TOPIC 4: Identify and Analyzing Domestic and International Opportunities (Page 117/140)

RICHARD CHINA- China e-commerce firm JD.com

INFORMATION SOURCES
 There are many sources of information both on competitive companies and products/ services and the market size,
characteristics, and growth rate available to the entrepreneur in identifying an appropriate opportunity.

General Assistance
 Information and assistance is readily available for entrepreneurs, starting or growing a new venture.
 The assistance takes the form of training, consulting, and mentoring provided mainly by retired executives and
entrepreneurs.

General Information Sources

 The U.S. Chamber Small Business Center (uschamber.com/sb) provides start-up assistance mainly through Web-
based tools and resources.
 Its start-up toolkit is very helpful in starting a business as it focuses on everything from evaluating an idea to
developing a business plan, accessing capital, and launching the venture.
 Other Websites providing useful information include:

1. National Association of Small Business Investment Companies (nasbic.org). Provides an online database of
small venture capital firm members and a guide to obtaining SBIC financing.

2. National Venture Capital Association (nvca.org). Provides information on the venture capital industry as well
as access to state and regional venture capital firms.

3. National Business Incubation Association (nbia.org). Provides information on the role of incubators, how to
select the right incubator, and a listing of national and international incubators.

4. Fast Track (www.fasttrac.org). Funded by the Kauffman Foundation, provides educational programs for
entrepreneurs throughout the United States.

5. Active Capital (ACE-Net, activecapital.org). Provides an opportunity for entrepreneurs to connect with
accredited investors throughout the United States. Counseling, mentoring, and training are also provided.

6. Collegiate Entrepreneurs’ Organization (CEO, c-e-o.org). Provides information on entrepreneurship programs

at the undergraduate level at numerous colleges and universities.

7. Consortium for Entrepreneurship Education (entre-ed.org). Provides information on entrepreneurship

programs and education throughout the United States.

8. Ewing Marion Kauffman Foundation (kauffman.org). Provides resources for entrepreneurship education and
research and lists the angel (private investor) groups throughout the United States.

Industry and Market Information

 There are a wide variety of databases that provide significant information about the industry and market. These
include:
1. Plunkett. Provides industry data, market research, trends and statistics on markets, and forecasts.
2. Frost & Sullivan. Provides industry-specific information on industries such as aerospace and defense,
chemicals/materials, telecom/IT, consumer products, electronics, energy, health care, industrial
automation, and transportation.
3. Euromonitor. Provides consumer market sizes and marketing parameters as well as information on
companies and brands.
4. Gartner. Provides information on technology markets.
5. Gale Directory Library. Provides industry statistics and a directory of nonprofit organizations and
associations.

Competitive Company and Product/Services Information

 Besides looking at the various product/service options presently available for satisfying the market need through
Google, several sources supply product/service information on competing products/services and their companies:
 1. Business Source Complete. Provides company and industry information by scanning the Data monitor
reports.
2. Hoovers. Provides information on both large and small companies with links to competitors in the same
NAICS (North American Industrial Classification System) category.
3. Mergent. Provides detailed company and product information on U.S. and international companies.

Government Sources
 There are numerous information sources available from the U.S. government including:
 Census reports
➔ Factfinder.census.gov
➔ www.census.gov/ipc/www/idb
➔ www.census.gov/econ/census/ (ratios)
 Export/import authority
➔ UN Comtrade
➔ www.business.gov/expand/import-export
 North American Industrial Classification System (NAICS) and Standard Industrial Classification (SIC)
codes
➔ www.naics.com/info.htm
➔ www.osha.gov/pls/imis/sic_manual.html
➔ Similar information is provided by governments of other countries as well.

Search Engines
 There are many key terms for searching for the needed industry, market, and competitive information such as:
 Search: ______ and statistics
 Search: ______ and market share
 Search: ______ and industry
 Search: ______ and association

Trade Associations
 Trade associations in the United States and throughout the world are also a good source for industry data about a
particular country. Some trade associations do market surveys of their members’ domestic and international
activities and are strategically involved in the international standards issues for their particular industry.

Trade Publications
 There are numerous domestic and international publications specific to a particular industry that is also good
sources of information. The editorial content of these journals can provide interesting information and insights on
trends, companies, and trade shows by giving a more local perspective on the particular market and market
conditions. Sometimes trade journals are the best source of information on competition and growth rates in a
particular industry.

