Opportunity Analysis UNIT-III

What Is A New Entry?  Offering A New Product To An Established/New Market  Offering An Established Product To A new Market  Creating A New Organization

Generation of a New Entry Opportunity Resources as a Source of Competitive Advantage Resources are the basic building blocks to a firm’s functioning and performance; the inputs into the production process. They can be combined in different ways. A bundle of resources provides a firm its capacity to achieve superior performance. Resources must be: Valuable. Rare. Inimitable.

Creating a Resource Bundle That Is Valuable, Rare, and Inimitable  Entrepreneurs need to draw from their unique experiences and knowledge.  Market knowledge - Information, technology, know-how, and skills that provide insight into a market and its customers.  Technological knowledge - Information, technology, know-how, and skills that provide insight into ways to create new knowledge. Generation of a New Entry Opportunity (cont.)

First-Mover Advantages 1.Exploit network effects and positive feedback loops Locking customers into its technology 2.Establish significant brand loyalty Expensive for later entrants to break down 3.Enable economies of scale and learning effects So first-mover has cost advantage and can respond to new entrants by cutting price to maintain market share 4.Create switching costs for customers Making it difficult for rivals to take customers away 5.Accumulate valuable knowledge Regarding customers, distribution, and technology that late entrants will find difficult or expensive to match 7 | 6 The five main sources of first-mover advantages :

First-Mover Disadvantages 1.Pioneering costs To develop technology and distribution channels and to educate the customers Later entrants ‘free-ride’ on first-mover’s investments. 2.More prone to make mistakes Because of the uncertainties in a new market Later entrants learn from the mistakes of first-movers. 3.Risk of building the wrong resources and capabilities Mass-market may differ from the needs of early adopters First-movers risk ‘Plunging into the chasm’. 4.May invest in inferior or obsolete technology If the underlying technology is advancing rapidly Late entrants may be able to ‘leap frog’ the technology.

Strategies for Exploiting First-Mover Advantages 1.Going it alone Develop and market the innovation itself. 2.Strategic alliance or joint venture Develop and market the innovation jointly with other companies. 3.License the innovation to others L et them develop the market. 7 | 8

Market Scope Strategy  Scope- Choice Of Which Customers To Serve & How  Narrow-Scope- Reduces Competitive Risk Focus On Customized Products, Local Business, Craftsmanship Build Specialized Expertise/Knowledge High End Market = High Profit Niche’  Broad-Scope- Offer Wide Range Of Products To Many Market Segments, Causes Increased Exposure To Competition

Imitation Strategy Why?- Minimize Risk Types Franchising “Me Too” Minor Variation Of Launch Product Take Existing Product/Service To New Market Deliver Existing Product In New Way

Risk Reduction Strategies for New Entry Exploitation  Risk is derived from uncertainties over market demand, technological development, and actions of competitors.  Two strategies can be used to reduce these uncertainties:  Market scope strategies - Focus on which customer groups to serve and how to serve them.  Imitation strategies - Involves copying the practices of others.

 Market Scope Strategies  Narrow-scope strategy involves offering a small product range to a small number of customer groups to satisfy a particular need.  Focuses on producing customized products, localized business operations, and high levels of craftsmanship.  Leads to specialized expertise and knowledge.  High-end of the market represents a highly profitable niche.  Reduces some competition-related risks but increases the risks associated with market uncertainties. Risk Reduction Strategies for New Entry Exploitation (cont.)

Broad-scope strategy involves offering a range of products across many different market segments. Strategy emerges through the information provided by a learning process. Opens the firm up to many different “fronts” of competition. Reduces risks associated with market uncertainties but increases exposure to competition. Risk Reduction Strategies for New Entry Exploitation (cont.)

Imitation Strategy Why do it? It is easier to imitate the practices of a successful firm. It can help develop skills necessary to be successful in the industry. It provides organizational legitimacy. Types of imitation strategies Franchising - A franchisee acquires the use of a “proven formula” for new entry from a franchisor. “Me-too” strategy - Copying products that already exist and attempting to build an advantage through minor variations. Risk Reduction Strategies for New Entry Exploitation (cont.)

Managing Newness Liabilities of newness arise from unique conditions: Costs in learning new tasks. Conflict arising from overlap or gaps in responsibilities. Unestablished informal structures of communication. A new firm needs to: Educate and train employees. Facilitate conflict over roles. Promote activities that foster informal relationships and a functional corporate culture. Risk Reduction Strategies for New Entry Exploitation (cont.)

SWOT ANALYSIS Negative External Factors Positive External Factors Negative Internal Factors Positive Internal Factors StrengthsWeaknesses ThreatsOpportunities

SWOT ANALYSIS Strengths  Flexibility of Small Business  Protection from the Government  Lower Gestation Period  Superior R&D  Intellectual Property Rights  Technological competitiveness  Risk gets divided in consortium

SWOT ANALYSIS Weaknesses  Unable to adapt to a change  Financial Limitations  Inferior Quality

SWOT ANALYSIS Opportunities  Schemes and Incentives.  Institutional Support  Tax Holidays  Rising Economy  Special Economic Zones  Removal of Trade Barriers  Reservation of SSI’s

SWOT ANALYSIS Threats Dumping Power cuts Upcoming Technologies

Technological Competitiveness Types of Technology Ventures Enterprise that create Technology and advance them Web based Technologies Entities that utilize technologies created to serve a particular need in the market Naukri.com & makemytrip.com

Technopreneur The person behind the technology driven enterprises is called technopreneur. Technopreneurs are greatly inclined towards technology and are referred informally as geeks and techies.

