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Chapter 9: Growing and Internationalizing the Entrepreneurial Firm
Chapter Outline
LO1: Define entrepreneurship, entrepreneurs, and entrepreneurial firms.
1. Key Concepts
Although entrepreneurship is often associated with smaller and younger firms, no rule bans
larger and older firms from being entrepreneurial. Recent research suggests that firm size
and age are not defining characteristics of entrepreneurship. French in origin, the word
“entrepreneurs” traditionally means intermediaries connecting others.
2. Key Terms
LO2: Identify the institutions and resources that affect entrepreneurship.
1. Key Concepts
Both the institution-based view and the resource-based view shed light on entrepreneurship.
This section discusses how institutions constrain or facilitate entrepreneurs and how firm-
specific (and in many cases entrepreneur-specific) resources and capabilities determine their
success and failure. Whether entrepreneurship is facilitated or retarded significantly depends
on formal institutions governing how entrepreneurs start up new firms. Using the relatively
straightforward (or even “mundane”) task of connecting electricity to a newly built
commercial building, the World Bank finds that in general, governments in developed
economies impose fewer procedures and a lower total cost. On the other hand, entrepreneurs
have to put up with harsher hurdles in poor countries. In addition to formal institutions,
informal institutions such as cultural values and norms also affect entrepreneurship. The
resource-based view, sheds considerable light on entrepreneurship with a focus on its value
(V), rarity (R), imitability (I), and organizational (O) aspects.
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Chapter 9: Growing and Internationalizing the Entrepreneurial Firm
2. Discussion Exercise
Generally, developing economies curb the advancement of entrepreneurial firms, as several
regulatory procedures and costs are required. Also, these developing economies exemplify a
fast-growing consumer base. What argument would you put forth to the leaders of these
evolving economies for removing obstacles to entrepreneurs? What specific modifications
would you suggest to make the country more encouraging toward entrepreneurs? How
would you explain to them that the development of entrepreneurship benefits not just the
entrepreneur but the society and the economy as a whole? If there were institutional changes
in these countries, how could you benefit as a U.S.-based entrepreneur?
LO3: Highlight three characteristics of a growing entrepreneurial firm.
1. Key Concepts
2. Key Term
Microfinance: Lending small sums ($50-$300) used to start small businesses with the
intention of ultimately lifting the entrepreneurs out of poverty
3. Discussion Exercise
LO4: Describe how international strategies for entering foreign markets are different from
those for staying in domestic markets.
1. Key Concepts
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Chapter 9: Growing and Internationalizing the Entrepreneurial Firm
Entrepreneurial opportunities exist to lower transaction costs and bring distant groups of
people, firms, and countries together. While entrepreneurial firms can internationalize by
entering foreign markets, they can also add an international dimension without actually
going abroad. SMEs have three broad modes for entering foreign markets: (1) direct exports,
(2) licensing/franchising, and (3) foreign direct investment (FDI). There are a number of
strategies for entrepreneurial SMEs to internationalize without leaving their home country.
The five main strategies are as follows: (1) export indirectly, (2) become suppliers for
foreign firms, (3) become licensees or franchisees of foreign brands, (4) become alliance
partners of foreign direct investors, and (5) harvest and exit through sell-offs.
2. Key Terms
3. Discussion Exercise
Imagine you were a visionary who developed the technology to make the electric car
reasonably priced and made it perform at par or more efficiently than many cars that run on
gasoline. With very good reviews from U.S. auto journalists and remarkable accounts on the
Internet, the demand for your technology is growing. Which strategy would you select to
grow in the international market? While you make this decision, remember that there is
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Chapter 9: Growing and Internationalizing the Entrepreneurial Firm
LO5: Articulate what you should do to strengthen your entrepreneurial ability.
1. Key Concepts
Institutions that help entrepreneurship development—both formal and informal—are
important. When internationalizing, entrepreneurs are advised to be bold. Thanks to
globalization, the costs of doing business abroad have fallen recently. But being bold does
not mean being reckless.
Debate:
Europe’s Entrepreneurship Deficit: Traits versus Institutions
1. Key Concepts
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Chapter 9: Growing and Internationalizing the Entrepreneurial Firm
Closing Case Discussion Guide
Boom in Busts: Good or Bad?
