Global Entrepreneurial Venture - Essay Example

Global Entrepreneurial Venture Contents Introduction 3 Process of New Entrepreneurial Venture 4 Possible Benefits and Challenges 6 Assessment of Feasibility, Profitability & Resource Allocation 8 Knowledge, Learning and Understanding 10 Context of Financial Information 11 Key Management Accounting Techniques 11 Financial and Management Accounting Terminology 11 Planning and Decision Making Techniques 12 Conclusion 12 References 13 Introduction Global entrepreneurial venture can be defined as an initiative by the business owner or by the management of the company to expand the business activities across the national border and they want to give recognition and earn reputation of that company in the international market. A good and efficient entrepreneur always seeks to conduct new and innovative venture in the other country which will bring more amount of profit and revenue in the business. Global entrepreneurial activities include licensing, opening new sales office; acquiring another venture, create a new venture, exporting etc. The companies should take initiative to open a new venture in another country only after establishing the existing business in the home country. For example this can be said that Johnson & Johnson, Sony have established their business at first in their home country and when their business were in a stable situation then only they have taken initiative to expand their business activities in the global market. This essay will focus on an India based company which wants to expand its business in Germany through global entrepreneurial venture. The name of this company is Ashok Leyland. The company was founded in the year 1948 and the main business activities of this company are based in Chennai city. Raghunandan Saran was the founder of this company in the state Tamil Nadu. It is the 2nd largest automobile manufacturing company in India and also ranked in the 4rt position in the world as the largest manufacturer of buses. The products the company is offering are commercial vehicles, engines and automobiles. It is a publicly traded company and its parent company is Hinduja Group. More than 15, 000 employees are working at this company only in India. In the year 2014, the company faced satisfactory amount of revenue which is approximate INR 99.43 billion (US $ 1.7 billion). The company is also the 16th largest truck manufacturing company in the world. The company is very much able to sell more than 7, 000 engines and more than 60, 000 vehicles annually. In India it has 6 operating units which are located at North Chennai, Tamil Nadu, Maharashtra, Uttarakhand and Rajasthan. The company also expanded its business in Greece, Brazil and many other African and European countries. It has 2 manufacturing plant at Great Britain and Czech in UK. Now the company wants to grab the market of Germany in automobile sector. Process of New Entrepreneurial Venture There are four major steps for implementing a new global venture in the international market. these four processes are 1 ) Evaluation and Identification of the opportunities to start a new venture, 2 ) Develop a proper business plan, 3 ) Determine which resources are required to run the business activities and the final stage is 4 ) Manage the activities of venture. These processes are discussed below: 1) Evaluation and Identification of the opportunities to start a new venture Identification of opportunities is a very difficult task to any entrepreneur. He cannot get any kind of confirm opportunities but there are so many possible opportunities which can be identifies and evaluate according to the nature of business. Some reliable sources also indicate good opportunities for the business. These sources are business associates and consumers, technical people, members of the distribution channels etc. Consumers are the best source for generating idea for a new venture. If there is wide range of customers then the revenue will be increased automatically. Apart from that demand of the product is also a considerable point from the end of any manufacturing company. There are so many opportunities the company Ashok Leyland can get from this venture. Germany is one of the 4 top most automobile manufacturing countries in the world. So all the related opportunities in this industry the company can get to expand its business operation. The company can do the opportunity analysis which is not the business plan but the assessment of the chances for getting success in business. Market length, size and channels of distributor can provide data regarding the demand and acceptability of the products in the market (Butler, Lockett and Ucbasaran, 2006). In such case political, social, technological and economical factors of this country will create so many opportunities for the growth of this company. In Europe, only Germany has the largest economy and it is the 4th largest country in the world in terms of GDP (GDP growth 1.8 % in the year 2014). So developing a new venture in such improved economic country will bring good opportunities for the business. From the year 1991 to 2010 more than 300 acquisitions and 40 mergers have take place in case of automobile industry which will give a wide path for entering the company in the German market. Political and legal factors include laws, rules, regulations and legislature of the local government which are in favour of the automobile industry to run its activities in a smooth way. So this is another big opportunity to this company. In case of social factors this can be said that there is a lot of demand for the automobile products as the life style of the local people is very much improved and they like to travel in their own car rather to travel in the public transport. The country is also industry oriented where more vehicles are required for the purpose of transportation (Hisrich, 2012). The improved technologies in the country will also help to offer innovative features within the automobile products. 2) Develop a proper business plan After analysing all the potential opportunities and political, social, technological and economical factors of the country, the management of the company will take initiative to make a proper business plan. If this can be observed that there is a huge demand of buses or trucks or personal vehicle then the company will focus to manufacture that particular product to attract the customers and achieve a certain % of market share. 