Identifying and Analyzing Domestic and International Opportunities Chapter 5 Identifying and Analyzing Domestic and International Opportunities McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

Introduction Entrepreneurs find it difficult to both manage and expand the venture they created. To expand a venture, entrepreneurs need to: Identify opportunities for domestic and international expansion. Develop different management skills. Infuse new entrepreneurial spirit (intrapreneurship).

Introduction (cont.) Factors contributing to international expansion: Opening up of controlled economies to market-oriented enterprise. Self-interest of organizations as well as the impact of external events and forces. Developing countries need training and education as well as infrastructure to support their development and growth in the next century.

Opportunity Recognition and the Opportunity Assessment Plan The key to successful domestic and international entrepreneurship is to develop an idea that has a market with a need for the product or service idea conceived. Opportunity assessment is often best accomplished by developing an opportunity assessment plan. An opportunity assessment plan is not a business plan.

Opportunity Recognition and the Opportunity Assessment Plan (cont.) An opportunity assessment plan has four sections: The first section develops the idea, analyzes competitive products and companies, and identifies the unique selling propositions. The second section focuses on the market—its size, trends, characteristics, and growth rate. The third section focuses on the entrepreneur’s and management team’s skills and experience. The final section develops a time line indicating the steps to successfully launch the venture.

Information Sources General Information SCORE is a nonprofit organization that provides free online and in-person assistance. Small Business Development Centers provides counseling, training, and technical assistance on all aspects of managing a new venture. The U.S. Chamber Small Business Center provides start-up assistance through Web-based tools and resources. Other valuable Web sites include: nasbic.org, nvca.org, nbia.org, www.fasttrac.org, activecapital.org, c-e-o.org, entre-ed.org, kauffman.org.

Information Sources (cont.) Industry and Market Information Plunkett - Industry data, market research, trends, statistics on markets, and forecasts. Frost and Sullivan - Industry specific information. Euromonitor – Information on consumer market sizes, marketing parameters, companies, and brands. Gartner - Information on technology markets. Gale Directory Library - Industry statistics and information on nonprofit organizations and associations.

Information Sources (cont.) Competitive Company and Product Information Business Source Complete - Provides company and industry information by scanning the Datamonitor reports. Hoovers - Provides information on both large and small companies with links to competitors in the same NAICS (North American Industrial Classification System) category. Mergent - Provides detailed company and product information on U.S. and international companies.

Information Sources (cont.) Government Sources Census reports factfinder.census.gov www.census.gov/ipc/www/idb Export/import authority UN Comtrade www.business.gov/expand/import-export NAICS and Standard Industrial Classification codes www.naics.com/info.htm www.osha.gov/pls/imis/sic_manual.html

Information Sources (cont.) Search Engines There are many key terms for searching the needed industry, market, and competitive information. Trade Associations Good source for country-specific industry data. Trade Publications Provide information and insights on trend, companies, and trade shows from a local perspective of the particular market and market conditions.

The Nature of International Entrepreneurship International entrepreneurship is the process of an entrepreneur conducting business activities across national boundaries. The activities necessary for ascertaining and satisfying the needs and wants of target consumers take place in more than one country. With a commercial history of only 300 years, the United States is a relative newcomer to the international business arena.

The Importance of International Business to the Firm International business has become increasingly important to firms of all sizes. A successful entrepreneur must be able to: Fully understand the difference between domestic and international business. Respond accordingly thereby successfully “going global.”

International versus Domestic Entrepreneurship Economics In a domestic business strategy, the entire country is organized under a single economic system and has the same currency. Creating a business strategy for a multicountry area means dealing with differences in: Levels of economic development. Currency valuations. Government regulations. Banking, venture capital, marketing, and distribution systems.

International versus Domestic Entrepreneurship (cont.) Stage of Economic Development Certain factors significantly impact a firm’s ability to successfully engage in international business such as: Fundamental infrastructures. Banking facilities and systems. Educational systems. Legal system. Business ethics and norms.

