1. Growing and Internationalizing the Entrepreneurial Firm5
Growing and Internationalizing the Entrepreneurial Firm
chapter
Part II: Business-Level Strategies
Global Strategy Mike W. Peng
Copyright © 2009 Cengage. PowerPoint Presentation by John Bowen, Columbus State Community College All rights reserved.

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
Copyright © 2009 Cengage. All rights reserved.

3. 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
Copyright © 2009 Cengage. All rights reserved. 3

4. Entrepreneurship, Entrepreneurs, and Entrepreneurial Firms (cont’d)
Only a small number of entrepreneurial firms survive
Entrepreneurship also exists in large firms
International entrepreneurship
Innovative, proactive, and risk-seeking behavior that crosses national borders
Intended to create wealth
Copyright © 2009 Cengage. All rights reserved.

5. A Comprehensive Model of Entrepreneurship
Copyright © 2009 Cengage. All rights reserved.
Figure 5.1

6. A Comprehensive Model of Entrepreneurship Resource Based
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 © 2009 Cengage. All rights reserved. 3

7. A Comprehensive Model of Entrepreneurship Resource Based (cont’d)
Cautions: Factors underlying the above five forces may be unknown
Consumer preferences
Effective pricing
Capacity needed
No guarantees
Copyright © 2009 Cengage. All rights reserved.

8. A Comprehensive Model of Entrepreneurship Resource Based (cont’d)
Resource-based considerations
Entrepreneurial resources must create VRIO (value, rare, inimitable, organizationally embedded)
Signs of credibility: specialization, reputation, alliances, etc.
Institution-based considerations
Formal institutions govern new ventures
Striking differences in government regulations of start-ups
Copyright © 2009 Cengage. All rights reserved.

9. A Comprehensive Model of Entrepreneurship Resource Based (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)
Copyright © 2009 Cengage. All rights reserved.

10. Five Entrepreneurial Strategies
Growth
Innovation
Network
Financing/governance
Harvest/exit
A sixth strategy, internationalization, will be covered in the next section
Copyright © 2009 Cengage. All rights reserved.

11. Entrepreneurial Strategies: Growth
Attempt to utilize resources and capabilities
Entrepreneurial vision
Entrepreneurial drive
Entrepreneurial leadership
Hallmarks of growth
Dynamic, flexible, guerilla strategy
Emphasize action, not analysis - emergent strategies
Cautions
Avoid over-aggressiveness
Embrace uncertainties, but avoid excessive risk
Carefully stage and sequence risky projects
Copyright © 2009 Cengage. All rights reserved.

12. Entrepreneurial Strategies: Innovation
An innovation strategy is a specialized form of differentiation strategy
On average, there is a positive relationship between a high degree of innovation and superior profitability
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 © 2009 Cengage. All rights reserved.

13. 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 © 2009 Cengage. All rights reserved. 4

14. 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
Copyright © 2009 Cengage. All rights reserved. 4

15. One- and Four-Year Survival Rates by 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%
95%
70%
250+
100%
Source: Adapted from J. Timmons, 1999, New Venture Creation (p. 33), Boston: Irwin McGraw-Hill, based on US data.
Copyright © 2009 Cengage. All rights reserved.
Table 5.1

16. 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 stake
Selling the business
Merging with another firm
Going public with an initial public offering (IPO)
Declaring bankruptcy
Copyright © 2009 Cengage. All rights reserved. 4

17. Advantages and Disadvantages of an Initial Public Offering (IPO)
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
Source: Based on text in J. Kaplan, 2003, Patterns of Entrepreneurship (pp. 428–430), New York: Wiley.
Copyright © 2009 Cengage. All rights reserved.
Table 5.3

18. 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 © 2009 Cengage. All rights reserved. 4

19. 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
Copyright © 2009 Cengage. All rights reserved.

20. Internationalization Strategies for Entrepreneurial Firms
ENTERING FOREIGN MARKETS
STAYING IN DOMESTIC MARKETS
Direct exports
Indirect exports (through domestic export
intermediaries)
Franchising/licensing
Supplier of foreign firms
Foreign direct investment (through strategic alliances,
green-field wholly owned subsidiaries,
and/or foreign acquisitions)
Franchisee/licensee of foreign brands
Alliance partner of foreign direct investors
Harvest and exit (though sell-off to and acquisition by
foreign entrants)
Copyright © 2009 Cengage. All rights reserved.
Table 5.4

21. Debates and Extensions
Traits versus institutions
Slow versus rapid internationalization
Anti-failure biases versus entrepreneur-friendly bankruptcy laws
Copyright © 2009 Cengage. All rights reserved. 4

22. 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 © 2009 Cengage. All rights reserved.