Porter Generic Strategies on Indian Automobile Induatry Essay

PORTER’S GENERIC COMPETITIVE STRATEGY Automobile Sector MARUTHI: Low Cost Product – Differentiated service Product Pricing: Maruthi build high walls of safety against competition by its very competitive pricing i.e. pricing as low as possible for the particular product. Maruthi has also been a company that has strived for sustainable development with their â€Å"three R† framework standing for â€Å"reduce, recycle, reuse† in its plants, so that there is a minimal stress on resources emphasizing on low cost while retaining their promise to the customer. Maruthi Product – Target Market – Pricing As important for low cost provider they are also backed by huge economies of scale as depicted below; Customer Service: In the other hand maruthi has been sought by people for its distribution and service availability across the length and breadth of the nation. â€Å"Yes, you can get lost in India, but chances are there will be a Maruti Suzuki Service Station close at hand. Wherever you go, across the length and breadth of this vast nation, our service network follows.† boasts maruthi relying on its widest service network servicing more than 40,000 cars a day. Maruthi has been No.1 in the J D Power Customer Satisfaction Award for a staggering 13 years in a row. It’s a survey that rates the after-sales service experience, one that no other global car market leader has won even once. Source:Maruthi.co.in TATA: COST LEADERSHIP Tata motors is a part of the conglomerate TATA and their focus is to provide cost effective solution to their customers going in line with their mission of â€Å"To be passionate in anticipating and providing the best vehicles and experiences that excite our customers globally.† Source: Tatamotors.com Focusing on values like Integrity, Accountability, Innovation, Passion for excellence with their focus to provide low cost solution ranging from TATA flag mark product NANO. The following picture gives the price list for the cars, Source: Car pricedhekho.com Their economies of scale are one of the highest in the industry signifying the low cost in production also reuse and less emphasis on design features and these coupled with their unique processing of fixing reverse methodology of pricing the product first and thereby innovating and designing so as to fit the price makes them the leader in providing low cost solutions reaching out the customers. TATA also boasts it service network being wide and reachable in almost all corners of the nation but their main focus and strive is on providing low cost solutions. MAHINDRA: DIFFERENTIATION (BLUE OCEAN STRATEGY) Mahindra & Mahindra (M&M) manufactures utility vehicles (UVs), tractors, commercial vehicles (CVs), three-wheelers and gensets. Mahindra was the first mover when it comes to utility vehicles in India and has an indomitable market and place in customer mind when their focus is on performance under optimal price. It is India’s market leader in UVs and tractors and In land, Mahindra has dominant share in all its segments – | Source: SIAM, Company Data, Credit Suisse estimates| Mahindra earns a competitive advantage via a combination of a tractor and UV business in India which face very little or no competition. Mahindra brought in SUV’s in Indian market focusing on raw power and performance with the launch of Bolero and the launch of Scorpio has proven to be a game-changer for the company and has help it transform its image from a people-mover to luxury SUV manufacturer followed by launch of its most-awaited XUV 500 dominating the SUV category with its differentiated products. All this was keenly observed by famous strategist and thinker Mr. C K Prahlad and named the whole milieu as â€Å"FORTRESS MAHINDRA†. Fortress Mahindra means that if you go into a certain mobility business where you can share procurement, where you can share research and development synergies, where you can share logistics, where you can share brand, you can share channel and then create a mobility web where it becomes easier to enter a  mobility business that somebod y else can’t and easier to defend when somebody tries to emulate. Source: Business Today

Juvenile Delinquency And Religion Essays - Criminology, Free Essays

Juvenile Delinquency And Religion Essays - Criminology, Free Essays Juvenile Delinquency And Religion Over the years, countless efforts have been made to find a comprehensive explanation for delinquency. The results of these efforts have offered possible reasons as being both biological and social. It is still debatable as to what forces have the greatest influence on youth crime, but it is undoubted that several factors clearly make an impact. The direct relationships a child has with concrete social elements, like his family and friends, are likely to give some intimation of his involvement in crime. However, it must be noted that there are more abstract contexts for socialization that also exist as potential explanations for a childs behavior. The most prominent of these less specific forces are the media, community, and religion. It has been argued extensively that these three elements represent a major source of delinquency in the U.S. today. Everyone has at one time or another heard accusations against television, for instance, and how it has such degenerating capabilities in r elation to young minds. Equally common are the various public proclamations about the lack of brotherhood among citizens of this country. These complaints are nothing new to our society; before television was vilified, it was radio, and before radio it was comic books. In short, these problems merely exist as different manifestations of an age-old concern. Another, seemingly less obvious, aspect of this argument deals with the role of religion in society. In paralleling it to delinquency, for all its power and influence, religion is much more perplexing than the media or sense of community. For one, religion exists on many different levels and is extremely difficult to define in a fashion suitable to the debate. In addition, the fact that religion is such a controversial and sensitive subject only complicates the pursuit of characterizing and understanding it. These obstacles notwithstanding, the multifaceted effects of religion on crime have been argued for centuries. They will lik ely continue, as people observe that religion influences the behavior of people, serves as a set of values for society, and correlates with delinquency in several ways. The relationship between crime and religion has been explored for many years, with only a handful of theorists drawing any direct conclusions. Among