Industrial firms are different between them for their economical characteristics, competitive situations and their prospects. Industry and competitive analysis use a lot of concepts and methods for obtaining a clear image concerning the variable conditions from industry and competitive strong forces. Economical characteristics of industry are important for their strategic implications.industrial companies, competitive forces, strategy formulation

Adriana Lazarescu

Ion Stancu

English

Research Papers in Economics

 
METHODS TO INCREASE THE COMPETITIVENESS IN 
INDUSTRY 
 
Professor PhD Ion STANCU 
Assistant Professor Adriana LĂZĂRESCU 
University of Craiova 
 
Abstract: 
Industrial  firms  are  different  between  them  for  their  economical 
characteristics,  competitive  situations  and  their  prospects.  Industry  and 
competitive analysis use a lot of concepts and methods for obtaining a clear 
image  concerning  the  variable  conditions  from  industry  and  competitive 
strong forces. Economical characteristics of industry are important for their 
strategic implications. 
 
 
Industrial  firms  are  different 
between  them  for  their  economical 
characteristics,  competitive  situations 
and  their  prospects.  Technological 
changes  rate  can  be  situated  in  an 
interval  from  quickly  to  slowly.  Capital 
demands  can  be  high  or  scanty.  The 
market  can  be  global  or  local.  The 
sellers’ products can be standardized or 
can  be  very  different  between  them. 
Competitive  forces  can  be  strong  or 
weak  and  they  can  be  axed  on  the 
price,  quality,  services  or  others. 
Buyer’s  request  can  grow  up  or 
decrease.  Industry  conditions  are  so 
different therefore the great companies 
from  unattractive  industry  can  meet 
difficulties in having major profits while 
the  weaker  companies  from  attractive 
industry  can  getting  them  notable 
performances.  
Industry  and  competitive  analysis 
use a lot of concepts and methods for 
obtaining a clear image concerning the 
variable  conditions  from  industry  and 
competitive  strong  forces.  This  is  a 
strategic way of thinking about complete 
situation  of  industry  and  point  out  the 
conclusions:  if  that  industry  represents 
an  attractive  investment  for  company 
funds.  
Industry  environment  and 
competitive  analysis  it’s  up  to 
developing the answers for the following 
seven questions: 
1.  Which are the main economical 
characteristics of industry? 
2.  What kind of factors involve the 
change  in  production  and  what  will  be 
the impact for these? 
3.  What  competitive  forces  action 
in industry and how strong are they? 
4.  What companies have the high 
order/scanty order position ? 
5.  Who  do  the  next  competitive 
movements and what are these? 
6.  What  kind  of  factors  will 
determinate  competitive  success  /the 
failure? 
7.  How much attractive is industry 
in its own plans for having profits over 
mean? 
The  answers  for  these  questions 
will  make  us  to  understand  a  firm 
financial environment and it represents 
the  base  for  variable  strategy 
synchronization  of  industry  conditions 
and competitive forces. 
For  knowing  connection  between 
industry social standing for a firm in a 
period of time and strategies what follow 
to  be  adopted  in  that  firm,  can  be 
followed in this way: 
a) It’s  analysed  industrial  firm 
existence  in  a  period  of  time  view 
competitivity:   74 
•  identification  main  economical 
characteristics  from  an  industrial 
medium; 
•  forces identification/ evaluation; 
•  competitive  position  evaluation 
of companies from industry; 
•  identification  of  companies 
which  will  make  the  following 
competitive movements; 
•  discovering success factors; 
•  conclusions  about  industry 
attractivity; 
•  determination  of  using  present 
strategy; 
•  realizing  an  analysis  SWOT 
(strong, weak, opportunities, threats); 
•  evaluation  of  competitive 
relative power; 
•  evaluation of relative position of 
the  firm  cost  and  prices 
competitiveness; 
•  identifying  strategic  firm 
problems  about  the  firm  can  give  a 
special  attention  (target  modifications, 
expanding  or  reduction  aims,  strategy 
improvement/ changing). 
b) In accordance with the answers 
of  the  questions  above  it  makes  an 
identification and evaluation of the firm 
strategical options in this way: 
             It’s  looking  for  an  answer 
of these two problems: 
1.  Which  are  the  company 
options? 
•  the  firm  is  blocked  in  doing 
improvements in base strategy; 
•  the firm is capable to do major 
changes  in  its  strategy  or  to  develop 
another strategy. 
2.  How  do  it  build  a  competitive 
advantage? 
c)  Realising a new strategy having 
some representative criterium for  
      decisions: 
•  amortization  concerning  the 
aggregate situation; 
•  making  and  maintaining  the 
competitive advantage; 
•  obtaining  some  remarcable 
results.  
 
