How can new ventures successfully deploy cost-leadership strategies given that they are not likely to be in a position to take advantage of economies of scale, or have the capital to increase scale economies, or have the knowledge gained from experience to make cost-saving improvements?

Question

What will be an ideal response?

Answer 1

Because new ventures are typically small, they usually do not have high economies of scale relative to competitors. Because they are usually cash strapped, they cannot make large capital investments to increase their scale advantages. And because many are young, they often do not have a wealth of accumulated experience to draw on to achieve cost reductions. Given these constraints, how can new ventures successfully deploy cost-leader strategies? Compared to large firms, new ventures often have simple organizational structures that make decision making both easier and faster. The smaller size also helps young firms change more quickly when upgrades in technology or feedback from the marketplace indicate that improvements are needed. They are also able to make decisions at the time they are founded that help them deal with the issue of controlling costs. For example, they may source materials from a supplier that provides them more cheaply or set up manufacturing facilities in another country where labor costs are especially low. Thus, new firms have several avenues for achieving low-cost leadership.