Competitive forces and strategic choice decisions.docx

Competitive forces and strategic choice decisions.docx

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Competitiveforcesandstrategicchoicedecisions

Competitiveforcesandstrategicchoicedecisions:

AnexperimentalinvestigationintheUnitedStatesandJapan

MichaelSong, RogerJCalantone, CAnthonyDiBenedetto. StrategicManagementJournal. Chichester:

 Oct2002. Vol. 23, Iss. 10;  pg. 969

Abstract（ArticleSummary）

Managersoperateinacomplex,uncertainenvironmentandtendtoformsimplifiedmodelsinordertocopewiththisenvironmentandmakecompetitivestrategicdecisions.Thisstudyexaminethestrategicchoicedecision-makingprocessinfirmslocatedintheUSandJapan.Itdevelopsseveralmain-effectpropositionsregardingmanagerialselectionofcompetitivestrategies,dependingonthecompetitiveforcestheyarefacing.Thepaperproposesmaineffectduetocountyoforigin:

Japanesemanagerspreferacost-leadershipstrategymorethanAmericanmanagersdo.Theresearchfindingsindicatedthathighbuyerpowerandhighsubstitutionthreatwereassociatedwithapreferenceforcost-leadershipstrategies,andJapanesemanagersweresignificantlymorelikelytopreferacost-leadershipstrategythanUSmanagers.Thepaperalsofoundthat,underconditionsofhighbuyerpower,USmanagerswerelesslikelythanJapanesemanagerstoenteramarketwithadifferentiationorfocusstrategy.Littlesupportwasfoundforotherinteractionhypotheses,suggestingpointsofsimilaritybetweenUSandJapanesemanagers.

[Headnote]

Received14September1999

Finalrevisionreceived25March1999

[Headnote]

Keywords:

competitiveforces;decision-making;strategicchoice

[Headnote]

Managersoperateinacomplex,uncertainenvironmentandtendtoformsimplifiedmodelsinordertocopewiththisenvironmentandmakecompetitivestrategicdecisions（i.e.,costleadership,differentiation,orfocus）.Inthisstudy,weuseanexperimentaldesigntoexaminethestrategicchoicedecision-makingprocessinfirmslocatedintheUnitedStatesandJapan.Wedevelopseveralmain-effectpropositionsregardingmanagerialselectionofcompetitivestrategies,dependingonthecompetitiveforces（buyerpower,threatofsubstitutes,threatofnewfirmentry,andhighintensityofrivalry）theyarefacing.Weproposeamaineffectduetocountryoforigin:

Japanesemanagerspreferacost-leadershipstrategymorethanAmericanmanagersdo.Wealsoproposeseveralinteractioneffectsregardingcross-nationaldifferencesinstrategyselectionbetweenJapaneseandU.S.managers.Totestourpropositions,wecollectedexperimentaldatafrom316U.S.executivesand459Japaneseexecutives.Weassessedrelativeimpactsofthecompetitiveforcesonstrategicdecision-makingusingamultilevelregressionanalysis.Theresearchfindingsindicatedthathighbuyerpowerandhighsubstitutionthreatwereassociatedwithapreferenceforcost-leadershipstrategies,andJapanesemanagersweresignificantlymorelikelytopreferacost-leadershipstrategythanU.S.managers.Wealsofoundthat,underconditionsofhighbuyerpower,U.S.managerswerelesslikelythanJapanesemanagerstoenteramarketwithadifferentiationorfocusstrategy.Wefoundlittlesupportforotherinteractionhypotheses,suggestingpointsofsimilaritybetweenU.S.andJapanesemanagers.Weconcludewithadiscussionoftheoreticalandmanagerialimplicationsofourresults.Copyright（c）2002JohnWiley&Sons,Ltd.

INTRODUCTION

Managersuse'mentalmodels'tosimplifyandunderstandthecompetitiveenvironmentwithinwhichtheywork（PoracandThomas,1990;Song,DiBenedetto,andZhao,1999）.Intoday'sglobaleconomy,strategicdecisions,suchasachoiceofcompetitivestrategyformarketentry,maybemorecomplexsinceculturaltraitsinfluencemanagerialperceptionsandactions（Ralstonetal.,1993;Smith,Peterson,andWang,1996;Hittetal.,1997）.Managersfromdifferentnationsmayusedifferentcriteriatoselectacompetitivestrategy,becausetheyusedifferent'mentalmodels.'Thatis,managerswillbemostawareoftheforcesthattheyexperienceintheirhomecountry,andmaybelessawareofforcesthatareblockedbyinstitutionalfactors.Theywill,therefore,placedifferentlevelsofimportanceonthecompetitiveforceswhenassessingtheenvironment,andmayconsequentlyviewagivenmarketopportunityasmoreorlessattractive.Veryfewstudieshaveexaminedtheentrystrategydecisionacrosscultures.

