Market Entry

Question 1

What are the Two Market Entry Strategies?

Answer 1

• Acquisition.
• Internal Development.

Porter, Competitive Strategy — P. 410.

Question 2

What is Internal Development?

Answer 2

Creating a new business entity in an Industry.

Porter, Competitive Strategy — P. 410.

Joint Ventures are technically an example of Internal Development because they are newly-created business entities.

Question 3

When is Internal Development a viable Strategy?

Answer 3

When (Expected Cashflow) is greater than (Start-Up Costs) + (Entry Costs) + (Mobility Costs) + (Costs from Retaliation).

Porter, Competitive Strategy — P. 410.

This exercise is inherently assumptive because entry itself will upset the Industry’s present balance, especially if it is Emerging, and thus requires the Firm to forecast several post-entry resting points to inform its analysis.

Question 4

Which Conditions suggest an Internal Entrant will meet great Retaliation?

Answer 4

• High fixed costs.
• High Industry concentration.
• High Incumbents hostility to Entrants.
• High Incumbent attacement to the Industry.
• Low differentiation.
• Low Industry growth.

Porter, Competitive Strategy — P. 411-413.

Question 5

Which Conditions suggest an Industry is ripe for Internal Development?

Answer 5

• The Industry is in disequilibrium.
• The Incumbents will not or cannot retaliate strongly against Internal Entry.
• The Firm has lower entry and mobility costs.
• The Firm has unique competitive advantages.
• The Firm can distinctly influence Industry structure.
• The Firm can derive enough strategic value to justify average returns.

Porter, Competitive Strategy — P. 414.

Question 6

When is an Industry likely in Disequilibrium?

Answer 6

• It is Emerging.
• Its information is scarce and rudimentary.
• Its Entry Barriers are low and can be raised significantly.

Porter, Competitive Strategy — P. 415.

Question 7

When are the Incumbents unlikely to provide strong Retaliation?

Answer 7

• The cost-benefit of retaliation is unfavourable.
• They are unknowingly constrained by conventional wisdom.
• They are more concerned with promoting the Industry than their own interests.

Porter, Competitive Strategy — P. 416-417.

Question 8

What are some Generic Competitive Strategies for Internal Entrants?

Answer 8

• Build differentiation.
• Reduce product costs.
• Accumulate market share.
• Discover and dominate a niche.
• Innovate to provide a superior product.

Porter, Competitive Strategy — P. 419.

Question 9

When is Acquisition a viable Strategy?

Answer 9

• The Buyer has a unique ability to operate the Target.
• Transaction costs, especially bidding, do not eliminate profits.
• The Seller’s floor price is low, considering their current commercial prospects.
• Market imperfections dislocate the acquisition price relative to the Target’s fundamentals.

Porter, Competitive Strategy — P. 421.

This assumes the Target and Industry meet the criteria for Internal Development.