Importance of Competitive Dynamics of Strategic Groups: Opportunities and Challenges

Abstract

The competitive dynamics of strategic groups perform a major role in shaping the competitive background of industries. Strategic groups are sets of companies within an industry that follow related strategies or have comparable characteristics, such as product offerings, target markets, or geographic scale. Understanding these dynamics is central for firms to spot opportunities and cope with challenges effectively. This paper reviews the literature on the competitive dynamics of strategic groups. It analyses the theoretical underpinnings of competitive dynamics of strategic groups and discusses the central dimensions of the concept, underscoring the importance of competitive dynamics for strategic groups. Our aim is to sum up these perspectives while providing a clear and integrated overview through a systematic literature review. Such systematic literature review was performed using the Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA) method. PRISMA is a framework with evidence-based data designed to help authors carry out a systematic literature review. This systematic literature review sought to consolidate knowledge on this topic. A discussion on the theme is carried out, an ensuing conclusion came up and, finally, avenues for further research are recommended.

1. Introduction

Competitive dynamics concern a company’s strategic actions and the rivalry’s reaction sequences within a competitive business environment. They refer to a series of attacks and counterattacks launched by companies operating in a particular market to strengthen their competitive positions (Rosário et al. 2021). In a competitive business environment, strategic actions by one firm often trigger a reaction from another rival firm. For example, Gillette launched a new three-blade disposable razor in 2003. This action prompted its rival company Schick, a battery giant Energizer Holdings subsidiary, to establish a four-blade razor through a considerable campaign (Ketchen et al. 2004). In response to this counterattack, Gillette filed a lawsuit against Schick for patent infringement. While these companies were attacking and counterattacking each other, Rayovac Corporation acquired their rival shaving products company, Remington Products, in an attempt to increase its competitiveness in the shaving products industry, which would allow it to compete with Gillette and Schick. Competition among companies can have multiple consequences, including determining firms’ strategic behaviors and performance and defining the industry’s evolution. Therefore, Chen et al. (2021) defined competitive dynamics as the study of interactions and interrelationships among companies within a marketplace. These competing firms within the market are referred to as “strategic groups”. Organizations within a strategic group are similar but different from the other companies in the industry. The differential performance allows them to employ strategies that influence industry growth and competition.

Companies within a strategic group have a mutual understanding of their identity, thus facilitating collective action, enhancing reputation, and increasing efficiency. For instance, a strategic group may employ competitive strategies such as collaboration to share ideas and resources and increase its competitive advantage over rival firms. However, competitive dynamics among strategic groups do not always result in positive outcomes. For example, starting a pricing war might result in a dangerous trend that undermines competitors’ financial performance, endangering their survival ability (Gómez et al. 2017). This example is demonstrated in an early 1980s case, where an ill-advised pricing war launched by Braniff Airlines on American Airlines, a much larger rival, led to its bankruptcy (Ketchen et al. 2004). Nevertheless, competitive interaction can result in favourable outcomes when organizational management focuses on enhancing firm performance to promote and safeguard company success.

Within strategic groups, competitive dynamics are influenced by the degree of strategic similarity and the relative resource endowments of the firms. The close strategic positioning within a group means that firms monitor each other closely and respond swiftly to competitive moves, such as price changes, new product introductions, or marketing campaigns.

Rosário et al. (2021) posited that firms within a strategic group engage in competitive actions that are more frequent and aggressive compared to those across different groups. This is because the perceived threat from a direct competitor within the same group is higher, leading to a faster and more forceful competitive response. For example, in the airline industry, budget carriers like Southwest and Ryanair, which belong to the same strategic group, often engage in price wars and rapid service enhancements to outmanoeuvre each other.

The competitive dynamics within strategic groups can significantly impact the performance of the firms involved. Firms that effectively anticipate and respond to the competitive actions of their rivals can achieve superior performance (Chen et al. 2021). However, the intensity of competition within a strategic group can also lead to diminishing returns if the rivalry becomes excessively destructive, eroding profitability for all players involved.

Cheng (2017) suggested that firms can improve their competitive positioning by differentiating themselves even within their strategic group. By creating unique value propositions or exploiting niche markets, firms can reduce direct competition and enhance their profitability. Additionally, leveraging distinctive resources and capabilities can help firms build sustainable competitive advantages that are harder for intra-group rivals to replicate.

Strategic group mapping is a useful analytical tool for visualizing the competitive landscape within an industry. This technique involves plotting firms on a two-dimensional graph based on key strategic dimensions, revealing clusters of firms that form strategic groups (Rosário et al. 2021). Such maps help managers and analysts identify direct competitors, mobility barriers, and potential strategic spaces that are underserved.

For instance, in the automobile industry, strategic group mapping might reveal distinct clusters such as luxury car manufacturers, economy car producers, and electric vehicle innovators. Each of these groups faces different competitive dynamics and strategies.

Understanding competition and competitive dynamics also within strategic groups provides valuable insights into the nature of intra-industry rivalry and firm performance. Firms within the same strategic group engage in more direct and intense competition due to their similar strategic approaches and market positions. By effectively managing these dynamics and differentiating their strategic offerings, firms can enhance their competitive advantage and achieve superior performance.

The aforementioned argument gave rise to the following research question:

What are the main opportunities and challenges on competitive dynamics between strategic groups? This literature review examines the competitive dynamics between strategic groups, identifying potential opportunities and challenges to provide critical insights.

This study is organized into the following sections: Section 1, the introduction; Section 2, which includes methodology, data collection, data analysis, and data visualization; Section 3, the discussion; and Section 4, the conclusions.

