By Dr. Annavajhula J.C. Bose, Department of Economics, Shri Ram College of Commerce (University of Delhi)
As an aspiring student of economics, if you want to move on to complete practical MBA education rather than theoretical economic education, then an interesting researchable curiosity, not discussed in microeconomics discourse, concerns “Market Strategy”.
Also referred to as competitive strategy or business strategy or corporate strategy, market strategy is the manner in which a firm positions itself competitively in a given market.
One way of grasping it is the distinction between Innovative and Adaptive strategies. When faced with intensified new (international) competition, a dominant business organisation can choose from two broad, and very distinct, competitive strategies—one (market-shaping) innovative, and the other (market-defending) adaptive: “The innovative strategy is to plan, invest in, and create more powerful organisational and technological capabilities, perhaps coordinating the organisation’s strategy with privileged access to resources provided by the state. Alternatively, the adaptive strategy is to compete on the basis of productive capabilities from the past.”
Another way of understanding market strategy is via the distinction between High Road and Low Road strategies. Underlying this distinction is the way labour is treated.
Labour cost cutting can be achieved through various measures like: (1) concession bargaining, that is, the temporary or permanent reduction of wages, fringe benefits or other items of worker remuneration, on the understanding that this could save a firm or plant in difficulties; (2) extending operational hours or arranging for flexible working hours more in line with production needs; (3) increasing workloads (that is, making workers work harder, unaccompanied by effort-saving technologies); (4) changes to labour legislation in terms of legal exemption from labour protection regulation; (5) relocating production to areas of lower labour costs or finding cheaper outsourcing of more expensive in-house production; and (6) using and increasing different kinds of non-standard/atypical/precarious forms of employment. Since any of these measures would downgrade labour standards, this is the the ‘low-road’ competitive strategy aka the adaptive strategy. In this low-road approach, which consists of seeking competitiveness through low labour cost and a deregulated labour market environment, institutions and rules aimed at regulating competition are seen as mere straight-jackets, and should be kept to a minimum. Labour cost cutting the Low Road way is said to be the easiest thing to do. And it is actually done by most firms.
In contrast, the ‘high-road’ competitive strategy is the innovative strategy as one of constructive competition in that the economic gains due to efficiency enhancement and innovation can facilitate workforce re-qualification, ‘worker empowerment’, broadening of job content, etc., along with improvement of wages and other rewards, safeguarding of workers’ rights, and provision of adequate standards of social protection, among other things. Labour is not a cost to be minimized but an asset to develop in this strategy. This is said to be difficult to do and is often found to be conspicuous by its absence.
Yet another way of reckoning with market strategy is in terms of Cost Leadership and Differentiation Strategies. This is the most popular typology owed to the Harvard Business School professor Michael Porter. There are two successful ‘generic’ strategies that firms may use to achieve a competitive advantage over other firms in a given industry. They may compete either by becoming the lowest cost producers of a given product or service (the Cost Leadership strategy) or by ‘differentiating’ themselves from other firms on some basis other than low cost that is valued by customers, such as customized service or product quality, in the hope that customers would then pay a premium price for this ‘uniqueness’ (the Differentiation strategy). Further, for each type of strategy, firms can choose to compete in a broadly defined market or to focus on a specific segment of the market.
Cost Leadership is akin to the adaptive or low road strategies and Differentiation is akin to the innovative or high road strategies.
Porter’s typology, however, misses out on a new paradigm of industrial competitiveness, whereby, in fragmented, competitive, unpredictable and uncertain markets, enterprises seek to win customers by competing not only on price, but also on critical selling factors such as better design, product variety, quality and reliability, and speed of delivery, among other things. We may call this the competitive strategy of Sophisticated Cost Cutting, which can be interpreted as a “simultaneity of differentiation and cost leadership strategy” which, for example, is said to be rampant in the car manufacturing industry in the name of ‘lean management’.
These dichotomous and conjugative ideas of business strategy need to be empirically tested and discerned among the strategic choices of micro, small and medium and large enterprises along with the inquiry as to what manufacturing strategies and labour relations strategies are associated with them.
Even more interesting is the experiential recognition lately that some companies have already embraced the counter-intuitive competitive strategy of doing well in making private profits along with social benefits provisioning. These are the companies which have strategized to do the ‘business of humanity” by effectively addressing the humane criteria of safety, quality, environmental sustainability, diversity, gender equality and integrity, and serving the needs of impoverished people in large numbers, especially in developing countries, by doing a rethink of their products and services, technology, and marketing.
You are lucky if MBA education throws concrete light on this for you and gives you opportunities as well to make real world observations in this regard.
Sources: A.J.C. Bose and Saroj Sinha. 2012. Business Strategy and Labour Relations: A Critical Review. The Indian Journal of Labour Economics. Vol.55, No.2.
John C. Camillus, Bopaya Bidanda, and N. Chandra Mohan. 2017. The Business of Humanity: Strategic Management in the Era of Globalisation, Innovation and Shared Value. Routledge.