This is the conclusion of a large number of the author's own experiences applying and advising with ESC, from European advisory colleagues, as well as the theoretical and practical basis of EKS®.
Regardless of the economic sector, the globalization of the markets has produced a vertiginous advance of the great international consortia. In addition to this, we live in an era with increasing tax burdens, environmental protection and significant changes in the technological, economic, labor, political and social environment. Many small and medium-sized companies (SMEs) are cornered within this new scenario; moreover, a large number are forced to withdraw. Examples are left over.
Globalization, in a way we can interpret it as a transition process between an ideological cold war between east and west and an economic guerrilla, with religious and ethnic nuances, between north and south. This process began in the early 1980s and many SMEs have emerged in the last 20 years and many others have seen their venture catapulted. What has been the mistake? Without a doubt in the strategy, that is to say, the way in which the forces and the means are used.
It is not the fault of globalization
Already in the early '80s the mistake of many SMEs, among which was also one of my property and which subsequently failed, was to try to compete on equal terms with large consortia, many of them multinational. Instead, they should have become aware of its special advantages over large companies. The then still lukewarm advance of the multinationals generated in its way a great number of niches of needs, whose gap the SMEs could have closed with their advantages and differentiated profile.
Some succeeded, but many others did not. In the 1990s and until now, the steamroller of large companies in the northern hemisphere continued its career with greater speed and aggressiveness, leaving many new SMEs on the road. That is the reality that Latin America lives.
It is not the fault of the multinationals
The opportunities of SMEs are precisely in this advance of the multinationals, be they new companies or a radical change in the strategy of the survivors. The recurring mistake is the "scared rabbit effect," that is, the fearful stare at diminishing opportunities, rather than systematically focusing on new niche markets.
An example that the progress of multinationals does not destroy opportunities for SMEs, but only modifies them, we can find it in the wine industry. In their expansion and substitution of other alcoholic beverages, the large French, Italian and Spanish producers opened new world markets for different varieties of wines, creating in their wake a large number of market niches for smaller producers and from countries such as Chile, Argentina, South Africa and Australia.
Incidentally, they contributed to the creation of as many distribution companies, transporters, bottle and label suppliers, subcontractors of agricultural tasks and supplies for the production process, specialized advertising agencies, wine magazines, etc. Never in history, the wine industry had generated so many new producing SMEs, supplying SMEs around it, as well as businesses and merchandising companies dependent on its evolution.
Therefore, opportunities are not reduced but increased. The only problem is that due to the increasingly rapid change in the environment, the usual actions of many SMEs have become wrong. They try to defend their market position, which has no realistic horizon. Instead, they should take advantage of their flexibility and dynamic potential, to search again and again for the niche markets that occur "among the greats" and advance in these in a timely and decisive manner.
In reality the principle is very simple, since instead of trying to feed on predatory schools in their current markets, unsuccessfully trying to keep their heads above water in the face of the wave of multinationals, they must anticipate their advancement within the dynamic environment change, concentrating on new smaller and more fruitful seas. SMEs must self-identify as pioneers of progress. The problem is that they expect help, support and protection from the state, instead of changing their way of thinking and gestating.
The state is an organizational apparatus that immobilizes, hinders and should not count, request and expect help from it.
But it is possible to face this challenge in a different way: a mechanical workshop that worked exclusively with two German car brands of the most expensive category, was faced with a growth in authorized workshops of such brands, losing more and more competitiveness. It was obvious, to give your clients everything the great workshop offered, you needed an investment impossible to make. The bankruptcy of the workshop was a matter of little time. Faced with that situation and after a short analysis, it was suggested that they focus on repairing the integrated electronic circuits for these and other cars in this category, as it was a field that they mastered especially well. The large authorized workshops normally exchanged these «kits» for new and very expensive ones.The savings that occurred between a repaired circuit and a new one was 50%. Our friends from the garage, not only began to offer this service to the official workshops of these two brands, but also from behind brands and many other unauthorized workshops that had the company profile they had had. The result was immediate: after six months they repaired in their city over 40% of defective integrated electronic circuits for five luxury car brands. The auto giants could do nothing in the face of this onslaught of the little one against their parts business.but from behind brands and many other unauthorized workshops that had the company profile they had had. The result was immediate: after six months they repaired in their city over 40% of defective integrated electronic circuits for five luxury car brands. The auto giants could do nothing in the face of this onslaught of the little one against their parts business.but from behind brands and many other unauthorized workshops that had the company profile they had had. The result was immediate: after six months they repaired in their city over 40% of defective integrated electronic circuits for five luxury car brands. The auto giants could do nothing in the face of this onslaught of the little one against their parts business.
