“A competitive world offers two possibilities. You can lose. Or, if you want to win, you can change.”
Gone are those days when the producers decided what to produce and then induced the consumers to buy it by the way of advertisements, rather today the consumer is being made more aware about his rights by the help of the same advertisements, which once made him buy what he never wanted. The modern consumer is more conscious today and thanks to the governmental and non governmental bodies who keep drilling into their heads the slogan “JAAGO GRAHAK JAAGO”. This consciousness coupled with degree of competition in the present market has led to the stage where the tastes of the consumers rather than the preference of the producers determine what goods are produced.
The unavoidable competition in the market has affected parities at both the ends i.e. Consumers as well as Producers. Competition in the economic sense is more than what a lay man understands. It is “the situation when anybody who wants to buy or sell has a choice of possible suppliers or customers”. This Market competition led the suppliers to make goods of superior quality at a lower price with better services, to acquire the ability to compete in the market, which is nothing but competitiveness.
Competition is desirable because, among other things, it lead to at least three positive economic effects-
(i) The allocation of resources to their most valued use i.e. allocative efficiency (ii) causing firms to react to competition by reducing costs i.e. productive efficiency and (iii) causing firms to innovate and introduce new products and new ways of producing products i.e. innovative efficiency. In situations of good competition, competitors have equal chances to compete for business on the basis and quality of their outputs, and source deployment follows market access in meeting consumers demand at the lowest possible cost.
The MRTP Act had become obsolete in certain areas in the light of international economic development relating to competition laws. Its objective was to prevent concentration of wealth and dominance while the need of contemporary era is not to curb dominance but abuse of dominance. It was needed to shift focus from curbing monopolies to promoting fair competition. Efficiency is attached with competition and the markets can fulfill their functions efficiently only if they remain competitive. Competition Act, 2002 was made on the recommendations of the Raghavan Committee and dissolution of MRTPC emphasized that the formulation and implementation of government policies should take into account competition principles. Even the planning commission had also; in the IX five year plan recommended the urgent need for regulating a national competition policy in India. The National Common Minimum Programme, 2004 of UPA government stated that the government desires to strengthen all regulatory institutions to ensure that competition is free and fair.
The Finance Minister in his last budget speech for the year 2009-10 had this to say:
“The benefits of competition should now come to more sectors and their users and consumers. Now it is the time for us to work on these aspects, to eliminate bottlenecks, enhances productivity, reduces costs and may conclude all goods and services supplied to consumers”.
The aim of 'competitiveness policy' should be such that 'a nation can, under free and fair market conditions, produce goods and services, which meet the test of international markets, while simultaneously maintaining and expanding the real incomes of its people over the long term'.
Outcomes of competition:
1. Availability of substitutes:
With the firms competing with each other in almost every sphere, there are substitutes available in the market for every good and service offered to the consumer today. This induces the supplier to develop his product into unique one even so that his product has no identical substitute which he does buy.
(i) Technological Changes (optical mouse instead of ball mouse)
(ii) Inventions (touch screen laptops)
(iii) Developing a new market (introduction of men cosmetics)
(iv) By altering the usage pattern (a cell also used as a camera and computer.)
(v) Overshadowing the existing product by value added offers and services (discounts and free products with another)
Example: Nokia has still acquired huge market share in wireless communication in India because of its uniqueness and user friendly operations. Today one understands, a Nokia phone, within a day he buys it.
2. Consumer sovereignty:
The competition has given the consumer Right to Choose among the products available which has made him sovereign in his sphere. Ultimately he has to buy the goods and services provided by the producers. He bargained only in respect of quality and price has become a complex task to win the patronage of the consumer. The contemporary producer has to keep in mind all the aspects which influence the consumer to use the products such as cost benefit trade off to him, the economic and operational utility of the product and service, the efforts required by the consumers to change existing practice.
