First-Mover Advantage
(chinadaily.com.cn)Updated: 2006-10-09 10:22
The Sony Success Story
In modern times, one of the most famous exemplars of first-mover advantage as a basis for corporate strategy is the Japanese electronics maker Sony. Set up by the legendary Ibuka Masaru in the ruins of Tokyo after the Second World War, Sony built not only its strategy but its entire corporate philosophy around Ibuka's idea of 'doing things that no one else is willing to do'. For Ibuka, as for his friend and successor Morita Akio, developing leading-edge products and getting them to market faster than the competition was not so much a strategy as a personal obsession, and is considered one of the cornerstones of Sony's rapid growth and continued success.
Yet for all this, first-mover status is not without its drawbacks. The first and biggest of these is cost. In order to be a first-mover, an organisation must be a pioneer, and this means incurring costs in terms of time and investment. Technology must be invented, distribution systems have to be established, knowledge about new markets must be learned from scratch, sometimes painfully. For those who comes later to the market, the costs of acquiring all this knowledge can be much lower: products can be reverse engineered to discover their secrets and then improved on, experienced staff can be hired away from the first-mover firm to impart and share their knowledge, and so on.
Another argument concerns risk. It is the first-movers who, without previous banks of experience to draw upon, usually make the worst mistakes in terms of judging whether a product or market will be suitable. Following companies can reduce risk by learning from these mistakes. The various strategies adopted by Western firms entering the China market over the last decade show clearly the divide. Some rushed in as soon as it became apparent that Deng Xiaopeng's 'open-door' policy was here to stay, aiming to stake out their own market positions and capture first-mover advantage. Others, more cautious, chose to wait, convinced that many of the first-movers would get their fingers burned, leaving the late arrivals to capitalise both on the ensuing problems for the first-movers, and the lessons to be garnered from their defeat.
First, But Not Necessarily Most...
Many first-movers do fail. Silicon Valley, the great hotbed of modern American entrepreneurship, is full of histories of companies that had first-mover advantage but still failed; it has been estimated that only about one in a hundred Silicon Valley start-ups survives for more than two years. Why do they fail? There are many reasons, but the most common is that having secured first-mover advantage, they do not devote sufficient resources to keeping it; the following companies learn rapidly from the first-movers and erode their competitive advantage before they are able to consolidate it. The second is that first-mover advantage is no absolute guarantee of success, and for reasons which must remain forever mysterious, late-arriving and sometimes inferior products often take over the market from the first-movers. Even Sony learned this to its cost, when its Betamax video recorder system was driven out of the market by VHS. One of the keys here is to remember another military axiom: 'never reinforce failure'. Once first-mover advantage is gone, it is gone, and no amount of money will get it back.
First-mover advantage is not just about getting there first: speed is necessary to success, but not in itself sufficient. The advantages of being first must be consolidated with resources – money, people and knowledge – to enable the advantage to be maintained and enlarged upon. No advantage lasts forever, and the wise business knows that it is much harder to keep an advantage than it is to get it in the first place. First-mover status must never be a strategy in and of itself, only the prelude to a larger and longer strategic plan.
References:
1. Wikipedia, the free encyclopedia
2. The UK-based
Pearson Education
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