2. Methodology

The researcher used a systematic bibliometric literature review (SBLR) methodology to discover viable, relevant studies and consolidate findings. SBLR was employed in this research based on the description from Linnenluecke et al. (2019) of this methodology as a rigorous way of evaluating and studying vast amounts of data to find changes, patterns, and crucial insights helpful in promoting further improvements. The scholar also reflected on the importance of systematic literature reviews in supplying practitioners and policymakers with knowledge and direction regarding the appropriate course of action. Various researchers have voiced their frustrations with the concept of strategic groups and their practicality, citing issues such as insufficient theoretical underpinnings, unsatisfactory model specification, and unsystematic selection of strategic dimensions used to form groups (Gómez et al. 2017). Based on the description from Linnenluecke et al. (2019) of SBLR, this research will identify and synthesize critical insights from multiple studies that will create a better understanding of the competitive dynamics of strategic groups’ topic, enabling business practitioners to adopt appropriate strategies to leverage the concept’s opportunities and overcome potential challenges.

The use of the SBLR review process is divided into 3 phases and 6 steps (

Table 1. Process of systematic SBLR.

Fase	Step	Description
Exploration	Step 1	formulating the research problem
	Step 2	searching for appropriate literature
	Step 3	critical appraisal of the selected studies
	Step 4	data synthesis from individual sources
Interpretation	Step 5	reporting findings and recommendations
Communication	Step 6	presentation of the SBLR report

), as proposed by Rosário and Dias (2023a, 2023b).

Such a path is carried out to spot a peculiar theme, the associated set of publications, and the authors of the resulting journals. With respect to the building and visualization of bibliometric maps, the analysis means we assumed was the VOSviewer that, in contrast with other bibliometric instruments (e.g., Biblioshiny and CiteSpace), is based on broad bibliometric maps that are easier to clarify, manage, and exhibit. Those features, in addition to its open-source access, have turned VOSviewer into one of the most widely used software for this type of bibliometric analysis.

Therefore, in a more disaggregated fashion, the research model we contended to achieve the proposed research goal, aforementioned, is depicted in detail in Figure 1.

2.1. Data Collection

The literature review was conducted according to the principles specified in the Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA) framework, which includes processes for identifying, screening, and assessing the eligibility of studies (Moher et al. 2009).

2.1.1. Setting the Academic Databases and Other Sources of Documentation

The literature search process began with identifying the adequate databases, which, in this case, were Scopus, WoS, and Science Direct, which are extensive peer-reviewed article databases of academia for indexed scientific and/or academic documents and, therefore, were chosen to carry out this SBLR. They are acknowledged for their wide coverage of journals across varied themes, offering a complete view of academic outcome ahead of traditional journal articles while being appropriate for interdisciplinary research. Conversely, they offer robust bibliometric analysis tools that make them worthwhile for researchers involved in H-index calculation, citation analysis, and other bibliometric displays. Finally, in spite of the bias towards English, those databases index publications from worldwide, delivering an overall viewpoint and represent the principal indexing databases for academic/scientific documents. Lastly, the choice of these databases relied upon the explicit interdisciplinary needs of this research.

Nonetheless, we believe that this study is incomplete in this sense, as it was mounted in such methodological criteria while excluding other academic and scientific sources.

2.1.2. Setting the Search Parameters

The search parameters used comprehended the thematic field, the language of publication, the geographical area, the period of publication, and the type of literature. We mainly searched for literature in English on the theme, with economic and environmental nuances. Concerning the time scope of the publications, it ranged from 1997 to 2023. Peer-reviewed academic and/or scientific publications up to December 2023 were included in the literature search.

2.1.3. Setting Keywords and Designing the Queries

The selection of keywords constitutes a principal stage in the process of a bibliometric analysis of a research issue, which, in this case, was the competitive dynamics of strategic groups. The drive underscoring the selection of words depends on the distinct conceptualization of ‘competitive dynamics of strategic groups’, that is, ‘a series of attacks and counterattacks launched by companies operating in a particular market to strengthen their competitive positions’ (Rosário et al. 2021), in which the interactions and interplay amongst sets of companies within a marketplace are studied (Chen et al. 2021). Such conceptualization led to the classification of the following keywords: “competitive dynamics” and “strategic groups” that embrace the whole dataset we want to encircle.

The literature search process began with the keyword “competitive dynamics”, resulting in 4669 document results in both databases, as shown in Figure 2.

The Scopus, Web of Science, and Science Direct databases were used to identify potential studies. The literature search process started with the keyword “competitive dynamics”, resulting in 4669 documentary results in the databases, as shown Figure 2. However, adding the exact keyword “strategic groups” reduced the document results to 45, and later, duplicate documents were removed, leaving 30 scientific and/or academic documents.

The PRISMA 2020 statement supersedes the 2009 version, introducing updated reporting guidelines that mirror progress in the methodologies for identifying, selecting, evaluating, and summarizing studies (Page et al. 2020).

To sum up, relevant academic databases were chosen, bibliometric search parameters were set, keywords selected, bibliometric database queries designed, and the criteria for filtering the results established (Figure 2). It was assumed that the consequent results would be exported to be analysed, interpreted, and displayed.

Content and theme analysis techniques were used to identify, analyse, and report the various documents as proposed by Rosário and Dias (2023a, 2023b). The 30 scientific and/or academic documents indexed in Scopus Web of Science and Science Direct were later analysed in a narrative and bibliometric way to deepen the content and possible derivation of common themes that directly respond to the research question (Rosário and Dias 2023a, 2023b).

2.1.4. Refining by Filtering the Initial Results

To identify, collect, analyse, and report on the different documents, as proposed by Rosário and Dias (2023a, 2023b), content and thematic analysis techniques were used. To keep up with an accurate mapping, filtering the articles selected above, the above-mentioned results from the generated queries were segmented into distinct types of literature.

The 30 academic and/or scientific documents included in the databases were then examined in a narrative and bibliometric way to scrutinize the content and possibly derive common themes that directly addressed the research question (Rosário and Dias 2023a, 2023b).

Of the 30 selected documents, 26 were articles, 1 book, 1 conference paper, and 2 reviews.

2.2. Data Analysis

Drawing upon the initial research question, this stage comprehended the analysis of the evolution of the research interest in the issue over time, the principal research areas in which the theme has been investigated, the countries where the theme has been more widely discussed, the main publications on the topic, and the crucial papers and their authors on the issue of competitive dynamics of strategic groups.