International entrepreneurship is the process of an entrepreneur conducting business activities across national
boundaries. It may consist of exporting, licensing, opening a sales office in another country, or something as simple as
placing a classified advertisement in the Paris edition of the International Herald Tribune.

Political
 As the government continues to play a greater role in regulating business activity, it is important that the
entrepreneur understand all the political and legal aspects that can facilitate or impede business growth. This
includes the following:
➔ Methods of enacting public policy
➔ Influencers on policy making
➔ Wars and conflicts between governments
➔ Government stability and risk

Methods of Enacting Public Policy

 Nearly all countries today have a republic form of government whereby an executive or head of state works
together with a parliament or legislative body to enact laws.

Influencers on Policy Making

 Prior to policy entering into force, there are a number of ways it can be influenced.
 Primarily this involves lobbying and interest groups, which have strong ties to government officials.
Wars and Conflicts
 Conflicts and changes in the solvency of the country are major risks to an entrepreneur in a particular country.
 This can take such forms as guerilla warfare, civil disturbances, and even terrorism.
 Conflicts may target a company’s employees as well as creating a delay or total block in the free flow of a
company’s goods and services.

Government Stability and Risk

 A final political analysis to understand is the likelihood of how long a government will be in power and the
political risk associated with that stability.

Economic
A country’s political environment is inextricably tied to the economic environment, especially when issues of taxation and
trade are concerned. These and the following listed below are some of the important factors to consider when conducting
a proper economic environment analysis:
 Taxation and trade
 Monetary policy
 Distribution
 Trends

Taxation
Taxation has two key components: general and specific.
 General taxation may refer to the overall tax that is imposed on products, services income, and property, to name
a few.
 Specific taxation refers to the excise tax imposed which is based on weight or volume capacity or any other
physical unit of measurement.
Trade
Trade policy can act as a form of taxation as well, especially if countries impose tariffs on goods that a company is often
forced to then pass along to a consumer in the form of higher prices.

Monetary Policy
 refers to interest and exchange rates that further have an impact on inflation.
 A country’s past and future outlook on inflation plays a significant role in product affordability.

Distribution
 One final economic analysis relates to market routes and distribution.
 The United States is an industrially developed nation with regional variances. While

Trends
 No market entry strategy is without risk.
 But, an entrepreneur can mitigate that risk by understanding data and market trends.
 Trends can be influenced by celebrities, word of mouth, media, lifestyle, seasonality, and technology, just to name
a few.

Social
Trends are closely related to social influencers that should be analyzed to ensure your product has market appeal.
Four types of social factors include:
1. Psychographics- refer to interests, activities, and opinions and help explain what consumer value is and how they
make their choices.
2. Language- Sometimes, one of the biggest problems for the entrepreneur is finding a translator and having an
appropriate translation of the message.
3. Ethics- Spoken language, even when not translated, can impact another social factor. Cultural ethics deals with
the values and morals of a society and how they translate to societal acceptance.
4. Major events- Major events can create sudden shifts in public opinion or new buying markets overnight.

Technological
 Technology, like social factors, varies significantly across countries.
 The rate of technology adoption (such as the Internet connection speed) and general technology maturity and
availability are often surprising, particularly to an entrepreneur from a developed country.
CULTURE
 Probably the single most important problem confronting the entrepreneur occurs when crossing cultures.
 Culture encompasses a wide variety of elements, including language, social structure, religion, economic and
political philosophy, education, manners and customs, and aesthetics.

Social Structure
 Social structure and institutions are also aspects of culture.
 An entrepreneur needs to recognize that social structure including family, economic class, and people that a
customer associates with have an impact on employee relations and buying decisions.

Religion
 The impact of religion on entrepreneurship, consumption, and business in general will vary.
 Depending on the religion itself and its tenants, it can impact the values and attitudes of individuals and the
overall society.

Education
 Entrepreneurs are educators.
 When introducing a new product or service into a new market, they have to educate consumers on its value and
how to use it.

Manners and Customs

 Understanding manners and customs is particularly important for the entrepreneur in key business transactions
such as negotiations, dining, and gift giving.

Aesthetics
 One final aspect of culture is aesthetics.
 Aesthetics have implications not only with gift giving but also how your product is packaged and even how your
office is designed.

AVAILABLE DISTRIBUTION SYSTEMS

 Distribution channels vary significantly from one country to another, and the channel of distribution in any
country is very important and critical to the success of the global company.

