Rivalry among existing competitors in the industry

Cooperatives March 07, 2011 Print Friendly and PDF

Author: John Park, Texas A&M University, jlpark@tamu.edu

It is the nature of competition that firms will strive for advantage over their rivals. As such, rivalry is typically the strongest of the five competitive forces in any given industry. It can be defined as the competition that goes on between firms as they try to increase their market share. For example, this can be viewed as the competition that the cooperative faces when members look elsewhere to gin their cotton, sell their products or purchase their supplies. Due to the nature of agricultural commodities, this rivalry usually focuses on price competition, with firms attempting to provide the lowest price possible for farm inputs and the highest price possible for farm outputs.

This reveals one of the many challenges of cooperative management, rivalry on more than one front. Many cooperatives find themselves competing for the sale of outputs in addition to competing for the participation of their member-owners. Some cooperatives have a supply relationship with their members, some have a customer relationship with their members and some have both. Needless to say, cooperative management is a complex task requiring complex strategy and direction to support it.

What is the best strategy for a cooperative business to use to provide it with a competitive edge over its rivals? Each firm’s strategy depends on the strategies of rival firms and the willingness and ability of all firms to put resources behind their efforts. Although rivalry is dynamic and ever-changing, several common factors influence competitive rivalry:

  • Is usually stronger when product demand is growing slowly.
  • Is more intense in industries that have high fixed costs. These conditions tempt competitors to use price cuts or other competitive weapons to boost unit volume to cover these costs.
  • Is stronger when the customer’s cost to switch “brands” is low.
  • Tends to be stronger when it costs more to get out of a business than to stay in and compete.
  • Becomes more volatile and unpredictable with more diverse competitors in terms of their objectives, strategies, resources and countries of origin.
  • Is stronger where there is low product differentiation.

Your Turn …

  • How intense is the rivalry faced by your cooperative?
  • List your immediate competitors and ask yourself what advantages or disadvantages these businesses have compared to your business.

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This work is supported by the USDA National Institute of Food and Agriculture, New Technologies for Ag Extension project.