Entrepreneurial Strategy: Generating and Exploiting New Entries

Chapter: 13

Opening Profile
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Justin parker Australian entrepreneur He was thrown out of Uni for gross failing --His first entrepreneurial venture failed – he started his mobile pizza business when he was 18 years old – local council terminated permits for these type of mobile food business He said, “ I am not sure that straight after the failure I was that motivated to get back into it. I knew I enjoyed business and was frustrated that I couldn’t make it work, but I felt more like a failure than a ‘ success waiting to happen’. My confidence was hurt and I was looking for a lot more security. I had few option but no clear vision. When opportunity came along to go back to university, I grabbed it with both hands. University gave me an options”. Justin’s second attempt at university became him an exceptional student with a passion to learn and passion to apply that knowledge He majored in accounting and had his first job out of Uni with Ernst and Young

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New Entry

Offering a new product to an established or new market, offering an established product to a new market, or creating a new organisation Entrepreneurial strategy represents the set of decisions, actions, and reactions that first generate, and then exploit over time Entrepreneurial strategy has three elements:  The generation of new entry opportunity  The exploitation of new entry generation  Exploitation back to stage 1 Figure 13.1

Generation of a new entry opportunity

Resources as a Source of Competitive Advantage
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When a firm engages in a new entry, it is hoped that this new entry will provide the firm with a sustainable competitive advantage What are resources?

What is a bundle of resources?
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The inputs into the production process, such as machinery, financial capital, and skilled employees

These are the basis of the firm’s superior performance over competitors for an extended period of time The resources must be valuable, rare and inimitable The bundle of resources is:
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Valuable: when it enables the firm to pursue opportunities, neutralize threats and offer products and services that are valued by the customers Rare: when it is possessed by few, if any competitors Inimitable: when replication of this combination of resources would be difficult and costly for potential competitors Example: Breeze Technology – ventilation of athletic shoes  Page 426

Generation of a new entry opportunity
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Creating a Resource Bundle that is Valuable, Rare and Inimitable The ability to obtain, and then recombine, resources into bundle that is valuable, rare and inimitable represents an important entrepreneurial resource Knowledge is built up over time through experience and it resides in the mind of the entrepreneur and in the collective mind of management and employees Knowledge is important for generating a bundle of resource that will lead to the creation of a new venture with a long and prosperous life --- customers plays an important source of providing innovation Example – mountain bike enthusiast  Page 426-427

Creating a Resource bundle that is valuable, Rare and Inimitable

Market Knowledge  It is a basis for generating new entry opportunities  Refers to the entrepreneur’s possession of information, technology, know-how, and skills that provide insight into a market and its customers Technological Knowledge  It is also a basis for generating new entry opportunities  Refers to the entrepreneur’s possession of information, technology, know-how, and skills that provide insight into ways to create new knowledge.  The technological knowledge might lead to a technology that is basis for a new entry

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Assessing the attractiveness of a new entry organization

After creating a new resource combination, the entrepreneur needs to determine whether it is valuable, rare and inimitable by assessing whether new product are sufficiently attractive to be worth exploiting and developing.
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Information on a New Entry Comfort with making a decision under uncertainty Decision to exploit or not to exploit the new entry  Page 429

Assessing the attractiveness of a new entry organization

Information on a new entry  Prior knowledge and information search

The prior market and technological knowledge used to create the potential new entry can also be of benefit in assessing the attractiveness of a particular opportunity The dynamic nature of viability of a new entry can be described in terms of a ‘window of opportunity’. When the window is open, the environment is favorable for entrepreneurs to exploit a product When window is closed, leaving the environment for exploitation unfavorable

Window of opportunity

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Assessing the attractiveness of a new entry organization

Comfort with making a decision under uncertainty
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The less information and the likelihood of closing of ‘window of opportunity’ provides a dilemma for entrepreneurs HOW?

This dilemma involves a choice of which error they prefer to commit:

Error of commission  It occurs from the decision to pursue the new entry opportunity only to find out later that the entrepreneur had overestimated his or her ability to create customer demand or to protect the technology from imitation by competitors Error of omission  It occurs from the decision not to act on the new entry opportunity, only to find out later that the entrepreneur had underestimated his or her ability to create customer demand and to protect the technology from imitation by competitors  Page 430

Assessing the attractiveness of a new entry organization

Decision to exploit not to exploit the new entry

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The decision on whether to exploit or not to exploit the new entry opportunity depends on:  whether the entrepreneur has what he or she believes to be sufficient information to make a decision  whether the window is still open for this new entry opportunity figure 13.2 Page 430

Entry strategy for new entry exploitation

The common catch phrase used by entrepreneur when asked about their source of competitive advantage is “ Our competitive advantage comes from being first”.  First movers develop a cost advantage

Costs are reduced because the firm can spread its fixed cost over a greater number of units (economies of scale) More market share to first movers Good and strong relationships with the suppliers and distribution channels

First movers face less competitive rivalry

First movers can secure important channels

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Entry strategy for new entry exploitation

First movers are better positioned to satisfy customers

They have a chance to select and secure the most attractive segment of the market, position themselves at the centre of the market, establish their products as the industry standard They have the opportunity to learn from the first generation products and improve Monitor changes Built up their networks, which can provide early information about attractive opportunities

First movers gain expertise through participation

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Risk reduction strategies for new entry organization

A new entry involves considerable risk for the entrepreneur and his or her firm Risk here is – probability, magnitude, of downside loss which could result bankruptcy To reduce uncertainties, there are two strategies:
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Market Scope Strategy Imitation strategy  Page 439

Risk reduction strategies for new entry organization

Market Scope Strategies
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Scope is a choice about which customer groups to serve and how to serve them There are two types of strategies:

Narrow scope strategy
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Broad scope strategy
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A narrow scope strategy focuses the firm on producing customised products, localised business operations By focusing on a specific group of customers, the entrepreneur can build up specialized expertise and knowledge The high end of the market represents a highly profitable niche that is well suited to those firms that can produce customized products A broad scope strategy can be thought of as taking a portfolio approach to dealing with different market segments By offering a range of products across many different market segments, the entrepreneur can gain an understanding of the whole market by determining which products are the most profitable  Page 440

Risk reduction strategies for new entry organization

Imitation Strategies  Copying the practices of other firm  Entrepreneur may simply find it easier to imitate the practices of a successful firm than to go through the process of a systematic and expensive  An imitation strategy cannot be rare or inimitable  Types of imitation strategies:

Franchising

Me-too Strategy

MacDonald’s

Copying products that already exists in the market. The successful firms occupies a prime position in the minds of customers, and now the imitator is there too and hopes to be considered by customers Ice cream shops  Page 441

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