Wednesday, April 18, 2012

GLOBAL ENTREPRENEURS


Introduction
In this blog, we will explore different entrepreneurial practices in order to thrive with globalization. We selected four key factors that have changed during the past decade and how it affects global entrepreneurs. Our analysis will start with the most important factor which is technology, and then we will continue with environment issue, global market and finally political and legal issue.   


1.     Entrepreneur’s practices shift due to technology
Technological change is an ongoing process. Innovation in labour management, work techniques, logistics and the computerization of the work space have lead to change in one very influential factor: productivity. Increased productivity results in higher production efficiency, meaning less resource are needed to achieve a certain level of production. But productivity is also about the time required to reach a certain objective, and this also has improved due to technological advancements. These two aspects are the main reason why entrepreneurs nowadays have more tools at their disposal and the perception of the risk starting a business has significantly decreased.

1.1 Entrepreneurial leap
Good Idea
-          A good idea can come from one individual that has created a new concept, product or service and feels that only trough a new company that new idea will be marketed effectively.
-          A good idea can arise out of a "braintrust" or "thinktank", where a group of specialists meet and through their discussion on some predefined topics they can accumulate ideas and amplify the reach and productivity of their thinking process.
-          A good idea can come from observing a specific environment and trying to find a way to adapt or improve the current state. One example would be the development of the exterior shell of cars, which used to be heavy and squared and now is light and round, in order to improve aerodynamics.
Effective tactics
It has become easier for a startup to begin its activity due to the decreasing entry costs, especially for tech companies, where capital costs are minimal (computer, power & internet connection). 

The availability of freeware and open source software has made it possible to set up extensive server applications without the need for high-level programmers.

Remote control of server systems has given SMEs the edge in terms of cost-to-benefit ratio compared to MNCs, because ever fewer workers are needed to handle the order-processing and data transfer monitoring activities of a company; a handful of workers can coordinate the automation of multiple orders due to programs like "Python" (Automation Software).

Substainable strategy
Workers have increased their computer usage a lot during the last two decades, for private and business use, so acceptance and integration of the computer in a workers daily life has also increased and companies can make use of this fact by giving employees the option to complete certain tasks from home, submitting their results online (= labour flexibility).                     [control variable costs]

Startups can reduce their costs in the first years of their existence by constantly opting for cheaper hardware solutions and freeware, thereby enabling them to stay competitive even against large established firms; when a new company seeks to maximize market share it will very often use this strategy, to enable high potential future returns (= low-cost focus).              [control fixed costs]

Entrepreneurs can seek to market in exclusivity, so that their product or service creates excess demand, which will not be met. In that state, a company does not have a cost anchor in its strategy, but rather a production target, so the entire company activity is linked to periods of high demand or low demand, as determined by management. (= stable return).              [pull strategy]

1.2 Technological change
Internet
The commercial and private use of the internet began during the 1980s; at that time the two main areas in which it was used for were e-mail transfer and accounting. When connections became faster and computer more performing, companies and governments used closed and open networks for security, data transfer, payment processing and employee management. It is in those early days that collectives were able to create influential software like Apache or Linux, that simplified the work process of companies in a very general way.

The transaction speed is a major factor when talking about the benefits of the internet for entrepreneurs. As the order-taking process can be fully automated, more transactions can occur at any time, because time zone difference is not a barrier anymore. This trend will continue, as can be seen from the increasing internet coverage in developed countries. 

The reach of operations has enormously risen, because business-to-business relations and CRM have been facilitated through the use of internet. Whereas in the past entrepreneurs had to actively search for partners and suppliers and promote their company on multiple channels to increase customer reach, now it is possible to combine all these activities on just one platform, the website.

Logistic
Availability of logistics increased, especially for SMEs that engage in product selling, rather than services. So called "industrial parks" bring suppliers and traders together on one common ground, where the offices of companies are conglomerated and so enable synergies across industries.

The speed at which logistics take place also changed considerably over the past 20 years, with faster airplanes and larger boats that can carry large amounts of goods. Even the billing process is faster, as the post offices have larger fleets of transporters and the practice of "24 hour delivery" is a strategic asset for trading companies to motivate customers.

Costs could be greatly reduced due to more efficient diesel engines in the truck sector and more aerodynamic airplane models that consume less kerosene. In the past, companies tried to control the entire supply chain themselves, which resulted in very high operating costs. Now that some firms have specialized in logistics, a single freighter can transport goods for thousands of companies, reducing overall costs.
    
         Productivity
More and more workers become knowledge workers (Marcus., et al. 2000) as their competence to manage and their skills which are unique to the company grow and so companies need to seek a state of self-governance for these new "effective workers created by technological advance", as the Solow growth model states.

Production processes are shortened due to the computerization of the work space; less mistakes occur and less interference is required. The negative side to this development is the increasing maintenance cost companies are facing, as computer hardware is depreciated at a high rate. 

