Competitive Position Analyser
The Competitive Position Analyser tool is the computerised version of the FACI survey and it is the implementation of the models described in this page. The concept of competitiveness can be traced back to early writing on economics in the 17th and 18th centuries, but has become ever more urgent in the last decades with rapid improvements in transport and communication and a higher level of globalisation. Although competitiveness may be measured by single indicators, such as productivity of labour, a deeper understanding of the competitive standing of firms and countries can be gained by employing multi-dimensional measurements.
The choice of methods depends on a variety of factors, including the perceived need for complexity, data availability and how the results are to be used. The Fisheries and Aquaculture Competitiveness Index (FACI) developed in this deliverable is modelled on the Fisheries Competitive Index (FCI) developed by the Directorate of Fresh Fish Prices in Iceland and the Norwegian College of Fishery Science at the University of Tromsø in 2004-2005. The FACI though expands on the FCI in two directions. First, by developing a national-level FACI that also includes aquaculture. Second, by designing a firm-level FACI that is intended to capture the views of operators of individual firms and is therefore less complex. The national-level FACI consists of 144 items, whereof 44 are taken from the WEF Global Competitiveness Index, 19 are based on data obtained from national, public sources and 81 are based on answers from a survey conducted among specialists in each country. . Whereas the information taken from the GCI analyses the overall competitiveness of the nation, the other sources will throw light on the competitiveness of the fisheries and aquaculture sectors. The firm-level FACI is based on a survey which in the case of firms engaged in the harvesting, processing or marketing of wild capture fish consists of 40 questions, and in the case of aquaculture firms consists of 45 questions.
The FACI was employed to analyse the competitiveness of three fisheries firms in Norway, one in Iceland and one in Newfoundland, and assess the competitive standing of Spain, Iceland, Norway and Vietnam. Newfoundland was also included in the national study, but the comparison is incomplete due to some gaps in the information collected. The firms in Newfoundland and Iceland were found to have a competitive edge over their Norwegian competitors, mostly due to their ability to fend of new entrants, flexible value-chains and high level of R&D development and innovation. At the national level, Iceland, Norway and Spain all ranked close .
Currently, the Global Competitiveness Index (GCI) is probably the most comprehensive index of its kind. The index defines competitiveness as the set of institutions, policies and factors that determine the level of productivity of a country. The most recent analysis covers 138 countries, with a combined output representing 98% of the world GDP. The index, which is compiled annually by the World Economic Forum, combines 114 indicators that capture concepts that matter for productivity and long-term prosperity. As shown in the figure below, these indicators are grouped into 12 pillars: institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labour market efficiency, financial market development, technological readiness, market size, business sophistication, and innovation. These pillars are in turn organised into three sub-indexes: basic requirements, efficiency enhancers, and innovation and sophistication factors. The three sub-indexes are given different weights in the calculation of the overall Index, depending on each economy’s stage of development, as proxied by its GDP per capita and the share of exports represented by raw materials.
Fisheries and Aquaculture Competitiveness Index (FACI)
As outlined above, competitiveness can be measured in a number of ways, using both simple and more complex analytical tools. The choice of methods depends on a variety of factors, including the perceived need for complexity, data availability and how the results are to be used.
he FACI must be flexible enough to meet the needs of the two different end-users; industry and policymakers. With this in mind it was decided to develop two different kinds of competitiveness indexes; a firm-level FACI and a national-level FACI. The firm-level FACI is only intended to capture the views of operators of individual firms and therefore less complex. It is based on a survey which in the case of firms engaged in the harvesting, processing or marketing of wild capture fish consists of 40 questions, and in the case of aquaculture firms consists of 45 questions. The firms are able to access the firm-level FACI, complete the survey and then compare their answers to those provided by other operators. The degree of comparison will, of course, depend on the number of firms using the PrimeDSS, but provided the number of users is large enough, it would be possible to undertake comparison between firms in the same sectors both in the same country as well as between countries, as well as between different sectors. By thus benchmarking themselves against others, firms could gain a better understanding of their competitive standing.
