay”… in Germany, it’s a very rude gesture! Tapping one’s temple in most of Western Europe means “you’re crazy”… in the Netherlands, it means “you’re very clever”! Tapping one’s nose in England and Scotland means ”you and I are in on the secret”… in Wales, it means “you’re very nosy” 2 - 17  Discussion Question How does an understanding of the spoken, written, and body language in a market abroad contribute to business success? ? 2 - 18  International HRM Expatriate managers Recruitment and selection Training and development Culture affects Compensation Labor relations Staffing policy  Ethnocentric Staffing Individuals from home country manage operations abroad + Locally qualified people not always available + Tight control over subsidiaries Advantages + Interests of home office may be better protected + Share of unified culture and transfer of knowledge – Relocations are expensive Disadvantages – Give the business a “foreign” image  Polycentric Staffing Individuals from host country manage operations abroad + Knowledge of local business environment Advantages + Avoid expensive relocations from home nation – Hampers creation of a global corporate culture Disadvantages – Potentially harm performance  Geocentric Staffing Best-qualified individuals, regardless of nationality, manage operations abroad + Develops managers who can adjust anywhere Advantages + Break down nationalistic barriers within a subsidiary or between subsidiaries – Costly since these individuals command Disadvantage high salaries  Human Resource Planning Forecasting human resource needs and supply Phase 1 Phase 2 Phase 3 Develop action plan to Measure inventory of recruit and select Estimate firm’s future current human people for vacant and human resource needs resources anticipated new positions Culture Shock CULTURE SHOCK: Psychological process affecting people living abroad that is characterized by homesickness, irritability, confusion, aggravation, and depression Stage I: Thrilling experience Stage II: Downward slide Stage III: Recovery begins Stage IV: Embrace local culture  Reverse Culture Shock Readapting Reducing its effects to home culture  Once-natural thoughts and  Home-culture reorientation feelings now strange programs  Can be more unsettling than  Career-counseling sessions culture shock  Career-development program  Some companies reabsorb before posting abroad expatriates poorly Cultural training methods C Training Methods CULTURAL TRAINING METHODS To obtain maximum productivity from its expatriate managers, a firm can provide cultural training programs. The goal is to create informed, open-minded, and flexible managers that have a level of cultural training appropriate to their duties. Common programs include the following: 1. Environmental briefings are basic introductions and include information on local housing, health care, transportation, schools, and climate. 2. Cultural orientations offer insight into social, political, legal, and economic institutions in the host country. Methods 3. Cultural assimilation teaches the culture’s values, attitudes, manners, customs, and basic phrases in the local language and role- playing. 4. Sensitivity training teaches people to be considerate and understanding of the local peoples’ feelings and emotions. 5. Intense language training helps teach why local people behave as they do. This is a crucial element of training for long-term assignments. 6. Field experience involves visiting the culture, walking its streets, and becoming absorbed by it for a short period of time before the relocation. Compensation of Managers Cost-of-living effects Bonus and tax incentives Cultural and social factors Compensation of Workers Greater cross- border investment Labor mobility in some markets In-class Activity #4 1. Search for a company that has been very successful understanding cultural differences. Explain how they took cultural differences into account. 2. Look for a business that has failed at taking cultural differences into account, and how.. Part of your portfolio  JUHA PERALAMPI Center for Entrepreneurship and Organizational Excellence, College of Business and Economics, Qatar University Chapter 4 Business and Entrepreneurship in Qatar, and beyond. The Impact of Multiculturalism on Business. 