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Entrepreneur Chapter 2

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Identification, Analysis and Choice of Business Opportinity

Identification, Analysis and Choice of Business Opportinity

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  • 1. CHAPTER 2 IDENTIFICATION, ANALYSIS AND CHOICE OF BUSINESS OPPORTINITY Objectives: 1.identify, evaluate and select a viable business idea and opportunity 2.undertake a preliminary study before preparing a business plan PEN2073 ENTREPRENEURSHIP 1
  • 2. Introduction Every business begins with the availability of an opportunity. Opportunity is when there is a space to offer goods or services in any specific market.  When: I.      Products have been available but not fulfilling the customers’ demand. II.    Customers’ demand for something better than what available in the market. III. They want more choices, so that they would be able to choose according their tastes and preferences. IV.   They want something different from what has been offered Thus it is not easy to choose an idea and realize it. PEN2073 ENTREPRENEURSHIP
  • 3. 4.1 BUSINESS IDEA AND SELECTION OF BUSINESS OPPORTUNITY A business idea starts with an opportunity. A business opportunity exists when there is demand for goods and services to meet the needs and wants of community. 4.2 STEPS IN IDENTIFICATION, EVALUATION AND SELECTION OF BUSINESS OPPORTUNITY. STEP 1: IDENTIFICATION OF NEEDS AND WANTS OF CONSUMERS. STEP 2: SCANNING THE ENVIRONMENT AND EVALUATING OF SELF AND THE COMMUNITY STEP 3: SCREENING OF BUSINESS OPPORTUNITIES STEP 4: SELECTING A BUSINESS OPPORTUNITY AND PREPARING A BUSINESS PLAN. PEN2073 ENTREPRENEURSHIP
  • 4. 1. IDENTIFYING THE NEEDS AND WANTS OF CUSTOMERS The term “needs” refers to basic needs that the consumers must have in order to live, such as food, clothing, shelter, etc. The term “wants” refers to a personal desire for something that more than the basic needs. Categories of needs and wants: i. Product Something which has physical appearance, demanded to satisfy one’s needs and wants either directly or indirectly. E.g; computer, hand phone, radio and television. ii. Services Something which has no physical but still able to satisfy needs and wants of customers. E.g barber, doctor, tailor education and bank. The term “wants” refers to a personal desire for something that more than the basic needs. PEN2073 ENTREPRENEURSHIP
  • 5. 2. ENVIRONMENTAL SCANNING AND EVALUATION OF SELF AND THE COMMUNITY. i. Environmental Scanning a. Structure of the population, income and tastes b. study on import and export data c. study on local resources and technological breakthrough d. industrial linkages e. development projects by the public and private sectors f. searching for business opportunities in the local and foreign newspaper and magazines as well as on the internet g. The study of social problem h. New government policies and regulation. PEN2073 ENTREPRENEURSHIP
  • 6. a) Structure of the population, income and tastes Composition of the people in the selected areas should be analyzed in order to get an accurate target market. E.g; percentage of youth or elderly, male or female, working mother or non-working mother. The higher the income level, the stronger the purchasing power of the people and the better the opportunity for business. Change in the preference can give a good opportunity for business. E.g; the trend in the fast food industry rises due to the change in the eating habit-KFC. PEN2073 ENTREPRENEURSHIP
  • 7. b) Study on import and export data The continuous increase in the value and quantity of a product or service being imported and exported reflects a potential market, both local and international. c) Study on local resources and technological breakthrough There might be local resources that yet to be exploited, thus can be seen as a potential investment. Is there a new technology that ca be adapted for the new venture. PEN2073 ENTREPRENEURSHIP
  • 8. d) Industrial Linkages An output for one industry can be an input to another. Therefore, integration between on industry with another should exist. Example, proton cars industry-there are 125 vendors who supply car components to Protons, meaning that proton assembly lines cannot operate without the support from other proton’s components suppliers. There are two types of integration: a)      Forward Integration. Any business opportunity exists after a core/main company produces a product or services. b)      Backward integration Any business opportunity exists before a core/main company starts their production process. PEN2073 ENTREPRENEURSHIP
  • 9. Example: The process of Industrial linkage with the national car project. Backward Integration Main company Component industry Transportation Cleaning service Suppliers PERUSAHAAN KERETA NASIONAL (PROTON) Forward Integration Distributors Workshops Part suppliers Car rental Car wash Transport service The existence of the national car project (PROTON) has helped to create, Directly or indirectly, opportunities for the growth of the car industry and Other businesses, which include the component industry the supplies car Parts to Proton and spare parts to the suppliers. PEN2073 ENTREPRENEURSHIP
  • 10. e) Development project by the public and private sectors There are various economic development programmes by the government and the private that have opened up directly or indirectly business opportunities for entrepreneur. For example, the North-South Highway (PLUS) Project, KLIA project, Government Complex in Putrajaya have led to the opening up of new township and new industrial area. f) Searching for business opportunities in the local and foreign newspapers and magazines as well as on the Internet. By reading local and foreign newspaper and magazines as well as surfing the internet, entrepreneurs can identify business opportunities in various fields. PEN2073 ENTREPRENEURSHIP
