CHAPTER 5

THE DYNAMICS OF COMPETITIVE RIVALRY

The firm's environment is devoid of competitors if they are offering similar

products or services. While competition serves the purpose of the customers. It also
makes the firm aware of their position in the industry that makes them strive to
create better products and develop new ones through innovations. The dynamics of
competition actions and response that occurs as they compete in satisfying
customer needs and wants.
Firms continue to challenge the competitors to get the greater market share
and sustain competitive advantage. As the firm moves, it resources manpower
greater heights and responds action to their competitors, the greater their sense of
awareness that develops their competitive competencies.
Competitive behavior is developed when the firm responds positively to
competition. It is the tendency to outclass the other firm by improving their
production system, materials quality and distribution to customers at the lowest
cost possible. Competitive behavior is developed when the firm overcomes the
forces of competition and uses their current advantage in building greater return on
investments.

COMPETITIVE DYNAMICS
Competitive dynamics is the firm's total set of actions and responses to all
competitors within the market niche. Competitive dynamics makes the firm alert in
the developing scenario in the industrial world, that they could not just fold their
arms watching the changing environment. Multiple market competition is the scene
where firms are competing in several products and geographic regions.
Example of this is the competition between Smart and Globe that provides
different products and services to cellular phone users in and outside the country.
They provide a lot of incentives and promotions to get the greater share of the
market and get better return on their investments, which are already in place
through their transmission facilities.
Another example of these competitive dynamics is the proliferation of
Kwarta Padala through the different pawnshops all over the country. With the
advent of advanced communication, they get more payoffs with these services
using their countrywide network of branches. It outclassed the old post office
systems of money remittances and bank transactions that require many
requirements.
Competitive dynamics requires innovations and new strategic actions that
will develop the firm's competitive advantage. The firm's success in the initial
delivery of effective product and service and its competitive advantage must be
sustained as competitors will always look for new opportunity and new strategy to
gain on their side the competitive advantage. Business laurels are gained through
sustained efforts and consistent strategy innovation and development.

THE DYNAMICS OF GLOBAL COMPETITION

The global economic rivalry is intensifying. Globalization is the target of
methe most firms as the market expansion is in the direction of the populated
countries of the world.The price war is on, and companies will tend to compete in
lower priced products with acceptable quality. Acceptable quality means that the
product standards will last until the next new product will surface in the market, as
innovation will replace he existing ones. This reliance is greatly noticed in firms
using differentiation level strategy relying on strong brand that gives them greater
competitive advantage.
The global dynamics of competition is felt in the field of communication and
electronics. The firms are competing in price and product differentiation on cellular
phones, computers, and other office equipment. Apple, Samsung, Lenovo, and
Nokia are amon the products that wage war among each other in the market in
termsof feature and price. Other unknown brands are competing in price for lower
income groups in the market niche.
The car industry is another sector where global dynamics of competition
exist with such known brands as Honda, Toyota, Ford, and Mitsubishi and now
Hyundai with its improved features and price. They develop innovative features
and low down payments for their brand new cars. Every Filipino wants to own
their new smaller version with new features that is now known in the industry.
New car enthusiasts would like to taste a new driving experience with the new
affordable version that fits into the road network of the metropolitan area.
The global competitive scope in geographic competition is increasing in
intensity as the super powers in the world economy is pressing pressures on the
third world countries or developing nations to reduce tariff barriers for the entrance
of their products. The dynamics of competition will be on the developed
economies of the world as they have the necessary technology and infrastructure to
the disadvantage of the new developing economy.
For developing countries to be globally competitive, the terms of
investments for the development of industry must be put in place. Investments in
terms of capital will also come from countries with surplus capital or money that is
not fully utilized in their home country. This will also involve putting the
developing nation's infrastructure in terms of better road networks, port facilities
and other handling facilities to facilitate the fast movement of products and
services. The climate of investment must be transparent and above the board of
corruptions.

THE MODEL OF COMPETITIVE STRATEGY

To stay in the competitive market, firms must develop strategies and actions
that should outperform other firms in the same industry. Competitive rivalry
evolves from the patterns of actions, responses as one's pattern of action have
noticeable effect on the competitors, and it elicited competitive response.
Competitive response is interdependent and firms watch each other's actions and
respond immediately to the market needs.
The success in the market is a function of individual strategies and actions
and the consequences of their effective use. Firms must be aware of the financial
consequences of competitive rivalry as it will involve profit maximization.

