5. New Product Development
• New Product Development
–Involves the creation and sale of new products (or services) as
a means of increasing firm revenues.
–In many fast-paced industries, new product development is a
•For example, the average product life cycle in the computer
software industry is 14 to 16 months.
•Because of this, to remain competitive, software companies
must always have new products in their pipeline.
9. International Expansion
• International Expansion
–Another common form of growth for entrepreneurial firms.
–International new ventures are businesses that, from their
inception, seek to derive significant competitive advantage by
using their resources to sell products or services in multiple
–Although there is vast potential associated with selling
overseas, it is a fairly complex form of growth.
12. Mergers and Acquisitions
• Mergers and Acquisitions
–Many entrepreneurial firms grow through mergers and
•An acquisition is the outright purchase of one firm by another.
•A merger is the pooling of interests to combine two or more
firms into one.
• Purpose of Acquisitions
–Acquiring another business can fulfill several of a company’s
needs, such as expanding its product line, gaining access to
distribution channels, achieving competitive economies of
scale, or expanding the company’s geographic reach.
–Is the granting of permission by one company to another
company to use a specific form of its intellectual property
under clearly defined conditions.
–Virtually any intellectual property a company owns that is
protected by a patent, trademark, or copyright can be
licensed to a third party.
• Licensing Agreement
–The terms of a license are spelled out by a licensing
15. Strategic Alliances
• Strategic Alliances
–A strategic alliance is a partnership between two or more firms
developed to achieve a specific goal.
–Alliances tend to be informal and do not involve the creation
of a new entity.
–According to a recent survey, over three-fourths of technology
businesses are active in strategic alliances, with the typical
participant active in seven alliances.
17. Joint Ventures
• Joint Ventures
–A joint venture is an entity created when two or more firms
pool a portion of their resources to create a separate, jointly
–A common reason to form a joint venture is to gain access to a
foreign market. In these cases, the joint venture typically
consists of the firm trying to reach a foreign market and one
or more local partners.
–Franchising is a form of business organization in which a firm
that already has a successful product or service (franchisor)
licenses its trademark and method of doing business to other
business or individual (franchisee) in exchange for a franchise
fee and an ongoing royalty payment.
–Some franchisors are established firms (like McDonald’s)
while others are first-time enterprises being launched by
21. Types of Franchise Systems
• Product and Trademark Franchise
–An arrangement under which the franchisor grants to the
franchisee the right to buy its products and use its trade
–This approach typically connects a single manufacturer with
a network of dealers or distributors.
– For example, General Motors has established a network of
dealers that sell GM cars and use the GM trademark in their
advertising and promotions.
– Other examples of product and trademark franchisors
include agricultural machinery dealers, soft drink bottlers, and
22. Types of Franchise Systems
• Business Format Franchise
– An arrangement under which the franchisor provides a
formula for doing business to the franchisee along with
training, advertising, and other forms of assistance.
– Fast-food restaurants, convenience stores, and motels are
well-known examples of business format franchises.
– Business format franchises are by far the most popular form
of franchising, particularly for entrepreneurial firms.
– Business format franchisors obtain the majority of their
revenues from their franchisees in the form of royalties and
23. Types of Franchise Agreement
• Individual Franchise Agreement
–The most common type of agreement—involves the sale of a
single franchise for a specific location.
• Area Franchise Agreement
–Allows a franchisee to own and operate a specific number of
outlets in a particular geographic area.
• Master Franchise Agreement
–Similar to an area franchise agreement, with one major
• In addition to having the right to operate a specific number of
locations in a particular area, a master franchisee has the right
to offer and sell the franchise to other people in its area.
25. When to Franchise?
• When Is Franchising Most Appropriate?
– Franchising is most appropriate when a firm has a strong or
potentially strong trademark, a well-designed business
method, and a desire to grow.
–A franchise system will ultimately fail if the franchisee’s
brand doesn’t add value for customers and its business
method is flawed or poorly developed.
• Never use these slides as a substitute of your
Entrepreneurship Development text books.
• These slides should help to keep you on track, as a guiding
assistance of reading text books that has come to you along
with these slides.
• Please use the relevant sections of the following text books in
reading the slides.
• “Entrepreneurship – Successfully Launching New Ventures” -
Bruch R. Barringer& R. Duance Ireland