Chapter 6: A Competitive Analysis And Strategy

Chapter Objectives Structure Of The Chapter Competition Industry analysis Competitive strategy Sourcing Chapter Summary Key Terms Review Questions Review Question Answers References Bibliography

Successful marketers are those who can steer their organisations through the turbulent marketing environment, and do it better than competitors. Whilst easy to say, in practice it is not easy to do. Many competitive industries and organisations are very difficult to penetrate, despite all the intelligence techniques that may be available to get information. The Kenya flower industry, for example, whilst willing to give general information on their production and marketing, are very reluctant to give away their "trade" secrets. Other industries, like the diamond industry, are very exclusive in the sense that few companies dominate, the most famous being De Beers. Despite this, any successful organisation has to look at the competition, and moreover, be aware how the nature of competition can guide its strategy. The Kenyan flower industry is facing increasingly stiff competition from Zimbabwe. Its response has to be rapid in order to preserve its stance. Whilst Kenya may have been a market "leader" with the appropriate strategy to go with it, Zimbabwe as a market "challenger," may have made Kenya now to think, more in the future, to go with a "niche" strategy as a counteraction. As we saw earlier, this certainly was the case with Kenyan vegetables.

Chapter Objectives
The objectives of this chapter are:  To describe and give an understanding of the different ways of analysing competition  To show how to develop strategies based on competitive analysis and  To give examples to ensure understanding of the techniques.

Structure Of The Chapter

including Norsk Hydro. devastated by the war. Competition Competition in most global product/markets is intense. the first stage only has been reached and even then much of the added value is exported. Pannar and Cargil seeds. Thankfully this is not the case in . for example Israel's CARMEL and South Africa's OUTSPAN. Figure 6. In the fertiliser industry for example. In 1990. To successfully launch an international challenge he identified four "home" prerequisites . Now Uganda is hitting back by resurrecting its shattered industry and strongly marketing its product to Malawi's detriment. Examples are given to reinforce the theory and the chapter finishes by looking at "outsourcing" as an important competitive strategy. Uganda was a world supplier of chilies. As well as being able to successfully manoeuvre through the environment he identified that the foundation of success lay in the "diamond" of "home" advantage. Unfortunately. the Malawian and Ugandan Birds Eye chili example is a good case.2). saw Malawi. "macro" factors like changes in technology and social factors and "micro" factors like customers' or buyers' changing needs. if not. Uganda.the maximum use of endowed resources (natural and human) the forming of domestic networks to fully exploit these resources. threat of new entrants. If the rate is "competitive" it will encourage investment. Substitute competition has also become an increasingly bitter battleground. so has brand competition. new entrants and substitutes (see figure 6. why some nations were more competitive than others. Figure 6. with products being able to replace others as technology and tastes have changed. an industry and environmental structure (the latter provided by Government) in order that these forces can thrive. buyers. Porter1 (1980) and (1985) looked at the forces influencing competition in an industry and the elements of industry structure. it will discourage competition. few companies dominate . Product type competition has become intense also.1 Forces influencing competition in the industry Porter further postulated that the elements of industry structure are suppliers. threat of substitute products.The chapter opens with a discussion on the nature of competition and then looks at a number of competitive analyses. Competition drives down rates of return on invested capital. In this analysis. including the seminal work by Michael Porter on industry analysis. (a new entrant) take over its position. domestic demand (which may involve the invitation to world class players to help develop these resources in country) and finally. Porter2 hypothesised in his text "The Competitive Advantage of Nations". Industry analysis One way to look at competition is by industry analysis. in many developing nations. for example.1 shows the four forces influencing competition.

