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Entrepreneurship MGT602

Lesson 11

INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES

LEARNING OBJECTIVES

To identify the aspects and importance of international entrepreneurship.

To identify the important strategic issues in international entrepreneurship.

To identify the available options for entering international markets.

To present the problems and barriers to international entrepreneurship.

THE NATURE OF INTERNATIONAL ENTREPRENEURSHIP

As more countries become market oriented and developed, the distinction between foreign and domestic

markets is becoming less pronounced. International entrepreneurship is the process of an entrepreneur

conducting business activities across national boundaries. It is exporting, licensing, or opening a sales office

in another country. When an entrepreneur executes his or her business in more than one country,

international entrepreneurship occurs.

THE IMPORTANCE OF INTERNATIONAL BUSINESS TO THE FIRM

International business has become increasingly important to firms of all sizes. The successful entrepreneur

will be someone who understands how international business differs from domestic business and is able to

act accordingly.

INTERNATIONAL VERSUS DOMESTIC ENTREPRENEURSHIP

Whether international or domestic, an entrepreneur is concerned about the same basic issues-sales, costs,

and profits. What varies is the relative importance of the factors being considered. International

entrepreneurial decisions are more complex due to uncontrollable factors such as the following.

Economics

A domestic business strategy is designed under a single economic system. Creating a business strategy for

multiple countries means dealing with different levels of economic development and different distribution

systems.

Balance of Payments

A country's balance of payments affects the valuation of its currency. This economic variable will affect

how companies do business in other countries.

Type of System

Barter or third-party arrangements have been used to increase business activity with the Commonwealth

of Independent States, the former U.S.S.R. There are still many difficulties in doing business in developing

and transition economies due to:

a. Gaps in the knowledge of the Western system regarding business plans,

marketing, and profits

b. Widely variable rates of return.

c. Non-convertibility of the ruble.

d. Differences in the accounting system.

e. Nightmarish communications.

Political-Legal Environment

Multiple political and legal environments create different business problems. Each element of the

international business strategy can potentially be affected by multiple legal environments. Laws governing

business arrangements also vary greatly in the 150 different legal systems and sets of national laws.

Cultural Environment

The impact of culture on entrepreneurs and strategies is significant. Understanding the local culture is

necessary when developing worldwide plans.

Technological Environment

Technology varies significantly across countries. New products in a country are created based on the

conditions and infrastructure of that country.

Entrepreneurship MGT602

Strategic Issues

Four strategic issues are important to the international entrepreneur:

1. The allocation of responsibility between the U.S. and foreign operations.

2. The nature of the planning and control systems to be used.

3. The appropriate organizational structure for conducting international operations.

4. The degree of standardization possible.

With experience in international operations, entrepreneurs tend to change their approach to responsibility.

Stage 1: In the first stages the entrepreneur typically follows a highly centralized decision-making process.

Stage 2: When success occurs, it is no longer possible to use completely centralized decision-making

process.

Stage 3: Decentralization is scaled back and major strategic decisions are again centralized.

To understand what is required for effective planning, reporting, and control, the entrepreneur should

consider:

1. Environmental analysis.

2. Strategic planning.

3. Structure.

4. Operational planning.

5. Controlling the marketing program.

The first step in identifying markets is to analyze data in the following areas:

1. Market characteristics.

2. Marketing institutions.

3. Industry conditions.

4. Legal environment.

5. Resources.

6. Political environment.

ENTREPRENEURIAL ENTRY INTO INTERNATIONAL BUSINESS

The choice of entry method depends on the goals of the entrepreneur and the company's strengths and

weaknesses.

Exporting

As a general rule, an entrepreneur starts doing international business through exporting.

Indirect exporting involves a foreign purchaser in the local market or using an export

management firm. For certain commodities, foreign buyers seek out sources of supply.

Export management firms, another indirect method, are located in many commercial

centers.

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. Entrepreneurs who do

not wish to give up control over marketing can open overseas sales offices and hire

their own salespeople.

Non equity arrangements

Non equity arrangements allow the entrepreneur to enter a market without direct equity investment in the

foreign market.

Licensing involves a manufacturer giving a foreign manufacturer the right to use a

patent, trademark, or technology in return for a royalty. This arrangement is most

appropriate when the entrepreneur has no prospect of entering the market through

exporting or direct investment. The process is usually low risk and an easy way to

generate incremental income. Without careful analysis, licensing arrangements have

several pitfalls.

Turn-key projects

Lesser-developed countries are able to obtain manufacturing technology without

surrendering economic control through turn-key projects. A foreign entrepreneur

builds a facility, trains the workers, and trains the management to run the installation.

Entrepreneurship MGT602

Once the operation is on line, it is turned over to local owners. Initial profits can lead to

follow-up sales. Financing is often provided by the local company or government.

Management contracts

Entrepreneurs can contract their management techniques and skills, often following a

turn-key project. The management contract allows the purchasing country to gain

foreign expertise without turning ownership over to a foreigner.

Direct Foreign Investment

The wholly owned foreign subsidiary has been the preferred mode of ownership for direct investment.

Minority interests

The minority interest provides the firm with either a source of raw materials or a captive

market for products. Entrepreneurs have used minority positions to gain a foothold in the

market before making a major investment.

Joint ventures

Two firms get together and form a third company in which they share the equity.

KEY TERMS

Balance of payments

The trade status between countries

Barter

A method of payment using no monetary item

Direct exporting

Selling goods to another country by taking care of the transaction

Diversified activity merger

Combination of at least two totally unrelated firms

Exporting

Selling goods made in one country to another country

Horizontal merger

Combination of at least two firms doing similar businesses at the same market level

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