Ace Institute of ManagementBBA 6th Semester

Small Business VenturingA small business may be defined as a

business with a small number of employees or with limited capital.

Normally privately owned corporations, partnerships or sole proprietorship

Examples: Convenience stores, restaurants, guests houses, hairdressers, tradesmen, solicitors, accountants

They are Independent and mostly managers are owners

Small Business VenturingAccording to Industry Act of Nepal: Industry

with fixed assets up to an amount of thirty million shall be defined as Small Industry

Accroding to Longenecker, Moore and PettyA small business has financing supplied by one

individual or a small group, has geographically localized operation expect marketing, is small compared to the biggest firms in industry and has employees usually fewer than hundred

Small Business VenturingCharacteristics of Small Business

Management is independentClosely held ownershipLocal operationsSmall size in terms of numbers of employee,

turn over, fixed assets and capital

Small Business VenturingTypes of Small Business Activities

ManufacturingWholesalingRetailingServices

Financial Services Professional Services Transport Services Repair Services

Small Business VenturingImportance

InnovationComplementary to Large BusinessFlexibilityJob creation and SatisfactionClose RelationCompetitionHigher Financial Reward

Small Business VenturingAdvantages and Disadvantages

Advantages Disadvantage

Independence Risk of Failure

Innovation Inadequate Management

Responsiveness Laws and Regulations

Employment Creation Marketing Problems

Financial Performance Technology

Interdependence Poor Financial Management

International Entrepreneurship Opportunities

International Entrepreneurship is the process of an entrepreneur conducting business activities across national boundaries.

• When an entrepreneur executes his or her business model in more than one country, international entrepreneurship is occurring.

Importance of International Business to the firm.International business has become increasingly

important to firms of all sizes particularly today due to intense competition leading to hypercompetitive global economy.

•But before entering into international business entrepreneur must fully understand how international business differs from purely domestic business and an entrepreneur should be able to respond it accordingly.

Questions for Entrepreneur before venturing into international Market

1) Is managing international business different from managing domestic business? 2) What are the strategic issues to be resolved in international business management? Eg. Allocation of responsibility, planning and control, structure, standardization3) What are the options available for engaging in international business?

4) How should one assess the decision to enter into an international market? Eg. Profits, market share, competition

International Versus Domestic EntrepreneurshipEconomicalStage of Economic Development: Relate income of

people, infrastructure, banking facilitiesBalance of Payment: difference between import

and exportsType of systemPolitical and Legal EnvironmentCultural EnvironmentTechnological Environment

Entrepreneurial Entry into International BusinessThree options of entering into international

business market –

1) Exporting

2) Nonequity arrangements

3) Direct Foreign Investment

ExportingSelling goods made in one country to another country.Usually an entrepreneur starts doing international business

through exporting.Two general classification of exporting –

Indirect : Involves a foreign purchaser in the local market or using an export management firm.Requires least amount of risk and knowledge about market

Disadvantages: the intermediary still requires sales support,

The intermediary takes a margin, You have no direct contact with the end customer, You will have less control over the actual final transaction, You don’t get to learn about the overseas market, which could slow down longer term expansion plans.

Direct exporting: Through independent distributors or through one’s own overseas sales office is another entry method.

An independent foreign distributor directly contacts foreign customers and takes care of all technicalities.

Direct Exporting•Advantage •Disadvantages

•You are in control of pricing•You are in full control of your brand•You get a direct understanding of buyers' or end users' needs and an ability to customize accordingly•You maintain the customer relationship•You are able to identify possible new opportunities•Your customers may prefer dealing dire

•it will take a lot of time, energy, staff resources and money•competitors with a local presence will be perceived as lower risk to buy from•after-sales commissioning and service may require local language capability•prompt troubleshooting may not be able to be done remotely and will require additional visits•growth will be slower

2) Non Equity ArrangementDoing international business through an arrangement

that does not involve any investmentEntrepreneurs who either cannot export or make direct

investment go for non equity arrangementTypes of Non equity arrangements

Licensing Gives rights to use patent, trademark and technology In return takes royalty Appropriate where market is difficult to enter Low risk Should be careful as several pitch falls ( fare of licensing largest

competitors)

Turn key Projects Appropriate for least developed or developing countries Foreign partners builds the facility, train employee and

management to run the instalment Once the operation is in line then is given to the local

owner Financing is normally local owner or government Initial profits can be made and follow up export sales

can be madeManagement Contracts

Entrepreneurs contracts management skill and techniques

Allows purchasing country to gain foreign expertise with turning ownership to foreigner

Sometimes follows the turn key projects where foreign owners wants to use the management.

