Competitiveness can also be viewed from an industry or business perspective.
When businesses are relatively equal in size; Competition in the industry is more intense when resources, products, and services are standardized and industry growth is either slow (where one company makes money at the expense of another) or fast (in which case gaining a foothold in the market would be a strategic imperative). Price wars, incessant advertising (like nightly phone calls with long-distance carriers), frequency of promotion of new products or services, free trials (through software companies and internet providers), low profit margins, and purchase (like extended warranty, financial packages, replacement of premiums) Buying incentives are evidence of industry competition.
Industrial competitiveness can be measured by the market share of industry leaders and the number of major players in the industry. By these metrics, the most competitive industries worldwide are banking, food, drug store and electronics. (Industry leaders of Deutsche Bank, Metro and Siemens have only 4%, 8% and 10% market share respectively). In stark contrast to these industries, tobacco, diversified finance, and general vendors, in which Philip Morris has 55%, GE 49%, and Wal-Mart 33%, are less competitive industries.
Industries with fewer barriers to entry are more competitive. Internet-based start-up businesses rise easily because they require little capital and physical facilities to enter the industry. However, they also decline very quickly because they have too many competitors for the market to handle. Industries with high barriers to entry have economies of scale, capital requirements, access to supply and distribution channels, and learning curves are transaction-oriented. Let’s examine them in more detail:
Economies of scale: In many industries, as the number of units produced increases, the cost of each unit produced decreases is known as economies of scale. New companies entering such an industry may not have high-volume production support requests. Therefore, unit costs will be higher. Economies of scale apply to infrastructure as well as buyer and seller aggregates. While other online auction sites struggled to compete, eBay’s first appearance on the Web caught the attention of many customers.
Capital requirements: Initial major investments in facilities, equipment and training may need to be “players” in some industries. E.g; For a day care home, only an existing home with few equipment, training and licensing requirements is sufficient, on the contrary, a large investment in facilities, equipment and professional staff is required to open a new hospital. Similarly, a small capital investment is sufficient to create a website and online sales.
Access to supply and distribution channels: Existing businesses in an industry have established supply and distribution channels that can be difficult for new firms to imitate. E.g; ToysRUs dominates its suppliers. Wal-Mart’s information and distribution systems provide a strong competitive advantage. VISA does not allow member banks to do business with American Express. However; entertainment and education can be made available to anyone around the world via the Web. Direct sales on the Internet eliminates the need for a sales force and allows fastpack delivery companies to take care of the distribution business.
Learning curves: Lack of experience can be a barrier to entering an industry with significant learning curves. E.g; American companies dominate the aviation industry because of their experience and expertise in aircraft design and construction. However, this may not always be the case.
Because component manufacturers in Korea and Japan gain valuable experience as well as aviation companies. Shipbuilders argue that building each ship corresponds to a 10% learning curve (and cost advantage in return). Hospitals performing heart transplants exhibit a large learning curve of 79%. On the contrary, web services are notoriously easy to copy, requiring very little knowledge.
The level of competitiveness in an industry influences product innovation, technological investment, and operations strategy for each firm in the industry. It also determines the average competitor profitability. Sometimes structural changes make the industry more competitive and individual firms less profitable. E.g; The internet makes it difficult to personalize products and processes and thus tends to reduce price competition among firms in an industry.
Expanded geographic markets provide a larger customer base, but they also increase competition. In addition, customers’ bargaining power has expanded with easy access to companies, products and benchmarks. The same result applies to companies and their suppliers.