Ijfbvol 4

Volume 4, 2007
ISSN 1550-5812
INTERNATIONAL
JOURNAL OF
FAMILY BUSINESS
Shawn Carraher, Editor

Cameron University
Volume 4, 2007
ISSN 1550-5812
International Journal of Family Business, Volume 4, 2007
The International Journal of Family Business
Shawn M. Carraher, Editor

Cameron University
Samuel Lane, Associate Editor
Lane Import
Sherry Sullivan, Associate Editor
Bowling Green State University
Sponsored by the International Family Business Center & the Special Interest Group in
International Research of the International Division of the U.S. Association for Small Business
& Entrepreneurship
Authors retain copyright for their manuscripts. Any omissions or errors are the sole
responsibility of the individual authors. The Editorial Board is responsible for the selection of
manuscripts for publication from among those submitted for consideration. The Publishers
accept final manuscripts in digital form and make adjustments solely for the purposes of
pagination and organization.
Copyright 2007 by the International Family Business Center

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iii
EDITORIAL REVIEW BOARD

Shawn M. Carraher, Editor
Cameron University
Samuel Lane, Associate Editor
Lane Import
Sherry E. Sullivan
Bowling Green State University
Zafar U. Ahmed
Texas A & M University
Terrence Paridon
Cameron University
M. Ronald Buckley
University of Oklahoma
John Parnell
University of North Carolina - Pembroke
Sarah C. Carraher
Consolidation Enterprises
George Puia
Saginaw Valley State University
Chester Cotton
Steve Schwiff
Madeline Crocitto
SUNY-Old Westbury
Cuthbert Scott
Indiana University, Northwest
Michael Harvey
University of Mississippi
Howard Tu
University of Memphis
Johnathon R.B. Halbesleben

University of Wisconsin
Rosalie L. Tung
Simon Fraser University
Lanying Huang
National Changhua University of Education
Howard Van Auken

Iowa State University
Frank Hoy
University of Texas El Paso
Dianne Welsh
University of Tampa
Jorge Mendoza
Daniel A. Wren
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INTERNATIONAL JOURNAL OF
FAMILY BUSINESS
CONTENTS
EDITORIAL REVIEW BOARD...............iii
LETTER FROM THE EDITORvii
DEVELOPING A GLOBAL PERSPECTIVE: EXPANDING FACULTY COMPETENCIES
FOR TEACHING INTERNATION ENTREPRENEURSHIP . . . . . . . . . . . . . . . . . . . . . 1
Madeline M. Crocitto, State University of New York College at Old Westbury
Sherry E. Sullivan, Bowling Green State University
A CULTURE-BASED ENTREPRENEURSHIP PROGRAM: IMPACT ON STUDENT
INTEREST IN BUSINESS OWNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Howard Van Auken, Iowa State University
Chad Gasta, Iowa State University
Lee LHote, Iowa State University
Julia Dominguez, Iowa State University
INTERNATIONAL ECONOMICS AND FINANCE: AN EDUCATIONAL PRIMER FOR
FAMILY BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Dale Funderburk, Texas A & M University --Commerce
REDEFINING THE SMALL BUSINESS INSTITUTE: AN ADDRESS TO ASBE . . . . . . .49
Joseph R. Bell, University of Arkansas at Little Rick
SMALL BUSINESS ADVANCEMENT NATIONAL CENTER AS YOUR KEY RESOURCE
TO RESEARCH AND CLASSROOM INFORMATION . . . . . . . . . . . . . . . . . . . . . . . .53
Dr. Don B. Bradley III, Executive Director and Professor of Marketing, University of
Central Arkansas
AL-BAHAR & JACOROSSI ENGINEERING & CONTRACTING: A Study of the Effect of
Kuwaiti and Italian Culture on Human Resource Management After the Iraqi Invasion 59
Dianne H. B. Welsh, The University of Tampa
Abdulrahman Al-Bahar, Eastern Washington University
PARRISH PHOTOGRAPHY PART 1: STRATEGIC ETHICAL LEADERSHIP . . . . . . . . . . 67
Crystal Keys, Cameron University
Tina Vinson, Cameron University
Sarah Hay, Cameron University
Shawn Carraher, Cameron University
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THE HIT AND RUN EXPATRIATE EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Dianne H.B. Welsh, The University of Tampa
Ibrahim Al-Fahim, Al-Fahim General Trading Company
A REAL CASE: BADRIYA'S SHORT CAREER IN SAUDI ARABIA . . . . . . . . . . . . . . . . . . . 85
Mohammed Al-Boluhad, Eastern Washington University
AN EXAMINATION OF THE RELIABILITY OF A MEASURE OF PORTERS FIVE
FACTORS MODEL AMONG BUSINESS LEADERS . . . . . . . . . . . . . . . . . . . . . . . . .87
Charmaine Carpenter, TUI University
Shawn M. Carraher, Cameron University
GLOBAL ENTREPRENEURIAL STRATEGY: A PRIMER . . . . . . . . . . . . . . . . . . . . . . . . . . 91
John A. Parnell, University of North Carolina at Pembroke
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vii
LETTER FROM THE EDITOR

Chaanges in the Entrepreneurial Environment
Welcome to the fourth volume of the International Journal of Family Business. It was in May of
2002 that the journey towards the creation of this journal began. Hal Langford, the Dean of the
College of Business & Technology at Texas A & M University - Commerce came back from
China and announced that I was to be the Director of the new International Family Business
Center to be created out of a relationship that was created with China University of Geosciences.
The first goal that he set for me was to create a new journal that would allow researchers to
examine international entrepreneurship in Chinese sense [in China all non-governmentally
owned businesses could be considered to be "family businesses"]. It is out of this that the name
of the journal was created. The IJFB is a peer-refereed journal with both hard copy and on-line
versions of the journal. Starting this next year we plan to have two issues of the journal as we
are forging a relationship with a new association the Association for Entrepreneurship, Family
Business, and Franchising. The next issue of the journal shall be a special issue of their
conference which is to be held in Lawton, OK on Feb. 22, 2008. The AEFBF is wholely owned
by the Small Business Institute but shall seek to have more applied meetings focusing more on
student learning and applied field case studies. In the middle of January 2008 we shall also cease
to be affiliated with the Special Interest Group in International Research of the International
Entrepreneurship Division of the U.S. Association for Small Business & Entrepreneurship as
divisions are to cease to exist within USASBE. It has been a long term plan of certain members
of the USASBE board to go to a more centralized structure very similar to the the American
Management Association. Members would join and gain services but not provide any service to
the organization. Personally I think that this plan shall not work well within an academic
organization.
This issue includes a wide variety of material. We have a couple of typical research articles,
several cases, an address from a Past President of the Small Business Institute that he made to
the Association for Small Business & Entrepreneurship meeting in Oct. 2005 [it was supposed to
be published in their proceedings but came in too late], an article about the Small Business
Advancement Network Center with which we hope to work more closely in the future, and a
couple of primers on business topics of relavance to those interested in international/global
entrepreneurship.
In terms of orientation we have a strong bent towards empirical articles - although we also do
consider literature reviews and theoretical papers. For this issue we have a 19% acceptance rate
and plan to continue to have a rigorous review process. All reviews are done double-blind with
papers sent to 3 reviewers. Reviews and paper submissions are done electronically. In addition
to the International Family Business Center of Texas A & M University - Commerce we have
also received support from the U.S. Association for Small Business & Entrepreneurship, the
SouthWest Academy of Management, the Academy of Management, the Special Interest Group
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viii
in International Research of the International Division of the U.S. Association for Small
Business & Entrepreneurship, and are currently talking with several publishers. I would
especially like to thank Samual Lane for his dedicated service serving as Associate Editor as he
has rejected more of my papers than likely any other editor with whom I have worked. I would
also like to thank Dr. Sherry Sullivan who is likely the best technical editor who I have known.
On behalf of the editorial review board and our sponsors we trust that you shall find these
articles to be of value to you and that you may consider submitting some of your work to the
journal in the future.
Shawn M. Carraher, Brewczynski Endowed Chair in Entrepreneurial Studies, Director & Editor
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Manuscripts
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DEVELOPING A GLOBAL PERSPECTIVE: EXPANDING FACULTY

COMPETENCIES FOR TEACHING INTERNATION
ENTREPRENEURSHIP 1
Madeline M. Crocitto, State University of New York College at Old Westbury
Sherry E. Sullivan, Bowling Green State University
Abstract
The purpose of this paper is to emphasize the increasing importance of the global aspects of
entrepreneurship education from the perspective of faculty preparation. We propose that
the DeFillippi and Arthur (1996) competency based model of knowing why, knowing how,
and knowing whom, provides a useful framework for developing faculty with both global
and entrepreneurial proficiencies. We use this framework to present various methods and
techniques for guiding faculty and administrators to learn more about the global aspects of
entrepreneurial education. We hope this will better prepare business educators to help
students become more culturally and entrepreneurially aware and ready to participate in
the global marketplace.
Just as organizations are increasingly dispersing their manufacturing, marketing and
investments throughout the world, small businesses too have clients and suppliers in all parts of
the globe. As a result of this continual globalization, more business owners and managers are
working overseas on short and long term assignments, more employees deal with international
customers, and more workers are interacting as part of diverse virtual as well as face-to-face
teams whose members live in different countries. Involvement with global business requires a
new level of international awareness of distinct markets and knowledge transfer in order to gain
and maintain a competitive advantage (Friedman, 2005; Gupta & Govindarajan, 2001).
Due to changes in technology and the growth of e-commerce, many entrepreneurial start-ups and
small businesses derive a substantial portion of their profits from doing business globally. An
entrepreneurial perspective, whether inside or outside of an organization is the key to
competitiveness in contemporary business and is considered the foundation of a successful
corporate strategy (Kuratko, Ireland, & Hornsby, 2001). Yet, the education of business students
in entrepreneurship often does not reflect this global perspective. In illustration, Bchard &
Grgoires (2005) analysis of 103 entrepreneurship education articles identified four categories
of entrepreneurship education: the economic and social impact of entrepreneurship education, the
delivery of such education, concern with its content, and adapting entrepreneurship education to
individual students. Of the 38 journals they surveyed, only two had an international focus and
global awareness was not identified as an entrepreneurial competency.
Because the global aspects of conducting business have not been well integrated into
entrepreneurship education, the purpose of this article is to address the delivery of international
entrepreneurship education from the standpoint of faculty preparation. We start with an
1
Our thanks to Shawn M. Carraher and three anonymous reviewers for their insightful comments on an earlier
version of this manuscript
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explanation of the growing importance of entrepreneurship and the facultys role in preparing
students for these types of careers. We then move to an analysis of why faculty may not be as
well-versed in the international aspects of entrepreneurship. Finally, we offer a set of
recommendations to assist faculty in developing an awareness of and competency in global
entrepreneurship education.
Entrepreneurship Education Still the Status Quo
According to the Small Business Administration (SBA) Office of Advocacy (2006), U.S.
entrepreneurs in small businesses:
are generally responsible for creating from 60% to 80% of net new
jobs,
employ more than half of all workers in private industry,
create more than half of the Gross Domestic Product, and
in 2004 were 97% of the international exporters, accounting for

28.6% of export value.
Despite the increasing importance of entrepreneurship to the U.S. and other economies as well as
expanding student interest in entrepreneurial careers, many universities and colleges are
providing little training on global entrepreneurship. Our informal sampling of popular
entrepreneurship textbooks shows that they typically feature the standard business plan
approach to starting a new business with little, if any, consideration of the opportunities, threats,
and issues relevant to international entrepreneurship.
More recently, McDougall & Oviatt (2000), in an analysis of a special research volume of
international entrepreneurship, categorized entrepreneurship scholarship into the areas of
corporate entrepreneurship, economic development, entrepreneur characteristics and motivations,
exporting and market entry modes, new ventures and initial public offering, entrepreneurship in
emerging economies, and venture capital funding. Notably absent is the issue of preparing
students to consider the global aspects of starting and developing an entrepreneurial venture.
Although the amount of research on international management has increased dramatically
(e.g., Adler, 1991; Carraher, 2005; Carraher & Buckley, 2005; Carraher, Parnell, Carraher,
Carraher, & Sullivan, 2006), many university professors are still struggling to effectively
increase student awareness of the international aspects of doing business, regardless of which
country they plan to start their business in, and to teach future entrepreneurs to adapt to our
dynamic global environment. There are five major reasons why faculty may not adequately
prepare students for international entrepreneurial careers. One, entrepreneurship is often
considered a general term in which topics such as strategy and new firm creation are considered.
Entrepreneurship does not have a distinguishing conceptual framework as do some other
management areas (Shane & Venkataraman, 2000), perhaps because it is a newer area of study
and was previously regarded as a subsection of general management (Leitch & Harrison, 1999).
Available course materials often reflect these prevailing paradigms and may not reach beyond
them. Entrepreneurship and small business texts may have, at most, one chapter, if any, on the
global aspects of business. Similarly, international business texts seldom contain a chapter
heading about entrepreneurship.
Two, despite general awareness of the globalization of business, the role of entrepreneurs
in the global economy has received less attention from management scholars. It is difficult to
find professors teaching entrepreneurship with academic training in this discipline as well as
experience in international and entrepreneurial settings. Although McDougall & Oviatt (2000)
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note an intersection of research on globalization and entrepreneurship, they also commented

on the wide scope of entrepreneurship in terms of strategy, change and innovation which may
then be addressed from varying perspectives, i.e., economic, social, and cultural. These
expansive approaches may make it difficult for professors to choose which international topics to
include in an entrepreneurship course. Similarly, professors teaching international courses may
be perplexed about which aspects of entrepreneurship to feature in their courses. Like
international business, entrepreneurship may be an orphan due to the relatively small amount
of research attention that has been devoted to it in comparison to other functional areas of
management (Behrman, 2006).
Three, due to the size of the U.S. domestic market and emphasis on large companies,
many U.S. educators have not fostered an interest in international entrepreneurship and the types
of program which would help students accurately determine international business opportunities
(Bell, Callaghan, Demick, & Scharf, 2004; SBA, 2005). Moreover, there has been the tendency
to focus on outcomes rather than processes in internationalizing business education, resulting in a
lack of practical skills in the education of todays college students (Edwards, Crosling, PetrovicLazarovic & ONeill, 2003). This is important, because educated individuals in the U.S. 2 are
more likely to become entrepreneurs and, when they do, employ more people than their less
educated counterparts. Two-thirds of college students express an interest in becoming
entrepreneurs and these students are a resource of innovation which should be identified and
nurtured (Weaver, Dickson, &Solomon, 2006). University faculty have an obligation to prepare
future entrepreneurs by increasing students awareness of the international aspects of doing
business.
Four, many faculty themselves may not be aware of the increasing globalization of
entrepreneurial activity and may be poorly prepared to address the international aspects of
entrepreneurship. Although there has been a steady strengthening of the experience and
credentials of faculty teaching international business (e.g., Muuka, Harrison, & Hassan (1999)
estimate that 88% of faculty are qualified to teach international business), there is no way to
determine whether faculty with these credentials or with global experience are teaching
entrepreneurship or even addressing this topic in their courses.
Faculty teaching
entrepreneurship courses may have earned their degrees without a significant exposure to
international business issues and may have limited knowledge about the behavioral and business
aspects of international entrepreneurship (Muuka, et al., 1999). Most information available to
faculty, for example, in the areas of expatriation and business successes and failures, are based
on studies of large organizations.
Five, some universities hire former or present entrepreneurs as adjuncts to teach
entrepreneurship courses, many of whom may have had limited global activity in their own
business experiences. Many of these entrepreneurs turned adjunct instructors focus more on
teaching the nuts and bolts of starting and nurturing a business within U.S. borders, than on the
international aspects of entrepreneurship. Even those with some international experience may
have knowledge limited to the few countries in which their organizations operated and may lack
a broader, comprehensive understanding of the dynamics of doing business in other countries. In
2
There are country differences in the strength of the relationship between education and
entrepreneurship. For additional information, see Autio, E., 2007 Global Report on High Growth
Entrepreneurship, The Global Entrepreneurship Monitor. The report may be downloaded from
www.gemconsortium.org.
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the next section, we detail a framework and apply that framework to provide guidelines for the
development of faculty competencies in international entrepreneurship.
Developing Faculty Competencies
Many faculty and administrators still believe that providing students with a series of
activities such as short trips to other countries is a sufficient means of internationalizing the
curricula. Many others enact the internationalization process by including global issues into
courses organized by functional areas (e.g., human resources, strategy, organizational theory).
We offer an alternative view, recommending that faculty focus on developing their own
competencies so that they may help students identify, act upon, and appreciate entrepreneurial
opportunities in todays global economy. In this article, we extend the intelligent career model
(DeFillippi & Arthur, 1996), which has already served as an effective guide to cultivating
student international entrepreneurship opportunities (Sullivan and Crocitto, 2007) to develop
faculty in this area.
The intelligent career model was developed by Robert DeFillippi and Michael Arthur
(1996). They posit that knowledge, and the absorption of it, changes in response to shifting
environmental, employment, and personal variables; it is not dependent on or subordinate to a
single organization or, in this case, country or region. They advocate a learning-centered
approach which reflects the shift from the employees assumed long-term commitment to a firm,
in which competencies were built according to organizational needs, to a model of occupational
excellence, wherein employees seek to continually upgrade the skills valuable to the global
marketplace. In effect, the intelligent careerist has shifted to thinking outside organizational
boundaries and becoming more entrepreneurial about career management. Given the
assumptions underlying the intelligent career model, we think this framework could serve as a
practical guide to teaching entrepreneurship. The three forms of knowledge discussed in the
model (knowing why, knowing how, knowing whom) are especially relevant to educating
college students. Many students already possess an awareness that their interests and preferences
are not conducive to organizational employment. Faculty need to have them challenge the nave
view that if someone starts a small business locally, then international issues are less relevant.
DeFillippi and Arthur (1996) identified three forms of knowing competencies as
manifested in peoples beliefs and identities (knowing why), knowledge and skills (knowing
how), and network or relationships (knowing whom). The knowing why competency reflects a
persons values and motivation. Knowing why relates to the persons identity and the fit between
this identity and choices made relative to tasks, projects, and organizations and as we propose
in teaching entrepreneurship, cultures and countries. Knowing how refers to the skills and
knowledge needed for performance on the job. It is the persons level of expertise. Individuals
may use their various employment settings and experiences on different projects to both apply
and expand the skills and knowledge they possess. Knowing whom refers to the relationships or
links which contribute to an individual's networking activities. The friends, colleagues, and
professional associations with whom individuals network can help build a reputation, provide
needed visibility and access to opportunities, as well as present new sources for learning outside
of the persons organization, culture, and country.
DeFillippi and Arthurs (1996) model has been applied to the study of such topics as
mentoring (deJanasz & Sullivan, 2004), leadership (Scandura & Williams, 2004) and networking
(deJanasz, Sullivan, & Whiting, 2003). Drawing from the ideas of intelligent careers (Arthur,
Claman, DeFillippi & Adams, 1995; Baker & Aldrich, 1996; Bird, 1996; DeFillippi & Arthur,
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1996), we propose that developmental experiences and exercises can be used to enrich students
knowing why, how, and whom competencies, thus suggesting a systematic approach to
international education (Sullivan & Crocitto, forthcoming) . However, because faculty must take
the lead in this type of student development, in this article we apply the intelligent career
framework to the development of faculty competencies for teaching entrepreneurship.
Knowing Why
The knowing why (manifested in a persons beliefs and identity) competency is perhaps
the most crucial of the three competencies for faculty to develop. Faculty need to be aware of
and understand the importance of entrepreneurship in todays business environment as well as its
viability as a career option for students. Some students, especially those who have not been
exposed to entrepreneurship through first hand experience in a family business or through
relatives or friends, often dont consider entrepreneurship as a potential career choice. Many
students are not aware of the increased boundarylessness (i.e., increase physical and
psychological mobility) of contemporary careers and fail to recognize the importance of
adaption, self-marketing, reliance on external networks, balancing work/nonwork choices, and
continuous learning (Arthur & Rousseau, 1996; Briscoe, Hall & DeMuth, 2006; Sullivan &
Arthur, 2006). Students who are first-generation to attend college or children of immigrants may
aspire to a good job in a large corporation, unaware that the notions of job security, regular
work hours, good pay, and benefits which their parents desired, are now fading from the work
landscape (Hall, 1996).
In addition to increasing awareness of entrepreneurial career options, faculty should
recognize the cross-cultural differences which may influence students career aspirations.
Entrepreneurship is a multidimensional concept, defined as an action such as creating and
following an opportunity. It often involves entrepreneurial personal characteristics such as being
innovative, proactive, and tolerating risk (see McDougall & Oviatt, 2000), characteristics which
may span across cultures (Grol and Atsan, 2006). Faculty need to be cognizant as to how to
best use different types of learning environments to develop these characteristics in students so
that they may identify opportunities and innovations with the confidence to act on them.
Because evidence suggests that understanding entrepreneurship requires more complex thought
processes, faculty members attempts to better understand international differences in
entrepreneurial tendencies, acceptability, and innovation will help their teaching effectiveness.
For example, entrepreneurship creation differs across world regions, as do expectations of high
venture growth measured by twenty or more jobs created in the subsequent five years of start-up.
Some regions, such as Africa (Uganda and South Africa) and South America, have the highest
levels of entrepreneurship start-ups but low expectations of high growth. Likewise, personal
characteristics influence the choice to become an entrepreneur with more educated individuals
(i.e., graduate education) with an affluent background being more likely to have high
expectations for venture growth (Autio, 2007, p.16). Research by Thomas & Mueller (2000) has
reported interactions between personal characteristics and the cultural context of
entrepreneurship. While cultural distance from the United States in areas such as internal locus
of control, risk-taking, and having a high energy level were associated with less of an
entrepreneurial interest, innovativeness showed no such cultural difference. By studying regional
differences, faculty come to realize that the decision to become an entrepreneur is a complex
choice influenced by a nations public policy coupled with an individuals income, education,
and personality.
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Unfortunately, many faculty may be only vaguely aware of the international aspects of
entrepreneurial activity, even on a very small scale. Faculty may need to engage in self
assessment on a cognitive level to determine what they know about the factual and cultural
aspects of doing business globally, especially if the faculty member has little experience with
international commerce. Self-reflection may also aid faculty in discovering what factors in their
lives may influence their knowledge and experiences. For instance, some faculty have been
unable to participate in international exchange programs, perhaps because of family
responsibilities (e.g., childcare, eldercare) or financial restrictions, which would have enhanced
their knowing why (peoples beliefs and identities), knowing how (knowledge and skills), and
knowing whom (network or relationships) competencies. Second- or third-generation U.S. born
faculty may have diminished their bi-cultural sensitivity and thus are unable to parlay such
knowledge into studying how business is conducted in other countries. Faculty originating in
countries with political systems that discouraged free markets may have little experience with
entrepreneurship; while they may understand entrepreneurial opportunities, they may lack the
awareness of how such opportunities can be developed.
There are many sources that faculty can use to increase their knowing why competencies.
For instance, students who are from other countries or have been reared in bi-cultural households
may be a good source of information about cultural differences in doing business as well as
entrepreneurship in other countries. In our studies of students career plans, we found that they
often have dreams of returning to their countries to start businesses. Learning about students
entrepreneurial career plans helped increase our awareness of the opportunities and obstacles in
different countries as well as the motivations of future entrepreneurs.
We have also found through our students service learning projects with small businesses,
that bi-cultural students easily find entrepreneurs from other countries who need their assistance.
These business owners often lack some business expertise such as marketing, sales promotion,
technology, or financial record-keeping and analysis. Students assist the owners with the latest
knowledge. However, the business owner can discuss with the students the way in which the
business was started and students learn first-hand what is involved in starting and running a
business. For example, one of our student groups found a placement at a clothing store in the
mall whose owner was a friend of one of the group members. Despite the stores good location,
the foreign-born owner was reserved and did not realize the positive regard that he and his
business would gain by participating in mall promotional events. The business also used no
technology for purchases and inventory. The students priced out inventory systems. They also
created a market research report when the owner expressed a desire for a second location. In
another project, students recounted how the business owner they were working with did not
understand the concept of business social responsibility. The business owner came from Eastern
Europe where the idea of charitable activity was unknown due to a scarcity of prosperous people
and businesses. Other student groups noted that the entrepreneurs they worked with were a
wealth of knowledge about how to understand and navigate policies and issues about
purchasing products and materials from other countries. The reciprocity between the help
provided by students to the business owners and the knowledge gained by the students from the
entrepreneurs enhance both student and faculty learning and understanding of international
issues. In fact, student assistance can move beyond a semester and the faculty develops the small
business as an on-going placement in future courses. Faculty should consider assigning projects
which will bring the knowledge and talent gained by working with those from other countries
into the classroom as well as augment their own awareness of international entrepreneurship.
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In addition to the careful choice of student assignments, building knowing why

competencies can also be fostered through conference activities. Professional associations such
as the Eastern Academy of Management International (EAMI) and The World Association for
Case Method Research and Application (WACRA) offer opportunities for international
conference participation in diverse locales as well as preconference sessions on cross-cultural
topics. National and regional conferences may also emphasize faculty development in learning
more of the interrelationship between entrepreneurship and international areas of study and
practice. For example, one year WACRA participants visited a newly privatized manufacturing
plant where one could view managements methods of production, worker motivation, and safety
implementation and speak directly with managers and workers. A recent EAMI conference took
attendees to a township in South Africa where training was offered and where local small
business owners discussed their needs and experiences. Such forums allow faculty to learn from
other colleagues knowledge and experiences as well as meet their counterparts from other
countries with whom to collaborate on research, share teaching techniques, and develop virtual
international work teams.
Knowing How
Even the most culturally aware and motivated faculty may be perplexed about the
entrepreneurial aspects of global business and how to further develop these two interests.
University administrators are the key persons in developing the knowing how (i.e., expertise)
competency. Already, some administrators have taken the lead and their universities are the sites
of Small Business Administration (SBA) area offices. Faculty can learn much by attendance and
participation at SBA sponsored seminars and events, which are held locally and offer free
admission. Given increasing time demands on faculty, such events should be recognized and
rewarded as professional development by university administrators. University-SBA partnerships
increase not only faculty knowledge but also student knowledge. In addition, as more faculty
become aware of SBA events, they will encourage students to attend such events. These
programs may offer a means whereby both faculty and students can develop mentoring
relationships with entrepreneurs and small business owners with both local and international
business dealings. The programs are also a good source of information and guest speakers for
both the classroom and student organization sponsored events. Faculty on a campus without
SBA affiliations or business incubators should alert administrators to the opportunity to attend
local programs, encourage the development of partnerships with the SBA and other relevant
associations (e.g., Chamber of Commerce, women or minority small business associations), and
advocate including entrepreneurs on university advisory boards.
Moreover, university administrators need to think outside the box and encourage faculty
to obtain externships with area firms doing business in other countries (Glenn, 2002). There is a
greater probability of participation in these activities if out-dated policies were eliminated and
faculty were released from their traditional course load and service requirements. Such policies
were established when business was less global and have not kept pace with changing faculty
work demands. Instead, universities should reward and reinforce faculty participation in these
types of events.
In the same way, administrators and faculty should think creatively about having faculty
actually work in other countries for a period of time either as consultants and/or teachers in order
to have direct international experience and build a global network. Administrators might
consider the success of student programs and how these programs could be altered to fit the
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developmental needs of faculty. One such example is the European Entrepreneurship

