COMPETITIVE
PRESSURE SYSTEMS MAPPING IN THE BRAZILIAN TRUCK MARKET
Ricardo Costa da Cruz
Universidade Municipal de São Caetano do Sul – USCS,
Brazil
E-mail: ricardocostadacruz@gmail.com
Francisco C. T. Starke-Rodrigues
Universidade Municipal de São Caetano do Sul – USCS,
Brazil
E-mail:
franciscostarke@starkonsult.com.br
Submission:
16/03/2013
Accept:
03/04/2013
ABSTRACT
The
automotive business in Brazil achieved 10% of the industry revenue and 6% of
the formal employment by 2008. The commercial vehicle segment concentrated so
far eight truck makers that experienced their best market figures in 2008, the
economy crisis in 2009, and an extraordinary recovery in 2010. Government tax
reduction programs as well as special financing incentives were undoubtedly
decisive to re-stimulate the business during the crisis. Positive Brazilian
perspectives with the boom in the agricultural, oil and gas, mining and
infrastructure activities plus the coming sports events call the attention of
new players that are quickly implementing different business strategies to
become part of the game. New emission regulations starting from 2012 also bring
uncertainties, challenges and opportunities. With the growing globalization and
market concentration it's critical for any industry understand and minimize the
forces of competitive pressures. The main goal of this paper, therefore, is to
contribute to the academy with an alternative approach of strategic and behavioral analysis of rivalry
and competition different than the five forces model of Porter. Ford, Iveco,
MAN, Mercedes-Benz, Scania and Volvo were assessed from 2008 to 2010 within
three main performance indicators – unit sales, gross revenues and operating
profits – supporting the elaboration of the competitive pressure systems
mapping
model of D'aveni, including a hypothetical future scenario with a new entrant
and the potential impacts in the system. Main findings and results portray the
asymmetrical strategic behavior
of competitors and the temporary dynamic stability in the Brazilian truck
industry.
Keywords: competitive pressure systems mapping, market commonality, strategy,
competitive dynamics, rivalry, automotive industry, trucks.
The automotive business in Brazil is
vital for the nation with 10% of the industry revenue and 6% of the formal
employment (ABDI, 2008). Within this industry, eight truck makers run their
plants in five different Brazilian states, supplying the truck market with
light, medium and heavy commercial vehicles (ANFAVEA, 2010). With the economic
crisis in 2009 the Brazilian truck market decreased the sales performance by 26.1%
below 2008, but recovered in 2010 with 43.5% of growth in national
registrations and 56.9% higher volumes in the total production figures.
Government tax reduction programs as well as special financing incentives were
undoubtedly decisive to re-stimulate the business during the crisis. Although
the exportation increased in 2010 the importation figures also have grown,
especially in the heavy segment with new entrants, representing 2.5% of the
total market sales. Positive Brazilian market perspectives in the agriculture,
mining, and oil and gas sectors as well as in the infrastructure activities
added to the coming international sports events in the country, i.e. FIFA World
Cup and the Olympic Games, had all called the attention of new players that
have already started to implement different business strategies like direct
importations, global strategic alliances and the erection plan of new
production plants. New emission regulations valid from 2012 on also bring
uncertainties, challenges and opportunities. With the growing globalization in
competition it's critical for the Brazilian truck makers understand and
minimize the competitive pressures coming from their existing competitors as
well as the new entrants.
Nowadays, the majority of the
companies adapt passively and gradually according to the main course of actions
from the market. They adjust the pace of their own actions in order to catch up
with the development of the industry trends they’re following. However, the
most import insights around strategy rarely come from the projection of new
trends. In the contrary, they rise from speculations of how the new trends can
change the value for the customers and how it will impact in the company’s business
(KIM; MAUBORGNE, 2005).
