An important question about the geographic scope of PIMS industries has been raised. Since an industry's competitive environment cannot be assumed to be either stable over time or easily ascertainable, is the PIMS definition of market share/return on investment dangerously misleading? Some of the present evidence linking market share and ROI tends to be vague on this point since:
- The precise geographic definition of the market is unseated.
- The evidence showing a positive relationship between ROI and market share is based primarily on comparisons among U.S. companies. These companies may be unrepresentative of global or international companies since the exceptional size of the North American market may dominate the market share / ROI relationship to the point where it may swamp international effects.
Although there have been other criticisms of PIMS, the crux of the criticism of the PIMS approach centers around the importance of market share.
- The PIMS research has reinforced the long-held notion that market share is the key to profitability - a concept that seems to have gained wide acceptance in recent years. For example, one study concluded that a difference of ten percentage points in market share is accompanied by a difference of about five points in pretax ROI.
- Despite numerous articles pointing out how many smaller companies are outperforming industry leaders, many managers continue to hold to the notion that market share is the key to success.
- In fact, the PIMS data also shows that market share only accounts for approximately 15 percent of the observed variation in profitability, but rarely will a single definition of market boundaries give an adequate picture of the overall competitive standing of the business or of the relationship of market share and profitability.
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