CHAPTER 5: GROWING AND INTERNATIONALIZING THE

ENTREPRENEURIAL FIRM

DEFINE ENTREPRENEURSHIP, ENTREPRENEURS AND ENTREPRENEURIAL

FIRMS

1. Entrepreneurship

Entrepreneurship is defined as the identification and exploitation of previously unexplored

opportunities. It focuses on the sources of opportunities, the processes of discovering,
evaluating, and exploiting these opportunities, and the individuals involved in these
processes.

2. Entrepreneurs

Entrepreneurs are individuals who discover, evaluate, and exploit new opportunities.
Traditionally, the word “entrepreneur” comes from the French tẻm meaning an intermediary,
but it now commonly refers to founders, owners or managers ò businesses, whether new or
existing firms.

3. Entrepreneurial Firms

Entrepreneurial firms are typically small and medium-sized enterprises (SMEs) that exhibit
entrepreneurial behavior. They are characterized by their innovative, proactive, and
risk-taking nature. While large firms can also engage in entrepreneurial activities (known as
corporate entrepreneurship), SMEs are generally more associated with entrepreneurship.

FIVE ENTREPRENEURIAL STRATEGIES:

1. Growth Strategy:
- Attraction to Growth: Entrepreneurs are often driven by the excitement of growing a
new company, such as Tory Burch LIC. Growth can be seen as a way to better utilize
underused resources and capabilities.
- Intangible Assets: Even with limited tangible resources like financial capital,
entrepreneurs can grow by leveraging intangible assets like vision and drive.
- Unicorn Status: In the tech industry, becoming a “unicorn” (a privately held company
valued at over $1 billion) is a sought-after growth milestone. Unicorns often achieve
this through disruptive business models that create new markets (blue oceans) rather
than competing in saturated ones (red oceans).
2. Innovation Strategy: Innovation is at the heart of an entrepreneurial mindset:
● Innovation offers three advantages:
 - First, it allows a potentially more sustainable basis for competitive advantage -
“monopoly profits” by introducing new products or services, especially in untapped
markets (blue oceans).
- Second, Innovation isn’t limited to technological breakthroughs; it also includes new
ways of doing business. For example, Keurig Green Mountain’s use of single-serve
coffee pods.
- Finally, owners, managers, and employees at entrepreneurial firms tend to be more
innovative and risk-taking than those at large firms. Innovators at smaller firms can
benefit directly from their contributions, unlike at larger firms where innovation
ownership often belongs to the company.
3. Network Strategy:
• Importance of Networking: Networking involves creating and leveraging
relationships that add value. There are two types of networks: personal and organizational,
which often overlap in the early stages of a business.
● Three attributes distinguish entrepreneurial networking: urgency, intensity, and impact
- Urgency: First, entrepreneurial firms have a high degree of urgency to develop and
leverage networks. They confront a liability of newness, which is defined as the
inherent disadvantage that entrepreneurial firms experience as new entrants.
Entrepreneurs must rapidly develop networks to overcome the “liability of newness,”
where their lack of a track record can hinder credibility with stakeholders.
- Intensity: Network relationships can be classified as strong ties and weak ties.Strong
ties are close, reliable relationships; weak ties are more distant connections
+ Strong ties are more durable, reliable, and trustworthy relationships
+ Weak ties are less durable, reliable, and trust-worthy.
Entrepreneurs often rely on strong ties—typically 5 to 20 individuals-for advice, assistance,
and support. Over time, the preference for strong ties may change, and the benefits of weak
ties may emerge.
- The contributions of entrepreneurs' personal networks tend to have a stronger impact
on firm performance.”" With strong, well-connected networks as small firm size and
private owners, entrepreneurs can have better performance and legitimacy.
4. Financing and Governance Strategy:
● Start-ups require capital to grow:Capital Requirement: Start-ups need capital for
growth from strategic investors like VCs and angels. outside strategic investors like
angels, venture capitalists (VCs), banks, and government agencies typically scrutinize
business plans, demand a strong management team, and closely examine financial
statements before investing.
● Governance and Trade-offs: When entrepreneurs work with outside investors,
especially weak-tie relationships like angels and VCs, there is often a need for a
formal governance structure to protect the investment. This might include requiring a
share of ownership (usually 20%-40%), a number of seats on the board of directors,
and formal rules and policies. In extreme cases, if the business is not performing well,
investors may use their voting power to replace the founding CEO. As a result,
entrepreneurs need to make trade-offs when they require larger-scale financing, often
giving up a portion of ownership and control of their company.
 ● Blitzscaling – Rapid Growth:Blitzscaling is a concept introduced by Reid Hoffman, a
venture capitalist and co-founder of PayPal and LinkedIn. It refers to prioritizing
rapid growth over efficiency, even when facing uncertainty. Companies like Uber and
Lyft have followed this strategy by burning through billions in venture capital without
turning a profit to quickly capture market share. To pursue blitzscaling, start-ups often
need substantial outside investment, which usually requires ceding some control and
ownership.
● Global Financing Trends: The balance between relying on Informal investors (family
and friends) versus formal investors like VCs varies globally. For instance, the U.S.
and Sweden have high levels of VC investment, while China heavily relies on
informal investment from family and friends. This is partly due to the lack of formal
market-supporting institutions in China, which forces entrepreneurs to depend on
personal relationships for funding.
● Microfinance and Crowdfunding: Microfinance is an innovative solution to the lack
of financing for start-ups, offering small loans ($50-$300) to help entrepreneurs start
small businesses, with the goal of lifting them out of poverty. Originating in
Bangladesh and led by Muhammad Yunus, who won the Nobel Peace Prize in 2006,
microfinance has since gone global. It has also inspired the crowdfunding movement
in developed economies, allowing entrepreneurs to raise funds from a large number of
small contributions, bypassing traditional financial intermediaries.
5. Harvest and Exit Strategy:
Routes of Entrepreneurial Harvest and Exit:

