ed...instituitions supporting antreprenuers

7/31/2019 ED...Instituitions supporting antreprenuers

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SYLLABUS

The nature of international entrepreneurship

Importance of international business to thefirm,

International versus domesticentrepreneurship

Stages of economic development,Entrepreneurship entry into internationalbusiness,

Exporting, Direct foreign investment, barriers

to international trade.


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MEANING

International entrepreneurship is the process

of an entrepreneur conducting businessactivity across the national boundaries. Itmay consist of exporting, licensing, openingsales office in another country etc.

International entrepreneurship is defined asdevelopment of international new venturesor start ups that from their inception engage ininternational business, thus viewing their

operation domain as international from theinitial stages of international operations.


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IMPORTANCE OF INTERNATIONALENTREPRENEURSHIP

International entrepreneurship is beneficial as ifsales of company is declining in domestic market,they can sell products in international marketconsidering demand for product in other countrymarket customers.

Entrepreneur can sell their products in foreignmarket which have reached the maturity stage oftheir life cycle in domestic markets and earnprofit by their sales.

Companies which are incurring high level of fixedcosts can lower their manufacturing costs byspreading these fixed costs over long number ofunits by selling their products in global market.


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Entrepreneur can improve theirentrepreneurial competitiveness and

enhance reputation. Entrepreneur in process of satisfying foreign

customers have to produce product as pertheir quality expectation by which

entrepreneur will not only produce qualityproduct in international market but also innational market.

Internationalization of business will teach

entrepreneurs how to cultivate habit ofcustomer relation management ( CRM )


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Being global will make the entrepreneursensitive towards their customers domestic,

adopt more respectful attitude towards foreignhabits and customers.

Entrepreneurs can hire motivated, multilingual employees, learn constantly about the

foreign markets. They will think globally andstart developing an outlook from a globalprospective.


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IMPORTANCE OF INTERNATIONAL ENTREPRENEURSHIPTO FIRM

Increased sales and profit : when the entrepreneursare not able to earn profit or demand for their productdecreases in local market they can sell their productsin foreign market where life cycle of product is infavourable condition. E.g. Apple earned more profits

from international business than in local market US inthe year 1994. ( $ 390 million foreign market / $ 310 inIndian market .

Lower manufacturing cost : if the companymanufacturing cost increases by manufacturing

product in home country, than company can opt in forproduction process in host country, on the contrary ifthe company is in no profit or no loss situation thancompany can choose in any option. E.g Mc Donald's.


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Advantage of cheap labour : quantity and quality oflabour is one of the major challenge for everybusiness, if the labour is cheap in foreign countries

than company can outsource required labour iforganization is into foreign operations. E.g increasingcost of labour in china has forced companies tosearch in for other options for outsourcing companyactivity to other countries were cost of labour is less.

Utilization of talent and managerial competence :when business are not able to get required talentedwork force in country, they can get the activityoutsourced or hire host country employee which hasgiven birth to concept of expatriation.

Growth opportunity : entrepreneurs whose corebusiness strategy is expansion and diversification ofbusiness, international business is one of the primaryplatform to achieve these objectives.


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Expansion of domestic market : internationalbusiness causes domestic market to expandbeyond national boundaries. When the domesticmarket has bee fully tapped than company can goin for expansion of business to market theirproducts in international market. E.g Sony

Globalization of customers : it refers to whencustomers in country prefer purchasing foreignbrand products than domestic companies have togo in for internationalization of business to keepin pace with competition to attract customers.

Tata international begin to operate ininternational market after entry of foreigncompetitors in Indian market like ford.


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Globalization of competitors : internationalbusiness increases the opportunity not only for

the survival and growth but also motivatescompanies to face competition from globalentrants in market, which in turn leads togrowth of market, pursuing global scale

efficiencies etc. Pay offs of international business :

international business improves image of thecompany in domestic market and attracts more

customers in domestic market due tointernationalization of business. E.g Ranbaxy


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DIFFERENCE BETWEEN INTERNATIONAL ANDDOMESTIC ENTREPRENEURSHIP

Economic system : when an entrepreneur is

operating in national level he is required tounderstand economic conditions with in country,but at international level he should be havinginformation about economic system of countries herunning business which includes currency rate,phase of business cycle etc.

Stage of economic development : whenentrepreneur is operating at domestic level heshould focus on development state of domesticcountry, on the contrary when he is operating oninternational scale he has to view country fromdeveloped, developing and underdevelopedperspective and accordingly plan in businessstrategies in economy.


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Cultural sensitivity : entrepreneur operatingat national level should understand cultural

issues persisting in home country and atinternational level he has to understand andmanage cultural diversity of customers as wellas employees in company.