Identification  of  Ruling 
Economic  Characteristics  of  the 
Industry  
Because industries are different in 
a normal way in their structure or their 
character,  industry  and  competitive 
analysis  begin  with  a  general  view  for 
economical  aspects  in  industry.  Like  a 
rule  we  use  the  world  “industry”  when 
we make a reference to a group firms 
whose  products  have  many  things  in 
common  and  concure  for  the  same 
customers.  The factors  which  must  be 
followed  for  realizing  an  economical 
profile of industry are: 
•  market dimension;  
•  competitive  gain  (local, 
regional, national, global); 
•  growth  rate  of  market  where 
industry  has  a  grow  circle  (precocious 
increase,  fast  growth  and  launching, 
precocious  maturity,  late  maturity  and 
saturation,  slackening  and  stagnation, 
decline;     
•  the number of competitors and 
their  relative  values;  industry  is 
structured in a lot of small firms and it is 
dominated by some great companies; 
•  technological  changes  rate  in 
production  processes  and  in  new 
products 
•  if the products are different or 
not; or if they are in the same way with 
the firm products; 
•  if  there  are  a  scale  of 
production, transport or marketing;  
•  if the big rates of capacities are 
important  for  a  production  with  low 
prices; 
•  if there is a strong curve about 
experience; 
•  capital demand; 
•  if the profitability of the industry 
is situated on the superior level/inferior 
level of  nominal value. 
For  demonstration  it  is  done  a 
industry  presentation  choosing  the 
factors above: 
•  market  dimension–  annual 
incomes for 400$-500$; total volume = 
4 millions tones;   75
•  the competitive aims: as a rule 
there is regional, producers sell rarely in 
an area at 250 miles away because of 
they would have big costs for transport; 
•  growth  rate  of  market  –    2%-
3% annual; 
•  the level of ripening life-cycle; 
•  the number of companies from 
industry  ≈  almost  30  companies  with 
110  factories  and  a  capacity  to  4-5 
millions  tones,  market  shares  vary 
between 3%-21%; 
•  customers    ≈  almost  2000 
buyers,  in  the  most  cases  industrial 
chemical firms; 
•  joint-vertical  integration  rate  – 
5  from  10  great  companies  which  buy 
over  50%  from  their  factory  products, 
are fitted retroactive in mining industry 
and  futurist  in  small  part  of  chemical 
industry;  the  other  companies  are 
engaged  only  in  manufactured 
production; 
•  the  way  how  a  company  get 
in/get  out  on  the  market  –  difficulties 
what  appear  like  capital  demand  for 
building  a  new  factory  with  minimum 
efficiency (10 million $ costs) and ability 
to  build  a  strategic  outlet  point  in  an 
area at 250 miles to the factory; 
•  the  product  characteristics  – 
high  standards;  different  producers 
brands are the same (the buyers know 
in  a  difficulty  way  differences  from  a 
seller to other); 
•  economy  for  moderate  scale, 
all have equal manufactured costs, but 
scale  economy  exists  in  multiple 
transport for the same customer about 
buying  great  quantities  for  raw 
materials; 
•  experience curve effects – isn’t 
a factor in this industry; 
•  using  capacity  –  production 
efficiency  is  for  90-100%  from  rates 
capacity, under a utilization to 90%, the 
unit costs grow up quickly; 
•  industry  profitability  –  medium 
nominal  value,  products  nature  from 
industry  results  from  semnificative 
prices  reductions  when  the  request  is 
low, but the prices low when the request 
grows; the profits appear from a strong 
request  of  the  products  from  that 
industry. 
Economical  characteristics  of 
industry are important for their strategic 
implications.  For  example,  in  industry 
with a great capital, where investments 
in factory only can touch few millions $, 
a firm can facilitate the fixed costs which 
are grown up from a new strategy which 
promote  intensive  promotion  for  fixed 
