Analyzing and Developing Competitive Moves: A New Market and Practice-centric Framework

An industry is composed of multiple players who together define the structural dynamics of the industry. Whichever way the industry is defined, narrowly or broadly, it is not untypical to have at least two competitors. Monopoly is almost non-existent in the current times while duopoly could exist in certain sunrise or technology intensive industries. In most cases, however, oligopoly typifies the industry structure in contemporary era. As the students and practitioners of management are aware, an oligopoly falls in between a monopoly, where there is only one firm in an industry, and the perfectly competitive industry, where there are several firms. The entry and growth are the most challenging in a monopolistic industry structure where competitive moves are often dictated and overwhelmed by the monopolist firm. In the perfectly competitive industry, entry is relatively easy and the competitive moves of the firms are affected more by market conditions than by each other’s moves. Growth, however, is tough in a perfectly competitive industry. In contrast, in an oligopoly which falls in between a monopoly and a perfectly competitive industry, firms tend to have several options in their pursuit of entry and growth.

Michael Porter in his work on Competitive Strategy (1980) prescribes a framework for developing and countering competitive moves. According to Porter the firm in an oligopoly often faces a dilemma. It can pursue the interests (for example, profitability) of the industry as a whole (or of some subgroup of firms), and thereby not incite competitive reaction, or it can behave in its own narrow self-interest at the risk of touching off retaliation and escalating industry competition to a battle. A firm needs to resolve the dilemma by choosing a balance between industry level cooperation (to avoid profit eroding warfare) and firm level competition (to avoid giving up potential revenues and profits). Arguing that in an oligopoly, the firms are mutually dependent in respect of competitive moves, Porter outlines a series of competitive moves that firms could typically follow. These are broadly classified by him as being cooperative or nonthreatening moves, threatening moves, and defensive moves. Porter also hypothesizes that the nature of competitive moves is influenced by the industry instability on one hand (influencing the likelihood of competitive warfare) and the commitment of the industry members to the industry (influencing the likelihood, speed, and vigor of competitive moves). Amongst the three types of competitive moves, Porter lists several competitive options under threatening moves. While Porter’s framework of competitive moves is quite useful in developing competitive strategy, this blog post suggests an entirely different and potentially more useful framework for analyzing and developing competitive moves.

Listing limitations

Porter’s approach of listing competitive moves under different heads is centered on the firm rather than the competition. It also has the underlying theme of generic approach (which is a common theme throughout his Competitive Strategy Work) rather than an approach customized to the nature of competitors. For example, it talks of moves being offensive or defensive based on a judgment of whether the firm is able to make its moves on a preemptive basis or on a responsive basis. The framework proposed by Porter is limited to functional strategies such as Timex conceptualizing a different channel strategy than its Swiss competition could. While doing so, Porter rather simplifies the competitive paradigm by suggesting that retaliatory competitive moves could be lagging by the lead time that is required to implement them. He suggests, for example, that responding to a long lead competitive move such as a new automobile model or a new blast furnace would intrinsically carry a lag time in retaliatory response. This approach is deficient in the sense that even without having perfectly competitive industry conditions, the contemporary industrial scenario is marked by perfect information. In today’s world, therefore, retaliatory responses to any competitive moves of the firm could take place with as small a lag time as a couple of months, which in fact could even be overcome with better execution by the competitors. Porter’s theory also implies somewhat erroneously for the current situation that a firm’s competitive move would have similar advantage over each of the competitors and that each of the competitors makes a similar assumption.

In addition, Porter’s framework is limited by the fact that the today’s firms are well anchored in concepts of continuous product improvement or yearly model changes. No firm, therefore, waits for the other firm to make a move. All firms in an oligopolistic industry structure would be capable of undertaking competitive actions in more or less a simultaneous manner. For example, automobile makers not only undertake annual model renewals but also introduce multi-level product families (say, sub-compacts, compacts, sedans, and SUVs). Computers, mobile devices and tablets have new product introductions on almost a quarterly basis. The differentiators for firms in the contemporary oligopolistic structure would therefore be more in terms of levels of innovation in product development, effectiveness in marketing, excellence in manufacturing, and efficiency in marketplace delivery. Certain core competencies of the firms, rather than generic functional strategies, distinguish the more competitive firms from the less competitive ones. This hypothesis leads us to the development of an analytical framework that does not start with the categorization and listing of competitive moves in a functionally generic methodology as suggested by Porter; rather it crystallizes a new theme of this blog post that the players in the industry must first be classified on the basis of their positioning in terms of their core competencies and the contingent business results. Understanding the competitors in a broad typology would be an essential foundational step in analyzing and defining competitive moves in the new framework.

Competitor typology

All the players in an industry can be categorized in terms of two critical dimensions. The first one is their ability to influence the market while the second one is the ability to compete with the other firms. On the dimension of market influence, firms in an industry tend to be one of the following: market creators, market maintainers or market destroyers. Market creators have their core competency in product innovation and create an entirely new market through their products. Apple is an outstanding example of market creator in the communication and computing devices industries.  Market maintainers are competent enough to be successful product followers keeping the market live and expansive through their product followership.  Most firms in an oligopolistic structure belong to this class. Samsung is perhaps a good example of a firm in this class, both in communication and computing industries. Market destroyers are companies which are faced with declining competencies and are unable to influence positive market development. Market destroyers through their dated or dysfunctional products cause customers to develop a negative image of the industry. Firms which are flooding the tablet computer market with cheap devices of low functionality constitute a striking example of market destroyers. Not every industry would have firms belonging to all the categories all through the years. One instance of a market creating firm may be followed by several annual instances of market maintaining firms and a few instances of market destroying firms.

On the dimension of competitive advantage, firms typically fall into one of the following three dimensions: share builders, share maintainers and share losers. Share builders are those firms which have their core competencies in marketing effectiveness, manufacturing excellence and delivery efficiency. Building on their product development capabilities, whether of innovation or followership, such firms achieve share building capabilities. Market builders are natural share builders as the market monopolistically develops around their innovative products. However, it is quite possible that market builders could fail to utilize the natural share building advantage if the core competencies in any or all of the domains of marketing, manufacturing and delivery are sub-optimal.  Market maintainers, on the other hand, assiduously seek to create competitive advantage as share builders to compensate for the lower level of product innovation. Share maintainers are those firms which are in an equilibrium state in the oligopolistic structure. Many share maintainers possess a balanced portfolio of mid-range competencies that are capable of maintaining a reasonable market share in an oligopolistic market. Share losers are typically uncompetitive firms, lacking in any level of differentiation in product development, marketing, manufacturing, and product delivery.

