Entrepreneurship, Chapter 14

Internal Growth Strategies:

New product development Other product-related strategies International expansion

In many ____ industries, new product development is a competitive necessity.

fast-paced

Technological alliances

feature cooperation in research and development, engineering, and manufacturing.

The Top 5 Reasons New Products Fail -The potential market was _____. -Customers saw the product as too ______. -The product was poorly _______. -The product was not ____ than the competition's ("me too" products). -The ____ of developing the product line were too high.

overestimated; expensive; designed; different; costs

Extending Product Lines A ______ strategy involves making additional versions of a product so that it will appeal to different clientele or making related products to sell to the same clientele.

product line extension

External growth strategies

rely on establishing relationships with third parties.

Geographic Expansion Many entrepreneurial businesses grow by simply expanding from their original location to additional geographic sites. This type of expansion is most common in _____ settings.

retail

Although developing new products can result in substantial rewards, it is a high-____ strategy. The key is developing innovative new products that aren't simply "me-too" products that are entering already crowded markets.

risk

On occasion, the larger firm that has a small equity stake will acquire the smaller firm. These transactions are called _____. The opposite of a spin-in is a ____, which occurs when a larger company divests itself of one of its smaller divisions and the division becomes an independent company.

spin-ins; spin-out

Licensing

the granting of permission by one company to another company to use a specific form of its intellectual property under clearly defined conditions.

Merchandise and character licensing

the licensing of a recognized trademark or brand that the licensor typically controls through a registered trademark or copyright.

Technology licensing

the licensing of proprietary technology that the licensor typically controls by virtue of a utility patent.

acquisition

the outright purchase of one firm by another. In an acquisition, the surviving firm is called the acquirer, and the firm that is acquired is called the target.

scale joint venture

the partners collaborate at a single point in the value chain to gain economies of scale in production or distribution. This type of joint venture can be a good vehicle for developing new products or services.

merger

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

link joint venture

the position of the parties is not symmetrical, and the objectives of the partners may diverge.

Improving an item means increasing its _____ and price potential from the customer's perspective.

value

Outsourcing

work that is done for a company by people other than the company's full-time employees.

Foreign Market Entry Strategies

- exporting - licensing - joint ventures - franchising - turnkey project - wholly owned subsidiary

Disadvantages of Internal Growth Strategies

-Slow form of growth -Need to develop new resources -Investment in a failed internal effort can be difficult to recoup -Adds to industry capacity

According to the SBA Office of Advocacy, U.S. companies exported goods and services worth a record $____ in 2014. In terms of individual businesses, ___ percent of all U.S. exports are accounted for by small businesses.

2.3 trillion; 97

Approximately ____ percent of the world's population and ____ percent of its total purchasing power are located outside the United States.

95.6; 70

Wholly owned subsidiary.

A firm that establishes a wholly owned subsidiary in a foreign country has typically made the decision to manufacture in the foreign country and establish a permanent presence.

Franchising.

A franchise is an agreement between a franchisor (the parent company that has a proprietary product, service, or business method) and a franchisee (an individual or firm that is willing to pay the franchisor a fee for the right to sell its product, service, and/or use its business method). U.S. firms can sell franchises in foreign markets, with the reverse being true as well.

Joint ventures.

A joint venture involves the establishment of a firm that is jointly owned by two or more otherwise independent firms.

Licensing.

A licensing agreement is 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. Proprietary services and processes can also be licensed.

Exporting.

Exporting is the process of producing a product at home and shipping it to a foreign market. Most entrepreneurial firms begin their international involvement as exporters.

_____ an Existing Product or Service A business can often increase its revenue by improving an existing product or service enhancing quality, making it larger or smaller, making it more convenient to use, improving its durability, or making it more up-to-date. Improving an item means increasing its value and price potential from the customer's perspective.

Improving

Turnkey projects.

In a 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.

Evaluating a Firm's Overall Suitability for Growth through International Markets:

Management/Organizational Issues Product and Distribution Issues Financial and Risk Management Issues

______ alliances and ______ alliances are two of the most common forms of alliances.

Technological; marketing

There are two principal types of licensing:

Technology Licensing Merchandise and Character Licensing

A strategic alliance

a partnership between two or more firms that is developed to achieve a specific goal

market penetration strategy

employs the existing marketing mix and focuses the firm's efforts on existing customers

A market penetration strategy involves actions taken to increase the sales of a product or service through greater marketing efforts or through increased production capacity and efficiency. An increase in a product's market share is typically accomplished by increasing _____ expenditures, offering sales promotions, _____ the price, increasing the size of the sales force, or increasing a company's social media efforts.

advertising; lowering

joint venture

an entity created when two or more firms pool a portion of their resources to create a separate, jointly owned organization.

Financial and Risk Management Issues -Financing _____ operations -Can the foreign initiative be funded from internal operations, or will additional funding be needed? -Foreign _____ risk

export; currency

International new ventures

businesses that, from inception, seek to derive a competitive advantage by using their resources to sell products or services in multiple countries.

Management/Organizational Issues -Depth of management _____ -Depth of international _____ -Interference with other firm initiatives -A firm should weigh the advantages of competing in international markets against the time commitment involved and the potential interference with other firm initiatives.

committed; experience

The keys to successful geographic expansion follow: -Perform successfully in the ______: Additional locations can learn from the initial location's success. -Establish the ______ of the business concept in the expansion locations: A common mistake an entrepreneurial venture makes when it expands from one community to another is to assume that if something works in one community, it will automatically work in another. -Don't _____ the expansion location: Same amount of attention and nurturing that it took to build the business in the original location.

initial location; legitimacy; isolate

Internal growth strategies

involve efforts taken within the firm itself for the purpose of increasing sales revenue and profitability.

New Product Development

involves designing, producing, and selling new products (or services) as a means of increasing firm revenues and profitability.

Research-and-development alliances

often bring together entrepreneurial firms with specific technical skills and larger, more mature firms with experience in development and marketing.

The terms of a license are spelled out through a _______, which is a formal contract between a licensor and a licensee. The _____ is the company that owns the intellectual property; the ______ is the company purchasing the right to use it. A license can be exclusive, nonexclusive, for a specific purpose, and for a specific geographic area.

licensing agreement; licensor; licensee

Marketing alliances

match a company that has a distribution system with a company that has a product to sell in order to increase sales of a product or service.

External growth strategies

mergers and acquisitions licensing strategic alliances and joint ventures franchising

The keys to effective new product and service development follow: -Find a _____ and fill it: Most successful new products fill a need that is presently unfilled. "Saturated" markets should be avoided. -Develop products that add _____ -Get quality and pricing right -Focus on a specific ____ market -Conduct ongoing feasibility analysis

need; value; target

Advantages of Internal Growth Strategies

•Incremental, even-paced growth. •Provides maximum control. •Preserves organizational culture. •Encourages internal entrepreneurship. •Allows firms to promote from within.