Chapter 2: BASIC PLAN ELEMENTS AND VARIATIONS

CHAPTER 2

Basic Plan Elements and Variations

It is a bad plan that admits of no modification. – PUBLIUS SYRUS

THE PREPARATION OF AN INTERNATIONAL BUSINESS PLAN is a challenging task, primarily because a plan typically needs to serve a variety of purposes. While nearly every plan will include a number of basic elements, the actual content will depend on such factors as what business you are planning, how you intend to use the plan and who will be asked to review and evaluate the plan. In fact, it is quite common to prepare a single plan and then subsequently alter the contents to the extent needed for a specific purpose. A business plan is mainly developed for two reasons: (1) to clarify your own vision, and (2) to sell your company to potential investors, bankers and partners. Write your international business plan with both goals in mind and cover all the issues necessary to accomplish your objectives.

Contents and Characteristics of a Useful Business Plan

Although there are no formal requirements when selecting the contents of an international business plan, you can follow established guidelines of successful businesses to ensure that you have collected all essential information and considered all relevant issues. Although a business plan can be organized in a variety of ways, and there are no hard and fast rules, there are some guidelines that can be followed.

ELEMENTS OF A BUSINESS PLAN The following structure is suggested as a starting point: ■ Introduction or Executive Summary ■ Business ■ Product or Service ■ Marketing ■ Management ■ Financials ■ Supplemental Materials

Each of the above elements is covered separately in detail beginning at Chapter 6.

EMPHASIS AND STRUCTURE

The purpose of the plan will dictate the emphasis and structure of its contents. For example, if the plan is prepared for circulation to investors who might not be familiar with the company, an Introduction and general background description of the business of the company will be relevant. Similarly, when a plan being used

to expand a current operation is provided to investors, less emphasis is usually given to projections of future financial performance, as compared with financial statements from prior years. On the other hand, a business plan intended strictly for internal use generally need not include a lengthy Introduction or discussion of the historical development of the company.

Structural differences to be borne in mind in relation to the audience are as follows:

■ FOR INVESTORS , the plan needs to include a disclosure document containing additional information regarding the terms on which the company is seeking to raise new funds.

■ IN A FUND RAISING CONTEXT the plan should pay special attention to national securities and banking laws that may apply in each country where the document is distributed.

■ AN INTERNAL BUSINESS PLAN will generally not include as much background information on the industry and the company. ■ IN AN INTERNAL PLAN projections may be more detailed than in a document provided to investors. The plan must be sufficiently specific to handle potential problems in the event that the projections are not met, and detailed projections and forecasts are critical as planning and measurement tools for managers and employees.

LENGTH AND DETAIL

The length and detail of your business plan will necessarily vary depending on the nature of the business and how you intend to use the plan. For example, if the market is well established and the managers have a strong track record and extensive experience in the industry, the business plan can be shorter, with less analysis and explanation. On the other hand, a longer and more detailed plan might be appropriate for a start-up business or one that is involved in an emerging market with rapidly changing technical and demographic characteristics. If your company is making its first tentative steps into the international market, your business plan might be quite short with an emphasis on investigating opportunities through means that are costand time-efficient using your current managerial resources and business contacts.

The Global Factor

To seek the advantages and opportunities described in Chapter 1, your company will need a business plan that is focused on global issues. It is true that the basic building blocks of a business plan are the same regardless of whether the company is operating in a single country or across national borders. But there are significant factors not present locally that must be accounted for on the international level. For this reason, an international business plan is different than a domestic business plan. Here are some of the key differences: ■ DOMESTIC: A domestic plan must acknowledge the need for market segmentation based on demographic differences within a single country. ■ INTERNATIONAL: An international plan must account for the unique cultural, language and other differences in each of the targeted countries.

■ DOMESTIC: A domestic plan needs to provide for compliance with the legal requirements for business operation in the company’s home country only. ■ INTERNATIONAL: An international plan must take into account different regulatory policies and practices with respect to foreign participation in the local economy. The plan must include entry strategies for each new target market. ■ DOMESTIC: A domestic plan must take into account local culture, politics, weather, geography and other factors that affect market demand and supply in the company’s home country. ■ INTERNATIONAL: An international business plan must take into account local culture, politics, weather, geography and other factors that affect market demand and supply in each of the countries of operation. This is inherently more complex than dealing with different markets within a single (domestic) country.

Furthermore, it is often more difficult to obtain and analyze information on local country markets. As such, the company must anticipate a broader range of problems than if the company was active only in its domestic market. ■ DOMESTIC: A domestic business plan tends to be simply product- and salesoriented. That is, it will focus on what products will be developed and how they will be sold within a domestic market. ■ INTERNATIONAL: An international business plan is by nature more complex as it seeks to take advantage of different opportunities offered by different countries.

