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Today’s Soapbox opinion was written by María José Contreras de Velasco, who is charged with promoting a culture of competition from COFECE.
Contxto – The health crisis caused by Covid-19 has forced us to reinvent our habits. We now buy our groceries, exercise, take classes, and work, all without leaving home. As we adapt, companies have also had to make changes to adjust to our new consumption patterns.
Accelerating the use of digital media to reach their customers’ homes has been, without a doubt, the main way that companies have chosen to tackle in recent months.
How many of us thought we would save money by not being able to leave home? However, suddenly we all had the need to change our living room into an office, invest in exercise equipment, or increase our internet speed.
On the other hand though, a McKinsey study stated that, in only eight weeks, digital media adoption has leapt ahead by five-years by consumers and businesses.
The corporate world, adapt or die
This is something entrepreneurs know very well. A study about the challenges for businesses in the new normality mentions how companies will have to reinvent their business model, understanding that consumer behavior and demand patterns have changed significantly, and that they will continue to do so.
Four strategic areas deserve special attention:
- rapid revenue recovery,
- rebuilding operations,
- rethinking organization, and,
- most importantly, accelerating the adoption of digital solutions.
These digital solutions allow companies that were already in the market to sustain or increase their sales, but they also facilitate the rise of new business models by changing the way in which customers and suppliers interact.
Think, for example, about how your parents learned about the news of the day, and how you do it. They probably bought a newspaper, watched national TV, or listened to the news on their favorite radio station. You, on the other hand, probably find out through a social media publication linked to a digital medium.
Adopting the adaptation
We can think of many markets like this one that have been transformed by the rise of digital apps. They have made life easier for consumers and their existence pressures existing companies to evolve so as to not disappear.
Thus, the competition brought on by new companies or business models forces those that already existed to improve to keep their customers. This, in turn, benefits us consumers, because we have more options to choose what best suits our pockets, tastes, and needs.
In order to adapt or propose a new idea for the market, companies need flexible rules that facilitate their transformation and guarantee a level playing field where everyone can have initiative and compete.
Imagine, for example, that a state regulation asks you to acquire an additional permit to distribute your products at home and that the process is so costly that, ultimately, you choose to sell your products in a traditional way.
Not being able to obtain it easily will surely limit your ability to attract more customers. It could even take away your ability to stay in the market.
Therefore, in markets, as well as sports, the rules of the game should serve to facilitate competition and ensure is a fair one, not to hinder it.
Competition = Balance
In Mexico, the Federal Economic Competition Commission (COFECE) is in charge of ensuring equal opportunities in the market. This allows for the success of each company to be determined by its effectiveness in meeting the desires and needs of consumers, and not just because of their size or because they’re the most established brand.
To carry out its work, COFECE has a series of faculties to monitor the markets.
The Walmart – Cornershop case
One of these faculties lies in reviewing mergers between companies.
Take for instance when, in 2019, it reviewed the acquisition of Cornershop by Walmart, and decided to veto the transaction. This was because Walmart competes in the supermarket market with other stores that also offer their products through the Cornershop app.
By acquiring it, Walmart might have prevented competitors from being hosted on the Cornershop app and had access to the prices and sales information of competitors. This could be used to harm the competition. In addition, Walmart could have stopped offering its services on other platforms, making it difficult for them to compete in the market.
For this reason, COFECE determined that if such a purchase was authorized, Walmart could unduly displace or prevent other supermarkets from accessing the Cornershop platform or hinder the development of new platforms and, thus, did not authorize the operation.
This is why, at COFECE, we want to hear about disruptive ideas that have created competition in uncompetitive markets and, above all, to hear how they have benefited consumers with better prices, higher quality, or more options. If you know any such story, share it with us.
María José Contreras has a Master’s Degree in Economic Policy and Public Policy from The London School of Economics and Political Science and, for the past six years, has been in charge of promoting the culture of competition at COFECE.