The firm in a nine grid matrix

Typically, therefore, all firms in an oligopolistic industry can be categorized in various grids of the nine grid matrix.   The most competitive firm is the one which is both a market builder and a share builder while the least competitive firm is the one which is both a market destroyer and a share loser. While only a few pioneering firms fall in the most competitive grid, and a few in the least competitive grid, most firms fall in any of the remaining seven grids. The essence of competitive moves of firms would be to move to grids that reflect a higher degree of competitive advantage. It would not be possible for firms to achieve such mobility without first analyzing where and how firms are positioned in various grids and then developing appropriate competitive moves. Once this grid is conceptualized and effectuated in the live industrial setting, Porter’s competitive strategy framework can be effectively applied. Competitive moves can be designed around core competencies that are required to qualify for the superior grids. Similarly, each grid would have its own entry barriers and mobility barriers, raising resource bars and adding challenge to the execution of competitive moves. The concepts of industry level instability and firm level commitment articulated by Porter can also be appropriately fitted on to the nine grid matrix.

The nine grid matrix tends to correlate with revenue-profit as well as market size-market share markers rather well. The most competitive grid corresponds to high revenue-high profit markers as much as high manufacturing scale-high market share markers while the converse is true for the least competitive grid. Once the fact of the nine grid matrix is recognized it is easy to appreciate that simple defensive or offensive functional strategies would be inadequate. Tata Motors, for example, is an Indian automobile firm that belongs to the category of market builder-share builder. From 1985 onwards, Tata Motors has been adding new products and new markets in the truck and bus market qualifying for a near permanent presence in the most competitive grid. Its principal competitor, Ashok Leyland has been a market maintainer and also a share maintainer, but occasionally transiting into the share builder class through superior manufacturing and market financing strategies. Volvo, on the other hand, has been an innovator in bus segment through its high performance, low floor buses but has just been a share maintainer despite having product innovation. New entrants into the heavy commercial vehicle industry such as Eicher, Navistar and Force Motors have been market losers as well as share losers due to an inability to develop the required core competencies. Competitive moves of firms in the superior grids tend to be a combination of offensive and defensive strategies while the firms in less competitive grids would need to follow a string of offensive strategies from model development to operational excellence and from channel building to brand building to transit to the superior grids.

Instability and commitment

Industry structure sets the basic parameters within which competitive moves are made by the firms in an industry. Industry instability arises from evolution of technologies, processes and resources as much as from entry of new players or exit of existing players. Industry instability is a relative term in the sense that a monopolistic structure faces mild instability as it transits to a duopolistic structure and a duopolistic structure faces significant instability as it transits to an oligopolistic structure. As an oligopolistic structure transforms into a perfectly competitive structure, however, the level of instability could reduce. Oligopoly offers an opportunity for competitive firms to dominate the industry, by way of a 20-80 rule (20 percent of firms dominating 80 percent of value), through appropriate competitive moves. The commitment of the firms to the industry, which is often demonstrated by investments in technology, infrastructure, capacity and talent, has a major role to play in determining the relative industry instability and relative firm stability. The lack of commitment of firms to the industry, on the other hand, leads to more number of share losers and eventual exits, actually stabilizing the industry in the process.

The Indian domestic airlines industry offers a great example of the framework of competitive moves and the concepts of industry instability and firm commitment that are discussed in this blog post. Until the 1990s the domestic airlines industry was the monopoly of only the State-owned Indian Airlines. However, with the economic liberalization, several private airliners were allowed to enter the aviation sector converting the industry into an oligopoly. For some years, it looked as though an industry shakeout would lead to a duopoly between the Indian Airlines and Jet Airways but eventually an oligopolistic structure emerged with different airlines becoming positioned differently (for example, Deccan Airways as a market maker through pioneering of low cost air travel, Jet Airways as a share builder with investments in capacity, technology and talent, Kingfisher and a few other airliners trying to be share maintainers while also being market maintainers on the plank of enhanced service. Despite the airlines industry being highly investment and lead time intensive, it is interesting to note that similar competitive moves (capacity expansion, aircraft modernization, trained crew, travel safety, price competitiveness, domestic reach extension, international routes, and electronic services) are being made by all the competitors to move to superior competitive grids.

Core competencies and competitive moves

Unlike the proposition made by Porter, competitive moves are not a set of functional actions or calibrated strategies that achieve superior position for firms. Competitive moves have to be necessarily based on a sub-structuring of the industry on the dimensions of innovation and excellence, and then specifically woven around the core competencies required to move from inferior competitive grids to the superior grids or to defend their presence in the superior competitive grids.

Posted by Dr CB Rao on August 28, 2011     

Porter’s Theory of Market Signaling: Relevant in Contemporary Times?

Michael Porter in his work on Competitive Strategy (1980) proposes that reading of market signals be considered an essential supplement to competitor analysis and an important adjunct to making effective competitive moves. According to Porter, a market signal is any action by a competitor that provides a direct or indirect indication of its intentions, motives, goals, or internal situation. Porter accords major emphasis to market signals despite the recognition that some are bluffs, some are warnings, and some are earnest commitments to a course of action. Porter recognizes the opposite view that given the subtlety of interpreting market signals, too much attention to them can be a counterproductive distraction. Despite this feature, Porter considers that timely recognizing and accurately reading market signals is of significance to developing competitive strategy. However, like all of Porter’s theories that have been crystallized in 1980 based on research works of the 1950s to 1970s, the theory of market signaling also needs considerable refurbishing to suit contemporary business times.

Contemporary business times are marked by a massive growth of information in public domain due partly to regulatory disclosure requirements, dissemination to meet the needs of investors and analysts, information requirements of stock exchanges, governance responsibilities especially of listed companies and competitive requirements of market making. This coupled with the growth of the Internet, Search Engines and Networking Sites, information sets on thoughts, strategies and execution of corporations are now more abundantly available than ever. Corporations are both mandatorily required and voluntarily eager to disclose as much information on their strategies and results as possible. This relative transparency is also aided by the fact that protection of intellectual property is now global, providing better protection to corporations for their pre-announced product and technology moves. The massive upsurge in information also exponentially enhances the load on corporate strategy departments should they start collecting, and reading all market signals diligently. The positioning of market signals in strategy formulation clearly needs a revision.

