In this article, we intend to demonstrate that competitiveness analysis is not only an economic evaluation exercise without social significance, but, on the contrary, to identify ways to promote more competitive national companies that, through the generation of jobs better paid and stable, contribute to the real elevation of the levels of well-being. Therefore, it is not by advocating the reduction of labor costs, as it is claimed in Peru today, that our national companies will be more competitive in the future, but by applying techniques and strategies depending on the market we wish to achieve and in based on financing and managing your costs.
Introduction
The phenomenon of globalization, characterized by the intensification of international competition derived from the vision of the world as a great market, is generating profound productive and socioeconomic transformations that constitute a process that takes place simultaneously at different levels (international, regional and national), which imposes the need for new methodological approaches to understand and boost competitiveness. ().
A broad and still controversial topic that we will address from a microeconomic point of view: that competitive advantage is generated at the level of the company and specific industries.
In effect, in the new production systems, the sources of knowledge and key information for a firm go beyond its internal sphere and are located, increasingly, outside the company.
Therefore, relationships between companies have become more important to competitiveness than their own internal relationships.
To support the new business strategy it is important to distinguish between the elements of competitiveness over which the firm has a certain level of control from those over which it does not.
The competitive performance of the company depends, in the first instance, on its ability to manage the following internal elements under its control:
- Financing and cost management Selection of product portfolio Selection of technology and equipment Internal organization Procurement policy Research and development projects Quality control systems Recruitment, training and management of human resources Marketing and distribution.
Proper management of these internal elements is a function of the organization, the capabilities of the personnel and the company's systems to evaluate and improve performance in each of these areas.
On the other hand, competitiveness also depends on the quality of the interactions that the company establishes with a series of factors that include:
- The macroeconomic environment. The efficiency of support companies that provide supplies and services. The physical infrastructure, especially for telecommunications and transport. The human infrastructure, expressed in the quantity and quality of human resources. The institutional infrastructure for the provision of services. financial, export support, technological assistance and legal systems.
II Financing and Administration of costs.
According to Industry Canada (1995) (), the best way to understand competitiveness is at the company level. In the simplest view, a company is competitive if it is profitable.
According to the perfect competition model, a company is competitive when its average cost does not exceed the market price of its product offer.
In a homogeneous products industry, according to this same source, a company ceases to be profitable when its average cost is greater than the average cost of its competitors, which may be due to its lower productivity, the fact that it pays more for its inputs., or both reasons.
The causes of its low productivity can be the lack of managerial efficiency, the operation on an inefficient scale or a combination of both causes.
In the case of a differentiated products industry, in addition to the reasons for the lack of profitability posed for the company of a homogeneous products industry, it is added that its product offer is less attractive than that of its competitors.
The attractiveness of a company's product offering may reflect the efficiency with which it has used resources such as research and development or advertising.
For all the above, at the company level, profitability, costs, productivity and market share are indicators of competitiveness.
It is important to measure the total productivity of production factors, in order to estimate the efficiency of the company to convert the entire set of inputs required for production into its products.
Only with this integrative vision can it be reflected how well the company uses its resources and how attractive it makes its products.
The growth of the total productivity factor can occur due to technical change, the achievement of economies of scale or the establishment of prices based on marginal costs.
On the other hand, since the company is a dynamic entity, any significant measurement of its competitiveness should consider the possibilities that it will be profitable for a relatively long period.
Therefore, the market value of a company depends on the present value of its stream of profits for that period; The anticipation of the company's profits, on the other hand, depends on its relative productivity, the costs of its inputs and the relative attractiveness of its product offer, so it can be concluded that «its future profitability depends on its current expenses in research and development, its patenting and many other facets of business strategy ”(Industry Canada, 1995).
This highlights the importance for the company's competitiveness of managing its technology to achieve an attractive offer, and coordinating various strategies to achieve global efficiency, throughout its value chain.
III The Management of Business Costs.
Let us now look at the following model case, based on the previous theoretical support, to demonstrate the importance of managing strategic costs.
The sale value of a special chocolate product, in a highly competitive candy market, is S /. 350 unit plus VAT. 19%. DULCES SAC, is a recently established company that has estimated the following cost structure to manufacture 100 units of the reference product:
| CONCEPT | S /, | COMMENTS |
| Direct Materials | 20,000 | |
| Direct Work | 10,000 | |
| Indirect manufacturing costs. | 10,000 | 10% is variable cost |
| Operation Expenses. | 8,000 | 20% is variable cost |
| TOTAL | 48,000 |
The annual demand for the product that would be served by the DULCES SAC company could fluctuate between the following levels:
| UNITS | CHANCE OF OCCURRENCE |
| 180 | twenty |
| 200 | 60 |
| 250 | twenty |
Assuming that the stated conditions for costs and forecasted sales would remain stable for the next 3 years, it is desired to develop the most suitable action strategy for this company.
