Competition is probably one of the biggest problems for many businesses. You have to constantly monitor what your competitors are up to; what prices are they charging customers, what prices they pay for their supplies etc. Keeping a firm grasp of everything every one of your competitors is up to, is arduous work and can lead to feelings of slight paranoia as you struggle to keep up with each of their new developments.
One solution could be to stop competing with them and join forces. After all there is strength in numbers and if you are competing for the same share of the same market it could make sense to combine your efforts. There are many ways to do this; merger, acquisition, joint venture or a number of other formal and informal arrangements.
In this article I will only be looking at the main benefits, in general terms, of bringing two competitors together, and what can be gained by two competitors setting aside their differences and joining forces to produce a larger, stronger and more stable enterprise.
Tap into technology- When two competitors combine forces they may be able to share their respective technologies. For instance, there may be a common product that they are both independently developing; if they share each other’s technology, they may be able to develop the product and take it to market more quickly.
Reduction in the bargaining power of suppliers- If competitors join forces they may be able to obtain supplies at a lower cost from certain suppliers. Indeed, as a joint unit they may be able to order larger quantities of a raw material or components and thus obtain a better bulk order discount.
Economies of combined operations- If two competitors merge their operations they may benefit from economies of scale. Any overlap of common processes and their associated costs could be reduced. This can lead to major savings for the joint unit as a whole and in turn can have a positive effect on profits.
Increased bargaining power with customers- cooperation between two companies may mean that they are able to increase the price that customers pay for a particular product. For example, if a product is only available from two independent companies then customers have some choice as to who they buy from and what they pay. However, if these two companies join forces they can demand a higher price as customers now only have one choice.
Ability to diversify- sometimes competitors have different complementary products within their product lines. If you collaborate you can offer a combination of these products to other markets which were not possible to approach before. This can open up multiple income streams for both parties.
If a particular market is very competitive, this is of course, often a good indication that there is plenty of money to be made; indeed, competition is extremely healthy in many industries. However, there will always be competition and occasionally it can also be good to stop competing and consider joining the same team, after all two heads are often better than one.