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Chapter 9

Chapter Outlines

A General Framework: Strategy, Entrepreneurship, and International Business

As explained in this chapter, strategic management is a highly generalizable discipline. With this in mind, this chapter observes two aspects of business not yet highlighted in this book: Entrepreneurship and Globalization. Strategic management is just as important and effective when properly applied in these two areas as in any other in the business world.

A Broad Value Proposition

All business firms, despite their different environments and markets, have many more similarities than differences. Any consultant or student who well understands the basic dynamics that all firms have in common can know a great amount about any firm without having had to study it specifically.

A Highly Generalizable Discipline

An Exploratory Examination of the Knowledge Transfer of Strategic Management Concepts from the Academic Environment to Practice
Paul G. Simmonds, David D. Dawley, William J. Ritchie, and William P. Anthony explore how strategic management is taught, learned, and applied in the academic world

Strategic management is a highly generalizable discipline in that its basic framework can be applied to all kinds of businesses in all kinds of environments. The key is translating the framework to fit the specific context. Concepts like competitive advantage, bargaining power, buyer elasticity, imitation, and value creation are at work in all competitive environments, and are key elements in the strategy of any business. These concepts should not be simply viewed as academic ideas then, but as points of practical application in the strategic process.

Entrepreneurship

Seven Questions about Entrepreneurship
In this video, Andrew Zacharakis gives a general explanation of entrepreneurship and its purposes

Rebuilding Schumpeter's View of Entrepreneurship
Richard Swedberg breaks down Schumpeter's theories of entrepreneurship and applies them to the modern economic world

The Liability and Asset of Newness and Stakeholder's Assessment
Young Rok Choi examines the increased mortality risks of new ventures as opposed to established ones

Entrepreneurship is the initiation, organization and operation of a business venture for the purpose of earning a profit. Entrepreneurship draws from many academic disciplines such as management, economics, marketing, and finance. Entrepreneurs are a critical component of the creative/destructive process in the market pointed out by Joseph Schumpeter. Entrepreneurs recognize untapped potential in an area of the market, create a new product or service which creates new profits, but destroy the competitive advantage of previously successful firms. Entrepreneurship is a critical function, which can be subsumed within the larger framework of strategic management.

Key steps in the entrepreneurial process are:

  1. opportunity recognition
  2. feasibility and environmental analysis
  3. business plan development
  4. gathering key resources
  5. promoting the plan to secure investment
  6. launching the venture.

These steps each represent vital strategic processes and mechanisms. In this light, entrepreneurs are simply strategists operating under special circumstances unique to their environment.

The unique challenges associated with entrepreneurship generally fall into the realm of the liabilities of newness. There is a heightened level of uncertainty in any entrepreneurial venture since it involves new products and new environments. Some methods such as franchising a location of a proven company or licensing a proven idea help entrepreneurs to reduce some level of that uncertainty.

International Business

Global Strategy… In a World of Nations?
George S. Yip weighs the pros and cons of globalization

Vodafone's Public Policy Page
News stories, downloadable case studies and various other media all related to the ongoing growth and operation of Vodafone.

Our Management Approach
Johnson and Johnson's decentralized management approach as explained on Johnson and Johnson's website

Globalization is an ongoing process that has begun moving very rapidly in the past two centuries. As transnational trade becomes more and more common, it becomes increasingly critical for strategists to include international business as a focal point. However, strategic management is a highly generalizable discipline, so even at the international level the same theories and mechanisms are used.

Basic international strategies can be generally divided into two categories: global and multi-domestic. The global strategy operates by leveraging things like efficiency, scale economy and portability to offer products and services that appeal to elastic customers. A company like Vodafone, present in over 60 countries, and with a huge network, can afford to offer its services at a lower cost than its competition. Thus, it draws many elastic customers. Johnson and Johnson is a massive corporation with just as much global reach as Vodafone, but it operates very differently under a multi-domestic strategy. Johnson and Johnson produce hundreds of different products in many different areas, and operates through over 250 semi-autonomous subsidiaries. It focuses on value based products through these subsidiaries to reach inelastic customers. This strategy takes the principles of differentiation to an international level. While global and multi-domestic strategies are very different, many international strategies are actually a combination using elements of both.

Just as the elements of the strategic management process are equally prevalent on the international level as on the domestic one, so too does implementation play an important role in the success of international firms. Firms must fit their infrastructure to that of their strategy, and must see it through to its fruition, or else it is ultimately worthless.

Summary and Conclusions

Entrepreneurship and International business are unique settings within the business world that offer their own unique challenges. Despite their differences, these two settings are still addressed well by the general framework of strategic management, and the principles used to operate in both settings are built on the same principles as for any business firm. The ultimate goal of every business remains creating value for the customers, and in turn, for the firm.

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Key Terms

Angels

Typically wealthy individuals who invest their own funds to finance entrepreneurial ventures in the earliest stages of development.

Eurozone

Consists of the 16 European countries that are both members of the European Union (EU) and have adopted the euro as their official currency.

Foreign direct investment (FDI)

The ownership of business assets by a foreign party, either an individual or firm.

Franchising

A business model where a franchisor, who owns a concept, brand, and set of practices, sells the rights to these assets to a franchisee, who pays in return an upfront fee and a royalty. This model facilitates rapid growth but involves shared ownership and profits, and so the potential for conflicts of interest between the franchisor and franchisee.

Generalizable

A term referring to the ability of a framework or principle to apply across a range of settings. Strategic management is a generalizable discipline because it provides a framework that can be useful across a range of firms, organizations, and settings.

Global strategy

A type of international strategy that leverages standardization and economies of scale in building competitive advantage across multiple countries. With a focus on consistency and per unit costs, it capitalizes on some of the same economic forces as a low-cost strategy.

Globalization

The name given to the homogenization of global markets, economies, and cultures. Notwithstanding some noteworthy ebbs and flows, the overall process and direction of globalization are undeniable over the course of time.

Intrapreneurship

Refers to the encouragement and cultivation of entrepreneurial thinking and behaviors inside of existing organizations.

Liabilities of newness

Refers to the various difficulties that arise from doing something new. Some examples are the lack of precedent, the lack of familiarity in a role, and the lack of legitimacy in the eyes of a supplier or customer.

Licensing

A means of commercializing a product, technology, or piece of intellectual property. In a licensing arrangement, the license holder grants another party, for a fee, the right to use, sell, or manufacture the licensed property.

Multi-domestic strategy

A type of international strategy that leverages customization and local responsiveness in building competitive advantage across multiple countries. With its focus on local preferences and branding, it capitalizes on some of the same economic forces as a differentiation strategy.

Transnationalism

Tthe name given to a social philosophy where national borders are largely inconsequential and so offer little resistance to the movement of people, goods, materials, and information. Large multinational firms may have no distinct national identity and so are said to be transnational.

Venture capitalists

Venture capitalists pool funds from individual investors to invest in entrepreneurial ventures. While specializing in different types of firms at different stages of growth, venture capitalists are all accustomed to high risks, with the prospect of relatively short-term and large returns.

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