Entrepreneurship development module 2

Entrepreneurial Process

Entrepreneurial process

Discovery

  • An entrepreneurial process begins with the idea generation, wherein the entrepreneur identifies and evaluates business opportunities. The identification and the evaluation of opportunities is a difficult task; an entrepreneur seeks inputs from all the persons including employees, consumers, channel partners, technical people, etc. to reach to an optimum business opportunity. Once the opportunity has been decided upon, the next step is to evaluate it.
  • An entrepreneur can evaluate the efficiency of an opportunity by continuously asking certain questions to himself, such as, whether the opportunity is worth investing in, is it sufficiently attractive, are the proposed solutions feasible, is there any competitive advantage, what is the risk associated with it. Above all, an entrepreneur must analyze his personal skills and hobbies, whether these coincide with entrepreneurial goals or not.

Developing a Business Plan

  • Once the opportunity is identified, an entrepreneur needs to create a comprehensive business plan. A business plan is critical to the success of any new venture since it acts as a benchmark and the evaluation criteria to see if the organization is moving towards its set goals. An entrepreneur must dedicate his sufficient time towards its creation, the major components of a business plan are mission and vision statement, goals and objectives, capital requirement, a description of products and services, etc.
  • Whether you’re planning to open a shop that makes the best coffee around or you want to sell eco-friendly office supplies, you’ll need to explain why your business is necessary and how it’ll differ from its competitors. That’s where your business plan comes in. It provides investors, lenders and potential partners with an understanding of your company’s structure and its goals.

Resourcing

  • The third step in the entrepreneurial process is resourcing, wherein the entrepreneur identifies the sources from where the finance and the human resource can be arranged. Here, the entrepreneur finds the investors for its new venture and the personnel to carry out the business activities.

Managing the company

  • Once the funds are raised and the employees are hired, the next step is to initiate the business operations to achieve the set goals. First of all, an entrepreneur must decide the management structure or the hierarchy that is required to solve the operational problems when they arise.

Harvesting

  • The final step in the entrepreneurial process is harvesting wherein, an entrepreneur decides on the future prospects of the business, i.e. its growth and development. Here, the actual growth is compared against the planned growth and then the decision regarding the stability or the expansion of business operations is undertaken accordingly, by an entrepreneur.
  • The entrepreneurial process is to be followed, again and again, whenever any new venture is taken up by an entrepreneur, therefore, it’s an ever-ending process.

Deciding to Become an Entrepreneur

  • The desire to become an entrepreneur may be triggered by any of the following factors:
  1. Arising of an innovative idea backed up the ability to start a business
  2. Inheriting wealth and skills to establish an enterprise
  3. Prevailing problems in current jobs
  4. Willing to become own boss
  5. Pursuing own ideas
  6. Realizing the need for earning money

Business opportunity identification & project idea generation

  • A new venture has to solve a problem and meet a genuine need. Business opportunity means a good or favourable change available to run a specific business in a given environment at a given point of time. The term ‘opportunity’ also covers a product or project. Product or opportunity identification & selection process starts with the generation of ideas.
  • Sources of project ideas
    • Consumers
    • Existing products & services
    • Distribution channels
    • Government
    • Research & development
    • Interests and hobbies
    • Personal experience and talents
    • Trade fairs and exhibitions
    • Brainstorming

Consumers 

  • No business enterprise can be thought of without consumers. Consumers demand for products and services to satisfy their wants. Also, consumers’ wants in terms of preferences, tastes and liking keep on changing. Hence, an entrepreneur needs to know what the consumers actually want so that he/she can offer the product or service accordingly. Consumers’ wants can be known through their feedback about the products and services they have been using and would want to use in future.

Existing Products and Services

  • One way to have an enterprise idea may be to monitor the existing products and services already available in the market and make a competitive analysis of them to identify their shortcomings and then, based on it, decide what and how a better product and service can be offered to the consumers. Many enterprises are established mainly to offer better products and services over the existing ones.
  • Example: Apple
    • Mac was the first computer to ship with a mouse & the first computer to introduce the world to a graphical user interface(GUI)

Distribution Channels

  • Distribution channels called, market intermediaries, also serve as a very effective source for new ideas for entrepreneurs. The reason is that they ultimately deal with the ultimate consumers and, hence, better know the consumers’ wants.
  • As such, the channel members such as wholesalers and retailers can provide ideas for new product development and modification in the existing product.
  • For example, an entrepreneur came to know from a salesman in a departmental store that the reason his chair was not selling was its dark shade while most of the young customers want a chair with light shade. The entrepreneur paid attention to this feedback and accordingly changed the shade of his chair to light shade. The entrepreneur found his chair enjoying increasing demand just within a month.