1  Consulted 3000 companies of which 800 in the Middle East The Most Successful Entrepreneurship Promoter in Finland ABOUT JUHA PERALAMPI TEDx Speaker Global Investor 2 What To Expect From This Session AGENDA About Qatar Business Environment in Qatar Cultural Differences in Business Context Going MENA-Motivations & Challenges Strategies Global Competency Influence of the Internet Growth Strategies in MENA & Internationalization Paths 3 ABOUT QATAR 4  About Qatar WHAT DOES QATAR OWN AROUND THE WORLD? Through Qatar’s Sovereign Wealth Fund (Qatar Investment Authority) Reference: CNBC Business 5  About Qatar QATAR’S BRIEF HISTORY Oil discovered & oil revenues start funding Qatar & UAE become One of the wealthiest 1700s 1971 2010 the expansion and the 2 biggest based on PPP / capita modernization of shareholders of London & 1 year to go for the Qatar's infrastructure Stock Exchange World Cup Established pearling Qatar gains Qatar wins the bid to and trading independence host FIFA World Cup settlements along 2007 2022 1940 2021 the cost of Qatar Reference: BBC News 6  About Qatar QATAR’S ECONOMY & DEMOGRAPHICS CAPITAL CURRENCY LANGUAGE LAND AREA Doha Qatari Riyal (QAR) Arabic (Official) 11,586 Km2 1 QAR = 0.27 USD English (Widely Spoken) POPULATION MEDIAN AGE RELIGION SEX RATIO 2.95M (2021) 33.2 Years Muslim = 67.7%, Female 25% / 10.5% Qatari Christian = 13.8% Male 75% 89.5% Non-Qatari Others = 18.5% POLITICAL GDP UNEMPLOYME- INDUSTRIES SYSTEM USD 393 billion (2024) NT RATE LNG, crude oil, Constitutional Emirate USD 114K PPP per 0.6% ammonia, fertilizer, capita (2022) petrochemicals, cement Reference: Economy.com 7  About Qatar QATAR’S POPULATION DEMOGRAPHICS 1970 1997 28% Syria, 1.70% Others, 40% Sudan, 1.90% 13.35% 60% 72% Sri Lanka, India, 21.80% 4.35% Pakistan, 4.70% Bangladesh, Philippines, 2020 2004 12.50% 7.35% 11% Egypt, 24% Nepal, 9.35% Qatar, 12.50% 76% 90% 10.50% Reference: Priya Dsouza Communications 8 BUSINESS ENVIRONMENT IN 9 QATAR  Business Environment in Qatar QATAR NATIONAL VISION 2030 Reference: State of Qatar 10  Business Environment in Qatar INVESTMENT LANDSCAPE FREE TRADE AGREEMENTS Reference: Invest Qatar 11  Business Environment in Qatar INVESTMENT LANDSCAPE KEY ECONOMIC SECTORS Reference: Invest Qatar 12 Business Environment in Qatar INVESTMENT LANDSCAPE KEY POINTS: 1. Highest Requirement Globally to Break into Qatar’s Top 1% Pre-tax earning of $1.7 million required to be in the top 1%. There is a 1,321% difference between the average wage national income and the top 1% of earners. US $463 000, Germany $274 000. 2. Shift in the Mindset Most locals come from an entrepreneurial background, but oil revenues substantially changed the wealth dynamics. Lately, younger generations are again getting more involved in the economic development through investment and entrepreneurship. 3. The Role of Trust It is important to establish a connection beyond a need for investment. Motivations of Qatari investors are different from simply doing business. Respect, mutual cooperation, and trust play a big role in closing deals. Regular follow-up is another practice throughout the deal lifecycle. 4. Impact of Globalization The average Qatari citizen is exposed to a variety to cultures through international schools, travels, and global investments. 13  Business Environment in Qatar STARTUP LANDSCAPE QATAR’S ENTREPRENEURSHIP ECOSYSTEM & PLAYERS Reference: MAGNiTT & QDB 14 CULTURAL DIFFERENCES IN 15 BUSINESS CONTEXT  Opportunity for International Organizations WHY QATAR? Qatar is different from most of the MENA region, here’s why: Qatar 2nd amongst the Arab countries & 29th globally The World Economic Forum’s World 2018 Ranked first globally for its taxation system Competitiveness Report 2017 by the World Bank’s Doing Business 1st among Arab countries and 33rd globally 1st safest country in the world By a United Nations report on the Human by the annual report of the 2019 crime index Development Index USD 200 Billion worth infrastructure 5th Global rank for Availability of Scientists investment & Engineers Very low unemployment in the world at 0.6% The world’s leading exporter of liquefied natural gas FIFA World Cup 2022 Ranked 1st in the Middle East and 4th globally for per Hosting the tournament capita income Qatar’s Credit rating is Aa3, according to Moody’s the global rating agency 16 Cultural Differences in Business Context HERE’S A SCENARIO You have an appointment with your international business partner He is half an hour late for the appointment When he arrives, he talks about everything but the business opportunity He is answering his cell phone, glancing through irrelevant papers, bumping into and conversing with many people WHAT WOULD BE THE BEST WAY TO PROCEED? 