Warren Buffett once said: “In the business world, the rear view mirror is always clearer than the windshield.”
Recently, working with a company that supplies equipment to the construction industry, the challenge of looking forward surfaced as the executive team tried to determine the actions they should take to drive growth and sustain their profit margins. One of the concerns that they voiced focused upon the likely entry of new foreign competitors, both from other developed markets and from the emerging economies.
As one executive from this firm stated, “It’s not that we’re afraid of competition, but the last thing we need coming out of the recession that has gripped our industry is getting involved in a vicious cycle of price-based competition, one that will erode margins and thwart our plans for investment.”
The concern about foreign competition is not in any way a new one, but it remains a very real one. European businesses, recognizing the weakness in their home markets, are shifting attention to opportunities in the stronger economies of North America.
And in almost every industry, increasingly competent manufacturing firms from countries like China are bringing to market almost-as-good products at a great price point. There are good and plentiful reasons to worry about competitive threats.
The firm debating the challenge of new foreign competitors had developed a long roster of options through which they might address it. Some involved reductions in spending on services and sales support, directly and through their distributor network. Others involved product changes – mostly cutbacks – that would enable them to respond to pricing pressures without driving margins into the ground. Still other options involved spending reductions relating to product development and plant modernization that might help in the short term, albeit with adverse consequences in the future.