In a given industry the competitive
movements from one competitor can cause deep effects in the other players and
create a mutual dependency. Even when the competition is concentrated or well
balanced, in which the competitors are relatively equal in terms of size and
apparent resources, there might occur periods of instability when one or more
competitors decide to fight back using all available resources (PORTER, 2004).
For Besanko (2004), the market
structure refers to the number and to the distribution of companies in this
market. For Porter (2004), the foreign competitors must be treated in the same
way as the local competitors for the market structural analysis. One common
indicator is the coefficient of concentration index of N competitors. The nature of a market (concentrated or not
concentrated) usually allows a quick and reasonably precise evaluation of the
probable nature of competition. Other common index used in the industry is the
Herfindahl Index (BESANKO, 2004).
For D'aveni (2002) the
competitiveness within the industry is traditionally measured by the antitrust
specialists following the same basic indices. Though, the recent researches
around competitive pressure systems mapping have spread other alternatives for
the existing tools and methods in the literature in order to assess and map inter-firm
rivalry and competitive dynamics (SCARANELLO; CARVALHO, 2005), (SEGISMUNDO;
LAURINDO, 2006), (JANSEN; ROTONDARO; JANSEN, 2005). For Scaranello and Carvalho
(2005), “it’s up to the analyst the choice of the most appropriated tool to obtain
as much as relevant information taking into account how simple is to collect
the data”. For Besanko (2004), the companies may go through a continuum of
price fluctuations, varying from the perfect competition on one hand, to the
monopoly on the other hand. Tied to each extreme there is a variation interval
of the Herfindahl indices, which is typical of each kind of competition. The Herfindahl index in the Brazilian truck
market situates from 2008 to 2010 in the oligopoly interval from 0.2 to 0.6.
Yet, according to Besanko (2004), while in an oligopoly, the intensity of the
price competition can vary from light to extremely aggressive depending on the
rivalry among the competitors. Nevertheless, those variations are solely
suggestions and should not be taken as an absolute truth. Besanko (2004)
affirms that “it’s essential to evaluate the circumstances that round the
competitive interaction of the companies to take conclusion around the intensity
of the prices competition instead of trusting either the Herfindahl index only
or other concentration indicators”. Nevertheless, it’s important to note that
this research doesn’t aim to go deeper into the types of competition, which
theory is richly and more elaborately assessed by the author.
For Keegan (2005), rivalry refers to
the overall actions that the companies undertake in the industry in order to
improve their positions and take advantage ones on the top of the others. For
the author, “when the rivalry pushes the companies forward toward innovation or
cost reduction, it might be a positive force. On the other hand, when it pushes
the prices and, consequently the profitability backward, it creates instability
and negatively influences the industry attractiveness”. Furthermore, the
competitive dynamics shows that in some industries the global players have
practically excluded the local players from the game (KEEGAN, 2005). As a
matter of fact, the Brazilian truck market is massively represented by global
players according to Table 1.
Table 1: Truck makers figures,
Concentration and Herfindahl Indices.
Source: Elaborated by
the authors with data from ANFAVEA, 2010.
In the complex context the Brazilian
truck Market is situated, the aim of this paper is to contribute to the academy
with an alternative approach of strategic and behavioral analysis of rivalry
and competition different than the five forces model of Porter, by using the
competitive pressure systems mapping model of D'aveni. The main objectives of
this paper are to describe the theory of Competitive Pressure Systems Mapping
from D'aveni (2002) supported by the principle of Marketing Commonality from
Hsu and Chen (2006), map the competitive pressure system in the Brazilian truck
Market from 2008 to 2010, interpret the different influences of the pressure
systems using three main optics (or indicators) – market share, gross income
and operating profit – and , deploy the same technique to create and interpret
the behavior of a future and hypothetical map with a new entrant in the market.
Typically, the strategists see the
competitive pressures as something based on the five forces of Porter:
bargaining power of customers, bargaining power of suppliers, threat of new
entrants, threat of substitute products, and competitive rivalry within an
industry. However, the recent researches of multimarket contacts indicate that
the competitive pressure system dynamics is much more complex than the success
factors that influence the intensity of rivalry among the five forces of
Porter.
