Geographic constraints can work in a firm’s favor or create a very competitive marketplace.
A few years ago I was CFO of a very successful ready mix and aggregate operation in Las Vegas. Ready mix concrete is fungible. It can be suspended with chemicals but absent those additives the product will harden and be unworkable in less than an hour. Given the nature of concrete you had to be close to the customer’s job site to deliver your product. Competitors from outside the Las Vegas Valley could not get usable product to a job so they had to set up a local operation to compete. The aggregate operation presented the exact opposite situation. The area around Las Vegas has ample sources of sand and rock, so the aggregate market, though protected by the cost of hauling long distances, was very competitive. Prices reflected the abundant supply. Compare that situation to the Los Angeles area, where environmental constraints, a lack of supply and the high cost of trucking causes prices for the same materials to be double the Las Vegas prices.
Fine, but you don’t sell rocks.
When a business is faced with geographic constraints it has choices. It can look for ways to expand outside of the immediate area, either by “green fielding” in a new market or acquiring a competitor in your target market. This holds true for selling and for sourcing. You can look for alternative suppliers when there is a dominate firm in your market, but trucking may be an issue. You can also encourage competition in your market among suppliers, but be careful not to alienate your principal source of goods. Also know that adding a remote location can tax your employee base and create cultural strains.
Likewise, be on guard for competitors who want to enter your local market, changing the dynamics of supply and pricing. We are all familiar with the efforts on foreign based automotive firms on the US manufacturers over the last few decades. Know who has the ability and savvy to penetrate your market and work to build deep relationships with your customers. You may have to compete on price but loyal customers are more likely to want you to be comparable so they can continue to source from you.
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