Higher quality and niche marketing are not always the answer.
Foreign competition has become a fact of life in industrialized countries. But the nature of that competition is changing, as new entrants increasingly arrive from countries with dramatically lower costs. Not all such new entrants are alike, say two researchers, so companies will need to adopt strategic responses appropriate to the type of low-cost-country competition.
Andrew B. Bernard, Jack Byrne Professor of International Economics at the Tuck School of Business at Dartmouth, and Peter Koerte, director of corporate strategies at Siemens AG, conducted a survey of 423 manufacturing companies in the United States and Germany to determine how companies respond when competitors come from developing nations whose factor costs — particularly labor — are so low (even after considering lower productivity) they make price wars unwinnable.
What they found is that domestic companies’ strategies vary based on the perceived quality of the new entrants’ products. Their 2007 working paper Strategic Responses to Multiple Dimensions of Low-Cost-Country Competition first confirms that more intense foreign competition increases the need for a strategic response. A push for cost efficiency is always involved, for example, even though no amount of belt-tightening will fully close the cost differential.
That’s when the quality dimension comes into play.