Unit 5 International Entrepreneurship Opportunities PDF

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ENTERPRENEURSHIP DEVELOPMENT (18MBA26)

II SEMESTER

UNIT - 5 INTERNATIONAL ENTREPRENEURSHIP OPPORTUNITIES (Syllabus: International Entrepreneurship Opportunities: The nature of international entrepreneurship - Importance of international business to the firm - International versus domestic entrepreneurship - Stages of economic development - Entrepreneurship entry into international business - exporting - Direct foreign investment - barriers to international trade.) International Entrepreneurship: International enterprises are the industries that cross the national border. The entrepreneur goes to another country for doing business. Such type entrepreneurship includes exporting of goods, licensing and opening a sales office in another country. Entrepreneur operating business operations across the national boundaries is known as International Entrepreneurship. International entrepreneurship means the development of the international new business or startups. The innovative activities in business cross the national boundaries with aim of creating value and growth in business. The innovative activities performed by the business across the national boundaries. International entrepreneurship means discovery and enhancement of different opportunities across the national boundaries to create future products and services. Nowadays entrepreneurship is the global dream of many entrepreneurs all over the world. International entrepreneurship helps the customer to expand their entrepreneurship across the national boundaries. When the business cover the domestic market then entrepreneur think for international market by doing international entrepreneurship. International entrepreneurship help to improve the value of the business in the domestic market. International entrepreneurship is helpful if the sales of business in the domestic market is less. They sell their products in the international market by considering the demand of the product in other country market customers. An entrepreneur can sell their product in the foreign market when the highest level of maturity is reached in the domestic market and they earn a sufficient amount of profit. For satisfying the foreign customer’s, an entrepreneur has to manufacture the product. An entrepreneur needs to maintain the quality of the product in the international market and also in the national market as per the requirement of the customer. In entrepreneurship, customer satisfaction is important to run the business successfully. International entrepreneurship is the study of how to improve customer relationship management i.e. CRM. International Entrepreneurship Opportunities: Entrepreneurial opportunities are usually defined as situations where products and services can be sold at a price greater than the cost of their production. An 'entrepreneurial opportunity', thus, is a situation where entrepreneurs can take action to make a profit. Where innovative activities in business cross the national boundaries with aim of creating international entrepreneurship opportunities. International entrepreneurship discover and enhancement of different opportunities across the national boundaries for the entrepreneurs. Compiled by Prof. ShivKumar, DOMS, MITM

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The Nature of International Entrepreneurship: Simply stated, International entrepreneurship is the process of an entrepreneur conducting business activities across national boundaries. It may consist of exporting, licensing, opening a sales office in another country, or something as simple as placing a classified advertisement in a newspaper. The activities necessary for ascertaining and satisfying the needs and wants of target consumers often take place in more than one country. When an entrepreneur executes his or her business model in more than one country, international entrepreneurship is occurring. With a commercial history of only 300 years, the United States is a relative newcomer to the international business arena. As soon as settlements were established in the New World, American businesses began an active international trade with Europe. Foreign investors helped build much of the early industrial trade with Europe as well as much of early industrial base of the United States. The future commercial strength of the United States will similarly depend on the ability of U.S. entrepreneurs and established U.S. companies to successfully do business in markets outside the country. This is true of other countries as well. ● Business activities are conducted across national borders. ● International entrepreneurship modes may be trade, transfer of investment modes. ● International entrepreneurship Involves exposure to multi-country cultures, languages, norms, values, beliefs and social structures. ● It needs an understanding of different countries political and legal environments. ● International entrepreneurs need to understand the different economic systems, structures and stages of economic development. ● There is a need to understand the level of technology prevalent in different countries. ● Knowledge of cross cultural management is very important in International Entrepreneurship. ● International Entrepreneurship may follow◦ Ethnocentric (Home country strategies world over) ◦ Polycentric (Host country specific strategies) ◦ Regiocentric (Region specific strategies) ◦ Geocentric strategies (Global best practices and strategies are adopted) Importance of International Business to the Firm: International business has become increasingly important to firms of all sizes particularly today when every firm is competing in a hypercompetitive global economy. There can be little doubt that today‟s entrepreneur must be able to move in the world of international business. The successful entrepreneur will be someone who fully understands how international business differs from purely domestic business and is able to respond accordingly, thereby successfully going “global”. An entrepreneur entering the international market should address the following questions: 1. Is managing international business different from managing domestic business?

