5 Benefits of Competition in Business

What Are The Benefits of Competition in Business?

In this article we will be exploring five main benefits to competition in business:

Price
Choice
Quality
Innovation
Productivity

Is Competition in Business A Good Thing?

The concept of social responsibility in business involves making a positive contribution to society as a whole.

You must identify your key stakeholders and aim to create value for each of them in a simultaneous and mutually-beneficial way.

When making business decisions leaders should ask themselves the following question, “If I take this particular action, will all my stakeholders benefit?”

If the answer is ‘yes’ then the right decision has been made.

I appreciate it is not always this simple and sometimes benefiting all stakeholders simultaneously is extremely difficult and even impossible in some cases.

But by having this ideal in mind, the concept of simultaneous value creation for all stakeholders, without the need for trade-offs, is crucial for achieving successful and meaningful social responsibility practices.

When I articulate this approach to business to my students they nod along merrily agreeing with everything I have to say.

However, when I add ‘competitors’ into the equation the nodding stops and the thinking begins.

After all your competitors are a major stakeholder in your business.

But creating value for your competitors is massively counter intuitive, surely?!

Not necessarily, and I would like to argue that creating value for your competitors can be of benefit to your business and your other associated stakeholders.

I am not suggesting that you give all your customers away, donate money to or share all your research and secrets with your competitors: that would obviously be foolish.

But there is a case for supporting your competitors when specific situations arise that will provide mutual benefits.

There are many benefits of competition in business and I will now attempt to explain and justify this argument as succinctly as I can.

"If competition in business is good - why don't more business help their competitors?"

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Primary Benefits of Competition in Business

If you create value for your competitors it will make your business sector more competitive overall.

This is a fairly straight forward point to make but it is important that I make this clear before moving on.

In a competitive market each individual business will be fighting for customers in order to gain profit.

Therefore, each business will have to differentiate itself from the crowd and there are three typical ways this can be achieved.

Price
Choice
Quality

Price and Competition in Business

Businesses will compete for custom by keeping prices low to offer good value for money.

Choice and Competition in Business

Businesses will increase their product range or service offer in order to provide more choice than their competitors.

Quality and Competition in Business

Businesses will improve the quality of their existing products and services in order to retain and attract customers.

Secondary Benefits of Competition in Business

In a competitive market prices will be kept low, choice will be high and quality will be improved.

But these changes don’t just happen overnight and without significant effort on the part of the businesses.

In order to achieve lower prices, increased choice and improved quality businesses need to work more innovatively and productively.

Innovation & Productivity and Competition in Business

A competitive market drives innovation as each individual business strives to gain a competitive advantage.

Employees will be forced to think creatively and work innovatively to continuously improve within their sector.

Working efficiently will allow a business to keep prices low and maximise their available resources.

This will increase the productivity of the business making them significantly more competitive in their sector.

Innovation and productivity in business results in overall economic growth: regionally, nationally and internationally.

For example, if you run a business in a highly competitive, innovative, productive business sector in the UK it will be attractive for customers, staff, investors and communities not only in the UK but also globally.

People would want to work for, invest in, buy from and support your business all over the world.

What a fantastic position to be in as a business and you have increased competition partly to thank for your success.

The pursuit of innovation and productivity often results in the collaboration of ideas and work with other stakeholders.

This could even mean working in partnership on specialised projects and programmes with your competitors: the very people you are trying to out-perform.

But if there are particular situations where staff collaboration, sharing of finances or referral of customers is mutually beneficial then collaboration with competitors will support the growth of the sector as a whole benefiting everyone.

Further Arguments in Support of Competition in Business

You may still think that lack of competition would be a whole lot easier.

You would have no one to compete with and all the customers to yourself. You could charge what you want without having to worry about the quality or choice you provide as you would be the only option available.

Customers would have to buy from you regardless.

Apart from being a rather unethical way of running a business this simply isn’t an effective business model for the long-term.

The non-competitive approach outlined above is drastically narrow-minded and would be ultimately short-lived.

If you operate your business in this manner you will leave yourself wide open to new entrants within your sector, starting up with ease and stealing your customers with a higher choice and quality of products and services at more affordable prices.

You may be able to get away with a non-competitive market for a while but sooner or later it will become competitive and when it does you had better be in a position to respond.

When you consider the secondary benefits of a competitive market and the associated economic growth, supporting a non-competitive market significantly limits your business’ potential for growth.

You need to drive innovation and productivity in your sector in order to become world class at what you do.

Once you are world class the world will seek your services.

By not embracing competition and being willing to evolve within your sector as choice, quality and price dictates, you will be unlikely to generate the innovation and productivity that is required to substantially expand and grow your business.

Competitive pressure drives innovation and productivity far more than a business’ intrinsic motivation to improve.

Final Thoughts on The Benefits of Competition in Business

Competition is one of the fundamental ingredients for economic growth.

Creating value for your competitors can drive innovation and productivity in your business sector.

The interests of all your stakeholders are interlinked and by helping one you will often be helping another.

This is an important consideration when planning value creation for your competitors.

If actions only benefit your competitors and penalises other stakeholders then it is not an action you would want to take.

But if it benefits all stakeholders then its collective positive impact will be desired.

Competition may not be the only driving force behind price, quality and choice for consumers and it is certainly not the only driving force behind innovation and productivity – but it certainly plays its part.

Jonathan Sandling

I have an interest in humour and how it can enhance teaching, learning and leadership. I am a senior leader within the higher education sector in the UK and an EdD candidate at the University of Cambridge.