Global Strategy Mike W. Peng c h a p t e r 88 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. Global Strategy Mike W. Peng Chapter 8 Managing Global Competitive Dynamics

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

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.

8–4 A Comprehensive Model of Global Competitive Dynamics Figure 8.2

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 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  Concentration ratio  Industry price leader  Homogeneous products  High entry barriers vs. low entry barriers  High market commonality (mutual forbearance)

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8–8 Industry Characteristics and Possibility of Collusion vis-à-vis Competition Table 8.1

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. Resource-Based Considerations: VRIO Value Rarity Imitability Organization Resource Similarity Fighting low-cost rivals

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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. 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 antidumping

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. Three Main Types of Attack GambitGambit ThrustThrustFeintFeint AttacksAttacks

8–13 Thrust (e.g., Microsoft fights Netscape) 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.

8–14 Feint (e.g., Philip Morris fights RJR in the US and CEE) 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.

8–15 Gambit (e.g., Gillette fights BIC in lighters and razors) 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. 733), Academy of Management Review, 23: 724–740.

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. 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 © 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  Market entry  Truce seeking  Communication via governments  Strategic alliances for cost reduction

8–18 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.

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

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

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

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

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. Two Most Significant Debates Strategy versus IO economics and Antitrust Policy  Antitrust laws were created to deal with old realities  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  Two arguments against antidumping restrictions  Difficult to prove the case concerning “cost”  Virtually all firms lose money in first year  “Fair trade laws” (such as antidumping laws) in one country - regarded as “unfair” trade laws elsewhere

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. 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”