New Enterprise Creation U1

UNIT 1 A
Things to consider before starting a new enterprise: Opportunity and viability
Unit 1
BES 304/05
New Enterprise Creation
Things to Consider
Before Starting a
New Enterprise:
Opportunity and
Viability
B WAWASAN OPEN UNIVERSITY

BES 304/05 New Enterprise Creation
COURSE TEAM
Course Team Coordinator: Ms. Lalitha Ramasamy
Content Writer: Dr. Shankar Chelliah
Instructional Designer: Mr. Khoo Chiew Keen
Academic Members: Dr. Tung Lai Cheng and Dr. Chuah Poh Lean
COURSE COORDINATOR
Ms. Lalitha Ramasamy
EXTERNAL COURSE ASSESSOR

Associate Professor Dr. Izaidin b. Abdul Majid, Universiti Teknikal Melaka
PRODUCTION
Editor: Pelangi Sdn. Bhd.
In-house Editor: Mr. Khoo Chiew Keen
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UNIT 1 C
Contents
Unit 1 Things to Consider Before
Starting a New Enterprise:
Opportunity and Viability
Course overview
Unit overview
Unit objectives
1.1 Understanding the entrepreneurial edge in

individuals
Objectives
Introduction
The entrepreneurial edge
Common characteristics of entrepreneurs
The dark side of being an entrepreneur
10
Risks faced by entreprenuers
11
Stress and the entrepreneur
12
Source of stress
14
Dealing with stress
15
1.2 The opportunity: Creating, shaping, recognising

and seizing
19
Objectives
19
Introduction
19
Identifying and recognising opportunities
19
Observing trends
21
Solving a problem
24
D WAWASAN OPEN UNIVERSITY

Finding gaps in the marketplace
25
Generating creative ideas
26
Encouraging and protecting new ideas
28
1.3 Environmental assessment: Regulations,

industry, community
33
Objectives
33
Introduction
33
Environmental scanning for new ventures
33
Understanding the Asia-Pacific regulatory environments
36
Understanging the industry environment
40
Understanding the community perspective
40
1.4 Strategic entrepreneurship and global

opportunities for emerging ventures
45
Objectives
45
Introduction
45
The nature of planning in emerging firms
45
Strategic planning
46
The nature of operational planning
49
The Asia-Pacific entrepreneurial economy
50
Multilateral instituitions
51
Going global
54
Summary of Unit 1
63
Suggested answers to self-tests
65
References
69
UNIT 1 1
Course Overview
his is a 5-credit core major course within the Bachelor of Business (Hons) in
Entrepreneurship and Small Business Management programme. It is a core
course and must be taken by all students wishing to complete this degree. BES
304/05 emphasises both theories and applications. It introduces you to concepts
and theories that will help you to understand and analyse various aspects of new
venture creations. You will find that exercises play an important role in this course.
The practice exercise at the end of each unit takes the form of a self-assessment
exercise which allows you to perform learning check through reflection, or a case
study based on practical organisational situations in which you can put to practise
the lessons learnt from the course.
Each unit takes about 3 to 4 weeks to finish and the whole course takes approximately
18 weeks to complete. Each unit is designed to take between 34 and 44 hours, so
to complete the whole course you will need about 200 hours. This course contains
five study units.
Unit 1 provides an overview of how entrepreneurs see the world and the
characteristics that an entrepreneur must have, how they identify
opportunities, understanding of the industry environment and strategic
planning.
Unit 2 addresses the issues that need to be taken into account before starting
a new venture. This includes building an effective business model, evaluating
the pros and cons, having an ethical business and be socially responsible.
Unit 3 entails the studies of documentation and sources of fund for new
ventures.
Unit 4 focuses on the importance of marketing, identifying the right

market, the 4Ps of marketing and managing customer relationship.
Unit 5 provides a detailed picture of entrepreneurship which discusses the

right competency and skills, ethics and the capability to manage growth
and changes.
By the end of this course, you should be able to:

1. Possess a broad knowledge of management discipline.
2. Develop an independent, creative and innovative mindset.
3. Recognise the importance of entrepreneurship in economic development.
4. Learn how to set up a new business enterprise.
2 WAWASAN OPEN UNIVERSITY

5. Consult, guide and advise prospective entrepreneurs.

6. Understand of the risk-taking behaviours in entrepreneurship.
7. Manage a business enterprise in an ethical and socially responsible manner.
UNIT 1 3
Unit Overview
nit 1 consists of four sections that enable you to understand how entrepreneurs
see the world and what are the characteristics that an entrepreneur must have in
order for the business to be successful. After that, you will be taught how to identify
opportunities and the approaches to be taken. Your study journey will continue with
the understanding of the industry environment. Your journey will end with strategic
planning and the global opportunities with its benefits.
Unit Objectives
By the end of Unit 1, you should be able to:
1. Describe the characteristics of a successful entrepreneur.
2. Identify and grab opportunities.
3. Describe the industrial environment.
4. Explain global ventures and its benefits.

UNIT 1 5
1.1 Understanding the Entrepreneurial

Edge in Individuals
Objectives
By the end of this section, you should be able to:
1. Describe the perspective entrepreneur.
2. Identify and discuss the most commonly cited characteristics found in
successful entrepreneurs.
3. Discuss the dark side of being entrepreneurs.
4. Identify and describe the type of risks faced by entrepreneurs.
5. Identify the causes of stress among entrepreneurs and the way it is being
handled.
Introduction
Entrepreneurs, their destinations are private islands places to build, create
and transform their particular dreams into reality. Being an entrepreneur entails
envisioning your island but even more importantly, getting in the boat and rowing
to your island. Some leave this shore and drift aimlessly in the shallow waters close
to shore, while others paddle furiously and get nowhere, because they dont know
how to paddle.
Some believe that every person has the potential and free choice to pursue a career as
an entrepreneur. However, exactly what motivates individuals to make a choice for
entrepreneurship has not been identified as one single event, characteristic, or trait.
Researchers are continually striving to learn more about the entire entrepreneurial
process to better understand the driving forces within entrepreneurs. Here in
this section, we will describe the most common characteristics associated with
successful entrepreneurs as well as the elements associated with the dark side of
entrepreneurship. In this manner we can become more acquainted with the complete
perspective involved in entrepreneurial behaviour.

The entrepreneurial edge

The decision to leave the present employer stems from the strong desire to
be independent which is found in most entrepreneurs. They may see limited
opportunities for advancement or they have become too bored with the same routine
every day. Eventually they will want to be their own bosses, and this is what we call
sole proprietors of their own destiny. The second most important reason to become
an entrepreneur is to make more money. Wealth creation is an essential motivation
for many. Entrepreneurs believe it is better to invest in themselves than to park their
earnings in a low-interest savings account. The primary motivations for people to
launch their own venture are job satisfactions, achievement, opportunity and money.
Often, the decision to start ones own business comes from a disruption. For example,
one person in a two-person family is transferred and the other becomes the trailing
spouse. A job is made redundant and needs are not being met. Around the world,
economic dislocation and even civil war contribute to this creative disruption.
One common characteristic that can be observed is that the entrepreneur is the oldest
child in the family or the only child. Perhaps, this contributed to self-confidence and
self-esteem. Parental and acquaintance influences have an impact on ones choice
to become self-employed. And usually entrepreneurs are in their thirties or forties.
How do entrepreneurs view the world? It is called entrepreneurial edge. Although
certainly not an exact science, this perspective provides an interesting look at
entrepreneurial potential within every individual. For its believed that every
individual can become the sole proprietor of their destiny at some point in their lives.
Activity 1.1
In your opinion, why does the oldest child or the only child in the
family tend to be an entrepreneur?
Common characteristics of entrepreneurs

17 common characteristics which are associated with entrepreneurs:
1. Commitment, determination and perseverance
More than any other factor, the most important is to have total dedication
to success and focus on advantage to overcome obstacles and setbacks.
Sheer determination and unwavering commitment to succeed will often
overcome odds that many people would consider insurmountable. They
can also compensate for personal shortcomings. Often, entrepreneurs with
high-potential venture and a plan that includes venture capital financing can
expect investors to measure their commitment in several ways. For example,
willingness to mortgage their house, take a cut in pay, sacrifice family time
and lower their standard of living.
UNIT 1 7
2. Drive to achieve
Entrepreneurs are self-starters who appear to others to be internally driven
by a strong desire to compete, to excel against self-imposed standards and to
pursue and attain challenging goals. The key to entrepreneurial behaviour
lies in the drive to excel, to achieve a goal in relation to a set of standards.
High achievers take calculated risks. They examine a situation, determine
how to increase the chances of winning and then push ahead. A high-risk
decision for the average businessperson is often perceived as a moderate risk
decision for the well-prepared high achiever.
3. Opportunity orientation
One clear pattern among successful, growth-minded entrepreneurs is
their focus on opportunity. They start with the opportunity, marshal their
resources, structure and strategy and then let their understandings guide
them. They are goal-orientated. Setting high but attainable goals enables
them to focus their energies selectively to sort out opportunities and to know
when to say no. Their goal orientation also helps them to define priorities
and provide them with measures of how well they are performing.
4. Initiative and responsibility

Entrepreneurs are independent and highly self-reliant. Effective entrepreneurs
actively seek and take the initiative. They are willing to put themselves in
situations where they are personally responsible for the success or failure of
the operation. They like to take the initiative in solving a problem or in filling
a vacuum where no leadership exists. They also like situations where their
personal impact on problems can be measured. This is the action-oriented
nature of the entrepreneurs expressing themselves.
5. Persistent problem-solving
Entrepreneurs are not intimidated by difficult situations. They have selfconfidence and optimism that are able to translate into a view that the
impossible just takes a little longer. Yet they are neither aimless nor foolhardy
in their relentless attack on a problem or an obstacle that is impeding
business operations. If the particular task is extremely easy or perceived to
be unsolvable, entrepreneurs will often give up sooner than others. Simple
problems bore them, unsolvable ones do not warrant their time. Despite
entrepreneurs being persistent, they are realistic in recognising what they
can or cannot do and where to get the help to solve difficult and unavoidable
problems.

6. Seeking feedback
Effective entrepreneurs are often described as quick learners. Unlike many
people, however, they also have a strong desire to know how well they are
doing and how they might improve their performance. In attempting to make
these determinations, they actively seek out mentors and use their feedback.
Feedback is also central to their learning from their mistakes and setbacks.
7. Internal locus of control

Successful entrepreneurs believe in themselves. They do not believe the
success or failure of their venture will be governed by fate, luck or other
similar forces. They believe their accomplishments and setbacks are within
their own control and influence and they can affect the outcome of their
actions. This attribute is consistent with a high achievement motivational
drive, the desire to take personal responsibility and self-confidence. They
believe that they can control the environment through their own actions.
8. Tolerance for ambiguity

Start-up entrepreneurs face uncertainty multiplied by constant change.
This introduces ambiguity and stress into every aspect of the enterprise.
Setbacks and surprises are inevitable. Yet successful entrepreneurs thrive on
the fluidity and excitement of such an ambiguous existence and generally
have a high tolerance for ambiguity. Job security and retirement generally
are of no concern to them.
9. Calculate risk-taking
Successful entrepreneurs are not gamblers. When they decide to participate
in a venture, they do so in a very calculated, carefully thought out manner.
They do everything possible to get the odds in their favour and they often
avoid taking unnecessary risks.
10. Integrity and reliability

Integrity and reliability are the glue and fibre that bind successful personal
and business relationships and make them endure. Investors, partners,
customers and creditors alike value these attributes highly. Integrity and
reliability help build and sustain trust and confidence. Small business
entrepreneurs find these two characteristics crucial to success.
UNIT 1 9
11. Tolerance for failure

Entrepreneurs use failure as a learning experience and generally have a
high tolerance for failure. The iterative, trial-and-error nature of becoming
a successful entrepreneur makes serious setbacks and disappointments an
integral part of the learning process. Entrepreneurs are realistic enough to
expect such difficulties. Furthermore, they do not become disappointed,
discouraged, or depressed by a setback or failure. In fact, in difficult times,
they will look for opportunity. Many entrepreneurs believe that it is better
to learn more from their early failures than from their early success.
12. High energy level

The extraordinary workloads and the stressful demands faced by
entrepreneurs place a premium on energy. Many entrepreneurs fine-tune their
energy levels by carefully monitoring what they eat and drink, establishing
exercise routines and knowing when to get away for relaxation.
13. Creativity and innovativeness

Contrary to popular belief, creativity isnt necessarily more prevalent in
the arts. Nor is it an exclusively inherited trait. Creativity can be learnt.
It is a process marked by fluency, flexibility and ability to make unusual
associations. New ventures often have a collective creativity that emerges
from the joint efforts of the founders and personnel and produces unique
goods and services.
14. Vision
Entrepreneurs know where they want to go. They have a vision or concept
of what their firm can be. For example, Steve Jobs, one of the two founders
of Apple Computer, wanted his firm to provide microcomputers that could
be used by everyone from schoolchildren to business people. The computer
would be more than a machine. It would be an integral part of the persons
life in terms of learning and communicating. This vision helped made Apple
a major competitor in the microcomputer industry. Not all entrepreneurs
have predetermined visions for their firm. In many cases, this vision develops
over time as the individual begins to realise what the firm is and what it
can become.
15. Independence
The desire for independence is a driving force behind contemporary
entrepreneurs. Their frustration with rigid bureaucratic systems, coupled
with a sincere commitment to make a difference add up to become an
independent personality trying to accomplish tasks in their own way.
Entrepreneurs do not want the authorities to make the important decisions.

