Logic of Competition
The
world is an innovating system where products that originate in one country are
improved when they are introduced in another
The rules that govern what wins when
it comes to competition vary as you move around the world. A technology pioneer
for consumer-to-consumer (C2C) auctions online, eBay found this out the hard
way. In 2000, it marched into China with plans to dominate that sector,
purchasing the leading C2C firm there, Eachnet, as part of that strategy.
Within three years, they failed, losing the market to Taobao, the C2C arm of
Ali Baba.
Why? The logic of C2C auctions was very different in China than it was in the US. The Chinese context had more to do with establishing the payment backbone side of the business, with cultural differences that shape how people transact, with a more permissive view regarding counterfeit goods, and with needing key governmental relationships to enable internet commerce. eBay couldn't see these differences since they had succeeded in a very different way in the US and elsewhere.
Creating a corporate strategy that can deal with such variations requires a systematic analysis of the 'logics of competition' that prevail in a given place. Such 'logics' revolve around four major factors: institutions and regulations, market trends, cultural characteristics, and technology. Varying combinations of these factors can produce entirely different competitive environments depending on where you are in the world, but they follow patterns. Discerning those patterns is key to competing well.
Facebook has figured out the logics of competition region by region by attending to language differences. Once focused in the US, the social media company has now exploded globally. It has succeeded by allowing users to translate their own content, or status posts, into one of many languages.
Why? The logic of C2C auctions was very different in China than it was in the US. The Chinese context had more to do with establishing the payment backbone side of the business, with cultural differences that shape how people transact, with a more permissive view regarding counterfeit goods, and with needing key governmental relationships to enable internet commerce. eBay couldn't see these differences since they had succeeded in a very different way in the US and elsewhere.
Creating a corporate strategy that can deal with such variations requires a systematic analysis of the 'logics of competition' that prevail in a given place. Such 'logics' revolve around four major factors: institutions and regulations, market trends, cultural characteristics, and technology. Varying combinations of these factors can produce entirely different competitive environments depending on where you are in the world, but they follow patterns. Discerning those patterns is key to competing well.
Facebook has figured out the logics of competition region by region by attending to language differences. Once focused in the US, the social media company has now exploded globally. It has succeeded by allowing users to translate their own content, or status posts, into one of many languages.
Fast & Furious
By creating a tool with sophisticated preference aggregation components, Facebook has been able to do this very, very quickly. This translation tool lets Facebook users communicate in the language with which they are most comfortable, regardless where they are physically.
Firms that can adapt to different ways of competing are more likely to succeed globally. Hyundai is an exemplar of this. When the South Korean auto manufacturer came to the US, they made notoriously bad cars by American standards. Now they make some of the highest-quality automobiles sold in the country. What happened?
Hyundai entered the US with a logic of competition that was suited to its historical markets in Korea, where lower-priced, lower-quality vehicles were what sold. When they experienced the shock of trying to inject that strategy into the US market, instead of folding, they learned. They established a global technology development platform that incorporated quality manufacturing processes and continuous improvement. They built a world-class organization in response to the competitive heat. This is the kind of leadership that wins in the global context. You need to put systems and practices in place that capture the lessons learned in new, unfamiliar regions.
Information technology firms in India have done this well. Twenty years ago, they were primarily cleaning up computer code for American companies, who outsourced to such firms because they were using old programming languages and were cheap. But over the past two decades these firms have learned the logic of competition prevailing on the world stage. Now they provide high-end business process and information technology consulting to companies in London, New York, and other major power centers. Adapting in this way was difficult and required that they change in fundamental ways.
The world itself is an innovating system. Products are being improved by technologies that may originate in one country but are incorporated into systems developed by another. The key to good global business is not to expect that your lessons at home will necessarily translate abroad, but to figure out how markets, culture, technology, and institutions combine - and how your organization must adapt to compete under those conditions.
William Barnett :The author is the Thomas M. Siebel Professor in Business Leadership, Strategy, & Organizations and Senior Fellow at the Woods Institute for the Environment, Stanford Graduate School of Business
By creating a tool with sophisticated preference aggregation components, Facebook has been able to do this very, very quickly. This translation tool lets Facebook users communicate in the language with which they are most comfortable, regardless where they are physically.
Firms that can adapt to different ways of competing are more likely to succeed globally. Hyundai is an exemplar of this. When the South Korean auto manufacturer came to the US, they made notoriously bad cars by American standards. Now they make some of the highest-quality automobiles sold in the country. What happened?
Hyundai entered the US with a logic of competition that was suited to its historical markets in Korea, where lower-priced, lower-quality vehicles were what sold. When they experienced the shock of trying to inject that strategy into the US market, instead of folding, they learned. They established a global technology development platform that incorporated quality manufacturing processes and continuous improvement. They built a world-class organization in response to the competitive heat. This is the kind of leadership that wins in the global context. You need to put systems and practices in place that capture the lessons learned in new, unfamiliar regions.
Information technology firms in India have done this well. Twenty years ago, they were primarily cleaning up computer code for American companies, who outsourced to such firms because they were using old programming languages and were cheap. But over the past two decades these firms have learned the logic of competition prevailing on the world stage. Now they provide high-end business process and information technology consulting to companies in London, New York, and other major power centers. Adapting in this way was difficult and required that they change in fundamental ways.
The world itself is an innovating system. Products are being improved by technologies that may originate in one country but are incorporated into systems developed by another. The key to good global business is not to expect that your lessons at home will necessarily translate abroad, but to figure out how markets, culture, technology, and institutions combine - and how your organization must adapt to compete under those conditions.
William Barnett :The author is the Thomas M. Siebel Professor in Business Leadership, Strategy, & Organizations and Senior Fellow at the Woods Institute for the Environment, Stanford Graduate School of Business
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