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Early Warning of New Rivals

April 15, 1999 | Paul A. Geroski | Strategy

Identifying new competitors is becoming increasingly difficult as the boundaries between traditional industries blur. Geroski makes two observations that suggest approaches to the problem: (1) successful market entry occurs as a result of a basic product or process innovation coupled with sound business planning, and (2) incumbent firms are vulnerable to new entrants because they are unable to view their own market from other perspectives.

To identify entrants into a specific market, a firm should trace knowledge about profitable opportunities along three information highways where most -- if not all -- potential entrants operate:

-- Related product markets. Most goods or services are purchased or consumed with a range of complementary goods and services. Their producers -- called complementors -- are potential market entrants because they understand customer needs and can identify and evaluate opportunities.

-- Up and down the value chain. Each product or service is constructed from various inputs and distributed for sale with the help of specialist service providers that are also complementors. As established market participants, they gain access to valuable information, evaluate it intelligently, and may become market entrants.

-- Related competencies. Firms develop a range of competencies that create market opportunities, such as technology expertise, managing retail outlets, providing customer service, or developing new products. Firms possessing relevant capabilities could become formidable competitors.

By systematically considering these areas, a firm can generate a list of potential competitors and then identify which are likely to mount a challenge, how, and when. To aid in anticipating a challenger, the author outlines a methodology for thinking about creating a new business and new markets so the company can see the world as a competitor does. A firm can use the resulting list of possible strategies to enter its own market and "compete against itself." Each viable strategy has a variety of inputs, assets, and competencies needed for successful execution. Understanding these provides insight about the what, who, and when of potential competition and may enable a firm to actually preempt entrants by introducing a new product or process innovation.

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