Copyright © 2017 Cengage Learning ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 5 Growing and Internationalizing the Entrepreneurial Firm

Outline Entrepreneurship and entrepreneurial firms A comprehensive model of entrepreneurship Five entrepreneurial strategies Internationalizing the entrepreneurial firm Debates and extensions The savvy entrepreneur Copyright © 2017 Cengage Learning ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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 Copyright © 2017 Cengage Learning ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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 Copyright © 2017 Cengage Learning ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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 Copyright © 2017 Cengage Learning ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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 Copyright © 2017 Cengage Learning ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Five Entrepreneurial Strategies Growth Innovation Network Financing/governance Harvest/exit A sixth strategy, internationalization, will be covered in the next section Copyright © 2017 Cengage Learning ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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 Copyright © 2017 Cengage Learning ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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 Copyright © 2017 Cengage Learning ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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 Copyright © 2017 Cengage Learning ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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 Copyright © 2017 Cengage Learning ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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 Copyright © 2017 Cengage Learning ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Internationalizing 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) Copyright © 2017 Cengage Learning ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Internationalizing 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 Copyright © 2017 Cengage Learning ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Debates and Extensions Traits versus institutions Slow internationalizers versus born global start-ups Anti-failure biases versus entrepreneur-friendly bankruptcy laws Copyright © 2017 Cengage Learning ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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 Copyright © 2017 Cengage Learning ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.