labour). climate. However. complementary supply may not be a competitive strategy per-se. work patterns.other LDC's. physical and social infrastructure (roads. price policies. many factors go into making up the comparative or competitive advantage of a supplier. many technological. technological developments etc. labour. We can examine this further by looking at the application of the above theory in the food industry. Porter would refer to this as "competitive advantage" or "international competitiveness". because a supplier must still look at itself as a low cost or product differentiated supplier. market or natural resource endowment factors go towards making up competitive advantage. tariff and non tariff barriers Geological resources. price. meeting production shortfalls because of weather. suppliers."off season". Whilst Porter concentrates on two factors in the control of manufacturing industries i. tastes. resources and strengths of competing. in the long term. fiscal and monetary policies.e.leading to underpricing over competition b) differentiation of product .1. to be competitive. services. tastes. power system) and micro-marketing relationship (quality/price relationships. Similarly in food systems.2 Elements of industry structure A food system. Figure 6. must have two requisites.: a) lower cost of production and delivery . experience .quality. natural resources and human capital endowments (weather. These factors are primarily related to the size and patterns of food demand (shaped by incomes. image. The commodity system may have to compete against those industries in international markets or be threatened by them in its domestic markets. and these are summarised in table 6. and secondly it must be absolutely competitive against similar commodity systems or industries in other countries.). elasticities Terms of access and trade. soils. Table 6. disease and so on. c) in export oriented agriculture it is essential to recognise a third potential source of competitive advantage that of: d) complementary supply . As in industrial products. management). Firstly it must be competitive with other agricultural systems or any other system for that matter (say wildlife management) in attracting resources. ports. investment policies. microeconomics and sector policies (rate of inflation. Many of these factors have actually been discussed.1 Factors affecting international competitiveness for products/commodities1 Factor Market research Macroeconomics and sector policies Natural resources and human capital Vector Income. telephones. population clusters.

use of accredited pesticides. against nearly all the odds. spot or contact trading. phytosanitary systems. waxcoating. relationship building. tailor made Bulk transport. production support systems. market information. dissemination of information to producers. grades and rules defining property rights. credit. production. unusual brand marks or reputations. has been that of Argentina beef. size. credit coordination. and laws. perishability. .2 give an example of a number of sources of competitive advantage for selected worldwide products. Conversely these factors can also be "standardised" by Government or other market intermediaries and players to make the "threat" of new entrants even more real. standard channels of distribution and so on. In food marketing systems. through low cost of production and product differentiation it has been able to maintain its international competitiveness.buying. and social infrastructure Micro marketing relationships Transport. permissable forms of cooperation and competition. standards. Table 6. farm distribution Low cost to differentiated supplier Commodity supplier to niche and technology supported product Commodity Off season Historically.Physical. marketing. efficiencies of management. grading. post harvest facilities Quality control. packaging. technical. as well as barriers to international competitiveness. These barriers can be related to technical characteristics of commodities. It is an example of how. mechanical handling. All these can help facilitate the entry of a newcomer and make the incumbent be particularly on guard and responsive. rules and regulations -phytosanitary requirements. communications.small scale producers incurring higher transport costs. promotion. These include standard technological measures like containerisation.economies of scale. extension. selling. production characteristics . brand Important name. high quality Broad range. market research. barriers to new entrants can exist. Table 6. sizing. marketing extension. In Porter's3 analysis industry competitors can be "threatened" by new or potential entrants and substitutes. processing and distribution functions . bulkiness.hygiene requirements. handling. tank.2 Sources of competitive advantage for selected commodity systems Low cost Product advantage differentiation Kenya vegetables Production Broad range Thailand tuna Taiwan food processing Israel fresh and processed citrus Brazil frozen concentrated orange juice Production Processing Tailor made. not low Shift in source/strategy of competitive advantage One of the remarkable success stories. rules and standards . standard laws. risk analysis.

