Flick through most annual reports on both sides of the Atlantic and you might think that companies don’t know the names of their competitors.
Some, of course, even fail to acknowledge that there is anybody else out there pushing similar goods and services into their market. If you can’t actually be in a monopoly position then you might as well pretend to be, seems to be the thinking. ‘Let’s see if we can’t confuse those pesky investors.’
Luckily, the majority of companies don’t go down that route. No, must of them are much more open, talking about a strange being known as ‘the competition’. Lumping competitors together means that you don’t have to refer to the enemy by name.
Fear of actually naming competitors seems to run high in most reports. Presumably, companies are scared of pointing anyone towards those they spend much of their time trying to outwit. Yet, open discussion of the competitive situation is welcomed by many fund managers and analysts, even though they may have their own idea of market share to hand. ‘It shows a willingness to discuss what’s going on in the real world,’ suggests a New York-based analyst at a leading securities house. ‘It also gives an idea of where management is focused.’
Indeed, such analysis is even more widely welcomed by retail investors who may not have the market models available to the professional investment community.
Putting it in Context ‘
We’re just trying to give people perspective,’ says Margaret Moore, vice president of IR at PepsiCo Inc, which clearly names many of its competitors and gives a breakdown of market share in its annual. That perspective includes admitting it’s in the number two slot in the worldwide soft drink industry behind Coca-Cola. No great shakes there, but think of the number of other leading brand companies which don’t dare mention their greatest rival.
Moore says that it’s fairly pointless discussing where the company stands in its markets without actually giving the annual report readers the nitty-gritty of names and market share. And she insists that every number PepsiCo uses can be traced back via an audit trail to an independent source.
Not all companies are as bold as PepsiCo, although an increasing number will name the opposition when they’re actually at or near the top of a specific market. Take this from Reuters’ 1996 annual: ‘Reuters is a market leader in most of these sectors. Its principal competitors are Bloomberg and Dow Jones Markets. They offer differing levels of geographic spread and market coverage.’ Ameritech gives a brief overview of its ‘competitors and allies’ across its key business lines but adds in some detail of what it sees as the growth drivers in its markets.
Sara Lee Corp takes a more coy approach, referring to its main competitors as A and B in its main products. But there is little reference within the text as to how they may have impinged upon its market share. Advertising giant WPP goes to great length on its competitive positioning but also largely shies away from naming names.
Others are happy to refer to competitors by name when comparing measures such as total shareholder return or market capitalization – even this remains novel – yet fail to refer to them in discussion of market share. In the UK, Boots and Abbey National are among those that take this route while in the US, Bankers Trust produces a bar chart to compare average ROE with its peer group.
Voicing Doubts
Although many fund managers and analysts seem to welcome an open discussion of competition in the report (names included), some doubt whether it can offer them anything extra. Not because of the intrinsic value of more disclosure, but because of doubts of the motives of companies.
One London-based banking analyst believes that discussion of the competition is more appropriately kept to one-on-one meetings. She adds that analysts are probably in a better position to assess the overall market than rely on the subjective spin presented by individual companies.
The problem is that, even if companies are bold enough to talk openly about their competition, they remain tempted to blow their own trumpet. That’s evidenced by such discussion being more prevalent among those who are leaders in their field.
A leading smaller companies fund manager in London agrees with that point, but argues that clear competitive information does at least show a willingness to openly talk about the issue. And that can be key in the smaller companies market where there may be less analysis available. He adds that companies should not go over the top in discussing competition within the annual. Yes, it can be valuable, but it can also add too much irrelevant information to an already weighty document.