As such, it is likely to take into account product development, raw materials purchase, manufacturing, marketing and sales in multiple countries. The variations may seem endless: develop the product in one country, acquire the raw materials in a second, manufacture the product in a third, transport through a fourth and sell and distribute in a fifth country. Alternatively, the final product might be shipped back to the original country of development.

Matching the Plan to the Nature of the Business

All companies with global goals and objectives, regardless of size or line of business, need some form of game plan, but the focus of the plan will shift depending on the particular business and industry situations.

ESTABLISHED DOMESTIC COMPANIES An established domestic company, with a recognized line of products and well developed local distribution channels, must identify its reasons for going global before altering its business plan. The international provisions of the plan will depend on the opportunities that the company wants to seize. Perhaps the domestic market is saturated, in which case the international business plan can focus on identifying and penetrating foreign markets where the company’s existing products are likely to be quickly accepted with minimal adaptation. If the established company is looking to foreign countries in order to reduce costs of manufacturing and raw materials, an international plan can be created to explore and acquire the best avenues of cost-savings while still concentrating sales activities on the home country market.

PRODUCT BUSINESSES Companies that sell products such as consumer goods, computer hardware and machinery at wholesale and retail levels can use foreign countries as new markets for their products as well as for new sources of labor and materials. For ultimate success, the company’s international business plan will need to account for the characteristics that are unique to product-driven businesses. If products will be sold in a new market, the plan will need to provide for product adaptations that may be required in order to meet national consumer and safety compliance laws, cultural tastes, transport restrictions and other factors for successful entry into the foreign market. If products will be made using foreign labor or materials, the international plan will cover such concerns as quality control, compliance with national labor laws, cross-border transport issues for finished products (or raw materials), brand identity and intellectual property protection. A business that has significant research and development capabilities might create a plan by which it will actually invent new products for a foreign market based on its assessment of needs and opportunities in that market. For successful entry into the foreign market, the company will make marketing plans based on the company’s own brand identity and local distribution capabilities.

SERVICE BUSINESSES Service providers are one of the fastest growing sectors of international trade.

The success of convenience stores and restaurant franchises, such as McDonald’s in multiple national markets is well documented. Moreover, as standardization increases in the area of information technology, companies are providing a bundle of technical consulting services to clients around the world. Accountancy, consultancy and law firms have all gotten into the act, often relying on local specialists to provide domestic advice and a network of offices to offer “real-time” services in other markets. A service-based business faces unique challenges in doing business in new foreign markets, each of which calls for advance thinking that should be included in the international business plan. First and foremost, the company needs to determine the level of potential demand for the services in the new market. Second, the company needs to determine if the local environment is conducive to the company’s core offerings. For example, the technical infrastructure of the country may not be mature enough to need or utilize the company’s services. Finally, because a service business depends on the quality of its people as opposed to its goods, the company must be sure that it will be able to effectively service its clients with local employees.

E-BUSINESSES With proper planning, almost every company can be an “e-business.” One of the opportunities created by the growth of the Internet is the ability for businesses to market and sell goods to foreign clients and customers “online” without the need to set up and maintain local sales offices or contract with local distributors.

However, for this strategy to succeed, the business owner must develop a plan to measure demand in foreign markets and the likelihood that clients and customers can be reached by online means, as opposed to more traditional promotional activities. Also, payment, shipping and export-import issues must be considered.

In most cases, e-business is best viewed as an alternative to, not a replacement for, a “bricks-and-mortar” presence in the local market; at least until customers are comfortable with online ordering and communications. This, too, can be limited by the target market’s infrastructure.

START-UP BUSINESSES A start-up business confronts substantial risks, whether operations are limited strictly to domestic markets or extended to foreign nations. With a well-researched and carefully constructed international business plan, a firm might find that a global outlook will substantially increase the chances of success. For example, a fledgling business with limited financial resources may benefit from using lowcost manufacturers in foreign countries to produce goods that can be sold at attractive prices in the company’s own domestic market. A new company also may seek out foreign markets where larger competitors have not yet become established. By building up a significant market share there, an entry barrier is created against competitors. The success of the product or service in a smaller foreign market can be used as a base for entering larger markets.

Five Key Features of a Viable Plan

There is no single method for producing a successful business plan. The attractiveness of a plan ultimately depends on the commercial viability of your company’s products and/or services, and your ability to bring them to market and manage the operation. Nonetheless, it is worth reviewing the final draft of your business plan to see whether all or most of the following characteristics are present: 1.Provide readers with a clear sense of what your company intends to accomplish. 2.Have the plan cover an appropriate period of time, generally three to seven years, depending on the type of business and the objectives of the owners. 3.Include the three “Ms”: manufacturing, marketing and management. For a service business, methodology replaces manufacturing. 4.Always quantify and qualify your statements. 5.Explain and document all financial projections, and make them realistic.