Management of industrial clusters. Tutorial

1.Competition among industry participants.

2.The threat from new competitors in the industry.

3.Competition from producers of substitute products from other in-

dustries.

4.Competitive pressure of suppliers, due to the necessity of interaction with them and obligations to them.

5.Competitive pressure of consumers, caused by the necessity of interaction with them and obligations to them.

Competition among industry participants

Competition occurs because one or more of the companies get an opportunity to better satisfy customers or the need arises to improve its performance or increase market share. The fierce competition normally takes place between companies offering similar products and services. In some industries, companies compete mainly on price (particularly among Internet service providers and sellers of standardized goods — sugar, office supplies, gasoline), and sometimes the price con-carencia reaches such a pitch that the commodity prices fall below cost, causing losses to some or all rivals. In other industries, price competition is weak, and the main competition is on the other indicators (one or more): characteristics of goods (digital cameras); new goods; the quality, service life and dependability of a product (e.g., in the manufacture of monitors for desktop computers and laptops); the speed and level of service (in the fields of e-Commerce and fast food); warranty period (cars and tires); after-sales service, strength of brand (beer, cigarettes, soft drinks, washing powders, electronic brokerage services, quick service restaurants). The intensity of competition depends on how actively industry members are trying to change them (to lower prices, improve product characteristics, enhance customer service, increase warranty periods to hold special events promotion, offering new models of products). Most competitors have resorted to differentiation of their products or seek to strengthen their positions at the expense of the weak points of the competitors.

Regardless of the intensity of the competitive struggle, every company needs a strategy, providing an advantage over competitors and strengthening the relationship with customers. The success of the company's strategy depends on competitors ' strategies and resources provided by competitors on the provision of these strategies. All companies in the indus-

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try are interdependent: if one company has taken some strategic actions that competitors respond with countermeasures, offensive or defensive.

The competitive situation in the industry changes dynamically as the application of new offensive or defensive actions and the activation of certain means of competition.

The alternation of offensive and defensive actions gives the competition the similarities with a certain military-sports game that is happening in the market according to business rules. From a strategic point of view competitive markets is an economic battlefield where there is constant competition, then growing, then fading. Competition never stops, and the conditions of competition vary depending on the companies ' actions in the fight for market share and loyal consumers.

Regardless of the industry, we can identify several factors that increase the intensity of competition. Let's consider them in order.

I. growth in the number of competing companies, align their size and production volumes.

1. Competitors, roughly equal in size and capacity, fighting on equal terms, which reduces the likelihood of capturing leading positions on the market of one or two companies-winners. Moreover, with the increase in the number of competitors grows and the probability of the emergence of new strategic initiatives.

The slowdown in demand for products. In a growing market with enough opportunities for growth; all their financial and managerial resources, the company can focus exclusively on meeting the growing demand, not on trying to expand its customer base at the expense of competitors. When market saturation and falling demand, the company focused on the expansion of production or having excess production capacity, have resorted to price cuts and other methods of increasing sales, initiating a struggle for repartition of the market in which the market replaced the weak and ineffective players. The industry konsolidiruyutsya in a small group of more powerful producers.

2.Price reduction and other methods of increasing sales. Fixed costs make up a significant part of production costs and underutilized capacity, increase the unit cost because fixed costs are distributed on a smaller number of products. If production costs per unit of production can be reduced due to full capacity utilization, the company committed to increase sales, primarily reducing prices. In the conditions of reduction of demand or underutilization of capacity, companies are active in the fight for sales

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growth: go to the conclusion of secret agreements on price reductions, apply the special discounts offered to middlemen incentives to improve sales, etc., which leads to intensified competition. In particular, if one or more of the companies have accumulated a large amount of perishable or nonstorage of the goods, they decide to get rid of stock and throw them on the market at dumping prices.

3. The ease and accessibility of the change of the brand product. If the buyer when switching to a different brand of the product does not lose neither in price nor in time, to poach consumers from competitors is easy. If the consumer is difficult to switch brands or is it fraught with financial losses, the newcomer needs to convince buyers that its brand is worth it. For this novice offer substantial discounts, higher quality products or services. Consequently, large costs in changing brands to protect producers against attempts by rivals to "steal" their customers.

4.Attempt one or more companies to improve their market position at the expense of competitors. The company, losing their positions or experiencing financial difficulties, often aktiviziruyutsya: acquire smaller competitors, introduce new products, increase advertising costs, lower prices, and so These actions trigger the redistribution of the market and intensify competition.