D'aveni (1994) defines the term
hypercompetition to describe a competitive, dynamic world, where neither action
nor advantage can be sustained for a long time. For D'aveni apud Keegan (2005),
“the limitation of the models from Porter is that they take a snap shot of the
competition in a given point in time behaving as static models”. Typically, the
competitive pressure within the industry is seen by D'aveni as something that
can vary from hypercompetition to tacit collusion.
For D'aveni (2002), the majority of
the companies don’t know how to manage adequately the competitive pressures
exerted by their competitors. Even though it’s difficult, it’s vitally
important for any organization to understand the pressure system that rules any
given industry. “The organizations feel the pressures intuitively, but it’s
hard to see the overall competitive pressure system – a complex and dynamic
pattern of multi-firm overlap of contacts that continuously influences the
industry making the rivals compete aggressively, tolerate pressures or even
cooperate formally”.
Furthermore, the overall vision of
the pressure systems allows an industry to take decisions more pro-actively and
intelligently. The fact is that companies must seek to obtain superior position
in the industry whenever it’s possible and avoid intolerable pressures whenever
it’s necessary, but it’s even more valuable to obtain superior strategic
influence with the evolution of the system. The result can lead not only to
superior knowledge, but also to the employment of competitive strategies based
on competitive pressures mapping more coherently.
The main purpose of mapping the
pressures is not to analyze the current tactics and techniques of industry
competition, such as the war of prices, marketing, and technological
innovation. Instead, it's most useful to assess, who in the industry has got
the potential and the stimulus to exert or to avoid future competitive
pressures, to form strategic alliances, to identify potential acquisitions or
opportunities to enter in new markets and, consequently, the ability to
establish a new dynamic stability and direction in the industry.
Though, it's not an easy task to
determine which are the main borders and competitors in an industry. The
starting point is to identify all the existing competitors and the markets they
overlap with the focus company being assessed, i.e. the company that intends to
create the map, also including the rivals exerting pressure towards the focus
company's rivals. The more two companies overlap, the higher is the pressure.
Moreover, the pressure is proportional to the importance of the market for a
given company and the degree of penetration of each of their competitors in the
market. Yet, the competitive pressure is affected and shall be measured by two
distinct factors: the importance of the market to the company, i.e., the
overall sales in the market, and the degree of penetration of the rivals
measured by the size of their incursion, i.e., their market share (D'AVENI,
2002). Based on these two critical factors, the mathematical formulation for
the competitive pressures mapping is proposed by:
Pressure = (Importance of Market) x
(Size of Incursion)
Once the competitors of the focus
company are identified and the magnitude of the pressures is measured D'aveni
(2002) also proposes to map them through symbols where companies are
represented by circles, the formal (or tacit) alliances are represented by lines
connecting the circles, and the pressures are represented by arrows that
indicate the direction of the pressure. The thicker is the arrow line the
higher is the pressure. Narrow arrow lines or even dashed arrow lines represent
pressures less and less significant.
During the creation of the map it’s
helpful to locate the focus company (or even their main rival) in the center of
the map. It’s also helpful to locate the Market Leaders on the top of the map
to reduce the number of crossed arrows. The map creation is followed by the
interpretation step. Within this step, it’s also helpful to start the
interpretation with the analysis of the position and the behavior of the market
leaders. It’s also useful to observe the subsystems made by smaller competitors,
organized in pairs or in trios, and understand how their interdependency influences
their behavior (D'AVENI, 2002).
Moreover, the competitive pressure
systems must be continuously reviewed due to the dynamics behavior of the
companies, of the markets, and also of the external forces acting in the
system. Therefore, the pressure maps might be compared to a picture that
expresses a single moment of a single market, making it possible to create a
live animation of the changes that occurred through the time by the overlap of
several maps that can be sequenced in chronological order, like a movie. This
technique might give a broader view and understanding of how a Market evolves
and how the competitive pressure system behaves among the competitors (existing
and new entrants) through the years (PEREIRA et al, 2004 apud SCARANELLO &
CARVALHO, 2005).
