Textbook Reference: Entrepreneurship, 8th edition by R.H. Hisrich, M.P. Peters and

D.A. Shepherd, Mc Graw Hill Irwin, Copyright 2010.

Chapter 5: Identifying and Analyzing Domestic and International Opportunities

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).

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.

▪ 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.

▪ 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.

▪ 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.

▪ 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

▪ 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.

▪ 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.

▪ 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.

▪ 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.

▪ 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.

◦ 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.

▪ 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.

Various Aspects of Culture

CULTURE NORMS AND VALUE SYSTEM influences and is influenced by:

▪ Religion

▪ Social Structure

▪ Language

▪ Manners and Customs

▪ Education

▪ Economics and Economic

Philosophy

▪ Political Philosophy

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.

▪ 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.

▪ 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.

▪ 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).

▪ 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.