few others, three of the most influential social philosophers of the past 200 years, Marx, Durkheim, and Weber, have all commented on the importance of religion to this issue. Marx believed that religion existed to give people a false hope for the future and to keep them motivated during the present. In accomplishing this, religion also deterred people from crime by making them concentrate on their social roles, while ignoring the oppression of stratified economic systems. Durkheim asserted that social order could be maintained only if people had common beliefs in something greater than themselves (Jensen and Rojek 309). He saw religion as very interconnected with social values as it contributed to a loss of strong communal bonds between the tenants of Western society. As people begin to believe more in themselves and less in a higher po wer, Durkheim argued, they become less committed to an interdependent society and highly prone to selfish acts of lawlessness. Weber, another distinguished sociologist, attributed social deviance to religious factors as well. He believed that religious institutions were intertwined with other institutions, contributing to both progressive and regressive social development (Jensen and Rojek 309). These three attempted to explain the social importance of religion, while only scratching the surface of its relationship to crime. Although they fail to adequately expand on the subject, the ideas of these influential thinkers represent some basic thoughts on the religious causes of crime, and they have led to successive investigations of religion and delinquency. Surprisingly, facts about crime and religion over the years have been rather indecipherable, as research findings from different studies have frequently produced contradicting results. Studies have shown delinquents being less religious than nondelinquents, religiously similar to nondelinquents, and in some cases more religious than nondelinquents. Even when differences between delinquent and nondelinquent relations to religion have been found, those differences have been only minor and insignificant. In one major study by Hirschi and Stark, it was discovered that high school students held interesting social beliefs relative to their church attendance

Unity in Paragraphs and Essays

Unity in Paragraphs and Essays In composition, unity is the quality of oneness in a paragraph or essay that results when all the words and sentences contribute to a single effect or main idea; also called wholeness. For the past two centuries, composition handbooks have insisted that unity is an essential characteristic of an effective text. Professor Andy Crockett points out that the five-paragraph theme and  current-traditional rhetorics emphasis on method reflect further the expediency and utility of unity. However, Crockett also notes that for rhetoricians, the achievement of unity has never been taken for granted (Encyclopedia of Rhetoric and Composition, 1996.) Pronunciation YOO-ni-tee Etymology From the Latin, one. Observations Most pieces of effective writing are unified around one main point. That is, all the subpoints and  supporting details are relevant to that point. Generally, after you have read an essay, you can sum up the writers main point in a sentence, even if the author has not stated it explicitly. We call this summary statement a thesis. (X. J. Kennedy, Dorothy M. Kennedy, and Marcia F. Muth, The Bedford Guide for College Writers, 8th ed. Bedford/St. Martins, 2008)Unity and CoherenceA good check on unity is to ask yourself if everything in your paragraph or essay is subordinate to and derived from the controlling idea. Make sure that your controlling idea- the topic sentence or thesis- indicates the subject and the focus on that subject...​ (Lee Brandon and Kelly Brandon, Paragraphs and Essays With Integrated Readings, 12th ed. Wadsworth, 2012) Rules of Thumb for Writing Unified Paragraphs Be sure your paragraphs focus on one idea and state that idea in a topic sentence.Place your topic sentence effectively within your paragraph. Let the purpose of your paragraph and the nature of your evidence guide you.Let your paragraphs evidence- the selected details, the examples- illustrate or clarify the idea expressed in your topic sentence.Make sure you explain the relationship between your evidence and your idea so that it is clear to readers.Think about unity among paragraphs when writing essays. Be sure your paragraphs are related, that they fit together and clarify your essays idea.​ (R. DiYanni, Scribner Handbook for Writers. Allyn Bacon, 2001) A Note on Topic Sentences Paragraphs may not have a topic sentence, but they must have unity and purpose. All the ideas in a paragraph should relate to a clear point readers will easily understand. (Mark Connelly, Get Writing: Paragraphs and Essays. Thomson Wadsworth, 2009) Counterviews on Unity Unity is the shallowest, the cheapest deception of all composition... Every piece of writing, it matters not what it is, has unity. Inexpert or bad writing most terribly so. But ability in an essay is a multiplicity, infinite fracture, the intercrossing of opposed forces establishing any number of opposed centres of stillness.(William Carlos Williams, An Essay on Virginia, 1925)

What is the purpose of interviewing and why intentional interviewing Essay

What is the purpose of interviewing and why intentional interviewing skills are important in Human Services - Essay Example The intentional interviewing process is a practical tool for analyzing the individual’s emotional variations during the conversation by a number of questions to provoke the person to speak more vividly about all the perturbing aspects of daily life. The basic point noticed in such conversations is ether the disability to express or the excessiveness of expression exhibited by the client from which the interviewer can take effective note on his psychological requirements. The ultimate purpose of an intentional interview with the client is therefore, â€Å"to respect the client, use appropriate skills and strategies, and seek to alleviate stress† (Ivery, Ivery A and Zalaquett, 12). Intentional interviewing is regarded as the basis for framing psychoanalytical approach to client’s issues related to his work or sociability concerns. In order to access the institutional stature developed in the client, the interviewer should focus on inducing the client frame stories of his actual experiences with the conditions mentioned in the issues. There must be equal emphasis from the interviewer to listen patiently to the stories of the clients about their personal encounters with the differential conditions.