*Entrepreneurs can exit their businesses through various routes, including selling equity
stakes to strategic investors, selling the firm, merging with another company, or conducting
an initial public offering (IPO).
- Selling an equity stake: increase the value of the firm, and therefore offer an excellent
harvest option.
- Selling the business: Can result in a discount or premium based on performance.
- Merging with another firm: An alternative when performance declines, but may result
in loss of independence. When a business is not doing well, merging with another
company is another alter-native. The drawbacks are that the firm may lose its
independence, and some entrepreneurs may have to personally exit the firm to leave
room for executives from another firm.
- Considering an initial public offering (IPO):
Advantages
+ Improved financial condition
+ Access to more capital
 + Diversification of shareholder base
+ Ability to cash out
+ Management and employee incentives
+ Enhanced corporate reputation
+ Greater opportunity for future acquisitions
Disadvantages:
+ Subject to the whims of financial market
+ Forced to focus on the short term
+ Loss of entrepreneurial control
+ New fiduciary responsibilities for shareholders
+ Loss of privacy
+ Limits on management's freedom of action
+ Demands of periodic reporting
● Planning Exit Early: To maximize the benefits of entrepreneurial efforts. If a firm is
not performing well, alternatives like mergers or selling at a discount may be
necessary. In worst-case scenarios, the business may become inactive or declare
bankruptcy. Entrepreneurs are encouraged to plan their exit early to maximize the
benefits of their efforts:
- Becoming inactive
- Declaring bankruptcy

1. INTRODUCTION TO THE COMPREHENSIVE MODEL OF

ENTREPRENEURSHIP
- The Comprehensive Model of Entrepreneurship is a framework that helps to
understand the key factors affecting the growth and internationalization of
entrepreneurial firms.
It integrates three main models: Industry-based, Resource-based, and
Institution-based.
Role of the models: Each model offers a different approach to addressing the factors
influencing the success of entrepreneurial firms in the global market.
2. Industry-based model

● Concept: This model focuses on analyzing the industry in which the entrepreneurial
firm operates, to assess the competition and the firm's position within that industry.
● Key Factors: Utilizes Michael Porter’s Five Forces Model to evaluate:
○ Entry barriers: The firm might be affected by potential new competitors
entering the industry.
○ Rivalry among existing competitors: The entrepreneurial firm faces intense
competition from established companies within the industry.
○ Threat of substitute products: If there are many substitute products, it
becomes harder for the firm to maintain a competitive edge.
○ Bargaining power of suppliers and bargaining power of buyers: The firm
needs to manage its relationships with suppliers and customers to ensure
competitive advantage.
● Objective: Helps the firm identify opportunities and challenges within the
competitive environment of the industry and develop strategies to overcome barriers.

