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THEORY SUMMARY

Competitors to Competitive Dynamics

A Model of Competitive Rivalry

Competitor Analysis

Two components to assess are Market Commonality and Resource Similarity

The question: To what extent are firms competitors?

● Competitor: high market commonality & high resource similarity

● Combination of market commonality & resource similarity indicate a firm’s direct

competitors

In addition to the drivers of awareness, motivation, and ability, other factors affect the likelihood

a competitor will use strategic actions and tactical actions to attack its competitors.

direct competition does not always imply intense rivalry, as Airline Aliances case below



Case Introduction

Deregulation has brought various changes in functioning of the aviation industry.

Alliances are strategies that are used by the companies while involving partnership.

Strategic airline alliances are dominating in the current air transport industry with the

largest airlines of the world which belongs to the alliance groupings – Star Alliance,

Oneworld, SkyTeam and Wings.

What is StrategicAlliances

IATA (2001) defines an “airline alliance” as follows: three or more airlines participating

in commercial relationship where (i) a joint and commonly identifiable product is marketed

under a single commercial brand; and (ii) this commercial brand is promoted through alliance

and its agents; and (iii) the commercial brand isused to identify the alliance services at

airports and other service delivery.

What Benefits Does Firm Level Alliances Offer

Opportunity to enter new markets faster and cheaper.

Shared risk in business development

Loyalty in operations

Representation at low cost

Provide timely relevant industry information requirements for decisions.

Provide key services that competitors may not have access.

The successful management of

Alliances must begin with the process

leading to the formation. Schreiner,

Kale & Corsten (2009) identify 3

phases :The formation, the design and

post formation phases

Several criterias to selecting the right

alliance partners are Size; Facilities;

Resources; Status; Local identity; Capabilities and competence.

• Partner complementarity

• Partner commitment

• Partner compatibility and fitFormation phase

• Contractual agreements

• Relationship governance structures

Design &

governance

• Use and type of coordination mechanism

• Development of trust and relational capital

• Conflict resolution mechanismPost formation



Although failure rates are said to be high between 30%-70%, Alliances can be key strategic tools

if;

1. They are well cut out and engineered with the right focus

2. If the step approach is adopted to ensure clarity

3. If partners are committed to the outcomes

4. If the governance structure is spelt out concisely and clearly.

5. If the partners benefits mutually form the alliance

6. If resource and organizational knowledge is spread across the partners

7. If there Equity and fairness in the processes involved in setting up the alliance.

What Benefits Does Firm Level Alliances Offer

Opportunity to enter new markets faster and cheaper.

Shared risk in business development

Loyalty in operations

Representation at low cost

Provide timely relevant industry information requirements for decisions.

Provide key services that competitors may not have access.

CONCLUSIONThe overall substantial conclusion is that alliances, despite the form of cooperation chosen and

established among the partners, entail numerous benefits for the airlines and certainly do come

up to the initial expectations. Alliances bring about an increase in passenger traffic with a

parallel increase in load factors and some reduction in costs. Thus, a clear improvement of

revenue is observed, a fact resulting from the combination of the increase in traffic and the

decrease in costs. Fares, on the contrary, do not move along the same course since in certain

cases there is an increase and in others there is no increase.

The questionnaire analysis indicates that both passenger traffic and load factors of all airlines

show clear increase. This in return has positively impacted revenue, while the impact on costs,

even though positive, remains comparatively limited at least on a short -term basis. The impact

on passenger traffic is relatively substantial and has been experienced from one to two years

since the inception of alliance cooperation.



The increase in traffic has mostly been experienced on hub-hub routes. As regards the impact on

fares, the situation remains rather hazy, since the majority of airlines have given ambiguous

answers when asked to state whether there has been increase or decrease of fares.

The greatest benefits from alliances result from the more advanced and integrated forms of

cooperation, just as the one that links the carries of the “Wings” alliance, which is characterised

by the existence of antitrust immunity and the establishment of a joint venture. Most alliances

however, remain “strategic” only in name, at least at their present stage, basing their cooperation

on Code Share and FFP coordination and have not proceeded to deeper integration.

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sum of ch5.docx