The Journal of Helene Berr Essay Example | Topics and Well Written Essays - 1000 words

The Journal of Helene Berr - Essay Example The book is a compilation of Berr’s diary that took every day of her life during the two years of Jews’ persecution. The book presents persecution of Jews in France during the Nazi era. It accounts for the great suffering of the French Jews during this era. The book shows how the Jews were snatched from the streets and their deportation, and others killings. The book elaborates on the treatment of the Jews during the World War Two. She began writing the diary in 1942 but, the publishing was 63 years after the death of Helene Berr. The author records all the humiliations that the Jews went through in the occupied Paris in the hands of the Nazis. Helene Berr entrusted the diary to the family cook who was to pass to Helene’s fiance.1 Helene Berr was a 21 year old Jew who was pursuing English literature at Sorbonne. She was from a rich Jewish family that was living in France. She lived with her family, which included her parents, elder sister and a domestic worker.2 She was intelligent, brave, loving and passionate about everything that she did and full of talent. There is well presentation of these traits in the book as it flows. During the peaceful times in France, Helene and her family had a decent life that the rich people could afford. Helene had a normal life and socialized with most people in the surrounding society even those who were not of her social class. This is shown by the life she was living by having friends from the school, amateur musicians, her family and how they went for holidays and her maternal grandmother.3 During this time, there were two parts of France; Paris and South France. South was the peaceful state when Paris was unsafe due to occupation of the Nazis. The occupation of the Nazis led to people escaping to the South including Helene’s younger brother Jacques. After the Nazis occupation, life of Helene and that of her family took a new turn in that they could not live in peace anymore. Her father was arres ted and deported. This is where her transformation sets in because she had to join Jewish supporters and relief agencies which were her fifth circle of her life. In these agencies, she became friendly to many people who were the front runners in protecting the French Jews. At the agencies, she helped in saving many lives of the Jews who were threatened by the Germans. They took care of the orphans whose parents were arrested and killed. The friendliness is well presented in the book, because of many friends she had in the English studies department, in Sorbonne. This show how humble she was even though she came from a rich French family of Jewish origin. The book also shows how Helene was caring; this is evident where she suppressed feelings towards her fiance who fled to the South so as to stay with the rest of the family and not to act in a cowardly manner. During this period, Helene took the orphans in an aid organization to nature walks and helped in running the headquarters. Th e act shows how brave she was to stay and identify with the suffering Jews. She was brave enough to put on a yellow star that was used to identify the Jews.4 She develops this change of mind to identify with fellow Jews who were facing persecution. This situation affected Berr’s family life as Helene’s father was arrested and deported. She even stopped schooling and the man she loved fled to the South; this made her lose the things she loved most; her fiance and her studies.5 Helene was a strong person because she survived and lived without the men she loved; her father and her fiance. Helene criticized the French Christians who ignored what was happening to the Jews.6 She advocated for socialism where all people were to be treated in the same manner no

Roaring & Not-So Roaring Twenties Essay Example | Topics and Well Written Essays - 250 words

Roaring & Not-So Roaring Twenties - Essay Example Banking system started to progress, although this was on temporary grounds. Music industry also flourished. Jazz and other modern instruments were introduced. Radio transmission saw progress and more familiarity amongst the masses. Literature also flourished. The American dream was being followed more vigorously. Wall Street flourished and went global. European Industries also saw progress. The negative side was the too much reliance on technology and artificial existence of the markets and industries. This eventually led to the Economic Recession towards the late 1920s. The Great Depression again led the mindset towards an authoritative mindset. For example, fascism, Communism, and Nazism, all prevailed as a reactionary mindset, ideology and political concepts against the capitalist markets. Other draw backs of this concept were the fact that social competition came about. The novel The Great Gatsby is reflective of the impacts the roaring twenties had on the society and

Firstmover Advantage Essay Example for Free

Firstmover Advantage Essay What, exactly, are first-mover advantages? Under what conditions do they arise, and by what specific mechanisms? Do first-movers make aboveaverage profits? And when is it in a firm’s interest to pursue first-mover opportunities, as opposed to allowing rivals to make the pioneering investments? In this paper we examine these and other related questions. We categorize the mechanisms that confer advantages and disadvantages on first-mover firms, and critically assess the relevant theoretical and empirical literature. The recent burgeoning of theoretical work in industrial economics provides a rich set of models that help make our understanding of first-mover advantages more precise. There is also a growing body of empirical literature on order-of-entry effects. Our aim is to begin to provide a more detailed mapping of mechanisms and outcomes, to serve as a guide for future research. We define first-mover advantages in terms of the ability of pioneering firms to earn positive economic profits (i. e. , profits in excess of the cost of capital). First-mover advantages arise endogenously within a multi-stage process, as illustrated in Figure 1. In the first stage, some asymmetry is generated, enabling one