Entrepreneurship

Chapter One

The Nature of
Entrepreneurship

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 Learning objectives

When you have completed this chapter you will be able to:
 Historical origin of entrepreneurship

 Definition entrepreneurship and entrepreneur

 Types of entrepreneurs

 Role of entrepreneurship in economic development

 Entrepreneurial competence and environment (mindset)

 Relate entrepreneurship, creativity and innovation

 Mid gymnastic
• Why USA becomes most advanced country, but
Ethiopia not?
• Entrepreneurship
• Entrepreneur
• Why to become an entrepreneur
• The role of entrepreneurship in the economy
 Entrepreneurship: introduction
There is no universally accepted definition of
entrepreneurship.
• The word entrepreneur a loanword from French,
Entreprendre, which means, “to undertake”. It was
coined by Richard Cantillon in the 18th C.
• He wrote a book so called “Essay on the nature of
commerce in 1755.
 Historical origin of
entrepreneurship
• What is entrepreneurship?

• Who is an entrepreneur?
– To answer this most frequently asked questions,
lets take a look on the historical evolution of
entrepreneurship
 Ancient period: Historical..
17th C:
Entrepreneur:
a person
managing large Entrepreneur:
commercial a person who signed a
projects contractual agreement
with the gov’t to
provide P/S.

18th C:
R. Cantillon 19th & 20th C:
Entrepreneur:
Entrepreneur:
A person who is risk
Viewed from economic
taker.
perspective.
i.e. merchants, farmers ..
• organizes and operates an
buy products at a known
enterprise for personal
price and sell it at
gain.
unknown price
• Involve in innovation
 Historical …..Now (21st C)
• Entrepreneurship

 Creating and growing for-profit businesses and other

social enterprises that add value beyond the
traditional bottom line.

 Reviving civic pride and the sense of connection

empowered individuals pursuing meaningful work.
 Definitions of E/ship and
Entrepreneur
• Entrepreneurship is the process of

– identifying opportunities in the market place,

– arranging the resources required to pursue these

opportunities and

– investing the resources to exploit the opportunities for long

term gains.

• Entrepreneurship is a practice and a process that results in

creativity, innovation and enterprise development and growth.
 Entrepreneurship
• The process of entrepreneurship includes five critical
elements. These are:
i. The ability to perceive an opportunity
ii. The ability to commercialize the perceived opportunity i.e.
innovation
iii. The ability to pursue it on a sustainable basis.
iv. The ability to pursue it through systematic means.
v. The acceptance of risk or failure.
 Entrepreneur
• An entrepreneur is any person who creates and
develops a business idea and takes the risk of
setting up an enterprise to produce a product or
service which satisfies customer needs.
• An entrepreneur is a professional who discovers a
business opportunity to produce improved or new
goods and services and identifies a way in which
resources required can be mobilized.
 Entrepreneur
• Others definitions: from three perspectives
• To an economist
– one who brings resource, labor, materials, and other
assets into combination that makes their value
greater than before
– one who introduces changes innovations.
 Entrepreneur
• To a Psychologist
– A person typically driven by
certain forces need to obtain
or attain something, to
experiment, to accomplish,
to escape authority of others
 Entrepreneur
• For the capitalist
philosophers
– One who creates wealth for
others
– who find better way to
utilize resources and
reduce waste,
– who produce job to others
 Types of entrepreneurs

The individual • Who started; acquired/franchised own

entrepreneur independent organization

• A person who does entrepreneurial work

Intrapreneur within large organization.

The • The entrepreneurial function need not be

embodied in a physical person.
entrepreneurial • Every social environment has its own way of
orgn. filling the function
 Relationship of Entrepreneur,
Entrepreneurship and Enterprise
ENTREPRENEURSHIP ENTREPRENEUR
• Process • Person
• Abstraction; Involves creating • Tangible people; Individuals
and starting enterprise who establish and manage their
own business
• Outcome of complex socio-
• A key individual who play
economic, psychological and central role to make things
other factors happen
• Act • Actor
• Decision making • Decision maker
• Risk taking • Risk taker
• Creation • Creator
 Role of entrepreneurship in
economic development

• The industrial health of a society depends on

the level of entrepreneurship existing in it.
True / False? Why?
 Role of entrepreneurship…
• A country might remain backward not because of lack
of natural resources or dearth (insufficient) of capital
[as it is many times believed]
– but because of lack of entrepreneurial talents or its inability
to tap the entrepreneurial talents existing in that society

“There are no ‘under-developed’ countries any more. There are

only mismanaged countries”. P.F. Drucker
 Role of….
• Entrepreneurial development is the most important input in
the economic development of any country.
• It is foundation for
– industrial development,
– balanced regional growth, and
– generation of employment opportunities

• Entrepreneurs are key to the creation of enterprises, and

rejuvenate sustainable economic development through;
 Role of…
• Improvement in per capita Income/Wealth Generation
• Generation of Employment Opportunities:
• Inspire others Towards Entrepreneurship
• Balanced Regional Development
• Enhance the Number of Enterprise
• Provide Diversity in Firms
• Economic Independence
• Combine Economic factors
• Provide Market efficiency
• Accepting Risk:
• Maximize Investor’s Return:
 Entrepreneurial competence and
environment
• Who become an entrepreneur?

• What are the qualities of entrepreneur?

• What skills should acquired/ is required?

• What are the main tasks of an entrepreneur?

• Who are beneficial of an entrepreneur’s wealth?

 Entrepreneurial mind-set

MIND: the ability to think SET: group of things

or imagine

mind-set
Mind-set is a set of assumptions, methods, or notations held
by one or group of people that determine how people will
interpret and respond to situations.
 Types of mindset
There are two types of mindset (Dr. Carol Dweck
Standford University)

• A fixed mindset
– People believe that their basic qualities i.e. intelligence or talent
are simply fixed traits (rigid)
– Also believe that that talent alone creates success
• A growth mindset
– People believe that their most basic abilities can be developed
through dedication and hard work.
– brains and talents are just starting points
 Types of mindset
Fixed Growth
• Intelligence is static • Intelligence is developed

Avoid Challenges Embraces

Obstacles Fortitude
Give up
Effort Work hard
No point
Criticisms Learns
Deflect
Success of
Feel threatened others Celebrates
Who becomes an entrepreneur?
• Anyone with the following characteristics can be an
entrepreneur.
1. The young professional:
– Educated people
2. The inventor:
– Innovators – high-tech or traditional technologies
3. The excluded:
– Unemployment, immigration, layoff, displacement, school
dropout
– E.g. Jack Ma; co-founder of Alibaba group
– 27% of USA entrepreneurs are immigrants
– T. Edison, B. Gates, M. Zuckerberg
– Discuss other entrepreneurs in Ethiopia
 Entrepreneurial mindset
• Entrepreneurial mindset is the ability to quickly
– Sense

– Take action and

– Get organized under certain conditions

• The ability to persevere / persistently

– Accept and learn from failure and

– Get comfortable with a certain level of discomfort

 Entrepreneurial mindset
• Entrepreneurial mindset is a set of cognitive (thinking) process that
triggers the individuals' to act or to behave entrepreneurially.
• Also known as entrepreneurial talent or mentality
• It is the basis for individual behaviour
Having the right attitude
– Able to work without supervision
– Able to self-motivate
– Able to make quick decision
– Open-minded and flexible
 Qualities of an entrepreneurs
• Opportunity-seeking:
– high demand, access to credit, training ..
• Persevering:
– persistent determination/effort to achieve goal
– See (activity 1.1.) Genius is 1% inspiration and 99% perspiration. Accomplishment
depends not on ingenuity rather on hard work
• Risk Taking:
– calculated risk
• Demanding for efficiency and quality:
– waste minimization, cost-effectiveness, increase market share,
better profitability, social responsibility
• Information-seeking:
– no room for guess work. Gather information about the
environment
 Qualities of an entrepreneurs …
• Goal Setting:
– goal is general direction not specific and measurable when we compare
it with objectives which is SMART
• Planning:
– future oriented, answer “wh” questions
• Persuasion and networking:
– ability to convince people, and build relationship
• Building self-confidence:
– emotional state of mind, capability of doing activities
• Listening to others:
– learn from others
• Demonstrating leadership:
– inspire, encourage, lead others
 Perseverance: The story of Thomas
Edison (activity 1.1.)
When he was young, Thomas Edison’s parents took him out of school after his
teachers declared that he was “stupid” and “unteachable.” Edison spent his
early years working and being fired from various jobs, culminating in his firing
from a telegraph company at the age of 21. Despite these numerous setbacks,
Edison was never discouraged from his true calling in life: inventing!
Throughout his career, Edison obtained more than one thousand patents. And
although several of these inventions such as the light bulb, stock printer,
phonograph and alkaline battery – were ground breaking innovations, the vast
majority of them could be fairly described as failures.

Edison is now famous for saying that genius is

“1% inspiration and 99% perspiration.”

One of Edison’s best examples of perseverance

occurred after he was already a successful man.
 ….Thomas Edison
• After inventing the light bulb, he began seeking an inexpensive light
bulb filament. At the time, ore was mined in the Midwest of the
United States, and shipping costs were very high. In order to
minimize his costs with ore, Edison established his own ore-mining
plant in Ogdensburg, New Jersey. For nearly ten years, he devoted
his time and money to the enterprise. Edison also obtained 47
patents for innovations that helped make the plant run more
smoothly. And even despite those inventions, Edison’s core project
failed because of the low quality of ore on the East Coast.
However, despite that failing, one of those 47 inventions (a crushing
machine) revolutionized the cement industry, and actually earned
Edison back almost all of the money he had lost. Later, Henry Ford
would credit Edison’s Ogdensburg project as the main inspiration
for his Model T Ford assembly line. And in fact, many believe that
Edison paved the way for modern-day industrial laboratories.
Edison’s foray into ore-mining demonstrates that dedication can pay
off even in a losing venture.
 Reflection questions:
• What are the major challenges that Thomas Edison faced?

• What were his achievements?

• What are the causes for his success?

• What do we learn from the story of Thomas Edison?