3) Direct Foreign InvestmentWhere an entrepreneur himself

invests capital in international markets

Methods of Direct Foreign Investment –Minority Interests – Having less than 50% ownership position (E.g Standard chartered), provide the firm with either a source of supply or captive market for product, done to gain a foothold in the market before making major investment.

Joint venture – Two Company Forming a Third Company (E.g Surya Nepal Ltd). JVs are formed when entreprenerus want to purchase local knowledge and an established facility

Majority Interests – Having more than 50% ownership position (e.g Dabur Nepal Ltd), Allows the entrepreneur to obtain managerial control while maintaining the company’s local identity

100 percent Ownership: Ensures complete ownership and Control.Goes into 100 % ownership only entrepreneur has

technology, capital and Marketing SkillsMerger and acquisition: Basically 5 types of mergers

Horizontal Merger: Combination of two firms doing similar business in same market level

Vertical Merger: Combination of two firms in successive stage of production.

Product extension Merger: Combination of two firms with non competing product

Market extension Merger: Combination of at least two firms with similar product in two different geographic location

Diversified activity Merger: Combination of at least two totally unrelated products

FranchisingA franchise is an arrangement by the

manufacturer or sole distributor of trademarketed product or service that provides exclusive rights of local distribution to independent retailers in return for their payment of royalty.

Franchising is a marketing system revolving around a two party legal agreement, whereby the franchise conducts business according to terms specified by the franchisor.

FranchisingCharacteristics of franchise –

It is a marketing system for well known brands or trade mark

It involves two parties – franchisor and franchise.

It provides exclusive rights for local distribution of specific products or service to franchisee

It covers a specific territory.

FranchisingAdvantage of Franchising – to the Franchisee

Product AcceptanceManagement ExpertiseCapital RequirementsKnowledge of the marketOperating and Structural Control

Advantage of Franchising – to the FranchisorExpansion RiskCost Advantages

Disadvantages of Franchising- to the FranchiseeUnfulfilled promisesFranchise FeesFranchisor ControlIf the Franchisor business fails then Franchisee

will be left with nothing

Disadvantages of Franchising- to the FranchisorPoor Mgmt of FranchiseeNegative effect on entire franchise system

FranchisingTypes of Franchises

DistributorshipChain- Style operationService franchises- income tax preparation

companies, real estate agencies

Defining EthicsBasic rules or parameters for conducting any

activity in an acceptable mannerSet of principals prescribing a behavioral

code that explains what is right or wrongOutlines moral duties and obligationEntrepreneurs faces many ethical decisions

especially during early stages of their new venture

Conflict over the ethical nature is very prevalent.

Ethics and LawLegal Vs Ethical

Law provides what is illegal but it does not prove what is ethical considerations.

It is managerial rationalization about the justifying the conduct. Four Rationalization are Activity is not really illegal Individual or corporation best interest Will never be found It helps the company

Ethics and LawWithin the rationalization framework there

exists four distinct managerial rolesTypes Direct Effect Examples

Non role Against the firm

Expense account cheating, Embezzlement. Stealing supplies

Role Failure

Against the firm

Superficial performance appraisal, Not confronting expense account cheating

Role Distortion

For the firm Bribery, price fixing, manipulation suppliers

Role assertion (allegation )

For the firm Using nuclear technology for energy generation, Not withdrawing product line in face of initial allegation of inadequate safely

Ethics and LawEconomic Tradeoff

In some cases there exist trade off between profit and social welfare. For example Cigarette Advertisement Running toxic water in the river Lay offs during Economic downturn

Establishing a strategy for ethical responsibilityEthical Practices and Code of Conduct

Code of conduct is a statement of ethical practices or guidelines which an enterprise adheres

Covers multitude of subjects, ranging from misuse of corporate assets, conflict of interest, falsification books etc

This is becoming more prevalent in organization

They are also becoming implemented these days

Establishing a strategy for ethical responsibilityApproaches to Managerial Ethics

Should understand own ethical norms, motives, goals, orientation toward law and strategy towards immoral, amoral and moral management.

