5 Chapter 5 chapter Growing and Internationalizing the
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5 Chapter 5 chapter Growing and Internationalizing the Entrepreneurial Firm Global Strategy Global Mike W. Peng Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Outline • Entrepreneurship, entrepreneurs, and entrepreneurial firms • A comprehensive model of entrepreneurship • Five entrepreneurial strategies • Internationalizing the entrepreneurial firm • Debates and extensions • The savvy entrepreneur Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Entrepreneurship, Entrepreneurs, and Entrepreneurial Firms • Entrepreneurship - the identification and exploitation of previously unexplored opportunities • Entrepreneurs - set of individuals who discover, evaluate, and exploit opportunities Founders and owners of new businesses or managers of existing firms • Not the exclusive domain of small, young firms • Small and medium-sized enterprises (SMEs) globally 95% of all firms Create 50% of total value added Copyright © 2014 Cengage Learning. Generate 60 -90% of be all employment All Rights Reserved. May not scanned, copied or duplicated, or entrepreneurial firms survive Only a small number of posted to a publicly accessible website, in whole or in part.
A Comprehensive Model of Entrepreneurship Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 5. 1
A Comprehensive Model of Entrepreneurship Resource Based • Industry-based considerations Intensity of inter-firm rivalry Fewer incumbents, more likely to collude to keep out newcomers Entry barriers: capital intensive Bargaining power of suppliers: how to reduce it Bargaining power of buyers: how to reduce it Copyright © 2014 of. Cengage Learning. Threat substitute products/services All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
A Comprehensive Model of Entrepreneurship Resource Based • Resource-based considerations (cont’d) Entrepreneurial resources must create VRIO (value, rare, inimitable, organizationally embedded) • Institution-based considerations Formal institutions govern new ventures Striking differences in government regulations of start -ups Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Five Entrepreneurial Strategies • Growth • Innovation • Network • Financing/governance • Harvest/exit • A sixth strategy, internationalization, will be covered in the next section Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Entrepreneurial Strategies: Growth • The excitement of growing a new company is oftentimes what attracts entrepreneurs in the first place • Attempt to utilize resources and capabilities Entrepreneurial vision Entrepreneurial drive Entrepreneurial leadership Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Entrepreneurial Strategies: Innovation • An innovation strategy is a specialized form of differentiation strategy • Advantages of an innovation strategy Creates a more sustainable competitive advantage v Technological breakthroughs and organizational innovations (new ways of doing business) Owners, managers, and employees at entrepreneurial firms are more innovative and risk-taking than those at large firms Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Entrepreneurial Strategies: Network • Intentionally construct and tap into relationships, connections, and ties that individuals and organizations have developed • Translate personal networks into value-adding organizational networks • Distinguishing characteristics Needed to overcome liability of newness Intensity of relationships is important Networks represent significant resources and opportunities May lead to successful entrepreneurial performance Copyright © 2014 Cengage Learning. Centrally located network positions are most helpful All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Entrepreneurial Strategies: Financing and Governance • Outside investors usually demand collateral or some other assurance • Odds for survival during crucial early years are significantly correlated with firm size Faster a new start-up can reach a certain size, the more likely it will survive Entrepreneurs often choose to accept more outside investment in order to reach a large size Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
One- and Four-Year Survival Rates by Firm Size FIRM SIZE CHANCES OF SURVIVING (EMPLOYEES) AFTER 1 YEAR (EMPLOYEES) 0 -9 78% 0 -19 50% 10 -19 86% 20 -49 67% 20 -99 95% 50 -99 67% 100 -249 95% 100 -499 70% 250+ AFTER 4 YEARS 100% Table 5. 1 Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Source: Adapted from J. Timmons, 1999, New Venture Creation (p. 33), Boston: Irwin Mc. Graw-Hill, based on US data.
Entrepreneurial Strategies: Harvest and Exit • “Selling out” does not necessarily mean failure • Routes for entrepreneurial harvest and exit: Selling an equity stake Selling the business Merging with another firm Going public with an initial public offering (IPO) Declaring bankruptcy Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Advantages and Disadvantages of an Initial Public Offering (IPO) ADVANTAGES DISADVANTAGES § Improved financial condition § Subject to the whims of financial market § Access to more capital § Forced to focus on the short term § Diversification of shareholder base § Loss of entrepreneurial control § Ability to cash out § New fiduciary responsibilities for shareholders § Management and employee incentives § Loss of privacy § Enhanced corporate reputation § Limits on management’s freedom of action § Greater opportunity for future acquisition § Demands of periodic reporting Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Table 5. 3
Internationalizing the Entrepreneurial Firm • Entrepreneurs are challenging myths about internationalization • Transaction costs are higher • International strategies for entering foreign markets Direct exporting Licensing or franchising Copyright © 2014 Cengage Learning. Foreign direct investment All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (FDI)
Internationalizing the Entrepreneurial Firm (cont’d) • International strategies for staying in domestic markets Indirect exporting through domestic - based export intermediaries Become suppliers of foreign firms doing business in one’s home country Become licensees or franchisees of foreign brands Become alliance partners of foreign direct investors Copyright © 2014 Cengage Learning. Harvest and exit All Rights Reserved. May not through be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. sell-offs to foreign firms
Internationalization Strategies for Entrepreneurial Firms ENTERING FOREIGN MARKETS STAYING IN DOMESTIC MARKETS § Direct exports § Indirect exports (through domestic export intermediaries) § Franchising/licensing § Foreign direct investment (through green-field wholly owned subsidiaries, strategic alliances, and/or foreign acquisitions) § Supplier of foreign firms § Franchisee/licensee of foreign brands § Alliance partner of foreign direct investors § Harvest and exit (though sell-off to and acquisition by foreign entrants) Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Table 5. 4
Debates and Extensions • Traits versus institutions • Slow internationalizers versus born global start-ups • Anti-failure biases versus entrepreneur-friendly bankruptcy laws Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
The Savvy Entrepreneurs are engines of creative destruction Insights on entrepreneurship by the three leading perspectives on strategy: Industry, Resource, and Institution views Four fundamental questions in strategy provide insight Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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