Competing in emerging markets: performance implications of competitive aggressiveness.
| Verfasser | Giachetti, Claudio |
| Posten | RESEARCH PAPER - Report - Abstract |
Abstract A firm is said to have a high degree of 'competitive aggressiveness' if it forcefully takes a large number and a large variety of actions to outperform its competitors in the marketplace. Competitive dynamics scholars have shown that firms with a high degree of competitive aggressiveness experience better profitability and a greater market share than firms that carry out a narrow, simple repertoire of actions. Still, most empirical studies have been conducted within the marketplace of developed countries. There is a lack of evidence testing the competitive aggressiveness-performance relationship from the perspective of firms based in developed countries entering and competing in emerging economies. Given the highly competitive and rapidly changing environments that developed country-based firms have to cope with when entering certain emerging economies, various authors have recently argued the analysis of this unexplored relationship to be an apt research issue. This paper tests the competitive aggressiveness-performance relationship with a sample of 90 Italian firms entering and competing in the Chinese market within the 2001-2010 time period. The results show that there is a positive relationship between a firm's competitive aggressiveness in an emerging economy and its performance, that this relationship is negatively moderated by the entry mode degree of control, and that the moderating effect of the extent to which the firm's industry within the emerging economy is affected by institutional voids is not significant.
Keywords Competitive aggressiveness * Performance ? Developing countries * Entry modes * Institutional voids * China
1 Introduction
"China's relationship with foreign companies is starting to sour, as tougher government policies and intensifying domestic competition combine to make one of the world's most important markets less friendly to multinationals [...] Today, the huge Chinese market is increasingly fundamental to the health of large Western multinationals. Lose here, say Western executives, and multinationals are weakened globally" (Browne and Dean 2010, The Wall Street Journal).
Academics and practitioners in the field of international management agree that firms based in developed countries are more and more dependent on the demand from developing countries, like China and India, growth drivers amid stagnation in developed economies. Still, the competition in certain emerging markets has become increasingly fierce over the last decades, and this is forcing developed country-based firms to compete aggressively in their struggle to survive. This paper is about how developed country-based firms can use aggressive competitive behaviors in emerging markets to enhance their market and financial performance.
Building on the Austrian view of competition (Schumpeter 1934, 1950), competitive dynamics scholars have defined 'competitive aggressiveness' as the extent to which a firm forcefully takes a large number and a complex repertoire of actions to outperform its competitors in the marketplace (Covin and Covin 1990; Chen and Hambrick 1995; Chen et al. 2010; D'Aveni 1994; Ferrier 2001; Ferrier et al. 2002; Yu et al. 2009). (1) In particular, two constructs (and related variables) have frequently been used by competitive dynamics scholars to explain (and measure) competitive aggressiveness: (a) strategic intensity, i.e. the extent to which a firm attempts to outperform rivals by relying on a large number of competitive actions (e.g., the number of price cuts the firm has made over a certain time period, or more in general the extent to which a firm relies on aggressive pricing with respect to rivals as a competitive weapon), and (b) strategic complexity, i.e. the extent to which the firm's repertoire of competitive actions is composed of actions of many different types (e.g., aggressive pricing, frequent product quality improvements and continuous product innovation) (Ferrier 2001; Ferrier et al. 2002; Yu et al. 2009). The findings of the competitive dynamics research show that action aggressiveness is positively related to various measures of market performance, like revenue growth and market share gains (Chen and MacMillan 1992; Ferrier 2001; Ferrier et al. 1999), financial performance, like profit margin, return on sales, return on assets and return on equity (Chen et al. 2010; Young et al. 1996) and a combination of the two types of performance measurement (Covin and Covin 1990).
