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Global Strategy Mike W. Peng c h a p t e r 55 Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted.

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Presentation on theme: "Global Strategy Mike W. Peng c h a p t e r 55 Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted."— Presentation transcript:

1 Global Strategy Mike W. Peng c h a p t e r 55 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. Global Strategy Mike W. Peng Chapter 5 Growing and Internationalizing the Entrepreneurial Firm

2 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

3 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  Generate 60-90% of all employment  Only a small number of entrepreneurial firms survive

4 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. A Comprehensive Model of Entrepreneurship Figure 5.1

5 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. 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

6 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. 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

7 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

8 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

9 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  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

10 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  Centrally located network positions are most helpful

11 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: 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

12 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 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 SURVIVINGFIRM SIZECHANCES OF SURVIVING (EMPLOYEES)AFTER 1 YEAR(EMPLOYEES)AFTER 4 YEARS 0-978%0-1950% 10-1986%20-4967% 20-9995%50-9967% 100-24995%100-49970% 250+100%

13 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: 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

14 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) ADVANTAGESDISADVANTAGES  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 Table 5.3

15 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. 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)

16 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. 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  Harvest and exit through sell-offs to foreign firms

17 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. Internationalization Strategies for Entrepreneurial Firms ENTERING FOREIGN MARKETSSTAYING 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) Table 5.4

18 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. Debates and Extensions Traits versus institutions Slow internationalizers versus born global start-ups Anti-failure biases versus entrepreneur-friendly bankruptcy laws

19 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 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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