8

chapter

Topic 7
Managing Global
Global Competitive
Strategy
Mike W. Peng
Dynamics
 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
 Strategy as Action

• Strategy as Action
• Definition: The specific steps multinational
companies take to achieve their objectives in the
global market.

• Example: A global retailer like Walmart opens stores

in emerging markets like India and China to expand
its international presence.
Strategy as Action

Figure 8.1
8–4
 Strategy as Action

• Strategy as Interaction
• Definition:
Strategy as interaction emphasizes that the strategic actions of a
firm are influenced by and influence the actions of other firms. This
perspective highlights the dynamic and mutual nature of competitive
strategies where firms must anticipate and respond to the actions of
their rivals.
 Strategy as Action

• Key Points:
1. Anticipation of Competitor Actions: Firms must predict and prepare for
possible moves by competitors.
1. Example: If one airline plans to cut prices, others might anticipate this
and develop counter-strategies such as improving services or offering
promotions.
2. Response to Competitor Actions: Firms must be ready to react quickly to
the strategies of their rivals.
1. Example: When one tech company launches a new product, others
may respond with their own innovations or marketing campaigns.
 Strategy as Action

3. Coordination and Rivalry: Sometimes firms coordinate (e.g., through

implicit collusion) and other times they engage in aggressive competition.
1. Example: In the automobile industry, companies may follow each
other's lead on technological advancements, while simultaneously
competing aggressively on market share.
4. Dynamic Adjustments: Firms continuously adjust their strategies based on
the moves and countermoves of competitors.
1. Example: Fast food chains often adjust their menu prices in response to
changes by competitors.
 Strategy as Action
• Strategy is interaction
• 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.
 Comprehensive Model of Global
Competitive Dynamics

• A comprehensive model of global competitive dynamics

incorporates multiple facets of competition and strategic
interaction on a global scale. It typically includes three
main dimensions:

1. Industry-Based Considerations
2. Resource-Based Considerations
3. Institution-Based Considerations
A Comprehensive
Model of Global
Competitive
Dynamics

Figure 8.2
8–10
 Industry-based Considerations
• Concentration and industry leader: How many firms dominate the
industry.
• Product homogeneity: Similarity of products offered by firms.
• Stability of demand and supply: Consistency in market demand
and supply levels.
• Order frequency and value: How often and how much customers
purchase.
• Social relationships among rivals: Interactions and networks
between competing firms.
• Entry barriers: Obstacles for new firms entering the market.
• Market commonality with rivals: Overlapping markets where
competitors operate.
 Industry-based Considerations
1. Concentration and industry leader:
1. Example: The smartphone industry is dominated by a few key players like Apple and
Samsung.
2. Product homogeneity:
1. Example: In the steel industry, products are largely similar, leading to price-based
competition.
3. Stability of demand and supply:
1. Example: The food industry often has stable demand, with seasonal fluctuations in
supply.
4. Order frequency and value:
1. Example: Fast fashion brands receive frequent, small orders, while luxury brands may
have fewer, larger purchases.
5. Social relationships among rivals:
1. Example: Tech companies like Google and Microsoft may collaborate on standards while
competing in other areas.
6. Entry barriers:
1. Example: The pharmaceutical industry has high entry barriers due to regulatory
requirements and R&D costs.
7. Market commonality with rivals:
1. Example: Coca-Cola and Pepsi operate in many of the same markets, competing directly.
 Resource-based Considerations
• Valuable capabilities to attack, deter, and retaliate:
Unique abilities to compete effectively.
• Rarity of certain assets: How unique and scarce a
company’s resources are.
• Imitability of competitive actions: Ease with which
competitors can replicate strategies.
• Organizational skills for actions: Internal skills to
implement strategies.
• Resource similarity with rivals: How similar a firm’s
resources are to competitors.
 Resource-based Considerations
1. Valuable capabilities to attack, deter, and retaliate:
1. Example: Amazon uses its logistics network to quickly respond to
competitors’ delivery speed.
2. Rarity of certain assets:
1. Example: Tesla’s proprietary battery technology gives it a competitive
edge.
3. Imitability of competitive actions:
1. Example: Fashion brands that can easily be copied must innovate
frequently to stay ahead.
4. Organizational skills for actions:
1. Example: Toyota’s efficient production system allows it to implement
new strategies effectively.
5. Resource similarity with rivals:
1. Example: Many airlines use similar aircraft, but differ in customer
service and routes.
 Institution-based Considerations
• Domestic competition: Influences of local competition
and antitrust laws.
• International competition: Effects of global trade and
antidumping policies.
• Informal norms and beliefs concerning competition
and cooperation: Cultural and societal attitudes
towards business competition and collaboration.
 Institution-based Considerations
1.Domestic competition:
1.Example: U.S. antitrust laws prevent monopolies,
affecting companies like Microsoft and Google.
2.International competition:
1.Example: The EU imposing tariffs on Chinese steel
to prevent dumping and protect local industries.
3.Informal norms and beliefs concerning competition
and cooperation:
1.Example: In Japan, business practices emphasize
long-term relationships and cooperation among
firms.
 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).

