In strategic management, competition is considered to be an important factor in enhancing innovation (Porter 1997; Rathi 2014; Porter 1990). It is also beneficial for maintaining low prices, particularly for short-term contracts between suppliers and buyers (Humphreys et al. 2001). The absence of competition can worsen firms’
profitability in the market. An illustration of this situation is that of the competition of Italian construction industries in between the late 1980s and the early 1990s (Anderson and Jap 2005). During this period, the contractors in Italy practised a cartel-type environment where there was no competition between firms. This type of environment deteriorated the firms' profitability as it made the firms were less willing to innovate and to operate more efficiently.
In contrast, in SCM, competition takes place among supply chains, not between companies, to gain better profit and market share. For instance, Benetton’s and Zara’s supply chain compete with each other by accelerating their time to market, in terms of delivering the product design innovation to end consumer (Christopher 2000; 2005). However, shifting a firm’s goal into the supply chain’s goal is still a significant challenge for most firms. Moreover, in reality, firm relationships are not as simple as a single chain of supply, as mostly assumed in SCM; in fact, the real supply chains are a complex network as illustrated in Figure 2.1.
Even though SCM has been well known by industry practitioners, competition among individual firms within the same supply chain still exists in the market. Each firm has conflicting interactions which create a restriction in achieving the goal of each firm. This interaction is unavoidable as each firm has limited resources while it wants to maximise its profit. In short, this competitive behaviour is mostly driven by the egocentric notion of the competing company (Meng and Layton 2011).
Several SCM researchers believe that competition can also be a cause of collaboration failures in supply chains. It makes good collaborations between organisations more difficult to establish (Rice and Hoppe 2001). Supplier competition, for example, can lead to quality distortion from the supply side (Altug
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and van Ryzin 2013). This drawback is supported by results of literature that examine this issue by using theoretical models. Moreover, researchers who work on total quality management, such as Walley (1998), demonstrate that competition provides fewer opportunities to reduce variation in lead time and quality.
Most arguments for examining the effect of competition in SCM focus on competition among suppliers. Through a game theory model, Xiao et al. (2014) show that competition generates longer supply chain lead time. Competition among suppliers is also seen as the cause of increases in the operational costs (Altug and van Ryzin 2013).
On the contrary, some findings suggest that competition among suppliers leads to a better understanding between firms (Forker and Stannack 2000), supports the achievement of an equilibrium price (Li et al. 2010), improves supplier performance (Babich 2006), and results in a better supply chain performance (Wang and Shin 2015). Meanwhile, Parker and Hartley (1997) find analytically that sourcing under competition on the supply side is no worse than having an intense long-term partnership with a single supplier. It means that competition can be advantageous to the manufacturer as it enhances the quality of coordination between buyer and supplier.
In social science, particularly in the field of strategic management, competition has been regarded as beneficial in improving business competitiveness (Axelrod 1997a). Competition supports corporate success (Porter 1990; 1997; 1998) and enhances innovation that leads to a better company profitability (Anderson and Jap 2005). From economists’ perspective, competition can provide better value to the customer (Stucke 2013; Rathi 2014). It can also reduce total production costs for the manufacturer (Walker and Weber 1987). However, Huo et al. (2014) suggest that not all competition provides benefit to industries. They suggest only international scale competition has significant effects on business performance, especially in supply chains.
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Table 2.2 provides a summary list of SCM studies that primarily examines the effect of competition. The list also includes papers which address competition as a supporting discussion topic, such as Christopher (2000) and Lee (2004). The table identifies the research domain of the papers, considering operational research (OR) and operations management (OM). Studies with mathematical modelling and statistical analysis are classified into OR, while OM refers to studies that focus more on a broader scope of the management aspect. Lastly, the research method used in each paper is detailed, regarding review paper, analytical paper, and empirical approach. Meanwhile, the list of strategic management studies that support the benefit of competition is provided in Table 2.3. To the author’s knowledge, there is no conflicting opinion on the effect of competition in strategic management literature. Similar to Table 2.2, the list provided in Table 2.3 also includes the research method employed in each research.
From both Table 2.2 and Table 2.3, it can be seen that previous research comes to contradicting conclusions on competition. Most studies promote competition in business, while the rest do not advocate the existence of competition as beneficial to the industries. It indicates that this is a topic that requires further exploration in order to understand the causes of these opposing conclusions.
Table 2.2 Different recommendations on competition in SCM literature
Finding/suggestion Author(s) Method*
Competition is beneficial for the manufacturer
when supplier competition exists. Operational research Parker and Hartley (1997) A/C
Babich (2006) A
Li et al. (2010) A
Wang and Shin (2015) A
Operation management Forker and Stannack
(2000) E
Humphreys et al. (2001) E
Competition is not advantageous. Operational research
- Competition between suppliers increases the operational costs in a supply chain.
Altug and van Ryzin
(2013) A/N
- It leads to a longer supply chain lead time. Xiao et al. (2014) A
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Finding/suggestion Author(s) Method*
Operation management
- It adds uncertainties in supply chains. Christopher (2000) R
Lee (2004) R
- It makes supply chain collaboration harder
to achieve. Rice and Hoppe (2001) R
- Competition between suppliers increases
supply chain costs. Walker and Weber (1987) E
- It increases lead time variations in supply chains.
Walley (1998) R
*Note:
R : Review
A : Analytical approach (theoretical study)
A/N : Analytical approach with numerical analysis (theoretical study) A/C : Analytical approach with a case study
E : Qualitative approach (empirical study)
Table 2.3 Recommendation on competition in strategic management literature
Finding/suggestion Author(s) Method*
Competition provides benefits to the
enterprises. Walker and Weber (1987)
Axelrod (1997) E
E : Qualitative approach (empirical study)
2.3.2.2 Differences in perspectives between SCM and strategic management