Technological environment : even thoughtechnology is advanced at larger scale , stillthere are technological variations persisting invarious countries depending on time of

implementation, updation of technology etcwhich has to be analyzed by entrepreneur andaccordingly plan in business operations.


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Government policy : entrepreneur going in forinternationalization of business have to study

domestic as well as international policy, asrestriction laid in home country for export ofgoods affect trade of entrepreneur andrestriction in host country on entering of new

entrepreneurs in their company. Political and legal environment : politics and

laws play a critical role in internationalbusiness as well as domestic business.

Entrepreneur should be aware about politicaland legal environment in the domestic as wellas international market.


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STAGES OF ECONOMIC DEVELOPMENT1.TRADITIONAL SOCIETY : every economy begins

with traditional society which is characterised with

low per capita income and low degree of technicalknow how Features : Country is more or less dependent of agriculture

for development in country. People in country believe more in family and caste

system which leads to problem of lack of mobilityof labour which hinders employee growth incountry.

Political power in society remains concentrated

with dominant social groups in society. Science and technology develop at very slow phase

in economy.


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2. PRE CONDITIONS OF TAKE OFF : in this stage ofeconomy conditions are created conductive of growth.In this stage entrepreneurs start thinking in terms ofmodernization, capital formation, and profit orientedventures.

Features :

Less dependence on agriculture

People start giving importance to national andinternational developments then merely confining themto social issues.

Part of government revenue is imparted towardsinfrastructure development in country.

Decline in birth rate Citizens of country give more importance on developing

personal skills in order to face competition in country.

Focus towards foreign trade


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3. TAKE OFF STAGE : in this stage economy is no moredependent on other countries and is self sustaining inthis stage. Economy can progress without anyexternal support from other countries.

Features :

Development of various sectors like primary,secondary and tertiary sector takes place in thecountry.

Social framework improves as citizens than being

bonded with family focus on moving to places forcareer growth and development.

Political stability in country indirectly leads to growthin industrial sector in country creating favourablecondition for trade in country.

Reinvestment of profit Increase in demand for products by consumers in

market. Technical development


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4. SELF SUSTAINED STAGE : this stage can bedefined as stage in which an economydemonstrates the capacity to move beyond the

original industries which provides the take off andto apply efficiency over its worldwide range ofresources.

Features : rise in the rate of investment in the country

Conditions of employment improve and reducesdependency on agriculture. Modern techniques are used during the process of

production in country. New political as well as social institution are

established in country. Dependency on other countries are considerably

reduced.


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5. STAGE OF ECONOMIC AFFLUENCE : in this stagethere is considerable increase in production andincome. Consumption of comforts and luxuries

become a common feature. Features :

More power : country in this stage starts spendingmore on military forces.

Welfare state : standard of living in countryincreases as result of development of facilities incountry.

Increase in consumption : consumption level

increases in this stage as consumers other thendaily consumption products prefers purchasingdurable products.


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ENTREPRENEURIAL ENTRY INTO NEW BUSINESS

Exporting : means selling goods made in one

country to another country. Exporting normallyinvolves the sale and shipping of productsmanufactured in one country to the customerlocated in another country.

Direct exporting : implies where companytakes full responsibility for making its goodsavailable in the target market by sellingdirectly to end users normally through its own

agents.


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Indirect exporting : when the exportingcompany does not posses the necessaryinfrastructure to involve itself in directexporting, indirect exporting takes place. Ittakes place when the export company sells itsto intermediaries who in turn sell the sameproducts to the end users in foreign markets.

Licensing : involves an entrepreneur who is amanufacturer ( license ) giving a foreignmanufacturer ( licensor ) the right to usepatent, trade mark, technology, production

process, or product in return for the paymentof loyalty.


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Turn key projects : Turnkey refers tosomething that is ready for immediate use,

generally used in the sale or supply of goods orservices. It is a contract under which a firmagrees to fully design, construct and equip amanufacturing/ business/ service facility and

turn the project over to the purchaser when itis ready for operation for a remuneration.


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Management contract is an arrangement underwhich operational control of an enterprise is vestedby contract in a separate enterprise which

performs the necessary managerial functions inreturn for a fee. Management contracts involve notjust selling a method of doing things (aswith franchising or licensing) but also doing them.A management contract involves a wide range of

functions, such as technical operation of aproduction facility, management of personnel,accounting, marketing services and training.

Foreign direct investment (FDI) is directinvestment into one country by a company in

production located in another country either bybuying a company in the country or by expandingoperations of an existing business in the country


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Minority interest :a company having interest orownership of less then 50 percent in another company isknown as minority interest/ A significant but non-controlling ownership of less than 50% of a company's

voting shares by either an investor or another company. Majority interest : majority interest is an ownership

interest greater than fifty percent (50%) of the votinginterest in a business enterprise.

joint venture (JV) is a business agreement in which

parties agree to develop, for a finite time, a new entityand new assets by contributing equity. They exercisecontrol over the enterprise and consequently sharerevenues, expenses and assets. A joint venture takesplace when two parties come together to take on oneproject. In a joint venture, both parties are equally

invested in the project in terms of money, time, andeffort to build on the original concept.