Forms of market signals

According to Porter, market signals come in varied forms such as prior announcement of moves, announcements of results, announcement of actions after the fact, public discussions of the industry and the firm by the firms, announcement by competitors on their competitive positioning and moves, discussion on tactics that could have been pursued, early implementation actions, comparisons of results and goals, cross-parry  in related or unrelated areas, fighting brands and legal actions, including public and private antitrust suits. Amongst these, prior announcement of moves by a competitor is the most versatile form of market signaling. The purposes include capacity preemption, entry deterrence, threat of competitive response, setting or resetting industry-government equilibrium, test of competitor sentiment, red herrings of strategic deflection, subtle or open brand building in the marketplace, image building amongst stake holders. Today, several forums are available to send such market signals, from routine stock exchange notifications to exclusive media events.

Annual reports of the firms and quarterly earnings reports as well as the analyst and investor calls constitute the other important source of market signals, often mandated by stringent regulatory and investor requirements. Indian regulations have always had certain unique additional disclosure requirements regarding capacity, production, imports, exports, R&D, energy consumption, technology imports and assimilation which provide valuable signals. India, in addition, now requires comprehensive management discussion and analysis of plans and results with additional information on risk management and internal controls, in the annual reports. As firms access global markets for funds through bonds or depository receipts, comprehensive prospectuses would need to be prepared with detailed treatment of all aspects of the firm. Disclosures on environment, safety and health aspects as well as corporate social responsibility provide additional insights.  

Customer facing information undoubtedly provides the most tangible and relevant source of signal information for firms. Increasingly, firms are choosing major international conferences to showcase their developmental plans and results. In addition, the concept of regular upgrading of models and technologies, occurring in as short timeframes as six months, is now commonplace. Technologies are openly discussed and debated as well as tested and evaluated by specialist agencies. Certification processes by industry technology bodies prior to product nomenclature provide additional valuable information. Examples are ISO certification, OSHA certification, FDA certification, energy certification, Leed certification, TCO certification, CCF certification and SPC certification, and so on. These certifications are not merely product specific or plant specific but also reflective of an underlying or developing technological strength of a firm. To summarize, sources of market signals are more varied and more open than ever. The simple recognition and reading theories suggested by Porter on market signaling need to be significantly recast.

Volatility and signaling

The theory of market signaling is further vitiated by the unprecedented volatility in global economic conditions. Typically, tactics requires a one year timeline and strategy requires a three to five year timeframe for effective execution. The economic developments that take place in today’s globalized world are so profound that market signals, however, well intentioned and robustly founded, are ceasing to be any firm indicators of a durable or sustainable strategy of a corporation. It is for example, becoming impossible to predict with any degree of certainty the prices of crude, metals, commodities and agricultural products. Wild swings in the prices of basic inputs severely impact strategies that are built around such basic inputs. Market signals from industries affected by such globally volatile trends are not appropriate for any competitive analysis.

Volatility often brings in a herd behavior, which overarches the need for study of individual competitive market signals and development of individual competitive moves. Economic volatility at times has a contagion effect on social attitudes and behavior. For example, when incomes are threatened due to inflation in a recessionary environment, individuals drive up demand for precious metals through hoarding rather than prudentially conserve cash. In the process, they ignore the illiquidity they are creating in their households or the potential losses they could sustain when prices soften in future. Irrational mass behavior could extend to evolved corporations as well.  For example, when recession is severe, all companies tend to be equally severe on cutting costs, including operational and futuristic expenses. Companies thus lose the equanimity to reassess their strategy based on their reordered internal strengths and weaknesses, and external opportunities and risks. Ability to read individual market signals differently from overarching economic trends is increasingly becoming a new age requirement.

Public discussions and private inferences

Reference has been made in Porter’s work as well as in this blog post about public discussions of the industry as well as firm level developments in industry forums as well as conferences. The ability of the industry level public discussions to lead to meaningful market signaling has always been in doubt. Recent volatility in economic and political conditions has been further forcing public discussions into a format of herd behavior. Public discussions, more often than not, serve as industry signals for public policy formulation rather than for individual corporate strategy formulation. The strength of public discussions is often dependent on the extent to which the various stake holders, including the governments and firms, are willing to share their experiences and perspectives in common industry forums.

The process of market signaling through public discussions is complicated by the fact that private inferences could be quite different from public postures. In an era of escalating fuel prices, an automobile manufacturer of a full line of automobiles, from small fuel-efficient budget cars to large gas-guzzling luxury cars, may be as vociferous as a dedicated luxury car maker in decrying the adverse impact of galloping fuel prices. In reality, the full line manufacturer could privately been planning a major shift in product mix in favor of fuel-efficient cars. Similarly, public assurances of individual firms providing pan-industry services need to be reinterpreted based on their strategic moves. The acquisition by Google, which supplies open source operating system Android to all mobile device makers, of Motorola’s mobile device business configures a new, possibly adverse, strategic dimension for all Android users, notwithstanding public assurances of continuity of Android support. The views expressed by individual firms in public forums need to be interpreted in terms of technical and business characteristics of firms that express such opinions.   

Signals versus strategies

It is not that market signals by themselves lead to major competitive moves. Often companies conduct futile searches for signals when strategies stare at them in all openness. No mobile device maker, for example, took seriously the move by Samsung to develop its own operating system Bada to power a particular genre of its mobile devices. The move by Samsung was not a veiled signal; it was a clear strategy. In today’s context of Google turning a mobile device maker with the acquisition of Motorola Mobility other device makers must surely be wondering how they ignored a clear strategy from Samsung despite the strong signal it notified. The strategy of Nokia plumping for Microsoft Windows mobile operating system could be more than a signal; it could be an indicator of a clear strategy of amalgamation or acquisition. Oftentimes, therefore, by recognizing open strategies of competitors for their intrinsic competitive position, individual firms can derive a better understanding of the competitive landscape than a ‘needle in the haystack’ type of search for weak or confusing market signals.  

This is not to say that signals have no relevance once the strategy of a competitor becomes visible. On the other hand, signals amplify the strategy for a better understanding. For example, the levels of capital commitment, manpower recruitment, product renewal, technology choices, infrastructure development and pricing competitiveness could all signify the vigor with which the strategy could be pursued. Lack of overt signals cannot, however, be taken to mean that the company has no commitment to the articulated strategy. Many times, signals also reflect a recalibration of strategy to be more successful relative to experience. For example, the sale by Reliance of fifty percent stake in its oil and gas reservoirs to BP does not indicate a reversal of strategic commitment to oil and gas business; rather it recognizes the need to be more realistic in terms of resource and technology commitments for the stability and growth of that particular risky business as well as the conglomerate corporation in the overall.

