InstructorManualtoMikePeng&KlausMeyer(2011):InternationalBusiness,CengageLearning.
Instructor Manual
Chapter 13: Competitive Dynamics
to accompany Mike Peng & Klaus Meyer: International Business, Cengage Learning
Prepared by Klaus Meyer
version February 2011
Introduction to the Topic
Learning Objectives
1. explain how attacks and counterattacks are used in dynamic competition
3. outline how competition policy and anti-dumping laws affect international competition
4. articulate how resources and capabilities influence competitive dynamics
General Teaching Suggestions
Economists treatment of competition usually starts out from a model of (near-)perfect
competition, and thus many players in a market that hardly react directly to each other, but
To motivate a discussion, pick two (local) companies that students are likely to be familiar
with. For example, does it matter for VW if Toyota launches a new model? Or if they lower
their prices? Should VW react, and how?
InstructorManualtoMikePeng&KlausMeyer(2011):InternationalBusiness,CengageLearning.
Opening Case Discussion Guide
In this case, Cisco versus Huawei: War and Peace, Cisco attempted to keep Huawei out of its
U.S. market using the legal system and allegations regarding infringement of Cisco’s
intellectual property. However, the court action also resulted in free publicity regarding the
Chapter Outline, Section by Section
Section 1: Dynamics of Competition
Key Ideas
The introduction and the first section introduce the ideas of dynamic interaction between two
(or more) competing firms on the basis of the AMC framework.
Key Concepts
oligopoly
A market form in which a market or industry is dominated by a small number of sellers (oligopolists)
attack
An initial set of actions to gain competitive advantage.
InstructorManualtoMikePeng&KlausMeyer(2011):InternationalBusiness,CengageLearning.
awareness, motivation, capability (AMC) framework
A conceptual framework indicating when firms are likely to attack and counterattack each other
blue ocean strategy
A strategy of attack that avoids direct confrontation
Section 2: Competition and Collusion
Key Ideas
This section looks at the tenuous balance between competing and cooperating. Cooperating
Key Concepts
collusion
Collective attempts between competing firms to reduce competition.
tacit collusion
Firms indirectly coordinate actions by signalling their intention to reduce output and maintain pricing
above competitive levels.
InstructorManualtoMikePeng&KlausMeyer(2011):InternationalBusiness,CengageLearning.
A theory on how agents interact strategically to win
repeated game
A game plays over several periods of time
price leader
A firm that has a dominant market share and sets “acceptable” prices and margins in the industry.
capacity to punish
Sufficient resources possessed by a price leader to deter and combat defection.
market commonality
Section 3: Institutions Governing Competition
Key Ideas
This section investigates closer the legal constraints on collusion, with a special focus on the
rules and regulations created by the European Commission that are relevant for any business
operating across borders in Europe. It explains the concept used by the Commission (and
their counterparts in other countries) to assess whether collusion is illegal or not. A further
discussion in this section considers anti-dumping policies as a means of competition policy.
InstructorManualtoMikePeng&KlausMeyer(2011):InternationalBusiness,CengageLearning.
and associated products. The Economist, not normally very supportive of governments
meddling with business, and even less so of the EU commission commented: “The European
Union is right to take a closer look at Google.” (The Economist, 2010, Google and Antitrust:
Engine trouble, December 4).
Key Concepts
competition policy (anti-trust policy)
Policy governing the rules of the game in competition in a country.
leniency program
A program that gives immunity to members of a cartel that first report the cartel to the authorities
market division collusion
A collusion to ivied markets amongst competitors
anti-competitive practices (by a dominant firm)
Business practices by a dominating firm that make it more difficult for competitors to enter or survive
Section 4: Resources Influencing Competition
Key Ideas
This section discusses how resources are important for firms to be able to build competitive
positions.
InstructorManualtoMikePeng&KlausMeyer(2011):InternationalBusiness,CengageLearning.
Key Concepts
Section 5: Competing in a Global Recession
Key Ideas
This section presents a special discussion section on how companies can compete during a
major downturn. Stimulated by the 2008/09 recession, this section answers the call for
Key Concepts
survival strategy
A strategy designed to ensure survival by ensuring liquidity and positive cash flow.
Section 6: Debates and Extensions
Key Ideas
The first debate concerns strategies that local firms may pursue against apparently over-
Key Concepts
defender strategy
This strategy centres on leveraging local assets in areas in which MNEs are weak.
InstructorManualtoMikePeng&KlausMeyer(2011):InternationalBusiness,CengageLearning.
extender strategy
This strategy centres on leveraging home-grown competencies abroad.
Section 7: Implications for Practice
Key Ideas
The concluding section emphasizes the needs for competitor analysis, understanding the rules
of the game, and strengthening capabilities to compete.
Key Concepts
No new concepts
Review Questions
Review questions are provided to students on the website accompanying the book. They
directly ask to summarize the material provided in the text. Instructors may also use the
questions to structure their lectures or review sessions.
Review Questions
(as provided to students on the website)
Material in the Book
1. What is competitive dynamics in an oligopolistic
industry setting?
Page 391-92
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competitors more or less feasible?
5. How can companies use signalling in a competitive
setting?
8. What are anti-competitive practices, and how are
they constrained by institutions?
9. How is dumping used, and prevented, as a
competitive tactic?
10. How do resources of the firm shape their competitive
actions?
