Academic journal article Journal of Australian Political Economy

Non-Market Strategy and the 'Race to the Bottom': Lessons from the Baywatch Experience

Academic journal article Journal of Australian Political Economy

Non-Market Strategy and the 'Race to the Bottom': Lessons from the Baywatch Experience

Article excerpt

This article examines how international firms operate strategically in the non-market environment to secure advantages which improve their cost and/or revenue structures and, hence, their economic performance. It centres on a detailed case study of the globally popular Baywatch television show's efforts during 1999 to secure attractive locational subsidies by placing the states of New South Wales, Queensland (both in Australia) and Hawaii into competition with each other in a 'race to the bottom'. The article is organized into three main sections: the first briefly reviews the concept of non-market strategy; the second examines the Baywatch case in detail; and the conclusion presents some lessons for various stakeholders involved in this and similar non-market contexts.

Strategy in the Non-market Environment

In charting the emergence of non-market strategy, an observer could go back to the strategies and tactics employed by such organizations as the British East India Company throughout its several centuries of operation on the subcontinent. The rise of non-market strategy as a formalized body of knowledge relevant to theory and practice is, however, much more recent. Baron (1995) is credited with bringing the term 'non-market strategy' into the field of strategic management, while the journal Business and Politics (dedicated to the study of non-market strategy) only commenced in 1999. More recently, Ghemawat (2007) has integrated non-market insights into his research on global strategy.

According to Baron (2005:3), the business environment consists of both market and non-market components. The market component includes the interactions of buying and selling between firms and other parties and private agreements such as contracts. This is the domain of competitive strategy, where firms strive to win customers and market share through differentiated product offerings based on their respective sources of competitive advantage (cf. Porter, 1985).

The non-market environment includes social, political and legal arrangements that structure interactions outside of--but in conjunction with--markets and private agreements. It encompasses those interactions between firms and individuals, interest groups, government entities, and the public that are intermediated by public institutions rather than markets or private agreements. The distinguishing characteristics of public institutions (ostensibly) include majority rule, due process, broad enfranchisement, collective action and transparency. Vitally, a firm can secure advantages in the non-market environment which serve to protect or enhance its position in the market environment. Non-market strategy thus offers another route to competitive advantage and superior economic performance. In some instances, non-market approaches can be more important than competitive strategy in generating firm-level advantages--e.g., where effective lobbying garners an exclusive import/distribution license from a government agency.

Non-market strategy is particularly important in relation to transnational corporations (TNCs). The impacts of corporate globalisation on host countries--particularly of the developing or underdeveloped variety--are matters of contentious debate. Mainstream TNC scholars in the 'internalization' school (Buckley and Casson, 1985) or the 'transaction costs' school (Hennart, 1982) view this institution's existence as evidence of market failures, which its actions serve to ameliorate through the efficient allocation of organizational resources to their optimal value-creating applications. TNC activities in the non-market environment are beyond the theoretical scope of scholars based in these paradigms. Other, broader approaches to these issue are taken by development economists such as Bhagwati (2002) and Sen (2001), both of whom agree (with qualifications) that, on balance, globalization and TNCs are beneficial to the peoples of the developing world. …

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