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Unit-5 New Venture Expansion Strategies & Issues

The new venture expansion or growth strategies are divided into internal strategies for growth & externalstrategies for growth.

Internal growth strategies

These strategies involve efforts taken within the firm itself such as new product development, other product related strategies & international expansion, with the purpose of increasing sales, revenue &

profitability. The distinctive attribute of internally generated growth is that a business relies on its own

competencies, expertise, business practices & employees.

External Growth Strategies

These strategies rely on establishing relationships with third parties such as, mergers, acquisitions,strategic alliances, joint ventures, licensing & franchising. Thus, joint ventures, licensing & franchising

are strategic options entrepreneurial firms use both to enter foreign markets & accomplish external

growth.

Joint VentureWith the increase in business risks, hyper competition & failures, joint ventures have occurred with

increased regularity & often involve a wide variety of players. oint ventures as s means of expansion by

entrepreneurial firms for a long time. oint venture is a restricted or a temporary partnership between two

or more firms to undertake jointly to complete a specific venture. The parties who enter into agreement

are called co!ventures & this joint venture agreement will come to end on the completion of work forwhich it was found the co!ventures participation the equality & operations of the business. The profits or

losses are shared between the co!ventures in their agreed ratio & in the absence of such agreement" the

profits or losses are shared equally.

Types of Joint ventures

#n a joint venture, two or more businesses or individuals partners to enhance their success in a business

undertaking. They pool their resources efforts or skills & share their profits from the venture. The

following are the types of joint ventures.$. Fully Integrated- % fully integrated joint venture closely related resembles a merger. #n this

arrangement, firms integrate all of their functions from manufacturing to sales. They may

integrate function in just in one area of business such as a particular product line, or all areas.

. Research & development !#n research & development venture, a firm pool their skills, knowledgeor equipment to develop better products, services or production methods. 'ach firm(s area of

expertise may benefit the other, allowing the firms to develop these outputs more efficiently.

). Production & marketing ! *nder this type, firms may either produce goods or services together or

market them together. #n some cases, they do both combining their facilities, equipment &

methods can allow firms to produce goods more efficiently. They may jointly produce a product

they designed together or produce their own products using combined resources. + marketing

together, they can also pool their resources to advertise more widely.

-. Purchasing- % joint venture agreement to purchase goods together gives both firms more

marketing power. They typically purchase goods at a lower rate by purchasing them in larger

Internal Expansion

Strategies

/ew 0roduct

1evelopment

2ther 0roduct

related strategies

#nternational

'xpansion

External Expansion

Strategies

oint 3entures

4ranchising

%cquisition

5erger

6icensing

7trategic %lliance

ir! Growth

Strategies

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amounts" which they divide between each other firms. 4irms can also reduce costs by storing

goods together & sharing the administrative staff that monitor the inventory.

8. Networking- #n some industries, joint ventures between numerous firms create a network that

better serves customers. The telecommunication, banking, & transportation industries are

examples of networking joint ventures, 4or example, banks use large network to process credit

card transactions & allow customers access to their funds via %T5s.

9. Domestic & International ! %ny of the above joint ventures can take place between two firms with

the same country" or two firms from different countries. 4irms from different countries often join

together to broaden their market bases.

"#vantages of $oint venture

$. Accessing additional financial resources! %sset sharing is one of the best advantages of joint

venture. 6arge amount of funds can be used to facilitate production & operation of projects &

products, one can increase profit margin & increase revenue potential.

. haring economic risk with co-venture! This involve to have someone sharing responsibility since

assets shared, the risk of losing a great deal of money is divided to both the parties.

). !idening economic scope fast ! +uilding reputation is often difficult, not to mention time

consuming & expensive. %t a joint venture, firms can able to widen their economic scope without

spending too money.

-. "apping new methods# technologies & approaches! #n order to grow & expand, firm need

resources in the form of methods, technology & approach. oint venture agreement will make a

firm to opens up for its needs.

8. $uilding relationship with vital contacts! %nother advantage of joint venture is the ability to give

business relationships with vital contacts. This is just like automatically befriending partner(s

influence that can give access to lots of things such as business opportunities & a pass to vital

information,

%isa#vantages

1. hared profit ! 7ince assets are shared, profits are to be shared. The profit of both the parties

usually depends on the si:e of the share to the venture or may be defined on the agreement.

2. Diminished control over some important matters- 2perational control & decision making are

sometimes compromised in joint ventures. 7ince there is an agreement that divides which one

will take over a particular operation, the other may not be satisfied.3. %ndesired outcome of the uality of pro'ect ! 7ince, one party may not have control on the

supervision of the production or the execution of one part of the system often leads to disputes &

lawsuits. To avoid this, both parties agree on specific details about the whole operation process.

4. %ncontrolled & unmonitored increase in operating costs! 1efined control over the operation may

lead to this disadvantage. #t is important therefore to make sure that all things are clarified on the

paper signing in the joint venture agreement.

ranhising The word franchise comes from 4rench which means ;privilege( or ;freedom(. 4ranchising is an

alternative means by which an entrepreneur may expand his business by having others pay fot the use of

name, process, product, service & so on. 4ranchising is a form of business organi:ation which involves an

arrangement whereby the manufacturer or sole distributor of a trademarked product or service given

exclusive rights of local distribution to independent retailer in return for their payment of royalties &

conformance to standardi:ed operating procedures.

*nder franchising, a firm already has a successful product or service< franchisor=, licenses its trademark

& method of doing businesses to other businesses<franchisees= in exchange for an initial franchise is

known as ;franchisor(, the franchisee is the person who purchases the franchise & is given the

opportunity to enter a new business with a better chance to succeed.

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Types of franhise syste!s

These are two distinctly different types of franchise systems!

$. 0roduct & trademark franchise! #t is an arrangement under which the franchisor grants to the

franchisee the right to buy its products & use its trade name. This approach typically connects a

single manufacturer with a network of dealers or distributors. 4or example, >eneral 5otors<>5=

has established a network of dealers that sell >5 cars & use the >5 trademark in their

advertising & promotions. ?ather than obtaining a royalty or franchise fee, the product &

trademark franchisor obtains the majority of its income from selling its product to its dealers or

distributors at a markup. 'xamples are agricultural machinery dealers, soft drink bottlers etc.,

. +usiness format franchise! This a more popular approach to franchising & is more commonlyused by entrepreneurs. #n a business format franchise, the franchisor provides a formula for doing

business to the franchisee along with training, advertising & other forms of assistance. 4ast food

restaurants, convenience stores, fitness centers are the examples of this type of franchising.

+usiness format franchisors obtain the majority of their revenues from the franchisees in the form

of royalties, franchise fees.

Types of ranhise agree!ents

4or both product & trademark franchises & business format franchises, the franchisor!frnachisee

relationship takes three forms of franchise agreements.

$. #ndividual franchise agreement@ #t involves the sale of s single franchise for a specific location.

<5umbai=

. %rea franchise agreement@ #t allows a franchisee to earn & operate a specific number of outlets ina particular geographical area. 4or example, a franchisee may purchase the rights to open

franchises within the city limits. This is very popular franchise agreement. +ecause in most cases

it gives the franchisee exclusive rights for a given area.

4ranchisee 4ranchisee 4ranchisee

). 5aster franchise agreement@ #t is similar to an area franchise agreement with one major

difference, in addition to having the right to open & operate a specific number of locations in a

particular area, also has the right to offer & sell the franchise to other people in its area. The

people who buy franchises from master franchisees are typically called ;7ub! franchisees(.

4ranchisee 4ranchisee 0lus 7ub! franchisee <sell to others=

<in a particular geographic area=

4ranchisee 4ranchisee 4ranchisee

4ranchisor

4ranchisee

4ranchisor

4ranchisor

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"#vantages of ranhising

$. ?apid, low!cost market expansion@ 4ranchisees provide most of the cost of expansion" the

franchisor can expand the si:e of its business fairly rapidly.

. #ncome from franchise fees & royalties@ +y collecting franchise fees, the franchisor gets a fairly

quick return on the productsA services. The franchisor also receives ongoing royalties from its

franchisees without incurring substantial risk.

). 4ranchisee motivation@ 4ranchisees put their personal capital at risk, they are highly motivated to

make their franchise outlets successful. #n contrast, the managers of company!owned outlets

typically do not have their own capital at risk.