We settled the analysis of the data from the aforementioned data collection output until this point into the following sections: year of publication, scientific category, authors’ countries, most relevant sources, and most cited authors and articles.

2.3. Year of Publication

Peer-reviewed articles on the importance of competitive dynamics of strategic groups were collected until December 2023. The year 2019 had the highest number of peer-reviewed publications on the subject, reaching 4. Figure 3 summarizes the peer-reviewed literature published until December 2023. The publications were sorted out as follows: Journal Of Management (3); Strategic Management Journal (3); Cuadernos De Gestion (2); Industry And Innovation (2); and the remaining publications with 1 document.

In 2022 and 2023, there were no publications (Figure 3).

2.4. Geography of Publication

Likewise, Figure 4 depicts the geographies more prolific regarding pieces of literature in the topic. By far, the USA came up with the highest levels of scientific output in related fields, followed by Spain, Chile, Canada, Western Europe, Japan, and Nigeria, among those holding publications on the subject.

In

Table 2. Process of systematic SBLR.

Title	SJR	Best Quartile	H Index
Academy of Management Annals	14,780	Q1	82
Academy of Management Journal	10,870	Q1	336
Strategic Management Journal	9440	Q1	300
Strategic Management Journal	9440	Q1	300
Academy of Management Review	7620	Q1	284
Journal Of Management	7120	Q1	241
Quantitative Marketing And Economics	2880	Q1	34
Transportation Research Part E Logistics And Transportation Review	2840	Q1	122
Strategic Organization	2720	Q1	64
Asia Pacific Journal of Management	1320	Q1	83
Management Decision	1160	Q1	106
Management Decision	1160	Q1	106
Industry And Innovation	1040	Q1	66
Journal Of Management Education	0.640	Q2	51
European Journal Of International Management	0.530	Q2	28
Strategic Change	0.500	Q2	20
Managerial And Decision Economics	0.340	Q3	55
African Journal Of Economic And Management Studies	0.330	Q2	21
International Journal Of Business Environment	0.310	Q3	7
Cuadernos De Gestion	0.240	Q3	13
Espacios	0	- *	21
Picmet 2018 Portland International Conference On Management Of Engineering And Technology Managing Technological Entrepreneurship The Engine For Economic Growth Proceedings	0	- *	7
Competitive Dynamics In The Global Insurance Industry Strategic Groups Competitive Moves And Firm Performance	- *	- *	-*
Aposta. Revista de Ciencias Sociales	- *	- *	- *

* data not available. Source: own elaboration.

we analysed the Scimago Journal and Country Rank (SJR); the best quartile and the H index by the Academy of Management Annals was the most quoted publication with 14,780 (SJR), Q1 and H Index 82.

There is a total of 13 publications in Q1, 4 in Q2, 3 in Q3, and none in Q4. Publications from best quartile Q1 represented 54% of the 24 publications titles; best quartile Q2 represented 17%, and best quartile Q3 represented 13% of each of the titles of 24 publications. Finally, 4 publications without indexing data represented 17% of publications.

As shown in Table 2, the significant majority of publications were indexed in Q1.

The subject areas covered by the 30 scientific and/or academic documents were business, management and accounting (30); economics, econometrics, and finance (8); decision sciences (5); social sciences (5); engineering (2); and computer Science (1).

2.5. Data Vizualisation

The bibliometric study was carried out to investigate and identify indicators of the dynamics and evolution of scientific and/or academic data in documents based upon the main keywords (Figure 4). In here, we may notice clearly the most of network nodes. The node size represents the occurrence of the keyword, i.e., the number of times the keyword occurs. Also, the link between the nodes indicates the co-occurrence between the keywords, i.e., keywords that occur simultaneously or occur together, and its thickness, in turn, reveals the occurrence of co-occurrences between the keywords, i.e., the number of times the keywords occur together or co-occur.

In these illustrations, the larger the node is, the greater the occurrence of the keyword is, and the thicker the ensuing link between the nodes is, the greater the occurrence of co-occurrences between the keywords is. Each colour depicts a thematic cluster, in which the nodes and links can be utilized to clarify the topic coverage (nodes) of the theme (cluster) and the correspondent relationships (links) between the topics (nodes) that lie beneath that theme (cluster).

The results were extracted from the scientific software VOSviewer 1.6.18, which aimed at identifying the principal search keyword “Importance of Competitive dynamics of strategic groups”.

The research was based on scientific and/or academic documents on the importance of competitive dynamics of strategic groups. In Figure 5, we can examine the linked keywords, and thus, it is possible to highlight the network of keywords that appear together/linked in each scientific article, allowing us to identify the topics studied by research and identify trends in future research.

Finally, in Figure 6, a profusion of bibliographic coupling with a unit of analysis of the documents is presented, which allows for interactive exploration of the co-citation network, enabling us to navigate through the network, discovering patterns within the ‘competitive dynamics of strategic groups’ along authors (Figure 7).

To summarize, the hereby chosen methodology ensured precision and the availability of adequate data for other researchers wishing to further work upon this review. Additionally, by addressing these issues, the methodology attained coherence and augmented the overall validity and reliability of the results. We consider, thus, that the guidelines established for systematic reviews and meta-analyses were followed, resulting in a high methodological standard, further discussed below.

3. Discussion

One of the main objectives of a strategic management study is to reveal how competitive actions might assist businesses in creating sustainable advantages and enhancing performance. Examples of such moves include introducing new products before rivals or cooperating with a competitor in a foreign market. However, these actions often attract reactions from rival companies within the industry, resulting in competition that leads to innovations and progress (Baum and Korn 1996). Regardless of the particular competitive action done, it is crucial to understand that these actions do not happen in a vacuum. Each move must be coordinated with others to reinforce the firm’s strategies, and each action must be assessed for the potential reaction from competitors (Livengood and Reger 2010). This argument implies that a company must anticipate a response from rival firms whenever it implements an action. Therefore, the competitive dynamics of strategic groups are characterized by flexibility, temporary achievements, and the ability to adapt and integrate innovations to counterattack potential actions and reactions from companies in the industry (Schimmer 2012). Every company within any given sector must be ready to fight for its position in the industry by employing competitive strategic activities. Based on these aspects, this section evaluates the concepts of dynamic competitiveness and strategic grouping to demonstrate their interrelation and collective impact on the industry and organizational performances.