including capacity rationalisation. flexible and transparent livestock marketing system. Israel found itself unable to compete internationally with its citrus products. Germany and the US. Argentina's international beef market contracted and so it standardised the domestic market. frozen beef) which now account for over 80% of export value. d) development of new: international market outlets. But this is not limited to LDC's alone. CASE 6. but found a new way to remain competitive internationally. b) well developed.1 Argentina Beef Beef has been a tradition in Argentina for two centuries. Argentina beef is now back in profit and. It had always exported salted meet and later chilled beef. e) debt rescheduling by banks for livestock and trading enterprises. currency overevaluation.CASE 6. c) Innovations in beef distribution domestically (butcher chain stores. and the threat of new entrants. and. Its success was sustained by a) low cost production of quality beef (climate and extensive grasslands). Argentina is stilt the world's third largest beef producer and fourth in exporting terms behind Australia. the citrus subsector grew rapidly. Its export value is now near the $800 million mark although only 10% of its total agricultural exports. and other environmental factors like World War II. fuelled by mass immigration and large capital investments. but with the establishment of "barriers" internationally the Commonwealth preference System. but survived. With the well respected "Jaffa" label and the Citrus Marketing Board as the Only exporter (in Porter's term's . This success was not necessarily built on favourable trading conditions but its ability to maintain international competitiveness through rampant inflation. potential uncertainty and increased competition from substitute products internationally and from the Argentine cereals subsector which was clamouring for more resources. With recent measures to make the industry viable again. Argentina's beef consumption per capita is almost four times that of Western Europe (70-80 kgs compared to 15-25 kgs) Despite its domestic orientation recently. vacuum packing). canned beef. heavy taxation. However it has maintained or increased its export of high value products (boneless cute. The Argentina beef industry faced all the "macro* forces described by Porter internally and externally. is exporting a little more now Many more examples exist of less developed countries taking advantage of the low cost of production and product differentiation to make an international success. (Mid East). its traditional export markets for lower value products (boned and manufactured -beef) has been lost to subsidised EU supplies and because of other developed country protection measures. Hectarage rose from 14 000 to over 40 000 hectares.2 Israel Fresh Citrus Fruit By the early 1950's.

These included:a) rapid cost inflation in the mid 1980's. e) improper export product mix. away from Israeli Shamuti (Jaffa) orange and white grapefruit. and were able to absorb one million tons of fresh fruit product. it increasingly found Itself with excess supply and a product which was less in demand.giving huge. c) a significant rise in international shipping costs in the early 1980's. looks like in the supply of root stock to other producers and processors. Bargaining power by the CMD shifted from supplier to the buyer. bases. Competitors had a better product and lower costs and a product that was now demanded. especially in demanded products for example Spain. Citrus Marketing Board found it had to shift its orientation from powerful. b) the strength of the USD vis a vis European currencies. although Florida and Brazil are doing the same. Consumer tastes had shifted to "easy peeling" oranges and tangerines and sweeter red grapefruit. However. g) inability of the Citrus Marketing Board (CMB) to reposition itself to maintain competitiveness. and. the greatest potential. by the late 1970's stiff competition from Spain. In 1990 a few cooperatives and processors began processing fruit. "supplier power") Israel oranges and grapefruit dominated many markets. pack houses mothballed and volume levels falling to 1930's levels. f) conflict of interest in the subsector giving weakened incentives for product innovations and quality. h) Quality and supply of competitors. and the once powerful. The CMB's unit of accounting was USD. However. Several factors led to Israel's decline. Competition analysis . Technological advances and the ability to tailor make to niches has ensured international competitiveness. The 1980's saw a major decline in international competitiveness and profitability with more than 20% of its planted citrus area uprooted. despite the unsuitably of the product in many cases. bargaining seller to a marketer" naturing new demand patterns. However. The Israeli citrus industry experienced all the problems envisaged by Porter In maintaining industry competitiveness. d) financial crisis within Israel's agricultural settlements. These directly substituted for the Israeli product. The once powerful Citrus Marketing Board's monopoly was rescinded in 1991. Israel responded. Morocco and Cyprus and changing consumer tastes led to a levelling off of demand. essential oils etc) first exceeded its value of fresh fruit in 1984 and are now double the export of fresh fruits. Export of processed citrus products (concentrates. Whilst it succeeded in some of its promotion and utilisation campaigns.

