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ENTREPRENEURSHIP

Common Themes in Definition of Entrepreneurship


The Entrepreneur A person who initiates and actively operates an entrepreneurial venture. Innovation Involves changing, revolutionizing, transforming and Introducing new approaches. Organization Creation To pursue the perceived opportunities for innovation organized efforts and actions are required - whether as an individual or as a team of individuals.

Common Themes in Definition of Entrepreneurship


Creating value Through entrepreneurship new products, services, transactions, approaches, resources, technologies and markets are created that contribute some value to a community or marketplace. Value is created because The entrepreneur is fashioning something worthwhile and useful. Value is also created through the financial exchange as customers purchase the entrepreneurial organizations products or services. Profit or Not- for- Profit Entrepreneurship can take place in both profit and not-for-profit organizations. It can occur in social service agencies, and similar organizations.
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Common Themes in Definition of Entrepreneurship


Growth It is about growing a business and pursuing opportunities as they arise not content with staying in one market or with one product. Entrepreneurship implies growth. Uniqueness It involves new combinations and new approaches with which entrepreneurs are willing to experiment. It infers differences and not norms-new products are created and unique approaches are tired. Process It is a process-a set of on going decisions and actions. Entrepreneurship is not a one time phenomenon, it-occurs overtime involving series of decisions and actions from start to manage to even exiting it.

Entrepreneurship
Definition
According to an Economist; An entrepreneur is one who brings resources, labor, materials and other assets into combinations that make their value greater than before, and also one who introduces changes innovations and a new order. According to a Psychologist; An entrepreneur is a person who is typically driven by certain forcesneed to obtain or attain something, to experiment, to accomplish , or perhaps to escape authority of others.

Entrepreneurship
Definition
According to a businessman; An entrepreneur is a person who appears as a threat; an aggressive competitor. To another businessman, an entrepreneur is an ally, a source of supply, a customer or someone who creates wealth for others as well; who finds better ways to utilize resources and reduce waste, and who produces jobs others are glad to get. Another definition; Entrepreneurship is the dynamic process of creating incremental wealth. The wealth is created by individuals who assume the major risks is terms of equity, time, and or career commitment or provide value for some product or service.

Entrepreneurship
Definition

Entrepreneurship is a process whereby an individual or a group of individuals use organized efforts to pursue opportunities to create value and grow by fulfilling wants and needs through innovation and uniqueness, no matter what resources the entrepreneur currently has.

Development of Entrepreneurship
Entrepreneurship is a French word meaning Go-between or Between-taker. The term coined by an economist Richard Cantillon in early 1700. Earlier Period. Middle Ages. Actor and person in charge of large scale production projects with the resources provided, usually by the Govt. 17Th Century. Person bearing risks of profit (loss) in a fixed-price contract with the Govt.

Development of Entrepreneurship
18th Century. Richard Cantillon- Person bearing risks is different from one supplying capital. Entrepreneur bears risks and plans, supervises, organizes and also owns factors of production. 19th Century. Jean Baptist Say, an economist- The profits of entrepreneurship were separate from profits of capital ownership. Francis walker -Distinctions made between those who supplied funds and earned Interest (venture capitalist) and those who profited from entrepreneurial (managerial) activities (entrepreneur).

Development of Entrepreneurship
0th Century. Joseph Schumpeter (economist) described entrepreneur is someone who is an inventor and someone who creatively destructs.
Peter Drucker (management author) described the entrepreneur as someone who maximizes opportunity. Albert Shapiro- Entrepreneur takes initiative, organizes some social and economic mechanisms and accepts risks of failure. Robert Hisrich defined entrepreneurship as the process of creating something different with value of devoting the necessary time and effort, assuming the accompanying financial, psychological, and social risks, and receiving the resulting rewards of monitory and personal satisfaction.

Misconceptions About Entrepreneurship


Successful entrepreneurship needs only great idea. Entrepreneurship is easy. Entrepreneurship is a risky gamble. Entrepreneurship is found only in small businesses. Entrepreneurship ventures and small businesses are the same thing.

Differences Between Small Business and Entrepreneurial Venture


Small Business
Independently owned. Fewer than 100 employees. Doesnt emphasize new or Innovative practices. Little Impact on industry.

Entrepreneurial Venture
Innovative practices Goals are profitability and growth. Seeks out new opportunities. willingness to take risks.

The Role of Entrepreneurship in Economic Development


Small businesses represent over 99%of all employer firms. Small firms employ 52% of all private workers. They account for 51% of the private sector output. They are responsible for virtually all new jobs through creation of new firms, as well as expansion of existing small firms.

The Role of Entrepreneurship in Economic Development


Innovation: A process of creating, changing, experimenting, transforming and revolutionizing. One of the key distinguishing characteristics of entrepreneurial activity. Creative Destruction-Process of innovation leads to technological change and employment growth. Entrepreneurial firms Act as agents of change by acting as source of new and unique ideas. New small firms generate24 times more innovations than fortune 500 organizations and accounts for over 95 % new and radical product development. Without innovation economic, technological and social progress would be slow.

The Role of Entrepreneurship in Economic Development


Number of New Start-ups: New firms contribute lo economic development through benefits such as productprocess innovations , increased tax revenue social betterment and job creation. Job creation: Job creation is vital to the overall long-term economic health of communities regions and nations. Small businesses (presumably some will be entrepreneurships) created 76.5% of new jobs in the period 1990-95 and 75.8% in 1996-97. Small companies share of employment may be reducing in 21 ST century (globalization), but they would retain their economic clout.

The Role of Entrepreneurship in Economic Development


Global Entrepreneurship Monitor (GEM) study of year 2000 covering 21 countries including G-7 highlighted; Highest level of entrepreneurship activity observed in five countries i.e. Australia, Canada, Korea, Norway and the United States. Average level of Entrepreneurial activity took place in 14 countries. Lowest level of entrepreneurial activity observed in two countries i.e. France and Japan.

