Competition Brings Out The Best

Written by Joe Driscoll

November 26, 2009

Your competition is more than just the business down the street that’s trying to sell the same product to the same customer.

Being a good competitor is something we all take pride in. Competition is known to bring out the best in each of us. When it comes right down to it however, lets be honest, increasing competition is one thing most businesses would just as soon do without.

The business down the street is but one of nine potential competitors. Generally speaking, most companies pay too much attention to the business down the street and too little to the other eight. These nine competitors can be categorized into two groups, five industry competitors and four environmental competitors.

The five potential competitors within each industry are the first, obvious, existing direct competitors plus suppliers to the industry, customers of the industry, other potential entrants, and substitute products.

Suppliers to an industry can become a competitive factor if they decide to forward integrate into the industry. When a supplier of raw materials decides that in addition to selling those materials they will begin to convert them into finished products, they have forward integrated and have become a competitive factor to an industry that they had previously supplied. Steel mills making high volume finished products out of raw steel are an example of forward integration.

Customers are a potential competitive threat if they decided to backwards integrate into an industry. Take, for example, a growing business that has its sales literature produced by the local print shop. As its printing needs grow, it may decide to invest in its own printing equipment and no longer do business with the local print shop.

Disequilibrium is a force for change. When business in your industry gets real good, you can be certain that other businesses will consider entering your market. If business gets bad in other areas, businesses with similar capabilities will begin to look to diversify, and that may mean another entrant. Several years ago when the construction equipment business was depressed, industrial equipment companies like Caterpillar Tractor started planning on making farm equipment, even though the farm equipment business wasn’t booming itself.

Overnight mail delivery has become a giant business in just a few short years. The competitive threat to Federal Express is not the Post Office or DHL, they’re just guys down the street that do the same thing. The real competitive threats are the substitutable alternatives for document delivery such as FAX machines and computer modems.

There are four potential environmental competitive factors for most businesses. Environmental competitive factors not only pose competitive threats, but an early understanding of these developments can often provide excellent opportunities.

Changing technology can be a formidable competitive force. Not much more than fifty years ago, the ice delivery business was a flourishing industry. While the ice companies focused their attention on the competitors down the street, the widespread distribution of electricity and the invention of the refrigerator doomed them to extinction. Had the ice companies recognized their true competition, they could have capitalized on the opportunity by adopting the new technology. How many of yesterday’s ice companies are building refrigerators today?

Sociological changes are the source of obvious, but powerful competitive pressures and opportunities. The two career family and a health conscious generation are but two sociological changes that have reshaped a number of industries and given birth to others.

World economic trends are forces so powerful that we can do little to alter them. Although we are little able to alter them, we can adapt to them. The economic after shocks of the oil crunch are still being felt by small businesses throughout the southwest. The high value of the US dollar sent the domestic manufacturing industry into a prolonged tailspin. Depressed grain prices proved too strong a competitor for many rural businesses to overcome.

The impact of political change is felt far beyond the banks of the Potomac. Deregulation has drastically changed the landscape in the communication, transportation, and banking industry. It has provided opportunities for some while providing strong competition for others. Politics will continue to have a major economic impact with environmental and health legislation, continued deregulation and re-regulation, changing governmental expense priorities, zoning, and taxation.

In order to effectively deal with competition, to meet its challenges and to recognize the opportunities that it presents, each business must identify all of the competitive forces that will impact it. Because it’s your business, let the competition bring out the best in you.

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