Entrepreneurial Development – 14MBA26

Module 6: (8 Hours)
International Entrepreneurship Opportunities: The nature of international
entrepreneurship, Importance of international business to the firm, International
versus domestic entrepreneurship, Stages of economic development, Entrepreneurship
entry into international business, exporting, direct foreign investment, barriers to
international trade.
MEANING
 International entrepreneurship is the process of an entrepreneur conducting
business activity across the national boundaries. It may consist of exporting,
licensing, opening sales office in another country etc.
 International entrepreneurship is defined as development of international new
ventures or start ups that from their inception engage in international business,
thus viewing their operation domain as international from the initial stages of
international operations.

 “International entrepreneurship is the discovery, enactment, evaluation, and

utilization of opportunities across national borders to create future goods and
services”

 International entrepreneurship is a process by which firm’s increases their

awareness of the direct and indirect influence of international transactions on their
future business and conduct transaction with other countries.

THE NATURE OF INTERNATIONAL ENTREPRENEURSHIP:

The term international entrepreneurship was introduced around 1988 to describe the
many untapped foreign markets that were open to new ventures reflecting a new
technological and cultural environment

1. International entrepreneurship is a process of conducting business activities

across national boundaries
2. International trade: IT means export the products. For example, India used to
export raw cotton, raw jute, and iron ore during early 1900s.
3. International marketing- IM-Implies creating market for its products in addition
to mere exporting. I.e. creation of demand, arranging for appropriate distributive
channels, attractive package, product development, pricing etc. IM is finding out
what customers want around the world and satisfying these wants better than
other competitors, both domestic and international. IM has dual aspects viz. foreign
marketing and global marketing.
4. International Business - It is to locate plants in various foreign countries and
marketing them in other foreign countries. IB should be conducted according to the
political, social, cultural and economic conditions of buyer country
5. It includes exporting, licensing, or opening a sales office in another country
6. The activities necessary for ascertaining and satisfying the needs and wants of
target customers across the globe
7. Optimum utilization of all the resources, availability of abundant resources,
availability of labors, FDI, more opportunities, wider market, variety of options.
8. The key dimensions of entrepreneurship innovativeness, proactive and risk
tendency can be found and developed at the organizational level, international
entrepreneurship combines innovative, proactive and risk seeking behavior
that crosses national boundaries and is intended to create values in organizations
9. International entrepreneurship consists of the dynamic integration of 4
elements:
1. Raising capital for exploration in new market
2. Leadership to organize labor and technology for production
3. Marketing skills to distribute and sell them
4. Development of marketable innovative products
IMPORTANT FACTOR OF INTERNATIONAL ENTREPRENEURSHIP SURVIVAL
 International entrepreneurship is beneficial when sales of company are declining in
domestic market, they can sell products in international market considering
demand for product in other country market customers.
 Entrepreneur can sell their products in foreign market which have reached the
maturity stage of their life cycle in domestic markets and earn profit by their sales.
 Companies which are incurring high level of fixed costs can lower their
manufacturing costs by spreading these fixed costs over long number of units by
selling their products in global market.
 Entrepreneur can improve their entrepreneurial competitiveness and enhance
reputation.
 Entrepreneur in process of satisfying foreign customers have to produce product as
per their quality expectation by which entrepreneur will not only produce quality
product in international market but also in national market.
 Internationalization of business will teach entrepreneurs how to cultivat e habit of
customer relation management ( CRM )
 Being global will make the entrepreneur sensitive towards their customers –
domestic, adopt more respectful attitude towards foreign habits and customers.
 Entrepreneurs can hire motivated, multi lingual employees; learn constantly about
the foreign markets. They will think globally and start developing an outlook from a
global prospective.

