Chapter 3

The Environment for Entrepreneurship

Entrepreneurs Environment:
Environment for entrepreneurship consists of forces that directly or indirectly influence the
activities of creating and developing new business in the society. It is the composite of all forces
surrounding and influencing the entrepreneurs activities. They consist of political-legal,
economic, socio-cultural and technological forces in external environment. They cannot be
controlled. Environmental forces and factors influence entrepreneurial activities by providing
opportunities and threats. They are complex, dynamic and uncertain. The entrepreneurs most
monitor and respond to changes to exploit the opportunities and face challenges resulting from
changing business environment. The effect of environmental factors differs from organization to
organization, industry to industry and marets to marets
Government Policies and Actions:
The policies and actions may directly and indirectly affect the entrepreneurial activities. It may
promote or limit entrepreneurial activities. !overnment policies and actions influence
entrepreneurial policies and practices. It defines what entrepreneurs can and cannot do.
Entrepreneurs must follow the legal provision of the country.
The entrepreneurship friendly industrial policy, industrial act, commercial policy etc. can
promote entrepreneurship. The government must create conductive environment for
entrepreneurship by maing available basic facilities and services live transport, communication,
power etc. and incentive, subsidy, concession sound legal system etc. such facilities reduce the
ris and uncertainties of the entrepreneurs. "ence, the supportive actions of the government are
very conductive for entrepreneurial development. Entrepreneurship has flourished and developed
in the countries where the government has provided such facilities. #n the other hand
entrepreneurship and economic growth is slow in the countries where the government has
adopted indifference policy regarding entrepreneurship. #ne of the main reasons rapid economic
growths in the countries is regarded to be the positive or maret friendly role played by the
government towards the business.
In order to increase more positive business environment, the role of the government should not
be interfering and regulating in the daily activities of the enterprises. $ut, should be supporting,
faciliting and removing and constraints of initiative, innovation and ris-taing.
The government in order to help and create positive business environment should mae
following changes in its policy formulation and involvement %&ohli and 'ood, ()*+,-
'implification of labor policy
.eforms in the tax policy
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'treamling legal frame wor fro enterprise creation, operation and li/uidation
0ae effort to create competitive maret %remove entry barriers,
'implification of the regulation and controls %investment, production, mareting, prices,
foreign direct investment and technology transfer,
1ddress practical implementation of the policy.
Transparency of policy and their implementation.
Government polices that affect entrepreneurship
Industrial policy
0onetary policy
2iscal policy
3rivatization policy
Trade policy
Employment and trade policy
Tourism policy
2oreign investment policy
The industrial policy, 45(5 spells out its policies, strategies, promises and commitments-
6ommits state-support for the development of infrastructure up to factory sites for
priority industries.
3rovides special tax holidays for industries in rural and under-industrialized parts of the
country.
.ecognizes and allow sub-contracting of production for the first time in the countrys
history.
3romises to help foster bacward linages, mainly facilitating small scale industries, in
incorporate in the large manufacturing process
3rovision of differential tariff rates for raw material imports and the import of finished
goods. The aim of this provision is to promote domestic manufacturing over direct trade.
3romises protection, duty and tax discount incentives for industries using local raw
material and higher value addition.
Entrusts the government to lay down industrial infrastructures such as roads, electricity,
and telecommunication in different districts that have been identified as possessing
manufacturing and processing potentials
3ledges additional promotional incentive pacages for export industries, particularly the
small and medium enterprises.
.ecognizes .esearch and development and maret promotion as an integral part of the
industrial activities and allows 78 income tax deduction for each purpose.
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Infrastructure:
Infrastructure is basic physical and organizational structures needed for the operation of a society
or enterprise. They are the services and facilities necessary for an economy to function. It can be
defined as the set of interconnected structural elements that provide framewor supporting an
entire structure of development. It includes both physical infrastructure such as transport,
communication, water supply, energy etc and non physical infrastructure such as financial
system, education system, health care system, the system of government, law enforcement as
well as emergency services. Infrastructure facilitates the production of goods and services and
also the distribution of finished products to marets. In least developed and developing countries
entrepreneurs are not motivated to establish enterprise due to the lae of ade/uate infrastructure.
Inade/uacy of infrastructure limits the entrepreneurs activities. Therefore, government is
responsible to develop basic infrastructure in the country to promote entrepreneurship.
Types of Infrastructure:
Hard Infrastructure: hard infrastructure refers to the large physical networs necessary
for the functioning of a modern industrial nation. It includes the capital assets that serve
the function of entrepreneurs. It include-
Transportation infrastructure
Energy infrastructure
9ater management infrastructure
6ommunications infrastructure
'olid waste management
Soft Infrastructure: soft infrastructure refers to all the institutions which are re/uired to
maintain the economic, health, and cultural and social standards of a country, such as the
financial system, the education system, the health care system, the system of government,
and law enforcement, as well as emergency services. The essence of soft infrastructure is
the delivery of specialized services to entrepreneurs. It includes
! Governance infrastructure
The system of government and law enforcement, including the political,
legislative, law enforcement, :ustice and penal systems, as well as specialized
facilities %government offices, courthouses, prisons, etc.,, and specialized systems
for collecting, storing and disseminating data, laws and regulation
Emergency services, such as police, fire protection, and ambulances, including
specialized vehicles, buildings, communications and dispatching systems
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0ilitary infrastructure, including military bases, arms depots, training facilities,
command centers, communication facilities, ma:or weapons systems,
fortifications, specialized arms manufacturing, strategic reserves
"! Economic infrastructure
The financial system, including the baning system, financial institutions, the
payment system, exchanges, the money supply, financial regulations, as well as
accounting standards and regulations
0a:or business logistics facilities and systems, including warehouses as well as
warehousing and shipping management systems
0anufacturing infrastructure, including industrial pars and special economic
zones, mines and processing plants for basic materials used as inputs in industry,
specialized energy, transportation and water infrastructure used by industry, plus
the public safety, zoning and environmental laws and regulations that govern and
limit industrial activity, and standards organizations
1gricultural, forestry and fisheries infrastructure, including specialized food and
livestoc transportation and storage facilities, ma:or feedlots, agricultural price
support systems %including agricultural insurance,, agricultural health standards,
food inspection, experimental farms and agricultural research centers and schools,
the system of licensing and /uota management, enforcement systems against
poaching, forest wardens, and fire fighting
3! Social infrastructure
The health care system, including hospitals, the financing of health care, including
health insurance, the systems for regulation and testing of medications and
medical procedures, the system for training, inspection and professional discipline
of doctors and other medical professionals, public health monitoring and
regulations, as well as coordination of measures taen during public health
emergencies such as epidemics
The educational and research system, including elementary and secondary
schools, universities, specialized colleges, research institutions, the systems for
financing and accrediting educational institutions
'ocial welfare systems, including both government support and private charity for
the poor, for people in distress or victims of abuse
#! Cultural$ sports and recreational infrastructure
'ports and recreational infrastructure, such as pars, sports facilities, the system
of sports leagues and associations
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6ultural infrastructure, such as concert halls, museums, libraries, theatres, studios,
and specialized training facilities
$usiness travel and tourism infrastructure, including both man-made and natural
attractions, convention centers, hotels, restaurants and other services that cater
mainly to tourists and business travelers, as well as the systems for informing and
attracting tourists, and travel insurance
Assistance for Entrepreneurship %institutional support to entrepreneurship development&
Concept:
The support provided to the entrepreneurs by various institution lie government, non-
government, cooperatives and private organization in the form of facilities, incentives and
policies that aims to promote, support and facilitate entrepreneurship in a country is nown as
institutional support or assistance. Entrepreneurship re/uired promotional, supportive and
facilitative assistance from various institution to solve and diminish various problem faced by
entrepreneurs. 1vailability of support maes the business environment conducive and enabling
for entrepreneur. These may come up in various forms such as loan, access to capital maret,
maret facility and locations, research and development, information flow, training and sill
entrancement programs, competency development oriented classes etc.
'eed for institutional assistance or support:
Establishing a business is not a small tas. In the contest of ;epal it has to be coordinated a lot of
channel. <ifferent types of resources and facilities are re/uired in order to establish any business
or industry. 2or example, the ade/uate of finance, availability of raw material, ade/uate supply
of sillful manpower. 9ithout it, it is only a day dream of person to establish an industry. 'mall
entrepreneurs are unable to mae available such facilities by themselves. The main problems that
confront entrepreneurs are-
'hortage of capital- 3oor access to capital and credit
'carcity of raw materials- =nreliable supply sources for inputs
0areting problems- 3oor access to maret and tough competition. >ac of maret
information.
