Chapter 5 Identifying and Analyzing Domestic and International

Chapter 5 Identifying and Analyzing Domestic and International Opportunities Hisrich Peters Mc. Graw-Hill/Irwin Copyright © 2010 by The Mc. Graw-Hill Companies, Inc. All rights reserved. Shepherd

Introduction § Entrepreneurs find it difficult to both manage and expand the venture they created. § To expand a venture, entrepreneurs need to: § Identify opportunities for domestic and international expansion. § Develop different management skills. § Infuse new entrepreneurial spirit (intrapreneurship). 5 -2

Introduction (cont. ) § Factors contributing to international expansion: § Opening up of controlled economies to marketoriented enterprise. § Self-interest of organizations as well as the impact of external events and forces. § Developing countries need training and education as well as infrastructure to support their development and growth in the next century. 5 -3

Opportunity Recognition and the Opportunity Assessment Plan § The key to successful domestic and international entrepreneurship is to develop an idea that has a market with a need for the product or service idea conceived. § Opportunity assessment is often best accomplished by developing an opportunity assessment plan. § An opportunity assessment plan is not a business plan. 5 -4

Opportunity Recognition and the Opportunity Assessment Plan (cont. ) § An opportunity assessment plan has four sections: § The first section develops the idea, analyzes competitive products and companies, and identifies the unique selling propositions. § The second section focuses on the market—its size, trends, characteristics, and growth rate. § The third section focuses on the entrepreneur’s and management team’s skills and experience. § The final section develops a time line indicating the steps to successfully launch the venture. 5 -5

Information Sources § General Information § SCORE is a nonprofit organization that provides free online and in-person assistance. § Small Business Development Centers provides counseling, training, and technical assistance on all aspects of managing a new venture. § The U. S. Chamber Small Business Center provides start-up assistance through Web-based tools and resources. § Other valuable Web sites include: nasbic. org, nvca. org, nbia. org, www. fasttrac. org, activecapital. org, c-e-o. org, entre-ed. org, kauffman. org. 5 -6

Information Sources (cont. ) § Industry and Market Information § Plunkett - Industry data, market research, trends, statistics on markets, and forecasts. § Frost and Sullivan - Industry specific information. § Euromonitor – Information on consumer market sizes, marketing parameters, companies, and brands. § Gartner - Information on technology markets. § Gale Directory Library - Industry statistics and information on nonprofit organizations and associations. 5 -7

Information Sources (cont. ) § Competitive Company and Product Information § Business Source Complete - Provides company and industry information by scanning the Datamonitor reports. § Hoovers - Provides information on both large and small companies with links to competitors in the same NAICS (North American Industrial Classification System) category. § Mergent - Provides detailed company and product information on U. S. and international companies. 5 -8

Information Sources (cont. ) § Government Sources § Census reports § factfinder. census. gov § www. census. gov/ipc/www/idb § Export/import authority § UN Comtrade § www. business. gov/expand/import-export § NAICS and Standard Industrial Classification codes § www. naics. com/info. htm § www. osha. gov/pls/imis/sic_manual. html 5 -9

Information Sources (cont. ) § Search Engines § There are many key terms for searching the needed industry, market, and competitive information. § Trade Associations § Good source for country-specific industry data. § Trade Publications § Provide information and insights on trend, companies, and trade shows from a local perspective of the particular market and market conditions. 5 -10

The Nature of International Entrepreneurship § International entrepreneurship is the process of an entrepreneur conducting business activities across national boundaries. § The activities necessary for ascertaining and satisfying the needs and wants of target consumers take place in more than one country. § With a commercial history of only 300 years, the United States is a relative newcomer to the international business arena. 5 -11

The Importance of International Business to the Firm § International business has become increasingly important to firms of all sizes. § A successful entrepreneur must be able to: § Fully understand the difference between domestic and international business. § Respond accordingly thereby successfully “going global. ” 5 -12

International versus Domestic Entrepreneurship § Economics § In a domestic business strategy, the entire country is organized under a single economic system and has the same currency. § Creating a business strategy for a multicountry area means dealing with differences in: § § Levels of economic development. Currency valuations. Government regulations. Banking, venture capital, marketing, and distribution systems. 5 -13

