Qualification - Higher National Diploma in Business (RQF)
Unit Name - Entrepreneurship and Small Business Management
Unit Level - Level 5
Unit Number - Unit 9
Assignment Title - How to Set Up A Small Business From An Entrepreneurial Mind-Set
Learning Outcome 1: Explore and illustrate the range of venture types that might be consider entrepreneurial
Learning Outcome 2: Assess the impact of small businesses on the economy.
Learning Outcome 3: Determine and assess the key aspects of an entrepreneurial mindset.
Learning Outcome 4: Examine the different environments that foster of hinder entrepreneurship.
Assignment brief:
A small medium trading company, being registered as sole proprietorship, is planning to approach your consultancy firm to develop its' business. You, as a business consultant, are required to give advice to the trading company in various aspects of business development (e.g. different range of venture type).
Since the trading company is such a small company and does not have professional experts. Therefore, it has only a flat structure and a manager to deal with the business issues himself. As the workload of daily operation is being complicated and is to further streamline the business, the manager plans to outsource the business development planning.
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Introduction
This report is an attempt to document the importance of developing appropriate business skills that are necessary for the management and review of the performance of a small sole proprietorship. Focus has been given on helping the small trading company that seeks to develop its business so that there can be an understanding of the involved processes, including change management, financial performance, organisational monitoring, and the setting of business objectives.
You are required to prepare a report monitoring the importance of developing business skills needed in reviewing and managing the performance of a small sole proprietorship. In addition, it should state how useful it is to focus on the processes involved, through change management, of reviewing and improving the performance of a small medium trading company. The report must also feature the revision of business objectives and plan to incorporate proposed changes.
1.1 Rationale for the report
The reason why this report is being framed is because it is extremely important to understand the various sizes of businesses, and how entrepreneurship and knowledge of the various ventures can be fundamental to establishing a successful firm. Furthermore, the report is also an important document since it explains the impact that small businesses can have on the economy, while also understanding the role that specific entrepreneurial characteristics have on the activities.
In the above scenario of a small medium company, produce a profile of a selected small business
1.2 Organisation profile
The organisation that has been chosen for the purpose of this report is Ajisen Holdings Ltd, which is popularly referred to as Ajisen Ramen. This company is a very successful Japanese-style fast food chain that operates primarily in Hong Kong and China. The vision of the company is to "make the world more delicious, while making the people healthier" (Ajisen Ramen, 2020). The company further has the mission of building a world-class chain of fast-food eateries, which are focused on oriental cuisine.
1.3 Industry experience of the sole proprietor
Ajisen Holdings Ltd is owned by Pan Wei, who founded the fast food chain in the 1960s. Wei has been massively successful in her ventures, and is currently one of the richest businesswomen in the catering sector on a global scale (Xinhua, 2011).
Explain the roles and characteristics of micro, small and medium-sized organizations.
Discussion
2.1 Franchise, mergers and acquisitions
In business and management, franchises are those business units which have been licensed to run by the owners in exchange for a franchise fee. Businesses that are run as franchises usually have the opportunity to utilise the knowledge, branding and the products of the franchisor, since they get the licenses from them (Gillis, Combs and Yin, 2020). For instance, McDonald's is one of the world's most successful franchise-run business models.
Mergers are agreements between two or more existing companies which unites them into a new organisation. The primary reason why such an action is undertaken is because of the need to expand the market share or to save one of those companies from a major financial loss (Bena and Li, 2014). For instance, Vodafone and Mannesmann merged in 2000 and is often said to be the largest merger deal in history.
Acquisition is when an existing organisation purchases more than 50 per cent of another company's stocks, thereby allowing the acquirer to have a stronghold over its business decisions (Bena and Li, 2014). An example would be the acquisition of Android by Google in 2005 for around 50 million USD.
2.2 Difference between sole proprietorship, partnership, and limited companies
Sole proprietorship is when the business venture is owned by just one individual, and that person is responsible for the payment of taxes and returns against the profits that are earned (Permwanichagun, et al., 2014). Small business owners are usually sole proprietors, since they can function independently without the interference of the government. Partnership firms are different than sole proprietorships in the aspect that they are owned by two or more individuals. Such a business is run on the basis of a formal written agreement and they are jointly responsible for the management and operation of the organisation.
Limited companies are the most different - they can be either public or private. Limited companies are usually those that have limited liability and the legal structure is such that the owners are relieved of the liability of the company, which is not possible in the case of sole proprietorships. Public limited companies are those which offer their shares for trading to the general public (Iskandar, 2017). On the other hand, private limited companies usually do not have more than a fixed number of shareholders, and they are not listed on the stock exchange.