In 1996, Chen proposed the concept of
Marketing Commonality within the research of Multimarket Contacts, establishing
a fundamental theory of analysis among competitors and inter-firm rivalry. Hsu
and Chen (2006), in their revisited study concerning Competitors Analysis and
Inter-firm Rivalry, described the mathematical formulation of competitive
pressure apparently in a more didactic way than in the model of D’aveni. However,
it’s important to emphasize that this paper doesn’t aim to go deeper into in
the theory of Chen, but make the mathematic formulation of competitive
pressures from D’aveni (2002) easier to apply and understand. For Hsu and Chen
(2006), the definition of Market Commonality mixes with the concept of Competitive
Pressure. If Pbi / Pi represents the
relative advantage company “b” has in market “i” and Pai / Pa portrays the importance of market “i” for company “a”,
then Pai / Pa x Pbi / Pi indicates the competitive
pressure company “b” exerts towards company “a” in the Market “i”. Market
Commonality Mab represents the sum of
pressures exerted from “b” towards “a” in “I” markets. Mathematically, the
theory is formulated by the following equation (HSU; CHEN, 2006).
Mab
= Σ
Ii=1 [Pai / Pa x Pbi / Pi]
By analyzing a single market,
the pressure exerted by company “b” towards company “a” following Hsu e Chen, might
be formulated by:
Pab
= Pai / Pa x Pbi / Pi
Where:
Pab = pressure company “b” exerts towards company “a” in Market “i”
Pai = number of products sold by company “a” in Market “i”
Pa = number of products sold by company “a” in
all the markets
Pbi = number of products sold by company “b” in Market “i”
Pi = number of products sold by all competitors in Market “i”
i = market among the “I” markets covered by “a” and “b”
By adapting the model of Chen into
the competitive pressures of D'aveni, and if Pressure = (Importance of Market)
x (Size of Incursion), then:
IM
= Pai / Pa
SI
= Pbi / Pi
Where:
IM = importance of market “i” for company “a”
SI = size of incursion (penetration) of company “b” in market “i”
This way, it looks like that this
model might also be valid for the study of the competitive pressure systems
mapping in the Brazilian truck Market with small adaptations within the context
being analyzed.
For Bingham (2011), the strategies
associated with the five forces of Porter, which constructs stability and a
fortress around an attractive market, can provide on one hand a long-term
competitive advantage, although on the other hand it only remains valuable
until the terrain shifts and the strategic position is eroded. Nevertheless, for Stambaugh (2011), in the
recent inter-firm dynamics researches, the act of being competitively
aggressive is part of the game to sustain market position and relative
performance so that competitors carefully and continuously monitor and analyze
their rivals, and are motivated to improve their performance by attacking those
firms.
State of the art researches around
competitive dynamics and aggressiveness have also disclosed that in vigorously
competitive industries, the more successful are the competitive attacks, the
faster and stronger are the competitive responses (Derfus et al, 2008
apud Stambaugh, Yu & Dubinsky, 2011). Also, if markets are characterized by
intensive competitive conditions or threatened by highly substitute products,
an aggressive competitive retaliation might be expected. The study of
competitive history of inter-firm dynamics may provide strategic guidelines for
market entrants. Similarly, the study of market entrants may also provide
insights and directions for formulating defensive strategies (KARAKAYA;
YANNOPOULOS, 2010).
Although all the concepts are
closely connected it's important to emphasize that the goal of this paper is
neither to research multimarket overlaps nor aggressiveness or defensive
competitive strategies, but to focus on the competitive pressures mapping
approach in the Brazilian truck market.