3.1. Competitive Dynamics

Competitive dynamics are produced by a chain reaction of moves and countermoves among businesses in a given industry. These action/reaction dynamics depict how businesses typically and creatively operate in their search for profitability. To boost or improve revenues, competitive advantage, and industry position, companies use innovative actions such as launching new products, promotions, or marketing agreements. Competitors try to stop or copy successful acts, including measures that bring in new clients and money, which encourages competitive retaliation (Rebière and Mavoori 2019). These activities result in a cycle of competitive strategies employed by different companies to achieve competitive advantage over others. In this regard, the study of competitive dynamics examines how company actions (moves) impact rivals, build a competitive edge, and enhance performance.

Sometimes, the pattern of conduct might be more refined and prosperous, where the actions and reactions can escalate among enterprises and negatively impact the industry’s performance. This unhealthy competition occurs when companies launch misguided moves, such as price wars, where a company lowers its prices to attract customers (Park et al. 2016). In such a case, a countermove by a smaller company to lower its prices to maintain its position and competitiveness can undermine its profitability, leading to negative consequences such as substantial losses and bankruptcy. Therefore, competitive dynamics are beneficial only when companies launch moves and countermoves that result in improvements such as increased value and technological advancements (Chen 2009). For instance, progress occurs when a company analyses a rival firm’s products and uses the insights to improve the value of its offerings. Thus, companies need to understand the impact of their strategic decisions and avoid dangerous attacks and counterattacks.

Most research on competitive dynamics is framed using Schumpeterís theory of creative destruction. Joseph Schumpeter created the idea of creative destruction in 1942 to explain the dynamic market process by which enterprises act and react in search of market opportunities (Tülüce and Yurtkur 2015). The scholar defined creative destruction as the inevitable and eventual market fall of top-performing companies in the market caused by competitive moves and countermoves. In this dynamic environment, leaders’ innovative efforts to seize new opportunities draw responses from competitors who try to undermine the benefits that the leaders are after. For example, suppose a leading company identifies a new market for its products and develops a strategy to seize the opportunity (Gómez et al. 2020). A rival company may react by partnering with a local firm within the market to exploit the opportunity, thus undermining the other company’s ability to maximize benefits. However, Barker et al. (2021) explained that leaders’ and challengers’ actions and reactions define their long-term performance and survival. In this regard, the moves and countermoves may have temporary achievements, indicating that firms intending to achieve long-term success must ensure that the actions and reactions are strategic and aligned with their target customers’ needs and desires, and organizational capabilities. This notion means that while competition is a critical determinant of a firm’s performance, leaders must examine the internal and external environments before implementing any actions or reactions to avoid potential negative consequences. As a result, some strategic decisions benefit from delays in retaliation. On the other hand, this argument also indicates that innovative first-moving enterprises may enjoy temporary monopolistic advantages and abnormal profits if rivals take longer to respond. Competitive dynamics has therefore to do with opportunities in terms of understanding the competitive behaviour with regard to inter and intra-group analysis in how companies with parallel strategies and market positions behave in response to contextual triggers (Chen 2009).

3.2. Characteristics of Competitive Dynamics

Competitive dynamics research indicates the presence of multiple considerations in making strategic moves and countermoves. For instance, a company engages in competitive behaviour to protect or strengthen its competitive advantages or to strengthen its market position, which is countered by competitive reactions (Chen 2009). In addition, strategic actions and responses demand a considerable investment of organizational resources, are challenging to carry out, and are challenging to undo. These aspects reflect various characteristics of competitive dynamics, including competitive interdependence, specific and actual behaviours or actions of firms in the marketplace, and performance consequences of the actions and reactions.

3.2.1. Competitive Interdependence

Competitive dynamics are driven by interfirm rivalry, where companies within an industry make competitive moves and countermoves to strengthen their position in the market. Therefore, strategic decisions within individual companies depend on the decisions and actions of other firms, thus creating competitive interdependence (Christensen et al. 2003). As a result, competitive dynamics research is based on the conviction that the performance impacts of a company’s action or strategic move are based on the competitive context in which it is implemented. With that in mind, it can be said that businesses are not autonomous; instead, they are aware of each other’s movements and are prone to interaction (Chen and Miller 2012). Because of this interdependence, businesses operating in the market must anticipate how their competitors will respond to changes in output, prices, or non-price competition. This concept is depicted in Schumpeter’s theory as the cyclical flow of competition of the dynamic action/reaction environment, a crucial component of commercial competition and oligopoly behaviour.

3.2.2. Behaviours or Actions of Firms in the Marketplace

Organizational actions allow companies to position themselves in a target marketplace and build resource advantages. Actions are distinctive in that they occur at a particular time and location (Baum and Korn 1996). For instance, a business may launch a new product, provide a free product service contract, launch a new marketing campaign, or drastically reduce pricing to obtain more market share and profits. Each of these activities should be unique in terms of the time they are implemented (it could be daily, monthly, or annually) and the location (targeting different markets for different actions) (Christensen et al. 2003). These behaviours ad actions will determine an organization’s performance in a specific market. For example, launching a new product with low competition is more likely to result in higher positive outcomes. Similarly, good timing of promotional activities increases a company’s ability to reach the target audience, leading to higher conversions and improving its position in the market (Chen and Miller 2012). With this emphasis on action, the timing of actions and responses has emerged as a crucial variable with a significant explanatory value. Additionally, studies have examined the impact size in terms of the number of markets or clients impacted and the effect of multimarket competition on rivalry.