3. Entry Barriers:
Competition restricts the entry of new firms in the market and also brings additional capability to work which new suppliers and existing suppliers have to meet and it alters the existing equilibrium situation of demand and supply. The aim of these barriers is to protect revenue and to increase initial cost of production so that they can make the industry non- attractive for new entrants. Sometimes when rapid expansion of market size is not economically viable, existing players retain them by price based competition.
Example: State Bank of India by its wide distribution network of branches has created an entry barrier to competition in terms of reach to consumers.
So it is clear that if a firm has to enter the market it has to break these barriers, which it can only do by creating a new market for itself, or by creating a better product with some added advantages than its substitutes.
Example: Development of men cosmetics by firms created a new market and at the initial stages they had no substitutes.
Modes to achieve competitiveness:
1. R & D (Research & Development):
Today if a firm has to survive the market competition it has to keep upgrading its products and that is where research and development comes into the picture. This is a process which makes the firms understand their goods and services and also how can they be improved according to the needs of the society. Competition has increased to that extent that, to survive in the market, one will have to follow this process. Almost all the firms today have a research and development department to increase customer satisfaction and in turn increase their revenue. Firms are even outsourcing R & D, so that at low cost, it becomes viable for them to improve their products.
Example: Bajaj has dominated the two-wheeler market through pulsar by introducing newer models from time to time, and also improving its technology for fuel efficiency such as DTS, DTSi and DTSSi.
2. Cost Leadership:
The existing players keep this strategy with the objective to become the lowest-cost producer in the industry in comparison to their competitors. Almost all the market segments emphasis on this strategy so that they can stand in the market. If the producer’s price is equal or near to an average price of the market then he will enjoy best profit in that industry. Broadly this strategy is used by large-scale businesses offering "standard" products to their customers with relatively little differentiation and if it is successful then perfectly acceptable to the majority of customers. But now small scale industries also offer low cost products, discounts, for increasing their profits or maximize their share in the market. It can be used for both goods and services. Even providing services at low price makes the consumer one’s permanent customer provided with perceived quality of it. The firms achieve cost leadership by scale of operations, unique access to superior technology, carefully selecting market segment etc.
Examples of Cost Leadership: Toyota production system through its generic management tool which systematically identifies and eliminates waste in operations achieved cost leadership. It was this cost leadership of Toyota which made the company challenge the well established auto giants throughout the world.
3. Value added services:
With the increase in market competition, its players to retain their position in the market are providing value added services to their customers. Modern consumers want better services at low prices and to provide them with this quality, producers are rendering them such type of services so that they can keep the consumers intact with them. Value added services include a wide range of services which are used by both small and large firms. While large firms with big product line offer a one of their products free with another the smaller ones increase the quantity of their product with no increase in price. Value added services today used to promote two products together, as the product offered free with the product is generally a new one.
Example: company making a shampoo and a soap may give one free with another to promote both the products.
4. After sales service:
The intensity of competition today the producer’s job does end on the sale of the product. Today firms also provide after sales services to win the patronage of its consumers. If one producer provides best after sales services to his customers then he will enjoy maximum trust of his customers as well as huge profit. This loyalty of producer renders him best profits. Usually electronics market need excellent after sales services such as Cell phone, TV, Refrigerator, Air Conditioners etc.The producers of these electronic products providing good after sales services to keep intact their customers with them. Market today, is service oriented not producer oriented. If one is providing best services in industry, he has to do nothing; this feature will render him loyalty and trust of his customers towards him.
Example: DELL Provides on side services that if a consumer has a problem with the product, he just has to make a call and his work is done.
5. Personalized goods:
With the increase in the intensity of competition the companies are also looking towards personalized goods for people. It works on the rationale that what is good for me may not be good for other or what is of my choice, may not be of other’s choice. Therefore, companies are coming forward with this concept in which they are providing goods and services according to the need of particular consumer. This has given birth to tailor made products which give maximum customer satisfaction.
