International
Entrepreneurship
Opportunities
The Nature of International
Entrepreneurship
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International entrepreneurship is the process of
an entrepreneur conducting business activities
across national boundaries.
An entrepreneur entering international business
must answer the following questions:
Is managing international business different from
managing domestic business?
What are the strategic issues to be resolved in
international business management?
What are the options available for engaging in
international business?
How should one assess the decision to enter into
an international market?
International vs. Domestic
Entrepreneurship: Economics
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Creating a business strategy for a
multi-country area means dealing
with differences with the following
areas:
Levels of economic development
Currency valuations
Govt. regulations
Banking, economic, marketing and
distribution systems
International vs. Domestic
Entrepreneurship: Stage of Economic
Development
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Roads
Electricity
Communication systems
Banking facilities and systems
Adequate educational systems
Banking facilities and systems
Adequate educational systems
A well-developed legal system
Established business ethics and norms
International vs. Domestic
Entrepreneurship: Balance of
Payments
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A country’s balance of payments
affects the valuation of its currency.
The valuation of one country’s
currency affects how business of that
country do business in other
countries.
Again, devaluation of one currency
means that the export potential of
that country is increased.
International vs. Domestic
Entrepreneurship: Type of system
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Instead of using the traditional franchise
bottling, Pepsi used a barter type
arrangement that satisfied both the
socialized USSR and capitalist US.
In return for receiving technology and
syrup from Pepsi, the former USSR
provided the company with Soviet Vodka
and the right to distribute it in the US.
There are structural differences in
transition, developing, and developed
economies.
International vs. Domestic Entrepreneurship:
Political-Legal Environment
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Pricing decisions in a country that has a value
added tax are different from those decisions
made by the same entrepreneur in a country with
no value added tax.
Advertising strategy is affected by the variations
in what can be said in the copy in different
countries.
Product decisions are affected by legal
requirements with respect to labeling,
ingredients, and packaging.
The laws governing business arrangements also
vary greatly in over 150 different legal systems
and national laws.
International vs. Domestic Entrepreneurship:
Cultural Environment
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Entrepreneurs must make sure that each
element in the business plan has some
congruence with the local culture.
In some countries, POP displays are not
allowed.
Bribes and corruption: how should an
entrepreneur deal with these situations
when it may mean losing the business?
International vs. Domestic Entrepreneurship:
Technological Environment
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The variation and availability of
technology is often surprising.
New products in a country are
created based on the conditions and
infrastructure operant in that
country.
International vs. Domestic Entrepreneurship:
Strategic Issues
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Four strategic issues are of immense
importance:
The allocation of responsibility between
the domestic and foreign operations.
The nature of the planning, reporting and
control systems to be used throughout
international operations.
The appropriate organizational structure
for conducting international operations.
The degree of standardization possible.
Strategic Issues: Analyzing data of each
country on the following six areas:
Market characteristics:
 Size of the market, rate of growth
 Stage of development
 Stage of product life cycle;
saturation levels
 Buyer behavior characteristics
 Social/cultural factors
 Physical environment
Strategic Issues: Analyzing data of each
country on the following six areas:
Marketing institutions:
 Distribution systems
 Communication media
 Marketing services (advertising and
research)
Industry conditions:
 Competitive size and practices
 Technical development
Strategic Issues: Analyzing data of each
country on the following six areas:
Legal environment
 Laws, regulations, codes, tariffs and taxes
Resources
 Personnel (availability, skill, potential and
cost)
 Money (availability and cost)
Political environment
 Current govt. policies and attitudes
 Long range political environment
Entrepreneurial Entry Into
International Business: Exporting
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Export normally involves sale and shipping of products
manufactured in one country to a customer located in
another country.
Indirect exporting involves having a foreign purchaser in
the local market or using an export management firm.
Direct exporting takes place through independent
distributors or the company’s own overseas sales office.
As more business is done in the overseas sales in the
foreign market, warehouses are usually opened, followed
by a local assembly process when sales reach a high
level.
