Chapter 9

Growing and Internationalizing

the Entrepreneurial Firm
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LEARNING OBJECTIVES
After studying this chapter, you should be able to:

 9-1 define entrepreneurship, entrepreneurs, and entrepreneurial

firms.

 9-2 identify the institutions and resources that affect

entrepreneurship.

 9-3 discuss three characteristics of a growing entrepreneurial firm.

 9-4 understand how international strategies for entering foreign

markets are different from those for staying in domestic markets.

 9-5 participate in two debates concerning entrepreneurships.

 9-6 draw implications for action.

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SMEs
small and medium-sized enterprise (SME) –
a firm with fewer than 500 employees in the
United States, or with fewer than 250 employees
in the European Union

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ENTREPRENEURSHIP AND
ENTREPRENEURIAL FIRMS
entrepreneurship – the identification and exploitation of
previously unexplored opportunities
entrepreneur – a founder and/or owner of a new
business or a manager of existing firms, who identifies and
exploits new opportunities
international entrepreneurship – a combination of
innovative, proactive, and risk-seeking behavior that
crosses national borders and is intended to create wealth
in organizations

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Figure 9.1
Institutions, Resources, and Entrepreneurship

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
INSTITUTIONS AND
ENTREPRENEURSHIP
 The development of entrepreneurship around
the globe is uneven
◦ Depends on how easy it is to set up new firms in
terms of registration, licensing, and incorporation

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Figure 9.2
Average Ranking on the Ease of Doing Business

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RESOURCES AND
ENTREPRENEURSHIP
 Entrepreneurial resources must:
◦ Create value
◦ Be rare
◦ Be inimitable
◦ Be organizationally embedded

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CHARACTERISTICS OF A GROWING
ENTREPRENEURIAL FIRM
 Growth
 Innovation
 Financing
 Internationalization

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GROWTH
The growth of an entrepreneurial firm can be
viewed as an attempt to more fully use currently
underutilized resources and capabilities

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INNOVATION
Owners, managers, and employees at
entrepreneurial firms tend to be more innovative
and risk-taking than those at large firms

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FINANCING
venture capitalist (VC) – an investor who
provides risk capital for early stage ventures

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Figure 9.3
Venture Capital Investment as a Percentage of GDP

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Figure 9.4
Informal Investment as a Percentage of GDP

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FINANCING (cont’d)
microfinance – a practice to provide micro
loans (US$50–$300) used to start small businesses
with the intention of ultimately lifting the
entrepreneurs out of poverty

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INTERNATIONALIZING THE
ENTREPRENEURIAL FIRM
born global firm (international new
venture) – a start-up company that attempts to
do business abroad from inception

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TRANSACTION COSTS AND
ENTREPRENEURIAL OPPORTUNITIES
Compared with domestic transaction costs (the
costs of doing business), international transaction
costs are qualitatively higher

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Table 9.1
Internationalization Strategies for Entrepreneurial Firms

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INTERNATIONAL STRATEGIES FOR
ENTERING FOREIGN MARKETS
 Direct exports
 Licensing/Franchising
 Foreign direct investment (FDI)

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DIRECT EXPORT
direct export – the sale of products made by
firms in their home country to customers in other
countries
letter of credit (L/C) – a financial contract that
states that the importer’s bank will pay a specific
sum of money to the exporter upon delivery of
the merchandise

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Figure 9.5
An Export/Import Transaction

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LICENSING/FRANCHISING
franchising – Firm A’s agreement to give Firm B
the rights to use A’s proprietary assets for a
royalty fee paid to A by B; this is typically done in
service industries.

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FDI
 Advantages:
◦ More commitment to serving foreign markets
◦ Better able to control how its proprietary technology
is used

 Drawbacks:
◦ Requires a nontrivial sum of capital
◦ Requires a significant management commitment

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INTERNATIONALIZATION STRATEGIES
FOR STAYING IN DOMESTIC MARKETS
 Export indirectly
 Become suppliers for foreign firms
 Become licensees or franchisees of foreign
brands
 Become alliance partners of foreign direct
investors
 Harvest and exit through sell-offs

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INTERNATIONALIZATION STRATEGIES FOR
STAYING IN DOMESTIC MARKETS (cont’d)
indirect exports – a way to reach overseas
customers by exporting through domestic-based
export intermediaries
export intermediary – a firm that performs an
important middleman function by linking domestic
sellers and foreign buyers that otherwise would
not have been connected

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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 that
entrepreneurs possess certain personal traits, such as a
strong desire for achievement and more willing to take
risks, that make them good leaders.
 Critics argue that some of these traits are characteristic
of many successful individuals, not just entrepreneurs.

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TRAITS VERSUS INSTITUTIONS (cont’d)

serial entrepreneur – an entrepreneur who

starts, grows, and sells several businesses
throughout his/her career

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SLOW INTERNATIONALIZERS VERSUS
“BORN GLOBAL” START-UPS
stage model – a model of internationalization
that portrays the slow step-by-step (stage-by-
stage) process an SME must go through to
internationalize its business

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SLOW INTERNATIONALIZERS VERSUS
“BORN GLOBAL” START-UPS (cont’d)
 Advocates of rapid internalization argue that
entrepreneurial firms need to go after
opportunities rapidly
 Stage models suggest that firms need to enter
culturally and institutionally close markets first,
spend enough time there to accumulate
overseas experience, and then gradually move
from more primitive modes, such as exports, to
more sophisticated strategies, such as FDI in
distant markets.
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Table 9.2
Implications for Action

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.