International International Entrepreneurship Entrepreneurship

OpportunitiesOpportunities

The Nature of International The Nature of International EntrepreneurshipEntrepreneurship

International entrepreneurship is the process of International entrepreneurship is the process of an entrepreneur conducting business activities an entrepreneur conducting business activities across national boundaries.across national boundaries.

An entrepreneur entering international business An entrepreneur entering international business must answer the following questions:must answer the following questions:

Is managing international business different from Is managing international business different from managing domestic business?managing domestic business?

What are the strategic issues to be resolved in What are the strategic issues to be resolved in international business management?international business management?

What are the options available for engaging in What are the options available for engaging in international business?international business?

How should one assess the decision to enter into How should one assess the decision to enter into an international market? an international market?

International vs. Domestic International vs. Domestic Entrepreneurship: EconomicsEntrepreneurship: Economics

Creating a business strategy for a Creating a business strategy for a multi-country area means dealing multi-country area means dealing with differences with the following with differences with the following areas:areas:

Levels of economic developmentLevels of economic development Currency valuations Currency valuations Govt. regulationsGovt. regulations Banking, economic, marketing and Banking, economic, marketing and

distribution systemsdistribution systems

International vs. Domestic International vs. Domestic Entrepreneurship: Stage of Economic Entrepreneurship: Stage of Economic

DevelopmentDevelopment Roads Roads ElectricityElectricity Communication systemsCommunication systems Banking facilities and systemsBanking facilities and systems Adequate educational systemsAdequate educational systems Banking facilities and systemsBanking facilities and systems Adequate educational systemsAdequate educational systems A well-developed legal systemA well-developed legal system Established business ethics and normsEstablished business ethics and norms

International vs. Domestic International vs. Domestic Entrepreneurship: Balance of Entrepreneurship: Balance of

PaymentsPayments A country’s balance of payments A country’s balance of payments

affects the valuation of its currency.affects the valuation of its currency. The valuation of one country’s The valuation of one country’s

currency affects how business of that currency affects how business of that country do business in other country do business in other countries.countries.

Again, devaluation of one currency Again, devaluation of one currency means that the export potential of means that the export potential of that country is increased.that country is increased.

International vs. Domestic International vs. Domestic Entrepreneurship: Type of systemEntrepreneurship: Type of system

Instead of using the traditional franchise Instead of using the traditional franchise bottling, Pepsi used a barter type bottling, Pepsi used a barter type arrangement that satisfied both the arrangement that satisfied both the socialized USSR and capitalist US.socialized USSR and capitalist US.

In return for receiving technology and In return for receiving technology and syrup from Pepsi, the former USSR syrup from Pepsi, the former USSR provided the company with Soviet Vodka provided the company with Soviet Vodka and the right to distribute it in the US. and the right to distribute it in the US.

There are structural differences in There are structural differences in transition, developing, and developed transition, developing, and developed economies.economies.

International vs. Domestic Entrepreneurship: International vs. Domestic Entrepreneurship: Political-Legal EnvironmentPolitical-Legal Environment

Pricing decisions in a country that has a value Pricing decisions in a country that has a value added tax are different from those decisions added tax are different from those decisions made by the same entrepreneur in a country with made by the same entrepreneur in a country with no value added tax. no value added tax.

Advertising strategy is affected by the variations Advertising strategy is affected by the variations in what can be said in the copy in different in what can be said in the copy in different countries.countries.

Product decisions are affected by legal Product decisions are affected by legal requirements with respect to labeling, requirements with respect to labeling, ingredients, and packaging.ingredients, and packaging.

The laws governing business arrangements also The laws governing business arrangements also vary greatly in over 150 different legal systems vary greatly in over 150 different legal systems and national laws. and national laws.

International vs. Domestic Entrepreneurship: International vs. Domestic Entrepreneurship: Cultural EnvironmentCultural Environment

Entrepreneurs must make sure that each Entrepreneurs must make sure that each element in the business plan has some element in the business plan has some congruence with the local culture.congruence with the local culture.

In some countries, POP displays are not In some countries, POP displays are not allowed.allowed.

Bribes and corruption: how should an Bribes and corruption: how should an entrepreneur deal with these situations entrepreneur deal with these situations when it may mean losing the business?when it may mean losing the business?

International vs. Domestic Entrepreneurship: International vs. Domestic Entrepreneurship: Technological EnvironmentTechnological Environment

The variation and availability of The variation and availability of technology is often surprising.technology is often surprising.

New products in a country are New products in a country are created based on the conditions and created based on the conditions and infrastructure operant in that infrastructure operant in that country. country.

International vs. Domestic Entrepreneurship: International vs. Domestic Entrepreneurship: Strategic IssuesStrategic Issues

Four strategic issues are of immense Four strategic issues are of immense importance:importance:

The allocation of responsibility between The allocation of responsibility between the domestic and foreign operations. the domestic and foreign operations.