>ac of opportunities for competency development
>ac of access to appropriate infrastructure
3oor access to information, research and extension services
>ac of supportive policies and incentives
Institutional assistance to entrepreneurs is mainly needed in the following areas-
a. Capital resources: entrepreneurs have lac of ade/uate capital resources. ;ew venture
also do not easy assess to capital maret instruments. >oans from formal financial
institutions such as commercial and development ban and other financial institutions are
needed to finance new venture. $esides this international ;!#s also provide loans to
target entrepreneur.
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b. (imited mar)et: the domestic maret for ;epalese products is very limited due to small
size of the country and its population. $esides, this purchasing power of the people is
very low. <ue to the low development of transportation and communication the products
can not be mareted easily through in low cost.
c. Infrastructure availa*ility: entrepreneurs need infrastructure facilities in terms of
industrial sheds, transport, communication, power, water, waste disposal etc. institutions
are needed to build infrastructure. !enerally government institution, supported by foreign
aid, undertaes the tas of infrastructure development.
d. +a, material supply: easy availability of raw material facilities supports entrepreneurial
growth. The scarcity of raw materials in the country is also a cause of low industrial
investment. ;ew ventures, especially those based on new technology, re/uire raw
material from foreign sources. ;epals ma:or industries such as woolen carpet, ready-
made garments and handicrafts are dependent on imported raw material and
intermediated products. The problem of raw material is one of the main reasons for low
capacity utilization. Institutions are needed to tae care of raw material supply to meet
the need of a variety of entrepreneur.
e. -efective .overnment policies and incentives: entrepreneur needs a sound policy for
creating sound industrial environment. $ut the government policy of ;epal is neither
sound nor consistent, nor are they effectively implemented. !overnment institutions are
the prime sources of formulation policies. The industrial policy of ;epalese has reserved
cottage and small industries for ;epalese citizens. The legal frame wor enacted by the
government generally carries a number of incentives for entrepreneurial activities.
f. (on. procedures of *ureaucratic: Entrepreneurs have faces a long bureaucratic
process. They have complete different processes lie, visit different ministries and
departments for registering industries for exports of the product. 2or getting foreign
exchange for getting financial support etc. the bureaucracy being inefficient is corrupted
as well. Entrepreneurs are needed a sound bureaucratic system.
g. Access to information$ research and development: this is the age of information
technology. Information is power. .esearch and development is the sources of innovation
and inventions. Institutions are needed to supply relevant information to entrepreneurs.
They are also needed to conduct research and provide extension services relevant to
entrepreneurs. !overnment institutions are important fulfill such needs.
Institutional Assistance to Entrepreneurs in 'epal
Entrepreneurship has remained the bacbone of ;epalese economy. $ut the pace of its growth
has remained slow. 0a:ority of entrepreneurial ventures currently remain sic or closed.
Institutional support to industries in ;epal is through government agencies, specialized agencies,
consultancy services, institutional finance and mareting services.
! Government A.encies
0inistry of industry
<epartment of industry
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<epartment of cottage and small industries
#ffice of the registrar of companies
;epal bureau of standards and metrology
;epal tourism board
"! Special a.encies of .overnment
Industrial promotion board
#ne-window committee
;epal industrial development finance
Industrial district management limited
;ational productivity and economic development centre
0icroenterprise, cottage and small industries promotion board
Industrial enterprise development institute
3rivate sector associations
3! Institutional /inance
6ommercial bans
<evelopment bans
0icro finance bans
2inance companies
.ural cooperatives %approved by ;.$,
=nregulated cooperatives
Insurance companies
Employee provident fund
6itizens investment trust
3ostal saving ban branches
;!# microfinance co.
<eposit insurance and credit guarantee corporation
#! Consultancy services:
Institute of chartered accountants of ;epal %I61;,
6entre for economic development and administration %6E<1,
;epal engineering consultancy service %;E3E6#;,
0! 1ar)etin. services
Trade and export promotion centre
6arpet and wool development board
.eady-made garment export promotion committee
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2! Industrial estates:
$ala:u, "etauda, 3atan, ;epalgun:, <haran, 3ohara, $utwal, $hatapur, $irendranagar,
<hanuta, 2a:bira:.
/ranchisin.:
2ranchising can simply be defined as a form of contractual arrangement in which a retailer
%franchisee, enters into an agreement with a producer %franchisor, to sell the producers goods or
services for a specified fee or commission. It is a form of business ownership created by contract
whereby a company grants a buyer the rights to engage in selling or distributing its products or
services under a prescribed business format in exchange for royalties or share of profits. The
buyer is called the franchisee and the company that sells rights to its business concept is called
the franchisor.
Thus, franchising is any arrangement in which the owner of a trademar, trade name or copyright
has licensed others to use it in selling goods or services. The franchisee is generally legally
independent but economically dependent on the integrated business system of franchisor.
Advanta.e of /ranchisin.:
(. Trainin. and .uidance: The greatest advantage of buying a franchise is that the
franchisor will usually provide both training and guidance to the franchisee. 1s a result,
the lie hood of success is much greater for franchisees who have received this assistance
than for small business owners in general.
4. 3rand4name appeal: the franchisers brand name appeals the customer. The national
advertising by the franchisor creates such brand name appeal. The layout, facilities and
decorations are standardized.
?. /inancial Assistance: another reason a franchise can be a good investment is that the
franchisor may be able to help the new owner to secure the financial assistance needed to
run the operation. In fact some franchisors have personally helped the franchisee get
started by lending money and not re/uiring any repayment until the operation is running
smoothly. In short, buying a franchise is often an ideal way to ensure assistance from the
financial community.
@. A proven trac) record: 2ranchising maes the tas of getting started easier because the
franchisee gets a business format already maret tested and found to wor. "ence, buying
a franchise is so far safer than trying to start a business.
7. Increase purchasin. po,er: 2ranchising may increase the franchisees purchasing
power also. $ecause, being part of a large and that too recognized organization means
paying less for a variety of things such as supplies e/uipment, inventory, services,
insurance and so on. It also can mean getting better service from suppliers because of the
importance of the organization %franchisor, of you is part %franchisee,.
-isadvanta.e of /ranchisin.:
(. The controlled e5ercised *y the franchisor: =nlie entrepreneurs who start their won
business, the franchisees find no room or scope for en:oying their creativity. They have to
wor as per the given format. 1 number of restrictions are also imposed upon the
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franchisees. .estriction may relate to remain confined to product line or a particular
geographical location only.
4. /ranchise /ees: the franchisee must may different fees to the franchisor. 'uch fees are
franchisee fee, royalty payment, promotion costs, inventory and supplies cost, and
building and e/uipment cost. the larger and more successful the franchisor, the greater the
franchise fee.
?. 6nfulfilled promises: In some cases, especially among less-nown franchisors, the
franchisees have not received all they were promised. 0any franchisees have found that
the promised assistance from the franchisor has not been forthcoming. If franchisees
complain, they ris having their agreement with the franchisor terminated or not renewed.
@. 'o ri.ht to sell the *usiness: 2ranchisees usually do not have the right to sell their
business to the highest bidder or to leave it to member of their family without approval
from the franchisor.
7. 'o .ood,ill: Though the franchisee can build up goodwill for his or her business by his
or her efforts, goodwill still remains the property of the franchisor.
A. -ependent: The franchisee may become sub:ect to fail with the failure of the franchisor.
+. 3uy *ac) option: 2ranchisors generally reserve the option to buy bac an outlet upon
termination of the contract. 0any franchisees become vulnerable to this option. 1s such,
they operate under the constant fear of non-renewal of the franchise arrangement.
Types of /ranchisin.:
2ranchising arrangements are broadly classified into three typesB
(. Product /ranchisin.: this is the earliest type of franchising. =nder this, dealers were
given the right to distribute goods for a manufacturer. 2or this right , the dealer pays a fee
for the right to sell the trademared goods of the producer. 3roduct franchising was used,
perhaps for the first time, by singer 6orporation during the (*55s to distribute its sewing
machines. This practice subse/uently becomes popular in the petroleum and automobile
industries also.
4. 1anufacturin. /ranchisin.: =nder this arrangement, the franchisor %manufacturer,
gives the dealer the exclusive right to produce and distribute the product in a particular
area. This type of franchising is commonly used in the soft-drin industry.
?. 3usiness4/ormat /ranchisin.: this is recent type of franchising and is the most popular
one at present. It is an arrangement under which the franchisor offers a wide range of
services to the franchisee, including mareting, advertising, strategic planning, training,
production of operations manuals and standards and /uality-control guidance.
-ifference *et,een /ranchisin. and -istri*utorship or A.ency
<istributorship and agency are the more traditional forms of distributing goods or services.
=nder these, the principal is not allowed to exert the real control over the distributor or agent.
