International Entrepreneurial Opportunities

THE NATURE OF INTERNATIONAL ENTREPRENEURSHIP

As more countries become market oriented and developed, the distinction between foreign and domestic markets is becoming less pronounced. International entrepreneurship is the process of an entrepreneur conducting business activities across national boundaries. It is exporting, licensing, or opening a sales office in another country. When an entrepreneur executes his or her business in more than one country, international entrepreneurship occurs.

THE IMPORTANCE OF INTERNATIONAL BUSINESS TO THE FIRM

International business has become increasingly important to firms of all sizes. The successful entrepreneur will be someone who understands how international business differs from domestic business and is able to act accordingly.

INTERNATIONAL VERSUS DOMESTIC ENTREPRENEURSHIP

Whether international or domestic, an entrepreneur is concerned about the same basic issues-sales, costs, and profits. What varies is the relative importance of the factors being considered. International entrepreneurial decisions are more complex due to uncontrollable factors such as the following-

Economics- A domestic business strategy is designed under a single economic system. Creating a business strategy for multiple countries means dealing with different levels of economic development and different distribution systems.

Balance of Payments- A country's balance of payments affects the valuation of its currency. This economic variable will affect how companies do business in other countries.

Type of System- Barter or third-party arrangements have been used to increase business activity with the Commonwealth of Independent States, the former U.S.S.R. There are still many difficulties in doing business in developing and transition economies due to:

·         Gaps in the knowledge of the Western system regarding business plans, marketing, and profits

·         Widely variable rates of return.

·         Non-convertibility of the ruble.

·         Differences in the accounting system.

·         Nightmarish communications.

Political-Legal Environment- Multiple political and legal environments create different business problems. Each element of the international business strategy can potentially be affected by multiple legal environments. Laws governing business arrangements also vary greatly in the 150 different legal systems and sets of national laws.

Cultural Environment- The impact of culture on entrepreneurs and strategies is significant. Understanding the local culture is necessary when developing worldwide plans.

Technological Environment- Technology varies significantly across countries. New products in a country are created based on the conditions and infrastructure of that country.

Strategic Issues- Four strategic issues are important to the international entrepreneur:

1. The allocation of responsibility between the U.S. and foreign operations.

2. The nature of the planning and control systems to be used.

3. The appropriate organizational structure for conducting international operations.

4. The degree of standardization possible.

With experience in international operations, entrepreneurs tend to change their approach to responsibility.

Stage 1: In the first stages the entrepreneur typically follows a highly centralized decision-making process.

Stage 2: When success occurs, it is no longer possible to use completely centralized decision-making process.

Stage 3: Decentralization is scaled back and major strategic decisions are again centralized.

To understand what is required for effective planning, reporting, and control, the entrepreneur should consider:

1. Environmental analysis.

2. Strategic planning.

3. Structure.

4. Operational planning.

5. Controlling the marketing program.

The first step in identifying markets is to analyze data in the following areas:

1. Market characteristics.

2. Marketing institutions.

3. Industry conditions.

4. Legal environment.

5. Resources.

6. Political environment.

ENTREPRENEURIAL ENTRY INTO INTERNATIONAL BUSINESS

The choice of entry method depends on the goals of the entrepreneur and the company's strengths and weaknesses.

Exporting- As a general rule, an entrepreneur enters into international business through exporting. Indirect exporting involves a foreign purchaser in the local market or using an export management firm. For certain commodities, foreign buyers seek out sources of supply. Export management firms, another indirect method, are located in many commercial centers.

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. Entrepreneurs who do not wish to give up control over marketing can open overseas sales offices and hire their own salespeople.

Non equity arrangements- Non equity arrangements allow the entrepreneur to enter a market without direct equity investment in the foreign market.

Licensing involves a manufacturer giving a foreign manufacturer the right to use a patent, trademark, or technology in return for a royalty. This arrangement is most appropriate when the entrepreneur has no prospect of entering the market through exporting or direct investment. The process is usually low risk and an easy way to generate incremental income. Without careful analysis, licensing arrangements have several pitfalls.

Turn-key projects- Lesser-developed countries are able to obtain manufacturing technology without surrendering economic control through turn-key projects. A foreign entrepreneur builds a facility, trains the workers, and trains the management to run the installation. Once the operation is on line, it is turned over to local owners. Initial profits can lead to follow-up sales. Financing is often provided by the local company or government.

Management contracts- Entrepreneurs can contract their management techniques and skills, often following a turn-key project. The management contract allows the purchasing country to gain foreign expertise without turning ownership over to a foreigner.

Direct Foreign Investment- The wholly owned foreign subsidiary has been the preferred mode of ownership for direct investment.

Minority interests- The minority interest provides the firm with either a source of raw materials or a captive market for products. Entrepreneurs have used minority positions to gain a foothold in the market before making a major investment.

Joint ventures- Two firms get together and form a third company in which they share the equity.

KEY TERMS

Balance of payments- The trade status between countries

Barter System- A method of payment using no monetary item

Direct exporting- Selling goods to another country by taking care of the transaction

Diversified activity merger- Combination of at least two totally unrelated firms

Exporting- Selling goods made in one country to another country

Horizontal merger- Combination of at least two firms doing similar businesses at the same market level