3.2.3. Performance Consequences of the Actions and Reactions

This characteristic concerns the causes and consequences of actions and reactions adopted by various companies in the market. For instance, Bennett and Pierce (2016) found that introducing new products into the marketplace by competing firms through competitive imitation reduces first movers’ profits and overall performance. In addition, the timing and order of these new products’ introduction influence the industry structure (Chen and Miller 2012). This argument implies that actions and reactions can change market positions where a company that enjoys a considerable market size loses it to another competing firm following competitive moves that attract customers, such as the introduction of innovative products or price reduction. This argument was evidenced in Casile and Wheeler’s (2005) research, indicating that despite the apparent advantages that market-leading enterprises enjoy, competitors succeed far more frequently than is generally believed, provided that they implement competitive, well-informed, and structured strategies. Furthermore, the researchers indicated that once the leading companies’ performance and status in the market begin to decline, it quickly turns into a “downward spiral” from which very few recover. Therefore, while the actions and reactions often result in innovations and higher value offerings, they can also have disproportionate impacts on the firms in an industry, with some winning and others losing.

3.3. Strategic Groups

A group of companies in a given industry that is more comparable to one another than to other companies in the same sector is known as a strategic group. This group shares similar approaches, areas of focus, and available resources. The term “strategic group” was coined by Hunt in 1972 to explain the performance differences between companies within the US home appliance sector (Adejuwon 2014). It reflects a set of competing companies within an industry characterized by shared resource commitments and scope combinations. Cheng (2017) explained that the idea was developed from analysing organizational performance based on the interrelation of the industry structure and strategic conduct. Hunt noted the competitive conflicts between strategic groupings in an industry fuelled by asymmetric rival strategies like positioning, price, production, or distribution agreements (Ebbes et al. 2010). Asymmetric competition occurs when firms are considered competitors in specific contexts or markets but not others. It indicates that if firm A can be B’s main competitor, B does not necessarily have to be A’s main competitor. This is because a firm’s competitiveness can be determined by multiple factors, including market power, differentiation, efficiency, and multimarket contact (Fiegenbaum et al. 2001). In addition, these asymmetries characterize rivals’ diverse strategic positions within an industry and provide limits that keep successful businesses from being invaded by their close competitors.

Research on strategic groups has identified their three major characteristics: (1) companies within a strategic group employ similar strategies leading to comparable strategic dimensions, (2) strategic group members compete with one another instead of other companies within the industry since they possess similar resources, and (3) the similarities depicted in features (1) and (2) are likely to similar performance among these strategic group members (Adejuwon 2014). However, some researchers, such as Cheng (2017), have indicated the prevalence of rivalry within and between strategic groups, performance differences, and variations in stability. This counterargument demonstrates that despite the similarities, including equal access to resources, companies within a strategic group can record different performance results, which can be the basis for rivalry.

3.4. Factors Causing the Formation of Strategic Groups

The formation of strategic groups can be interpreted from various perspectives. For instance, Ketchen et al. (2004) explained this from the standpoint of shared identity. The scholar defined a strategic group identity as a collection of shared perceptions among group members about the group’s essential, lasting, and unique traits. Once formed, a solid strategic group identity distinguishes the group and makes it easier to work together, increase productivity, and improve reputation (Schimmer 2012). However, strong identification can lead to rigidity and constrictive thinking, thus affecting performance and productivity. Another aspect identified as a driving force in strategic group formation is imitation, where companies copy each other’s formats, especially those in close geographic proximity. Other common factors repeatedly identified in research include the following.

3.4.1. Technology

Decisions regarding product and process technologies help in defining strategic groups. According to Adejuwon (2014), the status quo in the competitive environment has been significantly altered by improvements in product and process technologies. As a result, these technologies have disrupted industry structure. In addition, technology has given businesses a chance to accomplish critical strategic goals by reducing production costs and advancing product development (Moreira 2021). Similarly, the impact of technologies in forming strategic groups was evidenced in Cheng’s (2017) research, which indicated that companies can be classified based on specific technology configurations and strategies implemented. In this regard, companies using similar technologies and processes are more likely to be categorized in the same strategic group.

3.4.2. Clustering

Clusters refer to companies located in the same area and can lead to unusual competitive success in specific fields. Ketchen et al. (2004) explained that direct rivals and related entities, such as suppliers, universities, and complementary businesses, can be found in clusters. For example, the concentration of high-tech companies in Silicon Valley and entertainment companies in Hollywood, California, are examples of regional clusters. The existence of related firms in a specific location, often facilitated by critical factors such as access to raw materials, capital, human resources, or government initiatives, leads to the establishment of strategic groups (Yánez-Jara et al. 2019). Regional clusters provide two primary advantages: production benefits from business-to-business information flows facilitated by close proximity. The existence of such information flows and their use to cluster members’ success is supported by several studies. For instance, Fiegenbaum et al. (2001) acknowledged that knowledge transfer improves performance for clustered businesses. The second benefit comprises increased demand within clusters. Research shows that the location of similar firms in the same area attracts clients since clustering becomes a positioning tool. However, suppose the firm concentration is too high. In that case, fierce resource rivalry may lead to less desirable results, indicating managers need to devise ways to balance the costs and advantages of cluster membership.

3.4.3. Asymmetrical Regulations

Asymmetric regulation often means that some limits apply to a business or group of companies in an industry, typically the one with substantial market power. However, these restrictions are not imposed on other less-dominant firms, such as new entrants (Mas-Ruiz et al. 2014). From a strategic perspective, this asymmetrical regulation results in the emergence of two categories of businesses, regulated and unregulated. Adejuwon (2014) explained this situation by indicating that market-dominating companies often impede market mechanisms through their large-scale operations and unmatched revenues that give them substantial power and make them a primary target for regulations. As a result, the dominant businesses become subject to various regulatory restrictions they would not otherwise face in an unregulated market. Consequently, the business environment in such a case favours unregulated enterprises, allowing them to thrive and leverage multiple opportunities in the market.