16. Self-confidence and optimism

Although entrepreneurs often face major obstacles, they believe in their
ability and seldom waver. During down periods, they maintain their
confidence and let those around them know it. This helps the others sustain
their own optimism and creates the level of self-confidence necessary for
efficient group effort. Many entrepreneurs are egocentric. They want to be
recognised.
17. Team-building
The desire for recognition and autonomy does not preclude the entrepreneurs
desire to build a strong entrepreneurial team. Successful entrepreneurs need
to have highly qualified, well-motivated teams that can help to handle the
ventures growth and development. In fact, although the entrepreneurs
may have the clearest vision of where the firm is (or should be) headed, the
personnel are often more qualified to handle the day-to-day implementation
challenges.
Activity 1.2
Explain five (5) characteristics of a successful entrepreneur.
The dark side of being an entrepreneur

Do entrepreneurs suffer more from mental disorders? After all, it takes a little bit
of madness to start a business and, just as surely, a business can drive one a little bit
mad. We always hear and read about the success stories of entrepreneurs, the rewards
and the achievements. But, we hardly hear about the dark side of entrepreneurship.
Certain negative factors do exist and this may envelop entrepreneurs and dominate
their behaviour. There are entrepreneurs who have failed and were exposed as well as
those who have destroyed something that was important to others. For some, it was
an error of judgement but for some others it is a criminal behaviour. It is no accident
that many people associate the word entrepreneur with rogues and wheeler-dealer.
It is important to understand some of the potential harmful characteristics that
entrepreneurs face. Below are examples of the characteristics or bad traits of
entrepreneurs that we do not hear often:
Opportunist entrepreneurs who either adopt a flawed strategy or fail to

deliver.
Inventors who become failed entrepreneurs as they lack key project

championing capabilities.
Empire-builders who grow too quickly and lose control.
UNIT 1 11
Entrepreneurs who make mistakes, or whose business fails, but who

determinedly make a comeback.
Entrepreneurs who attract controversy.
Dishonest entrepreneurs.
Activity 1.3
From your point of view, what are the other potential harmful
characteristics that entrepreneurs may face?
Risks faced by entrepreneurs

Buying or starting a new business involves risk. The higher the rewards, the greater
the risk entrepreneurs face. This is why it is important for entrepreneurs to evaluate
the risk carefully. Entrepreneur risk is a complex issue. Entrepreneurs are people
who come from different cultures, backgrounds etc. and therefore the risk that they
face may differ. Entrepreneurs face different types of risk. These can be grouped
into four basic areas.
Financial risk
In most new ventures, the individual puts a significant portion of their savings or
other resources at stake. This money or these resources will, in all likelihood, be
lost if the venture fails. The entrepreneur may also be required to sign personally on
company obligations that far exceed their personal net worth. The entrepreneur is
thus exposed to personal bankruptcy. Not many people are unwilling to risk their
savings, house, property and salary to start a new business.
Career risk
A question frequently raised by would-be entrepreneurs is whether they will be able
to find a job or go back to their old job if their venture fails. Career risk is a major
concern to managers who have a secure organisation job with a high salary and a
good benefit package.

Family and social risk

Starting a new venture saps much of the entrepreneurs energy and relationships.
Therefore, their other commitments may suffer and this will result in increased
family and social risk. Entrepreneurs who are married and especially those with
children will expose their families to the risk of an incomplete family experience and
the possibility of permanent emotional scars, especially to the children. In addition,
good friends may vanish slowly because of missed get-togethers.
Psychic risk
The greatest risk may be the well-being of the entrepreneur. Money can be replaced,
new houses can be built, spouse, children and friends can usually adapt. But some
entrepreneurs who have suffered financial catastrophes may be unable to bounce
back, at least not immediately. Some may even fall into depression and suffer mental
problems.
Activity 1.4
Discuss why psychic risk is the most dangerous risk that
entrepreneurs need to take note of.
Stress and the entrepreneur

Entrepreneurs are people who have goals. These include independence, work
satisfaction and wealth. Hence in order to reach these goals, entrepreneurs often
pay a high price. Majority of the entrepreneurs face back problems, indigestion,
insomnia and headaches. In order to achieve their goals, entrepreneurs are willing
to tolerate these effects of stress.
What is entrepreneurial stress?

Entrepreneurs may be the master of their own success, but they have so many
variables to track that they often dont have a safety net. In general, stress can be
viewed as a function of:
Discrepancies between a persons expectations and ability to meet demands.
Discrepancies between the individuals expectations and personality.
UNIT 1 13
When entrepreneurs work demands and expectations exceed their abilities to perform
as venture initiators, they are likely to experience stress. Besides, entrepreneurial
role and operating environments can lead to stress. Initiating and managing a
business requires taking significant risk. These risks may be described as financial,
career, family, social, or psychic. Also, entrepreneurs must engage in constant
communication activities, interacting with relevant external constituencies including
customers, suppliers, negotiators, lawyers and accountants which is stressful.
In terms of resources, entrepreneurs must bear the cost of their mistakes while playing
a multitude of roles such as salesperson, recruiter, spokesperson and negotiator. These
simultaneous demands can lead to role overload. Owning and operating a business
requires a large commitment of time and energy, often at the expense of family and
social activities. In addition, entrepreneurs often work alone or with a small number
of employees and therefore lack the support from colleagues that may be available
to managers in a large corporation.
In addition to the roles and environment that entrepreneurs experience, stress can
result from a basic personality structure. Referred to as Type A behaviour, this
personality structure describes people who are impatient, demanding and overstrung.
These individuals gravitate towards heavy workloads and find themselves completely
immersed in their business demands. Some distinguishing characteristics associated
with Type A personalities include:
Chronic and severe sense of time urgency for instance, Type A people
become particularly frustrated in traffic jams.
Constant involvement in multiple projects subject to deadlines; somehow

Type A people take delight in the feeling of being swamped with work.
Neglect of all aspects of life except work workaholics live to work rather
than work to live.
A tendency to take on excessive responsibility, combined with the feeling

that Only I am capable of taking care of this matter.
Explosiveness of speech and a tendency to speak faster than most people

Type A people are thus prone to nagging and swearing when upset.
A widespread belief is that, the stress in people with Type A behaviour will lead to
coronary heart disease and that stress is a contributor to heart disease.
Hence, to better understand stress, entrepreneurs need to be aware of their particular
personality as well as the roles and operating environment that differentiate their
business pursuits.

Activity 1.5
Describe the risks faced by entrepreneurs.
Source of stress
There are three sources of stress that entrepreneurs face.
Loneliness
Although entrepreneurs are often surrounded by people (employees, customers,
lawyers, etc.), they usually feel lonely as they are isolate from the people whom they
can confide in. Long hours of work prevent them from seeking the comfort and
counsel of friends and family members. Moreover, they tend not to be involved in
social activities unless it benefits their business.
People problems
Entrepreneurs must depend on and work with partners, customers, bankers,
professionals, etc. Most experience frustration, disappointment, aggravation in
their experience with these people. Successful entrepreneurs are to some extent
perfectionists and know how they want things done; often they spend a great deal
of time trying to get their employees to meet their performance standards. And
frequently, due to irreconcilable conflicts, many partnerships are dissolved.
Need to achieve
Achievement brings satisfaction. There is a fine line between attempting to achieve
too much and failing to achieve enough. More often than not, the entrepreneur
was trying to accomplish too much. Many entrepreneurs are never satisfied with
their work no matter how well it was done. They have this myth that if they stop
or slow down, some competitor is going to come from behind and everything they
have built will fall apart.
Activity 1.6
Explain the four sources of stress that entrepreneurs face.
UNIT 1 15
Dealing with stress

It is important to point out that not all stress is bad. However, when stress becomes
overbearing and unrelenting in a persons life, it wears down the bodys physical
abilities. But if stress can be kept within the constructive bounds, it could increase
a persons efficiency and improve performance.
The classical ways to reduce stress is by transcendental meditation, biofeedback,
muscle relaxation and regular exercise, but these are not enough. Entrepreneurs need
to take a few important steps to clarify the causes of their stress. Having identified
these causes, only then can entrepreneurs combat excessive stress. Below are seven
ways on how entrepreneurs can cope with stress.
Networking
One way to relieve the loneliness of running a business is to share experiences by
networking with other business owners. The objectivity gained from hearing about
the triumphs and errors of others is itself therapeutic.
Getting away from it all

The best antidote to immersion in business is a holiday. If leave days or weeks are
limited by business constraints, short breaks may still be possible. Such interludes
allow a measure of self-renewal.
Communicating with employees

Entrepreneurs are in close contact with employees and can readily assess the
concerns of their staff. The personal touch is often unavailable in large operations.
Company-wide outings, flexible hours, small loans to tide workers over until
payday, are possible. In such settings, employees are often more productive than
their counterparts in large organisations.
Finding satisfaction outside the company

Countering the obsessive need to achieve can be difficult because the entrepreneurs
personality is inextricably bound in the company fabric. Entrepreneurs need to get
away from the business occasionally and become more passionate about life itself.

Delegating
Implementation of coping mechanisms requires implementation time. To gain this
time, the entrepreneur has to delegate tasks. Entrepreneurs find delegation difficult,
because they think they have to be at the business all of the time and to be involved
in every aspect of the operation. But if time is to be gained for alleviation of stress,
then appropriate delegation must be done.
Mental-health checkup
It is important for entrepreneurs to get a mental-health checkup especially when
their unhappiness can be seen by others.
Knowing self and business/life partners

Entrepreneurs should use psychometric tests to identify their key talent preferences,
natural work styles, as well as for those who work for them.
Activity 1.7
In your opinion, what are the other ways that entrepreneurs can
use to cope with stress?
Summary
In section 1.1, we have explored the entrepreneurial edge within
individuals with the following summaries:
1. The most common characteristics exhibited by successful
entrepreneurs.
2. A review of the dark side of entrepreneurship revealing certain
negative factors that can arise when entrepreneurs overextend
their characteristics.
3. The risks that entrepreneurs face and entrepreneurs stress.
4. The causes of entrepreneurial stress.
5. How entrepreneurs can deal with stress.
UNIT 1 17
Self-test 1.1
1. Entrepreneurs are made, not born. Why is this so? Do you
agree, and why or why not?
2. Who should be an entrepreneur and who should not?

UNIT 1 19
1.2 The Opportunity: Creating, Shaping,

Recognising and Seizing
Objectives
1. Explain why it is important to start a new firm when its window of
opportunity is open.
2. Explain the difference between an opportunity and an idea.
3. Describe the three approaches used by entrepreneurs to identify opportunities.
4. Identify five steps in the creative process.
5. Describe three steps for protecting ideas from being stolen or lost.
Introduction
As an entrepreneur, it is important to know when is the right time to start a firm
when its window of opportunity is open. Entrepreneurs need to have the ability
to recognise the opportunity and to choose the right business to venture into. There
are a few approaches to how entrepreneurs can identify opportunities which will
be discussed in this section.
Identifying and recognising opportunities

Essentially, entrepreneurs recognise an opportunity and turn it into a successful
business. An opportunity is a favourable set of circumstances that creates a need for
a new product, service, or business. Some entrepreneur ventures are started in one
of two ways and some are externally stimulated.
Regardless of which of these two ways, when an entrepreneur starts a new business,
opportunities are hard to spot. Identifying a product, service, or business opportunity
that isnt merely a different version of something already available is difficult. A
common mistake entrepreneurs make in the opportunity recognition process is
picking a currently available product or service that they like or are passionate about
and then trying to build a business around a slightly better version of it. The key to
opportunity recognition is to identify a product or service that people need and are
willing to buy, not one that an entrepreneur wants to make and sell.

