It is commonly said that competition is getting more intense. Is that true? Yes but not because there are more companies being formed but because the largest players are getting more entrenched.
Based on latest research, companies are less successful compared to the past, there is more concentration in most industries and startup rates are falling. We believe that because of the entrenchment of top companies, smaller companies are facing stronger rivals and it is getting harder to start new companies.
Companies are having a harder time staying successful
Companies are staying in S&P 500 for shorter time spans
There is a decline since 1980s in the average time a company remained on S&P 500 Index. Lifespan of companies is decreasing and among a few other factors, this change can be attributed to increased competition and technological innovation.
Companies are staying shorter time spans as industry leaders
BCG’s analysis below highlights how companies are falling from leadership positions faster compared to the past.
Symptoms of increased competition
Dominant leaders such as Amazon, Apple, Google have entrenched their position in the market. This leads to a more concentrated market. Brookings’ graph below shows that every industry got more concentrated between 1997 and 2012 besides healthcare and education.
Decline in Market Entry Rate
In the US, the firm formation rate has a declining trend. In late 70s, almost 15% of all firms were new firms. In 2015, the entry rate fell to around 8%.
Other observations also confirm this. As seen below on Hamilton Project graph, the start-up rate per industry is rapidly decreasing for each sector. For example, in case of retail, the start-up rate (as a percentage of all firms within the industry) fell from 12% to a little more than 5%.
Companies need to make the best use of technology to survive in these conditions. Here are our articles that contain useful and actionable insights into digital transformation and analytics to help companies chart their way to success:
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