Second Mover Advantage: Is Finishing Second In A Race Better Than First?

Second Mover Advantage: Is Finishing Second In A Race Better Than First?

Our favorite firms Amazon, Apple, Google, Netflix, Facebook, etc were never the pioneers in their industry. Nonetheless, they today stand as market leaders. Quite amusing, isn’t it? Well, since ages the idea of being the first in the industry has been so talked about that magic of being a second mover is almost evaporated. Well, this story attempts to bring its charm back! Find out about some typical late entrant benefits and some firms that capitalized on it.

Crux of the Matter

What Is Second Mover Advantage?
Simply put, it is the advantage that a company could get by becoming the second entrant into a new market These players, build upon the research and credibility of the first mover to not just develop but climb upon the growth ladder by stepping on the 1st mover’s market share.

Peculiar Advantages

A. Free Rider
The new entrant can understand the techniques and mistakes made by the first entrant and save expenses on R&D, buyer education, and infrastructure development. For example, private airlines use the already built public infrastructure like parking lots, control system, etc to operate their businesses, thus acting as a free rider.

B. Overcoming Market Uncertainty
The product introduced by second entrants will not be new to the audience, hence potential response can be predicted, lowering the risk factor. Apple understood the smartphone market after studying Blackberry phones. They studied the need of the audience, targeted the gap and then dominated the market by squashing Blackberry.

C. Altercate Than Create
T S Eliot said “Good artists borrow, great artists steal”. Among businesses, this saves the entire research cycle cost. Apple never invented MP3 players. They just changed the way music can be heard through the iPods.

D. Steal The Market Share, Later Make Them Obsolete
It is what Jio did in India’s telecom industry, Smartphones did to Motorola and Nokia, Computers did to Typewriters and Digital Cameras did to Kodak are all examples of second mover companies. They entered, disrupted the market and not just trashed but replaced their competitors.

The Trick
However, to be successful as a second mover, the key is to be quick, to be agile! And more than anything, to attack on the gap established. Make an offering that was missed by the previous players. Instead of finding a solution to a new problem, look for the existing problem and try to find its solution.

Curiopedia
  • Book Stacks Unlimited was an American online bookstore created by Charles M. Stack in 1992, three years before Jeff Bezos launched Amazon.com. It moved to the Internet as Books.com in 1994, eventually attracting a half million visitors each month.
  • Fast Second: How Smart Companies Bypass Radical Innovation to Enter and Dominate New Markets is a book written by Paul Geroski and Constantinos Markides in 2005. According to the authors, a “fast second company” lets other companies innovate and experiment to create new markets. Then the fast second enters the market just as the dominant design is about to emerge, helps create the dominant design, and uses its size to capture the market.
  • In journalism, a scoop or exclusive is an item of news reported by one journalist or news organization before others, and of exceptional originality, importance, surprise, excitement, or secrecy. The word scoop is of American origin, first documented in 1874. As a verb, meaning to beat someone in reporting first, it is first recorded in 1884.

In a Measure to Boost Economy, Govt Loosens Shackles of India Inc.

India Inc. soared as the Union Cabinet on March 4 gave its green signal to 72 amendments in the Companies Act, 2013 which will decriminalize a number of offenses and moderate the penalty regime to boost ease of doing business.

Crux of the Matter

Run India Inc. Run
A Bill to amend the Act will be moved in Parliament during the ongoing session. Punishments for 11 compoundable offenses will be replaced with fines and imprisonment will be removed. The move has come at a time when the Indian economy is struggling to perform at its best due to reduced demands and a global slowdown.

In order to make the act more humane, the Finance Minister Sitharaman said that a ministerial panel has looked into different sections in the Companies Act that cause businesses worries. She also explained the proposed changes which will recategorize 23 offenses of 66 compoundable offenses in the Act.

Amongst other decisions announced after the cabinet meeting includes providing an exemption from the requirement of having a CSR committee for companies that have an obligation to spend  Rs.50 lakhs or less.

Cabinet also approved Non-Residents Indians to invest up to 100% from earlier 49% in disinvestment-bound Air India.

PSB Mergers
Cabinet also approved a mega-merger of 10 Public Sector Banks into 4 w.e.f April 1, 2020.

Oriental Bank and United Bank of India will be merged into Punjab National Bank. Indian Bank will be merged with Allahabad Bank; Andhra Bank and Corporation Bank will be merged into Union Bank of India; Syndicate Bank will be merged into Canara Bank. 

The Finance Minister said the amalgamation is to enable the creation of digitally-driven consolidated banks with global heft and business synergies.

Curiopedia

The Companies Act 2013 is an Act on Indian company law which regulates incorporation of a company, responsibilities of a company, directors, dissolution of a company. The Act came into force on 12 September 2013. A new term of “one-person company” was included in this act that will be a private company and with only 98 provisions of the Act notified. A total of another 184 sections came into force from 1 April 2014. The Ministry of Corporate Affairs thereafter published a notification for exempting private companies from the ambit of various sections under the Companies Act. The 2013 legislation has stipulations for increased responsibilities of corporate executives in the IT sector, increasing India’s safeguards against organized cybercrime by allowing CEO’s and CTO’s to be prosecuted in cases of IT failure. More Info

Auditors are the New Watchdog of financial affairs of companies

Auditors work

The Companies (Auditor’s Report) Order, 2020 was released on February 26 by the Corporate Affairs Ministry which now mandates enhanced disclosures by auditors to detect frauds and bring in financial transparency in companies.

