INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES (continued…):DIRECT FOREIGN INVESTMENT

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Entrepreneurship MGT602

Lesson 12

INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES (continued...)

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.

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. Joint

ventures have been used by entrepreneurs in two situations:

1. When the entrepreneur wants to purchase local knowledge and an

established facility.

2. When rapid entry into a market it needed.

The keys to success of joint ventures have not been well understood. Reasons for forming

a joint venture today are different than those in the past. Originally, joint ventures were

used for trading purposes and were one of the oldest ways of transacting business. Joint

ventures in the U.S. took the form of vertical joint ventures used by mining concerns and

railroads.

Motives for the significant increase in the use of joint ventures:

a. To share the costs and risks of an uncertain project.

b. To gain synergy between the two firms.

c. To obtain a competitive advantage.

d. To enter markets that pose entrance difficulties.

Majority interest

Another equity method is to purchase a majority interest in a foreign business. The

majority interest allows the entrepreneur to obtain managerial control while maintaining

the company's local identity. In technical sense anything over 50% of the equity of the

firm is majority interest.

100 percent ownership

One hundred percent ownership assures control. One form of 100 percent ownership is

mergers and acquisitions, but the entrepreneur needs to have a general understanding of

the benefits and problems of mergers as a strategic option.

A horizontal merger is the combination of two firms that produce closely related

projects in the same area. A vertical merger is the combination of firms in successive

stages of production. A product extension merger occurs when acquiring and acquired

companies have related production but do not have directly competing products. A

market extension merger is when two firms produce the same products but sell them in

different areas. A diversified activity merger is a conglomerate merger involving the

consolidation of two unrelated firms. Mergers are a sound strategic option for an

entrepreneur when synergy is present. Economies of scale are the most common reason

for mergers. A second factor that causes synergy is taxation, or unused tax credits. The

final factor is the benefits received in combining complementary resources.

Entrepreneurship MGT602

KEY TERMS

Indirect exporting

Selling goods to another country through a system in the entrepreneur's home country

International entrepreneurship

An entrepreneur doing business across his or her national boundary

Joint venture

Two companies forming a third company

Licensing

Allowing someone else to use something of the company's

Majority interest

Having more than 50 percent ownership position

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