11. How can companies compete during a global
recession when markets are collapsing?
Page 397-98
Page 402
Page 403-05
Page 405-07
Page 407-10
Critical Discussion Questions
At the end the chapter, we provide discussion questions that aim to stimulate students
thinking beyond memorizing the material learned in the chapter. They are designed to be
used at a basis for in-class discussions, group work, or individual assignments. Below,
provide some indicative answers of issues that may be raised in response to these questions.
Discussion Questions
(as provided in the book)
Indicative Responses
1. As CEO, you feel the price war in your
industry is undermining profits for all
These questions challenge student to both
demonstrate their strategic thinking and
argumentation, but also their awareness for
InstructorManualtoMikePeng&KlausMeyer(2011):InternationalBusiness,CengageLearning.
2. As a CEO of a French firm, you are
concerned that your firm and your
industry in the EU are being devastated
by non-EU imports. Trade lawyers
suggest filing an antidumping case
against leading foreign rivals in China
and assure you a win. Would you file
an antidumping case or not? Why?
4. You are running a restaurant and wish
to serve your country’s leading brands
of wine and beer to your customer. The
distributor of these brands is happy to
supply you on the condition that you
ethically oriented students may
argue that such actions would be a
form of signal devised to initiate
illegal collusion without leaving
paper-trail, and hence be unethical.
2. As a short-term oriented CEO, most
would probably argue for filing
anti-dumping case. Long-term
actually work and the con include the
possibility that the lie would be
discovered and the firm’s credibility
with key stakeholders would be
damaged.
4. Exclusivity agreements have been
InstructorManualtoMikePeng&KlausMeyer(2011):InternationalBusiness,CengageLearning.
exclusively sell these brands. How do
you react?
mentioned as an anti-competitive
practice by a dominant firm.
However, if the supplier is not a
Closing Case
The closing case provides further opportunities to apply ideas and concepts learned in this
chapter in a real world setting. The Closing Case for this Chapter is “Wolters” and focuses on
the competitive challenges faced by a small, local firm facing competition from major MNEs.
Below are some indicative responses to the case discussion questions.
Some students might question why this case is in an ‘International Business’ book. The
answer is that this case illustrates that even for a very local firm, international competition is
the name of the game: the key competitors are global players (not AB-Ambev has 120,000
employees compared to Wolters’ 120), and hence competitive strategy has to do with
positioning vis-à-vis the big players. The case also challenges the assumption that industry
consolidation means that the big ones always get bigger!
Case Discussion Questions
(as provided in the book)
Indicative Responses
1. What are the key competitive
strategies used in the global
brewing industry?
These questions challenge students to demonstrate
their abilities to think and argue strategically.
1. and 2. A key aspect is that attachment to local
InstructorManualtoMikePeng&KlausMeyer(2011):InternationalBusiness,CengageLearning.
in a globally concentrated industry?
3. What are the advantages,
disadvantages, and ethical
considerations of sports sponsoring
as a marketing strategy?
identity. This is exploited by local brewers such as
Wolters.
3. This is an ethical question where many will
argue that widespread alcohol abuse requires
restrictive legislation. However, a side effect of
regulation is (often) that smaller firms find it more
difficult to make themselves heard in a highly
regulated industry.
Further Learning Activities
In addition to the cases and discussion questions provided in the book, instructors may want
to use any of the following activities to further engage students with the material.
1. An element of understanding global competitive dynamics is to assess the industry
concentration of different industries. To accomplish this, the percentage of overall industry sales
coming from the largest manufacturing companies in an industry can be used as a proxy. Based
on this approach, categorize the following four industries from most to least concentrated by
using the sales of the top four companies in the report you locate: aerospace and defense,
beverages, chemicals, and food. Which countries are represented across these four industries?
What insights concerning competitive dynamics in each industry can your evaluation provide?
Exercise 1 Answers
One resource which can be used is “IndustryWeek: IW 1000 – World’s Largest
2. The structure of international trade and tariff systems is highly complex. To maintain order,
InstructorManualtoMikePeng&KlausMeyer(2011):InternationalBusiness,CengageLearning.
the United Nations Conference on Trade and Development (UNCTAD) has developed a
coding system that categorizes the different trade control measures that may be required when
conducting business internationally. Find this coding system and then outline the nature of the
main categories included.
Exercise 2 Answers
One resource which can be used is “UNCTAD-TRAINS”. This website can be found by
Errors and Corrections
Apologies to Sunny Li Sun. We greatly appreciate your helpful discussions with Mike Peng.
Only by accident you were named as the author of the opening case. We did not intend to
suggest that any of the views expressed were yours.
Further Readings
At the end the chapter, suggested further readings are provided. The primary aim is to
provide students a starting point for further work, for example when preparing a class
assignment or dissertation. These references also are recommended for instructors not
familiar with the topic and wishing to ‘get ahead of the students’ before lecturing on a topic.
A. Dixit & B. Nalebuff, 1991, Thinking Strategically, New York: Norton – a very practical book that
extracts ideas from game theory that help businesses (and individuals) make decisions in competitive
situations.
InstructorManualtoMikePeng&KlausMeyer(2011):InternationalBusiness,CengageLearning.
synthesis of the institutional framework regarding collusion and cartels in the EU.
D.F. Spulber, 2007, Competitive Strategy, Cambridge: Cambridge University Press – a strategy textbook
that focuses on competition in the global economy.