The intensity of market rivalry is affected by the following:

1. The total number of competitors
The firm must be able to conduct market analysis to predict the nature and
extent of competition and rivalry. It is an analysis of the competitors offering the
same product, same market and the same marketing environment.firms of this
nature are clearly acknowledged as direct competitors and will influence the
intensity of rivalry and competition in the market.

2. The market characteristics

The market characteristics is concerned with the number of markets with
which the firm and its competitors are jointly involved andthe degree of its
importance to both firms. Firms competing against one another inseveral or many
markets are engaged in multimarket competition. Example of these firms in the
food industry are Jollibee and McDonalds. The firm must be able determine the
total market potential and respond immediately to their needs.

3. The quality and extent of individual firm's strategies.

In the analysis of the competitors, strategy firms must be able to identy
tangible and intangible resources and that of the competitors. Firms with similar
resources and capabilities are more likely to have the same strength and
weaknesses and therefore use similar strategies. Analysis of the firms in similar
situations is not difficult as factual and secondary data could be available through
their financial statements. Operational observations could be conducted through
marketing research.

STRATEGIC RESPONSE TO COMPETITOR'S ACTION

As pointed out in many discussions, competitors would not rest until they
will be able to catch up or overtake the leaders in the industry. No industry rests on
their laurels or successes, letting competitors overshadow their supremacy. This
competition hinges on the commonality in their resources and market niche that
influences the driver of competitive behavior as they engage in competitive rivalry.

Factors that influence Strategic Response

1. Corporate awareness to competition
The strategic response of corporate awareness is a prerequisite to any competitive
action or response. This refers to the extent to which competitor recognize the
degree of their mutual interdependence in terms of market commonality and
resource similarity. The lack of corporate awareness can lead To excessive
competitors that will result in negative effect on all competitive performance.
When firms have similarity in resources and market niche, the tendency to
develop greater corporate awareness in order to get the greater competitive
advantage. The tendency of the firm is to improve their competencies while
competing in multiple markets. Corporate awareness affects the extent to which the
firm understands the consequences of its competitive action and response.

2. Motivation to respond to competition

It refers to the corporate incentive to take action or respond to competitor's
attack to perceive gains and losses. The firm may be awae of the competitor's
actions but may not be motivated to engage in rivalry if they perceive that their
industrial position will not improve or the rival's action would not affect their
performance in the market.
Market commonality affects the corporate perceptions and its resulting
motivation. Firms will more likely attack its competitors with low market
commonality than with firms that offer multiple markets. Rival firms will have
higher stakes in terms of investments in trying to gain advantageous position over
firms operating in multiple markets. Actions of this nature can lose focus on its
core market and battle on new products that need additional resources which have
been allocated to other purposes.

3. Ability in terms of resources and technology

While the firm may be aware of the competitor's attack and be motivated to
respond to rival's action, they must also consider the availability of their resources
and technology at hand to enter the market competition. When firm faces a
competitor with similar resources careful study of possible attack must be made to
counter the rival firm's response.
Another factor that must be considered is the technology that is available to
the firm's disposal in order to compete positively to rival's attack. The technology
is a great factor in product improvement and innovation adding to its competitive
advantage. On the other hand, it requires new investments and training of new
manpower to address new innovations.

4. Dissimilarity of resources and operational capability

It refers to the competitive action and response between firms in that the
greater the resource imbalance between the actors of competition or respondent
competitors, the greater is the delay in response. Rival firms could not easily
overtake cost strategy, as they have to study carefully the effects of low cost
pricing to their profitability index in operation.
The leading firm may be able to get material resources from their suppliers
at low cost due to cooperative purchasing strategy. Operational capability in terms
of logistic mobilization and delivery is another factor that affects competitive
advantage, which could not be seen by the rival firm. Systems and procedure
applied in the operation are not easilyavailable to rival firms and their
competencies and capabilities are entirely not the same.

