Good generals make their luck by shaping the odds in their favour

Any firm strives to get a competitive advantage. This advantage may stem from the physical capital resources (the physical technology used in a firm, a firm’s plant and equipment, its geographic location, and its access to raw materials), human capital resources potential (the training, experience, judgment, intelligence, relationships, and insight of individual managers and workers in a firm) and organizational capital resources (a firm’s formal reporting structure, its formal and informal planning, controlling, and coordinating systems, as well as informal relations among groups within a firm and between a firm and those in its environment). However, from the strategic point of view, there is one more source of competitive advantage - the first move.One of the first lessons of the first-mover literature is that pioneering carries both advantages and disadvantages. For example, the first firm in an industry can get the customer hooked on its product. Such an opportunity, of course, is an advantage for the pioneer. On the other hand, a company that is trying to catch up can use investments made by the pioneer firm (in R&D or market research, for example) at no cost. This is one advantage of a late-comer. (The advantages of a latecomer, as a rule, turn into the disadvantages of the first-mover.) This is what advantages of the first and late movers look like.

FIRST-MOVER ADVANTAGES:

Technology Leadership

• Advantages of the "learning" or "experience" curve (costs fall with cumulative output)
• Success in the R&D race (advances in product or process technology are a function of R&D expenditures)Preemption of assets
• Controlling input factors
• Controlling geographic and product characteristic space
• Preemptive investment in plant and equipment Switching costs
• Initial costs that the buyer makes in adapting to the product
• Late entrants must offer "something extra"
• Buyer risk adverse once an acceptable choice found

SECOND-MOVER ADVANTAGES:

Free-rider effects

• In R&D investments
• In buyer education
• In infrastructure developmentResolution of technological or market uncertainty
• Taking advantage of first-mover mistakesShifts in technology or customer needs
• Speed of change leads no one to be the "first mover"
• Customer’s expectations (needs) change too rapidly
• Focusing on the wrong customers (disruptive technologies)Incumbent inertia
• Firm may be locked-in to a specific set of fixed assets
• Firm may be reluctant to cannibalize existing product lines
• Firm may become organizationally inflexible

The overall implications depend on the firm, on who its competitors are, on the economic environment, and these may well turn out to be negative (as in the case with the PC or the VCR) or positive (as it happened with the instant camera or the microprocessor – see Table 1). So, being the first-mover can give some firms advantages under certain circumstances; however, it is not the superior strategy for all entrants.

Product	First-mover	Notable Follower(s)	The Winner
8 mm video camera	Kodak	Sony	Follower
Disposable diaper	Chux	Pampers	Follower
		Kimberly Clark
Groupware	Lotus	AT&T	First-mover
Instant camera	Polaroid	Kodak	First-mover
Microprocessor	Intel	AMD	First-mover
		Cyrix
Microwave	Raytheon	Samsung	Follower
Personal computer	MITS (Altair)	Apple	Follower
		IBM
Personal computer operating system	Digital Research	Microsoft (MS-DOS)	Follower
Spreadsheet software	VisiCalc	Microsoft (Excel)	Follower
		Lotus
VCR	Ampex/Sony	Matsushita	Follower
Video game console	Magnavox	Atari	Follower
		Nintendo
Web browser	NCSA Mosaic	Netscape	Follower
		Microsoft (Internet Explorer)
Word processing software	MicroPro (WordStar)	Microsoft (MS Word) WordPerfect	Follower
Workstation	Xerox Alto	Sun Microsystems Hewlett-Packard	Follower

Anyway, before making the decision whether or not to enter a new market, a company needs to study the specifics of the market. In some markets, the advantages of the first-mover are easier to gain than in others. The same can be said about the advantages of second-mover. Market analysis can be carried out in the following way (see Table 2).

		Mobile phones	Banking	Ice-cream production	Car production
First-mover advantages		Degree of intensity
Pre-emption of raw material	Gaining access to supplies of materials earlier than oth­er competitors	Low	Low	Low	Low
Spatial pre-emption	Gaining access to market segments earlier than other competitors	Low	High	High	Low
Pre-emptive investments	Attracting investments to a project earlier than other competitors	Low	Low	Low	Low
Scale effects	Obtaining economies of scale	High	High	High	High
Technology leadership	Using new technology earlier than other competitors	High	Low	Low	Low
Network externalities	Obtaining advantage due to growing number of con­sumers	High	High	Low	Low
Brand loyalty	Keeping consumers by positive experience (imperfection of information)	Low	Low	High	High
Buyer switching cost	Keeping consumers by developing customer switching costs	High	High	Low	High
Experience effects	Maintaining leadership by accumulating working expe­rience	Low	High	Low	High
Technology diffusion	Maintaining technology leadership due to low technol­ogy diffusion	Moderate	High	Low	Low
Late-comer advantages		Degree of intensity
Uncertainty (both in market and technology)	Avoiding uncertainty of the new market	High	High	Low	Low
Cost advantage	Lowering costs when analyzing the pioneer’s experience	High	Low	Low	High
Free-rider effects	Free use of the pioneer’s investments	High	Low	Moderate	High
Interest of managers	Taking higher risks	High	Low	Low	Low
Government interference	Support from the government, not interested in monop­oly appearance	Low	High	Low	High

In order for a pioneer to appear in a market an opportunity has to emerge. This depends on how much foresight a company and its competitors have, on their skills and luck. However, the probability of a pioneer appearing can be increased, sometimes significantly, with the help of managers’ activities although the emergence of an opportunity for the first-move cannot be controlled by any firm.

A firm has to decide whether or not to invest resources in the search for opportunities in order to gain first-mover advantages, and then whether or not and how to use it. Answers to these questions depend on the specific characteristics of the firm and its skills. Firms whose entrepreneurial vision and new product R&D are excellent will tend to find first-movership attractive, and firms having relative skill bases in manufacturing and marketing may not.