ace institute of management bba 6 th semester. small business venturing a small business may be...
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Small Business VenturingA small business may be defined as a
business with a small number of employees or with limited capital.
Normally privately owned corporations, partnerships or sole proprietorship
Examples: Convenience stores, restaurants, guests houses, hairdressers, tradesmen, solicitors, accountants
They are Independent and mostly managers are owners
Small Business VenturingAccording to Industry Act of Nepal: Industry
with fixed assets up to an amount of thirty million shall be defined as Small Industry
Accroding to Longenecker, Moore and PettyA small business has financing supplied by one
individual or a small group, has geographically localized operation expect marketing, is small compared to the biggest firms in industry and has employees usually fewer than hundred
Small Business VenturingCharacteristics of Small Business
Management is independentClosely held ownershipLocal operationsSmall size in terms of numbers of employee,
turn over, fixed assets and capital
Small Business VenturingTypes of Small Business Activities
ManufacturingWholesalingRetailingServices
Financial Services Professional Services Transport Services Repair Services
Small Business VenturingImportance
InnovationComplementary to Large BusinessFlexibilityJob creation and SatisfactionClose RelationCompetitionHigher Financial Reward
Small Business VenturingAdvantages and Disadvantages
Advantages Disadvantage
Independence Risk of Failure
Innovation Inadequate Management
Responsiveness Laws and Regulations
Employment Creation Marketing Problems
Financial Performance Technology
Interdependence Poor Financial Management
International Entrepreneurship is the process of an entrepreneur conducting business activities across national boundaries.
• When an entrepreneur executes his or her business model in more than one country, international entrepreneurship is occurring.
Importance of International Business to the firm.International business has become increasingly
important to firms of all sizes particularly today due to intense competition leading to hypercompetitive global economy.
•But before entering into international business entrepreneur must fully understand how international business differs from purely domestic business and an entrepreneur should be able to respond it accordingly.
Questions for Entrepreneur before venturing into international Market
1) Is managing international business different from managing domestic business? 2) What are the strategic issues to be resolved in international business management? Eg. Allocation of responsibility, planning and control, structure, standardization3) What are the options available for engaging in international business?
4) How should one assess the decision to enter into an international market? Eg. Profits, market share, competition
International Versus Domestic EntrepreneurshipEconomicalStage of Economic Development: Relate income of
people, infrastructure, banking facilitiesBalance of Payment: difference between import
and exportsType of systemPolitical and Legal EnvironmentCultural EnvironmentTechnological Environment
Entrepreneurial Entry into International BusinessThree options of entering into international
business market –
1) Exporting
2) Nonequity arrangements
3) Direct Foreign Investment
ExportingSelling goods made in one country to another country.Usually an entrepreneur starts doing international business
through exporting.Two general classification of exporting –
Indirect : Involves a foreign purchaser in the local market or using an export management firm.Requires least amount of risk and knowledge about market
Disadvantages: the intermediary still requires sales support,
The intermediary takes a margin, You have no direct contact with the end customer, You will have less control over the actual final transaction, You don’t get to learn about the overseas market, which could slow down longer term expansion plans.
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.
Direct Exporting•Advantage •Disadvantages
•You are in control of pricing•You are in full control of your brand•You get a direct understanding of buyers' or end users' needs and an ability to customize accordingly•You maintain the customer relationship•You are able to identify possible new opportunities•Your customers may prefer dealing dire
•it will take a lot of time, energy, staff resources and money•competitors with a local presence will be perceived as lower risk to buy from•after-sales commissioning and service may require local language capability•prompt troubleshooting may not be able to be done remotely and will require additional visits•growth will be slower
2) Non Equity ArrangementDoing international business through an arrangement
that does not involve any investmentEntrepreneurs who either cannot export or make direct
investment go for non equity arrangementTypes of Non equity arrangements
Licensing Gives rights to use patent, trademark and technology In return takes royalty Appropriate where market is difficult to enter Low risk Should be careful as several pitch falls ( fare of licensing largest
competitors)
Turn key Projects Appropriate for least developed or developing countries Foreign partners builds the facility, train employee and
management to run the instalment Once the operation is in line then is given to the local
owner Financing is normally local owner or government Initial profits can be made and follow up export sales
can be madeManagement Contracts
Entrepreneurs contracts management skill and techniques
Allows purchasing country to gain foreign expertise with turning ownership to foreigner
Sometimes follows the turn key projects where foreign owners wants to use the management.