Surety from subtlety

Given the emanation of market signals from multiple as well as newer and more varied sources in the contemporary business, the increased environmental volatility that dictates the fluctuating amplitude of signals, and the convergence between signals and strategies, there is a great need for subtlety in the theory of market signaling for the contemporary times. Subtlety in signaling theory enables greater surety in assessment. Subtlety arises from the adoption of a three step process: first, focusing on the strategy rather than the signals to start with; second, evaluating the strategy in terms of the external volatility and internal competencies; and third, utilizing the signals to calibrate the strength of the strategy. As opposed to the scenario decades ago, it is no longer feasible or appropriate for firms to provide random signals without a well developed strategy. Issues of materiality and corporate governance in public disclosures rule out intentional signal aberration.

Surety also emerges from the subtlety in the analysis of strategies and signals. For example, the kind of leader a firm selects to lead a new business provides a subtle but sure sign of its commitment to gaining leadership in the new business. The type of consulting organization a firm selects to chart a new growth strategy provides indicators of the firm’s commitment to develop a high quality growth paradigm. Continuance of key growth investments, say in R&D and manpower, in times of recession provide solid evidence of a firm’s desire to up the ante in the post-recession period. The technological sophistication of equipment in new projects underscores a firm’s focus on quality by design. The nature of structural changes in the organization and the pace of executive mobility in an organization reflect the firm’s willingness to be adaptive and flexible. The insights that are developed out of the recommended three step process of strategy-signal analysis would be much more useful than a vanilla reading of traditional signals recommended by Porter in his 1980 work.

Innocuous signals and incredible strategie

Many times seemingly innocuous signals are harbingers of resolutely incredible strategies. The exit of the chief executive of Google from the board of directors of Apple was a clear indicator of the strategy of Google to enter the cellular communication space, fortified further by its acquisition of the Android entity. Similarly, the company’s strategy to make a Google phone Nexus was also indicative of the desire to enter the mobile device space, now finally established in no uncertain manner by the acquisition of Motorola’s mobile device business. Strategists must brood on seemingly innocuous signals for their strategic intent. Samsung’s recent entry into the biologics business is both a confusing signal and a measured strategy. It probably needs more than hard analytics to identify which one-off signals are clear indicators of incipient moves that are backed by immaculate strategies.

Start-up companies which are hardly noticed by the general industry represent another great example of weak signals turning into strong movements. Most times, the major firms are so preoccupied with the analysis of their peers that they fail to notice the major shifts in the industrial structure that could take place with the pioneering technologies and businesses that the start-ups pursue. Whether one of the application developers in the mobile space, say Angry Birds, would be the future behemoth of the digital media industry only time will tell. May be a day could even come when Apple, Google and Microsoft regret the missed opportunity of developing their own applications divisions, and make up for the missed opportunity by making expensive acquisitions. Reading subtle signals which are actually sound strategies is an intuitive flair as much as an analytical skill!

Posted by Dr CB Rao on August 21, 2011  

    

  

India’s Economic Independence: Minimal Imports and Maximal Exports

I feel privileged to script this post on India’s Economic Independence, coinciding with India’s sixty fourth anniversary of its historic independence on August 15, 1947. This also happens to be my one hundredth post in my strategy blog titled “Strategy Musings”. Starting on October 22, 2008 with my first ever blog post titled “Infrastructure Strategy: Key to Economic Revival” it has been a highly compelling and satisfying journey of a hundred serious essays on corporate strategy, competitive strategy, strategic management, leadership strategy, organizational behavior, economic strategy, general management, leadership tributes, corporate governance, entrepreneurship, ethics and values, operational excellence and several other domains of interest in strategy and economy. Each of the blog posts has sought to acknowledge and review some of the greatest prior art on each subject while adding a substantial new body of knowledge through my original thinking. As a result, in a relatively short span of less than thirty five months, the 100 strategy essay portfolio of around 3.5 million words has been created with diligence and dedication to develop and institutionalize multidisciplinary knowledge in the field of strategy. I would like to believe that this level and intensity of serious essay writing in the field of strategy, in the relatively short span of time is probably unparalleled in the sphere of digital blogging or physical publishing.  

The current blog post is not merely thematically appropriate in the context of India’s celebration of the country’s Independence Day but also strategically essential, even more so, for imbuing the true meaning of independence for the Indian society. After over six decades of independence and nearly two decades of economic realization India has come into global reckoning for its competitive capabilities in a wide range of domains, not limited to information technology; and more significantly is being positioned as the third largest economy by 2035. It would, however, appear that much of the proposition is based on the near doubling of growth rate in the gross domestic product (GDP), and not based on the ability of the Indian economy to grow without foreign direct investments or import of foreign technologies, and with organically generated trade surpluses, savings, capital formation and indigenous technologies. India, as an economy, and its stock markets as a barometer of industrial health have been acutely dependent on foreign investments whether in primary industrial activities or secondary stock markets. The key question is whether the broader economic fundamentals of India are truly robust and whether the industrial parameters are genuinely self-sufficient. This blog post argues that India’s independence has true meaning with only economic independence and identifies the essential route to achieving it with positive trade balance.

Macroeconomics of India’s growth

India’s growth story rests on its vigorous GDP growth rates. The world first took note when India posted a record GDP growth rate of 9.6 percent in 2006-07, and followed it up with a similar growth rate of 9.3 percent in 2007-08. Even in the highly turbulent period of global meltdown, the Indian economy continued to post high growth rates of 6.8 percent in 2008-09 and 8.0 percent in 2009-10. However, there is concern that the growth is now projected to hover around the same levels at 8.5 percent in 2010-11 and at 8.2 percent in 2011-12, despite the relative easing of global liquidity and the global recognition of India’s global potential. In the context of the concerns of sovereign debt globally, India’s public debt as a percentage of GDP has been 56 percent, well below the level of even advanced nations but certainly needs to be improved further. India’s external debt as a percentage of GDP has hovered at around 18 percent and this also needs improvement. Accelerated inflation, decelerated investment and slowed down reforms have contributed to the slowdown in GDP growth rates over the last two years. Inflation ought to be lower than 6 percent while it has been in excess of 10 percent. Fixed investment rate has to be more than 33 percent of the GDP while it has been lower than 30 percent. Domestic savings rate of more than 40 percent of the GDP is desired while the recent rate has been less than 34 percent. The combination of the target rates in the three structural parameters would have resulted in GDP growth rates in excess of 9 percent while the actual rates have fetched lower GDP rates of around 8 percent.  