Attractive
Timely
Opportunity
Durable
Anchored i n a product
service or b usiness that
creates or adds value
for its buyer
Figure 1.1 Four essential qualities of an opportunity

Source: Adapted from Baringer, B and Ireland, D (2010)
As shown in Figure 1.1, an opportunity has four essential qualities i.e.,
Attractive
Durable
Timely
Anchored in a product, service, or business that creates of adds value for its
buyer or end user.
In order for an entrepreneur to capitalise on an opportunity, its window of

opportunity must be open. The term window of opportunity is a metaphor describing
the time period in which the firm can realistically enter a new market. Once the
market for a new product is established, its window of opportunity opens. As the
market grows, firms enter and try to establish a profitable position. At some point,
the market matures, and the window of opportunity closes. For example, in 1995,
Yahoo! was the first internet search engine and the market grew rapidly with the
addition of Lycos, Excite, and others. Google then entered the market in 1998,
sporting advanced search technology. Since then, the search engine market has
matured and the window of opportunity has essentially closed. Today, it would be
very difficult for a new start-up search engine firm to be successful unless it offers
compelling advantages over the already established competitors or targets a niche
market in an exemplary manner.
It is important to understand that there is a difference between an opportunity and an
idea. An idea is a thought, an impression, or a notion. An idea may or may not meet
the criteria of an opportunity. This is a critical point because many entrepreneurial
ventures fail not because the entrepreneurs that launched them did not work hard
enough but rather because there was no real opportunity to begin with. Before
getting all hyped up on a business idea, it is crucial to understand whether the idea
fills a need and meets the criteria for an opportunity.
UNIT 1 21
There are three approaches to identifying an opportunity, as shown below. Once

you understand the importance of each approach, you will be much more likely to
look for opportunities and ideas that fit each profile.
Observe
Trends
Solve a
Problem
Find Gaps in the

Marketplace
Figure 1.2 Three ways to identify an opportunity

Source: Adapted from Baringer, B and Ireland, D (2010)
Activity 1.8
Explain the difference between an opportunity and an idea.
Observing trends
The first approach to identifying opportunities is to observe trends and study how
they create opportunities for entrepreneurs to pursue. The most important trends
to follow are economic trends, social trends, technological advances, and political
action and regulatory changes. As an entrepreneur or potential entrepreneur, it is
important to remain aware of changes in these areas.
When looking at environmental trends to discern new business ideas, there are
two important things to keep in mind. First, it is important to distinguish between
trends and fads. New business typically does not have the resources to ramp up
fast enough to take advantage of a fad. Second, these trends are interconnected
and should be considered simultaneously when brainstorming for new ideas. For
example, one reason the Apple iPod is so popular is because it benefits from several
trends converging at the same time, including teenagers with increased disposable
income (economic trend), an increasingly mobile population (social trend), and the
continual miniaturisation of electronics (technological trend). If any of these trends
werent present, the iPod wouldnt be as successful as it is.
Economic forces
An understanding of the economic trends is helpful in determining areas that are
ripe for new business ideas as well as areas to avoid. When the economy is strong,
people have more money to spend and are willing to buy discretionary products
and services that enhance their lives. In contrast, when the economy is weak, people
have less money to spend and are more reluctantly to spend. They tend to fear that
the economy will become worse and that they might lose their jobs because of a
weakening economy. Paradoxically, a weak economy provides business opportunities
for start-ups that help consumers save money.

When studying how economic forces affect opportunities, it is important to evaluate

who has money to spend and what they spend it on. For example, an increase in the
number of women in the workforce and the subsequent increase in their disposable
income is largely responsible for the number of boutique clothing stores targeting
professional women that have opened in the past few years.
Another trend that is affected by economic factors is pressure on firms to cut costs to
compensate for increased prices in other areas such as those related to the purchase
of raw materials required to build or make their products. An understanding of
economic trends can help to identify areas to avoid.
Social forces
An understanding of the impact of social forces on trends and how they affect
new product, service and business ideas is a fundamental piece of the opportunity
recognition puzzle. Often, the reason that a product or service exists has more to
do with satisfying a social need than the more transparent need the product fills.
For example, the increase in the number of cafs like Old Town White Coffee is
not primarily because of peoples love for toasted bread and white coffee but rather
because people are often too busy to cook and it is different from the typical fast
food like burgers and pizzas. Similarly, social networking sites like Facebook arent
popular because they can be used to post music and pictures; it is popular because
they allow people to connect and communicate with each other.
Changes in social trends alter how people and businesses behave and how they
set their priorities. These changes affect how products and services are built and
sold. Here are the social trends that affect how individuals behave and set their
priorities:
Retirement of baby boomers
The increasing diversity of the workforce
Increasing interest in healthy foods and green products
Emphasis on alternative forms of energy
Increased globalisation of business
Increased availability of inexpensive yet relatively powerful personal

computers and smartphones
Each of these trends provides the forces for new business ideas.
UNIT 1 23
Technological advances
Advances in technology are frequently linked with economic and social changes
to create opportunities. In most cases, the technology isnt the key to recognizing
business opportunities. Instead, the key is to recognise how technologies can be
used to help satisfy basic or changing human needs. For example, the creation of
the cellphone is a technological achievement but it was motivated by an increasingly
mobile population that finds many advantages to having the ability to communicate
with its coworkers, customers, friends and families from anywhere and everywhere.
Similarly, many e-commerce sites are technological stunners, allowing a customer
to order products, pay for them, and choose how quickly theyre shipped. But then,
it isnt so much the technology that makes e-commerce attractive. The main reason
why most people buy online is because they are busy and prefer to shop when they
have free time rather than being restricted to conventional store hours.
Technological advances also provide opportunities to help people perform tasks in
better or more convenient ways. For example, Golden Screen Cinemas allow its
customers to make reservation or purchase movie tickets online without the need to
go to the outlet to purchase before the movie. In the site, customers are also allowed
to choose the seats they want.
Another aspect of technological advances is that once a technology is created,
products often emerge to advance it. For example, the creation of the Apple iPod
and the Apple iPhone has in turned spawned entire industries that produce iPod
and iPhone accessories. An example is H20Audio, a company that was started by
four university students which makes waterproof housings for the iPod and the
iPod nano. The waterproof housings permit iPod users to listen to their iPods while
swimming, surfing, snowboarding and activities where the iPod is likely to get wet.
There is a wide variety of other accessories available for the iPod, from designer
cases to car rechargers. It is now estimated that for every USD3 spent on an iPod,
at least USD1 is spent on an accessory.
Political action and regulatory changes

Political and regulatory changes also provide the basis for opportunities. For example,
new laws create opportunities for entrepreneurs to start firms to help companies,
individuals, and government agencies comply with these laws.
On some occasions, changes in government regulations motivate business owners
to start firms that differentiate themselves by exceeding. For example, several
years ago the U.S. Federal Trade Commission changed the regulation about how far
apart the wood or metal bars in an infant crib can be. If the bars are too far apart, a
baby can get an arm or leg caught between the bars, causing an injury. An obvious
business idea that might be spawned by this type of change is to produce a crib that
is advertised and positioned as exceeding the new standard for width between bars
and is extra safe for babies and young children. The change in regulation brings
attention to the issue and provides ideal timing for a new company to reassure
parents by offering a product that not only meets but exceeds the new regulation.

Political change also engenders new business and product opportunities. For example,
global political instability and the threat of terrorism have resulted in many firms
becoming more security conscious in the United States. These companies need new
products and services to protect their customers and employees. Another example
is the backup data storage industry which is expanding because of the new trend
where there is a tendency to feel the need for more data security to be more protected
than in the past.
Activity 1.9
What four environment trends are most instrumental in creating
business opportunities? Provide an example for each environmental
trend and the type of business opportunity that it might help create.
Solving a problem
The second approach to identifying opportunities is to recognise problems and find
ways to solve them. These problems can be recognised by observing the challenges
that people encounter in their daily lives and through more simple means, such as
intuition, serendipity, or chance.
Many companies were started by people who had experienced a problem in their
own lives, and then realised that the solution to the problem represented a business
opportunity. For example in 1991, Jay Sorensen dropped a cup of coffee on his
lap because the paper cup was too hot. This experience led Sorensen to invent an
insulating cup sleeve and to start a company to sell it. Since launching, the company
Java Jacket, has sold over 1 billion cup sleeves.
Advances in technology often result in problems for people who cant use the
technology the way it is sold to the masses. For example, some older people find
traditional cellphones hard to use as the buttons are small, the text is hard to read, and
its often difficult to hear someone on a cell phone in a noisy room. In order to solve
these problems, GreatCall Inc., started producing a cellphone called the Jitterbug,
which is designed specifically for older users. The Jitterbug features large buttons,
easy-to-read text, and a cushion that cups around the ear to improve sound quality.
Some problems are solved by entrepreneurs who frame a problem differently than
its been thought of before, and then propose an appropriate solution. The solution
is often easier and less expensive than traditional fixes. An example of a problem that
was solved in this manner is illustrated through a story told by Matt Linderman,
an employee of 36signals, on the companys blog. The story is about a multistorey
building in New York City where tenants were complaining about long elevator
waiting times. Several of the tenants threatened to break their leases and move out
of the building, but nothing could be done to speed up the elevators. The desperate
manager of the building called a meeting of his staff, which included a young,
recently hired graduate in personnel psychology. Instead of focusing on the speed of
UNIT 1 25
the elevators, the young new hire wondered why people complained about waiting
for only a few minutes. He concluded that the complaints were a consequence of
boredom, rather than the few minutes of waiting. He then suggested installing
mirrors in elevator boarding areas to kill the boredom of people who have to wait
for the elevators. Mirrors were then installed quickly and relatively inexpensively.
After that, the complaints about waiting stopped. Today, it is common to find
mirrors in elevator lobbies.
Some business ideas are picked out from the recognition of problems in emerging
trends. For example, Symantec Corporation created Norton antivirus software to
rid computers of viruses and computer firewall firms such as McAfee developed
software to secure computer systems and guard against attacks from hackers or
unauthorised users. These companies took advantage of the problems that surfaced
when new technology was introduced. Other companies were founded to deal with
annoyance that technology causes, which is commonplace but no one has proposed
a solution to an obvious problem.
Activity 1.10
Explain how solving a problem can create business opportunity.
Provide an example that was not mentioned above.
Finding gaps in the marketplace

The third source of business ideas is gaps in the marketplace. There are many examples
of products that consumers need or want that arent available in a particular location
or arent available at all. For example, two large retailers in the United States, Walmart and Costco, compete primarily on price and offer the most popular items
targeted at mainstream consumers. While this approach allows the large retailers
to achieve economies of scale, it leaves gaps in the marketplace. This is the reason
why clothing boutiques and specialty shops exist. These businesses are willing to
carry merchandise that doesnt sell in large enough quantities for Wal-Mart and
Costco to carry.
Product gaps in the marketplace represent potentially viable business opportunities.
For example, in 2000, in the United States, Tish Cirovolo realised that there were
no guitars in the market that are made specifically for women. In order to fill this
gap, she started Daisy Rock guitars, a company that makes guitars just for women.
Daisy Rock guitars are stylish and carry feminine names such as Rainbow Sparkle,
Red Pearl and Candy Apple Pink. These guitars are incorporated with design features
that accommodate a womans smaller hand and build.
A common way to recognise gaps in the marketplace is when people become
frustrated because they cant find a product or service that they need and recognise
that other people feel the same way. For example, Lorna Ketler and Barb Wilkins
were frustrated when they couldnt find stylish plus-sized clothing that fits. This

made them start Bodacious, a store that sells fun and stylish plus-sized clothing
that fits. This experience of theirs illustrates how compelling a business idea can
be when it strikes just the right chord by filling a gap that deeply resonates with a
specific clientele.
Another related technique for generating new business ideas is to take an existing
product or service and create a new category by targeting a completely different
target market. This approach essentially involves creating a gap and filling it. For
example, gyms in Malaysia like Celebrity Fitness, True Fitness, etc., These gyms have
more female customers as it is built to suit the female users. In the past, gyms are
only for males and even if it is opened for females, the condition and environment
there will make the females uncomfortable. This gap was filled with the emerging
of the gyms mentioned above.
One thing a new firm has to be careful about is that if it says its capitalising on an
environmental trend, solving a problem, or filling a gap in the marketplace, it has
to deliver on its promises. If start-ups initial customers find out its more hype than
substance, they will quickly abandon it.
Activity 1.11
Explain how finding gaps in the marketplace can create a business
opportunity.
Generating creative ideas

In general, entrepreneurs identify more ideas than opportunities because many
ideas are typically generated to find the best way to capitalise on an opportunity.
Several techniques can be used to stimulate and facilitate the generation of ideas for
products, services, and businesses.
Brainstorming
Brainstorming is a common way to generate new business ideas. Brainstorming is
a process of generating several ideas about a specific topic. The approaches range
from a person sitting down and jotting down interesting business ideas to formal
brainstorming sessions led by moderators that involve a group of people.
In a formal brainstorming session, the leader of the group asks the participants to
share their ideas. One person shares an idea, another person reacts to it, another
person reacts to the reaction, and so on. A flip chart or an electronic whiteboard is
typically used to record all the ideas. A productive session is freewheeling and lively,
but there is no analysis or decision-making, The ideas generated during rainstorming
need to be filtered and analysed, but this is done later. There are four strict rules for
conducting a formal brainstorming session:
UNIT 1 27
1. No criticism is allowed, including chuckles, raised eyebrows, or facial

expression that expresses skepticism or doubt.
2. Freewheeling, the carefree expression of ideas free from rules or restraints
is encouraged; the more ideas, the better. Even crazy or outlandish ideas
may lead to a good idea or a solution to a problem.
3. The session moves quickly, and nothing is permitted to slow down its pace.
For example, it is more important to capture the essence of an idea than to
take the time to write it down neatly.
4. Leapfrogging is encouraged. This means using one idea as a means of
jumping forward quickly to other ideas.
Brainstorming sessions dedicated to generating new business ideas are often less
formal. For example, Dr Katie Rodan, one of the founders of Proactiv, a popular acne
treatment product, hosted dinner parties at her house and conducted brainstorming
session with guests. The guests included business executives, market researchers,
marketing consultants, an FDA regulatory attorney and others. Dr Katie credits
this group with helping her and her cofounder brainstorm a number of ideas that
helped shape Proactive and move the company forward.
Approaches to brainstorming are only limited by a persons imagination. People
need to think out of the box and if a particular thing bugs them, they need to think
of ways to overcome it. For example, when it comes to college students, things
that might bother them are lack of campus parking, the cleanliness of their hostel
rooms, their roommates, the canteen food, etc. When they start to list down and
find ways to overcome these problem, there is an opportunity for them to generate
new business ideas from it.
Focus groups
A focus group is a gathering of 5 to 10 people who are selected because of their
relationship to the issue being discussed. Although focus groups are used for various
purposes, they can be used to help generate new business ideas.
Focus group involves a group of people who are familiar with a topic, are brought
together to respond to questions, and shed light on an issue through the give-andtake nature of a group discussion. Focus group usually works best as a follow-up to
brainstorming, when the general idea for a business has been formulated. Usually
focus group is conducted by trained moderators. The moderators primary goals are
to keep the group focused and to generate lively discussion. The effectiveness of
a focus group mainly depends on the moderators ability to ask questions and keep
the discussion on track. Focus groups are usually used by market research companies
to gather feedback from the group members who are being recruited by the market
research companies itself. The feedback that they obtain from the group members
will then be handed over to the company that hired them. These companies usually

are in the midst of opening a new product line or they want to improvise on their
current products.
Library and Internet research