International versus Domestic Entrepreneurship (cont.) Balance of Payments Current Account With the present system of flexible exchange rates, a country’s current account (the difference between the value of a country’s imports and exports over time) affects the valuation of its currency. The valuation of one country’s currency affects business transactions between countries.

International versus Domestic Entrepreneurship (cont.) Type of System Difficulties in doing business in economies that are developing, or in transition. Use of barter or third-party arrangements in these countries to increase business activity. Barter - A method of payment using nonmoney items. Third-party arrangements - Paying for goods indirectly through another source.

International versus Domestic Entrepreneurship (cont.) Political-Legal Environment Political risk analysis - An assessment of a country’s political policies and its stability prior to entry. Types of political risks: Operating risk. Transfer risk. Ownership risk . Conflict and changes in the solvency of the country.

International versus Domestic Entrepreneurship (cont.) A country’s legal system regulates: Its business practices. The manner in which business transactions are executed. The rights and obligations involved in any business transaction between parties. Critical areas for every entrepreneur: Property rights. Contract law. Product safety. Product liability.

International versus Domestic Entrepreneurship (cont.) Language One of the biggest problems for the entrepreneur is finding a translator. Significant problems can occur with careless translation. Care should be taken to hire a translator whose native tongue is the target language and whose expertise matches that of the original authors.

Technological Environment The variation and availability of technology are often surprising, particularly to an entrepreneur from a developed country. New products in a country are created based on the conditions and infrastructure operant in that country.

Figure 5.1 - Various Aspects of Culture

Available Distribution Systems Factors to be considered in determining the distribution system for a country: Overall sales potential. Amount and type of competition. Cost of the product. Geographical size and density. Investment policies. Exchange rates and controls. Level of political risk. Overall marketing plan.

Motivations to Go Global Profits. Competitive pressures. Unique product(s) or service(s). Excess production capacity. Declining home country sales. Unique market opportunity. Economies of scale. Technological advantage. Tax benefits.

Strategic Effects of Going Global Physical and psychological closeness to the international market affects the way business occurs. Cultural variables, language, and legal factors can make a foreign market that is geographically close seem psychologically distant.

Strategic Effects of Going Global (cont.) Issues involved in psychological distance: The distance envisioned by the entrepreneur may be based more on perception than reality. Closer psychological proximity makes it easier for an entrepreneurial firm to enter a market. There are more similarities than differences between individual entrepreneurs regardless of the country.

Foreign Market Selection One good market selection model employs a five-step approach: 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.

Entrepreneurial Entry Strategies Exporting Indirect exporting. Direct exporting. Nonequity Arrangements Licensing. Turn-key projects. Management contracts.

Entrepreneurial Entry Strategies (cont.) Direct Foreign Investment Minority Interests. Joint Ventures. Majority Interest. Mergers: Horizontal merger. Vertical merger. Product extension merger. Market extension merger. Diversified activity merger.

Entrepreneurial Partnering Foreign entrepreneurs know the country and culture. They can facilitate business transactions and update the entrepreneur on business, economic, and political conditions. Good partners share the entrepreneur’s vision, are unlikely to exploit the partnership, and can help the entrepreneur achieve his or her goals.

Barriers to International Trade General Agreement on Tariffs and Trade (GATT) Established in 1947 under U.S. leadership; includes over 100 nations. Objective - To liberalize trade by eliminating or reducing tariffs, subsidies, and import quotas.

Barriers to International Trade (cont.) Increasing Protectionist Attitudes Support of GATT resulted in: Strain on the world trading system and the economic success of countries perceived as not playing by rules. Establishment of bilateral voluntary export restraints to circumvent 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).

Barriers to International Trade (cont.) Entrepreneur’s Strategy and Trade Barriers Trade barriers increase entrepreneurs’ costs of exporting products or semifinished products to a country. Voluntary export restraints may limit entrepreneurs’ ability to sell products in a country from production facilities outside the country. Entrepreneurs may have to locate assembly or production facilities in a country to conform to local content regulations.