The key sectors of the Indian economy comprise agriculture, mining, manufacturing, energy, construction, financial services and non-financial services, each with allied activities in the respective folds. Amongst all the sectors, agriculture has been a laggard in growth rates, with volatility related to high or low rainfalls, relative to the other sectors. A simple econometric model suggests that if the various sectors of the Indian economy achieve simultaneously the individual sector peak rates achieved in any of the last five years, such as 6.5 percent in agriculture, 7.5 percent in mining, 14.5 percent in manufacturing, 9.5 percent in energy and water, 11.0 percent in construction and 14 percent in financial and non-financial services each, the overall GDP growth rate of the Indian economy would be in excess of 12.0 percent per annum. Simultaneously, central and state finances have to be managed such that social sector investments and subsidies are appropriately cross-managed, oil sector charge on the economy is minimized, public debt is kept under check, and revenue leaks and expenditure spillages are avoided. A robust macro-economic framework which maximizes sector growth rates, maintains inflation at moderate levels, spurs domestic savings and enhances gross fixed investment is essential to keep the economy on the high growth path.

Need for microeconomic strengths

Macroeconomic strengths of a nation are a resultant of its microeconomic vitality. While macroeconomic policies do have an impact on the microeconomic fundamentals, be it industrial output, consumption patterns, savings and expenditure profiles and foreign trade balance, microeconomic fundamentals have a unique input mix and output profile. At the core of microeconomic vitality is the level of intrinsic industrial competitiveness. Microeconomic vitality is reflected in terms of positive trade balance. The higher the positive trade balance, the higher is the microeconomic strength. India’s liberalization model which is based on large bouts of foreign direct investment for primary industrialization and high levels of foreign institutional investments for market capitalization of industries does not necessarily lead to intrinsic microeconomic strength. Despite high economic growth rates, India has been having continued trade deficits over the years. Though in July 2011, India’s exports registered a steep 81.8 percent growth to touch USD 29.3 billion, the imports also increased by a hefty 51.5 percent to USD 40.4 billion, resulting in a net negative trade balance, or trade deficit, of USD 11.1 billion. Cumulatively too, in the period April-July 2011, exports grew by 54 percent to USD 108.3 billion and imports grew by 40 percent to USD 151 billion, resulting in a cumulative trade deficit of USD 42.7 billion.

Much of the recent growth in exports has been derived from a sterling performance of sectors such as engineering, petrochemical products and gems and jewellery as well as greater channeling of exports to Africa and South America. The model of FDI triggered industrial development has its own contribution to microeconomic sub-optimization. Many times FDI is accompanied by massive imports of technologies, equipment and key input materials as well as repatriation of profits leaving the net capital retention in the country at a minimal level, possibly limited to the low levels of value addition in the country and meager profit levels. This has been well demonstrated in a host of import dependent industries from automobiles to oil exploration. This, of course, is not in any way inimical to the national interests per se, and is actually positive for the number of new jobs such FDI creates for the economy and the society. However, the several multiplier impacts of greater generation of local value addition through indigenous technologies, equipment and materials would be unquestionably higher. Low operational cost curves based on greater indigenous inputs would lead to greater industrial competitiveness, and positive trade balance. Macroeconomic policy should go beyond gross growth rates and identify ways and means by which microeconomic fundamentals of the economy and industry can be strengthened.

Competitiveness handicaps

India’s competitiveness handicaps follow the initial post-independence strengths. While the socialistic policies set by India’s first prime minister Pandit Jawaharlal Nehru have been criticized by many a liberalization expert, there is no doubt that the early policies were indeed instrumental in creating the basic industries of steel, engineering, machine tools and aerospace in the public sector. Where the policies erred were in terms of severe capacity regulations, bureaucratic controls on every aspect of industry and business, denial of similar opportunities for the private sector, and the shared diffidence of both the industry and the government towards fundamental innovation, high precision, quality and reliability and pricing to enable continuous reinvestment. Another two major gaps were in terms of ignorance of the need to create a similar base in the electronics, telecommunications and computer hardware on one hand and non-application of modern preservation, mining and extraction technologies to utilize the country’s abundant onshore and offshore natural resources for self-sufficiency and competitiveness. As a result, India’s competitiveness became to be dependent on import of technologies, equipment and quality materials. This dependency cycle does not seem to have been broken despite the two decades of liberalization. For example, while the Indian automobile industry now appears to be scale-optimal and self-sufficient, each new generation of vehicles in the premium sector comes with high import content.

Today, the policy makers and strategists must seriously debate if the continued import dependence is still a function of scale, matter of user mindset or simply lack of dedication to development of world-class technologies and equipment which result in high quality and rigorous precision. Several Indian industries today, from automobiles to pharmaceuticals, from construction to transportation and distribution to retailing have aggregate scales of operation ranking among the top 5 to 10 rankings in the world, in physical volume or unit terms. It is time that the basic producers and the end-users, whether of materials or equipment, collaborated to localize technologies, equipment and materials in advance to support new generation products. This would also require a move away from a total reliance on cost to a reasonable positioning for value; for technology also demands its price to innovate and manufacture to high standards. In a more perfectly globalized world, which would occur when the BRICS countries achieve the developed nation status, competitiveness would not be solely on the basis of manufacturing commoditized products for the current developed nations at low costs. Rather, it would be in terms of having alternate innovator products, developed, manufactured and marketed, simultaneously in a larger basket of nations, just as it currently occurs amongst US, EU and Japan. To be illustrative, if a new generation of iPad were to be made five or ten years later there would be a very good possibility of such a breakthrough product being designed and manufactured, through respective innovative technologies, in each of the BRICS countries as much as in US, EU or Japan.    

Minimal imports, maximal exports

If India needs to be strong on both macroeconomic and microeconomic fundamentals, the government and the industry would need to pursue a strategy of minimal imports and maximal exports. For example, the entire import basket needs to be scrutinized to classify the products in terms of scale of demand and feasibility of import substitution. In the liberalized economy a whole lot of goods are being lavishly imported to meet the needs of a consumption oriented economy. From furniture to fixtures and from tiles to textiles, importation has become a lifestyle trend. India has in it all the capabilities to reverse such trends and become actually a net exporter of such items through higher emphasis on design and manufacture for precision, quality, and finishes. As India grows, several sectors such as infrastructure and transportation would be upgraded with overseas participation. Due care must be taken to provide a level playing field to Indian companies to participate in this development space. Similarly, in the precision equipment space, Indian industry must be prepared to make the necessary investments to develop and produce precision machine tools and other equipment as well as dies and tooling, and jigs and fixtures. Indian industry must not only embrace newer materials but also introduce modern material casting, forming and machining technologies to reinforce the edge in electrical, electronic and mechanical industries.

