Entrepreneurship Chapter 5: Identifying Opportunities PDF

Chapter 5 Identifying and Analyzing Domestic and International Opportunities McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.  Learning Objectives To understand the aspects and importance of identifying good domestic or internation...

Chapter 5 Identifying and Analyzing Domestic and International Opportunities McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.  Learning Objectives To understand the aspects and importance of identifying good domestic or international opportunities To be able to identify these opportunities To be able to create an opportunity assessment plan 5-2  Learning Objectives To present the problems and barriers of entering global markets To be able to select a global market To understand the options for entering a foreign market 5-3 Opportunity Recognition and the Opportunity Assessment Plan Opportunity assessment plan Determines the profitability of a product/service idea Constitutes of four sections First section - Identifies: Uniqueness of the idea in terms of its unique selling propositions Available competitive products Companies in the product market space 5-4 Opportunity Recognition and the Opportunity Assessment Plan Second section- Focuses on the market Size Trends Characteristics Growth rate Third section - Focuses on the entrepreneur’s and management team’s skills and experience Fourth section - Develops a time line indicating the steps to successfully launch the venture 5-5  Information Sources Assistance Training, consulting, and mentoring provided by experienced executives and entrepreneurs General information Start-up assistance on Web-based resources Industry and market information Available on industry and market databases 5-6  Information Sources Competitive company and product information Provided by external sources Assistance Training, consulting, and mentoring provided by experienced executives and entrepreneurs General information Start-up assistance on Web-based resources 5-7  Information Sources Industry and market information Available on industry and market databases Competitive company and product information Provided by external sources Government sources Search engines Enable searching the needed industry, market, and competitive information 5-8  Information Sources Trade associations Provide country-specific industry data Trade publications Provide: Information and insights on trends and companies Perspective on the particular market and market conditions 5-9  The Nature of International Entrepreneurship International entrepreneurship Process of conducting business activities across national boundaries Constitutes exporting, licensing, or opening a sales office in another country Nature of business consideration Culture (norms, ethic, etc) Politic Economic (tax, money exchange, current account, etc) Social (education, demography, etc) 5-10 Table 5.1 - International versus Domestic Business 5-11  International versus Domestic Entrepreneurship Economics Domestic Entire country is organized under a single economic system and has the same currency International Requires dealing with differences in: Levels of economic development Currency evaluations Government regulations Banking, venture capital, marketing and distribution system 5-12  International versus Domestic Entrepreneurship Stage of economic development Ability to successfully engage in international business depends on: Fundamental infrastructure Banking facilities and systems Educational system Legal system Business ethics and norms 5-13  International versus Domestic Entrepreneurship Current account: Trade status of imports/ exports between countries Valuation of a country’s currency affects business transactions between countries 5-14  International versus Domestic Entrepreneurship Type of economic system Barter: A method of payment using nonmoney items Third-party arrangements: Paying for goods indirectly through another source Political-legal environment Political risk analysis: Assessment of a country’s political policies and its stability 5-15 International versus Domestic Entrepreneurship Types of political risks Operating risk Transfer risk Ownership risk Conflict and changes in the solvency of the country Critical areas for every entrepreneur Property rights Contract law Product safety (Intellectual property) Product liability 5-16  International versus Domestic Entrepreneurship Language Hire a translator whose: Native tongue is the target language Expertise matches that of the original authors 5-17  Technological Environment Varies across countries Infrastructure impacts the creation of new products in operant countries 5-18 Figure 5.1 - Various Aspects of Culture 5-19  Available Distribution Systems Factors that impact the distribution system of a country: Overall sales potential Amount and type of competition Cost of the product Geographical size and density 5-20  Available Distribution Systems Investment policies Exchange rates and controls Level of political risk Overall marketing plan 5-21 Table 5.3 - Motivations to Go Global 5-22  Strategic Effects of Going Global Increased physical and psychological proximity to the customers and the ports 5-23  Foreign Market Selection Five-step approach to market selection Develop appropriate indicators Collect data and convert into comparable indicators Establish an appropriate weight for each indicator Analyze the data Select the appropriate market from the market rankings 5-24  Foreign Market Selection Company specific indicators should be developed to determine: Overall market size indicators Market growth indicators Product indicators 5-25  Entrepreneurial Entry Strategies Exporting Sale and shipping of products manufactured in one country to a customer in another country Indirect exporting: Using a foreign purchaser in the local market or an export management firm Direct exporting Using independent distributors or the company’s own overseas sales office for international business 5-26  Entrepreneurial Entry Strategies No equity Arrangements Licensing. Turn-key projects. Management contracts. Nonequity arrangements Obtaining sales and profits without direct equity investment in the foreign market 5-27  Entrepreneurial Entry Strategies Licensing: In return of payment of royalty, giving a foreign manufacturer the right to use a: Patent Trademark Technology Production process Product 5-28  Entrepreneurial Entry Strategies Turn-key projects Supplying the manufacturing technology or infrastructure for a business and then turning it over to local owners Management contracts Contracting management techniques and skills to a purchasing company 5-29  Entrepreneurial Entry Strategies Direct foreign investment Minority interests Investing entrepreneur holds a minority ownership position in the foreign venture Joint ventures Joining of two firms in order to form a third company in which the equity is shared Majority interest Purchase of over 50 percent of the equity in a foreign business 5-30  Entrepreneurial Entry Strategies Mergers - Obtaining 100 percent ownership to ensure complete control Horizontal merger Combining two firms that produce same or closely related products in the same geographic area Vertical merger Combining two or more firms in successive stages of production 5-31  Entrepreneurial Entry Strategies Product extension merger Acquiring and acquired companies: Have related production and/or distribution activities Do not have products that compete directly Market extension merger Combining two firms that produce the same products but sell them in different geographic markets Diversified activity merger Conglomerate merger involving the consolidation of two essentially unrelated firms 5-32  Entrepreneurial Partnering Partnering with foreign entrepreneurs Advantages Facilitates business transactions Updates the entrepreneur on business, economic, and political conditions 5-33  Barriers to International Trade Trade barriers: Hindrances to doing international business Initiatives to reduce trade barriers General Agreement on Tariffs and Trade (GATT) Trade Blocs and free trade areas Free Trade Area (FTA) North American Free Trade Agreement (NAFTA) Treaty of Asunción – Mercosur trade zone European Community (EC) 5-34  Entrepreneur’s Strategy and Trade Barriers Impact of trade barriers Increase costs of exporting products to a country Limit entrepreneurs’ ability to sell products in a country from production facilities outside the country Necessitate re-locating production facilities to conform to local regulations 5-35