3) Direct Foreign InvestmentWhere an entrepreneur himself
invests capital in international markets
Methods of Direct Foreign Investment –Minority Interests – Having less than 50% ownership position (E.g Standard chartered), provide the firm with either a source of supply or captive market for product, done to gain a foothold in the market before making major investment.
Joint venture – Two Company Forming a Third Company (E.g Surya Nepal Ltd). JVs are formed when entreprenerus want to purchase local knowledge and an established facility
Majority Interests – Having more than 50% ownership position (e.g Dabur Nepal Ltd), Allows the entrepreneur to obtain managerial control while maintaining the company’s local identity
100 percent Ownership: Ensures complete ownership and Control.Goes into 100 % ownership only entrepreneur has
technology, capital and Marketing SkillsMerger and acquisition: Basically 5 types of mergers
Horizontal Merger: Combination of two firms doing similar business in same market level
Vertical Merger: Combination of two firms in successive stage of production.
Product extension Merger: Combination of two firms with non competing product
Market extension Merger: Combination of at least two firms with similar product in two different geographic location
Diversified activity Merger: Combination of at least two totally unrelated products
FranchisingA franchise is an arrangement by the
manufacturer or sole distributor of trademarketed product or service that provides exclusive rights of local distribution to independent retailers in return for their payment of royalty.
Franchising is a marketing system revolving around a two party legal agreement, whereby the franchise conducts business according to terms specified by the franchisor.
FranchisingCharacteristics of franchise –
It is a marketing system for well known brands or trade mark
It involves two parties – franchisor and franchise.
It provides exclusive rights for local distribution of specific products or service to franchisee
It covers a specific territory.
FranchisingAdvantage of Franchising – to the Franchisee
Product AcceptanceManagement ExpertiseCapital RequirementsKnowledge of the marketOperating and Structural Control
Advantage of Franchising – to the FranchisorExpansion RiskCost Advantages
Disadvantages of Franchising- to the FranchiseeUnfulfilled promisesFranchise FeesFranchisor ControlIf the Franchisor business fails then Franchisee
will be left with nothing
Disadvantages of Franchising- to the FranchisorPoor Mgmt of FranchiseeNegative effect on entire franchise system
FranchisingTypes of Franchises
DistributorshipChain- Style operationService franchises- income tax preparation
companies, real estate agencies
Defining EthicsBasic rules or parameters for conducting any
activity in an acceptable mannerSet of principals prescribing a behavioral
code that explains what is right or wrongOutlines moral duties and obligationEntrepreneurs faces many ethical decisions
especially during early stages of their new venture
Conflict over the ethical nature is very prevalent.
Ethics and LawLegal Vs Ethical
Law provides what is illegal but it does not prove what is ethical considerations.
It is managerial rationalization about the justifying the conduct. Four Rationalization are Activity is not really illegal Individual or corporation best interest Will never be found It helps the company
Ethics and LawWithin the rationalization framework there
exists four distinct managerial rolesTypes Direct Effect Examples
Non role Against the firm
Expense account cheating, Embezzlement. Stealing supplies
Role Failure
Against the firm
Superficial performance appraisal, Not confronting expense account cheating
Role Distortion
For the firm Bribery, price fixing, manipulation suppliers
Role assertion (allegation )
For the firm Using nuclear technology for energy generation, Not withdrawing product line in face of initial allegation of inadequate safely
Ethics and LawEconomic Tradeoff
In some cases there exist trade off between profit and social welfare. For example Cigarette Advertisement Running toxic water in the river Lay offs during Economic downturn
Establishing a strategy for ethical responsibilityEthical Practices and Code of Conduct
Code of conduct is a statement of ethical practices or guidelines which an enterprise adheres
Covers multitude of subjects, ranging from misuse of corporate assets, conflict of interest, falsification books etc
This is becoming more prevalent in organization
They are also becoming implemented these days
Establishing a strategy for ethical responsibilityApproaches to Managerial Ethics
Should understand own ethical norms, motives, goals, orientation toward law and strategy towards immoral, amoral and moral management.
