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Competing in Emerging Markets: Performance Implications of Competitive Aggressiveness

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Abstract

A firm is said to have a high degree of ‘competitive aggressiveness’ if it forcefully takes a large number and a large variety of actions to outperform its competitors in the marketplace. Competitive dynamics scholars have shown that firms with a high degree of competitive aggressiveness experience better profitability and a greater market share than firms that carry out a narrow, simple repertoire of actions. Still, most empirical studies have been conducted within the marketplace of developed countries. There is a lack of evidence testing the competitive aggressiveness–performance relationship from the perspective of firms based in developed countries entering and competing in emerging economies. Given the highly competitive and rapidly changing environments that developed country-based firms have to cope with when entering certain emerging economies, various authors have recently argued the analysis of this unexplored relationship to be an apt research issue. This paper tests the competitive aggressiveness–performance relationship with a sample of 90 Italian firms entering and competing in the Chinese market within the 2001–2010 time period. The results show that there is a positive relationship between a firm’s competitive aggressiveness in an emerging economy and its performance, that this relationship is negatively moderated by the entry mode degree of control, and that the moderating effect of the extent to which the firm’s industry within the emerging economy is affected by institutional voids is not significant.

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Notes

  1. Attacks and reactions among firms in an industry create competitive dynamics. These competitive actions reflect the firm’s intent to generate superior performance with respect to industry rivals. The study of competitive dynamics is thus the analysis of how the firm’s actions affect competitors’ reactions and performance (Smith et al. 2001). ‘Competitive aggressiveness’ is a firm-level construct developed by scholars in the field of competitive dynamics.

  2. It is worth noting that hybrid competitive strategies (e.g., low cost plus differentiation) in developing countries might be preferable also to capture a large part of the heterogeneous consumer demand. For example, a foreign entrant in China or India might consider to use a ‘low cost–low price’ strategy to launch product models targeted at the low-end market, usually the larger one in emerging economies, but at the same time rely on product quality and innovation to cover also segments of customers in the fast growing high-end market.

  3. For example, Tang and Yu (1990) found that a wholly owned subsidiary is the optimal strategy because it generates the highest level of economic profit and maximizes the control of critical knowledge indefinitely. Woodcock et al. (1994) found that new venture direct investment and the joint venture mode outperform lower control entry modes because they help the firm to monitor success and failure closely.

  4. Although some authors have proposed also ‘speed-based’ proxies for competitive aggressiveness, such as speed of competitive response and rapid sequence of competitive actions (Ferrier 2001; Ferrier and Lee 2002), usually empirical studies on competitive aggressiveness select a subset of the all available proxies. As in other empirical studies where speed of competitive actions could not be easily measured (Yu et al. 2009), in this paper we focus on strategic intensity and strategic complexity (as defined in the Sect. 1).

  5. ATECO codes of economic activities are developed by the Italian government statistical association (ISTAT), based on the Classification of Economic Activities provided by the European Community. Based on ATECO codes, 16 economic activities (i.e., industries) were identified among the 90 sampled firms: (1) machinery and electronic equipment, (2) textiles, garments and other consumer goods, (3) furnishings and other manufacturing equipment, (4) wholesale trades, (5) management and marketing consulting, (6) utilities and other services, (7) information technology, (8) warehousing and other transportation support services, (9) accounting and legal services, (10) agriculture and fisheries, (11) building materials and constructing, (12) food services, (13) housing and real estate, (14) insurance, (15) other personal services, (16) travel agency.

  6. Firms’ names are not reported to preserve their anonymity.

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Acknowledgments

The author would like to thank the Editor Michael-Jörg Oesterle and the two anonymous reviewers for their helpful and insightful comments. The author also acknowledges helpful comments on earlier versions of this manuscript from Ettore Spadafora, Gianvito Lanzolla, Bernardo Balboni, Tiziano Vescovi, Giovanni Battista Dagnino and participants to the seminars at University of Catania and University of Modena and Reggio Emilia (Italy), as well as participants to the Strategic Management Society (SMS) Special Conference in Guangzhou (China).

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  1. Department of Management, Ca’ Foscari University of Venice, Venice, Italy

    Claudio Giachetti

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Correspondence to Claudio Giachetti.