The Role of Entrepreneurship in Economic Development


Conclusion A Strong relationship exists between the level of entrepreneurial activity and annual economic growth. Promoting entrepreneurship and enhancing the entrepreneurial dynamics of a country should be an integral element of any Govt.s commitment to boosting economic well being.

Types of Entrepreneurs
Entrepreneur A person who initiates and actively operates an entrepreneurial venture. Types of Entrepreneurs Nascent, Novice, Habitual, Serial and Portfolio. Nascent Entrepreneur: A person who is in the process of starting a new business. Novice Entrepreneur: A person who has no prior ownership experience as a business founder, inheritor of a business or a purchaser of a business.

Types of Entrepreneurs
Habitual Entrepreneur: A person who has prior business ownership experience. The nascent entrepreneur can either be a novice or a habitual entrepreneur. Serial Entrepreneur: An individual who has sold or closed an original business, established another new business, sold or closed-that business and continues this cycle. Portfolio Entrepreneur: A person who retains an original business and builds a portfolio of additional businesses through inheriting, establishing or purchasing them.

Characteristics of Entrepreneurs
Demographic profile, personality characteristics or intentions profile. Demographic Profile Family birth order. Gender. Work experience. Education. Entrepreneurial family. Personality profile of Entrepreneurs High level of motivation. Abundance of self confidence. Ability to be involved for the long term. High Energy level.

Characteristics of Entrepreneurs
Persistent problem solver. High degree of initiative. Ability to set goals. Moderate risk taker. Resourceful. Desire and ability to be self directed. Higher need for autonomy. Use of Proactive Personality Scale: A Proactive Personality a more prone to take actions to influence his/her environment. Intentions profiles of Entrepreneurs. Decision to become entrepreneur is not accidental but represents planned intentional behavior influenced by both contextual factors (social, political, economic opportunities) and personal factors (history, personality. abilities). The Person and the processes an individual goes through.

Characteristics of Entrepreneurs
Appropriateness- Consistency- Effectiveness (ACE) Model.
It is another approach to determine entrepreneurial intentions; this model is taken from communication theory. ACE model suggests that mass media and interpersonal messages can influence an individuals perception of appropriateness, consistency and effectiveness of starting a business. These perceptions then influence an individuals intentions to become an entrepreneur. This model also recognizes the interplay of personal and contextual factors in being an entrepreneur.

Entrepreneurial Versus Managerial Domains


There are five key business dimensions in which difference between entrepreneurial and managerial styles could be determined; strategic orientation, commitment to opportunity, commitment of resources, control of resources and management structures..

Strategic Orientation:
The entrepreneurs strategic orientation is driven by perception of opportunity. Opportunities have diminishing returns accompanied by rapid changes in technology, consumer economies, social values or political rules. In managerial domain, the strategic orientations is driven by resources currently controlled. Towards use of planning systems and cycles, and measuring performance to control current resources.

Entrepreneurial Versus Managerial Domains


Commitment to opportunity: The two domains vary greatly in terms of length of time.
The entrepreneurial domain is revolutionary in nature with short span. The entrepreneurial domain is pressured by the need for action, short decision window, willingness to assume risks, few decision constituencies and short time span. The managerial domain is evolutionary in nature of long duration. The managerial domain is slow to act on an opportunity and commitment is for a long span of time. There is no mechanism in companies to stop and evaluate an initial resource commitment once it is made. There are multiple decision constituencies and normally follows selected strategy

Entrepreneurial Versus Managerial Domains


Commitment of Resources:
In entrepreneurial domain, in the face of lack of predictable resource needs, the commitment of resources is multistage with minimal exposure at each stage. The resources are made available at periodic intervals based on certain tasks to be completed and the venture capitalist or private investor can constantly monitor the track record being established. In managerial domain, though the funding may be in stages, the commitment of resources is for the total amount needed. The administratively oriented individual respond to the source of rewards offered and receive rewards for effectively using the resources.

Entrepreneurial Versus Managerial Domains


Control of Resources:
The entrepreneur under the pressure of limited resources, risk of obsolescence, and the risks involved strive to rent or otherwise achieve periodic use of the resources on as-needed basis. As manager is rewarded for effective management of resources, he is often driven to own or accumulate as many resources as possible. The pressures of power, status and financial rewards prevents the administrator to use rented or otherwise periodic use of resources.

Entrepreneurial Versus Managerial Domains


Management Structure:
The entrepreneur, true to his desire for independence employs a flat organizational structure with informal networks throughout. In the managerial domain the organizational structure is formalized and hierarchical in nature, reflecting clearly defined lines of authority and responsibility based on management theory and the reward system.

Managers Vs Entrepreneurs
Primary Motives:
Promotion and other traditional corporate rewards such as office, staff and power. Independence, opportunity to create and money.

Time Orientation:
Short Term meeting targets and budgets, weekly, monthly, quarterly and the annual planning horizon. Survival and achieving 5 to 10 years growth of business.

Activity:
Delegates and supervises more than direct involvement. Direct involvement.

Managers Vs Entrepreneurs
Risk Status:
Careful; Concerned about status symbol. Moderate risk taker, not concerned about status symbols.

Failure and Mistakes:


Tries to avoid mistakes and surprises. Deals with mistakes and failures.

Decisions:
Usually agrees with those in upper management positions. Follows dreams with decisions.

Who Serves:
Others. Self and customers.

Managers Vs Entrepreneurs

Family History:
Family members worked for large organizations. Entrepreneurial, small-business, professional or farm background.

Relationship with Others:


Hierarchy as basic relationship. Transactions and deal-making as basic relationship.

Entrepreneurship Process
They are searching for change, responding to it and exploiting it by creating something new, something different. Exploring in entrepreneurial context by gathering information, identifying potential opportunities and assessing possible competitive advantages. Researching ventures feasibility uncovering business ideas, looking at competitors and exploring financing options. Planning the venture- developing a viable organizational vision and mission, exploring organizational cultural issues and creating a strong and effective business plan.