Moving from immoral to moral management can be done by conduction seminars and trainings

Establishing a strategy for ethical responsibility

Holistic Approach: Entrepreneurs should try holistic approach that allows personnel understand what they can do and cannot do

To apply entrepreneurs can develop specific principles Principle 1: Hire the right people Principle 2: Set standards more than rules Principle 3: Don’t get yourself get isolated meaning

be informed Principle 4: Let your ethical example at all times be

absolutely impeccable

Establishing a strategy for ethical responsibilityEthical Responsibility

Ethical Consciousness: The awareness about ethics should come from the entrepreneur himself

Ethical Process and Structure: Refers to procedure, positions, statements and announced ethical goals designed.

Institutionalization: Deliberate step to incorporate the entrepreneurs ethics.

Social ResponsibilityBusiness obligation towards societyExtends to different areas: Environment, Energy,

Fair Business Practices, Human Resources, Community Involvement, Products

Social action of Businesses can be classified into three categories. Social Obligation: Simply react to social issues

through obedience of law Social Responsibility: Responses more actively

accepting responsibility for various programsSocial Responsiveness: Highly proactive and also

willing to be evaluated by public for various activities.

E-entrepreneurAn e-entrepreneur is defined as an

individual willing to take the risk of investing time and money in an electronic business that has the potential to make a profit or incur a loss.

E-entrepreneurship is the act of managing an electronic enterprise that has the potential to make a profit or incur a loss.

Some of Famous E- EntrepreneursChad Hurley and Steve Chen – You tubeMark Zuckerberg – FacebookSergey Brin and Larry Page- GoogleKevin Rose - Digg

Bricks and Mortar BusinessHas a material presence Has a tangible location where potential

customers can actually walk in and interact with employees

Examples: storefront, storage facility, office space, or manufacturing facility

Virtual BusinessDoes not have a material space designed to

receive customersTransacts most of its business onlineCan deal with customers from any location

that offers Internet capability

Why E- EntrepreneurshipApproximately 75 percent of Americans have

access to the Internet from home.That means over 200 million people are potential

customers for the entrepreneur with an Internet site.

Cost of starting up and operating cost are usually lower than those in a brick and mortar business

Do not incur cost such as relocation costAbility to monitor price fluctuations that

competitors are offeringAssistance may be provided instant

E- CommerceElectronic commerce refers to the buying

and selling of products or services over electronic systems such as the Internet and other computer networks. However, the term may refer to more than just buying and selling products online. It also includes the entire online process of developing, marketing, selling, delivering, servicing and paying for products and services. The amount of trade conducted electronically has grown extraordinarily with widespread Internet usage

Internet ImpactMost Impact Less Impact

Financial Services Retailing

Entertainment Manufacturing

Health Care information Travel

Education Power

Government

EcommerceAdvantage

Ability of small firms to compete with other companies both locally and internationally

Creation of possibility and opportunity for more diverse people to start a business

Convenient and easy way of doing business transaction

Higher revenues for small businesses that utilize the internet

Minimizes the marketing cost reaching to boarder markets

ChallengesManaging upgradesAssuring security for a website Avoid being a victim of fraudulent activities

onlineHandling the cost required to maintain the siteFinding and retaining qualified employees

Components of e-commerceFront End Operations:

Website functionality, Search capabilities, shopping cart and secure payment

Back-End OperationsOperations that happens beyond the web pageSeamless integration of customers ordersDistribution channels, manufacturing capabilities

Integration of Front and Back end Operation is a Challenge but provide opportunity for developing competitive advantage

Business Models and StrategiesA business Model is a plan for earning profit

and the configuration of a businessB2C ( Business to Consumer) Business Model:

Selling directly to the final consumer and end user. It is sometimes called e-tailing

B2B ( Business to Business ) Business Model: Final user is not an individual consumer but another company. Saves back office bookkeeping, sales, and admin cost as they are industry specific

Business Models and StrategiesB2B2C Business Model: Produces a product for

another business that then markets it to the consumers.