The only thing they had left was to lower the price of the "kit" and even then, they could be competitive without losing money. The decisive difference was finally produced by one of these multinationals, which approached our mechanical workshop, carried out a qualitative evaluation of their work, and then, with the authorization of their European headquarters, named them “kit repair service” authorized". It didn't take long for other brands to join. Our SME today has six branches throughout the country and the undisputed leader in its market.
The experience and efficacy of EKS® has been successfully carried out in more than ten thousand practical cases, the model of which in turn has been scientifically investigated on more than one hundred opportunities. The Latin American adaptation - ESC - has been in practice for more than fourteen years and although it is very far from the European figure, today we can already speak of hundreds of successful experiences.
Through the ESC, SMEs should set themselves the goal of becoming market leaders, initially in a small field of action. This is accomplished by 'targeting' the most promising target group more precisely, through the concentration of available forces and means. That is possible for everyone.
Technical, material and economic advantages are related to the realization of this market leadership, but above all, the psycho-emotional ones. With leadership you get a superior psychosocial pull force. Customers, the most interesting suppliers, applicants, innovations and also the media automatically reach each market leader. The clearer the leadership, the more intensively everything flows in the expected direction.
Applying the correct strategy, the future belongs to SMEs, since by nature they must be faster and more creative, being able to adapt to the ever-changing changes. Large consortia, by contrast, are slow and bureaucratic.
Those who work in commercial and sales areas, will be able to confirm that in the markets the fight for leadership is fully ignited. Large companies are increasingly looking for expensive "dinosaur marriages" through mergers or company acquisitions. They try to achieve or protect leadership through these mergers with competitors. But what they gain in size, they lose in increasing conflicts, power struggles, slow internal communications, bureaucracy, long decision-making processes, overly detailed and abstract studies, etc. In this way they gain weight but are not strengthened.
Another way to achieve market leadership is the one preferred by most SMEs. They try to gain an advantage over competitors through increasing efforts, that is, working in an increasingly hard and effortful way, as well as saving accordingly. But in most cases, this path finally collides with psychic and economic limits.
An additional path is that of cooperation, where companies with the same orientation work together without losing their independence. With this you can achieve the advantages of large companies, but without losing the advantages of SMEs.
Franchising («franchising») is a clear example of this, where a significant number of independent SMEs work under the umbrella of a «central brain», who guides the work of adaptation to changes, work that each SME could never perform individually in the same way.
In short, everyone concentrates on what they do best. The example of franchises, many of which proliferate successfully throughout the world, demonstrate that it is not necessary to transform into a great white elephant to achieve leadership. There are, of course, many other forms of cooperation, with the criterion of independence prevailing. A variant are cooperations between companies where one has productive strengths and the other commercial. Why should they both do the whole set, but only fairly well?
The next path to leadership is market segmentation. In our terms this means subdividing the current market and concentrating on the most promising segment or niche.
An example is a plastics manufacturer, who produced all kinds of packaging for a large number of different products. Over time, it began to lose competitiveness against significantly larger companies and more capital. In all its different product lines, until it came to the brink of bankruptcy. Then he discovered that with his existing machines, he never had quality problems and could produce a plastic cartridge very quickly, one of those used for silicones. But he always had delivery problems, since he had to change from one type of container to another on the same machines, wasting time changing matrices, cleaning, etc. He decided to focus on this manufacturing and offer shorter delivery times to customers.He specialized in it and instead of maintaining a wide diversification of different types of packaging for dissimilar segments, he diversified into types of cartridges and that targeted the segment of companies that sold silicones. Today that company is the world leader in this family of products.
Through the sharpest concentration of its forces and means in a market segment, an SME can quickly become a leader, surpassing the big and strong. A classic analogy for this is how David sharpened and concentrated his forces and means to defeat Goliath.
The vast majority of SMEs that survive competitive change have followed this latter path of segmentation. However, they have done it intuitively, casually and inconsistently. It is certainly better to do it under the ESC scheme, in a conscious, timely and methodical way.
ESC suggests following a combination of the last two paths outlined: cooperation and segmentation. But not in any direction and with any other company. In order to be able to decide on promising segments and suitable cooperation partners, a diagnosis, a method, a change of thought and management and the correct global strategy are required. The ESC provides these tools and also bets that the future lies with SMEs, but only under the premise, that they rethink and improve their current strategy.
