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Home arrow Management arrow Strategic Management in the 21st Century. Corporate Strategy

INDUSTRY CONTEXT

Although competitive imitation may ostensibly be an appropriate strategic response in any industry, there are particular market contexts in which signal interpretation is more applicable than others. We suggest that the level of information asymmetry among market actors within an industry and the industry's level of dynamism, the extent to which change in the industry is predictable (low dynamism) or fundamentally unknowable (high dynamism), influences the saliency of the imitation signals. Understanding imitation in competitive contexts is straightforward in markets where market actors are expected to possess demonstrably similar market knowledge and where change is relatively predictable.40 For example, consider the commercial aircraft manufacturing industry, which is dominated by two firms, Boeing and Airbus. This industry is characterized by long product delivery schedules, airframe development horizons that can easily stretch beyond a decade in length, and industry forecasts that often extend 25 years or more into the future. Collectively, this suggests that although the industry could be classified as hostile—Boeing and Airbus are bitter rivals—the industry is arguably stable, and both Boeing and Airbus could be reasonably expected to possess demonstrably similar knowledge about market needs and expectations. In such a case, responding to a competitor's innovation shifts from a reliance on signal parsing (i.e., what does my competitor know that I do not?), to evaluating whether the competitor's innovation is consistent with the prospective imitator's market beliefs (i.e., if we know the same thing, is my competitor's assessment of customer needs correct?).

To illustrate further, the Boeing 737 and the Airbus A320 are remarkably similar aircraft in terms of features and functionality, and compete directly to meet airline's short-/medium-haul route needs. The 737, which predates the A320 by almost two decades, quickly established a market leadership position in this highly profitable market segment. Sensing a competitive opportunity due to the growing number of airlines worldwide (particularly in developing countries), Airbus largely imitated the 737 in developing the A320. To Airbus's credit, the A32x family of aircraft has now reached approximate parity with the 737 in terms of number of aircraft delivered each year. In a similar vein, though with a different outcome, Boeing and Airbus diverged in their offerings targeted toward long-haul routes, with Airbus undertaking development of what is now the world's largest airliner, the A380, and Boeing developing the smaller, though still wide-body, Boeing 787 Dreamliner, while also making incremental advances to their existing and successful Boeing 747 airframe. Both manufacturers possessed reams of similar data regarding market forecasts and customer expectations, yet took substantially different approaches based on that data. In other words, when market actors possess similar knowledge, and change in the environment is largely predictable, imitation is driven predominantly by internal factors, that is, the firm's endogenous interpretation of its knowledge stock, with less consideration given to exogenous signals.

Conversely, consider the global wealth-management industry. Although there is a high level of rivalry between market actors, there are also two complicating factors. The first is the high level of information asymmetry among competitors in the industry. Competitors are likely to possess highly idiosyncratic knowledge stocks as a function of the scope of their practices, proprietary analytical tools and research, and the education and experience of their employees. Furthermore, a high level of dynamism typifies the wealth-management industry. Market actors are continually developing new investment products, the global regulatory environment is constantly shifting, and investment strategies are heavily influenced by changing market conditions in the sectors in which the firm is invested. In short, change happens with irregularity though arguably frequently, and the scope and significance of these changes are difficult, if not impossible, to predict a priori. As such, we argue that exogenous signal interpretation in these industries becomes more salient, as the internal confidence in the veracity of a firm's market knowledge decreases as a function of the increasing levels of information asymmetry and dynamism. In other words, market actors will constantly reevaluate their confidence in the efficacy of their own knowledge, and look to other market actors for insight into their evaluations of market expectations and needs. In summary, signals sent by the innovator firm are more salient in crafting an imitation strategy when the industries are characterized by a high level of information asymmetry and dynamism.

 
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