Competition and competitiveness - what do these terms mean? What indicators show that one of the companies is more competitive than the other? We will answer these questions.
What is competition? Competitiveness? Perhaps this is one of the most popular and used words in the economic vocabulary. It would seem a simple question, however ... scrolling through the books of F. Kotler or other no less eminent luminaries from economics and marketing, you will not find clear and intelligible definitions that reveal the essence of this rather capacious topic. The topic, which in one way or another concerns almost all business entities of both Russia and other countries.
If you arm yourself with dictionaries, you can find the following definitions of "competition":
Competition is the competitiveness of business entities when their independent actions effectively limit the ability of each of them to unilaterally influence the general conditions for the circulation of goods in the relevant product market.
Competition - in everyday understanding - the rivalry of economic entities for the best conditions for the production, purchase and sale of goods.
Competition - in classical economic theory - is an element of the market mechanism that allows you to balance supply and demand.
Competition is both a way of managing and a form of capital existence in which one individual capital competes with another, being an attribute of the market.
I admit that these definitions puzzled me a little. What are the "best production conditions"? Is it really only through competition that one can balance supply and demand? What kind of actions are those that "effectively limit the ability of each of them to unilaterally influence the general conditions for the circulation of goods in the relevant product market"? Questions, questions, questions ...
But perhaps the most accurate definition of the term “competition” can be found in the 1954 Dictionary of Foreign Words (State Publishing House of Foreign and National Dictionaries):
Competition - in capitalist society - is a fierce, ongoing struggle of the capitalists among themselves for a large share of profit, for markets, for sources of raw materials, etc.
In this definition, everything falls into place. From the first words it becomes clear: who is fighting, and in fact, for what, since the main function of a commercial enterprise is to make a profit.
But, in my opinion, in Russia, the very concept of competition is perceived somewhat differently. Casual and necessary .... Why?
Firstly, we start talking about competition only when they ask us (at the bank or partners) who are your direct competitors?
Secondly, when something in the sales cycle begins to “fail”, revenue and profits drop sharply, which does not fit into the framework of “functioning of the business” outlined by our imagination. After all, everything should be ... like Coca-Cola, but no ... Something went wrong, and this does not fit into the logical chain in the head of the owner ...
Therefore, if we talk about competition among commercial enterprises in the Russian market, then these enterprises should, in the first place, be an equal type of activity. It needs tact, correctness and common sense. Obviously, you can not compare a trading stall with a large supermarket or a real estate company with an existing production enterprise.
If we talk about the competition of “goods”, then naturally, the studied goods should be with similar functionality. But since in this case we are talking about enterprises, then let's dwell on them in more detail: in figures, facts and examples.
Suppose there is a certain carriageway and intersection, as well as:
two gas stations;
two trading stalls;
two old grandmothers selling seeds,
those. six "business entities", "working" in different markets. Let's try to describe each of the business entities (situational analysis):
Gas stations
Comparative specifications | Gas station "Klyaksa" | Gas station "Gluck" |
|---|---|---|
Commissioning | year 2013 | 2011 |
Number of places for simultaneous refueling | eight | 6 |
Brands of fuel | DT, A-92, A-95 | DT, A-92, A-95 |
The area of gas stations and access roads, sq.m. | 480 | 320 |
Is there a related service at the gas station? | Yes (vulcanization, acceptance point) and snack bar. | not |
Number of employees | eight | 6 |
Fuel price | 5% cheaper than Gluk gas stations | |
Transport stream, thousand cars / day | 8-10 | 8-10 |
Tire inflation | Yes | not |
A brief situational analysis of the gas station allows you to draw the following conclusions:
The deadline for commissioning the Klyaksa gas station is 2013, and the Klyuk gas station was introduced in 2011, i.e. 2 years earlier. During this time, both of these gas stations "gained" their regular customers. Is it a fact that worked out? Not at all a fact, it is possible that I lost it. What does it depend on? First of all, on the quality of fuel and the level of customer service.
Technological equipment of the Klyaksa gas station, more modern than the Gluk gas station.
The average flow of cars is the same for both one and the other. In the morning, it is more at the Klyaks gas station, and in the evening at the Glyuk gas station
Brands of fuel sold are identical.
Nearby gas stations (in the direction of travel) are located at the same distance from both one and the other gas stations.
The leased area of the land plot at the Klyaksa gas station is 160 square meters more than at the Glyuk gas station
The number of employees at the Klyaksa gas station is more than at the Gluk gas station by 2 people.
