When markets seeking to bolster economic growth liberalize by opening up to foreign competition, incumbent firms can feel threatened and even lobby their government for protectionist measures. But in a time where market liberalization may be inevitable, is there anything incumbent firms can do to protect themselves and improve their performance? The authors address this question by examining a 1991 quasi survey of 3,000 Indian firms facing liberalization. Their findings suggest that incumbent firms can calibrate their response to liberalization by intensifying their own marketing mix through utilizing their individual strengths, such as knowledge of domestic markets (to increase distribution) or prior exposure to foreign markets (to increase promotions) in order to achieve superior performance.
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What You Need to Know
With the appropriate marketing mix response, incumbent firms can better protect their interests in a newly liberalized market.
- Incumbent firms facing liberalization face an array of challenges due to an influx of international competition, including firms with better access to resources, technology, and management.
- Marketers at incumbent firms can utilize their superior knowledge of domestic and/or international markets and adjust their marketing mix to mitigate threats of liberalization and increase their performance.
- Rather than acquiesce to demands for protectionist measures, policymakers should facilitate alliances and trade associations among incumbent and new firms to better support their future.
Many markets are liberalizing by opening up their economies to foreign competition, with the expectation that this will increase economic growth. While foreign competitors with superior technology and management practices pose serious threats to incumbent firms, they also provide them an opportunity to gain new marketing knowledge. How do incumbent firms respond to liberalization? Can incumbent firms’ marketing-mix responses affect their performance following liberalization? Addressing these questions, the authors examine incumbent firms’ marketing-mix responses to liberalization and the impact of these responses on performance, using the quasi-experiment of liberalization reforms in India. Estimation results from a panel of 3,927 firms in the period 1989–2000 suggest that while all incumbent firms intensified their product and promotions in response to liberalization, only incumbent firms with greater domestic market knowledge intensified their advertising and distribution responses. Furthermore, incumbent firms’ marketing-mix responses significantly affect their performance outcomes. The research’s findings extend theory and provide practical guidelines on how incumbent firms can design marketing-mix responses to liberalization to improve performance.
Nandini Ramani, and Raji Srinivasan. “Effects of Liberalization on Incumbent Firms’ Marketing-Mix Responses and Performance: Evidence from a Quasi-Experiment.” Journal of Marketing 83, no. 5, 97–114.