"ere, the franchising differs from the distributorship and the agency in the sense that it allows
the franchisor to exercise a higher degree of control over the franchisee. 1s a matter of fact, the
franchisor has a right to say in all important matters lie branding, methodology and mergers.
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Strate.ic Alliances:
1 'trategic 1lliance is a relationship between two or more parties to achieve a set of agreed goal
or to meet a critical business need while remaining independent organizations. 1n arrangement
between two companies that have decided to share resources to undertae a specific, mutually
beneficial pro:ect is called strategic alliance. In a strategic alliance, each company maintains its
autonomy while gaining a new opportunity. 1 strategic alliance could help a company develop a
more effective process, expand into a new maret or develop an advantage over a competitor,
among other possibilities. 9ell-structured strategic alliances can improve profitability and allow
a company to more easily enters new marets
3artners may provide the strategic alliance with resources such as products, distribution
channels, manufacturing capability, pro:ect funding, capital e/uipment, nowledge, expertise, or
intellectual property. The alliance is a co-operation or collaboration which aims for a synergy
where each partner hopes that the benefits from the alliance will be greater than those from
individual efforts. The alliance often involves technology transfer %access to nowledge and
expertise,, economic specialization, shared expenses and shared ris.
Sta.es of Alliance /ormation
1 typical strategic alliance formation process involves these steps-
Strate.y -evelopment- 'trategy development involves studying the alliances
feasibility, ob:ectives and rationale, focusing on the ma:or issues and challenges and
development of resource strategies for production, technology, and people. It re/uires
aligning alliance ob:ectives with the overall corporate strategy.
Partner Assessment- 3artner assessment involves analyzing a potential partners
strengths and weanesses, creating strategies for accommodating all partners
management styles, preparing appropriate partner selection criteria, understanding a
partners motives for :oining the alliance and addressing resource capability gaps that
may exist for a partner.
Contract 'e.otiation- 6ontract negotiations involves determining whether all parties
have realistic ob:ectives, forming high caliber negotiating teams, defining each partners
contributions and rewards as well as protect any proprietary information, addressing
termination clauses, penalties for poor performance, and highlighting the degree to which
arbitration procedures are clearly stated and understood.
Alliance 7peration- 1lliance operations involves addressing senior managements
commitment, finding the caliber of resources devoted to the alliance, lining of budgets
and resources with strategic priorities, measuring and rewarding alliance performance,
and assessing the performance and results of the alliance.
Alliance Termination- 1lliance termination involves winding down the alliance, for
instance when its ob:ectives have been met or cannot be met, or when a partner ad:usts
priorities or re-allocates resources elsewhere.
Advanta.e of strate.ic alliance-
The advantages of strategic alliance include-
(. 1llowing each partner to concentrate on activities that best match their capabilities.
4. >earning from partners C developing competences that may be more widely exploited
elsewhere.
?. 1de/uate suitability of the resources C competencies of an organization for it to survive.
-isadvanta.es
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Implementing and managing a strategic alliance may be difficult because each alliance
partner has a different way of operating. 0istrust could occur, particularly when
competitive or proprietary information is involved. The alliance partners could become
more dependent on each other, maing it difficult to operate again as separate entities if
re/uired.
Types of Strate.ic Alliance:
There are four types of strategic alliances- :oint venture, e/uity strategic alliance, non-e/uity
strategic alliance, and global strategic alliances.
8oint venture is a strategic alliance in which two or more firms create a legally
independent company to share some of their resources and capabilities to develop a
competitive advantage.
E9uity strate.ic alliance is an alliance in which two or more firms own different
percentages of the company they have formed by combining some of their resources and
capabilities to create a competitive advantage.
'on4e9uity strate.ic alliance is an alliance in which two or more firms develop a
contractual-relationship to share some of their uni/ue resources and capabilities to create
a competitive advantage.
Glo*al Strate.ic Alliances woring partnerships between companies %often more than
two, across national boundaries and increasingly across industries, sometimes formed
between company and a foreign government, or among companies and governments.
Technolo.y (icensin.: this is a contractual arrangement whereby trade mars,
intellectual property and trade secrets are licensed to an external firm. It is uses mainly as
a low cost way to enter foreign marets. The main downside of licensing is the loss of
control over the technology-as soon as it enters other hands the possibility of exploitation
arises.
Product (icensin.: this is similar to technology licensing except that the license
provided is only to manufacture and sell a certain product. =sually each licensee will be
given an exclusive geographic area to which they can sell to. Its a lower-ris way of
expanding the reach of your product compared to building your manufacturing base and
distribution reach.
/ranchisin.: franchising is any arrangement in which the owner of a trademar, trade
name or copyright has licensed others to use it in selling goods or services. The
franchisee is generally legally independent but economically dependent on the integrated
business system of franchisor.
+esearch and development: 'trategic alliances based around .esearch and development
tends to fall into the :oint venture category, where tow or more businesses decide to
embar on a research venture through forming a new entity.
-istri*utors: if you have a product one of the best ways to maret it is to recruit
distributors, where each one has its own geographical area are type of product. This
ensures that each distributors success can be easily measured against other distributors.
-istri*ution +elationships
This is perhaps the most common form of alliance. 'trategic alliances are usually formed
because the businesses involved want more customers. The result is that cross-promotion
agreements are established. 6onsider the case of a ban. They send out ban statements
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every month. 1 home insurance company may approach the ban and offer to mae an
exclusive available to their customers if they can include it along with the next ban
statement that is sent out. Its a win-win agreement D the ban gains through offering a
great deal to their customers, the insurance company benefits through increased customer
numbers, and customers gain through receiving an exclusive offer.
7utsourcin.
The ()*5s was the decade where outsourcing really rose to prominence, and this trend
continued throughout the ())5s to today, although to a slightly lesser extent. The early
forecasts, such as the one from 1merican Eournalist >arry Elder, have been shown to not
always be true- F#utsourcing and globalization of manufacturing allows companies to
reduce costs, benefits consumers with lower cost goods and services, causes economic
expansion that reduces unemployment, and increases productivity and :ob creation.G
Affiliate 1ar)etin.
1ffiliate mareting has exploded over recent years, with the most successful online
retailers using it to great effect. The nature of the internet means that referrals can be
accurately traced right through the order process. 1mazon was the pioneer of affiliate
mareting, and now has tens of thousands of websites promoting its products on a
performance-based basis.
E4Commerce
E-6ommerce is establishing exchange relationships electronically through e-mail, internet, and
electronic platforms to satisfy individual needs of customers. It is direct mareting based on
electronic communication. E-commerce is conducted through on-line computers. E-commerce is
the buying and selling of goods and services on the Internet, especially the 9orld 9ide 9eb.
Internet serves as the communication channel.
E-commerce encompasses the use of technologies, processes and management practices that
enhance organizational competitiveness through strategic use of electronic information. E-
commerce is, thus a modern methodology that addresses the need of organizations merchants,
and consumer. It cuts costs while improving the /uality of goods and services and increasing the
speed of service delivery.
Ecommerce can be broken into four main categories: B2B, B2, 2B, an!
2.
3"3 %3usiness4to43usiness&
6ompanies doing business with each other such as manufacturers selling to distributors
and wholesalers selling to retailers. 3ricing is based on /uantity of order and is often
negotiable.
3"C %3usiness4to4Consumer&
$usinesses selling to the general public typically through catalogs utilizing shopping cart
software.
C"3 %Consumer4to43usiness&
1 consumer posts his pro:ect with a set budget online and within hours companies review
the consumerHs re/uirements and bid on the pro:ect. The consumer reviews the bids and
selects the company that will complete the pro:ect.
C"C %Consumer4to4Consumer&
There are many sites offering free classifieds, auctions, and forums where individuals can
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buy and sell things to online payment systems lie 3ay3al where people can send and
receive money online with ease. e$ayHs auction service is a great example of where
person-to-person transactions tae place everyday since ())7
/eatures of E4Commerce
Individualized communication-
<ata depository
E-mail and Electronic platforms
#n-line selling
.elationship mareting
Connectivity throu.h e4commerce:
E-commerce taes a customer concept for individualized mareting. It is rapidly growing.
! Connectin. ,ith customers:
E-commerce connects directly with customers on one to one basis. Ioice mail has
facilitated interactions with customers. 6onnectivity can be- $usiness to consumer
%$46,, business to business %$4$,, 6onsumer to consumer %646,, consumer to
business %64$,. <atabases are built to provide information about individual customer.
6ost, time, distance and space are minimized.
Ecommerce connects with carefully selected customers. It targets profitable
customers.
E-commerce connects customers for a lifetime. It helps to build relationship to mae
longer term profits.
