Competition in Global Industries

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 com-petitors.

Industrial Policy and Competitive Behavior. Global industries are characterized by the presence of competitors operating world-wide from home bases in different countries. Particularly outside of the United States, firms and their home governments must be re-garded together in competitor analysis. The two have complex rela-tionships 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 econom-ic, certainly from the point of view of the firm. Government indus-trial 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 (ag-ricultural 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 com-plete 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 under-stood, as well as the political and economic relations of the home government vis-à-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 mer-its 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 particu-lar relationships with its home government and governments in buy-ing countries become truly strategic in importance. Competitive stra-tegy 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 govern-ments 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 dif-ferent strategic groups in an industry. Studies by Doz have identified three groups.9 The first consists of firms competing globally on a co-ordinated 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 im-pediments and may actually receive host government support. Final-ly, the third group is made up of local firms. For international com-panies, the degree of responsiveness to host government concerns becomes a key strategic variable. I will describe the broad alterna-tives to competing globally in some detail below.

The firm trying to compete globally may need to compete in cer-tain 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 stra-tegically 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 advan-tage. Another example is IBM’s policies of local full employment, balanced intra-company transfers of goods among countries, and some local R&D.10

Systemic Competition. A global industry, by definition, is one in which firms view competition as global and build strategies ac-cordingly. Thus competition involves a coordinated worldwide pat-tern of market positions, facilities, and investments. The global stra-tegies of competitors will usually involve only partial overlap in served markets, geographic location of plants, and so on. In main-taining a competitive balance from a systemic viewpoint, it may be necessary for firms to make defensive investments in particular mar-kets and locations so as not to let competitors reap advantages that can be factored into their overall global posture. Knickerbocker’s study of international competition found much evidence of this pat-tern of behavior.”

Difficulty in Competitor Analysis. Although the same sorts of factors as described in Chapter 3 are important in analyzing inter-national competitors, this analysis is difficult in global industries because of the prevalence of foreign firms and the need to analyze systemic relationships. Data on foreign firms are generally less avail-able than on U.S. firms, although the differences are narrowing.

Analysis of foreign firms also may involve institutional considera-tions that are hard for outsiders to understand, such as labor prac-tices and managerial structures.

Source: Porter Michael E. (1998), Competitive Strategy_ Techniques for Analyzing Industries and Competitors, Free Press; Illustrated edition.

Leave a Reply

Your email address will not be published. Required fields are marked *