Hypercompetition. Characteristics and Changes within the Global Markets


Academic Paper, 2017

15 Pages, Grade: 90.0


Excerpt

Table of Contents

1 Introduction
1.1 The Traditional Market
1.2 The Current Market

2 Characteristics of Hypercompetition
2.1 Driving Forces of Hypercompetition
2.2 The Global Economy
2.3 Market Disruption

3 Changes within Industries
3.1 ICT TIMES Industry
3.2 Automotive Industry
3.3 Life Sciences Industry

4 Emergence of Cross-Industrial Players
4.1 Amazon
4.2 5G Automotive Association
4.3 Google

5 Four Arenas of Competition
5.1 Price/Quality
5.2 Know-how/Timing
5.3 Stronghold Creation/Invasion

6 Challenges with Hypercompetition
6.1 No Sustainable Competitive Advantage
6.2 Increases in Competition
6.3 Constant Change

7 Conclusions

8 References

1 Introduction

Hypercompetition is a phenomenon that has recently impacted markets everywhere. It is the state of rapid competition occurring in markets, which is often characterized by an unsustainable competitive advantage (Business Dictionary, 2017). In fact, many people believe that the concept of sustainable competitive advantage is no longer relevant. One of the main supporters of this idea and the man who coined the idea of hypercompetition is Richard D’Aveni, a professor of business strategy. He says that the idea of sustained competitive advantage is dead (Rifkin, 1996). This paper seeks to understand the characteristics of hypercompetition as well as the resulting changes that have occurred within the global markets.

1.1 The Traditional Market

Traditionally, markets have been identified with slow-moving oligopolies (Rifkin, 1996). There was a possibility to achieve competitive advantage, which would sustain the company in the long term. Companies focused on reducing and avoiding competition. They would avoid price wars and head-to-head competition, as well as increase entry barriers to keep new competitors out of their industries (Rifkin, 1996). Today, this is no longer the case. D’Aveni says, “the old structure was: define an industry, reduce the level of competition and then avoid competition where possible, but I found that successful companies were not doing any of these things. The best performers were disrupting markets, acting as if there were no boundaries to entry" (Rifkin, 1996). A notable change has occurred in how competition between companies works. Previously, maintaining a competitive advantage was the standard. Now, this is impossible.

1.2 The Current Market

In today’s market environment, competitive advantage is “continually created, eroded and destroyed and recreated through strategic maneuvering” (Rifkin, 1996). This is hypercompetition, and it is forcing companies to completely rethink how they do business. Resulting from hypercompetitive activity, industry lines have blurred as companies reduce entry barriers and break into new sectors. Cross-industrial players have emerged and will continue to drastically shape the market environments. The current market is one marked by rapid changes, instability and creative disruption.

2 Characteristics of Hypercompetition

The concept of hypercompetition has been around since the 1990s, but it maintains its relevance still today. “The markets are characterized by intense and rapid competitive moves, in which competitors strike quickly with unexpected, unconventional means of competing” (D’Aveni, 1998). Hypercompetitors is the term for the companies that are actively competing in this manner. They are “continuously generating new competitive advantages that destroy, make obsolete, or neutralize the industry leader’s advantages, leaving the industry in disequilibrium and disarray” (D’Aveni, 1998).

Historically, in the 1990s, the United States experienced the fifth merger and acquisition wave. This wave was marked with emerging technologies such as the developing internet and mobile telecommunications. Also, free trade agreements such as NAFTA and WTO as well as large, harmonized markets, contributed to a rise in mergers and acquisitions. The market was becoming truly globalized and connected in this time, with emerging market players from all over the world. During this time, shareholder value also became imperative, as did the perceived need to augment resources and capabilities (Economy Watch, 2010). Mergers and acquisitions reached an all-time high in this time period, which aligns also with the rise of the concept of hypercompetition. Significant merger activity coincides with a hypercompetitive environment, where instability is common.

The global economy has been a key contributor to this kind of competition. “There is tougher and smarter competition in which the rate of change in the competitive rules of the game are in a such flux that only the most adaptive and nimble organizations will survive” (Chandrasekera, 2017). Companies are facing tough competition and “under the conditions of hypercompetition, assumptions of market stability are replaced by notions of inherent instability and change” (Hitt, pg 32). Hypercompetition has created a more complex marketplace.

2.1 Driving Forces of Hypercompetition

Hypercompetition is characterized by four driving forces: customer changes, technological change, falling industry boundaries and deep pockets among competitors (Rifkin, 1996). These driving forces encourage competitiveness and have thus resulted in hypercompetition. Each of these forces will be further discussed.

2.1.1 Customer Changes

The first driving force is customers; customer preferences are constantly changing. Often, customers have many fragmenting tastes, which companies must be able to adapt to. Furthermore, consumers expect more value from the products that they purchase (D’Aveni, 1998). Customization of products has become essential, as has the timeliness of delivery. Companies must constantly be aware of customer needs, and work relentlessly to not only meet, but exceed, these expectations. They should also predict future needs of customers to have a first-mover advantage. The responsiveness to consumer needs drives hypercompetition.

