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Entrepreneurship
MGT602
VU
Lesson
13
INTERNATIONAL
ENTREPRENEURIAL OPPORTUNITIES
(continued...)
LEARNING
OBJECTIVES
1.
To
identify the aspects and importance of
international entrepreneurship.
2.
To
identify the important strategic
issues in international
entrepreneurship.
3.
To
identify the available options
for entering international
markets.
4.
To
present the problems and
barriers to international
entrepreneurship.
DIRECT
FOREIGN INVESTMENT
Majority
interest
Another
equity method is to purchase a majority
interest in a
foreign business. The
majority
interest allows the entrepreneur to
obtain managerial control
while maintaining
the
company's local identity. In
technical sense anything
over 50% of the equity of the
firm
is majority interest.
100
percent ownership
One
hundred percent ownership assures
control. One form of 100
percent ownership is
mergers
and acquisitions, but the entrepreneur
needs to have a general
understanding of
the
benefits and problems of mergers as a
strategic option.
A
horizontal
merger is the
combination of two firms that
produce closely related
projects
in the same area. A vertical
merger is the
combination of firms in successive
stages
of production. A product
extension merger occurs
when acquiring and acquired
companies
have related production but
do not have directly competing
products. A
market
extension merger is when
two firms produce the same products
but sell them in
different
areas. A diversified
activity merger is a
conglomerate merger involving
the
consolidation
of two unrelated firms. Mergers are a
sound strategic option for
an
entrepreneur
when synergy is present. Economies of
scale are the most common
reason
for
mergers. A second factor
that causes synergy is taxation, or
unused tax credits.
The
final
factor is the benefits received in
combining complementary
resources.
BARRIERS
TO INTERNATIONAL TRADE
The
positive attitude toward
free trade began about 1947
with the development of general trade
agreements
and
reduction of trade
barriers.
General
Agreement on Tariffs and
Trade (GATT)
GATT
is a multilateral agreement with the
objective of liberalizing trade by
eliminating tariffs and
import
quotas.
In each round, mutual tariff
reductions are negotiated between
member nations. Members can
ask
for
investigation of violations. While GATT
has helped develop more unrestricted
trade, its voluntary
membership
gives it little
authority.
Increasing
Protectionist Attitudes
Support
of free trade increased significantly in
the 1980s due to the rise in
protectionist pressures in
many
countries.
The persistent U.S. trade
deficit has strained the
world trading system. The
economic success of
a
country (Japan) perceived as
not playing by the rules has
also strained the trading
system. In response
many
countries have established bilateral
voluntary export
restrictions.
Trade
Blocs and Free Trade
Areas
Groups
of nations are banding together to increase investment
between nations in the group and
exclude
others.
The North American Free
Trade Agreement (NAFTA) between the
U.S., Canada, and
Mexico
reduces
barriers and encourages investment.
The Americas, Argentina, Brazil,
Paraguay, and Uruguay
have
created
the Mercosul trade zone, a free
trade zone between the
countries. The European Community
(EC)
is
founded on the principle of supra-nationality,
with member nations not being
able to enter into
trade
agreements
on their own that are
inconsistent with EC
regulations.
Entrepreneur's
Strategies and Trade
Barriers
Trade
barriers pose
problems for entrepreneurs
who want to become involved in
international business.
Trade
barriers increase the costs of
exporting projects to a country.
Voluntary export restrictions may
limit
30
Entrepreneurship
MGT602
VU
the
ability to sell products in a country
from production facilities outside the
country. An entrepreneur may
have
to locate assembly or facilities in a
country to conform to the local content
regulations.
KEY
TERMS
Management
contracts
A
method for doing a specific
international task
Market
extension merger
Combination
of at least two firms with
similar products in different geographic
markets
Minority
interest
Having
less than 50 percent ownership
position
Nonequity
arrangements
Doing
international business through an
arrangement that does not
involve any investment
Product-extension
merger
Combination
of two firms with noncompeting
products
Synergy
Two
parties having things in common
Third-party
arrangements
Paying
for goods indirectly through
another source
Trade
barriers
Hindrances
to going international business
Turn-key
projects
Developing
and operationalizing something in a
foreign country
Vertical
merger
Combination
of at least two firms at different
market levels
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