Competitive Advantage in Farming, Car and Restaurant Industries

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Introduction

Any firm seeking to survive in any industry must engage in activities that will ensure it remains competitive enough to last as long as it intends to. This is made possible through the acquisition of necessary information concerning the business environment in which it operates such as the changes in consumer trends, changes in technology, the level of competition that exists in the industry as well as a new market and business strategies that will guarantee its competitiveness both in the short run and in the long run. The strategies adopted should always encourage healthy competition as unhealthy competition is not encouraged at any level of doing business. Economists have come up with different theories and models in their quest to explain the competitive advantage concept. In this paper, the focus of my analysis will be the farming, motor vehicle, and restaurant industries and the nature of competition that exists in these industries.

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The nature of competition differs from one firm to another and in effect from one industry to another. This is because different firms and industries deal in different products and services and therefore their target market and competitors differ. To understand the nature of competition in these firms and industries, it is important to know the kind of market structure a firm is operating in and the tendencies displayed in this market.

Car Industry

The car industry is fairly large and is composed of a large number of players. It is normally charged with the duty of designing, developing, manufacturing, marketing, and selling cars and commercial vehicles to interested customers. In2007 for example Europe, Asia Pacific, the USA, and Canada posted some of the highest car sales in the world, with Latin America, the Middle East, and Africa posting far fewer sales. Some markets such as Japan and North America remained pretty stagnant as countries like Russia, India, China, and Brazil reporting rapid growth. The industry is susceptible to the effects of factors such as fluctuating oil prices, pressures of raw material costs, and changes in the tastes and preferences of consumers which affect vehicle demand.

Competition from the public transport sector which is ever-growing also has a major impact on the car industry as in some cases people are more inclined to use public transport as opposed to private vehicle usage. Where such effects are extreme, players in the car industry are forced to close down some of their manufacturing plants to cut down on costs. In addition to external competition from the public transport providers, the car industry faces inter-firm competition thereby making it necessary for firms to come up with strategies that will ensure they maintain a competitive advantage over their rivals. There is also the issue of people preferring to buy used cars as opposed to new ones because they are cheaper, more so in the present times as a direct result of the effects of the global financial crisis that has remained a major challenge since 2008. To demonstrate the operations of the car industry, I choose to use the UK car industry as an example.

The car industry in the United Kingdom has players such as BMW, Honda, Nissan, Ford, Toyota, General Motors (GM), and other small firms that produce cars for the industry’s market. In as much as there are other small car producers in the industry, there are few dominant ones whose actions influence the general market and competition trends. The industry was largely affected by the economic crisis between 2008 and now but is showing signs of recovery following the major backing that it has received from the government in terms of funding. The funding encourages the manufacture of cars to support domestic and international demand especially for car products that are environmentally friendly. Ford and Nissan are among the beneficiaries of the loans and grants (Lea & Robertson, 2010, para. 1-2) Sales in the United Kingdom car industry dropped just as they did in other countries as shown by the figure below which shows the trend in car sales in the wider European market between 2008 and 2009 in the month of February.

New Car Sales in Europe
New Car Sales in Europe

The industry is also diverse in terms of car brands and nature and as such continues to attract more investors and therefore there is increased competition (House of Commons, 2007, pp. 7)

The industry portrays features of an oligopoly market structure since a few large firms own the largest market share (Gillespie, 2007, pp. 171) The action of one of the few major firms will definitely affect the way the others will act and therefore when a firm is coming up with strategies that will ensure that it has a competitive advantage over the other firms, it must consider the reactions of the other firms in the industry (Lipsey & Chrystal, 2007, pp. 199)

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Restaurant Industry

  1. The restaurant industry like all the other industries also felt the effects of the economic recession that hit the globe. This is mostly because the majority of the customers from this industry are from the tourism sector which did not perform as well after the recession. Despite this fact, the industry has held its ground with most restaurants managing to come out of the turmoil period on their feet (Alleyne, 2009, para. 1). This has been attributed to the fact that most of the restaurants have retained their customer base. The restaurant industry is composed of both large-scale and small-scale operators which offer a lot of diversity to the industry’s clients.
  2. The industry operates on a monopolistic market structure. This is because there are many players in the market and they are not restricted as far as entry or exit is concerned. Despite there being many players in the industry, they offer slightly differentiated products, and therefore their competition is mostly based on product differentiation as opposed to the price of their products.

The restaurant industry is generally composed of price-makers who determine the level of prices to charge to their consumers and do not have to set prices depending on those set by other industry players. But this does not mean that they completely ignore monitoring price trends in the industry. The pricing or level of product differentiation in one restaurant has little effect on the others. In the short run, restaurant chains can act as monopolies but this will only last until new restaurants join the industry because of the profitability experienced. This means that in the long run product differentiation and differential pricing effects decrease the profitability experienced in the short-run (Hantzenberg, Richards, Standish, Tang, Wentzel & Hutchings, 2005, pp 303)

In the long run, no economic profits can be made in the restaurant industry as the effect will lead to zero profits both for the different firms and the industry because they operate in a situation where average costs incurred are at the same level as the average revenues accrued. At such a point, the situation is similar to that of firms operating in a perfect competition market structure.