Government

  • At times, the Government can also be a source of new product ideas in various ways. For example, the government from time to time issues regulations on product production and consumption. Many times, these regulations become excellent sources for new ideas for enterprise formation.
  • For example, the government’s regulations on the ban on polythene bags/plastic have given a new idea to manufacture jute bags for marketing convenience of the sellers and buyers.

Brainstorming

  • Brainstorming means using the brain to storm the issue/problem. Brainstorming ultimately boils down to generate a number of ideas to be considered for dealing with the issue/problem.
  • However, brainstorming exercise to be effective needs to follow a modus operandi involving four basic guidelines:
    1. Generate as many ideas as possible.
    2. Be creative, freewheeling, and imaginative.
    3. Build upon piggyback, extend, or combine earlier ideas.
    4. Withhold criticism of others’ ideas.

Interests and hobbies

  • A hobby is an activity that you enjoy doing during your leisure-time and is one of the primary sources of business ideas. In fact, most people have founded great successful businesses while pursuing their interests or hobbies.
  • For instance, if you enjoy travelling, playing with computers, music, sports, performing or cooking, you can seamlessly develop it into a business. You can join the tourism, entertainment or hospitality industry by venturing deeper into your favourite activity.

Personal experience and talents

  • Most of the ideas and opportunities for successful businesses are a result of the experiences in the place of work. For example, an experienced manager working for a leading restaurant can eventually decide to start a business related to hospitality even before he retires. As a potential entrepreneur, therefore, you can make the most use of your skills and experiences as crucial sources of business ideas generation. They also determine the type of venture that you start as you capitalize on them. If you are gifted or have experience in a specific field, then it is time to analyze just talent or skills. You can start off with the following self-examination questions:
      • What am I passionate about?
      • What talents or skills do I possess?
      • Are people willing to pay me for my skills?
      • What do I need to build on my skills

Trade fairs and exhibitions

  • Trade fairs and exhibitions are among the top sources of developing business ideas. They are usually advertised on the Internet, radio, and newspapers, and by attending such events regularly, you will discover new services and products. You will also meet with manufacturers, sales representatives, distributors, wholesalers, and franchisers who will answer all your questions and inspire you to start a business that will thrive. In fact, some of them may be in need of someone like you to partner with, and this will be an exceptional opportunity to partner with renowned entrepreneurs and franchisers.

Evaluating the idea as a business opportunity

Here are a few important initial questions to ask yourself as part of a business opportunity evaluation.

  • Does your business idea have a demonstrated market need?
  • Is there sufficient demand for the product or service?
  • Is creating the product or service economically feasible?
  • Will there be a sufficient return on the investment of starting a new business?
  • What is the cost of NOT pursuing this business opportunity (also known as business opportunity cost)?

If a business idea does have initial merit, you should also perform a more detailed business opportunity evaluation. One such method is the RAMP model developed by Ryan P. Allis

  • RAMP stands for Return, Advantages, Market, and Potential.
  1. Return
    • The big question that an entrepreneur should ask is whether a business opportunity will generate revenue, and ultimately, profit. Without a potential profit, a great business idea is just a great idea without financial merit.
    • Can you make a product that generates more money than you spend?
    • How much investment will you need to get the business idea off the ground?
    • And ultimately, what are your or your investors’ return requirements?
  1. Advantages
  • To identify the advantages of pursuing this potential business opportunity, look at factors that this idea has that others don’t.
    • What makes your business idea better than others?
    • Is your idea unique, and does it have minimal competition?
    • Do you have an intellectual property like a patent that gives your business idea an advantage?
  1. Market
    • Another pillar in your business evaluation process is analyzing the market. If there isn’t a big enough market for your product or service, you should rethink whether this business opportunity makes sense.
    • Who will be your target consumer?
    • Is there a need for your business idea?
    • Can you fill a market need?
  1. Potential
  • The bottom line of any business is to make money. Without a positive cash flow, you won’t succeed. Business owners with the best of intentions often fail because the financial potential isn’t big enough.
    • Will there be sufficient financial reward?
    • Do you see a potentially growing market for the product?
    • Do you have others who believe in your business ideas?
    • Are there other businesses that are similar (which is a validation that this potential business opportunity could be worth pursuing)?