particular firm to gain a head start over rivals. This first-mover opportunity may occur because the firm posesses some unique resources or foresight, or simply because of luck. Once this asymmetry is generated there are a variety of mechanisms that may enable the firm to exploit its position; these mechanisms enhance the magnitude or durability (or both) of first-mover profits. Our discussion is organized as follows. We first consider theoretical models and empirical evidence on three general categories in which first-mover advantage can be attained: leadership in product and process technology, preemption of assets, and development of buyer switching costs. We then examine potential disadvantages of first-mover firms (or conversely, relative advantages enjoyed by late-mover rivals). These include free-rider problems and a tendency toward inertia or sluggish response by established incumbents. The next section addresses a series of basic conceptual issues. These include the endogenous nature of first-mover opportunities, and various definitional and measurement questions. We conclude with an assessment of opportunities for additional research, and a summary of managerial implications. 1 MECHANISMS LEADING TO FIRST-MOVER ADVANTAGES First-mover advantages arise from three primary sources: (1) technological leadership, (2) preemption of assets, and (3) buyer switching costs. Within each category there are a number of specific mechanisms. 1 In this section we survey the existing theoretical and empirical literature on these three general categories of first-mover advantages. The theoretical models surveyed in this section assume the existence of some initial asymmetry among competitors that can be exploited by the first-mover firm. This intial asymmetry is critical; without it first-mover. advantages do not arise. Later in the paper we consider ways in which this asymmetry may come about. Technological Leadership First-movers can gain advantage through sustainable leadership in technology. Two basic mechanisms are considered in the literature: (1) advantages derived from the â€Å"learning† or â€Å"experience† curve, where costs fall with Cumulative output, and (2) success in patent or RD races, where advances in product or process technology are a function of RD expenditures. Learning curve In the standard learning-curve model, unit production costs fall with cumulative output. This generates a sustainable cost advantage for the early entrant if learning can be kept proprietary and the firm can maintain leadership in market share. This argument was popularized by the Boston Consulting Group during the 1970s and has had a considerable influence on the strategic management field. In a seminal theoretical paper, Spence (1981) demonstrated that when learning can be kept proprietary, the learning curve can generate substantial barriers to entry. Fewer than a handful of firms may be able to compete profitably. 2 However, despite high seller concentration there are incentives for vigorous competition. Firms that do enter may initially sell below cost Rumelt (1987) refers to these as â€Å"isolating mechanisms,† since they protect â€Å"entrepreneurial rents† from imitative competition. 2 1n a related setting where learning depends on accumulated investment rather than output, Gilbert and Harris (1981) show that a first-mover will preempt in the construction of new plants over multiple generations. 1 2 in an effort to accumulate greater experience, and thereby gain a long-term cost advantage. Such vigorous competition sharply reduces profits. Empirical evidence supporting such learning-based preemption is given by Ghemawat (1984) in the case of DuPont’s development of an innovative process for titanium dioxide, and by Porter (1981) who discusses Proctor and Gamble’s sustained advantage in disposable diapers in the US. Similarly, Shaw and Shaw (1984) argue that late entrants into European synthetic fiber markets failed to gain significant market shares or low cost positions, and many ultimately exited. Learning-based advantages are also evident in the case of Lincoln Electric Company (Fast, 1975); the firm’s early market entry with superior patented products, coupled with a distinctive managerial system promoting continued cost reduction in an evolutionary technological environment, has enabled the company to sustain remarkably high profitability. Inter-firm diffusion of technology, which diminishes first-mover advantages derived from the learning curve, is emphasized in theoretical papers by Ghemawat and Spence (1985) and Lieberman (1987c). It is now generally recognized that diffusion occurs rapidly in most industries, and learning-based advantages are less widespread than was commonly believed in the 1970s. Mechanisms for diffusion include workforce mobility, research publication, informal technical communication, â€Å"reverse engineering,† plant tours, etc. For a sample of firms in ten industries, Mansfield (1985) found that process technology leaks more slowly than product technology, but competitors typically gain access to detailed information on both products and processes within a year of development. Lieberman (1982, 1987b) shows that diffusion of process technology enabled late entry into a sample of forty chemical product industries, despite strong learning curve effects at the industry level. R~Dand patents When technological advantage is largely a function of RD expenditures, pioneers can gain advantage if technology can be patented or maintained as trade secrets. This has been formalized in the theoretical economics literature in the form of RD or patent races where advantages are often enjoyed by the first-mover firm. Gilbert and Newberry (1982) were the first to develop a model of preemptive patenting, in which a firm with an early head-start in research exploits its lead to deter rivals from entering the patent race. Subsequent papers by Reinganum (1983), Fudenberg, et 3 al. (1983) and others showed that that preemption by the leader depends on assumptions regarding the stochastic nature of the RD process and whether it is possible for followers to â€Å"leapfrog† ahead of the incumbent. One general defect of this patent race literature is that all returns are assumed to