Everything you need to know about nonmarket strategy, part 1: Why do you need it?  

What is nonmarket strategy?

“Traditional” strategic frameworks treat nonmarket variables such as regulatory, social, and political factors as external constraints to be navigated. By contrast, today’s most sophisticated companies view these factors as strategic variables to be influenced. Nonmarket strategy, therefore, focuses on shaping the wider landscape in which market competition occurs.

Why do we need it?

Businesses worldwide today grapple with multiple uncertainties due to sudden and daunting strategic challenges, such as trade tariffs, supply-chain issues, geopolitical tensions, and economic volatility. Most executives underinvest in terms of preparing to deal with these uncertainties, leaving significant value on the table, while the ability to address them is a significant source of competitive advantage.

What are the four primary types of nonmarket uncertainty?

Technological

• Which standards, designs, or frameworks will prevail?

Regulatory

• What rules will govern the market, and how will they be enforced?

Commercial

• Will supply and demand develop as predicted?

Political

• How will geopolitical tensions affect global operations and supply chains?

What strategic challenges do these uncertainties create for us?

• Difficulty determining where, when, and how much to invest.
• Increased risk of making “wrong bets” on technologies or markets.
• Vulnerability to being left behind as markets evolve.

What challenges do they create at the industry level?

• Collective underinvestment in critical infrastructure and R&D.
• Inefficiencies across value chains.
• Suboptimal market growth.
• Vulnerability to substitute industries and technologies.

What does an effective nonmarket strategy look like?

Example 1: BASF

How German chemical giant BASF responded to Europe’s energy crisis following Russia’s invasion of Ukraine is a great example of an effective nonmarket strategy. In 2022, it faced an existential threat: prices of natural gas (a resource it relied upon heavily as a feedstock and energy source) had increased tenfold, but, rather than focusing solely on market solutions such as hedging or raising prices, BASF deployed a sophisticated nonmarket strategy:

• coordinated with competitors across the chemical industry to jointly engage with policymakers,
• built coalitions with labor unions concerned about job losses, and
• worked directly with German and EU officials to shape energy policies.

Outcome

BASF secured priority access to limited supplies and influenced the design of price caps and subsidy mechanisms, ensuring the industry weathered the crisis.

Example 2: Taiwan Semiconductor Manufacturing Company (TSMC)

Beyond its technological excellence, the world’s largest chip maker partly owes its extraordinary success to its masterful nonmarket strategy at a time of great geopolitical uncertainty:

• strategically positioned itself as indispensable to both the US and China,
• balanced relationships with both powers while working to influence US policy on semiconductor manufacturing, and
• maintained vital access to the Chinese market through diplomacy.

Outcome

TSMC ensured continued growth amid intensifying technological competition and, through its engagement with US policymakers, helped shaped the US 2022 CHIPS and Science Act, which provides $52bn in subsidies for domestic semiconductor production.