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DETERRING AGGRESSIVE REACTIONS FROM BIGGER FIRMS: USE OF STRATEGIC MOVES BY SMEs
Soo Jiuan Tan, Khai Sheang Lee and Guan Hua Lim

Abstract What can the resource-strapped SMEs do when the incumbent bigger firms choose to "act crazy" by deliberately fighting the SMEs' entry, despite knowing that the costs of doing so are exorbitant? This paper shows that to deter the incumbent bigger firms fromaggressive competitive behaviour, SMEs should signal their commitment to stay in the market, through a deterrence strategy called Strategic Moves. The rationale, benefits, mechanics and conditions necessary for the use of Strategic Moves are detailed in this paper. Two Asian cases are used to illustrate the application of the Strategic Moves strategy. Introduction It is a well-known fact thatsmall and medium enterprises (SMEs) are a dominant phenomenon that, to a certain extent, shapes both the direction and speed of economic development and growth of the country. However, in an increasingly competitive environment and in the face of competition from bigger firms that possess plentiful resources, the ability of these resource-strapped SMEs to survive and expand their business hinges onthe formulation of effective competitive strategies. These strategies may even entail SMEs venturing into markets that are already being served by bigger firms. However, in doing so SMEs may encounter aggressive reactions from these bigger firms who will challenge any encroachment into their markets. There are several reasons why these bigger firms may react aggressively against the entry of SMEsinto their markets. They may simply be ignorant of the actual costs involved in such aggressive actions. Another reason could be that the incumbent bigger firms knowingly take aggressive retaliatory actions that are costly, in the belief that such actions can somehow force the SMEs to exit the market. This will be the case if the bigger firms believe that they could win in a war of attrition againstthe SMEs. Given the SMEs' lack of resources, such beliefs held by the bigger firms are not unfounded. By intentionally starting a war of attrition in which all the parties involved suffer losses, the bigger firms can therefore exploit their deep pockets to outlast the SMEs. This will also establish a reputation of aggressiveness for the bigger firms, which is important as a deterrent to potentialmarket entrants in the future. Rationale and Benefits of Strategic Moves When the incumbent bigger firm choose to "act crazy" by deliberately fighting the SMEs' entry, despite knowing that the costs of doing so are exorbitant, the SMEs must be prepared to "dig in". This means that SMEs must demonstrate in no uncertain terms that they are not going to quit the market without a good long fight.Admittedly, this is not easy given the SMEs' limited resources and lack of competitive advantages (like economies of scale and scope, reputation, brand loyalty, etc.) as a new entrant. The ability of SMEs to survive any prolonged intense competition with bigger firms is therefore constrained.

However, despite these difficulties, it is not impossible for SMEs to dig in to credibly signal theircommitment to stay in the market. Moreover, if SMEs succeed in doing so, then the incumbent bigger firms might be deterred from taking aggressive actions in the first place. This is possible because what motivated the bigger firms to act "crazy" is their belief that their chances of success in evicting the SMEs from the market are great in a war of attrition. Hence, if SMEs can influence theincumbent bigger firms' belief such that they perceive that their chances of success are greatly diminished, and that the prospect of a prolonged competition is very likely, then they may not deliberately initiate aggressive actions in the first place. A prolonged war of attrition hurts the incumbent bigger firms as well, to the extent that they may be much better off accommodating the entry of the SMEs...