A good example of this is the Dutch flower auction or Gerber baby foods. The first relates to the configuration of marketing. as have Cadbury and Nestle. On the basis of these first three. of know how. Focus strategies concentrate on serving a particular segment better than anyone else. financial and management resources. room for all developing countries to take a share in most world markets in commodities. This is the case of television sets and many fruit products. If there is a large perceived difference created. one needs to know the way competitors measure themselves. as well as the analysis given above. Failure to do so may mean that the opportunity has passed. These opportunities have to be explored alongside careful analysis of the life cycle stage in one or another country. without one country wishing to be too aggressive.overall cost leadership. A second role relates to the coordination of activities across countries to gain leverage say. take part in trade fairs. In identifying the competitor's strategy to date.3). increase motivation. The life cycle As indicated in chapter one. and act responsively to the industry. whereas the firm may be under the impression it is still there. In the first of these . Evaluating resources is difficult. It is essential to look at their production.knowing the way competitors see themselves . Not all competitors are necessarily bad. their major strengths and weaknesses and likely future strategy.3 Generic competitive advantage If there are few perceived differences between products and their uses are widespread. Generic approaches According to Porter1 (1980) there are three generic approaches to outperforming others in an industry . Successful strategies start with a firm base in one region or country. then the firm has more price leeway. . their strategy to date. or indulge in "espionage". it is not enough to believe what they say but to reconstruct their strategy. Good competitors can absorb demand fluctuations. Competitive strategy Value chain analysis espouses three roles for marketing in a global competitive strategy.much can be learned from public accounts. it is possible to guess the future. Figure 6. purchase the competitor's product and take it apart.In order to know how best to compete. Other ways are to have competitive personnel. CARMEL and OUTSPAN successfully created a perceived quality advantage. It may be advantageous to concentrate some marketing activities in one or a few countries. There is. More will be said about value chain analysis in later chapters. interviews and the trade press. differentiation and focus (see figure 6. expand the market. for example. then expand as opportunities arise. A third critical role of marketing is its role in tapping opportunities for upstream advantage in the value chain. marketing. then the lowest cost firms will get the advantage. successful global strategists have also to be cognisant of the international life cycle.

tractors. for example. Too often developing countries attempt to gain entry into the international market without knowledge of the industry or competitors. The market follower is "allowed" to stay in the market only if the leader chooses to maintain a price umbrella and not maximize share. any other route but through buying agents. However the follower may be able to service segments on a more personal level than the leader and hence maintain an industry position. The "copy adapt" strategy is a relatively well tried strategy in which an organisation may seek to copy a successful product/market strategy pioneered by another organisation and adapt it to local conditions or other markets. . Typical examples exist in all countries but none more so than in India.supermarkets.carnations. is an essential prerequisite to designing a strategy. the International Harvester and the Indian Mahindra tractor "look alike".rather than the low value ones. We shall see this later in the case of Thailand's tuna industry. The three types of positioning strategy are market leader. having got there through. Now it is somewhat changing. enhancing quality and stressing operating efficiencies. In market leadership the firm must work at maintaining its position.low cost of production  Customer knowledge . for example.Strategies for success Success can be achieved in industries by identifying growth segments within an overall market. such as that gathered by the process described in chapter five. an organisation may publicly announce its intention to take over the number one position either by price advantage. ox carts and many other cheaper. In marketing vegetables to the UK.shifting the product mix to meet changing demand  Technological innovation . orchids . In fragmented industries success can be achieved by the creation of economies of scale. adaptations of well known marques. roses. until recently. Other strategies include "market flanking" . Malaysia attempted to break into the cocoa industry. was a recipe for disaster. product innovation or promotion. In the poultry and beef cattle industry. One can see agricultural land implements. by being very responsive to market needs. transport systems In the market challenger category. where the local populace may simply not have the income to afford the real thing. cost advantage or innovation. We saw in the case of Argentina's beef and Brazil's frozen concentrated orange juice that success was built on:  Economies of scale . this means feed lots and intensive rearing. bulk transport  Infrastructural development . The need to properly assess the market and devise a strategy on the assessment is a must to succeed. market challenger or market follower.a classical Japanese approach. it is the high value types which are giving the returns now . say. Intelligence. Another way of overcoming fragmentation is by "positioning" which must be consistent. The competitive position of the industry is very important to the would be global marketer. Many examples of this strategy exist in LDCs. but did not achieve success because the cocoa was the wrong type and the product could not be absorbed into the world market. In the cut flower industry.vacuum packing policy.