• “1% inspiration and 99% perspiration.” what is your

interpretation?
 Entrepreneurial skills
• Skill is the ability to perform in a certain way-
demonstrated by action.
• Entrepreneurs is the one who has a good business
idea and can turn that idea into reality.
• Turning an idea into reality calls upon two sots
– General management skills and
– People management skills
 General management skills
• Are skills required to organize the physical and financial resources needed
to run the venture.
The important general management skills are
• Strategy skills:

– ability to consider the business a as whole.

• Planning skills

– An ability to consider what the future might offer

• Marketing skills

– Satisfying customers through the marketing mixes

• Financial skills

• Project management skills

• Time management skills

 People management skills
• Business are made by people
• People are the most invaluable assets in an
orgn.
Important skills
• Communication skills
• Motivation skills
• Delegation skills: ability to allocate tasks to d/t people
• Negotiation skills
 The entrepreneurial tasks
• Owning organizations
• Founding new organizations
• Bringing innovations to the market
• Identification of market opportunities
• Application of expertise
• Provision of leadership
• The entrepreneurs as a manager
 Wealth of the entrepreneur
• Wealth can be money, knowledge, assets etc that money can buy.

• Who are benefits from the entrepreneur’s wealth?

– Employees

– Investors

– Suppliers

– Customers

– Local community

– Government

How?
Entrepreneurship and environment

• Business environment refers to the factors external to

a business enterprise which influence its operations
and determine its effectiveness.
• Business environment can be healthy or favorable and
unhealthy or unfavorable.
Phases of business environment
PESTLED
• Political
External • Economic
environme
nt (Macro) • Socio-cultural
• Technological
• Legal
Micro
• Environmental
• Demographic

Internal
environment • Raw material
• Production/operation
• Finance
• Human resource
 Environmental factors affecting
entrepreneurship
• What factors can hinder entrepreneurial growth?
– Sudden changes in Government policy.
– Sudden political upsurge.
– Outbreak of war or regional conflicts.
– Political instability or hostile Government attitude towards
industry.
– Excessive red-tapism and corruption among Government
agencies.
– Ideological and social conflicts.
– Unreliable supply of power, materials, finance, labor and other
inputs.
– Rise in the cost of inputs.
– Unfavorable market fluctuations.
– Non-cooperative attitude of banks and financial institutions.
 Creativity, innovation and
Entrepreneurship
• Creativity, innovation and entrepreneurship,
have been recognized as important
contributors to a nation’s economic growth.
 Creativity
– the tendency to generate/recognize ideas,
alternatives/possibilities that may be useful in
solving problems, communicating with others,
and entertaining ourselves and others.
– the ability to come up with new idea and to
identify new and different ways of looking at a
problem and opportunities.
– creativity is the development of ideas about
products, practices, services, or procedures that
are novel and potentially useful to the
organization.
 Steps in the creative process
Step 1: Opportunity or problem Recognition:
– A person discovers that a new opportunity exists or a problem needs
resolution
Step2: Immersion:
– the individual concentrates on the problem and becomes immersed in it
Step 3: Incubation:
– the person keeps the assembled information in mind for a while.
Step 4: Insight:
– the problem-conquering solution flashes into the person’s mind at an
unexpected time, such as on the verge of sleep, during a shower, or
while running. Insight is also called the Aha! Experience.
Step 5: Verification and Application:
– the individual sets out to prove that the creative solution has merit.
Verification procedures include gathering supporting evidence, using
logical persuasion, and experimenting with new ideas
 Barriers of creativity
• Searching for the one ‘right’ answer
• Focusing on being logical
• Blindly following the rules
• Constantly being practical
• Viewing play as frivolous
• Becoming overly specialized
• Avoiding ambiguity
• Fearing looking foolish
• Fearing mistakes and failure
• Believing that ‘I’m not creative
 Innovation
• Innovation is the exploitation of opportunity.

• It is the implementation of new idea at the individual,

group or organizational level.

• Innovation is a process of intentional change made to

rate value by meeting opportunity and seeking
advantage.
 Types of Innovation

Invention • Creation of a new product, service or process

Extension • Expansion of a product or service

Duplication
• Replication of already existing product, service or
process

Synthesis
• The combination of existing concepts and factors into a
new formulation
 The innovation process
• Analytical planning:
– Carefully identifying the P/S, design, resources that will be
needed.
• Resources organization:
– obtaining the required resources, materials, technology,
human or capital resources
• Implementation:
– Applying the resources in order to accomplish the plans
• Commercial application:
– the provision of values to customers, reward employees
and satisfy the stakeholders
 Areas of innovation
• New product
• New service
• New production techniques
• New way of delivering the P/S to the customer
• New operating practices
• New means of informing the customers about the product
• New Means of Managing Relationship within the
Organization
• New Ways of Managing Relationships between
Organizations:
• Their relationship:

Creativity Thinking new things

Doing new things Innovation

Entrepre
neurship Creating value in the
marketplace

Entrepreneurship = creativity + innovation.

 ?

End of Chapter One!

CHAPTER TWO

Business Planning

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 Learning objectives
• Identify opportunity in the environment,
• Evaluate the opportunities in the environment,
• Generate business idea
• Explain the concept of business planning,
• Identify components of business plan
• Develop business plan
 Introduction

• To start or expand exiting business needs

– to work on opportunity identification and
evaluation

– To develop Business ideas

 Preparing a business plan is indispensable

• Otherwise the business will fail

 Opportunity identification and
evaluation
• The first step in entrepreneurship is opportunity
identification

• Opportunity identification can be divided into

– Scanning the environment

– Identifying the opportunity

– Developing the opportunity

– Evaluating the opportunity and

– Evaluating the team

Scanning the environment or getting
the idea
• Scanning environment results in

– getting an idea – thought, intention, scheme,

initiative

– Opportunity – favourable set of conditions for

doing something.

• The environment imposes both opportunities and

challenges
 Opportunity identification
• Opportunity identification is ability to see, to discover and
exploit opportunities that others miss.
• It is the process of seeking out better ways of competing
• Includes
– Scanning the informational environment
– Being able to capture
– Recognize and make effective use of abstract
Problems can be changed into business opportunities
 Opportunity Development

• Opportunity development is the process of

combining resources to pursue a market
opportunity identified.

• Involves
– systematic research to refine the idea to the most
promising high potential opportunity that can be
transformed into marketable items.
 Opportunity evaluation
• Considers
– Risk
– Capital
– Cost
– Returns/profitability
– Values of goods/services
– Competitive advantage
 Assessment of the entrepreneurial
team
• Strong team skills are key for successful business

– Team focus i.e. experience, working under pressure,

creation of g/s

– Sales i.e. persuasion

– Management i.e. Technical, Human relational, motivation

– Ownership i.e. decision making, commitment, finance

 Business idea development
• Discuss Case 1 and 2
• A business idea is a short and precise description of the basic operation of
an intended business.
• Three types of business ideas
– Old Idea – Here an individual copies an existing business idea from someone.
– Old Idea with Modification – In this case the person accepts an old idea from
someone and then modifies it in some way to fit a potential customer’s
demand.
– A New Idea – This one involves the invention of something new for the first
time
 Business idea identification

• All business ideas are not equally worth

• This involves Identifying promising business ideas among
others
• Selection may depend upon
– Goods or service to sell
– Customers
– Strategies i.e. how to sell g/s
– Relation between business and the environment
 Methods of generating business ideas
• Discuss case 3
– Learn from successful business owners
– Experience survey i.e own experience, other people’s
experience
– Survey local business area
– Scanning the environment including

• natural resources, • waste products,

• skill of local community, • publications,
• import substitution, • trade fairs and exhibitions
 Business idea screening
• Idea screening is the process to spot good ideas and eliminate
poor one.
• To screen the business idea generated, three approaches are
discussed as follow:
– Macro-screening i.e. availability of finance, demand
– Micro-screening i.e. solvent demand, availability of raw
materials, skilled labour, financial resources
– Scoring the suitability of business idea i.e. rating factors
 Business idea screening …
• Screening can be done by talking to

– Customers

– Competitors, suppliers,

– Financial institutions

– Key informants and opinion leaders i.e.

experienced peoples
 Concept of business plan
• Planning?
• Business?
– Planning is the first and the most crucial step for starting a business.
– Deciding in advance

• BP is a written document describing all relevant internal and

external elements and strategies for starting a new venture.
• A business plan is the blueprint of the step-by-step procedure that
would be followed to convert a business idea into a successful
business venture.
 Business plan…

• Well-designed plan helps

– To identify opportunities

– Scan external and internal environments

– Allocates resources

– Provide important information about marketing,

finance, operation, HR etc.,
 Objectives of business plan
– Give directions to the vision formulated by
entrepreneur.
– Objectively evaluate the prospects of business.
– Monitor the progress after implementing the plan.
– Persuade others to join the business.
– Seek loans from financial institutions.
– Visualize the concept in terms of market
availability, organizational, operational and
financial feasibility.
 Objectives of business plan …
– Guide the entrepreneur in the actual implementation of
the plan.
– Identify the strengths and weakness of the plan.
– Identify challenges in terms of opportunities and threats
– Clarify ideas and identify gaps in management
information about their business, competitors and the
market.
– Identify the resources that would be required to
implement the plan.
– Document ownership arrangements, future prospects and
projected growths of the business venture.
 Developing a business plan

• Business planning process

• Business plan requires continuous review and

updating so that the plan remains viable even
in changing business situation
 Steps of business planning process
1. Preliminary investigation
– Review available business plans (if any).
– Draw key business assumptions on which the plans will be
based (e.g. inflation, exchange rates, market growth,
competitive pressures, etc.).
– Scan the external environment and internal environment to
assess the SWOT.
– Seek professional advice from a friend/relative or a person
who is already into similar business (if any).
 Steps…
2. Opportunity identification and idea generation
– Opportunity identification and business idea generation is
the first stage of business planning process.
– It involves generation of new concepts, ideas, products or
services to satisfy demand.
3. Environmental scanning
– carried out to analyze the prospective SWOT/C of the
business enterprise.
 Steps…
4. Feasibility analysis
– carried out to analyze the prospective SWOT of the
business enterprise.
– Prerequisite for demarcating environmental scanning
and feasibility study
 Environmental scanning is carried out to assess the
external and internal environment of the geographical
area/areas where, entrepreneur intends to
set up his business enterprise, whereas
 Feasibility study is carried out to assess the feasibility
of the project itself in a particular environment in greater
detail.
 Major feasibility analysis
areas