-. %ccess to ideas & suggestions@ 4ranchisees represent a source of intellectual capital & often

make suggestion to their franchisors. + incorporating these ideas into their business models,franchisor can in effort leverage the ideas & suggestions of their individual franchisees.

8. Bost savings@ 4ranchisees share many of the franchisor(s expenses, such as the cost of regional &

national advertising.

9. #ncreased buying power@ 4ranchisees provide franchisors increased buying power by enlarging

the si:e of their business allowing them to purchase larger quantities of products & services when

buying those items.

%isa#vantages

$. 0rofit sharing@ +y selling franchises instead of operating company!owned stores, franchisors

share the profits derived from their proprietary products or services with their franchisees.

. 6oss of control@ #t is typically more difficult for a franchisor to control its franchisees than it is for

a company to control its employees. 4ranchisees, despite the rules governing the franchise

system. 7till often view themselves as independent business people.

). 4riction with franchisees@ % common complaint of franchisor is dealing with the friction that

often develops between franchisors & franchisees. 4riction can develop over issues such as

payment of fees, house of operation & surprise inspection.

-. 5anaging growth@ 4ranchisors that are in growing industries & have a strong trademark often

grow quickly, rapid growth can be difficult to manage. % franchisor provides each of its

franchisees a number of services such as site selection & employee training. #f a franchise systemis growing rapidly, the franchisor will have to continually add personnel to its own staff to

properly support its growing number of franchisees.

8. 6egal expenses@ 5any governments have specific laws pertaining to franchising. %s a result, if afranchisor sells franchises in multiple areas, legal expenses can be high to properly interpret &

comply with each government laws.

"'uisition%nother way the entrepreneur can expand the venture is by acquiring an existing business. %cquisition

provides an excellent means of expanding a business by entering new markets or new product areas. %n

acquisition is the purchase of an entire company, or part of the company, by definition, the company is

completely absorbed & no longer exists independently. %n acquisition can take many forms depending on

the goals & position of the parties involved in the transaction, the amount of money involved &the type of

the company. #n an acquisition, the surviving firm is called the ;%cquirer( & the firm that is acquired is

called theC target(. %cquiring another business can fulfill several of a company(s needs, such as expanding

its product line, gaining access to distribution channels, achieving economies of scale, or expanding thecompany(s geographic reach. #n most cases, a firm acquires a competition or a company that has a

product line or distinctive competency that it needs.

Ex( >oogle acquired ou Tube in DD9 to gain access to its online video streaming technology & to

provide another platform for its online ads.

"#vantages

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4or an entrepreneur, there are many advantages to acquire an existing business.

$. 'stablishes business@ The most significant advantage is that the acquired firm has an established

image & track record. #f firm has been profitable, the entrepreneur need only continue its current

strategy to be successful with the existing customer base.

. 6ocation@ /ew customers are already familiar with the location.

). 'stablished marketing structure@ %n acquired firm has its existing channel & sales structure

known suppliers, wholesalers, retailers & manufacturer(s representatives are important assets to

an entrepreneur. With this structure already in place, the entrepreneur can concentrate on

improving or expanding the acquired business.

-. Bost@ The actual cost of acquiring a business can be lower than other methods of expansion.

8. 'xisting employees@ The employees of an existing business can be an important asset to theacquisition process. They know how to run the business & can help ensure that the business will

continue in its successful mode. They already have established relationships with customers,

suppliers & channel members & can improve these groups when a new owner takes over the

business.

9. 5ore opportunity to be creative@ 7ince the entrepreneur does not have to be concerned with

finding suppliers, channel members, hiring new employees, or creating customers awareness,

more time can be spent assessing opportunities to expand or strengthen the existing business &

tapping into potential synergies between the businesses.

%isa#vantages

1. 5arginal success record@ 5ost ventures that are for sale has an erratic, marginally successful, or

even unprofitable track record. #t is important to review the records & track record. #t is important

to review the records & meet with important constituents to assess that record in terms of the

business(s future potential.

2. 2ver confidence in ability@ 7ometimes an entrepreneur may assume that he can succeed where

others have failed. This is why a self! evaluation is so important before entering into any purchase

agreement. 2ften managers are over confident in their ability the overcome cultural difference

between their current business & the one being acquired.

). Eey employee loss@ 2ften, when a business changes hands, key employees also leave. Eey

employee loss can be problem to an entrepreneur who is acquiring a business since the value of

the employees. #ncentives can sometimes be used to ensure that key employees will remain with

the business.4. 2ver valuation@ it is possible that the actual purchase price is inflated due to the established

image, customer base, channel members or suppliers. #t is important to look at the investment

required in purchasing a business & at the potential profit & establish a reasonable payback to

justify the investment.

5. %fter balancing the pros & cons of the acquisition, an entrepreneur needs to determine a fair price

for the business.

)ergers5ergers are yet another form of external growth strategy. 5erger means a combination of two or more

existing enterprises into one. 5erger takes place in two ways, first, an enterprise or enterprises may be

acquired by another usually a big one, it is called ;%bsorption(. 7econd, when two or more existing

enterprises merge into one to form a new enterprise, it is called ;%malgamation(.

Types of )ergers

5ergers are classified into four types@

$. Fori:ontal merger@ #n this type, the same type of product or market is added to the existing ones.

%dding refrigerators to its original products of steel safes & locks by >odrej is an example of

hori:ontal merger.. 3ertical merger@ *nder this type, complimentary products or services are added to the existing

Gproduct or service line of the enterprise. The new product or services serve either as inputs or a

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customer for the firm(s own product. % T3B manufacturer may start producing tubes needed by

its. 7etting up of retails hops by companies like 1elhi cloth mills to sell its fabrics is also vertical

type of merger.

). Boncentric merger@ %n enterprise enters into the business related to its present one in terms of

technology, marketing or both. /estle, originally a baby food producer, entered into related

products like ;Tomato Eetchup, & 5aggi /oodles. 7imilarly, a tea company like 6ipton may

diversify into coffee.

-. Bonglomerate merger@ This type of merger is just contrary to concentric merger. #/ other word, in

this type of growth strategy, an enterprise diversifies into the business which is not related to its

existing business neither in terms of technology nor marketing. >odrej, manufacturing steel safes

& having shaving creams are examples of conglomerate merger.

"#vantages

5erger provides the following advantages@

$. #t provides benefits of economies of scale in terms of products & sales.

. #t facilitates better use of resources.

). #t enables sick enterprises to merge into healthy ones.

-. #t also promotes diversification in product line to take advantage of opportunities available in

particular.

%isa#vantages

5erger also suffers from the following drawbacks@

$. 6arger scale operation often makes co ordination & control in effective. This adversely affects

business performance as a whole.

. 7ometimes merger leads to monopoly in the particular business.

*ights Issue%ccording to companies act, $H89, if a company wants to increase its subscribed capital by allotment of

further shares after years from the date of formation or one year from the date of its first allotment,

whichever is earlier should offer shares at first to the existing shareholders in proportions to the shares

held by them at the time of order. The shareholders have no legal binding to accept the offer & they have

right to reject the offer in favour of any person. 7hares of this type are called ;?ight shares(. >enerally

right shares are offered at an advantageous rate compared with the market rate.

+on#itions to issue *ight shares

The company has to satisfy certain following conditions to issue right shares@$. ?ight shares must be offered to the equity shareholders in proportions to the capital paid on those

shares.

. % notice should be issued to specify the number of shares issued.

). The time given to accept the right offer should not be less than $8 days.

-. The notice should also sate the right of the shareholders to reject the offer in favour of others.

8. %fter the expiry of the time given in the notice, the board of director has the right to dispose the

unsubscribed shares in such a manner, as they think most beneficial to the company.

,uli Issue0ublic issue is the issue of stock on a public market rather than being privately funded by the company(s

own promoters. +y issuing stock publically, this allows the public to own a part of the company, though

not be a controlling factor. 0ublic issue is a source of equity funding is to sell stock to the public by

offering an #nitial 0ublic 2ffering <#02=. %n #02 is the first sale of stock by a firm to the public. When a

company goes public, its stock is typically traded on one of the major stock exchanges.

