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

Global StrategyGlobal StrategyMike W. PengMike W. Peng

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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. 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 StrategyGlobal StrategyMike W. PengMike W. Peng

Chapter 5

Growing and Internationalizing

the Entrepreneurial Firm

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


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


A Comprehensive Model of Entrepreneurship

Figure 5.1


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


A Comprehensive Model of Entrepreneurship Resource Based

(cont’d)• Resource-based considerationsEntrepreneurial resources must create VRIO

(value, rare, inimitable, organizationally embedded)

• Institution-based considerationsFormal institutions govern new ventures

Striking differences in government regulations of start-ups


Five Entrepreneurial Strategies

• Growth

• Innovation

• Network

• Financing/governance

• Harvest/exit

• A sixth strategy, internationalization, will be covered in the next section


Entrepreneurial Strategies: Growth

• The excitement of growing a new company is oftentimes what attracts entrepreneurs in the first place

• Attempt to utilize resources and capabilitiesEntrepreneurial visionEntrepreneurial driveEntrepreneurial leadership


Entrepreneurial Strategies: Innovation

• An innovation strategy is a specialized form of differentiation strategy

• Advantages of an innovation strategyCreates a more sustainable competitive

advantageTechnological 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


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


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


One- and Four-Year Survival Rates by Firm Size

Table 5.1Source: 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

0-9 78% 0-19 50%

10-19 86% 20-49 67%

20-99 95% 50-99 67%

100-249 95% 100-499 70%

250+ 100%


Entrepreneurial Strategies: Harvest and Exit

• “Selling out” does not necessarily mean failure

• Routes for entrepreneurial harvest and exit:Selling an equity stakeSelling the businessMerging with another firmGoing public with an initial public offering (IPO)Declaring bankruptcy


Advantages and Disadvantages of an Initial Public Offering (IPO)

ADVANTAGES DISADVANTAGES

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


Internationalizing the Entrepreneurial Firm

• Entrepreneurs are challenging myths about internationalization

• Transaction costs are higher

• International strategies for entering foreign marketsDirect exporting

Licensing or franchising

Foreign direct investment (FDI)


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


Internationalization Strategies for Entrepreneurial Firms

ENTERING FOREIGN MARKETS STAYING 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


Debates and Extensions

• Traits versus institutions

• Slow internationalizers versus born global start-ups

• Anti-failure biases versus entrepreneur-friendly bankruptcy laws


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

Documents

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