• Feasibility analysis requires both primary

and secondary research
 Steps…
5. Report preparation
Once environmental scanning and feasibility study are carried
out then, a business plan report is prepared.
– Business plan is written document that describes step-by-
step, the strategies involved in starting and running a
business.
 Essential components of business
plan
1. Cover sheet
– Name of the project
– Address i.e. HQ
– Name and address of the promoters
2. Executive summary
– The first impression about the business proposal
– Often < 3 pages
– Highlighting core elements of the business
proposal
 Components of BP…
3. The business
– Detail concept about the business concept
– Describes
• Objective
• History
• Formation etc
4. Funding requirement
– Fund utilization
– Source i.e. debt equity ratio
– Should convince examiners i.e. investors and FIs
 Components of BP…
5. The product or service
– Brief description of the P/S
– i.e. Features, range, IPRs
6. The plan
– Marketing plan i.e marketing mix strategies,
marketing research
– Operational plan i.e location, MRP, budget
– Organizational plan i.e. chart, manpower
composition
– Financial plan i.e. projected sales, IS, BEP, BS, CF
 Components of BP…
7. Critical risks
– Political, economical, market, etc
8. Exit strategy
– provide details about how the organization would be dissolved
– Share of stakeholders in case of winding-up
9. Appendix
– Provide information about the CV of the owners, ownership agreement
etc
 see the sample business plan format
 Group assignment
 Develop a business plan
 CHAPTER THREE

Business Formation

Entrepreneurship…
the art of turning an idea into a business

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 Learning objectives
At the end of this unit, you will be able to:

 Explain the concept of business development

 Identify the forms of business ownership

 Analyze the importance/role of SMEs

 Set up Small scale business

 distinguish the success and failure factors of SMEs

 The concept of small business
development
 how can you define the size of businesses?
• There is no single and universally accepted definition for
Small Business, because it

• Varies from country to country, institution to institution,

country’s level of development, time etc.
 The concept…
• Beyond the formal definition of a small business, what four
points can be used to describe a small business?

– Owner is usually the manager

– Business operates in one or very few locations

– Business typically serves a small market

– Business is not dominant in its field

 Forms of Business

 The three basic legal forms are

 Proprietorship

 Partnership

 Corporation
 Formation …

Legal forms of business Description

Proprietorship Form of business with single owner who

has unlimited liability, controls all
decisions, and receives all profits.

Partnership Two or more individuals having unlimited

liability who have pooled resources to
own a business

Corporation Separate & legal entity that is run by

stockholders having limited liability
 Business Formation
1. Sole proprietorship

Sole proprietorship or individual entrepreneurship is a business

concern owned and operated by one person.

Features of a sole proprietorship • No separate entity of the business

• Single ownership • Less government regulation

• One man control

• Undivided risk

• Unlimited liability
 1. Sole proprietorship

Advantages Disadvantage

• Simplicity Limited funds

• Quick decision Limited skills
• High secrecy
Unlimited liability:
• Direct motivation
Uncertain life
• Personal touch
less synergy
• Flexibility
 2. Partnership (general vs limited)

– It is an agreement among two or more persons to carry on

jointly to lawful business and to share the profits arising there
from.
– Persons who enter into such agreement are known as
partners.
Characteristics:
– Association of two or more persons
– Contractual relationship
– Existence of lawful business
– Sharing of profit and loss
– Mutual agency among partners
– No separate legal entity of the firm
– Unlimited liability
– Restriction on transfer of interest
– Utmost good faith
 3. Corporations

• It is a form of business organization which is established by

stockholders.
Characteristics:
– Has a separate and legal personality distinct from
owners
– Continuity, unaffected by debt or transfer of stock
shares
– Income tax on corporate profit and dividend
– Professional managers as distinct from the
shareholders mostly manage a corporation.
 4. Cooperatives
• ….are an association of persons,
– with a common bond of interest,
– who have voluntarily joined together to achieve a lawful
common social or economic end,
– making equitable contributions to the capital required and
– accepting a fair share of the risks and benefits of the
undertaking in accordance with the universally accepted
principles of cooperation.
•
– Open and voluntary membership
– Democratic control
– Limited interest on capital
– Division of net surplus
– Cooperative education
 Comparison factors and the
formations
Factors Proprietorship Partnership Corporation

Ownership Individual Unlimited number of No limitation on

partners number of
shareholders
Liability of owners Unlimited/ In general; unlimited Limited
individuals are liable In limited; partners
for the business are liable for amount
liabilities of capital
contributed
Cost of starting Very low, only fees Legal cost, fees for • Created by
business for trade name trade name. statute
Depend of p/ship • Taxes
agreement • Article of
incorporation
• Filing fees
 Factors…
• Factors • Proprietorship Partnership Corporation

• Continuity • Death • General: Death or Unlimited business

of business dissolves the withdrawal of one partner
business. • Limited: death/withdrawal
• Limited life of one partner has no
effect on continuity
Transferability Full freedom to General: partner can transfer • Most flexible
of interest sell or transfer any his/her interest only with the • Some stocks may
part of the consent other partners be restricted by
business Limited: transferable without agreements
consent of others
Capital • Loan • Partners contribution • Selling shares
requirement • Contribution • Entity also raises money • Debt
 SMEs
• Small business are catalyst of economic development
in both developed and developing countries
• Small business owners vs Entrepreneurial venture?
• Entrepreneurial venture is a growth-oriented
innovative company with product or service offerings
that are new to the market.
 Definition of SMEs
• There are two approaches to define small
business.
1. Size criteria (the number of employees and
startup capital i.e can be quantified)
2. Economic/control criteria (market share,
independence, and personalized mgmt. i.e
qualitative ).
 1. Size Criteria

• Size refers to the scale of operation

• The size may be measured in the following ways
 number of employees; (mostly used, <50)
 total capital investment (i.e. plant, machinery)
 Volume/value of sales turnover, asset size…
 volume/value of production,

 a combination of the stated factors.

 Size criteria….

• suggested by Small Business Administration (SBA)

 Financing of the business is supplied by one individual
or a small group. Only in a rare case would the
business have more than 15 or 20 owners.
 Except for its marketing function, the firm’s operations
are geographically localized.
 Compared to the biggest firms in the industry, the
business is small.
 The number of employees in the business is usually
fewer than 100.
 Size criteria….
Size criteria varies from country to country

Australia Manufacturing <100 employees

services <20 employees

Germany SME <500 employees

France SME 10 -499 employees
China SME Depends on product group.
Usually 100 employees: investment
ceiling US $8 million.
Indonesia SME <100 employees
Malaysia SME <175 full time workers & investment
US $1 million
 Ethiopia?

 Using capital as size criteria, Ministry of Trade of Ethiopia

adopted official definition of Micro and Small Enterprises
as follows:

 Microenterprises are

business enterprises found in all sectors of the Ethiopian

economy with a paid-up capital (fixed assets) of not more
than Birr 20,000 but excluding high-tech consultancy firms
and other high-tech establishments.
 Ethiopia….
• Small Enterprises are

business enterprises with a paid-up capital of not

less than Birr 20,000 but not more than Birr
500,000, but excluding high-tech consultancy firms
and other high-tech establishments.
 2. Economic/Control Criteria

 This definition covers

 Market Share: not large, not influence price of goods

• Independence: the owner has control of the business himself.

• Personalized Management: It is the most characteristics factor of all.

 Owner actively participates in all aspects of the management of the
business,

 He has a legitimate power on decision making.

 There is little delegation of authority.

 Economic ….

 Technology: labor intensive

Geographical area of operation: often local

 Small Business…

Generally, small business is a business that is

– privately owned and operated,

– with a small number of employees,
– relatively low volume of sales, and
– privately owned companies, partnerships, sole
proprietorships, or cooperatives.
 Role/importance of MSEs in
developing countries
• Large employment opportunities
• Economical use of capital
• Balanced regional development
• Equitable distribution of wealth and decentralization
of economic power
• Unregulated growth of large-scale industries
• Expedite industrialization
 Role/importance of MSEs in
developing countries
• Innovative and productive/simple technology
• Export promotion
• Protection of environment
• Shorter gestation period
• Facilitate development of large scale enterprises
 Setting up small scale business
• Setting up a new venture is challenging but
rewarding .
• Several problems could raise
• Consider
• Identify 4-5 p/s ideas
• Feasibility study
These increases the chance of success
Stages of setting up new venture
Identify
opportunities

Opportunity

Discovery Evaluation Implementation

1. Discovering your e/rial

potential
2. Identifying a problem and
solutions
 Stages…
Analysing and
selecting the
opportunity

Opportunity

Discovery Evaluation Implementation

4. Evaluating the idea as

a business opportunity
4. Investigating and
gathering the resources
 Stages…
Launching and
developing the
enterprise

Opportunity

Discovery Evaluation Implementation

5. Forming the entreprise to

create value
6. Implementing the e/rial
strategy
7. Planning the future
 Stages …
Identify Analysing and Launching and
opportunities selecting the developing the
opportunity enterprise

Opportunity

Discovery Evaluation Implementation

1. Discovering your 3. Evaluating the idea 5. Forming the entreprise

e/rial potential as a business to create value
2. Identifying a opportunity 6. Implementing the
problem and 4. Investigating and e/rial strategy
solutions gathering the resources 7. Planning the future
Approaches to develop business
ideas
 Environmental analysis

• Entrepreneurship doesn’t exist in a vacuum.

• The relationship between environment and
entrepreneurship is a two way.

Entrepreneurship Environment
 Environmental analysis

A. Macro environment (PESTLED)

 Political Environment-stable and conducive political climate
 institutional support gives a stimulus to entrepreneurship
 Economic Environment- Liberalization
 Socio-Cultural Environment-customs, norms and traditions of the
society
 Technological Environment- new and effective
 Legal Environment- Simpler legal procedures can facilitate the
process of new venture creation
 Environmental
 Demographic
 Environmental …
b. Sectorial Analysis- industry conditions
– purpose: to determine what makes an industry
attractive via i.e. profits or high growth rates.