Similarly, the entire industrial basket needs to be reviewed to maximize exports. The experience of Japan and Korea suggests the need for an export oriented industry in India which derives at least 50 percent of its total output from direct exports or distributed production in several host countries. The biggest challenge in a new export paradigm for India would be the strengthening of small, medium, large and mega enterprises with clearly differentiated strengths and responsibilities. Today’s environment encourages the small and large enterprises in India to compete with each other in the same market space, the former only on price and the latter only on features. For example, it is not uncommon to see the largest integrated national pharmaceutical firm and the smallest formulator of medicines to compete in state tenders for medicines. In the bus body building, roadside garage builders and technology-intensive bus makers compete for the same space of transport operators. The current mindlessly fragmented and competitive industry structures of India need to be redefined with mega and large corporations utilizing medium and small enterprises for provision of systems and components. By this system, components and systems of low overhead small and medium enterprises would remain cost-competitive and get integrated within the global manufacturing and marketing capabilities of large and mega corporations for a win-win global export impact. For example, in this system the large scale textile firms such as Raymonds, Digjams and Reliances on one hand and the small scale apparel makers of Tirupur, Coimbatore and Ahmedabad on the other hand would not compete with each other in the same global markets; instead the latter would form a part of an integrated export value chain that provides greater competitiveness for the larger firms.   

Trade surplus as a comparative advantage

Michael Porter proposed that just as firms seek and possess competitive advantage, nations are often endowed with and possess comparative advantage as a national phenomenon. For example, Brazil and Colombia may possess comparative advantage in coffee while China and India may possess similar comparative advantage in tea. If India needs to be successful in its quest for global economic dominance despite similar competitive aspirations from other countries the governmental policies and industrial strategies must target generation of trade surplus in each industry not merely as an industrial or corporate competitive advantage, but more as a national comparative advantage. Though export-import balance may seem like an industry or firm level competitive capability, it has a larger macroeconomic advantage. Sustained and continuous trade surplus enables the nation and industry to generate the surpluses needed to reinvest in product innovation and facility upgrades without dependence on external aid or overseas investment which invariably come with tie-in imports. Cumulative trade surplus, accumulated at the rate of say just USD 15  billion per month (as opposed to current trade deficit of USD 10 billion per month) would lead to current foreign exchange reserve level of USD 317 billion in less than two years even without any FDI inflow at all.

More than the macroeconomic numbers, the industrial strength and vitality that gets established through a trade surplus situation provide a virtuous cycle of innovation and manufacturing for global marketing advantage for India. It is possible that an export oriented economy will be sought to be equalized in the global foreign exchange scenario through an appreciating Rupee; however, the benefits of continuing trade surplus far overweigh the risks. For example, trade surpluses coupled with FDI could lead to high gross investment levels of over 50 percent of GDP, as opposed current 30 percent odd levels. Competitive and expanding industrialization would lead to greater urbanization, and spread of urban lifestyles into rural areas as is happening in China, leading to greater number of jobs and increased incomes and consumption profiles. A strategy of minimal imports with maximal exports requires all-round improvement in infrastructure - educational, residential, medical, transport, energy and telecommunications - based essentially on indigenous equipment as much as possible. This would help the nation be not only more productive but also enlarge the price-cost gap for the benefit of infrastructure operators, and enhance the trade surplus for the benefit of the nation.

India’s tryst with destiny

Pandit Jawaharlal Nehru, India’s first Prime Minister, in his speech to the members of the Constituent Assembly at the midnight of August 14, 1947 spoke of India’s tryst with destiny. Nehru’s speech that night ranks as his best speech ever, full of passion and dedication, with continuing relevance, as some extracts reproduced below show.  

Long years ago we made a tryst with destiny, and now the time comes when we shall redeem our pledge, not wholly or in full measure, but very substantially. At the stroke of the midnight hour, when the world sleeps, India will awake to life and freedom. A moment comes, which comes but rarely in history, when we step out from the old to the new, when an age ends, and when the soul of a nation, long suppressed, finds utterance. It is fitting that at this solemn moment we take the pledge of dedication to the service of India and her people and to the still larger cause of humanity. At the dawn of history India started on her unending quest, and trackless centuries are filled with her striving and the grandeur of her success and her failures. Through good and ill fortune alike she has never lost sight of that quest or forgotten the ideals which gave her strength. We end today a period of ill fortune and India discovers herself again.

That future is not one of ease or resting but of incessant striving so that we may fulfill the pledges we have so often taken and the one we shall take today. The service of India means the service of the millions who suffer. It means the ending of poverty and ignorance and disease and inequality of opportunity. The ambition of the greatest man of our generation has been to wipe every tear from every eye. That may be beyond us, but as long as there are tears and suffering, so long our work will not be over. And so we have to labour and to work, and work hard, to give reality to our dreams. Those dreams are for India, but they are also for the world, for all the nations and peoples are too closely knit together today for anyone of them to imagine that it can live apart. Peace has been said to be indivisible; so is freedom, so is prosperity now, and so also is disaster in this one world that can no longer be split into isolated fragments.

The future beckons to us. Whither do we go and what shall be our endeavour? To bring freedom and opportunity to the common man, to the peasants and workers of India; to fight and end poverty and ignorance and disease; to build up a prosperous, democratic and progressive nation, and to create social, economic and political institutions which will ensure justice and fullness of life to every man and woman. We have hard work ahead. There is no resting for any one of us till we redeem our pledge in full, till we make all the people of India what destiny intended them to be. We are citizens of a great country, on the verge of bold advance, and we have to live up to that high standard. All of us, to whatever religion we may belong, are equally the children of India with equal rights, privileges and obligations. We cannot encourage communalism or narrow-mindedness, for no nation can be great whose people are narrow in thought or in action. To the nations and peoples of the world we send greetings and pledge ourselves to cooperate with them in furthering peace, freedom and democracy. And to India, our much-loved motherland, the ancient, the eternal and the ever-new, we pay our reverent homage and we bind ourselves afresh to her service. Jai Hind [Victory to India].