The nature of the planning, reporting and The nature of the planning, reporting and control systems to be used throughout control systems to be used throughout international operations.international operations.

The appropriate organizational structure The appropriate organizational structure for conducting international operations.for conducting international operations.

The degree of standardization possible.The degree of standardization possible.

Strategic Issues: Analyzing data of each Strategic Issues: Analyzing data of each country on the following six areas: country on the following six areas:

Market characteristics:Market characteristics: Size of the market, rate of growthSize of the market, rate of growth Stage of developmentStage of development Stage of product life cycle; saturation Stage of product life cycle; saturation

levelslevels Buyer behavior characteristicsBuyer behavior characteristics Social/cultural factorsSocial/cultural factors Physical environmentPhysical environment

Strategic Issues: Analyzing data of each Strategic Issues: Analyzing data of each country on the following six areas:country on the following six areas:

Marketing institutions:Marketing institutions: Distribution systemsDistribution systems Communication mediaCommunication media Marketing services (advertising and Marketing services (advertising and

research)research)Industry conditions:Industry conditions: Competitive size and practicesCompetitive size and practices Technical developmentTechnical development

Strategic Issues: Analyzing data of each Strategic Issues: Analyzing data of each country on the following six areas:country on the following six areas:

Legal environmentLegal environment Laws, regulations, codes, tariffs and taxesLaws, regulations, codes, tariffs and taxesResourcesResources Personnel (availability, skill, potential and Personnel (availability, skill, potential and

cost)cost) Money (availability and cost)Money (availability and cost)Political environmentPolitical environment Current govt. policies and attitudesCurrent govt. policies and attitudes Long range political environmentLong range political environment

Entrepreneurial Entry Into Entrepreneurial Entry Into International Business: ExportingInternational Business: Exporting

Export normally involves sale and shipping of products Export normally involves sale and shipping of products manufactured in one country to a customer located in manufactured in one country to a customer located in another country. another country.

Indirect exporting involves having a foreign purchaser in Indirect exporting involves having a foreign purchaser in the local market or using an export management firm.the local market or using an export management firm.

Direct exporting takes place through independent Direct exporting takes place through independent distributors or the company’s own overseas sales office. distributors or the company’s own overseas sales office.

As more business is done in the overseas sales in the As more business is done in the overseas sales in the foreign market, warehouses are usually opened, followed foreign market, warehouses are usually opened, followed by a local assembly process when sales reach a high by a local assembly process when sales reach a high level. level.

The assembly operation can eventually evolve into the The assembly operation can eventually evolve into the establishment of manufacturing operation in the foreign establishment of manufacturing operation in the foreign market.market.

Entrepreneurs then export the output from these Entrepreneurs then export the output from these manufacturing operations to other international markets. manufacturing operations to other international markets.

Non-equity ArrangementsNon-equity Arrangements

This involves doing international business This involves doing international business through an arrangement that does not through an arrangement that does not involve any investment.involve any investment.

There are three types of non-equity There are three types of non-equity arrangements: licensing, turn-key projects arrangements: licensing, turn-key projects and management contracts.and management contracts.

Entrepreneurs who either cannot export or Entrepreneurs who either cannot export or make direct investments still can do make direct investments still can do international business through non-equity international business through non-equity arrangements.arrangements.

LicensingLicensing

This involves an entrepreneur who is This involves an entrepreneur who is a manufacturer (licensee) giving a a manufacturer (licensee) giving a foreign manufacturer (licensor) the foreign manufacturer (licensor) the right to use a patent, trademark, right to use a patent, trademark, technology, production process, or technology, production process, or product in return for the payment of product in return for the payment of a loyalty.a loyalty.

Bata is selling Hush Puppies shoes in Bata is selling Hush Puppies shoes in its store through an agreement. its store through an agreement.

Turn-Key Projects Turn-Key Projects The underdeveloped countries need The underdeveloped countries need

manufacturing technology and infrastructure and manufacturing technology and infrastructure and yet do not want to give up substantial portions of yet do not want to give up substantial portions of their economy to foreign ownership. their economy to foreign ownership.

One solution to this dilemma has been to have a One solution to this dilemma has been to have a foreign entrepreneur build a factory, train the foreign entrepreneur build a factory, train the workers to operate the equipment, train the workers to operate the equipment, train the management to run the installation and then turn management to run the installation and then turn it over to local owners once the operation starts.it over to local owners once the operation starts.

Financing is often provided by the local company Financing is often provided by the local company or the govt. with periodic payments being made or the govt. with periodic payments being made over the life of the project. over the life of the project.

Management ContractsManagement Contracts

It involves entering international It involves entering international business by contracting management business by contracting management techniques and managerial skills. techniques and managerial skills.

These contracts sometimes follow a These contracts sometimes follow a turn-key project where the foreign turn-key project where the foreign owner wants to use the management owner wants to use the management of the turn-key supplier. of the turn-key supplier.