A third approach to generating new business ideas is to conduct library and internet
research. When there is a tendency to think that a particular idea should be chosen,
then the process of researching the idea should begin. This approach is too linear.
Often, the best ideas emerge when the general notion of an idea, like creating casual
electronic games for adults, is merged with extensive library and internet research,
which might provide insights into the best type of casual games to create.
Libraries are often an underutilised source of information for generating business
ideas. The best approach to utilising is to discuss your general area of interest with
a reference librarian, who can point out useful resources, such as industry-specific
magazines, trade journals and industry reports. Simply borrowing a few issues of a
trade journal on a topic might spark new ideas.
In todays technology era, the internet plays an important role. If you are starting
from scratch, you could probably try typing new business ideas into Google or
Yahoo! to get links to newspaper and magazine articles about the hottest and
latest business ideas. Besides that, in todays world social media plays an important
role in generating business, growing your customer base and as a publicity tool.
You can search on the new business and read on customers feedback regarding a
particular business. You may take the weakness of that particular business and start
a new business from it.
Activity 1.12
Describe how a focus group is set up and how it is used to generate
new business ideas.
Encouraging and protecting new ideas

In many firms, generation is a haphazard process. However, entrepreneurial ventures
can take certain concrete steps to build an organisation that encourages and protects
new ideas.
UNIT 1 29
Establishing a focal point for Ideas

Some firms meet the challenge of encouraging, collecting and evaluating ideas
by designating a specific person to screen and track them. This is because if it is
everybodys job, it may be nobodys responsibility. Another approach is to establish
an idea bank, which is physical or digital repository for storing ideas. An example
of an idea bank would be a password-protected location on a firms intranet that
is available only to qualified employees. It may have a file for ideas that are being
actively contemplated and a file for inactive ideas.
Encouraging creativity at the firm level

There is an important distinction between creativity and innovation. Innovation refers
to the successful introduction of new outcomes by a firm. In contrast, creativity is
the process of generating a novel or useful idea but does not require implementation.
In other words, creativity is the raw material that goes into innovation. A team of
employees may come up with a hundred legitimate creative ideas for a new product
or service, but only one may eventually be implemented. It may take a hundred
creative ideas to discover the one that ideally satisfies an opportunity.
An employee may exhibit creativity in a number of ways, including solving a
problem or seizing an opportunity and using it to develop a new product or service
idea. Although creativity is typically thought of as an individual attribute, it can be
encouraged or discouraged at the firm level. The extent to which an organisation
encourages rewards creativity affects the creative output of employees.
Protecting ideas from being lost or stolen

Intellectual property is any product of human intellect that is intangible but has
value in the marketplace. It can be protected through tools such as patents,
trademarks, copyrights, and trade secrets. As a rule, a mere idea or concept does not
qualify for intellectual property protection; that protection comes later when the
idea is translated into a more concrete form. At the opportunity recognition stage,
however, there are three steps that should be taken when a potentially valuable idea
is generated:
Step 1
The idea should be put into a tangible form; either entered into a physical idea
logbook or saved on a computer disk and dated. When using a physical logbook,
make sure that it is bound so that it cannot be alleged that a page was added.
Make all entries in ink and have them witnessed. If an idea has significant
potential, the signature of the person who entered the idea into the logbook
and the witness should be notarised.
Putting the idea into tangible form is important for two reasons. First, if the
idea is in concrete form, is original and useful, and is kept secret or is disclosed
only in a situation where compensation for its use is contemplated, the idea

may qualify as a property right or trade secret and be legally protected

under a variety of statues. Second, in the case of an invention, if two investors
independently come up with essentially the same innovation, the right to apply
for the patent belongs to the first person who invented the product. A properly
maintained idea log provides evidence of the date that the idea for the invention
was first contemplated.
Step 2
The idea, whether it is recorded in a physical idea logbook or saved in a computer
file, should be secured. This may seem an obvious step, but it is one that is
often overlooked. The extent to which an idea should be secured depends on
the circumstances. On the one hand, a firm wants new ideas to be discussed, so
a certain amount of openness in the early stages of refining a business idea may
be appropriate. On the other hand, if an idea has considerable potential and
may be eligible for patent protection, access to the idea should be restricted. In
the case of ideas stored on a computer network, access to the ideas should be
password-protected.
Step 3
Avoid making an inadvertent or voluntary disclosure of an idea in a way that
forfeits your claim to its exclusive rights. In general, the intellectual property laws
seek to protect and reward the originators of ideas as long as they are prudent
and try to protect the ideas.
Activity 1.13
What is the purpose of an idea bank?
UNIT 1 31
Summary
In section 1.2, the ways of identifying opportunities and ideas are
discussed with the following summaries:
1. Once an opportunity is recognised, a window opens, and the
market to fill the opportunity grows. At some point, the market
matures and becomes saturated with competitors, and the
window of opportunity closes.
2. Observing trends, solving problems and finding gaps in the
marketplace are three general approaches entrepreneurs use to
identify an opportunity.
3. Economic forces, social forces, technological advances, and
political action and regulatory changes are the four environmental
trends that are most instrumental in creating opportunities.
4. Brainstorming is a technique used to quickly generate a
large number of ideas and solutions to problems. One reason for
conducting a brainstorming session is to generate ideas that
might represent product, service or business opportunities.
5. A focus group is a gathering of 5 to 10 people who have been
selected on the basis of their common characteristics relative to
the issue being discussed. One reason for conducting a focus
group is to generate ideas that might represent product, service
or business opportunities.
6. An idea bank is a physical or digital repository for storing ideas.
7. The three main steps that can be taken to protect ideas from
being lost or stolen are putting the idea into tangible form by
such means as entering in a logbook or saving it in a computer
file with a password, securing the idea and avoiding making an
inadvertent or voluntary disclose of an idea that forfeits the right
to claim exclusive rights to it if it falls into someone elses
hands.

Self-test 1.2
1. What is the difference between an idea and a good opportunity?
2. What conditions and changes that may occur in the society
and the economy may spawn and drive future opportunities?
List as many as you can think of as you consider the next 10
years.
UNIT 1 33
1.3 Environmental Assessment:

Regulations, Industry, Community
Objectives
1. Use environmental scanning to spot on-the-ground conditions for new
and growing firms.
2. Review the regulatory environments in the Asia-Pacific region within which
a new venture must exist.
3. Examine the industry environment from a competitive market analysis and
strategic point of view.
4. Explain the community environmental perspective to ensure an understanding
of the local impact.
5. Identify the nature of business incubators and their importance to emerging
ventures.
Introduction
This section discusses environmental scanning which is essential for growing firms.
After that, we will review the regulatory environments in Asia-Pacific. Then we will
examine the industry environment from a competitive market analysis and strategic
point of view and an understanding of the local impact. This section ends with the
identification of the nature of business incubators and its importance to emerging
ventures.
Environmental scanning for new ventures

In order to remain competitive, a new and growing business must be very vigilant,
watching out for changes in the business environment and be agile enough to
alter its strategies and plans when the need arises. For example, one important
Australian study found that environmental scanning made a significant difference
between high- and low-performing export companies. Through the years, much
work has gone into learning how companies can best act quickly, take advantage of
opportunities before competitors do and respond to environmental threats before
significant damage is done.
Environmental scanning is the acquisition and use of information about events,
trends and relationships in an organisations external environment, the knowledge
of which would assist management in planning the organisations future course

of action. Environmental scanning casts a wide net to look for information about
every external sector that can help plan a start-ups future. That includes a hard
look at competitors, suppliers and customers, technology, the economy, politics and
regulation as well as social and demographic trends.
Below are the summaries about environmental scanning:
Entrepreneurs who work in an uncertain environment have a greater need

for environmental scanning.
A sophisticated entrepreneurial strategy requires sophisticated environmental

scanning for monitoring.
The most important information for entrepreneurs is about customers,

competitors and suppliers.
Entrepreneurs rely heavily on personal connections to scan the environment.
Modes of environmental scanning

Scanning is something that comes naturally to many entrepreneurs, but they can
develop their skills through technology and interpersonal networking. There are
four types of environmental scanning:
1. Undirected viewing
The entrepreneur tours the information landscape, that is, scans the broadest
spectrum of sources with the least necessary effort in order to detect early
signals of change.
2. Conditional viewing
Tracking or focusing on a few selected sources in order to make sense out
of the mass information.
3. Informal searching
The entrepreneur carries out a cursory or just-good-enough search to be
able to ask the right questions.
4. Formal searching
Helps the entrepreneur retrieve information from a large number of sources.
This is the most technological and automated scanning mode.
UNIT 1 35
The external environment consists of opportunities and threats outside the firm,
ones that typically are not within the direct control of the entrepreneur (refer to
Figure 1.3 on WOU MyDigital Library E-course Reserve). These environmental
variables form the context within which the venture exists. The environment has
three parts:
1. Internal environment
Internal environment contains all the factors that directly surround the
company. Here we are especially interested in the community that surrounds
it. Its about the venture structure, for example the culture (beliefs and
values), I which it operates and resources (assets, raw materials, plants and
etc.) it has at its disposal.
2. Task environment
Task environment is an outer layer of internal environment which directly
affects the companys operation. Some of these are stockholders, governments,
suppliers, local communities, competitors, customers, creditors, labour
unions, special interest groups and trade associations. Perhaps a better word
for task environment is its industry
3. Societal environment
Societal environment is at the outer layer where it includes more general
forces; those that not directly affect the short-term activities of the
organisation but can often do, influence its long-run decisions. These
include the regulatory and political environment in which entrepreneurs
find themselves.
One Australian researcher adds an important caveat for the entrepreneur doing
environmental analysis scanning. The technique is said to be less about technique
and methodology and more about openness of mind. Fortunately for entrepreneurs,
they are born with open minds, yet they must be alert to potential blind spots in
their analysis. Scanning the environment is more of an art than science.
Activity 1.14
Explain the four types of environmental scanning.

Understanding Asia-Pacific regulatory environments

Environment assessment usually begins with a general assessment of the regulatory
environment. Why do some entrepreneurs succeed while others fail in international
competition? Perhaps it is better to turn the question around and ask why is it that
a particular country or economy becomes the homebase for competitive globallyoriented entrepreneurs. What makes Australia a global leader in wine exports?
How did New Zealand make it to global ranks in the creative industries? Why does
Singapore have the most business-friendly environment for entrepreneurs? One
powerful factor is the regulatory environment.
Asia-Pacific countries or region-specific regulations are diverse. But they seriously
affect the climate for start-up entrepreneurs. They range from best in the world (for
example Australia, New Zealand and Singapore) to the dreadful (like Indonesia).
A business not only must comply with governmental rules and regulations in the
country of origin, but also be mindful of other countries in which they operate.
Fundamental entrepreneurial decisions such as which lines of business to go into,
which products and services to produce, which investments to finance, how and
where to make goods and how to market them and what prices to charge, all these
are increasingly subject to governmental control.
The entrepreneur needs to know the legal framework in such areas as dispute
settlement and arbitration, customs and tariffs, standards setting, R&D and
innovation policy, anti-trust legislation, personnel and human resources, finance
and taxation, securities and banking, trade and securities commissions, food and
drug regulations, consumer products and protection regimes, transportation and
communications, defense and security, occupational health and safety, environmental
protection, energy regulation, export-import transaction, foreign relation, etc.
Overall, some countries in our region are leaders in the global ease of doing business
sweepstakes. According to World Bank, in 2012, Singapore tops the list, followed
by Hong Kong in the second place and New Zealand in the third place. As for
Malaysia, it is ranked at the twelfth place.
Being on the top of the list does not mean there is no regulation. In order to make
it to the top 20 list, countries need to put important regulations in place, such as
property rights protection and labour provisions. But some countries in this region
make it excessively difficult for entrepreneurs to operate. Now, lets look at some
regulatory areas for entrepreneurs, particularly those that are globally focused.
Business formation
Starting a business should be easy but entrepreneurs can face obstacles such as costs,
delays and procedural complexities. For example in countries like Indonesia, it takes
more than 100 days to start a business with its complex procedures. When it comes
to cost, the cost of starting a business in countries like Singapore, Hong Kong and
Malaysia is very low.
UNIT 1 37
Dealing with licenses and permits

Entrepreneurs often face a myriad of sector-specific licenses as well as inspections to
ensure compliance. Some countries take a longer time to get the license and permits.
For example, in China, it takes a full year to get construction licenses whereas it
takes less than 3 days to obtain the same license in Australia.
Labour regulations
Employment or labour regulations protect workers from discriminatory and unfair
practices by their employers. These include employment law, industrial relations,
health and safety and social security. Governments pass regulations to safeguard
workers from market failure to respect their rights. These include everything from
mandatory wages, to overtime bonuses, grounds for dismissal and severance pay.
Government and business communities have been playing a delicate see-saw game
over the years to find the right balance between labour market flexibility and job
stability. The best way to encourage job creation is through policies such as flexible
working hours and term contracts, ease of contracting workers and ease of hiring
and firing.
The countries in Asia-Pacific vary greatly in the difficulty in hiring and firing.
Australia, Singapore, Hong Kong and Malaysia are the leaders here. Indonesia,
Taiwan and Thailand have put numerous obstacles in place to make hiring and
firing difficult. One of the most startling observations is how much it costs to fire
a person in terms of weeks of severance pay. In Malaysia, severance pay provision is
65 weeks but in Indonesia, 144 weeks of salary must be paid to see the worker leave.
Property laws
Since land and buildings make up a sizeable portion of a businesss productive
capacity, entrepreneurs thrive in countries where property laws are predictable and
many Asia-Pacific countries are leaders in this regard. With secure property titles,
entrepreneurs can secure more financing since banks greatly prefer immovable
property. Proper titles also increase land values and investment levels. To function
properly, property markets must permit investments to be channelled productively.
Collateral laws must make it easy for banks to seize collateral when a debtor defaults.
Property registration reduces transaction costs and improves the security of property
rights. This benefits small and medium enterprises especially since the rich rarely
have problems protecting their property rights.
New Zealand has the greatest ease of registering property. The buyer checks the legal
status of the property with the local authority and then pays a standard conveyance
a standard fee of 0.1 per cent of the property value to register and transfer online.
Registration is complete in two days. Thailand has a world-class system where all
contracts are prepared in the land office as part of registration. In Singapore, the
buyer conducts all due diligence and pays taxes online.

