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In a war, the wise general will often manage to take the high ground in order to gain a superior position against the enemy. By gaining the advantage of gravity, such a distinction can often be enough to outperform an enemy force. The same concept can be applied to companies that can maintain a comparative advantage against their competition. The following are a three characteristics that often provide a superior advantage to competing companies:

  • Being the first to market. Companies that penetrate a new market first often retain the advantage as being the "go-to" brand by association. The ability to establish the best position in the market is often the easiest way to retain consumer loyalty. Amazon (NASDAQ:AMZN) is an excellent example of this. By forming the first comprehensive online store capable of scaling up capacity, Amazon has thus become a household name that is often associated to shopping on the Internet. With an established infrastructure network, the company’s able to outship a vast variety of goods to a large population with a very quick turnaround time.
  • Consolidating faster than your competition. The ability to bring together the integrated parts of a market faster than the competition allows for a company to undercut its pricing while offering a greater service capacity for the consumer. This was true for defense titan Northrup Grumman (NYSE:NOC). Over its long history, the company successfully integrated “nearly 20 marquee companies into an enterprise that covers the entire battlespace spectrum” according to the company’s website. Their ability to compete for large scale government contracts in almost every sector of military need has left this company in a top market position that would be difficult to undermine by any competitor.
  • Restricting access to the market. Microsoft (NASDAQ:MSFT) stands as a testament to this phenomenon in the modern age. By being the first to license an effective operating system on a large scale, Microsoft was able to retain control of the market by locking in advantageous relationships that shipped their product along with the computing hardware.

As China begins to grow into a maturing economy, there are many developing companies that can be found that have similar advantages in their respective industries. The following are three examples of companies that may be using similar traits as they define their market niches:

  • Being the first to market. Baidu (NASDAQ:BIDU) is already a giant in its own industry and yet that industry is just beginning to take off. Baidu’s first-to-market advantage has made it the default online search engine in compliance with government censorship and regulation. While challengers may arise, as this article demonstrates, Baidu is already becoming the household name in regards to “search” in China.
  • Consolidating faster than your competition. China Direct Industries, Inc (OTCPK:CDII) is a US- based holdings company that has quickly formed a mini-conglomerate of magnesium producers allowing it to solidify a top tier position in the market. With access to capital as a public company for further growth, the company is primed to take advantage of a growing market trend. As car manufacturers in particular move towards ever lighter materials in order to meet growing mpg requirements, magnesium industry appears primed for long term growth.
  • Restricting access to the market. China Yida Holding, Co (NASDAQ:CNYD) is a media/tourism company that has gained the development rights to several key tourist locations in China including a World Cultural Heritage site, a Global Geopark, and a National Park. With the virtual pricing control and a media arm to advertise its locations, China Yida’s development and management rights give it the ability to essentially shut out the competition from this unique market.
Source: Finding Comparative Advantages In Chinese Companies