Moving from immoral to moral management can be done by conduction seminars and trainings
Establishing a strategy for ethical responsibility
Holistic Approach: Entrepreneurs should try holistic approach that allows personnel understand what they can do and cannot do
To apply entrepreneurs can develop specific principles Principle 1: Hire the right people Principle 2: Set standards more than rules Principle 3: Don’t get yourself get isolated meaning
be informed Principle 4: Let your ethical example at all times be
absolutely impeccable
Establishing a strategy for ethical responsibilityEthical Responsibility
Ethical Consciousness: The awareness about ethics should come from the entrepreneur himself
Ethical Process and Structure: Refers to procedure, positions, statements and announced ethical goals designed.
Institutionalization: Deliberate step to incorporate the entrepreneurs ethics.
Social ResponsibilityBusiness obligation towards societyExtends to different areas: Environment, Energy,
Fair Business Practices, Human Resources, Community Involvement, Products
Social action of Businesses can be classified into three categories. Social Obligation: Simply react to social issues
through obedience of law Social Responsibility: Responses more actively
accepting responsibility for various programsSocial Responsiveness: Highly proactive and also
willing to be evaluated by public for various activities.
E-entrepreneurAn e-entrepreneur is defined as an
individual willing to take the risk of investing time and money in an electronic business that has the potential to make a profit or incur a loss.
E-entrepreneurship is the act of managing an electronic enterprise that has the potential to make a profit or incur a loss.
Some of Famous E- EntrepreneursChad Hurley and Steve Chen – You tubeMark Zuckerberg – FacebookSergey Brin and Larry Page- GoogleKevin Rose - Digg
Bricks and Mortar BusinessHas a material presence Has a tangible location where potential
customers can actually walk in and interact with employees
Examples: storefront, storage facility, office space, or manufacturing facility
Virtual BusinessDoes not have a material space designed to
receive customersTransacts most of its business onlineCan deal with customers from any location
that offers Internet capability
Why E- EntrepreneurshipApproximately 75 percent of Americans have
access to the Internet from home.That means over 200 million people are potential
customers for the entrepreneur with an Internet site.
Cost of starting up and operating cost are usually lower than those in a brick and mortar business
Do not incur cost such as relocation costAbility to monitor price fluctuations that
competitors are offeringAssistance may be provided instant
E- CommerceElectronic commerce refers to the buying
and selling of products or services over electronic systems such as the Internet and other computer networks. However, the term may refer to more than just buying and selling products online. It also includes the entire online process of developing, marketing, selling, delivering, servicing and paying for products and services. The amount of trade conducted electronically has grown extraordinarily with widespread Internet usage
Internet ImpactMost Impact Less Impact
Financial Services Retailing
Entertainment Manufacturing
Health Care information Travel
Education Power
Government
EcommerceAdvantage
Ability of small firms to compete with other companies both locally and internationally
Creation of possibility and opportunity for more diverse people to start a business
Convenient and easy way of doing business transaction
Higher revenues for small businesses that utilize the internet
Minimizes the marketing cost reaching to boarder markets
ChallengesManaging upgradesAssuring security for a website Avoid being a victim of fraudulent activities
onlineHandling the cost required to maintain the siteFinding and retaining qualified employees
Components of e-commerceFront End Operations:
Website functionality, Search capabilities, shopping cart and secure payment
Back-End OperationsOperations that happens beyond the web pageSeamless integration of customers ordersDistribution channels, manufacturing capabilities
Integration of Front and Back end Operation is a Challenge but provide opportunity for developing competitive advantage
Business Models and StrategiesA business Model is a plan for earning profit
and the configuration of a businessB2C ( Business to Consumer) Business Model:
Selling directly to the final consumer and end user. It is sometimes called e-tailing
B2B ( Business to Business ) Business Model: Final user is not an individual consumer but another company. Saves back office bookkeeping, sales, and admin cost as they are industry specific
Business Models and StrategiesB2B2C Business Model: Produces a product for
another business that then markets it to the consumers.
