Collaborating with competitors

Joe Magsaysay, food cart impresario of Potato Corner fame, gave a tip to a class of would-be entrepreneurs: "When inside a mall, we have learned that it is better to huddle the food carts together in a cluster than scatter them far apart."

Customers want choices and they are attracted by fellow customers milling around various carts. The more on-lookers and curious crowds there are, the more likely they can be converted to buyers. People hate lonely places and empty spaces. They like to huddle, hustle, and bustle together. Customers are social animals. They follow the herd’s leaders.

This herd behavior of customers is not confined to food carts and food courts. Just observe movie houses, garment shops, computer stores, and game arcades–all found clustered together in adjacent malls. Customers come not just because of the variety that clustered shops can offer but also because they want to get lost among other customers. They don’t want to get too noticed. Stores with sales girls that follow customers around with "yes, sirs" or "yes, ma’ams" are scary. It feels like they’re pressuring shoppers to buy or, worse still, intimidating those with small budgets by making them feel like they have no money to buy the expensive stuff.

Clustering with competitors sounds counter-intuitive. The closer competitors huddle together, the less competitive they become. The ultimate competitive coziness can be found in Banawe St. in Quezon City, where they sell all sorts of car accessories. Enter any little store with a seemingly limited inventory and you will discover that you can buy almost anything there.

Once, I entered a tiny shop and ordered front, back, and side bull bars for my RAV 4. I got these items even though none were on display in the shop. I next ordered a roof rack, rain guards, leather seat covers, and all sorts of unnecessary accessories. I got all of them. The shop owner just sourced the items from his competitors in Banawe.

The competitors must have an arrangement of sharing the profit margins among themselves. In effect, Banawe is one big inventory of car accessories managed by dozens of entrepreneurs who act more like collaborators rather than competitors.

I wonder why other clusters do not follow this wonderful practice. A store does not need to stock up on huge inventories, saving a lot of space and working capital. The important thing is to develop very good customer relationships and sukis or frequent buyers. The shop owner must entertain, delight, and excite the customer.

When I go to the men’s section of a department store and look for a size 32, dark blue, straight cut pair of pants, how I’d love for the sales girl to say, "I’ll get you one, sir" and go to one of the competitors where it is available. Now, that would really be delighting the customer.

Collaborating with competitors is going to be the new wave. It’s already happening when small Taiwanese metal-working firms collaborate to meet a very large order from a giant multinational firm. Or when Philippine jewelry shops avail of a common design center, use the same gold assaying services, and sell through a central marketing outlet. Japanese car companies have standardized parts so that there can be brand-to-brand complementation. Standardization of car parts allow customers to choose from more brands. I can buy one brand this year and another brand two years later without worrying about parts availability. How I wish there were upholstered furniture with changeable upholstery or handing lamps with changeable lamps. And they can come from different stores offering different fabrics, designs, shapes, and colors.

Dell Computer is another example of a company that simply refuses to compete head on with other computer manufacturers and distributors. Instead, it purchases the best computer parts from the best companies all over the world and finds the best assemblers and deliverers to bring the computers to the customers’ doorsteps. Dell does not see much sense in "competing". What Dell has is a very intimate arrangement with its customers. It is so intimate that, sometimes, Dell’s IT people would hold office in the premises of its customers like Boeing. Dell gets to know the needs, wants, preferences, and future demands of its customers. Unlike Compaq and IBM, Dell does not have to compete with Sony on monitors. Sony is a partner-collaborator. This is the way to go! There is lesser investment needed and more profits made.

So, here’s my help-line to entrepreneurs:

1. Love your competitors–they are your greatest source of motivation to improve and excel;

2.Ally with your competitors–together, you can find ways to expand capacity, increase productivity, and multiply customers;

3. Cluster with competitors–you can achieve many feats together such as virtual backward, horizontal, and forward integration; synergy in your operations and service delivery; completion of the supply and market chains; customer convergence in one location; and creation of linkages to other industries;

4. In a cluster of competitors, try to be the best among them–push your rivals to their limits by setting the pace in innovation, technology, and creativity; and

5. Watch out for new clusters which have better access to new technologies, process or materials–if there are, leave your own cluster and join the new one.

(Eduardo A. Morato, Jr. is on the faculty of the W. SyCip Graduate School of Business of the Asian Institute of Management. For comments and inquiries, you may contact him at: [email protected]. Published "Entrepreneur’s Helpline" columns can be viewed on the AIM website at http//:www.aim.edu.ph).