Masonry Magazine January 1962 Page. 28
Competition
Here is a subject of vital concern to every Mason Contractor discussed by Mr. Ralph N. Schafer, Assistant Treasurer, Signal Mountain Cement Division, General Portland Cement Co. These comments were presented by Mr. Schafer at the Ninth Annual Convention of the Tennessee MCAA Chapters held at Chattanooga on December 8 and 9.
How many of you have said these words or heard them? Why does so and so (my competitor) bid so low on jobs? So and so got the bid of X job with a price $5,000 under my cost.
My profit for last year was only $1,000. I'd make more money by putting my investment in the bank and working for someone else.
I submitted the low bid on X job but my competitor got the job. He ought to be run off.
So and so, my competitor, keeps lowering the bid on the X job and forces me to lower mine. Doesn't he realize the contractors is just playing one of us against the other. Now neither of us can make a profit on the job.
How did these conditions arise? Why are the questions and statements just mentioned being heard so much more than they have been in many years?
Let's begin on the premise that the main objective of every business is to make as much profit as possible-even though some of you have signs in your place of business stating otherwise.
For many years prior to 1960 there has been expanding construction so that most masonry contractors have been able to expand their revenue and/or profits yearly. Their poorest years have been years when profits remained substantially the same as the year before.
As a result of this stability and adequate profits, many new businesses (or individuals) have entered the field. This is normal. These new entries begin by taking work that the established masonry contractor because of small size, lower profit in relation to other work he can obtain and many other reasons.
Now, suddenly, the volume of commercial work has decreased substantially. There just isn't enough work available to keep all masonry contractors working full crews and maintaining the gross revenues and profits he has been able to sustain for many years.
If in a given area four contractors share equally in $1,000,000 of business, they each have a quarter million in gross revenue and are able to make an adequate profit on this business. But now reduce the business available to $500,000. If each contractor is agressive and equal in all respects, then each one should obtain $125,000 gross revenue and his profits would be reduced by more than half because his fixed costs cannot be reduced as much as sales. But as the total business available in an area is reduced, each contractor tries to retain the same volume he has had in the past. In order to do this he begins lowering his price (and also his profit). His competitor does the same thing.
If any of the four contractors tries to maintain his now profit and price he will eventually have no, or very little business.
Now with profits sharply reduced, the inefficient contractors (and those with inefficient foremen), those with high overhead or fixed costs, the ones without adequate capital having bank or equipment notes on which payments do not decrease, are hard pressed to weather this highly competitive situation, and many will fail, leaving less contractors to divide the existing business among. These same contractors are the ones who of necessity must maintain their volume of business, and it being a case of survival, will not abide by gentlemen's agreements but will do everything possible to maintain the volume of business they must.
We might also note that in these times of stiff competition that larger contractors become interested in smaller jobs and actively solicit work normally performed by the smaller contractor, putting much pressure on the smaller contractors. This does not usually work in reverse.
Before we attempt to determine the remedies for our present situation, let us just attempt to look into the future for a moment because this may be a guide to our present actions.
As we know, the economy follows a cycle which for the past 15 years has not been violent in its ups and downs, with each wave of prosperity or business has been just a little higher than the last so that the long term pattern has been a constant rise with very few setbacks, but several periods of leveling off-breathing spells.
Let's keep in sight also that the cycles for any one particular area do not necessarily follow the pattern for the nation as a whole, but local patterns normally follow or are affected by the national pattern.
Also, the volume, profits and fortunes of any one business do not always follow the pattern for an area.
According to most economists the recession, which has actually been minor, is behind us and at least the year 1962 is supposed to be much improved with increases in commercial contracts let.
Looking further ahead, the "soaring 60's" so long predicted by economists to result from the population explosion has been postponed to 1965 or thereabouts, and it would seem probable that before that time we will more than likely have another so-called recession or leveling off period similar to the one we are in or recovering from.
Thus fluctuations in business volume are normal. During times of high business activity new people enter every.
MASONRY JANUARY,