First Mover

first move

In the ages of discovery, 15th century, Portugal builds a vast commercial empire. Reaching the Indian coast by sea and discovering Brazil, Portuguese establish a strong platform of commerce supplying Europe with every kind of expensive and rare goods. Two centuries later, Spanish, Dutch, English and French were dominating the world commerce and the Portuguese empire diminished to a few colonies in Africa, Asia and Brazil.

In the modern business world we have the same strategic issues. Pioneers of the market have open road to occupy the spaces, the resources and establish strong advantages over following competitors. But if the first mover is not able to capitalize on its advantages it leaves space to the early and later followers.

First mover can capitalize advantages over:

• Brand Loyalty and Technological Leadership
• Preemption of Scarce Assets
• Exploiting Buyer Switching Cost
• Reaping Increasing Returns Advantages

Although depending on the market forces none of these mechanisms could be sufficient to sustain strong leadership over second and late movers. However if the first-mover advantage is based on R&D and the firm is innovative enough to assimilate market changes and customer requirements, the leadership can be maintain through sustainable cost, higher margins and brand loyalty. Example: INTEL Microprocessor over AMD and CYRIX.

In the other hand, being first in the market could be fallacious. The first mover assumes the risk of "breaking new ground", uncertainty, higher costs and usually must develop new suppliers and distribution channels. Later mover's are in a best position to understand customer's needs, learn and assimilate first mover's investment avoiding mistakes and exploiting incumbent inertia, adopt technology, introduce new production system and become more efficient.

Yet an optimal timing of entry is a strategic movement that depends of many complex factors related to market i.e. customers preferences, technology performance and cycle, enabling technologies, complementarity goods, industry characteristics, firm capacities and resources etc.

One good example about a late entrant that took strategic advantage from first and second mover was the introduction of the iPhone by Apple. With fast cycles of development and after launching successful products such as iPod and iTunes, which intensify a remarkable consumer experience, Apple enters in the smartphone industry with a refined product that changes the competition forces. Selling more than 1 million units in the first 74 days evidences the success of the strategy.

sources:
Wikipedia
Strategic Management of Technological Innovation, third edition. 2001