Class_03_CH14.pptx

Entrepreneurship: Successfully Launching New Ventures Sixth Edition Chapter 14 Strategies for Firm Growth Copyright © 2019, 2016, 2012 Pearson Educatio...

Entrepreneurship: Successfully Launching New Ventures Sixth Edition Chapter 14 Strategies for Firm Growth Copyright © 2019, 2016, 2012 Pearson Education, Inc. All Rights Reserved. Learning Objectives 14.1 Identify and discuss the core internal growth strategy for entrepreneurial firms. 14.2 Describe additional internal product-growth strategies entrepreneurial firms can use. 14.3 Examine international expansion as a growth strategy. 14.4 Discuss different types of external growth strategies. Copyright © 2019, 2016, 2012 Pearson Education, Inc. All Rights Reserved. Internal and External Growth Strategies (1 of 2) Internal Growth Strategies External Growth Strategies Involve efforts taken within Rely on establishing the firm itself, such as new relationships with third product development, parties, such as mergers, other product-related acquisitions, strategic strategies, and alliances, joint ventures, international expansion licensing, and franchising Copyright © 2019, 2016, 2012 Pearson Education, Inc. All Rights Reserved. Internal and External Growth Strategies (2 of 2) Figure 14.1 Copyright © 2019, 2016, 2012 Pearson Education, Inc. All Rights Reserved. Internal Growth Strategies (1 of 2) New product development Additional internal product-growth strategies International expansion Copyright © 2019, 2016, 2012 Pearson Education, Inc. All Rights Reserved. Internal Growth Strategies (2 of 2) Table 14.1 Advantages and Disadvantages of Internal Growth Strategies Advantages Disadvantages Incremental, even-paced Slow form of growth. growth. Need to develop new Provides maximum control. resources. Preserves organizational Investment in a failed internal culture. growth strategy can be difficult Encourages internal to recoup. entrepreneurship. Adds to industry capacity. Allows firms to promote from within. Copyright © 2019, 2016, 2012 Pearson Education, Inc. All Rights Reserved. New Product Development (1 of 3) Involves the creation and sale of new products (or services) as a means of increasing firm revenues. In many fast-paced industries, new product development is a competitive necessity. – For example, the average product life cycle in the computer software industry is 14 to 16 months. – As a result, to remain competitive, software companies must always have new products in their pipeline. Copyright © 2019, 2016, 2012 Pearson Education, Inc. All Rights Reserved. New Product Development (2 of 3) Keys to Effective New Product and Service Development Find a need and fill it. Develop products that add value. Get quality and pricing right. Focus on a specific target market. Conduct ongoing feasibility analysis. Copyright © 2019, 2016, 2012 Pearson Education, Inc. All Rights Reserved. New Product Development (3 of 3) Table 14.2 The Top 5 Reasons New Products Fail 1. The potential market was overestimated. 2. Customers saw the product as too expensive. 3. The product was poorly designed. 4. The product was no different than the competition’s (“me too” products). 5. The costs of developing the product line were too high. Copyright © 2019, 2016, 2012 Pearson Education, Inc. All Rights Reserved. Additional Internal Product-Related Strategies Product Strategy Description Often a business can increase its Improving an Existing Product or revenues by simply increasing the Service quality of an existing product or service. Increasing the sales of a product or Increasing Market Penetration service through greater marketing efforts or through increased production capacity. Making additional variations of a Extending Product Lines product so it will appeal to a broader range of clientele. Growth via expanding to additional Geographic Expansion geographic locations. Copyright © 2019, 2016, 2012 Pearson Education, Inc. All Rights Reserved. International Expansion (1 of 3) Another common form of growth for entrepreneurial firms. International new ventures are businesses that, from their inception, seek to derive significant competitive advantage by using their resources to sell products or services in multiple countries. Although there is vast potential associated with selling overseas, it is a fairly complex form of growth. Copyright © 2019, 2016, 2012 Pearson Education, Inc. All Rights Reserved. International Expansion (2 of 3) Foreign-Market Entry Strategies Exporting – Producing a product at home and shipping it to a foreign market. Joint Ventures – Involves the establishment of a firm that is jointly owned by two or more otherwise independent firms. Fuji-Xerox is a joint venture between an American and a Japanese company. Licensing – An arrangement whereby a firm with the proprietary rights to a product grants permission to another firm to manufacture that product for specified royalties or other payments. Copyright © 2019, 2016, 2012 Pearson Education, Inc. All Rights Reserved. International Expansion (3 of 3) Franchising – An agreement between a franchisor (a company like McDonald’s Inc., that has an established business method and brand) and a franchisee (the owner of one or more McDonald’s restaurants). Turnkey Project – A contractor from one country builds a facility in another country, trains the personnel that will operate the facility, and