Niches: Niche business on the web can be defined as a firm that targets a very specific market segment, provides that segment with a complete vertical supply chain or specializes in a very specific kind of product
Click and Bricks: Combination of a physical presence business and an Internet business.
Roll-Ups business Model: Buying of many of smaller competitors.
Business Models and StrategiesAdvertising Models: Earnings through
advertising on others sitePay for the content Model: Users must pay to
access a website.
Business IncubationMost of the creative idea are never taken up to
development stageThey have difficulty in starting up the business.Business Incubation is the process of assisting
new venture to getting started.The basis purpose of incubator is to increase
the chances of survival for new start up businesses.
They provide services from physical amenities to support services
Business IncubationBusiness Incubator provide facility with
adaptable space that small business can lease on flexible terms and at reduced rents
Also provides services technical, financial, managerial and administrative
These are available and shared, depending on the size and nature of tenants needs
Service Benefits Below the market rate rental space on flexible
termsElimination of building Maintenance
responsibilitiesSharing of equipment and services that would
otherwise be unavailable or unaffordable.Access to various types of financial and technical
assistanceProvision of an environment where small business
are not alone, thereby reducing the anxiety of starting a new venture
Business Incubation: Amenities Centrex Phone System
Staffed Reception Area
Business Ref Library
Mail room
Federal Express
Shipping/ Receiving
Facsimile
Typing and Secretarial
Data and Word Processing
Notary PublicTranslation ServicesConference RoomsChild Day Care
CenterCoffee ShopAffordable SpaceFlexible SpaceFlexible Leases
Business Incubation: Services Accounting ServicesBusiness and Financial
PlanningMarketing and
AdvertisingLoan PackagingLegal ServicesTax and Financial
ServicesSeminars
Types of IncubatorsPublicly Sponsored
Organized through Government, city economic development departments, urban renewal authorities, regional planning and development commission
Job creation is main focusNon Profit Sponsored:
Organize and managed through industrial development association of private industry, chamber of commerce or community based organizations
Area development is major objective
Types of IncubatorsUniversity Related:
They are spin off of academic research projectsMostly science and technology incubatorsMain focus to translate findings of basic
research into development of new productPrivately Sponsored:
Organized and managed by private corporations
Main objective to make profit
The Environment for EntrepreneurshipThese are the factors effects the business
operations and decisionsTwo types
External Environment: (Opportunities and threats ) Outside the organization Not within the short run control of the entrepreneur Has two parts: Task environment ( elements that
directly affect and are affected by organizations operations ), Societal environment ( that do not directly touch short run activities of the business but can and often do influence long run decisions
The Environment for EntrepreneurshipInternal environment: Strengths and
weaknessesThey exists within the organization it.These variables form the context within which
work is done.Includes venture’s structure, culture and
resources.
PEST-NPolitical Env
Economic Env
Socio-Cultural Env
Technological
Natural
Business Legislation
Purchasing Power
Demography
Pace of Technological Development
Supply of Raw Material
Changing Legislation
Spending Pattern
Cultural Env
R and D Cost
Cost of Energy
Enforcement Agencies
Consumer Movement
Regulations Increased Pollution
Power Blocks
Govt Interventions
Increased Social Responsibility
Environmental Analysis: Analysis of business environment includesScanning to detect Change: Identifying key
elements and theirs characteristicsMonitoring to track development: Evolution,
development and sequence of critical events that affect the survival and profitability
Forecasting to project future: To develop projections eg,. Direction of interest rates, level of prices
Assessing to interpret data:
Political and Governmental AnalysisPolitical analysis gives the entrepreneur a
feeling for what is possible, what is probable and what is unlikely.
