Can Your Competitor be Your Partner?

October 26, 2014 Business Strategy, Customers, Marketing, Supply Chain Management

Competitor or Partner? It’s Not Always David Vs. Goliath

Note to Reader: Competitor names are changes for privacy reasons.

Last month, I was asked by a client to participate in a visit to some of their customers. The client, Acme Electric, wanted to meet with some of their smaller customers with the hopes of growing their existing sales volume into something more significant. Acme’s sales team believed that these smaller customers had limited knowledge of Acme’s full capabilities, and saw this as a chance to deliver a bit of a show-and-tell to plant seeds for future sales opportunities. One of these smaller customers, Mason Manufacturing, was also a competitor of Acme in some instances. Ultimately, the visit led to an intense debate within Acme about how to engage its customer and competition. Is a competitor always a competitor, just fighting for your market share? Or can you partner with a competitor and find mutual value? Here is what happened.

The Company and Its Customers

Acme Electric produced a variety of products used in wiring devices for the automobile industry. Its factories produced the wires, connectors, pins and other pieces contained within the final product. While a subsidiary of a much larger industrial manufacturing company, Acme operated essentially as a stand-alone business unit. Acme was a large player in the market and sold its products to a variety of customers, including the big automakers like Ford, BMW and Fiat. In addition, Acme would often sell some of its smaller component products (pins, connectors, etc.) to its competitors, who would in turn assemble them into their own products.

Acme, by all accounts, was set up for large-scale production, both financially and systematically. Further, it had a strong product development group. For this reason, Acme’s true value proposition was that customers could outsource the entire design and fabrication of cables to Acme, allowing the customer to concentrate their resources elsewhere. It was well-understood from customer feedback that Acme won business based on its technical prowess, and not on its speed or price.

While its deep pockets, product quality and financial stability made it an all-around good supplier to its customers, Acme’s operation was still reflective of its large company setup: it was big and slow. Thus, Acme’s product design and fabrication know-how was hindered by its slow speed and its ability to move quickly.

The Competitor: Mason Manufacturing

Physically situated just a short drive away from a Fiat assembly plant, Mason Manufacturing produced similar products to Acme, and actually sourced some of its piece parts from Acme. Because of its location, Mason was a major supplier to Fiat such that it was almost an exclusive provider of fully assembled wire harnesses to the automaker. Mason’s close relationship with Fiat had largely blocked Acme’s ability to gain business directly with the car manufacturer. Consequently, Acme’s sales to Fiat were generally limited to the small piece parts it sold to Mason, nothing more.

Mason was small and more vertically integrated than Acme. For example, Mason was able to produce the tooling and jigs needed to assemble its products internally, which was something that Acme could not do. While Acme depended solely on large orders, Mason excelled at low volume production runs, quick turn-around projects in addition to normal high rate production.

However, because Mason was considerably smaller than Acme, it struggled to meet especially high volume production needs of Fiat. Further, Mason focused more on optimizing its manufacturing abilities, and lacked a strong product development organization. Thus, Mason did minimal cable design and typically just fabricated wiring devices as designed by Fiat’s engineers.

The Meeting with Mason Manufacturing

When it came time for us to meet with Mason, we were unsure how we would be received. We were a competitor, after all. It was the first visit of this kind to Mason in years and because both Acme and Mason played in the same market space, we were expecting a bit of a cold shoulder. At the same time, the two companies had generally stayed out of each other’s way in terms of customers and business pursuits.

While Acme was expecting a not-so-welcoming conversation, much to our surprise, Mason executives openly stated they did not really view Acme as a competitor. Because both companies had historically avoided one another and only occasionally competed for each other’s business, Mason did not see Acme as a tremendous threat. Further, Mason executives believed that their close relationship and near exclusive focus on Fiat would not change in the future. The meeting went well overall, with a general handshake at the end to continue the discussion in the months ahead.

Analyzing the Next Move

At dinner that evening, the Acme team exchanged its thoughts. Most of the Acme sales team were optimistic, believing that since Mason’s executives did not see Acme as a competitor, Acme would be able to increase its business. They also concluded that Mason was uniquely poised to continue to gain Fiat business, and that Acme could ride that wave as well, through Mason.

Then, one of Acme’s older sales reps, Roger, offered a different take. Roger had been around a long time and had a reputation for being conservative, if not a bit old-fashioned.

Roger expressed concern getting too close to Mason. He suggested that Acme should focus on pursuing business directly with Fiat, and minimize contact with Mason. “They make similar products to us. In the eyes of the automakers, they are a competitor in the market, despite what Mason may claim” he said. “What if their strategy changes, and we’re selling Mason our best stuff. It would let them better compete for other opportunities. We should keep our business with them where it stands, but really not pursue anything else.”

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Roger continued by expressing other concerns such as losing intellectual property, as well as other sensitive information. His points were fundamentally valid.

Competitors as Partners?

By the time the question came to me, the table was in full debate regarding how much or how little to interact with Mason. I offered a third alternative to the group. “How about you try to partner with them?” I asked. I effectively silenced the table. Roger, the ultra conservative salesman looked dumbfounded. I pounced on the next question before they asked it. “When analyzing competitors, you really need to avoid the tendency of looking at the players in your market as equals. Acme and Mason are not equal by all accounts and do not offer the same value in the eyes of the automakers.” I said. “Don’t look at the products; look at competencies.”

As people looked at me like I was out of my mind, I offered them four scenarios:

1. A Partnership To Manage Peak Volume

Because of its size, Acme had the ability to support high rate production and large volume orders. In contrast, because Mason was significantly smaller, it struggled to accommodate major increases or changes in production levels at Fiat. “From a partnership point of view,” I offered, “Acme could use its large-scale production abilities to offset the volume that Mason struggles to meet during peak times. Mason’s production would stabilize – a benefit to them – and you could gain sales you do not currently have, which is a benefit to you.”

2. A Partnership to Manage Low Volume

The reverse was also true. Mason was known for its ability to produce parts in a very short timeframe. This quick-turn ability of Mason was only a dream within Acme, who cringed when customers requested lead times for product under its standard 6-month term. In fact, Acme had a history of losing out on business due to its long lead time, when competing with more agile companies. Thus, I suggested that Mason could be a strategic source for Acme when shorter lead times or low volumes were necessary, which was often the case in the early days of producing a new vehicle model.

3. Joint Product Development

The third option was that Mason’s lack of product development expertise could also open the door for Acme. Could Acme’s value proposition as a ‘one-stop-shop’ help Mason win more business, which could in-turn result in a shared revenue model?

4. Sole Sourcing and Long Term Agreement

Finally, I offered up a fourth possibility that a strategic partnership between the two companies could allow Acme to become a sole-provider of piece parts – pins, connectors, etc. – to Mason, and thereby Fiat. It would enable Acme to penetrate the Fiat line of products, and help maintain steady volume in its factory of its components.

Analyzing Competitors: It’s Not About The Fight. It’s About the Value

When doing a competitive analysis, it is important to look less at the individual products and look more at the skills and capabilities of the two companies. It can, of course, be argued that Mason could develop product design skills in-house. It can also be said that Acme could grow its short-term production capabilities through some strategic investment. However, both scenarios represent organic growth decisions and stepping away from their respective core expertise. Historically, organic growth takes a long time and often comes with numerous growing pains along the way. For this reason, many companies pursue growth through inorganic means, such as mergers, acquisitions, as well as partnerships that bolt on additional capabilities more easily. Before writing off your competitor as just another company trying to take your market share, look carefully at your respective value propositions. Can you find a win-win arrangement and make them a partner?