17  Cultural Differences in Business Context CULTURE ELEMENTS Religion Social Language Understanding The Value In Structure Different Cultures is Key For Global Expansion Cultural Norms & Value Manners & System Political How do these elements differ Customs Philosophy from one country to another? What’s in it for business? Economic Education Philosophy Reference: Entrepreneurship, Robert D. Hisrich, Michael Peters, Dean Shepherd 18 Cultural Differences in Business Context THE COMPANY CULTURE ICEBERG Surface Culture Easily perceived from the outside Deeper Culture Deeper values and beliefs of the organization 19  Cultural Differences in Business Context BUT HOW CAN WE UNDERSTAND CULTURE? Hofstede groups national cultures along dimensions meaningful to business: 1. Work related values 2. National values may persist over MNC efforts to create culture 3. Starting point for understanding business situations across cultures Reference: Hofstede Insights 20  Cultural Differences in Business Context HOFSTEDE’S VALUE DIMENSIONS POWER DISTANCE Degree of social inequality considered normal by people Distance between individuals at different levels of a hierarchy Scale is from equal (small power distance): Nordic countries, Europe, USA To extremely unequal (large power distance): Asian countries, Latin America Reference: Hofstede Insights 21  Cultural Differences in Business Context HOFSTEDE’S VALUE DIMENSIONS INDIVIDUALISM VERSUS COLLECTIVISM Degree to which people in a country prefer to act as individuals / groups The relations between the individual and his/her fellows High individualism: USA, UK, Western Europe Collectivist: Asia, Latin America, Eastern Europe Reference: Hofstede Insights 22  Cultural Differences in Business Context CASE STUDY: CROSS-CULTURAL MARKETING BALANCING INDIVIDUALISM VERSUS COLLECTIVISM IN THE USA AND GUATEMALA McDonald’s Guatemala is promoting meal plans for 4 people or more and their Happy Meal, or Cajita Feliz. McDonald’s understands that adults in Guatemala, a collectivist society, are more likely to treat the children in their family to a fast-food meal than themselves. Reference: Cross-Cultural Marketing 23  Cultural Differences in Business Context CASE STUDY: CROSS-CULTURAL MARKETING BALANCING INDIVIDUALISM VERSUS COLLECTIVISM IN THE USA AND GUATEMALA In the USA, on the other hand, McDonald’s is promoting a Buy One Get One meal and rewards for downloading their app. As an individualist society, this promotion plays into their need for individual benefits and rewards. Reference: Cross-Cultural Marketing 24  Cultural Differences in Business Context HOFSTEDE’S VALUE DIMENSIONS MASCULINITY VERSUS FEMININITY Division of roles and values in a society Masculine values prevail - assertiveness, success, competition Countries: Japan, Italy, Mexico, UK, USA Feminine values prevail - quality of life, maintenance of warm personal relationships, service, care for the weak, solidarity Countries: Nordic countries, some Latin American countries, Africa Reference: Hofstede Insights 25  Cultural Differences in Business Context HOFSTEDE’S VALUE DIMENSIONS UNCERTAINTY AVOIDANCE More or less need to avoid uncertainty about the future Degree of preference for structured vs. unstructured situations Structured situations: have tight rules, may or may not be written down High uncertainty avoidance: people with more nervous energy (vs easy going), rigid society, "what is different is dangerous.