The asymmetrical regulation prompts the regulated businesses to focus on lessening the adverse impacts of the set restrictions. In this regard, regulated companies may use cost-cutting techniques and product innovation to reduce the burden of regulation. On the other hand, Ebbes et al. (2010) indicated that uncontrolled businesses focus on taking advantage of artificial competitive advantages and avoiding regulatory classifications that result in extensive and expensive regulatory burdens. Similarly, Adejuwon (2014) contributed to this notion, arguing that most uncontrolled businesses prefer to remain small to avoid becoming too big, a move that would result in them losing the advantages of regulatory protection, such as the ability to charge higher prices than regulated businesses. These activities of regulated and unregulated companies in a given sector, using similar tactics, give rise to strategic group formation.

3.4.4. Asymmetries of Scope

One crucial factor to consider in a company’s growth strategy is scope, both in terms of its product line and geographic markets. Asymmetries of scope may occur due to multiple issues, including diseconomies of scale that promote businesses to avoid offering their products or services in specific geographical locations (Zucchini et al. 2019). In addition, regulators may ban some firms from offering their products and services in particular markets to avoid excessive competition that can lead to extreme competitive moves, such as reducing prices at the expense of quality. As a result, Fiegenbaum et al. (2001) identified growing sales of existing products in current or new geographic markets or segments as an example of market expansion methods that influence scope. The correlation between scope and formation of strategic groups was illustrated in Adejuwon’s (2014) study, which explained that businesses categorized in the same strategic group have comparable scope obligations with regard to the variety of market groups targeted and the sorts of products and services provided. As a result, companies whose scope commitments are similarly constrained by legislation, for example, regulated enterprises within a market, may act in a similar strategic manner.

3.5. Opportunities of Competitive Dynamics of Strategic Groups

The interactions and interrelationships between companies in a strategic group with competitive markets create opportunities that can be leveraged to improve organizational performance and productivity. For example, collaboration between companies facilitates entering new markets and results in higher growth and success. This section analyses the multiple opportunities with competitive dynamics of strategic groups and how they can be leveraged for higher competitive advantage.

3.6. Mutual Forbearance

Mutual forbearance refers to an organization’s decision to give up control of a product or geographic market to a competitor in exchange for another market or product. This opportunity reduces rivalry between companies in a strategic group and improves performance for the firms involved. This concept is based on multipoint competition theory, which argues that competition occurs in more than a single setting since firms can compete across products, geographic regions, or market segments. Smith et al. (1997) used this concept to illustrate how a firm’s capacity for resource sharing across units and multipoint contact influences its efficiency, competitiveness, and profitability. Companies sharing resources to gain economies of scope are more likely to experience higher competition in the marketplace as other companies attempt to obtain similar economies of scope. However, the rivalry declined, and profitability increased with a higher multipoint contact, thus supporting the mutual forbearance hypothesis.

In addition, some businesses may seek to change a mutual forbearance-based equilibrium by modifying their position in one or more marketplaces. Fiegenbaum et al. (2001) identified several techniques that might induce a rival to transfer resources. For example, a business may compete with another firm in a specific market, prompting the competitor to move resources to this market to discreetly create a more significant presence in a different market away from where the opponent’s resources have been diverted. In addition, resource dissimilarity may force them to take and enact more actions faster. In this case, Ketchen et al. (2004) argued that rivals’ competitive behaviour is more aggressive based on the extent to which they own and rely on different resources. Overall, current research demonstrates how forbearance may change across settings, notably regarding resource sharing, relevance, and similarity among enterprises.

3.7. Co-Opetition

The word “co-opetition” was created by Novell’s founder and former CEO, Raymond Noorda, to characterize this type of concurrent rivalry and collaboration between businesses. According to the theory of necessary variety, efficient companies balance the internal complexity of their structures and operations with the external complexity of their environments (Hoskisson et al. 1999). This concept requires companies to be as flexible as their business environment to achieve competitiveness. In this case, solving complicated problems in the context of a competitive dynamic may require companies within a strategic group to adopt diverse views and perspectives (Irwin et al. 2018). As a result, some businesses within a strategic group implement complicated relationships where they collaborate and compete in response to the contemporary competitive environment. For instance, Swedish brewing companies collaborate on recycling discarded bottles but compete in creating and selling new products (Ketchen et al. 2004). Each of these businesses aims to differentiate itself from the competition while also seeking efficiency in areas that are less visible areas to the customers. Thus, co-opetition requires the creation of co-opetitive relationships that enhance each partnering company’s elements of competitive strategies without undermining others.

Cooperative network features might affect how businesses act and react in competitive dynamics. For instance, Ketchen et al. (2004) indicated that the more central and structurally independent a company is in relation to other network members, the more probable it is to launch a competitive strike and the less likely it is for a rival to retaliate. This argument implies that businesses less dependent on an alliance are more likely to exploit the action-reaction dynamics to strengthen their position in the market. For instance, a collaboration agreement with another competing firm can limit an organization’s ability to launch strategic moves or countermoves. However, Saadatmand et al. (2018) indicated that the leading business will be less inclined to attack where the two competing firms are structurally equal, while the rival will be more likely to respond. This notion implies that a challenger is more likely to launch a strategic move on a market leader when the two companies are perceived to be structurally equal. Therefore, network density reduces leading firms’ tendency to act while raising other competing businesses’ propensities to respond. These arguments indicate that network characteristics within a strategic group significantly impact how network members compete with one another.