Example: In the technology industry, startups need to quickly adapt to new trends and
constantly compete with long-established players like Google or Apple.
3. Resource-based model

● Concept: This model emphasizes the critical role of the resources that an
entrepreneurial firm owns or can access, which can create long-term competitive
advantage.
● Core Resources:
○ Tangible assets: Physical infrastructure, capital, and technology that the firm
possesses.
○ Intangible assets: Brand, expertise, management skills, and networks.
● Competitive Advantage: These resources should meet the VRIO (Value, Rarity,
Imitability, and Organization) criteria:
○ Value: Do the resources provide value to customers?
○ Rarity: Are the resources rare or difficult for others to obtain?
○ Imitability: Can competitors easily copy or acquire these resources?
○ Organization: Is the firm organized to exploit these resources effectively?

Example: A startup with proprietary blockchain technology can leverage its unique
technology to create a competitive edge that rivals find difficult to replicate.

4. Institution-based model

● Concept: This model focuses on the impact of the institutional environment,

including legal regulations, policies, and cultural norms, on a firm’s operations.
● Key Factors:
○ Formal institutions: Laws, regulations, and economic policies that the firm
must comply with.
○ Informal institutions: Cultural norms, social values, and traditions in the
markets where the firm operates.
● Objective: Entrepreneurial firms need to understand and comply with both legal
frameworks and cultural expectations in the markets they enter, and leverage
relationships with governments and organizations to facilitate market expansion.

Example: A European startup expanding to China must navigate import regulations,

intellectual property laws, and local business customs to succeed.

5. Conclusion and Interaction Between the Three Models

● Interaction between the three models: To grow and internationalize successfully, an

entrepreneurial firm needs to combine all three models in its strategy:
○ Industry-based: Understand the competitive environment within the industry.
○ Resource-based: Leverage core resources to create a sustainable competitive
advantage.
 ○ Institution-based: Adapt and comply with the institutional environment in
various markets.
● Conclusion: These three models complement each other and provide a
comprehensive approach for entrepreneurial firms to succeed in the global market.

4. DIFFERENTIATE INTERNATIONAL STRATEGIES THAT ENTER FOREIGN

MARKETS AND THOSE THAT STAY IN DOMESTIC MARKETS

Strategies International Strategies for International Strategies for

Entering Foreign Markets Staying in Domestic Markets

1. Exports Direct Exports: Firms sell Indirect Exports: SMEs export

products made in their home indirectly through domestic-based
country to foreign customers export intermediaries who connect
directly. them with overseas buyers.

Advantages - Access foreign customers - SMEs can reach foreign markets

directly. without the resources needed for
- Sales abroad may offset direct exports.
domestic downturns. - Export intermediaries handle
logistics and connections.

Disadvantages - Requires resources to develop - Profit margins may be lower due

and maintain foreign markets. to middlemen fees.
- SMEs may lack the scale to - Limited control over the
fully exploit international internationalization process.
opportunities.

2. Licensing/ Firm A gives Firm B rights to SMEs become licensees or

Franchising use its technology or trademark franchisees of foreign brands to
for a royalty fee paid to A by B. operate under their name
Licensing is typically used in domestically.
manufacturing industries, while
Franchising is typically used in
service industries.

Advantages - Low capital risk for SME - SMEs gain knowledge and
licensors/franchisors. technology from foreign brands.
- Potential to scale globally with - Potential to learn world-class
minimal direct investment. practices and possibly exit the
- Local firms put up their own franchise in the future.
capital.

Disadvantages - Loss of control over product - SMEs pay fees to the foreign
quality and brand use. brand.
- Costly and complex to resolve - Limited autonomy as operations
disputes in foreign markets. follow the foreign
licensor/franchisor's guidelines.
3. Foreign Direct Firms invest directly in foreign SMEs become suppliers for
Investment countries with greenfield wholly foreign firms operating in the
(FDI) owned subsidiaries, strategic domestic market, gaining
alliances with foreign partners, international exposure indirectly
or acquisitions of foreign firms. (e.g., local bakery supplying
Subway in Europe).

- Greater control over proprietary - SMEs gain international reach

technology and operations without leaving their home
abroad. country.
- More commitment to serving - Opportunity to "piggyback" on
foreign markets. the success of larger foreign firms.

- High cost and complexity. - Dependent on the success and

- Requires significant capital and growth of the foreign firm.
managerial resources. - Limited control over future
international opportunities.

4. Alliance Not applicable SMEs can partner with foreign

partner direct investors entering their
domestic market, gaining access to
international expertise (e.g.,
collaborating with multinational
firms)

Advantages - SMEs can leverage international

partnerships to improve domestic
competitiveness.
- Reduced risk compared to full
market entry.

