Q1. What are the major challenges to the international business?

Ans. Some of the Major Challenges to the international business are:
1. Differences in Government Policies, Regulatory Framework :
Sovereign governments enact and implement the laws, and formulate and implement policies and regulations. The international business houses should follow these laws, policies and regulations. For example, international business should enter into joint venture with the domestic company to enter Malaysia.

2. Host Country’s Monetary System:
Countries regulate the price level, flow of money, production levels etc. through their monetary systems. In addition, they regulate foreign exchange rates also through the monetary system. The tools of monetary system include bank rate, cash reserve ratio, statutory liquidity ratio etc. Governments also regulate remittance of the profit of international business houses to other countries. International companies should obey these regulations. For example: The Indian Government introduced full convertibility on current account; in fact, many Governments introduced full convertibility on current account as a part of economic liberalization.

3. National Security Policies of the Host Countries:
Every country formulates the policies for its national security. Multinational companies should abide by these national security policies. For example, USA is a free economy as far as carrying out the business compared to many other countries in the world. However, USA also imposes restrictions regarding the business operations, which affect the national security.

4. Language:
Language is an important factor in international business. Even though ‘English language’ is a major language in business operations in the world, there are still a large number of ‘non-English’ speaking countries. Therefore, international business houses should train their employees in the local language of the host country. Added to this, there would be many languages in use in many, countries like ours. Therefore, the business houses should train their employees in the local languages also.

5. Nationalism and Business Policy:
Nationalism is a dominating factor of the social life of the people of the host countries. In fact, nationalism also affects the business operations of the multinational corporations dramatically and drastically. The US people used the slogan ‘Be American and Buy American Made’, when the US automobile industry failed to meet the competition of Japanese automobile companies operating in USA. Similar incidents are also observed in developing countries. Therefore, international business houses should be cautious of nationalism and its after effects.


6. Culture:
In Switzerland, foreign dishwasher manufacturers expected the same rapid sales as they had first obtained in other West European markets; but sales in Switzerland were so slow that research had to be done to find out why (this research should, of course, have been done before not after market entry). The research showed that the Swiss housewife had a different set of values to, for example, her French and English counterparts; she was very conscious of her role as strict and hardworking and her responsibility for the health of her family. To the Swiss housewife dishwashers simply made life easy, and this conflicted with her Calvinistic work ethic. As a result of this research, dishwasher manufacturers had to change their advertising promoting, instead of ease and convenience, hygiene and health. They did this by emphasizing that because dishwashers used temperature higher than hand hot, the process was more hygienic than washing up by hand. Thereafter, they had no automatic dishwashers in Switzerland.












Q.2 Why do companies go international inspite of these challenges?

Ans. First of all we need to emphasize upon the importance of international business;
Importance of International Business
The growing importance of international business is reflected in several macroeconomic and micro indicators.
1. The Foreign Trade: GDP ratio has been rising significantly, indicating that national economies are becoming more and more export and import dependent.
2. International investment, both direct and portfolio, have been growing rapidly.
3. A corollary of the rapidly growing international investment is the fast growing international business.
4. A connotation of the growing export-GDP ratio is that the export intensity of the companies in general is rising.
5. Many firms makes the most of their business, like the leading IT firms such as TCS, Infosys, Wipro etc. and pharmaceutical firms such as Ranbaxy, Dr. Reddy’s etc. from foreign markets. These are the companies, which do 100 % of their business abroad.
Why go international:
The primary reason for going international is –there is money to be made by going abroad. U.S. giants like Mc Donald’s have made massive penetration into foreign markets. With the recent advent of technological innovation and the emergence of the newly industrialized countries (NICs), a convergence has occurred among nation in terms of rates and preferences, financial systems, and organization design. These convergences along with complimentary developments are forcing organizations to “borderless” terms. Their thinking revolves around the following issues.
Where should the value- adding activities be performed?
Where are the most cost-effective markets for new capital and labour?
Can products be designed in one market and then be sold in other countries without adding further costs?


