Chapter 5 Entrepreneurship

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Entrepreneurship

Chapter 5

Lectures 9 & 10

Identifying and Analyzing Domestic and International


Opportunities
Identifying and Analyzing Domestic and
International Opportunities
●Opportunity Recognition & the opportunity assessment plan
● Information Source
● The nature of International Entrepreneurship
● The Importance of international business to the firm
● International Vs. Domestic
●Technological Environment
● Culture
Identifying and Analyzing Domestic and
International Opportunities
● Available Distribution Systems
● Motivation to go Global
● Strategic effect, of going global
● Foreign Market Selection
● Entrepreneurial Entry Strategies
● Entrepreneurial Partnering
● Barriers to International Trade
● Implications for the global Entrepreneur
Introduction
◌ Entrepreneurs find it difficult to both manage and expand the
venture they created.
◌ To expand a venture, entrepreneurs need to:
*Identify opportunities for domestic and international
expansion.
* Develop different management skills.
*Infuse new entrepreneurial spirit (intrapreneurship).
Introduction (cont.)
◌ Factors contributing to international expansion:
* Opening of controlled economies to market-oriented
enterprise.
* Self-interest of organizations as well as the impact of external
events and forces.
*Developing countries need training and education as well as
infrastructure to support their development and growth in the next
century.
Opportunity Recognition and the
Opportunity Assessment Plan
◌ The key to successful domestic and international entrepreneurship is
to develop an idea that has a market with a need for the product
or service idea conceived.
◌ Opportunity assessment is often best accomplished by developing an
opportunity assessment plan.
◌ An opportunity assessment plan is not a business plan.
Opportunity Recognition and the Opportunity
Assessment Plan (cont.)
◌ An opportunity assessment plan has four sections:
• The first section develops the idea, analyzes competitive products and
companies, and identifies the unique selling propositions.
• The second section focuses on the market—its size, trends, characteristics,
and growth rate.
• The third section focuses on the entrepreneur’s and management team’s
skills and experience.
• The final section develops a timeline indicating the steps to successfully
launch the venture.
Information Sources
◌ General Information
• SCORE is a nonprofit organization that provides free online and in-
person assistance.
• Small Business Development Centers provides counseling, training,
and technical assistance on all aspects of managing a new venture.
• The U.S. Chamber Small Business Center provides start-up assistance
through Web-based tools and resources.
• Other valuable Web sites include: nasbic.org, nvca.org, nbia.org,
www.fasttrac.org, activecapital.org, c-e-o.org, entre-ed.org,
kauffman.org.
Information Sources (cont.)
◌ Industry and Market Information
• Plunkett - Industry data, market research, trends, statistics on
markets, and forecasts.
• Frost and Sullivan - Industry specific information.
• Euromonitor – Information on consumer market sizes, marketing
parameters, companies, and brands.
• Gartner - Information on technology markets.
• Gale Directory Library - Industry statistics and information on
nonprofit organizations and associations.
Information Sources (cont.)
◌ Competitive Company and Product Information
• Business Source Complete - Provides company and industry
information by scanning the Datamonitor reports.
• Hoovers - Provides information on both large and small companies
with links to competitors in the same NAICS (North American
Industrial Classification System) category.
• Mergent - Provides detailed company and product information on U.S.
and international companies.
Information Sources (cont.)
◌ Government Sources
• Census reports
• factfinder.census.gov
• www.census.gov/ipc/www/idb
• Export/import authority
• UN Comtrade
• www.business.gov/expand/import-export
• NAICS and Standard Industrial Classification codes
• www.naics.com/info.htm
• www.osha.gov/pls/imis/sic_manual.html
Information Sources (cont.)
• Search Engines
• There are many key terms for searching the needed industry, market, and
competitive information.
• Trade Associations
• Good source for country-specific industry data.
• Trade Publications
• Provide information and insights on trend, companies, and trade shows from
a local perspective of the particular market and market conditions.
The Nature of International Entrepreneurship
• International entrepreneurship is the process of an entrepreneur
conducting business activities across national boundaries.
• The activities necessary for ascertaining and satisfying the needs and wants
of target consumers take place in more than one country.
• With a commercial history of only 300 years, the United States is a
relative newcomer to the international business arena.
The Importance of International Business to
the Firm
• International business has become increasingly important to firms
of all sizes.
• A successful entrepreneur must be able to:
• Fully understand the difference between domestic and international
business.
• Respond accordingly thereby successfully “going global.”
International versus Domestic
Entrepreneurship
• Economics
• In a domestic business strategy, the entire country is organized under a single
economic system and has the same currency.
• Creating a business strategy for a multicounty area means dealing with
differences in:
• Levels of economic development.
• Currency valuations.
• Government regulations.
• Banking, venture capital, marketing, and distribution systems.
International versus Domestic
Entrepreneurship (cont.)
• Stage of Economic Development
• Certain factors significantly impact a firm’s ability to successfully
