1. Given that most
entrepreneurial start-ups fail, why do entrepreneurs found so many new firms?
Why are (most) governments interested in promoting more start-ups?
Entrepreneurs are the people who see an opportunity, makes a
plan, starts the business and manage it utilizing available resources for the
sake of profit.
There are several numbers of people who start up a new
business venture but unfortunately only few of them get success in their
venture. Most of the start- ups fail. Some of the reasons why they fail are:
- Market problems
- Business model Failure
- Poor Management Team
- Running out of cash
- Product problems
But still there are some entrepreneurs who never give up and
found so many new firms. They found so many new firms because they seem more
likely to possess a stronger desire for achievement and are more willing to
take risks and tolerate ambiguities. Overall, entrepreneurship inevitably
deviates from the norm to work for others, and this deviation may be in the
“blood” of entrepreneurs.
Entrepreneurs play a vital role in economic development as
key contributors to technological innovation and new job growth. Further,
entrepreneurs help build communities in ways such as providing jobs, conducting
business locally, creating and participating in entrepreneurial networks,
investing in community projects, and giving to local charities. Realizing both
the economic and social impact of entrepreneurship, many states and local
communities have implemented aggressive strategies aimed at cultivating and
nurturing entrepreneurs.
Securing capital is important to the success
of entrepreneurs, particularly in the early stages of development. States can
assist entrepreneurs in finding seed capital through direct investment,
investments in venture capital limited partnerships and tax credits.
Providing technical assistance with the
creation of small business assistance centers, science and technology
corporations, and programs that provide financial and management guidance are
valuable services for entrepreneurs.
Streamlining securities regulation eases the
process entrepreneurs must go through in the search for capital.
Improving state regulations and licensing environments
reduces the burden on entrepreneurs seeking licenses and permits.
One-stop business centers can serve as a point of contact between entrepreneurs
and all state regulatory agencies. Streamlining the registration and license
process can have benefits for both entrepreneurs and state agencies by reducing
the duplication of processes, paperwork, time and resources needed to properly
register a new business venture.
Encouraging entrepreneurs in education builds
a foundation for successful entrepreneurial ventures. In higher education,
building intellectual capital at state universities fosters entrepreneurship
while superior research centers aid universities in attracting and retaining
top-quality faculty, spur technological innovations, and aid in the transfer of
technology to the private sector. Education at the secondary level is important
as well to at least raise the awareness of entrepreneurship as a career option.
Creating industry clusters and entrepreneurial
networks are beneficial to economic development strategies and
entrepreneurs. Entrepreneurs can develop contacts and fill specialized industry
niches within clusters and networks.
Targeting entrepreneurs through state economic
development offices and business development centers can help educate them on
available services and programs. Advertisements in trade publications,
communications through local chambers of commerce, industry associations, and
public service announcements are just a few ways governments can effectively
get the message out.
2. Some suggest that
foreign markets are graveyards where entrepreneurial firms over-extend
themselves. Others argue that foreign markets represent the future for small,
medium-sized, enterprises (SMEs). If you were the owner of a small, reasonably
profitable domestic firm, would you consider expanding overseas? Why?
Both of the statements which is stated in this question is
actually correct. The foreign markets can turned out to be graveyards for some of
the entrepreneurial firms who tend to over-extend themselves. Also, it can be
future for most of the SMEs. It all depends on the type of business, proper
strategy of the entrepreneur to go global and proper implementation of their
plans and strategies in the host countries.
If I were owner of a small, reasonably profitable domestic
firm, I definitely will consider expanding overseas. If my company have already
passed growth stage and is about to enter in the maturity period, it is high
time for my company to think about strategies to further expand the business.
For it, may be we can change our business model and start doing business with
new one in our home country but if our current business model can be used to
further expand the business in abroad and still be successful in overseas as
well then why not?
SMEs can enter foreign markets through three broad models.
