A recurring question is what makes a company competitive.

There are many definitions for Competitiveness, some of them quite complicated, for example: “the ability of organizations to produce goods or services with a favourable quality-price ratio that guarantees good profitability while achieving customer preference over other competitors. Competitiveness ensures that the company is sustainable and durable.” (found on the internet)

I resume the concept of Competitiveness in my concise sentence: „the quality of being wanted despite the cost.”

We, humans, tend to simplify ideas and think that Competitiveness equals a low price. This equation is not real. A product is much more than just a price label.

That is the reason why companies make an effort to communicate the goodness of their offer: better quality, better taste, new, more disinfectant, beautiful design, brand image, optimal results,… and more. They are all reasons to convince you to pay a bit more.

But without this value uprisal, the idea that something is competitive if it is cheap is steadily anchored in our mind. On this basis, companies and countries expect to gain Competitiveness by reducing costs. Very often, this means reducing the costs of labour and working with unhappy teams.

I am not going to deny that, to sell more in the short term, reducing the price is a commercial advantage. But this is about it. Lower prices make a product more competitive by lowering the acquisition cost and making them cheap. The same applies to companies and countries which reduce salaries. But pay attention: they do not become more competitive, they become cheap. And the label „cheap” is not a good label.

Based on my observations, I group the factors that make a company more competitive in 4 areas:

1. Structure: Good internal organization with robust departments and economic stability.
2. Personnel: Motivated teams of professionals that receive the necessary training on an ongoing basis.
3. Stakeholders: Consistent market approach and well-established strategies in sales, purchases, personnel and relationships with stakeholders in general
4. Innovation: Improvement and new launches adapted to market needs.

It is essential to notice the implementation order. Companies can have difficulties to innovate and to take advantage of the innovations if the previous areas – a solid structure, a motivated, skilled team, a close approach to clients that permits to know their expectations – are not consolidated.

I will illustrate with my experience. I worked for 12 years in a multinational in the cosmetics sector, one full of small companies that produce a very cheap product. Though I was Finance Manager for Southern Europe, I became de facto General Manager in Spain for two years. We had a clear structure and a team I could feel quite happy with, but our relationships with distributors were poor. The previous management had used the distributors as an endpoint. For them, sales to the distributor was a final sale, and the objectives in the distribution contract became the only goal (hitting the sales target yielded excellent bonuses). They also thought that to be competitive, we had to make very high commercial discounts.

Once your client gets used to buy with substantial discounts, it isn’t easy to make them buy at the list price.

It did not matter if the distributor was over-stocking. The low margin did not permit us to offer them additional support for their sales to the end consumer. The possibility for a distributor of returning goods to the company was limited. When I took over, our distributors were holding vast amounts of paid product that they could not sell. Some of this product was already obsolete and only suited for destruction. To them, holding deposits full with stock that did not rotate was extremely demotivating. Their compromise with the brand was low and did not show much interest in moving forward. They did not want us. We were not competitive any more.

When I took over, I forced a different vision: the distributor is just our middle point in the sales channel. Real sales were those made to the end client, not to the intermediates. As a result, their deposits had to be cleaned. We valued all the obsolete product, agreed with the UK headquarters a three months strategy, and collected everything. During that quarter our sales were low, as expected, much product being credited (and destroyed), but after this operation sales grew enormously. The distributors were happy to see a sellable product in their warehouses. Besides, they would only command what needed and when needed. We expected them to hit the target, but would not force them to buy to stock. We started selling at higher prices and with better margins. No more last minute offers, with very elevated discounts, that would impede us to have healthy sales in the months after. Our new extra sales margin could be used to promote their sales. We entered a virtuous cycle.

Open, trustful communication between the company, its employees and its stakeholders creates a high degree of confidence. There is no Competitiveness without trust and respect. Very often, companies treat their suppliers, distributors and other stakeholders with disdain. What an enormous mistake! The word respect is powerful!.

I learned that many companies trade long term Competitiveness for short term profits. What an expensive mistake! Once this process starts, it will be challenging to stop it.