1. Unit 3: The Environment for Entrepreneurship
Ace Institute of Management
BBA 6th Semester

2. Small Business Venturing
A small business may be defined as a business with a small number of employees or with limited capital.
Normally privately owned corporations, partnerships or sole proprietorship
Examples: Convenience stores, restaurants, guests houses, hairdressers, tradesmen, solicitors, accountants
They are Independent and mostly managers are owners

3. Small Business Venturing
According to Industry Act of Nepal: Industry with fixed assets up to an amount of thirty million shall be defined as Small Industry
Accroding to Longenecker, Moore and Petty
A small business has financing supplied by one individual or a small group, has geographically localized operation expect marketing, is small compared to the biggest firms in industry and has employees usually fewer than hundred

4. Small Business Venturing
Characteristics of Small Business
Management is independent
Closely held ownership
Local operations
Small size in terms of numbers of employee, turn over, fixed assets and capital

5. Small Business Venturing
Types of Small Business Activities
Manufacturing
Wholesaling
Retailing
Services
Financial Services
Professional Services
Transport Services
Repair Services

6. Small Business Venturing
Importance
Innovation
Complementary to Large Business
Flexibility
Job creation and Satisfaction
Close Relation
Competition
Higher Financial Reward

7. Small Business Venturing
Advantages and Disadvantages
Advantages
Disadvantage
Independence
Risk of Failure
Innovation
Inadequate Management
Responsiveness
Laws and Regulations
Employment Creation
Marketing Problems
Financial Performance
Technology
Interdependence
Poor Financial Management

8. International Entrepreneurship Opportunities

9. International Entrepreneurship is the process of an entrepreneur conducting business activities across national boundaries.
When an entrepreneur executes his or her business model in more than one country, international entrepreneurship is occurring.

10. Importance of International Business to the firm.
International business has become increasingly important to firms of all sizes particularly today due to intense competition leading to hypercompetitive global economy.
But before entering into international business entrepreneur must fully understand how international business differs from purely domestic business and an entrepreneur should be able to respond it accordingly.

11. Questions for Entrepreneur before venturing into international Market
1) Is managing international business different from managing domestic business?
2) What are the strategic issues to be resolved in international business management? Eg. Allocation of responsibility, planning and control, structure, standardization
3) What are the options available for engaging in international business?
4) How should one assess the decision to enter into an international market? Eg. Profits, market share, competition

12. International Versus Domestic Entrepreneurship
Economical
Stage of Economic Development: Relate income of people, infrastructure, banking facilities
Balance of Payment: difference between import and exports
Type of system
Political and Legal Environment
Cultural Environment
Technological Environment

13. Entrepreneurial Entry into International Business
Three options of entering into international business market –
1) Exporting
2) Nonequity arrangements
3) Direct Foreign Investment

14. Disadvantages: the intermediary still requires sales support,
Exporting
Selling goods made in one country to another country.
Usually an entrepreneur starts doing international business through exporting.
Two general classification of exporting –
Indirect : Involves a foreign purchaser in the local market or using an export management firm.
Requires least amount of risk and knowledge about market
Disadvantages: the intermediary still requires sales support,
The intermediary takes a margin, You have no direct contact with the end customer, You will have less control over the actual final transaction, You don’t get to learn about the overseas market, which could slow down longer term expansion plans.

15. 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.

16. Direct Exporting Advantage Disadvantages You are in control of pricing
You are in full control of your brand
You get a direct understanding of buyers' or end users' needs and an ability to customize accordingly
You maintain the customer relationship
You are able to identify possible new opportunities
Your customers may prefer dealing dire
it will take a lot of time, energy, staff resources and money
competitors with a local presence will be perceived as lower risk to buy from
after-sales commissioning and service may require local language capability
prompt troubleshooting may not be able to be done remotely and will require additional visits
growth will be slower

17. 2) Non Equity Arrangement
Doing international business through an arrangement that does not involve any investment
Entrepreneurs who either cannot export or make direct investment go for non equity arrangement
Types of Non equity arrangements
Licensing
Gives rights to use patent, trademark and technology
In return takes royalty
Appropriate where market is difficult to enter
Low risk
Should be careful as several pitch falls ( fare of licensing largest competitors)

18. Turn key Projects Management Contracts
Appropriate for least developed or developing countries
Foreign partners builds the facility, train employee and management to run the instalment
Once the operation is in line then is given to the local owner
Financing is normally local owner or government
Initial profits can be made and follow up export sales can be made
Management Contracts
Entrepreneurs contracts management skill and techniques
Allows purchasing country to gain foreign expertise with turning ownership to foreigner
Sometimes follows the turn key projects where foreign owners wants to use the management.