“ High uncertainty avoidance: Greece, Japan, France, Latin America Low uncertainty avoidance: Singapore, Nordic countries, USA Reference: Hofstede Insights 26  Cultural Differences in Business Context QATAR’S CULTURE 93 91 80 63 62 59 55 Qatar* 46 Finland 40 United States 33 26 25 POWER DISTANCE INDIVIDUALISM MASCULINITY UNCERTAINTY AVOIDANCE *estimated Reference: Hofstede Insights 27  “GOING MENA” 28 MOTIVATIONS & CHALLENGES  Going MENA: Challenges THE GULF IS LAGGING BEHIND SMEs in the Arabian Gulf contribute 15-30% of GDP By contrast, SMEs contribute 40% of national income in emerging markets globally SO, THE GAP IS CLEAR SME Contribution to GDP Reference: 3 key digital drivers for SMEs in the Gulf, Davos 2022 29 Going MENA: Challenges BARRIERS FOR ENTERING MARKETS Lack of Reliable Challenges to Find Difficulties with Information a Reliable Partner Transportation Documents 30 MOTIVATIONS FOR ENTERING NEW MARKETS Motivations to go Declining home Unique market Unique products Profits Global country sales opportunity Competitive Excess production Technological Economies of scale Tax benefits pressures capacity advantage 31  FACTORS TO CONSIDER ➊ Economics Requires dealing with differences in: Levels of economic development Currency fluctuations Government regulations Banking, venture capital, marketing and distribution system Reference: Entrepreneurship, Robert D. Hisrich, Michael Peters, Dean Shepherd 32  FACTORS TO CONSIDER ➋ Stages of Economic Development Ability to successfully engage in international business depends on: Fundamental infrastructure Banking facilities and systems Educational system Legal system Business ethics and norms Reference: Entrepreneurship, Robert D. Hisrich, Michael Peters, Dean Shepherd 33  FACTORS TO CONSIDER ➌ Political Environment Assessment of a country’s political policies and its stability Operating risk Ownership risk Conflict and changes in the solvency of the country Reference: Entrepreneurship, Robert D. Hisrich, Michael Peters, Dean Shepherd 34  CRITICAL AREAS FOR EVERY ENTREPRENEUR Intellectual Contract Product Product Property Rights Law Safety Liability Reference: Entrepreneurship, Robert D. Hisrich, Michael Peters, Dean Shepherd 35 GLOBAL COMPETENCY 36  GLOBAL COMPETENCY For companies to be engaged in international business and function more effectively, they need people who possess: Communication Skills Global Mindset Core Competencies Reference: Entrepreneurship, Robert D. Hisrich, Michael Peters, Dean Shepherd 37  GLOBAL COMPETENCY Business Ice breakers Small Talk Overcome distrust Presentation Customers, investors Skills Confidence Communication Skills Elevator pitch Negotiation Assess position Skills Bargain Argue persuasively Reference: Entrepreneurship, Robert D. Hisrich, Michael Peters, Dean Shepherd 38  GLOBAL COMPETENCY Sales & Cultural nuances Marketing Type of messaging Target audience Business Concepts and models Thinking Business culture Global Mindset Hofstede’s value dimensions Country- History Specific Value System Business Religion & Politics Reference: Entrepreneurship, Robert D. Hisrich, Michael Peters, Dean Shepherd 39  GLOBAL COMPETENCY Areas Skills Technology Law Core Competencies Medicine Networks Reference: Entrepreneurship, Robert D. Hisrich, Michael Peters, Dean Shepherd 40 GLOBAL ENTREPRENEURS CREATE VALUE FROM: COMMONALITIES between markets and cultures Bringing a standard brand promise to diverse cultures, such as global brands Nike or McDonald’s DIFFERENCES among regions in order to access distinct comparative advantages Some IKEA products, are designed in Sweden and assembled in China using African cotton and Polish plywood PLATFORMS that allow global exchange Hong Kong-based Global Sources, for example, uses a standard trading platform to facilitate exchange between suppliers in Asia and clients around the world 41  INTERNATIONAL 42 ENTREPRENEURSHIP: INFLUENCE OF THE INTERNET  HOW BUSINESSES CAN BENEFIT BEFORE AFTER Borderless world enabling SMEs to Local limitations compete with much larger, multinational EXPANSION Expensive to sell abroad companies by accessing markets that are previously out of reach Expanded reach and measurable returns Marketing reach restricted to regional Valuable data about consumers and their MARKETING customers only, with no specific focus preferences, enabling targeted advertising & offers Engage in a real-time dialog with CUSTOMER Lack of real-time personal engagement customers not only to boost sales but also INTERACTION with customers outside the sale to build loyalty and even to help create, refine, and enhance products and services Reference: The Net’s Sweeping Impact on Growth, Jobs, & Prosperity 43  HOW BUSINESSES CAN BENEFIT BEFORE AFTER SMEs