Entrepreneurial strategy HEMBA February 18, 2012

Basic strategy categories are:  Differentiation  Low cost  Niche

The “First Mover Advantage” Conventional wisdom would have us believe that it is always beneficial to be first – first in, first to market, first in class. Examples based on the “Jack Welch school of business strategy” The advantages accorded to those who are first to market defines the concept of First Mover Advantage (FMA).

The case for FMA – supply side Creates economies of scale (economic benefits that accrue with increasing volume to both period costs and unit costs of production) Creates learning curve gains based on cumulative units of production Provides first-mover with control over important, possibly scarce input factors

The case for FMA – demand side Four types of switching costs 1.Contractual costs (“sticky” accounts) 2.Initial investment (time & $) 3.Habit formation (learning period, familiarity) 4.Brand strength based on relevance, awareness, esteem

Several key aspects about capturing a first mover’s advantage  You have to be first (or very early) into the market  You need to capture a large percentage of the market quickly  You need to create switching costs so the customer will stick with you  Very expensive, hard to win  First Movers rarely win

Attributes of winning strategies

Entry Strategy Benchmark Devise Initial Market Test Create a Platform

Means to expand globallyProsCons Technology Transfer- Reduces entry costs- Risk of losing the technology Technology Licensing- Generates revenue - Conserves resources - A lost opportunity to extend your own brand Outsourcing- Cost-saving Exporting- Cheap - Easy - Additional costs in after-sales support and transportation - Moral hazard Foreign Direct Investment (FDI)- Physical presence - Control of assets - Expensive Franchising- Licenses an operational system- Risk of damaging the brand name Venture financing- Both an enabling and an enacting mechanism - Often leads to mergers and acquisitions with foreign companies Mergers and acquisitions (M&A)- Established infrastructure - Allow a company to grow and expand quickly - Very expensive