Lecture 6: Developing a Global Business Plan to Enter Foreign Markets

Developing a Global Business Plan to Enter Foreign Markets

Global Business Plan

  • Aims to provide guidance and structure for managing the organization in a rapidly changing, hypercompetitive environment.
  • All innovative ideas and opportunities need to be assessed by the global entrepreneur.

Opportunity Assessment Plan

  • Not a business plan.
  • Focuses on the idea and the market (the opportunity) for the idea, not on the business venture itself.
  • Shorter than a business plan.
  • Doesn’t contain financial predictions and statements.
  • Creates the foundation about whether to act on the opportunity or pass.

Getting Started: Idea and Competition

  • Focus on the idea itself and the competition.
  • Description of the product/service in full detail.
  • Create a prototype or schematic to understand its main aspects and features.
  • Identify and list all competitive products and companies in the industry.
  • Compare the new idea with at least three that exist already, if any.
    • Identify how the new idea is different from the competition.
    • Create USPs (Unique Selling Propositions).
    • A minimum of 3-5 USPs have to be identified.
  • Use of the counting system and governmental databases to identify competitors’ products:
    • E.g.: North American Industry Classification System (NAICS) or for the USA the Standard Industrial Classification (SIC).

Market and Opportunity

  • Size and characteristics of the market.
  • Find data for at least 3 prior years to identify trends.
    • Secondary data from multiple sources.
  • E.g. idea – motorized wheelchair for children:
    • Statistics on healthcare industry (industry).
    • Wheelchairs (market).
    • Motorized wheelchairs (segment).
    • Children needing wheelchairs (target market).
  • Consumer demographic variables (age, income, gender) – per country.
  • Geographic spread of the market.
  • Market structure: Small or large-size competitors; concentration.
  • Social conditions.
  • Any more opportunities available?

Entrepreneur and Team ‘Self’-Assessment

  • At least one person on the entrepreneurial team needs to have some prior experience on the industry to enter.
  • Why does the idea excite you?
  • How does the opportunity fit your personality and background?
  • This short section acts as a check of whether the team will be motivated to keep going with the idea once they are off the ground.

Next Steps

  • Final section delineates the steps that need to be taken in order to bring the idea into the market.
  • How much time is needed per step and how much money.
  • Sources of finance need to be identified.
  • Most entrepreneurs underestimate by 30% the costs per step!

Purpose of the Global Business Plan

  • Writing down all likely external and internal elements in going global.
  • How you will start and manage the global business in the short to medium future.
  • Becomes a road map as it integrates functional issues such as marketing and organizational plans.
  • It is read by a variety of stakeholders for different reasons and purposes.
  • Needs to be comprehensive enough to address the concerns of:
    • Advisers, consultants, bankers, customers, suppliers, employees, investors, VCs, BAs, etc.
    • Even for forming strategic alliances.
  • Indicates the viability of the organization in the designated global market.
  • Helps in decision making and organizing the international direction of the company.

Aspects of a Global Business Plan

Executive Summary

  • Perhaps the most significant part – first impressions.
  • Start with:
    • Title page, table of contents and executive summary.
    • 3-4 sentences briefly describing the nature of the start-up.
    • Purpose of the business plan.
    • Confidentiality statement.
  • Executive summary should NOT be more than 3 pages.
  • Will create the hook and get the reader to be interested or switch off.
    • A typical VC will receive more than a hundred 150-pages business plans a month.
    • Screens the 10-15 most interesting ones.
  • Written last and re-written as many times as necessary.
  • Emphasize the three most critical parts for the business to succeed:
    • Capabilities, background, experiences of the entrepreneur(s).
    • Nature and degree of innovativeness of the product/service.
    • Market size and expected sales and profits.

Introduction

  • Focus here is:
    • On the globalization of the business.
    • The product/service on offer.
    • The potential countries to enter.
    • Mission and purpose of going global.
  • Operations related matters:
    • Where will the business be located?
    • What equipment is needed?
    • Purchase of lease the equipment?
  • How and why the specific countries and what sources of information have been used in the screening process.
    • Anticipated growth of the industry in the specific countries.
    • Competitor analysis.
    • Profile of your customers and why they differ from those of your the competitors?

Analysis of the International Business Opportunity

  • Two things to be covered:
    • (a) the country’s culture and
    • (b) economic, political and legal environment.
  • Particularly paying attention to financial sector and banking systems.
  • Government structure and stability as well as laws.
    • McDonald’s when entering Hungary in 1998 had to get special permission from the government in order to be able to fire underperforming employees.
  • Severance costs:
    • 0 weeks in USA; 8.6 weeks in Japan; 55.9 weeks in India; 91 weeks in China; 446.3 weeks in Zimbabwe.
  • Social structure of the country.
    • Demographics and social characteristics of population
  • Cultural analysis of the country.
  • Identify comparative, as well as competitive advantages and disadvantages of the business opportunity.

