Chapter 8 - Managing Global Competitive Dynamics

Question 1

Competitive dynamics

Answer 1

are actions and responses undertaken by competing firms

Question 2

Competitor analysis

Answer 2

is the process of anticipating rivals’ actions in order to both revise a firm’s plan and prepare to deal with rivals’ responses

Question 3

Firms compete in markets along…

Answer 3

product dimensions and geographic dimensions

Question 4

Multimarket competition occurs when

Answer 4

when firms engage the same rivals in multiple markets and may result in reduction of competitive intensity among rivals (mutual forbearance

Question 5

Mutual forbearance:

Answer 5

multimarket firms respect their rivals’ spheres of influence in certain markets and their rivals reciprocate, leading to tacit collusion

Question 6

Industry-based considerations - Rivalry among competitors:

Answer 6

Competing firms in an industry may engage in collusion.

Question 7

Collusion is

Answer 7

collective attempts between competing firms to reduce competition

Question 8

Tacit collusion:

Answer 8

Firms indirectly coordinate actions by signaling their intentions to reduce output and maintain price above competitive levels.

Question 9

Explicit collusion:

Answer 9

Firms directly negotiate output and pricing and divide markets

Question 10

Industry characteristics and collusion vis-à-vis competition

Answer 10

• Concentration ratio:
• Industry price leader:
• Homogeneous products
• High entry barriers vs. low entry barriers
• High market commonality (mutual forbearance):

Question 11

Concentration ratio:

Answer 11

the percentage of total industry sales accounted for by the top four, eight or 20 firms

Question 12

Industry price leader:

Answer 12

a firm that has a dominant market share and sets “acceptable” prices and margins in the industry

Question 13

Homogeneous products lead to

Answer 13

rivals being forced to compete on price (rather than differentiation)

Question 14

High market commonality (mutual forbearance):

Answer 14

the degree of overlap between two competitors’ markets that has a significant bearing on the intensity of rivalry

Question 15

High market commonality or mutual forbearance stems from two factors:

Answer 15

• deterrence

- familiarity

Question 16

Deterrence:

Answer 16

if a firm attacks in one market, its rivals may engage in cross-market retaliation

Question 17

Familiarity:

Answer 17

frequent interactions can result in more mutual respect

Question 18

Collusion possible:

Answer 18

• few firms (high concentration)
• existence of an industry price leader
• homogeneous products
• high entry barriers
• high market commonality (mutual forbearance)

Question 19

Collusion difficult (competition likely):

Answer 19

• many firms (low concentration)
• no industry price leader
• heterogeneous products
• low entry barriers
• lack of market commonality (no mutual forbearance)

Question 20

Resource-based considerations - Value: can be added in the following ways

Answer 20

• Patenting
• Ability to attack in multiple markets
• Ability to respond to challenges

Question 21

Resource-based considerations - Rarity:

Answer 21

certain assets are rare which generate significant advantages

Question 22

Resource-based considerations -Imitability:

Answer 22

how rivals compete and how they can be imitated

Question 23

Resource Similarity –

Answer 23

the extent to which a given competitor possesses strategic endowment comparable, in terms of both type and amount, to those of the focal firm

Question 24

Formal institutions governing domestic competition:

Answer 24

a focus on antitrust

Question 25

Competition policy:

Answer 25

Determines the institutional mix of competition and cooperation that gives rise to the market system.”

Question 26

Antitrust policy:

Answer 26

regulations designed to combat monopolies and cartels

Question 27

Competition/antitrust policy focuses on:

Answer 27

• collusive price setting
• predatory pricing
• extraterritoriality

Question 28

collusive price setting:

Answer 28

refers to price setting by monopolists or collusion parties at a higher level than the competitive level

Question 29

Predatory pricing:

Answer 29

is defined as setting prices below and intending to raise prices after eliminating rivals to cover its losses in the long run.

Question 30

Extraterritoriality:

Answer 30

the reach of one country’s laws to other countries.

Question 31

Formal institutions governing international competition:

Answer 31

a focus on antidumping

Question 32

Dumping:

Answer 32

An exporter selling below cost abroad and planning to raise prices after eliminating local rivals.

Question 33

Antidumping:

Answer 33

A measure used to rectify the situation arising out of dumping

Question 34

An attack is

Answer 34

an initial set of actions used to gain competitive advantage.

Question 35

example os actions of an attack:

Answer 35

• price cuts
• advertising campaigns
• market entries
• new product
• introductions

Question 36

Counterattack

Answer 36

a set of actions in response to an attack

Question 37

What are the three main types of attack?

Answer 37

• thrust
• feint
• gambit

Question 38

Thrust:

Answer 38

A frontal attack with brute force

Question 39

Feint:

Answer 39

A player attempt’s to fool his opponent by pretending that he would go away but instead charges ahead in another way

Question 40

Gambit:

Answer 40

A move that sacrifices a low-value piece in order to capture a high-value piece

Question 41

A blue ocean strategy

Answer 41

“avoids attacking core markets defended by rivals”

Question 42

awareness of an attack:

Answer 42

If an attack is so subtle that rivals are not aware of it, then the attacker’s objectives are likely to be attained

Question 43

motivation of an attack:

Answer 43

If the attacked market is of marginal value, managers may decide not to counterattack

Question 44

capabilities of an attack:

Answer 44

Strong capabilities required for counterattacks

Question 45

In order to reduce competitive intensity

Answer 45

they resort to signaling.

Question 46

Signaling:

Answer 46

• 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

Question 47

What are the 4 strategies for local firms depending on the industry competitions and the nature of competitive assets?

Answer 47

• defender
• extender
• dodger
• contender

Question 48

Defender:

Answer 48

a strategy that leverages local assets in areas in which MNEs are weak (e.g., a deep understanding of local markets)

Question 49

Extender:

Answer 49

a strategy that centers on leveraging homegrown competencies abroad by expanding into similar markets

Question 50

Dodger:

Answer 50

a strategy that centers on cooperating through JV with MNEs and/or sell-offs to MNEs.

Question 51

Contender:

Answer 51

a strategy that centers on rapid learning and then expanding overseas

Question 52

Industry competition:

Answer 52

industry pressure to globalize: high vs. low

Question 53

The nature of competitive assets:

Answer 53

customized to home markets vs. transferable abroad.

Question 54

Appropriate strategy: Dodger

Answer 54

Must cooperate with MNEs through JVs with MNEs, agreeing to buyouts by MNEs, and/or becoming MNE suppliers and service providers.

Question 55

Appropriate strategy: Contender

Answer 55

Rapid learning and upgrading of capabilities to approach those of the MNEs and then to thrust overseas.

Question 56

Appropriate strategy: Defender

Answer 56

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

Question 57

Appropriate strategy: Extender

Answer 57

Leverage home-grown competencies abroad by expanding into similar markets – a thrust