Competitive Threats

A survey on the most and least significant threats to U.S. and European companies

White Paper | January 2012

WHITE PAPER | Competitive Threats

In a year of financial crisis, no one is worried about the moneybut they certainly have issues on their minds.
Introduction
Over the past 32 years, Fuld & Company has handled thousands of research assignments from around the globe, most related to competitive threats of one kind or another new market entrants, price wars, a rivals change of strategic direction, among many others. After all, we are a competitive intelligence firm. Given our natural slant, we thought when we surveyed a group of business executives about competitive threats that they would focus primarily on their competitors, their rivals. What we found instead was that executives are in fact worried about a wider array of threats not just from rivals. Another surprise given the economic climate was the lack of concern about access to credit (more about this below). The competitive threats survey also revealed that there is not one single list of concerns for corporations globally but rather a series of lists that vary depending on the industry or region of the participants. However, one consistent concern across all industries is commoditization. In fact, this is the single greatest threat, whether it comes from a competitor or from a disruptive technology. We invite you to review the findings from this brief survey and compare the results with how you view your business both globally and within your own home markets.

Leonard M. Fuld, President Fuld & Company January 2012

The right to use this alert in its entirety, or any portion thereof, remains exclusively that of Fuld & Company Inc. Upon request, Fuld & Company will, at its discretion, grant permission to republish any of this material. This report is not intended to be, and should not be construed as, a recommendation for purchase or sale of any companies, or securities of any companies, mentioned herein. The information has been derived from statistical and other sources which we deem reliable, but their accuracy, and their completeness, cannot be guaranteed. Opinions expressed herein are based on our interpretation of available information, are subject to change, and should be considered strictly as opinions.

WHITE PAPER | Competitive Threats

Who We Surveyed
We surveyed senior executives, strategists, and competitive analysts, mostly from Fortune 500 and FTSE 100 companies across North America and Europe. In all, 144 responded, representing a range of industries, including healthcare/pharmaceuticals, manufacturing, services, technology/telecom, consumer packaged goods, and financial services.

Threats Survey Industry Breakdown

Other 17% Tech/Telecom 15% Professional & Services 17% Consumer 12% Finance 4% Healthcare 16%

Insurance 6% Manufacturing/ Industrial 13%

Question Posed
Respondents answered the following question twice, once for their view of the most significant threats and a second time for their view of the least significant threats.

Which competitive issue below is MOST / LEAST threatening to your industry and/or your company?
Overseas competition entering our home market in ever greater numbers A drop in sales outside our home market Substitute products or services at either very low prices or very high prices Technology potentially disrupting our business or changing it entirely Customers gaining more strength and squeezing all suppliers (including us) A shift in social norms that will increase or decrease sales of our products Commoditization of our products or services Our companys access to credit Other (please specify)

WHITE PAPER | Competitive Threats

Executive Summary
The Fuld & Company survey of 144 company strategists and internal competitive analysts returned a number of surprising answers amid a dire economic environment - stock markets teetering, real estate foreclosures, and countries on the verge of default. Some of the most surprising findings are illustrated below.

Which competitive issue below poses the greatest industry threat to your company?

Commoditization tops the list: Respondents identified the top threats as: commoditization, disruptive technology, substitute products or services, and market entry by overseas competition. Other threats were: customers gaining strength and squeezing suppliers, and a shift in social norms. Money is not the problem: Not a single respondent declared lack of their companys access to credit as their greatest single threat. In fact, in all but one industry, access to credit was ranked last among the seven choices. This type of universal response on credit as a non-issue reflects the sense of industry resilience that comes from the stockpiles of cash companies have been building since the recession began.

Which competitive issue below poses the least industry threat to your company?