For Porter (2004), the majority of
well succeeded global strategies were based on the acknowledgment of the five
forces of market competition. D’aveni (2002) disagrees with the five forces of
Porter affirming that “Unfortunately, managers almost always lack objective
measurements and useful pictures of the pressure patterns they face”. Yet,
D’aveni (2002) emphasizes that “neither these factors explicitly accounts for
the complexities presented by recent multimarket contact research nor for the
variety of pressure patterns that comprise and influence intraindustry
rivalry”.
For D'aveni (2002), the competitive
pressures are asymmetric, meaning that the pressure from company “a”
towards company “b” is not necessarily equal to the pressure from
company “b” towards company “a” because the overlap of contacts
between the rivals may differ in the importance of market, which depends on the
company's customer portfolio. Taking into consideration all the possible
overlap combinations that may exist among several rivals, there aren't two
pressure systems exactly alike.
Porter (2004) also understands that
the differences in strategy might not affect the rivalry in the industry with
the same level of importance, and that the competitive rivalry process is not
symmetric. In this aspect, both authors have a common understanding concerning
about the asymmetrical behavior between two rivals. This way, it looks like that
Pab > Pba or Pba > Pab. Thus, would it
be possible to conclude that the same theory applies in the Brazilian truck
market?
Also, for D’aveni (2002), the
pressure systems can never be frozen. The maximum that can be achieved is a
temporary dynamic stability that might be affected by internal destabilizing
actions or external frictions. Competitiveness in the Brazilian truck market
might also display such behavior? Also, could other indicators than market
share, such as gross revenue and operating profit be effective to analyze the
Brazilian truck market dynamics?
Hypothesis 1: the pressures between
two competitors “a” and “b” in market “i” are asymmetrical.
Hypothesis 2: beyond unit sales,
other performance indicators like gross revenues and operating profits give a
different strategic perspective around the competitive pressures.
Taking into consideration the recent
market contact researches from Segismundo and Laurindo (2006) and the
specialized publications in the Brazilian truck market, it seems that there are
no strong barriers for new entrants. Analyzing this trend, up to 2012, a new
entrant like NC2, a joint-venture between Navistar International and
Caterpillar was foreseen. Such a strategic alliance had the objective to
achieve a market share of 9% of the Brazilian truck market up to 2015 (AUTODATA,
2011).
Hypothesis 3: by employing
competitive pressure systems mapping either a new entrant or an existing rival
might gain superior awareness by visualizing the future hypothetical
competitive dynamics in the market.
Competitive Pressure Systems Mapping
of D'aveni (2002) was chosen as the academic model to analyze and measure
rivalry and competition in the Brazilian truck market from 2008 to 2010 within
three main performance indicators: unit sales, gross revenues and operating
profits. However, from the initial sample of eight truck makers operating their
production units in Brazil, the final sample used for the competitive pressure
systems mapping was reduced to six competitors with market share in the semi-heavy
and heavy truck segments. It seems that only global players like Ford, Iveco,
MAN, Mercedes-Benz (MBB), Scania and Volvo dominate these two market segments, leaving
no space for national players like Agrale, reinforcing the literature review (KEEGAN,
2005). Beyond that, the eighth player – International Trucks, also a big
multinational player – wasn’t considered due to the lack of market share in the
two segments in the period. The other existing segments – light, semi-light,
and medium – and their respective truck makers weren’t considered in this
research.
