Global Strategy 1e. - Michael Peng

Chapter 5

Growing andInternationalizingtheEntrepreneurialFirm

Outline

•Entrepreneurship and entrepreneurial firms

•A comprehensive model of entrepreneurship

•Five entrepreneurial strategies

•Internationalizing the entrepreneurial firm

•Debates and extensions

•The savvy entrepreneur

Entrepreneurship andEntrepreneurial Firms

•Entrepreneurship: The identification andexploitation of previously unexploredopportunities

•Entrepreneurs: Set of individuals who discover,evaluate, and exploit opportunities

Founders and owners of new businesses or managersof existing firms

Entrepreneurship andEntrepreneurial 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

A Comprehensive Model ofEntrepreneurship

•Industry-based considerations

Intensity of inter-firm rivalry

Fewer incumbents, more likely to collude to keep outnewcomers

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

A Comprehensive Model ofEntrepreneurship (continued)

•Resource-based considerations

Entrepreneurial resources must create VRIO (havevalue and be rare, inimitable, and organizationallyembedded)

•Institution-based considerations

Formal institutions govern new ventures

Striking differences in government regulations ofstart-ups

Five Entrepreneurial Strategies

•Growth

•Innovation

•Network

•Financing/governance

•Harvest/exit

•A sixth strategy, internationalization, will becovered in the next section

Entrepreneurial Strategies: Growth

•The excitement of growing a new company isoften what attracts entrepreneurs in the firstplace

•Attempt to utilize resources and capabilities

Entrepreneurial vision

Entrepreneurial drive

Entrepreneurial leadership

Entrepreneurial Strategies: Innovation

•An innovation strategy is a specialized form ofdifferentiation strategy

•Advantages of an innovation strategy

Creates a more sustainable competitive advantage

Technological breakthroughs and organizational innovations(new ways of doing business)

Owners, managers, and employees at entrepreneurialfirms are more innovative and risk-taking than thoseat large firms

Entrepreneurial Strategies: Network

•Intentionally construct and tap into relationships,connections, and ties that individuals andorganizations have developed

•Translate personal networks into value-addingorganizational 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

Centrally located network positions are most helpful

Entrepreneurial Strategies:Financing and Governance

•Outside investors usually demand collateral orsome other assurance

•Odds for survival during crucial early years aresignificantly correlated with firm size

Faster a new start-up can reach a certain size, themore likely it will survive

Entrepreneurs often choose to accept more outsideinvestment in order to reach a large size

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

Internationalizing theEntrepreneurial Firm

•Entrepreneurs are challenging myths aboutinternationalization

•Transaction costs are higher

•International strategies for entering foreignmarkets

Direct exporting

Licensing or franchising

Foreign direct investment (FDI)

Internationalizing theEntrepreneurial Firm (continued)

•International strategies for staying in domesticmarkets

Indirect exporting through domestic-based exportintermediaries

Become supplier of a foreign firm doing business inthat 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

Debates and Extensions

•Traits versus institutions

•Slow internationalizers versus born globalstart-ups

•Anti-failure biases versus entrepreneur-friendlybankruptcy laws

The Savvy Entrepreneur

•Entrepreneurs are engines of creativedestruction

•Insights on entrepreneurship by the threeleading perspectives on strategy: Industry,Resource, and Institution views

•Four fundamental questions in strategy provideinsight