Competitive Threats January 2012

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Competitive ThreatsA survey on the most and least significant threats to U.S. and European compani

White Paper | January 2012


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2 WHITE PAPER | Competitive Threats

In a year of financial crisis, no one isworried about the moneybut theycertainly have issues on their minds.

Introduction

Over the past 32 years, Fuld & Company has handled thousands of research assignments from around the

globe, most related to competitive threats of one kind or another new market entrants, price wars, a rivals

change of strategic direction, among many others. After all, we are a competitive intelligence firm. Given our

natural slant, we thought when we surveyed a group of business executives about competitive threatsthat they

would focus primarily on their competitors, their rivals. What we found instead was that executives are in fac

worried about a wider array of threats not just from rivals. Another surprise given the economic climate was

the lack of concern about access to credit (more about this below).

The competitive threats survey also revealed that there is not one single list of concerns for corporations

globally but rather a series of lists that vary depending on the industry or region of the participants. However

one consistent concern across all industries is commoditization. In fact, this is the single greatest threat

whether it comes from a competitor or from a disruptive technology.

We invite you to review the findings from this brief survey and compare the results with how you view your

business both globally and within your own home markets.

Leonard M. Fuld, President

Fuld & Company

January 2012

The right to use this alert in its entirety, or any portion thereof, remains exclusively that of Fuld & Company Inc. Upon request, Fuld & Company will, at itsdiscretion, grant permission to republish any of this material. This report is not intended to be, and should not be construed as, a recommendation forpurchase or sale of any companies, or securities of any companies, mentioned herein. The information has been derived from statistical and othersources which we deem reliable, but their accuracy, and their completeness, cannot be guaranteed. Opinions expressed herein are based on ourinterpretation of available information, are subject to change, and should be considered strictly as opinions.


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Executive Summary

The Fuld & Company survey of 144 company strategists and internal competitive analysts returned a number of surprisinganswers amid a dire economic environment - stock markets teetering, real estate foreclosures, and countries on the vergeof default. Some of the most surprising findings are illustrated below.

Which competitive issue below poses the greatest industry threat to your company?

Commoditization tops the list: Respondents identified the top threats as: commoditization, disruptive technologysubstitute products or services, and market entry by overseas competition. Other threats were: customers gainingstrength and squeezing suppliers, and a shift in social norms.

Money is not the problem: Not a single respondent declared lack of their companys access to credit as their greatessingle threat. In fact, in all but one industry, access to credit was ranked last among the seven choices. This type ofuniversal response on credit as a non-issue reflects the sense of industry resilience that comes from the stockpiles of

cash companies have been building since the recession began.

Which competitive issue below poses the least industry threat to your company?


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The U.S. and Western Europe stack their threats differently: U.S. respondents least fear overseas competition (28%)while European respondents feel least threatened by changes in social norms (31%) in any way affecting their revenuesEuropean respondents believe that commoditization and overseas competition are the key threats (23 %). Their U.Scounterparts fear commoditization even more (27%), followed by substitute products (21%) and disruptive technologies(19%).

Fear of losing your niche, your chief competitive advantage: The fear of commoditization along with disruptive

technology were paramount in technology/telecommunications (30 %) and pharmaceuticals/healthcare (26%), (industriesfrom which one might expect such a response). Surprisingly, this was the premier threat across allservice industries, withexactly one-half (50%) of financial service firm respondents pointing to this factor. Likewise, two-thirds of insuranceindustry participants (67 %) believed commoditization was its greatest threat as did a considerable number of consultants(20%).

Which competitive issue below poses the greatest industry threat to your company?

Do financial services have a blind spot? : Two-thirds (66%) of the insurance industry and one third (33%) of thefinance and banking industries are least concerned with overseas competition entering their markets. This may be thecase because there already have been so many cross-border acquisitions among banks that overseas players have

already bought into their desired foreign market. Insurers are highly regulated, reducing the threat that a rival can surprisea competitor simply because all insurers must publicly file with a regulatory agency first. Despite these explanationsfinancial services remain one of the most protected industries on the planet. This begs the question: Exactly how preparedare financial services in meeting a changing market?


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Implications for Western Corporations:

Stockpiling cash may be making a number of U.S. and EU companies very cautious or just dumb, fat, andhappy They would rather sit on cash than move fast enough to remain market leaders. Over the last few years,corporate access to capital, whether through austerity or through bank loans or bonds, has allowed companies to moveforward but with measured steps. There are few aggressive, highly creative Apples or Amazons that deliberately destroytheir own products in an effort to force their teams to develop new options and innovations before the competition beatsthem to it. With respect to maintaining competitiveness, we have witnessed two very different types of companies in

todays market, those that double down on innovation and change and those that remain highly cautious, sitting on cash,making very slow, very careful changes. This latter set of companies need to widen their competitive scope to seek earlywarning on companies that disrupt from outside their traditional circles and competitive sets.

How should healthcare respond to the threat of commoditization? In the world of biopharma, commoditization comesin the form of mounting pressure from generic alternatives as patents expire, forcing dramatic price drops for the brandedprescription medications. Drug companies have already begun responding to what has become a general erosion ofcompany portfolios by refining their pipelines to avoid me-too offerings, as well as offering highly targeted therapiesPharmaceutical companies that hang on to the more traditional blockbuster mentality (there are fewer and fewer of themtoday) will find themselves with an ever shrinking pipeline. They will likely become acquisition bait a few years from today.

Beware of shifting social norms. Europeans, in particular, least fear changing social norms as disruptive or in any waya threat to their industries. This factor was just a notch below access to credit. Social norms are very much connected to

disruptions, which in turn are inter-connected to technological and economic shifts. Only a few years ago, we did thefollowing very differently: order books (Amazon), listen to music (iTunes), talk to our friends long distance (Skype)socialize or even bully others (Facebook and other social networking platforms), view our financial future and save orspend money (Lehmann Brothers, Euro debt crisis), visit the library (Wikipedia, Google). Industries that thrive today couldfall victim to different buying habits on the part of customers in the not-too-distant future. Companies that perceive thischange today will be best positioned to adapt to it tomorrow.


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Fuld & Company, headquartered in Cambridge, Massachusetts, with offices in London and Manila, is a leading researchand consulting firm in the field of business and competitive intelligence. Founded in 1979 by Leonard Fuld, the companyoffers the full range of competitive intelligence services, including research and analysis, strategic consulting, and wargame exercises to help clients understand their external competitive environment. Books by Leonard Fuld include TheNew Competitor Intelligence(1995) and The Secret Language of Competitive Intelligence(2006). He is a cofounder of theFuld Gilad Herring Academy of Competitive Intelligence, which has trained over 10,000 professionals in the art andscience of competitive intelligence.

For more information on Fuld & Company and its research and consulting services, please contact:

Jeanne LaFrance at +1 (617) 492-5900, [email protected]

AMERICAS | 25 First Street, Suite 301 | Cambridge, MA 02141 | USA | Phone +1 617.492.5900 | Fax +1 617.492.7108EUROPE | 20 Conduit Street | London W1S 2XW | United Kingdom | Phone +44 (0) 20.7659.6999 | Fax +44 (0) 20.7659.6998ASIA PACIFIC | 1206 AIC Burgundy Tower | ADB Avenue | Ortigas Center, Pasig City | Philippines | Phone +63 (2) 718.1558

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Competitive Threats January 2012

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