WHITE PAPER | Competitive Threats

The U.S. and Western Europe stack their threats differently: U.S. respondents least fear overseas competition (28%), while European respondents feel least threatened by changes in social norms (31%) in any way affecting their revenues. European respondents believe that commoditization and overseas competition are the key threats (23 %). Their U.S. counterparts fear commoditization even more (27%), followed by substitute products (21%) and disruptive technologies (19%). Fear of losing your niche, your chief competitive advantage: The fear of commoditization along with disruptive technology were paramount in technology/telecommunications (30 %) and pharmaceuticals/healthcare (26%), (industries from which one might expect such a response). Surprisingly, this was the premier threat across all service industries, with exactly one-half (50%) of financial service firm respondents pointing to this factor. Likewise, two-thirds of insurance industry participants (67 %) believed commoditization was its greatest threat as did a considerable number of consultants (20%).

Which competitive issue below poses the greatest industry threat to your company?

Do financial services have a blind spot? : Two-thirds (66%) of the insurance industry and one third (33%) of the finance and banking industries are least concerned with overseas competition entering their markets. This may be the case because there already have been so many cross-border acquisitions among banks that overseas players have already bought into their desired foreign market. Insurers are highly regulated, reducing the threat that a rival can surprise a competitor simply because all insurers must publicly file with a regulatory agency first. Despite these explanations, financial services remain one of the most protected industries on the planet. This begs the question: Exactly how prepared are financial services in meeting a changing market?

WHITE PAPER | Competitive Threats

Implications for Western Corporations:

Stockpiling cash may be making a number of U.S. and EU companies very cautious or just dumb, fat, and happy They would rather sit on cash than move fast enough to remain market leaders. Over the last few years, corporate access to capital, whether through austerity or through bank loans or bonds, has allowed companies to move forward but with measured steps. There are few aggressive, highly creative Apples or Amazons that deliberately destroy their own products in an effort to force their teams to develop new options and innovations before the competition beats them to it. With respect to maintaining competitiveness, we have witnessed two very different types of companies in todays market, those that double down on innovation and change and those that remain highly cautious, sitting on cash, making very slow, very careful changes. This latter set of companies need to widen their competitive scope to seek early warning on companies that disrupt from outside their traditional circles and competitive sets. How should healthcare respond to the threat of commoditization? In the world of biopharma, commoditization comes in the form of mounting pressure from generic alternatives as patents expire, forcing dramatic price drops for the branded prescription medications. Drug companies have already begun responding to what has become a general erosion of company portfolios by refining their pipelines to avoid me-too offerings, as well as offering highly targeted therapies. Pharmaceutical companies that hang on to the more traditional blockbuster mentality (there are fewer and fewer of them today) will find themselves with an ever shrinking pipeline. They will likely become acquisition bait a few years from today. Beware of shifting social norms. Europeans, in particular, least fear changing social norms as disruptive or in any way a threat to their industries. This factor was just a notch below access to credit. Social norms are very much connected to disruptions, which in turn are inter-connected to technological and economic shifts. Only a few years ago, we did the following very differently: order books (Amazon), listen to music (iTunes), talk to our friends long distance (Skype), socialize or even bully others (Facebook and other social networking platforms), view our financial future and save or spend money (Lehmann Brothers, Euro debt crisis), visit the library (Wikipedia, Google). Industries that thrive today could fall victim to different buying habits on the part of customers in the not-too-distant future. Companies that perceive this change today will be best positioned to adapt to it tomorrow.

WHITE PAPER | Competitive Threats

Fuld & Company, headquartered in Cambridge, Massachusetts, with offices in London and Manila, is a leading research and consulting firm in the field of business and competitive intelligence. Founded in 1979 by Leonard Fuld, the company offers the full range of competitive intelligence services, including research and analysis, strategic consulting, and war game exercises to help clients understand their external competitive environment. Books by Leonard Fuld include The New Competitor Intelligence (1995) and The Secret Language of Competitive Intelligence (2006). He is a cofounder of the Fuld Gilad Herring Academy of Competitive Intelligence, which has trained over 10,000 professionals in the art and science of competitive intelligence.

For more information on Fuld & Company and its research and consulting services, please contact:
Jeanne LaFrance at +1 (617) 492-5900, or info@fuld.com

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