As India completes sixty four years of independence and enters the sixty fifth year, it is evident that the great role for India, envisaged by Mahatma Gandhi, the Father of the Nation and Jawaharlal Nehru, the architect of the modern India, is getting to be fulfilled. There is still substantial work to do. Indian independence can fulfill its full potential only with economic independence, marked by a disease-free, strife-free and happy nation. Some thoughts of this blog post, scripted with best wishes for a happy, independent India, that focus on innovation in design and manufacture to achieve global competitiveness through precision, quality and finishes, should make India economically independent, and provide real fulfillment for the dreams and aspirations underlying in the Indian independence.

Posted by Dr CB Rao on August 14, 2011  

      

Competitor Clusters: A Framework for Competitor Analysis

Michael Porter in his work on Competitive Strategy (1980) follows up the building blocks of structural analysis and generic competitive strategies with a framework for analyzing competitors. He holds that analyzing competitors in depth as per a detailed format prescribed in his theory provides a better perspective for formulating the competitive strategy of a firm. He considers that most firms conduct competitor analysis in a perfunctory manner as a result of which firms end up developing deficient strategies. He observes that many companies do not collect information about competitors in a systematic fashion, but act on the basis of informal tidbits of information making the competitor analysis desultory.

The framework for competitor analysis proposed by Porter comprises four diagnostic components in terms of future goals, current strategy, assumptions and capabilities. However, he advocates an extensive canvas of study covering data from the parent corporation's vision and group strategy to the goals and execution plans of individual business units. Porter lays out a comprehensive database, comprising over 100 markers and metrics, to identify competitor profiles. Though Porter's hypothesis and framework for competitor analysis are interesting, and he even commends it as an equally applicable model for self-analysis, there are weaknesses in the Porter model from conceptual as well as practical points of view.

Challenges of Porter's framework

The theory of competition is challenging in that there can be no singular definition of competition or competitor. At one level it is linked to industry definition, which is itself a moving target in the contemporary business environment (see my recent post: "Structural Analysis and Industry Definition", Strategy Musings, July 21, 2011, www.cbrao.blogspot.com). Secondly, competitors could be having individual businesses that compete differentially in diverse product-market combinations. The more a corporation is unitized and globalized the greater could be the chance of multiple styles of competition from the same company. And, it goes without saying that the competitive profile of a single business firm, and the competitive profile of a single business within a conglomerate could be completely different.

Porter throws in an important dimension when he hypothesizes that the study of competition should cover both current and emerging competitors. However, Porter does not indicate whether the study of competition needs to include all the competitors, a cross-section of them or only the top two or three. There could be two views on this, both with their own valid points. On one hand, it could be just sufficient if the best of the competition is benchmarked for superior performance. On the other hand, even a trivial competitor could destroy an industry structure by taking irrational actions that generate intense competitive forces. The above indicates that a comprehensive and insightful competitor analysis could be not only complex but also resource-intensive. 

Outside-in versus inside-out

From a process point of view, Porter's methodology requires that the firm, especially its strategy department, train its telescope on what happens in the external marketplace. From a range of data, not limited to published industry statistics to competitive signals, and from supplier deliveries to equipment orders, the firm is expected to systematically receive inputs, which define the strategies of competitors. Obviously, while this could be an achievable task in the case of duopolistic and reasonably oligopolistic industry structures, it could be an impossibly people-intensive task in the case of fragmented industries, and a proprietary process in the case of knowledge industries. Porter himself admits the challenges of reliable data collection on competitors.

As opposed to the classic Porter's outside-in approach, the inside-out approach takes the view that, in large organizations and innovative firms especially, there would be enough knowledge of industry shaping trends or enough inputs from who joined the firm from other competitors on the appropriate competitive trends. The inside-out approach thus does not differentiate internal firm developments from competitive external developments. As a result, no specific resources are allocated for dedicated external competitive intelligence in the inside-out approach. In this approach, self-analysis and competitor analysis converge in terms of process mechanics.

Strategic groups

Clearly, neither outside-in nor inside-out approach helps in establishing a robust and sustainable framework of competitor analysis that has a fair balance of resource deployment and information collection. When scores of competitors are analyzed over several dimensions, each with multiple metrics, the emerging picture would be too diffused to lead to any meaningful conclusions. It would be more relevant to study convergent patterns of collective competitive behavior than divergent profiles of individual competitive behavior at the firm level. Porter’s theory of strategic groups offers interesting insights in this context. Porter hypothesizes that firms in an industry can be classified into strategic groups, each comprising a group of firms following the same or a similar strategy along the strategic dimensions. The dimensions could be ones such as specialization and vertical integration.

The relevance and appropriateness of strategic groups in industry analysis had been tested by the author in his research studies conducted at the Indian Institute of Technology Madras, Chennai in the 1980s and 1990s, with the Indian automobile industry as the background. Dimensions such as import dependence, export competitiveness, product diversity and R&D intensity emerged as useful criteria to develop strategic groups, and predict their performance. However, strategic groups do not qualify to be used as the basis for analyzing competitive behavior. Adoption of a particular strategy, and even its execution, merely indicates the competitive intent but does not necessarily reflect the competitive behavior or competitive outcome. Competitive forces vary in their intensity and volatility depending upon how firms and strategic groups deploy their competitive capabilities. Strategic groups with an overlay of competitive behavior could provide a simpler yet a more effective approach to analyze competition.

Competitor clusters

Competitor clusters can be defined as strategic groups which deploy their competencies with a differential competitive intensity. A group that is R&D intensive could be low on the competitive use of such innovative intensity. Indian power plant producers as a strategic group are as innovative and cost efficient as the Chinese power plant producers. However, Chinese power plant producers are much more aggressive in leveraging their systemic cost-competitiveness to gain a lead over the Indian power plant producers. Clearly, an Indian power plant producer would need to look at a different competitor cluster than it is used to while formulating its competitive strategy. The paradox of competitor clusters would be evident from the low cost mobile phone market. The Korean (Samsung and LG)  and Swedish (Sony Ericsson, Nokia) mobile device leaders have ultra low cost devices just as the Indian (Videocon) and Chinese (Huawei) device makers have. However, the approach taken by the latter to translate their low cost position into ultra low price position, with additional smart phone features, positions them in a different competitor cluster.

