Comparative advantage in Indian businesses
Let’s say there is an organization A, with 100 people — all of whom specialize in a given skill, say covering news in Politics in various regions. Let’s say there is another organization B, with 100 people — 10 of whom are adept in political journalism, 10 others in covering Sports, 10 in Educational news, 10 in Business and so on. Which organization do you think, would more likely produce quality content in covering Political news?
If you chose B, citing Quantity doesn’t necessarily equate to Quality; think again! Given a scenario, when there are 100 regions to cover and a person each from organization A goes to an assigned region and reports quality content to the head-office, with detailed coverage thanks in part to the time and resources at disposal (with significantly lower opportunity cost); the 10 in organization B have to calculatedly decide and sort their priorities due to lack of time and bandwidth constraints. In this case, organization B would fail to do justice in giving a fuller picture of the political news covering all the 100 regions.
And, so it happens with business. Businesses that invest capital, resources and time in building a niche in a given sector has a comparative and a competitive advantage over businesses that are players in multiple sectors. Let us analyse this claim for a minute with instances from both kinds of businesses then. Shall we?
Swiggy Vs UberEats : UberEats is an online food ordering and delivery branch of Uber. UberEats India, as per reports, heavily uses driver partners from their bike-hailing service, UberMoto, to cater to their food-delivery business. While their suite of meal combos are affordable and delivery fee minimal, their delivery services are not at par with Swiggy. A Quora user, hailing from Koramangala, one of the prime food locales swarming with restaurants in Bengaluru, did a basic pros/cons analysis of his experiences with orders from both UberEats and Swiggy, and had this to say : Swiggy trumps UberEats due to its large delivery network presence, but loses out on few occasions owing to its higher delivery-fee.
The number of driver partners with UberMoto is limited. The drivers have to split their precious driver-hours in between UberMoto services and catering to UberEats’ customers. To meet the surge in demand, they need to have 2X the number of driver partners. UberEats faces resource/liquidity constraints on that front — one of the many reasons it couldn’t scale to the entire city even after 3 years of its launch in the city. Let’s not even talk about Ola Cafe ( a defunct food-catering services with Ola, that shut its operations 1 year post its launch). Olacabs later acquired FoodPanda, and the Biriyani one could purchase at 150 INR is now priced at 300 INR with absolutely zero improvement in ETA to food delivery. Foodpanda was unique in the sense that though they took relatively longer time to deliver, yet were priced reasonably ( before getting acquired by OlaCabs). Swiggy operates on the time value of money ( facilitating Surge Pricing allowing increased profit margins), and has integrated its expedited delivery service to fit into that model.
Rapido Vs. UberMoto:
Rapido is a bike-hailing service, operating predominantly in Bengaluru and Gurgaon. Combating traffic woes in congested cities and addressing last-mile connectivity issues, Rapido claims to have 4000 bikes and 1000 bikes in Bengaluru and Gurgaon, respectively. Let’s take the scenario in Bengaluru alone : UberMoto has discernably gone out of the market — thanks to the rapid expansion of Rapido, who are increasingly adapting and adding new features to boost their adoption. The same argument presented in Swiggy Vs UberEats above, applies here as well. The more you niche you are, the better are you able to solve business challenges against resource constraints. While both faced regulatory challenges when the Government deemed bike-hailing services illegal as it raised concerns about safety of female pillion riders, Rapido quickly rose to the occasion by announcing that the female riders are only assigned to the top 20% rated driver captains.
Not just that, to get more bikers on board, they rolled-out an instant payment mechanism so the drivers get paid immediately after a ride, as opposed to the weekly payout schedules with other cab/bike hailing services. Rapido is an example of how strategic planning process can go beyond incremental improvements to create value innovations.
Also, I am very impressed by the way they have marketed themselves as the service that solves last-mile connectivity issues.
BigBasket Vs Flipkart Grocery : BigBasket is an online grocery delivery marketplace and currently leads the market in grocery delivery business by both revenue-generation and order-volume. Bigbasket’s custom filters helps users easily fetch whatever they are looking for. They invest in their own cold storages/inventories which helps them stock fresh produce. Though Flipkart re-entered the grocery segment, they still don’t seem to have a clear vision/strategy to differentiate themselves with the likes of BigBasket/Grofers/Amazon Now (Amazon Now adds a differentiating factor by expedited delivery of groceries by leveraging their ubiquitous delivery network). It’s been 8 months post Flipkart Grocery’s re-launch into the grocery segment and they’re still sending INR 1 marketing text messages to potential customers signalling that it’ll take more than just aggressive marketing to strongly make a mark in the grocery division.
These examples illustrate that the concept of comparative advantage in businesses helps solve problems and come-up with features that conventional businesses cannot come-up with. Niche businesses create “blue oceans” by value-innovating regularly, and by pivoting their focus on consumer needs and brand-differentiation. They constantly create strategic frameworks on which their businesses thrive against aggressive competition. Why? Because of the vast amount of capital, time and resources that are at disposal helping them focus on the specifics of their business.
