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MGT704 Global Business Management

Week 4: Cross-border strategic entrepreneurship

Outline

Entrepreneurship and entrepreneurial firms

A comprehensive model of entrepreneurship

Five entrepreneurial strategies

Internationalising the entrepreneurial firm

Debates and extensions

The savvy entrepreneur

Entrepreneurship 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

Entrepreneurship and Entrepreneurial Firms (continued)

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

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 (continued)

Resource-based considerations

Entrepreneurial resources must create VRIO (have value and be rare, inimitable, and organizationally embedded)

Institution-based considerations

Formal 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 often what attracts entrepreneurs in the first place

Attempt to utilize resources and capabilities

Entrepreneurial vision

Entrepreneurial drive

Entrepreneurial leadership

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

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-Year and Four-Year Survival Rates by Firm Size

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

Selling the business

Merging with another firm

Going 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

Internationalising 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)

Internationalising the Entrepreneurial Firm (continued)

International strategies for staying in domestic markets

Indirect exporting through domestic-based export intermediaries

Become supplier of a foreign firm doing business in that firm’s home country

Become licensee or franchisee of foreign brands

Become alliance partner of foreign a direct investor

Harvest and exit through sell-offs to foreign firms

Internationalisation 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)

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