2. What are the strategic issues to be resolved in international business management? 3. What are the options available for engaging in international business? 4. How should one assess the decision to enter into an international market? Compiled by Prof. ShivKumar, DOMS, MITM

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The Importance are as follows: • Increased Sales and Profit: When the entrepreneurs are not able to earn profit or demand for their product in domestic market they can sell their products in foreign market where life cycle of product is in favourable condition. E.g. Apple earned more profits from international business than in local market- US in the year 1994. ($ 390 million foreign market / $ 310 in US market ) • Lower Manufacturing Cost: If manufacturing cost of product increase in home country, then company can opt host country for production process where resources are cheaper. E.g. Mc Donald's. • Advantage of Cheap Labour: Quantity and Quality of labour is one of the major challenge for every business, if the labour is cheap in foreign countries then company can outsource required labour if organization is into foreign operations. E.g. Increasing cost of labour in china has forced companies to search for other options for outsourcing company activity to countries where cost of labour is less. • Utilization of Talent: When entrepreneurs are not able to get required talented workforce in their home country, they can hire in host countries where talent is available in abundance. • Expansion of Domestic Market: International business causes domestic market to expand beyond national boundaries. When the domestic market has been fully tapped then company can go for expansion of business to market their products in international market. E.g. Sony • Globalization of Customers : When customers in a country prefer purchasing foreign brand products then domestic companies have to go for internationalization of business to keep in pace with competition to attract customers. Eg.Ford Motors • Globalization of Competitors: International business motivates companies to face competition on global level which in turn leads to growth of market, pursuing global scale efficiencies etc. • Expansion and Diversification of Business: Entrepreneurs whose core business strategy is expansion and diversification of business, international business is one of the primary platform to achieve these objectives. • Attracts Customers in Domestic Market: International business improves image of the company in domestic market and attracts more customers in domestic market due to internationalization of business. E.g. Ranbaxy 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 Entrepreneurship decisions are complex in nature. Hence the following are the difference between Domestic Entrepreneurhip and International Entrepreneurship. Parameter Economy

Domestic Entrepreneurship

International Entrepreneurship

Single country at a specified level Involves dealing with differences in: of economic development is the levels of economic development; focus of entrepreneurial efforts. currency valuations; government

Compiled by Prof. ShivKumar, DOMS, MITM

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Involves Single economic system and has the same currency

regulations; and banking, venture capital, marketing, and distribution systems.

Stage of Economic Development

Fundamental infrastructure likeroad, electricity, communication systems, banking facilities, educational systems, a welldeveloped legal system, and established business ethics and norms of one country are applicable

Fundamental infrastructure like road, electricity, communication systems, banking facilities, educational systems, a welldeveloped legal system, and established business ethics and norms of many countries are applicable

Current Account

The valuation of other country's currency does not affect business transactions in domestic entrepreneurship

The valuation of one country's currency affects business transactions between countries.

Type of Economic System

Entrepreneur needs to understand economic conditions within country

Economic systems define business plans, product promotion, marketing, and profits; widely variable rates of return; nonconvertibility of the currency (necessitates finding a countertrade item); differences in the accounting system; and outlandish communications.

Political & Legal Environment

Single country political and legal needs to be understood

The multiplicity of political and legal environments in the international market creates vastly different business problems, opening some market opportunities for entrepreneurs and eliminating others.

Language

Domestic Country languages are familiar to entrepreneurs and hence there is no need of a translator

Sometimes one of the biggest problems is finding a translator. A significant problem can occur when careless translation occurs

Mind-set

Local Mind-Set

Global Mind-set

Approach

National Approach

International in Approach

Knowledge

Must have knowledge of a single country in which an entrepreneur operates.

Must have broader knowledge of many countries.

Compiled by Prof. ShivKumar, DOMS, MITM

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ENTERPRENEURSHIP DEVELOPMENT (18MBA26) Functions

Involves Fewer Functions

Involves functions

Coordination is simple

Greater Coordination required

Risks Involved

Lower risks

Greater risks are involved International Entrepreneurship

Diversity

Diversity management is simple

Diversity management is little complex in International Entrepreneurship

Problems and Liabilities relatively simple

are

Exposure to problems and liabilities is wider

Operational simple and entrepreneur

is the

Increased complexities in terms of foreign currency fluctuations & different legislations

Coordination

Problems & Liabilities Operational Environment Country Culture

environment familiar to

Only country culture needs to be understood

greater

Exposure to environment

number

varied

of

in

cultural

Stages of Economic Development: Economic development is the growth of the standard of living of a nations people from a low-income (poor) economy to a high-income (rich) economy. When the local quality of life is improved, there is more economic development. The Rostow's Stages of Growth model is one of the major historical models of economic growth. It was published by American economist Walt Whitman Rostow in 1960. The model postulates that economic growth occurs in five basic stages, of varying length: Stage 1 - Traditional society Stage 2 - Preconditions for take-off Stage 3 - Take-off Stage 4 - Drive to maturity Stage 5 - Age of High mass consumption Rostow's model is one of the more structuralist models of economic growth, particularly in comparison with the 'backwardness' model developed by Alexander Gerschenkron, although the two models are not mutually exclusive. Rostow argued that economic take-off must initially be led by a few individual sectors. This belief echoes David Ricardo's comparative advantage thesis and criticizes Marxist revolutionaries' push for economic self-reliance in that it pushes for the 'initial' development of only one or two sectors over the development of all sectors equally. This became one of the important concepts in the theory of modernization in social evolutionism. Below is a detailed outline of Rostow's five stages:

Compiled by Prof. ShivKumar, DOMS, MITM

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Stage 1 - Traditional society • Characterized by subsistence agriculture or hunting and gathering; almost wholly a "primary" sector economy • Limited technology • The economy is dominated by subsistence activity where output is consumed by producers rather than traded. • Any trade is carried out by barter system where goods are exchanged directly for other goods. • Agriculture is the most important industry; production is labour intensive using only limited quantities of capital. • A static or 'rigid' society: lack of class or individual economic mobility, with stability prioritized and change seen negatively Stage 2 - Pre-conditions to "take-off" (Transitional Stage) • Increased specialization generates surpluses for trading. • There is an emergence of a transport infrastructure to support trade. • As incomes, savings and investment grow entrepreneurs emerge. • External trade also occurs concentrating on primary products. • External demand for raw materials initiates economic change. • Development of more productive, commercial agriculture and cash crops not consumed by producers and/or largely exported. • Widespread and enhanced investment in changes to the physical environment to expand production (i.e. irrigation, canals, ports). • Increasing spread of technology and advances in existing technologies. • Changing social structure, with previous social equilibrium now in flux. • Individual social mobility begins. • Development of national identity and shared economic interests. Stage 3 - Take off • Urbanization increases, Industrialization proceeds, Technological break through occurs • The "secondary" (goods-producing) sector expands and ratio of secondary vs. primary sectors in the economy shifts quickly towards secondary. • Textiles and Apparel are usually the first "take-off" industry, as happened in Great Britain's classic "Industrial Revolution" • Industrialization increases, with workers switching from the agricultural sector to the manufacturing sector. • The economic transitions are accompanied by the evolution of new political and social institutions that support the industrialization. The growth is selfsustaining as investment leads to increasing incomes in turn generating more savings to finance further investment. Stage 4 - Drive to Maturity • Diversification of the industrial base; multiple industries expand and new ones take root quickly • Manufacturing shifts from investment-driven (capital goods) towards consumer Compiled by Prof. ShivKumar, DOMS, MITM

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durables and domestic consumption Rapid development of transportation infrastructure Large-scale investment in social infrastructure (schools, universities, hospitals, etc.) Industrialization increases, with workers switching from the agricultural sector to the manufacturing sector. The economic transitions are accompanied by the evolution of new political and social institutions that support the industrialization. The growth is selfsustaining as investment leads to increasing incomes in turn generating more savings to finance further investment.

Stage 5 - Age of mass consumption • The industrial base dominates the economy; the primary sector is of greatly diminished weight in economy and society • Widespread and normative consumption of high-value consumer goods (e.g. automobiles) • Consumers typically (if not universally), have disposable income, beyond all basic needs, for additional goods. • The economy is geared towards mass consumption. • The consumer durable industries flourish. • The service sector becomes increasingly dominant. Entrepreneurship Entry into International Business: There are various ways in entrepreneur can market products internationally. The method of entry into a market and the mode of operating overseas are dependent on the goals of the entrepreneur and the company‟s strengths and weaknesses. The modes of entering or engaging in international business (IB) can be divided into various categories. Modes of Entry into IB( Trade Mode) ● Export Trade[Direct / Indirect (Through an Export Agency)] ● Import Trade(Direct / Indirect) ● Ent report Trade (Its a form of external trade in which goods are imported and reexported with or without additional packing or processing) Ex. India imports rubber from Thailand and re-exports to Japan. ● Counter Trade: Its a form of trade in which goods are services are paid in whole or part with other goods and services or partly with money. Forms of Counter Trade include: a. Barter Trade (Involves exchange of goods/services for other goods/services) b. Switch Trade (Involves barter trade between 2 countries for resale of goods to a third country for hard cash) Germany imported corn from Brazil in exchange of some other products and re-exported corn to other countries for cash. c. Counter Purchase: It is a reciprocal agreement in which selling country will agree to buy some other goods from a buying country in future)

Compiled by Prof. ShivKumar, DOMS, MITM

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d. Buyback: When a firm builds a plant in a country or supplies technology, and equipment to another country and agrees to take a certain percentage of plant’s output as partial payment for the contract. e. Compensation Trade: Involves trade party through barter and partly through har...