Operation of the Proposed Business

  • Describes the venture’s form of ownership:
    • Proprietorship; partnership, or corporation in the USA.
    • Different legal entities with different rights and obligations in different countries (Ltd. /Plc. In the UK)
  • If it is a partnership the terms of the partnership should be included.
  • Provide organizational chart indicating line of authority reporting and division of responsibilities, e.g.:
    • Who are the BoD (Board of Directors)?
    • What are the salaries, bonuses and other forms of payments?
    • Are there stocks issued and how many?
  • Provides clear information of who will run and manage the business and how the members interact with each other.
  • The product/service needs to be described in full detail here:
    • For example the technology used.
    • Protected by patents; copyrights or trade secrets.
  • The operations section goes beyond the description of the manufacturing process.
  • Describes how the product/service will get from production to the customer.
    • E.g. storage, inventory, tracking, shipping, customer support services.
  • Chronological steps in completing a business transaction.
    • Paperwork, authorisations, customs.
  • The role of technology in this transaction process.
    • E.g. internet retail operation.
  • Services involve intangible performances:
    • Depend on location, facility layout, personnel etc.
  • What level of quality is expected?
    • Standardisation of products (ISO)
  • Who will be the supplier?
    • Setting up new, or tying into existing, supply and value chains
  • What kind of raw or intermediate materials are needed?
    • Inputs and sourcing

Strategic Decisions

Market Entry Strategy

  • Here the entrepreneur(s) describe the preferred foreign market entry modes:
    • Exporting; turnkey contracts; licensing; franchising; joint ventures; wholly owned subsidiaries.

Marketing Strategy Plan

  • How the product/service will be priced, promoted, and distributed?
  • Forecasting sales.
  • Budgeting.
  • What kind of marketing strategies will be implemented?
  • Marketing plan is usually an annual activity with weekly and monthly progress and control reports.

Financials

  • Determine the potential investment commitment needed.
    • Is the plan feasible?
  • Forecasted expenses and sales over a 5 year period.
    • First year on a monthly basis.
    • Cost of goods sold, admin expenses, net profits after taxes, income taxes, etc.
  • Cash flow:
    • Determine the demand on cash per month.
    • Sales are irregular at the outset.
    • Need to borrow money to cover salaries and production costs.
  • Projected Balance Sheet:
    • Assets & liabilities of the business.
    • Investments of the entrepreneur and the partners.
    • Retained earning (or cumulative losses).
  • Appendix
    • Supporting and supplementary information for the business plan:
    • Letters from customers (if available), suppliers, secondary information, contracts, etc.

Do's and Don'ts of the Global Business Plan

Do:

  • Write the executive summary last and revise it until it is a succinct and powerful statement of you, your company, and its goals.
  • Tailor the executive summary to each recipient of the business plan.
  • Include a dated and numbered statement of confidentiality to create a proper follow-up schedule.
  • Include information about the potential economic, legal, and political hurdles your company may face in a foreign market.
  • Clearly delineate the ownership of the company and its organizational structure.
  • Present multiple market entry strategies and assess each proposed strategy.
  • Describe in full the operations plan, including costs, from manufacturing or acquiring inventory to sales and shipment.
  • Strengthen your marketing plan by referring to in-depth market research.
  • Provide detailed sales and expense forecasts as well as projected cash flows and a balance sheet.

Don't:

  • Write the executive summary first and make minimal revisions.
  • Treat the business plan as a one-time report instead of a living document that should be constantly reviewed and updated.
  • Skip any of the sections of the business plan.
  • Use outdated data and figures when creating the operations plan and the financial projections.
  • Ignore market research when defining your market plan.
  • Limit your company to only one form of market entry strategy.
  • Hastily prepare the sales and expense forecasts, and other financial data.
  • Be the only editor of the business plan.

Food for Thought

  • What role does a business plan play for a global entrepreneur?
  • What are the key sections of the global business plan?
  • What additional information is needed for a global plan that would not be needed for a strictly domestic start-up venture?

Past Exam Question

  • Two partners of a born-global firm are in dispute of the benefits of developing a global business plan. One business partner believes that creating a global business plan is a waste of time and resources while the other thinks that such a plan is integral in strategically managing the organization. What would you advice the two partners?