International Entrepreneurship

INTERNATIONAL ENTREPRENEURSHIP
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. 1. 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. 2. 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. 3. 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: a. Gaps in the knowledge of the Western system regarding business plans, marketing, and profits b. Widely variable rates of return. c. Non-convertibility of the ruble. d. Differences in the accounting system. e. Nightmarish communications. 4. 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. 5. Cultural Environment
The impact of culture on entrepreneurs and strategies is significant. Understanding the local culture is necessary when developing worldwide plans. 6. Technological Environment Technology varies significantly across countries. New products in a country are created based on the conditions and infrastructure of that country. 7. Local Foreign Competition 8. Stages in economic development Rostow's 5 Stages:
Traditional society o characterized by subsistence agriculture or hunting & gathering; almost wholly a "primary" sector economy o limited technology; o A static or 'rigid' society: lack of class or individual economic mobility, with stability prioritized and change seen negatively Pre-conditions to "take-off" o external demand for raw materials initiates economic change; o development of more productive, commercial agriculture & cash crops not consumed by producers and/or largely exported o widespread and enhanced investment in changes to the physical environment to expand production (i.e. irrigation, canals, ports) o increasing spread of technology & advances in existing technologies o changing social structure, with previous social equilibrium now in flux o individual social mobility begins o development of national identity and shared economic interests Take off o manufacturing begins to rationalize and scale increases in a few leading industries, as goods are made both for export and domestic consumption o the "secondary" (goods-producing) sector expands and ratio of secondary vs. primary sectors in the economy shifts quickly towards secondary o textiles & apparel are usually the first "take-off" industry, as happened in Great Britain's classic "Industrial Revolution" Drive to maturity o diversification of the industrial base; multiple industries expand & new ones take root quickly o manufacturing shifts from investment-driven (capital goods) towards consumer durables & domestic consumption o rapid development of transportation infrastructure o large-scale investment in social infrastructure (schools, universities, hospitals, etc.) Age of mass consumption o the industrial base dominates the economy; the primary sector is of greatly diminished weight in economy & society o widespread and normative consumption of high-value consumer goods (e.g. automobiles)
consumers typically (if not universally), have disposable income, beyond all basic needs, for additional goods
Strategic Issues Four strategic issues are important to the international entrepreneur: 1. The allocation of responsibility between the home country 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. 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. 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. ENTREPRENEURIAL ENTRY INTO INTERNATIONAL BUSINESS The choice of entry method depends on the goals of the entrepreneur and the company's strengths and weaknesses. 1. Exporting As a general rule, an entrepreneur starts doing 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.
2. Non equity arrangements Non equity arrangements allow the entrepreneur to enter a market without direct equity investment in the foreign market. e.g. 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.
Motivating factors for going 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

International Entrepreneurship

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Motivating factors for going global

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