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GSBS6481 International Business Strategy
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Week 6 Competitive Dynamics in International Business Strategy
Reference & Readings
Market commonality
Resource similarity
Attack and counter attack
Game theory / prisoners’ dilemma
Antitrust policy
Key concepts
Peng, (2021), Global Strategy, 45h ed. USA: Cengage Learning.
Chapter 8 Managing Global Competitive Dynamics
Hanson, D., Hitt, M. A., Ireland, R. D., Hoskisson, R. E. (2016). Strategic management: Competitiveness and globalisation, 6th ed. Australia: Cengage
Chapter 5 Competitive Dynamics (ebook available through the UoN library for free link )
Mathews, J. A. 2006. Dragon multinationals: New players in 21st century globalization. Asia Pacific Journal of Management, 23, 5-27. available through the UoN library link
Competitive dynamics in IB strategy
Competitive interactions
Explaining competitive dynamics from the three perspectives
Case discussion: Competitive dynamics and Emerging Market multinationals
Strategy as actions
Source: C. M. Grimm & K. G. Smith, 1997, Strategy as Action: Industry Rivalry and Coordination (p. 62), Cincinnati: -Western.
Copyright © 2005 South-Western. All rights reserved.
Types of strategic interaction
Patent races
Product proliferation
Attracting complementors away from competitors Fighting from customers
Fighting for better prices from suppliers
Fighting for share of value against complementors or strategic allies
Strategic alliances (e.g. joint ventures, R&D collaboration)
Building an ecosystem for joint development of a product standard Collusive agreement (implicit or explicit) on price
Agreements between competitors to obtain better deals from suppliers
Competition
Cooperation
Value creation
Value capture
Source: Casadesus-Masanell, R. 2015. Competitive and cooperative dynamics. Harvard Business School HBP No.8131.
Competitive interactions
Competitive dynamics – actions and responses undertaken by competing firms
Competitive dynamics involve not only attack/counter attack, but also cooperation in the among firms
an initial set of actions to gain competitive advantage
Counterattack
a set of actions in response to attack
Source: Bloomberg BusinessWeek 2011
First Round
B engaged in A’s target market X
Second Round
B withdraws from target market X
A massively attacks target market X
A’s sphere of influence in target market X increased
First Round
B engaged in A’s target market X
Second Round
B redeploys from target market X to defend focal market Y
A attacks focal market Y salient to B
A’s sphere of influence in target market X increased
First Round
B engaged in A’s target market X
Second Round
B redeploys from target market X to enhance sphere of influence in focal market Y
A withdraws from focal market Y salient to B
A’s sphere of influence in target market X increased
Firms may enter new markets, not necessarily to challenge incumbents but to seek mutual forbearance by establishing multimarket contact
Firms can send an open signal for a truce
Firms can send a signal to rivals by enlisting the help of governments
Firms can organize strategic alliances with rivals for cost reduction
Collusion – collective attempts between competing firms to reduce competition
tacit collusion – firms indirectly coordinate actions by signaling their intention to reduce output and maintain pricing above competitive levels
explicit collusion – firms directly negotiate output and pricing and divide markets
Competitive Dynamics (cont’d)
Why companies choose certain competitive/cooperative actions?
Source: Peng 2017 Global Strategy 4th Edition. Cengage.
The Industry-based considerations
Incentive problem, game theory and the prisoners’ dilemma
Industry characteristics as determinants of competitive dynamics
Prisoners’ Dilemma – what is it?
A classic example of the prisoner’s dilemma
Two men are arrested for some crime they committed together
The police do not possess enough information for a conviction
The police separate the two men and offer both a similar deal
If one testifies against his partner, and the other remains silent, the betrayer goes free and the one that remains silent receives the full one-year sentence.
If both remain silent, both are sentenced to one month in jail
If each ‘rats out’ the other, each receives a three-month sentence.
What should they do? What are they likely to do?
Copyright © 2009 Cengage. All rights reserved.
A Prisoners’ Dilemma for Airlines and Payoff Structure (assuming a total of 200 passengers)
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Industry Characteristics and Possibility of Collusion vis-à-vis Competition
Resource-Based Considerations
Imitability
Organization
Market commonality and resource similarity
Market commonality – the degree of overlap between two competitors
Resource similarity is the extent to which a given competitor possesses strategic endowments comparable to those of the focal firms.
Firms with high market commonality and highly similar resources are ‘clearly direct and mutually acknowledged competitors’.
If two firms have a high degree of resource similarity but a low degree of market commonality, the intensity of rivalry is likely to be the highest
Source: M.-J. Chen, 1996, ‘Competitor analysis and interfirm rivalry: Toward a theoretical integration’, Academy of Management Review, 21: 100–34
Institution-Based Considerations
Institutional
frameworks
Formal institutions governing international
competition
Formal institutions governing domestic competition
Informal institutions influencing competition
Formal Institutions Governing Domestic Competition
Competition policy institutions: Determine the institutional mix of competition and cooperation that gives rise to the market system.
The US case
Major antitrust laws: (1890); (1914); Hart-Scott-Rodino Act (HSR) (1976)
Landmark cases: Standard Oil (1911); ALCOA (1945); IBM (1976-82); AT&T (1974-82); Microsoft (1990-2001)
The Japan case
Maintaining “orderly competition,” which rewards incumbents which have invested heavily in the industry, is “fair”
Collusions caught by regulators: examples
Qantas fined for cargo price fixing
Australian cardboard giants, Amcor and Visy, agreed to pay $95 million after they were sued by customers for alleging fixing the price of cardboard boxes between 2000 and 2005. http://www.abc.net.au/pm/content/2011/s3160818.htm
Formal Institutions Governing International Competition
Example: Antidumping
Legal definition: An exporter is (1) selling below cost abroad and (2) planning to raise prices after eliminating local rivals.
Similar to the “predatory pricing” case domestically
Dumping firms will be subject to severe tariff penalties
The rise of emerging market multinationals and their competition with incumbent developed country multinationals
Examples of “dragon multinationls”
Korea: Samsung, Hyundai, LG
China: Huawei, Lenovo, Haier
Taiwan: TSMC, UMC, Acer, HTC
India: Ispat
Mexico: Cemex
Hong Kong: Li & Fung
Observed features
Managed to enter industries with high barriers
Facing fierce competition from incumbents
Consistently emerging alternative technologies
Had less resources
Accelerated internationalization
From countries where institutions are weak
Weekly discussion questions:
Based on your reading of the article “Dragon multinationals: New players in 21st century globalization”, please discuss the following questions in your group
How have those dragon multinationals from emerging economies successfully competed with incumbents in the industries? Does the ‘tripod strategic framework’ fail to explain their success?
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