This tool reveals the major advantages and disadvantages of eight methods for entering into a new business or expanding an old one. This tool is often used in conjunction with “New Market Entry Strategies.”
Here are eight ways to expand business:
1. Internal Development
Advantages:
- uses existing resources
- avoids acquisition cost
- (especially if unfamiliar with product/market)
Disadvantages:
- time lag
- uncertain prospects
2. Internal Ventures
Advantages:
- uses existing resources
- may keep talented entrepreneurs
Disadvantages:
- mixed success record
- can create internal stresses
3. Acquisitions
Advantages:
- saves calendar time
- overcomes entry barriers
- problem of integrating two organizations
Disadvantages:
- costly – usually results in the purchase of redundant assets
4. Joint Ventures or Alliances
Advantages:
- technological/ marketing
- can exploit small/large firm synergies
- distributes risk
Disadvantages:
- potential for conflict in operations between firms
- danger of value of one firm reduced over time
5. Educational Acquisitions
Advantages:
- provides window and initial staff
Disadvantages:
- risk of departure of entrepreneurs
6. Venture Capital and Nurturing
Advantages:
- can provide window on new technology or market
Disadvantages:
- unlikely alone to be a major stimulus of firm growth
7. Licensing from Others
Advantages:
- rapid access to technology
- reduced financial risk
Disadvantages:
- will lack proprietary technology and technological skills
- will be dependent upon licensor
8. Licensing to Others
Advantages:
- rapid access to a market
- low cost/risk
Disadvantages:
- will lack knowledge / control of market
- will be dependent upon licensee
Source: Adapted from Edward B. Roberts and Charles A. Berry, “Entering New Businesses: Selecting Strategies for Success,” Sloan Management Review, Spring 1985, pp.3-17.
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