Welcome to Growth Strategies, module two, Growth Through Entry. Let me begin with a story of two companies, Airbus and Boeing, two of the leaders in large, commercial aircraft. Back in the late 1980s, early 1990s, both Airbus and Boeing began to explore the possibilities of producing a jumbo-jumbo airliner. Like you see pictured here, we have an airplane that actually has two stories to it, two lines of passengers sitting there, one on top of the other. Now, both Boeing and Airbus started to explore the market potential for such a jumbo-jumbo airliner. And what they came to quickly realize is while there was a market for such an airplane, if both of them produced one on the market, there wasn't sufficient demand for them to be profitable. So really, the market could support only one of these planes ultimately. So a period of about five years ensued where the two companies were jockeying for position about offering such an airplane. Ultimately, Boeing decided not to offer a jumbo-jumbo airliner, and Airbus went ahead with what ultimately became the A380 as you see pictured here. Now, what's interesting about this story is that there was a game being played. There was rivalry, and ultimately, only one was able to enter into the market. And, maybe somewhat ironically, Airbus has not turned a profit with the A380. In some ways, Boeing, maybe by pulling out of that, maybe have done better. And in fact, they put a lot of their effort into what's called their Dreamliner airplane, which may have been more profitable than the jumbo-jumbo A380. The reason I like to bring this story up, because it highlights one of the important elements of growth through entry, which is this element of rivalry between various firms. So let's start with some definitions. First, when we think about growth through entry, we can think about both offering new products and services to your existing markets where you compete. Think of automobile companies, coming out with new model versions of their cars, every four or five years or so. You could also think about growth through entry through offering existing products and services into markets new to the organization. This could be new customer segments, could be new geographic markets, going overseas, opening up international facilities or establishments. So, once again, when we think about entry, it's really important to think about this notion of rivalry. And rivalry is really central to our understanding of business strategy in general. So, we can refer to rivalry as the effect that competing firms' actions have on each others' competitive positions. The give and take as one firm takes an action and the response of another. Now why is rivalry so important? Well, first, rivalry has the potential to drive down margins. One could imagine price competition, as two firms compete to gain a foothold in a market. It could also mean that costs rise. Even in nonprofit organizations like educational institutions, as they compete with one another for the best students and the best faculty and the like, they might end up investing more and more in an attempt to out-compete their rivals. Ultimately, this can be very important because it could selectively eliminate some of the competitors within the industry. And not everybody who enters in a new market segment or enters in with a new product is going to ultimately be successful. So understanding how rivalry impacts those competitive dynamics are important. It goes without saying that a firm that anticipates and addresses the moves and countermoves of their competitors will likely perform better. And so when we think about entry strategies, we want to be thinking about this give and take in rivalry between firms. Now, we have a number of tools at our disposal for gaining insight into rivalry, a classic Porter's five forces analysis. One of the five forces, in fact, is rivalry. Now, what a five forces analysis does is help us predict the overall intensity of rivalry as a result of structural factors. So, take for example, Boeing versus Airbus. At one level, we would expect rivalry be fairly muted because we have, in effect, a duopoly, two dominant firms within the industry. And all else being equal, the fewer number of competitors, the lower rivalry is. If we add others into that mix, rivalry will increase. However, there are other structural factors that increase rivalry within the industry. The fact that any new airplane is a large capital investment increases the likelihood that firms who enter in are going to compete aggressively on price or other factors. Another tool at our disposal is our competitor analysis. Once again, a classic of strategic analysis which allows you to begin to dive deep into your various competitors, identify who they are, and think about what are their capabilities. By knowing this and understanding a little bit about our competitors, we might begin to be able to predict their likely action and reactions to other actions taken by the focal firm. So, when we think about Boeing versus Airbus, there's some interesting differences. Airbus is, in essence, a consortium of a number of national manufacturers in Europe, and receives heavy state funding. One could imagine that that could influence the ability for them to sustain certain strategic actions, versus other firms within the industry. Last but not least, there's a whole class of tools called game theory or game-theoretic analysis. And what game theory allows us to do is to begin to predict competitors' likely actions and reactions based first on the options that they have available to them and the associated future payoffs. And this is a tool that we use in many times to look at such a duopoly situations between two firms, when we know what a potential future payoffs might be and the actions available to them, and then to try to reason back to how they will act moving forward. So, as we move forward here, we're gonna discuss in greater detail how we might apply game theory to our analysis of growth through entry.