Accelerator (EEA) program in which INSEAD and Spains IESE partnered to match students
with entrepreneurs who mentor them as the students successfully growing their own ventures.
One of the EEA programs criteria is the students desire to develop a company which will
expand beyond Europes border (Ciandella, 2006). Helping develop or being a guest faculty
member for a similar type of program would provide faculty with a rich cultural hands-on
experience that would enhance their knowing how competences (see Yamazaki & Kayes, 2004).
Administrators should seek alliances with programs in other countries so that faculty could play
a part in business development and consulting as a type of internship experience. Networking at
professional conferences may be one means by which administrators can locate partners for such
international teaching and consulting opportunities. However, before such programs are
implemented, administrators should survey faculty interests and availability for them. Given the
heavy teaching and research demands upon many faculty members, even outstanding programs
will not be welcomed if faculty dont have the time and resources necessary to take advantage of
this type of development. Some faculty members, especially those seeking tenure or promotions,
may decide to focus on an active research agenda or may be focused on enhancing courses; they
may not be interested in or available for international opportunities given other commitments.
Administrators should collaborate with faculty to create career plans as well as a balanced work
environment so that faculty are able to take advantage of such important developmental
opportunities.
Like expatriate managers, faculty often fear that international assignments, especially
those lasting for more than a term, may sidetrack their careers. They may believe that like
repatriated managers, when they return home no one will be interested in what they have learned.
Faculty members may have spent so much time preparing for the international assignment that
research agendas may be slowed. After an international assignment faculty may find they have
to devote much time to updating course preparations and becoming acquainted with new
personnel, much as individuals do who return from sabbatical leaves (Sullivan & Crocitto, 2003).
Because commitment to faculty international development has been cited as one of the major
reasons for successful business school internationalization (Shetty & Rudell, 2002),
administrators should permit international assignments to occur in addition to regularly
scheduled sabbatical leaves. Such assignments should have the proper resources (e.g., help with
paperwork, travel arrangements, and communication with host country colleagues) before and
after the mission so that the faculty member finds the experience to be both extrinsically and
intrinsically rewarding. Even international teaching and developmental experiences of short
duration often involve long airline flights and time-intensive pre-departure preparations. Shorter
programs may be so fast-paced and demanding that attending faculty may need time to readjust.
Because of the extra time and effort needed to prepare and actually implement international
teaching, research, and consulting assignments, participating faculty could be compensated by
counting these assignments as part of their teaching load or be compensated at overload rates. In
turn for the support provided by administrators, faculty should be competitively selected for
these programs using processes analogous to those for selecting managers for international
assignments. Faculty should have an interest in an international assignment, should be adept at
technical and decision-making skills, and should have the social support of their family who,
depending on the duration of the assignment, may or may not accompany them (Sullivan & Tu,
1993).
Administrators must realize, however, that regardless of the many benefits that can be
accrued to the faculty, university, and students by international programs and assignments,
_____________________________________________________________________________________________9
faculty may eschew these opportunities due to restricted travel budgets, time constraints, and the
extra effort and inconvenience involved. Administrators may need to consider creative solutions
that reduce the costs and increase the benefits of such opportunities. For instance, faculty might
be considered as ambassadors of not only the university but also by local businesses. Working
with local businesses and government offices, administrators may be able to raise funds to help
support such activities. In turn, faculty traveling for international teaching or research
assignments may promote businesses and services in their home countries as well as their
universitys educational programs (e.g., recruitment of international students) while also serving
as a conduit for entrepreneurship opportunities, information, and professional relationships.
Smaller universities, without alliances or the resources necessary for global programs, may
especially benefit from the use of these faculty ambassadors. Such assignments may have the
added benefit of permitting faculty to make connections during their travels that could result in
opportunities for their students to work on entrepreneurial projects across national borders or
with multi-national student teams. These projects would assist student entrepreneurs to identify
in which countries their venture may be most successful and test whether their business ideas
could be exported to another country (Lorange, 2003). Moreover, faculty may be able to team
up with colleagues from other countries and disciplines (e.g., Russian Studies, language
programs), which may increase the rate of cross-cultural training.
Additional learning is
available to faculty by designing workshops and courses to would-be entrepreneurs who are not
in business schools. A recent study by Levenburg, Lane, and Schwarz (2006) revealed that
students who werent business majors are nonetheless interested in new venture creation and
would benefit from an entrepreneurship course without the typical business prerequisites.
Successful entrepreneurship faculty should be involved with designing and teaching an
appropriate course with an international component - for these students. Faculty who have
already been guests of overseas universities and businesses should find it easier to arrange
international trips for their students as well as partner with faculty in other countries to develop
and implement internet assignments with student teams from across the globe (Greene &
Zimmer, 2003) in disciplines in and outside of business.
There are many examples of how administrators and faculty together can create programs
that increase faculty members knowing how competencies in regards to international
entrepreneurship. Some of these efforts include:
General Electric and Monterrey Tech Graduate School of Business
Administration and Leadership in Mexico joined across country borders to create
a super alliance; together they provided provide opportunities for students to
study in other countries.
The OneMBA program through the Kenan-Flagler Business School at the

University of North Carolina allows students to study with their counterparts
overseas on a global project. Students from different countries worked together
two-weeks at a time, rotating among universities and using technology for virtual
meetings.
The TRIUM program among New York University (Stern School of Business),
HEC-Paris, and the London School of Economics allows for teams to engage in
_____________________________________________________________________________________________
10
two weeks of study at each university as well as visits to affiliates in other

continents (see Bisoux, 2003 for further details).
Sterns MBA program provides two-week intensive coursework in other

countries
(see
http://w4.stern.nyu.edu/admissions/langone/innovativecurricula.cfm?doc_id=376
5).
Faculty create a virtual global meeting place in which executives in different

countries share problems, offer each other solutions, and develop new markets
and find suppliers (see Lorange, 2003).
Faculty develop a consortium of MBA programs to provide guidance to

transitions economies while faculty members learn about business and crosscultural issues (Behrman, 2006).
Knowing Whom
Many opportunities to build facultys knowing whom (networking) competencies related
to international entrepreneurship may be untapped. Often, faculty fail to realize potential
network contacts, such as faculty from other countries visiting campus or international students
attending classes. International faculty and students are an excellent source of cross-cultural
learning, especially about social norms and beliefs, because regular contact can be established
with them (Yamazaki & Kayes, 2004). People from other countries, even if they have lived and
worked in the U.S. for decades, usually have a network of academics and business contacts upon
whom they rely. With a network of such contacts, faculty can gain introductions to international
business people, helping to build a resource base of knowledge and personal associations which
span across the globe.
Because international exchange faculty may be an invisible presence on campus and
typically have limited exposure beyond the department in which they teach, administrators
should pair visiting faculty with regular faculty. Administrators should also promote a visiting
scholars expertise through seminars and campus events to which community and business
leaders are also invited. For example, one of this articles authors learned of visiting professors
from China on her campus, and invited these scholars to a small welcome get-together to
introduce to them to colleagues and other locals. The party permitted an informal exchange
among the individuals who shared stories of how they were celebrating the upcoming Christmas
holiday as well as how those of different religious deal with such a pervasive celebration. This
type of contact over the course of a semester begat friendships which have spanned several
years, with each person assisting the others as a reference for business, research, and cultural
information. We have found that faculty from other cultures, especially those with an emerging
entrepreneurial focus such as China, may provide access to business and government personnel
for research, consulting and teaching projects. These international faculty not only are wonderful
guest speakers, but are great contacts when U.S. faculty or students visit their home country
universities. With the continued evolution of technology, it is much easier now to keep in contact
with these faculty via email once they return home. Moreover, these faculty can also host virtual
_____________________________________________________________________________________________
11
tours of their country or local businesses via the Internet, serve as distance learning guest
lecturers, and facilitate entrepreneurship information across countries to interested students.
Correspondingly, international students may be valuable, overlooked resources.
International students may be unsure about how to meet US students and participate in their
extra-curricula activities. We have found through conversations with these students, that unless
they are living with relatives, they are often somewhat isolated and timid about approaching US
students, who seem overly busy with their established social, work, and school schedules.
Differences in how to interact with the increasing diverse student population of US universities
may not be recognized by some faculty (Buttner, 2003); this may be particularly true in the case
of international students who come from cultures with a high regard for faculty. Because of
strict norms about power distances between students and professors, international students may
hesitate to approach faculty with a request for assistance or offers to introduce faculty to
appropriate contacts in their countries unless a strong relationship has been established. Once
these bonds have been formed, however, many international students follow their cultural norms
and keep in touch with former professors. These student-faculty relationships should be
cultivated as former students often are willing to provide contacts for current students. These
students become an even greater resource once they start their own businesses or join established
firms. For example, one of the authors former exchange student hosted faculty visiting his
country, introduced them to his employer and sponsored a site tour for visiting U.S. students and
faculty.
In addition to making contact with visiting international faculty and students, faculty
should actively seek connections with local entrepreneurs, especially those from other countries.
Faculty can then gain first-hand experience about the problems and issues these local
entrepreneurs face, perhaps asking them to be guest speakers for classes, or having their
businesses serve as hosts for student service learning projects. Attending community events,
such as local theatre productions, fairs and festivals as well as visiting restaurants, shops, and
museums in ethic neighborhoods, is another way of broadening cultural awareness while meeting
individuals from different cultural backgrounds. We have found that despite some language
difficulties, small business owners and community leaders are interested in sharing their
experiences and expertise and often invite faculty and students on field trips to new and growing
firms. These entrepreneurs are often happy to serve as featured speakers in classrooms as well as
at university and conference events.
There are many other untapped resources for developing entrepreneurial contacts in other
countries. Professional associations, such as the United States Association for Small Business
Enterprise (USASBE), have a diverse membership including faculty who have obtained
Fulbright scholarships of varying duration and locales; small business owners with operations in
numerous countries; and consultants and government personnel who have experience in
international business activities. These individuals are a wealth of information about a range of
international entrepreneurial activities. They know factual information about visiting or adjusting
to new cultures and satisfying such day to day needs as finding housing, transportation, and
English-language newspapers (Van Auken, Carraher, Sullivan, & Crocitto, 2004). They are also
aware of specific regional government or political obstacles, local knowledge and customs not
detailed in guidebooks, and potential dangers (e.g., black market activities).
For faculty who wish a quick immersion in another culture, becoming involved with the
planning and implementation of an international conference will open doors to numerous
international contacts. These conferences are usually co-sponsored by a host-country university
and provide an opportunity for an extended and close working relationship to develop with
_____________________________________________________________________________________________
12
international colleagues. Working as part of such an international team to develop a crossnational event for scholars from across the globe may be the best way to learn about how
scholars in other countries live their academic lives, differences and similarities in professional
norms and expectations, and how entrepreneurship emerges and is supported in other countries.
In sum, faculty and administrators should make a coordinated and concerted effort to
recognize the increasing reliance on global entrepreneurship, even for the smallest of
entrepreneurial ventures. Each party has an obligation to develop their institutions, their
professional knowledge, and their students to meet the challenges of entrepreneurship in todays
global marketplace. Using the intelligent career framework, we have suggested some ways in
which the knowing why, how and whom competencies can be enhanced so that educators are
willing and able to assist students in recognizing this potential career option. Administrators
should realize that having faculty with strong international entrepreneurship competencies is a
source of competitive advantage, and help faculty develop these knowing competencies.
Administrators should consider how developing synergistic partnerships with other universities,
businesses-- both local and foreign-based, and relevant stakeholders (e.g., Small Business
Administration) can create the resources necessary to support faculty development in terms of
structured programs and training (e.g., international travel and assignments; assistance with
applying for Fulbright grants) as well as providing support in terms of release time and rewards.
The Future of International Entrepreneurship Education
The area of entrepreneurship is receiving increased attention as a valid area of study, and
deservedly so. The study of international business has tended to focus on expatriate managers
and the structures of multi-national organizations and this focus is reflected in international
business education. To date, there has been relatively little consideration of the need for global
skills in entrepreneurship education.
While scholars have recognized the importance of increasing knowing why, how, and
whom international competencies for executives and expatriate managers as well as other
organizational personnel with frequent international interactions, little attention has been paid to
the internationalization of entrepreneurs. Like organizational employees, entrepreneurs will be
working with globally diverse groups or individuals. A recent study of international new
ventures (INVs) in comparison with domestic new ventures (DNVs) found that the INVs had
more international and industry background and sought an international emphasis from
inception. The INVs had a greater competitive advantage by focusing on high quality, innovative
products supported by service and marketing (McDougall, Oviatt, & Shrader, 2003). These
researchers note the emergence of INVs presents a new type of organization about which little is
known. Similarly, Zahra (2005) notes the influence of managerial and employee cognitions in
viewing markets, customers, and competition. Indeed, bi-cultural investors have formed private
equity firms to buy up businesses which appeal to a large particular cultural market. For
example, Palladium Equity Partners searches for businesses which appeal to the large Hispanic
population in America, some of which started as family businesses but had no family successors
(Dash, 2006).
Universities have the responsibility to provide equal opportunity in recognizing the
global nature of entrepreneurship. We hope this paper provides a framework through which
faculty, who are at the front line of creating and disseminating knowledge, may begin this
process. All students should be equipped to function in a multicultural and global world (Haigh,
2002). Research indicates that women and minorities often find entrepreneurship as a means
_____________________________________________________________________________________________
13
around the glass ceiling and towards upward mobility. Approximately 18% of U.S. firms are
owned by minorities; women in small business owned 6.5 million businesses with $941 billion in
revenues (Small Business Administration, 2006). As educators, we have an obligation to raise
awareness about entrepreneurial enterprise and to prepare students to develop and grow their
global entrepreneurial ventures as a means to personal growth and economic security. In order to
successfully accomplish this, we need to be vigilant in keeping ourselves aware of and current
about international issues. This should be a multi-pronged effort supported by the community,
our government, and our academic institutions.
Thus, universities should not only offer an international management specialization but
must provide students, regardless of major, a broader knowledge base by having them focus
beyond concerns of single country (Adler & Bartholomew, 1992) and to train them to anticipate
and respond to cultural differences. As global workers, faculty and students must embrace
continuous learning and the ability to adapt to changing circumstances and cultures. In other
words, following the idea of boundaryless organizations and boundaryless careers, we, as
faculty, should take an entrepreneurial stance towards our career in terms of moving into the
global arena with our teaching and research.
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17
A CULTURE-BASED ENTREPRENEURSHIP PROGRAM: IMPACT ON

STUDENT INTEREST IN BUSINESS OWNERSHIP
Howard Van Auken, Iowa State University
Chad Gasta, Iowa State University
Lee LHote, Iowa State University

Julia Dominguez, Iowa State University
Abstract
This paper reports the results of a study that examined the impact of a culture-based
entrepreneurship study abroad program on interest in business ownership. Forty-three students
were asked to complete a pre and post program questionnaire that asked about their
understanding of a variety of program activities and to gauge their interest in starting a
business. Almost no similar research has been reported in the literature. Pre- and postprogram mean rankings of the variables are reported. The results indicated that post-program
mean rankings tend to be higher than pre-program mean rankings. Twelve of the post-program
mean values are significantly different from pre-program mean values. Logit regression
analysis indicated that the culture variable was positively associated with interest in starting a
business while the Spanish business and entrepreneurial skills, and program structure variables
were negatively associated with business ownership. The results of this study may be of interest
to educators involved in developing entrepreneurship and study abroad courses and programs.
The study may be of special interest to those involved in developing integrative entrepreneurship
programs.
A goal of entrepreneurship education is to encourage students to consider business
ownership. The educational process often requires students to change their perceptions about
careers opportunities and develop critical thinking skills that will enable them to recognize,
screen, and pursue opportunities. Educational and skill development that occurs in a dynamic
environment provides students with new experiences and insight. Individual openness to change
and willingness to adapt facilitates innovation. Facilitating this type of change, which is at the
core of entrepreneurship education, can lead to economic dynamics that invigorate an economy
(Schramm, 2005). Entrepreneurship education has been shown to increase propensity to launch
new businesses (Charney and Libecap, 2005). DeTiennne and Chandler (2004) and Audet
(2000) suggested that course pedagogy can affect the desirability and feasibility of business
ownership.
Interest in starting a business may result from a number of factors. Boyd and Vozikis
(1994) believed that a variety of factors, including economic, political, personal history,
personality, and abilities factors, to affect intentions. They proposed that self-efficacy affects
intentions and is derived from experiences, observational learning, social persuasion, and selfperceived abilities. Bandura (1982) contended that the most effective method of achieving selfefficacy is through repeated performance accomplishments. Krueger et al. (2000) asserted that
perceived desirability and feasibility affect intentions. Lent et al.(1994) introduced the concept of
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18
learning experiences as affecting intentions. A culture-based entrepreneurship that is integrated

into study abroad program may positively impact self-efficacy and self-confidence. This,
coupled with the demonstrated ability to adapt to a new environment, may lead students to
develop attributes associated with interest in owning a business.
An increasingly globalized world has intensified the need to integrate entrepreneurship skills
with foreign language proficiency and cultural awareness (Hartman, Fok, Li, and Fok, 2004).
. Study abroad programs provide students the opportunity to learn language and cultural
literacy while helping to internationalize university curricula. Lambert (1994) reported that one
of every three U.S. universities operates study abroad programs. During the 2003-04 academic
year, 191,000 students in U.S. institutions of higher education participated in programs abroad
(International Institute of Education, 2005). University curricula also require students to become
more focused in their primary major area of study. The challenge is to enable students to
develop foreign language and cultural proficiency through study abroad and complete their
degree programs in a timely fashion. Traditional foreign language and culture instruction
through study abroad have been revised to include professional course-work taught in English.
Huebner (1998) advocated placing a greater emphasis on integrating study abroad and foreign
language models in the field of second language acquisition. The growing popularity of study
abroad programs and increased emphasis on skill development beyond language and culture
(e.g., knowledge of business practices and etiquette), suggests that study abroad programs should
combine language pedagogy with professional areas.
This paper reports the results of a study that assessed undergraduate students interest in
starting a business as a result of a six week culture-based entrepreneurship study abroad program
in Spain. Few, if any, culture-based entrepreneurship programs have been reported in the
literature. Honig (2005) specifically cites that lack of research of the impact of program
structure and content on entrepreneurial activity. This program was designed to introduce
students to a variety of entrepreneurship, language, and cultural experiences. The purpose of
exposing students to a new, perhaps radical (from the students perspective), set of experiences
was to affect a change in their paradigms and impact how they viewed their abilities and future
opportunities. This objective is consistent with Suutari (2003), who found that international
experiences can change career orientations. An international program that combines language,
culture, and entrepreneurship would help students become more confident in their abilities and
interested in starting a new business. The uniqueness of this program may be evident from the
lack of reported research and information on similar programs.
Brief Program Description
The program was designed to incorporate a variety of language, cultural, and
entrepreneurship student experiences. Students had the opportunity to learn Spanish in at least
three settings. First, students were required to enroll in a three credit Spanish course. Students
existing knowledge of Spanish through a placement exam determined the level of Spanish course
in which they enrolled. All students lived with host Spanish families who did not speak English.
Students thus needed to speak Spanish in their living environment. Finally, since minimal
English was spoken in the community where the program was held, students needed to speak
Spanish as part of their daily living experiences.
A number of Spanish cultural activities were integrated into the program. In many ways,
the design of the program forced students to learn about Spanish culture. Living with host
families integrated students directly into the Spanish culture. The arrangement required students
_____________________________________________________________________________________________
19
to independently use the local transportation system and experience the routine of daily living in
Spain. Students also learned about Spanish cultural through program activities such as guided
excursions to historic locations, participation in university-sponsored events, and classroom
discussions.
The entrepreneurship component of the program was divided into three distinct segments.
First, students received lectures on (1) core entrepreneurship topics and (2) entrepreneurship
issues related to Spain and the European Union (e.g. entrepreneurship in Spain and marketing in
Spain). Additionally, visits to small Spanish firms (e.g. winery, pub, toy factory) allowed
students to view business operations and talk directly with business owners. Finally, students
completed several independent projects. These projects required students to explore, observe,
and report on small businesses in the local community. These projects asked students to
compare small firms in Spain with those in the US in various ways.
Study Abroad Learning Context
The goals of study abroad programs vary based on the location, primary language
spoken, and academic field under study. Brecht and Walton (1994) contended that study abroad
programs are either broadly educational (e.g. focused on the cultural experience, an increase in
international understanding, and an improved knowledge of a particular academic discipline) or
educationally focused (e.g. directed at foreign language proficiency and culture). Brecht,
Davidson, and Ginsberg (1995) noted that study abroad learners highly rank the importance of
classroom learning. Informal information exchanges outside of class further reinforce in-class
learning abroad. Exchanges with native speakers at local establishments, on the street, at the
university, etc., for example, play an important role in student development not only through
knowledge gained regarding the target culture but also by increasing student confidence.
New learning experiences help students enjoy a comfort level that makes them more
creative and self-confident. Meldenson (2004) found that students experienced emotional
changes that included increased independence, self-sufficiency, maturity, and willingness to
think with an open mind. The resulting new-formed sense of individual independence contributes
not only to improved communication skills and a heightened awareness of the culture, but also to
comfort in a foreign setting which might include the willingness to take risk and, eventually,
open a business. Orahood, Kruze, and Pearson (2004) found that the vast majority of students
who studied abroad indicated that the experience impacted their future career plans, listed the
experience on resumes, and had specific questions or conversations concerning their
international experience during job interviews. Additionally, most students expressed an interest
in working abroad and were actively marketing themselves for an international career.
Interest in Business Ownership
Figure 1 depicts a process through which interest in business ownership may be
stimulated. Factors impacting interest in business ownership are segmented into educational and
environmental experiences. Educational factors encompass, for example, entrepreneurship
courses as well as other life experiences that affect self-efficacy (Honig, 2005; Charney and
Libecap, 2005; DeTiennne and Chandler, 2004; and Audet, 2000). Environmental factors consist
of variables that are external to potential venture, such as family history (including impact of
culture), mentoring, and economic issues (Timmons and Spinelli, 2004; Kuratcko and Hodgetts,
2004). The relative influences of education and environment result in the degree of interest in
_____________________________________________________________________________________________
20
business ownership. Positive net influences from educational and environmental factors would
lead to interest in business ownership while negative net influences would lead to the lack of
interest in starting a business. Crocitto, Sullivan, and Carraher (2005) found that foreign
assignments impact perceptions of career opportunities and believed that a foreign experience
impacts knowledge, skills, and confidence in abilities. These, in turn, can positively affect
attributes associated with interest in business ownership. Honig (2005) pointed-out that business
launch activities do not occur in a linear manner. Similarly, factors impacting interest in
business ownership may not occur in a linear manner over time. Interest in business ownership
may ebb and flow depending on which factors are dominant at any point in time.
Methodology
Questionnaire
A questionnaire was developed and administered to students participating in the study
abroad program. Students were asked to complete the questionnaire prior to the program and
after the program had ended. The questionnaire was designed to collect a variety of information
about students experience in the study abroad program. The first section collected demographic
information about the student (gender, age, and whether they had previously participated in a
study abroad program). The next section asked students to rank their understanding of different
aspects of the study abroad program and life in Spain. Question in this section included (1)
cultural aspects of life in Spain (culture, faith, film, music); (2) ability to communicate in
Spanish (informal and formal situations); and (3) understanding of business in Spanish (stock
market, economic system, banking system, laws, protocols, day-to-day operations, negotiations,
and organizational structure). The next section of the questionnaire required students to ranked
their ability to perform entrepreneurship related activities (analyze information, work in teams,
problem solve, recognize opportunities, take risks, and adapt to new situations). The last section
asked students to rank the degree to which various program structural activities stimulated
interest in starting a business (business tours, lectures, discussions, independent exploring,
living with host family). A total of 73 students completed the survey before the program began
and 46 completed the survey at the end of the program.
Analysis
The data was initially summarized using univariate statistics (means and frequencies) to
provide a better understanding of the respondents and characteristics of the data. The initial
summary statistics included those relating to demographic information and the means rankings of
importance of the variables.
Logit regression analysis was used to determine the relationship between the change in
the students ranking of interest in starting a business (dependent variable) and students change
in rating of various aspect of the program (independent variables). The logit model is particularly
suited for the analysis as the dependent variable is an indicator variable. The technique estimates a
cumulative logistic probability function based on the data and transforms the dependent variable
from a single binary variable to an ordinal variable, transforming the problem of predicting
probability within a (0,1) interval to one of predicting the probability of an event occurring within
an entire range of values (see Pindyck and Rubinfeld 1981). Consequently, the interest in starting a
_____________________________________________________________________________________________
21
business variable can be regressed on independent variables without the problems associated with
truncated dependent variables including bias and a loss of efficiency. By interpreting the regression
coefficients we can analyze the association between a series of independent demographic variables
and bankruptcy.
The logit model included three control and five independent variables. The control
variables were gender (male = 1 and female = 2), age (years), and whether the student had
previously participated in a study abroad program (1 = yes and 2 = no) were used as control
variables. The independent variables were: (1) Cultural Aspects: Students were asked to rate (1
7 Likert scale, 1 = weak understanding and 7 = excellent understanding) their understanding of
four aspects of contemporary Spanish culture (culture, faith, film, and music). The Cultural
Aspects variable was constructed as a summation of the change in students ratings of these four
variables. (2) Spanish Language Ability: Students were asked to rate (1 7 Likert scale, 1 =
weak understanding and 7 = excellent understanding) their ability to speak Spanish in formal and
informal situations. The Spanish Language Ability variable was constructed as a summation of
the change in students ratings of their perceived ability to speak Spanish in these situations. (3)
Understanding Business: Students were asked to rate (1 7 Likert scale, 1 = weak
understanding and 7 = excellent understanding) their understanding of six aspects of business in
Spain (economy, banking, laws, protocol, organizational structures, and negotiations). The
Understanding Business variable was constructed as a summation of the change in students
ratings of their understanding of these aspects of business in Spain. (4) Entrepreneur Skills:
Students were asked to rate (1 7 Likert scale, 1 = weak understanding and 7 = excellent
understanding) their understanding of six variables associated with entrepreneurial skills (ability
to analyze information, ability to work in teams, ability to solve problems, willingness to take
risks, and ability to adjust to new situations). The Entrepreneurial Skills was constructed as a
summation of the change in students ratings for these variables. (5) Program Structure:
Students were asked to rate (1 7 Likert scale, 1 = weak understanding and 7 = excellent
understanding) their degree to which five aspects of the program stimulated their interest in
business ownership (tours of Spanish companies, lectures about business in Spain, discussion
about business in Spain, independent exploring of Spanish businesses, and living with a host
family). The Program Structure variable was constructed as a summation of the change in
students ratings of these activities.
Spearman correlations between the independent variables were calculated to assess
significant relationships between the variables. Since no significant correlations between the
independent variables are present, multicollinearity was not a problem. Spearman correlations
coefficient estimation is a non-parametric technique based on ranks rather than value of responses.
This non-parametric technique was used because of uncertainty about the population distribution
(Winkler and Hays 1975).
Change in Interest
=
a0 + b1 (Gender) + b2 (Age) + b3 (Previous) + b4
(Culture) +
in Starting a Business
b5 (Language) + b6 (Business) + b7 (Skills) + b8 (Structure)
where:
Change in Interest
in Starting a Business
Gender
Age
=
Change in Ranking of Interest in Starting a Business
(1 = not interested and 7 = very interested)
=
Control Variable (1=male and 2=female)
=
Control Variable (Years)
_____________________________________________________________________________________________
22
Previous
Study Abroad Program
Control Variables (1 = Previously Participated in

and 2 = Had Not Previously Participated in Study
Abroad Program)
Culture
=
= No Change
Language
=
Ability (1 = Little
Business
Change in Ranking of Understanding of Spanish Culture (1

and 7 = A Lot of Change)
Change in Ranking of Comfort in Spanish Language
=
Comfort and 7 = Very Comfortable)