Also studies
– history of the industry, the future trends, new
products developed in the industry, forecasts
made by the government or the industry.
 SWOC analysis
Internal

Negative
positive

SWO
C

External
 Product or service
• The entrepreneur has to use the opportunities
provided by the environment,
• combine these with his/her unique strengths in
terms of knowledge, skills, experience etc. and
then take a decision to launch a particular
product or service.
• The proposed product / service should be
compatible with the capability of the
entrepreneur, resources available in the
environment and the need of the society.
 Small business success and failure
factors
• Small business success factors
• Conducive Environment;
• Political climate, economic environment, technology,
socio-cultural environment
• Adequate Credit Assistance;
• Low IR, less collateral requirements, lower equity ratio
• Markets and Marketing Support
• Market linkage i.e. bazaar,
 Failure factors
• In Africa, for example, the failure rate of MSEs
is 85%
• Causes of business failure
– Inadequate management
– Inadequate financing
– Negligence, fraud and disaster
 Classification of enterprises in
Ethiopia context
Level of the Sector Human Total asset (‘000
enterprise power birr)

Micro Industry (mfg, constr, mining) ≤5 ≤ 100

enterprise

Service (Retailing, transport, ≤5 ≤ 50

hotel, tourism, ICT &
maintenance)
Small Industry 6-30 ≤ 1,500
enterprise

Service 6-30 ≤ 500

 Levels of SMEs in Ethiopia
Level of
transition from
small to medium Growth-medium level
level When an
Maturity level enterprise able to
be profitable and
Competent in invest further
price, quality, Growth level
supply and profit
Incorporate
Start-up people who are
interested to
establish SMEs
 Main supporting packages for SMEs
development in Ethiopia
• Awareness creation about the sector
• Provision of legal services to form legal
enterprise
• Training
• Financial support (20/80) 20% saving 80% loan
from MFIs
• Bookkeeping and audit services etc
 Organizational structure and
entrepreneurial team formation
• Functioning/ performing all tasks are one of
the common and significant reason for many
failures.
• Organizational structure: defines how
activities such as task allocation, coordination
are directed toward the achievement of
orgnal. Aims.
 Organizational structure
The design of the organization will be the
entrepreneur’s formal and explicit indication to
the members of the organization as to what is
expected of them.
Typically, these expectations can be grouped
into the following five areas:
 Designing …
• Organizational structure: defines member’s job and
the communication and relationship these jobs have with
each other.
• Depicted in an organizational chart
• Planning, measurement, and evaluation scheme:
what and how gaols to achieve, how they will be
measured, how they will be evaluated
• Reward:
• Selection criteria
• Training: on/off the job
 Building the management team and a
successful organizational culture
• Entrepreneurial team: Any special group of two/more
persons who have an interest, both financial and
otherwise, in and commitment to a venture's future and
success; whose work is interdependent in the pursuit of
common goals.
• The team must be able to accomplish three functions
• Execute the business plan
• Identify fundamental changes in the business as they
occur
• Make adjustment to the plan based on changes in the
environment and market that will maintain profitability
 Entrepreneurial team
development cycle
Adjourning Forming

Performing Storming

Norming
 Entrepreneurial team development cycle
Forming
 The team experiences uncertainty about its purpose,
structure, and leadership.
Storming
 Intragroup conflict predominates within the group
Norming
 Close relationships develop and group members begin to
demonstrate cohesiveness.
Performing
 The team develops a structure that is fully functional and
accepted by team members.
Adjourning
 The team prepares for its disbandment.
 Organizational culture
• Building a team is not enough, functional
culture should be developed
 ORGANIZATIONAL CULTURE

Organizational culture:

Organizational or corporate culture is the system of shared

actions, values, and beliefs that develops within an
organization and guides the behavior of its members.
What Is Organizational Culture?

Characteristics:
Organizational Culture 1. Innovation and risk
taking
A common perception held
by the organization’s 2. Attention to detail
members; a system of 3. Outcome orientation
shared meaning. 4. People orientation
5. Team orientation
6. Aggressiveness
7. Stability
 Exhibit 3.1 Contrasting Organization Cultures
Organization A
• Managers must fully document
all decisions.
• Creative decisions, change, and risks
are not encouraged.
• Extensive rules and regulations exist
for all employees.
• Productivity is valued over employee
morale.
• Employees are encouraged to stay
within their own department.
• Individual effort is encouraged.
Organization B
• Management encourages and
rewards risk-taking and change.
• Employees are encouraged to
“run with
” ideas, and failures are
treated as“learning experiences.
”
• Employees have few rules and
regulations to follow.
• Productivity is balanced with treating
its people right.
• Team members are encouraged to interact
with people at all levels and functions.
• Many rewards are team based.
 Steps of creating an effective and positive
organizational culture
• First, culture must match the business strategy
• Second, the entrepreneur must create a
conducive work place i.e. motivation and
reward
• Third, the entrepreneur should be flexible
enough to try different things
• Fourth, hiring invaluable people
The End!
Chapter Four

PRODUCT AND
SERVICE CONCEPT

infotesfish@gmail.com
 Learning Objectives

After you look this chapter you will be able to:

 Describe the concept of product and service

 Identify Product development process

 Understand the types of product protection mechanisms

 An Over view Questions
• What is Product and service? Are they the
same?
• How firms can obtain products
• Two ways to obtain products ;
acquisition/licensing and NPD
• Why do new products fail? 80% new products
fail
• How entrepreneurs can protect their products?
 Introduction
• A product or service concept is the way in which a
firm likes to position its products / services in the
market, in terms of product features, quality, price,
service, distribution, differentiating elements etc.

• Successful entrepreneurs aims at satisfying and

delighting customers, to do this they must produce
product and deliver service
 Introduction
• Every company, regardless of size, have to research
and create new products to maintain or build sales.

• Companies normally reformulate their marketing

strategy several times during a product’s life.

• Why?
 Introduction
 Customers want new products and choices,

 competitors launch new attacks,

 Technology advancement gives access to modify

existing products etc.

 economic conditions change,

 and the product passes through new stages of buyer

interest and requirements
 Product
• product can be defined as

 a single item or unit,

Created as a result
 a group of equivalent products, of a process and
serves a need or
 a grouping of goods or services, satisfies a want

Product …..needs to be communicated

needs a name
should be adaptable
 Product technology

• Product technology is the generation and

utilization of goods and services

• product technologies are generally classified into

three major classes.

– High – tech products

– Mid-tech Products
– Low-tech products
• Majority of new products tend to revolve around
low-tech or no-tech innovations.
 High-tech products:
• more of “state of the art” products (the highest degree of
development of an art or technique) reflecting current levels of
technological advancement.

 They are results of scientific research and experimentation,

 whose uses have managed to reach a business application for
the market.
 Examples include;
Semiconductors (devices and other materials), Digital CD players, Laser
Instruments (an optical device), Computerized cameras, Satellite
systems, etc
 Mid-tech products

• This class contains a majority of the products that we

are familiar with.
 This technology assumes the use of existing
resources, or methods of production that result in
new products.
Examples include;
– Cosmetics, Fertilizers and nutrients, Desktop publishing,
Power supplies, Fax machine, etc
 Low-tech products:
• such products developed as a result of small changes
or improvements in existing products.
 However, development of low-tech products requires
insight by entrepreneurs to see opportunities.

 Examples include;
• Office furniture, Paper supplies, Plastic toys, Clothing
and textiles, Printer ribbons, Candy and Cookies,
Building supplies, etc
 Product Classifications

– Products are classified into different type based

up on different parameters these are: durability
& tangibility and ultimate user
• I. Based On Durability And Tangibility
– Durable
– Non-durable
– Service
II .Based on ultimate user
• a. consumer goods b. Industrial goods
– convenience good material and parts
– Shopping good capital items
– Specialty good supplies and
business services
– Unsought good
 New product development?
• New products are important for customer and marketers
– For customers, they bring new solutions and variety to their
lives.
– For companies, new products are a key source of growth
 New-Product Development Strategy

A firm can obtain new products through:

• Acquisition refers to the buying of a whole company, a patent,

or a license to produce someone else’s product.

• New product development refers to original products, product

improvements, product modifications, and new brands
developed from the firm’s own research and development.
New-Product Development Strategy
Reasons for new product • Priced too high
failure
• Ineffective promotion
• Overestimation of market
• Management influence
size
• High development costs
• Poor design
• Competition
• Incorrect positioning
• Wrong timing

The remedy lies in strong new product planning and

development
 New Venture and Product
Development

• It is the stage of entrepreneurial process that

determines the level of success.
• This stage begins with
 the idea for the venture and
 followed by venture selection.
• Ideally there are certain critical factors that should be
taken into consideration while designing ventures
 Product Development Process

The major Four Stages are:

– Idea Generation
– Incubation
– Implementation
– Diffusion

Model of this process looks the following

 Implementation
Incubation Diffusion
Idea Generation
Progress from
Preliminary First prototype, Full production
Ideas for new
Design, prototype Limited And market targeting
Product/process
Actual design manufacturing,
testing

Commercialization
Transition Commitment
Market tests,
Planning
Product proposal Justify product,
Production capacity
Screening, Legal considerations
Development, testing
Feasibility study commercialization
Major steps in new product development (NPD) process

Marketing Business
Strategy Analysis

Concept
Development Product
and Testing Development

Idea Test
Screening Marketing

Idea
Generation Commercialisation
 stages of new product development process

1. Idea generation
– Internal sources
 Employees, intrapreneurial programs
– External sources
 Customers, Distributers, Competitors
2. Idea screening: reviewing new product ideas so as to
drop poor ones ASAP
 Promising ideas-do further research
 marginal ideas, and
 rejects
 3. Concept development and testing:

 calls for testing product concepts with an appropriate

group of target consumers,

 then getting the consumers reactions.

 the concepts can be in words or picture description.

