11/18/08

Entrepreneurial activity and sources of competitiveness

At one metro station in downtown Baltimore is a spot, a mysterious spot, where you are able to update yourself with the latest turns in your favorite TV-series. Of course by assuming that you have favorites on TV and that you have actually missed the latest dramatic turns a day before. Well, no worries, your problems will be solved. In that particular spot you'll find a dude that has the abilities and willingness to provide you visual goodies, dvds - straight from the owen. His distribution channels also reach to the latest movies which gives him a second niche. And you are his one and only business opportunity.

But you are such an uncertain one. Maybe you did see the break-up, deal-gone-bad or that unsolvable crime actually solved before you woke up drooling on your sofa. No doubt you are not that willing to encourage his not-so-legal business venture after all. In addition, maybe you have a deal with Netflix, maybe you have a DVR or you'll have some time to spare at hulu.com. Why you then should pay for couple of dvds???

However, this fellow is maneuvering his venture every day by taking the same risks of getting caught or left without a buck against nation- or even Internet-wide competitors. His venture is under continuously uncertain and unpredictable conditions which is, in addition, rather directly affected by legislation.

For Average-Joe the situation seems odd. The risk compensated return is not that desirable after all. Questions arise:
  • Does he know something about the market the others (we, customers, competitors) do not know?
  • Are the officers of law for some reason on his side or just too busy with other cases of law offending?
  • Hence, does he have some institutional competitive advantage plus entry barrier for new entrants?
  • Or put it in a simply way - Is he just so ignorant about the downside risk and sees only positive outcomes of this venture - even if it would only produce loss for him?

We are not claiming that illegal business activities should be encouraged. Instead we use this real-life case to shed some light on the sources of competitiveness in a really really micro level. What do we then need in order to bring this type of observed case to the general level? Financial statements - the cost structure and profitability of the business. Thus, we would be able to analyze the success of the venture and possible innovation(s) embbeded in it. Similarly, we would able to compare this business activity with general development in that specific industry. In addition, this data would provide groundings for evaluating the predictors of the sources of competitiveness in any industry.

1 comment:

Mikko Pohjola said...
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