The Global Rule of Three

Competing with Conscious Strategy

Jagdish Sheth, Can Uslay, Raj Sisodia

• Publisher: Palgrave Macmillan
• Year: 2020
• Print ISBN: 9783030574727
• eBook ISBN: 9783030574734
• Topic: Business
• Subtopic: Business General
• Index: Business

**Finalist for the 2022Leonard L. Berry Marketing Book Award from the American Marketing Association, which recognizes the top marketing books annually**

In our increasingly digital, mobile, and global world, the existing theories of business and economics have lost much of their appeal with the phenomenal rise of Chindia, the reality of Brexit, the turmoil caused by the Covid-19 pandemic, and the seismic shifting of the global center of gravity from west to east. In the area of innovation, the traditional thinking that a developed country, often the US, will come up with the next major innovation, launch at home first, and then take it to other markets does not ring true anymore. Similarly, the world where conglomerates go bargain-hunting for acquisitions in emerging markets has been turned upside-down.

This book reveals and illustrates the Global Rule of Three phenomenon, which stipulates that in competitive markets only three companies (which the authors call "generalists") can dominate the market. All other players in the market are specialists. Further, whereas the financial performance of generalists improves as market share increases, specialist companies see a decrease in financial performance as their market share increases, as the latter are margin-driven companies. This theory powerfully captures the evolution of global markets and what executives must do to succeed. It is based on empirical analyses of hundreds of markets and industries in the US and globally. Competitive markets evolve in a predictable fashion across industries and geographies, where every industry goes through a similar lifecycle from beginning to end (or revitalization). From local to regional to national markets, the last stop in the evolution of markets is going global. The pattern is so consistent that it represents a distinct and natural market structure at every level. The authors offer strategies that generalists and specialist should follow to stay competitive as well as twelve expansion strategies for global companies from emerging markets.

This book chronicles this global evolution and provides impactfulmanagerial implications for executives and students of marketing and corporate strategy alike.

© The Author(s) 2020

J. Sheth et al.The Global Rule of Threehttps://doi.org/10.1007/978-3-030-57473-4_1

Begin Abstract

1. What Is the Rule of Three?

Jagdish Sheth¹ , Can Uslay² and Raj Sisodia³

(1)

Emory University, Goizueta Business School, Atlanta, GA, USA

(2)

Rutgers University, Rutgers Business School, Newark and New Bruncswick, NJ, USA

(3)

Babson College, Olin Graduate School of Business, Wellesley, MA, USA

Jagdish Sheth (Corresponding author)

Email: [email protected]

Can Uslay

Email: [email protected]

Raj Sisodia

Email: [email protected]

End Abstract

Consider the history of the U.S. telecom market. Twenty-two Baby-Bells (operating telephone companies) were divested after the breakup of AT&T by the U.S. government in 1982. Baby-Bells initially organized into seven players by region. Subsequently, roughly 240 firms engaged in reselling long-distance calls, and AT&T’s market share collapsed from 90% to under 40%. After a period of shakeout and mergers , there were three survivors —AT&T, MCI, and Sprint . Interestingly, MCI was not only the largest competitor but also the largest customer of AT&T. Today , in wireless communications , three major players are also emerging with #1 AT&T (which was ironically acquired in 2005 by one of the former Baby -Bells, SBC a.k.a. Southwestern Bell), #2 T-Mobile-Sprint, and #3 Verizon . Similarly, the Pay TV market also went through the same journey and three players dominate the market—Comcast with 24% market share , followed by DirecTV with 21%, and Dish Network with 15% share.¹

Akron, Ohio came to fame as the Rubber City after Benjamin Franklin Goodrich moved his small rubber business from Jamestown, N.Y., to Akron in 1870. Iconic brands such as Goodyear (1898), Firestone (1900), Cooper Tire (1914), and General Tire and Rubber (1915) were all founded in Akron where at one time almost two-thirds of U.S. tire production was concentrated.² Three large players (Goodyear , Firestone , and BF Goodrich ) emerged historically, whereas others such as Cooper tire remained viable specialists . Decades later, there are still three large players and Goodyear is still the U.S. market leader, yet it is also the sole remaining U.S.-owned tire manufacturer. Michelin (of France which bought BF Goodrich ), and Bridgestone (of Japan which bought Firestone ) round up the top three, while specialist Cooper has been bought by Apollo from India .

