Almost all markets have some level of competition within them. While some markets have lower level of competition, some other markets have higher level of competition. Also, some markets have been seeing a much greater increase in the level of competition over time than other markets.
A competitive market is the one in which multiple producers (suppliers) compete with each other in the hopes to sell goods and/or services to their customers. There is no one single producer with the dominant market share that dictates the whole market.
Why markets become more competitive?
Let’s take a look at several reasons for increased competitiveness of some markets throughout time.
1. Deregulation
Governments intervene in markets. The amount of the government’s influence on business activity can affect the level of competition. The more power the government has in a particular market, the less competition there is. And, the less power the government has in a particular market, the more competition there is. Therefore, deregulation, the removal of government controls from an industry, can remove legal controls that prevent more competition.
2. More support for small and medium-size businesses
Providing financial and other assistance to new and small to medium-sized businesses helps them to get established, survive in the initial stage of operations, and grow in size. Businesses need finance to start-up the organization, expand operations and pay for day-to-day expenses. The more firms in the market, the more competitive the market is going to be.
3. Privatization
Privatization, selling public sector business organizations that are owned and controlled by the government to the private owners, helps with improving competitiveness. Businesses in the private sector are more efficient because their main objective is to maximize profit, therefore costs must be controlled. Private individuals will invest more capital in the business than the government can afford from TAXes. And, competition helps to improve product quality too.
4. Growth of free trade
Various regional and global free trade agreements have reduced or completely removed barriers to trade between countries. The growth of free trade resulted in the process known as globalization. And competing globally is very challenging and requires the business to be at its best.
5. Better management expertise
With the development of business schools around the world in the last few decades, the number of educated managers entering the market has increased. Better management skills help businesses to leverage processes within the firm to generate higher sales revenue and optimize the costs to boost profits. The best managers are able to win over competitors maximizing value for shareholders at the same time.
6. Improvements in transportation infrastructure
Transportation systems have improved dramatically in recent years. There are more airports, more railways, more highways, more bus routes and more ports around the world. Having better transport systems in a country means that it is easier, faster and cheaper for companies to distribute products everywhere while more convenient for customers to receive the goods.
7. Development of E-commerce
These days in addition to having a brick-and-mortar retail store, many businesses have developed their own websites to promote and sell their products. With the help of the Internet, companies are able to reach to customers not only in other regions of the country, but also anywhere in the world. The development of the Internet and E-commerce has increased the size of a business and the level of competition in the business’s market.
8. Popularity of social networks
Social network sites such as LinkedIn, Twitter or Facebook have been used by businesses to promote their products at the very low cost, or even for free. It is now easier than ever to access detailed information about the suppliers of products and check feedback from previous customers.
In short, some markets become more competitive over time which results in higher level of competition between companies. In order to remain competitive in the market, a business needs to maintain and increase its market share by: maintaining good customer relationships, keep improving its existing products, introduce new products and keep costs low to maintain profit margins.
