IV Year B. Tech.

(CSE) – Semester II
R19 Regulations – Open Elective - ENTREPRENEURSHIP
Syllabus

UNIT I ENTREPRENEURAL COMPETENCE

Entrepreneurship concept – Entrepreneurship as a Career – Entrepreneurial Personality –
Characteristics of Successful, Entrepreneur – Knowledge and Skills of Entrepreneur.

UNIT II ENTREPRENEURAL ENVIRONMENT AND POLICIES

Business Environment - Role of Family and Society - Entrepreneurship Development Training
and Other Support Organizational Services – Central and State Government Industrial Policies
and Regulations - International Business.

UNIT III BUSINESS PLAN PREPARATION

Sources of Product for Business - Prefeasibility Study - Criteria for Selection of Product -
Ownership - Capital - Budgeting Project Profile Preparation - Matching Entrepreneur with the
Project – Feasibility Report Preparation and Evaluation Criteria.

UNIT IV LAUNCHING OF SMALL BUSINESS

Finance and Human Resource Mobilization Operations Planning - Market and Channel
Selection - Growth Strategies - Product Launching – Incubation, Venture capital, IT startups.

UNIT V MANAGEMENT OF SMALL BUSINESS

Monitoring and Evaluation of Business - Preventing Sickness and Rehabilitation of Business
Units - Effective Management of small Business.

Text Books:
1. Hisrich, Entrepreneurship, Tata McGraw Hill, New Delhi, 2001.
2. S.S. Khanka, Entrepreneurial Development, S. Chand and Company Limited, New Delhi, 2001.

References:
1. Mathew Manimala, Entrepreneurship Theory at the Crossroads, Paradigms & Praxis, Biztrantra ,2nd
Edition 2005
2. Prasanna Chandra, Projects – Planning, Analysis, Selection, Implementation and Reviews, Tata
McGraw-Hill, 1996.
3. P.Saravanavel, Entrepreneurial Development, Ess Pee kay Publishing House, Chennai -1997.

Other Books:
1. C.B. Gupta and N.P. Srinivasan, Entrepreneurial Development, Sultan Chand & Sons, New Delhi,
2008.
2. Dr. Radha, Entrepreneurial Development, Prasana Publishers, Chennai, 2007.
3. JayaShree Suresh, Entrepreneurial Development, Margham Publications, Chennai, 2007.
Digital resources:
1. Entrepreneurship NPTEL video lessons by IIT Madras
https://archive.nptel.ac.in/courses/110/106/110106141/
UNIT II ENTREPRENEURAL ENVIRONMENT AND POLICIES
Business Environment - Role of Family and Society - Entrepreneurship Development Training
and Other Support Organizational Services – Central and State Government Industrial Policies
and Regulations - International Business.
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Business environment
In upcoming economies across the world, interest in entrepreneurship is presently more than
ever due to burgeoning youth population and a desire to move up the value chain. Three major
components are identified in this environment that community leaders need to address:

Culture − Acknowledgement of the importance of entrepreneurs to the local as well as

national economy, appreciation of the values that entrepreneurs earn, welcoming entrepreneurs
who often tend to beat off a different drummer, accepting failure as a part of the process and
willingness to motivate and unconditional support to entrepreneurs when some of their ventures
do not pan out.

Infrastructure − Moving beyond the traditional notion of layout to involve traditional and
non-traditional leadership strategies. For example, educational institutions like community
schools, colleges and regional universities, cultural and recreational resources, quality schools,
and social enterprises that are different and stress on creativity.

Entrepreneurial support elements − Precise programs and initiatives created to facilitate a

range of support to entrepreneurs of all types when and how they require it. This involves
providing services like the Chamber and Small Business Development Centers, help centers,
counseling office, networking organizations and opportunities, financing programs, business
incubation services, mentoring and coaching, and youth entrepreneurship education in and
outside the schools.

Having a complete knowledge about these components helps in building an entrepreneurial

environment that facilitates our community to become more entrepreneurial then there is a need
to consider our readiness for entrepreneurship.
How can we and should get started?
We may wish to start by getting a sense of how supportive our community’s current
environment towards entrepreneurs.

Role of Family
A lot has been documented about the importance of the entrepreneur’s access to financial
capital, as well as educational achievement and progress, to the enterprise’s ultimate success.
The family background of an entrepreneur is often an unrecognized aspect of success. Few
facts regarding the role of family for entrepreneurs are –

parents don’t own a business. So it is pretty clear that, business ownership runs within the
family but the question here is does it lead to success?
to be 10 to 40 percent more successful than they would be otherwise.

