When asked what the influencers on our economic markets are, would you likely mention major economic, political or environmental factors? If so, you aren’t alone. Our media sensationalizes news items to ensure our attention for days on end. The technology error that sends ripples through the financial markets, political unrest that results in financial meltdown as people start hoarding not spending, and the environmental disaster that spells the end for communities and companies alike. Anarchy terrifies as we consume our daily bread and dose of global news. As individuals watching these stories of enormous magnitude unfold we are helpless bystanders.
So we tend not to link the way we manage our individual business or government activities with any influence on the wider market. Perhaps you make a brief mental note when an investigation into price rigging or some monopoly cartel hits the news that small pockets of interests do and can conspire to control and impact prices. But few of us in the buy or supply side of business give much thought to how we impact and shape our markets, and the businesses that we trade with. Perhaps if you are in commodities, this is somewhat different. Because you are directly dealing with the raw materials, and are likely to be acutely aware of the direct impact of trades on the price of commodities, and your market.
Surprisingly few of us further downstream consider the impact of our buying decisions. Even as consumer lobby groups are becoming more vocal, and we are starting to see the very real impact of “crowd power”, we as decision makers still tend to ignore our own influence on the market. Few executives discuss the finer aspects of market influence when planning requirements. And yet, the moment you are starting to talk scale, market influence is a given.
So what’s the benefit of being a market influencer?
How far can your influence reach? Let’s be devious for a moment and consider the scenario that your company is a mean lean competitive machine. And you don’t play it nice. Strategic maneuvering can enable you (if you have the buying power) to squeeze supply to such an extent you prohibit your competitors from accessing certain markets. Or by designing particular components of your product to require specialist materials and locking the supply, you can stall potential market competition. Rogue behavior? Perhaps. On the flip side, these tactics illustrate that when trading at scale, you should go beyond the usual “market analysis” to consider how you influence your market. And ascertain what your competitors are up to if they are active in the same markets.
So if we accept that you are a market influencer, what should you be doing or paying attention to? Consider your exposure to market risk. At a basic level, you need to understand what your supply alternatives, and risk mitigation strategies are. From a strategic perspective, consider how your requirements and activities will influence not just the structure of your supply chain, but also potentially the demand within your market and opportunities for innovation. Your demand for particular goods, services, and materials may affect not only the price of the underlying commodities, but also the health of your supplier market. Your decision to put hundreds of $M worth of trades with one supplier, may put a multitude of smaller suppliers out of business. Perhaps this is not of immediate concern, since your strategic supplier is able to meet your scale of requirements. However, an action such as this, will have ignored the situation where perhaps you need competitive pricing, or an alternative source of supply, or even a ramp up in supplies at some future date. You will unwittingly have traded yourself into a corner.
The Unmentionable Conundrum: Market Influence in a Government Context
For those who operate within the government context, analyzing your market influence should really become standard practice within the procurement and supply space. Government buying impacts the local economy significantly. (Lets for the moment leave international trade agreements out of the discussion!) As a government operator you have the power to support, or eradicate trades and even industry sectors. Buying decisions directly impact local businesses. This is a sensitive subject, and is rarely addressed at the point where we engage the market. Yet actively deciding to ignore a reality does not make it any less real.
In the information rich world that we live in, we cannot ignore or hide from the fact that we are all market influencers, whether in groups, or individually. So yes, you are a market influencer. The question really to be answering is, knowing that you are a market influencer, should this change anything about the way you do business?
“It has been said that something as small as the flutter of a butterfly’s wing can ultimately cause a typhoon halfway around the world.”. (The Butterfly Effect, Chaos Theory)