In general the advancement of technological progress has resulted in a shift in entrepreneur practices, where entry costs become lower, adapting to market conditions is crucial and the business environment is increasingly more dynamic. It is no longer enough just to have a good idea, innovation may come from many different sources and entrepreneurs are forced to keep track o technological progress to stay competitive.  

2.     Entrepreneur’s practices shift due to environment issues and sustainability
Entrepreneur and the Environment
The climate changes and environmental issues such as global population growth, increasing life expectancy, resource scarcity and lack of equity in the world not only drive most existing business organizations to go green but also provide basis for substantial new business opportunities. Many entrepreneurs have seen increasing market opportunities for sustainable products and services. Nowadays, customers are becoming increasingly environmentally conscious.

Besides market demand, entrepreneurs also find that making their business more environmental friendly can bring them benefits including gaining good reputation, improving efficiency, potentially lowering operation costs and having a cleaner and healthier work environment. So more and more entrepreneurs choose to contribute to environment protection while making profits through following practices:
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2.1 Reduce energy costs
Many companies start to reduce their energy costs to save energy and resources. For example, in the last decade, Continental Airlines has spent over $16 billion to replace its entire fleet of airplanes with more fuel-efficient ones, in addition to installing fuel-saving “winglets” that cut emissions 5% on its 737 model aircraft. Besides, nitrogen oxide emissions from Continental’s busy Houston hub have been sliced by an astounding 75% since the year 2000. Continental alsohave 12 full time “staff environmentalists” on the payroll who are constantly pairing up with engine manufacturers to design greener, more efficient processes into company operations. 
     
      2.2 Use and provide green products
Entrepreneurs nowadays seek to eliminate the use of toxic and non-environmentally friendly products and replace them with environmentally sustainable products, including biodegradable drinking cups or food containers, furniture created from recycled materials. They also provide more eco-friendly products to their customers. S.C. Johnson, maker of indispensable household products such as Windex, has gone on a mission to lessen the environmental impact of its products. Through their use of the Greenlist Process (a system that ranks your impact on the environment by evaluating the raw materials you use), the company has slashed 1.8 million pounds of volatile organic compounds from its Windex line of products. Another 4 million pounds of polyvinylidene chloride has been eliminated from Saran Wrap, a major drop in harmful chemicals that seep into landfills when they are disposed of. The company has also scaled back its coal-fired plants by working to replace them with natural gas and methane powered facilities.
     
     2.3 Increase virtual communication
Due to technology developments, companies can save large amount of energy in daily operation thorough increasing virtual communication. For example, traditionally, entrepreneurs would drive or fly to meet clients or colleagues in distant offices, but now in order to reduce energy costs and the impact of greenhouse gas emissions on the environment, they can have virtual meetings through web cameras in their own offices. Instead of using paper reports and documents, employees are encouraged to increase the use of e-mail for the delivery of reports and documents. They also try to consider utilizing electronic archiving and e-filing systems to help reduce excessive paper trails.Take Bank of America as an example,According to their corporate website, the company reduced paper use by 32% from 2000-2005.Bank of America also runs an internal recycling program that recycles 30,000 tons of paper each year, good for saving roughly 200,000 trees for each year of the program’s operation.
        
      2.4 Recycle
Recycling is also a trend for entrepreneurs to do make their business green. In the past, when customers bought a new computer, they would throw away the old ones which didn't work anymore. Those old computers become waste and caused pollution to the environment. HP came up with an idea on those old and useless computers. The company has gotten out in front of the computer disposal issue, owning and operating enormous “e-waste” recycling plants that shred discarded, obsolete computer products into raw materials that can be recycled into the industrial food chain. HP has also agreed to take back computer equipment of all brands, and taken steps to ensure that its own products are 100% recyclable in the manner mentioned above.

Starbucks also did well in making use of recycling materials, giving up common paper coffee cups, the company decided to use those coffee cup sleeves made of recycled paper, which saved roughly 78,000 trees per year since 2006.

3.     Entrepreneur’s practice shift due to global market: cross-country collaboration
Nowadays, going global is a dream for many entrepreneurs and also a response to the saturated domestic market. In order to be successful on the competitive international market, entrepreneurs have to know their internal strengths, weaknesses as well as the external threats, opportunities and make the right strategic decision. Neuman Pollack stated that advances in technology, communications, and transportation have transformed the world into a global village, and SMEs can take advantage of this. Off course that these factors are more accessible for entrepreneurs, but accessibility doesn’t necessary mean success? By having more resources and not knowing how to use them is inefficient. Thus, over the past decades, many visionary entrepreneurs have already adopted an important new practice which is cross-country collaboration pursuing the idea of optimizing their resources and internationalize “correctly”. 

According to the Business Dictionary, the definition of collaboration is a cooperative management in which two or more parties work jointly towards a common goal. Therefore, cross-country collaboration is simply involving parties working together at a global level towards a common goal.

Cross-country collaboration
The first international entrepreneurship research started out in 1994, so we assume that this practice goes back a while ago. However, it did not attract much attention until now. Under the circumstances and the impacts of globalization in our daily life, it is normal that this practice is now put in the spot light.