 4. Market strategy Development: initial marketing strategy

1. Market size, structure, customer behavior

2. Planned price, distribution strategy, and marketing

budget of 1st year (short run activities)

3. Long run sales and profit goals, marketing mix

strategy.
 5. Business analysis

• involves a review of the sales, costs, and profit

projections to find out whether they satisfy the
company’s objectives
– The output of the business analysis stage is a prediction
about whether the product is likely to be profitable or not
if ultimately produced
 6. Product Development
Functional test are conducted under laboratory & field
conditions to make sure that
– the product performs safely and effectively (Durability, speed,
cost etc)

Consumer testing can take variety of forms as

 bringing consumers in to laboratory
– giving them samples to use in their homes.

 Requires huge investment

7. Market testing

 The goals are to test the new product is more

authentic consumer settings (conforming to what they
need)

 and to learn how large the market is and

 how consumers and dealers react to handling, using

and repurchasing the actual product.
 8. Commercialization

• First entry:- The firm usually enjoys the "first

mover advantage"
• Late entry
• Where (Geographical strategy):-
 To whom (Target-market-prospect)
– They would be early adapters
– They would be “heavy users” ( use more)
– They would be Opinion leaders
– Could be reached at low cost
 Services Marketing
Nature and Characteristics of a Service

• Service cannot be • Service cannot be

seen, tasted, felt, separated from their
heard, smelled providers
before purchased

Intangibility Inseparability

Service

Variability Perishability
• Quality of
services depends • Services cannot be
on who provides stored for later
them, when, safe or use
where, and how
 Services Marketing
Marketing Strategies for Service Firms
• Service-profit chain links service firm profits with
employee and customer satisfaction.
– Internal service quality
– Satisfied and productive service employees
– Greater service value
– Satisfied and loyal customers
– Healthy service profits and growth
 Product protection Issues

LEGAL ISSUES FOR THE

ENTREPRENEUR-why?

To operate as a legal businessperson

protect the business from unnecessary suits

and liabilities,
INTELLECTUAL PROPERTY (IP)
• 'Intellectual property’ is a legal definition of

 ideas, inventions, artistic works and other

commercially viable products created out of one's
own mental processes.
 intellectual property is protected by such legal means as

 patents,

 copyrights, and

 trademark registrations.
 What are intellectual property rights?
• Intellectual property rights are like any other
property right.
They allow creators, or owners, of
patents,
trademarks or
copyrighted
works to benefit from their own work or investment in a
creation.
 Patents
 A patent is an exclusive right granted for an invention – a
product or process that provides a new way of doing
something, or that offers a new technical solution to a
problem
A patent is
 a contract between an inventor and the government
 in which the government, in exchange for disclosure of
the invention, grants the inventor the exclusive right to
enjoy the benefits resulting from the possession of the
patent
 patents…

• A patent provides the owner with exclusive rights to

 hold, transfer, Use as collateral, willed, Sell or

license the production and sale of a product/process.

• This exclusive property right can be granted for a

number of years (14, 17,….) depending on the
countries laws and type of property.
 What can be Patented;
Processes:
Methods of production, research, testing, analysis,
technologies with new applications.
Machines:
Products, instruments, physical objects.
Manufactures:
Combinations of physical matter not naturally found
(products).
Composition of matter:
Chemical compounds, medicines, etc.
 Protection is valid for a period of 10 years in
Ethiopia
 Trademarks

• These are distinctive

 names, marks, symbols or motto identified with a company’s
product or service and registered by government offices
showing the consumers it is originated from a unique
sources.

– Trademarks unlike patents are periodically renewed (7 yrs)

unless invalidated by cancellations, abandonment, or other
technical registration/renewal issues.

– Protection is granted after publication of cautionary notice

 Copyrights
• Copyrights provide exclusive rights to creative
individuals for the protection of literary or
artistic productions.
• protects original works of authorship including
 literary, dramatic, musical, and artistic works,
such as poetry, novels, movies, songs, computer
software, and architecture.

 It does not protect an idea, but the particular mode

for an expression of that idea is protected.
• Usually copyrights are valid for the life of the
inventor plus a few decades( or plus 50 years).
The difference between the 3 legal protections

protects words,
protects protects phrases, symbols, or
designs identifying
original works inventions or the source of the
goods or services of
of authorship discoveries one party and
distinguishing them
from those of others

Copyright Patent Trade mark

 The IP system in Ethiopia
• Ethiopia became a party to the convention
establishing the world intellectual Property
Organization (WIPO) in February 1998.
• Ethiopian IP office established in 2003; objectives are
– To facilitate the provision of adequate legal protection for and
exploitation of IP in the country
– To collect, organize and disseminate technological information
contained in patent documents and encourage its utilization
– To study, analyze and recommend policies and legislation on IP to the
government
– To promote knowledge and understanding of IP among the general
public
 What are non-patentable in
Ethiopia?
• Inventions contrary to pubic order or morality
• Plant/animal varieties or essentially biological
processes for the production of plants or animals
• Schemes, rules, or methods for playing games or
performing commercial and industrial activities and
computer programs
• Discoveries, scientific theories and mathematical
methods
• Methods of treatment of the human/animal body by
surgery or therapy
 Why promote and protect intellectual property?

1. The progress and well-being of humanity rest on its

capacity to create and invent new works in the areas
of technology and culture.
2. The legal protection of new creations encourages the
commitment of additional resources for further
innovation
3. The promotion and protection of intellectual
property spurs economic growth, creates new jobs
and industries, and enhances the quality and
enjoyment of life.
END!
Chapter Four
CHAPTER FIVE

MARKETING

174
Session objectives

• Discuss Marketing concepts

• Analyzing marketing philosophies
• Marketing research and process
• Marketing intelligence
• Competitive analysis
• Marketing strategy

175
 Introduction

– Marketing is indispensable in organizations

– It is the integral part of business, Without marketing even

the best products and services fail

– Marketing is about identifying and meeting human and

social needs.

– marketing is “meeting needs profitably.” Kotler, 2012

– Products marketed include goods as well as services,

ideas, people and places.
 Definition

 Marketing: The process of

creating consumer value in the
form of goods, services, or ideas
that can improve the consumer’s
life.

Marketing is a social and managerial process by

which individuals and groups obtain what they
need and want through creating, offering and
exchanging products of value with others.
 Marketing

 “Marketing is the process of planning and

executing the conception, pricing, promotion,
and distribution of ideas, goods, and services to
create exchanges that satisfy individual and
organizational objectives.”
 marketing

Marketing management

The art and science of choosing target markets and building

profitable relationships with them.

• Creating, delivering and communicating superior

customer value is key.
 Marketing Involves having the Right Product
available in the Right Place at the Right Time
and making sure that the customer is Aware of
the Product.

Product Price

Customers
“customer is a King”

Place Promotion
 Marketing
• Answers
– Who are our customers?
– What are our customers’ needs and wants?
– How can we satisfy our customers?
– How do we make a profit as we satisfy our
customers?

181
 Core Marketing concepts

• To understand the marketing function, we need to

understand the following core set of concepts.

Needs, wants, Products Value, cost Exchange Markets

and demand (goods, services and and
and ideas) satisfaction transaction
 1. Needs, Wants, and Demands

• Needs : is state of felt deprivation

• are the basic human requirements physical, social and

individual

• Not created by the society or marketers

• Wants: Wants are desires for specific satisfiers of needs

shaped and reshaped by culture, society or other

institutions
Demands are wants for specific products backed by an ability
and willingness to pay.

Many people want a Hammer; only a few are able to

buy one.

marketers cannot create needs. However, they can

influence wants and demand by making the product
appropriate, attractive, affordable and easily
available to target consumers

184
2. Products/offering (goods, services and ideas)

• A product is anything that can be offered

to satisfy a need or want.
e.g. A computer manufacturer is supplying goods
(computer, monitor, and printer), services
(delivery, installation, training, maintenance and
repair) and an idea (computational power).
 3. Values, Cost and Satisfaction

• Product will be successful if it delivers value & satisfaction to the

target group
• Value a ratio between what the customer gets and what he gives.
• The customer gets benefits and assumes costs
• Quality, Service and Price
– Value = Benefits = functional benefits +
emotional benefits
Costs monetary costs + time costs + energy
costs + psychic costs.
Satisfaction is the extent to which a product perceived performance
matches buyer’s expectation
 4. Exchange and Transaction
• ‘Exchange is the act of obtaining a desired object from someone by
offering something in return’.
Five conditions

1. Two parties

2. Something of value to offer each other

3. Willing to deal

4. Free to accept or reject offer

5. Able to communicate and deliver

 Transaction
 ‘transaction is a trade between two parties that involves:

 at least two things of value;

 agreed upon conditions;

 a time of agreement; and

 a place of agreement’

 may be monetary or barter

 5. Relationship Marketing and marketing network

Build long-term
relationships
Develop marketing
networks
 Importance of marketing
• Why customer purchase product?
• Product provides satisfaction
• Capable of satisfying want is called utility

190
 Types of utility

• Form utility
– Physical or chemical changes that make a
product more valuable. i.e. timber 
furniture
• Place utility
– Making available the product at
convenience place
• Time utility
– Providing product when its needed
191
 Types of utility

• Information utility
– Informing customers that products are
available
• Possession utility
– Transferring the product to the buyer –
ownership

192
 Marketing orientation/marketing
concepts
– Marketing management is the conscious effort to achieve
desired exchange outcomes with target markets.

– In fact, there are five competing concepts under which

organizations conduct marketing activities:
• The production
• The product
• The selling
• The marketing and
• The societal marketing
 1. The Production Concept

• Oldest concept in business

• Aiming at achieving as high output as possible.

• The more we make, the more profitable we are

Assumption: Customer will choose products and

services the are widely available and are of low cost
 Production
• Intensive distribution strategy
disadvantage: can lead to poor quality of services and
higher level of personalization
• Conditions suitable when:
– Demand > supply
– Unit cost of the product is high.