Disadvantages - Risk of being overshadowed or

dominated by larger multinational
corporations.

5. Harvest and Not applicable Entrepreneurs may sell their entire

Exit firm or an equity stake to foreign
entrants to capitalize on
international interest (e.g., Seattle
Coffee sold to Starbucks for
$84M).

Advantages - Ensures the continuation of the

business under new ownership.
- May preserve the firm's legacy
through international expansion
under foreign ownership.

Disadvantages - Exit may result in foreign control

over the business.
- Potential cultural or operational
 shifts in the business
post-acquisition.

Debate 1: Traits versus Institutions

Main Question: What motivates entrepreneurs to establish new firms, while most
others are simply content to work for bosses?
1. Traits Perspective:
● Entrepreneurs possess characteristics like a strong desire for achievement, willingness
to take risks, and the ability to tolerate ambiguity.
● Example: David Neeleman, a serial entrepreneur who founded multiple airlines in
different countries.
2. Institutional Perspective:
● The environment (formal and informal rules) influences entrepreneurial success.
● Example: Ethnic Chinese in Southeast Asia control a significant amount of wealth
despite being a minority, thanks to favorable institutional conditions.
3. Conclusion: Entrepreneurship results from a combination of personal traits and
institutional environments (nature and nurture).

Case: Immigrant Entrepreneurs

Immigrants tend to start businesses more often than natives, even though they make up a
small percentage of the labor force. This is due to two main factors:

1. Favorable entrepreneurial environments in the new countries => encourage them

to start businesses. For example, in Silicon Valley, immigrants make up a significant
portion of the workforce in high-tech industries. Immigrants from countries like India,
China, and other Asian nations also contribute greatly to the workforce and
entrepreneurial ecosystem there.
2. Necessity drives them to become entrepreneurs, as they often face difficulties finding
suitable jobs in mainstream industries in their new country. This leads many
immigrants to start businesses in lower-skilled sectors such as restaurants, cleaning
services, or nail salons.

There are two main types of entrepreneurship: opportunity-driven and necessity-driven.

Immigrants often belong to the necessity of entrepreneurship, meaning they start businesses
because they must find a way to make a living, rather than relying on traditional job options.
Although immigrant entrepreneurship significantly contributes to job creation and
strengthens the economy, businesses started by immigrants tend to have a higher failure rate
compared to those started by natives.

The immigration business case relates to debate 1

Immigrant Entrepreneurs case

This case discusses why immigrants tend to start businesses more frequently than natives. It
highlights two main factors:

1. Traits: Due to self-selection, immigrants tend to be more risk-tolerant, hardworking,

and motivated to succeed compared to those born in the countries which they have
moved to. Immigrants often face hardships and must find ways to earn a living,
leading them to become entrepreneurs out of necessity or opportunity.
2. Institutions: The unfriendly environment in immigrants/ new countries pushes them
towards entrepreneurship. Factors like language barriers, cultural differences, and
difficulty finding jobs in mainstream sectors force immigrants to become
entrepreneurs in order to survive.

Thus, the combination of personal traits and institutional factors plays a key role in the
success of immigrant entrepreneurs.

Debate 2: Slow Internationalizers versus Born Global Start-ups

1. Main Question:
○ The debate revolves around two questions:
■ (1) Can SMEs internationalize faster than what has been suggested by
traditional stage models that portray SME internationalization as a
slow, stage-by-stage process?
■ (2) Should SMEs internationalize rapidly?

2. Question 1 – Can SMEs internationalize faster?

● Traditionally: According to traditional stage models, SMEs typically internationalize

slowly, progressing step by step as they gradually expand into foreign markets.
● Modern approach: Nowadays, some SMEs can internationalize much faster. For
example, Logitech, a leading company in computer peripherals, founded by
entrepreneurs from Switzerland and the US, quickly expanded internationally with
R&D activities in several countries and its first commercial contract with a Japanese
company.
● Reason for faster internationalization: Technology, especially the Internet, has
reduced the cost of doing business internationally for SMEs

=> allowing them to compete with larger companies and internationalize at a faster
pace.