Corporate bankruptcies have climbed to new heights since the Great Recession of 2008 -2009.
Firms ranging from mighty ones such as Lehman Brothers and General Motors to tiny
entrepreneurial outfits have dropped out left and right around the world. Efforts trying to rescue
failing firms from bankruptcies stem from an “anti-failure” bias widely shared among
entrepreneurs, scholars, journalists, and government officials. Recently, many governments have
realized that entrepreneur-friendly bankruptcy laws can not only lower exit barriers, but also
lower entry barriers for entrepreneurs.
From an institution-based standpoint, 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 U.S. entrepreneurs appreciate. At a societal level, if many
would-be entrepreneurs, in fear of failure, abandon their ideas, there will not be a thriving
entrepreneurial sector.
One side of the debate asserts that at a societal level, entrepreneurial failures may be beneficial,
since it is through a large number of entrepreneurial experimentations—although many will fail
—that winning solutions will emerge and that economies will develop. Thus, the boom in busts
is not necessarily bad. Critics argue that people with lots of money such as Trump can easily
avoid the consequences of big losses by cashing out at the first sign of trouble, because
bankruptcy laws protect them.
Video Case
Watch “The Essence of the Entrepreneur” by Lord Kalms of Dixons Group.
1. To most people, it seems that a successful entrepreneur would be satisfied. However, Lord
Kalms claims that a successful entrepreneur needs to be continually dissatisfied. Explain
how his claim makes sense.
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Chapter 9: Growing and Internationalizing the Entrepreneurial Firm
2. In global markets, why is it especially important to follow Lord Kalms’s advice to always
seek new things?
3. Lord Kalms mentions three characteristics of a growing firm. Which is most important?
Which is most under an entrepreneur’s control? Why?
4. Do you think it is possible to develop the entrepreneurial traits described by Lord Kalms?
Why, or why not? If you were to try to do so, how would you go about it?
Additional Discussion Material
(From Prep Cards)
Critical Discussion Questions
1. Given that most entrepreneurial start-ups fail, why do entrepreneurs found so many new
firms? Why are (most) governments interested in promoting more start-ups?
2. Some suggest that foreign markets are graveyards where entrepreneurial firms overextend
themselves. Others argue that foreign markets represent the future for SMEs. If you were
the owner of a small, reasonably profitable domestic firm, would you consider expanding
overseas? Why?
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Chapter 9: Growing and Internationalizing the Entrepreneurial Firm
3. On Ethics: Your former high school buddy invites you to join an entrepreneurial start-up
that specializes in cracking the codes of protection software, which protect CDs, VCDs,
and DVDs from being copied. He has developed the pioneering technology and lined up
financing. The worldwide demand for this technology appears to be enormous. He offers
you the job of CEO and 10% of the equity of the firm. How would you respond to his
propositions?
Review Questions
1. How do you define entrepreneurship?
2. From an institution-based view, to what extent do government regulations affect the start
up of new firms in developed countries as opposed to developing countries?
3. From a resource-based view, how important are entrepreneurial resources and capabilities
in determining the performance of SMEs?
4. Summarize the three modes that SMEs can use to enter foreign markets.
5. Name the five ways that SMEs can internationalize without leaving their home countries.
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Chapter 9: Growing and Internationalizing the Entrepreneurial Firm
6. We know that it is possible for an SME to rapidly internationalize. Do you think this is
wise?
7. How prevalent and important are small entrepreneurial firms in economies around the
globe? Use statistics to support your answer.
8. Which cultural norms tend to encourage entrepreneurship and which discourage it?
9. Name and describe three major characteristics associated with an entrepreneurial firm’s
growth.
10. What qualities typically compensate for an entrepreneurial firm’s lack of tangible
resources?
11. What motivates strategic investors of all kinds to invest in start-ups when they are
statistically quite risky?
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Chapter 9: Growing and Internationalizing the Entrepreneurial Firm
12. Explain how entrepreneurial SMEs can internationalize without leaving their home
countries.
13. If an entrepreneur’s start-up fails, should the entrepreneur be held accountable for all
residual debts? Explain your answer.
14. Describe two or three examples of institutions that could be made friendlier and more
supportive of entrepreneurs.
15. Devise your own example of an entrepreneurial action that demonstrates your
understanding of the difference between being bold and being reckless.