Explain the meaning of entrepreneurship to the potential client in the related social public and its' impact on the social economy growth
Differentiate between serial entrepreneurs, intrapreneurs and owner-manager
Entrepreneurship and its meaning
Entrepreneurship is the process that entails the conception, designing, launching and managing a new business organisation, usually for the purpose of incurring profits (Drucker, 2014). A majority of the entrepreneurial ventures start as small businesses. Serial entrepreneurs are those individuals who are capable of continuously coming up with new ideas, therefore having an important role in terms of the daily functioning of the new organisations (Yun, et al., 2019). On the other hand, intrapreneurs are those individuals who innovate and give rise to a new business idea while working within an organisation. Intrapreneurship is usually undertaken by large corporations for the purpose of maintaining market relevance (Chan, et al., 2017). Owner managers are those who launch and run the business by themselves, and a majority of the sole proprietorships conform to this design.
How to maintain creativity and innovation in SME management from entrepreneurial idea and the business protection from intellectual property rights. (LO2)
The explanation of need in establishing the SME (e.g. role & the contribution to the economy at national, regional and local level.
Carry out an analysis of the business using comparative measures of performance (e.g. size, turnover, profit, rate of growth) and international differences impact upon business start-up.
Carry out an analysis to the potential client whether it is appropriate for him to set up a SME and the advantages and disadvantages in setting up a SME from entrepreneurial mindset.
Comprehensive overview of SMEs
Characteristics of micro, small and medium-sized organisations
Micro organisations are small enterprises which operate with as few as 10 employees. Such companies usually run on funds through personal investments or are financed by bank loans. A majority of the micro organisations function as specialised goods and service providers in the local regions (Houston and Reuschke, 2017).
Small organisations are those businesses which are typically run as sole proprietorships or as a partnership enterprise, and has 50 or fewer employees. Medium-sized organisations employ 250 or fewer employees, and both these categories of businesses usually have an annual turnover that is markedly lower than that of any major corporation (Berisha and Pula, 2015). Small and medium-sized organisations can be of various kinds, ranging from a simple family-owned grocery store to a trading consultancy.
2.4.2 Contribution of SMEs to the growth of the social economy
For many countries, the SMEs form the backbone of the economy, since they pay the taxes directly to the local municipalities and governments. Thus, this makes it easier for them to contribute towards the economy of the country they are functioning in. Furthermore, the overall revenue that it brings back is also high in its margin, since small and medium-sized enterprises usually require very low investments but give way to higher returns as they grow and operate. For instance, in the UK, micro and small businesses account for more than three-fifths of the employment as generated in the country, which indicates that around 13.2 million people are affiliated with a small business for their livelihood (Department for Business, Energy & Industrial Strategy, 2019). On the other hand, Hong Kong, which is home to Ajisen Holdings Ltd., has more than 340,000 SMEs, and they provide job opportunities to more than 45 per cent of the total employed population, amounting to over 1.2 million individuals (Government of Hong Kong, 2020).
Additionally, in terms of the social economy, it is to be noted that SMEs contribute to its growth since they provide a high magnitude of employment. This allows the people to have a chance at a decent means of livelihood, as social economy itself iterates that the development must be inclusive and collaborative in nature.
2.5 Skillsets required for establishing an SME
For the purpose of establishing an SME, there are numerous skills that are necessary from the perspective of a sole trader or proprietor, which have been discussed in detail by Mwepu, Bounds and Goldman (2016). For instance, the individual must have the required entrepreneurial skills and business skills, which would lead to improved creativity and efficient management of the human, capital and other resources. SME owners must also have appropriate networking skills since it is extremely important to build a strong and supportive network that can help with sharing knowledge and increasing access to technology. Entrepreneurs looking to start a small business must also have appropriate motivation skills which includes that of successful leadership for the employees that would be hired. Furthermore, the individual must also have the capacity to manage their time and set goals that are attainable and clear in a consistent manner.
2.6 Financial analysis of the organisation and rationale
The annual reports of Ajisen Holdings Ltd have been consulted for the purpose of this financial analysis. The data and rationale as presented here is on the basis of the past three years' evaluation of the profit and loss statements.
From the above profit and loss statement as collected from the annual report, it can be stated that the revenue has seen a moderate dip from the previous year's earnings. Thus, 2017 was a year of losses for the organisation, while the comprehensive income was down by as much as 600,000 RMB.
