Textbook Reference: Entrepreneurship, 8th edition by R.H. Hisrich, M.P.

Peters and
D.A. Shepherd, Mc Graw Hill Irwin, Copyright 2010.

Chapter 5: Identifying and Analyzing Domestic and International Opportunities

Entrepreneurs find it difficult to both manage and expand the venture they created.
To expand a venture, entrepreneurs need to:
▪ Identify opportunities for domestic and international expansion.
▪ Develop different management skills.
▪ Infuse new entrepreneurial spirit (intrapreneurship).

Factors contributing to international expansion:

▪ Opening up of controlled economies to market-oriented enterprise.
▪ Self-interest of organizations as well as the impact of external events and forces.
▪ Developing countries need training and education as well as infrastructure to support
their development and growth in the next century.

Opportunity Recognition and the Opportunity Assessment Plan

▪ The key to successful domestic and international entrepreneurship is to develop an
idea that has a market with a need for the product or service idea conceived.
▪ Opportunity assessment is often best accomplished by developing an opportunity
assessment plan.
▪ An opportunity assessment plan is not a business plan.
▪ An opportunity assessment plan has four sections:
◦ The first section develops the idea, analyzes competitive products and companies,
and identifies the unique selling propositions.
◦ The second section focuses on the market—its size, trends, characteristics, and
growth rate.
◦ The third section focuses on the entrepreneur’s and management team’s skills and
experience.
◦ The final section develops a time line indicating the steps to successfully launch
the venture.

Information Sources
▪ General Information
◦ SCORE is a nonprofit organization that provides free online and in-person
assistance.
◦ Small Business Development Centers provides counseling, training, and technical
assistance on all aspects of managing a new venture.
◦ The U.S. Chamber Small Business Center provides start-up assistance through
Web-based tools and resources.
◦ Other valuable Web sites include: nasbic.org, nvca.org, nbia.org,
www.fasttrac.org, activecapital.org, c-e-o.org, entre-ed.org, kauffman.org.
▪ Industry and Market Information
◦ Plunkett - Industry data, market research, trends, statistics on markets, and
forecasts.
◦ Frost and Sullivan - Industry specific information.
◦ Euromonitor – Information on consumer market sizes, marketing parameters,
companies, and brands.
◦ Gartner - Information on technology markets.
 ◦ Gale Directory Library - Industry statistics and information on nonprofit
organizations and associations.
▪ Competitive Company and Product Information
◦ Business Source Complete - Provides company and industry information by
scanning the Datamonitor reports.
◦ Hoovers - Provides information on both large and small companies with links to
competitors in the same NAICS (North American Industrial Classification
System) category.
◦ Mergent - Provides detailed company and product information on U.S. and
international companies.
▪ Government Sources
◦ Census reports
◦ factfinder.census.gov
◦ www.census.gov/ipc/www/idb
◦ Export/import authority
◦ UN Comtrade
◦ www.business.gov/expand/import-export
◦ NAICS and Standard Industrial Classification codes
◦ www.naics.com/info.htm
◦ www.osha.gov/pls/imis/sic_manual.html
▪ Search Engines
◦ There are many key terms for searching the needed industry, market, and
competitive information.
▪ Trade Associations
◦ Good source for country-specific industry data.
▪ Trade Publications
◦ Provide information and insights on trend, companies, and trade shows from a
local perspective of the particular market and market conditions.

The Nature of International Entrepreneurship

▪ International entrepreneurship is the process of an entrepreneur conducting business
activities across national boundaries.
◦ The activities necessary for ascertaining and satisfying the needs and wants of
target consumers take place in more than one country.
▪ With a commercial history of only 300 years, the United States is a relative newcomer
to the international business arena.

The Importance of International Business to the Firm

▪ International business has become increasingly important to firms of all sizes.
▪ A successful entrepreneur must be able to:
◦ Fully understand the difference between domestic and international business.
◦ Respond accordingly thereby successfully “going global.”

