Red Queen competition that promotes corporate growth has its pitfalls

The Red Queen competition inspired by Alice’s story

The Red Queen competition is a type of competition among companies in the theory of competitive dynamics in which a group of companies that compete fiercely will survive.

It was originally inspired by the Red Queen’s words to Alice in Through the Looking-Glass, the sequel to Lewis Carroll’s Alice’s Adventures in Wonderland: “Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”

Biologist Leigh Van Valen took a hint from this line about the principle of species survival and proposed the Red Queen competition. The term became a biological term, and now the management scientist and Stanford University Professor Barnett and his colleagues have adopted it as a principle for corporate survival.

However, this Red Queen competition was different from the theory of corporate competition taught in competitive strategy theory.

Professor Michael E. Porter of Harvard University, Professor Jay B. Barney of Ohio State University and others, who are the leading experts on competitive strategy, teach that it is important for a company to survive by entering markets that other companies have not entered and by developing products that other companies cannot easily imitate.

In other words, it is a non-competitive competitive strategy in the sense that it avoids competition as much as possible. In contrast, Red Queen competition is the opposite in that it encourages competition with other companies.

However, this friendly competition can lead to coevolution, in which several companies in a given field evolve together, and this can lead to economic revitalization, as Japan’s period of rapid economic growth has demonstrated.

Companies that compete fiercely have a high survival rate

Red Queen competition is also characterized by organizational learning.

For example, it has become very difficult for companies today to innovate products and services on their own. This is because we have entered an era of hyper-competition, in which markets are shifting rapidly. Therefore, M&A strategies to expand corporate resources through mergers and acquisitions have become popular.

However, M&A strategies were most effective until about 30 years ago, when companies were still able to identify where opportunities existed in the market.

Of course, M&A strategies are still often used today, but they are often costly and time-consuming, and the risks are greater now that hyper-competition is further progressing, market needs and technological developments are rapidly changing, and the future is much more difficult to predict.

Therefore, strategic alliances are frequently formed, in which rival companies exchange technologies and markets.

We call this contact coevolution, in which rival companies learn from each other and evolve through the direct acquisition of management resources through M&A and strategic alliances.

However, direct contact and exchange of management resources between companies in a competitive relationship is, in fact, dangerous. This is because the relationship between companies is in a prisoner’s dilemma situation.

The prisoner’s dilemma is a game-theoretic notion that if two parties cooperate with each other, they will gain from each other, but if one of them betrays the other, the gain will be so great that both parties end up choosing to betray each other and neither will gain anything.

I have studied the survival time of joint-venture alliances using survival analysis and found that it is shorter than that of conventional alliances. The temptation of betrayal is still great.

On the other hand, it can be said that Red Queen competition is an inherently autonomous behavior of a company, in which the other party is not very trustworthy, so the company is strong enough to survive on its own.

In Red Queen competition, a company learns indirectly from the actions of its competitors and formulates strategies. We call this search. Through frequent search and repeated trial and error, companies adapt to the intense environment.

From there, even if it is difficult, new innovations emerge. Without it, survival is impossible.

In other words, intense rivalry promotes organizational learning and realizes organizational adaptation to the environment. As a result, companies that have taken such actions survive each other. We call this non-contact coevolution.

In fact, in the research field of competitive dynamics, empirical studies of Red Queen competition among companies have been conducted, and many of them report higher survival rates for companies that compete vigorously.

Avoid the pitfalls of Red Queen competition

However, there are several pitfalls to Red Queen competition.

I have studied the trends of 308 products from 11 cell phone manufacturers in Japan.

I found that Japan’s feature phones had evolved to such an extent that they were known as Galapagos cell phones (garakei). They have become so multifunctional and sophisticated that products from other countries cannot follow suit. The rivalry among Japanese manufacturers was so strong that fierce competition continued.

As a result, the survival rate of Japanese companies in the Japanese market was extremely high. In other words, the so-called garakei was not a term of ridicule; rather, it was a term of praise for the results of this situation.

At the same time, smartphones were beginning to come on to the market in other countries. When they became available in Japan, many Japanese manufacturers struggled to respond.

In other words, the competition among Japanese companies, which was overly focused on feature phones, led to myopia.

Myopia is not the only phenomenon caused by fierce competition.

Studies have shown that companies that have won competitions in a particular field are more likely to fail when they enter a new field. It is a matter of organizational inertia, the inability to change one’s own winning pattern.

Red Queen competition can promote the evolution of a company, but it can also hinder it if taken too far. The facilitating and hindering factors are a double-edged sword, and where the optimal point is may vary depending on the competitive situation and industry in which the company finds itself.

Currently, I am empirically exploring where this optimal point is, but to do so, I have to examine it using a large amount of secondary data and analytical methods not often used in business administration, such as panel data analysis and survival analysis.

It will take time, but I believe that by solving this problem, we will be able to point out to companies what effective competition with the companies in question looks like.

In addition to my research on Red Queen competition, I am also conducting research on highly inclusive organizations. This is research on how organizations can make the most of diversity.

In Japan, where the birthrate is declining, the population is aging, and the working population continues to decline, it will be difficult for a single male-centered organization to survive as it has in the past.

However, Japanese companies that have succeeded with a single male-centered organization have fallen into the myopia phenomenon here as well, neglecting to create a work environment that takes advantage of the abilities of a diverse workforce. As a result, they have fallen far behind global standards.

This may be a major reason why innovation is less likely to emerge from Japanese companies.

Conversely, however, there is room for growth for Japanese companies. I believe that research on highly inclusive organizations will be relevant to this.

Finally, Red Queen competition is true not only for organizations but also for individuals.

For example, friendly competition with certain colleagues or seniors as rivals can lead to the improvement of one’s abilities. However, it can still lead to the myopia phenomenon, where one cannot keep up with changes in the work environment, new tasks, and so on.

To avoid falling into myopia and to have a broader perspective, it is a good idea to try a side job. This will not only help you learn from certain competitors, but it will also give you a chance to learn about diverse values.

I believe that becoming a highly inclusive individual is also necessary to survive in a future society.

* The information contained herein is current as of March 2023.
* The contents of articles on Meiji.net are based on the personal ideas and opinions of the author and do not indicate the official opinion of Meiji University.
* I work to achieve SDGs related to the educational and research themes that I am currently engaged in.

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