It is not uncommon to hear of companies lamenting the unsustainable level of competition together with rapidly rising costs and an eroding bottom line. Yet they continue to operate in very much the same manner, despite remaining dangerously exposed to the elements.

As competitive pressures increasingly take their toll on the performance of companies, it is becoming ever more challenging to know where to place one’s bets in terms of market positioning and identify the right set-up and strategic response.

Too many companies are inward oriented and tend to focus on what is static, on what is black and white, when in practice, they are operating in a highly volatile environment and are compelled to deal with significant head wind that persists in varying forms and directions.

This is placing mounting pressure on revisiting business models with a view to strengthening operational efficiency levels, leaning towards the need for growing transformation, along with the adoption of a more strategic outreach, which looks beyond short-term pressures.

The response must be that of strengthening corporate structures while better managing new opportunities and mitigating new types of risk. And even if structures are sometimes being reshaped to fit changing circumstances, no matter how good one’s present-day set-up may be, one needs to keep reinventing it. The pretext being that innovation is about staying updated and relevant.  It is no longer a matter of choice, but a matter of necessity.

When one considers the excessively fragmented size of certain sectors which operate in a limited domestic market, and the vulnerability of those companies which remain under-utilized or under-resourced, rendering them highly uncompetitive, would corporate restructuring or alliance seem like a logical consideration? But are companies ready to break away from their traditional ways and view competitors as potential boardroom partners? Or very crudely put, especially in the case of those vulnerably exposed companies, are they only willing to ‘pray to survive’ or ready to ‘prey to prosper’?

Circumstantial evidence in some sectors amply shows the need for such directional thinking. Yet, a quick glance at the Malta Competition Office website will show that there is not much activity with respect to such concentrations. And out of the listed notifications, the majority relate to acquisitions, with hardly any mergers.

Mergers and acquisitions may be the best and quickest strategic methods to confront competitive pressures

Moving beyond our comfort zones, by venturing into some serious blue-sky thinking is what is needed.  As desirable as it may be for some companies who visualize their potential growth strategy, more often, these ambitions simply remain conceptual considerations and not established targets within a well-articulated business plan.

Mergers and acquisitions (M&As) should be considered as one of the best and quickest strategic methods to confront competitive pressures. Globally, they are growingly becoming a strategy of choice for companies attempting to create added value and competitive advantage.

Whereas companies may have a tendency of pursuing M&As only when in dire straits or require complementing assets, today this sort of activity is invariably being considered from a much broader perspective.

Companies combining forces can expand markets, gain economies of scale together with improved overall competitiveness. Benefits from combining the activities of different companies may range from the further development of new or existing products / services and the synergising of resources such as through the combination of their respective workforces along with improved employment opportunities. Likewise, with respect to improved efficiencies in their operational activities and general overheads.

Basically, the objective of M&A transactions is that of creating a company that is both larger and more efficient than the two operating on the market previously. However, in pursuit of this strategy, it must be noted that apart from purely financial and commercial considerations, organizational culture is one factor identified as an important catalyst for M&A success. This, incorporating considerations, such as boardroom politics, level of governance, style of management, any family influence and the company’s sense of purpose.

Whether considering a single or combined ‘build or buy’ scalable business model, it is not simply about seeking to outpace competitors in terms of size, speed, price, logistics or service, but it is also about changing the game by working differently. In other words, it is more about tact and less about noise. It is about seeking innovative and smarter ways to differentiate and not simply replicate mainstream thinking.

Having real ambitions of strengthening and scaling-up one’s business requires bold decisions. Decisions that are conditioned on the ability to see opportunity when others may be seeking refuge, of having the conviction to venture beyond familiarity when others hold onto traditional ground, of having the audacity to zig when most others zag.

Of course, market consolidation may give rise to some concern of antitrust, but equally, consolidation may be what is necessary to have some companies achieve a sustainable competitive offering. Essentially, so long as the intentions are legitimate, they should be actively pursued.

This requires a paradigm shift in strategic thinking for companies to ultimately recognize the value in seeking some form of concentration. Nevertheless, the Competition Office, which apart from, of course, using all its power to scrutinize such notifications, will need to be considerate of the compelling reasons and circumstances behind the need for more of such transactions. Even the government should consider policies and measures that encourage M&As.

It is evident that no company can overly hold on to a survival modus operandi or rely on yesterday’s solutions for yesterday’s problems. Today’s realities are what they are and need to be overcome and no longer overlooked. This is a fundamental prerequisite in establishing future proof companies.

Adopting a forward-looking mindset would be a good start in challenging our traditional boundaries to hopefully ensure we build more competitive and resilient companies capable of successfully riding the tides of today, and more so of tomorrow.