Sometimes convergence to the “big three” can happen organically and relatively quickly. The battle to deliver food to homes is only a few years old. However, 55% of Americans aged 18–24 already use online restaurant delivery services.³ GrubHub started out as an online restaurant order platform in 2011 but pivoted after five years and began to deliver restaurant food in 2016. Seeing proof -of-concept, Uber became a delivery player with Uber Eats in 2017 and DoorDash joined in 2018. The players in the restaurant delivery market are experimenting and thriving: DoorDash rents space in San Francisco to enable third party chefs who only serve their cuisine via the delivery apps, and Uber states 17% of all of its rides hailed globally is for deliveries.⁴ As of May 2020, DoorDash had the lead with 45% share of the market, and GrubHub (soon to be acquired by Just Eat Takeaway for $7.3 billion) with its 23% share barely edged over Uber Eats’ 22%.⁵ Uber Eats is poised to become #2 soon, however. In July 2020, it announced it is acquiring Postmates (and its 8% market share ) for $2.65 billion.⁶

Duopoly broken, revolution in action: Founded in 1901, Gillette (acquired by P&G for $57 billion in 2005)⁷ ruled the razor market for over a century and had more than 70% market share in the U.S. earlier in the last decade. Today, it is down to about 50% with Schick commanding another 15% and both are bleeding shares fast.⁸ Dollar Shave Club and Harry’s came in with their direct-to-consumer subscription models in 2012 and 2013 respectively and disrupted the market. The market may be mature; however, Dollar Shave Club (acquired by Unilever for $1 billion in 2016)⁹ captured more than half of online sales within five years of inception and currently plans to launch a deodorant line.¹⁰ Meanwhile , Edgewell Personal Care (parent company of Schick and Wilkinson razor brands ) has acquired Harry’s for $1.37 billion.¹¹ We may finally see the emergence of the rule of three in this space.

Race to the cloud : AWS (Amazon Web Services ), Azure (Microsoft ), and Google Cloud are quickly emerging as the three leaders in cloud services . By 2020, AWS is predicted to have 52% market share, followed by 21% for Azure , and 18% for Google in the U.S.¹² Other players such as IBM , Oracle , and Salesforce will likely persist as specialists .

Over the past several years, the world economy, principally in the developed free-market economies of North America and Europe, has witnessed a unique combination of economic phenomena: mergers as well as demergers (i.e., spin-offs of non-core businesses) at record levels with no signs of slowing down. “Since 2012, M&A activity has increased dramatically in both number of deals and size of transaction, with the yearly value of global M&A deals tracking above $4.5 trillion for the past four years.”¹³ Just weeks before the U.S. presidential elections, October 2016 set a monthly record for U.S. merger activity aided by the biggest acquisition of the year (AT&T’s acquisition of Time Warner for $85.4 billion), and one that created the world’s largest tobacco company (British Tobacco’s acquisition of Reynolds American for $47 billion).¹⁴

Overall, the deals announced in October 2016 alone amounted to almost a quarter of trillion dollars ($248.9 billion).¹⁵ The number of billion-dollar transactions was up by 25% and the number of megadeals exceeding $25 billion in value increased by more than 100% in 2018!¹⁶ According to a 2019 mergers and acquisitions (M&A) trends report by Deloitte, 76% of M&A executives, and 87% of M&A leaders at U.S. private equity firms expect to close more deals over the next year (up from 69% and 76% the year before respectively).¹⁷ Furthermore, they expect the sizes of these transactions to be more significant. Meanwhile, more tha...

Table of contents

• Cover
• Front Matter
• 1. What Is the Rule of Three?
• 2. Strategies for Generalists, Specialists, and Ditch Dwellers
• 3. How Industries Evolve, Mature, and Revitalize
• 4. Ten Ways to Innovate and Revitalize Industries
• 5. Evolving to the Global Rule of Three
• 6. The New Triad Power: Impact on Global Markets, Resources, and Politics
• 7. Global Expansion Strategies for Multinationals from Emerging Markets
• 8. Epilogue: What Does the Global Future Hold?
• Back Matter