5.The success of strategic actions. The more benefits from the realization of certain possibilities, the higher the likelihood that competitors will show interest in it; for example, competition in the trade of musical recordings via the Internet increased dramatically after this market success is achieved Amazon.com and barnesandnoble.com. The company's profits depend on the speed of reaction of the followers. If their actions are late (or nonexistent), the company, the first to apply new competitive strategy that gets high income for a long time and significantly ahead of the competition. The higher the profit potential of the company-the pioneer, the greater the chance that such a pioneer.

6.The cost of exit from the market exceed the costs of continued competition. The more barriers to exit from the market (ie, the more cost is required for pre-reducing activities), the stronger the resolve of the companies to stay and continue the fight, despite low income or even losses.

7.Large differences between companies participating in strategies, the resource base and the conditions of the countries where they are registered. Among the existing companies in the market are always willing to "shake" the market using innovative methods and approaches, what the competitive environment becomes unstable and unpredictable. Participants

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in global markets is usually different vision for the future of the industry and different methods of competitive struggle. Attempts by international firms to win each other's market share sharply increase competition, especially if the company-initiator production costs or lower consumer properties of the product better.

8. The acquisition of a major player in another industry one of the companies (even weak) in the industry and then converting it into a powerful competitor. For removing a weak competitor in the leading position of the necessary implementation of well-funded strategy aimed at the radical improvement of products offered to attract buyers and increase market share; such action, if successful, lead to increased pressure on other competitors and forced them to develop responses.

As we have said, successful competitive strategy employed by one company intensifies competitive pressure on other market participants. The rules of competition in the industry and the degree of intensity determine the most active players. The competition is called murderous, if competitors are waging a fierce price war aggressive methods, mutually destructive from the point of view of profits. On a fierce and spirited competition say, if you are struggling to increase market share, reducing the overall profitability of the industry. Moderate competition is considered when the active use of various methods of competition all participants will receive a reasonable profit. Competition is weak, if most companies in the industry are satisfied with the pace of growth of sales and market shares, rarely actively entice buyers and get a high enough profit.

II. The market entry of new competitors.

New — comers on the market have new capacities, a desire to secure a market share and significant resources to compete. The likelihood of new competitors depends on two factors — entry barriers and the expected reaction of existing companies in the market for a new opponent. Under entry barriers, we understand the difficulties faced by the beginner in the conquest of its share of the market and/or economic position compared with the position of existing market players. Here are a few examples of entry barriers.

The possibility of economies of scale. This factor discourages beginners because it forces them either to produce a large amount of products (which is costly and therefore risky) or to accept higher costs per unit of production hence lower profits. Active steps beginners can lead to overproduction in the industry and therefore threaten other companies, to which

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they react accordingly (reduce prices, increase advertising costs, etc.) in order to maintain their positions. In any case, the rookie should be ready to low income. It must be remembered that economies of scale are possible not only in production but also in advertising, marketing, sales, financing, after-sales service, purchase of raw materials, research and development.

A disadvantage in costs or resources that are not dependent on the size of the newcomer. The company, long existing in the market usually have a missing newcomers have a cost advantage and resources in the form of established relationships with suppliers, prices, supply, in possession of patents and know-how, the effect of learning, convenience of location, lowcost loans, the availability of an operating production capacity.

The effect of learning. If the reduction of production costs is achieved mainly due to the effect of learning, newcomers find themselves in a less advantageous financial position than the current market competitors with a great experience in the production of this product.

The lack of access to technology and know-how of companies that are already operating in the industry. The yield on some markets that require technologically sophisticated equipment, skills and know-how that have no beginners. (This is similar to the barriers cited lack of trained personnel and suitable equipment.) Why newcomers can't compete on equal terms with the existing players who carefully guard their know-how to ensure their advantage in technology and performance. Technical invention that provides economies of scale, or an unknown early advantage may strengthen the position of existing companies in the market, or, conversely, to help newcomers to gain a foothold in the market. For example, the Internet has greatly enhanced the competitive position of e-Commerce companies in their fight against stronger companies of traditional retail.

Consumer loyalty to the brands. Buyers have sympathy for the already existing brands, and this factor cannot be ignored. Japanese consumers prefer Japanese cars, electronics, photo, video and film equipment in Europe consistently demonstrate a commitment to the European brands of household equipment. So a new player needs to create its own network to distribute and promote and invest significant sums in marketing in order to attract the attention of consumers and create its client base. This requires time and financial investment, which reduces the income of beginners, therefore, increases the risk — especially for businesses for further development need a quick and large profit.

The lack of the necessary investment. The more financial investment required for successful entry into the market, the lower the number of

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possible new competitors. A new player needs immediately to Finance the purchase or construction of the plant, acquisition of equipment and materials, advertising and promotion, creation of client base and formation of cash reserves to cover the losses inevitable at the initial stage of activity.