195
 2. The Product Concept
– Assumption: Customer will favor those products that offers
attribute viz most quality, performance and innovative
feature

• Focus on developing superior products and improving existing

product lines

• Innovative products are launched before educating customers

– Managers of such firms will suffer from marketing myopia

– Marketing myopia is focusing only on existing wants and

losing sight of underlying consumer needs
 3. The Selling Concept
– Assumption- consumers will not buy enough of
the organization's products unless the
organization undertakes a large-scale selling and
promotion effort.
• Goal is to sell what they produce rather what consumer wants

• Breeds the misconception that marketing is all about selling

• Most firms practice the selling concept when they have overcapacity
 4. The Marketing Concept
– holds that achieving organizational goals depends on
determining the needs and wants of target markets and
delivering the desired satisfactions more effectively than
competitor do.
Some basic pillars
– Target market
– Customer needs
– Integrated marketing communication
– Profitability
“selling focuses on need of the sellers and marketing focuses on the buyer”
The difference between selling and marketing concepts

Starting Focus Means Ends

point

Selling factory Existing Selling and Profit through sales

concept products promoting volume

Marketing market Customer Integrated Profit through customer

concept needs marketing satisfaction
5. The Societal marketing concept

• Marketing concept was widely accepted but later it shifted to how

marketing affected the society.
• Societal marketing concept is a management philosophy that
takes into account the welfare of society, the organisation, and
its customers.
• Requires any marketing decision be made in ethical and
responsible manner
• i.e. producing recyclable material to keep clean the environment
 Society
(Human Welfare)

Societal
Marketing
Concept

Consumers Company
(Satisfaction) (Profits)
 Marketing information system
(MKIS)

• Marketing information system (MIS) consists of people,

equipment and procedures to gather, sort, analyze,
evaluate and distribute needed, timely and accurate
information to marketing decision makers.
 MKIS

Marketing Information system supplies three types of information.

• Recurrent Information: provided on periodic basis
– e.g. sales, mkt share, customer satisfaction
– Supplied weekly, monthly, daily etc.
• Monitoring Information
– Obtaining by scanning d/t source i.e. journals,
reports
• Requested Information: information sought by marketing managers
– Cost and price analysis, cash flow of competitive
products
 Marketing information system
Marketing env’t
Marketing manager
Developing information
Assessing Mkting Target markets
Internal
information intelligenc
records
needs e Makting
Analysis channels

Competitors
Planning
Distributin Publics
Implementation Mkting
g MkDSS
research Macroenv’t
information
Control forces

Marketing decisions and communication

 Components
of MIS

Internal Marketing Marketing

MKDSS
record intelligence research

Collect Used to
Provide reliable Help managers
information solve
internal to analyze data
from specific
information of and to make
external marketing
the company better decision
sources problems
 Internal record system
– Information gathered from sources within the organization to
evaluate marketing performance and detect marketing
problems and opportunities
– Includes reports on orders, sales, prices, inventory levels,
receivables, payables etc
 Quicker and cheaper
• The order-to-payment cycle
– Core of the internal record system
– Involves receiving orders, prepare invoices and bills, shipping
orders and finally collect receivables
– Install EDI so as to improve speed, accuracy and efficiency of
the order to payment cycle
 Marketing research system
Marketing research is the systematic design, collection,
analysis, and reporting of data relevant to a specific
marketing situation facing an organization.
Marketing research is a process that identifies and
defines marketing opportunities and problems,
monitors and evaluates marketing actions and
performance, and communicates the findings and
implications to management
The marketing research process
Defining the problem and research
objectives

Research design formulation

Gathering data from secondary and

primary sources

Data processing and analysis

Report presentation and

presentation
 The marketing research process

Problem/ Formulation of
opportunity Setting objectives research design,
identification sample

Preparing and
Analysing the data Data collection
writing the report

Follow up
209
Marketing Intelligence

• Market intelligence is the systematic process of

gathering, analyzing, supplying and

applying information (both qualitative and

quantitative) about the external market
environment.

210
Marketing intelligence

• The goal of marketing intelligence is to:

• Improve strategic decision making,

• Assess and track competitors’ actions,

and

• Provide early warning of opportunities

and threats.
Marketing intelligence….

How it works?
– Appoint specialist to gather marketing intelligence
– Send mystery shoppers to competitor’s shop to pose as real
shoppers
– Purchasing competitors’ product to learn about the product
(dismantling)
– Attending trade shows, attending stakeholders meeting,
talking to their former employees, distributors and suppliers
 Importance of marketing intelligence

• Market and customer orientation

• Identification of new opportunities
• Smart segmentation
• Early warning of competitors moves
• Minimizing investment risks
• Quicker, more efficient and cost effective
information

213
 Ways to undertake marketing
intelligence
• Unfocused scanning:
– Any information that may be useful is gathered without any
specific purpose in mind.
• Semi-focused scanning:
– no specific purpose.
• Informal search:
– limited and unstructured attempt to obtain information for a
specific purpose
• Formal search:
– a purposeful search for information in some systematic way

214
 MI
• Marketing managers often carry on
marketing intelligence by
– Reading books, newspapers, and trade
publications;
– Talking to customers, Suppliers, distributors,
and other outsiders; and
– Talking with other managers and personal
within the company

215
 Marketing intelligence
• Internal record system supplies results data
• The marketing intelligence system supplies
happening data
• A marketing intelligence system
– a set of procedures and sources used by managers
– to obtain their everyday information about
pertinent development in the marketing
environment.

216
Competitive Analysis

• It refers to determining
the strengths and weaknesses of competitors
and designing ways to
take opportunities or tackle threats posed by
competitors.
• It is a method of gathering data about competitors
from different sources.
• Provide a clear understanding of the factors that
affect a business.

217
 Competitive Analysis

• It should answer, among other things,

the following questions:
Who are your competitors?
What customer needs and preferences are
you competing to meet?
What are the similarities and differences
between their products/services and yours?
What are the strengths and weaknesses of
each of their products and services?
218
 Importance

• It helps management understand its competitive

advantages/ disadvantages relative to competitors
• It generates understanding of competitors’ past, present (and
most importantly) future strategies.
• It provides an informed basis
to develop strategies to achieve competitive
advantage in the future (e.g. how will competitors respond
to a new product or pricing strategy?)
• It helps forecast the returns that may be made from future
investments

219
Porter’s forces driving industry
competition
4. Bargaining power
of suppliers

3. Threat of
new entrants

5. Threat of substitute
products or services
1. Bargaining power
of customers
220
 Porter’s
THREAT OF NEW ENTRANTS
SUPPLIER POWER Absolute cost advantages
Supplier concentration Access to inputs
Importance of volume to supplier Government policy
Differentiation of inputs Economies of scale
Capital requirements
Impact of inputs on cost or differentiation Brand identity
Switching costs of firms in the industry

DEGREE OF RIVALRY
-Exit barriers
-Industry concentration
-Fixed costs/Value added
-Industry growth
-Intermittent overcapacity
-Product differences
-
THREAT OF BUYER POWER

SUBSTITUTES Bargaining leverage

-Switching costs Buyer information
-Buyer inclination to substitute Price sensitivity
-Price-performance trade-off of Product differentiation
Buyer concentration
substitutes Buyers' incentives 221
Steps of Competitive Analysis
Step 1

Identify your competitors

Step 2

Gather information about competitors

Step 3
Gathering Information on Competitors

Step 4
Analysing the Competition

Step 5

Develop a pricing model

222
  Marketing mix

Price
Product

Customers
“customer is a King”

Place
Promotion
 Marketing mix
Robert Lauterborn suggested that the sellers’ 4 Ps correspond to the customers’ 4 Cs
McCarthy’s Classification
Lauterborn’s Classification (4Cs)
(4Ps)

• Product • Customer Benefit.

• Promotion • Communication.

• Place (distribution) • Customer Convenience.

• Price • Customer Cost

 Product
• refers to goods/services produced for sale, the
product /service should relate to the needs
and wants of the customers

225
 Product…
• Basic questions
– What products/services do I sell?
– Why did I decide to sell these products?
– Do I have the products customers want?
– Do any of my products not sell well?
– Do I stock products that do not sell well?

226
 Pricing
• the process of setting a price for a
product/service.
• Your prices must be low enough to attract
customers to buy and high enough to earn
your business a profit

227
 What Is a Price?

• Narrowly, The amount of money charged for a product or

service

• Broadly, The sum of the values that customers exchange for

the benefits of having or using the product or service.

• Price is the only element in the marketing mix that produces

revenue

• Price is also one of the most flexible marketing mix elements

Major Considerations in Setting Price

Other internal and external

Customers considerations
Competitors’ strategies and
perceptions Product cost
prices
value
Marketing strategy, objectives,
and mix Nature of the market and
Price ceiling Price floor
demand
No demand No profits below
above this price
this price
 Placement
• the different ways of getting your products or
services to your customers.
• You can distribute your products to your
customers through:

 Selling directly to the consumers of the products.

 Retail distribution and wholesale distribution

230
 Promotion
• Refers informing your customers of your
products and services and attracting them to
buy them

231
 Marketing Strategy

What is marketing strategy?

• It is a process that can allow an
organization
– to concentrate on its limited resources
– on the greatest opportunities
– to increase sales and
– achieve a sustainable competitive advantage
to reach marketing goals .

232
• A marketing strategy combines
– product development, promotion, distribution,
pricing,
– relationship management and other elements;
– identifies the firm's marketing goals, an
– explains how they will be achieved, ideally within
a stated timeframe

233
 Pricing strategies
• Price skimming
• Penetration pricing
• Cost+ pricing
• Mark-up pricing
• Competition oriented pricing
• Odd-even pricing

234
Promotion strategies

235
 Distribution strategies

Direct Retailer Wholesaler Agent/Broker

Channel Channel Channel Channel

Producer Producer Producer Producer

Distributor/Agents/
Brokers

Wholesalers Wholesalers

Retailers Retailers Retailers

Consumers Consumers Consumers Consumers

 Selling and customer service
• Customer service?
• Full of problems are there….discuss
– Customer service is what happens between the customer
determining his/her needs and receiving the desired
benefits.

