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MOVING EARLY TO EXPLOIT STRUCTURAL CHANGE






 

These triggers result in competitive advantage for those companies who can perceive their significance early and move aggressively to exploit them. In a remarkable number of industries, early movers sustained position for decades. The German and Swiss dye companies (Bayer, Hoechst, BASF, Sandoz, Ciba, and Geigy, later merged into Ciba-Geigy) have sustained their positions as international leaders since before World War 1. Procter & Gamble, Unilever, and Colgate have been international leaders in detergents since the 1930s.

Early movers gain advantages such as being first to reap economies of scale, reducing costs through cumulative teaming, establishing brand names and customer relationships without direct competition, getting their pick of distribution channels, and obtaining the best locations for facilities or the best sources of raw materials or other inputs. Moving early can allow a firm to translate an innovation into advantages of other sorts that may well be more sustainable. The innovation itself may be copied but the other competitive advantages often remain.

Early movers gain the greatest competitive advantage in those industries where economies of scale are significant and where customers are most conservative about switching suppliers. Here, entrenched positions are the most difficult to challenge. The longevity of early mover advantages depends

 


on whether there are subsequent industry structural changes that nullify them. In many branded consumer packaged goods, for example, brand loyalties are long lived and technical change has been incremental. Brands like Ivory Soap, M& M/Mars, Lindt, Nestlé, and Persil have preserved leadership for generations.

Every significant structural change in an industry creates opportunities for new early movers. In watches, for example, the emergence of mass distribution channels, mass marketing, and mass production in the 1950s and 1960s allowed Timex and Bulova (both American) to overtake the Swiss in unit sales. Later, the shift from mechanical to electronic technology in watches provided the discontinuity that made it possible for Seiko, Citizen, and later Casio (all Japanese) to achieve leading positions. The early movers in one technological or product generation may well face disadvantages in moving to the next one, because their assets and skills are specialized.

Yet the watch case illustrates another important principle; early movers will not succeed unless they correctly forecast industry changes. American companies (for example, Pulsar, Fairchild, and Texas Instruments) were early entrants into electronic watches, often from positions as semiconductor producers. However, they bet heavily on light emitting diode (LED) displays. This technology proved inferior to liquid crystal displays (LCD) for less expensive watches and traditional (analog) displays combined with quartz movements for watches in higher price ranges. Seiko chose not to introduce an LED watch at all, but moved early to emphasize LCD and quartz analog technology. The introduction of LCD and quartz paved the way for Japanese firms to take over industry leadership in mass-marketed watches, and for Seiko to become the world leader.