Competitors and competition

Characteristics

Current situation

Future trend

Market concentration (number of firms, concentration ratios, HHI)

The market can be described as supersaturated. There are so many firms producing and selling shoes that market is competitive. Most part of the market is small firms which have connection to Chine production facilities, which is why they have ability to set low prices. The HHI index for high competition is near 0,01.

Nowadays we can conclude that there are about 10 big producers of footwear in Russia produce about 50% of the Russian footwear on the market. But still the profitability of Russian producers is about 9%, which of course can’t be compared with high profitability rates of foreign producers, which are also on Russian market.

Small firm, which couldn’t stand in this competition because of inability to charge price which satisfy consumer needs. Access to Chine production facilities and low cost of production is the most important driving force on this market.

Because of the supersaturation now, there will be trend towards re-saturation of the market, and only those firms, which have good established brand, market power and ability to produce at lower prices, will survive. If it goes about small local market, we should admit that there are not competitor for Chine production, so low quality shoes will stay at local markets for a long time.

Market growth

The consumption of footwear is growing with a rate of 30%, and for Russian market mostly 40% of supply is from local firms. Most of them produce shoes in Chine, where low costs are available.

The supply of shoes is highly affected by seasons, but average growth of supply of footwear is about 24% (Russian companies on the market).

Researches tend to think that market growth rate will increase at list to 40%. The consumption of footwear in Russia will also increase as the trend of recent years

Cost differences (among firms)

Roughly saying cost of producing footwear can be divided to cost of workforce and cost of materials. The cost of materials for firms, which has great market power are of course lower, a good example of that is cost of leather: for a small local firm the cost of leather will be about 13-15 RUB, for a big producer there will be price of 10-11 RUB. Of course a lot depends on the economy of scale that is why we see the cost differences.

Because of the power of big firms there are significant cost differences on the market.

Cost differences will tend to decrease because more and more firm will have access to low material prices and low production costs

Product differentiation

The product on the market differentiates according to season, to materials, to age and quality needs. There is significant difference of products according the needs which these products satisfy (spot, casual, elegant…). Products are also highly affected by fashion which actually drives the design.

The trend is product differentiation to satisfy every consumer need, so differentiation will increase.

Price differences

Prices differentiate a lot according to the type of consumer firm choose. For high segment there are high prices, because of the brand name and expensive materials used in production. For low market prices are really low and close to production prices.

The trend is a significant move towards value pricing, so price difference of course will remain the same, but the difference among groups will decrease a little bit

Excess capacity

Marginal costs are relatively average at their level. Because we cannot say that this competition is exactly the Bertrand competition, we can’t conclude about the exact value of excess competition

Changes in the production will be according to the consumer needs so marginal cost actually can decline

Are prices and terms of trade transaction observable?

Most prices and terms of trade transaction are hidden.

Hopefully the situation will change towards more observable terms and prices of trade transaction, but actually in Russia there are no signals for that.

Can firm adjust prices quickly?

It is hard to adjust prices quickly during one season, but it is easy to adjust prices season to season

It will be hard to adjust prices quickly during one season, but it will be easy to adjust prices season to season

Type of competition (price, quantity, simultaneous, sequential)

The main type of competition on the market is price competition.

As it was in the past this will remain the same. Price competition is the most common type for footwear market.

Leadership pricing?

Leaders of the markets charge very high prices on their product if we compare to actual price of the product neglecting the brand additions.

This tendency will remain the same.

Tacit collusion (actual and potential)

Some Russian companies use that strategy, but because the physical presence on the market of Russian footwear is about 20% this collusion do not affect most mart of the market and unable to influence the power of foreign producers.

We can conclude that there is a kind of hidden collusion on the market, because price competition is the main type on the market, but there are no price wars, because they can ruin all the situation.

There will be a kind of hidden collusions, but no open collusion strategies or special alliances of producers.

Antitrust litigations

In Russia there are actually no such situations

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