Simone Lawson
Core competencies are the defining characteristics that give a business a competitive advantage over its rivals. Technological know-how is one such core competency that can help a firm stand out from the competition. However, firms with this core competency must be careful when choosing their entry mode into a new market, as certain modes may risk exposing their technological advantages. For instance, licensing and franchising can generate income for the firm but they also involve sharing proprietary technology and processes with third parties, potentially leading to a loss of competitive edge. On the other hand, entry modes such as joint ventures, exporting, and direct investment allow firms with technological expertise to retain control over their innovations and maintain their competitive advantage.
| Characteristics | Values |
|---|---|
| Core Competencies | Technological know-how |
| Entry Modes to Avoid | Licensing, Franchising |
| Reasons for Avoidance | Loss of control over proprietary technology, exposure of crucial technological secrets, risk of competitors gaining access to advantages |
| Preferred Entry Modes | Direct investment, joint venture, exporting |
| Benefits of Preferred Modes | Greater control, retention of core competencies, systematic processes for secure knowledge transfer |
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What You'll Learn
Licensing and franchising should be avoided
If a firm's core competency is based on technological know-how, it is generally advised to avoid licensing and franchising as entry modes. Licensing and franchising involve sharing proprietary technologies and processes with third parties, which could lead to the loss of competitive advantage for technology-based firms.
Licensing is a business agreement that allows another company to use a firm's technology, trademarks, patents, or other intellectual property for a fee or royalty. If a firm's core competency is its technological know-how, licensing may risk exposing crucial technological secrets to licensees, who could replicate the technology and become competitors. Licensing agreements are extremely limited in scope and do not provide control over how the licensee operates their business. This lack of control can be detrimental if the licensee learns and replicates the licensed technology, potentially reducing the firm's unique advantage in the market.
Franchising, on the other hand, involves a deeper and more complex business relationship. It entails allowing another party to replicate a firm's entire business model, brand, products, and services for a fee. Franchising provides instant brand recognition and a ready-made business framework. However, for technology-based firms, franchising can lead to the dissemination of crucial technological know-how, diminishing their competitive edge. Franchising agreements grant the franchisee more control over their operations compared to licensing, but they are still subject to the franchisor's operational guidelines and quality control standards.
To maintain control over their technological assets and know-how, technology-based firms may consider alternative entry modes such as direct investment, joint ventures, or exporting. These options allow firms to expand into new markets or collaborations while retaining ownership and control over their proprietary technology and expertise. Direct investment, in particular, offers greater control and allows for the establishment of systematic processes to transfer knowledge securely. While licensing and franchising can provide benefits in terms of market expansion and revenue generation, they may not be the optimal choices for firms with core competencies in technological know-how due to the inherent risks of losing control over their proprietary technologies and inadvertently aiding competitors.
In summary, licensing and franchising can pose risks to firms with core competencies in technological know-how by potentially exposing their technological secrets and reducing their competitive advantage. Therefore, these firms should carefully consider alternative entry modes that allow them to retain control while still achieving their strategic objectives.
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Direct investment, joint ventures, and exporting are preferred
For firms with core competencies in technological know-how, direct investment, joint ventures, and exporting are preferred entry modes into new markets. These approaches allow the firm to retain control over its proprietary technology and expertise while expanding into new markets or collaborations.
Firstly, direct investment is a suitable approach for firms with technological expertise as it offers greater control over their innovations. This mode enables firms to establish systematic processes to transfer knowledge securely without exposing their core competencies to competitors. By investing directly in new markets, firms can maintain full control over their technology and avoid the risks associated with sharing proprietary information.
Joint ventures and strategic alliances are another preferred option for technology-focused firms. While these ventures offer benefits such as shared risks and resources, they also pose challenges regarding the transfer of proprietary knowledge and control issues. However, firms can mitigate these risks by carefully structuring the joint venture and implementing robust knowledge-sharing protocols.
Exporting is another viable entry mode for firms with technological know-how. By starting with exporting, firms can minimize their risk exposure and gradually escalate their involvement in new markets. As they become more familiar with the market dynamics, they can consider direct investment as a subsequent step to solidify their presence and gain greater control.
In contrast, licensing and franchising are generally not recommended for firms with core competencies in technological know-how. These modes involve sharing proprietary technologies and processes with third parties, potentially weakening the firm's competitive advantage. Licensing allows another company to use a firm's technology, trademarks, patents, or intellectual property for a fee, creating a risk of losing control over core competencies and helping future competitors. Similarly, franchising involves sharing a firm's business model, brand, and often proprietary knowledge with franchisees, diluting the firm's technological advantage and market uniqueness.
In summary, direct investment, joint ventures, and exporting are preferred entry strategies for firms with core competencies in technological know-how. These approaches enable firms to balance expansion with maintaining control over their proprietary technology and expertise, thus safeguarding their competitive advantage in new markets.
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Control and protection of intellectual property
When a firm's core competency is its technological expertise, it must carefully navigate how it enters new markets or collaborates with other entities to protect its intellectual property. Licensing and franchising, for instance, are entry modes that can generate income but pose significant risks to intellectual property. Licensing involves a firm granting permission to another company to use its technology, trademarks, patents, or other intellectual property for a fee or royalty. While this can create a new revenue stream, it may also lead to a loss of control over the firm's technological expertise. The licensee could replicate the technology and potentially become a future competitor. Similarly, franchising involves sharing the firm's business model and brand, along with operational procedures and sometimes proprietary technology, with franchisees. This exposure may dilute the firm's technological advantage and unique position in the market.
