Lecture 4 - Multi-market rivalry Flashcards
Causes of rivalry
What creates rivalry? • Several equally strong players • Low growth in the market, or no growth • High fixed costs • Excess production capacities • Little opportunities for differentiation • High strategic stakes • Major barriers to exit
High market commonality: makes competitors
aware and motivated to respond
• High resource similarity: makes them able to
respond
Market Commonality
Market commonality is defined as the degree of presence that a competitor manifests in the markets it overlaps with a focal firm. A given competitor’s market commonality with a focal firm is conditioned both by the strategic importance to the focal firm of the shared markets and by the competitor’s strength in theses shared markets.
Resource similarity
Resource similarity is defined as the extent to which a given competitor possesses strategic endowments comparable, in terms of both type and amount, to those of the focal firm. The understanding of resource similarity is important for competitive advantage because firms with similar reosurce bundles are likely to have similar strategic capabilities
Action (attack) and response (retaliation)
Action (or attack) is defined here as a specific competitive move initiated by a firm, such as introducing a new product or entering a new market, that may lead to the firm’s acquiring its rivals’ market shares or reducing their anticipated returns. A response (or retaliation) is a specific countermove, prompted by a rival’s attack, that a firm takes to defend or improve its share or profit position in the industry.
Market definition
Market is broadly defined here to include both product- and customer-based concepts such as geographical market, market segment, or brand (day 1981). Of course, within any industry, there is generally a commonly agreed-upon notion of market.
Competitor
Competitors are defined here as firms operating in the same industry, offering similar products and targeting similar customers.
Why do high market commonality and high resource similarity a) reduce the likelihood of an attack and b) increase the likelihood of a response?
First of all, market commonality will affect a firm’s motivation to attack (or respond), while resource similarity will influence attack (or response) capability.
It appears that an attacker will be less likely to target rivals with high market commonality than those with low market commonality because the stake involved is very substantial. The risk-averse propensity of decision makers in large-stake situations also has been well noted in the decision-making literature. An attack would no doubt be viewed as threatening by a firm if this attack were initiated by a rival with high market commonality. As this is a source of revenue for firm such attack will be taken seriously, and the attacked firm will do all in its power to keep its position in that market. The high market communality ressemble a greater threat such attack might shake a large area of business for the defending firm. An example could be Philadelphia’s response when Arla entered the US market with a very natural alternative to the well-integrated Philadelphia cream cheese. Their response was immediate and using there substantial broader resources on the US market to respond. Philadelphia responded by threatening vendors to stop supplier their cream-cheese if they had Arla products in their stores.
The argument for high resource similarity:
- Defenders that are most similar to the attacker in their strategic resource endowments will have the greatest potential and capability for retaliation.
Competitive asymmetry
Given this condition, each firm will define competitors differently and will also experience different degrees of competitive threat from each competitor because of the differences along the dimensions of market commonality and resource similarity.
The firm-specific conceptualization of competitors and competitive relationships further suggests that the competitive relationship between a pair of firms is asymmetric, depending on which competitor is the focal firm under consideration. In other words, A may pose a greater threat to B than does B to A. This asymmetry is likely to be present in most competitive engagement.
Proposition 4a: Competitive asymmetry is likely to exist within a pair of competitors. That is, any two firms are unlikely to have identical degrees of market commonality and of resource similarity with each other.
Consideration of asymmetry helps to avoid the dangerous assumption that a specific com- petitor’s awareness, motivation, and capability are the same for any particular firm.
Proposition 4b: Because of competitive asymmetry in market commonality and in resource similarity, the likelihood that A will attack B will differ from the likelihood that B will attack A. The same will hold true for response likelihood.
Why do high market commonality and high resource similarity a) reduce the likelihood of an attack and b) increase the likelihood of a response? (Chen 1996)
First of all, market commonality will affect a firm’s motivation to attack (or respond), while resource similarity will influence attack (or response) capability.