The main conclusion:
The Klyaksa gas station, under equal economic conditions, from a technical and technological point of view, has clear advantages over the Gluck gas station.
From a marketing point, the Klyaksa gas station has clear advantages: lower fuel costs, there are additional services - vulcanization (acceptance point), tire inflation and a snack bar.
Trading stalls
Comparative specifications | Trade stall number 1 | Trade stall number 1 |
|---|---|---|
Commissioning, year. | year 2013 | 2011 |
Trading area, sq.m. | ten | eleven |
Warehouse area, sq.m. | 9 | eight |
Number of employees | four | 6 |
Range | Almost the same | |
Mode of operation | round the clock | round the clock |
Outlet Type | stationary | stationary |
Location | convenient, near busy highway and pedestrian road | convenient, near busy highway and pedestrian road |
Is there a parking space? | Yes | Yes |
A brief situational analysis of the stalls allows you to draw the following conclusions:
Trading stalls were put into operation with a difference of 1 year.
Trading and storage areas are almost the same.
The average human flow is the same.
Prices for the main goods offered for sale are almost the same.
The main conclusion - two stalls are in absolutely equal economic and conditions, including technological ones.
Grandmothers selling seeds
Comparative specifications | Grandmother selling seeds - 1 | Grandmother selling seeds - 2 |
|---|---|---|
Outlet Type | tray | tray |
Mode of operation | from 8 to 19 | from 11 to 18 |
Day off | seven days a week | Monday |
Cost | the same | |
Location | convenient, near busy highway and pedestrian road | convenient, near busy highway and pedestrian road |
The main conclusion about grandmothers selling seeds is that both grannies are in equal economic conditions.
Here is such an interesting microeconomic “intersection analysis”. What is he telling us about? First of all, the following: in no case are retail stalls, as business entities, competing with either grandmothers or gas stations. And this is the main point!
Hence the conclusions:
direct competitors are:
Gas station "Blot" and "Glitch".
Two shopping stalls.
Two grannies selling seeds.
Indirect competition among business entities was not identified.
But how to determine which of the gas stations is more competitive, even if conditionally they are in the "same" conditions? The one that is technically more advanced? Which of the grandmothers, and we consider both as business entities, is the leader? The one that works in the market more time?
Which of the six business entities is most competitive? And what is competitiveness? What is competition, we found out at the beginning of the chapter, and what is competitiveness?
What is the competitiveness of the company in the market
I admit, I found several definitions of "competitiveness", but they related to the problem of "competitiveness of goods":
Competitiveness - the ability of a product or service to withstand comparison with similar goods and services of other manufacturers while maintaining the average market price.
Product competitiveness is the criterion of the expediency of a firm entering the product markets, which is the sum of the characteristics of the product focused on satisfying consumer (solvency) demand.
But, I did not find the definition of "enterprise competitiveness", so I had to formulate it myself. It turned out very simple, but it is clear:
The competitiveness of the enterprise (business entity) is its ability to work with profit.
Then it turns out that if two equal enterprises operate with profit, then the most competitive will be the one with the highest profit? With certain reservations, it turns out that this is so, therefore, we must speak about the competitiveness of the enterprise in the language of numbers.
Competitiveness of enterprises in the language of numbers
What economic entities will we start with in our situation? Let's go from grandmothers! We translate their simple financial and economic activities into the language of numbers and fill in ... let’s say, a plate, which we will conditionally call a profit and loss statement. We will calculate what incomes and expenses our grandmothers had.
Income / Expense | Quantity, pcs. | Price for 1 unit. | Grandmother selling seeds - 1 | Quantity, pcs. | Price for 1 unit. | Grandmother selling seeds - 2 |
|---|---|---|---|---|---|---|
Coming | ||||||
Sold glasses, pcs / month | ||||||
Sunflower seeds | 690 | 15 | 10350 | 570 | 15 | 8550 |
Pumpkin seeds | 47 | thirty | 1410 | 27 | thirty | 810 |
Total income, rub. | 11760 | 9360 | ||||
Consumption | ||||||
The cost of acquiring sunflower seeds | 3000 | 300 | ||||
Pumpkin Seed Costs | 500 | 0 | ||||
Total expense for the purchase of seeds, rubles. | 3500 | 300 | ||||
Broken glasses | thirty | 20 | ||||
Lost profit (the number of glasses requisitioned by the teaching staff) | 60 | 15 | 900 | 40 | 15 | 600 |
The costs of the janitor, rubles. | 200 | 200 | ||||
Total net profit, rub. | 7130 | 8240 | ||||
Profitability, % | 60.6 | 88.0 | ||||
What is interesting in the eye? The first is that, according to our conditions, the second granny trades several hours a day less. The result is less sales revenue. The second is the fact that the costs of the second granny for the purchase of sunflower and pumpkin seeds are many times less than her competitor on the opposite side. This is explained by the fact that the second granny actually does not pay for the seeds, since her nephew "for free" brings them to her, tyry from neighboring collective farm fields, and she pays little white to him.