In 2018, the situation of loss was successfully overturned, and the company earned a profit of over 600,000 RMB. The profit percentage stood at 196.69% Y-o-Y, which can be attributed to the partnership with Katrina Group, and its expansion operations in Singapore (Shiao, 2017). These strategic decisions enabled the company to pick up the pace and overcome the previous year's losses.
There was a loss of around 56.83% when compared to the previous year's profits. This can be attributed to the millions of dollars that were misappropriated by the CFO of the company, which led to his arrest (Lo, 2019; The Standard, 2019) as well as a dip in the business proceedings of Ajisen Holdings Ltd.
2.7 Creativity and innovation in the management of an SME
Maintaining and managing creativity is an important aspect within an SME, since it is necessary to be innovative in order to stay relevant in the market. For this purpose, encouraging in-person collaboration is a great and effective means of managing and encouraging the many perspectives that the employees might have regarding any matter (Peschl and Fundneider, 2014). Furthermore, communicating the mission of the organisation while building on the company values is also another efficient manner of encouraging innovation. Regardless of how small the organisation is, there must be a focus on increasing the diversity of the workplace, since it would help increase the levels of passion and productivity as a culture-rich organisation equals to varied inputs regarding a particular matter. For this purpose, the employees should be encouraged to get to know each other, as it would once again increase the instances of collaboration. SMEs can also have arrangements for providing incentives to its workers, which would compel them to stay motivated, resulting in better productivity and outcomes (Manso, 2017).
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2.8 Protection and patent rights of an SME
Patents are essentially the exclusive rights that are granted to an organisation, including SMEs, for the purpose of ownership to a particular new process or technology. Most patents usually copyright the ideas or the technology for around 20 years (WIPO, n.d). It is one of the many methods of intellectual proper rights protection and has gained increasing importance due to the diverseness of the economy and the businesses.
In order to protect the patent and copyrights of an SME, the owners must always be aware of any instance where the design, technology or idea is being replicated. In case the patent has been breached, there is always a scope for the business to go to court and sue for patent infringement. This is the most effective and the most common way of safeguarding the patent rights for a business, since there are legal policies that protect the organisations.
The Hong Kong Special Administrative Region Government (2019) states that any patent required must be registered under the Patents Ordinance (Chapter 514), as well as under the Patents (General) Rules (Chapter 514C) of Hong Kong. These separate registrations are necessary since any patent as registered in China or elsewhere does not guarantee automatic protection in this territory.
2.9 Legal requirements in overseas country for establishing an office
When seeking to establish an office or plant in an overseas country, there are a number of legal requirements that a business would have to meet. For instance, if Ajisen Holdings Ltd seeks to expand overseas to the UK, the company must develop a robust understanding of the business taxes and related rules (Department for International Trade, 2020). For sole proprietorships and other small businesses, the most common choice is that of an UK trading entity, and among the available options, seeking a registration as a limited company is said to be the most effective. Furthermore, the new business must also be registered at the Companies House, while the company records of Ajisen Holdings Ltd should be put in the public records for convenience. The International Business Companies Act 1984 makes it easier for overseas companies to establish a new set of holdings within the UK.
2.10 Demographic analysis of target customers
For Ajisen Holdings Ltd, the target consumers consist of the citizens in Hong Kong, especially those who are habituated to eating out at restaurants.
Demographic: The company targets the young individuals who have a moderate to high rate of income. This is because it is mostly the younger generations who are accustomed to eating out. The targeting will not be gender-specific since both men and women are equally inclined to eat at Ajisen Holdings Ltd. The company will further target those individuals who have an occupation in the corporate sectors since they are more likely to incur a better income.
Geographic: The primary target consumers are located in and around the major urban areas in Hong Kong.
Psychographic: Ajisen Holdings Ltd targets those consumers who are habituated to eating out regularly.
Behavioural: The company targets those customers who are habituated to, or are interested in, Japanese food.
2.11 Rewards and risks of establishing an SME
Entrepreneurs face a large number of risks when establishing an SME, or any business for that matter (Havierniková and Kordoš, 2019). Additionally, there are also a large number of rewards that come with the running of one's own business.
For instance, SMEs are subject to market risks, since the economy of any country is volatile and thus, the popularity of the products and the services might fluctuate. Furthermore, there is always a risk of being overthrown by the competitors in case there is a market saturation that has occurred. SMEs are also subject to reputational risks as the loss of public confidence can greatly impede its future development.
There are also political risks, such as that of economic downturn and tax levies due to the government policies. This could greatly impact the ability of an SME to function since in such a situation, the expenses might be greater that the income, leading to massive losses.
