© 2011 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 Business 2e C hap t e r 11 Managing Global Competitive Dynamics

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. LEARNING OBJECTIVES After studying this chapter, you should be able to: 1.Understand the industry conditions conducive for cooperation and collusion. 2.Outline how formal institutions affect domestic and international competition. 3.Articulate how resources and capabilities influence competitive dynamics. 4.Identify the drivers for attacks, counterattacks, and signaling. 5.Discuss how local firms fight multinational enterprises (MNEs). 6.Participate in two leading debates concerning global competitive dynamics. 7.Draw implications for action.

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. COMPETITION, COOPERATION, AND COLLUSION Competitive dynamics Actions and responses undertaken by competing firms Competitor analysis Process of anticipating rivals’ actions in order to both revise a firm’s plan and prepare to deal with rivals’ response ? Can you think of a recent example of competitive dynamics in a specific market?

© 2011 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 COLLUSION Collusion Collective attempts to reduce competition Explicit collusion Firms directly negotiate output and pricing and divide markets

© 2011 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 COLLUSION Cartel An output- and price-fixing entity involving multiple competitors Trust A cartel on which members have to trust each other to honor agreements Antitrust laws Laws in various countries that outlaw trusts

© 2011 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 COLLUSION Prisoners’ dilemma Game in which two prisoners are suspected of a major joint crime but police do not have strong evidence Silence on the part of both suspects would lead to the greatest benefit (freedom), the risk from not confessing when the other party confesses is such at typically both prisoners confess

© 2011 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 COLLUSION Game theory A theory that studies interactions between two parties that compete and/or cooperate with each other

© 2011 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 COLLUSION Concentration ratio Percentage of total industry sales accounted for by the top four, eight, or twenty firms Price leader Firm that has dominant market share and sets “acceptable” prices and margins in the industry Capacity to punish Price leader has sufficient resources to deter and combat defection

© 2011 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 COLLUSION Market commonality Degree of overlap between two rivals’ markets Multimarket competition Firms engage the same rivals in multiple markets Mutual forbearance Multimarket firms respect their rivals’ spheres of influence in certain markets, and their rivals reciprocate, leading to tacit collusion

© 2011 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 COLLUSION Cross-market retaliation If a firm attacks in one market, its rivals have the ability to engage it in its other markets

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

FORMAL INSTITUTIONS GOVERNING DOMESTIC COMPETITION Competition policy Determines the institutional mix of competition and cooperation that gives rise to the market system Antitrust policy Government policies designed to combat monopolies and cartels

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. FORMAL INSTITUTIONS GOVERNING DOMESTIC COMPETITION Collusive price setting Price setting by monopolists or collusion parties at a level higher than the competitive level Predatory pricing Setting prices below cost while intending to raise prices after eliminating rivals to cover its losses in the long run (“an attempt to monopolize”)

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. FORMAL INSTITUTIONS GOVERNING DOMESTIC COMPETITION Dumping Selling goods at below cost or home market prices Antidumping laws Laws that make it illegal for an exporter to sell goods below cost abroad or below home market prices with the intent to raise prices after eliminating local rivals

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. RESOURCES INFLUENCING COMPETITIVE DYNAMICS Resource similarity Extent to which a given competitor possesses strategic endowment comparable, in terms of both type and amount, to those of the focal firm

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ATTACK, COUNTERATTACK, AND SIGNALING Attack An initial set of actions to gain competitive advantage Counterattack A set of actions in response to attack Blue ocean strategy Strategy that avoids attacking core markets defended by rivals, which would likely result in a bloody price war or a “red ocean”

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. LOCAL FIRMS VERSUS MULTINATIONAL ENTERPRISES Defender Pressures to globalize are relatively low and local firms’ strengths lie in a deep understanding of local markets Extender Pressures for globalization are relatively low and local firms may possess some skills and assets that are transferable overseas

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. LOCAL FIRMS VERSUS MULTINATIONAL ENTERPRISES Dodger Local firms compete in industries with high pressures for globalization Contender Firms engage in rapid learning and then expand overseas ? What types of things does a firm need to learn in order to become a contender?

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.