FDI (Foreign Direct Investment)FDI (Foreign Direct Investment)

Joint ventures, minority and majority Joint ventures, minority and majority equity positions are methods for making equity positions are methods for making foreign direct investments. foreign direct investments.

Entrepreneurs have used Entrepreneurs have used minority minority positionspositions to gain a foothold to acquire to gain a foothold to acquire experience in a market before making a experience in a market before making a major commitment. major commitment.

When the minority shareholder has When the minority shareholder has something of strong value, the ability to something of strong value, the ability to influence the decision making process is influence the decision making process is often far in excess of the shareholding. often far in excess of the shareholding.

Joint VenturesJoint Ventures

Here, two firms get together and form a Here, two firms get together and form a third company in which they share the third company in which they share the equity. It is used in two situations:equity. It is used in two situations:

When the entrepreneur wants to purchase When the entrepreneur wants to purchase local knowledge as well as an already local knowledge as well as an already established marketing or manufacturing established marketing or manufacturing facilityfacility

When rapid entry into a market is needed.When rapid entry into a market is needed.

Motives for forming Joint VenturesMotives for forming Joint Ventures

Sharing the costs and risks of a projectSharing the costs and risks of a project Synergy between firms: synergy in the form of Synergy between firms: synergy in the form of

people, customers, inventory, plant or equipment people, customers, inventory, plant or equipment provides leverage for the joint venture. provides leverage for the joint venture.

Obtaining a competitive advantage: a joint Obtaining a competitive advantage: a joint venture can pre-empt competitors, allowing an venture can pre-empt competitors, allowing an entrepreneur to access new customers and to entrepreneur to access new customers and to expand the market base. expand the market base.

Joint ventures are used by entrepreneurs to enter Joint ventures are used by entrepreneurs to enter markets and economies that pose entrance markets and economies that pose entrance difficulties. difficulties.

Majority Interest Majority Interest

Having more than 50% ownership Having more than 50% ownership positionposition

While entering a volatile international While entering a volatile international market, some entrepreneurs take a market, some entrepreneurs take a smaller position, which they increase smaller position, which they increase up-to 100% as sales and profits up-to 100% as sales and profits occur. occur.

100% Ownership100% Ownership If the entrepreneur has the capital, technology and marketing If the entrepreneur has the capital, technology and marketing

skills required for successful entry into a market, there may be no skills required for successful entry into a market, there may be no reason to share the ownership. reason to share the ownership.

There are five types of merger: There are five types of merger: horizontal, vertical, product horizontal, vertical, product extension, market extension and diversified activityextension, market extension and diversified activity. .

A horizontal merger is the combination of two firms that produce A horizontal merger is the combination of two firms that produce one or more of the same or closely related products in the same one or more of the same or closely related products in the same geographic area. geographic area.

A vertical merger is the combination of two or more firms in A vertical merger is the combination of two or more firms in successive stages of production.successive stages of production.

A product extension merger occurs when acquiring and acquired A product extension merger occurs when acquiring and acquired companies have related production or distribution activities but do companies have related production or distribution activities but do not have products that competes directly with each other. not have products that competes directly with each other.

A market extension merger is the combination of two firms A market extension merger is the combination of two firms producing the same products but selling them in different producing the same products but selling them in different geographic markets. geographic markets.

The diversified activity merger is a conglomerate merger involving The diversified activity merger is a conglomerate merger involving the consolidation of two essentially unrelated firms. the consolidation of two essentially unrelated firms.

Motivations for MergerMotivations for Merger Economies of scale: economies of scale can occur Economies of scale: economies of scale can occur

in production, coordination and administration, in production, coordination and administration, sharing central services such as office sharing central services such as office management and accounting, financial control management and accounting, financial control and upper-level management. and upper-level management.

Unused tax credits: corporate income tax Unused tax credits: corporate income tax regulations allow the net operating losses of one regulations allow the net operating losses of one company to reduce the taxable income of another company to reduce the taxable income of another when they are combined. when they are combined.

Benefits received in combining complementary Benefits received in combining complementary resources: entrepreneurs merge with other firms resources: entrepreneurs merge with other firms to ensure a source of supply for key ingredients, to ensure a source of supply for key ingredients, to obtain a new technology or to keep the other to obtain a new technology or to keep the other firms product from being a competitive threat. firms product from being a competitive threat.

Barriers to International Trade: Barriers to International Trade: GATTGATT

Established in 1947 under US leadership. Established in 1947 under US leadership. GATT is a multilateral agreement with the GATT is a multilateral agreement with the

objective of liberalizing trade by objective of liberalizing trade by eliminating or reducing tariffs, subsidies, eliminating or reducing tariffs, subsidies, and import quotas. and import quotas.

GATT membership includes over 100 GATT membership includes over 100 nations and has had eight rounds of tariff nations and has had eight rounds of tariff reductions, the most recent being the reductions, the most recent being the Uruguay round that lasted from 1986-93.Uruguay round that lasted from 1986-93.