Competition has been viewed from two completely different angles depending on which school of thought one prefers. Optimist view competition as a healthy ingredient for business growth while the pessimist see it as the spell of doom in terms of decreased market share. However, one thing remains to stand. Monopolies are being done away with and healthy competition taking its place in the global business world. In such a situation, the strength and survival of any business lies in its ability to sell products or services in a competitive environment, even in highly regulated industries.
The management of any particular business and their employees work hard to be competitive, not only on behalf of the whole company but also within their own departments or other capacity. In the long run the firm sells more products or services, increase market share, maximize shareholder value and reduce costs. Each of these activities requires some understanding of at least one aspect of that organization’s competitive environment. In this context we generally dwell on the external environment to accommodate the global perspective.
Elements of a competitive environment
- Market research
- Strategic planning
- Price wars
- Mergers, acquisitions and takeovers
- Strict rules and regulations
- Vertical and horizontal integration
Strategic Planning in a Competitive Market Setting
Right from the startup business planning is an essential part of the whole business process. In any business planning from the very word, there has to be the appreciation of competition otherwise it would not be realistic to expect to operate in an island of business opportunity. While planning has long been an integral part of many firms, constantly changing competitive environment calls for a change and review of the strategic business plan from time to time.
The initial aspect in the strategic planning process is, of course, setting goals and objectives.
In formulating goals and objectives, the firm has to keep in mind whether they are achievable in the long-term or in the short-run. In doing so the company or business firm is setting up new challenges and goals which when accomplished, others have to be identified.
Traditionally, any business opportunity viewed in the eyes of an entrepreneur identifies a product or service based want in a given community. Consequently, its goals and objectives in the initial business plan will be the provision of the product or services to the community in which it has targeted. Business growth in the early stages represents market response to a need that was not being fulfilled in any other way before then. Because the need was there, so were the profits. But profits were not a major concern. The emphasis on community was possible in part because of the absence of strong competitive pressure due to the relatively undeveloped market.
Once competition sets in the issue is no longer the market but rather survival through higher profits. (Porter, 2005) But, any given business environment be either in the employees market, product/service market, it has to be analyzed in the extremes; perfectly or imperfectly competitive market.
However, caution should be taken to differentiate a perfectly competitive and imperfectly competitive market. In perfectly competitive markets, firms must be concerned with level of production and not the production costs. They have no control over prices in the market. When there are many competitors buying and selling the same product, then the situation befits the description of a perfectly competitive market where market forces determines the prices.
In imperfectly competitive markets, firms have full control of the market which allows them to set prices, as well as control volume and costs. The authority to control can be anything from technology which dictates very large-scaled operations, to the frictions of space and location that give a firm an advantage over others in dealing with customers nearby, to collusive behavior that at times involves ”canvassing”. What it means is that profit maximizing behavior involves a concern with price as well as volume and cost. Firms operating in these markets cannot sell everything they produce at market price. They have to set the prices first.
Market research and surveys are all aimed at achieving advantageous knowledge of the external business environment. (Dikcen, 2004) Some executives may wonder why a lot of money and energy is utilized in carrying out this type of market surveys and research. Does it really pay off? Is it worth it? However, it is important to note that information is power and the best way to obtain it is through the market research and surveys.
In carrying out the research focus is on all the things that can impact on the business’s ability to succeed. This might be in regards to suppliers, large customer groups, economic trends, industry issues, public perception among others. Viable information/intelligence is important as it reveals what the competitors are planning to do or are doing and thus the firm will act accordingly by either developing their own counter- strategies or emulating. As observed by Dikcen (2004) market information to the company can be important in that it helps in.
- Executive management uses it for corporate planning and strategy.
- Marketing uses it for identifying target markets and market separation.
- Sales employ it to clarify ‘why the customer should buy from you instead of your competitors’.
- Finance & Legal use it for due diligence in mergers, alliances and acquisitions.
- Purchasing & Contract Management uses it for supplier and other contracting.
- Human Resources use it for hiring and retaining the good employees.
- Public affairs, investor relations, public relations, community relations, government affairs use it to understand community allies and adversaries
- Research & Development uses it to identify trends inside & outside the industry
- Accurately identify analogous companies
- Identify and segment companies by industry groups, size or other.
Mergers acquisitions and takeovers
Competition in the global market is set to intensify further as we move towards an integrated global economic village. The journey is being heightened by the number of mergers and acquisitions of international companies otherwise thought to have a substantial global consumer base that would seemingly push the firms all along. But as profit continue to diminish and market share are being split more and more among smaller new entrants, this seems to the next best available option. (Dikcen, 2004)
Merger issues, and in particular the implications of the growth of multi-jurisdictional merger has generated a lot of reviews by governments in an attempt to make sure that the transactions are legal and are following the rule of fair competition.
