Thursday, October 18, 2012

Is First Movers’ Advantage really a blinder or a blunder for the Einsteins of business?

This criticism was resoundingly supported by well-acclaimed global researchers David Montgomery (Stanford University) and Marvin Lieberman (University of California), who, in their outstanding paper titled First Mover Advantages... stated that “The ability to ‘free ride’ on first-mover investments and resolution of technological and market uncertainty” comes as an advantage to Second-Movers! Putting a nail on the first movers’ coffin is the research by Richard B. McKenzie of University of California, who showed how failure rates across traditional industries for first moving pioneers was an elephantine 71%; first movers also had a pathetic average market share of 6%.

Talking more about numerical conclusions, a well referred research by professors Markus Christen (INSEAD) and William Boulding (Duke University) reads thus, “We found that pioneers in consumer goods had an ROI of 3.78% lower than later entrants. And the ROI of first movers was 4.24% lower than followers in the industrial goods sector. The bottom-line result: Pioneers were substantially less profitable than followers over the long run, controlling for all other factors that could account for performance differences.”

Dorde Kalicanin, faculty of Economics, University of Belgrade, while outlining the myth of first movers’ advantage, notes in his paper titled A Question Of Strategy: To be a Pioneer or a Follower, “Historically, the advantages of being a pioneer have been promoted to a much greater extent than the risks... It is logical that risks associated in a completely new product are greater than those associated with incremental product changes.” Professors Vladmir Smirnov and Andrew Wait, faculties of economics, University of Sydney, also devastated the supposed advantages associated with first movers. Their report titled, Second-movers advantage in a market entry game, conclusively puts forward the fact that each player “prefers to be a follower rather than a leader in the market, perhaps because they can free ride on the other party’s investment... The second entrant into a new market often does better than the first firm that entered. If a firm could commit to being the second entrant it would be better-off.”

Source : IIPM Editorial, 2012.

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