Table of Contents
Competition exists in different types of industry: The intensity of competition will vary between industries according to the nature of what is being traded. However, competition is more in primary industries. Less competition is in tertiary industries.
Classification of Industries:
Industries can be classified as:
1. Primary: involved in agriculture, forestry and extraction of minerals including oil
2. Secondary: processing materials by manufacture into final finished products
3. Tertiary: industries engaged in the provision of services
Primary industries
Competitive forces tend to be stronger in primary industries for the following reasons:
Undifferentiated products: this leads to competition upon price (commodity competition)
Large number of producers: the more the producers the more the competition
High level of fixed or sunk costs (e.g. a crop in a field will rot if not sold so any price is better than
none)
Lack of alternative products available to produce (e.g. monoculture)
This reduces the levels of profit available to the producers. Examples include commodities such as tea, coffee and cocoa, timber, vegetables and meat.
Strategies to Raise Profits
Firms engaged in primary industries may adopt the following strategies to raise their profits:
Form collective marketing bodies to improve bargaining strength against the buyers, e.g. farmer cooperatives, Association of Oil Producing and Exporting Countries (OPEC)
Create brand differentiation for their products or for the produce of their country e.g. Appellation
d’origine contrôlée (French wine).
Seek to set up value-adding processing activities to improve the value of the commodity
Secondary industries
Profits will tend to be greater in secondary industries than in many primary industries due to:
The possibility of greater differentiation in processing and manufacture owing to the application of
design or branding
Lower number of producers
Potential to use capital equipment to make alternative products
However, in many secondary industries the power of the five forces is sufficient to reduce profitability to
bare long-run minimum levels. High exit barriers in the form of writing off capital equipment and paying
redundancy and other costs on the cessation of business may cause firms to continue in loss-making
industries for many years.
Tertiary industries
In some tertiary industries high degrees of differentiation allow high profitability. Examples include
accounting and business services, football and entertainment and some retailing. Other tertiary industries feature intense competition and low profitability, e.g. logistics and parcel delivery, office cleaning, call center services.
The following article demonstrates the shift of concentration from primary industries of crop growing to
secondary food processors towards the tertiary industries of retail and the pervasive influence of globalization.
‘In the last half century, nothing short of a revolution has taken place in the world of food. Never has so
much power over the global food system been concentrated into the hands of so few.
Until the second world war, it was the farmers who were the major players in food. But no longer is it
those who produce the raw food that control the food supply chain. Instead, power is being concentrated
at a staggering rate into the hands of a few giant companies who process the raw product and a few known as supermarkets who control the gateways to our mouths. And all are internationalizing, most regionally, some globally.
The rise of the big processors has been phenomenal. In the USA just 100 firms now account for 80% of all
value-added – that’s the increase in price over and above raw farm food prices. Be it in Europe or the US,
the concentration of manufacturing power is the same, it is just the names that are different. In the UK it is Nestlé and Unilever, in the USA Altria (created by the merger between Kraft and General Foods). These companies operate on a vast scale.
Concentration is almost entirely a result of manufacturer’s buying each other to get their hands on the
successful brands. ‘National’ brands like Kit-Kat – once owned by Rowntree’s of York – has been turned by Nestlé into a global brand.
The level of manufacturing concentration is now remarkable whether one looks nationally, regionally or
globally. Take meat. In the mid 1970s, the top four US beef packers controlled around a quarter of the
American market. Today just 20 feedlots feed half of the cattle in the US and these are directly connected
to the four processing firms that control 81% of beef processing, either by direct ownership or through
formal contracts. In this sort of food system the farmer becomes a contractor, providing the labor and
often some capital, but never owning the product as it moves (as rapidly as possible) through the food
system. They never make the major management decisions.
But even the global, household-name, hugely profitable manufacturers can no longer claim control of the
food supply chain. That has been wrestled from them by the global, household-name, hugely profitable
companies that control access to the consumer: the retailers. In the UK, the top five supermarket chains
now account for two thirds of food sales, while half of the country’s food is now sold from just 1,000 giant
stores.
Even the biggest manufacturers rely on the supermarkets to get their products to the consumer. And to do that they have to agree forward contracts with the retailers, whose logistics systems demand tight
specifications, delivery times and margins.
These corporations now divide the world into three segments: the rich economies of western Europe and
North America; the rapidly catching-up economies such as Thailand and Hungary; and the developing world markets such as India, Brazil and China. Again, Tesco provides a useful illustration of this global push. It is organized into three divisions: UK and Ireland; central Europe; and the Far East.’