Getting credit
Getting finance is one of the greatest obstacles faced by entrepreneurs. Small
businesses, especially women-owned firms, typically face high hurdles in securing
credit. A good credit information regime benefits both the creditor and debtor. It
boosts the productivity and growth by allowing credit to shift to productive ventures.
Transparent credit registries greatly accelerate the ease of obtaining or giving credit.
Lending is easier when a debtor can pledge any type of asset and can do so through
collateral registry.
Hong Kong, Singapore, Australia and New Zealand have very efficient and
transparent credit systems. In New Zealand, fees, taxes and stamp duties for the
collateral registry are negligible and the process is complete within two days.
Enforcing collateral law is easy in Australia. The creditor appoints a receiver and
serves notice on the borrower. The receiver seizes and sells the asset. No courts are
involved as long as the debtor cooperates. Enforcement is over in 10 days.
Investor protection
Looting by corporate insiders happens all the time and it often goes undetected.
Investor protection against self-dealing is the use of corporate assets for personal
gain. Entrepreneurs require regulatory regimes that provide incentives for investors to
provide finance without the need to exercise daily control of the business. They need
laws that prevent expropriation and expose it when it does. This requires protection
of small shareholders and enforcement of defaults and irregularities. It also requires
that a well-governed business should disclose ownership and financial performance
information. Information on board directors and on voting agreements among the
shareholders must be freely available to current and potential investors. It also means
that a director should face liability for self-dealing and that shareholders should be
able to sue officers and directors for misconduct.
In the disclosure index, the best in the world are China, Hong Kong, Malaysia,
New Zealand, Singapore and Thailand. But China falls way behind in terms of
liability for self-dealing, whereas the best countries are Malaysia, New Zealand and
Singapore. New Zealand is the easiest country for shareholders to sue officers and
directors for misconduct.
Paying taxes
Taxes are a necessary fact of life. They help pay for public services and the
infrastructure that entrepreneurs rely upon. Businesses thrive in a system of simple,
moderate taxes and fast, cheap administration. The World Bank measured the
effective tax that a medium size company must pay in the second year of operation
(except for labour taxes). It also measures tax administration, such as number of
payments and time spent to comply with tax requirements. The total amount of
taxes is the sum of all the different taxes payable after accounting for deductions
and exemptions. The taxes withheld but not paid by the company are not included.
Even such advanced entrepreneurial countries such as New Zealand and Australia
UNIT 1 39
fall way behind Hong Kong in total number of taxes that must be paid. They are
just as bad as Indonesia in terms of total amount of all taxes payable by the business,
as a percentage of gross profit.
International trading regulations

Best practice from around the world shows that countries that have the fewest
documents and signature requirements export and import more. They also make it
cheaper for exporters to operate. Red tape cuts profits from trade. Inefficient customs
and trade transport means that businesses must hold larger inventories at their
warehouse. Furthermore, filing more documents is associated with more corruption
in customs. According to the World Bank measurement of international trading
regulations (the number of official procedures) from the contractual agreement
between the two parties to delivery of goods along with the time necessary for
completion, Australian and Singaporean entrepreneurs have the advantage. On the
other hand, it takes about 79 days to import into Hong Kong and 42 days to import
to New Zealand. Malaysia takes about 49 days.
Enforcing contracts
Entrepreneurs rely on being able to enforce a contract with their customers. If there
is no system for enforcing contracts, then trade and credit may be limited to family
or a small community of people. Even where the courts enforce contracts, they
may be slow, inefficient and even corrupt. In Australia there are 11 procedures to
go through and it takes about 157 days while in Malaysia there are 31 procedures
which takes 300 days. The worse is Indonesia where it has 34 procedures but takes
about 570 days.
Political instability and corruption

Political instability and corruption can be practical barriers for entrepreneurs.
Frequent government changes can lead to business policy reversals, undercutting
an entrepreneurs marketplace certainty and hinder the efficient functioning of
business plan. But it may still be possible to do business in a country with transitory
governments or inconsistent policies.
Activity 1.15
Find out how to start a business in Malaysia.

Understanding the industry environment

Noted strategic consultant Michael E. Porter has suggested that at its root,
environmental assessment involves asking two critical questions. First, what is the
structure of your industry and how is it likely to evolve over time? If the entrepreneurs
business is not in an attractive industry, then the person may want to get out of it
or to redefine it.
Porters second question is what is the companys relative position in the industry? No
matter how attractive the game is, entrepreneurs will not do well if their company
does not hold a good position in it. Conversely, the business can be in a lacklustre
industry with low average profitability, yet if it occupies exactly the right niche, it
can perform very well. According to Porter, most small companies cannot change
the industrys structure but they can establish a good position in the industry based
on a sustainable competitive advantage.
So, evaluating the industry environment is the second critical step, after the regulatory
environment, in the overall economic assessment of a new venture. In determining
how to achieve a competitive advantage, Porter suggests to start with an overall
strategy. Porters five forces model of industry analysis below has been widely used.
The five forces analysis is designed to help companies understand how profitable
an industry is and also what they can do to mitigate negative forces and thereby
improve profitability.
According to Porter, five forces determine the competitive environment of an
industry: threat of new entrants; bargaining power of buyers; bargaining power
of suppliers; threat of substitutes; and rivalry among the existing competitors.
The combined power of these five forces has a decisive effect on the success of an
organisation. They influence prices, costs and required investment of the competitors
industry. Using this model, entrepreneurs can assess an entire industry structure.
Figure 1.5 presents questions that must be answered in order to address each of
the five forces. Please refer to WOU MyDigital Library E-course Reserve for this
figure.
Activity 1.16
In your opinion, are there any other factors besides the five factors
stated above? If yes, what is it?
Understanding the community perspective

After analysing the regulatory and industry environments, the entrepreneur needs
to focus on micro-environmental assessment. This analysis is directed towards the
community where the new venture is to be launched.
UNIT 1 41
Researching the location

Assessing the local community environment is as vital to the success of a new venture
as assessing the regulatory economy and the industry. Below are the major aspects
to consider.
Community demographics
A study of community demographics helps entrepreneurs determine the composition
of consumers who live within the community. These data typically include such
statistics as community size, the residents purchasing power, average education
background and the types of occupation, the percentage of residents who are
professionals and non-professionals and the extent of entrepreneurial activity in
the community.
A few factors may be of special concern in this data analysis. One is the size of the new
venture relative to the community itself and to other businesses in the community.
Analysis of this factor helps the entrepreneur evaluate the new ventures potential in
terms of sales, growth, employment and attractiveness to customers. Each variable
is directly related to the size factor and all variables are interrelated. For example,
a new venture may actually increase the total sales of all competitive firms in the
community. A new furniture store located opposite an established furniture store
will often serve to increase overall sales for both by drawing more business to the
locale. People from other communities will come to comparison shop and will
stay to buy. People from the local community will be more likely to purchase their
furniture from one of these two stores than to drive to other communities to do
so. The major reason is that furniture is comparison goods and most people like to
look at the offerings of at least two stores before they buy.
Another important demographic characteristic is the amount of entrepreneurial
activity in the community. To assess this factor, it is important to count the number
of entrepreneurs in the community, to examine their types of business ventures
and to establish their track records with suppliers (in and out of the region), their
success with local banks and their customer base. If the community has a lot of
entrepreneurial activity, it will be more receptive to new ventures and doors will be
opened more easily. For example, local banks will be more accustomed to reviewing
entrepreneurial loan applications and will have developed expertise in evaluating
such applications and dealing with follow-up business.
Economic base
The extent of an entrepreneurs opportunity may be determined, in part, by the
economic base of the community. This base includes the nature of employment,
which influences the size and distribution of income and the purchasing trends of
consumers in the area. Additionally, it is wise to examine any community dependence
on one large firm or industry that may be affected by seasonal or cyclical fluctuations.

Population trends
It is important to examine population trends in order to identify expanding
communities as opposed to long-term declining or static populations. Growth
usually indicates solid, aggressive civic leadership with opportunities available for
budding entrepreneurial ventures. Favourable signs of a growing community typically
include chain or department store branches throughout the area, branch plants of
large industrial firms, a progressive chamber of commerce, a good school system,
transportation facilities (air, rail and highway), construction activity and an absence
of vacant buildings.
Overall business climate

A summary of views of the community from the business perspective includes a
consideration of transportation, banking, professional services, the economic base,
growth trends and the solidity of the consumer income base. It is important to
make an assessment of the general business climate before deciding on the location
of a new venture.
Business Incubators
When scoping out a community, entrepreneurs will be attracted by business
incubators. This is a business support process that accelerates the successful
development of start-up companies by providing entrepreneurs with an array of
value-adding resources and services. In some areas of the Asia-Pacific, it is possible
for a new venture to use an incubator (also known as a cyberpark) to get started.
China has established a fairly comprehensive business incubator system,

second in number in the world to the United States.
Cyberparks in Brunei, Indonesia, Malaysia and the Philippines are

underpinned by technical universities and commitment by the government
to provide infrastructure, intellectual capital and skilled management.
Taiwan has more than 100 small-scale incubators set up under various
universities and research institutions.
Australia has more than 80 housing some 1200 companies. In 2005, Australia
launched a revamped Building Entrepreneurship in Small Business
programme with continued emphasis on incubation.
New Zealands 16 business incubators house more than 100 start-ups

which together employ over 500 people.
UNIT 1 43
The basic purpose of an incubator is to increase the chances of survival for new
start-up businesses. Four major types of incubators exist and their objectives vary
for each type:
1. Publicly sponsored
These incubators are organised through city economic development
departments, urban renewal authorities, or regional planning and
development commissions. Job creation is the objective.
2. Non-profit-sponsored
These incubators are organised and managed through industrial development
associations of private industry, chambers of commerce, or community-based
organisations with broad community support in real estate development.
Area development is the main objective.
3. University-related
Many of these incubator facilities are spin-offs of academic research projects.
Most are considered science and technology incubators. The major goal is to
translate the findings of basic research and development into new products
or technologies.
4. Privately sponsored
These incubators are organised and managed by private corporations. The
major goal is to make a profit and, in some cases, to make a contribution
to the community.
Regardless of their types, however, most incubators provide below-market-rate rental

space on flexible terms, no building maintenance responsibilities, equipment and
services sharing; financial and technical assistance, cooperation, visibility in the
community.
Activity 1.17
Besides the new furniture venture stated above, give another example
of comparison goods.

