A competitive strategy amid market slowdown

Business cycles are part of life’s seasons. There are growth days and there are slow days. One reads about Singapore’s slowing growth in 2012 which may stretch even till 2013. As such, many companies are in their year-end corporate planning cycle, reviewing their medium-term competitive strategy development and action plans for 2012.

Is one really at the absolute mercy of the economy as a reactive hostage? No. Although a critical factor, economic growth rate is only one factor in the broader macro environment, as it affects financing access and customers’ ability to pay for goods and services. You can pre-empt the slowdown and develop a competitive strategy for a slow-growth market. Here are some broad external and internal forces to review.

EXTERNAL FACTORS

1. Macro Environment
In your market-response model, review if this assumption is still valid, that the past market drivers will continue to drive the future? If so, start looking at the macro environment.

• Government regulations, statutes and policies: any change in government trade promotion incentives like increased funding (for manufacturing, human resource productivity, overseas market studies, etc), liberalizing trade agreements like AFTA and TPP (e.g. decreasing import tariffs or tax on income, increasing non-tariff barriers)?

• Infrastructure: are there new changes to transportation and communications that will affect how goods and services are distributed? E.g. hikes in taxi fares and car COEs should reduce traffic congestion, thus speeding up deliveries. Or, the roll-out of faster 200 Mbps fibre broad band services should help some time-sensitive sectors like ICT and logistics

• Technology: what new technologies (eg. cloud-based computing services) can you consider adopting to lower costs and increase efficiency? Upfront short-term acquisition costs may higher but they compensate over the medium term by reducing overall maintenance and purchase costs.

2. Demand-side Analysis
Your target customer segment is a major factor to monitor, even more than the market size or market growth. As part of gathering regular customer intelligence and feedback, you may now conduct an early survey to ask your existing and potential new customers:

• Market Demand: how much reduction in quantity demanded of your goods and services are expected? If your domestic market is slowing down significantly, identify and evaluate alternative overseas markets offering bigger market size, which can offset a slower growth rate.

•  Price: how much price reduction are your customers expecting? This is important if demand for your goods and services are more price sensitive (elastic demand), with price points positioned at lower or mid-price points.

•  Brand Comparison, Satisfaction & Loyalty: what else are your regular and potential customers demanding from you to remain satisfied and loyal to you and not switch to your competitors? A customer survey is essential to gather their feedback.

3. Supply-side Analysis
Watch for increasing intra-Asian trade, especially in components, parts and accessories. SMEs can still participate in a larger globalized supply chain and identify trade opportunities.

Regularly update your SWOT analysis and monitor your competitors’ movements, especially prices. Price trend analysis is helpful to help identify price movements as an early warning alert of price discounts. In slowing economies, indirect competitors may decide to enter your industry as direct competitors. Mystery shopping can help to observe if your competitors are maintaining their service standards or falling behind.

As asset prices are falling, this makes it cheaper to acquire mid-tier competitors offering complementary strengths.

4. Distribution
Prices of raw materials and logistics services are expected to fall. This is a good time to re-negotiate with your suppliers and 3PLs for lower prices. Monitor your distributors if they are still able to fulfill their KPIs.

5. Finance
It’s also a good time to source for cheaper cost of funds from banks. Revise your 3-year financial
estimates and obtain internal feedback from management and staff on areas to reduce costs if revenues are expected to be flat or reduced. If banks are not lending, consider private equity funding.

INTERNAL FACTORS

1. Competitive Advantage
Perform market research regularly to monitor if your competitive advantage (differentiation by niche, low cost leadership or focus) is sustainable. If weakened, improve your competitive advantage. If unsustainable, either look for a new one or, if revenues are unable to even cover variable costs, exit that industry.

2. Operations
Downscale operations to fit with reduced demand.

3. Sales and Marketing
Continue building relationships with regular key account customers and suppliers. It’s far easier and cheaper to retain existing ones than attract new ones. They will then know who their friends are in bad times. When the economy rebounds, they will also know who to turn to. SMEs can outsource their regional B2B customer sales lead generation to third party consultancies to make money for you.

Lawrence Yeo, CEO & Principal Consultant, AsiaBIZ Strategy