"! Connectin. ,ith sta)eholders:
E-commerce connects with staeholders, such as employees, suppliers, competitors,
middlemen, and mareting intermediaries. 3aper wor is eliminated
E-commerce connects with strategic alliance partners. They can be related to
mareting, logistics, technology, finance.
3! Connectin. .lo*ally:
E-commerce has facilitated connections with global customers. It has expanded
geographical coverage of purchasing manufacturing and mareting.
3enefits of e4commerce
E-commerce is win-win situation for the consumer and the productJ service provider. The distinct
advantages e-commerce can offer to the consumer are-
6onsumer has much wider choice available on the cyber maret.
They can compare products, features, prices and even loo up reviews before they
select what they went.
They also have the convenience of having their orders delivered right to the doorstep.
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2inally, consumers are driven to e-shopping in hordes as even branded goods cost less
on the net.
The ma:or advantages that e-commerce can bring to the companies are-
It minimi:es inventory cost: E-commerce venture need not maintain huge inventories or
expensive retail show rooms. Their mareting and sales force is a fraction of those of
traditional mortar-based businesses. E-commerce can minimize inventory costs by
adopting :ust-in-time system enhancing the firms ability to forecast demand more
accurately.
Improve customer services: It has been found that providing both customer and after-
sale services account for up to (5 per cent of the operating costs. $y putting these
services on-line under e-commerce, these costs get reduced, on the one hand, and
simultaneously the /uality of services also gets improved, on other. "igh /uality
customer relationship called customization is crucial for retaining customers in the e-
commerce environment. It become necessary for the company to enhance customer
loyalty, otherwise the customer, who is full of choices, can :ump from one website to
another. If company is to stay in business then it will have to deliver the products or
services to customer as they want, when they want and how they want.
+educe distri*ution cost: E-commerce also reduce distribution cost of goods and
service. The Electronic <ata Interchange %E<I, based on EE6< study has revealed that
the time needed to process an order declined by a minimum of 758 to maximum of )A8
per cent. It is really amazing.
Helps *usiness .lo*ali:e: E-commerce by minimizing costs enables companies
especially small ones to mae information on its products and services available to all the
potential customers spread over worldwide.
Helps mar)et products more 9uic)ly: $y taing the entire product design process on-
line, drawing partners and customers into the process and removing the traditional
communication barriers, companies can bring products and services to maret far more
/uicly.
Challen.es of e4commerce
E-commerce in spite of opportunities also bears the challenges as well at the same time. The
ma:or challenges of e-commerce facing by small enterprises are mentioned below-
Infrastructural pro*lems: infrastructural problem is the main challenge of e-commerce.
9ith out development of modern communication and transportation, e-commerce is not
possible.
A*sence of cy*er la,s- 1nother big challenge associated with e-commerce maret is the
near absence of cyber laws to regulate transactions on the net. 9T# is expected to enact
cyber laws soon.
14
Privacy and security concern: another challenge related to e-commerce is privacy and
security. There is no protection offered either by 9ebsite or outside watchdogs against
hazard created by exploitation ones privacy.
-i.ital Illiteracy and consumer a,areness: 1t present, digital illiteracy is one of the
formidable problems e-commerce is facing in ;epal. #n the other hand, the continuous
exodus of silled computer engineers to other countries has denuded ;epal of software
engineers. This has posed a real thereat to the ;epal IT industry.
The consumer does not browse the net nowing the conse/uent hassles of connectivity
and other botherations. 1dded to this building trust on the electronic media also taes
long time more especially when the vendor is situated at a very far off place.
;irus Pro*lem: the computer virus is also a ma:or problem in the execution of e-
transactions.
En.lish specific: the software so far in the country is English specific. $ut, in order to
mae e-commerce reach to the small enterprises, it needs to be available in the languages
%regional, of the owners of the small enterprises to enable them to adapt e-commerce
processes in their operations. 'ooner it is done better will be it for small enterprises to
adapt e-commerce.
Payment issue: the electric payment is made through credit card which could not
become popular in ;epal due to the penetration of credit card in ;epal is very low and
the ;epali customers are /uit septical of paying by credit card with the increasing threat
of fraud played by hacers. In ;epal credit card could not gain growth mainly because of
authentification and recognition problems of electronic signatures.
Ta5 related issue: Tax administration is yet another complex problem in e-commerce. It
is difficult to administer tax related matter in e-transactions. It will provide ample scope
for tax evasion.
Impact of E4commerce on Entrepreneurship
<irect mareting
Electronic mareting
6ost effective
0areting mix
3romotion
'trategic alliances
E4commerce strate.y for entrepreneurs:
3resence- The e-name is registered. The entrepreneur builds excitement about products of
the venture in the maret place to mae its presence felt.
3enetration- the entrepreneur focused on gaining greater maret share for the products.
3rofitability- The entrepreneur focuses on increasing revenue.
Ethic and Social +esponsi*ility
15
In the broadest sense, ethics provide the basic rules or parameters for conducting any
activity in an acceptable manner. 0ore specifically, ethics represent a set of principles
prescribing a behavioral code that explains what is good and right or bad or wrong. It is a
set of moral principles or values that governs the conduct of an individual or a group.
9hat is lawful conduct is not always ethical conduct. The law may permit something that
would be ethically wrong. $usiness ethics comprises the moral and standards that guide
behavior in the world of business.
$usiness ethics is an important issue today. $usiness organizations are being /uestioned
and charged for their unethical behavior. Ethical issues arise in every stages of business.
6riticisms are being labeled against them for their unethical actions by different sections
of the society. Entrepreneurs cannot afford to overloo such criticisms and charges. Their
role has thus, increased. They have now to adopt ethical behavior and be responsive. The
call for better business ethics is clearly a challenge for managers today.
'ome business collapses over the last few years that have exposed the lac of moral code
C ethics. It appears that business needs a core of ethics C integrity to flourish and en:oy
long term success. Ethics are not optional because entrepreneurs wor C live with other
human beans.
Sources of 3usiness Ethics:
1n organizations ethics is derived from three principal sources-
Societal ethics: 'ocietal ethics are standards that govern how members of a
society deal with each other in matters involving issues such as fairness, :ustice,
and rights of the individual. The ethical standards originate from a societys laws,
customs and practices. These are basically unwritten valuesand norms of a
society. 'ocietal ethics differ from society to society.
Professional ethics: 3rofessional ethics are standards that govern how members
of a profession lie entrepreneurs mae decisions.
Individual ethics: individual ethics are personal standards and values that govern
how individuals interact with on another. 'ources of individual values include the
influence of ones family, friends and relatives.
+ole of Ethics in Entrepreneurship
Ethics have a huge role to play in business as they give a guideline as to which business practices
are socially and morally acceptable and which are not.
In cases where there are no laid down rules as to the right and wrong ways of doing business,
Ethics fill in the gap and give the much needed direction.
1wareness of ethics promotes entrepreneurs to stop from engaging in business practices that lead
to loss of human life and human rights compromise the environment or bring about gain at the
unfair expense of other businesses, employees, consumers, etc.
'ound business ethics benefit the consumer as they strive to direct businesses to be open and
honest to their customers
16
Professor -avid 3atstone offers ten Principles for entrepreneurial ethics:
6ompany directors and management will consider their wor force valuable team
members, not merely hired labor
1 company will thin of itself as a part of a community, not :ust a FmaretG
1 company will tae every possible care to ensure the /uality and safety of the products it
brings to the public
1 company will treat the environment as a silent Fstaeholder,G a party to which it is
wholly accountable
1 company will strive to diversify the ind of people who lead and manage its affairs
1 company will pursue international trade and production based on reciprocal exchanges
that respect the same rights accorded its own people
1 company will care for an organizational culture that encourages its employees to give
critical feedbac on unethical practices, and even Fblow the whistleG when their voices
are ignored
1 company will protect the privacy rights of its suppliers, customers, and employees
1 company will deliver what it promises, and promise what it can deliver
1 company will not see to generate any revenue from practices that threaten life
Social +esponsi*ility:
The obligation of an organizationHs management towards the welfare and interests of the society
in which it operates is called social responsibility. It is a principle that companies should
contribute to the welfare of society and not be solely devoted to maximizing profits. It focuses on
what an organization does to society and what it does for society.
'ocially responsible companies can act in a number of ways to benefit society. 2or example,
companies can give money to the arts, fund academic scholarships, support community-building
initiatives, and so on. They can also commit to not pollute or to reduce the pollution they put out,
to not build weapons, and so forth.
Areas of Social +esponsi*ility:
Enterprises have clear and distinct responsibilities to various groups and entities that have a stae
in the firms. These include-
(. To,ards Consumers: 6onsumer plays a important role in the survival and growth of
business. 6onsumers provide sales revenues, the main source of income for a business
17
firm. Therefore, the purpose of a business is to create customer. 2or that, business has the
accountability towards its customers. This includes-
6harge reasonable prices for products.
