Entrepreneurship Chapter 5 - Identifying and Analyzing Domestic and International Opportunities

Textbook Reference: Entrepreneurship, 8th edition by R.H. Hisrich, M.P. Peters and D.A. Shepherd, Mc Graw Hill Irwin, Copyright 2010. Chapter 5: Identifying and Analyzing Domestic and International Opportunities 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). Factors contributing to international expansion: ▪ Opening up 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. ▪ 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 time line 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. ▪ 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.

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Gale Directory Library - Industry statistics and information on nonprofit organizations and associations. 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. 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 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 multicountry area means dealing with differences in: ∙ Levels of economic development.

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∙ Currency valuations. ∙ Government regulations. ∙ Banking, venture capital, marketing, and distribution systems. 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. 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. 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. 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. ◦ 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. 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. Various Aspects of Culture CULTURE NORMS AND VALUE SYSTEM influences and is influenced by: ▪ Religion ▪ Economics and Economic Philosophy ▪ Social Structure ▪ Political Philosophy ▪ Language ▪ Manners and Customs ▪ Education Available Distribution Systems ▪ Factors to be considered in determining the distribution system for a country: ◦ Overall sales potential. ◦ Investment policies. ◦ Amount and type of ◦ Exchange rates and controls. competition. ◦ Level of political risk. ◦ Cost of the product. ◦ Overall marketing plan. ◦ Geographical size and density. Motivations to Go Global ▪ Profits. ▪ Competitive pressures. ▪ Unique product(s) or service(s). ▪ Excess production capacity. ▪ Declining home country sales.

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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. ▪ 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. ▪ Direct Foreign Investment ◦ Minority Interests.

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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. ▪ 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). ▪ 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.