Question

¡  Come up with three reasons it would be more difficult to be an entrepreneur in a developing country than a developed country. Do NOT use “they’re poor” as a reason. Think broadly!

¡  Create a VRIO analysis for an SME entering a foreign market:

¡  Value

¡  Rarity

¡  Inimitability

¡  Organizational Capacity

Answer 1

The nature of developing and developed economies differ, it is easier to be an entreprenuer in a developing country because:

1. It is easier to obtain labour in a developing economy at cheaper rates than a developed economy. This is because the unemployment rates are higher and people will be willing to work at the ongoing market minimal wages. The are also more resources available as the economy does not operate at a full employment level.

2. There is a scope to set up a business with an innovative idea and capture the market. There are many unexplored areas of business that can be ventured into. Also, the competition in the market is lesser in a developing economy.

3. The governments of developing economies offer various subsidies to entreprenuers because setting up a business will aid in reducing unemployment and foster economic growth. The subsidies or economic incentives make it easier to set up a firm in the developing economy when compared to a developed economy.

VRIO analysis helps in strategically analysing any business organisation. It is one of the main tools used by any entreprenuer who wants to assess the internal value or profitability of the firm. While entering a foreign market, this analysis will prove to be beneficial, it can be understood in detail as:

1. Value- This would involve examining if whether the entreprenuer is successfully able to weaken his competitors who are in the foreign country with the value that his goods will provide to the consumers. If his goods are of more value, then that can act as a competitive advantage to the entreprenuer.

2. Rarity- Rarity basically involves exploring if whether the foreign market in which the company is going to enter already has businesses that are similar or provide the same goods/services. This would mean that the entreprenuer will have to examine to see what kind of a market it is, perfect, oligopolistic etc. If the business is not rare and there are similar goods or services, then the entreprenuer might be out of business because he will have to additionally manage the foreign exchange risk unlike his competitors.

3. Immitability- Immitability essentially talks about how easy it is to manufacture goods or services similar to that of our firm. The entreprenuer will therefore have to analyse if the foreign producers can easily immitate his goods/services. If it is easy to immitate, then the profitability of the firm will not last in the long run, also, if it is costly to immitate, it will serve as a competitive advatage temporarily.

4. Organisation Capacity- The staff, skills of management, culture etc if managed efficiently will serve as a competitive advantage to the entreprenuer. These essentially differ from country to country, which is why he can make profits with better cultural and management skills when compared to the competitors in the market there.