Additionally, what would happen if in the second year of operation another “DULCEMIEL SAC” competition appears that would have a fixed cost of S /. 15,000 and a variable unit cost of S /. 260.
Assume that the demand that the company DULCES SAC covers represents 25% of the total market demand, and that the company “DULCEMIEL SAC” would absorb 50% of the total, with the rest of the market being covered by various companies with less capacity.
It should be noted that currently, the unsatisfied demand is served by foreign companies, hoping that local production can displace them, given the efforts made to reconvert the candy sector, making them more competitive internationally.
For your solution proposals, consider 2 scenarios:
- a) Assume the Direct Labor Force. as cost fijob) Assuming Direct Labor. as variable cost.
Development of the Case.
ANNEX No. 1 Analysis of the Probable Demand of DULCES SAC
| UNITS | CHANCE OF OCCURRENCE | PROBABLE DEMAND |
| 180 | twenty | 36 |
| 200 | 60 | 120 |
| 250 | twenty | fifty |
| TOTAL | 206 (1) |
(1) Result of multiplying the units by the probability of occurrence (180 * 0.2 = 36)
ANNEX No. 2 Analysis of the DULCES SAC Information
|
CONCEPTS |
SCENE 1 | SCENARIO 2 | ||
| FIXED COST MOD | VARIABLE COST MOD | |||
| PARTIAL | TOTAL | PARTIAL | TOTAL | |
| Level of Sales | 100 | 100 | ||
| Unit Sales Value | 350 | 350 | ||
| Unit Variable Cost | ||||
| Direct materials | 20,000 | 200 | 20,000 | 200 |
| Direct Labor | 0 | 0 | 10,000 | 100 |
| Indirect manufacturing costs | 1,000 | 10 | 1,000 | 10 |
| Operational expenses | 1,600 | 16 | 1,600 | 16 |
| TOTAL | 226 | 326 | ||
| Fixed cost | ||||
| Indirect manufacturing costs | 9,000 | 9,000 | ||
| Operational expenses | 6,400 | 6,400 | ||
| Direct Labor | 10,000 | 0 | 0 | |
| TOTAL | 25,400 | 15,400 |
ANNEX No. 3 Calculation of the Balance Point DULCES SAC
(Expressed in Nuevos Soles)
|
CONCEPTS |
SCENARIO 1 | SCENARIO 2 | ||
| FIXED COST MOD | VARIABLE COST MOD | |||
| PARTIAL | TOTAL | PARTIAL | TOTAL | |
| Probable Level of Sale | 206 | 206 | ||
| Unit Sales Value | 350 | 350 | ||
| Unit Variable Cost | 226 | 326 | ||
| Unit Contribution Margin | 124 | 24 | ||
| NET SALES | (206 * 350) | 72,100 | (206 * 350) | 72,100 |
| VARIABLE COSTS | (206 * 226) | (46,556) | (206 * 326) | (67,156) |
| CONTRIBUTION MARGIN | (206 * 124) | 25,544 | (206 * 24) | 4,944 |
| FIXED COST | (25,400) | (15,400) | ||
| OUTCOME | 144 | (10,456) | ||
| Balance Point in Quantities | (CF / MCU) | 205 | 642 | |
| Monetary Balance Point | (VVU * PEQ) |
71,750 |
224,700 |
Comment: Scenario No.1 is convenient for the company considering the MOD as a fixed cost, because its equilibrium point is lower, that is, 205 sales units against 642.
And the second alternative is completely discarded since the consumption capacity of the target market is only 806 units, and the production level would be 80% of that market, to reach the equilibrium point, which would be impossible to achieve having Keep in mind that the company only has a demand of 25% of that market. And its strategic position is delicate because it has a 0% safety margin.
Any movement that tends to reduce your sales, losses will appear.
ANNEX No. 4 Market Share.
| BUSINESS | QUANTITY | (%) |
| Dulces SAC | 206 | 25 |
| Dulcemiel SAC | 400 | fifty |
| The other companies | 200 | 25 |
| TOTAL | 806 | 100 |
ANNEX No. 5 Calculation of the Equilibrium Point of DULCEMIEL SAC. (Expressed in Nuevos Soles)
| CONCEPTS |
PARTIAL |
TOTAL |
| Level of Sale | 400 | |
| Unit Sales Value | 350 | |
| Unit Variable Cost | 260 | |
| Unit Contribution Margin | 90 | |
| NET SALES | (400 * 350) | 140,000 |
| VARIABLE COSTS | (400 * 260) | (104,000) |
| CONTRIBUTION MARGIN | (400 * 90) | 36,000 |
| FIXED COST | (15,000) | |
| OUTCOME | 21,000 | |
| Balance Point in Quantities | (CF / MCU | 167 |
| Monetary Balance Point | (VVU * PEQ) | 58,450 |
Legend:
CF = Fixed Cost. MCU = Contribution Margin Unit
VVU = Unit Sales Value PEQ = Equilibrium point in quantities.
