1 Strategic Management: Concepts and Cases Part II: Strategic Actions: Strategy Formulation Chapter 5: Competitive Rivalry and Dynamics

2 The Strategic Management Process

3 Chapter 5: Competitive Rivalry and Dynamics Overview: Six content areas Competitors, competitive rivalry( 竞争性对抗 ), competitive behavior and competitive dynamics （竞 争动态） Market commonality （市场共性） and resource similarity （资源相似性） : Building blocks （基本要素） of competitor analysis Competitive actions: Awareness （知晓）, motivation and ability Factors driving competitor’s competitive actions Competitor’s response to actions taken against it Competitive dynamics in slow, fast and standard- cycle markets （标准周期市场）

4 Competition Between HP and Dell: The Battle Rages On Dell lost position as global top-seller of PCs End of 2006: HP 18.1% vs. Dell’s 14.7% 2005 and 2006: 32% overall decline in stock value Dell way: bypass middle-man and sell custom-built （客户 定做） computers directly to consumer This single business model lowered costs and hence prices of products, no longer created value to the degree it had historically …. … Why? Competitive actions/reactions HP: found ways to innovate and reinvent （改造） itself – since it couldn’t compete with Dell in the direct-sales battlefield they used their strength and developed personal relationships with retailers Dell decides to venture into retail sales – a reaction to HP!

5 Competition Between HP and Dell: The Battle Rages On

6 Question The advantages and disadvantages of DELL’s mode--- direct sale over internet and phone?

7 Overview: Six content areas Competitors, competitive rivalry, competitive behavior and competitive dynamics Market commonality and resource similarity: Building blocks of competitor analysis Competitive actions: Awareness, motivation and ability Factors driving competitor’s competitive actions Competitor’s response to actions taken against it Competitive dynamics in slow, fast and standard- cycle markets Competition Between HP and Dell: The Battle Rages On

8 Introduction and Definitions Competitors( 竞争者 ) Firms operating in the same market, offering similar products and targeting similar customers Competitive Rivalry （竞争性对抗） Ongoing set of competitive actions and competitive responses occurring between competitors as they contend with each other for an advantageous market position Competitive Behavior Set of competitive actions and competitive responses the firm takes to build or defend its competitive advantages and to improve its market position

9 Introduction and Definitions (Cont’d) Multimarket Competition Firms competing against one another in several product or geographic markets Competitive Dynamics ( 竞争动态 ) Total set of actions and responses of all firms competing within a market

10 From Competitors to Competitive Dynamics P82

11 Overview: Six content areas Competitors, competitive rivalry, competitive behavior and competitive dynamics Market commonality and resource similarity: Building blocks of competitor analysis Competitive actions: Awareness, motivation and ability Factors driving competitor’s competitive actions Competitor’s response to actions taken against it Competitive dynamics in slow, fast and standard-cycle markets Chapter 5: Competitive Rivalry and Dynamics

12 Model of Competitive Rivalry Over time firms take competitive actions/reactions Pattern shows firms are mutually interdependent （相互 影响） Firm level rivalry is usually dynamic and complex Foundation for successfully building and using capabilities and core competencies to gain an advantageous market position Sequence of events (Figure 5.2) are the components of this chapter

13 A Model of Competitive Rivalry P83

14 Discussion 1 、 when will you take competitive actions? 2 、 what can you obtain from the competitive actions?

15 Competitor Analysis 2 components to assess: Market Commonality and Resource Similarity The question: ‘To what extent are firms competitors’? Number of markets in which firms compete against each other Competitor: High market commonality & resource similarity I.e., Dell and HP are direct competitors Direct competition does not always imply intense rivalry

16 Corporation between MITSUBISHI & PEUGEOT

17 Competitor Analysis Market Commonality Each industry composed of various markets which can be subdivided into (segments) I.e., Moto industry Resource Similarity Extent to which firm’s tangible/intangible resources are comparable to competitor’s in type and amount I.e., FedEx and UPS – both have efficient operations and focus on cost reduction Combination of market commonality & resource similarity indicate a firm’s direct competitors