REASONS FOR GOING INTERNATIONAL
Convergence in:
>Tastes and Preferences
>Organization Design
>Financial System
Complementary Development
>NIC Purchasing Power
>Developing Countries’ Ability to Purchase Good Quality Products
Removal of Trade Barriers Resulting in
Meeting Global Consumer Demands
Lower Price
Better Value
Sustainable Competitive Advantage










1. To Achieve Higher Rate of Profits:
As we have discussed in various courses/subjects like Principles and Practice of Management, Managerial Economics and Financial Management that the basic objective of the business firms is to earn profits. When the domestic markets do not promise a higher rate of profits, business firms search for foreign markets, which promise for higher rate of profits. For example, Hewlett Packard earned 85.4% of its profits from the foreign markets compared to that of domestic markets in 1994. Apple earned US $ 390 million as net profit from the foreign markets and only US $ 310 millions as net profit from its domestic market in 1994.


2. Increase the profitability of the domestic business:

In the figure, AC is average cost curve. The average cost of production per unit will be the lowest if the plant is operated at optimum capacity, i.e. if the quantity of production is Q1. However, because of the domestic demand constraint the output level is only Q and the corresponding average cost is C. if the company can export QQ1 quantity, it can operate at optimum capacity and reduce the average cost by CC1. Under such a situation exporting even on no-loss-no-profit basis is advisable because by optimum utilization of the capacity the profitability of the domestic business is increased. In the above example, the profitability per unit will be increased by CC1 and the total profit form domestic business will increase by CC1. Thus exporting increases, in this case, the profit form domestic business without any increase in prices or sales.
3. Expanding the Production Capacities beyond the Demand of the Domestic Country: Some of the domestic companies expanded their production capacities more than the demand for the product in the domestic countries. These companies, in such cases, are forced to sell their excess production in foreign developed countries.

4. Growth Opportunities: An important reason for going international is to take advantage of the opportunities in other countries. MNCs are getting increasingly interested in a number of developing countries as the income and population are rapidly rising in these countries. Foreign markets, both developed and developing country, provide enormous growth opportunities for the developing country firms too.

5. Government Policies and Regulations: Government policies and regulations may also motivate internationalization. There are both positive and negative factors, which could cause internationalization. Many governments give a number of incentives and other positive support to domestic companies to export and invest in foreign countries. Similarly, several countries give a lot of importance to import development and foreign investment. Sometimes, (as was the case in India) companies may be obliged to earn foreign exchange to finance their imports and to meet certain other foreign exchange requirements like payment of royalty dividend etc.

6. Monopoly Power: in some cases, international business is a corollary of the monopoly power, which a firm enjoys internationally. Monopoly power may arise from such factors as monopolization of certain resources, patent rights, technological advantage, product differentiation etc. Such monopoly power need not necessarily be an absolute one but even a dominant position may facilitate internationalization. Similarly, exclusive market information (which includes knowledge about foreign customers, market places, or market situations not widely shared by other firms) is another proactive stimulus.

7. Severe Competition in the Home Country: The countries oriented towards market economies since 1960s had severe competition from other business firms in the home countries. The weak companies, which could not meet the competition of the strong companies in the domestic country, started entering the markets of the developing countries. Moreover a protected market does not normally motivate companies to seek business outside the home market. For example Indian economy was a highly protected market before liberalization in 1991. Not only the domestic producers were protected from foreign competition but also domestic competition was restricted by several policy induced entry barriers, operated by such measures as industrial licensing etc. After liberalization, competition increased from foreign as well as domestic firms. Many Indian companies are now systematically planning to go international in a big way.

8. Limited Home Market: When the size of the home market is limited either due to the smaller size of the population or due to lower purchasing power of the people or both, the companies internationalize their operations. For example, most of the Japanese automobile and electronic firms entered US, Europe and even African markets due to the smaller size of the home market. ITC entered the European market due to the lower purchasing power of the Indians with regard to high quality cigarettes. Similarly, the mere six million population of Switzerland is the reason for Ciba Geigy to internationalize its operations. In fact, this company was forced to concentrate on global market and establish manufacturing facilities in foreign countries.

9. Political Stability vs. Political Instability: Political stability does not simply mean that continuation of the same party in power, but it does mean the continuation of the same policies of the Government for a quite longer period. It is viewed that USA is a politically stable country. Similarly, UK, France, Germany, Italy and Japan are also politically stable countries. Most of the African countries and some of the Asian countries like Malaysia, Indonesia, Pakistan and India are politically instable countries. Business firms prefer to enter the politically stable countries and are restrained from locating their business operations in politically instable countries. In fact, business firms shift their operations from politically instable countries into politically stable countries.