These reviews also go to issues of transparency, nondiscrimination, the need for reporting requirements keyed to the risk of anticompetitive harm, and the adoption of consumer-driven merger policy. Governments are making sound recommendations, and they’re crucial if we’re eventually going to bring more coherence to the antitrust review of international mergers.
It is not convincingly known whether work sharing is ultimately the answer to the merger review proliferation problem, but it’s one of the alternatives that is worth considering. As a matter of fact it is already happening though in a limited way in appropriate cases. The Halliburton-Dresser and Northwest-Delta Airlines merger are good examples. This I would like to believe was after extensive market research that showed that merging between the two different companies was the best viable of beating competition and reducing expenses to remain profitable.
The hardest issues are the ones that require global cooperation to implement. There has been extensive discussion and debate in recent years over bilateral vs. regional vs. multilateral approaches. We have had tremendous success in our efforts at bilateral coordination of merger review, especially with the EU. The examples of close and successful merger cooperation continue to accumulate. The recent decisions in both the US and the EU to challenge the WorldCom/Sprint merger, after intensive investigations in which we and the EU kept in close contact, and our staffs met several times with each other and with the companies in Washington and in Brussels, are a good example of how it ought to work.
As noted by Brooks (2003) pricing is one of the factors that generate a lot of debate on the worthiness of a product in regards to its quality and pricing. Was it really that much? Some consumers end up asking themselves after consuming a product/service that does not meet their expectations. In the face of competitive markets, rational consumers are ever seeking to cut the best deal by buying the highest quality product/service for a normal good that is least priced.
On the other hand firms are optimizing quality and striving to minimize costs. Minimizing costs and maintaining the same quality may at times become an elusive balance and thus forming of strategic partnerships becomes the only other viable option.
One of the most competitive industries in the world of business today has to be the electronics industry. In this industry we have mr4ket leaders such the giant Sony Inc facing increasing competition from new cheaper entrants in emerging economies of South Asia such as Taiwan, South Korea and Malaysia. Consumers on the low to the lower section of the income scale are finding it hard to cope with the high prices of products established companies with proven track record such as Sony hard to afford and therefore opting to do with the relatively cheaper brands and of questionably lower quality.
Top management of such companies are aware of the threats posed by the emerging cheaper brands and hence the big companies are segregating their markets in order to reach the high income earners at the same time with the low income earners without spoiling the market of any.
Another established company that has taken action against its market share invasion by cheaper copycat brands is Nokia. (Morrison, 2006) The company is doing the best in producing cheap phones that handle only the basic features and at the same time continuing with product innovation that is producing very high technologically advanced cellular.
Vertical and Horizontal integration
Vertical integration refers to organization making strategic partnerships or making acquisitions or whatever is deemed appropriate in regards to unique market dynamics with other organizations that are up or lower the ladder in production. “Such case involves companies that use end products of another company as its raw materials in its own production process” (Palmisano, 2006). In such a situation a good example would be soft drinks or alcoholic drinks manufacture trying to form a merger with a bottling company in order to cut cost and harmonize operations. Such is the case that is happening with Coca cola almost every where in the world.
On the other hand, horizontal integration has to do with forming partnerships with companies that one is in the same production level; read as competitors. Merging of competitors is one of the greatest ideas that have revolutionized the way we do business today. Companies such as Glaxxo Wellcome found it necessary to protect and gather a greater market niche by joining forces with Smithsklines Beecham to form the larger and more forceful GlaxoSmithKline. It would therefore be my greatest advice to companies that are spending so much on promotion and advertisements to beat off competition, to reconsider what they are doing and focus their energies in forming mergers with competitors. (Palmisano, 2006)
Strict Rules and regulations
Ten years ago no business analyst or top management executives had foreseen or predicted the necessity of making mergers and alliances with competitors at the rate that we are witnessing today. The pace at which the global business environment is churning competing firms, some firms are finding the going turf and opting for the undesired; succumbing to takeovers. When your business is facing excessive competition, what do you do? Sell out before it is too late, I advise.
Its not that my advice comes from prophesy no. According to my observations, selling out is more appropriate than the definite fall But are we prepared to meet the harsh merger laws being put in place to protect the weaker firms? Today merging companies have to take account of merger laws in over more than fifty jurisdictions; and second, the depth and regularity of the cooperation in these cases between the antitrust authorities in Washington and Brussels.
Though the idea of forming mergers is the “in thing” seemingly, caution should be taken by first assessing the economic viability of such an option. Legal requirements and regulatory issues might prove uneconomical into the venture.
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