Niches: Niche business on the web can be defined as a firm that targets a very specific market segment, provides that segment with a complete vertical supply chain or specializes in a very specific kind of product

Click and Bricks: Combination of a physical presence business and an Internet business.

Roll-Ups business Model: Buying of many of smaller competitors.

Business Models and StrategiesAdvertising Models: Earnings through

advertising on others sitePay for the content Model: Users must pay to

access a website.

Business IncubationMost of the creative idea are never taken up to

development stageThey have difficulty in starting up the business.Business Incubation is the process of assisting

new venture to getting started.The basis purpose of incubator is to increase

the chances of survival for new start up businesses.

They provide services from physical amenities to support services

Business IncubationBusiness Incubator provide facility with

adaptable space that small business can lease on flexible terms and at reduced rents

Also provides services technical, financial, managerial and administrative

These are available and shared, depending on the size and nature of tenants needs

Service Benefits Below the market rate rental space on flexible

termsElimination of building Maintenance

responsibilitiesSharing of equipment and services that would

otherwise be unavailable or unaffordable.Access to various types of financial and technical

assistanceProvision of an environment where small business

are not alone, thereby reducing the anxiety of starting a new venture

Business Incubation: Amenities Centrex Phone System

Staffed Reception Area

Business Ref Library

Mail room

Federal Express

Shipping/ Receiving

Facsimile

Typing and Secretarial

Data and Word Processing

Notary PublicTranslation ServicesConference RoomsChild Day Care

CenterCoffee ShopAffordable SpaceFlexible SpaceFlexible Leases

Business Incubation: Services Accounting ServicesBusiness and Financial

PlanningMarketing and

AdvertisingLoan PackagingLegal ServicesTax and Financial

ServicesSeminars

Types of IncubatorsPublicly Sponsored

Organized through Government, city economic development departments, urban renewal authorities, regional planning and development commission

Job creation is main focusNon Profit Sponsored:

Organize and managed through industrial development association of private industry, chamber of commerce or community based organizations

Area development is major objective

Types of IncubatorsUniversity Related:

They are spin off of academic research projectsMostly science and technology incubatorsMain focus to translate findings of basic

research into development of new productPrivately Sponsored:

Organized and managed by private corporations

Main objective to make profit

The Environment for EntrepreneurshipThese are the factors effects the business

operations and decisionsTwo types

External Environment: (Opportunities and threats ) Outside the organization Not within the short run control of the entrepreneur Has two parts: Task environment ( elements that

directly affect and are affected by organizations operations ), Societal environment ( that do not directly touch short run activities of the business but can and often do influence long run decisions

The Environment for EntrepreneurshipInternal environment: Strengths and

weaknessesThey exists within the organization it.These variables form the context within which

work is done.Includes venture’s structure, culture and

resources.

PEST-NPolitical Env

Economic Env

Socio-Cultural Env

Technological

Natural

Business Legislation

Purchasing Power

Demography

Pace of Technological Development

Supply of Raw Material

Changing Legislation

Spending Pattern

Cultural Env

R and D Cost

Cost of Energy

Enforcement Agencies

Consumer Movement

Regulations Increased Pollution

Power Blocks

Govt Interventions

Increased Social Responsibility

Environmental Analysis: Analysis of business environment includesScanning to detect Change: Identifying key

elements and theirs characteristicsMonitoring to track development: Evolution,

development and sequence of critical events that affect the survival and profitability

Forecasting to project future: To develop projections eg,. Direction of interest rates, level of prices

Assessing to interpret data:

Political and Governmental AnalysisPolitical analysis gives the entrepreneur a

feeling for what is possible, what is probable and what is unlikely.

