Chapter 8 - Managing Global Competitive Dynamics Flashcards
Competitive dynamics
are actions and responses undertaken by competing firms
Competitor analysis
is the process of anticipating rivals’ actions in order to both revise a firm’s plan and prepare to deal with rivals’ responses
Firms compete in markets along…
product dimensions and geographic dimensions
Multimarket competition occurs when
when firms engage the same rivals in multiple markets and may result in reduction of competitive intensity among rivals (mutual forbearance
Mutual forbearance:
multimarket firms respect their rivals’ spheres of influence in certain markets and their rivals reciprocate, leading to tacit collusion
Industry-based considerations - Rivalry among competitors:
Competing firms in an industry may engage in collusion.
Collusion is
collective attempts between competing firms to reduce competition
Tacit collusion:
Firms indirectly coordinate actions by signaling their intentions to reduce output and maintain price above competitive levels.
Explicit collusion:
Firms directly negotiate output and pricing and divide markets
Industry characteristics and collusion vis-à-vis competition
- Concentration ratio:
- Industry price leader:
- Homogeneous products
- High entry barriers vs. low entry barriers
- High market commonality (mutual forbearance):
Concentration ratio:
the percentage of total industry sales accounted for by the top four, eight or 20 firms
Industry price leader:
a firm that has a dominant market share and sets “acceptable” prices and margins in the industry
Homogeneous products lead to
rivals being forced to compete on price (rather than differentiation)
High market commonality (mutual forbearance):
the degree of overlap between two competitors’ markets that has a significant bearing on the intensity of rivalry
High market commonality or mutual forbearance stems from two factors:
- deterrence
- familiarity
Deterrence:
if a firm attacks in one market, its rivals may engage in cross-market retaliation
Familiarity:
frequent interactions can result in more mutual respect
Collusion possible:
- few firms (high concentration)
- existence of an industry price leader
- homogeneous products
- high entry barriers
- high market commonality (mutual forbearance)
Collusion difficult (competition likely):
- many firms (low concentration)
- no industry price leader
- heterogeneous products
- low entry barriers
- lack of market commonality (no mutual forbearance)
Resource-based considerations - Value: can be added in the following ways
- Patenting
- Ability to attack in multiple markets
- Ability to respond to challenges
Resource-based considerations - Rarity:
certain assets are rare which generate significant advantages
Resource-based considerations -Imitability:
how rivals compete and how they can be imitated
Resource Similarity –
the extent to which a given competitor possesses strategic endowment comparable, in terms of both type and amount, to those of the focal firm
Formal institutions governing domestic competition:
a focus on antitrust
Competition policy:
Determines the institutional mix of competition and cooperation that gives rise to the market system.”
Antitrust policy:
regulations designed to combat monopolies and cartels
Competition/antitrust policy focuses on:
- collusive price setting
- predatory pricing
- extraterritoriality
collusive price setting:
refers to price setting by monopolists or collusion parties at a higher level than the competitive level
Predatory pricing:
is defined as setting prices below and intending to raise prices after eliminating rivals to cover its losses in the long run.
Extraterritoriality:
the reach of one country’s laws to other countries.
Formal institutions governing international competition:
a focus on antidumping
Dumping:
An exporter selling below cost abroad and planning to raise prices after eliminating local rivals.
Antidumping:
A measure used to rectify the situation arising out of dumping
An attack is
an initial set of actions used to gain competitive advantage.
example os actions of an attack:
- price cuts
- advertising campaigns
- market entries
- new product
- introductions
Counterattack
a set of actions in response to an attack
What are the three main types of attack?
- thrust
- feint
- gambit
Thrust:
A frontal attack with brute force
Feint:
A player attempt’s to fool his opponent by pretending that he would go away but instead charges ahead in another way
Gambit:
A move that sacrifices a low-value piece in order to capture a high-value piece
A blue ocean strategy
“avoids attacking core markets defended by rivals”
awareness of an attack:
If an attack is so subtle that rivals are not aware of it, then the attacker’s objectives are likely to be attained
motivation of an attack:
If the attacked market is of marginal value, managers may decide not to counterattack
capabilities of an attack:
Strong capabilities required for counterattacks
In order to reduce competitive intensity
they resort to signaling.
Signaling:
- Market entry: Firms enter new markets not to challenge incumbents but to seek mutual forbearance.
- Truce seeking: Firms can send an open signal for a truce (Example, Toyota and GM in the U.S.)
- Communication via governments
- Strategic alliances for cost reduction
What are the 4 strategies for local firms depending on the industry competitions and the nature of competitive assets?
- defender
- extender
- dodger
- contender
Defender:
a strategy that leverages local assets in areas in which MNEs are weak (e.g., a deep understanding of local markets)
Extender:
a strategy that centers on leveraging homegrown competencies abroad by expanding into similar markets
Dodger:
a strategy that centers on cooperating through JV with MNEs and/or sell-offs to MNEs.
Contender:
a strategy that centers on rapid learning and then expanding overseas
Industry competition:
industry pressure to globalize: high vs. low
The nature of competitive assets:
customized to home markets vs. transferable abroad.
Appropriate strategy: Dodger
Must cooperate with MNEs through JVs with MNEs, agreeing to buyouts by MNEs, and/or becoming MNE suppliers and service providers.
Appropriate strategy: Contender
Rapid learning and upgrading of capabilities to approach those of the MNEs and then to thrust overseas.
Appropriate strategy: Defender
Cede some markets to MNEs while building strongholds in other markets by leveraging local assets in market segments which MNEs are weak or unaware of – in essence, a gambit
Appropriate strategy: Extender
Leverage home-grown competencies abroad by expanding into similar markets – a thrust