3rovide /uality products, product guarantee, and after sale services consistent
with customers re/uests.
Truthful and socially responsible advertising
3rotection against monopoly and restrictive trade practice.
Treat customers fairly in all respects of the business transactions
0ae effort to ensure that the health and safety of consumer will be enhanced by
the product and services.
4. To,ards Shareholders: 'hareholders are the investors. They together own the business.
They contribute capital to the business in the hope of earning dividends and appreciation
in share prices. The shareholders are also the members of society. Thence, the
accountabilities that a business owes to its shareholders are-
.egularity of dividend
<isclose relevant information to shareholders
.espect shareholders re/uests, suggestions, complaints, and formal resolution
.eport on social issues % the amount spent on social and development
programmes,
?. To,ards employees: Employees are the vital components of a business firm. They are
employed in a business as worers and managers. 1s worers, they are directly involved
in performing the basic and operating organizational functions. Thus, business firm owes
responsibilities to these employees on the following counts-
3rovide legitimate decision-maing and policy-maing freedom to managers and
ensuring their full potential growth.
3rovide fair wages, bonus and other economic benefits to all employees that
improve their living conditions
!rant right to form union, giving representation on decision-maing bodies
3rovide woring conditions that respect each employees health and dignity
Institute grievance settling, social security and welfare schemes.
@. To,ards .overnment: government is the agency that governs all the institution and
individuals in the country. It is done through promulgation and implementation of
appropriate laws and regulations. 9ith this bacground, business must be responsible to
the government in the following ways-
3ay tax regularly
2ollow the guidelines and policies
help the governments efforts to solve national problems
18
purchase treasury bills issued by government
1void unfair trade practices
"elp government stop blac mareting
7. To,ards Society: $usiness is operated in a society and has to consider the necessity to
improve the /uality of life and contribute towards well being of the society. In doing so,
business has to fulfill following responsibilities-
0ae efforts to reduce pollution of any ind
0ae optimum utilization of natural and national resources
3rovide maximum employment opportunities
3reserve social and cultural values
3romote national integration and development
$usiness must act as a good citizen.
Small 3usiness ;enturin. E5portin.:
Exporting is the practice of sending or carrying merchandise to a foreign country for trade or
sale. International business is a potentially lucrative area for many businesses, but the small
business owner should be aware that establishing oneself in a foreign maret is a complex, time-
consuming tas. 'mall business should not enter the world of international trade until they have
fully researched both their own exporting capabilities and various business conditions in the
target maret%s, abroad. Indeed, consultants point to a wide range of factors to consider when
assessing your companyHs readiness to expand its business beyond borders. These include
company export readiness, potential foreign marets, product distribution options, legal factors,
operating costs and profit margin, financing resources, and exporting alternatives %such as :oint
ventures or off-shore manufacturing facilities,.
Exporting is sometimes thought of as a practice that is largely the province of large businesses
and international corporations, but exporting can also be helpful to a small business in a variety
of ways. 1 small business that establishes its products in the international maretplace can
increase sales and profitability, enhance its domestic reputation, reduce its dependence on
domestic marets, reinvigorate the sales potential of existing products, stabilize seasonal maret
fluctuations, sell excess production capacity, and increase awareness of possible foreign
competitors.
#f course, exporting is not a ris-free venture. Expanding a small businessHs operations into
foreign marets may re/uire the development of new promotional materials, assumption of
increased short-term debt as a result of new operational and administrative costs, re-assignment
of personnel, and ad:ustments in product functionality and appearance to meet the commercial
and social standards of the environment in which the business hopes to establish itself.
Preparin. for the <orld of E5portin.:
'mall business consultants counsel their clients to undertae research and self-analysis before
committing time and resources to breaing into international marets. Indeed, consultants stress
that a small business should be able to answer positively to the following /uestions before
considering expanding its business to include exporting-
Is the business currently successful in its domestic operationsK
19
<oes the business owner understand the types and amounts of investments %time, capital,
and people, he or she will have to mae to establish the businessHs product in the targeted
maretK
Is the business sensitive to the cultural implications of doing business in the targeted
maretK
Is the business willing to commit needed resources to mae the exporting effort worK
In order to arrive at an informed answer to the above /uestions, consultants recommend that
business owners with an eye to international marets tae the time to complete an international
business plan. This document can highlight potential trouble spots and business areas that need
further research. Exporting factors that should be considered in any international business plan
include-
Identification of potential maret
<emographic and political environment of potential maret
Economic status of potential maret
'ocial and cultural environment of potential maret
1ccess to potential maret %includes research on tariffs and other trade barriers, treaties,
trade regulations, patent and trademar protection,
<emand for product
3ossible competition within potential maret
3ossible distribution channels
>ocal distribution and production environment within potential maret
Exporting methodology
1ny necessary ad:ustments to product or pacaging
0areting strategy
6ost of exporting operation
3ricing strategy
3ro:ected sales
3ro:ected fortunes of domestic operation
1ethod of E5portin.
There are two types of exporting- direct and indirect.
! -irect e5ports
<irect exports represent the most basic mode of exporting, capitalizing on economies of scale in
production concentrated in the home country and affording better control over distribution.
<irect export wors the best if the volumes are small. >arge volumes of export may trigger
protectionism. <irect exporting practices generally re/uire greater initial outlays of funds,
personnel, and other resources, and they are generally regarded as risier in nature than indirect
exporting options. $ut direct exporting can also be a tremendously profitable practice. It
basically re/uires businesses to find a foreign buyer for its products and mae all arrangements
to deliver those goods to the buyer.
Types of Direct Exporting:
a& Sales representatives
'ales representatives represent foreign suppliersJmanufacturers in their local marets for
an established commission on sales. 3rovide support services to a manufacturer regarding
20
local advertising, local sales presentations, customs clearance formalities, legal
re/uirements. 0anufacturers of highly technical services or products such as production
machinery, benefit the most form sales representation.
*& Importin. distri*utors
Importing distributors purchase product in their own right and resell it in their local
marets to wholesalers, retailers, or both. Importing distributors are a good maret entry
strategy for products that are carried in inventory, such as toys, appliances, prepared food.
Advantages of direct exporting
6ontrol over selection of foreign marets and choice of foreign representative companies
!ood information feedbac from target maret
$etter protection of trademars, patents, goodwill, and other intangible property
3otentially greater sales than with indirect exporting.
Disadvantages of direct exporting
"igher start-up costs and higher riss as opposed to indirect exporting
!reater information re/uirements
>onger time-to-maret as opposed to indirect exporting.
"! Indirect e5ports
Indirect exports are the process of exporting through domestically based export intermediaries.
The exporter has no control over its products in the foreign maret.
Types of Indirect Exporting
a& E5port tradin. companies %ETCs&
These provide support services of the entire export process for one or more suppliers.
1ttractive to suppliers that are not familiar with exporting as ET6s usually perform all
the necessary wor- locate overseas trading partners, present the product, /uote on
specific en/uiries, etc.
*& E5port mana.ement companies %E1Cs&
These are similar to ET6s in the way that they usually export for producers. =nlie
ET6s, they rarely tae on export credit riss and carry one type of product, not
representing competing ones. =sually, E06s trade on behalf of their suppliers as their
export departments.
c& E5port merchants
Export merchants are wholesale companies that buy unpacaged products from
suppliersJmanufacturers for resale overseas under their own brand names. The advantage
of export merchants is promotion. #ne of the disadvantages for using export merchants
result in presence of identical products under different brand names and pricing on the
maret, meaning that export merchants activities may hinder manufacturers exporting
efforts.
d& Confirmin. houses
These are intermediate sellers that wor for foreign buyers. They receive the product
re/uirements from their clients, negotiate purchases, mae delivery, and pay the
suppliersJmanufacturers. 1n opportunity here arises in the fact that if the client lies the
21
product it may become a trade representative. 1 potential disadvantage includes
suppliers unawareness and lac of control over what a confirming house does with their
product.
e& 'onconformin. purchasin. a.ents
These are similar to confirming houses with the exception that they do not pay the
suppliers directly D payments tae place between a supplierJmanufacturer and a foreign
buyer.
Advantages of Indirect Exporting
2ast maret access
6oncentration of resources for production
>ittle or no financial commitment. The export partner usually covers most expenses
associated with international sales
>ow ris exists for those companies who consider their domestic maret to be more
important and for those companies that are still developing their .C<, mareting, and
sales strategies.
The management team is not distracted
;o direct handle of export processes.