Therefore, firms with core competencies in technological know-how should consider alternative entry modes that allow them to retain control over their intellectual property. Direct investment, joint ventures, and exporting are often more suitable options for these firms. Direct investment enables greater control and the implementation of systematic processes to transfer knowledge securely. Joint ventures provide benefits such as shared resources but also come with concerns about knowledge transfer and control. Exporting is a way to initially minimize risk when entering a new market, with the option to escalate involvement over time as the firm gains familiarity with the new market.
To maintain their competitive edge, firms with technological core competencies must carefully assess their entry strategies and implement measures to safeguard their intellectual property. This includes establishing systematic processes that facilitate knowledge transfer while minimizing exposure of core competencies to competitors. Additionally, firms should regularly evaluate their competitive landscape and adapt their strategies to maintain their market position.
In summary, when technological know-how is a firm's core competency, it must exercise caution when sharing intellectual property through entry modes like licensing and franchising. Instead, it should prioritize control and protection of its intellectual property by leveraging alternative entry modes and implementing strategic processes that facilitate expansion while retaining its unique technological advantages.
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Systematic processes for secure knowledge transfer
When a firm's core competency is based on technological know-how, it should avoid licensing and franchising as entry modes. This is because these modes involve sharing proprietary technologies and processes with third parties, which could weaken the firm's competitive advantage. Instead, direct investment, joint ventures, and exporting are more suitable options as they allow the firm to retain control over its technology and expertise while expanding into new markets or collaborations.
To ensure the secure transfer of knowledge, systematic processes and frameworks must be established. Here are some key considerations for systematic processes to facilitate secure knowledge transfer:
Leadership and Culture
Creating and maintaining a learning culture is essential. Leadership plays a pivotal role in perpetuating continuous dialogues and fostering an environment that values the free flow of information and knowledge among all members, regardless of their role. This collaborative approach extends to problem-solving, where the collective exchange of tacit and explicit knowledge is embraced.
Knowledge Translation
Knowledge translation practices involve three key processes: translating, contexting, and institutionalising. 'Translating' refers to network-building activities, while 'contexting' focuses on creating contexts that support knowledge transfer practices. 'Institutionalising' addresses the creation, maintenance, and disruption of institutions to sustain knowledge transfer.
Targeted Dissemination
Systematic knowledge transfer involves targeted dissemination, which includes involving users in the research process, developing networks between researchers and users, and utilising knowledge brokers. This ensures that knowledge is transferred effectively and reaches the intended recipients.
Dynamic and Multidirectional Nature
Knowledge transfer is a dynamic, interactive, and multidirectional process involving numerous actors and activities. It is not a linear process but rather a complex, multidirectional set of interactions where individual components can occur simultaneously or in different sequences. This flexibility allows for adapting to the specific context and needs of the organisation.
Security Considerations
When dealing with sensitive information, it is crucial to follow security protocols and conduct risk assessments. This is particularly important for institutions handling information protected by state and federal regulations, such as institutions of higher education. Secure knowledge transfer practices help safeguard sensitive data and prevent data breaches.
By implementing these systematic processes, organisations can effectively transfer knowledge while maintaining the security and competitiveness that stems from their technological core competencies.
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Industry leadership and competitive advantage
Technological know-how can be a key driver of industry leadership and competitive advantage for firms. Core competencies, including technological capabilities, are the strategic advantages that make a business stand out from its competitors. They are the resources and capabilities that a company can leverage to succeed in the market.
For example, Amazon has built a competitive advantage through its advanced technology, allowing customers to access its offerings through multiple channels, including websites, mobile apps, Alexa, devices, streaming, and physical stores. Amazon's investment in technology has resulted in industry leadership and a unique value proposition for customers.
Firms with technological core competencies should carefully consider their entry mode strategies to protect their competitive advantage. Licensing and franchising, for instance, may generate income but pose significant risks. They involve sharing proprietary technology and intellectual property, which could lead to a loss of control over core competencies and the dilution of the firm's technological edge. Competitors may gain access to crucial technological advantages, and franchisees may eventually become competitors themselves.
Instead, firms with technological know-how as their core competency may opt for entry modes such as direct investment, joint ventures, exporting, or wholly-owned subsidiaries. These modes allow the firm to retain control over its technology and expertise while expanding into new markets or forming collaborations. Direct investment, in particular, offers greater control and facilitates systematic processes for secure knowledge transfer.
In summary, technological know-how can be a powerful source of industry leadership and competitive advantage. Firms with this core competency should carefully navigate their market entry strategies to protect their technological assets and maintain their unique position in the market.
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Frequently asked questions
Core competencies are the resources and capabilities that comprise a business's strategic advantages. They are the defining characteristics that make a business stand out from the competition.
Technological know-how can be a core competency when it is an industry leader in its sector. This may be due to heavy investment in research and development, holding many patents, and employing experts in their respective fields.
Amazon is a prime example of a company with technological know-how as a core competency. Amazon's advanced technology allows customers to access its offerings through websites, mobile apps, Alexa, devices, streaming, and physical stores.
Firms with technological know-how as their core competency should avoid licensing and franchising as entry modes of entering new markets. Licensing and franchising involve sharing crucial technological information, which could jeopardize the firm's competitive advantage. Instead, firms can opt for direct investment, joint ventures, or exporting, which allow for greater control over proprietary technology.