International versus Domestic Entrepreneurship (cont. ) § Stage of Economic Development § Certain factors significantly impact a firm’s ability to successfully engage in international business such as: § § § Fundamental infrastructures. Banking facilities and systems. Educational systems. Legal system. Business ethics and norms. 5 -14

International versus Domestic Entrepreneurship (cont. ) § Balance of Payments Current Account § With the present system of flexible exchange rates, a country’s current account (the difference between the value of a country’s imports and exports over time) affects the valuation of its currency. § The valuation of one country’s currency affects business transactions between countries. 5 -15

International versus Domestic Entrepreneurship (cont. ) § Type of System § Difficulties in doing business in economies that are developing, or in transition. § Use of barter or third-party arrangements in these countries to increase business activity. § Barter - A method of payment using nonmoney items. § Third-party arrangements - Paying for goods indirectly through another source. 5 -16

International versus Domestic Entrepreneurship (cont. ) § Political-Legal Environment § Political risk analysis - An assessment of a country’s political policies and its stability prior to entry. § Types of political risks: § § Operating risk. Transfer risk. Ownership risk. Conflict and changes in the solvency of the country. 5 -17

International versus Domestic Entrepreneurship (cont. ) § A country’s legal system regulates: § Its business practices. § The manner in which business transactions are executed. § The rights and obligations involved in any business transaction between parties. § Critical areas for every entrepreneur: § § Property rights. Contract law. Product safety. Product liability. 5 -18

International versus Domestic Entrepreneurship (cont. ) § Language § One of the biggest problems for the entrepreneur is finding a translator. § Significant problems can occur with careless translation. § Care should be taken to hire a translator whose native tongue is the target language and whose expertise matches that of the original authors. 5 -19

Technological Environment § The variation and availability of technology are often surprising, particularly to an entrepreneur from a developed country. § New products in a country are created based on the conditions and infrastructure operant in that country. 5 -20

Figure 5. 1 - Various Aspects of Culture Figure 5. 1 5 -21

Available Distribution Systems § Factors to be considered in determining the distribution 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. 5 -22

Motivations 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. 5 -23

Strategic Effects of Going Global § Physical and psychological closeness to the international market affects the way business occurs. § Cultural variables, language, and legal factors can make a foreign market that is geographically close seem psychologically distant. 5 -24

Strategic Effects of Going Global (cont. ) § Issues involved in psychological distance: § The distance envisioned by the entrepreneur may be based more on perception than reality. § Closer psychological proximity makes it easier for an entrepreneurial firm to enter a market. § There are more similarities than differences between individual entrepreneurs regardless of the country. 5 -25

Foreign Market Selection § One good market selection model employs a five-step approach: § Develop appropriate indicators. § Collect data and convert into comparable indicators. § Establish an appropriate weight for each indicator. § Analyze the data. § Select the appropriate market from the market rankings. 5 -26

Entrepreneurial Entry Strategies § Exporting § Indirect exporting. § Direct exporting. § Nonequity Arrangements § Licensing. § Turn-key projects. § Management contracts. 5 -27

Entrepreneurial 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. 5 -28

Entrepreneurial Partnering § Foreign entrepreneurs know the country and culture. § They can facilitate business transactions and update the entrepreneur on business, economic, and political conditions. § Good partners share the entrepreneur’s vision, are unlikely to exploit the partnership, and can help the entrepreneur achieve his or her goals. 5 -29

Barriers 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 or reducing tariffs, subsidies, and import quotas. 5 -30

Barriers to International Trade (cont. ) § Increasing Protectionist Attitudes § Support of GATT resulted in: § Strain on the world trading system and the economic success of countries perceived as not playing by rules. § Establishment of bilateral voluntary export restraints to circumvent 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). 5 -31

Barriers to International Trade (cont. ) § Entrepreneur’s Strategy and Trade Barriers § Trade barriers increase entrepreneurs’ costs of exporting products or semifinished products to a country. § Voluntary export restraints may limit entrepreneurs’ ability to sell products in a country from production facilities outside the country. § Entrepreneurs may have to locate assembly or production facilities in a country to conform to local content regulations. 5 -32