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Describe market and nonmarket strategies. Explain the significance of a nonmarket strategy.
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Business and Its Environment
Edition: 7th
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A business strategy has both market and nonmarket components. A market strategy is a concerted pattern of actions taken in the market environment to create value by improving the economic performance of a firm. A nonmarket strategy is a concerted pattern of actions taken in the nonmarket environment to create value by improving overall performance. A firm that decides to enter a country that has open markets relies primarily on a market strategy. A firm that decides to enter a country that has erected trade barriers needs a nonmarket strategy in addition to a market strategy. An effective business strategy integrates these two components and tailors them to the firm's market and nonmarket environments as well as to its capabilities. Market and nonmarket strategies focus on the pursuit of opportunity and advantage in the face of market and nonmarket competition with the objective of achieving superior performance.
The importance of a nonmarket strategy is related to the control of a firm's opportunities. Opportunities can be controlled by government at one extreme and markets at the other extreme. Nonmarket strategies are more important the more opportunities are controlled by government and are less important, but often still important, when opportunities are controlled by markets. In some industries, such as consumer electronics and computer software, government exercises relatively little control over firms and their activities. In contrast, government exercises considerable control over pharmaceuticals and local telecommunications services. The automobile industry is somewhere in between. One important role of nonmarket strategy is to unlock opportunities controlled by government, as illustrated by the strategies of firms to deregulate the telecommunications industry. Another important role of nonmarket strategy is to avoid the control of opportunities by government, as in the case of self-regulation by companies on Internet privacy protection. In addition to government and markets, two other factors affect opportunities. First, opportunities can be controlled by private politics, which includes actions such as protests, boycotts, and public criticism by activist, advocacy, and interest groups, as well as public sentiment regarding business. The more intense is private politics, the more important is nonmarket strategy. Second, opportunities can be affected by moral concerns, which can require restraint.
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