go exclusively to the winner of the race. As an empirical matter, such patent races seem to be important in only a few industries, such as pharmaceuticals. In most industries, patents confer only weak protection, are easy to â€Å"invent around,† or have transitory value given the pace of technological change. For a sample of 48 patented product innovations in pharmaceuticals, chemicals and electrical products, Mansfield et al. (1981) found that on average, imitators could duplicate patented innovations for about 65% of the innovators cost; imitation was fairly rapid, with 60% of the patented innovations imitated within four years. Imitation appeared relatively more costly in the pharmaceutical industry, where immitators must go through the same regulatory approval procedures as the innovating firm. Levin et al. (1984) found wide inter-industry variation in the cost and time required for imitation. They also found inter-industry differences in appropriability mechanisms, with lead-time and learning curve advantages relatively important in many industries, and patents important in few. In a study using the PIMS data base, Robinson (1988) found that pioneer firms benefit from patents or trade secrets to a significantly greater extent than followers (29% vs. 13%). However, he also found that patents accounted for only a small proportion of the perceived quality advantages enjoyed by pioneers. Several case studies have examined the role of patents in sustaining firstmover advantages. Bresnahan (1985) discusses Xerox’s use of patents as an entry barrier. In addition to key patents on the basic Xerography process, Xerox patented a thicket of alternative technologies which defended the firm from entry until challengers used anti-trust actions to force compulsory licensing. Bright (1949) argues that GE’s long-term dominance of the electric lamp industry was initially derived from control of the basic Edison patent, and later maintained through the accumulation of hundreds of minor patents on the lamp and associated equipment. RD and innovation need not be limited to physical hardware; firms also make improvements in managerial systems and may invent new organizational forms. Organizational innovation is often slow to diffuse, and hence may convey more durable first-mover advantage than product or process innovation (Teece, 1980). Chandler (1977) describes managerial innovations that enabled producers to exploit newly-available scale economies in 4 manufacturing and distribution in the late 19th century. Many of these firms—e. g. , American Tobacco, Campbell Soup, Quaker Oats, Proctor and  Gamble—still retain dominant positions in their industries. Preemption of Scarce Assets The first-mover firm may be able to gain advantage by preempting rivals in the acquisition of scarce assets. Here, the first-mover gains advantage by controffing assets that already exist, rather than those created by the firm through development of new technology. Such assets may be physical resources or other process inputs. Alternatively, the assets may relate to positioning in â€Å"space,† including geographic space, product space, shelf space, etc. Preemption of input factors II the first-mover firm has superior information, it may be able to purchase assets at market prices below those that will prevail later in the evolution of the market. Such assets include natural resource deposits and prime retailing or manufacturing locations. Here, the returns garnered by the first-mover are pure economic rents. 3 A first-mover with superior information can (in principle) collect all such rents earned on non-mobile assets such as resource deposits and real estate. 4 The firm may also be able to appropriate some of the rents that accrue to potentially mobile assets such as employees, suppliers and distributors. The firm can collect such rents if these factors are bound to the firm by switching costs, so that their mobility is restricted. One empirical study of first-mover advantages in controlling natural resources is Main (1955). Main argues that the concentration of high-grade nickel deposits in a single geographic area made it possible for the first company in the area to secure rights to virtually the entire supply, and thus dominate world production for decades. The basic argument is sta-ndard economic analysis, and can be traced back to Ricardo’s analysis of rents captured by landowners (first-movers) in the market for wheat in 19th century England. 4 Note that with complete markets, a first-mover with superior information need not actually own or control such assets to capture economic rents. Hirshleifer (1971) argues that if futures markets exist, the firm can simply assume forward market positions that exploit its superior information. 3 5 Preemption of locations in geographic and product characteristics space First-movers may also be able to deter entry through strategies of spatial preemption. In many markets there is â€Å"room† for only a limited number of profitable firms; the first-mover can often select the most attractive niches and may be able to take strategic actions that limit the amount of space available for subsequent entrants. Preemptable â€Å"space† can be interpreted broadly to include not only geographic space, but also shelf space and â€Å"product characteristics space† (i. e. , niches for product differentiation). The theory of spatial preemption is developed in papers by Prescott and Vissher (1977), Schmalensee (1978), Rao and Ruttenberg (1979) and Eaton and Lipsey (1979, 1981). The basic argument is that the first-mover can establish positions in geographic or product space such that latecomers find it unprofitable to occupy the interstices. If the market is growing, new niches are filled by incumbents before new entry becomes profitable. 5 Entry is repelled through the threat of price warfare, which is more intense when firms are positioned more closely. Incumbent commitment is provided through sunk investment costs. 