Similarly, there are many rewards and benefits as well - entrepreneurs are able to develop a sense of flexibility and independence since they can take pride in their new ventures. They also have the advantage of enjoying the financial rewards, which is more pronounced in the case of sole proprietors. Furthermore, SMEs can also work towards improving the popularity of their brand name, which can help with increasing their overall profits.
2.12 Mitigation methods in avoiding risks
Based on the risks that have been identified above, the following methods can be useful for mitigating them -
• Market risks can be avoided by surveying the market conditions thoroughly before proceeding with any major decision. Any risk that does arise can be mitigated by having an appropriate backup plan for damage control.
• Competitive risk can also be mitigated by thorough analysis and study of the existing competitors and formulating strategies to outshine them.
• Reputational risks can be mitigated by carefully conducting the everyday activities, and meeting consumer expectations in an honest manner.
Carry out an analysis for entrepreneurial characteristics and situational factors in a personal context, including family upbringing, lifestyle, cultural differences and personal motivation etc
2.13 Analysis of entrepreneurial characteristics and situational factors
Entrepreneurs have definitive characteristics and personal attributes that impact their ability and motivation from the viewpoint of starting a business.
Upbringing: Successful entrepreneurs usually belong to families that are supportive, and are involved in the field of business. Wei has been able to run her business since she has been aware of the risks and financial threats. Furthermore, the owner of the trading company must also be ready for hindrances which might not be preferred by those who have been brought up in an environment that is safe and secure like that of an individual with a desk job.
Lifestyle: A majority of the entrepreneurs have a very strict lifestyle which allows them to be disciplined. Wei has been able to attain success as she had been dedicated to her business since the very first day. The same is expected of the sole proprietor if they wish to achieve success for their trading company.
Cultural differences: A culture that is essentially equipped with a low power distance would cater to the creation of more entrepreneurs as opposed to one that has a high power distance (Rarick and Han, 2015). The sole proprietor needs to maintain a similar relationship with their employees to encourage and nurture motivation.
Motivation: Entrepreneurs who are more motivated would be better at ensuring that their business ideas can see the light of the day. The owner of the trading company must understand that there are many social and economic factors that can shape the motivation levels. Thus, just like Pan Wei, they must be ready to maintain motivation so that they can be successful in their venture.
Examine the factors that influence the decision to start a business, e.g. personal background and education, national culture, economic circumstances and character traits.
2.14 Factors influencing the decision to start a business
Different entrepreneurs have different motivational factors that encourage and influence their decision to start a business. This further accounts for the varying levels of success that they enjoy.
Personal background and education: Individuals who come from a background that has allowed them to get a sufficient degree of education pertaining to a certain field are more likely to be successful in their entrepreneurial ventures (Staniewski, 2016). Pan Wei has been able to establish a successful business since she too has a strong academic background, and thus, understanding the various nuances of business can help the proprietor of the trading company to attain market growth.
National culture: Countries that have a stronger GDP rate are more likely to encourage and foster a spirit of innovation among the people. This is because the business operations and scope of entrepreneurship are greater, thereby motivating them to take the risk of opening a business. Wei has been able to understand this aspect, which has enabled her to expand her small business to other countries such as Singapore, Thailand and South Korea. Having awareness of these parameters can also enable the owner of the trading company to expand their business.
Economic circumstances: The financial resources that an entrepreneur has access to determines the extent to which they are willing to take risks. Wei has had a strong team of shareholders to back her restaurant business, and it is essential for the sole proprietor of the trading company to have access to sufficient resources that would be necessary for expanding the business operations.
Character traits: The upbringing and characteristic traits of the entrepreneurs are also determined largely by the relationship they share with people around them. Wei has been an entrepreneur since a very young age, and thus, the owner of the trading company also needs to develop an amiable relationship with their peers and family members and develop an entrepreneurial mindset.
3. Review and recommendation
On the basis of this report, it can be recommended that the trading business must survey its target market and take care to understand the market and competitor risks that may arise during the launch and expansion of the business processes. Furthermore, the new venture should also take care of all the legal proceedings so as to eliminate such hassles later on when the business starts to run smoothly.
4. Conclusion
From this report, it can be concluded that SMEs are the backbone of the economy of any country, be it the UK, or even Hong Kong. Businesses such as Ajisen Holdings Ltd contribute to the millions of jobs in such regions, and thus add to the social economy to a great extent. While there are many hurdles that new businesses and entrepreneurs have to overcome, the rewards are also manifold, and thus, they must never be demotivated and should strive towards success at all times.