Entrepreneurship Process
Organizing the venture- choosing a legal form of business organization and settling other legal issues like patient and copyright and organization hierarchy. Launching the venture- setting goals and strategies, identifying technology-operations methods, marketing plans, information systems, financial-accounts systems and cash flow management system. Managing the Venture- managing processes, managing people and managing growth. Managing processes involve making decisions, establishing action plans, analysis ventures internal/ external environments measuring and evaluating performance, and stimulating and making needed changes.

Entrepreneurship Process
Managing people involve selecting and hiring, appraising and training, motivating, managing conflicts, delegating tasks, and being an effective leader. Managing Growth entails developing growth strategies, handling crises exploring ways to finance growth, determining venture's value and if need be harvest or exit the venture.

Reward of Being an Entrepreneur

High degree of independence- freedom from constraints. Get to use a variety of skills and talents. Freedom to make decisions. Accountable to only yourself. opportunity to tackle challenges. Feeling of achievement and pride. Potential for greater financial rewards.

Challenges of Being an Entrepreneur

Must be comfortable with change and uncertainty. Must make a bewildering number of decisions. May face tough economic choices. Must be comfortable with taking risks. Need many different skills and talents. Must be comfortable with the potential of failure.

St. Mgt Process with Reference to Entrepreneurship


Strategic Management
The purpose of strategic management is to exploit and create new and different opportunities for tomorrow. It focuses on integrating management, marketing, finance/ accounting, production /operations, research and development, and computer information systems to achieve organizational objectives.

St. Mgt Process with Reference to Entrepreneurship


Three stages of Strategic Management Process;
Strategy formulation. Strategy implementation. Strategy evaluation. Strategy Formulation Developing a vision and mission, identifying an organizations external opportunities and threats, determining internal strengths and weaknesses, establishing long term objectives, generating alternative strategies and choosing particular strategy to pursue.

St. Mgt Process with Reference to Entrepreneurship


Strategy formulation issues Deciding what new business to enter What businesses to close. How to allocate resources. Whether to expand operations or diversify. Whether to enter international market. Whether to merge or form a joint venture How to avoid a hostile takeover.

St. Mgt Process with Reference to Entrepreneurship


Strategy Implementation
Establishing annual objectives, devising policies, motivating employees, allocating resources for strategy implementation, developing a strategy - supportive culture, creating effective organizational structure, redirecting marketing efforts, preparing budgets, developing and utilizing information systems and linking employee compensation to organizational performance.

St. Mgt Process with Reference to Entrepreneurship


Strategy Evaluation
To ascertain the outcome of strategy. It consists of three activities ; Reviewing external and internal factors that are the bases of current strategy. Measure performance. Take corrective actions. Continues strategy evaluation is required as present success is no guarantee for tomorrows success alsocomplacent organizations experience demise.

St. Mgt Process with Reference to Entrepreneurship


Exploring the entrepreneurial context Identifying opportunities and possible competitive advantage. Opportunities: Positive external trends or changes that provide unique and distinct possibilities for innovating and creating value. Competitive Advantage: what sets an organization apart; its competitive edge. Starting the venture Researching the feasibility of the venture. Planning the venture. Organizing the venture. Launching the venture

St. Mgt Process with Reference to Entrepreneurship


Managing the Venture. Managing processes. Managing people. Managing growth. Dynamic nature of internal environments and emerging opportunities demand entrepreneurs to stay on top of the changing landscape by being a world class organization -an organization that is best in its world at what it does.

Issues Affecting Entrepreneurship


Contextual issues that have the potential to affect entrepreneurship; Characteristics of todays economy. Legal factors. Changing world of work. Social responsibility and ethics.

Characteristics of Todays Economy

Driving forces of todays economy. Implications of these driving forces. Critical success factors.

Driving Forces of Todays Economy


The role of information.
Information is readily available to practically anyone from any where on the globe at any hour of the day and in almost any format. Todays economy is often called as the Information Age. Telecommuters -individuals who work from home and are linked to the workplace by computers and modems. Virtual Organizations with little or no physical workplace, no formal hierarchical structure, and individuals are on contract to perform specific work as needed. Internet - to communicate, research information and conduct business transactions.

Driving Forces of Todays Economy


Technological trends. Increasing rate of technological change and diffusion. more opportunities for creating and capturing value. Keep up with the tech. change or left bend. Rapid rate of tech. change impact on patents.

Increasing commercialization of innovations.


Innovation: A process of taking a creative idea and turning it into a product or process that can be used or sold. Patent: It is a legal properly that allows its holder to prevent others from employing it for their own use for a specified period of time.

Driving Forces of Todays Economy


Increasing knowledge intensity.
With the increase in use of technology the need for knowledge increases and vice versa.

Increasing recognition that advanced information technologies are critical.


Information about customers, inventories, distribution etc is vital to compete.

Driving Forces of Todays Economy


Globalization. Entrepreneurs find increasing opportunities in international trade in globalization of business landscape. EU, NAFTA, ASEAN etc. It is new way of thinking; solving customers needs wherever he is. Segmenting markets on global basis and sourcing people, capital, technologies and ideas from anywhere in the world.

Driving Forces of Todays Economy


Changing Demographics.
Demographics: vital statistics of population such as gender, age, income levels, ethnic makeup, level of education, family composition, geographic location, birthrate, employment status, etc. World Population is growing at very fast rate. Worlds Population is getting older and younger at the same time. Worlds population continues on the move. Most of the worlds economically active people live in cities and urban areas.

Driving Forces of Todays Economy


Division of the worlds population into three groups; The poor: Annual income less than$700 per year; population about 1.1 billion and account for 2% of worlds income. The middle class: Annual income $700 to $7,500 per year; population about 3.5 billion and account for 33% of worlds income. The consumer class: Annual income above $7,500 Per year; population about 1.1 billions and claim about 64% of worlds income.

Implications of These Driving forces

Continual turbulence and change. Change: Any alteration in external context or internal organizational factors. Reduced need for physical assets. Buildings, factories, equipment, inventories etc. Vanishing distances. Compressed time.

Critical Success Factors


Ability to embrace change. The ability to be creative and innovative.
Create and innovate or lose Creativity: the ability to combine ideas in a unique way or to make unusual associations between ideas in an important capability.

