16-01-2013, 12:44 PM
Global industrial competition
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INTRODUCTION
Competition in global industries presents some unique strategic issues compared to domestic competition. Although their resolution depends on the industry and the home and host countries involved, the following issues must be confronted in some way by global competitors.
Industrial Policy and Competitive Behavior. Global industries are characterized by the presence of competitors operating worldwide from home bases in different countries. Particularly outside of the United States, firms and their home governments must be regarded together in competitor analysis. The two have complex relationships which can involve many forms of regulation, subsidy, and other assistance. Home governments often have objectives, such as employment and balance of payments, that are not strictly economic, certainly from the point of view of the firm. Government industrial policy can shape companies' goals, provide R&D funds, and in many ways influence their position in global competition. Home governments can help negotiate for the firm in world markets (heavy construction, aircraft), help finance sales through central banks (agricultural goods, defense products, ships), or apply political leverage to advance its interests in other ways. In some cases the home government is directly involved in the firm through partial or complete ownership. A consequence of all this support is that barriers to exit may well increase.
Competitor analysis is impossible in world industries without a thorough examination of the relationships between firms and home countries. The home country's industrial policy must be well understood, as well as the political and economic relations of the home government vis-a-vis governments in major world markets for the industry's product.
It is often true that competition in world industries is distorted by political considerations which may or may not be related to the economics involved. Purchases of aircraft, defense products, or computers may depend as much on the political relations between home countries and buying countries as they do on the relative merits of one firm's product against another's. This factor implies not only that the competitor in a global industry needs a high degree of information about political matters but also that the firm's particular relationships with its home government and governments in buying countries become truly strategic in importance. Competitive strategy may have to include actions designed to build political capital, such as locating assembly operations in the major markets, even if they are not economically efficient.
Relationships with Host Governments in Major Markets. The firm's relationship with host governments in major markets becomes a key competitive consideration in global competition. Host government have a variety of mechanisms that can impede the operation of global firms. In some industries they are major buyers, whereas in others their influence is more indirect but potentially as strong. Where host governments are prone to exercise their power, they can either block global competition altogether or create a number of different strategic groups in an industry. Studies by Doze have identified three groups.9 The first consists of firms competing globally on a coordinated basis; the second, of multinational companies (often with smaller market shares) that follow a strategy of local responsiveness rather than integration. These firms escape many government impediments and may actually receive host government support. Final'Doz (1979. the third group is made up of local firms. For international companies, the degree of responsiveness to host government concerns becomes a key strategic variable. I will describe the broad alternatives to competing globally in some detail below.
The firm trying to compete globally may need to compete in certain major markets to gain necessary economies. For example, it may need the volume of certain major markets in order to fulfill a global manufacturing strategy. it must therefore concern itself strategically with protecting its position in those markets that affect its ability to implement the global strategy as a whole. This requirement gives the host governments in these countries bargaining power, and the firm may have to make concessions in order to preserve the whole strategy. For example, Japanese firms in the television and automobile industries may have to manufacture partly in the United States, to appease U.S. political concerns, in order to maintain the U.S. volume that is a key source of their global competitive advantage. Another example is IBM's policies of local full employment, balanced intra-company transfers of goods among countries, and some local R & D.'
Trends Affecting Global Competition
There appear to be a number of trends that hold great importance for competition in existing global industries and for the creation of new ones.
Reduction in Differences Among Countries. A number of observers have pointed out that the economic differences among developed and newly developed countries may be narrowing in areas like income, factor costs, energy costs, marketing practices, and distribution channels)2 Part of this reduction may be due to the aggressiveness of multinational companies in spreading techniques around the world. Whatever the causes, it works toward reducing impediments to world competition.
More Aggressive Industrial Policy. Industrial policies of many countries are influx. From passive or protective postures, governments like Japan, South Korea, Singapore, and West Germany are taking aggressive postures to stimulate industry in carefully selected sectors. They are also facilitating the abandonment of sectors deemed less desirable. This new industrial policy is giving firms in such countries the support to make bold moves that will transform industries to global status, like the construction of massive plants and large up-front investments in breaking into new markets. Thus, although firms in sectors not favored by their governments may drop out, those firms that remain in global industries may well behave differently. As the latter are increasingly backed by governments taking an aggressive stance, the resources available for corn- petition and the stakes involved are increased. Noneconomic objectives made central by government involvement come increasingly into play. There is the possibility that international rivalry will escalate as a result of these factors and that barriers to exit will also increase, which further increases rivalry.
Forces that Determine Industry Competition
When analyzing an industry, it is important to determine what competitive forces affect the industry. Michael Porter discussed the concept of industry competition in numerous books and articles. He believes that there are 5 main competitive forces that drive industry competition:
1.Rivalry among existing competitors.
2.Threat of new entrants.
3. Threat of substitute products.
4.Bargaining power of buyers.
5.Bargaining power of suppliers.
1. Rivalry Among Existing Competitors.
Porter believes that competition among existing firms must be analyzed with respect to (1) the intensity of competition and (2) whether the competition among existing firms is growing.
2. Threat of New Entrants.
When analyzing industry competition, it is not only important to analyze the existing competitors currently within the industry, but also any competition from a potential new entrant into the industry. This force can be analyzed by understanding an industry's barriers to entry.
3. Threat of Substitute Products.
From basic economics, it is understood that if a product has a substitute, the potential profit from that product is limited because consumers will switch to the substitute product if the initial product is too costly. In analyzing an industry, it is important to identify potential substitute products to determine the flexibility of demand within an industry.
4. Bargaining Power of Buyers.
Much like substitution, it is important to analyze the bargaining power of buyers and how that relates to the profitability of the industry. If the bargaining power of the buyers is high, the industry profitability will be driven by the buyers so that greater attention to a buyer's wants or needs, will determine competition within the industry.
5. Bargaining Power of Suppliers.
Suppliers are an important factor in a company's competitiveness as they can alter the profitability of the company and industry. As such, it is important to determine who the suppliers to the industry are as well as the level of bargaining power the suppliers have. If the bargaining power of the suppliers is high, the industry profitability will be driven by the suppliers.