WHY CONSUMERS ♥ CAPITEC
(BUT SHOULD YOU BUY THE SHARES?)
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.