237
 Why services matter?
• Services dominate the worldwide economies
• Services are growing dramatically
• Service leads to customer retention and loyalty
• Service leads to profits
• Services help manufacturing companies
differentiate themselves
•

238
 Concept of service
• Service refers to any activity undertaken to
fulfil customer’s needs.
• It is any act or performance that one party can
offer to another that is essentially intangible
and does not result in the ownership of
anything.
• Distinctive features of services include
intangibility, inseparability, variability, and
perishability as opposed to goods.
239
 Services Marketing
Nature and Characteristics of a Service
• Service cannot be • Service cannot be
seen, tasted, felt, separated from their
heard, smelled providers
before purchased

Intangibility Inseparability

Service

Variability Perishability
• Quality of
services depends • Services cannot be
on who provides stored for later
them, when, safe or use
where, and how
 Tangibility Spectrum
Salt
 Soft Drinks
 Detergents
 Automobiles
 Cosmetics
 Fast-food
Outlets
 Intangible
Dominant

Tangible 
Dominant Fast-food 
Advertising 
Outlets

Airlines 
Agencies
Investment 
Management
Consulting 
Teaching
 The concept of customer
• Customer is a person or organization that buys
a product or service either for use or for resale.
Customers can be internal (e.g. member of the
organization) or external (customers coming
from
outside).

242
Strategic activities needed for quality customer service
delivery

• Through continuous improvement philosophy (TQM);

organizations should deliver service Consistently
Efficiently and
In an excellent manner
Specifically, consider
• Establishing customer service strategy; staffing/Personnel;
fulfilling Materials; maintaining quality; participatory
management.

243
Customer handling and satisfaction
• Customer satisfaction is a key for successful
organization
• Involves retaining existing and attracting
potential customers
• Losing customer is losing business.
Major reasons
• Poor service; poor quality; rude behaviour

244
 Customer handling

• Good customer handling mechanisms

– Considering customer as an invaluable asset
(Customer is king!)
– Reducing customer complaints
– Empathy (place yourself in the customer’s shoes)
• Activity 5.3
• Delighting vs satisfaction vs dissatisfaction

245
• Activity 5.3

The end

246
Chapter six

Business Financing
 Learning objectives
 By the end of this module, trainees will be able to:
• Learn about the cost of starting an enterprise.
• Know the different sources of finance to start a business venture.
• Understand lease financing.
• Learn micro finances.
• Understand crowd funding.
• Know micro financing.
• Learn about traditional financing in Ethiopia.
 Brain gymnastic
• Why money is required?
– In business ..
 Financial requirement
• All business need money to finance a host of different requirements

• Funding methods

– Permanent capital

– Working capital

– Asset finance
 Permanent capital
• Base of all small businesses
• Comes from equity investment i.e. shares in company,
personal loan to form partners…
• Used the to finance the start-up costs of a firm, major
development or expansion, for innovation or new product
development as well
• Serviced when the firm can afford it
• rewarded by dividend from profits, or capital gain
• No interest rate to be paid
• Risky
 Working capital

• Short-term finance

• Required to bridge gap between when they get paid and when
they have to pay their suppliers and their overhead costs

• Can also help to purchase short lived assets including vehicles

 Asset finance
• A medium to long term finance

• Enable to purchase tangible assets i.e. plant, machinery, equipment,

buildings
 Source of financing
• Searching out the appropriate source of finance and Managing assets effectively is
crucial because underwriting assets creates liabilities that, if uncontrolled, can
devastate a business.

 Finance is life line of business. Why?

• In business, finance can be obtained from equity, debt or leasing,

 Sources

Internal sources Lease External sources

(equity capital) financing (debt capital)
• Personal saving • Types • Commercial banks
• Friends or relatives • Finance lease • Trade credit
• Partners • Operating lease • Equipment suppliers
• Public stock sale (going public) • AR financing
• Angels • Credit unions
• Venture capital companies • Bonds
 Traditional (CFI) in Ethiopia
• Eqqub

• Iddir

• Advantages vs disadvantages
• Comment on improvement
 Crowd funding
• Crowd funding is a method of raising capital through the collective effort of
friends, family, customers, and individual investors or even from the general public.

• This approach taps into the collective efforts of a large pool of individuals primarily
online via social media and crowd funding platforms and leverages their networks
for greater reach and exposure.
 Types of
crowd funding

Donation- Rewards- Equity-based

based based

• Doesn’t required financial • Individuals contributing to • Unlike of the formers, this

return to investors or your business in exchange allows contributors to
contributors for a reward become part-owner of
• Common • Subset of donation based your company by trading
• Fund raising for reward, no financial return capital for equity shares.
disaster relief • Common • There is financial return
• Charities • Reward typically a • Common
• NGOs form of the • Dividend or
• Medical bills product/service your distribution
company offer
 Mohammed Yunus (Bangladeshi)
Microfinances
• Microfinance is also known as microcredit, is type of
banking service (loans, savings, insurance and fund
transfer) provided to low income individuals, groups or
small firms who lacks access to banking service with high
collateral requirements

• pioneer of the modern microfinance

• Made an experiment by providing fund to women who make bamboo furniture in Bangladesh
• Found Grameen bank in 1983
• Won Nobel peace prize in 2006 for his invention of microfinance
 Importance of MFIs

• provides resources and access to capital to the financially underserved

• Serve the rural area (123 million borrowers in 2016), provide $102 bil.
Loans

• Alleviate poverty

• Decrease unemployment

• Increaser earning power

• Aid the financially marginalized

 MF in Ethiopia
• Originated from traditional and informal methods used to
accumulate saving and access to credit by people
• Self-help group (SHGs) or community financial institutions
(CFIs) i.e. Iqqub, Iddir
• The concept of modern Microfinance was introduced in
Ethiopia in the late 1980s
• 1997 formal microfinance came into exist following the
issuance of proclamation No. 40/1996
• Aimed at alleviating poverty through the provision of
sustainable financial service to the poor
• 1n 2018, there were 38 MFIs in Ethiopia
The End
 MANAGING
GROWTH AND
TRANSITION

CHAPTER SEVEN

infotesfish@gmail.com
 Introduction
• At introduction stage, entrepreneurs should
focus on resource mobilization
• At growth stage, they must continue to grow
with proper management and leadership
• Success of firm depends upon both
controllable and uncontrollable variables
 Timmons model of
entrepreneurship
• The Timmons’s model entrepreneurship considers
opportunities, teams, and resources as the three critical
factors available to an entrepreneur and holds that success
depends on the ability of the entrepreneur to balance these
critical factors (fig. 7.1)
• according to him, success in creating a new venture is driven
by a few central themes that dominate the dynamic
entrepreneurial process: it takes opportunity, a lead
entrepreneur and an entrepreneurial team, creativity, being
careful with money, and an integrated, holistic, sustainable
and balanced approach to the challenges ahead.
Figure 7.1. Jeffry Timmons’ model
of entrepreneurship (2006)
• Controllable components of the
entrepreneurial process can be assessed,
influenced and altered
• The entrepreneur searches for an opportunity,
shapes the opportunity into high-potential
venture
• Drawing up a team to capitalize the
opportunity
• Takes risk
 Opportunities
• Rather than developing a business plan,
entrepreneurs first task should be identify and
evaluate a solidly viable market opportunity.
• Timmons- entrepreneurship is nothing but
opportunity driven
– Opportunity identification precedes business plan,
money, strategy, team etc
– Involves converting problems into opportunities
 Teams
• once an opportunity has been identified, it is
critical to gather a good team of people to
unlock the potential of the opportunity
• Timmons model- a good team can lead to
great success and a badly formed team can
waste great idea which is disaster to any form
of business.
• Among all resources, only a good team can
unlock a high potential with an opportunity
and manage the pressure related to growth
 Teams …
• Two major roles of teams

– Removing the ambiguity and uncertainty of the

opportunity by applying creativity (inventiveness)
– Providing leadership to manage the available
resources in the most effective manner by
interacting with exogenous (external) forces and
the capital market context that keeps changing
constantly
 Resources
• finding and managing appropriate resources
requires different skills than finding and
managing good people, but it is equally
important for eventual success.
• Resources: tangible (building, land, IT, HR,
Money) and intangible (knowledge, goodwill,
information).
• Timmons-balancing the three dynamic factors
is a key to achieving business success.
•
 Resources …
• Factors should be managed through creativity,
communication and leadership – bring the
opportunity to a viable business model.
• Timmons model stimulates the focus on
opportunities rather than threats or
limitations.
• The three factors are interdependent each
other
 New venture expansion
strategies
 Successful small business start-ups faces the issue of
handling business expansion or growth.
 Business Expansion - poses both opportunities and
challenges
 Growth – market share expanded
- new strategies and additional capital required
- creating new possibilities to shareholders, lenders
 Need for Growth
Survival: status-quo (retain current position)
• Prevent form recession or other risks
How? By Diversification- product, market – minimize risk. (don’t
put all eggs in a single basket!)
Economies of Scale:
 Large-scale operations provide economies in: production,
marketing, finance, and management (expertise).
These economies result in reduction in per unit cost of operations and
increase in profits, maintain optimum operation level
Expansion of Market:
 Increase in demand for goods and services lead business firms to
expand in size.
 Population explosion and transportation lead to widening of
markets, which in turn resulted in mass production.
 Need for growth …
Technology:
• to reap the benefits of modern technology.
• Designing new product in R&D or Auto CAD
Prestige and Power (High standing): building own
empire
 Economic and social power lust (desire), getting
respect, supporting others
Government Policy:
 Incentives i.e. tax exemption, subsidies
Self-Sufficiency:
 Become independent
Methods of Growth Strategies
 Growth strategy is a strategic plan formulated and
implemented to expand the operations of a business firm.
Growth strategies

Internal External

Expansion Joint venture

Diversification M&A

Subcontracting/
outsourcing
Internal Growth strategies:
Expansion
 Expansion and diversification are forms of internal growth.
 Internal growth implies increase in scale of operations without
joining hands with other firms.
 A firm expands its product - market scope.
Expansion may take place in the following forms:
a) Market Penetration:
 It implies increasing the sale of existing products in the existing
markets.
b) Market Development:
 It involves exploring new markets for existing products.
 Some firms, for example, grow through exports.
c) Product Development:
 It implies developing new or modified products for sale in the
existing markets.
 Market-product matrix

Product
Existing New

Existing Market Penetration Product development

Market

New Market development Diversification

 Practical Problems in
Expansion
(i) Shortage of funds:
 Many times a small firm has to borrow funds at high rates of interest.
(ii) Technology:
 Modernization of technology is time consuming and expensive process.
 It becomes essential to recruit new staff or retain the existing staff in the use and
operation of new technology.
(iii) Marketing Problem:
 Expansion is possible and profitable only when the increased output can be sold
at remunerative prices.
(iv) Risk:
 Expansion involves additional risk.
 competition is severe /acute and raw materials have to be imported.
 Better managerial skills are required to manage growth successfully.
 Internal Growth strategies:
Diversification
 Entering new business in terms of either the
market or the technology or both.