Change in Ranking of Understanding of Spanish
Business (1= No
Skills
Structure
Change and 7 = Great Change)

=
Change in Ranking of Entrepreneurial Skills (1=
No Change and 7 =
Great Change)
=
Change in Ranking of Program Structure (1 = Little
Change in Ranking
and 7 = A Lot of Change in Ranking)
Results
Sample Characteristics
Table 1 shows the sample characteristics. A slight majority of the respondents were
males (53.4%). Most were older than 19 (87.3%). The vast majority of the respondents had no
previous study abroad experience (80.5%).
Mean Rankings of Variables
Table 2 shows the pre and post mean rankings of variables. Table values show that four
of the pre-program means were ranked about 5.0 (problem solving ability, ability to work in
teams, ability to adjust to new situations, and ability to analyze information). All of these
variables were related to skills commonly thought to be important in launching a new business.
Four pre program means were ranked between 4.0 and 5.0 (independent exploring, knowledge of
Spanish faith, ability to speak Spanish in informal situations, and living with a host family).
These variables are directly related to issues related to personal experiences from program
involvement. Fourteen of the pre program means were ranked between 2.0 and 4.0 (impact on
interest in starting a business from classroom discussions about business in Spain, ability to
speak Spanish in formal situations, willingness to assume risk, impact on interest in starting a
business from touring Spanish firms, knowledge of Spanish culture, knowledge of Spanish
music, Knowledge of Spanish Economy, Knowledge of Spanish Films, Impact on Interest in
Starting a Business from Lectures about Spanish Business, Knowledge of Spanish Banking
System, knowledge of Negotiations in Spain, Knowledge of Spanish Laws, Knowledge of
_____________________________________________________________________________________________
23
Organizational Structure of Spanish Firms, and Knowledge of Spanish Business Protocol).

Since these variables represent activities that are integral to the program, they would not expect
to be highly ranked prior to the program.
Table 1
Sample Characteristics
(n=46)
Variable
Percentage
Age
<20
>19
11.9
87.3
Gender
Male
Female
53.4
45.8
Previous Study
Abroad Experience
Yes
No
18.6
80.5
Table 2 also shows the post mean rankings of variables. Table values show that six of the
post-program means were ranked about 5.0 (problem solving ability, ability to work in teams,
ability to adjust to new situations, ability to analyze information, and ability to speak Spanish in
informal situations, and knowledge of Spanish music). Four of these variables were also ranked
between 4.0 and 5.0. The additional variables ranked about 4.0 were ability to speak Spanish in
informal situations and knowledge of Spanish music). Nine of the post-program means ranked
between 4.0 and 5.0 impact on interest in starting a business from independent exploring,
knowledge of Spanish faith, impact on interest in starting a business from classroom discussions
about business in Spain, ability to speak Spanish in formal situations, impact on interest in
starting a business from touring Spanish firms, knowledge of Spanish culture, knowledge of
Spanish music, knowledge of Spanish economy, and knowledge of Spanish films).
The remainder of the post-program means were ranked between 3.0 and 4.0 (Impact on
interest in starting a business from lectures about Spanish business, knowledge of Spanish
banking system, knowledge of negotiations in Spain, knowledge of Spanish laws, knowledge of
organizational structure of Spanish firms, and knowledge of Spanish business protocol).
A comparison of the pre- and post-mean values shows several patterns as well as specific
differences in variable means. First, the post-program mean rankings tend to be higher than preprogram mean rankings. This general result would be an expect outcome of students immersion
in the countrys language and culture as part of the program. The variables that have higher preprogram means tend to be the same variables that have higher post-program means.
Correspondingly, the variables that have lower pre-program means tend to be the same variables
that have lower post-program means. The exceptions to this pattern are variables that are
directly related to understanding aspects of Spanish culture (knowledge of Spanish culture,
_____________________________________________________________________________________________
24
knowledge of Spanish music, knowledge of Spanish economy, knowledge of Spanish films,

impact on interest in starting a business from lectures about Spanish business, knowledge of
Spanish banking system, knowledge of negotiations in Spain, knowledge of Spanish laws,
knowledge of organizational structure of Spanish firms, and knowledge of Spanish business
protocol). Higher post-program mean rankings of the variables are not unexpected since an
important goal of the program is to develop a better understanding of the cultural aspect of the
business environment.
Twelve of the post-program mean values are significantly different from pre-program
mean values (ability to speak Spanish in informal situations, ability to speak Spanish in formal
situations, impact on interest in starting a business from touring Spanish firms, knowledge of
Spanish culture, knowledge of Spanish music, knowledge of Spanish economy, knowledge of
Spanish films, knowledge of negotiations in Spain, knowledge of Spanish laws, knowledge of
organizational structure of Spanish firms, and knowledge of Spanish business protocol). All of
these post-program means were higher than pre-program means. These variables represent both
cultural and business aspects of the program. Higher post-program means were not unexpected
and a goal of the program.
Logit Regression
The results of the logit regression are shown in Table 3. The overall model is significant
at 1% (X 2 = 158.25). None of the coefficients for the control variables (gender, age, and
previous study abroad experience) in the regression analysis are significant. Four of the five
independent variables are significant at either 1% or 5%. The coefficient for culture (0.2240) is
significant at 1%. The positive coefficient indicates that greater change in students ranking of
understanding of Spanish culture (culture, faith, film, and music) is associated with higher
student interest in starting a business after graduation. The coefficient for Spanish business (00646) is significant at 5%. The negative coefficient indicates that greater change in students
ranking of their knowledge of Spanish business (economy, banking system, laws, protocol,
organizational structure, negotiations) is associated with less student interest in starting a
business after graduation. The coefficient for entrepreneurial skills (-0.2753) is significant at
1%.
The negative coefficient indicates that greater change in students ranking of
entrepreneurship skills (ability to analyze problems, ability to work in teams, ability to solve
problem ability to recognize problems, willingness to take risks, and ability to adjust to new
situations) is associated with less student interest in starting a business after graduation. The
coefficient for program structure (-01956) is significant at 5%. The negative coefficient
indicates that greater change in students rankings of the degree to which program activities
impacted their interest in starting a business (company tours, lectures, discussions, living with
host family, independent exploring) is associated with lower student interest in starting a
business after graduation. The Spanish Language variable (student ranking of ability to speak
Spanish in informal and formal situations) was not significant. Changes in students ability to
speak Spanish had no association with their interest in starting a business. Changes in language
ability appears to not be an important factor in affecting interest in business ownership.
_____________________________________________________________________________________________
25
Table 2
Pre and Post Program Means Rankings of Variables
(1 = little and 7 = a lot)
(n=46)
Variable
Pre-Program
Mean
Problem Solving Ability

Ability to Work in Teams
Ability to Adjust to New Situations
Ability to Analyze Information
Impact on Interest in Starting a Business from Independent
Exploring
Knowledge of Spanish Faith
Ability to Speak Spanish in Informal Situation
Impact on Interest in Starting a Business from Living with
Host Family
Impact on Interest in Starting a Business from Classroom
Discussions about Business in Spain
Ability to Speak Spanish in Spanish in Formal Situations
Willingness to Assume Risk
Impact on Interest in Starting a Business from Touring
Spanish Firms
Knowledge of Spanish Culture
Knowledge of Spanish Music
Knowledge of Spanish Economy
Knowledge of Spanish Films
Impact on Interest in Starting a Business from Lectures
about Spanish Business
Knowledge of Spanish Banking System
Knowledge of Business Negotiations in Spain
Knowledge of Spanish Laws
Knowledge of Organizational Structure of Spanish Firms
Knowledge of Spanish Business Protocol
* Significant at 1%
** Significant at 5%
Post-Program
Mean
5.68
5.68
5.48
5.44
4.69
5.65
5.54
5.89
5.60
4.98
4.22
4.11
4.11
4.65
5.00*
3.57
3.79
4.10
3.74
3.66
3.63
4.46*
3.87
4.35**
3.49
3.37
2.97
2.91
2.56
4.93*
5.39*
4.63*
4.04*
3.04
2.48
2.38
2.34
2.32
2.19
3.20*
3.37*
3.56*
3.74*
3.35*
_____________________________________________________________________________________________
26
Table 3
Logit Regression Results:
Interest in Starting a Business vs. Spanish Culture, Spanish Language,
Spanish Business,
Relationships, and Course Activities Variables.
Control Variable = Gender, Age, and
Previous Study Abroad Experience
(n=46)
Dependent Variable
Change in Interest in
Starting a Business
(2 = 158.25)
Independent Variable
Gender
Age
Previous Study Abroad
Experience
Culture
Language
Spanish Business
Entrepreneurship Skills
Program Structure
Regression Coefficient
0.6147
0.1286
0.9812
0.2240*
0.0963
-0.0646**
-0.2753*
-0.1956**
* Significant at 1%.
** Significant at 5%
Discussion
One of the goals of this international entrepreneurship program was to expose students to
a variety of new experiences that they would not normally have in a traditional entrepreneurship
program. An intended outcome of the program was to increase students entrepreneurial
orientation as discussed by Carraher (2005). The variety of new experiences built into the
program structure was intended to change students perspectives on life and career possibilities.
Integrating students into and requiring students to function in a foreign culture was expected to
give students increased confidence. Hopefully the increased confidence would have a number of
long term advantages that included attributes useful in becoming a future business.
Students mean rankings were generally expected to be higher at the end of the program
as compared to the beginning of the program. Knowledge of various aspects of Spain would be
expected to occur through program activities and structure. All variables that were significantly
different had higher post-program means as compared to pre-program means and represented
cultural and business aspects of the program.
The logit regression analysis provided insight into which aspects of the program affected
students interested in starting a business after graduation. The results indicated that increases in
students understanding of culture-related aspect of Spain was associated with greater student
interest in starting a business. One of the goals of the program was to expose students to a
variety of new experiences that would have a significant impact on their lives and lead to new
perspectives on life opportunities. Ultimately, the changes that would occur in students would
lead to serious consideration and more openness to independent business ownership. The results
provide some support that this goal has been accomplished. Entrepreneurship education
sometimes including students way of thinking about life opportunities. A variety of new
_____________________________________________________________________________________________
27
experiences and environments often provide the needed stimuli to alter students perspective on
possible career opportunities, especially those related to independent business ownership.
Increases in students understanding of three of the variables (Spanish business, entrepreneurial
skills, and program structure) were associated with less interest in starting a business.
Entrepreneurship courses and programs often have at least two expected outcomes. One
outcome would be an increased interest in starting a business. Another outcome would be to
help some student realize that business ownership may not be a good career choice.
Entrepreneurship courses and program can help some students to understanding that business
ownership is often more demanding, stressful, and risky than working as an employee. The
results of this study abroad entrepreneurship program seem to be associated with this outcome.
The Spanish Language variable was the only purely academic variable evaluated in the
study. This variable, which represented students change in ability to speak Spanish, would have
been determined to a large extent (although not entirely) through classroom learning. Spanish
language classes would likely have not emphasized critical skills that can be transferred to
business ownership. An implication of this result may be that non-entrepreneurship academic
activities have little impact on student interest in business ownership.
Summary and Conclusion
This study examined the impact of a culture-based study abroad program on students
interest in starting a business. A pre and post program questionnaire was administered to 46
student participants that asked a wide variety of questions related to aspects of the program. The
results indicated that mean rankings variables were generally higher at the end of the program as
compared to the beginning of the program. Variables that diverged significantly between pre
and post program represented cultural and business aspects of the program. Increases in
students understanding of culture-related characteristics of Spain were associated with greater
student interest in starting a business while increases in variables associated with Spanish
business, entrepreneurial skills, and program structure were associated with less interest in
starting a business. Changes in students ability to speak Spain had no association with interest
in starting a business.
These results may be of interest to educators who are involved in entrepreneurships
courses and programs and educators interested in study abroad programs. The results may be
especially useful to educators developing interdisciplinary programs. The results suggest that
exposing students of a variety of experiences, some that may be outside the comfort level of
some students, impacts students interest in starting a business.
This study has several limitations to provide opportunities for further research. The
sample was relatively small and collected for a single time period and program. A longitudinal
study could examine the impact of the program over time, especially the impact of changes in the
program on student interest in starting a business. A later study could be designed to collect data
from more program participants in various types of programs. A more comprehensive study
might also determine which program participants start a business. Tracking program participants
over time would provide a perspective on the long term impact of international entrepreneurship
programs on business start-up activities.
_____________________________________________________________________________________________
28
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Figure 1
Interest in
Business Ownership
Education
Experiences
Net Positive
Influence
High
Interest
Net Negative
Influences
Low
Interest
Degree of
Interest in
Starting
Business
Environmental
Experiences
Time
_____________________________________________________________________________________________
30
_____________________________________________________________________________________________
31
INTERNATIONAL ECONOMICS AND FINANCE: AN EDUCATIONAL

PRIMER FOR FAMILY BUSINESS
Dale Funderburk, Texas A & M University --Commerce
ABSTRACT
Two of the most often discussed and written about topics in business over the past half-dozen
years have been entrepreneurship and globalization. While the term entrepreneurship once tended to
be associated primarily with small business activity, and globalization was more often associated with
giant corporate entities, both phenomena are now recognized as highly relevant, even critical, issues for
business entities of all sizes. Todays entrepreneur can ill afford to be ignorant of the forces driving, the
opportunities afforded by, or the threats imposed by, markets that are rapidly expanding on a global
scale. These general topics comprise the focus of the present chapter. Specifically, the chapter is divided
into two parts: real analysis or trade theory, and monetary analysis and international finance. Trade
theory is addressed first, focusing on the basis for international trade and the microeconomic
implications of expanding markets and trade. The second part of the chapter focuses on finance issues
related to international trade, especially exchange rate determination, risks peculiar to international
trade, methods and instruments used to finance international trade, plus agencies and institutions that
promote international trade.
Trade Theory: The Basic Economics of International Trade
It is a bit ironic and more than a bit disturbing that even in the 21st century, economists and
policy-makers still find it necessary to undertake to educate the public on the advantages of specialization,
increasing productivity and free trade. There is scarcely a scheduled meeting of a major trade institution
or organization but what it must contend with the disruptive efforts of large, well-organized protests.
From Seattle to Washington to Prague to Genoa, meetings involving the World Trade Organization
(WTO), the International Monetary Fund (IMF), World Bank, North American Free Trade Agreement
(NAFTA), and the proposed Central American Free Trade Association (CAFTA) have all been targets of
anti-globalization protesters. Terms such as globalization, offshoring, and outsourcing have
become the derisive rallying mantra of those fearing the effects of rapidly globalizing markets. And
unfortunately, elective office seekers all too often find it politically advantageous to capitalize on the
insecurities and fears of those threatened by the specter of expanding markets and increased competition.
In some respects it is as though much of the world has turned back the calendar two centuries and entered
an era that we might call the New Mercantilism.
The Basis for Trade
In almost every important respect, globalization is very much like most other facets of basic
international economics and finance that have existed and been studied and written about for
literally centuries. It is ironic that in the effort to educate todays critics regarding the benefits of
free trade, modern economists inevitably turn to the works of two economists of much earlier
eras who faced similar tasks, Adam Smith and David Ricardo. Smith, in the late 18th century,
and Ricardo, in the early 19th century, struggled to convince their fellow Britons of the virtues of
free trade. In explaining the concept that has come to be known as absolute advantage, Smith
ridiculed the fear of trade by comparing nations to households. He also refuted the widely held
assumption that trade is a zero sum game, demonstrating that trade is a positive sum game.
_____________________________________________________________________________________________
32
Smiths argument was that since every household finds it worthwhile to produce only some of
the goods it needs and buy others with products that it can sell, the same logic must apply to
nations. It is the maxim of every prudent master of a family, never to attempt to make at home
what it will cost him more to make than to buy. What is prudent in the conduct of every private
family, can scarce be folly in that of a great kingdom. If a foreign country can supply us with a
commodity cheaper than we ourselves can make it, better buy it of them with some part of the
product of our own industry, employed in a way in which we have some advantage.1 In short, it
simply makes good economic sense to allow Brazil to grow Brazil nuts and Iceland to grow
Eskimo Pies, and then trade, rather than have each country waste resources in trying to produce
goods for which they have no advantage.
David Ricardo2 refined and extended the analysis of Smith, developing a theory of comparative
advantage. Ricardo demonstrated that nations can gain from specialization even if they lack an
absolute advantagethat trade, including cross-border trade, does not require absolute
advantage. In explaining the basis for trade between two countries, such as England and
Portugal, Ricardo showed that if a country is relatively better at making wine than wool, then it
makes good economic sense for that country to put more resources into wine, and to export some
of the wine to pay for imports of wool. This is true even if that country is the worlds best wool
producer, since with specialization and trade it would have more of both wool and wine than it
would have without trade. Thus, a country does not have to be best (the most efficient, or lowcost producer) at anything to gain from trade. The gains follow from specializing in those
activities, which, at world prices, the country is relatively better at, even though it may not have
an absolute advantage in them. Because it is relative advantage that matters, it is inaccurate to
say that a country has a comparative advantage in nothing.
While there have been newer, more sophisticated theories developed to explain trade patterns
between nations, the theory of comparative advantage still constitutes the base on which these
theories are constructed, and even today, may be considered the key theoretical underpinning of
trade theory. Consider, for example, the theory developed by two Swedish economists, Eli
Heckscher3 and Bertil Ohlin4 (and later refined, expanded and formalized by MIT economist Paul
Samuelson5), aimed at explaining trade patterns between nations. Noting how prices differed
quite substantially between various countries before they opened trade, Heckscher and Ohlin
expressed doubt that demand or technological considerations (emphasized by Ricardo) accounted
for most of the international price differences existing in the real world.
This theory, often
referred to as a factor endowment model, hypothesizes that countries export the products that
use their abundant factors intensively, and import the products using their scarce factors
intensively. Thus, as a simple example, a nation with large oil reserves will have a comparative
advantage in oil production over another nation with fertile soil, which will have a comparative
advantage in agricultural production.
Economists note that while the Heckscher-Ohlin theory is intuitively appealing and was once
widely accepted on the basis of mere casual empiricism, it has not held up so well empirically.
When the first serious attempt to test the theory was made by Professor Wassily Leontief6 in
1954, the results were surprising. Using the 1947 input-output table of the U.S. economy,
Leontief reached the counter-intuitive conclusion that the U.S., the most capital abundant country
in the world, exported labor-intensive commodities and imported capital-intensive commodities.
This result, which came to be known as the Leontief Paradox, took the economics profession by
surprise and stimulated an enormous amount of empirical and theoretical research on the subject.
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Perhaps of greater interest to students of business strategy is the theory of national competitive
advantage developed by Harvard business professor Michael E. Porter.7 Whereas classical
theories propose that comparative advantage resides in technological differences and/or the
factor endowments (land, natural resources, labor, and size of the local population) that a country
may be fortunate enough to inherit, Porter argues that these theories are inadequate, or even
wrong. He contends that a nation can create new advanced factor endowments such as skilled
labor, a strong technology and knowledge base, government support, and culture. After
conducting a detailed study of ten nations to learn what leads to success, he developed the
concept that has become known as Porters Diamond. According to Porter, a nation attains a
competitive advantage if its firms are competitive. Firms become competitive through
innovation. These innovations may include technical improvements to the product or to the
production process. He differentiates his theory from the traditional trade theories by arguing
that national prosperity is not inherited, but created by choices. Thus he contends that national
wealth is not set by factor endowments, but created by strategic choices.
According to Porter, four attributes comprise the basis for a countrys diamond of national
competitive advantage. He uses a diamond shaped diagram as the pivotal graphic of a
framework to illustrate the determinants of national advantage. This diamond then represents the
national playing field that countries establish for their industries. These four attributes include
(1) factor conditionsthe nations position in terms of factors of production, such as skilled
labor and infrastructure, (2) demand conditionsincluding the degree of sophistication of
consumers in the domestic market, (3) related and supporting industrieswhich includes
suppliers and complementary industries, and (4) firm strategy, structure and rivalryconditions
for organization of companies, and the nature of domestic rivalry.
While Porters theory, much like that of Heckscher-Ohlin, may be intuitively appealing and is
supported by considerable anecdotal evidence, Harfield8 points out that Porter is not without
critics. His lack of clear definitions for his models is a matter of agreement rather than
debate. Harfield further notes, there is a similar large scale concern with his lack of
empirical data. Thus, to what degree can a nation influence, or even engineer, a national
competitive advantage? The extensive literature on the concept of industrial policy would seem
to cast considerable doubt on the prospects of a countrys developing a national competitive
advantage through strategic planning and public policy.
Expanding Markets and Economic Efficiency
At root, globalization is merely a manifestation of improving market efficiency. Economists
have long understood that improving communication and transportation lead to market
expansion, and ultimately, to greater market efficiency. By the term market efficiency, we refer
simply to the effects of forces (such as the improving quality and speed of transfer of information
and greater mobility) that tend to reduce transactions costs and thus make exchange more
efficient. And as markets become more efficient, producers also must respond by becoming
more efficient. It is a basic axiom of economics that competition in the marketplace provides the
impetus for greater productive efficiency. As more and better information becomes available,
and as mobilityboth of resources and outputimproves, participants in the marketplace are
pressed to become more efficient. They must become more sensitive to the state of technology
and to least-cost combinations of resources. As larger numbers of buyers and sellers come to
interact in the market, overall economic efficiency improves.
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Thus it may be concluded that international trade and globalization are not only the results of
increasing economic efficiency, they are causative forces as well. However, it is critical to note
that while improved economic efficiency increases overall material well being, markets do not
necessarily ensure that the benefits of increased efficiency are shared by all. There is no
assurance that expanding markets, increasing competition and greater market and productive
efficiency will lead to what we may consider a more equitable distribution of income.
Consequently, some argue that carefully crafted government policies are necessary in order to
correct some of the injurious effects of the impersonal marketplace.
The Microeconomic Impact of Expanding Markets
While economic globalization presents a plethora of new managerial challenges and

