Fierce Business Competition

WHY IS THIS IMPORTANT? Increased competition is being driven by many factors, including the emergence of a global marketplace, the increased number of firms, new technology that makes it easier for firms to enter new markets, and ever-increasing pressure from securities markets to raise shareholder value. In particular, the frenetic atmosphere of mergers and acquisitions, coupled with the increased number of large institutional investors, has meant that firms that do not cut costs and improve financial performance face swift action in equity markets. This competition has meant that companies are less able to insulate workers (e.g., keep wages or the number of employees higher than the market can allow), or invest in "public goods" such as basic research or employee training. In 1992, three-fourths of 531 corporations surveyed identified economic pressures from competitors as one of the primary factors motivating their restructuring efforts.¹⁶

THE TREND: In 1965, IBM faced 2,500 competitors for all its markets. By 1992, it faced 50,000. And IBM is not alone in feeling outside pressure. Whole industries that were sheltered from significant competition, such as transportation, utilities, communications, health care, defense contracting, legal services, and even some quarters of government, now face growing competition. Stable industries have become dynamic. For example, insurance was once a stable industry with a distribution system of local insurance agents. Now it's undergoing significant change, with competition emerging from foreign companies, banks selling insurance, and agent-less competitors like USAA (which relies on phone, fax, and the Internet).

Two measures of competition are the total number of enterprises and the total number of stocks trading in the United States. The total number of enterprises has increased steadily, from 6 million in 1988 to 6.6 million in 1995, and the number of enterprises per (adult) consumer has risen steadily since 1991. The number of issues trading on the New York and American Stock Exchanges and the Nasdaq has almost doubled in the last two decades. Other measures also suggest a more competitive environment. The average price mark-up over cost ratio in manufacturing in the United States decreased from approximately 19 percent in the 1970s to 15 percent between 1980 and 1992-which was among the lowest of all Organization for Economic Co-operation and Development (OECD) nations-suggesting that increased competition has held down prices.¹⁷ Accordingly, the share of the U.S. economy subject to foreign competition has risen from an estimated 18.8 percent in 1985 to 27.7 percent in 1994.¹⁸

THE DATA:

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