1. Entrepreneurial Strategy: Generating and Exploiting New Entries
Chapter 3
Entrepreneurial Strategy:
Generating and Exploiting
New Entries
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

2. New Entry New entry refers to:
Offering a new product to an established or new market.
Eg. Bluetooth watch
Offering an established product to a new market.
Eg. Volkswagen is now sold to medium-income people
Creating a new organization.
Entrepreneurial strategy – The set of decisions, actions, and reactions that first generate, and then exploit over time, a new entry.

3. Figure 3.1 - Entrepreneurial Strategy: The Generation and Exploitation of New Entry Opportunities

4. 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-when it enables firm to pursue opportunities, neutralize threats & offer prod/services that customer value
Rare- when only few competitors (if any) possess it
Inimitable(nonsubstitutable) - when replication of combination resources is difficult or costly for competitors

5. Generation of a New Entry Opportunity (cont.)
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.

6. Generation of a New Entry Opportunity (cont.)
Assessing the Attractiveness of a New Entry Opportunity
Depends on the level of information and the willingness to make a decision without perfect information.
Information on a New Entry
Prior knowledge and information search
More knowledge ensures a more efficient search process.
Search costs include time and money.
The viability of a new entry can be described in terms of a window of opportunity.
Windows open- favourable to exploit new prod/new mkt
Window close- unfavourable to exploit

7. Generation of a New Entry Opportunity (cont.)
Comfort with Making a Decision under Uncertainty
The trade-off between more information and the likelihood that the window of opportunity will close provides a dilemma for entrepreneurs.
Error of commission
Negative outcome from acting on the perceived opportunity.
Occur from the decision to pursue opportunity, only then find out he overestimate his ability to create customer demand/protect form technology imtitation by competitors
Error of omission
Negative outcome from not acting on the new entry opportunity.
Occur from the decision not to pursue opportunity, only then find out he underestimate his ability to create customer demand/protect form technology imitation by competitors

8. Figure 3.2 - The Decision to Exploit or Not to Exploit the New Entry Opportunity

9. Generation of a New Entry Opportunity
Decision to exploit or not to exploit the new entry opportunity
Assessment of a new entry’s attractiveness

10. Figure 3.3- Factors That Influence the Decision to Enter the Market Now or to Delay Entry

11. Entry Strategy for New Entry Exploitation
Being a first mover can result in a number of advantages that can enhance performance. These include:
Cost advantages- as a firm produces greater volume of product, the cost of producing each unit will reduce
Less competitive rivalry- market growth will compensate the market share lost to new competitors
The opportunity to secure important supplier and distributor channels – opportunity to select & develop strong relationship with the most important suppliers & distribution channel

12. Entry Strategy for New Entry Exploitation
A better position to satisfy customers- have chance to:
Select & secure most attractive market segments
Position themselves at the centre of market
Establish product as the industry standard
The opportunity to gain expertise through participation- opportunity to:
Learn form 1st generation of products & improve
Monitor chnages in the market
Build up networks

13. TO BE THE FIRST-MOVER OR
NOT TO BE?????
Assess:
Environment satability/instability
Ability to educate customers
Ability to raise barriers to entry & imitation to extend lead time

14. Entry Strategy for New Entry Exploitation (cont.)
Environmental Instability and First-Mover (Dis)Advantages
The entrepreneur must first determine the key success factors of the industry being targeted for entry; are influenced by environmental changes.
Environmental changes are highly likely in emerging industries (industries that are newly formed)

15. Entry Strategy for New Entry Exploitation (cont.)
Demand uncertainty
Difficulty in estimating future demand- overestimate means higher cost, underestimate means not being able to satisfy customer demand
Difficulty in predicting key dimesions along market grow- eg. Changing in customers’ need s & tastes
Followers get:
learn from first mover without incurring same cost
More info obout mkt demand
More info abour customer preferences due to additional time
When demand is unstable & unpredictable = should delay the entry

16. Entry Strategy for New Entry Exploitation (cont.)
Technological uncertainty
Difficulty in assessing whether the technology will perform and whether alternate technologies will emerge and leapfrog over current technologies- if not perform as expected, will ruin reputation & add to R&D & production cost; if works as expected, superior tech might be imitate by late entrants
Delay entrants enjoy:
Opportunity to reduce technological uncertainty eg. Learn form fist mover’s R&D, opportunity to observe & learn from first mover mistakes
When technological uncertainty is high= should delay the entry

17. Entry Strategy for New Entry Exploitation (cont.)
Adaptation - Difficulty in adapting to new environmental conditions.
Entrepreneurial attributes of persistence and determination can inhibit the ability of the entrepreneur to detect, and implement, change.

18. Entry Strategy for New Entry Exploitation (cont.)
Customers’ Uncertainty and First-Mover (Dis)Advantages
Uncertainty for customers - Difficulty in accurately assessing whether the new product or service provides value for them.
Overcome customer uncertainty by:
Informational advertising.
Comparison marketing- Highlighting product benefits over substitutions.
Creating a frame of reference for potential customer for new highly innovative product- show customer how product is useful for them
Educating customers through demonstration and documentation.
First mover enjoy reputation as ‘founder’, customer loyalty and rise up barrier to entry and imitation

19. Entry Strategy for New Entry Exploitation (cont.)
Lead Time and First-Mover (Dis)Advantages
Lead time – The grace period in which the first mover operates in the industry under conditions of limited competition.
Lead time can be extended if the first mover can erect barriers to entry by:
Building customer loyalties- loyalty sometimes associated with the first mover eg. Maggi, Milo, Colgate
Building switching costs
Cost that must be borne by customers if they are to stop purchasing from currennt supplier and begin purchasing from another
How to prevent? Eg. Reward system

20. Entry Strategy for New Entry Exploitation (cont.)
Protecting product uniqueness- maintain by intellectual property protection such as patents, copyrights, trademarks & trade secret
Securing access to important sources of supply and distribution- ability to develop exclusive relationship with key supplier will force competitors less attractive alternatives
Switching costs: Must be borne by customers if they:
Stop purchasing from the current supplier
Begin purchasing from new supplier

21. Risk Reduction Strategies for New Entry Exploitation
Probability, and magnitude, of downside loss
Derived from uncertainties over:
Market demand
Technological development
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.

22. Risk Reduction Strategies for New Entry Exploitation (cont.)
Market Scope Strategies
Narrow-scope strategy involves offering a small product range to a small number of customer groups to satisfy a particular need.
Producing customized products
Localized business operations
High level craftsmanship
High-end of the market

23. Risk Reduction Strategies for New Entry Exploitation (cont.)
Broad-scope strategy
Offers range of products across different market segments
Helps gain better understanding of the whole market
Opens the firm up to many different “fronts” of competition
Reduces risks associated with market uncertainties
Increases exposure to competition

24. Imitation Strategies Copying practices of other Advantages
Help develop skills necessary to be successful in the industry
Provide organizational legitimacy
Reduce costs associated with R&D
Reduce customer uncertainty over the firm
Make the new entry look legitimate from day one

25. Imitation Strategies Types of imitation strategies Franchising
Acquiring a “proven formula” for new entry from a franchisor
“Me-too” strategy
Copying exist products and attempting to build an advantage through minor variations

26. 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.

27. Risk Reduction Strategies for New Entry Exploitation (cont.)
Assets of Newness
Lack of established routines, systems, and processes provide a learning advantage.
A heightened ability to learn new knowledge in a continuously changing environment is an important source of competitive advantage.