Disadvantages of Indirect Exporting
"igher ris than with direct exporting
>ittle or no control over distribution, sales, mareting, etc. as opposed to direct exporting
Inability to learn how to operate overseas
9rong choice of maret and distributor may lead to inade/uate maret feedbac affecting
the international success of the company
3otentially lower sales as compared to direct exporting, due to wrong choice of maret
and distributors by export partners.
Those companies that seriously consider international marets as a crucial part of their
success would liely consider direct exporting as the maret entry tool. Indirect exporting is
preferred by companies who would want to avoid financial ris as a threat to their other
goals.

1a=or Constraints
The ma:or constraints encountered by the small units in exporting their products are as
follows-
a, Credit Policy: The small scale units have wea-base of their own funds, on the one hand,
and have no access to other sources of funds lie capital maret, on the other. "ence, they
have to depend upon the state financial corporations, the commercial bans and private
money lenders to meet their long-term and short-term capital re/uirements. It re/uires
high cost of capital. Therefore, there should be the need for a comprehensive credit
scheme targeted at small industry exports.
b, Infrastructure: >ac of infrastructure facilities lie power supply, transportation and
communication adversely affect the /uantity and /uality of production, its costs and
delivery.
c, Technolo.y: Technology is the heart of /uality and competitiveness. "owever, the
adoption of technology in small industries hampered due to lac of infrastructural
22
facilities, on the one hand, and the present investment ceiling of the small scale industry,
on the other.
Ho, to E5port Commercial Goods into 'e, International 1ar)ets
(. Export 3lanning
4. 'creening 3otential 0arets
7*tain e5port statistics!
Identify potential mar)ets!
Tar.et the most promisin. ones!
3. 1ssessing Lour Target 0arets
E5amine product trends
+esearch the competition
Analy:e the mar)et!
Identify *arriers!
Choose a mar)et!
@. 2inding Mualified $uyers
Search online! .
Attend trade sho,s! .
Contact industry associations!
6se the -epartment of /orei.n Affairs and International Trade %<21IT& Trade
Commissioners Service!
0! Taing 6are of >ogistics
A. Export <ocumentation
+. 3ricing it .ight
Cost *ased!
1ar)et demand!
Competitor pricin.!
8. 3ayment Terms
Cash in advance!
-ocumentary (etters of Credit %(Cs&!
7pen account!
). Export 2inancing
Entrepreneurial net,or)
In business, entrepreneurial networs are social organizations offering different types of
resources to start or improve entrepreneurial pro:ects. "aving ade/uate human resources is a ey
factor for entrepreneurial achievements. 6ombined with leadership, the entrepreneurial networ
is an indispensable ind of social networ not only necessary to properly run the business or
pro:ect, but also to differentiate the business from similar pro:ects.
Purpose
The goal of most entrepreneurial networs is to bring together a broad selection of professionals
and resources that complement each otherHs endeavors. Initially a ey priority is to aid successful
business launches. 'ubse/uently provide motivation, direction and increase access to
23
opportunities and other sill sets. 3romotion of each members talents and services both within
the networ and out in the broader maret increases opportunities for all participants.
#ne of the ey needs of any startup is capital, and often entrepreneurial networs focus on
providing such financial resources, particularly tailored to their membership demographic.
Entrepreneurial networs may also become community involved, endorsing reforms, legislation
or other municipal drives that accommodate their organizationHs goals.
1em*ership composition
lawyers, various specialties
scientists
engineers
architects
contractorsJconstruction managers
real estate professionals
suppliers
government people or institutions
partners
high silled employees
clients or any other ind of social contacts that can mae the entrepreneurial business %or
pro:ect, successful
mentors
investors
E4entrepreneurship
E"entre#reneurs$i# !escribes entre#reneurs$i# in e"business. E-entrepreneurship
refers to establishing a new company with an innovative business idea within the ;et Economy.
It uses an electronic platform in data networs. E-entrepreneurship offers its products or services
based upon a purely electronic creation of value. 9e use the term e-entrepreneurship to refer
primarily to the digital enablement of transactions and processes within a firm, involving
information systems under the control of the firm. E-entrepreneurship does not include
commercial transactions involving an exchange of value across organizational boundaries. This
value offer by e-entrepreneurship is only made possible through the development of information
technology. Example of e-entrepreneurship is !oogle.com, e$ay.com, yahoo.com, amazon.com,
etc.
%$e e"!imension of entre#reneurs$i# incor#orates a&& t$e ke' e&ements of
entre#reneurs$i# inc&u!ing risk"taking, #roacti(e, an! inno(ation in bui&!ing,
running an! managing e"business. %$e conce#t of e"entre#reneurs$i# is not
&imite! to sma&& e"businesses but inc&u!es cor#orate e"intra#reneurs$i#
)$ic$ is embe!!e! in estab&is$ing e"infrastructure to !o e"business in &arge
organi*ations. E"entre#reneurs$i# o#erates in a fast"mo(ing, $ig$&'
uncertain, unkno)ab&e an! un#re!ictab&e conte+t. ,t re-uires c$ange in t$e
tra!itiona& conce#t of entre#reneurs$i#. .or e+am#&e, t$e tra!itiona& notion of
entre#reneurs$i# of being or becoming an e+#ert or /n!ing an! #rotecting a
uni-ue kno)&e!ge in a nic$e market, c&as$es )it$ t$e fact t$at e"business
24
kno)&e!ge is often s$ort"&i(e! an! a(ai&ab&e to e(er'one, an'time, an!
an')$ere.
Advantages:
The advantage of e-business is its ubi/uity, or the ability to transcend geographical
constraints and remain accessible from everywhere.
The second biggest advantages of e-business are its cost-effective nature. 1n e-business
does away with many processes and costs associated with a traditional business.
The e-business also re/uires fewer employees, with the entrepreneur herself able to
single-handedly manage the entire operations of a small or medium e-business.
E-businesses help in serving the customer better. In e-business, customers access
comprehensive information of the desired product or service, mae comparisons, and
effect the purchase, all with a few clics of the mouse.
The customer of an e-business can access the entrepreneur directly through email or
online chat, compared to dealing with the many hierarchical levels, or lengthy telephone
holds up when trying to access the customer service department of a traditional business.
-isadvanta.es:
The biggest disadvantage of e-business is its inherent separation from the customer. The
customer and the product come face to face in a traditional bric and mortar business.
The faceless nature of an e-business causes an issue of trust, which remains hard to
resolve.
1nother big disadvantage of e-business is its unsuitability in many areas or sectors. E-
business, for instance, cannot treat a patient.
The success of an e-business depends on strong computer systems, updating and
maintaining the website, security of e-commerce transactions, reliability of shipping and
delivery, and search engine optimization.
1 far bigger threat is the danger from viruses, Tro:ans, worms, and other malware.
2inally, success of an e-business depends largely on the success of the delivery channel
partner. #nly those e-businesses that can ensure delivery of the product to the customer in
a timely and safe manner can survive.
Success factors
6omputer 'cience
It is important to have substantial nowledge about the technologies
Information 0anagement
The technological basis provided by 6' must be managed and it is important to have
nowledge about security, data warehousing, data mining.
$usiness 1dministration
It is essential to have solid business nowledge
"!! Entrepreneurship vs! e4Entrepreneurship
entrepreneurship consist on the process of creating something new and assuming the riss and
rewards, e-Entrepreneurship will consist on creating owner business activity on internet in some
area to sell or provide service something only online, such as email service <I<s, including
rental and $oos, 6omputers, T-shirts, 6ell phones, 0agazine subscription, 'oftware, etc.
25
Chapter #
Creativity and 3usiness Ideas
Concept of Creativity:
6reativity is the generation of ideas that result in the improved efficiency or effectiveness of a
system. It is the ability to discover new ways of looing at problems and opportunities.
6reativity can be defined as the tendency to generate or recognize ideas, alternatives, or
possibilities that may be useful in solving problems, communicating with others, and entertaining
ourselves and others. It is any act, idea, or product that changes an existing domain or that
transforms an existing domain into a new one.
It is the result of free, unbiased and unconventional thining. It is based on mental vision,
imagination and observation. It is systematic and logical process to see, recognize, and create
opportunity. It concerned with solving business problem by continually asing F9hat ifN.KG or
F9hy nNKG
In conclusion, creativity is the entrepreneurs ability of analyzing problem from every possible
angle- what is the problemK 9hom does it affectK "ow does it affect themK 9hat costs are
involvedK 6an it be solvedK 9ould the maretplace pay for a solutionK
Aspect of Creativity:
6reativity has two aspects-
(. Process: creativity process is goal-oriented. It is designed to find solution to a problem.
This process occurs in a creative climate.
4. People: creativity lies in people. They are inherently creative. It is people who determine
the solution to a problem. They use following approaches to discover to solve problems-
Adaptive approach: existing solution are adapted to solve problems.