The national-level FACI is modelled on the Fisheries Competitive Index (FCI) developed by the Directorate of Fresh Fish Prices in Iceland and the Norwegian College of Fishery Science at the University of Tromsø in 2004-2005 (Verðlagsstofa skiptaverðs, 2005). The FCI consists of 139 questions and observations which are split between six sub-indexes that make it possible to calculate scores both for the FCI as a whole as well as for individual sub-indexes. This further expands the use of the FCI. The index was applied to the Icelandic and Norwegian fish industries. The national-level FACI consists of 144 items, whereof 44 are taken from the WEF Global Competitiveness Index, 19 are based on data obtained from national, public sources and 81 are based on answers from a survey conducted among specialists in each country. Whereas the information taken from the GCI analyses the overall competitiveness of the nation, the other sources will throw light on the competitiveness of the fisheries and aquaculture sectors. The national-level FACI will therefore yield a comprehensive measure of competitiveness which takes both into account general conditions in the country as well as those that deal specifically with the sectors of interest.
According to Porter (1998, 2008), the nature of competition is embodied in five competitive forces; (1) the threat of new entrants, (2) the threat of substitute products or services, (3) the bargaining power of suppliers, (4) the bargaining power of buyers, and (5) the rivalry among the existing competitors. As shown in the figure below, these forces do interact with each other. Their strength may also vary but together they determine long-term industry profitability.
The threat of entry puts a cap on the profit potential of an industry. When the threat is high, incumbents must keep prices low or increase production capacity to deter new competitors. Within each industry there are usually some entry barriers that deter new firms from entering the market, and give the incumbents some advantages. These may include economies of scale, network effects, customer switching costs, capital requirements, unequal access to distribution channels, restrictive government policy, expected retaliation of incumbents, and some other advantages not related to size, such as favourable geographic locations, and established brand identities.
The power of suppliers varies between industries, but in general a supplier is more powerful if is more concentrated than the industry it sells to, the supplier group does not depend heavily on the industry it is selling to, the firms face switching costs for changing suppliers and the products offered by suppliers are somewhat differentiated.
Buyers can capture more value by forcing down prices, demanding better quality or improved service, and play industry partners against each other. Analogous to suppliers, buyers have more leverage if they are few and large, the industry’s products are similar so that there are ample substitution possibilities, and there are low switching costs.
A high threat of substitutes will reduce profitability by placing a ceiling on prices. A firm can, however, distance itself from others through product performance, marking or other means. High rivalry among existing competitors will reduce the profitability of the firms in an industry. The rivalry can take many forms, including price discounting, new product innovations, advertising campaigns and service and quality improvements. Rivalry will be especially high in cases where there are many competitors and no clear industry leader, industry growth is slow and exit barriers are high. Although some market/firm/industry characteristics may be regarded as only belonging to one specific force category, other characteristics could plausible be classified in two or more different ways. Thus, the value of an output brand could impact on the bargaining power of buyers, threats of substitutes and rivalry among existing competitors. The firm-level FACI builds heavily on the theories of Porter (1998), taking into considerations all five aspects of competition outlined above. As stated earlier, this index is mostly intended for operators of fisheries and aquaculture firms who wish to analyse the competitive standing of their firm. The index consists of 40 questions – 45 in the case of aquaculture – that together yield a solid measure of competitiveness. This deliverable yields the results of a survey that was put to firm operators, but once the PrimeDSS becomes operational it will be possible to access a computerised version of the firm-level FACI, complete the survey online and then obtain a measure of the competitiveness of the firm, both by analysing the data and comparing the competitive standing of the firm to that of other firms. Each questions uses a seven-level Likert scale. Nine of the survey questions refer to the category threat of new entrants. They are as follows
- Institutional barriers (f. ex. licenses, quotas, regulations, location restrictions, water treatment)
- Investment barriers in capital (vessels, equipment, buildings)
- Other form of barriers (marketing, R&D, knowledge)
- Economies-of-scale in production
- Utilisation of economies-of-scale
- Geographical location
- Level of uncertainty in business environment
- Local availability of highly skilled labour
- Availability of qualified experts
The first three items all refer to concrete barrier to entry, such as licenses, quotas, investment, and R&D. The next two refer to the existence and utilisation of economies-of-scale, but companies that produce at a large scale enjoy a cost advantages that new entrants may have difficulties in matching. Geographical location refers to the fact that some firms are well located in terms of cost and ability to meet customer demand. An uncertain business environment may make entry less attractive, and the availability of skilled employees will certainly impact on the threat of entry. The bargaining power of suppliers is analysed on the basis of the following eight questions for fisheries firms (10 for aquaculture firms):
