The Virtues of Competition

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Adam Barber
August 31, 2012
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This content is from our archive. Some formatting or links may be broken.
The Virtues of Competition

It’s often assumed that plenty of M&A activity is an inherently healthy market indicator. And, by and large, it’s something that holds true.

However, as the economic activity increases, is it possible to have too much?

There is, after all, a natural limit to how many deals can be done before one company starts to eat up its competition.

And when one business comes to dominate all others, there’s a danger that future market dynamism is lost.

A topical case in point can be found in the commodities sector, where Glencore towers above the pack.

In fact, it looms large to such a significant degree that Citigroup’s managing director once famously commented that, “…Glencore isthe global economy”.

Quite the testimonial.

For those of you unfamiliar with the business, this is the same company that started off as three traders in a flat in a Swiss town back in 1974.

Less than forty years later, Glencore announced first half revenues of $108bn. Impressive stuff.

However, what’s not clear is whether this is a good thing for the wider industry and its associated economy.

Glencore has a virtual monopoly on a number of commodities. For instance, it controls 60% of the world’s zinc trade.

Okay, so it’s not a complete monopoly, but then again, it’s about as close as you’d really be able to get away with these days.

Glencore is already a behemoth, and if its protracted merger with Xstrata (currently being held up by shareholders) were to come off, the financial press would run out of adjectives as they attempt to articulate its sheer size and scale.

The blasé attitude of the CEO, Ivan Glasenberg, towards the merger is emblematic of the power and control he holds. There are, after all, plenty more deals to be done. For the moment, at least.

For many, the commodities trader and the wind energy markets are miles apart. And certainly when it comes to the financial resource and potential firepower, then that certainly holds true.

Nevertheless there are lessons to be learnt, and the saga currently being played out in Switzerland offers an opportunity to reflect and to learn.

Let’s be clear. This is not simply a cautionary tale. Moreover, it’s a chance to assess and extol the virtues of a young, dynamic industry where competition is rife and monopolies are sought but far from certain.

There remain many market niches to be filled. Competition is healthy, and that makes for market innovation and dynamism, rather than one at the mercy of an omnipotent player.

The recent, well-documented struggles of Vestas should serve as a warning that the futures of even the biggest protagonists are not etched in stone. So too should the poor recent financial results from oft-lauded Chinese competitors, including Goldwind, Sinovel and Ming Yang.

Will one company emerge to become the Glencore of wind? Or will, perhaps companies come to dominate only certain parts of the growing supply chain?

For many, either scenario may seem the stuff of pipe dreams. But then again, as those three traders demonstrated, for aspiring souls, the only limit is ambition.

It’s often assumed that plenty of M&A activity is an inherently healthy market indicator. And, by and large, it’s something that holds true.

However, as the economic activity increases, is it possible to have too much?

There is, after all, a natural limit to how many deals can be done before one company starts to eat up its competition.

And when one business comes to dominate all others, there’s a danger that future market dynamism is lost.

A topical case in point can be found in the commodities sector, where Glencore towers above the pack.

In fact, it looms large to such a significant degree that Citigroup’s managing director once famously commented that, “…Glencore isthe global economy”.

Quite the testimonial.

For those of you unfamiliar with the business, this is the same company that started off as three traders in a flat in a Swiss town back in 1974.

Less than forty years later, Glencore announced first half revenues of $108bn. Impressive stuff.

However, what’s not clear is whether this is a good thing for the wider industry and its associated economy.

Glencore has a virtual monopoly on a number of commodities. For instance, it controls 60% of the world’s zinc trade.

Okay, so it’s not a complete monopoly, but then again, it’s about as close as you’d really be able to get away with these days.

Glencore is already a behemoth, and if its protracted merger with Xstrata (currently being held up by shareholders) were to come off, the financial press would run out of adjectives as they attempt to articulate its sheer size and scale.

The blasé attitude of the CEO, Ivan Glasenberg, towards the merger is emblematic of the power and control he holds. There are, after all, plenty more deals to be done. For the moment, at least.

For many, the commodities trader and the wind energy markets are miles apart. And certainly when it comes to the financial resource and potential firepower, then that certainly holds true.

Nevertheless there are lessons to be learnt, and the saga currently being played out in Switzerland offers an opportunity to reflect and to learn.