>oing public occurs when the entrepreneur of the venture offers & sell some part of the company

to the public through a registration statement filed with the securities commission of the country. #n #ndia,

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7ecurities & 'xchange of #ndia <7'+#= created by 7'+# %ct, $HH. The first step in initiali:ing a public

offering is for a firm to hire an investment bank. %n investment bank is an institution that acts as an

underwriter or agent for the firm issuing securities. The investment bank acts as a firms( advocate &

advisor supports in the process of going public. The most important issues the firm & its investment bank

must agree on are the amount of capital needed by the firm. The type of stock to be issued, the price of the

stock when it goes public & the cost to the firm to issue the securities.

%n investment bank issues a preliminary prospectus that describes the offering to the general

public. The preliminary prospectus has to get approved by 7+'# then investment bank issues final

prospectus, which sets s date & issuing price for the offering. The preliminary prospectus called as ;?ed

Ferring(, because a statement printed in red ink appears on the front page. % variation of #02 is a private

placement, which is the direct sale of an issue of securities to a large institutional investor. When a private placement is initiated, there is no public offering & no prospectus is prepared.

"#vantages

$. >oing public generally results in a public trading market & provides merchandise for valuing the

company & allowing this value to be easily transferred among parties.

. 0ublic traded companies often find it easier to acquire other companies by using their securities

in the transactions.

). #nvestors benefit due to easier liquidation of their investment when the company(s stock takes on

value & transferability.

-. 0ublicly traded companies find it easier to raise additional capital, particularly debt. 5oney can

be borrowed more easily.

%isa#vantages

$. 5aking long term decisions can be difficult in publicly traded companies where sales &

profit results indicate the capability of management via stock values.

. 0ublic issue may result to loss of autonomy as well as increased duties to public stockholders

& administrative burdens.

). 0ublicly traded companies spends significant amount of additional time, expenses & liabilityrisks are greater.

.onus Issue+onus refers to an unexpected extra benefit. +onus can be paid to shareholders either in the form of cash

or in the form of equity shares. When bonus is paid in the form of shares then it is called as ;+onus issue(.

+onus share is the share allotted <issued= by company after capitali:ation of free reserves. #/ other words,

bonus shares are issued to the existing shareholders by converting free reserves into equity capital withouttaking any consideration from investors.

>enerally, companies will not declare $DDI dividend because they create some free reserve for future

contingencies, thus it retain some portion of earnings. When company keeps doing this for a long time &

company(s financial performance is fair, then free reserves have to be distributed to shareholders which is

called as ;bonus(. This issue of bonus shares does not affect capital structure of the company.

/$etives 0 *easons for .onus Issue

The following are the prime reason for issue of bonus shares.$. To bring down the market price per share within a more popular range.

. To promote active trading of shares in secondary market.

). To reduce the impression that company is making huge profits, because bonus issue increase

number of shares, thereby, dividend comes down.

-. To achieve respectable si:e in the eyes of investors, bonus issues increase capital base.

8. To send signal that company(s future prospects have brightened & also create an impression that

future divided will increase.

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9. To improve prospects of raising additional funds. *sually, investors prefer to invest in a company

which is declaring dividends," so it helps to raise additional funds easily.

Sto1 Split7tock split can be done only by publicly traded companies which have a number of shares outstanding on

the stock market. 7tock split is the action of company to reduce the par value of stock & increase the

number of shares proportionately. 7tock split is a decision the number of company(s board of directors

<+21s= to increase the number of shares that are outstanding by issuing shares to the current

shareholders.

For e(ample# in a for $ split, new shares are issued for each old share, with new share worth half the

value of each of old share. 7tock split has no impact on the company(s capital structure. 7tock split

reduces stock price, since the number of shares outstanding has increased.

Sto1 Split & +apital Struture

0articulars %mount

)apital tructure *efore tock split

'quity share capital <-,DD,DDD shares J?s. $D each=?etained earning

-D,DD,DDD

10,00,000$,-D,DD,DDD

0articulars %mount

)apital tructure after tock split

'quity share capital <K,DD,DDD shares J?s. 8 each=

?etained earning

-D,DD,DDD

10,00,000$,-D,DD,DDD

*easons for Sto1 split

$. To make share trading attractive@ The prime reason of stock split is to reduce the share price in the

market, attract small investors.

. #ndicators of higher profits in the future@ 7hare split sends wrong signals to investors that firm is

expecting higher profits in the near future.

3. To give higher dividends to shareholders to shareholders@ 7hare split is the only way throughwhich a company can increase or reduce the cash dividend per share. Fowever, total dividends of

the shareholder increase after a share split.

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Unit-2 Gloal "spets of Entrepreneurship

#nternational entrepreneurship is the process of an entrepreneur conducting business activities across

national boundaries. The activities necessary for ascertaining & satisfying the needs & wants of target

consumers take place in more than one country. #nternational business has become increasingly important

top firm of all si:es, when every firm is competing in a hyper competitive global economy. The successful

entrepreneur will be someone who fully understands how international business differs from domestic

business to respond accordingly, thereby successfully Lgoing globalC.

International Vs( %o!esti Entrepreneurship

+othe international and international entrepreneurs are concerned with the sales, costs & profits,

differences arise in the variation in the relative importance of the factors affecting each decision.

#nternational entrepreneurship decisions are complex due to following uncontrollable factors and these

factors affects entrepreneurial performance.

$. 'conomics@ #n a domestic business strategy, as single country at a specified level of economic

development is the focus of the firm(s entrepreneurial efforts. Breating a business strategy for amulti country market means dealing with the differences in levels of economics development,

currency valuation, government regulations, banking, marketing & distribution systems.

. Burrent account@ With the present system of flexible exchange rates , a country(s current

account< the difference between the value of country(s exports & imports over time= affects the

valuation of its currency. The valuation of one country(s currency affects business transactions

between countries.

). 0olitical & legal environment@ The variety of different political & legal factors in the international

markets creates vastly different business problems. 2ne significant factor in this environment can

influence business strategy of an entrepreneur. 0roduct decisions are affected by legal

requirements with respect to ingredients, packaging & labeling. The types of ownership &

organi:ational forms vary widely throughout the world & its laws also vary. 7everal legal issues

are critical to some extent for every entrepreneur especially, product safety, product liability,

property rights etc.,

-. 6anguage@ 7ometimes one of the biggest problems for an entrepreneur is finding a translator.

7ignificant problems can occur with careless transaction, to avoid such errors" care should be

taken to hire a translator.

8. Technological environment@ Technology varies significantly across countries. While firms in

developed countries, produce mostly standardi:ed, relatively uniform products that can be sortedto meet industry, standards. This is not the case in many countries, making it difficult to achieve

consistent level of quality.

9. Bulture@ Bulture is learned behavior & the identity of an individual & society. Bulture

encompasses a wide variety of elements, including language, social structure, religion, political,

education, manners & customs. %n entrepreneur must have command of the language in the

country in which business is being done, it is important for information gathering and evaluation

& essential for communication in developing advertising campaigns.

oreign )ar1et Seletion

The market selection decision should be based on both past sales & competitive positioning as well as

an assessment of each foreign market alternative. 1ata need to be collected on a systematic basis

on both a regional & country basis. While there are several market selection models available,

one good method employs a five!step approach@

$. 1evelop appropriate indicators@ %ppropriate indicators need to be developed based on past sales,

competitive research, experience & discussions with other entrepreneur doing global business.

7pecific indicators for the company need to be developed in three general areas@ overall market

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si:e indicators, market growth indicators & product indicators. 5arket si:e indicators include

population, per capita income, market & types of consumers. 0roduct indicators such as si:e of

export, number of sales & levels of interest should be established.

. 1ata collection@ This method involves collecting data or each of these indicators & making the

data comparable. +othe primary & secondary data, where primary is the original information

collected for particular requirements & secondary data is already available data. When collecting

international secondary data, there are several problems which include compatibility of one

country to other, availability, accuracy & cost. The collected data for each selected indicator

needed to be converted to a point score so that each indicator of each country can be numerically

ranked against the other country.

). 'stablish weights for each indicator@ The third step is to establish appropriate weights for theindicators to reflect the importance of a particular indicator in predicting foreign market potential.

The assignment of weights & points as well as the selection of indicator vary greatly from one

entrepreneur to other. This requires intensive thinking & internal discussion & results is far better

market selection decisions being made.

-. %nalysis of data@ This step involves analy:ing the results from data collection. When looking at

the data, the entrepreneur should carefully scrutini:e & question the results. Fe should also look

for errors, as mistakes can be easily made.

