Business Strategy: Competition, Value Chain, and Growth
Intensity of Competition
(*) The intensity of competition is related to the degree of concentration or the number of competitors in a market. If the degree of concentration within the largest concentration of NIRA is high, there are fewer competitors, and the industry is more concentrated. Conversely, if there are more competitors in a market, it indicates that this market is more fragmented.
At the extremes, a market with zero competitors would be a monopoly, and perfect competition would involve a very high level of competition (where no one has the power to influence the price of the product). In a monopoly, we can find zero competition, one supplier, and many demanders. In this situation, the sole supplier (e.g., in telecommunications) controls prices, quantities, and qualities. Prices are high, which is beneficial for the monopoly but detrimental to consumers, as they lack choice and freedom to select among different products and prices.
In contrast, in a perfectly competitive market, there are many suppliers and demanders, resulting in tight and competitive prices. The product is homogeneous, meaning it is the same for all and does not vary or varies very little (e.g., the market for oranges). Another characteristic is the free availability of information to everyone (perfect information).
Between these extremes lies an oligopoly, where there are few suppliers and many demanders. In this scenario, there is a risk of cartels forming (where prices are agreed upon for repeated market transactions). Examples of oligopolies include the diamond, telephony, and oil industries.
String Value
The value chain involves breaking down and analyzing each of the activities carried out in a company to manufacture and sell a particular product or service. It, therefore, analyzes the value and cost of each activity separately because each activity generates a value associated with the final product and also represents a portion of the total product costs.
Competitive Advantage Concept
Competitive advantage is the set of internal characteristics that a company must develop to obtain and maintain a superior position over its competitors. This advantage can be in cost or product differentiation. A cost advantage occurs when a company can provide a good or service to consumers at a lower cost, thereby increasing its margin. A differentiation advantage exists when a company makes the consumer perceive a special feature of its product or service that may cause an increase in demand.
Business Development
Business development should not be confused with business growth. We talk about development when a company produces qualitative changes in the characteristics of its business, whereas growth refers to quantitative changes related to its capacity or size.
Factors Influencing Business Location Decisions
One of the factors is the proximity to raw materials (RM). Depending on the nature of the product offered by the company, it may be advantageous to locate near the raw materials to reduce transportation costs or minimize waste. For example, fish processing companies will be located near the port to save on transportation expenses and product waste.
Another factor is the proximity to customers. For instance, pharmacies and post offices are often located in well-connected areas to attract customers.
The proximity to suppliers is also a factor, not only suppliers of raw materials but also of services. Companies often cluster in industrial areas where positive synergies can occur by sharing technology or any kind of expertise. Companies tend to concentrate in technology parks, such as Silicon Valley in the United States, near San Francisco.
Synergy can be defined as an additional benefit of cooperation that is greater than what would be obtained if working separately. It can be summarized as 1 + 1 = 3.
Know-how is the set of knowledge that a company possesses that has value, such as experience. The extensive experience of a company like Coca-Cola can be used to create added value.
Another factor is low labor costs. Industries will be strongly influenced by the availability of inexpensive, not highly specialized, but essential labor.
Another factor in relocation is the knowledge or availability of technology. Businesses or technologies that require new technologies are often located in highly developed countries like Germany, the U.S., and Japan. Examples include chemical, computer, pharmaceutical, and automotive companies.
Finally, legislation, regulations, or taxes in a country can be strong barriers to entry into a sector or geographic market. Therefore, companies often seek locations with easily accessible regulations.