It is a segment where different interest groups compete for their interest to establish their own values and their own goals.
An organized group of entrepreneurs can influence the political sector
Political and Governmental AnalysisThree issues should be analyzed Global and International Issue
Trade barriers and Tariffs: Hinders free flow of resources across national boundaries
Trade Agreements: Political Risk
National IssuesTaxationRegulationsPatent ProtectionGovernment Spending
Political and Governmental AnalysisState, Regional and Local Issues
LicensingSecurities and Incorporation LawIncentives
Government PoliciesPolicy is generally made or initiated by
government . Policy is interpreted and implemented by
public and private actors. Policy is what the government intends to
do but chooses not to doGovernment’s deliberate plan of action to
guide decisions and achieve rational outcome(s).
Government Policies and EntrepreneurshipEntrepreneurial activity leads to economic
growth and helps to reduce poverty and foster stability.
It is in the interest of all that governments implement policies to foster entrepreneurship and reap the benefits of its activity.
Promotes entrepreneurship through industrial policy, industrial act, commercial policy
Government Policies and EntrepreneurshipGovernment should make following changes
in policies to create positive business environmentSimplification of labour policiesReforms in the tax policyStreamlining legal framework for enterprise
creation, operation and liquidationMake efforts to create competitive market:
remove monopolies
Condt….Simplification of regulation for investment,
production, marketing, prices, FDIs and technology transfer
The policies should be formulated after discussion with parties likely to be affected
Transparency of policies and their implementation should be there.
Government Policies and EntrepreneurshipStrategies for encouraging entrepreneurship
are:changes in tax policy regulatory policy access to capitalthe legal protection of property rights.
Tax PolicyTaxes increase the cost of the activity taxed,
thereby discouraging entrepreneurshipTherefore, policymakers need to balance the
goals of raising revenue and promoting entrepreneurship
Corporate tax rate reductions and tax deductions for businesses are methods for encouraging business growth.
Regulatory PoliciesThe simpler the regulatory process, the
greater the likelihood of small business expansion
Reducing the cost of compliance with government regulations is also helpful.
To promote entrepreneurs governments can provide one-stop service centers where entrepreneurs can find assistance
Access to CapitalIf the government has policy to assist
potential entrepreneurs with finding money for start-ups, then climate for entrepreneurship becomes favorable
In the United States, the Small Business Administration (SBA) helps entrepreneurs get funds.
Protection of IPRIf innovations are not legally protected
through patents, copyrights, and trademarks, entrepreneurs are unlikely to engage in the risks necessary to invent new products or new methods
Business Env. In NepalEconomic Environment
Began in 1950 with mixed economic model. By then it was largely rural and agro based.
Recent liberalization economic policy has enhanced linkages to rest of work with MNC’s entry
Monetary and Fiscal Policies: NRB prescribes the monetary policies and affects demand and supply of money. Objective of MP is economic growth and stability
Income Distribution: Poor- US$ 250 to US$ 300 per capita income and highly skewed.
Economic EnvironmentIndustrial policies: aims at increasing
contribution of industries to GDP, Create employment opportunities, promote balanced regional development, encouraging FDI
Privatization Policies: Aims at increasing productivity of public enterprise, decrease financial and admin cost of govt and encourage private to take public undertakings
Trade and Transit Policies: Encourage private sector for export and promotion, Increase employment in export industries
Socio CulturalEducation: Half of population illiterate.
Privatization of education is increasing the literacy rate
Demography: Population about 24 million. Majority are below 14 of age, internal migration high,
Religion/Beliefs:
Technological EnvLevel of Technology: Labor intensive, Have
understood the importance of having capital intensive technology
Pace of Technological Change: Slow Change, Due to high cost of technological replacement the the change is slow
Research and Development: Very minimum R and D, Companies allocate very little budget
Political EnvironmentMulti-party parliamentary political system in
1990. Very unstable government
Political parties: Various party with different ideologies, they are increasingly power centric functioning, intra party conflicts.