turns over the keys to the project when it is completed and ready to operate. Wholly Owned Subsidiary – A company that has made the decision to manufacture a product in a foreign country and establish a permanent presence. Copyright © 2019, 2016, 2012 Pearson Education, Inc. All Rights Reserved. External Growth Strategies (1 of 2) Mergers and Acquisitions Licensing Strategic Alliances and Joint Ventures Franchising (Chapter 15) Copyright © 2019, 2016, 2012 Pearson Education, Inc. All Rights Reserved. External Growth Strategies (2 of 2) Table 14.5 Advantages and Disadvantages of Emphasizing External Growth Strategies Advantages Disadvantages Reducing competition. Incompatibility of top management. Gaining access to proprietary Clash of corporate cultures. products or services. Operational problems. Gaining access to new products Increased business complexity. and markets. Loss of organizational flexibility. Obtaining access to technical Antitrust implications. expertise. Gaining access to an established brand name. Economies of scale. Diversification of business risk. Copyright © 2019, 2016, 2012 Pearson Education, Inc. All Rights Reserved. Mergers and Acquisitions Mergers and Acquisitions A merger is the pooling of interests to combine two or more firms into one. An acquisition is the outright purchase of one firm by another. Purpose of Acquisitions Acquiring another business can fulfill several of a company’s needs, such as: – Expanding its product line. – Gaining access to distribution channels. – Achieving competitive economies of scale. Copyright © 2019, 2016, 2012 Pearson Education, Inc. All Rights Reserved. The Process of Completing an Acquisition Figure 14.2 The Process of Completing the Acquisition of Another Firm Copyright © 2019, 2016, 2012 Pearson Education, Inc. All Rights Reserved. Licensing (1 of 2) The granting of permission by one company to another company to use a specific form of its intellectual property under clearly defined conditions. Virtually any intellectual property a company owns that is protected by a patent, trademark, or copyright can be licensed to a third party. Licensing Agreement The terms of a license are spelled out by a licensing agreement. Copyright © 2019, 2016, 2012 Pearson Education, Inc. All Rights Reserved. Licensing (2 of 2) Type of Licensing Description Technology Licensing The licensing of proprietary technology that the licensor typically controls by virtue of a utility patent. Merchandise and The licensing of a recognized trademark Character Licensing or brand that the licensor typically controls through a trademark or copyright. Copyright © 2019, 2016, 2012 Pearson Education, Inc. All Rights Reserved. Strategic Alliances and Joint Ventures (1 of 2) The increase in the popularity of strategic alliances and joint ventures has been driven largely by a growing awareness that firms can’t “go it alone” and succeed. Copyright © 2019, 2016, 2012 Pearson Education, Inc. All Rights Reserved. Strategic Alliances and Joint Ventures (2 of 2) Table 14.6 Advantages and Disadvantages of Participating in Strategic Alliances and Joint Ventures Advantages Disadvantages Gain access to a specific resource. Loss of proprietary information. Economies of scale. Management complexities. Risk and cost sharing. Financial and organizational risks. Gain access to a foreign market. Risk becoming dependent on a partner. Learning. Partial loss of decision autonomy. Speed to market. Partners’ cultures may clash. Neutralizing or blocking competitors. Loss of organizational flexibility. Copyright © 2019, 2016, 2012 Pearson Education, Inc. All Rights Reserved. Strategic Alliances (1 of 2) A strategic alliance is a partnership between two or more firms developed to achieve a specific goal. Various studies show that participation in alliances can boost a firm’s rate of patenting, product innovation and foreign sales. Strategic alliances tend to be informal and do not involve the creation of a new entity. Setting up an alliance and making it work can be tricky. Copyright © 2019, 2016, 2012 Pearson Education, Inc. All Rights Reserved. Strategic Alliances (2 of 2) Type of Alliance Description Technological Alliances Feature cooperation in R&D, engineering, and manufacturing. Marketing Alliances Typically match a company with excess distribution capacity with a company that has a product to sell. Copyright © 2019, 2016, 2012 Pearson Education, Inc. All Rights Reserved. Joint Ventures (1 of 2) A joint venture is an entity created when two or more firms pool a portion of their resources to create a separate, jointly owned organization. A common reason to form a joint venture is to gain access to a foreign market. In these cases, the joint venture typically consists of the firm trying to reach a foreign market and one or more local partners. Copyright © 2019, 2016, 2012 Pearson Education, Inc. All Rights Reserved. Joint Ventures (2 of 2) Type of Joint Venture Description Scale Joint Venture Partners collaborate at a single point in the value chain to gain economies of scale in production or distribution. Link Joint Venture Positions of the partners are not symmetrical, and the partners help each other access adjacent links in the value chain. Copyright © 2019, 2016, 2012 Pearson Education, Inc. All Rights Reserved. Copyright Copyright © 2019, 2016, 2012 Pearson Education, Inc. All Rights Reserved.