Although competitive dynamics research has established a positive relationship between a firm's competitive aggressiveness and its performance, the majority of empirical studies have been conducted within the marketplace of developed countries, thus taking the perspective of developed country-based firms competing in their home country (Chen and MacMillan 1992; Ferrier 2001; Ferrier et al. 1999; Young et al. 1996). Fewer studies have been conducted in developing countries, thus taking the perspective of developing country-based firms competing in their domestic market (Chen et al. 2010). However, we found a lack of evidence testing the competitive aggressiveness-performance relationship from the perspective of firms based in developed countries competing in emerging economies; this is the purpose of the present study.
Why is it then important to test the performance implications of aggressive developed country-based firms in developing countries? For firms based in developed economies, entering and competing successfully in emerging markets is all but a trivial issue (Khanna and Palepu 2010). On the one hand, emerging markets play pivotal roles in the strategies of firms based in developed markets, which are setting up sales activities to exploit the fast-growing demand from these countries. On the other hand, developed market-based firms entering developing countries face several overreaching challenges, such as the prevalence of institutional voids, uncertainty about the future market trends and performance outcomes of their other developed country-based rivals, as well as the threat from the new class of local rivals (Liang et al. 2012; Tracey and Phillips 2011), which make these markets increasingly characterized by a fierce competition (Chen et al. 2010). A deeper understanding of the performance implications of developed country-based firms' action aggressiveness in developing countries as well as of the forces that can shape this relationship is important both for firms that have entered these emerging markets only recently and for those that are increasingly relying on emerging markets to sustain their profits and revenues.
With this study, we attempt to fill several gaps in the competitive dynamics and international management literature. First, the lack of studies on whether developed country-based firms can enhance their performance in emerging economies through aggressive strategic postures, together with the increasing importance of emerging economies for developed country-based firms' survival (Khanna and Palepu 2010), calls for a deeper investigation of the competitive aggressiveness-performance relationship. In this study, we focus on the action aggressiveness of Italian firms competing in the Chinese market.
Second, authors have suggested that the identification and empirical examination of the firm-specific and industry-specific factors that may moderate the performance outcomes of competitive aggressiveness are needed (Chen et al. 2010; Covin and Covin 1990). With regard to firm-specific factors, we analyze how the degree of control of the firm's entry mode into an emerging economy moderates the competitive aggressiveness-performance relationship. In fact, the extant international management literature has found contradictory evidence concerning which type of entry mode (e.g., export, licensing, franchising, joint venture and wholly owned subsidiary) can reinforce the firm's strategic actions in developing countries (Johnson and Tellis 2008; Luo 1998; Pan et al. 1999). As suggested by Brouthers and Nakos (2004, p. 243): "Future studies can go a long way in improving our understanding of [...] entry mode choice and performance by examining entry into [...] less developed countries." Do the performance outcomes of competitive aggressiveness in emerging markets increase or decrease with the entry mode degree of control?
With regard to industry-specific factors, the competitive dynamics research has tended to conduct single-industry studies and has typically sampled from a limited set of industries in the US, such as airlines (Chen and MacMillan 1992) and software (Young et al. 1996). Therefore, with very few exceptions (Chen et al. 2010), research has yet to investigate systematically the broad environmental conditions influencing firms' action aggressiveness. In this study, we elaborate on the moderating effect of the extent to which the firm's industry within the host developing country is affected by institutional voids (Khanna and Palepu 2010). In fact, although some authors have argued that the institutional development, particularly low in developing countries, may influence the way in which the firm develops its business strategies, we found no studies exploring whether and how institutional voids in developing countries alter the performance outcome of action aggressiveness. Developed market-based firms have built businesses and implemented competitive strategies on foundations of strong market infrastructure; often, these institutions are noticed only when they are missing, and they cannot be taken for granted in emerging markets. As many other emerging economies, the Chinese economy is also in a stage in which some industries are significantly more institution-intensive than others, so different industries within the same Chinese market are affected differently by institutional voids (Khanna 2007): how is the firm's competitive aggressiveness-performance...
Um weiterzulesen
FORDERN SIE IHR PROBEABO ANCOPYRIGHT GALE, Cengage Learning. All rights reserved.