18 A Framework of Competitor Analysis

19 Examples 1 、 PepsiCo & CocaCola can be described by quadrant Ⅰ B. Ⅱ C. Ⅲ D. Ⅳ 2 、 IBM & Lenovo can be described by quadrant A. Ⅰ B. Ⅱ C. Ⅲ D. Ⅳ

20 Overview: Six content areas Competitors, competitive rivalry, competitive behavior and competitive dynamics Market commonality and resource similarity: Building blocks of competitor analysis Competitive actions: Awareness, motivation and ability Factors driving competitor’s competitive actions Competitor’s response to actions taken against it Competitive dynamics in slow, fast and standard- cycle markets Chapter 5: Competitive Rivalry and Dynamics

21 Drivers of Competitive Actions/Responses Market commonality & resource similarity influence three drivers (awareness, motivation and ability) of competitive behavior Awareness （意识） Prerequisite( 先决条件 ) to any competitive action Extent competitors recognize degree of mutual interdependence that results from market commonality and resource similarity Motivation Firm's incentive to take action, or to respond to a competitor's attack, as it relates to perceived gains and losses Ability Firm's resources that allow competitive action and flexibility responsiveness

22 Discussion Imagine you are CEO of Suning. How to analyze the price-off promotion of Gome Before take competitive response?

23 Drivers of Competitive Actions/Responses Other influences include resource dissimilarity ( 资源差异 ) The greater the resource imbalance between acting firm and competitors or potential responders, the greater will be the delay in response I.e., Wal-Mart initially used cost leadership strategy to compete only in small communities Created a logistics systems and extremely efficient purchasing practices as competitive advantages

24 Competitive Rivalry Important to understand competitor’s awareness, motivation and ability in order to predict the likelihood of an attack – study ‘likelihood of attack’ factors What are the strategic and tactical （战术） actions? Strategic actions/responses: market-based moves that signify a significant commitment of organizational resources to pursue a specific strategy Difficult to implement and reverse Tactical actions/responses: market-based moves that involve fewer resources to fine-tune （调整） a strategy that is already in place Easy to implement and reverse

25 Competitive Rivalry What are the strategic and tactical actions? (Cont’d) Competitive Action Strategic or tactical action firm takes to build or defend its competitive advantages or improve its market position Competitive Response Strategic or tactical action the firm takes to counter effects of a competitor's action Tactical Action (or Response) Market-based move the firm takes in order to fine-tune a strategy

26 Interfirm Rivalry: Likelihood of Attack Three possible ‘likelihood of attack’ actions 1. First Mover Incentives 2. Organizational Size 3. Quality

27 Interfirm Rivalry: Likelihood of Attack (Cont’d) Three possible ‘‘likelihood of attack’ actions (Cont’d) 1. First Mover Incentives Firm that takes an initial competitive action to build or to defend its competitive advantages or to improve its market position Must have readily available resources  Slack – buffer or cushion provided by actual or obtainable resources not currently used by an organization, resources in excess of the minimum needed to produce a given level of output

28 Interfirm Rivalry: Likelihood of Attack (Cont’d) Three possible ‘‘likelihood of attack’ actions (Cont’d) 1. First Mover Incentives Often builds upon a strategic foundation of superior research and development skills Tends to be aggressive and willing to experiment with innovation Tends to take higher, yet reasonable, risks Needs to have liquid resources (slack) that can be quickly allocated to support actions Benefits can be substantial, but remember the learning curve!

