Stanford GSBSloan Program

Stramgt 258Strategic Management

10 Managing Entry

Cemex

February 8, 2002 John Roberts

Entry

• Normally evaluate an entry opportunity in terms of the market’s PIE and the usual forces affecting its division among players, plus the match with your capabilities, position and resources

• May also enter as a “global competitive move:” market entered not for its own sake but because entry will have implications across other (geographic or product) markets

February 8, 2002 John Roberts

Competitive Responses to Entry

• A new entrant can upset any established patterns of competition in an industry or market– Implications for industry and competitor analysis

• A new entrant may also meet a particularly strong, focused competitive response– To attempt to induce exit (predation)

– To forestall other entry by building a reputation for predation

February 8, 2002 John Roberts

Market Features Conducive to Predatory Behavior

• Predator has– available capacity– considerable financial resources (“long purse”)– opportunity to build and use reputation (in this or other

markets)

• “Prey” have little ability to retaliate• High fixed costs associated with (re)entry• Ease of exit for prey• Absence of regulatory response

February 8, 2002 John Roberts

Some Implications

• A roll-out strategy makes you especially vulnerable to predatory responses by incumbents because if they stop you in the early markets they save the later ones and also frighten other potential entrants. Also, un-entered markets provide resources for the war.

• Commitment versus flexibility on the part of the entrant

February 8, 2002 John Roberts

Market Features Conducive to Tacit Collusion Across Markets

• Highly concentrated markets – Very hard if too many players involved– Implications for creating barriers to entry

• Asymmetry in market shares (“spheres of influence”) in relevant markets

Each firm must have credible threat of predatory/retaliatory behavior on the other’s turf

February 8, 2002 John Roberts

Global Issues in Choice of Local Markets

• Global Share – Efficiency through scale

• Global balance – Strategy formulation and execution not

dominated by a few, currently powerful countries’ needs

– Can make integrated global competitive moves

February 8, 2002 John Roberts

Global Issues in Choice of Local Markets

• Presence in key countries– home of global and demanding customers– home of competitors– important markets for global competitors– sources of innovation (e.g., home of leading

suppliers)

• Differentiate strategic roles of countries

February 8, 2002 John Roberts 9

Internal Implications of Developing Globally Coordinated Moves

• Decisions on moves taken not because they are the best for the BU/region involved but because of global logic must be centralized– Implications for an organizational strategy that features

decentralization

• Ability of a firm to coordinate activities across markets depends on its ability to explicitly or implicitly cross-subsidize across markets– Implications for strength of incentives and firm boundaries

(e.g., reliance on joint ventures, alliances)