INTERNATIONAL ENTREPRENEURSHIP

Content
The nature of international entrepreneurship

Importance of international business to the firm,

International versus domestic entrepreneurship

Stages

of economic development, Entrepreneurship entry into international

business,
Exporting, Direct foreign investment, barriers to international trade.

INTERNATIONAL VS DOMESTIC ENTREPRENEURSHIP

International entrepreneurship : International entrepreneurship is defined as development of international new ventures or start ups that from their inception engage in international business, thus viewing their operation domain as international from the initial stages of international operation.

Example of Global Entrepreneurship.

Tech industry are strong example of successful global entrepreneurship. Companies such as Microsoft, Apple, Google and yahoo all evolved from small startups with limited funding into massive multinational corporations. The reason for the rapid growth of these companies is that the demand for these technology- operating systems, search engines, office software and smartphones is universal in developed nations.

Domestic Entrepreneurship : Domestic entrepreneur are distinguished by their emphasis on a production expansion strategy and customer specialization strategy. The production specialization strategy consists of focusing on limited geographical markets. The customer specialization strategy incorporates the production of a specialty product that is purchased infrequently. Thus, for both of the domestic strategies, a consistent closeness between the producer and consumer is implied. This may be an important basis underlining the new venture's decision to compete in an exclusive domestic context.

DIFFERENCE BETWEEN INTERNATIONAL AND DOMESTIC ENTREPRENEURSHIP

Economic

system : when an entrepreneur is operating in national level he is required to understand economic conditions with in country, but at international level he should be having information about economic system of countries he running business which includes currency rate, phase of business cycle etc. Stage of economic development : when entrepreneur is operating at domestic level he should focus on development state of domestic country, on the contrary when he is operating on international scale he has to view country from developed, developing and underdeveloped perspective and accordingly plan in business strategies in economy.

 Cultural

sensitivity : entrepreneur operating at national level should understand cultural issues persisting in home country and at international level he has to understand and manage cultural diversity of customers as well as employees in company.

Technological environment : even though technology is advanced at larger scale , still there are technological variations persisting in various countries depending on time of implementation, updation of technology etc. which has to be analysed by entrepreneur and accordingly plan in business operations.

 Government policy : entrepreneur going in for

internationalization of business have to study domestic as well as international policy, as restriction laid in home country for export of goods affect trade of entrepreneur and restriction in host country on entering of new entrepreneurs in their company.

Political and legal environment : politics and laws play a critical role in international business as well as domestic business. Entrepreneur should be aware about political and legal environment in the domestic as well as international market.

Nature of International Entrepreneurship

International entrepreneurship is a

process of conducting business activities across national boundaries.

It includes exporting, licensing, or

opening a sales office in another country.

Main purpose is to satisfy the needs

and wants of target consumers.

IMPORTANCE OF INTERNATIONAL ENTREPRENEURSHIP TO FIRM

Increased

sales and profit : when the entrepreneurs are not able to earn profit or demand for their product in domestic market they can sell their products in foreign market where life cycle of product is in favourable condition. E.g. Apple earned more profits from international business than in local market US in the year 1994. ( $ 390 million foreign market / $ 310 in Indian market . manufacturing cost : if manufacturing cost of product increase in home country, then company can opt host country for production process where resources are cheaper. E.g. Mc Donald's.

Lower

Advantage

of cheap labour : quantity and quality of labour is one of the major challenge for every business, if the labour is cheap in foreign countries then company can outsource required labour if organization is into foreign operations. E.g. increasing cost of labour in china has forced companies to search for other options for outsourcing company activity to other countries where cost of labour is less. of talent : when entrepreneur are not able to get required talented work force in country, then they can hire employee from host country which has talent.

Utilization

Expansion of domestic market : international

business causes domestic market to expand beyond national boundaries. When the domestic market has been fully tapped then company can go for expansion of business to market their products in international market. E.g. Sony
Globalization of customers : When customers

in country prefer purchasing foreign brand products then domestic companies have to go for internationalization of business to keep in pace with competition to attract customers. E.g. Tata Motors begin to operate in international market after entry of foreign competitors in Indian market like ford.