Third - the fact is obvious that the sales proceeds of the first granny are higher than the second, and the profit is less. This means that the first granny, as a business entity based on the results of financial and economic activity, is less "competitive" than her neighbor.
Fourth, the profitability from trading operations of the second granny is higher than the first, i.e. we can say that its trading operations in the retail "seed market" are more effective (judging by the profitability of sales). Though she devotes less time to her business.
After analyzing this situation, we can conclude that if Granny No. 2 devoted a little more time to trade problems, then it is likely that, ceteris paribus, she has a significant reserve for increasing the main indicator - “net profit” "
The main reason for this situation is the cost of "raw materials", i.e. on sunflower and pumpkin seeds, it has many times less, therefore the margin of "strength" or competitiveness is much higher.
We pass to the stalls. We fill in a similar plate and analyze the situation.
Income / Expense | Stall 1 | Stall 2 |
|---|---|---|
Revenues from sales | 700, 000 | 710, 000 |
Total income, rub. | 700, 000 | 710, 000 |
Consumption | ||
The cost of acquiring goods | 532, 000 | 539, 600 |
Gross profit | 168, 000 | 170, 400 |
Electricity Costs | *** | *** |
Cost of renting a stall | ||
ZP Director | ||
ZP accountant | ||
Salary sellers | ||
Household expenses | ||
Other expenses | ||
Costs of controlling state bodies | ||
Costs for cleaning the territory and garbage collection | ||
Security alarm (button) | ||
Telephony | ||
Payroll taxes | ||
Profit before tax | ||
Imputed tax | ||
Total net profit, rub. | 18 339 | 11, 468 |
Profitability, % | 3 | 2 |
The table shows that, under equal conditions, the stall number 2 clearly loses the stall number 1 as a result of financial and economic activities, and profitability, despite a slight excess of the indicator "sales revenue". So you can state the fact that one stall is more competitive than another stall under the same conditions and the use of one selling technology.
And what about the gas station? There is no point in detailing all the costs, we will focus on the main ones:
Income / Expense | Gas station "Klyaksa" | Gas station "Gluck" |
|---|---|---|
Revenues from sales | 1, 600, 000 | 1, 320, 000 |
Total income, rub. | 1, 600, 000 | 1, 320, 000 |
Consumption | ||
The cost of acquiring goods | 1, 280, 000 | 990, 000 |
Gross profit | 320, 000 | 330, 000 |
Salary, taxes, etc. | *** | *** |
Total net profit, rub. | 107 312 | 150 252 |
Profitability, % | 7 | eleven |
And what do we see? The most interesting fact is that despite the fact that the sales revenue of Klyaks is greater than that of Glyuk, despite the fact that the price of Klyaks is lower than that of Glyuk, despite the fact that Blot "there are related businesses whose income and expenses were not taken into account in these tables, " Blot "in terms of net profit clearly loses to the competitor.
How is it, an astonished reader will ask, comparing the businesses of two gas stations? Indeed, for almost all technical positions listed in Table No. 6, Blot is more "perfect", more customer-oriented. And, if we touch on the field of marketing, then the price at Klyaks filling stations is lower and the related business is obvious.
That's how! According to economic indicators, despite the large revenue from sales, its costs are much higher than that of a competitor, and therefore the profit is less. No matter how paradoxical this may seem, in our particular case it is.
From here, not quite obvious conclusions:
Paradoxically, but:
The presence of modern technological equipment plays only an indirect role in considering the issue of enterprise competitiveness.
The price of manufactured (or sold) products plays an indirect role in considering the issue of enterprise competitiveness.
The most important conclusion:
3. The main economic factor that allows you to fully judge the competitiveness of an enterprise in the market is the excess of income over expenses!
Allaverdyan Vladimir Vladimirovich,Leading expert at clogicsecure.com.
Investment Advisor. Business analyst. Contact an expert.
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