International Entrepreneurship Opportunities

1. International Entrepreneurship Opportunities

2. The Nature of International Entrepreneurship • International entrepreneurship is the process of an entrepreneur conducting business activities across national boundaries. • An entrepreneur entering international business must answer the following questions: • Is managing international business different from managing domestic business? • What are the strategic issues to be resolved in international business management? • What are the options available for engaging in international business? • How should one assess the decision to enter into an international market?

3. International vs. Domestic Entrepreneurship: Economics • Creating a business strategy for a multi-country area means dealing with differences with the following areas: • Levels of economic development • Currency valuations • Govt. regulations • Banking, economic, marketing and distribution systems

4. International vs. Domestic Entrepreneurship: Stage of Economic Development • Roads • Electricity • Communication systems • Banking facilities and systems • Adequate educational systems • Banking facilities and systems • Adequate educational systems • A well-developed legal system • Established business ethics and norms

5. International vs. Domestic Entrepreneurship: Balance of Payments • A country’s balance of payments affects the valuation of its currency. • The valuation of one country’s currency affects how business of that country do business in other countries. • Again, devaluation of one currency means that the export potential of that country is increased.

6. International vs. Domestic Entrepreneurship: Type of system • Instead of using the traditional franchise bottling, Pepsi used a barter type arrangement that satisfied both the socialized USSR and capitalist US. • In return for receiving technology and syrup from Pepsi, the former USSR provided the company with Soviet Vodka and the right to distribute it in the US. • There are structural differences in transition, developing, and developed economies.

7. International vs. Domestic Entrepreneurship: Political-Legal Environment • Pricing decisions in a country that has a value added tax are different from those decisions made by the same entrepreneur in a country with no value added tax. • Advertising strategy is affected by the variations in what can be said in the copy in different countries. • Product decisions are affected by legal requirements with respect to labeling, ingredients, and packaging. • The laws governing business arrangements also vary greatly in over 150 different legal systems and national laws.

8. International vs. Domestic Entrepreneurship: Cultural Environment • Entrepreneurs must make sure that each element in the business plan has some congruence with the local culture. • In some countries, POP displays are not allowed. • Bribes and corruption: how should an entrepreneur deal with these situations when it may mean losing the business?

9. International vs. Domestic Entrepreneurship: Technological Environment • The variation and availability of technology is often surprising. • New products in a country are created based on the conditions and infrastructure operant in that country.

10. International vs. Domestic Entrepreneurship: Strategic Issues • Four strategic issues are of immense importance: • The allocation of responsibility between the domestic and foreign operations. • The nature of the planning, reporting and control systems to be used throughout international operations. • The appropriate organizational structure for conducting international operations. • The degree of standardization possible.

11. Strategic Issues: Analyzing data of each country on the following six areas: Market characteristics: • Size of the market, rate of growth • Stage of development • Stage of product life cycle; saturation levels • Buyer behavior characteristics • Social/cultural factors • Physical environment

12. Strategic Issues: Analyzing data of each country on the following six areas: Marketing institutions: • Distribution systems • Communication media • Marketing services (advertising and research) Industry conditions: • Competitive size and practices • Technical development

13. Strategic Issues: Analyzing data of each country on the following six areas: Legal environment • Laws, regulations, codes, tariffs and taxes Resources • Personnel (availability, skill, potential and cost) • Money (availability and cost) Political environment • Current govt. policies and attitudes • Long range political environment

14. Entrepreneurial Entry Into International Business: Exporting • Export normally involves sale and shipping of products manufactured in one country to a customer located in another country. • Indirect exporting involves having a foreign purchaser in the local market or using an export management firm. • Direct exporting takes place through independent distributors or the company’s own overseas sales office. • As more business is done in the overseas sales in the foreign market, warehouses are usually opened, followed by a local assembly process when sales reach a high level. • The assembly operation can eventually evolve into the establishment of manufacturing operation in the foreign market. • Entrepreneurs then export the output from these manufacturing operations to other international markets.

15. Non-equity Arrangements • This involves doing international business through an arrangement that does not involve any investment. • There are three types of non-equity arrangements: licensing, turn-key projects and management contracts. • Entrepreneurs who either cannot export or make direct investments still can do international business through non-equity arrangements.

16. Licensing • This involves an entrepreneur who is a manufacturer (licensee) giving a foreign manufacturer (licensor) the right to use a patent, trademark, technology, production process, or product in return for the payment of a loyalty. • Bata is selling Hush Puppies shoes in its store through an agreement.

17. Turn-Key Projects • The underdeveloped countries need manufacturing technology and infrastructure and yet do not want to give up substantial portions of their economy to foreign ownership. • One solution to this dilemma has been to have a foreign entrepreneur build a factory, train the workers to operate the equipment, train the management to run the installation and then turn it over to local owners once the operation starts. • Financing is often provided by the local company or the govt. with periodic payments being made over the life of the project.

18. Management Contracts • It involves entering international business by contracting management techniques and managerial skills. • These contracts sometimes follow a turn-key project where the foreign owner wants to use the management of the turn-key supplier.

19. FDI (Foreign Direct Investment) • Joint ventures, minority and majority equity positions are methods for making foreign direct investments. • Entrepreneurs have used minority positions to gain a foothold to acquire experience in a market before making a major commitment. • When the minority shareholder has something of strong value, the ability to influence the decision making process is often far in excess of the shareholding.

20. Joint Ventures • Here, two firms get together and form a third company in which they share the equity. It is used in two situations: • When the entrepreneur wants to purchase local knowledge as well as an already established marketing or manufacturing facility • When rapid entry into a market is needed.

21. Motives for forming Joint Ventures • Sharing the costs and risks of a project • Synergy between firms: synergy in the form of people, customers, inventory, plant or equipment provides leverage for the joint venture. • Obtaining a competitive advantage: a joint venture can pre-empt competitors, allowing an entrepreneur to access new customers and to expand the market base. • Joint ventures are used by entrepreneurs to enter markets and economies that pose entrance difficulties.

22. Majority Interest • Having more than 50% ownership position • While entering a volatile international market, some entrepreneurs take a smaller position, which they increase up-to 100% as sales and profits occur.

23. 100% Ownership • If the entrepreneur has the capital, technology and marketing skills required for successful entry into a market, there may be no reason to share the ownership. • There are five types of merger: horizontal, vertical, product extension, market extension and diversified activity. • A horizontal merger is the combination of two firms that produce one or more of the same or closely related products in the same geographic area. • A vertical merger is the combination of two or more firms in successive stages of production. • A product extension merger occurs when acquiring and acquired companies have related production or distribution activities but do not have products that competes directly with each other. • A market extension merger is the combination of two firms producing the same products but selling them in different geographic markets. • The diversified activity merger is a conglomerate merger involving the consolidation of two essentially unrelated firms.

24. Motivations for Merger • Economies of scale: economies of scale can occur in production, coordination and administration, sharing central services such as office management and accounting, financial control and upper-level management. • Unused tax credits: corporate income tax regulations allow the net operating losses of one company to reduce the taxable income of another when they are combined. • Benefits received in combining complementary resources: entrepreneurs merge with other firms to ensure a source of supply for key ingredients, to obtain a new technology or to keep the other firms product from being a competitive threat.

25. Barriers to International Trade: GATT • Established in 1947 under US leadership. • GATT is a multilateral agreement with the objective of liberalizing trade by eliminating or reducing tariffs, subsidies, and import quotas. • GATT membership includes over 100 nations and has had eight rounds of tariff reductions, the most recent being the Uruguay round that lasted from 1986-93.