Formation and Development of Modern Market Structures

Aug 3, 2018 in Exploratory

It is evident that the behavior of each enterprise is affected by the nature and the type of market in which it operates. Each type of market depends on the product, the number of enterprises (firms), the presence or absence of restrictions on entry into the sector and out of it, the availability of information on prices, innovation, etc. There are the following basic types of markets or market structures: pure (perfect) competition, monopoly, monopolistic competition, and oligopoly (Tirole 1987).

Market structure can be defined as the type of structure of the market, key features of which are: the number of sellers and buyers, the nature of the product, the conditions of entry and exit from the market, awareness and mobility of market agents; it may also include features such as the cost structure, the level of vertical integration, and conglomeration. Changes taking place in the global economy in recent decades largely expanded the understanding of the modern role of the structure of organizations and markets in a changing competitive environment. Factors such as globalization and internationalization, increasing competition and focus on the end user as well as the development of information and communication technologies and e-commerce surely affected the modern market structure, including the field of supply chain management.

At the present stage of development when we observe globalization and integration of economic activities in the network and partnership, business and markets are no longer limited by geographical borders; on the contrary, they are linked in complex global and inter-organizational networks. All these changes have affected the way in which the company operates: new organizational models aroused to cope with the new business environment. Restructuring of companies and the market is becoming part of the global process of change affecting the production, distribution, communication, technology, competition, and cooperation (Niederauer 2010).

Complexity of the international business environment forces companies working in the field of supply chain management to form reciprocal agreements with suppliers, customers, and competitors. With these agreements, companies create complex business relationships which are becoming an integral part of the process of formation and development of the market. Mergers, joint ventures, informal mutual agreements, short-term operational, and long-term strategic alliances as a form of strategic behavior of companies are a feature of modern market institutions in the field of supply chain management and require a detailed study in terms of understanding the patterns and founding forecasts of their further development.

Market for integrated services for supply chain management can be structured according to the following criteria: the range of services, integration of the supply chain network, and the availability of assets. On this basis, in the market, there be identified such subjects as logistics consulting company, SCM-IT-service providers (suppliers of software for supply chain management), and the actual provider of integrated services for supply chain management. Since the modern range of transport and warehousing services is increasingly supplemented by management and strategic objectives, the steady trend of cooperation formed intermediates (sub-providers) and the development of integrated logistics providers (Wadhwa 2009).

In the developed countries, exposure to these factors and conditions as the internationalization and globalization, information and communication technology and e-commerce, focus on the end user, increase of market competition, and outsourcing of market and economy have evolved.

Services in the field of supply chain management are becoming more popular on the market today, as there is a concentration of companies of their core competencies. The globalization of markets and the increasing competition between them are pushing companies to outsource non-core functions. Thus the development of information and communication technologies provides inter alia control over the implementation of transport and storage services including real-time, thereby reducing the risks of transfer of logistics functions to outsourcing.

According to various theoretical concepts, the following classification of leading service providers can be identified:

  1. transport companies, shipping companies, and companies operating in the field of contract logistics;
  2. 2PL, 3PL, 4PL providers (KPMG 2000);
  3. providers of individual, complex, and systemic logistics services (Gudehus & Kotzab 2009).

Experience shows that in practice, there is a mixture of these concepts and classifications.

Strategic behavior of suppliers of integrated services is important from the point of view of the growing demands for the range of services, geographical coverage, and the adaptive capacity of logistics providers. Service providers on supply chain management have to systematically re-estimate their role in business of customers and clearly position themselves in the market. This can be done through a variety of models that are designed for services field ranging from classic models to models based on resources and competencies (Campbell & Hopenhayn 2005).

As already mentioned above, the market of services for supply chain management is developing rapidly, and the services themselves become over time more complex. This leads to the emergence on the market of various forms of strategic behavior of companies that provide services of supply chain management. One of the important forms of strategic behavior is creating partnership. Such cooperation can be expressed in the form of joint venture relationships within outsourcing, joint research or technology transfer.

We can analyze the different types of partnerships. One of the most common types in the market for supply chain management is strategic alliances. Globalization, the pace of technological development and innovation, and the increasing high cost of related research and development force to form alliances and make them important in terms of strategy (Aghion, eds. 2005).

For example, in Europe, the main reasons for the creation of horizontal alliances are as follows: increasing and strengthening of the geographic network, penetration into new markets of services, the penetration into new geographic markets, mainly outside Europe. In support of the importance and prevalence of horizontal and vertical strategic alliances as a form of strategic behavior of logistics companies in the market for supply chain management, we systematized data illustrating the process of building alliances in the European market (see Table 1).

Table 1

Europe's largest vertical alliances in the supply chain (Boot 2009)

T&B and Carrefour

T & B has strengthened its position in Europe by extending the contract with Carrefour in order to get a distribution center for large stores in Spain.

TNT Logistics and Arvil

Organized a joint venture, whereby TNT became the exclusive provider of FIAT.

Exel Logistics and BIC

UK

Consolidated their agreements to supply chain management when Exel took control over the distribution in Ireland and the UK instead of BIC.

TDG ? Arjo Wiggins

Formed an alliance based on the interstate contract in order to meet the increase in the number of orders in Europe.

Norbert Dentressangle and  Hewlett–Packard (HP)

Signed a partnership agreement for warehousing and re-manufacturing services.

T&B and Henkel

Signed a seven-year contract, according to which, T & B will distribute finished products in Poland, which strengthened the position of T & B in Central and Eastern Europe.

Another common form of strategic behavior of companies in the market for supply chain management strategies is the M & A, which is a consequence of the development and consolidation of the market.

The main factors determining the demand for integrated services in supply chain management are the dynamics of the world economy and international trade, globalization and the complication of cargo delivery schemes, the need to optimize the costs of transportation, storage and distribution of goods (Hertz & Mattson 2004).

Factors that influence the formation of supply and demand in the global market for supply chain management are presented in Table 2.

Table 2

Factors shaping the supply and demand in the market of integrated services on Supply Chain Management

Factors affecting the formation of demand

Factors affecting the formation of supply

Economic globalization and the expansion of trade

Privatization of formerly state communications and transport sectors

Globalization freight increase length of transport routes complicating the delivery schemes

Orientation to meet needs in integrated supply chain in the “just-in-period “ (just-in-time, JIT), in accordance with Requirements Planning production capacity (Capacity Requirement Planning, CRP)

The increase in demand for new communication and integrated decisions

Personification of the development of service economy, the need for rapid response to customer needs, the growth of competition

The emergence of new transport logistics market, the formation of new packages, new types of competition

Need to reduce the technological and production cycles, the appearance of the effect of changing traffic structure

Concentration on the core business and outsourcing of non-core

Lengthening and increasing complexity of supply chains, environmental issues, the desire to “Zero waste” way of managing

The emergence of new patterns of interaction of large and small companies, multistage system subcontract

The paper analyzed the development of the American and European market of integrated services for supply chain management from the perspective of the existing hypothesis that over time, mergers and acquisitions but not strategic alliances will increasingly be used as a form of coordination of interdependent resources in the industry, characterized by collective competition, Thus it s possible to make the following conclusion: mergers and acquisitions are a real paradigm of strategic behavior of companies, not only in the developing markets of transport and storage services, but also in the developed market for supply chain management, which can also be applied for other segments of today market of services.

Related essays