can access sophisticated, often cloud-based, tools to enhance a wide range of functions, including customer High costs of running a business relationship management, information TECHNOLOGY Information stored in physical spaces management, and customer payments As a result, these companies can grow quickly without requiring large investments in infrastructure The recruiting options available today are Local hires only more powerful and less expensive that RECRUITMENT Lack of remote work ever before, and they enable SMEs to tap a global talent market Reference: The Net’s Sweeping Impact on Growth, Jobs, & Prosperity 44  WHY BUSINESSES USE THE INTERNET? TOP FIVE MOST IMPORTANT FACTORS FOR SMALL BUSINESSES TO USE THE INTERNET: 1 Direct and indirect advertising 2 Low-cost communication 3 Easy access to potential customers 4 Company image enhancement 5 Form and extend business networks HOW CAN YOU USE THE INTERNET TO BENEFIT YOUR BUSINESS? Reference: Small Businesses' Use of the Internet: Some Realities 45 GROWTH STRATEGIES IN MENA & 46 INTERNATIONALIZATION PATHS  INTERNATIONALIZATION STRATEGIES Indirect through a foreign purchases Exporting Direct through own sales office Licensing No Equity Turn-key project Arrangement Management contract Joint Ventures Direct Foreign Majority/Minority Interest Investment Mergers/Acquisitions Reference: Entrepreneurship, Robert D. Hisrich, Michael Peters, Dean Shepherd 47  INTERNATIONALIZATION STRATEGIES Indirect through a foreign purchases Exporting Direct through own sales office Licensing Pros (+) Cons (-) No Equity Turn-key Market Access: Exporting allows you to access project Limited Control: You may have limited control Arrangement international markets without significant upfront over how your products are marketed and sold Management contract investment in infrastructure or operations. in foreign markets, especially with indirect exporting. Incremental Growth: It enables incremental Market Entry Costs: Exporting can involve hidden Joint Ventures growth, allowing you to test foreign markets and costs related to tariffs, shipping, customs, and Direct Foreign gradually expand based on demand. compliance with foreign regulations. Majority/Minority Interest Investment Mergers/Acquisitions Reference: Entrepreneurship, Robert D. Hisrich, Michael Peters, Dean Shepherd 48  INTERNATIONALIZATION STRATEGIES Indirect through a foreign purchases Exporting Direct through own sales office Licensing No Equity Turn-key project Arrangement Management contract Joint Ventures Pros (+) Cons (-) Direct Foreign Lower Risk: No equity arrangements often involve Limited Control: You may have limited control Majority/Minority lower Interest financial risk compared to full ownership, over the day-to-day operations and strategic Investment as you're not investing heavily in infrastructure or decisions, depending on the specific arrangement. Mergers/Acquisitions operations. Speed to Market: These arrangements can result Limited Revenue Potential: While lower risk, the in quicker market entry and revenue revenue potential may be limited compared to full generation. ownership models. Reference: Entrepreneurship, Robert D. Hisrich, Michael Peters, Dean Shepherd 49  INTERNATIONALIZATION STRATEGIES Indirect through a foreign purchases Exporting Direct through own salesCons Pros (+) (-) office Market Presence: Direct foreign investment Financial Risk: Direct investment typically provides a strong and immediate market involves significant upfront capital and Licensing presence in the target country. operational expenses, exposing your SME to No Equity financial risks. Turn-key Strategic project Alliances: Joint ventures and Complexity: Managing joint ventures, Arrangement Management mergers/acquisitions allow access to local acquisitions, or mergers can be complex due to expertise, contract distribution networks, and cultural differences, legal regulations, and established customer bases. integration challenges. Joint Ventures Direct Foreign Majority/Minority Interest Investment Mergers/Acquisitions Reference: Entrepreneurship, Robert D. Hisrich, Michael Peters, Dean Shepherd 50  JUHA PERALAMPI Center for Entrepreneurship and Organizational Excellence, Qatar University THANK YOU! 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