3.8. Ability to Characterize and Predict Competitive Behavior

Competitive dynamics increase companies’ capability to characterize and predict competitors’ competitive behaviour and response. Chen and Miller (2012) indicated that companies initiating attacks analyse and predict their rivals’ behaviours regarding speed and likelihood to react. These insights on competitors’ competitive behaviour guide the firms’ strategic decisions and strategies since they are aware of potential retaliation or lack thereof. Competitive dynamics researchers conceptualized and measured the main features of competitive response using multiple theories, such as expectancy-valence theory and game theory (Hsieh and Hyun 2016). They identified key elements, including the probability that the rival will respond, the number and speed of responses, and the extent to which a reply compares to the initial action in scope and severity. In addition, Chen and Miller’s (2012) research identified other characteristics, including attack characteristics such as execution difficulties, time and effort required for implementation, and the degree to which the responses become visible or receive attention in the industry. In addition, competing firms can analyse each other’s organizational characteristics, including the commitment to attacks and counterattacks (Gur and Greckhamer 2019). Understanding these key attributes helps companies within a strategic group plan and execute well-informed moves and countermoves that result in desired positive outcomes, including increasing organizational competitiveness and market share.

3.9. Competitive Dynamics Link Strategy Formulation to Implementation

Competitive dynamics are characterized by action-based focus and behavioural orientation that define strategy as a collection of coherent decisions and actions. As a result, competitive dynamics encompass formulating and implementing strategies, paying attention to internal and external issues, and strategic processes and concerns (Zucchini et al. 2019). From these perspectives, strategic groups must execute well-planned actions and reactions by considering internal and external factors that may influence the results. Chen and Miller (2012) indicated that competing firms must always consider possible retaliations and potential consequences when developing strategies. For example, a strategic group member launching an attack must consider its performance consequences and potential implications on the firm and the industry in general. For instance, establishing a price war may prompt other companies in the industry to lower prices to match the competition to levels below the production costs, thus resulting in adverse long-term consequences. In this case, prolonged low prices from all key players may affect the attacker’s ability to increase its profitability, thus negatively impacting its financial performance. However, leveraging competitive dynamics can help avoid such adverse consequences since it is an integrative framework linking strategy formulation and implementation to content, processes, and micro-actor perspectives.

3.10. Challenges of Competitive Dynamics of Strategic Groups

Researchers have identified multiple challenges that hinder practitioners’ ability to leverage opportunities of competitive dynamics of strategic groups. These challenges include:

3.10.1. Market Leaders vs. Challengers

While challenges are more likely to benefit from launching attacks on market leaders, the action can shift the balance of power and cause severe impacts. Ketchen et al. (2004) revealed that market leaders are more likely to lose their leading positions and market share if they launch fewer moves in competitive markets than the challenges. Multiple issues may arise from this situation. For instance, a loss in market share translates to a loss in revenues and profits. Consequently, this low performance leads to reduced operational output that may cause failures, bankruptcy, loss of jobs, or reduced employee livelihood (Gómez et al. 2020). Key market leaders are significant employers and contribute to a country’s economic growth and innovation. While losing this position to other competing firms may translate to opportunities in the other firm, it may also mean losing opportunities in this focus firm. In addition, Rebière and Mavoori (2019) explained that challenger actions and reactions are often inconsistent and unpredictable, making their competitive attacks more persistent. Chen and Miller (2012) indicated that competitive dynamics increase an organization’s awareness of competing firms’ competitive behaviours and reactions. However, Rebière and Mavoori’s (2019) argument suggests that predicting competitors’ actions and reactions is not always possible. This condition undermines the market leaders’ ability to prepare for potential attacks to avoid negative consequences.

3.10.2. Rivalry among Strategic Group Members

Competitive dynamics research indicates that interdependence and collaborations to increase efficiency reduce rivalry among companies in a strategic group. Nair and Filer (2003) explained that this lack of rivalry often results from strategic group members sharing resources, causing them to adopt similar actions and reactions to competitive moves by other competitors in the industry. However, Mas-Ruiz et al. (2014) indicated that competition might occur when companies compete in different markets. The scholars expounded that firms are less likely to engage in rivalry in cases where Company A has a greater interest in Market 1 and less interest in Market 2, allowing Company B to exploit Market 2 with minimal activities in Market 1. This reciprocal relationship allows companies to co-exist and engage in healthy competition. However, if Company A has interests in Markets 1 and 2, the two rival companies are more likely to engage in the intense rivalry that may prompt the implementation of frequent competitive attacks. Other factors contributing to intragroup rivalry are a lack of trust among members, an absence of history and leadership, and varying opinions and viewpoints on collaborating and co-existing within the industry (Panagiotou 2006). Companies that do not trust each other’s commitment to maintaining healthy competition or have negative perceptions of the other’s leadership are more likely to engage in intense rivalry.

3.10.3. Strategic Barriers

Some strategic groups or companies intentionally create strategic barriers to limit other companies’ entry into the market. For instance, Park et al. (2016) noted the prevalence of mobility barriers strategically created to prevent new entrants from moving from one strategic group to another. The primary mobility barriers are the cost of entering a strategic group since they entail non-recoverable investments that a new company must make to acquire the business model and strategy implemented by other companies in that strategic group (Rosário et al. 2021). For example, new entrants targeting the tech companies in a particular strategic group must invest in advanced technological infrastructures and business models consistent with the group members. In this case, the costs of making these investments serve as the primary barrier, thus ensuring that the strategic group maintains certain companies while blocking others.

4. Conclusions

Competitive dynamics entails strategic actions and reactions launched by companies operating in the same industry to strengthen their positions in the market. The concept indicates that when a company moves to increase its visibility and performance in a market, a close rival is more likely to implement a countermove. The cycle of these moves and countermoves often leads to innovations, the delivery of quality products and services, increased efficiency, and industry evolution. Examples of these actions may include reducing prices or developing products with improved features to compete with competitors’ products. Competing companies with shared characteristics are categorized into strategic groups. These member companies understand their shared identity and often engage in collective action to increase efficiency and improve their reputation. For instance, these companies may collaborate to share ideas and resources to penetrate a specific market and leverage identified opportunities. Therefore, the competitive dynamics of strategic groups are concerned with examining and defining the interrelations among companies within strategic groups to understand how they function and compete.