This research comprises the period
from January 2008 and December 2010 and is based on four main data groups. Firstly,
Brazilian truck makers overall unit sales data was collected from Anfavea –
Associação Nacional de Veículos Automotores – available freely in their website
where all the Brazilian truck makers were identified. Secondly, the number of
truck registrations per maker and per model was collected from Fenabrave –
Federação Nacional da Indústria de Veículos Automotores – also available freely
in their website www.fenabrave.com.br, with the ranking of best registered
trucks in all the segments. The third step focused on the data collection of
truck prices made available in the specialized web magazine O Carreteiro,
freely available at www.revistaocarreteiro.com.br, with the prices for new vehicles
supplied by truck makers and also for used trucks supplied by Molicar – specialized
company in vehicle price research and publication. The fourth step concerned
about the data collection of the average operating margins of the truck makers
available – only for subscribed users – in the report The World's Truck
Manufacturers 13th edition from AutomotiveWorld.com. However,
the report describes only a limited set of average operating margins of
European truck makers from 2005 to 2009. For Ford Motor Company, North American
truck maker, the average operating margin was calculated for the same period of
five years with free data collection at the finance portal Wikinvest.com. There’s
also a limitation in the research regarding data for Ford, which refer to the
overall global performance of the company, not only the commercial vehicles sector.
Data from imported trucks was not collected neither assessed in this research.
Initially, the total unit sales data of commercial
vehicles in the semi-heavy and heavy truck segments was collected from 2008 to
2010 according to Graphic 1.
Graphic 1:
Total unit sales in Brazil from 2008 to 2010 in the semi-heavy and heavy
truck segments. Source: Elaborated by
the authors with data from Anfavea, 2010. |
The data collection of operating margins of each truck
maker was one of the most difficult tasks of this research. As none of the
competitors make their profit margins available in the Brazilian truck market,
then the data regards to global operations and represent the average results
from 2005 to 2009 according to Graphic 2. There was also another limitation
concerning about unavailable operating margin data from Ford trucks so that the
overall Ford Motor Company global margins were used. For Storey (2010),
operating margins from 5-7% probably are the most timid goal that a truck maker
can establish. Moreover, in a dynamically perceived business like the truck
industry, the ability of a company to sustain the profitability over the cyclic
periods of demand is a clear signal that it managed to achieve the correct
driving fundamentals of its business.
Graphic 2:
Global average operating margins from 2005 to 2009. Source:
Elaborated by the authors with data from AutomotiveWorld.com and
Wikinvest.com, 2010. |
The next phase was divided into five
steps: the first one was to build the tables with the best-seller ranking of
truck registrations by segmentation from 2008 to 2010. Then, the prices for new
vehicles were obtained from price tables of each maker and, for the old
vehicles, i.e., 2008 and 2009; the price tables were available in the web
magazine O Carreteiro, built by a specialized price research company named
Molicar. The third step focused on the calculation of the weighted average unit
price per maker, achieved by the sum of the product of unit prices per model
and the amount of registrations per model, divided by the total unit sales per
maker. In the fourth step, the estimate annual gross revenue per maker was
calculated by the product of the weighted average unit price per maker and the
total unit sales. In the last step, the total gross revenue of the period was
obtained by the sum of the annual gross revenues. Then, the unit revenue was
calculated by the total gross revenue divided by the total unit sales per maker
in the period. Finally, the annual operating profit was calculated by the
product of the annual gross revenue and the average operating margin of each
maker. Then, the operating profit per unit was achieved by the total operating
profit divided by the total unit sales in the period. The results are displayed
in Graphic 3.
Graphic 3:
Revenue and operating profit per unit from 2008 to 2010. Source:
Elaborated by the authors. |
The importance of market was calculated by the annual unit
sales of each truck maker in the semi-heavy and heavy segments divided by their
annual unit sales in the Brazilian truck market. The average importance of
market, illustrated by graphic 4, was calculated for the period from 2008 to
2010.
Graphic 4:
Importance of Market from 2008 to 2010. Source:
Elaborated by the authors with data from Anfavea, 2010. |
Six competitors – Ford, Iveco, MAN,
MBB, Scania and Volvo – were assessed according to the mixed models of D'aveni
(2002) and Hsu (2006) presented in the Literature Review. From those models,
the importance of market was treated as the non-random variable and the size of
incursion as the random variable. Also, as the unit sales indicator, i.e.,
market share, is typically expressed in percentage, then the gross revenues and
the operating profits were also converted from Brazilian Real (R$) into a
percentage scale.