Innovative approach: innovative solution is formulated to solve problems.
Essentials of Creative Climate:
6reativity occurs in a creative climate. 6haracteristics creative climate are-
Trustful management that does not over control.
#pen communication inside and outside the organization
3eople with variety of personality types.
9illingness to accept change.
Experimentation with new ideas.
>ittle fear of maing mistaes.
0erit-based human resource management.
Encouragement to ideas through brainstorming, suggestion system etc.
'ufficient financial, physical and information resource.
6hanneling of creativity in various arenas.
26
Creative Process:
The creative process has four commonly agreed steps-
(. 3ac).round or )no,led.e accumulation: the first step in creative process is
nowledge accumulation. It involves investigation and information gathering to get
various perspectives on the problem. 3eople practice the creative search for bacground
nowledge in a number of ways. 'ome of the most helpful follow-
.ead in a variety of fields
Eoin professional groups and associations
1ttend professional meetings and seminars
Travel to new places
Tal to anyone and everyone about your sub:ect
'can magazine, newspaper, and :ournals for articles related to sub:ect
<evelop a sub:ect library for future reference
6arry a small noteboo and record useful information
<evote time to pursue natural curiosities.
4. Incu*ation: the second step involves sleeping on the problem. It involves assimilation of
nowledge to generate new idea to solve the problem. 6reative individuals allow their
subconscious to mull over the tremendous amounts of information they gather during the
preparation phase. The incubation process often occurs while they are engaged in
activities totally unrelated to the sub:ect or problem. It happens even when they are
sleeping. 'ome of the most helpful steps to induce incubation follow-
Engage in routine mindless activities %cutting the grass, painting the hours,
Exercise regularly
3lay %sports, board games, puzzles,
Thin about the pro:ect or problem before falling asleep
0editate or practice self-hypnosis
'it bac and relax on a regular basis
?. The idea e5perience: this phase of the creative process is often the most exciting. In this
stage the idea or solution the individual is seeing is discovered. Ideas emerge in a rough
form. Idea experience can be speeded up by-
<aydream and fantasize about your pro:ect
3ractice your hobbies
9or in a leisurely environment %for example, at home instead of the office,
3ut the problem on the bac burner
&eep a noteboo at bedside to record late-night or early-morning ideas
Tae breads while woring.
@. Evaluation and implementation: the fourth step is to modify, test or rewor on rough
ideas to put them in final form. It taes courage, self-discipline and preservance to
evaluate and select the ideas. 'ome of the most useful suggestions for carrying out this
phase follow-
Increase your energy level with proper exercise, diet, and rest
Educate yourself in the business-planning process and all facets of business
Test your ideas with nowledgeable people
27
Tae notice of your intuitive hunches and feelings
Educate yourself in the selling process
>earn about organizational policies and practices
'ee advice from others
The ideas that pass the test of evaluation are implemented.
The +ole of Creativity:
$asically creativity can play important role in following aspect of entrepreneurial wor-
1 creative person can innovate ideas as per the demand of maret chance.
They can materializing the imagination to mould the change
1ble to change the domain of thought
They can synthesize the ideas from scientific invention to changing demand of people.
The leader of the organization is creative they can allow to set the governing rules
themselves which can help them to bring new business ideas in the organization.
To bring the new ideas in the organization they have to allow trial and error which may
cause failure. 6reative people may allow such failure in the organizations.
.outine wor may ill the creativity. 3eople may have different ways to perform
particular tas. 'o, they should be flexible in the activities to perform.
Sources of ne, *usiness ideas:
The sources of new business ideas can be-
! Consumers: organization may get new business ideas through regular listening to the
customers. 6ustomer complaints or suggestions can lead for the development of new
products, services or processes. If we regularly records complaints and try to minimize
such complaints it may give a birth of a new product.
"! Competitors: Entrepreneur always constantly monitors the activities of the competitors.
9hat are competitors new products, services or processesK 9hat alteration in the
existing system are they binging into the practiceK 9ho are competitorss dissatisfied
customersK That do they wantK 9hat new read:ustment can help to bring hose to
companys offeringK 'eeing answers of such /uestions may help for development of
new products, services or process.
3! Channel mem*ers and sales force: these people are very close to the customers. They
fre/uently listen customer complaints and suggestions. They also can notice the
inconveniences of customers and competitors activities and offering. They regularly
monitor the customers evaluation of the offering with respect to competitors offerings.
#! Government: government can be the sources of new product idea. !overnment agencies
may suggest ideas through training or registration activities while entrepreneurs go for
registration of the entrepreneurial wor. They can pursue different policies and
publications for entrepreneurship development in the country. !overnment can establish
different standards and measures for business up gradation which can provide the
avenues for new product, service or process development to the entrepreneurs.
0! +esearch and developmental ,or): Entrepreneur can establish a separate unit for
regular research and development wor, or hire such expert team for a specific research
and development wor or can find out a new combination of offering uni/uely in their
day to day activities!
Techni9ue or 1ethod of Idea Generation:
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(. 3rainstormin.: $rainstorming is a method of idea generation. Its purpose is to solve
problem that are new to the organization. In brainstorming, the group meets to generate
alternatives. The members present ideas and clarify them with brief explanation. Each
idea is recorded on a flip chart. !roup members are encouraged to offer any idea that
occurs to them, even those that seem too risy and impossible to implement. In this
process, criticisms or evaluation of ideas in not allowed. Muantity of ideas is very
important. Each individual should not screen his or her ideas.
1fter a list of ideas has been generated, those most obviously impracticable are
eliminated from the list. The /uantities of ideas that remain in the list are then ept for
serious discussion. This process ultimately lead to a broad agreement on the vital ideas to
be considered for implementation.
4. +everse 3rainstormin.: .everse brainstorming is lie brainstorming but in reverse
brainstorming criticism is allowed. It is conducted finding the fault of others. Muestions
are ased how it cannot wor or idea can fail.
?. 3rain ,ritin.: unlie in brainstorming, the individual in groups write down their ideas
on sheets of paper. The papers are then exchanged and other members of the group mae
modifications and suggestions writhing. Each participant thins and records ideas
individually, without any verbal interaction.
"ere are the steps in a typical $rain writing session-
3articipants sit around a table and each one gets a sheet of paper with the same
problem statement written at the top. Eust lie in traditional brainstorming, also
need a moderator for the session.
1t the moderators signal, each participant has to ,rite do,n ideas on the sheet
of paper! Eust lie in traditional brainstorming, the ideas should always go
unedited.
9hen time is up %or when everybodys done,, each participant passes the sheet
of paper to the participant to the left!
Each participant now reads the ideas that were previously written and a new round
starts. Each participant must again come up with new ideas. 3articipants are free to
use the ideas already on the sheet as triggers O or to ignore them altogether.
The group can agree to stop after a fixed number of rounds %such as when sheets
come to a full turn around the table, or when participants feel that contributions are
exhausted.
1fter the idea-gathering phase is completed, the ideas are read, discussed and
consolidated with the help of the moderator, :ust lie in traditional brainstorming.
@. 'ominal Group Techni9ue: nominal group techni/ue involves a two-stage process. In
the first stage, individual wor separately. Then, in the second stage, they wor as an
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interacting group to evaluate and choose the alternatives. Thus, the first stages involve
generating ideas, goals and alternatives. The second stage involves the group collectively
listing and then evaluating the ideas, goals and alternatives generated in the first stage.
This techni/ue is very useful for identifying and evaluating options, and solving a
problem when no standard is available. It is especially useful because it allows
individuals to generate ideas independently and then bring them together to evaluate
those ideas.
7. /ree association: 2ree association is a techni/ue used in psychoanalysis and also in
psychodynamic theory. In this method person wor through their own material, rather
than parroting anothers suggestions considered free association as the first instrument for
the scientific examination of the human mind. It is a techni/ue that ass /uestions about
ob:ects or ideas in an effort to develop new ideas. It is five step process-
Isolate the element of the problem
2ind the relationship between these element
.ecord the relationship in an orderly form
1nalyze the resulting relationship
<evelop new idea from these patterns
A. E5pert 7pinion %-elphi Techni9ue&: in this method opinion of experts and experienced
person is taen as basis of generating new idea. This method is called <elphi techni/ue.
<elphi techni/ue is particularly used for decision maing among geographically scattered
organization. The experienced and nowledgeable persons are ased to give their opinion
through a /uestionnaire about a particular event and situation. The opinions are, thus,
gathered and compiled to get on overall integrated view of the experts on the sub:ect.
This integrated version is sent bac to the experts for moments and further opinion. This
expert opinion, thus, becomes the useful input for generating new idea.
