3-2New Entry New entry refers to: Offering a new product to an established or newmarket. Offering an established product to a newmarket. Creating a new organization. Entrepreneurial strategy – The set ofdecisions, actions, and reactions that firstgenerate, and then exploit over time, a newentry.
3-3Figure 3.1 - Entrepreneurial Strategy:The Generation and Exploitation of New EntryOpportunities
3-4Generation of a New EntryOpportunity Resources as a Source of CompetitiveAdvantage Resources are the basic building blocks to afirm’s functioning and performance; the inputsinto the production process. They can be combined in different ways. A bundle of resources provides a firm its capacity toachieve superior performance. Resources must be: Valuable. Rare. Inimitable.
3-5 Creating a Resource Bundle That IsValuable, Rare, and Inimitable Entrepreneurs need to draw from their uniqueexperiences and knowledge. Market knowledge - Information, technology,know-how, and skills that provide insight into amarket and its customers. Technological knowledge - Information,technology, know-how, and skills that provideinsight into ways to create new knowledge.Generation of a New EntryOpportunity (cont.)
3-6Generation of a New EntryOpportunity (cont.) Assessing the Attractiveness of a New EntryOpportunity Depends on the level of information and thewillingness to make a decision without perfectinformation. Information on a New Entry Prior knowledge and information search More knowledge ensures a more efficient searchprocess. Search costs include time and money. The viability of a new entry can be described interms of a window of opportunity.
3-7 Comfort with Making a Decision underUncertainty The trade-off between more information and thelikelihood that the window of opportunity willclose provides a dilemma for entrepreneurs. Error of commission - Negative outcome from actingon the perceived opportunity. Error of omission - Negative outcome from not actingon the new entry opportunity.Generation of a New EntryOpportunity (cont.)
3-8Figure 3.2 - The Decision to Exploit or Notto Exploit the New Entry Opportunity
3-9Entry Strategy for New EntryExploitation Being a first mover can result in a numberof advantages that can enhanceperformance. These include: Cost advantages. Less competitive rivalry. The opportunity to secure important supplierand distributor channels. A better position to satisfy customers. The opportunity to gain expertise throughparticipation.
3-10 Environmental Instability and First-Mover(Dis)Advantages The entrepreneur must first determine the keysuccess factors of the industry being targetedfor entry; are influenced by environmentalchanges. Environmental changes are highly likely in emergingindustries. Demand uncertainty - Difficulty in estimating thepotential size of the market, how fast it willgrow, and the key dimensions along which it willgrow.Entry Strategy for New EntryExploitation (cont.)
3-11 Technological uncertainty - Difficulty inassessing whether the technology will performand whether alternate technologies will emergeand leapfrog over current technologies. Adaptation - Difficulty in adapting to newenvironmental conditions. Entrepreneurial attributes of persistence anddetermination can inhibit the ability of theentrepreneur to detect, and implement, change.Entry Strategy for New EntryExploitation (cont.)
3-12 Customers’ Uncertainty and First-Mover(Dis)Advantages Uncertainty for customers - Difficulty inaccurately assessing whether the new product orservice provides value for them. Overcome customer uncertainty by: Informational advertising. Highlighting product benefits over substitutions. Creating a frame of reference for potential customer. Educating customers through demonstration anddocumentation.Entry Strategy for New EntryExploitation (cont.)
3-13 Lead Time and First-Mover (Dis)Advantages Lead time – The grace period in which the firstmover operates in the industry under conditionsof limited competition. Lead time can be extended if the first mover canerect barriers to entry by: Building customer loyalties. Building switching costs. Protecting product uniqueness. Securing access to important sources of supply anddistribution.Entry Strategy for New EntryExploitation (cont.)
3-14Risk Reduction Strategies forNew Entry Exploitation Risk is derived from uncertainties overmarket demand, technologicaldevelopment, and actions of competitors. Two strategies can be used to reduce theseuncertainties: Market scope strategies - Focus on whichcustomer groups to serve and how to servethem. Imitation strategies - Involves copying thepractices of others.
3-15 Market Scope Strategies Narrow-scope strategy involves offering a smallproduct range to a small number of customergroups to satisfy a particular need. Focuses on producing customized products, localizedbusiness operations, and high levels of craftsmanship. Leads to specialized expertise and knowledge. High-end of the market represents a highly profitableniche. Reduces some competition-related risks but increasesthe risks associated with market uncertainties.Risk Reduction Strategies forNew Entry Exploitation (cont.)
3-16 Broad-scope strategy involves offering a rangeof products across many different marketsegments. Strategy emerges through the information provided bya learning process. Opens the firm up to many different “fronts” ofcompetition. Reduces risks associated with market uncertainties butincreases exposure to competition.Risk Reduction Strategies forNew Entry Exploitation (cont.)
3-17 Imitation Strategy Why do it? It is easier to imitate the practices of a successful firm. It can help develop skills necessary to be successful inthe industry. It provides organizational legitimacy. Types of imitation strategies Franchising - A franchisee acquires the use of a“proven formula” for new entry from a franchisor. “Me-too” strategy - Copying products that already existand attempting to build an advantage through minorvariations.Risk Reduction Strategies forNew Entry Exploitation (cont.)
3-18 An imitation strategy can potentially: Reduce the entrepreneur’s costs associated with R&D. Reduce customer uncertainty over the firm. Make the new entry look legitimate from day one.Risk Reduction Strategies forNew Entry Exploitation (cont.)
3-19 Managing Newness Liabilities of newness arise from uniqueconditions: 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 anda functional corporate culture.Risk Reduction Strategies forNew Entry Exploitation (cont.)
3-20 Assets of Newness Lack of established routines, systems, and processesprovide a learning advantage. A heightened ability to learn new knowledge in acontinuously changing environment is an importantsource of competitive advantage.Risk Reduction Strategies forNew Entry Exploitation (cont.)