Chapter 5 Growing and Internationalizing the Entrepreneurial Firm

Chapter 5 Growing and Internationalizing the Entrepreneurial Firm Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Outline • Entrepreneurship and entrepreneurial firms • A comprehensive model of entrepreneurship • Five entrepreneurial strategies • Internationalizing the entrepreneurial firm • Debates and extensions • The savvy entrepreneur Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Entrepreneurship 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 Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Entrepreneurship and Entrepreneurial Firms (continued) • 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 Generate 60– 90% of all employment Only a small number of entrepreneurial firms survive Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

A Comprehensive Model of Entrepreneurship • 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 Threat of substitute products/services Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

A Comprehensive Model of Entrepreneurship (continued) • Resource-based considerations Entrepreneurial resources must create VRIO (have value and be rare, inimitable, and organizationally embedded) • Institution-based considerations Formal institutions govern new ventures Striking differences in government regulations of start -ups Copyright © 2017 Cengage Learning®. 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 © 2017 Cengage Learning®. 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 often what attracts entrepreneurs in the first place • Attempt to utilize resources and capabilities Entrepreneurial vision Entrepreneurial drive Entrepreneurial leadership Copyright © 2017 Cengage Learning®. 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 © 2017 Cengage Learning®. 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 to successful entrepreneurial performance Copyright © 2017 lead Cengage Learning®. May not be scanned, copied or duplicated, or posted to publicly accessible in whole or in part. are most helpful a. Centrally locatedwebsite, network positions

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 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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 Foreign direct investment (FDI) Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Internationalizing the Entrepreneurial Firm (continued) • International strategies for staying in domestic markets Indirect exporting through domestic-based export intermediaries Become supplier of a foreign firm doing business in that firm’s home country Become licensee or franchisee of foreign brands Become alliance partner of foreign a direct investor Harvest and exit through sell-offs to foreign firms Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Debates and Extensions • Traits versus institutions • Slow internationalizers versus born global start-ups • Anti-failure biases versus entrepreneur-friendly bankruptcy laws Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

The Savvy Entrepreneur • 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 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.