Competitive ability control – environmental factors

The strategy generation on chang­es of external environment first of all re­quires of external factors classification exercise. Here we can start from the im­mediate business environment: competi­tors, consumers, suppliers. The company faces them in day-day work and this fact forces it to keep eyes skinned and con­trol all possible changes.

Changes in consumer behavior can be connected with descent of shop­ping ability (for example amid crisis), with appearance of more cheap and\or qualitative substitutes, competitor's new advertising campaign etc. Each concrete situation needs its own approach. For example, the Dutch company Schick found an effective marketing decision when capturing the Japanese market, a manufacturer of shaving blades, at strug­gle with the world leader Gillette. The Dutch made accent on adaptation and took up 62%. They changed their name involved a Japanese actor and effected sales through the Japanese distribution system. Americans used the strategy of standardization and took up 10% of the Japanese market.

Competitors' actions can be unre­spectable. At that a company should take into account not only the acting players, but also the possibility of apparition of new competitors or substitute goods. New competitors are inclinable to appear in those branches which demonstrate high profitability over a period of time and where there are no clear-out leaders, oligopolists, monopolists and big com­panies, which have a liberal market share and the products approved by customers. And appearance of substitute goods and services in XXI century of innovations and technologies will cause no surprise in any branch.

Aside from the immediate en­vironment of the company changes in external environment changes can take place in other fields: in economic policy of the nation-state or the consolidated companies' states, in word economy in general, in changes of climate and ecolo­gy, in demographic structure and cultural values of the countries where business is conducted etc. The meaning of these non-sectoral factors is not always fast, but thereon the result of their changes does not become less sensitive, and in some cases it is enormous.

While understanding all the threats and possibilities from the external environment, business needs a set of ef­ficient measures to react adequately. At the present time the generally recognized means in competitive struggle and surviv­al on the market is co-operation. At that the co-operation in world-practice every so often results in business combination and appearance of more stronger player on the market, who can stay more effec­tively against external press. Thus, hav­ing realized their inability to tide over on the world and even national market many automakers from Central and Eastern Eu­rope, entered production and technologic alliances with leading manufacturers, and eventually this turned out to be an in­termediate form of full inter-corporation integration. It will be remembered that alliances between German firm MAN and Polish firm "Star", Italian "Iveco" and Serbian "Zastava", French "Renault" and Czech "Carosa", Korean "Daewoo" and Czech "Avia" eventually ended with eastern-European automobile firms join­ing their foreign partners.

At large merger and acquisition across the globe – is, as a rule, reaction of the companies to arising crises and com­petition stiffening. In the history of the global market M&A there were six peak periods. Economic crises played a key and generating role in these processes. Yet merger and acquisition can be used by business, including small and medi­um, and with the view of forcing change of external environment, rather than as a reaction to the events which have already happened. If business expansion rates are falling and there are no internal sources of optimization and development, then merger with one of the competitors or his absorption can give the strongest im­pulse concerning further development of the company. In such a manner a com­pany changes the structure of the mar­ket: the number of players is declining, a competitive pattern and market power of individual firms are changing, a char­acter of mutual relations with customers and suppliers is modifying.

Yet we should remember that the strategy of merger and acquisition is not perfect. Business merging can lead to stiffening, complication of processes of development and decision making, ex­cessive diversification and synergetic ef­fect decrease. We should not forget the would-have-been union of automobile giants Daimler-Benz (Germany) and Chrysler (USA).

Strategic alliances widely used nowadays can be an alternative to merg­er and acquisition – a modern form of intercompany cooperation. Apart from the alternative to excessive integration of business they are also effective when companies need to join efforts not in the whole business sector, but only in one or several directions.

Apart from preserving flexibility and independence, the significant advan­tage of alliances as against the strategy of merger and acquisition is the possibil­ity of joining efforts for not just two or maximum three companies but for un­limited number of them. Nowadays alli­ance networks are formed in a number of areas of the world economy, which fully transform competitive pattern, thus cre­ating categories of oligopoly or duopoly. A prime example of such a situation is the market of international air transpor­tation. Starting with 1997, three allianc­es of air transporters were formed: Star Alliance (1997), One World (1999) and Sky Team (2000). Each of them includes nearly twenty players. Through entering an alliance any air company in the world gets access to possibilities of widening customer bases and cost cutting, i.e. it directly leads to growth of competitive ability by means of market-share gain and level of profitability. Companies, outside alliances, confine their possi­bilities on the market of international air transportation and have to cash on freight routs and/or inner routes.

Being a source of growth owing to extra inputs, cooperation of companies anyhow exert enormous influence on in­ternal environment of firms which joined their efforts. An as it was mentioned above, the quality of inner environment is of paramount importance in providing business competitive ability and only the best configuration of external and inner environment can bring a long-term, posi­tive effect.

Consolidated firms or the firms which entered an alliance improve their internal resources, methods and process­es of management and organization of business due to the following possibili­ties: access to a partner's knowledge and technologies, co-developing of innova­tions, exclusion of redundant functions, operating activity optimization, division of powers etc. This changes in internal en­vironment in addition to external sources give additional competitive advantages which will be considered below.