In honor of Earth Day, and as I’ve been watching the Netflix series, Our Planet, it seems appropriate that we weigh in on the competitive forces that affect even altruistic efforts like recycling.
While consumer recycling collection varies from city to city around the country, the uncertainty of markets for our refuse now adds a new wrinkle to this complex business. That’s because China – once the largest importers of U.S. post-consumer materials – has decided to stop taking most forms of our plastic waste.
The two critical competitive forces in play here are Customer Bargaining Power and Supplier Bargaining Power. Here’s our take on how these forces impact the recycling industry. We’re interested to know yours.
1 Customer Bargaining Power
We don’t want to think of our customers as adversaries, but the customer has a right to change its mind. The customer can find a better or cheaper supplier, or decide it just doesn’t want what you have to sell anymore.
When facing a “better” or “cheaper” competitor, the initial reaction may be to compete on price. Before lowering price, though, we suggest a little digging to find out what your customers need to make sure your product is “preferred” or “demanded.” You may be able to make other adjustments that keep prices in line with your profit goals and keeps your customers satisfied.
Unfortunately, the primary customer for our recycled materials has opted for the latter – it has decided it does not want what we have to sell anymore. We won’t get into the reasons for China’s decision and the particulars about which materials the country will take and which materials it won’t; the point here is the competitive disadvantage that U.S. producers have been placed in by relying on a sole buyer.
2 Supplier Bargaining Power
In a way, China is also a supplier to the U.S. recycling industry. After all, China is essentially providing a service by taking our recycled materials and turning it into some other consumer good.
A supplier can threaten a business if, for example, it raises its prices or goes out of business. In this case, the “supplier” has done both. The “price” to take our recycled waste is now incalculable – in real dollars and the cost to the environment.
Further, at the end of the day, the supplier who provided a critical service has gone out of the business of taking and re-making our waste.
The odd supplier-customer relationship that is the U.S.-China recycling business has left us holding the proverbial “bag” of garbage. This odd relationship serves as clear examples of two often overlooked competitive threats from customers and suppliers that can cripple any business.
Whether we look at the U.S. recycling business from the perspective of a maker or a taker, the very hard lesson is lack of foresight – putting all of our eggs in one basket. The good news, however, is that these losses create new opportunities for innovation, alternative materials and technologies, and perhaps a bright new (and profitable) idea for a fresh solution to bring to market.
A word of caution to whoever takes up the challenge: be sure to build redundancies into your operation that you can leverage in the event you face a similar threat from a customer, supplier or X-The Unknown.
Happy Earth Day!