Once all the pressures from each
rival were measured, then they were represented in a numeric scale in which the
sum of pressures was equal to 1. Table 2 represents the competitive pressures
mapping in the Brazilian truck market in 2008. The graphical representation of
pressures was based on the symbology taken from the academic model of D'aveni
(2002), also available from other recent researches (SCARANELLO; CARVALHO, 2005;
JANSEN; ROTONDARO; JANSEN, 2005; SEGISMUNDO; LAURINDO, 2006). The chosen focus
company in the symbolic mapping was MAN, which has been the commercial vehicle
leader in the overall Brazilian truck market for eight consecutive years
according to Renavam – Registro Nacional de Veículos Automotores.
Table 2: Competitive Pressures Mapping in 2008
Source: Elaborated by the authors.
The rivalry among the competitors,
symbolically represented by the graphical elements, i.e., circles and arrows in
the map, allows visual and better
perception around competitor's relative size illustrated either by bigger or
smaller circles and the magnitude of the pressures they exert over they rivals
illustrated either by thicker or thinner arrows. The predominant arrow color in
the map highlights the highest pressure exerted among the three performance
indicators assessed, i.e., market share, gross revenue or operating profit.
Figure 1 illustrates the competitive pressure mapping in 2008. Yet, when two
direct comparisons are assessed following the methodology of competitive
pressures mapping, it becomes evident that sizes and pressures are not
necessarily symmetric. Eventually, there might be coincident symmetry, but in
general, the asymmetric behavior of pressures validates hypothesis 1.
One clear example from the picture taken in 2008 is the asymmetric behavior
between MAN and MBB. According to Table 2, Mcd
> Mdc when it comes to market share (blue arrow). This behavior
indicates that the main strategy of MBB in 2008 was to consolidate their sales
presence in the Brazilian truck market in the semi-heavy and heavy segments by
pressuring MAN predominantly in volumes. On the other hand, for MAN, it was
more important to keep their customer portfolio because this strategy would
represent a more aggressive gross revenue and consequently a safe operating
profitability (green arrow) ahead of their rival, forcing MBB to continue
competing for volumes instead of pricing, once MBB operating profit (green
arrow) is acknowledged inferior, and
a price increase policy (yellow arrow) would contribute directly for loss of
customer portfolio (blue arrow).
Figure 1: Competitive pressure mapping
in the Brazilian truck market in 2008. Source: Elaborated by the authors. |
In the transition of 2008 to 2009,
an unforeseen external destabilizing action was noted: the world economy crisis
reached the country and turned on the red light to the Brazilian truck market.
When both competitive pressure maps were compared, it was clear that 2009, year
of crisis and recession in the global scenario, thrust fierce competition among
the rivals towards the sustainability of gross revenue and operating profit.
With the truck demand lowered, most of the competitors focused on internal
improvements in their quality, costs and productivity, but obviously also
reduced their investment levels and were forced to adjust the manpower. The
battle for profit sustainability was clearly perceptible due to the majority of
green arrow pressures. Against the tide, MBB instinctively pressured most of
their rivals with market share (blue arrows), but with the cyclic truck demand
in 2009 that might not be the best competitive strategy. Figure 2 illustrates
the competitive pressures in 2009.
Figure 2: Competitive pressure mapping
in the Brazilian truck market in 2009. Source: Elaborated by the authors. |
Moreover, competitive pressures
between two rivals may asymmetrically vary for higher or for lower depending on
the indicator being assessed. For instance, MBB exerted high pressure over a
MAN concerning about market share (blue arrow) in 2008. Nevertheless, the
pressure over MAN shrunk due to weaker gross revenues (yellow Arrow), probably
affected by a mistaken market positioning, and went down even further in
profitability due to inferior operating profits (green arrow). By comparing two
different pictures represented by 2008 and 2009 competitive pressure maps it
becomes visually perceptible that, beyond unit sales, other performance
indicators like gross revenues and operating profit may also give a different
strategic perspective and overview around the competitive pressures over the
time validating hypothesis 2.
