Lecture 3

New Entry
New entry refers to:

 Offering a new product to an established or new market.
 Offering an established product to a new market.
 Creating a new organization.
 Entrepreneurial strategy – The set of decisions, actions, and
reactions that first generate, and then exploit over time, a
new entry.
Figure- Entrepreneurial Strategy:
The Generation and Exploitation of New Entry
Opportunities
Generation of New Entry Opportunity
Resources as a Source of Competitive Advantage
 Resources are the basic building blocks to a
firm’s functioning and performance; the inputs
into the production process.
(a)They can be combined in different ways.
(b)A bundle of resources provides a firm its capacity to
achieve superior performance.
 Resources must be:

(a)Valuable.
(b)Rare.
(c)Inimitable.
Creating a Resource Bundle That Is Valuable, Rare, and
Inimitable.
 Entrepreneurs need to draw from their unique
experiences and knowledge.
 Market knowledge - Information, technology, know-how,
and skills that provide insight into a market and its
customers.
 Technological knowledge - Information, technology,
know-how, and skills that provide insight into ways to
create new knowledge.
Assessing the Attractiveness of a New Entry Opportunity
 Depends on the level of information and the willingness to make a decision
without perfect information.
Information on a New Entry
 Prior knowledge and information search
(a). More knowledge ensures a more efficient search
process.
(b). Search costs include time and money.
 The viability of a new entry can be described in terms of a window of
opportunity.
Comfort with Making a Decision under Uncertainty
 The trade-off between more information and the likelihood that the
window of opportunity will close provides a dilemma for entrepreneurs.
(a)Error of commission - Negative outcome from acting on the perceived
opportunity.
(b)Error of omission - Negative outcome from not acting on the new entry
opportunity.
Entry Strategy for New Entry Exploitation
Being a first mover can result in a number of advantages
that can enhance performance.
These include:
 Cost advantages.
 Less competitive rivalry.
 The opportunity to secure important supplier and
distributor channels.
 A better position to satisfy customers.
 The opportunity to gain expertise through participation.
Environmental Instability and First-Mover (Dis)Advantages
 The entrepreneur must first determine the key success factors of the
industry being targeted for entry; are influenced by environmental
changes.
(a). Environmental changes are highly likely in emerging industries.
 Demand uncertainty - Difficulty in estimating the potential size of
the market, how fast it will grow, and the key dimensions along
which it will grow.
 Technological uncertainty - Difficulty in assessing whether the
technology will perform and whether alternate technologies will
emerge and leapfrog over current technologies.
 Adaptation - Difficulty in adapting to new environmental conditions.
(a). Entrepreneurial attributes of persistence and determination can
inhibit the ability of the entrepreneur to detect, and implement,
change.
Customers’ Uncertainty and First-Mover (Dis)Advantages
 Uncertainty for customers - Difficulty in accurately
assessing whether the new product or service provides
value for them.
 Overcome customer uncertainty by:
(a). Informational advertising.
(b). Highlighting product benefits over substitutions.
(c). Creating a frame of reference for potential customer.
(d). Educating customers through demonstration and
documentation.
Lead Time and First-Mover (Dis)Advantages
 Lead time – The grace period in which the first mover
operates in the industry under conditions of limited
competition.
 Lead time can be extended if the first mover can erect barriers
to entry by:
(a). Building customer loyalties.
(b). Building switching costs.
(c). Protecting product uniqueness.
(d). Securing access to important sources of supply and
distribution.
Risk Reduction Strategies for
New Entry Exploitation
Risk is derived from uncertainties over market demand,
technological development, and actions of competitors.
Two strategies can be used to reduce these uncertainties:
 Market scope strategies - Focus on which customer

groups to serve and how to serve them.
 Imitation strategies - Involves copying the practices of
others.
Market Scope Strategies
 Narrow-scope strategy involves offering a small product range to a small number of
customer groups to satisfy a particular need.
(a). Focuses on producing customized products, localized business operations, and
high levels of craftsmanship.
(b). Leads to specialized expertise and knowledge.
(c). High-end of the market represents a highly profitable niche.
(d). Reduces some competition-related risks but increases the risks associated with
market uncertainties.
 Broad-scope strategy involves offering a range of products across many different

market segments.
(a). Strategy emerges through the information provided by a learning process.
(b). Opens the firm up to many different “fronts” of competition.
(c). Reduces risks associated with market uncertainties but increases exposure to
competition.
Imitation Strategy
 Why do it?
(a). It is easier to imitate the practices of a successful firm.
(b). It can help develop skills necessary to be successful in the industry.
(c). It provides organizational legitimacy.
 Types of imitation strategies

(a). Franchising - A franchisee acquires the use of a “proven formula” for new entry
from a franchisor.
(b). “Me-too” strategy - Copying products that already exist and attempting to build
an advantage through minor variations.
 An imitation strategy can potentially:

(a). Reduce the entrepreneur’s costs associated with R&D.
(b). Reduce customer uncertainty over the firm.
(c). Make the new entry look legitimate from day one.
Managing Newness
 Liabilities of newness arise from unique conditions:
(a). Costs in learning new tasks.
(b). Conflict arising from overlap or gaps in responsibilities.
(c). Unestablished informal structures of communication.
 A new firm needs to:
(a). Educate and train employees.
(b). Facilitate conflict over roles.
(c). Promote activities that foster informal relationships and a functional
corporate culture.
 Assets of Newness
(a). Lack of established routines, systems, and processes provide a learning
advantage.
(b). heightened ability to learn new knowledge in a continuously changing
environment is an important
source of competitive advantage.
END

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New Entry

New entry refers to:

 Resources must be:

 Market scope strategies - Focus on which customer

 Broad-scope strategy involves offering a range of products across many different

 Types of imitation strategies

 An imitation strategy can potentially:

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