Amazon is renowned for its mastery of competitive actions, employing diverse strategies to outmaneuver its rivals and dominate various markets. Amazon's competitive repertoire includes a wide array of actions, ranging from aggressive pricing strategies to innovative marketing campaigns and strategic acquisitions. For instance, Amazon continuously adjusts its prices dynamically to stay competitive, often undercutting competitors and offering customers the best deals. Is it a surprise though that such a company was founded and is headquartered in the United States? How could country factors affect Amazon’s competitiveness?

Research shows the critical role of firms' ability to employ complex competitive repertoires in securing long-term success. Companies with such a complex competitive repertoire are able to use a variety of competitive actions, such as entering new markets, introducing new products, increasing marketing efforts, price and production capacity adjustments and engagement in Mergers & Acquisitions. Moreover, they utilize these actions in ways that are difficult to predict for their competitors. This avoids a repetitive pattern that rivals could easily diagnose and counteract. However, while much attention has been paid to firm- and industry-level determinants of these strategies, the impact of country-level factors remains understudied. How do factors at the national level influence firms' competitive dynamics?

The role of home country competitiveness quality

In our recent cross-country study on firms from 32 countries and over 9,000 firm-year observations, we delved into this question. Specifically, we found that a country's quality of competitiveness factors significantly impacts firms' ability to implement complex competitive strategies. Factors such as high governance quality, strong factor and demand conditions (e.g., a highly skilled workforce, sophisticated customers), high-quality related industries, and a strong rivalry context (e.g., many capable domestic competitors) all play crucial roles in pushing firms‘ ability to employ complex competitive actions. These factors (with slight exception to governance quality) stem from the original Porter’s diamond model and are quite well-known. When disentangling these factors, we find that strong rivalry, demand conditions, factor conditions and related and supporting industries have each strong positive impact, but governance quality itself cannot positively contribute on its own.

The role of investor country background

An interesting additional channel to compensate for potentially weak home country factors lies in foreign investors from countries with high-quality competitiveness factors who can act as enabling bridges, partially compensating for deficiencies in firms' domestic contexts. In that sense, ownership by foreign investors from favorable country backgrounds mitigates the effects of low-quality domestic factors to some extent, though not completely.

Takeaway & Call to Action:

Coming back to the case of Amazon, some of the factors that enabled Amazon’s abilities were likely positively affected by their home country background. In that sense, a different background might have resulted in a different company with different skill sets. But what can be a take-away? For practitioners, our findings offer valuable insights. Managers aiming to enhance their firms' competitive strategies should consider the impact of their country context and explore avenues for attracting foreign investment from countries with desirable characteristics – especially if their home countries lack certain conditions. Policymakers, on the other hand, can focus on improving the business environment within their countries or facilitating foreign investment flows to bolster competitiveness. Ultimately, understanding how country factors shape firms' strategies is key to unlocking sustainable competitive advantage in today's global marketplace.

Author: Philip Steinberg - p.j.steinberg rug.nl

Reference:

Steinberg, P. J., Hennig, J. C., Oehmichen, J., & Heigermoser, J. (2023). How the country context shapes firms' competitive repertoire complexity. Global Strategy Journal, 13(3), 552-580. https://doi.org/10.1002/gsj.1458