Vision and leadership.


Vision: a broad comprehensive statement what an entrepreneurs wants his/ her organization to become; statement of what organization stands for, what it believes in and why it exists.

Total quality culture.

Legal Factors
Legal Issues in start
Determine form of business organization. Set up record keeping for tax purposes. Conduct lease and financing negotiations. Draw up contracts. File for patents, trademarks, and copyright protections.

Legal Factors
Legal Issues in managing the ongoing business.
Human resource management laws and regulations. Safety laws and regulations (product, workplace, environment) Financial and accounting laws and regulations. Marketplace laws and regulations.

Changing World of Work


Major changes in nature of work.
Learning organizations: An organization that has developed the continuous capacity to adapt by acquiring information and knowledge and incorporating this knowledge and learning into decisions and actions.

Organization be task or project oriented and not job oriented.


Project: It is a temporary set of work tasks that has a definite beginning and ending point in time. It is an approach to work that recognizes need to be flexible, temporary and independent.

Social Responsibility and Ethics


Social Responsibility: It is the obligation of organizational decision makers to act in ways that recognize the interrelatedness of business and society.
Stakeholders: Individuals or groups of individuals who have a stake in/ are significantly influenced by an organizations actions and who, in turn, can influence the organization.

Social Responsibility and Ethics


Possible organizational stakeholders Organization
Employees Customers Social action groups Governments Communities Suppliers Trade associations Political action groups Stockholders

Ethics
The rules and principles that define right and wrong decisions and behaviors.

Identifying Environmental opportunities


Opportunities: Positive external trends or changes that Provide unique and distinct possibilities for innovating and creating value. Potential Sources of opportunities; The unexpected. The incongruous. The process need. Industry and market structures. Demographics. Change in perception. New knowledge.

Competitive Advantage
Competitive advantage is what sets an organization apart or its competitive edge; an organization does something better than others or does something that others cant. Ways to get and maintain competitive advantage; Industrial Organization (I/O) approach:-Getting and maintaining a competitive advantage is dependent on the ability to see external trends and changes and to interpret and act on them. Resource Based view (RBV) :- Getting and keeping a competitive advantage is dependent on developing or acquiring unique organizational resources and capabilities.

Competitive Advantage
Resources: The assets of an organization to do its business like financial, physical, human, intangible, structural/ cultural etc. capabilities: The organizational procedures and processes that determine how efficiently and effectively the organization transforms its inputs (resources) into outputs (products and services). The Guerilla view: -competitive advantage, successful entrepreneurial venture must be more adept at rapidly and repeatedly disrupting the current situation and radically surpassing competitors with actions that keep them off balance -in other words acting like guerrilla unit. They will repeatedly form new competitive advantages based on different approaches and different asset combinations.

Week -4.
Different types of Businesses. i.e. proprietorship, partnership, joint stock company (public and private); advantages and disadvantages. Importance of international entrepreneurship Strategic issues in international entrepreneurship Challenges and opportunities in international entrepreneurship

Types of Businesses
Sole Proprietorship
An unincorporated business owned by one person-a simplest form of business organization. Income and losses pass though to owner and are taxed at personal rate. The business pays no income tax, and pays no salary to the owner. Advantages Easy of formation -creating a sole proprietorship require no authorization from any government. Low start up costs -require little or no investment of capital. Mostly small businesses have few, if any, financial reporting obligations. Business assets actually belong to the proprietor, and he exercises direct control over the business. The business Easy to go out of business if necessary.

Types of Businesses
Disadvantages
Unlimited personal liability - the owner is personally liable for the debt of the business.. Personal finances at risk. Miss out on all kinds of business tax deductions. Total responsibility. May be more difficult to raise finances.

Partnership
An unincorporated business owned by two or more partners. A partnership is often referred to as a firm. A written contract agreement among the partners is made highlighting rights and responsibilities before the firm begins operations.

Types of Businesses
The assets of a partnership does not belong to the business, but belong jointly to all the partners. Partnerships have limited life - ends upon withdrawal or death of a partner. Admission of a new partner terminates previous partnership and creates a new entity. Partnerships often have provision for retirement of a Partner and admission of a new one as routine event. Types of Partnerships General Partnership, Limited Partnership and Limited liability Partnership.

Types of Businesses
General Partnership
Each partner has rights and responsibilities similar to those of a sole proprietor- withdraw cash/ any other asset at will. Mutual agency-each partner has full authority of an owner to negotiate contracts binding upon the business. Income and losses pass through to partners and are taxed at personal rate. Flexibility in profit/ loss allocations to partners. Advantages Ease of formation. Pooled talent. Pooled resources. Somewhat easies access to financing. Some tax benefits.

Types of Businesses
Disadvantages
unlimited personal liability. Divided authority and decisions. Potential for conflict. Continuity of transfer of ownership.

Limited Partnership
Consists of one or more general partners and one or more limited partners. General partners have unlimited personal liabilities for the debt and have right to make management decisions. Limited partners are passive investors sharing in profit and loss but not participating in management. Limited partners liability is limited to the amounts they have invested in the business if firm goes under.

Types of Businesses
Limited Liability Partnership
All the partners may participate in management of the firm. Income and losses Pass through to partners and are taxed at personal rate. Flexibility in profit/ loss allocation to partners. Partnership like sole proprietorship recognize no salary expense for services provided to the organization by the partners. Amount paid to the partner is recorded as partners drawing account. Liability is limited, however, one partner must retain unlimited liability Advantages Good way to acquire capital from limited partners.

Types of Businesses
Disadvantages Cost and complexity of forming can be high. Limited partners can not participate in management of business without loosing liability protection.

Corporation
A corporation is a legal entity, having an existence separate and distinct form that of its owners. The owners of a corporation are called stockholders or shareholders and their ownership is evidenced by transferable shares of Capital Stock. Being a separate legal entity, a corporation may own property on its own name; and the assets of the corporation belong to the corporation itself and not to the stockholders. A corporation has a legal status in court- It may sue and be sued as if it were a person.