International versus Domestic Entrepreneurship

▪ Economics
◦ In a domestic business strategy, the entire country is organized under a single
economic system and has the same currency.
◦ Creating a business strategy for a multicountry area means dealing with
differences in:
∙ Levels of economic development.
 ∙ Currency valuations.
∙ Government regulations.
∙ Banking, venture capital, marketing, and distribution systems.
▪ Stage of Economic Development
◦ Certain factors significantly impact a firm’s ability to successfully engage in
international business such as:
∙ Fundamental infrastructures.
∙ Banking facilities and systems.
∙ Educational systems.
∙ Legal system.
∙ Business ethics and norms.
▪ Balance of Payments Current Account
◦ With the present system of flexible exchange rates, a country’s current account
(the difference between the value of a country’s imports and exports over time)
affects the valuation of its currency.
◦ The valuation of one country’s currency affects business transactions between
countries.
▪ Type of System
◦ Difficulties in doing business in economies that are developing, or in transition.
◦ Use of barter or third-party arrangements in these countries to increase business
activity.
∙ Barter - A method of payment using nonmoney items.
∙ Third-party arrangements - Paying for goods indirectly through another
source.
▪ Political-Legal Environment
◦ Political risk analysis - An assessment of a country’s political policies and its
stability prior to entry.
◦ Types of political risks:
∙ Operating risk.
∙ Transfer risk.
∙ Ownership risk .
∙ Conflict and changes in the solvency of the country.
◦ A country’s legal system regulates:
∙ Its business practices.
∙ The manner in which business transactions are executed.
∙ The rights and obligations involved in any business transaction between
parties.
◦ Critical areas for every entrepreneur:
∙ Property rights.
∙ Contract law.
∙ Product safety.
∙ Product liability.
▪ Language
◦ One of the biggest problems for the entrepreneur is finding a translator.
◦ Significant problems can occur with careless translation.
◦ Care should be taken to hire a translator whose native tongue is the target
language and whose expertise matches that of the original authors.
Technological Environment
▪ The variation and availability of technology are often surprising, particularly to an
entrepreneur from a developed country.
▪ New products in a country are created based on the conditions and infrastructure
operant in that country.

Various Aspects of Culture

CULTURE NORMS AND VALUE SYSTEM influences and is influenced by:
▪ Religion ▪ Economics and Economic
▪ Social Structure Philosophy
▪ Language ▪ Political Philosophy
▪ Manners and Customs
▪ Education

Available Distribution Systems

▪ Factors to be considered in determining the distribution system for a country:
◦ Overall sales potential. ◦ Investment policies.
◦ Amount and type of ◦ Exchange rates and controls.
competition. ◦ Level of political risk.
◦ Cost of the product. ◦ Overall marketing plan.
◦ Geographical size and density.

Motivations to Go Global
▪ Profits. ▪ Unique market opportunity.
▪ Competitive pressures. ▪ Economies of scale.
▪ Unique product(s) or service(s). ▪ Technological advantage.
▪ Excess production capacity. ▪ Tax benefits.
▪ Declining home country sales.

Strategic Effects of Going Global

▪ Physical and psychological closeness to the international market affects the way
business occurs.
▪ Cultural variables, language, and legal factors can make a foreign market that is
geographically close seem psychologically distant.
▪ Issues involved in psychological distance:
◦ The distance envisioned by the entrepreneur may be based more on perception
than reality.
◦ Closer psychological proximity makes it easier for an entrepreneurial firm to enter
a market.
◦ There are more similarities than differences between individual entrepreneurs
regardless of the country.

Foreign Market Selection

▪ One good market selection model employs a five-step approach:
◦ Develop appropriate indicators.
◦ Collect data and convert into comparable indicators.
◦ Establish an appropriate weight for each indicator.
◦ Analyze the data.
◦ Select the appropriate market from the market rankings.
Entrepreneurial Entry Strategies
▪ Exporting ◦ Joint Ventures.
◦ Indirect exporting. ◦ Majority Interest.
◦ Direct exporting. ◦ Mergers:
▪ Nonequity Arrangements ∙ Horizontal merger.
◦ Licensing. ∙ Vertical merger.
◦ Turn-key projects. ∙ Product extension merger.
◦ Management contracts. ∙ Market extension merger.
▪ Direct Foreign Investment ∙ Diversified activity merger.
◦ Minority Interests.

Entrepreneurial Partnering
▪ Foreign entrepreneurs know the country and culture.
◦ They can facilitate business transactions and update the entrepreneur on business,
economic, and political conditions.
▪ Good partners share the entrepreneur’s vision, are unlikely to exploit the partnership,
and can help the entrepreneur achieve his or her goals.

Barriers to International Trade

▪ General Agreement on Tariffs and Trade (GATT)
▪ Established in 1947 under U.S. leadership; includes over 100 nations.
▪ Objective - To liberalize trade by eliminating or reducing tariffs, subsidies, and
import quotas.
▪ Increasing Protectionist Attitudes
◦ Support of GATT resulted in:
∙ Strain on the world trading system and the economic success of countries
perceived as not playing by rules.
◦ Establishment of bilateral voluntary export restraints to circumvent GATT.
▪ Trade Blocs and Free Trade Areas
◦ Free Trade Area (FTA).
◦ North American Free Trade Agreement (NAFTA).
◦ Treaty of Asunción – Mercosur trade zone.
◦ European Community (EC).
▪ Entrepreneur’s Strategy and Trade Barriers
◦ Trade barriers increase entrepreneurs’ costs of exporting products or semifinished
products to a country.
◦ Voluntary export restraints may limit entrepreneurs’ ability to sell products in a
country from production facilities outside the country.
◦ Entrepreneurs may have to locate assembly or production facilities in a country to
conform to local content regulations.