How to assure a competitive advantage?

2018-04-04

Every morning opening his eyes an ordinary user faces a duty to choose. Oatmeal porridge or omelette? „Caffein“ or „Vero Cafe“? „Apranga“ or „Gerry Weber“? „Nissan“ or „Mazda“? Competition frightens business in the best sense of that word. It fosters progress, innovation, strengthening of a team and listening to the users’ needs.

Mindaugas Rudys, Director of Šiaulių Bankas Finance Service Development Department, advises not to fair and believes that a competitive struggle is won by those who can objectively evaluate circumstances and thoroughly do their homework.

Dare to carry self-assessment

According to the talker, in assessing the competitive environment, first of all, the sight should veer from the windows of the opponent offering or intending to offer the same product to oneself.

"Before you start thinking and analysing your competitors, looking for their strengths and weaknesses, you must first look at yourself. Every business must clearly answer to such questions as what I am, why I am doing what I am doing,"- says Mr Rudys. - Only then you can take the second step, i.e.  to evaluate the environment: to understand it, to find out the existing rules, principles of operation, the advantages and disadvantages of market participants. When you get to know the environment, you can start considering your advantages: how will I be better than others in that environment. And then think how long I will be able to be the first. "

Probably every motivated entrepreneur believes that the product or service he proposes is at least excellent, however, Mr Rudy advises to use less idealistic epithets and speak more specifically.

"Finding your competitive advantage means understanding how I can distinguish myself from others and in what area I am better. Maybe I am doing something faster, cheaper, offering added value, focusing on a specific customer segment. Perhaps I have a special team with whom I can shake the market, or maybe my service is unique. The competitive advantage must be very clearly stated, - says the banker. - In addition, searching for the competitive advantage, it is important not to go beyond what is possible - none can be the best everywhere, therefore, you need to clearly identify what is most important to you. "

No crown can be worn forever

Competitive edge is not the status quo - sooner or later one has to step away from the the highest podium step, which, according to the expert, can happen for several reasons.

"If you do something well, it's very likely that your competitors will start using the same model too. If they become better, then it's going to be already their competitive advantage. Another reason is changing market and its needs. It may happen that some other things become more important than those your business has been focusing on. Unique ideas are rarely born in this world - many things are simply copied. We keep saying - it is important to take over good practices. So, even if your competitive advantage is unique, for example, you offer a special service and you're doing well, sooner or later it will be copied. Therefore, you need to have a plan B that you will take after you lose your uniqueness. Companies choose different means to preserve their competitive advantage  - they register patents, take legal security measures or simply are able to keep business secrets - for example, the original Coca-Cola formula has not been figured out by any other beverage maker so far.

Don't one to be small

According to the experts, technologies allow small and medium-sized businesses (SMEs)  gaining such competitive advantages as they have never had before. But often, small businesses simply do not dare to change the formula of once-proved success - such a tactic in today's market equates to a sudden or somewhat slower death sentence.

“For work it's not enough to make a business plan and strategy once. Competitive environment is constantly changing and needs to be addressed. You cannot set your competitive edge once and believe that you have secured your eternal success. This is an endless process, an integral part of business development. You must constantly watch the marketplace with open eyes and smell its changes. As a rule, the companies form strategies for a period of three years. It is necessary to review them every year and to constantly check whether your competitive advantage is still an advantage”, warns Mr Rudys.

In order for SME to objectively assess its capabilities, it is sometimes important to go back and look at yourself from the outside.

“If an enterprise does not evaluate itself objectively in the market context, this not entirely correct perception of self can limit it. It is possible that the company is looking for competitive advantages not where it really has them. For example, a smaller company can have the advantage of being flexible, able to make decisions quickly, easier shorten the processes than its larger competitors, and thus reducing the price of the product”, Mr Rudys names the chances. “But at the same time, the competitive advantage must be long-lasting: it's not possible to build a business on an idea that will be relevant for a half-year.”

When it comes to businesses that have few competitors or are generally the first to appear on the market, the expert warns them to take all possible precautionary measures.

“You are lucky, if you are the only who offers a product or service, it's probably just a matter of time when more players will be around. Even if you are the only one in the market, you have to set a script for what will happen when you are no longer alone. In such cases, it is very important not to fall asleep on the laurels and not to make easy occasions for the competitors entering the market”, reminds Mr Rudys. 

Disciplines and promotes growth

The banker says that banks also play a role in a competitive business battle.

“To remain competitive at all times, we have to invest. In the event of inadequate capital investment, the business comes to the bank. How bank can help? Banks offer a number of products with the potential to grow the company's market share. The bank can provide investment credit or lease to buy real estate, machinery, can finance the acquisition of production equipment: this would allow to improve the existing production or to offer new products on the market. Products such as negotiable loans, account credits, or factoring allow you to increase the amount of working capital: apply more favourable payment terms to buyers, thereby increasing your market share. Finally, one can look for financing solutions for the acquisition of competitors”, says Mr Rudys.

According to an expert, another advantage of co-operation is the ability of a bank to discipline and assess risks: when a company applies for funding to a bank, it needs to have a clear business plan, in which it must definitely take into account the competitive environment.

“The business plan must take into account competitors, their strengths and weaknesses, the business itself must assess its ability to strengthen, to identify processes that would minimize the risk. Thus, the bank can assess not the client's ambition to expand, but also whether a potential customer realizes the prospects of his company in the market”, says the interlocutor.

According to Mr Rudys, a negative bank response to finance a company's development does not necessarily mean that the company is unreliable, but it is a definite signal to gear up.

“By planning business development, you are planning for the future. So you have to think not only how you grow and develop, but also how the environment in which you are changes. For example, if you plan to open a hotel, you need to know how many other new hotels are planning to open in the near future, and what your hotel will be different about, why could it attract more customers than competitors. The company's representatives come to the bank with their beliefs. The bank will certainly not try to change the selected competitive advantage. However, when considering on financing a business, the bank will assess credit risk. This may be a signal for the business to focus on specific weaker areas. For example, the company claims that its development will pay off only if a certain number of customers is guaranteed. In this case, it is necessary to identify all market participants and to assess if they are also struggling for the same potential customers. Will you really be able to secure exactly the market share that you expect?”, asks Mr Rudys with the example.

The expert also appeals to those companies that are rolling into the markets already densely populated by rivals.

“There may be an impression that when considering on lending to a company, a high degree of competition will be unequivocally treated as a barrier. However, the customer can argue how he plans to enter the market, how much his products will be more attractive than competitors’, and to mitigate or eliminate all the minuses. Most important is to realize whether the company assesses the situation really, whether the desired investment is measured”, says Mr Rudys.