Summary
In section 1.3, we explored the entrepreneurial environmental
assessments which are regulations, industry and community. The
following are the summaries:
1. Assess the environmental scanning for the new ventures. The
overall environment analysis assesses the nature of the industry
and the regulatory environment that exists there.
2. The specific industry environment that entrepreneurs address
including common industry characteristics, barriers to entry
and competitive analysis.
3. The regulatory environment for Asia-Pacific entrepreneurs is
varied and complex. For example, doing business in Australia
is quite different from doing in Singapore or Malaysia.
4. The most important regulatory areas that influence
entrepreneurs are bankruptcy law, business formation, contract
enforcement, credit regulations, international trading
regulations, investor protection, labour regulations, licensing
and permits, property laws.
5. When examining the location, entrepreneurs consider areas
such as community demographics, the economic base,
population trends and the overall business climate.
6. When exploring business incubators, they focus their
attention on the presence of these facilities in the local area
and the benefits they would bring to for the specific enterprise.
Self-test 1.3
1. What are the differences among socially responsible ventures,
social ventures and enterprising non-profits?
2. Why are corporate social responsibility activities not considered
to be part of the domain of social entrepreneurship?
UNIT 1 45
1.4 Strategic Entrepreneurship and

Global Opportunities for Emerging
Ventures
Objectives
1. Explain the importance of planning for an entrepreneurial venture.
2. Discuss the nature and benefits of strategic planning.
3. Review the nature of operational planning for a venture.
4. Discuss the advantage of import and export.
Introduction
This unit discusses about the importance of strategic planning for entrepreneurial
venture and its benefits. We will be looking at the strategic management model
and also the famous SWOT analysis. This section will also go into detail about the
global opportunities that are available for emerging ventures.
The nature of planning in emerging firms

Strategic management and entrepreneurship are two fields with quite different
origins. Strategic management is typical of large corporations and is the domain
of the chief executive officer and executive team. The entrepreneur, on the other
hand, often works alone or in small teams and is more concerned with survival than
paying executives. But these days the two are inseparable. Both are focused on how
firms adapt to change and how` they operate amid uncertainty and risk. Both come
together in their strong emphasis on wealth creation. Its a two-way street: Strategist
must take advantage of the entrepreneurial mindset and entrepreneurs must take a
strategic approach to how they perceive opportunities, mobilise their resources and
exploit opportunities.
Whether the business slows or speeds up, whether the business is a monopoly or
competitive market, whether the business is successful or not, in all these cases
entrepreneurs need to turn their attention to strategic planning to find sources of new
growth and to maintain existing advantages. Although most entrepreneurs do some
form of planning for their ventures, it often tends to be informal and unsystematic.
The actual need for systematic planning will vary with the nature, size and structure
of the business. In other words, a small two-person operation may successfully use

informal planning because little complexity is involved. But an emerging venture

that is rapidly expanding with constantly increasing personnel size and market
operations, will need to formalise its planning because it needs to deal with a great
deal of complexity that exists.
There are a variety of strategic planning tools varying in sophistication and time
commitment. An entrepreneurs planning will need to shift from an informal to
a formal systematic style for many reasons. First is the degree of uncertainty with
which the venture is attempting to become established and to grow. With greater
levels of uncertainty, entrepreneurs have a stronger need to deal with the challenges
facing their venture and a more formal planning effort can help to do this. Second,
the strength of the competition (in both numbers and quality of competitors) will
add to the importance of more systematic planning in order for a new venture to
monitor its operations and objectives more closely. Finally, the amount and type
of experience the entrepreneur has may be a factor in deciding the extent of formal
planning. A lack of adequate experience, either technological or business, may
constrain the entrepreneurs understanding and thus necessitate formal planning to
help determine future paths for the organisation. Formal planning is usually divided
into two major types: strategic and operational.
Activity 1.18
Explain the difference between strategic management and
entrepreneurship.
Strategic planning
Strategic planning is the formulation of long-range plans for the effective
management of environmental opportunities and threats in light of a ventures
strengths and weaknesses. It includes defining the ventures mission, specifying
achievable objectives, developing strategies and setting policy guidelines. Hence,
strategic planning is the primary step in determining the future direction of a
business. The best strategic plan will be influenced by many factors, among them
the abilities of the entrepreneur, the complexity of the venture and the nature of
the industry. However, whatever the specific situation, five basic steps must be
followed in strategic planning (refer to Figure 1.6 on WOU MyDigital Library
E-course Reserve):
1. Environmental scanning
Examine the internal and external environments of the venture (strengths,
weaknesses, opportunities, threats)
UNIT 1 47
2. Strategy formulation
Formulate the ventures long-range and short-range strategies (mission,
objectives, strategies, policies)
3. Strategy implementation
Implement strategic plan (programmes, budgets, procedures)
4. Evaluation and control

Evaluate the performance of strategy
5. Feedback/learning
Take follow-up action through continuous feedback.
The first step is scanning the environment which is one of the most critical steps for
an emerging venture. A clear view of a ventures internal and external factors is needed
and both sets of factors must be considered when performing an environmental
analysis. This analysis is often called SWOT analysis. SWOT is an acronym for
a ventures internal strengths and weaknesses and its external opportunities and
threats. Figure 1.7 shows a matrix of the key components of the SWOT analysis
and the template used. Please refer to WOU MyDigital Library E-course Reserve
for this figure.
The analysis should include not only the external factors that are most likely to
that will occur and to have a serious impact on the company but also the internal
factors that will most likely affect the implementation of present and future strategic
decisions. By focusing on this analysis, an emerging venture can proceed through
the other steps of formulation, implementation, evaluation and feedback.
Entrepreneurs have to always remember that the greatest value of the strategic
planning process is the strategic thinking it promotes among business owners.
Although not always articulated formally, strategic thinking synthesises the intuition
and creativity of an entrepreneur into a vision for the future.

What influences a firms strategic planning activities?

Five factors shape the strategic management activities of emerging companies. They
are discussed below.
1. Demand on strategic managers time
The increasing demand on key owner-managers time that accompanies the
complexity brought by the growth of the entrepreneurial firm brings about
a need for more rigorous strategic management practices. Increased strategic
planning activity provides the means to accommodate owner-managers needs to
maintain control and direction of the enterprise, while giving up some activities
in recognition of increased time pressures.
2. Decision-making speed
As the firm expands, the decisions to be made can be expected to increase
both in number and frequency. These pressures are referred to as delegation
demands on the growing firms management. More systematic strategic planning
practices are needed for entrepreneurs to guide and control the increasing need
for decision-making within the firm.
3. Problems of internal politics

Strategic planning practices are seen as one way to alleviate difficulties associated
with the dysfunctional effects of internal politics on organisational decision
making. By providing a formal process to channel partisan organisational
priorities, strategic planning helps to control the politics that emerge as an
entrepreneurial firm grows and develops organisational power-seekers.
4. Environmental uncertainty
Research has suggested that the need for strategic planning is greater in the
presence of increased environmental uncertainty. Hence, it appears likely that
environmental uncertainty is a key factor influencing the strategic management
activities of entrepreneurial firms with an increasingly life-cycle-diverse product
and market base.
5. The entrepreneurs vision

To a large degree, venture planning is an extension of the entrepreneurial ego.
Planning is a process of transforming entrepreneurial vision and ideas into
action. This process involves three basic steps. First is commitment to an open
planning process. Second is accountability to a corporate conscience and third
is establishment of a pattern of subordinate participation in the development
of strategic plans. These three steps may seem obvious to any entrepreneur
UNIT 1 49
attempting to translate their vision into a planning process. The fact remains,
however, that such planning is too often lacking in many new small ventures.
Activity 1.19
Explain the five basic steps that must be followed in strategic
planning,
The nature of operational planning

Operational planning, also referred to as short-range planning or functional planning,
consists of the specific practices established to carry out the objectives set forth in
the strategic plan. The operational plan is thus an extension of the strategic planning
process. In the areas of finance, marketing, production and management, functional
and policies need to be established in order to implement the goals determined in
the strategy.
Research shows that small business managers more often perform operational
planning than strategic planning. In addition, operational planning has been
established as a critical component in the overall planning process of a small firm.
Operational planning process

The overall planning process incorporates all of the factors involved in strategic
planning and the implementation tools of operational planning (refer to Figure 1.8
on WOU MyDigital Library E-course Reserve). Specifically, the tools applied in
the functional areas of the business will be a key to implementation of the planning
process. Some of the tools most widely known and used are budgets, policies and
procedures.
Budgets are planning devices used to establish future plans in financial terms. They
are valuable tools in the operational sense, because they provide a set of measuring
points by which the implemented plans can be evaluated. Effective budgeting is
based on realistic estimates and appropriate allocations.
Policies are the fundamental guides for the venture as a whole. Each department
or functional area needs to establish the policies that will guide its operations on
a daily basis. For example, sales policies, financial policies and credit policies,
manufacturing policies determine the daily course of business. Established policies
allow entrepreneurs the freedom to work more on strategy since each specific
functional problem does not have to be analysed. Policies are guidelines to decision
making and action. They delimit the area in which a decision is made and ensure
that the decision is consistent with objectives.

Although procedures are similar to policies, they are usually policies that have been
standardised as a continuing method. For example, credit approval may follow
specific credit policies, but eventually the steps that are followed can be completely
standardised. Hence, procedures are often referred to as standard operating
procedures.
Each of these operating tools represents methods for implementing and evaluating
the goals of strategic planning. Thus operational planning becomes the ongoing
phase that translates a ventures strategic plan into action.
Activity 1.20
What is the importance of budget?
The Asia-Pacific entrepreneurial economy

In the last two centuries, the world has experienced one revolution after another.
First it was an Industrial Revolution, then a Technological Revolution and now a
Knowledge Revolution. Global entrepreneurs dont just sit back and react to emerging
challenges. They see scientific and technological progress as the primary engines of
change and exploit them. Entrepreneurs create economic activity by commercialising
new ideas, products and services. Air travel, modern communications, Internet
and advanced software make it possible for the global entrepreneur to act almost
easily and seamlessly anywhere in the world. The entire world has become the
entrepreneurs play pen.
This is very much true in the economies of the Asia-Pacific region. As the global
recovery gathers pace, businesses and investors are set to benefit. The strong
performance of the U.S., Japanese and Chinese economies has set the stage for
acceleration in gross domestic product (GDP) growth in most of the Asia-Pacific.
All the pieces seem to be in place to ensure entrepreneurial prosperity in the region.
Two of the primary reasons for this emerging opportunity are the decline in trade
barriers and the rise of free trade agreements as well as the emergence of major trading
blocs. In addition, over the past decade the Asia-Pacific has become a hotbed for
business opportunities.
There are more than 300 worldwide regional trade agreements accounting for more
than 50 per cent of the total global trade volume. Free trade agreements (FTAs)
benefit entrepreneurs by improving access to foreign markets and liberalising trade.
The least complicated way to conduct global business in countries with common free
trade agreements, where they have agreed to eliminate tariffs, quotas and preferences
on most goods traded between them. Singapore has been the most active free trader.
On the other hand, China has fast-tracked its first free trade agreement with New
Zealand in 2007.
UNIT 1 51
Global thinking is important because todays consumers can select products, ideas
and services from many nations and cultures. Entrepreneurs who expand into foreign
markets must be global thinkers in order to design and adopt strategies for different
countries. World exports and world imports were each about $18.24 trillion in 2012.
This means that for Asia-Pacific entrepreneurs, there are an increasing number of
potential markets overseas. The most profitable firms will increasingly be those who
can provide higher quality and lower prices than their competitors and who have
the broadest global markets, for example, China. Many ventures have their goods
produced in China before being exported to the overseas market as well as to their
home country. This is because the cost of labour in China is so much cheaper and
the cost of running a factory in China is relatively cheap.
Activity 1.21
Find out which country or countries are Malaysias top trading
partners.
Multilateral Institutions
Which institutions are influencing the Asia-Pacific entrepreneurial economy
and pushing the increasing number of small ventures participating in the global
marketplace? There are several multilateral institutions that warrant our attention.
We will briefly examine their objectives and their views on entrepreneurs.
Asia-Pacific Economic Cooperation (APEC)

Asia-Pacific Economic Cooperation (APEC) has 21 member economies. The
word economies is used to describe APEC members because the APEC process is
predominantly concerned with trade and economic issues with members engaging
with one another as economic entities. APEC was formed in 1989 to promote trade
and economic cooperation among its members. The APEC countries account for
approximately half of world exports. They work together to sustain this economic
growth through a commitment to free trade, investment and economic reform.
In the 2004 Santiago Agenda on Entrepreneurship, APEC leaders have committed
themselves to ensure that entrepreneurship promotion policies are developed
to promote growth and job creation as well as to encourage small and medium
enterprise (SME) innovation. They called on governments to intervene to promote
new ventures and increase innovation. These interventions should correct market
failures, unequal income distribution, economic instability, disadvantage based on
ethnicity, imbalance between rural and urban development and gender inequity.
The priority accorded to these objectives will vary between economies.