marketing opportunities and threats, the basic microeconomic implications of the trend are
relatively straightforward. As transportation and communications improve, the process impacts
the nature and scope of competition. As markets expand, there is invariably an impact on
producers and sellers, resource suppliers, and consumers. Below we consider the effects of
expanding markets and globalization on each these groups.
Producer/Seller Impact. For producers and sellers the added competition associated with new,
expanding markets invariably brings about new pressures for ingenuity and efficiency. Less
innovative, less efficient producers whither and vanish in the face of added competition while
more innovative, more efficient producers and sellers prosper and expand. This happens whether
the expanding marketplace occurs within the context of a small, local, village economy or in the
context of an increasingly integrated and competitive global village. It must be kept in mind,
however, that a firm may be inefficient through no fault of its own. The roots of the problem
may be entirely external. A firm may be inefficient because of its own ineptitude, or because of
factors (both microeconomic and macroeconomic in scope) outside its control. While a
particular producer/seller may be able to be the low cost provider in a small, restricted market,
that same firm may be unable to compete effectively in an expanded market setting. As markets
expand, some producers find themselves without access to the best sources of essential raw
materials. Also, a firm may not have access to low cost resourcesespecially labor.
Governmentally mandated cost increasing measures such as minimum wage legislation, detailed
safety regulations, paid leave requirements, and payroll taxes imposed to fund any number of
entitlement programs may place a producer at a distinct competitive disadvantage, especially
when posited against competitors whose governments impose no such cost-raising requirements.
Finally, it must be kept in mind that producers themselves are also consumers. They
must acquire the resources, the technology and the raw materials used in producing the output
they sell. Consequently, globalization and increasing competition may benefit the producer by
allowing the firm to buy inputs at lower prices. Along this line, it is interesting to note that when
President Bush imposed tariffs on imported steel in March 2002, he did win favor (for a time)
with U.S. steel producers, but he also incurred considerable wrath from firms in steel-consuming
industries. Thus, while he may have helped himself politically in steel-producing states like
Pennsylvania and West Virginia, he did not help himself in steel-consuming states like
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Tennessee, where auto producers suffered from (and complained bitterly about) the higher steel
prices.
Resource suppliers: labor. As is the case with sellers of goods, broadening markets entail both
new opportunities and new threats for sellers of labor services. As transportation and
communications improve, labor markets also broaden and become more competitive.
Consequently, marketable skills becomes the watchword for labor. It is significant to note that
historically, most foreign competition was in the manufacturing sector. Thus the domestic
workers who felt most threatened by foreign trade tended to be blue collar, production workers.
Today, however, as we are seeing that more and more services are also tradable, many more
highly specialized, technically educated and skilled workers are experiencing the threat of job
loss and dislocation.
For many years workers have crossed national borders to work. The United States has
used foreign, migrant workers to supply needed manual labor for decades.i Construction workers
have for years traversed the globe to provide the expertise and skilled labor necessary for both
private and public projects. This is a trend that continues to expand in terms of geographic area
covered and also in terms of skills and occupations involved. Under a special program instituted
in 1999, the United States Department of Labor allows qualifying hospitals (in disadvantaged
areas) to employ temporary foreign, nonimmigrant workers as Registered Nurses for up to three
years. Increasingly, highly skilled, technical workers are able to cross national borders to supply
critical labor needs in advanced, as well as less developed, countries. Under its H1-B program,
the United States allows an employer to employ temporarily a foreign worker (on a
nonimmigrant basis) in specialty occupations. Participants in this program must hold a
bachelors degree or the equivalent in the specific specialty (e.g., engineering, mathematics,
physical sciences, computer sciences, medicine and health care, education, biotechnology and
business specialties). When initially established this program contained a cap at 65,000 workers.
The program continued to expand, with the cap hitting 195,000 workers by fiscal 2003. In fiscal
year 2000, the cap (then 115,000) was reached less than halfway through the year. Today, many
U.S. firms involved in computer technology regularly lobby for increases in the cap, arguing that
they cannot compete in the global marketplace without the services of increasing numbers of
foreign workers.
An additional point should be made with regard to labor in a global market setting with
rapidly advancing technology. Historically, the physical location of the worker vis--vis the
employer or job site was critical. It was necessary either for the worker to be mobile and go to
the job site, or else for capital to migrate to the workers. Increasingly, however, there are more
and more jobs for which the physical location of the worker is inconsequential. Because of
advances in computers and information technology, first some workers were able to work at
home, and to go into the office only occasionally. The natural progression is that more and more
jobs require the physical presence of the worker rarely if at all. Thus a worker in Dallas may be
bidding against others in Dublin, Delhi, or Dhaka. And while many jobs will continue to require
the physical presence of the workerif a custodian is to wax a floor, he/she must be in that
specific roommore and more jobs will not. This is merely another dimension of a globalizing
labor market.
Finally, it must be acknowledged that there are invariably significant short-run costs
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associated with increased specialization and/or increasing productivity stemming from

globalizing labor markets. Those who are displaced and who must shift jobs will inevitably
experience costs. In addition to direct retraining and/or relocation costs, there may well be spells
of unemployment and reduced wages. However, the same may be said of any improvement in
productivity, whether related to international trade or not. By its very nature, productivity
improvement entails being able to produce more (or better) output with the same, or lesser, units
of labor input. The introduction of the roller and pan, and later the spray gun, instead of a brush
to paint buildings was clearly an increase in productivity, but was resisted mightily by painters
and their craft unions. Invariably, improvements in productivity involve some labor
displacement or dislocation. It is an unfortunate but unavoidable byproduct of progress.
Given that there are costs (and losers) resulting from the expanding volume of
international trade (and the accompanying economic realignment and restructuring),
governments at times find it necessary to devise ways of mitigating the harm accruing to the
short-run losers. For example, in the United States, Trade Adjustment Assistance (TAA) has
been developed in order to help those harmed by international trade by providing extended
unemployment benefits, worker retraining, and temporary taxes on imports. As a case in point,
the government created a special program (NAFTA-TAA) for workers laid off because of
NAFTA. In 1994, 17,000 workers qualified for this program.
Resource suppliers: capital. A major determinant of factor market efficiency is mobility.
Because funds are much more mobile than is labor, money and capital markets exhibit a higher
degree of efficiency than do labor markets and consequently can and will globalize much more
rapidly. While physical capital migration may continue to be a relatively slow and expensive
process, the process of funding capital accumulation is becoming much more competitive and
efficient. Bryan and Farrell8 were noting by 1994 that the law of one price was beginning to
operate in global capital markets. They pointed out that in the new global markets, participants
are increasingly able to price financial instruments more precisely across markets in multiple
currencies. They further argued that the global capital market will play an ever greater role in
determining the rate of return on capital investments, while the actions of central banks will
matter ever less. This has important public policy implications. Perhaps the most important of
these is that the global capital market is integrating to the point where the price of government
debt is market-determined. Increasingly, debt will be priced according to its specific risks and
return, independent of the efforts of governments to control their own interest rates.
Consequently, governments that issue debt for the purpose of funding entitlements and/or who
pursue inflationary policies will pay ever-increasing costs for such policies. Conversely, it is
likely that funds will flow to the developing nations which will then grow and modernize faster
as a result. Likewise, private investment in the developed world is likely to be greater.
Consumers. Consumers are the one group that almost universally benefits from the added
competition associated with expanding markets. Even during the Middle Ages, as transportation
and communication advances moved markets beyond the bounds of small, rural villages, it was
the consumer who inevitably reaped the benefits of new and improved products, new and better
choices, and lower prices. As international trade has grown and widened, consumers have
benefited. In those economies where governments have erected barriers against expanding trade,
consumers have suffered from fewer product choices, higher prices, and a stagnant or declining
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standard of living. Countries such as Myanmar, Romania, Cuba, Zimbabwe and North Korea are
cases in point.ii
Currency Issues and International Finance
The primary function of money is that it provides an alternative to barter. By serving as a
medium of exchange, money reduces transactions costs and makes exchange more efficient.
Differences in the currencies or monetary units used by countries engaging in international trade
all too often lead, unfortunately, to the introduction of new risks and other inefficiencies. In
order for markets to function with maximum efficiency, the framework within which
international trade is carried out must be such that all mutually beneficial trade can occur with a
minimum of effort. Instead, we permit financial arrangements to become so tangled that some
trade that would have benefited trading parties is not carried out at all. Thus, a major challenge
is to find and institute a set of arrangements that will promote a free flow of trade.
What determines the rate at which the money of one country can be converted into that of
another? In this section of the chapter, we examine first the mechanism by which exchange rates
are determined in uncontrolled or free markets. Next, we examine some of the risks associated
with international trade and investment, some of the methods and instruments used in making
payment as well as financing international trade, and finally, some of the agencies that serve to
promote international trade.
Exchange Rate Determination
When we consider the rate at which the currency of one country can be converted into
that of another country, the first principle to keep in mind is that we are dealing with a price. For
example, the exchange rate between the U.S. dollar and the British pound sterling should be
viewed simply as the dollar price of the pound (viewed from the vantage point of the American),
or the pound price of the dollar (viewed through the eyes of the British trader). Thus, while we
use the specialized term exchange rate to describe the price of a foreign currency, it is
nonetheless a price.iii Given that exchange rates are merely prices, then the understanding of how
such rates are determined in a free market becomes a straightforward exercise in basic
microeconomics. In any free market, prices are determined by the forces of demand and supply,
representing the interaction of buyers and sellers. In any given country, supplies of foreign
currencies come into the market from the export of goods and services, from unilateral transfers
into the country, and from capital movements into the country. Demands for foreign currencies
arise from import activities, from unilateral transfers out of the country, and from capital
movements out of the country. These form the basis for the determination of relative currency
prices, or exchange rates.
To establish a home countrys demand function for a foreign currency, one could think of
that currency as though it were a commodity. Alternatively, the concept of derived demand is
useful. Normally, one does not acquire a foreign currency for the sake of merely owning or
holding that currency. The desire to acquire a foreign currency derives from the desire to acquire
foreign produced goods. Thus, the demanders should be thought of as those who want to make
payments to parties in the other country. Using a simple two country example for illustrative
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purposes, assume that the U.S. is the home country and Mexico the foreign country. The
demand for the peso would merely be expressed in terms of the quantities of pesos that people in
the U.S. would be willing to buy at various alternative prices of the peso, other things being
equal. A demand curve for the peso would slope downward to the right, reflecting the fact that
the lower the dollar price of the peso, the less expensive are Mexican goods in terms of dollar
prices. (See Figure A)
Given that the U.S. demand for pesos stems from the importation of Mexican goods,
transfers to that country and capital movements from the U.S. to Mexico, it follows then that a
change involving any of those variables will have the effect of shifting the peso demand curve.
Thus, if Americans develop a stronger taste for Mexican produced goods, the demand curve for
the peso will shift outward to the right. Similarly, say that real interest rates in Mexico rise
relative to U.S. real rates.iv Other things remaining unchanged, this will produce a rightward
shift of the demand curve for pesos. Increased direct investment in Mexico by U.S. enterprises
also may be expected to shift the curve to the right. The removal of trade barriers between the
two countries (such as those targeted by NAFTA) also should result in an increase in the demand
for pesos, again resulting in a rightward shift of the demand curve for pesos.
The supply schedule of a foreign currency, in this case the Mexican peso, can be
established in a similar fashion. Suppliers of pesos are the Mexicans who purchase goods and
services from the United States. They supply (or place on the market) pesos through the act of
acquiring dollars needed to pay for U.S. produced goods. The peso supply curve then represents
the quantities of pesos that will be placed on the market at alternative dollar prices of the peso,
other things remaining unchanged. (See Figure B) Thus, as incomes rise in Mexico and
Mexicans begin to import more U.S. goods, the effect will be to increase to supply of pesos
entering the exchange marketshifting the peso supply curve outward to the right. If the price
level in the U.S. rises relative to the price level in Mexico, American goods become less
attractive vis--vis Mexican produced goods, thus decreasing the supply of Mexican pesos
placed on exchange markets. This would, of course, be depicted as a leftward shift of the peso
supply curve.
As is the case with all market-determined prices, the exchange rate is determined in the
market (in this case currency markets) through the interaction of buyers and sellers. Given that
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the demand curve reflects the preferences of buyers and the supply curve reflects the preferences
of sellers, then it follows that the intersection of the demand curve and the supply curve
represents that price (exchange rate) at which the number of pesos placed on the market by
suppliers just matches the quantity that buyers are willing and able to take off the market. (See
Figure C) Thus, point e in Figure C could be thought of as the market-determined dollar price of
the peso.v Alternatively, it could be considered the equilibrium exchange rate between the peso
and the dollar.
An exchange rate that is freely determined in international currency markets varies or

fluctuates according to changes in international demand and supply conditions. Using our earlier
example, assume that Americans begin to import more Mexican products, invest more in
Mexico, and take more vacations in Mexico. The combined effect of these changes would be to
increase the demand for pesos, meaning that the demand curve for the peso shifts to the right.
(See Figure D) As the dollar price of the peso rises, the exchange rate would correspondingly
adjust, moving from e to e. This movement could be described as a rise in the dollar price of the
peso, or alternatively, as a decline (or devaluation) of the dollar versus the peso.
As another example, assume that a political and economic crisis hits Mexico (such as the socalled Tequila crisis of 1994-95), sending that countrys economy into a severe slump. One
would expect this to decrease the demand for the peso and, at the same time, increase the supply
of pesos coming onto the market. Why? Because of the increased uncertainty and instability
associated with doing business in Mexico, Americans (and other internationals) would be less apt
to invest in Mexico. That would shift the peso demand curve to the left. At the same time, many
of those holding pesos might decide to flee that currency, fearing its loss of value, and move into
dollars. This would shift the peso supply curve to the right. The effect? The dollar price of the
peso would fall. This could be described either as a decline in the dollar price of the peso, or a
peso devaluation vis--vis the dollar. From the viewpoint of the U.S., it would be seen as an
appreciation of the dollar relative to the peso.
Control of Exchange Rates

In the section above, our analysis of international currency markets assumed a floating, or
flexible, system of exchange in which relative currency values were determined by private
demand and supply forces in the market. A floating, flexible, or freely fluctuating exchange rate
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system is one in which the prices of currencies are determined by competitive market forces.
Until around 1971, however, international exchange rates were controlled by governments.
Rates were not permitted to move in response to changes in demand and supply. Because rates
were fixed for long period of time by government policy, this system is generally referred to as a
fixed exchange rate system. A fixed or pegged exchange rate system is one in which the prices
of currencies are established and maintained by government intervention. Although the fixed
rate system is no longer in use among the major trading nations, there are some advantages to
such a system.
Hoping to gain a trade advantage over their trading partners, one nation after another
devalued its currency during the Great Depression of the 1930s. This process of competitive
devaluation, referred to as beggar thy neighbor, has a devastating effect on world trade.
Following the depression, the U.S. and other major trading nations sought to reestablish a fixed
exchange rate system in order to rebuild international trade and finance. Under the Bretton
Woods agreements of 1945, a new system was devised that would have as its key feature the free
convertibility of the U.S. dollar into gold. The U.S. agreed to buy or sell gold as necessary in
order to maintain the $35 per ounce price that had been established by President Roosevelt in
1933. The other signatory nations agreed to buy and sell dollars to maintain their exchange rates
at agreed-upon levels. This new system was called the gold-exchange system or the Bretton
Woods system. The International Monetary Fund (IMF) was established to police and manage
the new system. The primary function of the IMF was to be to offer temporary assistance (loans)
to countries that experienced severe balance-of-payments difficulties, thus enabling them to
maintain the agreed-upon exchange rate. Only in extreme cases involving fundamental
disequilibrium in a nations balance-of-payments were changes in exchange rates to be
permitted. Devaluation was viewed only as a last resort. In general, the Bretton Woods
agreements were grounded in the belief that only relatively fixed exchange rates could provide
the stability necessary to restore world trade to pre-depression levels.
Two of the major benefits of a fixed exchange rate regime are that it eliminates most
exchange rate risk (discussed below) and reduces transactions costs associated with trading in
different currencies. The development and spread of the Euro, as well as attempts by various
countries to peg their national currencies to some anchor currency through the use of currency
boards are reflections of the benefits of adoption of a common currency and/or elimination of
exchange rate instability. Dollarization is but another example of the attempt to gain the
advantages of a common currencyelimination of exchange rate fluctuations and reduction of
transactions costs.
Country Risk
While all business transactions involve some degree of risk, those involving trade across
international borders carry additional risks not present in domestic transactions. These additional
risks, collectively called country risk, typically include risks arising from a variety of national
differences in economic structures, policies, socio-political institutions, geography and currency.
When doing business across international boundaries, and especially when investing in foreign
countries, it is critical that one understand the nature and extent of such risks, and develop
strategies and techniques to mitigate against potential losses stemming from such factors.
However, those doing business internationally generally lack the specialized knowledge and/or
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the data gathering and analyzing ability required to obtain the needed information. Their
resources are better utilized attending core business activities. This, of course, gives rise to
another marketthe market for another type of specialized information. Any number of entities
analyze and attempt to quantify country risk. Among those entities that measure country risk are
the following providers: Bank of America World Information Services, Business Environment
Risk Intelligence, Euromoney, Institutional Investor, Standard and Poors Rating Group, and
Moodys Investor Services. Country risk analysis is commercially available from a very
extensive group of services.
Those who analyze country risk normally decompose the composite risk into several
components, identifying certain variables for use in measuring and quantifying the various
elements of risk. While the definitions and measurement of the components are not completely
standardized, and while the different components sometimes overlap as to measurement criteria,
some of the more widely used divisions include:
Economic risk. This element of risk arises from the potential for detrimental changes in
fundamental economic goals of the country, or a significant change in the countrys comparative
advantage.
Analysts examine traditional measures of monetary and fiscal policy
(inflation/deflation trends, soundness of the financial system, tax policy, government
expenditures and transfers relative to income, the governments debt situation), and, for longerterm investments, other real growth factors.
Sovereign risk. This element of risk is associated with a governments becoming unwilling or
unable to meet its loan obligations. Sovereign risk stems from the fact that a private lender
faces a unique risk when dealing with a sovereign government. In the event that a government
decides not to meet its obligations, the private lender has little or no realistic recourse in the court
systemin that it normally requires the permission of the government in order to sue it. A
governments debt repayment history, any repudiation of such obligations in the past, and
variables reflecting the governments ability to pay are factors used in assessing sovereign risk.
Political risk. This is the risk arising from a change in political institutions stemming from a
change in government control, social fabric, or other non-economic factors. It covers the
potential for internal and external conflicts, plus expropriation risk. Since there exist few
reliable, quantitative measures to help assess political risk, analysts must examine qualitative
factors such as relationships of various groups in a country, the decision-making processes of the
government, and the history of the country.
Transfer risk. This element of risk is that arising from a decision by a foreign government to
restrict capital movements. Governmentally imposed restrictions can make it difficult or
impossible to repatriate profits, dividends, or capital. Given that a government can change
capital movement rules at any time, transfer risk applies to all types of investments. Quantifying
the risk is difficult because the decision to restrict capital movement may be a purely political
response to another problem. However, in economic terms, there are some variables that exhibit
predictive value concerning if and when a country might find it necessary and/or advantageous to
restrict capital movements. For example, a growing current account deficit as a percent of GDP
might signal a more pressing need for foreign exchange to cover that deficit. The risk of a
transfer problem increases if no offsetting changes develop in the capital account.
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Exchange rate risk. This is the risk associated with any unexpected adverse movement in the
exchange rate. Exchange rates fluctuate on a continuous basis as a result of short-run factors
such as currency speculation activities, changes in a countrys import/export position,
fluctuations in interest rates, and normal funds flows. Economic fundamentals determine and
bring about adjustments in exchange rates over the longer run. And while it is often possible to
eliminate or at least minimize exchange rate risk through various hedging mechanisms, that
strategy normally is impractical over the life of a plant or similar direct investment. Factors that
reflect the degree of over- or under-valuation of a currency can help isolate and quantity
exchange rate risk.
Neighborhood risk. This element of risk, also called location risk, may be associated with
spillover effects caused by problems in a region, or even by problems with a countrys significant
trading partners. When Brazil devalued its real in January 1999, that action had a devastating
effect on the Argentine economy, effectively spelling the ultimate doom of that countrys
convertibility regime. The concept of contagion is at the core of this element of risk.
Factors such as membership in international trading alliances, distance from economically or
politically important countries and other aspects of geography provide key indicators of
neighborhood risk.
The effects of differences in country risk show up in any number of venues relative to
business and economic activity. One clear reflection of the impact of country risk is found in
international differences in interest rates. Keeping in mind the law of one price, which suggests
that international interest rates will converge until the observed differences reflect only
differences in maturities and risks, the concept of country risk premium becomes of interest.
This concept refers to the increment in interest rates that would have to be paid for loans and
investment projects in a particular country compared to some standard. One way of establishing
the risk premium of a country is to compare the interest rate that the market establishes for a
standard security in the country (say, treasury debt) to the comparable security in the benchmark
country (say, U.S. treasury bills, notes or bonds). If the debt issues involve payment in the same
currency (say, U.S. dollars) and have the same maturities, then the difference must be attributable
to country risk. There are a number of agencies and institutions that calculate and make
available data relative to country risk premiums.
The existence of country risk affects virtually all aspects of international trade. Whether
it is the payment terms for international trade, the financing methods and instruments, or
necessary inducements and rewards associated with such trade, country risk and differences in
risks are paramount considerations. Some of those areas are discussed in very brief terms below.
Payment Terms for International trade

Every shipment abroad requires some form of financing while in transit. Additionally, the
supplier (exporter) needs financing, either internally generally or externally acquired, to buy or
manufacture its goods. The buyer (importer) must carry these goods in inventory until they are
sold. In some cases, the supplier will have sufficient cash flow to finance the entire trade cycle
out of its own funds, and thus be willing to extend credit until the importer has converted the
goods into cash. Alternatively, the buyer may be able to finance the entire cycle by paying cash
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in advance. Usually, however, some in-between approach is chosen, involving a combination of

financing by buyer, seller, and third parties. Thus, in any international trade transaction, credit is
inevitably provided by either the supplier/exporter, the buyer/importer, one or more financial
institutions, or some combination of these.
There are five principal means of payment in international trade. Associated with each is
a different degree of risk to the exporter and the importer. As a general rule, the greater the
protection afforded the exporter, the less convenient are the payment terms for the importer.
Thus, when choosing among payment methods to require, the supplier must weigh the benefits in
risk reduction against the cost in terms of lost sales. The five basic means of payment used to
settle international transactions are briefly discussed belowranked in order of increasing risk to
the exporter.
Cash in advance. Under the prepayment or cash in advance method, the exporter will
not ship the goods until the buyer has remitted payment to the exporter. This method affords the
exporter the greatest protection and allows it to avoid tying up its own funds. Prepayment is
often required of first-time buyers whose creditworthiness is unknown, or where there is political
instability in the importing country. Most buyers, however, are unable and/or unwilling to bear
all the risk by prepaying the order. Additionally, due to competitive pressures, requiring
payment in advance is not something that generally works for exporters unless they have a
unique product or market niche. When this method of payment is used, the payments are most
often made in the form of an international wire transfer to the exporters bank account, or foreign
bank draft.
Letter of credit. This is an instrument issued by a bank on behalf of the importer
promising to pay the exporter upon presentation of shipping documents in compliance with a set
of stipulated terms. In effect, the bank is substituting its credit for that of the buyer. This
method may be viewed as a compromise between the seller and the buyer because it affords
certain advantages to each party. The exporter is assured of receiving payment as long as it
presents documents in accordance with the agreement. When credit is extended, this method of
financing offers the exporter the greatest degree of safety. The advantage to the importer is that it
does not have to pay for the goods until shipment has been made and documents are presented in
good order.
Drafts. This instrument, also known as a bill of exchange, is an unconditional written
orderusually drawn by the exporter and addressed to the importerordering the buyer to pay
on demand (or at a specified future date) the face amount of the draft. The draft represents the
exporters formal demand for payment from the buyer. Inasmuch as banks are not obligated to
honor payments on the buyers behalf, the draft affords the exporter less protection than does the
letter of credit. However, the draft does enable the exporter to use its bank as a collection agent.
The bank forwards the draft or bill of exchange to the foreign buyer (either directly or through a
branch or correspondent bank), collects on the draft, and then remits the proceeds to the exporter.
Drafts may be either sight drafts or time drafts. Sight drafts must be paid on presentation.
Time drafts are payable at some specified future date and as such become a useful financing
technique. A bankers acceptance, discussed below, is a time draft that has been accepted by
the drawee, the bank to which the draft is addressed.
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44
Consignment. Under this arrangement, goods are only shipped, but not sold, to the
importer. The exporter ships the goods to the importer while still retaining actual title to the
merchandise. The importer has access to the goods but does not have to pay for them until they
have been sold to a third party. The exporter is thus placed in a position of having to trust the
buyer to pay once the goods are sold, with very limited recourse in case of default. Because of
the high risk, consignments are infrequently used except in special cases such as affiliated or
subsidiary companies trading with the parent company.
Open account. Functionally, open account selling is the opposite of cash in advance, or
prepayment. The exporter ships the merchandise and expects the buyer to remit payment
according to the agreed-upon terms. The seller is relying completely on the creditworthiness,
integrity and reputation of the buyer, meaning obviously that open account terms carry the
highest risk of nonpayment. Adding to the risk is the fact that any subsequent collection
activities that may be necessary will be guided by the laws and customs of the buyers country.
Historically, this method of financing normally has been used only when the buyer and seller
have mutual trust and considerable experience in dealing with each other. However, as world
markets become more competitive, open account terms are gaining in usage and are sometimes
the only means of entry. Thus, despite the risks, open account transactions today are widely
used, especially among industrialized countries in North America and Europe where the overall
volume of trade is very high and credit information is readily available.
Financing Techniques in International Trade