It appears that an attacker will be less likely to target rivals with high market commonality than those with low market commonality because the stake involved is very substantial. The risk-averse propensity of decision makers in large-stake situations also has been well noted in the decision-making literature. An attack would no doubt be viewed as threatening by a firm if this attack were initiated by a rival with high market commonality. As this is a source of revenue for firm such attack will be taken seriously, and the attacked firm will do all in its power to keep its position in that market. The high market communality ressemble a greater threat such attack might shake a large area of business for the defending firm. An example could be Philadelphia’s response when Arla entered the US market with a very natural alternative to the well-integrated Philadelphia cream cheese. Their response was immediate and using there substantial broader resources on the US market to respond. Philadelphia responded by threatening vendors to stop supplier their cream-cheese if they had Arla products in their stores.
Impact of high market commonality and resource similarity on the likelihood of a competitive attack or response: Awareness, motivation and capability (Chen and Strucker 1997)
Our extended awareness-motivation-capability framework implies that competitors will respond to a rival’s action to the extent that they are (1) aware of the action and of the country where the action took place, (2) motivated to respond to the action and to defend or expand their global presence, and (3) capable of deploying resources for responding in host countries.
Vroom (1964) argued that two basic conditions underlie the proclivity to act: the subjective reward value (valence) of acting effectively, and the expectation or perceived prob ability of earning a reward (expectancy). Thus, the motivation to respond will be greatest when the potential responder feels that something important is at stake (Atkinson, 1964).
Factors influencing the speed of competitive response: geographic distance, subsidiary control.
The findings were that the geographical distance significantly decreased response speed, while for the distance between the home and initiating country geographic distance the decreased response speed was not as significant.
Hypotheses on the host governments constraints on foreign-based MNE’s is negatively related to response in that host country government constraint (protectionism laws etc.) was significantly influencing response speed, whereas for home-government constraints (protectionism) the opposite accounted. The idea of a safe home-base would strengthen the companies capabilities to battle in host countries.
Bonus: Why is a quick response necessary?
- Response speed derives from the time in days between a rival’s initiating action and an MNE’s observed response
- Slow-responding rivals often experience market share losses or missed profits opportunities (Ferrier et al., 1999)
Hypothesis for Yu and Canella text (The following are valid)
Hypothesis 1. The speed of an MNE’s response in a host country to an action taken by a rival in any country is negatively associated with the geographic distance between the MNE’s home country and the host country.
Hypothesis 2. The speed of an MNE’s response in a host country to an action taken by a rival in any country is negatively associated with the geographic distance between the MNE’s home country and the initiating country (i.e., where the action was taken).
Hypothesis 3. The speed of an MNE’s response in a host country to an action taken by a rival in any country is negatively associated with the level of government constraints in the host country.
Hypothesis 4. The speed of an MNE’s response in a host country to an action taken by a rival in any country is positively associated with the level of government constraints in the MNE’s home country.
Hypothesis 7. The speed of an MNE’s response in a host country to an action taken by a rival in any country is increased when the host country is where the initiating action took place.
Hypothesis 8. The speed of an MNE’s response in a host country to an action taken by a rival in any country is positively associated with the degree of multimarket contact between the MNE and its rival.
the proposition of chen and Strucker (1997) has direct effects on rivalry and its three behavioural antecedent: Awareness, Motivation, and capability.
- The more global a firm’s strategy, the greater the firm’s cross-border competitive engagement.
- The greater international experience of the firm’s TMT, the greater the firm’s cross-border competitive engagement.
- The greater the ownership that a firm has of its subsidiaries, the greater the firms cross-border competitive engagement.
- The greater the information flow between a firm’s headquarters and its subsidiaries, the greater the firm’s cross-border competitive engagement.
- The smaller the cultural distance between a firm’s headquarters and it subsidiaries, the greater the firm’s cross-border competitive engagement.
- The lower the barriers across the local national markets served by a firm’s subsidiary, the greater the firm’s cross-border competitive engagement.
- The less the diversity among the local markets served by a firm’s subsidiaries, the greater the firm’s cross-border competitive engagement.
- The smaller the cultural distance between a firm and a given competitor, the greater the firm’s cross border competitive engagement in engaging with this competitor.
- The greater the firm’s cross-border competitive engagement, the better its organizational performance.