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.
 Mutual Forbearance

• Definition:
Mutual forbearance is a strategic behavior
where competing firms consciously avoid
aggressive competition with each other to
maintain stability in the market. This often
occurs when firms compete in multiple markets
and understand that aggressive actions in one
area may lead to retaliation in another.
 Mutual Forbearance
• Example:
Consider two large airlines that operate on multiple
routes. Instead of aggressively cutting prices on each
other's main routes, they may maintain stable pricing to
avoid a price war that could harm both. This tacit
agreement leads to more predictable and sustainable
profits for both firms.
• Key Points:
• It helps in maintaining market stability.
• It reduces the likelihood of destructive competition.
• Firms recognize the mutual benefits of restraint in their
competitive actions.
20
Industry Characteristics and Possibility
of Collusion vis-à-vis Competition

Table 8.1
8–21
 Collusion Possible

• Definition: Firms can coordinate strategies,

such as pricing, to maximize joint profits.
• Characteristics:
• Fewer competitors.
• High entry barriers.
• Stable market conditions.
• Strong industry norms.
• Example: OPEC countries agreeing on oil
production limits to control prices.
 Collusion Difficult

• Definition: Coordination among firms is hard to

achieve due to market conditions.
• Characteristics:
• Many competitors.
• Low entry barriers.
• Volatile market conditions.
• Weak or non-existent norms.
• Example: The tech industry, where rapid
innovation and competition make collusion
challenging and difficult.
 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.
 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
 Institution-based Considerations

• Competition Policy
• Definition: Competition policy refers to regulations and
laws that aim to promote or maintain market competition
by regulating anti-competitive conduct by companies. It
ensures that markets operate efficiently, consumers
have choices, and businesses compete fairly.
• Antitrust Policy
• Definition: Antitrust policy is a subset of competition
policy specifically focused on preventing and addressing
anti-competitive behavior among businesses. It aims to
promote competition by prohibiting monopolistic
practices and ensuring fair competition.
 Attack and Counterattack
Three Main Types of Attack

Thrust Feint

Attacks

Gambit
 Attack and Counterattack
• Three main types of attack
➢ Thrust , Feint, and Gambit

1. Thrust
•Definition: A direct, aggressive move to challenge a competitor.
•Example: A company significantly cuts prices to capture market share from a
rival.

2. Feint
•Definition: A deceptive move designed to distract or mislead competitors.
•Example: A firm announces plans to enter a new market, causing competitors
to react, but focuses resources elsewhere.

3. Gambit
•Definition: A calculated risk where a company sacrifices something for a
potential larger gain.
•Example: A business temporarily withdraws from a low-margin market to
reallocate resources to a more profitable segment.
 Attack and Counterattack

• 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
 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
8–31
Management Review, 23: 724–740.
 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),
8–32
Academy of Management Review, 23: 724–740.
 Gambit
(e.g., Gillette fights BIC in lighters and razors)

Source: Adapted from R. G. McGrath, M. Chen, & I. C. MacMillan, 1998, Multimarket

maneuvering in uncertain spheres of influence: Resource diversion strategies (p. 733), Figure 8.7
8–33
Academy of Management Review, 23: 724–740.
 Cooperation, Accommodation and
Collusion
• Cooperation
• Definition: Firms work together to achieve mutual benefits without
necessarily breaking any laws or regulations.
• Characteristics:
• Joint ventures, alliances, or partnerships.
• Shared resources, knowledge, and technologies.
• Mutual benefit and shared goals.
• Examples:
• Two technology firms collaborating on research and
development to create a new product.
• Airlines forming alliances to offer expanded routes and shared
services.
 Cooperation, Accommodation and
Collusion
• Accommodation
• Definition: Firms adapt their strategies to minimize conflict and
maintain stable relationships with competitors.
• Characteristics:
• Avoiding aggressive competitive tactics.
• Strategic compromises and concessions.
• Maintaining market stability and predictable competition.
• Examples:
• A company deciding not to enter a competitor's core market to
avoid triggering a price war.
 Cooperation, Accommodation and
Collusion
• Collusion
• Definition: Firms secretly agree to engage in practices that restrict
competition and manipulate market outcomes, which is illegal in
many jurisdictions.
• Characteristics:
• Price fixing, market sharing, and output restriction.
• Secret agreements and coordinated actions.
• Aimed at increasing profits by reducing competition.
• Examples:
• Several firms in an industry agreeing to set the same price for
their products to avoid price competition.
• Companies dividing market territories so each has a monopoly
in a specific region.
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
8–37
(p. 122), Harvard Business Review, March-April: 119–129.
 Local Firms versus MNEs (cont’d)
• 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
8–38
 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

8–39
 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/Give up 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
8–40
 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.
8–41
 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
 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”