It is a segment where different interest groups compete for their interest to establish their own values and their own goals.

An organized group of entrepreneurs can influence the political sector

Political and Governmental AnalysisThree issues should be analyzed Global and International Issue

Trade barriers and Tariffs: Hinders free flow of resources across national boundaries

Trade Agreements: Political Risk

National IssuesTaxationRegulationsPatent ProtectionGovernment Spending

Political and Governmental AnalysisState, Regional and Local Issues

LicensingSecurities and Incorporation LawIncentives

Government PoliciesPolicy is generally made or initiated by

government . Policy is interpreted and implemented by

public and private actors. Policy is what the government intends to

do but chooses not to doGovernment’s deliberate plan of action to

guide decisions and achieve rational outcome(s).

Government Policies and EntrepreneurshipEntrepreneurial activity leads to economic

growth and helps to reduce poverty and foster stability.

It is in the interest of all that governments implement policies to foster entrepreneurship and reap the benefits of its activity.

Promotes entrepreneurship through industrial policy, industrial act, commercial policy

Government Policies and EntrepreneurshipGovernment should make following changes

in policies to create positive business environmentSimplification of labour policiesReforms in the tax policyStreamlining legal framework for enterprise

creation, operation and liquidationMake efforts to create competitive market:

remove monopolies

Condt….Simplification of regulation for investment,

production, marketing, prices, FDIs and technology transfer

The policies should be formulated after discussion with parties likely to be affected

Transparency of policies and their implementation should be there.

Government Policies and EntrepreneurshipStrategies for encouraging entrepreneurship

are:changes in tax policy regulatory policy access to capitalthe legal protection of property rights.

Tax PolicyTaxes increase the cost of the activity taxed,

thereby discouraging entrepreneurshipTherefore, policymakers need to balance the

goals of raising revenue and promoting entrepreneurship

Corporate tax rate reductions and tax deductions for businesses are methods for encouraging business growth.

Regulatory PoliciesThe simpler the regulatory process, the

greater the likelihood of small business expansion

Reducing the cost of compliance with government regulations is also helpful.

To promote entrepreneurs governments can provide one-stop service centers where entrepreneurs can find assistance

Access to CapitalIf the government has policy to assist

potential entrepreneurs with finding money for start-ups, then climate for entrepreneurship becomes favorable

In the United States, the Small Business Administration (SBA) helps entrepreneurs get funds.

Protection of IPRIf innovations are not legally protected

through patents, copyrights, and trademarks, entrepreneurs are unlikely to engage in the risks necessary to invent new products or new methods

Business Env. In NepalEconomic Environment

Began in 1950 with mixed economic model. By then it was largely rural and agro based.

Recent liberalization economic policy has enhanced linkages to rest of work with MNC’s entry

Monetary and Fiscal Policies: NRB prescribes the monetary policies and affects demand and supply of money. Objective of MP is economic growth and stability

Income Distribution: Poor- US$ 250 to US$ 300 per capita income and highly skewed.

Economic EnvironmentIndustrial policies: aims at increasing

contribution of industries to GDP, Create employment opportunities, promote balanced regional development, encouraging FDI

Privatization Policies: Aims at increasing productivity of public enterprise, decrease financial and admin cost of govt and encourage private to take public undertakings

Trade and Transit Policies: Encourage private sector for export and promotion, Increase employment in export industries

Socio CulturalEducation: Half of population illiterate.

Privatization of education is increasing the literacy rate

Demography: Population about 24 million. Majority are below 14 of age, internal migration high,

Religion/Beliefs:

Technological EnvLevel of Technology: Labor intensive, Have

understood the importance of having capital intensive technology

Pace of Technological Change: Slow Change, Due to high cost of technological replacement the the change is slow

Research and Development: Very minimum R and D, Companies allocate very little budget

Political EnvironmentMulti-party parliamentary political system in

1990. Very unstable government

Political parties: Various party with different ideologies, they are increasingly power centric functioning, intra party conflicts.

