Healthy Competition

Monday Mar 29th 2004 by SmallBusinessComputing.com Staff
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Who do small businesses compete with and how do they compete with rivals? In addition to better products and services, a recent NFIB study says some small businesses try to use new technologies to make their operations run more efficiently.

If small businesses thrive on competition, American small businesses should indeed be flourishing. According to the National Federation of Independent Businesses (NFIB), 80 percent of small businesses say that that competition abounds in today's economic climate.

The NFIB small business study also indicates that 53 percent of small businesses consider current economic conditions to be "highly competitive." Additionally, nearly 61 percent of small businesses say the current business climate is much more competitive than it was just three years ago.

William J. Dennis Jr., NFIB Research Foundation senior research fellow, said competition is the name of the game for small businesses, and the sooner owners and entrepreneurs realize it, the better.

"Small-businessmen and women expect serious competition when they establish their firms, or they learn about it very quickly thereafter," Dennis said. "They immediately find themselves in a competitive environment that not only includes businesses like theirs, but governments, government-sized private enterprises, public-private structures and organizations of all types and sizes in between."

The study also finds that smaller firms compete against a mix of large and small businesses. Twenty-eight percent of small businesses surveyed say other small organizations are their prime competitors, while 13 percent noted market challenges come from larger firms.

For small businesses, most competition is local. Almost half (49 percent) say their biggest competitor operates within a 10-mile radius of their locale. Conversely, 26 percent of small businesses extend the radius to 100 miles, and four percent of small businesses say their primary competition comes from outside the U.S.

Not only can foreign businesses threaten smaller firms, competitors come in the form of large chains or "box" stores. Twelve percent of small businesses consider chain stores to be significant competitors.

Few small-business owners complain that large chain stores or foreign firms compete illegally or unethically. Virtually none of those surveyed claim they face traditional anti-competitive abuses such as monopolies and price-fixing. But 21 percent of the small businesses surveyed believe that a major competitor took the low road by using illegal or unethical practices. The most frequent offense respondents cite is "not following the rules." For example, eight percent of those surveyed allege that a major competitor has violated copyright laws.

Some small firms also lose customers and sales to government agencies and non-profit organizations such as universities, hospitals and trade associations that engage in commercial activities. However, only two percent report that they face substantial competition from government agencies and another two percent of small businesses say non-profits have a significant competitive impact.

"Small businesses don't just operate in remote corners of the American economy," Dennis said. "Despite its many disadvantages, the greatest of which is economies of scale, small businesses still win a substantial number of customers."

How do small firms respond to such competitive challenges successfully? Two different approaches dominate their strategies. One school of thought is to deliver the highest possible quality products and services, and another is to simply deliver better service than rivals. Eighty-seven percent of small businesses assign top priority to quality of goods and services sold, while 83 percent give the nod to good, old-fashioned customer service.

Other methods of competing with rival businesses include keeping overhead to a minimum and maximizing the use of new technologies to make their businesses run more efficiently.

"Whatever ways they find to compete, small-business owners are vigorous competitors and do much to ensure that other sectors of the economy are competing as well," Dennis said.

The NFIB Research Foundation is a small-business oriented affiliate of the NFIB, which is recognized as one of the nation's largest advocates of small businesses, representing more than 600,000 small and independent firms across the nation.

The National Small-Business Poll surveyed a national sample of 754 employers. Employers' businesses ranged from one to 250 employees. The interviews for this survey were conducted between November 20 and December 16, 2003.

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