Exporting
Exporting involves the sale and shipping of products manufactured in one country to a customer located in another
country.
➔ Indirect exporting involves having a foreign purchaser in the local market or using an export management firm.
➔ Direct Exporting through independent distributors or the company’s own overseas sales office is a way to get
involved in international business.
Non-Equity Arrangements
When market and financial conditions warrant the change, an entrepreneur can enter into international business by one of
three types of non-equity arrangements: licensing, turn-key projects, and management contracts.
 Licensing involves an entrepreneur who a manufacturer (licensee) is giving a foreign manufacturer (licensor) the
right to use a patent, trademark, technology, production process, or product in return for the payment of a royalty.
 Turn-Key Projects - Another method by which the entrepreneur can do international business without much risk
is through turn-key projects.
 Management Contracts - A final non-equity method the entrepreneur can use in international business is the
management contract.

Direct Foreign Investment

While the wholly owned foreign subsidiary has been a preferred mode of ownership for entrepreneurs using direct foreign
investment for doing business in international markets, joint ventures and minority and majority equity positions are also
methods for making direct foreign investments.
● Minority Interest- A form of direct foreign investment in which the investing entrepreneur holds a minority
ownership position in the foreign venture
● Joint Venture- The joining of two firms in order to form a third company in which the equity is shared
● Majority Interest- The purchase of over 50 percent of the equity in a foreign business
● Mergers- An entrepreneur can obtain 100 percent ownership to ensure complete control.
➔ Horizontal merger A type of merger combining two firms that produce one or more of the same or
closely related products in the same geographic area.
➔ Vertical merger A type of merger combining two or more firms in successive stages of production.
➔ Product Extension merger A type of merger in which acquiring and acquired companies have related
production and/or distribution activities but do not have products that compete directly with each other.
➔ Market Extension merger A type of merger combining two firms that produce the same products but
sell them in different geographic markets.
➔ Diversified activity merger A conglomerate merger involving the consolidation of two essentially
unrelated firms.

General Agreement on Tariffs and Trade (GATT)

GATT is a multilateral agreement with the objective of liberalizing trade by eliminating or reducing tariffs, subsidies, and
import quotas. {Free Trade Area (FTA)}

Trade barriers can pose a problem for the entrepreneur. Trade barriers increase an entrepreneur’s costs of exporting
products or semi-finished products to a country.

Topic 5: The Business Plan: Creating and Starting the Venture

Steve Hafner
 Ceo of KAYAK. Online Site for transportation use.

Business Plan- Written document describing all relevant internal and external elements and strategies for starting a new
venture.
 Business Plan should be prepared by the entrepreneur; however, he or she may consult with many other sources
in its preparation. Lawyers, accountants, marketing consultants, and engineers are useful in the preparation of the
plan.
 Business Plan may be read by employees, investors, bankers, venture capitalists, suppliers, customers, advisors,
and consultants.
The business plan is important to these people because:
 It helps determine the viability of the venture in a designated market.
 It provides guidance to the entrepreneur in organizing his or her planning activities.
 It serves as an important tool in helping to obtain financing.

INFORMATION NEEDS
Before committing time and energy to preparing a business plan, the entrepreneur should do a quick feasibility study of
the business concept to see whether there are any possible barriers to success. The information, obtainable from many
sources, should focus on marketing, finance, and production. The

Market Information
One of the initial pieces of information needed by the entrepreneur is the market potential for the product or service. To
ascertain the size of the market, it is first necessary for the entrepreneur to define the market.

The entrepreneur may need information on the following:

 Location. The company’s location and its accessibility to customers, suppliers, and distributors need to be
determined.
 Manufacturing operations. Basic machine and assembly operations need to be identified, as well as whether any
of these operations would be subcontracted and to whom.
 Raw materials. The raw materials needed and suppliers’ names, addresses, and costs should be determined.
 Equipment. The equipment needed should be listed, with its cost and whether it will be purchased or leased.
 Labor skills. Each unique skill needed, the number of personnel required for each skill, pay rate, and an
assessment of where and how these skills will be obtained should be determined.
 Space. The total amount of space needed should be determined, including whether the space will be owned or
leased.
 Overhead. Each item needed to support manufacturing—such as tools, supplies, utilities, and salaries—should be
determined.

