Potential difficulties of starting a business in a transition economy and recommendations on how they should be confronted
Starting and maintaining a new business is always a challenge aggravated by adverse conditions prevalent in a transitional economy; an economy transforming from centrally planned to free-market economy. The potential difficulties faced when starting new ventures include financial barriers, institutional environment and human capital and socio-economic factors.
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To establish and run new businesses, financial resources are required and entrepreneurs must either borrow from monetary firms or use their savings. In a transition economy, neither of these is readily available because individuals under communism are prohibited from accumulating monetary assets and monetary market is acutely deficient. In addition, monetary markets are limited, underdeveloped and vastly concentrated with low efficiency banks. Further, there is inexperienced bank sector on private segment lending, thus capabilities to fund new businesses lack. This greatly hinders starting of new businesses in such economies. To overcome this barrier, good measures for accessing finance and entrepreneurship property rights should be adopted and be implemented.
In a transition economy, there are institutions that manage and control economic activities. They create an environment with poor commercial code quality, strong legal enforcement, additional-legal payments, and numerous administrative barriers. Consequently, corrupt tax collection systems, inflation and lengthy procedures become prevalent, hindering new businesses. To confront this difficulty, less precise procedures, transparency, quantifiable institutional measures, and prudent administrative system must be enforced.
Human capital and socio-economic factors
Human capital is a key requirement in starting a new business. Bearing in mind that the economy is run bureaucratically, there is less investment. Social and cultural setting is non-conducive. In addition, students major in ‘hard’ subjects like engineering and science, thus lacking managerial skills. This generally hinders the emergence of new ventures. To confront this barrier, extensive education and proper measures in education should be enforced as well as adopting new technology (Estrin, Meyer, & Bytchkova, 2006).
SWOT analysis, success factors and areas of concern for Fleet Sheet that Erick Best, founder, should consider
The company has skilled and dedicated staff making operations easy. It also delivers its product in a timely manner. There is strong pricing strategy, thus encompassing all sorts of buyers. It uses direct marketing approach that increases its subscribers rapidly.
The company’s products are of relatively inferior quality when compared to quality of new equipment generated products; it lacks quick access information compared to internet data, and it is faced with problems such as intellectual property protection and information encryption
There is increasing media attention in the Czech Republic, promising persistent rise in revenues, and the company can also invest in modern equipment that hinders obsolescence.
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The number of competitors is increasing and offering products in lower prices and the government bureaucracy may hinder its operations.
Fleet Sheet has a number of success factors. Firstly, the company required less licenses and approvals to operate. Secondly, the company has maintained its primary focus of providing concise and relevant information, on papers formatted in a manner that provides ease of reading, and lastly, the company has been in a position to maintain minimum operational costs.
Areas of concern that Erick Best should consider
Among the areas that the founder should consider including acquiring appropriate business structure as it has expanded, creation of similar newspaper reading experience via the internet, the growing number of competitors who may offer similar services at low prices, and methods of enticing subscribers irrespective of the quality (Reed, & Brunson, n.d).
Three strategic moves for Erik Best to consider and possible difficulties the company will face using these strategies in the international market as opposed to the domestic market
Erick Best should consider adopting cost leadership strategy, introduction of niche products through innovation, and integrate direct marketing to relationship marketing.
Adoption of cost leadership strategy
Adopting cost leadership strategy, Fleet Sheet will have a significant advantage on cost over its competitors and ensuring that it maintains its primary focus. With this strategy, the company will discount its products and entice more subscribers. It will also achieve a selling price relatively equal to that of the domestic market. Consequently, the company will maximize its sales, increase its domestic market share and benefit from the best profits. However, in international markets, this strategy may not offer the best fruits because it requires large-scale business. Therefore, the company may face the difficulty of offering standard products under relative differentiation acceptable to customers and creation of brand name may be hard.
Introduction of niche products through innovation
This is another strategic move that Eric Best should consider. This will assist the company to counteract threats of the company. It will allow the company collect viable information, introduce products and services to meet customer needs effectively, and identify the customers. However, in international markets, difficulties of commanding higher prices may arise because it favors small market segments as opposed too international markets with extensive segments (Shin, 2001).
Integration of direct marketing with relationship marketing
Integrating its current, direct marketing with relationship marketing, is a strategic move that will enable the company build loyal and profitable clients. Relationship marketing entails direct, personalized interaction with customers encouraged by the internet. Products will be marketed in their state of the art. However, in international markets, the company may fail to meet customer needs because the strategy focuses specific group of customers, which may be hard and expensive to find in extensive markets.
Benefits international entrepreneurship brings to multinational companies
International entrepreneurship entails discovery, assessment, endorsement, and utilization of opportunities across country borders with the aim of creating future products and services. This entrepreneurship has brought numerous benefits to the multinational companies such as Fleet Sheet. Firstly, transaction costs involved in conducting international business activities has been greatly reduced as multinational companies begin to operate within an economy that is becoming global. Secondly, it has facilitated reduction of global investment and trade barriers by establishing regional cooperation and agreements that have reduced those barriers, making new ventures globally active.
In addition, it has brought technological advancements resulting in improved flow of information among multinational companies, an act that has internationalized new ventures. It has become easier for these companies to obtain information regarding foreign markets and customers abroad. Also, multinationals have gained new knowledge, skills and expertise which have assisted both domestic and international firms.
Further, international entrepreneurship has allowed multinational companies to communicate easily with their foreign partners and coordinate numerous activities across national borders. Lastly, it has enabled multinational companies to expand their investments in new business premises using modern tools and cutting edge technologies (Hessels, 2008).
Estrin, S., Meyer, K.E. & Bytchkova, M. (2006). Entrepreneurship in Transition Economies. London: Oxford University Press. Web.
Hessels, J. (2008). International Entrepreneurship: An Introduction, Framework and Research Agenda. Web.
Reed, M.M. & Brunson, R.R. (No Year). The Fleet Sheet.
Shin, N. (2001). Strategies for Competitive Advantage in Electronic Commerce. Web.