Example: A women cosmetics range Kaya Skin Clinic offers the products to the customers by understanding what they need and Reid&Taylor which gives the consumer finishing and style of readymade clothing brand with good fitting.
6. Social Responsibility:
World Business Council for Sustainable Development defines “Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large”. In Indian context, it can be explained in a way that now it has become a social responsibility of every company to make goods or such type of policy for services which influences public policy in favor of disadvantaged people and environment at the same time with getting best profits.
It improves the public image of the company which is necessary in the contemporary era of competition. Today, producers comes with their advertisements that their product is environment friendly, contained no hazardous substance, recyclable which makes good impression in one’s mind.
Example: TATA Steel Ltd. has acted as a conscious corporate citizen of India and has been devoted in the area of micro finance, education, environment, health (has evolved a corporate sector model to prevent STD/ HIV/ AIDS) and relief during calamities.
7. Mergers and Acquisitions:
The degree of competition in market today has lead to, two producers specialized in their fields to come together and make a product with a view of acquiring large market share and generating more revenue than they could have generated alone in the particular market segment which is nothing but merger.
Example: Maruti Udhyog Limited introduced its Car. It collaborated with a Japanese company Suzuki to influence the consumer power on quality dimension.
Market competition has also lead to companies acquiring their competitor companies by buying their shares or the company as a whole. This is done to get the acquired company’s existing market share also to eliminate competition.
Example: Indian soft drink brand Thums Up was acquired by foreign brand Coca Cola to get its market share.
Advertisements are used as an aggressive marketing strategy to improve the perceived quality of their products and also to induce the customers to buy the same. It has become today a major part and parcel of company’s expenses. A good advertisement can increase the market share of the product without changing much in the product.
Example: Vodafone Zoo-Zoos’ based marketing campaign has created problem for its competitors.
Customer service is not a department, it's an attitude!
The idea of competition has dominated the way we think about the society for more than two centuries. The competition encourages efficiency, enterprise and widens choice. So if seen at large competition has been advantageous to the society as has provided the consumer with cheaper products due to efficiency the increase in enterprise has lead to the development of the human mind and widening of the choice has decreased consumer exploitation. Though the competition was a boon for the consumer, it was a real challenge for producers which gave in turn the birth to the idea of competitiveness. Today the market is consumer or service oriented. So the producer now has to focus on consume and on profit but only after a thorough market research. The modern producer aims at creating real product differentiation through superior technology and features i.e. R&D, creating perceived product differentiation and reputation by advertisements and CSR respectively, tries to drive cost down and offer similar product and service at a lower price i.e. cost leadership, maintaining long term relationship which he achieves by after sales services, gives importance to need satisfaction by making personalized goods. Also the producer not only now has to care about his products but also the products produced by the competitors. Today a firm should know the way competitors behave, their strategy to work, their strength and weaknesses and their probable future strategy.
In the context of the country competition has been really a blessing for the consumers. A striking example of this would be the two wheeler industry. In the initial days of the industry where consumer had limited choice between one or two standard products with moderate features he was contended with product availability and could not bother about features, style and finishing. With the arrival of international competition, the price, quality, fuel efficiency and even style, colour and design became considerations in purchasing decision, which brought to introduce new models, develop product design and increase operational efficiency. The Bajaj Auto Ltd., in case of the its scooters could not do so and hence failed in the market though it is successful in the Motorcycle area as there it looked into all the matters mentioned above.
So the above example clearly shows that competition necessitates competitiveness and a firm needs to survive today has to by its various efforts acquired the powers to compete that is competitiveness.
List of Abbreviations:
MRTPC: Monopolies and Restrictive Trade Practices Commissiono:p>
MRTP Act: Monopolies and Restrictive Trade Practices Act
STD: Sexually Transmitted Disease
HIV: Human immune virus
AIDS: Acquired immune Deficiency Syndrome
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Authored by Hitesh Agrawal
Co-authored by Manav Bhargava