engage in international business such as:
• Fundamental infrastructures.
• Banking facilities and systems.
• Educational systems.
• Legal system.
• Business ethics and norms.
International versus Domestic
Entrepreneurship (cont.)
• Balance of Payments Current Account
• With the present system of flexible exchange rates, a country’s current
account (the difference between the value of a country’s imports and
exports over time) affects the valuation of its currency.
• The valuation of one country’s currency affects business transactions
between countries.
International versus Domestic
Entrepreneurship (cont.)
• Type of System
• Difficulties in doing business in economies that are developing, or in
transition.
• Use of barter or third-party arrangements in these countries to
increase business activity.
• Barter - A method of payment using nonmoney items.
• Third-party arrangements - Paying for goods indirectly through another source.
International versus Domestic
Entrepreneurship (cont.)
• Political-Legal Environment
• Political risk analysis - An assessment of a country’s political policies
and its stability prior to entry.
• Types of political risks:
• Operating risk.
• Transfer risk.
• Ownership risk .
• Conflict and changes in the solvency of the country.
International versus Domestic
Entrepreneurship (cont.)
• A country’s legal system regulates:
• Its business practices.
• The manner in which business transactions are executed.
• The rights and obligations involved in any business transaction between
parties.
• Critical areas for every entrepreneur:
• Property rights.
• Contract law.
• Product safety.
• Product liability.
International versus Domestic
Entrepreneurship (cont.)
• Language
• One of the biggest problems for the entrepreneur is finding a
translator.
• Significant problems can occur with careless translation.
• Care should be taken to hire a translator whose native tongue is the
target language and whose expertise matches that of the original
authors.
Technological Environment
• The variation and availability of technology are often
surprising, particularly to an entrepreneur from a developed
country.
• New products in a country are created based on the
conditions and infrastructure operant in that country.
Figure 5.1 - Various Aspects of Culture
Available Distribution Systems
• Factors to be considered in determining the distribution system for
a country:
• Overall sales potential.
• Amount and type of competition.
• Cost of the product.
• Geographical size and density.
• Investment policies.
• Exchange rates and controls.
• Level of political risk.
• Overall marketing plan.
Motivations to Go Global
• Profits.
• Competitive pressures.
• Unique product(s) or service(s).
• Excess production capacity.
• Declining home country sales.
• Unique market opportunity.
• Economies of scale.
• Technological advantage.
• Tax benefits.
Strategic Effects of Going Global
• Physical and psychological closeness to the international
market affects the way business occurs.
• Cultural variables, language, and legal factors can make a
foreign market that is geographically close seem
psychologically distant.
Strategic Effects of Going Global (cont.)
• Issues involved in psychological distance:
• The distance envisioned by the entrepreneur may be based more on
perception than reality.
• Closer psychological proximity makes it easier for an entrepreneurial
firm to enter a market.
• There are more similarities than differences between individual
entrepreneurs regardless of the country.
Foreign Market Selection
• One good market selection model employs a five-step approach:
• Develop appropriate indicators.
• Collect data and convert into comparable indicators.
• Establish an appropriate weight for each indicator.
• Analyze the data.
• Select the appropriate market from the market rankings.
Entrepreneurial Entry Strategies
• Exporting
• Indirect exporting.
• Direct exporting.
• Nonequity Arrangements
• Licensing.
• Turn-key projects.
• Management contracts.
Entrepreneurial Entry Strategies (cont.)
• Direct Foreign Investment
• Minority Interests.
• Joint Ventures.
• Majority Interest.
• Mergers:
• Horizontal merger.
• Vertical merger.
• Product extension merger.
• Market extension merger.
• Diversified activity merger.
Entrepreneurial Partnering
• Foreign entrepreneurs know the country and culture.
• They can facilitate business transactions and update the entrepreneur
on business, economic, and political conditions.
• Good partners share the entrepreneur’s vision, are unlikely to
exploit the partnership, and can help the entrepreneur achieve
his or her goals.
Barriers to International Trade
• General Agreement on Tariffs and Trade (GATT)
• Established in 1947 under U.S. leadership; includes over 100
nations.
• Objective - To liberalize trade by eliminating or reducing tariffs,
subsidies, and import quotas.
Barriers to International Trade (cont.)
• Increasing Protectionist Attitudes
• Support of GATT resulted in:
• Strain on the world trading system and the economic success of countries perceived
as not playing by rules.
• Establishment of bilateral voluntary export restraints to circumvent GATT.
• Trade Blocs and Free Trade Areas
• Free Trade Area (FTA).
• North American Free Trade Agreement (NAFTA).
• Treaty of Asunción – Mercosur trade zone.
• European Community (EC).
Barriers to International Trade (cont.)
• Entrepreneur’s Strategy and Trade Barriers
• Trade barriers increase entrepreneurs’ costs of exporting products or
semifinished products to a country.
• Voluntary export restraints may limit entrepreneurs’ ability to sell products
in a country from production facilities outside the country.
• Entrepreneurs may have to locate assembly or production facilities in a
country to conform to local content regulations.
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