The analysis of Annex No. 5 shows us that the company has a safety margin of 58%.
In other words, sales can fall in that proportion and still not win or lose. If we compare it to Annex 3, Scenario 1, it represents exactly the other side of the coin.
ANNEX No. 6. Comparative Analysis of Costs for Decision Making. (Expressed in Nuevos Soles).
|
CONCEPTS |
DULCES SAC |
DULCEMIEL SAC |
| Unit Sales Value | 350 | 350 |
| Unit Variable Cost | 226 | 260 |
| Unit Contribution Margin | 124 | 90 |
| Fixed cost | 25,400 | 15,000 |
| Balance Point in Quantities | 205 | 167 |
According to the theory of the concept of cost-volume-profit, the optimal position of competitiveness of the company is one where “the unit contribution margin is greater and the equilibrium point is lower.
In the absence of both, the one with the lowest point of balance. ”() In the case we are analyzing, Dulces SAC has the highest margin of unit contribution, while Dulcemiel SAC, the lowest point of balance.
This as leader has the best positioning for the lowest point of balance and the best economy of scale.
IV Choice of the sweet SAC strategy.
We are facing a hypothetical case of a new company that enters a market where there is a leader who handles 50% of the demand. Is it not by chance this reality that the national company lives today? What to do in these circumstances? What is the problem? Its high fixed costs.
According to Welsch (), the cost-volume-profit analysis involves some assumptions about the basic policies of the administration.
The fixed cost data contains specific policies on concepts such as: salary scale, numbers of direct employees at a fixed salary, depreciation methods, insurance coverage, research, advertising and plant capacity; that is, those policies that determine the structure of the fixed costs of a company.
Consequently, the strategy that DULCES SAC has in hand is to reduce costs in any of the items listed above, in order to increase sales volume and overcome the situation that it is going through. If your internal market is small, it is the opportunity to look for the external market.
Export or Die, then, is the strategy that you should implement as soon as possible. If the company did not have the help of costs, it would not have the alternative of identifying business opportunities, such as the one we have been analyzing and which is of great help in decision making.
V Conclusions.
1. In Peru, the business culture has not been developed to its full potential. On many occasions, companies, particularly SMEs, start subsistence businesses without further knowledge of the basic concepts of business administration.
Even the largest companies, in some cases, are not aware of the benefits that can be obtained by acquiring business skills through different instruments, among which we can include: business consulting and cooperation with academic institutions and research centers. research, among others.
University-Business-State cooperation does not work. Except for exporting companies.
2. The managerial and labor training of the human resources of the companies constitutes one of the bases of the increase of the productivity in the same. However, many times this support instrument does not receive adequate attention from companies.
Professionals undertake their own training and updating in the Post Graduate Schools of the country.
The competitive performance of the company depends on its environment and the management under its control of issues such as: hiring, training, and human resource management; the marketing and distribution of products; of its organizational structure that is centralized in the use of its costs for decision-making and many others.
All this must be supported by solid managerial leadership, evidenced by realistic objectives, by knowledge of motivational problems and by dynamic control.
Which are the fundamental parameters of the use of strategic costs. Base of business competitiveness. Let us make man's effort the beginning and the end of the process of competitiveness, and not its consequence.
References:
() Solleiro, José Luis; Castañón, Rosario. “Competitiveness and innovation systems: the challenges for the insertion of Mexico in the global context. Research work. UNAM Mexico.
() Industry Canada (1995). Competitiveness: Concepts and Measures, in Occasional Paper, No. 5, Ottawa: April 1995.
() Polimeni, Ralph S; Fabozzi, Frank; Adelberg, Arthur H. “Cost Accounting. Concepts and Applications for Management Decision Making ”. McGraw-Hill Publishing. Third Edition 1994. Page 613. Bogotá. Colombia.
() Welsch, Glenn. Hilton, Ronald, W. Gordon, Paul, N. “Budgets. Planning and Control of Utilities ”. Editorial Prentice Hall Hispanoamérica SA. Fifth edition. Year 1990. Page 540. Mexico. Mexico.