IMPORTANCE OF INTERNATIONAL ENTREPRENEURSHIP TO FIRM

 Increased sales and profit: when the entrepreneurs are not able to earn profit
or demand for their product decreases in local market they can sell their
products in foreign market where life cycle of product is in favorable condition.
E.g. Apple earned more profits from international business than in local market
US in the year 1994. ($ 390 million foreign market / $ 310 in Indian market)
 Lower manufacturing cost: if the company manufacturing cost increases by
manufacturing product in home country, than company can opt in for
production process in host country, on the contrary if the company is in no
profit or no loss situation than company can choose in any option. E.g Mc
Donald's.
 Advantage of cheap labour: quantity and quality of labour is one of the major
challenge for every business, if the labour is cheap in foreign countries than
company can outsource required labour if organization is into foreign
operations. E.g increasing cost of labour in china has forced companies to search
in for other options for outsourcing company activity to other countries where
cost of labour is less.
 Utilization of talent and managerial competence: when businesses are not
able to get required talented work force in country, they can get the activity
outsourced or hire host country employee which has given birth to concept of
expatriation.
 Growth opportunity: An entrepreneur whose core business strategy is
expansion and diversification of business, international business is one of the
primary platforms to achieve these objectives.
 Expansion of domestic market: international business causes domestic market
to expand beyond national boundaries. When the domestic market has been
fully tapped/captured, than company can go in for expansion of business to
market their products in international market. E.g Sony
 Globalization of customers: it refers to when customers in country prefer
purchasing foreign brand products than domestic, companies have to go in for
internationalization of business to keep in pace with competition to attract
customers. E.g Tata international begin to operate in international market after
entry of foreign competitors in Indian market like ford.
 Globalization of competitors: international business increases the opportunity
not only for the survival and growth but also motivates companies to face
competition from global entrants in market, which in turn leads to growth of
market, pursuing global scale efficiencies etc.
 Pay offs of international business: international business improves image of
the company in domestic market and attracts more customers in domestic
market due to internationalization of business. E.g Ranbaxy
DIFFERENCE BETWEEN INTERNATIONAL AND DOMESTIC ENTREPRENEURSHIP

Description Domestic entrepreneur International Entrepreneur

Economic system when an entrepreneur is International level he should be

operating in national level he is having information about economic
required to understand system of countries he running
economic conditions within business which includes currency
country rate, phase of business cycle etc.

Stage of economic when entrepreneur is operating When he is operating on

development at domestic level he should international scale he has to view
focus on development state of country from developed, developing
domestic country and underdeveloped perspective and
accordingly plan in business
strategies in economy.

Cultural Entrepreneur operating at International level he has to

sensitivity national level should understand and manage cultural
understand cultural issues diversity of customers as well as
persisting in home country employees in company in parent,
home and host country
Technological Even though technology is advanced at larger scale , still there are
environment technological variations persisting in various countries depending on
time of implementation, updating of technology etc which has to be
analyzed by entrepreneur and accordingly plan in business operations

Government Entrepreneur going in for internationalization of business have to study

policy domestic as well as international policy, as restriction laid in home
country for export of goods affect trade of entrepreneur and restriction
in host country on entering of new entrepreneurs in their company.

Political and legal Politics and laws play a critical role in international business as well as
environment domestic business. Entrepreneur should be aware about political and
legal environment in the domestic as well as international market.

Risk Less risk as the business faces Risk exposure: expatriate failure, risk
challenges, changes occurs only of govt. policies, unions, terrorism,
Complexity involved in operating in
in domestic market conditions
different countries, varied nationalities
of employees, accidents and incidents
in other countries
STAGES OF ECONOMIC DEVELOPMENT
1. TRADITIONAL SOCIETY: every
economy begins with traditional
society which is characterised with
low per capita income and low
degree of technical know how
 Features :
 Country is more or less
dependent of agriculture for
development in country.
 People in country believe
more in family and caste
system which leads to
problem of lack of mobility of
labour which hinders
employee growth in country.
 Political power in society remains concentrated with dominant social groups in
society.
 Science and technology develop at very slow phase in economy.
2. PRE CONDITIONS OF TAKE OFF: in this stage of economy conditions are created
conductive of growth. In this stage entrepreneurs start thinking in terms of
modernization, capital formation, and profit oriented ventures.
 Features :
 Less dependence on agriculture
 People start giving importance to national and international developments then
merely confining them to social issues.
 Part of government revenue is imparted towards infrastructure development in
country.
 Decline in birth rate
 Citizens of country give more importance on developing personal skills in order
to face competition in country.
 Focus towards foreign trade
3. TAKE OFF STAGE: in this stage economy is no more dependent on other countries
and is self sustaining in this stage. Economy can progress without any external support
from other countries. New industries are established which start yielding surplus. Rate
of investment improves. New innovations take place
 Features :
 Development of various sectors like primary, secondary and tertiary sector
takes place in the country.
 Social framework improves as citizens than being bonded with family focus on
moving to places for career growth and development.
 Political stability in country indirectly leads to growth in industrial sector in
country creating favourable condition for trade in country.
  Reinvestment of profit
 Increase in demand for products by consumers in market.
 Technical development
4. SELF SUSTAINED STAGE: this stage can be defined as stage in which an economy
demonstrates the capacity to move beyond the original industries which provides the
take off and to apply efficiency over its worldwide range of resources.
 Features :
 rise in the rate of investment in the country
 Conditions of employment improve and reduce dependency on agriculture.
 Modern techniques are used during the process of production in country.
 New political as well as social institutions are established in country.
 Dependency on other countries is considerably reduced.
5. STAGE OF ECONOMIC AFFLUENCE: (Mass Consumption) in this stage there is
considerable increase in production and income. Consumption of comforts and luxuries
become a common feature.
 Features :
 More power: country in this stage starts spending more on military forces.
 Welfare state: standard of living in country increases as result of development of
facilities in country.
 Increase in consumption: consumption level increases in this stage as
consumer’s other then daily consumption products prefer purchasing durable
products.