Types of Businesses
As a legal entity, a corporation may enter into contracts, is responsible for its own debt and pays income taxes on its earnings. Corporations are run by salaried managers and not by stockholders. The top level management is the board of directors elected by the stockholders. The transferability of corporate ownership, together with professional management gives corporation a greeter continuity of assistance than other forms of organizations. Stockholders have no personal liability for the debt of the business. Their personal losses are limited to their amount of equity in the business incase the business goes down. Dividend income is taxed at corporate and personal shareholder levels; losses and deductions are at corporate level.

Types of Businesses
Advantages Limited liability. Transferable ownership. Continuous existence. Easier access to resources. Disadvantages Expensive to set up. Closely regulated. Double taxation. Extensive record keeping . Charter restrictions. Must meat certain requirements. May limit future financing options.

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.

Importance of international entrepreneurship Global Economy Entrepreneur must know;


Difference between managing domestic business and international business. Strategic issues of international business management. Options of engaging in international business. Evaluation of decision of entering into international market.

International Entrepreneurship
International Vs Domestic Entrepreneurship.
Both are concerned with sales, costs and profits but it is the variation in the relative importance of the factors involved in each decision. These factors are economics, political, culture and technology.
Economics.

Creating business strategy for a multicountry area involves dealing with different levels of economic development, different currency valuations, different government regulations, and different banking, marketing and distribution systems.
Stages of economic development.

The difference in development of such infrastructure as roads, electricity, communication systems, legal systems and business ethics and norms have impact on ability to engage in international business.

International Entrepreneurship
Balance of Payment. The Difference between the value of countrys imports and exports over time. With flexible exchange rates, a countrys balance of payment affects the valuation of its currency. The valuation of one countrys currency affects how businesses of that country do business in other countries. Types of Systems Different systems of governments have affect on the business. Barter system, third party arrangements, lack of knowledge of western systems regarding business plans, product promotion, marketing, profits, etc.

International Entrepreneurship
Political-legal Environment Laws governing business arrangements vary. Product decisions are affected by legal requirements on labeling; ingredients and packaging. Laws/ regulations effecting specifications of products like automobiles etc. Cultural Environment The impact of culture on entrepreneurs and strategies is significant; marketing, product design etc. Culture of bribes and corruption Vs loosing the business.

Technological Environment
Technology like culture varies significantly across countries and products are designed keeping in sight the available infrastructure like car designs of Europe Vs USA.

International Entrepreneurship
Strategic Issues

The allocation of responsibility between the mother country and foreign operations.
Centralized decision making De-centralize the entire international operation. Strategic decision making is retrieved back to mother country and host country operating unit given the responsibility for the tactical implementation of corporate strategy . Planning, Reporting and Control System Environmental analysis Strategic planning Organizational structure Controlling and Marketing program

International Entrepreneurship
Challenges and opportunities in international entrepreneurship Entry into International business.
Exporting Indirect exporting: Foreign buyer in local market; using export management firm. Direct exporting: Through independent distributor; companys own overseas sales office hiring own salespeople. Establishing local assembly line. Establishing local manufacturing plant.

International Entrepreneurship
Nonequity Arrangements Doing international business through an arrangement that does not involve any investment. Licensing: Allowing someone else to use something of the company like patent, trademark, technology, production process or product in return for the payment of royalty. Turn-key projects: Developing and operationalizing something in a foreign country. Management Contracts: A method for doing a specific international job. Direct Foreign Investment wholly owned, joint venture with minority or majority equity positions.

International Entrepreneurship
Minority Interest: Having less them 50% ownership position. Joint venture: two companies forming a third company. It is normally done in two conditions;
when an entrepreneur wants to purchase local knowledge and an already established marketing or manufacturing facility. when a rapid entry into a market is desired.

Synergy: Two parties having things in common. Majority Interest: Having more than 50% ownership. 100%: ownership. Mergers: Horizontal merger: combination of at-least two firms doing similar businesses at the same market level to generate economy of scale. Vertical Merger: combination of at least two firms in successive stages of production to stabilize supply and production. Product Extension Merger: combination of two firms with noncompeting products. Have related products or distribution activities.

International Entrepreneurship
Market Extensions Merger: Combination of at least two firms with similar products indifferent geographical markets. Acquiring firm can economically combine its management skills. Diversified Activity Merger: Combination of at-least two totally unrelated firms. To use cash resources of acquired firm to increase shareholder wealth.

Barriers To International Trade General Agreement on Tariffs and Trade (GATT) Increasing Protectionist Attitude. Trade Blocs and Free Trade Areas.

Week 5

Case Studies/Quiz/Sessional

Week - 6
Various sources of ideas for new ventures. Creativity and techniques for problem solving. Product planning and development process.

Sources of New Ideas


Some of the sources of ideas for entrepreneurs are consumers, existing products and services, distribution channels, federal government and R&D. Consumers Informally monitoring potential ideas and needs or formally arranging for consumers to have an opportunity to express their opinions. Existing Products and Services Establish a formal method for monitoring and evaluating competitive products and services in the market. The analysis often uncovers ways to improve on these offerings that may result in new product or service having more market appeal.

Sources of New Ideas


Distribution Channels. Members of distribution channels are excellent sources of new ideas because of their familiarity with the needs of the market. They provide useful suggestion for development of new product and also become instrumental in marketing of entrepreneurs newly developed product. Federal Government.
Product ideas come in response to government regulations (safety helmet, first aid box etc). State Bank of Pakistan, SMEDA, National Bank have no. of new products feasibility reports .

Research and Development Entrepreneurs own formal/ informal research and development effort.

Creative Problem Solving


Creativity: the ability to combine ideas in a unique ways or to make unusual associations between ideas. Creative thinking means linking new concepts in unusual ways. It means cross-thinking by seeing new angles, connections and approaches. Creative problem solving is a method for obtaining new ideas focusing on the parameters. It is an important attribute of an entrepreneur-creativity declines with age, education, lack of use and bureaucracy. Creativity declines in stages and progressively reduces through age. The creative potentials of an individual can be awakened and creative ideas and innovations generated by using any of the creative problem solving techniques based on perceptual, cultural, emotional and organizational factors.

