Understanding non-market strategies with a view to the future

Asian stock market image posted by Irobiko Chimezie Kingsley on Meziesblog

First topic is the theory of Non-Market Strategy

The market is frame of relationship, in which the firm positions itself. A market strategy is the set of actions taken with the goal of improving performance to create value. Porter’s five forces model forms a great example for this. Also, in the resource-based view, market strategy means investing in VRIN resources.

However, this is not a sufficient view: the non-market must be taken into account, which is external to the firm and its environment. The non-market environment structures the firms from the outside by social, political and legal influences, e.g. governments, NGOs, citizens, regulators, media etc. The environment is characterized by the four I’s which can be applied to both market and non-market:

  • issues, which is Porter’s five forces in the market, and regulations in the non-market
  • institutions, which is market transactions costs and decision-making in the market, and regulators in the non-market
  • interests, which is profit maximization in the market, and fairness and harmony in the non-market
  • information, which is market research, reputation and advertising in the market, and prejudices, rumor and media in the non-market

Firms must be able to control its opportunities in order to be able to apply non-market strategy. If it cannot control its opportunities, if for example it is totally controlled by market aspects, a non-market strategy will have no impact. The non-market may include voluntary actions, but also involuntary, which the firm cannot influence. Therefore, both market and non-market strategies should be included in an integrated strategy.

Secondly, the impact of non-market strategy on business is discussed.

The non-market can change to hinder the firm, and other firms can use the non-market to hinder the firm. As the non-market is often not transparent, changes and its sources can be unclear. Responding to changes is often useless, so a more active approach is suitable: corporate political activism (CPA), is often seen as negative but are activities that give advantages in the non-market. This activism can merely be seen as lobbying. CPA is done by providing financial incentives (political contribution, soft money), building constituency (stakeholder coalitions, trade associations) or providing information (lobbying, communication with policymakers).


A view to the future

Some topics regarding the future are discussed in this lecture. To start, business is booming.

Regarding globalization, and its driving forces of political, technological, social and competitive factors, these are increasingly important nowadays. The rise of the WTO, increase in FDI, reduction in traveling costs, cultural convergence indicate a larger force towards globalization. However, calls against globalization are also increasing; globalization has increased the difference between rich and poor, and increasing poverty (more people are relatively poor, though world as a whole is more wealthy: the rich are richer). Some organization benefited heavily: many huge multinationals, e.g. Coca Cola or Apple, earn more money than countries as a whole.

Challenges here to maintain the situation as it is today: threats of free-trade, re-regulation, cultural divergence etc.? Also, countries may interact in the market to support its own organizations, resulting in a mixed market and non-market. Furthermore, now developing countries will become developed at some time: attractiveness and low-cost benefits will disappear. The aging of populations in China, Europe and US are just around the corner.

It has been argued, that there is a progression in the choice of business and strategy models, which depend on the environment. We may question whether this is still true in 20 years.