Should countries not be able to obtain a cost advantage. According to Porter. . one possible option is to "outsource" production. prior to 1990. therefore. This is a very common phenomenon of developed countries. take the assembly of tractors in Zimbabwe. Essentially. or through out sourcing in country as in the case of Kenya vegetables. that global sourcing can occur effectively. global marketers have to decide how they are to compete in their chosen market. market challenger or market flanking. This is often called the "make or buy" decision. this is what competitive strategy is all about". World markets are a stage on which a player must choose or find his unique part. However. with economic reform. In analysing a value chain the organisation may find it much cheaper or easier to source certain components of the chain from outside of the country it is operating in.Sourcing A different approach to gaining competitive advantage may be through "out sourcing" from a number or countries. It is uncommon for global organisations like Ford and Toyota to source components and end products from a variety of countries or to shift global production to the most cost competitive economies. The electronics and some other components are incapable of being sourced locally because of the technical sophistication required in the production process. These components have. Chapter Summary As with domestic marketing. there was insufficient foreign exchange to pay for them. the principal sources of competitive advantage are lower costs of production and a differentiated product offering. "As illustration of the above discussion. it does take careful coordination and setting up if it is to be successful. but may have to work hard to obtain the latter. Continuing with the Zimbabwean example. Since 1990. these include market leadership. It is only when all the factors listed above are in place. Lesser developed countries usually have the former. this situation is now rapidly changing. There are other strategies available to marketers other than low cost. Outsourcing is a well established global strategy. it is impossible for the country to be highly outsource orientated and find cheaper labour factor countries to manufacture products because. The criteria for the "out" sourcing decision are:  Factor costs and availability  Logistics: time required to fill orders. All these strategies require information on competitors as well as on "environmental" conditions. to be imported. security and safety and transportation costs  Country's infrastructure  Political risk  Market access  Foreign exchange  Technological capability.

compared to that commodity in another country. What are the sources of "competitive advantage" in a food marketing system? 3. New York: The Free Press.Key Terms Competitive strategy Competition Sourcing Competitive advantage Marketing positioning Review Questions 1. "Competitive Strategy". 2. market challenger. 2. M. a market leader. either from the text or from general reading.through taking up market interstices (Thailand tuna) Copy .through price or product innovation/promotion (Spanish easy peeler citrus) Market follower . Porter. "The Competitive Advantage of Nations". 1980. New York: The Free Press. Market challenger . Review Question Answers 1. What is the difference between "comparative advantage" and "competitive advantage"? 2. Describe. with examples.through cost or innovation advantage (Argentine beef). Competitive advantage is based on lower production costs and/or quality of market factor differentiation between one country or industry and another in like products. 1990.through price umbrella or share (Zimbabwe beef) Market flanker . M.adapt . in one commodity. Market leader .through advertising known technology/products (Mahindra tractors) References 1. market follower. Comparative advantage is the ability of one country to achieve a lower production ratio.E. Porter. under total specialisation. .adapt strategy.E. market flanker and copy . Sources of competitive advantage are:  lower costs of production  quality or market factor differentiations  supplementary supply patterns Tutors are advised to ask students to give examples of these later. Such examples include Brazil frozen concentrated orange juice (lower costs) Kenyan vegetables (product range) or Chile tomato pastes (supply patterns) 3.

J. "Winning the Marketing War". 1986. "How to Compete in Stagnant Industries". Harvard Business Review. S. Boston: Harvard Business School Press. "Positioning: The Battle for Your Mind". M. "Competitive Advantage". 6. John Wiley and Sons. 4th ed. "Exporting High Value Food Commodities". A.G. Jaffee S. W. "Global Marketing Management". 9. McGraw Hill. W. Sept-Oct 1979. and Trout. "Competition in Global Industries". and Silk. 7. World Bank Discussion pp 198. Hammermesh. SeptOct 1980. 1993. Hall.K. Porter. New York: The Free Press. "Survival Strategies in a Hostile Environment".B. Harvard Business Review. 1989. Prentice Hall International Edition. 10. 1985. Duro.E. Porter. 5.B. R. . pp 161-168. 1989.3.E. pp 75-85. Bibliography 4. Keegan. 1981. M. Ries. J. R. 8.

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