8. 7election of market@ The final step involves selecting a market to enter as well as follow!up

markets so that appropriate entry strategy can be selected a market plan developed.

Entrepreneurial Entry Strategies 0 )o#es of oreign Entry

There are various ways an entrepreneur can market products internationally. The method of entry into a

market & the mode of operating foreign operators are dependent on the goals of the entrepreneur & the

company(s strengths & weaknesses. The following are the modes of entering in international business can

be dividing into three general categories@

$. 'xporting@ 4requently, an entrepreneur starts doing international business through exporting.

'xporting normally involves the sale & shipping of products manufactured in one country to a customer

located in other country. There are two general ways of exporting@

• 1irect 'xporting@ direct exporting is done through independent distributors or a company(s

own overseas sales office is a way to get involved in international business, #ndependentforeign distributor usually handle products for seeking relatively rapid entry into a large

number of foreign marketsA 'ntrepreneur also can open their own overseas sales office & hire

their own sales persons to provide market representation.

• #ndirect 'xporting@ #ndirect exporting involves having a foreign purchase in the local market

or using an export management firm. 4or certain products, foreign buyers actively seek out

sources of supply & have purchasing offices in markets throughout the world. This method

involves least amount of knowledge & risk.

. /on! equity arrangement@ 'hen market & financial conditions changes an, entrepreneur can enter into

international business by one of the following three types of non equity arrangements. These methods

allows entrepreneur to enter a market & obtain sales & profits without direct equity investment in

foreign market.

• 6icensing@ 6icensing involves an entrepreneur who is a manufacturer <licensor= giving a

foreign manufacturer <licensee= the right to use a patent, trademark, technology, production

process, or product in return for the payment of royalty. The licensing arrangement is the

most appropriate when entrepreneur ahs no intension of entering through exporting or direct

investment. 7ince, the process of low risk yet provides % way to generate incremental

income, a licensing agreement can e good method to enter into international business.

• Turn!key projects@ another method of doing international business without much risk is

through turn!key projects. *nder this method, a foreign entrepreneur build a factory or other

facility, train the workers, train the management,& then turn it over to local owners once the

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operations is going. 4ranchising is provided by the local company or the government with

periodic payments being made over the life of the project.

• 5anagement contracts@ 7everal entrepreneurs have successfully entered international

business by contracting their management techniques & skills. The management contracts

allow the purchasing country to gain foreign expertise without giving ownership of its

resources to a foreigner.

). 4oreign 1irect #nvestment@ The wholly owned foreign business has been preferred mode ofownership for

entrepreneurs using direct foreign investment for doing business international markets. The percentage ofownership obtained in the foreign venture by the entrepreneur is related to their amount of money

invested, the nature of the industry & the rules of foreign government. The following are the methods of

41#s are@

• 5inority interest@ apanese companies have been frequent users of the minority equity

positions indirect foreign investment. % minority interest can provide a firm with sources of raw

materials or relatively captive market for its products. 'ntrepreneurs have used minority positions

to acquire experience in a market before making a major commitment.

• 5ajority interests@ %nother equity method by which the entrepreneur can enter international

markets is through the purchase of a majority interests in foreign business, it refers to over 8DI

of the equity in a firm of majority interest.• oint venture@ %nother direct foreign investment method by entrepreneurs to enter foreign

markets is joint venture. *nder this process, two firms < for example, one *7 firm one *E firm=

get together & form a third company, in which they share the equity. 'ntrepreneurs use joint

ventures most often in two situations@

$. When the entrepreneur wants to purchase local knowledge as well as an already

established manufacturing facility.

. When rapid entry into a market is needed.

). 2ne of the most frequent reasons an entrepreneur forms a joint venture is to share the

costs & risks of a project.

-. 5ergers@ %n entrepreneur can obtain $DDI ownership to ensure complete control. 5any *7

companies desire complete ownership & control in foreign investments. #f an entrepreneur has capital,

technology & marketing skills required for successful entry, there may be no reason to share ownership.%n entrepreneur have to spend more time searching for a firm to acquire & their finali:ing the

transaction.8. 'ntrepreneurial 0artnering@ 2ne of the best methods for an entrepreneur to enter into an international

market is to partner with an entrepreneur in that foreign country. The foreign entrepreneurs know the

country & culture & therefore can facilitate business transactions. There are several characteristics of a

good partner. % good partner helps the entrepreneur to achieve his goals such as market access, cost

sharing or also share entrepreneur(s vision.

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Unit-3 inaning " New Venture

Soures of apital2ne of the most difficult problems in new venture creation process is obtaining finance. 4or the

entrepreneur, available financing needs to be considered from the perspective of debt vs. equity and

internal & external funds.

%et Vs( E'uity finaning

Two types of financing to be considered, debt & equity financing. 1ebt financing is a financing method

which involves an interest bearing instrument usually a loan, the payment of which is only indirectly

related to sales & profits of the venture. 7hort term debt used to provide working capital to finance stock,accounts receivables or the operations of the business. 6ong term debt is frequently used to purchase

some assets like machinery, land & buildings etc.,

'quity financing offers the investor some form of ownership position in the venture" the investor shares in

the profits of the venture. *sually, an entrepreneur meets financial needs by employing a combination of

debt & equity financing.Internal & external fun#s

4inancing is also available from internal & external funds. The funds most frequently employed are

internally generated funds. #nternally generated funds can come from several sources within the company"

profits, sale of assets, reduction in working capital, extended payment terms & fast account receivables.

#n every new venture, the startup years involve putting all the profits back into the venture.

The other general sources of funds are external to the venture. %lternative sources of external financing

need to be evaluated on three basis@ the length of time the funds are available, the costs involved & the

amount of the company needed.. The most frequently used sources of funds are as follows@

• 0ersonal funds@ The sources of personal funds include savings, life insurance, or mortgage on the

house or any property.

• 4amily & friends@ %fter the entrepreneur, family & family are a common source of capital" for a

new venture. They are most likely to invest due to their relationship with the entrepreneur. %formal agreement before investment helps top avoid future problems.

• Bommercial banks@ Bommercial banks are by for the source of short term funds most frequently

used by the entrepreneur when guarantee is available. The funds provided are in the form of debt

financing.

• 0rivate placements@ %nother source of funds for the entrepreneur is private placements also called

business angels, who may be family members & friends or wealthy individuals.

• ?&1 6imited partnership@ ?&1 6imited partnerships are another possible source of funds for

entrepreneurs in high technology areas. This method of financing provides funds from investors

looking for tax!shelters. % typical ?&1 partnership arrangement involves a high degree of risk &

significant expense in doing the basic research & development.

)a$or Ele!entsThe three major components of any ?&1 limited partnership are the contract, the sponsoring company &

the limited partnership.

• Bontract@ #t specifies the agreement between the sponsoring company & the limited partnership,

whereby the sponsoring company agrees to use the funds provided to conduct the proposed ?&1.

The sponsoring company does not guarantee results but performs the work on best effort basis.

The contact has several key features!$. The liability for any loss incurred is borne by the limited

partners.. There are some tax advantages to both the limited partners & the sponsoring company.

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• 6imited partners are similar to shareholders of the company, they have limited liability. When the

technology is successfully developed, the partners share in the profits.

• 7ponsoring company acts as the general partners developing the technology. The sponsoring

company usually retains the rights to use this base technology9 to develop other products & to

use the developed technology in the future for a license fee.

,roe#ure 0 Stages in *&% 4i!ite# partnership%n ?&1 6imited partnership generally progresses through three stages@

$. Funding stage+ % contract is established between sponsoring company & limited partners & the

money is invested for the proposed ?&1 effort. %ll the terms & conditions of ownership, as well

as the scope of the research are carefully documented.. Development stage+ The sponsoring company performs the actual research, using the funds from

the limited partners. #f the technology is subsequently successfully developed, the exit stage

commences in which sponsoring company & the limited partners enjoy the benefits of the effort.

There are three basic types of arrangements for doing this@

• 'quity partnership arrangement, where the sponsoring company & limited partners forms

a new, jointly owned corporations.

• ?oyalty partnership arrangement, where a royalty based on sale of the products

developed form the technology is paid by the sponsoring company to ?&1 limited partners. The royalty rates range from 9 to $D percent of gross sales.