goods  and  generates  more  incomes. 
For  example,  commercial  aeronautical 
companies  use  strategies  which  grow 
up  the  productivity  from  aeroplanes 
incomes more expensive by short time 
spent  on  the  airports  (many  flights  by 
the same plane) and by less taxes for 
having  less  free  seats.  In  industries 
which  are  characterized  by  a  product, 
companies  want  to  invest  time  and 
enough  money  in  search  and 
development  centers  for  maintaining 
technical  abilities  and  innovating 
capacities  against  competition  –  a 
continue  innovation  strategy  of  a 
product becomes a survival condition. 
In conductors industry the effect of 
experience  curve  (increase  the 
productivity  and  share  of  market)  can 
reduce the average unit costs with 20% 
when the production is doubled. Thus if 
for the first million cips cost 1$ per unit 
for 2 million volume production the cost 
per unit could be 80%  (80% from 1$) 
and to 4 million volume production the 
cost per unit could be 64% (80% from 
0,80$) and so on. 
When an industry is characterized 
by a strong effect of experience curve in 
manufactured  operations  a  company 
which  firstly  uses  a  new  product  and 
develops a strategy for a big part from 
the  market  can  earn  a  competitive 
advantage because it’s a manufactured 
which made low costs. The bigger the 
experience curve is, the bigger the firm 
advantage is. 
The  table  represents  the 
experience curve effects in the case of 
low costs which 10%, 20% and 30% for 
each  doubled  volume  of  production.  76 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The strategic explanation for each 
characteristic  can  be  made  in  the 
following way: 
•  volume  of  the  market  –  small 
markets  don’t  have  the  tendance  to 
attract the large new competitors; large 
markets  usually  take  the  great 
companies  interest  who  want  to  buy 
new  companies  with  already 
competitive  positions  in  atractive 
industries; 
•  growth  rate  of  market  –  fast 
growths  attract  new  enteries;  the 
stagnations  of  the  growth  rate 
encourage  the  competition  and 
determine the rule out of the weak firms; 
•  impediments at entrance/ exit – 
difficult  impediments  protect  the 
positions  and  profits  of  the  real  firms 
while  slight  impediments  involve 
vulnerability for the real firms; 
•  standardizated  products  –  the 
buyers  have  more  power  because  it’s 
very easy to change the brands; 
•  capital demands – considerable 
demands  make  investments  decisions 
to  be  critical;  the  synchronization 
becomes  important  and  sometimes 
becomes  an  impediment  for  entrance/ 
exit; 
•  vertical integration – growth the 
capital  demands;  often  involve 
competitive differences of cost between 
the  firms  totally  integrated,  partial 
integrated or unintegrated; 
•  scale  economy  –  grow  up  the 
volume and market shares through the 
cost reduction; 
•  fast innovation of the product – 
shorten the life cycle of the product. 
   
REFERENCES 
 
[1] Pankaj. G., Building Strategy on the Experience Curve, Harvard Busines Review 
64, no 2 (March-April) 1985. 
[2] Porter E., M., Competitive Strategy:Techniques For Analizing Industries and 
Competitors, New York, Free Press, 1980. 
[3] Thompson A., A., Jr.& A. J.Strickland III, Strategic Management, Seventh 
Edition, VAGA/New York, 1993.        
1 million 
pcs. 
2 milions 
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4 millions 
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8 millions 
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1$ 
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  70 
¢ 
81 ¢ 
72,9 ¢ 
51,2 ¢ 
64 ¢ 
Total cost of production 
 
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34,3 ¢ 
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cost reduction by 10 % 
 cost reduction by 20 % 
     cost reduction by  30 % 

Methods to increase the competitiveness in industry

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