Screening of project ideas

The following factors may be considered for preliminary screening.

  • Compatibility with the Promoter
    • It Fits the Personality of the Entrepreneur
    • It is Accessible to Him
    • It offers him the Prospect of Rapid Growth and High Return on the Invested Capital
  • Consistency with the Government Priorities
    • Is the Project Consistent with the National Goals and Priorities?
    • Are there any Environmental Effects Contrary to Governmental Regulations?
    • Can Foreign Exchange Requirements of the Project be Easily Accommodated?
    • Will there be Any Difficulty in Obtaining the License of the Project?
  • Availability of Inputs
    • Are the Capital Requirements of the Project within Manageable Limits?
    • Can Technical Know-How Required for the Project be Obtained?
    • Are the Raw Material Required for the Project Available Domestically at a Reasonable Cost? If the Raw Materials Have to Be Imported, Will there be Problems?
    • Is the Power Supply for the Project Reasonably Obtainable from External Sources and Captive Power Resources
  • Adequacy of Market
    • Total Present Domestic Market
    • Competitors and Their Market Share
    • Export Markets
    • Sales and Distribution System
    • Projected Increase in Consumption
    • Economic, Social and Demographic Trends
    • Patent Protection
  • Acceptability of Risk Level
    • Technological Changes
    • Competition from Substitutes
    • Competition from Imports
    • Governmental Control Over Price and Distribution

Project rating index – Tool to evaluate project ideas

After considering all the above factors, the peak of the preliminary screening may culminate constructing a Project rating index. This method comes in handy when a firm evaluates a large number of project ideas regularly and may be helpful to streamline the process of preliminary screening. The steps involved in determining the project rating index are;

i) Identify factors relevant for project rating

ii) Assign weights to these factors (the weights are supposed to reflect their relative importance).

iii) Rate the project proposal on various factors, using a suitable rating scale (typically a 5-pint scale or a 7 point scale is used for this purpose)

iv) For each factor multiply the factor rating with the factor weight to get the factor score

v) Add all the factor scores to get the overall project rating index

project rating index

Environmental Analysis

Environmental Scanning

PESTEL Analysis

PESTEL Analysis

Political Factors:-Political factors include government regulations and legal issues and define both formal and informal rules under which the firm must operate. Some  examples include:

  • tax policy
  • employment laws
  • environmental regulations
  • trade restrictions and tariffs
  • political stability

Economic Factors:-Economic factors affect the purchasing power of potential customers and the firm’s cost of capital. The following are examples of  factors in the macroeconomy:

  • economic growth
  • interest rates
  • exchange rates
  • inflation rate

Social Factors

Social factors include the demographic and cultural aspects of the external macroenvironment. These factors affect customer needs and the size of potential markets. Some social factors include:

  • Health consciousness
  • Population growth rate
  • Age distribution
  • Emphasis on safety

Technological Factors:-Technological factors can lower barriers to entry, reduce minimum efficient production levels, and influence outsourcing decisions. Some technological factors include:

  • R&D activity
  • Automation
  • Technology incentives
  • Rate of technological change

Environmental Factors

  • These factors have only really come to the forefront in the last fifteen years or so. They have become important due to the increasing scarcity of raw materials, pollution targets, doing business as an ethical and sustainable company, carbon footprint targets set by governments (this is a good example were one factor could be classed as political and environmental at the same time). These are just some of the issues marketers are facing within this factor. More and more consumers are demanding that the products they buy are sourced ethically, and if possible from a sustainable source.

Legal Factors

  • Legal factors include – health and safety, equal opportunities, advertising standards, consumer rights and laws, product labelling and product safety. It is clear that companies need to know what is and what is not legal in order to trade successfully. If an organization trades globally this becomes a very tricky area to get right as each country has its own set of rules and regulations.