Direct exports
Licensing/ Franchising
Foreign Direct Investment
But going global is not that easy, we need to choose the
country where our business model is most feasible. Proper market research will
help us to be successful in this sector. In the research, we need to analyze
both formal and informal institutions present in host country. Not only
institutions but we also need to find out if necessary resources are available
in the host country for proper operation of business.
There are lots of benefits of doing business in overseas.
Some of them are:
I)
More
customers
Going global means one will get access to larger market and larger
market definitely will bring more profit to the business.
II)
Access
to larger talent pool
When one expand internationally, they will have access to greater
numbers of highly educated professionals, skilled workers and unskilled
laborers.
III)
More
profits
There will be increase in number of potential consumers of the products
and one will be able to extract higher margins.
When exporting products, definitely the
costs of the product will go up but consumers in developing countries will
pay-up for access to high-quality and well-branded products.
IV)
More
efficiency
It means one can increase margins. And also with decreasing in cost of
production, one can offset exporting costs. Prices can be kept more competitive
in home country
V)
Iterate
faster and create better products
Exporting means reaching to consumers with
various tastes, opinions and ways of interacting with the world around them.
Hence the knowledge gain will serve the company to create better products.
VI)
It’s
the future
After serving the local consumers, the
ultimate goal of company is to go global and it’s the future.
3. Explain the basic international strategies
for entrepreneurs to enter foreign markets. Explain the international
strategies for staying in domestic markets.
Entrepreneurial firms can internationalize by entering
foreign markets, through entry modes such as
I)
Direct
exports
Direct exports entail the sale of products
made by entrepreneurial firms in their home country to customers in other
countries. This strategy is attractive because entrepreneurial firms are able
to reach foreign customers directly. When domestic markets experience some downturns,
sales abroad may compensate for such drops. However, one major drawback is that
SMEs may not have enough resources to turn overseas opportunities into profits.
II)
Licensing/franchising
A second way to enter international markets
is through licensing and/or franchising. Usually used in manufacturing
industries, licensing refers to Firm A’s agreement to give Firm B the rights to
use A’s proprietary technology (such as a patent) or trademark (such as a
corporate logo) for a royalty fee paid to A by B. Assume (hypothetically) that
a US exporter cannot keep up with demand in Turkey. It may consider granting a
Turkish firm the license to use its technology and trademark for a fee.
Franchising is essentially the same idea,
except it is typically used in ser- vice industries, such as fast food. One
great advantage is that SME licensors and franchisors can expand abroad while
risking relatively little of their own capital. Foreign firms interested in
becoming licensees or franchisees have to put their own capital up front. For
example, a McDonald’s franchise now costs the franchisee approximately one
million dollars. But licensors and franchisors also take a risk because they
may suffer a loss of control over how their technology and brand names are
used. If McDonald’s (hypothetical) licensee in Finland produces substandard
products that damage the brand and it refuses to improve quality, McDonald’s
has two difficult choices: (1) sue its licensee in an unfamiliar Finnish court,
or (2) discontinue the relationship. Either choice is complicated and costly.
III)
FDI
A third entry mode is FDI. FDI may involve
greenfield wholly owned subsidiaries, strategic alliances with foreign firms,
and/or acquisitions of foreign firms. By planting some roots abroad, a firm
becomes more committed to serving foreign markets. It is physically and
psychologically closer to foreign customers. Relative to licensing and
franchising, a firm is better able to control how its proprietary technology is
used. However, FDI has two major drawbacks: its cost and complexity. It
requires both a nontrivial sum of capital and a significant managerial
commitment.
Entrepreneurial firms can also internationalize without
venturing abroad, by
I)
Exporting
indirectly
First, whereas direct exports may be
lucrative, many SMEs simply do not have the resources to handle such work. But
they can still reach overseas customers through indirect exports, which involve
exporting through domestic-based export intermediaries. Export intermediaries
perform an important middleman function by linking domestic sellers and
overseas buyers who otherwise would not have been connected. Being
entrepreneurs themselves, export intermediaries facilitate the
internationalization of many SMEs.