Due to the additional risks and complications involved in international transactions,
banks today play a critical role in financing such trade. As the volume of trade has grown in
recent years and financing has become such an integral part of international transactions, banks
have progressed from financing individual trade deals to providing comprehensive solutions to
trade needs. This is especially true of large U.S. banks located in major money centers. These
services may include combining bank lending with funds from government export agencies,
international leasing, and even risk insurance. However, in addition to straight bank financing,
there are a number of other techniques available for trade financing. Some of the more important
ones are discussed below.
Bankers acceptances. A bankers acceptance is an order to pay a specified amount of money
to the bearer on a given date. Bankers acceptances have been in use since the twelfth century,
though they were not a major money market security until the volume of international trade
ballooned in the 1960s. They are used primarily in international trade with the purpose of
financing goods that have not yet been transferred from the seller to the buyer. The great
strength of the bankers acceptance is that it can allow an exporter to receive funds immediately,
yet allow an importer to delay its payment until a future date. Keeping in mind that the bankers
acceptance is a time draft drawn on a bank, it follows that whenever the bank accepts the draft
(by stamping accepted across the instrument), it makes an unconditional promise to pay the
holder of the draft the stated amount on the specified date. Thus, the bank effectively has
substituted its own credit for that of the borrower. In the process, it has created a negotiable
instrument that is traded freely in money markets. Typical maturities on bankers acceptances
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45
are 30 to 180 days, with the average being 90 days. Maturities can be tailored, however, to cover
the entire period needed to ship and dispose of the goods financed.
Accounts receivable financing, or factoring. Factoring, which involves the sale of the sellers
accounts receivable to a third party, is becoming increasingly popular as a trade financing
vehicle. The third party, or factor, buys a companys receivables at a discount from face value,
thereby accelerating their conversion to cash. As with any debt-like claim, there will be charges
for the time value of money and the credit risk associated with the receivables. Most factoring is
done on a non-recourse basis, meaning that the factor assumes all the credit and political risks
(except those involving disputes between the transacting parties). The factor performs its own
credit approval process on the foreign buyer before purchasing the receivable. For providing this
servicewhich can be relatively expensivethe factor purchases the receivable at a discount
and also receives a flat processing fee.
Though becoming more widely used in international trade, factoring of foreign accounts
receivable is less common that factoring of domestic receivables. Most international factors or
factoring houses are subsidiaries of a major bank or commercial finance company, having the
knowledge and expertise to collect in their own country. Factors often utilize export credit
insurance to mitigate the additional risk of a foreign receivable.
Forfaiting. Because capital goods tend to be quite expensive, meaning that importers may not be
able to make payment for the goods within a short time period, longer term financing becomes
necessary. To deal with this problem a special of factoring called forfaiting is sometimes used.
Forfaiting is the discounting, without recourse to the original holder, of medium-term export
receivables (such as a promissory note or bill of exchange). These are normally very large
transactions (in excess of $500,000) with the receivables being denominated in fully convertible
currencies such as the U.S. dollar, the Euro, or the British pound sterling. The technique is most
often used in cases of capital goods exports with a five to seven year maturity involving
semiannual installment payments. Since the forfaiting institution (usually a subsidiary of a large
international bank) assumes the risk of nonpayment, it must assess the credit worthiness of the
importer just if it were extending a medium-term loan. As is the case with many international
transactions, the critical nature of country risk analysis is readily apparent.
Agencies that Promote International Trade

Due to the inherent risks associated with international trade, government institutions as
well as the private sector offer various forms of export credit, export finance, and guarantee
programs to reduce risk and stimulate foreign trade. Three prominent agencies that provide these
services in the United States include the Export-Import Bank of the United States (Eximbank),
the Private Export Funding Corporation (PEFCO), and the Overseas Private Investment
Corporation (OPIC). These institutions are briefly described in turn.
Export-Import Bank of the United States. The Eximbank is the only U.S. government agency
dedicated solely to financing and facilitating U.S. exports. Established in 1934 with the original
goal of facilitating Soviet-American trade, its current mission is to finance and facilitate the
export of American goods and services and maintain the competitiveness of American
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46
companies in overseas markets. Operating as an independent agency of the U.S. government, it

has financed, guaranteed, or insured over $400 billion in U.S. exports. Eximbanks programs are
generally designed to encourage the private sector to finance export trade by assuming some of
the underlying credit risk and providing direct financing to foreign importers when private
lenders are unwilling to do so. Pursuant to these objectives, the Eximbank offers programs that
are classified as (1) guarantees (the two most widely used of which are the Working Capital
Guarantee Program and the Medium-Term Guarantee Program), loans (two of the most popular
being the Direct Loan Program and the Project Finance Loan Program), and insurance (the most
widely used of which is the Bank Letter of Credit Policy).
Private Export Funding Corporation. PEFCO, a private corporation, is owned by a
consortium of commercial and industrial companies. It was created in 1970 by the Bankers
Association for Foreign Trade to mobilize private capital for financing the export of big-ticket
items (such as aircraft or power generation equipment) by U.S. firms. It purchases the mediumto long-term debt obligations (usually 5 to 25 years) of importers of U.S. products at fixed
interest rates. PEFCO finances its portfolio of foreign importer loans through the sale of its own
securities. These bonds are readily marketable since they are in effect secured by Eximbankguaranteed loans.
Overseas Private Investment Corporation. OPIC, formed in 1971, is a self-sustaining federal
agency that provides U.S. investors with insurance against loss due to the specific political risks
of expropriation, currency inconvertibility, and political violence, i.e., war, revolution or
insurrection. Since 1971, OPIC has supported over $145 billion in U.S. investment overseas. To
qualify, the investment must be a new one or a substantial expansion of an existing facility, and
must be approved by the host government. Coverage is generally restricted to a maximum of
90% of equity participation. OPIC also provides business income coverage, which protects a
U.S. investors income flow if political violence causes damage that interrupts operation of the
foreign enterprise. While the cost of the coverage varies by industry and risk insured, these costs
are not based solely on objective criteria. They also reflect subsidies geared to achieve certain
political gains, such as fostering development of additional energy supplies
Endnotes:
1. Smith, Adam (1937). Wealth of Nations, New York: Random House, Modern Library
Edition, Book IV: 2.
2. Ricardo, David (1966). Principles of Political Economy and Taxation, London:
Cambridge University Press.
3. Heckscher, Eli (1919), The Effect of Foreign Trade on the Distribution of Income,
Ekonomisk Tidskrift, 21:1-32.
4. Ohlin, Bertoli (1933), Interregional and International Trade, Cambridge, Mass.
Harvard University Press
5. Samuelson, Paul (1949), International Factor price Equalization Once Again,
Economic Journal, 59:181-197. Samuelson, Paul (1953-54), Prices of Factors and
Goods in General Equilibrium, Review of Economic Studies, 21:1-22.
6. Leontief, Wassily (1954). Domestic Production and Foreign Trade: The American
Capital Position Reexamined, Economica Internazionale, February, 1954, pp. 3-32.
Leontief, Wassily (1956) Factor Proportions and the Structure of American Trade:
_____________________________________________________________________________________________
47
Further Theoretical and Empirical Analysis, Review of Economics and Statistics,

pp. 386-407.
7. Porter, Michael (1990) The Competitive Advantage of Nations London: Macmillan
8. Harfield, Tony (1998). Strategic Management and Michael Porter: A Postmodern
Reading, Electronic Journal of Radical Organization Theory, 4 (1)
9. Bryan, Lowell and Farrell, Diana (1994). The Savings Surge, The Wall Street
Journal, November 7, 1994
Footnotes:
i.
The governments H-2A temporary agricultural certification program establishes a
means for agricultural employers who anticipate a shortage of domestic workers to
bring nonimmigrant foreign workers to the U.S. to perform agricultural work or
services of a temporary or seasonal nature.
ii.
Organizations such as the Hoover Institution, the Heritage Foundation and the Frazier
Institute rank countries in terms of economic freedom. Each of the countries listed
here rates very poor in terms of international commercehaving very high levels of
protectionism, high barriers to capital flows and foreign investment, and/or little
protection for property rights. These rankings demonstrate that countries with higher
levels of economic (market) freedom enjoy higher levels of per capita income.
iii.
As a matter of custom, certain prices are referred to by special names. Thus while the
price of a car or an ice cream cone is called a price, the price of loanable funds is
referred to as an interest rate, the price of a unit of labor is called a wage rate, and the
price charged for the use of real property is called rent. Nonetheless, all are prices
and as such are determined in a market economy through the forces of supply and
demand.
iv.
Real interest rates, like other real (as opposed to nominal) values in economics, have
been adjusted for price level effects. A real interest rate would be measured as the
nominal (unadjusted) rate of interest minus the rate of inflation.
v.
Since an exchange rate represents the value or price of one currency in terms of
another, then the U.S. dollar price of the Mexican peso and the peso price of the
dollar are, mathematically, reciprocals. That is, if the dollar price of the peso is
$0.08642 per peso, then the peso price of the dollar is 1\0.08642, or 11.572 pesos per
dollar. Similarly, if the dollar price of the pound sterling is $1.7881 per 1, the pound
price of the dollar must be 1\1.7881, or 0.5593 per $1.00.
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48
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49
REDEFINING THE SMALL BUSINESS INSTITUTE

AN ADDRESS TO ASBE
Joseph R. Bell, University of Arkansas at Little Rick
Thank you for asking me to speak. It is a pleasure to be back here again this year. I had a
chance to do some research on our organizations over the past few days and all I can say is the
names WOW some really great people have put their finger prints on both our organizations
and some of those people are still participating to this day. My sincere thanks for all your efforts
for making these organizations so special.
I would like to cover four topics today, though they maybe quite subtly placed in this brief talk:
1.
2.
3.
4.
Hopefully demonstrate what we teach our students,

Or more specifically how to survive in an ever changing marketplace,
And, how is SBI beginning to redefine itself, and finally,
Have we really done more than alphabet soup?
So lets start with alphabet soup.
SBIDA, SSBIA, SBI (04), ASBE (97)

SBA1996
AOM, USASBE, FBD, ASI, AASE, CEO, YES
Now lets step back and take a look at some of our common history:
We moved from a common bond, strong financial position and large membership to
No government funding, shrinking membership and a smaller, yet very important
common bond.the core that bond consists of, needless to say the friendships that have
developed over the years, but of great importance I would include our applied research
and field case studies. I believe these are truly differentiating opportunities.
By the way, please mark your calendars if you have not done so for the USASBE/SBI
conference scheduled for January 12-15, 2006 at the brand new JW Marriott Resort in
Tucson. Geralyn and Kirk have done an outstanding job and this promises to be one of
our best conferences ever.
Please indulge me for a moment while I share a story. A few years ago I was at an SBI
conference in San Diego. It was a great conference with an outstanding tour of their wine
country. But one of the defining moments that stuck out for me was the luncheon that honored
the SBI Fellows. One by one they were called before the audience and recognized for their
contributions to SBI and our discipline. Then one wheeled up in a wheelchair, and a few later a
walker, and then another. The average age in the room had to be 60. At the end of the
recognitions only a couple of handfuls remained in the audience and as I looked around I realized
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50
I was one of the youngest in the room. My head slumped down and I believed I was witnessing
the demise of this storied institution.
With that as a lead in, please allow me to tell you a little bit about what SBI is doing today:
SBI has made significant changes and continues to do so
Leo Simpson has guided the Case of the Year awards through some great revisions. The
COY awards now offer more categories under which you may submit cases and
additional tiers for participant recognition. Leo devised a strategy to provide faculty with
additional opportunities to go back to their host institutions and demonstrate a recognition
of excellence within their discipline. He also provided the students with an opportunity
to enhance their resumes with national recognition for their participation and
accomplishment within field case study learning. This strategy by Leo is absolutely
brilliant!
The Certified Small Business Counselor program was a well conceived program but its
practical application has fallen short of expectation. It has fallen short for two primary
reasons. First, those SBI members that qualify to participate in the program must meet a
very narrow set of qualifying criteria, and those that do qualify, must submit annual case
reports that in most instances are perceived as arduous. The program is under-utilized
with a lack of value recognition.
The redesign of the program is moving toward a quantifiable proficiency in the field and
a contribution to scholarly understanding within the discipline. The expectation is that
those who choose to participate in the revised program will have additional qualifications
to demonstrate active support within the discipline along with a contribution to scholarly
learning and can incorporate this as a part of their promotion and tenure.
JSBS The Journal of Small Business Strategy Before I discuss our Journal I would
like to complement the efforts of the editors and volunteers of the Journal of Business
and Entrepreneurship. It is a wonderful journal and provides a great outlet for the
intellectual contributions of both our organizations. My sincere thanks to all those
involved.
The JSBS had some issues, and to no fault of anyone, we mutually agreed to relocate the
Journal to Bradley University and Fred Frys crew. They have done a wonderful job with
the Journal. Look for it soon as a searchable Journal as a part of the ProQuest database.
There are a number of other opportunities in the works for the Journal and we anticipate a
very bright future.
An additional issue lies in the use of term small. SBI has a long history of supporting
business yet its award recognitions for field case studies fails to attract those that do not
focus on the word small. A conscious effort will be made to de-emphasize small as a
part of SBI and begin to focus more as the premier outlet for field case study awards.
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51
The change is subtle and with most SBI programs showcasing those companies that
would be referred to as growth companies, or even gazelles, the basic support function
for all businesses by SBI will remain unchanged.
SBI is redefining itself as a member benefits organization that just happens to have a
great conference. We want to be very different from the rest of the alphabet soup.
With that said, faculty budgets for travel continue to shrink and the decision to allocate to funds
for a particular, or at best a limited number, of alphabet soups is very limited.
So what does the future hold? I dont know. In February 2006, SBI and USASBE will be
visiting as to how they move into the future. Our membership truly enjoys the opportunities a
joint conference provides, from diversity of sessions to broad reaching contacts. Does SBI
alphabet soup go away? I dont know. No matter what is decided SBI has begun to position
itself as providing member benefits well beyond the sole scope of the conference. Is there a
place for small committed organizations? Yes, but at some point the prestige of the organization
diminishes along with their ability to be operated in a cost effective manner. The Tipping
Point. SBI and ASBE are at a tipping point. Limited travel budgets, inability to negotiate
favorable conference terms, and a vast array of competing alphabet soup are just a few points
small volunteer organization must face.
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52
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53
SMALL BUSINESS ADVANCEMENT NATIONAL CENTER AS YOUR KEY

RESOURCE TO RESEARCH AND CLASSROOM INFORMATION
Dr. Don B. Bradley III, Executive Director and Professor of Marketing, University of
Central Arkansas
Foundation and Objectives
The Small Business Advancement National Center (SBANC) was founded in 1990. SBANC was
conceived and developed by Dr. Don B. Bradley III, Executive Director of the Center and
Professor of Marketing at the University of Central Arkansas. Since its inception as the Small
Business Institute Directors' Association National Center, it has evolved into a multifaceted
entrepreneurial and small business counseling and electronic resource information center.
Now a leading-edge facility, SBANC offers small businesses and entrepreneurs some of the most
up-to-date information on advances in today's small business technology.
SBANC's purpose is to provide the following with the necessary resources to further their
business and economic goals:
Small Business
Entrepreneurs
Educators
Students
Lawyers
Foundations and Associations
Non-Profit Organizations
Economic and Community Development Officers
Government Agencies
Small Business Counselors
International Trade Development Officers
State and Federal Legislatures
The main focus of SBANC activities is the promotion of the entrepreneurial spirit. This is
accomplished through counseling, educating and training. These activities are provided locally,
statewide, nationally and internationally for those interested in small business and
entrepreneurship using the following methods:
Internet
E-Learning
Seminars
International Exchanges
Conferences
Newsletters
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54
Counseling Sessions
Research
Internships
The Small Business Advancement National Center's mission is part of the broader mission of the
University of Central Arkansas and College of Business Administration, which is built on
teaching, research and service.
Online Resource
Instant, timely electronic business information is provided to the SBANC small business clients
through the Small Business Advancement Electronic Resource. This connection serves as an
extensive electronic link among small business owners, entrepreneurs, foundations, educational
institutions, legal professionals, associations, international partners and local, state and federal
government entities. The World Wide Web site offers an endless supply of valuable information
that is geared toward helping both already established businesses as well as those just beginning.
At the present time, the electronic resource is servicing the United States and its protectorates as
well as more than 87 nations worldwide.
Examples of information provided on the Web site include industry profiles, business plans,
research articles, classroom tips, loan information, conference details and international and
domestic contact information. Visit the Small Business Advancement Electronic Resource at:
www.sbaer.uca.edu
The Small Business Advancement Electronic Resource:
Houses research information on all aspects of small business and entrepreneurship,

including articles from conference proceedings, industry profiles and publications from
other pertinent sources.
The Center offers a business plan that provides a way to produce cash flow reports and
profit/loss statements. The plan also provides the user with an estimation of his or her
probability of obtaining a loan.
The Center provides a means for electronic consulting and training.
The Center provides on-line links to programs such as the Small Business
Administration, Service Corp of Retired Executives, Small Business Institute, Small
Business Development Centers, Allied Academies, Association of Collegiate Marketing
Educator, Association of Small Business and Entrepreneurship, Federation of Business
Disciplines, Institute of Supply Management, The International Small Business Congress,
Marketing Management Association, Society of Marketing Advances, U.S. Association
for Small Business and Entrepreneurship, U.S. Department of Veteran Affairs, and
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55
International Council for Small Business as well as congressional and international small
business contacts.
Offers archived editions of SBANC's weekly electronic newsletter, which provides a

variety of helpful tips for small businesses and entrepreneurs. A number of our
subscribers use the weekly newsletter in their classroom lectures.
The Center serves as a source for important news and information concerning small
businesses and entrepreneurs such as conferences, calls for academic papers, educational
resources, small business programs and government programs and issues.
Provides links to other small business and entrepreneur sites on the World Wide Web.
The Center serves as a clearinghouse for small business advocacy information.
Research and Dissemination

Small Business & Entrepreneurship Research:
Primary and field research is conducted by the SBANC staff and College of Business faculty to
further Arkansas, national, and international economic opportunities. Research is disseminated,
shared and exchanged with various small business-related entities around the world to promote
the development and globalization of Arkansas businesses.
The Center provides the Small Business Institute (SBI) program with needed information and
data. SBI is conducted at approximately 475 colleges and universities nationwide and assists
more than 6,000 small businesses annually. The Center also supports the efforts of the Small
Business Institute by providing archival support on a mutually acceptable basis.
Information Clearinghouse:
SBANC serves as a central information point for up-to-date knowledge, skills and techniques on
small business and entrepreneurship. This information keeps small businesses on the leading
edge of business practices and techniques.
Submit Research
The Small Business Advancement National Center maintains an extensive archive of small
business and entrepreneurial related research. New research on modern business practices, up-todate technologies, and the latest business related topics are added to the archive on a regular
basis from many small business organizations worldwide. If you or your organization would like
to contribute any information pertaining to small business or entrepreneurship to our developing
archive, please contact Dr. Don B. Bradley III, Executive Director at 450-5300, e-mail us at
sbanc@uca.edu, or mail your research on CD or DVD to
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56
Small Business Advancement National Center

University of Central Arkansas
College of Business Administration
UCA Box 5018
201 Donaghey Avenue
Conway, AR 72035-0001
Small Business Institute Journal

The SBANC houses the Small Business Institute Journal as one of its outlets for research. A
primary purpose of the Small Business Institute Journal is to publish scholarly research articles
and cases in the fields of small business management, entrepreneurship, and field based learning.
As one of the official journals of the Small Business Institute (SBI), SBIJ is recognized as the
applied and pedagogical instrument for projecting and supporting the goals and objectives of
SBI. The journal is published twice a year (April and October) electronically to be available to
its members, small business owners, entrepreneurs, government officials, and
community/economic development officers, policy makers, researchers. This journal is dedicated
to practical research that will further small business, entrepreneurship and field based learning.
General Information
Since this is an electronic journal articles can be added at any time, but the official dates of
publication are April and October. Reviewers must be members of SBI and will be solicited from
members and recipients of the Small Business Advancement National Center weekly newsletter.
If a non-member wishes to become a reviewer, they must first become a member of SBI. The
April issue will have the best papers from the Small Business Institute Annual Conference that
were deemed journal worthy pertaining to the applied aspects of the mission statement of the
Small Business Institute Journal. The editor has applied to Cabell's Directories as a new journal.
Submission
Procedure
Each manuscript undergoes a blind review by three reviewers and the editor. A manuscript will
be fully accepted only after all the revisions required by the editor and the reviewers have been
made.
The following list is the research topics that SBIJ readers are most interested in:
Community and Economic Development

E-Commerce
Entrepreneurial and Small Business Education
Entrepreneurship
Ethics and Social Responsibility
Family Business
Feasibility Studies
Field Based Learning
Finance and Accounting for Small Business
Franchising
International Small Business and Entrepreneurship
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57
New Venture Creation

Small Business Assistance and Training
Small Business Strategy
Spirituality and Entrepreneurship
Sustainability
Technology and Innovation in Small Businesses
Women and Minority Owned Businesses
Other subjects that pertain to small business management, entrepreneurship and field based
learning will be considered.
Counseling and Consulting

SBANC's counseling and consulting services are provided to Arkansas small businesses, as well
as businesses nationally and around the world via electronic mail, telephone, personal visits by
faculty, and in person by SBANC staff members and student consulting teams. Consulting is
provided in areas such as computerization, market analysis, financial management, loan
information, accounting and bookkeeping, economic and community development, and other
areas deemed necessary. Counseling services by faculty and staff are also available on a fee
basis.
SBANC and the University of Central Arkansas have conducted the Small Business Institute
(SBI) program since its inception in the early 1970s. The program involves undergraduate and
graduate students, supervised by faculty, obtaining information from a business, analyzing that
information and presenting their recommendations to the business owner. The program provides
college students with hands-on business experience and gives the business valuable information
that will potentially help their business to expand and become more efficient.
The SBI program was previously federally funded and administered by the U.S. Small Business
Administration. Federal funding for the program is no longer provided therefore donations are
requested.
Training and Education
SBANC constituents are trained and educated on the latest entrepreneurial practices and
techniques as they pertain to entrepreneurs and small- and medium-sized companies. Some of
these training areas include:
Conferences
E-Learning
Workshops
Organizational Training
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58
Seminars
Internet Operation and Practice
Conclusion
The SBANC is a resource to be used by a number different publics. It serves as a research outlet
as well as ideas to be used in the classroom by academicians. It is sometimes overlooked the
importance that the research plays in state and federal small business legislation. It has also been
surprising to the author how many lawyers use the website as precedence in legal cases
pertaining to small business and entrepreneurship.
It also serves as a sounding board for new ideas and actions of small businesses internationally.
Its announcements of various small business and entrepreneurial meetings around the world help
keep its subscribers in tune with professional opportunities. The Small Business Institute Journal
serves as an outlet for research to be published electronically. The SBAER archives research
from various proceedings of professional meetings to be used as starting points for more research
in the small business entrepreneurial area.
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59
AL-BAHAR & JACOROSSI ENGINEERING & CONTRACTING:

A Study of the Effect of Kuwaiti and Italian Culture
on Human Resource Management
After the Iraqi Invasion
Dianne H. B. Welsh, The University of Tampa
Abdulrahman Al-Bahar, Eastern Washington University
BACKGROUND
Kuwait is a tiny country that is located in the Northeast corner of the Arabian Gulf. It is
bordered by Saudi Arabia and Iraq. The total population of Kuwait in 2006 was 2,765,300, with
1,653,700 men and 1,111,600 women. Based on an annual population growth rate between 20002005 of 3.73%, the population is predicted to grow to 3, 201, 546 by 2010 (United Nations, 2006).
A large percentage of the population are non-Kuwaitis. The main language is Arabic, although
English is widely used in business.
Kuwait covers an area of 17,818 sq km, most of which is flat desert. There are only two
notable areas of high ground in the country, Mina Al Zor and Muttla Ridge, and the Ahmadi Range.
Kuwait coastal waters cover 2,200 sq miles, and the coastline stretches 290 km.
According to the 1985 census, 59.5% of Kuwaiti men and 13.8% of Kuwaiti women were
employed in the work force. In 1993, only 20.1% of the work force was made up of Kuwaiti men,
although the number of women working has remained about the same. The government employed
90 % of the Kuwaiti work force in 1993. Ninety-one point seven percent of non-Kuwaiti men and
42.7% of non-Kuwaiti women were part of the labor force. According to the most recent
compilation of data by the Institute of Banking Studies (2007), the total Kuwaiti and non-Kuwaiti
labor force is 1,962,955. Kuwaiti men comprise 10.1% of the total labor force, while Kuwaiti
women make up 7.25%. Eighty-three point six percent are employed by the government. Of the
total labor force in 2006, non-Kuwaitis make up 1,621,770 or 82.62%. Non-Kuwaiti males are
79.86% and non-Kuwaiti women are 20.14% of the total non-Kuwaiti labor force. Many foreign
workers come from countries such as Pakistan, India, and the Philippines for the main purpose of
finding employment.
"Wages are considered the most important distribution channel for effecting social justice in
the State of Kuwait since 90% of the Kuwaiti labor force, both men and women, worked in
the administrative positions in the state and public sectors till the end of 1994" (Kuwaiti
Ministry of Planning, 1995, p.14).
Many women have continued to be employed primarily as teachers, doctors, nurses, and
secretaries. Many have gone into other professions as well. Families have developed their own
private businesses. Through government programs or family assistance, many Kuwaitis have
developed profitable businesses in the last 20 years.
Kuwait is interesting because it is a combination of a welfare state, private enterprise and a
state-run economy. The government controls the oil production and resources of Kuwait. This is
the source of the great wealth that has come to the country. However, with this wealth, the
government has helped many privately owned businesses become prosperous, it has brought many
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opportunities to private business, and it has allowed a great increase in the standard of living for all
people living in Kuwait.
"The philosophy of modernization and building a contemporary state developed into a
philosophy that aims at promoting the citizens' standard of living due to the increase in oil
revenues and the local developments" (Kuwaiti Ministry of Planning, 1995, p. 31).
One of the most important policies of the Kuwaiti government is the continuous advancement in
programs of education, culture, information, social care and religious service that is tied to
maintaining the unity of the family.
Kuwait is classified among the group of richest countries in the world. The gross domestic
product (GDP) per capita was estimated at $23,100, up from $16,420 in 2004 (U.S. Central
Intelligence Agency, 2007). This increase is due primarily to high oil prices that have helped build
Kuwaits budget and trade surpluses and consequently, have had a positive effect on the average
Kuwaitis standard of living. Although there are many very wealthy families in Kuwait, there are no
very poor families as compared to other parts of the world. The government provides all families
with a nice home, and a garage. These homes have three bedrooms or more. All education is paid
for by the Kuwaiti government, which includes a free college education. Non-Kuwaitis can also
receive free education if they maintain a high grade-point average in high school. Because of this
there is a strong middle class. However, there is a higher ratio of millionaires as compared to other
countries.
Employment Security
The Kuwaiti laws governing labor are valid whether or not you have a written contract.
Some of the main points of the law are as follows. A contract between employer and employee can
be verbal, but it is preferable to have it in writing. It must be written in Arabic. The normal
working week is 48 hours, usually six days at eight hours per day. Overtime is paid at a rate of time
and a half of the normal rate, with two times the normal rate on holidays. In addition to official
holidays, all workers are entitled to 14 days of vacation after one year of employment. The normal
work days for public sector workers are Saturday through Wednesday, Thursday and Friday are
days off. For the private sector, the work week is Saturday through Wednesday, with a half day on
Thursdays. The banking sector employees work Sunday through Thursday.
There is no set minimum wage. Female employees must receive equal pay. Trade unions
are allowed, but only one can be formed per establishment and only one for each profession will be
recognized. Because all expatriates must be sponsored by a Kuwaiti national or company,
theoretically, there should be no unemployment. All unemployed Kuwaitis must register at the
Ministry of Social Affairs and Labor where employment assistance is available. A person who
intends to be employed in Kuwait must have a work permit and a No Objection Certificate (NOC).
The first is issued by the Ministry of Social Affairs and Labor, and at that time, the Ministry of the
Interior must be applied to for the NOC and entry permit. In order to obtain a residence permit, the
sponsor must complete a form issued by the Ministry of the Interior. The persons will then are
fingerprinted and undergo a medical check. Once residence procedures are completed, the person
must then register for a civil identification card which should be carried at all times.
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Joint Stock Companies