10. Availability of Technology and Managerial Competence: Availability of advanced technology and managerial competence in some countries act as pulling factors for business firms from the home country. The developed countries due to these reasons attract companies from the developing world. In fact, American companies, in recent years, depend on Japanese companies for technology and management expertise.

11. High Cost of Transportation: Initially companies enter foreign countries through their marketing operations. At this stage, the companies realize the challenge from the domestic companies. Added to this, the home companies enjoy higher profit margins whereas the foreign firms suffer from lower profit margins. The major factor for this situation is the cost of transportation of the products.
Under such conditions, the foreign companies are inclined to increase their profit margin by locating -their manufacturing facilities in foreign countries where there is enough demand either in one country or in a group of neighboring countries. For example, Mobil, which was supplying the petroleum products to Ethiopia, Kenya, Eritrea, Sudan etc. from its refineries in Saudi Arabia, established its refinery facilities in Eritrea in order to reduce the cost of transportation. Similarly, Caterpillar located its manufacturing facilities at different centers in order to reduce the cost of transportation. This company produces high value added parts in limited locations and less valued and noncritical components and assembles the final products in a number of foreign countries.

12. Nearness to Raw Materials: The source of highly qualitative raw materials and bulk raw materials is a major factor for attracting the companies from various foreign countries. Most of the US based and European based companies located their manufacturing facilities in Saudi Arabia, Bahrain, Qatar, Oman, Iran and other Middle East countries due to the availability of petroleum. These companies, thus, reduced the cost of transportation.

13. Availability of Quality Human Resources at Less Cost: This is a major factor, in recent times, for software, high technology and telecommunication companies to locate their operations in India. India is a major source for high quality and low cost human resources unlike USA, developed European countries and Japan. Importing human resources from India by these firms is costly rather than locating their operations in India. Hence these companies started their operations in India and other similar countries.

14. To Avoid Tariffs and Import Quotas: It was quite common before globalization that governments imposed tariffs or duty on imports to protect the domestic company. Sometimes Government also fixes import quotas in order to reduce the competition to the domestic companies from the competent foreign companies. These practices are prevalent not only in developing countries but also in advanced countries. For example, Japanese companies are competent competitors to the US companies. USA imposed tariffs and quotas regarding import of automobiles and electronics from Japan. Harley Davidson of USA sought and got five years of tariffs protection from Japanese imports. Similarly, Japan places high tariffs on imports of rice and other agricultural goods from USA. To avoid high tariffs and quotas, companies prefer direct investment to go globally. For example, companies like Sony, Honda and Toyota preferred direct investment in various countries by establishing subsidiaries or through joint ventures in various foreign countries including USA and India, Similarly, General Electrical, and Whirlpool also have foreign subsidiaries. Xerox, Canon, Phillips, Unilever, Lucky Gold Star, South Korean Electronics Company, Pepsi, Coca Cola, Shell, Mobil etc. established manufacturing facilities in various foreign countries in order to avoid tariffs, import duties and quotas.










Q.3 Identify major entry barriers to international business.

ENTRY BARRIERS
Any obstacle making it more difficult for a firm to enter a product/service market
Tariff Barriers
· Customs duties enforced on imported products (final products or intermediate products)
· Different tariff rates for different countries and different products
· May be adjusted by political influence from trade associations

Non-Tariff Barriers
Non-tariff barriers to trade are trade barriers that restrict imports but are not in the usual form of a tariff. Include all other entry barriers E.g. transportation costs, slow customs procedures, etc.

They are criticized as a means to evade free trade rules such as those of the World Trade Organization (WTO), the European Union (EU), or North American Free Trade Agreement (NAFTA) that restrict tariffs. Some of the common examples are anti-dumping measures and countervailing duties, which, although they are called "non-tariff" barriers, have the effect of tariffs but are only imposed under certain conditions. Their use has risen sharply after the WTO rules led to a very significant reduction in tariff use.
Non-tariff barriers may also be in the form of manufacturing or production requirements of goods, such as how an animal is caught or a plant is grown, with an import ban imposed on products that don't meet the requirements. Examples are the European Union restrictions on genetically-modified organisms or beef treated with growth hormones.
Some non-tariff trade barriers are expressly permitted in very limited circumstances, when they are deemed necessary to protect health, safety, or sanitation, or to protect diminishing natural resources.

