Māori Export Competitiveness

Failing to plan is planning to fail

The way forward for Māori business is to grasp the available export opportunities. Before making the decision to export, interested businesses needs to step back and think about what they are going to do, how they are going to do it, and who can help them with it

This section discusses a framework for Māori businesses to consider the competitive nature of the market they plan to enter, and two New Zealand government agencies with export related roles.

Competition strategy

Producing a globally competitive product is a good start but does not guarantee long‑term exporting success. Over the longer-term the competitive nature of a product market is a larger factor in success. Māori businesses need to consider all of the competitive aspects of a market before deciding to export.

Porter (1979) provides a well-known framework to think about the competition in a market, known as five forces analysis. Porter (1979) considers the nature of competition in an industry to be related to five basic forces, as shown in Figure 5:11

  • Threat of new entrants.
  • Bargaining power of suppliers.
  • Bargaining power of purchasers.
  • Threat of substitution.
  • Rivalry among existing competitors.

11 Future research could take a selection of Māori businesses that are already exporting or are considering exporting and apply this Porterian framework to their operations

Figure 5: Five forces that shape industry competition

1. Threat of
New Entrants,2. Bargaining Power
of Buyers, 3. Threat of
Substitue Products
or Services,4. Bargaining Power
of Suppliers,5.Rivalry
Among
Existing
Competitors

The strength of these forces play a role in profit levels and the ultimate success of firms in a market. A business’ role is to find a position in the market where it can defend itself or influence the forces to its advantage.

Implications for Māori Businesses

Māori businesses need to think how each of these forces work in their potential export market, and plan how they intend to address them. The constantly changing nature of export markets means that existing exporters can also benefit from applying this framework to their current situation

Threat of new entrants

An industry that is open to new entrants forces existing firms to constantly protect their market share, or risk losing it. Businesses that enter an industry usually bring increased production capacity, a desire to gain market share and the resources to make it happen.

Porter (1979) states that the threat of new entrants depends on the barriers to entering the industry, and the likely response from existing firms. The six main barriers to entering an industry are presented in Table 3

Table 3: Barriers to industry entry
Economies of scale Existing firms can have an advantage if costs fall as production increases. This is a barrier to entering the industry because new entrants have to invest heavily get the benefits of scale. This can be prohibitive for some firms.
Product differentiation Existing firms can have an advantage if their product is seen as unique and controls a specific segment of the market. Potential competitors have to break this customer loyalty and may need to spend heavily on advertising or customer service to do so
Capital requirements Existing firms can have an advantage simply by operating in a market with high start-up costs. In some industries, firms will have to invest in research and development as well as providing credit to customers and establishing inventories. High costs like these will prevent some firms from entering the market.
Cost disadvantages beyond economies of scale Established firms can learn from their experiences in the market. Benefits from experience can range from learning the best suppliers or production techniques to purchasing assets at lower, pre-inflation prices. These advantages are difficult for potential competitors to over-come. On the other hand, new firms may leap-frog existing businesses by using an innovative production technique.
Access to distribution channels Existing firms have an established supply chain that begins with their suppliers and flows through their distribution channels to the final consumer. New firms can find it difficult to set-up these chains, especially if all of the options are controlled by existing firms. To get beyond this barrier new firms may have to accept a lower return, provide a higher quality product to their customers, or develop their own options at each stage of the chain
Government policy Competition can be influenced by government policy in a market. Governments can limit the number of firms in a market, or access to important raw materials (e.g. through tariffs or other trade barriers). Firms should evaluate these barriers before entering the market as they are difficult to over-come.

The expected reaction of an existing firm to a new competitor will also influence the threat of new entry. Aspects of existing firms that will determine whether firms will enter a market include:

  • A firm’s previous reactions to new competition.
  • A firm’s availability of resources to fight back.
  • A firm’s willingness to cut prices to keep market share.

Implications for Māori Businesses

Māori businesses that are able to overcome higher barriers to entry will be able to defend their position more easily than firms operating in markets with low barriers to entry. Reviewing the threat of new entry in a potential market will make Māori businesses aware of what they will need to do to remain competitive in that market.

Bargaining power of suppliers

Powerful suppliers are able to apply pressure in a market by increasing the price of their product, or reducing its quality. This is particularly relevant for industries where businesses are unable to increase their price and must absorb the higher cost. Powerful suppliers usually have some of the following characteristics:

  • A small number of competitors.
  • A unique product, or one that is expensive to change to another supplier’s version.
  • Can easily expand to compete in the downstream industry.

Implications for Māori Businesses

Māori businesses can reduce this threat by choosing the supplier that has the least power to negatively influence it. Māori businesses will often be part of a supply chain. It is important for Māori businesses to understand all of their supply options, and choose the supplier that is least able to apply pressure.

Bargaining power of purchasers

Consumers can influence a market by driving down prices, demanding higher quality products, or playing competitors off against each other.

  • Powerful consumers usually have some of the following characteristics:
  • Purchases large volumes, or a limited number of purchasers in the market.
  • Purchases a standard product that can be supplied by any competitor.
  • The product is a large part of their product, making it worth their time to find the lowest cost.
  • Earn low profits, making lowering costs very important.
  • Can easily expand to compete in the upstream industry

Implications for Māori Businesses

Māori businesses can reduce this threat by selling to the purchasers with the least opportunity to put negative pressure on them. In practice this means that Māori businesses need to know not only about their own market, but also about their purchaser’s market and how their product contributes to it. This knowledge will allow Māori businesses to choose the most appropriate purchaser.

Threat of substitution

Substitute products are similar to each other and can be easily interchanged. Substitute products compete with each other and place a limit on the possible price for a good, limiting the success within a market. Porter (1979) suggests that substitute products that deserve the most attention are those that are:

  • Improving their value-for-money when compared to the original product.
  • Produced by industries that are earning large profits. Industries that earn large profits quickly attract substitutes whose producers are interested in claiming some of those profits.

Implications for Māori Businesses

Two ways that Māori firms can reduce the threat of substitutes are by either making their product more unique, and therefore less able to be substituted with another, or improving its quality. As noted in NZIER (2003), the strong influence of tradition, culture and spiritual values sets Māori businesses apart from other businesses operating in New Zealand. This suggests that these influences can also set Māori businesses apart from global competitors.

Rivalry among existing competitors

Competition amongst existing firms usually involves a mixture of price competition, the introduction of new products, and advertising campaigns. The depth of the rivalry can be related to a number of factors, including:

  • The market consists of a large number of firms that are relatively equal in size and power.
  • The industry is growing slowly, which make firms fight for market share.
  • Each firm’s product is similar and easily substitutable.
  • The product is perishable, giving firms the temptation to lower prices.

Implications for Māori Businesses

Māori firms are unlikely to influence most of these characteristics, but they do have some options. Recent research by NZIER and TE PUNI KōKIRI (2007) one of the key strengths of Māori businesses is a focus on establishing partnerships based on deep and broad relationships. Māori businesses that develop deep relationships with their customers are likely to have increased customer loyalty. More loyal customers are less likely to switch to other products, which has the effect of reducing the number of rivals for that Māori firm

Putting it all together

Understanding the causes of competition in an industry allows a Māori firm to think about how it can act to side-step any negative impacts and how it can position itself to make the most of its strengths. This will help to reduce the risks associated with exporting

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