Legal FrameworkAdministrative Policies:
Legal Acts in NepalGeneral Business Legislation
Private Firms Registration ActPartnership ActCompany Act Cooperative ActIndustrial Enterprise ActContract ActArbitration Act
Legal Acts in NepalLabour Legislation
Bonus ActIndustrial Training ActLabour ActTrade Union ActLabour court Regulation ActChild Labour Act
Legal Acts in NepalFinance and Investment Legislation
Foreign Investment and Technology Transfer Act
Foreign Exchange Regulation ActTaxation Acts : Income tax Act, Value added
Tax Act, Customs ActExport- Import Act
Legal Acts in NepalSocial and Consumer Protection Legislation
Patent, Design and Trademark ActCopyright ActBlack Market and some other social crime and
Punishment ActFood ActNepal Standardization ActConsumer Protection ActEnvironmental acts
Incentives and Facilities10 % deduction shall be allowed on deduction
against taxable income for incorporating new technology, product development and efficiency development
Excise duty shall be reimbursed for industries utilizing locally available raw materials, chemicals and packing materials
Customes duty and excise duty on raw materials shall be reimbursed on the basis of quantity to exprot
No royalty shall be imposed of any industry generating electricity for its use
Concession and facilities of taxExpenses occurred to reduce pollution,
minimize the adverse environment effects and R and D expenditure are deductible from taxable income
Manufacturing industry providing 500 citizens shall get tax rebate of 10 percent
Industry established in certain under developed remote and semi developed area are given rebates ranging from 20 to 30 percent
10 year tax holiday in industries established in certain under developed area
Concession and facilities of taxFive years tax holiday for industries
established in special economic zone and 50 percent tax rebate after five years
10 years income tax holiday for industries established in hilly region
Strategic AllianceA strategic alliance is a business arrangement in
which two or more firms cooperate for their mutual benefit.
Created for sharing knowledge, expertise, and expenses as well as to gain entry to new markets or to gain a competitive advantage in one
Strategic alliance may turn actual or potential competitors into partners working toward a common goal.
Use of strategic alliances has become a major tool for businesses that are internationalizing their operations
Strategic AllianceJOINT VENTURE-BASED STRATEGIC
ALLIANCESA joint venture is created when two or more
firms work together to form a new business entity that is separate from its "parents." (Not all joint ventures fit this definition, joint ventures by acquisitions are exceptions.)
Joint Venture through subsidiary: Most common
Joint venture through acquisitionJoint venture through Merger
Strategic AllianceSTRATEGIC ALLIANCES NOT BASED ON
JOINT VENTURES. Formed for a limited purpose and is more
narrow in its operationsTend to be less stable and last for shorter
terms
Strategic AllianceBenefits
MARKET ENTRY: Standard bank of british south Africa and Chartered bank of India, Australia and China
SHARING RISKS AND EXPENSESSYNERGISTIC EFFECTS OF SHARED
KNOWLEDGE AND EXPERTISEGAINING COMPETITIVE ADVANTAGE
NetworkingNetworking is the process of creating
alliance with people and organization beyond the immediate boundaries of the venture.
Linking up with right people to get things done
It opens channels to resources, market and expertise
NetworkingEntrepreneurs generally creates two types of
networks.Personal Networks: Within immediate circles
of daily relationshipsSocial Networks: Loosely connected affiliations
within the community or industry,
QuestionsWhat do you mean by e-commerce? Explain
the opportunities and challenges of e-commerce in the context of Nepalese business
What do you understand by environment for entrepreneurship? Briefly explain the provision made by the Nepalese Government in providing environment for entrepreneurship in Nepal.
Define e-entrepreneurship? Describe the challenges and opportunities of e-entrepreneurship
QuestionsExplain exporting and franchising as
international opportunities for an entrepreneurWhich are the major areas, where the
entrepreneurship need government support? Discuss in Nepalese context
Discuss the use of exporting as a method of entering into global market
Environment is a dynamic factor which provides strengths, weaknesses, opportunities and threats. Explain the statement in context of entrepreneurship