29 Interfirm Rivalry: Likelihood of Attack (Cont’d) Three possible ‘likelihood of attack’ actions (Cont’d) 1. First Mover Incentives: Responses to Second Mover  Responds to first mover, typically through imitation  Is more cautious( 谨慎 ) than first movers  Tends to study customer reactions to product innovations  Tends to learn from the mistakes of first movers, reducing its risks  Takes advantage of time to develop processes and technologies that are more efficient than first movers, reducing its costs  Will not benefit from first mover advantages, lowering potential returns Late Mover  Responds to market opportunities only after considerable time has elapsed since first and second movers have taken action  Has substantially reduced risks and returns

30 Interfirm Rivalry: Likelihood of Attack (Cont’d) Three possible ‘likelihood of attack’ actions (Cont’d) 2. Organizational Size Small firms  Act as nimble( 敏捷的 ) and flexible competitors  Rely on speed and surprise to defend their competitive advantage  Have greater variety of competitive behavior options available Large firms  Often have greater slack  Have greater likelihood to initiate competitive and strategic actions over time  Tend to rely on a limited variety of competitive actions, which can ultimately reduce their competitive success

31 Interfirm Rivalry: Likelihood of Attack (Cont’d) Three possible ‘‘likelihood of attack’ actions (Cont’d) 3. Quality Customer perception （感觉） that the firm's goods or services perform in ways that are important to customers, meeting or exceeding their expectations

32 Interfirm Rivalry: Likelihood of Response Additional factors affect the likelihood a firm will competitively respond to a competitor’s actions: 1. Types and effectiveness of the competitive action 2. Actor’s Reputation Actor: Firm taking an action or response (in the context of competitive rivalry) Reputation: positive or negative attribute ascribed （声誉） by one rival to another based on past competitive behavior 3. Dependence on the Market Extent to which a firm's revenues or profits are derived from a particular market Finally, if the action significantly strengthens or weakens the firm's competitive position

33 Overview: Six content areas Competitors, competitive rivalry, competitive behavior and competitive dynamics Market commonality and resource similarity: Building blocks of competitor analysis Competitive actions: Awareness, motivation and ability Factors driving competitor’s competitive actions Competitor’s response to actions taken against it Competitive dynamics in slow, fast and standard-cycle markets Chapter 5: Competitive Rivalry and Dynamics

34 Competitive Dynamics: 3 Market Cycles 1. Slow-Cycle Markets Markets in which the firm‘s competitive advantages are shielded （避免） from imitation for long periods of time, and in which imitation is costly Build a one-of-a-kind competitive advantage which creates sustainability (I.e., proprietary and difficult for competitors to understand) Once a proprietary advantage is developed, competitive behavior should be oriented to protecting, maintaining, and extending that advantage Organizational structure should be used to effectively support strategic efforts

35 Examples

36 Gradual Erosion of a Sustained Competitive Advantage

37 Competitive Dynamics: 3 Market Cycles (Cont’d) 2. Fast-Cycle Markets Markets in which the firm's capabilities that contribute to competitive advantages are not shielded from imitation and where imitation is often rapid and inexpensive Focus: learning how to rapidly and continuously develop new competitive advantages that are superior to those they replace (creating innovation) Avoid loyalty to any one product, possibly cannibalizing their own current products to launch new ones before competitors learn how to do so through successful imitation Continually try to move on to another temporary competitive advantage before competitors can respond to the first one

38 Developing Temporary Advantages to Create Sustained Advantage

39 Examples

40 Examples

41 Competitive Dynamics: 3 Market Cycles (Cont’d) 3. Standard-Cycle Markets Markets where firm’s competitive advantages are moderately shielded from imitation and where imitation is moderately costly Competitive advantages partially sustained as quality is continuously upgraded Seek to serve many customers and gain a large market share Gain brand loyalty through brand names Careful operational control / manage a consistent experience for the customer

42 Examples

43 Task1 1 、 Topic for next time: P143 No. 2. What is market commonality? What is resource similarity? What does it mean to say that these concepts are the building blocks for a competitor analysis?

44 Task2 –Team Work Analyze the External and Internal Environment of “your company” ， （ 1 ） I English （ 2 ） Not less than 15 pages (PPT) （ 3 ） deadline ： 10 th week （ 4 ） Make a report in English （ everyone ）