Chapter Three: Know Your Relative Competitive Position
Summary from book page 59-60

It is important for firms to analyze their position relative to competitors for three main reasons: (1) it can facilitate productive dialogue between the public sector and the private sector; (2) it can help firm managers make more informed choices; and 3) it can help firms anticipate areas where they may be vulnerable to the competition.

There are two components to relative position analysis that we should make explicit. First, it is important to understand a given firm's basis of competition--meaning, is it competing on costs, or competing as a differentiated player who can charge more for the product by adding unique value for the consumer? If the basis of the competition is cost, then relative cost position analysis is most critical. If the basis of the competition is differentiation, then analysis of customer satisfaction relative to the competition is most critical. Either way, the challenge is to know and understand one's own position in order to develop a clear view of how likely success is in the competitive battlefield.

The second critical point regards competitors. "Competition never occurs in a vacuum." And a lack of knowledge about the goals and capabilities of the competition to serve the customers may leave a firm very vulnerable.

A theme that we repeat often in our discussions and seminars is that, when it comes to market demand, developing nations have to upgrade themselves from being responders to seekers, and ultimately, to creators. Instead of extracting and exporting the basic wealth of their countries--again, a strategy that other countries can usually imitate and therefore vulnerable to price fluctuations and exchange-rate management--firms need to learn how to understand demand and the dynamics of competition better so that they might find more attractive customer segments. That is what we mean by seeking.

Furthermore, if firms in developing countries understood customer preferences so intimately that they could anticipate them, and perhaps even help shape them, that would mean they were becoming creators. The high-end fashion producers in Italy are creators in the sense that what they make tends to shape the tastes and preferences of consumers, and influence competitors, in a portion of their market. Very often, they make excellent profit margins doing just that.

The essence of this upgrading process is in becoming competent at ascertaining relative position. As we have said, the lack of this knowledge is one of the reasons firms in developing countries find themselves competing in unattractive industry segments. It is also preventing the type of high-quality discussion that needs to take place between senior public and private sector decision makers as they make increasingly complex decisions about opportunities that will come and go with increasing rapidity. With a clear understanding of relative position, however, those decision makers will be able to begin creating their own opportunities that provide even greater reward.

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