TACTICAL ACTIONS TO COMPETITIVE RIVALRY

The firm's market position must be maintained at profitable level and must
depend its competitive advantage through tactical actions towards the attack of its
rivals. Competitive response is the strategic action that the firms take to counter the
possible effects on its market position. This response to the attack involves
significant commitment in terms of the organization resources and capabilities. The
strategic action must be easy to implement and reverse the rivalry's counter action.
A tactical response is a market-based strategy that the firm makes a
fine-tuning of its approaches to the competitors' actions. Price changes in a
particular product is a tactical strategy such that one offered
by Cebu Pacific Airlines for reservations made earlier of about three to six month
duration. These are the times when lean season for passengers are traveling. Those
reservations are made to fully accommodate the available number of seats in the
flight. It is tactical strategy that the revenue earlier could be used as added income.
FACTORS THAT INFLUENCE THE LIKELIHOOD OF RIVALS' ATTACK
The attack in the market is present in all firms, and competitors will always
mu ways to penetrate the market with their products and services. These market
wars are brought about by the commonality in resources, the drivers of awareness,
the presence of motivation, the ability to penetrate the market, and the likelihood of
strategies of the rivals in the industry. The likelihood of attack can be grouped into
the following strategies:

1. PIONEERING INCENTIVE STRATEGY

The pioneering incentives strategy could be classified into two.
A. Pioneer or First Mover Strategy
These firms initiate competitive action in order to build competitive
advantage in order to improve market position. Firms of this nature believe that
innovation will improve its strategic actions and gain the needed market share.
They make additional investment and resources for new innovative products
through research and development and intensive advertising campaign to be
noticed by the consumer.
The benefit of being successful as initiator or first mover can be
substantial especially in products that cater in fast-cycle market. This could be felt
in the electronic industries like cellular phones, new television sets and other
electronic gadgets where innovations takes place overtime. New features are
developed and products life cycles become shorter. Nokia was the first mover in
the cellular phone until other brands in the market came into the market. The
substantial revenue of Nokia has been more than ten times before the other brands
came into the market.
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The First Movers have the following advantages:
1.Consumer's loyalty to the product is developed.
The firm that introduces the new innovative product develops customer
loyalty. The next firm could not easily penetrate the market unless they introduce a
more superior product at a lower price than initiator.

2.Satisfied customer became committed to the product.

Satisfied customers could not easily be persuaded to try new products when
they have committed themselves for the product quality of the first mover. When
new and innovative products of the first mover came into the market the customer
tends to try the new innovative product introduced by the initiator.

B. Imitators or Second Mover Strategy

The next firm that introduces the kind of product by the initiator is likely to
produce products that are imitations of the first mover. The clever second mover
studies the success and failure of the first mover and develops processes and
technologies that may be superior in creating customer value.
Since the imitators or second movers have the time to study the pioneer's
strategy, it allows them to avoid spending on substantial investments in research
and development. They can imitate and modify the first mover's product without
violating patent rights as modified and improved products may be different in
features and design.

The Imitators or Second Movers' advantages are:

1. Avoid the problems and mistakes of the pioneers or first mover.
The pioneers usually encountered problems and marketing strategies that
second movers or imitators could have studied before launching their products.
This could be in terms of new investments and advertising which the imitators
could just counter when they introduced their products in the market.

2. Develop technologies and efficiency that are more superior

New technologies are what customers would like to find in new products.
The imitators could penetrate the suppliers of materials of the pioneer and copy the
same at lower cost. They can develop more efficient production system that will
lower the cost of the product and be more competitive in the market.
3. Create products that create customer value.
Imitators can respond to pioneer’s products with superior value as often
time's imitation products feature more value added for customer satisfaction.
Imitators can respond more rapidly and meaningfully feedback, which could be
their strategic basis for
action.

2. ORGANIZATIONAL SIZE STRATEGIES

Big companies used to set on their laurels confident that the competitors
could not easily overtake their size. Smaller organizations that are aggressive
enough to increase their market niche are more likely to launch competitive
actions. Smaller firms tend to be quicker, nimbler and flexible competitors as they
rely on speed and surprises as they can easily penetrate the technology advantage
of the big firms.
Smaller firms' flexibility and nimbleness allow them to develop greater
variety in their competitive actions as compared to large organizations, which tend
to limit the type of competitive actions. Smaller firms can easily imitate their
products through innovation, modifications and improvement without many
investments in research and development. Smaller firms have low overhead
expenses and fixed cost as they can operate with their manpower base and
resources at hand.
The competitive strategies of smaller firms against its big rivals are:
a. Lower investment cost in research and development
b. Lower fixed and overhead expenses
c. Technology and resource base through imitation
d. Quicker and flexibility in action and response
e. Lower product price with new features

