I.

Non-market environment

Assumptions in the market strategy :

● Institutional environment is given 🡪 exogenous
● Firm’s strategy works around positioning within or can industry and developing unique
capabilities

Assumptions in the non-market strategy :

● Firms are affected by non-market issues and actors in the non-market environment
● The environment is not exogenous 🡪 firms can influence it

Non-market strategy is making choices among set of actions in the context of public and private
political arena by competing against, and at times, work with rivals, interest groups and social
activists to maintain existing advantage or gain a new one and maximize overall firm
performance.

Purposes :
● Rent seeking
● Handicapping competitors
● Unlocking opportunities
● Defending against rivals and critics
● Attracting customers sustainability preferences
🡺 Enhance firm competitiveness and performance

Non-market strategy is not responding to expectations in the non-market environment.

II. Market failures

Market failure with respect of social ideals :
● Socially undesirable transactions
● Markets fail to offer equal opportunities 🡪 failure of fairness and distributive justice

III. Responses to non-market failures

Limitations of state intervention :

● Self-interested policy makers
● Disincentives from regulation 🡪 regulation aimed at redistribution can reduce incentives
of private companies to be competitive, state owned business operate less efficiently
because accountability is lower than in private companies
● Imperfect information
● Lack of expertise
● State intervention limits personal freedom and choice

Private politics :
● Activist (individual and shareholder) & NGOs 🡪 they alarm businesses practice that
violate human rights & compromise environment sustainability and other frauds
● Boycotts
● Shareholder activism
● Fairtrade organizations 🡪 Greenpeace, Fair labor associations

Limitations of private politics :

 ● Less accountable than even public political actors
● Sometimes less important things become a center of private politics

Firms response to non-market failures :

● Firms become big conglomerates by being vertically integrated and horizontally
diversified
● This create unimportant power that can also translate into political power

IV. Issue Lifecycle Model

Issue identification :
● No problem in the mainstream society but some activists
● Both states and firms give no attention to both the problem and activists
● Only a few problems get identified and start to draw attention
Interest group formation :
● Medias give more coverage to the issue
● Public concern increases
● Governments expresses concerns, start to investigate and to consider some mild
solutions
● Companies argue that the problem is not that important 🡪 they may create collective
fronts to defend their industry

Legislation :
● Rise in public concern 🡪 pressure on governments for new policy
● Industry defends the status quo 🡪 dismiss the claims, lobby politicians and interest
groups
● Firms internally examine solutions
● Governments examine possible interventions

Administration :
● Substantive policy is in place and industry diversifies
● Industry complains about the cost and technical implementation of the new policies
● Firms may jockey for positions by marketing new solutions
● Tough regulation and substantive change

Enforcement :
● Enforcement government agencies get chosen
● Negotiations between government and industry agencies on enforcement standards and
time tables
● Some late firms kicked out of the market, some first mover become industry leaders and
benefit from incentives offered by governments
● Market demand changes and industry reoriented

But not all issues pass through this model :

● Problems fall back
● Multiple issues at the same time, taking attention from each other
● Issues might gel solved without gov involvement
● Some might have recursive model

Firms are advised to respond an issue before it gets politicized.

The more the different actors are homogeneous and organized, the more they are powerful.

Assets to prevail :
● Reputation and trustworthiness
● Size and credibility

V. Types of non-market strategies

Self-regulation :
● Coordination made by corporations and non-government actors to set rules of business
behaviors but they don’t collude against public interest
● To address information asymmetry and externality problems

Methods Certificatio No Collective Mixed

n self-regulati responsibili method
on needed ty
Asymmetric Yes No Yes Yes
Information
Externalitie No No No Yes
s

Certification :
● Asymmetry about the nature of the product and its production
● Help to differentiate bad/good suppliers
● Charge premium services, serves as a source of differentiation

Collective responsibility :
● Common source is used unsustainably
● Self-regulation could be used to forestall regulatory or stakeholders actions
But these initiatives lack of verifying mechanisms to validate compliance

VI. Public politics

Firms engaged in public politics to counter future government intervention.

Political risks :
● Expropriation via nationalization of firm assets
● “Creeping” expropriation 🡪 change in tax/intellectual property etc. regulations
● Currency control and limiting repatriation of profits to home country

Political risk management :

● Strengthening state commitment 🡪 institutional or contractual solutions
● Making concessions and sharing greater proportion of profits with the government
 ● Political strategy 🡪 offering information and financial incentives

Investment companies made in the political environment has increased since 2000.

There is a positive association between investing in the political environment and profitability.

VII. Private politics

Companies’ responses to pressures from NGOs and activists.

How NGOs/activists influence firms :

1. Choose an issue that they are passionate to solve
2. Select a target that has a greater potential to address the problem and is susceptible to
their pressure
3. Communicate the issue with the target
4. Boycotts, shareholder resolutions, picketing etc.
5. Threaten the financial performance of the firm through reducing demand, reputation
and funding
6. Change the behavior of the company (and the government)
 7. Address the social problem

Companies response to pressure from private politics depends on :

● Their value and economic costs of switching
● The intensity of the pressure

Boycotts succeed when the issue is easy to understand and customers care passionately about it
while not having to make lots of sacrifices to boycott.

VIII. Sustainable business strategy

Shareholder model :
● Profit making is the sole purpose of business
● It does not undermine the importance of addressing social problems but there was no
pressure that forced them do so

CSR/Stakeholder approach :
● Profit making is the sole purpose of business but it has to address social &
environmental issues as a responsible business
● The model creates the picture of tradeoffs between serving shareholders and other
stakeholders’ interest: fragmented, add-on and window-dressing activities

Sustainable business model :

● The business itself will be sustainable when it addresses social and environmental issues
that are strategic to the firm
● The business model should be reoriented in a way that social problems are solved
profitably by businesses

Companies still consider CSR as an add-on to what they have been doing, they perceive it as an
obligation rather than as a potential source of competitive advantage.
🡪 Only few companies approach it strategically

What is a SBS :
● Integrated 🡪 map issues to identify the levels on which you can respond
● Long lasting 🡪 consequences have a long term effect
● It is selective because it affects the underlying drivers of company’s competitiveness, we
must design a business model around it and integrate it into the strategic and
operational activities of the firm