Creative Problem Solving


Brainstorming A widely used technique for problem solving and ideas generation. Problem statement is given to a team of 6 to 12 participants for providing their ideas/ solutions. No participant is considered expert to avoid hijacking of discussion. All the ideas are jotted down and no body is allowed to evaluate or criticize during brainstorming session . Reverse Brainstorming A group method for obtaining new ideas focusing on the negative. It is brainstorming technique allowing critique- In how many ways can the idea fail? The process usually involves the identification of everything wrong with an idea, followed by a discussion of ways to overcome these problems.

Creative Problem Solving


Brainwriting It is a form of written brain storming. It gives participants more time to think than a spontaneous outburst of brainstorming session. The team of about 6 participants note normally three ideas each on a card or special form circulated among them within stipulated time ( usually5 minutes). The ideas can be taken from the participants by circulating the sheets through the e-mail also. In this case time interval can be varied. Gordon Method The type of brainstorming method where participants are not told about the problem at the start to avoid solution to be clouded by preconceived ideas. The discussions starts by entrepreneur mentioning a general concept associated with the problem and participants responding by forwarding different ideas. The actual problem is than revealed and the group gives suggestions for refinement of final solution.

Creative Problem Solving


Checklist Method Developing a new idea through a list of related ideas. The entrepreneur can use the list of questions or statements to guide the direction of developing entirely new ideas or concentrating on specific idea areas. Free Association Developing a new idea through a chain of word associations. First a word or phrase related to problem is written down than another, another, with each new word attempting to add something new to the ongoing thought processes. Thereby creating a chain of ideas ending with a new product idea emerging.

Creative Problem Solving


Forced Relationship Developing a new idea by looking at product combinations. It is a technique that asks questions about objects or ideas in an effort to develop a new idea. Like; Papery Soap ( Flakes), Soapy paper (wash and dry travel aid), Paper Soaps (paper saturated with soap and usable for washing surfaces), Soaped papers ( booklets of soap leaves), Soap wets paper (in coating and saturation process), Soap cleans paper (suggest wal1paper cleaner). Collective Notebook Method Developing a new idea by group members regularly recording ideas. Attribute Listing Developing a new idea by looking at the positive and negative attributes of an item or problem.

Creative Problem Solving


Big Dream Approach Developing a new idea by thinking without constraints. Every possibility should be recorded and investigated without regard to any negative involved, or resource constrained, until an idea is developed in workable form. Parameter Analysis Developing a new idea by focusing on parameter identification and creative synthesis. Parameter identification involves analyzing variables in the situation to determine their relative importance. After identification of important issues, the relationships among them are determined. Through an evaluation of parameters and relationships, one or more solutions are developed. This solution development is called creative synthesis

Product Planning and Development Process


Product Planning and Development Process is divided into five distinctive stages; idea stage, concept stage, product development stage, test-marketing stage and commercialization; resulting into start of product life cycle. Product life Cycle- the stages each product goes through from introduction to decline.

Product Planning and Development Process


Idea Stage
Promising new product ideas emerging from idea sources or creative problem solving should be identified and evaluated in terms of its chief values, merits and benefits by making use of systematic market evaluation checklist. Consumers be presented with clusters of new product values to determine which if any, new product alternative should be pursued. To determine the need for a new product, the potential needs of the market be determined in terms of ; timing, satisfaction, alternatives, benefits and risks, future expectations, price - versus-product performance, features, market structure and size, and economic conditions. The need for the new product as well as its value or benefit to the company should also be determined. Financial scheduling - cash inflow, cash out flow, contribution to profit, and return on investment needs to be evaluated in terms of other product ideas as well as investment alternatives.

Product Planning and Development Process


Concept Stage The refined product idea is tested to determine consumer acceptance. Reactions to the concept are obtained from potential customers or members of the distribution channel. Features, price and promotions should be evaluated for concept being studied and any major competing product. The concept should also be compared with competing, currently available product in terms of;
Quality and reliability. Superior or deficient.

Is introduction of this product in the market offer good opportunity to the firm?

Product Planning and Development Process


Product Development Stage Consumer reaction to the physical product is determined. Consumer Panel - a group of potential customers may be given the product to use and get their comments on the virtues and deficiencies of the product. The panel can be given one or more competitive products along with sample product to determine consumer preference by using multiple brand comparison or risk analysis or level of repeat purchase or intensity of preference analysis

Product Planning and Development Process


Test Marketing stage
A market test is done to increase the certainty of successful commercialization. The last step in evaluation process, test marketing stage provide actual sales results, which indicate the acceptance level of consumers. Positive results indicate the degree of probability of a successful product launch and company formation.

Week - 7
Creating and Starting the Venture How to prepare business plan, its scope and value to investors, lenders, employees, suppliers, and customers. Legal issues for the entrepreneur.

Creating and Starting the Venture


Business Plan
A written document prepared by an entrepreneur that describes all the relevant external and internal elements involved in starting a new venture. It is often an integration of functional plans such as marketing, finance, manufacturing, and human resources. It addresses the integration and coordination of effective business objectives and strategies when the venture contains a variety of products and services. It also addresses both short-term and long-term decision making for the first three years of operation. Business Plan also known as Game plan or Road map, answers the questions; where am I now? Where am I going? How will I get there? potential investors, supplies and even customers.

Creating and Starting the Venture


Who should write the business plan? Entrepreneur. Help could be sought from lawyers, accountants, marketing consultants, or engineers. Internet -outlines of business plans or sample templates are also available besides host of other related info. To determine the requirement of a consultant or make use of other resources, entrepreneur should conduct objective assessment of his/ her own skills assessment

Creating and Starting the Venture


Skills Assessment
Skills
Accounting/ Taxes Planning Forecasting Marketing research Sales People management Product design Legal Issues Organizing Excellent Good Fair Poor

Creating and Starting the Venture


Scope and value of Business Plan
Business plan is prepared keeping three perspectives in sight; The perspective of entrepreneur- he must be able to clearly articulate what the venture is all about. The marketing perspective- he must be able to view his business through the eyes of his customers. The perspective of investor- sound financial projections are required. If entrepreneur does possess necessary stills, he may take the support of some outside sources to provide this necessary info. The business plan may be read by employees, investors, venture capitalists, suppliers, customers, advisers and consultants. Since each of these groups read the plan for different purposes, an entrepreneur must be able to satisfy the needs of everybody. Whereas in the actual marketplace, the entrepreneurs product will be trying to meet the needs of selected group of customers.

