Morphological and functional vitreous body equivalents

8-1SUCCESS INENTREPRENEURSHIP

ELEC6603 welcomes You to join us for

Success in Industrial ENTREPRENEURSHIP

Lecture 8

Instructors: W K Lee


Please share and enjoy

Growth, Sustainability and Expansion

of this morning.Reference: Chapter 14


MAINTENANCE STRATEGIES

1. Sustainable Competitive Advantage

2. Legal Protection and Rights

3. Defensive Strategies to deter Competitors

Why Maintaining, and not Growing?

W. K

. Lee


Acceptable

MarketChannel Rough & Narrow

MAINTENANCE: Make “Channel” Dedicated

Make Business & Value Sustainable

Maintenance for EXIT: Bundle Rare and Sustainable Values and Sell

W. K

. Lee


YET MOST OF THE TIMES AND BUSINESSES,

ENTREPRENEURS WOULD CHOOSE TO GROW.

Then what is Growth? Why? And How?

W. K

. Lee


Positive Drives for Implementing Growth Strategies

1. New potential customers in present segment

2. There is a larger market than present segment

3. Economies of Scale

4. Not putting all eggs to same basket

5. Larger power and profit by larger market share

6. More products, more ventures, more opportunities

7. Be market leader, and be product leader

8. Be the norm and/or standard

Besides aggressive reasons, Consider defensive reasons

W. K

. Lee


A lot of times, an entrepreneur has to grow. If not, competitors may come (despite relatively late arrival) to eat up her market shares.

Being aware of this possibility, an entrepreneur is forced to grow her business before she loses critical mass of present market shares.

Acceptable

MarketChannel Rough & Narrow yet fit to His Characteristics

1st B

ottleneck

Larger Market

2nd B

ottleneck

Gigantic Market

Com

petitors

W. K

. Lee


Also some competitors may find new path and arrive the larger segment directly. It may stop her progress if she acts slowly. Those competitors may evade her segment, and also reach the Ultimate Market before she does.

Acceptable


1st B

ottleneck

Larger Market

2nd B

ottleneck

Gigantic Market

Either she grows, or be defensive.

W. K

. Lee


When an entrepreneur enters a market, indeed she has entered ONE LAYER (segment) of the whole potential market only. If she so wishes, she may proceed to earn the other segments to enlarge her market.

Acceptable


1st B

ottleneck

Larger Market

2nd B

ottleneck

Gigantic Market

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. Lee


Measure of Success in GROWTH STRATEGIES

1. Marginal Profit2. Opportunity Cost3. Availability of New Resource4. Product Life Cycle and Stages5. New Barriers and Bottle-necks perceived6. Sustainable Competitive Advantage7. Possibility of Rent-Seeking Magnification

e.g. Franchising, Licensing, Commission8. Possibility of New Venture by Existing

Resources or JV

W. K

. Lee


The characteristics and resources enable the Entrepreneur the first to reach the profitable market. Usually what has been reached is the bottom layer only.

To maintain his power in this layer, he needs one or more sustainable competitive advantages.

Breaking through BottlenecksA Dilemma in Business Growth for Entrepreneurs

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Larger Market

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ottleneck

W. K

. Lee


When a business grows, whilst enjoying economies of scale, an entrepreneur must face two phenomena:

•Saturation

•Bottleneck

Bottleneck also exists when the entrepreneur try to penetrate additional layers of markets by the same business. He has to breakthrough the barriers.

Breaking through Bottlenecks

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Larger Market

1st B

ottleneck

W. K

. Lee


It is highly dangerous when an entrepreneur fails to observe saturation and bottleneck.

An entrepreneur must never assume that entering a segment of a market means the whole market.

He beats the others and enters the first segment by special characteristics. But the same set of characteristics may not be as smooth and quick for other segments.

Breaking through Bottlenecks

Acceptable


Larger Market

1st B

ottleneck

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. Lee


Each Bottleneck may require NEW

resource; tool; process; business concept; etc. which the Entrepreneur may or may not have; and may or may not wish.

Acceptable


1st B

ottleneck

Larger Market

2nd B

ottleneck

Gigantic Market

W. K

. Lee


Internal and External Growth Strategies 1 of 2

Involve efforts taken within the firm itself, such as new product development, other

product related strategies, and international

expansion.

Internal Growth Strategies

Rely on establishing relationships with third

parties, such as mergers, acquisitions, strategic

alliances, joint ventures, licensing, and franchising.

External Growth Strategies

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Internal and External Growth Strategies 2 of 2

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Internal Growth Strategies

New productdevelopment

Other product-related strategies

International expansion

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Advantages and Disadvantages of Internal Growth Strategies

Advantages Disadvantages

• Incremental, even-paced growth.

• Provides maximum control.

• Preserves organizational culture.

• Encourages internal entrepreneurship.

• Allows firms to promote from within.

• Slow form of growth.