Porters five force analysis

Porter’s Five Forces is a model that identifies and analyzes five competitive forces that shape every industry and helps determine an industry’s weaknesses and strengths. Five Forces analysis is frequently used to identify an industry’s structure to determine corporate strategy. Porter’s model can be applied to any segment of the economy to understand the level of competition within the industry and enhance a company’s long-term profitability. The Five Forces model is named after Harvard Business School professor, Michael E. Porter. Porter identified five undeniable forces that play a part in shaping every market and industry in the world and they are,

  • Threat Of New Entrants
  • Threat Of Substitutes
  • Bargaining Power Of Buyers
  • Bargaining Power Of Suppliers
  • Rivalry Among Existing Firms
Bargaining power of suppliers
  • This refers to the power the suppliers have to jack up their prices. This will depend on a litany of factors like – how many suppliers are present in the market, are the goods/services they supply unique and special, is the quality comparable to other suppliers etc.
  • The fewer the number of suppliers the more the concentration of power in their hands. Another factor will be how difficult it would be for the entrepreneur to shift to alternative suppliers and how much would it cost him? The sum total of all these factors will give us an idea of the supplier power in the industry.
Bargaining power of buyers
  • This is an examination of how easily the buyers can bring down the prices of the product and services available in the market.
  • Again, this will depend on a lot of factors – the number of buyers, the general order size, demand for new products, the uniqueness of your product, prices of other alternatives etc. If the buyers are in limited numbers they can dictate their terms and prices more efficiently.
Rivalry among existing firms
  • This is an important factor in Porter’s approach. The number of competitors and their capability is both significant factors in an industry.
  • So if a new product on the market already has many competitors it is a disadvantage. Because both suppliers and customers have alternatives. But if your product or service has no, or very little competition then that is a significant advantage to the entrepreneur.
Threat of substitutes
  • This refers to the customer finding an alternative way to fulfil their requirements. So they are able to eliminate the need for your product or service because they found another way to satisfy their needs.
  • Say for example your offer IT services of setting up a LAN connection. But now the customers connect their entire computing system over a wireless network, and so your services are no longer necessary.
Threat of new entry
  • This refers to how easy it is for new players to enter the market. If it is fairly easy to enter the market with minimum finances and efforts, then new players will keep entering and increasing the competition.
  • This will weaken your position in the market and dilute your market share. However, if there are some strong barriers to entry it will be favourable to the entrepreneurs.

Opportunity Analysis

  • An opportunity is a favourable juncture of circumstances with a good chance for success or progress. It is the job of the entrepreneur to locate new ideas and to put them into action.
  • Opportunity is a set of favourable circumstances associated with a business idea that award it good chances of progress and future success
  • Entrepreneurial opportunities are defined as situations in which new products, services and processes can be introduced and sold at greater than the cost of production
  • Entrepreneurship can, therefore, be understood as the activity of identifying and exploiting new business opportunities
Characteristics of an attractive opportunity
  • Timely – a current need, unmet demand or problem (e.g.  vaccine for bird flu, drugs to prevent obesity)
  • Solvable – a problem that can be solved in the near future  with accessible resources (e.g. a cure for cancerous  diseases, a more efficient public transport to reduce  congestion and traffic jams)
  • Important –The customer deems their problem or needs important  to them (e.g. energy-saving air conditioner or petrol  saving devices that work)
  • Profitable –the customer will pay for the solution and allow the  enterprise to profit (e.g. security products, multi-function  printers)
  • Context –a favourable regulatory and industry situation (e.g. online business transaction, genuine investment  schemes that promised high returns)

Opportunity analysis is the verification of the proposed business that is viable before the entrepreneur spends their time and money into doing the business plan.

  • It is to ensure that we are on the right track.
  • Can be shown in a diagram.

opportunity analysis

Technical Analysis

Technical aspects related to the production or generation of the project output in the form of goods and services from the project’s inputs. Technical analysis represents a study of the project to evaluate technical and engineering aspects when a project is being examined and formulated. It is a continuous process in the project appraisal system which determines the prerequisites for meaningful commissioning of the project.
ASPECTS OF TECHNICAL ANALYSIS
  1. Material inputs and utilities
  2. Manufacturing process/technology
  3. Product mix
  4. Plant capacity
  5. Location and site
  6. Machinery and equipment
  7. Structures and civil works
  8. Project charts and layouts
1. MATERIAL INPUTS AND UTILITIES