Non-tariff barriers to trade can be:
· State subsidies, procurement, trading, state ownership
· National regulations on health, safety, employment
· Product classification
· Quota shares
· Foreign exchange controls and multiplicity
· Over-elaborate or inadequate infrastructure
· "Buy national" policy.
· Intellectual property laws (patents, copyrights)
· Bribery and corruption
· Unfair customs procedures
· Restrictive licenses
· Import bans
· Seasonal import regimes

Natural Entry Barriers
· Intense competition among several differentiated brands
· Strong brand names charging a premium price over generic competitors
· Pro-domestic sentiment favoring local brands

Artificial Entry Barriers
· Limited distribution access
· Bureaucratic inertia
· Government regulations
· Limited access to technology
· Local monopolies
· Tariffs









Q.4. Identify major non-tariff barriers to international business. Suggest alternative market entry modes to overcome such barriers.

NON-TARIFF BARRIERS
Non-tariff barriers did not seriously affect trade flows until the mid-1960s (Baldwin 1970). Prior to that time, tariffs (e.g., financial surcharges) were the dominant means of distorting world trade flows to the benefit of a particular host country. However, the success of the General Agreement on Tariffs and Trade (GATT) rounds has resulted in relatively low tariff levels (averaging between 4 and 7 percent) among industrialized countries. As tariff protection has diminished, non-tariff protection has emerged as a difficult, challenging constraint and may now be the most significant trade distorting mechanism (Ray and Marvel 1984). While a free, unconstrained flow of world trade is a theoretical economic ideal, political realities make protectionism a persistent fact of life. Thus, small businesses entering international trade markets must be familiar with the pervasiveness of NTBs. Any encounter with NTBs can spell instant failure for the small business not cognizant of the implications. Simply stated, NTBs provide a challenge not typically encountered in the smaller firm's domestic markets.
Import quotas are fairly straight-forward quantitative restrictions on imports and may be expressed as individual units imported or as a total value of imports. Since quotas are commonly imposed on an annual basis, this type of NTB has the effect of forcing imports into the first part of the year as foreign competitors rush to capture domestic share before the quota is reached and all imports cease. This NTB has implications for inventory levels (i.e., stock build up), timing of promotional efforts (i.e., early in the year), and financing and credit strategies (arranging inventory financing).
Minimum import pricing is intended to provide a pricing floor which is pegged in some manner to the domestic price structure. Depending upon the required price level, this can effectively increase the domestic firm's gross profit margin and shift its marketing strategy emphasis to non-price elements. This may be a significant strategic barrier for small businesses with generic or commodity products where product differentiation is difficult or impossible to achieve.
Marketing or advertising restrictions are placed on the types of products that can be advertised, the types of advertising claims allowed, and ads which name competing products (i.e., comparative advertising). Small businesses whose domestic promotional strategies rely on such approaches may find creating customer awareness very difficult in foreign markets.
Restrictive transportation requirements may include pallet size, container size, and material handling limitations. Also, many less developed countries (LDCs) simply lack a reliable domestic transportation infrastructure. China offers an excellent example of this NTB.

Port-of-entry taxes or levies are sometimes placed on imports flowing through a country's ports of entry. The original purpose of this NTB was to generate a user-based tax to help defray infrastructure development costs for airports as well as port facilities. However, these taxes often endure well past the time necessary to offset the original capital cost and are often higher than operating costs would indicate. These NTBs may vary from port of entry to port of entry in the same country. As with many other NTBs, a small business looking into foreign markets must assess the impact of these taxes on their anticipated margins, price competitiveness, and overall financing goals.

Import licensing requirements can take one of two forms. First, the right to import certain types of products can be limited through the allocation of import licenses, restricting the number of foreign competitors in a given industry. Thus, a late market entrant would be excluded from that country. Second, import licenses may be unlimited, but the process of obtaining the license is difficult. Due to bureaucratic delays, it may take a year or more to obtain the right to import products. Thus, a strategic window could close before a firm would be able to respond to a market opportunity. Without a foreign agent or partner who "knows the system," a small business may be excluded from such markets.

Customs procedures, while uniformly applied, may be an NTB through sheer complexity. Without the help of foreign-based expertise, the American small business may experience great difficulty in overcoming this NTB.

Product quality or technical standards for determining a product's quality level are not uniform from country to country and product testing performed in one country may be of little or no value in another country. Thus, the product testing for many products must be done in those foreign countries due to the unacceptability of foreign data. Also, product adaptation may be necessary to meet unique technical requirements.