Let’s be clear. This is not simply a cautionary tale. Moreover, it’s a chance to assess and extol the virtues of a young, dynamic industry where competition is rife and monopolies are sought but far from certain.

There remain many market niches to be filled. Competition is healthy, and that makes for market innovation and dynamism, rather than one at the mercy of an omnipotent player.

The recent, well-documented struggles of Vestas should serve as a warning that the futures of even the biggest protagonists are not etched in stone. So too should the poor recent financial results from oft-lauded Chinese competitors, including Goldwind, Sinovel and Ming Yang.

Will one company emerge to become the Glencore of wind? Or will, perhaps companies come to dominate only certain parts of the growing supply chain?

For many, either scenario may seem the stuff of pipe dreams. But then again, as those three traders demonstrated, for aspiring souls, the only limit is ambition.

It’s often assumed that plenty of M&A activity is an inherently healthy market indicator. And, by and large, it’s something that holds true.

However, as the economic activity increases, is it possible to have too much?

There is, after all, a natural limit to how many deals can be done before one company starts to eat up its competition.

And when one business comes to dominate all others, there’s a danger that future market dynamism is lost.

A topical case in point can be found in the commodities sector, where Glencore towers above the pack.

In fact, it looms large to such a significant degree that Citigroup’s managing director once famously commented that, “…Glencore isthe global economy”.

Quite the testimonial.

For those of you unfamiliar with the business, this is the same company that started off as three traders in a flat in a Swiss town back in 1974.

Less than forty years later, Glencore announced first half revenues of $108bn. Impressive stuff.

However, what’s not clear is whether this is a good thing for the wider industry and its associated economy.

Glencore has a virtual monopoly on a number of commodities. For instance, it controls 60% of the world’s zinc trade.

Okay, so it’s not a complete monopoly, but then again, it’s about as close as you’d really be able to get away with these days.

Glencore is already a behemoth, and if its protracted merger with Xstrata (currently being held up by shareholders) were to come off, the financial press would run out of adjectives as they attempt to articulate its sheer size and scale.

The blasé attitude of the CEO, Ivan Glasenberg, towards the merger is emblematic of the power and control he holds. There are, after all, plenty more deals to be done. For the moment, at least.

For many, the commodities trader and the wind energy markets are miles apart. And certainly when it comes to the financial resource and potential firepower, then that certainly holds true.

Nevertheless there are lessons to be learnt, and the saga currently being played out in Switzerland offers an opportunity to reflect and to learn.

Let’s be clear. This is not simply a cautionary tale. Moreover, it’s a chance to assess and extol the virtues of a young, dynamic industry where competition is rife and monopolies are sought but far from certain.

There remain many market niches to be filled. Competition is healthy, and that makes for market innovation and dynamism, rather than one at the mercy of an omnipotent player.

The recent, well-documented struggles of Vestas should serve as a warning that the futures of even the biggest protagonists are not etched in stone. So too should the poor recent financial results from oft-lauded Chinese competitors, including Goldwind, Sinovel and Ming Yang.

Will one company emerge to become the Glencore of wind? Or will, perhaps companies come to dominate only certain parts of the growing supply chain?

For many, either scenario may seem the stuff of pipe dreams. But then again, as those three traders demonstrated, for aspiring souls, the only limit is ambition.

It’s often assumed that plenty of M&A activity is an inherently healthy market indicator. And, by and large, it’s something that holds true.

However, as the economic activity increases, is it possible to have too much?

There is, after all, a natural limit to how many deals can be done before one company starts to eat up its competition.

And when one business comes to dominate all others, there’s a danger that future market dynamism is lost.

A topical case in point can be found in the commodities sector, where Glencore towers above the pack.

In fact, it looms large to such a significant degree that Citigroup’s managing director once famously commented that, “…Glencore isthe global economy”.

Quite the testimonial.

For those of you unfamiliar with the business, this is the same company that started off as three traders in a flat in a Swiss town back in 1974.

Less than forty years later, Glencore announced first half revenues of $108bn. Impressive stuff.

However, what’s not clear is whether this is a good thing for the wider industry and its associated economy.