3) Determine the resources which are required to run the business activities In this step management has to determine the required resources to run the business activities. Monetary resource is one of the major resources at the start up stage. Suppliers and distributors are other resources who are engaged to distribute the product in the market in an efficient way and they approach the customers to buy the product. The availability of raw material is also a matter of concern to operate the manufacturing procedure. Human resource, financial resource, technical resources are few other resources required for the venture. 4) Manage the activities of venture When the resources will be available then management and entrepreneur will take effective step to implement the business plan. They should analyze the operational problems which are arising from the manufacturing procedure and then should take the corrective steps to resolve those problems. A control system should be established to manage the whole activities of venture (Cummings and Worley, 2009). Possible Benefits and Challenges These benefits can be categorised in 3 ways and these are strategic benefits, financial benefits and production related benefits. Strategic benefits are as follows - The Company can be less dependent on the domestic market and existing international market as it expands its business operation in another new country where so many scopes are available for more growth of the business. The domestic competitiveness will also be increased and the company can get more competitive advantages than the rival companies in the market. It can be able to protect the foreign markets as it will going to hold more market share than the earlier stage. It also can be able for building and stretching marketing capabilities which will help to generate more amount of revenue The Company will be one step ahead in case of building global brand image and more awareness will be created about the offered products of the company in the international market. More countries will be interested to create a new venture or increase the number of venture with this company. The company can capitalize the potential growth in the new country market. It can also find new and efficient talents to operate the business operations in more efficient way. Competitive information can be transferred and ideas to implement new technology or new product feature can be generated from the new market place (Rao, Rao and Sivaramakrishna, 2009). Financial benefits are – the company can increase the amount of profit and sales revenue as it can find new group of customers in the country Germany. If the company can provide more advantages to the customers than the existing competitors in the market then it will earn greater return which can be unexpected to the management of company. The company will also be able to increase the number of potential investors in a universal way. It can gain the tax advantage facilities through the formation of new venture. Production related benefits are – the company can cut the cost of production as it can get the opportunity to outsource from the global market (Cullen and Parboteeah, 2009). It can acquire R & D capabilities and technologies which are available in Germany. As it is known by all that the technology in Germany is much more improved (especially in case of automobile industry) than the many other countries in the world. So the company can get technological benefits for improving the business operation from this country. As automobile industry is one of the largest industries in Germany so there will be available raw materials to run the production and business activities in an interrupted way. The life cycle of products will also be increased and the company will face economical benefits in case of production. As the product will be manufactured in the Germany so the customers will get it at local price which will also enhance their purchasing power and automatically it will help to increase the sale of the products (Wetherly and Otter, 2014). Challenges To create the venture in Germany, the company also will face some challenges from the internal and external way. Already automobile industry in Germany is instable situation and there are 5 major German companies who are dominating the auto mobile industry of the country. Volkswagen AG, Ford-Werke GmbH, BMW AG, Adam Opel AG and Daimler AG are those companies who are the market leader. So there a stiff competition can be seen which will be a great challenge for Ashok Leyland to enter in the market. As there is a tough completion so the company will not be able to achieve market share in very short time or in an easy way. The competitors are very much reputed and well established in global market. More than 6 million vehicles are manufactured in Germany at each and every year and among that approximately 5.5 million vehicles are manufactured by German branded company. So it can be seen that there is already enough supply of the products by the domestic companies to fulfil the requirements of the customers. Here the chance of demand for the international branded product is less. The Volkswagen Group is the 3rd largest automobile manufacturing company in the world after Toyota and General Motors. These companies have invented their own technology to improve the quality of the product. This uniqueness in case of technological development will be a challenge to Ashok Leyland in the market of Germany (Griffin, 2010). Assessment of Feasibility, Profitability & Resource Allocation In case of study the feasibilities of the business management will look the financial potentiality, operational capabilities, social feasibilities, market opportunities and strategic alignment. Strategic alignment shows how the product is appropriate in the market. Here this can be said that automobile products are very much appropriate in the market of Germany as this country is considered the birth place of auto mobile industry. In case of market opportunities this can be said that there is a huge demand for the product in market but it should be remembered by the management that there is also a high competition as the well established companies in the world are situated in Germany. Auto mobile industry generally demands high level of investment to establish a venture. As the company is already a very much stable company in India and abroad so its financial position is also very stable and strong. So at the beginning stage the company can provide sufficient amount of working capital and price of the product will depend on the operational cost. Most of the population in Germany is belonging to the high income and middle income group. So there is social feasibility to increase the demand for this product. Market opportunities are there as the product is in demandable stage as per the market trend. Availability of skilled labour and improved technology will also help in operational capabilities of this company. Trends say that German auto manufacturer