2.1.2 Technological Change

Especially in recent years, technological changes have paved the way for companies. As more and more technologies are released, companies are changing the way business is done. Also, these changes have created new business opportunities. The era of technology is a large contributor to the rapid movements and disruptions that companies make. Companies exist today that no one could have predicted only a few years before. Especially within technology, revolutionary changes have occurred. “Revolutionary change processes are those that do not build on the status quo, but overthrow it. ‘Revolutionaries’ revolt against the existing business model and organizational system, and attempt to push through changes that will reinvent the firm” (De Wit, pg 392). With technology, there is a need for innovation in a timely and flexible manner. These technological changes have contributed to hypercompetition and enabled companies to transform.

2.1.3 Falling Industry Boundaries

As markets globalize, there are falling geographic as well as industry boundaries. Globalization is defined as “the opening of local and nationalistic perspectives to a broader outlook of an interconnected and interdependent world with free transfer of capital, goods, and services across national frontiers” (Business Dictionary, 2017). Globalization has brought people and ideas, as well as trade, closer together than ever before. With close proximity, entry barriers have fallen significantly and has thus resulted in increased competition. Geographic lines are also no longer limiting, with agreements such as the General Agreement on Tariffs and Trade (GATT) as well as the integration of countries. Free trade has allowed companies to trade on a global level and has helped the spread of ideas.

The global economy has allowed hypercompetition to flourish as competition continuously increases as a result of falling industry boundaries.

2.1.4 Deep Pockets Among Competitors

Companies in today’s market are backed by substantial amounts of money. “Today, [companies] compete against keiretsus, groupings of hundreds of firms in the same vertical supply chain that work to aid each other” (D’Aveni, 1998). Also, companies are networked so that a large bank, a group of companies, or even the government, can help finance a company should they need help. The increasing global flow of financial capital has allowed companies to expand immensely. Having financial backing also acts as a form of protection and gives companies the ability to take the larger risks needed to achieve competitive disruption.

2.2 The Global Economy

The global economy is a term for the globalization of the economy. It is when “goods, services, people, skills and ideas move freely across geographic borders” (Hitt, pg 32). With this global movement, there are opportunities and challenges that arise. Companies have more potential to expand globally, but they also face more risks from global competition. The global economy is one of the key contributors to the state of hypercompetition that companies are facing.

2.3 Market Disruption

Hypercompetition often involves market disruptions and disruption allows companies to have a temporary advantage. “Firms that creatively restart the cycle of competition in each arena or change the arena of competition cause the most disruption” (D’Aveni, 1998). The arenas of competition will be further discussed later, but they stem from the four driving forces of hypercompetition. Disruption is essential in order to keep the cycle of competition going. Risk of a perfect market would mean that there are no players who are winners, so companies must make disruptive choices in order to win in the marketplace.

Disruptive renewal refers to “a process in which current competitive positions are challenged by introducing new technologies and business models” which is essentially what occurs in hypercompetition (De Wit & Meyer, pg 443). As these new technologies and business models are introduced, other companies must respond to these changes as well. D’Aveni defines 7 S’s that provide guidelines for generating these market disruptions.

2.3.1 Vision for Disruption

First, is the vision for disruption. Ultimately, “stakeholder satisfaction is the key to winning each dynamic interaction with competitors” (D’Aveni, 1998). Consumers are the ones who decide if a product or service has value, and stakeholder happiness is a key component in the success of a firm. Strategic soothsaying is the second S, and it deals with the understanding of what customers will want in the future. Being able to anticipate market changes gives the company an advantage in being a first-mover. Overall, there are four distinct types of disruptive activities a company can participate in: rapid evolutionary competition, revolutionary competition, niche creation and market creation (D’Aveni, 1998). Based on a company’s strategy, they can decide which of these ways of disruption they want to pursue.

2.3.2 Capabilities for Disruption

Second, D’Aveni focuses on the capabilities for disruption. Speed and surprise are the next elements of the 7 S’s. “Speed enhances the firm’s ability to serve customers and to choose the timing of market entry, whether as a first mover or a fast follower” while “surprise enhances the firm’s ability to stun the competitor” (D’Aveni, 1998). A firm must work with their competencies in order to create disruption within the market. They must be aware of their skills, and be able to perform better than anyone else. Timing is paramount; responding to changes in the marketplace is necessary to maintain market position. By surprising competitors, a company can help better protect themselves and keep other market players further from achieving the same know-how.

2.3.3 Tactics for Disruption

The remaining S’s are signals, shift the rules and simultaneous strategic thrusts which make up the tactics for disruption. These tactics are helpful in enhancing the effectiveness of disruption (D’Aveni, 1998). Signaling means that a company communicates their strategic intent to the market. By shifting the rules, the company creates their own rules which leads to disruption in the marketplace. Lastly, strategic thrusts are aimed at confusing or misdirecting the competition (D’Aveni, 1998). Combining these 7 S’s can help a company to have a competitive advantage over their competitors.

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Details

Title
Hypercompetition. Characteristics and Changes within the Global Markets
College
Cologne Business School Köln
Grade
90.0
Author
Year
2017
Pages
15
Catalog Number
V594216
ISBN (eBook)
9783346172167
ISBN (Book)
9783346172174
Language
English
Tags
hypercompetition
Quote paper
Hanna Kattilakoski (Author), 2017, Hypercompetition. Characteristics and Changes within the Global Markets, Munich, GRIN Verlag, https://www.grin.com/document/594216

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