Opportunity Analysis

UNIT-III

Opportunity

Market Driven

People Driven

Demographical Changes

Social Changes

Technological changes

Supply Demand changes

Regulatory Changes

Trade Barriers

Corporate Policies

What Is A New Entry?

Offering A New Product To An Established/New Market

Offering An Established Product To A new Market

Creating A New Organization

Generation of a 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.

• They can be combined in different ways.

• A bundle of resources provides a firm its capacity to achieve superior

performance.

• Resources must be:

• Valuable.

• Rare.

• 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.

Generation of a New Entry Opportunity (cont.)

First-Mover Advantages

1. Exploit network effects and positive feedback loops

Locking customers into its technology

2. Establish significant brand loyalty

Expensive for later entrants to break down

3. Enable economies of scale and learning effects

So first-mover has cost advantage and can respond to new entrants by cutting price to maintain market

share

4. Create switching costs for customers

Making it difficult for rivals to take customers away

5. Accumulate valuable knowledge

Regarding customers, distribution, and technology that late entrants will find difficult or expensive to

match7 | 6

The five main sources of first-mover advantages:

First-Mover Disadvantages

1. Pioneering costsTo develop technology and distribution channels and to educate the customersLater entrants ‘free-ride’ on first-mover’s investments.

2. More prone to make mistakesBecause of the uncertainties in a new marketLater entrants learn from the mistakes of first-movers.

3. Risk of building the wrong resources and capabilitiesMass-market may differ from the needs of early adoptersFirst-movers risk ‘Plunging into the chasm’.

4. May invest in inferior or obsolete technologyIf the underlying technology is advancing rapidlyLate entrants may be able to ‘leap frog’ the technology.

Strategies for Exploiting First-Mover Advantages

1. Going it alone Develop and market the innovation itself.

2. Strategic alliance or joint venture Develop and market the innovation jointly with other

companies.3. License the innovation to others Let them develop the market.

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Market Scope Strategy

Scope- Choice Of Which Customers To Serve & How

Narrow-Scope- Reduces Competitive Risk

• Focus On Customized Products, Local Business, Craftsmanship

• Build Specialized Expertise/Knowledge

• High End Market = High Profit Niche’

Broad-Scope- Offer Wide Range Of Products To Many Market

Segments, Causes Increased Exposure To Competition

Imitation Strategy• Why?- Minimize Risk

• Types• Franchising• “Me Too”

• Minor Variation Of Launch Product• Take Existing Product/Service To New Market• Deliver Existing Product In New Way

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 StrategiesNarrow-scope strategy involves offering a small product range to a

small number of customer groups to satisfy a particular need.Focuses on producing customized products, localized business operations,

and high levels of craftsmanship.Leads to specialized expertise and knowledge.High-end of the market represents a highly profitable niche.Reduces some competition-related risks but increases the risks associated

with market uncertainties.

Risk Reduction Strategies for New Entry Exploitation (cont.)

• Broad-scope strategy involves offering a range of products across many different market segments.

• Strategy emerges through the information provided by a learning process.• Opens the firm up to many different “fronts” of competition.• Reduces risks associated with market uncertainties but increases exposure

to competition.

Risk Reduction Strategies for New Entry Exploitation (cont.)

• Imitation Strategy• Why do it?

• It is easier to imitate the practices of a successful firm.• It can help develop skills necessary to be successful in the industry.• It provides organizational legitimacy.

• Types of imitation strategies• Franchising - A franchisee acquires the use of a “proven formula” for new

entry from a franchisor.• “Me-too” strategy - Copying products that already exist and attempting to

build an advantage through minor variations.

Risk Reduction Strategies for New Entry Exploitation (cont.)

• Managing Newness• Liabilities of newness arise from unique conditions:

• Costs in learning new tasks.• Conflict arising from overlap or gaps in responsibilities.• Unestablished informal structures of communication.

• A new firm needs to:• Educate and train employees.• Facilitate conflict over roles.• Promote activities that foster informal relationships and a functional

corporate culture.

Risk Reduction Strategies for New Entry Exploitation (cont.)

SWOT ANALYSIS

SWOT ANALYSIS

Strengths

Flexibility of Small Business

Protection from the Government

Lower Gestation Period

Superior R&D Intellectual Property Rights

Technological competitiveness

Risk gets divided in consortium

SWOT ANALYSIS

Weaknesses

Unable to adapt to a change

Financial Limitations

Inferior Quality

SWOT ANALYSIS

Opportunities

Schemes and Incentives .Institutional Support

Tax Holidays

Rising EconomySpecial Economic Zones

Removal of Trade Barriers Reservation of SSI’s

SWOT ANALYSIS

Threats

Dumping Power cutsUpcoming

Technologies

Technological Competitiveness

Types of Technology Ventures

Enterprise that create Technology and advance them

Web based Technologies

Entities that utilize technologies created to serve a particular need in the market

Naukri.com & makemytrip.com

Technopreneur

• The person behind the technology driven enterprises is called

technopreneur. Technopreneurs are greatly inclined towards

technology and are referred informally as geeks and techies.

