Unit 15 Competition

Competition

There is competition wherever two or more companies supply the same product or service to the same group of customers. Weaker organizations are driven out of the market, often as a result of take-overs. This may lead to a situation when a few large organizations dominate the market and “fix ” the market to their advantage. That is why the creation of cartels is illegal in most countries. However, monopolies still exist. Traditionally a monopoly is an organization that has no immediate competitors and has a major national asset under the government control. There are other terms to describe competition: duopoly (the possession of delivery of a product or service by only two suppliers) and oligopoly (the possession of the delivery of a product or service by a limited number of suppliers). Governments usually restrain these companies from fixing prices.

The nature of competition can be illustrated by means of the forces acting upon an organization in a competitive environment. The greatest competition comes between the current players in a particular market. Even well-established organizations need to keep a careful eye on other players in the market. They may employ staff whose main role is to spy. Some call it CASE – Copy And Steal Everything. This is not industrial espionage, but sampling the products and services of the opposition. Competitors may emerge from other markets like new entrants and substitutes. In the first case these may be not only newcomers, but also large organizations that buy existing players. In the second case, companies have to compete with players from different markets. For example, shipping companies are no longer in shipping business, but rather in traveling and entertainment, on a par with traveling agencies and hotel chains.

Companies search for obtaining competitive advantages and one or more unique selling points (UPSs) i.e. those things, which only that organization offers, and thus the things that distinguish it from other organizations offering similar products and services.

A USP is, in effect, an organization’s monopoly. There are two basic ways to obtain competitive advantage: to reduce costs and differentiate your product.

Competition on costs is complicated by the need to maintain quality, but fortunately, there are strategies that can be adopted to cut costs without diminishing quality. They are the following: reduce waste, reduce staff costs, lower quality, reduce margins and make a deliberate loss. In the first case a company could locate manufacturing facilities closer to suppliers to reduce transportation costs. The second strategy may imply either downsizing or

applying new technology. The third strategy may seem a bit of a joke, but it has come into vogue in the car industry. The term “ planned obsolescence ” means that parts should be engineered for the anticipated maximum lifetime to avoid over-engineering. The following example explains the fourth strategy. In order to clear old stock it may be acceptable to sell it at a very reduced margin and economize on storage costs. The last strategy may seem strange, but there can be short-term reasons for doing so. The first is to sell the core product at a loss and then sell supplementary products training at profit. The second is to offer the basic model at a loss but then use sales techniques to persuade the customer to upgrade to a more expensive, profit-generating model.

Within any cost grouping there are a number of ways a company can differentiate/segment its products. These can relate to the provision of supplementary products or services, they may be centered on customer base or they may be based on brand names. The latter can be illustrated by the phenomenon of generic products, when a manufacturer makes a series of identical products and attach brands after they arrive in the country of re-sale. Segmentation centered on the customer implies that for an organization to be a success they must offer the right product to the right segment, and that means the behaviour of that segment.

1.Find equivalents to the following words:

родовой продукт/ центральный/ затраты на хранение/ чрезмерно высокое качество разработки продуктов/ шпионаж/ вытеснять с рынка/ государственные активы / непосредственные конкуренты/ отбор проб/ монополия двух конкурирующих компаний/ добавочные товары/ прибыль/ устарелость/

2. Answer the questions:

What is monopoly? Duopoly? Oligopoly?

What is “planned obsolescence”?

Why are cartels illegal?

Name the most important competitors in the market.

What are the main strategies in achieving competitive advantages?

How can companies reduce costs?

Up to you…

The restaurant you work for offers national European cuisine. It has a downtown location, but recently they have opened another restaurant just next door. Your task is to draw up a plan to achieve competitive advantages. …Or maybe to send a CASE team?

Links

The Journal of Comparative Economics c ontains a lot of articles on various problems of competitive environment. Another site with useful information on business is:

www.meanbusiness.com.

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