It involves defining the requirements for materials and utilities, specifying their properties and setting up a supply channel. Material input & utilities may be classified into the following:
Raw materials – Agricultural products, Mineral Products, Livestock & Forest Products, Marine Products
Processed Industrial Materials/Components – Base metals, semi-processed materials, manufactured parts, small component
Auxiliary materials and factory supplies – chemicals, additives, packaging material, paint, oil, grease, cleaning materials
Utilities – power, water, steam, fuel
The following must be kept in mind while taking decisions regarding material, inputs and utilities:

  • Physical properties of the material
  • Transportation, Handling and Storage costs
  • Quantity available from Domestic/Foreign sources
  • Past and future trends in prices
2. MANUFACTURING  PROCESS/TECHNOLOGY

Taking a decision on the manufacturing process and technology to be used is one of the most important decisions in the technical analysis of a project. There are various options and alternatives available for manufacturing a product or service. It is the task of the project manager to select that process or technology that is easy to acquire, appropriate for the project and feasible with the budget and technical requirements of the proposed project.

The choice of technology is influenced by the following considerations:

  • Plant Capacity
  • Material Inputs
  • Production cost
  • Product mix
  • Technological Obsolescence
  • Ease of absorption
3. PRODUCT MIX
  • An important aspect in a technical analysis of a project is product mix decision. It is essential to choose an effective product mix as different customers have different taste, preferences and needs. The choice of product mix is usually guided by market requirements. A project manager must keep in mind the quality of products and flexibility in production while taking product mix decisions.
4. PLANT CAPACITY

It refers to the volume or no. of units that can be manufactured during the given time period. It is also known as production capacity. It is computed keeping in mind the following factors:

  • Installed capacity (machinery and equipment)
  • Technical conditions of the plant
  • Normal stoppages
  • Holidays, shift patterns
  • Downtime for maintenance etc.
5. LOCATION AND SITE

Location refers to a broad area within the city and while site means a specific piece of land where the project would be set-up. For the purpose of site selection a critical assessment of the demand, size of plant and input requirements is conducted which involves examining the following factors:

  • The proximity of Land to Markets
  • Availability of raw materials
  • Availability of Labour
  • Existing Infrastructure i.e. roads, electricity, power, water supply
  • Cost of land
  • Government Policies
6. Machinery & equipment
  • Machinery and Equipment requirement depends upon the production technology and plant capacity of the proposed project.
  • Things to be considered while selecting machinery and equipment:
  • Availability of power to run machines
  • Transporting heavy equipment
  • Ease of use
  • Import Policies of Government if the machines are to be imported from a foreign country
7. STRUCTURES AND CIVIL WORKS

Technical analysis of a project for buildings, structures and civil works involves preparation and development of the site which includes:

  • grading and levelling of land
  • demolition of existing structures
  • relocation of pipeline, cables, roads
  • reclamation of sewers and drainage
  • connections for utilities
  • arranging for electricity, water etc.

Buildings & structures – It involves the construction of

  • factory buildings
  • ancillary buildings
  • administrative area
  • residential quarters
  • non-factory buildings – cafe, medical centre
8. PROJECT CHARTS AND LAYOUTS
  • Once the project manager has sufficient data related to market size, plant capacity, production technology, machinery and equipment, buildings etc. he prepares charts and layouts for the proposed project. Project charts and layouts help to:
  • Define the scope of the project
  • Provide a basis for detailed project engineering
  • Help in estimating investment and production cost

Market Entry Strategies

Licensing
  • Definition: A business arrangement in which one company gives another company permission to manufacture its product for a specified payment
  • Licensing lets you instantly tap the existing production, distribution and marketing systems that other companies may have spent decades building.
  • In return, you get a percentage of the revenue from products or services sold under your license. Licensing fees typically amount to a small percentage of the sales price
  • For example, about 90 per cent of the $160 million a year in sales at Calvin Klein Inc. comes from licensing the designer’s name to makers of underwear, jeans and perfume. The only merchandise the New York-based company makes itself, in fact, is its women’s apparel lines. calvin clein
  • The downside of licensing is that you settle for a smaller piece of the pie.
  • On the other side of the coin, you could be the one with the interest in licensing the high-recognition brand name of another company. To many, it might seem like the key to a gold mine: Putting a Notre Dame logo, a Lion King character or a Star Wars graphic on your product means guaranteed success
Franchising