  • 11. g) The study of local social problems There are various social problems that can actually lead to business opportunities for entrepreneurs. Problem pertaining to security, child care, loafing, transportation, drug addiction and so on can create profitable business opportunities. h) New government policies and regulations Rules and regulations enforced by the government indirectly lead to business opportunities for entrepreneurs. Rules and regulation pertaining to the emission of smoke control, speed traps, block box for express buses and the use of helmets should be perceived as business opportunities and not problems. PEN2073 ENTREPRENEURSHIP
  • 12. ii) Self Evaluation a) Experience Many entrepreneurs are involved in business that are suited to their own experience,e specially in relation to their former career. b) Knowledge and skills Knowledge and skill are related to one’s experience Knowledge and skill are important to establish whether that someone really knows what to do with the business he/she involved in. c) Financial situation Financial ability is an important factor in determining whether particular business opportunity can be further developed or not. PEN2073 ENTREPRENEURSHIP
  • 13. d) Interest The business field to be selected must be based on the entrepreneur’s interest. Interest can give more confidence and a sense of responsibility to the business to be developed. d) Networking An entrepreneur will face difficulties developing a business opportunity if his/her networking with others is limited. PEN2073 ENTREPRENEURSHIP
  • 14. iii) Value/Norms of the Community After scanning the environment evaluating oneself, the next consideration is the values or norms of the community. Business opportunities need to be coordinated with the value or norms of the community in which the business operation is going to be implemented. The value or norms of the community refer to what is perceived as useful and beneficial to the community. It is important to ensure that a potential business does not go against the values or norms of the local community. For example, a four-digit business outlet is considered a profitable business opportunity and legal. However, it is against the value of the Muslim community. PEN2073 ENTREPRENEURSHIP
  • 15. 3. SCREENING OF BUSINESS OPPORTUNITIES After scanning the environment, evaluating oneself as well as the values or norms of the local community, the entrepreneur may end up with two or more interesting business opportunities that need to be developed. However, it is best to select only one business because it will be difficult to implement various business projects at the same time. The process of screening business opportunities will help the entrepreneur to select a business opportunity that can focus on wholeheartedly. This process involves four factors as follows: 1. Legality 2. Monopolistic power and level of competition 3. Capital requirement 4. Risks PEN2073 ENTREPRENEURSHIP
  • 16. 1. Legality The entrepreneur has to make sure that the business opportunity that is going to be developed is legal. For example: a business involves the buying and selling imitation VCDs or stolen product is illegal. 2. Monopolistic power and level of competition An entrepreneur has to select a business opportunity which is not monopolised by any body or quarter as this type of business will pose problems, such as the danger of sabotage and the difficulty of penetration a controlled market. An entrepreneur must also consider the level of competition in deciding the type of business he is going to be involved in. It is best to be involved in business that is overcrowded and in which competition is very stiff unless the entrepreneur has the ability to secure cheap raw materials or a unique production formula that others are not privy to. PEN2073 ENTREPRENEURSHIP
  • 17. 3. Capital Requirement The study of the capital requirements of a business is important. Normally, capital is required to finance investment on fixed assets (land, building, machine and equipment) and working capital. The funding of the business can be done with the use of the entrepreneur’s own money or from external sources such as banks, finance companies and cooperatives. PEN2073 ENTREPRENEURSHIP
  • 18. 4. Risks In business, risk is something that is uncertain and is related to success and failure. Due to that, an entrepreneur must identify the risks he is going to encounter and take into consideration to percentage of success and failure. Based on this, an entrepreneur will decide whether to proceed with the business or not. In general, the level of risk that will be encountered by an entrepreneur will depend on three factors; 1. The difficulty or easy to enter a particular business field; 2. The size of capital that going to be invest in the business; 3. The profit margin (big or small0 expected from the business. PEN2073 ENTREPRENEURSHIP
  • 19. Types of business, category or risks and expected returns Types of business, category or risks and expected returns BUSINESS ENTRY LEVEL OF RISK EXPECTED RETURS EXAMPLES A EASY LOW LOW FOOD STALL B MEDIUM MEDIUM MEDIUM MINI MARKET C DIFFICULT HIGH HIGH CHOICE PEN2073 ENTREPRENEURSHIP PUBLIC TRANSPORT
  • 20. In general, there are two (2) types of risks that need to be addressed before and while operation a business. These are; 1. Business risks 2. Financial risks 1. Business Risks Can be classified into three category: I. Transferable risk- risk that can be insured against fire, theft and employees accidents. II. Controllable but non-transferrable risks- not 100% to be controlled but there are things to be done. Example, market situation, unemployment rate and quality of goods. III. Uncontrollable risks-things in the economy, exchange rates and natural disaster. PEN2073 ENTREPRENEURSHIP
  • 21. 2. Financial Risks I. Level of liquidity-less solvent companies probably the business has to face short term debts. Example, to supplier and overdraft. II. Loan-fixed payment is scheduled, yet profit keeps changing. III. Credit-cedit given to customers will always face risk of getting the credits being paid as after some time the credits (if unpaid) will be considered bad-debt-expenses to the company. IV. Exchange rate-if exchange rate involves, entrepreneurs have to face risks-fluctuations of rates. PEN2073 ENTREPRENEURSHIP
  • 22. Conclusion Only one idea is to be selected and to be realized as part of your project. PEN2073 ENTREPRENEURSHIP

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