22 November 2017
By Diada Lompo
Monopoly kills for sure, but we often ignore the fact that competition kills too, and as much as monopoly. Monopoly kills consumers, while competition kills entrepreneurs. Many entrepreneurs, trapped in a highly competitive environment, rely on lower prices to survive, and this eats up profit margins until business becomes unprofitable and the entrepreneur is forced to close his company.
However, this should not be the case. For a prosperous and sustainable market, transactions must benefit both consumers and entrepreneurs who produce the items for exchange. The goal of any entrepreneur should therefore be to avoid competition and create a balanced monopoly that does not kill consumers
Striving to create higher added value for customers
So, how can such a balance that seems unrealistic be achieved? Instead of doing the same thing as everyone else, the entrepreneur who cares about customers must strive to create high added value for them. In this light, there are several ways of distinguishing yourself from competitors and proposing offers that customers cannot turn down, while protecting your profit margin. Today, I will present only one, which is reorganizing production factors. Other ways will be discussed in future publications.
It should be noted that reorganizing production factors of a given sector requires a situational analysis by the entrepreneur. The latter highlights the challenges faced by his/her sector and determines the actual costs affecting the final costs of production. And then, he/she deletes optional and unnecessary factors or replaces them by other less-costly ones in order to achieve the same results as their competitors. In order to really stand out from the competition, the entrepreneur should question everything and propose new production methods, which are so innovative that they fundamentally transform the sector, a situation which enables production at lower costs.
Case Study of the Automobile Sector
In the early 1990s, Henri Ford made the following observation: in 1886, German mechanical engineers (Gustav Daimler and Karl Benz) had already designed automobiles as an alternative means of transport to horse-drawn chariots. However, costs of production (mainly costs associated with recruiting experts in auto mechanics) were so high that cars were sold at prices far beyond consumers' purchasing power; not everybody could afford a car. In addition, in a few years from 1886 to 1900, there were already 2000 automobile manufacturing companies in Europe and the US. Each company had one or a few competent engineers who produced one or two vehicles per year. Yes, per year! In such a context, Ford decided to act differently. He discovered a slaughterhouse located at Detroit, which produced pig carcasses as quickly as possible and could supply the town in meat at affordable prices. He went to the slaughterhouse thinking that there should be a secret behind producing such a quantity of meat in a day. There, the master butcher explained to him the production chain in the slaughterhouse. The meat carcass was hung on a reeling chain which was attached to the ceiling and spun around a large table. Butchers with knives were also standing along the large table and were cutting each a piece of meat. They could slice up the pigs in seconds and were always ready to cut the next carcasses.
From Henri Ford to Elon Musk: Being efficient in 21 seconds
Henri Ford then got inspired and proposed the most efficient production line ever, which was a work flow that makes it possible to produce a car per 21 seconds while his competitors were producing a car per year. This technique made him famous ahead of his competitors. By changing the assembling process, he could manufacture his cars without the help of experts. His costs structure was completely different from that of competitors. Moreover, when you produce such a big quantity of cars at low costs, you should clearly sell them at a lower price in order to exhaust your items. He was then loved by customers who could afford a car for the price of a horse. What an added value! Customers prefer this type of entrepreneurs and reward them by buying their products.
Notwithstanding, competing by controlling factors of production or reorganizing them does not guarantee long term success. The leader in the automotive industry is no longer Ford but Tesla, which recently joined the market when it produced high-end electric vehicles, with a market capital of over $50 billion. How did Tesla's founder, Elon Musk, get there? This question will be answered in my next publication.