franchising

  • Franchising is an arrangement where franchisor (one party) grants or licenses some rights and authorities to the franchisee (another party). Franchising is a well-known marketing strategy for business expansion.
  • A contractual agreement takes place between Franchisor and Franchisee. Franchisor authorizes franchisee to sell their products, goods, services and give rights to use their trademark and brand name. And these franchisee acts as a dealer.
  • In return, the franchisee pays a one-time fee or commission to the franchisor and some share of the revenue. Some advantages to franchisees are they do not have to spend money on training employees, they get to learn about business techniques.

Examples of Franchising in India

  • McDonald’s, Dominos, KFC, Pizza Hut, Subway, Dunkin’ Donuts, Taco Bell, Baskin Robbins, Burger King
  • franchising

Functioning of Franchising

  • Under a franchise, the two parties generally enter into a Franchise Agreement. This agreement allows the franchisee to use the franchisor’s brand name and sell its products or services. In return, the franchisee pays a fee to the franchisor.
  • The franchisee may sell these products and services by operating as a branch of the parent company. It may even use franchising rights by selling these products under its own business venture.
  • The franchisor may grant franchising rights to one or several individuals or firms. Consequently, if just one person gets these rights, he becomes the exclusive seller of the franchisor’s products in a specific market or geographical limit.
  • In return, the franchisor supplies its products, services, technological know-how, brand name and trade secrets to the franchise. It even provides training and assistance in some cases.

Advantages and Disadvantages of Franchising

Advantages to Franchisors

  • Firstly, franchising is a great way to expand a business without incurring additional costs on expansion. This is because all expenses of selling are borne by the franchise.
  • This further also helps in building a brand name, increasing goodwill and reaching more customers.

Advantages to Franchisees

  • A franchise can use franchising to start a business on a pre-established brand name of the franchisor. As a result, the franchise can predict his success and reduce the risks of failure.
  • Furthermore, the franchise also does not need to spend money on training and assistance because the franchisor provides this.
  • Another advantage is that sometimes a franchisee may get exclusive rights to sell the franchisor’s products within an area.
  • Franchisees will get to know business techniques and trade secrets of brands.

Disadvantages for Franchisors

  • The most basic disadvantage is that the franchise does not possess direct control over the sale of its products. As a result, its own goodwill can suffer if the franchisor does not maintain quality standards.
  • Furthermore, the franchisee may even leak the franchisor’s secrets to rivals. Franchising also involves ongoing costs of providing maintenance, assistance, and training on the franchisor.

Disadvantages for Franchisees

  • First of all, no franchise has complete control over his business. He always has to adhere to the policies and conditions of the franchisor.
  • Another disadvantage is that he always has to pay some royalty to the franchisor on a routine basis. In some cases, he may even have to share his profits with the franchisor.
Strategic Alliance
  • strategic alliance in business is a relationship between two or more businesses that enables each to achieve certain strategic objectives neither would be able to achieve on their own.
  • The strategic partners maintain their status as independent and separate entities, share the benefits and control over the partnership, and continue to make contributions to the alliance until it is terminated.

Advantages of Strategic Alliances

  • Strategic alliances usually are only formed if they provide an advantage to all the parties in the alliance. These advantages can be broken down into four broad categories.
  • Organizational advantages
    • You may wish to form a strategic alliance to learn necessary skills and obtain certain capabilities from your strategic partner. Strategic partners may also help you enhance your productive capacity, provide a distribution system, or extend your supply chain.
  • Economic advantage
    • You can reduce costs and risks by distributing them across the members of the alliance. You can also obtain greater economies of scale in an alliance, as production volume can increase, causing the cost per unit to decline. Finally, you and your partners can take advantage of co-specialization, where you bundle your specializations together, creating additional value, such as when a leading computer manufacturer bundles its desktop with a leading monitor manufacturer’s monitor.
  • Strategic advantages
    • You may join with your rivals to cooperate instead of competing. You can also create alliances to create vertical integration where your partners are part of your supply chain. Strategic alliances may also be useful to create a competitive advantage by the pooling of resources and skills. This may also help with future business opportunities and the development of new products and technologies. Strategic alliances may also be used to get access to new technologies or to pursue joint research and development.
  • Political advantages
    • Sometimes you need to form a strategic alliance with a local foreign business to gain entry into a foreign market either because of local prejudices or legal barriers to entry. Forming strategic alliances with politically-influential partners may also help improve your own influence and position.

