Global Strategy Mike W. Peng c h a p t e r 88 Copyright © 2009 Cengage.PowerPoint Presentation by John Bowen, Columbus State Community College All rights reserved. Managing Global Competitive Dynamics Part II: Business-Level Strategies Global Strategy Mike W. Peng chapter 8 8

Copyright © 2009 Cengage. All rights reserved.8–2 Outline Strategy as action Industry-based considerations Resource-based considerations Institution-based considerations Attack and counterattack Cooperation and signaling Local firms versus multinational enterprises Debates and extensions The savvy strategist

Copyright © 2009 Cengage. All rights reserved.8–3 Strategy as Action Figure 8.1 Source: C. M. Grimm & K. G. Smith, 1997, Strategy as Action: Industry Rivalry and Coordination (p. 62), Cincinnati: Thomson South-Western.

Copyright © 2009 Cengage. All rights reserved.8–4 A Comprehensive Model of Global Competitive Dynamics Figure 8.2 Industry-based considerationsResource-based considerations Concentration Valuable capabilities to attack, deter and retaliate Product homogeneity Stability of demand and supply Rarity of certain assets Industry leader Imitability of competitive actions Entry barriers Organizational skills for actions Market commonality with rivals Resource similarity with rivals Institution-based considerations Domestic competition: Primarily competition/antitrust policy International competition: Primarily trade/antidumping policy Competitive dynamics Attack/Counterattack Cooperation

Copyright © 2009 Cengage. All rights reserved.8–5 Strategy as Action Strategy is interaction Firms, like militaries, often compete aggressively Military principles cannot be completely applied in business 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 © 2009 Cengage. All rights reserved.8–6 Industry-Based Considerations Collusion and “prisoners’ dilemma” Industry characteristics and collusion vis-à-vis competition  Concentration ratio  Industry price leader  Homogeneous products  Stability of demand, supply, and technology  High-frequency, low-value orders  Friendly social relationships among rival managers  High entry barriers  High market commonality (mutual forbearance)

Copyright © 2009 Cengage. All rights reserved.8–7 A Prisoners’ Dilemma for Airlines and Payoff Structure (assuming a total of 200 passengers) Figure 8.3

Copyright © 2009 Cengage. All rights reserved.8–8 Industry Characteristics and Possibility of Collusion vis-à-vis Competition Table 8.2 COLLUSION POSSIBLE COLLUSION DIFFICULT (COMPETITION LIKELY)  Few firms (high concentration)  Many firms (low concentration)  Existence of an industry price leader  No industry price leader  Homogeneous products  Heterogeneous products  High entry barriers  Low entry barriers  High market commonality (mutual forbearance)  Lack of market commonality (no mutual forbearance)

Copyright © 2009 Cengage. All rights reserved.8–9 Resource-Based Considerations: VRIO Value Rarity Imitability Organization Resource Similarity Fighting low cost rivals

Copyright © 2009 Cengage. All rights reserved.8–10 A Framework for Competitor Analysis Between a Pair of Rivals Figure 8.4 Sources: Adapted from (1) M. Chen, 1996, Competitor analysis and interfirm rivalry: Toward a theoretical integration (p. 108), Academy of Management Review, 21: 100–134 and (2) J. Gimeno & C. Y. Woo, 1996, Hypercompetition in a multimarket environment: The role of strategic similarity and multimarket contact in competitive de-escalation (p. 338), Organization Science, 7: 322–341.

Copyright © 2009 Cengage. All rights reserved.8–11 Institution-based Considerations Formal institutions governing domestic competition: a focus on antitrust  Competition policy  Antitrust policy  Competition/antitrust policy focuses on: collusive price setting, predatory pricing and extraterritoriality Formal institutions governing international competition: a focus on dumping

Copyright © 2009 Cengage. All rights reserved.8–12 Major US Antitrust Laws and Landmark Cases Table 8.3 Sherman Act (1890) Clayton Act (1914) Hart-Scott-Rodino Act (HSR) (1976) Standard Oil (1911) ALCOA (1945) IBM ( ) AT&T ( ) Microsoft ( ) Final settlement with the US government in 2001 but found guilty by the EU in 2004

Copyright © 2009 Cengage. All rights reserved.8–13 Three Main Types of Attack GambitGambit ThrustThrustFeintFeint AttacksAttacks

Copyright © 2009 Cengage. All rights reserved.8–14 Thrust Figure 8.6 Source: Adapted from R. G. McGrath, M. Chen, & I. C. MacMillan, 1998, Multimarket maneuvering in uncertain spheres of influence: Resource diversion strategies (p. 729), Academy of Management Review, 23: 724–740.

Copyright © 2009 Cengage. All rights reserved.8–15 Feint Figure 8.7 Source: Adapted from R. G. McGrath, M. Chen, & I. C. MacMillan, 1998, Multimarket maneuvering in uncertain spheres of influence: Resource diversion strategies (p. 731), Academy of Management Review, 23: 724–740.

Copyright © 2009 Cengage. All rights reserved.8–16 Gambit Figure 8.8 Source: Adapted from R. G. McGrath, M. Chen, & I. C. MacMillan, 1998, Multimarket maneuvering in uncertain spheres of influence: Resource diversion strategies (p. 733), from Academy of Management Review, 23: 724–740. Copyright © Reprinted by permission of Academy of Management Review via Copyright Clearance Center.

Copyright © 2009 Cengage. All rights reserved.8–17 Attack and Counterattack Three main types of attack  Thrust  Feint  Gambit Awareness, motivation, and capabilities  Is the attack so subtle that rivals are not aware of it?  Is the attacked market of marginal value?  Strong capabilities required for counterattacks

Copyright © 2009 Cengage. All rights reserved.8–18 Cooperation and Signaling Signaling  Nonaggression  Market entry  Truce seeking  Communication via governments Thomas Schelling: Using a protracted series of successful bargains  Bargaining often takes place through signals and actions  Three issues emerge on certain collaborations emerge: secrecy, exclusivity, and informality

Copyright © 2009 Cengage. All rights reserved.8–19 Local Firms versus Multinational Enterprises Dodger Contender Defender Extender

Copyright © 2009 Cengage. All rights reserved.8–20 How Local Firms in Emerging Economies Respond to MNE Actions Figure 8.9 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.

Copyright © 2009 Cengage. All rights reserved.8–21 Two Most Significant Debates Strategy versus IO economics and Antitrust Policy  Antitrust laws were created to deal with old realities  In global competition, when foreign antitrust laws are more permissive, US antitrust laws hurt US firms  Anticompetitive or hypercompetitive?  US antitrust laws create strategic confusion  US antitrust laws, which combat “unfair” practice, may be unfair, especially to large US firms  Competition versus Antidumping  “Fair trade laws” (such as antidumping laws) in one country - regarded as “unfair” trade laws elsewhere

Copyright © 2009 Cengage. All rights reserved.8–22 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”