First, this practice is not as clear as black and white because it can take various forms depending how much implications for the degree of control a firm can exercise over foreign operations. For example, options for going global include exporting, licensing, franchising, joint-ventures, and wholly owned foreign subsidiaries (Shrader, 2000), and each of them comes with different degree of collaboration among parties.

Second, the most common reason for small enterprises in adopting cross-country collaboration is the lack of knowledge in the foreign market, (MNCs also have the same challenge) and their resource-constrained nature. Anecdotal and case study evidence has strongly suggested that collaboration with foreign partners is required for young and small enterprises (Shrader, 2000). Local partners have knowledge about domestic market trends, government policies, workforce, distribution channels, supply chain, etc; obtaining these knowledge, competencies can be extremely costly for a foreign SMEs. In that sense, cross-country collaboration is the most cost-efficient strategy, and a wise option for small enterprises.

Finally, we will see one successful example of a type of cross-country collaboration. Franchising represents the most wide spread type of cooperation among entrepreneurs. (Gassenheimer et al., 1996). Nowadays, ambitious entrepreneurs can’t wait to conquer the global market with their products. Pho 24 is a fast-food chain and one of Vietnam's most successful home-grown franchises. Three years after the opening of the first restaurant, in 2003, entrepreneur and founder of Pho 24, Ly Quy Trung had already planned to expand his restaurant overseas through franchising. In 2010, Pho 24 had already opened a total of 77 franchises in Vietnam and overseas (Indonesia, Philippines, Korea, Cambodia, Hong Kong and Australia). For 2012, the company plans to reach a total of 200 restaurants by franchising more in the domestic and the global market.
  

This example is to illustrate the success of franchising in the food industry (the most common type for this industry). However, cross-collaboration can also be outsourcing-production for manufacturing SMEs in order to take advantage of the low labor-cost in other countries. To conclude, globalization has indeed made everything easier, but without knowing how to optimizing your resources is an issue. Cross-country collaboration allows the firm to concentrate more on its core competencies, leverage others firms/partners assets and grow into the global environment.

4.     Entrepreneur’s practices shift due to political and legal issues in globalization context
No matter how globalization tends to get the countries closer, in particular when it comes to business, we can still observe different entrepreneurship practices and approaches worldwide. 

We actually think that the example of China is interesting, especially considering their role in the current worldwide trade. Government helps more and more entrepreneurs, in particular by helping them to raise funds: 9 billion Yuan have been collected and spread among private investors (6.8 billion Yuan), provincial governments and the state.

However, even if China seems to be willing to help its investors and entrepreneurs, many obstacles still have to be faced and overcome. For example, we notice first that the different procedures to start a new business require more time in China than in OECD countries (38 days against 5.7 days in average). There is also some controversial about copyright, patents, brand names, trademarks and trade secrets since these can easily be violated without getting China really alarmed about this issue. The frame for the entrepreneurship stays sort of hostile and consequently obliges entrepreneurs to adapt themselves to China’s lack of legal and regulatory transparency. Finally, taxes for Chinese entrepreneurs remain higher than in developed countries: according to a report by World Bank, start-ups in China sometimes face unreasonable bureaucracy and fees. Forbes indeed even states in an article that rich businessmen and entrepreneurs sort of have enough reasons to leave the country, considering how Beijing has been targeting and abusing them since 2008. According to Xia Xueluan (of Peking University): “We can only hope the rich people stay out of patriotism”, which illustrates well how entrepreneurship is harder and requires more courage in China…

Moreover, culture also plays a big role in Chinese entrepreneurship for two different reasons. First, entrepreneurship is not really part of Chinese culture yet and this makes it harder for entrepreneurs to take risks. Yan Junqi (vice chairwoman of the standing committee of National People’s Congress of China) actually states that “innovation can more quickly gain a foothold in an entrepreneurship-friendly and failure-tolerating culture”. Secondly, Chinese culture plays an important role in the general Chinese business and consequently also in Chinese entrepreneurship. For example, what certainly has the biggest impact on Chinese business is the Guanxi: if you want to do business in China, make sure first that you have the necessary relationships..! Management, leadership or sometimes even just the everyday business manners are also really specific and have to be taken into account before starting any business. Thus all of these cultural aspects must be considered and illustrate well the entrepreneurs’ practices shift from one country to another.

Conclusion
In the blog, we have discussed entrepreneurs' practice shift due to changes in technology, environment, global market and political and legal issues during past 20 years. Compared with their predecessors who did business twenty years before, entrepreneurs today have more opportunities. They are freer to do business in a emerging global market. Due to technology improvements, they can manage their business in a more efficient and cost-saving way. However, entrepreneurs today are faced with new challenges. Since nowadays consumers stress on companies' social responsibilities, they need to pay more attention to environmental issues .As they do business in global market, they need to know the culture, laws and policies of each country very well. In this situation, only those who are able to seize the opportunities and handle the challenges can survive the keen competitions in today's business world.

References
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