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First Mover Advantage

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Abstract

First mover advantage is derived from a firm's ability to gain early entry into a new market. Significant payoffs exist when barriers to entry are created. In the early days of the PC industry, Microsoft created high barriers to entry by collaborating with Intel. Today, Microsoft still holds a dominant position with 90% market share of the PC operating system market. Lockheed Martin's early technological and partnership advantage with Russian aerospace companies allowed it to secure a leadership position in the global market for commercial space launches, servicing the satellite industry. The timing of strategic moves into international markets may be critical for success as a result of the positive advantages accruing to first movers. The set of advantages to be gained are costs advantages, preemption of geographic space, technological advantages, differentiation advantages, and political advantages. For first mover advantage, to materialize, it is necessary to create high barriers for competitors to enter the market, be the first to introduce new systems and to, exploit first mover advantage to achieve customer loyalty. There is no first mover advantage where there are low or zero barriers to entry by competitors. Indeed, it may involve much greater risk than being an early follower.
rst mover advantage
Tanya Sammut-Bonnici and Derek F.
Channon
First mover advantage is the benet derived
from a rm’s ability to gain early entry into
a new market. Lockheed Martin was the rst
Western aerospace rm to collaborate with
Russian aerospace companies. Its early techno-
logical and partnership advantage allowed it to
secure a leadership position in the global market
for commercial space launches, servicing the
satellite industry. Volkswagen moved into the
Chinese car industry in the early 1980s and has
secured its position among the leaders in the
country’s domestic market. Royal Dutch Shell
was one of the rst corporations to extract crude
oil in Nigeria in the middle of the last century
and it has retained a dominant position in the
country to this day.
Signicant payoffs exist when barriers to entry
are created. In the early days of the PC industry,
Microsoft created high barriers to entry for
computer operating systems by collaborating
with Intel to make Windows 95 exclusively
compatible with Intel x86 microprocessor archi-
tecture and vice versa. All PCs produced with
the chip came with a complementary installation
of the Windows operating system, which led
to an unprecedented global distribution of the
operating system. The media coined the effect
the “Wintel Advantage.” Microsoft still holds
a dominant position with 90% market share of
the PC operating system market as at November
2012.
The timing of strategic moves into interna-
tional markets may be critical for success as a
result of the positive advantages accruing to rst
movers. The set of advantages to be gained are
as follows:
Cost advantages associated with operating,
producing, or retailing in an overseas
market. Early entry can tie up key raw mate-
rial sources, distribution channels, and other
resources.
Preemption of geographic space such as for
key retail locations or international industry
clusters.
Technological advantages gained by
capturing local skills and resources.
Differentiation advantages obtained from
operating in other countries pertaining
to variance in the methods of operation,
product, and service offering compares to
the host country’s resources.
Political advantages gained from a more
favorable regulatory environment in the host
country.
For rst mover advantage, to materialize, it is
necessary to
create high barriers for competitors to enter
the market;
redene the business to use technology to
fundamentally transform the existing way
of operating, usually to provide a superior
quality of service at a signicantly reduced
cost;
be the rst to introduce new systems,
including the necessary investment to
achieve rapid growth to preempt the position
of any followers;
exploit rst mover advantage to achieve
customer loyalty to a brand position, which
will remain after competitors attempt to
follow.
There is no rst mover advantage where there
are low or zero barriers to entry by competitors.
Being rst is no guarantee of success. Indeed,
it may involve much greater risk than being an
early follower. For example, rst mover advan-
tage did not occur in the internet browser wars
for global dominance in the 1990s. Netscape,
which was the rst mover, lost its market share
to Internet Explorer within a few years of incep-
tion. Internet Explorer’s lead in global market
share is now being challenged by the rapid rise
of Chrome.
First mover disadvantages occur when
skills and know-how of rst movers are easy
to replicate;
copying is easy and customer switching costs
are low;
pioneering is expensive and experience
effects are low;
technological change is so rapid that early
investments rapidly become obsolete.
Wiley Encyclopedia of Management, edited by Professor Sir Cary L Cooper.
Copyright © 2014 John Wiley & Sons, Ltd.
2rstmoveradvantage
See also advantage matrix;barriers to entry and
exit;competitive advantage;time-based competition
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... First mover brands often enjoy more desirable market positioning and larger, more sustained market shares than later entrants (Hotelling, 1929;Robinson, 1988;Robinson & Fornell, 1985;Urban, Carter, Gaskin, & Mucha, 1986). For example, first movers can form partnerships, attain patents, and build infrastructure which raise barriers to entry for followers (Sammut-Bonnici & Channon, 2015). Earlier and more frequent exposure to first mover brands also causes consumers to remember first movers better and form more favorable attitudes towards them (Kardes & Kalyanaram, 1992;Kardes, Kalyanaram, Chandrashekaran, & Dornoff, 1993;Robinson, Kalyanaram, & Urban, 1994). ...
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