The assembly operation can eventually evolve into the
establishment of manufacturing operation in the foreign
market.
Entrepreneurs then export the output from these
manufacturing operations to other international markets.
Non-equity Arrangements
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This involves doing international business
through an arrangement that does not
involve any investment.
There are three types of non-equity
arrangements: licensing, turn-key projects
and management contracts.
Entrepreneurs who either cannot export or
make direct investments still can do
international business through non-equity
arrangements.
Licensing
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This involves an entrepreneur who is
a manufacturer (licensee) giving a
foreign manufacturer (licensor) the
right to use a patent, trademark,
technology, production process, or
product in return for the payment of
a loyalty.
Bata is selling Hush Puppies shoes in
its store through an agreement.
Turn-Key Projects
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The underdeveloped countries need
manufacturing technology and infrastructure and
yet do not want to give up substantial portions of
their economy to foreign ownership.
One solution to this dilemma has been to have a
foreign entrepreneur build a factory, train the
workers to operate the equipment, train the
management to run the installation and then turn
it over to local owners once the operation starts.
Financing is often provided by the local company
or the govt. with periodic payments being made
over the life of the project.
Management Contracts
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It involves entering international
business by contracting management
techniques and managerial skills.
These contracts sometimes follow a
turn-key project where the foreign
owner wants to use the management
of the turn-key supplier.
FDI (Foreign Direct Investment)
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Joint ventures, minority and majority
equity positions are methods for making
foreign direct investments.
Entrepreneurs have used minority
positions to gain a foothold to acquire
experience in a market before making a
major commitment.
When the minority shareholder has
something of strong value, the ability to
influence the decision making process is
often far in excess of the shareholding.
Joint Ventures
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Here, two firms get together and form a
third company in which they share the
equity. It is used in two situations:
When the entrepreneur wants to purchase
local knowledge as well as an already
established marketing or manufacturing
facility
When rapid entry into a market is needed.
Motives for forming Joint Ventures
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Sharing the costs and risks of a project
Synergy between firms: synergy in the form of
people, customers, inventory, plant or equipment
provides leverage for the joint venture.
Obtaining a competitive advantage: a joint
venture can pre-empt competitors, allowing an
entrepreneur to access new customers and to
expand the market base.
Joint ventures are used by entrepreneurs to enter
markets and economies that pose entrance
difficulties.
Majority Interest
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Having more than 50% ownership
position
While entering a volatile international
market, some entrepreneurs take a
smaller position, which they increase
up-to 100% as sales and profits
occur.
100% Ownership
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If the entrepreneur has the capital, technology and marketing
skills required for successful entry into a market, there may be no
reason to share the ownership.
There are five types of merger: horizontal, vertical, product
extension, market extension and diversified activity.
A horizontal merger is the combination of two firms that produce
one or more of the same or closely related products in the same
geographic area.
A vertical merger is the combination of two or more firms in
successive stages of production.
A product extension merger occurs when acquiring and acquired
companies have related production or distribution activities but do
not have products that competes directly with each other.
A market extension merger is the combination of two firms
producing the same products but selling them in different
geographic markets.
The diversified activity merger is a conglomerate merger involving
the consolidation of two essentially unrelated firms.
Motivations for Merger
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Economies of scale: economies of scale can occur
in production, coordination and administration,
sharing central services such as office
management and accounting, financial control
and upper-level management.
Unused tax credits: corporate income tax
regulations allow the net operating losses of one
company to reduce the taxable income of another
when they are combined.
Benefits received in combining complementary
resources: entrepreneurs merge with other firms
to ensure a source of supply for key ingredients,
to obtain a new technology or to keep the other
firms product from being a competitive threat.
Barriers to International Trade:
GATT
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Established in 1947 under US leadership.
GATT is a multilateral agreement with the
objective of liberalizing trade by
eliminating or reducing tariffs, subsidies,
and import quotas.
GATT membership includes over 100
nations and has had eight rounds of tariff
reductions, the most recent being the
Uruguay round that lasted from 1986-93.