Organization for Economic Cooperation and Development (OECD)

OECD is a multilateral organisation that provides a forum where representatives of
industrialised countries develop and coordinate economic and social policies. Formed
in 1961, its membership comprises the most economically advanced countries in the
world. OECD is one of the worlds leading advocates of the new economy. Its Centre
for Entrepreneurship, SMEs and Local Development launched in 2004, disseminates
best practices and fosters the development of the entrepreneurial society. OECD
believes that entrepreneurship is central to the functioning of market economies.
European Union (EU)

Entrepreneurship is now fundamental to EU strategy. Smaller enterprises and
entrepreneurs today play a central role in the EU economy. The EU is committed to
boosting entrepreneurship as part of its strategy to transform its economy and build its
future economic and competitive strength. To make progress on the entrepreneurship
agenda, the European Commission published an action plan strategic framework
to boost entrepreneurship.
North American Free Trade Agreement (NAFTA)

NAFTA is an international agreement between Canada, Mexico and the United
States whereby eventually no trade barriers will exist among the three nations. The
NAFTA market is composed of more than 400 million consumers. Thus, there are
new opportunities for entrepreneurs in these three countries. The former Canadian
Prime Minister, Brian Mulroney, even suggested that New Zealand and Australia
could be members of NAFTA. In any case, Asia-Pacific entrepreneurs can use one
country, for example, Mexico as a base to reach the entire NAFTA market.
United Nations Development Program (UNDP)

UNDP is working in certain areas to help break down the obstacles that prevent new
entrepreneurs from getting started and the barriers that hinder the growth of SMEs.
Former Secretary General Kofi Annan initiated a UNDP-coordinated Commission
on the private sector and development by saying that entrepreneurs have the
power to create the greatest change for their own countries. The Commissions
report Unleashing entrepreneurship: Making business work for the poor seeks to
tap the power that can be drawn from engaging the private sector to unleash the
entrepreneurial spirit and creativity of people.
UNIT 1 53
World Bank
The World Bank is actually a group of institutions that lend money to developing
nations or encourage investment in various regions. They generally seek to contribute
to economic growth in developing countries. More than just funding river diversions
and petroleum-powered electric generators, the World Bank is increasingly funding
the needs of local entrepreneurs. Through their programmes they encourage
government to build a good investment climate in which private entrepreneurs can
operate. The International Finance Corporation (IFC), a member of the World
Bank group, believes that sound economic growth, grounded in the development of
entrepreneurship and successful private investment, is the key to reducing poverty.
World Trade Organization (WTO)

WTO is one the most important bodies for global entrepreneurs and has 149
members in the year 2006, accounting for more than 90 per cent of the worlds
trade and virtually all of its investment. WTO has existed since 1995 and has
superseded the General Agreement on Tariffs and Trade (GATT). WTO is the only
international body dealing with the rules of trade between nations. Its goals are to
help trade flow as freely as possible, to promote the rules of free trade between the
countries and to settle trade disputes. WTO also covers trade in services, creations
and design. WTO brings the updated GATT, the new General Agreement on Trade
in Services (GATS) and the Trade-related Aspects of Intellectual Property Rights
(TRIPS) together within a single organisation. WTO helps entrepreneurs because
its members are not allowed to grant special favour to any one country (with some
exceptions, such as the establishment of free trade areas). WTO aims to remove trade
barriers, such as customs duties and to promote competition. WTO has also been
set up to resolve disputes and to create an environment where trade can flourish.
Activity 1.22
Name an organisation in Malaysia that helps entrepreneurs to
overcome their problems.

Going global
The first question the entrepreneur should ask is : Why should I go global in the
first place? An entrepreneur firm should be able to answer yes to many of the
following:
1. Profit maximisation
Is the firm driven by the need to maximise profit? Are shareholders
or investors expecting quick returns? This might mean adopting an
opportunistic strategy to help thecompay move from market to market
in search of the best possible returns rather than slowly building up in any
particular market.
2. Market share
Does the firm want to establish a strong position in an undeveloped market?
Is it willing to charge less initially (penetration pricing) in order to get buyers
to adopt? This may mean spending more on advertising and marketing and
less forcus on short-term profitability. This strategy works best in a market
where competition, particularly from local suppliers is weak.
3. Maximising cash flow

Firms strapped for cash may go abroad to bring in more revenue. This may
be the case, for example, for companies that have large stocks of unsold or
discontinued inventory or with idle production capacity.
4. Repositioning the business

Global market entry may help an entrepreneurial firm reposition a business
by developing new product lines and new capabilities. It may make sense to
roll out a different product in a new market, where the company is relatively
unknown, than attempt to change the companys image in its original market.
5. Domestic impact
Aggressive firms may go overseas in order to acquire new knowledge, skills or
technologies for their domestic operations. Such strategies are often pursued
by companies in technology-intensive industries or in sectors undergoing
rapid change.
UNIT 1 55
The entrepreneur can actively engage in the international market in many ways:
1. Importing
Importing is buying and shipping foreign-produced goods for domestic
consumption. Each year the United States imports an increasing amount
of goods. During the 1980s, the United States imported more goods than
it exported, marking the first time this country became a net debtor nation
since World War II. This situation continues today, and several factors have
played a role in this change of trade status. One has been the rising cost of
energy. A second, and complementary, reason is the low labour costs in other
countries, which make their products financially attractive. A third reason is
that some products are not available or produced domestically. (Diamonds,
for example, are not mined in the United States but mostly in Africa. As a
result, American jewelry companies must import diamonds.)
How does an entrepreneur become aware of import opportunities? One way
is to attend trade shows and fairs where firms gather to display their products
and services. Some of these shows are at the international level, with firms
from different countries exhibiting their products and services. Basically, the
trade show gives the prospective customer the opportunity to window-shop.
Another way is to monitor trade publications. Often, firms will advertise
in trade publications to make themselves known to potential customers.
2. Exporting
When an entrepreneurial firm decides to participate actively in the
international arena as a seller, rather than a buyer, it becomes an exporter.
Exporting is the shipping of domestically produced goods to a foreign
destination for consumption. Exporting is important for entrepreneurs
because it often means increased market potential. Instead of limiting
its market to the United States, the firm now has a broader sales sphere.
According to the learning curve concept, increased sales will lead to greater
efficiencies along the cost curve, which in turn will lead to increased
profits. (The learning curve essentially states that as more and more units
are produced, the firm becomes more efficient in production of the units,
thereby lowering the cost per unit. The lower unit cost thus enables the firm
to compete more effectively in the marketplace.) It should be pointed out,
however, that exporting will normally take three to five years to become
profitable. Even if the firm is producing more units effi-ciently, it will take
time to learn the intricacies and complexities of international business.
Exporting has increasingly become a method for venture growth and
increased profitability among small firms. One study examined the types of
export strategies small firms use to gain a competitive edge in their market.
It identified four key competitive strategies. The first involves market
differentiation through competitive pricing, through the development of
brand identification, or through innovation in marketing techniques. The
second type is a focus strategy involving specialty products for particular
customers or new product development. The third strategy is achieving

technological superiority of certain products. And the fourth key strategy

is a product-oriented emphasis using the elements of customer service and
high quality. In order to pursue any of these strategies, entrepreneurs need
to understand some of the ways to become involved in exporting. Some
of the other ways to export are through export management company and
freight fowarder.
3. Export management company

Participation in the export market takes a variety of forms. One of the
simplest is to engage the services of an export management company. An
export management company is a private firm that serves as an export
department for several manufacturers. The company solicits and transacts
export business on behalf of its clients in return for a commission, salary, or
retainer plus commission. In addition, some export management companies
will purchase the product and sell it themselves to foreign customers. Export
management companies can facilitate the export process by handling all
of the details from making the shipping arrangements to locating the
customers. When approaching an export management company, however,
entrepreneurs should exercise caution. Presented here is a list of questions
that should be answered before making a commitment:
a. What is the reputation of the firm? Is it financially sound?
b. What expertise does the firm have in the specific product line the
entrepreneur is offering?
c. What is its track record as an export management company?
d. Does it have an adequate number of personnel to satisfactorily service
all its clients, and what is the expertise of each?
e. Will it accept a non-exclusive contract?
f. Can it handle documentation and shipping requirements?
g. Is the company equally familiar with selling in all areas of the world where
you want to go?
h. Will it accept a performance clause in a contractual arrangement?
One of the dangers the entrepreneur encounters when using an export
management company is the possibility of losing control over the export
function. It is easy for the novice exporter to permit the export management
company to exercise complete control over the export function. In fact, the
exporter is often unaware of the destination of the products. If the firm
should ever decide to start exporting on its own, the entrepreneur would
have no idea where its products have been successful. In addition, the firm
may be unaware of the proper documentation that needs to be filed. As a
UNIT 1 57
result, the exporter becomes heavily dependent on the export management

company. To prevent this problem, the entrepreneur should receive reports
detailing the activities performed on its behalf by the export management
company.
4. Freight forwarder
Another method of exporting that entrepreneurs commonly use is to employ
the services of a freight forwarder. A freight forwarder is an independent
business that handles export shipments in return for compensation. Some
of the services a freight forwarder can provide are:
a. Quoting inland, ocean, and air shipping costs.
b. Arranging inland shipping and reserving necessary space aboard a cargo
ship.
c. Advising on the requirements of international packing.
d. Preparing the necessary export documentation.
e. Seeing to it that the goods reach the port and tracing lost shipments.
Using a freight-forwarding service has several advantages. One is that this
type of service does not cost as much as the services offered by an export
management company. That is because the export management company
handles all of the export-related activities, whereas the freight forwarder
simply arranges for product shipment. Another advantage is that a freight
forwarder can save the exporting firm many headaches. Shipping a product
can be complex and confusing to the company. Arrangements must be made
to ensure safe transportation from the departure point to the destination
point, usually requiring more than one transportation mode. In addition,
each country requires special forms and documentation when products
are imported. If the forms are filled out incorrectly, payment and quite
possibly release of the goods may be delayed indefinitely. The freight
forwarder can obviate these potential nightmares by carefully monitoring
the shipping process.
When selecting a freight forwarder, entrepreneurs should follow certain
guidelines. First, if the cargo is to be shipped by sea, it is important that the
freight forwarder be licensed by the Federal Maritime Commission. Such
licensed freight forwarders are familiar with import rules and regulations,
methods of shipping, government export regulations, and the documents
connected with foreign trade. Second, references should be obtained from
past customers. Third, the services to be provided and the associated costs
to the firm should be determined. Fourth, the entrepreneur should talk
with experienced exporters as well as with the potential overseas distributors
in order to solicit their opinions of particular freight forwarders. Finally,
the prospective exporter should check with current shippers of domestic

products. Several freight companies are now expanding their operations into
other countries and will handle all of the necessary shipping documentation
and arrangements. This new service gives the entrepreneur the opportunity
to contact a single shipper instead of maintaining information on many
transportation companies.
5. Joint venture
Another alternative available to the entrepreneur in the international arena
is the joint venture. A joint venture occurs when two or more firms analyse
the benefits of creating a relationship, pool their resources, and create a
new entity to undertake productive economic activity. A joint venture thus
implies the sharing of assets, profits, risks, and venture ownership with more
than one firm. A joint venture can take one of several different forms. In
some countries, for example, it is not uncommon for a company to form a
joint venture with the state or with a state-owned firm. This is particularly
true in the case of petroleum companies with operations in the Middle East.
A firm may decide to participate in a joint venture for several reasons. One
is that the firm would be able to gain an intimate knowledge of the local
conditions and government where the facility is located. Another is that each
participant would be able to use the resources of the other firms involved
in the venture. This allows participating firms a chance to compensate for
weaknesses they may possess. Finally, both the initial capital outlay and the
overall risk would be lower than if the firm were to set up the operation alone.
One of the disadvantages associated with joint ventures is the problem of
fragmented control. For example, a carefully planned logistics flow may
be hampered if one of the firms decides to block the acquisition of new
equipment. This type of problem can be avoided or diminished in a number
of ways:
a. One party can control more than 50 per cent of the voting rights. This
will normally give formal control; however, even a minority opposing
view can carry considerable influence. This can be particularly true if
the differences of opinion reflect different nationalities.
b. Only one of the parties is made responsible for the actual management
of the venture. This may be complemented by a buyout clause. In case
of a disagreement among the owners, one party can purchase the equity
of the other.
c. One of the parties can control either the input or the output, exerting
signifi-cant control over the venture decisions despite voting and
ownership rights.
The joint venture can be a powerful tool for growth in the international
market. If used properly, it will effectively combine the strengths of the
partners involved and thereby increase its competitive position.
UNIT 1 59
6. Direct foreign investment

A direct foreign investment is a domestically controlled foreign production
facility. This does not mean the firm owns a majority of the operation. In
some cases, less than 50 per cent ownership can constitute effective control
because the stock ownership is widely dispersed. On the other hand, the
entrepreneur may own 100 percent of the stock and not have control over
the company. In some instances the government may dictate whom a firm
may hire, what pricing structure the firm must use, and how earnings will
be distributed. This causes some concern as to exactly who is in control of
the organisation. Because of the difficulty in identifying direct investments,
government agencies have had to establish arbitrary definitions of the term.
A direct foreign investment typically involves ownership of 10 per cent to
25 per cent of the voting stock in a foreign enterprise.
A firm can make a direct foreign investment by several methods. One is
to acquire an interest in an ongoing foreign operation. This initially may
be a minority interest in the firm but enough to exert influence on the
management of the operation. A second method is to obtain a majority
interest in a foreign company. In this case the company becomes a subsidiary
of the acquiring firm. Third, the acquiring firm may simply purchase part
of the assets of a foreign concern in order to establish a direct investment.
An additional alternative is to build a facility in a foreign country.
An entrepreneur may want to make a direct foreign investment for a number
of reasons. One is the possibility of trade restrictions. Some countries have
prohibitions or restrictive trade barriers to imports of certain products.
These barriers can make exporting costly or impossible. In addition, foreign
governments may grant tax incentives to a firm seeking direct investment
in that country. These incentives can be attractive if the anticipated rate of
return is estimated to be higher at the foreign location than domestically.
Direct investment can be an exciting venture for small firms making efforts
to increase their sales and their competitive positions in the marketplace.
However, it is sometimes not practical for a firm to make a direct investment
in a foreign location. If the firm has a unique or proprietary product or
manufacturing process, it may want to consider the concept of licensing.
7. Royalty and licensing