6 The empirical evidence suggests that successful preemption through geographic space packing is rare. In their study of the cement industry, Johnson and Parkman (1983) found no evidence of successful geographic preemption even though structural characteristics of the industry suggest that such strategies would be likely. In a study of local newspaper markets, Glazer (1985) found no difference in survival rates between first- and second-mover firms. One explanation for these findings is that all firms in cement and newspaper markets have similar technologies and entry opportunities, so preemptive competition for preferred sites drives profits to zero. In other words, there were no initial asymmetries in timing or information to be exploited. One counter-example illustrating effective geographic preemption is a case study of the Wal-Mart discount retailing firm (Ghemawat, 1986b). Wal-Mart targeted small southern towns located in contiguous areas that competitors initially found unprofitable to serve. By coupling spatial preemption at the retail level with an. extremely efficient distribution network, the firm has been able to defend its position and earn sustained high profits. Schmalensee (1978) developed his model of product space preemption in lncumbents fill these niches in order to sustain monopoly profits at nearby locations; these profits may be dissipated if new entry occurs. 6 judd (1985) argues that sunk costs are not sufficient; exit costs are required as well. 5 6 the context of a lawsuit brought by the Federal Trade Commission against the three major US breakfast cereal companies. The FTC alleged that these firms had sustained their high profit rates through a strategy of tacit collusion in preempting supermarket shelf space and product differentiation niches. Although the lawsuit was dismissed, the cereal firms have continued to sustain exceptionally high profit rates. 7 Robinson and Fornell (1985) found that new consumer product pioneers initially held product quality superiority over imitators, and eventually developed advantages in the form of a broader product line. Thus, there is some evidence that pioneers try to reinforce their early lead by filling product differentiation niches. Preemptive investment in plant and equipment Another way in which an established first-mover can deter entry is through pre-emptive investment in plant and equipment. Here, the enlarged capacity of the incumbent serves as a commitment to maintain greater output following entry, with price cuts threatened to make entrants unprofitable. In these models, the incumbent may successfully deter new entry, as in Spence (1977), Dixit (1980), Gilbert and Harris (1981) and Eaton and Ware (1987). Alternatively, pre-emptive investment by the pioneer may simply deter the growth of smaller entrants, as in Spence (1979) and Fudenberg and Tirole (1983). These investment tactics do not seem to be particularly important in practice. Gilbert (1986) argues that most industries lack the cost structure required for preemptive investment to prove effective. Lieberman (1987a) shows that preemptive investment by incumbents was seldom successful in deterring entry into chemical product industries. One exception was magnesium, where Dow Chemical maintained a near monopoly position for several decades, based largely on investments (threatened or actual) in plant capacity (Lieberman, 1983). The role of scale economies is intentionally de-emphasized in the abovementioned models of preemptive investment. 8 When scale economies are large, first-mover advantages are typically enhanced, with the limiting case being that of natural monopoly. However, outside of public utilities, scale 7 8 0f course, these profits may be derived from sources other than spatial preemption. have also ignored the possibility that network externalities may enhance the po- sition of the first-mover firm. These externalities arise if there are incentives for interconnection or compatibility among users. (See, for example, Farrell and Saloner (1986) and Katz and Shapiro (1986). ) 7 economies approaching the natural monopoly level are seldom observed in US manufacturing industries. 9 In a theoretical treatment, Schmalensee (1981) shows that in most realistic industry settings, scale economies provide only minor entry barriers and hence potential for enhanced profits. Switching Costs and Buyer Choice Under Uncertainty Switching costs First-mover advantages may also arise from buyer switching costs. With switching costs, late entrants must invest extra resources to attract customers away from the first-mover firm. Several types of switching costs can arise. First, switching costs can stem from initial transactions costs or investments that the buyer makes in adapting to the seller’s product. These include the time and resources spent in qualifying a new supplier, the cost of ancillary products such as software for a new computer, and the time, disruption, and financial burdens of training employees. A second category of switching costs arises due to supplier-specific learning by the buyer. Over time, the buyer adapts to characteristics of the product and its supplier and thus finds it costly to change over to another brand (Wernerfelt, 1988). For example, nurses become accustomed to the intravenous solution delivery systems of a given supplier and are reluctant to switch (Porter, 1980). A third type of switching cost is contractual switching cost that may be intentionally created by the seller. Airline frequent flyer programs fit in this category (Klemperer, 1986). Theoretical models of market equilibrium with buyer switching costs include Klemperer (1986) and Wernerfelt (1986, 1988). Switching costs typically enhance the value of market share obtained early in the evolution of a new market. Thus, they provide a rationale for pursuit of market share. However, first-movers with large market shares do not necessarily earn high profits; early competition for share can dissipate profits. And under some conditions the inertia of an incumbent with a large customer base can make this firm vulnerable to late entrants, who prove to be relatively more profitable (Klemperer, 1986). For example, see Weiss (1976). This finding applies to manufacturing operations only; greater scale economies may arise in distribution and advertising. Also, many retailing markets are geographically fragmented, leading to the possibility of spatial preemption of the sort described earlier. Such preemption requires the presence of some scale economies in the form of fixed costs. 