WHY CON­SUMERS ♥ CAPITEC

(BUT SHOULD YOU BUY THE SHARES?)

Finweek English Edition - - FRONT PAGE - JANA MARAIS

this week’s cover story on Capitec got me think­ing on how new en­trants man­age to suc­ceed in in­dus­tries that are dom­i­nated by ma­jor play­ers, who the­o­ret­i­cally have the re­sources to squash ri­vals at the first sniff of com­pe­ti­tion. With the ben­e­fit of hind­sight, it is clear that Capitec spot­ted a very large (and lu­cra­tive) gap in the mar­ket, and man­aged to suc­cess­fully tai­lor its busi­ness model and prod­ucts around that (see page 38). What the mar­ket wants is sim­ple, un­der­stand­able banking prod­ucts at af­ford­able fees; quick and pain­less ser­vice; and branches that op­er­ate at con­ve­nient hours – and that’s what Capitec is giv­ing them.

The ques­tion about com­pet­i­tive­ness has kept busi­ness pro­fes­sors in jobs for many decades. Yet the avail­able an­swers are still not any guar­an­tee for suc­cess, as Michael Porter, ar­guably the world’s best-known pro­fes­sor on the topic, will at­test to. Mon­i­tor Group, the con­sul­tancy he co-founded, ap­plied for bank­ruptcy pro­tec­tion in 2012 and was even­tu­ally bought by Deloitte.

Porter’s sem­i­nal ar­ti­cle on the com­pet­i­tive ad­van­tage of na­tions, pub­lished in the Har­vard Busi­ness Re­view in 1990, may how­ever of­fer some ad­vice for in­vestors who are look­ing for the next small cap that may turn out to be a 300-plus bag­ger.

Firstly, com­pa­nies achieve com­pet­i­tive ad­van­tage through in­no­va­tion – which in­cludes both new tech­nolo­gies and new ways of do­ing things. Don’t fo­cus too much on the sin­gle, ma­jor tech­no­log­i­cal break­throughs – much in­no­va­tion is mun­dane and in­cre­men­tal, Porter said. This in par­tic­u­lar should be en­cour­ag­ing to en­trepreneurs who are spotting un­der­ser­viced gaps in South Africa’s highly con­cen­trated for­mal econ­omy.

The com­pa­nies that will suc­ceed are the ones that doggedly work on im­prov­ing the in­for­ma­tion avail­able to them, and use this to im­prove the way it does busi­ness, Porter said. The chal­lenge is to sus­tain the fo­cus on con­tin­u­ous im­prove­ment and in­no­va­tion, and to build a cul­ture that em­braces on­go­ing change.

Sec­ondly, com­pa­nies are forced to be more com­pet­i­tive if they have strong do­mes­tic ri­vals, ag­gres­sive home-based sup­pli­ers and de­mand­ing lo­cal cus­tomers, ac­cord­ing to Porter. In short, the more com­pet­i­tive a sec­tor, the more likely the com­pa­nies op­er­at­ing in that sec­tor (and its re­lated in­dus­tries) are likely to be com­pet­i­tive. Our fi­nan­cial ser­vices sec­tor con­tin­u­ally ranks among the world’s best in com­pet­i­tive­ness rank­ings, so that may very well be the breed­ing ground for the next Capitec.

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