These are known as Kuwaiti Private Shareholding Companies (KSC). It is necessary to
obtain a decree from the Ministry of Commerce authorizing the incorporation of a KSC. The
shareholders are issued with negotiable shares of equal value, and their liability is limited to the
nominal value of their shareholding. Public subscription is permitted. Fifty-one percent of the
share capital must be Kuwaiti-owned. The accounts of a Joint Stock Company must be
independently audited. Copies of the company's accounts must be filed with the official
commercial register.
AL BAHAR JACOROSSI ENGINEERING & CONTRACTING COMPANY (KSC)
The Al-Bahar Jacorossi Engineering & Contracting Company was formed in 1993 and is a
privately held shareholding company. The Al-Bahar family owns 51% of the stock, and Jacorossi
Imprese of Italy owns 49% of the stock. The Chairman of the joint venture is Fahad Al-Bahar. The
Vice President is Adel Al-Bahar. Fahad Al-Bahar is Adel Al-Bahars uncle. A foreign company
can own no more that 49% of the stock in a Kuwaiti operation. The company mainly contracts out
maintenance of work pertaining to mechanical, electrical, instrumentation, fire, pumps, pipes and
high voltage signs. This joint stock company was formed for the purpose of contracting engineering
activities in the oil sector, power sector and industrial infrastructure by combining the experience
and expertise of these two companies.
Fahad Al Bahar & Sons Trading Company has been in existence in Kuwait since 1988 as a
general trading and contracting company. It is familiar with all the local government laws,
procedures and systems. This knowledge is essential for any company operating in Kuwait. The
company also has experience in the importing and exporting of industrial and consumer goods.
The Jacorossi Imprese Company (formerly known as Petrochemical International
Instrument Company) has been in existence in Italy since 1953 as an engineering and contracting
company. It deals primarily with service construction and maintenance work in the following
industries: oil, power, and petrochemicals. Its field is mainly in mechanical, electrical,
instrumentation and telecommunications works. The company has vast experience completing
infrastructure projects in Italy, as well as countries in Northern Europe, South America, the Middle
East and North Africa. Additionally, the company has done a great deal of business in the Middle
Eastern countries of Saudi Arabia, Oman, United Arab Emirates, Iran, Iraq and Bahrain. In the
1980s, the company wanted to establish a presence in Kuwait to expand their operations in the
Persian Gulf. Kuwait had become a major force in the oil industry, and it is a very profitable
market. PIICO started their Kuwait operations under the umbrella of the Al-Bahar International
Group who was acting as their agent. The company is still known as the PIICO Company.
While fulfilling a maintenance contract with the Mina Al Ahmadi Refinery, the Iraqi
Invasion occurred. The Al-Bahar - PIICO Company suffered great losses due to the war. All the
equipment and vehicles of the association was stolen by the Iraqis. The employee camp for the
project was destroyed, including the central kitchen equipment, air-conditioning equipment and
furniture. It was valued at 1.5 million. The Al-Bahar-PIICO Association faced this ordeal with
courage and a sense of responsibility to its employees. In August 1990, shifts of 20 people were
working twelve hours a day and were paid by the Association without a guaranteed payment from
the oil company that owns Mina. The stockholders agreed to keep everyone employed. The AlBahar-PIICO company met in London. A liaison office was established in Bombay to prepare for a
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62
quick return after the country was liberated. Eventually, all 103 employees were moved to sites
immediately after the liberation and returned to their duties.
Due to the destruction caused to the infrastructure during the Iraqi War, there was a great
need for skilled labor for reconstruction. PIICO had just changed their name to Jacorossi Imprese.
The Al-Bahar Company decided to form a joint engineering and contracting company. Not only
were the services of the joint venture greatly in demand, forming a joint venture would offer the
company advantages that it was unable to obtain when Al-Bahar was acting as Jacorossi's agent.
The joint venture would legally be a local company, and the company could receive support of up to
10 percent from the government.
Under Kuwaiti law, the government will supplement the financial contract of a Kuwaiti
company by up to 10 percent of the cost during contract negotiations. For example, several
companies, including foreign companies, might be bidding on a contract. If a foreign company
underbids the Kuwaiti company by as much as ten percent, the Kuwaiti government will
supplement the ten percent bid and the Kuwaiti company will get the contract. On the other hand, if
the Kuwaiti company bid 15% higher than the foreign interest company, the foreign company
would be awarded the contract because it is more than a ten percent differential.
The Al-Bahar and Jacorossi Imprese Companies realized that they had been losing several
bids because Al-Bahar was only acting as an agent and the bids for contracts were not seen as local
bids. By forming a joint venture, the Al-Bahar Jacorossi Imprese Company would be able to win
more government contracts. Also, the company would not have to pay a four percent import tax
required on any materials coming into the country. This would save the company millions.
Some of the projects that have been successfully completed or are in the process of being
completed are:
1.
Maintenance and repair of electrical installation in Shuaiba Power Station owned by
Ministry of Electricity and Water;
2.
Maintenance and repair of electrical installations in an oil field owned by the Kuwait
Oil Company;
3.
Construction of mechanical, piping, and electrical installations of the Ethylene
Glycol Project owned by Equate Petrochemical Company;
4.
Operation and maintenance of control room in Kuwait International Airport for
Directorate General of Civil Aviation;
5.
Revamping and modernization of an oil refinery at the Mina Al Ahmadi plant
owned by the Kuwait National Petroleum Company;
6.
Construction of new control room with computerized and electronic controls owned
by the Kuwait National Petroleum Company; and
7.
Design, engineering, construction and commission of mechanical, electrical and
instrumentation installations for water treatment plants at Az Zour and West Doha
power and water stations owned by Ministry of Electricity and Power.
The company employs around 1,400 personnel. Employees range from laborers and
technicians to highly qualified engineers with master's degrees. The company serves oil-related
industries, as well as utilities. The company has on-going contracts with the Kuwait National
Petroleum Company to revamp the Mina Al Ahmadi Refinery, the Kuwait Oil Company for
electrical maintenance at different locations, Ministry of Water and Electricity for water treatment,
and a number of petrochemical industries for piping works.
Starting an international company outside of a parent country is full of challenges. There
are many obstacles to overcome. One major obstacle is relocating key personnel. One of the
biggest problems faced by Italian employees who moved to Kuwait to work was trying to adapt to
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63
the very different climate and culture. Most expatriates confirm that it takes a minimum of six
months to adjust. The summer months are extremely hot and dry, reaching 120 degrees F., and
those Kuwaitis who can travel outside the country during that time do so. For individuals who are
not used to this heat, adjusting to traveling and being outside is difficult. That is why Kuwaiti
companies often have hours in the summer time where the workers go home for several hours
during the afternoon, which is the hottest time of the day and then return to work around 6:00 and
work until 8:00 p.m. in the evening when the temperatures are a bit cooler.
Of course, customs are very different in Kuwait, which is especially evident in religious
traditions. For example, the Italian workers have a hard time being in Kuwait during Christmas.
Most Kuwaiti citizens do not celebrate Christmas because the country is predominantly Islamic.
There are usually no company holiday parties at Christmas, although in the last few years, the AlBahar/Jacorossi Company has held a Christmas party for the Italian workers. But there are still no
community celebrations.
Another adjustment that has to be made is during the month of Ramadan, which is the
Islamic traditional thirty day period of fasting and increased religious observance. During this time,
Muslims often keep shorter hours and leave for prayer breaks. Kuwaiti companies accommodate
the observance of holy rituals. However, other workers, such as the Italians, who are predominantly
Roman Catholic, are not working shorter hours. This could lead to some conflict in the workplace.
However, Al-Bahar/Jacorossi have prepared the foreign workers, explaining the importance of the
holiday and why accommodations are made for the Muslim employees.
Kuwait has become much more open, with men and women gathering together for dinners
and meetings. Before the 1960s, men and women were traditionally separated. However, for social
gatherings such as parties, it is still common that men and women socialize separately, but this, of
course, is not required. However, Italian men and women are used to celebrating together. This has
made for interesting situations in the work place when social events occur. It is difficult to simulate
both cultures.
English is the second language for most Kuwaitis and Italians, so language is not a major
barrier; however, minor differences in usage sometimes occur. There are many cultural similarities
between the Italians and Kuwaitis. Some of the common characteristics are that both are quick
decision makers. They both talk loudly with lots of hand gestures. Many Kuwaitis believe it is
easier to do business with the Americans because they are more straightforward in their business
dealings. Both Italians and Arabs do not talk in a straightforward manner, and so it takes longer to
close a deal. Americans are more flexible. Americans would rather get business out of the way and
then socialize. The British stop to have their afternoon tea, and usually are much more rigid
concerning their schedules.
THE CASE STUDY
Mr. Adel Al-Sulaiman sat at his desk in the corporate offices of Al-Bahar & Jacorossi
Engineering Company, looking out the window. It was three months after Kuwait had been
liberated from the Iraqi soldiers, and although this had been great relief for his people, there were
still many obstacles to overcome. He was enjoying looking outside because the skies had begun to
clear. It had been a while since Kuwaitis could enjoy any clear sky due to the burning oil fields left
behind by Saddam Husseins soldiers. For the first few weeks, it was difficult to tolerate being
outside for very long due to the gases and smoke that filled their environment. With assistance from
all over the world, Kuwait was getting back on its feet much more quickly than anyone expected.
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64
Mr. Al-Sulaiman was the director of human resources for the Al-Bahar Company. The
Jacorossi Engineering Company had a separate director, although they generally worked together to
develop human resource policies. As he sat in his office, he began to contemplate the major
challenges that lie ahead. He thought about their employees, and the trauma of the last several
months they had endured. Most families lost everything of value that could be carried away by
Iraqi soldiers. They lost their automobiles, office equipment, computers, and family mementos.
Still, most Kuwaitis felt lucky if their family members were safe, although most knew those who
had disappeared or were killed during the invasion. Mr. Al-Sulaiman knew that they would need
extra moral support and assistance from the company.
Mr. Al-Sulaiman also knew that the returning Italian employees would have fears and
challenges as well. Many of the Italians also had lost important personal possessions. They had
been forced to leave the country right after the invasion, and they did not have time to take much
with them. They were apprehensive about the current security conditions of the country. Saddam
Hussein was still in power, and this was enough to create fear and anxiety.
Because of the high anxiety and the losses suffered by their employees, it was Mr. AlSulaimans job to create assistance programs to help their employees readjust to normal life.
However, no one in his country had ever faced this sort of situation. He worried about whether he
would be using the right approach. He worried that the company might not be doing enough. A
meeting was set up with the owners and the top management to introduce his ideas.
The company was very concerned about two issues. First, they were concerned about the
well-being of their employees. The company has a strong sense of community and loyalty to every
employee. Management understood the pain of loss, and they wanted to help in any way they
could. They also understood that the regular pressures of life, the demands of a job, and for the
Italian employees, living in a new culture was very stressful. Add the anxiety, fear and loss brought
by a hostile invasion, and this compounds problems of employees being able to do their jobs well.
The company wanted to find ways to help employees relieve some of their stress and feel more
secure in their environment again.
Mr. Sulaiman had three programs in mind to help with these problems. First, he would get
approval to have an assistance program for any employee who needed help with their financial and
housing needs. If the employee had lost their automobiles, their furniture, and other personal
belongings, there were several programs in Kuwait where people could receive financial assistance.
This assistance was particularly important for the Italian employees who did not have family and
community support systems. The company would submit the names of employees, list their needs,
and be the spokesperson for the employees to the outside agencies.
The company also wanted to help employees deal with the psychological problems they
might be facing. Again, the Kuwaiti employees had outside resources from their families and
religious affiliations, while the Italian employees would need extra support from the company.
However, the company still felt it was important for all employees to be able to communicate about
the invasion and their personal reactions. Mr. Al-Sulaiman suggested holding several company
meetings to address the issues of employees. First, they would discuss the kinds of problems that
were common in the situation, and then they would give information regarding sources of assistance
and the commitment of the company to provide support.
Finally, a program would be created that would help individual employees if they needed
extra counseling. Mr. Al-Sulaiman would personally contact and set this up with agencies in the
community that could help employees cope with their psychological problems. The costs of any
counseling would be paid for by the company.
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65
Teachers Notes are Available from the first Author

Discussion Questions
1. What kind of training could the Italians receive before coming to Kuwait that would help
them be better prepared for cultural differences?
2. What are the obligations of the company in this situation?
3. What more could the company do to support its employees?
4. Do you agree with Mr. Al-Sulaiman that management should not become too personally
involved with personal problems of employees? Why or why not?
5. The company created an Employee Assistance Program (EAP). What are the benefits of
this kind of program?
6. What are some other employee issues where an EPA might be appropriate?
7. Is the Al-Bahar/Jacorossi Engineering Company doing enough for the Italian employees?
Kuwaiti employees? Why or why not? Are there any other suggestions you could make.
References
Mathis R.L., & Jackson, J. H. (2006). Human resource management (11th ed.). Mason, OH:
Thomson Learning.
Kuwait Institute of Banking Studies (2007). Finance and economy related data about Kuwait and
GCC. Retrieved November 20, 2007, from http://www.kibs.edu.kw/eikgcc.html.
Kuwait Ministry of Planning. (1995). Kuwait, A country report. Kuwait City, Kuwait: Kuwaiti
Government Printing Office.
Kuwait Ministry of Planning. (1996). Kuwait and social development. Kuwait City, Kuwait:
Kuwaiti Government Printing Office.
United Nations, Dept. of Economic of Economic and Social Affairs. (2006, August). World
population prospects: ROM edition-comprehensive dataset. Retrieved February 28, 2007,
from http://unstats.un.org/unsd/demographic/products/dyb/default.htm
U.S. Central Intelligence Agency (2007, Nov. 15). The world fact book: Kuwait. Washington, DC:
US Government Printing Office. Retrieved November 27, 2007, from
https://www.cia.gov/library/publications/the-world-factbook/geos/ku.html
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PARRISH PHOTOGRAPHY PART 1: STRATEGIC ETHICAL

LEADERSHIP
Crystal Keys, Cameron University
Tina Vinson, Cameron University
Sarah Hay, Cameron University
Shawn Carraher, Cameron University
EXECUTIVE SUMMARY
Parrish Photography is a small business aimed at bringing a smile to face when they see their
beautiful family members captured during life changing events so that they can have a photo to
spark memories in the future. Their goal of superior customer service and satisfaction will take
dedication on the part of all staff members. The vision manifests itself in three ways:
1. Produce the same outstanding quality results time after time.
2. Be recognized as the top photographer in the Southwest.
3. Be steadfast to their commitment for customer service and satisfaction.
Today's environment presents the consumer with an array of choices. Parrish Photography
strives to be the best choice for the client. Providing high quality photographs and videos,
competitive pricing, and excellent customer service is their hallmark. Through consistent, highquality results they are committed to providing each client with value and satisfaction.
Parrish Photographys primary product focus is wedding photography, among their newer
product offerings; they recommend a treasured wedding video to remind you of all the joy and
anticipation you've experienced. They'll be there for all the important moments, always ready to
capture a special smile and a loving embrace, but never interfering with your fun and good
times. Their job is to help you create the most beautiful day of your life, and then give you
treasured images to keep it forever!
However, weddings are not their only medium; they also photograph several athletic teams in
which they offer trading cards, magazine covers, key chains, buttons and refrigerator magnets,
and even a video tape of your most important games. Family portraits remind us of the most
important people in our lives. Parrish Photography will also capture the family memories you
will always treasure, to tell the story of your family in pictures. Senior portraits, Prom, and
graduation photos are also treasured memories in the life of an adolescent. These Activities will
also be captured.
Lawton/ Fort Sill is the home of the United States field artillery. They have high hopes in
attempting to be the photography studio given the chance to capture the joyous demobilizing
ceremonies, as well as the mobilizing of our brave soldiers. Ft. Sill is one of the largest basic
training facilities in the United States. We propose that Parrish Photography attempt to attend
graduation ceremonies to capture the memories. Military promotions and leadership training
ceremonies are also of the highest priority to their staff.
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The finely honed skills and professional techniques of Parrish Photography, combined with the
best tools available, ensure that image quality is consistent, timely and reliable. However, their
photography goes beyond technical expertise, also involving a creative vision which gives style
to their photographs and videos to make your images sparkle with a unique brilliance.
Parrish Photography has captured memories of many anxious brides on their special days. They
have a large clientele basis and Word-of- Mouth is their #1 Marketing Strategy. They have
testimonials of many satisfied clients as well as a portfolio that is magnificent.
The internet can surpass television and radio for the potential to be seen by the greatest number
of eyes. Additionally, it can be used to target specific individuals (i.e. Brides). It can also be
the least expensive way to capture those eyes. The hitch is, Web pages are everywhere, and
where their site "ranks" in the noise can either make Parrish Photography a smashing success,
or a huge waste of time and money. Parrish Photography intends to offer e-commerce
capabilities; they must proceed with caution and stealth in order to select an enduring strategy
that will complement their existing distribution channels. They are currently in the process of
setting up an online ordering area accessible by military couples and their families who, due to
relocation would otherwise be unable to have family and friends present at the event. Here they can
order reprints of photos from around the world as well as offering a chance for families unable to
attend the event to view the photos immediately.
A. BUSINESS INFORMATION
Parrish Photography is currently located at 130 Lions Cove in Walters, Oklahoma. They have a
staff of two, with plans to expand to a full-time operation within the next five years. The
company is established as a home-operated, part-time sole proprietorship. It is the intention of
the company to develop sales and broaden the client base so as to become a full-time business.
The company will offer a full range of custom packages. The owner serves as the head
photographer, and will require at least one assistant. Because Parrish Photography is a homebased business, overhead is low. Salary for the owner will be withdrawn from the year-end funds
once the business is established and profitable.
B. OBJECTIVES OF THE FIRM
Parrish Photography is a small business aimed at bringing a smile to every face when they see
their beautiful family members captured during life changing events so that they can have a
photo to spark memories in the future. Their goal of superior customer service and satisfaction
will take dedication on the part of all staff members. The vision manifests itself in three ways:
1. Produce the same outstanding quality results time after time.
2. Be recognized as the top photographer in the Southwest.
3. Be steadfast to their commitment for customer service and satisfaction.
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69
Parrish Photography strives to be the best choice for the client. Providing high quality
photographs and videos, competitive pricing, the latest technology, and excellent customer
service is their hallmark. Through consistent, high-quality results they are committed to
providing each client with value and satisfaction.
KEYS TO SUCCESS
The key to success at Parrish Photography includes their commitment to quality and customer
satisfaction. They will be responsible for ensuring a high degree of professionalism in three
areas:
1. Consistent fulfillment of the clients expectations.
2. Competitive pricing for the quality and array of services offered.
3. A fair and reasonable profit on services.
MISSION
Parrish Photography makes every effort to treat each client with respect, understanding, and
professionalism while building an excellent rapport. Remaining competitive in the market place
by continually examining procedures and costs is their goal. Thus, by consistent, high-quality
results they are committed to providing each client with value and satisfaction. Clientele get to
select poses that they wish to see in their albums in order to ensure that they are not disappointed
in the array of poses presented. This guarantees customer satisfaction upon delivery.
SERVICES OFFERED
WEDDINGS
The pose options they offer are listed in a form that is given to the couple prior to the wedding.
Choices are as follows:
_ Bride in dress
_ Bride with mother
_ Bride with father
_ Bride with both parents
_ Bride with honor attendant
_ Bride with maids
_ Bride touching up make-up, hair
_ Guests outside church
_ Bride, father getting out of car
_ Bride, father going into church
_ Ushers escorting guests
_ Groom's parents being seated
_ Bride's mother being seated
_ Soloist and organist
_ Groom and groomsmen at alter
_ Giving-away ceremony
_ Alter or canopy during ceremony
_ Bride at gift table

_ Everyone getting flowers
_ Bride leaving house
_ Bride, father getting in car
_ Groom alone
_ Groom with best man
_ Groomsmen getting boutonnieres
_ Maid or matron of honor
_ Flower girl and ring bearer
_ Bride and father
_ Groom meeting bride
_ The kiss
_ Bride and groom coming up aisle
_ Bride and groom on church steps
_ Bride alone in the chapel
_ Bride and groom among guests
_ Bride and groom getting in car
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70
_ Bride and Groom exchanging vows

_ Ring ceremony
_ Rear of car speeding off
_ Bride, groom talking to guests
_ Passing the guest book
_ The cake table
_ Bridesmaids coming down aisle
_ Bridesmaids looking at bride's ring
_ Bride's and groom's hands
_ Bride and groom together
_ Bride with parents
_ Groom with parents
_ Bride and groom with children
_ Bride and groom arriving
_ Bride and groom getting out of car
_ Bride and groom going into reception
_ The receiving line
_ Buffet table
_ Bride, groom at bride's table
_ Bride and groom in back seat of car

_ The musicians
_ The cake table
_ Table shots
_ Outside grounds (wedding party)
_ Other reception fun
_Wedding party decorating car
_ Bride with her attendants
_ Groom with his attendants
_ Bride, groom, all the wedding party
_ Bride, groom, all the parents
_ Other people with bride, groom
_Guests throwing rice
_ Bride, groom cutting the cake
_ Bride, groom feeding each other cake
_ Bride, groom toasting
_ Throwing and catching bouquet
_ Groom taking off bride's garter
_ Throwing, catching garter
Their current prices are as follows:

Wedding Packages
BASIC
STANDARD
STANDARD PLUS
30 color 4x6 in album

2 matching books
(extra optional photos may be purchased at
$8.00 each)
Includes 2 hours of photography time
65 color 4x6's in album
2 matching books
65 5x7's in album
2 matching books
(extra optional photos may be purchased for
$6.00 each)
$299
$499
$399
$589
$559
$799

DELUXE
DELUXE PLUS

2 matching books
2 matching books
$469
$739
$699
$999
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71
(extra optional photos may be purchased for

$4.00 each)
ROYALTY DELUXE
50- 8x10's and 40 4x6's in deluxe album

EXTRAS
Black and white photos shot during the wedding or posed 12 - 4x6's for
Wedding Negatives may be purchased for
Reprints (ordered after the wedding book is delivered):
4 wallets $10 (same neg)
4x6...$5
8x10...$16
16x20...$55
24 wallets $35 (same neg)
5x7...$8 11x14...$25
11x14 on canvas
$85
$999
$60
$125
Additional photography time is $40 per hour

Video of Wedding: -$130 per video - includes two views (one from the front
of the church and one from the back of the church)
Reception is covered on one of the videos as well as by photography.
SCHOOL EVENTS
Todays soccer moms and PTA members have a strong interest in their children and want to
have the best photographs out there. Bragging rights of people wanting to have the best of
everything for their children so that they can show and tell others, causes them to be very
popular at sporting events, proms, graduations, recitals, concerts, and many other educational
milestones.
Parrish Photography even encompasses the senior portrait market. They prefer to do the photo
shoot at the clients chosen location, so as to capture their personality in a familiar setting.
This causes the subject to be more relaxed and happy looking in their photos. Rather than a
posed setting, they also allow subjects to be themselves and the photographer will produce art
pieces that can be framed and showcased for decades while capturing their natural activities.
Prom Packages
A
8 x 10
5x7
3x5
wallets
12
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72
5 x 7 cut out with stand
refrigerator magnet
5 x 7 group photo
Cost
$11
$15
$20
$25
$35
5 x 7 of team
3x5 of player
12
Trading Cards
12
24
48
Refrigerator magnet
Photo button
magazine cover
5x7 cutout of player w/ stand
photo plaque holds 5 x 7

team
Cost
$10
$20
$25
$55
$99
Sports Pricing
ets
Extras:
8x10 composite (3x5 of player 5x7 of team on one sheet)
8x10 cut out of player w/ stand
12 trading cards
5x7 of player.
8x10 of player
8x10 of team
Thank you plaque for coach includes 5x7 team photo
$17
$22
$18
$6
$10
$10
$18
Senior Portrait Pricing

2 hours with Master Photographer
Indoor and outdoor shots
Bring up to 4 outfits
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73
Free black & white or sepia

Free "hand coloring"
100 pose session
Senior Package Specials:

A
16x20 Custom Print
11x14 Custom Print
12
12 in album
12 in album
12 in album
Portrait 4
4x6
Premium
Portrait 8
8x10 Premium Portrait

5x7
Premium
Wallet (24 min./negative)1
48
(2
poses)
48
(2
poses)
72
(3 poses)
72
(3 poses)
72
(3 poses)
Cost
$55
$85
$120
$150
$185
Additional Wallets
300 for $100 -
200 for $75 -
100 for $50 -
48 for $30 -
24 for $22 -
12 for $16
PROPS & BACKDROPS
They have 30 unique backdrops, including:

Indoor sets
an American flag
a beach scene at sunset
a water fall scene
many abstract colored backgrounds
for props, they have:
a cape
a top hat
a cowboy hat
a saddle
Outdoor Sets
A leaf covered trellis
Barn wood backdrops
A forest Scene
A brick wall scene
Large numbers
Wooden Fence
White Pillars
Tux Jacket and Cummerbund
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74
replica guns and rifles

a holster
stained glass window
all kinds of sports props
lanterns
feather boas
glamour jewelry
a full sized vanity mirror
Hay bales
SWOT ANALYSIS
This section outlines the strengths and weaknesses as well as the opportunity and threats facing
Parrish Photography
Strengths
27 years experience
Latest Technology and new equipment
Location flexibility
E-commerce capabilities
Instant viewing of proofs
Reputation as reliable and stable business.
Weaknesses
Employee Flexibility
Competition
Opportunities
The improving economy is an opportunity for Parrish Photography. Potential clients

from their target market should have an increase in disposable income and be more
willing and able to pay for these services.
Military events
Threats
There is a concern about the large number of competitors in the Southwest Oklahoma
area.
Digital cameras and at home computer editing are also gaining popularity in
photography which may replace their services to some potential clients.
MARKETING ANALYSIS
Our primary focus is wedding photography however in the future we intend to market to other
segments as well. That would include the sports, military, and school functions.
According to the U.S. Census Bureau,
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75
Each year an average of 2.4 million weddings are performed in the U.S.
88 percent of Americans marry at least once in their lifetime.
One-third of those getting married have been married previously.
Their target market would be made up of any couple getting married. There are several different
age segments that could benefit from the services of Parrish Photography. The marketing
penetration number and goal for the first year is 100 weddings. This is double what the company
has achieved in the past year.
Marketing costs
The marketing costs have been broken down as follows (per year).
Method
Website
Brochures
Posters
Business card
Yellow pages
Quantity
250
100 color
20,000, glossy finish
Small ad
Cost
$2000
$1000
$145
$1800
$300
Discussion
These statistics show that there is a market in the wedding photography business and it is
growing steadily. Possible marketing avenues should be explored in the area and online. They
include businesses that sell to the bride (not just for her wedding) and network with them. They
could include:
Furniture stores
Hotels
Party-Planners
Wedding Chappels
Travel agents
Make-up artists and hair stylists
Jewelers
Realtors
Insurance agents
Develop relationships with a reputable individual in each category by referring your customers to
them. They will in return refer customers to you and it won't cost Parrish Photography any
advertising or commissions.
The business card is the most basic promotional tool that a photography business looking for
work close to home can use. Parrish Photography should hand these out at every wedding (and
party or reunion) that they shoot. They also would benefit from mailing them out to brides-to-be,
when their wedding announcements are posted in the paper. Arrangements should be made to
leave some of them with others in the wedding field: some of the florists, caterers, and
dressmakers in your area... and Parrish Photography will hand out some of their cards in return.
_____________________________________________________________________________________________
76
People today receive wedding invitation from friends and relatives and experience the wedding
gift dilemma. What can they send to that person as a gift? Current couples may no longer
require household items on their registry because they have been housekeeping for many years.
This is where the wedding photo gift registry should be marketed! The wedding photo gift
registry allows bridal guests to purchase wedding images and books for the wedding couple. This
is a gift that will not be returned! We propose that Parrish Photography market the wedding
photo gift registry via the internet and by mailing registry post cards to the bride to hand out.
At the wedding reception, a data sheet should be placed on each table, for persons to fill out
their email information so as to see the wedding photos of the couple in the next week. Persons
listed on the data sheet include parents, siblings, wedding party members, friends and
grandparents. Participants will be sent an email with a password to view the photos over our
website and then they are directed to review them online. This will allow more orders and
recognition of the company name.
COMPETITIVE ANALYSIS
Our competition consists of the following studios
Bluncks
Lighthouse Studios
Photography by Fran
At the Buzzer
Steve Miller Photography
Olan Mills
Sears Portrait Studio
Brammer Photography
Cooks Studios
Photography by Judy
Tims Photography
Wal-Mart Photo Studio
FINANCIAL ANALYSIS
This is a home-based business, with no rent or lease commitment. Funding is provided from the
founders savings. The founder intends to keep the personal touch in the business and keep
overhead to a minimum, even as the business begins to grow. The founder owns the home he
operates out of and has a spotless credit rating.
Start-up Funding
Website outsourcing
$2,000
Legal
$700
Stationery (business cards and posters)
$1,250
Brochures
$1,000
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77
Insurance
Yellow pages
New Hire Salary for 4 part-time
employees
Computer and Internet Access
2 Cell Phones
Total Funding Required
Assets
Non-cash Assets from Start-up
Savings Account Balance
Home/Studio Owner
Total Assets
$1,000
$300
$35,000
$600
$200
$42,050
$325,000
$80,000
$20,000
$425,000
Liabilities and Capital

Liabilities
Total Liabilities
$0
$0
Parrish Photography is operated as a sole proprietorship. Salary for the owner is withdrawn from
the year-end funds. Taxes are paid via the personal income tax return of the owner, as personal
income tax rates are lower than the corporate tax rate.
As this is currently a part-time business, disability, health, and life insurance are already in place
through the owner's primary place of employment. As this expands to a full-time business, the
benefits coverage shall continue as part of the owner's retirement benefits. As the business
expands, the issue of benefits will be re-evaluated based on the needs of the employees added to
the organization.
Insurance
The types of Insurance cover required by the studio are as follows:
o Public Indemnity, which is a legal requirement and will cover the companys liability to
clients in case of any injuries caused whilst on the premises.
o Shopkeepers policy, which will cover the premises in case of damage to fixtures and
fittings, equipment, stock by fire, flood and theft etc.
o Professional Indemnity. As the area of company is where the end product is based on
expert advice, this insurance policy will cover the photographer against claims from
clients for damages caused by negligence or misconduct.
Legislation
The legal requirements for the studio to adopt are as follows:
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78
o The Sale of Goods Act (1994) imposes that Parrish Photography will have the right to
sell the goods of which are satisfactory quality and fit for the buyers purpose.
o The Consumer Protection Act (1987), which outlines that it, is an offence to sell goods,
which are unsafe. As a consequence gives the client the right to sue for any damages,
which the product may have caused. The act also has the power over the pricing of
products.
o The Consumer Safety Act (1978) will protect the client against unsafe/faulty products
used or sold in the studio.
o COSSH (1988) Control of Substances Hazardous to Health. Parrish Photography will
assess the risk of hazardous substances used in the studio such as hydrogen peroxide,
spirits and cleaners.
o The Data Protection Act, Parrish Photography will abide by the act by keeping client
details private and confidential.
o Health and Safety (First aid) Regulations (1981), Parrish Photography will provide a
reasonable standard of health and safety not only for the photographer but also for
visiting clients and also the general public who may be affected by the company.
Copyright of all photographs taken by Parrish Photography is retained unless the rights are sold.
Discussion
The up-front investments allow Parrish Photography to function with limited debt and overhead.
This has given the business a quicker break-even point and increased profit margins from the
start. As Parrish Photography grows, a debt-free philosophy will be maintained. This allows
Parrish Photography greater flexibility in keeping prices low compared to competitors.
The nice thing about using personal savings is the easy access to it. There are no applications, no
presentations to lenders, and no paperwork. By having their own start-up capital ensures that
they retain control of the business. However this plan is ideal. The photographer has not
prepared himself for a legal liability situation. A contract protecting the organization is signed
by clients prior to the event.
Total Cost of Sales
FY 2007
$152,841
FY 2008
$212,620
FY 2009
$237,358
Gross Margin
Gross Margin %
$32,814
62.10%
$78,608
69.80%
$97,798
71.20%
Expenses
Payroll
Marketing
Rent
Utilities
insurance
$0
$19,450
$30,000
$2,580
$3,620
$4,210
$0
$0
$0
$2,400
$2,400
$2,400
$1,100
$1,100
$1,100
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79
Payroll Taxes
Phone
Technical Repairs
Total Operating Expenses
Profit Before Interest
Taxes
EBITDA
Interest Expense
Taxes Incurred
Net Profit
Net Profit/Sales
$12,400
$920
$300
-----------$19,700
$12,400
$920
$300
-----------$40,190
$12,400
$920
$300
-----------$51,330
$13,114
$13,114
$80
$4,000
$38,418
$38,418
$82
$4,280
$46,468
$46,468
$87
$4,360
$37,621
29.40%
$79,920
34.50%
$104,256
31.62%
and
PERSONEL ANALYSIS
Analysis
The greatest challenge in 2007 will be to achieve enhanced flexibility. Parrish Photography is a
family based business in which all of its employees are employed full-time at other
establishments and they schedule photography work around business hours. So most of their
business takes place after 5 p.m. and on weekends.
Discussion
Hiring outside help can reduce stress placed on the photographer. The duties and job description
for these people would include:
o
o
o
o
o
o
o
General reception duties, including phones, mail, and greeting customers.

Setting appointments and managing appointment calendar.
Tracking inventory and supplies.
Billing, handling both accounts receivable and accounts payable.
Assist photographer in portrait sessions.
Assist with marketing strategies and plans.
Booking travel arrangements
This assistance will alleviate some of the problems customers have when trying to contact
Parrish Photography during normal business hours. Applications are currently being reviewed for
the position of photographer/ videographer.
SALES FORCAST
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80
A sales forecast can be used to predict the level of sales expected over a period. An example of a
sales forecast for Parrish Photography has been prepared and calculated to show the expected
sales.
Parrish Photography will have the drive to grow at a rapid pace to keep up with demand. They
wish to maintain a steady rate of sales growth; however, they understand that sales will vary each
month. As you can see from the table below, there will be a rapid increase during the wedding
seasons (march-august). There is also a rapid increase in the month of December as well as the
months of April- July which is when the playoffs for sports season occur, as well as graduation
and prom season.
Wedding Sales Forcast

30
25
20
15
10
5
0
Janu Febru Marc April May June July Augu Sepe Octo Nove Dece
Series 1
School Event Sales Forcast

45
40
35
30
25
20
15
10
5
0
Janu Febr Marc April May June July AuguSepe Octo Nove Dece
Series 1
CONCLUSION
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81
Parrish Photography is anxious in expanding into the digital processing, video and online
services. By following these simple goals, they plan on increasing profits by at least 10% by
2009. The owner plans to entertain the possibility of selling his establishment for profit within 3
to 5 years to another entrepreneur or to a competitor. This exit strategy will allow the owner to
enjoy his retirement.Worry Free.
1. If valuing a business like this one how would you go about estimating its value?
2. What type of P/E should be used when buying or selling a business such as this
one?
3. What type of strategy should the owner use to prepare for a possible transition of
the business to the next generation?
4. How could a business like this one continue to expand?
5. To what size should a business like this one grow?
6. What type of ethical issues do you see in a business like this one?
7. How can Mr. Parrish develop his own leadership potential and that of the next
generation of owners of the business?
8. What type of leadership styles might be appropriate in a business such as this
one?
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82
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83
THE HIT AND RUN EXPATRIATE EMPLOYEES

Ibrahim Al-Fahim, Al-Fahim General Trading Company

ABSTRACT
This case describes an expatriate employee in Saudi Arabia. It requires students to

consider relevant issues in determining an appropriate managerial response. These issues
include: government policy regarding compliance with the law, expatriates, employee
commitment and job satisfaction, employer and employee rights and responsibilities, and
personal relationships between companies.
Salam Wholesalers is a trading company that handles consumer personal goods, such as
sunglasses, cosmetics, colognes, and various sundries. Saudi Arabian law dictates that when an
expatriate leaves a firm for any reason, the person cannot work for another firm unless they have
written permission from their former employer. The person is prohibited from working for
another Saudi Arabian firm for three years. It is permissible to resign and return to their home
country. Two salesmen, Badr and Jalil, got a better job offer and they decided to leave Salam
Wholesalers. These two employees were from Egypt. They did not tell the government they
were changing employment nor did they request written permission.
Subsequently, their former general manager, Mr. Hadad, found out that they were
working for a competitor. They had defrauded Salam Wholesalers, and broke Saudi Arabian
law. Therefore, they would be sent back to Egypt. Mr. Kamal, the owner of Zag Company,
enjoyed a good relationship with the owner of Salam Wholesalers. This was despite the fact that
they were direct competitors. After the Zag Company found out that Mr. Hadad took action
against former employees, Mr. Kamal called Mr. Hashim. He asked him to give them written
permission to work for their company. They were excellent salesmen and Mr. Kamal did not
want to lose them.
Salam Wholesalers has invested a great deal of time and money to train the salesmen. In
addition, they had incurred relocation expenses as well as other expenses. Salam Wholesalers
had trained them well by providing them with on-the-job training and experience. Within six
months from their point-of-hire, Badr and Jalil found a better opportunity and left. It is
important to understand that Saudi Arabian companies traditionally do not pay expatriate
employees as well as natural born citizens. Oftentimes, once expatriate employees acquire onthe-job experience, they want to change jobs because they can earn more money at another firm.
When the Zag Company found out that Mr. Hadad, the general manager, had taken legal
action and informed the government, Mr. Kamal tried to convince Mr. Hashim to reverse the
actions of his general manager. The owner of Salam Wholesalers felt he needed to support his
general manager. He did not want these two expatriate employees to break the law and have
other employees see that they could get away with it. Mr. Hashim had a major dilemma to solve.
Note: Fictional names have been used in this case.
Teachers note available from the first author.
_____________________________________________________________________________________________
84
1. How would Mr. Hadads commitment and job satisfaction level be effected if the owner
reverses Mr. Hadads actions?
2. How would job satisfaction be effected if the owner of Salam Wholesalers complies with
the wishes of the owner of the Zag Company?
3. What factors might effect the commitment level of these two employees?
4. What could the Saudi Arabian government do to try to prevent expatriate employees from
wanting to leave the company that originally hires them? Is there anything the firm could
do?
5. Do you think the Saudi Arabian three-year law is fair?
_____________________________________________________________________________________________
85
A REAL CASE: BADRIYA'S SHORT CAREER IN SAUDI ARABIA

Mohammed Al-Boluhad, Eastern Washington University
ABSTRACT
This case describes a hiring decision based on gender in Saudi Arabia. It requires students
to consider relevant issues in determining an appropriate managerial response. These issues
include: government policies, legal compliance, gender issues, employee commitment and job
satisfaction, employer and employee rights and responsibilities, and tradition, religion, and culture.
Badriya Al-Khaleed was a young woman from Saudi Arabia when she came to America.
She was married, and her husband was working at the Saudi Arabian Embassy in Washington, D.C.
At the time, they had no children. She was accepted for admission to Georgetown University's
Computer Science program. She first took a year of intense English language courses. After a year
of these courses, she began attending Georgetown. Her husband was very supportive. She was
highly successful in her course work, and enjoyed working with the high technology systems
available in the United States.
Badriya graduated with honors in 1985 with her undergraduate degree and completed a
masters degree in Computer Science in 1987. Badriya's chosen area of study was quite unusual for
a woman from Saudi Arabia. The traditional areas of study for women are literature and the social
sciences. Majors in psychology or the medical professions are also common. The university
system is also very different in Saudi Arabia. The only university where men and women can
attend together is at King Saud Medical University. The rest of the universities are separated by
gender and offer mostly traditional programs. While education is highly regarded for men and
women, women are usually not encouraged to go beyond a bachelors degree. Not surprisingly,
when Badriya came to America, she experienced culture shock by attending classes with men and
participating fully. She also learned that employment opportunities that are available for women in
the United States as compared to Saudi Arabia were measurably different.
In 1990, Badriya and her husband returned to Saudi Arabia. Her husband worked for the
government. Badriya wanted to find a good job to utilize her skills and education. She was
immediately hired by King Saud University to teach computer programming. She did not really
like teaching. She wanted to work for a company as a computer analyst, programmer, or
consultant.
After teaching for a few years, she read about a job opening at a petrochemical company as
a computer analyst and program designer. She applied for the job. However, Saudi Arabian law
forbids women to work for public companies. She thought there a high probability that she would
not get the job, but she applied anyway. She was hoping that they might make an exception because
of her extraordinary qualifications. She wanted to make a significant contribution to this company's
success. She was told she was by far the most qualified applicant, but the company hired a man
anyway.
Badriya was upset and frustrated. She wrote a letter to the editor of the largest newspaper.
She asked the government to make its regulations more flexible and wanted to know why the
government would not allow women with such education and experience to work and contribute to
the country. No reply appeared in print.
_____________________________________________________________________________________________
86
She still is at King Saud University, where she now is the Chair of Computer Science
Department. She has gained managerial experience in addition to her technical skills and education.
Yet, she continues to be overlooked simply because she is a woman.
Background
The Religion of Islam:
"Al-Qur'an, the revealed book of Islam, declares that man and
woman proceed from the same stock, they are the members of the
same species, they are born of the same parents. Man and woman
are spouses of each other, companions and helpmates. Besides
restoring her human dignity, Islam bestowed on the woman
innumerable rights in every field of human life." (Ashraf, xii)
Ibn Hazm said, "Woman is entitled to possess houses, gardens and estates, engage in business,
guarantee other parties; give away whole or part of her dower to whom she wants without objection
from the part of her father or husband" (Bahnassawi, 17). Muslim women are not obliged to
change their names to their husbands after marriage. A womans obedience is not to a man but to
Allah and the Prophet.
Islam grants both men and women equal rights to refute the legitimacy and constitutionality
of laws, regulations and orders. Islam gives women the right to assent in marriage. No marriage is
considered valid if the woman does not give her consent.
Islam grants women equality. Women stand at par with men on almost every plane of
similarity: spiritual, moral and intellectual. In true Islam, "Muslim women are equal to men in all
aspects of Islam except in one: As mothers, women are superior to men by as much as a ratio of
three to one" (Siddique, 135). In Faith, spirituality, prayer, fasting, zakat, hajj, or jihad women are
the equals of men.
Muslim women are encouraged to acquire education and knowledge; and be
courageous in objecting to men's opinions if they are incorrect. The Prophet Mohammed said, "The
acquisition of knowledge is incumbent upon ever Muslim man and every Muslim woman."
Because Islam makes no differentiation between either of the two sexes, it considers them both
intellectually equal. "Women are the twin-halves of men" (Bahnassawi, 62).
In general, these are some of the rights given to women through the Islamic religion.
However, this does not mean that Islamic women always enjoy these rights. Part of the problem
arises in Muslim families where there is no distinction is made between actual Islamic principles
and how they are implemented. Additionally, many tribal legacies have been included in family
cultures that do not reflect Islamic beliefs. Muslim men today often ignore the fact that the Islamic
religion grants women equal rights and independent identities.
1.
How will Badriya's job satisfaction and commitment be effected by not getting the private
sector job and having to continue to teach?
2.
Could the administrators at King Saud University do anything in the workplace to improve
Badriya's job satisfaction and commitment?
3.
What factors might effect the company's decision in this case?
4.
What could the Saudi Arabian government do to try to improve their regulations regarding
employment of women?
5.
Do you think the Saudi Arabian employment laws are fair?
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87
AN EXAMINATION OF THE RELIABILITY OF A MEASURE OF

PORTERS FIVE FACTORS MODEL AMONG BUSINESS LEADERS
Charmaine Carpenter, TUI University
Shawn M. Carraher, Cameron University
ABSTRACT
In the current study we examine the test-retest reliability of a scale purported to measure
Porters Five Factors model. Thirty-four small business owners who were familiar with Porters
model were surveyed and then surveyed again one month later. It was found that the scales
possessed acceptable levels of reliability over the period of one month. Suggestions for future
research are provided.
The U.S. Small Business Administration estimates that 99.7 percent of all employers in
the United States are from small businesses and that they generate between 60 and 80 percent of
all new jobs each year. However, it also estimates that only half of all small businesses last
beyond the four-year mark (SBA Website, n/d). Very little research has been performed on the
strategic practices of small businesses beyond the initial business plan required by certain
institutions for obtaining funds to secure the small business operation (Davis, Hills & LaForge,
1985; Dilts & Prough, 1989). The preponderance of research focuses primarily on larger
corporations. Small businesses may be largely ignored in light of the large corporate entities
principally because their visibility is not as pronounced to researchers, or their life cycle is not
well documented or publicized (Cameron, Kim & Whetton, 1987).
Porters 5-Forces model, incorporating a comprehensive industry stakeholder analysis
(Porter, 1979; 1991), is a well-known method commonly used in larger organizations to
determine the strategic standing of a company. What leads to success can be inherently related
to strategic planning and goals, whether formally realized or not (Thomas, Clark & Gioia, 1993).
Studies have been performed that have confirmed the planning-growth correlation when a
formalized strategic plan is utilized (Miller & Cardinal, 1994). Formalization is a key indicator,
where the extent to which an analysis is performed affects the overall success of the
implemented strategy based on that analysis (Lyles, Baird, Orris, & Kuratko, 1993).
Michael Hay and Kimya Kamshad (1994) performed an empirical study to find out what
factors prompt growth in small businesses in the United Kingdom. They found that most
managers that had a stake in the firm (as owners or part owners) were firmly entrenched in
running that firm. It was found to be part of their identity as well as their future. Several
strategies were identified in the study as facilitating successful operations. These included
product diversity, venturing into the global marketplace, investing in research and development,
and building assets through the purchase of other businesses. These types of strategies cannot be
implemented without some type of strategic planning process, whether formalized or not.
When analyzing small businesses, the reasons for failure are usually abstract and
pragmatically assumed due to the lack of formal studies on the small business sector, however
most assumptions can be broadly identified. Some of the more notable reasons are a failure to
properly market, not having adequate capital on hand (Headd, 2003), failing to grow (Watson &
Everett, 1996), weak long-term business planning or leadership (Teece, Pisano & Shuen, 1997),
failure to utilize information technology mediums, and an unwillingness to change (Carlson,
2005). There is also the preponderance of sunk costs, which are more difficult to overcome for
_____________________________________________________________________________________________
88
small businesses in their infancy. Sunk costs are those an entrant invests in that are irreversible,
or unrecoverable (Dean, Brown and Bamford, 1998). All can arguably be traced to a lack of
successful strategic planning based on a business unique environment. It should be noted that
this study assumes that smaller organizations are in business to survive and grow with the
ultimate goal of being successful.
Porters Five-Forces Model (Porter, 1999) is widely utilized in examining strategic issues among
large and small businesses alike however we have failed to find a reliable and valid scale
purporting to measure the Five Forces. It is therefore the purpose of the present study to present
a reliable measure of the Five Forces.
METHODOLOGY
Sample
Thirty-four American small business owners were surveyed twice. All 34 were already familiar
with Porters Five Forces model and had completed tactical training related to the start-up of a
business.
Instrument
Based upon a comprehensive examination of papers on Porters Five Forces model we were able
to glean 50 items which purport to measure the Five Forces. The sizes of the scales ranged from
the Substitute Products which contained 6 items to the Buyer Threat Analysis scale which
contains 15 items. The one-month test retest reliability coefficients ranged from .8 (Substitute
Products) to .92 (Buyer Threat Analysis).
CONCLUSION
In this brief research report we examined the reliability of a new measure designed to
measure Porters Five Forces model. While we found that it has acceptable levels of stability in
a stable environment with knowledgeable respondents, the construct and criterion related
validities of the scale should also be examined. With 34 responses we do not have the stability
of results necessary to examine these issues so we would like to see them examined in future
research.
REFERENCES
Cameron, K. S., Kim, M. U., & Whetton, D. A. (1987). Organizational effects of decline and
turbulence. Administrative Science Quarterly, 32(2), pp. 222.
Carlson, W. (2005). Knowledge is power, power is money. Greenhouse Grower, 23(6).
Davis, C. D., Hills, G. E., & LaForge, R. W. (1985). The marketing/small enterprise
paradox: A research agenda. International Small BusinessJoural, 3, pp. 31.
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Appendix
Five Forces Model Questionnaire
Rate the following on a scale of 1-5, 1 being low and 5 being high
New Entrants Threat Analysis: (10 items)
New entrants will have difficulty entering this industry
The geographic location and economy are too small to support new entrants
The new entrants product is similar to my own but not the same
The new entrants brand is well known to consumers
The new entrants pricing is competitive enough for consumers to switch to it
The capital requirements are too great for a new entrant to successfully enter the industry
The new entrant has access to capital to support their business needs
The new entrant product is more cost effective than mine
Local government policies are beneficial towards new entrants
I expect new entrants to pose a serious threat to my business overall
Supplier Threat Analysis: (8 items)
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I have a diverse supply network so that I will never run out of stock
It doesnt cost me extra to change suppliers at will
My products are easily substitutable with other like products without consumers noticing
My suppliers are tuned to my needs and depend on my orders
My suppliers charge considerably less for volume buys that I cant utilize
I pay less than others for supplies in my industry
The price of my supplies affects how I price my items a great deal
My supplies dont become obsolete over time, forcing changes to product inventory
Substitute Product Threat Analysis: (6 items)
Substitute products do very well in my industry
Substitute products easily match my own except for brand
Consumers are just as likely to buy substitutes as to purchase my brand
Substitute products do not differ significantly from those that I sell
Substitute products are similar to those that I sell.
There are many substitutes for the brands that I sell.
Buyer Threat Analysis: (15 items)
Consumers are willing to pay more for my products
Consumers want my product above others in the same industry
Consumers regularly purchase in volume from me
If I change my product, consumers might go elsewhere to get it
I cater to a specific type of consumer
I can supply items I used to sell but dont anymore at the consumers request
Consumers can purchase similar products to mine elsewhere
I dont often run out of high-demand products and consumers know this
My consumers are sensitive about pricing for products in my industry
I charge consumers less in overall purchase totals within my industry
My products are different than others in my industry
My products have brand identity
Consumer purchasing has an effect on pricing and/or performance in my industry
My prices are relative to consumer income in my location
I offer incentives to consumers to maintain patronage
Rival Threat Analysis: (11 items)
My industry is growing rapidly
Rivals can offer fixed costs and value due to greater storage capability
Rivals have intermittent overcapacity, causing lower demand for some products I carry
Rival products are similar to my own
Rivals offer a product with brand identity
Consumers are just as likely to shop my rival as myself
My rivals have a balance of supplies vs. pricing that I dont have
My rivals have a better marketing push than I do
I have rivals from more than one industry
My rivals have more established organizations than I do and are larger/more ingrained
I would have a difficult time establishing a new product line
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GLOBAL ENTREPRENEURIAL STRATEGY: A PRIMER