3. Question 2 – Should SMEs internationalize rapidly?

● Supportive view:
○ Today, every industry is becoming "global," so start-ups should rapidly seize
international opportunities.
○ SMEs have the advantage of being small and flexible, unlike larger
companies, which may face inertia. Therefore, SMEs like Logitech, without a
 strong domestic focus, can outperform competitors who delay
internationalization.
○ Rapid internationalization allows SMEs to capture opportunities early and
avoid the disadvantages of being domestically focused.
● Opposing view:
○ Stage models suggest that internationalization should occur gradually. SMEs
should start in culturally and institutionally close markets, gain experience,
and then expand into more distant markets.
○ For instance, IKEA, a Swedish company, waited 20 years before expanding to
a neighboring market (Norway) and only recently accelerated its
internationalization.
○ Rapid internationalization can be risky for SMEs due to their lack of
experience in foreign markets. Companies that are not well-prepared might
struggle with cultural and institutional differences abroad.

4. Conclusion:

● While the "born global" concept is appealing, it can be risky for companies that lack
international experience.
● SMEs should carefully weigh the benefits of rapid internationalization against the
more traditional staged approach, depending on their capacity and industry
characteristics.

Debate 3:High-Growth Entrepreneurship versus Ethically Questionable Behavior

+) In the brutal competition where most start-ups either fail or struggle, becoming a
unicorn is an attractive entrepreneurial dream. To realize such a dream, high-growth
entrepreneurship captured by the recent buzzword “Blitzscaling”.

● Blitzscaling’s definition: Prioritizing speed over efficiency in the development of a

start-up even in the face of uncertainty.
● At the same time, the entrepreneurial firm “will spend capital inefficiently” in an
effort to “become the first to scale – trở thành công ty đầu tiên đạt quy mô lớn”.

+) If a start-up determines that it needs to move very fast -> Take more risk -> Rational
process of scaling up -> Because the first to reach customers may own them

+) A major problem with this business model is its inability to show profits.

● Uber burned $4 billion a year.

● WeWork lost more than $200,000 every hour in 2019, and then collapsed.

+) Another problem with high-growth entrepreneurship is: Ethically Questionable

Behaviour.
 In an effort to attract customers and win Venture Capital support, some entrepreneurs
have engaged in ethically questionable behavior.

For example, Start-up Hampton Creek, which produced eggless mayonnaise, ordered
its own employees and contractors to fake as customers and buy such products back from
grocery stores in order to boost sales numbers.

+) Critics say that the VC culture, especially the extreme form promoted by blitzscaling,
encourages unethical behavior. This behavior is exactly what can be expected when
inexperienced (and often young) entrepreneurs are handed giant piles of VC money and
told to flout traditions, ignore rules, and employ wishful thinking. Overall, high-growth
entrepreneurship must be aggressive. But how aggressive it can be remains to be debated.

6.Case Study: Airbnb

Airbnb – one of the most valuable Start-up in the world

Airbnb is a web-based platform founded in 2008 that connects people who need a place to
stay with people who need to rent out extra space. Airbnb has disrupted the traditional hotel
industry and has initiated business transformation by offering a more affordable and flexible
alternative. The company has been highly successful and is now one of the most valuable
startups in the world.

-> Entrepreneurship: Airbnb began as a classic entrepreneurial venture, with its founders
identifying a unique opportunity—short-term rentals of spare rooms—when traditional
options like hotels were too expensive or unavailable. This aligns perfectly with the concept
of entrepreneurship, which involves recognizing and seizing opportunities in the market.

Which of 5 Entrepreneurial Strategies did Airbnb use?

*Growth strategy:

Airbnb’s growth comes from a unique business model that disrupts traditional companies and
helps them create a new, less competitive market -> Blue ocean.

An excellent example of filling a need that was not being met by traditional companies.

The Airbnb business case study is an excellent example of how a company can be successful
by creating a new market. By filling a need that was not being met by traditional companies.

*Innovation strategy:
Airbnb's model was innovative because it leveraged technology to create a new market for
shared accommodations. The idea of an online platform is to connect people with spare space
to travelers.

*Harvest and Exit strategy:

The company went public in December 2020 with an initial public offering (IPO) on the
NASDAQ stock exchange. As we have mentioned “Taking their firms through an IPO is one
of the routes that entrepreneurial harvest and exit can take.”

By going public, Airbnb allowed early investors, employees, and founders to "harvest" the
value they had built up in the company. The IPO provided liquidity, enabling stakeholders to
sell their shares on the public market.

Debates Around Entrepreneurship about Airbnb

- Disruption: Airbnb's success has disrupted the traditional hospitality industry, leading to
debates about the fairness of competition, as traditional hotels face different regulations
compared to Airbnb hosts.

- Airbnb has also been criticized for its lack of regulation, and some have raised concerns
about the platform's safety.