Farming Industry

The farming industry is one of the world largest industries as it concentrates on food provision for both people and livestock. The industry is largely dependent on climate patterns and weather conditions and therefore the issue of global warming has caused major problems to the industry as the climate changes experienced in some of the world’s bread baskets has led to decline in food production. People have also taken up other activities that are more profitable at the expense of farming meaning that food production from the industry has been greatly affected. Despite this fact, the farming industry continues to hold a large number of producers and sellers.

The farming industry just like other industries has to keep up with up to date technologies that improve efficiency and therefore food production and those players that are quick to change with the times and requirements of the industry are in a better position of remaining competitive. The farming industry has its share of debates with the growing production of Genetically Modified Foods causing ripples in the industry due to opposition from those who opt from traditional methods of farming. This is because GMOs take a shorter time to produce thereby making them more viable in terms of production and the fact that their production is not reliant on climate and weather patterns is also an issue. To better understand the farming industry, I use the United Kingdom’s farming industry as an illustration.

The farming industry in the United Kingdom is composed of a large number of industry players’, who engage in different farming activities such as arable farming and pastoral farming. I choose to concentrate in the area of arable farming. United Kingdom is one of the major world wheat producers currently producing close to fifteen million tonnes of wheat per annum. The country exports around twenty five percent of the produce and the rest is used in the county for animal feed and human consumption. The share left for human consumption is used in various other industries for making end products such as bread. Between 2006 and 2008, the country’s total wheat supply was as follows: (Living Countryside Company Limited, 2010, para 6)

2006 2007 2008
Total Wheat Supply
“000” Tonnes
13623 12547 15707
Domestic Consumption
“000” Tonnes
13559 13404 13107

Having a few major operators in the food and animal production sector, the industry operates under an oligopoly kind of market structure where the few operators control most of the industry activities. Their activities are interdependent in that the decisions made by one firm affect the decisions of the other firms. In an oligopoly situation the demand curve is always kinked at the equilibrium price level showing elastic tendencies above the equilibrium and inelastic tendencies below it. In the elastic region, if a firm increases the price the other players do not follow but in the inelastic region if one firm reduces the prices, the others follow suit.

An Oligopoly Demand Curve 
An Oligopoly Demand Curve 

Conclusion

Competition in any industry is inevitable due to the ever changing nature of the market and business environment occasioned by new technologies, entry of new players in the market, new product innovation among other factors. It is therefore necessary for all industry players wishing to continue growing in performance to engage in strategies that will ensure that they remain not only competitive but also remain among at the top with the rest of the market leaders. Firms should seek to know the kind of market structure that exists in their industry in order to develop strategies that will work in such an industry and also for their benefit in terms profit maximisation since all firms major goal is to make profit.

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Competition in the three industries is vigorous with firms seeking to retain their already acquired market niches and acquire new ones. Most of the players face competition from domestic players in their respective industries and also international competitors who come to invest in the domestic markets. The onset of the economic recession in 2008 caused ripples in the three industries causing most of the players to go back to the drawing board and come up with new competition strategies in their quest to survive the recession. Some of the strategies have yielded fruits and the players are back on their feet. Help from financiers and the government also helped most of the players to stay on their feet. Competitive advantage must be maintained by firms in the three industries to ensure that they continue to grow in performance and in their profitability.

Reference

Alleyne, R. 2009. Restaurant Industry Remains Buoyant Despite Recession. Telegraph.co.uk. [Online]. Web.

Gillespie, A., 2007, Foundations of Economics. New York: Oxford University Press Inc.

Hantzenberg, T, Richards, S, Standish, B, Tang, V, Wentzel, A. & Hutchings, C., 2005, Economics: Fresh Perspectives. London: Maskew Miller Longman Limited.

Hoag, J. A. & Hoag, J. H. 2006. Introductory Economics. Singapore: World scientific Publishing Company Limited.

House of Commons. 2007. Success and Failure in the UK Car Manufacturing Industry. House of Commons, Trade and Industry. Web.

Lea, R. & Robertson, D. 2010. UK Car Industry Receives 2.6billion Euros Injection. Times Online. Web.

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Lipsey, G. R. & Chrystal, K. A., 2007, Economics. New York: Oxford University Press.

Living Countryside Company Limited. 2010. UK Agriculture. Living Countryside Company Limited. [Online]. Web.

Williams, O. 2009. The Plight of the UK’s Motor Industry. BBC News. [Online]. Web.

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