Strategy and

Competition
COMM 401
Competitive Dynamics & Mergers

Todays Agenda
Competitive Dynamics
Who are competitors, and how are competitive
rivalry, competitive behavior and competitive
dynamics defined?
What are the major building blocks of a competitor
analysis? -- Market commonality and resource
similarity
What are the factors affecting competitive actions
Mergers
and Integration
and responses?
Understand the popularity of acquisition
strategies for firms competing in the global
economy.
Discuss reasons for acquisition strategies.
Discuss problems involved in an acquisition
strategy.

From Competitors
to Competitive Dynamics
Competitors

engage in

Competitive
Rivalry
How?

Why?
To gain an advantageous
market position

Through competitive behavior

competitive actions
competitive responses
What Results?

Competitive Dynamics

Competitor Analysis
Competitor analysis is used to help a
firm understand its competitors.
The firm studies competitors future
objectives, current strategies,
assumptions, and capabilities.
With the analysis, a firm is better
able to predict competitors
behaviors when forming its
competitive actions and responses.

Competitor Analysis
The first step the firm takes to be able to
predict the extent and nature of its
rivalry with each competitor
Market Commonality: The number of
markets with which the firm and a competitor
are jointly involved and the degree of
importance of each market
Resource Similarity: The extent to which
the firms tangible & intangible resources are
comparable to a competitors in terms of both
type & amount.

Non-Cola War: Pepsi Vs.

Coke

Drivers of Competitive
Behavior

Awareness: Do managers
understand key characteristics of
competitors?
Motivation: Does the firm have
appropriate incentives to attack or
respond?
Ability: Does the firm have enough
resources (such as financial capital
and people?)
Understanding the competitor in

Type of Action: Strategic vs.

Tactical

Strategic: Significant commitment

of specific and distinctive resources.
Business diversification
Strategic alliance
Innovations and Pre-emptive strategies

Tactical: Fine tuning of business

level strategy using general
resources.
Price increases or decreases.
Product diversification

Factors Affecting the Industrys

Competitive Dynamics: Timing of
Competitive Action
First Mover

First movers allocate funds

for:
Product innovation and
development
Aggressive advertising
Advanced research and
development
First movers can gain:

Factors Affecting the Competitive

Dynamics: Timing of Competitive
Action
First Mover
Second Mover
(A fast follower)

Second mover responds

to the first movers
competitive action,
typically through
imitation:

Factors Affecting the Competitive

Dynamic: Timing of Competitive
Action
First Mover

Second Mover

Late Mover

Late mover responds to a

competitive action only
after considerable time
has elapsed
Any success achieved will
be slow in coming and
much less than that
achieved by first and
second movers
Late movers competitive
action allows it to earn
only average returns and
delays its understanding
of how to create value for

Factors Affecting the Competitive

Dynamics: Firm Size
Small Firms

Large Firms

Large firms are likely to initiate more competitive

actions as well as strategic actions during a given
time period.
Large organizations commonly have the slack
resources required to launch a larger number of
total competitive actions

Factors Affecting Likelihood of

Response
Market
dependence

Market dependence is the

extent to which a firms
revenues or profits are
derived from a particular
market
High concentration in or
dependence on an industry
increases likelihood of a
response

Factors Affecting Likelihood of

Response
Market dependence

Type of
Competitive
action

Strategic actions receive

strategic responses
Tactical responses are
taken to counter the
effects of tactical actions
The time needed to
implement and assess a
strategic action delays
competitors responses

Factors Affecting Likelihood of

Response
Market
dependence

Type of
Competitive
action
Actors reputation

Actions by market
leaders are more likely
to lead to responses by
competitors than
actions by small firms
in the industry.
Actions initiated by
firms with a previous
history of success will
be more likely to result
in quick reactions and
imitation.

Product Life Cycle and

Competitive Dynamics
The ongoing actions and responses taking place
among all firms competing within a market for
advantageous positions
Slow Cycle Markets:

Not shielded from imitation and imitation is rapid and inexpensive.

Reverse Engineering and rate of technology diffusion facilitate rapid
imitation.
Fast Cycle Markets: More volatile, no sustainable
competitive advantage ( e.g., PC market: IBM, Dell, HP)
Moderately shielded from imitation and imitation is moderately costly.
(e.g., Consumer products; Foods; Beverages)

Acquisition is increasingly
popular
due to
Globalization
Deregulation of many industries in
different economies
favorable legislation

An increase in the number and size

of domestic and cross-border
acquisitions, especially from
emerging economies.

Definitions
Merger
A strategy through which two firms agree to
integrate their operations on a relatively coequal
basis.
Acquisition
A strategy through which one firm buys a
controlling, or 100 percent, interest in another
firm
Bought
for $710 mil.
Horizontal Acquisition: acquire firms in the
industry Bought
General same
Mills
for $10.5 bil.

Definitions (cont.)
Vertical Acquisition: a firm acquires a
supplier or distributor
e.g.) Oil industry
Takeover
A special type of an acquisition strategy
wherein the target firm does not solicit the
acquiring firms bid.

Reasons for acquisition

strategies
Firms use acquisition strategies to

Problems
Problems with using an acquisition
strategy include

Characteristics of effective
acquisitions
Acquiring and target firms have complementary
resources that can be the basis of core
competencies in the newly created firm
The acquisition is friendly, thereby facilitating
integration of the two firms resources
Target firm is selected and purchased based on
thorough due diligence
Acquiring and target firms have considerable
slack in the form of cash or debt capacity
The merged firm maintains a low or moderate
level of debt
Acquiring firm manages change well and
emphasize innovation