‘would-be entrepreneur’ gains valuable experience through informal learning and

apprenticeship that occurs while working in a family business.

is the “name of
the game” of running own business is first working in the family business.

operating a business. It is not necessary to gain this experience in the same industry, probably
because basic business experience is what counts.

The major scope through which families shift their business success across generations is by
working through experience. However, a major drawback is the cycle of low rates of business
ownership could be easily broken and relatively worse business outcomes could be passed from
one generation to the next. It is very important to address the lack of opportunities to work in
family businesses.

Role of Society
The major role of the society in entrepreneurship is support. Entrepreneurs contribute to the
society in the following ways:

Business yields and allots products and services to meet certain public requirements. Business
has to be very flexible and frequent research on consumer demands should be done to increase
profits.

reneurs create job opportunities. Income is ensured through entrepreneurship. It is a

very important factor to consider.

ribution in the Nation’s well-being. It ensures it in different

ways, assisting the government to preserve and manage all kinds of public, social institutions
and services, etc.

Entrepreneurs facilitate in enlightening and educating people and motivating their growth at
personal level. Due to high level competition in the market, it is important for both
businessmen as well as their employees to be involved in the constant process of learning and
improving personal skills and abilities like creativity, determination, communication skills and
vision for new business chances.

Entrepreneurship Development Training and Other Support Organizational

Services
Entrepreneurial Development – Concept:
It is meant to develop entrepreneurial abilities among the people. In other words, it refers to
Inculcation, development, and polishing of entrepreneurial skills in a person needed to establish
and successfully run his/her enterprise. Thus, the concept of entrepreneurship development
programme involves equipping a person with the required skills and knowledge is needed for
starting and running an enterprise.

Objectives:
 Develop and strength their entrepreneurial quality.
 Analysis environmental set up relating to small industry and small business.
 Select product
 Formulate project for the product
 Know pros and cons in becoming an entrepreneurs
 Develop a broad vision about the business.

Activities of Entrepreneurship development training:

1) General introduction to Entrepreneurship
2) Motivational Training
3) Management Skills
4) Support system and procedure
5) Fundamentals of project feasibility study
6) Plant visits

Phases of Entrepreneurial Development Programme:

1) Pre- training Phase
a) Selection of entrepreneurs
b) Arrangement of infrastructure
c) Tie-up of guest faculty for the training purpose. Like that

2) Training Phase
a) Purpose of training is to develop „need for achievement‟
b) Role play like entrepreneur

3) Post-training Phases
a) Follow- up
b) Review the pre- training work
c) Review the process of training programmes and
d) Review past training approach

Action Plan: Proper planning and execution are required at all levels and training in right direction is to
be planned meticulously. The steps to be taken can be listed as follows:
 Identify entrepreneurs with different literary levels in groups and to create awareness about
entrepreneurship and its importance as job providing avenues rather than job seeking ventures.
 Skills to be provided to selected individuals/group are to be identified.
 Make them to realize the income generation, social status and recognition.
 Give orientation and skill training on selected trades on their choice and suitability.
 Assist them in preparation of project reports for their own proposed units and help them to
follow up the venture to start the new enterprise.
 Provide consultancy and guidance continuously.

A training capsule of around 15 days may be provided by expert institutions, voluntary agencies and
Government departments. The financial resources are to be mobilized to provide this type of
programmes, by the government organizations like banks, public sector organizations and voluntary
agencies.

The higher education institutions which are spreading throughout the country, may conduct programmes
like this, regularly in addition to their academic programmes, with or without government aid. Young
graduates of that area and the final year students of U.G/P.G courses may also be provided with such
training. Normally, infrastructure will be available with such institutions. Getting expertise and
mobilizing other requirements will also be easier for such institutions, since they are already having
good facilities. Voluntary agencies like Rotary club, Lions club, Government sponsored institutions like
UGC, Science and Technology Councils may interact with the colleges/universities, through financial
assistance, to carry out such programmes.