19. 3) Direct Foreign Investment
Where an entrepreneur himself invests capital in international markets
Methods of Direct Foreign Investment –
Minority Interests – Having less than 50% ownership position (E.g Standard chartered), provide the firm with either a source of supply or captive market for product, done to gain a foothold in the market before making major investment.

20. Joint venture – Two Company Forming a Third Company (E
Joint venture – Two Company Forming a Third Company (E.g Surya Nepal Ltd). JVs are formed when entreprenerus want to purchase local knowledge and an established facility
Majority Interests – Having more than 50% ownership position (e.g Dabur Nepal Ltd), Allows the entrepreneur to obtain managerial control while maintaining the company’s local identity

21. 100 percent Ownership: Ensures complete ownership and Control.
Goes into 100 % ownership only entrepreneur has technology, capital and Marketing Skills
Merger and acquisition: Basically 5 types of mergers
Horizontal Merger: Combination of two firms doing similar business in same market level
Vertical Merger: Combination of two firms in successive stage of production.
Product extension Merger: Combination of two firms with non competing product
Market extension Merger: Combination of at least two firms with similar product in two different geographic location
Diversified activity Merger: Combination of at least two totally unrelated products

22. Franchising
A franchise is an arrangement by the manufacturer or sole distributor of trademarketed product or service that provides exclusive rights of local distribution to independent retailers in return for their payment of royalty.
Franchising is a marketing system revolving around a two party legal agreement, whereby the franchise conducts business according to terms specified by the franchisor.

23. Franchising Characteristics of franchise –
It is a marketing system for well known brands or trade mark
It involves two parties – franchisor and franchise.
It provides exclusive rights for local distribution of specific products or service to franchisee
It covers a specific territory.

24. Franchising Advantage of Franchising – to the Franchisee
Product Acceptance
Management Expertise
Capital Requirements
Knowledge of the market
Operating and Structural Control
Advantage of Franchising – to the Franchisor
Expansion Risk
Cost Advantages

25. Disadvantages of Franchising- to the Franchisee
Unfulfilled promises
Franchise Fees
Franchisor Control
If the Franchisor business fails then Franchisee will be left with nothing
Disadvantages of Franchising- to the Franchisor
Poor Mgmt of Franchisee
Negative effect on entire franchise system

26. Franchising Types of Franchises Distributorship Chain- Style operation
Service franchises- income tax preparation companies, real estate agencies

27. Defining Ethics
Basic rules or parameters for conducting any activity in an acceptable manner
Set of principals prescribing a behavioral code that explains what is right or wrong
Outlines moral duties and obligation
Entrepreneurs faces many ethical decisions especially during early stages of their new venture
Conflict over the ethical nature is very prevalent.

28. Ethics and Law Legal Vs Ethical
Law provides what is illegal but it does not prove what is ethical considerations.
It is managerial rationalization about the justifying the conduct. Four Rationalization are
Activity is not really illegal
Individual or corporation best interest
Will never be found
It helps the company

29. Ethics and Law
Within the rationalization framework there exists four distinct managerial roles
Types
Direct Effect
Examples
Non role
Against the firm
Expense account cheating, Embezzlement. Stealing supplies
Role Failure
Superficial performance appraisal, Not confronting expense account cheating
Role Distortion
For the firm
Bribery, price fixing, manipulation suppliers
Role assertion (allegation )
Using nuclear technology for energy generation, Not withdrawing product line in face of initial allegation of inadequate safely

30. Ethics and Law Economic Tradeoff
In some cases there exist trade off between profit and social welfare. For example
Cigarette Advertisement
Running toxic water in the river
Lay offs during Economic downturn

