We have observed how first movers and followers maneuver against each other to move ahead on the escalation ladder with new product introductions and new generations of products. We have also seen how these maneuvers speed up over time and get bolder. Hypercompetitive firms attempt to avoid or break out of perfect competition (where no one has an advantage) by (1) speeding up the ladder faster than the other players or (2) restarting the cycle by building new knowledge bases that allow new products and business methods to be used.
1. Hypercompetition in the Timing and Know-how Arenas
of Two Industries: The Ethical Pharmaceuticals
Industry and Flat-Panel Screens
As illustrated by the Hoffmann-LaRoche example at the beginning of this chapter, timing and know-how can provide a big advantage. However, dynamic maneuvering erodes these advantages. As can be seen in the following description of a half century of competition in the pharmaceutical industry (shown in Figure 2-12),38 technological and market know-how provide only a temporary advantage. In R&D and marketing and promotions, the know-how required for success continued to evolve through innovation and competitive maneuvering. In R&JD, methods for identifying new drug compounds have changed from molecular manipulation prior to World War II to soil screening and fermentation skills in the 1950s. This trial-and-error technique gave way to “rational drug design” and finally to biotechnology. Each new stage in the evolution of key competencies led to the emergence of new firms with those competencies, eventually making them obsolete and requiring the development of a new knowledge-based core competence.
Similarly, in marketing and promotion, skills have shifted from direct sales to physicians, “blockbuster” marketing, and specialized sales to different medical specialties. A new, emerging source of competence is the ability to cope with regulatory agencies, as approval processes account for an increasing portion of the cost of developing and launching a new drug.
Thus, the hypercompetitive firm is not one that allows price war to last.
It fights by a succession of actions and the development of entirely new knowledge bases. It speeds up the escalation ladder in Figure 2-11 and restarts it frequently. But this is often an exhausting effort because imitators cannot be stopped.
The flat-panel screen industry is a good example of why hypercompeti- tive firms can close the innovation and knowledge gap, even when they are far behind. Flat-panel screens are turning up everywhere—on laptop computers, high definition TVs, telephones, and airplane and auto instrument panels. Nearly all of them are made in Japan. But newly hypercompetitive U.S. companies aren’t giving up. Highly aggressive Motorola has committed to large-scale display manufacturing in the United States giant Texas Instruments and tiny OIS, Optical Imaging Systems, Inc., have been developing innovative flat-panel systems and components in their labs. IBM is attempting to get access to Toshiba’s active- matrix technology by participating in a joint venture to make flat screens in Japan. DARPA (the Pentagon’s Defense Advanced Research Projects Agency) has joined a consortium of U.S. firms (including AT&T, Xerox, OIS, and Standish Industries) to cut down Japan’s lead. Moreover, the U.S. government found that Japan was dumping their screens in the United States, so there was a 62.7% tariff imposed in 1992 that has seriously hurt the Japanese flat-panel makers.
While Japan has invested almost $3 billion in factories to make advanced displays, they are using an active-matrix liquid-crystal technology where every pixel (a dot on the screen) is controlled by its own transistor. So screens require millions of transistors. Fabrication is fiendishly difficult, and these panels are limited in size to twenty inches across. They are also very costly ($1,500 for a ten-inch laptop screen).
U.S. firms (like Motorola and In Focus Systems, Inc.) are working on simpler passive-matrix screens that promise higher quality at lower cost. Texas Instruments is developing an exotic display using tiny movable mirrors. Micron Technology, Inc. (a chip maker in Idaho), is trying to make screens in which each pixel is lit by its own electron beam.
So world-class American technology is being brought to bear on the Japanese lead, and the U.S. government is helping through tariffs, defense spending, and allowing research consortia of the type mentioned above. Things are just getting started, and it is too early to say if the United States will overtake its Japanese competitors. However, U.S. electronics firms and the defense department realize they can’t stay dependent on Japanese suppliers of flat screens because the screens are increasingly “selling the product.”
2. Escalating to the Next Arena of Competition
While imitators and leapfroggers cannot be stopped, they can be forcefully kept out of certain markets by hypercompetitive firms. This is done, not by stopping them from imitating, but by limiting their ability to distribute or produce in the first mover’s home turf. The first mover may let followers make and sell the product in different geographic or customer markets. As long as the followers can’t get into the first mover’s core market, these later entrants do not pose a threat to the first mover, and the first mover maintains a protected stronghold. Potentially competing firms can be shut out of the markets of an established firm who has walled off regions from competitive entry. This leads to the next arena of competition: the creation of entry barriers and the battle over turf, which we will discuss in the next chapter on the creation and defense of strongholds.
Source: D’aveni Richard A. (1994), Hypercompetition, Free Press.