Disadvantages of Strategic Alliance

  • Cultural and Language Barriers
  • Uneven Alliances: When the decision powers are distributed very uneven, the weaker alliance partner may be compelled to act in line with the will of the more powerful partners even if it is actually not willing to do so.
  • Lack of Trust: In several alliances, one partner will point the failure finger at the other partnering company. Transferring the blame will not solve the issue, but increases the stress between the alliance partners and usually ruins the alliance.
  • Damage to Goodwill: In case you create an alliance with another organization, the other business’s poor public relations can harm your organization’s reputation. Even if your alliance partner satisfies all of its obligations to you and faithfully promotes your business, it might still be linked to other acts of bad faith which may stain your organization.
  • Differences in Management Styles: Failing to understand and adjust to “new style” of management is an obstacle to success in an alliance. Adjustments are needed in management style to run successful alliances.
  • Loss of Autonomy: The business gets focused not only to a goal of its own but that of the other business. This demands cost in terms of goal displacement. The business at the same time loses independence and hence its ability to unilaterally handle the outcomes. All the partners in an alliance have control over the performance of the assigned tasks. No partner, hence, can unilaterally control the result of alliance activity.

Examples for strategic alliances

  • Spotify and Uber
    • Not every Spotify consumer uses Uber, nor does every Uber rider have a Spotify account. The strategic alliance allows each company to pursue prospects from the other’s existing customer base, all while continuing to promote both products.
  • Bharti Airtel and Samsung
    • To offer affordable 4G smartphone options to customers
  • Mahindra & Mahindra and Ford Motor Company
    • Cooperation in the sphere of products, technologies and distribution including future mobility program, connected vehicle projects, electrification of cars amongst other areas.
Contract Manufacturing
  • Contract manufacturing is an outsourcing of certain production activities that were previously performed by the manufacturer to a third-party
  • Manufacturers can save significant money on labour, materials and other expenses related to production. Third-party contract manufacturers are usually in developing countries with an abundant supply of cheap labour and minimal regulations. So long as the company maintains appropriate oversight, contract manufacturing can permit a company to lower its production costs, maintain the quality of its production, and increase its profit margins.

Examples of contract manufacturing

  • Foxconn Technology Group served as the contract manufacturing firm for several top electronics brands, managing contracts for the production of products like the iPhone (Apple), Xbox One (Microsoft), and Kindle Fire (Amazon).
  • Nike manufactures products in Africa using contract manufacturing
Joint Venture
  • A joint venture (JV) is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity.

Basics on joint ventures

  • With a joint venture, businesses remain separate in legal terms
  • Joint ventures are common, as firms want to benefit from collaborative work in reaching a mutually agreed strategic target.
  • Many joint ventures seek to share the fixed costs of major business research/infrastructure projects

Examples  for joint venture

  • BMW and Toyota co-operate on research into hydrogen fuel cells, vehicle electrification and ultra-lightweight materials
  • Google and NASA developing Google Earth
Mergers and Acquisitions
  • Mergers are the combination of two companies to form one, while Acquisitions is one company taken over by the other.
  • The reasoning behind M&A generally given is that two separate companies together create more value compared to being on an individual stand.
  • When one company takes over another entity, and establishes itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer absorbs the business, and the buyer’s stock continues to be traded, while the target company’s stock ceases to trade.
  • A merger describes two firms of approximately the same size, who join forces to move forward as a single new entity, rather than remain separately owned and operated. This action is known as a “merger of equals.“

Examples of M&A

    • Google and Android
    • Facebook and Instagram
    • Facebook and WhatsApp

Benefits of Mergers and Acquisitions

Some of the benefits of M&A deals have to do with efficiencies and others have to do with capabilities, such as:

  • Improved economies of scale. By being able to purchase raw materials in greater quantities, for example, costs can be reduced.
  • Increased market share. Assuming the two companies are in the same industry, bringing their resources together may result in a larger market share.
  • Increased distribution capabilities. By expanding geographically, companies may be able to add to their distribution network or expand its geographic service area.
  • Reduced labour costs. Eliminating staffing redundancies can help reduce costs.
  • Improved labour talent. Expanding the labour pool from which the new, larger company can draw can aid in growth and development.
  • Enhanced financial resources. The financial wherewithal of the two companies is generally greater than one alone, making new investments possible.