With proper financial assistance and effectively using them, each college/university may train 300 to
1000 youngsters, in the area of entrepreneurship development. When women are going to be the target
groups, the benefit will reach a larger section of the society. Thus, Entrepreneurship culture is to be
developed gradually among the prospective individuals; in addition, providing educational facilities to
use the vibrant individual force in right direction. Programmes combining technical skill and
entrepreneurship skill to selected groups will make the Indians more self-reliant and confident and
would lead them to be envied by people at the international level.

Training components: Many reputed institutions are available at Regional, State and National level,
like,
Entrepreneurship Development Institute of India (EDI) Ahmadabad
National Science & Technology Entrepreneurship Development Board (NSTEDB) New Delhi
National Institute of Small Industry Extension (NISIE) Hyderabad
Centre for Entrepreneurship Development (CED) Madurai and Chennai and the essential
components of such training may be listed as follows:

1. Awareness, career building and attitudinal change towards enterprise formation.

2. Effective training on building up self-confidence and communication skills.
3. Skill training on specific trades suitable to their option.
4. Training on quick and effective decision making techniques and managerial skills.
5. Training on marketing strategies.
6. Training on effective financial management.
7. Training on project formulation and implementation.
8. Scope for increasing access to new technologies and scientific knowledge.
9. Information on persons/offices to be contacted.
10. Interaction with successful entrepreneurs for sharing their experiences

Training in such areas is not going to have much financial burden to the govt., when compared
to other developmental projects. This type of programmes can be conducted in all the parts of
the country. A consistent and continuous effort in this project will add more dimensions Indian
youths and their empowerment and to the economic development of the nation as a whole.

Support services

Financial Institutions: The following financial institutions in India support the

entrepreneurship activities and the list is given below:
All Commercial banks;
Industrial Development Bank of India (IDBI);
Industrial Finance Corporation of India (IFCI);
Industrial Credit and Investment Corporation of India (ICICI);
Life Insurance Corporation of India (LIC);
Unit trust of India (UTI);
State Financial Corporations (SFCs);
Small Industries Development Bank of India (SIDBI);
Export-Import Bank of India (EXIM Bank)

Support Institutions The following institutions in India extend their support to start a new
business or start-up and the list is given below:
National Small Industries Corporation (NSIC);
Small Industries Development Organization (SIDO);
Small Scale Industries Board (SSIB);
State Small Industries Development Corporations (SSIDC);
Small Industries Service Institutions (SISI);
District Industries Centers (DICs)
Industrial Estates

