1. Achieving diversification through internal start-up involves building a new business subsidiary from scratch.
2. This entry option takes longer than the acquisition option and poses some hurdles.
3. Generally, forming a start-up subsidiary to enter a new business has appeal only when:
a. The parent company already has in-house most or all of the skills and resources it needs to piece together a new business and compete effectively
b. There is ample time to launch the business
c. The costs are lower than those of acquiring another firm
d. The targeted industry is populated with many relatively small firms such that the new start-up does not have to compete head-to-head against larger, more powerful rivals
e. Adding new production capacity will not adversely impact the supply-demand balance in the industry
f. Incumbent firms are likely to be slow or ineffective in responding to a new entrant’s efforts to crack the market
CORE CONCEPT: The biggest drawback to entering an industry by forming an internal start-up are the costs of overcoming entry barriers and the extra time it takes to build a strong and profitable competitive position.
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