Corporate ventures into industrial markets: Dynamics of aggressive entry

Abstract

This article reports a study of the effect of aggressive entry by firms venturing into new industrial markets. There are three main sets of results: First, there is a significant correlation between the competitive attractiveness of the target industry and the initial share objective set by the corporation venturing into that industry. Second, the downstream share objective, set at the launch of the venture is significantly correlated with several key marketing strategy and investment strategy options made by the firm at the start of operations. Third, if most of these key strategy decisions are made under the assumption that a high share position will rapidly be achieved, their resulting performance, in terms of both market share and ROI, is superior to firms which enter with less aggressive share aspirations. These results are particularly appealing to the large established firm which has the resources and thus can both afford to absorb the cost of failure and afford to make significant front-end investments in aggressive initial marketing expenses and investments in initial plant capacity. For such firms a feasible strategy for a new venture into an industrial market could be to: if possible (but not essential) seek industries/markets to enter which are less likely to provoke rivalrous responses; set aggressive market share targets; invest aggressively in initial plant capacity; develop aggressive sales force, sales promotion, advertising, service quality, and/or pricing programs relative to competitors, as appropriate to the particular industry being entered. The reason we suggest that the programs be aggressive as appropriate is that different strategic options are likely to be more effective in one industry than another. For instance, aggressive advertising and sales promotions could be more effective for consumables, while aggressive sales calling programs and superior service delivery could be the more effective route for capital goods businesses.

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