Legal FrameworkAdministrative Policies:

Legal Acts in NepalGeneral Business Legislation

Private Firms Registration ActPartnership ActCompany Act Cooperative ActIndustrial Enterprise ActContract ActArbitration Act

Legal Acts in NepalLabour Legislation

Bonus ActIndustrial Training ActLabour ActTrade Union ActLabour court Regulation ActChild Labour Act

Legal Acts in NepalFinance and Investment Legislation

Foreign Investment and Technology Transfer Act

Foreign Exchange Regulation ActTaxation Acts : Income tax Act, Value added

Tax Act, Customs ActExport- Import Act

Legal Acts in NepalSocial and Consumer Protection Legislation

Patent, Design and Trademark ActCopyright ActBlack Market and some other social crime and

Punishment ActFood ActNepal Standardization ActConsumer Protection ActEnvironmental acts

Incentives and Facilities10 % deduction shall be allowed on deduction

against taxable income for incorporating new technology, product development and efficiency development

Excise duty shall be reimbursed for industries utilizing locally available raw materials, chemicals and packing materials

Customes duty and excise duty on raw materials shall be reimbursed on the basis of quantity to exprot

No royalty shall be imposed of any industry generating electricity for its use

Concession and facilities of taxExpenses occurred to reduce pollution,

minimize the adverse environment effects and R and D expenditure are deductible from taxable income

Manufacturing industry providing 500 citizens shall get tax rebate of 10 percent

Industry established in certain under developed remote and semi developed area are given rebates ranging from 20 to 30 percent

10 year tax holiday in industries established in certain under developed area

Concession and facilities of taxFive years tax holiday for industries

established in special economic zone and 50 percent tax rebate after five years

10 years income tax holiday for industries established in hilly region

Strategic AllianceA strategic alliance is a business arrangement in

which two or more firms cooperate for their mutual benefit.

Created for sharing knowledge, expertise, and expenses as well as to gain entry to new markets or to gain a competitive advantage in one

Strategic alliance may turn actual or potential competitors into partners working toward a common goal.

Use of strategic alliances has become a major tool for businesses that are internationalizing their operations

Strategic AllianceJOINT VENTURE-BASED STRATEGIC

ALLIANCESA joint venture is created when two or more

firms work together to form a new business entity that is separate from its "parents." (Not all joint ventures fit this definition, joint ventures by acquisitions are exceptions.)

Joint Venture through subsidiary: Most common

Joint venture through acquisitionJoint venture through Merger

Strategic AllianceSTRATEGIC ALLIANCES NOT BASED ON

JOINT VENTURES. Formed for a limited purpose and is more

narrow in its operationsTend to be less stable and last for shorter

terms

Strategic AllianceBenefits

MARKET ENTRY: Standard bank of british south Africa and Chartered bank of India, Australia and China

SHARING RISKS AND EXPENSESSYNERGISTIC EFFECTS OF SHARED

KNOWLEDGE AND EXPERTISEGAINING COMPETITIVE ADVANTAGE

NetworkingNetworking is the process of creating

alliance with people and organization beyond the immediate boundaries of the venture.

Linking up with right people to get things done

It opens channels to resources, market and expertise

NetworkingEntrepreneurs generally creates two types of

networks.Personal Networks: Within immediate circles

of daily relationshipsSocial Networks: Loosely connected affiliations

within the community or industry,

QuestionsWhat do you mean by e-commerce? Explain

the opportunities and challenges of e-commerce in the context of Nepalese business

What do you understand by environment for entrepreneurship? Briefly explain the provision made by the Nepalese Government in providing environment for entrepreneurship in Nepal.

Define e-entrepreneurship? Describe the challenges and opportunities of e-entrepreneurship

QuestionsExplain exporting and franchising as

international opportunities for an entrepreneurWhich are the major areas, where the

entrepreneurship need government support? Discuss in Nepalese context

Discuss the use of exporting as a method of entering into global market

Environment is a dynamic factor which provides strengths, weaknesses, opportunities and threats. Explain the statement in context of entrepreneurship

QuestionsDiscuss the use of franchising as a method of

entering into international marketWhat are the major factors, which positively

influence the development of entrepreneurship in Nepal