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Entrepreneurship Chap 5


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Entrepreneurship Chap 5

  1. 1. HisrichPetersShepherdChapter 5Identifying and AnalyzingDomestic and InternationalOpportunitiesCopyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
  2. 2. 5-2Introduction Entrepreneurs find it difficult to bothmanage and expand the venture theycreated. To expand a venture, entrepreneurs needto: Identify opportunities for domestic andinternational expansion. Develop different management skills. Infuse new entrepreneurial spirit(intrapreneurship).
  3. 3. 5-3 Factors contributing to internationalexpansion: Opening up of controlled economies to market-oriented enterprise. Self-interest of organizations as well as theimpact of external events and forces. Developing countries need training andeducation as well as infrastructure to supporttheir development and growth in the nextcentury.Introduction (cont.)
  4. 4. 5-4Opportunity Recognition and theOpportunity Assessment Plan The key to successful domestic andinternational entrepreneurship is to developan idea that has a market with a need forthe product or service idea conceived. Opportunity assessment is often bestaccomplished by developing an opportunityassessment plan. An opportunity assessment plan is not abusiness plan.
  5. 5. 5-5 An opportunity assessment plan has foursections: The first section develops the idea, analyzescompetitive products and companies, andidentifies the unique selling propositions. The second section focuses on the market—itssize, trends, characteristics, and growth rate. The third section focuses on the entrepreneur’sand management team’s skills and experience. The final section develops a time line indicatingthe steps to successfully launch the venture.Opportunity Recognition and theOpportunity Assessment Plan (cont.)
  6. 6. 5-6Information Sources General Information SCORE is a nonprofit organization that providesfree online and in-person assistance. Small Business Development Centers providescounseling, training, and technical assistance onall aspects of managing a new venture. The U.S. Chamber Small Business Centerprovides start-up assistance through Web-basedtools and resources. Other valuable Web sites include:,,,,,,,
  7. 7. 5-7Information Sources (cont.) Industry and Market Information Plunkett - Industry data, market research,trends, statistics on markets, and forecasts. Frost and Sullivan - Industry specificinformation. Euromonitor – Information on consumer marketsizes, marketing parameters, companies, andbrands. Gartner - Information on technology markets. Gale Directory Library - Industry statistics andinformation on nonprofit organizations andassociations.
  8. 8. 5-8 Competitive Company and ProductInformation Business Source Complete - Provides companyand industry information by scanning theDatamonitor reports. Hoovers - Provides information on both largeand small companies with links to competitors inthe same NAICS (North American IndustrialClassification System) category. Mergent - Provides detailed company andproduct information on U.S. and internationalcompanies.Information Sources (cont.)
  9. 9. 5-9 Government Sources Census reports Export/import authority UN Comtrade NAICS and Standard Industrial Classificationcodes Sources (cont.)
  10. 10. 5-10 Search Engines There are many key terms for searching theneeded industry, market, and competitiveinformation. Trade Associations Good source for country-specific industry data. Trade Publications Provide information and insights on trend,companies, and trade shows from a localperspective of the particular market and marketconditions.Information Sources (cont.)
  11. 11. 5-11The Nature of InternationalEntrepreneurship International entrepreneurship is theprocess of an entrepreneur conductingbusiness activities across nationalboundaries. The activities necessary for ascertaining andsatisfying the needs and wants of targetconsumers take place in more than one country. With a commercial history of only 300years, the United States is a relativenewcomer to the international businessarena.
  12. 12. 5-12The Importance of InternationalBusiness to the Firm International business has becomeincreasingly important to firms of all sizes. A successful entrepreneur must be able to: Fully understand the difference betweendomestic and international business. Respond accordingly thereby successfully “goingglobal.”
  13. 13. 5-13International versus DomesticEntrepreneurship Economics In a domestic business strategy, the entirecountry is organized under a single economicsystem and has the same currency. Creating a business strategy for a multicountryarea means dealing with differences in: Levels of economic development. Currency valuations. Government regulations. Banking, venture capital, marketing, and distributionsystems.
  14. 14. 5-14 Stage of Economic Development Certain factors significantly impact a firm’sability to successfully engage in internationalbusiness such as: Fundamental infrastructures. Banking facilities and systems. Educational systems. Legal system. Business ethics and norms.International versus DomesticEntrepreneurship (cont.)
