The Minnows Fight Against The Sharks

Many of the traditional drivers of globalisation - notably economies of scale - simply do not apply to small businesses. They are faced with a constant battle with scarce resources -from sketchy finance to limited managerial capabilities - which sit uneasily with the demands of distributing and servicing across the globe.

Yet it seems that a particular kind of small enterprise can be global. As the cost of entering new markets falls entities that are responsive and specialised can flourish. Meanwhile, the forces driving large companies to widen their scope are making their smaller brethren think in world terms much earlier in life.

 

However, global reach is no novelty in some quarters. Take the German Mittelstand, the constellation of small and medium sized, often family-owned, businesses that fuel the German economy and its exports.

In his book Hidden Champions, Hermann Simon looks at 500 of the most successful members of the Mittelstand; many have secured a leading world market position but, with median annual sales of about $123m (pond 76m), few are well-known.

They succeed, Prof Simon argues, because they are more innovative, make decisions rapidly and are open to change. Fischerwerke, a small manufacturer of fastening products, holds 5,500 patents, or 234 per employee, according to Prof Simon. Whereas Siemens, a relatively innovative big business, only holds about 10 patents per 100 employees. Many have seemingly over-ambitious goals, says Prof Simon. He cites Era Elkektrotechnik, near Stuttgart, which makes small electrical components for products such as electronic toothbrushes:

In 1995, it set out to be number one in Europe. It has achieved that; within five years it wants to be number one in the world. This sort of thing sounds naive, and often it doesnt work. But these goals can act like the after-burner in a jet engine.Yet even Era, with its stepby-step approach to extending its international reach, is pursuing yesterdays route to globalisation.

The push factors include international customers requiring global suppliers - whatever their size. AnnWinblad of Winblad Hummer Venture Partners in Silicon Valley points out: The Fortune 500 company is global and if a software business wants to be a standard offering, it must approach global issues on the first release of its product. Its not a question of risky ambition, but of early growth requirements.

Gordon Murray at Warwick Business School, who is involved in an Anglo-German research project to determine what accelerates and constrains the export activities of high-tech young companies, adds: The ever-decreasing product and technoloy life cycles mean that you have to go international at a fast rate of knots to recoup your investment.

At the same time, rapid technlogical change plays into the hands of the small and nimble. Fatricia McDougall at Georgia Tech School of Management in Atlanta argues: The competitive advantage has in recent years tended to shift away from firms with large size and long experience toward firms with unique knowledge and swift response capabilities.

US companies that have raced to embrace the internet seem particularly gung-ho. Peter Sprague, former chairman of National Semiconductor and founder of Wave Systems, a company pioneering metering systems for databases, says: You want to know how we go global? It would be much weirder if you asked me how we were going to stay local. The internet forces you to be global, you literally dont have a choice.

Electronic commerce helps small companies to appear large. The rapid growth of Amzon, the virtual bookstore, was partlyfuelled by a marketing initiative launched a year ago, when it began building a network of 15,000 associate sites hotlinked to its own page. the company has an electronic salesforce that it pays commission to, but it requires no other administration.

Technology crosses borders more easily than service - but the virtual service business is also developing. The Dyer Partnership, a Hampshire accountancy firm on the web, acts, among other things, as the virtual finance department for Windenergo, a Ukrainian maker of wind turbines.

But the internet is not the sole enabler of the ambitious minnow. Colin Price, global leader of change integration at Price waterhouse and one of the authors of the paper Is the Future Virtually Assured?, believes there are other ways of achieving scope - access to markets - without scale.

The whole history of modern management has been driven by economies of scale. But today you dont have to be physically big to get access to customers. You can operate through alliances, joint ventures or virtual links. This is what the Japanese, with their system of keiretsu, or Chinese family businesses, have been doing for decades, he says.n

ComponentSource is a based in Reading that specialises in distributing software components. Early on, it realised it must be global to satisfy the software developers whose wares it distributes, according to Bob McPherson, chairman.n

Its own distinctive yellow and black branded CD-Roms now appear inside Microsofts Visual Basic development tool product box. By forging an alliance with Microsoft, initially in Europe, it appears much bigger than it is.

No one pretends such strategies are easy - and, unlike big companies, smaller competitors cannot afford to make mistakes.

Hence the clear imperative for solid experience.

John Precious, chairman of Molecules to Market, the first biotechnology start-up in Northern Ireland in 10 years, aimed to be global from the outset. while the company has 13 executives - it outsources almost everything including research - it also has a top-heavy board with six non-executives. Each has a strong international background and performs a quasi-executives. Each has a strong international background and performs a quasi-executive role in some corner of the globe.

Communications systems in born global companies also tend to be more sophisticated than less-ambitious start-ups. Steve Barnett is managing director for northern Europe at Checkpoint Software, a four year old Nasdaq-quoted Israeli company with reported sales of $53.34m in the first nine months of 1997 and a 40 per cent world market share in internet security firewalls.

Checkpoint, he says, defines itself not georgraphically but as an electronic corporation. In the past he adds, yoiu had information based on where you were located. If you were at headquarters, you would know more than someone at some far-flung outpost. But now a global internet pulls the company together - with layered access not just to employees but to reselling partners and others. In todays climate it is easier than ever to run a business from a laptop, 24 hours a day.