Arbitrary product classification refers to the sometimes unpredictable manner in which a foreign country classifies the small business's product(s). A given product's classification, which can be highly subjective, affects its duty status. In some cases, the small business may be able to change its classification to a more advantageous position by altering its packaging or other informational programs.
Safety and health requirements can be an obstacle as many countries have unique product content requirements not found elsewhere. Again, product changes for the small business represent one of the costliest changes and may therefore suggest a "no-go" entry decision.

Packaging and labeling are typically unique for each country. This NTB requires that inventory be maintained separately for each destination country and carries with it significantly increased finished product inventory levels.

Low-cost government financing or direct government subsidies to domestic firms indicates the relationship between government and business in many foreign countries is much closer and more symbiotic than in the U.S. This often results in the government, either directly or indirectly, providing loans at very favorable rates to its domestic businesses. This pattern is particularly prevalent in the "planned" economies of the Pacific Rim.

Local content regulations are typically expressed as a minimum percentage of a product's total value added that must be produced in a host country to avoid high tariffs. This can be satisfied through acquisition of component parts, product assembly, or finish work and is intended to provide a degree of domestic employment.

Rebates of domestic taxes to exporters are often found in countries with a heavy export reliance. Commonly, a portion of value added taxes are rebated or credited to domestic producers based on the total value of exports. This has the effect of reducing the marginal cost associated with the level of production that is exported. Another commonly rebated tax is the import duty on items such as component parts intended for further re-export. Somewhat less common is the rebating of tariffs on imported equipment and machinery, if the equipment or machinery is used to support an export directed product. The small firm that exports to such a country may actually pay the import tax while the domestic firm receives the rebate.

Discriminatory government procurement contracts are one of the oldest and most common NTBs. This NTB reflects the desire to spend public funds in the domestic economy. Examples of this NTB can be found in almost every country (e.g., U.S. Government purchases), and the large volume of public expenditures in the industrialized economies makes the economic impact of this NTB significant. Bidding deadlines are also often sufficiently short to make it difficult for foreign small businesses to effectively respond.

Required countertrade is an NTB found primarily in developing countries and less developed countries. The intent is to boost domestic exports while maintaining an even balance of trade. A small business will have to carefully assess whether or not they can use and/or effectively market products they would receive as part of a countertrade arrangement.

Voluntary export restraints (VER), sometimes referred to as "orderly market arrangements," are "gentlemen's" agreements among countries that limit the level of product flows in international trade. The internal allocation of exports is typically fixed on a base year, and market share becomes fixed at that level. This implies that "growing" countries or firms are at a disadvantage while the industry leader is at a distinct advantage. Looking from the opposite side, small businesses "late" into a market would be precluded from exporting to a country enforcing a VER.

Domestic monetary restrictions, particularly those in the less developed or newly industrialized countries, impose limitations on the expatriation (removal) of profits from their country. This effectively forces profits to be reinvested domestically. Tight controls on cash transactions are also imposed in many countries, thus dictating cash management strategy.

Exchange rates between industrialized countries are often allowed to float within targeted ranges while exchange rates in less developed countries are more volatile. Large differences in relative exchange rates may result in a competitive delivered cost position in one country and a prohibitively high delivered cost in another country. The small business manager must anticipate exchange fluctuations and deal with this NTB just as larger organizations do.

Lack of access to suitable marketing channels occurs in many of the Pacific Rim countries that are "planned" economies requiring close coordination between government and industry. The frequent result of this coordination is the development of industries that are controlled by relatively few firms. If a U.S. small business attempts to export to such a situation, it must deal with one of the dominant firms or be shut out of the desired market.

NTB SUMMARY
The NTBs discussed above appear to be the more important ones that may occur in many foreign markets. However, there are numerous other NTBs that can be significant obstacles in specific situations. Additionally, NTBs are rarely applied individually. Rather, they are often used in combination so that the effective level of protectionism can be quite high. In some cases, the quantity and severity of a foreign country's NTBs may be such that the small business's entry into the market is not economically viable. However, in other cases, the costs are not as large, and knowledged of NTBs suggests to the small business why and how their current (domestic) business/marketing strategy should be altered to achieve international success.