Glencore has a virtual monopoly on a number of commodities. For instance, it controls 60% of the world’s zinc trade.

Okay, so it’s not a complete monopoly, but then again, it’s about as close as you’d really be able to get away with these days.

Glencore is already a behemoth, and if its protracted merger with Xstrata (currently being held up by shareholders) were to come off, the financial press would run out of adjectives as they attempt to articulate its sheer size and scale.

The blasé attitude of the CEO, Ivan Glasenberg, towards the merger is emblematic of the power and control he holds. There are, after all, plenty more deals to be done. For the moment, at least.

For many, the commodities trader and the wind energy markets are miles apart. And certainly when it comes to the financial resource and potential firepower, then that certainly holds true.

Nevertheless there are lessons to be learnt, and the saga currently being played out in Switzerland offers an opportunity to reflect and to learn.

Let’s be clear. This is not simply a cautionary tale. Moreover, it’s a chance to assess and extol the virtues of a young, dynamic industry where competition is rife and monopolies are sought but far from certain.

There remain many market niches to be filled. Competition is healthy, and that makes for market innovation and dynamism, rather than one at the mercy of an omnipotent player.

The recent, well-documented struggles of Vestas should serve as a warning that the futures of even the biggest protagonists are not etched in stone. So too should the poor recent financial results from oft-lauded Chinese competitors, including Goldwind, Sinovel and Ming Yang.

Will one company emerge to become the Glencore of wind? Or will, perhaps companies come to dominate only certain parts of the growing supply chain?

For many, either scenario may seem the stuff of pipe dreams. But then again, as those three traders demonstrated, for aspiring souls, the only limit is ambition.

It’s often assumed that plenty of M&A activity is an inherently healthy market indicator. And, by and large, it’s something that holds true.

However, as the economic activity increases, is it possible to have too much?

There is, after all, a natural limit to how many deals can be done before one company starts to eat up its competition.

And when one business comes to dominate all others, there’s a danger that future market dynamism is lost.

A topical case in point can be found in the commodities sector, where Glencore towers above the pack.

In fact, it looms large to such a significant degree that Citigroup’s managing director once famously commented that, “…Glencore isthe global economy”.

Quite the testimonial.

For those of you unfamiliar with the business, this is the same company that started off as three traders in a flat in a Swiss town back in 1974.

Less than forty years later, Glencore announced first half revenues of $108bn. Impressive stuff.

However, what’s not clear is whether this is a good thing for the wider industry and its associated economy.

Glencore has a virtual monopoly on a number of commodities. For instance, it controls 60% of the world’s zinc trade.

Okay, so it’s not a complete monopoly, but then again, it’s about as close as you’d really be able to get away with these days.

Glencore is already a behemoth, and if its protracted merger with Xstrata (currently being held up by shareholders) were to come off, the financial press would run out of adjectives as they attempt to articulate its sheer size and scale.

The blasé attitude of the CEO, Ivan Glasenberg, towards the merger is emblematic of the power and control he holds. There are, after all, plenty more deals to be done. For the moment, at least.

For many, the commodities trader and the wind energy markets are miles apart. And certainly when it comes to the financial resource and potential firepower, then that certainly holds true.

Nevertheless there are lessons to be learnt, and the saga currently being played out in Switzerland offers an opportunity to reflect and to learn.

Let’s be clear. This is not simply a cautionary tale. Moreover, it’s a chance to assess and extol the virtues of a young, dynamic industry where competition is rife and monopolies are sought but far from certain.

There remain many market niches to be filled. Competition is healthy, and that makes for market innovation and dynamism, rather than one at the mercy of an omnipotent player.

The recent, well-documented struggles of Vestas should serve as a warning that the futures of even the biggest protagonists are not etched in stone. So too should the poor recent financial results from oft-lauded Chinese competitors, including Goldwind, Sinovel and Ming Yang.

Will one company emerge to become the Glencore of wind? Or will, perhaps companies come to dominate only certain parts of the growing supply chain?

For many, either scenario may seem the stuff of pipe dreams. But then again, as those three traders demonstrated, for aspiring souls, the only limit is ambition.

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Not a member yet?

Become a member of the 6,500-strong A Word About Wind community today, and gain access to our premium content, exclusive lead generation and investment opportunities.