31. Establishing a strategy for ethical responsibility
Ethical Practices and Code of Conduct
Code of conduct is a statement of ethical practices or guidelines which an enterprise adheres
Covers multitude of subjects, ranging from misuse of corporate assets, conflict of interest, falsification books etc
This is becoming more prevalent in organization
They are also becoming implemented these days

32. Establishing a strategy for ethical responsibility
Approaches to Managerial Ethics
Should understand own ethical norms, motives, goals, orientation toward law and strategy towards immoral, amoral and moral management.
Moving from immoral to moral management can be done by conduction seminars and trainings

33. Establishing a strategy for ethical responsibility
Holistic Approach: Entrepreneurs should try holistic approach that allows personnel understand what they can do and cannot do
To apply entrepreneurs can develop specific principles
Principle 1: Hire the right people
Principle 2: Set standards more than rules
Principle 3: Don’t get yourself get isolated meaning be informed
Principle 4: Let your ethical example at all times be absolutely impeccable

34. Establishing a strategy for ethical responsibility
Ethical Consciousness: The awareness about ethics should come from the entrepreneur himself
Ethical Process and Structure: Refers to procedure, positions, statements and announced ethical goals designed.
Institutionalization: Deliberate step to incorporate the entrepreneurs ethics.

35. Social Responsibility
Business obligation towards society
Extends to different areas: Environment, Energy, Fair Business Practices, Human Resources, Community Involvement, Products
Social action of Businesses can be classified into three categories.
Social Obligation: Simply react to social issues through obedience of law
Social Responsibility: Responses more actively accepting responsibility for various programs
Social Responsiveness: Highly proactive and also willing to be evaluated by public for various activities.

36. E-entrepreneur
An e-entrepreneur is defined as an individual willing to take the risk of investing time and money in an electronic business that has the potential to make a profit or incur a loss.
E-entrepreneurship is the act of managing an electronic enterprise that has the potential to make a profit or incur a loss.

37. Some of Famous E- Entrepreneurs
Chad Hurley and Steve Chen – You tube
Mark Zuckerberg – Facebook
Sergey Brin and Larry Page- Google
Kevin Rose - Digg

38. Bricks and Mortar Business
Has a material presence
Has a tangible location where potential customers can actually walk in and interact with employees
Examples: storefront, storage facility, office space, or manufacturing facility

39. Virtual Business
Does not have a material space designed to receive customers
Transacts most of its business online
Can deal with customers from any location that offers Internet capability

40. Why E- Entrepreneurship
Approximately 75 percent of Americans have access to the Internet from home.
That means over 200 million people are potential customers for the entrepreneur with an Internet site.
Cost of starting up and operating cost are usually lower than those in a brick and mortar business
Do not incur cost such as relocation cost
Ability to monitor price fluctuations that competitors are offering
Assistance may be provided instant

41. E- Commerce
Electronic commerce refers to the buying and selling of products or services over electronic systems such as the Internet and other computer networks. However, the term may refer to more than just buying and selling products online. It also includes the entire online process of developing, marketing, selling, delivering, servicing and paying for products and services. The amount of trade conducted electronically has grown extraordinarily with widespread Internet usage

42. Internet Impact Most Impact Less Impact Financial Services Retailing
Entertainment
Manufacturing
Health Care information
Travel
Education
Power
Government

43. Ecommerce
Advantage
Ability of small firms to compete with other companies both locally and internationally
Creation of possibility and opportunity for more diverse people to start a business
Convenient and easy way of doing business transaction
Higher revenues for small businesses that utilize the internet
Minimizes the marketing cost reaching to boarder markets

44. Challenges Managing upgrades Assuring security for a website
Avoid being a victim of fraudulent activities online
Handling the cost required to maintain the site
Finding and retaining qualified employees

45. Components of e-commerce
Front End Operations:
Website functionality,
Search capabilities, shopping cart and secure payment
Back-End Operations
Operations that happens beyond the web page
Seamless integration of customers orders
Distribution channels, manufacturing capabilities
Integration of Front and Back end Operation is a Challenge but provide opportunity for developing competitive advantage

46. Business Models and Strategies
A business Model is a plan for earning profit and the configuration of a business
B2C ( Business to Consumer) Business Model: Selling directly to the final consumer and end user. It is sometimes called e-tailing
B2B ( Business to Business ) Business Model: Final user is not an individual consumer but another company. Saves back office bookkeeping, sales, and admin cost as they are industry specific

47. Business Models and Strategies
B2B2C Business Model: Produces a product for another business that then markets it to the consumers.
Niches: Niche business on the web can be defined as a firm that targets a very specific market segment, provides that segment with a complete vertical supply chain or specializes in a very specific kind of product
Click and Bricks: Combination of a physical presence business and an Internet business.
Roll-Ups business Model: Buying of many of smaller competitors.