Appendix

Appendix

Question related to the firm’s competitive aggressiveness in China:

Express the extent to which the firm, after its entry into China, has undertaken the following competitive actions to outperform competitors in the Chinese marketplace, on a 7-point scale, where 1 = almost nothing and 7 = a lot:

Competitive actions

Mean score

SD

Aggressive pricing

2.978

2.146

Operational efficiency improvements aimed at producing at lower costs than competitors (cost leadership)

2.211

1.887

Improvements in product quality (e.g., quality of raw materials and components)

6.078

1.538

Product/service innovation and process innovation

5.544

1.891

Great effort to strengthen the firm’s brand image in China

5.233

2.056

Use of ‘Made in Italy’ as a differentiation tool (e.g., a set of actions aimed at highlighting the product’s country of origin)

5.156

2.044

Frequent product adaptation to the local consumer needs

4.311

2.026

Counting a great deal on networks of formal (contractual) relationships with local Chinese partners

3.344

2.482

Counting a great deal on networks of informal (personal and not contractual) relationships with local Chinese people aimed at easing relationships with Chinese local authorities, clients, and suppliers

4.511

2.215

  1. N = 90

Question related to the entry mode degree of control:

Indicate the ways in which the firm has operated on the Chinese market until now (check the appropriate boxes):

Entry modes

Mean scorea

SD

Subsidiary on the Chinese market entirely controlled by the firm (entity resulting from the acquisition of an existing subject or from greenfield investment)

0.589

0.495

Subsidiary on the Chinese market only partially controlled by the firm (entity resulting from partial acquisition or joint venture)

0.222

0.418

Subsidiary on the Chinese market with which the firm has contractual relationships like franchising, licensing, or joint R&D

0.089

0.286

Export (direct and/or indirect)

0.444

0.500

  1. N = 90
  2. aThe mean score indicates the percentage of firms that have adopted a certain entry mode. For example, among the sampled firms, 44.4 % used export

Question related to institutional voids in China:

Among the factors listed below, indicate the degree to which they have hampered the internationalization process of the firm in the Chinese market (based on a scale from 1 to 7, where 1 = not at all, and 7 = very much):

Institutional voids

Mean score

SD

Lack of infrastructure to facilitate the relationship between the firm and its clients, or between the firm and its suppliers (e.g., inefficient transportation infrastructures and logistics)

2.567

1.848

Difficulties in obtaining adequate and reliable information about the tastes and preferences of consumers, and the reliability of suppliers

3.678

2.010

Difficulties in advertising and communicating effectively products and services to potential consumers

3.411

1.925

Underdeveloped education infrastructures and the need for intensive training of Chinese employees

3.744

2.271

Distrust and lack of acceptance toward foreign firms and foreign managers on the Chinese market

2.700

1.814

Difficulties for foreign firms to access to financial resources and loans

3.278

2.380

Underdeveloped payment systems (e.g., the use of the credit card is uncommon among end users, prevalence of cash as payment method) and consequent difficulties in completing transactions

2.356

1.940

Ambiguous legal system (e.g., in the field of contractual agreements, protection of copyright, trademark registration, joint ventures, foreign firms, land use rights, protection of private property rights, protection of private sector, etc.)

4.411

2.187

Complicated or ambiguous bureaucratic procedures (e.g., for a firm registration, for the request of a permit, license, certification etc.)

4.300

2.052

  1. N = 90

Question related to the firm’s performance:

Express your level of agreement/disagreement with the following statements (based on a scale from 1 to 7, where 1 = do not agree at all, 7 = strongly agree):

Performance

Mean score

SD

The entry into the Chinese market has significantly helped the firm to increase its total revenue

3.500

2.018

The entry into the Chinese market has significantly helped the firm to increase its total profits

3.411

2.027

The entry into the Chinese market has enabled the firm to acquire a range of skills that have substantially increased its ability to operate in the international market.

3.733

1.779

The entry into the Chinese market has enabled the firm to strengthen significantly its international competitive position

4.144

2.069

  1. N = 90

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Giachetti, C. Competing in Emerging Markets: Performance Implications of Competitive Aggressiveness. Manag Int Rev 56, 325–352 (2016). https://doi.org/10.1007/s11575-015-0263-6

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