Financial Daily from THE HINDU group of publications
Thursday, Sep 26, 2002
Columns - Karategy
Hurrah for competition
READ any company release accounting for their performance, and you will come across the familiar litany of `too much competition'. So, is competition really a bad thing?
Let's start with the consumer's view. An unqualified hurrah!
Whether you look at prices, or product quality, or services offered, the consumer has won all the way, because of increased competition.
Look at prices. There was a time when I would keep correcting nostalgia about prices ("You know, in 1947, how much chana you could get for just one anna!"), by pointing out that when adjusted for inflation, India has always been a high cost economy.
But if you look at the last decade, when liberalisation ushered a flood of competition, you realise how much we have benefited from more players wooing the same consumer.
Prices have dropped in absolute terms - post Akai, CTV base prices dropped from Rs 20,000 to Rs 9,000. They also have dropped in relation to the value offered for the same amount you would have paid in 1990; you would now get a far sleeker, modernised, product - whether it is a car, a refrigerator or an air-conditioner. The latest story, of course, is cellular services. All it took was an extra player in each circle, and airtime rates tumbled from Rs 4 per minute a few months ago to 50 paise per minute today. If you think I'm talking only about elitist products - even the humble bathing soap saw prices tumbling with Nirma's large scale entry.
Each competitor comes in looking for that unique niche, and naturally, tends to launch a product differing at least somewhat from those already in the market. The cumulative effect - a fantastically large choice for consumers hitherto used to just one or two options. Look at the spurt in the number of CTV models. There are 30 companies in air-conditioners today, against four about 10 years ago, each with their own, unique products. The number of soaps has exploded - you can get soaps that promise fairness, moisturisers, skin care, deos, herbal care and what have you. The look and feel of 50 paise candies was changed forever by Perfetti. And anyone who has recently taken a mobile connection knows the almost bewildering range of options available.
Remember the days when Indian Airlines was the epitome of all that was sluggish and consumer-unfriendly in service? Surly air-hostesses, indifferent food, unpredictable schedules. All this made Jet's entry, with its "5 star in the sky" promise an irresistible lure. It soon became de rigueur for any corporate traveler to fly Jet, if you wanted to be on time for your meetings that is. The pleasant pursers, stylish hostesses and freebies on the flight were just the icing on the cake.
Fast forward to today - many business travellers I know now prefer Indian Airlines, especially if they travel economy and if they are tall. Jet seems to have squeezed in a tad too many seats, making a longish journey a cramped one. With competition breathing down its neck, IA now offers roomy leg space, decent food, smooth flights - and a newly flexible frequent flying programme. At this rate, Jet will soon have to scramble for some fresh consumer incentives, if it isn't to see the pendulum swinging back in favour of IA.
But, I hear the corporates protesting, this is all very well for the consumer, but what about us? Our margins have taken a beating, our selling is becoming tougher ...
In my view, this has been good for companies as well (after all, isn't what is good for the consumer supposed to be good for the marketer as well??).
At one level, all the activity has resulted in market expansion. Shampoo and confectionery are major examples of this. A case where an existing company benefited from competition is breakfast cereals.
When Kellogg entered India, its attempt to alter Indian food habits was mocked by most as a case study in MNC blindness. Let's leave that aside for the time being and look at how it altered the nature of the competition. Its market expansion efforts had an unexpected benefit for its dominant Indian rival, Mohan Meakin. Of course, Mohan's sales grew after Kellogg's entry. What is not so obvious, is that the new competition galvanized Mohan Meakin into improving the quality of its product, the marketing as well as the packaging. Ironically, many housewives I know, who began their love affair with cornflakes after Kellogg's high-decibel launches, later switched to Mohan's new improved product for sheer cost reasons, thus expanding Mohan's consumer base. Kellogg's entry benefited both consumers and competition.
And that, in my opinion, is the true benefit of competition for companies as well. The realisation that competition is here to stay has resulted in a major mindset change. There is still some way to go, but the recent competitive pressure has already seen corporates becoming leaner and meaner. Strategies are gradually shifting towards what the consumer wants, rather than what suits the marketer financially or operationally. There is a willingness to change to meet market realities, rather than expect consumers to adapt themselves to corporate convenience. Some Indian companies, in particular, have had major successes, which has led to a resurgence in self-confidence. Notice how the calls for a `level playing field' have gradually decreased?
And as for margins, the realisation has also set in that the higher margins were accompanied by wasteful fat in capital employed. So, the focus is now shifting from just margins to return on capital employed - this, of course, is the way it should have been all along.
The benefits of competition for all concerned are so clear, it's a shame that we are going slow on some key sectors like agriculture. Almost any comparison of food prices relative to income shows that food in India is startlingly costly. Of course, the constraints are particularly tough, but perhaps what is needed to make agriculture low cost and efficient is a greater opening up. On the bright side, even heavily protected sectors like insurance are already seeing a shake-up - the influx of MNC entrants with an aggressive sales force, more innovative schemes, and consumer-friendly approach to settling claims has already begun to have its impact on LIC. Last heard, LIC was proudly announcing that they have launched the cheapest ever policy and promising to set the pace from now on. It's a pity it took some competitive action for LIC to start bettering itself, but then, that's life - if it comes too easy, there is no reason to improve.
(The author is a Chennai-based consultant)
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