Entrepreneurial Initiatives in India

1. Centre for Innovation, Incubation& Entrepreneurship (CIIE) - IIM Ahmadabad,
established in 2001 and from inception, CIIE has 15 + innovations grow out of the incubation
centre in varied technologies.
2. Society for Innovation and Entrepreneurship (SINE) - IIT Bombay, established in 2004
and has currently 16 companies under its incubation programme.
3. Cell for Tech Innovation, Development & Entrepreneurship support - IIT Chennai,
established in 2000 and organizes national level competitions, “Breakthrough‟ (general
business plan competition) and “Genesis‟ (Social entrepreneurship plan competition) to bring
out the talent among young entrepreneurs.
4. Society for Innovation and Development (SID) - IISc, Bangalore, established in 2006 and
the investigator will be given a seed capital of Rs 20 lakhs per year for two years as soft loan
for the approved plan.
5. SP Jain Centre for Entrepreneurship Development- SPJIMR Mumbai offers a 16-week
'Start Your Own Business' programme which a public programme is held twice in a year.
6. Technology Business Incubator (TBI) - BITS Pilani in association with DST, BITS has
established Technology Business Incubator in the area of embedded systems and VLSI design
in 2004 and TBI helped ten companies.
7. Technology Incubation and Entrepreneurial Training Society (TIETS) – IIT
Kharagpur, established in 2005, so far, the institute has been able to incubate two companies
through “Concipio‟ over the last three years. Beside, an in house panel has helped 11-12
ventures took wings.
8. Nirma Labs, Nirma University, Ahmedabad established in 2004 and Nirma Labs used
three-step model for students who were interested to start their own businesses-training,
incubation and funding.
9. A Few programmes organized, for example,
  IEEE certification programme called “Igniting Minds and Ideas‟ by the Delhi
based ISO certified strategy consulting firm “Total Solutions Incorporation‟
(TSI) for a month.
 “Total Resource Academy of India” (TRAIN), a knowledge management,
training and development organization held for students of Delhi Public School
(DPS), R K Puram.
 National Geographic Channel recently announced a Nationwide contest
“Shaping the future‟ with the collaboration of the Foundation for Information &
Technology Transfer at IIT-Delhi; Society for Innovation & Entrepreneur at IIT-
B, Nedathur S Raghvan Centre for entrepreneurial Learning (NSR- CEL) at
IIM-B and the Technopreneur Promotion Programme at the Department of
Scientific and Industrial Research DSIR
10. Support from Government and Non Government organizations
 Delhi Technical University announced the setting up of water technology and
management centre with the support of UNESCO.
 Entrepreneurship Development Cell (EDC) of University School of management
Studies, Guru Gobind Singh Indraprastha University (GGSIPU) has launched a one
month business skill development programme in association with the Ministry of Micro,
Small and Medium Enterprises. Representatives from KVIC, NABARD will share their
knowledge.
 NASSCOM has signed a Memorandum of Understanding (MoU) with University
Grants Commission (UGC), for
Faculty Development Programme (FDP)
Re-skilling the faculty in IT
Framework for co-operation to catalyze industry-academia interface
11. Micro, Small or Medium Enterprise, Government of India - Earlier concept of
“Industries‟ has been changed to “Enterprises‟ and Enterprises have been classified broadly
into:
(i) Enterprises engaged in the Manufacture / production of Goods pertaining to any industry;
(ii) Enterprises engaged in providing / rendering of services.
Manufacturing enterprises have been defined in terms of investment in plant and machinery
(excluding land & buildings) and further classified into:
- Micro Enterprises - investment up to Rs.25 lakh.
- Small Enterprises - investment above Rs.25 lakh & up to Rs. 5 crore
- Medium Enterprises - investment above Rs. 5 crore & up to Rs.10 crore.
• Service enterprises have been defined in terms of their investment in equipment (excluding
land & buildings) and further classified into:
- Micro Enterprises – investment up to Rs.10 lakh.
- Small Enterprises – investment above Rs.10 lakh & up to Rs.2 crore.
- Medium Enterprises–investment above Rs. 2 crore & up to Rs. 5 crore
It is not necessary to engage in manufacturing activity for self-employment. One can set up
service enterprises as well.
Central and State Government Industrial Policies and Regulations
The Role of Government in Supporting Entrepreneurship:
Small and Medium-sized Enterprises (SMEs) in market economies are the engine of economic
development. Owing to their private ownership, entrepreneurial spirit, their flexibility and
adaptability as well as their potential to react to challenges and changing environments, SMEs
contribute to sustainable growth and employment generation in a significant manner.
SMEs have strategic importance for each national economy due a wide range of reasons.
Logically, the government shows such an interest in supporting entrepreneurship and SMEs.
There is no simpler way to create new job positions, increasing GDP and rising standard of
population than supporting entrepreneurship and encouraging and supporting people who dare
to start their own business. Every surviving and successful business means new jobs and
growth of Gross Domestic Product (GDP).
Therefore, designing a comprehensive, coherent and consistent approach of Council of
Ministers and entity governments to entrepreneurship and SMEs in the form of government
support strategy to entrepreneurship and SMEs is an absolute priority. A comprehensive
government approach to entrepreneurship and SMEs would provide for a full coordination of
activities of numerous governmental institutions (chambers of commerce, employment bureaus,
etc.) and NGOs dealing with entrepreneurship and SMEs. With no pretension of defining the
role of government in supporting entrepreneurship and SMEs, believe that apart from designing
a comprehensive entrepreneurship and SMEs strategy, the development of national SME
support institutions and networks is one of key conditions for success. There are no doubts that
governments should create different types of support institutions:

i) To provide information on regulations, standards, taxation, customs duties, marketing

issues;
ii) To advise on business planning, marketing and accountancy, quality control and
assurance;
iii) To create incubator units providing the space and infrastructure for business
beginners and innovative companies, and helping them to solve technological problems,
and to search for know-how and promote innovation; and
iv) To help in looking for partners, in order to stimulate entrepreneurship and improve
the business environment for small enterprises.