+. /actual Information: in this method, information is collected to define the problem,
identify alternatives, and evaluating the outcomes of these alternatives. In all these
activities, information is vital. <ecisions, which are based on ob:ective facts and
information, are unbiased and more scientific. There is no scope for emotions and social
pressures when decisions are based on information. The problem with this approach is
that desired information is not available all at time. 1ccess to information re/uires cost,
time and money.
*. Intuition and E5perience: information is not available all the time. "ence, the decision
maers use intuitions. They use their hunches, instincts, inner feeling, and previous
experience to reach a decision. In situation such as customer complaints, an in:ury, or a
natural disaster, time constraints mae this action the only viable choice. Intuition
produces good results because they are derived from previous experience.
3usiness Incu*ation Pro.ram:
1 business incubation program is an economic and social development process designed to
advice potential start-up companies through a comprehensive business assistance program. It is a
business support system that accelerates the establishment of successful business by providing
resources and services to the entrepreneurs. The primary goal of business incubation is to
produce successful businesses that are able to operate independently and financially viable. It
offers services to support the establishment and development of new, small and medium
companies. It catalyze the process of starting and growing companies by providing entrepreneurs
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with the expertise, networs and tools thy need to mae their venture successful. It is concerned
with-
'tart up consulting and business planning
6onsulting in all areas important for business development
and growth
6onsulting for access to financing
Training and networing
<hat does the *usiness incu*ation pro.ram offer>
0entoring on $usiness $asics
#nline .esources for Entrepreneurs
2inancial 0anagement
$usiness 3lan <evelopment
Technology 1ssistance
>ins to 'trategic 3artners
1dvisory $oards and 0entors
1ccess to ;etworing 1ctivities
0areting 1ssistance
>egal 1dvice
1ccess to >ocal 2unds
3usiness Incu*ator:
1 business incubator is an economic and social development entity designed to advise potential
start-up companies, help them to establish, and accelerate their growth and success through a
comprehensive business assistance program. 1 business incubator %$usiness and innovation
center, is a physical facility aimed promoting economic development of its community
development. $usiness incubators will provide a variety of resources or resourcefulness which
may include the following-
'hared premises
$usiness advice
$usiness services
;etworing
0entoring
1 full time manager
The importance of 3usiness incu*ators:
$usiness incubators support the development of start-ups by providing them with advisory and
administrative support services. 1n incubatorHs primary ob:ective is to produce successful and
financially viable firms that can survive on their own. Early incubators focused on technology
companies or on a combination of industrial and service companies, but newer incubators wor
with companies from diverse industries.
/inance
Incubators help start-ups save on operating costs. The companies that are part of an incubator can
share the same facilities and share on overhead expenses, such as utilities, office e/uipment
rentals, and receptionist services. 'tart-ups can also tae advantage of lower lease rates if the
incubator is located in low-rent industrial pars. Incubators may also help start-ups with their
financing needs by referring them to angel investors and venture capitalists, and helping them
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with presentations. 'tart-ups may have better luc securing financing if they have the stamp of
approval of incubator programs.
1ana.ement
In addition to financial help, start-ups also need guidance on how to compete successfully with
established industry players. Incubators can tap into their networs of experienced entrepreneurs
and retired executives, who can provide management guidance and operational assistance. 2or
example, a biotechnology start-up would benefit from the counsel of retired pharmaceutical
executives who have first-hand experience of the drug development and clinical approval
process. 'imilarly, a restaurant entrepreneur could learn about the difficulties of overseas
expansion from retired hospitality-industry executives. 'tart-ups usually benefit from having
respected individuals on their boards of directors and scientific advisory panels, because these
individuals bring invaluable connections and experience to the table.
Syner.y
The close woring relationships between an incubatorHs start-ups create synergies. Even after the
start-ups leave an incubator, the connections and networs established through these
relationships can endure for a long time. 'tart-up entrepreneurs can provide encouragement to
one another, and employees may share ideas on new approaches to old problems. 'tart-ups may
plan :oint mareting campaigns and cooperate on product development initiatives.
Economy
$y helping new businesses prosper, incubators assist in creating long-lasting :obs for their host
communities. They create long-lasting :obs for new graduates, experienced mid-career personnel,
and veteran executives. This benefits communities and drives economic growth.
Chapter 0:
3usiness -evelopment Plan for a 'e, ;enture!
$usiness plan is a written statement regarding what the entrepreneur is going to do. It is a
guideline regarding what the entrepreneur has wanted to achieve and how has he wanted to
achieve. The business plan is a roadmap of proposed new venture of the entrepreneur that
describes current status, expected needs and pro:ected results of new venture. It develops the new
venture for investment and allocates resources in a coordinated manner. It provides a clear
picture about-
$usiness description of new venture.
!oal of new venture.
1ctivities to be done in the new venture.
Timing of doing the activities and their se/uence.
0ethods of doing the activities.
.esponsibilities for doing each activity.
.esources needed for doing each activity.
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3ro:ected profit.
1 clear and complete business plan is the main document re/uired to mobilize financial
resources for new venture. It also serves as a woring document once the venture is established.
It analyses critical riss. It also presents a time table for implementation of new venture.
3enefits of 3usiness Plan %;alue of 3usiness Plan&
The benefits of business plan are as follows-
(. +is) mana.ement: all aspects of the new venture are carefully analysed. This helps the
entrepreneur to deal with riss and uncertainties that may arise. It also provides
contingency plans for such situations.
4. 7*=ectivity: the time, effort, research and discipline needed to prepare a business plan
forces the entrepreneur to view the venture ob:ectively and critically. 6lose scrutiny of
assumption made about the ventures success is done.
?. Communication: the completed business plan helps entrepreneur to communicate with
outside parties. 2inancial sources can use it for investment purposes.
@. Implementation: the business plan serves as an operational tool for guiding the
implementation of new venture toward success.
7. Control: the business plan establishes standards for performance as bench mars. 1ctual
performance can be compared with standards to tae corrective actions.
A. Efficiency: the business plan improves efficiency of new venture by minimizing waste.
.esults can be achieved on time within budgeted costs and of desired level of /uality
Scope of the *usiness plan:
The business plan may be read by employees, investors, baners, ventures capitalists, suppliers,
customers, advisors, and consultants. 9hoever is expected to read and focusK 'ince each of these
groups reads the plan for different purpose, the entrepreneur must be prepared to address all their
issues and concerns. In some ways, the business plan must try to satisfy the needs of everyone,
whereas in the actual maretplace the entrepreneurs product will be trying to meet the needs of
selected groups of customers.
"owever, there are probably there perspectives that should be considered when preparing the
plan.
Entrepreneurs perspective: the perspective of the entrepreneur, who understands better
than anyone else the creativity and technology involved in the new venture. The
entrepreneur must be able to clearly articulate what the venture is all about.
1ar)etin. perspective: entrepreneur will consider only the product or technology
someone would buy it. Entrepreneurs must try to view their business through the eyes of
their customer.
Investor perspective: the entrepreneur should try to view his or her business through the
eye of the investor. 'ound financial pro:ections are re/uired. If the entrepreneur does not
have the sills to prepare this information, then outside sources can be of assistance.
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The depth and detail in the business plan depend on the size and scope of the proposed new
venture. Thus, differences in the scope of the business plan may depend on whether the new
venture in a service involved manufacturing or is a consumer good or industrial product. The size
of the maret, competition, and potential growth may also affect the scope of the business plan.
+easons of some *usiness fail:
!enerally a poorly prepared business plan can be blamed to fail due to one or more of the
following factors-
!oal set by the entrepreneur are unreasonable
!oals are not measurable
The entrepreneur has not made a total commitment to the business or to the family.
The entrepreneur has no experience in the planned business.
The entrepreneur has no sense of potential threats or weaness to the business.
;o customer need was established for the proposed product or services.
'etting goals re/uires the entrepreneur to be well informed about the type of business and the
competitive environment. !oals should be specific and not so mundane as to lac any basis of
control.
In addition, the entrepreneur and his or her family must tae a total commitment to the business
in order to be able to meet the demands of a new venture. 2or example, it is difficult to operate a
new venture on a part time basis while still holding on to a full time position. 1nd it is difficult to
operate a business without an understanding from family members as to the time and resources
that will be needed. >enders or investors will not be favorably inclined toward a venture that
does not have full time commitment. 0oreover, lenders or investors may expect the entrepreneur
to mae a significant financial commitment to the business even if it means a second mortgage or
a depletion of saving.
!enerally, a lac of experience will result in failure unless the entrepreneur can either attain the
necessary nowledge or team up with someone who already has it.
The entrepreneur should also documents customers needs before preparing the plan. 6ustomer
needs can be identified from direct experience, letters form customers or mareting research. 1
clear understanding of these needs and how the entrepreneurs business will effectively meet
them is vital to the success of the new venture.
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