The unavailability of distribution channels. In the case of consumer goods the newcomer has to fight for equal access to distribution channels, may even create its own retail network, wholesalers usually reluctant to the product, to the unknown buyers. The stronger the links existing on the market, with the wholesale network, the harder it is to market to beginners.

Retailers must be persuaded to put in their display cases samples of new products and to provide them with a reasonable warranty period. To resolve this obstacle, the novice you have to "buy" access to distribution channels, giving dealers and distributors for a significant portion of the profits to give buyers promotional discounts or resorting to other measures of sales promotion. Therefore, the company's revenues-the beginner will be low as long as wholesale and retail sellers do not recognize the product and will not contribute to its promotion.

The actions of regulatory authorities. Governmental authorities may limit or deny access to the market through licenses and permits. In regulated industries, such as cable TV, telecommunications, electricity and gas, the sale of alcoholic beverages and railway transport access to the market controlled by the state. National governments restrict market access of their countries to foreign companies, all foreign investments need approval of the special state bodies. Established by many governments and high standards of safety and protection of the environment also present challenges for market penetration, increasing costs for companies at the initial stage.

Tariffs and international trade restrictions. National governments set the tariff and non-tariff barriers (anti-dumping legislation, the compulsory participation of local firms, quotas) to impede access to their markets for foreign companies and the protection of local producers. In 1996, the introduction of import duties by the South Korean government Ford Taurus cost in South Korea more than 40 thousand dollars. The Indian government requires that 90% of the parts and components of trucks assembled in India, were of local production. And in order to protect European manufacturers of microprocessors from Asian competitors, European governments tightly control the lower limit of the price of microprocessors.

Terms of market penetration depend on the resources and expertise of applicants. For the company-the newcomer who dared to compete with the "veterans" of this market, the barriers may be too high, but they can be

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overcome with the availability of financial resources, experience and powerful brand. The same barriers are insignificant for the companies, long time working in one of the segments of the industry and explore new segments. It is clear that such companies have the resources, experience and competitive capabilities to penetrate adjacent market segment or new geographic area. Considering the threats associated with the market penetration of new competitors, managers should evaluate from the point of view of potential competitors, first, barriers to entry, secondly, the prospects of profitability of the industry. High profit acts like a magnet, attracting new competitors from other industries and encouraging them to mobilize resources to overcome entry barriers. It is advisable to consider both options from the point of view of different companies: beginners, experienced players in other industries, companies in the same industry, expanding their operations.

If a potential competitor has or can obtain the necessary experience and resources, it should consider the possible reaction to his appearance already existing in the industry. He will meet passive resistance or active defensive actions in the form of lower prices, enhance advertising campaigns, etc.? You should take extra care if competitors make it clear that I will not relinquish my position without a fight, and that they have sufficient financial resources. Also better to abandon plans for market penetration if existing competitors can cover the beginner channel of access to distributors and consumers.

The threat of new competitors is significant, if the penetration into the industry is easy, it is enough wishing, existing industry players are unable or unwilling to confront the newcomers, and the prospect of profit attractive enough.

The appearance on the market of new competitors and their potential impact on competition in the industry also depend on the rate of growth of the industry and its attractiveness from the point of view of profit. At low growth and low profits, the new firms will not have a strong impact on competition. If the industry is rapidly evolving and promises a good income, the emergence of new rivals dramatically alter the competitive situation. The stronger the threat of new competitors, the more the operating companies need to strengthen their positions, hindering the market penetration of newcomers. The emergence of potential competitors to hinder the initiatives of existing companies in the market, as the development of own network of e-Commerce, the increase in advertising costs, strengthening ties with dealers and distributors, promotion of R & d, improving product quality. The global Market penetration of national markets by foreign com-

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panies is easier if duties are reduced, the government opens the domestic market for foreign companies, if the wholesale sellers and dealers willing to work with cheaper foreign goods as consumer preferences shift to foreign brands.

III. The impact of substitutes competition in the industry.

Sometimes companies from various industries compete against each other, producing interchangeable products. For example, points manufacturers compete with manufacturers of contact lenses and surgeonsophthalmology. The company's sugar industry to compete with producers of sugar substitutes, the manufacturers of natural fabrics, manufacturers of synthetics, producing the company — with gas suppliers. Companies that produce aspirin, should take into account the availability of other antipyretics and analgesics. Newspapers compete with television and the Internet. E- mail replaces the usual. Among the suppliers of beverage containers — glass, plastic bottles, cartons and cans — there is a long and tough fight.

Competition from substitutes depends on their availability and accessibility, competitiveness and quality characteristics, the willingness of consumers to switch to substitute products.