Diffusion of Technology and Timing of technology  The success of Technology depends on how quickly the technology gets diffused from one element to the other.  Early adopters  Late adopters  Laggards

Timing of the Technology  Timing of the technology is key to the success of any technology.  Good technology may be rejected if it is released during inappropriate times.  Electric Cars like Reva got lukewarm response.

What Is A New Entry ? 1.Offering A New Product To An Established/New Market 2.Offering An Established Product To A new Market 3.Creating A New Organization

The VRIO Analysis The VRIO Analysis Value Test 1: Value – does the resource help you increase sales or decrease costs Rareness Test 2: Rareness – is the resource rare enough that you can charge more than competitors without the resource Imitability Test 3: Imitability – can the competition imitate the resource Organization Test 4: Organization – can the firm make use of the resource 7-26

Resources As Competitive Advantage Resources- Firm’s Building Blocks, Inputs Into Production Process Must Be: Valuable Rare Inimitable

Capturing First-Mover Advantages If the new product satisfies unmet consumer needs and demand is high: First mover may be in a monopoly position to capture significant revenues and profits. Strong revenues and profits signal an opportunity to potential rivals. Rival imitators may enter market in the absence of strong barriers to imitation resulting in lower market returns. 7 | 28 First-mover advantage: the first to develop and pioneer revolutionary new products that can lead to an enduring competitive advantage Being a first-mover does not guarantee success. Success depends on the first-mover strategy that is pursued.

Assessing New Entry Opportunity Information Prior Knowledge/Information Search Window Of Opportunity- Time When Environment Is Favorable Decision To Exploit/Not Exploit New Entry

Strategy For New Entry- First Movers Develop Cost Advantage Face Less Competition Secure Important Channels Better Positioned To Satisfy Customers Gain Expertise Through Participation

First Mover Disadvantages  Emerging Industries  Demand Uncertainty- Difficult to Estimate Market Size, Speed Of Growth & Its Key Dimensions  Technological Uncertainty- Will Technology Perform, Alternate Technologies Emerge?  Adaptation To New Environmental Conditions  Customer Uncertainty- Newness

Overcoming Customer Uncertainty Informational Advertising Highlight Product Benefits Over Substitutions Create Frame Of Reference For Potential Customer Educate Customer- Set Industry Standard, Customer Loyalty

The Impact of Imitation on Profits of a First Move 7 | 33 Figure 7.4

Lead Time & First Mover Lead Time- Period In Which 1 st Mover Operates With Limited Competition Create Barriers To Entry For Competition Build Customer Loyalty Build Switching Costs Protect Product Uniqueness Secure Access To Sources Of Supply & Distribution

First-Mover Advantages 1.Exploit network effects and positive feedback loops Locking customers into its technology 2.Establish significant brand loyalty Expensive for later entrants to break down 3.Enable economies of scale and learning effects So first-mover has cost advantage and can respond to new entrants by cutting price to maintain market share 4.Create switching costs for customers Making it difficult for rivals to take customers away 5.Accumulate valuable knowledge Regarding customers, distribution, and technology that late entrants will find difficult or expensive to match 7 | 35 The five main sources of first-mover advantages:

First-Mover Disadvantages 1.Pioneering costs To develop technology and distribution channels and to educate the customers Later entrants ‘free-ride’ on first-mover’s investments. 2.More prone to make mistakes Because of the uncertainties in a new market Later entrants learn from the mistakes of first-movers. 3.Risk of building the wrong resources and capabilities Mass-market may differ from the needs of early adopters First-movers risk ‘Plunging into the chasm’. 4.May invest in inferior or obsolete technology If the underlying technology is advancing rapidly Late entrants may be able to ‘leap frog’ the technology. Copyright © Houghton Mifflin Company. All rights reserved. 7 | 36

Strategies for Exploiting First-Mover Advantages 1.Going it alone Develop and market the innovation itself. 2.Strategic alliance or joint venture Develop and market the innovation jointly with other companies. 3.License the innovation to others L et them develop the market. Copyright © Houghton Mifflin Company. All rights reserved. 7 | 37

Market Scope Strategy  Scope- Choice Of Which Customers To Serve & How  Narrow-Scope- Reduces Competitive Risk Focus On Customized Products, Local Business, Craftsmanship Build Specialized Expertise/Knowledge High End Market = High Profit Niche’  Broad-Scope- Offer Wide Range Of Products To Many Market Segments, Causes Increased Exposure To Competition

Imitation Strategy Why?- Minimize Risk Types Franchising “Me Too” Minor Variation Of Launch Product Take Existing Product/Service To New Market Deliver Existing Product In New Way

Liabilities Of Newness Costs Of Learning New Tasks Overlap/Gaps In Responsibilities Causes Internal Conflict Communication- Formal & Informal

Assets Of Newness Clean Slate- No Established Procedures, Systems, Etc. Heightened Ability To Learn New Knowledge- Competitive Advantage Respond To Change More Quickly- Flexibility