Crux of the Matter

The government has widened the scope of auditors as there has been a substantial rise in the number of fraud cases. This decision has been taken after fraud at companies like Infrastructure Leasing and Financial Services Ltd (IL&FS) and Dewan Housing Finance Corp. Ltd (DHFL).

Auditors have now been mandated to record their findings related to potential frauds in companies along with their ability to pay back loan debt. This will be applicable to all companies with sales less than Rs. 10 crores, banks, insurers, NGO’s and proprietorship companies.

Auditors will now also report if term loans were used for the purpose they were taken and look into whistle-blower complaints received by the company as well as concerns raised by outgoing auditors before forming their opinion.

The order states that the auditors are required to file their opinions on if ‘material uncertainty exists as on the date of the audit report that the company is capable of meeting its liabilities existing at the date of the balance sheet as and when they fall due within a period of one year from the balance sheet date’.

With these changes, the government expects to significantly improve the quality of reporting by auditors which will lead to greater transparency and faith in the financial affairs of the companies. This will indirectly also benefit Indian companies to attract FDI.

Curiopedia

Benami Transactions (Prohibition) Act, 1988 is an Act of the Parliament of India that prohibits certain types of financial transactions. The act defines a ‘Benami’ transaction as any transaction in which property is transferred to one person for a consideration paid by another person. Such transactions were a feature of the Indian economy, usually relating to the purchase of property (real estate), and were thought to contribute to the Indian black money problem. The act bans all Benami transactions and gives the government the right to recover property held benami without paying any compensation. The act came into force on 5 September 1988. More Info

Good News from India's Manufacturing Sector Hints at Economic Revival

After a long time, positive news comes in for India’s manufacturing sector as its activity reached an 8-year high in January 2020. The IHS Markit India Manufacturing PMI rose from 52.7 in December 2019 to 55.3 in January 2020.

Crux of the Matter

A survey conducted says that it is due to the sharp rise in new business orders amid a rebound in demand conditions that led to the rise in production and hiring activity.

Pollyanna de Lima, Principal Economist at IHS Markit said, “Manufacturing sector growth in India continued to strengthen in January, with operating conditions improving at a pace not seen in close to eight years.”

It is the 30th consecutive month that the manufacturing PMI has remained above the 50-point mark. Point above 50 means expansion whereas below that denotes contraction.

The fastest increase in new export orders was recorded since November 2018 as the rise in total sales was supported by strengthening demand from external markets.

Hiring activity also improved in January as firms employed at the fastest rate in nearly 7.5 years.

The survey also showed that there was a slow increase in both input costs and output charges. This survey and other positive forecasts have given hope and optimism in the manufacturing industry.

Curiopedia

Purchasing Managers’ Indexes (PMI) are economic indicators derived from monthly surveys of private sector companies. The three principal producers of PMIs are the Institute for Supply Management (ISM) the Singapore Institute of Purchasing and Materials Management (SIPMM) and the Markit Group.PMI surveys on a monthly basis by polling businesses that represent the makeup of the respective business sector. ISM’s surveys cover all NAICS categories. SIPMM survey covers all manufacturing sectors. The Markit survey covers private sector companies, but not the public sector. More Info

IHS Markit Ltd is a London–based global information provider formed in 2016 with the merger of IHS Inc. and Markit Ltd. One part of this conglomerate originally was a firm that assigns IMO identification numbers for ships, companies and registered owners. It has since grown to incorporate other companies in the information services sector, many dating back to the late 1700s and 1800s. With more than 1400 employees its revenue as of 2017 stands at US$3.6 billion. More Info

World Bank Projects 5% Growth Rate For India

In a slight respite to the Indian economy, World Bank in its recently released Global Economic Prospects projected a 5% growth in 2019-20 fiscal which is more likely to recover and reach up to 5.8%.

Crux of the Matter
  • India’s weakness lies in credit from non-banking financing sector which is slowing down the growth.
  • The report also highlighted that the recent stressful geopolitical situations have also contributed to tensions in the economy.
  • The report praised the efforts of the Indian government to eliminate subsidies on LPG.
  • The growth rate of the US also slowed down to 1.8% due to uncertainty. Europe‘s economy also has slipped due to weak industrial activity.
  • The growth rate of Bangladesh has been projected above 7%.
  • World Bank said the growth in South Asia is expected to pick up the pace and reach 6% by 2022.
  • World Bank Group Vice President for Equitable Growth, Finance and Institutions, Ceyla Pazarbasioglu said, “With the growth in emerging and developing economies likely to remain slow, policymakers should seize the opportunity to undertake structural reforms that boost broad-based growth.”.
Curiopedia

The World Bank is an international financial institution that provides loans and grants to the governments of poorer countries for the purpose of pursuing capital projects. It comprises two institutions: the International Bank for Reconstruction and Development, and the International Development Association. he World Bank’s most recent stated goal is the reduction of poverty. As of November 2018, the largest recipients of World Bank loans were India ($859 million in 2018) and China ($370 million in 2018), through loans from IBRD. More Info