ENTREPRENEURIAL ENTRY INTO NEW BUSINESS

 Exporting: means selling goods made in one country to another country. Exporting
normally involves the sale and shipping of products manufactured in one country to
the customer located in another country.
 Direct exporting: implies where company takes full responsibility for making
its goods available in the target market by
selling directly to end users normally
through its own agents.
 Indirect exporting: when the exporting
company does not possess the necessary
infrastructure to involve itself in direct
exporting, indirect exporting takes place. It
takes place when the export company sells
it’s to intermediaries who in turn sell the
same products to the end users in foreign markets.

 Licensing : involves an entrepreneur who is a manufacturer ( licenser ) giving a

foreign manufacturer ( licensee ) the right to use patent, trade mark, technology,
production process, or product in return for the payment of loyalty.
 Franchise Licensing

Franchiser exercise control over licensor does not have control over
Control
franchisee. licensee

Registration Required Not required

McDonalds, Subway, 7-11, Dunkin Microsoft Office

Examples
Donuts

 Turn key projects: Turnkey refers to something that is ready for immediate use,
generally used in the sale or supply of goods or services. It is a contract under
which a firm agrees to fully design, construct and equip a manufacturing/ business/
service facility and turn the project over to the purchaser when it is ready for
operation for remuneration.
 Management contract is an arrangement under which operational control of
an enterprise is vested by contract in a separate enterprise which performs the
necessary managerial functions in return for a fee. Management contracts involve
not just selling a method of doing things (as with franchising or licensing) but also
doing them. A management contract involves a wide range of functions, such as
technical operation of a production facility, management of personnel, accounting,
marketing services and training.
 Foreign direct investment (FDI) is direct investment into one country by a
company in production located in another country either by buying a company in
the country or by expanding operations of an existing business in the country
 Minority interest :a company having interest or ownership of less than 50 percent
in another company is known as minority interest/ A significant but non -
controlling ownership of less than 50% of a company's voting shares by either an
investor or another company.
 Majority interest: majority interest is an ownership interest greater than fifty
percent (50%) of the voting interest in a business enterprise.
 Joint venture (JV) is a business agreement in which parties agrees to develop, for a
finite time, a new entity and new assets by contributing equity. They exercise
control over the enterprise and consequently share revenues, expenses and assets.
A joint venture takes place when two parties come together to take on one project.
In a joint venture, both parties are equally invested in the project in terms of
money, time, and effort to build on the original concept.
 Mergers: The combining of two or more companies, generally by offering the
stockholders of one company securities in the acquiring company in exchange for
the surrender of their stock / Mergers and acquisitions refers to the aspect of
corporate strategy, corporate finance and management dealing with the buying,
selling, dividing and combining of different companies and similar entities that can
help an enterprise grow rapidly in its sector.
  Horizontal merger: Horizontal merger occurs when a firm is being taken
over by, or merged with, another firm which is in the same industry and in
the same stage of production as the merged firm, e.g. a car manufacturer
merging with another car manufacturer / A horizontal merger is when two
companies competing in the same market merge or join together. E.G
amalgamation of Daimler-Benz and Chrysler
 Vertical merger: is the combination of two or more firms in successive
stages of production that often involve buyer and seller relationship. This
form of merger stabilizes supply and production and offer more control of
these critical areas. ( merger between Mc Donald's and Philips petroleum )
 Product extension: merger occurs when acquiring and acquired company
have related production or distribution activities but do not have products
that compete directly with each other. (Merger between western publishing
(children’s books) and Mattel (Toy Company).