Royalty is a payment made in return for being permitteed to exercise a right
owned by another person. Most commonly it is allied to the payment made
by a publisher or record producer to the author of a book or the performer of
a piece of music, but it can apply equally to a payment made for producing
something by a patented process. This method of distribution is usually
entered into when the developer of a product or component does not have
the capital, time or commitment to manufacture and market the product
component themselves, or there are substantial tariff barriers to imports
in the market of interest. You effectively sell your intellectual property to

someone else to manufacture on your behalf, or to incorporate into a product

they are already manufacturing. You then receive an agreed amount as a
royalty every time they make a sale. This method is often entered into when
a small component has been developed that can be used in other processes,
for example, a microchip that can be used in computers.
Licensing is a global market-entry tool in which the company entres into
an agreement with a licensee in the foreign market, offering the right to
use a manufacturing process, trademark, patent, trade secret, or other item
of value for a fee or royalty. Licensing can cover inventions, technologies,
software, manufacturing systems and processess, products, and artistic
and literary material. The entreprenur need not make an extensive capital
outlay to participate in the international market. Nor does the licensor
have to be concerned with the daily production, marketing, technical,
or management requirements; the licensee will handle all of this. Due to
the high cost of manufacture and the comparatively small investment of a
licensing programme, many of the risks that a company would otherwise
face in exploiting its intellectual property are transferred to the licensee.
Depending on the exclusivity of the license, there are varying degrees of
risk involved for the licensee and licensor; however, an effective licensing
strategy will minimise risk for both parties.
8. Mergers and acquisitions

Mergers and acquisitions are another way for companies to position
themselves in a new market. They can also be important for companies
seeking to develop greater economies of scare or to acquire new capabilities.
A merger occurs when two corporations join together into one, with one
corporation surviving and the other corporation disappearing. An acquisition
is one company taking control of another, often through an unfriendly or
hostile situation. A prospective exporter interested in acquiring a foreign
firm would do well to develop a cooperative business relationship with it first.
This gives both companies a chance to work out an effective relationship,
develop trust and assess the real advantages and disadvantages of a merger
or acquisition.
The four main reasons for making an acquisition include:
a. To acquire complementary products, in order to broaden the line
b. To acquire new markets or distribution channels
c. To acquire additional mass and benefit from economies of scale
d. To acquire technology, to complement or replace the one currently used.
UNIT 1 61
9. Greenfield investment
Building everything from the ground up may be the ultimate international
market entirely strategy. Greenfield investment involves building everything
the foreign subsidiary might need. In the past, this was a good way to get
around protectionist barriers or to acquire an idle production plant cheaply.
These days, this strategy is less popular for two reasons: expense and risk.
Its also much cheaper to outsource the services needed. It also means tying
up scarce capital and thus being inflexible and less strategically agile.
Activity 1.23
What are the benefits of import and export?
Summary
In section 1.4, the difference and importance of strategic
management, some facts about the Asia-Pacific economy and
how entrepreneurs can deal with the challenges are discussed. The
following are the summaries:
1. Strategic management and entrepreneurship have quite different
origins.
2. Today, strategist must take advantage of the entrepreneurial
mindset and entrepreneurs must take a strategic approach to
how they perceive opportunities, mobilise their resources and
exploit opportunities.
3. The operational plan is the implementation phase that includes
specific tools for proper action.
4. Operational plan uses budgets, policies and procedures as
methods for carrying out the objectives established in the
strategic plan.
5. Doing business globally is rapidly becoming a profitable and
popular strategy for many entrepreneurial ventures. The
North American Free Trade Agreement, forged among Canada,
Mexico, and the United States, and the EU (European Union)
are examples of the powerful economic forces creating
opportunities for entrepreneurs in the international marketplace.

6. Entrepreneurs can actively engage in the international market.

One way is importing, which involves buying goods from other
countries. Firms interested in importing can attend trade shows
and fairs and gather information related to the various goods
available for import.
7. A second way is exporting, which takes a variety of forms.
Knowledge of export management companies, freight
forwarders, and foreign sales corporations can be particularly
helpful in this process.
8. A third way is through the use of joint ventures. These
international arrangements offer many benefits for those
looking to establish a presence in the international market.
9. A fourth way is through direct foreign investment. Before
entrepreneurs take this step, however, it is important they
carefully evaluate the associated risks.
10. A fifth way is through licensing, which takes a number of
different forms and has both advantages and disadvantages. The
steps to follow when arranging for licensing were set forth.
Self-test 1.4
1. What is SWOT analysis?
2. Draw the five industry forces model and briefly explain it.
3. Explain how entrepreneurs can actively engage in the
international market.
UNIT 1 63
Summary of Unit 1
Summary
Unit 1 provides an overview of how entrepreneurs see the world
what are the characteristics that an entrepreneur must have in order
for the business to be successful and how to identify opportunities.
It also provides an overview of strategic planning and the global
opportunities with its benefits. In the next unit, your will be guided
on how to start a new business from scratch or buy an existing
business from others.

UNIT 1 65
Suggested Answers to Self-tests

Feedback
Self-test 1.1
1. Some characteristics are innate rather than acquired, including
energy, health, and emotional stability; creativity and
innovativeness; and intelligence. Recent research suggests that
leadership is a complex subject, depending on the interactions
among the leader, the task, the situation, and those being led;
entrepreneurship may be closely related. There are also certain
attitudes and behaviors that can be acquired, developed,
practised, and refined through a combination of experience
and study, such as the ability to learn from mistakes and great
perseverance and determination. These attributes do not
guarantee success, however. Entrepreneurs are able to improve
these skills through nurturing and practising them.
2. This chapter has reviewed the various characteristics of successful
entrepreneurs. As a review, most successful entrepreneurs listed
three attributes as the principal reasons for their success: the
ability to respond positively to challenges and learn from
mistakes, personal initiative, and great perseverance and
determination. Individuals with these attributes should
consider entrepreneurship. After completing the two end-ofchapter exercises, one will gain further ideas about their
proclivity for entrepreneurship. In addition, as discussed in the
chapter, an apprenticeship in an industry or business of interest
can help solidify entrepreneurial goals. It should also be noted
that a persons interest in entrepreneurship may change over time
with experience and work history as well as an improved ability
to spot trends, patterns, and opportunities.
Self-test 1.2
1. An idea is nothing more than a tool in the hands of an
entrepreneur. An idea has no substance. In order for it to be an
opportunity, someone must recognise it and take advantage
of it. Thousands of ideas can be developed, yet most will not
be attractive or feasible. An opportunity occurs when the right
person is at the right place, with the right skills, at the right
time.

2. This involves guessing the future. Trends that are currently

occurring may not continue. After the September 11 attacks
our society changed focus overnight as did after the Tsunami
in Indonesia and Hurricane Katrina on the U.S. gulf coast
in 2005. Few people foresaw that event occurring. Technological
changes are almost as difficult to predict. Some trends are
more easily determined. The U.S. government tracks population
shifts, which can indicate societal trends. And the economy
will always go from boom to recession to boom.
Self-test 1.3
1. The primary difference between traditional entrepreneurship
and social entrepreneurship is the intended mission. Social
entrepreneurs develop ventures with a mission to solve a pressing
social problem, yet the venture is for profit and the impact
on the market is typically seen as economic. Enterprising non
profits utilise earned-income activities, a form of venturing, to
generate all or a portion of total revenue or focus on growth
and economic stability. Socially responsible ventures and
corporate social responsibility emphasise doing good and
serving communities while still making a profit. Hybrid models
are not examples of corporate social responsibility.
2. Corporations with CRS practices impact communities in

which they operate and other stakeholders in many ways, but
CSR is not the core component of their business models.
While CSR examples are numerous and growing and many
large corporations are making a positive impact on the world,
CSR is a support function. These companies were not founded
on missions to solve the worlds most pressing social problems.
CSR activities benefit many but are not considered part of
the domain of social entrepreneurship.
Self-test 1.4
1. SWOT is a tool used by entrepreneurs to identify strength
and weakness of internal organisation and opportunity and
threat from external environment. Usually SWOT analysis is
used after the external and internal environment scan is
completed. The environmental scan is one of the critical
activities at strategic level in any orgnization. Usually the
strength of the organisation is optimised to leverage the
opportunity that arises from the external environment. For
UNIT 1 67
example, the innovation strength of Hyundai enables them to

capture the growing market for automobile in India, China and
Malaysia.
When the organisation faces some threats from the external
environment, it should minimises its weaknesses or overcome
it or else face a higher risk from the external environment. For
example, Proton Malaysia has less technology efficiency to face
stiff competition from many autombile manufacturers, such as
Toyota or Honda.
2. Usually entrepreneurs will use Figure 1.5 to understand the

position of their organisation and its offering in terms of
competitiveness in the industry it represents. Barriers to entry
is the first analysis that needs to be done. It measures how
difficult it is for the competitor to enter the industry. For
example, Marrybrown has entered the fast-food business
with much difficulty and until now it still find it difficult to
fully penetrate the fast food market.
Rivalry among competitors is another important information
needs to be gathered. Basically it ranks the firm in terms of
competitiveness in the whole industry. For example, Dell is
able to compete successfully with other rivals and become thd
number one computer producer by using e-commerce fully in
the global value chain activities.
Power of buyers represents the consumer power to dictate
some key decisions in the organisation in indirect manner. For
example, the huge patronage of Nasi Kandar Pelita makes the
organisation or consumers highly sensitive to price increases at
least in the short term.
The availability of substitute is not good news for the organisation
as the customers can turn to substitutes any time. For example,
Nike customers can change their purchasing decision and turn
to Adidas which has also successfully positioned itself within
the sportswear industry.
Power of suppliers reflects the demand power possessed
by suppliers of raw material or feeding material to another
organisation. The less number of suppliers an organisation has,
the higher its cost of production. This is one of the reasons why
KFC has taken ownership of its supplier of chicken to control
its raw chicken commodity.

3. There are many ways for entrepreneurs involved in the

international market, which are outlined below:
a. Market intelligence: Entrepreneurs can pay market
intelligence organisations to understand the foreign market
better. For example, organisations engage IDC to understand
the PC business in many countries.
b. Alliance: Entrepreneurs can start to find networks around
the region and then at global level to understand foreign
market better and later to form alliances such as joint
venture, merger and acquisition.
UNIT 1 69
References
Allen, K R (2010) New Venture Creation, 6th edn, USA: South-Western Cengage
Learning.
Barringer, B R and Ireland, R D (2010) Entrepreneurship: Successfully Launching
New Ventures, 3rd edn, USA: Pearson.
Federik, H H, Kuratko, D F, Hodgetts, R M (2006) Entrepreneurship: Theory Process
Practices, USA: Thomson Cengage Learning.
Timmons, J A and Spinelli Jr., S (2009) New Venture Creation, Entrepreneurship for
the 21st Century, USA: McGraw-Hill.
Wheelen, T L and Hunger, J D (2006) Strategic Management and Business Policy,
10th edn, USA: Pearson Education, Inc.
World Bank and the International Finance Corporation (IFC) (2013) Doing Business
Report.

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UNIT 1 A

Things to consider before starting a new enterprise: Opportunity and viability

New Enterprise Creation

B WAWASAN OPEN UNIVERSITY

EXTERNAL COURSE ASSESSOR

2014 Wawasan Open University

Wawasan Open University

54, Jalan Sultan Ahmad Shah, 10050 Penang.

1.1 Understanding the entrepreneurial edge in

The entrepreneurial edge

Common characteristics of entrepreneurs

The dark side of being an entrepreneur

Risks faced by entreprenuers

Stress and the entrepreneur

Dealing with stress

1.2 The opportunity: Creating, shaping, recognising

Identifying and recognising opportunities

D WAWASAN OPEN UNIVERSITY

Finding gaps in the marketplace

Generating creative ideas

Encouraging and protecting new ideas

1.3 Environmental assessment: Regulations,

Environmental scanning for new ventures

Understanding the Asia-Pacific regulatory environments

Understanging the industry environment

Understanding the community perspective

1.4 Strategic entrepreneurship and global

The nature of planning in emerging firms

The nature of operational planning

The Asia-Pacific entrepreneurial economy

Suggested answers to self-tests

Unit 4 focuses on the importance of marketing, identifying the right

Unit 5 provides a detailed picture of entrepreneurship which discusses the

By the end of this course, you should be able to:

2 WAWASAN OPEN UNIVERSITY

5. Consult, guide and advise prospective entrepreneurs.

4 WAWASAN OPEN UNIVERSITY

1.1 Understanding the Entrepreneurial

6 WAWASAN OPEN UNIVERSITY

The entrepreneurial edge

Common characteristics of entrepreneurs

4. Initiative and responsibility

8 WAWASAN OPEN UNIVERSITY

7. Internal locus of control

8. Tolerance for ambiguity

10. Integrity and reliability

11. Tolerance for failure

12. High energy level

13. Creativity and innovativeness

10 WAWASAN OPEN UNIVERSITY

16. Self-confidence and optimism

The dark side of being an entrepreneur

Opportunist entrepreneurs who either adopt a flawed strategy or fail to

Inventors who become failed entrepreneurs as they lack key project

Empire-builders who grow too quickly and lose control.

Entrepreneurs who make mistakes, or whose business fails, but who

Entrepreneurs who attract controversy.

Risks faced by entrepreneurs

12 WAWASAN OPEN UNIVERSITY

Family and social risk

Stress and the entrepreneur

What is entrepreneurial stress?

Discrepancies between a persons expectations and ability to meet demands.

Discrepancies between the individuals expectations and personality.