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Patterns of Competitive Evolution in a Global Context

At least two patterns of competitive evolution can be seen as being common, both historically and contemporarily. When economies initially develop in relative isolation from trade (as was common prior to globalization), industries typically evolve toward an equilibrium pattern characterized by two or three large domestic MVD competitors and numerous niche (MO) participants. As these economies become exposed to global competition, equilibrium will be disrupted and competition will intensify. Consistent with Schumpeter's notion of "creative destruction," changes in competitive dynamics will progress through three distinct stages: evolution, equilibrium, and disruption and new evolution. Of particular significance is the expectation that carnage will likely result when new entrants disrupt an equilibrium stage.

In contrast, when an industry develops within an extant environment of global competition, evolution can be expected to progress more directly toward a global, dynamic competitive equilibrium without undergoing an intermediate stage of domestic equilibrium (and thus disruption). An example of this can be seen in the video game industry in which three MVD competitors have battled for global market dominance throughout much of the industry's history. Although the technological platforms and the identities of individual competitors have evolved, the overall market structure has remained relatively invariant. The early "big three" of Atari, Nintendo, and Sega were thus transformed into the later trio of Nintendo, Sega, and Sony. This subsequently metamorphosed into the current lineup of Nintendo, Sony, and Microsoft.

Competitive equilibrium should not, however, be considered to be inevitable. Impediments to competitive equilibrium can forestall or prevent global industries from reaching this desirable state. For example, government subsidies may allow inefficient firms or those with weak strategies to survive artificially. Ongoing global economic development also means that the number of new industrializing countries, characterized by expanding manufacturing capacities and relatively inexpensive labor is increasing relentlessly. Increasing affluence in more developed countries also transforms them from net exporters to net importers of finished goods, enabling the new low-cost production capacity of VO firms in emerging economies to displace production in more developed nations.22 In short, globalization tends to cause and perpetuate the entrance of low-cost VO firms into competitive markets, and this influx and resultant industry turmoil exerts pressure on profit margins and prevents or retards competitive equilibrium.

U.S. economic history over the last half-decade offers an example of the effects of global competition. The entry into the United States of low-cost Japanese producers and products that characterized the 1970s was superseded by the arrival of even lower-priced goods from Taiwan and South Korea two decades later. Today, the river of goods from those countries is being overwhelmed by goods from China, resulting in the suppression of industry profits from the powerful phenomenon known as the "China Price."23 Despite the compelling cost advantages of Chinese producers, history suggests that other countries will follow (perhaps quickly) and surpass the productive might of China. Emerging opportunities for investments and marketing programs may now be greatest in areas that currently lie in China's economic shadow, such as India, Brazil, Mexico, and Thailand.

 
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