9 8 Buyer choice under uncertainty A related theoretical literature (e. g. , Schmalensee, 1982) deals with the imperfect information of buyers regarding product quality. In such a context, buyers may rationally stick with the first brand they encounter that performs the job satisfactorily. Brand loyalty of this sort may be particularly strong for low-cost â€Å"convenience goods† where the benefits of finding a superior brand are seldom great enough to justify the additional search costs that must be incurred (Porter, 1976). In such an environment, early-mover firms may be able to establish a reputation for quality that can be transferred to additional products through umbrella branding and other tactics (Wernerfelt, 1987). Similar arguments derived from the psychology literature suggest that the first product introduced receives disproportionate attention in the consumer’s mind. Late entrants must have a truly superior product, or else advertise more frequently (or more creatively) than the incumbent in order to be noticed by the consumer. In a laboratory study using consumer products, Carpenter and Nakamoto (1986) found that order-of-entry influences the formation of consumer preferences. If the pioneer is able to achieve significant consumer trial, it can define the attributes that are perceived as important within a product category. Pioneers such as Coca-Cola and Kleenex have become prototypical, occupying a unique position in the consumer’s mind. Pioneers’ large market shares tend to persist because perceptions and preferences, once formed, are difficult to alter. More traditional marketing studies confirm the existence of such perceptual effects. In a study of two types of prescription pharmaceuticals—oral diuretics and antianginals—Bond and Lean (1977) found that physicians ignored â€Å"me-too† products, even if offered at lower prices and with substantial marketing support. ’ ° Montgomery (1975) found that a product’s newness was one of the two key variables necessary to gain acceptance onto supermarket shelves. These imperfect information effects should be greater for individual consumers than corporate buyers, since the latter’s larger purchase volume justifies greater investment in information acquisition activities)-~ Using the 0ne explanation of these findings is that physicians are price insensitive because they do not actually pay the prescription costs. However, the Carpenter and Nakamoto (1986) experiments found that more typical consumers are also unwilling to switch to objectively similar â€Å"me-too† brands, even at substantially lower prices. 11 Moreover, switching costs in industrial markets often dissipate over time as the buy~r becomes more knowledgeable about competing products (Cady, 1985). 10 9 PIMS data base, Robinson (1988) and Robinson and Fornell (1985) found that pioneers had larger market shares than followers in both consumer and industrial markets, but the effect was much greater for consumer goods: order of entry explained 18% of the variance in market share in consumer goods markets, but only 8% in industrial markets. For a sample of 129 consumer packaged goods, Urban et al. (1986) found a strong inverse relation between order-of-entry and market share. Brand positions remain remarkably durable in many consumer markets. Ries and Trout (1986) noted that of twenty-five leading brands in 1923, twenty were still in first place some sixty years later. Davidson (1976) found that two-thirds of the pioneers in eighteen United Kingdom grocery product categories developed since 1945 retained their market leadership through the mid- 1970s. FIRST-MOVER DISADVANTAGES The above-mentioned mechanisms that benefit the first-mover may be counterbalanced by various disadvantages. These first-mover disadvantages are, in effect, advantages enjoyed by late mover firms. Late movers may benefit from: (1) the ability to â€Å"free ride† on first-mover investments, (2) resolution of technological and market uncertainty, (3) technological discontinuities that provide â€Å"gateways† for new entry, and (4) various types of â€Å"incumbent inertia† that make it difficult for the incumbent to adapt to environmental change. These phenomena can reduce, or even completely negate, the net advantage of the incumbent derived from the mechanisms considered previously. Free-Rider Effects Late movers may be able to â€Å"free ride† on a pioneering firm’s investments in a number of areas including RD, buyer education, and infrastructure development. As mentioned previously, imitation costs are lower than innovation costs in most industries. However, innovators enjoy an initial period of monopoly that is not available to imitator firms. Nevertheless, the ability of follower firms to free ride reduces the magnitude and durability of the pioneer’s profits, and hence its incentive to make early investments. The theoretical literature has focused largely on the implications of freerider effects in the form of information spillovers in RD (Spence, 1984; Baldwin Childs, 1969), and learning-based productivity improvement 10 (Ghemawat and Spence, 1985; Lieberman, 1987c). As mentioned previously, empirical studies document a high rate of inter-firm diffusion of technology in most industries. Guasch and Weiss (1980) assess free-rider effects operating in the labor market. They give a theoretical argument that late-mover firms may be able to exploit employee screening performed by early entrants, and thus acquire skilled labor at lower cost. This is on top of the fact that early entrants may invest in employee training, with benefits enjoyed by later entrants who may be able to hire away the trained personnel. Teece (1986a, 1986b) argues that the magnitude of free-rider effects depends in part on the ownership of assets that are complementary or specialized† with the underlying innovation. For example, EMI developed the first CT scanner but lost in the marketplace because the firm lacked a technology infrastructure and marketing base in the medical field; Pilkington, by comparison, was able to profit handsomely from its pioneering float glass process because of the firm’s ability to draw upon relevant assets and experience in the glass industry. In other instances late-mover firms have proven successful largely because they were able to exploit existing assets in areas such as marketing, distribution, and customer reputation—e. g. , IBM in personal computers and Matsushita in VCRs (Schnaars, 1986). Resolution of Technological or Market Uncertainty Late movers can gain an edge through resolution of market or technological uncertainty. 