| International Competition and Corporate Strategy: The Effect of Core Industry Import Penetration on Firm Diversification |
| Presenter | Wiersema, Margarethe F. | U. of California, Irvine | mfwierse@uci.edu | (949) 824-5839 |
| Presenter | Bowen, Harry P. | U. of California, Irvine | hpbowen@uci.edu | (949)824-5839 |
| | The globalization of industries during the last two decades has resulted in domestic markets being increasingly encroached by foreign competitors. The globalization of product markets has brought U.S. firms new market opportunities but also new competition. Issues pertaining to the increasing international economic landscape, however, have been generally examined at the industry or business level (Geringer, Beamish, and daCosta, 1989; Kim, Hwang, and Burgers, 1989; Mascarenhas, 1992). This paper seeks to examine the effect of globalization at a corporate context. Specifically we seek to examine corporate level response to conditions of increasing international competition in the firm's core industry. Import competition within an industry can motivate the firm to change its allocation of resources among businesses as well as influence the decision to remain in a business. As a result of shifts in resource allocation, import competition can thus lead to changes in the firm's composition of businesses, or the level of diversification. This study examines how firms respond strategically at the corporate level to issues of increasing import penetration in the core industry in which the firm competes. Our findings indicate that core industry penetration is negatively related to the level of firm diversification.
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| | Keywords: diversification; international; imports |
| Global Competitive Dynamics |
| | Gimeno, Javier | Texas A&M U. | Gimeno@tamu.edu | (409)-845-3881 |
| | Loree, David | Texas A&M U. | d-loree@tamu | (409)-845-3883 |
| | Beal, Brent D. | Texas A&M U. | Brent-Beal@tamu.edu | (409)-845-4839 |
| | We model the globalization of an industry as a system of firm-level competitive interactions. We propose that firms expand internationally as a competitive response to both the international expansion of domestic rivals and home-market entry by foreign firms. Competitive pressures affect not only firm propensity to expand internationally, but also influence the geographic location of international expansion. Firms are expected to enter the same foreign markets as their domestic rivals and to respond to foreign entry in their home markets by entering the home markets of their foreign competitors. Our approach complements traditional approaches to internationalization that focus on firm- and/or country-level characteristics as determinants of international expansion.
We test our competitive dynamics model of internationalization using a comprehensive data set that describes the activities of all merchant integrated circuit (IC) manufacturers in the world since the inception of the industry. The breadth and richness of this data allow us to contribute to existing internationalization research by analyzing the competitive actions and reactions of all IC manufacturers across all relevant countries in a global context. Results indicate, as predicted, that the geographic location of international expansion is strongly influenced by the international activities of domestic rivals. We also find that firms expand abroad in response to foreign competition in their home markets, but our results do not provide statistically significant evidence of 'exchange-of-threat' at the country level. Overall, this paper provides a framework for system-level empirical analysis of the competitive dynamics of international expansion.
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| | Keywords: competitive dynamics; international expansion; foreign direct investment |
| What Determines the Number of Competitors? |
| | Lieberman, Marvin B. | U. of California, Los Angeles | marvin.lieberman@anderson.ucla.edu | (310)-206-7665 |
| | What determines the number of competitors in an industry? This fundamental question has attracted the attention of economists in recent years but has seldom been considered in the strategic management field. Economic theory points to cost and demand-side phenomena that firms can exploit to limit the number of rivals. Of particular interest in the present study are the strategic implications of "sunk costs." Theory implies that such costs are a two-edged sword: they may enable industry incumbents to deter new entry, yet they also create barriers to exit.
This paper assesses the determinants of the number of competitors in homogeneous product industries where capacity commitments are important. Tests are performed on a sample of 31 chemical products for which engineering cost data were obtained. The results show that the number of competitors is largely determined by market size and the structure of sunk costs. Moreover, sunk costs can contribute to either an increase or a decrease in the number of competitors, depending on how the cost components are distributed. These results appear robust across geographic regions (United States, Western Europe and Japan) and over time.
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| | Keywords: Entry; Sunk costs; Chemical industry |
| The Dynamics of Capability Development: The Case of Australian Retail Banking, 1981 to 1995 |
| | Roberts, Peter W. | Carnegie Mellon U. | proberts@andrew.cmu.edu | (412)-268-3764 |
| | Amit, Raphael | U. of British Columbia | amit@commerce.ubc.ca | (604)-822-8481 |
| | Prevailing theory about the evolution of competitive advantage suggests that a firm’s specific history of developmental activity affects its current competitive position. We support this orientation by providing a detailed account of the flow of new products and processes into and through the Australian retail banking industry between 1981 and 1995. The study period considered here allows us to analyze an industry that was transformed from one in which a cohort of similarly-endowed banks offered a limited range of products and services to one with considerably more heterogeneity. To conduct our historical analysis, we analyzed roughly 5,000 news articles published in the Australian business press over the 1981 to 1995 period, as well as the information contained in banks' annual reports. From these data, we make a set of observations that are consistent with a cumulative perspective on the development of heterogeneous competitive positions. Our analysis shows that Australian banks differed in terms of the overall level of their innovative activity, the focus and consistency of their innovative efforts, and their propensity to move first into new initiatives. |
| | Keywords: capability; innovation; evolution |