Training
Basic training differs from product to product but will necessarily involve sharpening of
entrepreneurial skills. Need based technical training is provided by the Govt. & State Govt.
technical Institutions.
There are a number of Government organizations as well as NGOs who conduct
Entrepreneurship Development programmes (EDPs) and Management Development
Programmes (MDPs). These EDPs and MDPs and are conducted by Micro, Small and Medium
Enterprises (MSME), National Institute of Entrepreneurship and Small Business
Development (NIESBUD), Ministry of Skill Development and Entrepreneurship | Goverment
Of India. (NIESBUD), National Small Industries Corporation (NSIC), IIE, NISIET,
Entrepreneurship Development Institutes and other state government developmental agencies.
Marketing Assistance
There are Governmental and non-governmental specialized agencies which provide marketing
assistance. Besides promotion of MSME products through exhibitions, NSIC directly market the MSME
produce in the domestic and overseas market. NSIC also manages a single point registration scheme for
manufacturers for Govt. purchase. Units registered under this scheme get the benefits of free tender
documents and exemption from earnest money deposit and performance guarantee.

Promotional Schemes
Government accords the highest preference to development of MSME by framing and
implementing suitable policies and promotional schemes. Besides providing developed land
and sheds to the entrepreneurs on actual cost basis with appropriate infrastructure, special
schemes have been designed for specific purposes like quality up-gradation, common facilities,
entrepreneurship development and consultancy services at nominal charges.
Government of India has been executing the incentive scheme for providing reimbursement of
charges for acquiring ISO 9000 certification to the extent of 75% of the cost subject to a
maximum of Rs. 75,000/- in each case. ISO 9000 is a mechanism to facilitate adoption of
consistent management practices and production technique as decided by the entrepreneur
himself. This facilitates achievement of desired level of quality while keeping check on
production process and management of the enterprise.

Concession on Excise Duty

MSME units with a turnover of Rs. 1 crore or less per year have been exempted from payment
of Excise Duty. Moreover there is a general scheme of excise exemption for MSME brought
out by the Ministry of Finance which covers most of the items. Under this, units having
turnover of less than Rs. 3 crores are eligible for concessional rate of Excise Duty. Moreover,
there is an exemption from Excise Duty for MSME units producing branded goods in rural
areas.

Credit Facility to MSME

Credit to micro, small and medium scale sector has been covered under priority sector lending
by banks. Small Industries Development Bank of India (SIDBI) has been established as the
apex institution for financing the MSME. Specific schemes have been designed for
implementation through SIDBI, SFCs, Scheduled Banks, SIDCs and NSIC etc. Loans up to Rs.
5 lakhs are made available by the banks without insisting on collaterals. Further Credit
Guarantee Fund for micro, small and medium enterprises has been set up to provide guarantee
for loans to MSME up to Rs. 25 lakhs extended by Commercial Banks and some Regional
Rural Bank.

Policies and Schemes for Promotion of MSME Implemented by State Governments

All the State Governments provide technical and other support services to small units through
their Directorates of Industries, and District Industries Centers. Although the details of the
scheme vary from state to state, the following are the common areas of support:
1. Development and management of industrial estates
2. Suspension/deferment of Sales Tax
3. Power subsidies
4. Capital investment subsidies for new units set up in a particular district
5. Seed Capital/Margin Money Assistance Scheme
6. Priority in allotment of power connection, water connection.
7. Consultancy and technical support

Government of India runs a scheme for giving National Awards to micro, small and medium
scale entrepreneurs providing quality products in 11 selected industry groups of consumer
interest. The winners are given trophy, certificate and a cash price of Rs. 25000/- each.
Government accords the highest preference to development of MSME by framing and
implementing suitable policies and promotional schemes like policies and promotional
schemes, providing incentives for quality up-gradation, concession on excise duty and provides
technical supportive services. Thus Government play supportive role in developing the
entrepreneurs.

STATE GOVERNMENTS’ INCENTIVES FOR INVESTORS

Many state governments are offering incentives to attract investment in their states. Many state
governments in India offer attractive incentive packages which include incentives such as:
 Land at subsidized prices or Industrial sheds to set up small scale industrial units.
 Tax concessions for a number of years. These may include exemption from sales tax etc
for a set period of time.
 Electric power supply at a reduced tariff.
 Loans and subsidies at very attractive rates of interest.