48. Business Models and Strategies
Advertising Models: Earnings through advertising on others site
Pay for the content Model: Users must pay to access a website.

49. Business Incubation
Most of the creative idea are never taken up to development stage
They have difficulty in starting up the business.
Business Incubation is the process of assisting new venture to getting started.
The basis purpose of incubator is to increase the chances of survival for new start up businesses.
They provide services from physical amenities to support services

50. Business Incubation
Business Incubator provide facility with adaptable space that small business can lease on flexible terms and at reduced rents
Also provides services technical, financial, managerial and administrative
These are available and shared, depending on the size and nature of tenants needs

51. Service Benefits Below the market rate rental space on flexible terms
Elimination of building Maintenance responsibilities
Sharing of equipment and services that would otherwise be unavailable or unaffordable.
Access to various types of financial and technical assistance
Provision of an environment where small business are not alone, thereby reducing the anxiety of starting a new venture

52. Business Incubation: Amenities
Centrex Phone System
Staffed Reception Area
Business Ref Library
Mail room
Federal Express
Shipping/ Receiving
Facsimile
Typing and Secretarial
Data and Word Processing
Notary Public
Translation Services
Conference Rooms
Child Day Care Center
Coffee Shop
Affordable Space
Flexible Space
Flexible Leases

53. Business Incubation: Services
Accounting Services
Business and Financial Planning
Marketing and Advertising
Loan Packaging
Legal Services
Tax and Financial Services
Seminars

54. Types of Incubators Publicly Sponsored Non Profit Sponsored:
Organized through Government, city economic development departments, urban renewal authorities, regional planning and development commission
Job creation is main focus
Non Profit Sponsored:
Organize and managed through industrial development association of private industry, chamber of commerce or community based organizations
Area development is major objective

55. Types of Incubators University Related: Privately Sponsored:
They are spin off of academic research projects
Mostly science and technology incubators
Main focus to translate findings of basic research into development of new product
Privately Sponsored:
Organized and managed by private corporations
Main objective to make profit

56. The Environment for Entrepreneurship
These are the factors effects the business operations and decisions
Two types
External Environment: (Opportunities and threats )
Outside the organization
Not within the short run control of the entrepreneur
Has two parts: Task environment ( elements that directly affect and are affected by organizations operations ), Societal environment ( that do not directly touch short run activities of the business but can and often do influence long run decisions

57. The Environment for Entrepreneurship
Internal environment: Strengths and weaknesses
They exists within the organization it.
These variables form the context within which work is done.
Includes venture’s structure, culture and resources.

58. Internal Environment
Structure, objective, Finance, R and D,
Culture
Resource
Task Environment
Stock holders
Suppliers
Competitors
Intermediaries
Comsumers
Societal Environment
Socio-cultural forces
Economic Forces
Technological Forces
Political and Legal Forces

59. PEST-N Political Env Economic Env Socio-Cultural Env Technological
Natural
Business Legislation
Purchasing Power
Demography
Pace of Technological Development
Supply of Raw Material
Changing Legislation
Spending Pattern
Cultural Env
R and D Cost
Cost of Energy
Enforcement Agencies
Consumer Movement
Regulations
Increased Pollution
Power Blocks
Govt Interventions
Increased Social Responsibility

60. Environmental Analysis: Analysis of business environment includes
Scanning to detect Change: Identifying key elements and theirs characteristics
Monitoring to track development: Evolution, development and sequence of critical events that affect the survival and profitability
Forecasting to project future: To develop projections eg,. Direction of interest rates, level of prices
Assessing to interpret data:

61. Political and Governmental Analysis
Political analysis gives the entrepreneur a feeling for what is possible, what is probable and what is unlikely.
It is a segment where different interest groups compete for their interest to establish their own values and their own goals.
An organized group of entrepreneurs can influence the political sector

62. Political and Governmental Analysis
Three issues should be analyzed
Global and International Issue
Trade barriers and Tariffs: Hinders free flow of resources across national boundaries
Trade Agreements:
Political Risk
National Issues
Taxation
Regulations
Patent Protection
Government Spending

63. Political and Governmental Analysis
State, Regional and Local Issues
Licensing
Securities and Incorporation Law
Incentives

64. Government Policies
Policy is generally made or initiated by government .
Policy is interpreted and implemented by public and private actors.
Policy is what the government intends to do but chooses not to do
Government’s deliberate plan of action to guide decisions and achieve rational outcome(s).

65. Government Policies and Entrepreneurship
Entrepreneurial activity leads to economic growth and helps to reduce poverty and foster stability.
It is in the interest of all that governments implement policies to foster entrepreneurship and reap the benefits of its activity.
Promotes entrepreneurship through industrial policy, industrial act, commercial policy

66. Government Policies and Entrepreneurship
Government should make following changes in policies to create positive business environment
Simplification of labour policies
Reforms in the tax policy
Streamlining legal framework for enterprise creation, operation and liquidation
Make efforts to create competitive market: remove monopolies

67. Condt….
Simplification of regulation for investment, production, marketing, prices, FDIs and technology transfer
The policies should be formulated after discussion with parties likely to be affected
Transparency of policies and their implementation should be there.

68. Government Policies and Entrepreneurship
Strategies for encouraging entrepreneurship are:
changes in tax policy
regulatory policy
access to capital
the legal protection of property rights.

69. Tax Policy
Taxes increase the cost of the activity taxed, thereby discouraging entrepreneurship
Therefore, policymakers need to balance the goals of raising revenue and promoting entrepreneurship
Corporate tax rate reductions and tax deductions for businesses are methods for encouraging business growth.

70. Regulatory Policies
The simpler the regulatory process, the greater the likelihood of small business expansion
Reducing the cost of compliance with government regulations is also helpful.
To promote entrepreneurs governments can provide one-stop service centers where entrepreneurs can find assistance

71. Access to Capital
If the government has policy to assist potential entrepreneurs with finding money for start-ups, then climate for entrepreneurship becomes favorable
In the United States, the Small Business Administration (SBA) helps entrepreneurs get funds.

72. Protection of IPR
If innovations are not legally protected through patents, copyrights, and trademarks, entrepreneurs are unlikely to engage in the risks necessary to invent new products or new methods

73. Business Env. In Nepal Economic Environment
Began in 1950 with mixed economic model. By then it was largely rural and agro based.
Recent liberalization economic policy has enhanced linkages to rest of work with MNC’s entry
Monetary and Fiscal Policies: NRB prescribes the monetary policies and affects demand and supply of money. Objective of MP is economic growth and stability
Income Distribution: Poor- US$ 250 to US$ 300 per capita income and highly skewed.

74. Economic Environment
Industrial policies: aims at increasing contribution of industries to GDP, Create employment opportunities, promote balanced regional development, encouraging FDI
Privatization Policies: Aims at increasing productivity of public enterprise, decrease financial and admin cost of govt and encourage private to take public undertakings
Trade and Transit Policies: Encourage private sector for export and promotion, Increase employment in export industries

75. Socio Cultural
Education: Half of population illiterate. Privatization of education is increasing the literacy rate
Demography: Population about 24 million. Majority are below 14 of age, internal migration high,
Religion/Beliefs:

76. Technological Env
Level of Technology: Labor intensive, Have understood the importance of having capital intensive technology
Pace of Technological Change: Slow Change, Due to high cost of technological replacement the the change is slow
Research and Development: Very minimum R and D, Companies allocate very little budget

77. Political Environment
Multi-party parliamentary political system in 1990.
Very unstable government
Political parties: Various party with different ideologies, they are increasingly power centric functioning, intra party conflicts.
Legal Framework
Administrative Policies:

78. Legal Acts in Nepal General Business Legislation
Private Firms Registration Act
Partnership Act
Company Act
Cooperative Act
Industrial Enterprise Act
Contract Act
Arbitration Act

79. Legal Acts in Nepal Labour Legislation Bonus Act
Industrial Training Act
Labour Act
Trade Union Act
Labour court Regulation Act
Child Labour Act

80. Legal Acts in Nepal Finance and Investment Legislation
Foreign Investment and Technology Transfer Act
Foreign Exchange Regulation Act
Taxation Acts : Income tax Act, Value added Tax Act, Customs Act
Export- Import Act

81. Legal Acts in Nepal Social and Consumer Protection Legislation
Patent, Design and Trademark Act
Copyright Act
Black Market and some other social crime and Punishment Act
Food Act
Nepal Standardization Act
Consumer Protection Act
Environmental acts

82. Incentives and Facilities
10 % deduction shall be allowed on deduction against taxable income for incorporating new technology, product development and efficiency development
Excise duty shall be reimbursed for industries utilizing locally available raw materials, chemicals and packing materials
Customes duty and excise duty on raw materials shall be reimbursed on the basis of quantity to exprot
No royalty shall be imposed of any industry generating electricity for its use

83. Concession and facilities of tax
Expenses occurred to reduce pollution, minimize the adverse environment effects and R and D expenditure are deductible from taxable income
Manufacturing industry providing 500 citizens shall get tax rebate of 10 percent
Industry established in certain under developed remote and semi developed area are given rebates ranging from 20 to 30 percent
10 year tax holiday in industries established in certain under developed area

84. Concession and facilities of tax
Five years tax holiday for industries established in special economic zone and 50 percent tax rebate after five years
10 years income tax holiday for industries established in hilly region

85. Strategic Alliance
A strategic alliance is a business arrangement in which two or more firms cooperate for their mutual benefit.
Created for sharing knowledge, expertise, and expenses as well as to gain entry to new markets or to gain a competitive advantage in one
Strategic alliance may turn actual or potential competitors into partners working toward a common goal.
Use of strategic alliances has become a major tool for businesses that are internationalizing their operations

86. Strategic Alliance JOINT VENTURE-BASED STRATEGIC ALLIANCES
A joint venture is created when two or more firms work together to form a new business entity that is separate from its "parents." (Not all joint ventures fit this definition, joint ventures by acquisitions are exceptions.)
Joint Venture through subsidiary: Most common
Joint venture through acquisition
Joint venture through Merger

87. Strategic Alliance STRATEGIC ALLIANCES NOT BASED ON JOINT VENTURES.
Formed for a limited purpose and is more narrow in its operations
Tend to be less stable and last for shorter terms

88. Strategic Alliance Benefits
MARKET ENTRY: Standard bank of british south Africa and Chartered bank of India, Australia and China
SHARING RISKS AND EXPENSES
SYNERGISTIC EFFECTS OF SHARED KNOWLEDGE AND EXPERTISE
GAINING COMPETITIVE ADVANTAGE

89. Networking
Networking is the process of creating alliance with people and organization beyond the immediate boundaries of the venture.
Linking up with right people to get things done
It opens channels to resources, market and expertise

90. Networking Entrepreneurs generally creates two types of networks.
Personal Networks: Within immediate circles of daily relationships
Social Networks: Loosely connected affiliations within the community or industry,

91. Questions
What do you mean by e-commerce? Explain the opportunities and challenges of e-commerce in the context of Nepalese business
What do you understand by environment for entrepreneurship? Briefly explain the provision made by the Nepalese Government in providing environment for entrepreneurship in Nepal.
Define e-entrepreneurship? Describe the challenges and opportunities of e-entrepreneurship

92. Questions
Explain exporting and franchising as international opportunities for an entrepreneur
Which are the major areas, where the entrepreneurship need government support? Discuss in Nepalese context
Discuss the use of exporting as a method of entering into global market
Environment is a dynamic factor which provides strengths, weaknesses, opportunities and threats. Explain the statement in context of entrepreneurship

93. Questions
Discuss the use of franchising as a method of entering into international market
What are the major factors, which positively influence the development of entrepreneurship in Nepal