Chapter 10

Entrepreneurial Firm

LEARNING OBJECTIVES

After studying this chapter, you should be able to:

1. Define entrepreneurship, entrepreneurs, and entrepreneurial firms

2. Understand how institutions and sources affect entrepreneurship

3. Identify the three characteristics of a growing entrepreneurial firm

4. Differentiate international strategies that enter foreign markets and that stay in domestic markets

5. Participate in three leading debates on growing and internationalizing the entrepreneurial firm

6. Draw implications for action

ENTREPRENEURSHIP ANDENTREPRENEURIAL FIRMS

small and medium-sized enterprises (SMEs) - generally defined in the US as firms with fewer than 500 employees

entrepreneurship – identification and exploitation of previously unexplored opportunities

entrepreneurs - founders and owners of new businesses or managers of existing firms

international entrepreneurship - combination of innovative, proactive, and risk seeking behavior that crosses national borders and is intended to create wealth in organizations

Institutions and Entrepreneurship

entrepreneurship is thriving around the globe in general, its development is unequal In general, governments in developed economies impose fewer procedures entrepreneurs confront harsher regulatory

burdens in poor countries

GROWING THE ENTREPRENEURIAL FIRM

growth - an entrepreneurial firm can be viewed as an attempt to more fully utilize currently underutilized resources and capabilities

Innovation - heart of entrepreneurship and allows for a more sustainable basis for competitive advantage

financing - start-ups need to raise capital; “4F” sources of entrepreneurial financing: founders, family, and friends, and fools

Microfinance

Lending institutions provide tiny loans ($50–$300) to entrepreneurs in developing countries that would lift them out of poverty

INTERNATIONALIZINGTHE ENTREPRENEURIAL FIRM

There is a myth based on historical stereotypes that only large MNEs do business abroad and that SMEs mostly operate domestically Transaction costs may seem so high that

many firms may choose not to pursue international opportunities

Some born global start-ups attempt to do business abroad from inception

Many venture investors look for a global view in candidate organizations

Strategies forEntering Foreign Markets

direct exports - sale of products made by entrepreneurial firms in their home country to customers in other countries

sporadic (or passive) exporting - sale of products prompted by unsolicited inquiries

licensing - agreement to give another organization the rights to use proprietary technology (such as a patent) or trademark (such as a corporate logo) for a royalty fee

franchising - as licensing, except typically used in service industries

foreign direct investment - strategic alliances, joint ventures, green-field wholly owned subsidiaries, and/or foreign acquisitions

International Strategies for Stayingin Domestic Markets

indirect exports - SMEs reach overseas customers by exporting through domestic-based export intermediaries

export intermediaries - perform an important

“middleman” function by linking sellers and buyers overseas that otherwise would not have been connected: export trading companies (ETCs), export management companies (EMCs)

Traits versus Institutions

What motivates entrepreneurs to establish new firms, while most others are simply content to work for bosses?The “traits” school of thought argues it is personal traits that matter.Critics, however, argue that some of these traits, such as a strong achievement orientation, are not necessarily limited to entrepreneurs, but instead are characteristic of many successful individuals.

Slow Internationalizers versusBorn Global Start-Ups

Can SMEs internationalize faster than what has been suggested by traditional stage models?

orShould they rapidly internationalize?

Antifailure Bias versus Entrepreneur-Friendly Bankruptcy Law

One of the leading debates is how to treat failed entrepreneurs who file for bankruptcy.

If entrepreneurship is to be encouraged, there is a need to ease the pain associated with bankruptcy by means such as allowing entrepreneurs to walk away from debt, a legal right that bankrupt American entrepreneurs appreciate.

In contrast, bankrupt German entrepreneurs mayremain liable for unpaid debt for up to 30 years. Further, German and Japanese managers of bankrupt firms can also be liable for criminal penalties.