Part of the industry is automating to offset wage advantages of some competitors

Symptom: Much of the industry is automating to reduce its costs and offset the wage advantage held by foreign competition.

mplications for the market:

  • Automation is essential when the product has a high labor content and when a competitor with significantly lower wage rates threatens to make inroads into the market. This new, low-cost entrant must be countered before it becomes larger and much stronger financially.

  • Eventually, though, automation is of limited effectiveness. Foreign competitors, too, can automate. They often have the volume base to introduce automation, and will be motivated to the extent that their own labor rates rise.

  • Ultimately, achieving the low cost position depends not on automation but on ownership of the customer relationship. Over time, differences in rates of costs and in approaches to functional cost management are copied and homogenized in the industry. The low-cost position comes from being established with customers, because their dependable volume allows a company to win on overhead cost productivity.

Recommended Reading
For a greater overall perspective on this subject, we recommend the following related items:


Perspectives: Conclusions we have reached as a result of our long-term study and observations.

  • "Achieving The Low Cost Position"
    Most people think primarily of physical costs. However, a second, less understood type of cost is more important and holds the key to achieving the true low cost position

  • "Can We Raise Margins With A Price Increase?"
    Before a company commits itself to a price increase, it should check marginal costs in the industry and the ability of low cost producers to expand.

  • "Cutting The Right Cost"
    When markets turn hostile, managers turn to cost cutting. Reducing cost seems like the most direct route to improving profitability. Often, though, efforts to control costs make the situation worse.

  • "Is Bigger Really Better?"
    In the average large industry, the market share leader is only slightly more likely to lead the industry than is any one of the next three competitors in the industry. Market share leaders often fail to become return leaders because they serve some customers who yield low returns and rely on size alone to create economies of scale.