Monday, August 3, 2015

Expanding San Diego’s Economy through Investing in “Break Out” Exporters

Venture capitalists are on the continual search for higher returns on investment.  Buying into a company just before it breaks out is one of the most lucrative investment positions to be in. Within a short span of 6-months to 4-years the value could double or triple. Local governments should be aware of emerging global businesses so they can create greater awareness among would be investors and spark local economic growth.  

Economies continue to grow when new firms develop and make their way to the market. Large industries set the standard based on local core competencies but it is the emerging entrepreneurial businesses that continue to push the local economy in new directions. When they go global they can expand the local market.

According to a study on 345 non-exporting manufacturers those with the highest potential for market expansion include a variety of distribution channels, variety of product lines, firm competitiveness, and an abundance of resources (Yang, Leaone, & Alden, 1992). Each of the factors contributes to the company’s investment worthiness.

Distribution channels help ensure they can reach customers and exchange commercial activity. This can also apply to customer service and overall ability to communicate internationally. Treaties with countries and relationships with vendors will help determine their ability to flourish in an international market.

Firm competiveness refers to how the firm is managed and whether or not it has the internal and intellectual capacity to go global. If the management team or the employees are not prepared to go global this will limit their sustaining power. At times the firm may need to be reformed before trying to tackle a bigger market.

Some companies are big hits overnight but soon fizzle out when competitors move into benefit from their success. Without multiple product investment firms take the risk of investing in a company that in a few years may be out of business once their product has been beaten or copied by the competition. Multiple competitive products reduce this liability.

All companies must have resources. Depending on the type of business those resources might be physical such as iron and coal or intellectual such as researchers and programmers. Cities like San Diego will have an abundance of resources built around existing industries that can be used in feeding new business ventures.

Companies grow within a context based upon their relationship with other businesses and government. If their environment promotes and rewards entrepreneurial effort with capital investments and lucrative opportunities a local economy will grow. If the environment is not business and employment friendly it will limit future investments and job opportunities. Developing sustainable opportunities means finding generative businesses that expand present market opportunities.

Yang, Y. Leaone, R. & Alden, D. (1992). A market expansion ability approach to identify potential exporters. Journal of Marketing, 56 (1).

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