  15. 15. 5-15 Balance of Payments Current Account With the present system of flexible exchangerates, a country’s current account (thedifference between the value of a country’simports and exports over time) affects thevaluation of its currency. The valuation of one country’s currency affectsbusiness transactions between countries.International versus DomesticEntrepreneurship (cont.)
  16. 16. 5-16 Type of System Difficulties in doing business in economies thatare developing, or in transition. Use of barter or third-party arrangements inthese countries to increase business activity. Barter - A method of payment using nonmoney items. Third-party arrangements - Paying for goods indirectlythrough another source.International versus DomesticEntrepreneurship (cont.)
  17. 17. 5-17 Political-Legal Environment Political risk analysis - An assessment of acountry’s political policies and its stability priorto entry. Types of political risks: Operating risk. Transfer risk. Ownership risk . Conflict and changes in the solvency of the country.International versus DomesticEntrepreneurship (cont.)
  18. 18. 5-18 A country’s legal system regulates: Its business practices. The manner in which business transactions areexecuted. The rights and obligations involved in any businesstransaction between parties. Critical areas for every entrepreneur: Property rights. Contract law. Product safety. Product liability.International versus DomesticEntrepreneurship (cont.)
  19. 19. 5-19 Language One of the biggest problems for theentrepreneur is finding a translator. Significant problems can occur with carelesstranslation. Care should be taken to hire a translator whosenative tongue is the target language and whoseexpertise matches that of the original authors.International versus DomesticEntrepreneurship (cont.)
  20. 20. 5-20Technological Environment The variation and availability of technologyare often surprising, particularly to anentrepreneur from a developed country. New products in a country are createdbased on the conditions and infrastructureoperant in that country.
  21. 21. 5-21Figure 5.1 - Various Aspects ofCultureFigure 5.1
  22. 22. 5-22Available Distribution Systems Factors to be considered in determining thedistribution 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.
  23. 23. 5-23Motivations 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.
  24. 24. 5-24Strategic Effects of Going Global Physical and psychological closeness to theinternational market affects the waybusiness occurs. Cultural variables, language, and legalfactors can make a foreign market that isgeographically close seem psychologicallydistant.
  25. 25. 5-25 Issues involved in psychological distance: The distance envisioned by the entrepreneurmay be based more on perception than reality. Closer psychological proximity makes it easierfor an entrepreneurial firm to enter a market. There are more similarities than differencesbetween individual entrepreneurs regardless ofthe country.Strategic Effects of Going Global(cont.)
  26. 26. 5-26Foreign Market Selection One good market selection model employsa five-step approach: Develop appropriate indicators. Collect data and convert into comparableindicators. Establish an appropriate weight for eachindicator. Analyze the data. Select the appropriate market from the marketrankings.
  27. 27. 5-27Entrepreneurial Entry Strategies Exporting Indirect exporting. Direct exporting. Nonequity Arrangements Licensing. Turn-key projects. Management contracts.
  28. 28. 5-28Entrepreneurial 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.
  29. 29. 5-29Entrepreneurial Partnering Foreign entrepreneurs know the countryand culture. They can facilitate business transactions andupdate the entrepreneur on business, economic,and political conditions. Good partners share the entrepreneur’svision, are unlikely to exploit thepartnership, and can help the entrepreneurachieve his or her goals.
  30. 30. 5-30Barriers 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 orreducing tariffs, subsidies, and import quotas.
  31. 31. 5-31 Increasing Protectionist Attitudes Support of GATT resulted in: Strain on the world trading system and the economicsuccess of countries perceived as not playing by rules. Establishment of bilateral voluntary export restraints tocircumvent 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.)
  32. 32. 5-32 Entrepreneur’s Strategy and Trade Barriers Trade barriers increase entrepreneurs’ costs ofexporting products or semifinished products to acountry. Voluntary export restraints may limitentrepreneurs’ ability to sell products in acountry from production facilities outside thecountry. Entrepreneurs may have to locate assembly orproduction facilities in a country to conform tolocal content regulations.Barriers to International Trade (cont.)