The competitive dynamics of strategic groups provide multiple opportunities that can be leveraged to improve companies’ performance, profitability, and efficiency. For instance, it facilitates mutual forbearance that encourages companies to give up control of a product or geographic market to a competitor in exchange for another market or product. Another opportunity is co-opetition, which allows companies to cooperate and compete at the same time as a way of adjusting to the contemporary competitive environment. For example, companies in the beverage industry may collaborate to establish a bottling company despite competing in the beverage market. In addition, competitive dynamics empower companies with the ability to characterize and predict competitive behaviours. This opportunity indicates that competing firms can use a competitive dynamics framework to analyse competitors, their characteristics, and their behaviours.

This approach helps anticipate their strategic moves, thus ensuring that the company has appropriate retaliation strategizes and tools to minimize impacts. However, while these opportunities can be leveraged to increase a company’s competitive advantage, multiple challenges can hinder this progress. For example, market leaders vs. challenges moves and countermoves can shift the balance of power, causing instability in some firms. Other potential problems include intense rivalry and strategic barriers initiated to hinder some companies from entering strategic target groups. Overcoming these challenges can help companies increase access to expanded markets and the potential to access resources only available to strategic group members. The importance of competitive dynamics within strategic groups is profound, both theoretically and practically, in the field of strategic management. Some theoretical and practical contributions of understanding and analysing the competitive dynamics of strategic groups: (i) Understanding the competitive dynamics of strategic groups contributes to the RBV by emphasizing the role of resources and capabilities in shaping competitive advantage. Firms within strategic groups often possess similar resources and capabilities, leading to competitive rivalry focused on how these resources are deployed and leveraged. (ii) Industry structure analysis: Strategic groups analysis contributes to understanding the structure of an industry. Identifying strategic groups helps in delineating boundaries and understanding the competitive landscape within an industry. This contributes to theories such as Porter’s Five Forces model by providing insights into the intensity of competition within strategic groups. (iii) The study of competitive dynamics within strategic groups aligns with game theory, as it involves analysing the interactions and strategic choices of firms competing within the same space. Game theory frameworks can be applied to model competitive moves and countermoves within strategic groups, enhancing our understanding of competitive behaviour. (iv) Dynamic capabilities: Competitive dynamics research contributes to the dynamic capabilities perspective by emphasizing firms’ abilities to sense and respond to changes in the competitive landscape. Firms that can adapt their strategies in response to the actions of competitors within strategic groups are better positioned to achieve sustained competitive advantage. (v) Strategic positioning: Understanding the competitive dynamics of strategic groups helps firms identify their position within the industry and formulating effective positioning strategies. By benchmarking against competitors within their strategic group, firms can identify areas of strength and weakness and develop strategies to differentiate themselves. (vi) Competitive intelligence: Analysis of competitive dynamics provides valuable insights into competitors’ strategies, moves, and capabilities. Firms can use this intelligence to anticipate competitors’ actions and formulate proactive responses, enabling them to stay ahead in the market. (vii) Strategic alliances and partnerships: Knowledge of the competitive dynamics within strategic groups can inform decisions regarding strategic alliances and partnerships. Firms may seek alliances with complementary players within their strategic group to enhance their competitive position or collaborate with firms in other strategic groups to gain access to new markets or technologies. (viii) Resource allocation: Understanding the competitive dynamics within strategic groups helps firms allocate resources effectively. By assessing the relative competitive positions of different strategic groups, firms can prioritize resource allocation to areas where they have a greater likelihood of achieving competitive advantage.

Overall, the theoretical and practical contributions of understanding the importance of competitive dynamics within strategic groups are instrumental in guiding firms’ strategic decisions and improving their competitive position in the marketplace. On the one hand, it emphasizes the understanding of competitive behaviour, either intra-group analysis or between groups, namely through differentiation strategies. On the other hand, it eases the better understanding of correspondent competitive threats by anticipating rivals’ moves and ensuing development of supporting extrapolative models. Secondly, in addition to assisting the decision-making process, the study of competitive dynamics also facilitates the competitive segmentation to specific groups of competitors and ensuing benchmarking. Likewise, the identified challenges ended up being the dynamic nature of competition itself that hampered the opportune access to reliable competition data and hindered the development of a noteworthy predictive model for strategic groups, which are, as aforementioned, hardly homogeneous and inherently industry specific.

Future lines of research on the importance of competitive dynamics within strategic groups could therefore focus on several key areas, which we were unable to address in this study, to advance our understanding of this phenomenon and its implications for strategic management: (i) Investigating how competitive dynamics within strategic groups evolve over time and how firms’ strategies and competitive positions change in response to these dynamics. This could involve longitudinal studies tracking strategic group movements, competitive interactions, and performance outcomes over extended periods. (ii) Exploring the micro-level processes and mechanisms that drive competitive dynamics within strategic groups. This could involve examining individual firm behaviours, decision-making processes, and intra-group interactions to understand how these factors shape competitive outcomes. (iii) Examining the role of interfirm networks and relationships in influencing competitive dynamics within strategic groups. Research could explore how alliances, partnerships, and other network ties affect competitive behaviour, cooperation, and rivalry among firms within strategic groups. (iv) Investigating how digitalization, emerging technologies, and disruptive innovations impact competitive dynamics within strategic groups. Research could explore how digital platforms, data analytics, artificial intelligence, and other technologies reshape industry structures, competitive boundaries, and strategic interactions among firms. (v) How globalization and internationalization processes influence competitive dynamics within strategic groups. Research could explore how cross-border competition, multinational firms, and global value chains shape strategic group formation, rivalry, and competitive strategies in different industries and regions. (vi) Investigating how sustainability initiatives, CSR practices, and environmental/social factors influence competitive dynamics within strategic groups. Research could explore how firms’ sustainability strategies, reputation management, and stakeholder engagement efforts affect competitive positioning, differentiation, and long-term performance outcomes.

By addressing these future research directions, scholars can further advance our understanding of the importance of competitive dynamics within strategic groups and its implications for strategic management theory and practice.