A review of the Indian automobile industry provides an additional example of competitor clustering. The industry comprises a fascinating array of companies with different strategic attributes; for example, a wholly indigenous company (Tata Motors), a largely indigenized company (Maruti-Suzuki), and different strategic groups of companies with American (General Motors, Ford), European (Mercedes Benz, BMW, Audi, Volkswagen and Renault), Korean (Hyundai) or Japanese (Toyota, Nissan) technologies, and within each strategic group, strategic sub-groups of companies with high levels of import dependence and/or luxury orientation. While these companies could be grouped based on technological and business strategies as above, different competitor clusters would actually emerge when the competitive behavior profiles are superimposed. When a new entrant plans to enter the Indian automobile industry space, the entrant needs to be conscious of not only the strategic group it could form a part of but also the competitor cluster which it would need to contend with.

Dimensions for clustering

While there would exist several strategic dimensions that firms could pursue, not all are relevant for strategic grouping and much less appropriate for competitor clustering. Strategic strengths essentially are reflected in terms of new product innovation, manufacturing competitiveness, supply chain agility, market penetration and financial strength. Competitive behavior is reflected in terms of pace of new product introduction, pricing competitiveness, distribution flexibility, market spread and share, and profitability. A combination of strategic strengths and competitive behavior would help develop relevant competitor clusters. While there could be thirty six combinations of strategic strengths and competitive behaviors, only a few are significant for competitor clustering. The relevant combinations are those that are more inversely correlated than the others.

The essence of competitive excellence is the ability to pursue strategies that are apparently contrarian but are equally result oriented. One facet of competitive intensity is an ability to consume significantly high levels of resources (for example, an unceasing introduction of successive generations of products) and yet achieve outcomes that provide significantly high levels of financial strength (for example, high levels of product profitability). Another facet of competitive strength is an ability to pack maximal innovation into minimal product count (for example, just one or two products per year, each packed with breakthrough features) and yet achieve maximal market spread and market share (for example, global market footprint and over fifty percent market share). Yet another facet could be an ability to be the widest possible distribution capability with lowest product pricing (for example, mass retailing of budget products) and yet achieve high levels of financial strength (for example, corporate profitability). Toyota, Apple and Walmart are institutional examples of the three facets of competitive profiling respectively.

Competitive clustering can be carried out in terms of simple integrated hypotheses as above (for example, most profitable innovation) or could be developed in terms of high-low 2X2 grids. In this approach, firms would be classified on appropriate scales in terms of innovation intensity and product profitability to develop four grids. The grids represent clusters which are high on both the dimensions of innovation and profitability, high on either innovation or profitability on one hand, and correspondingly low on either profitability or innovation on the other, and low on both innovation and profitability. Greater clarity would be achieved by adopting the grid approach to developing competitive clusters of firms. Because of the adoption of scaling technique, there could be multiple competitive clusters that could be positioned in quite a representative manner in each of the four grids.

Guidance for entry

Any strategic framework should help firms achieve successful entry into or growth in an existing industry. The strategic formulations for entry and growth are, however, different. A new entrant to the industry needs to decide fundamentally on the strategic group to choose the right positioning within the industry, consistent with the available or accessible resources. For example, for a new entrant to the white goods industry, depending on the nature of product and manufacturing technologies as well as market plans and financial resources it would be necessary to decide whether the company should join a full line, vertically integrated strategic group or a narrow line, outsourcing strategic group. As another example, a new entrant to the Indian automobile industry, depending on the ownership strength and resource allocation to region, needs to decide whether it would be a part of the import dependent luxury car strategic group or a part of the indigenous component based low and midrange sedan strategic group.

Choice of a strategic group provides an appropriate strategic focus and scoping to a new entrant. That alone does not, however, assure success to the new entrant. It becomes necessary to understand how the appropriate competitor cluster would respond to the new entry. When Nissan has decided to enter the Indian automobile industry it has chosen the mass market oriented small car strategic group but has decided to benchmark itself against luxury oriented competitor cluster. Nissan sought differentiation through upgraded features, modern manufacturing and niche marketing. In contrast, Volkswagen chose the strategic group of import dependent, luxury car strategic group but has positioned itself on a competitor cluster that offers a wider range of automobile models with higher levels of technology. For new entrants, choice of an appropriate strategic group is, however, of greater importance than the choice of competitor cluster.

Guidance for growth

Each firm in an industry by the course of evolution falls into one or the other strategic groups. The successful growth of an existing firm in an established industry depends on the analysis of competitors and development of appropriate strategic responses. Such strategic reconfiguration could potentially move the firm into a different strategic group.  Strategic reconfiguration by several firms could also lead to formation of new strategic groups with different strategic characteristics. An existing firm therefore needs to focus on an appropriate competitor cluster and overcoming the competitive forces. Focus on competitive clusters would guide the firm onto the essential competencies that enable superior competitive advantage. Reverting to the case of the Indian automobile industry, the growth and the continued dominant play of Maruti-Suzuki is attributable to the company recognizing appropriate competitor clusters and responding to them. On the other hand, the modest growth of the other car manufacturers with American and European technologies is attributable to their being focused on strategic group membership rather than benchmarking themselves with competitor clusters.

An existing firm has the advantages of incumbency in that not all strategies need to be developed and executed from a zero base. It also has, as a corollary, the disadvantage of bearing the legacy of certain ineffective strategies that could have been pursued in the past. Overriding such advantages and disadvantages, the existing firms can realize, through the competitive cluster framework, a unique potential to identify the winning strategies to achieve industry leadership. Rather than get lost in a laundry listing of all the competitive parameters of all the players, the firm should simply focus on the essentials of the competitive strategies of competitive clusters. A range of six dimensions (sufficient in most cases) to thirty six strategic dimensions (that may be required in highly fragmented industries) as  described in this blog post would be all that is required with a resort to the competitive clustering framework.

Synthesis

There is no doubt that Porter’s theory of competitive strategy, first proposed in 1980, has continuing relevance despite the breakthrough developments that have been taking place in technology and competition over the last few decades. The competitive forces that exist in an industry are a cause as well as a result of the actions of the various actions taken by the incumbent firms. Rather than follow a unit level, multi-factor competitor analysis as proposed by Porter, this blog post has proposed a more efficient and more effective competitor cluster framework, which works extremely well with a selective additional deployment of the framework of strategic groups. Competitive clustering is more dynamic than strategic grouping and provides more frugal but more impactful dimensioning for firms to understand and respond to competitors’ strategic behavior in an industry.     

Posted by Dr CB Rao on August 7, 2011