Competitive Rivalry and Competitive Advantage

Doctoral discussion forum, March 2019

“No firm competes in a vacuum” (Hitt, Ireland & Hoskisson, 2015, p. 136). In order to gain an
advantageous market position, competitors engage in competitive rivalry. This is done by taking a
series of competitive actions and responses. An organization must examine Porter’s five forces that
affect how an organization operates and competes within an industry. Porter’s five forces are: the
threats posed by new entrants, the power of suppliers, the power of buyers, product substitutes, and
the intensity of rivalry among competitors. For example, new entrants can “threaten the market
share of existing competitors” (Hitt, Ireland & Hoskisson, 2015, p. 53). Organizations should strive
to maintain high entry barriers in order to dissuade other organizations from entering the market. In
terms of product substitutes, an organization is faced with the threat of substitute products (or
services) if another organization’s price is lower or if quality and performance are “equal to or
greater than those of the competing product” or service (Hitt, Ireland & Hoskisson, 2015, p. 57).

The primary strategy I would institute to mitigate fierce rival competition is to develop a string of
temporary competitive advantages to create sustained competitive advantage. See the attached
figure (Hitt, Ireland & Hoskisson, 2015, p. 155). With this strategy, an organization seeks to achieve
a competitive advantage which it exploits as long as possible. As other organizations are responding
to this advantage, possibly through imitation, the organization tries to develop another temporary
competitive advantage. This strategy encourages rapid product or service upgrades, with innovation
playing a critical role and becoming a “key source of competitive advantage” (Hitt, Ireland &
Hoskisson, 2015, p. 155). Our international school is currently engaging in this “temporary
competitive advantages to create sustained competitive advantage” strategy. In 2016, we launched
our first temporary competitive advantage: We were the first full International Baccalaureate (IB)
school in our city. This action improved our market position. While we continue to exploit this
advantage, we are developing additional competitive advantage such as pursuing two well-
established international accreditations. These two accreditation processes are helping us further
155
improve andChapter 5: Competitive Rivalry and Competitive Dynamics
upgrade our educational services.
Figure 5.5 Developing Temporary Advantages to Create Sustained Advantage

Returns from
Firm Has Already
a Series of
Advanced to
Replicable
Launch Advantage No. 2
Actions
Exploitation

Counterattack

etc.

5 10 15 20
Time (years)

Source: Adapted from I. C. MacMillan, 1988, Controlling competitive dynamics by taking strategic initiative, Academy of Management
Executive, II(2): 111–118.

tries to develop another temporary competitive advantage before competitors can respond
to the first one. Thus, competitive dynamics in fast-cycle markets often result in rapid prod-
uct upgrades as well as quick product innovations.112
As our discussion suggests, innovation plays a critical role in the competitive dynamics
in fast-cycle markets. For individual firms then, innovation is a key source of competitive
advantage. Through innovation, the firm can cannibalize its own products before competitors
successfully imitate them and still maintain an advantage through next-generation products.
Our organization endeavors to stay ahead of rivals by engaging in ongoing actions and responses.
The following list contains some of our recent actions and responses:
- Advertising. When considering entry barriers, “relatively little is known about barriers. . . in
rapidly emerging markets such as. . . China” (Hitt, Ireland & Hoskisson, 2015, p. 53). However,
recent research in China suggests that advertising effects are perceived as the most significant
entry barrier (Hitt, Ireland & Hoskisson, 2015). Other entry barriers in China include: slowing
economic growth, inconsistent and generally unfavorable interpretation of regulation, growing
pressures from domestic industrial policy, and rising costs of doing business (The International
Trade Administration, 2018).
- Leveraging economies of scale. Within two years, our school doubled its student enrollment;
moving from around 400 to 800 students. This increase in the number of students served lowered
our average cost of educating one student.
- First mover. We benefitted from being a first-mover when we became the first continuum IB
school in our city. A nearby school, the second mover, responded by becoming the second
continuum IB world school. Other schools, the last movers, will typically benefit less than the
first and second mover (Hitt, Ireland & Hoskisson, 2015).
- Product differentiation. Parents and the international community have, over time, come to
believe that our school is unique. We have differentiate ourselves along several key areas,
including but not limited to: a strong emphasis on the IB philosophy and framework, four to 18
year old students served on one campus, and multiple play spaces around the campus.
- Capital requirement. Although our school is 16 years old, we only began competing within our
city’s international school industry within the past three years when we strategically invested a
large amount of capital into building a new campus.
- Switching costs. We introduced a loyalty tuition discount last year, given to families who have
been at our school for several years. We will continue to reap the benefits of this well-judged
move that increases switching costs. We also work hard to establish strong relationships with our
parent community, thus further increasing switching costs.
- “Competitive rivalry intensifies when [an organization] is challenged by a competitor’s
actions” (Hitt, Ireland & Hoskisson, 2015, p. 57). Last year, our school was challenged by one of
our rivals when they began offering full-ride scholarships for high-performing high school
students. We quickly responded by beginning a similar scholarship program, that continues to be
offered to incoming families.
- “Quality affects competitive rivalry” (Hitt, Ireland & Hoskisson, 2015, p. 150). We work to have
our quality at least meet, or preferably exceed, our families’ expectations. For example, a focus
on consistency, convenience and completeness helps us increase our quality; consistency is
delivered by giving all families similar high-quality educational experiences, both horizontally
and vertically across grade levels; convenience is provided by an extensive school bus program
that increases accessibility to families; and completeness, as mentioned before, is obtained by
offering all students, age four to 18, with an IB education.

Our city continues to see high growth in the number of international schools. In June 2016,
Shenzhen was forecasting and planning for “five or six more international schools by 2020 in an
effort to meet the demand of a growing foreign population” (Zhou, 2016). Our school has to
continue taking actions and delivering responses as competition increases. Strategies such as
continued advertising, differentiated services and quality service delivery will help lessen rivalry.
References

Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2015). Strategic management: Competitiveness
& globalization: Concepts & cases (11th ed.). Stamford, CT: Cengage Learning.

The International Trade Administration. (2018, April 5). China - Market challenges. Retrieved
from https://www.export.gov/article?id=China-Market-Challenges

Zhou, M. (2016, June 23). Shenzhen to build more international schools. Retrieved from http://
www.chinadaily.com.cn/china/2016-06/23/content_25816861.htm