New Trade Theory Is a Myth

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MGMT2101 Group Essay|


The following essay aims to critically evaluate whether competitive advantage is rooted in the New Trade theory’s first-mover advantages, or if it is a myth. The Digital Audio Player (DAP) and Video Player industries are used as case studies to explore the concepts in question, in relation to the New Trade, Porters and International Product Cycle theories. Findings conclude that it is not the first mover, but the firm who strategically and continuously pursues these advantages that ends up attaining competitive advantage, regardless of their time of market entry. Introduction

According to New Trade theory, there are several first mover advantages that the first mover or pioneer should gain. In order to analyse whether competitive advantage is rooted in the first mover advantage or if it is a myth, one must assess this theory in relation to real life industries. Therefore the video player industry and the DAP industry will be used as case studies to evaluate this debate, in relation to international product cycles, Porter’s theory of national competitive advantage and the New Trade theory first-mover advantages including market pre-emption, defining the standard, pre-emption of inputs, switching costs, rapid technological advancements and proprietary learning. International Product Cycles; an overview of the Digital Audio Player and Video Player markets Proposed by Vernon in 1966, the Product Life-Cycle theory aims to explain the international trade pattern of technological innovation and new products first occurring in major industrialised economies, then relocating to countries of lower costs of production. The product life-cycle theory has three stages of product development, namely new, maturing and standardised product (Hill, 2011). Although its relevance in today’s market has lessened due to multiple manufacturing location strategies and international value chains, the theory can still illustrate trends in markets and presence of players at different stages. In the Digital Audio Player (DAP) industry, first entrants and pioneers survived 2-5 years, including Sahean/Eiger, Pontis Electronics and Diamond-Rio who all entered the market in 1998. Apple entered the market towards the end of the new product stage in 2001, but can be classified as a late entrant. The DAP industry was not in maturity phase until iPod entered, because the sales of DAP players did not start to grow rapidly until iPod was introduced into the market. After the iPod’s introduction, it quickly dominated the market with its market share increasing to near 23% in 5 years (Abel, 2008). Now the market has reached its standardized stage. iPod’s production chain is spread all over the world, with the final assembly point in China but the product engineers and innovators remaining in the US (Sourcemap, 2010).

Source: Abel, 2008.
In the video player industry, Sony was the first to introduce the VCR into the consumer market in 1975 with the Betamax; JVC introduced the rival VHS system in 1978. Despite being the first-mover, Sony lost to JVC in this first format war. Worldwide consumer demand for the VHS format VCR passed the million-unit level in 1978 and doubled annually during the five years 1976-81. When growth began to slow in the mid-80s, demand exceeded 30 million units annually (Rosenbloom & Cusumano, 1987).

Source: Coplan, 2006.
Just as the VCR industry reached its standardised stage, the first DVD was introduced into the market in 1995 (Coplan, 2006). The second format war began between Sony’s MMCD and Toshiba’s SD, and since the final format for DVD was based more on Toshiba’s SD, the DVD is seen as Toshiba’s success (Lee, 2008).

Source: Coplan, 2006.
At the standardised phase of DVD, the high-definition players emerged in 2003. In the third format war of Sony’s Blu-Ray versus Toshiba’s HD-DVD, the industry first mover Sony finally won (Lee, 2008). However, high-definition...
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