Introductory Page
 This is the title or cover page that provides a brief summary of the business plan’s contents.
 The introductory page should contain the following:
➔ The name and address of the company.
➔ The name of the entrepreneur(s), telephone number, fax number, e-mail address, and
➔ Web site address if available.
➔ A paragraph describing the company and the nature of the business.
➔ The amount of financing needed. The entrepreneur may offer a package (e.g., stock or debt). However,
many venture capitalists prefer to structure this package in their own way.
➔ A statement of the confidentiality of the report. This is for security purposes and is important for the
entrepreneur.
 This title page sets out the basic concept that the entrepreneur is attempting to develop.

Executive Summary
 This section of the business plan is prepared after the total plan is written.
 About two to three pages in length, the executive summary should stimulate the interest of the potential investor.

Environmental Analysis
  Assessment of external uncontrollable variables that may impact the business plan.
 Examples of these environmental factors are:
1. Economy. The entrepreneur should consider trends in the GNP, unemployment by geographic area,
disposable income, and so on.
2. Culture. An evaluation of cultural changes may consider shifts in the population by demographics, for
example, the impact of the baby boomers or the growing elderly population. Shifts in attitudes, such as
“Buy American,” or trends in safety, health, and nutrition, as well as concern for the environment, may all
have an impact on the entrepreneur’s business plan.
3. Technology. Advances in technology are difficult to predict. Being in a market that is rapidly changing
due to technological development will require the entrepreneur to make careful short-term marketing
decisions as well as to be prepared with contingency plans given any new technological developments
that may affect his or her product or service.
4. Legal concerns. There are many important legal issues in starting a new venture; these were discussed in
Chapter 6. The entrepreneur should be prepared for any future legislation that may affect the product or
service, channel of distribution, price, or promotion strategy.
5. Industry analysis. Reviews industry trends and competitive strategies
6. Competition. Most entrepreneurs generally face potential threats from larger corporations. The
entrepreneur must be prepared for these threats and should be aware of who the competitors are and what
their strengths and weaknesses are so that an effective marketing plan can be implemented.
7. Lifestyle Market Analyst. Finally, state-by-state population, demographic, and housing data usually are
available from each state’s Website.

Description of the Venture- Provides complete overview of the product(s), service(s), and operations of a new venture.

Production Plan- Details how the product(s) will be manufactured.

Operations Plan- All businesses—manufacturing or nonmanufacturing—should include an operations plan as part of the
business plan.

Marketing Plan- Describes market conditions and strategy related to how the product(s) and service(s) will be
distributed, priced, and promoted.

Organizational Plan- Describes the form of ownership and lines of authority and responsibility of members of a new
venture.

Assessment of Risk- Identifies potential hazards and alternative strategies to meet business plan goals and objectives.

Financial Plan- Projections of key financial data that determine economic feasibility and necessary financial investment
commitment.

Appendix- The appendix of the business plan generally contains any backup material that is not necessary in the text of
the document. Reference to any of the documents in the appendix should be made in the plan itself.

Measuring Plan Progress

During the introductory phases of the start-up, the entrepreneur should determine the points at which decisions should be
made as to whether the goals or objectives are on schedule.
➔ Inventory control. By controlling inventory, the firm can ensure maximum service to the customer. The faster
the firm gets back its investment in raw materials and finished goods, the faster that capital can be reinvested to
meet additional customer needs.
➔ Production control. Compare the cost figures estimated in the business plan with day-to-day operation costs.
This will help control machine time, worker hours, process time, delay time, and downtime cost.
➔ Quality control. This will depend on the type of production system but is designed to make sure that the product
performs satisfactorily.
➔ Sales control. Information on units, dollars, specific products sold, price of sales, meeting of delivery dates, and
credit terms is useful to get a good perspective of the sales of the new venture. In addition, an effective collections
system for accounts receivable should be set up to avoid aging of accounts and bad debts.
➔ Disbursements. The new venture should also control the amount of money paid out. All bills should be reviewed
to determine how much is being disbursed and for what purpose.
➔ Web site control. With more and more sales being supported or garnered from a company’s Website, it is very
important to continually evaluate the Web site to its effectiveness in meeting the goals and objectives of the plan.

WHY SOME BUSINESS PLANS FAIL

Generally, a poorly prepared business plan can be blamed on one or more of the following factors:
 Goals set by the entrepreneur are unreasonable.
 Objectives are not measurable.
 The entrepreneur has not made a total commitment to the business or to the family.
 The entrepreneur has no experience in the planned business.
 The entrepreneur has no sense of potential threats or weaknesses to the business.
 No customer need was established for the proposed product or service.