• 'xit stage arrangement, this arrangement is through a joint venture. Fere the sponsoring

company & the partners form a joint venture to manufacture & market the products

developed from the technology.

inaning New Venture

The following are the stages of business development or venture capital financing@

1. Early-stage financing:

• 7eed capital! ?elatively small amounts needed to prove concepts & finance feasibility

studies.

• 7tart!up capital! funding for a product development & initial marketing" as they are no

commercial sales yet, funding required to actually get the company operations started.2. Expansion or growth financing:

• 4irst stage! Working capital required for initial growth phase, as there is no clear

profitability or cash flow yet.

• 7econd stage! 4unding needed for major expansion for company with rapid sales growth"

company is at break even or positive profit levels but is still private.

• Third stage! +ridge financing needs to prepare company for public offering.

3. Acquired & Leeraged !uy-"ut financing:

• Traditional acquisition@ 4unds for acquiring ownership & control of another company.

• 6everaged buy!out <6+2s= ! 4unds for acquiring control of another company by buying

out the present owners.

• >oing 0ublic! 4unds for some of the owners A mangers of a company to buy all theoutstanding stock, making a public company.

Venture apital

5oney provided by investors to startup firms & small businesses with perceived long term growth

potentials. 3enture capital is a very important source of funding for startups that do not have access to

capital markets. #t typically involvers high risk, but it has the potential for above average returns. 3enture

capital can do include managerial &technical expertise. 5ost venturte comes from a group of wealthy

investors, investment banks other financial institutions that pool such investments or partnerships. This

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forms of raising capital is popular among new companies which cannot raise funds by issuing debt.

3enture capitalists usually involvers in company decisions in addition to a portion of the equity.

)eaning of Venture apital

3enture capital is a means of equity financing for rapidly growing companies. 4inance may be required

for startup development A expansion or purchase of a company. 3enture capital firms invests funds on

professional basis often focusing on a limited sectors of speciali:ation like #T, infrastructure, health

sectors etc.,

With venture capital financing, the venture capitalist acquires an agreed proportion of equity of the

company in return for the funding. When venture capitalists invest in a business they typically acquire a

seat on the company(s board of directors. They tend to take a majority share in the company" usually do

not take day to day control. 0rofessional venture capitalists( acts as mentors &aim to provide support &advice on arrange of management, sales & technical to assist the company to develop its full potential.

+harateristi features of venture apital

% venture capital has five main characteristics@

$. 3enture capital is a financial intermediary, that it taken the investor(s capital & invests it directly

in portfolio companies.

. 3enture capital invests only in private companies. This means that once the investments are made,

the companies cannot be immediately traded on a public exchange.

). 3enture capital takes an active role in monitoring & helping the companies.

-. 3enture capitalists primary goal is to maximi:e its financial return by existing investments.

8. % venture capital invests funds for the internal growth of companies.

,roess of Venture apital

The following are the stages in venture capital <3B= investing@

$. eed stage+ The first stage of venture capital financing provides capital to entrepreneur to finance

the early development of a new product A service. These early financing may be directed towards

product development, market research, developing a business plan. % seed stage company has

usually not yet established commercial operations, cash required to fund continued research &

product development is essential. #t requires capital for pre!startup ?&1, product development &testing or designing speciali:ation equipment.

. ,arly stage+ 4or companies tat are able to begin operations but are not ye9t at the stage of

commercial manufacturing & sales, early stage financing supports a step up capabilities. %t this point, new business can consume vast amounts of cash.

• 7tartup! 7tartup financing provides funds to companies for product development & initial

marketing. 4irms have already assembled key management, prepared a business plan &

made market studies at this point.

• 4irst stage! Bapital is provided to initiate commercial manufacturing & sales. 5ost first stage

companies have been in business less than ) years & have as product A service in testing or

pilot production.

). Formative stage+ this stage includes seed & early stage.

-. ater stage+ Bapital provided after commercial manufacturing & sales. The product or service is

in production & is commercially available. The company demonstrates significant revenue

growth, but may or may not be showing a profit. #t has usually been in business for more than )

years.

• 'xpansion stage! Bapital provided for major expansion such as physical plant expansion,

product improvement & marketing.

• 5e::anine <bridge=! 4inances the step of going public & represent the bridge between

expanding the company & the #02 < #nitial 0ublic 2ffering=.

"ngel Invest!ent

%n investor who provides financial backing for small startups or entrepreneurs. %ngel investors areusually found among an entrepreneur(s family & friends. The capital they provide can be a one time

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injection of seed money or ongoing support to carry the company through difficult times. They are

focused on helping the business succeed, rather than reaping a huge profit form their investment. %ngel

investors are essentially the exact opposite of a venture capitalist.

%ngel investors are often retired entrepreneurs or executives, who may be interested in angel investing for

reasons that go beyond pure monetary return. These include wanting to keep eye on current developments

in a particular business area, mentoring another generation of entrepreneurs & making use of their

experience & network. Thus, in addition to funds, angel investors can often provide valuable management

advice & important contacts.

"#vantages

$. Funding range+ for many small businesses, an angel investor may be a more suitable source of

startup funds than a venture capital. These investors usually invest in small amounts, which can provide most of a company(s needed startup capital.

. $usiness e(perience@ %ngel investors are experienced in the field of business & can usually being

a great deal of that experience to ay business venture, 4ew investors in startup, angel investors

may take a significant part in decision! making.

). No de*t financing @ %s opposed to loans & other forms of credit financing, angel investors funding

is a much cheaper form of seed capital. %ngel funding does not require monthly payments on the

capital & interest, they take a portion of profits. The ownership share allotted to angel investors

typically starts at about $DI but increase with the amount of funding invested in the business

venture

%isa#vantages

$. )ontrol+ %ngel investors may provide necessary guidance" some may make demand on company

that entrepreneurs find to be excessive.

. ess "ransparent+ Bompared to venture capital firms, angel investors are much harder to research

& contacts.

Types of usiness angels

$. .rowth hunters+ 5any individuals invest in a business hoping that it will turn a profit. 7ome

business angels focus on investing in ideas that will turn the quickest profit. These investors wantto see a large return on their investment within a few years.

. Advisory angels@ 7ome investors contribute money towards the industry that they know well or

work in. These types of investors often contribute in other ways, such as analy:ing businessdecisions or reviewing products. 7ome business angles do not invest money at all but rather work

as advisors for startup firms.

). Passive angels@ 7ilent angels contribute the necessary funding to a startup company, but remain

passive in all other aspects. 7ilent angels do not work within the company, but provides assistance

or makes any business decisions as the company launches.

-. .roup angels+ /ot all business angels work alone. %ngel investor group invest money as a

collective. Typically, a main investor will seek out new investment opportunities & then propose

idea to the group, who decide whether or not to invest as a group. >roup of angels split any

profits made from an investment. #ndividuals within group can act in an advisory capacity or

remain passive.

*eor# eeping The entrepreneur should be comfortable & able to understand what is going on in the business. The goals

of good record keeping system are to identify key incoming & outgoing revenues that can be effectively

controlled.?ecord keeping refers to the retention of records deemed important to a person, company or any other

establishment. #t is the process & system of maintaining business documents so that risk records can be

found quickly & easily. *nder #ncome Tax act, a business is required to keep business records for a period

of at least 8 years.

I!portane of *eor# 1eeping

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The business documents should & must be kept for a period of not less than seven years. >ood record

keeping practices are important part of your business. Faving good record keeping practices can benefit

in the following ways@

a. +etter internal control of business to help business planning & decision making.

b. %n essential sources of evidence to detect business losses, internal fraud & theft etc.,

c. ?eduction in cost & effort on collecting information when preparing tax & other reporting

obligations.

.enefits of *eor# eeping

The benefits of keeping accurate records are as follows@

$. To determine the profitability of a business, by keeping proper records, the profit or loss made by the

business can be easily calculated.. To maintain proper financial control of the business in order to maximi:e profit. 0roper record

keeping will help to determine whether or not the resources of the business are being managed

efficiently.

). To be able to provide financial information about the business is very important in assisting

management, investors, creditors etc., make informed decisions about the business.

-. To provide necessary information to file a tax return as well as to furnish the relevant information for

auditing.

Internet "#vertising 0 /nline a#vertising

%dvertising on internet can be important of marketing strategy, helping to drive people to website. *nlike

other traditional advertising, online advertising can deliver visitors immediately through a simple click on

ad & provides measurable results. The internet is vast, to maximi:e the effectiveness of online

advertising, need to ensure that ads appear in a right place by selecting websites that can deliver the right

audience for product or service.