Creating and Starting the Venture


Scope and value of Business Plan
(Contd)

The depth and detail in the business plan depend on the size and scope of the proposed new venture. The differences in the scope of the business plan may also depend on the kind of business, like service sector/ manufacturing or consumer good or industrial products. The size of the market, competition and potential growth may also effect the scope of the business plan. The business plan is important because; It helps determine the viability of the venture in a designated market. It provides guidance to the entrepreneur in organizing his/ her planning activities. It serves as an important tool in helping to obtain financing.

Creating and Starting the Venture


Scope and value of Business Plan
(Contd)

The process of business planning provides self-assessment by the entrepreneur. It forces the entrepreneur to bring objectivity to the idea and reflect on questions like;
Does the idea make sense? Will it work? Who is my customer? Does it satisfy customer needs? What kind of protection can I get against imitation by competitors? Can I manage such business? Whom will I compete with?

This self-evaluation is similar to role playing, requiring the entrepreneur to think through various scenarios and consider obstacles that might prevent the venture from succeeding.

Creating and Starting the Venture


Evaluation of Business Plan by Potential Lenders and Investors.
Lenders focus on the four Cs. credit, character, cash flow and equity distribution.
C- Entrepreneurs credit history, C- cash flow i.e. the ability of the entrepreneur to meet debt and interest payments. C-collateral i.e. the tangible assets being secured for the loan. C- equity contribution i.e. the amount of personal equity the entrepreneur has invested.

Investors or venture capitalist are more interested in the character of entrepreneur as they will be investing large sum of capital and expect cashing out within five or seven year. Venture capitalist will play an important role in actual management of business hence wants to ensure the willingness of acceptance of this involvement.

Creating and Starting the Venture


Define the Goals and Objectives Feasibility Study
Marketing Finance Production

Marketing Information Define the Market- The product is for Men or women?, for high income or low income people?, for rural or urban dealers?, for highly or less educated?. Project market size and subsequent market goals for the new venture.

Creating and Starting the Venture


An upside-down Pyramid Approach to Gathering Market Information General environment and demographic trends - .house hold income trends, population shifts, food consumption habits and trend, travel, and employment trends. National food industry trends- Food sales and commercial restaurant sales by types of restaurant (national level). Local environment and demographic trends-General economic trends The assessment of local level food service industry. Local competition strengths and weaknesses. Market positioning Marled Objectives.

Creating and Starting the Venture


Operations Information Needs
Location. Manufacturing operations. Raw materials. Equipment. Labor skills. Space. overhead

Financial Information- Prepare a budget including list of all the expenditures in the first year and all the revenues sources including sales and external available funds-capital expenditures, direct operating expenses, revenues from sales forecast from marketing data.

Creating and Starting the Venture


The entrepreneur need to identify benchmarks in the industry which can be used in preparing final pro forma statements in the financial plan. These benchmarks or norms establish reasonable assumptions regarding expenditures based on industry history and trends. The pro forma statements will need to be prepared monthly in the first-year and than either quarterly or annually for the next two years. Some investors require five-year projections.

Marketing Plan for the New Venture


There are many creative alternatives in marketing a product or service. By first understanding the industry and assessing the needs of the market, the entrepreneur can estimate the size of the market and implement the marketing plan that effectively positions the product or service in a competitive environment.

Industry Analysis
The focus of industry analysis is to provide sufficient knowledge of the environment (national and local market )that can affect marketing strategy decision making. It begins with broadest based assessment of environmental and industry trends and than proceeds to more local market environmental and industry trends including competition (upside-down pyramid). The entrepreneur needs to initiate market research to secure specific information on customer needs, competitive strengths and weaknesses, price, promotions, distribution and product or service benefits.

Marketing Plan for the New Venture


Marketing Plan
A written statement of marketing objectives, strategies and activities to be followed in business plan.

Steps in Preparing the Marketing Plan. Defining the Business Situation


Entrepreneur to provide a review of past performance of the product and the company. In case of new venture, describe how and why the product or service was developed. If the plan is being written after the new venture as started up, then give information on present market conditions and performance of the companys goods and services. Describe any future opportunities or prospects also while carrying out situation analysis.

Marketing Plan for the New Venture


Defining the Target Market/ Opportunities and Threats Target Market is specific group of potential customers toward which venture aims its marketing plan. Knowledge of the target market, normally a segment of the entire market, enables in determining the appropriate marketing action strategy that will meet its needs. Marketing Segmentation is a process of dividing the market into small homogenous groups. Segmentation Process

Marketing Plan for the New Venture


The process of segmenting and targeting customers
Decide what general market or industry wish to pursue. Divide the market into smaller groups based on characteristics of the customers or buying situations. (a) Characteristics of customers
Geographic (state, country, city, region) Demographic (age, sex, occupation, education, income, and race). Psychographic ( personality and lifestyle)

(b) Buying Situation


Desired benefits ( product features) usage (rate of use) Buying conditions ( time available and product purpose) Awareness of buying intention ( familiarity of product and willingness to buy)

 Select segment or segments to target  Develop a marketing plan integrating product, price, distribution and promotion

Marketing Plan for the New Venture


Considering strengths and weaknesses.
Ascertain strength and weakness in the target market. The weakness could be products capacity limited by space and equipment or distribution system or lack of cash to support a heavy promotional effort.

Establishing Goals and Objectives.