12 Wernerfelt and Karnani (1987) consider the effects of uncertainty on the desirability of early versus late market entry. They argue that early entry is more attractive when firms can influence the way that uncertainty is resolved. Firm size may also matter—they suggest that large firms may be better equipped to wait for resolution of uncertainty, or to hedge by maintaining a more flexible portfolio of investments. In many new product markets, uncertainty is resolved over time through the emergence of a â€Å"dominant design. † The Model T Ford and the DC-3 are examples of such designs in the automotive and aircraft industries. After emergence of such a design, competition often shifts to price, thereby con12 A related point is that a late-mover may be able to take advantage of the firstmover’s mistakes. For example, when Toyota was first planning to enter the US market it interviewed owners of Volkswagons, the leading small car at that time. Information on what owners liked and disliked about the VW was incorporated in the design process for the new Toyota. 11 veyin. g greater advantage on firms possessing skills in low-cost manufacturing (Teece, 1986b). Shifts in Technology or Customer Needs. Schumpeter (1961) conceived of technological progress as a process of â€Å"creative destruction† in which existing products are superceded by the innovations of new firms. New entrants exploit technological discontinuities to displace existing incumbents. Empirical studies which consider these technological discontinuities or â€Å"gateways† for new entry include Yip (1982), and Bevan (1974). Foster (1986) gives practical advice on how such discontinuities can be exploited by entrants, who might be defined as â€Å"first-movers† into the next technological phase. Sch. erer (1980, p.438) provides a list of innovative entrants who revolutionized existing industries with new products and processes. He also cites numerous examples of dominant incumbents that proved slow innovators but aggressive followers (p. 431). Since the replacement technology often appears while the old technology is still growing, it may be difficult for an incumbent to percieve the threat and take adequate preventative steps. Cooper and Schendel (1976) provide several examples, such as the failure of steam locomotive manufacturers to respond to the invention of diesel. Foster (1986) cites American Viscose’s failure to recognize the potential of polyester as a replacement for rayon, and Transitron’s inattention to silicon as a substitute for germanium in semiconductor fabrication. This perceptual failure problem is closely related to that of â€Å"incumbent inertia† considered below. Customer needs are also dynamic, creating opportunities for later entrants unless the first mover is alert and able to respond. Docutel, as the pioneer, had virtually 100% of the automatic teller machine market up to late 1974. Over the next four years, its market share declined to less than 10% under the onslaught of Honeywell, IBM and Burroughs, all of whom offered total system solutions to customers’ emerging needs for electronic funds transfer (Abell, 1978). Incumbent Inertia Vulnerability of the first-mover is often enhanced by problems of â€Å"incumbent inertia. † Such inertia can have several root causes: (1) the firm may be locked-in to a specific set of fixed assets, (2) the firm may be reluctant to cannibalize its existing product lines, or (3) the firm may become organi-12 zationally inflexible. These factors inhibit the ability of the firm to respond to environmental change or competitive threats. Incumbent inertia is often a rational, profit-maximizing response, even though it may lead to organizational decline. For example, Tang (1988) presents a model that rationalizes the decisions of most U. S. steel producers to continue investing in open hearth furnace technology during the late 1950’s and early 1960’s even though it had become clear that basic oxygen furnaces were superior. A firm with heavy sunk costs in fixed plant or marketing channels that ultimately prove sub-optimal may find it rational to â€Å"harvest† these investments rather than attempt to transform itself radically. 13 MacMillan (1983) suggests that in the rapidly-changing environment of health care, old health care systems may currently be harvesting from their initial investments in locations and personnel. The appropriate choice between adaptation and harvesting depends on how costly it is to convert the firm’s existing assets to alternative uses. And as we consider below, there have been numerous instances where organizational inertia has led firms to continue investing in their existing asset base well beyond the point where such investments could be economically justified. Much of the literature on cannibalization-avoidance refers to the case of RD. Arrow (1962) was the first to lay out the theoretical argument that an incumbent monopolist is less likely to innovate than a new entrant, since innovation destroys rents on the firm’s existing products. More recent theoretical work along these lines include Reinganum (1983) and Ghemawat (1986a). Bresnahan (1985) argues that Xerox exhibited such behavior following the expiration ofits patent-enforced monopoly—Xerox lagged in certain types of innovations and was sluggish to cut prices, given the firm’s large fleet of rental machines in the field. Brock (1975) and Ghemawat (1986a) make similar arguments regarding the innovative responses of IBM in computers and ATT in PBX’s. However, Connor (1988) shows that under a broad range of conditions, the incumbent’s optimal strategy is to develop an improved product but delay market introduction until challenged by the appearance of a rival product. From an organizational theory perspective, Hannan and Freeman (1984) outline factors that limit adaptive response by incumbents.