8 Chapter 8 chapter Managing Global Competitive Dynamics

8 Chapter 8 chapter Managing Global Competitive Dynamics Global Strategy Mike W. Peng Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Outline • Strategy as action • Industry-based considerations • Resource-based considerations • Antitrust and antidumping laws • Attack and counterattack • Local firms versus multinational enterprises • Debates and extensions • The savvy strategist Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Strategy as Action Source: C. M. Grimm & K. G. Smith, 1997, Strategy as Action: Industry Rivalry and Coordination (p. 62), Cincinnati: Thomson South-Western. Figure 8. 1 8– 3

A Comprehensive Model of Global Competitive Dynamics Figure 8. 2 8– 4

Strategy as Action • Strategy is interaction • Firms, like militaries, often compete aggressively • Military principles cannot be completely applied in business • • Business is simultaneously war and peace Militaries fight over geography, firms compete in markets Markets involve products and geography Multimarket competition: Firms engaging the same rivals in multiple markets • Multimarket competition may result in mutual forbearance Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Industry-Based Considerations • Collusion and “prisoners’ dilemma” • Industry characteristics and collusion vis-à-vis competition Ø Concentration ratio Ø Industry price leader Ø Homogeneous products Ø High entry barriers vs. low entry barriers Ø High market commonality (mutual forbearance) Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Industry Characteristics and Possibility of Collusion vis-à-vis Competition Table 8. 1 8– 8

Resource-Based Considerations: VRIO • Value • Rarity • Imitability • Organization • Resource Similarity • Fighting low-cost rivals Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Institution-based Considerations • Formal institutions governing domestic competition: a focus on antitrust Ø Competition policy Ø Antitrust policy Ø Competition/antitrust policy focuses on: collusive price setting, predatory pricing, and extraterritoriality • Formal institutions governing international Copyright © 2014 Cengage Learning. All competition: a focus on antidumping Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Three Main Types of Attack Thrust Feint Attacks Copyright © 2014 Cengage Learning. All Rights Reserved. May not be Gambit scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Thrust (e. g. , Microsoft fights Netscape) Source: Adapted from R. G. Mc. Grath, M. Chen, & I. C. Mac. Millan, 1998, Multimarket maneuvering in uncertain spheres of influence: Resource diversion strategies (p. 729), Academy of Management Review, 23: 724– 740. 8– 13

Feint (e. g. , Philip Morris fights RJR in the US and CEE) Source: Adapted from R. G. Mc. Grath, M. Chen, & I. C. Mac. Millan, 1998, Multimarket maneuvering in uncertain spheres of influence: Resource diversion strategies (p. 731), Academy of Management Review, 23: 724– 740. 8– 14

Gambit (e. g. , Gillette fights BIC in lighters and razors) Source: Adapted from R. G. Mc. Grath, M. Chen, & I. C. Mac. Millan, 1998, Multimarket maneuvering in uncertain spheres of influence: Resource diversion strategies (p. 733), Academy of Management Review, 23: 724– 740. Figure 8. 7 8– 15

Attack and Counterattack • Three main types of attack Ø Thrust Ø Feint Ø Gambit • Awareness, motivation, and capabilities Ø Is the attack so subtle that rivals are not aware of it? Ø Is the attacked market of marginal value? Ø Strong capabilities required for counterattacks Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Cooperation and Signaling • Signaling Ø Market entry Ø Truce seeking Ø Communication via governments Ø Strategic alliances for cost reduction Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

How Local Firms in Emerging Economies Respond to MNE Actions Source: Adapted from N. Dawar & T. Frost, 1999, Competing with giants: Survival strategies for local companies in emerging markets (p. 122), Harvard Business Review, March-April: 119– 129. 8– 18

Local Firms versus MNEs (cont’d) • Cell 1 (Dodger) Ø Market conditions: v Industries with high pressures for globalization. v Competitive assets based on a superior. understanding of local markets are not enough. Ø Appropriate strategy: Dodger v Must cooperate with MNEs through JVs with MNEs, agreeing to buyouts by MNEs, and/or becoming MNE suppliers and service providers. Ø All major Chinese automakers: MNE JV partners Ø Skoda in the Czech Republic: Sell out to Volkswagen Ø Many post-NAFTA Mexican manufacturers (since 1994): MNE suppliers and service providers 8– 19

Local Firms versus MNEs (cont’d) • Cell 2 (Contender) Ø Market conditions v Local firms find hope even in industries with high pressures of globalization. v Must develop combinative capabilities in integrating core technology with locally adapted design and marketing. Ø Appropriate strategy: Contender v Rapid learning and upgrading of capabilities to approach those of the MNEs and then to thrust overseas. Ø Chinese cell phone makers (TCL and Bird) vs. Motorola and Nokia 8– 20

Local Firms versus MNEs • Cell 3 (Defender) Ø Market conditions: v Pressures to globalize are relatively low. v Primary strengths lie in a deep understanding of local markets. Ø Appropriate strategy: Defender v 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 Ø Bimbo vs. Pepsi. Co in Mexico Ø Ahava vs. cosmetics giants in Israel 8– 21

Local Firms versus MNEs (cont’d) • Cell 4 (Extender) Ø Market conditions v Pressures for globalization are relatively low. v Possess skills and assets that are transferable overseas. Ø Appropriate strategy: Extender v Leverage home-grown competencies abroad by expanding into similar markets – a thrust Ø Jollibee: Venture out of the Philippines Ø Asian Paints: From India to the rest of the developing world. 8– 22

Two Most Significant Debates • Strategy versus IO economics and Antitrust Policy Ø Antitrust laws were created to deal with old realities Ø Anticompetitive or hypercompetitive? Ø US antitrust laws create strategic confusion Ø US antitrust laws, which combat “unfair” practice, may be unfair, especially to large US firms • Competition versus Antidumping Ø Two arguments against antidumping restrictions v Difficult to prove the case concerning “cost” v Virtually all firms lose money in first year Copyright © 2014 Cengage Learning. All Rights Reserved. May (such as antidumping laws) in one country Ø “Fair trade laws” not be scanned, copied or duplicated, or laws elsewhere regarded as “unfair” trade posted to a publicly accessible website, in whole or in part.

The Savvy Strategist • “Strategy as action” highlights the power of creative destruction • To thoroughly understand the nature of your industry • To strengthen capabilities that more effectively compete and/or cooperate • To understand the rules of the game governing competition • Apply the four fundamental questions • “Look ahead, reason back” Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.