Competition among companies is intensifying rapidly across industries and geographies. Let‘s examine the evidence and implications of rising competitive intensity for businesses and consumers.
Sharp decline in corporate lifespans
The average tenure of companies on the S&P 500 index has declined from around 30 years in the 1980s to about 18 years now, and is forecast to fall further to just 12 years by 2027 according to Innosight‘s analysis below:
Data source: Innosight
This shows that industry leadership positions are changing faster now, as new technologies and competitors rapidly disrupt incumbents. The churn is being driven by shifts like e-commerce, mobile, AI, and new global players.
An OECD analysis of 24 advanced economies confirms this trend – average market leader tenures have declined from 20 years in 1950 to under 10 years now.
Shorter spells at the top for market leaders
The probability of leading companies falling out of the top 3 positions has risen from 2% in 1960 to 14% in 2008 per BCG data:
Source: BCG Henderson Institute
The likelihood of dropping out of the top 10 has also increased remarkably over the decades. This indicates that unseating incumbents is getting easier for competitors.
Market concentration trends
Many sectors are seeing increasing concentration of revenues among the top few companies – for instance, the global beer industry is now concentrated among just 4 companies with 90% market share.
The Brookings data below shows rising concentration levels across US sectors between 1997 and 2012:
Data source: Brookings
This indicates that competitive intensity favors category leaders over smaller players. Apart from M&A, network effects and winner-take-all dynamics have also led to consolidation across industries like technology, retail, airlines, banking etc.
Declining new business formation
The market entry rate in the US economy has steadily declined from ~15% in the 1970s to ~8% in 2015 per Brookings:
Data source: Brookings
OECD data shows similar declines in business formation rates across member countries. For example, the startup rate in the UK fell from 14% in 1998 to 9% in 2018.
This signals that entering and competing in many sectors has become tougher due to the dominance of incumbents. Large players also acquire promising startups early on in many domains.
Drivers of increasing competition
Some key factors driving the rise in competitive intensity globally are:
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Technology disruptions: Digital, mobile, AI, cloud etc. are drastically lowering barriers to entry and allowing insurgent business models.
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Globalization: Flows of capital, people and knowledge enable new competitors to emerge worldwide.
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Deregulation: Removal of policy and trade barriers in many sectors spurs domestic and global competition.
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Venture capital: Growth in startup funding allows disruptive challengers to scale faster.
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Changing consumer preferences: Younger demographics tend to favor new brands and digital experiences.
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Shorter technology cycles: Faster rollout of new features makes it harder for incumbents to retain dominance.
Implications of rising competition
The effects of increasing competitive intensity include:
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For incumbents: Much greater pressure to improve efficiency, quality and costs. Investing in innovation and customer focus becomes critical.
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For new entrants: Barriers to entry rise but opportunities exist in overlooked niches. Deep expertise in specific domains enables success.
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For consumers: More choices, lower prices and higher quality products/services. But reduced competition over time has downsides.
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For society: Rising concentration creates concerns around equitable distribution of wealth. But consumers benefit from competitiveness.
Strategies to stay competitive
To succeed amid rising competition, companies should focus on:
- Leveraging technology to drive efficiency, insight and innovation
- Building loyal customer bases through great experiences and value
- Differentiating offerings via unique value propositions
- Maintaining agility across products, services and processes
- Targeting under-served segments and niche consumer needs
- Fostering a culture of learning and innovation
For example, Amazon stays competitive by relentlessly focusing on operational excellence and customer obsession. Companies need both offensive and defensive strategies to stay ahead today.
Outlook on future competition trends
In my decades of experience as a data analytics leader, I foresee global competitive intensity continuing to rise as factors like AI, automation and new business models accelerate disruption across sectors.
Incumbents will face existential threats, while startups and new entrants will see massive opportunities in overlooked market niches. Consolidation at the top seems likely, even as insurgent players reshape industries.
Technology and innovation will be key determinants of competitiveness. Adaptability and learning agility will separate market leaders from laggards.
Executives globally need to embrace and prepare for this hyper-competitive reality in order to thrive.
Conclusion
In summary, evidence clearly shows competition is rising sharply across industries, leading to corporate churn, leadership instability and market consolidation. While benefiting consumers initially, reduced competition over time can be detrimental.
By making competitiveness a strategic priority, thoroughly understanding industry dynamics, and imbibing a culture of innovation, companies can succeed in this environment. Competitive advantage will hinge on unlocking human talent and leveraging technologies to the fullest. Survival and leadership will require business leaders to be proactive and visionary when facing the threats and opportunities of increasing competition worldwide.