Incentives for Setting up a Business in Backward Areas

The Government of India as well as several State Governments provides several benefits and
incentives to promote industrialization of backward areas. Both the central and state
governments share the cost of some of the incentives provided. The purposes of such incentives
are to develop backward areas and increase employment for local inhabitants of such areas.
The bulk of new industries prefer areas with an established infrastructure and this is why
incentives are offered to entice new ventures to start up in areas that need development.
Incentives offered depend on the specific area chosen and some of the incentives offered are:
 Transportation subsidies to promote industries in areas that are not easily accessible, like
remote hilly areas. A subsidy of 50% to 90% on transportation costs is available under this
scheme.
 A Subsidy at the rate of 15% of the investment amount in plant and machinery is given
under the capital investment subsidy scheme.
 A subsidy for interest relief is also provided at a rate of 3% for new industrial units in some
areas.
While in the past, setting up an industry in India was not an easy task because of bureaucratic
requirements that are needed to be fulfilled. However both the central and state governments
have now made efforts to improve something.

Industrial Unit Startup Information for NRIs

For Non Resident Indians returning to India to start up industrial units: They will find
that there is plenty of talent available in India. Hiring the right kind of person can make things
quite easy to go through the maze of Indian regulations.
While the government no doubt is trying to bring out reforms to make things easier for foreign
investors, the attitude of some officials is difficult to change.
Those who encounter problems should use the several channels available now to report as the
clerical staff use delaying tactics for personal gain.
Returning NRI's who can tolerate the initial adjustment setbacks in establishing themselves
when they return to India will ultimately find the rewards well worth the effort. India offers
investors tremendous opportunities and is presently one of the most sought locations for
industrial investment.

Loans available for starting Industrial venture in India

There are two main financial institutions available for loans for entrepreneurs.
1. Industrial Development Bank of India (IDBI)
2. Industrial Finance Corporation of India (IFCI)

The Industrial Development Bank of India is the head institution in the area of long term
industrial finance. It was established under the IDBI Act 1964 as a wholly owned subsidiary of
RBI and started functioning on July 01, 1964. Under Public Financial Institutions Laws
(Amendment) Act 1976, it was delinked from RBI. IDBI is engaged in direct financing of the
industrial activities.
The objectives of the Industrial development bank of India are to create a principal institution
for long term finance, to coordinate the institutions working in this field for planned
development of industrial sector, to provide technical and administrative support to the
industries and to conduct research and development activities for the benefit of industrial
sector.
At the State level finance is available in the form of loans and can be availed from
1. State Financial Corporation (SFC)
2. State Industrial Development Corporation (SIDC).

Criteria for Business loans:

 Technical assessment of project
 Experience of the entrepreneurs
 Financial & commercial practicality of the project
 Conformity to environmental laws
 Economic viability of the project

How to apply for business loans in India – Loan application procedure

 The first step is to submit a detailed project report (business plan) to the financial institution
to IDBI, IFCI or any other financial institution from where the loan sanction is sought. In
case a license is a requirement for the project, the license should be provided with the
project report.
 The financial institution after scrutinizing the project report. If the financial institution
requires additional information or clarifications, they usually ask for this in a few days of
receipt of project report.
 Representative from the financial institution will arrange to inspect the site etc to make
certain the suitability of the project. At this stage discussions on various aspects of the
project are discussed and final project costs are calculated.
 The financial institution gives its approval if they find the project feasible.

Loans provided for business ventures can be for equipment and fixed assets as well as working
capital. While there is no hard and fast rule that is revealed by financial institutions. But if a
project is viable and the entrepreneur has approximately 25% of his own funds then 75% can be
financed, in addition to this loan, working capital also can be availed.

In case, your expertise in the project is promising and proven then there is always the
possibility that loan may be sanctioned with a lesser amount of cash investment on your part.
Projects costing up to Rupees 5 crores can normally be financed at the state level. Financial
institutions follow the guidelines such as debt-equity ratio, entrepreneur’s contribution to the
project etc when deciding the loans. It is not uncommon for applicants to inflate their
contributions in an attempt to invest the least amount of their own funds.