BARRIERS TO INTERNATIONAL TRADE

 Attitude of entrepreneur: when an entrepreneur has negative mindset that
foreign market is unknown to him and he might find it difficult to set up his
business in new country will prove to be a major barrier for international trade.
 Lack of information: as entrepreneur is new entrant in international market he
is unaware about the market conditions in host country and taste and
preference of customers which may lead to issues in terms of acceptance and
locating product in market.
 Lack of network influences: network with established business companies
makes it easy for the entrepreneur in new market but if the entrepreneur has no
contacts in foreign country then it will be difficult for entrepreneur from initial
stage of getting required permission to establishing business in country.
 Financing problems: as international business involves huge risk financial
institutions may be reluctant in terms of providing required finance to
entrepreneurs.
 Tariff barriers: tariff means duty levied by the government on imports.
Imposing tariff raises the price of imported goods making them less attractive to
consumers and protects manufacturers of comparable domestic products and
services.
 Non tariff barriers: are the obstacles to imports other than tariffs such as
testing, certification, or bureaucratic hurdles that have effect of restricting
imports. These are administrative measures that are imposed by a domestic
government to discriminate against foreign goods and in favour of home goods.
 Technical barriers: basically refers to before a country's goods enter into
foreign market it has to go through certain test for verification. In US before
food products from others is marketed in US it will be tested for checking
bacteria content in food item for safety of general public, which is good for
safety of host country but may prove to be a major barrier to home country
exporting product.
 Political barrier: in few country their exist abundant opportunity for business
but political scenario in country will be instable such as kidnappings, bombings,
violent against business and employees which proves to be major question mark
in terms of future success of business.
 Human resource: presence of labour unions, hostile management union’s
relations, strike, increase coat of labour in foreign country may prove it difficult
for entrepreneur to establish business in foreign market.
 Cultural barriers: as entrepreneur is new entrant in host country he may not
be aware about language, education, tradition, religion, values of citizens which
will make it difficult for the entrepreneur to understand mindset, taste and
preference of customer in market.
 Currency fluctuation: appreciation or depreciation in the currency affects the
business
 FOREIGN DIRECT INVESTMENT IN INDIA:
A foreign company planning to set up business operations in India may:
 Incorporate a company under the Companies Act, 1956, as a Joint Venture or a Wholly
Owned Subsidiary.
 Set up a Representative Office or a Project Office or a Branch Office of the foreign
company which can undertake activities permitted under the Foreign Exchange
Management (Establishment in India of Branch Office or Other Place of Business)
Regulations, 2000.

Advantages for MNEs

 Access to markets. FDI can be an effective way for you to enter into a foreign
market. Some countries may extremely limit foreign company access to their
domestic markets. Acquiring or starting a business in the market is a means for you
to gain access.
 Access to resources. FDI is also an effective way for you to acquire important
natural resources, such as precious metals and fossil fuels. Oil companies, for
example, often make tremendous FDIs to develop oil fields.
 Reduces cost of production. FDI is a means for you to reduce your cost of
production if the labor market is cheaper and the regulations are less restrictive in
the target foreign market. For example, it's a well-known fact that the shoe and
clothing industries have been able to drastically reduce their costs of production by
moving operations to developing countries.

Disadvantages:
> Unstable economic conditions
> Unstable political and legal system

ENTRY STRUCTURES
INCORPORATING A COMPANY IN INDIA:
 It can be a private or public limited company. Both wholly owned & joint ventures are
allowed. Private limited company requires minimum of 2 shareholders.
LIMITED LIABILITY PARTNERSHIPS:
 Allowed under the Government route in sectors which has 100% FDI allo wed under
the automatic route and without any conditions.
SOLE PROPRIETORSHIP/PARTNERSHIP FIRM:
 Under RBI approval. RBI decides the application in consultation with Government of
India.
EXTENSION OF FOREIGN ENTITY:
 Liaison office, Branch office (BO) or Project Office (PO). These offices can undertake
only the activities specified by the RBI. Approvals are granted under the Government
and RBI route. Automatic route is available to BO/PO meeting certain conditions.
 OTHER STRUCTURES:
 Foreign investment or contributions in other structures like not for profit companies
etc. are also subject to provisions of Foreign Contribution Regulation Act (FCRA).

SECTORS WITH CAPS

 Petroleum Refining by PSU (49%).

 Teleports (setting up of up-linking HUBs/Teleports),Direct to Home (DTH), Cable
Networks (Multi-system operators (MSOs) operating at national, state or district level
and undertaking upgradation of networks towards digitalization and addressability),
Mobile TV and Headend-in-the-Sky Broadcasting Service (HITS) – (74%).
 Cable Networks (49%).
 Broadcasting content services- FM Radio (26%), uplinking of news and current affairs
TV channels (26%).
 Print Media dealing with news and current affairs (26%).
 Air transport services- scheduled air transport (49%), non-scheduled air transport
(74%).
 Ground handling services – Civil Aviation (74%).
 Satellites- establishment and operation (74%).
 Private security agencies (49%).
 Private Sector Banking- Except branches or wholly owned subsidiaries (74%).
 Public Sector Banking (20%).
 Commodity exchanges (49%).
 Credit information companies (74%).
 Infrastructure companies in securities market (49%).
 Insurance and sub-activities (49%).
 Power exchanges (49%).
 Defence (49% above 49% to CCS).

DIRECT TAXES:
 The investor is required to pay tax on net income earned in India. The rates of taxes
differ among structures.
COMPANY:
 The company incorporated in India is required to pay 30% tax + surcharge + education
cess on net income earned. It is also required to deduct tax on profits distributed
@15.5% + surcharge + education cess.