• Need to develop new resources.• Investment in a failed internal growthstrategy can be difficult to recoup.

• Adds to industry capacity.

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New Product Development 1 of 3

New Product Development

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.

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Keys to Effective New Product and Service Development

• Find a niche and fill it.• Develop products that add value.• Get quality right and pricing right.• Focus on a specific target market.• Conduct ongoing feasibility analysis.

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Common Reasons That New Products Fail

• Inadequate feasibility analysis.• Overestimation of market potential.• Bad timing.• Inadequate advertising and promotions.• Poor service.

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Other Product Related Strategies 1 of 2

Product Strategy Description

Improving an Existing Product or

Service

Increasing Market

Penetration

Often a business can increase its revenues by simply increasing the

quality of an existing product or service.

Increasing the sales of a product or service through greater marketing efforts or through

increased production capacity.

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Other Product Related Strategies 2 of 2

Product Strategy Description

Extending Product Lines

Geographic Expansion

Making additional variations of a product so it will appeal to a broader

range of clientele.

Growth via expanding to additional geographic locations .

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International Expansion 1 of 3

International Expansion

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.

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Foreign-Market Entry Strategies

Exporting

Producing a product at home and shipping it to a foreign market.

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.

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.

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Foreign-Market Entry Strategies

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.

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External Growth Strategies

Mergers andAcquisitions Licensing

Strategic Alliancesand Joint Ventures

Franchising(Chapter 15)

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Advantages and Disadvantages of External Growth Strategies


• Reducing competition.

• Access to proprietary products.• Gaining access to new products.• Gaining access to new markets.• Access to technical expertise.• Access to an established brand name.• Economies of scale.• Diversification of business risk.

• Incompatibility of top management.

• Clash of corporate cultures.

• Operational problems.

• Increased business complexity.

• Loss of organizational flexibility.

• Antitrust implications.

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Mergers and Acquisitions

Mergers and Acquisitions

An acquisition is the outright purchase of one firm by another .

A merger is the pooling of interests to combine two or more firms into one.

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.

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LicensingThe 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.

Licensing 1 of 3

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Licensing 2 of 3

Type of Licensing Description

Technology Licensing

Merchandise and Character

Licensing

The licensing of proprietary technology that the licensor typically controls by

virtue of a utility patent.

The licensing of a recognized trademark or brand that the licensor typically controls

through a trademark or copyright.

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Licensing 3 of 3

• Character licensing, for example,represented a major source of revenue for Pixar in its early years.

• Popular characters, like Marlinand Dory from Finding Nemo,adorn products as diverse asdinner plates and sleeping bags.

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Strategic Alliances 1 of 2

Strategic Alliances

A strategic alliance is a partnership between two or more firms developed to achieve a specific goal.

Strategic alliances tend to be informal and do not involve the creation of a new entity.

Participating in strategic alliances can boost a firm’s rate of product innovation and foreign sales.

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Strategic Alliances 2 of 2

Type of Alliance Description

Technological Alliances

Marketing Alliances

Feature cooperation in R&D, engineering, and manufacturing.

Typically match a company with excess distribution capacity with a company that has

a product to sell.

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Joint Ventures 1 of 2

Joint Ventures

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.

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Joint Ventures 2 of 2

Type of JV Description

Scale Joint Venture

Link Joint Venture

Partners collaborate at a single point in the value chain to gain economies of scale in production or distribution.

Positions of the partners are not symmetrical, and the partners help each other access adjacent links in the value

chain.

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Advantages and Disadvantages of Participating in Strategic Alliances and Joint Ventures


• Gain access to a specific resource.

• Economies of scale.

• Risk and cost sharing.

• Gain access to a foreign market.

• Learning.

• Speed to market.

• Neutralizing competitors.

• Blocking competitors.

• Loss of proprietary information.

• Management complexities.

• Financial and organizational risks.

• Risk becoming depending on a partner.

• Partial loss of decision autonomy.

• Partners’ cultures may clash.

• Loss of organizational flexibility.

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Market Evolution

Adapted from P Kotler “Marketing Management in China” p89-91 Pearson

Emergence

MaturityConsolidation Saturation

GrowthGrowth is not Forever


Check List for EXIT Consideration1. Internal Rate of Return (IRR)2. Sustainability of Competitive Advantage3. Change in Sale or Marginal Profit4. Product Life Cycle and Stages5. Degree of Passion at Now6. Passion or Ability for Bottlenecks7. Turbulence in the Five Forces8. Threats and Weaknesses perceived9. Possibility of New Fund for New Venture

W. K

. Lee


EXIT STRATEGIES

Entrepreneur Makes Exit becomes Harvest; and often Exit is just another form of Growth.

1. Sell and Fully Exit

2. Sell through IPO or Negotiation

3. Partial Exit part of Authority

4. Partial Exit part of Business Structure

If chooses to maintain,

Consider Reengineering.

W. K

. Lee


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mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

Those slides specifying ©2010 Prentice Hall

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