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Changes to Political Barriers and Other Political Accommodations

The effects of political barriers on competitive evolution can be seen in many aspects of business history. Political barriers can exist in the form of government-imposed restrictions on transportation, communication, or market accessibility, and if these barriers are reduced or eliminated, competitive equilibria become disrupted. For example, the reduction in trade barriers that resulted from the creation of the European Union intensified the competition that many firms in European markets experienced. Similarly, China's recent liberalization of its trade policies has seen it emerge as both a major supplier as well as a market for many goods and services, creating both opportunities and also hazards for competitors across the globe.

Competitive barriers may also be raised or lowered during periods of war and as the result of wars. Wars can move national boundaries and divide or merge previously sovereign geographic territories, thereby altering the dynamics of competition. In the aftermath of World War II, for example, Germany was divided into East Germany and West Germany, and competitive trade patterns—both within these regions and with other countries—were altogether reformulated. Further, during times of war, governments can grant protection from competition in the form of monopolistic contracts. For example, the Gillette Safety Razor Company won a government contract to provide all U.S. troops with a field razor set during World War I. As discharged soldiers were allowed to keep these razor kits after the war was over, a large and stable market for Gillette replacement blades was ensured. The Coca-Cola Company was similarly awarded a government contract during World War II allowing them the exclusive right to provide all U.S. military forces with Coke in every theatre of operation. During World War II, over five billion bottles of Coca-Cola were provided to service personnel, and 64 international bottling companies were constructed to supply this volume.21 After the war, returning troops exhibited loyalty to Coca-Cola, and international markets (and distribution networks) had been firmly established.

Economic and environmental crises can often directly or indirectly provoke substantial political or technological responses, and thus instigate competitive disruptions. Crises can also alter patterns of consumer demand. An excellent example of such a crisis was the petroleum embargo of the early 1970s in the United States, which led to the disruption of equilibrium in the U.S. automobile industry.

Competitive Destabilization from Globalization

Entrants to U.S. markets from developing countries typically cause great competitive disruption. Many of these companies enjoy cost advantages derived from lower wages, home-government subsidies, or both. Yet many of the competitive challenges posed by these entrants do not derive merely from lower input costs, but rather due to their basic competitive mode, which is typically one of volume orientation. These firms have successfully used a VO strategy to satisfy basic demand in their home markets, and as they have improved their product quality, they have typically sought to improve margins by exporting to more affluent markets in the United States and other postindustrial countries. Additionally, they are not likely to have made significant investments to cultivate goodwill or brand familiarity among U.S. consumers. Possessing cost advantages and lacking the potential for rapid development of consumer loyalty, these firms have little choice but to aggressively attack the domestic competition from a low-price, undifferentiated position. In other words, a forceful volume orientation is the logical approach for most new foreign entrants seeking to conquer market share in established markets in developed countries. The entry of overseas VO producers typically results in strategic confounding for the established, domestic firms. These domestic firms have often invested significantly in branding, advertising, and other MVD-based approaches, collectively reaching a point of equilibrium based on nonprice competition. The entry into the market by aggressive VO, cost-advantaged competitors thus destroys any competitive harmony that may have existed. Since the established domestic firms are typically unable to compete on a cost basis, they may lose significant market share.

Ultimately, the evolution of competition within global markets introduces both an excess of VO competitors and a disequilibrating mélange of competitive strategies and objectives. This makes predicting and responding to rival actions more challenging than in the past. Globalization can thus not only disrupt the existing equilibrium in markets, it can also forestall or prevent progress toward reaching a new equilibrium. Whereas prior periods in the history of market evolution have been frequently characterized by a relative consistency of objectives and strategies that allows for a level of predictability regarding competitive behaviors, the chaos of globalization makes competitive planning and decision making vastly more complex. It can also lead to disorder and discord within supply and distribution channels, consumer disorientation, and generalized industry confusion.

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