2 The Nature of International Entrepreneurship 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?
3 International vs. Domestic Entrepreneurship: Economics Creating a business strategy for a multi-country area means dealing with differences with the following areas:Levels of economic developmentCurrency valuationsGovt. regulationsBanking, economic, marketing and distribution systems
4 International vs. Domestic Entrepreneurship: Stage of Economic Development RoadsElectricityCommunication systemsBanking facilities and systemsAdequate educational systemsA well-developed legal systemEstablished business ethics and norms
5 International vs. Domestic Entrepreneurship: Balance of Payments 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.
6 International vs. Domestic Entrepreneurship: Type of system 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.
7 International vs. Domestic Entrepreneurship: Political-Legal Environment 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.
8 International vs. Domestic Entrepreneurship: Cultural Environment 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?
9 International vs. Domestic Entrepreneurship: Technological Environment 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.
10 International vs. Domestic Entrepreneurship: Strategic Issues 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.
11 Strategic Issues: Analyzing data of each country on the following six areas: Market characteristics:Size of the market, rate of growthStage of developmentStage of product life cycle; saturation levelsBuyer behavior characteristicsSocial/cultural factorsPhysical environment
12 Strategic Issues: Analyzing data of each country on the following six areas: Marketing institutions:Distribution systemsCommunication mediaMarketing services (advertising and research)Industry conditions:Competitive size and practicesTechnical development
13 Strategic Issues: Analyzing data of each country on the following six areas: Legal environmentLaws, regulations, codes, tariffs and taxesResourcesPersonnel (availability, skill, potential and cost)Money (availability and cost)Political environmentCurrent govt. policies and attitudesLong range political environment
14 Entrepreneurial Entry Into International Business: Exporting 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.
15 Non-equity Arrangements 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.
16 LicensingThis 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.
17 Turn-Key ProjectsThe 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.
18 Management ContractsIt 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.
19 FDI (Foreign Direct Investment) 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.
20 Joint VenturesHere, 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 facilityWhen rapid entry into a market is needed.
21 Motives for forming Joint Ventures Sharing the costs and risks of a projectSynergy 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.
22 Majority Interest 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.
23 100% OwnershipIf 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.
24 Motivations for Merger 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.
25 Barriers to International Trade: GATT 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