Chapter 5

Identifying and Analyzing

Domestic and International
Opportunities Hisrich
Peters

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. Shepherd
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).

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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.

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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.

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Opportunity Recognition and the
Opportunity Assessment Plan (cont.)
 An opportunity assessment plan has four
sections:
 The first section (a)develops the idea,
(b)analyzes competitive products and companies,
and (c)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.

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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.
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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.

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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.

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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 The North American Industry
Classification System (NAICS) and Standard
Industrial Classification codes
 www.naics.com/info.htm
 www.osha.gov/pls/imis/sic_manual.html
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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.
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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.
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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.”

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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Figure 5.1 - Various Aspects of
Culture

Figure 5.1
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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.

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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.
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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.

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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.

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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.

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Entrepreneurial Entry Strategies

 Exporting
 Indirect exporting.
 Direct exporting.
 Nonequity Arrangements
 Licensing.
 Turn-key projects.
 Management contracts.

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Entrepreneurial Entry Strategies
(cont.)

 Direct Foreign Investment

 Minority Interests.
 Joint Ventures.
 Majority Interest.
 Mergers:
 Horizontal merger. (same business)
 Vertical merger. ( Successive)
 Product extension merger. (Miller bought by Philip
Morris)
 Market extension merger. ( same product-Different
Markets)
 Diversified activity merger.(Conglomerate)
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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.

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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.

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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).
 European Community (EC).

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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.

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