Lecture 4 - Multimarket Rivarly Flashcards
What are the causes of rivalry?
Equally strong placers, low / no growth in the market, high FC, excess production capacities, little differentiation opportunities, high strategic stakes, high barriers to exit
What is the definition of multipoint competition? (Chen 1996)
Multipoint competition: “counter-competition abroad to protect home markets, multimarket rivals have a wide choice of arenas in which to react
o Multiple point competition research: mutual forbearance hypothesis (Edwards, 1955): competitors engaged in multiple markets are less motivated to compete aggressively because of possibility of retaliation in others
What is the definition of competition-related terms? (Chen 1996)
Analysis: Firm serves as a basis for competitor analysis, the focus on the analysis are the competitive tensions between pairs of firms & the potential for them engaging in rivalrous behaviour (unlike Porter with industry as a focal point)
o Competitors: firms operating in the same industry, offering similar products & targeting similar customers
o Market: broadly defined to include product- & customer-based concepts such as geographical market, market segment or brand
o 3 factors that underlie organisational action: awareness of interfirm relationships & action implications, motivation to act & capability of taking action = A&M are conditioned by market relationships depends on resource (or strategic) endowments
o Action (attack): a specific competitive move initiated by a firm that may lead to a them acquiring rival’s market share or reducing their returns
o Response (retaliation): a specific countermove prompted by a rival’s attack that a firm takes to defend or improve its share or profit position
What is the definition of competitive asymmetry?
Competitive asymmetry: a notion that a pair of firms may not pose an equal degree of threat to each other, arises due to low market commonality & resource similarity, can occur when a firm A considers firm B to be its main competitor, however the situation is not the same vice versa (competitive relationships are not symmetrical, they are unique and directional)
What is the definition of market commonality?
Multimarket contact: means firms are present in the same markets, however as each market has different players with different positions, each of these markets plays a different role in a firm’s overall market profile.
o Market commonality = degree of presence that a competitor manifests in the markets it shares with the focal firm, this commonality is dependant on both the strategic importance of this market to a focal firm & by competitor’s strength in that market.
What is the definition of resource similarity?
RBV: views firm as a unique bundle of tangible & intangible resources & capabilities, each firm is idiosyncratic as it has a unique combination of resources acquired over time and manages them differently. Firm’s competitive position & advantage are defined by this resource bundle, resource endowments are “sticky” and both constrain and determine the strategy.
o Resource similarity = extent to which a given competitor possesses comparable strategic endowments in type and amount, the more similar the more likely to have similar strategic capabilities and competitive vulnerability as focal firm.
How do market commonality and resource similarity impact the intensity of rivalry? (Chen 1996)
o Market commonality has a rivalry-reducing effect through the mutual forbearance hypothesis: firm is less likely to attack if they have many markets in common, due to awareness of many possible strike backs. Equally market commonality increases the odds of a firm responding – with great market commonality the competitor seems more familiar thus the firm is more likely to respond
o All else equal, high market commonality has a greater impact on intensity of competition than resource similarity
How do high market commonality and resource similarity impact the likelihood of a competitive attack or response: awareness, motivation and capability (Yu & Cannella 2007; S)?
High market commonality: makes competitors aware & motivated to respond
High resource similarity: makes competitors able to respond
How do other factors influence the likelihood of competitive attack: global MNC, managers’ international experience, wholly-owned subsidiaries, first and second-mover advantages* (Chen & Stucker 1997; S).
o Cross-border competitive engagement: initiating competitive actions across national boundaries, retaliating in other markets than those attached
o Increase in likelihood
§ Global MNCs: easier to coordinate activities, as the markets are intertwined the position in each market is important for otehrs
§ Management international experience: stronger knowledge of foreign markets -> higher chance of an attack
§ Wholly owned subsidiaries: when owning, easier to coordinate & control activities, higher incentive to management as they are wholly owned
§ First mover advantages: when above-average returns, customer loyalty & established market share, market more crucial
§ Second mover advantage: can learn from other’s mistakes
What is the impact of high market commonality and resource similarity on the likelihood of a competitive attack or response: awareness, motivation and capability (Yu & Cannella 2007; S)?
Definition:
o Impact on attack
- Chen 1996: High market commonality & resource similarity decreases the chances of a competitive attach: many options of retaliation
o Impact on response
- Yu & Cannella 2007: extended the awareness, motivation and capability framework onto a global arena
· The awareness, motivation & capability framework: integrates all independent variables as a theoretical foundation for predicting cross-border competitive engagement: The 3 drivers of interfirm rivalry: competitors will only respond if they are aware & have motivation & capability
· High market commonality (Yu’s Multimarket contract): makes the firm more likely to move quickly to counter an attack (awareness & motivation)
· High resource similarity: makes competitors able to respond (capability)
What is the difference between slow and fast market cycles?
Slow: Provides returns from a sustained competitive advantage
Fast: provides returns from a series of replicable actions
How do factors (geographical distance & subsidiary control) influence the speed of a competitive response? (Yu 2007)
Response speed: the time lag between attack & response, slow lead to missed opportunities, in multi-market rivalry response may occur in another market
o Influenced by factors
§ Resource related:
· Home-host geographical distance: increases difficulty of recognition & implementation of response, decreases speed
· Home-initiating geographical distance: -||-
· Host gov’t constraints: hinder the motivation & capability of an MNE to respond, e.g. import duties or political hazards, decreases the motivation to respond quickly
· Home gov’t constraints: a stable home situation (and defensive policies in place) increases the motivation & capability to respond,
· Subsidiary control: strong control = strong information flows and extent to which HQ can influence subsidiary, strong control increases motivation & capability to respond HOWEVER empirical evidence states that higher subsidiary control decreases response speed
§ Market related
· Initiating country importance: the more important the market, the higher the speed: NOT supported by evidence
· Response occurrence in the country of attack: speed is increased when the host country is where initiation occurred
· Multimarket contract: (also market commonality): increases motivation to respond
