Chapter 5 Growing and Internationalizing the Entrepreneurial Firm

Global Strategy 1e Michael Peng Global Strategy Mike W Peng c h a p t e r 5 Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly acce.

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Global Strategy

Mike W Peng

5

Global Strategy

Chapter

5

Growing and

Internationalizing

the Entrepreneurial

Firm

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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

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Entrepreneurship, Entrepreneurs,

and Entrepreneurial Firms

previously unexplored opportunities

and exploit opportunities

 Founders and owners of new businesses or managers of

existing firms

 95% of all firms

 Create 50% of total value added

 Generate 60-90% of all employment

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A Comprehensive Model

of Entrepreneurship

Figure 5.1

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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

 Threat of substitute products/services

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A Comprehensive Model of Entrepreneurship Resource Based

(cont’d)

• Resource-based considerations

 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

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Five Entrepreneurial Strategies

• Growth

• Innovation

• Network

• Financing/governance

• Harvest/exit

• A sixth strategy, internationalization, will be

covered in the next section

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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

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Innovation

• An innovation strategy is a specialized form of differentiation 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

entrepreneurial firms are more innovative and risk-taking than those at large firms

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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

 Centrally located network positions are most helpful

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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

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One- and Four-Year Survival Rates by Firm Size

Table 5.1

Source: Adapted from J Timmons, 1999, New Venture Creation (p 33), Boston: Irwin McGraw-Hill, based on US data.

FIRM SIZE CHANCES OF SURVIVING FIRM SIZE CHANCES OF SURVIVING (EMPLOYEES) AFTER 1 YEAR (EMPLOYEES) AFTER 4 YEARS

10-19 86% 20-49 67%

20-99 95% 50-99 67%

100-249 95% 100-499 70%

250+ 100%

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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

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Advantages and Disadvantages of

an Initial Public Offering (IPO)

ADVANTAGES DISADVANTAGES

 Access to more capital  Forced to focus on the short term

 Greater opportunity for future acquisition  Demands of periodic reporting

Table 5.3

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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)

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Internationalizing the Entrepreneurial Firm (cont’d)

markets

intermediaries

one’s home country

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Internationalization Strategies for Entrepreneurial Firms

ENTERING FOREIGN MARKETS STAYING IN DOMESTIC MARKETS

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)

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Debates and Extensions

• Traits versus institutions

• Slow internationalizers versus born global start-ups

• Anti-failure biases versus entrepreneur-friendly

bankruptcy laws

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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

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