Drawbacks of mergers and acquisitions

  • Although mergers and acquisitions are expensive undertakings, there are potential rewards. And there are disadvantages for an acquisition, including:
  • Large expenses associated with buying a company, especially if it does not want to be acquired. (If an investor has a controlling interest in another company, however, it may not have a choice regarding whether it is acquired.)
  • Higher legal costs, which can be exorbitant if a company does not want to be acquired.
  • The opportunity cost of having to forego other deals in order to focus on bringing two companies together.
  • The possibility of a negative reaction to a merger or acquisition, which drives the company’s stock price lower.

Intellectual Property

Intellectual Property (IP) refers to creations of the mind: inventions, literary and artistic works, and symbols, names, images, and designs used in commerce.

Intellectual property is divided into two categories:

  • Industrial property, which includes inventions (patents), trademarks, industrial designs, and geographic indications of source;
  • Copyright, which includes literary and artistic works such as novels, poems and plays, films, musical works, artistic works such as drawings, paintings, photographs and sculptures, and architectural designs.
Copyrights

Copyright is a form of intellectual property protection granted under Indian law to the creators of original works of authorship such as literary works (including computer programs, tables and compilations including computer databases which may be expressed in words, codes, schemes or in any other form, including a machine-readable medium), dramatic, musical and artistic works, cinematographic films and sound recordings.

  • For example, books, computer programs are protected under the Act as literary works.

Copyright rights can be exercised only by the owner of the copyright or by any other person who is duly licensed in this regard by the owner of the copyright.

Copyrights include the right of adaptation, right of reproduction, right of publication, right to make translations, communication to public etc.

Trademark

Trademark is a symbol, word, or words legally registered or established by use as representing a company or product

Trademark means a different mark of authenticity, through which the products of particular manufacturers or different commodities of a particular manufacturer, trader, or vendor may be distinguished from those of others.

The objective of the Trade Marks Act, 1999 is to register trademarks applied for in the country and to provide for better protection of the trademark for goods and services and also to prevent fraudulent use of the mark.

Trade secret

A trade secret is a formula, process, device, or other business information that is kept confidential to maintain an advantage over competitors. It is an information-including a formula, pattern, compilation, program, device, method, technique, or process that-

1.provides the owner of the information with a competitive advantage in the market place.

2.is treated in a way that can reasonably be expected to prevent the public or competitors from learning about it, except through improper acquisition or theft.

“Trade Secret is an effective tool to protect the Intellectual Property Rights of an entrepreneur.”

According to Chambers 21st Century Dictionary, (Reprint on 2000, page 1491) the term Trade Secret means – an ingredient, technique, etc. that a particular company or individual will not divulge because they see it as giving them an advantage over their rivals.

Again, according to the Oxford advanced learners Dictionary, the term Trade Secret means a piece of information about how a particular product is made, that is only known to the company that makes it.

Sometimes these trade secrets are also known as ”confidential information.”

  • Example: Most famous example of a trade secret is the coca-cola formula. This formula is kept locked in a bank vault in Atlanta, can be opened only by a resolution of the company’s board and is known to only two employees at the same time. The public has no access to the name of those employees and they are not allowed to fly on the same aeroplane.
Patent
  • A patent is a form of intellectual property that gives its owner the legal right to exclude others from making, using, selling and importing an invention for a limited period of years, in exchange for publishing an enabling public disclosure of the invention.
    • Eg. Graham Bell – Telephone
    • Thomas Alva Edison – 1093 patents
  • Indian Patent Act, 1970 grants exclusive rights to the inventor for his invention for a limited period of time. Generally, 20 years time has been granted to the patent holder but in case of inventions relating to the manufacturing of food or drugs or medicine, it is for seven years from the date of the patent. There is a certain legal procedure that needs to be followed in order to register.
  • In India, patent registration can be filed individually or jointly. In the case of a deceased inventor, this can be done his legal representative on behalf of him. All the required documents need to be filed along with the application form. Only after verification registration certificate is provided to the applicant.

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