It's natural to want to beat the competition, but too often we make this an obsession, thinking that the end game is one in which the winner takes all. In most economic arenas, there are usually multiple winners. Whether the players are shopkeepers, racing car drivers or even entire countries, they know that it is vital to compete along certain dimensions, but cooperate on others. In business, it's typically never war or peace; it's generally both at the same time.
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| The author is director of PSi�s strategic consulting and private equity activities. | |
| In India's price-sensitive markets, shopkee-pers can be fiercely competitive when it comes to offering the best deals to customers. However, you may have noticed that the same shopkeepers tend to locate themselves near their competitors. For example, on some streets, there are a slew of companies all selling hardware. Shops on other streets sell only musical instruments or furniture. By locating themselves near each other, these shops are able to create a vibrant market - one which attracts customers who know they'll get the best deal and a wide set of choices. Co-location is a way for them to cooperate in attracting customers.
One way that competitors can benefit from cooperating is to form sub-groups that essentially gang up on those outside the group. Pairs of racing cars, for example, bunch up to increase their speed. The lead car benefits
from a drop in resistance when the slight vacuum at its rear is filled, and the car in drafting position benefits as it is partially shielded from the wind. Similarly, companies that form an industry association, often the biggest or most professional, sometimes lobby the government to pass laws that benefit themselves at the expense of non-members. They may pressure the government to discourage new entrants from coming into the market.
Even entire economies can compete and cooperate. India and China are in a race to become the leading economies in the world. Like two fast sprinters rounding the first bend in the track, each can trip the other, or they can collide and both knock each other out of the race. In fact, China could use India's help in terms of manpower: thanks to the success of the one-child policy, the number of people in their labour force will decline over the next 15 years. The Chinese labour market is already tightening - Shenzhen just raised its
minimum wage to $83 per month from $74.
At the same time, China also competes with India. Its need to protect energy supply lines and to contain India go hand in hand. For example, Chinese port facilities in Pakistan, Myanmar, Bangladesh and Cambodia are part of an effort to create a 'string of pearls' presence around the Indian Ocean, both to protect oil routes and to encircle India. A pipeline from the port of Gwadar in Pakistan could give China an alternative energy channel, plus a base to control shipping lanes in the Arabian Sea.
The above examples suggest that a player's success is often dependent on the cooperation of its competitors. Since we cannot choose our competition, luck plays a role in the kind of competitors we have and, therefore, our chances of success. It's unfortunate when a player finds himself in competition with a hyper-competitor, one who hurts both himself and other players in a reckless bid to dominate a market. If one of the
players engages in all out competition - by poaching employees and customers or pursuing market share at the expense of profits - the entire industry's profits can be wiped out, as has happened in the US airline industry. The only winners in this situation are customers, who benefit from unbelievable prices and service.
For a player to win in the game of business, the others do not have to lose. In fact, we have seen that competitors often compete and cooperate. They cooperate to increase the size of the market, and they compete to divide up the market. They form teams within the industry, but then gang up on non-members. Friends in one arena are enemies in another.
It's just business. |