The availability of substitute products at competitive prices creates competitive pressure, setting a price ceiling in industry above which is fraught with consumers switching to substitute goods and a fall in sales'. At the same time the price ceiling determines the level of profits, unless the company can find a way to reduce costs. If the price of substitute products is lower than for the industry, its producers are under strong competitive pressure to reduce the prices of their goods to compensate for this decline by reducing production costs.

Substitute products pose a significant threat if their number is sufficient, prices are affordable, consumer characteristics are satisfactory, and the transition does not involve consumers with excessive costs.

The availability of substitute products motivates consumers to compare them to the original product in quality, design, consumer properties, ease of use, etc., and also at a price, and manufacturers — to actively promote consumer properties and the quality of the product.

Another factor influencing the intensity of competition from substitutes is the cost incurred by the consumer in the transition to substitutes that are associated with higher cost, the need to purchase or replace equipment, time and funds to test properties of substitutes, the moral costs of breaking off relations with former suppliers and establishing relationships with new

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partners, cost of retraining of personnel. If the cost of switching is high, the suppliers of substitute products to lure consumers, offer special prices or other compensation. If the cost is low, then suppliers substitutes easier to convince consumers to switch to their products.

As a rule, the lower the price of substitutes, the higher their quality and design, lower costs for consumers of switching, the stronger their impact on competition in the industry. The most obvious indicators of the competitive strength of these products — the growth rate of sales and ways forward, expanding production volumes and profit margins.

IV. Competitive pressure from suppliers.

Competitive pressure on the company by suppliers depends on two factors: first, the ability of suppliers to exert pressure on the consumer in the sense of a change in terms and conditions of supply in desirable side of themselves; second, the level of interaction between suppliers and consumers in the industry.

Competitive pressure from suppliers were small or even absent in the case of the supply of standard consumer goods offered by numerous companies with sufficient capacity to fulfill all orders". In this situation, you can choose several suppliers and distributed ordering by forcing them to compete with each other. The competitive pressures of suppliers is low in the case where there are a satisfactory substitute products, the transition to which is simple and not very costly.

For example, manufacturers of soft drinks can avoid competitive pressure from suppliers of tin cans, switching to plastic and glass bottles. Providers exert competitive pressure on producers only in the case if the offer of their products is limited, and consumers are experiencing an acute need for it and are willing to make concessions.

In such cases, we are talking about the existence of specific (special) assets.

The specificity of the assets

G. Becker was the first who divided the resources into General and specific.

The total resource is of interest to multiple users and its price depends a little on where it is used (example - gasoline standard brand).The specific resource is adapted to the circumstances of a particular transaction and outside is of little value (for example – equipment manufactured according to individual order).

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According to O. Williamson, special can be either physical capital (equipment) and human (skills and knowledge). The specificity of a resource is called its location (a power plant built near a coal mine), as well as relevance to a single buyer in the absence of demand from anyone else.

As shown by O. Williamson as a result of investments in specific assets who their agent is "locked" in a deal with his current partner. If he could have a choice among quite a large number of counterparties equally, now the circle narrows to one. Breakup becomes equal to the loss of capital embodied in the specific assets, as they are adapted to the peculiarities of the partner and have little value for everyone else. This transformation of the original competitive situation in the target exclusive. We remember from the first Chapter that the monopolist can take all the benefits from the deal that puts his company in a disadvantage. O. Williamson has called "a fundamental transformation", which is regarded by him as one of the main obstacles to market exchange.

Williamson believes that integration into a single firm in the presence of specific assets provides a more reliable "extortion" and allows their owners to adapt quickly to unexpected changes. However, this advantage is achieved at the price of weakening incentives. In his words, if the market incentives are "high power" in the firm - the incentives are "weak power". The boundaries of the firm are therefore, where the benefits of better adaptation and greater protection of specific assets are balanced by losses from the weakening of incentives.

S. Grossman and HART propose a different point of view. Let the firm owned by agent A, absorbed the firm owned by agent B, and he was left to manage his former firm, but as a hired Manager. It is obvious that if a risk of "extortion" was reduced, then B has increased. Accordingly, weakened and incentives to the accumulation of special in relation to the firm's human capital. If such losses are significant and in the embodiment, when firm B is absorbed by firm A, and in the embodiment, when A firm is absorbed by firm B, it is economically more profitable to remain independent and their relationships built through the market. The main limitation on the size of the firm, recognizes the concentration of power in one or a small group of agents that can adversely affect investments in specific assets of other participants. D. Kreps emphasizes the importance of "corporate culture" to address the problems of specificity of assets. In his opinion, because of the inevitable incompleteness of contracts is critical to any company is the issue of adaptation to unexpected changes. But the necessary freedom of manoeuvre she could obtain, only if its employees will be assured

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