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Entrepreneurship

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Entrepreneurship ­ MGT602
VU
Lesson 11
INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES
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.
THE NATURE OF INTERNATIONAL ENTREPRENEURSHIP
As more countries become market oriented and developed, the distinction between foreign and domestic
markets is becoming less pronounced. International entrepreneurship is the process of an entrepreneur
conducting business activities across national boundaries. It is exporting, licensing, or opening a sales office
in another country. When an entrepreneur executes his or her business in more than one country,
international entrepreneurship occurs.
THE IMPORTANCE OF INTERNATIONAL BUSINESS TO THE FIRM
International business has become increasingly important to firms of all sizes. The successful entrepreneur
will be someone who understands how international business differs from domestic business and is able to
act accordingly.
INTERNATIONAL VERSUS DOMESTIC ENTREPRENEURSHIP
Whether international or domestic, an entrepreneur is concerned about the same basic issues-sales, costs,
and profits. What varies is the relative importance of the factors being considered. International
entrepreneurial decisions are more complex due to uncontrollable factors such as the following.
Economics
A domestic business strategy is designed under a single economic system. Creating a business strategy for
multiple countries means dealing with different levels of economic development and different distribution
systems.
Balance of Payments
A country's balance of payments affects the valuation of its currency. This economic variable will affect
how companies do business in other countries.
Type of System
Barter or third-party arrangements have been used to increase business activity with the Commonwealth
of Independent States, the former U.S.S.R. There are still many difficulties in doing business in developing
and transition economies due to:
a.  Gaps in the knowledge of the Western system regarding business plans,
marketing, and profits
b. Widely variable rates of return.
c.  Non-convertibility of the ruble.
d. Differences in the accounting system.
e.  Nightmarish communications.
Political-Legal Environment
Multiple political and legal environments create different business problems. Each element of the
international business strategy can potentially be affected by multiple legal environments. Laws governing
business arrangements also vary greatly in the 150 different legal systems and sets of national laws.
Cultural Environment
The impact of culture on entrepreneurs and strategies is significant. Understanding the local culture is
necessary when developing worldwide plans.
Technological Environment
Technology varies significantly across countries. New products in a country are created based on the
conditions and infrastructure of that country.
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Entrepreneurship ­ MGT602
VU
Strategic Issues
Four strategic issues are important to the international entrepreneur:
1. The allocation of responsibility between the U.S. and foreign operations.
2. The nature of the planning and control systems to be used.
3. The appropriate organizational structure for conducting international operations.
4. The degree of standardization possible.
With experience in international operations, entrepreneurs tend to change their approach to responsibility.
Stage 1: In the first stages the entrepreneur typically follows a highly centralized decision-making process.
Stage 2: When success occurs, it is no longer possible to use completely centralized decision-making
process.
Stage 3: Decentralization is scaled back and major strategic decisions are again centralized.
To understand what is required for effective planning, reporting, and control, the entrepreneur should
consider:
1. Environmental analysis.
2. Strategic planning.
3. Structure.
4. Operational planning.
5. Controlling the marketing program.
The first step in identifying markets is to analyze data in the following areas:
1. Market characteristics.
2. Marketing institutions.
3. Industry conditions.
4. Legal environment.
5. Resources.
6. Political environment.
ENTREPRENEURIAL ENTRY INTO INTERNATIONAL BUSINESS
The choice of entry method depends on the goals of the entrepreneur and the company's strengths and
weaknesses.
Exporting
As a general rule, an entrepreneur starts doing international business through exporting.
Indirect exporting involves a foreign purchaser in the local market or using an export
management firm. For certain commodities, foreign buyers seek out sources of supply.
Export management firms, another indirect method, are located in many commercial
centers.
Direct exporting through independent distributors or through one's own overseas
sales office is another entry method. An independent foreign distributor directly
contacts foreign customers and takes care of all technicalities. Entrepreneurs who do
not wish to give up control over marketing can open overseas sales offices and hire
their own salespeople.
Non equity arrangements
Non equity arrangements allow the entrepreneur to enter a market without direct equity investment in the
foreign market.
Licensing involves a manufacturer giving a foreign manufacturer the right to use a
patent, trademark, or technology in return for a royalty. This arrangement is most
appropriate when the entrepreneur has no prospect of entering the market through
exporting or direct investment. The process is usually low risk and an easy way to
generate incremental income. Without careful analysis, licensing arrangements have
several pitfalls.
Turn-key projects
Lesser-developed countries are able to obtain manufacturing technology without
surrendering economic control through turn-key projects. A foreign entrepreneur
builds a facility, trains the workers, and trains the management to run the installation.
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Entrepreneurship ­ MGT602
VU
Once the operation is on line, it is turned over to local owners. Initial profits can lead to
follow-up sales. Financing is often provided by the local company or government.
Management contracts
Entrepreneurs can contract their management techniques and skills, often following a
turn-key project. The management contract allows the purchasing country to gain
foreign expertise without turning ownership over to a foreigner.
Direct Foreign Investment
The wholly owned foreign subsidiary has been the preferred mode of ownership for direct investment.
Minority interests
The minority interest provides the firm with either a source of raw materials or a captive
market for products. Entrepreneurs have used minority positions to gain a foothold in the
market before making a major investment.