John A. Parnell, University of North Carolina at Pembroke
Given moves toward democratization throughout the world during the last
decade, the topic of global entrepreneurial strategy has become more important than
ever. Entrepreneurial opportunities occur when new products or services can satisfy the
needs of a particular market. In its simplest firm, entrepreneurship involves identifying
these opportunities and mobilizing to pursue them. Many executives and scholars agree
that the prevalence of such opportunities outside of a firms host country is more
prevalent today than ever.
The process of entrepreneurship is often associated with small business activity.
It also occurs within large firms, however, a process known as corporate
entrepreneurship, or intrapreneurship. Successful entrepreneurship in any size
organization requires both intellectual capital and an entrepreneurial mindset. While it
can be difficult to develop the latter in large firms, the existence of intellectual capital in
many large firms can serve as a key advantage for them relative to their smaller
counterparts. Hence, entrepreneurial activity is a salient issue for all firms, regardless of
size.
The international environment offers a number of applications to strategic management in
entrepreneurial firms. i Historically, the reasons for moving toward globalization are clear. The
majority of the worlds technological advances are no longer introduced in the United States.
Many of these developments come developed nations such as Japan and countries within the
European Economic Union. Further, this growth has extended to developing nations that now
account for approximately one-half of the worlds output.
Strategic planning, however, is much more complex in global environments for several
reasons. The external environment can vary substantially from one nation to another.
Competition can be intense and control of the enterprise quite difficult when operations are
geographically dispersed.
Culture is a key consideration and has been posited as one of the key determinants of
differences in the level of entrepreneurial activity across nations. Nonetheless, clear and linear
links between cultural attributes and entrepreneurial activity are often difficult to identify. For
example, countries whose firms are more likely to be entrepreneurial tend to have moderately
high levels of individualism. However, extremely high individualism can actually hinder the
development of teamwork, a key ingredient in the entrepreneurship process. ii Hence, these
relationships are not always easy to identify.
Following a commentary of theoretical perspectives, the remainder of this chapter
examines how globalization affects each broad step of the strategic management process within
entrepreneurial firms: (1) Analysis of the external environment, (2) analysis of the internal
environment, (3) strategy formulation, and (4) implementation and strategic control. Business
activity occurring outside of a firms host country can be viewed as a continuum from
international (the most limited) to multinational to global (the most aggressive). These options
are discussed in greater detail later within the strategy formulation section.
Theoretical Perspectives on Entrepreneurial Strategy
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The theoretical and philosophical underpinnings of entrepreneurship differ somewhat

from that of strategic management within less entrepreneurial, mature firms. Specifically, three
theoretical perspectives warrant discussion. First industrial organization (IO), a branch of
microeconomics, emphasizes the influence of the industry environment upon the firm. The
central tenet of industrial organization theory is the notion that a firm must adapt to influences in
its industry to survive and prosper; thus, its financial performance is primarily determined by the
success of the industry in which it competes. Industries with favorable structures offer the
greatest opportunity for firm profitability. iii Following this perspective, it is more important for a
firm to choose the correct industry within which to compete than to determine how to compete
with a given industry. iv
IO assumes that an organizations performance and ultimate survival depend on its ability
to adapt to industry forces over which it has little or no control rather than to create change.
According to IO, strategic managers should seek to understand the structure of the industry and
formulate strategies that feed off the industrys characteristics. v Because IO focuses on industry
forces, strategies, resources, and competencies are assumed to be fairly similar among
competitors within a given industry. If one firm deviates from the industry norm and implements
a new, successful strategy, other firms will rapidly mimic the higher-performing firm by
purchasing the resources, competencies, or management talent that have made the leading firm
so profitable. Hence, the IO perspective is more prominent in the strategic management of large
firms operating in mature industries. vi
Perhaps the opposite of the IO perspective, resource-based theory views performance
primarily as a function of a firms ability to utilize its resources. Although environmental
opportunities and threats are important, a firms unique resources comprise the key variables that
allow it to develop a distinctive competence, enabling the firm to distinguish itself from its rivals
and create competitive advantage. Resources include all of a firms tangible and intangible
assets, such as capital, equipment, employees, knowledge, and information. vii An organizations
resources are directly linked to its capabilities, which can create value and ultimately lead to
profitability for the firm. Hence, resource-based theory focuses primarily on individual firms
rather than on the competitive environment, a perspective consistent with the notion of new
venture creation and innovation within entrepreneurial firms.
Contingency theory represents a third theoretical perspective. According to this
approach, the most profitable firms are likely to be those that fit with their environments. In
other words, a strategy is most likely to be successful when it is consistent with the
organizations mission, its competitive environment, and its resources. Contingency theory
assumes that an established firm can increase or decrease entrepreneurial activity over time in
order to adjust to the characteristics of its environment. Firms can become proactive by choosing
to operate in environments where opportunities and threats match the firms strengths and
weaknesses. viii Should the industry environment change in a way that is unfavorable to the firm,
its top managers should consider leaving that industry and reallocating its resources to other,
more favorable industries.
Within the strategic management of mature organizations, each of these three
perspectives may contribute somewhat equally to the overall strategic orientation of the firm. In
contrast, the resource based and contingency views tend to be dominant in entrepreneurial firms
bent on innovation and creativity. Entrepreneurial firms, be they small or large, tend to
emphasize the firms unique combination of resources and capabilities in an effort to create
change in the environment or align the organization with existing external trends.
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External environment
The first step of the strategic management process, analysis of the external environment,
includes a look at a firms industry structure as well as the macroenvironmental (i.e., politicallegal, social, economic, and technological) forces that affect its operations. External analysis is
the first step in the strategic management process and creates the context for business activities.
The issue of protectionism and free trade is a central concern in the global environment, as
movement toward the latter can create a number of business opportunities for entrepreneurial
firms.
At the global level, the period from World War II to the late 1980s was marked by
increased trade protection. Many countries protected their industries by imposing tariffs, import
duties, and other restrictions. Import duties in many Latin American countries ranged from less
than 40 percent to more than 100 percent. ix However, this trend was not limited to developing
nations. Countries in Europe and Asiaand even the United Stateshave imposed import fees
on a variety of products, including food, steel, and cars. In the 1980s, the United States also
convinced Japanese manufacturers to voluntarily restrict exports of cars to the United States in
lieu of a tariff. Interestingly, this particular tariff may be largely responsible for Japanese
automobile manufacturers establishing a large number of production facilities in the United
States.
During this time, however, many nations desired to eliminate trade barriers. In 1947, 23
countries (later expanding to over 110) entered into the cooperative General Agreement on
Tariffs and Trade (GATT). GATT has assisted in relaxing quota and import license
requirements, introducing fairer customs evaluation methods, and establishing a common
mechanism to resolve trade disputes.
A major shift in United States policy occurred in the late 1970s and the 1980s in favor of
deregulation, eliminating a number of legal constraints in such industries as airlines, trucking,
and banking, but not all industries were deregulated. By 1990, a reversal of trade protectionism
and strong governmental influence in business operations began to take place. In the United
States, new economic policies reduced governmental influence in business operations by
deregulating certain industries, lowering corporate taxes, and relaxing rules against mergers and
acquisitions. This trend has continued into the twenty-first century, although not as forceful as in
the late 1990s.
The move toward free marketing has also been seen in Europe, where a number of
nations banded together to develop a trade-free European Community. Today, Europe is fast
becoming a single market of 350 million consumers. The European Union (EU) represents the
largest trading bloc on earth, accounting for more than 40 percent of the worlds gross domestic
product (GDP). x Meanwhile, the United States, Canada, and Mexico established the North
American Free Trade Agreement (NAFTA) to create its own strategic trading bloc. A number of
analysts believe that world business will be divided into several such blocs, each providing
preferred trading status to other nations within the bloc.
This trend toward less regulation has even extended to the former communist countries.
As new governments formed in the former Soviet bloc nations of Eastern Europe, such as
Poland, Czechoslovakia, and Hungary, they began to open markets and to invite foreign
investment. xi In addition, China officially remains a communist nation, but its economic
development policies have taken a distinctively free market approach since the late 1990s.
It should be noted that trade restrictions will always exist to some extent, especially in
politically sensitive areas. For example, the United States and other Western countries have
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banned the export of advanced technology in certain circumstances. The United States prohibits
the export of certain electronic, nuclear, and defense-related products to many countries,
particularly those believed to be involved in international terrorism. Many of these restrictions
were revised and strengthened following the terrorist attacks of September 11, 2001. xii
The issue of free trade and protectionism is not the only key concern in the external environment.
A number of environmental changes have created opportunities for global activity within
entrepreneurial firms. Operating outside of ones host country can enable a firm to access key
resources, develop economies of scale, and lower production costs. It can also create
opportunities for mutually beneficial partnerships. The host countrys government may even
offer tax and investment incentives.
These opportunities notwithstanding, there are many threats associated with international
activities. A firm may face trade barriers, cumbersome regulations, or a learning curve when it
comes to serving customers abroad. There may also be a backlash if the unpopular political
actions of a firms host country are generalized to the firm.
Internal Environment
The mission of an entrepreneurial organizationthe reason for its existencemay be
closely connected to its international operations in several ways. For instance, a firm operating
in one country may have the need for inputs from another. For example, virtually all of Japans
industries would grind to a halt if imports of raw materials from other nations ceased, since
Japan is a small island nation and its natural resources are quite limited.
A firms mission and its international operations are also connected through the economic
concept of comparative advantage, the idea that certain products may be produced more cheaply
or at a higher quality in particular countries due to advantages in labor costs or technology.
Chinese manufacturers, for example, enjoy some of the lowest global labor rates for unskilled or
semi-skilled production. As skills rise among Chinese workers, however, some companies have
succeeded in extending this comparative advantage to a number of technical skill areas as well.
The annual salary for a successful engineer in China was still only about $10,000 in 2002, a level
well below ones comparably skilled counterpart in other parts of the world. xiii
Involvement outside of a firms host country may also provide advantages to the firm not
directly related to costs. For political reasons, it is often necessary for a firm to establish
operations in another country, especially if its products are widely distributed there. Doing so
can also provide other advantages, however, such as gaining expertise about local market
conditions. For example, Ford operates a number of plants in Western Europe, where
manufacturing has helped its engineers design windshield wipers for cars engaged in high-speed
driving on the German autobahns. xiv
Formulation: Strategy Issues at the Corporate Level
Deciding to pursue international opportunities is a strategic decision generally made at
the corporate level. In a small firm, this level is not easily distinguished from the business, or
competitive level of the firm. In a large firm, however, the corporate level may be somewhat
removed from the business level, potentially stifling international entrepreneurial activity. If a
firm is involved beyond its domestic borders, it may compete abroad at one of three levels:
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international, multinational, or global. A number of small, entrepreneurial firms operate

successfully at the international level, whereas their larger counterparts often pursue a
multinational or global approach. Effective operations at any of these levels oftenbut not
alwaysnecessitates economies of scale and a relatively high market share. xv
International Orientation
The first option is the most conservative of the three. Some entrepreneurial companies
choose to be involved on an international basis by operating in various countries, but limiting
their involvement to importing, exporting, licensing, or global partnerships with other firms.
Exporting alone can significantly benefit even a small company. However, international joint
ventures among firms may be desirable even when resources for a direct investment are
available. For example, in 2001, General Motors (GM) launched a $333 million joint venture
with Russian firm OAO Avtovaz. GM provides technological support to the struggling holdover
from Soviet-era industry to engineer a stripped-down version of an SUV currently offered by the
Avtovaz. The vehicle will be offered for about $7500. By engaging in the joint venture, GM
gains immediate access to the market, but places its reputation on the line by putting its
Chevy name on a produced by a technologically weak automobile producer. xvi
Although firms with global objectives may choose to invest directly in facilities abroad,
there are a number of reasons why global strategic alliances may be more attractive, especially
among small entrepreneurial firms. Due to the complexities associated with establishing
operations across borders, however, strategic alliances may be particularly attractive to firms
seeking to expand their global involvement. Companies often possess market, regulatory, and
other knowledge about their domestic markets, but may need to partner with companies abroad
to gain access to this knowledge as it pertains to international markets.
International strategic alliances can also provide entry into a global market, access to the
partners knowledge about the foreign market, and risk sharing with the partner firm. They can
work effectively when partners can learn from each other, when neither partner is large enough
to function alone, and both partners share common strategic goals but are not in direct
competition.
A number of problems can arise from international joint ventures, however. These
challenges include the potential for disputes and lack of trust over proprietary knowledge,
cultural differences between the partnering firms, and disputes over how to share the costs and
revenues associated with the partnership.
Other conservative options are also available to a firm seeking an international presence.
Under an international licensing agreement, a foreign licensee purchases the rights to produce a
companys products and or use its technology in the licensees country. This arrangement is
common among pharmaceutical firms. This arrangement is common in the pharmaceutical
industry, where drug producers in one nation typically allow producers in other nations to
produce and market their products abroad. xvii However, licensing tends to be best in large firms
with combinations of strategic activities, as well as firms with standardized products in narrowly
defined market niches.
In contrast to international licensing, international franchising is a longer term
arrangement whereby a local franchisee pays a franchiser in another country for the right to use
the franchisers brand names, promotion, materials, and procedures. xviii Whereas licensing tends
to be pursued primarily by manufacturers, franchising is more commonly employed in service
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industries, such as fast-food restaurants. Led by companies such as Burger King, KFC, Avis,
and Coca-Cola, American firms now franchise to over 50,000 local owners abroad.
Multinational Orientation
The second option, involvement at the multinational level, is more aggressive than the
first. Under this approach, a firm pursues direct investments in other countries, and their
subsidiaries operate independently of one another. For example, Colgate-Palmolive has attained
a large worldwide market share through its decentralized operations in a number of foreign
markets.
In some respects, the multinational orientation represents a transition structure as a firm
moves from minimal international involvement to a global orientation. For some firms,
however, it provides a fixed strategic position, offering the advantage of greater strategic control.
Global Orientation
The third option, global involvement, is the most aggressive of the three. Globally
involved firms pursue direct investments and interdependent subdivisions abroad. Effectively,
global firms approach the international marketplace with relatively standardized products. For
example, some of Caterpillars subsidiaries produce components in different countries, while
other subsidiaries assemble these components, and still other units sell the finished products. As
a result, Caterpillar has achieved a low-cost position by producing its own heavy components for
its large global market. If its various subsidiaries operated independently and only produced for
their individual regional markets, Caterpillar would be unable to realize these vast economies of
scale. xix
Selecting the Proper Orientation
There are a number of reasons why entrepreneurial firms focused on domestic operations
pursue one of the three options. Doing so can reduce per-unit production costs by increasing
volume or can extend the product life cycle by products whose domestic markets may be
declining, as American cigarette manufacturers did in the 1990s. Establishing facilities abroad
can also help a firm capitalize on the notion of comparative advantage. For example, athletic
shoes tend to be produced most efficiently in parts of Asia where rubber is plentiful and labor is
less costly. A global orientation can also lessen risk since demand and competitive factors tend
to vary among nations.
Whether a firm should pursue international involvement and if so to what extent depends
on a number of factors. xx The following questions may shed light on the appropriateness of a
global approach for a firm:
1. Are customer needs abroad similar to those in the firms domestic market? If so, it may
be possible for the firm to develop economies of scale (discussed in greater detail in a
future chapter) by producing a higher volume of the same good or service for both
markets.
2. Are differences in transportation and other costs abroad favorable and conducive to
producing goods and services abroad? Are these differences favorable and conducive to
exporting or importing good from one country to another?
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3. Are the firms customers or partners already involved in global business? If so, it may be
necessary for the firm to become equally involved.
4. Will it be difficult to distribute goods and services abroad? If competitors already control
distribution channels in another country, expansion into that country will be difficult.
5. Will government trade policies facilitate or hinder global expansion? For example,
NAFTA facilitates trade among firms in the U.S., Canada, and Mexico. Similar trading
blocks, such as the European Union (EU) occur in other parts of the world.
6. Will managers in one country be able to learn from managers in other countries? If so, it
is possible that global expansion can improve efficiency and effectiveness, both abroad
and in the host country.
Formulation: Strategy Issues at the Business Level
Innovationthe process of transforming an invention into a commercially viable product
or serviceis central to the development of competitive strategy in the entrepreneurial firm.
Opportunities for innovation are prevalent in the international arena. Developing a competitive
strategy for a business operating in global markets can be a complex task, however.
There is no simple formula for developing and implementing successful business
strategies across national borders. Broadly speaking, there are two basic approaches to global
strategy orientation. The first approach to this challenge is to think globally, but act locally.
Following this logic, a business organization emphasizes the synergy created by serving multiple
markets globally, but formulate a distinct competitive strategy for each specific market that is
tailored to its unique situation. Proponents of this approach argue that different tastes call for
different strategies and the consistency across markets may not be possible or desirable.
In contrast, others argue that consistency across global markets is critical, citing examples
such as Coca-Cola, whose emphasis on quality, brand recognition, and a small world theme has
been successful in a number of global markets. Standardization can lead to scale economies and
a clear brand image.
There is no easy answer to this dilemma. There is wisdom in both perspectives, although
the approach most appropriate to a business depends on a number of factors. The key for any
firm is to align its global strategy with its structure, mission, goals, and other characteristics of
the organization.
Tailoring a business strategy to meet the unique demands of a different market requires
that top managers understand the similarities and differences between the markets from both
industry and cultural perspectives. For example, since the 1970s, Japanese automobile
manufacturers have sought to blend a distinctively Japanese approach with a concern for North
American and European values. Honda, the first Japanese manufacturer to operate a facility in
the United States, has been successful in this regard. In 2000, Mitsubishi aggressively
redesigned the Montero Sport to make it a global vehicle that could sell effectively in world
markets. In 2001, however, the carmaker dropped its one size fits all approach and began to
emphasize design factors unique to the critical American market. xxi
Given the intense competition in most markets in the developed world, strategic
managers in many entrepreneurial firms attempt to remain abreast of opportunities that exist in
emerging markets. While emerging economies such as China, Brazil, South Africa, Mexico, and
parts of Eastern Europe are attractive in many respects, poor infrastructure (e.g.,
telecommunications, highways, etc.), cumbersome government regulations, and/or a poorly
training work force can create great challenges for the firm considering expansion. The
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advantages notwithstanding, growth through global expansion should be considered carefully

before pursuing expansion into any emerging market.
China, for example, boasts the worlds largest population and has been tabbed as a world
economic leader within the next few decades. Its entrance into the World Trade Organization,
declining import tariffs, and increasing consumer incomes suggest a bright future for the nation.
At present, China remains a mix of the traditional lifestyle based in socialism and its own form
of a neo-Western economic development. Nowhere is this friction seen best than on the roads of
Beijing, where crowds of bicycles and pedestrians attempt to negotiate traffic with buses and a
rapidly increasing number of personal automobiles. American-style traffic reports have even
become pervasive in a country where the worlds largest automakers are fighting for a stake in
what many experts believe will be a consumer automobile growth phase of mammoth
proportions. xxii
Western manufacturers such as Eastman Kodak, Proctor & Gamble, Group Danone of
France, and Siemens AG of Germany have already established a strong presence in China. A
number of Western restaurants and retailers have also begun to expand aggressively into China,
including U.S.-based McDonalds, Popeyes Chicken, and Wal-Mart. As the CEO of Yum,
owner of KFC, Pizza Hut, and Taco Bell, put it, China is an absolute gold mine for us. xxiii
French-based Carrefour has been one of the most successful with other 30 locations by 2003.
Product mixes in the Chinese stores tend to be similar to those in the domestic market, with
adjustments made for local preferences. xxiv
Implementation & Strategic Control
A number of implementation issues are critical to the success of firms pursuing global
entrepreneurial opportunities. Culture is a key concerns in strategy implementation in any
organization, but takes on additional importance within entrepreneurial enterprises. Cultural
differences generally represent a major consideration for firms operating abroad, especially in
strategy implementation efforts. In many respects, an organizations culture can be viewed as a
subset of the national culture. Operating outside ones own country must overcome obstacles in
areas such as leadership and maintaining a strong organizational culture. For example, leaders of
some nations resist innovation and radical new approaches to conducting business, whereas
others welcome such change. Such national tendencies often become a part of the culture of the
organization in those countries.
The self-reference criterion also presents a potential problem. Managers often believe
that the leadership styles and organizational culture that work in their home country should work
elsewhere. However, like each nation, each organization has its own unique culture, traditions,
values, and beliefs. Hence, organizational values and norms must be tailored to fit the unique
culture of each country in which the organization operates, at least to some extent. This can
create special challenges when firms from different countries become partners or even merge
their organizations.
Strategic control, an extension of the implementation process, consists of determining the
extent to which the organizations strategies are successful in attaining its goals and objectives.
Within strategic control efforts, adjustments to the strategy are made as necessary. xxv The need
for strategic control is brought about by two key factors, the first of which is the need to know
how well the firm is performing. Without strategic control, there are no clear benchmarks and
ultimately no reliable measurements of how the company is doing.
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A second key factor supporting the need for strategic control is organizational and
environmental uncertainty. Because strategic managers are not always able to accurately forecast
the future, strategic control serves as a means of accounting for last-minute changes during the
implementation process. The notion of strategic control has recently added a continuous
improvement dimension, whereby strategic managers seek to improve the efficiency and
effectiveness of all factors related to the strategy. This is particularly important within the realm
of global entrepreneurship where uncertainty is high and constant strategic change is often
required.
Conclusion
Global opportunities abound for entrepreneurial organizations. However, the turbulence, rapid
pace of change, and often unpredictability of the global environment can create roadblocks for
many firms. Executives in entrepreneurial enterprises, small or large, should take special care to
understand the intricacies of the international arena before formulating its corporate and business
strategies. Those who do can greatly improve the prospects for their firms success in the global
arena.
B.R. Barringer and A.C. Bluedorn, The relationship between entrepreneurship and strategic
management, Strategic Management Journal, 20(1999): 421-444; M.A. Hitt, R.D. Nixon, R.E.
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23(1999), 3: 145-167; S. Shane and S. Venkatraman, The promise of entrepreneurship as a field of
research, Academy of Management Review, 25 (2000): 217-226.
ii
M.H. Morris, D.L. Davis, and J.W. Allen, Fostering corporate entrepreneurship: Cross-cultural
comparisons of the importance of individualism versus collectivism, Journal of International Business
Studies, 25(1994): 65-89.
iii
M. E. Porter, The Contributions of Industrial Organization to Strategic Management, Academy of
Management Review 6 (1981): 609620.
iv
G. Hawawini, V. Subramanian, and P. Verdin, Is Performance Driven by Industry- or Firm-Specific
Factors? A New Look at the Evidence, Strategic Management Journal, 24 (2003): 116.
v
J. S. Bain, Industrial Organization (New York: Wiley, 1968); F. M. Scherer and D. Ross, Industrial
Market Structure and Economic Performance (Boston: Houghton-Mifflin, 1990).
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Volume 4, 2007

Shawn Carraher, Editor

International Journal of Family Business, Volume 4, 2007

The International Journal of Family Business

Shawn M. Carraher, Editor

International Journal of Family Business, Volume 4, 2007

Copyright 2007 by the International Family Business Center

EDITORIAL REVIEW BOARD

Johnathon R.B. Halbesleben

Howard Van Auken

International Journal of Family Business, Volume 4, 2007

International Journal of Family Business, Volume 4, 2007

THE HIT AND RUN EXPATRIATE EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

International Journal of Family Business, Volume 4, 2007

LETTER FROM THE EDITOR

International Journal of Family Business, Volume 4, 2007

International Journal of Family Business, Volume 4, 2007

International Journal of Family Business, Volume 4, 2007

DEVELOPING A GLOBAL PERSPECTIVE: EXPANDING FACULTY

International Journal of Family Business, Volume 4, 2007

employ more than half of all workers in private industry,

create more than half of the Gross Domestic Product, and

in 2004 were 97% of the international exporters, accounting for

note an intersection of research on globalization and entrepreneurship, they also commented

In addition to the careful choice of student assignments, building knowing why

developmental needs of faculty. One such example is the European Entrepreneurship

The OneMBA program through the Kenan-Flagler Business School at the

two weeks of study at each university as well as visits to affiliates in other

Sterns MBA program provides two-week intensive coursework in other

Faculty create a virtual global meeting place in which executives in different

Faculty develop a consortium of MBA programs to provide guidance to

International Journal of Family Business, Volume 4, 2007

A CULTURE-BASED ENTREPRENEURSHIP PROGRAM: IMPACT ON

Lee LHote, Iowa State University

learning experiences as affecting intentions. A culture-based entrepreneurship that is integrated

Control Variables (1 = Previously Participated in

Change in Ranking of Understanding of Spanish Culture (1

Comfort and 7 = Very Comfortable)

Change and 7 = Great Change)

Organizational Structure of Spanish Firms, and Knowledge of Spanish Business Protocol).

knowledge of Spanish music, knowledge of Spanish economy, knowledge of Spanish films,

International Journal of Family Business, Volume 4, 2007

Problem Solving Ability

International Journal of Family Business, Volume 4, 2007

International Journal of Family Business, Volume 4, 2007

International Journal of Family Business, Volume 4, 2007

International Journal of Family Business, Volume 4, 2007

International Journal of Family Business, Volume 4, 2007

INTERNATIONAL ECONOMICS AND FINANCE: AN EDUCATIONAL

The Basis for Trade

While economic globalization presents a plethora of new managerial challenges and

associated with increased specialization and/or increasing productivity stemming from

An exchange rate that is freely determined in international currency markets varies or

Control of Exchange Rates

Payment Terms for International trade

in advance. Usually, however, some in-between approach is chosen, involving a combination of

Financing Techniques in International Trade

Agencies that Promote International Trade

companies in overseas markets. Operating as an independent agency of the U.S. government, it

Further Theoretical and Empirical Analysis, Review of Economics and Statistics,

International Journal of Family Business, Volume 4, 2007

International Journal of Family Business, Volume 4, 2007