Tiger Nip

Tiger Nip

Your Low Cost Competitors Want To Eat Your Lunch

Many industry leaders are faced with a sea of changes in the marketplace, particularly the onslaught of many low cost competitors. They are minnows and will grow to become sharks if they are not nipped in the bud. Examples abound on the proliferation of the Chinese products in the world market.

The way to handle these manufacturers is to try to nip them in the bud. It is like war. You must not allow your competitions to establish a beachhead. For once they succeed in doing so, it will be so much harder to dislodge them. You want to knock them out in the waters where they are most vulnerable. When customers try the low cost products and they like them, it will be very difficult and expensive to entice them to switch back to your products. If you cannot beat the low cost competitors in the price game everything else being equal, then better to identify another premium niche.

Johnson and Johnson the health-care multi-national company also faces stiff competition and a long wait for the next drug blockbuster. As part of its strategies to hold off competition, it has gobbled up 34 companies in the past 5 years and will keep acquiring. Johnson and Johnson also put existing drugs to new uses - epilepsy drug Topomax now treats migraine. Workers are made to cross the divisional lines to develop products and drug-delivery systems including treatments for stroke, diabetes and schizophrenia.

Teamwork between pharma and device divisions led to the billion-dollar coronary stent. Cost-cutting on the 200-plus units, merger of the back-office operations and centralized purchasing helped to save $1 billion in two years' funds that it will use in the development of badly needed new pharmaceuticals.

On the other hand, Hoover, which makes vacuum cleaners since 1907, has shrunk its unionised staff strength from 1,800 just over 1,500 in 1994. The Chinese competitors have been selling cheap vacuum cleaners at $79. Hoovers with price tags of $200 and higher cannot compete and was caught unaware. These Chinese low-end models already have 40% of the market. Hoover tried layoffs, new vacuum-cleaner features etc, but to no avail. On the other hand, the market leader Whirlpool is up 38% in sales revenues and just boosted its 2004 profit outlook. Whirlpool no longer sells vacuum cleaners and diversified into other household appliances.

As mentioned earlier, the Port Authority of Singapore (PSA) also lost its competitiveness when Tanjong Pelepas in Malaysia stole away PSA's number one and two customers with cheaper pricing. The Singapore government has learnt this lesson and is responding quickly to the threats of low cost budget airlines and regional air hubs. Airlines can also bypass Singapore Changi Airport and fly directly from Australia to Europe or Middle East to US avoiding stop over in Singapore. Singapore Airlines is introducing the budget airline Tiger to compete in this sector as well as to boost its premier airline image through the offers of new planes and non-stop direct flights to the US. Singapore Changi Airport is building a terminal for budget airlines. The Singapore government came down hard on the Singapore airline pilots to ensure that the national airline is not dragged down by labour disputes. The airport terminals are also undergoing renovation and upgrading. The jury is still out as to whether all these proactive measures can effectively maintain the competitiveness of the air transportation and aviation industry in Singapore. However, this is better than waiting for the low cost competitors to gobble your lunch right under your noses.

Another case in point is the ball-point and fountain pen competition. Ball-point pens were much cheaper, easier and less messy to use. The fountain pens were beaten face down and lost almost all the market share to ball-point pens. Then somebody thought of making the fountain pen a luxury item. The fountain pen was sold for US$ 400 and positioned as a prestigious and luxurious item, similar to the jewel wear. The manufacturers of fountain pens such as Parker, Sheaffer and Mont Blanc have then comfortably locked into the high-end segment which the ball-point pens cannot penetrate.

Today, both the fountain and ball-point pens co-exist each has its own market niches. You need to be wary and be prepared to thwart off the moves of these low cost competitors. This is why Howard H Stevenson in his book said: "Do lunch or Be Lunch."

Your low cost competitors will not just nibble at your low price segment, they want to eat your lunch

About the Author

Dr Mike Teng (DBA, MBA, BEng) is the author of best-selling book, "Corporate Turnaround: Nursing a Sick Company back to Health." He is known as the "Turnaround CEO in Asia" by the media.

http://www.corporateturnaroundexpert.com;

http://www.corporateturnaroundcentre.com