Diffusion of Technology and Timing of technology

The success of Technology depends on how quickly the

technology gets diffused from one element to the other.

Early adopters

Late adopters

Laggards

Timing of the TechnologyTiming of the technology is key to the success of any

technology.Good technology may be rejected if it is released during

inappropriate times.Electric Cars like Reva got lukewarm response.

What Is A New Entry?1. Offering A New Product To An Established/New Market

2. Offering An Established Product To A new Market

3. Creating A New Organization

• The VRIO AnalysisThe VRIO Analysis• Test 1: ValueValue – does the resource help you

increase sales or decrease costs• Test 2: RarenessRareness – is the resource rare enough

that you can charge more than competitors without the resource

• Test 3: ImitabilityImitability – can the competition imitate the resource

• Test 4: OrganizationOrganization – can the firm make use of the resource

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Resources As Competitive Advantage

•Resources- Firm’s Building Blocks, Inputs Into Production Process

•Must Be:• Valuable• Rare• Inimitable

Capturing First-Mover Advantages

If the new product satisfies unmet consumer needs and demand is high:

• First mover may be in a monopoly position to capture significant revenues and profits.

• Strong revenues and profits signal an opportunity to potential rivals.

• Rival imitators may enter market in the absence of strong barriers to imitation resulting in lower market returns.

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First-mover advantage: the first to develop and pioneer revolutionary new products that can lead to an enduring competitive advantage

Being a first-mover does not guarantee success. Success depends on the first-mover strategy

that is pursued.

Assessing New Entry Opportunity

• Information• Prior Knowledge/Information Search• Window Of Opportunity- Time When

Environment Is Favorable

• Decision To Exploit/Not Exploit New Entry

Strategy ForNew Entry- First Movers

•Develop Cost Advantage•Face Less Competition•Secure Important Channels•Better Positioned To Satisfy Customers

•Gain Expertise Through Participation

First Mover DisadvantagesEmerging IndustriesDemand Uncertainty- Difficult to Estimate Market

Size, Speed Of Growth & Its Key DimensionsTechnological Uncertainty- Will Technology

Perform, Alternate Technologies Emerge?Adaptation To New Environmental ConditionsCustomer Uncertainty- Newness

OvercomingCustomer Uncertainty

Informational AdvertisingHighlight Product Benefits Over SubstitutionsCreate Frame Of Reference For Potential

CustomerEducate Customer- Set Industry Standard,

Customer Loyalty

The Impact of Imitation on Profits of a First Move

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Figure 7.4

Lead Time & First Mover• Lead Time- Period In Which 1st Mover Operates With

Limited Competition• Create Barriers To Entry For Competition

• Build Customer Loyalty• Build Switching Costs• Protect Product Uniqueness• Secure Access To Sources Of Supply & Distribution

First-Mover Advantages

1. Exploit network effects and positive feedback loopsLocking customers into its technology

2. Establish significant brand loyaltyExpensive for later entrants to break down

3. Enable economies of scale and learning effectsSo first-mover has cost advantage and can respond to new entrants by cutting price to maintain market share

4. Create switching costs for customers Making it difficult for rivals to take customers away

5. Accumulate valuable knowledgeRegarding customers, distribution, and technology that late entrants will find difficult or expensive to match

7 | 35

The five main sources of first-mover advantages:

First-Mover Disadvantages1. Pioneering costs

To develop technology and distribution channels and to educate the customersLater entrants ‘free-ride’ on first-mover’s investments.

2. More prone to make mistakesBecause of the uncertainties in a new marketLater entrants learn from the mistakes of first-movers.

3. Risk of building the wrong resources and capabilitiesMass-market may differ from the needs of early adoptersFirst-movers risk ‘Plunging into the chasm’.

4. May invest in inferior or obsolete technologyIf the underlying technology is advancing rapidlyLate entrants may be able to ‘leap frog’ the technology.

Copyright © Houghton Mifflin Company. All rights reserved. 7 | 36

Strategies for Exploiting First-Mover Advantages

1. Going it alone Develop and market the innovation itself.

2. Strategic alliance or joint venture Develop and market the innovation jointly with other

companies.3. License the innovation to others Let them develop the market.

Copyright © Houghton Mifflin Company. All rights reserved. 7 | 37

Market Scope StrategyScope- Choice Of Which Customers To Serve & HowNarrow-Scope- Reduces Competitive Risk

• Focus On Customized Products, Local Business, Craftsmanship• Build Specialized Expertise/Knowledge• High End Market = High Profit Niche’

Broad-Scope- Offer Wide Range Of Products To Many Market Segments, Causes Increased Exposure To Competition

Imitation Strategy

•Why?- Minimize Risk•Types

• Franchising• “Me Too”

• Minor Variation Of Launch Product• Take Existing Product/Service To New Market• Deliver Existing Product In New Way

Liabilities Of Newness• Costs Of Learning New Tasks

• Overlap/Gaps In Responsibilities Causes Internal Conflict

• Communication- Formal & Informal

Assets Of Newness

•Clean Slate- No Established Procedures, Systems, Etc.

•Heightened Ability To Learn New Knowledge- Competitive Advantage

•Respond To Change More Quickly- Flexibility