%efinition

2nline advertising is marketing strategies that involve the use of the internet as a medium to obtain

website traffic target & deliver marketing messages to the right customers.

+osts of online a#vertising

2nline advertisements are purchased through one of the following common vehicles@

$. Bost 0er Thousand <B0T=@ %dvertisers pay when their messages are exposed to specific

audiences.. Bost 0er Blick <B0B=@ %dvertisers pay every time a user clicks on their ads.

3. Bost 0er %ction <B0%=@ %dvertisers only pay when a specific action <generally a purchase= is

performed.

Exa!ples of online a#vertising include banner ads, search engines, result pages, social networking ads,

email spam, online classified ads, pop!ups, contextual ads & spyware.

Types of /nline a#vertising

1. Display advertising+ #t refers to the use of web banners r banner ads placed on a third party

website to drive traffic to a corporate website & increase product awareness. These banners

consist of static or animated images, as well as interactive media including audio & video.

2. Affiliate marketing @ #t is a form of online advertising where advertisers place campaigns with a

potentially large number of publishers, who are only paid media fees when the advertiser receivesweb traffic.

3. ocial networking advertising @ #t is a form of online advertising on social networking sites, such

as facebook. %dvertising on social media networks can take the form of direct display ads

purchased on social network.

4. earch engine marketing /,0 =@ #t is a form of marketing that seeks to promote websites by

increasing their visibility in search engines results pages<7'?0s=. %dvertisers pay each time users

on their visiting are redirected to other websites.

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5. 0o*ile advertising @ Bell phone advertising is the ability for organi:ations & individuals to

advertise their product or service over mobile devices. This advertising is generally carried out

via text messages or applications. The best advantage of mobile advertising is that mobile devices

are usually close t the users throughout the day.

"#vantages

$. ,(tensive coverage@ /etwork connections with computers worldwide, it is global network of

large & small throughout the world. This involves wide scope of spreading information & human

contact to every corner of the world.. arge capacity of information@ Bapacity to provide information is unrestricted. Bompanies can

provide thousands of pages of advertising information & instructions. % small banner ad includes

products or services including product performance, price, model etc.,

). trong interaction with sensory@ 2nline advertising carrier is basically a multimedia, hypertext

format, as long as the audience interested in a certain product, they can tap the mouse further to

know more.

-. Real time & long lasting unity@ #nternet media has the right to change information at any time

according to their need. They can get adjust product prices, product information, a web can get

latest information & this media can also be long term preservation advertising information.

%isa#vantages

1. Filtered visitors+ 7ome visitors do not want to see, this situation is similar to other media, only

handful consumers will buy product.

2. ack of skills1 The expression & transmission of information still need presentation skills to

attract consumers. %ttractive presentation skills & marketing skills is more demanded in onlineadvertising.

3. 0arketing personnel reuirements are higher+ 2nline advertising marketing personnel

requirement are higher than other media. This advertising requires marketers( integrated use of

traditional advertising performance practices, providing information on the use of soft methods &

network marketing techniques.

inanial +ontrol

The financial plan is an internal part of business plan. 4or preparing performa income & cash flow

statements for the first ) years, the entrepreneur will need some knowledge of how to provide appropriate

controls to ensure that projections & goals are met. 7ome financial skills are thus necessary for the

entrepreneur to manage the venture during these early years. Bash flows, the income statement & the

balance sheet are the key areas that will need careful management & control.

"reas of inanial ontrol

$1 0anaging cash flows+ 7ince cash outflow may exceed cash inflow when growing a business, the

entrepreneur should try to have an up to date assessment of the cash position. This can be accomplished

by preparing monthly cash flow statements & comparing the budgeted with the actual results. This will

provide some indicators as to where cash flow problems may exist. 4or a new venture, it may be

necessary to prepare a daily cash sheet.

. 0anaging Inventory@ 1uring the growth of a new venture, the management of inventory is an

important task. Too much inventory can drain cash flow since manufacturing, transportation & storage

costs must be borne by the venture. 2n the other hand, too little inventory to meet customer demand canalso cost the venture in lost sales. >rowing ventures typically tie up more cash in their inventory than in

any other part of the business. 'fficient electronic data interchange <'1#s= among producers, wholesalers

& retailers can enable these firms to communicate with one another. Transport mode selection can also be

important in inventory management of inventory through a computeri:ed system & by working with

customers & other channel members can minimi:e transportation costs.

). 0anaging fi(ed assets@ 4ixed assets generally involve long term commitments & large investments for

the new venture. These fixed assets will have certain costs associated with them. #f the entrepreneur

cannot afford to buy equipment or fixed assets, leasing could be considered as an alternative. The

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entrepreneur can take a lease for short period, reducing the other terms commitments to any specified

assets. %s with any other make or buy decisions, the entrepreneur should consider all costs associated

with the decision as well as its impact on cash flows.

-. 0anaging costs & profits@ Bash flow analysis can assist the entrepreneur in assessing & controlling

costs, it is also useful to compute the net income during the periods. The cost effective use of income

statements is to establish cost standards & compare the actual with the budgeted amount for that time

periods. Where expenses or costs have been much higher than budgeted, it may be necessary for he

entrepreneur to carefully analy:e the account.

8. "a(es+ The entrepreneur will be required to deduct taxes for his or her employees. The entrepreneur

should be careful not to use these funds, since, if payments are late, there will be high interest & penalties

imposed. These taxes will need to be part of any budget since they will affect cash flows or tax. Theaccountant can also assist the entrepreneur in planning or budgeting appropriate funds to meet any of

these expenses.

)otivating & 4ea#ing tea!s

5otivation is a process that motivates a person into action & induces to continue the course of action for

the achievement of goals. 5otives are the expressions of a person(s goals or needs.

5otive

>oals +ehavior

,roess of )otivation

)otivating ators

There are several factors which motivate entrepreneurs to start enterprises.

$.#nternal factors@ a. 1esire to do something, b. 'ducational background, c. 2ccupational background or

experience.

.'xternal factors@ a. >overnment assistance & support, b. %vailability of labour & raw material, c.

1emand for the product.

)otivation Theories

The importance of motivation to human life & work can be judged by number of theories to explain

people(s behavior. There are some prominent theories relevant to entrepreneurship are ;5aslow(s /eedFierarchy theory( & 5cBlelland(s %cquired /eed theory(.

$. #aslow$s %eed ierarchy theory: 5aslow(s Theory is based on human needs. These needs are

classified into sequential priority from lower to higher. %braham F. 5aslow classified all human need

into 8 groups@

8. 7elf %ctuali:ation needs

-. 'steem needs

). 7ocial needs

. 7afety needs

$. 0hysiological needs

$. Physiological needs+ These needs are basic to human life & include food, clothing, air, water & othernecessities. These needs tremendous influence on human behavior. 'ntrepreneur needs to meet his

physiological needs for survival. Fence, he motivated to work in the enterprise to have economic rewards

to meet the basic needs.

. afety & ecurity needs@ %fter satisfying physiological needs, safety & security needs find expression

in such desires as economic security & protection from physical dangers. 5eeting these needs requires

more money" hence, the entrepreneur is prompted to work more in his enterprise.

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). ocial needs+ 5an is asocial animal. These needs therefore, refer to belongingness. %ll individuals

want to be recogni:ed & accepted by others. 6ikewise, an entrepreneur is motivated to interact with

fellow entrepreneurs, his employees & others.

-. ,steem needs@ These needs refer to self!esteem self respect. They include such needs like self!

confidence., achievement, independence, competence & knowledge. #/ case of entrepreneurs, the

ownership & self control over enterprise satisfies their esteem needs by providing them status, respect,

reputation & independence.

81 elf- Actuali2ation@ The final step in this process is the need for self! actuali:ation" this refers to self!

fulfillment. #t means to become actuali:ed in what one is potentially good. %n entrepreneur may achieve

self! actuali:ation in being successful entrepreneurs.

#c'lelland$s Acquired %eed theory

%ccording to 1avid 5cBlelland, a person acquires three types of needs as a result of one(s life

experience. These needs are@

$. Need for Affiliation@ These refer to needs to establish & maintain friendly & warm relations with

others.

. Need for Power+ These mean the one(s desire to dominant & influence others by using physical objects

& actions.