Inthisstudy,weseektodeterminehowmanagersfromboththeUnitedStatesandJapanmakestrategydecisionsgivendifferentcharacteristicsinthecompetitiveenvironment,whichwecharacterizeusingPorter's（1980）fivecompetitiveforcesmodel.Ourfocusisondecisionprocess,i.e.,howmanagersmakethesedecisionsandwhichcompetitivemarketforcestheyconsidermostimportant（seediscussioninBouldingetal.,1994）.Wedevelopseveralmain-effectpropositionsrelatingthecompetitiveforceswithselectionofcompetitivestrategy（i.e.,costleadership,differentiation,orfocusstrategy）.Wealsodevelopseveralpropositionsconcerningexpectedcrossnationaldifferencesindecision-making.Oneoftheseisamaineffect:

Japanesemanagerswillpreferacost-leadershipstrategy,whileU.S.managerswillprefertheothercompetitivestrategies.Toinvestigatefurtherthecross-nationaldifferences,wedevelopotherpropositionsthattesttheinteractionbetweenindividualcompetitiveforcesandcountryoforigin.

Totestourpropositions,wegatheredasampleof316U.S.and459Japanesemanagers.Wepresented16differentscenariosofcompetitivestructuretomembersofthesample,andelicitedtheirlikelihoodofimplementingdifferentcompetitivestrategies.Wecalculaterelativeimpactsofthecompetitiveforcesineachdecisionbasedonindividualmanagers'responsestothescenariospresented,andidentifysignificantmaineffectsandcross-nationaldifferencesintheseimpactsusingamultilevelregressionanalysis.

THEORYANDRESEARCHPROPOSITIONS

Managersmustdecide,earlyon,whichstrategicoptiontousewhenenteringanewmarket.Muchempiricalresearchofmanagerialdecisionmaking,suchasthestudiesderivedfromthePIMSdatabase（e.g.,Robinson,Fornell,andSullivan,1992;HuffandRobinson,1994）suggeststhatthestrategicdecisionsmadebymanagershavesubstantialimpactonlong-termfirmperformance.

Inordertomakesenseofthiscomplexenvironmentsurroundingthem,managerstendtoformsimplifiedinternalcognitiverepresentations（AlbaandHasher,1983;HillandLevenhagen,1995）.Theserepresentationsaretheresultofinteractingwithand'experiencing'theenvironment.Usingtheirexperiencewithandunderstandingoftheenvironment,managersfocusoncertainpiecesofinformationthattheyjudgetobecritical,andmakedecisionsandmeasuretheirperformancebasedonthisinformation（PoracandThomas,1990）.

ThePorterfiveforcesmodel（Porter,1980,1985）isfrequentlyusedinthemanagementliteraturetoassessthecompetitiveenvironment（e.g.,BouldingandStaelin,1993）.Thebasiccompetitiveforcescomprisingthemodelaretherivalrybetweenexistingcompetitors,thethreatofnewentrants,thethreatofsubstituteproducts,thebargainingpowerofsuppliers,andthebargainingpowerofbuyers.Theobjectiveinsettingcompetitivestrategyistoseekapositioninwhichthesefiveforcesdothefirmthemostgoodorcauseittheleastharm（Porter,1980）.Toovercomethesecompetitiveforcesandsucceedinthelongterm,managementcanselectfromseveralcompetitivestrategies:

costleadership,differentiation,orfocus.Thesearenotmutuallyexclusive,asfirmscancombinestrategies（e.g.,differentiatorscanusecostleadershipstrategies）.

Weexpectthateachofthecompetitiveforceswillaffectthelikelihoodsofselectingfromamongthecompetitivestrategies.First,highlevelsofbuyerpowerwilllimitafirm'sabilitytochargehigherprices,asmorepowerfulbuyerswillbeabletodemandpriceconcessionsfromtheirsuppliers（SchererandRoss,1990）.Thusthefirmmustseektoreducecostsinordertoearnabove-averageprofitsifbuyerpowerishigh.Secondly,ahighthreatofsubstitutionimpliesthatanalternativeproducttypeoffersapriceorperformancebenefitandlimitsindustryprofitability.Thefirmcanearnsatisfactoryprofitswhileundercuttinganypotentialcompetitoronpricebypursuingacost-leadershipstrategy.Thus,byreducingthealternativeproducttype'spriceadvantage,thefirmprotectsitselffromattackinthelongterm（SchererandRoss,1990;Porter,1980）.

Thethreatofentrybynewfirmsishighestduringthehighgrowthphaseoftheproductlifecycle,asdemandincreases,newmarketsegmentsemerge,andnewentrantsstakeaclaimintheemergingmarket.Atthispoint,thecompetitivefocusshiftsfromprimarytoselectivedemand,andfirms（includingtheincumbent）differentiatetheirproductsonattributesdeemedimportantbycertaincustomersegments（UtterbackandAbernathy,1975;Mansfield,1986,1993）.Finally,competitiveintensityislikelytobehighestduringmaturity/latematuritystagesoftheproductlifecycle,ascompetitionforselectivedemandintensifiesandincreasinglylargesumsarespentonincrementalproductinnovationsandcommunicationsprograms（Kotler,2000;Robinson,1969）.Duringthistimeofintensecompetition,firmswillseektodifferentiatetheirofferings,orfocusonprotected,profitableniches.Theseconsiderationsmaybeexpressedasaseriesofmaineffectpropositions:

Proposition1:

Managersaremorelikelytopreferacost-leadershipcompetitivestrategywhenfacingascenarioofhighbuyerpower,otherthingsbeingequal.

Proposition2:

Managersaremorelikelytopreferacost-leadershipcompetitivestrategywhenfacingascenarioof