International Business
International business refers to the trade of goods, services, technology, capital and/or
knowledge across national borders and at a global or transnational scale.
It involves cross-border transactions of goods and services between two or more countries.
Transactions of economic resources include capital, skills, and people for the purpose of the
international production of physical goods and services such as finance, banking, insurance,
and construction. International business is also known as globalization.
To conduct business overseas, multinational companies need to bridge separate
national markets into one global marketplace. There are two macro-scale factors that underline
the trend of greater globalization. The first consists of eliminating barriers to make cross-border
trade easier (e.g. free flow of goods and services, and capital, referred to as "free trade"). The
second is technological change, particularly developments in communication, information
processing, and transportation technologies.
"International business" is also defined as the study of the internationalization process of
multinational enterprises. A multinational enterprise (MNE) is a company that has a worldwide
approach to markets, production and/or operations in several countries. Well-known MNEs
include fast-food companies such as: McDonald's (MCD), YUM (YUM), Starbucks Coffee
Company (SBUX), etc. Other industrial MNEs leaders include vehicle manufacturers such as:
Ford Motor Company, and General Motors (GMC). Some consumer electronics producers such
as Samsung, LG and Sony, and energy companies such as Exxon Mobil, and British Petroleum
(BP) are also multinational enterprises.
Multinational enterprises range from any kind of business activity or market, from consumer
goods to machinery manufacture; a company can become an international business. Therefore,
to conduct business overseas, companies should be aware of all the factors that might affect any
business activities, including, but not limited to: difference in legal systems, political
systems, economic policy, language, accounting standards, labor standards, living
standards, environmental standards, local cultures, corporate cultures, foreign-exchange
markets, tariffs, import and export regulations, trade agreements, climate, and education. Each
of these factors may require changes in how companies operate from one country to another.
Each factor makes a difference and a connection.
One of the first scholars to engage in developing a theory of multinational companies was
Canadian economist Stephen Hymer. Throughout his academic life, he developed theories that
sought to explain foreign direct investment (FDI) and why firms become multinational.
There were three phases of internationalization according to Hymer's work. The first phase of
Hymer's work was his dissertation in 1960 called the International Operations of National
Firms. In this thesis, the author departs from neoclassical theory and opens up a new area of
international production. At first, Hymer started analyzing neoclassical theory and financial
investment, where the main reason for capital movement is the difference in interest rates. After
this analysis, Hymer analyzed the characteristics of foreign investment by large companies
for production and direct business purposes, calling this Foreign Direct Investment (FDI). By
analyzing the two types of investments, Hymer distinguished financial investment from direct
investment. The main distinguishing feature was control. Portfolio investment is a more passive
approach, and the main purpose is financial gain, whereas in foreign direct investment a firm
has control over the operations abroad. So, the traditional theory of investment based on
differential interest rates does not explain the motivations for FDI.
According to Hymer, there are two main determinants of FDI; where an imperfect
market structure is the key element. The first is the firm-specific advantages which are
developed at the specific companies home country and, profitably, used in the foreign country.
The second determinant is the removal of control where Hymer wrote: "When firms are
interconnected, they compete in selling in the same market or one of the firms may sell to the
other," and because of this "it may be profitable to substitute centralized decision-making
for decentralized decision-making".
Hymer's second phase is his neoclassical article in 1968 that includes a theory of
internationalization and explains the direction of growth of the international expansion of firms.
In a later stage, Hymer went to a more Marxist approach where he explains that MNC as agents
of an international capitalist system causing conflict and contradictions, causing among other
things inequality and poverty in the world. Hymer is the "father of the theory of MNEs", and
explains the motivations for companies doing direct business abroad.
Among modern economic theories of multinationals and foreign direct investment
are internalization theory and John Dunning's OLI paradigm (standing for ownership, location
and internationalization). Dunning was widely known for his research in economics of
international direct investment and the multinational enterprise. His OLI paradigm, in
particular, remains as the predominant theoretical contribution to study international business
topics. Hymer and Dunning are considered founders of international business as a
specialist field of study.
Importance of studying international business
The international business standards focus on the following:
 Raising awareness of the inter-relatedness of one country's political policies and economic
practices on another;
 Learning to improve international business relations through appropriate communication
strategies;
 Understanding the global business environment—that is, the interconnections of cultural,
political, legal, economic, and ethical systems;
 Exploring basic concepts underlying international finance, management, marketing, and
trade relations; and
 Identifying forms of business ownership and international business opportunities.
By focusing on these, students will gain a better understanding of Political economy. These are
tools that would help future business people bridge the economic and political gap between
countries.
There is an increasing amount of demand for business people with an education in international
business. A survey conducted by Thomas Patrick from University of Notre Dame concluded
that bachelor's degree and master's degree holders felt that the training received through
education were very practical in the working environment. Increasingly, companies are
sourcing their human resource requirement globally. For example, at Sony Corporation, only
fifty percent of its employees are Japanese. Business people with an education in international
business also had a significantly higher chance of being sent abroad to work under the
international operations of a firm.