Establish realistic and specific marketing goals and objectives. They should respond to the question, where do we want to go? by specifying market share, profits, sales (by territory and region), market penetration, number of distributors, awareness level, new product launching, pricing policy, sales promotion and advertising support. The goals should be quantifiable and measurable for control purposes. Limit the number of goals or objectives from 6 to 8,for ease of control and monitoring.

Marketing Plan for the New Venture


Marketing Strategy and Action Programs
Marketing strategy and action decisions should respond to the question how do we get there? These decisions reflect on the marketing mix variables (combination of product, price, promotions and distribution and other marketing activities needed to meet marketing objectives). Product or Service A description of product or service to be marketed in the new venture. The product is more than its physical components; it involves packaging, the brand name, price, warranty, image, service, delivery time, features, style and even website that will be seen by most customers. The entrepreneur would need to consider all or some of these Issues keeping in sight the goal of satisfying customer needs.

Marketing Plan for the New Venture


Pricing
Prior to setting the price, the entrepreneur needs to consider costs, margins or markups and competition. Cost: for a manufacturer material and labor costs, for a manufacturing cost of goods from suppliers plus costs for overhead ( utility, rent , promotion, insurance and salaries). Based on the sales estimates, add the unit costs of overhead to the cost of manufacture or cost of goods to determine the final price. Markups or Margins: standard markups can be ascertained from trade publications or asking suppliers. A lower markup and hence lower profit is a strategy used to increase demand in the short term (market penetration strategy ) but could influence the competition to also lower its price thus eventually reducing the profit margin for everyone.

Marketing Plan for the New Venture


Competition : when product cannot be easily differentiated than the entrepreneur is forced to charge the same price as the competition. The entrepreneur can justify higher price if his product has unique benefits or could provide additional services to the customer. Innovations such as technology products or new drug products may warrant a higher price or skimming strategy for new venture to recover some of its high development costs. Distribution: It provides utility to the consumer, that is, it makes a product convenient to purchase when it is needed. A high quality product carry a high price and should be distributed in outlets that have a quality image.

Marketing Plan for the New Venture


If the market for new venture is highly concentrated - a major metropolitan area, direct sales to the customer or to a retailer may be prudent. If the market is dispersed across a wide geographical area, than the use of wholesalers and retailers may be necessary to keep the cost low. If the product is bulky, expensive or perishable, a more direct channel would make sense because the costs of handling and shipping would drive the costs up. The costs of wholesaler and retailers are lower than the costs for a small, single product start-up because they operate with economy scale by representing many other businesses. They can provide storage, delivery, a sales staff, promotions or advertising and maintenance at a reasonable cost. Use more than one channel in order to service customers more efficiently and also increase sales potential - selling products through retail stores, websites, catalogs and newspapers. As venture grows, hiring own sales force may be more efficient and no longer cost prohibitive.

Marketing Plan for the New Venture


Promotion
It is necessary for the entrepreneur to inform potential customers about the products availability or to educate consumers, using advertising media print, radio , or television or using community cable stations. Larger markets can be reached using internet, direct mail, trade magazines or newspapers. Press releases about the venture or its product or services are often interest to media. Local newspapers, television, radio or trade magazines are always looking for interesting stories about new ventures or entrepreneurs.

Marketing Plan for the New Venture


Marketing Strategy: Business to Business Business to business marketing strategy involves more direct channel of distribution because of the volume of each transaction and the need to relate product knowledge to the business buyers. Advertising and promotion involve more trade magazines advertising, direct sales, and trade shows. Budgeting the Marketing Strategy. if entrepreneur has followed the procedure of detailing the strategy and action programs to meet the desired goals and objectives, costs would be reasonably clear. This budgeting and marketing action strategy decision would he useful in preparing the financial plan also.

Marketing Plan for the New Venture


Implementation of Marketing Plan Marketing plan is not a formality that serves outside financial supporters or suppliers but a commitment by the entrepreneur to a specific strategy. It is commitment to make adjustments as needed or dictated by market conditions to answer three questions; where have we been? where do we want to go? and how do we get there? Monitoring Progress of Marketing plan It involves tracking specific results of markets effort; like sales data by product, territory, sales reps and outlets. Any weak area will require redirecting or modifying the existing marketing effort to allow the firm achieve its initial goals and objectives

Organizational Plan for the New Venture


The design of an organization is formal and explicit indication to the members of organization as to what is expected of them. These expectations are;
Organization structure - defines members job and relationship and the communication these jobs have with each other; normally depicted in an organization chart. Planning measurement and evaluation schemes the activities should aim at achieving objectives and goals of the organization. The entrepreneur should spell out how these goals will be achieved (plans), how they will be measured and evaluated. Rewards - in the form of promotions, bonuses, praise and so on. Selection Criteria - the entrepreneur to determine the selection criteria and guidelines for each position. Training on/of job must be clarified; it may be is the form of formal education or learning skills.

Stages in Organizational design.

Organizational Plan for the New Venture


The Role of Board of Directors
The purpose of the board is to provide leadership and direction for the new venture by; (1) Reviewing operating and capital budget. (2) Developing long term strategic plans for growth and expansion. (3) Supporting day to day activities. (4) Resolving conflicts among owners or shareholders. (5) Ensuring the proper use of assets. (6) Developing a network of information sources for the entrepreneur. These functions may be a formal part of the organization with assigned responsibility to the directors depending on the needs of the new venture. The job description of board of directors should be dearly spelled out and the chairman should provide appraisal on each board member. They may be compensated with stock option or salary

Organizational Plan for the New Venture


The Board of Advisors A board of advisors is loosely tied to the organization and serve the venture only in an advisory capacity for some of the functions or activities. It has no legal status unlike the board of directors Advisors may be compensated on a per-meeting basis. The members of the board should be evaluated as to their contribution to meeting the mission of the new venture. The flexibility in size, background requirements, number of meetings and compensation makes this board a very desirable alternative to more formal boards of directors. The Organization and Use of Advisors The services of outside advisors such as accountants, bankers, lawyers, advertising agencies and market researchers may be used by entrepreneur on an as-needed basis. These advisors are separate from the formal board of advisors and can become important part of organization and would need to be managed just like any other permanent part of the new venture.