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exit barriers and their implications for strategy

Multifaceted Rivalry

Corporate managers have directed a great deal of attention to defining their businesses as a crucial step in strategy formulation. Theodore Levitt, in his classic 1960 article in HBR, argued strongly for avoiding the myopia of narrow, product-oriented industry definition.2 Numerous other authorities have also stressed the need to look beyond product to function in defining a business, beyond national boundaries to potential international competition, and beyond the ranks of one’s competitors today to those that may become competitors tomorrow. As a result of these urgings, the proper definition of a company’s industry or industries has become an endlessly debated subject.

One motive behind this debate is the desire to exploit new markets. Another, perhaps more important motive is the fear of overlooking latent sources of competition that someday may threaten the industry. Many managers concentrate so single-mindedly on their direct antagonists in the fight for market share that they fail to realize that they are also competing with their customers and their suppliers for bargaining power. Meanwhile, they also neglect to keep a wary eye out for new entrants to the contest or fail to recognize the subtle threat of substitute products.

The key to growth—even survival—is to stake out a position that is less vulnerable to attack from head-to-head opponents, whether established or new, and less vulnerable to erosion from the direction of buyers, suppliers, and substitute goods. Establishing such a position can take many forms—solidifying relationships with favorable customers, differentiating the product either substantively or psychologically through marketing, integrating forward or backward, establishing technological leadership.

1. For a more complete discussion of exit barriers and their implications for strategy, see my article, “Please Note Location of Nearest Exit,” California Management Review, Winter 1976, p. 21.

2. Theodore Levitt, “Marketing Myopia,” reprinted as an HBR Classic, September–October 1975, p. 26.