Recent researches around the weak
barriers to entry in the Brazilian truck market indicate that new players have
been working vigorously (RUNOFF, R. & ROMERO, V., 2011). Navistar heavy
truck 9800i is one clear example of this strategic movement. The new player NC2
(a joint venture between Navistar and Caterpillar) is also preparing to launch
a new model in the semi-heavy segment: DuraStar. In order to visualize the
impacts of the threat of new entrants in an established market a hypothetical
future scenario was created from 2010's pressure mapping by assigning to
Navistar flat 9% of market share, gross revenues and operating profitability.
The same figures were proportionally reduced in one third from the top three
best sellers.
Taking into consideration that a new
player can successfully affect either the market leaders or the smaller
players, it can also provoke changes in the pressure system behavior when
compared to a previous picture. Furthermore, it’s perceptible in the
hypothetical map that MBB continues to pressure the rivals with the clear goal
of sustaining their market position, which unleashes immediate response from
the competitors, including the new player. As a new player, it’s expected from NC2
to fight for market share and market consolidation, which is mostly perceptible
against the competitors within the same market size – Ford and Iveco. Also, due
to a superior product maturity, specially dedicated to the U.S market, NC2 have
the power to exert strategic price pressure over MAN, Scania and Volvo –
perceived as premium brands – boosting the gross revenues and operating
profits. Thus, if by employing competitive pressure systems mapping either a
new entrant or an existing rival may gain early and superior awareness by
visualizing the future hypothetical competitive dynamics in the market, then it
validates hypothesis 3. Figure 3 illustrates a hypothetical competitive
pressure mapping with NC2 as a new entrant in the Brazilian truck market.
Figure
3: Hypothetical competitive pressure mapping in the Brazilian truck market. Source:
Elaborated by the authors.
Recent researches around the
Brazilian truck market took into account the analysis of competitor’s product
portfolio, specification and technical differences as well as new market
launches to interpret and present the competitive pressure results (SEGISMUNDO;
LAURINDO, 2006). On the other hand, the utilization of more classic and
generalist metrics in this research lead to a macroeconomic academic
interpretation of the results and took the opportunity to contribute to the
academy with an alternative approach of strategic and behavioral analysis of
rivalry and competition different than the five forces model of Porter, by
using the competitive pressure systems mapping model of D'aveni (2002). The
interpretation of the competitive pressure mapping stimulates the formulation
of several questions around the temporary dynamic stability of the pressure
system, such as: a) is there a competitor or a dominant group of competitors
exerting high pressures? b) the market leaders behave aggressively to each
other or only to the smaller competitors? c) The chosen strategies are
explicit, implicit or inconsistent?
Also, regardless the industry, any
given company is able to develop a new competitive and strategic mind-set by
employing the competitive pressure mapping in order to answer two critical
questions: a) if the current pattern of competitive pressures continue, which
behavior or position the company should make explicit? b) How the company might
create stability (or instability) around the current pressure system in order
to predictably influence the results? With the competitive pressure mapping
focused on the current situation of the market it may create vital answers to
the dynamic stability well as the profitability (D’AVENI, 2002).
Certainly, by choosing other performance
indicators than only the market share, such as gross revenue and operating
profit, directly influenced the interpretation and the analysis of the
competitive pressure results. Despite the limitations and difficulties around
the data collection of regional gross revenues and profitability, a suggestion
of continuation of this research around strategy, rivalry and competition is
the elaboration of the competitive pressure mapping either in the top emerging
and BRICT countries or in the global truck market, but also including a new
approach around state of the art competitive dynamics of inter-firm rivalry and
multimarket contacts, such as defensive and aggressiveness strategies.
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