Global Strategy Mike W. Peng c h a p t e r 55 Copyright © 2009 Cengage.PowerPoint Presentation by John Bowen, Columbus State Community College All rights

Global StrategyGlobal StrategyMike W. PengMike W. Peng

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Copyright © 2009 Cengage. PowerPoint Presentation by John Bowen, Columbus State Community CollegeAll rights reserved. Copyright © 2009 Cengage. PowerPoint Presentation by John Bowen, Columbus State Community CollegeAll rights reserved.

Growing and Internationalizin

g the Entrepreneurial

Firm

Growing and Internationalizin

g the Entrepreneurial

FirmPart II: Business-Level Strategies

Global StrategyGlobal StrategyMike W. PengMike W. Peng

chapter

chapter

55

Copyright © 2009 Cengage. All rights reserved. 5–2

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 and managers of firms with fewer then 500 employees

• 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 Each year 4-6% of adult working population in North America and Europe start a new venture


Entrepreneurship, Entrepreneurs, and Entrepreneurial Firms

(cont’d)Only a small number of entrepreneurial firms survive

•Entrepreneurship also exists in large firms

•International entrepreneurshipInnovative, proactive, and risk-seeking behavior that crosses national borders

Intended to create wealth


A Comprehensive Model of Entrepreneurship

Figure 5.1


A Comprehensive Model of Entrepreneurship Resource Based

• Industry-based considerationsIntensity 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



(cont’d)Cautions: Factors underlying the above five forces may be unknown

Consumer preferences

Effective pricing Capacity neededNo guarantees



(cont’d)• Resource-based considerationsEntrepreneurial resources must create VRIO (value, rare, imitablility, organizationally embedded)

Signs of credibility: specialization, reputation, alliances, etc.

• Institution-based considerationsFormal institutions govern new ventures

Striking differences in government regulations of start-ups



(cont’d)• General conclusions: Level of entrepreneurship affected by:Economic developments

Harshness of regulations

Friendliness of formal institutions

Support of informal institutions (values and norms)


Five Entrepreneurial Strategies

• Growth

• Innovation

• Network

• Financing/governance

• Harvest/exit

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


Entrepreneurial Strategies: Growth

• Attempt to utilize resources and capabilitiesEntrepreneurial visionEntrepreneurial driveEntrepreneurial leadership

•Hallmarks of growthDynamic, flexible, guerilla strategyEmphasize action, not analysis - emergent strategies

•CautionsAvoid over-aggressivenessEmbrace uncertainties, but avoid excessive risk

Carefully stage and sequence risky projects


Entrepreneurial Strategies: Innovation

• An innovation strategy is a specialized form of differentiation strategyOn average, there is a positive relationship between a high degree of innovation and superior profitability

• 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

• Strong ties (e.g. family, friends, etc.) are the most likely sources International differences in extent to which entrepreneurs draw on resources of family/friends versus outsiders

• 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

• Entrepreneurs must think about their exit plan early in the business cycle and aim at maximizing the gains from their labor.

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

Declaring bankruptcy (only in US)


Advantages and Disadvantages of an Initial Public Offering (IPO)

Table 5.3Source: Based on text in J. Kaplan, 2003, Patterns of Entrepreneurship (pp. 428–430), New York: Wiley.

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


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

Table 5.4

ENTERING FOREIGN MARKETS STAYING IN DOMESTIC MARKETS

Direct exports Indirect exports (through domestic export intermediaries)

Franchising/licensing

Foreign direct investment (through strategic alliances, green-field wholly owned subsidiaries, 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)


Debates and Extensions

• Traits versus institutions

• Slow versus rapid internationalization

• 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 © 2009 Cengage.PowerPoint Presentation by John Bowen, Columbus State Community College All rights