3. PRODUCT QUALITY STRATEGIES

 Quality is the byword in competitive strategy. It is the production of goods
or services with no defects involving a never-ending cycle of continuous
improvement. In strategic objectives, quality refers to how the firm produces
products that exceed customer expectations. For the corporate perspective quality
is an outcome of how the firm complete the cycle of the primary and support
activities that develops customer satisfaction that gives the firm the desired return
on investments.
In the eyes of the customer quality means doing the right things relative
performance measure that are important to them. The production of quality
products is possible only through the support of top management, the workers and
the entire organization. It involves the process of institutionalization in the core
values of competencies to service the requirements of their valued customers. It
further involves vigilance in continuously finding ways to improve quality.
Quality is the primary reason to stay in the market. It is now the universal
theme in the global industry and the basic condition for sustained competitive
success. Quality is the vehicle for sustained credibility among its customers as it is
the possible options in the development of customer patronage and loyalty.
Customers will consider buying the products when they believe that the product
quality can satisfy their base level of expectations.

Customer's Perception of Quality Products

a. Performance - it refers to its operating characteristics
B. Product Features - It refers to important special characteristics
c. Flexibility - it refers to meeting operating specifications over some period in
time
d. Conformance- it refers to matching the pre-established standards
e. Durability-it refers to the amount of use before it ware out or deteriorate
f. Aesthetics - it refers to how the products looks and feel in the use of the user
g. Serviceability-Ease and speed of repair when it breakdown
Total Quality Management became the focus of most competing firms in
order to sustain the development of quality products to its customers. TQM is a
managerial strategy of innovations that emphasizes the organization's total
commitment to customer satisfaction. It is the process of continuous improvement
in production processes through the use of data-driven strategies in problem
solving. It also involves groups and teams empowerment through employee's
commitment to quality products.

Firms that implemented TQM strategies resulted in the following advantages

a. Increase in customer satisfaction
b. Cut down cost by 20 percent
c. Reduce down time cost in product innovation and processing
d. Increase productivity of work force
e. Greater incentives for work teams

The quality strategy affects the competitive rivalry and its competitive
advantage.The following factors will results due to poor quality products:

a. Poor quality products cause decline in sales volume

b. Credibility in the market could not be easily corrected
c. Loss of customer patronage and loyalty
d. Image building would take time to correct
e. Greater loss in profit margin

Competitors in the industry will always look at the quality of the rival
products and the innovations that is being introduced to improve its delivery to
customer's satisfaction. Today's customers are quality conciousas they want
products that is worth their hard earned peso.
The race for quality is the byword of rival firms in the industry as the market
level of customer satisfaction becomes higher in this new generation .The
development of competitive advantage rested with quality products. No firms can
survive competition if the quality of their products remained at low levels.
THE DYNAMICS OF RIVAL'S RESPONSES
Competitors respond more frequently to actions taken by the firm with rep
for predictable and understandable competitive behavior, especially if the firm is
the market leader in the industry. In general, the firm can predict that when its
competto is highly dependent for its revenue and profitability in the market in
which the mm took a competitive action, that competitor will likely launch a strong
response. On the other hand, firms that are more diversified across markets are less
likely to respond to a particular action that affects one of the markets in which the
compete.
Competitive dynamics concerns the ongoing competitive behavior occurring
among all firms competing in a market for advantageous positions. Competitive
dynamics concerns the ongoing actions and responses taking place among all firms
competing within a market for advantageous positions. Market characteristics
affect the set of actions and responses firms take while competing in a given
market as well as the sustainability of firms' competitive advantage.

Three Important Factors that affect Competitors Rivalry

1. Factors that determines the degree to which firms are competitors
2. The drivers of competitive behavior for individual firms
3. The likelihood that the competitor will attack or respond
Building and sustaining competitive advantage is the core of competitive
rivalry and the advantages are greatly link to the firm's position in the market.The
rivals in the market are further affected by the speed in product positioning.
Competitive behavior as well as reasons or the logic for their actions and response
are similar within each market types but they only differ on their approach and
strategies to penetrate their valued customers.Firms want to sustain their advantage
for as long as possible but firms experienced that there is no permanent
sustainability as they have move forward in order to remain in the market. The
degree of sustainability is affected by how quickly competitive advantage can be
imitated and the cost involve to sustain it.