Hypercompetition

Fundamentals

Although dynamic environments and intense competition are consistent themes in business literature, the pace of change and competitive pressure has increased over the last several decades. This new environment has been characterized as discontinuous and uncertain, where change is nonlinear and strategic outcomes are less predictable. The most extreme examples of turbulence and competitive complexity are characterized as hypercompetition. In hypercompetitive markets, the traditional goals of cost and quality, timing and know-how, strongholds, and deep pockets have been made less important in an environment where competitive advantages are transient. The pace of change has collapsed the traditional competitive cycle, and equilibrium is impossible to sustain.

The term hypercompetition is now generally used to denote all highly competitive and turbulent markets, industries, and competitors. For example, the mobile phone market is often described as hypercompetitive, based on the relentless, rapid introductory cycles of new models and features.

Note that hypercompetition is a relatively broad concept and therefore is difficult to specify and measure. The claims that hypercompetition is widespread remain largely undocumented, and there are moderating forces against hypercompetition, such as opportunities in new, emerging global markets. Use of the term hypercompetition continues in the business press, primarily in describing rapid changes in high-technology industries, such as tablet computing, but it has also arisen in disparate markets such as rankings for MBA programs.

Hypercompetitive markets can be better understood by looking at the macro level of external drivers. Externally, hypercompetition is enabled by global integration of markets, rapid change in technology, and the combined effect of these forces on the extended value chain, including buyers, suppliers, and competitors. Globalization changes the quantity and quality of the value chain by dispersing it and then integrating activities across borders. These changes set the stage for hypercompetition on an industry-by-industry basis. As a “feedback loop,” intense competition for resources in the value chain and for markets reinforces and accelerates hypercompetitive conditions.

Hypercompetitive markets are also being fueled by rapid changes in consumer demand, the increased knowledge base of firms and workers, the declining height of entry barriers, and the growing number of alliances between firms. Lowered entry barriers affect strongholds, and deep pockets are under attack by cross-border and cross-industry alliances.

At the micro-firm level, a hypercompetitive environment may dictate a new, different strategy. In hypercompetitive environments, the key assumption of a stable market is no longer valid, so the familiar strategic frameworks of positioning in favorable industries or owning valuable and rare resources with the objective of gaining a sustainable strategic advantage may no longer be applicable. Successful strategies in a hypercompetitive market are more akin to the Austrian school of Schumpeter’s creative destruction or a high-speed contingency strategy. The concept of dynamic capabilities may also apply in hypercompetitive environments as a means of quickly reconfiguring, acquiring, or shedding resources. But with hypercompetition, any strategic advantage is temporary, so the only viable strategy may be to keep replacing an advantage—including one’s own advantage. Hypercompetitive strategies are based on advantages that are created quickly, [Page 360]but a competitive lead is temporary and has to be constantly renewed.

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