Joint ventures
Two firms get together and form a third company in which they share the equity.
KEY TERMS
Balance of payments
The trade status between countries
Barter
A method of payment using no monetary item
Direct exporting
Selling goods to another country by taking care of the transaction
Diversified activity merger
Combination of at least two totally unrelated firms
Exporting
Selling goods made in one country to another country
Horizontal merger
Combination of at least two firms doing similar businesses at the same market level
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Table of Contents:
  1. THE NATURE AND IMPORTANCE OF ENTREPRENEURSHIP:DEFINITION OF ENTREPRENEUR
  2. THE NATURE AND IMPORTANCE OF ENTREPRENEURSHIP:Possibility of New Venture Formation
  3. ENTREPRENEURIAL PROCESS/START UPS:GOVERNMENT AS AN INNOVATOR
  4. THE ENTREPRENEURIAL AND ENTREPRENEURIAL MIND:ENTREPRENEURIAL PROCESS
  5. THE ENTREPRENEURIAL AND ENTREPRENEURIAL MIND (continued…)
  6. THE ENTREPRENEURIAL AND ENTREPRENEURIAL MIND (continued…):CLIMATE FOR ENTREPRENEURSHIP
  7. THE ENTREPRENEURIAL AND ENTREPRENEURIAL MIND (continued…):PROBLEMS AND SUCCESSFUL EFFORTS
  8. THE INDIVIDUAL ENTREPRENEUR:ENTREPRENEURIAL BACKGROUND AND CHARACTERISTICS
  9. THE INDIVIDUAL ENTREPRENEUR (continued…):Personal Values, Work History, MOTIVATION
  10. THE INDIVIDUAL ENTREPRENEUR (continued…):ROLE MODELS AND SUPPORT SYSTEMS
  11. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES:INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES, Minority interests
  12. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES (continued…):DIRECT FOREIGN INVESTMENT
  13. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES (continued…):BARRIERS TO INTERNATIONAL TRADE
  14. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES (continued…):ENTREPRENEURIAL PARTNERING
  15. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES (continued…):SOURCES OF NEW IDEAS
  16. CREATIVITY AND THE BUSINESS IDEA:METHODS OF GENERATING NEW IDEAS, CREATIVE PROBLEM SOLVING
  17. CREATIVITY AND THE BUSINESS IDEA:PRODUCT PLANNING AND DEVELOPMENT PROCESS
  18. LEGAL ISSUES FOR THE ENTREPRENEUR:NEED FOR A LAWYER, PATENTS
  19. LEGAL ISSUES FOR THE ENTREPRENEUR:TRADEMARKS, LICENSING
  20. LEGAL ISSUES FOR THE ENTREPRENEURS:PRODUCT SAFETY AND LIABILITY, INSURANCE
  21. CREATING AND STARTING THE VENTURE:WHAT IS THE BUSINESS PLAN, PRESENTING THE PLAN
  22. CREATING AND STARTING THE VENTURE (Continued….):WRITING THE BUSINESS PLAN
  23. CREATING AND STARTING THE VENTURE (Continued….):
  24. CREATING AND STARTING THE VENTURE (Continued….):WHY SOME BUSINESS PLANS FAIL, MARKETING PLAN
  25. THE MARKETING PLAN:MARKET RESEARCH FOR THE NEW VENTURE
  26. THE MARKETING MIX:STEPS IN PREPARING THE MARKETING PLAN
  27. THE ORGANIZATIONAL PLAN:DEVELOPING THE MANAGEMENT TEAM, LEGAL FORMS OF BUSINESS
  28. THE ORGANIZATIONAL PLAN (Continued….)
  29. THE ORGANIZATIONAL PLAN (Continued….):THE LIMITED LIABILITY COMPANY
  30. THE FINANCIAL PLAN:OPERATING AND CAPITAL BUDGETS
  31. THE FINANCIAL PLAN (Continued….):PRO FORMA INCOME STATEMENTS, PRO FORMA CASH FLOW
  32. PRO FORMA SOURCES AND USES OF FUNDS:PERSONAL FUNDS, FAMILY AND FRIENDS
  33. PRO FORMA SOURCES AND USES OF FUNDS:COMMERCIAL BANKS
  34. BANK LENDING DECISIONS:SMALL BUSINESS ADMINISTRATION LOANS
  35. SOURCES OF CAPITAL:GOVERNMENT GRANTS
  36. SOURCES OF CAPITAL:PRIVATE PLACEMENT, BOOTSTRAP FINANCING
  37. CAPITAL SOURCES IN PAKISTAN:PROVINCIAL LEVEL INSTITUTIONS, FINANCIAL INSTITUTIONS
  38. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  39. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  40. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  41. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  42. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  43. NEW VENTURE EXPANSION STRATEGIES AND ISSUES:JOINT VENTURES, ACQUISITIONS
  44. NEW VENTURE EXPANSION STRATEGIES AND ISSUES (Continued….):DETERMINING THE PRICE FOR AN ACQUISITION
  45. ENTREPRENEURSHIP & PAKISTAN:GENDER DEVELOPMENT STATUS WOMAN AS AN ENTREPRENEUR IN PAKISTAN