companies are facing high amounts of profit and workers of this industry also get high amount of wages. This industry in this country is world famous and for its reputation, customers of the world market are attracted by the features and technology of these products. Competitive infrastructure and logistic system, tax system, labour market and world class customers are directed the companies to earn significant amount of profit at each financial year. So it can be said that Ashok Leyland also will get such advantages and will face the high level of profit. In case of allocation of resources this can be said that total fund for this venture will be distributed among some major heads like human resource, raw materials, distributor channels, advertisement and promotional purposes, technology, production operations etc. If it is anticipated that the company want to invest $ 600 billion for this venture in Germany then the allocation will be as follows: Resources Estimated Cost (in billions) Raw materials $ 120 Human resource including labour cost $ 50 Technology $ 150 Production operation $ 80 Distribution $ 75 Advertisement and Promotion $ 25 Financial Resource (Working capital, Provision & reserve for reinvestment) $ 100 Total $ 600 Here this can be observed that technology and raw materials occupied maximum amount of budget. The availability of raw materials is not in favour of the automobile industry in this country. So in this head the cost will be high. But labour cost is very cheaper in this country than the other European countries. Knowledge, Learning and Understanding In case of knowledge, learning and understanding this can be said that the company can face some risk factors to start the venture or to operating the business in Germany. Some comprehensive strategies should be taken by management so that the company can get consistent amount of return to handle those risk factors or reduce the chances of risks and then only the company will be able to achieve the financial goals. These risks are associated with the strong competitive market, requirement of huge amount of capital, unavailability and high prices of raw materials, economic down turn, government rules and regulation for entering the market etc. If profitability will be increased then automatically risk factors will be reduced within the business (Passenheim, 2010). Context of Financial Information Financial information is very much required to anticipate the future scenario and the trends of the business. Among them volume of sale is an important factor on which revenue and profitability is very much dependable. How much vole the company is produced and among them how much has been sold that data is very much essential for further production purpose. Apart from that total amount of revenue, amount of depreciation and amortization, operating cash flow, profit before tax and after tax, capital expenditure etc. is required (Kimmel, Weygandt and Kieso, 2010). Key Management Accounting Techniques Key management techniques such as cost allocation method, forecasting models can be implemented by Ashok Leyland to understand the financial position of the company. Cost allocation among raw materials, labour and production overhead should be done in such an effective way so that company can get maximum return from its investment. Financial and Management Accounting Terminology The above mentioned terminologies include activity based costing, resource consumption accounting, cost-volume-profit analysis etc. Activity based costing indicates that improved technology will develop the productivity of business which is applicable in this company. The company will also give focus on its total cost, amount of profit and volume of production and analyse that the relationship among these 3 are in favour of business or not by using cost-volume-profit analysis. Planning and Decision Making Techniques Few planning and decision making techniques can be applied by the company to operate the business activities in a controlled way. One of this is cost benefit analysis. The company want to start a venture in Germany. So at first management has to check that the company will do merger or acquisition procedure with any local company in that market or it will take initiative to launch a completely new venture in that country. Among them which one will be more cost effective at the beginning stage? Financial analytics find that merger and acquisition will be more cost effective than the new venture as the new venture will demand a huge amount of capital. So at first the company has to understand the demand of the product in the market and in the initial stage huge amount of investment will not be a cost effective method. Apart from that consensus decision making procedure and decision tree are more some techniques which the company can adopt for better work procedure (Weil, Schipper and Francis, 2012). Conclusion At the part of conclusion this can be said that Ashok Leyland can expand its business and establish the venture in Germany as there is a wide range of potential customers can be observed and a lot of scopes for growth are also existing in that market. Though there are so many challenges and risk factors as the world famous big automobile companies are there in that market so the company should take strategic steps to avoid such kind of constraints. Effective planning to manage financial resources are required to sustain in the market. If it can do so then a wide range of opportunities will be waiting for the growth of this business. References Butler, J., Lockett, A. and Ucbasaran, D. 2006. Venture Capital and the Changing World of Entrepreneurship. Carolina: IAP. Cullen, J. and Parboteeah, K. 2009. International Business: Strategy and the Multinational Company. New York: Routledge. Cummings, T. and Worley, C. 2009. Organization Development and Change. Boston: Cengage Learning. Griffin, D. 2010. Business with a Purpose: Starting, Building, Managing and Protecting Your New Business. New York: Easy Brain Labs Inc. Hisrich, R. 2012. International Entrepreneurship: Starting, Developing, and Managing a Global Venture. London: SAGE Publications. Kimmel, P., Weygandt, J. and Kieso, D. 2010. Financial Accounting: Tools for Business Decision Making. Beijing: John Wiley & Sons. Passenheim, O. 2010. Enterprise Risk Management. Denmark: Bookboon. Rao, C., Rao, B. and Sivaramakrishna, K. 2009. Strategic Management and Business Policy. London: Excel Books India. Weil, R., Schipper, K. and Francis, J. 2012. Financial Accounting: An Introduction to Concepts, Methods and Uses. Boston: Cengage Learning. Wetherly, P. and Otter, D. 2014. The Business Environment: Themes and Issues in a Globalizing World. Oxford: Oxford University Press. Read More