II)
Supplying
foreign firms
A
second strategy is to become a supplier for a foreign firm that is doing business
in the domestic market. For example, when Subway opened restaurants in Northern
Ireland, it secured a contract for chilled part-bake bread with a domestic
bakery. This relationship was so successful that the bakery now supplies Subway
franchisees throughout Europe. SME suppliers thus may be able to internationalize
by piggybacking on the larger foreign entrants.
III)
Becoming
licensees/franchisees of foreign firms
Third, an entrepreneurial firm may consider
becoming a licensee or franchisee of a foreign brand. Foreign licensors and
franchisors provide training and technology transfer—for a fee, of course.
Consequently, an SME can learn a great deal about how to operate at world-class
standards. Further, if enough learning has been accomplished, it is possible to
discontinue the relationship and to reap greater entrepreneurial profits.
IV)
Joining
foreign entrants as alliance partners
A fourth strategy is to become an alliance
partner of a foreign direct investor. Facing an onslaught of aggressive MNEs,
many entrepreneurial firms may not be able to successfully defend their market
positions. Then it makes great sense to follow the old adage, “If you can’t
beat them, join them!” While dancing with the giants is tricky, it is better
than being crushed by them.
V)
Harvesting
and exiting through sell-offs to foreign entrants
Finally, as a harvest and exit strategy,
entrepreneurs may sell an equity stake or the entire firm to foreign entrants. An
American couple, originally from Seattle, built a Starbucks-like coffee chain
in Britain called Seattle Coffee. When Starbucks entered Britain, the couple
sold the chain of 60 stores to Starbucks for a hefty $84 million. In light of
the high failure rates of start-ups, being acquired by foreign entrants may
help preserve the business in the long run.
4. How can an entrepreneur strengthen his/her ability to in order to be
successful in the international marketplace?
There are basically two models to internationalization.
Stage
model
It is the model of internationalization
which portrays the slow, stage by stage process an SME must go through to
internationalize its business.
Rapid
internationalization
Some
advocates argue that every industry has become “global” and that entrepreneurial
firms need to go after these opportunities rapidly.
For me it is very important for any entrepreneur to follow
stage model in which firms will enter culturally and institutionally close
markets first, and then spend enough time there to accumulate overseas
experience, and then gradually move from more primitive modes ( such as
exports) to more sophisticated strategies ( such as FDI) in distant markets..
Stage models caution that inexperienced swimmers may be
drowned in unfamiliar foreign waters.
Therefore, how can an entrepreneur strengthen his/her
ability to be successful internationally?
The answers boil down to two components.
First, the institution-based view argues that the larger
institutional frameworks explain a great deal about what is behind the
differences in entrepreneurial and economic development around the world. Entrepreneurs
should have overall knowledge of the formal and informal institution which is prevalent
in the host countries. This knowledge will definitely be fruitful while
conducting business abroad.
Second, the resource-based view posits that it is largely
intangible resources, such as vision, drive, and willingness to take risks,
that fuel entrepreneurship around the globe. Overall, the performance of
entrepreneurial firms depends on how they take advantage of formal and informal
institutional resources and how they leverage their capabilities at home,
abroad, or both.
Hence, it is important for entrepreneurs to have knowledge
about formal and informal institution and other resources- based view.
Second, when internationalizing, entrepreneurs are advised
to be bold and venture abroad. But being bold does not mean being reckless. A
variety of international strategies enable entrepreneurial firms to stay in
domestic markets. When the entrepreneurial firm is not ready to take on higher
risk abroad, this more limited involvement may be appropriate. In other words,
be bold, but not too bold.
It is very important for the entrepreneurs to be patient and
open-minded.
References:
http://www.forentrepreneurs.com/business-models/why-startups-fail/
Slides + Global business book
Hi, Thank you for sharing such a Detailed Blog about the startup failure. I agree with all the mentioned above details and If you need more information on Startups and their Growth in this Current era, Please visit Why Startups Fail for more details.
ReplyDelete