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Mergers : The combining of two or more companies,generally by offering the stockholders of one companysecurities in the acquiring company in exchange for thesurrender of their stock / Mergers and acquisitions refers

to the aspect of corporate strategy, corporate financeand management dealing with the buying, selling, dividingand combining of different companies andsimilar entities that can help an enterprise grow rapidly inits sector.

Horizontal merger : Horizontal merger occurs when a firm

is being taken over by, or merged with, another firm whichis in the same industry and in the same stage of productionas the merged firm, e.g. a car manufacturer merging withanother car manufacturer / A horizontal merger is whentwo companies competing in the same market merge orjoin together. E.G amalgamation of Daimler-Benz and

Chrysler


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Vertical merger : is the combination of two ormore firms in successive stages of productionthat often involve buyer and sellerrelationship. This form of merger stabilizesupply and production and offer more controlof these critical areas. ( merger between McDonald's and Philips petroleum )

Product extension : merger occurs whenacquiring and acquired company have relatedproduction or distribution activities but do not

have products that compete directly with eachother. ( merger between western publishing( children's books) and Mattel ( toy company ) .


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Product extension merger is a combination oftwo firms producing the same product butselling them in different geographic market.

Major advantage of these mergers is that firmscan economically combine its managementskills, production and marketing with acquiredfirms. (The acquisition of Mobilink Telecom Inc.

by Broadcom is a example of productextension merger ). ( Broadcom deals in themanufacturing Bluetooth personal area networkhardware systems and chips for IEEE 802.11bwireless LAN. Mobilink Telecom Inc. deals in

the manufacturing of product designs meantfor handsets that are equipped with the GlobalSystem for Mobile Communications technology)


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Market extension merger : A marketextension merger takes place between twocompanies that deal in the same products butin separate markets. The main purpose of themarket extension merger is to make sure thatthe merging companies can get access to abigger market and that ensures a bigger clientbase. (Acquisition of Eagle Bancshares Inc bythe RBC Centura )

Diversified activity merger : this is a

conglomerate merger involving consolidationof two unrelated firms. (Philip Morris'sacquisition of Miller Brewing)


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Barriers tointernational

trade

Lack ofinformat

ionLack ofnetwork

Lack offinance

Tariffbarriers

Non tariffbarriers

Technicalbarrier

Culturalbarrier

Humanresourcebarrier

Political barrier

Attitudeof

entrepre

neur


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BARRIERS TO INTERNATIONAL TRADE

Attitude of entrepreneur : when an

entrepreneur has negative mindset that foreignmarket is unknown to him and he might find itdifficult to set up his business in new countrywill prove to be a major barrier for

international trade. Lack of information : as entrepreneur is new

entrant in international market he is unawareabout the market conditions in host country

and taste and preference of customers whichmay lead to issues in terms of acceptance andlocating product in market.


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Lack of network influences : network withestablished business companies makes it easy

for the entrepreneur in new market but if theentrepreneur has no contacts in foreigncountry then it will be difficult forentrepreneur from initial stage of getting

required permission to establishing business incountry.

Financing problems : as international businessinvolves huge risk financial institutions may be

reluctant in terms of providing requiredfinance to entrepreneurs.


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Tariff barriers : tariff means duty levied bythe government on imports. Imposing tariff

raises the price of imported goods makingthem less attractive to consumers and protectsmakers of comparable domestic products andservices.

Non tariff barriers : are the obstacles toimports other than tariffs such as testing,certification, or bureaucratic hurdles that haveeffect of restricting imports. These are

administrative measures that are imposed bya domestic government to discriminate againstforeign goods and in favour of home goods.


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Technical barriers : basically refers to before acountry's goods enters into foreign market it has togo through certain test for authentication. In USbefore food products from others is marketed in USit will be tested for checking bacteria content infood item for safety of general public, which isgood for safety of host country but may prove to be

a major barrier to home country exporting product. Political barrier : in few country their exist

abundant opportunity for business but politicalscenario in country will be instable such as

kidnappings, bombings, violent against businessand employees which proves to be major questionmark in terms of future success of business.


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Human resource : presence of labour unions,hostile management unions relations, strike,increase coat of labour in foreign country may

prove it difficult for entrepreneur to establishbusiness in foreign market.

Cultural barriers : as entrepreneur is newentrant in host country he may not be awareabout language, education, tradition, religion,values of citizens which will make it difficultfor the entrepreneur to understand mindset,taste and preference of customer in market.


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