ENTRY STRATEGIES
One small business owners/managers decide to engage in international trade, they must decide how they are going to enter foreign markets. The alternative approaches are referred to as entry strategies. It has been noted that closed markets (i.e., those with a high level of tariffs and/or NTBs) are the biggest challenge to firms entering international trade (Jeannet and Hennessey 1988). However, the level of protectionism encountered may be influenced by a firm's choice of entry strategies. The entry strategies of direct and indirect exporting usually face more barriers than other strategies such as joint ventures, foreign licensing, or direct investment. Since exporting countries or firms gain more benefits (profits, wages, employment, etc.) than importing countries or firms (lower prices, increased variety), many countries may discriminate against imports. Those same countries may be very encouraging for joint ventures or licensing agreements, however. Therefore, the selection of an entry strategy should be directly related to the level and nature of protectionism likely to be encountered. Thus, the choice of an entry strategy should "flow" from knowledge about specific NTBs that will be encountered. The following sections will review the various entry strategies that a small business might pursue in relation to obstacles presented by the NTBs discussed previously.

Indirect exporting involves using a middleman to handle exporting activities. The most common types of middlemen are export brokers and manufacturing export agents who develop expertise in particular countries. These individuals develop a network of contacts in a given country and gain experience in penetrating foreign markets. Thus, they become quite familiar with the various NTBs in a country and are often knowledgeable about whether or not one can circumvent trade constraints, and if so, how. By operating on a commission basis, these middlemen represent only variable costs for the exporter. Unfortunately the use of indirect exporters typically results in the small business gaining very little direct knowledge about how NTBs affect its success. Thus, a small business that shifts from an indirect to direct marketing exporting approach to seek more profits often does so without the aid of this significant experience. A small business that finds success in indirect exporting may only learn that foreign demand for its products exists in a given country. However, it may never be fully cognizant of how or why certain NTBs affect its strategy and related success or failure.

Direct exporting typically requires that the small business assume responsibility for all the activities necessary to deliver its product(s) to a foreign market. Such a business might hire specialized firms to assist in fulfilling various tasks, but the ultimate responsibility rests with the exporter. Due to the higher level of involvement, small businesses gain experience in international trade very quickly. A working, first-hand knowledge of NTBs is a major benefit of direct exporting. However, much international trade experience is unique to a given country. Therefore, specific NTB knowledge may not be transferable to other foreign markets. One study of small business exporters indicated that each exporter was exporting to an average of nine countries (Kedia and Chhokar 1985). If this is typical of all small business exporters, much managerial commitment and many resources will be necessary to become familiar with the unique environment in each country.

Licensing allows a foreign firm to produce and/or market product(s) in return for an initial fee and a royalty on each unit sold. License agreements may include patents, copyrights, production and technical expertise, etc. The license agreement normally specifies geographical and time horizon agreements. This entry strategy requires little initial cash investment by the domestic small business, but it does require careful research in identifying the possible foreign firm(s) to license. Foreign licensing can provide additional cash flow to defray product development costs and effectively extend product life cycles. A possible limitation of foreign licensing is the emergence of the foreign licensee as a competitor in other markets. Also, countries with currency restrictions make the repatriation of royalty earnings difficult. The small business may also have to buy products for export in the host country, import the products to the United States, and sell the product to realize the royalty earnings (that is, it may have to countertrade).
Franchising is essentially an advanced form of licensing that results in a much higher level of control by the franchisor. The franchisor typically provides marketing programs, training, managerial support, and operations policies and guidelines. As with licensing, franchising usually requires a foreign firm to pay an initial franchise fee and subsequent royalties with little direct foreign investment required by the franchisor. The problems of franchisee selection, product adaptation, and repatriation of royalty fees are the primary constraints.

Joint ventures typically involve equity infusions from both the host country small business firm and the foreign firm. To be successful, both partners must have goal congruity and clearly defined responsibility. Often the host country partner will maintain operating control. Joint ventures often are intended to circumvent protectionistic barriers due to import restraints or restrictions on foreign business ownership. The problems with cultural differences, divergent goals, and disputes over control and responsibility are the major difficulties in joint venture relationships. These relationships, to be successful, require a substantial amount of research and information seeking. Many small businesses lack the resources and commitment to fully develop meaningful joint ventures.

Wholly-owned subsidiaries usually involve larger multinational corporations pursuing a direct investment strategy. A more recent type of international strategy (strategic alliances) occurs when two firms agree to share resources and expertise. While both of these strategies are common among larger firms, they are typically beyond the resources of most small businesses. Therefore, smaller firms are unlikely to use these strategies.

