Saturday, August 26, 2006

Healthy or unenthical competition

This post is motivated by an interaction i had 2 days ago with executives of an agro-based processing co., a clear market leader in their field in East Africa. Since my interaction with them is professional, I will censure their identity.

On enquiry about how they have managed to maintain 95% of the market share while their dozen or so competitors shared 5%, the MD, an Englishman was blunt. Whenever a new entrant or an existing player tries to capture market share in a certain location, a high level meeting is held to discuss their 'conduct'. Such meetings have only two possible resolutions:-
(i)the player is too small to worry about
(ii) launch a blittering war

In the secon option, the 'intruder' has no chance for survival. The dominant player is normally willing to sell at prices lower than the production costs in that locality for as long as the competitor remains afloat. This is supported of course by good returns from the rest of the region where they're a virtual monopoly. Up to 100 upstarts have been crushed in this manner in the last 24 months, i was told.

This reminds of of similar scenerios recently

EABL Vs Castle Brewing
Possibly the biggest corporate war in Kenya recently. Ended in a deal highly skewed in favour of the former. This has driven the earnings of EABL to unprecedented heights while confirming them as a defacto monopoly. EABL is said to have colluded with the then KANU govt to make sure castle did not acess malt in kenya, a product EABL controlled.

Uchumi VS Nakumatt
First round ended on 31st May 2006 when Uchumi's board closed down the retail chain and admitted bankruptcy, and going into receivership. With the govt. appearing serious about reviving uchumi, there will be a repeat battle in the near future. There has been allegations of unfair trade pratices including tax evasion on the part of Nakumatt. The investigation is on-going.

Coke VS Softa
'In the fist 100 days of softa launch, Coke bought the drinks in huge quantities and disposed of it' This made Kuguru overestimate the demand and engage in meaningless production and investment. Apparenly, coke had hope to run kuguru's working capital dry and leave them for the dead. This war is not over yet coz Kuguru targetted the lower end of the market and slashed prices. Lately they have launched 'mecacola' to target the muslim population who shun coke, a symbol of american finacial domination. Reports are that kuguru are slowly catching up. Their branded coolers are now in the market.

Coke VS Ansper
Kuguru were not the only firm to attract coke's wrath. Ansper beverages entered their soft carbonated soft drinks market in the 90's. They targetted coke's market directly (restaurants and pubs). The rest is history. In 2005, coke fianaly migrated to the 'ultra modern' factory in Embakasi where Ansper once operated from. All along there were allegations of faul play.

KQ VS Air Kenya
There was a fierce war in the mid 90s for control of domestic routes (read kisumu & msa) pitting these two. KQ established Flamingo Airlines, specifically to cut Air Kenya and the other small players to size. Air Kenya collapsed. Travellors have virtually been dealing with a monopoly since then. Only now are we begginining to see a semblance of compe from Easr Africa Air.

Others are
Safaricom VS Celtel
Celtel survived only after MTN of Kuweit bought them. MTN has revitalised Celtel with their deeper pockets and better stategy.

Are the bigger and better companies in kenya simply doing business the right way or are they involved in serious faul play to stiffle competition which they are afraid of?