). Need for Achievement @ This refers to one(s desires to accomplish something with own efforts. This

implies one(s will to excel in his efforts.

5cBlelland also suggests that three needs may simultaneously be acting on a individual. +ut, in

case of an entrepreneur, the high need for achievement is found dominating one. #n his vie, the people

with need for achievement are characteri:ed by the following@

a. They set moderate, realistic & attainable goals for them.

b. They need concrete feedback on how well they are doing.

c. They look for challenging tasks.

d. They find solutions for solving personal responsibility.

e. They have need for achievement for attaining personal accomplished.

E-+o!!ere

'!Bommerce is the use of computer applications communicating over networks to allow buyers & sellers

to complete a transaction or part of a transaction. #n simple words, '!Bommerce is an electronic business.#t is the capability of exchanging value electronically. '!Bommerce relates to the electronic exchange of

all trading relationship external to the enterprise. '!Bommerce involves exchange of money, goods,

service as well as information.

%ccording to World Trade 2rgani:ation <WT2=, '!Bommerce refers to production, distribution,

marketing, sale or delivery of goods & services by electronic means. % commercial transaction can be

divided into three main stages@ advertising & searching stage" ordering & payment stage" & delivery

stage. %ny or all these may be carried out electronically & may, therefore, be covered, by the concept of

electronic commerce.

+ategories of E-+o!!ere

1ue to differences in the markets involved, two categories of e!commerce have emerged!

$. +usiness!to!+usiness<++=

. Bonsumer!to!+usiness<B+= !2!: Borporate attention is focused on the use internet & web technologies. ++ transaction occurred

across value!added networks supporting electronic data interchange <'1#= but the high cost & technical

complexity of that process has limited its used to large enterprise & their trading partners.

'2!: The internet is a medium for shopping & opens new alternatives for consumers, offering them a

different set of trade!offs between costs, selection, convenience & experience than the other channel. The

consumer has a much wider choice on the internet. They can compare products( features, prices & even

look up reviews before they select what they want. They also have the convenience of having their orders

delivered right at their doorstep.

Types of "ppliations

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The application out of the e!commerce initiative can be broadly grouped into seven categories. These

seven categories cover most of the common business transaction.

• + to + procurement<'!0rocurement=

• + to + & + to B 7ales< '!7ales=

• + to + 3irtual 5arket 0laces & 'nterprise portals<'!0ortals=

• 2ne to 2ne marketing <'! 0romotion=

• Bustomer 7ervice<'!B7=• 'lectronic 0ayments<'!0ay=

• 'mployee 7elf 7ervice<'!'7=

#n addition to these, e!commerce can be implemented between government organi:ations & between the

government & the public. Fowever, this application can also be broadly classified + to + or + to B.

"n integrate# .usiness Solution

'!Bommerce is a dynamic set of technologies, applications & business practices that link enterprises,

customers & suppliers through electronic transactions. '!Bommerce implementation should be an

integrated solution of the existing business practices namely, customers, suppliers, vendors & net

providers, the organi:ations( business processed & the technology. The adoption of e!commerce standardsalso means drastic changes in the ways of conducting business.

.enefits of E-+o!!ere

The importance points to consider here are@

$. No holidays@ The business is on for - hours a day & )98 days in a year

. )omplete transparency@ The organi:ation displays its products A services in the virtual market

place.

). 3igh-)ustomer specifications@ The customer wants a product according to his specifications.

"ppliations of E-+o!!ere

ECOMMER

CE

Procurement

Sales

Enterprise

Market

Marketing

Promotion

Customer

Pa!ment

Sel"#Serice

$alues

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+hallenges 0 ,role!s of E-+o!!ere

$. Infrastructural pro*lems@ #nternet is the backbone of e!commerce. *nfortunately, internet penetration

in #ndia is low compared to other nations. #nternet is still accessible through 0Bs with the help of

telephone lines. +esides these, both cost of 0Bs & internet access in #ndia is quite high.

. A*sence of )y*er laws@ %nother big challenge associate with e!commerce market is the near absence of

cyber laws to regulate transactions on web. The #nformation Technology <#T %ct, DDD= passed to tackle

legally. Fowever, it does not care of issues for privacy & protection.

). Privacy & ecurity concern@ %s of today, the dangerous issues related to e!commerce are privacy &

security. 7o far, there is no protection offered by websites or others against ha:ards.

-. Payment & ta( related issues+ The electronic payment is made through plastic money which could not

become popular so far in #ndia because of fear of frauds by hackers. %s establishing incidence of tax ineconomic transactions become difficult, thus, it provides scope for tax evasion.

8. Digital illiteracy & )onsumer Psyche@ %t present, digital illiteracy is one of the major problems of e!

commerce in #ndia. The #ndian consumers does not go long distances when nearby shops provides him

whatever he wants. 7o, consumers does not browse internet.

9. 4irus pro*lem+ Bomputer virus also a major problem in the execution of e!commerce.

M. ,nglish pecific@ The software so far in the country is 'nglish specific. To make e!commerce to reach

small enterprises, it needs to be available in regional languages.

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Unit-6 +reating & Starting New Venture

Breativity is the process of generating a novel or useful idea. The creative process can be broken into fivestages@

$. Preparation+ 0reparation is the background, experience & knowledge that an entrepreneur brings to the

opportunity recognition process. %n entrepreneur needs expertise to spot opportunities. 7tudies that 8DI!

HDI of startup ideas emerge from a person work experience.51 Incu*ation+ #ncubation is the stage during which a person considers an idea or thinks about a problem.

7ometimes incubation is a conscious activity & sometimes it is unconscious & occur while a person is

engaged in another activity.

). Insight+ #nsight is the flash of recognition when the solution to a problem is seen or an idea is born. #t is

sometimes called the L'ureka experienceC. #n business context, this is the moment an entrepreneur

recogni:es an opportunity.

-. ,valuation+ 'valuation is the stage of the creative process during which an idea is subject to sruitiny &

analy:ed for its viability.

61 ,la*oration+ 'laboration is the stage during which the creative idea is put into a final form. The details

are worked out & the idea in transformed into something of value such as a new product, service or a

business concept.

/pportunity *eognition ,roess

There is a continuous between an awareness of emerging trends & the personal characteristics of the

entrepreneur because the facets of opportunity recognition are interdependent. 4or example, an

entrepreneur with a well established social network may be in a better position to recogni:e emergingtechnological trends.

Soures of New I#eas

% sound idea is essential to launch venture, some of the frequently used of sources of ideas forentrepreneur are as follows@

1. )onsumers+ 0otential entrepreneurs should pay close attention to the final point of the idea for a

new product A service the potential consumers. This can be an informal A formal survey of

consumers expressing their opinions.

0reparation 'valuation#nsight#ncubation 'laboratio

'nvironmental Trends

• 'conomic factors

• 7ocial factors

•

Technology• 0olitical factors

0ersonal Bharacteristics

of an 'ntrepreneur

• 0rior experience

• 7ocial /etwork

• Breativity

+usiness, 0roduct or 7ervice2pportunity >ap

1ifference between what(s

available & what(s possible

/ew +usiness, 0roduct and

service and ideas.

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2. ,(isting companies+ 'ntrepreneurs should establish a formal method for monitoring &

evaluating the products & services in the market. 4requently this analysis uncovers ways to

improve on these offering that may result in a new product that has more market appeal.

3. Distri*ution channels@ 5embers of distribution channels are also excellent sources for new ideas

because they are familiar with the needs of the market. They frequently have suggestions. 4or

new product & also help in marketing the entrepreneurs( newly developed products.

4. Federal .overnment+ The federal government can be source of new product ideas in two easy.

4irst, the files of patent office contain numerous new product possibilities. 7everal government

agencies & publications are helpful in monitoring patent applications. 7econd, new pGproduct

ideas can come in response to government regulations.

5. Research & development+ The largest source of new ideas is the entrepreneurs( own research &

development. % formal research & development department is often better equipped & enables

the entrepreneurs to conceptuali:e & develop successful new product.