Globalization of competitors : international

business motivates companies to face competition on global level which in turn leads to growth of market, pursuing global scale efficiencies etc.
Expansion and diversification of business

: entrepreneurs whose core business strategy is expansion and diversification of business, international business is one of the primary platform to achieve these objectives.
Attracts customers in domestic market :

international business improves image of the company in domestic market and attracts more customers in domestic market due to internationalization of business. E.g. Ranbaxy

STAGES OF ECONOMIC DEVELOPMENT

1.TRADITIONAL SOCIETY : every economy begins with traditional society which is

characterised with low per capita income and low degree of technical know how
Features :

Country is more or less dependent of agriculture for development in country. People in country believe more in family and caste system which leads to problem of lack of mobility of labour which hinders employee growth in country.

Political power in society remains concentrated with dominant social groups in society. Science and technology develop at very slow phase in economy.

2. PRE CONDITIONS OF TAKE OFF : in this stage of economy conditions are created
conductive of growth. In this stage entrepreneurs start thinking in terms of modernization, capital formation, and profit oriented ventures.
Features :

Less dependence on agriculture People start giving importance to national and international developments then merely confining them to social issues.

Part of government revenue is imparted towards infrastructure development in country.

Decline in birth rate Citizens of country give more importance on developing personal skills in order to face competition in country. Focus towards foreign trade

3. TAKE OFF STAGE : in this stage economy is no more dependent on other countries and is self sustaining in this stage. Economy can progress without any external support from other countries.
Features :

Development of various sectors like primary, secondary and tertiary sector takes place in the country. Social framework improves as citizens than being bonded with family focus on moving to places for career growth and development. Political stability in country indirectly leads to growth in industrial sector in country creating favourable condition for trade in country. Reinvestment of profit Increase in demand for products by consumers in market. Technical development

4. SELF SUSTAINED STAGE : this stage can be defined as stage in which an economy demonstrates the capacity to move beyond the original industries which provides the take off and to apply efficiency over its worldwide range of resources.
Features :

rise in the rate of investment in the country Conditions of employment improve and reduces dependency on agriculture. Modern techniques are used during the process of production in country. New political as well as social institution are established in country.

Dependency on other countries are considerably reduced.

5. STAGE OF ECONOMIC AFFLUENCE : in this stage there is considerable increase in production and income. Consumption of comforts and luxuries become a common

feature.
Features :

More power : country in this stage starts spending more on military forces. Welfare state : standard of living in country increases as result of development of facilities in country.

Increase in consumption : consumption level increases in this stage as consumers

other then daily consumption products prefers purchasing durable products.

ENTREPRENEURIAL ENTRY INTO NEW BUSINESS

Exporting : means selling goods made in one country to another country. Exporting

normally involves the sale and shipping of products manufactured in one country to the customer located in another country.

Direct exporting : implies where company takes full responsibility for making its goods available in the target market by selling directly to end users normally through its own agents.

Indirect exporting : when the exporting company does not posses the necessary infrastructure to involve itself in direct exporting, indirect exporting takes place. It takes place when the export company sells its to intermediaries who in turn sell the same products to the end users in foreign markets.

Licensing

: involves an entrepreneur who is a manufacturer ( license ) giving a

foreign manufacturer ( licensor ) the right to use patent, trade mark, technology, production process, or product in return for the payment of loyalty.

 Turn

key projects : Turnkey refers to something that is ready for immediate use,

generally used in the sale or supply of goods or services. It is a contract under which a firm agrees to fully design, construct and equip a manufacturing/ business/ service facility and turn the project over to the purchaser when it is ready for operation for a remuneration.

 Management

contract is an arrangement under which operational control of

an enterprise is vested by contract in a separate enterprise which performs the necessary

managerial functions in return for a fee. Management contracts involve not just selling a
method of doing things (as with franchising or licensing) but also doing them. A management contract involves a wide range of functions, such as technical operation of a production facility, management of personnel, accounting, marketing services and training.
Foreign

direct investment (FDI) is direct investment into one country by a company in

production located in another country either by buying a company in the country or by

expanding operations of an existing business in the country

 Minority interest :a company having interest or ownership of less then 50 percent in another company

is known as minority interest/ A significant but non-controlling ownership of less than 50% of a company's voting shares by either an investor or another company.
Majority

interest : majority interest is an ownership interest greater than fifty percent (50%) of the

voting interest in a business enterprise.

joint venture (JV) is a business agreement in which parties agree to develop, for a finite time, a new

entity and new assets by contributing equity. They exercise control over the enterprise and
consequently share revenues, expenses and assets. A joint venture takes place when two parties come together to take on one project. In a joint venture, both parties are equally invested in the project in terms of money, time, and effort to build on the original concept.