- Bargaining power of suppliers
- Competition among the major suppliers (fisheries)
- Current quality of raw material (fisheries)
- Ability of prices for raw material to reflect changes in (fisheries)
- Ability of prices for seed to reflect changes in (aquaculture)
- Ability of prices for feed to reflect changes in (aquaculture)
- Comparative access to raw material (fisheries)
- Comparative access to seed (aquaculture)
- Comparative access to feed (aquaculture)
- Access to supplier networks
The term “raw material” refers to landings of catch sourced by processors. Catches are by far the most important input for firms engaged in processing and marketing of wild capture fish, while for aquaculture firms the most important inputs are seed and feed. The interest here is in how well prices for these inputs reflect changes in quantity, quality and timing. The term “comparative access” refers to how firms regards their access to inputs (raw material, feed, seed) compared to their competitors. The bargaining power of suppliers is also assessed using a direct question on that issue. The bargaining power of buyers is analysed in terms of eight characteristics:
- Customers´ sensitivity to changes in product price
- Value of brand
- Loyal buyers
- Bargaining power of buyers
- Ability of output prices to reflect changes in
- Diversification of marketing options
Good brand value and loyal buyers will combine to make customers rather insensitive to changes in product prices. The survey also has questions on how firms view the price sensitivity of product prices, i.e. whether the firms regard their product price inelastic or elastic, as well as whether the bargaining power of buyers is weak or strong. Diversification of marketing options refers to whether the firm depends on a single buyer for its product or many buyers. The bargaining power of buyers may also be affected by how well output prices reflect changes in quantity, quality and timing of sale
The bargaining power of buyers is very closely linked to the threat of substitute products or services. Some of the items listed under the bargaining power of buyers, such as customers’ sensitivity to price changes, brand value and consumer loyalty, could just as easily have been listed under substitutes. Here, only two items are classified in this category, namely:
- Production to a niche market
- Availability of substitutes
Customers in niche markets are often willing to pay a premium price for a product that well satisfies their needs. These markets are often characterised by a strong brand and consumer loyalty. The two survey questions here refer to whether the firm is producing to a niche market, and whether substitutes to the product are available in the market. Most of the survey questions in the firm-level FACI are here grouped under the heading “rivalry among existing competitors”. However, many of these items could equally well have been categorised differently. These questions are on the following topics:
- R&D collaboration with technology firms
- Importance of R&D for operation and possibility to increase value added
- Importance of innovation for competitive advantage
- Ability of firm’s part of the value chain to respond to changes in market conditions
- Ability of the whole value chain to respond to changes in market conditions
- Importance of third-party audited labels
- Strength of competitive strategy
- Market share of firm
- Level of cost leadership
- Sophistication of production technology compared to best practice
- Quality of sites for production facilities
- Flexibility to adapt to unpredictable events
- Ability of risk management and insurance to protect against unpredictable negative shocks
- Comparative seed costs (aquaculture)
- Comparative feed costs (aquaculture)
- Comparative production losses due to diseases or other causes (aquaculture)
The first three questions refer to R&D and innovation activities within the firm, to which degree they are done in close collaboration with high-tech firms, and how important they are for increased value added and competitive advantage. Flexibility of the value chain – both as regards the firm itself and the whole value chain – is also important for firms facing competition. Third-party labelling has become very important in the food industry, not least for fisheries and aquaculture. Labelling may open access to markets and also indicate sustainable and environmental friendly production. The market share of firms is important, as is the level of cost leadership. Firms are also asked to indicate how sophisticated their production facilities are compared to their competitors, and assess the quality of the sites used for their production facilities. Two questions refer to the ability of the firms to adjust to unpredictable events, and three questions focus on the costs of feed and seed relative to the firm’s competitors, and comparative production losses due to fish diseases and other causes.
The firm-level FAC yields both an overall score as well as a score for each of the five competitive forces where the former is calculated as the simple average of the other five scores.
The national-level FACI is a comprehensive measure that includes both factors influencing each country’s overall competitiveness as well as factors that specifically relate to the fisheries and aquaculture sectors. Most of the indicators related to overall competitiveness are taken from the Global Competitiveness Index, published by the World Economic Forum (2016), but information on the other, more specific indicators was obtained through surveys and from public data collection agencies.
The national-level FACI consists of three pillars; (I) basic requirements, (II) efficiency enhancers, and (III) innovation and sophistication. In contrast to the firm-level FACI, the national-level FACI yields a weighted overall score for each country, as well as a weighted score for each pillar and the sub-indexes contain therein. Basic requirements weigh 30% of the total score, efficiency enhancers 50% and innovation and sophistication 20%.