)etho#s 0 Tehni'ues for generating new i#eas

'ven with the wide variety of sources available, coming up with an idea to serve as the basis for the new

venture can still be a difficult problem. The entrepreneur can use several methods to help generate & test

new ideas@

$. $rainstorming+ % common way to generate new business idea is through brainstorming. +rain

storming is the process of generating several ideas about a specific topic. #n a formal brain

storming session, the leader of the group asks the participants to share their ideas. 2ne person

shares an idea, another person reacts to it, another person reacts to the reaction & so on. %n

electronic whiteboard is used to record all the ideas. The ideas generated during a brain storming

session need to be filtered and analy:ed. While using brainstorming, these five rules should be

followed@

a1 /o criticism is allowed by anyone in the group! no negative comments.*1 4reewheeling is encouraged! the wilder the idea, the better.

c1 Nuality of ideas is desired!the greater the number of ideas, the greater the like hood of the

emergence of useful ideas.

d1 ?eap fogging is encouraged! this means using one idea as a means of jumping forward

quickly of other ideas.

. 4ocus >roups@ % focus group is a gathering of five to ten people who are selected because of their

relationship to the issue being discussed. 4ocus groups typically involve a group of people who

are familiar with a topic are brought together to respond to questions. %lthough focus groups are

used for a variety of purposes, they can be used to help generate new business ideas.

). 6ibrary & internet research@ 6ibraries are often an underutili:ed source of information for

generating new business ideas. 6ibraries provide useful resources such as industry specific

maga:ines, trade) journals & industry reports. #nternet research is also important, simply typing

Lnew business ideasC into >oogle or ahooO Will provide links to newspaper & maga:ines

articles about the latest new business ideas. This technique, which is available for free, will feed

you daily stream of new articles about specific topics.

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-. 0roblem inventory analysis uses individuals in a manner that is similar to focus groups to

generate new product ideas. Fowever instead of generating new ideas themselves, consumers are

provided with a list of problems in a general product category. They are then asked to identify and

discuss products in this category that have the particular problem. This method can also be used

to test a new product idea. %n example of food industry, most difficult problems list like weight,

taste, appearance & cost.

0sychological 7ensory %ctivities +uying *sage

a. Weight@

• 4attening

• Balories

b. Fealth

• #ndigestion

• %cidity

a. Taste

• +itter

• 7alty

b. %ppearance

• Bolour

• 7hape

a. 0reparation

• Too much

trouble

• Too many pans

b. Booking@

• +urns

• 7ticks

a. 0ortability

• 'at away from

home

• Take lunch

b.7poilage@

• >ets mouldy

• >oes sour

8. 2ther techniques@ 4irms use a variety of other techniques to generate ideas. 7ome companies setup Bustomer %dvisory +oard that meet regularly to discuss needs, wants & problems that may

lead to new ideas. 2ther companies conduct survey by sending testers to homes to see how its

products are working.

+reative ,role! Solving

Breative problem solving is a technique for attaining new ideas focusing on the parameters. Breative

ideas & innovations generated by using any of the following techniques@

$. $rain storming+ The first technique, brainstorming, is probably the most well known and widely used

for both creative problem solving and idea generation. #t is an unstructured process for generating all

possible ideas about a problem within a limited time frame through the spontaneous contribution of

participants. %ll ideas, no matter how illogical, must be recorded, with participants prohibited from

critici:ing or evaluating during the brainstorming session.. Reverse $rain storming+ ?everse brain storming is similar to brain storming except that criticism is

allowed. This technique is based on finding faults, since the focus is on the negative aspects of the

product, service or idea, care must be taken to maintain the group(s morale. This method stimulates

innovative thinking.A The process usually involves the identification of everything wrong with an idea,

followed by a discussion of ways to overcome these problems.

)..ordon method+ This method, unlike other techniques, begins with group members not knowing theexact nature of the problem. The entrepreneur starts by mentioning a general concept associated with the

problem, the group responds by expressing a number of ideas. Then a concept is developed followed by

the group to more suggestions for implementation or refinement of the final solution.

-. $rain writing+ +rain writing is a form of written brain storming. #t was created by +ernd ?ohrback in

$H9Ds, where the ideas are in silent & written generation of ideas by the group of people. The participants

write their ideas on special forms or cards that circulate within the group, which usually consist of sixmembers. 'ach member generates & writes down three ideas during five minute period & it passed on to

other members. #f participants located at their own places & sheets are rotated by e!mails.

8.)heck-list method+ #n this method, a new idea is developed through a list of related issues or

suggestions. The entrepreneur can use the list of question A statements to guide. The checklist may take

any form & a general checklist is as follows@

i. *ses!put to other uses, new ways to use.

ii. 5odify!change meaning, colour, form, shape etc.,

iii. 5agnify!what to addP 5ore time, stronger, larger, thicker etc.,

iv. 5inify!what to lessP 7maller, lower, shorter, lighter etc.,

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v. 7ubstitute!other ingredients, other material, other process etc.,

9.)ollective Note *ook method+ *nder this method, a small notebook that easily fits in a pocket,

containing a statement of the problem, blank pages is distributed. 0articipants consider the problem & it(s

possible solutions, recording ideas at least once, but preferably three times a day. %T the end of a week,

list of best ideas is developed, along with any suggestions. This technique can also be used with the group

of individuals who record their ideas, giving their notebook to a central coordinator who summari:es all

the material & list the ideas in the order of frequency of mention. The summary becomes the topic of final

creative focus group discussions by the group participants.

M.)ause-,ffect Analysis+ This is a technique developed by Toyota 5otor Borporation & populari:ed by

the Nuality circle movement, often with the use of ;Why!Why analysis(. #t is a simple technique of askinga series of ;Why( in a sequence when confronted with the problem. That is, each answer to a ;why( will be

confronted by another ;why(. 4or example, a decline in sales may be normally treated as a ;marketing(

problem, nut a ;why!why( analysis may lead to product quality issues, which in turn may lead to machine

set up problems, improper employee training etc.,

,ro#ut ,lanning "n# %evelop!ent ,roess

2nce idea emerges from idea sources or creative problem solving, they need further development and

refinement in to final product or service to be offered. This refining process! the product planning and

development process is divided in to five major stages. #dea stage, concept stage, product development

stage, test marketing stage and commerciali:ing" it result in the product life cycle. 'ach of these stages

will have to be evaluated for which the entrepreneur has to establish appropriate evaluation criteria.

Estalishing evaluation riteria

%t each stage of product planning and development process, criteria for evaluation need to be established.

Briteria should be developed to evaluate the new product in terms of market opportunity, competition the

marketing system, financial factors and production factors. % market opportunity and adequate market

demand must exist. Burrent competing producers, prices, and policies should be evaluated in their impact

on market share. The product should be able to be supported by and contribute to the companyQs financial

structure. The compatibility of new productQs production requirements with existing plant, machinery, and

personnel should be determined.

1. (dea )tage

0romising new product ideas should be identified and impractical ones eliminated in the idea stage

allowing maximum use of companyQs resources. #n the systematic market evaluation checklist method,

each new product idea is expressed in terms of its chief values, merits, and benefits. The company shouldalso determine the need for the new product and its value to the company. /eed determination should

focus on the type of need, its timing, the users involved, the importance of marketing variables, and the

overall market structure and characteristics.

2.'oncept )tage

#n the concept stage the refined idea is tested to determine consumer acceptance without manufacturing it.

2ne method of testing is the conversational interview in which respondents are exposed to statements that

reflect attributes of the product. 4eatures, price, and promotion should be evaluated in comparison to

major competitors to indicate deficiencies or benefits. The relative advantages of the new product versuscompetitors should be determined.

3. *roduct +eelop,ent )tage

#n this stage, consumer reaction is determined, often through a consumer panel. The panel can be given

samples of the product and competitorsQ products to determine consumer preference. 0articipants keep the

record of their use of product and comment on its virtues and deficiencies. The panel of consumers is also

given a sample of product and one or more competitive product simultaneously. 2ne test product may

already be on the market, whereas the other test product is new.

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. est #ar/eting )tage

%lthough the results of product development stage provide the basis of the final marketing plan, the

market test can be done to increase the certainty of successful commerciali:ation. The last step in the

evaluation process, the test marketing stage, provides actual sales results which indicate the acceptance

level of consumers. 0ositive test results indicate the degree of probability of a successful product launch

and company formation.

0. 'o,,ercialiation: #n the last stage of the process, actual launching of the product is done, where the

new product is released to the defined market. 7uccessful commerciali:ation defines the successful

release of the new product to the market.

,ro#ut ,lanning& %evelop!ent ,roess #iagra! a follows

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