IMPLICATIONS
The selection of an entry strategy is a result of both internal and external analysis. The internal analysis focuses on resources that a small business has at its disposal and management's willingness to commit resources to international marketing efforts. If a firm has a limited resource base, it may lack the ability to make a long-term investment to penetrate a foreign market through internal efforts. In this situation, pursuing indirect exporting through the use of export agents or brokers may be the most appropriate entry strategy. Similarly, a small business that has excess productive capacity may be looking for a short-term market to reduce inventory. This situation would also favor the indirect exporting strategy. Conversely, if a firm anticipates significant potential in foreign markets, possesses sufficient resources, and is committed to a strategic focus on international markets, a direct exporting or joint venture entry strategy may be more appropriate. However, such a strategy may take years to implement and require significant managerial commitment and financial resources. Thus, the longer term a firm's commitment to international marketing is, the more appropriate the more complex entry strategies.
The external analysis consists of identifying market potential, evaluating the competitive situation, and assessing the environment for international trade. The focus of this article was on the environmental constraints of diverse protectionistic measures exemplified by non-tariff barriers (NTBs), but the foreign market potential and foreign competitors also influence the international trade decision and are quite important. The small business considering international trade must gather considerable data to make effective "go/no-go" and "how to" decisions.
Assuming that a small business decides to conduct research on the international trade opportunities and obstacles prior to developing an entry strategy, the first step must be information acquisition. Sources of information are diverse and variable from state to state and from country to country. Table 2 presents a summary of sources commonly available. Due to the geographical diversity, these types of organizations may not exist in all states, or they may be supplemented by other organizations in some states. However, the sources will provide the starting point for information acquisition.

Many of the foreign organizations fulfill a somewhat different role than their U.S. equivalents. For example, banks play a more active trade development role in many foreign countries than in the U.S. Accounting firms provide a diverse array of services overseas, much broader than found in the U.S. Thus, business people seeking information should not be restricted by their perceptions of what services will be available. The original role of the Japanese External Trade Organization (JETRO) was to encourage and facilitate Japanese exports. However, the current primary role of JETRO is to facilitate imports into Japan. Therefore, JETRO now provides extensive data bases on market potential in Japan.

When evaluating the array of entry strategies, it is essential for a small business to take a long-term perspective. Some marketing mix variables, such as pricing and promotion, can be changed very quickly, but other mix variables, such as product features and channels of distribution, are much more costly to change. Since selection of an entry strategy is, at least, an implicit selection of a distribution channel, a small business must carefully consider its long-term international business goals. If the long-term goal is to establish a permanent presence in foreign markets, then investing the time and money to pursue direct exporting would probably be justified. Due to a greater level of managerial control, direct exporting also holds more sales and profit potential over the long term. Conversely, if a small business is simply experimenting with exporting to reduce inventory or to determine if foreign demand exists, then an indirect exporting strategy, which requires less commitment, may be more appropriate. Knowledge of NTBs should dramatically aid the small business in assessing this risk/return tradeoff.

CONCLUSION

International trade is often viewed as a complex, high-risk activity for small businesses. It is interesting (but not surprising) to note that small businesses involved in exporting have consistently more favorable attitudes toward exporting than firms not engaged in exporting (Kedia and Chhokar 1985, Johnston and Czinkota 1985, Cavusgil and Nevin 1981). Thus, negative perceptions of exporting may be a significant deterrent to initiating export efforts.

If closed markets are the biggest challenge to international trade, as suggested by Jeannet and Hennessey (1988), then studying the level of protectionism must be a major part of market analysis. With the decreasing level of tariffs and increased use of NTBs instead as trade distorting measures, the study of NTBs in a particular country of interest seems to be a critical starting point for the small business contemplating business in foreign markets.

A major determinant of success in international business is managerial commitment to international activities (Cavusgil and Nevin 1981). To overcome the array of important NTBs found in foreign markets, a small business must be strongly committed to international trade. This is likely to be reflected in an aggressive, opportunistic approach to international efforts and will clearly require a long-term commitment and a well-designed strategy. Specifically, overcoming NTBs requires a well-organized effort that extends over a period of several years. Furthermore, the choice of entry strategies (exporting, foreign direct investment, joint ventures, acquisition, mergers, etc.) must reflect the relative importance of NTBs as an environmental constraint in a given country. Overlooking the importance of this environmental constraint can lead to failure of a small business's attempt to enter international markets.