Near or far away from competition? This is where to set up new business

Customers will always prefer places where they can have alternatives and can make choices at will. [Getty Images]

In my first year of university, the entrepreneurship lecturer asked: “What is the better area to locate your milk business, at the corner where other milk shops already exist or where there's none?”

We thought about it a great deal, discussing and reaching a verdict, then asking one of us to represent us in this 'exam'.

“I would have it in the corner which had no shops.”

“Why so?” asked Patrick Machyo, the lecturer.

We helped our colleague explain: you would have less competition in your corner and would, being the dominant force, probably manipulate milk prices and make a killing. That is what a good entrepreneur is all about, isn’t it?

Mr Machyo saw it differently.

That corner where milk shops are lined up could be your most ideal location, he argued. This is the place customers identify with: anyone in town looking for milk will always come down here because they know they will always find some, even in instances where some shops are closed.

You, therefore, will be tapping from an already thriving market, he said.

It is a question pertinent to every business. Where to set up? Away into those areas where you will be a 'monopoly' or right in the heart of stiff competition?

Setting up close to competition could be a masterstroke. To begin with, buyers already accustomed to acquiring their goods and services from a certain area are most likely to keep coming to the same area for their shopping needs, and there they will discover you.

And so is labour. People seeking employment will most possibly throng areas where businesses that fit their skill sets are.

With this skilled and experienced labour readily available and competing highly for an opportunity, you will have an easy time identifying who best fits in your business from the pool.

Training institutions could even set up shops nearby with a focus on producing labour for the available businesses, or industries in such an area.

Remember there are good reasons why businesses set up in this area in their numbers in the first place: they most probably spent considerable time studying demographics and understanding methods of customer attraction, saving you a significant cost of doing so on your own.

In your corner alone, you may have to use extra resources, such as high-level advertisement, to turn customers’ heads to your business even when the allure of so many like businesses located together keeps proving too difficult to ignore.

Customers will always prefer places where they can have alternatives and can make choices at will.

In the corner where everyone else is, the requisite infrastructure to support your business could already be set up, or easy to set up, because every one of your competitors needs that as well.

“Sometimes, it is beneficial to be close to your competitors, especially if the local infrastructure is designed to meet the unique needs of your retail business,” writes real estate company Ellicott Development.

Necessary amenities could also be easy to set up within close proximity when a number of businesses are involved.

If one sets up in an industrial park, for example, they realise that support facilities are also available in the same area, which makes operation easier.

“Industrial parks are planned to cater to the needs of various industries and as such, they ensure that key infrastructure facilities such as electricity, water, natural gas, telecommunications, and transportation are readily available.

"On top of that other support facilities such as banks, post offices, fire protection, and maintenance facilities should be located in the park too,” writes news and blog site Elemens.

“Needless to say the presence of these facilities will make it easier to establish a production base while saving both time and money. All in all, it will ensure that companies can set up shop and start production faster.”

Also, in such areas, and especially industrial parks, the government may provide heavy incentives as a way to encourage more entrepreneurship.

“To encourage companies to move into industrial parks, governments normally ensure that the cost of land is low – which can greatly reduce the initial investment that is required. Aside from that other incentives are often available in terms of tax benefits, preferential rates, and so on,” writes Elemens.

In such areas, there is a likelihood that the businesses interrelate, with some using others’ finished materials as raw products.

These businesses may also go into joint research and could foot bills in cooperation. An example is where materials they all need are being transported to them, where they could share the cost.

Setting up a business next to competitors is also a great opportunity to learn how the market works and practices used by other businesses, especially for nascent companies.

In such a location, a business person will also learn ways in which they can stay ahead of the competition. They will do things differently and attract more customers. This, mostly, is through innovation.

Innovation not only improves the quality of products a business is presenting to its customers but also leads to competitors’ evolution as they also seek to produce better so as not to be left behind. This leads to an improved business environment.

“Healthy competition encourages innovation as businesses try to differentiate themselves. It also breeds more traffic and more business, which is a good thing,” says Ellicott.

It is important to note that while customers are well pleased with businesses in which they find their ideal products, everyone wants to have a choice.

Businesses that provide goods and services they consider special, and high-end in such a way that customers would be willing to travel just to access them, often are comfortable setting away from the competition.

Big companies that will afford the costs of doing independent studies ahead of setting up shop in completely unexplored areas could also fancy keeping away from crowded street corners and the competition.

Others may fear that their mode of operation, products and pricing could be copied by competitors in close proximity and will be happy locating in areas where they do not have to contend with rival businesses.

But locating a business near others that provide the same goods, or services, clearly has numerous advantages, probably the reason Machyo frowned at us and extended his class to well over the two hours the timetable suggested.  

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