 It is a strategy for growth by adding new

products or services to the existing ones.
 requires a company to acquire new skills, new
techniques and new facilities
 Types of diversification

a) Horizontal integration

b) Vertical integration

c) Concentric and

d) Conglomerate diversification
 a) Horizontal Integration

• When a company expands its business into

different products that are similar to current

lines.

• Products are substitutable to the existing one

– E.g. macaroni and pasta

 b) Vertical Integration
• new products /services are added which are complementary to the
existing product/ service line.
• New products serve the firm's own needs by either supplying inputs or
serve as a customer for its output.

 involves the entry of a firm into the

Backward Integration: Source business of finishing, distributing,
or selling existing products.
• It implies moving  It refers to moving higher up in the
production/distribution process
towards the towards the ultimate consumer.
production of Company  The firm develops outlets for the
source of raw use/sale of its own products.
materials.
Forward integration
Route/
Destinatio
n
C) Concentric Diversification
• When a firm enters into some business,
which is related with its present business in
terms of technology, marketing or both
– In technology-related concentric diversification
• new product/ service is provided with the help of
existing or similar technology.

– In marketing related concentric diversification,

• new product/service is sold through the existing
 d) Conglomerate
Diversification
 a firm enters into business, which is unrelated to its existing business both
in terms of technology and marketing.
 Reasons to adopt:
i. To achieve a growth rate higher than what can be realized through
expansion.
ii. To make better use of financial resources with retained profits
exceeding immediate investment needs.
iii. To use potential opportunities for profitable investment
iv. To achieve distinctive competitive advantage and greater stability
v. To spread the risk, and
vi. To improve the price earnings ratio and market price of the company's
shares.
P/E ratio = Market Value per Share
Earnings per Share (EPS)
 External Growth Strategy (Joint Ventures,
Mergers, or Takeovers, sub-contract)
• External growth occurs when two or more firms combine in one firm or works in
collaboration .
• Integrative growth strategy has the following advantages and disadvantage
:
Advantage Disadvantages
 Growth is very fast or quick  Requires substantial investment
 High volume product  Resistance to change
 Economies of scale and
 Co-ordination and control of
control over the market.
integrated units is difficult
 Wasteful competition can be
eliminated.  Frequent takeovers may create
uncertainty and instability in
the economy.
 External growth strategies
a) Joint Ventures
– Created when two or more independent firms together
establish a new enterprise,
– contribute to the total equity capital and participate in its
business operations.
– It is a temporary partnership or consortium between two
or more companies for a specified purpose.
– Foreign and local firms can participate in a joint venture.
Class Activity
• A joint venture between two or more companies within the
same country helps to reduce competition or influence
suppliers. How ???
 Strategic Issues in Joint
Ventures:
(i) Objectives of joint venture:
 First of all the basic objectives of joint venture should be spelled out clearly.
 The interests of two partners may not be identical and compatible.
(ii) Choice of partner:
 several criteria may be used to select a venture. Such as
 financial capacity,
 technical capacity,
 management competency
(iii) Pattern of shareholding:
 an explicit provision should also be made for disinvestment (withdrawal from
investment) after certain period of time (in Ethiopia > 51% hold by the local)
(iv) Management pattern:
 the joint venture should be autonomous.
 The composition of the board of directors may be decided in the light of choice
of partners, shareholding pattern, etc.
 External growth strategies
b) Merger
• A merger means a combination of two or
more firms into one.
• It may occur in two ways:
a) takeover or acquisition (absorption) of one
company by another, and
b) amalgamation -creation of new company by
complete consolidation of two or more units
 Types of Mergers

Horizontal mergers Vertical Mergers:

• These take place when there
is a combination of two or
more firms engaged in the
same production or
marketing process.
• It takes place when the
combining firms are
complementary to each
other either in terms of
supply of inputs or
marketing of output.

For example,
• A footwear company may take over a leather tannery.
• A Garment and cotton farm
 Types….
Concentric mergers:
• When the combining firms
are similar either in terms of
technology or marketing
system
Conglomerate mergers:
• It occurs when two
unrelated firms combine
together

E.g.
• a footwear company combining with a cement
firm.
 Why merger
To the buyer (firm)
 Quick entry into new markets
and industries
 Faster rate of growth
 Quick diversification
 Reduce competition and avoid
dependence
 Achieve synergistic advantages
To the seller (firm)
 To turn around a sick unit
 To increase the value of the
owner’s stock
 To increase the growth rate
 To acquire resources for stability
of operations
 To deal with problem of top
management succession
 To reduce tax burden
 Sub - Contracting

 Subcontracting is a type of work contract that seeks to

outsource certain types of work to other companies.
 Subcontracting is done when the general contractor
does not have the time or skills to perform certain
tasks.
 When a building is being constructed, subcontracting
becomes a major deal.
Example
 commercial nominees selling shares of different companies
on behalf of CBE
 Recruitment agencies
 Sub-contracting has several
advantages.
 First, it is the fastest method of increasing output.
 sub-contractor’s technical and managerial skill.
 Reduce cost of setting up new plant
 Second, subcontracting saves the main contractor from
incurring investment in specialized machinery and equipment,
which may not be required for regular production.
 Third, sub-contracting may enable the contractor to buy the
components at a cost less than that of manufacturing.
 Lastly, sub-contracting checks over-expansion of productive
facilities in case of temporary demand.
 however, may be unsuitable in case the contractor requires the
inputs on a large scale and on regular basis.
 It is the case when the contractor can manufacture the components
at a cost less than the price charged by the sub-contractor.
 Expansion issues
• Growing too fast
– All entrepreneurs ambition is to grow hastily
– But could cause, demand outpace of production capacity
• Record keeping and other infrastructure needs
– Monitoring cash flow, tracking inventories,, managing
finance, tracking HR information, communication system
• Expansion capital: acquiring additional finance
• Personnel issues:
• Customer service:
• Disagreement among owners :
• Family issues etc
 Choosing not to grow
• Small business owners choose not to expand
their operations even though they have ample
opportunity to do so
• Reasons
– Satisfying with the status quo
– Limit growth than give up
– Fear of managing large size operations and
personnel
– Giving time for family
 Business Ethics and social
responsibility
• Business ethics: the application of ethics in
business
– Ethics is relative
• Corporate responsibility
• Is an organization's obligation to maximize its positive
impact on stakeholders and minimize its negative impact.
• It deals with how a business behaves as an entity to society.
 Social responsibility….
• Social responsibility is also individualistic
• A firm’s social responsibility is mainly affected by its;
– employees,
– government,
– investors/ shareholders,
– consumers
– Environment etc.
Three approaches of corporate
responsibility
1. Corporate social responsibility (CSR)

2. The triple bottom line

3. Stakeholder theory
 1. CSR
• Has two meanings
1. Theory of the corporation that emphasizes both the
responsibility to make money and the responsibility to
interact ethically with the surrounding community
2. corporate social responsibility is also a specific conception of
that responsibility to profit while playing a role in broader
questions of community welfare.
Thus, CSR is about
– Producing reliable product, charging fair prices, paying fair
wages
– Caring for the environment and acting on other social
concerns
Four level of social responsibility

Economic

Voluntary/ Social
philanthro responsibility Legal
pic

Ethical
infotesfish@gmail.com
sources: Ferrel et al, and others
 Steps of social
responsibility
Philanthropic

Ethical: “Giving
back” to the
society
Legal: Following
standards of
Economic: Abiding by acceptable
all laws behaviour
Maximizing
stakeholders’
wealth/value
infotesfish@gmail.com
sources: Ferrel et al, and others
 2. Triple bottom line (TBL)
• The triple bottom line is a form of corporate
social responsibility dictating that corporate
leaders formulate bottom-line results not only
in economic terms (costs versus revenue) but
also in terms of company effects in the social
realm, and with respect to the environment.
• focuses on three sustainabilitie's or 3 P’s
– People (social)
– Planet (environment)
– Profit (economic)
TBL…
 3. Stakeholder theory
• Stakeholder/s?
• Introduced by Edward Freeman
• It is the mirror image of CSR- instead of starting with a
business and looking out into the world to see what ethical
obligations are there, stakeholder theory starts in the world.
 Stakeholders
• Are those who have a stake or claim in some
aspect of company’s
– product,
– operations,
– market,
– industry,
– outcomes etc.
• Can influence and influenced by businesses

infotesfish@gmail.com
sources: Ferrel et al, and others
 Key internal and external stakeholders

• Internal • External
– Employees – Customers
– Managers – Suppliers
– Shareholders – Government
– Regulators
– Local community
– Pressure groups

infotesfish@gmail.com
sources: Ferrel et al, and others
 Types of stakeholders
primary stakeholders Secondary stakeholders
Essential for the firm’s There association with the
survival firm might be not necessary

Employees
Media
Communities
Trade associations
Shareholders

Customer Pressure/Special
interest groups
Government
infotesfish@gmail.com
sources: Ferrel et al, and others
Stakeholders interaction
model

Company

infotesfish@gmail.com
sources: Ferrel et al, and others
 Business ethics principles
• Honesty • Promise-keeping and
trustworthiness
• Integrity • Commitment to excellence

• Loyalty • respect/concern for others

• Reputation and morale
• Fairness • Accountability

• Law abiding

• Leadership
End!!