 Mergers

: The combining of two or more companies, generally by offering the stockholders of one company Mergers and

securities in the acquiring company in exchange for the surrender of their stock /

acquisitions refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector.
Horizontal

merger : Horizontal merger occurs when a firm is being taken over by, or merged with, another

firm which is in the same industry and in the same stage of production as the merged firm, e.g. a car manufacturer merging with another car manufacturer / A horizontal merger is when two companies competing in the same market merge or join together. E.G amalgamation of Daimler-Benz and Chrysler

 Vertical

merger : is the combination of two or more firms in successive stages of

production that often involve buyer and seller relationship. This form of merger
stabilize supply and production and offer more control of these critical areas. (

merger between Mc Donald's and Philips petroleum )

Product

extension : merger occurs when acquiring and acquired company have

related production or distribution activities but do not have products that compete
directly with each other. ( merger between western publishing ( children's books)

and Mattel ( toy company ) .

 Product

extension merger is a combination of two firms producing the same

product but selling them in different geographic market. Major advantage of these
mergers is that firms can economically combine its management skills, production and marketing with acquired firms. (The acquisition of Mobilink Telecom Inc. by Broadcom is a example of product extension merger ). ( Broadcom deals in the manufacturing Bluetooth personal area network hardware systems and chips for IEEE 802.11b wireless LAN. Mobilink Telecom Inc. deals in the manufacturing of product designs meant for handsets that are equipped with the Global System for

Mobile Communications technology)

 Market

extension merger : A market extension merger takes place between two

companies that deal in the same products but in separate markets. The main
purpose of the market extension merger is to make sure that the merging

companies can get access to a bigger market and that ensures a bigger client base.
(Acquisition of Eagle Bancshares Inc by the RBC Centura )
Diversified activity merger : this is a conglomerate

merger involving consolidation

of two unrelated firms. (Philip Morris's acquisition of Miller Brewing)

Attitude of entrepre neur

Lack of informati on

Lack of network

Political
barrier Barriers to international trade Human resource barrier

Lack of finance

Tariff barriers

Cultural barrier Technical barrier

Non tariff barriers

BARRIERS TO INTERNATIONAL TRADE

Attitude of entrepreneur : when an entrepreneur has negative mindset that foreign

market is unknown to him and he might find it difficult to set up his business in new country will prove to be a major barrier for international trade.
Lack

of information : as entrepreneur is new entrant in international market he is

unaware about the market conditions in host country and taste and preference of customers which may lead to issues in terms of acceptance and locating product in

market.

 Lack

of network influences : network with established business companies makes

it easy for the entrepreneur in new market but if the entrepreneur has no contacts in foreign country then it will be difficult for entrepreneur from initial stage of getting required permission to establishing business in country.
Financing

problems : as international business involves huge risk financial

institutions may be reluctant in terms of providing required finance to entrepreneurs.

 Tariff

barriers : tariff means duty levied by the government on imports. Imposing

tariff raises the price of imported goods making them less attractive to consumers and protects makers of comparable domestic products and services.
Non

tariff barriers : are the obstacles to imports other than tariffs such as testing,

certification, or bureaucratic hurdles that have effect of restricting imports. These are administrative measures that are imposed by a domestic government to discriminate against foreign goods and in favour of home goods.

 Technical

barriers : basically refers to before a country's goods enters into foreign market it

has to go through certain test for authentication. In US before food products from others is marketed in US it will be tested for checking bacteria content in food item for safety of general public, which is good for safety of host country but may prove to be a major barrier to home country exporting product.
Political

barrier : in few country their exist abundant opportunity for business but political

scenario in country will be instable such as kidnappings, bombings, violent against business and employees which proves to be major question mark in terms of future success of business.

 Human

resource : presence of labour unions, hostile management unions relations,

strike, increase coat of labour in foreign country may prove it difficult for entrepreneur to establish business in foreign market.
Cultural

barriers : as entrepreneur is new entrant in host country he may not be

aware about language, education, tradition, religion, values of citizens which will make it difficult for the entrepreneur to understand mindset, taste and preference of customer in market.